nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒12‒17
ninety-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary policy communication shocks and the macroeconomy By Goodhead, Robert; Kolb, Benedikt
  2. The Firm Dynamics of Business Cycles By Joao Ayres; Gajendran Raveendranathan
  3. Quantitative or Qualitative Forward Guidance: Does it Matter? By Gunda-Alexandra Detmers; Özer Karagedikli; Richhild Moessner
  4. Monetary Theory and Policy: The Debate Revisited By Jean-Luc Gaffard
  5. A Second Thought on Estimating Expansionary Fiscal Policy Effects in the U.S. By JIA, BIJIE
  6. Hétérogénéité des agents, interconnexions financières et politique monétaire : une approche non conventionnelle By Jean-Luc Gaffard; Mauro Napoletano
  7. Unvealing Monetary Policy Transmission on Inflation Targeting Economies: The Wealth-Consumption Channel By Juan Andres Espinosa Torres; Sebastian Sanin Restrepo; Sebastian Sanin-Restrepo
  8. Fiscal Constraints in the Financial System Stability Framework for Indonesian Data By Kindy R. Sjahrir
  9. A Monetary Model of Bilateral Over-the-Counter Markets By Ricardo Lagos; Shengxing Zhang
  10. International Food Commodity Prices and Missing (Dis)Inflation in the Euro Area By Gert Peersman
  11. Asymmetric effects of monetary policy in regional housing markets By Knut Are Aastveit; André K. Anundsen
  12. Shock transmission and the interaction of financial and hiring frictions By Millard, Stephen; Varadi, Alexandra; Yashiv, Eran
  13. Fan charts around GDP projections based on probit models of downturn risk By David Turner; Thomas Chalaux; Hermes Morgavi
  14. Intangible Capital and the Rise in Wage and Hours Volatility By Mitra, Shalini
  15. Can GDP measurement be further improved? Data revision and reconciliation By Jan P.A.M. Jacobs; Samad Sarferaz; Jan-Egbert Sturm; Simon van Norden
  16. Forward Guidance and the Role of Central Bank Credibility By Gavin Goy; Cars Homme; Kostas Mavromatis
  17. Collateral Booms and Information Depletion By Asriyan, Vladimir; Laeven, Luc; Martín, Alberto
  18. Uncertainty Shocks and Firm Creation: Search and Monitoring in the Credit Market By Thomas Brand; Marlène Isoré; Fabien Tripier
  19. Should the Fed regularly evaluate its monetary policy framework? By Fuhrer, Jeffrey C.; Olivei, Giovanni P.; Rosengren, Eric S.; Tootell, Geoffrey M. B.
  20. Monetary Independence and Rollover Crises By Bianchi, Javier; Mondragon, Jorge
  21. How do expectations about the macroeconomy affect personal expectations and behavior? By Roth, Christopher; Wohlfart, Johannes
  22. The Forecasting Performance of Dynamic Factor Models with Vintage Data By Luca Di Bonaventura; Mario Forni; Francesco Pattarin
  23. Intrinsic expectations persistence: evidence from professional and household survey expectations By Fuhrer, Jeffrey C.
  24. Pass-through du taux d’intérêt au Maroc : Enseignements à partir de l’enquête trimestrielle sur les taux débiteurs By Bennouna , Hicham
  25. The Labor Share, Capital-Labor Substitution, and Factor Augmenting Technologies By Naohisa Hirakata; Yasutaka Koike
  26. The dollar during the global recession: US monetary policy and the exorbitant duty By Stavrakeva, Vania; Tang, Jenny
  27. Macroeconomic effects of bank capital regulation By Eickmeier, Sandra; Kolb, Benedikt; Prieto, Esteban
  28. Regional Output Growth in the United Kingdom: More Timely and Higher Frequency Estimates, 1970-2017 By Gary Koop; Stuart McIntyre; James Mitchell; Aubrey Poon
  29. Keeping track of global trade in real time By Jaime Martinez-Martin; Elena Rusticelli
  30. New Risk Sharing Channels in OECD Countries: a Heterogeneous Panel VAR By Asdrubali, Pierfederico; Kim, Soyoung; Pericoli, Filippo; Poncela, Pilar
  31. Deflation Forces and Inequality By Rod Tyers; Yixiao Zhou
  32. The Digital Economy, New Products and Consumer Welfare By W. Erwin Diewert; Kevin J. Fox; Paul Schreyer
  33. An Analysis of Puerto Rico's Debt Relief Needs to Restore Debt Sustainability By Pablo A. Gluzmann; Martin M. Guzman; Joseph E. Stiglitz
  34. Assessing inflation expectations anchoring for heterogeneous agents: analysts, businesses and trade unions By Ken Miyajima; James Yetman
  35. Redistribution from the Cradle to the Grave: A Unified Approach to Heterogeneity in Age, Income and Wealth By Pierre Emmanuel Weil
  36. Cyclical and structural variation in resource allocation: evidence for Europe By Bartelsman, Eric; Lopez-Garcia, Paloma; Presidente, Giorgio
  37. Sovereign Bail-Outs and Fiscal Rules in a Banking Union By Marattin, Luigi; Meraglia, Simone; Minetti, Raoul
  38. The Paper Money of Colonial North Carolina, 1712–74: Reconstructing the Evidence By Cory Cutsail; Farley Grubb
  39. Unemployment and Development By Ying Feng; David Lagakos; James E. Rauch
  40. New European Banking Governance and Crisis of Democracy: Insights from the European post-socialist periphery By Piroska, Dóra; Podvršič, Ana
  41. Examining the Sources of Excess Return Predictability: Stochastic Volatility or Market Inefficiency? By Lansing, Kevin J.; LeRoy, Stephen F.; Ma, Jun
  42. Functional distribution and wage inequality in recent Kaleckian growth models By Hein, Eckhard; Prante, Franz
  43. Uneven gains: the macroeconomic and welfare effects of the business tax reform By Oliver Pardo
  44. Economic Policy Uncertainty in Turkey By Jirasavetakul, La-Bhus Fah; Spilimbergo, Antonio
  45. Measuring Technological Innovation over the Long Run By Bryan Kelly; Dimitris Papanikolaou; Amit Seru; Matt Taddy
  46. Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia By Emmanuel Farhi; François Gourio
  47. Lost Inflation? By Rod Tyers; Yixiao Zhou
  48. Stigma or Cushion? IMF Programs and Sovereign Creditworthiness By Kai Gehring; Valentin F. Lang
  49. Short-time work in the Great Recession: firm-level evidence from 20 EU countries By Lydon, Reamonn; Mathä, Thomas Y.; Millard, Stephen
  50. Financial literacy externalities By Chaliasos, Michael; Jansson, Thomas; Karabulut, Yigitcan
  51. The Micro-Level Anatomy of the Labor Share Decline By Matthias Kehrig; Nicolas Vincent
  52. General Distorted Input Ratios in Vertical Relationships By Martin Peitz; Dongsoo Shin
  53. The impact of Cohesion Policy 2007-2015 in EU regions: Simulations with the RHOMOLO Interregional Dynamic General Equilibrium Model By Francesco Di Comite; Patrizio Lecca; Philippe Monfort; Damiaan Persyn; Violeta Piculescu
  54. General Equilibrium Feedback Regarding the Employment Effects of Labor Taxes By Minchul Yum
  55. The third pillar of the Investment Plan for Europe: The RHOMOLO assessment By Martin Christensen; Andrea Conte; Filippo Di Pietro; Patrizio Lecca; Giovanni Mandras; Simone Salotti
  56. Business cycle survey and B2B buying decision By Lucie Povolná
  57. Where's the Money‽ An Investigation into the Whereabouts and Uses of Australian Banknotes By Richard Finlay; Andrew Staib; Max Wakefield
  58. Substitution Bias in Multilateral Methods for CPI Construction using Scanner Data By W. Erwin Diewert; Kevin J. Fox
  59. Adjustment dynamics and business cycle heterogeneity in the EMU: Evidence from estimated DSGE models By Giovannini, Massimo; Hohberger, Stefan; Ratto, Marco; Vogel, Lukas
  60. On the “utilisation controversy”: a comment By Santiago J. Gahn; Alejandro González
  61. What Happened to CIT Collection? Solving the Rates-Revenues Puzzle By Nicodeme Gaetan; Caiumi Antonella; Majewski Ina
  62. Vacancy Durations and Entry Wages: Evidence from Linked Vacancy-Employer-Employee Data By Andreas Kettemann; Andreas I. Mueller; Josef Zweimüller
  63. MPC heterogeneity and household balance sheets By Andreas Fagereng; Martin B. Holm; Gisle J. Natvik
  64. A multinacionális vállalatok szerepe a gazdaságban és a munkaerőpiacon By Vértesy, László
  65. "Investment Decisions under Uncertainty" By Sunanda Sen
  66. How repayments manipulate our perceptions about loan dynamics after a boom By Adalid, Ramón; Falagiarda, Matteo
  67. A Simple Model of Growth Slowdown By Katsuyuki Shibayama
  68. The limits to profit-wage redistribution: Endogenous regime shifts in Kaleckian models of growth and distribution By Köhler, Kasper
  69. Cross-Border Bank Flows and Monetary Policy By Ricardo Correa; Teodora Paligorova; Horacio Sapriza; Andrei Zlate
  70. Türk Bankacılık Sektöründe Krediler ile Mevduatlar Arasındaki Açığın Kaynağı Nedir ? By yılmaz, Engin
  71. Cohesion Policy 2007-2015: The RHOMOLO assessment By Patrizio Lecca; Damiaan Persyn; Andrea Conte; Simone Salotti
  72. Exploring current economic conditions and the implications for monetary policy: remarks at 1Berkshire Economic Outlook Luncheon, Dalton, Massachusetts, October 26, 2018 By Rosengren, Eric S.
  73. The Mandarin Model of Growth By Wei Xiong
  74. The Financial Decisions of Immigrant and Native Households: Evidence from Italy By Graziella Bertocchi; Marianna Brunetti; Anzelika Zaiceva
  75. How do consumers adapt to a new environment in their economic forecasting? Evidence from the German reunification By Goldfayn-Frank, Olga; Wohlfart, Johannes
  76. Productividad total de los factores o productividad del trabajo By José Romero
  77. The drivers of regional growth in Russia: A baseline model with applications By Hansjörg Blöchliger; Olivier Durand-Lasserve
  78. The "China shock" revisited: Insights from value added trade flows By Jakubik, Adam; Stolzenburg, Victor
  79. Foreign currency borrowing, balance sheet shocks and real outcomes By Bryan Hardy
  80. Volatility spillovers among uncertainty measures. The case of EU member states By Śmiech, Sławomir; Papież, Monika
  81. Casting Light on Central Bank Digital Currencies By Tommaso Mancini Griffoli; Maria Soledad Martinez Peria; Itai Agur; Anil Ari; John Kiff; Adina Popescu; Celine Rochon
  82. Banks, debt and risk: assessing the spillovers of corporate taxes By Fatica, Serena; Heynderickx, Wouter; Pagano, Andrea
  83. Stigma over T-Bills Persists as Investors Focus on “Sophistication” By Xing, Victor
  84. Overhead labour costs in a neo-Kaleckian growth model with autonomous expenditures By Won Jun Nah; Lavoie, Marc
  85. Reputation Cycles and Earnings Dynamics By Boyan Jovanovic; Julien Prat
  86. Effects of heterodox populist policies in the private sector. The Argentine experience (2004-2016) By Diego G. Fano; Victor A. Lucero; Antonio Marin
  87. The RHOMOLO economic impact assessment of the R&I and Low-Carbon ERDF Investment programme in Apulia, Italy By Francesco Di Comite; Olga Diukanova; Giovanni Mandras; Javier Gómez Prieto
  88. Red tape asset pricing By de Oliveira Souza, Thiago
  89. Employment effects of on-the-job human capital acquisition By Joaquín Naval; José I. Silva; Javier Vázquez-Grenno
  90. Structural Transformation to Manufacturing and Services: What Role for Trade? By Anderson, Kym
  91. Differentiated Impact of Spread Determinants by Personal Loan Category: Evidence from the Brazilian Banking Sector By José Valente; Mário Augusto; José Murteira

  1. By: Goodhead, Robert; Kolb, Benedikt
    Abstract: Using federal funds futures data, we show the importance of surprise communication as a component of monetary policy for U.S. macro variables, both before and after 2008. While Gürkaynak et al. (2005) stress the importance of monetary policy communication for asset prices, much of the subsequent VAR literature attributes all effects of monetary policy on macro variables to surprise changes in the policy rate. Instead, we distinguish between monetary policy action and "communication shocks" (surprise announcements about future policy moves), both orthogonal to internal Fed information. To do so,we use a decomposition of futures price movements exploiting variation across contract maturities. In a monthly sample from 1994 to 2008, our results indicate that it is mainly communication shocks - as opposed to actual rate-change surprises - that affect production in the ways traditionally associated with monetary policy shocks.We also use Eurodollar futures to cover the zero-lower bound period and find strong effects on inflation for long-horizon communication shocks.
    Keywords: Federal Funds Futures,FOMC,Monetary Policy,VAR Model
    JEL: E52 E58 G23 C32
    Date: 2018
  2. By: Joao Ayres; Gajendran Raveendranathan
    Abstract: We use firm dynamics statistics on employment by age, entry, exit, and job flows to identify sources of business cycle fluctuations in the U.S. economy since 1980. We extend the Hopenhayn (1992) firm dynamics model by incorporating capital and debt accumulation to the firm’s problem and savings to the consumer’s problem. Analyzing the implications of unexpected productivity, credit, labor wedge, and investment wedge shocks for firm dynamics statistics, we show that (a) productivity shock accounts for the 1990-91 and 2001 recessions, and (b) productivity and credit shocks jointly account for the 1980-82 and 2007-09 recessions.
    Keywords: firm dynamics, business cycles.
    JEL: D21 D22 E24 E32
    Date: 2018–12
  3. By: Gunda-Alexandra Detmers; Özer Karagedikli; Richhild Moessner
    Abstract: Every monetary policy decision by the Reserve Bank of New Zealand (RBNZ) is accompanied by a written statement about the state of the economy and the policy outlook, but only every second decision by a published interest rate forecast. We exploit this difference to study the relative influences of qualitative and quantitative forward guidance. We find that announcements that include an interest rate forecast lead to very similar market reactions across the yield curve as announcements that only include written statements. We interpret our results as implying that central bank communication is important, but that the exact form of that communication is less critical. Our results are also consistent with market participants understanding the conditional nature of the RBNZ interest rate forecasts.
    Keywords: monetary policy, forward guidance, interest rate forecasts
    JEL: E43 E44 E52 E58 G12
    Date: 2018
  4. By: Jean-Luc Gaffard (OFCE Sciences-Po; Université Côte d'Azur; GREDEG CNRS; Institut Universitaire de France)
    Abstract: This paper is aimed at revisiting monetary analysis in order to better understand erroneous choices in the conduct of monetary policy. According to the prevailing consensus, the market economy is intrinsically stable and is upset only by poor behaviour by government or the banking system. We maintain on the contrary that the economy is unstable and that achieving stability requires a discretionary economic policy. This position relies upon an analytical approach in which monetary and financial organisations are devices that help markets to function. In this perspective, which focuses on the heterogeneity of markets and agents, and, consequently, on the role of institutions in determining overall performance, it turns out that nominal rigidities and financial commitment offer the means to achieve economic stability. This is because they prevent successive, unavoidable disequilibria from becoming explosive.
    Keywords: inflation, market, money, stability
    JEL: E31 E32 E5 E61 E62
    Date: 2018–12
  5. By: JIA, BIJIE
    Abstract: This paper revisits mixed findings of the expansionary fiscal spending effect in the U.S. An array of standard Vector-Autoregressive (VAR) models have been implemented to capture inconsistent effects of the fiscal expansion across studies. Findings in this paper consistently reveal that, first, government expenditures often generate less positive influence than government purchases; second, leaving aside the state and local government spending, federal government purchases alone have a very limited influence on the economy; third, 2007 recession significantly weakened the effectiveness of fiscal expansionary policy thereafter. Following these findings, this paper questions the validity of using government purchases alone to conclude the comprehensive effect of fiscal expansion.
    Keywords: E21; E32; E62; H30; H50.
    JEL: E21 E32 E62 H30 H50
    Date: 2017–05
  6. By: Jean-Luc Gaffard (OFCE Sciences-Po; Université Côte d'Azur; GREDEG CNRS; Institut Universitaire de France); Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School)
    Abstract: Dans cet article, nous réexaminons les fondements des modèles théoriques qui sous-tendent le consensus de politique monétaire prévalant avant la Grande Récession. Nous soulignons en quoi l'échec de ces modèles à prévenir la crise et à fournir un guide d’action pendant la récession était dû à l’excès de confiance dans la capacité d’autorégulation des marchés et à la négligence du rôle joué par la finance dont ils témoignaient. Nous présentons, ensuite, les bases d'une approche alternative de la politique monétaire qui met l'accent sur les processus de marché, la coordination entre agents hétérogènes et les externalités transmises via les interconnexions financières. De nouvelles classes de modèles, d’une part, les modèles à agents multiples et, d’autre part, les modèles de réseaux financiers, s’inscrivent dans cette approche. Nous discutons, enfin, des nouveaux éclairages fournis par ces modèles s’agissant de la conduite de la politique monétaire et de ses interactions avec les politiques budgétaire et macro-prudentielle.
    Keywords: coordination, déséquilibre, inflation, hétérogénéité, interconnexions, marché, politique monétaire, réseaux financiers, rigidité des prix et des salaires
    JEL: E31 E32 E5 E61 E62
    Date: 2018–12
  7. By: Juan Andres Espinosa Torres; Sebastian Sanin Restrepo; Sebastian Sanin-Restrepo
    Abstract: This paper test the presence of the consumption-wealth channel on the trans- mission of monetary policy on economies following the Inflation Targeting (IT) framework. Combining a Structural Vector Autoregression (SVAR) method-ology and a policy counterfactual exercise, this channel is modelled for 27economies divided into four implementing window dates: first, early, inter-mediate and recent implementers. Results show that effects derived from this channel are most significant for those economies that implemented IT earlier, with some particular exceptions among the other groups. This suggest that long-run stability and definition of IT regimes play a significant role to make monetary policy transmit to the economy.
    Keywords: monetary policy transmission, inflation targeting, asset prices.
    JEL: E52 E42 E31
    Date: 2018–11–26
  8. By: Kindy R. Sjahrir (Fiscal Policy Office, Ministry of Finance. Republic of Indonesia)
    Abstract: A number of macroeconomic episodes such as the 2018 global financial crisis, the tantrum taper for 2013-2015 show that financial system stability is closely related to the real economic sector, monetary policy and public finance. The analysis of dynamic general equilibrium as a microeconomic characteristic of New Keynesian macroeconomics makes real cohesion of fiscal, monetary, financial and business cycles complex, ambiguous and complex due to the many factors that work in different directions. Literature studies show that until now there has been no consensus among mainstream economists about the criteria or standard definition of fiscal sustainability within the framework of financial system stability. This study aims to fill the gap for Indonesian quarterly data from 2005 to 2017. The research premise that fiscal sustainability is an important factor in financial stability, for Indonesian data, especially through the transmission of fiscal imbalances and the government debt crisis. The reverse effect of the shock of monetary imbalance on the fiscal crisis is the second research question in this study. The literature suggests that the growing interdependence between fiscal policy and the financial sector leads to strengthening the two-way relationship between fiscal sustainability and financial stability. Fiscal constraints in relation to financial system stability for Indonesian data are reformulated as applied economic analysis to explain (1) indicators of fiscal sustainability in Indonesia; (2) secure intertemporal dynamic limits on debt for fiscal solvency; and (3) explain fiscal transmission to the financial system and the opposite of solvent fiscal financing operations. For emerging market countries such as Indonesia, with financial markets still developing without the complications of derivative financial markets and expanding bonds between the central and regional governments - presumably inter temporal budgetary constraints can be an indication of the main criteria for fiscal sustainability. Adopting the concept of Bagnai, Alberto (2004) and Burnside, Craig (2005) conception of the transmission of fiscal sustainability and the financial system - including monetary in this study stems from the definition of twin deficits in the national accounts. Analysis of fiscal sustainability from debt solvency and its relationship vis-à-vis with the financial system is carried out through structural vector autoregression analysis of the dynamics of three research questions for endogenous public debt to the fiscal stance and primary fiscal balance. The main references to this approach are Favero and Giavazzi (2007, 2009) to analyze the effect of primary equilibrium on GDP growth using the narrative of Romer and Romer (2010) and the structure of Blanchard and Perotti (2002). Empirical studies on this working paper show that (1) the shock of fiscal risk to the financial system for Indonesia's data now is mutually reinforcing (empirical studies on this working paper show that fiscal risk from financial system risk with current Indonesian data is not mutually reinforcing), and (2) shock from the financial system does not have a permanent impact on the primary balance and debt-to-gdp ratio. Significant contagion potential from two-way feedback on fiscal risk and financial system risk with current Indonesian data, shock from primary balance and debt-to-gdp ratio have a permanent impact on loan interest rates, and the temporary impact on inflation and GDP growth. The results of the empirical analysis of the SVAR model of this study indicate that it is important to be able to conduct good supervision and governance over the development of primary balance and periodic debt-to-GDP ratio for financial system stability. Both indicators provide a portrait of fiscal balance for a certain period. While the transmission of fiscal sustainability to the real business, financial and monetary cycles can be observed from indicators of liquidity, solvency and fiscal sustainability. The effect of primary balance and debt-to-GDP ratio is derived from the identity of the flow of funds with a two-way feedback loop between the financial sector (banking and monetary) and the fiscal stance.
    Keywords: Structural Autoregressive, Fiscal Constraints in Financial System Stability Framework, Indonesian Data, Financial Sector Stability and Fiscal Policy
    JEL: G28
    Date: 2018–12
  9. By: Ricardo Lagos; Shengxing Zhang
    Abstract: We develop a model of monetary exchange in bilateral over-the-counter markets to study the effects of monetary policy on asset prices and financial liquidity. The theory predicts asset prices carry a speculative premium that reflects the asset's marketability and depends on monetary policy and the market microstructure where it is traded. These liquidity considerations imply a positive correlation between the real yield on stocks and the nominal yield on Treasury bonds—an empirical observation long regarded anomalous.
    JEL: D83 E31 E52 G12
    Date: 2018–11
  10. By: Gert Peersman
    Abstract: This paper examines the causal effects of shifts in international food commodity prices on euro area inflation dynamics using a structural VAR model that is identified with an external instrument (i.e. a series of global harvest shocks). The results reveal that exogenous food commodity price shocks have a strong impact on consumer prices, explaining on average 25%- 30% of inflation volatility. In addition, large autonomous swings in international food prices contributed significantly to the twin puzzle of missing disinflation and missing inflation in the era after the Great Recession. Specifically, without disruptions in global food markets, inflation in the euro area would have been 0.2%-0.8% lower in the period 2009-2012 and 0.5%-1.0% higher in 2014-2015. An analysis of the transmission mechanism shows that international food price shocks have an impact on food retail prices through the food production chain, but also trigger indirect effects via rising inflation expectations and a depreciation of the euro.
    Keywords: food commodity prices, inflation, twin puzzle, euro area, SVAR-IV
    JEL: E31 E52 Q17
    Date: 2018
  11. By: Knut Are Aastveit (Norges Bank & Centre for Applied Macro and Petroleum Economics, BI Norwegian Business School); André K. Anundsen (Norges Bank)
    Abstract: The responsiveness of house prices to monetary policy shocks depends on the nature of the shock – expansionary versus contractionary – and on local housing supply elasticities. These findings are established based on a panel of 263 US metropolitan areas. We test and find supporting evidence for the hypothesis that expansionary monetary policy shocks have a larger impact on house prices when supply elasticities are low. Our results also suggest that contractionary shocks are orthogonal to supply elasticities, as implied by downward rigidity of housing supply. A standard theoretical conjecture is that contractionary shocks have a greater impact on house prices than expansionary shocks, as long as supply is not perfectly inelastic. For areas with high housing supply elasticity, our results are in line with this conjecture. However, for areas with an inelastic housing supply, we find that expansionary shocks have a greater impact on house prices than contractionary shocks. We provide evidence that the direction of the asymmetry is related to a momentum effect that is more pronounced when house prices are increasing than when they are falling.
    Keywords: House prices, Heterogeneity, Monetary policy, Non-linearity, Supply elasticities
    JEL: E32 E43 E52 R21 R31
    Date: 2018
  12. By: Millard, Stephen (Bank of England); Varadi, Alexandra (Wadram College, Oxford); Yashiv, Eran (Tel Aviv University)
    Abstract: We model the interactions of financial frictions and real frictions, using a DSGE model calibrated for the US economy, with households, banks, firms and wage bargaining. The model features labour and investment frictions, in the form of convex costs, and financial frictions, in the form of credit constraints and the risk of banks diverting their funds. In addition, there are price frictions and habits in consumption. We examine technology, monetary policy, and credit shocks. We look at the response to these shocks of real aggregate variables, financial market variables, and labour market variables. We find that the interactions of real frictions and financial frictions have important implications for the effects of financial shocks on the macroeconomy.
    Keywords: Real frictions; financial frictions; business cycles
    JEL: E32 E44
    Date: 2018–12–07
  13. By: David Turner; Thomas Chalaux; Hermes Morgavi
    Abstract: This paper describes a method for parameterising fan charts around GDP growth forecasts of the major OECD economies as well as the aggregate OECD. The degree of uncertainty – reflecting the overall spread of the fan chart – is based on past forecast errors, but the skew – reflecting whether risks are tilted to the downside – is derived from a probit model-based assessment of the probability of a future downturn. This approach is applied to each of the G7 countries separately, with combinations of variables found to be useful in predicting future downturns at different horizons up to 8 quarters: at short horizons of 2-4 quarters, a flattening or inverted yield curve slope, recent sharp falls in house prices, share prices or credit; at longer horizons of 6-8 quarters, sustained strong growth in house prices, share prices and credit; and at all horizons, a tight labour market and rapid growth in OECD-wide (or in some cases euro-wide) house prices, share prices or credit. The in-sample fit of the probit models appears reasonably good for all G7 countries. The predicted probabilities from the probit models provide a graduated assessment of downturn risk, which is reflected in the degree of skew in the fan chart. Fan charts computed on an out-of-sample basis around pre-crisis OECD forecasts published in June 2008 encompass the extreme outturns associated with the Global Financial Crisis for five of the G7 countries. A weakness of the approach is that, although it predicts a clear majority of past downturns, it will not predict atypical downturns. For example, in the current conjuncture, it is unlikely that current concerns about risks associated with Brexit, an escalation of trade tensions or spillovers from emerging markets would be picked up by the models. At the same time, a severe downturn triggered by such atypical events might be more severe if more typical risk factors are also high.
    Keywords: downturn, economic forecasts, fan charts, recession, risk, uncertainty
    JEL: E01 E17 E58 E65 E66
    Date: 2018–12–11
  14. By: Mitra, Shalini
    Abstract: In a standard real business cycle model extended to include intangible capital (IC) I show that a rise in the income share of IC in the production function, in line with data can account for a significant share of the increase in real wage volatility (both absolute and relative to income) and labor input volatility (relative to income) observed in the U.S. since the mid 1980's even as volatility of output declined. Intangible capital accumulates stochastically and similar to final goods requires physical capital, intangible capital and labor to produce. Under these conditions an increase in the share of IC in production increases the propagation of the IC-specific shock which raises (absolute and relative) wage and labor input volatility. The higher propagation of the IC shock also accounts for the large decline in the pro-cyclicality of labor productivity (relative to both output and labor) observed during this period.
    Keywords: Intangible capital, business cycles, labor market dynamics, wage volatility, measured labor productivity, Great Moderation.
    JEL: E22 E32
    Date: 2018–10–25
  15. By: Jan P.A.M. Jacobs; Samad Sarferaz; Jan-Egbert Sturm; Simon van Norden
    Abstract: Recent years have seen many attempts to combine expenditure-side estimates of U.S. real output (GDE) growth with income-side estimates (GDI) to improve estimates of real GDP growth. We show how to incorporate information from multiple releases of noisy data to provide more precise estimates while avoiding some of the identifying assumptions required in earlier work. This relies on a new insight: using multiple data releases allows us to distinguish news and noise measurement errors in situations where a single vintage does not. Our new measure, GDP++, fits the data better than GDP+, the GDP growth measure of Aruoba et al. (2016) published by the Federal Reserve Bank of Philadelphia. Historical decompositions show that GDE releases are more informative than GDI, while the use of multiple data releases is particularly important in the quarters leading up to the Great Recession.
    Keywords: national accounts, output, income, expenditure, news, noise
    JEL: E01 E32
    Date: 2018–11
  16. By: Gavin Goy; Cars Homme; Kostas Mavromatis
    Abstract: This paper studies the macroeconomic effects of central bank forward guidance when central bank credibility is endogenous. In particular, we take a stylized New Keynesian model with an occasionally binding zero lower bound constraint on nominal interest rates and heterogeneous and boundedly rational households. The central bank uses a bivariate VAR to forecast, not taking into account the time-variation in the distribution of aggregate expectations. In this framework, we extend the central bank's toolkit to allow for the publication of its own forecasts (Delphic guidance) and the commitment to a future path of the nominal interest rate (Odyssean guidance). We find that both Delphic and Odyssean forward guidance increase the likelihood of recovery from a liquidity trap. Even though Odyssean guidance alone appears more powerful, we find it to increase ex post macroeconomic volatility and thus reduce welfare.
    Keywords: Forward Guidance; Heterogeneous Beliefs; Bounded Rationality; Central Bank Learning
    JEL: E12 E58
    Date: 2018–12
  17. By: Asriyan, Vladimir; Laeven, Luc; Martín, Alberto
    Abstract: We develop a new theory of information production during credit booms. In our model, entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources towards private consumption. Lenders can protect themselves from such diversion in two ways: collateralization and costly screening, which generates durable information about projects. In equilibrium, the collateralization-screening mix depends on the value of aggregate collateral. High collateral values raise investment and economic activity, but they also raise collateralization at the expense of screening. This has important dynamic implications. During credit booms driven by high collateral values (e.g. real estate booms), the economy accumulates physical capital but depletes information about investment projects. As a result, collateral-driven booms end in deep crises and slow recoveries: when booms end, investment is constrained both by the lack of collateral and by the lack of information on existing investment projects, which takes time to rebuild. We provide new empirical evidence using US firm-level data in support of the model's main mechanism.
    Keywords: Collateral; Credit Booms; Crises; Information Production; Missallocation
    JEL: D80 E32 E44 G01
    Date: 2018–11
  18. By: Thomas Brand; Marlène Isoré; Fabien Tripier
    Abstract: We develop a business cycle model where endogenous firm creation stems from two credit market frictions. First, entrepreneurs search for a lending relationship with a bank. Second, an optimal debt contract with monitoring is implemented. We analyze the interplay between both frictions, and embed it into an otherwise standard business cycle model, which we estimate with Bayesian techniques. We find that uncertainty shocks are a prime contributor to business cycle fluctuations in the US, not only for macro-financial aggregates but also for firm creation. Moreover, we point out that the credit search friction dampens the financial accelerator mechanism because default may imply the end of the lending relationship.
    Keywords: Uncertainty;Financial frictions;Search and matching;Business cycle;Firm creation;Firm dynamics
    JEL: D8 E3 E4 E5
    Date: 2018–11
  19. By: Fuhrer, Jeffrey C. (Federal Reserve Bank of Boston); Olivei, Giovanni P. (Federal Reserve Bank of Boston); Rosengren, Eric S. (Federal Reserve Bank of Boston); Tootell, Geoffrey M. B. (Federal Reserve Bank of Boston)
    Abstract: Would a more open and regular evaluation of the monetary policy framework improve policy in the United States? Even when considering a relatively short timeframe that spans the 1960s to the present, it is possible to point to many significant changes to the framework. Some of the changes were precipitated by acute economic conditions, while others were considered and implemented only gradually as a response to long-standing problems with the framework. But the process for evaluating and changing frameworks to date has not always been transparent, and changes have not always been timely. Could a more formal, and open, review improve how well we adhere to our current framework? Could transitions to a new framework be made more effectively? We conclude that such a review might indeed be beneficial, and outline one possible review process.
    Keywords: monetary policy framework; the evolution of monetary policy; FOMC; policy rules
    JEL: E52 E58 E61
    Date: 2018–10–01
  20. By: Bianchi, Javier (Federal Reserve Bank of Minneapolis); Mondragon, Jorge (Federal Reserve Bank of Minneapolis)
    Abstract: This paper shows that the inability to use monetary policy for macroeconomic stabilization leaves a government more vulnerable to a rollover crisis. We study a sovereign default model with self-fulfilling rollover crises, foreign currency debt, and nominal rigidities. When the government lacks monetary autonomy, lenders anticipate that the government will face a severe recession in the event of a liquidity crisis, and are therefore more prone to run on government bonds. By contrast, a government with monetary autonomy can stabilize the economy and can easily remain immune to a rollover crisis. In a quantitative application, we find that the lack of monetary autonomy played a central role in making the Eurozone vulnerable to a rollover crisis. A lender of last resort can help ease the costs from giving up monetary independence.
    Keywords: Sovereign debt crises; Rollover risk; Monetary unions
    JEL: E4 E5 F34 G15
    Date: 2018–12–03
  21. By: Roth, Christopher; Wohlfart, Johannes
    Abstract: Using a representative online panel from the US, we examine how individuals' macroeconomic expectations causally affect their personal economic prospects and their behavior. To exogenously vary respondents' expectations, we provide them with different professional forecasts about the likelihood of a recession. Respondents update their aggregate economic outlook in response to the forecasts, extrapolate to expectations about their personal economic circumstances and adjust their consumption behavior and stock purchases. Extrapolation to expectations about personal unemployment is driven by individuals with higher exposure to macroeconomic risk, consistent with sticky information models in which people are inattentive, but understand how the economy works.
    Keywords: Expectation Formation,Information,Updating,Aggregate Uncertainty,Macroeconomic Conditions
    JEL: D12 D14 D83 D84 E32 G11
    Date: 2018
  22. By: Luca Di Bonaventura; Mario Forni; Francesco Pattarin
    Abstract: We present a comparative analysis of the forecasting performance of two dynamic factor models, the Stock and Watson (2002a, b) model and the Forni, Hallin, Lippi and Reichlin (2005) model, based on vintage data. Our dataset that contains 107 monthly US “first release” macroeconomic and financial vintage time series, spanning the 1996:12 to 2017:6 period with monthly periodicity, extracted from the Bloomberg database. We compute real-time one-month-ahead forecasts with both models for four key macroeconomic variables: the month-on-month change in industrial production, the unemployment rate, the core consumer price index and the ISM Purchasing Managers’ Index. First, we find that both the Stock and Watson and the Forni, Hallin, Lippi and Reichlin models outperform simple autoregressions for industrial production, unemployment rate and consumer prices, but that only the first model does so for the PMI. Second, we find that neither models always outperform the other. While Forni, Hallin, Lippi and Reichlin’s beats Stock and Watson’s in forecasting industrial production and consumer prices, the opposite happens for the unemployment rate and the PMI.
    Keywords: Dynamic factor models, Forecasting, Forecasting Performance, Vintage data, First release data
    JEL: C01 C32 C52 C53 E27 E37
    Date: 2018–11
  23. By: Fuhrer, Jeffrey C. (Federal Reserve Bank of Boston)
    Abstract: This paper examines the expectations behavior of individual responses in the Survey of Professional Forecasters, the University of Michigan’s Survey Research Center survey of consumers, and the ECB Survey of Professional Forecasters. It finds that the most robust feature of all of these expectations measures is that respondents inefficiently revise their forecasts, significantly underreacting to new information. As a consequence, revisions smooth through arriving information, and expectations forget past information at a rapid rate and appear to anchor to the unconditional mean or other salient anchors. The paper then examines the micro-data evidence bearing on the hypotheses tested by Coibion and Gorodnichenko (2015), who suggest that aggregate surveys may conform to key predictions of the sticky-information model of Mankiw and Reis (2002) and/or the noisy-information model of Maćkowiak and Wiederholt (2009). This paper finds considerably less coherence with these models in the micro data. The paper also provides evidence that distinguishes this behavior from learning, suggesting that the inefficient incorporation of information is much more important quantitatively than least-squares learning in these expectations measures. Finally, this empirical regularity may bear important implications for macroeconomic dynamics, as illustrated in the last sections of the paper, as it provides a microbased foundation for an earlier paper’s finding that intrinsic persistence in expectations may be a key source of macroeconomic persistence (Fuhrer 2017). The paper sketches a model in which agents’ inefficient updating of expectations induces excess smoothness in expectations, imparting persistence to macro variables that is due strictly to the expectations formation process.
    Keywords: intrinsic persistence; rational expectations; survey expectations
    JEL: E32 E52
    Date: 2018–05–01
  24. By: Bennouna , Hicham (Bank Al-Maghrib, Département de la Recherche)
    Abstract: We investigate the relationship between monetary policy decisions and retail lending rates using retail bank interest rates extracted from the quarterly survey conducted by Bank Al-Maghrib. The data covers the rates of new business loans for four market segments (real estate, short-term credit facilities and overdrafts, investment and consumption) broken down by institutional sector (households, non-financial firms and individual entrepreneurs) between 2006Q2 and 2017Q2. We examine the interest rate pass-through mechanism and the speed of adjustment using heterogeneous panel cointegration framework. Our findings suggest that there is a high degree of pass-through heterogeneity over bank products. The long-term pass-through for real estate and investment loans is complete. We reject the completeness hypothesis for short-term credit facilities and consumption loans. Corporate loans are priced more competitive than household and individual entrepreneur products. We find evidence of a homogeneous pricing policy in the long-run, however, the speed of adjustment and the mark-up seem to be heterogeneous across banks depending on their financial structure.
    Keywords: Taux d’intérêt de détail; Pass-through; Hétérogénéité; Modèle à correction d’erreur
    JEL: E43 E52 G21
    Date: 2018–12–11
  25. By: Naohisa Hirakata (Bank of Japan); Yasutaka Koike (Bank of Japan)
    Abstract: In this paper, we analyze the dynamics of the labor share in the United States and Japan using a dynamic stochastic general equilibrium (DSGE) model. For this purpose, we develop a model employing a constant elasticity of substitution (CES) production function with capital- and labor- augmenting technologies and investment specific technology. Our findings are as follows. First, comparing two different specifications of our model - one with a CES production function and one with a Cobb-Douglas production function - using marginal data densities indicates that the former provides a better fit for both the U.S. and Japanese data. Second, our estimates suggest that the elasticity of substitution is larger than one in the United States but less than one in Japan. Third, while capital-augmenting technology shocks have contributed to the decline of the labor share in the United States, they have exerted upward pressure on the labor share in Japan. The difference in the effects of capital-augmenting technology shocks on the labor share is due to the difference in the elasticity of substitution in the United States and Japan. Finally, the estimated models for the United States and Japan successfully replicate the observed relationship between the labor share and inflation.
    Keywords: Labor Share; Elasticity of Capital-Labor Substitution; Inflation
    JEL: E31 E32
    Date: 2018–11–29
  26. By: Stavrakeva, Vania (London Business School); Tang, Jenny (Federal Reserve Bank of Boston)
    Abstract: We document that during the Global Recession, US monetary policy easings triggered the “exorbitant duty” of the United States, the issuer of the world’s dominant currency, by causing a dollar appreciation and a transfer of wealth from the United States to the rest of the world. This dollar appreciation runs counter to the predictions of standard macroeconomic models and works through two channels: (i) a flight-to-safety effect which lowered the expected excess returns of holding safe US government debt relative to foreign debt and (ii) lowered expected future inflation in the United States relative to other countries. We show that the signaling channel of monetary policy, whereby US policy easings are perceived to signal weaker future growth, can reconcile the novel empirical findings that we document.
    Keywords: exchange rates; currency risk; risk premia; monetary policy; forward guidance; Federal Reserve information; interest rates; Global Financial Crisis
    JEL: E52 F31 G01
    Date: 2018–10–01
  27. By: Eickmeier, Sandra; Kolb, Benedikt; Prieto, Esteban
    Abstract: Bank capital regulations are intended to enhance financial stability in the long run, but may, in the meanwhile, involve costs for the real economy. To examine these costs we propose a narrative index of aggregate tightenings in regulatory US bank capital requirements from 1979 to 2008. Anticipation effects are explicitly taken into account and found to matter. In response to a tightening in capital requirements, banks temporarily reduce business and real estate lending, which temporarily lowers investment, consumption, housing activity and production. A decline in financial and macroeconomic risk helps sustain spending in the medium run. Monetary policy also cushions negative effects of capital requirement tightenings on the economy.
    Keywords: Narrative Approach,Bank Capital Requirements,Local Projections
    JEL: G28 G18 C32 E44
    Date: 2018
  28. By: Gary Koop; Stuart McIntyre; James Mitchell; Aubrey Poon
    Abstract: Output growth estimates for the regions of the UK are currently published at the annual frequency only and are released with a long delay. Regional economists and policymakers would benefit from having higher frequency and more timely estimates. In this paper we develop a mixed frequency Vector Autoregressive (MF-VAR) model and use it to produce estimates of quarterly regional output growth. Temporal and cross-sectional restrictions are imposed in the model to ensure that our quarterly regional estimates are consistent with the annual regional observations and the observed quarterly UK totals. We use a machine learning method based on the hierarchical Dirichlet-Laplace prior to ensure optimal shrinkage and parsimony in our over-parameterised MF-VAR. Thus,this paper presents a new, regional quarterly database of nominal and real Gross Value Added dating back to 1970. We describe how we update and evaluate these estimates on an ongoing, quarterly basis to publish online (at more timely estimates of regional economic growth. We illustrate how the new quarterly data can be used to contribute to our historical understanding of business cycle dynamics and connectedness between regions.
    Keywords: Regional data, Mixed frequency, Nowcasting, Bayesian methods, Realtime data, Vector autoregressions
    JEL: C32 C53 E37
    Date: 2018–11
  29. By: Jaime Martinez-Martin (OECD); Elena Rusticelli (OECD)
    Abstract: This paper builds an innovative composite world trade cycle index (WTI) by means of a dynamic factor model to monitor and perform short-term forecasts in real time of world trade growth of both goods and (usually neglected) services. The selection of trade indicator series is made using a multidimensional approach, including Bayesian model averaging techniques, dynamic correlations and Granger non-causality tests in a linear VAR framework. To overcome real-time forecasting challenges, the dynamic factor model is extended to account for mixed frequencies, to deal with asynchronous data publication and to include hard and survey data along with leading indicators. Nonlinearities are addressed with a Markov switching model. Simulations analysis in pseudo real-time suggests that: i) the global trade index is a useful tool to track and forecast world trade in real time; ii) the model is able to infer global trade cycles precisely and better than the few competing alternatives; and iii) global trade finance conditions seem to lead the trade cycle, in line with the theoretical literature.
    Keywords: bayesian model averaging, cycles, dynamic factor models, goods trade, granger non-causality, leading indicators, markov switching models, Real-time forecasting, services trade, VAR models, world trade
    JEL: C2 E27 E32
    Date: 2018–12–13
  30. By: Asdrubali, Pierfederico (Department of Economics and Social Sciences, John Cabot University); Kim, Soyoung (Division of Economics, Seoul National University); Pericoli, Filippo (European Commission – JRC); Poncela, Pilar (European Commission – JRC)
    Abstract: We aim to improve upon the existing empirical literature on international risk sharing under three dimensions. First, we generalize dynamic multi-equation approaches to the estimation of risk sharing channels, by adopting a Heterogeneous Panel VAR model. Within this framework, the coefficients representing the extent of risk sharing achieved through the different mechanisms are allowed to vary across countries. Second, we introduce two new risk sharing channels – namely, government consumption and the real exchange rate (that we further decompose into relative prices and the nominal exchange rate) – which allow us to investigate the role of fiscal policy and international price adjustments in the absorption of macroeconomic shocks. Third, we establish a better link between the “channels†empirical model and a theoretical formulation of the risk sharing condition which allows for PPP violations. Our empirical analysis, for a set of 21 OECD countries over 1960-2016, contributes to identifying the geographical structure and dynamics of risk sharing channels and to describing their evolution in the latest half-century. For the OECD sample as a whole, we confirm through 2016 the strong smoothing role played by credit markets and the small degree of risk sharing achieved through factor incomes. Interestingly, government consumption tends to have a dis-smoothing effect, due to its counter-cyclical movements. Another noteworthy result is the negative risk sharing effect of the real exchange rate, driven by the dis-smoothing role played by the movements of the nominal exchange rate, only partially offset by relative price adjustments. The evolution of these risk sharing mechanisms is diverse, but the most important channels – namely credit markets and real exchange rate adjustments – exhibit slightly positive trends for the first half of the period, negative trends afterwards, and a recovery in more recent years. Our results demonstrate that the extent of risk sharing is strikingly different across countries, especially if we take into account valuation effects through the real exchange rate. Even considering only traditional risk sharing channels, the country-specific magnitude of risk sharing on impact ranges from around 15% to over 80%. In addition, dynamics are also quite diverse across countries; for example, risk sharing through credit markets, while quite effective on impact, provokes dis-smoothing for about two thirds of the countries from the second year onwards. Our approach is of particular interest for policy makers, as it allows identifying the strengths and the weaknesses of the institutional and behavioral risk sharing mechanisms at work in different countries.
    Keywords: consumption smoothing, government consumption, heterogeneity, panel VAR, risk sharing
    JEL: E00 E21 F15
    Date: 2018–11
  31. By: Rod Tyers (Business School, University of Western Australia and Research School of Economics, Centre for Applied Macroeconomic Analysis (CAMA), Australian National University); Yixiao Zhou (School of Economics and Finance, Curtin Business School, Curtin University)
    Abstract: Proximity to short yield zero lower bounds has challenged the inflation targeting central banks of the advanced regions. Central to this development are three-decade declining trends in long yields and underlying real, equilibrium interest rates that have flattened yield curves, restricting “normalisation” and adding deflationary pressure by boosting demand for portfolio money. Inflationary forces, such as fiscal deficits, industrial protection and resurgent regional growth, have proved comparatively weak. In this paper global modelling is used to show that key deflationary forces in these regions include automation, the race to the bottom in capital taxation and immigration. Each is shown to redistribute income so as to expand the welfare gap between the low-skilled and capital owners by 2.5 to 3.5 per cent per year. The high saving rates of capital owners depress real equilibrium rates and their expanding portfolios demand monetary expansion. These forces ensure that the challenges of macro stabilisation and distributional policy making are both intertwined and urgent.
    Keywords: Inflation, deflation, productivity, automation, income distribution, tax, transfers, general equilibrium analysis
    JEL: D33 E52 J11 O33
    Date: 2018
  32. By: W. Erwin Diewert; Kevin J. Fox; Paul Schreyer
    Abstract: Benefits of the Digital Economy are evident in everyday life, but there are significant concerns that these benefits may not be appropriately reflected in official statistics. The measurement of the net benefits of new and disappearing products depends on what type of price index the statistical agency is using to deflate final demand aggregates. We examine this measurement problem when the agency uses any standard price index formula for its deflation of a value aggregate, such as GDP. We also apply the methodology to the problem of measuring the effects of product substitutions for disappearing items. Our exact expressions for biases inherent in different approaches provide a theoretical basis and framework for the emerging empirical literature on new goods and services, and for assessing the quality adjustment methodologies used in practice.
    Keywords: Maximum overlap indexes, Hicksian reservation prices, quality adjustment, replacement sampling, index number bias
    JEL: C43 D11 D60 E01 E31 O31 O47
    Date: 2018–11
  33. By: Pablo A. Gluzmann; Martin M. Guzman; Joseph E. Stiglitz
    Abstract: This paper makes two contributions. First, we examine the macroeconomic implications of Puerto Rico’s Fiscal Plan that was certified in March 2017 for fiscal years 2017-18 to 2026-27. Second, we perform a Debt Sustainability Analysis (DSA) that incorporates the expected macroeconomic dynamics implied by the Fiscal Plan in order to compute Puerto Rico’s debt restructuring needs. We detect a number of flawed assumptions in the Fiscal Plan that lead to an underestimation of its contractionary effects on the island’s economic activity. We conduct a sensitivity analysis of the expected macroeconomic dynamics implied by the plan that allows us to construct more realistic scenarios of Puerto Rico’s debt restructuring needs. We show that the island’s current debt position is unsustainable, and compute the necessary debt relief to restore sustainability under different sets of assumptions. The paper offers general insights for performing a macro-consistent DSA.
    JEL: E61 E62 F34 H12 H63 H68
    Date: 2018–11
  34. By: Ken Miyajima; James Yetman
    Abstract: Forecasts of agents who are actively involved in the setting of prices and wages are less readily available than those of professional analysts, but may be more relevant for understanding inflation dynamics. Here we compare inflation expectations anchoring between analysts, businesses and trade unions for one country for which comparable forecasts are available for almost two decades: South Africa. Forecasts are modelled as monotonically diverging from an estimated long-run anchor point, or "implicit anchor", towards actual inflation as the forecast horizon shortens. We find that the estimated inflation anchors of analysts lie within the 3-6 percent inflation target range of the central bank. However, those for businesses and trade unions, which our evidence suggests may be most relevant for driving the inflation process, have remained above the top end of the official target range. Our results point to challenges for central banks seeking to gain credibility with agents whose decisions directly influence inflation.
    Keywords: inflation expectations, inflation anchoring, decay function, inflation targeting
    JEL: E31 E58
    Date: 2018–11
  35. By: Pierre Emmanuel Weil
    Abstract: This paper studies the macroeconomic and cross-sectional consequences of redistributive fiscal policy, with a focus on pensions. Evidence suggests that transfers crowd out private savings heterogeneously across household income, wealth, and age groups. These changes cumulate to dynamic effects on the wealth distribution, which must be taken into account for policymakers with distributional goals. To quantify these channels, I build an overlapping generations heterogeneous agent model based on continuous time methods, joining canonical mechanisms of lifecycle behavior and precautionary savings. Despite its parsimony, the model yields empirically realistic distributions of savings and of the cross-sectional impact of pension reform. I use it to make two main contributions. First, I quantify the cross-sectional impact on savings of pension reform. Adjustment is concentrated among workers in lower-middle wealth groups. Richer households are indifferent about transfers, while the poorest are constrained. Thus, the equilibrium real rate stays largely unchanged, supporting previous efforts which studied these effects in partial equilibrium. Second, in a transition experiment I show that raising social security benefits leads wealth inequality to fall in the short run, but to grow past its original level after fifteen years -- even if the accompanying tax increase is progressive. This follows from lower-middle workers reducing savings most strongly. Means-testing amplifies this effect. Progressive transfers to young workers have similar impact, but through different channels. Transfers encourage riskier portfolios, however crowding out is weaker since it is easier to save than to borrow.
    JEL: E21 E62 D31 H23
    Date: 2018–12–13
  36. By: Bartelsman, Eric; Lopez-Garcia, Paloma; Presidente, Giorgio
    Abstract: This paper uses cross-country micro-aggregated data on firm dynamics and productivity from the ECB CompNet database to provide empirical evidence on factor reallocation in the European Union (EU). The analysis finds that reallocation is towards more productive firms although the magnitude varies across countries and over time. Variation in reallocation is related to structural differences in firm size distribution across countries as well as to variation in labor and product market institutions. Productivity-enhancing reallocation generally rises in downturns but, similar to findings for the US, it did not pick up in the Great Recession. The sharp drop in exports and tightness in credit markets are seen to provide a partial explanation for this lack of a silver lining. JEL Classification: E24, E32, J63, O4
    Keywords: factor reallocation, Great Recession
    Date: 2018–11
  37. By: Marattin, Luigi (Department of Economics, University of Bologna); Meraglia, Simone (Department of Economics, University of Exeter); Minetti, Raoul (Michigan State University, Department of Economics)
    Abstract: This paper studies optimal fiscal rules in a two-country economy in which cross-country linkages between sovereign debts and banking sectors motivate bail-outs among countries. The first-best sovereign borrowing, which is contingent on countries' output gap, cannot be achieved in the presence of asymmetric information on a country's potential output. Because bail-out induces overborrowing, fiscal rules can be implemented to prevent the ensuing inefficiency. A mechanism can be designed to induce a country with low potential output (i.e., a small negative output gap) to run an optimal budget deficit upon receiving a (ex-post) transfer from the other country. We characterize conditions under which this `cyclically- contingent' fiscal mechanism Pareto dominates an alternative `cyclically-adjusted' fiscal rule imposing a unique ceiling on a country's borrowing, independently of its potential output.
    Keywords: Sovereign Debt; Bail-out; Fiscal Federations; Fiscal Rules
    JEL: E62 F34 H63 H87
    Date: 2018–12–11
  38. By: Cory Cutsail; Farley Grubb
    Abstract: Beginning in 1712, North Carolina’s assembly emitted its own paper money and maintained some amount of paper money in public circulation for the rest of the colonial period. Yet, data on colonial North Carolina’s paper money regime in the current literature are thin and often erroneous. We correct that here. We forensically reconstruct North Carolina’s paper money regime from original sources—providing yearly quantitative data on printings, net new emissions, redemptions and removals, and amounts remaining in public circulation. These new data provide the basis for future economic, political, and social histories of colonial North Carolina.
    JEL: E42 E51 N11 N21
    Date: 2018–11
  39. By: Ying Feng; David Lagakos; James E. Rauch
    Abstract: This paper draws on household survey data from countries of all income levels to measure how average unemployment rates vary with income per capita. We document that unemployment is increasing with GDP per capita. Furthermore, we show that this fact is accounted for almost entirely by low-educated workers, whose unemployment rates are strongly increasing in GDP per capita, rather than by high-educated workers, whose unemployment rates are not correlated with income. To interpret these facts, we build a model with workers of heterogeneous ability and two sectors: a traditional sector, in which self-employed workers produce output without reward for ability; and a modern sector, in which firms hire in frictional labor markets, and output increases with ability. Countries differ exogenously in the productivity level of the modern sector. The model predicts that as productivity rises, the traditional sector shrinks, as progressively less-able workers enter the modern sector, leading to a rise in overall unemployment and in the ratio of low-educated to high-educated unemployment rates. Quantitatively, the model accounts for around one third of the cross-country patterns we document.
    Keywords: unemployment, development
    JEL: E24
    Date: 2018
  40. By: Piroska, Dóra; Podvršič, Ana
    Abstract: In this article, we argue that the post-crisis banking governance framework of the European Union, not only severely constrains peripheral member states’ governments in their policy choices, but more profoundly rearranges their government institutions in a way to restrict sovereign banking policy formation. Furthermore, amending the most dominant narratives of the EU’s impact on national banking policy, which point either at the role of the Economic and Monetary Union, or the Banking Union, we argue that it is also and most profoundly the organization of the Single Market and the various changes made to its architecture that influence EU member states’ banking policy. Finally, and most importantly, building on the case study of the post-crisis bank restructuring in Slovenia we reinvigorate the debate on the contribution of economic policy to the crisis of democracy in the EU by demonstrating the strong effect of the European banking governance on decreasing democratic oversight of banking policy in member states.
    Keywords: Slovenia, banking, state aid, fiscal policy, central bank, Banking Union
    JEL: E58 E62 F55
    Date: 2018–11–21
  41. By: Lansing, Kevin J. (Federal Reserve Bank of San Francisco); LeRoy, Stephen F. (UC Santa Barbara); Ma, Jun (Northeastern University)
    Abstract: We use a consumption based asset pricing model to show that the predictability of excess returns on risky assets can arise from only two sources: (1) stochastic volatility of model variables, or (2) departures from rational expectations that give rise to predictable investor forecast errors and market inefficiency. From an empirical perspective, we investigate whether 1-month ahead excess returns on stocks can be predicted using measures of consumer sentiment and excess return momentum, while controlling directly and indirectly for the presence of stochastic volatility. A variable that interacts the 12-month sentiment change with recent return momentum is a robust predictor of excess stock returns both in-sample and out-of-sample. The predictive power of this variable derives mainly from periods when sentiment has been declining and return momentum is negative, forecasting a further decline in the excess stock return. We show that the sentiment-momentum variable is positively correlated with fluctuations in Google searches for the term “stock market,” suggesting that the sentiment-momentum variable helps to predict excess returns because it captures shifts in investor attention, particularly during stock market declines.
    JEL: E44 G12
    Date: 2018–12–03
  42. By: Hein, Eckhard; Prante, Franz
    Abstract: This contribution provides a review of recent considerations of wage inequality in Kaleckian models of distribution and growth. On the one hand, we address modelling approaches in which a distinction is made between managers and workers, where the salaries of the former are treated as overhead costs in a target-return pricing framework. Distribution between profits and wages, and between managers and direct labour, will thus depend on the level of economic activity, in particular in a short-run cyclical perspective. On the other hand, we review more recent Kaleckian models, which explicitly introduce wage inequality, but maintain the simple mark-up pricing approach, thus abstracting from explicit consideration of overhead costs. Explicitly or implicitly, these models rather adhere to a medium-run perspective. Finally, we provide a simple neo-Kaleckian distribution and growth model with wage inequality, which allows for different medium-run demand regimes in a stylized way.
    Keywords: functional income distribution,wage inequality,distribution,growth,Kaleckian models
    JEL: E12 E25 D31
    Date: 2018
  43. By: Oliver Pardo
    Abstract: This paper assess the macroeconomic and welfare effects of the 2017 tax reform in the US. This assessment is carried out by simulating the enacted business tax cuts in a dynamic general equilibrium model calibrated to replicate the household income distribution in the US. The simulation suggests that the cuts will lead to increases in investment, wages and output, although the welfare gains are quite unevenly distributed across households. Long-run investment increases by one percentage point of the baseline GDP, leading to a 1.3% increase in the steady-state wages and a 1.7% increase in the steady-state output. However, there is a sudden and permanent drop in tax revenue equivalent to 0.5% of the baseline GDP. The necessary cuts in government spending imply that households in the poorest quintile may face a welfare loss equivalent to 1.6% of the GDP. Mean-while, households in the richest quintile can expect a gain of 4.4% of the GDP. Overall, the welfare gains of all households add up 4.7% of the GDP. Hence, the aggregated welfare gains from all but the richest quintile is barely positive.
    Keywords: tax reform, welfare, dynamic general equilibrium, heterogeneousagents, distribution.
    JEL: C6 E6 H2
    Date: 2018–11–06
  44. By: Jirasavetakul, La-Bhus Fah; Spilimbergo, Antonio
    Abstract: Uncertainty over economic policy plays a key role in economic outcomes. But evidence and quantification for emerging markets are elusive because of measurement and reverse causality issues. In this paper, we construct a news-based economic policy uncertainty (EPU) index for Turkey and assess how it affects Turkish firms. To disentangle the issues of endogeneity and reverse causality, we use a difference-in-differences approach. In sectors with large irreversible investment EPU has a greater effect on growth, investment, and leverage. The results are robust to different definitions of investment irreversibility, lag structure, and selection of sectors.
    Keywords: diff-in-diff estimation; economic uncertainty; employment growth; firm-level; Investment Decisions; leverage strategies; policy uncertainty; sector-level; Turkey
    JEL: D80 E22 E66 L20 M51
    Date: 2018–12
  45. By: Bryan Kelly; Dimitris Papanikolaou; Amit Seru; Matt Taddy
    Abstract: We use textual analysis of high-dimensional data from patent documents to create new indicators of technological innovation. We identify significant patents based on textual similarity of a given patent to previous and subsequent work: these patents are distinct from previous work but are related to subsequent innovations. Our measure of patent significance is predictive of future citations and correlates strongly with measures of market value. We identify breakthrough innovations as the most significant patents – those in the right tail of our measure – to construct indices of technological change at the aggregate, sectoral, and firm level. Our technology indices span two centuries (1840-2010) and cover innovation by private and public firms, as well as non-profit organizations and the US government. These indices capture the evolution of technological waves over a long time span and are strong predictors of productivity at the aggregate, sectoral, and firm level.
    JEL: E22 E32 N1 O3 O4
    Date: 2018–11
  46. By: Emmanuel Farhi; François Gourio
    Abstract: Real risk-free interest rates have trended down over the past 30 years. Puzzlingly in light of this decline, (1) the return on private capital has remained stable or even increased, creating an increasing wedge with safe interest rates; (2) stock market valuation ratios have increased only moderately; (3) investment has been lackluster. We use a simple extension of the neoclassical growth model to diagnose the nexus of forces that jointly accounts for these developments. We find that rising market power, rising unmeasured intangibles, and rising risk premia, play a crucial role, over and above the traditional culprits of increasing savings supply and technological growth slowdown.
    JEL: E0
    Date: 2018–11
  47. By: Rod Tyers (Business School, University of Western Australia and Research School of Economics, Centre for Applied Macroeconomic Analysis (CAMA), Australian National University); Yixiao Zhou (School of Economics and Finance, Curtin Business School, Curtin University)
    Abstract: Concern about “lost inflation” has been heightened recently by the apparent inability of central banks in the largest democracies, a decade beyond the GFC, to restore their “safe” CPI inflation ranges. This paper examines the deflationary forces against which monetary policy is now aligned, namely migration, the race to the bottom in capital taxation, and biased technical change, and assesses the consequences looking forward. While inflation rates have edged lower over the past two decades the most important change has been declines in long maturity yields, initially driven by strong growth in high-saving Asia and by redistribution in the advanced economies to high-saving households, and bolstered subsequently by return pessimism due to low growth in measured productivity. Ironically, today’s low rates also stem from conventional monetary policy failure, expanded central bank balance sheets and the resulting global “bond bubble”. Future monetary policy effectiveness as deflationary forces continue will depend in the advanced economies on government interventions to address underlying inequality and financial market “normalisation”.
    Keywords: Inflation, productivity, automation, income distribution, tax, transfers, general equilibrium analysis
    JEL: D33 E52 J11 O33
    Date: 2018
  48. By: Kai Gehring; Valentin F. Lang
    Abstract: IMF programs are often considered to carry a “stigma” that triggers adverse market reactions. We show that such a negative IMF effect disappears when accounting for endogenous selection into programs. To proxy for a country’s access to financial markets, we use credit ratings and investor assessments for 100 countries from 1987 to 2013. Our first identification strategy exploits the differential effect of changes in IMF liquidity on loan allocation. We find that the IMF can “cushion” against falling creditworthiness, despite contractionary adjustments resulting from its programs. A second, event-based strategy using country-times-year fixed effects supports this positive signaling effect. A supplementary text analysis of rating statements validates that agencies perceive IMF programs as positive, particularly when they are associated with reform commitments.
    Keywords: International Monetary Fund, sovereign credit ratings, capital market accss, creditworthiness, financial crises
    JEL: E44 F33 F34 G24
    Date: 2018
  49. By: Lydon, Reamonn; Mathä, Thomas Y.; Millard, Stephen
    Abstract: Using firm-level data from a large-scale European survey among 20 countries, we analyse the determinants of firms using short-time work (STW). We show that firms are more likely to use STW in case of negative demand shocks. We show that STW schemes are more likely to be used by firms with high degrees of firm-specific human capital, high firing costs, and operating in countries with stringent employment protection legislation and a high degree of downward nominal wage rigidity. STW use is higher in countries with formalised schemes and in countries where these schemes were extended in response to the recent crisis. On the wider economic impact of STW, we show that firms using the schemes are significantly less likely to lay off permanent workers in response to a negative shock, with no impact for temporary workers. Relating our STW take-up measure in the micro data to aggregate data on employment and output trends, we show that sectors with a high STW take-up exhibit significantly less cyclical variation in employment. JEL Classification: C25, E24, J63, J68
    Keywords: crisis, firms, recession, short-time work, survey, wages
    Date: 2018–12
  50. By: Chaliasos, Michael; Jansson, Thomas; Karabulut, Yigitcan
    Abstract: This paper uses unique administrative data and a quasi-field experiment of exogenous allocation in Sweden to estimate medium- and longer-run effects on financial behavior from exposure to financially literate neighbors. It contributes evidence of causal impact of exposure and of a social multiplier of financial knowledge, but also of unfavorable distributional aspects of externalities. Exposure promotes saving in private retirement accounts and stockholding, especially when neighbors have economics or business education, but only for educated households and when interaction possibilities are substantial.Findings point to transfer of knowledge rather than mere imitation or effects through labor, education, or mobility channels.
    Keywords: household finance,financial literacy,social interactions,refugees
    JEL: G11 E21 D14 F22 I28
    Date: 2018
  51. By: Matthias Kehrig; Nicolas Vincent
    Abstract: The aggregate labor share in U.S. manufacturing declined from 62 percentage points (ppt) in 1967 to 41 ppt in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppt during the same period. Using micro-level data, we document a number of striking facts: (1) there has been a dramatic reallocation of value added to "hyper- productive" (HP) low-labor share establishments, with much more limited reallocation of inputs; (2) HP establishments have only a temporarily lower labor share that rebounds after five to eight years to the level of their peers; (3) selection into HP status has become increasingly correlated with past size; (4) labor share dynamics are driven by revenue total factor labor productivity, not wages or capital intensity; (5) employment has become less responsive to positive technology shocks over time; and (6) HP establishments enjoy a product price premium relative to their peers that causes their high (revenue) productivity. Counterfactual exercises indicate that selection along size rather than shocks or responsiveness to them is the primary driver of the labor share decline.
    JEL: E2 L1 L20 L6 O4
    Date: 2018–11
  52. By: Martin Peitz; Dongsoo Shin
    Abstract: A project leader sources an input from a supporter and combines it with an input produced in-house. The leader has private information about the project’s cost environment. We show that if the leader can commit to the in-house input level, the input ratio is distorted upward when the in-house input is not too costly—the in-house input is produced in excess and, thus, partly wasted. By contrast, without the leader’s commitment to the in-house input level, the input ratio is distorted downward when the in-house input is su¢ciently costly—the outsourced input is produced in excess and, thus, partly wasted
    Keywords: labor income tax; labor supply elasticity; general equilibrium; cross-country panel
    JEL: E21 E24 J21 J22
    Date: 2018–12
  53. By: Francesco Di Comite (European Commission - DG ECFIN); Patrizio Lecca (European Commission - JRC); Philippe Monfort (European Commission - DG REGIO); Damiaan Persyn (European Commission - JRC); Violeta Piculescu (European Commission - DG REGIO)
    Abstract: In this paper we assess the system-wide economic impact of the key financial instruments adopted by the European Union for the implementation of the regional policy: The Structural funds and The Cohesion Funds. We take a bottom-up approach by aggregating the 86 categories of expenditures defined in the Structural and Cohesion Funds into six main policy variables. The outcomes of the simulations are the results of a combination of demand-and-supply-side shocks that are implemented into the RHOMOLO spatial and dynamic general equilibrium model calibrated on a set of inter-regional Social Accounting Matrices for the year 2010. In our analysis we document the direct, indirect, and general equilibrium effects of the EU regional policy at the regional, national, and EU level. In the short-run, our simulation exercise suggests a pronounced variegate patters across EU regions. In the long-run, a more homogenous spatial distribution is detected. Moreover, we identify and quantify the interregional spillover effects arising from trade links and capital mobility.
    Keywords: rhomolo, region, growth, cohesion policy, modelling, general equilibrium
    JEL: C54 C68 E62 R13
    Date: 2018–11
  54. By: Minchul Yum
    Abstract: A higher labor tax rate increases the equilibrium real interest rate and reduces the equilibrium wage in a heterogeneous-agent model with endogenous savings and indivisible labor supply decisions. I show that these general equilibrium adjustments, in particular of the real interest rate, reinforce the negative employment impact of higher labor taxes. However, the representative-agent version of the model, which generates similar aggregate employment responses to labor tax changes, implies that general equilibrium feedback is neutral. The cross-country panel data reveal that the negative association between labor tax rates and the extensive margin labor supply is significantly and robustly weaker in small open economies where the interest rate is less tightly linked to domestic circumstances. This empirical evidence supports the transmission mechanism of labor tax changes for employment in the heterogeneous-agent model.
    Keywords: labor income tax; labor supply elasticity; general equilibrium; cross-country panel
    JEL: E21 E24 J21 J22
    Date: 2018–12
  55. By: Martin Christensen (European Commission - JRC); Andrea Conte (European Commission - JRC); Filippo Di Pietro (European Commission - JRC); Patrizio Lecca (European Commission - JRC); Giovanni Mandras (European Commission - JRC); Simone Salotti (European Commission - JRC)
    Abstract: The Investment Plan for Europe aims at removing obstacles to investment, providing visibility and technical assistance to investment projects, and at making smarter use of financial resources. The Investment Plan is made up of three pillars: the European Fund for Strategic Investment (EFSI); the European Investment Advisory Hub and the European Investment Project Portal; and the removal of regulatory barriers to investment. Policy simulations using the RHOMOLO dynamic CGE model show positive aggregate macro-economic effects of the EFSI. This Policy Insight contains the result of an additional set of RHOMOLO simulations aimed at quantifying the macroeconomic impact of the legislative proposals contained in the third pillar of the Investment Plan. The EU GDP is expected to be 1.5% higher by 2030 thanks to the removal of barriers to investment in the areas of the Capital Markets Union, the Single Market Strategy, the Digital Single Market, and the Energy Union. This entails the creation of about one million of jobs across the entire EU.
    Keywords: rhomolo, region, growth, investment plan for europe, third pillar, capital markets union, single market strategy, energy union, digital single market, modelling
    JEL: C54 C68 E62
    Date: 2018–11
  56. By: Lucie Povolná (Tomas Bata University in Zlín)
    Abstract: The objective of the paper is to determine the degree of agreement between the anticipated industrial demand and the subsequent development of the indicators of economy performance, considering the time period. The methodology of the research compares the balances of business cycle indicators, to the balances of real industry performance in the machining sector. The analyzed time period was 2003 ? 2017, and it was split into several parts on account of diverse economic development. It was proved that the reliability of the selected data varies in accordance with the development of economy. The results indicate that there is a dependency between the assessed variables; the more positive economic development, the more reliable the data. The research was realized in the Czech industry with the intention of providing a tool for another potential user ? so far, an underestimated one ? an industrial business. The results should serve as a tool for mitigation of the B2B market purchase decision uncertainty.
    Keywords: business cycle indicator, B2B buying, economic forecast
    JEL: E32 M31 L16
    Date: 2018–10
  57. By: Richard Finlay (Reserve Bank of Australia); Andrew Staib (Reserve Bank of Australia); Max Wakefield (Reserve Bank of Australia)
    Abstract: The Reserve Bank of Australia is the sole issuer and redeemer of Australian banknotes. This means that we know exactly how many banknotes have ever been printed and issued to the public, and how many banknotes, at the end of their life, have been returned to the Reserve Bank and destroyed. Between issuance and destruction, however, there is little public information about where banknotes go or what they are used for. Such information would be of interest for a number of reasons, including to aid in forecasting future banknote demand, and to assess the extent to which banknotes are used to facilitate illegal activities or avoid tax obligations. To address this we use a range of techniques to estimate the whereabouts and uses of Australian banknotes. The techniques that we employ suggest that, of total outstanding banknotes: 15–35 per cent are used to facilitate legitimate transactions; roughly half to three-quarters are hoarded as a store of wealth or for other purposes, of which we can allocate 10–20 percentage points to domestic hoarding and up to 15 percentage points to international hoarding; 4–8 per cent are used in the shadow economy; and 5–10 per cent are lost.
    Keywords: banknotes; lost money; transactional demand; hoarding; shadow economy
    JEL: E41 E58
    Date: 2018–12
  58. By: W. Erwin Diewert (Vancouver School of Economics, University of British Columbia, and School of Economics, UNSW Business School, UNSW Sydney); Kevin J. Fox (School of Economics and CAER, UNSW Business School, UNSW Sydney)
    Abstract: The use of multilateral indexes is increasingly an accepted approach for incorporating scanner data in a Consumer Price Index. The attractiveness stems from the ability to be able to control for chain drift bias. Consensus on two key issues has yet to be achieved: (i) the best multilateral method to use, and (ii) the best way of extending the resulting series when new observations become available. We present theoretical and simulation evidence on the extent of substitution biases in alternative methods. Our results suggest the use of the CCDI index with a new method, the “mean splice”, for updating.
    Keywords: Consumer Price Index, chain drift, multilateral indexes, Rolling Window indexes, linking methods
    JEL: C43 E31
    Date: 2018–10
  59. By: Giovannini, Massimo (European Commission – JRC); Hohberger, Stefan (European Commission – JRC); Ratto, Marco (European Commission – JRC); Vogel, Lukas (European Commission)
    Abstract: The paper reviews adjustment dynamics in the EMU on the basis of estimated DSGE models for four large EA Member States (DE, FR, IT, ES). We compare the response of the four countries to identical shocks and find a particularly strong response of employment and wages in ES, a high sensitivity of IT to investment-related shocks, and a comparatively strong impact of global shocks on the DE economy. We also perform counterfactual exercises that apply the estimated shocks and parameters for ES to DE, FR, and IT. The counterfactual simulations suggest that differences in shocks have been important for GDP growth differentials, and together with structural differences also contributed to differences in employment fluctuations across the four countries considered.
    Keywords: Estimated DSGE; adjustment dynamics; business cycles; EMU; counterfactuals
    JEL: E32 F41 F44
    Date: 2018–11
  60. By: Santiago J. Gahn (Univeristà degli Studi di Roma Tre (IT)); Alejandro González
    Abstract: In a recent contribution, Nikiforos (2016) has claimed that the FED data on capacity utilisation is stationary by construction, and thus, not suitable to test the Neo-Kaleckian model. He then proceeds to provide new series on capital utilisation, which he claims are non-stationary and provide, supposedly, support for the Neo-Kaleckian model. This comment presents two interrelated claims. First, the measurement error that Nikiforos claims to be I(1) in the FED series is I(0), and what is measured with error is only the level of the series. Thus, this series is suitable to test the Neo-Kaleckian model. Secondly, he does not provide unit root tests for the series he suggests as superior to the FED. When this exercise is carried out, almost all unit root tests decidedly reject the existence of a stochastic trend on his 3 proposed series, which, according to the author, do not lend support to the Neo-Kaleckian model. We conclude that measures of capacity utilisation based on FRB data are a reasonable source to test the implications of a wide variety of macroeconomic models.
    Keywords: Neo-Kaleckian model, Capacity Utilisation, Stationarity, Workweek of Capital
    JEL: C22 E11
    Date: 2018–12
  61. By: Nicodeme Gaetan; Caiumi Antonella; Majewski Ina
    Abstract: Despite sharp reductions in corporate income tax (CIT) rates worldwide, CIT revenues have not fallen dramatically in the last two decades. This paper investigates the recent developments in CIT in the European Union, by taking a closer look at the potential driving forces behind this puzzle. Using a unique dataset of national sectoral accounts, we decompose the CIT revenue to GDP ratio for the EU and find that while the decrease in the statutory rates has driven down tax collection, the effect was more than offset by a broadening of the taxable base and a slight increase in the size of the corporate sector. However, this result holds for the period 1995-2015 but not for the last decade where base broadening has not been able to match further cuts in rates.
    Keywords: Corporate Tax, Implicit Tax Rate, Tax Reforms, Incorporation, European Union
    JEL: E62 H25 O52
    Date: 2018–12
  62. By: Andreas Kettemann; Andreas I. Mueller; Josef Zweimüller
    Abstract: This paper explores the relationship between the duration of a vacancy and the starting wage of a new job, using unusually informative data comprising detailed information on vacancies, the establishments posting the vacancies and the workers eventually filling the vacancies. We find that vacancy durations are negatively correlated with the starting wage and that this negative association is particularly strong with the establishment component of the starting wage. We also confirm previous findings that growing establishments fill their vacancies faster. To understand the relationship between establishment growth, vacancy filling and entry wages, we calibrate a model with directed search and ex-ante heterogeneous workers and firms. We find a strong tension between matching the sharp increase in vacancy filling for growing firms and the response of vacancy filling to firm-level wages. We discuss the implications of this finding as well as potential resolutions.
    Keywords: vacancy posting, vacancy duration, recruiting, search wages
    JEL: E24 J31 J63
    Date: 2018
  63. By: Andreas Fagereng; Martin B. Holm; Gisle J. Natvik
    Abstract: We use sizeable lottery prizes in Norwegian administrative panel data to characterize households' marginal propensities to consume (MPCs). Our main contribution is to document how MPCs vary with household characteristics and prize size, and how lottery prizes are spent and saved over time. We find that spending spikes in the year of winning, and reverts to normal within 5 years. Controlling for all items on households' balance sheets and characteristics such as education and income, it is the amount won, age and liquid assets that vary systematically with MPCs. Low-liquidity winners of the smallest prizes (around USD 1,500) are estimated to spend all within the year of winning. The same estimate for high-liquidity winners of large prizes (USD 8,300 - 150,000) is slightly below one half. While the consumption responses we find are high, their systematic relations with observables point toward well-understood mechanisms from existing theory and should be useful to quantify structural models.
    Keywords: marginal propensity to consume, household heterogeneity, income shocks
    JEL: D12 D14 D91 E21
    Date: 2018–10
  64. By: Vértesy, László
    Abstract: The role of multinational companies is significant in each of the national and thus in the global economy. The longstanding debate in the literature is whether the economic growth is more likely to be driven by the large-scale enterprises or small and medium-sized enterprises, especially if the high proportion of dependent, suppliers SMEs is taken into account. 45.6% of the value added by the Hungarian business sector - without financial sector - was generated by only 906 large companies. This ratio is one quarter of the country's total GDP and 10 percent just for the automotive industry. In its proportions it represents only 0.13% of enterprises, yet it employs 33.1% of employees (850.000 people) in the business sphere. The leverage and labor productivity of large and multinational companies are significant. In the EU's economic policy, the principle of growth that benefits everyone should be a decisive goal. The paper deals with the following topics: wages adjusted to the productivity level; sectoral domestic and EU minimum wages; stronger employee protection and trade union system; state and EU subsidies; dual product quality practices.
    Keywords: multinational companies, economy, economic growth, labor market, subsidies, wages, minimum wages, productivity
    JEL: E24 F43 J24 J31
    Date: 2018
  65. By: Sunanda Sen
    Abstract: Divergent trends, as observed, between growth in the financial and real sectors of the global economy entail the need for further research, especially on the motivations behind investment decisions. Investments in market economies are generally guided by call-put option pricing models--which rely on an ergodic notion of probability that conforms to a normal distribution function. This paper considers critiques of the above models, which include Keynes's Treatise on Probability (1921) and the General Theory (1936), as well as follow-ups in the post-Keynesian approaches and others dealing with "fundamental uncertainty." The methodological issues, as can be pointed out, are relevant in the context of policy issues and social institutions, including those subscribed to by the ruling state. As it has been held in variants of institutional economics subscribed to by John Commons, Thorstein Veblen, Geoffrey Hodgeson, and John Kenneth Galbraith, social institutions remain important in their capacity as agencies that influence individual behavior with their "informational-cognitive" functions in society. By shaping business concerns and strategies, social institutions have a major impact on investment decisions in a capitalist system. The role of such institutions in investment decisions via policy making is generally neglected in strategies based on mainstream economics, which continue to rely on optimization of stock market returns based on imprecise estimations of probability.
    Keywords: Uncertainty; Probability; Weights; Investment; Keynes; Institutional Economics
    JEL: B25 E02 E12 E22 G01 G11
    Date: 2018–12
  66. By: Adalid, Ramón; Falagiarda, Matteo
    Abstract: We propose a method to decompose net lending flows into loan origination and repayments. We show that a boom in loan origination is transmitted to repayments with a very long lag, depressing the growth rate of the stock for many periods. In the euro area, repayments of the mortgage loans granted in the boom preceding the financial crisis have been dragging down net loan growth in recent years. This concealed an increasing dynamism in loan origination, especially during the last wave of ECB’s non-standard measures. Using loan origination instead of net loans has important implications for understanding macroeconomic developments. For instance, the robust developments in loan origination in recent times explain the strengthening in housing markets better than net loans. Moreover, credit supply restrictions during the crisis are estimated to be smaller. Overall, there is a premium on using loan origination and repayments in economic models, especially after large booms. JEL Classification: E17, E44, G01, D14
    Keywords: amortisation rate, housing markets, loan repayments, new lending
    Date: 2018–12
  67. By: Katsuyuki Shibayama
    Abstract: This paper studies a simple endogenous growth model to explain growth slowdowns. It is designed to explain, for example, the middle income trap often observed in the south-east Asian countries, the U.K.'s productivity puzzle after the Great Recession and the lost decades of Japan in a unified framework. It is based on the Romer's (1990, JPE) variety expansion model with additional state variable, which we call the R&D environment. The R&D environment is a sort of social capital that captures the research network and culture, society's attitude towards research activities, and so on. Together with the non-negativity constraint of the labour supply, this additional state variable generates multiple steady states (balanced growth paths, BGPs). The model has three BGPs, of which the middle one is unstable (explosive) while the other two satisfy the saddle path stability with high and low R&D activities. Without stochastic shocks, the model exhibits strong initial state dependency, meaning that even only small difference in the initial state could lead to a large difference in the long-run. With stochastic shocks, occasional shifts between two stable BGPs can occur. The model offers an intuitive explanation why a financial shock is particularly important for growth slowdowns. Interestingly, before a growth slowdown, a financial malfunctioning raises the stock return. Finally, our model is fairly realistic in the sense that it allows us to do calibration exercises which are rather standard in the business cycle studies.
    Keywords: endogenous growth; growth slowdown; dynamic stochastic general equilibrium model; middle-income trap; natural resource curse; productivity puzzle; R&D; official development assistance
    JEL: E3 O3 O4
    Date: 2018–11
  68. By: Köhler, Kasper
    Abstract: A feature of Kaleckian models of distribution and growth that is often overlooked is that they describe a nonlinear relation between functional income distribution and demand and growth, because the size of the multiplier is affected by redistribution from wages to profits and vice versa. This paper addresses the nonlinearity of the standard post-Kaleckian model by examining its so-called IS-curves. It is found that changes in functional income distribution affect the "distribution-ledness" of an economy: redistribution towards wages reinforces the wage-led or profit-led character of an economy, while redistribution towards profits does the opposite. In addition, redistribution towards wages can turn an intermediate regime wage-led. A standard post-Kaleckian model with nonlinear investment behaviour is then presented. This model yields substantially different IS curves, such that an optimal functional income distribution can be derived. However, it is found that unlike in the standard model, this optimum is not the same for the different classes, such that true opposing interests appear in the model.
    Keywords: distribution,growth,nonlinearity,demand and growth regimes,Kaleckian models
    JEL: B59 E11 E12 E25 O40
    Date: 2018
  69. By: Ricardo Correa; Teodora Paligorova; Horacio Sapriza; Andrei Zlate
    Abstract: We analyze the impact of monetary policy on bilateral cross-border bank flows using the BIS Locational Banking Statistics between 1995 and 2014. We find that monetary policy in the source countries is an important determinant of cross-border bank flows. In addition, we find evidence in favor of a cross-border bank portfolio channel. As relatively tighter monetary conditions in source countries erode the net worth and collateral values of domestic borrowers, banks reallocate their claims toward safer foreign counterparties. The cross-border reallocation of credit is more pronounced for banks in source countries with weaker financial sectors, which are likely to be more risk averse. Lastly, the reallocation is directed toward borrowers in safer countries, such as advanced economies or economies with an investment grade sovereign rating. By highlighting the effect of domestic monetary policy on foreign credit, this study enhances our understanding of the monetary policy transmission mechanism through global banks.
    Keywords: Bank lending ; Cross-border bank flows ; Monetary policy ; Portfolio rebalancing
    JEL: E52 F34 F36 G21
    Date: 2018–12–03
  70. By: yılmaz, Engin
    Abstract: Turkish banking sector has realized serious reconstruction after the 2001 crisis. Turkish banks left to finance government debts and has turned to their intermediation activities . However, Turkish banks broke the traditional loans-deposits balance and led to situation that loans have surpassed the deposits in the system. This article tries to indicate that the growth of gap between loans and deposits in Turkish banking system results from cross curreny swap transactions and these transactions change the composition of Turkish banks’ liabilities in favour of FX liabilities.
    Keywords: Cross Currency Swap, Loans’ Growth, Non-Core Liabilities
    JEL: E50
    Date: 2018–09–01
  71. By: Patrizio Lecca (European Commission - JRC); Damiaan Persyn (European Commission - JRC); Andrea Conte (European Commission - JRC); Simone Salotti (European Commission - JRC)
    Abstract: The European Cohesion Policy 2007-2015 was implemented in challenging times due to the economic and financial crisis and widespread cuts to public investment. Cohesion Policy has been used to reach objectives related to employment, R&D, energy sustainability, education, and poverty and social exclusion. Policy simulations using the RHOMOLO dynamic CGE model show positive macro-economic effects of the policy at the EU level, with significant differences between less developed regions, transition regions, and more developed ones. Cohesion Policy funds mainly targeted the less developed regions which received 60% of the total investments, while transition regions and more developed ones received 24% and 16% of the total, respectively. RHOMOLO simulations estimate the long-run GDP impact of Cohesion Policy to be equal to +0.7% at the EU level, with peaks in some less developed regions above +5%. The cumulative multipliers associated with the Cohesion Policy funds are above one in most EU regions by 2030.
    Keywords: rhomolo, region, growth, cohesion policy, modelling, general equilibrium
    JEL: C54 C68 E62 R13
    Date: 2018–11
  72. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Topics covered include: recent monetary policy actions; outlook -- continued robust growth; clear risks to the forecast; how should policy respond to strong base forecast but rising risks?; inflation for goods and services; exports are important and uncertain.
    Keywords: labor markets; economic outlook; financial stability; short-term rates; global risks; dual mandate
    Date: 2018–10–26
  73. By: Wei Xiong
    Abstract: China's economic reforms over the past 40 years have led to a mixed economic structure with the government playing a key role in an increasingly market-driven economy. This paper expands a standard growth model of Barro (1990) to incorporate this structure, with a particular focus on including the agency problem between the central and local governments. To incentivize local governors, the central government has established an economic tournament, which generates not only intended incentives to develop local economies, à la Holmstrolm (1982), but also short-termist behaviors, à la Stein (1989). The latter channel helps to explain a series of challenges that confront the Chinese economy, such as overleverage through shadow banking and unreliable economic statistics.
    JEL: E02 G18
    Date: 2018–11
  74. By: Graziella Bertocchi; Marianna Brunetti; Anzelika Zaiceva
    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: 2018–11
  75. By: Goldfayn-Frank, Olga; Wohlfart, Johannes
    Abstract: Exploiting the natural experiment of the German reunification, we examine how consumers adapt to a new environment in their macroeconomic forecasting. We document that East Germans expect higher inflation and make larger forecast errors than West Germans even decades after reunification. Differences in consumption baskets, financial literacy, risk aversion or trust in the central bank cannot fully account for these patterns. We find most support for the explanation that East Germans, who were used to a strong norm of zero inflation, persistently overadjusted the level of their expectations in the face of the initial inflation shock in reunified Germany. Our findings suggest that large changes in the economic environment can permanently impede people's ability to form accurate macroeconomic expectations, with an important role for the interaction of old norms and new experiences around the event.
    Keywords: Expectation Formation,Inflation,Natural Experiment,German Reunification,Macroeconomic Experiences
    JEL: D12 D14 D83 D84 G11
    Date: 2018
  76. By: José Romero (IIEc (UNAM) - El Colegio de México)
    Abstract: The paper presents the main limitations of total factor productivity and the benefits of productivity as a measure of productivity.
    Keywords: productivity, growth, capital, production function
    JEL: E10 E11 E12
    Date: 2018–11
  77. By: Hansjörg Blöchliger (OECD); Olivier Durand-Lasserve (OECD)
    Abstract: Russia is a federation of more than 80 regions spanning across a huge territory. Natural resource endowment, inherited industrial specialization, remoteness and climate conditions contribute to large regional disparities. This paper presents an empirical framework model for assessing determinants of regional growth in Russia between 2004 and 2015 with an extension to include sub-national fiscal policies. Baseline results show convergence rates of regional GDP per capita in line with the 2% “iron law of convergence” between countries. Capital investment, and public investment in particular, is a stronger driver of regional growth than in most OECD countries. Natural-resource rich regions are growing faster, and oil price shocks have little economic impact in these regions, pointing at Russia’s centralized tax and transfer system. Subnational current government expenditure is associated with lower growth and slower regional convergence, suggesting low sub-national spending efficiency. There is also weak evidence that sub-national investment yields higher returns than federal government investment. Transfers have mixed effects depending on their nature. Budget equalization grants tend to slow regional growth as they reduce incentives to improve spending efficiency. On the other hand earmarked matching grants tend to spur growth and convergence as they direct resources towards more productive spending.
    Keywords: empirical growth model, fiscal federalism, public investment, Regional convergence
    JEL: H72 O47 P25 R12 R50
    Date: 2018–12–13
  78. By: Jakubik, Adam; Stolzenburg, Victor
    Abstract: We exploit a decomposition of gross trade flows into their value added components to reassess the relationship between increased imports from China and manufacturing jobs in US local labour markets following the seminal paper of Autor, Dorn, and Hanson (2013, ADH). Decomposed trade flows enable us to address identification and measurement issues inherent to gross trade data. In particular, it allows us to remove US value added in Chinese exports from the exposure measure which is mechanically correlated with the dependent variable and overstates the volume of the trade shock. In addition, the decomposition permits to correct for double counting, to remove primary and services inputs in manufacturing exports, and to assign competition to the upstream industry that supplied the value added rather than the final exporting industry. This further reduces the volume of the shock and improves the accuracy of the import exposure measure. Consequently, we find considerable differences in the pattern of regions that are most affected by the trade shock and show that imports from China can explain less of the decline in US manufacturing than what gross trade data would suggest. We then separate the shock into a China-driven domestic reform and a thirdcountry-driven value chain component, and find in line with ADH that the smaller, but still negative labour market effects are indeed China driven. Finally, we observe that the negative effects identified in ADH are not present in the 2008-2014 period, as labour market adjustment has largely concluded. The long time needed for adjustment may have been prolonged by the evolution of China's comparative advantage.
    Keywords: value added trade,labor-market adjustment,local labor markets
    JEL: E24 F14 F16 J23 L60 R23
    Date: 2018
  79. By: Bryan Hardy
    Abstract: Emerging market firms frequently borrow in foreign currency (FX), but their assets are often denominated in domestic currency. This behavior leads to an FX mismatch on firms balance sheets, which can harm their net worth in the event of a depreciation. I use a large, unanticipated, and exogenous depreciation episode and a unique dataset to identify the real and financial effects of firm balance sheet shocks. I construct a new dataset of all listed non-financial firms, matched to their banks, in Mexico over 2008q1-2015q2. This dataset combines firm-level balance sheets and real outcomes, currency composition of both assets and liabilities, and firms' loan-level borrowing from banks in peso and FX. This data allows me to control for shocks to firms' credit supply to identify the balance sheet shock and examine its real consequences. I find that non-exporting firms that have a larger FX mismatch experience greater negative balance sheet effects following the depreciation. Among these, smaller firms see a decrease in loan growth, resulting in stagnant employment growth and decreased growth in physical capital relative to firms with smaller FX mismatch. Larger firms with a large FX mismatch also have lower growth in FX loans following the shock, but are able to increase borrowing in peso loans, resulting in relatively higher growth in employment and physical capital. My results imply that firms are subject to net worth based borrowing constraints, and that these constraints are more binding on smaller firms and for loans in FX.
    Keywords: balance sheet shocks, credit rationing, currency risk, foreign currency, corporate finance, bank lending, investment
    JEL: E44 F31 F41 F44 G31 G32
    Date: 2018–11
  80. By: Śmiech, Sławomir; Papież, Monika
    Abstract: The study investigates volatility spillovers among three types of uncertainty - financial, consumer, and industrial - in EU member states in the period between January 2005 and December 2017. The results suggest that most volatility is transmitted between countries within a given type of uncertainty. What is important, the pairs of countries that transmit uncertainty to one another are geographically related (i.e. they are neighbouring countries). Financial uncertainty can be seen as net volatility transmitter to both industrial and consumer uncertainties. The study proposes decomposition of the connectedness table into symmetric and skew-symmetric parts, which offers an attractive and comprehensive interpretation.
    Keywords: economic uncertainty spillovers, EU member states, square asymmetric matrix decomposition
    JEL: D8 E32
    Date: 2018–09–13
  81. By: Tommaso Mancini Griffoli; Maria Soledad Martinez Peria; Itai Agur; Anil Ari; John Kiff; Adina Popescu; Celine Rochon
    Abstract: Digitalization is reshaping economic activity, shrinking the role of cash, and spurring new digital forms of money. Central banks have been pondering wheter and how to adapt. One possibility is central bank digital currency (CBDC)-- a widely accessible digital form of fiat money that could be legal tender. This discussion note proposes a conceptual framework to assess the case for CBDC adoption from the perspective of users and central banks. It discusses possible CBDC designs, and explores potential benefits and costs, with a focus on the impact on monetary policy, financial stability, and integrity. This note also surveys research and pilot studies on CBDC by central banks around the world.
    Keywords: Money;Central banking;Currencies;Monetary policy;Money; Central Bank Digital Currencies; Monetary Policy
    Date: 2018–11–12
  82. By: Fatica, Serena (European Commission – JRC); Heynderickx, Wouter (European Commission – JRC); Pagano, Andrea (European Commission – JRC)
    Abstract: Using bank balance sheet data, we find evidence that leverage and asset risk of European multinational banks in the crisis and post-crisis period is affected by corporate taxes in their host country as well as by the tax rates in all the jurisdictions where the banking group operates. Then, we evaluate the effects that establishing tax neutrality between debt and equity finance has on systemic risk. We show that the degree of coordination in implementing the hypothetical tax reform matters. In particular, a coordinated elimination of the tax advantage of debt would significantly reduce systemic losses in the event of a severe banking crisis. By contrast, uncoordinated tax reforms are not equally beneficial. This is because national tax policies generate spillovers through cross-border bank activities and tax-driven strategic allocation of debt and asset risk across group affiliates.
    Keywords: Corporate tax, Debt bias, Debt shifting, Multinational banks, Leverage
    JEL: E32 F41 F44
    Date: 2018–11
  83. By: Xing, Victor
    Abstract: Treasury bills outperformed a broad cohort of asset classes following this year’s violent bouts of risk-parity unwind, as rising deficit, retreats from globalization, and waning stimulus favor high quality low duration instruments. At the same time, T-bills provide an effective hedge to a hawkish rate path, for higher short-term rates would improve portfolio carry. Unfortunately, some institutions continue to view cash holdings as signs of inefficient capital allocation due to past decade's "yield-seeking" bias where “sophistication” was needed to counter low rates. As a result, asset managers remain hesitant to hold T-bills in size for fears that perception of “inactivity” would harm prestige; some managers also expressed concerns that “unsophisticated” allocations would raise questions over compensation.
    Keywords: T-bills, cash, financial stability risks, monetary policy, volatility
    JEL: E4 E5 G1
    Date: 2018–11–25
  84. By: Won Jun Nah; Lavoie, Marc
    Abstract: One of the most notable features of income distribution is the widening wage differential among workers: there is a redistribution in favor of top management at the detriment of ordinary workers. The paper incorporates this distinction between overhead managerial labour and direct labour into a neo-Kaleckian growth model with target-return pricing, where an autonomously growing demand component ultimately determines the long-run path of an economy. Our aim is to explore the role of overhead labour costs in the coevolution of income distribution and economic growth. When overhead labour is taken into account, the share of profits becomes an increasing function of the rate of utilization of capacity. This implies that empirical research based on the post-Kaleckian specification of the investment function may fail to isolate the pure profitability effects and is likely to be biased in finding a profit-led regime. Our model features convergence to a fully-adjusted position in the long run. This is achieved by simultaneous path-dependent adjustments, both in the normal rate of utilization of capacity and in the growth rate of sales expected by firms. We examine the parametric conditions under which the model achieves a wage-led growth regime, in the restricted sense that both the average rates of accumulation and utilization decrease during the transitional dynamics arising from an upward adjustment of the normal rate of profit. Moreover, it is shown that a more equitable wage distribution between the "working rich" and the "working poor" will strengthen the wage-led nature of the economy.
    Keywords: neo-Kaleckian,growth,overhead labour,autonomous expenditures,targetreturn pricing
    JEL: E11 E37 O41
    Date: 2018
  85. By: Boyan Jovanovic; Julien Prat
    Abstract: Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Earnings cycles generate occasional large changes in earnings, consistent with some recent empirical findings. At the calibrated parameter values, financial constraints promote investment in reputation – an intangible capital form – in contrast to their documented inhibiting effect on investment in tangible capital.
    JEL: D31
    Date: 2018–11
  86. By: Diego G. Fano; Victor A. Lucero; Antonio Marin
    Abstract: This study describes the effects of heterodox fiscal and monetary policies pursued by Argentina, associated with existing populist governments since 2004. Argentina's fiscal policy was characterized by increased public expenditures and the tax burden. The further expansion of public expenditure led to fiscal deficits that were financed by money creation, thereby triggering an inflationary process that, up to date, could not be controlled. In turn, the loss of value of the local currency led to a process of exodus of capital, which tried to be contained using exchange controls and restrictions, popularly known as "cepo cambiario" (dollar exchange clamp). The side effect of it was a significant overvaluation of the real exchange rate. In order to study the effects of these measures in private companies, the financial statements of 148 companies (that make public offer of shares in the stock market, with public financial statements) were analyzed, belonging to the sectors of construction, agriculture, food and oil industries, as well as 25 banks and financial institutions. It was observed that, in general, government policies significantly affected the profitability levels and investment rates for private companies, deteriorating margins and discouraging investment. In turn, banks and financial enterprises accompanied the rise of inflation with rising interest rates and declining loans to the productive and real estate sector, shifting its portfolio to finance short-term consumption. The results of this study can confirm the harmful effects of populist and heterodox policies over the real economy, especially related to the long-term effects associated with the loss of the investment.
    Date: 2018–11
  87. By: Francesco Di Comite (European Commission - DG ECFIN); Olga Diukanova (European Commission - JRC); Giovanni Mandras (European Commission - JRC); Javier Gómez Prieto (European Commission - JRC)
    Abstract: In this note we present the economic impact assessment of the European Regional Development Fund (ERDF) for thematic objectives TO1 "Research and innovation" and TO4 "Low-carbon economy" in the region of Apulia, Italy. The results are based on the RHOMOLO-IO demand multiplier analysis and on computer simulations with the multi-regional dynamic computable general equilibrium (CGE) model RHOMOLO. The former approach is used to calculate the sector-specific output multipliers following a demand-side shock, while the CGE simulations provide evidence of significant spillover effects spreading beyond the Apulian borders and stimulating economic growth in other regions with significant trade links with Apulia. Our results suggest that a €536 million increase in demand for the Manufacturing & Construction sector would entail an increase in total value added of €329 million, which is roughly 0.46% of the regional GDP. The RHOMOLO simulations show that the effects of policy interventions reach their peak in the last years of ERDF programming period (2020-2022), when the absorption of investment funding is at its full potential. In 2022, T01 and T04 investments of the ERDF increase Apulian by 0.2% above the baseline GDP projections. Given the high import intensity of the region, only one fourth of the overall effect is driven by the direct investments and three fourths depend on the productivity improvements achieved as a result of the specific policy design. This demonstrates that the implementation of policies that are effective in raising productivity ensures long term economic benefits even in the absence of continuous funding.
    Keywords: rhomolo, region, growth, smart specialisation, investment, impact assessment, modelling
    JEL: C54 C68 E62
    Date: 2018–11
  88. By: de Oliveira Souza, Thiago (Department of Business and Economics)
    Abstract: The equity premium–risk-free rate puzzle in standard consumption-based asset pricing models disappears once we remove the government-imposed component from the consumption expenditure series. I calibrate this component based on the growth rates of two proxies for government intervention, which I also show to forecast the short- and long-term equity premiums between 1974 (or 1981) and 2017. In summary, investors require large premiums to hold stocks because stocks give poor returns when government intervention increases, thereby systematically reducing individuals’ utility levels.
    Keywords: Equity premium puzzle; intervention; regulation; risk
    JEL: E10 G10 H10
    Date: 2018–12–06
  89. By: Joaquín Naval (Universitat de Girona); José I. Silva (Universitat de Girona); Javier Vázquez-Grenno (Universitat de Barcelona & IEB)
    Abstract: This paper quantifies the joint effect of on-the-job training and workers' on-the-job learning decisions on aggregate employment. We present an Index of On-the-job Human Capital Acquisition (OJHCA), based on data from the OECD Program for the International Assessment of Adult Competencies. The objective of the index is to capture both formal and informal learning in the workplace. We document a strong positive association between the two components of our index, i.e., on-the-job training and on-the-job learning. We also show that the index is positively correlated with employment across OECD economies. To explain these stylized facts, we build a search and matching model with on-the-job human capital acquisition that depends on both on-the-job training provided by firms and on the workers' level of on-the-job learning. We calibrate the model to the Canadian economy and adjust the learning and training marginal costs to match cross-country levels in the human capital index. We compare the model's predictions with the data and we conclude that differences in marginal costs are necessary to match the differences observed in employment rates across countries. We also extend the model including payroll taxes and education. The model is able to reproduce the observed differences in employment rates between countries with the highest and the lowest level of OJHCA.
    Keywords: Employment, labor productivity, human capital, search and matching
    JEL: E24 J24 J64
    Date: 2018
  90. By: Anderson, Kym
    Abstract: Understanding how and why economies structurally transform as they grow is crucial for sound national policy making. Typically analysts of this issue focus on sectoral shares of GDP and employment. This paper extends that to include exports, including of services. It also considers mining in addition to agriculture and manufacturing, and recognizes some of the products of those four sectors are nontradable. The theory section's general equilibrium model provides hypotheses about structural change in different types of economies as they grow, and tests them econometrically with annual data for a sample of 117 countries for the period 1991-2014. The results point to the futility of adopting protective policies aimed at slowing de-agriculturalization and subsequent de-industrialization in terms of sectoral shares, since those trends inevitably will accompany economic growth. Fortuitously governments now have far more efficient and equitable ways of supporting the adjustments needed by people choosing or being pushed to leave declining industries.
    Keywords: comparative advantage; declining sectors; patterns of structural change; Productivity Growth
    JEL: D51 E23 F11 F43 N50 N60 O13 O14
    Date: 2018–12
  91. By: José Valente (Faculty of Economics, University of Coimbra); Mário Augusto (CeBER and Faculty of Economics, University of Coimbra); José Murteira (CeBER and Faculty of Economics, University of Coimbra, and CEMAPRE)
    Abstract: The present article studies the determinants of banking spreads, allowing for the possibility that the impact of some of these determinants on spreads may differ according to the particular loan type. This concern is fostered by both theoretical and empirical evidence supporting the general idea that the hetero-geneity of banks’ loan portfolios should be taken into account when studying the drivers of spread. This approach is distinct from previous work in the liter-ature, usually utilizing a single interest margin per bank, in order to measure the impact of its determinants. Using a dataset of observations on various per-sonal loan categories and the Difference GMM approach, the present study es-timates that marginal effects of, respectively, banks’ risk aversion, credit risk, and market share on spreads differ significantly according to whether the loan is a consumer loan, a paycheck-linked credit line or a revolving credit line for individuals. These findings suggest, accordingly, that central banks and regula-tory agencies should observe the composition of banks’ loans portfolios when writing their policies aiming at spread reduction.
    Keywords: Spread; Personal loans; Financial sector.
    JEL: G21 C23 E44
    Date: 2018–12

This nep-mac issue is ©2018 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.