|
on Macroeconomics |
|
Issue of 2019‒03‒04
eighty papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Kerssenfischer, Mark |
| Abstract: | Central bank announcements move financial markets. The response of inflation and growth expectations, on the other hand, is often small or even counterintuitive. Based on tick-by-tick futures prices on bonds and stock prices, I confirm these seemingly puzzling results for the euro area and provide evidence that they are due to central bank information effects. That is, ECB announcements convey information not only about monetary policy, but also about economic fundamentals. I separate these "information shocks" from "pure policy shocks" via sign restrictions and find intuitive effects of both shocks on a wide set of financial market prices and survey measures of economic expectations. |
| Keywords: | Monetary Policy,High-Frequency Identification,Central Bank Information |
| JEL: | E52 E44 E32 C32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:072019&r=all |
| By: | Fiedler, Salomon; Gern, Klaus-Jürgen; Jannsen, Nils; Wolters, Maik H. |
| Abstract: | The recovery from the Global Financial Crisis was characterized by sluggish output growth and by inflation remaining persistently below the inflation targets of central banks in many advanced economies despite an unprecedented monetary expansion. Ten years after the Global Financial Crisis, GDP remains below its pre-crisis trend in many economies and interest rates continue to be very low. This raises the question of whether low GDP growth and low interest rates are a temporary phenomenon or are due to a decline in long-run growth prospects (potential output growth) and equilibrium real interest rates (natural interest rate). Addressing this question is important for central banks for conducting monetary policy and adjusting their strategy. In this paper, the authors address this question based on a review of the literature and an evaluation of the most recent data and discuss implications for monetary policy. |
| Keywords: | natural interest rate,potential output,output gap,monetary policy |
| JEL: | E31 E32 E43 E52 E58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201917&r=all |
| By: | Acharya, Sushant; Bengui, Julien; Dogra, Keshav; Wee, Shu Lin |
| Abstract: | We analyze monetary policy in a model where temporary shocks can permanently scar the economy's productive capacity. Unemployed workers' skill losses generate multiple steady-state unemployment rates. When monetary policy is constrained by the zero bound, large shocks reduce hiring to a point where the economy recovers slowly at best â?? at worst, it falls into a permanent unemployment trap. Since monetary policy is powerless to escape such traps ex-post, it must avoid them ex-ante. The model quantitatively accounts for the slow U.S. recovery following the Great Recession, and suggests that lack of swift monetary accommodation helps explain the European periphery's stagnation. |
| Keywords: | hysteresis; monetary policy; multiple steady states; path dependence; skill depreciation |
| JEL: | E24 E3 E5 J23 J64 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13409&r=all |
| By: | Troug, Haytem |
| Abstract: | The significant role of government consumption in affecting economic conditions raises the necessity for monetary policy to take into account the behaviour of fiscal policy and to also take into account how the presence of the fiscal sector might affect the transmission mechanism of monetary policy in the economy. To test for this, we build an otherwise standard New Keynesian model that incorporates non-separable government consumption. The simulations of the model show that when government consumption has a crowding in effect on private consumption, it will dampen the transmission mechanism of monetary policy, and vice versa. The empirical estimations of the paper also support the theoretical findings of the model, as the panel regression show that, in OECD countries, government consumption dampens the effect of the policy rate on private consumption. These results are robust to the zero lower bound era. |
| Keywords: | New Keynesian Models, Business Cycle, Monetary Policy, Joint Analysis of Fiscal and Monetary Policy. |
| JEL: | E12 E32 E52 E63 |
| Date: | 2019–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92323&r=all |
| By: | William John Tayler; Roy Zilberman |
| Abstract: | We characterize the joint optimal implementation of macroprudential and monetary policies in a New Keynesian model where endogenous supply-side financial frictions generate inflationary credit spreads. State-contingent macroprudential interventions help to stabilize volatile spreads, and substantially alter the transmission of optimal monetary policy under both discretion and commitment. In 'normal times', macroprudential policies replicate the first-best allocation. In liquidity traps, financial interventions remove the zero lower bound restriction on the nominal policy rate, thus minimizing output costs following both deflationary (inflationary) demand (financial) shocks. Discretionary and commitment policies with macroprudential taxes deliver equivalent welfare gains. |
| Keywords: | financial taxation, monetary policy, optimal policy, credit cost channel, credit spreads, zero lower bound |
| JEL: | E32 E44 E52 E58 E63 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:257107351&r=all |
| By: | Hartmann, Philipp; Smets, Frank |
| Abstract: | On 1 June 2018 the ECB celebrated its 20th anniversary. This paper provides a comprehensive view of the ECB's monetary policy over these two decades. The first section provides a chronological account of the macroeconomic and monetary policy developments in the euro area since the adoption of the euro in 1999, going through four cyclical phases "conditioning" ECB monetary policy. We describe the monetary policy decisions from the ECB's perspective and against the background of its evolving monetary policy strategy and framework. We also highlight a number of the key critical issues that were the subject of debate. The second section contains a partial assessment. We first analyze the achievement of the price stability mandate and developments in the ECB's credibility. Next, we investigate the ECB's interest rate decisions through the lens of a simple empirical interest rate reaction function. This is appropriate until the ECB hits the zero-lower bound in 2013. Finally, we present the ECB's framework for thinking about non-standard monetary policy measures and review the evidence on their effectiveness. One of the main themes of the paper is how ECB monetary policy responded to the challenges posed by the European twin crises and the subsequent slow economic recovery, making use of its relatively wide range of instruments, defining new ones where necessary and developing the strategic underpinnings of its policy framework. |
| Keywords: | crisis; euro area economy; European Central Bank; European Economic and Monetary Union; inflation; monetary policy; non-standard measures; zero-lower bound |
| JEL: | E31 E32 E42 E52 G01 N14 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13411&r=all |
| By: | Giancarlo Bertocco; Andrea Kalajzić |
| Abstract: | The publication of the seventh edition of Blanchard’s textbook (Blanchard 2017) and of the third edition of the textbook authored by Blanchard, Amighini and Giavazzi (2017) represents a significant opportunity to assess the impact of the Great Recession on macroeconomic theory and on the teaching of macroeconomics. The authors acknowledge that the mainstream economic model presented in the previous editions of their textbooks is unable to offer a significant explanation of the causes of the crisis as it completely neglects the role of the financial system. They believe that the economics profession has learned the lesson of the crisis since economists understood the limitations of the theoretical model elaborated over the last decades. In the revised editions of their textbooks they present a new theoretical model taking into account the financial system. The objective of this work is twofold: i) to show that the new model does not allow to elaborate a coherent explanation of the Great Recession and: ii) to present the pillars of an alternative theoretical model based on the lessons of Keynes, Schumpeter and Minsky. |
| Keywords: | Financial markets, Crises, Keynes, Schumpeter, Minsky |
| JEL: | E10 E20 E30 E40 E44 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1905&r=all |
| By: | Sakir Devrim Yilmaz; Engelbert Stockhammer |
| Abstract: | While there exists a substantial literature on different business cycle mechanisms, there is little literature on economies with more than one business cycle mechanism operating and the relation of stability of these subsystems with the stability of the aggregate system. We construct a model where a multiplier-accelerator subsystem in output-investment space (a real cycle) and a Minskyian subsystem in investment-debt space (a financial cycle) can generate stable/unstable cycles in 2D in isolation. We then derive a theorem showing that if two independent cycle mechanisms that generate stable closed orbits in 2D share a self-destabilizing common variable and the true representation of the system is a fully-coupled 3D system where a weighted average of the common variable is in effect, then the 3D system will generate locally stable closed orbits in 3D if and only if the subsystems have the same frequencies and/or the self-destabilizing effects of the common variable evaluated at the fixed point are equal in both subsystems. Our results indicate that in the presence of multiple cycle mechanisms which share common variables in an economy, the stability of the aggregate economy crucially depends on the frequencies of these sub-cycle mechanisms. |
| Keywords: | Business cycles, Minsky models, multiplier-accelerator |
| JEL: | C32 E32 E44 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1904&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Sweden from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the W series is I (1). The study presents the ARIMA (1, 1, 0) model for predicting CPI in Sweden. The diagnostic tests further imply that the presented optimal model is stable as expected. The results of the study apparently show that CPI in Sweden is likely to continue on an upwards trajectory in the next ten years. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Sweden. |
| Keywords: | Forecasting; Inflation; Sweden |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92418&r=all |
| By: | NYONI, THABANI |
| Abstract: | This study uses annual time series data on CPI in Panama from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the P series is I (1). The study presents the ARIMA (1, 1, 0) model for predicting CPI in Panama. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for forecasting CPI in Panama. The results of the study apparently show that CPI in Panama is likely to continue on an upwards trajectory in the next 10 years. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to deal with inflation in Panama. |
| Keywords: | Forecasting; Inflation; Panama |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92419&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Japan from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the X series is I (1). The study presents the ARIMA (1, 1, 0) model for predicting CPI in Japan. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable. The results of the study apparently show that CPI in Japan is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Japan. |
| Keywords: | Forecasting; inflation; Japan |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92409&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in the UK from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the K series is I (2). The study presents the ARIMA (1, 2, 1) model for predicting CPI in the UK. The diagnostic tests further indicate that the presented optimal model is actually stable and acceptable. The results of the study apparently show that CPI in the UK is likely to continue on a sharp upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in the UK. |
| Keywords: | Forecasting; Inflation; UK |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92410&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Australia from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the A series is I (1). The study presents the ARIMA (1, 1, 0) model for predicting CPI in Australia. The diagnostic tests further imply that the presented optimal model is stable and acceptable. The results of the study apparently show that CPI in Australia is likely to continue on an upwards trend in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Australia. |
| Keywords: | Forecasting; Inflation; Australia |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92412&r=all |
| By: | Gomis-Porqueras, Pedro (Deakin University); Sanches, Daniel R. (Federal Reserve Bank of Philadelphia) |
| Abstract: | We construct a model of consumer credit with payment frictions, such as spatial separation and unsynchronized trading patterns, to study optimal monetary policy across different interbank market structures. In our framework, intermediaries play an essential role in the functioning of the payment system, and monetary policy influences the equilibrium allocation through the interest rate on reserves. If interbank credit markets are incomplete, then monetary policy plays a crucial role in the smooth operation of the payment system. Specifically, an equilibrium in which privately issued debt claims are not discounted is shown to exist provided the initial wealth in the intermediary sector is sufficiently large relative to the size of the retail sector. Such an equilibrium with an efficient payment system requires setting the interest rate on reserves sufficiently close to the rate of time preference. |
| Keywords: | Intermediation; liquidity; payments system; rediscounting |
| JEL: | E42 E58 G21 |
| Date: | 2019–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:19-12&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Canada from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the C series is I (1). The study presents the ARIMA (1, 1, 1) model for predicting CPI in Canada. The diagnostic tests further show that the presented parsimonious model is stable. The results of the study apparently show that CPI in Canada is likely to continue on a sharp upwards trajectory in the next decade. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Canada. |
| Keywords: | Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92415&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in France from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the F series is I (2). The study presents the ARIMA (1, 2, 0) model for predicting CPI in France. The diagnostic tests further imply that the presented model is stable and acceptable for predicting CPI in France. The results of the study apparently show that CPI in France is likely to continue on an upwards trajectory in the next ten years. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in France. |
| Keywords: | France; Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92416&r=all |
| By: | Fujio Takata (Graduate School of Economics, Kobe University) |
| Abstract: | Let us consider movement patterns in an economy based on a Ramsey type model, as do many papers in the R.B.C. school. We focus on how labor supply is determined and on how this determination affects the movement patterns. We discuss two kinds of labor supply, namely, an intensive arrangement and an extensive one. We conclude that the labor supply in both arrangements is similar from the viewpoint of a macro economy. This leads us to conjecture that the two forms of labor supply do not affect the movement pattern. |
| Keywords: | Divisible labor; Indivisible labor; Movement patterns |
| JEL: | E20 E24 E32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1904&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Belgium from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the B series is I (2). The study presents the ARIMA (0, 2, 1) model for predicting CPI in Belgium. The diagnostic tests further imply that the presented optimal model is apparently stable and acceptable. The results of the study apparently show that CPI in Belgium is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Belgium. |
| Keywords: | Belgium; Forecasting; Inflation |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92414&r=all |
| By: | Roth, Felix; Jonung, Lars |
| Abstract: | This paper examines the evolution of public support for the euro since its introduction as a virtual currency in 1999, using a unique set of data not available for any other currency. We focus on the role of economic factors in determining the popularity of the euro. We find that a majority of citizens support the euro in each individual member country of the euro area (EA). The economic crisis in the EA following the Great Recession led to a slight decline in public support, but the recent economic recovery has strengthened that support, which is now approaching historically high levels after two decades of its existence. We detect a similar, but less pronounced upturn in trust in the ECB during the recovery. Our econometric work demonstrates that unemployment is a key driver of support behind the euro. Given these developments, we discuss whether the large and persistent majority support enjoyed by the euro equips the currency to weather populist challenges during its third decade. |
| Keywords: | Euro,public support,trust,unemployment,optimum currency area,monetary union,ECB |
| JEL: | E42 E52 E58 F33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:uhhhdp:2&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Singapore from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the S series is I (1). The study presents the ARIMA (1, 1, 2) model for predicting CPI in Singapore. The diagnostic tests further show that the presented optimal model is actually stable and acceptable. The results of the study apparently show that CPI in Singapore is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Singapore. |
| Keywords: | Forecasting; Inflation; Singapore |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92413&r=all |
| By: | Sudipto Karmakar; Abhinav Narayanan |
| Abstract: | The recent demonetization exercise in India is a unique monetary experiment that made 86 percent of the total currency in circulation invalid. In a country where currency in circulation constitutes 12 percent of GDP, the policy turned out to be a purely exogenous macroeconomic shock that affected all agents of the economy. This paper documents the impact of this macroeconomic shock on one such systematically important agent of the economy: the household. By construction, the policy helped households with bank accounts in disposing of the demonetized cash. We use a new household-level data set to tease out the effects of this policy on households with no bank accounts. Our results show that the impact of demonetization on household income and expenditure has been transient with the major impact being seen in December-2016. There is significant heterogeneity in the impact across households in different asset classes. We also show evidence of recovery of household finances whereby households were able to smooth out consumption during the post-demonetization period. However, this recovery phase is associated with an increase in household borrowing from different sources, primarily for the purpose of consumption. In particular, informal borrowing (money lenders, shops) increased substantially during this period. Thus, the policy although transient in nature, contributed to the unintended consequence of increased leverge for households. |
| Keywords: | Demonetization, Household finance, Leverage |
| JEL: | E21 E51 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0732019&r=all |
| By: | Michael Patrick Curran (Department of Economics, Villanova School of Business, Villanova University); Scott J. Dressler (Department of Economics, Villanova School of Business, Villanova University) |
| Abstract: | This paper assesses the welfare implications of long-run inflation in an environment with essential money, a competing illiquid asset, and potential ex-ante heterogeneity of households with respect to their behavioral measures of risk aversion and elasticity of intertemporal substitution. The results show that the relative liquidity position of households’ portfolio as well as potential inter-cohort transfers of resources can deliver fewer welfare costs to inflation than has been previously reported, and in some instances net welfare benefits to low levels of positive inflation. These results hold in versions of the model calibrated to both US and euro area data. |
| Keywords: | Inflation; Welfare; Recursive Preferences |
| JEL: | E21 E41 E50 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:vil:papers:40&r=all |
| By: | NYONI, THABANI |
| Abstract: | This research uses annual time series data on CPI in Norway from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the N series is I (2). The study presents the ARIMA (2, 2, 2) model for predicting CPI in Norway. The diagnostic tests further imply that the presented optimal model is actually stable. The results of the study apparently show that CPI in Norway is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Norway. |
| Keywords: | Forecasting; Inflation, Norway |
| JEL: | C53 E31 E37 E47 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92411&r=all |
| By: | Hochmuth, Brigitte; Kohlbrecher, Britta; Merkl, Christian; Gartner, Hermann (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]) |
| Abstract: | "This paper proposes a new approach to evaluate the macroeconomic effects of the Hartz IV reform in Germany, which reduced the generosity of long-term unemployment benefits. We use a model with different unemployment durations, where the reform initiates both a partial effect and an equilibrium effect. The relative importance of these two effects and the size of the partial effect are estimated based on the IAB Job Vacancy Survey. Our novel methodology provides a solution for the existing disagreement in the macroeconomic literature on the unemployment effects of Hartz IV. We find that Hartz IV was a major driver for the decline of Germany's unemployment and that partial and equilibrium effect where of equal importance. We thereby contribute to the literature on partial and equilibrium effects of unemployment benefit changes. In addition, we are the first to provide direct empirical evidence on labour selection, which can be interpreted as one dimension of recruiting intensity." (Author's abstract, IAB-Doku) ((en)) |
| JEL: | E24 E00 E60 |
| Date: | 2019–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:201903&r=all |
| By: | Costain, James; Nakov, Anton; Petit, Borja |
| Abstract: | This paper studies the dynamic general equilibrium effects of monetary shocks in a "control cost" model of state-dependent retail price adjustment and state-dependent wage adjustment. Suppliers of retail goods and of labor are both monopolistic competitors that face idiosyncratic productivity shocks and nominal rigidities. Stickiness arises because precise choice is costly: decision-makers tolerate errors both in the timing of adjustments, and in the new level at which the price or wage is set, because making these choices with perfect precision would be excessively costly. The model is calibrated to microdata on the size and frequency of price and wage changes. We find that the impact multiplier of a money growth shock on consumption and labor in our calibrated state-dependent model is similar to that in a Calvo model with the same adjustment frequencies, though the response is less persistent than it would be under the Calvo mechanism. Wage rigidity accounts for most of the nonneutrality that occurs in a model where both prices and wages are sticky; hence, a model with both rigidities produces substantially larger real effects of monetary shocks than does a model with sticky prices only. We find that the state-dependence of nominal rigidity strongly decreases the slope of the Phillips curve as trend inflation declines. This result is not driven by downward wage rigidity; adjustment costs are symmetric in our model. Here, instead, price- and wage-setters prefer to adjust less frequently when trend inflation is low, making short-run inflation less reactive to shocks. |
| Keywords: | control costs; logit equilibrium; near rationality; state-dependent adjustment; sticky prices; sticky wages |
| JEL: | C73 D81 E31 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13398&r=all |
| By: | Felipe, Jesus (Asian Development Bank); Estrada, Gemma (Asian Development Bank) |
| Abstract: | This paper analyzes why the Philippines’ growth performance has improved significantly in recent years. As in the medium to long term actual growth adjusts to potential, we posit that the reason behind this improvement is that the country’s potential growth is increasing. We derive an estimate of the potential growth rate, defined as the growth consistent with a constant unemployment rate, through the notion of Harrod’s natural growth rate and Okun’s Law. Kalman filter estimation allows us to obtain a time series of potential growth rate for 1957-2017. Results corroborate that potential growth is increasing. It reached 6.3% in 2017, the highest value during the last 60 years. We find that in recent years, labor productivity growth (technical progress) accounts for most of the country’s potential growth rate, as the trend labor force growth displays a downward trend. A decomposition of labor productivity growth shows that the within effect accounts for 70% of it, and that most of it is due to manufacturing productivity growth. As actual growth in 2017 reached 6.7% and to maintain the growth momentum, Philippine authorities ought to focus on increasing potential growth to enable more room for growth in a stable macroeconomic environment. Finally, two key results emerge from our analysis of output and productivity growth, and employment. First, estimates of Okun’s Law indicate that the response of Philippine unemployment and visible underemployment to output growth is very small. However, the response of total underemployment is positive and significant. Second, productivity growth does not destroy employment. |
| Keywords: | Harrod’s natural growth rate; Kalman filter; Okun’s Law; Philippines; potential growth; underemployment; unemployment |
| JEL: | E24 E32 O47 O53 |
| Date: | 2018–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0542&r=all |
| By: | Saroj Bhattarai (University of Texas at Austin); Arpita Chatterjee (UNSW Business School, UNSW); Woong Yong Park (Seoul National University) |
| Abstract: | Spillover effects of US uncertainty shocks are studied in a panel VAR of fifteen emerging market economies (EMEs). A US uncertainty shock negatively affects EME stock prices and exchange rates, raises EME country spreads, and decreases capital inflows into them. It decreases EME output and consumer prices while increasing net exports. Negative effects on output and asset prices are weaker, but effects on external balance stronger, for Latin American EMEs. We attribute such heterogeneity to differential EME monetary policy response to US uncertainty shocks. Analysis of central bank minutes shows Latin American EMEs pay less attention to smoothing capital flows. |
| Keywords: | US Uncertainty; Panel VAR; Emerging Market Economies; Monetary Policy Response; Emerging Market Monetary Policy Minutes |
| JEL: | C11 C33 E44 E52 E58 F32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2017-17a&r=all |
| By: | Ferrero, Andrea; Harrison, Richard; Nelson, Benjamin |
| Abstract: | The inception of macro-prudential policy frameworks in the wake of the global financial crisis raises questions about the effects of the newly available policy tools and their interaction with the existing ones. We study the optimal setting of a loan-to-value (LTV) limit, and its implications for optimal monetary policy, in a model with nominal rigidities and financial frictions. The welfare-based loss function implies a role for macro-prudential policy to enhance risk-sharing. Following a house price boom-bust episode, macro-prudential policy alleviates debt-deleveraging dynamics and prevents the economy from falling into a liquidity trap. In this scenario, optimal policy always entails countercyclical LTV limits, while the response of the nominal interest rate depends on the nature of the underlying shock driving house prices. |
| Keywords: | financial crisis; monetary and macro-prudential policy; zero lower bound |
| JEL: | E52 E58 G01 G28 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13400&r=all |
| By: | Park, Donghyun (Asian Development Bank); Shin, Kwanho (Korea University); Tian, Shu (Asian Development Bank) |
| Abstract: | The rapid accumulation of private debt is widely viewed as a major risk to financial and economic stability. This paper systematically and comprehensively assesses the effect of private debt buildup on economic growth. In the spirit of Mian, Sufi, and Verner (2017) that separately examine the effects of two types of private debt, i.e., household debt and corporate debt, on growth in developed economies, this study specifically provides new evidence on the growth–private debt nexus in both advanced and emerging market economies (EMEs). Moreover, we construct financial peaks in terms of the speed of debt accumulation rather than crisis dates and find that in both advanced and EMEs, corporate debt buildups cause more financial peaks than household debt buildups. Further, corporate debt-induced financial recessions inflict a bigger damage on output than household debt-induced financial recessions in EMEs. Overall, our evidence suggests that policy makers would do well to closely monitor not only household debt but also corporate debt. |
| Keywords: | : business cycle; corporate debt; crisis; debt; economic growth; household debt; output; private debt |
| JEL: | E32 E44 G01 |
| Date: | 2018–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0567&r=all |
| By: | Das, Sanjiv; Mitchener, Kris James; Vossmeyer, Angela |
| Abstract: | We employ a unique hand-collected dataset and a novel methodology to examine systemic risk before and after the largest U.S. banking crisis of the 20th century. Our systemic risk measure captures both the credit risk of an individual bank as well as a bank's position in the network. We construct linkages between all U.S. commercial banks in 1929 and 1934 so that we can measure how predisposed the entire network was to risk, where risk was concentrated, and how the failure of more than 9,000 banks during the Great Depression altered risk in the network. We find that the pyramid structure of the commercial banking system (i.e., the network's topology) created more inherent fragility, but systemic risk was nevertheless fairly dispersed throughout banks in 1929, with the top 20 banks contributing roughly 18% of total systemic risk. The massive banking crisis that occurred between 1930-33 raised systemic risk per bank by 33% and increased the riskiness of the very largest banks in the system. We use Bayesian methods to demonstrate that when network measures, such as eigenvector centrality and a bank's systemic risk contribution, are combined with balance sheet data capturing ex ante bank default risk, they strongly predict bank survivorship in 1934. |
| Keywords: | banking networks; financial crises; Global Financial Crisis; Great Depression; marginal likelihood; systemic risk |
| JEL: | E42 E44 G01 G18 G21 L1 N12 N22 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13416&r=all |
| By: | Holmes, Douglas R. |
| Abstract: | Narratives are under-theorised and until recently under-recognised as core variables influencing the speed and direction of changes in expectations and, therefore, as core macroeconomic variables that shape the policy processes of central banks. The author examines below how the thousands of micro-level narratives garnered on a regular basis by the Bank of England's staff of regional agents can inform what Ricardo Reis and Alan Blinder (Understanding the Greenspan standard, 2005) term the "macroeconomic allegories" that influence monetary policy decision-making. The contacts that make up the "network" perform descriptive, explanatory, and interpretive labor in situ putting words both to the ephemera of local expectations across the UK and to the rapidly changing competitive pressures unfolding in global markets. Internal studies have demonstrated that the micro-level narratives collected and scored by the agents provide the most reliable information on the future course of the British economy of any of the projections or forecasts available to the Bank. |
| Keywords: | central banks and their policies,role and effects of psychological,emotional,social,and cognitive factors on the macro economy |
| JEL: | E47 E58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201918&r=all |
| By: | Ana Fostel (University of Virginia); John Geanakoplos (Yale University); Gregory Phelan (Williams College) |
| Abstract: | Cross-border financial flows arise when (otherwise identical) countries differ in their abilities to use assets as collateral to back financial contracts. Financially integrated countries have access to the same set of financial instruments, and yet there is no price convergence of assets with identical payoffs, due to a gap in collateral values. Home (financially advanced) runs a current account deficit. Financial flows amplify asset price volatility in both countries, and gross flows driven by collateral differences collapse following bad news about fundamentals. Our results can explain financial flows among rich, similarly-developed countries, and why these flows increase volatility. |
| Keywords: | Collateral, capital flows, asset prices, current account, securitized markets, asset-backed securities |
| JEL: | D52 D53 E32 E44 F34 F36 G01 G11 G12 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2019-01&r=all |
| By: | Pele, Daniel Traian; Mazurencu-Marinescu-Pele, Miruna |
| Abstract: | In this paper, the authors investigate the statistical properties of some cryptocurrencies by using three layers of analysis: alpha-stable distributions, Metcalfe's law and the bubble behaviour through the LPPL modelling. The results show, in the medium to long-run, the validity of Metcalfe's law (the value of a network is proportional to the square of the number of connected users of the system) for the evaluation of cryptocurrencies; however, in the short-run, the validity of Metcalfe's law for Bitcoin is questionable. As the results showed a potential for herding behaviour, the authors then used LPPL models to capture the behaviour of cryptocurrencies exchange rates during an endogenous bubble and to predict the most probable time of the regime switching. The main conclusion is that Metcalfe's law may be valid in the long-run, however in the short-run, on various data regimes, its validity is highly debatable. |
| Keywords: | Cryptocurrency,Bitcoin,CRIX,Log-Periodic Power Law,Metcalfe's Law,Stable Distribution,Herding |
| JEL: | C22 C32 C51 C53 C58 E41 E42 E47 E51 G1 G17 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201916&r=all |
| By: | Acharya, Sushant (Federal Reserve Bank of New York); Wee, Shu Lin (Carnegie Mellon University) |
| Abstract: | We provide an information-based theory of matching efficiency fluctuations. Rationally inattentive firms have limited capacity to process information and cannot perfectly identify suitable applicants. During recessions, higher losses from hiring unsuitable workers cause firms to be more selective in hiring. When firms cannot obtain sufficient information about applicants, they err on the side of caution and accept fewer applicants to minimize losses from hiring unsuitable workers. Pro-cyclical acceptance rates drive a wedge between meeting and hiring rates, explaining fluctuations in matching efficiency. Quantitatively, our model replicates the joint behavior of unemployment rates and matching efficiency observed since the Great Recession. |
| Keywords: | rational inattention; hiring behavior; matching efficiency; composition of unemployed |
| JEL: | D8 E32 J63 J64 |
| Date: | 2019–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:878&r=all |
| By: | Ana Fostel; John Geanakoplos; Gregory Phelan |
| Abstract: | Cross-border financial flows arise when (otherwise identical) countries differ in their abilities to use assets as collateral to back financial contracts. Financially integrated countries have access to the same set of financial instruments, and yet there is no price convergence of assets with identical payoffs, due to a gap in collateral values. Home (financially advanced) runs a current account deficit. Financial flows amplify asset price volatility in both countries, and gross flows driven by collateral differences collapse following bad news about fundamentals. Our results can explain financial flows among rich, similarly-developed countries, and why these flows increase volatility. |
| JEL: | D52 D53 E32 E44 F34 F36 G01 G11 G12 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25583&r=all |
| By: | Asongu, Simplice; Odhiambo, Nicholas |
| Abstract: | There is a growing body of evidence that interest rate spreads in Africa are higher for big banks compared to small banks. One concern is that big banks might be using their market power to charge higher lending rates as they become larger, more efficient, and unchallenged. In contrast, several studies found that when bank size increases beyond certain thresholds, diseconomies of scale are introduced that lead to inefficiency. In that case, we also would expect to see widened interest margins. This study examines the connection between bank size and efficiency to understand whether that relationship is influenced by exploitation of market power or economies of scale. Using a panel of 162 African banks for 2001–2011, we analyzed the empirical data using instrumental variables and fixed effects regressions, with overlapping and non-overlapping thresholds for bank size. We found two key results. First, bank size increases bank interest rate margins with an inverted U-shaped nexus. Second, market power and economies of scale do not increase or decrease the interest rate margins significantly. The main policy implication is that interest rate margins cannot be elucidated by either market power or economies of scale. Other implications are discussed. |
| Keywords: | Sub-Saharan Africa; banks; lending rates; efficiency; Quiet Life Hypothesis; competition |
| JEL: | E42 E52 E58 G21 G28 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92347&r=all |
| By: | Ehigiamusoe, Kizito Uyi; Vinitha Guptan; Narayanan, Suresh |
| Abstract: | This paper examines four unresolved issues regarding the effects of GDP and inflation on financial development: (i) Does GDP have uniform impact on financial development in heterogeneous income countries? (ii) Is the relationship non-linear? (iii) Does financial development vary with inflation rates? (iv) Does inflation moderate the effect of GDP on financial development? The authors employ the newly developed dynamic Common Correlated Effects (CCE) and dynamic panel system Generalized Method of Moments (GMM) on data from 125 countries. These techniques enable us to control for crosssectional dependence, heterogeneity and endogeneity. They show that GDP has a positive impact on financial development in high and middle-income countries, and the relationship is non-linear in over 60% of the countries. The authors also reveal that inflation has a negative effect on financial development in high- and medium-inflationary countries. Besides, high inflation moderates the effect of GDP on financial development in over 70% of the countries. They also show the countries where higher GDP is better for financial development and where it is not. They recommend some policy options based on the findings. |
| Keywords: | financial development,income,inflation rate |
| JEL: | G15 F10 E31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201911&r=all |
| By: | Beilharz, Hans-Jörg |
| Keywords: | Eurozone crisis,Optimum Currency Areas,monetary and fiscal policy,financial instruments,institutions,political negotiations,democracy |
| JEL: | E61 E62 E63 F41 F42 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iubhbm:12018&r=all |
| By: | Ferrarini, Benno (Asian Development Bank) |
| Abstract: | This paper assesses the accuracy of Asian Development Outlook growth and inflation forecasts for 43 Asian economies from 2007 to 2016, against the benchmark of World Economic Outlook projections by the International Monetary Fund. They are found to overlap quite closely, notwithstanding much heterogeneity across countries and years. Forecast accuracy sharpens over time as additional data and evidence become available and get incorporated during quarterly revisions. However, errors widen during crisis years as forecasters struggle to reflect such events in their projections. |
| Keywords: | Asian Development Bank; Asian Development Outlook; International Monetary Fund; macroeconomic forecasts; World Economic Outlook |
| JEL: | E17 E37 |
| Date: | 2019–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0568&r=all |
| By: | Bassetto, Marco; Huo, Zhen; Ríos-Rull, José-Víctor |
| Abstract: | This paper proposes a new equilibrium concept - organizational equilibrium - for models with state variables that have a time-inconsistency problem. The key elements of this equilibrium concept are: (1) agents are allowed to ignore the history and restart the equilibrium; (2) agents can wait for future agents to start the equilibrium. We apply this equilibrium concept to a quasi-geometric discounting growth model and to a problem of optimal dynamic fiscal policy. We find that the allocation gradually transits from that implied by its Markov perfect equilibrium towards that implied by the solution under commitment, but stopping short of the Ramsey outcome. The feature that the time inconsistency problem is resolved slowly over time rationalizes the notion that good will is valuable but has to be built gradually. |
| Keywords: | Capital-Income Taxation; Quasi-Geometric Discounting; Renegotiation; reputation; Time Inconsistency |
| JEL: | C73 E61 E62 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13403&r=all |
| By: | Brant Abbott (University of British Columbia); Giovanni Gallipoli (University of British Columbia) |
| Abstract: | We characterize the distribution of permanent-income and quantify the value of assets and human capital in lifetime wealth portfolios. We estimate the distribution of human wealth using nonparametric identification results that allow for state-dependent stochastic discounting and unobserved heterogeneity. The approach imposes no restrictions on income processes or utility. Accounting for the value of human capital delivers a different view of inequality: (i) in 2016 the top 10% share of permanent-income was 1/3 lower than the corresponding share of assets; (ii) however, since 1989, the top 10% share of permanent-income has grown much faster than the corresponding share of assets. Human wealth has a mitigating influence on inequality, but this effect has waned over time due to the growing importance of assets in lifetime wealth portfolios. We find that consumption expenditures are tightly linked to permanent-income; however, liquidity constraints can lead to substantial deviations below permanent-income. |
| Keywords: | wealth, human capital, permanent income, Consumption, Inequality |
| JEL: | E20 E21 D31 I24 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2019-011&r=all |
| By: | Felipe, Jesus (Asian Development Bank); Lanzafame, Matteo (Universita' degli Studi di Messina) |
| Abstract: | The People’s Republic of China’s (PRC) remarkable growth performance over the last 3 decades has been associated to very robust export growth, so much so that many refer to it as a clear example of export-led growth (ELG). Using the concept of the balance-of-payments equilibrium (BOPE) growth rate, which provides a framework to test the ELG hypothesis, we show that the PRC’s actual long-run growth is well approximated by its BOPE growth rate. This growth rate is given by the ratio of the growth rate of exports to the income elasticity of imports. We estimate the latter using the Kalman filter, which allows us to obtain a time-varying estimate of the PRC’s BOPE growth rate. We find that the average value of the PRC’s BOPE growth rate during 1981–2016 was 11%, but it varied significantly over time and declined notably after 2007. Today, it is estimated at a much lower 5.9%. We then discuss the determinants of the PRC’s BOPE growth rate and of the income elasticity of imports, with the help of the Bayesian model averaging technique. The analysis highlights the role of the composition of aggregate demand as the main driving force, both for its direct effects on the income elasticity of imports, and for the indirect effects on export growth via capital accumulation, in particular fixed asset investment. Our analysis has important implications to understand the PRC’s transition to a “New Normal” of a lower growth rate. |
| Keywords: | balance-of-payments equilibrium growth rate; Bayesian model averaging; export-led growth; Kalman filter; People’s Republic of China |
| JEL: | E24 E32 O14 O47 O50 |
| Date: | 2018–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0555&r=all |
| By: | Ehnts, Dirk H. |
| Abstract: | In 1905, Georg Friedrich Knapp published The State Theory of Money in his native German, claiming that money is a "creature of law" and not connected to metals via some intrinsic value. When the English translation appeared in 1924, apparently at the wishes of John Maynard Keynes, the German version had run through four editions, upon which the last the translation builds. There also had been considerable debate about "Chartalism" - the idea that money derived its acceptance by legal means - in the German academic literature. Among others, Knut Wicksell and Georg Simmel commented on it. Since so far there has not been any English-language publication on this issue, it is deemed worthwhile to provide such. After presenting the main arguments that Knapp makes in his book, the academic reviews that followed are presented and evaluated. |
| Keywords: | chartalism,Modern Monetary Theory,monetary theory,public finance,deficit spending,taxation,value of money,metallism |
| JEL: | E40 E42 E51 F31 H20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1152019&r=all |
| By: | Chien, YiLi (Federal Reserve Bank of St. Louis); Wen, Yi (Federal Reserve Bank of St. Louis) |
| Abstract: | We build a tractable infinite-horizon Aiyagari-type model with quasi-linear preferences to address a set of long-standing issues in the optimal Ramsey taxation literature. The tractability of our model enables us to analytically prove the existence of Ramsey steady states and establish several strong and novel results: (i) Depending on the government’s capacity to issue debts, there can exist different types of Ramsey steady state and their existence depends critically on model parameter values. (ii) The optimal capital tax is exclusively zero in a Ramsey steady state regardless of the modified golden rule and government debt limits. (iii) Along the transition path toward a Ramsey steady state, optimal capital tax depends positively on the elasticity of intertemporal substitution. (iv) When a Ramsey steady state (featuring a non-binding government debt limit) does not exist but is erroneously assumed to exist, the modified golden rule always “holds” and the implied “optimal” long-run capital tax is strictly positive, reminiscent of the result obtained by Aiyagari (1995). (v) Whether the modified golden rule holds depends critically on the government’s capacity to issue debts, but has no bearing on the planner’s long-run capital tax scheme. (vi) The optimal debt-to-GDP ratio in the absence of a binding debt limit, however, is determined by a positive wedge times the modified-golden-rule saving rate; the wedge is decreasing in the strength of the individual self-insurance position and approaches zero when the idiosyncratic risk vanishes or markets are complete. The key insight behind our results is the Ramsey planner’s ultimate concern for self-insurance. Since taxing capital in the steady state permanently hinders individuals’ self-insurance positions, the Ramsey planner prefers (i) issuing debt rather than imposing a steady-state capital tax to correct the capital-overaccumulation problem under precautionary saving motives, and (ii) taxing capital only in the short run regardless of its debt positions. Thus, in sharp contrast to Aiyagari’s argument, permanent capital taxation is not the optimal tool to achieve aggregate allocative efficiency despite overaccumulation of capital, and the modified golden rule can fail to hold in a Ramsey equilibrium whenever the government encounters a debt-limit. |
| Keywords: | Optimal Capital Taxation; Ramsey Problem; Incomplete Markets |
| JEL: | E13 E62 H21 H30 |
| Date: | 2019–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-007&r=all |
| By: | Hiermeyer, Martin |
| Abstract: | The paper combines the IS-LM model with a Tobin-style analysis of the banking system. As suggested by Krugman, the resulting model has great predictive power. It can explain quantitative easing and its effect on the economy, helicopter money and money creation by banks. Also, it is free of the normal shortcomings of the IS-LM model. |
| Keywords: | Monetary Policy, Money Supply |
| JEL: | E5 |
| Date: | 2019–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92394&r=all |
| By: | Abbott, Brant; Gallipoli, Giovanni |
| Abstract: | We characterize the distribution of permanent-income and quantify the value of assets and human capital in lifetime wealth portfolios. We estimate the distribution of human wealth using nonparametric identification results that allow for state-dependent stochastic discounting and unobserved heterogeneity. The approach imposes no restrictions on income processes or utility. Accounting for the value of human capital delivers a different view of inequality: (i) in 2016 the top 10% share of permanent-income was 1/3 lower than the corresponding share of assets; (ii) however, since 1989, the top 10% share of permanent-income has grown much faster than the corresponding share of assets. Human wealth has a mitigating influence on inequality, but this effect has waned over time due to the growing importance of assets in lifetime wealth portfolios. We find that consumption expenditures are tightly linked to permanent-income; however, liquidity constraints can lead to substantial deviations below permanent-income. |
| Keywords: | Consumption; Human Capital; inequality; permanent income; Wealth |
| JEL: | D31 D6 E2 E21 I24 J17 J24 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13540&r=all |
| By: | Michael Donadelli (Department of Economics, University Of Venice Cà Foscari); Marcus Jüppner (Deutsche Bundesbank; Faculty of Economics and Business Administration, Goethe University Frankfurt); Antonio Paradiso (Department of Economics, University Of Venice Cà Foscari); Christian Schlag (Faculty of Economics and Business Administration and Research Center SAFE, Goethe University Frankfurt) |
| Abstract: | We produce novel empirical evidence on the relevance of temperature volatility shocks for the dynamics of macro aggregates and asset prices. Using two centuries of UK temperature data, we document that the relationship between temperature volatility and the macroeconomy varies over time. First, the sign of the causality from temperature volatility to TFP growth is negative in the post-war period (i.e., 1950-2015) and positive before (i.e., 1800-1950). Second, over the pre-1950 (post-1950) period temperature volatility shocks positively (negatively) affect TFP growth. In the post-1950 period, temperature volatility shocks are also found to undermine equity valuations and other main macro aggregates. More importantly, temperature volatility shocks are priced in the cross section of returns and command a positive premium. We rationalize these findings within a production economy featuring long-run productivity and temperature volatility risk. In the model temperature volatility shocks generate non-negligible welfare costs. Such costs decrease (increase) when associated with immediate technology adaptation (capital depreciation). |
| Keywords: | Temperature volatility, TFP, asset prices, and welfare costs |
| JEL: | E30 G12 Q0 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2019:05&r=all |
| By: | Tom Krebs (Universitat Mannheim); Martin Scheffel (Karlsruhe Institute of Technology) |
| Abstract: | This paper analyzes the optimal response of the social insurance system to a rise in labor market risk. To this end, we develop a tractable macroeconomic model with risk-free physical capital, risky human capital (labor market risk) and unobservable effort choice affecting the distribution of human capital shocks (moral hazard). We show that constrained optimal allocations are simple in the sense that they can be found by solving a static social planner problem. We further show that constrained optimal allocations are the equilibrium allocations of a market economy in which the government uses taxes and transfers that are linear in household wealth/income. We use the tractability result to show that an increase in labor market (human capital) risk increases social welfare if the government adjusts the tax-and-transfer system optimally. Finally, we provide a quantitative analysis of the secular rise in job displacement risk in the US and find that the welfare cost of not adjusting the social insurance system optimally can be substantial. |
| Keywords: | labor market risk, social insurance, moral hazard |
| JEL: | E21 H21 J24 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2019-012&r=all |
| By: | Roman Frydman (Department of Economics, New York University); Søren Johansen (Department of Economics, University of Copenhagen, Denmark); Anders Rahbek (Department of Economics, University of Copenhagen, Denmark); Morten Nyboe Tabor (Department of Economics, University of Copenhagen, Denmark) |
| Abstract: | This paper proposes the Knightian Uncertainty Hypothesis (KUH), a new approach to macroeconomics and finance theory. KUH rests on a novel mathematical framework that characterizes both measurable and Knightian uncertainty about economic outcomes. Relying on this framework and Muth’s pathbreaking hypothesis, KUH represents participants’ forecasts to be consistent with both uncertainties. KUH thus enables models of aggregate outcomes that 1) are premised on market participants’ rationality, and 2) accord a role to both fundamental and psychological (and other non-fundamental) factors in driving outcomes. The paper also suggests how a KUH model’s quantitative predictions can be confronted with time-series data. |
| Keywords: | Unforeseeable Change; Knightian Uncertainty; Muth’s Hypothesis; Model Ambiguity; REH; Behavioral Finance |
| JEL: | C02 C51 E00 D84 E00 |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1902&r=all |
| By: | Aizenman, Joshua (University of Southern California); Jinjarak, Yothin (Victoria University of Wellington); Estrada, Gemma (Asian Development Bank); Tian , Shu (Asian Development Bank) |
| Abstract: | The pronounced and persistent impact of the global financial crisis of 2008 motivates our empirical analysis of the role of institutions and macroeconomic fundamentals on countries’ adjustment to shocks. Our empirical analysis shows that the associations of growth level, growth volatility, shocks, institutions, and macroeconomic fundamentals have changed in important ways after the crisis. Gross domestic product growth across countries has become more dependent on external factors, including global growth, global oil prices, and global financial volatility. After accounting for the effects global shocks, we find that several factors facilitate adjustment to shocks in middle-income countries. Educational attainment, share of manufacturing output in gross domestic product, and exchange rate stability increase the level of economic growth, while exchange rate flexibility, education attainment, and lack of political polarization reduce the volatility of economic growth. Countries cope with shocks better in the short to medium term by using appropriate policy tools and having good long-term fundamentals. |
| Keywords: | growth; institutions; middle income; shocks; volatility |
| JEL: | C38 E02 F43 |
| Date: | 2017–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0526&r=all |
| By: | Dapi, Bjorn (Statistics Norway); Nymoen, Ragnar (Dept. of Economics, University of Oslo); Sparrman, Victoria (Statistics Norway) |
| Abstract: | Norway experienced a high immigration flow after the EEA directive in 2004 stating workers right to free movement within the European Union and EEA-countries. There is no clear consensus in the literature on how immigration affects native wages, but some studies using Norwegian micro data have estimated a negative effect of higher immigration for some type of workers. In this paper, to capture that the wage setting is highly coordinated in Norway, we model a system of native wages for three sectors; manufacturing, private service industries and public sector. We estimate that labour immigration has had a negative effect on the attainable wage growth for natives in all three sectors, but that the largest and most direct impact on wages has been in the private service industries. Immigration is found to be exogenous with respect to the parameters of our model of wage formation. |
| Keywords: | Cointegration; Error-correcting adjustment; Estimation and hypothesis testing in cointegrated models; Macroeconomic fluctuations and transmission mechanisms; Short-run and long-run impact; Vector Autoregressive Processes; Pattern wage bargaining; Small open economy wage policies |
| JEL: | C52 E24 E31 J31 |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2019_001&r=all |
| By: | Ferrari, Irene |
| Abstract: | This paper uses a matching method to provide an estimate of the nativity wealth gap among older households in Europe. This approach does not require imposing any functional form on wealth and avoids validity-out-of-the-support assumptions; furthermore, it allows not only the estimation of the mean of the wealth gap but also its distribution for the common-support subpopulation. The results show that on average there is a positive and significant wealth gap between natives and migrants. However, the average gap may be misleading as the distribution of the gap reveals that immigrant households in the upper part of the wealth distribution are better off, and those in the lower part of the wealth distribution are worse off, than comparable native households. A heterogeneity analysis shows the importance of origin, age at migration and citizenship status in reducing the gap. Indeed, households who migrated within Europe, those who moved at younger ages rather than as adults and those who hold the citizenship of the destination country display a wealth gap that is rather consistently lower over the entire distribution. |
| Keywords: | Migrants,Natives,Wealth,Gap,Propensity Score Matching |
| JEL: | D31 J15 E21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:325&r=all |
| By: | António Afonso; João Tovar Jalles |
| Abstract: | This paper empirically assesses the effect of a newly-compiled set of finance ministers´ characteristics on the setting by rating agencies of the long-term sovereign rating notations. Using a sample of 26 EU countries between 1980-2012, we find that the existence of more focused delegation-oriented fiscal framework, the Minister of Finance being a woman, and the Minister of Finance having a degree in the areas of finance or “hard sciences” seems to contribute to a better sovereign rating notation, and the opposite in the case of a Law background. |
| Keywords: | sovereign ratings; ordered probit; sovereign debt; panel data; principal components |
| JEL: | C23 C25 E44 F30 G10 G12 H30 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0722019&r=all |
| By: | Goicoechea, Julio |
| Abstract: | This paper examines the conceptual framework upon which José Valenzuela Feijóo unfolds a theory of value. The elementary form of value gives way to pairs of commodities which in spite of being ordinary, each is to function as money. The general economic equilibrium becomes a means to replace the total or expanded value form. The unit of account, after being reduced to a numeraire, is eliminated. Previously, in an isolated approach to Bortkiewicz, values and prices are to become, each, a self-contained system. The non-dogmatic version of Marx which he claims to provide is shown to be rooted in Walrasian precepts. To expose these precepts, he makes use of Marxian terminology. In an apparent antagonism with Walras, he disqualifies him harshly. The considerable resort to algebraic expressions by Valenzuela Feijóo is kept at a strict minimum. |
| Keywords: | Value theory, numeraire, general economic equilibrium, Walras, Marx |
| JEL: | D50 |
| Date: | 2019–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92387&r=all |
| By: | Carvalho, Vasco M; Tahbaz-Salehi, Alireza |
| Abstract: | This article reviews the literature on production networks in macroeconomics. It presents the theoretical foundations for the role of input-output linkages as a shock propagation channel and as a mechanism for transforming microeconomic shocks into macroeconomic fluctuations. The article also provides a brief guide to the growing literature that explores these themes empirically and quantitatively. |
| Keywords: | input-output linkages; networks; shock propagation |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13421&r=all |
| By: | Asongu, Simplice; Folarin, Oludele; Biekpe, Nicholas |
| Abstract: | This study examines the stability of money demand in the proposed West African Monetary Union (WAMU). The study uses annual data for the period 1981 to 2015 from thirteen of the fifteen countries making-up the Economic Community of West African States (ECOWAS). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across ECOWAS member states in the stability of money demand. This divergence is informed by differences in cointegration, stability, short run and long term determinants, and error correction in event of a shock. |
| Keywords: | Stable; demand for money; bounds test |
| JEL: | C22 E41 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92343&r=all |
| By: | Park, Donghyun (Asian Development Bank); Shin, Kwanho (Korea University); Tian, Shu (Asian Development Bank) |
| Abstract: | It is widely believed that local currency bond markets (LCBMs) can promote financial stability in developing countries. For instance, they can help mitigate the currency and maturity mismatch that contributed to the outbreak of the Asian financial crisis of 1997–1998. In this paper, we empirically test such conventional wisdom on the stabilizing effect of LCBMs. To do so, we analyze and compare the financial vulnerability of developing countries during two episodes of financial stress—global financial crisis and taper tantrum. During the two episodes, we find a negative association between the growth of LCBMs and the degree of currency depreciation in emerging economies. Similar association is found of bank loans but not for the stock market. |
| Keywords: | Asian financial crisis; bonds; currency mismatch; developing countries; financial stability; local currency bond markets; maturity mismatch |
| JEL: | E44 F34 F42 |
| Date: | 2018–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0563&r=all |
| By: | Abiad, Abdul (Asian Development Bank); Baris, Kristina (Asian Development Bank); Bertulfo, Donald Jay (Asian Development Bank); Camingue-Romance, Shiela (Asian Development Bank); Feliciano, Paul Neilmer (Asian Development Bank); Mariasingham, Joseph (Asian Development Bank); Mercer-Blackman , Valerie (Asian Development Bank); Bernabe, John Arvin (Asian Development Bank) |
| Abstract: | This paper analyzes the effects of the current trade conflict on developing Asia using the Asian Development Bank’s Multiregional Input–Output Table (MRIOT), allowing us to calculate the impact on individual countries and on sectors within countries. The analysis estimates the direct impact on all tariff-affected goods; uses input–output analysis to estimate indirect effects on gross domestic product (GDP), exports, and employment; and allows for redirection of trade toward other producers using the approach of Feenstra and Sasahara (2017). A full escalation of the bilateral United States (US)–People’s Republic of China (PRC) trade conflict would shave 1% off PRC GDP and 0.2% off US GDP. The rest of developing Asia could see small net gains thanks to trade redirection, particularly in the electronics sector. A trade war in autos and parts would hurt the European Union and Japan. The conflict has substantial negative effects on PRC and US employment, but only minor impacts on current account balances. |
| Keywords: | exports; input–output; international trade; tariffs; trade conflict; trade redirection |
| JEL: | E00 F13 F14 O47 |
| Date: | 2018–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0566&r=all |
| By: | Chen, Ping-ho; Chu, Angus C.; Chu, Hsun; Lai, Ching-Chong |
| Abstract: | This paper examines whether the Chamley-Judd result of a zero optimal capital tax rate is valid in an innovation-driven growth model. We examine how the optimal capital tax rate varies with externalities associated with R&D and innovation. Our results show that the optimal capital tax rate is higher when (i) the "stepping on toes effect" is smaller, (ii) the "standing on shoulders effect" is stronger, or (iii) the extent of creative destruction is greater. By calibrating our model to the US economy, we find that the optimal capital tax rate is positive, at a rate of around 11.9 percent. We also find that a positive optimal capital tax rate is more likely to be the case when there is underinvestment in R&D. |
| Keywords: | Optimal capital taxation; R&D externalities; innovation |
| JEL: | E62 O31 O41 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92319&r=all |
| By: | Mertens, Matthias |
| Abstract: | This article investigates how changing production processes and increasing market power at the firm level relate to a fall in Germany's manufacturing sector labour share. Coinciding with the fall of the labour share, I document a rise in firms' product and labour market power. Notably, labour market power is a more relevant source of firms' market power than product market power. Increasing product and labour market power, however, only account for 30% of the fall in the labour share. The remaining 70% are explained by a transition of firms towards less labour-intensive production activities. I study the role of final product trade in causing those secular movements. I find that rising foreign export demand contributes to a decline in the labour share by increasing labour market power within firms and by inducing a reallocation of economic activity from nonexporting-high-labour-share to exporting-low-labour-share firms. |
| Keywords: | labour share,market power,labour market distortions,international trade,factor substitution |
| JEL: | D24 E25 F16 J50 L10 L60 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhcom:32019&r=all |
| By: | Farboodi, Maryam; Mihet, Roxana; Philippon, Thomas; Veldkamp, Laura |
| 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. |
| Keywords: | Big Data; firm size |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13489&r=all |
| By: | Hyun, Suk (Korea Capital Market Institute); Park, Donghyun (Asian Development Bank); Tian, Shu (Asian Development Bank) |
| Abstract: | In this study, we attempt to understand the role of greater access to finance, i.e., stocks, bonds, and bank loans, in public–private partnership (PPP) investment in developing countries. Most developing countries still depend heavily on fiscal financing for infrastructure projects. Our empirical results reconfirm the fact that banks remain the major source of finance for infrastructure projects. The domestic bond market should be further developed to have depth and liquidity enough to provide longterm funding for private sector investors. Interestingly, we find a negative impact of bond market development on PPP investment. A possible interpretation is that financing through government bonds, which dominates bond markets in developing countries, discourages private sector participation by reducing financing access to the corporate bond market. Our evidence underlines the importance of a well-functioning corporate bond market in developing countries, which can offer long-term financing to private sector participation in infrastructure investments. |
| Keywords: | bond market development; government bond; public–private partnership |
| JEL: | E20 G10 H00 |
| Date: | 2018–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0552&r=all |
| By: | Beenash Malik (Pakistan Institute of Development Economics, Islamabad); M. Ali Kemal (Pakistan Institute of Development Economics, Islamabad) |
| Abstract: | A debt sustainability issue is important when government do not follow any fiscal cliff and interest payments are consuming significant part of the resources. This thesis calculates sufficient condition of debt sustainability in Pakistan. It uses simple textbook methodology of government budget constraint, accounting approach to measure sustainability of debt. We have checked the extent of nominal as well as real GDP growth required to main the debt-GDP ratio level at 60 percent, 50 percent and 40 percent with level of fiscal deficit 5 percent, 4.5 percent, 4 percent, 3.5 percent and 3 percent. Thesis concludes that lower the fiscal deficit higher possibility of maintaining the debt at its sustainable level. Moreover, lower the fiscal deficit higher will be the chances to finance development expenditures as well redistribute the impact of growth. Moreover, it is also examined that maintaining debt-GDP ratio at certain level implies that we do not need to retire debt further and growth in national income is used to serve development expenditures instead of using it for debt retirement. Reducing the debt to GDP ratio by debt repayments may costs us the projects which can be beneficial for growth in those year. The projects may not set up during the time of debt retirement, thus long run growth may suffer and long run impact will be negative. Therefore, it is better to select a threshold level which maximises the use of government spending. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pid:wpaper:2018:156&r=all |
| By: | Lauren Kuhn; Franz Ruch; Rudi Steinbach |
| Abstract: | The global financial crisis (GFC) saw real interest rates fall to all-time lows as central banks aimed to stimulate economic activity. The effectiveness of such low real rates depends, to a large extent, on the neutral real interest rate — popularly referred to as r-star. Monetary policy is considered expansionary when real interest rates are below r-star, and vice versa. However, the challenge arises from the fact that r-star is unobservable. This paper estimates r-star in the spirit of the popular Laubach-Williams (LW) methodology, but adapts their approach to capture the dynamics of a small open economy. This is achieved by incorporating additional drivers of the neutral rate, such as domestic net savings and investment, South Africa’s country risk premium, and the potential growth rate of our trading partners. In addition, foreign linkages like the exchange rate and international commodity prices are included to capture the impact of developments in the rest of the world on South African growth and inflation. The results suggest that South Africa’s r-star has fallen less than in advanced economies — from an average of 4.4 per cent from 2000 to 2006 to 1.9 per cent in 2017Q4. |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:9097&r=all |
| By: | Ransom, Tyler (University of Oklahoma) |
| Abstract: | This paper examines the role of labor market frictions and moving costs in explaining the migration behavior of US workers by employment status. Using data on low-skilled workers from the Survey of Income and Program Participation (SIPP), I estimate a dynamic model of individual labor supply and migration decisions. The model incorporates a reduced-form search model and allows for migration for non-market reasons. My estimates show that moving costs are substantial and that labor market frictions primarily inhibit migration of the employed. I use the model to study migration responses to local labor market shocks and to a moving subsidy. Workers' preferences for non-market amenities, coupled with substantial moving costs and employment frictions, grant market power to incumbent employers. Large moving costs also likely affect employers' recruiting behavior. |
| Keywords: | migration, job search, dynamic discrete choice |
| JEL: | C35 E32 J22 J61 J64 R23 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12139&r=all |
| By: | Luis Araujo (Michigan State University and Sao Paulo School of Economics-FGV); Leo Ferraris (DEF & CEIS,University of Rome "Tor Vergata") |
| Abstract: | A long standing issue in monetary theory is whether money and interest bearing debt may both play a beneficial role in facilitating transactions. This paper identifies in the misallocation of liquidity a key element to provide an answer. In a search model of money, we show that there exists an equilibrium which resembles a liquidity trap, in which debt and money are used interchangeably to trade goods and debt carries no interest, and a Pareto superior equilibrium in which money is used to trade goods and interest bearing debt to reshuffle misallocated liquidity. Monetary policy has no effect in the liquidity trap, and a liquidity e¤ect in the Pareto superior equilibrium. |
| Keywords: | Money,Debt,Bonds,Monetary Policy |
| JEL: | E40 |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:453&r=all |
| By: | Hideo Fujiwara (Graduate School of Economics, Kobe University/ Faculty of Commerce, Doshisha University) |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1905&r=all |
| By: | Ariel J. Binder; John Bound |
| Abstract: | Over the last half century, U.S. wage growth stagnated, wage inequality rose, and the labor-force participation rate of prime-age men steadily declined. In this article, we examine these labor market trends, focusing on outcomes for males without a college education. Though wages and participation have fallen in tandem for this population, we argue that the canonical neo-classical framework, which postulates a labor demand curve shifting inward across a stable labor supply curve, does not reasonably explain the data. Alternatives we discuss include adjustment frictions associated with labor demand shocks and effects of the changing marriage market—that is, the fact that fewer less-educated men are forming their own stable families—on male labor supply incentives. Our observations lead us to be skeptical of attempts to attribute the secular decline in male labor-force participation to a series of separately-acting causal factors. We argue that the correct interpretation probably involves complicated feedback between falling labor demand and other factors which have disproportionately affected men without a college education. |
| JEL: | E24 J12 J21 J22 J23 J31 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25577&r=all |
| By: | Trunin, Pavel (Трунин, Павел) (The Russian Presidential Academy of National Economy and Public Administration, Gaidar Institute for Economic Policy); Bozhechkova, Alexandra (Божечкова, Александра) (The Russian Presidential Academy of National Economy and Public Administration, Gaidar Institute for Economic Policy); Goryunov, Eugene (Горюнов, Евгений) (Gaidar Institute for Economic Policy); Kiyutsevskaya, Anna (Киюцевская, Анна) (The Russian Presidential Academy of National Economy and Public Administration); Sinelnikova-Muryleva, Elena (Синельникова-Мурылева, Елена) (The Russian Presidential Academy of National Economy and Public Administration) |
| Abstract: | The scientific report presents an assessment of the benefits and costs of the Russian economy as a result of the transition to the inflation targeting regime, analyzes its theoretical aspects, identifies the main characteristics, considers the transmission mechanism of monetary policy in the conditions of the inflation targeting regime. The authors analyzed the international experience of the functioning of economies under conditions of inflation targeting, on the basis of which the key prerequisites, conditions and consequences of the transition to this monetary policy regime were identified. The report presents the results of an analysis of the benefits and costs of the Bank of Russia transition to inflation targeting, as well as its correlation with the floating exchange rate regime. The success of the Russian experience of the transition to the inflation targeting regime lies in achieving inflation target, close to 4%. Nevertheless, the positive effects of lowering inflation will fully manifest themselves as inflationary expectations decrease and stabilize around the target level. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:ppaper:021914&r=all |
| By: | E Philip Davis; Dilruba Karim; Dennison Noel |
| Abstract: | The Global Financial Crisis (GFC) highlighted the importance of a number of unresolved empirical issues in the field of financial stability. First, there is the sign of the relationship between bank competition and financial stability. Second, there is the relation of capital adequacy of banks to risk. Third, the introduction of a leverage ratio in Basel III following the crisis leaves open the question of its effectiveness relative to the risk adjusted capital ratio (RAR). Fourth, there is the issue of the relative stability of advanced versus emerging market financial systems, and whether similar factors lead to risk, which may have implications for appropriate regulation. Finally, there is the nature of the relation between bank competition and bank capital. In this context, we address these five issues via estimates for the relation between capital adequacy, bank competition and other control variables and aggregate bank risk. We undertake this for different country groups and time periods, using macro data from the World Bank’s Global Financial Development Database over 1999-2015 for up to 120 countries globally, using single equation logit and GMM estimation techniques and panel VAR. This is an overall approach that to our knowledge is new to the literature. The results cast light on each of the issues outlined above, with important implications for regulation: (1) The results for the Lerner Index largely underpin the “competition-fragility” hypothesis of a positive relation of competition to risk rather than “competition stability” (a negative relation) and show a widespread impact of competition on risk generally. (2) There is a tendency for both the leverage ratio and the RAR to be significant predictors of risk, and for crises and Z score they are supportive of the “skin in the game” hypothesis of a negative relation between capital ratios and risk, whereas for provisions and NPLs they are consistent with the “regulatory hypothesis” of a positive relation of capital adequacy to risk. (3) The leverage ratio is much more widely relevant than the RAR, underlining its importance as a regulatory tool. The relative ineffectiveness of risk adjusted measures may relate to untruthful or inaccurate assessments of bank real risk exposure. (4) There are marked differences between advanced countries and EMEs in the capital-risk-competition nexus, with for example a wider impact of competition in EMEs (although both types of country need to pay careful attention to the evolution of competition in macroprudential surveillance). Similar pattern to EMEs are apparent in many cases for the global sample pre crisis, which arguably are more consistent with normal market functioning than post crisis. (5) Competition reduces leverage ratios significantly in a Panel VAR, with impulse responses showing that more competition leads to lower leverage ratios and vice versa. This result is consistent over a range of subsamples and risk variables. In the variance decomposition, we find that competition is autonomous, while the variance of both risk and capital ratios are strongly affected by competition. The Panel VAR results give some indication of the transmission mechanism from competition to risk and financial instability. |
| Keywords: | Macroprudential policy, capital adequacy, leverage ratio, bank competition, bank risks, emerging market economies, logit, GMM, Panel VAR |
| JEL: | E58 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:500&r=all |
| By: | Zankawah, Mutawakil M. (Kingston University London); Stewart, Chris (Kingston University London) |
| Abstract: | Using annual data from 1971 to 2014 we consider whether the relationship between crude oil prices and the macro-economy in the relatively small economy of Ghana is affected by the treatment of crude oil prices as exogenous or endogenous. We use vector autoregressions, vector error-correction models, scenario-based dynamic forecasting, and autoregressive distributive lag specifications. There is little evidence that international crude oil prices have a significant negative effect on Ghana’s output in either the short-run and long-run, regardless of whether crude oil prices are treated as exogenous or endogenous. This implies that increases in crude oil prices do not put a binding constraint on the monetary authorities to loosen monetary policy to offset its adverse effect on output. If inflation is a priority, policy makers could focus on inflation stabilization by tightening monetary policy when oil prices rise. |
| Keywords: | Ghana; oil prices; exogeneity; macro-economy |
| JEL: | C32 F31 F41 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kngedp:2019_002&r=all |
| By: | Nizam, Ahmed Mehedi |
| Abstract: | Basel framework for bank's capital adequacy has been criticized for its over reliance on external credit rating agencies. Moreover, implementation of Minimum Capital Requirement (MCR) under Basel-III is often linked to a decrease in economic growth as it requires banks to maintain a higher capital base which raises their cost of fund. In addition to these, here, we criticize the Basel accord for the capital requirement under this framework is not inspired by the essence of the basic accounting equation. Moreover, under Basel framework, capital requirement and liquidity parameters are discussed separately. Here, we argue that the capital requirement should arise as a by-product of the day to day liquidity management and hence both the requirements can be brought together under one umbrella which enables us to view the overall position of a bank from a more holistic point of view. Here, we attain all the above issues and provide a comprehensive framework regarding bank's capital adequacy and liquidity requirements which is claimed to settle all the aforementioned issues and reduces all the extensive paper works needed for the implementation of the Basel accord. |
| Keywords: | Basel; Capital Adequacy; Minimum Capital Requirement; MCR; Liquidity Ratio; LCR; NSFR; Liquidity Coverage Ratio; Net Stable Funding Ratio; Banking; Basic Accounting Equation |
| JEL: | E58 G0 G01 G20 G21 G28 |
| Date: | 2019–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92330&r=all |
| By: | Park, Cyn-Young (Asian Development Bank); Shin, Kwanho (Korea University) |
| Abstract: | This paper investigates and tests the role of regional exposures in financial contagion from advanced to emerging market economies through the global banking network using data on cross-border bilateral bank claims and liability positions. We first examine whether an economy can become more susceptible to capital outflows, regardless of its own bank exposures, if economies in the same region are heavily exposed to crisis countries. Second, we test whether the same region lenders tend to reduce exposures to the emerging market borrowers less than do different region lenders during crises. Using bilateral data from the Bank for International Settlements international banking statistics, we obtain evidence for both hypotheses. First, we find that direct exposures of a country’s own and the overall region’s banking sectors to crisis-affected countries are systematically related to bank capital outflows during the global financial crisis. Also, some of our empirical results indicate that an emerging economy’s financial vulnerability can be influenced by its region’s indirect exposures to crisis countries. Second, a further analysis suggests more favorable behavior of the same region lender toward emerging economies during crisis. |
| Keywords: | capital outflows; contagion; direct/indirect exposures; global financial crisis; regional |
| JEL: | E44 F15 F21 F34 F42 |
| Date: | 2018–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0546&r=all |
| By: | George Selgin |
| Abstract: | Depending on how one interprets the question that forms the topic of my talk, one can argue that the answer is obvious, or one can argue just the opposite. In one sense of course, it’s obvious that non-state money is possible. That’s the sense in which we ask only whether some kinds of non-state money are possible. And of course, the answer is yes. The vast majority of payments today, in Poland as elsewhere, are made with privately produced forms of money – that is, with bank deposits of various kinds – transferable by cheque or using debit cards. And there is nothing surprising about that. But of course, my assigned question can also be understood in a different and more interesting way. The interesting question is not whether some kinds of non-state- supplied money are possible. It is a different question, or rather two different questions. One of these is whether non-state circulating monies, or currencies, are possible. Can we rely on the private sector to supply hand-to-hand circulating means of payment? The other even more fundamental question is whether we can have a complete monetary system in which all forms of money supplied privately, and the state plays no substantial regulatory role. |
| Keywords: | commodity money, coinage, banknotes, free banking, fiat money, non-state money, cryptocurriences, monetary history, monetary systems |
| JEL: | E52 B16 G23 |
| Date: | 2019–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:sec:mbanks:0158&r=all |
| By: | E Philip Davis; Dilruba Karim; Dennison Noel |
| Abstract: | Following experience in the global financial crisis (GFC), when banks with low leverage ratios were often in severe difficulty, despite high-risk-adjusted capital measures, a leverage ratio was introduced in Basel III to complement the risk-adjusted capital ratio (RAR). Empirical testing of the leverage ratio, individually and relative to regulatory capital is, however, sparse. More generally, the capital/risk/competition nexus has been neglected by regulators and researchers. In this paper, we undertake empirical research that sheds light on leverage as a regulatory tool controlling for competition. We assess the effectiveness of a leverage ratio relative to the risk-adjusted capital ratio (RAR) in predicting bank risk given competition for up to 8216 banks in the EU and 1270 in the US, using the Fitch-Connect database of banks’ financial statements. On balance, US banks tend to behave in a manner consistent with “skin in the game” (a negative relation of competition to risk) while European banks tend to follow the “regulatory hypothesis” (positive relation), although there are exceptions to these generalisations. Accordingly, the expected effect of changes in capital on risk needs careful attention by regulators. There is a tendency for the leverage ratio to be more often significant than the risk-adjusted measure in a number of the regressions. This observation favours its use in macroprudential policy. The effect of capital on risk varies considerably over time and cross sectionally for Europe vis a vis the US; effects often differ between low-leverage and high-leverage ratio banks as well as pre- and post-crisis and for individual EU countries. The overall results are robust to a number of variations in sample and specification. We consider the inclusion of competition as a control variable to be a major contribution that adds to the relevance of our study. The results show that bank competition, allowing for capital, is a significant macroprudential indicator in virtually all regressions and hence more note should be taken of this by regulators, notably in the US where there is mainly evidence of competition-fragility (a positive link of competition to risk). On the other hand we note that exclusion of competition does not markedly change the effect of capital. Finally there are differences in the relation of risk both to competition and capital adequacy for banks at different levels of risk that need to be taken into account by regulators both in Europe and the US. There is some evidence of greater vulnerability of weaker banks to low capital and high competition than would be shown by the sample average or median. |
| Keywords: | Macroprudential policy, capital adequacy, leverage ratio, bank competition, bank risks, panel estimation, quantile regressions |
| JEL: | E58 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:499&r=all |
| By: | Terada-Hagiwara, Akiko (Asian Development Bank); Camingue-Romance, Shiela (Asian Development Bank); Zveglich, Jr., Joseph (Asian Development Bank) |
| Abstract: | This paper examines the factors influencing the gender wage gap by using an unbalanced crosscountry aggregated panel data set for a sample covering 53 economies for the period 1995–2010. Using robust estimators proposed by Lewbel (2012) to correct for heterogeneity and endogeneity, results suggest that a higher female share in the industry sector tends to widen the gender wage gap regardless of a country’s development stage. While having more children widens the gender wage gap, as expected, the effect is only statistically significant for developing countries. In developed countries, more labor force participation by women seems to narrow the gender wage gap, probably due to the number of female labor market entrants taking up higher-paying service sector jobs. For developing countries, closing the gender gaps in labor force participation and education is not sufficient to achieve gender wage parity. Higher-paying jobs should be created by developing the service sector in these economies. |
| Keywords: | developing countries; gender; instrumental variables; panel data; wage gap |
| JEL: | E24 J16 J31 |
| Date: | 2018–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0538&r=all |
| By: | Singh, Aarti; Tornielli di Crestvolant, Stefano |
| Abstract: | We examine whether input-output interactions among industries impact the transmission of monetary policy shocks through the economy. Using Vector Autoregressive (VAR) methods we find evidence of heterogeneity in the output response to a monetary policy shock in both finished goods industries and intermediate goods industries. While output responses in finished goods industries can be related to heterogeneity in industry characteristics, this relationship is not so obvious for intermediate goods industries. For the intermediate goods industries in our sample we find new evidence of demand-spillover effects that impact the transmission of monetary policy via input-output linkages. |
| Keywords: | Monetary policy transmission; input-output; VAR; intermediate goods. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2018-12&r=all |
| By: | Giulietti, Monica (Loughborough University); Otero,Jesus (Universidad del Rosario); Waterson, Michael (University of Warwick) |
| Abstract: | We assess the extent of inertia in grocery retail prices using data on prices and costs from a large supermarket chain in Colombia. Relative to previous work our analysis benefits from the daily frequency of the data and the availability of reliable replacement cost data. We uncover evidence supporting the existence of significant nominal rigidities in reference prices (three months) and even more so in reference costs (about five months). There is evidence that the price and cost rigidities differ depending on the type of product, being on average smaller in the case of perishable goods. Using an Error Correction Model framework, we examine the path of prices relative to costs, to determine the speed of adjustment of prices to shocks. |
| Keywords: | nominal rigidities ; prices ; costs ; grocery trade ; error correction |
| JEL: | C32 E31 L11 L81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1187&r=all |
| By: | Kim, Jungwook (Korea Development Institute) |
| Abstract: | Private–public partnership (PPP) methods are considered to be an effective way to narrow the gap between demand and supply of social infrastructure. If successfully pursued, PPP can deliver benefits to users, governments, and the private sector, or the so-called triple wins. Enhancing efficiency by reducing cost and time overruns is beneficial to users and governments, and better quality of service is expected via PPP. It will also examine the factors that have been important for shaping the county’s PPP landscape, including fiscal soundness, unsolicited project proposals, and the refinancing and renegotiation of PPPs. PPPs are not a must-have solution but an option for building and upgrading infrastructure. In conclusion, PPPs are being promoted because it can mobilize needed resources from the private sector, maximize value for money, bring creativity and efficiency to a project, and be a source of fiscal stimulus. That said, countries should be clear on why they are promoting the PPP modality for infrastructure. |
| Keywords: | economic growth; infrastructures; public–private partnership; value for money |
| JEL: | E60 H54 H81 |
| Date: | 2018–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0557&r=all |
| By: | Ahmed, Syed Shujaat |
| Abstract: | This study explains the relationship between oil prices and exchange rate of Pakistan in the time when Pakistan didn’t adopt for dollar and when Pakistan adopted for dollar as standard currency. By following the approach used by (Meese and Rogoff, 1988) and (Throop,1993) Interest Rate Parity has been used to construct a model by using exchange rate of Pakistan, Dubai crude oil price and interest rate differential from period of 1970m-1 to 2017m05. Results of the analysis shows that all variable are found to be integrated at level after application of Bealieu and Miron Seasonal Unit Root test. Results of the relationship between oil prices and exchange rate show that oil price is impacting exchange rate positively, while interest rate differential is negatively influencing the exchange rate. While examining the results for impact of change in regime on exchange rate, structural shifts were prominent during managed floating regime and floating regime which were causing Changes in the exchange rate policies. |
| Keywords: | Interest rate parity, exchange rate regime, regime switching, structural shift , Dubai crude oil price. |
| JEL: | E43 F0 Z0 |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92313&r=all |