nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒01‒28
103 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Confidence and the Financial Accelerator By Christian Myohl, Yannic Stucki
  2. Monetary-fiscal interaction and quantitative easing By Hollmayr, Josef; Kühl, Michael
  3. A neoclassical perspective on Switzerland’s 1990s stagnation By Yannic Stucki, Jacqueline Thomet
  4. IQ, Expectations, and Choice By D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
  5. Lessons Learned From the Global Recession - Redesigned Framework of Key Macroeconomic Policies By Trenovski, Borce; Tashevska, Biljana
  6. The Return of the European Wage Phillips Curve By Fabrice Orlandi; Werner Roeger; Anna Thum-Thysen
  7. On money, debt, trust and central banking By Claudio Borio
  8. Financial effects in historic consumption and investment functions By Stockhammer, Engelbert; Bengtsson, Erik
  9. Financial Dollarization in Emerging Markets: An Insurance Arrangement By Husnu C. Dalgic
  10. Should the central bank issue e-money? By Kahn, Charles M.; Rivadeneyra, Francisco; Wong, Tsz-Nga
  11. Estimating the monetary policy interest-rate-to-performance sensitivity of the European banking sector at the zero lower bound By Bernd Hayo; Kai Henseler; Marc Steffen Rapp
  12. The Redistributive Effects of a Money-Financed Fiscal Stimulus. By Chiara Punzo; Lorenza Rossi
  13. Monetary Policy Communication Shocks and the Macroeconomy By Goodhead, Robert; Kolb, Benedikt
  14. Minding Your Ps and Qs: Going from Micro to Macro in Measuring Prices and Quantities By Gabriel Ehrlich; John C. Haltiwanger; Ron S. Jarmin; David Johnson; Matthew D. Shapiro
  15. Financial Cycles, Credit Bubbles and Stabilization Policies By Luisa Corrado; Tobias Schuler
  16. Euro Area Macroeconomics, where do we stand twenty years later ? By Catherine Mathieu; Henri Sterdyniak
  17. China vs. U.S.: IMS Meets IPS By Emmanuel Farhi; Matteo Maggiori
  18. Are labor unions important for business cycle fluctuations: lessons from Bulgaria (1999-2016) By Vasilev, Aleksandar
  19. Monetary policy, trade, and endogenous growth under different international financial market structures By Michael Donadelli; Patrick Grüning; Aurelija Proskute
  20. Modeling rates of inflation in Nigeria: an application of ARMA, ARIMA and GARCH models By NYONI, THABANI; NATHANIEL, SOLOMON PRINCE
  21. The Effect of a Financial Block on the Identification of Confidence Shocks in a Structural VAR Model By Christian Myohl
  22. A Beveridge curve decomposition for Austria: what drives the unemployment rate? By Christl, Michael
  23. Alternative Approaches to Technological Change when Growth is BoPC By Marwil J. Dávila-Fernández
  24. Has Money Lost Its Relevance? Resolving the Exchange Rate Disconnect Puzzle By Ghosh, Taniya; Bhadury, Soumya Suvra
  25. Not all price endings are created equal: Price points and asymmetric price rigidity By Levy, Daniel; Snir, Avichai; Gotler, Alex; Chen, Haipeng (Allan)
  26. Technology shocks and hours worked: a cross-country analysis By Jacqueline Thomet, Philipp Wegmüller
  27. Transmission of foreign monetary shocks to a small open economy under structural instability: the case of Russia By Anna Kruglova; Konstantin Styrin; Yulia Ushakova
  28. The Forecasting Performance of Dynamic Factor Models with Vintage Data By Luca Di Bonaventura; Mario Forni; Francesco Pattarin
  29. Determinantes de la productividad multifactorial: los casos de las principales economías latinoamerica-nas y emergentes de Asia (1960 - 2015) By William Gómez; Carlos Esteban Posada; Remberto Rhenals
  30. Quantitative easing and sovereign bond yields: a global perspective By Dimitris Malliaropulos; Petros Migiakis
  31. Shall We Twist? By Sophie Altermatt, Simon Beyeler
  32. Flooded through the Back Door: Firm-Level Effects of Banks' Lending Shifts By Oliver Rehbein
  33. EQCHANGE annual assessment 2018 By Carl Grekou
  34. Short-time work in the Great Recession: Firm-level evidence from 20 EU countries By Lydon, Reamonn; Matha, Thomas Y.; Millard, Stephen
  35. Forecasting the state of the Finnish business cycle By Pönkä, Harri; Stenborg, Markku
  36. Exchange Rate Overshooting: A Reassessment in a Monetary Framework By Ghosh, Taniya; Bhadury, Soumya Suvra
  37. Monetary Policy Frameworks and the Effective Lower Bound on Interest Rates By Mertens, Thomas M.; Williams, John C.
  38. What Do Central Bankers Do? Evidence from the European Central Bank's Executive Board By Harald Badinger; Volker Nitsch
  39. Dynamism Diminished: The Role of Housing Markets and Credit Conditions By Steven J. Davis; John C. Haltiwanger
  40. The Impact of Exogenous Liquidity Shocks on Banks Funding Costs: Microevidence from the Unsecured Interbank Market By Miguel Sarmiento; ;
  41. Identifying Global and National Output and Fiscal Policy Shocks Using a GVAR By Chudik, Alexander; Pesaran, M. Hashem; Mohaddes, Kamiar
  42. Structural Quarterly Projection Model for Belarus By Karel Musil; Mikhail Pranovich; Jan Vlcek
  43. Deposit Spreads and the Welfare Cost of Inflation By Pablo Kurlat
  44. What Hides behind the German Labor Market Miracle? Unemployment Insurance Reforms and Labor Market Dynamics By Hartung, Benjamin; Jung, Philip; Kuhn, Moritz
  45. A ‘New Modesty’? Level Shifts in Survey Data and the Decreasing Trend of ‘Normal’ Growth By Christian Gayer; Bertrand Marc
  46. General Equilibrium Feedback Regarding the Employment Effects of Labor Taxes By Minchul Yum
  47. Is the United States of America (USA) really being made great again? witty insights from the Box-Jenkins ARIMA approach By NYONI, THABANI
  48. Parental Time Investment and Intergenerational Mobility By Minchul Yum
  49. Partners or Strangers? Cooperation, Monetary Trade, and the Choice of Scale of Interaction By Maria Bigoni; Gabriele Camera; Marco Casari
  50. Banking Panics and the Lender of Last Resort in a Monetary Economy By Makoto (M.) Watanabe; Tarishi Matsuoka
  51. Reconciling VAR-based Forecasts with Survey Forecasts By Doh, Taeyoung; Smith, Andrew Lee
  52. General Distorted Input Ratios in Vertical Relationships By Martin Peitz; Dongsoo Shin
  53. Total factor productivity (TFP) and fiscal consolidation: how harmful is austerity? By Ioanna Bardaka; Ioannis Bournakis; Georgia Kaplanoglou
  54. Shifting Inflation Expectations and Monetary Policy By Agustín Arias; Markus Kirchner
  55. Structural vector autoregression with time varying transition probabilities: identifying uncertainty shocks via changes in volatility By Wenjuan Chen; Aleksei Netsunajev
  56. Testing the Friedman and Schwartz Hypothesis using Time Varying Correlation Analysis By Ghosh, Taniya; Parab, Prashant Mehul
  57. The Economic Effects of a Tax Shift from Direct to Indirect Taxation in France By Francisco de Castro Fernández; Marion Perelle; Romanos Priftis
  58. Commodity Price Uncertainty as a Leading Indicator of Economic Activity By Athanasios Triantafyllou; Dimitrios Bakas; Marilou Ioakimidis
  59. Misallocation and Credit Market Constraints: the Role of Long-Term Financing By Karabarbounis, Marios; Macnamara, Patrick
  60. Global Banking, Financial Spillovers, and Macroprudential Policy Coordination By Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
  61. Forecasting inflation in Russia by Dynamic Model Averaging By Konstantin Styrin
  62. Comparing different methods for the estimation of interbank intraday yield curves By Vahidin Jeleskovic; Anastasios Demertzidis
  63. Banks’ Trading after the Lehman Crisis – The Role of Unconventional Monetary Policy By Isabel Schnabel; Johannes Tischer
  64. Farsi male da soli. Disciplina esterna, domanda aggregata e il declino economico italiano By Sergio Cesaratto; Gennaro Zezza
  65. Optimal Fiscal Policy and Private Sector Borrowing Constraints By Christian Myohl
  66. The Dynamics of Finance-Growth-Inequality Nexus: Theory and Evidence for India By Pranab Kumar Das; Bhaswati Ganguli; Sugata Marjit; Sugata Sen Roy
  67. Marx and Keynes: From exploitation to employment By Helmedag, Fritz
  68. Vacancy durations and entry wages: evidence from linked vacancy-employer-employee data By Andreas Kettemann; Andreas I. Mueller; Josef Zweimüller
  69. The Fiscal Theory of the Price Level in Overlapping Generations Models By Roger E.A. Farmer; Pawel Zabczyk
  70. The effects of firing costs on employment and hours per employee By Yannic Stucki, Jacqueline Thomet
  71. Gains from Policy Cooperation in Capital Controls and Financial Market Incompleteness By Shigeto Kitano; Kenya Takaku
  72. On the empirical relevance of the Lucas supply curve. (A note) By Claude Bismut; Ismael Ramajo
  73. Investment-Specific Technological Change, Taxation and Inequality in the U.S. By Brinca, Pedro; Oliveira, João; Duarte, João
  74. Growth Effects of Corporate Balance Sheet Adjustments in the EU: An Econometric and Model-based Assessment By Romanos Priftis; Anastasia Theofilakou
  75. The Long-Run Trend of Residential Investment in China By Ding Ding; Weicheng Lian
  76. Macroeconomic Effects of Credit Deepening in Latin America By Carlos Carvalho; Nilda Pasca; Laura Souza; Eduardo Zilberman
  77. Fiscal Rules and Discretion under Limited Enforcement By Marina Halac; Pierre Yared
  79. 57 Channels (And Nothin On) - Does TV-News on the Eurozone Affect Government Bond Yield Spreads? By Julia Wolfinger; Lars P. Feld; Ekkehard A. Köhler; Tobias Thomas
  80. More is Different ... and Complex! The Case for Agent-Based Macroeconomics By Giovanni Dosi; Andrea Roventini
  81. The Long-Run Demand for M2 Reconsidered By Sophie Altermatt
  82. The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area By William Arrata; Benoit Nguyen; Imene Rahmouni-Rousseau; Miklos Vari
  83. "On the Design of Empirical Stock-Flow-Consistent Models" By Gennaro Zezza; Francesco Zezza
  84. Bank capital buffers in a dynamic model By Mankart, Jochen; Michaelides, Alexander; Pagratis, Spyros
  85. On the Direct and Indirect Real Effects of Credit Supply Shocks By Laura Alfaro; Manuel García-Santana; Enrique Moral-Benito
  86. Taxing Families: The Impact of Child-related Transfers on Maternal Labor Supply By Anne Hannusch
  87. “Another Look at Causes and Consequences of Pension Privatization Reform Reversals in Eastern Europe" By Nikola Altiparmakov
  88. Cagan’s Paradox Revisited By Luca Benati
  89. A Simple Macro-Finance Measure of Risk Premia in Fed Funds Futures By Anthony M. Diercks; Uri Carl
  90. Revisiting the Impacts of Exchange Rate Movement on the Dollarization Process in Cambodia By Samreth, Sovannroeun; Sok, Pagna
  91. Economic Policy Uncertainty in Turkey By La-Bhus Fah Jirasavetakul; Antonio Spilimbergo
  92. Bank Capital Regulation in a Zero Interest Environment By Döttling, Robin
  93. The Micro Impact of Macroprudential Policies: Firm-Level Evidence By Meghana Ayyagari; Thorsten Beck; Maria Soledad Martinez Peria
  94. The Comfortable, the Rich, and the Super-rich. What Really Happened to Top British Incomes During the First Half of the Twentieth Century? By Peter Scott; James Walker
  95. What determines the elasticity of substitution between capital and labor? A literature review By Knoblach, Michael; Stöckl, Fabian
  96. Unions, Two-Tier Bargaining and Physical Capital Investment: Theory and Firm-Level Evidence from Italy By Cardullo, Gabriele; Conti, Maurizio; Sulis, Giovanni
  97. The Modern Hyperinflation Cycle: Some New Empirical Regularities By Jose Saboin
  98. Population growth and industrialization By Zhou, Haiwen
  99. Diffusion of Shared Goods in Consumer Coalitions. An Agent-Based Model By Francesco Pasimeni; Tommaso Ciarli
  100. Modelling Housing Market Cycles in Global Cities. By Canepa, Alessandra; Zanetti Chini, Emilio; Alqaralleh, Huthaifa
  101. The role of non-performing loans for bank lending rates By Bredl, Sebastian
  102. Money Is More Than Memory By Maria Bigoni; Gabriele Camera; Marco Casari
  103. The Gambia By International Development Association; International Monetary Fund

  1. By: Christian Myohl, Yannic Stucki
    Abstract: We introduce financial frictions in the spirit of Bernanke, Gertler, and Gilchrist (1999) into a standard RBC model and use the heterogeneous-prior framework of Angeletos, Collard, and Dellas (2018) to accommodate confidence-driven business cycle fluctuations. We show that financial frictions strongly amplify the response to confidence shocks—more strongly than the response to fundamental shocks. Furthermore, we show that in the presence of financial frictions, prolonged episodes of unfounded optimism cause boom-bust cycles in investment and to a lesser extent in output. In particular, the financial state of the economy deteriorates severely after the initial boom, which leaves the economy more vulnerable to adverse shocks.
    Keywords: Confidence, sentiments, financial accelerator, financial frictions, higher-order beliefs, higher-order uncertainty, business cycle.
    JEL: E32 E44
    Date: 2018–07
  2. By: Hollmayr, Josef; Kühl, Michael
    Abstract: This paper analyzes the monetary-fiscal interaction if the central bank conducts quantitative easing. Although asset purchases have similar effects on the real economy under monetary and fiscal dominance, wealth effects yield a qualitatively different response on the rate of inflation. Our results show that under fiscal dominance, unconventional monetary policy has similar effects to conventional monetary policy on inflation because these wealth effects exert downward pressure on prices. The longer the average maturity, the more volatile is the transmission of quantitative easing to the real economy.
    Keywords: Monetary Policy,Fiscal Policy,Asset Purchase Program
    JEL: E32 E44 E62
    Date: 2018
  3. By: Yannic Stucki, Jacqueline Thomet
    Abstract: We study Switzerland’s 1990s growth weakness through the lens of the business cycle accounting framework by Chari, Kehoe, and McGrattan (2007). Our main result is that weak productivity growth cannot account for the experienced stagnation. Rather, the stagnation is explained by factors that made labor and investment expensive. We show that an increase in labor income taxes and financial frictions are plausible causes. Holding these factors constant, counterfactual real annualized output growth over the 1992Q1–1996Q4 period is 1.93%, compared to a realized growth of 0.35%.
    Keywords: Business cycle accounting, housing crises, stagnation, Switzerland
    JEL: E13 E20 E32 E65
    Date: 2018–06
  4. By: D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
    Abstract: We use administrative and survey-based micro data to study the relationship between cognitive abilities (IQ), the formation of economic expectations, and the choices of a representative male population. Men above the median IQ (high-IQ men) display 50% lower forecast errors for inflation than other men. The inflation expectations and perceptions of high-IQ men, but not others, are positively correlated over time. High-IQ men are also less likely to round and to forecast implausible values. In terms of choice, only high-IQ men increase their propensity to consume when expecting higher inflation as the consumer Euler equation prescribes. High-IQ men are also forward-looking - they are more likely to save for retirement conditional on saving. Education levels, income, socio-economic status, and employment status, although important, do not explain the variation in expectations and choice by IQ. Our results have implications for heterogeneous-beliefs models of household consumption, saving, and investment.
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2019–01–18
  5. By: Trenovski, Borce; Tashevska, Biljana
    Abstract: This research provides a critical analysis of the available relevant theoretical and empirical literature regarding the key lessons about fiscal and monetary policy during the latest global crisis. The main contribution of this paper lies in offering a new redesigned framework for the key macroeconomic policies which can serve as a general guide to policymakers for designing these policies to respond to future financial and economic crises. Our critical analysis points out 15 lessons for monetary policy which the monetary authorities should take into account in the process of designing their future policies. The analysis also includes 14 lessons as a guide for governments to design their fiscal policy during future global imbalances, addressing the efficiency of fiscal policies during large-scale economic crises, the role and significance of fiscal space, the effectiveness of austerity programs, the coordination of fiscal policies on a global level, the coordination and mutual interactions with monetary policy etc.
    Keywords: global economic crisis, fiscal policy, monetary policy, redesigned macroeconomic policy framework, policy coordination, financial stability, fiscal space, economic theory, financial regulation, economic cycles, speculative booms, tax regulation, Keynesianism, macro-prudential interventions.
    JEL: B10 E32 E6 E61 E62 E63 G2
    Date: 2017–06–07
  6. By: Fabrice Orlandi; Werner Roeger; Anna Thum-Thysen
    Abstract: In this paper we compare the accelerationist Phillips curve to the New-Keynesian Wage Phillips curve in Euro Area countries which went through major swings in the unemployment rate in recent years. We find that the New-Keynesian wage Phillips curve signals cyclical fluctuations in unemployment more clearly and yields less pro-cyclical estimates of the NAWRU in four crisis-hit EU member states (Greece, Spain, Ireland and Portugal) than a traditional Phillips curve model, which may not treat price rigidities adequately. Slightly augmenting the NKP model by allowing for real wage rigidities further improves the extraction of a cyclical unemployment component.
    JEL: E24 E31 E32
    Date: 2018–09
  7. By: Claudio Borio
    Abstract: This essay examines in detail the properties of a well functioning monetary system - defined as money plus the mechanisms to execute payments - in both the short and long run, drawing on both theory and the lessons from history. It stresses the importance of trust and of the institutions needed to secure it. Ensuring price and financial stability is critical to nurturing and maintaining that trust. In the process, the essay addresses several related questions, such as the relationship between money and debt, the viability of cryptocurrencies as money, money neutrality, and the nexus between monetary and financial stability. While the present monetary system, with central banks and a prudential apparatus at its core, can and must be improved, it still provides the best basis to build on.
    Keywords: monetary system, money, debt, payments, trust, monetary stability, financial stability, central bank
    JEL: E00 E30 E40 E50 G21 N20
    Date: 2019–01
  8. By: Stockhammer, Engelbert (King's College London); Bengtsson, Erik (Department of Economic History, Lund University)
    Abstract: The global financial crisis has highlighted the importance of financial factors on economic performance. Most of the existing research analyses the post-World War 2 experience, and especially the 1980s onwards. This paper investigates the effects of stock prices, real estate prices and debt on consumption and investment expenditures by estimating consumption and investment equations for long historic datasets with about 100 years of data for Britain, France, Norway and Sweden. We find positive debt effects on consumption in three of four countries, but no consistent effects of share prices and house prices. We find positive effects of share prices on investment in all four countries. Effects are stronger in more market-based Britain than in more state-oriented France. For France, Sweden and Norway we find some evidence that effects of financial variables were weaker in the postwar period 1945-80. These findings suggest that the institutional context matters for how financial variables affect economic activity.
    Keywords: wealth effects; asset prices; consumption; investment; macroeconomic history
    JEL: E10 E21 E22 G10 N10 N14
    Date: 2019–01–14
  9. By: Husnu C. Dalgic
    Abstract: Households in emerging markets hold significant amounts of dollar deposits while firms have significant amounts of dollar debt. Motivated by the perceived dangers, policymakers often develop regulations to limit dollarization. In this paper, I draw attention to an important benefit of dollarization, which should be taken into account when crafting regulations. I argue that dollarization repre- sents an insurance arrangement in which the entrepreneurs that own firms pro- vide income insurance to households. Emerging market exchange rates tend to depreciate in a recession so that dollar deposits in effect provide households with income insurance. With their preference for holding deposits denominated in dol- lars, households effectively starve local financial markets of local currency, which raises local interest rates. By raising local currency interest rates, they cause entrepreneurs to borrow in dollars. Consistent with my argument, countries in which the exchange depreciates in a recession have a higher level of deposit and credit dollarization. In those countries, I verify that the premium of the local interest rate over the dollar interest rate is higher. This premium is the price paid by households for insurance.
    Keywords: Emerging Markets. Financial Dollarization. Corporate Dollar Debt.
    JEL: E32 E43 E44 F32 F41 F43
    Date: 2018–11
  10. By: Kahn, Charles M. (University of Illinois at Urbana-Champaign); Rivadeneyra, Francisco (Bank of Canada); Wong, Tsz-Nga (Federal Reserve Bank of Richmond)
    Abstract: Should a central bank take over the provision of e-money, a circulable electronic liability? We discuss how e-money technology changes the tradeoff between public and private provision, and the tradeoff between e-money and a central bank's existing liabilities like bank notes and reserves. The tradeoffs depend on i) the technological setup of the e-money system (as a token or an account; centralized or decentralized); ii) the potential improvement in the implementation and transmission of monetary policy; iii) the risks to safety and privacy from cyber attacks; and iv) the uncertain impact on banks' efficiency and financial stability. The most compelling argument for central banks to issue e-money is to address competition problems in the banking sector.
    Keywords: central bank digital currencies; e-money; cryptocurrencies; token- and account- based payment payments
    JEL: E42 E51 E58
    Date: 2019–01–18
  11. By: Bernd Hayo (Philipps-Universitaet Marburg); Kai Henseler (Philipps-Universitaet Marburg); Marc Steffen Rapp (Philipps-Universitaet Marburg)
    Abstract: Using an event-study design, we investigate monetary policy interest-rate-to-performance sensitivity of the European banking sector over the 07/2012–06/2017 period when interest rates were (close to) zero. We apply the Wordscores approach to introductory statements of ECB's Governing Council press conferences to estimate a ‘shadow prime rate’. Based on short-run intraday event windows, we find shadow prime rate changes positively affect changes in the EURO-STOXX-Banks Future. Our findings add to the recent evidence documenting that banks benefit from increasing interest rate levels in a low-interest-rate environment.
    Keywords: ECB, central bank communication, banking sector, interest rate sensitivity, textual analysis, Wordscores
    JEL: E43 E52 E58 G14 G21
    Date: 2019
  12. By: Chiara Punzo (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Lorenza Rossi
    Abstract: This paper analyzes the redistributive channel of a money financed fiscal stimulus (MFFS). It shows that the way in which this regime is implemented is crucial to determine its redistributive effects and consequently its effectiveness. In normal times, the most effective regime is a MFFS with no additional intervention by the Central Bank to stabilize the real public debt using infiation, whereas a MFFS accompanied by real debt stabilization - through the adjustment of seigniorage - is the most effective one in a ZLB scenario. In a TANK model this regime is so effec- tive to avoid the recessionary effects implied by the ZLB. This result does not hold in a RANK model, where the redistributive channel is absent. Remarkably, contrary to the common wisdom a MFFS is followed by a moderate increase of infiation, which is only temporarily higher than the target.
    Keywords: Money-Financed scal stimulus, seignorage, govern- ment spending, redistribution, borrower-saver, scal multipliers, welfare, RANK versus TANK.
    JEL: E32 E52 E62
    Date: 2019–01
  13. By: Goodhead, Robert (Central Bank of Ireland); Kolb, Benedikt (Deutsche Bundesbank)
    Abstract: Using federal funds futures data, we show the importance of suprise communication as a component of monetary policy for U.S. macro variables, both before and after 2008. We distinguish between monetary policy action and "communication shocks" (suprise announcements about future policy moves) by decomposing futures price movements across contract maturities. Our results indicate that it is mainly communication shocks- as opposed to actual rate-change suprises- that affect production in the ways traditionally associated with monetary policy shocks between 1994 and 2008. Covering the zero-lower bound period using Eurodollar futures, we find strong effects of long-horizon communication on inflation.
    Keywords: Federal Funds Futures, FOMC, Monetary Policy, VAR Model
    JEL: E52 E58 G23 C32
    Date: 2018–12
  14. By: Gabriel Ehrlich; John C. Haltiwanger; Ron S. Jarmin; David Johnson; Matthew D. Shapiro
    Abstract: Key macro indicators such as output, productivity, and inflation are based on a complex system across multiple statistical agencies using different samples and different levels of aggregation. The Census Bureau collects nominal sales, the Bureau of Labor Statistics collects prices, and the Bureau of Economic Analysis constructs nominal and real GDP using these data and other sources. The price and quantity data are integrated at a high level of aggregation. This paper explores alternative methods for re-engineering key national output and price indices using item-level data. Such re-engineering offers the promise of greatly improved key economic indicators along many dimensions.
    JEL: D12 E01 E20 E31
    Date: 2019–01
  15. By: Luisa Corrado; Tobias Schuler
    Abstract: This paper analyzes the effects of several policy instruments to mitigate financial bubbles generated in the banking sector. We augment a New Keynesian macroeconomic framework by endogenizing boundedly-rational expectations on asset values of loan portfolios and allow for interbank trading. We then show how a financial bubble can develop from a financial innovation. By incorporating a loan management technology and a bank equity channel we can evaluate the efficacy of several policy instruments in counteracting financial bubbles. We find that an endogenous capital requirement reduces the impact of a financial bubble significantly while central bank intervention (“leaning against the wind”) proves to be less effective. A welfare analysis ranks the policy reaction through an endogenous capital requirement as best.
    Keywords: financial bubbles, credit-to-GDP gap, endogenous capital requirement, stabilization policies
    JEL: E44 E52
    Date: 2018
  16. By: Catherine Mathieu (Observatoire français des conjonctures économiques); Henri Sterdyniak (Observatoire français des conjonctures économiques)
    Abstract: For almost 20 years, euro area countries have been sharing a single currency. The drawbacks of the euro area framework were highlighted by the widening of imbalances prior to the 2007 financial crisis, and thereafter by the huge impact of the financial crisis, the public debt crisis in Southern countries, and the great recession. Prior to and after the crisis, EU institutions and Member States have not been able to implement either a common economic strategy, or satisfactory economic policy coordination. This did lead neither to a burst of the euro area, nor to a substantial change in its functioning. Euro area institutions were adapted, through the European Stability Mechanism, the fiscal treaty, the “first semester”, the European Central Bank’s support to MS, the banking union. These adaptations were painful. In mid-2018, the economic situation had clearly improved at the euro area level. However, the following question remains unsolved: can the functioning of the euro area be improved, accounting for divergent situations, interests and views in MS? Section 2 recalls proposals from EU institutions and from MS. Section 3 presents and discusses several economists’ viewpoints and proposals to improve the euro area policy framework. Some economists rely on financial markets to control domestic economic policies, some are in favour of the introduction of a euro zone budget and minister of finance, some are in favour of moving towards a federal EU with increased democracy, some make original proposals to cut public debts, and last some advocate better economic policy coordination.
    Keywords: Fiscal Policy; Policy coordination; EMU Governance
    JEL: E62 N14
    Date: 2018–12
  17. By: Emmanuel Farhi; Matteo Maggiori
    Abstract: Currently both the International Monetary System (IMS) and the International Price Systems (IPS) are dominated by the U.S. The emergence of China, both as reserve currency and as a currency of invoicing, is likely to disrupt this status quo. We provide a framework to understand the forces that will shape this transition and identify sources of instability. We highlight the risk of an abrupt shift triggered by a run on the dollar.
    JEL: D42 E12 E42 E44 F3 F55 G15 G28
    Date: 2019–01
  18. By: Vasilev, Aleksandar
    Abstract: In this paper we investigate the quantitative importance of collective agreements in explaining uctuations in Bulgarian labor markets. Following Maffezzoli (2001), we introduce a monopoly union in a real-business-cycle model with government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016), and compare and contrast it to a model with indivisible labor and no unions as in Rogerson and Wright (1988). We find that the sequential bargaining between unions and firms produces an important internal propagation mechanism, which fits data much better that the alternative framework with indivisible labor.
    Keywords: business cycles,general equilibrium,labor unions,indivisible labor,involuntary unemployment
    JEL: E32 E24 J23 J51
    Date: 2019
  19. By: Michael Donadelli (Ca'Foscari University of Venice); Patrick Grüning (CEFER, Bank of Lithuania and Vilnius University); Aurelija Proskute (Bank of Lithuania)
    Abstract: This study develops a symmetric two-country New-Keynesian general equilibrium model with endogenous growth, Calvo-style price and wage rigidities, and international trade of final consumption goods and intermediate goods. The equilibrium implications of two financial market structures are compared: financial autarky and complete markets. In the case of financial autarky, no international bond is traded. In the case of complete markets, the households have access to a full set of international nominal state-contingent bonds. We find that assuming complete markets instead of financial autarky leads to higher co-movement of most macroeconomic growth rates across countries, higher co-movement of inflation rates across countries, lower uncovered interest rate parity regression coefficients, and a lower correlation between exchange rate growth and consumption growth differentials. These results are mostly in line with US and UK data from 1950-2015, which are split into two samples, 1950-1970 and 1971-2015, in order to be compared to the model with financial autarky and the model with complete markets, respectively.
    Keywords: International financial markets, Monetary policy, Nominal rigidities, Endogenous growth
    JEL: E30 E44 F44 G12 O30
    Date: 2019–01–11
    Abstract: Based on time series data on inflation rates in Nigeria from 1960 to 2016, we model and forecast inflation using ARMA, ARIMA and GARCH models. Our diagnostic tests such as the ADF tests indicate that NINF time series data is essentially I (1), although it is generally I (0) at 10% level of significance. Based on the minimum Theil’s U forecast evaluation statistic, the study presents the ARMA (1, 0, 2) model, the ARIMA (1, 1, 1) model and the AR (3) – GARCH (1, 1) model; of which the ARMA (1, 0, 2) model is clearly the best optimal model. Our diagnostic tests also indicate that the presented models are stable and hence reliable. The results of the study reveal that inflation in Nigeria is likely to rise to about 17% per annum by end of 2021 and is likely to exceed that level by 2027. In order to address the problem of inflation in Nigeria, three main policy prescriptions have been suggested and are envisioned to assist policy makers in stabilizing the Nigerian economy.
    Keywords: ARIMA; ARMA; Forecasting; GARCH; Inflation; Nigeria
    JEL: C53 E31 E37 E47
    Date: 2018–11–15
  21. By: Christian Myohl
    Abstract: This paper studies the propagation and properties of a confidence shock in a structural vector autoregression (VAR) model with and without financial variables. The addition of a financial block does not considerably change the propagation and the contribution to the forecast error variance by the confidence shock. Nevertheless, for specific historical episodes, the inclusion of a financial block plays a role. In several recessions, the VAR with the financial block assigns a smaller role to confidence shocks for the fall in GDP. This suggests that the confidence shock may not be properly identified in a structural VAR when financial variables are omitted. Further, I identify a financial channel by which the confidence shock affects economic activity.
    Keywords: Confidence shocks, structural VARs, financial channel
    JEL: C32 E32 E44
    Date: 2018–08
  22. By: Christl, Michael
    Abstract: The Austrian Beveridge curve shifted in 2014, leading to ongoing academic discussions about the reasons behind this shift. While some have argued that the shift was caused by a supply shock due to labour market liberalization, others have stated that matching efficiency decreased. Using a new decomposition method, combined with detailed labour market flow data, we are the first to disentangle supply-side, demand-side and matching factors, which could potentially cause a shift in the Beveridge curve in Austria. We find empirical evidence to confirm that the increase in the unemployment rate in Austria after 2011 can indeed be attributed to a supplyside shock. But, contrary to other research, our analysis shows that the shift in the Beveridge curve after 2014 was mainly caused by a decrease in matching efficiency, indicating a rising mismatch problem in the Austrian labour market.
    Keywords: Beveridge curve,crisis,mismatch,unemployment,structural unemployment,vacancies
    JEL: J62 J63 E24 E32
    Date: 2019
  23. By: Marwil J. Dávila-Fernández
    Abstract: Dávila-Fernández and Sordi (2018) have recently extended Goodwin's (1967) model to study the interaction between distributive cycles and international trade for economies in which growth is Balance-of-Payments Constrained. This paper examines the implications of adopting (i) Kaldor-Verdoorn's law, and (ii) classical-Marxian technical change to the main results of the model. The Kaldorian specication leaves the system with no internal equilibrium solution while the Marxian specification makes it stable. A Hopf bifurcation analysis shows that the combination of both formulations might give rise to persistent and bounded cyclical fluctuations. Given the lack in the literature of reliable estimates for the classical-Marxian case, we provide a panel-VAR estimation for a sample of 16 OECD countries between 1980-2012 that gives some support to its central argument. Our estimates were used to calibrate the models developed in the rst part of the paper
    Keywords: Growth cycle, Goodwin, Thirlwall's law, Distributive cycles, Hopf bifurcation, Technical change.
    JEL: E12 E32 O40
    Date: 2018–12
  24. By: Ghosh, Taniya; Bhadury, Soumya Suvra
    Abstract: The objective of this study is to identify the monetary policy shock causing exchange rate fluctuations in the economies of India, Poland and the UK. For this purpose, an open-economy structural vector auto-regression model is used, resorting to data covering the period 2000-2015. The model used in the paper is appropriate for the small, open economies being analysed here as it facilitates estimation of theoretically correct and significant responses in terms of the price, output, and exchange rate to monetary policy tightening. The importance of monetary policy shock is established by examining the variance decomposition of forecast error, impulse response function, and out-of-sample forecast. The model also allows for the precise measurement of money through the adoption of a new monetary measure, namely, aggregation–theoretic Divisia monetary aggregate. The empirical results lead to three critical findings. Firstly, it is imperative to consider the estimated responses of output, prices, money and exchange rate to monetary policy shocks in models using monetary aggregates. Secondly, the incorporation of Divisia money in monetary policy helps in explaining fluctuations in the exchange rate. Thirdly, the inclusion of Divisia money also promotes better out-of-sample forecasting of the exchange rate.
    Keywords: Monetary policy, Monetary aggregates, Divisia, Structural VAR, Exchange rate overshooting, Liquidity puzzle, Price puzzle, Exchange rate disconnect puzzle, Forward discount bias puzzle
    JEL: E5 F00
    Date: 2018–10–02
  25. By: Levy, Daniel; Snir, Avichai; Gotler, Alex; Chen, Haipeng (Allan)
    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: C91 C93 D01 D12 D22 D4 D40 D83 E12 E31 E52 E58 L11 L16 L21 L81 M21 M31
    Date: 2019–01–03
  26. By: Jacqueline Thomet, Philipp Wegmüller
    Abstract: Using a novel data set, we reassess the evidence for (or against) a key implication of the basic RBC model: that aggregate hours worked respond positively to a positive technology shock. Two novel aspects of the analysis are the scope (14 OECD countries) and the inclusion of data on both labor supply margins to analyze the key margin of adjustment in aggregate hours. We show that the short-run response of aggregate hours to a positive technology shock is remarkably similar across countries, with an impact fall in 13 out of 14 countries. In contrast, the decomposition of the aggregate hours results into intensive and extensive margins shows substantial heterogeneity in the labor market dynamics across OECD countries. For instance, movements in the intensive margin are the dominant channel of adjustment in aggregate hours in 5 out of 14 countries of our sample, including France and Japan.
    Keywords: Structural VAR, technology shocks, aggregate hours worked, labor supply margins, relative price of investment.
    JEL: E24 E32
    Date: 2018–06
  27. By: Anna Kruglova (University of Washington (Bank of Russia at the time of participating in this study)); Konstantin Styrin (Bank of Russia, Russian Federation); Yulia Ushakova (Bank of Russia, Russian Federation)
    Abstract: This paper studies the transmission of monetary policy shocks in the U.S. to a small open economy by estimating their effect on lending based on bank-level balance sheet data of Russian banks for 2000-2018. To identify the causal effect at the bank level we exploit heterogeneity across banks in terms of their reliance on cross-border funding. We find evidence that the effect of U.S. monetary policy shocks has been statistically and economically significant. Surprisingly, the magnitude of the effect remained roughly the same even after the monetary policy in Russia transited from exchange rate to inflation targeting. This finding suggests that a free floating regime does not attenuate the effect of foreign monetary policy shocks on domestic lending.
    Keywords: monetary policy, international spillovers, cross-border transmission
    JEL: E52 F34 G21
    Date: 2018–12
  28. By: Luca Di Bonaventura; Mario Forni; Francesco Pattarin
    Abstract: We present a comparative analysis of the forecasting performance of two dynamic factor models, the Stock and Watson (2002a, b) model and the Forni, Hallin, Lippi and Reichlin (2005) model, based on vintage data. Our dataset that contains 107 monthly US “first release” macroeconomic and financial vintage time series, spanning the 1996:12 to 2017:6 period with monthly periodicity, extracted from the Bloomberg database†. We compute real-time one-month-ahead forecasts with both models for four key macroeconomic variables: the month-on-month change in industrial production, the unemployment rate, the core consumer price index and the ISM Purchasing Managers’ Index. First, we find that both the Stock and Watson and the Forni, Hallin, Lippi and Reichlin models outperform simple autoregressions for industrial production, unemployment rate and consumer prices, but that only the first model does so for the PMI. Second, we find that neither models always outperform the other. While Forni, Hallin, Lippi and Reichlin’s beats Stock and Watson’s in forecasting industrial production and consumer prices, the opposite happens for the unemployment rate and the PMI.
    Keywords: Dynamic factor models, Forecasting, Forecasting Performance, Vintage data,First release data
    JEL: C01 C32 C52 C53 E27 E37
    Date: 2018–07
  29. By: William Gómez; Carlos Esteban Posada; Remberto Rhenals
    JEL: C33 E22 E24 F43
    Date: 2018–12–01
  30. By: Dimitris Malliaropulos (Bank of Greece); Petros Migiakis (Bank of Greece)
    Abstract: We document the existence of a global monetary policy factor in sovereign bond yields in a panel of 45 countries, consisting of both developed and emerging economies. This global factor is related to the size of the aggregate balance sheet of the four major central banks (Fed, ECB, Bank of Japan and Bank of England). Our estimates suggest that large-scale asset purchases and liquidity provision of major central banks following the Global Financial Crisis have contributed to a significant and permanent decline in long-term yields globally, ranging from 250 basis points for AAA rated sovereigns to 330 basis points for B rated sovereigns. Fiscally weaker Eurozone countries benefited most from Quantitative Easing, with their sovereign yields declining by 600-750 basis points, depending on the rating of their sovereigns. Our findings have important policy implications: normalizing monetary policy by scaling down the expanded balance sheets of major central banks to pre-crisis levels may lead to sharp increases in sovereign bond yields globally with severe consequences for financial stability, vulnerable sovereigns and the global economy
    Keywords: monetary policy; quantitative easing; sovereign bonds; interest rates; panel cointegration.
    JEL: E42 E43 G12 G15
    Date: 2018–11
  31. By: Sophie Altermatt, Simon Beyeler
    Abstract: In recent monetary history, central banks around the world have started to introduce unconventional monetary policy measures, such as extending or restructuring the asset side of their balance sheet. The origin of these mon- etary policy tools goes back to an intervention by the U.S. Federal Reserve System under the Kennedy administration in 1961 known as Operation Twist. Operation Twist serves as a perfect laboratory to study the e ectiveness of such balance sheet policies, because interest rates neither were at their lower bound nor was the economy in a historical turmoil. We assess the actions of the FED and the Treasury under Operation Twist based on balance sheet data and evaluate their success using modern time series techniques. We nd that, although being of rather moderate size, the joint policy actions were e ective in compressing the long-short spreads of the Treasury bond rates.
    Keywords: Operation Twist, Monetary Policy, Interest Rates, Yield Curve, Time Series
    JEL: C22 E43 E52 E63 E65
    Date: 2018–05
  32. By: Oliver Rehbein
    Abstract: I show that natural disasters transmit to firms in non-disaster areas via their banks. This spillover of non-financial shocks through the banking system is stronger for banks with less regulatory capital. Firms connected to a disaster-exposed bank with below median capital, reduce their employment by 11\% and their fixed assets by 20\% compared to firms in the same region without such a bank during the 2013 flooding in Germany. Low bank capital thus carries a negative externality because it amplifies regional shock spillovers. I show that bank liquidity, and firm capital and liquidity are less relevant to prevent shock transmission.
    Keywords: natural disaster, real effects, shock transmission, bank capital
    JEL: G21 G29 E44 E24
    Date: 2018–09
  33. By: Carl Grekou
    Abstract: The present publication, which accompanies the 2018’s update of EQCHANGE, aims at providing an overview as extensive as possible of the exchange rate misalignments for the year 2017. It also aims at discussing the evolution of exchange rates and currency misalignments between 2016 and 2017 as well as their underlying factors, hence identifying global patterns and monitoring —global— imbalances. Despite some intra-year volatility across major currencies, the changes in the currency misalignments have been of relatively small amplitudes in 2017, thus leaving the global configuration of currency misalignments that prevailed in 2016 broadly unchanged. Relatively few countries, however, registered noticeable changes in their currency misalignments.
    Keywords: EQCHANGE;Exchange Rates;Currency Misalignments;Imbalances
    JEL: E3 E4 E5 E6 F3
    Date: 2018–12
  34. By: Lydon, Reamonn (Central Bank of Ireland); Matha, Thomas Y. (Banque centrale du Luxembourg); Millard, Stephen (Bank of England, Durham University Business School and Centre for Macroeconomics)
    Abstract: Using firm-level data from a large-scale European survey among 20 countries, we analyse the determinants of firms using short-time work (STW). We show that firms are more likely to use STW in case of negative demand shocks. We show that STW schemes are more likely to be used by firms with high degrees of firm-specific human capital, high firing costs, and operating in countries with stringent employment protection legislation and a high degree of downward nominal wage rigidity. STW use is higher in countries with formalised schemes and in countries where these schemes were extended in response to the recent crisis. On the wider economic impact of STW, we show that firms using the schemes are significantly less likely to lay off permanent workers in response to a negative shock, with no impact for temporary workers. Relating our STW take-up measure in the micro data to aggregate data on employment and output trends, we show that sectors with a high STW take-up exhibit significantly less cyclical variation in employment.
    Keywords: Firms, survey, crisis, short-time work, wages, recession.
    JEL: C25 E24 J63 J68
    Date: 2018–12
  35. By: Pönkä, Harri; Stenborg, Markku
    Abstract: We employ probit models to study the predictability of recession periods in Finland using a set of commonly used variables based on previous literature. The findings point out that individual predictors, including the term spread and the real housing prices from the capital area, are useful predictors of recession periods. However, the best in-sample fit is found using combinations of variables. The pseudo out-of-sample forecasting results are generally in line with the in-sample results, and suggest that in the one-quarter ahead forecasts a model combining the term spread, the unemployment expectation component of the consumer confidence index, and the consumer confidence index performs the best based on the area under the receiver operating characteristic curve. An autoregressive specification improves the in-sample fit of the models compared to the static probit model, but findings from pseudo out-of-sample forecasts vary between forecasting horizons.
    Keywords: Business cycle, Recession period, Probit model
    JEL: C22 E32 E37
    Date: 2018–10–12
  36. By: Ghosh, Taniya; Bhadury, Soumya Suvra
    Abstract: Most empirical studies on monetary policies have found exchange rate effects that are inconsistent with Dornbusch's overshooting hypothesis. Bjornland (2009) finds evidence of exchange rate overshooting by using interest rate alone as the monetary policy instrument. However, theoretically consistent way of identifying monetary policy requires capturing dual interaction between central bank's reaction to economic conditions and private sector's response to policy action. This calls for the introduction of "monetary‟ aggregates back in the models of exchange rate determination. Motivated by Bjornland's result, identification is achieved by imposing short-run and long-run restrictions while keeping the short-run interactions between monetary policy and exchange rate free. Using more appropriate econometric technique in a model aligned to theory, our paper rediscovers the validity of Dornbusch Overshooting hypothesis for Australia, Canada, New Zealand and Sweden more accurately and more robustly than Bjornland's original model.
    Keywords: Monetary Policy; Money Demand; Structural VAR; Exchange Rate Overshooting
    JEL: E4 E5 E50 F0 F3 F30
    Date: 2017–11
  37. By: Mertens, Thomas M. (Federal Reserve Bank of San Francisco); Williams, John C. (Federal Reserve Bank of New York)
    Abstract: This paper applies a standard New Keynesian model to analyze the effects of monetary policy in the presence of a low natural rate of interest and a lower bound on interest rates. Under a standard inflation-targeting approach, inflation expectations will be anchored at a level below the inflation target, which in turn exacerbates the deleterious effects of the lower bound on the economy. Two key themes emerge from our analysis. First, the central bank can mitigate this problem of a downward bias in inflation expectations by following an average-inflation targeting framework that aims for above-target inflation during periods when policy is unconstrained. Second, a dynamic strategy such as price-level targeting that raises inflation expectations when inflation is low can both anchor expectations at the target level and potentially further reduce the effects of the lower bound on the economy.
    JEL: E52
    Date: 2019–01–11
  38. By: Harald Badinger (Department of Economics, WU (Vienna University of Economics and Business), CESifo); Volker Nitsch (Department of Law and Economics, Darmstadt University of Technology, CESifo)
    Abstract: This paper examines how managers at the top of a public institution, central bank executives, allocate their working time. Using detailed information from personal diaries of the six members of the European Central Bank's Executive Board over a period of two years, we codify and analyze more than 3,700 reported activities and compare the results with recent findings on the time use of CEOs in the private sector. We report four additional observations. First, the daily schedule of central bankers is dominated by routine tasks; variations in economic uncertainty have, on average, no significant effect on the number of activities. Second, there are sizable differences in the scope of activities across board members. Third, the change in publication rules of diary entries from `on request' to `regular' was associated with a significant decline in reported activities. Fourth, nationality matters: Board members interact disproportionately often with fellow nationals.
    Keywords: Governance, Management, Time Use
    JEL: E02 E58 H83
    Date: 2019–01
  39. By: Steven J. Davis; John C. Haltiwanger
    Abstract: The Great Recession and its aftermath saw the worst relative performance of young firms in at least 35 years. More broadly, as we show, young-firm activity shares move strongly with local economic conditions and local house price growth. In this light, we assess the effects of housing prices and credit supply on young-firm activity. Our panel IV estimation on MSA-level data yields large effects of local house price changes on local young-firm employment growth and employment shares and a separate, smaller role for locally exogenous shifts in bank lending supply. A novel test shows that house price effects work through wealth, liquidity and collateral effects on the propensity to start new firms and expand young ones. Aggregating local effects to the national level, housing market ups and downs play a major role – as transmission channel and driving force – in medium-run fluctuations in young-firm employment shares in recent decades. The great housing bust after 2006 largely drove the cyclical collapse of young-firm activity during the Great Recession, reinforced by a contraction in bank loan supply. As we also show, when the young-firm activity share falls (rises), local employment shifts strongly away from (towards) younger and less-educated workers.
    JEL: E2 E3 E5 G2 J2
    Date: 2019–01
  40. By: Miguel Sarmiento (Central Bank of Colombia); ;
    Abstract: This paper examines the impact of exogenous liquidity shocks in the unsecured interbank market. We evaluate the effects of idiosyncratic liquidity shocks—arising from deposits outflow at the bank level—and of the aggregate liquidity shock related to the U.S. tapering observed between May and September of 2013. We find that both liquidity shocks are associated with higher interbank loan prices, albeit the magnitude of the overprice and the impact on the access to interbank liquidity differ depending on the borrower-specific characteristics. More capitalized and liquid banks tend to pay less for liquidity—concurrent with evidence on market discipline—but also can absorb better the impact of exogenous liquidity shocks, suggesting benefits from capital and liquidity ratios. Our results suggest that lending relationships can alleviate funding costs during idiosyncratic liquidity shocks, while central bank liquidity contributes to smooth the impact of aggregate liquidity shocks. Results have implications for both financial stability and monetary policy transmission.
    Keywords: interbank markets; market discipline; liquidity shocks; monetary policy; financial stability.
    JEL: E43 E58 L14 G12 G21
    Date: 2019–01
  41. By: Chudik, Alexander (Federal Reserve Bank of Dallas); Pesaran, M. Hashem (University of Southern California); Mohaddes, Kamiar (University of Cambridge)
    Abstract: The paper contributes to the growing Global VAR (GVAR) literature by showing how global and national shocks can be identified within a GVAR framework. The usefulness of the proposed approach is illustrated in an application to the analysis of the interactions between public debt and real output growth in a multi-country setting, and the results are compared to those obtained from standard single-country VAR analysis. We find that on average (across countries) global shocks explain about one-third of the long-horizon forecast error variance of output growth, and about one-fifth of the long-run variance of the rate of change of debt-to-GDP. Evidence on the degree of cross-sectional dependence in these variables and their innovations is exploited to identify the global shocks, and priors are used to identify the national shocks within a Bayesian framework. It is found that posterior median debt elasticity with respect to output is much larger when the rise in output is due to a fiscal policy shock, as compared to when the rise in output is due to a positive technology shock. The cross-country average of the median debt elasticity is 1.58 when the rise in output is due to a fiscal expansion as compared to 0.75 when the rise in output follows from a favorable output shock.
    Keywords: Factor-augmented VARs; Global VARs; identification of global and country specific shocks; Bayesian analysis; public debt; output growth; debt elasticity
    JEL: C30 E62 H6
    Date: 2018–12–26
  42. By: Karel Musil; Mikhail Pranovich; Jan Vlcek
    Abstract: Belarusian authorities contemplate transiting to inflation targeting. The paper suggests a small structural model at the core of the forecasting and policy analysis system. A well-researched canonical structure of Berg, A., Karam, P. and D. Laxton (2006) is extended to capture specifics of Belarusian economy and macroeconomic policy. The modified model’s policy block reflects a monetary targeting regime and allows for transition from it to an interest-rate-based framework. Adding wages, directed lending and dollarization allow for studying implications of activist wage policy, state program lending, and dollarization for macroeconomic stability and the strength of the policy transmission mechanism.
    Keywords: Belarus;Dollarization;Europe;Monetary policy;Quarterly Projection Model, Nominal Wages, Fiscal Impulse, Forecasting and Simulation, Monetary Policy (Targets, Instruments, and Effects), Quantitative Policy Modeling
    Date: 2018–12–07
  43. By: Pablo Kurlat
    Abstract: Since bank deposits and currency are substitutes and banks have monopoly power, higher nominal interest rates lead to higher deposit spreads. This raises the cost of transaction services, increases bank profits and attracts entry into the banking sector. Taking these effects into account, a one percentage point increase in inflation has a welfare cost of 0.086% of GDP, 6.9 times higher than traditional estimates.
    JEL: D43 E31 E41 G21
    Date: 2018–12
  44. By: Hartung, Benjamin (University of Bonn); Jung, Philip (TU Dortmund); Kuhn, Moritz (University of Bonn)
    Abstract: A key question in labor market research is how the unemployment insurance system affects unemployment rates and labor market dynamics. We revisit this old question studying the German Hartz reforms. On average, lower separation rates explain 76% of declining unemployment after the reform, a fact unexplained by existing research focusing on job finding rates. The reduction in separation rates is heterogeneous, with long-term employed, high-wage workers being most affected. We causally link our empirical findings to the reduction in long-term unemployment benefits using a heterogeneous-agent labor market search model. Absent the reform, unemployment rates would be 50% higher today.
    Keywords: unemployment insurance, labor market flows, endogenous separations
    JEL: E24 J63 J64
    Date: 2018–11
  45. By: Christian Gayer; Bertrand Marc
    Abstract: While the current level of the Economic Sentiment Indicator, which is well above its long-term average, is compatible with expanding economic activity, it has been associated with lower growth rates than those implied in the pre-recession period. Departing from the idea that the relationship between qualitative survey (‘soft’) and quantitative (‘hard’) data might have changed during the Great Recession due to a 'new modesty' of survey respondents, this paper goes one step further and examines to what extent this link might be constantly moving over longer time periods. Using rolling regressions and time-varying parameter models for the euro area, the paper shows that the growth rates typically implied by given survey results did not only fall during the Great recession, but already decreased rather systematically for close to 20 years before the crisis, i.e. since around 1990. This is true for the overall economy (measured by GDP growth), but also industrial production, construction production, and households consumption. Country-specific results for the GDP of the four largest euro-area economies are also presented. Furthermore, the paper suggests that business and consumer survey results can be used, beyond their usual short-term forecasting purposes, to gauge changes in long-term or potential growth. While the results should be interpreted as preliminary and experimental, they might be useful as a contribution to the assessment of post-crisis potential growth, not least since they are less subject to revisions than conventional methods based on production functions
    JEL: C32 E32 O47 O52
    Date: 2018–07
  46. By: Minchul Yum
    Abstract: A higher labor tax rate increases the equilibrium real interest rate and reduces the equilibrium wage in a heterogeneous-agent model with endogenous savings and indivisible labor supply decisions. I show that these general equilibrium adjustments, in particular of the real interest rate, reinforce the negative employment impact of higher labor taxes. However, the representative-agent version of the model, which generates similar aggregate employment responses to labor tax changes, implies that general equilibrium feedback is neutral. The cross-country panel data reveal that the negative association between labor tax rates and the extensive margin labor supply is significantly and robustly weaker in small open economies where the interest rate is less tightly linked to domestic circumstances. This empirical evidence supports the transmission mechanism of labor tax changes for employment in the heterogeneous-agent model.
    Keywords: labor income tax; labor supply elasticity; general equilibrium; cross-country panel
    JEL: E21 E24 J21 J22
    Date: 2018–12
    Abstract: Using annual time series data on GDP per capita in the United States of America (USA) 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 US GDP per capita data is I (2). Based on the AIC, the study presents the ARIMA (0, 2, 2) model. The diagnostic tests further indicate that the presented model is stable and hence reliable. The results of the study reveal that living standards in the US are likely to sky-rocket over the next decade, especially if the current economic policy stance is to be at least maintained. Indeed, America is being made great again!!!
    Keywords: Economic growth; GDP; USA
    JEL: C53 E37 O47
    Date: 2019–01–04
  48. By: Minchul Yum
    Abstract: This paper investigates di¤erences in parental time investment as a determinant of intergenerational persistence of lifetime income. Using a quantitative model that replicates a series of important untargeted aspects of the data including the U.S. income quintile transition matrix, I …nd that the parental time investment channel accounts for nearly half of the observed intergenerational income persistence. Heterogeneity in parental time investment across households strengthens intergenerational association and hinders aggregate e¢ciency. Policy experiments suggest that an e¤ective way of improving intergenerational mobility, aggregate output, and welfare is to narrow discrepancies in the quantity and quality of parental time investments.
    Keywords: Intergenerational elasticity; quintile transition matrix; parental time; college education; misallocation
    JEL: E24 I24 J22
    Date: 2018–10
  49. By: Maria Bigoni (University of Bologna and IZA); Gabriele Camera (Economic Science Institute, Chapman University and University of Bologna); Marco Casari (University of Bologna and IZA)
    Abstract: We show that monetary exchange facilitates the transition from small to large-scale economic interactions. In an experiment, subjects chose to play an Òintertemporal cooperation gameÓ either in partnerships or in groups of strangers where payoffs could be higher. Theoretically, a norm of mutual support is sufficient to maximize efficiency through large-scale cooperation. Empirically, absent a monetary system, participants were reluctant to interact on a large scale; and when they did, efficiency plummeted compared to partnerships because cooperation collapsed. This failure was reversed only when a stable monetary system endogenously emerged: the institution of money mitigated strategic uncertainty problems.
    Keywords: Coordination, endogenous institutions, repeated games
    JEL: C70 C90 D03 E02 E40
    Date: 2018
  50. By: Makoto (M.) Watanabe (VU Amsterdam); Tarishi Matsuoka (Tokyo Metropolitan University)
    Abstract: This paper studies the role of a lender of last resort (LLR) in a monetary model where a shortage of bank’s monetary reserves (or a banking panic) occurs endogenously. We show that while a discount window policy introduced by the LLR is welfare improving, it reduces the banks’ ex ante incentive to hold reserves, which increases the probability of a panic, and causes moral hazard in asset investments. We also examine the combined effect of other related policies such as a penalty in lending rate, liquidity requirements, and constructive ambiguity.
    Keywords: Monetary Equilibrium; Banking Panic; Moral Hazard; Lender of Last Resort
    JEL: E40
    Date: 2019–01–11
  51. By: Doh, Taeyoung (Federal Reserve Bank of Kansas City); Smith, Andrew Lee (Federal Reserve Bank of Kansas City)
    Abstract: This paper proposes a novel Bayesian approach to jointly model realized data and survey forecasts of the same variable in a vector autoregression (VAR). In particular, our method imposes a prior distribution on the consistency between the forecast implied by the VAR and the survey forecast for the same variable. When the prior is placed on unconditional forecasts from the VAR, the prior shapes the posterior of the reduced-form VAR coefficients. When the prior is placed on conditional forecasts (specifically, impulse responses), the prior shapes the posterior of the structural VAR coefficients. {{p}} To implement our prior, we combine importance sampling with a maximum entropy prior for forecast consistency to obtain posterior draws of VAR parameters at low computational cost. We use two empirical examples to illustrate some potential applications of our methodology: (i) the evolution of tail risks for inflation in a time-varying parameter VAR model and (ii) the identification of forward guidance shocks using sign and forecast-consistency restrictions in a monetary VAR model.
    Keywords: Vector Autoregression (VAR); Survey Forecasts; Bayesian VAR; Inflation Risk; Forward Guidance
    JEL: C11 C32 E31
    Date: 2018–12–01
  52. By: Martin Peitz; Dongsoo Shin
    Abstract: A project leader sources an input from a supporter and combines it with an input produced in-house. The leader has private information about the project’s cost environment. We show that if the leader can commit to the in-house input level, the input ratio is distorted upward when the in-house input is not too costly—the in-house input is produced in excess and, thus, partly wasted. By contrast, without the leader’s commitment to the in-house input level, the input ratio is distorted downward when the in-house input is su¢ciently costly—the outsourced input is produced in excess and, thus, partly wasted
    Keywords: labor income tax; labor supply elasticity; general equilibrium; cross-country panel
    JEL: E21 E24 J21 J22
    Date: 2018–12
  53. By: Ioanna Bardaka (Bank of Greece); Ioannis Bournakis (Middlesex University); Georgia Kaplanoglou (University of Athens)
    Abstract: Departing from the expansionary austerity literature, this study assesses empirically whether fiscal consolidation propagates changes in the supply side of the economy that can potentially influence total factor productivity. Using a panel dataset of 26 OECD countries over the period 1980-2016 and employing panel vector autoregressive and error correction model specifications, we present evidence of both short-run and long-run negative effects of fiscal consolidation on TFP. The short-run impact is disproportionately more damaging for the TFP of low debt countries, while, contrary to the expansionary austerity thesis, our empirical results would advise against spending-driven fiscal consolidation, since such consolidation undermines capacity due to the importance of government spending in shaping productive capital. Our results have serious policy implications for the implementation and design of fiscal adjustment programmes.
    Keywords: total factor productivity; fiscal consolidation; OECD countries; austerity; growth
    JEL: E62 C23 H68
    Date: 2018–12
  54. By: Agustín Arias; Markus Kirchner
    Abstract: The idea of “anchored” inflation expectations is often understood as a situation in which long-run expected inflation does not significantly respond to new information. Furthermore, expectations are thought to become “unanchored” only after a long enough sequence of inflation surprises. In this paper we conceptualize this idea in a monetary DSGE model with a time-varying learning mechanism, in which the sensitivity of agents to incoming data depends on accumulated inflation forecast errors. The latter affect the learning gain that agents use to update their beliefs on future inflation. We show how this mechanism improves the fit of the model to macroeconomic data, including expected inflation, for the Chilean inflation targeting period. In particular, we show that observed episodes with anchored and unanchored expectations are well captured by the estimated time-varying learning gain. We then use the estimated model to assess the role of monetary policy to anchor inflation expectations over time.
    Date: 2019–01
  55. By: Wenjuan Chen; Aleksei Netsunajev
    Keywords: structural vector autoregression; Markov switching; time varying transition probabilities; identification via heteroscedasticity; uncertainty shocks; unemployment dynamics
    JEL: C32 D80 E24
    Date: 2018–02–13
  56. By: Ghosh, Taniya; Parab, Prashant Mehul
    Abstract: The study analyses the time varying correlation of money and output using DCC GARCH model for Euro, India, Poland, the UK and the USA. In addition to simple sum money, the model uses Divisia monetary aggregate, theoretically shown as the actual measure of money. The inclusion of Divisia money restores the Friedman and Schwartz hypothesis that money is procyclical. Such procyclical nature of association was not robustly observed in the recent data when simple sum money was used.
    Keywords: DCC GARCH, Divisia, Monetary Aggregates, Real Output
    JEL: E3 E4
    Date: 2018–11–22
  57. By: Francisco de Castro Fernández; Marion Perelle; Romanos Priftis
    Abstract: This paper uses the European Commission's DSGE model QUEST to investigate the impact of alternative tax reforms shifting the tax burden away from labour or corporates, making the French tax system more growth friendly. These experiments consist in raising VAT and, simultaneously reducing either social security contributions borne by employers or corporate income taxes. These tax reforms overall entail positive and permanent effects on GDP and price competitiveness. Scenarios that imply cuts in social contributions borne by employers bring about more positive effects on employment, the trade balance and the general government deficit. By contrast, while lowering corporate taxes also gives rise to a positive GDP response, external price competitiveness and private investment, they negatively affect employment, the trade balance and the general government deficit.
    JEL: H30 E62 H20 H22
    Date: 2018–03
  58. By: Athanasios Triantafyllou (Essex Business School, University of Essex, UK); Dimitrios Bakas (Department of Economics, Nottingham Trent University, UK; Rimini Centre for Economic Analysis); Marilou Ioakimidis (University of Peloponnese, Greece; Department of Economics, National and Kapodistrian University of Athens, Greece)
    Abstract: In this paper we examine the impact of commodity price uncertainty on US economic activity. Our empirical analysis indicates that uncertainty in agricultural, metals and energy markets depresses US economic activity and acts as an early warning signal for US recessions with a forecasting horizon ranging from one to twelve months. The results reveal that uncertainty shocks in agricultural and metals markets are more significant for the US macroeconomy when compared to oil price uncertainty shocks. Finally, we show that when accounting for the effects of macroeconomic and monetary factors, the negative dynamic response of economic activity to agricultural and metals price uncertainty shocks remains unaltered, while the response to energy uncertainty shocks is significantly reduced due to either systematic policy reactions or random shocks in monetary policy.
    Keywords: Volatility, Commodity Prices, Economic Recession, Economic Activity
    JEL: C32 E27 F37 G17 Q02 Q43
    Date: 2019–01
  59. By: Karabarbounis, Marios (Federal Reserve Bank of Richmond); Macnamara, Patrick (University of Manchester)
    Abstract: We measure aggregate productivity loss due to credit market constraints in a model with endogenous borrowing constraints, long-duration bonds, and costly equity payouts. Due to long-duration bonds, the model generates a realistic distribution of credit spreads. We structurally estimate our model using firm-level data on credit spreads from Thomson Reuters Bond Security Data and balance sheet data from Compustat. Credit market constraints increase aggregate productivity by 0.4% through their effect on the credit spread distribution. However, credit market constraints also interact with costly equity payouts, resulting in an overall productivity loss equal to 1.6%.
    Keywords: misallocation; endogenous borrowing constraints; long-duration bonds
    JEL: E23 E44 G32 O47
    Date: 2019–01–16
  60. By: Pierre-Richard Agénor; Luiz Awazu Pereira da Silva
    Abstract: The gains from international macroprudential policy coordination are studied in a two-region, core-periphery macroeconomic model with imperfect financial integration and cross-border banking. Financial frictions occur at two levels: between firms and banks in each region, and between periphery banks and a global bank in the core region. Macroprudential regulation takes the form of a countercyclical tax on bank loans to domestic capital goods producers, which responds to real credit growth and is subject to a cost in terms of welfare. Numerical experiments, based on a parameterized version of the model, show that the welfare gains from macroprudential policy coordination are positive, albeit not large, for the world economy. In addition, these gains tend to increase with the degree of international financial integration. However, depending on the origin of financial shocks, they can also be highly asymmetric across regions.
    Keywords: global banking, financial spillovers, macroprudential policy coordination
    JEL: E58 F42
    Date: 2019–01
  61. By: Konstantin Styrin (Bank of Russia, Russian Federation)
    Abstract: In this study, I forecast CPI inflation in Russia by the method of Dynamic Model Averaging (Raftery et al., 2010; Koop and Korobilis, 2012) pseudo out-of-sample on historical data. This method can be viewed as an extension of the Bayesian Model Averaging where the identity of a model that generates data and model parameters are allowed to change over time. The DMA is shown not to produce forecasts superior to simpler benchmarks even if a subset of individual predictors is pre-selected “with the benefit of hindsight” on the full sample. The two groups of predictors that feature the highest average values of the posterior inclusion probability are loans to non-financial firms and individuals along with actual and anticipated wages.
    Keywords: Bayesian model averaging, model uncertainty, econometric modeling, high-dimension model, inflation forecast.
    JEL: C5 C53 E37
    Date: 2018–12
  62. By: Vahidin Jeleskovic (University of Kassel); Anastasios Demertzidis (University of Kassel)
    Abstract: In this paper, we compare three different models, namely the Nelson- Siegel model, the Svensson model and the Diebold- Li model, for the estimation of an intraday yield curve on the Italian interbank credit market e-MID. Using a sample which spans from October 2005 until March 2010, the first important finding is that all three models are highly suitable for the estimation of an intraday yield curve providing superior empirical results when compared with similar works on e-MID. The second important finding is that, based on different in sample statistics, the Svensson model dominates the other two models before, during and after the financial crisis from 2007. Moreover, the Nelson- Siegel model seems to dominate the Diebold- Li model although these differences in goodness-of-fit between these two models may not be statistically significant.
    Keywords: Interbank credit market, e-MID, intraday yield curve, Nelson-Siegel model, Svensson model, Diebold- Li model
    JEL: C12 C13 E43 G01
    Date: 2018
  63. By: Isabel Schnabel; Johannes Tischer
    Abstract: Based on a unique trade-level dataset, we analyze the proprietary trading reaction of German banks to the Lehman collapse and the subsequent unconventional monetary policy measures in 2008. After the Lehman collapse, we observe that market liquidity tightened. However, there is no evidence of broad-based fire sales in the German banking sector. Instead, we observe a flight to liquidity. The European Central Bank’s unconventional measures had a strong impact on banks’ trading behavior by inducing shifts towards eligible securities and reducing pressure on market liquidity. This suggests that the unconventional measures helped stabilizing the financial system after the Lehman collapse.
    Keywords: Proprietary trading, fire sales, flight to liquidity, Lehman crisis, market liquidity, unconventional monetary policy
    JEL: E44 E50 G01 G11 G21
    Date: 2018–08
  64. By: Sergio Cesaratto; Gennaro Zezza
    Abstract: In questo saggio ripercorriamo la storia dell’economia italiana a partire dagli anni del miracolo economico, mostrando il ruolo della politica economica nelle sue diverse declinazioni (fiscale, monetaria, valutaria) nella determinazione della crescita, e poi del declino. Argomentiamo come i periodi della crescita siano caratterizzati dal tentativo di perseguire il pieno impiego, mentre il successivo periodo del declino è dipeso anche dal tentativo di risolvere i conflitti distributivi interni tramite vincoli esteri sempre più stringenti
    Keywords: Italia; crescita; debito pubblico; saldi settoriali
    JEL: E52 E62 F41
    Date: 2018–12
  65. By: Christian Myohl
    Abstract: When the transmission channel between savers and borrowing firms is disturbed, firms may find themselves borrowing-constrained. I study the optimal fiscal policy response to a tightening borrowing constraint in a simple two-period model. I find that it is not optimal to subsidize firms, although this would relax the constraint and help firms directly. Instead, the optimal response exploits the distortion caused by the borrowing constraint and reduces existing tax distortions. This result is robust to when endogenous government spending and investment are part of the government’s set of instruments.
    Keywords: Optimal fiscal policy, borrowing constraints.
    JEL: E62 H21
    Date: 2018–08
  66. By: Pranab Kumar Das; Bhaswati Ganguli; Sugata Marjit; Sugata Sen Roy
    Abstract: The purpose of this research study has been to expand our understanding of the finance-growth ‘nexus’ to finance-growth-inequality ‘nexus’ in the presence of both the formal and the informal sources of borrowing. Using empirical evidence of IHDS Survey data for two rounds the study attempts to assess the co-evolution of finance-growth-inequality in an intertemporal framework. The most important finding of the paper pertains to the econometric result that the household asset grows at the same rate independent of the source of loans - banks or moneylenders though the level effect (intercept) is higher if the loan is obtained from banks or lower if the household lives below poverty line. The same also holds for the rate of growth of per capita income. There is virtually no significant difference for the households living below poverty line (BPL) on the rate of growth of capital asset or income whether source of borrowing is bank or money lender. This is then formalized in a theoretical model of intertemporal choice of entrepreneur-investor to show that if there are both formal and informal sources of borrowing with a constraint on the formal sector borrowing and no constraint on the latter, then growth rates of asset and income are determined by the informal sector interest rate. The result can be generalised for any number of sources of borrowing. This questions the conventional wisdom regarding the policy aimed at financial inclusion. Inequality of income increases independent of the source of borrowing, though the BPL households are worse off in general.
    Keywords: financial development, financial inclusion growth, inequality, bank, India, IHDS, logit model
    JEL: C35 E50 G21 O11
    Date: 2018
  67. By: Helmedag, Fritz
    Abstract: Marx's and Keynes's analyses of capitalism complement each other well. In a rather general model including the public sector and international trade it is shown that the labour theory of value provides a sound foundation to reveal the factors influencing employment. Workers buy "necessaries" out of their disposable wages from an integrated basic sector, whereas the "luxury" department's revenues spring from other sources of income. In order to maximize profits, the wage good industry controls the level of unit labour costs. After all, effective demand governs the volume of work. On this basis, implications for economic policy are outlined.
    Keywords: Employment,Marx,Keynes,Surplus value
    JEL: E11 E12 E24
    Date: 2019
  68. By: Andreas Kettemann; Andreas I. Mueller; Josef Zweimüller
    Abstract: This paper explores the relationship between the duration of a vacancy and the starting wage of a new job, using unusually informative data comprising detailed information on vacancies, the establishments posting the vacancies, and the workers eventually filling the vacancies. We find that vacancy durations are negatively correlated with the starting wage and that this negative association is particularly strong with the establishment component of the starting wage. We also confirm previous findings that growing establishments fill their vacancies faster. To understand the relationship between establishment growth, vacancy filling and entry wages, we calibrate a model with directed search and ex-ante heterogeneous workers and firms. We find a strong tension between matching the sharp increase in vacancy filling for growing firms and the response of vacancy filling to firm-level wages. We discuss the implications of this finding as well as potential resolutions.
    Keywords: Vacancy posting, vacancy duration, recruiting, search, wages
    JEL: E24 J31 J63
    Date: 2018–12
  69. By: Roger E.A. Farmer; Pawel Zabczyk
    Abstract: We demonstrate that the Fiscal Theory of the Price Level (FTPL) cannot be used to determine the price level uniquely in the overlapping generations (OLG) model. We provide two examples of OLG models, one with three 3-period lives and one with 62-period lives. Both examples are calibrated to an income profile chosen to match the life-cycle earnings process in U.S. data estimated by Guvenen et al. (2015). In both examples, there exist multiple steady-state equilibria. Our findings challenge established views about what constitutes a good combination of fiscal and monetary policies. As long as the primary deficit or the primary surplus is not too large, the fiscal authority can conduct policies that are unresponsive to endogenous changes in the level of its outstanding debt. Monetary and fiscal policy can both be active at the same time.
    JEL: E31 E58 H62
    Date: 2019–01
  70. By: Yannic Stucki, Jacqueline Thomet
    Abstract: We explore the role of firing costs on labor market outcomes in a search and matching framework with distinct decisions on the intensive (hours per employee) and extensive (employment) margins of labor supply. We show that allowing for two distinct labor supply margins matters for assessing firing costs. When the intensive margin is kept fixed (as is typically done in empirical work on firing costs), the dampening effect of firing costs on employment fluctuations is strongly understated. Further, in a quantitative exercise, we calibrate firing costs to represent the different employment protection regulations across OECD countries. We find that with firing costs of a similar size as in France, the drop in US employment during the Great Recession would have been a third its size.
    Keywords: Search and matching, firing costs, employment protection legislation, labor supply margins.
    JEL: E32 F44 J22
    Date: 2018–07
  71. By: Shigeto Kitano (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kenya Takaku (Faculty of International Studies, Hiroshima City University, Japan)
    Abstract: We examine how the degree of financial market incompleteness affects welfare gains from policy cooperation in capital controls. When financial markets are incomplete, international risk sharing is disturbed. However, the optimal global policy significantly reverses the welfare deterioration due to inefficient risk-sharing. We find that when financial markets are more incomplete, the welfare gap between the optimal global policy and the Nash equilibrium increases, and the welfare gains from policy cooperation in capital controls then become larger.
    Keywords: Financial markets; Incomplete markets; Policy cooperation; Capital controls; Optimal policy; Welfare; Ramsey policy; Open-loop Nash game
    JEL: D52 E61 F32 F42 G15
    Date: 2019–01
  72. By: Claude Bismut (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Ismael Ramajo (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: In this paper we extend the usual Lucas supply curve to allow the likely external influence on inflation, together with domestic conditions. We test the relationship between the inflation surprise, the output gap and the real exchange rate using simple time series regressions on annual data for a list of 16 developed countries. These tests confirm the empirical relevance of the Lucas supply curve but also support the assumption that part of the inflation surprise may come from unexpected variations of the real exchange rate.
    Keywords: inflation surprise imported inflation,output gap,natural rate of unemployment,Lucas supply curve
    Date: 2019–01–09
  73. By: Brinca, Pedro; Oliveira, João; Duarte, João
    Abstract: Since 1980 the U.S. economy has experienced a large increase in income inequality. To explain this phenomenon we develop a life-cycle, overlapping generations model with uninsurable labor market risk, a detailed tax system and investment-specific technological change (ISTC). We calibrate our model to match key characteristics of the U.S. economy and study how ISTC, shifts in taxation, government debt and employment have contributed to the rise in income inequality. We find that these structural changes can account for close to one third of the observed increase in the post-tax income Gini. The main mechanisms in play are the rise in the wage premium of non-routine workers, resulting from capital-non-routine complementarity, as well as a reduction of the progressivity of the labor income tax schedule, which increases post-tax inequality. We show that ISTC alone accounts for roughly 15% of the change observed in post-tax income Gini, while the reduction in progressivity accounts for 16%.
    Keywords: Income Inequality, Taxation, Automation
    JEL: E21 H21 J31
    Date: 2019
  74. By: Romanos Priftis; Anastasia Theofilakou
    Abstract: This paper investigates the impact of active balance sheet adjustments in the non-financial corporate sector on economic growth in the EU. We first jointly model firms' ability to reduce their balance sheet imbalances and a growth equation in an instrumental variables (IV) panel context. This enables us to explicitly consider the contemporaneous interaction between corporate balance sheet adjustment and growth, which can otherwise bias inference. Our main findings inter alia suggest that: i) periods of active corporate deleveraging are associated on average with lower output growth compared to periods when no adjustment takes place, and ii) a decline in corporate debt overhang supports output growth. To explore the deleveraging mechanism qualitatively we then employ a banking variant of the Commission's QUEST model and show that following a deleveraging shock, triggered by a tightening of firms' collateral constraints, the effects on investment and GDP are negative in the short-run. In the medium run once corporate debt has been reduced the effects fade away allowing the economy to recover. In the long run the effects are largely neutral suggesting that the source of investment financing, be it financial intermediaries or the stock market, does not seem to matter.
    JEL: C3 E21 G2
    Date: 2018–01
  75. By: Ding Ding; Weicheng Lian
    Abstract: In this paper we analyze the fundamental drivers of China’s residential investment as a share of its GDP. Our analysis indicates that the economic structural changes that led to rebalancing toward consumption were the key driver of the rising residential investment to GDP ratio in China. We project that residential investment would moderate from the current level of 9 percent of GDP to around 6 percent by 2024, and its contribution to real GDP growth would decline gradually from currently about half percent of GDP to slightly negative over this period, barring policy intervention. The decline in the growth contribution of residential investment reflects the projected somewhat slower pace of rebalancing going forward and the envisaged increases in labor costs due to demographic changes.
    Keywords: Asia and Pacific;China, People's Republic of;Central banks and their policies;China housing market, residential investment, rebalancing, Bayesian Analysis, Time-Series Models, Monetary Policy (Targets, Instruments, and Effects)
    Date: 2018–12–07
  76. By: Carlos Carvalho; Nilda Pasca; Laura Souza; Eduardo Zilberman
    Abstract: We augment a standard dynamic general equilibrium model with financial frictions, in order to quantify the macroeconomic effects of the credit deepening process observed in Latin America in the last decade - most notably in Brazil. In the model, a stylized banking sector intermediates credit from patient households to impatient households and entrepreneurs. Motivated by the Brazilian experience, we allow the credit constraint faced by households to depend on labor income. Our model is designed to isolate the effects of credit deepening through demand-side channels, and abstracts from potential effects of credit supply on total factor productivity. In the calibrated model, credit deepening generates only modest above-trend growth in consumption, investment, and GDP. Since Brazil has experienced one of the most intense credit deepening processes in Latin America, we argue that the quantitative effects that hinge on the channels captured by the model are unlikely to be sizable elsewhere in Latin America.
    Date: 2019–01
  77. By: Marina Halac; Pierre Yared
    Abstract: We study a fiscal policy model in which the government is present-biased towards public spending. Society chooses a fiscal rule to trade off the benefit of committing the government to not overspend against the benefit of granting it flexibility to react to privately observed shocks to the value of spending. Unlike prior work, we examine rules under limited enforcement: the government has full policy discretion and can only be incentivized to comply with a rule via the use of penalties which are joint and bounded. We show that optimal incentives must be bang-bang. Moreover, under a distributional condition, the optimal rule is a maximally enforced deficit limit, triggering the largest feasible penalty whenever violated. Violation optimally occurs under high enough shocks if and only if available penalties are weak and such shocks are rare. If the rule is self-enforced in a dynamic setting, penalties take the form of temporary overspending.
    JEL: C73 D02 D82 E6 H1 P16
    Date: 2019–01
  78. By: Brahim Gaies; Stéphane Goutte (LED - Université Paris 8); Khaled Guesmi
    Abstract: We examine the effects of financial globalization and exchange rate volatility on growth in emerging and developing countries. We generate several measures of exchange rate volatility, as well as their interaction terms with indicators of disaggregated financial globalization. Using the two-step GMM system method on dynamic panel data, we find that exchange rate volatility has a negative impact on long-term growth. On the contrary, financial globalization, and particularly investment-globalization, promotes growth not only directly, but also indirectly, by reducing the negative impact of exchange rate volatility. However, the results show that indebtedness-globalization does not produce these benefits. In this way, the results inform the government's decision on the liberalization of the domestic financial market. JEL: E44, F21, F36, O42, G15, G18
    Keywords: Foreign Investors,Government Policy,Dynamic Panel,Exchange Rate Volatility,Interactions 2
    Date: 2019–01–09
  79. By: Julia Wolfinger; Lars P. Feld; Ekkehard A. Köhler; Tobias Thomas
    Abstract: This paper empirically investigates the relationship between TV news coverage and the GIIPS countries’ bond yield spreads using daily data between January 1, 2007 and December 1, 2016. We employ 1,542,233 human coded news items from evening news shows of leading TV stations in 12 countries which include 37,859 news on the EU, on the Eurozone and on country-specific economic issues. We find that an increasing share of news about the Eurozone reduces yield spreads, especially when the news has a positive tonality. This hints at the effectiveness of political communication through the media by European institutions and in particular the European Central Bank (ECB). In conjunction with the tonality of the news, we find that country-specific news have a significant impact on GIIPS yield spreads. A higher share of positive/negative news is positively associated with a decrease/increase of the GIIPS yield spreads vis-à-vis Germany. Moreover, some news is not immediately and completely priced in by market participants when it is released. In addition, this peculiar effect of country specific news is stronger when the respective news is aired on the North American media market.
    Keywords: Eurozone, Euro, political communication, media coverage, yield spreads, dynamic macro panel, FGLS
    JEL: E58 G12 L80 N14
    Date: 2018
  80. By: Giovanni Dosi; Andrea Roventini
    Abstract: This work nests the Agent-Based macroeconomic perspective into the earlier history of macroeconomics. We discuss how the discipline in the 70's took a perverse path relying on models grounded on fictitious rational representative agent in order to try to pathetically circumvent aggregation and coordination problems. The Great Recession was a natural experiment for macroeconomics, showing the inadequacy of the predominant theoretical framework grounded on DSGE models. After discussing the pathological fallacies of the DSGE-based approach, we claim that macroeconomics should consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This in turn implies that more is different: macroeconomics cannot be shrink to representative-agent micro, but agents' complex interactions lead to emergence of new phenomena and hierarchical structure at the macro level. This is what is taken into account by agent-based models, which provide a novel way to model complex economies from the bottom-up, with sound empirically-based micro-foundations. We present the foundations of Agent-Based macroeconomics and we discuss how the contributions of this special issue push its frontier forward. Finally, we conclude by discussing the ways ahead for the fully acknowledgement of agent-based models as the standard way of theorizing in macroeconomics.
    Keywords: Macroeconomics, Economic Policy, Keynesian Theory, New Neoclassical Synthesis, New Keynesian Models, DSGE Models, Agent-Based Evolutionary Models, Complexity Theory, Great Recession, Crisis
    Date: 2019–01–11
  81. By: Sophie Altermatt
    Abstract: This paper reconsiders the long-run demand for M2 based on a newly con- structed dataset featuring 32 countries since the rst half of the 19th century. The evidence from cointegration tests suggests that a long-run equilibrium re- lationship for M2 demand is hardly present. Speci cally, only for ve countries (Finland, Korea, Mexico, Paraguay and Taiwan) cointegration tests produce strong evidence in favor of a stable long-run money demand. Evidence for Israel and Lebanon is weaker, but still points towards a stable long-run demand for M2. For all other countries evidence speaks against a stable money demand or it is mixed across money demand speci cations and/or type of cointegration test.
    Keywords: Money Demand, Velocity, Cointegration
    JEL: E4 E41
    Date: 2018–03
  82. By: William Arrata; Benoit Nguyen; Imene Rahmouni-Rousseau; Miklos Vari
    Abstract: Most short-term interest rates in the Euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks’ excess reserves. This unexpected development coincided with the start of the Public Sector Purchase Program (PSPP). In this paper, we explore empirically the interactions between the PSPP and repo rates. We document different channels through which asset purchases may affect them. Using proprietary data from PSPP purchases and repo transactions for specific (“special") securities, we assess the scarcity channel of PSPP and its impact on repo rates. We estimate that purchasing 1 percent of a bond outstanding is associated with a decline of its repo rate of 0.78 bps. Using an instrumental variable, we find that the full effect may be up to six times higher.
    Keywords: Central banks and their policies;Repurchase agreements;Monetary policy;Money markets;Interest rates;Assets;Specialness, repo market, asset purchases, money market
    Date: 2018–12–07
  83. By: Gennaro Zezza; Francesco Zezza
    Abstract: While the literature on theoretical macroeconomic models adopting the stock-flow-consistent (SFC) approach is flourishing, few contributions cover the methodology for building a SFC empirical model for a whole country. Most contributions simply try to feed national accounting data into a theoretical model inspired by Wynne Godley and Marc Lavoie (2007), albeit with different degrees of complexity. In this paper we argue instead that the structure of an empirical SFC model should start from a careful analysis of the specificities of a country's sectoral balance sheets and flow of funds data, given the relevant research question to be addressed. We illustrate our arguments with examples for Greece, Italy, and Ecuador. We also provide some suggestions on how to consistently use the financial and nonfinancial accounts of institutional sectors, showing the link between SFC accounting structures and national accounting rules.
    Keywords: Empirical Stock-Flow-Consistent Models; Ecuador; Greece; Italy
    JEL: E12 E42
    Date: 2019–01
  84. By: Mankart, Jochen; Michaelides, Alexander; Pagratis, Spyros
    Abstract: We estimate a dynamic structural banking model to examine the interaction between risk-weighted capital adequacy and unweighted leverage requirements, their differential impact on bank lending, and equity buffer accumulation in excess of regulatory minima. Tighter risk-weighted capital requirements reduce loan supply and lead to an endogenous fall in bank profitability, reducing bank incentives to accumulate equity buffers and, therefore, increasing the incidence of bank failure. Tighter leverage requirements, on the other hand, increase lending, preserve bank charter value and incentives to accumulate equity buffers, therefore leading to lower bank failure rates.
    Keywords: Banking,Equity Buffers,Regulatory Interactions
    JEL: E44 G21 G38
    Date: 2018
  85. By: Laura Alfaro; Manuel García-Santana; Enrique Moral-Benito
    Abstract: We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset on the universe of corporate loans for 2003-2013 to identify bank-specific shocks for each year using methods from the matched employer-employee literature. We construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity using firm-specific measures of upstream and downstream exposure. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period, especially during the 2008-2009 global financial crisis. In terms of mechanisms, trade credit extended by suppliers and price adjustments play a role in accounting for downstream propagation of financial shocks.
    JEL: E44 G21 L25
    Date: 2019–01
  86. By: Anne Hannusch
    Abstract: Childbirth causes persistent gender differences in labor force participation and the difference in employment rates of married women with and without pre-school children varies substantially across countries. To what extent can child-related transfers account for this differential? To answer this question, I develop a life-cycle model of joint labor supply, in which female human capital evolves endogenously and a fraction of households has access to informal childcare. I calibrate the model to the US and Denmark, two countries in which the gap in employment rates of women with and without pre-school children differs in sign and magnitude: the gap is 13.2% in the US and -3.7% in Denmark. After taking the labor income tax treatment of married couples and variation in childcare fees into account, I find that child-related transfers are key to explaining the positive gap in the US and the negative gap in Denmark. I show that this mechanism is quantitatively important to account for variation in the maternal participation gap across other European countries as well.
    Keywords: Maternal Labor Supply, Two-earner Households, Family Transfers, Taxation
    JEL: E62 H31 J12 J22
    Date: 2019–01
  87. By: Nikola Altiparmakov (Fiscal Council, Serbia)
    Abstract: In order for ‘carve-out’ pension privatization to improve long-term sustainability the transition should not be predominantly debt-financed, and private pension funds should deliver (net) rates of return tangibly higher than GDP growth. We show that none of the reforming countries in Eastern Europe was successful in fulfilling these two preconditions, even before the emergence of the global financial crisis. While existing literature mostly describes a recent wave of reform reversals as politically driven short-sighted policies that deteriorate long-term sustainability, we argue the contrary: that pension privatization structural deficiencies and disappointing performance allow reversals to improve the short-term stance without necessarily undermining long-term pension sustainability. We conclude that unless political consensus exists to support the multi-decade fiscal austerity required to finance pension privatization, reform adjustments and reversals can be a rational alternative to maintaining economically suboptimal or politically unstable pension systems in some Eastern European countries.
    Date: 2018–06
  88. By: Luca Benati
    Abstract: Data from 20 hyperinflations–from the French Revolution to Venezuela’s 2018 episode–provide nearly no evidence of a Laffer curve for seignorage. Rather, in nearly all cases, the relationship between the inflation tax and inflation has been either positive at all inflation rates, or initially positive and then flattening out towards the end of the hyperinflation. Consistent with this, econometric evidence shows that the preferred money demand specification at very high inflation rates is not Cagan’s (1956) ‘semi-log’, which automatically imposes a Laffer curve upon the data: rather, it is either Meltzer’s (1963) ‘loglog’– for which the inflation tax is monotonically increasing in inflation–or a more general functional form making log real money balances a linear function of the Box-Cox transformation of expected inflation (of which the ‘log-log’ is a special case), which allows the inflation tax to flatten out at high inflation rates. My results suggest that the paradox first highlighted by Cagan–of policymakers seemingly inflating in excess of the revenue-maximizing rate during hyperinflations–is the product of the literature’s predominant focus on the semi-log specification.
    Date: 2018–12
  89. By: Anthony M. Diercks; Uri Carl
    Abstract: In this Note, we use rolling covariances between real and nominal activity in a regression framework, combined with a model averaging approach, to uncover intuitive dynamics in the term premium.
    Date: 2019–01–08
  90. By: Samreth, Sovannroeun; Sok, Pagna
    Abstract: Previous studies on factors affecting the substitution process between domestic currency and foreign currency (i.e., the dollarization process) in Cambodia indicate that exchange rate movement is one of its important determinants. These studies tend to assume that the effects of this movement are symmetric. However, domestic currency appreciation and depreciation can have asymmetric impacts on people’s behaviors when substituting between domestic currency and foreign currency. Therefore, this study re-examines the impacts of exchange rate movement on the dollarization process in Cambodia by taking into account the possibility of these asymmetric effects. A cointegration analysis framework is adopted for the estimation of a model that also incorporates a hysteresis effect of the dollarization process. The estimation results of quarterly data between 1994Q2 to 2017Q4 indicate that Cambodian Riel depreciation and appreciation do have asymmetric impacts on its dollarization process. These results provide some implications for policy actions addressing the dollarization issue in Cambodia.
    Keywords: Asymmetric Effects, Currency Substitution, Dollarization
    JEL: E51 F41
    Date: 2018
  91. By: La-Bhus Fah Jirasavetakul; Antonio Spilimbergo
    Abstract: Uncertainty over economic policy plays a key role in economic outcomes. But evidence and quantification for emerging markets are elusive because of measurement and reverse causality issues. In this paper, we construct a news-based economic policy uncertainty (EPU) index for Turkey and assess how it affects Turkish firms. To disentangle the issues of endogeneity and reverse causality, we use a difference-in-differences approach, exploiting the fact that firms with a high share of irreversible investment are more exposed to policy uncertainty. In sectors with large irreversible investment EPU has a greater effect on growth, investment, and leverage. The results are robust to different definitions of investment irreversibility, lag structure, and selection of sectors.
    Keywords: Turkey;Europe;Policy uncertainty, economic uncertainty, firm-level, sector-level, investment decisions, employment growth, leverage strategies, diff-in-diff estimation, General, General, General Outlook and Conditions, General
    Date: 2018–12–10
  92. By: Döttling, Robin
    Abstract: How do near-zero deposit rates affect (optimal) bank capital regulation and risk taking? I study these questions in a tractable, dynamic equilibrium model, in which forward-looking banks compete imperfectly for deposit funding, subject to a (zero) lower bound constraint on deposit rates (ZLB). At the ZLB, capital requirements become less effective in curbing excessive risk-taking incentives, as they disproportionately hurt franchise values. As a consequence, optimal dynamic capital requirements vary with the level of interest rates if the ZLB binds occasionally. Subsidizing bank funding costs at the ZLB dampens risk-taking, but may reduce overall welfare.
    Keywords: Zero lower bound,Search for yield,Capital regulation,Bank competition,Franchise value
    JEL: G21 G28 E43
    Date: 2019
  93. By: Meghana Ayyagari; Thorsten Beck; Maria Soledad Martinez Peria
    Abstract: Combining balance sheet data on 900,000 firms from 48 countries with information on the adoption of macroprudential policies during 2003-2011, we find that these policies are associated with lower credit growth. These effects are especially significant for micro, small and medium enterprises (MSMEs) and young firms that, according to the literature, are more financially constrained and bank dependent. Among MSMEs and young firms, those with weaker balance sheets exhibit lower credit growth in conjunction with the adoption of macroprudential policies, suggesting that these policies can enhance financial stability. Finally, our results show that macroprudential policies have real effects, as they are associated with lower investment and sales growth.
    Keywords: Macroprudential policies and financial stability;Balance sheets;Public enterprises;financial development; macroprudential policies; firm financing
    Date: 2018–12–07
  94. By: Peter Scott (Henley Business School, University of Reading); James Walker (Henley Business School, University of Reading)
    Abstract: We examine shifts in British income inequality and their causes between 1911 and 1949. Newly re-discovered Inland Revenue 1911 estimates and more detailed data from subsequent official income distribution enquiries are used to show that income was substantially more concentrated at the top of the income distribution in 1911 than previous estimates suggest, and that the top 1 per cent were the principal “losers” in the subsequent trend towards reduced income inequality. We find that this trend reflected a sharp decline in top “unearned” incomes - paralleling the findings of Piketty and Saez for France and the USA. This explains the paradox between the observed reduction in British income inequality and the lack of evidence for any substantial redistribution of income between salary and wage-earners.
    Keywords: Income inequality, United Kingdom
    JEL: H26 H87 E21
    Date: 2018–10
  95. By: Knoblach, Michael; Stöckl, Fabian
    Abstract: This paper reviews the status quo of the empirical and theoretical literature on the determinants of the elasticity of substitution between capital and labor. Our focus is on the two-input constant elasticity of substitution (CES) production function. By example of the U.S., we highlight the distinctive heterogeneity in empirical estimates of σ at both the aggregate and industrial level and discuss potential methodological explanations for this variation. The main part of this survey then focuses on the determinants of σ. We first review several approaches to the microfoundation of production functions, especially the CES production function. Second, we outline the construction of an aggregate elasticity of substitution (AES) in a multi-sectoral framework and investigate its dependence on underlying sectoral elasticities. Third, we discuss the influence of the institutional framework on the determination of σ. The concluding section of this review identifies a number of potential empirical and theoretical avenues for future research. Overall, we demonstrate that the effective elasticity of substitution (EES), which is typically estimated in empirical studies, is generally not an immutable deep parameter but depends on a multitude of technological, non-technological and institutional determinants.
    Keywords: elasticity of substitution,aggregate elasticity,capital,labor,economic growth,microfoundation,Cobb-Douglas and CES production function
    JEL: D24 E23 O14 O40
    Date: 2019
  96. By: Cardullo, Gabriele (University of Genova); Conti, Maurizio (University of Genova); Sulis, Giovanni (University of Cagliari)
    Abstract: In this paper we present a search and matching model in which firms invest in sunk capital equipment. By comparing two wage setting scenarios, we show that a two-tier bargaining scheme, where a fraction of the salary is negotiated at firm level, raises the amount of investment per worker in the economy compared to a one-tier bargaining scheme, in which earnings are entirely negotiated at sectoral level. The model's main result is consistent with the positive correlation between investment per worker and the presence of a two-tier bargaining agreement that we find in a representative sample of Italian firms.
    Keywords: unions, investment, hold-up, two-tier bargaining, control function
    JEL: J51 J64 E22
    Date: 2018–11
  97. By: Jose Saboin
    Abstract: Using a database of up to 62 variables for 196 countries over 57 years, a hyperinflation cycle has been characterized to propose a broader setting of stylized facts. Beyond the usual facts, the findings in this paper contribute to the literature of modern hyperinflations in that these cycles occur in contexts where there are (i) depressed economic freedoms, (ii) deteriorated socioeconomic conditions and rule of law, as well as (iii) high levels of domestic conflictivity and government instability. Despite social infraestructure factors improve during stabilization, they keep being substantially lower than the respresentative non-hyperinflation country, suggesting an important role for them in the occurrence of modern hypeinflations. Finally, the role of international financial assistance in stabilization was studied, noting that (i) a clear majority of hyperinflation countries used it, further improving their (ii) economic freedoms, and allowing themselves (iii) greater fiscal flexibility and (iv) more exchange rate stability.
    Date: 2018–12–07
  98. By: Zhou, Haiwen
    Abstract: This paper formalizes Rostow’s insight of the role of a leading sector in industrialization in a general equilibrium model. Population growth may lead to a shortage of food and a breakdown of the industrialization process. However, population growth may benefit the manufacturing sector in the adoption of increasing returns to scale technologies. Elasticity of demand for agricultural goods plays an important role in determining whether an improvement of agricultural technology or an increase of population is beneficial to the manufacturing sector. A comparison of China and Britain before the Industrial Revolution shows that R&D is necessary for sustained growth. Achieving industrialization independently requires a combination of a sufficient market size from the demand side and a sufficient supply of technologies from the supply side.
    Keywords: Population growth, increasing returns to scale, industrialization, leading sector, Malthus population cycle
    JEL: E10 N10 O14 Q01
    Date: 2019–01–13
  99. By: Francesco Pasimeni (SPRU, University of Sussex, THE UK; European Commission, Joint Research Centre (JRC), Petten, Netherlands); Tommaso Ciarli (SPRU, University of Sussex, THE UK)
    Abstract: This paper focuses on the process of coalition formation conditioning the common decision to adopt a shared good, which cannot be afforded by an average single consumer and whose use cannot be exhausted by any single consumer. An agent based model is developed to study the interplay between these two processes: coalition formation and diffusion of shared goods. Coalition formation is modelled in an evolutionary game theoretic setting, while adoption uses elements from both the Bass and the threshold models. Coalitions formation sets the conditions for adoption, while diffusion influences the consequent formation of coalitions. Results show that both coalitions and diffusion are subject to network effects and have an impact on the information flow though the population of consumers. Large coalitions are preferred over small ones since individual cost is lower, although it increases if higher quantities are purchased collectively. The paper concludes by connecting the model conceptualisation to the on-going discussion of diffusion of sustainable goods, discussing related policy implications.
    Keywords: Coalition formation, diffusion, shared goods, agent-based model
    JEL: D71 E27 O33
    Date: 2018–12
  100. By: Canepa, Alessandra; Zanetti Chini, Emilio; Alqaralleh, Huthaifa (University of Turin)
    Abstract: In this paper we consider the dynamic features of house prices in metropolises that are characterized by high degree of internationalization. Using a generalized smooth transition model we show that the dynamic symmetry in house price cycles is strongly rejected for the housing markets taken into consideration.
    Date: 2019–01
  101. By: Bredl, Sebastian
    Abstract: Against the backdrop of a high stock of non-performing loans (NPLs) in several European countries, this paper investigates the role of NPLs for lending rates charged for newly granted loans in the euro area. More precisely, it looks for an effect that extends beyond losses caused by that stock which have already been incorporated into the banks' capital positions. The paper focuses on the question of which channels are responsible for such a potential effect. The results indicate that a higher stock of net NPLs is associated with higher lending rates, whereby there are indications that this relation tends to be offset by loan loss reserves. Although the NPL stock affects banks' idiosyncratic funding costs as well, the latter do not seem to constitute an important link between the stock of NPLs and lending behavior. Furthermore, NPLs do not strongly affect the banks' interest rate pass-through.
    Keywords: lending rates,non-performing loans,impaired loans,funding costs
    JEL: G21 E43
    Date: 2018
  102. By: Maria Bigoni (University of Bologna & IZA); Gabriele Camera (Chapman University & University of Bologna); Marco Casari (University of Bologna & IZA)
    Abstract: Impersonal exchange is the hallmark of an advanced society and money is one key institution that supports it. Economic theory regards money as a crude arrangement for monitoring counterparts’ past conduct. If so, then a public record of past actions—or memory—should supersede the function performed by money. This intriguing theoretical postulate remains untested. In an experiment, we show that the suggested functional equivalence between money and memory does not translate into an empirical equivalence: money removed the incentives to free ride, while memory did not. Monetary systems performed a richer set of functions than just revealing past behaviors.
    Keywords: Cooperation, intertemporal trade, experiments, institutions, social norms.
    JEL: C70 C90 D03 E40
    Date: 2018
  103. By: International Development Association; International Monetary Fund
    Keywords: Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Debt Relief and HIPC Finance and Financial Sector Development - Strategic Debt Management International Economics and Trade - External Debt Macroeconomics and Economic Growth - Macroeconomic Management
    Date: 2018–10

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