|
on Macroeconomics |
|
Issue of 2019‒04‒08
104 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Jan Toporowski (Faculty of Law & Social Sciences SOAS, University of London) |
| Abstract: | This paper examines the logic of the arguments for negative interest rates. These arise from a Wicksellian theoretical framework that attributes low investment to a ‘natural’ or ‘real’ rate of interest (that is the rate of profit on real investments) that is below the money rate of interest. At near zero money rates of interest the low investment is presumed to be caused by a negative natural rate of interest. The paper outlines Kalecki’s reasons for believing that in fact the rate of profit for the economy as a whole is in general positive and, in any case, the rate of profit is differentiated in the economy by industry and firm. This removes the Wicksellian rationale for negative interest rates. |
| Keywords: | Kalecki, monetary theory, rate of interest |
| JEL: | E12 E32 E43 E52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:295&r=all |
| By: | Xavier Ragot (Département d'économie) |
| Abstract: | Motivated by recent empirical findings on money demand, the paper presents a general equilibrium model where agents have limited participation in financial markets and use money to smooth consumption. In such setup, investment is not optimal because only a fraction of households participate in financial markets in each period. Optimal monetary policy substantially increases welfare by changing investment decisions over the business cycle, but adverse redistributive effects limit the scope for an active monetary policy. Recent developments in the heterogeneous-agents literature are used to develop a tractable framework with aggregate shocks, where optimal monetary policy can be analyzed. |
| Keywords: | Limited participation; Incomplete markets; Optimal policy |
| JEL: | E41 E52 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/j7nncuouv9a0af4mubojrr2vc&r=all |
| By: | Pietro Dallari; Antonio Ribba |
| Abstract: | In this paper we study the response of unemployment to monetary policy and fiscal shocks in the peripheral Euro-area countries. By applying the structural near-VAR methodology, we jointly model Euro area-wide and national variables while preserving the invariance of the set of Euro-area common shocks. Our main finding is that fiscal multipliers vary across countries and the results are consistent with the prediction of the standard New Keynesian model only in Italy and Greece. Instead, the multipliers exhibit a nonKeynesian sign in Ireland, Portugal and Spain. These results seem to be robust to alternative identification strategies. As far as the monetary policy shock is concerned, we find that it plays an important role, jointly with the other Euro-area wide shocks, as a long-term driver of national unemployment. |
| Keywords: | Business Cycles; Fiscal Shocks; Unemployment; Euro area; Near-Structural VARs |
| JEL: | E32 E62 C32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:mod:recent:141&r=all |
| By: | Faccini, Renato; Melosi, Leonardo |
| Abstract: | In a dynamic general equilibrium model with a job ladder, inflation rises when most workers are employed in high-productivity jobs because in this case, poaching leads to wage increases that are not backed by changes in productivity. The model predicts that the post-Great Recession drop in the job-to-job flow rate has significantly slowed the pace at which the U.S. labor market turns low-productivity jobs into high-productivity ones. As a result, inflation has fallen below trend for an entire decade, despite the marked decline in the unemployment rate. The impaired process of reallocation over the job ladder accounts for a one-percentage-point reduction in U.S. labor productivity relative to trend, contributing to explain the stagnant productivity of the current economic recovery. |
| Keywords: | Cyclical Misallocation; Job Ladder; labor productivity; Phillips curve |
| JEL: | C78 E24 E31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13628&r=all |
| By: | Xavier Ragot (Département d'économie) |
| Abstract: | Motivated by recent empirical findings on money demand, the paper presents a general equilibrium model where agents have limited participation in financial markets and use money to smooth consumption. In such setup, investment is not optimal because only a fraction of households participate in financial markets in each period. Optimal monetary policy substantially increases welfare by changing investment decisions over the business cycle, but adverse redistributive effects limit the scope for an active monetary policy. Recent developments in the heterogeneous-agents literature are used to develop a tractable framework with aggregate shocks, where optimal monetary policy can be analyzed. |
| Keywords: | Limited participation; Incomplete markets; Optimal policy |
| JEL: | E41 E52 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/j7nncuouv9a0af4mubojrr2vc&r=all |
| By: | Claudio Borio; Piti Disyatat; Phurichai Rungcharoenkitkul |
| Abstract: | The paper takes a critical look at the conceptual and empirical underpinnings of prevailing explanations for low real (inflation-adjusted) interest rates over long horizons and finds them incomplete. The role of monetary policy, and its interaction with the financial cycle in particular, deserve greater attention. By linking booms and busts, the financial cycle generates important path dependencies that give rise to intertemporal policy trade-offs. Policy today constrains policy tomorrow. Far from being neutral, the policy regime can exert a persistent influence on the economy’s evolution, including on the real interest rate. This raises serious conceptual and practical questions about the use of the natural interest rate as a monetary policy guidepost. In developing the analysis, the paper also provides a specific critique of the safe asset shortage hypothesis – a hypothesis that has gained considerable popularity in recent years. |
| Keywords: | Real interest rate, natural interest rate, saving, investment, inflation, monetary policy, safe asset shortage hypothesis |
| JEL: | E32 E40 E44 E50 E52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:777&r=all |
| By: | Karl-Heinz Tödter; Gerhard Ziebarth |
| Abstract: | For the purposes of private consumption present and future goods are constantly evaluated and traded. A reliable und comprehensive measure of the general purchasing power of money and its changes over time should take due account of this basic fact. In contrast to conventional statistical consumer price indexes, an economic cost of life index is of intertemporal nature by construction as it incorporates the effective consumer prices over the planning horizon of private households. Any standard of price stability that suppresses this interrelationship tends to be biased and bears the risk of asymmetric monetary policy. Effective prices are present value prices for future consumption, include goods prices as well as interest rates (and asset price changes, respectively), are based on consumer utility and welfare theory, and are forming the central building blocks for the model class of economic cost of life indices. Given the preference based approach, effective prices are money valued marginal utilities of the final unit consumed. Effective inflation rates derived from effective prices are intertemporal marginal rates of substitution. The present paper develops an intertemporal cost of life index based on the concept of effective prices and presents empirical time series and cohort-specific scenario results for Germany. |
| Keywords: | Purchasing power of money, monetary policy, interest rates, present value prices, asset prices, effective inflation, cost of life index |
| JEL: | E31 E21 E58 I3 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:rmn:wpaper:201803&r=all |
| By: | Joanna Niedźwiedzińska (Narodowy Bank Polski) |
| Abstract: | New Zealand was the first country to introduce a monetary strategy known as inflation targeting (IT) in 1989. Since then, many other countries have adopted an inflation targeting regime. The paper discusses in detail the key institutional features of an IT strategy, as practiced by central banks. It includes an overview of mandates, inflation targets, decisionmaking processes and accountability mechanisms of inflation targeters. Instead of only describing the current state of IT, in many instances the paper indicates changes introduced in the past years to central banks’ practices. The historical perspective relates to such aspects as reformulations of inflation targets and the evolution of decision-making processes. The paper analyses more than 40 IT central banks and indicates similarities and differences among advanced and emerging market economies. The main finding is that the reviewed institutional features have not been homogenous – neither across time, nor across central banks. In particular, when comparing advanced and emerging market inflation targeters, while in many aspects there is hardly any difference to be noted, in some cases the approach of advanced economies differs significantly from that of emerging market economies. This holds especially for the key feature of the strategy – namely defining the inflation target. |
| Keywords: | Monetary Policy, Central Banking, Policy Design |
| JEL: | E31 E52 E58 E61 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:299&r=all |
| By: | Vo Phuong Mai Le (Cardiff Business School, Aberconway Building, Cardiff University, Colum Drive, Cardiff, Wales, United Kingdom, CF 10 3EU); Ruthira Naraidoo (Department of Economics, University of Pretoria, Pretoria, South Africa) |
| Abstract: | This paper builds a small open economy model for a net commodity exporter to consider financial frictions and monetary policies in order to investigate the main determinants of business cycles. Since we make a distinction to the access of financial markets between the commodity and non-commodity sectors, we notice that as usual, a commodity price shock benefits the competitiveness of the economy and its borrowing terms. We outline a novel effect in this paper which we dub the “financial market effect” following a positive commodity price shock that decreases the credit premium and hence exacerbate the commodity price boom. However, the negative sectoral downturn affects entrepreneur credit together with disinflationary pressures of a real exchange rate appreciation. This opens the role for stabilization policies which we analyze comparing three types of monetary regimes. Estimating the model on South Africa, a major commodity exporting economy with inflation targeting regime, we find as conventional wisdom suggests that a hypothetical Taylor rule targeting the price-level allows for adjustment in inflation expectations that can dampen disinflationary pressures. Furthermore, due to smoother change in nominal rate of interest, there is lesser variability in financial markets. |
| Keywords: | Business cycles, Small open economy, Commodity prices, Financial frictions, Emerging markets, Monetary policy, Price-level targeting, South Africa economy |
| JEL: | E32 E44 E58 F41 F44 O16 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201928&r=all |
| By: | François Le Grand (EMLYON Business School); Xavier Ragot (Département d'économie) |
| Abstract: | We provide a theory of truncation for incomplete insurance-market economies with aggregate shocks, which is shown to be a consistent representation of standard incomplete-market economies. This representation allows deriving optimal policies with capital and aggregate shock. We apply this framework to an economy where the government can use capital and labor taxes, positive transfers and public debt to smooth aggregate shocks. The average capital tax is shown to be positive if and only if credit constraints are binding for some households. In a quantitative exercise, the capital tax appears to be more volatile than the labor tax and public debt is countercyclical and mean-reverting. |
| Keywords: | Incomplete markets; Optimal policy; Public debt |
| JEL: | E21 E44 D91 D31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/6bl2553ksc9vlq1fltjs9h1cht&r=all |
| By: | Asafo, Shuffield Seyram |
| Abstract: | Using quarterly data from 2006q3 to 2017q4, this paper employed sign restrictions with rejection method in a Vector Autoregression to estimate the pass-through of exchange rate dynamics to domestic prices in Ghana. The priors of the model belongs to the flat Normal inverted-Wishart family. Markov Chain Monte Carlo (MCMC) is used to collect 1000 draws from the posterior distribution of the SVAR parameters that satisfy the sign restrictions. The model specification included some idiosyncratic features of the Ghanaian economy such as the dependence on primary export commodities for foreign exchange revenue and the dependence on foreign aid. Impulse response functions was used to analyze exchange rate pass-through whilst variance decomposition was used to explain the most dominant source of inflation in the study sample. The impulse response showed a fairly large but not unitary pass-through of exchange rate dynamics to domestic prices. The implication herein is that exchange rate depreciation led to upsurge in prices in Ghana albeit, the impact is incomplete. Results from the variance decomposition indicated a monetary expansion was most dominant in explaining inflationary pressures in Ghana. For inflation to be lowered, policy directives should be geared towards exchange rate stability as well as ensuring a stable interest rate environment. |
| Keywords: | Exchange Rate Pass-through, Monetary policy, Inflation, Structural Vector Autoregressive, Bayesian Analysis |
| JEL: | C1 C11 C13 C32 E30 E37 E5 E52 F3 |
| Date: | 2019–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92967&r=all |
| By: | François Le Grand (EMLYON Business School); Xavier Ragot (Département d'économie) |
| Abstract: | We provide a theory of truncation for incomplete insurance-market economies with aggregate shocks, which is shown to be a consistent representation of standard incomplete-market economies. This representation allows deriving optimal policies with capital and aggregate shock. We apply this framework to an economy where the government can use capital and labor taxes, positive transfers and public debt to smooth aggregate shocks. The average capital tax is shown to be positive if and only if credit constraints are binding for some households. In a quantitative exercise, the capital tax appears to be more volatile than the labor tax and public debt is countercyclical and mean-reverting. |
| Keywords: | Incomplete markets; Optimal policy; Public debt |
| JEL: | E21 E44 D91 D31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6bl2553ksc9vlq1fltjs9h1cht&r=all |
| By: | Barbara Rossi |
| Abstract: | How should one identify monetary policy shocks in unconventional times? Are unconventional monetary policies as effective as conventional ones? And has the transmission mechanism of monetary policy changed in the zerolower bound era? The recent Önancial crisis led Central banks to lower their interest rates in order to stimulate the economy, and interest rates in many advanced economies hit the zero lower bound. As a consequence, the traditional approach to the identification and the estimation of monetary policy faces new econometric challenges in unconventional times. This article aims at providing a broad overview of the recent literature on the identification of unconventional monetary policy shocks and the estimation of their effects on both financial as well as macroeconomic variables. Given that the prospects of slow recoveries and long periods of very low interest rates are becoming the norm, many economists believe that we are likely to face unconventional monetary policy measures often in the future. Hence, these are potentially very important issues in practice. |
| Keywords: | shock identification, VARs, zero lower bound, unconventional monetary policy, monetary policy, external instruments, forward guidance |
| JEL: | E4 E52 E21 H31 I3 D1 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1081&r=all |
| By: | Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Goran Vuksic (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Growth in much of CESEE will remain healthy by post-crisis standards, but has passed its peak. We expect most economies to slow from here, reflecting weaker external demand and domestic capacity constraints. Global trade tensions, structural weakness in the eurozone and Brexit all pose downside risks to our forecasts. |
| Keywords: | CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, CIS, Russia, Ukraine, Romania, Czech Republic, Hungary, Turkey, Serbia, convergence, business cycle, overheating, external risks, trade war, EU funds, private consumption, credit, investment, exports, FDI, labour markets, unemployment, employment, wage growth, unit labour costs, migration, inflation, savings rate, financial crisis, financial markets, direct lending, leverage, central banks |
| JEL: | E20 E31 E32 F15 F21 F22 F32 F51 G21 H60 J20 J30 J61 O47 O52 O57 P24 P27 P33 P52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:wii:fpaper:fc:spring2019&r=all |
| By: | Peter Tillmann (Justus-Liebig-University Giessen) |
| Abstract: | Central banks face uncertainty about the true location of the effective lower bound (ELB) on nominal interest rates. We model optimal discretionary monetary policy during a liquidity trap when the central bank designs policy that is robust with respect to the location of the ELB. If the central bank fears the worst-case location of the ELB, monetary conditions will be more expansionary before the liquidity trap occurs. |
| Keywords: | optimal monetary policy, discretion, robust control, uncertainty, liquidity trap |
| JEL: | E31 E32 E58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201914&r=all |
| By: | James Cloyne (University of California Davis, NBER and CEPR); Clodomiro Ferreira (Banco de españa); Maren Froemel (London Business School); Paolo Surico (London Business School, Bank of England and CEPR) |
| Abstract: | We provide new evidence on how monetary policy affects investment and firm finance in the United States and the United Kingdom. Younger firms paying no dividends exhibit the largest and most signifcant change in capital expenditure – even after conditioning on size, asset growth, Tobin’s Q, leverage or liquidity – and drive the response of aggregate investment. Older companies, in contrast, hardly react at all. After a monetary policy tightening, net worth falls considerably for all firms but borrowing declines only for younger non-dividend payers, as their external finance is mostly exposed to asset value fluctuations. Conversely, cash-flows change less markedly and more homogeneously across groups. Our findings highlight the role of firm finance and financial frictions in amplifying the effects of monetary policy on investment. |
| Keywords: | monetary policy, financial frictions, firm finance, investment |
| JEL: | E22 E32 E52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1911&r=all |
| By: | Atsushi Inoue; Barbara Rossi |
| Abstract: | We propose a new approach to analyze economic shocks. Our new procedure identifies economic shocks as exogenous shifts in a function; hence, we call the "functional shocks". We show how to identify such shocks and how to trace their effects in the economy via VARs using a procedure that we call "VARs with functional shocks". Using our new procedure, we address the crucial question of studying the effects or monetary policy by identifying monetary policy shocks as shifts in the whole term structure of government bond yields in a narrow window of time around monetary policy announcements. Our identification sheds new light on the effects of monetary policy shocks, both in conventional and unconventional periods, and shows that traditional identification procedures may miss important effects. We find that, overall, unconventional monetary policy has similar effects to conventional expansionary monetary policy, leading to an increase in both output growth and inflation; the response is hump-shaped; peaking around one year to one year and a half after the shock. The new procedure has the advantage of identifying monetary policy shocks during both conventional and unconventional monetary policy periods in a unified manner and can be applied more generally to other economic shocks. |
| Keywords: | shock identification, VARs, zero-lower bound, unconventional monetary policy, forward guidance |
| JEL: | E4 E52 E21 H31 I3 D1 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1082&r=all |
| By: | Kristine Wika Haraldsen; Ragnar Nymoen; Victoria Sparrman (Statistics Norway) |
| Abstract: | The average employment rate for the OECD countries was close to 63 percent in the period 2000-2015 but there is considerable variation within and between countries. We find that a dynamic model for employment, derived from a multiple equation macro model with institutional and population variables, can explain much of the development. The estimated models capture the dynamics well and they imply interpretable estimates of the normal employment rate level, conditional on the state of the institutional variables in 2015. The estimated normal employment rate is 2 percentage points higher when shocks are included in the model, implying that shocks have persistent effects. Regulations of the labour market are important for the effect of shocks. Regulated labour markets amplify positive shocks while negative shocks are dampened compared to less regulated labour markets. In the estimation of the models, we use standard panel data estimators, as well as a version of the within-group estimator which is robust to structural breaks in the means. Empirically we find that some of the estimated coefficients of the institutional variables are robust with respect to the breaks, while others are not. We find that the interaction effect between benefit replacement ratio and benefit duration is robust, and that is can significantly affect the employment rate. This result implies that changes in replacement ratios (or duration) may be expected to have larger impacts in countries where duration (or replacement ratio) is long compared to countries characterized by short duration (or replacement ratio). |
| Keywords: | Employment share; Labor market institutions; Macro shocks; Panel data model |
| JEL: | E21 E22 E24 E25 J08 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:901&r=all |
| By: | Ansgar Belke; Matthias Göcke |
| Abstract: | The interest rate is generally considered as an important driver of macroeconomic investment. As an innovation, this paper derives the exact shape of the “hysteretic” impact of changes in the interest rate on macroeconomic investment under the scenarios of both certainty and uncertainty. We capture the direct interest rate-hysteresis on the investments and the capital stock and, explicitly, of stochastic changes on the interest rate-investment hysteresis. Starting with hysteresis effects on a microeconomic level of a single firm, we apply an explicit aggregation procedure to derive the interest rate hysteresis effects on a macroeconomic level. Based on our simple model we are able to obtain some conclusions about the efficacy of a central bank’s interest rate policy, e.g. in times of low or even zero interest rates and high uncertainty, in terms of stimulating macroeconomic investment. |
| Keywords: | Forward guidance, interest rate, investment, Mayergoyz-Preisach model, monetary policy, path-dependence, non-ideal relay, sunk-cost hysteresis, uncertainty, zero lower bound |
| JEL: | C61 E22 E44 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:rmn:wpaper:201902&r=all |
| By: | Gábor Fukker (Magyar Nemzeti Bank (Central Bank of Hungary)); Lóránt Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)) |
| Abstract: | In this paper we develop the Hungarian version of the EAGLE FLI (Euro Area GLobal Economy model with Financial LInkages) model which is the EAGLE model enriched with financial frictions and country-specific banking sector. The EAGLE FLI features the intermediation of loanable funds (ILF) view in banking whereby the creation of new loans requires banks to collect additional deposits. Households and firms borrow in the model using housing as collateral. We find that macroprudential policies such as an increase in capital requirements, decreases in the loan-to-value ratio or loan-to-income ratio of borrower households (and firms) limits banks’ credit creation with negative spillover effects to the real economy due to the financial accelerator mechanism in the model. On the other hand, these policies strengthen banks’ capital and limit the vulnerability of households and firms to negative financial shocks. |
| Keywords: | macroprudential policy, multi-country DSGE, capital requirements, loan-to-value ratio, loan-to-income ratio |
| JEL: | E12 E13 E52 E58 F11 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2019/1&r=all |
| By: | Mónica Correa-López (Banco de España); Matías Pacce (Banco de España); Kathi Schlepper (Deutsche Bundesbank) |
| Abstract: | This paper analyzes the inflation processes of twelve Euro Area countries over the period 1984:q1-2017:q4. The stylized features of inflation uncover its changing nature and cross-country heterogeneity, in terms of mean, volatility and persistence. After estimation of a wide array of unobserved components models, we isolate trend inflation rates in a framework that allows for time-varying inflation gap persistence and stochastic volatility in both the trend and transitory components. On average, a sizeable share of overall inflation dynamics is accounted for by movements in the trend. In explaining trend dynamics, we consistently find a signficant role for short-term inflation expectations, economic slack, and openness variables. However, the cumulated impacts of these are fairly small, except in certain, sustained episodes. This is of policy relevance since the monetary authority might want to respond to shocks that are prone to affect the inflation trend in order to ensure that long-term inflation expectations remain anchored. |
| Keywords: | trend inflation, inflation dynamics, UCSV models, monetary policy |
| JEL: | E31 E52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1909&r=all |
| By: | Lieberknecht, Philipp; Wieland, Volker |
| Abstract: | There is substantial disagreement about the consequences of the Tax Cuts and Jobs Act (TCJA) of 2017, which constitutes the most extensive tax reform in the United States in more than 30 years. Using a large-scale two-country dynamic general equilibrium model with nominal rigidities, we find that the TCJA increases GDP by about 2% in the medium-run and by about 2.5% in the long-run. The short-run impact depends crucially on the degree and costs of variable capital utilization, with GDP effects ranging from 1 to 3%. At the same time, the TCJA does not pay for itself. In our analysis, the reform decreases tax revenues and raises the debt-to-GDP ratio by about 15 percentage points in the medium-run until 2025. We show that combining the TCJA with spending cuts can dampen the increase in government indebtedness without reducing its expansionary effect. |
| Keywords: | fiscal policy transmission; macroconomic modeling; Tax Cuts; tax reform; TJCA |
| JEL: | E1 E62 E63 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13629&r=all |
| By: | Ansgar Belke |
| Abstract: | Helicopter money has once been proposed as a theoretical thought experiment by Milton Friedman in order to elucidate the effect of money injections into the macroeconomy over time. However, some Euro area member states nowadays consider helicopter money, i.e. permanent Quantitative Easing (QE), as a permanent ingredient of future EMU governance. We set helicopter money apart from QE monetary policy measures and also distinguish it from a traditional fiscal stimulus. We then deal with and critically assess further developments of the helicopter money idea à la Bernanke und Buiter. Furthermore, the paper then comes up with three practical variants of helicopter money, basically available for the European Central Bank. Taking this as a starting point, the pros and cons of helicopter money and its closely defined implementation conditions are discussed. Finally, we derive some implications of helicopter money implementation for the monetary system as a whole. |
| Keywords: | economic stimulus programmes, full reserve banking, helicopter money, interest rate, joint analysis of fiscal and monetary policy, Quantitative Easing |
| JEL: | E52 E58 E63 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:rmn:wpaper:201802&r=all |
| By: | Martin, Feldkircher (Oesterreichische Nationalbank (Austrian Central Bank)); Thomas, Gruber (Oesterreichische Nationalbank (Austrian Central Bank)); Florian, Huber (University of Salzburg) |
| Abstract: | In this paper, we use a Bayesian global vector autoregressive model to analyze the macroeconomic effects of a flattening of euro area yield curves. Our findings indicate positive effects on real activity and prices, both within the euro area as well as in neighboring economies. Spillovers transmit through an exchange rate channel and a broad financial channel. We complement our analysis by conducting a portfolio optimization exercise. Our results show that multi-step-ahead forecasts conditional on the euro area yield curve shock improve Sharpe ratios relative to other investment strategies. |
| Keywords: | Unconventional monetary policy; spillovers; GVAR; minimum variance portfolio |
| JEL: | C30 E32 E52 F41 |
| Date: | 2019–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sbgwpe:2019_001&r=all |
| By: | Maiko Koga (Bank of Japan); Koichi Yoshino (Bank of Japan); Tomoya Sakata (Bank of Japan) |
| Abstract: | Exploiting a large panel of firm survey data from Japan (Tankan survey), we provide micro evidence of strategic complementarity in firms' price setting. We find that a firm's price adjustment is affected by its competitors' pricing behavior and that this adjustment is larger when the firm is lowering its price, which accords with the theoretical predictions of quasi-kinked demand. Our results also indicate that firms with greater pricing power tend to be less sensitive to their competitors' behavior. Finally, we observe that heightened demand uncertainty mitigates the effect of shifts in demand conditions on the likelihood of price adjustment-evidence of wait and see pricing. |
| Keywords: | Demand uncertainty; Firm survey data; Price setting; Strategic complementarity |
| JEL: | D22 D84 E31 E32 |
| Date: | 2019–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp19e05&r=all |
| By: | Viral Acharya (Reserve Bank of India); Guillaume Plantin (Département d'économie) |
| Abstract: | This paper studies a model of the interest-rate channel of monetary policy in which a low policy rate lowers the cost of capital for firms thereby spurring investment, but also induces destabilizing “carry trades” against their assets. If the public sector does not have sufficient fiscal capacity to cope with the large resulting private borrowing, then carry trades and productive investment compete for scarce funds, and so the former crowd out the latter. Below an endogenous lower bound, monetary easing generates only limited investment at the cost of large and socially wasteful financial risk taking. |
| Keywords: | Monetary policy; Financial stability; Shadow banking; Carry trades |
| JEL: | E52 E58 G01 G21 G23 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7dgqij8a2d89s9v4v2v5qhs9vs&r=all |
| By: | Viral Acharya (Reserve Bank of India); Guillaume Plantin (Département d'économie) |
| Abstract: | This paper studies a model of the interest-rate channel of monetary policy in which a low policy rate lowers the cost of capital for firms thereby spurring investment, but also induces destabilizing “carry trades” against their assets. If the public sector does not have sufficient fiscal capacity to cope with the large resulting private borrowing, then carry trades and productive investment compete for scarce funds, and so the former crowd out the latter. Below an endogenous lower bound, monetary easing generates only limited investment at the cost of large and socially wasteful financial risk taking. |
| Keywords: | Monetary policy; Financial stability; Shadow banking; Carry trades |
| JEL: | E52 E58 G01 G21 G23 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpecon:info:hdl:2441/7dgqij8a2d89s9v4v2v5qhs9vs&r=all |
| By: | Mariusz Kapuściński (SGH Warsaw School of Economics); Ilona Pietryka (Nicolaus Copernicus University in Torun) |
| Abstract: | In this study we aim to analyse the effects of leaving excess reserves in the banking sector by the central bank on the level and the variability of interest rates, as well as on money supply. To this end, we use mainly data for Poland, but in some cases, for robustness, also for a panel of Poland, the euro area, the Czech Republic and Hungary, as there had only been a limited variability in some policy variables in our sample for Poland. We estimate the parameters of GARCH, (P)VAR and (panel) linear regression models. We find that excess reserves affect the level and the variability of an overnight money market interest rate. However, the variability of the overnight money market interest rate, shaped to a large extent by excess reserves, does not affect the level of longer-term interest rates, and we find little evidence of its impact on their variability. Neither do excess reserves translate into higher money supply. Our results imply that the current monetary policy operational framework in Poland is adequate to ensure the transmission of the central bank policy rate to money market interest rates. Furthermore, it appears unlikely that raising the amount of excess reserves left, as proposed by some policymakers, would affect money supply. Instead, it would lower the money multiplier and the overnight money market interest rate, as well as increase its volatility. |
| Keywords: | excess reserves; interest rate pass through; money multiplier; GARCH; VAR; panel data models |
| JEL: | E52 E43 E51 C32 C33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:300&r=all |
| By: | Paolo Guarda; Alban Moura |
| Abstract: | We use unobserved components time series models to extract real and financial cycles for Luxembourg over the period 1980Q1-2018Q2. We find that financial cycles are longer and have larger amplitude compared to standard business cycles. Furthermore, financial cycles are highly correlated with cycles in GDP. We compare our results to other approaches to measure financial cycles and show how unobserved components models can serve to evaluate uncertainty and to monitor cyclical developments in real time. Overall, our estimates indicate that in mid 2018 both real and financial cycles in Luxembourg were close to zero, with financial conditions near their long-run trend. |
| Keywords: | Financial cycles, unobserved component time series models, Luxembourg. |
| JEL: | C22 C32 E30 E50 G01 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp126&r=all |
| By: | Ansgar Belke; Daniel Gros |
| Abstract: | The asset purchase program of the Euro area, active between 2015 and 2018, constitutes an interesting special case of Quantitative Easing (QE) because the ECB’s (Public Sector Purchase Program) PSPP program involved the purchase of the bonds of peripheral Euro area governments, which were clearly not riskless. Moreover, these purchases were undertaken by national central banks at their own risk. Intuition suggests, and a simple model confirms, that, ceteris paribus, large purchases of the bonds of the own sovereign by the national central bank should increase the risk for the remaining private bond holders. This might seem incompatible with the observation that risk spreads on peripheral bonds fell when the Euro area’s QE was announced. However, the initial fall in risk premia might have been due to the expectation of the bond being effective in lowering risk free rates. When these expectations were disappointed risk premia went back to their initial level. Formal statistical test confirm that indeed risk premia on peripheral bonds did not follow a random walk (contrary to what is assumed in event studies). Nor did the announcements of bond buying change the stochastics of these premia. One should thus not expect the impact effect to have been permanent. |
| Keywords: | European Central Bank, Quantitative Easing, unconventional monetary policies, spreads, structural breaks, time series econometrics |
| JEL: | E43 E58 G12 G15 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:rmn:wpaper:201901&r=all |
| By: | Gaglianone, Wagner; Giacomini, Raffaella; Issler, Joao; Skreta, Vasiliki |
| Abstract: | "Rational inattention" is becoming increasingly prominent in economic modelling, but there is little empirical evidence for its central premiseâ??that the choice of attention results from a cost-benefit optimization. Observational data typically do not allow researchers to infer attention choices from observables. We fill this gap in the literature by exploiting a unique dataset of professional forecasters who update their inflation forecasts at days of their choice. In the data we observe how many forecasters update (extensive margin of updating), the magnitude of the update (intensive margin), and the objective of optimiza- tion (forecast accuracy). There are also "shifters" in incentives: A contest that increases the benefit of accurate forecasting, and the release of official data that reduces the cost of information acquisition. These features allow us to link observables to attention and incentive parameters. We structurally estimate a model where the decision to update and the magnitude of the update are endogenous and the latter is the outcome of a rational inattention optimization. The model fits the data and gives realistic predictions. We find that shifts in incentives affect both extensive and intensive margins, but the shift in benefits from the contest has the largest aggregate effect. Counterfactuals reveal that accuracy is maximized if the contest coincides with the release of information, aligning higher benefits with lower costs of attention. |
| Keywords: | Contest; incentives; rational inattention; structural estimation; Survey Design |
| JEL: | D80 D83 E27 E37 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13619&r=all |
| By: | Dany Brouillette; Marie-Noëlle Robitaille; Laurence Savoie-Chabot; Pierre St-Amant; Bassirou Gueye; Elise Martin |
| Abstract: | In this paper, we assess several methods that have been used to measure the Canadian trend unemployment rate (TUR). We also considerimprovements and extensions to some existing methods. The assessment is based on four criteria: (i) the extent to which methods provide explanations for changes in trend unemployment; (ii) whether revisions to unemployment gap (UGAP, the difference between the actual unemployment rate and TUR) estimates are well behaved; (iii) if UGAPs provide information about future inflation; and (iv) if UGAPs help explain historical data about wages and consumer price inflation. In our assessment of conformity to the second and third criteria, we use real-time data, i.e., the data available to policymakers at the time of making decisions. We find that while all methods we consider have both strengths and weaknesses, those based on variables thought to determine TUR provide better interpretation and tend to do at least as well as others against the other criteria. These are most promising for future work. Nevertheless, there is considerable uncertainty about the value of TUR, which suggests it would be prudent to use a range of models in research or policy work. While estimates of TUR have declined since the mid-1990s, it is assessed to range between 5.6 and 6.7 per cent in 2018Q4. |
| Keywords: | Business fluctuations and cycles; Economic models; Inflation and prices; Labour markets |
| JEL: | C52 C53 E24 E27 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-13&r=all |
| By: | Scott R. Baker; Nicholas Bloom; Steven J. Davis; Kyle J. Kost |
| Abstract: | We create a newspaper-based Equity Market Volatility (EMV) tracker that moves with the VIX and with the realized volatility of returns on the S&P 500. Parsing the underlying text, we find that 72 percent of EMV articles discuss the Macroeconomic Outlook, and 44 percent discuss Commodity Markets. Policy news is another major source of volatility: 35 percent of EMV articles refer to Fiscal Policy (mostly Tax Policy), 30 percent discuss Monetary Policy, 25 percent refer to one or more forms of Regulation, and 13 percent mention National Security matters. The contribution of particular policy areas fluctuates greatly over time. Trade Policy news, for example, went from a virtual nonfactor in equity market volatility to a leading source after Donald Trump’s election and especially after the intensification of U.S-China trade tensions. The share of EMV articles with attention to government policy rises over time, reaching its peak in 2017-18. We validate our measurement approach in various ways. For example, tailoring our EMV tracker to news about petroleum markets yields a measure that rises and falls with the implied and realized volatility of oil prices. |
| JEL: | E44 G12 G18 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25720&r=all |
| By: | Kevin x.d. Huang (Vanderbilt University); Qinglai Meng (Oregon State University); Jianpo Xue (Renmin University of China) |
| Abstract: | This paper overturns the conventional wisdom that reliance on capital tax rate adjustment to ensure fiscal sustainability is immune to extrinsic uncertainty. The interaction of capital taxation and endogenous capital utilization generates fiscal increasing returns and factor share redistribution to induce sunspots expectations. Capital depreciation allowance debilitates this mechanism to preempt policy induced instability while achieving budget objective. Self-fulfilling fluctuations can occur in real-world economies, unless their depreciation allowances are sufficiently higher or income tax rates lower than the current levels. This adds a short-run motivation to the long-run approach to capital taxation and the supply-side view of fiscal policy reforms. |
| Keywords: | Capital income taxation, Depreciation allowance, Endogenous utilization, Fiscal increasing returns, Self-fulfilling prophecies |
| JEL: | E6 E3 |
| Date: | 2019–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-19-00008&r=all |
| By: | VARTHALITIS, PETROS |
| Abstract: | This paper presents FIR-GEM: Fiscal IRish General Equilibrium Model. FIR-GEM is a small open economy DSGE model designed as fiscal toolkit for fiscal policy analysis in Ireland. To illustrate the model's potential for fiscal policy analysis, we conduct three types of experiments. First, we analyse the fiscal transmission mechanism through which Irish fiscal policy affects the Irish economy. Second, we compute fiscal multipliers for the main tax-spending instruments, namely government consumption, public investment, public wage bill, public transfers, consumption, labour and capital tax. We focus on a fiscal policy stimulus that is either implemented through spending increases or tax cuts. Third, we perform robustness analysis on key structural characteristics that can affect quantitatively the size of fiscal multipliers. We find that the size of fiscal multipliers in the Irish economy heavily depends on its degree of openness, the method of fiscal financing employed, the elasticity of the sovereign risk premia to Irish debt dynamics and the flexibility of Irish labour and product markets. |
| Keywords: | Keywords: Fiscal policy, DSGE, Ireland, Openness. |
| JEL: | E62 F41 F42 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93059&r=all |
| By: | Taguchi, Hiroyuki |
| Abstract: | This paper aims to provide empirical evidence on the relationship between inflation targeting and the pass-through effect from exchange rate to consumer prices, focusing on the case of Mongolia. The study estimates a vector-autoregressive model, and examines the impulse responses of consumer prices to the shock of exchange rate for the pre-inflation targeting period and the post-inflation targeting period. The empirical analysis identified the existence of the pass-through effect during the pre-inflation targeting period and the loss of the pass-through during the post-inflation targeting period. It was speculated that the loss of the pass-through comes from the “forward-looking” monetary policy rule in Mongolian inflation targeting, so that it can work on the expectations of domestic agents such that they are less inclined to change prices in response to a given exchange rate shock. |
| Keywords: | Inflation Targeting; Pass-through Effect; Mongolia; Vector Autoregressive Model; Forward-looking Rule |
| JEL: | E52 F31 O53 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92988&r=all |
| By: | Riska Dwi, Astuti; Nadia, Fazira |
| Abstract: | In recent years, there have been many significant changes in commercial transactions. Not only e-commerce continues to grow, but also the form of payment services and service providers are consistently growing, such as virtual currency. One of virtual currency that quite popular is cryptocurrency especially Bitcoin. China became the country with the largest Bitcoin market in the world in the past few years. However, due to the concerns about money laundering and threats to China's financial stability and affecting the domestic currency, the Chinese government has formed a strict policy on Bitcoin. Therefore, nowadays, China is no longer the largest Bitcoin market in the world. Regarding the recently implemented policy, this study aims to analyze whether Bitcoin does affect China's exchange rate. The main independent variables in this research are specified to Bitcoin price volatility from BTCE, and controlled with the variable of the current account, inflation, and money supply. Monthly time series data from November 2012 until July 2017 is analyzed using autoregressive distributed lag (ARDL). The estimation results show that Bitcoin price volatility significantly affects the exchange rate in the long run. The higher of Bitcoin price volatility implies higher risk. The negative sign in the coefficient suggests that when Bitcoin's price volatility increases, investors tend to switch their investments on real currency will be preferable so that the exchange rate will be appreciated. |
| Keywords: | Cryptocurrency, Bitcoin, Exchange Rate, ARDL, China |
| JEL: | E52 G15 G18 |
| Date: | 2018–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93052&r=all |
| By: | António Afonso; Ludger Schuknecht |
| Abstract: | We assess how “big” government should reasonably be in a number of advanced countries. First, we will link the recent findings of Data Envelope Analysis on efficient public expenditure with the question of the size of the government. Second, we report descriptive analysis of various government performance indicators in relation to public expenditure to provide indications of overall “optimal” across spending categories. In principle, the highest savings potential is in the biggest expenditure categories, public consumption and social expenditure. |
| Keywords: | government size; government efficiency; DEA; advanced economies |
| JEL: | C14 E62 H11 H50 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0782019&r=all |
| By: | Thales A. J. T. T. Maion; Marcio Issao Nakane |
| Abstract: | Consumer confidence/expectation indexes are frequently used by the media and the market in order to forecast the behavior of the economy. Agents’ expectations are believed to explain output and employment fluctuations, either moderate or drastic as the “.com†and the American subprime crisis. In Brazil, more attention has been drawn to this topic due to the recent economic crisis. The estimation of a VAR with Brazilian data for consumption, output and expectations suggests that innovations to the expectation indexes do have impact on aggregate consumption and GDP in the medium/long-run, as well as the indexes themselves. Inspired by this evidence, a DSGE model is used in order to assess how much of these impacts are due to anticipation of future economic fundamentals and how much are due to animal spirits. The results indicate that animal spirits and index-specific noise are responsible for a non-negligible amount of fluctuations up to 2 quarters, whereas news of future economic conditions prevail on lower frequencies. |
| Keywords: | Business cycles; Consumer confidence; News shocks; Brazilian economy |
| JEL: | D12 D83 D84 E32 |
| Date: | 2019–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2019wpecon11&r=all |
| By: | Potjagailo, Galina; Wolters, Maik H. |
| Abstract: | We analyze cyclical co-movement in credit, house prices, equity prices, and long-term interest rates across 17 advanced economies. Using a time-varying multi-level dynamic factor model and more than 130 years of data, we analyze the dynamics of co-movement at different levels of aggregation and compare recent developments to earlier episodes such as the early era of financial globalization from 1880 to 1913 and the Great Depression. We find that joint global dynamics across various financial quantities and prices as well as variable-specific global co-movements are important to explain fluctuations in the data. From a historical perspective, global co-movement in financial variables is not a new phenomenon, but its importance has increased for some variables since the 1980s. For equity prices, global cycles play currently a historically unprecedented role, explaining more than half of the fluctuations in the data. Global cycles in credit and housing have become much more pronounced and longer, but their importance in explaining dynamics has only increased for some economies including the US, the UK and Nordic European countries. We also include GDP in the analysis and find an increasing role for a global business cycle. |
| Keywords: | financial cycles,global co-movement,dynamic factor models,time-varying parameters,macro-finance |
| JEL: | C32 C38 E44 F44 G15 N10 N20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2122&r=all |
| By: | Benjamin Eden (Vanderbilt University); Maya Eden (Brandeis University); Jonah Yuen (Vanderbilt University) |
| Abstract: | This paper studies the role of temporary sales in the reaction to aggregate shocks. Using scanner data from supermarkets, we establish the following stylized facts: (a) The fraction of stores that offer sale prices fluctuate over weeks; (b) Goods with more fluctuations in regular prices have also more sales; (c) Temporary sales contribute substantially to the weekly variation of the average cross-sectional price of the typical good; (d) High prices appear to be more rigid than low prices. These findings can be rationalized by a model in which prices are completely flexible and temporary sales are reactions to unwanted inventories which accrue in response to aggregate demand shocks. |
| Keywords: | Temporary Sales, Unwanted Inventories, Sequential Trade |
| JEL: | E0 D4 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-19-00003&r=all |
| By: | Benjamin Eden (Vanderbilt University) |
| Abstract: | I use a model of rational bubbles to discuss the effects of government loans and its real interest policy on the possibility of cycles. Cycles occur when the government is willing to lend to the young generation. Cycles do not occur if the government does not lend and the interest rate is sufficiently high. The level of interest required to discourage cycles (in the no lending case) is high when the rate of technological change in the non-housing sector is high relative to the rate of technological change in the housing sector. |
| Keywords: | Housing-cycles, Interest Rate, Bubbles, Government loans |
| JEL: | E3 E6 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-19-00002&r=all |
| By: | Janusz Brzeszczyński (Newcastle Business School (NBS), Northumbria University, Newcastle-upon-Tyne, United Kingdom; University of Łódź, Poland); Jerzy Gajdka (Narodowy Bank Polski); Ali M. Kutan (Southern Illinois University Edwardsville (SIUE), Edwardsville, IL, USA The Center for European Integration Studies (ZEI), Bonn, Germany The Emerging Markets Group (EMG), London, United Kingdom The William Davidson Institute (WDI), Ann Arbor, MI, USA) |
| Abstract: | The objective of this study is the analysis of the Polish financial market’s responses to interest rates changes announced by the Narodowy Bank Polski (NBP) during the period when they evolved from high to low levels. We use GARCH models and we focus comprehensively on four market segments, i.e.: foreign exchange market, stock market, bonds market and derivatives market. The sample period covers over 17 years from August 2000 until December 2017. Reactions of the financial market in Poland were measured with respect to the nominal changes in interest rates and to their surprise changes (relative to market expectations). The main conclusion from our study is that in all the investigated market segments the Polish financial market became consistently less responsive to interest rates decisions in the lower interest rates environment. Furthermore, stronger reactions in foreign exchange market and in stock market were detected in case of interest rates changing upwards rather than downwards, however in bonds market this effect was opposite. When interest rates were announced at different level than expected, the picture is ambiguous. Moreover, the effects in the conditional variance of the GARCH models indicate the existence of stabilizing effects of the NBP communication on the stock market in Poland, but the estimation results for other market segments are mixed. |
| JEL: | E5 E4 G1 F3 C2 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:303&r=all |
| By: | Beaudry, Paul; Portier, Franck |
| Abstract: | It is commonly accepted that economic expansions do not exhibit duration dependence, that is, the probability of an expansion terminating in the near future is thought to be independent of the length of the expansion. Our main focus is on determining the probability of the US economy entering a recession in the following year (or following two years) conditional on the expansion having lasted q quarters. When looking at the probability of entering a recession within a year (or 2 years), we find considerable evidence of economically significant duration dependence, especially when adopting a non-parametric approach. For example, for an expansion that has lasted only 5 quarters, the probability of entering a recession in the next year is around 10%, while this increases to 30-40% if the expansion has lasted over 35 quarters. Similarly, if looking at a two years window, we find the probability of entering a recession in the next two years raises from 25-30% to around 50-80% as the expansion extends from 5 quarters to 32 quarters. This pattern suggests that certain types of macroeconomic vulnerabilities may be accumulating as the expansion ages causing the arrival of a recession to become more likely. Our non-parametric estimates suggest that this later pattern is especially important once a recession has lasted more than 6 years. |
| Keywords: | business cycles; Recessions |
| JEL: | E32 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13626&r=all |
| By: | Paloma Villanueva (Instituto Complutense de Estudios Internacionales (ICEI), Universidad Complutense de Madrid.); Luis Cárdenas del Rey (Universidad Isabel I e Instituto Complutense de Estudios Internacionales (ICEI), Universidad Complutense de Madrid.); Jorge Uxó (Departamento de Análisis Económico y Finanzas, Universidad de Castilla – La Mancha.); Ignacio Álvarez (Instituto Complutense de Estudios Internacionales (ICEI). Departamento de Estructura Económica y Economía del Desarrollo, Universidad Autónoma de Madrid.) |
| Abstract: | The Spanish economy has been one of the EU’s most affected by the Great Recession of 2008, recording a rate of unemployment of 26.2% in 2013. However, since 2014 Spain is growing faster than most Euro Area countries, reaching an annual growth rate over 3% during the period 2015- 2017. Moreover, it has turned its historical current account deficit, which peaked in 2007, into a surplus of 2 % of GDP in 2017. International and Spanish institutions, as well as some scholars, have rooted this readjustment of the current account in the “internal devaluation strategy”. Consisting in the reduction of wages, this strategy is supposed to have boosted exports and therefore Spanish economic activity, through the reversion of the accumulated loss of price-competitiveness since the creation of the European Monetary Union. Nevertheless, empirical evidence shows that changes in demand (and some exceptional factors as the recent evolution of oil prices) are much more important to explain the evolution of Spanish net exports than changes in price competitiveness. Based on an extended version of the Bhaduri-Marglin model, which enables the disentangling of the price effect from the demand effect, this paper sheds light on the true influence of internal devaluation on the deficit correction occurred in the Spanish external sector. It reveals that wage restraint has meant only limited gains in price-competitiveness, having affected external balance mainly through a “demand effect” on imports, although to a limited extent. The estimations carried out show that the internal devaluation strategy readjusted the Spanish external sector by 1.74 p.p. during the period of 2010-2017. Of all this correction, 98% is induced by a change in the demand of the economy, and only 2% is due to the effect on prices. It makes also clear that although exports performance has been remarkable during last years in Spain, it does not differ much from the previous decade, and it cannot be explained by internal devaluation. |
| Abstract: | La economía española ha sido una de las más afectadas de la UE por la Gran Recesión de 2008, alcanzando la tasa de paro un 26,2% en 2013. Sin embargo, desde 2014 España está creciendo a un ritmo superior al de los países de la zona del Euro, concretamente por encima del 3% en el período 2015-2017, y lleva desde entonces registrando superávits por cuenta corriente (2% del PIB en 2017). Tanto instituciones internacionales como españolas, además de numerosos economistas, sostienen que dicho ajuste exterior es fruto de la devaluación interna. Así, la reducción de los salarios habría contribuido al crecimiento de las exportaciones, y por tanto de la producción, gracias a la recuperación de la competitividad precio, la cual se había deteriorado desde la creación de la Unión Monetaria Europea. No obstante, la evidencia empírica sugiere que la evolución de la demanda interna (y de otros factores como los precios del petróleo) se encuentran detrás de la corrección del histórico déficit por cuenta corriente. Basándonos en una versión extendida del modelo de Bhaduri-Marglin, que distingue el efecto precio del efecto demanda, este trabajo aclara el papel de dicha estrategia en el reajuste exterior. De tal forma, para el período 2010-2017 los efectos de esta estrategia han sido muy limitados; siendo el efecto demanda (1,71 pp) claramente predominante sobre el efecto precios (0,03 pp). Estos resultados apuntan a que el éxito exportador no ha sido consecuencia de la devaluación salarial. |
| Keywords: | Spanish current account; Wage share; Price-cost competitiveness; Internal devaluation; Bhaduri-Marglin.; Balanza por cuenta corriente; Rentas del trabajo; Competitividad precio; Devaluación interna; Bhaduri-Marglin. |
| JEL: | E12 E25 E64 F32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:wpaper:1805&r=all |
| By: | Christina Christou (Open University of Cyprus, School of Economics and Finance, 2220 Latsia, Cyprus.); Ruthira Naraidoo (Department of Economics, University of Pretoria, Pretoria, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Christis Hassapis (Department of Economics, University of Cyprus, 1678 Nicosia, Cyprus) |
| Abstract: | Japan’s episodes of lower bound of interest rates together with macroeconomic uncertainty for over the past two decades stands as a tremendous hurdle for the estimation of Taylor-type rule models. We demarcate our study from previous literature by conducting the estimations not only at various points on the conditional distribution of the interest rate but also at various quantiles of an additional regressor on top of inflation and output, viz., an uncertainty measure, by adopting a quantile nonseparable triangular system estimation. The results show that the reaction to uncertainty seems to have substituted the Bank’s reaction to inflation and output, lending support to the Brainard attenuation principle. In essence, faced with higher uncertainty, the monetary authority reacts by cutting (attenuating) its policy rate across all quantiles of uncertainty at all conditional quantiles of interest rate, with an increased response of the Bank of Japan to uncertainty at its lower quantiles when interest rate is at its lower conditional quantiles. A possible explanation is the greater concern of getting out from the lower bounds of interest rate. |
| Keywords: | Conditional quantile on quantile regressions, interest rate rule, zero lower bound, shadow rate of interest, uncertainty, Japan |
| JEL: | C22 E52 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201929&r=all |
| By: | Nijat Guliyev (Central Bank of Azerbaijan Republic) |
| Abstract: | This paper examines the effects of external shocks on the economy of oil rich Azerbaijan. Using oil price and macroeconomic indicators of three major trade partners of Azerbaijan – EU, Russia, and Turkey - as the external shock variables, we analyze the effects of those shocks on the domestic macroeconomic variables of Azerbaijan during the period from 2000Q1 to 2017Q4, in the SVAR framework with block exogeneity restriction. The results show that the overall importance of the four groups of shocks, in descending terms, is in the following order: oil shock, EU origin shocks, Russia origin shocks, and Turkey origin shocks. The major findings of the paper are: a) among considered foreign shocks oil price shock is the most important foreign shock for the economy of Azerbaijan; b) in general EU origin shocks has larger impact on considered domestic variables compared to other trade partners origin shocks; c) Turkey origin shocks have almost no impact in any of the considered domestic variables of Azerbaijan, d) among considered external shocks oil price is the main determinant of the non-oil sector of economy, and e) among considered external shocks GDP growth of the trade partners is the main determinant of the inflation in Azerbaijan. |
| Keywords: | VAR, non-oil GDP, CPI inflation, oil price, external shock |
| JEL: | E10 E30 C30 |
| Date: | 2018–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:aze:wpaper:1802&r=all |
| By: | Paweł Kopiec (Narodowy Bank Polski) |
| Abstract: | I study a novel channel that amplifies the effects of a rise in government purchases. To explore the mechanism, I use a model with uninsured idiosyncratic risk, frictional labor market and sticky prices. Fiscal stimulus increases aggregate demand and boosts job creation. The latter improves employment prospects by reducing unemployment risk faced by households. This, in turn, weakens precautionary motives and raises private consumption which strengthens the initial fiscal impulse. Quantitative analysis indicates that magnitude of the employment prospects channel is substantial: without this mechanism, crowding out of aggregate consumption associated with higher government expenditures is three times larger. Interestingly, in contrast to many recent works using heterogeneous agent models, the analyzed channel does not rely on behavior of liquidity constrained, hand-to-mouth agents. |
| Keywords: | Heterogeneous Agents, Frictional Markets, Fiscal Stimulus |
| JEL: | D30 E62 H23 H30 H31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:296&r=all |
| By: | J. Scott Davis (Federal Reserve Bank of Dallas); Ippei Fujiwara (Keio University and Australian National University); Kevin X.D. Huang (Vanderbilt University); Jiao Wang (University of Melbourne) |
| Abstract: | Many recent theoretical papers have argued that countries can insulate themselves from volatile world capital flows by using a variable tax on foreign capital as an instrument of monetary policy. But at the same time many empirical papers have argued that only rarely do we observe these cyclical capital taxes used in practice. In this paper we present a small open economy framework where the central bank can engage in sterilized foreign exchange intervention. When private agents can freely buy and sell foreign bonds, sterilized foreign exchange intervention has no effect. But we analytically prove that when private agents cannot freely buy and sell foreign bonds, that is, under acyclical capital controls, optimal sterilized foreign exchange intervention is equivalent to an optimally chosen tax on foreign capital. Numerical simulations of the model show that a variable capital tax is a reasonable approximation for sterilized foreign exchange intervention under the levels of capital controls observed in many emerging markets. |
| Keywords: | Central bank, Small open economy, foreign exchange reserves, capital controls |
| JEL: | E5 F4 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-19-00004&r=all |
| By: | Gyöngyösi,; Ongena, Steven; Schindele, Ibolya |
| Abstract: | We study the impact of monetary conditions on the supply of mortgage credit by banks to households. Using comprehensive credit register data from Hungary, we first establish a "bank-lending-to-households" channel by showing that monetary conditions affect the supply of mortgage credit in volume. We then study the impact of monetary conditions on the composition of mortgage credit along its currency denomination and borrower risk. We find that expansionary domestic monetary conditions increase the supply of mortgage credit to all households in the domestic currency and to risky households in the foreign currency. Because most households are unhedged, bank lending in multiple currencies may involve additional risk taking. Changes in foreign monetary conditions affect lending in the foreign currency more than in the domestic currency, and also differ in their compositional impact along firm risk. |
| Keywords: | bank balance-sheet channel; Foreign currency lending; household lending; monetary policy |
| JEL: | E51 F3 G21 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13616&r=all |
| By: | Simon Dikau and Ulrich Volz; Ulrich Volz (Department of Economics, SOAS University of London, UK) |
| Abstract: | This paper examines to what extent climate-related risks and mitigation policies fit into the current set of central bank mandates and objectives. To this end, we conduct a detailed analysis of central bank mandates and objectives, using the IMF's Central Bank Legislation Database, and compare these to current arrangements and sustainability responsibilities that central banks have adopted in practice. To scrutinise the alignment of mandates with climate-related policies, we differentiate between the impact of environmental factors on the conventional core objectives of central banking, and a potential promotional role of central banks with regard to green finance and sustainability. Of the 133 central banks in our sample, only 12% have explicit sustainability mandates while 29% are mandated to support the government's policy priorities, which in most cases includes sustainability goals. However, given that climate risks can directly impact on traditional core responsibilities of central banks, most notably monetary and financial stability, even central banks without explicit or implicit sustainability mandate ought to incorporate climate- and mitigation-risks into their core policy implementation frameworks in order to efficiently and successfully safeguard price and financial stability. |
| Keywords: | Central banks, central bank mandates, green finance |
| JEL: | Q5 E5 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:soa:wpaper:222&r=all |
| By: | Vugar Ahmadov (Central Bank of Azerbaijan Republic); Salman Huseynov (Central Bank of Azerbaijan Republic); Peter Pedroni (Williams College) |
| Abstract: | In this paper, we study oil price pass through into domestic inflation in a panel of oil exporting countries and propose a methodology to disentangle potential effects of different transmission channels. In particular, we investigate effects of three transmission channels, namely, import (cost) channel, exchange rate channel, and fiscal (demand) channel and quantify the relative importance of them. We find that the most important channel is the import channel and the least important one is the fiscal channel in contrast to wildly held belief. This finding, though surprising, can be explained by vast heterogeneity and rising integration among countries. We also find that institutional arrangements such as exchange regime, existence of fiscal rules and sovereign wealth funds are important pillars of a lower inflation environment in oil exporting countries. |
| Keywords: | Panel VAR, Oil Exporting Countries |
| JEL: | C22 C23 E31 |
| Date: | 2018–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:aze:wpaper:1801&r=all |
| By: | Fabio C. Bagliano (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Carolina Fugazza (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Giovanna Nicodano (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy) |
| Abstract: | The recent Great Recession highlighted that long-term unemployment spells may entail persistent losses in workers' human capital. This paper extends the life-cycle model of savings and portfolio choice with unemployment risk, by allowing the possibility of permanent reductions in expected earnings following long-term unemployment. The optimal risky portfolio share becomes flat in age due to the resolution of uncertainty about future returns to human capital that occurs as the worker ages. This may help explaining the observed relatively flat, or only moderately increasing, risky share of investors during working life, and have important consequences for the design of optimal life-cycle portfolios by investment funds. |
| Keywords: | life-cycle portfolio choice, unemployment risk, human capital depreciation, age rule. |
| JEL: | E21 G11 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:060&r=all |
| By: | Silvia Calò (Central Bank of Ireland); Mariarosaria Comunale (Bank of Lithuania & ECB) |
| Abstract: | In this paper we analyse the price competitiveness of the Italian regions by computing the Real Effective Exchange Rate (REER) for each region, deflated by CPI and vis-à-vis the main partner countries. We use them to look for the medium-term determinants, finding significant heterogeneities in the role of government consumption and investment expenditure. Government consumption has an extremely negative effect on competitiveness in North-Eastern Italy, Southern Italy and Lazio. Investment plays a negative role especially in the North-West, while it can be positive for competitiveness in Lazio and Southern Italy. We also find that the transfer theory does not necessarily hold and it even behaves in the opposite direction in case of North-Eastern Italy and Lazio. Lastly, we show that an increase in the regional price competitiveness influences regional growth positively only in the long run and spillovers may play a role. |
| Keywords: | Italian regions, government consumption, government investment, Real Effective Exchange Rate, growth. |
| JEL: | E62 F31 F41 R11 |
| Date: | 2019–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:456&r=all |
| By: | Francesca G Caselli; Julien Reynaud |
| Abstract: | This paper estimates the causal effect of fiscal rules on fiscal balances in a panel of 142 countries over the period 1985-2015. Our instrumental variable strategy exploits the geographical diffusion of fiscal rules across countries. The intuition is that reforms in neighboring countries may affect the adoption of domestic reforms through peer pressure and imitational effects. We find that fiscal rules correlate with lower deficits, but the positive link disappears when endogeneity is correctly addressed. However, when considering an index of fiscal rules’ design, we show that well-designed rules have a statistically significant impact on fiscal balances. We conduct several robustness tests and show that our results are not affected by weak instrument problems. |
| Date: | 2019–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/49&r=all |
| By: | Olivier Coibion (UT Austin and NBER); Yuriy Gorodnichenko (UC Berkeley); Saten Kumar (Auckland University of Technology); Mathieu Pedemonte (UC Berkeley) |
| Abstract: | We assess whether central banks may use inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear, especially for firms. Two additional limitations prevent policy-makers from being able to actively manage inflation expectations. First, available surveys of firms’ expectations are systematically deficient, which can only be addressed through the creation of large, nationally representative surveys of firms. Second, neither households’ nor firms’ expectations respond much to monetary policy announcements in low-inflation environments. We provide suggestions for how monetary policy-makers can pierce this veil of inattention through new communication strategies. At this stage, there remain a number of implementation issues and open research questions that need to be addressed to enable central banks to use inflation expectations as a policy tool. |
| Keywords: | survey, inflation expectations, firms, managers |
| JEL: | E31 C83 D84 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:aut:wpaper:201906&r=all |
| By: | Charles W. Calomiris; Harry Mamaysky |
| Abstract: | We develop an empirical model of exchange rate returns, applied separately to samples of developed and developing economies’ currencies against the dollar. We incorporate into this model natural-language-based measures of the monetary policy stances of the large global central banks, and show that these become increasingly important in the post-crisis era. We find an important spillover effect from the monetary policy of the Bank of England, the Bank of Japan and the ECB to the exchange rate returns of other currencies against the dollar. Furthermore, we find that the relation between a developed country’s interest rate differential relative to the dollar (carry) and the future returns from investing in its currency switches sign from the pre- to the post-crisis subperiod, while for emerging markets the carry variable is never a significant predictor of returns. The high profit from the carry trade for emerging market currencies reflects persistent country characteristics likely reflective of risk rather than the interest differential per se. While measures of global monetary policy stance forecast exchange rate returns against the dollar, they do not predict exchange rate returns against other base currencies. Results regarding returns from carry, however, are insensitive to the choice of the base currency. We construct a no-arbitrage pricing model which reconciles many of our empirical findings. |
| JEL: | E4 F31 F34 G15 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25714&r=all |
| By: | Chia-Lin Chang (Department of Applied Economics and Department of Finance, National Chung Hsing University, Taiwan and Department of Finance, Asia University, Taiwan.); Jukka Ilomäki (Faculty of Management and Business, Tampere University, Finland.); Hannu Laurila (Faculty of Management and Business, Tampere University, Finland.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.) |
| Abstract: | The paper investigates the effects of central bank interventions in financial markets, composed of asymmetrically-informed rational investors and noise traders. If the central bank suspects a bubble, it should lift the real risk-free rate to deflate the bubble in “leaning against the wind”. A rise in the real risk-free rate reduces the risk of rational informed investors, and increases the risk of rational uninformed investors. If the central bank intervenes through the nominal risk-free rate and the Fisher arbitrage condition holds, an increase in the nominal rate is transferred to inflation, thereby dampening the policy effect. Conversely, this implies that the central bank can also deflate the bubble by inducing a reduction in inflationary expectations. The effect on the informed investor risk remains ambiguous, while the risk of he uninformed investor grows, but only if they suffer from money illusion. |
| Keywords: | Central bank intervention, Asymmetric information, Rational investors, Noise traders, Bubbles, Risk-free rate, Fisherian arbitrage, Inflation, Expectations, Money illusion. |
| JEL: | D82 E52 G11 G14 G32 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1907&r=all |
| By: | Buckle, Robert A. |
| Abstract: | Nearly thirty years ago New Zealand ushered in a revolutionary approach to monetary policy. This was formalised by the Reserve Bank of New Zealand Act 1989 which specified price stability as the primary function of monetary policy and provided operational independence for New Zealand’s central bank. This innovation spawned the spread of more central banks around the world with a mandate to prioritise inflation targeting. This paper explains the historical origins of the RBNZ Act, its design and the ideas that influenced its design. It reviews how the practice of inflation targeting and the choice of policy instruments have evolved. The paper includes a review of research evaluating the impact of inflation targeting in New Zealand and concludes with a discussion of contemporary issues including a proposal before the New Zealand Parliament to introduce significant changes to the Act which could have important implications for future monetary policy. |
| Keywords: | Monetary policy, Inflation targeting, Central bank governance,, Accountability, Transparency, Credibility, Sustainability, |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:vuw:vuwcpf:8086&r=all |
| By: | Erik Brynjolfsson; Avinash Collis; W. Erwin Diewert; Felix Eggers; Kevin J. Fox |
| Abstract: | The welfare contributions of the digital economy, characterized by the proliferation of new and free goods, are not well-measured in our current national accounts. We derive explicit terms for the welfare contributions of these goods and introduce a new metric, GDP-B which quantifies their benefits, rather than costs. We apply this framework to several empirical examples including Facebook and smartphone cameras and estimate their valuations through incentive compatible choice experiments. For example, including the welfare gains from Facebook would have added between 0.05 and 0.11 percentage points to GDP-B growth per year in the US. |
| JEL: | D6 E2 O0 O4 O47 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25695&r=all |
| By: | Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria) |
| Abstract: | Nigeria adopted the Structural Adjustment Programme (SAP) in 1986 after the crash in world oil price in the early 1980s. Financial reforms are part of the reforms implemented during the SAP. Since, industrialisation is seen as an engine of growth, we conduct an empirical assessment of the effects of financial sector reforms on industrialisation in Nigeria using an annual time series data over 1981 - 2015. Using an autoregressive distributed lag (ARDL) model, our findings show that financial reforms have a positive and significant impact on industrialisation. |
| Keywords: | Financial reforms, Financial repression, Industrialisation, ARDL bounds test |
| JEL: | C32 E44 O14 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/014&r=all |
| By: | Florian Henne |
| Abstract: | Cette étude vise à évaluer les risques portant sur la soutenabilité de la dette publique au Luxembourg. Elle repose sur l’utilisation d’un outil DSA (« Debt Sustainability Analysis ») développé par l’Eurosystème, dont la méthodologie est adaptée et appliquée au cas du Luxembourg. Les résultats obtenus suggèrent que, en l’absence de chocs négatifs et en considérant que le Luxembourg respecte les critères du Pacte de Stabilité et de Croissance, les risques pesant sur la soutenabilité de la dette semblent être faibles dans l’horizon considéré. Néanmoins, bien que le niveau de dette publique soit relativement bas, les résultats permettent d’identifier certains risques susceptibles d’exercer une pression à la hausse sur la trajectoire de la dette et ainsi menacer sa soutenabilité. |
| Keywords: | Dette publique, soutenabilité de la dette, DSA, gouvernance européenne. |
| JEL: | E62 H62 H68 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp127&r=all |
| By: | Taylor, Lance; Foley, Duncan K.; Rezai, Armon |
| Abstract: | A demand-driven alternative to the conventional Solow-Swan growth model is analyzed. Its medium run is built around Marx-Goodwin cycles of demand and distribution. Long-run income and wealth distributions follow rules of accumulation stated by Pasinetti in combination with a technical progress function for labor productivity growth incorporating a Kaldor effect and induced innovation. An explicit steady state solution is presented along with analysis of dynamics. When wage income of capitalist households is introduced, the Samuelson-Modigliani steady state "dual" to Pasinetti's cannot be stable. Numerical simulation loosely based on US data suggests that the long-run growth rate is around two percent per year and that the capitalist share of wealth may rise from about forty to seventy percent due to positive medium-term feedback of higher wealth inequality into its own growth. |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus045:6891&r=all |
| By: | Lieven Baele; Geert Bekaert; Koen Inghelbrecht; Min Wei (-) |
| Abstract: | We identify flight-to-safety (FTS) days for 23 countries using only stock and bond returns and a model averaging approach. FTS days comprise less than 2% of the sample, and are associated with a 2.7% average bond-equity return differential and significant flows out of equity funds and into government bond and money market funds. FTS represents flights to both quality and liquidity in international equity markets, but mainly a flight-to-quality in the US corporate bond market. Emerging markets, endowment funds, and hedge funds all perform poorly during FTS, while hedge funds appear to vary their systematic exposures prior to a FTS |
| Keywords: | Flight-to-Safety, Flight-to-Quality, Stock-Bond Return Correlation, Liquidity, Hedge Funds |
| JEL: | G11 G12 G14 E43 E44 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:19/968&r=all |
| By: | Torró, Hipòlit |
| Abstract: | To our knowledge, this paper is the first to discuss the response of European energy commodity prices to unexpected monetary policy surprises from the European Central Bank. Using the Rigobon (2003) identification through heteroscedasticity method, we find a significant and positive response during the crisis period for Brent and coal. Similar results are obtained by other authors for European financial assets in this period. This result reinforces the idea that during this period, financial assets and some commodities positively responded to conventional and unconventional expansionary monetary policy measures, increasing confidence about the survival of the European monetary union. The remaining European energy commodities (electricity, EUAs, and natural gas prices) seem to be unaffected by monetary policy actions. We think these results are of interest to those economic agents and institutions involved in European energy markets and are especially important for the European Central Bank in order to predict the consequences of its monetary policy on the inflation objective. |
| Keywords: | Research Methods/ Statistical Methods |
| Date: | 2018–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemth:269537&r=all |
| By: | International Monetary Fund |
| Abstract: | The economic recovery in Greece is accelerating and broadening. Growth and job creation in Greece are expected to accelerate further in 2019. Public sector financing needs remain manageable under the baseline due to strong fiscal balances, low debt servicing costs, and a large cash buffer. While access to external funding is improving, spreads remain high, and domestic credit growth remains negative. In this scenario, Greece’s capacity to repay the Fund is assessed to be adequate. However, vulnerabilities remain significant and downside risks are rising. Greece’s crisis legacies - high public debt, impaired private balance sheets - along with a still-weak payment culture make the economy vulnerable to increasing external (e.g., global slowdown, sharp tightening of financial conditions) and domestic risks (e.g., ongoing court cases challenging key reforms, and reform fatigue). If selected fiscal risks materialize, the sovereign’s repayment capacity could become challenged over the medium term. |
| Keywords: | Economic recovery;Fiscal policy;Credit;Unemployment;Labor market flexibility;NPE;European partner;percent of GDP;IMF;ANFA |
| Date: | 2019–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/73&r=all |
| By: | Hougaard Jensen, Svend E.; Lassila, Jukka; Määttänen, Niku; Valkonen, Tarmo; Westerhout, Ed |
| Abstract: | Abstract According to the 2018 Mercer Global Pension index, the pension systems of Denmark, Finland and the Netherlands are the best three in the world. This paper seeks to identify the common elements of success of these three pension systems, including the institutional framework within which they operate. We emphasize the collective and compulsory nature of the earnings-related pension schemes and the important role for social partners in all three pension systems. We also discuss what we believe are the most important challenges these systems face. |
| Keywords: | Pensions, Pension taxation, Fiscal sustainability, Saving, Retirement |
| JEL: | D58 E21 H55 H68 J11 J26 |
| Date: | 2019–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:rif:wpaper:66&r=all |
| By: | Gregory Huffman (Vanderbilt University) |
| Abstract: | A growth model is studied in which the destruction (or exit) and creative (or research) decisions are decoupled. This approach emphasizes that different agents make these interrelated decisions. The growth rate equals the product of a measure of the destruction and creation rates. The determinants of income mobility, income inequality, the lifespan of a firm, and the growth rate are studied. The equilibrium can either yield too high or low a level of innovation, but the destruction rate may also be too high or low. A non-linear tax/subsidy scheme, which alters the innovation and exit decisions, can improve welfare. |
| Keywords: | Economic Growth, Creative Destruction, Innovation, Firm Exit, Tax Policy, Inequality |
| JEL: | E00 E62 H23 O10 O30 O40 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-19-00006&r=all |
| By: | Vasily Astrov; Cornelius Hirsch |
| Abstract: | FIW publishes biannually FIW Notes. They present an overview of the most important Austrian and international developments regarding International Economics. |
| Keywords: | Austrian Foreign Trade, Economic Outlook Austria, International Trade, FDI, exports |
| JEL: | E66 F01 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:fiwnot:y:2019:i:027&r=all |
| By: | Tullio Jappelli (Università di Napoli Federico II, CSEF and CEPR); Immacolata Marino (Università di Napoli Federico II and CSEF); Mario Padula (Università "Ca' Foscari" Venezia and CSEF) |
| Abstract: | According to the life-cycle model, if there is an expectation that social security benefits will fall, demand for retirement saving should increase. In precautionary saving models, the risk associated to future benefits matters and, if benefits become more uncertain, individuals will react by increasing their demand for retirement saving. To assess the empirical relevance of this mechanism, we rely on unique Italian data to obtain individual level measures of the subjective distribution of the social security benefit replacement rate. Italy is an interesting example, because of the frequent changes to eligibility rules and benefits implemented in the past thirty years, fueling individual uncertainty about future pension outcomes. We find evidence of wide cross-sectional heterogeneity in both the location and scale of the subjective replacement rate distribution. Our results indicate higher participation in private pension funds among individuals who expect lower and more uncertain replacement rates. JEL Classifications: D12, D14, E21 |
| Keywords: | Pension uncertainty; Retirement saving; Subjective distributions; Social security. |
| Date: | 2019–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:526&r=all |
| By: | Ewa Stanisławska (Narodowy Bank Polski) |
| Abstract: | The paper employs survey data on quantitative inflation perceptions to investigate the formation of consumers’ opinions about current price developments. Firstly, we compare Polish consumers’ estimates of price changes with the consumer price index (CPI) and find that consumers react more quickly to inflation increases than decreases, and that they ignore small moves in inflation. Moreover, the previously stable relation between inflation perception and the CPI inflation was distorted during the deflationary period, leading to a smaller perception bias. Secondly, we relax the assumption that consumers perceive price changes in the CPI terms and show that prices of food and prices related to housing, water, gas, electricity, etc. have similar impact on inflation perception as on the CPI infla tion, contrary to clothing and footwear prices which weight is overestimated and to transport prices which weight is underestimated. Thirdly, selective attention of consumers to price changes and asymmetric reaction to increases and falls in prices, captured by alternative price aggregates, do not explain inflation perception during deflation. |
| Keywords: | consumer survey data, consumers’ inflation perception, quantitative inflation perception, deflation |
| JEL: | D12 D84 E31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:301&r=all |
| By: | Itzhak Ben-David; Pascal Towbin; Sebastian Weber |
| Abstract: | We assess the role of price expectations in forming the U.S. housing boom in the mid-2000s by studying the dynamics of vacant properties. When agents anticipate price increases, they amass excess capacity. Thus, housing vacancy discriminates between price movements related to shocks to demand for housing services (low vacancy) and expectation shocks (high vacancy). We implement this idea using a structural vector autoregression with sign restrictions. In the aggregate, expectation shocks are the most important factor explaining the boom, immediately followed by mortgage rate shocks. In the cross-section, expectation shocks are the major factor explaining price movements in the Sand States, which experienced unprecedented booms. |
| JEL: | E32 G12 R31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25702&r=all |
| By: | Adriano A. Rampini; S. Viswanathan; Guillaume Vuillemey |
| Abstract: | We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that better capitalized institutions hedge more, controlling for risk exposures, both across institutions and within institutions over time. For identification, we exploit net worth shocks resulting from loan losses due to drops in house prices. Institutions that sustain such shocks reduce hedging significantly relative to otherwise similar institutions. The reduction in hedging is differentially larger among institutions with high real estate exposure. The evidence is consistent with the theory that financial constraints impede both financing and hedging. |
| JEL: | D92 E44 G21 G32 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25698&r=all |
| By: | Brynjolfsson, Erik; Collis, Avinash; Diewert, Erwin; Eggers, Felix; FOX, Kevin J. |
| Abstract: | The welfare contributions of the digital economy, characterized by the proliferation of new and free goods, are not well-measured in our current national accounts. We derive explicit terms for the welfare contributions of these goods and introduce a new metric, GDP-B which quantifies their benefits, rather than costs. We apply this framework to several empirical examples including Facebook and smartphone cameras and estimate their valuations through incentive-compatible choice experiments. For example, including the welfare gains from Facebook would have added between 0.05 and 0.11 percentage points to GDP-B growth per year in the US. |
| Keywords: | Welfare measurement, GDP, Productivity, mismeasurement, productivity slowdown, new goods, free goods, online choice experiments, GDP-B |
| JEL: | C43 D60 E23 O3 O4 |
| Date: | 2019–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:pmicro:erwin_diewert-2019-6&r=all |
| By: | International Monetary Fund |
| Abstract: | The Malaysian economy has shown resilience and continues to perform well. A peaceful political transition following the May 2018 elections demonstrated the strength of Malaysia’s institutions. Although vulnerabilities exist, capital outflows have been manageable. The new government has launched multiple initiatives to address governance weaknesses and corruption. Policy priorities are governance reforms and fiscal consolidation while safeguarding growth and financial stability. Structural reforms are needed to boost productivity and help further rebalancing growth towards domestic demand. |
| Keywords: | Economic growth;Real sector;Expenditures;Financial soundness indicators;Financial statistics;percent of GDP;tax refund;percent;medium term;household debt |
| Date: | 2019–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/71&r=all |
| By: | Mikkel Hermansen; Valentine Millot |
| Abstract: | Danish firms are close to the technological frontier compared to other OECD countries,making the introduction of new – potentially disruptive – technologies key to boostproductivity growth. Despite a high level of digitalisation and good framework conditions,aggregate productivity growth in Denmark has been only average compared to otheradvanced OECD countries and lags behind in less knowledge-intensive service industries.Policy needs to embrace innovative technologies by leaning against attempts to discourageor exclude them and by tackling unintended or outmoded obstacles in legislation andregulation. Analysis based on Danish firm-level data suggests that digital adoption throughinvestment in ICT capital increases firm productivity and contributes to business dynamicsand firm growth. Improving economic incentives for such investment as well as facilitatingadoption of new business models require a shift of taxation away from capital and labourincome. Ensuring supply of the right skills and maintaining effective upskilling will helpworkers cope with disruptive changes and ensure that economic growth benefits all. |
| Keywords: | competition, digitalisation, disruption, innovation, productivity, skills, taxation |
| JEL: | E24 H25 L40 L50 O16 O33 O38 |
| Date: | 2019–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1545-en&r=all |
| By: | Tanai Khiaonarong; David Humphrey |
| Abstract: | The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card—not better. Demand for digital currency will thus be weak in countries where cash use is already very low, due to a preference for cash substitutes (cards, electronic money, mobile phone payments). Where cash use is very high, demand should be stronger, due to a lack of cash substitutes. As the demand for CBDC is tied to the current level of cash use, we estimate the level and trend in cash use for 11 countries using four different measures. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, we tie the level of cash use to the likely demand for CBDC in different countries. In this process, we suggest that one measure of cash use is more useful than the others. If cash is important for monetary policy, payment instrument competition, or as an alternative payment instrument in the event of operational problems with privately supplied payment methods, the introduction of CBDC may best be introduced before cash substitutes become so ubiquitous that the viability of CBDC could be in doubt. |
| Keywords: | Bank credit;Central banks;Central bank policy;Central bank accounting;Bank accounting;digital cash;e-money;physical cash;non-cash;giro |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/46&r=all |
| By: | Tigran Poghosyan |
| Abstract: | This paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990–2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities. |
| Keywords: | Monetary policy instruments;Exchange rate policy;Central banks;Monetary policy;Monetary expansion;macroprudential regulation;financial stability;credit;house price;Kleibl;target variable;type of measure;real GDP growth;dependent variable |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/45&r=all |
| By: | Minford, Patrick (Cardiff Business School); Ou, Zhirong (Cardiff Business School); Zhu, Zheyi (Cardiff Business School) |
| Abstract: | We ask whether a model of the US and Europe trading with the rest of the world can match the facts of world behaviour in a powerful indirect inference test. One version has uncovered interest parity (UIP), the other risk-pooling. Both pass the test but the most probable is risk-pooling. This is consistent with risk-pooling failing a number of single equation tests, as has been found in past work; we show that these tests will typically reject risk-pooling when it in fact prevails. World economic behaviour under risk-pooling shows much stronger spillovers than under UIP with opposite monetary responses to the exchange rate. We argue that the risk-pooling model therefore demands more attention from policy-makers. |
| Keywords: | Opene conomy, UIP, risk-pooling, test, Indirect Inference |
| JEL: | C12 E12 F41 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2019/10&r=all |
| By: | Jin, Gu; Zhu, Tao |
| Abstract: | This paper draws quantitative implications for some historical coinage issues from an existing formulation of a theory that explains the society's demand for multiple denominations. The model is parameterized to match some key monetary characteristics in late medieval England. Inconvenience for an agent due to a shortage of a type of coin is measured by the difference between his welfare given the shortage and his welfare in a hypothetical scenario that the mint suddenly eliminates the shortage. A small coin has a more prominent role than small change. Because of this role, a shortage of small coins is highly inconvenient for poor people and, the inconvenience may extend to all people when commerce advances. A debasement may effectively supply substitutes to small coins in shortage. Large increase in the minting volume, cocirculation of old and new coins, and circulation by weight, critical facts constituting the debasement puzzle, emerge in the equilibrium path that follows the debasement. |
| Keywords: | The debasement puzzle; Gresham's Law; Medieval coinage; Commodity money; Coinage; Shortages of small coins |
| JEL: | E40 E42 N13 |
| Date: | 2019–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93057&r=all |
| By: | Anmol Bhandari; David Evans; Mikhail Golosov; Thomas J. Sargent |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ste:nystbu:18-26&r=all |
| By: | Bas B. Bakker; Marta Korczak; Krzysztof Krogulski |
| Abstract: | In the last decade, over half of the EU countries in the euro area or with currencies pegged to the euro were hit by large risk premium shocks. Previous papers have focused on the impact of these shocks on demand. This paper, by contrast, focuses on the impact on supply. We show that risk premium shocks reduce the output level that maximizes profit. They also lead to unemployment surges, as firms are forced to cut costs when financing becomes expensive or is no longer available. As a result, all countries with risk premium shocks saw unemployment surge, even as euro area core countries managed to contain unemployment as firms hoarded labor during the downturn. Most striking, wage bills in euro area crisis countries and the Baltics declined even faster than GDP, whereas in core euro area countries wage shares actually increased. |
| Date: | 2019–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/56&r=all |
| By: | International Monetary Fund |
| Abstract: | The authorities face a difficult situation. Wage increases have outpaced productivity growth over the past decade which, has led to a deterioration in competitiveness. This has been exacerbated by a strong U.S. dollar—Ecuador’s economy is fully dollarized—leaving the real exchange rate overvalued. Public debt is high and rising, the government faces sizable gross financing needs, and international reserves are precariously low. The recent volatility in oil prices and tighter global financial conditions have exacerbated these strains. |
| Date: | 2019–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/79&r=all |
| By: | Almarina Gramozi; Theodore Palivos; Marios Zachariadis |
| Abstract: | We use microeconomic data on wages and individual characteristics across twenty European economies for the period 2004 to 2015, to detect patterns of misallocation arising in these economies based on individuals’ gender, immigrant status, or private versus public sector affiliation. We develop a theoretical model where being relatively isolated, e.g., due to gender, immigrant status, or private sector affiliation, leads to lower wages and talent misallocation. Our empirical results suggest that being a female or immigrant, and working in the private sector, exert a negative impact on one’s wages beyond that explained by their economic characteristics, suggestive of persistent talent misallocation in Europe during the period under study. Notably, countries such as Cyprus, Greece, Italy and Spain are systematically found at the top of the overall talent misallocation index we construct year-after-year for the period under study. Our work provides new cross-country micro-econometric evidence about the importance of various forms of talent misallocation for aggregate economic outcomes. |
| Keywords: | economic growth, wage gap, inefficiency |
| JEL: | E0 J31 O4 O52 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:05-2019&r=all |
| By: | Boneva, L.; Elliott, D.; Kaminska, I.; Linton, O.; McLaren, N.; Morley, B. |
| Abstract: | In August 2016, the Bank of England (BoE) announced a Corporate Bond Purchase Scheme (CBPS) to purchase up to $10bn of sterling corporate bonds. To investigate the impact of these purchases on liquidity, we create a novel dataset that combines transaction-level data from the secondary corporate bond market with proprietary offer-level data from the BoE's CBPS auctions. Identifying the impact of central bank asset purchases on liquidity is potentially impacted by reverse causality, because liquidity considerations might impact purchases. But the offer-level data allow us to construct proxy measures for the BoE's demand for bonds and auction participants' supply of bonds, meaning that we can control for the impact of liquidity on purchases. Across a range of liquidity measures, we find that CBPS purchases improved the liquidity of purchased bonds. |
| Keywords: | Quantitative easing, Market liquidity, Market-making, Corporate bonds |
| JEL: | G12 G23 E52 E58 |
| Date: | 2019–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1937&r=all |
| By: | International Monetary Fund |
| Abstract: | Since the global crisis, Belgium has experienced nine consecutive years of economic growth. Per capita GDP has surpassed pre-crisis levels, and unemployment is at its lowest level in four decades. The financial sector has also undergone structural changes and increased its resiliency to shocks. But some challenges remain, related to the high public debt level, a still fragmented labor market, sluggish potential growth, and rising cyclical financial vulnerabilities. |
| Date: | 2019–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/74&r=all |
| By: | Jose Antonio Pedrosa-Garcia (United Nations ESCAP); Yasmin Winther De Araujo Consolino Almeida (Macroeconomic Policy and Financing for Development Division, ESCAP) |
| Abstract: | This paper reviews the key features of cryptocurrencies and their underlying technology, blockchain. It becomes clear that cryptocurrencies do not fulfill the three functions of money, at least for the moment, but should instead be understood as high-risk, high-profitability securities. While there are great opportunities such as increased remittances, their potential disruption of economic activity, and particularly of monetary policy is mind-blowing. Under this premise, and keeping in mind hackers’ heists suffered by cryptocurrency exchanges, it is important to regulate cryptocurrencies. Four core questions countries should decide on are: whether they consider cryptocurrencies’ legal tender, whether they allow cryptocurrency exchanges to operate (and if so, how); whether Initial Coin Offerings (ICOs) should be allowed (and if so, how); and whether they allow mining. Several policy options are presented, both from a theoretical perspective, and as they have been implemented by countries in Asia-Pacific. While countries such as China have decided to be restrictive, others such as Japan have chosen to regulate to let the sector thrive. Such diversity may be understandable, given that is such a novel technology that still poorly understood – especially its evolution. This diversity of standards offers great room for regulatory arbitrage, and highlights a great need for global coordination on cryptocurrency regulation and supervision. |
| Keywords: | Cryptocurrencies, Blockchain, Bitcoin, Regulation |
| JEL: | E51 G11 G18 G28 O16 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:unt:wpmpdd:wp/18/03&r=all |
| By: | International Monetary Fund |
| Abstract: | Declining oil prices, U.S. dollar appreciation, and limited access to international financing have worsened the fiscal, economic, and financial outlook. The situation has been exacerbated by the fact that Ecuador had not build up financial reserves during the period of high oil prices and is therefore now facing a large unresolved financing gap. Then, on April 16, Ecuador was hit by a 7.8magnitude earthquake which created new fiscal and balance of payments needs. The authorities’ policy response to the imbalances has been timely but still insufficient given the size of the shocks, the urgent nature of the vulnerabilities, and reduced foreign currency reserves. Real GDP is expected to contract significantly this year and next. |
| Date: | 2019–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/81&r=all |
| By: | Boris Hofmann; Hyun Song Shin; Mauricio Villamizar-Villegas (Banco de la República de Colombia) |
| Abstract: | We employ a rarely available high-frequency micro dataset to study the impact of foreign exchange intervention on domestic credit growth. We find that sterilised purchases of dollars by the central bank dampens the flow of new domestic corporate loans in Colombia. Slowing the pace of currency appreciation plays a key role in dampening credit expansion. Our analysis sheds light on the role of FX intervention as part of the financial stability-oriented policy response to credit booms associated with capital inflow surges. **** RESUMEN: En este trabajo utilizamos datos panel de frecuencia diaria, para estudiar el impacto de las intervenciones cambiarias sobre el crédito comercial. Para el caso colombiano, encontramos que las compras (esterilizadas) de divisas ayudaron a frenar el crecimiento del crédito, sobre todo en momentos donde hubo fuertes entradas de capital. Nuestros hallazgos también indican que la devaluación de la moneda jugó un papel fundamental en la disminución del crédito. Nuestro análisis resalta el papel de la intervención cambiaria como herramienta de estabilidad financiera. |
| Keywords: | FX intervention, credit registry, emerging markets, financial channel of exchange rates, Intervención cambiaria, créditos comerciales, países emergentes, canal financiero de tasa de cambio |
| JEL: | E58 F31 F33 F41 G20 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1069&r=all |
| By: | International Monetary Fund |
| Abstract: | Selected Issues |
| Keywords: | Fiscal policy;Gross domestic product;Business cycles;Investment;Economic growth;medium-term;external finance;MTFF;non-financial corporation;net save |
| Date: | 2019–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/72&r=all |
| By: | David W. Berger; Kyle F. Herkenhoff; Simon Mongey |
| Abstract: | What are the welfare implications of labor market power? We provide an answer to this question in two steps: (1) we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market, (2) we estimate key parameters using within-firm-state, across-market differences in wage and employment responses to state corporate tax changes in U.S. Census data. We validate the model against recent evidence on productivity-wage pass-through, and new measurements of the distribution of local market concentration. The model implies welfare losses from labor market power that range from 2.9 to 8.0 percent of lifetime consumption. However, despite large contemporaneous losses, labor market power has not contributed to the declining labor share. Finally, we show that minimum wages can deliver moderate, and limited, welfare gains by reallocating workers from smaller to larger, more productive firms. |
| JEL: | E2 J2 J42 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25719&r=all |
| By: | Baltzer, Markus; Koehl, Alexandra; Reitz, Stefan |
| Abstract: | Broker-dealer leverage has recently proven to be strongly procyclical, exhibiting impressive explanatory power for a large cross-section of asset returns in the US. In this paper we add empirical evidence to this finding, showing that European and German broker-dealers actively manage their balance sheets. Moreover, by applying standard Fama-MacBeth regressions as well as dynamic asset pricing models (Adrian, Crump, and Moench, 2015), we confirm the importance of brokerdealer balance-sheet indicators for asset pricing. In particular, leverage shows a procyclical behavior with a positive price of risk. Moreover, high leverage coincides with high asset prices, thereby forecasting lower future returns. |
| Keywords: | broker-dealer leverage,intermediary asset pricing,dynamic asset pricing |
| JEL: | E31 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:102019&r=all |
| By: | Omer Faruk Koru (Department of Economics, University of Pennsylvania) |
| Abstract: | For almost 40 years, inequality within the top percentile of the income distribution,measured as the ratio of income share of top 0:1% to the income share of top 1%, has been increasing in the US. The income of super-rich people increased more than the income of rich people. In this paper, we show that improvements in automation technology (the number of tasks for which capital can be used) is an important factor contributing to this inequality. We consider a model in which labor has a convex cost and capital has a linear cost. This leads to a decreasing returns to scale pro t function for entrepreneurs. As capital replaces labor in more and more tasks, the severity of diseconomies of scale diminishes, hence the market share of top-skilled entrepreneurs increases. If entrepreneurial skill is distributed according to a Pareto distribution, then top income distribution can be approximated by a Pareto distribution. We show that the shape parameter of this distribution is inversely related to the level of automation. Finally, we rationalize convex cost of labor using the theory of efficiency wage. |
| Keywords: | automation, top income inequality, entrepreneurship, efficiency wage |
| JEL: | E23 J23 J3 O33 |
| Date: | 2019–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:19-004&r=all |
| By: | Margherita Bottero; Camelia Minoiu; José-Luis Peydro; Andrea Polo; Andrea F Presbitero; Enrico Sette |
| Abstract: | We study negative interest rate policy (NIRP) exploiting ECB's NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply-- -and hence the real economy---through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB. |
| Keywords: | Bank credit;Reserve requirements;Interest rates on loans;Central banks;Bank liquidity;Negative interest rates;portfolio rebalancing;bank lending channel;liquidity management;Eurozone crisis;interbank;credit supply;ex-ante;rebalance;negative rate |
| Date: | 2019–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/44&r=all |
| By: | International Monetary Fund |
| Abstract: | Malta has been one of the fastest growing countries in the EU after the crisis, thanks to a rapid structural rebalancing towards export-oriented services—mainly remote gaming and tourism. The authorities are now exploring new development areas around the blockchain technology. Prudent fiscal policy and successful structural reforms have helped strengthen public accounts, boost productivity growth and maintain social cohesion. However, because growth has been heavily reliant on foreign labor, the pressure on housing and public infrastructures has increased rapidly with implications for social inclusion. Questions have also recently surfaced regarding the implementation of the country’s anti-money laundering and countering the financing of terrorism (AML/CFT) framework, including new risks related to crypto-asset activities. |
| Keywords: | Real sector;Central banks;Expenditures;Gross domestic product;Credit;MFSA;percent of GDP;Haver;central bank of Malta;CFT |
| Date: | 2019–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/68&r=all |
| By: | Gregory Huffman (Vanderbilt University) |
| Abstract: | A growth model is studied in which the destruction (or exit) decision is decoupled from the creative (or research) decision. In contrast with the existing literature, the approach adopted here emphasizes that these important decisions are made by different agents, but they ultimately influence each other. As such, the destruction decision is just as important as that of creation, and in the model if destruction ceases, then so will growth. Any distortion introduced into one of these decisions will then inevitably affect the other as well. It is then possible to characterize endogenous features of the equilibrium such as the number of workers and firms, the determinants of income mobility, income inequality (Gini Coefficient), the growth rate, the lifespan of a firm, and the effect of various taxes or distortions. A planning problem is also studied, and it is shown that a multitude of factors may yield an optimum exit decision that is different from the equilibrium decision rule. This may mean that the equilibrium can give rise either too high or low a level of innovation, but also the destruction or exit rate may also be too high or low. It is then shown that a non-linear tax/subsidy scheme, which alters the research and exit decisions, may improve welfare, relative to the equilibrium level. The model also yields welfare benefits/costs that are considerably different from what one might normally expect. |
| Keywords: | Economic Growth, Creative Destruction, Innovation, Firm Exit, Tax Policy, Inequality |
| JEL: | E00 E62 H23 O10 O30 O40 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-19-00005&r=all |
| By: | Rime, Dagfinn; Schrimpf, Andreas; Syrstad, Olav |
| Abstract: | We show that it is crucial to account for the heterogeneity in funding costs, both across banks and across currency areas, in order to understand recently documented deviations from Covered Interest Parity (CIP). When CIP arbitrage is implemented accounting for marginal funding costs and realistic risk-free investment instruments, the no-arbitrage relation holds fairly well for the majority of market participants. A narrow set of global high-rated banks, however, does enjoy riskless arbitrage opportunities. Such arbitrage opportunities emerge as an equilibrium outcome as FX swap dealers set prices to avoid inventory imbalances. Low-rated banks find it attractive to turn to the FX swap market to cover their U.S. dollar funding, while swap dealers elicit opposite (arbitrage) flows by high-rated banks. Such arbitrage opportunities are difficult to scale, with funding rates adjusting as soon as arbitrageurs increase their positions. |
| Keywords: | Covered Interest Parity; Funding Liquidity Premia; FX Swap Market; U.S. Dollar Funding |
| JEL: | E43 F31 G15 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13637&r=all |
| By: | Naude, Wim (UNU-MERIT, Maastricht University and MSM, and RWTH Aachen, and IZA Bonn) |
| Abstract: | After a number of AI-winters, AI is back with a boom. There are concerns that it will disrupt society. The immediate concern is whether labor can win a `race against the robots' and the longer-term concern is whether an artificial general intelligence (super-intelligence) can be controlled. This paper describes the nature and context of these concerns, reviews the current state of the empirical and theoretical literature in economics on the impact of AI on jobs and inequality, and discusses the challenge of AI arms races. It is concluded that despite the media hype neither massive jobs losses nor a `Singularity' are imminent. In part, this is because current AI, based on deep learning, is expensive and dificult for (especially small) businesses to adopt, can create new jobs, and is an unlikely route to the invention of a super-intelligence. Even though AI is unlikely to have either utopian or apocalyptic impacts, it will challenge economists in coming years. The challenges include regulation of data and algorithms; the (mis-) measurement of value added; market failures, anti-competitive behaviour and abuse of market power; surveillance, censorship, cybercrime; labor market discrimination, declining job quality; and AI in emerging economies. |
| Keywords: | Technology, artificial intelligence, productivity, labor demand, innovation, inequality |
| JEL: | O47 O33 J24 E21 E25 |
| Date: | 2019–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2019005&r=all |
| By: | Paul D. Adams; Stefan Hunt; Christopher Palmer; Redis Zaliauskas |
| Abstract: | Disclosure—the practice of providing information to support decision making—has been widely mandated in public policy but is routinely ignored by consumers and subject to obfuscation by firms. Yet most evidence on the effectiveness of consumer financial disclosure stems from lab experiments where subjects do not have competing demands on their attention or from analysis of borrowing decisions where optimality is hard to characterize. In this paper, we provide field evidence from randomized-controlled trials with 124,000 savings account holders at five UK depositories. Treated consumers received varying degrees of salient information about alternative products, including one with their current provider that strictly dominated their current savings product. Motivated by work on search frictions, switching costs, and inattention, our experimental variation is designed to allow us to examine the importance of each in inhibiting effective disclosure. Despite the switching process taking 15 minutes on average and the moderate size of average potential gains (£123 in the first year), attention to disclosure is low, significantly limiting its potential effectiveness, motivating explicit disclosure-design rules, and demonstrating the nature of deposit stickiness. |
| JEL: | D14 D83 E21 G28 M38 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25718&r=all |
| By: | Paweł Macias (Narodowy Bank Polski); Damian Stelmasiak (Narodowy Bank Polski) |
| Abstract: | In this paper we evaluate the ability of web scraped data to improve nowcasts of Polish food inflation. The nowcasting performance of online price indices is compared with aggregated and disaggregated benchmark models in a pseudo realtime experiment. We also explore product selection and classification problems, their importance in constructing web price indices and other limitations of online datasets. Therefore, we experiment not only with raw indices, but also with several approaches to include them into model-based forecasts. Our findings indicate that the optimal way to incorporate web scraped data into regular forecasting is to include them in simple distributed-lag models at the lowest aggregation level, combine the forecasts and aggregate them using statistical office methodology. We find this approach superior to other benchmark models which do not take online information into account. |
| Keywords: | web scraping, nowcasting, inflation, big data, online prices |
| JEL: | E37 C81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:302&r=all |
| By: | Gregory Huffman (Vanderbilt University) |
| Abstract: | A growth model is studied in which the destruction (or exit) and creative (or research) decisions are decoupled. This approach emphasizes that different agents make these interrelated decisions. The growth rate equals the product of a measure of the destruction and creation rates. The determinants of income mobility, income inequality, the lifespan of a firm, and the growth rate are studied. The equilibrium can either yield too high or low a level of innovation, but the destruction rate may also be too high or low. A non-linear tax/subsidy scheme, which alters the innovation and exit decisions, can improve welfare. |
| Keywords: | Economic Growth, Creative Destruction, Innovation, Tax Policy, Inequality |
| JEL: | E0 O3 |
| Date: | 2019–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-19-00006&r=all |
| By: | Furukawa, Yuichi; Lai, Tat-kei; Sato, Kenji |
| Abstract: | This study develops a new innovation-based growth model to explore the role of people's love of novelty in innovation and innovation-based growth. The model considers (a) an infinitely lived representative consumer who has the standard love-of-variety preferences for differentiated products and extra love-of-novelty preferences for new products and (b) technological progress driven by two costly and time-consuming innovation activities, new product development and existing product development. We demonstrate that if the consumer's love-of-novelty preference is moderate, new and existing product development alternately occur on an equilibrium path, whereby the economy achieves innovation and long-run growth, through cycles. However, if the love of novelty is too strong or too weak, the economy is caught in an underdevelopment trap with less innovation and no long-run growth. Our results suggest that the love of novelty is a source of innovation-based growth, but can become a cause of underdevelopment traps if too strong. |
| Keywords: | Love/fear of novelty; innovation; innovation-based economic growth |
| JEL: | E32 O40 Z10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92915&r=all |
| By: | Nauro Campos (Brunel University, London); Menelaos Karanasos (Brunel University, London); Panagiotis Koutroumpis (Queen Mary University of London) |
| Abstract: | This study revisits the growth-finance nexus using a new econometric approach and unique data set. In particular by employing the smooth transition framework and annual time series data for Brazil from 1890 to 2003, we attempt to address on the one side, what is the relationship between financial development, trade openness, political instability and economic growth and, on the other, how it changes over time. The main finding is that financial development has a mixed positive and negative time-varying impact on economic growth, which signifi cantly depends on jointly estimated trade openness thresholds. Moreover our estimates highlight a positive impact of trade openness on growth but with interesting variation regarding their size and power, whereas the effect of political instability (both formal and informal) on growth is mainly negative. We also find that changes between regimes tend not to be smooth. Finally, our estimates show that in 57% of the years in which financial development has a below the mean effect, we find that trade openness experiences a substantial above the mean change. |
| Keywords: | Economic growth; financial development; political instability; smooth transition models; trade openness |
| JEL: | C14 O40 E23 D72 |
| Date: | 2019–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:885&r=all |
| By: | Duc Hong Vo (Business and Economics Research Group Ho Chi Minh City Open University, Vietnam.); Ngoc Phu Tran (Business and Economics Research Group Ho Chi Minh City Open University, Vietnam.); Tam Nguyen-Thanh Duong (Business and Economics Research Group Ho Chi Minh City Open University, Vietnam.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.) |
| Abstract: | The purpose of the paper is to estimate market risk for the ten major industries in Vietnam. The focus is on the Energy sector, which has been designated as one of the four key industries, together with Services, Food, and Telecommunications, targeted for economic development by the Vietnam Government through to 2020. Oil and Gas is a separate energy-related major industry. The data set is from 2009 to 2017, which is decomposed into two distinct sub-periods after the Global Financial Crisis (GFC), namely the immediate post-GFC (2009-2011) period and the normal (2012-2017) period, in order to identify the behaviour of market risk for Vietnam major industries. Two widely-used approaches to measure and analyze risk are used in the empirical analysis, namely Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR). The empirical findings indicate that Energy and Pharmaceuticals are the least risky industries, whereas Oil and Gas and Securities have the greatest risk. In general, there is strong empirical evidence that the four key industries display relatively low risk. For public policy, the Vietnam Government’s pro-active emphasis on the targeted industries, including Energy, to achieve sustainable economic growth and national economic development, seems to be working effectively. |
| Keywords: | Market risk, Energy, Industries, Value-at-Risk, Conditional Value-at-Risk, Sustainable growth, Economic development, Vietnam. |
| JEL: | C10 G10 E32 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1914&r=all |