nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒01‒14
eighty-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  2. Does State-Dependent Wage Setting Generate Multiple Equilibria? By Shuhei Takahashi
  3. Negative Nominal Interest Rates and the Bank Lending Channel By Gauti B. Eggertsson; Ragnar E. Juelsrud; Lawrence H. Summers; Ella Getz Wold
  4. Are Habits Important for the Propagation of Business Cycle Fluctuations in Bulgaria? By Aleksandar Vasilev
  5. Negative Interest Rate, QE and Exit By Samuel Reynard
  6. Monetary theory and policy : the debate revisited By Jean-Luc Gaffard
  7. Le débat de théorie et de politique monétaires revisité By Jean-Luc Gaffard
  8. The Monetary and Fiscal History of Brazil, 1960-2016 By Joao Ayres; Marcio Garcia; Diogo A. Guillén; Patrick J. Kehoe
  9. L’impact De L’investissement Des Revenus Pétroliers Sur La Croissance, L’inflation Et Le Chômage : Cas D’Algérie (2000-2015) By BENYOUB, Mohammed
  10. The paradox of global thrift By Luca Fornaro; Federica Romei
  11. Assessing Expectations as a Monetary/Fiscal State-Dependent Phenomenon By Martin Geiger; Marios Zachariadis
  12. Informality, Labor Regulation, and the Business Cycle By Leyva Gustavo; Urrutia Carlos
  13. A Progressive Consumption Tax - an Important Instrument for Stabilizing Business Cycles, or just an Exotic Idea? By Aleksandar Vasilev
  14. Inflation Dynamics under Fiscal Deficit Regime Switching in Mexico By Ramos Francia Manuel; García-Verdú Santiago; Sánchez-Martínez Manuel
  15. Central Bank Credibility and Monetary Policy By Kwangyong Park
  16. Monetary Policy, Corporate Finance and Investment By James Cloyne; Clodomiro Ferreira; Maren Froemel; Paolo Surico
  17. Demand, Markups and the Business Cycle By Lilia Cavallari; Federico Etro
  18. Financial Frictions, Cyclical Fluctuations, and the Growth Potential of New Firms By Christoph Albert; Andrea Caggese
  19. The Ins and Outs of Involuntary Part-time Employment By Daniel Borowczyk-Martins; Etienne Lalé
  20. Consumer Spending During Unemployment: Positive and Normative Implications By Peter Ganong; Pascal J. Noel
  21. Monetary policy frameworks and the effective lower bound on interest rates By Mertens, Thomas M.; Williams, John C.
  22. Forecasting the production side of GDP By Gregor Bäurle; Elizabeth Steiner; Gabriel Züllig
  24. "Mismatch" in the labor market and inflation: An integrative model with lessons from the Spanish experience By Pérez Trujillo, Manuel; Ruesga Benito, Santos; Sell, Friedrich L.
  25. Size, Efficiency, Market Power, and Economies of Scale in the African Banking Sector By Simplice A. Asongu; Nicholas M. Odhiambo
  26. From Commodity to Fiat and Now to Crypto: What Does History Tell Us? By Barry Eichengreen
  27. Identifying Global and National Output and Fiscal Policy Shocks Using a GVAR By Chudik, A.; Pesaran, H.; Mohaddes, K.
  28. The impact of guidance, short-term dynamics and individual characteristics on firms' long-term inflation expectations By Hans-Ueli Hunziker; Christian Raggi; Rina Rosenblatt-Wisch; Attilio Zanetti
  29. Capital accumulation and corporate portfolio choice between liquidity holdings and financialisation By Giovanni Scarano
  30. Size, Efficiency, Market Power, and Economies of Scale in the African Banking Sector By Simplice A. Asongu; Nicholas M. Odhiambo
  31. Forecasting FOMC Forecasts By S. Yanki Kalfa; Jaime Marquez
  32. How Much Do Households Really Know About Their Future Income? By Swapnil Singh; Christian A. Stoltenbergz
  33. Banking net income and macroeconomics, from multicollinearity to Granger causality using US data By Szybisz, Martin Andres
  34. Racing With or Against the Machine? Evidence from Europe By Gregory, Terry; Salomons, Anna; Zierahn, Ulrich
  35. Los efectos de la crisis económica en Galicia a través de 25 cuadros. By González Laxe, Fernando; Armesto Pina, José Francisco; Sánchez-Fernández, Patricio
  36. On the Costs of Deflation: A Consumption-Based Approach By García-Verdú Santiago; Ramos Francia Manuel
  37. Macroprudential policy in the lab By Gortner, Paul; Massenot, Baptiste
  38. A Note on Balanced-Budget Income Taxes and Aggregate (In)Stability in Multi-Sector Economies By Nicolas Abad; Alain Venditti
  39. What Determines the Neutral Rate of Interest in an Emerging Economy? By Carrillo Julio A.; Elizondo Rocío; Rodríguez-Pérez Cid Alonso; Roldán-Peña Jessica
  40. Directed Graphs and Variable Selection in Large Vector Autoregressive Models By Dominik Bertsche; Ralf Brüggemann; Christian Kascha
  41. The Malaysian Property Boom and Bust Cycle: History Repeating? By Ferlito, Carmelo
  42. Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors By Clark, Todd E.; McCracken, Michael W.; Mertens, Elmar
  43. Transmission of U.S. Monetary Policy to Commodity Exporters and Importers By Myunghyun Kim
  44. Estimating the Inflation-Output Gap Trade-Off with Triangle Model in Pakistan By Sharif, Bushra; Qayyum, Abdul
  45. Policy uncertainty and investment in Spain. By Daniel Dejuán; Corinna Ghirelli
  46. Exchange rate and oil price pass-through to inflation in BRICS countries: Evidence from the spillover index and rolling-sample analysis By Mehmet Balcilar; Usman Ojonugwa
  47. The Financial Alchemy that Failed By Miller, Marcus
  49. Impulses and Propagation Mechanisms in Equilibrium Business Cycles Theories: From Interwar Debates to DSGE "Consensus" By Muriel Dal-Pont Legrand; Harald Hagemann
  50. Debt Hangover in the Aftermath of the Great Recession By Stéphane Auray; Aurélien Eyquem; Paul Gomme
  51. Determinants of Capital Flows in the Korean Bond Market By Soohyon Kim
  52. Spending Multipliers with Distortionary Taxes: Does the Level of Public Debt Matter? By Rym Aloui; Aurélien Eyquem
  53. Capital Requirements in a Quantitative Model of Banking Industry Dynamics By Dean Corbae; Pablo D'Erasmo
  54. Transmission of sectoral debt shocks in OECD countries: Evidence from the income channel By Georgios Magkonis; Anastasia Theofilakou
  55. Relative Prices and Sectoral Productivity By Margarida Duarte; Diego Restuccia
  56. Euro Area Growth and European Institutional Reforms By Mariarosaria Comunale; Francesco Paolo Mongelli
  57. Spillovers from US monetary policy: Evidence from a time-varying parameter GVAR model By Crespo Cuaresma, Jesus; Doppelhofer, Gernot; Feldkircher, Martin; Huber, Florian
  58. International Transmission of Macroeconomic Uncertainty in Small Open Economies: An Empirical Approach By Jamie L. Cross; Chenghan Hou; Aubrey Poon
  59. Model selection for modeling the demand for narrow money in transitional economies By Błażejowski, Marcin; Kufel, Paweł; Kufel, Tadeusz; Kwiatkowski, Jacek; Osińska, Magdalena
  60. Cash and the Economy: Evidence from India's Demonetization By Gabriel Chodorow-Reich; Gita Gopinath; Prachi Mishra; Abhinav Narayanan
  61. Vorschläge des französischen Staatspräsidenten Emmanuel Macron zur Reform der Europäischen Union By Hirdina, Ralph
  62. Debt overhang and investment efficiency By Barbiero, Francesca; Popov, Alexander; Wolski, Marcin
  63. Firm Heterogeneity and the Dynamics of Credit Rationing in Japan By Hirokazu Mizobata
  64. The Effect of Credit Constraints on Housing Choices: The Case of LTV limit By Nitzan Tzur-Ilan
  65. Does Nonlinear Taxation Stabilize Small Open Economies? By Been-Lon Chen; Yunfang Hu; Kazuo Mino
  66. Learning from Coworkers By Gregor Jarosch; Ezra Oberfield; Esteban Rossi-Hansberg
  67. Is the Output Growth Rate in NIPA a Welfare Measure? By Jorge Duran; Omar Licandro
  68. Does Central Bank Independence Matter in Arab Oil Exporters By Hoda Selim
  69. Not all price endings are created equal: Price points and asymmetric price rigidity By Daniel Levy; Avichai Snir; Alex Gotler; Haipeng (Allan) Chen
  70. A Very Uneven Playing Field: Economic Mobility in the United States By Pablo Mitnik; Victoria Bryant; David Grusky
  71. The Challenges of Public Budgeting After the Great Fiscal Crisis: Where Improvements and Reform Can Be Made / Los retos de la presupuestación pública tras la gran crisis fiscal: líneas de mejora y reformas por afrontar / Els reptes de la pressupostació pública després de la gran crisis fiscal: línies de millora i reformes a afrontar By Jordi Baños Rovira; Daniel Montolio; Marco Cangiano; Mark Miller; Ernesto Ganuza; Santiago Lago-Peñas
  72. Slicing up inflation: analysis and forecasting of Lithuanian inflation components By Julius Stakenas
  73. An economic analysis of court fees: evidence from the Spanish civil jurisdiction By Juan S. Mora-Sanguinetti; Marta Martínez-Matute
  74. The Irish GDP in 2016. After the disaster comes a dilemma By Roberto Tedeschi
  75. Islamic Financial Institutions and Participatory Finance Constraints: The Case of Pakistan By Ali, Azam; Kishwar, Tanveer; Zulkhibri, Muhamed
  76. Waqf Resource Mobilization for Poverty Alleviation Based on Maqasid Framework By Hassanain, Khalifa M. Ali
  77. The Disability Option: Labor Market Dynamics with Macroeconomic and Health Risks By Amanda Michaud; David Wiczer
  78. State-level wage Phillips curves By Kapetanios, George; Tasiou, Menelaos; Price, Simon; Ventouri, Alexia
  79. Measuring the Services of Durables and Owner Occupied Housing By Diewert, Erwin; Shimizu, Chihiro
  80. The regional transmission of uncertainty shocks on income inequality in the United States By Fischer, Manfred M.; Huber, Florian; Pfarrhofer, Michael
  81. Central bank communication a quantitative assessment By Ernst, Ekkehard; Merola, Rossana.

  1. By: Paulo R. Mota (University of Porto – School of Economics and Business and CEF.UP); Abel L. C. Fernandes (University of Porto – School of Economics and Business and NIFIP)
    Abstract: A fundamental aspect of the ECB’s monetary policy is that it aims to pursue price stability “over the medium term.” However, the ECB has not defined the medium term with reference to a predetermined horizon, retaining some flexibility with regard to the exact time frame. The objective of this paper is to shed some light on how the horizon of price stability is being achieved in practice, in a context where the ECB faces convex and non-convex costs of adjusting the target interest rate. We assume that ECB’s monetary policy follows an average flexible inflation target framework, and we analyse the R2 of an equation where the target interest rate is specified as a function of the j-period window over which average inflation rate is measured. Target interest rate inertia is incorporate through a switching interest rate equation based on the play model of hysteresis. We have found that the ECB is targeting the key interest rate over a seven years window, implying that the ECB is following a hybrid approach to price stability in line with average inflation target. We also have found hysteresis effects in the dynamic adjustment of ECB´s target interest rate.
    Keywords: inflation target, price-level targeting, key interest rates
    JEL: E43 E52
    Date: 2019–01
  2. By: Shuhei Takahashi (Institute of Economic Research, Kyoto University)
    Abstract: Does wage setting exhibit strategic complementarity and produce multiple equilib- ria? This study constructs a discrete-time New Keynesian model in which the timing of individual wage adjustments is endogenous. I explore steady-state equilibrium of the state-dependent wage-setting model both analytically and numerically. For reasonable parameter values, complementarity in wage setting is weak and multiple equilibria are unlikely to exist at the steady state. The uniqueness of equilibrium is robust to imperfect consumption insurance.
    Keywords: State-dependent wage setting, New Keynesian model, Multiple equilibria, Strategic complementarity, Incomplete markets, Deflation
    JEL: E24 E31 E32 E52
    Date: 2018–05
  3. By: Gauti B. Eggertsson; Ragnar E. Juelsrud; Lawrence H. Summers; Ella Getz Wold
    Abstract: Following the crisis of 2008, several central banks engaged in a new experiment by setting negative policy rates. Using aggregate and bank level data, we document that deposit rates stopped responding to policy rates once they went negative and that bank lending rates in some cases increased rather than decreased in response to policy rate cuts. Based on the empirical evidence, we construct a macro-model with a banking sector that links together policy rates, deposit rates and lending rates. Once the policy rate turns negative, the usual transmission mechanism of monetary policy through the bank sector breaks down. Moreover, because a negative policy rate reduces bank profits, the total effect on aggregate output can be contractionary. A calibration which matches Swedish bank level data suggests that a policy rate of -0.50 percent increases borrowing rates by 15 basis points and reduces output by 7 basis points.
    JEL: E3 E31 E4 E41 E42 E43 E44 E5 E51 E52 E58 E65
    Date: 2019–01
  4. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: We introduce internal consumption habits into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of internal consumption habits motive for the propagation cyclical uctuations in Bulgaria. Allowing for habits in consumption improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework without habits, e.g., Vasilev (2009).
    Keywords: Business fluctuations, consumption habits, Bulgaria
    JEL: E32 E22 E37
    Date: 2018–09
  5. By: Samuel Reynard
    Keywords: Quantitative Easing, Negative Interest Rate, Exit, Monetary Policy Transmission, Money Supply, Banking
    JEL: E52 E58 E51 E41 E43
    Date: 2018
  6. By: Jean-Luc Gaffard (Observatoire français des conjonctures économiques)
    Abstract: This paper is aimed at revisiting monetary analysis in order to better understand erroneous choices in the conduct of monetary policy. According to the prevailing consensus, the market economy is intrinsically stable and is upset only by poor behaviour by government or the banking system. We maintain on the contrary that the economy is unstable and that achieving stability requires a discretionary economic policy. This position relies upon an analytical approach in which monetary and financial organisations are devices that help markets to function. In this perspective, which focuses on the heterogeneity of markets and agents, and, consequently, on the role of institutions in determining overall performance, it turns out that nominal rigidities and financial commitment offer the means to achieve economic stability. This is because they prevent successive, unavoidable disequilibria from becoming explosive.
    Keywords: Inflation; Market; Money; Stability
    JEL: E31 E32 E5 E61 E62
    Date: 2018–11
  7. By: Jean-Luc Gaffard (Observatoire français des conjonctures économiques)
    Abstract: L’article est dédié à reconsidérer l’analyse monétaire afin de mieux comprendre des choix erronés dans la conduite de la politique monétaire. Suivant le consensus en vigueur, l’économie de marché est intrinsèquement stable, étant seulement perturbée par les mauvais comportements du gouvernement et des banques. Nous maintenons, au contraire, que cette économie est instable et que la stabiliser requiert une politique économique discrétionnaire. Une telle position repose sur une approche analytique suivant laquelle l’organisation monétaire et financière des échanges est un outil qui facilite le fonctionnement des marchés Suivant cette perspective centrée sur l'hétérogénéité des marchés et des agents, et donc sur le rôle des institutions dans la détermination de la performance globale, il apparaît que les rigidités nominales et l'engagement financier sont les moyens qui assurent la stabilité de l’économie. La raison est que ces mesures empêchent les déséquilibres successifs et inévitables d’être explosifs.
    Keywords: Inflation; Marché; Monnaie; Stabilité
    JEL: E31 E32 E5 E61 E62
    Date: 2018–11
  8. By: Joao Ayres; Marcio Garcia; Diogo A. Guillén; Patrick J. Kehoe
    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.
    JEL: E0 E02 E3 E4 E42 E5 E58 E6
    Date: 2019–01
  9. By: BENYOUB, Mohammed
    Abstract: This paper investigates the short-run and long-run relationships between four main Algerian macroeconomic variables, the investment of oil revenues, economic growth, unemployment rate, inflation rate, using the Johansen multivariate cointegration techniques as well as VAR model for the period 2000-2015. The results indicate that there is not a long relationship between these four macroeconomic variables. The impulse functions and the variance decomposition from the stationary VAR show that the investment of oil revenues is very important to short run dynamics of the Algerian economy, when there is a shock in investment of oil revenues, GDP responds positively (13%) while the unemployment rate responds negatively (11%), in the long term. This is in line with the Algerian government's investment strategy, increasing GDP and reducing the unemployment rate.
    Keywords: VAR model, oil revenues, public investment, gross domestic product, unemployment, inflation.
    JEL: C01 C02 C3 C32 C5 C54 E2 E22 E24 E60
    Date: 2018–01–01
  10. By: Luca Fornaro (CREI, Universitat Pompeu Fabra, Barcelona GSE and CEPR); Federica Romei (Stockholm School of Economics and CEPR)
    Abstract: This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy is constrained by the zero lower bound. Now imagine that governments implement prudential financial and fiscal policies to stabilize the economy. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In fact, prudential policies generate a rise in the global supply of savings and a drop in global aggregate demand. Weaker global aggregate demand depresses output in countries at the zero lower bound. Due to this effect, non-cooperative financial and fiscal policies might lead to a fall in global output and welfare
    Keywords: liquidity traps, zero lower bound, capital flows, fiscal policies, macroprudential policies, current account policies, aggregate demand externalities, international cooperation
    JEL: E32 E44 E52 F41 F42
    Date: 2018–12
  11. By: Martin Geiger; Marios Zachariadis
    Abstract: We assess the impact of monetary and fiscal policy shocks on US survey-based macroeconomic expectations elicited from consumers and financial experts, within and outside low-debt states of the world. While we fail to detect a clear response to shocks in a linear model, our analysis reveals a number of state-dependent patterns. The response of consumers' expectations to the monetary and fiscal shocks we jointly consider is typically strong and distinctly different outside states of low debt as compared to within states of low debt where we observe little action. Outside low-debt states, an increase in government spending has adverse effects on expectations consistent with the anticipation of negative effects from a future fiscal consolidation. Moreover, contractionary monetary policy shocks induce pessimistic macroeconomic expectations outside the low-debt state but not within it, suggesting that the fiscal burden matters in how monetary policy affects expectations. Our findings are in line with rationally inattentive consumers not paying attention to shocks occurring when the fiscal burden is low. Finally, consumer expectations' responses more closely resemble those of experts outside the low-debt state, in line with consumers becoming more attentive to fiscal and monetary developments when the stakes are high.
    Keywords: policy shocks; public debt; rational inattention; fiscal theory of the price level
    JEL: E31 E52 E62
    Date: 2019–01
  12. By: Leyva Gustavo; Urrutia Carlos
    Abstract: We analyze the joint impact of employment protection and informality on macroeconomic volatility and the propagation of shocks in emerging economies. For this, we propose a small open economy business cycle model with frictional labor markets, labor regulation, and an informal sector, modeled as self-employment. The model is calibrated to the Mexican economy, in particular to business cycle moments for employment and informality obtained from our own calculations with the ENOE survey for the period 2005-2016. We show that international interest rate shocks, which affect specifically job creation in the formal sector, are key to obtain a counter-cyclical informality rate. In our model both the economy without an informal sector and the economy with informality but a lower burden of labor regulation feature higher volatility in employment but smaller fluctuations in TFP and output.
    Keywords: informality;business cycle;small open economy;job creation;employment protection;international interest rate shocks
    JEL: E24 E32 F44 J65
    Date: 2018–11
  13. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: We introduce progressive consumption taxation into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of of progressive taxation of consumption expenditures for the stabilization of cyclical uctuations in Bulgaria. We find the quantitative effect of such a tax to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: business cycles, progressive consumption taxation, Bulgaria
    JEL: E24 E32
    Date: 2018–12
  14. By: Ramos Francia Manuel; García-Verdú Santiago; Sánchez-Martínez Manuel
    Abstract: We explore the dynamics of inflation, inflation expectations, and seigniorage-financed fiscal deficits in Mexico. To do so, we estimate the model in Sargent, Williams, and Zha (2009) using Mexican CPI inflation data. This model features dual expected inflation equilibriums and regime switching in the mean and variance of the fiscal deficit probability density function. We examine the dynamics of inflation and mean fiscal deficit regimes. In addition, we comment on the extent to which our results match to key economic events. Mexico has successfully stabilized inflation expectations for the past decades, an achievement for which fiscal policy has been fundamental. Nevertheless, this does not preclude the possibility of an increase in the expected price level or a switch to a regime in which inflation and its expectations become unstable.
    Keywords: Inflation;Inflation Expectations;Public Deficit;Fiscal Deficit;Regime-Switching;Monetary Policy;Fiscal Policy
    JEL: E31 D84 H62 E52 E62 C01
    Date: 2018–11
  15. By: Kwangyong Park (Economic Research Institute, The Bank of Korea)
    Abstract: A numerical measure of central bank credibility, which can be incorporated into a New Keynesian model under bounded rationality, is proposed and analyzed. This measure arises mainly due to the existence of the drifts in private long-term predictions, which are different from those of the central bank. It is shown that central bank credibility matters for macroeconomic stability. As the credibility increases, macroeconomic variables vary less. This generates endogenous volatility changes. Lastly, the magnitude of response of inflation to monetary policy depends on the level of credibility. This suggests that ignoring credibility changes might leads to overestimate of the cost of disinflation.
    Keywords: Monetary policy, Credibility, Learning, Bounded Rationality
    JEL: E3 E52 E58 D8
    Date: 2018–12–24
  16. By: James Cloyne; Clodomiro Ferreira; Maren Froemel; Paolo Surico
    Abstract: We provide new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most significant change in capital expenditure - even after conditioning on size, asset growth, Tobin's Q, leverage or liquidity - and drive the response of aggregate investment. Older companies, in contrast, hardly react at all. After a monetary policy tightening, net worth falls considerably for all firms but borrowing declines only for younger non-dividend payers, as their external finance is mostly exposed to asset value fluctuations. Conversely, cash flows change less markedly and more homogeneously across groups. Our findings highlight the role of firm finance and financial frictions in amplifying the effects of monetary policy on investment.
    JEL: E22 E32 E52
    Date: 2018–12
  17. By: Lilia Cavallari; Federico Etro
    Abstract: We generalize the demand side of a Real Business Cycle model introducing non-homothetic preference aggregators over differentiated final goods. Under monopolistic competition this generates markups which vary with consumption. We estimate a flexible preference specification through Bayesian methods and obtain substitutability across goods increasing with consumption. The closed-economy model magnifies the propagation of shocks through additional substitution effects on labor supply and consumption. In an open-economy framework, it also generates positive comovements of output, labor and investment and reduces consumption correlation between countries. In particular, a positive shock in the Home country improves its terms of trade, which promotes consumption in the Home country but also production in the Foreign country.
    Keywords: RBC, non-homothetic preference aggregators, variable markups, international macroeconomics.
    JEL: E1 E2 E3 F4
    Date: 2018
  18. By: Christoph Albert; Andrea Caggese
    Abstract: We develop a model in which entrepreneurs choose between startup types with heterogeneous short- and long-run growth potential, and we generate testable predictions on the differential effects of financial factors and cyclical fluctuations on these startups. Using a multi-country entrepreneurship survey, we find that, consistent with the model, higher borrowing costs during financial crises negatively affect high-growth startups considerably more than low-growth startups, especially during severe downturns. Our results, supported by additional tests using sector-level financial frictions indicators, uncover a new channel that is potentially important to explain slow recoveries after financial crises.
    Keywords: financial crisis, entrepreneurship
    JEL: E20 E32 D22 J23 M13
    Date: 2018–12
  19. By: Daniel Borowczyk-Martins; Etienne Lalé
    Abstract: We develop an adjustment procedure to construct U.S. monthly time series of involuntary part-time employment stocks and flows from 1976 until today. Armed with these new data, we provide a comprehensive account of the dynamics of involuntary part-time work. Transitions from full-time to involuntary part-time employment dom-inate this dynamics, spiking up at recessions’ onsets and persisting well into recovery periods. Weaknesses in job creation, on the other hand, contribute little to these fluctuations. Our data and findings are relevant to inform a broader assessment of labor market performance and to develop models of cyclical labor adjustment.
    Keywords: Involuntary part-time employment,Unemployment,Labor market flows,Business Cycles,
    JEL: E24 E32 J21
    Date: 2018–12–20
  20. By: Peter Ganong; Pascal J. Noel
    Abstract: Using de-identified bank account data, we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance (UI) benefits. We use the high-frequency response to a predictable income decline as a new test to distinguish between alternative consumption models. The sensitivity of spending to income we document is inconsistent with rational models of liquidity-constrained households, but is consistent with behavioral models with present-biased or myopic households. Depressed spending after exhaustion also implies that the consumption-smoothing gains from extending UI benefits are four times larger than from raising UI benefit levels.
    JEL: E21 E24 J65
    Date: 2019–01
  21. By: Mertens, Thomas M. (Federal Reserve Bank of San Francisco); Williams, John C. (Federal Reserve Bank of New York)
    Abstract: This paper applies a standard New Keynesian model to analyze the effects of monetary policy in the presence of a low natural rate of interest and a lower bound on interest rates. Under a standard inflation-targeting approach, inflation expectations will become anchored at a level below the inflation target, which in turn exacerbates the deleterious effects of the lower bound on the economy. Two key themes emerge from our analysis. First, the central bank can mitigate this problem of a downward bias in inflation expectations by following an average-inflation targeting framework that aims for above-target inflation during periods when policy is unconstrained. Second, a dynamic strategy such as price-level targeting that raises inflation expectations when inflation is low can both anchor expectations at the target level and potentially further reduce the effects of the lower bound on the economy.
    Keywords: monetary policy; zero lower bound; natural rate of interest; inflation targeting; inflation expectations
    JEL: E52
    Date: 2019–01–01
  22. By: Gregor Bäurle; Elizabeth Steiner; Gabriel Züllig
    Keywords: Forecasting, GDP, Sectoral heterogeneity, Bayesian vector auto regression, Dynamic Factor Model
    JEL: C11 C32 C38 E32 E37
    Date: 2018
  23. By: Shintaro Asaoka (Institute of Economic Research, Kyoto University)
    Abstract: This study examines the existence of bubbles in an economy with a low growth rate. By using an overlapping-generations model with Matsuyama's (1999) production sector, it is shown a bubble exists in an economy with a low growth rate. If consumers can borrow assets when they are young, then there is a unique cycle with a bubble moving back and forth between two phases. In one phase, the output growth rate is low and innovation occurs. In the other phase, the output growth rate is high and there is no innovation. Therefore, a bubble also exists in an economy with a high growth rate. On the contrary, cycles cannot emerge if consumers save assets when they are young.
    Keywords: bubbles, endogenous growth model
    JEL: D91 E32 O41
    Date: 2018–01
  24. By: Pérez Trujillo, Manuel; Ruesga Benito, Santos; Sell, Friedrich L.
    Abstract: The Great Recession (2009/10) resulted in the need of different economic policies and structural reforms to boost economic growth both in the advanced and in the emerging economies. In this paper, we start from a theoretical concept that is relatively new - the modified output gap (MOG), based on both the Phillips and the Beveridge curve, initially introduced by Sell and Reinisch (2013) and Sell (2016), revealing the explicit positive relationship between the vacancy ratio on the one hand and the inflation rate on the other hand. Empirically, we estimate this relationship by developing three different panel data models: Fixed Effects (FE), Random Effects (RE) and a GMM System (Generalized Method of Moments). The obtained results show that the loss in the efficiency of matching in the labor market combined with an increase in the demand in the markets for goods and services will push up inflation. We show the empirical relevance of the modified output gap for Spain during the Great Recession and explain how it affected the implementation of the economic stimulus plan that was introduced by the then socialist government in Spain with the aim of boosting the economy.
    Keywords: mismatch,Beveridge curve,Philipps curve,modified output gap,great recession
    JEL: J63 J41 E65 E31
    Date: 2018
  25. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: There is a growing body of evidence that interest rate spreads in Africa are higher for big banks compared to small banks. One concern is that big banks might be using their market power to charge higher lending rates as they become larger, more efficient, and unchallenged. In contrast, several studies found that when bank size increases beyond certain thresholds, diseconomies of scale are introduced that lead to inefficiency. In that case, we also would expect to see widened interest margins. This study examines the connection between bank size and efficiency to understand whether that relationship is influenced by exploitation of market power or economies of scale. Using a panel of 162 African banks for 2001–2011, we analyzed the empirical data using instrumental variables and fixed effects regressions, with overlapping and non-overlapping thresholds for bank size. We found two key results. First, bank size increases bank interest rate margins with an inverted U-shaped nexus. Second, market power and economies of scale do not increase or decrease the interest rate margins significantly. The main policy implication is that interest rate margins cannot be elucidated by either market power or economies of scale. Other implications are discussed.
    Keywords: Sub-Saharan Africa; banks; lending rates; efficiency
    JEL: E42 E52 E58 G21 G28
    Date: 2018–01
  26. By: Barry Eichengreen
    Abstract: Over time, there has been a tendency for political jurisdictions and residents to converge on a single currency. Monopoly over seigniorage is a source of political power and a valuable lifeline when sovereignty is threatened. Moreover a uniform currency, insofar as it is free of counterparty and liquidity risk, facilitates economic activity. But will digital currencies now reverse this trend toward uniformity, given the apparent ease with which they can be created? The information sensitivity of those units, evident in the fact that they trade at varying prices, suggests that they do not yet provide the core functions of money. So-called stable coins are intended to bridge this gap, but whether they can be successfully scaled up and maintain their stability is doubtful. The one unit that can clearly meet these challenges is central bank digital currency. But there would be both costs and benefits of moving in this direction.
    JEL: E4 E40 F0 N0
    Date: 2019–01
  27. By: Chudik, A.; Pesaran, H.; Mohaddes, K.
    Abstract: The paper contributes to the growing global VAR (GVAR) literature by showing how global and national shocks can beidentified within a GVAR framework. The usefulness of the proposed approach is illustrated in an application to the analysis of the interactions between public debt and real output growth in a multicountry setting, and the results are compared to those obtained from standard single country VAR analysis. We find that on average (across countries) global shocks explain about one third of the long-horizon forecast error variance of output growth, and about one fifth of the long run variance of the rate of change of debt-to-GDP. Evidence on the degree of cross-sectional dependence in these variables and their innovations are exploited to identify the global shocks, and priors are used to identify the national shocks within a Bayesian framework. It is found that posterior median debt elasticity with respect to output is much larger when the rise in output is due to a fiscal policy shock, as compared to when the rise in output is due to a positive technology shock. The cross country average of the median debt elasticity is 1.58 when the rise in output is due to a fiscal expansion as compared to 0.75 when the rise in output follows from a favorable output shock.
    Keywords: Factor-augmented VARs, Global VARs, identification of global and country-specific shocks, Bayesian analysis, public debt and output growth, debt elasticity.
    JEL: C30 E62 H6
    Date: 2018–12–21
  28. By: Hans-Ueli Hunziker; Christian Raggi; Rina Rosenblatt-Wisch; Attilio Zanetti
    Keywords: Long-term inflation expectations, firms' inflation expectations, guidance and uncertainty
    JEL: C22 E31 E50 D83
    Date: 2018
  29. By: Giovanni Scarano
    Abstract: Most models of investment decisions utilised in macroeconomic models take free or perfect competition as explicit or implicit assumption. However, the oligopolistic structure of most real markets lead to corporate strategic behaviours that can produce very different results. Strategic decisions, connected with agency problems, can play a major role in producing financialisation and timing the rhythms of real investment. The paper deals with both mainstream and heterodox contributions that analyse the effects of corporate governance and strategic behaviours on portfolio management and investment decisions in big corporations, seeking to determine how these effects might play a major role in producing growing liquidity holdings and financialisation. The main objective is to understand whether these models can explain the tendency to place growing shares of social surplus in speculative financial channels, thereby contributing to long-term real stagnation.
    Keywords: Investment theory, Interest Rate, Corporate Savings, Financialisation,Financial Crises
    JEL: B51 E11 E12 E32 G35
    Date: 2019–01
  30. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: There is a growing body of evidence that interest rate spreads in Africa are higher for big banks compared to small banks. One concern is that big banks might be using their market power to charge higher lending rates as they become larger, more efficient, and unchallenged. In contrast, several studies found that when bank size increases beyond certain thresholds, diseconomies of scale are introduced that lead to inefficiency. In that case, we also would expect to see widened interest margins. This study examines the connection between bank size and efficiency to understand whether that relationship is influenced by exploitation of market power or economies of scale. Using a panel of 162 African banks for 2001–2011, we analyzed the empirical data using instrumental variables and fixed effects regressions, with overlapping and non-overlapping thresholds for bank size. We found two key results. First, bank size increases bank interest rate margins with an inverted U-shaped nexus. Second, market power and economies of scale do not increase or decrease the interest rate margins significantly. The main policy implication is that interest rate margins cannot be elucidated by either market power or economies of scale. Other implications are discussed.
    Keywords: Sub-Saharan Africa; banks; lending rates; efficiency; Quiet Life Hypothesis
    JEL: E42 E52 E58 G21 G28
    Date: 2018–01
  31. By: S. Yanki Kalfa (International Monetary Fund); Jaime Marquez (Johns Hopkins School of Advanced International Studies (SAIS))
    Abstract: Summarizing Hendry’s forty years of work on taming uncertainty is "clear and distinct": Test, test, test. Sure - but test what? Test the maintained assumptions of the disturbances. Test the parameter restrictions of a given model. Test the explanatory power of a model against a rival model. In brief, test everything that is not clear and distinct. We implement Hendry’s view to forecast FOMC forecasts. Specifically, monetary policy is forward looking and, in its pursuit of transparency, it communicates its economic projections to the public at large. As a result, there is interest in whether these projections are credible. We argue that central to that credibility is the public’s ability to replicate FOMC’s projections using publicly available data only. In other words, is it possible to anticipate, reliably and independently, what the FOMC will anticipate for the federal funds rate? To address this question, we assemble FOMC projections from 1992 to 2017; examine their statistical properties; postulate models to predict FOMC projections; estimate the parameters of these models; and generate out-of-sample predictions for inflation, unemployment, and the federal funds rate for 2018. As the reader will soon realize, there is a lot more testing to be done.
    Keywords: Autometrics, Federal Funds Rate, FOMC, Survey of Professional Forecasters
    JEL: E5 C4
    Date: 2018–11
  32. By: Swapnil Singh (Center for Excellence in Finance and Economic Research (CEFER), Bank of Lithuania); Christian A. Stoltenbergz (University of Amsterdam and Tinbergen Institute)
    Abstract: We develop a consumption-savings model that distinguishes households’ perceived income uncertainty from income uncertainty as measured by an econometrician. Households receive signals on their future disposable income that can drive a gap between the two uncertainties. With an uncertainty gap that is consistent with direct estimates stemming from subjective income expectations, the model jointly explains three consumption inequality and insurance measures in US micro data that are not captured without the difference: (i) the cross-sectional variance of households’ consumption, (ii) the covariance of current consumption and income growth and (iii) the income-conditional mean of household consumption.
    Keywords: Risk sharing, Advance information, Consumption insurance, Endogenous borrowing constraints, Limited commitment
    JEL: E21 D31 D52
    Date: 2018–12–21
  33. By: Szybisz, Martin Andres
    Abstract: We select six macroeconomic variables and study their relation with (aggregate) net banking income. The aggregate net banking income was reconstructed from US banking sector authorities' data. Usefulness may be twofold, it provides aggregate insight and the methodology can be replicated at bank institution level. We use standard tools such as linear regression analysis (to study multicollinearity) and Granger causality. The obtained results suggest a highly changing relation between all variables in time and an increase of causality and feedback relations after the 2008 crisis.
    Keywords: Banking Net Income, Macroeconomics, Multicollinearity, Granger causality
    JEL: C22 E44 G21
    Date: 2018–12–12
  34. By: Gregory, Terry (IZA); Salomons, Anna (Utrecht University); Zierahn, Ulrich (ZEW Mannheim)
    Abstract: A fast-growing literature shows that digital technologies are displacing labor from routine tasks, raising concerns that labor is racing against the machine. We develop a task-based framework to estimate the aggregate labor demand and employment effects of routine-replacing technological change (RRTC), along with the underlying mechanisms. We show that while RRTC has indeed had strong displacement effects in the European Union between 1999 and 2010, it has simultaneously created new jobs through increased product demand, outweighing displacement effects and resulting in net employment growth. However, we also show that this finding depends on the distribution of gains from technological progress.
    Keywords: labor demand, employment, routine-replacing technological change, tasks, local demand spillovers
    JEL: E24 J23 J24 O33
    Date: 2019–01
  35. By: González Laxe, Fernando; Armesto Pina, José Francisco; Sánchez-Fernández, Patricio
    Abstract: Eleven years have passed since the beginning of the economic crisis that began in 2008 when two consecutive quarters of negative quarter-on-quarter variation rates were experienced. Throughout these eleven years, three key moments can be highlighted, which are the ones taken as a general reference: the second quarter of 2008, when the economic crisis begins; the fourth quarter of 2013, when the Galician economy begins its economic recovery; and the third quarter of 2017, when the pre-crisis level is achieved in terms of real GDP. The purpose of this paper is to offer, in a synthetic way, an image of the effects of the economic crisis from the data collected in the following graphs and tables
    Keywords: Galicia, Crisis, GDP, variation rates, economic indicators
    JEL: E01 H83 O49 R11
    Date: 2018–12
  36. By: García-Verdú Santiago; Ramos Francia Manuel
    Abstract: Our interest is to understand the costs of deflation. Thus, we explore the extent to which deflationary risks have surged in a selected set of European economies. To that end, we develop a simple consumption-based asset pricing model and, based on it, we estimate a(n) (in)deflation risk premium. We find that our aggregate risk premium and a systemic financial stress indicator correlate negatively. The absolute values of their (time-averaged) risk premiums and their financial development indices correlate as well. Both relations are in line with our model. In addition, we estimate panel data regressions to explore the extent to which changes in the price and debt levels, are priced in by the (in)deflation risk premium. We generally find that deflation terms contributes negatively to such a premium and inflation positively. The magnitudes of the coefficients associated with deflation tend to be greater, compared to those associated with inflation. This suggests that deflationary costs are relatively larger than inflationary ones. We rationalize this cost asymmetry with the presence of a credit constraint under deflationary periods.
    Keywords: Consumption-based asset pricing;Inflation;Deflation;Inflation Risk Premium;Deflation Risk Premium;Eurozone
    JEL: G12 E31
    Date: 2018–11
  37. By: Gortner, Paul; Massenot, Baptiste
    Abstract: Higher capital ratios are believed to improve system-wide financial stability through three main channels: (i) higher loss-absorption capacity, (ii) lower moral hazard, (iii) stabilization of the financial cycle if capital ratios are increased during good times. We examine these mechanisms in a laboratory asset market experiment with indebted participants. We find support for the loss-absorption channel: higher capital ratios reduce the bankruptcy rate. However, we do not find support for the moral hazard channel. Higher capital ratios (insignificantly) increase asset price bubbles, an aggregate measure of excessive risk-taking. Additional evidence suggests that bankruptcy aversion explains this surprising result. Finally, the evidence supports the idea that higher capital ratios in good times stabilize the financial cycle.
    JEL: G28 E58
    Date: 2018
  38. By: Nicolas Abad (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université); 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 examine the impact of balanced-budget labor income taxes on the existence of expectation- driven business cycles in a two-sector version of the Schmitt-Grohé and Uribe (SGU) [18] model with constant government expenditures and counter-cyclical taxes. Our results show that the destabilizing impact of labor income taxes strongly depends on the capital intensity difference across sectors. Local indeterminacy is indeed more likely when the consumption good sector is capital intensive, as the minimal tax rate decreases, and less likely when the investment good sector is capital intensive, as the minimal tax rate increases. The implication of this result can be quantitatively significant. Indeed, when compared to SGU, local indeterminacy can be either completely ruled out for all OECD countries when the investment good is sufficiently capital intensive, or drastically improved, delivering indeterminacy for a larger set of OECD countries, if the consumption good is sufficiently capital intensive. Focusing however on recent estimates of the sectoral capital shares corresponding to the empirically plausible case of a capital intensive consumption good, we find that there is a significant increase of the range of economically relevant labor tax rates (from a minimum tax rate of 30% to 24.7%) for which local indeterminacy arises with respect to the aggregate formulation of SGU.
    Keywords: aggregate (in)stability,local indeterminacy,expectations-driven fluctuations,labor income taxes,balanced-budget rule,infinite-horizon two-sector model,capital intensity difference
    Date: 2018–06
  39. By: Carrillo Julio A.; Elizondo Rocío; Rodríguez-Pérez Cid Alonso; Roldán-Peña Jessica
    Abstract: Evidence suggests that potential growth and the neutral rate co-move in advanced economies. In contrast, this co-movement is not observed in emerging economies. We argue that capital flows may explain this behavior. We focus on Mexico, a benchmark emerging economy, and find that capital inflows may account for a temporary reduction in the Mexican neutral rate after the global financial crisis. These inflows surged during the implementation of unconventional monetary policies in advanced economies. In turn, low-frequency changes in the neutral rate may be attributed to increasing domestic savings, demographics, and a decreasing global long-run real interest rate. These results are largely consistent with other studies showing that the neutral rate has decreased in the last 25 years in advanced and emerging economies.
    Keywords: Neutral rate of interest;emerging market economies;transitory and structural factors
    JEL: C10 E43 E52
    Date: 2018–11
  40. By: Dominik Bertsche (Department of Economics, Box 129, 78457 Konstanz, Germany); Ralf Brüggemann (Department of Economics, Box 129, 78457 Konstanz, Germany); Christian Kascha
    Abstract: We represent the dynamic relation among variables in vector autoregressive (VAR) models as directed graphs. Based on these graphs, we identify so-called strongly connected components (SCCs). Using this graphical representation, we consider the problem of variable selection. We use the relations among the strongly connected components to select variables that need to be included in a VAR if interest is in forecasting or impulse response analysis of a given set of variables. We show that the set of selected variables from the graphical method coincides with the set of variables that is multi-step causal for the variables of interest by relating the paths in the graph to the coecients of the `direct' VAR representation. Empirical applications illustrate the usefulness of the suggested approach: Including the selected variables into a small US monetary VAR is useful for impulse response analysis as it avoids the well-known `price-puzzle'. We also nd that including the selected variables into VARs typically improves forecasting accuracy at short horizons.
    Keywords: Vector autoregression, Variable selection, Directed graphs, Multi-step causal-ity, Forecasting, Impulse response analysis
    JEL: C32 C51 E52
    Date: 2018–12–10
  41. By: Ferlito, Carmelo
    Abstract: According to Mark Thornton, we could be very close to another major economic crisis. Ten years have passed from the so-called Great Recession and Thornton’s prediction confirms my view according to which business fluctuations are pervasive, and the crisis that emerged in the Western world in 2007 is just the latest and most evident manifestation of such dynamics. I have expressed the idea that business cycles are unavoidable by developing the doctrine of the natural cycle. In the present paper I used that framework in order to describe the evolution of the Malaysian property market in the last decade in the context of the general development of the national economy. In fact, it seems that this evolution presents many features of the cyclical dynamic that brought about the Great Recession after a ten year delay.
    Keywords: business cycles,Malaysia,property market,expectations
    JEL: E32 O16
    Date: 2018
  42. By: Clark, Todd E. (Federal Reserve Bank of Cleveland); McCracken, Michael W. (Federal Reserve Bank of St. Louis); Mertens, Elmar (Bank for International Settlements)
    Abstract: We estimate uncertainty measures for point forecasts obtained from survey data, pooling information embedded in observed forecast errors for different forecast horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. We apply our method to forecasts for various macroeconomic variables from the Survey of Professional Forecasters. Compared to constant variance approaches, our stochastic volatility model improves the accuracy of uncertainty measures for survey forecasts. Our method can also be applied to other surveys like the Blue Chip Consensus, or the Federal Open Market Committee’s Summary of Economic Projections.
    Keywords: Stochastic volatility; survey forecasts; fan charts;
    JEL: C53 E37
    Date: 2017–09–01
  43. By: Myunghyun Kim (Economic Research Institute, The Bank of Korea)
    Abstract: This paper studies international transmission of U.S. monetary policy shocks to commodity exporters and importers. After first showing empirically that the shocks have stronger effects on commodity exporters than on importers, I then augment a standard three-country model to include commodities. Consistent with the empirical evidence, the model indicates that an expansionary monetary policy shock to the U.S. increases the aggregate output of commodity exporters by more than that of importers. This is because the increased U.S. aggregate demand triggered by the shock leads to greater U.S. demand for commodities and higher real commodity prices, and thus the exports of commodity exporters increase relative to those of commodity importers. Furthermore, I show that if commodity exporters¡¯ currencies are pegged to the U.S. dollar, then the U.S. monetary policy shocks have stronger spillovers to commodity exporters and importers. In the event that the U.S. becomes a net energy exporter, the shocks will have weaker effects on commodity exporters and stronger impacts on importers.
    Keywords: Monetary policy shocks, International transmission, Commodity exporters, Commodity importers, VAR with external instruments
    JEL: E52 F42 Q43
    Date: 2018–12–18
  44. By: Sharif, Bushra; Qayyum, Abdul
    Abstract: In this study, we attempt to estimate Inflation-Output Gap Trade-off with Triangle model using Time Series data over the periods of 1971-2016 in case of Pakistan. For this purpose we used a three step methodology to estimate inflation-output trade-off with triangle model such as Unit root Analysis, cointegration Analysis and Error Correction Model. Dynamic of inflation has significant impact on output containing different two shock dummy variables in inflation. Empirical finding of this thesis shows that long run and significant relationship exist between inflation and supply shocks variables such as oil prices and nominal exchange rate but no long run relationship exist between inflation and output gap. Output gap has positive and significant impact on inflation in short run but supply shock variables have no impact on inflation dynamic in short run. The dynamic inflation is important to determine the relationship between inflation-outpu
    Keywords: Inflation; Output Gap; Trade-off; Triangle Model; Unit Root, Cointegration; Pakistan
    JEL: C22 E0 E2
    Date: 2018
  45. By: Daniel Dejuán (Banco de España); Corinna Ghirelli (Banco de España)
    Abstract: The aim of this paper is to investigate the effect of policy uncertainty on firms’ investment decisions. We focus on Spain for the period 1998-2014. To measure policy-related uncertainty, we use a new macroeconomic indicator constructed for this country. We find strong evidence that policy uncertainty reduces corporate investment. Furthermore, the heterogeneous results suggest that the adverse effect of policy uncertainty is particularly relevant for highly vulnerable firms. In particular, non-exporting firms, small and medium enterprises, as well as firms in poorer financial condition are shown to decrease investment significantly more than their counterparts. Overall, these results are consistent with the hypotheses that policy-related uncertainty reduces corporate investment through increases in precautionary savings or to worsening of credit conditions.
    Keywords: corporate investment, policy uncertainty, financial frictions.
    JEL: D80 E22 G18 G31 G38
    Date: 2018–12
  46. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Usman Ojonugwa (Department of Economics, Eastern Mediterranean University)
    Abstract: This paper investigates the pass-through of exchange rate and oil price to inflation for BRICS countries through the analysis of Diebold and Yilmaz (2012) spillover index and rolling-window. Using the monthly frequency data, our results provide the following novelties: (i) There is strong evidence of directional spillover in all the countries; (ii) the total spillover is low, with Brazil (India) having the highest (lowest). This suggests that a greater percent of shocks is explained by idiosyncratic shocks; (iii) the net spillover of oil price (output growth) is positive (negative) for all the countries, indicating that oil price (output growth) contributes to the forecast error variance decomposition of other variables more (less) than it receives from other variables. In addition, the net spillover of exchange rate is positive only for Russia and China while consumer price index is positive only for Brazil and China; (iv) the historical events and crises interrupt the extent of spillover in all the countries; (v) even though the spillover exhibits significant bursts, there is no clear-cut evidence of trends. Therefore, our findings have policy implications for the attainment of monetary policy objectives in these countries.
    Keywords: Exchange rate; Oil price; Pass-through; Inflation; Diebold-Yilmaz spillover index
    JEL: C32 C58 E31
    Date: 2018
  47. By: Miller, Marcus (University of Warwick and CAGE)
    Abstract: With his conception of successive ‘Ages of Capitalism’, Anatole Kaletsky provides a canvas broad enough to encompass the banking crisis of 2008 and much more. After briefly outlining the Four Ages he identifies, we focus on the period of the Great Moderation when Inflation Targeting seemed to have solved the problem macroeconomic management – until it ended in spectacular failure. The rapid growth of cross-border banking – with securitized assets funded by wholesale money – evidently posed threats to financial stability that had been ignored by a regime targeting consumer prices. We look at three: the pecuniary externalities exerted by asset price changes on investment banking; information failures leading to an exaggerated banking boom; and the risk of insolvency in the subsequent ‘bank run’. The financial system pre-crash was, it seems, flawed by two Fallacies of Composition: by regulation that reckoned making individual banks safe guaranteed systemic stability; and a business model that reckoned securitization ensured liquidity whenever necessary. Finally, we discuss how, in different countries, the law has variously been invoked to handle reckless banking.
    Keywords: JEL Classification:
    Date: 2019
  48. By: Ekaterina Pyltsyna (National Research University Higher School of Economics)
    Abstract: This study investigated the change of government spending multiplier when switching from managed exchange rate regime to the floating exchange rate regime for emerging countries. It was found that on-impact multiplier in floating exchange rate regime is smaller by 0.5 than the one in the managed exchange rate regime. In addition, it was found that the openness of the economy affects values of government spending multipliers. Also, for the first time, micro-founded government spending multiplier was estimated for Russia. The study was conducted with the use of panel SVAR and DSGE models.
    Keywords: fiscal multiplier, government expenditures, exchange rate regime change, panel SVAR, DSGE, emerging countries, Russia.
    JEL: E62 E63
    Date: 2018
  49. By: Muriel Dal-Pont Legrand (Université Côte d'Azur, France; GREDEG CNRS); Harald Hagemann (University of Hohenheim, Stuttgart)
    Abstract: There is no doubt that DSGE (Dynamic Stochastic General Equilibrium) models which were considered benchmark models during the Great Moderation period, were challenged enormously when the global financial crisis developed. As business cycles models, their capacity to provide insights into the origins and mechanisms of propagation failed in the context of the crisis. This questions their validity also as a basis for economic policy advice. As a consequence, many economists are pleading for new benchmarks or for a deep reconsideration of both the theoretical and empirical sides of the arguments. Although no new consensus has yet emerged on possible "solutions" to or reorientations of the research program in this field, many economists are trying to understand where modern macroeconomics went wrong. As historians of economic thought, we propose to retrace the evolution of business cycles theory and of its empirical practices in order to better understand the way this literature today addresses macroeconomic volatility and eventually crises.
    Date: 2019–01
  50. By: Stéphane Auray (ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information - Ensai, Ecole Nationale de la Statistique et de l'Analyse de l'Information, CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz], ULCO - Université du Littoral Côte d'Opale); Aurélien Eyquem (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Paul Gomme (CIREQ - Centre interuniversitaire de recherche en économie quantitative - Université de Montréal, Concordia University [Montreal])
    Abstract: Following the Great Recession, U.S. government debt levels exceeded 100% of output. We develop a macroeconomic model to evaluate the role of various shocks during and after the Great Recession; labor market shocks have the greatest impact on macroeconomic activity. We then evaluate the consequences of using alternative fiscal policy instruments to implement a fiscal austerity program to return the debt-output ratio to its pre-Great Recession level. Our welfare analysis reveals that there is not much difference between applying fiscal austerity through government spending, the labor income tax, or the consumption tax; using the capital income tax is welfare-reducing.
    Keywords: Fiscal policies,tax reforms,government debt,government deficits
    Date: 2018
  51. By: Soohyon Kim (Economic Research Institute, The Bank of Korea)
    Abstract: This study shows that interest rate differentials have minor impacts on overall capital flows into the Korean bond market. They are significant factors for private bank capital, however only for short-term interest rates, which takes up ignorable amounts in total capital balances. The most impressive factor is the foreign currency reserves owned by major central banks; these are particularly influential to capital flows throughout the sectors. Global and local risk indicators can also explain the variation of capital flows by sector. The underlying reasons behind these findings are as follows: changes in the proportions of sectoral capital balances after the global financial crisis, introduction of regulations on leverage ratios for international banks, risk management by investors, and increasing flows from foreign currency reserves of major central banks.
    Keywords: Capital flows, Bond market, Interest rate differentials, Foreign currency reserves
    JEL: C22 E44
    Date: 2018–12–20
  52. By: Rym Aloui (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Aurélien Eyquem (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We investigate the link between the size of government indebtedness and the effectiveness of government spending shocks in normal times and at the Zero Lower Bound (ZLB). We develop a New Keynesian model with capital, distortionary taxes and public debt in which the ZLB constraint on the nominal interest rate may be binding. In normal times, high steady-state levels of government debt to GDP lead to reduced output multipliers. After a negative capital quality shock that pushes the economy at the ZLB however, high steadystate debt levels produce larger output multipliers. Our results rely on the fact that fiscal policy becomes self-financing at the ZLB, and that distortionary taxes rise (respectively fall) after a spending shock at the steady state (resp. ZLB). Our results have non-trivial consequences on the design of optimized spending policies in the event of large economic downturns.
    Keywords: Zero Lower Bound,Fiscal Policy,Distortionary Taxes,Public Debt
    Date: 2018
  53. By: Dean Corbae; Pablo D'Erasmo
    Abstract: We develop a model of banking industry dynamics to study the quantitative impact of capital requirements on equilibrium bank risk taking, commercial bank failure, interest rates on loans, and market structure. We propose a market structure where big banks with market power interact with small, competitive fringe banks. Banks face idiosyncratic funding shocks in addition to aggregate shocks to the fraction of performing loans in their portfolio. A nontrivial bank size distribution arises out of endogenous entry and exit, as well as banks' buffer stock of net worth. We show the model predictions are consistent with untargeted business cycle properties, the bank lending channel, and empirical studies of the role of concentration on financial stability. We then conduct a series of counterfactuals (including countercyclical and size contingent (e.g. SIFI) capital requirements). We find that regulatory policies can have an important impact on market structure in the banking industry which, along with selection effects, can generate changes in allocative efficiency.
    JEL: E44 G21 L11
    Date: 2019–01
  54. By: Georgios Magkonis (University of Portsmouth); Anastasia Theofilakou (Hellenic Ministry of Finance)
    Abstract: We examine the propagation of debt shocks across sectors of the economy for OECD countries. Our focus lies on assessing the importance of the income channel as a main transmission mechanism of such shocks. Employing a Bayesian Panel VAR, we find strong debt contagion effects across sectors, which work through the income channel. Higher non-financial corporate debt drives down household incomes, increasing pressures for household deleveraging. By contrast, an increase in household debt boosts real incomes and domestic demand, and results in higher corporate leverage. Finally, we find that growth effects of sectoral debt shocks are conditional on country idiosyncrasies.
    Keywords: Macroeconomic shocks, sectoral debt, panel BVAR
    JEL: H30 E60 C11
    Date: 2019–01–09
  55. By: Margarida Duarte; Diego Restuccia
    Abstract: The relative price of services rises with development. A standard interpretation of this fact is that productivity differences across countries are larger in manufacturing than in services. The service sector comprises heterogeneous categories. We document that many disaggregated service categories-such as transportation, communication, and finance-feature a negative income elasticity of relative prices, whereas the relative price of aggregate services is mostly driven by large expenditure categories in housing, collective government, and health that feature a positive income elasticity of relative prices. We also document a substantial reallocation of expenditures in services from categories with positive income elasticities (traditional services) to categories with negative elasticities (non-traditional services) as income rises. Using an otherwise standard multi-sector development accounting framework extended to include an input-output structure, we find that the cross-country income elasticity of sectoral productivity is large in non-traditional services (1.15), smaller in manufacturing (1.05) and much smaller in traditional services (0.67). Eliminating cross-country productivity differences in non-traditional services reduces aggregate income disparity by 58 percent, a 7.9-fold reduction in aggregate productivity differences. We also find that the heterogeneity between traditional and non-traditional services has a substantial impact on aggregate productivity and that the input-output structure is important in this assessment.
    Keywords: Productivity, services, input-output structure, non-traditional services.
    JEL: O4 O5 O11 O14 E01 E13
    Date: 2019–01–06
  56. By: Mariarosaria Comunale (Bank of Lithuania and European Central Bank); Francesco Paolo Mongelli (European Central Bank and Johann Wolfgang Goethe University of Frankfurt)
    Abstract: Euro area countries have experienced profound economic, financial and institutional changes over the last three decades. GDP growth has been very volatile, and very uneven, across countries. Which factors played a role in stirring growth and/or reducing it? We provide an atheoretical toolkit looking at a large set of real, financial, monetary and institutional variables, as possible factors behind fluctuations and differences in growth rates among euro area countries since 1990. The main outcome stresses the key positive role for long-run growth of higher European institutional integration, overall and for the periphery in specific. This result is robust across specifications and setups. If we split the European institutional integration in its main components, we can see a significant positive role for financial and political integration in the long-run. However the first seems to have beneficial effects for the core only while the opposite holds for the political integration which influences positively the periphery.
    Keywords: euro area, GDP growth, monetary policy, fiscal policy, institutional integration, financial crisis, systemic stress, synchronization
    JEL: C23 E40 F33 F43
    Date: 2019–01–02
  57. By: Crespo Cuaresma, Jesus; Doppelhofer, Gernot (Dept. of Economics, Norwegian School of Economics and Business Administration); Feldkircher, Martin; Huber, Florian (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper develops a global vector autoregressive (GVAR) model with time-varying parameters and stochastic volatility to analyze whether international spillovers of US monetary policy have changed over time. The proposed model allows assessing whether coefficients evolve gradually over time or are better characterized by infrequent, but large breaks. Our findings point towards pronounced changes in the international transmission of US monetary policy throughout the sample period, especially so for the reaction of international output, equity prices, and exchange rates against the US dollar. In general, the strength of spillovers has weakened in the aftermath of the global financial crisis. Using simple panel regressions, we link the variation in international responses to measures of trade and financial globalization. We find that a broad trade base and a high degree of financial integration with the world economy tend to cushion risks stemming from a foreign shock such as a US monetary policy tightening, whereas a reduction in trade barriers and/or a liberalization of the capital account increase these risks.
    Keywords: Spillovers; zero lower bound; globalization; mixture innovation models
    JEL: C30 E52 F41
    Date: 2018–12–21
  58. By: Jamie L. Cross; Chenghan Hou; Aubrey Poon
    Abstract: We estimate the effects of domestic and international sources of macroeconomic uncertainty in three small open economy (SOE) inflation targeting countries: Australia, Canada and New Zealand. To this end, we propose a structural VAR model with a common stochastic volatility in mean component, and develop an efficient Markov chain Monte Carlo algorithm to estimate the new model. An important feature of the model is that it allows us to test various hypotheses in an internally consistent manner. Our main result is that international uncertainty spillovers shape the macroeconomic conditions in all SOEs. The general mechanism is that international uncertainty shocks reduce real GDP, while raising inflation and interest rates. Domestic uncertainty shocks are found to have a similar effect on inflation and interest rates, however the real GDP responses are idiosyncratic. In particular, the transmission of domestic uncertainty shocks is found to be negative in Canada and positive in New Zealand, while the Australian response is initially negative and becomes positive over time. While the Canadian responses are similar to established results on the US economy, our findings highlight potentially different transmission mechanisms in Australia and New Zealand. Finally, in a forecasting exercise, we show that accounting for macroeconomic uncertainty via our model specification provides more accurate point and density forecasts compared to commonly used benchmarks.
    Keywords: Bayesian VARs, International Spillovers, Small Open Economies, Stochastic Volatility in Mean, Uncertainty
    Date: 2018–11
  59. By: Błażejowski, Marcin; Kufel, Paweł; Kufel, Tadeusz; Kwiatkowski, Jacek; Osińska, Magdalena
    Abstract: The aim of this study was to verify the stability of monetary systems. Systems were measured by aggregate narrow money in selected emerging economies. The United Kingdom's economy was used as a benchmark. The Baumol-Tobin and Friedman monetary models were used as the theoretical basis for the for empirical error-correction models. A Bayesian averaging of classical estimates (BACE) approach was used to incorporate model uncertainty and select the best model. The results show that the monetary systems in 6 of the 11 economies were stable in the long run and that a set of factors changed in the short run. The robustness of the model selection based on the BACE procedure was strongly confirmed.
    Keywords: model uncertainty, BACE, jointness, robust variables selection, gretl
    JEL: C52 E41 P24
    Date: 2018–12–11
  60. By: Gabriel Chodorow-Reich; Gita Gopinath; Prachi Mishra; Abhinav Narayanan
    Abstract: We analyze a unique episode in the history of monetary economics, the 2016 Indian “demonetization.” This policy made 86% of cash in circulation illegal tender overnight, with new notes gradually introduced over the next several months. We present a model of demonetization where agents hold cash both to satisfy a cash-in-advance constraint and for tax evasion purposes. We test the predictions of the model in the cross-section of Indian districts using several novel data sets including: a data set containing the geographic distribution of demonetized and new notes for causal inference; nightlights data and employment surveys to measure economic activity including in the informal sector; debit/credit cards and e-wallet transactions data; and banking data on deposit and credit growth. Districts experiencing more severe demonetization had relative reductions in economic activity, faster adoption of alternative payment technologies, and lower bank credit growth. The cross-sectional responses cumulate to a contraction in employment and nightlights-based output due to demonetization of 2 p.p. and of bank credit of 2 p.p. in 2016Q4 relative to their counterfactual paths, effects which dissipate over the next few months. We use our model to show these cumulated effects are a lower bound for the aggregate effects of demonetization. We conclude that unlike in the cashless limit of new-Keynesian models, in modern India cash serves an essential role in facilitating economic activity.
    JEL: E5 O23
    Date: 2018–12
  61. By: Hirdina, Ralph
    Abstract: Der französische Staatspräsident Emmanuel Maron hat in einer Grundsatzrede an der Pariser Sorbonne-Universität im September 2017 Vorschläge zur Reformierung der Europäischen Union unterbreitet. Die Reformvorschläge umfassen die folgenden sechs Schlüsselbereiche: 1. Ein Europa, das Sicherheit in all ihren Dimensionen gewährleistet, 2. Ein Europa, das auf die Herausforderung der Migration reagiert, 3. Ein Europa, dessen Blick auf Afrika und den Mittelmeerraum gerichtet ist, 4. Europa als Vorbild für nachhaltige Entwicklung, 5. Ein Europa der Innovation und der Regulierung, die an die digitale Welt angeknüpft sind, 6. Europa als Wirtschafts- und Währungsmacht. EU-Kommissionspräsident Jean-Claude Juncker hat sich den Vorschlägen weitgehend angeschlossen und diese noch erweitert, indem er für den sechsten Schlüsselbereich neben der Fortentwicklung des Europäischen Stabilitätsmechanismus zu einem Europäischen Währungsfonds und der Einrichtung eines Eurozonenbudgets nebst EU-Finanzminister ein Euro-Vorbeitrittsinstrument für die Mitgliedstaaten fordert, die den Euro noch nicht als Währung eingeführt haben. Die vorgenannten Reformvorschläge werden im nachfolgenden Beitrag einer näheren rechtlichen Betrachtung unterzogen, um zu klären, in welcher Form diese umgesetzt werden könnten.
    Keywords: European Treaties,Reforms,European Stability Machanism,European Monetary Fund
    JEL: E62 K3 O52
    Date: 2018
  62. By: Barbiero, Francesca; Popov, Alexander; Wolski, Marcin
    Abstract: Using a pan-European data set of 8.5 million firms, this paper finds that firms with high debt overhang invest relatively more than otherwise similar firms if they are operating in sectors facing good global growth opportunities. At the same time, the positive impact of a marginal increase in debt on investment efficiency disappears if firm debt is already excessive, if it is dominated by short maturities, and during systemic banking crises. The results are consistent with theories of the disciplining role of debt, as well as with models highlighting the negative link between agency problems at firms and banks and investment efficiency.
    Keywords: Investment effciency,Debt overhang,Banking crises
    JEL: E22 E44 G21 H63
    Date: 2018
  63. By: Hirokazu Mizobata (Department of Economics, Kansai University)
    Abstract: The role of firms' financial heterogeneity in determining the credit channel of monetary policy attracted more attention recently. We investigate the degree of financial constraints among listed Japanese firms from 1994 to 2014. Based on an estimated financial constraints index, we analyze the distribution of this value and investigate its time-series changes. First, the distribution of financial constraints is approximately a gamma distribution with a long right tail, meaning that many firms have weak credit constraints and a small number of firms have severe credit constraints. Second, the spread between the 75th and the 25th percentiles of the financial constraints index increased, especially after 2000, which implies that financial inequality increased recently. Third, this increased inequality may be due to the growing inequality between firms within the same industry. We conduct a simple regression of the financial constraints index on productivity and find that the increased financial heterogeneity appears to be linked to the increase in productivity dispersion.
    Keywords: financial constraints, within-industry effects, productivity dispersion
    JEL: D24 E52 G31
    Date: 2018–08
  64. By: Nitzan Tzur-Ilan (Bank of Israel)
    Abstract: This paper examines the effects of a Loan-to-Value (LTV) limit on households’ choices in the credit and housing markets. Using a large and novel micro database from Israel, including rich information on loans, borrowers and acquired assets, and using matching techniques, I find that the LTV limit had an effect on the mortgage contract terms (higher interest rates), but did not lead to credit rationing (no segment of the population is excluded from the market). The LTV limit induced borrowers to buy cheaper assets and to move farther from high demand areas to lower graded neighborhoods. The conclusion is that the LTV limit, the most common macroprudential policy tool, has an impact not only from a financial stability perspective, by reducing the leverage of households, but also affected their choices in the housing market.
    Keywords: LTV, macroprudential, mortgages, housing, regulation, central, banks
    JEL: E58 R1 R2 R3
    Date: 2017–03
  65. By: Been-Lon Chen (Institute of Economics, Academia Sinica); Yunfang Hu (Graduate School of Economics, Kobe University); Kazuo Mino (Faculty of Economics, Doshisha University)
    Abstract: This paper examines the stabilization effect of income taxation rules in small open economies. We show that if endogenous growth is not allowed, belief-driven fl?uctuation will not emerge, but the economy displays total instability under certain conditions and nonlinear income tax may recover saddle point stability. If endogenous growth is possible and if the taxation rule specifi?es the rate of income tax held in the balanced growth equi- librium, then equilibrium indeterminacy will not arise either. However, if the long run tax rate is not predetermined, then, equilibrium path of the economy may be indeterminate, and an appropriate taxation rule can establish determinacy.
    Keywords: Taxation Rule, Indeterminacy, Small Open Economy, Endogenous Growth
    JEL: E62 O41
    Date: 2018–08
  66. By: Gregor Jarosch; Ezra Oberfield; Esteban Rossi-Hansberg
    Abstract: We investigate learning at the workplace. To do so, we use German administrative data that contain information on the entire workforce of a sample of establishments. We document that having more highly paid coworkers is strongly associated with future wage growth, particularly if those workers earn more. Motivated by this fact, we propose a dynamic theory of a competitive labor market where firms produce using teams of heterogeneous workers that learn from each other. We develop a methodology to structurally estimate knowledge flows using the full-richness of the German employer-employee matched data. The methodology builds on the observation that a competitive labor market prices coworker learning. Our quantitative approach imposes minimal restrictions on firms' production functions, can be implemented on a very short panel, and allows for potentially rich and flexible coworker learning functions. In line with our reduced form results, learning from coworkers is significant, particularly from more knowledgeable coworkers. We show that between 4 and 9% of total worker compensation is in the form of learning and that inequality in total compensation is significantly lower than inequality in wages.
    JEL: E24 J31 O33
    Date: 2019–01
  67. By: Jorge Duran (European Commission [Brussels]); Omar Licandro (School of Economics, University of Nottingham - UON - University of Nottingham, UK, Instituto de Análisis Económico (CSIC) and 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
    Date: 2018–11
  68. By: Hoda Selim (International Monetary Fund)
    Abstract: The paper shows that central banks in Arab oil exporters are not independent. Low independence reflects institutional arrangements that allow the executive branch to influence, interfere and in some cases, dominate over central bank operations. The paper argues that in a context of weak institutions, CBI has not always mattered for macroeconomic policy outcomes in Arab oil exporters. GCC central banks delivered a better macroeconomic policy performance than those of the populous group. CBI mattered less for the GCC because the credible peg discouraged discretion and was a good substitute for it. Soft peg arrangements in the populous economies in a context of weak institutions and discretionary policymaking in the absence of a de facto independent central bank led to disappointing monetary policy outcomes. As oil exporters adapt to a new normal of low oil prices, the sustainability of fixed exchange regimes may not be guaranteed without sound macroeconomic institutions. Stronger institutions and effective accountability mechanisms are needed to insulate central banks from political pressures. In the short-term, a rules-based framework could help.
    Date: 2018–09–18
  69. By: Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis); Avichai Snir (Department of Banking & Finance, Netanya Academic College, Israel); Alex Gotler (Department of Education and Psychology, Open University, Israel); Haipeng (Allan) Chen (Gatton College of Business and Economics, University of Kentucky, USA)
    Abstract: We document an asymmetry in the rigidity of 9-ending prices relative to non-9-ending prices. Consumers have difficulty noticing higher prices if they are 9-ending, or noticing price-increases if the new prices are 9-ending, because 9-endings are used as a signal for low prices. Price setters respond strategically to the consumer-heuristic by setting 9-ending prices more often after price-increases than after price-decreases. 9-ending prices, therefore, remain 9-ending more often after price-increases than after price-decreases, leading to asymmetric rigidity: 9-ending prices are more rigid upward than downward. These findings hold for both transaction-prices and regular-prices, and for both inflation and no-inflation periods.
    Keywords: Asymmetric Price Adjustment, Sticky/Rigid Prices, 9-Ending Prices, Psychological Prices, Price Points, Regular/Sale Prices
    JEL: E31 L16 C91 C93 D80 M31
    Date: 2019–01
  70. By: Pablo Mitnik (Stanford University); Victoria Bryant (George Mason University; IRS); David Grusky (Stanford University)
    Abstract: We present results from a new data set, the Statistics of Income Mobility Panel, that has been assembled from tax and other administrative sources to provide evidence on economic mobility and persistence in the United States. This data set allows us to take on the methodological problems that have complicated previous efforts to estimate intergenerational earnings and income elasticities. We find that the elasticities for women’s income, men’s income, and men’s earnings are as high as all but the highest of the previously reported survey-based estimates. Because the intergenerational curves are especially steep within the parental-income region defined by the 50th to 90th percentiles, approximately two-thirds of the inequality between poor and well-off families is passed on to the next generation. This extreme persistence cannot be attributed to any single factor. Instead, the U.S. is exceptional with respect to virtually all factors governing economic persistence, including the returns to human capital, the amount of public investment in the human capital of low-income children, the amount of socioeconomic segregation, and the progressiveness of the tax-and-transfer system. For each of these four factors, the U.S. has opted for policies that are mobility-reducing, with the implication that any substantial increase in mobility will likely require a wide-ranging package of reforms that cut across many institutions.
    Keywords: income mobility, intergenerational mobility, Inequality, human capital
    JEL: J62 E24 J24
    Date: 2018–12
  71. By: Jordi Baños Rovira (Generalitat de Catalunya / Universitat de Barcelona); Daniel Montolio (Institut d’Economia de Barcelona (IEB) / Universitat Autònoma de Barcelona); Marco Cangiano (Overseas Development Institute (ODI)); Mark Miller (Overseas Development Institute (ODI)); Ernesto Ganuza (Instituto de Estudios Sociales Avanzados / CSIC); Santiago Lago-Peñas (Universidad de Vigo)
    Date: 2018
  72. By: Julius Stakenas (Bank of Lithuania)
    Abstract: In this paper we model five Lithuanian HICP subcomponents in a medium scale Bayesian VAR framework. We deal with the parameter proliferation problem by setting the appropriate amount of shrinkage determined in the out-of-sample forecasting exercise. The main body of the paper consists of displaying the model’s performance in two applications: forecasting and analysis of inflation determinants. We find the model’s forecasts to be competitive against the univariate statistical models, particularly in the cases of predicting processed food and energy goods inflation. What is more, exercises based on conditional forecasting show that these two indices make the best use of accurate conditional information in terms of improving predicting accuracy. In the decomposition of the drivers of HICP components, we demonstrate that both, domestic and foreign factors can be prevalent inflation determinants in certain time periods. We also find some evidence on employees’ bargaining power playing a role in determining the Lithuanian consumer price inflation.
    Keywords: HICP subindices, Bayesian VAR, Bayesian shrinkage, inflation forecasting, structural decomposition
    JEL: C32 C53 E37
    Date: 2018–12–28
  73. By: Juan S. Mora-Sanguinetti (Banco de España); Marta Martínez-Matute (Universidad Autónoma de Madrid)
    Abstract: The adoption of court fees has been traditionally justified as a means to improve the performance of enforcement institutions as they may have an effect of deterrence of the dispute. Judicial congestion has clear negative impacts on economic performance. Spain, which has one of the highest rates of litigation of the OECD, has traditionally lacked a general system of court fees. In 2002, the Congress passed a system of court fees to be paid by legal entities and enterprises. In 2012, the fees were extended to individuals and abrogated in 2015. This bounded period of enforcement allows us to empirically test the impacts of court fees on congestion. In order to do this, we collected a comprehensive database of quarterly data on the real workload of civil courts. This study concludes that the effects of court fees, although reduced courts’ congestion, are far from homogeneous and depend on the type of procedure, the workload of the courts and the local macroeconomic conditions
    Keywords: courts fees, judicial efficacy, litigation rates
    JEL: K41 E51 G2
    Date: 2018–12
  74. By: Roberto Tedeschi (Bank of Italy)
    Abstract: The paper examines the disruption of statistics with the publication of the 2015 Ireland GDP at +26.3 per cent year on year. The figure was greeted by international disbelief. Ireland’s statistical authorities reacted with the publication, for the main aggregates, of modified data in parallel with the official one, much less affected by the bias on value added. The bias resulted from the relocation in Ireland of a huge amount of intellectual property capital, of the dimension of the GDP itself.To fix the link between statistical representation and economic fact means to depart from the legal form to let the substance prevail, i.e. depart from the description given by business reports and administrative data.
    Keywords: macroeconomic data estimation, impacts of globalisation
    JEL: C82 E01
    Date: 2018–12
  75. By: Ali, Azam (State Bank of Pakistan); Kishwar, Tanveer (Jinnah University for Women, Karachi, Pakistan); Zulkhibri, Muhamed (The Islamic Research and Teaching Institute (IRTI))
    Abstract: Islamic financial contracts are designed to facilitate financing according to Islamic norms. Islamic financing in its first stages used only the partnership modes of Musharakah and Mudarabah. Later it is realized that, to avoid moral hazards, yet compete successfully with conventional banks, it is necessary to use all permissible Islamic modes and consequently, trade and leasing techniques were developed. This paper aims to identify the constraints faced by Islamic financial institutions in the adoption of participatory finance i.e., Musharakah and Mudarabah financing. The two basic categories of financing are: 1) profit-and-loss-sharing (PLS), also called participatory finance, i.e. Musharakah and Mudarabah and 2) purchase and hire of goods or assets and services on a fixed-return basis, i.e., Murabahah, Istisna', Salam and Ijarah also called non-participatory finance. This paper suggests that innovation and creativity is necessitated more than ever to promote participatory modes of financing and to make it the preferred choice for meeting the increasingly sophisticated and diversified financial needs.
    Keywords: Participatory Finance; Impact Analysis; Islamic Banks; Pakistan
    JEL: A13 B41 E50
    Date: 2018–05–08
  76. By: Hassanain, Khalifa M. Ali (The Islamic Research and Teaching Institute (IRTI))
    Abstract: This study adopts the framework practiced by various multilateral development banks (MDBs), particularly International Development Association (IDA), to explore the potential establishment of a global Waqf fund, as this framework is proven effective. The framework revolves around the IDA operations with replenishments, allocation of funds by implementing specific formulas and the determination approach, which is mainly to monitor effectiveness of the earlier processes. The study proposes to integrate Islamic vision of development based on Maqasid al-Shari’ah with IDA principles for the allocation of funds for a potentially global Waqf fund. The objective is to create more effective approach for raising and using resources for a global Waqf fund.
    Keywords: Maqasid al-Shari’ah; IDA; Poverty Alleviation; Human Development Index
    JEL: E02 O15 O19 Z12
    Date: 2018–11–08
  77. By: Amanda Michaud; David Wiczer
    Abstract: We evaluate the contribution of changing macroeconomic conditions and demographics to the increase in Social Security Disability Insurance (SSDI) over recent decades. Within our quantitative framework, multiple sectors differentially expose workers to health and economic risks, both of which affect individuals' decisions to apply for SSDI. Over the transition, falling wages at the bottom of the distribution increased awards by 27% in the 1980s and 90s and aging demographics rose in importance thereafter. The model also implies two-thirds of the decline in working-age male employment from 1985 to 2013, three-fourths of which eventually goes on SSDI.
    Date: 2018
  78. By: Kapetanios, George; Tasiou, Menelaos; Price, Simon; Ventouri, Alexia
    Abstract: We examine reduced form versions of New Keynesian wage Phillips curves using monthly US state-level data for the period 1982-2016, taking account of the endogeneity of unemployment by instrumentation and the presence of common correlated effects (CCE). We find that theoretically coherent specifications taking account of the aggregate dynamics of unemployment may be estimated by the CCE estimator, whereas less efficient and potentially inconsistent methods differ and are problematic.
    Keywords: Wage Phillips curves, state-level data, panel estimation, CCE, endogeneity
    Date: 2018–12–19
  79. By: Diewert, Erwin; Shimizu, Chihiro
    Abstract: This paper provides an update to the chapter on the treatment of durables in the Consumer Price Index Manual (2004). The most important durable is housing, which typically accounts for approximately 20% of total consumption services. A large fraction of total housing services consists of the services of Owner Occupied Housing (OOH). The main approaches to measuring the services of OOH are (i) the acquisitions approach; (ii) the rental equivalence approach and (iii) the user cost approach. Two other approaches are sometimes used: (iv) the opportunity cost approach and (v) the payments approach. A main purpose of this paper is to present the main approaches to the treatment of OOH and to discuss the benefits and costs of the alternative approaches. The paper also discusses the problems associated with forming imputations for the services of “ordinary†consumer durable goods.
    Keywords: C23, C43, C81, D12, E31, C43, C82, E01.
    Date: 2019–01–02
  80. By: Fischer, Manfred M.; Huber, Florian; Pfarrhofer, Michael
    Abstract: This paper explores the relationship between household income inequality and macroeconomic uncertainty in the United States. Using a novel large-scale macroeconometric model, we shed light on regional disparities of inequality responses to a national uncertainty shock. The results suggest that income inequality decreases in most states, with a pronounced degree of heterogeneity in terms of the dynamic responses. By contrast, some few states, mostly located in the Midwest, display increasing levels of income inequality over time. Forecast error variance and historical decompositions highlight the importance of uncertainty shocks in explaining income inequality in most regions considered. Finally, we explain differences in the responses of income inequality by means of a simple regression analysis. These regressions reveal that the income composition as well as labor market fundamentals determine the directional pattern of the dynamic responses.
    Keywords: Income distribution, US states, macroeconomic volatility, global vector autoregressive model
    Date: 2019
  81. By: Ernst, Ekkehard; Merola, Rossana.
    Abstract: This paper attempts to quantify the impact of central bank communication on macroeconomic variables using an purpose-built index.
    Keywords: 1, 2, 3
    Date: 2018

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