nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒04‒15
104 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. New Essentials of Economic Theory I. Assumptions, Economic Space and Variables By Olkhov, Victor
  2. The effect of news shocks and monetary policy By Luca Gambetti; Christoph Görtz; Dimitris Korobilis; John D. Tsoukalas; Francesco Zanetti
  3. Macroeconomics vs Modern Money Theory: Some unpleasant Keynesian arithmetic By Thomas Palley
  4. Sticky Price versus Sticky Information Price: Empirical Evidence in the New Keynesian Setting By Drissi, Ramzi; Ghassan, Hassan B.
  5. Asymmetric regional dynamics: from bust to recovery By Fernando Alexandre; Hélder Costa; Miguel Portela; Miguel Rodrigues
  6. Negative Interest Rate Policy and the Influence of Macroeconomic News on Yields By Fatum, Rasmus; Hara, Naoko; Yamamoto, Yohei
  7. Fiscal multipliers in advanced and developing countries: evidence from military spending By Sheremirov, Viacheslav; Spirovska, Sandra
  8. Macroprudential policy in a monetary union with cross-border banking By Darracq Pariès, Matthieu; Kok, Christoffer; Rancoita, Elena
  9. "An Institutional Analysis of China's Reform of their Monetary Policy Framework" By He Zengping; Jia Genliang
  10. Dominant Currency Debt By Egemen Eren; Semyon Malamud
  11. Tax Rules to Prevent Expectations-driven Liquidity Trap By Yoichiro Tamanyu
  12. Police spending and economic stabilization in a monetary economy with crime and differential human capital By King Yoong Lim; Pengfei Jia
  13. Hartz IV and the Decline of German Unemployment: A Macroeconomic Evaluation By Hochmuth, Brigitte; Kohlbrecher, Britta; Merkl, Christian; Gartner, Hermann
  14. When complexity meets finance: A contribution to the study of the macroeconomic effects of complex financial systems By Alberto Botta; Eugenio Caverzasi; Alberto Russo
  15. Effective Monetary Stimulus: Measuring the stance of monetary policy in New Zealand By Jamie Culling; Michael Callaghan; Adam Richardson
  16. Does international reserve accumulation crowd out domestic private investment? By Wishnu Mahraddika
  17. Business Cycle Fluctuations: why are so undesirable? By khan, sajawal
  18. Demographics and the natural real interest rate: historical and projected paths for the euro area By Papetti, Andrea
  19. Economic and political drivers of the duration of credit booms By Vítor Castro; Rodrigo Martins
  20. Managing the Expectations and Monetary Policy effectiveness: Role of Inflation Targeting By khan, sajawal
  21. Argentina; Third Review under the Stand-By Arrangement, Request for Waivers of Applicability of Performance Criteria, Financing Assurances Review, and Request for Modification of Performance Criteria-Press Release and Staff Report By International Monetary Fund
  22. Taylor-rule consistent estimates of the natural rate of interest By Brand, Claus; Mazelis, Falk
  23. Some International Evidence for Keynesian Economics Without the Phillips Curve By Farmer, Roger E A; Nicolò, Giovanni
  24. Ghana; Seventh and Eighth Reviews Under the Extended Credit Facility Arrangement and Request for Waivers of Nonobservance of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Ghana By International Monetary Fund
  25. A world of low interest rates By Claude Bismut; Ismael Ramajo
  26. Assessing the Risk of Yield Curve Inversion: An Update: a presentation at the Glasgow-Barren County Chamber of Commerce Quarterly Breakfast, Glasgow, Ky. By Bullard, James B.
  27. Remarks on the 2018 U.S. Macroeconomic Outlook: a presentation at the 29th Annual Economic Outlook Conference, Gatton College of Business and Economics, University of Kentucky, Lexington, Ky By Bullard, James B.
  28. A Pareto Inefficient Path to Steady State in Recession By Harashima, Taiji
  29. Monetary Policy, Growth and Employment in Developing Areas: A Review of the Literature By Junankar, Pramod N. (Raja)
  30. Biased Forecasts to Affect Voting Decisions? The Brexit Case By Cipullo, Davide; Reslow, André
  31. Why Do Fiscal Multipliers Depend on Fiscal Positions? By Huidrom, Raju; Kose, Ayhan; Lim, Jamus; Ohnsorge, Franziska
  32. Firms' Price, Cost and Activity Expectations: Evidence from Micro Data By Lena Boneva; James Cloyne; Martin Weale; Tomasz Wieladek
  33. Nigeria; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nigeria By International Monetary Fund
  34. The price and employment response of firms to the introduction of minimum wages By Sebastian Link
  35. More on Modern Monetary Policy Rules: a presentation at the Indiana Bankers Association, Indiana Economic Outlook Forum, Carmel, Ind. By Bullard, James B.
  36. Modeling the Internal Revenue Code in a heterogeneous-agent framework: An application to TCJA By Moore, Rachel; Pecoraro, Brandon
  37. A Baseline Medium-Scale NK DSGE Model for Policy Analysis By Xu, Wenli
  38. Inflation target and (a)symmetries in the oil price pass-through to inflation By Antonia Lòpez-Villavicencio; Marc Pourroy
  39. What Do Sectoral Dynamics Tell Us About the Origins of Business Cycles? By Matthes, Christian; Schwartzman, Felipe
  40. The Impact of Uncertainty Shocks on the Volatility of Commodity Prices. By Dimitrios Bakas; Athanasios Triantafyllou
  41. Disaster risks, disaster strikes and economic growth: the role of preferences By Thomas Douenne
  42. The U.S. Economy Three Months into 2018: a presentation at the Arkansas Bankers Association and Arkansas State Bank Department’s Day with the Commissioner, Little Rock, Ark. By Bullard, James B.
  43. Three Themes for Monetary Policy in 2019: a presentation at The 57th Winter Institute, St. Cloud State University, St. Cloud, Minn. By Bullard, James B.
  44. Household Leverage and Asymmetric Housing Wealth Effects- Evidence from New Zealand By Mairead de Roiste; Apostolos Fasianos; Robert Kirkby; Fang Yao
  45. A flatter life-cycle consumption profile By Fernando Alexandre; Pedro Bação; Miguel Portela
  46. Fracking: viabilidad económica y ambiental en Colombia By Juan David Urquijo Vanegas; Carlos Mateo Perilla Castañeda; Fabián Ricardo Martínez Cruz
  47. Arab Republic of Egypt; Fourth Review Under the Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt By International Monetary Fund
  48. Low Inflation Bends the Phillips Curve By Joseph E. Gagnon; Christopher G. Collins
  49. The Synchronization of Business Cycles and Financial Cycles in the Euro Area By William Oman
  50. GDP is a measure of output, not welfare. Or, HOS meets the SNA By Nicholas Oulton
  51. Optimal Monetary Policy for the Masses: a presentation at the Swiss National Bank Research Conference 2018, Current Monetary Policy Challenges, Zurich, Switzerland By Bullard, James B.; DiCecio, Riccardo
  52. A Cautionary Note on U.S. Monetary Policy Normalization: a presentation at the Japan Center for International Finance, Global Finance Seminar, Tokyo, Japan By Bullard, James B.
  53. Modeling the drugs and guns trade in a two-country model with endogenous growth By King Yoong Lim; Diego Morris
  54. When Quantitative Tightening Is Not Quantitative Tightening: a presentation at the 2019 U.S. Monetary Policy Forum, The Future of the Federal Reserve’s Balance Sheet, New York, N.Y. By Bullard, James B.
  55. Anchor Me: The Benefits and Challenges of Fiscal Responsibility By Serhan Cevik
  56. Optimal Monetary Policy for the Masses: a presentation at the 2018 Texas Monetary Conference, Austin, Texas By Bullard, James B.
  57. Gains from Anchoring Inflation Expectations: Evidence from the Taper Tantrum Shock By Rudolfs Bems; Francesca G Caselli; Francesco Grigoli; Bertrand Gruss
  58. Text Data Analysis Using Latent Dirichlet Allocation: An Application to FOMC Transcripts By Hali Edison; Hector Carcel
  59. Optimal Monetary Policy for the Masses: a presentation at the University of Birmingham, Birmingham, United Kingdom By Bullard, James B.
  60. What Is the Best Strategy for Extending the U.S. Economy’s Expansion?: a presentation at the CFA Society Chicago—Distinguished Speaker Series Breakfast, Chicago, Ill. By Bullard, James B.
  61. Taxing Top Incomes in a World of Ideas By Charles I. Jones
  62. Is Declining Union Membership Contributing to Low Wages Growth? By James Bishop; Iris Chan
  63. Can a Green Tax Reform Entail Employment Double Dividend in European and non-European Countries? A Survey of the Empirical Evidence By Maxim, Maruf Rahman; Zander, Kerstin
  64. Political Budget Cycles: Conditioning Factors and New Evidence By Linda G. Veiga; Georgios Efthyvoulou; Atsuyoshi Morozumi
  65. Perspectives on monetary policy and market volatility: remarks to The Boston Economic Club, Federal Reserve Bank of Boston, Boston, Massachusetts, January 9, 2019 By Rosengren, Eric S.
  66. U.S. Monetary Policy: A Case for Caution: a presentation at the Springfield Area Chamber of Commerce, Springfield Business Development Corp. Meeting, Springfield, Mo. By Bullard, James B.
  67. Forecasting with a Global VAR model By Thomas van Florenstein Mulder; Tugrul Vehbi
  68. Modernizing Monetary Policy Rules: a presentation a t the Economic Club of Memphis, Memphis, Tenn. By Bullard, James B.
  69. Optimal Monetary Policy for the Masses: a presentation at Norges Bank, Oslo, Norway By Bullard, James B.
  70. NDC: The Generic Old-Age Pension Scheme By Góra, Marek; Palmer, Edward
  71. Macroeconomic Effects of Taxes on Banking By J. E. Boscá; R. Doménech; J. Ferri; J. Rubio-Ramirez
  72. Monetary Systems and the Global Balance-of-Payments Adjustment in the Pre-Gold Standard Period, 1700-1870 By Esteves, Rui; Nogues-Marco, Pilar
  73. How to Extend the U.S. Expansion: A Suggestion: a presentation at the Real Return XII: The Inflation-Linked Products Conference 2018, New York, N.Y. By Bullard, James B.
  74. Why Was Unemployment so Low in Postwar Sweden? An Analysis with New Unemployment Data by Manufacturing Industry, 1935-1948 By Molinder, Jakob
  75. On the credit and exchange rate channels of central bank asset purchases in a monetary union By Darracq Pariès, Matthieu; Papadopoulou, Niki
  76. Do Economic Inequalities Affect Long-Run Cooperation & Prosperity? By Gabriele Camera; Cary Deck; David Porter
  77. Optimal Monetary Policy for the Masses: a presentation at the Barcelona GSE, Summer Forum, Workshop on Monetary Policy and Central Banking, Barcelona, Spain By Bullard, James B.
  78. Central bank balance sheets: misconceptions and realities: remarks at the Credit Suisse Asian Investment Conference, Hong Kong, China, March 26, 2019 By Rosengren, Eric S.
  79. Risk management in monetary policymaking: remarks to the National Association of Corporate Directors, New England Chapter, Boston, Massachusetts, March 5, 2019 By Rosengren, Eric S.
  80. "Optimal Monetary Policy for the Masses: a presentation at the Center for Research on the Wisconsin Economy, University of Wisconsin-Madison, Madison, Wis. By Bullard, James B.; DiCecio, Riccardo
  81. Comment on "Michelson-Morley, Fisher, and Occam: the radical implications of stable quiet inflation at the zero bound" By Reis, Ricardo
  82. Interactions between Credit and Market Risk, Diversification vs Compounding effects By Szybisz, Martin Andres
  83. Perspectives on 2019 Monetary Policy: a presentation at the Power Up Little Rock, Little Rock Regional Chamber, Little Rock, Ark. By Bullard, James B.
  84. A Century of High Frequency UK Macroeconomic Statistics: A Data Inventory By Jagjit S. Chadha; Ana Rincon-Aznar; Sylaja Srinivasan; Ryland Thomas
  85. Determinantes de la violencia homicida en Bogotá 2002-2017 By Nicolás Andrés Cabra Ruiz; Nicolás Steven Escobar Forero; Andrés Nicolás Herrera Rojas
  86. Stock flow adjustments in sovereign debt dynamics: the role of fiscal frameworks By António Afonso; João Tovar Jalles
  87. A causal relationship between unemployment and economic growth By Kenny S, Victoria
  88. Heterogeneity within the euro area: New insights into an old story By Virginie Coudert; Cécile Couharde; Carl Grekou; Valérie Mignon
  89. Allan Meltzer and the Search for a Nominal Anchor: a speech at the "Meltzer's Contributions to Monetary Economics and Public Policy, Philadelphia, Pa. By Bullard, James B.
  90. Sectoral heterogeneities in price rigidity and returns to scale By Mohamed Diaby; Atsuyoshi Morozumi
  91. Costs of Sovereign Defaults: Restructuring Strategies, Bank Distress and the Capital Inflow-Credit Channel By Tamon Asonuma; Marcos d Chamon; Aitor Erce; Akira Sasahara
  92. Fiscal Policy Multipliers in Small States By Ali Alichi; Ippei Shibata; Kadir Tanyeri
  93. An analysis of the global oil market using SVARMA models By Raghavan, Mala
  94. The Case of the Disappearing Phillips Curve: a presentation at the 2018 ECB Forum on Central Banking Macroeconomics of Price- and Wage-Setting, Sintra, Portugal By Bullard, James B.
  95. Public policy failures related to China´s Wind Power Development By Grafström, Jonas
  96. The Race against the Robots and the Fallacy of the Giant Cheesecake: Immediate and Imagined Impacts of Artificial Intelligence By Naudé, Wim
  97. A Primer on Price Level Targeting in the U.S.: a presentation at the CFA Society of St. Louis, St. Louis, Mo. By Bullard, James B.
  98. Business Taxation in an Emerging Economy: Analysing Corporate Tax Incidence By Agarwal, Samiksha; Chakraborty, Lekha
  99. Exchange Rate Management and Economic Growth: An FMOLS Approach By Kenny S, Victoria
  100. Digging Deeper--Evidence on the Effects of Macroprudential Policies from a New Database By Zohair Alam; Adrian Alter; Jesse Eiseman; R. G Gelos; Heedon Kang; Machiko Narita; Erlend Nier; Naixi Wang
  101. Motive und Barrieren zum Konsum von Superfood By Steusloff, Tatjana; Steusloff, Tatjana
  102. Does a Low-Interest-Rate Regime Harm Savers?: a presentation at Nonlinear Models in Macroeconomics and Finance for an Unstable World, Norges Bank, Oslo, Norway By Bullard, James B.
  103. Market mechanisms in conventional economics and Islamic Economics By Nashihah, Faidatun
  104. Deficit financing in developing countries: Applications and consequences By Hasan, Zubair

  1. By: Olkhov, Victor
    Abstract: This paper develops economic theory framework free from assumptions on market equilibrium, utility functions, rational expectations and etc. We describe macroeconomics as system of economic agents under action of n risks. Economic and financial variables of agents, their expectations and transactions between agents define macroeconomic variables. Agents variables depend on transactions between agents and transactions are performed under agents expectations. Agents expectations are formed by economic variables, transactions, expectations of other agents, by all factors that impact macroeconomic evolution. We describe evolution of macroeconomic variables, transactions and expectations by systems of economic partial differential equations. We develop asset pricing model as a result of equations on transactions and expectations and derive equations that describe price dynamics. To do this we use risk ratings of economic agents as their coordinates on economic space. We approximate description of economic and financial variables, transactions and expectations of numerous separate agents by description of variables, transactions and expectations as density functions on economic space. We take into account flows of economic variables, transactions and expectations induced by motion of separate agents on economic space due to change of agents risk ratings and describe macroeconomic impact of these economic flows. We apply our model to description of business cycles, describe models of wave propagation for disturbances of economic variables and transactions, model asset price fluctuations and argue hidden complexities of classical Black-Scholes-Merton option pricing.
    Keywords: Economic Theory, Risk Ratings, Economic Space, Economic Flows, Density Functions
    JEL: C02 E00 E30 E32 G0 G12
    Date: 2019–03–30
  2. By: Luca Gambetti; Christoph Görtz; Dimitris Korobilis; John D. Tsoukalas; Francesco Zanetti
    Abstract: A VAR model estimated on U.S. data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news TFP shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.
    Keywords: news shocks, business cycles, VAR models
    JEL: E20 E32 E43 E52
    Date: 2019
  3. By: Thomas Palley (Economics for Democratic and Open Societies (US))
    Abstract: The last decade has witnessed a significant revival of belief in the efficacy of fiscal policy and mainstream economics is now reverting to the standard positions of mid-1970s Keynesianism. On the coattails of that revival, increased attention is being given to the doctrine of Modern Money Theory (MMT) which makes exaggerated claims about the economic costs and capability of money-financed fiscal policy. MMT proponents are now asserting society can enjoy a range of large government spending programs for free via money financed deficits, which has made it very popular with progressive policy advocates. This paper examines MMT’s assertion and rejects the claim that the US can enjoy a massive permanent free program spree that does not cause inflation. As has long been known by Keynesians, in a static economy money financed deficits can be used to finance programs when the economy is away from the full employment - inflation boundary. However, that window will be temporary to the extent that those deficits drive the economy to full employment. Since the programs are permanent they have to be paid for with taxes or they will generate inflation. That is the economic logic behind the unpleasant Keynesian arithmetic.
    Keywords: Fiscal policy, budget deficits, money finance
    JEL: E00 E12 E62 E63
    Date: 2019–04
  4. By: Drissi, Ramzi; Ghassan, Hassan B.
    Abstract: In order to model the inflation dynamics, we investigated various combinations of nominal rigidities. For this purpose, we analyze two adjustment-of-prices hypotheses as in the new Keynesian literature, namely the price stickiness and the sticky information, within a Dynamic Stochastic General Equilibrium (DSGE) model. For each model, we compare the responses of inflation and output to shocks. We found that sticky information modeling correctly reproduces some important stylized facts after monetary shocks, but with hump-shaped responses. The sticky price model, considering that some fixed prices lead to that Phillips curve, does not correctly reproduce the dynamic inflation response to monetary shocks. We show that single indexation does not add persistence to the two specifications, and the choice of rigidity structure appears to be more important than the presence or absence of lagged values of inflation in the dynamics.
    Keywords: DSGE model; Phillips curve; Sticky information; Sticky prices; Inflation
    JEL: C11 E31 E32
    Date: 2018–03
  5. By: Fernando Alexandre (NIPE/Universidade do Minho); Hélder Costa (NIPE/Universidade do Minho); Miguel Portela (NIPE/Universidade do Minho and IZA Bonn); Miguel Rodrigues (CICP/Universidade do Minho)
    Abstract: Regional convergence stands out in the severe adjustment of the Portuguese economy that followed the international financial crisis. This result contrasts with increasing regional inequality in other European countries. We show that regions’ GDP growth rates of the Portuguese economy were driven by debt and exports. Our estimates suggest that differences in regional debt-to-GDP and exports-toGDP ratios resulted in asymmetric regional economic dynamics. Highly indebted regions had a more severe recession and a slower recovery. Regions more open to trade had a milder recession and a stronger recovery. Finally, our results suggest that fiscal decentralization may improve regions’ resilience.
    Keywords: regional development, economic convergence, debt, exports, local government, fiscal decentralization, resilience, international financial crisis, Eurozone crisis.
    JEL: E32 E44 F34 H63 H71 H72 R11 R51
    Date: 2018
  6. By: Fatum, Rasmus (University of Alberta); Hara, Naoko (Bank of Japan); Yamamoto, Yohei (Hitotsubashi University)
    Abstract: We consider the influence of domestic and U.S. macroeconomic news surprises on daily bond yields over the January 1999 to January 2018 period for four advanced Negative Interest Rate Policy (NIRP) economies – Germany, Japan, Sweden and Switzerland. Our results suggest that the influence of macroeconomic news surprises is for all four countries under study during the NIRP period non-existent or noticeably weaker than during the preceding Zero Interest Rate Policy (ZIRP) period. Our results are consistent with the suggestion that NIRP is characterized by a lower bound that is no less constraining than the zero lower bound that characterizes ZIRP.
    Keywords: NIRP; Bond Yields; Macroeconomic News
    JEL: E43 E52 E58
    Date: 2019–01–27
  7. By: Sheremirov, Viacheslav (Federal Reserve Bank of Boston); Spirovska, Sandra (University of Wisconsin-Madison)
    Abstract: Using novel data on military spending for 129 countries in the period 1988–2013, this paper provides new evidence on the effects of government spending on output in advanced and developing countries. Identifying government-spending shocks with an exogenous variation in military spending, we estimate one-year fiscal multipliers in the range 0.75-0.85. The cumulative multipliers remain significantly different from zero within three years after the shock. We find substantial heterogeneity in the multipliers across groups of countries. We then explore three potential sources leading to heterogeneous effects of fiscal policy: the state of the economy, openness to trade, and the exchange-rate regime. We find that the multipliers are especially large in recessions, in closed economies, and under a fixed exchange rate. We also discuss other potential reasons for heterogeneous effects of fiscal policy, such as its implementation and coordination with the monetary authority. This paper is a significantly revised and extended version of Federal Reserve Bank of Boston Working Papers No. 15-9, circulated under the title “Output Response to Government Spending: Evidence from New International Military Spending Data.”
    Keywords: fiscal policy; military spending; multiplier
    JEL: E32 E62 F44 H56 O23
    Date: 2019–02–01
  8. By: Darracq Pariès, Matthieu; Kok, Christoffer; Rancoita, Elena
    Abstract: We analyse the interaction between monetary and macroprudential policies in the euro area by means of a two-country DSGE model with financial frictions and cross-border spillover effects. We calibrate the model for the four largest euro area countries (i.e. Germany, France, Italy, and Spain), with particular attention to the calibration of cross-country financial and trade linkages and country specific banking sector characteristics. We find that countercyclical macroprudential interventions are supportive of mon-etary policy conduct through the cycle. This complementarity is significantly reinforced when there are asymmetric financial cycles across the monetary union, which provides a case for targeted country-specific macroprudential policies to help alleviate the burden on monetary policy. At the same time, our findings point to the importance of taking into account cross-border spillover effects of macroprudential measures within the Monetary Union. JEL Classification: E32, E44, E52, F36, F41
    Keywords: banking, DSGE, macroprudential policy, monetary policy
    Date: 2019–03
  9. By: He Zengping; Jia Genliang
    Abstract: This paper traces the history of China's reform of its monetary policy framework and analyzes its success and problems. In the context of financial marketization and the failure of the quantity-targeting framework, the People's Bank of China transformed its monetary policy framework toward one that targets interest rates. The reform includes two important institutional changes: establishing an interest rate corridor and decreasing the difficulty the Open Market Operations room faces in estimating the market demand for reserves. The new monetary policy framework successfully stabilizes the interbank offered rate. However, this does not mean that the new framework is sufficient. One important problem remaining to be solved is how to manage the effects of fiscal activities on monetary policy operations. This paper analyzes the fiscal effects on reserves in China's Treasury Single Account system. The missing role of the Treasury in monetary policy operations increases the difficulty for the central bank to achieve its interest rate target. A further reform is therefore needed to provide a coordination mechanism between the Treasury and the People's Bank of China.
    Keywords: China; Monetary Policy Framework; Interest Rate Target; Fiscal Effects on Reserves
    JEL: E42 E52 E58 P24
    Date: 2019–04
  10. By: Egemen Eren (Bank for International Settlements (BIS) - Monetary and Economic Department); Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute)
    Abstract: Why is the dollar the dominant currency for debt contracts and what are its macroeconomic implications? We develop an international general equilibrium model where firms optimally choose the currency composition of their debt. We show that there always exists a dominant currency debt equilibrium, in which all firms borrow in a single dominant currency. It is the currency of the country that effectively pursues aggressive expansionary monetary policy in global downturns, lowering real debt burdens of firms. We show that the dollar empirically fits this description, despite its short term safe haven properties. We provide further modern and historical empirical support for our mechanism across time and currencies. We use our model to study how the optimal monetary policy differs if the Federal Reserve reacts to global versus domestic conditions.
    Keywords: dollar debt, dominant currency, exchange rates, inflation
    JEL: E44 E52 F33 F34 F41 F42 F44 G01 G15 G32
    Date: 2018–08
  11. By: Yoichiro Tamanyu (Graduate School of Economics, Keio University)
    Abstract: This paper demonstrates that a simple Ricardian tax policy responding to inflation can prevent expectations-driven liquidity trap (ELT) using a standard New Keynesian model. I show that the extent to which tax rates must respond to inflation is affected by the persistence of remaining at the ELT and higher persistence requires larger response to inflation. I further find that if the ELT is assumed to be recurrent, the tax rate needs to respond to inflation by a larger extent compared to the case where the targeted regime is assumed to be absorbing. This last finding indicates that it is crucial for the fiscal authority to entertain the possibility of moving back to the ELT when it sets their policy parameters.
    Keywords: Expectations-driven Liquidity Trap, Fiscal Policy, Monetary Policy, Regime Switching, Zero Lower Bound
    JEL: E61 E62 E63
    Date: 2019–01–29
  12. By: King Yoong Lim; Pengfei Jia
    Abstract: This paper presents a dynamic model with crime, differential human capital, credit market imperfection, and police spending to examine the role of the latter in stabilizing shock arisen from formal educational quality uncertainty. Based on a stylized parameterization, we find formal and illegal human capital accumulation to share a common cyclical property. There is a case for the use of a rule-based approach to police spending as it smoothens out the fluctuations arisen from formal educational uncertainty, while contributing to a decoupling of the two types of human capital. This nonetheless comes with a cost of greater propagation of the financial accelerator effect due to credit market imperfection, and therefore necessitates the use of a supplementary monetary smoothing regime to negate these negative effects.
    Keywords: Crime, Credit Imperfection, Financial Accelerator, Human Capital Investment, Police Spending
    JEL: H39 H50 K42 E44 E61
    Date: 2019–01
  13. By: Hochmuth, Brigitte (University of Erlangen-Nuremberg); Kohlbrecher, Britta (University of Erlangen-Nuremberg); Merkl, Christian (University of Erlangen-Nuremberg); Gartner, Hermann (Institute for Employment Research (IAB), Nuremberg)
    Abstract: This paper proposes a new approach to evaluate the macroeconomic effects of the Hartz IV reform in Germany, which reduced the generosity of long-term unemployment benefits. We use a model with different unemployment durations, where the reform initiates both a partial effect and an equilibrium effect. The relative importance of these two effects and the size of the partial effect are estimated based on the IAB Job Vacancy Survey. Our novel methodology provides a solution for the existing disagreement in the macroeconomic literature on the unemployment effects of Hartz IV. We find that Hartz IV was a major driver for the decline of Germany's unemployment and that partial and equilibrium effect where of equal importance. We thereby contribute to the literature on partial and equilibrium effects of unemployment benefit changes. In addition, we are the first to provide direct empirical evidence on labour selection, which can be interpreted as one dimension of recruiting intensity.
    Keywords: unemployment benefits reform, search and matching, Hartz reforms
    JEL: E24 E00 E60
    Date: 2019–03
  14. By: Alberto Botta; Eugenio Caverzasi; Alberto Russo
    Abstract: In the last decade, complexity economics has emerged as a powerful approach to the understanding of the most relevant factors influencing economic development. The concept of economic complexity has been applied to the study of different economic issues such as economic growth, technological change and inequality. With this work we aim at extending the application of this concept to the study of the financial side of the economy, and, in particular, of the macroeconomic effects of rising financial complexity. In this paper, we present an agent-based model integrating an increasingly complex financial sector with a real side of the economy populated, among other sectors, by heterogeneous households. We test the systemic impact that the increasing complexity of both the financial system and the financial products it manufactures bear on economic growth, macroeconomic stability and inequality. We find mixed results with respect to the positive economic implications the existing literature ascribes to products complexity and deepening production capabilities. Despite higher financial complexity may lead to faster growth, our model suggests that this comes at the cost of heightened financial fragility, a more crisis-prone economic system, and increasing levels of income and wealth inequality. According to these findings, and consistently with pioneering insights from Minsky, we claim that rising complexity does not always entail positive consequences for the well-being of the economy. This is particularly true when it comes to financial innovations and financial complexity.
    Keywords: AB-SFC model, financial complexity, securitization
    JEL: E44 G01 G23
    Date: 2019–04
  15. By: Jamie Culling; Michael Callaghan; Adam Richardson (Reserve Bank of New Zealand)
    Abstract: The Reserve Bank of New Zealand sets monetary policy using the Official Cash Rate (OCR) as its policy tool to target price stability and maximum sustainable employment. However, the Reserve Bank’s monetary policy stance is also set by its communication of what might happen to the OCR in the future. To set monetary policy appropriately, the Reserve Bank must assess overall financial conditions and their implications for inflation and employment. To do this, the Reserve Bank must take account of the range of interest rates at each borrowing horizon (i.e. the yield curve). This is because how household and firms view the outlook for interest rates can also have an effect on today’s business activity, wage and price setting behaviour, and eventually inflation – it is not just the level of current interest rates that matters for economic activity and price setting. For example, a homeowner taking out a mortgage, or a firm taking out a loan, often borrow at longer terms and therefore consider current interest rates and the likely evolution of future interest rates when making decisions. The Reserve Bank uses a range of tools to assess financial conditions in New Zealand. In particular, the Reserve Bank attempts to gauge how stimulatory or contractionary monetary policy needs to be to stabilise the economy. One tool to help in a broad assessment of monetary conditions – how stimulatory interest rates are – is the effective monetary stimulus (EMS) measure. The EMS is a summary statistic that takes account of the (nominal) neutral interest rate and interest rate outlook. It provides a snapshot of the interest rates faced by businesses and households across the yield curve, and assesses whether these interest rates are stimulatory or contractionary for the economy. The EMS is, of course, just one summary of overall monetary/financial conditions. The Reserve Bank also takes account of other influences when assessing overall conditions. For example, exchange rates, credit spreads, and uncertainty indicators are all monitored as part of the Bank’s policy assessment. It is that total assessment, rather than the EMS or yield curve alone, that is taken into account when considering the appropriate OCR setting to achieve the macroeconomic outcomes. In this Note, we show how the EMS is constructed for New Zealand. We also show that the EMS measure is a useful indicator of the stance of monetary conditions. Lastly, the EMS measure also fits with the Reserve Bank’s narrative of the stance of monetary policy through history.
    Date: 2019–05
  16. By: Wishnu Mahraddika
    Abstract: Foreign exchange reserve accumulation is one of the preferred strategies to protect against susceptibility to financial crises. At the same time, maintaining a healthy international reserve position has the potential to promote domestic investment by reducing the cost of foreign borrowing through improving international creditworthiness. However, contractionary monetary policy in the form of sterilization operations implemented as part of reserve accumulation strategy could crowd out financing for domestic investment. This study examines the relationship between foreign reserve accumulation and domestic private investment by undertaking a dynamic panel data econometric analysis covering 58 countries over the period 2000–2014. The findings suggest that reserve accumulation is positively associated with domestic private investment in the long run.
    Keywords: Reserves; Investment; Panel ARDL estimator
    JEL: E2 E5 F30 F4 G15
    Date: 2019
  17. By: khan, sajawal
    Abstract: Abstract The main focus of macroeconomic policies around the world is the stabilization of business cycles fluctuations. The policy makers, economists, producers and households are all concerned about the swings in economic activities and want to mute them down. The question arises why these fluctuations are so undesirable and everyone is too much worried about them. The main reason behind these concerns is. 1) Business cycle fluctuations lowers the lifetime discounted income/ consumption in the economy. 2) These fluctuations also affect distribution of income in the society. 3) These negatively affect the long run potential level of the economy. The focus of this study is to investigate; whether the business fluctuations affect long run potential level; and the role and importance of asymmetries in the behavior and impacts of these fluctuations.
    Keywords: Business Cycles, Asymmetries, Macroeconomic Polies
    JEL: E32
    Date: 2018–10–14
  18. By: Papetti, Andrea
    Abstract: This paper employs an aggregate representation of an overlapping generation (OLG) model quantifying a decrease of the natural real interest rate in the range of -1.7 and -0.4 percentage points in the euro area between 1990 and 2030 due to demographics alone. Two channels contribute to this downward impact: the increasing scarcity of effective labor input and the increasing willingness to save by individuals due to longer life expectancy. The decrease of the aggregate saving rate as individuals retire has an upward impact which is never strong enough. Mitigating factors are: higher substitutability between labor and capital, higher intertemporal elasticity of substitution in consumption, reforms aiming at increasing the relative productivity of older cohorts, the participation rate and the retirement age. The simulated path of the natural real interest rate is consistent with recent econometric estimates: an upward trend in the 70s and 80s and a prolonged decline afterward. JEL Classification: E17, E21, E43, E52, J11
    Keywords: aging, demographic transition, euro area, natural interest rate, secular stagnation
    Date: 2019–03
  19. By: Vítor Castro (School of Business and Economics, Loughborough University, NIPE); Rodrigo Martins (Faculty of Economics, University of Coimbra)
    Abstract: This paper presents a new perspective on the study of credit booms by examining what determines their duration and by testing for relevant political features. The results from the estimation of a discrete-time duration model show that not only economic factors but also political dynamics play an important role in explaining the duration of credit booms. These are found to last longer when the economy is both growing faster and exhibits lower levels of liquidity in the banking system; but credit booms tend to be shorter when countries improve their current account position. Furthermore, their duration is affected by the electoral cycle as well as when centre parties are in office. Credit expansions that end in a banking crisis are also found to be statistically longer and their duration more sensitive to economic and political factors. Finally, we find strong evidence that Central Bank independence and the length of credit booms are inversely related.
    Keywords: Credit Booms; Duration Analysis; Political Cycles; Ideology; Central Bank independence.
    JEL: C41 D72 E32 E51
    Date: 2018
  20. By: khan, sajawal
    Abstract: Abstract Effectiveness of monetary policy, to ensure the macroeconomic stability, depends on its capability to anchor the expectations of different markets’ players. This requires better understanding of the process through which expectations affect the economy and monetary policy stance affects the expectations. In a modern economy, full of complexities and uncertainties, rational agents take into account all possible unraveling of future economic events while making their decisions. Due to significant role of expectations in economic decisions, the expectations channel emerged as an effective mechanism to achieve monetary policy objectives. This paper discusses the best practices used by the central banks to anchor expectations and their application in emerging/developing economies to achieve the monetary policy goals of low inflation and stable economic growth.
    Keywords: Expectations, Inflation Targeting, Developing Countries
    JEL: E58
    Date: 2018–11–15
  21. By: International Monetary Fund
    Abstract: The Argentina economy continues to contract, albeit at a modestly slower pace than had been expected under the program. After a brief period of falling monthly inflation, price pressures and inflation expectations are again rising. Financial conditions improved in January, with declining sovereign spreads and a rally in the local equity market, but have since then erased much of those gains, with rising volatility in both currency and interest rates in March. Nonetheless, the central government has fully rolled over its amortizing obligations over the past three months. Since the introduction of the new monetary framework in October, the central bank has maintained the growth rate of the monetary base below its targets and, in January and February, has purchased US$1 billion in FX reserves.
    Date: 2019–04–05
  22. By: Brand, Claus; Mazelis, Falk
    Abstract: We estimate the natural rate of interest for the US and the euro area in a semi-structural model comprising a Taylor rule. Our estimates feature key elements of Laubach and Williams (2003), but are more consistent with using conventional policy rules: we model inflation to be stationary, with the output gap pinning down deviations of inflation from its objective (rather than relative to a random walk). We relax some constraints on the correlation of latent factor shocks to make the original unobserved-components framework more amenable to structural interpretation and to reduce filtering uncertainty. We show that resulting natural rate metrics are more consistent with estimates from structural models. JEL Classification: C11, E32, E43, E52
    Keywords: Bayesian estimation, Beveridge-Nelson decomposition, equilibrium real rate, natural rate of interest, Taylor rule, unobserved components
    Date: 2019–03
  23. By: Farmer, Roger E A; Nicolò, Giovanni
    Abstract: Farmer and Nicolò (2018) show that the Farmer Monetary (FM)-Model outperforms the three-equation New-Keynesian (NK)-model in post -war U.S. data. In this paper, we compare the marginal data density of the FM-model with marginal data densities for determinate and indeterminate versions of the NK-model for three separate samples using U.S., U.K. and Canadian data. We estimate versions of both models that restrict the parameters of the private sector equations to be the same for all three countries. Our preferred specification is the constrained version of the FM-model which has a marginal data density that is more than 30 log points higher than the NK alternative. Our findings also demonstrate that cross-country macroeconomic differences are well explained by the different shocks that hit each economy and by differences in the ways in which national central banks reacted to those shocks.
    Keywords: belief function; Indeterminacy; Keynesian economics; Phillips curve
    JEL: E3 E4 F0
    Date: 2019–04
  24. By: International Monetary Fund
    Abstract: These are the last two reviews of Ghana’s Extended Credit Facility arrangement, approved by the Executive Board on April 3, 2015. The ECF-supported program was extended by one year on August 30, 2017, to end on April 2, 2019. Ghana’s macroeconomic performance has significantly improved in the last two years under the ECF-supported program. Growth was robust in the first three quarters of 2018, on the back of oil production. Inflation has continued to decline, to 9 percent in January 2019, within the Bank of Ghana’s band around the inflation target. The fiscal position (excluding financial sector-related costs) has continued to improve in 2018, despite persistent revenue collection challenges; and the current account deficit was lower than anticipated. The Bank of Ghana resolved nine insolvent banks over a period of 18 months, in line with its commitment to clean up the banking sector; and structural reforms to strengthen public financial management and oversight of the state-owned enterprises have continued.
    Date: 2019–04–05
  25. By: Claude Bismut (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Ismael Ramajo (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: The interest rates have remained low in recent years, after long decline over the past thirty-five years in OECD countries. This evolution is associated to a slowdown of output growth, while inflation stabilized around its two percent target. In trying to provide a better understanding on how we got there, we review the macroeconomic developments during almost sixty years. Conventional analysis of the role of macroeconomic policy does not provide a satisfactory explanation of the observed long-term trends. In particular, large fiscal deficits and growing debt ratios did not lead to higher interest rates, except in a few countries, whose governments were facing serious fiscal troubles. Conservative monetary policy can explain the low level of inflation that have prevailed since the middle of the eighties, but not the continuous decline of the real interest rate. Based on a few stylized facts we suggest a direction for a plausible characterization of a low growth / low interest rate regime
    Keywords: interest rates,growth,inflation,macroeconomics,long term,public debt,fiscal policy,monetary policy
    Date: 2019
  26. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: In Glasgow, Ky., St. Louis Fed President James Bullard talked about the possibility that the yield curve would invert, which he first discussed in a speech on Dec. 1, 2017. “Since then, events have transpired that have flattened the yield curve further, and imminent yield curve inversion in the U.S. has become a real possibility,” he said. In particular, Bullard commented that there is “a material risk of yield curve inversion” over the forecast horizon (about 2 ½ years) if the FOMC continues on its present course for raising the fed funds rate, as suggested in the June 2018 Summary of Economic Projections. Such an inversion—whereby short-term interest rates exceed long-term interest rates—is a “naturally bearish signal for the economy,” he said. He noted that yield curve inversion is best avoided in the near term by caution in raising the fed funds rate. “Given tame U.S. inflation expectations, it is unnecessary to push monetary policy normalization to such an extent that the yield curve inverts,” he said.
    Date: 2018–07–20
  27. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: In Lexington, Ky., St. Louis Fed President James Bullard discussed U.S. and global economic growth surprises in 2017, noting that the natural forecast would be to return to trend growth in the U.S. in 2018 and 2019. However, recent U.S. tax code changes may spur investment. Bullard suggested that business investment has been relatively low during the past eight years, but if it returns to its average from past expansions, growth in the U.S. will improve. He also addressed inflation, which remained low in 2017 against a backdrop of relatively good labor market performance and a still historically low policy rate (i.e., the federal funds target rate). He said that inflation expectations also remain a bit low, although they have increased recently and are closer to being in line with the Federal Open Market Committee’s 2 percent target. Turning to monetary policy, Bullard noted that “the current policy setting is closer to neutral than in previous years.”
    Date: 2018–02–06
  28. By: Harashima, Taiji
    Abstract: In this paper, I focus on the concept of Nash equilibrium of a Pareto inefficient path (NEPIP) to examine the nature of the transition path to steady state after a shock that generates a severe recession. Risk-averse and non-cooperative households strategically and rationally choose a NEPIP if a shock that widely shifts the steady state downwards occurs. Because NEPIPs are not Pareto efficient, an infinite number of transition paths can be NEPIPs, but a unique NEPIP is eventually selected from among many possible NEPIPs by households through a tug of war between their preference to avoid a worst-case scenario and the expected utility.
    Keywords: Great Depression; Great Recession; Pareto inefficiency; Recession; Transition path
    JEL: D10 E21 E32
    Date: 2019–04–10
  29. By: Junankar, Pramod N. (Raja) (University of New South Wales)
    Abstract: In this paper we review the literature on the impact that monetary policy has on growth and employment in developing countries. Much of the literature focusses on the impact of monetary policy on inflation levels and inflation volatility, and sometimes on output (GDP) levels and volatility of output. This survey of the literature on Monetary policy and growth shows that money plays a small role in developing countries and that monetary policy is not a very important influence on growth but may have some impact on inflation. Although there is much discussion about the merits of keeping inflation levels and volatility low, there is very little literature on studying the impact of low rates of steady inflation on the levels of private investment and technological change and hence on economic growth and on employment. There is very little research about the direct links between monetary policy and employment. The impact of growth on employment depends on what are the main drivers of economic growth and the initial state of the economy. Although growth may lead to increasing employment (formal and informal) there is little evidence showing that growth leads to an increase in "decent employment".
    Keywords: monetary policy, role of money, growth, employment, development
    JEL: E52 J4 O11 O17 O47
    Date: 2019–03
  30. By: Cipullo, Davide (Department of Economics); Reslow, André (Department of Economics)
    Abstract: This paper introduces macroeconomic forecasters as political agents and suggests that they use their forecasts to infuence voting outcomes. We develop a probabilistic voting model in which voters do not have complete information about the future states of the economy and have to rely on macroeconomic forecasters. The model predicts that it is optimal for forecasters with economic interest (stakes) and influence to publish biased forecasts prior to a referendum. We test our theory using high-frequency data at the forecaster level surrounding the Brexit referendum. The results show that forecasters with stakes and influence released much more pessimistic estimates for GDP growth in the following year than other forecasters. Actual GDP growth rate in 2017 shows that forecasters with stakes and influence were also more incorrect than other institutions and the propaganda bias explains up to 50 percent of their forecast error.
    Keywords: Brexit; Interest Groups; Forecasters Behavior; Voting
    JEL: D72 D82 E27 H30
    Date: 2019–03–13
  31. By: Huidrom, Raju; Kose, Ayhan; Lim, Jamus; Ohnsorge, Franziska
    Abstract: The fiscal position can affect fiscal multipliers through two channels. Through the Ricardian channel, households reduce consumption in anticipation of future fiscal adjustments when fiscal stimulus is implemented from a weak fiscal position. Through the interest rate channel, fiscal stimulus from a weak fiscal position heightens investors' concerns about sovereign credit risk, raises economy-wide borrowing cost, and reduces private domestic demand. We document empirically the relevance of these two channels using an Interactive Panel Vector Auto Regression model. We find that fiscal multipliers tend to be smaller when fiscal positions are weak than strong.
    Keywords: Fiscal multipliers; fiscal position; interest rate; Ricardian channel; state-dependency
    JEL: E62 H50 H60
    Date: 2019–04
  32. By: Lena Boneva; James Cloyne; Martin Weale; Tomasz Wieladek
    Abstract: Firms' expectations play a central role in modern macroeconomic models, but little is known empirically about how these are formed or whether they matter for economic outcomes. Using a novel panel data set of manufacturing firms' expectations about prices and wage rates, new orders, employment and unit costs for the United Kingdom, we document a range of stylized facts about the properties of firms' expectations and their relationship with recent experience. There is wide dispersion of expectations across firms. Expected future price and wage growth are influenced by firm-specific factors but macroeconomic factors also matter. Expectations of employment and new orders are influenced by firm-specific measures of past orders while expected unit costs seem to be influenced more by firm-specific cost pressures and aggregate import prices. After controlling for a wide range of variables we find a significant connection between past expected price and wage increases and their out-turns. But there is also strong evidence that firms' expectations are clearly not rational.
    Keywords: Firm expectations, price setting, rationality, survey data, inflation expectations
    JEL: C23 C26 E31
    Date: 2019–03
  33. By: International Monetary Fund
    Abstract: Nigeria’s economy is still recovering from the substantial terms-of-trade shock that triggered the 2016 recession. Over the past two years, the rebound in oil prices, a tight monetary policy, and a convergence in foreign exchange windows have helped reduce inflation and rebuild external buffers. However, persistent structural and policy challenges—including a large infrastructure gap, low revenue mobilization, and high dependence on hot money—constrain growth to below the level needed to reduce vulnerabilities and improve development outcomes. With elections now complete, there is a greater chance for faster policy implementation.
    Date: 2019–04–01
  34. By: Sebastian Link
    Abstract: This paper studies the price and employment response of firms to the introduction of a nation-wide minimum wage in Germany. In line with previous studies, the estimated employment effect is only modestly negative and statistically insignificant. In contrast, affected firms increased prices much more frequently. The price effect is prevalent across different sectors of the economy including manufacturing and is thus not limited to low wage industries. I document that speed and degree of price pass-through were high and firms rolled over the lion’s share of the costs generated by the minimum wage to their customers. Consistent with the role of price pass-through, I find considerable heterogeneity in firms’ responses to the minimum wage depending on their own business expectations, product market competition, and local labor market conditions.
    Keywords: price pass-through, heterogeneity in minimum wage effects, firm data, Germany
    JEL: J38 J08 E31 J31
    Date: 2019
  35. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: Speaking to the Indiana Bankers Association, St. Louis Fed President James Bullard further elaborated on some key directions the Fed could take to update a popular monetary policy rule, a version of the Taylor rule, whose construction was based on U.S. data from the 1980s and 1990s. Since then, he noted, three important macroeconomic developments have altered key elements of policy rule construction. These developments are lower short-term real interest rates in the U.S. and around the world, the disappearing Phillips curve and better measures of inflation expectations. “Incorporating these developments yields a modernized policy rule that suggests the current level of the policy rate is about right over the forecast horizon,” Bullard said.
    Date: 2018–12–07
  36. By: Moore, Rachel; Pecoraro, Brandon
    Abstract: Macroeconomic models used for tax policy analysis often simultaneously abstract from two features of the US tax code: special tax treatment for preferential capital income, and the joint tax treatment of ordinary capital and labor income. In this paper, we explore the extent to which explicitly accounting for these tax details has macroeconomic implications within a heterogeneous-agent model. We do this by expanding the Moore and Pecoraro (2018) overlapping generations model to include distinct corporate and non-corporate firms so that the business income distributed to households can be separated into ordinary and preferred capital income. Household income tax treatment is then determined by an internal tax calculator that fully accounts for interaction among income bases while conditioning on idiosyncratic household characteristics. Relative to a conventional approach where household income taxation is determined by independent labor and capital income tax functions that do not distinguish between ordinary and preferred capital income, we find that our innovations have implications for household behavior and economic aggregates - especially the tax consequences of changes to the returns to labor and capital - when analyzing a subset of tax provisions from the recently enacted “Tax Cuts and Jobs Act”. Our findings imply that the abstracting from tax detail may come at the expense of correctly accounting for incentives and estimating macroeconomic responses to tax policy changes.
    Keywords: dynamic scoring; tax policy modeling; heterogeneous agents
    JEL: C63 E62 H30
    Date: 2019–04–05
  37. By: Xu, Wenli
    Abstract: A Baseline Medium-Scale NK DSGE Model for Policy Analysis
    Keywords: DSGE Model ,Fiscal Policy ,Monetary Policy
    JEL: E6
    Date: 2019–04–08
  38. By: Antonia Lòpez-Villavicencio (UL2 - Université Lumière - Lyon 2, GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique); Marc Pourroy (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers, Faculté de Sciences Economiques - Université de Poitiers - Université de Poitiers)
    Abstract: In this paper we employ state-space models to estimate the pass-through of oil price changes to consumer prices for a large sample of countries from 1970 to 2017. By controlling for self-selection bias and endogeneity and allowing for different responses to positive and negative price changes, we asses the differences between explicit inflation targeting (IT) countries and a control group. Surprisingly perhaps, our results suggest that the pass-through is higher for IT countries. Our main contribution is to show that these is mainly due to IT countries having a significant higher pass-through than non-IT countries when the oil price decreases: a 10% drop in oil price leads about a 0.11% drop in inflation in ITers (of which 4pp are explained by the monetary regime). Importantly, we show that adopting IT reduces the asymmetry of the pass-through. We run several robustness checks and conclude that falling oil prices are more welcomed by the central banks with an IT framework, in particular during deflationary episodes or when inflation is above the target. JEL Classification: E31; E42; Q43.
    Keywords: oil price,pass-through,inflation targeting,state-space model,propensity score matching
    Date: 2019–05
  39. By: Matthes, Christian (Federal Reserve Bank of Richmond); Schwartzman, Felipe (Federal Reserve Bank of Richmond)
    Abstract: We use economic theory to rank the impact of structural shocks across sectors. This ranking helps us to identify the origins of U.S. business cycles. To do this, we introduce a Hierarchical Vector Auto-Regressive model, encompassing aggregate and sectoral variables. We find that shocks whose impact originate in the "demand" side (monetary, household, and government consumption) account for 43 percent more of the variance of U.S. GDP growth at business cycle frequencies than identified shocks originating in the "supply" side (technology and energy). Furthermore, corporate financial shocks, which theory suggests propagate to large extent through demand channels, account for an amount of the variance equal to an additional 82 percent of the fraction explained by these supply shocks.
    Keywords: Aggregate Shocks; Sectoral Data; Bayesian Analysis; Impulse Responses
    JEL: C11 C50 E30
    Date: 2019–03–29
  40. By: Dimitrios Bakas; Athanasios Triantafyllou
    Abstract: In this paper, we empirically examine the impact of uncertainty shocks on the volatility of commodity prices. Using alternative measures of economic uncertainty for the U.S. we estimate their effects on commodity price volatility by employing both VAR and OLS regression models. We find that the unobservable economic uncertainty measures of Jurado et al. (2015) have a significant and long-lasting positive impact on the volatility of commodity prices.Our results indicate that a positive shock in both macroeconomic and financial uncertainty leads to a persistent increase in the volatility of the broad commodity market index and of the individual commodity prices, with the macroeconomic effect being more significant. The impact is stronger in energy commodities compared to the agricultural and metals markets. In addition, our findings show that the measure of unpredictability of the macroeconomic environment has the most significant impact on the commodity price volatility when compared to the observable measures of economic uncertainty that have a rather small and transitory effect. Finally, we show that uncertainty in the macroeconomy is significantly reduced after the occurrence of large commodity market volatility episodes.
    Keywords: Economic Uncertainty, Commodity Prices, Volatility.
    JEL: C22 E32 G13 O13 Q02
    Date: 2018–01
  41. By: Thomas Douenne (Paris School of Economics)
    Abstract: This paper studies the role of preferences on the link between disasters and growth. An endogenous growth model with disasters is presented in which one can derive closed-form solutions with non-expected utility. The model distinguishes disaster risks and disaster strikes and highlights the numerous mechanisms through which they may affect growth. It is shown that separating aversion to risk from the elasticity of inter-temporal substitution bears critical qualitative implications that enable to better understand these mechanisms. In a calibration of the model, it is shown that for standard parameter values, the additional restriction imposed by the time-additive expected utility can also lead to substantial quantitative bias regarding optimal risk-mitigation policies and growth. The paper thus calls for a wider use of non-expected utility in the modeling of disasters, in particular with respect to environmental disasters and climate change.
    Keywords: Environmental disasters, Endogenous growth, Recursive utility, Precautionary savings
    JEL: E21 O4 Q54
    Date: 2019–02
  42. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: At the breakfast presentation, Bullard discussed real GDP growth, inflation and the yield curve, as well as the current stance of monetary policy. Bullard noted that global real GDP growth surprised to the upside during 2017, driving global financial market developments last year. However, he noted the effects of this growth surprise have stalled so far in 2018 in the face of uncertain first-quarter U.S. real GDP growth along with other factors. On inflation, he commented that while it remains low, it is expected to move somewhat higher during 2018. Regarding other macroeconomic developments, he noted that yield curve inversion remains a possibility later this year, and that monetary policy is close to neutral today. “Current monetary policy settings are close to neutral, which is appropriate for the current macroeconomic situation,” he said.
    Date: 2018–04–04
  43. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: Speaking at St. Cloud State University in Minnesota, St. Louis Fed President James Bullard discussed three themes for monetary policy this year: (1) The Federal Open Market Committee (FOMC) may miss its 2 percent inflation target on the low side for the eighth consecutive year in 2019 based on current readings of market-based inflation expectations.(2) Labor markets have been performing well, but the feedback from labor markets to inflation has weakened considerably in the last two decades. (3) The Treasury yield curve has flattened significantly, and a meaningful and sustained inversion would send a bearish signal for the U.S. economy.“Market-based signals such as low market-based inflation expectations and a threatening yield curve inversion suggest that the FOMC needs to tread carefully going forward,” Bullard said. “Through its normalization program, the FOMC has already been sufficiently pre-emptive over the last two years to contain upside inflation risk.”
    Date: 2019–02–07
  44. By: Mairead de Roiste; Apostolos Fasianos; Robert Kirkby; Fang Yao (Reserve Bank of New Zealand)
    Abstract: The Global Financial Crisis (GFC) in 2008/09 highlighted the impact that household debt and leverage have on consumption, above and beyond the important role of wealth emphasized by classical theories of consumer behaviour (Fisher, 1930; Modigliani and Brumberg, 1954; Friedman, 1957). In this paper, we study the role of household indebtedness in transmitting housing wealth shocks to consumption empirically. Housing wealth and mortgage leverage take center stage of the recent literature on consumption partly because housing wealth accounts for the lion’s share of household wealth in most advanced economies and partly because of the prominent role played by house price dynamics and mortgage debt accumulation in the years preceding the Great Recession. We use microdata from New Zealand Household Economic Survey (HES) to study the housing wealth effect on consumption while controlling for household leverage. House price dynamics in New Zealand represent an interesting contrast to the US: While the US economy experienced a severe housing market downturn after the GFC, house prices and household leverage in New Zealand have been persistently rising over the last decade. Empirical studies focusing on this period for the US show that household leverage amplified the housing wealth effect on consumption through the collateral channel (Kiyotaki and Moore, 1997 and Iacoviello, 2005). Our main empirical finding is that, on average, the elasticity of the consumption growth to housing price changes is 0.22%. This corresponds to 3 cents out of one dollar in terms of marginal propensity of consume out of housing wealth. In addition, we find that the housing wealth effect is asymmetric with respect to positive and negative housing wealth shocks. The housing wealth elasticity is 0.23 for negative shocks, as compared to 0.13 in response to positive changes in housing wealth. We contribute the asymmetric housing wealth effect to the influence of household indebtedness. The intuition of the finding is that leveraged gains might mostly be used to pay down debt (precautionary saving effect), whereas leveraged losses have a more direct bearing on consumption (collateral effect). This finding is based on further investigating the role played by household indebtedness in accounting for the asymmetric housing wealth effect. First, we find that, on average, measures of indebtedness negatively impact on the consumption growth. When we separate positive and negative housing wealth shocks, we find evidence showing that the collateral effect is significant only with negative shocks, while the precautionary saving effect is significant only with positive housing wealth shocks. This empirical finding implies that the precautionary savings effect and the collateral effect work in the different phases of housing cycles. In a housing boom the precautionary savings motive dominates and high leverage weakens the reaction of consumption spending to housing wealth increases. In a housing downturn the collateral channel dominates and high leverage strengthens the reaction of consumption to housing wealth decreases. In another words, the household leverage reinforces the housing wealth effect in a bust, but dampens the housing wealth effect in a boom. The asymmetric transmission mechanism through household indebtedness explains the asymmetric housing wealth effect that we find in the data without controlling leverage explicitly.
    Date: 2019–04
  45. By: Fernando Alexandre (University of Minho, Department of Economics/NIPE); Pedro Bação; Miguel Portela (NIPE/Universidade do Minho and IZA Bonn)
    Abstract: In this paper we report and discuss estimates of life-cycle consumption profiles obtained using microdata for Portuguese households. The estimated profiles are much flatter than the profiles usually reported in the literature for other countries, namely the Netherlands, the UK and the USA. We argue that the high degree of consumption smoothing in Portugal may be related to easier access to credit, a generous social security system and familyties. In addition, we also report estimates of cohort and business cycle effects on consumption. The estimated cohort effects are consistent with the post-war progress in standards of living. The business cycle estimates suggest that the recent debt crisis has had a strong negative impact on household consumption
    Keywords: cohorts, consumption, life-cyle, microdata
    JEL: E21
    Date: 2019
  46. By: Juan David Urquijo Vanegas; Carlos Mateo Perilla Castañeda; Fabián Ricardo Martínez Cruz
    Abstract: Conocer el valor del desarrollo de la explotación de hidrocarburos para el sostenimiento de las finanzas de la economía colombiana es de vital importancia para entender cómo las técnicas de extracción no convencionales, como el fracking, pueden ser una alternativa para el crecimiento y complemento de la matriz energética del país. En este sentido, es conveniente evaluar en detalle las múltiples consecuencias económicas y ambientales que trae consigo la aplicación de tales técnicas, que pueden verse magnificadas en un contexto como el colombiano. Este documento se encarga de hacer una revisión histórica sobre la extracción de petróleo en Colombia en las últimas dos décadas enfocada, principalmente, en cómo el desarrollo se vería afectado por la implementación de las técnicas de fracturación hidráulica para la explotación de yacimientos no convencionales. El objetivo principal del artículo es dar a conocer cómo funciona esta técnica y los argumentos a favor y en contra de su implementación; se revisa la experiencia de Estados Unidos y se pretende predecir qué efectos se tendrán en materia social, económica y ambiental para el país. *** Knowing the value of the development of the hydrocarbons exploitation to sustain the finances of the Colombian economy is of vital importance to understand how non-conventional extraction techniques, such as Fracking, can be an alternative for growth and a complement the country's energy matrix. In this sense, it is convenient to evaluate in detail the multiple economic and environmental consequences brought about by the application of such techniques, which can be magnified in a context such as the Colombian one. This document reviews the history of oil extraction in Colombia over the last two decades, focusing mainly on how development would be affected by the implementation of hydraulic fracturing techniques for the exploitation of non-conventional oil deposits. The main objective of the article is to show how this technique works and the arguments for and against its implementation; it reviews the experience of the United States and aims to predict what effects will have in social, economic and environmental matters for the country.
    Keywords: fracking, fracturación hidráulica, petróleo, sostenibilidad, medio ambiente
    JEL: E23 E32 F20 L71 Q48
    Date: 2019–04–02
  47. By: International Monetary Fund
    Abstract: Egypt’s macroeconomic situation has improved markedly since the initiation of the authorities’ reform program in November 2016. The liberalization of the foreign exchange market, prudent monetary policy, and ambitious fiscal consolidation have helped stabilize the macroeconomic environment. Growth has accelerated; external and fiscal deficits have narrowed; international reserves have risen; and public debt, inflation, and unemployment have declined. Fiscal savings were in part deployed to enhance social protection and ease the burden of adjustment on the poor. Furthermore, ongoing structural reforms aim at promoting private sector-led inclusive growth and job creation. The remainder of the Extended Fund Facility-supported program is focused on consolidating the gains in macroeconomic stabilization, further rebuilding fiscal buffers, and advancing reforms to ensure that lasting progress is achieved.
    Date: 2019–04–06
  48. By: Joseph E. Gagnon (Peterson Institute for International Economics); Christopher G. Collins (Peterson Institute for International Economics)
    Abstract: The Phillips curve, which traces out a negative relationship between inflation and unemployment, has undergone tremendous changes over more than 100 years. Some researchers argue that the slope of the curve in the United States fell substantially around 20 years ago so that unemployment now has little or no effect on inflation. This paper shows that another hypothesis is equally consistent with the data: The Phillips curve may be nonlinear when inflation is low, with the economy having operated in the flat region of the curve for most of the past 20 years. The next few years may be decisive in the debate between these hypotheses, as unemployment has returned to a range in which a nonlinear curve ought to display significant steepness. A flat Phillips curve implies little change in inflation going forward, but a nonlinear curve implies moderate increases in inflation over the next few years.
    Keywords: Non-accelerating inflation rate of unemployment (NAIRU), unemployment rate
    JEL: E31
    Date: 2019–04
  49. By: William Oman (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, International Monetary Fund (IMF))
    Abstract: Using a frequency-based filter, I document the existence of a euro-area financial cycle and high- and low-amplitude national financial cycles. Applying concordance and similarity analysis to business and financial cycles, I provide evidence of five empirical regularities: (i) the aggregate euro-area creditto- GDP ratio behaved procyclically in the years preceding euro-area recessions; (ii) financial cycles are less synchronized than business cycles; (iii) business cycle synchronization has increased while financial cycle synchronization has decreased; (iv) financial cycle desynchronization was more pronounced between high-amplitude and low-amplitude countries, especially Germany; (v) high-amplitude countries and Germany experienced divergent leverage dynamics after 2002.
    Keywords: Business cycle,Economic integration,Euro area,Financial cycle,Monetary policy
    Date: 2019–03
  50. By: Nicholas Oulton
    Abstract: What effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfare? I examine this issue through two versions of a textbook, Hecksher-Ohlin-Samuelson (HOS), two-good model of a small, open economy. In the first version both goods are for final consumption. In the second, one good is an imported intermediate input into the other. In both versions, economic theory suggests that an improvement in the terms of trade raises welfare (consumption) but leaves aggregate output (GDP) unchanged. This follows from a continuous-time analysis using Divisia index numbers. I then show that a national income accountant applying the principles of the 2008 System of National Accounts (SNA) would reach the same conclusions.
    Keywords: GDP, welfare, SNA, Hecksher-Ohlin-Samuelson, terms of trade, Divisia
    JEL: E01 F11 C43 D60
    Date: 2019–03
  51. By: Bullard, James B. (Federal Reserve Bank of St. Louis); DiCecio, Riccardo (Federal Reserve Bank of St. Louis)
    Abstract: We study nominal GDP targeting as optimal monetary policy in a simple and stylized model with a credit market friction. The macroeconomy we study has considerable income inequality, which gives rise to a large private sector credit market. There is an important credit market friction because households participating in the credit market use non-state contingent nominal contracts (NSCNC). We extend previous results in this model by allowing for substantial intra-cohort heterogeneity. The heterogeneity is substantial enough that we can approach measured Gini coefficients for income, financial wealth, and consumption in the U.S. data. We show that nominal GDP targeting continues to characterize optimal monetary policy in this setting. Optimal monetary policy repairs the distortion caused by the credit market friction and so leaves heterogeneous households supplying their desired amount of labor, a type of "divine coincidence" result. We also further characterize monetary policy in terms of nominal interest rate adjustment.
    Date: 2018–09–21
  52. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: Speaking in Tokyo, St. Louis Fed President James Bullard discussed three reasons why caution may be justified in deciding whether to raise the U.S. policy rate (the fed funds rate target) further in the near term. First, market-based inflation expectations in the U.S. remain somewhat low. Second, the current level of the policy rate appears to be neutral, meaning it is putting neither upward nor downward pressure on inflation. Third, the U.S. nominal yield curve could invert later this year or in 2019, which would be a bearish signal for U.S. macroeconomic prospects, he said.
    Date: 2018–05–29
  53. By: King Yoong Lim; Diego Morris
    Abstract: This paper develops a two-country, dynamic general equilibrium model of endogenous growth with illicit drugs and guns trade. With a trade framework that unies both drug-control policies in consuming- and producing-country, as well as explicit modeling of firearm trade, the model is solved and parameterized to study the dynamic trade-off and growth effects of various drug-control policies. A production-consumption growth trade-off not previously documented in the literature is found. Further, under different conditions, and depending on the resulting gain in formal trade expansion, there are economic rationale to either a prohibitive or liberalization drug-control policy.
    Keywords: Endogenous Growth, Drugs, Illicit Trade, Organized Crime
    JEL: E26 F59 O41 O54
    Date: 2019–01
  54. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: Speaking at the 2019 U.S. Monetary Policy Forum in New York, St. Louis Fed President James Bullard made the argument for why the Fed’s balance sheet policy may be less important today than it was during the period when quantitative easing was most effective. Bullard suggested that “it is indeed possible to view quantitative easing as having an important influence on the macroeconomy and simultaneously view the macroeconomic effects of unwinding the balance sheet as relatively minor.” This may be one reason why the Federal Open Market Committee’s balance sheet reduction policy beginning in the fall of 2017 “seemed to have only minor effects in financial markets,” he said.
    Date: 2019–02–22
  55. By: Serhan Cevik
    Abstract: This paper discusses the benefits and challenges of implementing a rule-based fiscal responsibility framework, using the Philippines as a case study. It estimates structural measures of the fiscal stance over the period 1980–2016 and applies a stochastic simulation model to determine the optimal set of fiscal rules. The empirical analysis indicates that discretionary fiscal policy has been procyclical, and the degree of procyclicality has increased in recent years. While the national government’s non-binding ceiling on the overall budget deficit is helpful, it does not constitute an appropriate operational target to guide fiscal policy over the economic cycle and necessarily ensure that the fiscal stance meets the government’s intertemporal budget constraint. To this end, using stochastic simulations, this paper makes the case for a well-designed fiscal responsibility law that enshrines explicit fiscal rules designed for countercyclical policy and long-term debt sustainability, and an independent fiscal council to improve accountability and transparency.
    Date: 2019–03–25
  56. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: We study nominal GDP targeting as optimal monetary policy in a simple and stylized model with a credit market friction. The macroeconomy we study has considerable income inequality, which gives rise to a large private sector credit market. There is an important credit market friction because households participating in the credit market use non-state contingent nominal contracts (NSCNC). We extend previous results in this model by allowing for substantial intra-cohort heterogeneity. The heterogeneity is substantial enough that we can approach measured Gini coefficients for income, financial wealth, and consumption in the U.S. data. We show that nominal GDP targeting continues to characterize optimal monetary policy in this setting. Optimal monetary policy repairs the distortion caused by the credit market friction and so leaves heterogeneous households supplying their desired amount of labor, a type of "divine coincidence" result. We also further characterize monetary policy in terms of nominal interest rate adjustment.
    Date: 2018–05–04
  57. By: Rudolfs Bems; Francesca G Caselli; Francesco Grigoli; Bertrand Gruss
    Abstract: Many argue that improvements in monetary policy frameworks in emerging market economies over the past few decades, have made them more resilient to external shocks. This paper exploits the May 2013 taper tantrum in the United States to study the reaction of 18 large emerging markets to an external shock, conditioning on their degree of inflation expectations' anchoring. We fi nd that while the tapering announcement negatively affected growth prospects regardless of the level of anchoring, countries with weakly anchored inflation expectations experienced larger exchange rate pass-through to consumer prices, hence comparatively higher inflation. We conclude that efforts to improve the extent of anchoring of inflation expectations in emerging markets pay off, as they ease the trade-off that central banks face when external shocks weaken growth prospects and trigger currency depreciations.
    Date: 2019–03–28
  58. By: Hali Edison (Williams College); Hector Carcel (Bank of Lithuania)
    Abstract: This paper applies Latent Dirichlet Allocation (LDA), a machine learning algorithm, to analyze the transcripts of the U.S. Federal Open Market Committee (FOMC) covering the period 2003 – 2012, including 45,346 passages. The goal is to detect the evolution of the different topics discussed by the members of the FOMC. The results of this exercise show that discussions on economic modelling were dominant during the Global Financial Crisis (GFC), with an increase in discussion of the banking system in the years following the GFC. Discussions on communication gained relevance toward the end of the sample as the Federal Reserve adopted a more transparent approach. The paper suggests that LDA analysis could be further exploited by researchers at central banks and institutions to identify topic priorities in relevant documents such as FOMC transcripts.
    Keywords: FOMC, Text data analysis, Transcripts, Latent Dirichlet Allocation
    JEL: E52 E58 D78
    Date: 2019–04–05
  59. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: We study nominal GDP targeting as optimal monetary policy in a simple and stylized model with a credit market friction. The macroeconomy we study has considerable income inequality, which gives rise to a large private sector credit market. There is an important credit market friction because households participating in the credit market use non-state contingent nominal contracts (NSCNC). We extend previous results in this model by allowing for substantial intra-cohort heterogeneity. The heterogeneity is substantial enough that we can approach measured Gini coefficients for income, financial wealth, and consumption in the U.S. data. We show that nominal GDP targeting continues to characterize optimal monetary policy in this setting. Optimal monetary policy repairs the distortion caused by the credit market friction and so leaves heterogeneous households supplying their desired amount of labor, a type of "divine coincidence" result. We also further characterize monetary policy in terms of nominal interest rate adjustment.
    Date: 2018–08–09
  60. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: In Chicago, St. Louis Fed President James Bullard discussed a possible strategy for extending the U.S. economic expansion. He said his preferred approach relies on placing more weight on financial market signals, such as the slope of the yield curve and market-based inflation expectations, than has been customary in past U.S. monetary policy strategy. He explained that the empirical relationship between inflation and unemployment (the so-called Phillips curve) has largely broken down over the last two decades, leaving monetary policymakers without a clear guidepost for action. “Handled properly, current financial market information can provide the basis for a better forward-looking monetary policy strategy,” he told the CFA Society Chicago. He also noted that these signals could help the FOMC better identify the neutral policy rate. “The flattening yield curve and subdued market-based inflation expectations suggest that the current monetary policy stance is already neutral or possibly somewhat restrictive,” he said.
    Date: 2018–09–12
  61. By: Charles I. Jones
    Abstract: This paper considers the taxation of top incomes when the following conditions apply: (i) new ideas drive economic growth, (ii) the reward for creating a successful innovation is a top income, and (iii) innovation cannot be perfectly targeted by a separate research subsidy --- think about the business methods of Walmart, the creation of Uber, or the "idea" of These conditions lead to a new force affecting the optimal top tax rate: by slowing the creation of the new ideas that drive aggregate GDP, top income taxation reduces everyone's income, not just the income at the top. When the creation of ideas is the ultimate source of economic growth, this force sharply constrains both revenue-maximizing and welfare-maximizing top tax rates. For example, for extreme parameter values, maximizing the welfare of the middle class requires a negative top tax rate: the higher income that results from the subsidy to innovation more than makes up for the lost redistribution. More generally, the calibrated model suggests that incorporating ideas as a driver of economic growth cuts the optimal top marginal tax rate substantially relative to the basic Saez calculation.
    JEL: E0 H2 O4
    Date: 2019–04
  62. By: James Bishop (Reserve Bank of Australia); Iris Chan (Reserve Bank of Australia)
    Abstract: The union membership rate has declined steadily in Australia since the 1950s. Some have suggested that this decline has caused a fall in the bargaining power of workers, which in turn has contributed to low wages growth in recent years. We test this hypothesis using a newly available source of micro data, covering all enterprise agreements federally registered between 1991 and 2017. We find that changing unionisation patterns are unlikely to account for much of the recent low wages growth. This conclusion reflects three key results. First, there has been no decline in the share of employees covered by enterprise agreements negotiated with union involvement even as union membership has declined. Second, the 'union wage growth premium' in the private sector has been stable over time. Third, spillover effects from union involvement in enterprise agreement negotiations onto wage outcomes in other enterprise agreements exist, but have not changed materially over time.
    Keywords: wages; trade unions; collective bargaining; wage differentials
    JEL: E24 J31 J51 J52
    Date: 2019–04
  63. By: Maxim, Maruf Rahman; Zander, Kerstin
    Abstract: This paper synthesises the simulation studies concerning green tax reform (GTR) and employment double dividend (EDD) in European and non-European countries. The studies included investigate the effect of GTR on employment. We compared the simulation results between European and non-European countries to understand the impact of study region and our findings are fivefold. First, the simulation results suggest that GTR-driven EDD is observed in both European and non-European countries, but the average effect on employment in European countries (0.67%) is significantly greater than in non-European countries (0.18%). Second, optimal tax and tax revenue recycling policies in European and non-European countries for EDD are not identical. Reducing employers’ social security contributions (SSC) has the potential to generate EDD in both countries. However, a reduction in value added tax has the highest average effect on employment in European countries (1.62%), which negatively affects employment in non-European countries (−0.02%). Third, a reduction in personal income tax as a tax recycling method creates a marginally average employment dividend in non-European countries (0.16%) but is counterproductive in European countries (−0.15%). Fourth, other taxes, which predominantly represent mixed taxes, exhibit the highest EDD potential in both European (1.01%) and non-European (0.46%) countries. Finally, employment dividend diminishes over time, but a weak quadratic pattern has been observed that reveals an accelerating effect on employment in the long term. These reflections should be considered before employing GTR in non-European countries in order to yield EDD.
    Keywords: Green Tax Reform, Double Dividend, Employment
    JEL: E24 H21 H23
    Date: 2019–04–08
  64. By: Linda G. Veiga (University of Minho, Department of Economics/NIPE); Georgios Efthyvoulou (University of Sheffield); Atsuyoshi Morozumi (University of Nottingham)
    Abstract: This chapter reviews the literature on political budget cycles (PBCs), focusing on studies that analyze the conditionality of opportunistic effects. First, factors that affect incentives of politicians to embark on pre-electoral policy manipulations are highlighted, and then factors that influence the capability of those manipulations to generate additional votes are discussed. Finally, the effects of personal characteristics of leaders on PBCs are explored. To complement the review, an empirical investigation of electoral effects on central governments’ deficit, expenditure and revenue series, under various political arrangements, is implemented on a large panel covering 78 countries and 42 years of data (1975 to 2016). Empirical results confirm that PBCs are more likely to occur under certain politico-institutional circumstances, including predetermined elections, disputed elections, majoritarian electoral rules, larger private benefits from holding office, weak constraints on executives, a high proportion of uninformed voters, and new democracies.
    Keywords: political budget cycles; political business cycles; fiscal policy; conditionality; rhythms
    Date: 2018
  65. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Federal Reserve Bank of Boston President Eric Rosengren spoke about the economy’s outlook, recent stock-market volatility, and the implications for the Fed’s monetary policy. In his talk, Rosengren contrasts the pessimism reflected in financial markets with the relatively optimistic outlooks of professional forecasters and Fed policymakers.
    Keywords: monetary policy; interest rates; financial stability; fiscal policy; markets
    Date: 2019–01–09
  66. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: During a Friday presentation, Bullard outlined five reasons for caution in raising the policy rate (fed funds rate) further based on current macroeconomic conditions. Those reasons are: 1) inflation expectations remain low; 2) the current policy rate setting is neutral; 3) the yield curve is relatively flat and yield curve inversion is possible; 4) business investment has room to grow; and 5) labor markets are in equilibrium.
    Date: 2018–05–11
  67. By: Thomas van Florenstein Mulder; Tugrul Vehbi (Reserve Bank of New Zealand)
    Abstract: The Bank assesses the impact of international conditions on the New Zealand economy using a range of models. Among them, is the Global Vector Autoregressive model (GVAR), which is designed to analyse economic and financial interdependencies between countries. The GVAR is primarily used by the Bank to examine the transmission of global shocks or disturbances to the New Zealand economy. This Analytical Note examines to what extent the GVAR can also forecast macroeconomic conditions in New Zealand and its main trading partners. We test several specifications of the GVAR and calculate out-of-sample forecasts for GDP, inflation, interest rates, exchange rates and equity prices for New Zealand, U.S., China, Australia, Canada and the euro area. We then evaluate whether GVAR forecasts are more accurate than other statistical models and whether the model’s GDP forecasts can outperform economists’ forecasts published by Consensus Economics. We find that forecasts obtained from simple specifications of the GVAR tend to outperform other simple statistical models of inflation and GDP. The GVAR also outperforms economists’ GDP growth forecasts from Consensus Economics. These results emphasise the benefits of incorporating international linkages to improve forecast accuracy and suggest that the GVAR is a useful addition to the range of models used by the Reserve Bank to forecast the international economy.
    Date: 2019–03
  68. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: During his talk, Bullard discussed modernizing a popular monetary policy rule, a version of the Taylor rule, whose construction was based on U.S. data from the 1980s and 1990s. Since then, he noted, three important macroeconomic developments have altered key elements of policy rule construction. These developments are lower short-term real interest rates, the disappearing Phillips curve and better measures of inflation expectations. “Incorporating these developments yields a modernized policy rule that suggests the current level of the policy rate is about right over the forecast horizon,” Bullard said.
    Date: 2018–10–18
  69. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: We study nominal GDP targeting as optimal monetary policy in a simple and stylized model with a credit market friction. The macroeconomy we study has considerable income inequality, which gives rise to a large private sector credit market. There is an important credit market friction because households participating in the credit market use non-state contingent nominal contracts (NSCNC). We extend previous results in this model by allowing for substantial intra-cohort heterogeneity. The heterogeneity is substantial enough that we can approach measured Gini coefficients for income, financial wealth, and consumption in the U.S. data. We show that nominal GDP targeting continues to characterize optimal monetary policy in this setting. Optimal monetary policy repairs the distortion caused by the credit market friction and so leaves heterogeneous households supplying their desired amount of labor, a type of "divine coincidence" result. We also further characterize monetary policy in terms of nominal interest rate adjustment.
    Date: 2018–01–25
  70. By: Góra, Marek (Warsaw School of Economics); Palmer, Edward (Uppsala University)
    Abstract: This chapter defines a universal public pension scheme (UPPS) as a government-mandated lifecycle longevity insurance scheme that transfers individual consumption from the working years to the retirement phase of the lifecycle. It discusses the differences in four UPPS designs defined with regard to whether they are defined contribution (DC) or defined benefit (DB), and financial (F) or nonfinancial (N). Generally speaking, DC schemes are distinguished from DB schemes by their basic building block of individual accounts. This ensures the important design feature of transparency, the "enabler" of economic efficiency - through the effects on marginal decisions to choose formal work over informal work or leisure and to postpone retirement marginally toward the end of the working life. The chapter examines additional criteria (fairness, financial sustainability, affordability, and adequacy), plus some other design characteristics of interest in a comparative assessment. The conclusion is that the two UPPS-DC designs are superior to the two UPPS-DB designs. The difference in the relative rates of return of NDC versus FDC designs, together with uncertain demographic effects on future investment needs, speak in favor of a UPPS portfolio with both. UPPS-FDC involves additional risks and costs, but also provides positive effects through returns for individuals and the economy.
    Keywords: non-financial defined contribution (NDC), income allocation, retirement, externalities, transparency, fairness, universal public pension scheme (UPPS)
    JEL: D6 D62 D81 E62 G22 G28 H23 H55 J14 J18
    Date: 2019–03
  71. By: J. E. Boscá; R. Doménech; J. Ferri; J. Rubio-Ramirez
    Abstract: This paper evaluates the macroeconomic effects of taxes on banking in a small open economy in a currency union for three tax alternatives: an additional tax on profits, on deposits, and on loans. We propose a DSGE model with a rich detail of taxes and a banking sector and show that these three taxes are equivalent in their effects on macroeconomic variables. Banks react to higher taxes by increasing their markups and by transferring part of the fiscal cost to households and firms through higher interest rates on loans. The increase in government revenues comes at a cost of a long-run decrease of GDP, an increase in loans interest rates, and a reduction in the volume of credit, deposits and bank capital. Our simulation exercises show that the trade-off between government revenues and economic activity is well captured by a multiplier of GDP to ex post government revenue close to -0.9, which is virtually independent of the tax rate.
    Date: 2019–04
  72. By: Esteves, Rui; Nogues-Marco, Pilar
    Abstract: We divide this paper into four sections. The first section outlines the taxonomy of commodity-based monetary regimes in Europe and their advantages and costs. The second section describes the main international monetary flows in the Early Modern period and relates them to East-West balance-of-trade adjustments and monetary systems in Asia (1700-1800). In the third section, we turn to the development of the foreign exchange market, which was mostly based on bills of exchange in this period. We explain the expansion of bills-of-exchange market from the European to the intercontinental network in the mid-19th century. The final section then investigates how nominal exchange rates and relative prices contributed to the global current account adjustments in the near pre-gold standard period (1820s-1870s).
    Keywords: Balance of Payments; Monetary Systems; Price-specie flow mechanism; Real effective exchange rates (REERs)
    JEL: E42 F31 N10
    Date: 2019–04
  73. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: In New York, St. Louis Fed President James Bullard laid out a possible strategy for extending the U.S. economic expansion. The strategy relies on placing more weight on financial market signals, such as the slope of the yield curve and market-based inflation expectations, than is customary. He noted that many current approaches to monetary policy strategy continue to overemphasize the now-defunct empirics of the Phillips curve, whose inflation-unemployment relationship has largely broken down over the past two decades. “Handled properly, current financial market information can provide the basis for a better forward-looking monetary policy strategy,” he said. He also noted that these signals could help the FOMC better identify the neutral policy rate. “The flattening yield curve and subdued market-based inflation expectations suggest that the current monetary policy stance is already neutral or possibly somewhat restrictive,” he said.
    Date: 2018–09–05
  74. By: Molinder, Jakob (Department of History, Uppsala University)
    Abstract: Sweden is often cited as one of the starkest examples of a country where corporatist policy structures and centralized wage bargaining produced remarkable economic and social outcomes in the postwar golden years. Not surprisingly, previous explanations for Sweden’s full employment period have emphasized this set of labor market institutions which was in place from the 1950s. Alternatively, temporary demand-factors in connection with the Second World War have been stressed as a cause. In this paper, I examine the development of unemployment in Sweden in the 1930s and 1940s and establish two facts: i) unemployment fell continuously from the mid-1930s until immediately after the end of the Second World War, resulting in the low levels of unemployment that would characterize the postwar period, and ii) inflation did not spiral as a result, suggesting restraint in wages over the same period. The fact that unemployment fell before the establishment of Sweden’s postwar labor market institutions suggest that they were not the cause for the full employment economy. The absence of escalating inflation likewise rules out temporary demand-factors such as Keynesian economic stimulus and military conscription. The failure of these factors to explain the change suggests instead that exogenous forces shifted the relationship between wages and unemployment during this period, lining up with similar observations for the UK. The results have implications for the literature on the determinants of unemployment, indicating that neither corporatist institutions nor expansionary fiscal policy played a role in the shift to full employment in Sweden - one of the marking examples of postwar economic success.
    Keywords: unemployment; Sweden; labor markets; corporatism; interwar period; postwar period
    JEL: E24 J64 N14 N34 N64
    Date: 2019–04–08
  75. By: Darracq Pariès, Matthieu; Papadopoulou, Niki
    Abstract: Through the euro area crisis, financial fragmentation across jurisdictions became a prime concern for the single monetary policy. The ECB broadened the scope of its instruments and enacted a series of non-standard measures to engineer an appropriate degree of policy accommodation. The transmission of these measures through the currency union remained highly dependent on the financial structure and conditions prevailing in various regions. This paper explores the country-specific macroeconomic transmission of selected non-standard measures from the ECB using a global DSGE model with a rich financial sector: we extend the six-region multi-country model of Darracq Pariès et al. (2016), introducing credit and exchange rate channels for central bank asset purchases. The portfolio rebalancing frictions are calibrated to match the sovereign yield and exchange rate responses after ECB's Asset Purchase Programme (APP) first announcement. The domestic transmission of the APP through the credit intermediation chain is significant and quite heterogenous across the largest euro area countries. The introduction of global portfolio frictions on euro area government bond holdings by international investors opens up for a larger depreciation of the euro. The interaction between international and domestic channels affect the magnitude and the cross-country distribution of the APP impact. JEL Classification: E4, E5, F4
    Keywords: banking, bank lending rates, cross-country spillovers, DSGE models, financial regulation, non-standard measures
    Date: 2019–03
  76. By: Gabriele Camera (Economic Science Institute, Chapman University & University of Bologna); Cary Deck (University of Alabama & Chapman University); David Porter (Economic Science Institute, Chapman University)
    Abstract: We explore if fairness and inequality motivations affect cooperation in indefinitely repeated games. Each round, we randomly divided experimental participants into donor-recipient pairs. Donors could make a gift to recipients, and ex-ante earnings are highest when all donors give. Roles were randomly reassigned every period, which induced inequality in ex-post earnings. Theoretically, income-maximizing players do not have to condition on this inequality because it is payoff-irrelevant. Empirically, payoff-irrelevant inequality affected participants’ ability to coordinate on efficient play: donors conditioned gifts on their own past roles and, with inequalities made visible, discriminated against those who were better off.
    Keywords: cooperation, experiments, indefinitely repeated games, social dilemmas
    JEL: C70 C90 D03 E02
    Date: 2019
  77. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: We study nominal GDP targeting as optimal monetary policy in a simple and stylized model with a credit market friction. The macroeconomy we study has considerable income inequality, which gives rise to a large private sector credit market. There is an important credit market friction because households participating in the credit market use non-state contingent nominal contracts (NSCNC). We extend previous results in this model by allowing for substantial intra-cohort heterogeneity. The heterogeneity is substantial enough that we can approach measured Gini coefficients for income, financial wealth, and consumption in the U.S. data. We show that nominal GDP targeting continues to characterize optimal monetary policy in this setting. Optimal monetary policy repairs the distortion caused by the credit market friction and so leaves heterogeneous households supplying their desired amount of labor, a type of "divine coincidence" result. We also further characterize monetary policy in terms of nominal interest rate adjustment.
    Date: 2018–06–14
  78. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Federal Reserve Bank of Boston President Eric Rosengren explored misconceptions about the Fed’s balance sheet – the assets the central bank holds, and the liabilities and capital used to finance those assets – in a speech in Hong Kong.
    Keywords: monetary policy; balance sheet; interest rates; financial stability; economic outlook; markets
    Date: 2019–03–26
  79. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Eric Rosengren, the Boston Fed president, offered up a “relatively strong forecast” for the economy in 2019: growth somewhat above 2 percent, inflation close to the Fed’s 2 percent target, and a labor market that continues to tighten. However, “risks to that outlook have increased recently,” he said, in a talk focused on assessing and managing those risks.
    Keywords: monetary policy; interest rates; financial stability; fiscal policy; markets; economic outlook
    Date: 2019–03–05
  80. By: Bullard, James B. (Federal Reserve Bank of St. Louis); DiCecio, Riccardo (Federal Reserve Bank of St. Louis)
    Abstract: In a presentation at the University of Wisconsin-Madison, St. Louis Fed President James Bullard highlighted his recent working paper, which examines whether monetary policy can be conducted in a way that benefits all households even in a world with substantial income, financial wealth and consumption inequality. In the paper, nominal GDP targeting constitutes “optimal monetary policy for the masses,” he said.
    Date: 2019–03–28
  81. By: Reis, Ricardo
    Abstract: This chapter is a comment on Michelson-Morley, Fisher, and Occam: The Radical Implications of Stable Quiet Inflation at the Zero Bound, John H. Cochrane
    JEL: J1
    Date: 2018–05–16
  82. By: Szybisz, Martin Andres
    Abstract: The relations between credit and market risk have deep roots in financial and economic theory. After a brief theory review, we select five variables and calculate their historical shortfalls. This shortfall is taken as a proxy for market risk quantification. Relating this shortfall to non performing loans as a proxy for credit risk allows us to study the nature of the relation between credit and market risk. The nonlinearity of the relation is discussed in view of diversification and compounding effects.
    Keywords: Credit risk, Market risk, Aggregation, Diversification, Compounding effect
    JEL: D81 E44 G21
    Date: 2019–04–09
  83. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: “Market-based signals such as low market-based inflation expectations and a threatening yield curve inversion suggest that this window of opportunity has now closed,” he said. He added that the Federal Open Market Committee (FOMC) should heed these important signals in order to keep the U.S. expansion on track for the next several years. “The FOMC has already been sufficiently pre-emptive over the last two years to contain upside inflation risk,” he told an audience of about 200 business and civic leaders.
    Date: 2019–01–10
  84. By: Jagjit S. Chadha; Ana Rincon-Aznar; Sylaja Srinivasan; Ryland Thomas
    Abstract: This paper provides an inventory of the available macroeconomic statistics in the UK for the last hundred years or so. The focus is on documenting the higher frequency (daily, monthly and quarterly) macroeconomic data that are available after the World War 1, rather than longer run annual time series which has been the focus of other collections. It discusses some of the challenges that need to be overcome in order to create a continuous historical dataset over this period. The inventory follows the structure of the Economic Trends Annual Supplement (ETAS) that was produced for many years by the Office for National Statistics. It covers statistics on National Accounts, prices, labour market indicators, selected demand and output indicators and financial market data (including money and credit aggregates). Using this structure the paper explores to what extent it is possible to create a consistent, usable and comprehensive high frequency macroeconomic dataset back to the 1920s and earlier.
    Keywords: National Accounts, Macroeconomics, UK Statistics
    JEL: C82 E01 N1
    Date: 2019–04
  85. By: Nicolás Andrés Cabra Ruiz; Nicolás Steven Escobar Forero; Andrés Nicolás Herrera Rojas
    Abstract: El presente trabajo tiene como objetivo evaluar los factores que explican la tasa de homicidios en la ciudad de Bogotá. Para ello, se hace una revisión bibliográfica siguiendo el criterio que Briceño establece en su artículo La Comprensión de los Homicidios en América Latina: ¿Pobreza o Institucionalidad? (2002). Este autor separa los trabajos de este tipo en dos vertientes: aquellos que hacen un mayor énfasis en las variables institucionales y aquellos que lo hacen en las socioeconómicas. En el texto se toman estas últimas para evaluar el impacto de estas variables sobre la tasa de homicidios de la ciudad de Bogotá entre los años 2002 y 2017. Este análisis se realiza mediante una regresión econométrica. Los resultados apuntan a una significancia de variables socioeconómicas tales como el índice Gini, la pobreza y el desempleo a la hora de explicar la tasa de homicidios en la ciudad. *** The objective of this paper is to evaluate the factors that explain the homicide rate in the city of Bogotá. To this end, a bibliographic review is carried out following the criteria established by Briceño in his article La comprensión de los homicidios en Amércia Latina: ¿Pobreza o institucionalidad? This author separates this type of work into two aspects: those that place greater emphasis on institutional variables and those that do so in socioeconomic variables. The text takes the latter to evaluate the impact of these variables on the homicide rate of the city of Bogotá between 2002 and 2017. This analysis is executed using econometric regression. The results point a significance of socioeconomic variables such as the Gini index, poverty and unemployment when explaining the homicide rate in the city.
    Keywords: tasa de homicidios, Bogotá, desigualdad, pobreza, desempleo
    JEL: D63 E24 K42 R28
    Date: 2019–04–02
  86. By: António Afonso; João Tovar Jalles
    Abstract: We assess, via system GMM, how Stock Flow Adjustments (SFA) affect the debt-to-GDP ratio in 65 countries (covering developed and emerging and low-income countries) between1985-2014. We find that SFAs positively contribute to the change in the debt-to-GDP ratio with a coefficient close to one. The existence of fiscal rules with monitor compliance contributes to lower the debt level. The fall in the debt ratio due to fiscal rules before the crisis was between 1.7%-4.2% of GDP while after the crisis, revenue and debt-based rules did not contribute to the reduction of debt, which was reinforced with large SFAs.
    Date: 2019
  87. By: Kenny S, Victoria
    Abstract: Unemployment has been seen as a world-wide economic problem and has been categorized as one of the serious impediments to social progress. Apart from representing a huge waste of a country’s manpower resources, it generates welfare loss in terms of lower output thereby leading to lower income and poor standard of living. The study found adopts the VAR Granger Causality approach to examine the direction of relationship between unemployment (UNEMP) and economic growth rate (RGDP) in Nigeria covering the period of 1981-2016. Key findings revealed a unidirectional VAR Causal relationship between unemployment and economic growth implying that the level of economic activities does not Granger cause the rate of unemployment in Nigeria. Hence government should largely enhance the survival of small and medium scale companies which can help create jobs, lower unemployment and cause sustainable real output growth, further resulting in increase in the rate of employment generation in the economy.
    Keywords: Unemployment, Economic Growth, Causality
    JEL: E0
    Date: 2019–04–07
  88. By: Virginie Coudert; Cécile Couharde; Carl Grekou; Valérie Mignon
    Abstract: We assess cross-country heterogeneity within the eurozone and its evolution over time by measuring the distances between the equilibrium exchange rates’ paths of member countries. These equilibrium paths are derived from the minimization of currency misalignments, by matching real exchange rates with their economic fundamentals. Using cluster and factor analyses, we identify two distinct groups of countries in the run-up to the European Monetary Union (EMU), Greece being clearly an outlier at that time. Comparing the results with more recent periods, we find evidence of rising dissimilarities between these two sets of countries, as well as within the groups themselves. Overall, our findings illustrate the building-up of macroeconomic imbalances within the eurozone before the 2008 crisis and the fragmentation between its member countries that followed.
    Keywords: Euro area; Equilibrium exchange rates; Cluster analysis; Factor analysis; Macroeconomic imbalances
    JEL: F33 E5 C38
    Date: 2019
  89. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: In a speech in Philadelphia, St. Louis Fed President James Bullard paid tribute to the late Allan Meltzer, a monetary economist, economic historian and “a great friend of the St. Louis Fed.” Bullard cited Meltzer’s research on the run-up to the Great Inflation of the 1970s and early 1980s and contrasted that period with the inflation targeting era of the past two decades, when inflation was brought under control. “Inflation targeting has worked well because it deals more directly with the coordination of macroeconomic expectations than other approaches. By committing to an inflation target, inflation has generally been kept lower and less variable, and inflation expectations have also been less variable,” Bullard said. “This has been a major achievement of U.S. monetary policy, and one to which Allan Meltzer made an outsized contribution.”
    Date: 2018–01–04
  90. By: Mohamed Diaby; Atsuyoshi Morozumi
    Abstract: Previous research on price-setting has shown that the degree of nominal price rigidity differs substantially across sectors. This paper proposes returns to scale as a key determinant of this sectoral heterogeneity in price rigidity. We develop a multi-sector menu cost model with heterogeneity in returns to scale and sectoral idiosyncratic shocks, and show analytically that a sector with higher returns to scale is associated with larger price rigidity. Numerical experiments using estimated returns to scale for US manufacturing sectors suggest that the e ect of returns to scale is quantitatively large. We also provide empirical evidence consistent with the theoretical prediction.
    Keywords: Menu costs, Sectoral heterogeneity, Price rigidity, Returns to scale
    Date: 2019
  91. By: Tamon Asonuma; Marcos d Chamon; Aitor Erce; Akira Sasahara
    Abstract: Sovereign debt restructurings are associated with declines in GDP, investment, bank credit, and capital flows. The transmission channels and associated output and banking sector costs depend on whether the restructuring takes place preemptively, without missing payments to creditors, or whether it takes place after a default has occurred. Post-default restructurings are associated with larger declines in bank credit, an increase in lending interest rates, and a higher likelihood of triggering a banking crisis than pre-emptive restructurings. Our local projection estimates show large declines in GDP, investment, and credit amplified by severe sudden stops and transmitted through a “capital inflow-credit channel”.
    Date: 2019–03–25
  92. By: Ali Alichi; Ippei Shibata; Kadir Tanyeri
    Abstract: Government debt in many small states has risen beyond sustainable levels and some governments are considering fiscal consolidation. This paper estimates fiscal policy multipliers for small states using two distinct models: an empirical forecast error model with data from 23 small states across the world; and a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to a hypothetical small state’s economy. The results suggest that fiscal policy using government current primary spending is ineffective, but using government investment is very potent in small states in affecting the level of their GDP over the medium term. These results are robust to different model specifications and characteristics of small states. Inability to affect GDP using current primary spending could be frustrating for policymakers when an expansionary policy is needed, but encouraging at the current juncture when many governments are considering fiscal consolidation. For the short term, however, multipliers for government current primary spending are larger and affected by imports as share of GDP, level of government debt, and position of the economy in the business cycle, among other factors.
    Date: 2019–03–26
  93. By: Raghavan, Mala (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: The paper analyses the importance of supply versus demand shocks on the global oil market from 1974 to 2017, using a parsimonious structural vector autoregressive mov- ing average (SVARMA) model. The superior out-of-sample forecasting performance of the reduced form VARMA compared to VAR alternatives advocates the suitabil- ity of this framework. We specifically account for the changes in the oil market over three distinctive sub-periods - pre moderation, great moderation and post moderation periods, to provide a means of identifying the changing nature of shock transmission mechanism across times. The findings shed some light on the effects of supply versus demand related oil shocks under different economic environment. Oil supply shocks explain large fraction of the movements in the global oil market in the pre and post moderation periods, i.e. during the slower economic growth periods. The importance of global activity shock on oil price movements is obvious during the 2003-2008 boom period. The oil specific shock has an interesting transmission path on the global eco- nomic activity, where the global activity responded positively and negatively during the global economic expansion and contraction respectively, emphasising the precautionary nature of the shock.
    Keywords: VARMA models, oil price shocks, global oil market, impulse responses, forecasting
    JEL: C32 E32 Q43
    Date: 2019
  94. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Date: 2018–06–19
  95. By: Grafström, Jonas (The Ratio Institute)
    Abstract: An anecdote about the failure of the Soviet economic system tells about a factory which were evaluated based on tons of nails produced – unsurprisingly the nails became heavy. China is currently hailed as the worlds primer wind power producer; however, a closer examination reveals a string of policy failure making the Chinese wind power development resemble the infamous Soviet nail example. From a technological transition perspective, policy failures in China's wind power program from 1980-2016 is documented and analysed. Five overarching topics are analysed including: Conflicting policies, quality problems, underwhelming technological development, lacking technological standards and insufficient grid transmission system. One conclusion is that when the Chinese government set a command and control target of how much new installed capacity that was going to be constructed the state utilities delivered to target but with an abundance of power plants without grid connectivity, severe quality problems and low technological development.
    Keywords: China; Wind power; Economic Planning; Soviet; Technology; Energy
    JEL: E61 O32 Q28 Q58
    Date: 2019–04–02
  96. By: Naudé, Wim (Maastricht University)
    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 difficult 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, articial intelligence, productivity, labor demand, innovation, inequality
    JEL: O47 O33 J24 E21 E25
    Date: 2019–03
  97. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: St. Louis Fed President James Bullard said that despite low unemployment and accommodative monetary policy, U.S. inflation surprised to the downside in 2017. This has spurred talk of possible alternatives to inflation targeting. He noted one possible approach – price level targeting – would likely require lots of careful preparation and debate before any changes could be made. Under this framework, “deviations from target are overcome by allowing for higher or lower inflation in the future in such a way that the inflation target is maintained on average. In contrast, today’s inflation targeting regime simply allows misses and does not do anything about them.” Bullard spoke in St. Louis.
    Date: 2018–01–10
  98. By: Agarwal, Samiksha; Chakraborty, Lekha
    Abstract: This paper estimates the incidence of corporate taxes in an emerging economy –India- using the data from 5,666 business firms listed in the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000-15. Using the dynamic panel models, we find that capital bear the burden of corporate taxation relatively more than the labour. Our findings highlight that the burden of corporate tax is more on capital than labour. It is also found that the effective tax rate is higher for the small corporate firms than the gigantic firms. Further research is required to understand whether less incidence of corporate taxation on wages in India is due to profit shifting.
    Keywords: corporate tax incidence, dynamic panel, factor mobility, labour, capital, business taxation
    JEL: E6 H22
    Date: 2019–03–01
  99. By: Kenny S, Victoria
    Abstract: Exchange rate instability is menacing economic growth in Nigeria. Fluctuations, whether positive or negative, increases risk and discourages trade hence is not desirable for the economy. This study therefore examine exchange rate fluctuation during the different exchange rate regime, its impact on economic growth rate to determine which of the exchange rate regime significantly influence economic growth in Nigeria covering periods from 1981 to 2015. The method of data analysis employed Augmented Dickey Fuller (ADF) Unit Root Test, Co-integration test, Fully Modified Ordinary Least Square (FMOLS) estimation technique and diagnostic tests. The FMOLS result revealed that exchange rate, external reserve, money supply and capital input have significant impact on the economic growth of Nigeria; whereas labour shows no significant impact on economic growth in the long run. Also, the dummy variable indicates a negative insignificant coefficient which suggests that fixed exchange rate wouldn’t enhance the economy of Nigeria in the long run. This study concludes that sustained utilization of manage floating exchange rate regime in the country would significantly improve the domestic production leading to increase in the stock of external reserve in Nigeria. Therefore, the high frequency of change in exchange rate regime by the Central Bank of Nigeria (CBN) should be discouraged because exchange rate regime signifies a shock for currency markets. Likewise, the Federal government strives to accumulate external reserves and discourage the incessant sharing of the foreign earnings from crude oil exports between the federal, state and local governments.
    Keywords: Exchange Rate, Economic Growth, External Reserves, Currency Management
    JEL: E0
    Date: 2019–04–06
  100. By: Zohair Alam; Adrian Alter; Jesse Eiseman; R. G Gelos; Heedon Kang; Machiko Narita; Erlend Nier; Naixi Wang
    Abstract: This paper introduces a new comprehensive database of macroprudential policies, which combines information from various sources and covers 134 countries from January 1990 to December 2016. Using these data, we first confirm that loan-targeted instruments have a significant impact on household credit, and a milder, dampening effect on consumption. Next, we exploit novel numerical information on loan-to-value (LTV) limits using a propensity-score-based method to address endogeneity concerns. The results point to economically significant and nonlinear effects, with a declining impact for larger tightening measures. Moreover, the initial LTV level appears to matter; when LTV limits are already tight, the effects of additional tightening on credit is dampened while those on consumption are strengthened.
    Keywords: Mortgages;Exchange rate policy;Reserve requirements;Household credit;Credit booms;Macroprudential policy;loan-to-value ratios;propensity score;LTV;policy action;reverse causality;endogeneity;appendix IV
    Date: 2019–03–22
  101. By: Steusloff, Tatjana (Department of Economics of the Duesseldorf University of Applied Sciences); Steusloff, Tatjana (Department of Economics of the Duesseldorf University of Applied Sciences)
    Abstract: Das Interesse an gesunder und bewusster Ernährung steigt in breiten Teilen der Bevölkerung und führt auch zu neuen Ernährungstrends. Superfoods gehören zu den im Trend liegenden gesunden Lebensmitteln. Nach den USA ist Deutschland der zweitwichtigste Markt für diese Produkte. In dieser Studie wurde neben dem Begriffsverständnis von Superfood die Motive und Barrieren untersucht, welche die Konsumentscheidung beeinflussen. Die Ergebnisse verdeutlichen, dass es ein einheitliches Begriffsverständnis von Superfood in Deutschland nicht gibt. Die Motive für den Konsum reichen weit über physiologische Bedürfnisse hinaus. Neben sozialen Aspekten sind eine Verbesserung der Lebensqualität, des Selbstbewusstseins und der Wunsch nach persönlicher Weiterentwicklung kauffördernd. Zu den größten Konsumbarrieren gehören neben dem Preis, fehlende Informationen zum Produkt und möglichen Verarbeitungs- und Zubereitungsmöglichkeiten. Die Erkenntnisse dieser Studie ermöglichen Anbietern von Superfoods, ihre Produkte zielgruppengerechter und differenzierter zu vermarkten, um dadurch den Anteil der Superfood-Verwendern zu erhöhen.
    Abstract: The interest in healthy and conscious nutrition is increasing in broad sections of the population and leads to new nutritional trends. Superfoods are one of those popular healthy food trends. After the USA, Germany is the second most important market for these products. This study investigates the meaning of superfood from a consumer perspective and analyses the motives and barriers that influence consumer choice. The results clarify that a common understanding of superfood does not exist. The motives for consumption go far beyond physiological needs. In addition to social aspects, an improvement of the quality of life, self-confidence and the desire for personal development promote the purchase of superfoods. The biggest consumer barriers include pricing, missing product and preparation information. This study enables superfood providers to market their products more target group focused in order to increase the number of superfood users.
    Keywords: Barrieren, Konsumverhalten, Lebensmittel, Motive, Superfood, barriers, consumer behavior, food, motives
    JEL: L66 E2 P46
  102. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Date: 2018–01–26
  103. By: Nashihah, Faidatun
    Abstract: This article describes the market as a meeting place between demand and supply for the type of goods or services. In a capitalist economic system, buyers and sellers bargain with each other to determine prices that give freedom to the market and the government must not intervene which can disrupt the market balance. While the socialist economic system has a view by eliminating the role of markets and the government plays an active role in resolving and regulating all economic problems. In Islamic economics, the market is left freely or the government distorts the existence of a market mechanism. Using a comparative approach to the existing economic system in the world, this article concludes that the Islamic economic system combines market freedom and the role of government that emphasizes the principle of maslahah (goodness), which is a condition of market justice that emphasizes the fulfillment of people's needs in achieving welfare (falah).
    Keywords: market mechanism, capitalism, socialism, Islamic economics, falah
    JEL: E02 I31 P10 P20 P51
    Date: 2019–03–20
  104. By: Hasan, Zubair
    Abstract: Budgetary deficits and adverse external payments have emerged as major public policy concerns in recent times. The purpose of this paper is to discuss briefly various aspects and forms of deficit financing as modern economies increasingly use it to address these concerns. Historical evidence shows that controlled deficit finance can be a useful tool to mobilize physical resources for economic development. Borrowings from the IMF are available to meet deficits during financial turmoil and chronic balance of payments deficits for country bailout. The paper warns of the dangers of reckless indulgence in deficit financing, internal or external - and indicates precautions to avoid the pitfalls. It puts, presumably for the first time deficit finance for various purposes from different sources in a single framework.
    Keywords: Deficit financing, Economic development; International Monetary Fund (IMF) constitutionality; Arms race;
    JEL: E65
    Date: 2019–01

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