nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒01‒21
ninety-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Reasons for the declining real interest rates By Demary, Markus; Voigtländer, Michael
  2. New VAR evidence on monetary transmission channels: temporary interest rate versus inflation target shocks By Elizaveta Lukmanova; Katrin Rabitsch
  3. Endogenous forward guidance By Boris Chafwehé; Rigas Oikonomou; Romanos Priftis; Lukas Vogel
  4. Inflation Globally By Jorda, Oscar; Nechio, Fernanda
  5. Non-monetary news in central bank communication By Anna Cieslak; Andreas Schrimpf
  6. Can in?ation expectations in business or consumer surveys improve in?ation forecasts? By Raïsa Basselier; David de Antonio Liedo; Jana Jonckheere; Geert Langenus
  7. A Macroeconomic Condition of Class Society By Nakajima, Tetsuya
  8. Central Bank Policies and Financial Markets: Lessons from the Euro Crisis By Ashoka Mody; Milan Nedeljkovic
  9. Inequality and the Business Cycle: Evidence from U.S. survey data By Martin Geiger; Eric Mayer; Johann Scharler
  10. A large central bank balance sheet? floor vs corridor systems in a new keynesian environment By Óscar Arce; Galo Nuño; Dominik Thaler; Carlos Thomas
  11. Robust Predictions for DSGE Models with Incomplete Information By Chahrour, Ryan; Ulbricht, Robert
  12. Markup and price dynamics:linking micro to macro By Jan De Loecker; Catherine Fuss; Johannes Van Biesebroeck
  13. Financial frictions, cyclical fluctuations, and the growth potential of new firms By Christoph Albert; Andrea Caggese
  14. Is euro area lowflation here to stay ? Insights from a time-varying parameter model with survey data By Arnoud Stevens; Joris Wauters
  15. International Food Commodity Prices and Missing (Dis)Inflation in the Euro Area By Gert Peersman
  16. The fear of float of the Swiss National Bank By Berthold, Kristin; Stadtmann, Georg
  17. Employment to Output Elasticities & Reforms towards Flexicurity: Evidence from OECD Countries By Görg, Holger; Hornok, Cecília; Montagna, Catia; Onwordi, George E.
  18. Tighter Dollar Liquidity Exacerbates Pressure on Risk-parity Thesis By Xing, Victor
  19. Why are credit booms sometimes sweet and sometimes sour? By Vítor Castro; Rodrigo Martins
  20. Pipeline Pressures and Sectoral Inflation Dynamics By Frank Smets; Joris Tielens; Jan Van Hove
  21. The Origins and Effects of Macroeconomic Uncertainty By Francesco Bianchi; Howard Kung; Mikhail Tirskikh
  22. Optimal Taxation and Debt Management without Commitment By Davide Debortolii; Ricardo Nunes; Pierre Yared
  23. A macro-financial analysis of the corporate bond market By Hans Dewachter; Leonardo Iania; Wolfgang Lemke; Marco Lyrio
  24. Employment Protection, Employment and Unemployment Rates in European Union Countries During the Great Recession By Jesus Ferreiro; Carmen Gómez
  25. Model instability in predictive exchange rate regressions By Niko Hauzenberger; Florian Huber
  26. Are fiscal rules helpful in mitigating the impact of oil market fluctuations? By Fuad Mammadov; Shaig Adigozalov
  27. From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share By Hugo Hopenhayn; Julian Neira; Rish Singhania
  28. Stock market and macroeconomic policies: The case of Mongolia By Taguchi, Hiroyuki
  29. The exchange rate pass-through to CPI inflation and its components in Azerbaijan By Vugar Rahimov; Nigar Jafarova
  30. Bolivia; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  31. Artificial Intelligence, Jobs, Inequality and Productivity: Does Aggregate Demand Matter? By Gries, Thomas; Naudé, Wim
  32. Inflation Expectations and Firm Decisions: New Causal Evidence By Coibion, Olivier; Gorodnichenko, Yuriy; Ropele, Tiziano
  33. The Danger of a “Geyser Disease” Effect: Structural Fragility of the Tourism-Led Recovery in Iceland By Francesco Macheda; Roberto Nadalini
  34. How Prevalent Is Downward Rigidity in Nominal Wages? International Evidence from Payroll Records and Pay Slips By Michael W. Elsby; Gary Solon
  35. Effects of the Austrian Income Tax Reform 2015/2016 on Private Consumption: Survey Findings By Ralf Kronberger; Christoph Schmid
  36. Organizational Equilibrium with Capital By Marco Bassetto; Zhen Huo; José-Víctor Ríos-Rull
  37. Structural Budget Balances in Oil-rich Countries: The Cases of Azerbaijan, Kazakhstan, and Russia By Vugar Ahmadov; Ulvi Sarkarli; Ramiz Rahmanov
  38. The Monetary and Fiscal History of Brazil, 1960-2016 By Joao Ayres; Marcio Garcia; Diogo Guillen; Patrick Kehoe
  39. Fiscal reaction functions for the advanced economies revisited By Francesca Di Iorio; Stefano Fachin
  40. Where is Kenya being headed to? Empirical evidence from the Box-Jenkins ARIMA approach By NYONI, THABANI
  41. Republic of Kosovo; 2018 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  42. Exchange Rates and Uncovered Interest Differentials: The Role of Permanent Monetary Shocks By Stephanie Schmitt-Grohé; Martín Uribe
  43. Cooperation among strangers with and without a monetary system By Maria Bigoni; Gabriele Camera; Marco Casari
  44. Money growth and inflation : International historical evidence on high inflation episodes for developed countries By Gallegati, Marco; Giri, Federico; Fratianni, Michele
  45. Does Inflation Targeting Reduce the Dispersion of Price Setters’ Inflation Expectations? By Paulie, Charlotte
  46. Is Nigeria's economy progressing or backsliding? Implications from ARIMA models By NYONI, THABANI
  47. “Has the ECB’s Monetary Policy Prompted Companies to Invest or Pay Dividends?” By Lior Cohen; Marta Gómez-Puig; Simón Sosvilla-Rivero
  48. Islamic Republic of Mauritania; Second Review Under the Extended Credit Facility Arrangement, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Islamic Republic of Mauritania By International Monetary Fund
  49. Republic of Serbia; First Review under the Policy Coordination Instrument-Press Release; and Staff Report By International Monetary Fund
  50. Unconventional monetary policy and productivity: Evidence on the risk-seeking channel from US corporate bond markets By Silvia Albrizio; Marina Conesa; Dennis Dlugosch; Christina Timiliotis
  51. Dominant currencies How firms choose currency invoicing and why it matters By Mary Amiti; Oleg Itskhoki; Jozef Konings
  52. The Financial Alchemy that Failed By Miller, Marcus
  53. Sierra Leone; Request for An Extended Arrangement Under the Extended Credit Facility-Press Release; Debt Sustainability Analysis; Staff Statement; and Statement by the Executive Director for Sierra Leone By International Monetary Fund
  54. The Optimal Amount of Attention to Capital Income Risk By Penghui Yin
  55. The Effect of Elections on Consumer Confidence in Europe By Bertrand Marc; Andreas Reuter
  56. Does Monetary Policy in Advanced Economies Have Differentiated Effects on Portfolio Flows to Emerging Economies? By Hernández Vega Marco A.
  57. A Global Safe Asset for and from Emerging Market Economies By Markus K. Brunnermeier; Lunyang Huang
  58. Downward Nominal Wage Rigidity in the United States: New Evidence from Worker-Firm Linked Data By Kurmann, André; McEntarfer, Erika
  59. Real Effective Exchange Rates determinants and growth: lessons from Italian regions By Silvia Calò; Mariarosaria Comunale
  60. Does Inflation Uncertainty Matter for Validity of Romer’s Hypothesis? Evidence from Nigeria. By Alimi, R. Santos; Olorunfemi, Sola
  61. R&I and Low-carbon investment in Apulia, Italy: The RHOMOLO assessment By Olga Diukanova; Giovanni Mandras; Andrea Conte; Simone Salotti
  62. What Happened to CIT Collection? Solving the Rates-Eveneues Puzzle By Gaetan Nicodeme; Antonella Caiumi; Ina Majewski
  63. Differentiated Impact of Spread Determinants by Personal Loan Category: Evidence from the Brazilian Banking Sector By José Valente; Mário Augusto; José Murteira
  64. The Financial Decisions of Immigrant and Native Households: Evidence from Italy By Bertocchi, Graziella; Brunetti, Marianna; Zaiceva, Anzelika
  65. Suriname; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Suriname By International Monetary Fund
  66. Togo; Third Review under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Togo By International Monetary Fund
  67. Optimal Paternalistic Savings Policies By Moser, Christian; Olea de Souza e Silva, Pedro
  68. Cameroon; Third Review Under the Extended Credit Facility Arrangement and Requests for a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon By International Monetary Fund
  69. Cote d'Ivoire; Fourth Reviews Under the Arrangement Under the Extended Credit Facility and Under the Extended Arrangement Under the Extended Fund Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report; Debt Sustainability Analysis; Supplementary Information; and Statement by the Executive Director for Côte d’Ivoire By International Monetary Fund
  70. Attenuating the forward guidance puzzle: implications for optimal monetary policy By Nakata, Taisuke; Ogaki, Ryota; Schmidt, Sebastian; Yoo, Paul
  71. Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity By Daniel Levy
  72. Islamic Republic of Mauritania; Technical Assistance Report-Report on the External Sector Statistics Technical Assistance Mission (March 19-30, 2018) By International Monetary Fund
  73. Benin; Third Review Under the Extended Credit Facility Arrangement and Request for Waiver of Nonobservance of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Benin By International Monetary Fund
  74. Quantile-based Inflation Risk Models By Eric Ghysels; Leonardo Iania; Jonas Striaukas
  75. Local Currency Bond Risk Premia of Emerging Markets: The Role of Local and Global Factors By Oguzhan Cepni; Selcuk Gul; Rangan Gupta
  76. The Federal Democratic Republic of Ethiopia; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia By International Monetary Fund
  77. Angola; Request for An Extended Arrangement Under the Extended Fund Facility-Press Release; and Statement by the Executive Director for Angola By International Monetary Fund
  78. Sources of Economic Growth: A Global Perspective By Błażejowski, Marcin; Kwiatkowski, Jacek; Gazda, Jakub
  79. Potenzielle Auswirkungen einer Zuspitzung des Handelsstreits: Simulations- und umfragebasierte Ergebnisse By Kolev, Galina V.
  80. Georgia; Third Review Under the Extended Fund Facility Arrangement-Press Release; Staff Report; Staff Supplement By International Monetary Fund
  81. The Macroeconomics of the Gold Economy in Sudan By Ibrahim Elbadawi; Kabbashi Suliman
  82. Elasticities of Labor Supply and Labor Force Participation Flows By Cairo, Isabel; Fujita, Shigeru; Morales-Jimenez, Camilo
  83. Mali; Tenth Review under the Extended Credit Facility Arrangement and Request for Waiver of Nonobservance of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Mali By International Monetary Fund
  84. Redefining the development index of a nation By Jakhotiya, Girish
  85. Niger; Third Review Under the Extended Credit Facility Arrangement, Request for Waiver of Nonobservance of Performance Criterion, and Request for Augmentation of Access-Press Release; Staff Statement; and Statement by the Executive Director for Niger By International Monetary Fund
  86. Global Value Chains and Vertical Specialization: The case of Portuguese Textil, Leather, and Shoes exports By Tiago Domingues
  87. Early warning system for the European Insurance Sector By Lorenzo Danieli; Petr Jakubik
  88. The Rebound Effect and its representation in Climate and Energy models By Colmenares, Gloria; Löschel, Andreas; Madlener, Reinhard
  89. Comment on "Model Confidence Bounds for Variable Selection" by Yang Li, Yuetian Luo, Davide Ferrari, Xiaonan Hu, and Yichen Qin By Leeb, Hannes; Pötscher, Benedikt M.; Kivaranovic, Danijel
  90. Governance and Domestic Investment in Africa By Chimere O. Iheonu
  91. Upgrading business investment in Turkey By Seyit Mümin Cilasun; Rauf Gönenç; Mustafa Utku Özmen; Mehmed Zahid Samancıoǧlu; Fatih Yilmaz; Volker Ziemann

  1. By: Demary, Markus; Voigtländer, Michael
    Abstract: The low nominal interest rate environment is a hotly debated phenomenon among politicians, financial market participants and households. Savers fear the erosion of their retirement savings, while financial supervisors warn of the stability risks caused by declining bank profitability and by the declining profitability of life insurers. Moreover, financial supervisors fear an increase in household debt triggered by a high demand for cheap loans. Most people are interested in whether inflation-adjusted interest rates will rise in the distant future, and, if this is the case, when and by how much they will increase. However, the possibility of increasing real interest rates depends on whether the evolution of real interest rates is due to a rebound of a long cycle or whether it is due to a longer-lasting trend. Whether the evolution of real interest rates is based on a trend or a cycle cannot be judged by data visualisation. Instead, it needs a more rigorous statistical analysis. Therefore, we first identify the drivers of real interest rates and use a panel data regression model to test whether these drivers are predictive of the evolution of real interest rates. We then use forecasts of the drivers of real interest rates, mostly demographic variables, to identify whether there is a future trend or a mean-reverting behaviour in real interest rates. The regression model for the real interest rate can be used to calculate the real interest rate that is determined by economic fundamentals. This model-implied interest rate can then be compared to the data in order to detect misalignments that could be caused by accommodative monetary policies or by risk premia. The detection of misalignments is important for our fore-casting exercise, because the correction of the misalignment back to a possible trend could be confused with an interest rate cycle. The analysis indicates that the current low interest rate levels are not solely caused by the accommodative monetary policies of central banks, but are also the outcome of a longer-term downward trend. Although interest rates are currently lower than indicated by macroeconomic factors and, thus, are likely to increase when central banks start to toughen their monetary policies, in the long-run real interest rates will decline predominantly because of demographic factors. This trend will be persistent, because demographic factors seem to be persistent. For Germany, for example, we find a rebound from currently -0.4 percent to 1.3 percent by 2025 due to the elimination of the misalignment when the ECB starts to normalise its monetary policy. After the normalisation of this interest rate cycle, the negative trend in the real interest rates leads to a decline to a real interest rate of 0.5 percent in 2035 and a real interest rate of 0.0 percent in 2050. The result of persistently low interest rates has important implications for the long-term invest-ment decisions of savers, life insurers and pension funds.
    JEL: E21 E22 E43 E44
    Date: 2018
  2. By: Elizaveta Lukmanova (KU Leuven, Faculty of Economics and Business, Department of Economics); Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business)
    Abstract: We augment a standard monetary VAR on output growth, inflation and the nominal interest rate with the central bank's inflation target, which we estimate from a New Keynesian DSGE model. Inflation target shocks give rise to a simultaneous increase in inflation and the nominal interest rate in the short run, at no output expense, which stands at the center of an active current debate on the Neo-Fisher effect. In addition, accounting for persistent monetary policy changes reflected in inflation target changes improves identification of a standard temporary nominal interest rate shock in that it strongly alleviates the price puzzle.
    Keywords: Monetary policy, Neo-Fisher effect, Time-varying inflation target, DSGE, VAR
    JEL: E12 E31 E52 E58
    Date: 2018–11
  3. By: Boris Chafwehé (Universit´e Catholique de Louvain and FNRS); Rigas Oikonomou (Universit´e Catholique de Louvain); Romanos Priftis (Bank of Canada); Lukas Vogel (Directorate General for Economic and Financial Affairs. European Commission)
    Abstract: We propose a novel framework where forward guidance (FG) is endogenously determined. Our model assumes that a monetary authority solves an optimal policy problem under com- mitment at the zero-lower bound. FG derives from two sources: 1. from commiting to keep interest rates low at the exit of the liquidity trap, to stabilize inflation today. 2. From debt sustainability concerns, when the planner takes into account the consolidated budget constraint in optimization. Our model is tractable and admits an analytical solution for interest rates in which 1 and 2 show up as separate arguments that enter additively to the standard Taylor rule. In the case where optimal policy reflects debt sustainability concerns (satisfies the consoli- dated budget) monetary policy becomes subservient to fiscal policy, giving rise to more volatile inflation, output and interest rates. Liquidity trap (LT) episodes are longer, however, the impact of interest rate policy commitments on inflation and output are moderate. ’Keeping interest rates low’ for a long period, does not result in positive inflation rates during the LT, in contrast our model consistently predicts negative inflation at the onset of a LT episode. In contrast, in the absence of debt concerns, LT episodes are shorter, but the impact of commitments to keep interest rates low at the exit from the LT, on inflation and output is substantial. In this case monetary policy accomplishes to turn inflation positive at the onset of the episode, through promising higher inflation rates in future periods. We embed our theory into a DSGE model and estimate it with US data. Our findings suggest that FG during the Great Recession may have partly reflected debt sustainability concerns, but more likely policy reflected a strong commitment to stabilize inflation and the output gap. Our quantitative findings are thus broadly consistent with the view that the evolution of debt aggregates may have had an impact on monetary policy in the Great Recession, but this impact is likely to be small.
    Keywords: Bayesian estimationDSGE modelfiscal policyforward guidanceinflationLiquidity trapmonetary policy
    JEL: E31 E52 E58 E62 C11
    Date: 2018–10
  4. By: Jorda, Oscar (Federal Reserve Bank of San Francisco); Nechio, Fernanda (Federal Reserve Bank of San Francisco)
    Abstract: The Phillips curve remains central to stabilization policy. Increasing financial linkages, international supply chains, and managed exchange rate policy have given core currencies an outsized influence on the domestic affairs of world economies. We exploit such influence as a source of exogenous variation to examine the effects of the recent financial crisis on the Phillips curve mechanism. Using a difference-in-differences approach, and comparing countries before and after the 2008 financial crisis sorted by whether they endured or escaped the crisis, we are able to assess the evolution of the Phillips curve globally.
    JEL: E01 E30 E32 E44 E47 E51 F33 F42 F44
    Date: 2018–12–07
  5. By: Anna Cieslak; Andreas Schrimpf
    Abstract: We quantify the importance of non-monetary news in central bank communication. Using evidence from four major central banks and a comprehensive classification of events, we decompose news conveyed by central banks into news about monetary policy, economic growth, and separately, shocks to risk premia. Our approach exploits high-frequency comovement of stocks and interest rates combined with monotonicity restrictions across the yield curve. We find significant differences in news composition depending on the communication channel used by central banks. Non-monetary news prevails in about 40% of policy decision announcements by the Fed and the ECB, and this fraction is even higher for communications that provide context to policy decisions such as press conferences. We show that non-monetary news accounts for a significant part of financial markets' reaction during the financial crisis and in the early recovery, while monetary shocks gain importance since 2013.
    Keywords: central bank communication, monetary policy shocks, yield curve, stock-bond comovement, central bank information effects, risk premia
    JEL: G12 E43 E52 E58
    Date: 2018–12
  6. By: Raïsa Basselier (National Bank of Belgium, Economics and Research Department); David de Antonio Liedo (National Bank of Belgium, R&D Statistics); Jana Jonckheere (National Bank of Belgium, Economics and Research Department); Geert Langenus (National Bank of Belgium, Economics and Research Department)
    Abstract: In this paper we develop a new model that incorporates inflation expectations and can be used for the structural analysis of inflation, as well as for forecasting. In this latter connection, we specifically look into the usefulness of real-time survey data for inflation projections. We contribute to the literature in two ways. First, our model extracts the inflation trend and its cycle, which is linked to real economic activity, by exploiting a much larger information set than typically seen in this class of models and without the need to resort to Bayesian techniques. The reason is that we use variables reflecting inflation expectations from consumers and firms under the assumption that they are consistent with the expectations derived from the model. Thus, our approach represents an alternative way to shrink the model parameters and to restrict the future evolution of the factors. Second, the inflation expectations that we use are derived from the qualitative questions on expected price developments in both the consumer and the business surveys. This latter source, in particular, is mostly neglected in the empirical literature. Our empirical results suggest that overall, inflation expectations in surveys provide useful information for inflation forecasts. In particular for the most recent period, models that include survey expectations on prices tend to outperform similar models that do not, both for Belgium and the euro area. Furthermore, we find that the business survey, i.e. the survey replies by the price-setters themselves, contributes most to these forecast improvements
    Keywords: in?ation forecastsmonthly consumer and producer surveysqualitative survey informationmodel-consistent expectationsJDemetra+ SSF library
    JEL: E31 E37
    Date: 2018–10
  7. By: Nakajima, Tetsuya
    Abstract: This paper clarifies a macroeconomic condition, under which households are divided between a working class and an asset-owner class. Constructing a Keynesian model, we find that if aggregate savings from profits exceed aggregate investment, workers cannot accumulate their assets, and consequently a class society is established.
    Keywords: Effective Demand; Keynesian; Employment Rate; Underemployment; Wage Share; Working Class
    JEL: E12 E24 E25
    Date: 2018–12
  8. By: Ashoka Mody; Milan Nedeljkovic
    Abstract: The European Central Bank (ECB) took many measures to combat the eurozone’s rolling financial crisis. For providing desperately scarce dollars to eurozone banks, the ECB relied on the U.S. Federal Reserve. Using a novel econometric framework, we identify financial markets’ response to the ECB’s liquidity injections and its more pro-active monetary stimulus between October 2009 and September 2012, the most intense phase of the eurozone crisis. Dollar liquidity clearly reduced stress in bond markets and improved economic sentiment, as reflected in higher equity prices. In contrast, passive euro liquidity provision and even active measures (policy rate reductions and bond market interventions) delivered modest results. Although government bond spreads did typically decline, markets remained worried that spreads could rise quickly; moreover, broad economic sentiment remained unchanged. Only the Outright Monetary Transactions (OMT) “bazooka” had a substantial beneficial effect. Overall, the results point to the ECB’s limits in helping improve financial market’s sentiment.
    Keywords: monetary policy, euro crises, uncertainty, conditional quantiles, MCMC, FAVAR
    JEL: E44 E58 C32 C38
    Date: 2018
  9. By: Martin Geiger; Eric Mayer; Johann Scharler
    Abstract: We study the effects of macroeconomic shocks on several measures of economic inequality obtained from U.S. survey data. To identify aggregate supply, aggregate demand, and monetary policy shocks, we estimate structural vector autoregressions and impose sign and zero restrictions on impulse response functions. Our results show that the effects of the macroeconomic shocks on economic inequality depend on the type of shock as well as on the measure of inequality considered. Contractionary monetary policy shocks increase expenditure and consumption inequality, whereas income and earnings inequality are less affected. Adverse aggregate supply and aggregate demand shocks increase income and earnings inequality, but reduce expenditure and consumption inequality. Our results suggest that different channels dominate in the transmission of the shocks. The earnings heterogeneity channel is consistent with the inequality dynamics in the aftermath of monetary policy shocks, but it appears to be less crucial when the economy is hit by either aggregate supply or aggregate demand shocks. In the aftermath of aggregate supply and aggregate demand shocks, inflation and the real interest rate appear to drive inequality dynamics to a larger degree. Using variance decompositions, we also find that although the macroeconomic shocks account for large shares of the variation in the macroeconomic variables, their contributions to the dynamics of the inequality measures are limited.
    Keywords: Macroeconomic Shocks, Inequality, Structural Vector Autoregression, Zero and Sign Restrictions
    JEL: E00 E32 D63
    Date: 2019–01
  10. By: Óscar Arce (Banco de España); Galo Nuño (Banco de España); Dominik Thaler (Banco de España); Carlos Thomas (Banco de España)
    Abstract: The quantitative easing (QE) policies implemented in recent years by central banks have had a profound impact on the working of money markets, giving rise to large excess reserves and pushing down key interbank rates against their floor – the interest rate on reserves. With macroeconomic fundamentals improving, central banks now face the dilemma as to whether to maintain this large balance sheet/floor system, or else to reduce their balance sheet size towards pre-crisis trends and operate traditional corridor systems. We address this issue using a New Keynesian model featuring heterogeneous banks that trade funds in an interbank market characterized by matching frictions. In this environment, balance sheet expansions push market rates towards their floor by slackening the interbank market. A large balance sheet regime is found to deliver ampler “policy space” by widening the steady-state distance between the interest on reserves and its effective lower bound (ELB). Nonetheless, a lean-balance-sheet regime that resorts to temporary but prompt QE in response to recessions severe enough for the ELB to bind achieves similar stabilization and welfare outcomes as a large-balance-sheet regime in which interest-rate policy is the primary adjustment margin thanks to the larger policy space.
    Keywords: central bank balance sheet, interbank market, search and matching frictions, reserves, zero lower bound
    JEL: E42 E44 E52 G21
    Date: 2018–12
  11. By: Chahrour, Ryan; Ulbricht, Robert
    Abstract: We study the quantitative potential of DSGE models with incomplete information. In contrast to existing literature, we offer predictions that are robust across all possible private information structures that agents may have. Our approach maps DSGE models with information-frictions into a parallel economy where deviations from fullinformation are captured by time-varying wedges. We derive exact conditions that ensure the consistency of these wedges with some information structure. We apply our approach to an otherwise frictionless business cycle model where firms and households have incomplete information. We show how assumptions about information interact with the presence of idiosyncratic shocks to shape the potential for confidence-driven fluctuations. For a realistic calibration, we find that correlated confidence regarding idiosyncratic shocks (aka “sentiment shocks”) can account for up to 51 percent of U.S. business cycle fluctuations. By contrast, confidence about aggregate productivity can account for at most 3 percent.
    Keywords: Business cycles; DSGE models; incomplete-information; information-robust predictions
    JEL: D84 E32
    Date: 2018–11
  12. By: Jan De Loecker (Princeton University, NBER and CEPR); Catherine Fuss (National Bank of Belgium, Economics and Research Department); Johannes Van Biesebroeck (University of Leuven and CEPR)
    Abstract: We analyze the aggregate markup of a small-open economy, Belgium, using a firm-level dataset that includes all non-financial, private firms. The dataset covers the period 1980-2016 and merges the annual firm accounts over three periods when firms faced different reporting thresholds for the key variables we use. After harmonizing the data, we find that for the median firm the revenue share of service intermediates doubles, to some extent at the expense of in-house employment. As this general patterns holds true for the vast majority of firms and all sectors of the economy, we need to control for it in the calculation of our firm-level markup estimates. We document increasing markups in the overall economy throughout the first fifteen years of our sample, 1980-1995, and a continued rise in manufacturing until the early 2000s. In the remaining years, the aggregate markup, although cyclical, remained relatively stable. These patterns are driven by the dynamics in the sales-to-expenditure ratio, with only a small role for changes in the technology parameters. Two decompositions illustrate that the aggregate pattern masks systematic dynamics at the sector and firm level. We find that in periods where the aggregate markup rises—for the full economy or for one of the major sectors—it is almost entirely due to the within component, i.e. firm-level markup growth. In periods where the aggregate markup is stable, the average hides a strong process of reallocation. Firms or sectors with high markups increase their market share, which raises the aggregate markup, but this is dominated by a negative correlation between changes in market share and markups, which depresses the aggregate.
    Keywords: Markups. Market Power. Technological change
    JEL: E31 E52 E58 E62 C11
    Date: 2018–10
  13. 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
  14. By: Arnoud Stevens (National Bank of Belgium); Joris Wauters (National Bank of Belgium and Ghent University)
    Abstract: Inflation has been persistently weak in the euro area despite the economic recovery since 2013. We investigate the sources behind this protracted low inflation by building a time-varying parameter model that jointly explains the dynamics of inflation and inflation expectations from the ECB’s Survey of Professional Forecasters. We find that the inclusion of survey data strengthens the view that low inflation was mainly due to cyclical drivers. In particular, the model with survey expectations finds a more muted decline of trend inflation in recent years and a larger degree of economic slack. The impact of economic slack and import prices on inflation is found to have increased in recent years. We also find that survey expectations have become less persistent over the financial crisis period, and that including survey data improves the model’s out-of-sample forecasting performance.
    Keywords: in?ation dynamics, trend in?ation, survey-based in?ation expectations, ECB Survey of Pro- fessional Forecasters, nonlinear state space model, Bayesian estimation, euro area
    JEL: E31 C11 C32
    Date: 2018–10
  15. By: Gert Peersman (Ghent University)
    Abstract: This paper examines the causal effects of shifts in international food commodity prices on euro area inflation dynamics using a structural VAR model that is identified with an external instrument (i.e. a series of global harvest shocks). The results reveal that exogenous food commodity price shocks have a strong impact on consumer prices, explaining on average 25%-30% of inflation volatility. In addition, large autonomous swings in international food prices contributed significantly to the twin puzzle of missing disinflation and missing inflation in the era after the Great Recession. Specifically, without disrup- tions in global food markets, inflation in the euro area would have been 0.2%-0.8% lower in the period 2009-2012 and 0.5%-1.0% higher in 2014-2015. An analysis of the transmission mechanism shows that international food price shocks have an impact on food retail prices through the food production chain, but also trigger indirect effects via rising inflation expectations and a depreciation of the euro.
    Keywords: Food commodity prices, inflation, twin puzzle, euro area, SVAR-IV
    JEL: E31 E52 Q17
    Date: 2018–10
  16. By: Berthold, Kristin; Stadtmann, Georg
    Abstract: We theoretically examine under which assumptions the impossible trinity holds. We also focus on the most recent Swiss experience and ask, if the SNB gained monetary independence by switching from a fixed to a floating exchange rate system in January 2015. The theoretical examination shows that the impossible trinity holds under the following assumptions: Equality of domestic and foreign real interest rates, the quantity theory of money holds, and that the relative PPP is fulfilled. The empirical analysis reveals that relative PPP does not hold for the Swiss case and it was necessary for the SNB to adopt its monetary policy in accordance with the ECB's expansive monetary policy. The paper shows that for a small open economy, such as Switzerland, it does not play a role for its monetary policy independence whether the central bank implements a fixed or a floating exchange rate system.
    Keywords: foreign exchange market,Swiss crisis,impossible trinity,monetary policy independence
    JEL: E52 E58 E42
    Date: 2018
  17. By: Görg, Holger (Kiel Institute for the World Economy); Hornok, Cecília (Kiel Institute for the World Economy); Montagna, Catia (University of Aberdeen); Onwordi, George E. (University of Aberdeen)
    Abstract: How do labour market policies influence employment's responsiveness to output fluctuations (employment-output elasticity)? We revisit this question on a panel of OECD countries, which also incorporates the period of the Great Recession. We distinguish between passive and active labour market policies and allow for their interactions, i.e. the policy mix, to play a role. We find that the effects of any single policy change are shaped by the broader existing policy-mix within which it takes place. Finally, we evaluate the effect of a move to 'flexicurity' on the employment-output elasticity in each country.
    Keywords: employment-output elasticity, labour market policy, welfare state, flexicurity
    JEL: E24 E32 J21 J65
    Date: 2018–11
  18. By: Xing, Victor
    Abstract: Global monetary authorities remained steadfast in policy normalization to pare unconventional easing programs, as Federal Reserve’s balance sheet run-off and China’s BRI loans created a perfect storm in dollar liquidity tightening. There are signs that risk-parity funds are in the grip of a pincer movement, with rising reflationary pressure from globalization’s retreat and tighter dollar liquidity spur deleveraging flows and deny investors safe harbors from cross asset risk shedding; this can be seen in short-covering and flight-to-quality flows to long-maturity Treasuries, which increased bond funds' vulnerabilities to higher interest rates. Some investors view tighter financial conditions as signs of “policy error” after past decade’s policy easing, but BIS cautioned that FCIs’ sensitivity to equities may induce policymakers to place excess weight on stock valuations, overstate easy financial conditions’ benefits, and overlook the distributional effects of monetary accommodation.
    Keywords: Risk-parity investments, quantitative tightening, dollar liquidity shortage, Belt and Road Initiative, financial conditions, distributional effects
    JEL: E0 E3 E4 E5 G1 G2
    Date: 2018–12–23
  19. By: Vítor Castro (Loughborough University and NIPE); Rodrigo Martins (University of Coimbra and CeBER)
    Abstract: This paper investigates the commonalities and differences between benign credit booms and those that end up in banking crises by employing a Multinomial and a Sequential Logit model over a panel of industrial and developing countries. Some economic, political and institutional factors are found to play an important role in understanding the credit booms dynamics. In particular, this study shows that the quantity and price of credit, liquidity in the economy, economic growth, openness of the economy, government orientation, political stability and Central Bank independence are relevant to explain not only the occurrence of credit booms but also – and most importantly – whether they end up in a systemic banking crisis or not. While a better economic environment and Central Bank independence are essential for both industrial and developing countries to avoid credit booms from going badly, political factors seem to exert a stronger influence in developing countries.
    Keywords: Credit booms; Multinomial Logit; Sequential Logit; Government Ideology; Central Bank Independence.
    JEL: C25 D72 E32 E51
    Date: 2018–12
  20. By: Frank Smets (European Central Bank); Joris Tielens (National Bank of Belgium); Jan Van Hove (KU Leuven, KBC)
    Abstract: In a production network, shocks originating in individual sectors do not remain confined to individual sectors but permeate through the pricing chain. The notion of “pipeline pressures” alludes to this cascade effect. In this paper we provide a structural definition of pipeline pressures to inflation and use Bayesian techniques to infer their presence from quarterly U.S. data. We document two insights. (i) Due to price stickiness along the supply chain, we show that pipeline pressures take time to materialize which renders them an important source of inflation persistence. (ii) As we trace their origins to 35 disaggregate sectors, pipeline pressures are documented to be a key source of headline/disaggregated inflation volatility. Finally, we contrast our results to the dynamic factor literature which has traditionally interpreted the comovement of price indices arising from pipeline pressures as aggregate shocks. Our results highlight the role of sectoral shocks – joint with the production architecture – to understand the micro origins of disaggregate/headline inflation persistence/volatility.
    Keywords: Pipeline pressures · Input–output linkages · Propagation
    JEL: E31 E32 D85 O51
    Date: 2018–10
  21. By: Francesco Bianchi; Howard Kung; Mikhail Tirskikh
    Abstract: We construct and estimate a dynamic stochastic general equilibrium model that features demand- and supply-side uncertainty. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand-side and supply-side uncertainty imply large contractions in real activity and an increase in term premia, but supply-side uncertainty has larger effects on inflation and investment. We introduce a novel analytical decomposition to illustrate how multiple distinct risk propagation channels account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple in the aftermath of the Great Recession.
    JEL: C11 C32 E32 G12
    Date: 2018–12
  22. By: Davide Debortolii (Universitat Pompeu Fabra and Barcelona GSE); Ricardo Nunes (University of Surrey and CIMS); Pierre Yared (Columbia University and NBER)
    Abstract: This paper considers optimal fiscal policy in a deterministic Lucas and Stokey (1983) economy in the absence of government commitment. In every period, the government chooses a labor income tax and issues any unconstrained maturity structure of debt as a function of its outstanding debt portfolio. We find that the solution under commitment cannot always be sustained through the appropriate choice of debt maturities, a result which contrasts with previous conclusions in the literature. This is because a government today cannot commit future governments to a particular side of the Laffer curve, even if it can commit them to future revenues. We find that the unique stable debt maturity structure under no commitment is at, with the government owing the same amount of resources to the private sector at all future dates. We present examples in which the maturity structure converges to such a at distribution over time. In cases where the commitment and no-commitment solutions do not coincide, debt converges to the natural debt limit.
    JEL: H63 H21 E62
    Date: 2019–01
  23. By: Hans Dewachter (National Bank of Belgium; Center for Economic Studies, University of Leuven and CESifo); Leonardo Iania (Louvain School of Management); Wolfgang Lemke (European Central Bank); Marco Lyrio (Insper Institute of Education and Research)
    Abstract: We assess the contribution of economic and financial factors in the determination of euro area corporate bond spreads over the period 2001-2015. The proposed multi-market, no-arbitrage affine term structure model is based on the methodology proposed by Dewachter, Iania, Lyrio, and Perea (2015). We model jointly the ‘risk-free curve’, measured by overnight index swap (OIS) rates, and the corporate yield curves for two rating classes (A and BBB). The model includes four spanned and six unspanned factors. We find that, in general, both economic (real activity and inflation) and financial factors (proxying risk aversion, flight to liquidity and general financial market stress) play a significant role in the determination of the spanned factors and hence in the dynamics of the risk-free yield curve and corporate bond spreads. Across the risk-free OIS curve, macroeconomic and financial factors are each responsible on average for explaining 30 and 65 percent of yield variation, respectively. For A-and BBB-rated corporate debt, the selected financial variables explain on average 50 percent of the variation in corporate spreads during the last decade.
    Keywords: Euro area corporate bonds; yield spread decomposition; unspanned macro factors
    JEL: E43 E44
    Date: 2018–12
  24. By: Jesus Ferreiro; Carmen Gómez
    Abstract: For mainstream economics, rigidities in the labour market are the primary determinants of high and persistent long-term unemployment rates, leading to the need to reform labour market institutions and make them more flexible. Flexible labour markets would not only help to smooth normal business cycle fluctuations (implying a small impact of these fluctuations on employment and unemployment) but also to reduce the negative impacts on labour market of structural shocks. If we focus on the labour market performances in the European Union during the Great Recession, we can easily detect the existence of significant differences in the impact of this common structural shock on the domestic labour markets. For mainstream economics, the countries with the best results in terms of unemployment and employment would have been those that had a more flexible labour market at the beginning of the crisis and/or those having implemented reforms to increase this flexibility. The aim of this paper is to determine the validity of this argument, that is, whether labour reforms making the labour market more flexible effectively ensure macroeconomic stability by reducing the impact on the labour market of economic shocks. Using panel data techniques, we investigate whether, as mainstream studies argue, the evolution of employment and unemployment in the EU labour markets is explained, and to what extent, by the levels and changes registered in the indicators of employment protection legislation. Conversely, we examine whether, as heterodox and post-Keynesian studies suggest, this evolution is explained by the changes registered in economic activity (i.e., GDP growth).
    Keywords: employment, unemployment, Great Recession, employment protecti on
    JEL: C23 E24 J21 J64 J88
    Date: 2019–01
  25. By: Niko Hauzenberger (Vienna University of Economics and Business, Department of Economics); Florian Huber (Paris Lodron University of Salzburg, Salzburg Centre of European Union Studies)
    Abstract: In this paper we aim to improve existing empirical exchange rate models by accounting for uncertainty with respect to the underlying structural representation. Within a flexible Bayesian non-linear time series framework, our modeling approach assumes that different regimes are characterized by commonly used structural exchange rate models, with their evolution being driven by a Markov process. We assume a time-varying transition probability matrix with transition probabilities depending on a measure of the monetary policy stance of the central bank at the home and foreign country. We apply this model to a set of eight exchange rates against the US dollar. In a forecasting exercise, we show that model evidence varies over time and a model approach that takes this empirical evidence seriously yields improvements in accuracy of density forecasts for most currency pairs considered.
    Keywords: Empirical exchange rate models, exchange rate fundamentals, Markov switching
    JEL: C30 E32 E52 F31
    Date: 2018–12
  26. By: Fuad Mammadov (Central Bank of Azerbaijan Republic); Shaig Adigozalov (Central Bank of Azerbaijan Republic)
    Abstract: In this paper we empirically examined the role of fiscal rules in mitigating the impact of oil market fluctuations in resource-rich economies using a structural panel VAR framework following Pedroni (2013) and incorporating identification scheme of Kilian (2009). Our key findings can be summarized as: l) oil exporting developing countries exhibit procyclical respond to positive oil market specific demand shock, 2) there are significant cross-country differences in the way governments respond to the oil market shocks, 3) fiscal rules mitigate the shocks and generate fiscal discipline only if when all fiscal rules are imposed simultaneously, 4) we couldn’t identify any significant role of wealth funds as a budget stabilization policy.
    Keywords: Fiscal rule, structural panel VAR, oil shocks
    JEL: C12 C22 C23 E62
    Date: 2017–03–15
  27. By: Hugo Hopenhayn; Julian Neira; Rish Singhania
    Abstract: The US economy has undergone a number of puzzling changes in recent decades. Large firms now account for a greater share of economic activity, new firms are being created at a slower rate, and workers are getting paid a smaller share of GDP. This paper shows that changes in population growth provide a unified quantitative explanation for these long-term changes. The mechanism goes through firm entry rates. A decrease in population growth lowers firm entry rates, shifting the firm-age distribution towards older firms. Heterogeneity across firm age groups combined with an aging firm distribution replicates the observed trends. Micro data show that an aging firm distribution fully explains i) the concentration of employment in large firms, ii) and trends in average firm size and exit rates, key determinants of the firm entry rate. An aging firm distribution also explains the decline in labor’s share of GDP. In our model, older firms have lower labor shares because of lower overhead labor to employment ratios. Consistent with our mechanism, we find that the ratio of nonproduction workers to total employment has declined in the US.
    JEL: E13 E20 J11 L16 L26
    Date: 2018–12
  28. By: Taguchi, Hiroyuki
    Abstract: Mongolian stock market is underdeveloped compared with its banking credit market, due to a lot of impediment factors to prevent its development. This means Mongolian economy still has much room where its stock market development promotes the long-term financing and investment into non-mining sectors for sustainable economic growth. This paper aims to provide the evidence on the relationship between stock market and macroeconomic policies in Mongolia under the hypothesis that the recent biases of fiscal and monetary policies would distort her stock-price formation. The empirical analysis in this study found that the cumulative public debt and too high policy rate have stagnated the stock prices, through identifying the negative impulse responses of stock prices to the shocks of policy rate and government securities under a vector-autoregressive model estimation. The strategic policy implication for normalizing the stock prices could be the significance in ensuring budget consolidation and in addressing a fear of floating in monetary policy management in Mongolia.
    Keywords: Stock Market; Fiscal policy; Government Securities; Monetary Policy; Policy Rate; Vector auto-regression
    JEL: E44 G32 O53
    Date: 2018–12
  29. By: Vugar Rahimov (Central Bank of Azerbaijan Republic); Nigar Jafarova (Central Bank of Azerbaijan Republic)
    Abstract: In this study, we explore the pass-through of exchange rate fluctuations to domestic CPI inflation and its components in Azerbaijan. Using the data of 2003:Q1-2016:Q2, we estimate a VAR model and find significant but incomplete pass-through. The accumulated pass-through to aggregate CPI inflation is 28 percent within one year. According to our empirical findings, the largest pass-through (ERPT) is observed in the non-food component of CPI inflation which is 41 percent after twelve months period. Since the ERPT is an essential ingredient of price developments in Azerbaijan, it should be assessed precisely and taken into account in monetary policy decisions and inflation forecasting.
    Keywords: Exchange rate pass-through, VAR model, disaggregated CPI, oil exporting countries
    JEL: F31 E31 E52 C51 C52
    Date: 2017–02–09
  30. By: International Monetary Fund
    Abstract: After years of impressive growth and poverty reduction, Bolivia is facing a more challenging period. Accommodative fiscal and monetary policies combined with lower gas and minerals prices have contributed to continued large twin deficits, foreign reserve losses, and a sharp increase in public debt. External competitiveness has been negatively affected by the appreciating US dollar, high wage growth, and domestic policies that have hindered private sector investment. A definitive change in the policy stance is warranted to restore external balance, minimize a further buildup in vulnerabilities, and promote broad based growth.
    Date: 2018–12–21
  31. By: Gries, Thomas (University of Paderborn); Naudé, Wim (Maastricht University)
    Abstract: Rapid technological progress in artificial intelligence (AI) has been predicted to lead to mass unemployment, rising inequality, and higher productivity growth through automation. In this paper we critically re-assess these predictions by (i) surveying the recent literature and (ii) incorporating AI-facilitated automation into a product variety-model, frequently used in endogenous growth theory, but modified to allow for demand-side constraints. This is a novel approach, given that endogenous growth models, and including most recent work on AI in economic growth, are largely supply-driven. Our contribution is motivated by two reasons. One is that there are still only very few theoretical models of economic growth that incorporate AI, and moreover an absence of growth models with AI that takes into consideration growth constraints due to insufficient aggregate demand. A second is that the predictions of AI causing massive job losses and faster growth in productivity and GDP are at odds with reality so far: if anything, unemployment in many advanced economies is historically low. However, wage growth and productivity is stagnating and inequality is rising. Our paper provides a theoretical explanation of this in the context of rapid progress in AI.
    Keywords: technology, artificial intelligence, productivity, labour demand, innovation, growth theory
    JEL: O47 O33 J24 E21 E25
    Date: 2018–11
  32. By: Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (University of California, Berkeley); Ropele, Tiziano (Bank of Italy)
    Abstract: We use a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms' economic decisions. In the survey, a randomly chosen subset of firms is repeatedly treated with information about recent inflation (or the European Central Bank's inflation target) whereas other firms are not. This information treatment generates exogenous variation in inflation expectations. We find that higher inflation expectations on the part of firms leads them to raise their prices, increase their utilization of credit, and reduce their employment. However, when policy rates are constrained by the effective lower bound, demand effects are stronger, leading firms to raise their prices more and no longer reduce their employment.
    Keywords: inflation expectations, surveys, inattention
    JEL: E2 E3
    Date: 2018–12
  33. By: Francesco Macheda; Roberto Nadalini
    Abstract: The fall of the Icelandic economy in 2008 highlighted the destructive effects of unbridled markets. Yet, the small Nordic country has experienced an impressive recovery, so much so that in recent years its annual growth rates have been significantly higher than those of the overwhelming majority of advanced capitalist countries. Several commentators have attributed this extraordinary accomplishment to the interventionist state policies adopted by successive Icelandic governments. The aim of this article is to debunk this myth by delving into the fragile foundations that the current Icelandic economic boom rests on. We argue that the substantial growth of the real exchange rate has made the rapid absorption of unemployment compatible with price stability during the recovery period. At the same time, the boom in tourism services made the impressive appreciation of the Icelandic króna compatible with the country’s external balance. However, the laissez-faire approach shown by the Icelandic authorities towards the krona appreciation hasseverely penalized most of the tradable sector, in which the bulk of skilled labor is usually concentrated. Arguably, the heavy specialization in the tourism sector, by restricting sources of productivity growth and international competitiveness, will render the current level of unemployment and real wages inconsistent with internal and external equilibrium in Iceland in the long run.
    Keywords: Natural rate, Wage, Real exchange rate, Human Capital, Marxian
    JEL: E24 F31 J24 O33 B51
    Date: 2019–01
  34. By: Michael W. Elsby; Gary Solon
    Abstract: For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers’ nominal wage rates cannot be cut. Contrary evidence from household surveys reasonably has been discounted on the ground that the measurement of frequent wage cuts might be an artifact of reporting error. This article summarizes a more recent wave of studies based on more accurate wage data from payroll records and pay slips. By and large, these studies indicate that, except in extreme circumstances (when nominal wage cuts are either legally prohibited or rendered beside the point by very high inflation), nominal wage cuts from one year to the next appear quite common, typically affecting 15-25 percent of job stayers in periods of low inflation.
    JEL: E24 J3
    Date: 2018–12
  35. By: Ralf Kronberger (Austrian Federal Economic Chamber, Financial, Fiscal and Trade Policy Department); Christoph Schmid (Austrian Federal Economic Chamber, Financial, Fiscal and Trade Policy Department)
    Abstract: We use survey findings to analyse the effects of the Austrian income tax reform 2015/2016 on private consumption differentiated by income classes. Using survey data, we also estimate the corresponding average marginal propensities to consume and compare them to applied average marginal propensities to consume in economic models used to analyse the previous two income tax reforms in Austria. The estimated average marginal propensity to consume amounts to approximately 0.46, whereby in tendency increasing from the lowest income class (0.42-0.43) to the highest income class (0.48-0.50). Our estimated average marginal propensity to consume across all income classes basically corresponds to those used in economic models to evaluate the income tax reform 2015/2016. However, our estimated marginal propensities to consume by income classes fundamentally differ from those used in the economic models.
    Keywords: income tax reform, private consumption response, marginal propensity to consume, survey methodology
    JEL: E62 H24 H31
    Date: 2018–12
  36. By: Marco Bassetto; Zhen Huo; José-Víctor Ríos-Rull
    Abstract: This paper proposes a new equilibrium concept – organizational equilibrium – for models with state variables that have a time-inconsistency problem. The key elements of this equilibrium concept are: (1) agents are allowed to ignore the history and restart the equilibrium; (2) agents can wait for future agents to start the equilibrium. We apply this equilibrium concept to a quasi-geometric discounting growth model and to a problem of optimal dynamic fiscal policy. We find that the allocation gradually transits from that implied by its Markov perfect equilibrium towards that implied by the solution under commitment, but stopping short of the Ramsey outcome. The feature that the time inconsistency problem is resolved slowly over time rationalizes the notion that good will is valuable but has to be built gradually.
    JEL: C73 E61 E62
    Date: 2018–12
  37. By: Vugar Ahmadov (Central Bank of Azerbaijan Republic); Ulvi Sarkarli (Central Bank of Azerbaijan Republic); Ramiz Rahmanov (Central Bank of Azerbaijan Republic)
    Abstract: This study aims to analyze discretionary fiscal policy in Azerbaijan, Kazakhstan, and Russia for the period of 2003-2015 using structural fiscal balance (SBB). SBB takes into the consideration the permanent component of oil revenue and therefore clearly defines the discretionary fiscal position and the aggregate demand effect of fiscal policy. The structural balances in Azerbaijan and Russia experience deficit for the most of the analyzed period. The moderate level of SBB surplus is observed in Kazakhstan. The estimated SBBs also demonstrate that fiscal policies tend to be mainly pro-cyclical in Kazakhstan and Russia. Azerbaijan conducted counter-cyclical fiscal policy for the half of the investigated period. Moreover, governments gave more importance to economic stabilization in 2009 due to the global financial crises.
    Keywords: fiscal policy, structural budget balance, oil-rich countries, Azerbaijan, Kazakhstan, Russia
    JEL: E62 H60
    Date: 2017–12–05
  38. By: Joao Ayres (Inter-American Development Bank); Marcio Garcia (CNPq; FAPERJ; Pontifical Catholic University of Rio de Janeiro); Diogo Guillen (Itau-Unibanco Asset Management; ); Patrick Kehoe (Centre for Macroeconomics (CFM); Federal Reserve Bank of Minneapolis; Stanford University; Unbiversity College London (UCL))
    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.
    Date: 2018–12
  39. By: Francesca Di Iorio (University of Naples Federico II); Stefano Fachin ("Sapienza" University of Rome)
    Abstract: We revisit the evidence on the relationship between the Primary Balances/GDP and Debt/GDP ratios (Fiscal Reaction Function, FRF), in the advanced economies, showing that taking carefully into account the stochastic properties of the data leads to question the validity of the current consensus. More precisely, we find that before the 2008 financial crisis long-run FRF's existed only in a small number of advanced economies, and that they were more likely in countries characterized by higher sovereign spreads. Finally, we also find limited evidence of non-linearities leading to fiscal fatigue.
    Keywords: Public Debt, Fiscal Reaction Function, Panel cointegration, Cointegrating Polynomial Regression, Spread.
    JEL: C23 C32 E62 H62 H63
    Date: 2019–01
    Abstract: Using annual time series data on GDP per capita in Kenya from 1960 to 2017, the study analyzes GDP per capita using the Box – Jenkins ARIMA technique. The diagnostic tests such as the ADF tests show that Kenyan GDP per capita data is I (2). Based on the AIC, the study presents the ARIMA (3, 2, 1) model. The diagnostic tests further show that the presented parsimonious model is stable and reliable. The results of the study indicate that living standards in Kenya will improve over the next decade, as long as the prudent macroeconomic management continues in Kenya. Indeed, Kenya’s economy is growing. The study offers 3 policy prescriptions in an effort to help policy makers in Kenya on how to promote and maintain the much needed growth.
    Keywords: GDP per capita; forecasting; Kenya
    JEL: C53 E37 O47
    Date: 2019–01–08
  41. By: International Monetary Fund
    Abstract: The near-term outlook is broadly positive, with robust growth and low inflation. However, growth potential remains constrained by weak external competitiveness, high informality, low labor force participation, and a large infrastructure gap. In a complex political environment, the structural reform progress has been slow and fiscal risks have increased.
    Date: 2018–12–18
  42. By: Stephanie Schmitt-Grohé; Martín Uribe
    Abstract: We estimate an empirical model of exchange rates with transitory and permanent monetary shocks. Using monthly post-Bretton-Woods data from the United States, the United Kingdom, and Japan, we report four main findings: First, there is no exchange rate overshooting in response to either temporary or permanent monetary shocks. Second, a transitory increase in the nominal interest rate causes appreciation, whereas a permanent increase in the interest rate causes short-run depreciation. Third, transitory increases in the interest rate cause short-run deviations from uncovered interest-rate parity in favor of domestic assets, whereas permanent increases cause deviations against domestic assets. Fourth, permanent monetary shocks explain the majority of short-run movements in nominal exchange rates.
    JEL: E4 F3 F40
    Date: 2018–12
  43. By: Maria Bigoni (University of Bologna & IZA); Gabriele Camera (Chapman University & University of Bologna); Marco Casari (University of Bologna & IZA)
    Abstract: Human societies prosper when their members move beyond local exchange and cooperate with outsiders in the creation of wealth. Collaboration of this type presents formidable challenges because interaction is impersonal, reciprocity is unfeasible and trust cannot be easily established. Here we study this cooperation problem by modeling strategic interaction among strangers through an Intertemporal Exchange Game. The setup can be easily implemented in the laboratory to study a variety of cooperation-enhancing institutions. In particular, we study the role of a fiat monetary system by introducing intrinsically worthless tokens that can be offered in exchange for cooperation. The experiments show that a monetary system spontaneously emerges in the laboratory, and is a key institution to promote cooperation among strangers.
    Keywords: gift-giving, intertemporal trade, macroeconomic experiments, repeated games, social norms
    JEL: C70 C90 D03 E02
    Date: 2019
  44. By: Gallegati, Marco; Giri, Federico; Fratianni, Michele
    Abstract: How long is the long run in the relationship between money growth and inflation? How important are high inflation episodes for the unit slope finding in the quantity theory of money? To answer these questions we study the relationship between excess money growth and inflation over time and across frequencies using annual data from 1871 to 2013 for several developed countries. Wavelet-based exploratory analysis shows the existence of a close stable relationship between excess money growth and inflation only over longer time horizons, i.e. periods greater than 16 and 24 years, with money growth mostly leading. When we investigate the sensitivity of the unit slope finding to inflation episodes using a scale-based panel data approach we find that low-frequency regression coefficients estimated over variable-length subsamples before and after WWII are largely affected by high inflation episodes. Taken together the results that inflationary upsurges affect regression coefficients but not the closeness of the long-run relationship call for a qualification of the Quantity Theory of Money and suggests that policymakers should not lose interest on monetary developments.
    JEL: C22 E40 E50 N10
    Date: 2019–01–09
  45. By: Paulie, Charlotte (Department of Economics)
    Abstract: Using detailed Swedish micro data on prices and costs, this paper documents a decrease in the dispersion of changes in prices and markups following the introduction of an official inflation target of 2 percent. Using a structural model to decompose the change in the price-change distribution by potential explanatory factors, about 63 percent of the decrease in the price-change dispersion can be attributed to a decrease in the cross-sectional variance of inflation expectations. The lower dispersion of inflation expectations results in a lower markup dispersion and a welfare gain equivalent to a 0.79 percent increase in consumption.
    Keywords: inflation targeting; price setting; misallocation; welfare
    JEL: D84 E52 L11
    Date: 2019–01–07
    Abstract: Using annual time series data on GDP per capita in Nigeria from 1960 to 2017, I model and forecast GDP per capita using the Box – Jenkins ARIMA technique. My diagnostic tests such as the ADF tests show that Nigerian GDP per capita data is I (1). Based on the AIC, the study presents the ARIMA (2, 1, 0) model. The diagnostic tests further reveal that the presented optimal model is stable and hence reliable. The results of the study indicate that living standards in Nigeria will tumble over the next decade, as long as the current economic policy stance is not reviewed. Indeed, Nigeria’s economy is backsliding again!!! In order to improve the living standards of an ordinary Nigerian, this study has put forward four-fold policy prescriptions.
    Keywords: GDP per capita; forecasting; Nigeria
    JEL: C53 E37 O47
    Date: 2019–01–08
  47. By: Lior Cohen (Department of Economics. Universidad de Barcelona.); Marta Gómez-Puig (Department of Economics and Riskcenter, Universidad de Barcelona.); Simón Sosvilla-Rivero (Complutense Institute for Economic Analysis, Universidad Complutense de Madrid.)
    Abstract: This paper focuses on how the European Central Bank’s (ECB) monetary policies influenced non-financial firms. The paper’s two main contributions are, first, to shed light on non-financial firms’ decisions on leverage, and how the ECB’s conventional and unconventional policies may have affected them. Second, the paper also examines how these policies influenced non-financial firms’ decisions on capital allocation – primarily capital spending and shareholder distribution (for example, dividends and shares repurchases). Towards this end, we use an exhaustive and unique dataset comprised of income statements and balance sheets of leading non-financial firms that operate in the European Economic and Monetary Union (EMU). The main results suggest that ECB’s monetary policies have encouraged firms to raise their debt burden especially after the global recession of 2008. Finally, the ECB’s policies, mainly after 2011, seem to have also stimulated non-financial firms to allocate more resources towards not only capital spending but also shareholder distribution
    Keywords: ECB’s monetary policy, capital structure, leverage, quantitative easing, capital expenditure, dividend’s policy, shareholder yield. JEL classification:E52, E58, G31, G32.
    Date: 2019–01
  48. By: International Monetary Fund
    Abstract: Program implementation has been satisfactory. Macroeconomic stability has been maintained, external debt has been stabilized, and several reforms have been launched to modernize economic institutions and the policy framework. Growth is expected to accelerate this year to 3½ percent, supported by FDI and public investment. While the outlook is positive owing to sustained growth in non-extractive sectors, the international environment is less favorable than during the first review. Higher oil import prices and lower commodity export prices weigh on the external and fiscal positions; the economy remains dependent on commodity exports; and debt vulnerabilities and poverty remain high. Downside risks related to global economic developments and regional security are elevated. On the upside, development of the offshore gas field could generate large revenues from 2022 despite short-term costs.
    Keywords: Mauritania;Middle East;
    Date: 2018–12–13
  49. By: International Monetary Fund
    Abstract: Recent economic developments. The program is broadly on track and the economy is growing strongly, supported by private consumption, investment, and exports. Fiscal performance remains sound, modernization of the tax administration has accelerated, and public debt has fallen sharply. Inflation remains below the mid-point of the NBS inflation band, while the NBS has kept rates on hold since April. Both credit and private sector wage growth are strengthening. Program performance. Quantitative targets (QTs) for end-September 2018 were met, apart from a minor deviation on the QT for domestic arrears. Most reform targets (RTs) have been implemented, albeit some with delays. Staff recommends completion of the first review under the Policy Coordination Instrument and modification of QTs for end-March and an establishment of end-September 2019 QTs.
    Date: 2018–12–19
  50. By: Silvia Albrizio; Marina Conesa; Dennis Dlugosch; Christina Timiliotis
    Abstract: We examine the relationship between lax monetary policy, access to high-yield bond markets and productivity in the US between 2008 and 2016. Using monetary policy surprises, obtained from changes in interest rates futures in narrow windows around FOMC announcements, we isolate the increased access to high-yield bond markets relative to investment-grade bond markets that is due to unconventional monetary policy (UMP). We find that through the risk-taking channel, UMP has increased investors’ appetite for high-yield US corporate bonds, thereby increasing access to high-yield bond markets for firms with a higher risk profile. Since the relationship between credit ratings and firm-level productivity is U-shaped, the aggregate effect on productivity is a priori unclear. Turning to the real economy, we thus analyse whether this additional access to finance had an effect on aggregate productivity by altering the reallocation of resources across firms. Our results show that unconventional monetary policy induced less investment in tangible capital by high-productive firms. However, before drawing conclusions on the net effects of UMP on aggregate productivity, we discuss a number of issues that this paper could not deal with due to data limitations, including prominently whether this apparent misallocation may have been offset by a shift in the composition of investments towards more intangible investment.
    Keywords: bond markets, capital reallocation, productivity, Unconventional monetary policy, United States
    JEL: F23 D22 O33 D24 E52 G21 G32 G33 J63 O16 O47
    Date: 2019–01–14
  51. By: Mary Amiti (Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045); Oleg Itskhoki (Princeton University, Department of Economics, Princeton, NJ 08544); Jozef Konings (University of Liverpool Management School, Chatham St, Liverpool L69 7ZH, UK and Katholieke Universiteit Leuven, Department of Economics, Naamsestraat 69, 3000 Leuven, Belgium)
    Abstract: Large movements in exchange rates have small eects on the prices of internationally traded goods. Using a new dataset on currency invoicing of Belgian rms, we study how the currency of invoicing interacts with rm characteristics in shaping the extent of exchange rate pass-through at dierent time horizons. The US dollar and the Euro are the dominant currencies in both Belgium’s exports and imports, with substantial variation in currency choice across rms and products even within narrowly dened manufacturing industries. We nd that smaller, nonimport-intensive rms tend to denominate their exports in euros (producer currency pricing) and exhibit nearly complete exchange-rate pass-through into destination currency prices at all horizons. In contrast, the largest most import-intensive rms, and in particular with imports denominated in US dollars, tend to also denominate their exports in US dollars (dominant currency pricing) and exhibit very low passthrough in the short run, which gradually increases to 40–50% pass-through at the annual horizon. We show that these empirical patterns are in line with the predictions of a theoretical framework featuring heterogeneous rms with variable markups, endogenous international input sourcing and staggered price setting with endogenous currency choice. We plan to use a variant of a such model, disciplined with the Belgian rm-level data, for counterfactual analysis of the gradual increase in the use of the euro in international trade flows.
    Keywords: inflation forecastsmonthly consumer and producer surveysqualitative survey informationmodel-consistent expectationsJDemetra+ SSF library
    JEL: E31 E37
    Date: 2018–10
  52. By: Miller, Marcus (University of Warwick, Department of Economics)
    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.
    Date: 2018
  53. By: International Monetary Fund
    Abstract: Sierra Leone is a fragile state. Since emerging from a decade-long civil war in 2001, the country has made notable economic progress but has also suffered occasional setbacks, such as the Ebola Virus Disease epidemic of 2014. A three-year ECF arrangement was approved June 2017 to help address Sierra Leone’s macroeconomic weaknesses—in particular, low revenue, elevated inflation, high public debt, and inadequate foreign exchange reserve buffers—which had been exacerbated by the Ebola crisis and a collapse in iron ore prices (Country Report No. 17/154). However, the program went off track shortly after approval as lackluster revenue performance and expenditure overruns led to a budget cash shortfall and a growing stock of budget arrears. With the authorities unable to take corrective actions ahead of the March 2018 presidential elections the first review of the program was put on hold. Since then elections have produced a new government, marking the first change of power in ten years. This government has taken a number of corrective actions over the last six months with the aim of reviving the program engagement with the IMF.
    Date: 2018–12–18
  54. By: Penghui Yin
    Abstract: This paper studies attention allocation behavior of rationally inattentive consumers who have CRRA preferences, face uninsured capital income risk, and suffer from an information-processing capacity constraint. For given attention devoted to capital income risk, we solve for the optimal consumption-saving choices and show that the expected welfare is increasing with capacity, assuming a relative risk aversion degree larger than unity. Furthermore, we solve for attention choice and find that households would pay more attention to capital income risk if they have (i) lower initial wealth endowment, (ii) lower marginal cost of information, (iii) higher prior volatility of capital return, and (iv) higher degree of patience.
    Keywords: consumption-saving decision, information-processing constraint, capital-income risk
    JEL: E13 E21 D81 O16
    Date: 2018
  55. By: Bertrand Marc; Andreas Reuter
    Abstract: In line with the growing prominence of consumer confidence as a leading indicator of economic activity, a body of literature has built up which aims to explain its drivers. While all studies seem to agree that consumer confidence can be partially explained by variables reflecting economic fundamentals, there is less agreement on the role played by potentially relevant, non-economic events. This paper focusses on the effect of elections. Considering that they occur regularly they pose a repetitive challenge to analysts and forecasters eager to distil the right signals from the data. In this article, we analyse the impact of elections on consumer confidence in a selection of EU Member States, using error correction models, which control for a variety of relevant background variables. Proxying consumer confidence by data from the Joint Harmonised EU Programme of Business and Consumer Surveys, our analysis allows for a high degree of cross-country comparability. The presented results show elections in Austria, France and Germany to have a significant, positive effect on consumers' expectations regarding the general economic situation. The estimated cumulative effect on the level of the indicator from the beginning of the election period to the actual election (or month thereafter) is far from negligible, close to 1.0 standard deviation of the level of the dependent variable. The time it takes for the effect to build up differs across countries, with results ranging between four and nine months. In Belgium, by contrast, the results of our analysis do not provide indications of any kind of election effect on consumer expectations.
    JEL: E32 C22
    Date: 2018–11
  56. By: Hernández Vega Marco A.
    Abstract: This work analyzes whether monetary policy in advanced economies has differentiated effects on portfolio flows towards emerging economies coming from the US, the Euro Area and the UK. The results show the following: First, portfolio flows' response to US monetary policy events is vastly homogeneous across regions, whilst the reaction to Euro Area or UK polices are more diverse. Second, US policies have a bigger effect on portfolio flows from each of the selected advanced economies. Third, the magnitude of investors' responses is stronger towards Emerging Europe and Latin America than to Emerging Asia. These results could be useful for policymakers in emerging economies as a benchmark to anticipate differentiated effects in portfolio flows caused by monetary policy in advanced economies.
    Keywords: Emerging Markets;Foreign Portfolio Investment;Monetary Policy Announcements
    JEL: E52 F21 G10
    Date: 2018–12
  57. By: Markus K. Brunnermeier; Lunyang Huang
    Abstract: This paper examines how a newly designed global safe asset can mitigate international capital flows induced by flight-to-safety. In the model domestic investors have to co-invest in a safe asset along with their physical capital. At times of crisis, investors replace the initially safe domestic government bonds with safe US Treasuries and re-sell part of their capital. The reduction in physical capital lowers GDP and tax revenue, leading to increased default risk justifying the loss of the government bond's safe-asset status. We compare two ways to mitigate this self-fulfilling scenario. In the “buffer approach” international reserve holding reduces the severity of a crisis. In the “rechannelling approach” flight-to-safety capital flows are rechannelled from international cross-border flows to flows across two EME asset classes. The two asset classes are the senior and junior bond of tranched portfolio of EME sovereign bonds.
    JEL: E42 E43 F32 F33
    Date: 2018–12
  58. By: Kurmann, André (School of Economics); McEntarfer, Erika (U.S. Bureau of the Census)
    Abstract: This paper examines the extent and consequences of Downward Nominal Wage Rigidity (DNWR) using administrative worker-firm linked data from the Longitudinal Employer Household Dynamics (LEHD) program for a large representative U.S. state. Prior to the Great Recession, only 7-8% of job stayers are paid the same nominal hourly wage rate as one year earlier - substantially less than previously found in survey-based data - and about 20% of job stayers experience a wage cut. During the Great Recession, the incidence of wage cuts increases to 30%, followed by a large rise in the proportion of wage freezes to 16% as the economy recovers. Total earnings of job stayers exhibit even fewer zero changes and a larger incidence of reductions than hourly wage rates, due to systematic variations in hours worked. The results are consistent with concurrent findings in the literature that reductions in base pay are exceedingly rare but that firms use different forms of non-base pay and variations in hours worked to flexibilize labor cost. We then exploit the worker-firm link of the LEHD and find that during the Great Recession, firms with indicators of DNWR reduced employment by about 1.2% more per year. This negative effect is driven by significantly lower hiring rates and persists into the recovery. Our results suggest that despite the relatively large incidence of wage cuts in the aggregate, DNWR has sizable allocative consequences.
    Keywords: Downward Nominal Wage Rigidity; Administrative Worker-Firm Linked Data; Labor Cost and Employment; Great Recession
    JEL: E24 E30 J30
    Date: 2018–12–30
  59. By: Silvia Calò (Central Bank of Ireland); Mariarosaria Comunale (Bank of Lithuania and European Central Bank)
    Abstract: In this paper we analyse the price competitiveness of the Italian regions by computing the Real Effective Exchange Rate (REER) for each region, deflated by CPI and vis-à-vis the main partner countries. We use them to look for the medium-term determinants, finding significant heterogeneities in the role of government consumption and investment expenditure. Government consumption has an extremely negative effect on competitiveness in North-Eastern Italy, Southern Italy and Lazio. Investment plays a negative role especially in the North-West, while it can be positive for competitiveness in Lazio and Southern Italy. We also find that the transfer theory does not necessarily hold and it even behaves in the opposite direction in case of North-Eastern Italy and Lazio. Lastly, we show that an increase in the regional price competitiveness influences regional growth positively only in the long run and spillovers may play a role.
    Keywords: Italian regions, government consumption, government investment, Real Effective Exchange Rate, growth
    JEL: E62 F31 F41 R11
    Date: 2019–01–15
  60. By: Alimi, R. Santos; Olorunfemi, Sola
    Abstract: Romer (1993) posits openness to international restricts inflation. He offers an explanation based on time-inconsistency of monetary policy, however ensuing studies have raised questions on the validity of Romer’s assertion and its explanation. The aim of this paper was to estimate the effect of trade openness on inflation employing quantile regression analysis, contrary to traditional mean regression methods using annual data from Nigeria for the period 1970 to 2016. The paper also tested the hypothesis of whether inflation uncertainty influence the validity of Romer’s hypothesis for Nigeria. The study adopted two measures of openness – share of trade to GDP and KOF globalization index. The results of the study validate Romer’s hypothesis for both openness indexes that openness restrict inflation. With the inclusion of inflation uncertainty, the estimated impact of trade openness on inflation was quantitatively larger and the t-statistic on the interaction variable is significant in all quantiles except for the median quantile (0.50) and their coefficients are positive. The study concluded that in all distributions of inflation, inflation uncertainty reduces the ability of openness to trade in curbing inflation. Therefore, it recommends that policy maker should target and control inflation uncertainty when openness is employed as key policy instrument for controlling inflation.
    Keywords: Trade openness, inflation, globalization index, inflation uncertainty, quantile regression.
    JEL: C12 C22 E31 F41
    Date: 2018–04
  61. By: Olga Diukanova (European Commission - JRC); Giovanni Mandras (European Commission - JRC); Andrea Conte (European Commission - JRC); Simone Salotti (European Commission - JRC)
    Abstract: The European Cohesion Policy supports eleven thematic objectives. Four of these are key priorities for the European Regional Development Fund: Research and Innovation (R&I), Information and Communication Technologies (ICT), SME competitiveness, and Low-carbon economy. The European Commission's Joint Research Centre (JRC) is supporting Apulia, Italy, with the design and implementation of Regional Innovation Strategies for Smart Specialisation (RIS3). Quantitative tools such as the RHOMOLO model could help evaluate the impact of funding programmes in different policy areas across European regions. R&I and Low-Carbon ERDF Investments aim at generating sustainable growth and supporting the capacity of regional economies to innovate in line with the Energy Union strategy and the EU's transition to a low-carbon economy. Policy simulations using the RHOMOLO dynamic CGE model show positive macro-economic effects of the ERDF investments related to the R&I and Low-carbon thematic objectives in Apulia both within the region and in its neighbouring regions.
    Keywords: rhomolo, region, growth, impact assessment, modelling, Apulia, Italy, Cohesion Policy, ERDF, investment
    JEL: C54 C68 E62 R13
    Date: 2018–12
  62. By: Gaetan Nicodeme; Antonella Caiumi; Ina Majewski
    Abstract: Despite sharp reductions in corporate income tax (CIT) rates worldwide, CIT revenues have not fallen dramatically in the last two decades. This paper investigates the recent developments in CIT in the European Union, by taking a closer look at the potential driving forces behind this puzzle. Using a unique dataset of national sectoral accounts, we decompose the CIT revenue to GDP ratio for the EU and find that while the decrease in the statutory rates has driven down tax collection, the effect was more than offset by a broadening of the taxable base and a slight increase in the size of the corporate sector. However, this result holds for the period 1995-2015 but not for the last decade where base broadening has not been able to match further cuts in rates.
    Keywords: corporate tax, implicit tax rate, tax reforms, incorporation, European Union
    JEL: E62 H25 O52
    Date: 2018
  63. By: José Valente (Faculty of Economics, University of Coimbra); Mário Augusto (CeBER and Faculty of Economics, University of Coimbra); José Murteira (CeBER and Faculty of Economics, University of Coimbra, and CEMAPRE)
    Abstract: The present article studies the determinants of banking spreads, allowing for the possibility that the impact of some of these determinants on spreads may differ according to the particular loan type. This concern is fostered by both theoretical and empirical evidence supporting the general idea that the hetero-geneity of banks’ loan portfolios should be taken into account when studying the drivers of spread. This approach is distinct from previous work in the liter-ature, usually utilizing a single interest margin per bank, in order to measure the impact of its determinants. Using a dataset of observations on various per-sonal loan categories and the Difference GMM approach, the present study es-timates that marginal effects of, respectively, banks’ risk aversion, credit risk, and market share on spreads differ significantly according to whether the loan is a consumer loan, a paycheck-linked credit line or a revolving credit line for individuals. These findings suggest, accordingly, that central banks and regula-tory agencies should observe the composition of banks’ loans portfolios when writing their policies aiming at spread reduction.
    Keywords: Spread; Personal loans; Financial sector.
    JEL: G21 C23 E44
    Date: 2018–12
  64. By: Bertocchi, Graziella (University of Modena and Reggio Emilia); Brunetti, Marianna (University of Rome Tor Vergata); Zaiceva, Anzelika (University of Modena and Reggio Emilia)
    Abstract: Using rich Italian data for the period 2006-2014, we document sizeable gaps between native and immigrant households with respect to wealth holdings and financial decisions. Immigrant household heads hold less net wealth than native, but only above the median of the wealth distribution, with housing as the main driver. Immigrant status reduces the likelihood of holding risky assets, housing, mortgages, businesses, and valuables, while it increases the likelihood of financial fragility. Years since migration, countries of origin, and the pattern of intermarriage also matter. The Great Recession has worsened the condition of immigrants in terms of wealth holdings, home ownership, and financial fragility.
    Keywords: immigrants, household finance, wealth, financial portfolios, Great Recession
    JEL: F22 G11 D14 E21 J15
    Date: 2018–11
  65. By: International Monetary Fund
    Abstract: Suriname is recovering from the deep recession of 2015-16. Growth has turned positive, inflation has reduced to single digits, real interest rates have turned positive, and the external position has on balance strengthened. Nonetheless, the economy remains heavily dependent on the mineral sector, and faces fiscal, monetary, and banking sector vulnerabilities.
    Date: 2018–12–20
  66. By: International Monetary Fund
    Abstract: Economic activity shows incipient signs of stabilization in some sectors while it remains weak in others. The fiscal consolidation efforts continued and the domestic primary balance at end-June 2018 improved by 0.3 percent of GDP relative to the same period in 2017. Inflation has turned positive at 0.9 percent in September 2018 and is expected to remain below the WAEMU convergence criterion of up to 3 percent during the program period. The government is revisiting its strategy on the two public banks and is relaunching their privatization. The socio-political tensions have abated but the situation remains uncertain, particularly in light of the upcoming elections at end-2018.
    Keywords: Sub-Saharan Africa;Togo;
    Date: 2018–12–12
  67. By: Moser, Christian (Federal Reserve Bank of Minneapolis); Olea de Souza e Silva, Pedro (Uber Technologies)
    Abstract: We study optimal savings policies when there is a dual concern about undersaving for retirement and income inequality. Agents differ in present bias and earnings ability, both unobservable to a planner with paternalistic and redistributive motives. We characterize the solution to this two-dimensional screening problem and provide a decentralization using realistic policy instruments: mandatory savings at low incomes but a choice between subsidized savings vehicles at high incomes—resembling Social Security, 401(k), and IRA accounts in the US. Offering more savings choice at higher incomes facilitates redistribution. To solve large-scale versions of this problem numerically, we propose a general, computationally stable, and efficient active-set algorithm. Relative to the current US retirement system, we find significant welfare gains from increasing mandatory savings and limiting savings choice at low incomes.
    Keywords: Optimal taxation; Multidimensional screening; Present bias; Preference heterogeneity; Paternalism; Retirement; Savings; Social Security; Active-set algorithm
    JEL: E62 H21 H55
    Date: 2019–01–10
  68. By: International Monetary Fund
    Abstract: President Biya was re-elected as President of Cameroon on October 7 by a large margin, amidst some violence in anglophone regions. Growth is projected to gradually increase from 3.5 percent in 2017 to 3.8 percent in 2018, driven by construction activity ahead of the Africa Cup of Nations (CAN) and large infrastructure projects. Fiscal consolidation as of end-June was in line with program objectives, but faces significant headwinds in the second half of the year owing to accelerating capital spending and revenue shortfalls. The goods trade balance worsened significantly in H1 and private capital outflows increased, contributing to a slower-than-anticipated buildup of external buffers. The medium-term outlook remains positive with growth expected to increase to 4.4 percent in 2019 and reach 5 percent in the medium-term. Risks from heightened global uncertainty, insufficient adjustment at the regional level, and continued insecurity in the anglophone regions are increasing.
  69. By: International Monetary Fund
    Abstract: The ruling party won about half of the seats in the October 2018 municipal elections, but the political landscape is becoming more complex and uncertain, with the competition among the three traditional parties intensifying ahead of the 2020 presidential elections. The economic outlook remains strong, underpinned by robust consumption and investment, but risks are tilted downside. Growth is projected to stay around 7½ percent in 2018–19. Inflation is expected to remain subdued.
    Date: 2018–12–14
  70. By: Nakata, Taisuke; Ogaki, Ryota; Schmidt, Sebastian; Yoo, Paul
    Abstract: We examine the implications of less powerful forward guidance for optimal policy using a sticky-price model with an effective lower bound (ELB) on nominal interest rates as well as a discounted Euler equation and Phillips curve. When the private-sector agents discount future economic conditions more in making their decisions today, an announced cut in future interest rates becomes less effective in stimulating current economic activity. While the implication of such discounting for optimal policy depends on its degree, we find that, under a wide range of plausible degrees of discounting, it is optimal for the central bank to compensate for the reduced effect of a future rate cut by keeping the policy rate at the ELB for longer. JEL Classification: E52, E58, E61
    Keywords: discounted euler equation, discounted phillips curve, effective lower bound, forward guidance, optimal policy
    Date: 2019–01
  71. By: Daniel Levy (Bar-Ilan University)
    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
  72. By: International Monetary Fund
    Abstract: With the support of the IMF’s Middle East and Central Asia Department (MCD), and at the request of the Central Bank of Mauritania (BCM), the IMF’s Statistics Department (STA) mission visited Nouakchott from March 19–30, 2018, to provide technical assistance (TA) in the area of external sector statistics (ESS). This mission is part of an initiative financed by the Financial Sector Stability Fund (FSSF): Balance Sheet Approach (BSA) Sub-Module. This intersectoral effort will enable the production of more reliable BSA matrices to support macroprudential policies, the country’s financial stability analysis, and the IMF’s surveillance missions. The mission’s key objectives were to work closely with the BCM in order to (i) improve the compilation of the balance of payments (BOP), and (ii) propose a framework for compiling the international investment position (IIP). Based on the findings and recommendations of the last TA mission on external sector statistics (ESS) carried out at the BCM in October 2016, this mission notes the need to improve the quality of most items in the BOP, particularly the financial account, which could also aid IIP compilation efforts in the near future.
  73. By: International Monetary Fund
    Abstract: The growth momentum continues, driven by strong port activity, high cotton production, and the recovery of the Nigerian economy. The 2019 budget will bring the commitment-based fiscal deficit below the WAEMU convergence criterion of 3 percent of GDP next year. Program implementation remains satisfactory with all end-June 2018 quantitative performance criteria (QPCs) met; but the continuous QPC on non-accumulation of new domestic arrears was breached over March-June due to an institutional oversight.
    Date: 2018–12–13
  74. By: Eric Ghysels (Department of Economics and Kenan-Flagler Business School, University of North Carolina Chapel Hill and CEPR.); Leonardo Iania (Louvain School of Management and IMMAQ (CORE and LFIN), Universite catholique de Louvain.); Jonas Striaukas (Universite catholique de Louvain. Research Fellow at F.R.S. - FNRS)
    Abstract: This paper proposes a new approach to extract quantile-based in ation risk mea- sures using Quantile Autoregressive Distributed Lag Mixed-Frequency Data Sampling (QADL-MIDAS) regression models. We compare our models to a standard Quantile Auto-Regression (QAR) model and show that it delivers better quantile forecasts at several forecasting horizons. We use the QADL-MIDAS model to construct in ation risk measures proxying for uncertainty, third-moment dynamics and the risk of ex- treme in ation realizations. We nd that these risk measures are linked to the future evolution of in ation and changes in the e ective federal funds rate.
    Keywords: regression quantiles, in ation risk, quantile forecasting
    JEL: C53 C54 E37
    Date: 2018–10
  75. By: Oguzhan Cepni (Central Bank of the Republic of Turkey, Anafartalar Mah. Istiklal Cad. No:10 06050, Ankara, Turkey); Selcuk Gul (Central Bank of the Republic of Turkey, Anafartalar Mah. Istiklal Cad. No:10 06050, Ankara, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: This paper investigates the sources of variation in emerging market (EM) local currency bond risk premium. Empirical results suggest that both global and local factors contain valuable information in explaining the local currency bond excess returns. We show that economic policy uncertainty causes the excess bond returns to increase while positive innovations in the term spread, CP factor and implied FX volatility have downward impacts on the excess returns. Besides, the high level of spillover from developed markets to EMs may confine the diversification benefits from holding EM local currency bonds.
    Keywords: Local currency bond risk premium, Dynamic factor model, Emerging markets, panel VAR
    JEL: E44 G15 H63 O16
    Date: 2019–01
  76. By: International Monetary Fund
    Abstract: Context: In 2017/18 growth slowed due to political uncertainty and appropriately restrictive macroeconomic policies. The external current account deficit narrowed to 6.4 percent of GDP reflecting public-sector fiscal consolidation and a tight monetary policy stance. Reserves were thin and foreign exchange shortages persisted. Prime Minister (PM) Abiy Ahmed took office in April 2018, catalyzing a drive for reforms, including towards economic opening. Outlook: Output growth is expected to accelerate to 8.5 percent in 2018/19 as political uncertainty abates and financial inflows temporarily ease external constraints. The Debt Sustainability Analysis (DSA) continues to assess Ethiopia at high risk of debt distress. Reforms announced by the authorities—including privatizations and opening key sectors to competition and private investment—pose a substantial upside growth potential.
    Keywords: Sub-Saharan Africa;Ethiopia;
    Date: 2018–12–04
  77. By: International Monetary Fund
    Abstract: The Government is implementing a (i) Macroeconomic Stabilization Program, which is focused on strengthening fiscal and debt sustainability; reducing inflation; promoting a more flexible exchange rate regime; improving financial sector stability; and addressing pressures on correspondent banking relationships; and (ii) National Development Plan for 2018–22 to address structural bottlenecks; and promote human development, public sector reform, economic diversification, and inclusive growth. The authorities also focus on improving governance and fighting corruption.
    Date: 2018–12–18
  78. By: Błażejowski, Marcin; Kwiatkowski, Jacek; Gazda, Jakub
    Abstract: The main goal of this paper is to determine the factors responsible for economic growth at the global level. The indication of the sources of economic growth may be an important element of the sustainable economic policy for development. The novelty of this research lies in employing an analysis based on data, which consist of an average growth rate of the Gross Domestic Product (GDP) for 168 countries for the years 2012–2013. The Bayesian model averaging approach is used to identify potential factors responsible for differences in countries’ GDPs. Additionally, a jointness analysis is performed to assess the potential independence, substitutability, and complementarity of the factors of economic growth. The robustness of the results is confirmed by Bayesian averaging of classical estimates. We identify the most probable factors of economic growth, and we find that the most important determinants are variables associated with the so-called “Asian development model”.
    Keywords: sustainable economic policy; Bayesian model averaging; gretl; BACE
    JEL: C11 E17 O40
    Date: 2019–01–08
  79. By: Kolev, Galina V.
    Abstract: Im Rahmen des vorliegenden IW-Reports werden die Konsequenzen der aktuellen handelspolitischen Herausforderungen für die deutsche Wirtschaft geschätzt und die Größenordnung ihrer gesamtwirtschaftlichen Effekte quantifiziert. Die Simulationen mit dem Oxford Economics Global Economic Model (OEGEM) zeigen, dass die deutsche Wirtschaft erheblich unter einer Eskalation des Handelskonflikts mit den USA leiden würde. In einem Worst-Case-Szenario, bei dem die USA das Zollniveau gegenüber der Europäischen Union (EU) und fünf weiteren wichtigen Handelspartnern um 25 Prozent erhöhen und die betroffenen Länder mit entsprechenden Ver-geltungsmaßnahmen reagieren, dürfte die globale Wirtschaftsleistung um fast 3 Prozent schrumpfen. Etwas stärker fällt der Effekt auf Deutschland mit 3,8 Prozent aus, das Bruttoinlandsprodukt (BIP) der USA könnte sogar um 4,1 Prozent zurückgehen. Des Weiteren werden die Ergebnisse einer Unternehmensbefragung des Instituts der deutschen Wirtschaft (IW) in Kooperation mit der IW Consult aufgezeigt. Befragt wurden mehr als 1.100 Unternehmen in Deutschland nach ihren Erwartungen im Fall einer Zuspitzung des Handelskonflikts. Die Ergebnisse zeigen unter anderem, dass über 40 Prozent der befragten Unternehmen von negativen Effekten auf die Produktion und Beschäftigung in Deutschland ausgehen, sollte der Handelsstreit weiter eskalieren. Bei den US-Exporten gehen sogar über 81 Prozent der bereits in die USA exportierenden Firmen von Einbußen aus. Selbst auf die Investitionen und die bestehende Wertschöpfung deutscher Unternehmen in den USA dürfte die Zuspitzung des Handelskonflikts gemäß der Umfrage negative Effekte auslösen.
    JEL: E17 F13 F47
    Date: 2019
  80. By: International Monetary Fund
    Abstract: Recent economic developments. Economic activity remained strong in 2018H1 but decelerated since due to subdued private construction activity and delays in public infrastructure. Inflation has remained below the 3-percent inflation target in 2018. Higher revenues and lower investment resulted in a fiscal surplus through September 2018. Against the background of high credit growth, the authorities introduced regulations to limit household over-indebtedness. The banking sector remains well capitalized, liquid, and profitable, but dollarization remains high.
    Date: 2018–12–19
  81. By: Ibrahim Elbadawi; Kabbashi Suliman (Department of Economics, University of Khartoum, Sudan)
    Abstract: After the secession of South Sudan and the resultant drop in oil exports, Sudan has enjoyed a surge in gold exports, dominated by vast networks of artisanal and small-scale informal mining operations. A combination of fiscally dominated monetary policy and stifling foreign exchange gap prompted the government to pursue a policy of large scale gold purchases by the Central Bank, almost all financed by printing money. We argued in this paper that such policy has resulted in a ‘resource curse’, manifested by short-term macroeconomic instability and medium-term loss of competitiveness. To substantiate the argument, the paper developed a simple game-theoretic rational expectations macroeconomic model, where the payoffs associated with the strategic behavior of individual gold’s traders are used to define the Bank’s problem. The results suggested that the Bank’s monetary policy was largely influenced by the international gold price, the social tolerance for high inflation and the public sector borrowing requirements that rendered it ineffective for anchoring inflation expectations. Also, we found that higher international gold prices and the probability of successful gold’s smuggling lead to higher domestic gold pricing by the Bank. Moreover, we showed that the Bank’s gold dealership and the chosen mode of financing has caused short term inflationary spiral, excessive nominal exchange rate devaluation and medium to longer term real exchange rate appreciation. Therefore, we recommend that the gold dealership should be operated by a fiscal authority, rather than the Bank, and be part of a macroeconomic framework based on economic diversification and geared towards stabilization of the economy.
    Date: 2018–06–07
  82. By: Cairo, Isabel (Board of Governors of the Federal Reserve System); Fujita, Shigeru (Federal Reserve Bank of Philadelphia); Morales-Jimenez, Camilo (Board of Governors of the Federal Reserve System)
    Abstract: Using a representative-household search and matching model with endogenous labor force participation, we study the interactions between extensive-margin labor supply elasticities and the cyclicality of labor force participation flows. Our model successfully replicates salient business-cycle features of all transition rates between three labor market states, the unemployment rate, and the labor force participation rate, while using values of elasticities consistent with micro evidence. Our results underscore the importance of the procyclical opportunity cost of employment, together with wage rigidity, in understanding the cyclicality of labor market flows and stocks.
    Keywords: Labor force participation; labor market transitions; labor supply elasticity; unemployment
    JEL: E24 J64
    Date: 2019–01–09
  83. By: International Monetary Fund
    Abstract: Mali is a fragile state, struggling with insurgency and making efforts to build peace. The 2013–18 ECF-supported program has broadly succeeded in achieving its objectives under difficult circumstances. The program helped stabilize the economy in the context of persistent insecurity, changing terms of trade, and adverse weather conditions. The economy has continued to perform well in 2018, with robust economic growth and low inflation, but poverty and inequality have remained high. The near-term outlook for sustainable growth is subject to downside risks from unfavorable security conditions.
    Keywords: Sub-Saharan Africa;Mali;
    Date: 2018–12–12
  84. By: Jakhotiya, Girish
    Abstract: An overemphasis on GDP and GDP-related parameters has neglected the measurement of ‘versatile development’ of a nation. The present design and application of all the development related parameters serve a limited purpose of using common medicine for all types of patients. A Development Index of a nation should also be a measurement of sustainability of economic growth and inclusivity for the downtrodden communities. As an index, it should look at the ‘relative status’ of a nation. This is essential to attach suitable weightages to the various components of an index, suited to the socio-economic condition of a nation. This paper attempts to rework on the Development Index, to make it a versatile tool to measure an all-round development of a nation. The illustration presented in this paper is based on a broad study of the overall status of the economies of a few influential countries. While doing so the index is presented through its ten components capturing maximum possible dimensions of a nation’s development.
    Keywords: Development Index, sustainability, versatility, inclusivity, equity, GDP, economic status
    JEL: E6 O2
    Date: 2018–12–22
  85. By: International Monetary Fund
    Abstract: Niger faces daunting development challenges, aggravated by terrorist incursions, low uranium export prices, and climate change. Nonetheless, GDP grew by a respectable 5 percent in the past two years. It should average 7 percent over the next five years thanks to reforms, substantial donor support, several large-scale projects, and a one-time boost from the projected commencement of crude oil exports in 2022.
    Date: 2018–12–19
  86. By: Tiago Domingues (GEE)
    Abstract: This paper evaluates the growing participation of the Portuguese economy, and especially of the textiles, leather, and shoes industry, in the so-called Global Value Chains (GVCs).We use the 2016 edition of the World Input-Output Database (WIOD) to empirical assess the changes in the geography of imports and exports of the Portuguese textiles, leather and shoes industry as well as quantify the growing vertical specialization in this sector. We also measure value added, import and employment coefficients for the Portuguese economy and the Portuguese textiles, leather, and shoes sector. The results show that Portuguese textiles, leather, and shoes trade have been more concentrated in Spain, Italy, India and China and less concentrated in Germany, France, and the United Kingdom. This sector is more relevant in the Portuguese economy than in any other Eurozone economy in terms of output, employment and value-added, and it has been recovering its relevance in the Portuguese economy since 2009.Textiles, leather, and shoes is the manufacturing industry with the higher potential to generate new jobs in Portugal. Despite the negative contribution of the financial crisis, vertical specialization of Portuguese textiles, leather, and shoes exports have been increasing ever since.
    Keywords: Global value chains; Textile, leather, and shoes; Input-Output models
    JEL: C67 D57 E01 F14 L67
    Date: 2018–12
  87. By: Lorenzo Danieli; Petr Jakubik (EIOPA)
    Abstract: This article proposes an Early Warning System model composed of macro-financial and company-specific indicators that could help to anticipate a potential market distress in the European insurance sector. A distress is defined as periods in which insurance companies’ equity prices crash and CDS spreads spike simultaneously. The model is estimated using a sample of 43 insurance companies that are listed. Based on a panel binomial logit specification, empirical evidence shows that economic overheating that could be manifested by high economic growth and inflation as well as high interest rates have negative impact on insurance sector stability. At the company level, increasing operating expenses increase the likelihood of distress occurrence.
    Keywords: early warning system, insurance sector, financial distress
    JEL: G01 G12 G22 E44
    Date: 2018–12
  88. By: Colmenares, Gloria (University of Muenster); Löschel, Andreas (University of Muenster); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper, we review the state-of-the-art and common practice of energy and climate modeling vis-a-vis the rebound literature, in particular regarding how macroeconomic energy and climate models quantify and include energy and greenhouse gas rebound effects. First, we focus on rebound effects in models of costless energy efficiency improvement that hold other attributes constant (zero-cost breakthrough), and an energy efficiency policy that may be bundled with other product changes that affect energy use (policy-induced efficiency improvement) (Gillingham et al. 2015). Second, we examine macroeconomic studies focusing on energy efficiency both in industry and in private households. Third, we go through a general theoretical revision from micro- to macroeconomic levels (the aggregation level) to include a review of the so-called meso-level studies (focused on the analysis of the production side). From 118 recent studies along the aggregation level, out of which 25 compute rebound calculations, we find that the average energy rebound effect is 58% with a standard deviation of 58%, and when we include green house gas rebound calculations, the magnitude is of the order of 43% with a standard deviation of 55%. Finally, we argue that the rebound effect is a phenomenon that requires a sound understanding of the complex interactions from different dimensions (e.g. aggregation level, heterogeneity, climate, energy conservation and economic growth), and we provide some ideas and motivations for future research.
    Keywords: Rebound effect; Macroeconomic models; Energy efficiency; Energy policy
    JEL: E13 Q41 Q43 Q48 Q54 R13
    Date: 2018–12
  89. By: Leeb, Hannes; Pötscher, Benedikt M.; Kivaranovic, Danijel
    Abstract: This is a comment on the article mentioned in the title
    Keywords: Model selection
    JEL: C10 C20
    Date: 2018–07
  90. By: Chimere O. Iheonu (University of Nigeria, Nsukka)
    Abstract: The study empirically examined the impact of governance on domestic investment in 16 African countries with a balanced panel data set, between the years 2002 and 2015. The study employed six unbundled governance indicators from the World Bank, World Governance Indicators and constructed three bundled governance indicators using the Principal Component Analysis. The Driscoll and Kraay Fixed Effects model which accounts for serial correlation, groupwise heteroskedasticity and cross-sectional dependence were employed with empirical results revealing that all the indicators of governance positively and significantly influence domestic investment in Africa, except for government effectiveness which happens to be insignificant. Also, Voice/Accountability and the Control of Corruption exert more influence on domestic investment as indicated by their coefficient values. Furthermore, economic growth is also an important factor in explaining domestic investment in Africa. Policy recommendations are discussed.
    Keywords: Governance; Domestic Investment; Africa; PCA; Fixed Effects Model
    JEL: C1 E2 R5
    Date: 2019–01
  91. By: Seyit Mümin Cilasun; Rauf Gönenç; Mustafa Utku Özmen; Mehmed Zahid Samancıoǧlu; Fatih Yilmaz; Volker Ziemann
    Abstract: Starting from a low level in early 2000s, Turkey’s total capital stock has since expanded rapidly, but the composition and quality of investment raises questions. This study focuses on business investment, as the main driver of physical and knowledge-based capital formation and, hence, of potential output and the material foundations of well-being. Micro data allow to distinguish four types of firms: small businesses with a high rate of informality, medium-sized family firms, large formal corporations, and skilled start-ups. The relative importance of the challenges facing these different types of firms varies, notably with respect to skill shortcomings, regulatory burdens, labour costs, access to bank lending, over-leveraging and scarce equity capital. Improving the current business environment and overcoming the fragmentation of the business sector will be crucial to upgrade the quality of business investment and to enhance the allocative efficiency of capital formation. This calls for promoting formality, best management practices, the build-up of equity capital, access to long-term bank financing and other market-based financing that can complement traditional bank lending; and a faster and more inclusive transition to the digital economy.
    Keywords: business investment, FDI, firm-level data, R&D, Turkey
    JEL: E2 F21 O16
    Date: 2019–01–23

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