nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒02‒11
eighty-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Money, Asset Markets and Efficiency of Capital Formation By van Buggenum, Hugo; Uras, Burak
  2. New Frontiers in the Euro Debate in Iceland By Thorgeirsson, Thorsteinn
  3. Unconventional Monetary Policy and the Bond Market in Japan: A New-Keynesian Perspective By Parantap Basu; Kenji Wada
  4. IQ, expectations, and choice By D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
  5. Human frictions in the transmission of economic policy By D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
  6. Are "Fair" Wages Quantitatively Important for Business Cycle Fluctuations in Bulgaria? By Aleksandar Vasilev
  7. The Bank Multiplier and A New Mechanism for the Transmission of the Monetary Policy By Nizam, Ahmed Mehedi
  8. The Transmission of Unconventional Monetary Policy to Bank Credit Supply: Evidence from the TLTRO By António Afonso; Joana Sousa-Leite
  9. Forward guidance with preferences over safe assets By Ansgar Rannenberg
  10. The 2017 Long-Term Budget Outlook By Congressional Budget Office
  11. Is Inflation Just Around the Corner? The Phillips Curve and Global Inflationary Pressures By Olivier Coibion; Yuriy Gorodnichenko; Mauricio Ulate
  12. The Role of Global and Domestic Shocks for In flation Dynamics: Evidence from Asia By David Finck; Peter Tillmann
  13. Credit crunches from occasionally binding bank borrowing constraints By Holden, Tom D.; Levine, Paul; Swarbrick, Jonathan M.
  14. The State of DSGE Modelling By Paul Levine
  15. Uncertainty and the Cost of Bank vs. Bond Finance By Christian Grimme
  16. The interest rate exposure of euro area households By Tzamourani, Panagiota
  17. Nowcasting Peruvian GDP using Leading Indicators and Bayesian Variable Selection By Pérez, Fernando
  18. The Phillips multiplier By Régis Barnichon; Geert Mesters
  19. A Financial Accelerator through Coordination Failure By Oliver de Groot
  20. The History of Recent Macroeconomics Through the Lens of the Marshall-Walras Divide By Michel de Vroey
  21. A Beveridge curve decomposition for Austria: What drives the unemployment rate? By Christl, Michael
  22. The Transmission of Exogenous Commodity and Oil Prices shocks to Latin America - A Panel VAR approach By Gondo, Rocío; Pérez, Fernando
  23. Monetary policy, housing, and collateral constraints By Franz, Thorsten
  24. The Macroeconomic Projections of the German Government: A Comparison to an Independent Forecasting Institution By Robert Lehmann; Timo Wolllmershäuser
  25. Average Crossing Time: An Alternative Characterization of Mean Aversion and Reversion By John B. Donaldson; Rajnish Mehra
  26. Optimal Monetary Policy Regime Switches By Choi, Jason; Foerster, Andrew
  27. The Monetary Base in Allan Meltzer's Analytical Framework By Edward Nelson
  28. Can the U.S. Interbank Market Be Revived? By Kim, Kyungmin; Martin, Antoine; Nosal, Ed
  29. Panama; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Panama By International Monetary Fund
  30. Taking the Fed at its Word: Direct Estimation of Central Bank Objectives using Text Analytics By Shapiro, Adam Hale; Wilson, Daniel J.
  31. Behavioural New Keynesian Models By Robert Calvert Jump; Paul Levine
  32. Testing the Friedman-Schwartz hypothesis using time varying correlation By Taniya Ghosh; Prashant Mehul Parab
  33. Stock Flow Adjustments in Sovereign Debt Dynamics: The Role of Fiscal Frameworks By António Afonso; João Tovar Jalles
  34. The impact of the Fundamental Review of the Trading Book: A preliminary assessment on a stylized portfolio By RChiara Pederzoli; Costanza Torricelli
  35. Former Yugoslav Republic of Macedonia; 2018 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Former Yugoslav Republic of Macedonia By International Monetary Fund
  36. Central African Republic; 2018 Article IV Consultation, Fifth Review under the Extended Credit Facility Arrangement, and Financing Assurances Review By International Monetary Fund
  37. Low Interest Rates, Market Power, and Productivity Growth By Ernest Liu; Atif Mian; Amir Sufi
  38. Taxation Optimale et Croissance Economique au Togo : une Evidence Empirique en Séries Temporelles By AMEDANOU, Yawovi M. Isaac
  39. This paper investigates whether sunspot equilibria are stable under agents’ adaptive learning with imperfect information sets of exogenous variables. Each exogenous variable is observable for a part of agents and unobservable from others so that agents’ forecasting models are heterogeneously misspecified. The paper finds that stability conditions of sunspot equilibria are relaxed or unchanged by imperfect information. In a basic New Keynesian model with highly imperfect information, sunspot equilibria are stable if and only if nominal interest rate rules violate the Taylor principle. This result is contrast to the literature in which sunspot equilibria are stable only if policy rules follow the principle, and is consistent with the observations during past business cycles fluctuations. By Bruce McGough; Ryuichi Nakagawa
  40. Banking Panics and the Lender of Last Resort in a Monetary Economy By Tarishi Matsuoka; Makoto Watanabe
  41. Imperfect Credibility versus No Credibility of Optimal Monetary Policy By Jean-Bernard Chatelain; Kirsten Ralf
  42. Responses to Savings Commitments: Evidence from Mortgage Run-offs By Steffen Andersen; Philippe d'Astous; Jimmy Martínez-Correa; Stephen H. Shore
  43. Evaluating the Conditionality of Judgmental Forecasts By Travis J. Berge; Andrew C. Chang; Nitish R. Sinha
  44. Housing markets, expectation formation and interest rates By Martin, Carolin; Schmitt, Noemi; Westerhoff, Frank
  45. Kingdom of the Netherlands—Curaçao and Sint Maarten; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  46. Albania; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Albania By International Monetary Fund
  47. Innovationen, Imitationen und Differenzgewinne: Die Barone-Kurve im Kontext wirtschaftlicher Entwicklung By Sell, Friedrich L.
  48. Robustness of the Norwegian wage formation system and free EU labour movement. Evidence from wage data for natives By Ragnar Nymoen; Victoria Sparrman; Bjorn Dapi
  49. Unemployment Fluctuations Over the Life Cycle By Jean-Olivier Hairault; François Langot; Thepthida Sopraseuth
  50. Unemployment Fluctuations Over the Life Cycle By Jean-Olivier Hairault; François Langot; Thepthida Sopraseuth
  51. Romanian`s fiscal policy in the context of the global crisis and implication By Marginean, Mihai
  52. Ukraine; Technical Assistance Report-Report on Residential Property Price Index Capacity Development Mission By International Monetary Fund
  53. 2013 – The Finnish Divergence By Anttonen, Jetro; Kuusi, Tero; Lehmus, Markku; Orjasniemi, Seppo
  54. Trade and currency weapons By Agnès Bénassy-Quéré; Matthieu Bussière; Pauline Wibaux
  55. Macroeconomic evidence suggests that asylum seekers are not a “burden” for Western European countries By Hippolyte D'Albis; Ekrame Boubtane; Dramane Coulibaly
  56. The Indeterminacy of Determinacy with Fiscal, Macro-prudential or Taylor Rules By Jean-Bernard Chatelain; Kirsten Ralf
  57. Effects of bank capital requirement tightenings on inequality By Eickmeier, Sandra; Kolb, Benedikt; Prieto, Esteban
  58. Assessing the impact of credit de-dollarization measures in Peru By Contreras, Alex; Gondo, Rocío; Pérez, Fernando; Oré, Erick
  59. Burkina Faso; 2018 Article IV Consultation; First Review Under the Extended Credit Facility Arrangement; Request for Waiver for Nonobservance of a Performance Criterion, and Modification of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Burkina Faso By International Monetary Fund
  60. Testing for an omitted multiplicative long-term component in GARCH models By Conrad, Christian; Schienle, Melanie
  61. Investment-Specific Technological Change, Taxation and Inequality in the U.S. By Brinca, Pedro; Duarte, João B.; Holter, Hans A.; Oliveira, João G.
  62. Countercyclical Fiscal Policy and Gender Employment: Evidence from the G-7 Countries By Bernardin Akitoby; Jiro Honda; Hiroaki Miyamoto
  63. Bayesian multivariate Beveridge--Nelson decomposition of I(1) and I(2) series with cointegration By Murasawa, Yasutomo
  64. Republic of Belarus; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Belarus By International Monetary Fund
  65. Will a Large Economy Be Stable? By Jos\'e Moran; Jean-Philippe Bouchaud
  66. Convergenta macroeconomica si regionala By Albu, Lucian-Liviu; Marcu, Nicu
  67. Credit Booms in Commodity Exporters By Saldarriaga, Miguel
  68. Seeking Rent in the Informal Sector By Kar, Saibal; Mandal, Biswajit; Marjit, Sugata; Mukherjee, Vivekananda
  69. Capital Stock and Depreciation: Theory and an Empirical Application By F. J. Escribá-Pérez; M. J. Murgui-García; J. R. Ruiz-Tamarit
  70. Senegal; Staff Report for the 2018 Article IV Consultation and Seventh Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria--Debt Sustainability Analysis-Press Release; Staff Report; and Statement by the Executive Director for Senegal By International Monetary Fund
  71. People's Republic of China-Hong Kong Special Administrative Region; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  72. Finland; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Finland By International Monetary Fund
  73. Do High-Wage Jobs Attract more Applicants? Directed Search Evidence from the Online Labor Market By Banfi, Stefano; Villena-Roldán, Benjamín
  74. Transformed Perturbation Solutions for Dynamic Stochastic General Equilibrium Models By Francisco (F.) Blasques; Marc Nientker
  75. Lao People’s Democratic Republic; Technical Assistance Report-Report on National Accounts Statistics Mission By International Monetary Fund
  76. Are Uncertainties across the World Convergent? By Christina Christou; Giray Gozgor; Rangan Gupta; Chi-Keung (Marco) Lau
  77. Green fiscal reform for a just energy transition in Latin America By Jakob, Michael; Soria, Rafael; Trinidad, Carlos; Edenhofer, Ottmar; Bak, Céline; Bouille, Daniel; Buira, Daniel; Carlino, Hernan; Gutman, Veronica; Hübner, Christian; Knopf, Brigitte; Lucena, André; Santos, Luan; Scott, Andrew; Steckel, Jan Christoph; Tanaka, Kanako; Vogt-Schilb, Adrien; Yamada, Koichi
  78. The Impact of Bailouts on the Probability of Sovereign Debt Crises: Evidence from IMF-Supported Programs By Hippolyte W. Balima; Amadou N Sy
  79. Gabon; Gabon: Third Review under the Extended Arrangement Under the Extended Fund Facility, and Requests for Waiver of Nonobservance of Performance Criterion, and Modifications of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Gabon By International Monetary Fund
  80. Forecasting Foreign Economic Growth Using Cross-Country Data By Hakkio, Craig S.; Nie, Jun
  81. Anatomy of Regional Price Differentials: Evidence From Micro Price Data By Sebastian Weinand; Ludwig von Auer

  1. By: van Buggenum, Hugo (Tilburg University, Center For Economic Research); Uras, Burak (Tilburg University, Center For Economic Research)
    Abstract: Holdings of money and illiquid assets are likely to be determined jointly. Therefore, frictions that give rise to a need for money may affect capital formation, resulting in either too much or too little investment. Existing models of money and capital however tend to overlook that both types of investment inefficiencies can be equilibrium outcomes. Building upon insights from the New-Monetarist literature, we construct a model in which preference heterogeneity between agents implies that both over- and under-investment can arise. We use our framework to study whether monetary policy can effectively resolve both types of investment inefficiencies, and find that increasing inflation could resolve under-investment inefficiencies while reducing inflation could curb over-investment inefficiencies.
    Keywords: optiam monetary policy; asses markets; under-investment; over-investment
    JEL: E22 E41 E44 E52 O16
    Date: 2019
  2. By: Thorgeirsson, Thorsteinn
    Abstract: The debate on currency arrangements and monetary policy frameworks in lceland has been motivated by developments in lceland and internationally in recent decades. Historically, lcelanders' colonial experience and struggle to retain control of vital natural resources made them hesitant participants in the European integration process. While sidestepping direct participation in the process leading to EU and EMU membership, they joined EFTA, the EEA and Schengen. Economic growth and development have been rapid, but the modernisation and liberalisation of the economy have been attended by signi:ficant volatility in nominal and real variables. At the same time, the European integration process has continued with its own set of challenges. It is in this context that a vibrant debate has taken place on the choice of currency and associated policies. The main emphasis has been on whether to adopt the euro (through EU membership) or retain the Icelandic króna with the most efficacious monetary policy framework possible. This article offers a review of salient contributions to the debate and the main lessons drawn from it. The key themes of the debate involve the impact currency choice would have on economic growth and resilience to shocks. While the early debate was mostly concerned with trade-theoretic issues, institutional factors have become increasingly important. A new theory concerning a heretofore overlooked policy variable, the evolution of inequality as measured by the wage-productivity gap, is discussed. It is shown to be potentially important for economic and financial outcomes, with implications for the debate.
    Keywords: Currency; exchange rates; monetary stability; financial stability; euro; factor incomes; distribution; wage productivity gap;
    JEL: E12 E13 E31 E32 E42 E52 E58 E63 E64 N12 N14 N22 N24 O47
    Date: 2018–10–12
  3. By: Parantap Basu (Professor, Durham University Business School, Durham University (E-mail:; Kenji Wada (Professor, Faculty of Business and Commerce, Keio University (E-mail:
    Abstract: In this paper, we set up a medium scale new-Keynesian dynamic stochastic general equilibrium (DSGE) model to analyze the effects of various phases of unconventional monetary policy (UMP) on the Japanese bond market. Our model has two novel features: (i) a banking friction in the form of an aggregate bank run risk to motivate commercial banks' demand for excess reserve, and (ii) dynamic linkage between Central Bank resource constraint and the government budget constraint via a transfer payment by the Central Bank to the Treasury. We do three policy simulations to analyze the effects of various phases of UMP shocks on the bond market, namely: (i) effect of a quantitative easing (QE) shock; (ii) the effect of a negative shock to the overnight borrowing rate; and (iii) the effect of a negative shock to the interest rate on banks' excess reserve (IOER). In light of these results, we do an evaluation of the recent yield curve control policy of the Bank of Japan.
    Keywords: QE, QQE, Excess Reserve, Overnight Borrowing Rate, IOER, Yield Curve Control
    JEL: E43 E44 E58
    Date: 2018–08
  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.
    Keywords: Behavioral Macroeconomics,Heterogeneous Beliefs,Limited Cognition,Expectations Formation,Household Finance
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2019
  5. By: D'Acunto, Francesco; Hoang, Daniel; Paloviita, Maritta; Weber, Michael
    Abstract: Intertemporal substitution is at the heart of modern macroeconomics and finance as well as economic policymaking, but a large fraction of a representative population of men - those below the top of the distribution by cognitive abilities (IQ) - do not change their consumption propensities with their inflation expectations. Low-IQ men are also less than half as sensitive to interest-rate changes when making borrowing decisions. Our microdata include unique administrative information on cognitive abilities, as well as economic expectations, consumption and borrowing plans, and total household debt from Finland. Heterogeneity in observables such as education, income, other expectations, and financial constraints do not drive these patterns. Costly information acquisition and the ability to form accurate forecasts are channels that cannot fully explain these results. Limited cognitive abilities could be human frictions in the transmission and effectiveness of fiscal and monetary policies that operate through household consumption and borrowing decisions.
    Keywords: Macroeconomic Beliefs,Limited Cognition,Heterogeneous Agents,Fiscal and Monetary Policy,Survey Data,Household Finance
    JEL: D12 D84 D91 E21 E31 E32 E52 E65
    Date: 2019
  6. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: We introduce "fair" wages in a general-equilibrium model where worker's effort is unobservable and investigate whether such a mechanism can quantitatively account for the degree of real wage rigidity in the Bulgarian labor markets, as documented in Lozev, Vladova, and Paskaleva (2011) and Paskaleva (2016). In contrast to Danthine and Kurmann (2004), here we internalize the effect that past wages have on current effort level. We calibrate the model to Bulgarian data (1999-2016), and quantify the effect of technological shocks on hours and wages in the theoretical setup. Overall, the calibrated model with "fair" wages performs poorly when it comes to the relative volatilities of labor market variables. This is because aggregate labor market conditions, as proxied by the employment rate and past aggregate wages, turn out not to be quantitatively important for business cycles in Bulgaria.
    Keywords: Business cycles, Unobservable effort, Fair wages, unemployment, Bulgaria
    JEL: E24 E32 J41
    Date: 2019–02
  7. By: Nizam, Ahmed Mehedi
    Abstract: The concept of economic multiplier has been extensively used in the design and analysis of the fiscal policy. However, it has never been used to analyse the impact of nominal interest income received by the depositors through the banking channel on the total output. Here, we investigate the impact of nominal interest income on the macroeconomy using multiplier theory. We define and calculate the corresponding multiplier values algebraically and then we empirically calculate them using impulse response analysis. Along the way, we have shown a new mechanism for the transmission of the monetary policy decision which transcends through, as we call it here, the nominal interest income channel.
    Keywords: nominal interest expense; nominal lending rate; nominal interest rate; domestic credit; GDP; economic multiplier; monetary policy transmission mechanism; banking
    JEL: E43 E50 E52 E58 G20 G21
    Date: 2019–02–02
  8. By: António Afonso; Joana Sousa-Leite
    Abstract: We assess the transmission of the Targeted Longer-Term Refinancing Operations (TLTRO) to the bank credit supply for the Euro area (2014:05-2018:01) and for Portugal (2011:01-2018:01), using a panel data setup. For the Euro area, we find a positive relationship between the TLTRO and the amount of credit granted to the real economy. For the vulnerable countries, the effects of the TLTRO on the stock of credit increased from 2016 to 2017. Among the group of small banks, the effects are stronger in less vulnerable countries. We also find that competition has no statistically significant impact on the transmission of the TLTRO to the bank credit supply for the Euro area. For Portugal, using a difference-in-differences model, we find no statistically significant impact of the TLTRO on credit granted by banks. Finally, bidding banks set lower interest rates than non-bidding banks and the difference seems to be larger in 2017. In Portugal, the effects of the TLTRO on loan interest rates also increased from 2016 to 2017 and are stronger for small banks.
    Keywords: Unconventional Monetary Policy, TLTRO, credit supply, lending interest rates, bank-lending channel, Euro area, Portugal.
    JEL: C33 C87 E50 E51 E52 E58
    Date: 2019–01
  9. By: Ansgar Rannenberg (National Bank of Belgium)
    Abstract: I develop a New Keynesian model with preferences over safe assets (POSA) calibrated using evidence on the wedge between household discount rates and market interest rates. POSA attenuate intertemporal consumption smoothing and thus the household’s responsiveness to future interest rates, the more so the more distant in time they are located, and imply a consumption wealth effect. Therefore, POSA substantially lower the macroeconomic effect of forward guidance policies. By contrast, POSA does not substantially change the effect of the standard shocks of Smets/Wouters (2007) type DSGE models. The results carry over to a model with Iacoviello (2005,2014)-type collateral constraints. Such constraints in themselves tend to strongly amplify the effect of forward guidance.
    Keywords: Forward guidance puzzle, preferences over safe assets, monetary policy, collateral constraints
    JEL: E52 E62 E32
    Date: 2019–01
  10. By: Congressional Budget Office
    Abstract: CBO’s projections show a substantial imbalance looming in the federal budget over the next 30 years, with spending outpacing revenues by steadily increasing amounts. As a result, if current laws generally remained unchanged, federal debt would reach an unprecedented share of GDP, intensifying pressures on the federal budget, dampening economic growth, limiting the nation’s ability to respond to unforeseen events, and increasing the likelihood of a fiscal crisis.
    JEL: E20 E60 E61 E62 E66 H50 H51 H53 H55 H60 H61 H62 H63 H68
    Date: 2017–03–30
  11. By: Olivier Coibion; Yuriy Gorodnichenko; Mauricio Ulate
    Abstract: The length of the recovery since the Great Recession and the low reported levels of the unemployment rate in the U.S. are increasingly generating concerns about inflationary pressures. We document that an expectations-augmented Phillips curve can account for inflation not just in the U.S. but across a range of countries, once household or firm-level inflation expectations are used. Given this relationship, we can infer the dynamics of slack from the dynamics of inflation gaps and vice versa. We find that the implied slack was pushing inflation below expectations in the years after the Great Recession but the global and U.S. inflation gaps have shrunk in recent years thus suggesting tighter economic conditions. While we find no evidence that inflation is on the brink of rising, the sustained deflationary pressures following the Great Recession have abated.
    JEL: E24 E31
    Date: 2019–01
  12. By: David Finck (Justus-Liebig-University Giessen); Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: This paper studies the determinants of business cycles in small open economies and adds to the discussion about the changing nature of in flation dynamics. We estimate a series of VAR models for a set of six Asian emerging market economies, in which we identify a battery of domestic and global shocks using sign restrictions. We find that global shocks explain large parts of infl ation and output dynamics. The global shocks are procyclical with respect to the domestic components of economic activity. We estimate Phillips curve regressions based on alternative decompositions of output into global and domestic components. For the domestic component of GDP we find a positive and significant Phillips curve slope. While the output component driven by oil prices 'fl attens' the Phillips curve, the component driven by global demand shocks 'steepens' the trade-off. Hence, whether or not global shocks fl atten the Phillips curve crucially depends on the nature of these global shocks. A series of counterfactuals supports these findings and suggests that the role of monetary policy and exchange rate shocks is limited.
    Keywords: in ation targeting, business cycle, open economy, monetary policy, Phillips curve
    JEL: E3 E5 F4
    Date: 2019
  13. By: Holden, Tom D.; Levine, Paul; Swarbrick, Jonathan M.
    Abstract: We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints, and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. However, even moderately large shocks cause their borrowing constraints to bind, leading to contractions in credit offered to firms, and requiring the intermediaries to raise further funds by paying the cost to issue equity. This leads to the occasional sharp increases in interest spreads and the counter-cyclical, positively skewed equity issuance that are characteristic of the credit crunches observed in the data.
    Keywords: Occasionally binding constraints,Credit crunches,Financial crises,Spreads,Dividends,Equity,Banking
    JEL: E22 E32 E51 G2
    Date: 2018
  14. By: Paul Levine (University of Surrey and CIMS)
    Abstract: This survey and assessment of the state of DSGE modelling is structured around six key criticisms levelled at the approach. The first is fundamental and common to macroeconomics and microeconomics alike - namely, problems with rationality and expected utility maximization. The second is that DSGE models examine fluctuations about an exogenous balanced growth path and there is no role for endogenous growth, either medium or long-term. The third consists of a number of concerns associated with systems estimation. The fourth is another fundamental problem with any microfounded macro-model - that of heterogeneity and aggregation. The fifth and sixth concerns focus on the rudimentary nature of earlier models that lacked unemployment and a banking sector.
    JEL: C11 C18 C32 E32 E47 E52 E62 O44
    Date: 2019–01
  15. By: Christian Grimme
    Abstract: How does uncertainty affect the costs of raising finance in the bond market and via bank loans? Empirically, this paper finds that heightened uncertainty is accompanied by an increase in corporate bond yields and a decrease in bank lending rates. This finding can be explained with a model that includes costly state verification and a special informational role for banks. To reduce uncertainty, banks acquire additional costly information about borrowers. More information increases the value of the lending relationship and lowers the lending rate. Bond investors demand compensation for the increased risk of firm default.
    Keywords: uncertainty shocks, financial frictions, relationship banking, bank loan rate setting, information acquisition
    JEL: E32 E43 E44 G21
    Date: 2019
  16. By: Tzamourani, Panagiota
    Abstract: We estimate the "unhedged interest rate exposure" (URE) of euro area households. The URE is a welfare metric that captures the extent to which households are exposed to changes in real interest rates, and reflects the direct gains and losses in interest income flows incurred by households after such a change. It is defined as the difference between maturing assets and maturing liabilities at a given point in time (Auclert 2019). We examine the distribution of the UREs along the net wealth, income, age and housing status distributions for the euro area as a whole and for individual countries, and document substantial heterogeneity across these dimensions. The median household in the euro area has a positive interest rate exposure, indicating that it would gain, in the first instance, from an increase in the interest rate, all other things remaining constant. Households in the lower end of the net wealth and income distribution, younger households and mortgagors, have negative interest rate exposure and would lose from an increase in interest rates. The heterogeneity across countries is largely attributed to the differences in the prevalence of adjustable rate mortgages (ARMs). Countries with a high prevalence of ARMs have interest rate exposure distributions skewed to the left, with negative mean interest rate exposure. Interest gains/losses after a monetary policy shock can be substantial for households with negative interest rate exposure, particularly for mortgagors, and of a similar (absolute) magnitude to capital gains/losses from associated changes in house prices. Besides the direct distributional consequences and the implications for monetary policy, the distribution of the interest rate exposures may help explain the general public's views with the respect to the prevailing monetary policy regime or the central bank.
    Keywords: interest rate exposure,URE,monetary policy,distributional effects,adjustable rate mortgage (ARM),Household Finance and Consumption Survey (HFCS)
    JEL: D31 E21 E52 E58
    Date: 2019
  17. By: Pérez, Fernando (Banco Central de Reserva del Perú)
    Abstract: There exists a large set of leading indicators that are directly related with GDP growth. However, it is often very difficult to select which of these indicators can be used in order to choose the best shortterm forecasting (nowcasting) model. In addition, it may be the case that more than one model can do this job accurately. Therefore, it would be convenient to average these potentially non-nested models. Following Scott and Varian (2015), we estimate a Structural State Space model through Gibbs Sampling and a spike-slab prior in order to perform the Stochastic Search Variable Selection (SSVS) method. Posterior simulations can be used to then compute the inclusion probability of each variable for the whole set of models considered. In-sample GDP estimates are very precise, taking into account the large set of regressors considered for the estimation. Data comes from the BCRPs database plus other additional sources.
    Keywords: Nowcasting, Gibbs Sampling, Variable Selection, Model Averaging
    JEL: E43 E51 E52 E52 E58
    Date: 2018–12
  18. By: Régis Barnichon; Geert Mesters
    Abstract: We propose a model-free approach for determining the inflation-unemployment trade-off faced by a central bank, i.e., the ability of a central bank to transform unemployment into inflation (and vice versa) via its interest rate policy. We introduce the Phillips multiplier as a statistic to non-parametrically characterize the trade-off and its dynamic nature. We compute the Phillips multiplier for the US, UK and Canada and document that the trade-off went from being very large in the pre-1990 sample period to being small (but significant) post-1990 with the onset of inflation targeting and the anchoring of inflation expectations.
    Keywords: Marginal rate of transformation, inflation-unemployment, trade-off, dynamic multiplier, Instrumental variables, Phillips curve
    JEL: C14 C32 E32 E52
    Date: 2019–01
  19. By: Oliver de Groot (University of St Andrews)
    Abstract: This paper studies the effect of liquidity crises in short-term debt markets in a dynamic general equilibrium framework. Creditors (retail banks) receive imperfect signals regarding the profitability of borrowers (wholesale banks) and, based on these signals and their beliefs about other creditors actions, choose whether to rollover funding, or not. The uncoordinated actions of creditors cause a suboptimal incidence of rollover, generating an illiquidity premium. Leverage magnifies the coordination inefficiency. Illiquidity shocks in credit markets result in sharp contractions in output. Policy responses are analyzed.
    Keywords: Financial frictions, DSGE models, Global games, Bank runs, Unconventional monetary policy, Financial crises
    JEL: D82 E32 E44 G12
    Date: 2019–01–31
  20. By: Michel de Vroey (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: According to Leijonhufvud, the development of economic theory can be compared to a decision tree, the branches of which originate in choices made about basic methodological nodes. My paper is an attempt at putting this insight into practice by reconstructing the recent history of macroeconomics on its basis. To this end, I examine whether the decision-tree framework can explain three crucial turns in the history of the field: (a) the transition from Keynesian to new classical macroeconomics triggered by Lucas; (b) the transition from the Lucas model to Kydland and Prescott’s ‘real business cycle’ modeling strategy; and (c) the transition from RBC modeling to DSGE modeling.
    Keywords: Marshall, Walras, Keynes, Lucas, RBC model, New Keynesian model
    JEL: B22 E12 E E30
    Date: 2018–11
  21. 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 supply-side 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
  22. By: Gondo, Rocío (Banco Central de Reserva del Perú); Pérez, Fernando (Banco Central de Reserva del Perú)
    Abstract: During the last sixteen years, we have experienced an episode of commodity price boom and bust. Despite being exogenous to Latin America, commodity and oil price shocks are extremely relevant for explaining macroeconomic fluctuations. Thus, in this paper we assess the dynamic impact of these price fluctuations for relevant macroeconomic and financial variables for commodity exporting countries in the region (Chile, Colombia, Mexico and Peru) using a Bayesian Hierarchical Panel VAR with an exogenous block. This model is more flexible and less restrictive than a stylized DSGE model. We quantify the strong expansionary effect of these price shocks, and we discuss the connection with i) monetary and macro-prudential policy, ii) the financial sector and iii) the real economy. Furthermore, we observe some degree of heterogeneity across countries both in amplification and propagation patterns.
    Keywords: Panel Vector Autoregressions, Exogenous Block, Bayesian Estimation, Commodity Prices
    JEL: C11 C23 E44 E52 Q02
    Date: 2018–12
  23. By: Franz, Thorsten
    Abstract: House-purchasing decisions and the possibility of existing homeowners to tap into their housing equity depend decisively on prevailing loan-to-value (LTV) ratios in mortgage markets with borrowing constrained households. Utilizing a smooth transition local projection (STLP) approach, I show that monetary policy shocks in the U.S. evoke stronger reactions in the housing sector in times of high LTV ratios, which, through changes in mortgage lending and mortgage equity withdrawals (MEWs), translate into larger effects of consumption. This result is more pronounced for contractionary shocks, in line with occasionally binding constraints. The strong procyclicality of LTV ratios reconciles these findings with past evidence on a less powerful transmission of monetary policy during recessions.
    Keywords: monetary policy,LTV ratio,mortgage equity withdrawals,collateral constraints,local projections,non-linear impulse responses
    JEL: E21 E52 G21 R31
    Date: 2019
  24. By: Robert Lehmann; Timo Wolllmershäuser
    Abstract: This paper investigates the macroeconomic projections of the German government since the 1970s and compares it those of the Joint Economic Forecast, which is an in-dependent forecasting institution in Germany. Our results indicate that nominal GDP projections are upward biased for longer forecast horizons, which seems to be driven by a false assessment of the decline in Germany’s trend growth and a systematic failure to correctly anticipate recessions. We show that the German government also deviates from the projections of the Joint Economic Forecast, which in fact worsened the forecast accuracy. Finally, we find evidence that these deviations are driven by political motives.
    Keywords: macroeconomic forecasting, forecast accuracy, independent forecasting, political economic biases
    JEL: E30 E37 E39
    Date: 2019
  25. By: John B. Donaldson; Rajnish Mehra
    Abstract: We evaluate the properties of mean reversion and mean aversion in asset prices and returns as commonly characterized in the finance literature. The study is undertaken within a class of well-known dynamic stochastic general equilibrium models and shows that the mean reversion/aversion distinction is largely artificial. We then propose an alternative measure, the ‘Average Crossing Time’ that both unifies these concepts and provides an alternative characterization. Ceteris paribus, mean reverting processes have a relatively shorter average crossing time as compared to mean averting processes.
    JEL: C13 C53 E3 E44 E47 G1 G12
    Date: 2019–01
  26. By: Choi, Jason (University of Wisconsin-Madison); Foerster, Andrew (Federal Reserve Bank of San Francisco)
    Abstract: An economy that switches between high and low growth regimes creates incentives for the monetary authority to change its rule. As lower growth tends to produce lower real interest rates, the monetary authority has an incentive to increase the inflation target and increase the degree of inertia in setting rates in an attempt to keep the nominal rate positive. An optimizing monetary authority therefore responds to permanently lower growth by slightly increasing both the inflation target and inertia; focusing solely on the inflation target ignores a key margin of adjustment. With repeated growth rate regime switches, an optimal monetary rule that switches at the same time internalizes both the direct effects of growth regime change and the indirect expectation effects generated by switching in policy. The switching rule improves economic outcomes relative to a constant rule and one that does not consider the impact of regime changes; this result is robust to the case when the monetary authority misidentifies the growth regime with relatively high frequency.
    JEL: C63 E31 E52
    Date: 2019–02–01
  27. By: Edward Nelson
    Abstract: This analysis of Allan Meltzer’s analytical framework focuses on the role that Meltzer assigned to the monetary base. For many years, Meltzer suggested that central banks should use the monetary base as their policy instrument, in place of a short-term nominal interest rate. However, he recognized that in practice central banks did not follow this prescription. He believed that the monetary base could play an important role even when an interest rate was used as the instrument. Meltzer’s reasoning was twofold: (i) The monetary base might shed light on the behavior of important asset prices that mattered for aggregate demand. (ii) The base might serve as a useful indicator of the likely future course of the money stock. In later years, while still emphasizing the valuable indicator properties of the monetary base, Meltzer accepted that interest-rate-based rules could deliver monetary control and economic stabilization. For the situation in which the short-term nom inal interest rate was at its lower bound, Meltzer continued to stress quantities as monetary policy instruments. He felt that, at the lower bound, the central bank remained able, through quantitative easing, to boost asset prices, the money stock, and the economy. Such stimulative actions implied increases in the monetary base; however, Meltzer did acknowledge that the manner in which the base was increased (that is, what asset purchases generated the increase) figured importantly in securing the stimulus.
    Keywords: Monetarism ; Monetary base ; Money supply ; Transmission mechanism
    JEL: E52 E51 E58
    Date: 2019–02–01
  28. By: Kim, Kyungmin (Federal Reserve Board); Martin, Antoine (Federal Reserve Bank of New York); Nosal, Ed (Federal Reserve Bank of Atlanta)
    Abstract: Large-scale asset purchases by the Federal Reserve as well as new Basel III banking regulations have led to important changes in U.S. money markets. Most notably, the interbank market has essentially disappeared with the dramatic increase in excess reserves held by banks. We build a model in the tradition of Poole (1968) to study whether interbank market activity can be revived if the supply of excess reserves is decreased sufficiently. We show that it may not be possible to revive the market to precrisis volumes due to costs associated with recent banking regulations. Although the volume of interbank trade may initially increase as excess reserves are decreased from their current abundant levels, the new regulations may engender changes in market structure that result in interbank trading being completely replaced by nonbank lending to banks when excess reserves become scarce. This nonmonotonic response of interbank trading volume to reductions in excess reserves may lead to misleading forecasts about future fed funds prices and quantities when/if the Fed begins to normalize its balance sheet by reducing excess reserves.
    Keywords: interbank market; monetary policy implementation; balance sheet costs
    JEL: E42 E58
    Date: 2018–11–01
  29. By: International Monetary Fund
    Abstract: Panama has had the longest and fastest economic expansion in recent Latin American history. The economy has expanded at an average rate of about 6 percent per annum over the last quarter of a century, with Panama achieving one of the highest per capita income in Latin America. More recently, GDP grew by about 5½ percent in 2017 (driven by the expanded Canal), and then slowed to 3¾ percent (y/y) in H1-2018. Inflation remained subdued, reaching almost 1 percent (y/y) in September 2018. The external current account deficit stayed at 8 percent of GDP in 2017, mostly covered by FDI. The fiscal position continued to be strong, with the overall deficit of the non-financial public sector (NFPS) at about 1½ percent of GDP. Credit growth has decelerated as financial conditions have started to tighten.
    Date: 2019–01–17
  30. By: Shapiro, Adam Hale (Federal Reserve Bank of San Francisco); Wilson, Daniel J. (Federal Reserve Bank of San Francisco)
    Abstract: There is an extensive literature that studies optimal monetary policy with an assumed central bank loss function, yet there has been very little study of what central bank preferences are in practice. We directly estimate the Federal Open Market Committee's (FOMC) loss function, including the implicit inflation target, from the tone of the language used in FOMC transcripts, minutes, and members' speeches. Direct estimation is advantageous because it requires no knowledge of the underlying macroeconomic structure nor observation of central bank actions. We fi nd that the FOMC had an implicit inflation target of approximately 1 1/2 percent on average over our baseline 2000-2012 sample period. We also find that the FOMC's loss depends strongly on output growth and stock market performance and less so on their perception of current slack.
    Date: 2019–01–18
  31. By: Robert Calvert Jump (University of the West of England); Paul Levine (University of Surrey and CIMS)
    Abstract: This paper provides a bird's eye view of the behavioural New Keynesian literature. We discuss three key empirical regularities in macroeconomic data which are not ac- counted for by the standard New Keynesian model, namely, excess kurtosis, stochastic volatility, and departures from rational expectations. We then present a simple be- havioural New Keynesian model that accounts for these empirical regularities in a straightforward manner. We discuss elaborations and extensions of the basic model, and suggest areas for future research.
    JEL: E30 E32
    Date: 2019–01
  32. By: Taniya Ghosh (Indira Gandhi Institute of Development Research); Prashant Mehul Parab (Indira Gandhi Institute of Development Research)
    Abstract: This study analyses the time varying correlation of money and output using the DCC GARCH model for the Euro, India, Poland, the UK and the US. Apart from simple sum money, this model uses Divisia monetary aggregate, which is theoretically shown as the actual measure of monetary services. The inclusion of Divisia money affirms the Friedman-Schwartz hypothesis that money is procyclical. The procyclical nature of association was not robustly observed in recent data when simple sum money was used.
    Keywords: DCC GARCH, Divisia, Monetary Aggregates, Real Output
    JEL: C32 E52 E51
    Date: 2019–01
  33. By: António Afonso; João Tovar Jalles
    Abstract: We assess, via system GMM, how Stock Flow Adjustments (SFA) affect the debt-to-GDP ratio in 65 countries (covering developed and emerging and low-income countries) between1985-2014. We find that SFAs positively contribute to the change in the debt-to-GDP ratio with a coefficient close to one. The existence of fiscal rules with monitor compliance contributes to lower the debt level. The fall in the debt ratio due to fiscal rules before the crisis was between 1.7%-4.2% of GDP while after the crisis, revenue and debt-based rules did not contribute to the reduction of debt, which was reinforced with large SFAs.
    Keywords: government debt, budget deficit, structural deficit, intertemporal government budget constraint, fiscal rules, panel data, system GMM, filtering
    JEL: E62 F32 F41 H87
    Date: 2019–01
  34. By: RChiara Pederzoli; Costanza Torricelli
    Abstract: The aim of this paper is to gauge the impact in terms of capital requirements of the Fundamental Review of the Trading Book (FRTB). To this end we take a stylized portfolio sensible to the risk factors mostly affected by the review and we implement the new regulation both under the Standard Approach (SA) and the Internal Model Approach (IMA). Our results provide an order of magnitude of the increase across the two regulations and the two approaches (SA and IMA), and disentangle the expected increase implied by the FRTB in its main effects both for the SA and IMA approach. Our analyses prove a very relevant increase especially under the SA and underscore possible implications of the review both in terms of regulamentary model’s choice and business strategies.
    Keywords: trading portfolio, VaR, Expected shortfall, bank regulation
    JEL: E30 E44 G01 G10 G28 E30 E44 G01 G10 G28
    Date: 2019–01
  35. By: International Monetary Fund
    Abstract: More than twelve years after achieving candidate status, FYR Macedonia’s prospects for opening accession negotiations with the European Union are looking hopeful for the first time. The end of the political crisis has revived structural reforms, but investment is yet to gain a strong footing amid lingering uncertainties. Structural policies should focus on addressing longstanding weaknesses in the labor market, judiciary, and public administration to boost productivity and achieve faster income convergence. Macroeconomic policies should support this goal by rebuilding buffers and maintaining financial stability.
    Date: 2019–01–29
  36. By: International Monetary Fund
    Abstract: The Central African Republic (C.A.R.) is a fragile state with an unstable security environment and widespread poverty. Macroeconomic conditions have stabilized following the 2013 crisis: growth has resumed, inflation has declined, domestic revenues have recovered, and debt ratios have decreased. The government’s economic strategy is supported by an arrangement under the Extended Credit Facility (ECF)—launched in July 2016—with total access of SDR 133.68 million (120 percent of quota). Program performance has been satisfactory. All end-June 2018 quantitative and continuous performance criteria were met. Discussions focused on the 2019 budget, policy responses to a higher global oil price, and reforms to improve public financial management and governance. The program is supported by union-level efforts to maintain an appropriate monetary policy stance, build up regional reserves, and promote financial sector stability.
    Keywords: Central African Republic;Sub-Saharan Africa;
    Date: 2018–12–28
  37. By: Ernest Liu; Atif Mian; Amir Sufi
    Abstract: How does the production side of the economy respond to a low interest rate environment? This study provides a new theoretical result that low interest rates encourage market concentration by giving industry leaders a strategic advantage over followers, and this effect strengthens as the interest rate approaches zero. The model provides a unified explanation for why the fall in long-term interest rates has been associated with rising market concentration, reduced dynamism, a widening productivity-gap between industry leaders and followers, and slower productivity growth. Support for the model's key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.
    JEL: E2 E22 G01 G12
    Date: 2019–01
  38. By: AMEDANOU, Yawovi M. Isaac
    Abstract: This paper examines the optimal level of taxation in Togo. After checking for stationarity and structural breaks, we estimate two integrated structural equations for dummy variables constructed to account for significant structural shocks. In fact, the two structural models estimated highlight a U-shaped curve and confirm that the effects exerted by the level of taxation on economic activity in Togo are non-linear. The results from the estimates, covering the period from 1960 to 2016, argue that the optimal tax rate in Togo would be 22.6% of GDP. These results imply that the levels of real GDP and economic growth still achieved by the Togolese economy have remained below their potential.
    Keywords: Optimal taxation, tax revenues, government spending, economic growth
    JEL: E62 H21 O4
    Date: 2019–01–22
  39. By: Bruce McGough (Department of Economics University of Oregon); Ryuichi Nakagawa (Faculty of Economics Kansai University)
    Keywords: Sunspot equilibria; Stability; Adaptive learning; Private information; Heterogeneous beliefs; Taylor principle
    JEL: C62 D83 E52
    Date: 2019–01
  40. By: Tarishi Matsuoka; Makoto Watanabe
    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
  41. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: When the probability of not reneging commitment of optimal monetary policy under quasi-commitment tends to zero, the limit of this equilibrium is qualitatively and quantitatively different from the discretion equilibrium assuming a zero probability of not reneging commitment for the classic example of the new-Keynesian Phillips curve. The impulse response functions and welfare are different. The policy rule parameter have opposite signs. The inflation auto-correlation parameter crosses a saddlenode bifurcation when to near-zero to zero probability of not reneging commitment. These results are obtained for all values of the elasticity of substitution between goods in monopolistic competition which enters in the welfare loss function and in the slope of the new-Keynesian Phillips curve.
    Keywords: Ramsey optimal policy under imperfact commitment,zero-credibility policy,Impulse response function,Welfare,New-Keynesian Phillips curve, zero-,credibility policy, Impulse response function, Welfare, New-Keynesian Phillips,curve
    Date: 2018–07
  42. By: Steffen Andersen; Philippe d'Astous; Jimmy Martínez-Correa; Stephen H. Shore
    Abstract: We study consumers’ responses to removing a saving constraint. Mortgage run-offs predictably relax a saving constraint for borrowers whose mortgage committed them to save by paying down principal. Using the entire Danish population, we identify mortgages on track to run off between 1995 and 2014. We measure the effect of run-offs on earnings and the household balance sheet. We find that borrowers use 39 percent of previous mortgage payments to decrease labor income, and use 53 percent to pay down other debts. Borrowers run up non-mortgage debt prior to the run-off and this run-up stops once the mortgage is repaid.
    Keywords: earnings, savings, mortgage run-off
    JEL: E21 G21 J01
    Date: 2018
  43. By: Travis J. Berge; Andrew C. Chang; Nitish R. Sinha
    Abstract: We propose a framework to evaluate the conditionality of forecasts. The crux of our framework is the observation that a forecast is conditional if revisions to the conditioning factor are faithfully incorporated into the remainder of the forecast. We consider whether the Greenbook, Blue Chip, and the Survey of Professional Forecasters exhibit systematic biases in the manner in which they incorporate interest rate projections into the forecasts of other macroeconomic variables. We do not find strong evidence of systematic biases in the three economic forecasts that we consider, as the interest rate projections in these forecasts appear to be efficiently incorporated into forecasts of other economic variables.
    Keywords: Conditional forecast ; Forecast efficiency ; Macroeconomic forecasting
    JEL: C53 C22 E17
    Date: 2019–02–01
  44. By: Martin, Carolin; Schmitt, Noemi; Westerhoff, Frank
    Abstract: Based on a behavioral stock-flow housing market model in which the expectation formation behavior of boundedly rational and heterogeneous investors may generate endogenous boom-bust cycles, we explore whether central banks can stabilize housing markets via the interest rate. Using a mix of analytical and numerical tools, we find that the ability of central banks to tame housing markets by increasing the base (target) interest rate, thereby softening the demand pressure on house prices, is rather limited. However, central banks can greatly improve the stability of housing markets by following an interest rate rule that adjusts the interest rate with respect to mispricing in the housing market.
    Keywords: housing markets,heterogeneous expectations,variance beliefs,endogenous boom-bust cycles,interest rates,nonlinear dynamics
    JEL: D91 E58 R31
    Date: 2019
  45. By: International Monetary Fund
    Abstract: Weak growth and underlying structural vulnerabilities persist in both Curaçao and Sint Maarten. Worsened macroeconomic conditions—reflecting the spillovers from one of Curaçao’s largest trading partners and the devastation from Hurricanes Irma and Maria in Sint Maarten—make the need for policy adjustment and structural reforms aimed at ensuring fiscal sustainability, enhancing competitiveness, strengthening investor confidence, and developing capacity more urgent.
    Date: 2019–01–25
  46. By: International Monetary Fund
    Abstract: Despite robust GDP growth, projected at 4 percent in 2018, inflation remains below its 3 percent target. The fiscal deficit has stabilized around 2 percent of GDP, implying a modest gradual reduction in public debt, which remains high at close to 70 percent of GDP. Monetary policy was relaxed further in June 2018 following a rapid appreciation of the exchange rate. The current account deficit has moderated over recent years, to about 6.5 percent of GDP. The outlook is mostly positive, with GDP growth projected to converge to 4 percent over the medium term, with inflation stabilizing around its target by 2021. Further fiscal consolidation and an accommodative monetary policy, combined with growth-promoting structural reforms represent the right policy mix.
    Date: 2019–01–28
  47. By: Sell, Friedrich L.
    Keywords: Innovation,imitation,Barone curve,Static and dynamic macro modeling
    JEL: B31 B22 E32 O31 O11 O47
    Date: 2019
  48. By: Ragnar Nymoen; Victoria Sparrman; Bjorn Dapi (Statistics Norway)
    Abstract: Norway experienced a high immigration flow after the EEA directive in 2004 stating workers right to free movement within the European Union and EEA-countries. There is no clear consensus in the literature on how immigration affects native wages, but some studies using Norwegian micro data have estimated a negative effect of higher immigration for some type of workers. In this paper, to capture that the wage setting is highly coordinated in Norway, we model a system of native wages for three sectors; manufacturing, private service industries and public sector. We estimate that labour immigration has had a negative effect on the attainable wage growth for natives in all three sectors, but that the largest and most direct impact on wages has been in the private service industries. Immigration is found to be exogenous with respect to the parameters of our model of wage formation.
    Keywords: Cointegration; Error-correcting adjustment; Estimation and hypothesis testing in cointegrated models; Macroeconomic fluctuations and transmission mechanisms; Short-run and long-run impact; Vector Autoregressive Processes; Pattern wage bargaining; Small open economy wage policies
    JEL: C52 E24 E31 J31
    Date: 2019–02
  49. By: Jean-Olivier Hairault (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); François Langot (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université, TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique); Thepthida Sopraseuth (CEPREMAP - Centre pour la recherche économique et ses applications)
    Abstract: In this paper, we show that (i) the volatility of worker flows increases with age in US CPS data, and (ii) a search and matching model with life-cycle features, endogenous separation and search effort, is well suited to explain this fact. With a shorter horizon on the labor market, older workers' outside options become less responsive to new employment opportunities, thereby making their wages less sensitive to the business cycle. Their job finding and separation rates are then more volatile along the business cycle. The horizon effect cannot explain the significant differences between prime-age and young workers as both age groups are far away from retirement. A lower bargaining power on the youth labor market brings the model closer to the data. JEL Classification: E32, J11, J23
    Keywords: search,matching,business cycle,life cycle
    Date: 2019–01–17
  50. By: Jean-Olivier Hairault (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); François Langot (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université, TEPP - Travail, Emploi et Politiques Publiques - CNRS - Centre National de la Recherche Scientifique - UPEM - Université Paris-Est Marne-la-Vallée); Thepthida Sopraseuth (CEPREMAP - Centre pour la recherche économique et ses applications)
    Abstract: In this paper, we show that (i) the volatility of worker flows increases with age in US CPS data, and (ii) a search and matching model with life-cycle features, endogenous separation and search effort, is well suited to explain this fact. With a shorter horizon on the labor market, older workers' outside options become less responsive to new employment opportunities, thereby making their wages less sensitive to the business cycle. Their job finding and separation rates are then more volatile along the business cycle. The horizon effect cannot explain the significant differences between prime-age and young workers as both age groups are far away from retirement. A lower bargaining power on the youth labor market brings the model closer to the data. JEL Classification: E32, J11, J23
    Keywords: search,matching,business cycle,life cycle
    Date: 2019–01–17
  51. By: Marginean, Mihai
    Abstract: Almost in any field of human activity there are concerns about failures that may occur within it and in this context we will analyse the causes, mode of occurrence and manifestations. Crises are such failures and are studied by different economists after specific criteria. Crises have assigned characteristics of some phenomena with adverse consequences for organizations, institutions and social groups affected. Among these phenomena we can nominate: inflation, unemployment, stagnation, recession etc. Crises can be defined as situations of pronounced instability which are accompanied by volatility and uncertainty growing. During crisis we are in a constant state of anxiety and insecurity about the future, fear or even panic. Our defence instinct and preservation urges us to behave irrationally and emphasize even more the volatility because each of us, with ours cognitive ability, we can filter the information and we can understand the phenomenon in our way, then translating it in a particular conduct relating to the market. The objective of this paper is to highlight the impact of the fiscal policy decisions taken both at global level and in Romania. This paper is structured so that any reader can understand what the crisis is, how it manifested and what measures have been adopted to counteract the effects.
    Keywords: crisis; fiscal policy nonperforming loans.
    JEL: G00 G01
    Date: 2018–11
  52. By: International Monetary Fund
    Abstract: A technical assistance (TA) mission was conducted during June 18–22, 2018 to support the State Statistics Service of Ukraine (SSSU) in improving the residential property price indexes (RPPI) for Ukraine. This was the second of a series of SECO2 RPPI-funded TA missions to take place until mid-2019 that will assist in building staff capacity for further development of the RPPI. RPPIs have been identified as critical ingredients for financial stability policy analysis. The indexes are used by policy makers as an input into design of macroprudential policies, that is, those policies aim to reduce systemic risks arising from “excessive” financial procyclicality (such as asset bubbles). RPPIs are also used by policy makers to inform monetary policy and inflation targeting.
  53. By: Anttonen, Jetro; Kuusi, Tero; Lehmus, Markku; Orjasniemi, Seppo
    Abstract: Abstract In this paper, we use the synthetic control method to analyze the Finnish economic performance after the onset of the Great Recession. Our main interest is to study the slow recovery from the global downturn that began in 2008. We identify the synthetic control with pre-crisis data (1996–2007). It provides the counterfactual response of the Finnish economy to the crisis in the absence of idiosyncratic shocks that affected Finland but not the synthetic control unit. We find that the Finnish GDP growth closely follows the synthetic control until 2013. After that there is a striking divergence in the economic growth of Finland and the expected economic behavior, as represented by the counterfactual. The divergence between the Finnish GDP and its synthetic control is mainly due to underperforming of the Finnish net exports. The consumption expenditures, on the other hand, outperform the synthetic control unit right after the financial crisis, but starting from 2013, they underperform as well. We find that our results are relatively robust to alternative methodological specifications.
    Keywords: Synthetic control method, Comparative case studies, Great Recession, European debt crisis
    JEL: E32 F43 F44
    Date: 2019–02–06
  54. By: Agnès Bénassy-Quéré (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Matthieu Bussière (Banque de France - Banque de France); Pauline Wibaux (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The debate on trade wars and currency wars has re-emerged since the Great recession of 2009. We study the two forms of non-cooperative policies within a single framework. First, we compare the elasticity of trade flows to import tariffs and to the real exchange rate, based on product level data for 110 countries over the 1989-2013 period. We find that a 1 percent depreciation of the importer's currency reduces imports by around 0.5 percent in current dollar, whereas an increase in import tariffs by 1 percentage point reduces imports by around 1.4 percent. Hence the two instruments are not equivalent. Second, we build a stylized short-term macroeconomic model where the government aims at internal and external balance. We find that, in this setting, monetary policy is more stabilizing for the economy than trade policy, except when the internal transmission channel of monetary policy is muted (at the zero-lower bound). One implication is that, in normal times, a country will more likely react to a trade "aggression" through monetary easing rather than through a tariff increase. The result is reversed at the ZLB.
    Keywords: tariffs,exchange rates,trade elasticities,protectionism
    Date: 2018–06
  55. By: Hippolyte D'Albis (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Ekrame Boubtane (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Dramane Coulibaly (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper aims to evaluate the economic and fiscal effects of inflows of asylum seekers into Western Europe from 1985 to 2015. It relies on an empirical methodology that is widely used to estimate the macroeconomic effects of structural shocks and policies. It shows that inflows of asylum seekers do not deteriorate host countries' economic performance or fiscal balance, because the increase in public spending induced by asylum seekers is more than compensated for by an increase in tax revenues net of transfers. As asylum seekers become permanent residents, their macroeconomic impacts become positive.
    Keywords: panel VAR,growth,unemployment,public finances,asylum seekers,net migration
    Date: 2018–06
  56. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (ESCE – International Business School)
    Abstract: The determinacy of dynamic stochastic general equilibrium models including fiscal, macro-prudential or Taylor rules relies on the assumption that policy instruments are forward-looking when policy targets are also forward-looking. Blanchard and Kahn (1980) determinacy condition does not forbid to assume that policy instruments are backward-looking when policy targets are forward-looking, as it is the case for Ramsey optimal policy under quasi-commitment. There is indeterminacy of determinacy unless six criteria are considered which are in favor of assuming that policy instruments are backward-looking when policy targets are forward-looking.
    Keywords: Determinacy,Proportional Feedback rules,Dynamic Stochastic General Equilibrium,Taylor rule,Fiscal rule,Macro-prudential rule,optimal control,Ramsey optimal policy under quasi-commitment
    Date: 2018–09
  57. By: Eickmeier, Sandra; Kolb, Benedikt; Prieto, Esteban
    Abstract: We use a newly constructed narrative measure of regulatory bank capital requirement tightening events (Eickmeier et al., 2018) to examine their effects on household income and expenditure inequality in the US. Income and expenditure inequality both decline (the latter decline being slightly less pronounced than the former). Financial income strongly drops after the regulatory events. Richer households tend to be more exposed to financial markets. Hence, their income and expenditures decline by more than those of poorer households. The monetary policy easing after the regulation is shown to contribute to the decline in inequality at longer horizons, as it cushions the negative effects of the capital requirement tightenings on wages and salaries in the medium run, which represent a considerable share of income for lower- to middle-income households.
    Keywords: Narrative Approach,Bank Capital Requirements,Local Projections,Inequality
    JEL: G28 G18 C32 E44
    Date: 2018
  58. By: Contreras, Alex (Banco Central de Reserva del Perú); Gondo, Rocío (Banco Central de Reserva del Perú); Pérez, Fernando (Banco Central de Reserva del Perú); Oré, Erick (Banco Central de Reserva del Perú)
    Abstract: This paper assesses the impact of de-dollarization measures implemented by the Central Reserve Bank of Peru between the years 2013 and 2016. Our results show that, despite an already slight downward trend in credit dollarization indicators before their implementation, the pace of de-dollarization increased after the adoption of the mentioned policy measures, especially after the announcement in the beginning of 2015. In contrast to a generalized impact of measures in 2015 onwards on all market segments, de-dollarization measures in 2013 affected mainly certain segments by firm size such as corporate and small firms. In addition, an heterogeneous impact is identified by loan size, where banks prefered to substitute larger loans from foreign to domestic currency.
    Keywords: credit dollarization, macroprudential policies, credit register data
    JEL: E58 G21 G28
    Date: 2018–12
  59. By: International Monetary Fund
    Abstract: Burkina Faso faces large social and physical infrastructure gaps, a deteriorating security situation, and unease among the rapidly-expanding population about economic prospects. Growth has been robust, averaging more than 6 percent over the past two years. Activity has been supported by expansionary fiscal policy, including from a boost to capital spending in 2017. Revenue has not increased as expected and the wage bill has been rising.
    Date: 2019–01–22
  60. By: Conrad, Christian; Schienle, Melanie
    Abstract: We consider the problem of testing for an omitted multiplicative long-term component in GARCH-type models. Under the alternative there is a two-component model with a short-term GARCH component that fluctuates around a smoothly time-varying long-term component which is driven by the dynamics of an explanatory variable. We suggest a Lagrange Multiplier statistic for testing the null hypothesis that the variable has no explanatory power. We derive the asymptotic theory for our test statistic and investigate its finite sample properties by Monte-Carlo simulation. Our test also covers the mixed-frequency case in which the returns are observed at a higher frequency than the explanatory variable. The usefulness of our procedure is illustrated by empirical applications to S&P 500 return data.
    Keywords: GARCH-MIDAS,LM test,Long-Term Volatility,Mixed-Frequency Data,Volatility Component Models
    JEL: C53 C58 E32 G12
    Date: 2019
  61. By: Brinca, Pedro; Duarte, João B.; Holter, Hans A.; Oliveira, João G.
    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
  62. By: Bernardin Akitoby; Jiro Honda; Hiroaki Miyamoto
    Abstract: Would countercyclical fiscal policy during recessions improve or worsen the gender employment gap? We give an answer to this question by exploring the state-dependent impact of fiscal spending shocks on employment by gender in the G-7 countries. Using the local projection method, we find that, during recessions, a positive spending shock of 1 percent of GDP would, on average, lift female employment by 1 percent, while increasing male employment by 0.6 percent. Consequently such a shock would improve the female share of employment by 0.28 percentage point during recessions. Our findings are driven by disproportionate employment changes in female-friendly industries, occupations, and part-time jobs in response to fiscal spending shocks. The analysis suggests that fiscal stimulus, particularly during recessions, could achieve the twin objectives of supporting aggregate demand and improving gender gaps.
    Date: 2019–01–11
  63. By: Murasawa, Yasutomo
    Abstract: The consumption Euler equation implies that the output growth rate and the real interest rate are of the same order of integration; thus if the real interest rate is I(1), then so is the output growth rate with possible cointegration, and log output is I(2). This paper extends the multivariate Beveridge--Nelson decomposition to such a case, and develops a Bayesian method to obtain error bands. The paper applies the method to US data to estimate the natural rates (or their permanent components) and gaps of output, inflation, interest, and unemployment jointly, and finds that allowing for cointegration gives much bigger estimates of all gaps.
    Keywords: Natural rate, Output gap, Trend--cycle decomposition, Trend inflation, Unit root, Vector error correction model (VECM)
    JEL: C11 C32 C82 E32
    Date: 2019–02–05
  64. By: International Monetary Fund
    Abstract: The Belarusian economy is in a cyclical recovery, inflation is at historically low levels and the exchange rate has been broadly stable. Although macroeconomic policy frameworks have improved, there is a need to reduce deep seated vulnerabilities such as rapidly rising public debt, high dollarization, and limited trade and financing diversification. In addition, reforms of the large state-owned enterprise sector are critical to tackle inefficiencies and increase potential growth. Risks ahead are elevated; notably, Belarus could lose significant oil-related discounts and transfers due to internal tax changes in Russia, but the authorities are confident of a successful outcome to the ongoing negotiations.
    Date: 2019–01–17
  65. By: Jos\'e Moran; Jean-Philippe Bouchaud
    Abstract: We study networks of firms with Leontief production functions. Relying on results from Random Matrix Theory, we argue that such networks generically become unstable when their size increases, or when the heterogeneity in productivities/connectivities becomes too strong. At marginal stability and for large heterogeneities, we find that the distribution of firm sizes develops a power-law tail, as observed empirically. Crises can be triggered by small idiosyncratic shocks, which lead to "avalanches" of defaults characterized by a power-law distribution of total output losses. We conjecture that evolutionary and behavioural forces conspire to keep the economy close to marginal stability. This scenario would naturally explain the well-known "small shocks, large business cycles" puzzle, as anticipated long ago by Bak, Chen, Scheinkman and Woodford.
    Date: 2019–01
  66. By: Albu, Lucian-Liviu (Institutul de Prognoza Economica al Academiei Române); Marcu, Nicu (Academia de Studii Economice Bucure?ti)
    Abstract: The study is mainly focussed on the analysis of real convergence process in EU and inside of each of three conventional groups of countries (western, southern, and eastern). Moreover, the structural convergence (evaluated by the shares of main sectors of economy in total employment) and regional convergence (inside of each country) are analysed. Generally, dynamics of the estimated specific indicators of convergence after 2000 shows a strong real and structural convergence, both at the level of EU and inside of each groups of countries. However, the study demonstrated a more complex process in case of the regional convergence.
    Keywords: real convergence, structural convergence, regional convergence, behavioural regimes
    JEL: E27 E61 O47 O52
    Date: 2018–12
  67. By: Saldarriaga, Miguel (Banco Central de Reserva del Perú)
    Abstract: This paper identifies 101 credit boom episodes, i.e. periods of exceptional credit growth, in a sample of 115 countries for 1960-2014, and compares the results for commodity exporters and non-commodity exporters. I find that there is no difference in the number and duration of credit booms between commodity exporters and non-commodity exporters, but around two thirds of credit booms in the last four decades in commodity exporters have been associated with high commodity prices. In addition, I find that business cycles dynamics are more exacerbated during a credit boom episode in commodity exporters than in non-commodity exporters, and domestic demand variables tend to end below the trend after the peak of a credit boom. A frequency analysis shows that commodity exporters have a higher likelihood of having credit booms ending in a banking crisis and this result is confirmed by a regression analysis. However, commodity exporters do not have a higher incidence of having a credit boom, and net capital inflows and credit growth remain as the main predictors of these episodes.
    Keywords: Commodity prices, credit booms, banking crises
    JEL: E51 G01 C23
    Date: 2018–12
  68. By: Kar, Saibal (Centre for Studies in Social Sciences, Calcutta); Mandal, Biswajit (Visva Bharati); Marjit, Sugata (Centre for Studies in Social Sciences, Calcutta); Mukherjee, Vivekananda (Jadavpur University)
    Abstract: Rent seeking within the vast informal segment of the developing world is a relatively underdexplored topic in the interface of labor market policies and public economics. Moreover, how rent seeking and corruption within the informal segment is affected by economic reforms targeted for the formal sector is rarely discussed in the literature. This paper fills the gap. We identify conditions under which economic reform in the formal segment will increase the rate of corruption or rent seeking in the informal sector and raise the pay-off for those involved in rent seeking activities. When formal sector contracts due to reforms, offsetting forces determine the magnitude of rent seeking in the informal sector. Thus, economic reforms may increase corruption instead of reducing it, as claimed previously.
    Keywords: corruption, rent seeking, reforms, informal sector, regulators
    JEL: D73 E26 M48
    Date: 2019–01
  69. By: F. J. Escribá-Pérez (Department of Economic Analysis, Universitat de València (Spain)); M. J. Murgui-García (Department of Economic Analysis, Universitat de València (Spain)); J. R. Ruiz-Tamarit (Department of Economic Analysis, Universitat de València (Spain))
    Abstract: There are many puzzles and unresolved problems in empirical economics that depend on the reliability of the productive capital series. Some macroeconomic topics and questions cannot be addressed correctly or answered with the available standard statistical measures of capital stock. We make an innovative contribution to the theory of capital together with an exercise that quantifies the depreciation rate and the capital stock for the U.S. economy. An intertemporal optimization model with adjustment and maintenance costs, gives us the algorithm and the corresponding economic estimation of capital deterioration and obsolescence. Our measures are based on profitability and the Tobin’s q ratio.
    Keywords: Capacity Utilization, Capital, Depreciation, Maintenance, Obsolescence, Tobin’s q
    JEL: C61 D21 E22
    Date: 2019–01–03
  70. By: International Monetary Fund
    Abstract: Senegal’s main challenge is sustaining high GDP growth rates while maintaining fiscal sustainability and improving the business environment to create jobs for the fast-growing population. The second phase of the Plan Sénégal Emergent (PSE) covering 2019-23 sets out a comprehensive reform agenda to achieve these objectives. Fiscal reforms should aim to increase revenues, strengthen public financial management (PFM), and improve the composition and quality of spending. Structural reforms to facilitate private investment and competitiveness would provide durable sources of growth, while development of a fiscal framework for oil and gas aligned with international best practice would ensure that these natural resources provide high economic and social returns. Further progress on improving the business environment will require simplifying tax administration and reforms to facilitate SME access to finance, and further develop the Special Economic Zones (SEZs). Policies to address gender and inequality issues would contribute to poverty reduction and well-distributed growth.
    Date: 2019–01–28
  71. By: International Monetary Fund
    Abstract: Hong Kong SAR’s economy benefitted from a strong cyclical upswing through the first half of 2018, supported by the continued global recovery, buoyant domestic sentiment, and the booming property market. However, near-term risks have significantly increased – including those from trade tensions, tighter global financial conditions, and capital outflows from emerging markets. Also, long-term challenges, including from aging, elevated inequality, and the persistent housing shortage, need to be tackled. Prudent macroeconomic policies and ample buffers are in place to help smoothen the transition and ensure continued stability.
    Date: 2019–01–24
  72. By: International Monetary Fund
    Abstract: Recent growth has been healthy, and the unemployment rate has fallen to its lowest level since 2011. However, some underlying weaknesses remain. The rate in which new jobs are created and the “churn” of workers relocating across jobs has not picked up with the recovery, labor productivity growth remains weak, and the outlook for potential growth is constrained by a shrinking workforce. Household debt has been increasing as the economy has recovered, and some borrowers appear vulnerable to interest rate increases.
    Date: 2019–01–15
  73. By: Banfi, Stefano; Villena-Roldán, Benjamín
    Abstract: Labor markets become more efficient in theory if jobseekers direct their search. Using online job board data, we show that high-wage ads attract more applicants as in directed search models. Due to distinctive data features, we also estimate significant but milder directed search for hidden (or implicit) wages, suggesting that ad texts and requirements tacitly convey wage information. Since explicit-wage ads often target unskilled workers, other estimates in the literature ignoring hidden-wage ads may suffer from selection bias. Moreover, job ad requirements are aligned with their applicants' traits, as predicted in directed search models with heterogeneity.
    Keywords: Directed search, wage posting, online job search
    JEL: E24 J42 J64
    Date: 2018–04–01
  74. By: Francisco (F.) Blasques (VU Amsterdam, The Netherlands); Marc Nientker (VU Amsterdam, The Netherlands)
    Abstract: This paper introduces a new solution method for Dynamic Stochastic General Equilibrium (DSGE) models that produces non explosive paths. The proposed solution method is as fast as standard perturbation methods and can be easily implemented in existing software packages like Dynare as it is obtained directly as a transformation of existing perturbation solutions proposed by Judd and Guu (1997) and Schmitt-Grohe and Uribe (2004), among others. The transformed perturbation method shares the same advantageous function approximation properties as standard higher order perturbation methods and, in contrast to those methods, generates stable sample paths that are stationary, geometrically ergodic and absolutely regular. Additionally, moments are shown to be bounded. The method is an alternative to the pruning method as proposed in Kim et al. (2008). The advantages of our approach are that, unlike pruning, it does not need to sacrifice accuracy around the steady state by ignoring higher order effects and it delivers a policy function. Moreover, the newly proposed solution is always more accurate globally than standard perturbation methods. We demonstrate the superior accuracy of our method in a range of examples.
    Keywords: Higher-order perturbation approximation; non-explosive simulations; stochastic stability
    JEL: C15 C63 E00
    Date: 2019–02–05
  75. By: International Monetary Fund
    Abstract: A technical assistance mission was conducted during July 2–13, 2018 to support measurement of Lao PDR’s national accounts statistics. The mission assisted with the development of a quarterly GDP time series, reviewed the published annual GDP time series, and developed recommendations to continue improving national accounts statistics compiled by the Lao Statistics Bureau (LSB). The mission built upon previous national accounts statistics missions conducted in April 2017 and January 2018.
    Keywords: Asia and Pacific;
    Date: 2019–01–10
  76. By: Christina Christou (School of Economics and Management, Open University of Cyprus, 2252, Latsia, Cyprus); Giray Gozgor (Istanbul Medeniyet University, Istanbul, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Chi-Keung (Marco) Lau (Huddersfield Business School, University of Huddersfield, Huddersfield, HD1 3DH, United Kingdom)
    Abstract: We analyse the convergence of a news-based measure of uncertainty across 143 countries (spanning 99 percent of world GDP) over the quarterly period of 1996:01 to 2018:03. We apply a panel data-based unit root test, which controls for both nonlinearity and cross-sectional dependence, to the ratio of the uncertainty of individual countries relative to that of global uncertainty. We find overwhelming evidence of stationarity in 141 of the cross-sectional units, leading to a rejection of the null of a unit root for the entire panel. Our results provide strong evidence of convergence and hence, the spillover of uncertainty spillover across the economies of the world. Given this, policymakers need to be alert all the time to counteract the negative impact on the domestic economy in the wake of uncertainty increases around the world.
    Keywords: uncertainty, economic policy, convergence, nonlinear panel data unit root test
    JEL: O47 D80 C21
    Date: 2019–01
  77. By: Jakob, Michael; Soria, Rafael; Trinidad, Carlos; Edenhofer, Ottmar; Bak, Céline; Bouille, Daniel; Buira, Daniel; Carlino, Hernan; Gutman, Veronica; Hübner, Christian; Knopf, Brigitte; Lucena, André; Santos, Luan; Scott, Andrew; Steckel, Jan Christoph; Tanaka, Kanako; Vogt-Schilb, Adrien; Yamada, Koichi
    Abstract: Green fiscal reforms would contribute to climate change mitigation, increase the economic efficiency of national tax systems and provide additional public revenues. Some countries in Latin America have already taken first steps towards green fiscal reforms. This paper provides an overview of the major challenges for the successful implementation of such reforms and discusses how they could be overcome. The authors first discuss the role of country-specific economic and political enabling conditions that need to be in place for successful implementation for green successful reforms. Second, they emphasize the importance of comprehensive reform plans that include all relevant ministries and agencies and are well-aligned with other policy objectives, such as energy security and industrial development. Third, they highlight how appropriate sequencing and gradualism could lower implementation costs and hence increase the political feasibility of green fiscal reforms. Finally, the authors analyze the potential impacts of green fiscal reforms on the distribution of income and discuss transfer schemes that could avoid adverse outcomes for the poorest parts of the population. They use these four dimensions to illustrate why recent reform efforts in selected Latin American countries have been successful or have failed, respectively.
    Keywords: green fiscal reform,energy subsidies,Latin America,multi-objective climate policy,sequencing,distribution
    JEL: H23 E62 Q54 N16 Q48
    Date: 2018
  78. By: Hippolyte W. Balima; Amadou N Sy
    Abstract: This paper studies the role of IMF-supported programs in mitigating the likelihood of subsequent sovereign defaults in borrowing countries. Using a panel of 106 developing countries from 1970 to 2016 and an entropy balancing methodology, we find that IMF-supported programs significantly reduce the likelihood of subsequent sovereign defaults. This finding is robust to different specifications of the entropy balancing and alternative identification strategies. Our results suggest that a country that signs a program with the IMF, typically experiences a slight improvement in its sovereign credit rating and a decrease in both government debt-to-GDP and fiscal deficit-to-GDP.
    Date: 2019–01–11
  79. By: International Monetary Fund
    Abstract: Political risks appear to have subsided with the completion of legislative and local elections in October. The economy is slowly recovering, fiscal consolidation has continued, inflation has remained low, and the trade balance has improved. The recovery is expected to firm up in 2019 and the medium-term outlook is still promising, although risks remain mostly tilted to the downside.
    Date: 2019–01–22
  80. By: Hakkio, Craig S. (Federal Reserve Bank of Kansas City); Nie, Jun (Federal Reserve Bank of Kansas City)
    Abstract: We construct a monthly measure of foreign economic growth based on a wide range of cross-county indicators. Unlike GDP data, which are normally released with a delay of one to two quarters in most countries, our monthly measure incorporates monthly information up to the current month. As new information arrives, this measure of foreign growth can be updated as frequently as daily. This monthly measure of foreign growth not only helps gauge the economic conditions in other countries but also provides a timely measure of foreign demand to help forecast U.S. export growth.
    JEL: E17 F17
    Date: 2019–12–01
  81. By: Sebastian Weinand; Ludwig von Auer
    Abstract: Our paper uses micro price data collected from Germany’s Consumer Price Index to compile a highly disaggregated regional price index for the 402 counties and cities of Germany. We introduce a multi-stage version of the weighted Country-Product-Dummy method. The unique quality of our price data allows us to depart from previous spatial price comparisons and to compare only exactly identical products. We find that the price levels are spatially autocorrelated and largely driven by the cost of housing. The price level in the most expensive region is about 27 percent higher than in the cheapest region.
    Keywords: spatial price comparison, regional price index, PPP, CPD-method, hedonic regression, consumer price data
    JEL: C21 C43 E31 O18 R10
    Date: 2019

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