nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒01‒07
106 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Assessing the Role of Sentiment in the Propagation of Fiscal Stimulus By Hyeongwoo Kim; Bijie Jia
  2. Conversion Theory II: the case for Recession Bonds By De Koning, Kees
  3. The first twenty years of the European Central Bank: Monetary Policy By Hartmann, Philipp; Smets, Frank
  4. Macroeconomic Effects of Inflation Target Uncertainty Shocks By Marcelo Arbex; Sidney Caetano; Wilson Correa
  5. Gains from wage flexibility and the zero lower bound By Roberto M. Billi; Jordi Galí
  6. Can we beat the Random Walk? The case of survey-based exchange rate forecasts in Chile By Pincheira, Pablo; Neumann, Federico
  7. Monetary Policy, Product Market Competition and Growth By Phillipe Aghion; Emmanuel Farhi; Enisse Kharroubi
  8. The Optimal Inflation Rate with Discount Factor Heterogeneity By Antoine Lepetit
  9. International Business Cycle and Financial Intermediation By Tamas Csabafi; Max Gillman; Ruthira Naraidoo
  10. The Reversal Interest Rate By Markus K. Brunnermeier; Yann Koby
  11. Inflation Targeting and the Taylor Principle: evidence from Colombia By Martha Misas, Edgar Villa, Andres F. Giraldo; Edgar Villa; Andres F. Giraldo
  12. Limited Commitment, Endogenous Credibility and the Challenges of Price-level Targeting By Gino Cateau; Malik Shukayev
  13. Lending Relationships and Optimal Monetary Policy By Guillaume Rocheteau; Tsz-Nga Wong; Cathy Zhang
  14. The Imbalances of the Bretton Woods System 1965 to 1973: U.S. Inflation, The Elephant in the Room By Michael D. Bordo
  15. The Welfare Cost of Inflation with Banking Time By Max Gillman
  16. Firm Leverage and Regional Business Cycles By Xavier Giroud; Holger M. Mueller
  17. Debt Relief and Slow Recovery: A Decade after Lehman By Tomasz Piskorski; Amit Seru
  18. On the design of stabilising fiscal rules By Wolf Heinrich Reuter; Olegs Tkacevs; Karlis Vilerts
  19. The Monetary and Fiscal History of Brazil, 1960-2016 By Ayres, Joao Luiz; Garcia, Marcio; Guillen, Diogo; Kehoe, Patrick J.
  20. Mientras llegaba el futuro By Piedrahíta, Esteban; Pérez, Carlos Andrés; Londoño, Harold
  21. Dominant Currency Debt By Eren, Egemen; Malamud, Semyon
  22. Forward Guidance: Is It Useful After the Crisis? By Maliar, Lilia; Taylor, John B.
  23. Interest rates, capital and bank risk-taking By Acosta-Smith, Jonathan
  24. Formulating Regional Competitiveness Fiscal Policy based upon Leverage Factors for Indonesian Data By Kindy R. Sjahrir
  25. Monitoring the Spanish economy from a regional perspective: main elements of analysis By Concha Artola; María Gil; Javier J. Pérez; Alberto Urtasun; Alejandro Fiorito; Diego Vila
  26. Monetary Independence and Rollover Crises By Javier Bianchi; Jorge Mondragon
  27. On the Algebraic Calculation of the Fiscal Multiplier By Nizam, Ahmed Mehedi
  28. Can the US Interbank Market be Revived? By Kyungmin Kim; Antoine Martin; Ed Nosal
  29. Continuous Time Versus Discrete Time in the New Keynesian Model: Closed-Form Solutions and Implications for Liquidity Trap By Maliar, Lilia
  30. A Dynamic Economy-wide Analysis of Company Tax Cuts in Australia By Janine M. Dixon; Jason Nassios
  31. Systemic Risk and the Great Depression By Sanjiv R. Das; Kris James Mitchener; Angela Vossmeyer
  32. Real Interest Rates, Inflation, and Default By Hur, Sewon; Kondo, Illenin; Perri, Fabrizio
  33. The changing structure of goverment consumption spending By Alessio Moro; Omar Rachedi
  34. Índice de Precios de Inmuebles: Un Enfoque Hedónico By Mundaca, Fernando; Sánchez, Elmer
  35. Dynamic Stochastic General Equilibrium With Financial Accelerator: The Case Of Indonesia By Kindy R. Sjahrir
  36. Mortgages, cash-flow shocks and local employment By Cumming, Fergus
  37. In search of fluctuations : Another look at China’s incredibly stable GDP growth By Kerola, Eeva
  38. LTV Limits and Borrower Risk By Nitzan Tzur-Ilan
  39. DSGE Model of the Russian Economy with the Banking Sector By Dmitry Kreptsev; Sergei Seleznev
  40. Relationship lending and SMEs’ funding costs over the cycle: why diversification of borrowing matters By Mikael Béatriz; Jérôme Coffinet; Théo Nicolas
  41. The Transmission of Monetary Policy Shocks By Miranda-Agrippino, Silvia; Ricco, Giovanni
  42. What Hides Behind the German Labor Market Miracle? Unemployment Insurance Reforms and Labor Market Dynamics By Benjamin Hartung; Philip Jung; Moritz Kuhn
  43. Nowcasting real GDP growth with business tendency surveys data: A cross country analysis By Evzen Kocenda; Karen Poghosyan
  44. Inflation Expectations and Firm Decisions: New Causal Evidence By Olivier Coibion; Yuriy Gorodnichenko; Tiziano Ropele
  45. Robust inference in models identified via heteroskedasticity By Lewis, Daniel J.
  46. Results of the Household Finance and Consumption Survey in Latvia By Ludmila Fadejeva; Janis Lapins; Liva Zorgenfreija
  47. Is a Fiscal Policy Council needed in Poland? By Łukasz Janikowski; Balazs Romhanyi
  48. Interest premium and external position: a time varying approach By Istvan Konya; Franklin Maduko
  49. Dynamic Growth Rate of U.S. Economy By Hossain, Md. Mobarak
  50. Ignorant Experts and Financial Fragility By Asano, Koji
  51. The (intertemporal) equity-efficiency trade-off of fiscal consolidation By Sakkas, Stelios; Varthalitis, Petros
  52. Reforms and the Real Exchange Rate: The Role of Pricing-to-Market By Lise Patureau; Céline Poilly
  53. Monetary policy and the redistribution of net worth in the US By Albert, Juan-Francisco; Gómez-Fernández, Nerea
  54. How expectations became governable: institutional change and the performative power of central banks By Wansleben, Leon
  55. The Macroeconomic Effects of Trade Policy By Christopher J. Erceg; Andrea Prestipino; Andrea Raffo
  56. Fiscal Policy Conditions for Government Budget Stability and Economic Recovery: Comparative Analysis of Japan and Greece By Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad; Mizoguchi, Tetsuro
  57. Changes in the Effects of Bank Lending Shocks and the Development of Public Debt Markets By Sangyup Choi
  58. Monetary Policy and Reaching for Income By Kent Daniel; Lorenzo Garlappi; Kairong Xiao
  59. The impact of macroeconomic uncertainty on inequality: An empirical study for the UK By Theophilopoulou, Angeliki
  60. Explaining intra-monthly consumption patterns: The timing of income or the timing of consumption commitments? By Vellekoop, Nathanael
  61. Temporal homogeneity between financial stress and the economic cycle By Raputsoane, Leroi
  62. Monetary and Fiscal History of Peru 1960-2010: Radical Policy Experiments, Inflation and Stabilization By Martinelli, César; Vega, Marco
  63. A model of endogenous financial inclusion: implications for inequality and monetary policy By Mohammed Ait Lahcen; Pedro Gomis-Porqueras
  64. Inequality and asset fire sales By Suzuki, Shiba
  65. Malawi; First Review Under the Three-Year Extended Credit Facility Arrangement and Requests for Modification and Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Malawi By International Monetary Fund
  66. Population Growth and Economic Development in Bangladesh: Revisited Malthus By Chowdhury, Md Niaz Murshed; Hossain, Md Mobarak
  67. Determinants of capital structure - Evidence from Shari'ah compliant and non-compliant firms By Yildirim, Ramazan; Masih, Mansur; Bacha, Obiyathulla
  68. Managing Expectations without Rational Expectations By George-Marios Angeletos; Karthik A. Sastry
  69. Selection into Entrepreneurship and Self-Employment By Ross Levine; Yona Rubinstein
  70. Trilemma-Dilemma: Constraint or Choice? Some Empirical Evidence from a Structurally Identified Heterogeneous Panel VAR By Peter J. Montiel; Peter Pedroni
  71. Spillovers from Euro Area Monetary Policy: A Focus on Emerging Europe By Sona Benecka; Ludmila Fadejeva; Martin Feldkircher
  72. Is the Output Growth Rate in NIPA a Welfare Measure? By Jorge Duran; Omar Licandro
  73. Double deflation: theory and practice By Nicholas Oulton; Ana Rincon-Aznar; Lea Samek; Sylaja Srinivasan
  74. Religious competition and reallocation: the political economy of secularization in the Protestant Reformation By Cantoni, Davide; Dittmar, Jeremiah; Yuchtman, Noam
  75. The Corporate Savings Glut and the Current Account in Germany By Thorsten Klug; Tobias Schuler; Eric Mayer
  76. Low Inflation: High Default Risk AND High Equity Valuations By Harjaat S. Bhamra; Christian Dorion; Alexandre Jeanneret; Michael Weber
  77. Real Interest Rates, Inflation, and Default By Hur, Sewon; Kondo, Illenin O.; Perri, Fabrizio
  78. What Happened to CIT collection? Solving the Rates-Revenues Puzzle By Caiumi, Antonella; Majewski, Ina; Nicodème, Gaëtan
  79. On commercial gluts, or when the Saint-Simonians adopted Jean-Baptiste Say’s view By Adrien Lutz
  80. Mexico; Review Under the Flexible Credit Line Arrangement-Press Release; and Staff Report By International Monetary Fund
  81. Rwanda; Tenth Review Under the Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director for Rwanda By International Monetary Fund
  82. The Effects of Collecting Income Taxes on Social Security Benefits By John Bailey Jones; Yue Li
  83. Causality deficit-inflation: Wavelet Transform By Elmrabet, Maissa; Boulila, Ghazi
  85. Exchange rates and prices: a continuous wavelet perspective By Gabor Uliha; Janos Vincze
  86. The Non-Existence of Representative Agents By Jackson, Matthew O.; Yariv, Leeat
  87. Belize; 2018 Article IV Consultation-Press Release; Staff Report; Informational Annex; Debit Sustainability Analysis and Statement by the Executive Director for Belize By International Monetary Fund
  88. Nowcasting private consumption: traditional indicators, uncertainty measures, credit cards and some internet data By María Gil; Javier J. Pérez; A. Jesús Sánchez; Alberto Urtasun
  89. Japan; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Japan By International Monetary Fund
  90. Estructura impositiva de España en el contexto de la Unión Europea By David López-Rodríguez; Cristina García Ciria
  91. Can productivity still grow in service-based economies?: Literature overview and preliminary evidence from OECD countries By Stéphane Sorbe; Peter Gal; Valentine Millot
  92. Macroeconomic Consequences of Tariffs By Furceri, Davide; Hannan, Swarnali; Ostry, Jonathan D.; Rose, Andrew K
  93. Expenditures and food consumption of a patrician family in nineteenth-century Trentino: the Bossi Fedrigotti By Marcella Lorenzini
  94. The Immediate Impact and Persistent Effect of FX Purchases on the Exchange Rate By Itamar Caspi; Amit Friedman; Sigal Ribon
  95. Avaliação de Políticas Macroprudenciais em um Modelo com Fricções Financeiras Estimado para a Economia Brasileira By Vinicius Ratton Brandi; Joaquim Pinto de Andrade
  96. The Rise of the Dollar and Fall of the Euro as International Currencies By Matteo Maggiori; Brent Neiman; Jesse Schreger
  97. United Kingdom; 2018 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for United Kingdom By International Monetary Fund
  98. Monthly Report No. 6/2018 By Vasily Astrov; Rumen Dobrinsky; Richard Grieveson; Doris Hanzl-Weiss; Peter Havlik; Gabor Hunya; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Hermine Vidovic
  99. Spain; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Spain By International Monetary Fund
  100. Collusion and Antitrust Filings over the Business Cycle By Hashmat Khan; Matthew Strathearn
  101. La crisis bancaria y cambiaria de Argentina en el 2001: Evidencia empírica para un modelo teórico con equilibrios múltiples By Flavio E. Buchieri
  102. I shouldn't eat this donut: Self-control, body weight, and health in a life cycle model By Strulik, Holger
  103. Re examination of Kinked Demand Oligopoly Market: Theory, Evidence and Policy Implications from Lakshadweep By Pazhanisamy, R.
  104. U.S. Economic Outlook: Quarterly developments By -
  105. Occasional Bulletin of Economic Notes 2017/02- Dispersion of Inflation Expectations By Shakill Hassan; Siobhan Redford
  106. Competitive Equilibrium Cycles for Small Discounting in Discrete-Time Two-Sector Optimal Growth Models By Alain Venditti

  1. By: Hyeongwoo Kim; Bijie Jia
    Abstract: This paper studies the dynamic effects of the fiscal policy shock on private activity using an array of vector autoregressive models for the post-war U.S. data. We are particularly interested in the role of consumer sentiment in the transmission of fiscal stimulus. Our major findings are as follows. Private spending fails to rise persistently in response to government spending shocks, while they exhibit persistent and significant increases when the sentiment shock occurs. Employing not only linear but also nonlinear state-dependent VAR model estimations, we show that the government spending shock generates consumer pessimism in all phases of business cycle resulting in subsequent decreases in private activity, which ultimately weakens the effectiveness of the fiscal policy. Our counterfactual simulation exercises confirm the important role of sentiment in propagating fiscal stimulus to private spending.
    Keywords: Government Spending; Sentiment Channel;Nonlinear VAR; Counterfactual Simulations; Survey of Professional Forecasters
    JEL: E32 E62
    Date: 2018–12
  2. By: De Koning, Kees
    Abstract: In a previous paper: “Conversion Theory: the key to understanding economic developments before and after the 2008 financial crisis”, the author stated that: * By 2007, U.S. subprime mortgages comprised 14% of outstanding mortgages, equivalent to $1.46 trillion. The securitized element was $1.1 trillion, which was about 15% of all outstanding mortgage backed securities ($7.3 trillion). * Over the period 2007-2014 21.228 million U.S. households were confronted with foreclosure proceedings out of the 51.234 million households who had a mortgage: 41.4% of all mortgage holders! * U.S Federal Government debt increased by $4.8 trillion between 2007-2010, while real GDP still shrank. This represented by far the fastest growth in debt compared to GDP over the last 50 years, from 62.9% Q4 2007 to 92.0% by Q4 2010. * Between May 2007 and October 2009, nearly 7 million U.S. individuals lost their jobs. New housing starts dropped from 2.273 million in January 2006 (annualized) to 478,000 by April 2009. Real median household income dropped from $59,534 by 2007 to $54,569 by 2012 or by 9.2%. The financial alchemy employed by bankers of the age entailed a conversion process, which turned long-term mortgage debt into daily tradable securities. The process failed for the simple reason that the risks posed by doubtful underlying debtors was transferred to investors, without clear provisions taken for such doubtful debtors. Liquidity disappeared when the curtain was pulled back and investors ran for the hills. The conversion method can also be applied to government debt in order to help overcome an economic recession. The method suggested is to create or convert a series of long-term bonds: Recession Bonds. Their defining characteristic is that the repayment of interest and some principal amount is halted during a recession period. A government can apply to the IMF to declare that a recession risk is imminent. Pay-outs of interest and some principal will be halted over the recession bonds until the recession is declared by the IMF to be over. Recession Bonds give a government the means to spend substantial additional amounts during a recession period without having to increase its borrowings. It is a cash flow transfer mechanism from financial investors to the real economy, benefitting consumer demand, wages and employment levels. This transfer mechanism also supports share prices. A version of financial alchemy but unlike the 2008 variety, the audience will not be repulsed if the curtain is pulled back!
    Keywords: Conversion Theory; financial crisis 2008; mortgage backed securities;long term debt conversion into daily tradable securities; recessions;Recession Bonds; quantitative easing QE and Variant QE(VQE)
    JEL: E32 E44 E58 E63 E65 G1 G15 G18 G2 G20
    Date: 2019–01–02
  3. By: Hartmann, Philipp; Smets, Frank
    Abstract: On 1 May 2018 the ECB celebrated its 20th anniversary. This paper provides a comprehensive view of the ECB’s monetary policy over these two decades. The first section provides a chronological account of the macroeconomic and monetary policy developments in the euro area since the adoption of the euro in 1999, going through four cyclical phases “conditioning” ECB monetary policy. We describe the monetary policy decisions from the ECB’s perspective and against the background of its evolving monetary policy strategy and framework. We also highlight a number of the key critical issues that were the subject of debate. The second section contains a partial assessment. We first analyze the achievement of the price stability mandate and developments in the ECB’s credibility. Next, we investigate the ECB’s interest rate decisions through the lens of a simple empirical interest rate reaction function. This is appropriate until the ECB hits the zero-lower bound in 2013. Finally, we present the ECB’s framework for thinking about non-standard monetary policy measures and review the evidence on their effectiveness. One of the main themes of the paper is how ECB monetary policy responded to the challenges posed by the European twin crises and the subsequent slow economic recovery, making use of its relatively wide range of instruments, defining new ones where necessary and developing the strategic underpinnings of its policy framework. JEL Classification: E52, E31, E32, E42, N14, G01
    Keywords: crisis, euro area economy, European Central Bank, European Economic and Monetary Union, inflation, monetary policy, non-standard measures, zero-lower bound
    Date: 2018–12
  4. By: Marcelo Arbex (Department of Economics, University of Windsor); Sidney Caetano (Department of Economics, Federal University of Juiz de Fora); Wilson Correa (Department of Economics, Federal University of Minas Gerais)
    Abstract: This note studies the macroeconomic effects of uncertainty shocks on the inflation target (IT). The IT is assumed to change over time and its stochastic volatility is modeled as an autoregressive process. We show that an IT uncertainty shock, namely a shock on its volatility) resembles an aggregate demand shock, a robust qualitative result for different Taylor-type rules. The magnitude of real and nominal variables responses depend crucially on the Taylor rule considered: a more reactive rule implies a less severe recession and deflation, while an empirical plausible degree of interest rate smoothing leads output, unemployment, and inflation to react more strongly causing the recession to be more severe and deflationary.
    Keywords: Uncertainty shocks, Infl ation target, Monetary policy.
    JEL: E31 E32 E52 E58
    Date: 2018–12
  5. By: Roberto M. Billi; Jordi Galí
    Abstract: We analyze the welfare impact of greater wage áexibility while taking into account explicitly the existence of the zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally ampliÖes the adverse e§ects of greater wage áexibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the presence of the ZLB implies that an increase in wage áexibility reduces welfare even under the optimal monetary policy with commitment.
    Keywords: labor market, flexibility, nominal rigidities, optimal monetary policy with commitment, Taylor rule, ZLB
    JEL: E24 E32 E52
    Date: 2018–12
  6. By: Pincheira, Pablo; Neumann, Federico
    Abstract: We examine the accuracy of survey-based expectations of the Chilean exchange rate relative to the US dollar. Our out-of-sample analysis reveals that survey-based forecasts outperform the Driftless Random Walk (DRW) in terms of Mean Squared Prediction Error at several forecasting horizons. This result holds true even when comparing the survey to a more competitive benchmark based on a refined information set. A similar result is found when precision is measured in terms of Directional Accuracy: survey-based forecasts outperform a “pure luck” benchmark at several forecasting horizons. Differing from the traditional “no predictability” result reported in the literature for many exchange rates, our findings suggest that the Chilean peso is indeed predictable.
    Keywords: Survey expectations, Exchange Rates, Forecasting, Random Walk, Directional Accuracy, Mean Squared Prediction Error.
    JEL: C0 C00 C01 C1 C10 C12 C14 C20 C22 C52 C53 C58 D00 E0 E17 E31 E37 E43 E44 E47 E50 E52 E58 F00 F31 F32 F37 F41 F47 G00 G12 G17
    Date: 2018–12–08
  7. By: Phillipe Aghion; Emmanuel Farhi; Enisse Kharroubi
    Abstract: In this paper we argue that monetary easing fosters growth more in more credit-constrained environments, and the more so the higher the degree of product market competition. Indeed when competition is low, large rents allow firms to stay on the market and reinvest optimally, no matter how funding conditions change with aggregate conditions. To test this prediction, we use industry-level and firm-level data from the Euro Area to look at the effects on sectoral growth and firm-level growth of the unexpected drop in long-term government bond yields following the announcement of the Outright Monetary Transactions program (OMT) by the ECB. We find that the monetary policy easing induced by OMT, contributed to raising sectoral (firm-level) growth more in more highly leveraged sectors (firms), and the more so the higher the degree of product market competition in the country (sector).
    Keywords: growth, financial conditions, firm leverage, competition
    JEL: E32 E43 E52
    Date: 2018–12
  8. By: Antoine Lepetit
    Abstract: This paper shows that deviations from long-run price stability are optimal in the presence of price stickiness whenever profit and utility flows are discounted at a different rate. In that case, a monetary authority acting under commitment will choose a path for the inflation rate that ends with a non-zero value. Such a property is relevant in a wide range of macroeconomic environments. I first illustrate this by studying optimal monetary policy in a New Keynesian model with a perpetual youth structure. In this setting, profit flows are discounted more heavily than utility flows and the optimal inflation target is equal to 3.2 percent in a baseline calibration of the model. I also show that this property leads to a positive long-run inflation rate in models with firm entry and exit and in environments with search and matching frictions in the labor market and another form of nominal rigidity, wage stickiness.
    Keywords: Discount factor heterogeneity ; Inflation target ; Optimal inflation rate ; Optimal monetary policy ; Perpetual youth ; Sticky prices
    JEL: E31 E32 E52
    Date: 2018–12
  9. By: Tamas Csabafi (University of Missouri-St. Louis - Department of Economics); Max Gillman (University of Missouri-St. Louis; IEHAS, Budapest; CERGE-EI, Prague); Ruthira Naraidoo (Department of Economics - University of Pretoria, South Africa)
    Abstract: The paper extends a standard two-country international real business cycle model to include financial intermediation by banks of loans and government bonds. Taking in household deposits from home and abroad, the loans are produced by the bank in a Cobb-Douglas production approach such that a bank productivity shock can explain financial data moments. The paper contributes an explanation, for both the US relative to the Euro-area, and the US relative to China, of cross-country correlations of loan rates, deposit rates, and the loan premia. It provides a sense in which financial retrenchment resulted in the US following the 2008 bank crisis, and how the Euro-area and China reacted. The paper contributes evidence of how the Euro-area has been more financially integrated with the US, and China less financially integrated, with the Euro-area becoming more financially integrated after the 2008 crisis, and China becoming less so integrated.
    Keywords: International Real Business Cycles, Financial Intermediation, Credit Spread, Bank Productivity, 2008 Crisis
    JEL: E13 E32 E44 F41
    Date: 2018–11
  10. By: Markus K. Brunnermeier; Yann Koby
    Abstract: The “reversal interest rate” is the rate at which accommodative monetary policy reverses its intended effect and becomes contractionary for lending. It occurs when banks' asset revaluation from duration mismatch is more than offset by decreases in net interest income on new business, lowering banks' net worth and tightening their capital constraints. The determinants of the reversal interest rate are 1) banks' fixed-income holdings, 2) the strictness of capital constraints, 3) the degree of pass-through to deposit rates, and 4) the initial capitalization of banks. Furthermore, quantitative easing increases the reversal interest rate and should only be employed after interest rate cuts are exhausted. Over time the reversal interest rate creeps up since asset revaluation fades out as fixed-income holdings mature while net interest income stays low. We calibrate a New Keynesian model that embeds our banking frictions and show that the economics behind the reversal interest rate carry through general equilibrium.
    JEL: E43 E44 E52 G21
    Date: 2018–12
  11. By: Martha Misas, Edgar Villa, Andres F. Giraldo; Edgar Villa; Andres F. Giraldo
    Abstract: We develop a theoretical model that generates an optimal Taylor rule in which structural parameters can change in a two monetary policy regime under ináation targeting. The theoretical model gives rise to an empirical structural STAR model. SpeciÖcation tests suggest a LSTAR speciÖcation of the transition function with the output gap lagged four periods as the transition variable. We Önd estimate this LSTAR model in reduced form that is used to recover structural deep parameters, like the weights in Banco de la Rep ?blicaís loss function for the two monetary regimes during the period of ináation targeting from IV.2000 to IV.2017. We Önd evidence that the nonlinear LSTAR Taylor rule outperforms in terms of within sample predictions the linear optimal Taylor rule which supports the conclusion that under ináation targeting the behavior of Banco de la Rep ?blica (Banrep) is described better with a two monetary regime policy than with a single monetary regime. We also Önd evidence that suggests that the monetary policy has been consistent with the so called Taylor principle in both regimes where in one of these Banrep has reacted aggresively to ináationary pressures while in the other regime it has reacted strongly, but not aggresively, to recessionary pressures. The asymmetric behavior of the monetary policy can be rationalized through asymmetric neo Keynesian price stickiness.
    Keywords: Monetary policy Taylor rules, Ináation Targeting, Taylor Principle, Nonlinear STAR models
    JEL: C22 E42 E43 E52 E58 E61
    Date: 2018–12–13
  12. By: Gino Cateau; Malik Shukayev
    Abstract: This paper studies the cost of limited commitment when a central bank has the discretion to adjust policy whenever the costs of honoring its past commitments become high. Specifically, we consider a central bank that seeks to implement optimal policy in a New Keynesian model by committing to a price-level target path. However, the central bank retains the flexibility to reset the target path if the cost of adhering to it exceeds a social tolerance threshold. We find that endowing the central bank with such discretion undermines the credibility of the price-level target and weakens its effectiveness to stabilize the economy through expectations. The endogenous nature of credibility also brings novel results relative to models with exogenous timing of target resets. A much higher degree of credibility is needed to realize the stabilization benefits of commitment. Multiple equilibria also emerge, including a low credibility equilibrium with frequent target resets and high volatility.
    Keywords: Credibility, Inflation targets, Monetary policy framework
    JEL: E31 E52
    Date: 2018
  13. By: Guillaume Rocheteau; Tsz-Nga Wong; Cathy Zhang
    Abstract: We study optimal monetary policy in a monetary model of internal and external finance with bank entry and endogenous formation of lending relationships through search and bargaining. Following an unanticipated destruction of relationships, optimal monetary policy under com- mitment lowers the interest rate in the aftermath of the shock and uses forward guidance to promote bank entry and rebuild relationships. Absent commitment, forward guidance fails to anchor inflation expectations and optimal policy is subject to a deflationary bias that delays recovery. If there is a temporary freeze in relationship creation, the interest rate is set at the zero lower bound for some period of time.
    Keywords: credit relationships, banks, optimal monetary policy
    JEL: D83 E32 E51
    Date: 2018–12
  14. By: Michael D. Bordo
    Abstract: This paper argues that the key deep underlying fundamental for the growing international imbalances leading to the collapse of the Bretton Woods system between 1971 and 1973 was rising U.S. inflation since 1965. It was driven in turn by expansionary fiscal and monetary policies—the elephant in the room. What was kept in the background at the Camp David meeting on August 15 1971 when President Richard Nixon closed the U.S. gold window, as well as imposing a ten per cent surcharge on all imports and a ninety day wage price freeze—was that U.S. inflation, driven by macro policies, was the main problem facing the Bretton Woods System, and that for political and doctrinal reasons was not directly addressed. Instead President Nixon blamed the rest of the world rather than focusing on issues with U.S. monetary and fiscal policies. In addition, at the urging of Federal Reserve Chairman Arthur F. Burns, Nixon adopted wage and price controls to mask the inflation, hence punting the problem into the future. This paper revisits the story of the collapse of the Bretton Woods system and the origins of the Great Inflation. Based on historical narratives and conversations with the Honorable George P. Shultz, a crucial player in the events of the period 1969 to 1973, I argue the case that the pursuit of tighter monetary and fiscal policies could have avoided much of the turmoil in the waning years of Bretton Woods. Moreover, I point out some of the similarities between the imbalances of the 1960s and 1970s—especially fiscal and the use of tariff protection as a strategic tool, as well as some differences—relatively stable monetary policy and floating exchange rates.
    JEL: E31 E42 E62 F33 F41 N10
    Date: 2018–12
  15. By: Max Gillman (University of Missouri-St. Louis; IEHAS, Budapest; CERGE-EI, Prague)
    Abstract: The paper presents the welfare cost of inflation in a banking time economy that models exchange credit through a bank production approach. The estimate of welfare cost uses fundamental parameters of utility and production technologies. It is compared to a cash-only economy, and a Lucas (2000) shopping economy without leisure, as special cases. The paper estimates the welfare cost of a 10% inflation rate instead of zero, for comparison to other estimates, as well as the cost of a 2% inflation rate instead of a zero inflation rate. The zero rate is specified as the US inflation rate target in the 1978 Employment Act amendments. The paper provides a conservative welfare cost estimate of 2% inflation instead of zero at $33 billion a year. Estimates of the percent of government expenditure that can be financed through a 2% vs. zero inflation rate are also provided.
    Keywords: Euler equation, interest rates, inflation, banking, money demand, velocity, price-theoretic, marginal cost, productivity shocks, Great Recession
    JEL: E13 E31 E43 E52
    Date: 2018–11
  16. By: Xavier Giroud; Holger M. Mueller
    Abstract: This paper shows that buildups in firm leverage predict subsequent declines in aggregate regional employment. Using confidential establishment-level data from the U.S. Census Bureau, we exploit regional heterogeneity in leverage buildups by large U.S. publicly listed firms, which are widely spread across U.S. regions. For a given region, our results show that increases in firms’ borrowing are associated with “boom-bust” cycles: employment grows in the short run but declines in the medium run. Across regions, our results imply that regions with larger buildups in firm leverage exhibit stronger short-run growth, but also stronger medium-run declines, in aggregate regional employment. We obtain similar results if we condition on national recessions–regions with larger buildups in firm leverage prior to a recession experience larger employment losses during the recession. When comparing regional firm and household leverage growth, we find qualitatively similar patterns for both. Finally, we find that regions whose firm leverage growth comoves more strongly also exhibit stronger comovement in their regional business cycles.
    JEL: E24 E32 G32
    Date: 2018–12
  17. By: Tomasz Piskorski; Amit Seru
    Abstract: We follow a representative panel of millions of consumers in the U.S. from 2007 to 2017 and document several facts on the long-term effects of the Great Recession. There were about six million foreclosures in the ten-year period after Lehman’s collapse. Owners of multiple homes accounted for 25% of these foreclosures, while comprising only 13% of the market. Foreclosures displaced homeowners, with most of them moving at least once. Only a quarter of foreclosed households regained homeownership, taking an average four years to do so. Despite massive stimulus and debt relief policies, recovery was slow and varied dramatically across regions. House prices, consumption and unemployment remain below pre-crisis levels in about half of the zip codes in the U.S. Regions that recovered to pre-crisis levels took on average four to five years from the depths of the Great Recession. Regional variation in the extent and speed of recovery is strongly related to frictions affecting the pass-through of lower interest rates and debt relief to households including mortgage contract rigidity, refinancing constraints, and the organizational capacity of intermediaries to conduct loan renegotiations. A simple counterfactual based on our estimates suggest that, regardless of the narratives of the causes of housing boom and bust, alleviating these frictions could have reduced the relative foreclosure rate by more than half and resulted in up to twice as fast recovery of house prices, consumption, and employment. Our findings have implications for mortgage market design, monetary policy pass-through, and macro-prudential and housing policy interventions.
    JEL: E44 G01 G2 G28
    Date: 2018–12
  18. By: Wolf Heinrich Reuter (German Council of Economic Experts); Olegs Tkacevs (Bank of Latvia); Karlis Vilerts (Bank of Latvia)
    Abstract: Utilising data of the EU28 Member States for the period 1996–2015, this paper confirms the findings of previous studies that the stipulation of fiscal rules reduces fiscal volatility and consequently contributes to macroeconomic stability. Yet, we document that this result only holds for rules which are designed to be unaffected by the current state of the business cycle, i.e. which are "a-cyclical". Those can, e.g. be budget balance rules that set ceilings in cyclically adjusted terms or expenditure rules that set a limit relative to potential instead of current output. Furthermore, the stringency of fiscal rules amplifies their stabilising effect. Actual year-to-year compliance with fiscal rules seems to play no systematic role, such that effects of the rules can be observed even if they are not complied with year-to-year. Overall, our paper suggests that strong, properly designed numerical rules act as an anchor for fiscal policy makers and contribute to more stable discretionary fiscal policy.
    Keywords: fiscal rules, fiscal policy volatility, panel data, compliance
    JEL: C23 E62 E32 H60
    Date: 2018–12–27
  19. By: Ayres, Joao Luiz (Inter-American Development Bank); Garcia, Marcio (Pontifical Catholic University of Rio de Janeiro,); Guillen, Diogo (Itau-Unibanco Asset Management); Kehoe, Patrick J. (Federal Reserve Bank of Minneapolis)
    Abstract: Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-inflation period (1995-2016) was characterized by improvements in all of these features, but it did not lead to significant improvements in economic growth. In addition, we document a strong positive correlation between inflation rates and seigniorage revenues, although inflation rates are relatively high for modest levels of seigniorage revenues. Finally, we discuss the role of the weak institutional framework surrounding the fiscal and monetary authorities and the role of monetary passiveness and inflation indexation in accounting for the unique features of inflation dynamics in Brazil.
    Keywords: Brazils hyperinflation; Brazils stagnation; Stabilization plans; Fiscal deficit; Debt accounting
    JEL: E42 E63 H62 H63
    Date: 2018–12–20
  20. By: Piedrahíta, Esteban; Pérez, Carlos Andrés; Londoño, Harold
    Abstract: This book focuses on the historical analysis of the main economic and social transformations of Valle del Cauca in the last 25 years. With a wide and diverse statistical information, the results of the Valley are evaluated against those registered by the main departments of the country. An account of the productive and social performance originated by the accelerated economic growth of the first half of the nineties, the crisis of the late twentieth century, the mining-energy boom experienced by the country between 2003 and 2013 and the recent adjustment of the economy. The new productive bets are also presented and teachings and lights are thrown for the economic future of the department
    Keywords: Transformaciones económicas, Desempeño productivo y social, apuestas productivas.
    JEL: A1 D5 D51 E23 E24 E3 E32 F1 F2 F21 F23
    Date: 2017–09
  21. By: Eren, Egemen; Malamud, Semyon
    Abstract: Why is the dollar the dominant currency for debt contracts and what are its macroeconomic implications? We develop an international general equilibrium model where firms optimally choose the currency composition of their debt. We show that there always exists a dominant currency debt equilibrium, in which all firms borrow in a single dominant currency. It is the currency of the country that effectively pursues aggressive expansionary monetary policy in global downturns, lowering real debt burdens of firms. We show that the dollar empirically fits this description, despite its short term safe haven properties. We provide further modern and historical empirical support for our mechanism across time and currencies. We use our model to study how the optimal monetary policy differs if the Federal Reserve reacts to global versus domestic conditions.
    Keywords: dollar debt; dominant currency; Exchange Rates; inflation
    JEL: E44 E52 F33 F34 F41 F42 F44 G01 G15 G32
    Date: 2018–12
  22. By: Maliar, Lilia; Taylor, John B.
    Abstract: During recent economic crisis, when nominal interest rates were at their effective lower bounds, central banks used forward guidance -- announcements about future policy rates -- to conduct their monetary policy. Many policymakers believe that forward guidance will remain in use after the end of the crisis, however, there is uncertainty about its effectiveness. In this paper, we study the impact of forward guidance in a stylized new Keynesian economy away from the effective lower bound on nominal interest rates. Using closed-form solutions, we show that the impact of forward guidance on the economy depends critically on a specific monetary policy rule, ranging from non-existing to immediate and unrealistically large, the so-called forward guidance puzzle. We show that the puzzle occurs under very special -- empirically implausible and socially suboptimal -- monetary policy rules, whereas empirically relevant Taylor rules lead to sensible implications.
    Keywords: forward guidance; New Keynesian Model
    JEL: C61 C63 C68 E31 E52
    Date: 2018–12
  23. By: Acosta-Smith, Jonathan (Bank of England)
    Abstract: Are low interest rates more likely to incentivise greater bank risk-taking? This is the question we seek to answer. Using a model in which banks raise funds from depositors to create an investment portfolio which can differ in its risk and return, we suggest so. In particular, we show that lowering the interest rate makes it more likely banks will make risky investments. This is because reducing the interest rate makes safer assets less attractive, while increasing the relative gains from gambling. We show that risk-taking is highly dependent on banks’ skin-in-the-game, as banks always ignore the full extent of losses on bankruptcy. Raising the interest rate has a similar effect. It reinforces this behaviour, as by increasing the yield on the portfolio, banks have more to lose on bankruptcy.
    Keywords: Banking; monetary policy; risk-taking; interest rates
    JEL: E44 E58 G21
    Date: 2018–12–21
  24. By: Kindy R. Sjahrir (Fiscal Policy Office, Ministry of Finance. Republic of Indonesia)
    Abstract: Given Indonesia's competitiveness version of the Global Competitiveness Index (GCI) released by the World Economic Forum (WEF) has dropped from 38 in 2013-2014 to 41 in 2015-2016, the right strategy is needed so that competitiveness is not continues to decline. Indonesia's geographical condition consisting of 13,000 islands requires increased regional competitiveness to improve national competitiveness. The Regional Economic Governance Index i.e. Tata Kelola Ekonomi Daerah (TKED) as an indicator of economic management in the area of the Regional Autonomy Monitoring Committee (KPPOD) is an example of a proxy option for measures of regional competitiveness. The LEG index compilation methodology is similar to the World Bank's GCI index and Ease of Doing Business (EoDB), so this paper forms the premise that increasing and correcting the LEG index imbalance through the Regional Incentive Fund (DID) will boost regional competitiveness and also lift power Indonesia's global competitiveness. Fiscally, regional competitiveness is also marked by the expansion and deepening of the tax base. The framework of changes in this text is to transform the Macroeconomic Policy - Principal of Fiscal Policy (KEM-PPKF) which originally only targeted high economic growth and equitable distribution of income at the national level with an output orientation to change competitiveness-quality economic growth to the regional level with outcome orientation. To target increasing regional competitiveness, synchronization of central and regional budgeting will be carried out to transform the regional competitiveness criteria in the Regional Incentive Fund and encourage more efficient and accountable regional spending by synchronizing central and regional budgeting data through DID allocations and the synergy of centralized data exchanges. This paper was carried out with the approach of (1) robust study of regional leveraging factors, (2) sharpening of fiscal policy reforms and central-regional budgeting synergies, and (3) the conventions of all stakeholders in the Ministry of Finance's bureaucratic reform. This paper considers Sims (2008) 's argument that strong policy making requires that policy models be treated as "robust models" which include features (1) based on a standard theory or law, (2) can be supported by valid data, and (3) consistently giving the same results. Based on the results of data processing and regression using panel model, some conclusions are obtained. Provincial TKED affects productivity (measured using TPF). In general, the increase in provincial TKED will increase productivity, namely in Management with regard to (1). Land Access (Access); (2). PPUS; and (3) Infrastructure. This proves that good management or local governance will increase productivity. Most of the increase in the TKED index will increase economic productivity. It was confirmed that the outcomes that region with good TKED, yet currently incurring TFP gap have a great potential to boost its GRDP growth should it be assisted thru additional DID (Dana Insentif Daerah) within budgetary allocation processes.
    Keywords: Fiscal Policy, Indonesian Data
    JEL: G28
    Date: 2018–12
  25. By: Concha Artola (Banco de España); María Gil (Banco de España); Javier J. Pérez (Banco de España); Alberto Urtasun (Banco de España); Alejandro Fiorito (Johns Hopkins University); Diego Vila (University of Amsterdam)
    Abstract: In highly decentralized countries the subnational dimension of economic developments acquires particular relevance, given the existence of potential spillover effects across jurisdictions or the existence of asymmetric impacts of national-wide macroeconomic shocks. At the same time, though, the analysis of sub-national macroeconomic and public finance short-term developments tend to be restricted in many countries due to data limitations. Against this backdrop, the aim of this paper is to provide an overview of the available data for monitoring macroeconomic and public finance developments at the regional level in Spain, and to present some examples of its practical use in real time. After a thoroughly review of the publicly available information, we identify two key informational gaps in this area of conjunctural analysis, namely: (i) the lack of homogeneous and official quarterly measures of aggregate regional economic activity (in particular, real GDP), and (ii) the limited sample size of time series pertaining to government budgetary developments at the regional level.
    Keywords: regional economics, regional data, macroeconomic forecasting, subnational public finances
    JEL: E01 E32 H72
    Date: 2018–12
  26. By: Javier Bianchi; Jorge Mondragon
    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.
    JEL: E4 E5 F34 G15
    Date: 2018–12
  27. By: Nizam, Ahmed Mehedi
    Abstract: Algebraic calculation of the fiscal multiplier ignores the concept of velocity of money. Here, we incorporate the concept of velocity of money in the algebraic derivation of the fiscal multiplier which results into a slightly different representation. Then, we empirically calculate the values of fiscal multipliers for 05 (five) OECD countries using our proposed algebraic representation and compare the results with the classical Keynesian values. Our results also point out why the theoretical values of the fiscal multipliers are higher than the empirical values.
    Keywords: Fiscal Multiplier, Government Spending Multiplier, Government Spending, Fiscal Stimulus, Economic Multiplier, Fiscal Policy
    JEL: E2 E6 H5 H6
    Date: 2019–01–02
  28. By: Kyungmin Kim; Antoine Martin; Ed Nosal
    Abstract: Large-scale asset purchases by the Federal Reserve as well as new Basel III banking regulations have led to important changes in U.S. money markets. Most notably the interbank market has essentially disappeared with the dramatic increase in excess reserves held by banks. We build a model in the tradition of Poole (1968) to study whether interbank market activity can be revived if the supply of excess reserves is decreased sufficiently. We show that it may not be possible to revive the market to pre-crisis volumes due to costs associated with recent banking regulations. Although the volume of interbank trading may initially increase as excess reserves continue to decline, the new regulations may engender changes in market structure that result in interbank trading being completely replaced by non-bank lending to banks when excess reserves become scarce. This non-monotonic response of interbank trading volume to reductions in excess reserves may lead to misleading forecasts about future fed funds prices and quantities when/if the Fed begins to normalize their balance sheet by reducing excess reserves.
    Keywords: Balance sheet costs ; Interbank market ; Monetary policy implementation
    JEL: E42 E58
    Date: 2018–12–21
  29. By: Maliar, Lilia
    Abstract: Economists often use interchangeably the discrete- and continuous-time versions of the Keynesian model. In the paper, I ask whether or not the two versions effectively lead to the same implications. I analyze several alternative monetary policies, including a Taylor rule, discretionary interest rate choice and forward guidance. I show that the answer depends on a specific scenario and parameterization considered. In particular, in the presence of liquidity trap, the discrete-time analysis helps overcome some negative implications of the continuous-time model, such as excessively strong impact of price stickiness on inflation and output, unrealistically large government multipliers, as well as implausibly large effects of forward guidance.
    Keywords: closed-form solution; continuous time; forward guidance; New Keynesian Model; ZLB. liquidity trap
    JEL: C61 C63 C68 E31 E52
    Date: 2018–12
  30. By: Janine M. Dixon; Jason Nassios
    Abstract: We provide a comprehensive analysis of the economy-wide implications of company tax cuts in Australia. This is achieved using VURMTAX, a bottom-up, multi-regional computable general equilibrium (CGE) model of Australia's states and territories with detailed fiscal accounts. We find that a five percentage point reduction in Australia's legislated rate of company tax stimulates growth in investment, real GDP, and real consumer wages. However, real national income and household consumption both fall when the company tax rate is cut, diminishing economic welfare. As we show, this finding is insensitive to: (i) changes in the timing of the tax cuts, i.e., an overnight cut drives similar long-run impacts to staged reductions, or (ii) whether investors form views on expected rates of return on capital via adaptive or forward-looking expectations. The marginal excess burden (MEB) for company tax is therefore negative. This finding contradicts previous studies, which derive a large, positive MEB for company tax. We identify six differences between modelling assumptions applied herein, and those used in a previous study for Australia (Cao et al. 2015). As we show, these six factors explain 84 per cent of the difference between MEB estimates derived from VURMTAX and Cao et al.
    Keywords: Taxation policy CGE modelling Dynamics Excess burden
    JEL: C68 E62 H21 H25
    Date: 2018–12
  31. By: Sanjiv R. Das; Kris James Mitchener; Angela Vossmeyer
    Abstract: We employ a unique hand-collected dataset and a novel methodology to examine systemic risk before and after the largest U.S. banking crisis of the 20th century. Our systemic risk measure captures both the credit risk of an individual bank as well as a bank’s position in the network. We construct linkages between all U.S. commercial banks in 1929 and 1934 so that we can measure how predisposed the entire network was to risk, where risk was concentrated, and how the failure of more than 9,000 banks during the Great Depression altered risk in the network. We find that the pyramid structure of the commercial banking system (i.e., the network’s topology) created more inherent fragility, but systemic risk was nevertheless fairly dispersed throughout banks in 1929, with the top 20 banks contributing roughly 18% of total systemic risk. The massive banking crisis that occurred between 1930–33 raised systemic risk per bank by 33% and increased the riskiness of the very largest banks in the system. We use Bayesian methods to demonstrate that when network measures, such as eigenvector centrality and a bank’s systemic risk contribution, are combined with balance sheet data capturing ex ante bank default risk, they strongly predict bank survivorship in 1934.
    JEL: E42 E44 G01 G18 G21 L1 N12 N22
    Date: 2018–12
  32. By: Hur, Sewon; Kondo, Illenin; Perri, Fabrizio
    Abstract: This paper argues that the comovement between inflation and economic activity is an important determinant of real interest rates over time and across countries. First, we show that for advanced economies, periods with more procyclical inflation are associated with lower real rates, but only when there is no risk of default on government debt. Second, we present a model of nominal sovereign debt with domestic risk-averse lenders. With procyclical inflation, nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. In the absence of default risk, procyclical inflation yields lower real rates. However, procyclicality implies that the government needs to make larger (real) payments when the economy deteriorates, which could increase default risk and trigger an increase in real rates. The patterns of real rates predicted by the model are quantitatively consistent with those documented in the data.
    Keywords: Government Debt; Inflation risk; nominal bonds; sovereign default
    JEL: E31 F34 G12 H63
    Date: 2018–12
  33. By: Alessio Moro (University of Cagliari); Omar Rachedi (Banco de España)
    Abstract: We document a secular increase in the share of purchases from the private sector in government consumption spending: over time the government purchases relatively more private-sector goods, and relies less on its own production of value added. We build a general equilibrium model in which investment-specifi c technological change accounts for the changing structure of government spending. The model predicts that this secular process alters the transmission of government spending shocks by raising the response of private value added, while dampening the response of hours. We validate these results with novel empirical evidence on the effects of government spending across countries.
    Keywords: government gross output, government wage bill, fi scal multiplier
    JEL: E62 H10 O41
    Date: 2018–11
  34. By: Mundaca, Fernando (Banco Central de Reserva del Perú); Sánchez, Elmer (Banco Central de Reserva del Perú)
    Abstract: El objetivo del documento es estimar un índice de precios de departamentos para Lima Metropolitana utilizando la metodología de precios hedónicos. Para este propósito se utilizan tres variantes de la metodología (método de variables binarias de tiempo, método de características y método de imputación). Los índices calculados por estos tres métodos presentan resultados similares. Se muestra, además, que no ha habido una gran variación de las características de los departamentos ni de las valoraciones de estas características. Las características con mayor valoración de los compradores son el número de cocheras y el número de baños. Finalmente, se encuentra similitud de los índices calculados en base a regresiones hedónicas y el índice de medianas calculado y publicado actualmente por el BCRP.
    Keywords: Regresiones hedónicas, índice de precios de inmuebles
    JEL: E37 E44 E52
    Date: 2018–11
  35. By: Kindy R. Sjahrir (Fiscal Policy Office, Ministry of Finance. Republic of Indonesia)
    Abstract: In the last two decades shows that the Indonesian macroeconomic instability has found its roots from the financial sector's (banking's) pro-cyclicality. A number of economic and financial crisis preceded pro-cyclicality level of the financial sector in Indonesia is quite high. Indicators of real credit growth faster than GDP in the period of expansion, and the decline is far greater than the decline in GDP in the period of contraction is indicative of the high pro- cyclicality. This paper manuscript look neutrality or differences in response to the impact of fiscal and monetary policy mix as a result of the calculation of the non-conformance of the business cycle, both of which exist in the prior period as a result of the policy or the policy itself as a research problem. Neutrality impact of the response of fiscal and monetary policy mix in Indonesia in 2013 is a strategic issue of management of economic stability. With the high pro-cyclicality, then the policy is not precisely calibrated to the updated business cycle in the period may have the effect of turbulence. Fiscal policy has the potential to affect the business cycle. Monetary policy has the potential to support the stability of the financial system through its ability to affect the financial condition and behavior of financial markets, through the transmission company and the bank's balance sheet and risk-taking behavior. However, the condition of the financial system also has the potential to influence monetary stability. This paper research aims to (1) identify, analyze, and explain the phenomenon of complications response of fiscal and monetary policy mix in Indonesia; and (2) assess the methods applied to modeling the business cycle of macroeconomic stabilization policy mix that is more suitable for Indonesia as a small-open-economy in the condition (state) of stochastic uncertainty of the external economy. Finally, the results of this study recommends a systematic policy of intervention in the foreign exchange market through the feedback rule is a policy that is superior to every framework of the monetary policy rule. This is an appropriate reason for the stylized facts governance of the exchange rate as a basis for modeling framework of a small open economy with the data Indonesia. Results of this research with the data Indonesia would be generalized for the modeling framework of small open economy, provided that endogenous risk premium depends on the level of debt.
    Keywords: Dynamic Stochastic General Equilibrium, New Keynesian Macroeconomics, Monetary Policy, Fiscal Policy, Financial Sector Accelerator, Macroeconomic Policy Mix, New Keynesian Macroeconomic, Dynamic Stochastic General Equilibrium, Financial Friction, Macroeconomic Policy Mix,, Macroprudential
    JEL: G28
    Date: 2018–12
  36. By: Cumming, Fergus (Bank of England)
    Abstract: This paper quantifies the local impact of monetary policy through the cash-flow channel during the Crisis by combining novel micro datasets with near-universal coverage of UK mortgages and employment. I estimate that a reduction in mortgage payments equivalent to 1% of household income led to around a 5 percentage point increase in employment growth in non-tradable businesses the following year. But the spatial distribution of mortgage and labour market structures resulted in significant heterogeneity of this effect across the country. Taken at face value, the estimates suggest that the overall effect of accommodative monetary policy on total employment growth in 2010 varied by around 1.5 percentage points across regions.
    Keywords: Mortgages; interest rates; monetary policy; employment
    JEL: E21 E52 G21
    Date: 2018–12–21
  37. By: Kerola, Eeva
    Abstract: China’s official real GDP growth has held surprisingly stable in recent years. As national GDP figures influence both policy analysis and political decisions, the GDP growth rate of the massive Chinese economy has also great international implications. Taking the nominal GDP growth and price index data as given and experimenting with alternative deflators, this paper attempts to track missing fluctuations in real GDP growth in recent years. Based on the constructed growth series, real GDP growth decreased during 2015–2016 and picked up in 2017. Growth has been again decelerating this year. Furthermore, the constructed growth rate seems to be well below the recent official figures.
    JEL: C38 E01 E3 P2
    Date: 2018–12–27
  38. By: Nitzan Tzur-Ilan (Bank of Israel)
    Abstract: This paper explores the effects of the hard loan-to-value (LTV) limit implemented in Israel in 2012, which had three different cutoffs according to the borrower type: first-time home buyer, upgrader, or investor. The paper tries to overcome identification challenges where the treatment status is not observed. I find that this macroprudential policy measure succeeded in achieving its main goal, which was to reduce borrowers' leverage. I also find that constrained borrowers bought assets farther from the center of Israel, in neighborhoods with lower socioeconomic rankings; and a much stronger response than the impact of the 2010 soft LTV limit. Investors were found to be the borrower type most affected by the LTV limit. In terms of the credit market, the effect of the LTV limit on mortgage terms is counterintuitive: the limit increased the interest rate and the term to maturity. Plausible explanations for those results are discussed.​
    Keywords: LTV, mortgages, housing
    JEL: E58 E61 G18 G21 R28
    Date: 2018–12
  39. By: Dmitry Kreptsev (Bank of Russia, Russian Federation); Sergei Seleznev (Bank of Russia, Russian Federation)
    Abstract: This paper presents the DSGE model of the Russian economy with the banking sector which the Bank of Russia uses for simulation experiments. We show how the introduction of the banking sector changes impulse responses of a standard DSGE model of a small open economy. We also demonstrate that the model has fairly good predictive power. The model enables us to study the effect of banking sector-specific shocks on the economy. Estimation on Russian data has led us to conclude that in this model such shocks did not have a significant effect on the real economy’s variables in the period under observation spanning years from 2006 to 2016.
    Keywords: DSGE, BVAR, Russia’s economy, financial frictions, banking sector.
    JEL: C61 E37 E47 G10
    Date: 2017–12
  40. By: Mikael Béatriz; Jérôme Coffinet; Théo Nicolas
    Abstract: Using a unique panel design that enables to control for bank, firm, market and loan heterogeneities, we confirm that relationship lenders charge higher rates in good times and lower rates in bad times. However, we show that risky single-bank firms do not benefit from this insurance mechanism and are "held-up" by relationship lenders. Local bankcompetition and higher non-bank finance dependence alleviate this information-monopolistic behavior. Finally, long-term loans and small, non-trading-oriented and well capitalized banks drive the benefits of relationship lending.
    Keywords: relationship lending, financial crisis, interest rates, bank lending channel, SME, competition.
    JEL: D82 E32 E51 G01 G21
    Date: 2018
  41. By: Miranda-Agrippino, Silvia; Ricco, Giovanni
    Abstract: Commonly used instruments for the identification of monetary policy disturbances are likely to combine the true policy shock with information about the state of the economy due to the information disclosed through the policy action. We show that this signalling effect of monetary policy can give rise to the empirical puzzles reported in the literature, and propose a new high-frequency instrument for monetary policy shocks that accounts for informational rigidities. We find that a monetary tightening is unequivocally contractionary, with deterioration of domestic demand, labour and credit market conditions, as well as of asset prices and agents' expectations.
    Keywords: Expectations; External Instruments; Information Rigidity; local projections; monetary policy; Survey Forecasts; VARs
    JEL: C11 C14 E52 G14
    Date: 2018–12
  42. By: Benjamin Hartung; Philip Jung; Moritz Kuhn
    Abstract: A key question in labor market research is how the unemployment insurance system affects unemployment rates and labor market dynamics. We revisit this old question studying the German Hartz reforms. On average, lower separation rates explain 76% of declining unemployment after the reform, a fact unexplained by existing research focusing on job finding rates. The reduction in separation rates is heterogeneous, with long-term employed, high-wage workers being most affected. We causally link our empirical findings to the reduction in long-term unemployment benefits using a heterogeneous-agent labor market search model. Absent the reform, unemployment rates would be 50% higher today.
    Keywords: unemployment insurance, labor market flows, endogenous separations
    JEL: E24 J63 J64
    Date: 2018
  43. By: Evzen Kocenda (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Czech Republic); Karen Poghosyan (Central Bank of Armenia, Economic Research Department, Yerevan, Armenia)
    Abstract: We use nowcasting methodology to forecast the dynamics of the real GDP growth in real time based on the business tendency surveys data. Nowcasting is important because key macroeconomic variables on the current state of the economy are available only with a certain lag. This is particularly true for those variables that are collected on a quarterly basis. To conduct out‐of‐sample forecast evaluation we use business tendency surveys data for 22 European countries. Based on the different dataset and using outof‐sample recursive regression scheme we conclude that nowcasting model outperforms several alternative short‐term forecasting statistical models, even when the volatility of the real GDP growth is increasing both in time and across different countries. Based on the Diebold‐Mariano test statistics, we conclude that nowcasting strongly outperforms BVAR and BFAVAR models, but comparison with AR, FAAR and FAVAR does not produce sufficient evidence to prefer one over another.
    Keywords: Nowcasting, short‐term forecasting, dynamic and static principal components, Bayesian VAR, Factor Augmented VAR, real GDP growth, European OECD countries
    JEL: E52 C33 C38 C52 C53 E37
    Date: 2018–09
  44. By: Olivier Coibion; Yuriy Gorodnichenko; Tiziano Ropele
    Abstract: We use a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms’ economic decisions. In the survey, a randomly chosen subset of firms is repeatedly treated with information about recent inflation (or the European Central Bank’s inflation target) whereas other firms are not. This information treatment generates exogenous variation in inflation expectations. We find that higher inflation expectations on the part of firms leads them to raise their prices, increase their utilization of credit, and reduce their employment. However, when policy rates are constrained by the effective lower bound, demand effects are stronger, leading firms to raise their prices more and no longer reduce their employment.
    JEL: E2 E3
    Date: 2018–12
  45. By: Lewis, Daniel J. (Federal Reserve Bank of New York)
    Abstract: Identification via heteroskedasticity exploits differences in variances across regimes to identify parameters in simultaneous equations. I study weak identification in such models, which arises when variances change very little or the variances of multiple shocks change close to proportionally. I show that this causes standard inference to become unreliable, propose two tests to detect weak identification, and develop nonconservative methods for robust inference on a subset of the parameter vector. I apply these tools to monetary policy shocks, identified using heteroskedasticity in high frequency data. I detect weak identification in daily data, causing standard inference methods to be invalid. However, using intraday data instead allows the shocks to be strongly identified.
    Keywords: heteroskedasticity; weak identification; robust inference; pretesting; monetary policy; impulse response function
    JEL: C12 C32 E43
    Date: 2018–12–01
  46. By: Ludmila Fadejeva (Bank of Latvia); Janis Lapins (Bank of Latvia); Liva Zorgenfreija (Bank of Latvia)
    Abstract: This paper presents an overview of the main results of the Household Finance and Consumption Survey in Latvia, which was conducted in 2014 and collected responses from 2 814 individuals (1 202 households). Unique data on household wealth, including their assets and liabilities, as well as income and consumption were gathered. The data this survey collects are representative of the population, and the survey is to be carried out regularly to study aggregate and distributional changes in household budgets, wealth components and inequality over time. The survey results show that households in Latvia, in comparison with those in the euro area, have much higher ownership rates of the most important household asset – the main residence (76% vs. 61% respectively). However, the median value of this asset and of total assets is markedly lower than in the euro area. On the liabilities side, only one third of Latvian households have outstanding debt – one of the lowest readings among euro area countries. Taking all components of a household balance sheet together, the median net wealth of households in Latvia is 14 200 euro, which is more than seven times smaller than that of euro area households. While the largest net wealth holdings in the euro area are owned by the households where the reference person is at a pre-retirement age, it is the young households (especially the group aged 35–44) in Latvia that own the largest amounts of net wealth and earn the highest median income.
    Keywords: household finance and consumption survey, Latvia, assets, liabilities, net wealth, financial fragility, income, consumption
    JEL: D14 D31 E21
    Date: 2018–09–05
  47. By: Łukasz Janikowski; Balazs Romhanyi
    Abstract: Unsustainability and procyclicality of fiscal policy are problems that many developed countries face. The public debt crisis revealed that fiscal rules are a useful but insufficient instrument for mitigating them. A large and growing group of economists are calling for the creation of ‘fiscal policy councils’ – independent collegial bodies made up of experts whose role is to act as independent reviewers of government policy and advise the government and parliament on fiscal policy. Such councils currently exist in at least 40 countries. Poland is the only EU country that does not have a fiscal policy council. The aim of this paper is to address the issue of whether a fiscal policy council is needed in Poland and what kind of additional contribution such a council might make to the public debate on fiscal policy.
    Keywords: fiscal council, fiscal rules, fiscal policy, sustainability, cyclical stance
    JEL: E62 H62 H63
    Date: 2018–11–30
  48. By: Istvan Konya (Center of Economics and Regional Sciences – Institute of Economics, Hungarian Academy of Sciences and University of Pecs, and Central European University); Franklin Maduko (Central European University, Economics Department)
    Abstract: The paper reexamines the empirical relationship between external indebtedness and the interest premium on government bonds. We use a broad sample of countries between 1980-2017 that includes advanced, emerging and less-developed economies. We show that the relationship is strongly state-dependent, and it varies both with the international financial climate, and with the level of development. Moreover, while we find some evidence for non-linearity, this is mostly driven by turbulent periods. We carry out a number of robustness exercises, which highlight issues related to sample composition, the choice of the debt measure, and the definition of crisis events.
    Keywords: interest premium, net foreign assets, estimation, country panel, state dependence
    JEL: F34 F41 E43 E44
    Date: 2018–11
  49. By: Hossain, Md. Mobarak
    Abstract: This paper reports the estimates of the dynamic growth rate of U.S. economy using exponential growth model, Cob-Douglas production function with a regression framework. The estimates indicates that 100% output growth is broken down into 58% technology growth, 19.10% labor growth, and 22.90% capital growth. Growth rates of U.S. production, capital, and employment are decreasing by 0.4%, 0.6%, and 0.01% respectively for each additional year regardless of recession while growth rate of technological changes in U.S. economy has been changing in a systematic way. It also shows that forecasted growth rate of U.S. output with restricted elasticity is lower than that with unrestricted elasticity.
    Keywords: Elasticity, Cobb-Douglas production function, exponential growth model.
    JEL: E62 E63
    Date: 2018–12–29
  50. By: Asano, Koji
    Abstract: We study debt funding markets in which lenders can invest in financial expertise to reduce a cost of acquiring information about the underlying collateral. If the pledgeability of corporate income is low, lenders' information acquisition enhances liquidity, but they reduce expertise acquisition because of a hold-up problem. By contrast, if the pledgeability is high, information acquisition reduces liquidity, so that lenders can extract rents from firms by investing in expertise and creating fear of illiquidity. In this case, as information about collateral decays over time, there is growth in credit and expertise acquisition, making the economy more vulnerable to an aggregate shock. These results suggest that the growth of the financial sector is associated with prevalence of opaque assets and a subsequent crisis.
    Keywords: expertise, collateral, information acquisition, information sensitivity, liquidity
    JEL: D83 E44 G01
    Date: 2018–12–25
  51. By: Sakkas, Stelios; Varthalitis, Petros
    Abstract: We build a dynamic general equilibrium model with heterogeneous households and capital-skill complementarity in the production function to study aggregate and distributional effects of fiscal consolidation policies when government uses a rich set of productivity-enhancing spending instruments along with utility-enhancing spending and tax fiscal instruments. Fiscal policy is conducted through simple fiscal rules. We study both ad-hoc and optimized fiscal rules. Our main results indicate that ad-hoc fiscal consolidation policies, either through spending cuts or tax increases, are recessionary and entail an equity-efficiency trade-off in the short- and medium-run. That is spending-based consolidation policies are less recessionary but come at a higher distributional cost; whereas tax-based consolidation policies result in sharper output losses but have smoother distributional effects. In addition, fiscal consolidation policies through optimized fiscal rules can be expansionary and social welfare enhancing while at the same time balance the equity-efficiency trade-off.
    Keywords: Debt consolidation, distributional effects, fiscal policy, optimized fiscal rules
    JEL: E62 H52 H53
    Date: 2018–12–31
  52. By: Lise Patureau (Université Paris-Dauphine, PSL Research University, LEDa); Céline Poilly (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE)
    Abstract: The paper investigates how endogenous markups affect the extent to which policy reforms can influence international competitiveness. In a two-country model where trade costs allow for international market segmentation, we show that endogenous pricing-to-market behavior of firms acts as an important transmission channel of the policies. By strengthening the degree of competition between firms, product market deregulation at home leads to a reduction in domestic markups, which generally leads to an improvement in the international competitiveness of the Home country. Conversely, the power of competitive tax policy to depreciate the real exchange rate is dampened, as domestic firms take the opportunity of the labor tax cut to increase their markups. The variability of markups also affects the normative implications of the reforms. This indicates the importance of taking into account endogenous pricing-to-market behavior when intending to correctly evaluate the overall effects of the reforms.
    Keywords: exchange rate, product market deregulation, fiscal reform, endogenous firm entry, pricing-to-market, endogenous markups
    JEL: E32 E52 F41
    Date: 2018–10
  53. By: Albert, Juan-Francisco; Gómez-Fernández, Nerea
    Abstract: The view that expansionary monetary policy can exacerbate both income and wealth inequality by increasing asset prices has become increasingly popular. The aim of this paper is to study the distributive effects of monetary policy on wealth inequality. In the first part of this research, we develop a simple framework based on accounting identity to examine the redistributive repercussions of changes in monetary policy on net worth through different channels. Based on this framework, in the second part of the paper, we show empirical evidence concerning the effects of monetary policy on wealth inequality in the US. To derive this, we combined macro and micro data, and proceeded in two steps. Firstly, we estimated a Proxy structural vector autoregression (SVAR) model, combining high-frequency identification used as external instruments with a classic SVAR, to measure the response of the real and financial variables that could affect wealth inequality after an expansive monetary policy shock. Considering this information, we then used the microdata of the Survey of Consumer Finance (US, 2016) and simulated changes to the value of a household's assets and liabilities, as well as the inflation rate, produced by an expansive monetary policy. We considered three different time horizons and the whole of the distribution, measured by the Gini coefficients, and the simulation results suggest that wealth inequality increases after an expansive monetary policy shock. Additionally, focusing on the net worth by deciles, we found a relevant result. The expansive monetary policy shock substantially increases the net worth of the richest and the poorest households, while the middle class tends to benefit the least. Monetary policy on stock prices is the most important driver of the significant increases in net wealth among the richest households, while its effect on debt is most significant among the poorest.
    JEL: E52 E58
    Date: 2018–12–15
  54. By: Wansleben, Leon
    Abstract: Central banks have accumulated unparalleled power over the conduct of macroeconomic policy. Key for this development was the articulation and differentiation of monetary policy as a distinct policy domain. While political economists emphasize the foundational institutional changes that enabled this development, recent performativity-studies focus on central bankers’ invention of expectation management techniques. In line with a few other works, this article aims to bring these two aspects together. The key argument is that, over the last few decades, central banks have identified different strategies to assume authority over “expectational politics” and reinforced dominant institutional forces within them. I introduce a comparative scheme to distinguish two different expectational governance regimes. My own empirical investigation focuses on a monetarist regime that emerged from corporatist contexts, where central banks enjoyed “embedded autonomy” and where commercial banks maintained conservative reserve management routines. I further argue that innovations towards inflation targeting took place in countries with non-existent or disintegrating corporatist structures and where central banks turned to finance to establish a different version of expectation coordination. A widespread adoption of this “financialized” expectational governance has been made possible by broader processes of institutional convergence that were supported by central bankers themselves.
    Keywords: expectations; financialization; monetarism; monetary policy; neoliberal institutional change; performativity
    JEL: E5 E58
    Date: 2018–11–21
  55. By: Christopher J. Erceg; Andrea Prestipino; Andrea Raffo
    Abstract: We study the short-run macroeconomic effects of trade policies that are equivalent in a friction-less economy, namely a uniform increase in import tariffs and export subsidies (IX), an increase in value-added taxes accompanied by a payroll tax reduction (VP), and a border adjustment of corporate pro.t taxes (BAT). Using a dynamic New Keynesian open-economy framework, we summarize conditions for exact neutrality and equivalence of these policies. Neutrality requires the real exchange rate to appreciate enough to fully offset the effects of the policies on net exports. We argue that a combination of higher import tariffs and export subsidies is likely to trigger only a partial exchange rate offset and thus boosts net exports and output (with the output stimulus largely due to the subsidies). Under full pass-through of taxes, IX and BAT are equivalent but VP is not. We show that a temporary VP can increase intertemporal prices enough to depress aggregate demand and output, even when wages are sticky. These contractionary effects are especially pronounced under fixed exchange rates.
    Keywords: Trade policy ; Fiscal policy ; Exchange rates ; Fiscal devaluation
    JEL: E32 F30 H22
    Date: 2018–12
  56. By: Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Mizoguchi, Tetsuro (Asian Development Bank Institute)
    Abstract: In the literature on fiscal sustainability, the Domar condition and Bohn’s condition are often used to check whether a government’s debt situation is in a dangerous zone. We first show that the Domar condition is obtained only from the government budget constraint (namely the supply of government bonds) and does not take into account the demand for government bonds. Second, we reveal that Bohn’s condition does not satisfy the condition of economic stability: even if this is satisfied, economic recovery may not be achieved. We propose a new condition that satisfies both the stability of the government budget and the recovery of the economy. Our empirical findings from Japan demonstrate that to achieve fiscal sustainability, both sides of the Japanese government budget (expenditure and revenue) must be simultaneously adjusted while the decline in government expenditure has to exceed the increase in tax revenue. In addition, we provide a comparative analysis of Japan and Greece as evidence of the aforementioned condition and prove that although Japan’s debt-to-GDP ratio is higher than that of Greece, its bond market remains stable. This is because it comes from the demand side of the market and investors have greater confidence in this economy due to its lower credit risk rooted in the country’s macroeconomic strength and more auspicious economic future.
    Keywords: Japanese bond market; Greece economy; fiscal sustainability; fiscal policy condition; government debt management
    JEL: E42 E63
    Date: 2018–07–06
  57. By: Sangyup Choi (Yonsei University)
    Abstract: This paper investigates whether the real effect of bank lending shocks has changed over time by applying a sign-restriction approach. I identify a negative bank lending shock by considering markets for bank loans and public debt (corporate bonds and commercial papers) jointly. Since the real effect of bank lending shocks hinges critically on firms¡¯ ability to access alternative sources of financing, the rapid development in public debt markets from the 1980s could change this effect as well. Indeed, I find that firms' enhanced ability to access public debt markets is associated with a decline in the effect of bank lending shocks on output during the Great Moderation. Consistent with the underlying identifying strategy based on the firm's ability to access public debt markets, the substantial decline in the effects of bank lending shocks is only observed on investment, not consumption.
    Keywords: Bank lending shocks; Sign-restriction VARs; Great Moderation; Public debt market; Substitutability between bank loans and bonds
    JEL: E32 E44 G21
  58. By: Kent Daniel; Lorenzo Garlappi; Kairong Xiao
    Abstract: We study the impact of monetary policy on investors' portfolio choices and asset prices. Using data on individual portfolio holdings and on mutual fund flows, we find that a low-interest-rate monetary policy increases investors' demand for high-dividend stocks and drives up their prices. The increase in demand is more pronounced among investors who fund consumption using dividend income. To explain these empirical findings, we develop an asset pricing model in which investors have quasi-hyperbolic time preferences and use dividend income as a commitment device to curb their tendency to over-consume. When accommodative monetary policy lowers interest rates, it reduces the income stream from bonds and induces investors who want to keep a desired level of consumption to ``reach for income'' by tilting their portfolio toward high-dividend stocks. Our finding suggests that low-interest-rate monetary policy may influence the risk premium of income-generating assets, lead to under-diversification of investors' portfolios, and cause redistributive effects across firms that differ in their dividend policy.
    JEL: E50 G11
    Date: 2018–12
  59. By: Theophilopoulou, Angeliki
    Abstract: The role of economic uncertainty on macroeconomic fluctuations has been studied extensively in the literature. In the aftermath of the financial crisis and in the process of its exit from the EU, the UK is facing high levels of uncertainty on future economic growth, investment, financial markets etc. In this paper we investigate whether macro economic uncertainty affects income, wage and consumption inequality. Our findings suggest that the measures of inequality increase in the aftermath of an uncertainty shock but decrease in the medium to long run, converging to lower levels. Macroeconomic uncertainty appears to account significantly for the variation of income and consumption inequality. Using detailed micro data we decompose households' income to investigate transmission channels where uncertainty shocks affect differently the percentiles of income and consumption distributions. The financial segmentation and portfolio channels appear to play an important role in this heterogeneous response.
    Keywords: Macroeconomic uncertainty, income inequality, consumption inequality,SVARs
    JEL: C32 D3 D8 E32
    Date: 2018–11–01
  60. By: Vellekoop, Nathanael
    Abstract: A number of recent studies have concluded that consumer spending patterns over the month are closely linked to the timing of income receipt. This correlation is interpreted as evidence of hyperbolic discounting. I re-examine patterns of spending in the diary sample of the U.S. Consumer Expenditure Survey, incorporating information on the timing of the main consumption commitment for most households { their monthly rent or mortgage payment. I find that non-durable and food spending increase with 30-48% on the day housing payments are made, with smaller increases in the days after. Moreover, households with weekly, biweekly and monthly income streams but the same timing of rent/mortgage payments have very similar consumption patterns. Exploiting variation in income, I find that households with extra liquidity decrease non-durable spending around housing payments, especially those households with a large budget share of housing.
    Keywords: consumption,consumption commitments,paycheck frequency,liquidity
    JEL: D12 D14 E21
    Date: 2018
  61. By: Raputsoane, Leroi
    Abstract: This paper analyses the homogeneity of temporal variations between the economic and financial cycles in South Africa. This is achieved by identifying the similarity of cyclical and volatility regime changes between the indicator of financial stress and the economic cycle. The results show that periods of moderate growth in financial stress coincide with periods of similar growth in the economic cycle whereas the periods of high growth in financial stress coincide with periods of low growth in the economic cycle. The results further show that the periods of low volatility of financial stress coincide with periods of similar volatility of the economic cycle and that the periods of high volatility of financial stress coincide with periods of similar volatility of the economic cycle with the exception of the period following the US war on terror where the volatility of the economic cycle remained low despite high volatility of financial stress. Although the results show that the cyclical regime shifts of financial stress occur earlier than those of the economic cycle, they do not conclusively show whether or not the volatility regime changes of financial stress occur earlier or later than those of the economic cycle perhaps on data frequency.
    Keywords: Economic cycle, Financial stress, Change point analysis
    JEL: C13 E32 G12
    Date: 2018–12–31
  62. By: Martinelli, César (George Mason University); Vega, Marco (Banco Central de Reserva del Perú)
    Abstract: We show Peru's experience of chronic inflation through the 1970s and 1980s resulted from inflationary taxation in a regime of fiscal dominance of monetary policy. Hyperinflation occurred when further debt accumulation became unavailable, and a populist administration engaged in a counterproductive policy of price controls and loose credit. We interpret the fiscal difficulties preceding the stabilization as a process of social learning to live within the realities of fiscal budget balance. The credibility of policy regime change in the 1990s may be linked ultimately to the change in public opinion giving proper incentives to politicians, after the traumatic consequences of the hyper stagflation of 1987-1990.
    Date: 2018–11
  63. By: Mohammed Ait Lahcen; Pedro Gomis-Porqueras
    Abstract: We propose a monetary dynamic general equilibrium model with endogenous credit market participation to study the impact of financial inclusion on welfare and inequality. We find that significant consumption inequality can result from limited access to basic financial services. In this environment, monetary policy has distributional consequences as agents face different liquidity constraints. This heterogeneity generates a pecuniary externality which can result in overconsumption of financially included agents above the socially efficient level. We conduct a quantitative assessment for the case of India. Our simple model is able to account for approximately a third of the observed consumption inequality. We analyze various policies aimed at increasing financial inclusion. As a result of pecuniary externalities, interest rate policies can result in a decrease in welfare and an increase in consumption inequality. Moreover, we find that a direct benefit transfer to bank account owners is superior to interest rate policies as it can increase welfare and reduce consumption inequality despite a decrease in individual consumption.
    Keywords: Money, credit, banking, financial inclusion, inequality
    JEL: E40 E50
    Date: 2018–12
  64. By: Suzuki, Shiba
    Abstract: It is widely acknowledged that fire sales were a critical factor in inducing and exacerbating the financial crises of 2007--2008. The leverage of financial intermediaries, which is defined as the ratio of total assets to capital, is a key factor in causing fire sales. Why do financial intermediaries expand their balance sheets despite subsequently having to sell their assets at discounted prices? To examine this question, we incorporate financial intermediaries into a three-period incomplete market economy model, in which households face countercyclical and uninsured idiosyncratic income shocks. We demonstrate that countercyclical income inequality and market incompleteness result in leveraged investment and subsequent asset fire sales by financial intermediaries in equilibrium. The first contribution of this paper is that we demonstrate that the mechanism between asset prices and leverages could successfully solve the famed asset-pricing puzzles. The second contribution is that we analyze the impact of financial regulation on the welfare of ex ante homogeneous households.
    Keywords: arbitrage opportunities; fire sales; income inequality; incomplete markets; leveraged investments; precautionary demand for assets.
    JEL: D52 D53 E44 G01 G12 G21
    Date: 2018–12–20
  65. By: International Monetary Fund
    Abstract: Malawi’s economic growth remains moderate, reflecting a weak agricultural harvest and continued electricity shortages. Fiscal deficits continue to be financed domestically, as donor funding remains constrained by governance concerns since the 2013 cashgate scandal, resulting in an increasing public debt burden. Presidential elections are scheduled for mid-2019. Program performance. Most quantitative performance criteria (QPC) were met at end-June 2018, with significant overperformance on international reserves and the reduction in Reserve Bank of Malawi (RBM) holdings of government securities. The QPC on the primary fiscal balance was missed by 0.9 percent of GDP due to expenditure overruns. The continuous QPC on new non-concessional external debt was missed due to a technical oversight in the Technical Memorandum of Understanding. Based on corrective measures, the authorities request waivers of non-observance. Two structural benchmarks were observed and most of the rest have been completed with delay.
    Date: 2018–11–30
  66. By: Chowdhury, Md Niaz Murshed; Hossain, Md Mobarak
    Abstract: Bangladesh is the 2nd fastest growing country in the world in 2016 with 7.1% GDP growth. This study undertakes an econometric analysis to examine the relationship between population growth and economic development. This result indicates population growth adversely related to per capita GDP growth, which means rapid population growth is a real problem for the development of Bangladesh. Malthus’s prediction is that population increases so rapidly and outstrip the food supply due to the operation of the law of diminishing return, which is proven wrong because of technological improvement and agricultural advancement program, human capital development, and export skilled labor, promotes labor-intensive industries, encourage foreign investors, institution settings and political stability in Bangladesh. Bangladesh has reduced its population growth by about 67% between 1979 and 2017 using different preventive checks suggested by Malthus and Mill. Bangladesh has been suffering from environmental degradation, loss of arable land, loos of agricultural land biodiversity loss and deforestation. Bangladesh Economy is growing with improving living standard at the cost of environmental degradation.
    Keywords: Population Growth, Economic Development, Environment, and Poverty
    JEL: E01 E02
    Date: 2018–10–29
  67. By: Yildirim, Ramazan; Masih, Mansur; Bacha, Obiyathulla
    Abstract: Many Muslim individual and institutional investors seek to invest only in stocks that are compliant with the Shari'ah (i.e. Islamic law). Among others, Dow Jones addressed this demand and has developed their proprietary screening methodologies to identify Shari'ah compliant firms (SC). One key factor that distinguishes SC firms from their non compliant peers (SNC) is that the former is not allowed to cross the leverage threshold of 33%. Due to the restrictions imposed on them, it is expected that SC firms exhibit different capital structure compared to the SNC firms. The purpose of this initial comparative study is to analyze the most reliable debt determinants identified in the literature on both firm types. This study utilizes static panel data techniques on the sample consisting of SC and SNC firms from 7 countries and 7 industries over the years 2004–2014. Our study is inconclusive and it shows that most of the determinants do exhibit different effects among both firm types. Depending on the leverage measure, the effect of different independent variables on firms' capital structure varies. A uniform effect can be exerted for debt determinants profitability for both leverage measures, and growth opportunities, firm size and tangibility for market leverage only. Our robustness tests reveal that the impact of some debt determinants on firms leverage remains consistent. The coefficient sign and significance suggests, that the capital structure decision of both firm types, both are better explained by the Pecking Order Theory for book and by the Trade-Off Theory for market leverage, respectively.
    Keywords: Capital Structure; Leverage; Shariah Compliant; Shariah Screening; Trade-Off Theory; Pecking Order Theory
    JEL: C58 E44 G15 G32
    Date: 2017–06–05
  68. By: George-Marios Angeletos; Karthik A. Sastry
    Abstract: Should a policymaker offer forward guidance by committing to a path for the policy instrument or a target for an equilibrium outcome? We study how the optimal approach depends on plausible bounds on agents’ depth of knowledge and rationality. Agents make mistakes in predicting, or reasoning about, the behavior of others and the GE effects of policy. The optimal policy minimizes the bite of such mistakes on implementability and welfare. This goal is achieved by fixing and communicating an outcome target if and only if the GE feedback is strong enough. Our results suggest that central banks should stop talking about interest rates and start talking about unemployment when faced with a steep Keynesian cross or a prolonged liquidity trap.
    JEL: D82 D84 E52 E58
    Date: 2018–12
  69. By: Ross Levine; Yona Rubinstein
    Abstract: We study the effects of ability and liquidity constraints on entrepreneurship. We develop a three sector Roy model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship. The model predicts—and the data confirm—that entrepreneurs are positively selected on highly-remunerated human capital, but other self-employed are negatively selected on those same abilities; entrepreneurs are positively selected on collateral, but other self-employed are not; and entrepreneurship is procyclical, but self-employment is countercyclical.
    JEL: E32 J24 L26
    Date: 2018–12
  70. By: Peter J. Montiel (Williams College); Peter Pedroni (Williams College)
    Abstract: We use a heterogeneous panel structural VAR approach to study the role of international financial integration in determining the effectiveness of monetary policy under different exchange rate regimes. In particular, we use the extent to which a country's monetary policy is able to create temporary deviations from uncovered interest parity as a policy-relevant measure of the degree to which the country is effectively integrated with international financial markets, and then correlate this measure to our estimates of the ability of monetary policy to induce temporary movements in commercial bank lending rates. We find that regardless of whether a country pursues fixed or floating exchange rates, the impact of monetary policy shocks on bank lending rates is diminished as the country becomes financially more integrated with the world economy. This is a direct implication of Mundell's trilemma for countries with fixed exchange rates, but not for floaters. For floaters, we find that the weaker effects on domestic interest rates under high integration are accompanied with stronger effects on the exchange rate. This also holds true for monetary shocks originating in ``core'' countries. These results provide a possible reconciliation between Rey's ``dilemma'' and Mundell's famous trilemma: because higher financial integration increases exchange rate volatility in response to foreign monetary shocks, countries in the periphery that seek to avoid such volatility are more likely to pursue monetary policies that shadow those of the core as they become more financially integrated with the core.
    Keywords: Trilemma, exchange rates, financial integration, monetary policy, heterogeneous panel structural VAR
    JEL: E52 E58 F36
    Date: 2018–08
  71. By: Sona Benecka (Ceska Narodni Banka); Ludmila Fadejeva (Bank of Latvia); Martin Feldkircher (Oesterreichische Nationalbank)
    Abstract: This paper investigates the international effects of a euro area monetary policy shock, focusing on countries from Central, Eastern, and Southeastern Europe (CESEE). To that end, we use a global vector autoregressive (GVAR) model and employ shadow rates as a proxy for the monetary policy stance during normal and zero-lower-bound periods. We propose a new way of modelling euro area countries in a multi-country framework, accounting for joint monetary policy, and a novel approach to simultaneously identifying shocks. Our results show that in most euro area and CESEE countries prices adjust and output falls in response to a euro area monetary tightening, but with a substantial degree of heterogeneity.
    Keywords: euro area monetary policy, global vector autoregression, spillovers
    JEL: C32 F44 E32 O54
    Date: 2018–10–18
  72. By: Jorge Duran (European Commission); Omar Licandro (University of Nottingham, IAE-CSIC & Barcelona GSE)
    Abstract: Bridging modern macroeconomics and the economic theory of index numbers, this paper shows that real output growth as measured by National Income and Product Accounts (NIPA) is a welfare based measure. In a two-sector dynamic general equilibrium model of heterogeneous households, recursive preferences and quasi-concave technology, individual welfare depends on present and future consumption. In this context, the Bellman equation provides a representation of preferences over current consumption and investment. Applying standard index number theory to this representation of preferences, it is shown that the Fisher-Shell true quantity index is equal to the Divisia index in turn well approximated by the Fisher ideal chain index used in NIPA.
    Keywords: growth measurement, quantity indexes, equivalent variation, NIPA, Fisher-Shell index, Divisia index, embodied technical change
    JEL: C43 D91 O41 O47
    Date: 2018–11
  73. By: Nicholas Oulton; Ana Rincon-Aznar; Lea Samek; Sylaja Srinivasan
    Abstract: Real GDP measured from the output side, GDP(O), should equal real GDP measured from the expenditure side, GDP(E), just as corresponding two approaches to measuring GDP in current prices are necessarily equal. But this is only the case even in theory if real value added in each industry is measured by double deflation. We set out the theory of double deflation using a matrix algebra treatment based on the framework of the Supply and Use Tables. The context is the UK’s national accounts which measures volume growth by chained Laspeyres indices and which currently use single not double deflation. Initially we use simplified assumptions about prices. Later we introduce more realistic assumptions. We analyse the conditions on prices under which real GDP(O) equals real GDP(E). We consider three alternative methods of implementing double deflation. The preferred method makes use of all the price indices which the Office for National Statistics currently collects: Producer Price Indices, Services Producer Price Indices, Consumer Price Indices, Export Price Indices and Import Price Indices. We implement a simplified version of double deflation, using the same data as in the latest vintage of the national accounts, and compare our estimates with the official ones. In this version the same price index is used for each product regardless of whether the product is an output or an input. We find that double-deflated industry growth rates are consistently lower than the official single-deflated ones and also considerably more variable year-to-year. We interpret this finding as reinforcing the case for careful selection of the set of deflators to use for double deflation.
    Keywords: Double deflation, supply and use tables, value added, national accounts
    JEL: E01 O11 O40 O47 C67
    Date: 2018–12
  74. By: Cantoni, Davide; Dittmar, Jeremiah; Yuchtman, Noam
    Abstract: Using novel microdata, we document an important, unintended consequence of the Protestant Reformation: a reallocation of resources from religious to secular purposes. To understand this process, we propose a conceptual framework in which the introduction of religious competition shifts political markets where religious authorities provide legitimacy to rulers in exchange for control over resources. Consistent with our framework, religious competition changed the balance of power between secular and religious elites: secular authorities acquired enormous amounts of wealth from monasteries closed during the Reformation, particularly in Protestant regions. This transfer of resources had significant consequences. First, it shifted the allocation of upper-tail human capital. Graduates of Protestant universities increasingly took secular, especially administrative, occupations. Protestant university students increasingly studied secular subjects, especially degrees that prepared students for public sector jobs, rather than church sector-specific theology. Second, it affected the sectoral composition of fixed investment. Particularly in Protestant regions, new construction shifted from religious toward secular purposes, especially the building of palaces and administrative buildings, which reflected the increased wealth and power of secular lords. Reallocation was not driven by pre-existing economic or cultural differences. Our findings indicate that the Reformation played an important causal role in the secularization of the West.
    Keywords: Protestant Reformation; secularization; sectoral allocation; human capital
    JEL: E0 J24 N13 N33
    Date: 2018–06–06
  75. By: Thorsten Klug; Tobias Schuler; Eric Mayer
    Abstract: We investigate for Germany the positive correlation between the corporate savings glut in the non-financial corporate sector and the current account surplus from a capital account perspective. By employing sign restrictions our findings suggest that mostly labor market, world demand and financial friction shocks can account for the joint dynamics of excess corporate savings and the current account surplus. Private savings shocks, in contrast, cannot explain the correlation. We conclude that a corporate savings glut is a main driver of the current account surplus.
    Keywords: Current account, corporate savings, macro shocks
    JEL: E32 F32
    Date: 2018
  76. By: Harjaat S. Bhamra; Christian Dorion; Alexandre Jeanneret; Michael Weber
    Abstract: We develop an asset-pricing model with endogenous corporate policies that explains how inflation jointly impacts real asset prices and corporate default risk. Our model includes two empirically grounded nominal frictions: fixed nominal coupons and sticky profitability. Taken together, these two frictions result in higher real equity prices and credit spreads when inflation falls. An increase in inflation has opposite effects, but with smaller magnitudes. In the cross section, the model predicts the negative impact of inflation on real equity values is stronger for low leverage firms. We find empirical support for the model predictions.
    Keywords: low inflation, default risk, equity, leverage, credit spreads
    JEL: E44 G12 G32 G33
    Date: 2018
  77. By: Hur, Sewon (Federal Reserve Bank of Cleveland); Kondo, Illenin O. (University of Notre Dame); Perri, Fabrizio (Federal Reserve Bank of Minneapolis)
    Abstract: This paper argues that the comovement between inflation and economic activity is an important determinant of real interest rates over time and across countries. First, we show that for advanced economies, periods with more procyclical inflation are associated with lower real rates, but only when there is no risk of default on government debt. Second, we present a model of nominal sovereign debt with domestic risk-averse lenders. With procyclical inflation, nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. In the absence of default risk, procyclical inflation yields lower real rates. However, procyclicality implies that the government needs to make larger (real) payments when the economy deteriorates, which could increase default risk and trigger an increase in real rates. The patterns of real rates predicted by the model are quantitatively consistent with those documented in the data.
    Keywords: Inflation risk; Government debt; Nominal bonds; Sovereign default
    Date: 2018–12–12
  78. By: Caiumi, Antonella; Majewski, Ina; Nicodème, Gaëtan
    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; European Union; Implicit Tax Rate; Incorporation; Tax Reforms
    JEL: E62 H25 O52
    Date: 2018–12
  79. By: Adrien Lutz (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint- Etienne, France)
    Abstract: A standard reading in the history of economic thought sets the classical stream of economists drawing upon the influence of Adam Smith (Jean-Baptiste Say, David Ricardo, etc.) in opposition to a “black box” of social thinkers (Louis Blanc, Fourierism, Saint-Simonianism, Sismondi, Robert Owen). This article, however, argues that, in the first quarter of the 19th century, the Saint-Simonians and the liberal economist Jean-Baptiste Say can be seen to adopt convergent views during the famous controversy about commercial gluts. First, we show that the Saint-Simonians and Say both see undersupply and lack of industry as causes of gluts. Next, we assert that their intellectual affinities are also visible in their belief that increasing production remains an appropriate solution for gluts. Finally, this convergence is explained by their common belief in industrialism: Saint-Simonianism is embedded in a French industrialist tradition for which Say can be taken as representative. We argue that their common belief in industry explains their convergence.
    Keywords: Saint-Simonianism, Jean-Baptiste Say, Adam Smith, Laissez-faire, Commercial gluts
    JEL: B10 E5 N00
    Date: 2018
  80. By: International Monetary Fund
    Abstract: Mexico’s economy has exhibited resilience in the face of a complex external environment. The current administration has responded appropriately to the recent external shocks and demonstrated its commitment to macroeconomic stability. The incoming administration is committed to maintaining very strong policies and policy frameworks going forward. Nevertheless, Mexico’s strong trade and financial links to the global economy, and in particular the United States, make it susceptible to changes in investor sentiment.
    Keywords: Mexico;Western Hemisphere;
    Date: 2018–11–27
  81. By: International Monetary Fund
    Abstract: This is the tenth and final review of Rwanda’s PSI-program, approved by the Executive Board on December 2, 2013. A concurrent 18-month SCF arrangement was approved on June 8, 2016 to support adjustment policies to eliminate external imbalances. The PSI-supported program was extended three times, on: June 8, 2016; November 19, 2017; and January 12, 2018. When it expires on December 1, 2018, the program will have reached its maximum 5-year limit. Recent Developments. After a dip in 2016–17, real GDP growth has been recovering over the past four quarters. Growth averaged 8.6 percent in the first half of 2018 and, despite a temporary deceleration in Q2, remains in line with projections for 7.2 percent for the year. Growth in the medium term should remain at or higher than historical averages, based on a strong pipeline of tourism and business tourism, new mining operations, more resilient agriculture, new and more diversified exports, and construction of a new airport. Inflation remains low, and expectations within targeted ranges. External balances and reserve buffers continued to improve, while the financial sector remains healthy.
    Date: 2018–11–30
  82. By: John Bailey Jones (Federal Reserve Bank of Richmond and University at Albany); Yue Li (University at Albany)
    Abstract: Since 1983, Social Security benefits have been subject to income taxation, a provision that can significantly increase the marginal income tax rate for older individuals. To assess the impact of this tax, we construct and calibrate a detailed life-cycle model of labor supply, saving, and Social Security claiming. We find that in a long-run stationary environment, replacing the taxation of Social Security benefits with a revenue-equivalent change in the payroll tax would increase labor supply, consumption, and welfare. From an ex-ante perspective an equally desirable reform would be to make the portion of benefits subject to income taxes completely independent of other income.
    Keywords: Social Security, Labor Supply, Taxation
    JEL: E21 H24 H55 I38
  83. By: Elmrabet, Maissa; Boulila, Ghazi
    Abstract: Few researchers have addressed the problem of the causality inflation-deficits, and even Previous worktreated this causality they have only focused on the Granger causality technique in which the results of thisapproach raises many doubts. This investigation aim to study the relationship between inflation and the pri-mary deficit using the wavelet transform for different euro area member countries from 1980 until 2014 withquarterly data. We have characterized the inflation-primary deficit relationship in a time-frequency scale.First we found that the deficit causes inflation in log term. We detected also, that inflation-primary deficitrelationship is highly consistent during the post-financial crisis in the euro area in the long run. Finally wecan judge through the wavelet transform that this relationship is non linear.
    Keywords: Few researchers have addressed the problem of the causality inflation-deficits, and even Previous worktreated this causality they have only focused on the Granger causality technique in which the results of thisapproach raises many doubts. This investigation aim to study the relationship between inflation and the pri-mary deficit using the wavelet transform for different euro area member countries from 1980 until 2014 withquarterly data. We have characterized the inflation-primary deficit relationship in a time-frequency scale.First we found that the deficit causes inflation in log term. We detected also, that inflation-primary deficitrelationship is highly consistent during the post-financial crisis in the euro area in the long run. Finally wecan judge through the wavelet transform that this relationship is non linear.
    JEL: E17
    Date: 2018–12–13
  84. By: Mieke Dujardin; Freddy Heylen (-)
    Abstract: Raising employment, especially among low skilled workers, stands high on the agenda of policy makers in many OECD countries. They can rely on a huge body of literature that has studied the impact of fiscal policy and wage formation on employment. We contribute to this literature by studying within one coherent framework not only the employment effects of (targeted) changes in tax rates, unemployment benefits and wage setting, but also their effects on inequality and poverty. Our methodological framework is a fourperiod overlapping generations model that portrays two key characteristics: households differ by innate ability and there is an imperfect labor market (union wage floor) for individuals of low ability, causing unemployment. The model explains employment, per capita income and welfare at the aggregate level, as well as for specific ability and age groups. Our main findings are as follows. Unilateral fiscal actions, such as a reduction of labor taxes financed by lower unemployment benefits, can have clear positive effects on employment of (mainly) low ability individuals, but they raise poverty among those who remain unemployed. Achieving higher employment without increasing inequality and poverty, requires combined efforts of fiscal policy makers (labor tax cuts) and unions (wage moderation). Depending on the policy maker’s priority for either employment or lower inequality, a reduction of labor taxes on employers or on employees is preferable. If more progress is to be made in ameliorating inequality and poverty, union wage moderation may be supplemented by a transfer to all individuals below the poverty line, conditional on their active participation on the labor market. All our results assume employability of the unemployed, and are therefore to be seen as long-run effects, which may require complementary policies.
    Keywords: employment of low educated individuals, fiscal policy, heterogeneous ability, welfare inequality, poverty, overlapping generations (OLG)
    JEL: E62 H5 I28 J22 J24
    Date: 2018–12
  85. By: Gabor Uliha (OTP Bank Nyrt.); Janos Vincze (Center for Economic and Regional Studies, Hungarian Academy of Sciences and Corvinus University of Budapest)
    Abstract: In this paper we analyze statistics derived from the cross-wavelet transform of inflation differentials and exchange rate changes for a group of countries with Germany as the reference country. An important tool is the wavelet coherency measure from which we can judge the strength of the price-exchange rate nexus at different time scales, and also whether it has changed in time. Complex cross-wavelets provide information about phase relationship, and we can investigate whether there is any consistent pattern in the lead-lag relationship between prices and exchange rates. Also, we calculate a summary measure, based on singular value decomposition, that shows which countries have significantly similar inflation differential – exchange rate change processes. Our results accord, in some ways, with former findings, but suggest an even gloomier view on the possibility of finding statistically reliable relationships between exchange rates and aggregate price indices (CPI or PPI). In line with the literature we haven’t found strong co-movement between prices and exchange rates in the short or medium term. There are only weak indications that at least in some countries the price-exchange rate connection strengthened during the crisis, and detectable cycles at business cycle frequencies do not appear at all. Though by and large the lead-lag relationship between prices and exchange rates is the expected one, still this is unstable practically for every country. Results with respect to the PPI are more promising. The three countries that seem to be closest to theoretical expectations are Sweden, Japan and South-Korea. It is possible that the coherence between exchange rates and prices on the macro level may depend more on similarities of export structure than on trading relations, that microeconomic intuition would suggest. Also it is possible that macro price indices are too noisy by their very nature to be amenable for statistical analyses not committed to strong presumptions.
    Keywords: real exchange rates, exchange rate pass-through, continuous wavelet analysis
    JEL: E31 C14 F41
    Date: 2018–12
  86. By: Jackson, Matthew O.; Yariv, Leeat
    Abstract: We characterize environments in which there exists a representative agent: an agent who inherits the structure of preferences of the population that she represents. The existence of such a representative agent imposes strong restrictions on individual utility functions, requiring them to be linear in the allocation and additively separable in any parameter that characterizes agents' preferences (e.g., a risk aversion parameter, a discount factor, etc.). Commonly used classes of utility functions (exponentially discounted utility functions, CRRA or CARA utility functions, logarithmic functions, etc.) do not admit a representative agent.
    Keywords: Collective Decisions; Preference Aggregation; Representative Agents; Revealed Preference
    JEL: D03 D11 D71 D72 E24
    Date: 2018–12
  87. By: International Monetary Fund
    Abstract: Belize’s economic growth has slowed over the last five years, following decades of outperforming regional peers. As in other countries in the region, a central challenge is exiting the cycle of low growth and elevated public debt. Belize’s 2017 debt rescheduling provided cash flow relief. In March 2017, the government reached a restructuring agreement with private external bondholders on its US$526 million bond (about 30 percent of GDP).1 As part of the agreement, the authorities committed to tighten the fiscal stance by 3.0 percentage points in FY2017/18 and to maintain a primary surplus of 2.0 percent of GDP for the subsequent three years. The authorities are delivering on these commitments and have made progress in implementing recent Article IV recommendations (Annex I).
    Keywords: Western Hemisphere;Belize;
    Date: 2018–11–16
  88. By: María Gil (Banco de España); Javier J. Pérez (Banco de España); A. Jesús Sánchez (Instituto Complutense de Estudios Internacionales (UCM) and GEN); Alberto Urtasun (Banco de España)
    Abstract: The focus of this paper is on nowcasting and forecasting quarterly private consumption. The selection of real-time, monthly indicators focuses on standard (“hard” / “soft” indicators) and less-standard variables. Among the latter group we analyze: i) proxy indicators of economic and policy uncertainty; ii) payment cards’ transactions, as measured at “Point-of-sale” (POS) and ATM withdrawals; iii) indicators based on consumption-related search queries retrieved by means of the Google Trends application. We estimate a suite of mixed-frequency, time series models at the monthly frequency, on a real-time database with Spanish data, and conduct out-of-sample forecasting exercises to assess the relevant merits of the different groups of indicators. Some results stand out: i) “hard” and payments cards indicators are the best performers when taken individually, and more so when combined; ii) nonetheless, “soft” indicators are helpful to detect qualitative signals in the nowcasting horizon; iii) Google-based and uncertainty indicators add value when combined with traditional indicators, most notably at estimation horizons beyond the nowcasting one, what would be consistent with capturing information about future consumption decisions; iv) the combinations of models that include the best performing indicators tend to beat broader-based combinations.
    Keywords: private consumption, nowcasting, forecasting, uncertainty, Google Trends.
    JEL: E27 C32 C53
    Date: 2018–12
  89. By: International Monetary Fund
    Abstract: The rapid aging and shrinking of Japan’s population will dominate economic policy making in coming decades—impelling a fresh look at the objectives and tools of Abenomics. Six years of Abenomics have yielded some important results, but achieving sustained high growth and durable reflation, while also tackling debt sustainability and a shifting global economic landscape, will require strengthened policies.
    Keywords: Asia and Pacific;Japan;
    Date: 2018–11–27
  90. By: David López-Rodríguez (Banco de España); Cristina García Ciria (Banco de España)
    Abstract: This document describes the structure of the Spanish fiscal system in comparison with the economies of the European Union. Spain stands out because of its persistently lower weight of tax revenue over GDP related with the EU28 average. This lower tax revenue over GDP is mainly due to indirect taxes (VAT, special and environmental taxes), having Spain systematically one of the lowest implicit tax rates over consumption in the EU28. Regarding labor taxation, its tax revenue over GDP is also lower to the EU28 average, although the weight of social security contributions over GDP is higher, in particular the contributions charged on employees. The later shows the lower fiscal pressure on labor income in personal taxes in Spain. Spain presents larger tax revenues over capital, in particular regarding wealth taxes.
    Keywords: fiscal system, tax structure, taxation in the EU
    JEL: H20 E62 H23 H24 H25
  91. By: Stéphane Sorbe; Peter Gal; Valentine Millot
    Abstract: Services employ an ever-increasing share of workers in all OECD countries. This trend is likely to continue as it reflects deep structural forces, such as increasing consumption of services with rising incomes and population ageing and the growing role of intangible assets. Services are very diverse, but overall tend to have weaker productivity levels and growth rates than manufacturing. As a result, the shift to services entails a moderate but persistent drag on productivity growth. Still, there are reasons to hope for a pick-up in service productivity in the future, including thanks to new technologies (e.g. digital platforms, artificial intelligence). This concerns both “knowledge intensive” services (e.g. information and communication) and less knowledge intensive ones (e.g. personal transport). Harnessing this productivity potential requires adjusting policies to foster innovation and efficient use of new technologies, enhance competitive forces by reducing information asymmetries, barriers to entry and switching costs, and increase the tradability of services within countries and across borders.
    Keywords: automation, measurement, online platforms, productivity, services, structural change
    JEL: E24 L80 O40
    Date: 2018–12–21
  92. By: Furceri, Davide; Hannan, Swarnali; Ostry, Jonathan D.; Rose, Andrew K
    Abstract: We study the macroeconomic consequences of tariffs. We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963-2014. We find that tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity. Tariff increases also result in more unemployment, higher inequality, and real exchange rate appreciation, but only small effects on the trade balance. The effects on output and productivity tend to be magnified when tariffs rise during expansions, for advanced economies, and when tariffs go up, not down. Our results are robust to a large number of perturbations to our methodology, and we complement our analysis with industry-level data.
    Keywords: Exchange rate; inequality; output; productivity; protection; trade balance; unemployment
    JEL: F13 O11
    Date: 2018–12
  93. By: Marcella Lorenzini
    Abstract: This paper aims to analyse the expenditure and consumption of a noble family from Trentino, the Bossi Fedrigotti, in the nineteenth century. The origin and evolution of the family assets are traced from the fifteenth to the nineteenth century as they shifted from transport to trade, from trade to finance, and finally from finance to agriculture. The research is based on the household budgets and investigates the type, composition and variations in expenditures during two benchmark decades, 1835-44 and 1855-64. The relatively small share of expenses for food as compared to leisure, cultural activities, charity and conspicuous consumption reflects the family’s quest for social status and reputation, leading to the obtainment of a noble title in the eighteenth century. The Bossi Fedrigotti represented a pillar in the economic system of Rovereto, which they actively supported through a variety of economic and non-economic actions, helping the city to prosper and advance.
    Keywords: 19th century, economic history, household budgets, Italy, living standards, Tyrol, wellbeing
    JEL: D14 D64 E21 M41 N00 R20
    Date: 2018–12–22
  94. By: Itamar Caspi (Bank of Israel); Amit Friedman (Bank of Israel); Sigal Ribon (Bank of Israel)
    Abstract: In recent years, Forex (FX) interventions have been routinely used by the Bank of Israel as well as by other central banks as an additional monetary instrument, with the objective of moderating appreciation trends of the domestic currency. This paper analyzes the immediate effect of the Bank of Israel’s FX interventions on the exchange rate and the persistence of this effect over time. To identify this effect, we first measure the intraday impact of FX intervention using a novel high-frequency, minute-by-minute dataset of interventions between 2009 and 2017. Next, we use our intraday measure to estimate the persistence of FX intervention shocks over longer horizons (in trading days), where we base our empirical approach on the potential outcome framework and the Local Projections method. We find that FX intervention shocks – that is, unexpected FX purchases – cause, on impact USDILS exchange rate depreciation in over 90 percent of the cases. We also find that this effect has a persistent impact on the nominal effective exchange rate for about 40­–60 trading days, which are equivalent to between 2 and 3 calendar months. Based on this finding we infer that between 2013 and 2017 interventions caused the level of the exchange rate to depreciate by about 2–3 percent on average, where the effect of each intervention varied with its intensity. We stress that these results reflect the contribution of unexpected FX purchases given the fact that the discretionary intervention regime was in place throughout the investigated period, and not the effect of the presence of the regime itself.​
    Keywords: Sterilized FX interventions, high frequency data, impulse response, local projections, potential outcome, Bank of Israel
    JEL: C22 E58 F31
    Date: 2018–06
  95. By: Vinicius Ratton Brandi; Joaquim Pinto de Andrade
    Abstract: The international financial crisis of 2008 has made clear that the academic debate should incorporate financial frictions to investigate business cycle fluctuations and allocative efficiency. At the financial regulation side, macroprudential measures have gained a growing importance as an instrument in the search for financial stability. The aim of this work is to assess the effects of countercyclical macroprudential instruments on measures related to financial stability and macroeconomic conditions, through a theoretical model containing parameters calibrated and estimated from data of the Brazilian economy. Our results suggest a greater adequacy of countercyclical regulatory instruments as a response to movements caused by shocks originated within the financial system. In the case of productivity and demand shocks, the use of the regulatory instrument shows, in most cases, a conflicting role in relation to the goals of the monetary authority and not conclusive result regarding the benefits for financial stability.
    Date: 2018–12
  96. By: Matteo Maggiori; Brent Neiman; Jesse Schreger
    Abstract: The modern notion of an international currency involves use in areas of international finance and trade that extend well beyond central banks' coffers. In addition to their important roles as foreign exchange reserves, international currencies are most frequently used to denominate corporate and government bonds, bank loans, and import and export invoices. These currencies offer unrivaled liquidity, constituting large shares of the volume on global foreign exchange markets, and are commonly chosen as the anchors targeted by countries with pegged or managed exchange rate regimes. In this short article, we provide evidence suggesting a recent rise in the use of the dollar, and fall of the use in the euro, with similar patterns manifesting across all these aspects of international currency use.
    JEL: E4 E5 F3 G15 G23
    Date: 2018–12
  97. By: International Monetary Fund
    Abstract: The United Kingdom is set to exit the European Union in March 2019. It is now in the process of negotiating its withdrawal from the EU. Once an agreement is reached, there will be an implementation period through the end of 2020. Complex issues still remain to be resolved, including the future status of the land border with Ireland. Growth over the past year has been moderate. The post-referendum depreciation caused an increase in inflation, depressing private consumption. Business investment growth has been constrained by protracted uncertainty about the future trade regime and potential increases in trading costs. Nonetheless, slack in the economy is limited as weaker demand is matched by slower supply growth. Growth is expected to continue at a moderate pace, conditional on a smooth Brexit transition and some recovery in labor productivity. A key downside risk is an exit
    Keywords: Europe;United Kingdom;
    Date: 2018–11–14
  98. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Central, East and Southeast Europe Recent Economic Developments and Forecast Table Overview 2016-2017 and outlook 2018-2020 (p. 1) Figures GDP growth in 2017-2020 and contribution of individual demand components in percentage points (p. 2) Albania Overvalued domestic currency (by Isilda Mara; p. 3) Belarus Unexpected surge in economic activity (by Rumen Dobrinsky; p. 4) Bosnia and Herzegovina Risks high ahead of election (by Richard Grieveson; p. 5) Bulgaria Past the peak of the cycle? (by Rumen Dobrinsky; p. 6) Croatia Investments subdued (by Hermine Vidovic; p. 7) Czech Republic Balanced and moderate growth (by Leon Podkaminer; p. 8) Estonia Growth boosted by internal demand (by Sebastian Leitner; p. 9) Hungary Strong expansion on fragile fundaments (by Sándor Richter; p. 10) Kazakhstan Benefiting from high oil prices (by Olga Pindyuk; p. 11) Kosovo Growth accelerating amid political instability (by Isilda Mara; p. 12) Latvia Still riding high on the election and investment cycle but slowdown ahead (by Sebastian Leitner; p. 13) Lithuania Flourishing economy but lacking welfare state (by Sebastian Leitner; p. 14) Macedonia New name and improved connectivity may boost growth (by Peter Havlik; p. 15) Montenegro Stable outlook (by Olga Pindyuk; p. 16) Poland First clouds on the horizon (by Leon Podkaminer; p. 17) Romania Economic growth falters (by Gábor Hunya; p. 18) Russian Federation More of the same will not be helpful (by Peter Havlik; p. 19) Serbia Cautiously optimistic (by Richard Grieveson; p. 20) Slovakia Solid growth with extra kick from automotive industry (by Doris Hanzl-Weiss; p. 21) Slovenia Broad-based growth continues (by Hermine Vidovic; p. 22) Turkey Sailing close to the wind (by Richard Grieveson; p. 23) Ukraine Remittances offset growing trade deficit (by Vasily Astrov; p. 24)
    Keywords: economic forecasts, GDP, GDP growth, investment, consumer prices, unemployment, current account, household consumption, net exports,
    Date: 2018–06
  99. By: International Monetary Fund
    Abstract: Spain’s economy has continued to grow strongly, reflecting its improved fundamentals. However, especially the young generation still faces daunting economic challenges. In the meantime, several downside risks are clouding the medium-term outlook. Externally, they comprise sudden changes in investors’ global risk appetite, escalating global protectionism, and weakening conditions in emerging economies. Domestically, they include pressure to reverse reforms, continued procyclical fiscal policy, and prolonged uncertainty related to Catalonia. These could hurt the economy particularly in an environment of high public debt and structural unemployment as well as sluggish productivity growth, which is set to slow Spain’s income convergence.
    Date: 2018–11–21
  100. By: Hashmat Khan (Department of Economics, Carleton University); Matthew Strathearn (Department of Economics, Carleton University)
    Abstract: We develop and test a novel prediction of the theory of collusion over the business cycle. Building on Haltiwanger and Harrington (1991), we present a model of collusive behaviour in the presence of persistent demand and an Antitrust Authority (AA) in a Cournot framework. The level of collusion is higher during a boom relative to a recession as collusion occurs more frequently when demand is increasing (entering into a collusive arrangement is more profitable and deviating from an existing cartel is less profitable). The model predicts that the number of discovered cartels and hence an- titrust filings should be procyclical because the level of collusion is procyclical. Using a unique data set of United States Antitrust filings, we present robust evidence con- sistent with the model's prediction. We find that antitrust filings are procyclical even after controlling for AA's monitoring intensity. The evidence suggests that procyclical competition policies may be a cost minimizing solution to asymmetries in collusive behaviour over the business cycle.
    Keywords: Collusion; Cournot Competition; Antitrust Filings; Business Cycle
    JEL: C73 L13 E32
    Date: 2018–12–20
  101. By: Flavio E. Buchieri
    Abstract: El presente escrito tiene como objetivo demostrar la validez empírica de un modelo de crisis gemelas para explicar la crisis bancaria y cambiaria de Argentina en la década del ’90 del pasado siglo, intentando convalidar la hipótesis allí propuesta, esto es, bajo Caja de Conversión con margen acotado de emisión se observa una inestabilidad creciente del sistema bancario-cambiario ante una corrida contra la moneda local. En el presente contexto se procede a versificar empíricamente el modelo antes expuesto, efectuándose primero una breve presentación del modelo para luego continuar con una breve reseña de la crisis financiera desatada bajo la devaluación mexicana de Diciembre de 1994, exponiéndose, a continuación, el análisis de la crisis de fines de 2001, tomándose a esta última como caso testigo para efectuar el testeo econométrico antes aludido. Al final, las conclusiones en base a las interpretaciones de las estimaciones realizadas.
    Keywords: Cajas de Conversión - Margen de Emisión – Equilibrio Inestable – “Calidad” de la Convertibilidad
    JEL: E42 G01
    Date: 2018–12
  102. By: Strulik, Holger
    Abstract: In this paper I discuss overweight and obesity and their repercussions on health deficit accumulation and longevity in a life cycle model. Individual decisions are conceptualized as the partial control of impulsive desires of a short-run self (the limbic system) by a rationally forward-looking long-run self (the prefrontal cortex). The short-run self-strives for immediate gratification through consumption of food and other goods. The long-run self reflects the consequences of eating behavior on weight gain and health, exercises to lose weight, invests money to improve health and saves for health expenditure in old age. Not conceding to short-run desires, however, entails an idiosyncratic utility cost of self-control. The model is calibrated to match food expenditure, exercise, and other choices of an average U.S. American. The results suggest that imperfect self-control reduces average lifetime by up to five years. I use the model to analyze the role of self-control, income, food prices, energy density, and medical progress in explaining obesity and to develop a test on whether obesity is driven by excessive desire for food or lack of self-control.
    Keywords: self-control,overweight,obesity,physical exercise,health investments,aging,longevity
    JEL: D11 D91 E21 I10 I12
    Date: 2018
  103. By: Pazhanisamy, R.
    Abstract: There are number of markets discussed in the economic theory seems only as imaginative and lacks proper investigation on the existence in the real world situation and their validity. The kinked demand curve hypothesis is a famous one among them which is under crux among the economic researcher. In the past few decades the existence of this market in the real world economies and its impact is continue to be a puzzle and a very few attempts were made in this areas with a few oscillating conclusions. With this backdrop this attempt is made to fill this gap in economics literature of re examining the existence and the impact of the kinked demand theory hypothesis with a special reference to Lakshadweep islands of India.
    Keywords: Kinked demand hypothesis: kinked Demand theory Evidence and Consequences, Sticky prices, Coordination failure, real rigidities, micro economic impact
    JEL: A1 A2 A23 D4 D43 D6 D61 E6 E61 H4 H41 H5 H52 R1
    Date: 2018–12–25
  104. By: -
    Abstract: Highlights: -In the third quarter of 2018, the U.S. economy grew at an annualized rate of 3.5% after rising 4.2% in the second quarter. Growth remained strong, but its composition deteriorated, as inventories accounted for almost two-thirds of the growth. Growth was led by consumer spending, which contributed 2.45% to growth, down from 2.6% in the second quarter, and inventories, which contributed 2.3%. -U.S. employers added 2,268,000 jobs from January to November 2018, more jobs than in 2017. Unemployment rate held steady at 3.7% at the end of November, the lowest level since 1969, while year-on-year wage growth was unchanged at 3.1%, equal to the quickest pace since April 2009. -The productivity of nonfarm workers increased at a 2.3% rate in the third quarter, a deceleration from the 3% advance in the second quarter. Labor costs cooled, signaling an easing in inflation pressures. -The trade deficit widened to its highest level in 10 years in October, rising more than expected. Imports have surged due to solid demand growth, while exports have dipped from their May highs due to rising tariffs and a relatively strong dollar. -The Federal Open Market Committee (FOMC) raised interest rates by a quarter point three times in 2018 so far – in March, June and September – and signaled that one more increase is on the way in December, as Fed officials expressed confidence on the strength of the U.S. economy. -The U.S. economic outlook becomes murkier in 2019, as policymakers weigh risks including slower global growth and less fiscal stimulus
    Date: 2018–12–17
  105. By: Shakill Hassan; Siobhan Redford
    Date: 2017–01–09
  106. By: Alain Venditti (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, EDHEC - EDHEC Business School)
    Abstract: We study the existence of endogenous competitive equilibrium cycles under small discounting in a two-sector discrete-time optimal growth model. We provide precise concavity conditions on the indirect utility function leading to the existence of period-two cycles with a critical value for the discount factor that can be arbitrarily close to one. Contrary to the continuous-time case where the existence of periodic-cycles is obtained if the degree of concavity is close to zero, we show that in a discrete-time setting the driving condition does not require a close to zero degree of concavity but a symmetry of the indirect utility function's concavity properties with respect to its two arguments.
    Keywords: two-sector optimal growth model,small discounting,period-two cycles,strong and weak concavity
    Date: 2018–11

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