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on Macroeconomics |
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Issue of 2019‒03‒18
87 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Ricardo Caballero; Güneş Kamber |
| Abstract: | Global risk-off shocks can be highly destabilizing for financial markets and, absent an adequate policy response, may trigger severe recessions. Policy responses were more complex for developed economies with very low interest rates after the GFC. We document, however, that the unconventional policies adopted by the main central banks were effective in containing asset price declines. These policies impacted long rates and inspired confidence in a policy-put framework that reduced the persistence of risk-off shocks. We also show that domestic macroeconomic and financial conditions play a key role in benefiting from the spillovers of these policies during risk-off episodes. Countries like Japan, which already had very low long rates, benefited less. However, Japan still benefited from the reduced persistence of risk-off shocks. In contrast, since one of the main channels through which emerging markets are historically affected by global risk-off shocks is through a sharp rise in long rates, the unconventional monetary policy phase has been relatively benign to emerging markets during these episodes, especially for those economies with solid macroeconomic fundamentals and deep domestic financial markets. We also show that unconventional monetary policy in the US had strong effects on long interest rates in most economies in the Asia-Pacific region (which helps during risk-off events but may be destabilizing otherwise -we do not take a stand on this tradeoff). |
| Keywords: | risk-off, conventional and unconventional monetary policy, policy-puts, spillovers, macroeconomic fundamentals, developed and emerging markets, Asia-Pacific region |
| JEL: | E40 E44 E52 E58 F30 F41 F44 G01 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:772&r=all |
| By: | Weiske, Sebastian |
| Abstract: | Population growth rates have fallen considerably in most developed countries. An important question for monetary policy is whether this has led to a fall in the natural rate of interest. In representative agent models, the response of the natural rate to a fertility shock crucially depends on the preference parameter determining how households weight generations of different size. Estimating a medium-scale model of the US-economy featuring fertility shocks, I find that declining population growth has lowered both the natural rate and inflation by about 0.4 percentage points in recent decades. |
| Keywords: | inflation,business cycles,monetary policy,natural rate of interest,demographic transition |
| JEL: | D64 D91 E31 E32 E52 J11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:svrwwp:032019&r=all |
| By: | Harrison, Richard (Bank of England); Thomas, Ryland (Bank of England) |
| Abstract: | Recent results suggesting that monetary financing is more expansionary than bond financing in standard New Keynesian models rely on a duality between policy rules for the rate of money growth and the short-term bond rate, rather than a special role for money. We incorporate two features into a simple sticky-price model to generalize these results. First, that money may earn a strictly positive rate of return, motivated by recent debates on the introduction of central bank digital currencies and the introduction of interest-bearing reserves. This allows money-financed transfers to be used as a policy instrument at the effective lower bound, without giving up the ability to use the short-term bond rate to stabilize the economy in normal times. Second, a simple financial friction generates a wealth effect on household spending from government liabilities. Though temporary money-financed transfers to households can stimulate spending and inflation when the short-term bond rate is constrained by a lower bound, similar effects could be achieved by bond-financed tax cuts. So our results do not provide compelling reasons to choose monetary financing rather than bond financing. |
| Keywords: | Monetary financing; zero lower bound; interest-bearing money; digital currency |
| JEL: | E43 E52 E62 |
| Date: | 2019–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0785&r=all |
| By: | de Grauwe, Paul; Ji, Yuemei |
| Abstract: | Dynamic stochastic general equilibrium models are still dominant in mainstream macroeconomics, but they are only able to explain business cycle fluctuations as the result of exogenous shocks. This paper uses concepts from behavioural economics and discusses a New Keynesian macroeconomic model that generates endogenous business cycle fluctuations driven by animal spirits. Our discussion includes two applications. One is on the optimal level of inflation targeting under a zero lower bound constraint. The other is on the role of animal spirits in explaining the synchronization of business cycles across countries. |
| Keywords: | Animal spirits Behavioural macroeconomics Monetary policy Inflation target Zero lower bound Business cycles |
| JEL: | E32 E58 F42 |
| Date: | 2018–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:87286&r=all |
| By: | Javier G. Gómez-Pineda (Banco de la República de Colombia) |
| Abstract: | The natural interest rate is a critical building block in the evaluation of a monetary policy stance. We estimate the natural interest rate for the five largest Latin American economies. We follow the method in Laubach and Williams (2003), complemented with rational and survey inflation expectations and adapted to Bayesian maximum likelihood estimation. The model is the standard neo-Keynesian model, complemented with equations for the natural interest rate in nominal terms and the rational inflation expectations. We find that in real terms the natural interest rate trends down and remains above zero in the larger economies (Brazil, Mexico and Colombia), while it remains without a noticeable trend although closer to zero in the smaller economies (Chile and Peru). We also find that in nominal terms, the natural rate trends down, in most economies a consequence of the drop in inflation and inflation expectations. Regarding the policy implications, the natural interest rate still does not pose a critical challenge for monetary policy in Latin America, as it does in advanced economies (Ball 2014). Nonetheless, in Chile and Peru the natural rate in nominal terms is just above 2 and 3 percent, respectively, offering narrow room for expansionary monetary policy. **** RESUMEN: La tasa de interés natural es un elemento crítico en la evaluación de la postura de la política monetaria. El artículo presenta la estimación de la tasa de interés natural en las 5 economías más grandes de América Latina. Seguimos el método de Laubach y Williams (2003), complementado con expectativas racionales y de encuestas, y adaptado a la estimación de máxima verosimilitud bayesina. El modelo es el neo-keynesiano estándar, complementado con ecuaciones para la tasa de interés natural en términos nominales y para las expectativas de inflación racionales. Encontramos que en términos reales la tasa de interés natural muestra una tendencia decreciente y permanece por encima de cero en las economías más grandes (Brasil, México y Colombia), mientras que permanece sin tendencia discernible aunque más cerca de cero en las economías más pequeñas (Chile y Perú). También encontramos que en términos nominales la tasa natural muestra una tendencia decreciente, en la mayoría de las economías como consecuencia de la caída en la inflación y en las expectativas de inflación. En cuanto a las implicaciones de política, la tasa de interés natural aún no representa un desafío crítico para la política monetaria en América Latina, como es el caso en las economías avanzadas (Ball 2014). Sin embargo, en Chile y Perú la tasa de interés natural en términos nominales se encuentra apenas por encima de 2 y 3 por ciento, respectivamente, ofreciendo un margen estrecho para una política monetaria expansiva. |
| Keywords: | Natural interest rate, Semi-structural model, Inflation expectations, Expansionary monetary policy, Tasa de interés natural, Modelo semiestructural, Expectativas de inflación, Política monetaria expansiva |
| JEL: | E58 E37 E43 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1067&r=all |
| By: | Youngjoon Lee (School of Business, Yonsei University); Soohyon Kim (Economic Research Institute, Bank of Korea); Ki Young Park (School of Economics, Yonsei University) |
| Abstract: | We propose a novel approach to measure monetary policy shocks using sentiment analysis. We quantify the tones of 24,079 news articles around 152 dates of Monetary Policy Board (MPB) meetings of the Bank of Korea (BOK) from March 2005 to November 2017. We then measure monetary policy surprises using the changes of those tones following monetary policy announcements and estimate the impact of monetary policy surprises on asset prices. Our measure of monetary policy surprises better explains changes in long-term rates, while changes in the Bank of Korea's base rate are more closely associated with changes in short-term rates (maturity of one year less). Our results strongly suggest that using a text mining approach to measure monetary policy surprises sheds light on information related to forward guidance and market expectations on future monetary policy. |
| Keywords: | Monetary policy; Text mining; Central banking; Bank of Korea |
| JEL: | E43 E52 E58 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1911&r=all |
| By: | David Florian Hoyle (Central Reserve Bank of Peru); Johanna L. Francis (Fordham University) |
| Abstract: | In most modern recessions there is a sharp increase in job destruction and a mild to moderate decline in job creation, resulting in unemployment. The Great Recession was marked by a significant decline in job creation particularly for young firms in addition to the typical increase in destruction. As a result job reallocation fell. In this paper, we explicitly propose a mechanism for financial shocks to disproportionately affect young (typically) smaller firms via credit contracts. We investigate the particular roles of credit frictions versus nominal rigidities in a New Keynesian model augmented by a banking sector characterized by search and matching frictions with endogenous credit destruction. In response to a financial shock, the model economy produces large and persistent increases in credit destruction, declines in credit creation, and an overall decline in reallocation of credit among banks and firms; total factor productivity declines, even though average firm productivity increases, inducing unemployment to increase and remain high for many quarters. Credit frictions not only amplify the effects of a financial shock by creating variation in the number of firms able to produce they also increase the persistence of the shock for output, employment, and credit spreads. When pricing frictions are removed, however, credit frictions lose some of their ability to amplify shocks, though they continue to induce persistence. These findings suggest that credit frictions combined with nominal rigidities are a plausible transmission mechanism for financial shocks to have strong and persistent effects on the labor market particularly for loan dependent firms. Moreover, they may play an important role in job reallocation across firms. |
| Keywords: | Unemployment, financial crises, gross credit flows, productivity |
| JEL: | J64 E32 E44 E52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:142&r=all |
| By: | Grégory Levieuge; Yannick Lucotte; Florian Pradines-Jobet |
| Abstract: | This paper empirically investigates how the stringency of macroeconomic policy frameworks impacts the unconditional cost of banking crises. We consider monetary, fiscal and exchange rate policies. A restrictive policy framework may promote stronger banking stability, by enhancing discipline and credibility, and by giving financial room to policymakers. At the same time though, tying the hands of policymakers may be counterproductive and procyclical, especially if it prevents them from responding properly to financial imbalances and crises. Our analysis considers a sample of 146 countries over the period 1970-2013, and reveals that extremely restrictive policy frameworks are likely to increase the expected cost of banking crises. By contrast, by combining discipline and flexibility, some policy arrangements such as budget balance rules with an easing clause, intermediate exchange rate regimes or an inflation targeting framework may significantly contain the cost of banking crises. As such, we provide evidence on the benefits of “constrained discretion” for the real impact of banking crises. |
| Keywords: | Banking crises, Fiscal rules, Monetary policy, Exchange rate regime, Constrained discretion. |
| JEL: | E44 E58 E61 E62 G01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:712&r=all |
| By: | Iiboshi, Hirokuni; Iwata, Yasuharu; Kajita, Yuto; Soma, Naoto |
| Abstract: | Abstract This study estimates time varying fiscal multipliers from the aspect of fiscal policy rules derived from the systematic component along the line of “Agnostic Identification Procedure” proposed by Caldara and Kamps (2017) for the US economy between 1952:Q1-2018:Q1. To do so, we adopt time-varying parameter structural vector autoregressive (TVP-SVAR) with MCMC procedure by a Bayesian approach, and identify both of government spending and tax cut shocks using the zero and sign restrictions method proposed by Arias, Rubio-Ramirez and Waggoner (2018). And we compare those values with time varying version identified by standard sign restriction along the line of Mountford and Uhlig (2009). Our estimation reports that time-varying fiscal multipliers of output by government spending rule could be nearly double for one year but decline to unity after eight years, and seem to have been very stable for long terms such as sixty years. By contrast, those of tax cut rule are more fluctuate and negative for long run except the 1990’s. |
| Keywords: | Bayesian estimation, time-varying-parameter Structual VAR, Sign and Zero Restrictions |
| JEL: | C32 E32 E62 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92631&r=all |
| By: | Demir, Ishak |
| Abstract: | While Federal Reserve continues to normalize its monetary policy on the back of a strengthening U.S. economy, the possibility of mimicking U.S. policy actions and so the debate of monetary autonomy has been particularly heated in the most of developing countries, even in advanced economies. We analyse the role played by country-specific characteristics in domestic monetary policy autonomy to set short-term interest rates in the face of spillovers from of U.S. monetary policy as global external shocks. First, we extricate the non-systematic (non-autonomous) component of domestic interest rates which is related to business cycle synchronisation across countries. Then we employ an interacted panel VAR model, which allows impulse response functions to vary by country characteristics for a broad sample of countries. We find strong empirical evidence for the role of exchange rate flexibility, capital account openness in line with trilemma, but also a significant role for other country characteristics, such as dollarisation in the financial system, the presence of a global bank, use of macroprudential policies, and the credibility of fiscal and monetary policy. |
| Keywords: | monetary policy autonomy,global financial cycle,international spillovers,trilemma,country-specific characteristics,cross-country difference,dilemma |
| JEL: | C38 E43 E52 E58 F42 G12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:193694&r=all |
| By: | Luca Gambetti (Universita di Torino); Christoph Görtz (University of Birmingham); Dimitris Korobilis (University of Essex); John Tsoukalas (University of Glasgow); Francesco Zanetti (University of Oxford) |
| Abstract: | A VAR model estimated on U.S. data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news TFP shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period. |
| Keywords: | News shocks, business cycles, VAR models |
| JEL: | E20 E32 E43 E52 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:19-03&r=all |
| By: | Jongrim Ha; M. Ayhan Kose; Franziska L. Ohnsorge |
| Abstract: | Emerging market and developing economies (EMDEs) have experienced an extraordinary decline in inflation since the early 1970s. After peaking in 1974 at 17.3 percent, inflation in these economies declined to 3.5 percent in 2017. Despite a checkered history of managing inflation among many EMDEs, disinflation occurred across all regions. This paper presents a summary of our recent book, “Inflation in Emerging and Developing Economies: Evolution, Drivers, and Policies,” that analyzes this remarkable achievement. Our findings suggest that many EMDEs enjoy the benefits of stability-oriented and resilient monetary policy frameworks, including central bank transparency and independence. Such policy frameworks need to be complemented by strong macroeconomic and institutional arrangements. Inflation expectations are more weakly anchored in EMDEs than in advanced economies. In EMDEs that do not operate inflation targeting frameworks, exchange rate movements tend to have larger and more persistent effects on inflation. |
| Keywords: | Prices, Inflation, Monetary Systems, Monetary Policy, Globalization |
| JEL: | E31 E42 E52 E58 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-22&r=all |
| By: | Troug, Haytem |
| Abstract: | The existing literature has always assumed that commodity-rich countries are a homogeneous group, resulting in the generalisation of any findings obtained from a single commodity-rich economy. This paper proposes a small open economy model for a commodity-rich country and studies the triggers of business cycles for four different commodity-rich economies to highlight the existence of heterogeneity among commodity-rich economies. The model introduces government consumption in a non-separable form to the utility function. Commodities have a central role in private consumption, production of final goods, and windfalls for the domestic government. We feed the model with a variety of shocks that were previously proposed by the previous literature. The estimations of the model show that oil-rich economies are more vulnerable to external shocks than their commodity-rich counterparts. This is mainly the result of the size of commodity windfalls in the economy, as the share of oil revenues are significantly higher than the revenues of other commodities, as a ratio of output. The results also show that there exists a policy crowding out effect of fiscal policy to monetary policy in oil-rich economies, all explaining the choice of an exchange rate peg regime in most oil-rich economies. |
| Keywords: | New Keynesian models, Business Cycle, Open Economy Macroeconomics, Joint Analysis of Fiscal and Monetary Policy, Commodity Prices. |
| JEL: | E12 E32 E63 F41 |
| Date: | 2019–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92599&r=all |
| By: | Ana Aizcorbe; David M. Byrne; Daniel E. Sichel |
| Abstract: | This paper addresses two measurement issues for mobile phones. First, we develop a new mobile phone price index using hedonic quality-adjusted prices for smartphones and a matched-model index for feature phones. Our index falls at an average annual rate of 17 percent during 2010-2018, close to the rate of decline in the price index used in the GDP Accounts. Given relatively flat average prices over this period, our index points to substantial quality improvement. Second, we propose a methodology to disentangle purchases of phones and wireless services when they are bundled together as part of a long-term service contract. Getting the allocation right is especially important for real PCE because the price deflators for phones and wireless services exhibit very different trends. Our adjusted estimates suggest that real PCE spending currently captured in the category Cellular Phone Services increased 4 percentage points faster than is reflected in published data. |
| JEL: | E01 E21 E31 O33 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25645&r=all |
| By: | Margaret M. Jacobson; Eric M. Leeper; Bruce Preston |
| Abstract: | When Roosevelt abandoned the gold standard in April 1933, he converted what had been effectively real government debt into nominal government debt to open the door to unbacked fiscal expansion. We argue that he followed a state-contingent fiscal rule that ran nominal-debt-financed primary deficits until the price level rose and economic activity recovered. Theory suggests that government spending multipliers can be substantially larger when fiscal expansions are unbacked than when they are tax-backed. VAR estimates find that primary deficits made quantitatively important contributions to raising both the price level and real GNP from 1933 through 1937. The evidence does not support the conventional monetary explanation that gold revaluation and gold inflows, which were permitted to raise the monetary base, drove the recovery independently of fiscal actions. |
| JEL: | E31 E42 E6 N12 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25629&r=all |
| By: | Reuter, Wolf Heinrich; Tkačevs, Oļegs; Vilerts, Kārlis |
| Abstract: | Utilising data of the EU28 Member States for the period 1996-2015, this paper confirms the findings of previous studies that the stipulation of fiscal rules reduces fiscal volatility and consequently contributes to macroeconomic stability. Yet, we document that this result only holds for rules which are designed to be unaffected by the current state of the business cycle, i.e. which are "a-cyclical". Those can, e.g. be budget balance rules that set ceilings in cyclically adjusted terms or expenditure rules that set a limit relative to potential instead of current output. Furthermore, the stringency of fiscal rules amplifies their stabilising effect. Actual year-to-year compliance with fiscal rules seems to play no systematic role, such that effects of the rules can be observed even if they are not complied with year-to-year. Overall, our paper suggests that strong, properly designed numerical rules act as an anchor for fiscal policy makers and contribute to more stable discretionary fiscal policy. |
| Keywords: | fiscal rules,fiscal policy volatility,panel data,compliance |
| JEL: | C23 E62 E32 H60 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:svrwwp:112018&r=all |
| By: | Eleni Iliopulos; Erica Perego; Thepthida Sopraseuth |
| Abstract: | We study the international transmission of shocks when agents form expectations under adaptive learning and imperfect information. To this aim we consider a two-country model featuring financial frictions, nominal rigidities, learning and Home information bias (as a source of information imperfection). We show that the more pronounced the Home information bias, the less agents track the international transmission of shocks, as it would otherwise be the case under rational expectations. The model succeeds in matching the low business cycle synchronization of consumption, while generating a positive output co-movement. In doing so, the model takes the theory closer to the data with respect to the output-consumption co-movement anomaly. The model also exhibits departure from the Uncovered Interest rate Parity. |
| Keywords: | Financial Frictions;International Business Cycles;Learning;Uncovered Interest Rate Parity |
| JEL: | D84 E44 E51 F41 F42 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2019-03&r=all |
| By: | Jha, Saakshi; Sahu, Sohini; Chattopadhyay, Siddhartha |
| Abstract: | This paper investigates how inflation expectations of individuals are formed in India. We investigate if the news on inflation plays a role in the formation of inflation expectations following the epidemiology-based work by Carroll (2003). The standard literature on this topic considers news coverage by the print and audio-visual media as the sources of formation of inflation expectations. Instead, we consider the Internet as a potential common source of information based on which agents form their expectations about future inflation. Based on data extracted from Google Trends, our results indicate that during the period 2006 to 2018, the Internet has indeed been a common source of information based on which agents have formed their expectations about future inflation, and the Internet search sentiment has had some impact on inflation expectations. Additionally, based on the inflation expectations series derived from the Google Trends data, we find that there is presence of “information stickiness” in the system since only a small fraction of the population update their inflation expectations each period. |
| Keywords: | Inflation expectations, Epidemiology, Internet search, Google Trends, India. |
| JEL: | D84 E31 E58 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92666&r=all |
| By: | Andrea Caggese; Ander Pérez-Orive |
| Abstract: | The widespread emergence of intangible technologies in recent decades may have significantly hurt output growth–even when these technologies replaced considerably less productive tangible technologies–because of low interest rates. After a shift toward intangible capital in production, the corporate sector becomes a net saver because intangible capital has a low collateral value. Firms’ ability to purchase intangible capital is impaired by low interest rates because low rates slow down the accumulation of savings and increase the price of capital, worsening capital misallocation. Our model simulations reproduce key trends in the U.S. in the period from 1980 to 2015. |
| Keywords: | Intangible capital, borrowing constraints, capital reallocation, secular stagnation |
| JEL: | E22 E43 E44 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1637&r=all |
| By: | Stephanie Titzck; Jan Willem van den End |
| Abstract: | We analyse the effects of announcements of changes in the Eurosystem's balance sheet size, duration and composition on inflation expectations, the exchange rate and the 10-year euro area government bond yield, using local projections. We explicitly take into account interaction effects between the three balance sheet dimensions. We provide evidence for the duration extraction channel of monetary policy transmission, as we find that the bond yield is sensitive to the combined impact of shocks to balance sheet size and duration. The exchange rate is also affected by a joint size-duration shock. Moreover, the bond yield and exchange rate are sensitive to the joint effect of changes in size and composition. The results indicate that interactions between balance sheet dimensions matter. |
| Keywords: | central banks and their policies; monetary policy |
| JEL: | E58 E52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:627&r=all |
| By: | Young Sik Kim (Department of Economics, Seoul National University); Ohik Kwon (Economic Research Institute, Bank of Korea) |
| Abstract: | We examine the implications of central bank digital currency (CBDC) for financial stability using a monetary general equilibrium model in which (i) banks provide liquidity in the form of fiat currency, and (ii) commercial bank deposits compete with the central bank deposits in CBDC account. CBDC is a national currency-denominated, interest-bearing and account-based claim on the central bank. People have access to CBDC via direct deposit at the central bank. Claims on specific agents cannot be traded across locations due to limited communication and hence in the event of relocation an agent needs to withdraw deposits in the form of universally verified paper currency. Claims on interest-bearing CBDC is not subject to limited communication problem in the sense that it is also universally verified across locations as an account-based legal tender. The introduction of deposits in CBDC account essentially decreases supply of private credit by commercial banks, which raises the nominal interest rate and hence lowers a commercial bank's reserve-deposit ratio. This has negative effects on financial stability by increasing the likelihood of bank panic in which commercial banks are short of cash reserves to pay out to depositors. However, once the central bank can lend all the deposits in CBDC account to commercial banks, an increase in the quantity of CBDC which does not require reserve holdings can enhance financial stability by essentially increasing supply of private credit and hence lowering nominal interest rate. |
| Keywords: | banking, central bank, digital currency, liquidity |
| JEL: | E31 E42 F33 |
| Date: | 2019–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1906&r=all |
| By: | Edward Gamber; John Seliski |
| Abstract: | Under current law, the level of federal debt relative to gross domestic product (GDP) is projected to rise significantly over the next decade. The relationship between debt and interest rates plays a key role in CBO's economic and budget projections (especially long-term projections) and for dynamic analyses of fiscal policy, where the sensitivity of interest rates with respect to changes in the level of debt is vitally important. In this analysis, we use a reduced-form regression to estimate the relationship between projected federal debt and expected long-term |
| JEL: | E43 E60 E62 H60 |
| Date: | 2019–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:wpaper:55018&r=all |
| By: | Lucas Herrenbrueck (Simon Fraser University) |
| Abstract: | The Euler equation of a representative consumer is at the heart of modern macroeconomics. But in empirical applications, it is badly misapplied: it prices a bond that is short-term, perfectly safe, yet perfectly illiquid. Such a bond does not exist. Real-world safe assets are highly tradable or pledgeable as collateral, hence their prices reflect their moneyness as much as their dividends. Indeed, I estimate the return on a hypothetical illiquid bond, for the postwar United States, via inflation and consumption growth, and show that it behaves very differently from the return on safe and liquid assets. I also argue that this distinction helps resolve a great number of puzzles associated with the Euler equation (or its long-run counterpart, the Fisher equation), and points to a better way of understanding how monetary policy affects the economy. |
| Keywords: | Euler equation; liquid assets; monetary policy; Fisher interest rate |
| JEL: | E43 E44 E52 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp19-01&r=all |
| By: | Baumann, L. |
| Abstract: | The paper analyzes the dynamics of demand for three options when agents differ in their preferences for conformity. Each agent seeks to imitate others who are more individualistic and to distinguish herself from others who are more conformist, relative to herself. In each period, every agent chooses her utility-maximizing option given each agent's demand in the previous period. It is shown that for a large class of initial demand distributions, demand dynamics resemble fashion cycles: Total demand for each option over time is wave-like, and, when positively demanded, an option trickles through the entire population, from individualistic towards conformist agents. |
| Keywords: | fashion cycle, demand cycle, conformity, individuality, dynamics, distribution of demand |
| JEL: | C73 D11 D91 E21 E32 Z13 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1922&r=all |
| By: | Anna Samarina; Anh D.M. Nguyen |
| Abstract: | This paper examines how monetary policy affects income inequality in 10 euro area countries over the period 1999-2014. We distinguish macroeconomic and financial channels through which monetary policy may have distributional effects. The macroeconomic channel is captured by wages and employment, while the financial channel by asset prices and returns. We find that expansionary monetary policy in the euro area reduces income inequality, especially in the periphery countries. The macroeconomic channel leads to these equalizing effects: monetary easing reduces income inequality by raising wages and employment. However, there is some indication that the financial channel may weaken the equalizing effect of expansionary monetary policy. |
| Keywords: | income inequality: monetary policy; euro area |
| JEL: | D63 E50 E52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:626&r=all |
| By: | Vivek Sharma (LUISS Guido Carli, Department of Economics and Finance); Edgar Silgado-Gómez (University of Rome "Tor Vergata" & European Central Bank) |
| Abstract: | Using structural vector autoregression augmented with stochastic volatility (SVAR-SV), we document that in late 2000s there were large spikes in volatility of spreads on peripheral eurozone government bonds. This increased volatility entailed a significant decline in bank credit to nonfinancial sector and real economic activity. We rationalize these results in a New Keynesian dynamic stochastic general equilibrium (DSGE) model with financial intermediation. In our framework, a rise in spread volatility erodes banks’ net worth and constrains their balance sheets. The banks respond by slashing their lending to real sector, dampening the economy as a whole. Results from the model match our empirical findings. |
| Keywords: | Sovereign Spread Volatility, Banks, SVAR-SV, NK-DSGE |
| JEL: | E32 E44 F30 |
| Date: | 2019–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:454&r=all |
| By: | Albanesi, Stefania |
| Abstract: | This paper builds a real DSGE model with gender differences in labor supply and productivity. The model is used to assess the impact of changing trends in female labor supply on productivity and TFP growth and aggregate business cycles. We find that the growth in women's labor supply and relative productivity contributed substantially to TFP growth starting from the early 1980s, even if it depressed average labor productivity growth, contributing to the 1970s productivity slowdown. We also show that the lower cyclicality of female hours and their growing share in aggregate hours is able to account for a large fraction of the decline in the cyclicality of aggregate hours during the great moderation, as well as the decline in the correlation between average labor productivity and hours. Finally, we show that the discontinued growth in female labor supply after the 1990s played a substantial role in the jobless recoveries following the 2001 and 2007-2009 recession. Moreover, it also depressed aggregate hours and output growth during the late 1990s and mid 2000s expansions and it reduced male wages. These results suggest that continued growth in female hours since the early 1990s would have significantly improved economic performance in the United States. |
| Keywords: | business cycles; female employment; Great Moderation; jobless recoveries; productivity slowdown |
| JEL: | E27 E32 E37 J11 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13578&r=all |
| By: | Mirko Abbritti (University of Navarra); Asier Aguilera-Bravo (Public University of Navarra and INARBE); TommasoTrani (University of Navarra) |
| Abstract: | A growing empirical literature documents the importance of long-term relationships and bargaining for price rigidity and firms' dynamics. This paper introduces long-term business-to-business (B2B) relationships and price bargaining into a standard monetary DSGE model. The model is based on two assumptions: first, both wholesale and retail producers need to spend resources to form new business relationships. Second, once a B2B relationship is formed, the price is set in a bilateral bargaining between firms. The model provides a rigorous framework to study the effect of long-term business relationships and bargaining on monetary policy and business cycle dynamics. It shows that, for a standard calibration of the product market, these relationships reduce both the allocative role of intermediate prices and the real effects of monetary policy shocks. We also find that the model does a good job in replicating the second moments and cross-correlations of the data, and that it improves over the benchmark New Keynesian model in explaining some of them. |
| Keywords: | Monetary Policy, PriceBargaining, ProductMarketSearch, B2B |
| JEL: | E52 E3 D4 L11 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:una:unccee:wp0119&r=all |
| By: | Luis Cárdenas del Rey (Universidad Complutense de Madrid, Spain) |
| Abstract: | En este trabajo se analiza el crecimiento económico de la economía española durante el período 1957-1975, que cubre el segundo franquismo o etapa tecnocrática. El principal objetivo es contribuir a una explicación del crecimiento de la demanda interna que se produjo durante el período y que, a pesar de la gran atención que ha despertado el período, no cuenta con estudios hasta la fecha. Siguiendo los modelos de Bhaduri y Marglin, la tesis principal sostiene que el incremento en la retribución salarial, resultado de la movilización obrera, tuvo un efecto positivo en el crecimiento, la productividad y la inversión, i.e., un modelo guiado por los salarios (wage-led) así como los efectos de feedback que conlleva. El contraste de hipótesis se realiza siguiendo una metodología de ecuaciones simultáneas, concretamente mediante un modelo de Vectores Autorregresivos VAR, obteniendo que efectivamente se produce una situación de liderazgo de los salarios. |
| Keywords: | Franquismo, Inversión, Economía española, Modelos VAR, Crecimiento dirigido por los salarios |
| JEL: | E11 E22 E32 N14 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ahe:dtaehe:1906&r=all |
| By: | Michael Stiefel (Department of Economics, University of Zurich); Rémi Vivès (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE) |
| Abstract: | The sovereign debt literature emphasizes the possibility of avoiding a self-fulfilling default crisis if markets anticipate the central bank to act as lender of last resort. This paper investigates the extent to which changes in belief about an intervention of the European Central Bank (ECB) explain the sudden reduction of government bond spreads for the distressed countries in summer 2012. We study Twitter data and extract belief using machine learning techniques. We find evidence of strong increases in the perceived likelihood of ECB intervention and show that those increases explain subsequent decreases in the bond spreads of the distressed countries. |
| Keywords: | self-fulfilling default crisis, unconventional monetary policy, Twitter data |
| JEL: | E44 E58 D83 F34 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1907&r=all |
| By: | Weiske, Sebastian |
| Abstract: | This paper estimates the quarterly flow of migrants to the US working age population using data based on the Current Population Survey (CPS). The dynamic responses to immigration shocks are estimated in a vector autoregression. Immigration shocks, as well as technology shocks are identified through long-run restrictions. The responses to immigration shocks are consistent with standard growth theory. Investment increases, while real wages fall in the short run. Overall, immigration has been of little importance for US business cycles, while investment-specific technology shocks have been a major driver of immigration during the 1990s and 2000s. |
| Keywords: | immigration,business cycles,vector autoregressions,long-run restrictions |
| JEL: | E32 F22 J11 J61 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:svrwwp:022019&r=all |
| By: | Patrick Fève; Alban Moura; Olivier Pierrard |
| Abstract: | We argue that shocks to credit supply by shadow and retail banks were key to understand the behavior of the US economy during the Great Recession and the Slow Recovery. We base this result on an estimated DSGE model featuring a rich representation of credit flows. Our model selects the two banking shocks as the most important drivers of the crisis because they account simultaneously for the fall in real activity, the decline in credit intermediation and the rise in lending-borrowing spreads. On the other hand, in contrast with the existing literature, our results assign only a moderate role to productivity and investment efficiency shocks. |
| Keywords: | Shadow banking, Great Recession, slow recovery, estimated DSGE models. |
| JEL: | C32 E32 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp125&r=all |
| By: | Gill, Derek (New Zealand Institute of Economic Research) |
| Abstract: | The Fiscal Responsibility Act 1994 (FRA) shouldn’t have worked to cement fiscal discipline into the New Zealand budgeting practices, the wider political discourse and become part of New Zealand’s constitution. “All” it requires governments to do is explain their fiscal actions and fiscal intentions, with the Treasury keeping score. The FRA leaves it to the government of the day to define fiscal success. The result, however, has been a series of governments of all political hues striving for fiscal balance and low debt. Like a bumblebee that can in fact fly, this new paper explains how the FRA has become a pollical force even though it wasn’t legally enforceable. It brings out that the conditions for the policies to succeed were quite subtle. While some of the FRA principles have been highly effective, other elements, such as the 40-year fiscal and economic outlook have achieved almost no traction. Parliamentary scrutiny has been missing in action, while monitoring by economic commentators and financial markets has proven effective. One crucial condition for success has been the role of the Treasury’s statutory independence when it undertakes its economic and financial forecasting and reporting roles. As well as looking at past success, the paper raises interesting questions about the current fashion for independent fiscal institutions (IFI). The New Zealand government is currently consulting on whether New Zealand should follow this fashion. |
| Keywords: | Fiscal policy; New Zealand; Public policy; Public sector finance & economics |
| JEL: | E62 |
| Date: | 2018–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:ris:nzierw:2018_001&r=all |
| By: | Dodge Cahan; Luisa Dörr; Niklas Potrafke |
| Abstract: | We examine the extent to which government ideology has influenced monetary policy in OECD countries since the 1970s. In line with important changes in the global econ-omy and differences across countries, regression results yield heterogeneous infer-ences depending on the time period and the exchange rate regime/central bank de-pendence of the countries in the sample. Over the 1972-2010 period, Taylor rule speci-fications do not suggest a relationship between government ideology and monetary policy as measured by the short-term nominal interest rate or the rate of monetary expansion minus GDP trend growth. Monetary policy was, however, associated with government ideology in the 1990s: short-term nominal interest rates were lower under leftwing than rightwing governments when central banks depended on the directives of the government and exchange rates were flexible. Very independent central banks, however, raised interest rates when leftwing governments were in office. We describe the historical evidence for several individual countries. |
| Keywords: | Government ideology, monetary policy, partisan politics, panel data |
| JEL: | D72 E52 E58 C23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_296&r=all |
| By: | van Riet, Ad |
| Abstract: | The sharp rise in public debt-to-GDP ratios in the aftermath of the financial crisis of 2008 posed serious challenges for fiscal policy in the euro area countries and culminated for some member states in a sovereign debt crisis. This note examines the public policy responses to the euro area crisis through the lens of financial repression with a particular focus on how they contributed to easing government budget constraints. Financial repression is defined in this context as the government’s strategy – supported by monetary and financial policies – to gain privileged access to capital markets at preferential credit conditions and divert resources to the state with the aim to secure and, if necessary, enforce public debt sustainability. Following a narrative approach, this note finds that public debt management and resolution, European financial legislation, EMU crisis support and ECB monetary policy have significantly contributed to relieving sovereign liquidity and solvency stress and generated fiscal space through non-standard means. The respective authorities have in fact applied the tools of financial repression to restore stability after the euro area crisis. |
| Keywords: | fiscal sustainability, public debt management, financial regulation, monetary policy, financial repression, euro area crisis |
| JEL: | E63 G18 G28 H12 H63 |
| Date: | 2018–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92649&r=all |
| By: | Stefan Hohberger; Marco Ratto; Lukas Vogel |
| Abstract: | We estimate a three-region (DE-REA-RoW) structural macroeconomic model, and we provide a counterfactual on how nominal exchange rate flexibility would have affected the German trade balance (TB) by simulating the shocks of the estimated model under a counterfactual flexible exchange rate regime. The actual and counterfactual TB trajectories are similar overall. Results suggest an around 2 pp lower trade surplus during 2012-15 together with a stronger real effective exchange rate in the counterfactual. The latter shows a similar upward trend in the TB, however, and the 2012-15 gap between actual and counterfactual closes at the end of the sample. |
| Keywords: | Germany, euro, exchange rate, trade balance |
| JEL: | E44 E52 E53 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7543&r=all |
| By: | Schoenmaker, Dirk |
| Abstract: | Central banks look at climate related risks at the financial stability side. Should they also take carbon intensity of assets into account at the monetary policy side? After reviewing the central bank mandate, the paper proposes a tilting approach to steer the Eurosystem's asset and collateral framework towards low carbon assets. We find that a modest tilting approach could reduce carbon emissions in the Eurosystem's corporate and bank bond portfolio by over 40 per cent. It could also lower the cost of capital of low carbon companies in comparison with high carbon companies by 4 basis points. Our findings suggest that such a low carbon allocation can be done without undue interference with the transmission mechanism of monetary policy. Price stability, the primary objective, is, and should remain, the priority of the Eurosystem. |
| Keywords: | Assets; Carbon Emissions; Collateral; cost of capital; monetary policy |
| JEL: | E52 E58 Q01 Q52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13576&r=all |
| By: | Corinna Ghirelli (Banco de España); María Gil (Banco de España); Javier J. Pérez (Banco de España); Alberto Urtasun (Banco de España) |
| Abstract: | We provide additional evidence on the relationship between uncertainty and economic activity. For this purpose, we gather and construct a wide range of proxy indicators of economic and economic policy uncertainty from Spain. We distinguish between the relative merits of different types of measures based on: (i) the volatility of financial markets; (ii) economic analysts’ disagreement; (iii) economic policy uncertainty. We show that the first and the third block of measures are the most relevant to grasp the negative effects of unexpected changes in uncertainty on aggregate economic developments, as measured by real GDP. In addition, we find that economic policy uncertainty and financial uncertainty shocks produce visible negative effects on private consumption. The negative responses on capital goods investments are initially bigger in magnitude but vanish more quickly. |
| Keywords: | economic uncertainty, economic policy uncertainty, impact of uncertainty shocks |
| JEL: | D8 C43 E2 E3 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1905&r=all |
| By: | John Grigsby; Erik Hurst; Ahu Yildirmaz |
| Abstract: | Using administrative payroll data from the largest U.S. payroll processing company, we document a series of new facts about nominal wage adjustments in the United States. The data allow us to define a worker's per-period base contract wage separately from other forms of compensation such as bonuses. We provide evidence that the extent to which base wages adjust is likely the appropriate concept of wage stickiness in many macro models. Nominal base wage declines are much rarer than previously thought with only 2% of job-stayers receiving a nominal base wage cut during a given year. However, accounting for shifts in nominal base wages of job-changers implies that aggregate nominal wages are more flexible than the nominal wages of job-stayers. In addition, we provide evidence that the flexibility of new hire base wages is similar to that of existing workers. Finally, nominal base wage adjustments are state-dependent: downward aggregate nominal wage adjustments were much more common during the Great Recession than in the subsequent recovery period. Throughout, we highlight differences in the adjustment patterns of base wages and of broader wage measures that include bonuses. Collectively, our results can be used to discipline models of nominal wage rigidity. |
| JEL: | E24 J3 J31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25628&r=all |
| By: | Baldi, Guido; Kluser, Frédéric |
| Abstract: | In den vergangenen Jahrzehnten ist in vielen entwickelten Volkswirtschaften der Anteil des nationalen Einkommens, der auf den Faktor Arbeit entfällt, zurückgegangen. Gleichzeitig wird heutzutage ein grösserer Anteil der Kapitaleinkommen von den Unternehmen als einbehaltene Gewinne in den Unternehmen belassen. Stehen diese höheren Firmenersparnisse im Zusammenhang mit dem Rückgang des Arbeitsanteils am Einkommen oder sind sie auf andere Faktoren zurückzuführen? Dieses Papier untersucht empirisch mittels Panelregressionen mögliche Bestimmungsfaktoren für den Anstieg der Firmenersparnisse. Der analysierte Datensatz umfasst 46 Länder zwischen 1980 und 2016. Die Resultate unserer Analysen deuten darauf hin, dass der Anstieg der Firmenersparnisse in einem Zusammenhang steht mit einen niedrigeren Arbeitsanteil. |
| Keywords: | Arbeitsanteil,Firmenersparnisse |
| JEL: | E22 E25 F21 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:193691&r=all |
| By: | Gießler, Stefan; Heinisch, Katja; Holtemöller, Oliver |
| Abstract: | This paper analyses whether and since when East and West German business cycles are synchronised. We investigate real GDP, unemployment rates and survey data as business cycle indicators and employ several empirical methods. Overall, we find that the regional business cycles have synchronised over time. GDP-based indicators and survey data show a higher degree of synchronisation than the indicators based on unemployment rates. However, recently synchronisation among East and West German business cycles seems to become weaker, in line with international evidence. |
| Keywords: | business cycles,synchronisation,East Germany |
| JEL: | C32 E32 R11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:72019&r=all |
| By: | Baumann, Ursel; Lodge, David; Miescu, Mirela S. |
| Abstract: | This paper compares the role of monetary and fiscal policy shocks in advanced and emerging economies. Using a model with a hierarchical structure we capture the variability of GDP response to policy shocks both between and within the groups of advanced and emerging countries. Our results provide evidence that fiscal policy effects are heterogeneous across countries, with higher multipliers in advanced economies compared to emerging markets, while monetary policy is found to have more homogeneous effects on GDP. We then quantify the policy contribution on GDP growth in the last decade by means of a structural counterfactual analysis based on conditional forecasts. We find that global GDP growth benefited from substantial policy support during the global financial crisis but policy tightening thereafter, particularly fiscal consolidation, acted as a significant drag on the subsequent global recovery. In addition we show that the role of policy has differed across countries. Specifically, in advanced economies, highly accommodative monetary policy has been counteracted by strong fiscal consolidation. By contrast, in emerging economies, monetary policy has been less accommodative since the global recession. JEL Classification: C32, E42, E52 |
| Keywords: | conditional forecast, fiscal policy, monetary policy, panel VAR |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192248&r=all |
| By: | Porzio, T.; Santangelo, G. |
| Abstract: | We study how the global schooling increase during the 20th century affected structural transformation by changing the supply of agricultural labor. We develop an analytical model of frictional labor reallocation out of agriculture to infer changes in birth-cohort characteristics from observed data on agricultural employment. Bringing the model to microdata from 52 countries, we find that the increase in schooling was accompanied by a large shift of the labor force’s comparative advantage away from agriculture. We bring empirical evidence to suggest this relationship was causal. With fixed prices, the resulting decrease in the supply of agricultural workers can account for almost half of the observed reallocation out of agriculture. However, in general equilibrium, the net effect is ambiguous. |
| Keywords: | Development, Education, Human Capital, Skills, Occupational Choice, Labor Force Demographics, Schooling, Skill Biased, Labor Mobility, Cross Country Development, Structural Transformation, Agriculture |
| JEL: | E23 E24 I25 J21 J23 J24 J62 O11 O12 O15 Q11 |
| Date: | 2019–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1925&r=all |
| By: | Jongrim Ha; M. Ayhan Kose; Franziska L. Ohnsorge |
| Abstract: | We study the extent of global inflation synchronization using a dynamic factor model in a large set of countries over a half century. Our methodology allows us to account for differences across groups of countries (advanced economies and emerging market and developing economies) and to analyze commonalities in inflation synchronization across a wide range of inflation measures. We report three major results. First, inflation movements have become increasingly synchronized internationally over time: a common global factor has accounted for about 22 percent of variation in national inflation rates since 2001. Second, inflation synchronization has also become more broad-based: while it was previously much more pronounced among advanced economies than among emerging market and developing economies, it has become substantial in both groups over the past two decades. In addition, inflation synchronization has become significant across all inflation measures since 2001, whereas it was previously prominent only for inflation measures that included mostly tradable goods. |
| Keywords: | Global inflation, synchronization, dynamic factor model, advanced economies, emerging markets, developing economies. |
| JEL: | E31 E32 F42 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-24&r=all |
| By: | Guillherme Bandeira; Jordi Caballé; Eugenia Vella |
| Abstract: | In this paper we propose a new channel through which fiscal austerity affects the macroeconomy. To this end, we introduce endogenous migration both for the unemployed and the employed members of the household in a small open economy New Keynesian model with labour market frictions. Our model-based simulations for the austerity mix implemented in Greece over the period 2010-2015 show that the model is able to match the total size of half a million emigrants and output drop of 25%, while the model without migration generates an output drop of 20%. Having established that the model delivers empirically plausible results, we then use it to investigate (i) the two-way relation between migration and austerity, and (ii) the role of migration as shock absorber. We find that tax hikes induce prolonged migration outflows, while the effect of spending cuts is hump-shaped. In turn, emigration implies an increase in both the tax hike and time required to achieve a given size of debt reduction. As a result of the labour-reducing effect of these higher tax hikes, the unemployment gains from migration are only temporary in the presence of austerity and are substantially reversed over time. |
| Keywords: | fiscal consolidation, Migration, matching frictions, on-the-job search |
| JEL: | E32 F41 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1075&r=all |
| By: | Thomas Lejeune (Economics and Research Department, National Bank of Belgium); Raf Wouters (Economics and Research Department, National Bank of Belgium) |
| Abstract: | This paper analyses the risk amplification inherent in a macroeconomic model with a heterogeneous financial sector. It extends a model with an equity-constrained intermediary by adding a shadow banking intermediary with pro-cyclical leverage. It is shown that the inclusion of this intermediary significantly amplifies financial frictions and adds to financial instability. Quantitative effects on asset prices are magnified, and the amplification propagates to the real side of the macroeconomy. Reducing the size of the shadow banking sector involves a trade-off between stabilizing the economy and the expected growth of economic activity. Ignoring the heterogeneity of the financial sector may lead to an underestimation of the excess risk-taking due to the anticipation of expansionary policies and of financial and macroeconomic responses to shocks. |
| Keywords: | Financial frictions, Financial constraints, Endogenous risk, Shadow banking |
| JEL: | G2 G12 E44 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201902-367&r=all |
| By: | Shafik Hebous; Tom Zimmermann |
| Abstract: | We study the effects of federal purchases on firm investment using a novel panel dataset that combines federal procurement contracts in the United States with key financial firm-level information. Using panel fixed-effect models, propensity score matching, and inverse probability weighting estimation techniques, we find that 1 dollar of federal spending increases firms’ capital investment by 10 to 13 cents. In line with the financial accelerator model, our findings indicate that the effect of government purchases works through easing firms’ access to external borrowing. In particular, the effect is stronger for firms that face financing constraints and it is insignificant for unconstrained firms. Moreover, an industry-level analysis suggests that that the increase in investment at the firm level translates into an industry-wide effect without crowding-out capital investment of other firms in the same industry. Overall, our findings lend support to recent evidence on local multipliers in that increases in regional outputs should ultimately be reflected in firm balance sheets (demand for capital). |
| Keywords: | investment, federal procurement, financing constraints, spending, multipliers |
| JEL: | E62 H32 E69 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7534&r=all |
| By: | Pattanaik, Sitikantha; Muduli, Silu; Ray, Soumyajit |
| Abstract: | This paper examines the usefulness of survey-based information on inflation expectations of households in the analysis of inflation dynamics in India. As household inflation expectations do not satisfy the statistical properties of rationality and unbiasedness, hybrid versions of New Keynesian Phillips Curve (NKPC) are used to study whether survey-based measures of inflation expectations can be used as proxy for forward looking expectations to predict inflation in India. While both 3-months ahead and 1-year ahead household inflation expectations emerge statistically significant in explaining and predicting inflation, effectively they work as substitutes of backward looking expectations given that household expectations are found to be adaptive. When transmission of inflation expectations to inflation is assessed through wage dynamics, no robust evidence is found for expectations induced wage pressures influencing CPI inflation. Shortterm food and fuel shocks explain significant part of variations in inflation expectations of households. Notwithstanding limited evidence on spillover of inflation expectations of households to wages and prices, the high degree of observed inflation persistence and significant sensitivity of inflation expectations to food and fuel shocks warrant sustained emphasis of monetary policy on wellanchored inflation expectations. |
| Keywords: | Inflation Expectations,NKPC,Wage-Price Dynamics,Rationality,Unbiasedness |
| JEL: | E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:193462&r=all |
| By: | O'Brien, Eoin (Central Bank of Ireland); O'Brien, Martin (Central Bank of Ireland); Velasco, Sofia (Central Bank of Ireland) |
| Abstract: | Following a number of years where the activation of the countercyclical capital buffer was limited, it is now becoming an increasingly relevant and actively used macroprudential policy tool across Europe. Against this background, this Note describes the high-level approach taken by the Central Bank of Ireland in setting the countercyclical capital buffer rate applicable to Irish exposures. In addition, the Note discusses issues around the identification of cyclical systemic risk in Ireland, and in particular the role of the credit-to-GDP gap as an appropriate reference indicator for countercyclical capital buffer rate decisions. The Note introduces work within the Central Bank of Ireland to develop a potential alternative reference indicator for informing countercyclical capital buffer decisions. In particular, an alternative measure of the national credit gap which looks to account for structural shifts in the economy and informs the estimation of the cycle through additional variables. This semi-structural measure of cyclical systemic risk addresses some of the main drawbacks of purely statistical methods such as excessively persistent trends, a feature that is particularly desirable in post-crisis circumstances. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:4/fs/18&r=all |
| By: | Seohyun Lee (Economic Research Institute, Bank of Korea); Rickard Nyman (University College London, Centre for the Study of Decision-Making Uncertainty) |
| Abstract: | We examine the causal dynamic relationship between economic policy uncertainty and economic activities, using a Local Projection model with external instruments. Based on the psychological theory of conviction narratives, we construct a Relative Sentiment Shift (RSS) index and use it as an instrumental variable that captures exogenous variations in economic policy uncertainty. Our empirical results suggest that an increase in economic policy uncertainty induces recessionary pressures in the economy: reductions in production and employment, a sharp stock market downturn, and a constrained financial market. |
| Keywords: | Economic narratives, Algorithmic text analysis, Uncertainty, Dynamic causal effect, Local projection, IV Regression |
| JEL: | E2 D81 C1 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1912&r=all |
| By: | Ellen Ryan; Karl Whelan |
| Abstract: | We use a bank-level data set to examine the behaviour of central bank reserves in the euro area banking system over the course of the ECB QE programme. Previous research on QE has generally paid little attention to the role of reserve dynamics within the banking system and some have assumed that the system passively absorbs additional reserves generated by asset purchases. However, with a negative deposit rate in place throughout the sample we study, euro area banks have had a disincentive to hold excess reserves and thus could wish to treat them as a “hot potato” that is preferably passed on to other banks. We find evidence for this hot potato effect, reporting substantial month-to-month churn in bank reserves as well as evidence that banks are responding to high reserve balances by pushing them off their balance sheets. Unlike in the traditional money multiplier model, where excess reserves are used in loan creation, banks appear to be primarily managing reserves through debt security purchases. As such, this hot potato effect seems likely to have had an effect on European bond yields that is distinct from the portfolio rebalancing effect emphasised in the QE literature thus far. |
| Keywords: | Quantitative easing; Reserves; Central banks |
| JEL: | E4 E5 G21 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201901&r=all |
| By: | Jungu Yang (Economic Research Institute, Bank of Korea) |
| Abstract: | This paper provides a theoretical model to explain how securitization affects the overall liquidity and welfare of an economy, an under-discussed area in the literature. By applying an overlapping generations model with random-relocation shocks, the effects of securitization are analyzed in three different hypothetical situations: 1. only one region of the economy issues securities, 2. all regions issue securities with the same capital productivity, and 3. all regions issue securities, but capital productivity is disparate across regions. Asset securitization plays a role in supplying alternative liquid assets (fiat money). As the economy can invest its resources more efficiently in high-yielding illiquid assets (capital) due to securitization, both consumption and welfare increase overall. Optimal monetary policy follows the Friedman rule in cases 1. and 2. However, the rule does not apply in case 3. |
| Keywords: | Securitization, Liquidity, Friedman Rule, Monetary Policy |
| JEL: | E52 G11 G12 |
| Date: | 2019–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1910&r=all |
| By: | Maté Fodor; Jean Luc De Meulemeester; Denis Rochat |
| Abstract: | The objective of this paper is twofold. On the one hand, it provides a balanced account of both theoretical and empirical debates on the link between education and growth since World War 2. We point out the lack of a clear-cut consensus.On the other hand, we question the traditional measurements of human capital, and assess their fit to various theoretical models of growth. Subsequently, we provide a new and arguably more appropriate proxy. Using it, we document crude correlations in line with the literature, pointing out that education may not be an appropriate instrument to accelerate growth. |
| Keywords: | Education; Growth; Human capital; Education policy |
| JEL: | E24 O40 B22 B23 I25 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/285160&r=all |
| By: | Amanda Michaud (University of Western Ontario); David Wiczer (Stony Brook University) |
| Abstract: | We evaluate the contribution of changing macroeconomic conditions and demographics to the increase in Social Security Disability Insurance (SSDI) over recent decades. Within our quantitative framework, multiple sectors differentially expose workers to health and economic risks, both of which affect individuals’ decisions to apply for SSDI. Over the transition, falling wages at the bottom of the distribution increased awards by 27% in the 1980s and 90s and aging demographics rose in importance thereafter. The model also implies two-thirds of the decline in working-age male employment from 1985 to 2013, three-fourths of which eventually goes on SSDI. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:hcuwoc:20187&r=all |
| By: | Kinghan, Christina (Central Bank of Ireland); Lyons, Paul (Central Bank of Ireland); Mazza, Elena (Central Bank of Ireland) |
| Abstract: | This note provides an overview of residential mortgage lending in Ireland in 2017. It uses data reported to the Central Bank of Ireland as part of the macroprudential mortgage measures. In total, 35,472 loans are covered with a value of e7.4 billion. For first-time buyers (FTBs), the average loan-to-value (LTV) and loan-to-income (LTI) were 79.8 per cent and 3.0 times gross income respectively. Regarding the LTI limit, 18 per cent of the aggregate value of lending to both FTBs and second and subsequent buyers (SSBs) exceeded the limit of 3.5 in 2017. This corresponds to 25 per cent of the value of FTB lending and 10 per cent of the value of SSB lending. Regarding LTV, 17 per cent of the aggregate value of SSB lending in 2017 exceeded the 80 per cent LTV limit. On average, borrowers with an LTI allowance had larger loan sizes and loan terms, were more likely to be based in Dublin and be single compared to those borrowers without an LTI allowance. SSBs with an LTV allowance had larger loan sizes and incomes but lower property values and were younger than those without an LTV allowance.We observe that allowances were allocated to borrowers in all four quarters of 2017. |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:1/fs/18&r=all |
| By: | World Bank Group |
| Keywords: | Macroeconomics and Economic Growth - Economic Forecasting Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Achieving Shared Growth |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:29675&r=all |
| By: | Colmenares, Gloria; Löschel, Andreas; Madlener, Reinhard |
| Abstract: | In this paper, we review the state-of-the-art and common practice of energy and climate modeling vis-à-vis the rebound literature, in particular regarding how macroeconomic energy and climate models quantify and include energy and greenhouse gas rebound effects. First, we focus on rebound effects in models of costless energy efficiency improvement that hold other attributes constant (zero-cost breakthrough), and an energy efficiency policy that may be bundled with other product changes that affect energy use (policy-induced efficiency improvement) (Gillingham et al. 2015). Second, we examine macroeconomic studies focusing on energy efficiency both in industry and in private households. Third, we go through a general theoretical revision from micro- to macroeconomic levels (the aggregation level) to include a review of the so-called meso-level studies (focused on the analysis of the production side). From 118 recent studies along the aggregation level, out of which 25 compute rebound calculations, we find that the average energy rebound effect is 58% with a standard deviation of 58%, and when we include green house gas rebound calculations, the magnitude is of the order of 43% with a standard deviation of 55%. Finally, we argue that the rebound effect is a phenomenon that requires a sound understanding of the complex interactions from different dimensions (e.g. aggregation level, heterogeneity, climate, energy conservation and economic growth), and we provide some ideas and motivations for future research. |
| Keywords: | Rebound effect,Macroeconomic models,Energy efficiency,Energy policy |
| JEL: | E13 Q41 Q43 Q48 Q54 R13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cawmdp:106&r=all |
| By: | Elstner, Steffen; Rujin, Svetlana |
| Abstract: | Since at least the mid-2000's, many advanced economies have experienced low productivity growth. This development is often related to the declining productivity gains at the technology frontier, which is commonly assumed to be determined by the U.S. We challenge this explanation by studying the effects of changes in U.S. technology on the productivity level in other advanced economies. Overall, we find positive but small spillover effects of U.S. technology shocks. The elasticity of foreign labor productivity with respect to a one percent increase in the U.S. technology level is significantly lower than one for many countries. The recent U.S. productivity slowdown, therefore, had a limited effect on productivity developments in advanced economies. Furthermore, our results suggest that institutional factors are not able to explain cross-country differences in the size of the spillover effects. If any, regulation of the service sector seems to play a role. |
| Keywords: | labor productivity,international spillover effects,technology shocks,structural VARs |
| JEL: | O40 E24 C32 F00 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:796&r=all |
| By: | Gorn, A. |
| Abstract: | This study relates the increase in the U.S. top wages to the increasing prominence of headhunters. Headhunters improve the matching between firms and employees via two channels: screening of candidates and passive on-the-job search. I incorporate headhunters in the labor market framework of random search with two-sided heterogeneity. The calibrated model shows that headhunters can account for 35% of the increase in the top 1% wage share and 69% of the increase in the top 10% wage share in the U.S. from 1970 to 2010. I provide supporting cross-country evidence on headhunter hires/fees and top income growth, as well as micro evidence for CEO compensation. |
| Keywords: | wage distribution, top incomes, sorting, on-the-job search, headhunters |
| JEL: | E24 D83 C78 J24 J62 J63 |
| Date: | 2019–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1926&r=all |
| By: | Ariel Mecikovsky; Matthias Meier |
| Abstract: | What explains the impact of uncertainty shocks on the economy? This paper uses highly disaggregated data on industry-level job flows to investigate the empirical relevance of various transmission channels of uncertainty shocks. The channels we consider are labor adjustment frictions, capital adjustment frictions, nominal ridigities, and financial frictions. For each channel, we derive testable implications regarding the response of job flows to uncertainty shocks. Empirically, uncertainty shocks lead to more job destruction and less job creation in more than 80% of all industries. The effect is significantly stronger in industries that face tighter financial constraints, which supports the financial frictions channel. In contrast, our evidence does not support the other three channels. |
| Keywords: | Uncertainty shocks; Job Flows; Financial Frictions |
| JEL: | E02 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_075&r=all |
| By: | María Gil (Banco de España); Danilo Leiva-Leon (Banco de España); Javier J. Pérez (Banco de España); Alberto Urtasun (Banco de España) |
| Abstract: | The goal of this paper is to propose a model to produce nowcasts of GDP growth of Spanish regions, by means of dynamic factor models. This framework is capable to incorporate in a parsimonious way the relevant information available at the time that each forecast is made. We employ a Bayesian perspective to provide robust estimation of all the ingredients involved in the model. Accordingly, we introduce the Bayesian Factor model for Regions (BayFaR), which allows for the inclusion of missing data and combines quarterly data on regional real output growth (taken from the database of the AIReF and from the individual regional statistics institutes, when available) and monthly information associated to indicators of regional real activity. We apply the BayFaR to nowcast the GDP growth of the four largest regions of Spain, and illustrate the real-time nowcasting performance of the proposed framework for each case. We also apply the model to nowcast Spanish GDP in order to be able to assess the relative growth of each region. |
| Keywords: | regional activity, nowcasting, dynamic factor model |
| JEL: | C32 E37 R13 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:1904&r=all |
| By: | Ruiz, Freddy; Lugilde, Alba |
| Abstract: | The aim of this paper is to study empirically the role of decent work on household consumption in Colombia. Using data from the Large Integrated Household Survey (GEIH) and the Colombian Longitudinal Survey (ELCA) we calculate for Colombia several of the decent work indicators proposed by the International Labour Organization and go one step further constructing their homologous at microeconomic level as measures of the job instability borne by the workers. The constructed indicators measure the poor quality of employment the individuals have which implies uncertainty about future labour income. This work addresses the effect this labour uncertainty has on household consumption. Our results show that being in a situation of vulnerability or labour instability, which generates uncertainty about future income, alters household consumption patterns. This is consistent with the evidence of the existence of precautionary saving in Colombian households. |
| Keywords: | decent work, labour uncertainty, consumption, precautionary savings, ELCA, Colombia |
| JEL: | D12 D14 E24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92717&r=all |
| By: | Assenmacher-Wesche, Katrin; Beyer, Andreas |
| Abstract: | Extending the data set used in Beyer (2009) to 2017, we estimate I(1) and I(2) money demand models for euro area M3. After including two broken trends and a few dummies to account for shifts in the variables following the global financial crisis and the ECB's non-standard monetary policy measures, we find that the money demand and the real wealth relations identified in Beyer (2009) have remained remarkably stable throughout the extended sample period. Testing for price homogeneity in the I(2) model we find that the nominal-to-real transformation is not rejected for the money relation whereas the wealth relation cannot be expressed in real terms. |
| Keywords: | money demand,wealth,cointegration,vector error correction model,I(2) analysis |
| JEL: | E41 C32 C22 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:619&r=all |
| By: | World Bank |
| Keywords: | Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Employment and Shared Growth Social Protections and Labor - Employment and Unemployment Social Protections and Labor - Labor Markets Public Sector Development - Public Sector Economics |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:29927&r=all |
| By: | World Bank |
| Keywords: | International Economics and Trade - Export Competitiveness International Economics and Trade - Trade Facilitation Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:29959&r=all |
| By: | Aloisio Araujo (IMPA and FGV EPGE); Juan Pablo Gama (IMPA); Mario R. Pascoa (University of Surrey) |
| Abstract: | Efficiency is not commonly related to the crash of bubbles. However in the presence of wary agents, infinite-lived agents that are worried about distant losses, efficient bubbles may occur and, in a stochastic setting, these bubbles can crash. In this paper we characterize the Arrow-Debreu (AD) price and establish the relationship between the agents' concern about distant losses and the existence of pure charges in the AD price. We show that this pure charge induces efficient bubbles in the positive net-supply assets that complete the markets and that, as we enter some sub-tree, that pure charge may no longer present in the AD price for the sub-economy, implying the crash of the bubble. Finally, we give an example in which there is an efficient bubble with infinitely many crashes. |
| JEL: | D53 E40 E41 G10 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0819&r=all |
| By: | Rachidi Kotchoni; Dalibor Stevanovic; Stéphane Surprenant |
| Abstract: | Ce rapport propose d’établir un historique des cycles économiques au Canada et de comparer les cycles estimés à travers les di˙érentes régions et di˙érents secteur d’activité économique. Dans un premier temps, les cycles sont estimés sur des données d’emplois provinciales et sectorielles par des modèles à changements de régime marko-viens (Markov-switching models). Ils sont comparés à l’aide de mesures basées sur les corrélations des séries de probabilités de récession. Une certaine dispersion des cycles économiques semble exister au Canada, surtout entre l’est et l’ouest du pays, mais les cycles apparaissent relativement synchronisés. L’exercice est e˙ectué selon deux désai-sonnalisations des données d’emplois et il apparaît qu’un lissage plus important lors de la désaisonnalisation a˙ecte la saillance des points de retournement. Dans un deuxième temps, l’approche multivariée est proposée en tablant sur une base de données de plus de 150 variables macroéconomiques canadiennes et l’analyse en composantes princi-pales. Les résultats suggèrent encore des di˙érences cycliques entre l’est et l’ouest du pays et des cycles relativement synchronisés. Par contre, l’approche multivarié identi-fie les cycles plus uniformément à travers le pays que l’approche univariée basée sur l’emploi. |
| Keywords: | , Analyse en composantes principales ; Changements de régime marko-vien ; Cycles économiques ; Environnement riche en données ; Points de Retournement ; Récessions |
| Date: | 2019–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirpro:2019rp-05&r=all |
| By: | Cristian Sepulveda (Farmingdale State College, SUNY, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA) |
| Abstract: | This paper revisits the relationship between fiscal decentralization and economic growth by addressing the endogeneity issue stemming from reverse causality and unobserved factors that has plagued the extensive previous literature on this subject. In our approach, we use the Geographic Fragmentation Index (GFI) and country size as instrumental variables, which we argue are strong and consistent instruments for fiscal decentralization. Empirically, we find that indeed both instruments are strong and valid in the first stage of estimation and that on average, a 10-percent increase in subnational expenditure or revenue shares—the conventional measures of decentralization—will increase GDP per capita growth by approximately 0.4 percentage points; however, the results differ for developed versus developing countries. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1903&r=all |
| By: | Aloisio Araujo (IMPA and FGV EPGE); Juan Pablo Gamay (IMPA); Rodrigo Novinskiz (Faculdades Ibmec); Mario R. Pascoa (University of Surrey) |
| Abstract: | When the discount factors that infinite lived consumers use at each date are not predetermined but are instead chosen within some set, depending on what the consumption plan is, impatience might not hold. More precisely, if the utility is the infimum of discounted utilities over that set of discount factor sequences, then preferences may be just upper semi-impatient. Such lack of lower semi-impatience, which we refer to as wariness, consists in neglecting distant gains but not distant losses. Examples are the precautionary case (a concern with the worst lifetime outcome) and the habit persistence case (a concern with a fall in living standards). The implementation of efficient allocations by trading assets sequentially requires taxes that avoid excessive savings by raising the opportunity of cost of saving up to the point of matching the marginal benefit of dishoarding at distant dates. Taxes on equilibrium plans are zero in many contexts. |
| JEL: | D53 E40 E41 G10 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0619&r=all |
| By: | Virginie Coudert; Cécile Couharde; Carl Grekou; Valérie Mignon |
| Abstract: | We assess cross-country heterogeneity within the eurozone and its evolution over time by measuring the distances between the equilibrium exchange rates’ paths of member countries. These equilibrium paths are derived from the minimization of currency misalignments, by matching real exchange rates with their economic fundamentals. Using cluster and factor analyses, we identify two distinct groups of countries in the run-up to the European Monetary Union (EMU), Greece being clearly an outlier at that time. Comparing the results with more recent periods, we find evidence of rising dissimilarities between these two sets of countries, as well as within the groups themselves. Overall, our findings illustrate the building-up of macroeconomic imbalances within the eurozone before the 2008 crisis and the fragmentation between its member countries that followed. |
| Keywords: | Euro Area;Equilibrium Exchange Rates;Cluster Analysis;Factor Analysis;Macroeconomic Imbalances |
| JEL: | F33 C38 E5 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2019-05&r=all |
| By: | Blesse, Sebastian; Bordignon, Massimo; Boyer, Pierre C.; Carapella, Piergiorgio; Heinemann, Friedrich; Janeba, Eckhard; Raj, Anasuya |
| Abstract: | The "multicrisis" of European integration from the euro debt crisis through the migration dispute to Brexit has kicked-off a comprehensive reform debate. This debate covers the evolution of European Monetary Union (EMU) institutions, the division of competencies between the EU and Member States, and reforms to the decision making and financing of the EU. While there is a wealth of innovative ideas across all these dimensions, the hurdles for a far-reaching reform are high, as they require a consensus among veto players. In this policy brief, we document descriptive insights of a unique recent survey among the national parliaments of the three largest Member States of the post-Brexit EU: France, Germany and Italy. Any far-reaching EMU or EU reform will have to be approved by the national parliaments of Member States. A consensus between these three countries is definitely not a sufficient condition for the political feasibility of a reform but most likely it amounts to a necessary one. The survey on the future of European integration was conducted in the national parliaments of France, Germany and Italy, including the French Senate and Assemblée Nationale, the German Bundestag, and the Italian Camera dei Deputati and Senato della Repubblica. The survey was sent out in September 2018 and responses arrived until January 2019. It covers the three mentioned reform dimensions, i.e. the division of competencies between the European and national level, EMU reforms and the future of EU finance and decision making. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewpbs:12019&r=all |
| By: | Pablo A. Guerron-Quintana (Boston College and Espol); Ryo Jinnai (Hitotsubashi University) |
| Abstract: | In models of financial frictions, stock market booms tend to follow adverse liquidity shocks. This finding is clearly at odds with the data. We demonstrate that this counterfactual result is specific to real business cycle models with exogenous growth. Once we allow for both endogenous productivity and growth, this puzzling price dynamics easily disappear. Intuitively, the gloomy economic-growth outlook following the adverse liquidity shocks generates a predictable and negative long-run component in dividend growth, leading to the collapse of equity prices. |
| Date: | 2019–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp19e04&r=all |
| By: | Francesco D'Acunto; Alberto G. Rossi; Michael Weber |
| Abstract: | We document five effects of providing individuals with crowdsourced spending information about their peers (individuals with similar characteristics) through a FinTech app. First, users who spend more than their peers reduce their spending significantly, whereas users who spend less keep constant or increase their spending. Second, users’ distance from their peers’ spend-ing affects the reaction monotonically in both directions. Third, users’ reaction is asymmetric - spending cuts are three times as large as increases. Fourth, lower-income users react more than others. Fifth, discretionary spending drives the reaction in both directions and especially cash withdrawals, which are commonly used for incidental expenses and anonymous transactions. We argue Bayesian updating, peer pressure, or the fact that bad news looms more than (equally-sized) good news cannot alone explain all these facts. |
| Keywords: | FinTech, learning, beliefs and expectations, peer pressure, financial decision-making, saving, consumer finance |
| JEL: | D12 D14 D91 E22 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7533&r=all |
| By: | Rachidi Kotchoni; Manuel Paquette-Dupuis; Dalibor Stevanovic |
| Abstract: | L’objectif de cette recherche est d’améliorer les modèles de prévisions en période de crise pour l’économie canadienne et québécoise. Nous utilisons les techniques em-ployées par Kotchoni et Stevanovic (2016) et Guerron-Quintana et Zhong (2017) qui sont basées sur l’ajout de la probabilité de récession au modèle autorégressif et la cor-rection des prévisions par la méthode des k plus proches voisins respectivement. Les variables d’intérêts sont le taux de croissance de l’emploi, le taux de chômage et le taux de croissance du PIB. Un exercice de prévision hors échantillon est réalisé pour comparer les di˙érents modèles proposés. |
| Keywords: | , Analyse en composantes principales ; Cycles économiques ; Points de Retournement ; Probit ; Récessions |
| Date: | 2019–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirpro:2019rp-04&r=all |
| By: | Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia |
| Abstract: | We use transaction-level data to study changes in the concentration of US imports. Concentration has fallen in typical industry, while it is stable by industry and country of origin. The fall in concentration is driven by the extensive margin: the number of exporting firm has grown, and the number of exported products has fallen more for top firms. Instead, average revenue per product of top firms has increased. At the industry level, top firms are converging, but top firms within country are diverging. These facts suggest that intensified competition in international markets coexists with growing concentration among national producers. |
| Keywords: | Superstar firms, concentration, US imports, firm heterogeneity, international trade. |
| JEL: | E23 F12 F14 L11 R12 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1635&r=all |
| By: | Alessandra Bonfiglioli; Rosario Crinò; Gino Gancia |
| Abstract: | We use transaction-level data to study changes in the concentration of US imports. Concentration has fallen in typical industry, while it is stable by industry and country of origin. The fall in concentration is driven by the extensive margin: the number of exporting firm has grown, and the number of exported products has fallen more for top firms. Instead, average revenue per product of top firms has increased. At the industry level, top firms are converging, but top firms within country are diverging. These facts suggest that intensified competition in international markets coexists with growing concentration among national producers. |
| Keywords: | superstar firms, concentration, US imports, firm heterogeneity, international trade |
| JEL: | E23 F12 F14 L11 R12 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1074&r=all |
| By: | Martin M. Andreasen (Aarhus University and CREATES and The Danish Finance Institute); Mads Dang (Aarhus University and CREATES) |
| Abstract: | This paper shows that the price demand elasticity can be estimated reliably in a standard log-linearized version of the New Keynesian model when including firm profit as an observable in the estimation. Using this identification strategy for the post-war US economy, we find an estimated price demand elasticity of 2.58 with a tight standard error of 0.31. This corresponds to an average price markup of 63% with a 95% confidence interval of [39%, 88%]. We also show that a calibrated markup of 20%, as commonly used in the literature, is rejected by the data, because it generates too much variability in firm profit. |
| Keywords: | Aggregate supply curve, Identification, Likelihood inference, New Keynesian model, Price markup |
| JEL: | C10 E12 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2019-03&r=all |
| By: | Nitzan, Jonathan; Bichler, Shimshon |
| Abstract: | FROM THE NOTE: This week, with the Federal Reserve Banks of New York and Atlanta anticipating sharply lower GDP growth for 2019:Q1, President Trump presented a ‘Budget for A Better America’, calling for a smaller government and a bigger military. Forty years ago, the very same call was hailed as the best recipe for renewed growth. The U.S. ruling class was getting ready to install Ronald Reagan as President, abandon the Cold War and embark on neoliberalism, and it argued that, for that shift to succeed, the country needed a leaner government in order to unleash its entrepreneurial spirit and crowd-in private investment, and that it required a strong military in order to boost its global muscle and open world markets for its products and capital. Ideology aside, one key reason for the growth optimism of the time was rising military spending… |
| Keywords: | economic growth,military spending |
| JEL: | L64 E62 P16 D74 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:193695&r=all |
| By: | World Bank Group |
| Keywords: | Public Sector Development - Public Sector Economics Macroeconomics and Economic Growth - Economic Forecasting Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Achieving Shared Growth |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:29676&r=all |
| By: | Haeri, Ali; Arabmazar, Abbas |
| Abstract: | In this study, the prevalent methodology for design of the industrial policy in developing countries was critically assessed, and it was shown that the mechanism and content of classical method is fundamentally contradictory to the goals and components of the endogenous growth theories. This study, by proposing a new approach, along settling Schumpeter's economic growth theory as a policy framework, designed the process of entering, analyzing and processing data as the mechanism of the industrial policy in order to provide "theoretical consistency" and "technical and Statistical requirements" for targeting the growth stimulant factor effectively. |
| Keywords: | industrial policy,Schumpeter,endogenous economic growth,new combinations,technology,stimulant factor |
| JEL: | O00 O20 O25 O38 E61 L52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:191051&r=all |
| By: | World Bank Group |
| Keywords: | Information and Communication Technologies - Digital Divide Information and Communication Technologies - ICT Economics Information and Communication Technologies - ICT Policy and Strategies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Achieving Shared Growth |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:29926&r=all |
| By: | World Bank Group |
| Keywords: | Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Investment and Investment Climate Poverty Reduction - Achieving Shared Growth Poverty Reduction - Inequality |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:29961&r=all |
| By: | Victor Pontines |
| Abstract: | Using a unique data set on provincial net factor income flows disaggregated across the three asset classes of debt, equity and FDI reinvested earnings in Korea, we investigated how these asset channels impacted consumption risk sharing during the Global Financial Crisis and the European sovereign debt crisis. Adopting spatial panel methods, this study found that net receipts of debt, equity and FDI retained earnings have all contributed favorably to consumption risk sharing during these crises episodes, with FDI retained earnings robustly positive in its contribution in buffering shocks to consumption. We also found suggestive evidence that net equity receipts rather than net debt receipts contributed more to risk sharing during these episodes. Overall, our results indicate that different asset channels can provide the insurance needed to cushion the economy against adverse shocks. |
| Keywords: | Consumption risk sharing, Consumption smoothing, Factor income flows, Spatial panel |
| JEL: | E25 F36 G11 R12 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-23&r=all |
| By: | Innocenti, Isabella |
| Abstract: | Faced with the effects of the financial crisis on its financial markets, its banking sector and its economy, Europe did not remain inactive. The European Central Bank (ECB) intervened several times to calm tensions in the interbank market. Public resources were used to support activity and recapitalize institutions close to bankruptcy in some exposed countries. At Community level, the lessons of the crisis must also be drawn: by ensuring the transparency of the banks' liabilities and their exposure to the risks associated with securitization; by better structuring the derivatives markets; by modifying the rules applicable to the rating agencies; strengthening banking supervision at Community level, in particular for institutions operating in more than one Member State of the European Union (EU). |
| Keywords: | Financial crisis |
| JEL: | E58 |
| Date: | 2018–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92603&r=all |
| By: | Kilian Huber; Volker Lindenthal; Fabian Waldinger |
| Abstract: | Kilian Huber and colleagues analyse the effects of the Nazis' purge of Jewish managers from German firms. |
| Keywords: | Nazis, firms, Germany |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepcnp:549&r=all |
| By: | Sameera Awawda (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Mohammad Abu-Zaineh (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE) |
| Abstract: | This paper presents an operationalizing theoretical framework to analyze the potential effects of universal health coverage (UHC) using dynamic stochastic general equilibrium (DSGE) model. The DSGE encapsulates a set of heterogeneous households that optimize their intertemporal utility of consumption, health capital, and leisure. The model is calibrated to capture the salient features of an archetype developing economy. The model is, then, used to simulate alternative UHC-financing policies. The theoretical framework we propose can be easily adapted to assess the implementation of UHC in a particular developing country setting. When applied to a hypothetical country, results show that the implementation of UHC can indeed improve access to healthcare for the population while offering households financial protection against future uncertainty. However, the degree of financial risk protection appears to vary across heterogeneous households and UHC-financing policies, depending on the associated benefits and the additional burden borne by each group. |
| Keywords: | universal health coverage, financial risk protection, dynamic stochastic general equilibrium model, developing countries |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1904&r=all |
| By: | Peter Klimek; Sebastian Poledna; Stefan Thurner |
| Abstract: | Modern macroeconomic theories were unable to foresee the last Great Recession and could neither predict its prolonged duration nor the recovery rate. They are based on supply-demand equilibria that do not exist during recessionary shocks. Here we focus on resilience as a nonequilibrium property of networked production systems and develop a linear response theory for input-output economics. By calibrating the framework to data from 56 industrial sectors in 43 countries between 2000 and 2014, we find that the susceptibility of individual industrial sectors to economic shocks varies greatly across countries, sectors, and time. We show that susceptibility-based predictions that take sector- and country-specific recovery into account, outperform--by far--standard econometric growth-models. Our results are analytically rigorous, empirically testable, and flexible enough to address policy-relevant scenarios. We illustrate the latter by estimating the impact of recently imposed tariffs on US imports (steel and aluminum) on specific sectors across European countries. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1903.03203&r=all |