nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒02‒18
ninety-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Firm beliefs and long-run demand effects in a labor-constrained model of growth and distribution By Daniele Tavani; Luke Petach
  2. Trade Exposure and the Evolution of Inflation Dynamics By Simon Gilchrist; Egon Zakrajsek
  3. The euro-area output gap through the lens of a DSGE model By Lorenzo Burlon; Paolo D'Imperio
  4. Quantitative easing in the euro area and SMEs' access to finance: Who benefits the most? By Anne Kathrin Funk; ;
  5. Should Monetary Policy Lean against the Wind? An Evidence from a DSGE Model with Occasionally Binding Constraint By Jan Zacek
  6. Benefits of gradualism or costs of inaction? Monetary policy in times of uncertainty By Giuseppe Ferrero; Mario Pietrunti; Andrea Tiseno
  7. Towards Technology-News-Driven Business Cycles By Di Casola, Paola; Sichlimiris, Spyridon
  8. Policy Mandates and Institutional Architecture By Ioannis Lazopoulos; Vasco J. Gabriel
  9. The Housing Wealth Effect: Quasi-Experimental Evidence By Kessel, Dany; Tyrefors, Björn; Vestman, Roine
  10. Monetary Policy Options at the Effective Lower Bound : Assessing the Federal Reserve's Current Policy Toolkit By Hess Chung; Etienne Gagnon; Taisuke Nakata; Matthias Paustian; Bernd Schlusche; James Trevino; Diego Vilan; Wei Zheng
  11. The Housing Wealth Effect: Quasi-Experimental Evidence By Kessel, Dany; Tyrefors, Björn; Vestman, Roine
  12. Role of expectations in a liquidity trap By Kohei Hasui; Yoshiyuki Nakazono; Yuki Teranishi
  13. Money-financed fiscal stimulus: The effects of implementation lag By Takayuki Tsuruga; Shota Wake
  14. Do the ECB’s monetary policies benefit emerging market economies? A GVAR analysis on the crisis and post-crisis period By Andrea Colabella
  15. A critical analysis of the secular stagnation theory By Stefano Di Bucchianico
  16. Firms’ inflation expectations and investment plans By Adriana Grasso; Tiziano Ropele
  17. Price Rigidity in China: Empirical Results at Home and Abroad By Chong, Terence Tai Leung; Wu, Zhang
  18. The Monetary and Fiscal History of Peru, 1960-2017: Radical Policy Experiments, Inflation and Stabilization By Marco Vega; César Martinelli
  19. Canada’s Monetary Policy Report: If Text Could Speak, What Would It Say? By André Binette; Dmitri Tchebotarev
  20. Crypto ‘Money’: Perspective of a Couple of Canadian Central Bankers By James Chapman; Carolyn A. Wilkins
  21. Determinants of International Consumption Risk Sharing in Developing Countries By Gardberg, Malin
  22. Deciphering Monetary Policy Board Minutes through Text Mining Approach: The Case of Korea By Ki Young Park; Youngjoon Lee; Soohyon Kim
  23. Tax Evasion as Contingent Debt By Christos Kotsogiannis; Xavier Mateos-Planas
  24. The Effects of Macroeconomic, Fiscal and Monetary Policy Announcements on Sovereign Bond Spreads: An Event Study from the EMU By António Afonso; João Tovar Jalles; Mina Kazemi
  25. Inflation Dynamics in Turkey from a Bayesian Perspective By Fethi Ogunc; Mustafa Utku Ozmen; Cagri Sarikaya
  26. Job Heterogeneity and Aggregate Labor Market Fluctuations By Krolikowski, Pawel
  27. Outlier detection in TARGET2 risk indicators By Ronald Heijmans; Chen Zhou
  28. The link between labor cost and price inflation in the euro area By Bobeica, Elena; Ciccarelli, Matteo; Vansteenkiste, Isabel
  29. The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result By Lindé, Jesper; Pescatori, Andrea
  30. Fiscal Policy, Monetary Policy and Economic Growth in Sub-Saharan Africa By Ubi-Abai, Itoro; Ekere, Daniel
  31. Empowering central bank asset purchases: The role of financial policies By Darracq Pariès, Matthieu; Körner, Jenny; Papadopoulou, Niki
  32. Long Term Government Bonds By Faraglia, E.; Marcet, A.; Oikonomou, R.; Scott, A.
  33. The Tail that Wags the Economy: Beliefs and Persistent Stagnation By Kozlowski, Julian; Veldkamp, Laura; Venkateswaran, Venky
  34. Trend Growth Shocks and Asset Prices By Nam Gang Lee
  35. Consumer Spending During Unemployment: Positive and Normative Implications By Peter Ganong; Pascal Noel
  36. Labour and capital remuneration in the OECD countries By Stefania Gabriele; Enrico D’Elia
  37. Karl Brunner and U.K. Monetary Debate By Edward Nelson
  38. The Nonpuzzling Behavior of Median Inflation By Laurence M. Ball; Sandeep Mazumder
  39. Uncertainty, Attention Allocation and Monetary Policy Asymmetry By Kwangyong Park
  40. Asset Prices and Corporate Responses to Bank of Japan ETF Purchases By Ben Charoenwong; Randall Morck; Yupana Wiwattanakantang
  41. Fading Stars By Germán Gutiérrez; Thomas Philippon
  42. Floating-rate bonds and monetary policy effectiveness: insights from a DSGE model By Paulo de Carvalho Lins; Marcio Issao Nakane
  43. Modelo de Desarrollo Propio y su Potencial para la Construcción de Paz Territorial. By José U Mora; Rafael A Acevedo
  44. The Interaction between Yield Curve and Macroeconomic Factors By Oguzhan Cepni; Ibrahim Ethem Guney; Doruk Kucuksarac; Muhammed Hasan Yilmaz
  45. Perspectives on the Economic Outlook and Monetary Policy in the Coming Year: 02-04-2019; The 50 Club, Cleveland, Ohio By Mester, Loretta J.
  46. Big Data and Firm Dynamics By Maryam Farboodi; Roxana Mihet; Thomas Philippon; Laura Veldkamp
  47. Sectoral Shocks and Home Substitution By Alessio Moro; Satoshi Tanaka
  48. Central Bank Policies and Financial Markets: Lessons from the Euro Crisis By Ashoka Mody; Milan Nedeljkovic
  49. The impact of the ECB’s targeted long-term refinancing operations on banks’ lending policies: the role of competition By Desislava C. Andreeva; Miguel García-Posada
  50. Short-Term and Long-Term Determinants of Moderate Wage Growth in the EU By Kiss, Aron; Van Herck, Kristine
  51. The Effect of Fed’s Future Policy Expectations on Country Shares in Emerging Market Portfolio Flows By Zelal Aktas; Yasemin Erduman; Neslihan Kaya Eksi
  52. Tax Policy and Local Labor Market Behavior By Daniel G. Garrett; Eric C. Ohrn; Juan Carlos Suárez Serrato
  53. The Impact of Monetary Policy Stance, Financial Conditions, and the GFC on Investment-Cash Flow Sensitivity By Selcuk Gul; Huseyin Tastan
  54. Explaining the labor share: automation vs labor market institutions By Guimarães, Luis; Gil, Pedro
  55. Identification Versus Misspecification in New Keynesian Monetary Policy Models By Adolfson, Malin; Laséen, Stefan; Lindé, Jesper; Ratto, Marco
  56. Net External Position, Financial Development, and Banking Crisis By Aytul Ganioglu
  57. Exchange Rate Pass-Through to Prices: VAR Evidence for Albania By Matuka, Adelajda
  58. The Outlook for the Economy and Monetary Policy; 02.13.19; University of Kentucky Gatton College of Business and Economics, 2019 Economic Outlook Conference, Lexington, KY By Mester, Loretta J.
  59. The Outlook for the Economy and Monetary Policy; 02.12.19; Financial Executives International and Xavier University, Cincinnati, OH By Mester, Loretta J.
  60. "Economic Planning under Capitalism: The New Deal and Postwar France Experiments" By Fernando J. Cardim de Carvalho
  61. Ten Years after the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research? By Valerie A. Ramey
  62. File-URL: Internal Habit Formation and Optimality By Mauro Bambi; Fausto Gozzi
  63. The Global Macroeconomics of a Trade War. The EAGLE model on the US-China trade conflict By Wilko Bolt; Kostas Mavromatis; Sweder van Wijnbergen
  64. Envelope Wages, Hidden Production and Labor Productivity By Di Nola, Alessandro; Kocharkov, Georgi; Vasilev, Aleksandar
  65. The Australian real-time fiscal database: A overview and an illustration of its use in analysing planned and realised fiscal policies By Kevin Lee; James Morley; Kalvinder Shields; Madeleine Sui-Lay Tan
  66. Finance and Wealth Inequality By Iftekhar Hasan; Roman Horvath; Jan Mares
  67. On the interaction between real economy and financial markets. By Grassetti, Francesca; Mammana, Cristiana; Michetti, Elisabetta
  68. On Regional Borrowing, Default, and Migration By Gordon, Grey; Guerron-Quintana, Pablo
  69. The impacts of fiscal openness By de Renzio, Paolo; Wehner, Joachim
  70. FDI asymmetries in emerging economies:the case of Colombia. By José U Mora Mora; Celso J Costa Junior
  71. Measuring the fiscal multiplier when plans take time to implement By Kevin Lee; James Morley; Kian Ong; Kalvinder Shields
  72. Uncertainty and sign-dependent effects of oil market shocks By Bao H. Nguyen; Tatsuyoshi Okimoto; Trung Duc Tran
  73. Consumption inequality in France between 1995 and 2011 By Ch.-M. CHEVALIER
  74. The Interaction between Monetary and Fiscal Policies in a Small Scale Structural Model By Tayyar Buyukbasaran; Cem Cebi; Hande Kucuk
  75. Predictors of Bank Distress:The 1907 Crisis in Sweden By Grodecka, Anna; Kenny, Seán; Ögren, Anders
  76. Playing with Money By Davis, Douglas; Korenok, Oleg; Norman, Peter; Sultanum, Bruno; Wright, Randall
  77. Incorporating CO2 emissions into macroeconomic models through primary energy use By Grant Allan; Kevin Connolly; Andrew G Ross; Peter McGregor
  78. Patterns and Determinants of Intergenerational Educational Mobility: Evidence Across Countries By Lee, Hanol; Lee, Jong-Wha
  79. Wealth Management and Uncertain Tipping Points By Steinar Strøm; Jon Vislie
  80. Two-sided Market, R&D and Payments System Evolution By Li, Bin Grace; McAndrews, James J.; Wang, Zhu
  81. Firm Entry and Exit and Aggregate Growth By Asturias, Jose; Hur, Sewon; Kehoe, Timothy J.; Ruhl, Kim J.
  82. Dependence of “Fragile Five" and “Troubled Ten" Emerging Markets' Financial System to US Monetary Policy and Monetary Policy Uncertainty By Meltem Gulenay Chadwick
  83. Fertility, Inequality and Income Growth By Masaya Shintani; Masaya Yasuoka
  84. Explaining Exchange Rate Movements Using Yield Curves in Emerging Countries By Murat Duran
  85. The Impacts of Macroeconomic News Announcements on Intraday Implied Volatility By Jieun Lee; Doojin Ryu
  86. Unraveling News: Reconciling Conflicting Evidence By Maria Bolboaca; Sarah Fischer
  87. Outline of a redistribution-free debt redemption fund for the euro area By Marika Cioffi; Pietro Rizza; Marzia Romanelli; Pietro Tommasino
  88. An Anatomy of a Sudden Stop and the Credit Supply Channel By Salih Fendoglu; Steven Ongena
  89. Narratives about Technology-Induced Job Degradations Then and Now By Robert J. Shiller
  90. Pro-competitive effects of globalisation on prices, productivity and markups: Evidence in the Euro Area By R. S.-H. LEE; M. PAK
  91. Nowcasting Annual Turkish GDP Growth with MIDAS By Mahmut Gunay
  92. Expected Effects of the US Tax Reform on Other Countries: Global and Local Survey Evidence By Dorine Boumans; Clemens Fuest; Carlo Krolage; Klaus Wohlrabe

  1. By: Daniele Tavani (Colorado State University (US)); Luke Petach
    Abstract: One of the most debated questions in alternative macroeconomics regards whether demand policies have permanent or merely transitory effects. While Kaleckian ecoomists have argued that demand matters even in the long run, both economists operating within other Keynesian traditions (e.g. Skott, 1989) as well as Classical economists argue that in the long-run output growth is constrained by the so-called natural rate. This paper attempts to bridge the gap by analyzing the role of firm beliefs about the state of the economy in a labor-constrained growth and distribution model based on Kaldor (1956) and Goodwin (1967) but featuring an explicitly dynamic choice of capacity utilization. We show that: (i) the relevance of such beliefs generates an inefficiently low utilization rate and labor share in equilibrium; but (ii) the efficient utilization rate can be implemented through fiscal policy. Under exogenous technical change, (iii) the inefficiency does not affect equilibrium employment and growth, but expansionary fiscal policy has positive level effects on both GDP and the labor share. Conversely, (iv) with an endogenous bias of technical change, fiscal policy will have not just level effects but also long-run effects on labor productivity growth and the employment rate. Finally, (v) the fact that the choice of utilization responds to income shares has a stabilizing effect on growth cycles, even under exogenous technical change, that is analogous to factor substitution.
    Keywords: Beliefs, Capacity Utilization, Coordination Failures, Factor Shares, Fiscal Policy
    JEL: E12 E22 E25 E62
    Date: 2019–02
  2. By: Simon Gilchrist; Egon Zakrajsek
    Abstract: The diminished sensitivity of inflation to changes in resource utilization that has been observed in many advanced economies over the past several decades is frequently linked to the increase in global economic integration. In this paper, we examine this "globalization" hypothesis using both aggregate U.S. data on measures of inflation and economic slack and a rich panel data set containing producer prices, wages, output, and employment at a narrowly defined industry level. Our results indicate that the rising exposure of the U.S. economy to international trade can indeed help explain a significant fraction of the overall decline in responsiveness of aggregate inflation to fluctuations in economic activity. This flattening of the U.S. Phillips curve is supported strongly by our cross-sectional evidence, which shows that increased trade exposure significantly attenuates the response of inflation to fluctuations in output across industries. Our estimates indicate that the inflation-output tradeoff is about three times larger for low-trade intensity industries compared with their high-trade intensity counterparts.
    Keywords: Inflation ; Phillips curve ; Trade share ; Globalization
    JEL: E31 E30 E32
    Date: 2019–02
  3. By: Lorenzo Burlon (Bank of Italy); Paolo D'Imperio (Sapienza University of Rome)
    Abstract: The paper provides estimates of the euro-area output gap, based on a relatively standard medium scale DSGE model estimated recursively with Bayesian techniques over the period 1985-2016. The main findings can be summarized as follows. First, our measure of output gap identifies episodes of expansion and recession generally in line with the official business cycle dating of the CEPR. Second, unlike measures of output gap obtained by means of statistical filtering techniques, real-time DSGE-based estimates are remarkably stable and hence are less prone to ex-post revisions. According to our results, the euro-area output gap was -3.4% in 2016, more negative than assessed by most economic analysts and institutions (spanning a range between from 0 and to -2%), but arguably more consistent with the still weak dynamics of both labour costs and core inflation.
    Keywords: output gap, potential output, DSGE modelling, Bayesian estimation, euro area
    JEL: C11 E32 E37 E66
    Date: 2019–01
  4. By: Anne Kathrin Funk (IHEID, Graduate Institute of International and Development Studies, Geneva); ;
    Abstract: After the global financial crisis and during the European sovereign debt crisis, bank lending to companies in the euro area slowed down dramatically, bringing the economy close to a credit crunch. It was only after the start of the European Central Bank (ECB) quantitative easing programme in early 2015 that bank lending improved sustainably. This study analyses the impact of the ECB’s Public Sector Purchase Programme (PSPP) on the access to finance of small- and medium-sized enterprises using firm-level data of the Survey on the Access to Finance of Enterprises and a fixed effects model. The analysis comprises several measures of financial access, such as credit availability, financial constraints, and interest rates. The micro-level nature of the data allows me to distinguish between aggregate and heterogeneous effects across firm size, age, sector, and country. The ECB’s government bond purchases improved financial access on the aggregate euro area level and particularly in the periphery of the euro area. Hence, countries that need the most stimulus benefit the most from the PSPP.
    Keywords: Unconventional monetary policy, credit channel, bank lending, ECB, SME
    JEL: E44 E51 E52 E58
    Date: 2019–02–14
  5. By: Jan Zacek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: This research paper studies the performance of the Taylor-type rules augmented with output and asset prices, and compares their performance in a model with an eternally and occasionally binding constraint. The rules are examined under the optimisation of a central bank's loss function and a welfare maximisation of the economic agents. The analysis delivers the following results. The model with occasionally binding constraint has more favourable properties regarding the hump-shaped and asymmetric impulse responses compared to the eternally binding constraint model. The best rule regarding the lowest value of the central banks' loss function proves to be the rule augmented with asset prices. The optimal reactions are, however, shock- and model-dependent. Moreover, a chosen specification of the loss function plays a significant role. The welfare maximisation reveals that reacting to asset prices might not be welfare-improving for both types of economic agents – households and entrepreneurs. This result is, however, model-dependent.
    Keywords: asset prices, DSGE, leaning-against-the-wind, monetary policy, non-linearities, Taylor Rule
    JEL: E30 E44 E50
    Date: 2018–12
  6. By: Giuseppe Ferrero (Bank of Italy); Mario Pietrunti (Bank of Italy); Andrea Tiseno (Bank of Italy)
    Abstract: Should monetary policy be more aggressive or more cautious when facing uncertainty on the relationship between macroeconomic variables? This paper's answer is: “it depends” on the degree of persistence of the shocks that hit the economy. The paper studies optimal monetary policy in a basic (two-equation) forward looking New-Keynesian (NK) framework with random parameters. It relaxes the assumption of full central bank information in two ways: by allowing for uncertainty on the model parameters and by assuming asymmetric information. While the private sector observes the realizations of the random process of the parameters as they occur, the central bank observes them with a one period delay. Compared to the problem with full information, the monetary authority must solve the Bayesian decision problem of minimizing the expected stream of future welfare losses integrating over its prior probability distribution of the unknown parameters. The paper proposes a general method to account for uncertainty on any subset of parameters of the model. As an application, it focuses on two cases: uncertainty on the natural rate of interest and on the slope of the Phillips curve.
    Keywords: optimal monetary policy, parameter uncertainty, asymmetric information, natural rate of interest, Phillips curve
    JEL: E31 E32 E52
    Date: 2019–02
  7. By: Di Casola, Paola (Monetary Policy Department, Central Bank of Sweden); Sichlimiris, Spyridon (Örebro University and Central Bank of Sweden)
    Abstract: We identify an inflationary technology news shock as the leading source of business cycle variations for the postwar U.S. economy. This shock acts like a demand shock: it induces strong positive comovement in real quantities - GDP, consumption, investment - and weak positive comovement between real quantities and inflation, contrary to the view that anticipated technological innovations reduce inflation. The technology news shock became the predominant source of the business cycle from the 80’s. The reason is that anticipated improvements in future technology lead to improvements in financing conditions. The monetary policy response to these anticipations is contractionary in the short run, independently of the sample period. However, the response is more short-lived from the 80’s than before and with respect to other non-technology shocks. Finally, the inclusion of sentiment, uncertainty and TFP measurement error shocks does not affect the importance of the technology news shock.
    Keywords: total factor productivity; business cycle; technology news shocks; demand shocks; financial sector transmission; monetary policy
    JEL: E20 E31 E32 E44 E52 O33
    Date: 2018–11–01
  8. By: Ioannis Lazopoulos (University of Surrey); Vasco J. Gabriel (University of Surrey and NIPE-UM)
    Abstract: The model developed in this paper examines the interaction between monetary and macroprudential policies in promoting macroeconomic stability, highlighting the role of shocks and policy instruments. The paper shows that assigning the mandates of monetary and financial stability to independent authorities enhances macroeconomic stability only when some level of coordination exists between policymakers and it is the dominant institutional arrangement when monetary stability is socially important. Instead, when society values financial stability, internalising the policy spillovers by assigning the two mandates to a single policymaker could become the dominant configuration depending on the model's parameter values.
    JEL: E42 E44 E52 E58 E61
    Date: 2019–02
  9. By: Kessel, Dany (Södertörn University and Research Institute of Industrial Economics (IFN)); Tyrefors, Björn (Research Institute of Industrial Economics (IFN)); Vestman, Roine (Stockholm University and Swedish House of Finance)
    Abstract: We exploit a quasi-experiment to provide new evidence on the magnitude of the housing wealth effect. We estimate an immediate shock of approximately - 15% to house prices close to one of Stockholm's airports after its operations were unexpectedly continued as a result of political bargaining. This source of price variation is ideal to identify housing wealth effects since it is local and unrelated to variation in macroeconomic conditions. Using a household data set with granular geographic information on location of primary residence, we find an elasticity of 0.45 among purchasers of new cars. Converting our estimate to an aggregate MPC on cars, it is however only 0.13 cents per dollar. The MPC is entirely concentrated to homeowners with a combined loan-to-value ratio between 0.6 and 0.8 which, on the one hand, confirms the key role of household balance sheets but on the other hand refutes a monotone relationship between response and household leverage.
    Keywords: House prices; housing wealth; consumption; house price elasticity; marginal propensity to consume; collateral effect
    JEL: D12 E21 E32 E44 E60
    Date: 2018–12–01
  10. By: Hess Chung; Etienne Gagnon; Taisuke Nakata; Matthias Paustian; Bernd Schlusche; James Trevino; Diego Vilan; Wei Zheng
    Abstract: We simulate the FRB/US model and a number of statistical models to quantify some of the risks stemming from the effective lower bound (ELB) on the federal funds rate and to assess the efficacy of adjustments to the federal funds rate target, balance sheet policies, and forward guidance to provide monetary policy accommodation in the event of a recession. Over the next decade, our simulations imply a roughly 20 to 50 percent probability that the federal funds rate will be constrained by the ELB at some point. We also find that forward guidance and balance sheet polices of the kinds used in response to the Global Financial Crisis are modestly effective in speeding up the labor market recovery and return of inflation to 2 percent following an economic slump. However, these policies have only small effects in limiting the initial rise in the unemployment rate during a recession because of transmission lags. As with any model-based analysis, we also discuss a number of c aveats regarding our results.
    Keywords: Effective lower bound ; Federal Reserve balance sheets ; Forward guidance ; Large-scale asset purchases ; Monetary policy
    JEL: E58 E52 E31 E32
    Date: 2019–02–01
  11. By: Kessel, Dany (Research Institute of Industrial Economics (IFN)); Tyrefors, Björn (Research Institute of Industrial Economics (IFN)); Vestman, Roine (Department of Economics,)
    Abstract: We exploit a quasi-experiment to provide new evidence on the magnitude of the housing wealth effect. We estimate an immediate shock of approximately ‒15% to house prices close to one of Stockholm's airports after its operations were unexpectedly continued as a result of political bargaining. This source of price variation is ideal to identify housing wealth effects since it is local and unrelated to variation in macroeconomic conditions. Using a household data set with granular geographic information on location of primary residence, we find an elasticity of 0.45 among purchasers of new cars. Converting our estimate to an aggregate MPC on cars, it is however only 0.13 cents per dollar. The MPC is entirely concentrated to homeowners with a combined loan-to-value ratio between 0.6 and 0.8 which, on the one hand, confirms the key role of household balance sheets but on the other hand refutes a monotone relationship between response and household leverage.
    Keywords: House prices; Housing wealth; Consumption; House price elasticity; Marginal propensity to consume; Collateral effect
    JEL: D12 E21 E32 E44 E60
    Date: 2019–02–05
  12. By: Kohei Hasui; Yoshiyuki Nakazono; Yuki Teranishi
    Abstract: A number of previous studies suggest that inflation expectations are important in considering the effectiveness of monetary policy in a liquidity trap. However, the role of inflation expectations can be very different, depending on the type of monetary policy that a central bank implements. This paper reveals how a private agent forms inflation expectation affects the effectiveness of monetary policy under the optimal commitment policy, the Taylor rule, and a simple rule with price-level targeting. We examine two expectation formations: (i) different degrees of anchoring, and (ii) different degrees of forward-lookingness. We show that how to form inflation expectations is less relevant when a central bank implements the optimal commitment policy, while it is critical when the central bank adopts the Taylor rule or a simple rule with price-level targeting. Even for the Japanese economy, the effects of monetary policy on economic dynamics significantly change according to expectation formations under rules other than the optimal commitment policy.
    Keywords: Expectations, Liquidity Trap, Monetary Policy
    JEL: E31 E52 E58 E61
    Date: 2019–02
  13. By: Takayuki Tsuruga; Shota Wake
    Abstract: Previous studies argue that, based on the New Keynesian framework, a fiscal stimulus financed by money creation has a strong positive effect on output under a reasonable degree of nominal price rigidities. This paper investigates the effects of an implementation lag in a money-financed fiscal stimulus on output. We show that if a money-financed government purchase has a time lag between the decision and the implementation: (1) it may cause a recession rather than a boom when the economy is in normal times; (2) it may deepen a recession when the economy is in a liquidity trap; (3) the longer the implementation lag, the deeper the recession; and (4) the depth of the recession depends on the interest semi-elasticity of money demand. Our results imply that, if money demand is unstable, the money-financed fiscal stimulus with an implementation lag may have unstable effects on output, in contrast to the debt-financed fiscal stimulus.
    Keywords: Anticipation effect, Fiscal multiplier, Government spending, Seigniorage
    JEL: E32 E52 E62
    Date: 2019–02
  14. By: Andrea Colabella (Bank of Italy)
    Abstract: This paper studies the spillover effects of the ECB’s monetary policies on non-euro area countries over the period 2004-2016, using a GVAR methodology, applied to a large sample of countries and an ample set of variables. Monetary policies are proxied by short-term interest rates and the Wu and Xia’s (2016) shadow rates in the euro area, the US and the UK. Identification is performed via a Cholesky decomposition in the euro area only. An increase in the euro area shadow interest rate triggers a broad-based and persistent output decline abroad, especially strong in Central Eastern and South-Eastern European economies. The euro area shadow rate increase is also transmitted to the short-term interest rates of a number of countries, although such rises are short-lived and not as widespread as the GDP spillovers. There is evidence that differences in countries’ responses to the euro area monetary shock depend on their characteristics. The spillover effects are transmitted mainly through the trade channel and also, to a lesser extent, the short-term interest rate channel.
    Keywords: global VAR, spillover, euro area monetary policy, Europe, CESEE
    JEL: C32 E32 E52 E58 F41 O52
    Date: 2019–02
  15. By: Stefano Di Bucchianico
    Abstract: In this paper a novel critique of the neoclassical Secular Stagnation theory is presented. Focusing in particular on the ‘demand side’ explanation, it is in the first place argued for the impossibility of a longrun equilibrium position to host a negative natural interest rate, which is its main feature. The problem is theoretical and not methodological, and can be highlighted even neglecting the ‘Cambridge capital controversies’. Secondly, it is argued that, despite the label, there is not a true role for aggregate demand in determining a stagnation. It is also maintained that while the ‘supply side’ viewpoint does not suffer from these shortcomings, it cannot provide a clarification since there is no place in it for involuntary unemployment. Therefore, a demand-led alternative is advocated to be better equipped for the sake of accounting for high and persistent unemployment caused by a shortfall of aggregate demand.
    Keywords: Secular Stagnation, natural interest rate, fiscal policy
    JEL: E62 E43 E13 E12
    Date: 2019–02
  16. By: Adriana Grasso (LUISS University); Tiziano Ropele (Bank of Italy)
    Abstract: In past years there have been suggestions for monetary policy to engineer higher inflation expectations to stimulate spending. We examine the relationship between the inflation expectations of firms and their investment plans using Italian business survey data over the period 2012-2016. We show that higher expected inflation is positively correlated with firms’ willingness to invest. In our baseline specification, a one percentage point rise in expected inflation is associated with a higher probability of reporting higher investment plans by 4.0 percentage points. This expansionary effect operates through the standard interest rate channel and its magnitude is positively correlated with firms’ liquidity and debt position.
    Keywords: investment expenditure, inflation expectations, survey data
    JEL: E22 E31 E58
    Date: 2018–12
  17. By: Chong, Terence Tai Leung; Wu, Zhang
    Abstract: This paper explores the price rigidity in China using 259 monthly domestic and foreign macroeconomic time series. A factor-augmented vector autoregressive (FAVAR) model expanded with global components is employed. Four findings are obtained. First, the model shows that disaggregated price indices are volatile but not necessarily stickier than aggregate price series, and the inflation triggered by global and domestic components is massive and persistent. Second, although the global components have minimal effects on price volatility, they have a growing contribution to volatility. Moreover, they are a major force of the price persistence in China. Third, no clear evidence shows that the price stickiness in China is subject to urban-rural disparities. Last, we observe a relatively active price volatility and high persistence after the 2008 financial crisis, in which domestic components have increasingly significant impacts.
    Keywords: FAVAR, global components, price rigidity
    JEL: E31 E32 E52
    Date: 2018–10–28
  18. By: Marco Vega (Departamento de Economía de la Pontificia Universidad Católica del Perú); César Martinelli
    Abstract: We show that Peru’s chronic inflation through the 1970s and 1980s was the result of the need for inflationary taxation in a regime of fiscal dominance of monetary policy. Hyperinflation occurred when debt accumulation became unavailable, and a populist administration engaged in a counterproductive policy of price controls and loose credit. We interpret the fiscal difficulties preceding the stabilization as a process of social learning to live within the realities of fiscal budget balance. The credibility of the policy regime change in the 1990s may be linked ultimately to the change in public opinion giving proper incentives to politicians, after the traumatic consequences of the hyperstagflation of 1987-1990. JEL Classification-JEL: E52 , E58 , E62
    Keywords: Hyperstagflation, Inflation, Fiscal policy, Monetary policy
    Date: 2018
  19. By: André Binette; Dmitri Tchebotarev
    Abstract: This note analyzes the evolution of the narrative in the Bank of Canada’s Monetary Policy Report (MPR). It presents descriptive statistics on the core text, including length, most frequently used words and readability level—the three Ls. Although each Governor of the Bank of Canada focuses on the macroeconomic events of the day and the mandate of inflation targeting, we observe that the language used in the MPR varies somewhat from one Governor’s tenure to the next. Our analysis also suggests that the MPR has been, on average, slightly more complicated than the average Canadian would be expected to understand. However, recent efforts to simplify the text have been successful. Using word embeddings and applying a well-established distance metric, we examine how the content of the MPR has changed over time. Increased levels of lexical innovation appear to coincide with important macroeconomic events. If substantial changes in economic conditions have been reflected in the MPR, quantifying changes in the text can help assess the perceived level of uncertainty regarding the outlook in the MPR. Lastly, we assess the sentiment (tone) in the MPR. We use a novel deep learning algorithm to measure sentiment (positive or negative) at the sentence level and aggregate the results for each MPR. The exceptionally large impacts of key events, such as 9/11, the global financial crisis and others, are easily recognizable by their significant effect on sentiment. The resulting measure can help assess the implicit balance of risks in the MPR. These measures (lexical innovations and sentiment) could then potentially serve to adjust the probability distributions around the Bank’s outlook by making them more reflective of the current situation.
    Keywords: Central bank research; Monetary Policy
    JEL: E02 E52
    Date: 2019–02
  20. By: James Chapman; Carolyn A. Wilkins
    Abstract: The market for cryptoassets has exploded in size in the 10 years since bitcoin was launched. The technology underlying cryptoassets, blockchain, has also been held up as a technology that promises to transform entire industries. In this paper we examine what is new about cryptoassets and their technology and how they may affect core central bank functions. We do this by outlining what we think are the three most important research and policy questions for central bankers around cryptoassets and cryptocurrencies specifically. First, what is fundamentally new about the technology that underpins cryptocurrencies and other cryptoassets? Second, how do cryptocurrencies affect a central bank’s role in the economy? Third, given the two challenges of a rise of cryptoassets and a decline in the use of cash, should digital payments be left entirely to the private sector or should central banks issue their own digital currencies? We discuss these three policy questions and highlight what aspects of them are most important to central bankers. Finally, we raise several new questions to help guide researchers in studying cryptoassets and their underlying technology.
    Keywords: Bank notes; Digital Currencies; Financial services; Payment clearing and settlement systems
    JEL: E41 E42 E51 E58 H4 P43
    Date: 2019–02
  21. By: Gardberg, Malin (Research Institute of Industrial Economics (IFN))
    Abstract: Complete financial markets allow countries to share their consumption risks internationally, thereby creating welfare gains through lower volatility of aggregate consumption. This paper empirically looks at international consumption risk sharing and its determinants in a panel of 120 countries from 1970 to 2014. Contrary to some previous studies, I show that financial liberalization and financial integration has a significantly positive impact on international consumption risk sharing in poorer developing countries, whereas in emerging market countries only capital account openness has an impact. Moreover, there is some evidence that high income inequality or a high share of low income individuals reduces consumption smoothing in less developed countries. Lack of financial reforms, a lower degree of financial integration and higher inequality can thus partly explain why the degree of risk sharing is lower in developing countries than in advanced economies.
    Keywords: International consumption risk sharing; Financial liberalization; Financial integration; Inequality; Panel data
    JEL: C23 E02 E21 E44 G15
    Date: 2019–01–31
  22. By: Ki Young Park (School of Economics, Yonsei University); Youngjoon Lee (School of Business, Yonsei University); Soohyon Kim (Economic Research Institute, The Bank of Korea)
    Abstract: We quantify the Monetary Policy Board (MPB) minutes of the Bank of Korea (BOK) using text mining. We propose a novel approach using a field-specific Korean dictionary and contiguous sequences of words (n-grams) to better capture the subtlety of central bank communications. We find that our lexicon-based indicators help explain the current and future BOK monetary policy decisions when considering an augmented Taylor rule, suggesting that they contain additional information beyond the currently available macroeconomic variables. Our indicators remarkably outperform English-based textual classifications, a media-based measure of economic policy uncertainty, and a data-based measure of macroeconomic uncertainty. Our empirical results also emphasize the importance of using a field-specific dictionary and the original Korean text.
    Keywords: Monetary policy; Text mining; Central banking; Bank of Korea, Taylor rule
    JEL: E43 E52 E58
    Date: 2019–01–07
  23. By: Christos Kotsogiannis (Tax Administration Research Centre (TARC); University of Exeter); Xavier Mateos-Planas (Centre for Macroeconomics (CFM); Queen Mary University of London)
    Abstract: This paper studies income-tax evasion in a quantitative incomplete-markets setting with heterogeneous agents. A central aspect is that, realistically, evaded taxes are a form of contingent debt. Since evasion becomes part of a portfolio decision, risk and credit considerations play a central part in shaping it. The model calibrated to match estimated average levels of evasion does a good job in producing observed cross-sectional average evasion rates that decline with age and with earnings. The model also delivers implications for how evasion varies in the cross sectional distribution of wealth and tax arrears. Evasion has substantial effects on macroeconomic variables and welfare, and agent heterogeneity and general equilibrium are very important elements in the explanation. The analysis also considers the response of evasion to a flat-tax policy reform. In spite of the direct incentives to evade less under a flat tax rate, the reform causes households to save more, rendering the change in overall evasion modest.
    Keywords: Tax evasion, Contingent debt, Incomplete markets with heterogeneous agents, Portfolio choice, Risk sharing, Tax progressivity
    JEL: E2 E62 H3
    Date: 2019–01
  24. By: António Afonso; João Tovar Jalles; Mina Kazemi
    Abstract: We assess the impact of announcements corresponding to different fiscal and monetary policy measures on the 10-year sovereign bond yield spreads (relative to Germany) of the 10 EMU countries during the period 01:1999 - 07:2016. Implementing pooled and country-fixed effects OLS regressions, we find that the European Commission’s (EC) releases of the excessive deficit procedure significantly affect the yield spreads. The EC releases of higher debt and better budget balance forecasts contribute to the rise and the decline of spreads, respectively. Moreover, we find that the announcements of the ECB’s key interest rates together with the longer-term refinancing operations (LTROs) and the first covered bond purchase programme (CBPP1) negatively affect sovereign yield spreads in our sample of EMU countries.
    Keywords: sovereign yields, fiscal policy, monetary policy, event analysis, panel data
    JEL: C23 E52 E62 G10 H63
    Date: 2019–02
  25. By: Fethi Ogunc; Mustafa Utku Ozmen; Cagri Sarikaya
    Abstract: In this paper, we aim to contribute to the understanding of inflation dynamics in Turkey by estimating a Bayesian VAR (BVAR) model. Our identification strategy is based on a set of zero restrictions and use of exogenous control variables. Main results are as follows: (i) Pass-through from exchange rate to inflation is stronger than that from import prices. Moreover, exchange rate and import price shocks spread over inflation very quickly (most of the adjustment is complete within 9 months), particularly faster for the latter, with the estimates being highly precise (the dispersion around median responses are relatively narrow). (ii) Economic growth has a significant but lagged effect on inflation, yet with a greater uncertainty compared to exchange rate and import price pass-through. (iii) The degree of nominal wage pass-through on inflation is estimated to be close to the degree of exchange rate pass-through, albeit with a longer transmission and a greater uncertainty.
    Keywords: Inflation, Cost pass-through, Bayesian vector autoregression
    JEL: C11 C15 C32 E31
    Date: 2018
  26. By: Krolikowski, Pawel (Federal Reserve Bank of Cleveland)
    Abstract: This paper disciplines a model with search over match quality using microeconomic evidence on worker mobility patterns and wage dynamics. In addition to capturing these individual data, the model provides an explanation for aggregate labor market patterns. Poor match quality among first jobs implies large fluctuations in unemployment due to a responsive job destruction margin. Endogenous job destruction generates a burst of layoffs at the onset of a recession and, together with on-the-job search, generates a negative comovement between unemployment and vacancies. A significant job ladder, consistent with the empirical wage dispersion, provides ample scope for the propagation of vacancies and unemployment.
    Keywords: Unemployment; job destruction; amplification; match-quality;
    JEL: E24 E32 J63 J64
    Date: 2019–02–01
  27. By: Ronald Heijmans; Chen Zhou
    Abstract: This paper studies the detection of outliers in risk indicators based on large value payment system transaction data. The ten risk indicators are daily time series measuring various risks in the large value payment system, such as operational risk, concentration risk and liquidity flows related to other financial market infrastructures. We use extreme value theory and local outlier factor methods to identify anomalous data points (outliers). In a univariate setup, the extreme value analysis quantifies the unusualness of each outlier. In a multivariate setup, the local outlier factor method identifies outliers by measuring the local deviation of a given data point with respect to its neighbours. We find that most detected outliers are at the beginning and near end of the calendar month when turnover is significantly larger than at other days. Our method can be used e.g. by overseers and financial stability experts who wish to look at many (risk) indicators in relation to each other.
    Keywords: risk indicator; TARGET2; financial market infrastructure; extrem value theory (EVT); local outlier factor (LOF); anomaly
    JEL: E42 E50 E58 E59
    Date: 2019–02
  28. By: Bobeica, Elena; Ciccarelli, Matteo; Vansteenkiste, Isabel
    Abstract: This paper documents, for the first time in a systematic manner, the link between labor cost and price inflation in the euro area. Using country and sector quarterly data over the period 1985Q1-2018Q1 we find a strong link between labor cost and price inflation in the four major economies of the euro area and across the three main sectors. The dynamic interaction between prices and wages is time-varying and depends on the state of the economy and on the shocks hitting the economy. Our results show that it is more likely that labor costs are passed on to price inflation with demand shocks than with supply shocks. However, the pass-through is systematically lower in periods of low inflation as compared to periods of high inflation. These results confirm that, under circumstances of predominantly demand shocks, labor cost increases will be passed on to prices. Coming from a period of low inflation, however, this pass-through could be moderate at least until inflation stably reaches a sustained path. JEL Classification: C32, E24, E31
    Keywords: euro area, inflation, labor costs, pass-through, structural VAR
    Date: 2019–02
  29. By: Lindé, Jesper (Research Department, Central Bank of Sweden); Pescatori, Andrea (IMF)
    Abstract: We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result, i.e. the absence of allocative and trade-.ow effects of an equally-sized change in import tariff and export subsidy, holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. De- viations from symmetry, however, do not necessarily imply an impact on global output and are often limited to a redistribution of production and consumption across coun- tries. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to an unilaterally imposed border adjustment tax can prevent any sizable adverse real or nominal effects.
    Keywords: Import Tariffs; Export Subsidies; Lerner Condition; Incomplete Markets; Complete Markets; Border Adjustment Tax; Trade War; New Keynesian open-economy model
    JEL: E52 E58
    Date: 2018–12–01
  30. By: Ubi-Abai, Itoro; Ekere, Daniel
    Abstract: The study analysed the effects of fiscal and monetary policies on economic growth in a panel of 47 sub-Saharan African economies from 1996 to 2016, using descriptive analysis, the econometric techniques of dynamic panel General Method of Moment and the Dumitrescu- Hurlin causality; the scaling quantity analysis inclusive. The study traced the debate from the Keynesians to the Monetarist. The findings showed that fiscal and monetary policies affected economic growth positively in the sub-region. Moreover, fiscal policy has a greater scale- effect in enhancing economic growth in sub-Saharan Africa. The study concluded that fiscal policy had greater influence on growth than monetary policy. It was recommended, amongst others, that governments of countries in the sub-Saharan region should focus more on formulating and implementing programmes that support productive investments; foster favourable trade; improve productivity of labour; and make the political environment stable.
    Keywords: Fiscal Policy, Monetary Policy, Growth, GMM, Dumitrescu-Hurlin, Scaling Quantity
    JEL: E52 E62 O4
    Date: 2018–12–27
  31. By: Darracq Pariès, Matthieu; Körner, Jenny; Papadopoulou, Niki
    Abstract: This paper contributes to the debate on the macroeconomic effectiveness of expansionary non-standard monetary policy measures in a regulated banking environment. Based on an estimated DSGE model, we explore the interactions between central bank asset purchases and bank capital-based financial policies (regulatory, supervisory or macroprudential) through its influence on bank risk-shifting motives. We find that weakly-capitalised banks display excessive risk-taking which reinforces the credit easing channel of central bank asset purchases, at the cost of higher bank default probability and risks to financial stability. In such a case, adequate bank capital demand through higher minimum capital requirements curtails the excessive credit origination and restores a more efficient propagation of central bank asset purchases. As supervisors can formulate further capital demands, uncertainty about the supervisory oversight provokes precautionary motives for banks. They build-up extra capital buffer attenuating non-standard monetary policy. Finally, in a weakly-capitalised banking system, countercyclical macroprudential policy attenuates banks risk-taking and dampens the excessive persistence of the non-standard monetary policy impulse. On the contrary, in a well-capitalised banking system, macroprudential policy should look through the effects of central bank asset purchases on bank capital position, as the costs in terms of macroeconomic stabilisation seem to outweigh the marginal financial stability benefits. JEL Classification: E44, E52, F40
    Keywords: asset purchases, bank capital regulation, effective lower bound, non-standard monetary policy, regulatory uncertainty, risk-taking
    Date: 2019–02
  32. By: Faraglia, E.; Marcet, A.; Oikonomou, R.; Scott, A.
    Abstract: We study the impact of debt maturity on optimal fiscal policy by focusing on the case where the government issues a bond of maturity N > 1: Isolating these effects helps provide insight into the construction of optimal government debt portfolios. We find long bonds may not complete the market even in the absence of uncertainty, generate an incentive to twist interest rates and induce additional tax volatility compared to short term bonds. By focusing just on the issuance of long bonds we show that as well as their well known advantage in providing fiscal insurance long bonds also have less attractive features that induce additional tax volatility. In the case of long bonds, governments induce tax volatility in order to twist interest rates at maturity. This interest rate twisting effect is what makes optimal debt management models so difficult to solve computationally as the state space rapidly becomes cumbersome due to the need to keep track of promises about future tax rates. We provide an alternative institutional setup (\independent powers\) that eliminates this problem offering a simpler solution method. Introducing maturity requires making more institutional assumptions than is the case for one period bonds. In particular assumptions have to be made whether the government does or doesn't buy back each period all outstanding debt irrespective of maturity and whether long bonds pay coupons. This is important as the literature to date makes assumptions that are diametrically opposite to what is observed in practice. We show that this is an important divide as if we model optimal policy under the empirically motivated assumption that governments do not buyback bonds until maturity then long bonds induce additional tax volatility due to the existence of N period roll over cycles. These can be reduced in magnitude by the government issuing long bonds that pay coupons although because coupons reduce the duration of a bond below its maturity this does compromise the ability of long bonds to provide fiscal insurance.
    Keywords: Coupon Payments, Debt Management, Fiscal Policy, Government Debt, Long Bonds, Maturity Structure, Tax Smoothing
    JEL: E43 E62 H63
    Date: 2019–02–11
  33. By: Kozlowski, Julian (Federal Reserve Bank of St. Louis); Veldkamp, Laura (Columbia University, Columbia Business School); Venkateswaran, Venky (Federal Reserve Bank of Minneapolis)
    Abstract: The Great Recession was a deep downturn with long-lasting effects on credit, employment and output. While narratives about its causes abound, the persistence of GDP below pre-crisis trends remains puzzling. We propose a simple persistence mechanism that can be quantified and combined with existing models. Our key premise is that agents don't know the true distribution of shocks, but use data to estimate it non-parametrically. Then, transitory events, especially extreme ones, generate persistent changes in beliefs and macro outcomes. Embedding this mechanism in a neoclassical model, we find that it endogenously generates persistent drops in economic activity after tail events.
    Keywords: Stagnation; tail risk; propagation; belief-driven business cycles
    JEL: D84 E32
    Date: 2019–02–03
  34. By: Nam Gang Lee (Economic Research Institute, Bank of Korea)
    Abstract: This paper addresses the link between shocks to productivity trend growth and long-run consumption risk in a production economy model with recursive utility. Quantifying trend growth shocks, I find that persistent fluctuations in trend growth are the key driver of sizable long-run consumption risk. I compare this result to two conventional assumptions on a productivity process: 1) a deterministic trend with a cycle and 2) a random walk with drift. Persistent trend growth shocks generate larger long-run consumption risk than both highly persistent cycle shocks and random walk shocks. As a result, agents in the face of the trend growth shocks tend to save more and demand a higher equity premium. In addition, fluctuations in aggregate productivity growth is largely attributable to movements in trend growth.
    Keywords: Long-run consumption risk, stochastic trend growth, equity premium, production economy, exact initial Kalman filter
    JEL: E21 E23 E30 G12
    Date: 2019–01–25
  35. By: Peter Ganong (Chicago Harris School of Public Policy); Pascal Noel (University of Chicago Booth School of Business)
    Abstract: Using de-identified bank account data, we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance (UI) benefits. We use the high-frequency response to a predictable income decline as a new test to distinguish between alternative consumption models. The sensitivity of spending to income we document is inconsistent with rational models of liquidity-constrained households, but is consistent with behavioral models with present-biased or myopic households. Depressed spending after exhaustion also implies that the consumption-smoothing gains from extending UI benefits are four times larger than from raising UI benefit levels.
    Keywords: unemployment, spending, buffer stock, Baily-Chetty
    JEL: E21 E24 J65
    Date: 2019–02
  36. By: Stefania Gabriele (Italian Parliamentary Budget Office); Enrico D’Elia (Ministry of Economy and Finance)
    Abstract: Functional distribution is an important driver of inequality. When market remuneration of labour and capital are very uneven, as they have been in recent decades, personal distribution tends to polarise, jeopardising social cohesion. This fact explains a renewed interest in functional distribution. Nevertheless, in the estimates on functional distribution the role of self-employed income has been undervalued. National accounts provide estimates of the compensation of employees and the operating surplus, but do not refer to self-employed workers as a specific productive factor and implicitly include their income in the ‘mixed income’ and in some minor items. Most analysts estimate self-employed income by attributing the same average unit compensation of the corresponding employees to each worker, that in fact is not necessarily consistent with the GDP estimates.Other estimates take a fixed share of the ‘mixed income’, usually the same for every country. When national accounts are very detailed, as in the case of Italy, it is possible to estimate self-employment income from non-financial accounts by sectors with some accuracy, under some weak assumptions. In this paper we analyse four workable estimates, since only the total amount of ‘mixed income’ received by households is available for most countries. We analyse the data of the OECD countries focusing mainly on eight large countries: the US, Japan, the UK, Germany, France, the Netherlands, Spain and Italy. The results are somehow unexpected. First of all, evaluating the income of the self employed properly, the overall labour share is declining much faster than reported by the official data in some countries, and more countries showed a decrease in the 2000s. Indeed, the real unit compensation of the self employed reduced significantly in most of the eight countries (and in some of the others) after the mid or the end of the nineties, since self-employment has been used extensively to reduce the overall labour cost. Unit labour cost (ULC) also increased much slower (or even declined more) after 2000 in most countries, shedding new light on the pattern of international competitiveness and the drivers of inflation. The share of operative surplus of non-financial and financial corporations, properly recalculated, has had different dynamics, whereas the component related to imputed rentals of owner occupied houses played an unexpectedly important role. Finally, the mark-up on variable production costs has been higher than expected and its dynamic has been faster in most countries, showing a minor sensitivity to the business cycle. Indeed, statistical data on self-employment income is not fully satisfactory in many countries, thus our estimation of self-employment income represents only a first step towards a deeper comprehension of the dynamic of primary distribution. Indirect evidence of the reliability of our estimates is in their capacity to explain some key variables more accurately, strictly related to labour share, mark-up and ULC, which are income inequality, inflation and export performance.
    Keywords: functional distribution, labour income, self-employed workers, ULC, mark-up
    JEL: E25 E24 O47
    Date: 2019
  37. By: Edward Nelson
    Abstract: Although he was based in the United States, leading monetarist Karl Brunner participated in debates in the United Kingdom on monetary analysis and policy from the 1960s to the 1980s. During the 1960s, his participation in the debates was limited to research papers, but in the 1970s, as monetarism attracted national attention, Brunner made contributions to U.K. media discussions. In the pre-1979 period, he was highly critical of the U.K. authorities’ nonmonetary approach to the analysis and control of inflation-an approach supported by leading U.K. Keynesians. In the early 1980s, Brunner had direct interaction with Prime Minister Margaret Thatcher on issues relating to monetary control and monetary strategy. He was unsuccessful in persuading her to use the monetary base-instead of a short-term interest rate-as the instrument for implementing monetary policy. However, following his interventions, the U.K. authorities during the 1980s assigned weight to the monetary b ase as an indicator and target of monetary policy. Brunner’s imprint on U.K. monetary policy has also been felt in the twenty-first century. Brunner’s analysis, with Allan Meltzer, of the monetary transmission mechanism helped provide the basis for the policy of quantitative easing followed by the Bank of England.
    Keywords: Karl Brunner ; U.K. monetary policy ; Monetarism ; Monetary base control ; Transmission mechanism
    JEL: E51 E58 E52
    Date: 2019–02–01
  38. By: Laurence M. Ball; Sandeep Mazumder
    Abstract: Economists are puzzled by the behavior of U.S. inflation since the Great Recession of 2008-2009, and many suggest that the Phillips curve relating inflation to unemployment has broken down. This paper argues that inflation behavior is easier to understand if we divide headline inflation into core and transitory components, and if core inflation is measured by the weighted median of industry inflation rates. This weighted median is less volatile than the traditional measure of core inflation, the inflation rate excluding food and energy prices, because it filters out large price changes in all industries. We illustrate the usefulness of the weighted median with a case study of inflation in 2017 and early 2018. We also show that a Phillips curve relating the weighted median to unemployment appears clearly in the data for 1985-2017, with no sign of a breakdown in 2008.
    JEL: E31
    Date: 2019–01
  39. By: Kwangyong Park (Economic Research Institute, Bank of Korea)
    Abstract: We provide a theoretical framework, with empirical evidence, where monetary policy effects become stronger during periods of heightened uncertainty in productivity. Higher aggregate and idiosyncratic productivity volatility induce firms, which are constrained by information capacity, to allocate more attention to productivities and less to the monetary policy shock. This makes firms under-react to monetary policy actions, which increases real effects of monetary policy shocks. A threshold vector autoregression, which incorporates instrumental variables to identify the monetary policy shock, finds that monetary policy shocks have stronger impacts on output when uncertainty, as measured by VIX, is high.
    Keywords: Monetary policy asymmetry, Uncertainty, Information choice
    JEL: E31 E52 D8
    Date: 2019–01–28
  40. By: Ben Charoenwong; Randall Morck; Yupana Wiwattanakantang
    Abstract: Since 2010, the Bank of Japan (BOJ) has purchased stocks to boost domestic firms’ valuations to increase GDP growth. The stock return elasticity with respect to BOJ purchases relative to the previous month’s market cap is around 2 and increases across longer horizons. Over one quarter, BOJ share purchases worth 1% of assets correspond to an increase of 1% in share valuation and a .27% increase in assets. Consistent with elevated valuations letting firms “cash out,” BOJ share purchases predict equity issuances and fewer stock buybacks. However, less than 9% of increased assets reflect net tangible capital investments, whereas cash and short-term investments account for over 50%. This unconventional monetary stimulus thus boosts share prices but is largely not transmitted into real investment growth.
    JEL: E52 E58 G31 G32
    Date: 2019–02
  41. By: Germán Gutiérrez; Thomas Philippon
    Abstract: We study the evolution of super star firms in the U.S. economy over the past 60 years. Contrary to common wisdom, super stars firms have not become larger, have not become more productive, and the contribution of star firms to aggregate U.S. productivity growth has fallen by more than one third since 2000.
    JEL: D2 E22 E24 G3 L1 O3 O4
    Date: 2019–02
  42. By: Paulo de Carvalho Lins; Marcio Issao Nakane
    Abstract: In Brazil, there exists a government bond whose return is directly indexed to short-term interest rate set by the Central Bank. Some economists suggest that its existence decreases the effectiveness of monetary policy, mainly by clogging the wealth transmission channel. We introduce a floating-rate bond as a new financial asset in a canonical DSGE model and analyze its effects on the model dynamics. The new bond does not seem to change the dynamics of any variable, even in the presence of rule-of-thumb agents. We interpret these results as evidence against the argument that floating-rate bonds lead to a weaker monetary policy.
    Keywords: Monetary Policy; Public Debt; Fiscal Policy; Letras Financeiras do Tesouro
    JEL: E52 E63 H63
    Date: 2019–02–13
  43. By: José U Mora; Rafael A Acevedo (Faculty of Economics and Management, Pontificia Universidad Javeriana Cali)
    Abstract: This paper studies the relationship between the size of the fiscal multiplier and the degree of capital mobility in some Latin American countries. The Mundell (1963) and Fleming (1962) model establishes that this effect might be very large or very small (very close to zero) depending on the exchange rate regime and the degree of capital mobility; the potency of fiscal policy is inversely correlated with the degree of capital mobility. We use Mora (2013) model to argue that the multiplier might not be negatively correlated with capital mobility in these countries. In other words, the potency of fiscal policy could be reduced by the fact that capital mobility in Latin American countries tends to be quite low. The empirical findings support the hypothesis. We have found that the size of the fiscal multiplier tends to increase or (at least) to remain relatively stable, around 1.40, in these countries in the short run; however, in the long run, this effect tends to decrease significantly to 0.34. These results also suggest that fiscal policy is still very potent, but given their economic structure differences, could be larger if Latin American countries become more financially integrated with the rest of the world. The version here presented corresponds to the updated study.
    Keywords: fiscal policy, business cycles, Latin America
    JEL: E62 E12 F41 O54
    Date: 2018–12
  44. By: Oguzhan Cepni; Ibrahim Ethem Guney; Doruk Kucuksarac; Muhammed Hasan Yilmaz
    Abstract: [EN] Understanding the determinants of yield curve and its interaction with economic variables is quite crucial for both policymakers and investors. This note aims to explore the relation between yield curve and macroeconomic factors. To this end, firstly, the yield curve is depicted by a small number of unobservable factors, namely the level, slope and curvature, using Nelson-Siegel methodology for the 2006:02-2017:08 period. Rather than combining the yield curve factors with a few macroeconomic variables, a comprehensive dataset is set used, which is comprised of 164 global and domestic macroeconomic/financial variables. The principal components obtained under four categories (global variables, inflation, domestic financial variables, and economic activity) are incorporated into a Vector Autoregressive model together with the yield curve factors. Empirical results suggest that the level factor responds to shocks originated from inflation, domestic financial variables and global variables. Furthermore, the slope factor is affected by shocks in global variables, and the curvature factor appears to be influenced by domestic financial developments. Overall, the results indicate the significance of macroeconomic information on the yield curve, especially of domestic financial variables and global variables. Given the spillover effects of unconventional monetary policies of advanced countries, emerging market bond rates tend to be exposed to the swings in the global financial conditions, which weakens the monetary policy transmission in emerging countries. [TR] [TR] Getiri egrisinin belirleyicilerinin ve iktisadi degiskenlerle olan etkilesiminin anlasilmasi politika yapicilar ve yatirimcilar icin onem tasimaktadir. Bu notta, getiri egrisi ve makroekonomik faktorler arasindaki dinamik iliski incelenmektedir. Bu amacla ilk asamada getiri egrisi, 2006:02- 2017:08 donemi icin Nelson-Siegel yontemi kullanilarak seviye, egim ve egrilik faktorleri uzerinden ozetlenmistir. Uygulamada yaygin metot olan getiri egrisinin birkac makroekonomik gostergeyle iliskilendirilmesi yerine, kuresel ve yerel makroekonomik/finansal 164 seriyi iceren bir veri seti kullanilmistir. Getiri egrisi faktorleri ve dort sektorden elde edilen temel bilesenler arasinda vektor ozbaglanim analizi gerceklestirilmistir. Ampirik sonuclar, seviye faktorunun enflasyon gelismeleri, yerel finansal degiskenler ile kuresel degiskenlerden etkilendigine isaret etmektedir. Ek olarak, egim faktoru kuresel degiskenlerden, egrilik faktoru ise yerel finansal gelismelerden etkilenmektedir. Ozetle, sonuclar kuresel finansal degiskenler basta olmak uzere, makroekonomik degiskenlerin getiri egrisini onemli derecede etkiledigine isaret etmektedir. Geleneksel-olmayan para politikasi uygulamalarinin bulasicilik etkisi dikkate alindiginda, gelismekte olan ulke tahvil faizlerinin kuresel kosullardaki degisimlere duyarli oldugu ve bu durumun para politikasi aktarim mekanizmasini azalttigi gorulmektedir.
    Date: 2018
  45. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: I thank Barbara Snyder and The 50 Club for inviting me to speak tonight about the economy and monetary policy. I am especially looking forward to the question and answer portion of the program because as we navigate through the year, we will need to be particularly attuned to what is happening on the ground. The Federal Reserve System is actually well structured to do that. The Federal Reserve Bank of Cleveland, right up the street, is one of 12 regional Reserve Banks distributed across the country that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. Congress designed the Fed more than 100 years ago as a decentralized central bank, independent within the government but not independent from the government. The Fed was designed to balance public-sector and private-sector interests, and Wall Street and Main Street concerns. This design has served the country well by allowing monetary policy decisions to take into account the diversity of the American economy and its people. The regional structure also allows us to carry out our other responsibilities, including supervising and regulating banks, offering financial services to the U.S. government, overseeing the payments system, and identifying policies that can help promote economic progress and access to credit in low- and moderate-income neighborhoods.
    Keywords: Economic Growth; Labor market; Inflation; regional economy;
    Date: 2019–02–04
  46. By: Maryam Farboodi; Roxana Mihet; Thomas Philippon; Laura Veldkamp
    Abstract: We study a model where firms accumulate data as a valuable intangible asset. Data accumulation affects firms’ dynamics. It increases the skewness of the firm size distribution as large firms generate more data and invest more in active experimentation. On the other hand, small data- savvy firms can overtake more traditional incumbents, provided they can finance their initial money- losing growth. Our model can be used to estimate the market and social value of data.
    JEL: D21 E01 L1
    Date: 2019–01
  47. By: Alessio Moro (University of Cagliari); Satoshi Tanaka (School of Economics, University of Queensland, Brisbane)
    Abstract: We show that effects of a sectoral shock on the composition of sectoral shares crucially depend on whether the goods produced in the sector are home-substitutable or not. When a productivity shock hits the market sector that produces non-home-substitutable goods (e.g. manufacturing goods), the shock largely affects the composition of consumption shares of market sectors. On the other hand, when a shock hits the market sector that produces home-substitutable goods (e.g. service goods), relocation in shares mainly occur between the sector and the home sector. We compare our results to those of the traditional three-sector model without a home sector, and show that the missing of the home substitution effects predicts completely different implications for the response of consumption shares to sectoral shocks.
    Keywords: Sectoral Shocks, Home Production, Services Sector
    JEL: E21 E32 L16
    Date: 2019–02–13
  48. By: Ashoka Mody (Princeton University); Milan Nedeljkovic (Metropolitan University, FEFA)
    JEL: E52 E58 G10
    Date: 2018–12
  49. By: Desislava C. Andreeva (European Central Bank); Miguel García-Posada (Banco de España)
    Abstract: We assess the impact of the Eurosystem’s Targeted Long-Term Refinancing Operations (TLTROs) on the lending policies of euro area banks. To guide our empirical research, we build a theoretical model in which banks compete à la Cournot in the credit and deposit markets. According to the model, we distinguish between direct and indirect effects. Direct effects take place because bidding banks expand their loan supply due to the lower marginal costs implied by the TLTROs. Indirect effects on non-bidders operate via changes in the competitive environment in banks’ credit and deposit markets and are a priori ambiguous. We then test these theoretical predictions with a sample of 130 banks from 13 countries and the confidential answers to the ECB’s Bank Lending Survey. Regarding direct effects on bidders, we find an easing impact on margins on loans to relatively safe borrowers, but no impact on credit standards. Regarding indirect effects, there is a positive impact on the loan supply on non-bidders but, contrary to the direct effects, the transmission of the TLTROs takes place through an easing of credit standards, and it is mainly concentrated in banks facing high competitive pressures. We also find evidence of positive funding externalities.
    Keywords: unconventional monetary policy, TLTROs, lending policies, competition
    JEL: G21 E52 E58
    Date: 2019–02
  50. By: Kiss, Aron (European Commission); Van Herck, Kristine (European Commission, Directorate Employment, Social Affairs and Inclusion)
    Abstract: This paper analyses the factors explaining moderate wage growth in the EU in the post-crisis period. It investigates whether the historical relationship between wages and unemployment has weakened and whether composition effects moderated wage growth. The results suggest a negative answer to both questions. Wages in the EU have not stopped reacting to unemployment developments after the 2008 crisis. Wage growth was moderate because of low inflation, low trend productivity growth, and high unemployment. There are only a few Member States with a significant 'shortfall' in wage growth, including both low and high-unemployment countries. Migration, ageing and collective bargaining institutions appear to have mostly transitory effects on wage growth. During the last decade, changes in the composition of the workforce had a small but positive impact on wage growth in most of the EU, especially due to increasing average age and education level. In some Member States such as Germany, Italy, Luxembourg and Portugal, composition effects were a main driver of wage growth.
    Keywords: wage growth, Wage Phillips curve, European Union
    JEL: E24
    Date: 2019–02
  51. By: Zelal Aktas; Yasemin Erduman; Neslihan Kaya Eksi
    Abstract: We analyze how changes in market expectations about the Federal Reserve’s future monetary policy stance affect an emerging country’s share in total portfolio flows to emerging markets. We estimate a seemingly unrelated regression model for a panel of 19 emerging countries, using monthly data from January 2010 to October 2017. Our findings suggest that the effect of Fed’s policy expectations on the country share is asymmetric. The expectations of Fed’s monetary policy is found to reduce an emerging country’s share in total emerging market portfolio flows when expectations imply a policy tightening, while easing expectations do not have a significant effect on the share. A country with stronger financial conditions and safer business environment for international investors tend to downsize the negative effect of Fed’s policy tightening on its share in total portfolio flows, with respect to its counterparts.
    Keywords: Fed expectations, Capital flows, Emerging markets, Panel regression
    JEL: E43 F32 F41 G11
    Date: 2018
  52. By: Daniel G. Garrett; Eric C. Ohrn; Juan Carlos Suárez Serrato
    Abstract: Since 2002, the US government has encouraged business investment using accelerated depreciation policies that significantly reduce investment costs. We provide the first in-depth analysis of this stimulus on employment and earnings. Our local labor markets approach exploits cross-industry differences in policy generosity interacted with county-level variation in industry concentration. Places that experience larger decreases in investment costs see a level increase in employment that implies a $53,000 cost-per-job. We find no positive effects on average earnings. In contrast, we document a persistent growth in capital. These results imply a capital-labor substitution elasticity that grows over time and can exceed unity.
    JEL: E62 H25 H32 J23 J38
    Date: 2019–02
  53. By: Selcuk Gul; Huseyin Tastan
    Abstract: This paper investigates the significance of internal finance in determining firms' fixed capital investments. We estimate an investment model which allows us to test whether the marginal impact of cash flows on investment varies with the central bank's monetary policy stance, financial conditions at the macro level and the Global Financial Crisis (GFC). Using a comprehensive panel data set of Turkish small and medium-sized enterprises (SMEs) in the manufacturing sector, we find that investment-cash flow sensitivity is positive and statistically significant. This result implies that Turkish firms are financially constrained by internal finance. Results suggest that the monetary policy stance, represented by various indicators for robustness, significantly affects firms' financing constraints. In particular, investment-cash flow sensitivity declines during expansionary monetary policy periods. However, the argument does not hold for financially less constrained firms which can access external finance relatively easily. Having examined the response of firms' financing constraints to changes in financial conditions, we find that the investment-cash flow sensitivity declines when financial conditions are relatively supportive. Finally, firms need cash flow more for investing in the GFC compared to other years. The finding is consistent with relatively less availability of external funds in crisis periods.
    Keywords: Investment-cash flow sensitivity, Financing constraints, Monetary policy stance, Financial conditions index
    JEL: C33 D92 E22
    Date: 2018
  54. By: Guimarães, Luis; Gil, Pedro
    Abstract: In this paper, we build a theoretical model to study the effects of automation and labor market institutions on the labor share. In our model, firms choose between two technologies: an automated technology and a manual technology. In this context, the labor share reflects both the average wage level (versus output) and the distribution of firms between the two technologies. Our model offers three main insights. First, automation-augmenting shocks reduce the labor share but increase employment and wages. Second, labor market institutions (relative to automation) play an almost insignificant role in explaining the labor share. Third, our model suggests that the US labor share only (clearly) falls after the late 1980’s because of a contemporaneous acceleration of automation’s productivity.
    Keywords: Automation; Labor Share; Technology Choice; Employment; Labor-Market Frictions
    JEL: E24 J64 L11 O33
    Date: 2019–01–20
  55. By: Adolfson, Malin (Research Department, Central Bank of Sweden); Laséen, Stefan (Monetary Policy Department, Central Bank of Sweden); Lindé, Jesper (Research Department, Central Bank of Sweden); Ratto, Marco (Financial Stability Department, Central Bank of Sweden)
    Abstract: In this paper, we study identification and misspecification problems in standard closed and open-economy empirical New-Keynesian DSGE models used in monetary policy analysis. We find that problems with model misspecification still appear to be a first-order issue in monetary DSGE models, and argue that it is problems with model misspecification that may bene.t the most from moving from a classical to a Bayesian framework. We also argue that lack of identification should neither be ignored nor be assumed to affect all DSGE models. Fortunately, identification problems can be readily assessed on a case-by-case basis, by applying recently developed pre-tests of identification.
    Keywords: Bayesian estimation; Monte-Carlo methods; Maximum Likelihood Estimation; DSGE Model; Closed economy; Open economy
    JEL: C13 C51 E30
    Date: 2018–11–01
  56. By: Aytul Ganioglu
    Abstract: Does the external position of a country that is conditioned on financial development impact the likelihood of a systemic banking crisis? We address this question using data from 149 developing and advanced countries from 1970 to 2011, as well as a variety of statistical tools. Our findings are twofold. First, we find that the net external position of a country significantly affects its likelihood of a systemic crisis depending on the level of financial development. Conditional on low to moderate financial development, countries can lower the risk of banking crises significantly by maintaining a net foreign creditor status. Second, we find that the level of financial development raises a country’s crisis risk significantly while its impact depends on the net asset position. This indicates a potential amplification effect in which countries with more developed and complex financial systems that are also debtor countries have a higher potential of incurring a systemic banking crisis.
    Keywords: Banking crisis, Net external position, Financial development, Probit
    JEL: E44 F34 G15 H63
    Date: 2018
  57. By: Matuka, Adelajda
    Abstract: This paper estimates the impact of exchange rate shocks to prices in Albania from 2000Q1 to 2017Q1. The empirical analysis is based on a Vector Autoregressive approach for Albanian economy following Cholesky decomposition scheme. Impulse-response functions give evidence for an incomplete “pass-through” of exchange rate shocks to prices. Impulse-response functions to oil shocks indicates initial positive values for import and producer prices and negative value for consumer prices and interest rates. Variance decomposition reveal that the highest fluctuations of import prices is triggered by growth rate and oil prices shocks, whereas the variance of producer prices and consumer prices is explained by its own innovations. Exchange rate’s innovations are less aggressive to import prices and producer prices then to consumer prices. We perform the robustness check allowing interest rate to be ordered before exchange rates and the results do not change from the previous findings.
    Keywords: Exchange Rate, Pass Through Effect, Inflation, Vector Autoregressive
    JEL: C32 E31 E41 F41
    Date: 2019–02–05
  58. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: The Cleveland Fed is one of 12 regional Reserve Banks distributed across the country that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. This regional structure helps us to collect information from around the country so that our monetary policy decisions can take into account the diversity of the American economy and its people. I am very grateful for the many contacts throughout our District who generously share with us their insights into business activity, labor markets, and financial conditions. This timely information is collected through our surveys and in meetings of our advisory councils and boards of directors. We have a business advisory council here in Lexington, and I would like to thank Dr. Ken Troske for serving on the group. The information he and his colleagues provide is very helpful to me as I formulate my economic outlook and monetary policy views, which I’ll speak about today. My remarks will reflect my own views and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee, the monetary policymaking body within the Fed.
    Keywords: Economy; Labor Market; Inflation; Monetary Policy;
    Date: 2019–02–13
  59. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: Many of you probably know that the Federal Reserve System comprises 12 regional Reserve Banks, distributed across the country, and the Board of Governors in Washington, D.C. But we also have 24 branch offices. This regional structure helps us to collect information from around the country so that our monetary policy decisions can take into account the diversity of the American economy and its people. I am very grateful for the many contacts throughout the Cleveland Fed’s District who generously share with us their insights into business activity, labor markets, and financial conditions. This timely information, collected through our surveys and in meetings of our advisory councils and boards of directors, is very helpful to me as I formulate my economic outlook and monetary policy views, which I’ll speak about tonight. My remarks will reflect my own views and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee, the monetary policymaking body within the Fed.
    Keywords: Economy; Labor Markets; Inflation; Monetary Policy;
    Date: 2019–02–12
  60. By: Fernando J. Cardim de Carvalho
    Abstract: By the beginning of the 20th century, the possibility and efficacy of economic planning was believed to have been proven by totalitarian experiments in Germany, the Soviet Union, and, to a lesser degree, Fascist Italy; however, the possibilities and limitations of planning in capitalist democracies was unclear. The challenge in the United States in the 1930s and in postwar France was to find ways to make planning work under capitalism and democratic conditions, where private agents were free to not accept its directives. This paper begins by examining the experience with planning during the first years of the New Deal in the United States, centered on the creation and operation of the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA), and continues with a discussion of the French experience with indicative planning in the aftermath of World War II. A digression follows, touching on the proximity between the matters treated in this paper and Keynes's view that macroeconomic stabilization could require a measure of socialization of investments, following James Tobin's hunch that French indicative planning, as well as some social democrat experiences in Northern Europe, could be playing precisely that role. The paper concludes by identifying the lessons one can draw from the two experiences.
    Keywords: New Deal; National Recovery Act (NRA); National Industrial Recovery Act (NIRA); Economic Planning; Economic Cooperation
    JEL: E02 E65 N12 N32 O21
    Date: 2019–02
  61. By: Valerie A. Ramey
    Abstract: This paper takes stock of what we have learned from the “Renaissance” in fiscal research in the ten years since the financial crisis. I first summarize the new innovations in methodology and discuss the various strengths and weaknesses of the main approaches. Reviewing the estimates, I come to the surprising conclusion that the bulk of the estimates for average spending and tax change multipliers lie in a fairly narrow range, 0.6 to 1 for spending multipliers and -2 to -3 for tax change multipliers. However, I identify economic circumstances in which multipliers lie outside those ranges. I conclude by reviewing the debate on whether multipliers were higher on the stimulus spending in the U.S. and the fiscal consolidations in Europe.
    JEL: E62
    Date: 2019–02
  62. By: Mauro Bambi (Durham University Business School); Fausto Gozzi (Luiss University)
    Abstract: Carroll et al. [7] establish that in a model with internal habits, an increase in economic growth may cause a positive change in savings. The optimality of this result has been recently questioned by several contributions in the literature which have observed that the parametrization used in [7] implies a utility function not jointly concave in consumption and habits. In this short paper, we revisit this issue: firstly we explain that it can be solved only through advanced techniques in Dynamic Programming and then we prove, using them, how the candidate optimal control found in [7] is indeed the unique optimal control
    Keywords: Endogenous Growth; Habit Formation, Sufficient Conditions of Optimality, Dynamic Programming, Viscosity Solution.
    JEL: C61 D91 E21 O40
    Date: 2019–01
  63. By: Wilko Bolt; Kostas Mavromatis; Sweder van Wijnbergen
    Abstract: We study the global macroeconomic effects of tariffs using a multiregional, general equilibrium model, EAGLE, that we extend by introducing US tariffs against Chinese imports into the US, and subsequently Chinese tariffs against US imports into China, consistent with recent trade policies by the US and the Chinese governments. We abstract from tariffs on goods exported from the euro area, focusing on a US-China trade war. A unilateral tariff from the US against China dampens US exports in line with the Lerner Symmetry theorem but global output contracts. Global output contracts even further after China retaliates. The euro area benefits from this trade war. These European trade diversion benefits are caused by cheaper imports from China and Europe's improved competitiveness in the US. As price stickiness in the export sector in each region increases, the negative effects of tariffs in the US and China are mitigated, but the positive effects in the euro area are then also dampened.
    Keywords: Trade Policy; Exchange Rates; Trade Diversion; Local Currency Pricing
    JEL: E32 F30 H22
    Date: 2019–02
  64. By: Di Nola, Alessandro; Kocharkov, Georgi; Vasilev, Aleksandar
    Abstract: We evaluate the relative importance of aggregate labor productivity versus income taxes and social contributions for tax compliance in an economy with a large degree of informality. Empirical evidence points out that tax evasion in Europe happens through partially concealing wages and profits in formally registered enterprises. To this end, we build a model in which employer-employee pairs of heterogeneous productive capacities make joint decisions on the degree of tax evasion. The quantitative model is used to analyze the case of Bulgaria which has the largest informal economy in Europe and underwent a number of important tax reforms over the period 2000-2014, including the introduction of a flat income tax in 2008. The estimation strategy relies on matching the empirical series for the size of the informal economy and other aggregate outcomes for 2000-2014. Our counterfactual experiments show that the most important factor for the changing size of the informal economy is labor productivity, which accounts for more than 75% of the change. The variation in corporate income tax accounts for the rest. We find that the 2008 flat tax reform did not play any visible role in coping with informality.
    Keywords: Envelope wages, hidden production, informal economy, flat tax reform
    JEL: E6 E65 H24 H26
    Date: 2018
  65. By: Kevin Lee; James Morley; Kalvinder Shields; Madeleine Sui-Lay Tan
    Abstract: This paper describes a fiscal database for Australia including measures of government spending, revenue, deficits, debt and various sub-aggregates as initially published and subsequently revised. The data vintages are collated from various sources and provide a comprehensive description of the Australian fiscal environment as experienced in real-time. Methods are described which exploit the richness of the real-time datasets and they are illustrated through an analysis of the extent to which stated fiscal plans are realised in practice and through the estimation of fiscal multipliers which draw a distinction between policy responses and policy initiatives. We find predictable differences between plans and actual fiscal policy, consistent with a desire of the government to appear more prudent than in reality, and a larger multiplier for policy initiatives than implementation errors.
    Keywords: Real-time, Australian Database, Revisions, Fiscal Policy, Government Spending, Government Revenues
    JEL: C32 D84 E32
    Date: 2019–02
  66. By: Iftekhar Hasan (Fordham University; Bank of Finland); Roman Horvath (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic); Jan Mares (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: Using a global sample, this paper investigates the determinants of wealth inequality capturing various economic, financial, political, institutional, and geographical indicators. Using instrumental variable Bayesian model averaging, it reveals that only a handful of indicators robustly matter and finance plays a key role. It reports that while financial depth increases wealth inequality, efficiency and access to finance reduce inequality. In addition, redistribution and education are associated with lower inequality whereas wars and openness to international trade contribute to greater wealth inequality.
    Keywords: Wealth inequality, finance, Bayesian model averaging
    JEL: D31 E21
    Date: 2018–12
  67. By: Grassetti, Francesca; Mammana, Cristiana; Michetti, Elisabetta
    Abstract: We introduce a dynamical model describing the interaction between a three-sectors real economy and a financial market with four assets. Investors and financial mediators have heterogeneous beliefs. The model may be used to investigate interdependence within economic fluctuations and assets volatility.
    Keywords: Asset Pricing, Economic Growth, Dynamic Analysis, General Equilibrium Model.
    JEL: C3 C6 C61 E1 E10 G1
    Date: 2019–01–01
  68. By: Gordon, Grey (Federal Reserve Bank of Richmond); Guerron-Quintana, Pablo (Boston College)
    Abstract: Migration plays a key role in city finances with every new entrant reducing debt per person and every exit increasing it. We study the interactions between regional borrowing, migration, and default from empirical, theoretical, and quantitative perspectives. Empirically, we document that in-migration rates are positively correlated with deficits, that many cities appear to be at or near state-imposed borrowing limits, and that defaults can occur after booms or busts in productivity and population. Theoretically, we show that migration creates an externality that results in over-borrowing, and our quantitative model is able to rationalize many features of the data because of it. Counterfactuals reveal (1) Detroit should have deleveraged in the financial crisis to avoid default; (2) a return to the high-interest rate environment prevailing in the 1990s has only small long-run effects on city finances; and (3) anticipated bailouts double default rates.
    Keywords: migration; cities
    JEL: E21 F22 F34 R23 R51
    Date: 2019–02–12
  69. By: de Renzio, Paolo; Wehner, Joachim
    Abstract: Fiscal transparency and participation in government budgeting are widely promoted, yet claims about their benefits are rarely based on convincing evidence. We provide the first systematic review covering 38 empirical studies published between 1991 and early 2015. Increased budgetary disclosure and participation – which we call “fiscal openness” – are consistently associated with improvements in the quality of the budget, as well as governance and development outcomes. Only a handful of studies, however, are able to convincingly identify causal effects, in the form of reduced corruption, enhanced electoral accountability, and improved allocation of resources. We highlight gaps and set out a research agenda that consists of: (a) disaggregating broad measures of budget transparency to uncover which specific disclosures are related to outcomes; (b) tracing causal mechanisms to connect fiscal openness interventions with ultimate impacts on human development; (c) investigating the relative effectiveness of alternative interventions; (d) examining the relationship between transparency and participation; and (e) clarifying the contextual conditions that support particular interventions.
    JEL: E6
    Date: 2017–08–03
  70. By: José U Mora Mora; Celso J Costa Junior (Faculty of Economics and Management, Pontificia Universidad Javeriana Cali)
    Abstract: We build a DSGE model to study the asymmetries of FDI shocks in an economy like Colombia. Besides nominal wage and price rigidities, we use the fact that Colombia has two productive and differentiated regions, Bogota that produces more than 25% of Colombia GDP (DANE, 2016) and the rest of the country, Ricardian and non-Ricardian agents, habit formation, capital adjustment costs, and modeled an entire foreign sector. Empirical results show that even when in the long run results are not very different in terms of real output, the short run effects are asymmetric implying that a shock to FDI in the rest of the country might cause important microeconomic adjustments that could improve the distribution of income throughout the country. The version here presented corresponds to the updated study.
    Keywords: Asymmetries, DSGE models, foreign direct investment
    JEL: F21 E17 E30
    Date: 2018–12
  71. By: Kevin Lee; James Morley; Kian Ong; Kalvinder Shields
    Abstract: The paper describes how to measure the fiscal multiplier using budget statements on planned government spending in the current and following years alongside the data on actual outcomes. The multiplier effects can be decomposed to distinguish the effects of ‘policy reactions’ versus ‘policy initiatives’, with the latter shown to be substantially larger than the former in a study of annual US data over 1957-2016. It is noted that the fiscal initiatives undertaken following the events of 2007/2008 played an important role in mitigating the recessionary effects of the global financial crisis in the US.
    Keywords: Government spending plans, real-time data, fiscal multiplier
    JEL: C32 D84 F44
    Date: 2019–02
  72. By: Bao H. Nguyen; Tatsuyoshi Okimoto; Trung Duc Tran
    Abstract: This paper investigates the oil market reaction to its fundamental shocks: supply, aggregate demand and oil-specific demand in different regimes characterised by high versus low uncertainty in the market. We do so by first proposing a novel oil uncertainty index that is measured by the conditional volatility of the unpredictable component of oil prices. Then, we employ a nonlinear model to show that the structural oil market shocks have asymmetric effects. For instance, in relation to real economic activity, we find that both supply shocks and oil-specific demand shocks have negligible impacts in periods of low oil price uncertainty but sizeable effects in periods of high oil price uncertainty. Our model also enables us to evaluate the hypothesis that real economic activity responds asymmetrically to unexpected increases and decreases in oil prices driven by supply and specific demand shocks. We find that the effects of oil supply shocks are asymmetric but oil specific demand shocks are not, which indicates that the (a)symmetric oil market reaction depends on the underlying market shocks.
    Keywords: oil price uncertainty, STVAR model, asymmetric effect
    JEL: C32 E32 Q4
    Date: 2019–02
  73. By: Ch.-M. CHEVALIER (Insee)
    Abstract: How did consumption inequalities evolve in France over the last two decades, and notably compared to disposable income? For the United States in particular, while earliest long run measures of consumption inequalities displayed stability, this pattern has been challenged by a refined indicator mitigating under-reporting and depicting an increase of the same order of magnitude as for disposable income (Aguiar and Bils, 2015). Relying on the survey Budget de famille between 1995 and 2011, this work first develops standard inequality measures for France and derives them with respect to consumption categories, ages and household compositions. Under a standard sample and consumption bundle, consumption inequality did not track income inequality in France especially during the crisis. By consumption category, the level of consumption inequality is lower and increased for inferior goods. Second, to correct potential systematic under-reporting errors, an alternative indicator similar to Aguiar and Bils (2015) is built relying on differences in luxuries and necessities expenditures between high- and low-income households. Yet, there seems to be no problem due to mis-measurement related to specific income groups over the whole time period in France. Relatedly, the alternative indicator of consumption inequality depicts no rising pattern, such as the one observed for the United States due to large relative underreporting by high-income respondents. Thus, both the standard and alternative inequality indicators do not illustrate consumption inequalities rising as income inequalities. As the latter did not increase to a large extent, this slight difference does not reflect an alarming surge in household indebtedness such as for the US over the same period.
    Keywords: consumption, inequality, savings, life cycle
    JEL: D31 E21
    Date: 2018
  74. By: Tayyar Buyukbasaran; Cem Cebi; Hande Kucuk
    Abstract: [EN] Taking the monetary policy framework as given, this study investigates how inflation volatility, output gap volatility and social welfare are affected in an environment where fiscal policy is designed with an aim to minimize the volatility in inflation and output gap as well as stabilizing debt. In this respect, we use the small-scale structural model of Çebi (2012) and obtain fiscal policy rules under different loss functions. We find that fiscal policy rules that minimize the loss function which gives more importance to the volatility of inflation and that of output gap produces lower volatility in inflation and output gap compared to other loss functions, which mainly focus on debt stabilization and output gap stabilization. Furthermore, fiscal rule parameters derived using the loss functions that prioritize debt stabilization and output gap volatility are far from the efficiency frontier. [TR] Bu calismada, para politikasi cercevesi veriyken, maliye politikasinin borc istikrari saglamanin yani sira enflasyon ve cikti acigindaki dalgalanmalari en aza indirgeme amaci dogrultusunda olusturuldugu bir durumda, enflasyon ve cikti acigi oynakligi ile sosyal refahin nasil etkilendigi incelenmistir. Bu cercevede, Cebi (2012) calismasinda ortaya konulan kucuk olcekli yapisal model kullanilarak cesitli kayip fonksiyonlari altinda maliye politikasi kurallari elde edilmistir. Calismada, enflasyon ve cikti acigindaki oynakliga daha cok onem veren maliye politikasi kayip fonksiyonunun esas olarak borc istikrarina ya da cikti acigi istikrarina onem veren kayip fonksiyonlarina gore enflasyon ve cikti acigindaki oynakligi dusurmede daha basarili oldugu gozlenmistir. Ayrica, yalnizca borc istikrari ya da cikti acigi istikrarini onceliklendiren maliye politikasi uygulamalarinin enflasyon ve cikti acigindaki oynakligi azaltma noktasinda etkinlik sinirinin uzaginda kaldigi tespit edilmistir.
    Date: 2018
  75. By: Grodecka, Anna (Research Department, Central Bank of Sweden); Kenny, Seán (Lund University); Ögren, Anders (Lund University)
    Abstract: This paper contributes to literature on bank distress using the Swedish experience of the international crisis of 1907, often paralleled with 2008. By employing previously unanalyzed bank-level data, we use logit regressions and principal component analysis to measure the impact of pre-crisis bank characteristics on the probability of their subsequent distress. The crisis was characterized by “creative destruction,” as those banks with weaker corporate governance structures, wider branching networks, operating with lower cost efficiency were more likely to experience distress. We find that poor credit allocation rather than foreign borrowing, as often stressed, were associated with ultimate demise.
    Keywords: Bank Distress; Financial Crises; Swedish Banks; Lender of Last Resort
    JEL: E58 G21 G28 H12 N23
    Date: 2018–10–01
  76. By: Davis, Douglas (Virginia Commonwealth University); Korenok, Oleg (Virginia Commonwealth University); Norman, Peter (University of North Carolina); Sultanum, Bruno (Federal Reserve Bank of Richmond); Wright, Randall (UW-Madison, FRB Minneapolis, FRB Chicago, NBER)
    Abstract: Experimental studies in monetary economics usually study infinite horizon models. Yet, the time constraints of the laboratory sessions in which these models are conducted create finite horizons that imply monetary equilibria cannot exist. Moreover, laboratory subjects do not treat the probabilistic termination rule typically used in a manner consistent with the discount factor that the rule is intended to replace. Thus, it is unclear whether these experiments evaluate subjects' use of money to ameliorate trading frictions as an equilibrium phenomenon, their inability to understand backward induction, or features of games that promote the use of money behaviorally, even when doing so is not an equilibrium strategy. To address this issue, we present a pair of finite-horizon games where monetary exchange is an equilibrium, and report an experiment that evaluates behavior in these games in light of a finitely repeated alternative where monetary exchange is not an equilibrium.
    Keywords: monetary economics; probabilistic termination rule; monetary theory
    Date: 2019–02–07
  77. By: Grant Allan (Department of Economics, University of Strathclyde); Kevin Connolly (Department of Economics, University of Strathclyde); Andrew G Ross (Department of Economics, University of Strathclyde); Peter McGregor (Department of Economics, University of Strathclyde)
    Abstract: Two key pillars of the energy quadrilemma (which measure the sustainability of energy policy) are a reduction in greenhouse gas emissions and economic development. Recent worldwide energy policy has focused on the reduction of greenhouse gas emissions to combat climate change, which will influence, and in turn be influenced by, economic activity and energy use. As such, it is critically important to identify and incorporate emissions into macroeconomic models. Typically, emissions are linked to economic activity via the level of output, both calculated at a sectoral level. However, this approach - while consistent with linear models such as Input-Output - assumes that emissions per unit of output remains constant, which can be problematic with more complex economic systems. In this paper we detail a method for incorporating sectoral and aggregate CO2 emissions into a macroeconomic model (CGE) of the UK through the use of sectoral primary energy use.
    Keywords: Emissions, macroeconomic models, primary use energy
    JEL: Q43 O13
    Date: 2018–11
  78. By: Lee, Hanol; Lee, Jong-Wha
    Abstract: This study measures the intergenerational persistence of education attainment, using internationally comparable data for parents’ and children’s education levels by age cohort for 30 countries, and identifies its determinants. The estimated intergenerational regression coefficients show that educational mobility worsened over generations in most countries, but its degrees varies considerably across countries and over time. The country-cohort panel regressions show that intergenerational educational mobility decreases with educational expansion, income inequality and credit constraints, and increases with per-capita GDP. The results also highlight the importance of progressive public expenditure on education for improving intergenerational educational mobility.
    Keywords: intergenerational mobility, education, income inequality, education spending, credit constraint, E24, I24, O50
    Date: 2019–02
  79. By: Steinar Strøm; Jon Vislie
    Abstract: We analyze optimal wealth management, within a global setting, where accumulation of GHGs caused by extraction of fossil resources affects the probability distribution for hitting a threshold or tipping point, indicating a climate change. We derive an optimal strategy for overall wealth management, within a Ramsey-Hotelling-framework. We have two assets; one being reproducible (reversible capital equipment) and another being non-reproducible (stock of exhaustible natural resources – fossil fuels). Resources, along with capital equipment, are inputs in the production of an aggregate output allocated to consumption and net investment. Resource extraction adds to a stock of GHGs that affects the likelihood for a catastrophic event. If, and when, such an event occurs there is a downscaling of production opportunities. We derive a first-best precautionary global tax on using fossil fuel, which internalizes the present value of (conditional) expected welfare loss of hitting a threshold, as well as a set of risk-modified optimality conditions for overall wealth management, as long as no catastrophe has occurred.
    Keywords: wealth management, stochastic tipping points, catastrophic outcome, precautionary taxation, social rates of discount
    JEL: E21 O44 Q32
    Date: 2019
  80. By: Li, Bin Grace (International Monetary Fund); McAndrews, James J. (TNBUSA); Wang, Zhu (Federal Reserve Bank of Richmond)
    Abstract: It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a two-sided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary significantly through the endogenous R&D channel.
    Keywords: payments system; technology adoption; two-sided market
    JEL: E4 G2 O3
    Date: 2019–02–08
  81. By: Asturias, Jose (Georgetown University Qatar); Hur, Sewon (Federal Reserve Bank of Cleveland); Kehoe, Timothy J. (Federal Reserve Bank of Minneapolis); Ruhl, Kim J. (University of Wisconsin)
    Abstract: Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
    Keywords: Entry; Exit; Productivity; Entry costs; Barriers to technology adoption;
    JEL: E22 O10 O38 O47
    Date: 2019–02–01
  82. By: Meltem Gulenay Chadwick
    Abstract: In this study, we aim to measure the dependence between financial markets of certain emerging market countries to the US monetary policy and monetary policy uncertainty. To do so, we apply time-varying copula models proposed by Patton (2006). We are particularly interested in the differences between emerging markets dependence on the US monetary policy, i.e. which country's financial market co-move more or less in response to quantitative easing or quantitative tightening. The results of our study is important as financial risks via contagion became an issue to monitor especially after the subprime crisis of 2008, although this crisis affected the emerging markets relatively less compared to advanced economies. The results of this paper show us that, there exists significant difference between the emerging markets with respect to their dependence to the US monetary policy. The correlation persistence parameters, which control the evolution of time-varying dependence, reveal that especially the emerging countries in the Latin American region are more dependent to both the US monetary policy and the monetary policy uncertainty. In this framework, it is interesting to see that the results acknowledge increasing dependence during the subprime crisis, which decrease after the year 2009, which should be considered as a risk factor for the policy makers that monitor the financial markets of the emerging markets closely.
    Keywords: Fragile five, Troubled ten, Financial vulnerability, US monetary policy, Time-varying copulas
    JEL: C58 E52 G15
    Date: 2018
  83. By: Masaya Shintani (Graduate School of Economics, Kobe University); Masaya Yasuoka (School of Economics, Kwansei Gakuin University)
    Abstract: This paper sets an endogenous fertility model with a two-sector model: one for the final goods sector and the other for child care service sector. Results of theoretical analysis indicate that the subsidy for children raises the labor share of the child care service sector and that it can increase fertility. An aging population reduces fertility and the labor share of the child care service sector. In addition to these results, we consider monetary policy effects on fertility. Results show that monetary policy can raise fertility and the labor share of the child care service sector by virtue of an increase in the pension benefit if a pay-as-you-go pension exists.
    Keywords: Aging Population, Fertility, Income Growth, Monetary Policy, Subsidy
    JEL: J11 J14 E31 H22
    Date: 2019–02
  84. By: Murat Duran
    Abstract: Economic agents and policymakers need to understand the factors that determine the exchange rates in order to make decisions to maximize individual and collective wealth respectively. This paper attempts to explain the movements of major emerging country exchange rates adopting a theory based approach. This approach is based on two major concepts of financial economics, the Uncovered Interest Parity condition and the yield curve. Instead of estimating a UIP regression using some interest rate differential at a specific maturity, we use information from the whole term structure. Using Nelson-Siegel parameters extracted from the yield curve differentials as explanatory variables, we estimate GARCH(1,1) models to predict exchange rate movements of 7 major emerging countries. Our findings indicate that yield curves are useful in explaining exchange rate movements. Rising local interest rates lead to local currency appreciation contrary to the UIP condition. Steeper yield curve causes local currency appreciation in some emerging countries and depreciation in others. Effects of the yield curve parameters are generally stronger at longer horizons implying that UIP does not become valid even in the long run. Finally several robustness checks indicate that these results are robust to data frequency, sample period and yield curve characterization methodology.
    Keywords: Uncovered interest parity, Term structure of interest rates, Exchange rates
    JEL: E43 F37 F31
    Date: 2018
  85. By: Jieun Lee (Economic Research Institute, The Bank of Korea); Doojin Ryu (College of Economics, Sungkyunkwan University)
    Abstract: This study examines the response of intraday options-implied volatilities to scheduled announcements of major macroeconomic indicators. By analyzing the KOSPI 200 options intraday data, we find that the abnormal implied volatility significantly increases around announcements of macroeconomic news and that the extent of the response is influenced by a variety of factors, including the type of macroeconomic indicators released, option type and economic conditions. Specifically, the increase in implied volatility around these announcements is more pronounced for puts than for calls. These effects are also more pronounced in the crisis and post-crisis periods than in the pre-crisis period. Monetary policy announcements have a more substantial impact on implied volatility than other announcements, even after controlling for news surprise components. Finally, the impact appears to be greater for policy rate hikes than for policy rate cuts.
    Keywords: Event study; Intraday volatility; KOSPI 200 options; Macroeconomic news announcement
    JEL: E52 G10 G14
    Date: 2019–01–10
  86. By: Maria Bolboaca (Institute of Economics, University of St. Gallen); Sarah Fischer (State Secretariat for Economic Affairs SECO)
    Abstract: This paper addresses the lack of consensus in the empirical literature regarding the effects of technological diffusion news shocks. We attribute the conflicting evidence to the wide diversity in terms of variable settings, productivity series used and identification schemes applied. We analyze the different identification schemes that have been employed in this literature. More specifically, we impose short- and medium-run restrictions to identify a news shock. The focus is on the medium- run identification maximizing at and over different horizons. We show that the identified news shock depends critically on the applied identification scheme and on the maximization horizon. We also investigate the importance of the information content of the model and of the productivity measure used. We find that models which either contain a large set of macroeconomic variables or include variables that are strongly forward looking deliver more robust results. Moreover, we show that the productivity series used may influence results, but there is convergence of findings for newer total factor productivity series vintages. Our conclusion is that news shocks have expansionary properties.
    Date: 2019–02
  87. By: Marika Cioffi (Bank of Italy); Pietro Rizza (Bank of Italy); Marzia Romanelli (Bank of Italy); Pietro Tommasino (Bank of Italy)
    Abstract: Public debts in the euro area have increased sharply due to the economic crisis, and remain at historically high levels in several countries. In a monetary union, high-debt members represent a permanent threat to financial stability, as they are subject – even if fundamentally solvent – to significant rollover risk. Given the tight financial and economic links between member states, a liquidity crisis in one of them would trigger area-wide turmoil. While prudent fiscal policies are essential to address the legacy debt problem, it takes time for them to bring the debt back to (at least) pre-crisis levels. Against this background, the paper explores the feasibility and desirability of transferring a share of national public debts to a European Redemption Fund. In exchange, each country would transfer a yearly flow of resources to the Fund. We show that it is possible to design such a scheme so that it does not entail any ex-ante cross-country redistribution, while the euro area as a whole would benefit as the lowering of member states’ annual refinancing needs would improve financial stability. The fraction of mutualized debt would be fully redeemed over a reasonable number of years. The scheme would not jeopardize national commitment to debt reduction; if anything, market discipline would become more effective at the margin.
    Keywords: Euro area, sovereign debt, debt redemption fund, financial stability
    JEL: E6 H12 H60
    Date: 2019–01
  88. By: Salih Fendoglu; Steven Ongena
    Abstract: How does a sudden stop affect the local supply of credit by domestic banks? To answer this question, we study the Turkish credit register around Lehman. We find that the credit supply channel during a sudden stop works through not only banks’ ex-ante level of reliance on foreign funding (as is often documented in extant research), but also the difficulty of banks in rolling over their maturing foreign debt (which we capture by remaining maturity of and premium on their foreign funding), and for banks with ex-ante more optimistic exchange rate expectations, their holding of ex-ante riskier loan portfolios. Our research thereby uncovers the latter two channels as a significant source of amplification in contracting credit supply during a sudden stop.
    Keywords: Sudden stop, Credit supply channel, Emerging market economies
    JEL: E44 F34 F41
    Date: 2018
  89. By: Robert J. Shiller
    Abstract: Concerns that technological progress degrades job opportunities have been expressed over much of the last two centuries by both professional economists and the general public. These concerns can be seen in narratives both in scholarly publications and in the news media. Part of the expressed concern about jobs has been about the potential for increased economic inequality. But another part of the concern has been about a perceived decline in job quality in terms of its effects on monotony vs creativity of work, individual sense of identity, power to act independently, and meaning of life. Public policy should take account of both of these concerns, inequality and job quality.
    JEL: B0 E02 J0 N3
    Date: 2019–02
  90. By: R. S.-H. LEE (Insee, Polytechnique et Crest-LMA); M. PAK (OCDE)
    Abstract: Global trade has recently slowed down after a peak in the 1990s and early 2000s. Existing literature shows evidence of pro-competitive effects of trade liberalisation during this booming period on prices, productivity and markups. The goal of this paper is to assess whether such pro-competitive effects are still carried on in the manufacturing industry of five Euro Area countries (Austria, Germany, Spain, France and Italy). Our analysis is based on Melitz and Ottaviano’s (2008) theoretical framework and its empirical setup by Chen et al. (2004, 2009). Our contribution is twofold. First, we use traditional trade indicators (gross and value added exports and imports) but also novel indicators that account for the development of global value chains. Second, from the findings of Chen et al. (2004, 2009), we go further by investigating the effect of trade at sector level with respect to quality upgrading and firm concentration. We find that pro-competitive effects are more significant when using import penetration in value-added terms and such effects are particularly strong in sectors with low concentration. Indeed, higher concentration seems to mitigate the trade-induced competition. However, our model focuses on price competition and further research on the quality upgrading would be complementary to our results.
    Keywords: inflation, markups, productivity, competition, globalisation
    JEL: E31 F12 F14 L11 L16
    Date: 2018
  91. By: Mahmut Gunay
    Abstract: [EN] Expectations about GDP growth play important role in the decision making process of policy makers and investors.Yet, GDP data for a period are published with a certain lag. So, for quarterly GDP growth there are various methodsfor updating nowcasts with the information flow. However, methods that enable one to mechanically updatenowcasts for annual GDP growth are not very common. As a matter of fact, judgement plays non-negligible role innowcasts of annual GDP growth. In this note, we analyze the performance of MIDAS approach for nowcastingannual GDP growth for Turkish economy for 2003-2017. We use growth rates of quarter-on-quarter GDP andmonth-on-month industrial production and exchange rate for modelling annual GDP growth. We find that as ofSeptember, we can get fairly accurate nowcasts for annual GDP growth. Using exchange rate contributes toreduction in nowcast errors in the first half of the year.[TR] GSYIH buyumesine iliskin beklentiler politika yapicilar ve yatirimcilar icin onemli bir gostergedir. Buna karsin, GSYIH verileri belirli bir gecikme ile yayimlanmaktadir. Bu nedenle, ceyreklik frekanstaki GSYIH buyumesini veri akisina gore mekanik olarak guncellemeye imkan veren cesitli yontemler gelistirilmistir. Yil geneli buyume tahminleri icin ise bu tur yontemler sinirlidir. Bu nedenle, tahminlerde yargisallik onemli rol oynayabilmektedir. Bu calismada, MIDAS yaklasimi kullanilarak yillik GSYIH buyumesi, ceyrekten ceyrege GSYIH ve aydan aya sanayi uretimi ile dolar kuru degisimleri kullanarak modellenmektedir. Sonuclar, Eylul ayi itibariyla uretilen tahminlerin gerceklesmelere oldukca yakin seyrettigini gostermektedir. Kurlara iliskin verilerin kullanilmasi, yilin ilk yarisinda tahmin hatalarinin dusmesine katkida bulunmaktadir.
    Date: 2018
  92. By: Dorine Boumans; Clemens Fuest; Carlo Krolage; Klaus Wohlrabe
    Abstract: The Tax Cuts and Jobs Act constitutes the largest change to the US tax system since the 1980s and thoroughly alters the way in which multinational companies are taxed. Cur-rent assessments on the reform’s international impact vary widely. This article sheds light on the tax reform’s expected effects on other countries. We first use representative German business survey data to analyse the impact of the reform on German firms. Many firms with substantial US revenues or production capacities in the US intend to expand US investment in response to the reform, in particular large firms and manufacturing companies. The effects on investment in Germany are ambiguous: While some firms substitute between investment locations, others expand in both countries. We subsequently extend our analysis to the global level using worldwide survey data. The results suggest a negative impact on tax revenues and investment in countries with close economic ties to the US.
    Keywords: US tax reform, corporate tax, firm responses, survey, Germany
    JEL: H25 H32 H71 E62
    Date: 2019

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