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on Macroeconomics |
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Issue of 2019‒04‒22
99 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Hauser, Daniela (Bank of Canada); Seneca, Martin (Bank of England) |
| Abstract: | We study macroeconomic dynamics and optimal monetary policy in an economy with cyclical labor flows across two distinct regions sharing trade links and a common monetary framework. In our New Keynesian DSGE model with search and matching frictions, migration flows are driven by fluctuations in the relative labor market performance across the monetary union. The optimizing monetary policymaker shows greater flexibility in inflation targeting when labor is mobile by leaning somewhat against deviations of migration flows from efficient benchmarks. But strict inflation targeting remains close to optimal. For a given monetary policy, labor mobility facilitates macroeconomic adjustments by reducing efficiency gaps in regional labor markets. Internal migration therefore reduces the welfare costs of following simple suboptimal monetary policy rules in a monetary union. |
| Keywords: | Labor mobility; monetary policy; monetary union; business cycles |
| JEL: | E32 E52 |
| Date: | 2019–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0786&r=all |
| By: | Proaño Acosta, Christian; Peña, Juan Carlos; Saalfeld, Thomas |
| Abstract: | This paper investigates the macroeconomic and social determinants of voting behavior, and especially of political polarization, for 20 advanced countries using annual data ranging from 1970 to 2016 and covering 291 parliamentary elections. Using a panel estimation approach and rolling regressions we find empirical evidence supporting that a) traditionally established mainstream parties (center-left, center, and center-right) are penalized for poor economic performance; b) far-left (populist and radical parties) parties benefit from increasing unemployment rates; c) greater income inequality has increased the electoral support for far-right parties, particularly in recent times. Further, we do not find empirical support for the notion that social and economic globalization has led to an increase of popularity of far-right parties. These results have wide reaching implications for the current political situation in the Western world. |
| Keywords: | Income Inequality,Political Polarization,Globalization,Economic Voting Behavior |
| JEL: | E12 E24 E32 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:149&r=all |
| By: | Enrique Alberola-Ila; Carlos Urrutia |
| Abstract: | Informality is an entrenched structural trait in emerging market economies, despite of the progress achieved in macroeconomic management. Informality determines the behavior of labour markets, financial access and the productivity of the overall economy. Therefore it influences the transmission of shocks and also of monetary policy. This paper develops a simple general equilibrium closed economy model with nominal rigidities, labor and financial frictions. Informality is captured by a dual labour market where the share of informal workers is endogenous. Only formal sector firms have access to financing, which is instrumental in their production process. Informality has a buffering effect on the propagation of demand and supply shocks to prices; the financial feature of the model exacerbates the impact of financial shocks in the formal sector while the informal sector is in principle unaffected. As a result informality dampens the impact of demand and financial shocks on wages and inflation but heighten the impact of technology shocks. Informality also increases the sacrifice ratio of monetary policy actions. From a Central Bank perspective, the results imply that the presence of an informal sector mitigates inflation volatility for some type of shocks but makes monetary policy less effective. |
| Keywords: | informality, inflation, monetary policy |
| JEL: | E26 E31 E52 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:778&r=all |
| By: | Nguyen, Thien T. (Ohio State University (OSU) - Department of Finance) |
| Abstract: | The maturity-weighted public debt-to-GDP ratio predicts negatively one- to five-year cumulative nominal consumption growth. Moreover, a higher debt-to-GDP ratio is associated with higher yield spreads, controlling for output gap and inflation. I examine these facts in a New Keynesian DSGE model in which growth and inflation are endogenous. In this model, high government debt forecasts low growth and deflation, making bonds attractive assets in high debt states. Furthermore, due to mean-reversions of fundamental processes that drive the economy, longer-term bonds are better hedges than shorter-term ones, resulting in increases in the slope of the term structure at times of high public debt and hence the empirical regularities seen in the data. My model can also explain several other puzzling phenomena, including the bond premium puzzle, the bond yield volatility puzzle, the failure of the expectations hypothesis, and the ability of a linear combination of the forward rates and the forward spread to forecast excess bond returns. |
| JEL: | E43 E44 E62 G12 G18 H32 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2018-23&r=all |
| By: | Miranda-Agrippino, Silvia (Department for Economics, Northwestern University); Hacioglu Hoke, Sinem (Bank of England); Bluwstein, Kristina (Bank of England) |
| Abstract: | We use data on monthly patent applications to construct an external instrument for identification of technology news shocks in an information-rich VAR. Technology diffuses slowly and affects total factor productivity in an S-shaped pattern. Responsible for about a tenth of economic fluctuations at business cycle frequencies, the shock elicits a slow, large and positive response of quantities, and a sluggish contraction of prices followed by an endogenous easing of the monetary stance. The ensuing economic expansion substantially anticipates any material increase in TFP. Technology news shocks are strongly priced into the stock market on impact, but measures of consumer expectations take sensibly longer to adjust, consistent with a New-Keynesian framework with nominal rigidities, and featuring informationally constrained agents. |
| Keywords: | Technology news shocks; business cycle; identification with external instruments; patent applications |
| JEL: | E22 E23 E32 O33 O34 |
| Date: | 2019–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0788&r=all |
| By: | Li, Ye (Ohio State University) |
| Abstract: | This paper analyzes the endogenous risk in economies where intangible capital is essential and its limited pledgeability induces firms' liquidity demand. Banks emerge to intermediate the liquidity supply by holding claims on firms' tangible capital and issuing deposits that firms hold to pay for intangible investment. A bubbly value of tangible capital arises and increases in banks' balance-sheet capacity. Its procyclicality induces firms' investment and savings waves, which feed into banks' risk-taking and amplify downside risks. The model produces stagnant crises and replicates several trends in the decades leading up to the Great Recession: (1) the rise of intangible capital; (2) the increase of firms' cash holdings; (3) the growth of financial intermediation; (4) the declining real interest rate; (5) the rising prices of collateral assets. |
| JEL: | D92 E10 E32 E41 E44 E51 G12 G20 G31 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2018-19&r=all |
| By: | Bossone, Biagio |
| Abstract: | The Portfolio Theory of Inflation (PIT) proposed in this study investigates the role of global financial markets in determining the effectiveness of macroeconomic policy in open and fully financial integrated economies. The PIT adopts a modified version of the portfolio balance approach to exchange rate determination and incorporates intertemporal optimal choices from global investors. These investors allocate resources across national economies based on local investment opportunities and policy credibility: when a country's credibility is low, they hold its economy to a tighter intertemporal budget constraint and the issuance of what they deem as "excess" public sector liabilities causes the country's currency to depreciate and inflation to rise due to a large exchange rate pass-through, with limited or no impact on output. On the other hand, high credibility creates space for effective and noninflationary macro policies but, if such space is abused, credibility gets dissipated and higher inflation reflects such dissipation. |
| Keywords: | credibility,exchange rate,financial integration,global investor,interest rate,intertemporal budget constraint,money, bonds and assets,pass-through |
| JEL: | E31 E4 E5 E62 F31 G15 H3 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201929&r=all |
| By: | Toshitaka Maruyama (Bank of Japan); Kenji Suganuma (Bank of Japan) |
| Abstract: | In this paper, we estimate "inflation expectations curve" - a term structure of inflation expectations - combining forecast data of various agents. We use a state-space model which considers consistency among expectations at different horizons, and for relationships between inflation rate, real growth rate and nominal interest rate. We find that the slope of the curve in Japan is positive in almost all periods since the 1990s. In addition, looking at the estimated inflation expectations in time series, the inflation expectations at all horizons rose in the mid-2000s and from late 2012 to 2013, after the downward trend from the early 1990s to the early 2000s. Short-term inflation expectations in particular have tended to shift upwards since the launch of Quantitative and Qualitative Monetary Easing, while being affected by fluctuations in the import price. Finally, a structural VAR analysis shows that the estimated inflation expectations in Japan are largely adaptive, meaning their formation is affected by actual inflation rates. |
| Keywords: | Inflation expectations; Term structure; State-space model |
| JEL: | C32 D84 E31 E43 E52 |
| Date: | 2019–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp19e06&r=all |
| By: | Quast, Josefine; Wolters, Maik H. |
| Abstract: | The authors contribute to the debate regarding the reliability of output gap estimates. As an alternative to the Hodrick-Prescott (HP) filter, they propose a simple modification of the filter proposed by Hamilton in 2018 that shares its favorable real-time properties, but leads to a more even coverage of typical business cycle frequencies. Based on output growth and inflation forecasts and a comparison to revised output gap estimates from policy institutions, they find that real-time output gaps based on the modified Hamilton filter are economically much more meaningful measures of the business cycle than those based on other simple statistical trend-cycle decomposition techniques such as the HP or the Bandpass filter. |
| Keywords: | output gap,potential output,trend-cycle decomposition,Hamilton filter,real-time data,inflation forecasting |
| JEL: | C18 E32 E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:133&r=all |
| By: | Bauer, Michael D. (Federal Reserve Bank of San Francisco); Lakdawala, Aeimit K. (University of California, San Diego); Mueller, Philippe (Warwick Business School) |
| Abstract: | This paper investigates the role of monetary policy uncertainty for the transmission of FOMC actions to financial markets using a novel model-free measure of uncertainty based on derivative prices. We document a systematic pattern in monetary policy uncertainty over the course of the FOMC meeting cycle: On FOMC announcement days uncertainty tends to decline substantially, indicating the resolution of policy uncertainty. This decline is then reversed over the first two weeks of the intermeeting FOMC cycle. Both the level and the changes in uncertainty play an important role for the transmission of monetary policy to financial markets. First, changes in uncertainty have substantial effects on a variety of asset prices that are distinct from the effects of the conventional policy surprise measure. For example, the Fed's forward guidance announcements affected asset prices not only by adjusting the expected policy path but also by changing market-perceived uncertainty about this path. Second, at high levels of uncertainty a monetary policy surprise has only modest effects on assets, whereas with low uncertainty the impact is significantly more pronounced. |
| JEL: | E43 E44 E47 |
| Date: | 2019–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2019-12&r=all |
| By: | Jia, Chengcheng (Federal Reserve Bank of Cleveland) |
| Abstract: | I explore how asymmetric information between the central bank and the private sector changes the optimal conduct of monetary policy. I build a New Keynesian model in which private agents have imperfect information about underlying shocks, while the central bank has perfect information. In this environment, private agents extract information about the underlying shocks from the central bank’s interest-rate decisions. This informational effect weakens the direct effect of monetary policy: When the central bank adjusts the interest rate to offset the effects of underlying shocks, the interest rate also reveals information about the realization of underlying shocks. Because private agents have more precise information about the shocks and consequently react more aggressively to it, the economy becomes harder to stabilize with monetary policy. I show that committing to the optimal state-contingent policy rule alleviates this problem by controlling the information revealed through the interest rate. |
| Keywords: | Monetary Policy; Policy Rule; |
| JEL: | D83 E43 E52 E58 |
| Date: | 2019–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:190700&r=all |
| By: | Grossman, Valerie (Federal Reserve Bank of Dallas); Martinez-Garcia, Enrique (Federal Reserve Bank of Dallas); Wynne, Mark A. (Federal Reserve Bank of Dallas); Zhang, Ren (Bowling Green State University) |
| Abstract: | This paper estimates the natural interest rate for six small open economies (Australia, Canada, South Korea, Sweden, Switzerland and the U.K.) with a structural New Keynesian model using Bayesian techniques. Our empirical analysis establishes the following four novel findings: First, we show that the open-economy framework provides a better fit of the data than its closed-economy counterpart for the six countries we investigate. Second, we also show that, in all six countries, a monetary policy rule in which the domestic real policy rate tracks the Wicksellian domestic short-term natural rate fits the data better than an otherwise standard Taylor (1993) rule. Third, we show that over the past 35 years, the natural interest rates in all six countries have shifted downwards and strongly comoved with each other. Fourth, our findings illustrate that foreign output shocks (spillovers from the rest of the world) are a major contributor to the dynamics of the natural rate in these six small open economies, and that natural rates comove strongly with estimated U.S. natural rates. |
| Keywords: | Small Open-Economy Model; Monetary Policy; Natural Rate; Bayesian Estimation |
| JEL: | C11 C13 E43 E58 F41 |
| Date: | 2019–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:359&r=all |
| By: | Daniela Hauser; Martin Seneca |
| Abstract: | The optimal currency literature has stressed the importance of labor mobility as a precondition for the success of monetary unions. But only a few studies formally link labor mobility to macroeconomic adjustment and policy. In this paper, we study macroeconomic dynamics and optimal monetary policy in an economy with cyclical labor flows across two distinct regions that share trade links and a common monetary framework. In our New Keynesian dynamic, stochastic, general-equilibrium model calibrated to the United States, migration flows are driven by fluctuations in the relative labor market performance across the monetary union. While labor mobility can be an additional channel for cross-regional spillovers as well as a regional shock absorber, we find that a mobile labor force closes the efficiency gaps in the labor market and thus lessens the trade-off between inflation and labor market stabilization. As migration flows are generally inefficient, however, regionspecific disturbances introduce additional trade-offs with regional labor market conditions. Putting some weight on stabilizing fluctuations in the labor market enhances welfare when monetary policy follows a simple rule. |
| Keywords: | Business fluctuations and cycles; Economic models; Labour markets; Monetary policy framework; Regional economic developments |
| JEL: | E32 E52 F4 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-15&r=all |
| By: | Gianni Amisano; Oreste Tristani |
| Abstract: | We study the relationship between monetary policy and long-term rates in a structural, general equilibrium model estimated on both macro and yields data from the United States. Regime shifts in the conditional variance of productivity shocks, or "uncertainty shocks", are an important model ingredient. First, they account for countercyclical movements in risk premia. Second, they induce changes in the demand for precautionary saving, which affects expected future real rates. Through changes in both risk-premia and expected future real rates, uncertainty shocks account for about 1/2 of the variance of long-term nominal yields over long horizons. The remaining driver of long-term yields are changes in in ation expectations induced by conventional, autoregressive shocks. Long-term in ation expectations implied by our model are in line with those based on survey data over the 1980s and 1990s, but less dogmatically anchored in the 2000s. |
| Keywords: | Monetary policy rules ; Uncertainty shocks ; Term structure of interest rates ; Regime switches ; Bayesian estimation |
| JEL: | E40 C11 E43 E52 C34 |
| Date: | 2019–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-24&r=all |
| By: | Paul Jackson; Florian Madison |
| Abstract: | We model entrepreneurial finance using a combination of fiat money, traditional bank loans, and home equity loans. The banking sector is over-the- counter, where bargaining determines the pass-through from the nominal interest rate to the bank lending rate, characterizing the transmission channel of monetary policy. The results show that the strength of this channel depends on the combination of nominal and real assets used to finance investments, and thus declines in the extent to which housing is accepted as collateral. A calibration to the U.S. economy supports the theoretical results and provides novel insights on entrepreneurial finance between 2000 and 2016. |
| Keywords: | Entrepreneurial finance, money, housing, collateral, monetary policy |
| JEL: | E22 E40 E52 G31 R31 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:322&r=all |
| By: | Yang-Ho Park |
| Abstract: | Using positions data on bond futures, I document that speculators' spread trades contain private information about future economic activities and asset prices. Strong steepening trades are associated with negative payroll surprises in subsequent months and can predict asset markets' reaction to future payroll releases, suggesting that speculators hold superior information about future payrolls. Steepening trades can also predict the rise of stock prices within a few hours before subsequent FOMC announcements, implying that the pre-FOMC stock drift is driven by informed speculation. Overall, evidence highlights spread traders' superior information and its important role in explaining announcement returns and pre-announcement drifts. |
| Keywords: | Informed trading ; Term structure ; Business cycle ; Pre-FOMC ; Macroeconomic announcements |
| JEL: | E32 E43 G12 G14 |
| Date: | 2019–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-25&r=all |
| By: | Stan Olijslagers; Annelie Petersen; Nander de Vette; Sweder van Wijnbergen |
| Abstract: | We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several messages emerge from the analysis. Announcing policies in general terms without precisely describing what exactly they entail does not instantly move asset markets or actually increases crash risk. Also, policies directly focused on changing relative asset supplies do seem to have an impact, while measures aiming at easing financing costs of commercial banks do not. |
| Keywords: | Quantitative Easing; Unconventional Monetary Policies; Exchange Rate Crash Risk; risk reversals; mixed diffusion jump risk models |
| JEL: | E44 E52 E58 E65 G12 G13 G14 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:629&r=all |
| By: | Olkhov, Victor |
| Abstract: | Problem/Relevance - This paper presents new description of the business cycles that for decades remain as relevant and important economic problem. Research Objective/Questions - We propose that econometrics can provide sufficient data for assessments of risk ratings for almost all economic agents. We use risk ratings as coordinates of agents and show that the business cycles are consequences of collective change of risk coordinates of agents and their financial variables. Methodology - We aggregate similar financial variables of agents and define macro variables as functions on economic space. Economic and financial transactions between agents are the only tools that change their extensive variables. We aggregate similar transactions between agents with risk coordinates x and y and define macro transactions as functions of x and y. We derive economic equations that describe evolution of macro transactions and hence describe evolution of macro variables. Major Findings - As example we study simple model that describes interactions between Credits transactions from Creditors at x to Borrowers at y and Loan-Repayment transactions that describe refunds from Borrowers at y to Creditors at x. We show that collective motions of Creditors and Borrowers from safer to risky area and back on economic space induce frequencies of macroeconomic Credit cycles. Implications – Our model can improve forecasting of the business cycles and help increase economic sustainability and financial policy-making. That requires development of risk ratings methodologies and corporate accounting procedures that should correspond each other to enable risk assessments of economic agents |
| Keywords: | Business cycle; Economic Transactions; Risk Assessment; Economic Space |
| JEL: | C02 E00 E32 F44 G00 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93269&r=all |
| By: | Manuel Muñoz |
| Abstract: | The paper investigates the effectiveness of dividend-based macroprudential rules in complementing capital requirements to promote bank soundness and sustained lending over the cycle. First, some evidence on bank dividends and earnings in the euro area is presented. When shocks hit their profits, banks adjust retained earnings to smooth dividends. This generates bank equity and credit supply volatility. Then, a DSGE model with key financial frictions and a banking sector is developedto assess the virtues of what shall be called dividend prudential targets. Welfare-maximizing dividend-based macroprudential rules are shown to have importantproperties: (i) they are effective in smoothing the financial cycle by means of lessvolatile bank retained earnings, (ii) they induce welfare gains associated to a BaselIII-type of capital regulation, (iii) they mainly operate through their cyclical component,ensuring that long-run dividend payouts remain unaffected, (iv) they are flexible enough so as to allow bank managers to optimally deviate from the target, and (v) they act as an insurance scheme for the real economy. Keywords : macroprudential regulation, capital requirements, dividend prudential target, financial stability, bank dividends |
| JEL: | E44 E61 G21 G28 G35 |
| URL: | http://d.repec.org/n?u=RePEc:cnv:wpaper:dt_68en&r=all |
| By: | Laine, Olli-Matti |
| Abstract: | This study applies a difference-in-differences approach to estimate the effect of the European Central Bank’s second series of targeted longer-term refinancing operations (TLTRO-II) on bank lending. Effects on corporate loans, loans for house purchase and loans for consumption are analysed separately. The results indicate that TLTRO-II increased lending to non-financial corporations. The cumulative effect of TLTRO-II on participating banks’ corporate lending is estimated to be about 30 per cent. The estimated effects for house purchase and consumption loans are positive, but statistically insignificant. |
| JEL: | E44 E51 E52 G21 |
| Date: | 2019–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_007&r=all |
| By: | Horacio Sapriza; Judit Temesvary |
| Abstract: | We study the relationship between the strength of the bank credit channel (BCC) of monetary policy and real GDP growth in the United States using quarterly commercial bank level data between 1986 and 2008. We find that the BCC was significantly stronger during periods of low economic growth. Monetary policy is more effective through this channel in spurring economic activity during periods of low growth, rather than in cooling the economy when growth is high. Furthermore, we find that the BCC operated through a broader range of loan categories and banks than previously documented, underscoring this channel’s economic relevance. |
| Keywords: | Bank balance sheet ; Bank lending channel ; GDP growth ; Monetary policy transmission |
| JEL: | E3 E5 G2 |
| Date: | 2019–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-23&r=all |
| By: | Joost Bats; Tom Hudepohl |
| Abstract: | The interest rate in the second series of ECB targeted longer-term refinancing operations is conditional on a participant-specific lending benchmark. The restrictiveness of this benchmark varies between banks. We employ fixed effects estimations on a unique micro-dataset and investigate the relationship between the benchmark restrictiveness and net bank lending. We find that a more restrictive benchmark is associated with more total net lending and net lending to non-financial corporates by relatively large banks. Banks that are relatively large and face the most restrictive benchmark increase their lending to the real economy with 9 to 17 percent. We find no significant effects on net lending by relatively small banks. Furthermore, the restrictiveness of the benchmark does not affect net lending to households. Our findings suggest that the design of targeted lending benchmarks influences bank credit flows and that a more binding benchmark would have been even more effective in stimulating bank lending. |
| Keywords: | central bank; monetary policy; refinancing operations; credit easing; bank credit |
| JEL: | C23 E51 E58 G21 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:631&r=all |
| By: | George Economides; Anastasio Xepapadeas |
| Abstract: | We investigate the impact of climate change on the macroeconomic performance of a small open economy. The setup is a new Keynesian dynamic stochastic general equilibrium model of a small open economy without monetary policy independence in which a climate module that interacts with the economy has been incorporated. The model is solved numerically using common parameter values, fiscal data and projections about temperature growth from the Greek economy. Our results, suggest that climate change implies a significant output loss and a dramatic deterioration of competitiveness. |
| Keywords: | climate change, monetary policy, new Keynesian models |
| JEL: | E50 E10 Q50 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7582&r=all |
| By: | Bataa, Erdenebat |
| Abstract: | This paper tests for multiple structural breaks in the mean, seasonality, dynamics and conditional volatility of Greater Tumen Initiative Countries’ (GTI) growth and inflation, while also accounting for outliers. It finds a drop in the level of Chinese growth rate in the third quarter of 2011 and of inflation rate in 1998. There are more volatility regimes than the growth regimes and most GTI countries are currently enjoying historically low volatility of their growth and inflation. Two exceptions are the increased growth volatility for Japan since 2006 and inflation volatility for Russia since 2012. There is an increased importance of seasonality in GTI and especially in Chinese inflation volatility, constituting at least a half of the total volatility. |
| Keywords: | China slowdown, multiple structural breaks, seasonality, Greater Tumen Initiative, growth and volatility regimes, growth and inflation. |
| JEL: | C18 C22 E31 E32 |
| Date: | 2019–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93374&r=all |
| By: | James Costain (ECB and Banco de EspaÑa); Anton Nakov (ECB and CEPR); Borja Petit (CEMFI) |
| Abstract: | We study the effects of monetary shocks in a model of state-dependent price and wage adjustment based on “control costs”. Suppliers of retail goods and of labor are both monopolistic competitors that face idiosyncratic productivity shocks and nominal rigidities. Stickiness arises because precise decisions are costly, so agents choose to tolerate small errors in the timing of adjustments. Our simulations are calibrated to microdata on the size and frequency of price and wage changes. Money shocks have less persistent real effects in our state-dependent model than they would a time-dependent framework, but nonetheless we obtain sufficient monetary nonneutrality for consistency with macroeconomic evidence. Nonneutrality is primarily driven by wage rigidity, rather than price rigidity. State-dependent nominal rigidity implies a flatter Phillips curve as trend inflation declines, because nominal adjustments become less frequent, making short-run inflation less reactive to shocks. |
| Keywords: | nominal rigidity, state-dependent adjustment, logit equilibrium, near rationality, control costs |
| JEL: | E31 D81 C73 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1910&r=all |
| By: | Lieberknecht, Philipp; Wieland, Volker |
| Abstract: | There is substantial disagreement about the consequences of the Tax Cuts and Jobs Act (TCJA) of 2017, which constitutes the most extensive tax reform in the United States in more than 30 years. Using a large-scale two-country dynamic general equilibrium model with nominal rigidities, we find that the TCJA increases GDP by about 2% in the medium-run and by about 2.5% in the long-run. The short-run impact depends crucially on the degree and costs of variable capital utilization, with GDP effects ranging from 1 to 3%. At the same time, the TCJA does not pay for itself. In our analysis, the reform decreases tax revenues and raises the debt-to-GDP ratio by about 15 percentage points in the medium-run until 2025. We show that combining the TCJA with spending cuts can dampen the increase in government indebtedness without reducing its expansionary effect. |
| Keywords: | tax reform,corporate taxes,capital taxes,labor income taxes,spending cuts,fiscal stimulus |
| JEL: | E62 E63 E65 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:svrwwp:102018&r=all |
| By: | Lieberknecht, Philipp; Wieland, Volker |
| Abstract: | There is substantial disagreement about the consequences of the Tax Cuts and Jobs Act (TCJA) of 2017, which constitutes the most extensive tax reform in the United States in more than 30 years. Using a large-scale two-country dynamic general equilibrium model with nominal rigidities, the authors find that the TCJA increases GDP by about 2% in the medium-run and by about 2.5% in the long-run. The short-run impact depends crucially on the degree and costs of variable capital utilization, with GDP effects ranging from 1 to 3%. At the same time, the TCJA does not pay for itself. In the analysis, the reform decreases tax revenues and raises the debt-to-GDP ratio by about 15 percentage points in the medium-run until 2025. The show that combining the TCJA with spending cuts can dampen the increase in government indebtedness without reducing its expansionary effect. |
| Keywords: | tax reform,corporate taxes,capital taxes,labor income taxes,spending cuts,fiscal stimulus |
| JEL: | E62 E63 E65 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:131&r=all |
| By: | Cecilia Dassatti Camors; José-Luis Peydró; Francesc Rodriguez-Tous |
| Abstract: | We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital inflows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies. |
| JEL: | E51 E52 G21 G28 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1650&r=all |
| By: | Yota Deli; Manthos D. Delis; Iftekhar Hasan; Liuling Liu |
| Abstract: | We show that borrowing firms benefit substantially from important enforcement actions issued on U.S. banks for safety and soundness reasons. Using hand-collected data on such actions from the main three U.S. regulators and syndicated loan deals over the years 1997–2014, we find that enforcement actions decrease the total cost of borrowing by approximately 22 basis points (or $4.6 million interest for the average loan). We attribute our finding to a competition-reputation effect that works over and above the lower risk of punished banks post-enforcement and survives in a number of sensitivity tests. We also find that this effect persists for approximately four years post-enforcement. |
| Keywords: | Bank supervision; Enforcement actions; Syndicated loans; Loan pricing |
| JEL: | E44 E51 G21 G28 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:oapubs:10197/9909&r=all |
| By: | Hui He (International Monetary Fund); Kevin x.d. Huang (Vanderbilt University); Lei Ning (Shanghai University of Finance and Economics) |
| Abstract: | Empirical evidence shows that both leisure and medical care are important for maintaining health. And taxation may affect the allocation of these two inputs. We build a life-cycle overlapping-generations model in which taxation and relative health care price are key determinants of the composition of the two inputs in the endogenous accumulation of health capital. In the model, a lower tax wedge leads to using relatively more medical care and less leisure in maintaining health, while a higher relative health care price implies an opposite substitution in quantity (away from medical care towards leisure) that weakens the direct bearing of the higher price on overall health spending. We show that differences in taxation and in relative health care price between the US and Europe can jointly account for a bulk of their differences in health expenditure- GDP ratio and in leisure time allocated for health production, with the taxation channel playing a quantitatively more significant role. |
| Keywords: | Macro-health, Taxation, Relative health care price, Health care expenditure, Time allocation, Life cycle, Overlapping generations |
| JEL: | E6 H2 |
| Date: | 2019–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-19-00010&r=all |
| By: | Margherita Bottero; Camelia Minoiu; José-Luis Peydró; Andrea Polo; Andrea F. Presbitero; Enrico Sette |
| Abstract: | We study negative interest rate policy (NIRP) exploiting ECB’s NIRP introduction and administrative data from Italy, severely hit by the Eurozone crisis. NIRP has expansionary effects on credit supply—and hence the real economy—through a portfolio rebalancing channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets, not with higher retail deposits. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downwards, NIRP differs from rate cuts just above the ZLB. |
| Keywords: | negative interest rates, portfolio rebalancing, bank lending channel of monetary policy, liquidity management, Eurozone crisis. |
| JEL: | E52 E58 G01 G21 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1649&r=all |
| By: | Battistini, Niccolò; Callegari, Giovanni; Zavalloni, Luca |
| Abstract: | This paper analyzes the impact of monetary policy on public debt sustainability through the lens of a general equilibrium model with fiscal limits. We find that the mere possibility of a binding ZLB may have detrimental effects on debt sustainability, as a kink in the Laffer curve induces a dead-weight loss in the present discounted value of future primary surpluses. Moreover, debt sustainability improves with monetary policy activeness, that is, with the elasticity of the interest rate to changes in inflation and the output gap. On this basis, we assess the trade-off between economic stabilization and debt sustainability depending on the monetary policy environment. In normal times, large public spending shocks may engender perverse debt dynamics and cause economic contractions. At the ZLB, a muted trade-off between stabilization and sustainability instead expands the fiscal margin, especially if coupled with a commitment to a more active monetary policy during normal times. JEL Classification: E52, E61, E63 |
| Keywords: | fiscal sustainability, monetary policy, ZLB |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192268&r=all |
| By: | Paul, Saumik (Osaka University) |
| Abstract: | The role of capital accumulation as a driver of the labor income share requires capital and labor to be substitutes, which appears paradoxical in a world predominantly characterized by complementarity between capital and labor. This paper argues that the composition of skills in the labor force and an identification of the elasticity parameters between capital and different skills of labor can reconcile the opposing views. Using a framework with capital-skill complementarity and variable substitution elasticities, the Morishima elasticity of substitution is applied to identify the elasticity parameters at different skill levels and derive the necessary condition for capital accumulation to coexist with a declining labor income share when capital and labor are complements. Empirical evidence supports this proposition. |
| Keywords: | labor income share, production function, Morishima elasticity of substitution |
| JEL: | E21 E22 E25 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12219&r=all |
| By: | Campbell, Jeffrey R. (Federal Reserve Bank of Chicago); Ferroni, Filippo (Federal Reserve Bank of Chicago); Fisher, Jonas D. M. (Federal Reserve Bank of Chicago); Melosi, Leonardo (Federal Reserve Bank of Chicago) |
| Abstract: | At their peak in 2005, roughly 60 percent of all purchase mortgage loans originated in the United States contained at least one non-traditional feature. These features, which allowed borrowers easier access to credit through teaser interest rates, interest-only or negative amortization periods, and extended payment terms, have been the subject of much regulatory and popular criticism. In this paper, we construct a novel county-level dataset to analyze the relationship between rising house prices and non-traditional features of mortgage contracts. We apply a break-point methodology and find that in housing markets with breaks in the mid-2000s, a strong rise in the use of non-traditional mortgages preceded the start of the housing boom. Furthermore, their rise was coupled with declining denial rates and a shift from FHA to subprime mortgages. Our findings support the view that a change in mortgage contract availability and a shift toward subprime borrowers helped to fuel the rise of house prices during the last decade. |
| Keywords: | monetary policy; forward guidance puzzle; central bank communication; business cycles; risk management |
| JEL: | E0 E52 F44 |
| Date: | 2019–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2019-03&r=all |
| By: | Rodrigo Barbone Gonzalez; Dmitry Khametshin; José-Luis Peydró; Andrea Polo |
| Abstract: | We show that local central bank policies attenuate global financial cycle (GFC)’s spillovers. For identification, we exploit GFC shocks and Brazilian interventions in FX derivatives using three matched administrative registers: credit, foreign credit flows to banks, and employer-employee. After U.S. Federal Reserve Taper Tantrum (with strong Emerging Markets FX depreciation and volatility increase), Brazilian banks with larger ex-ante reliance on foreign debt strongly cut credit supply, thereby reducing firm-level employment. However, Brazilian FX large intervention supplying derivatives against FX risks—hedger of last resort—halves the negative effects. Finally, a 2008-2015 panel exploiting GFC shocks and local policies confirm the results. |
| Keywords: | foreign exchange, monetary policy, central bank, bank credit, hedging |
| JEL: | E5 F3 G01 G21 G28 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1648&r=all |
| By: | Bernardo Morais; José-Luis Peydró; Jessica Roldán-Peña; Claudia Ruiz-Ortega |
| Keywords: | monetary policy, financial globalization, quantitative easing (QE), credit supply, risk-taking, foreign banks. |
| JEL: | E52 E58 G01 G21 G28 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1656&r=all |
| By: | Roger Farmer; Giovanni Nicolò |
| 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. |
| JEL: | E3 E4 F0 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25743&r=all |
| By: | Potjagailo, Galina; Wolters, Maik H. |
| Abstract: | The authors analyze cyclical co-movement in credit, house prices, equity prices, and long-term interest rates across 17 advanced economies. Using a time-varying multi-level dynamic factor model and more than 130 years of data, they analyze the dynamics of co-movement and compare recent developments to earlier episodes such as the early era of financial globalization from 1880 to 1913 and the Great Depression. They find that joint global dynamics across various financial quantities and prices as well as variable-specific global co-movements are important to explain fluctuations in the data. From a historical perspective, global co-movement in financial variables is not a new phenomenon. For equity prices, however, global cycles play currently a historically unprecedented role, explaining more than half of the fluctuations in the data. Global cycles in credit and housing have become much more pronounced and longer, but their importance in explaining dynamics has only increased for some economies including the US, the UK and Nordic European countries. Regarding GDP, the authors also find an increasing role for a global business cycle. |
| Keywords: | financial cycles,financial crisis,global co-movement,dynamic factor models,time-varying parameters,macro-finance |
| JEL: | C32 C38 E44 F44 G15 N10 N20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:132&r=all |
| By: | Croce, Mariano (Finance Department, Bocconi University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of North Carolina Kenan-Flagler Business School); Nguyen, Thien (Ohio State University (OSU) - Department of Finance); Raymond, Steve (University of North Carolina (UNC) at Chapel Hill - Department of Economics) |
| Abstract: | Does it matter whether a government is prompt or slow in consolidating outstanding debt? We address this question by studying the connection between the time variation of the persistence of government-debt-to-output ratio, macroeconomic activity, and asset prices. In the US, when government debt is sluggish, consumption exhibits lower expected growth, more long-run uncertainty, and more long-run downside risk. Simultaneously, the risk premium on the consumption claim (Koijen et al. (2010), Lustig et al. (2013)) increases and features more positive (adverse) skewness. We rationalize these findings in an endogenous growth model in which (i) fiscal policy is distortionary, (ii) the value of innovation depends on fiscal risk, and (iii) the representative agent is sensitive to the resulting distribution of consumption risk. Our model suggests that committing to a rapid reduction of the debt-to-output ratio can enhance the value of innovation, aggregate wealth, and hence welfare. |
| JEL: | E62 G1 H2 H3 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2019-02&r=all |
| By: | Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Tian Xiong (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)) |
| Abstract: | In this analysis, BREXIT is considered with regard to the main consequences for financial markets; and real economic implications are taken into account while policy options are also highlighted. The role of the interest elasticity of the demand for money is emphasized for both welfare analysis of BREXIT and overshooting – assuming that that elasticity will fall post-BREXIT. Key insights emerge from aspects related to Dornbusch-type exchange rate overshooting problems and insights from the Branson model: This medium-term perspective is used to derive some short-term and long-term BREXIT implications. As regards overall welfare effects, the BREXIT welfare effect related to a lower holding of real money balances – due to a lower gross domestic product post-BREXIT in the long run – is rather high, so that adding this to the HM Treasury finding of a 10% income loss from BREXIT suggests that the long run welfare loss of the UK could be high. Moreover, the quality of financial market integration in the EU countries is highlighted: For the first time, financial services trade restrictiveness indices are empirically analyzed. This leads – on the basis of a restrictiveness index regarding international financial services and additional information about prudential supervision quality – to an assessment of the quality of financial markets. Policy conclusions take into account the new protectionist challenges and use insights from the Welfens enhanced growth model with trade and foreign direct investment. |
| Keywords: | BREXIT, financial markets, macroeconomic policy, political economy, welfare analysis, capital flows |
| JEL: | D6 D53 E6 E66 F5 F21 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei249&r=all |
| By: | Auer, Raphael (Bank for International Settlements) |
| Abstract: | This paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, i.e., “proof-of-work.” Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via “double-spending” attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive. Second, the transaction market cannot generate an adequate level of “mining” income via fees as users free-ride on the fees of other transactions in a block and in the subsequent blockchain. Instead, newly minted bitcoins, known as block rewards, have made up the bulk of mining income to date. Looking ahead, these two limitations imply that liquidity is set to fall dramatically as these block rewards are phased out. Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality. Second-layer solutions such as the Lightning Network might help, but the only fundamental remedy would be to depart from proof-of-work, which would probably require some form of social coordination or institutionalisation. |
| Keywords: | cryptocurrencies; crypto-assets; digital currencies; blockchain; proof-of-work; proof-of-stake; distributed ledger technology; consensus; bitcoin; ethereum; money; digitalisation; finance; history of money |
| JEL: | D20 D40 E42 E51 F31 G12 G28 G32 G38 L10 L50 |
| Date: | 2019–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:355&r=all |
| By: | Makoto Watanabe (VU Amsterdam); Vyacheslav Arbuzov (University of Rochester); Yu Awaya (University of Rochester); Hiroki Fukai (Kyushu University) |
| Abstract: | This paper presents a simple and tractable equilibrium model of repos, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, repo markets can fluctuate endogenously over time. In our theory, repo market fragilities are associated with endogenous fluctuations in trade probabilities, collateral values, and debt limits. We show that the collateral premium of a durable asset will become the lowest right before a recession and the highest right after the recession and that secured credit is acyclical. |
| Keywords: | collateral, search, endogenous credit market fluctuations |
| JEL: | E30 E50 C73 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20190019&r=all |
| By: | Fisher, Jonathan D. (Stanford University); Johnson, David (University of Michigan); Smeeding, Timothy (University of Wisconsin-Madison); Thompson, Jeffrey P. (Federal Reserve Bank of Boston) |
| Abstract: | Recent studies of economic inequality almost always separately examine income, consumption, and wealth inequality and, hence, miss the important synergy among the three measures explicit in the life-cycle budget constraint. Using Panel Study of Income Dynamics data from 1999 through 2013, we examine whether these changes are more dramatic at higher or lower levels of wealth and find that the marginal propensity to consume is lower at higher wealth quintiles. This suggests that low-wealth households cannot smooth consumption as much as other households do, which further implies that increasing wealth inequality likely reduces aggregate consumption and limits economic growth. |
| Keywords: | marginal propensity to consume; wealth distribution; inequality |
| JEL: | D30 E21 |
| Date: | 2019–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:19-4&r=all |
| By: | Loria, Francesca (Federal Reserve Board); Matthes, Christian (Federal Reserve Bank of Richmond); Zhang, Donghai (University of Bonn) |
| Abstract: | What drives macroeconomic tail risk? To answer this question, we borrow a definition of macroeconomic risk from Adrian et al. (2019) by studying (left-tail) percentiles of the forecast distribution of GDP growth. We use local projections (Jordà, 2005) to assess how this measure of risk moves in response to economic shocks to the level of technology, monetary policy, and financial conditions. Furthermore, by studying various percentiles jointly, we study how the overall economic outlook—as characterized by the entire forecast distribution of GDP growth—shifts in response to shocks. We find that contractionary shocks disproportionately increase downside risk, independently of what shock we look at. |
| Keywords: | macroeconomic risk; shocks; local projections |
| JEL: | C21 C53 E17 E37 |
| Date: | 2019–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:19-10&r=all |
| By: | Francesca Loria; Christian Matthes; Donghai Zhang |
| Abstract: | What drives macroeconomic tail risk? To answer this question, we borrow a definition of macroeconomic risk from Adrian et al. (2019) by studying (left-tail) percentiles of the forecast distribution of GDP growth. We use local projections (Jordà, 2005) to assess how this measure of risk moves in response to economic shocks to the level of technology, monetary policy, and financial conditions. Furthermore, by studying various percentiles jointly, we study how the overall economic outlook-as characterized by the entire forecast distribution of GDP growth-shifts in response to shocks. We find that contractionary shocks disproportionately increase downside risk, independently of what shock we look at. |
| Keywords: | Macroeconomic risk ; Shocks ; Local projections |
| JEL: | C21 C53 E17 E37 |
| Date: | 2019–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-26&r=all |
| By: | Ehrmann, Michael; Gaballo, Gaetano; Hoffmann, Peter; Strasser, Georg |
| Abstract: | Central banks have used different types of forward guidance, where the forward guidance horizon is related to a state contingency, a calendar date or left open-ended. This paper reports cross-country evidence on the impact of these different types of forward guidance on the sensitivity of bond yields to macroeconomic news, and on forecaster disagreement about the future path of interest rates. We show that forward guidance mutes the response to macroeconomic news in general, but that calendar-based forward guidance with a short horizon counterintuitively raises it. Using a model where agents learn from market signals, we show that the release of more precise public information about future rates lowers the informativeness of market signals and, as a consequence, may increase uncertainty and amplify the reaction of expectations to macroeconomic news. However, when the increase in precision of public information is sufficiently large, uncertainty is unambiguously reduced. JEL Classification: D83, E43, E52, E58 |
| Keywords: | central bank communication, disagreement, forward guidance, heterogeneous beliefs, macroeconomic news |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192263&r=all |
| By: | Millard, Stephen (Bank of England); Nicolae, Anamaria (Durham University Business School); Nower, Michael (Durham University Business School) |
| Abstract: | In this paper we examine the impact of non-trading firms on labour productivity and its persistence in response to macroeconomic shocks, through their entry and exit into the domestic market, in a model with monopolistic competition and heterogeneous firms. We quantify the effects of various macroeconomic shocks on labour productivity and we demonstrate that non-trading domestic firms’ entry and exit into the domestic market explains the persistence of labour productivity in response to transitory shocks. We also show that the model successfully replicates the sluggish recovery of labour productivity in the United Kingdom since the Great Recession. |
| Keywords: | International trade; heterogeneous firms; productivity; endogenous persistence |
| JEL: | E24 F17 J24 O40 |
| Date: | 2019–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0787&r=all |
| By: | Hyeongwoo Kim; Kyunghwan Ko |
| Abstract: | We present a factor augmented forecasting model for assessing the financial vulnerability in Korea. Dynamic factor models often extract latent common factors from a large panel of time series data via the method of the principal components (PC). Instead, we employ the partial least squares (PLS) method that estimates target specific common factors, utilizing covariances between predictors and the target variable. Applying PLS to 198 monthly frequency macroeconomic time series variables and the Bank of Korea's Financial Stress Index (KFSTI), our PLS factor augmented forecasting models consistently outperformed the random walk benchmark model in out-of-sample prediction exercises in all forecast horizons we considered. Our models also outperformed the autoregressive benchmark model in short-term forecast horizons. We expect our models would provide useful early warning signs of the emergence of systemic risks in Korea's financial markets. |
| Keywords: | Partial Least Squares; Principal Component Analysis; Financial Stress Index; Out-of-Sample Forecast; RRMSPE |
| JEL: | C38 C53 E44 E47 G01 G17 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2019-03&r=all |
| By: | Branch, William A.; Gasteiger, Emanuel |
| Abstract: | This paper develops a theory of endogenously (non-)Ricardian beliefs. That is, whether Ricardian Equivalence holds in an equilibrium depends on endogenous private sector beliefs. The novelty here is a restricted perceptions viewpoint: in complex forecasting environments, agents forecast aggregate variables with (potentially) misspecified models that are optimal within the restricted class, i.e., a restricted perceptions equilibrium (RPE). A misspecification equilibrium is a refinement of an RPE where the choice of restricted models is endogenous. Our formalization considers two predictors: in one rule Ricardian beliefs emerge as a self-confirming equilibrium, while the other features an equilibrium with non-Ricardian beliefs. We show that (1.) there can exist misspecification equilibria where beliefs are endogenously (non-)Ricardian, (2.) multiple equilibria exist where the economy can coordinate on Ricardian or non-Ricardian equilibria. The theory suggests a novel interpretation of post-war U.S. inflation data as being generated by endogenous belief-driven regime change and a nuanced trade-off for monetary policy rules. |
| Keywords: | adaptive learning,misspecification,heterogeneous beliefs,fiscal theory of price level |
| JEL: | D82 D83 E40 E50 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuweco:032019&r=all |
| By: | Hernando Vargas-Herrera (Banco de la República de Colombia); Mauricio Villamizar-Villegas (Banco de la República de Colombia) |
| Abstract: | Most of the foreign exchange intervention literature overlooks the influence of market uncertainty when evaluating effectiveness. In this paper we take a fresh new look at how this uncertainty amplifies exchange rate effects. Our contribution is twofold. We first posit a partial equilibrium model with frictions to illustrate that when uncertainty is low, intervention is less effective, for agents are willing to bet against the central bank. Conversely, when uncertainty is high, intervention faces a weaker countervailing force from speculators and arbitragers. Second, we empirically test for the incremental effects of flimsy exchange rate fundamentals by using a sharp policy discontinuity in the way the Central Bank of Colombia intervened in the FX market. Our results indicate that market uncertainty increases depreciation of domestic currency in approximately 1% following central bank purchases of foreign currency and extends its duration in up to 2 weeks. Additionally, these purchases have an incremental effect in stemming exchange rate volatility in up to 7%. **** RESUMEN: En este trabajo examinamos la influencia de la incertidumbre sobre la tasa de cambio futura en la efectividad de la intervención cambiaria. Nuestra contribución consta de dos partes. Primero, desarrollamos un modelo teórico de equilibrio parcial para ilustrar cómo la efectividad cambiaria aumenta a medida que aumenta la incertidumbre sobre la tasa de cambio futura o de sus determinantes. Segundo, presentamos evidencia empírica de esta relación haciendo uso del esquema de intervención cambiaria del Banco de la República, empleado durante el periodo 2002-2012, a través de opciones put de volatilidad. Nuestros resultados indican que, en presencia de alta incertidumbre en los fundamentales de la tasa de cambio, la efectividad de la intervención esterilizada aumenta en aproximadamente 1% y su duración se extiende hasta por dos semanas. Adicionalmente, encontramos que, en períodos de alta incertidumbre, la intervención reduce la volatilidad cambiaria hasta en un 7% adicional. |
| Keywords: | Sterilized FX intervention, Exchange rate uncertainty, policy discontinuity, incremental effect of intervention, Regression Discontinuity Design, Intervención cambiaria esterilizada, incertidumbre sobre la tasa de cambio futura, efecto incremental de la intervención cambiaria, regresión discontinua |
| JEL: | C14 C31 E58 F31 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1070&r=all |
| By: | Wei Chen; Xilu Chen; Chang-Tai Hsieh; Zheng Song |
| Abstract: | China’s national accounts are based on data collected by local governments. However, since local governments are rewarded for meeting growth and investment targets, they have an incentive to skew local statistics. China’s National Bureau of Statistics (NBS) adjusts the data provided by local governments to calculate GDP at the national level. The adjustments made by the NBS average 5% of GDP since the mid-2000s. On the production side, the discrepancy between local and aggregate GDP is entirely driven by the gap between local and national estimates of industrial output. On the expenditure side, the gap is in investment. Local statistics increasingly misrepresent the true numbers after 2008, but there was no corresponding change in the adjustment made by the NBS. Using publicly available data, we provide revised estimates of local and national GDP by re-estimating output of industrial, construction, wholesale and retail firms using data on value-added taxes. We also use several local economic indicators that are less likely to be manipulated by local governments to estimate local and aggregate GDP. The estimates also suggest that the adjustments by the NBS were insufficient after 2008. Relative to the official numbers, we estimate that GDP growth from 2010-2016 is 1.8 percentage points lower and the investment and savings rate in 2016 is 7 percentage points lower. |
| JEL: | E01 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25754&r=all |
| By: | Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Arthur Poirier (Ministerio de Trabajo, Empleo y Seguridad Social, Argentina); Thepthida Sopraseuth (thepthida.sopraseuth@u-cergy.fr) |
| Abstract: | We shed light on the driving forces behind unemployment fluctuations and short-run changes in the informality rate on the Argentine labor market. Using Argentine survey data, we measure worker flows between formal employment, informal employment, unemployment and non-participation. We propose a methodology to correct for the discontinuity of Argentine survey data and that is able to compute consistent time series of quarterly ins and outs of informal work. Using variance decompositions and counterfactual exercises, we show that the ins and outs of informal employment are key drivers of labor market fluctuations. In particular, outflows from unemployment to informal employment account for 37% of fluctuations in the unemployment rate. In addition, our analysis suggests that informality is: (i) a flexible sector that is used in recessionary periods as a buffer against income losses and (ii) a stepping stone towards formal employment. The observed large changes in the informality rate are well explained by the change in job mobility between the formal and informal sectors as well as variations in hirings from unemployment and non-participation in the informal sector. |
| Keywords: | worker flows, informality, unemployment, business cycle, emerging market |
| JEL: | E24 E26 J6 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1916&r=all |
| By: | Wilko Bolt (The Nederlandsche Bank, Vrije Universiteit); Kostas Mavromatis (The Nederlandsche Bank, University of Amsterdam); Sweder van Wijnbergen (The Nederlandsche Bank, University of Amsterdam) |
| Abstract: | We study the global macroeconomic effects of tariffs using a multiregional, general equilibrium model, EAGLE, that we extend by introducing US tariffs against Chinese imports into the US, and subsequently Chinese tariffs against US imports into China, consistent with recent trade policies by the US and the Chinese governments. We abstract from tariffs on goods exported from the euro area, focusing on a US-China trade war. A unilateral tariff from the US against China dampens US exports in line with the Lerner Symmetry theorem but global output contracts. Global output contracts even further after China retaliates. The euro area benefits from this trade war. These European trade diversion benefits are caused by cheaper imports from China and improved competitiveness in the US. As price stickiness in the export sector in each region increases, the negative effects of tariffs in the US and China are mitigated, but the positive effects in the euro area are then also dampened. |
| Keywords: | Trade Policy, Exchange Rates, Trade Diversion, Local Currency Pricing |
| JEL: | E32 F30 H22 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20190015&r=all |
| By: | Michael Gelman; Shachar Kariv; Matthew D. Shapiro; Dan Silverman |
| Abstract: | There is a tight relationship between having low liquidity and a high marginal propensity to consume both in theoretical models and in econometric evidence about behavior. This paper analyzes the theory and behavior surrounding income tax withholding and refunds. It develops a model where rational cash management with asymmetric cost of increasing or decreasing liquidity endogenizes the relationship between illiquidity and excess sensitivity. The analysis accounts for the finding that households tend to spend tax refunds as if they were liquidity constrained despite the fact that they could increase liquidity by reducing withholding. The model’s predictions are supported by evidence from a large panel of individuals. |
| JEL: | D12 E21 H24 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25757&r=all |
| By: | Frankel, Jeffrey A. (Harvard Kennedy School) |
| Abstract: | Two distinct questions are of interest. (1) To what extent should the central bank be constrained, versus being allowed full discretion? (2) To whatever extent it is constrained by a rule, what should that rule be? With respect to the second question, a good argument for Nominal GDP targeting is that it is robust with respect to supply shocks, whereas CPI targets, for example, are vulnerable to them. But with respect to the first question, I am increasingly convinced that the constraint--whether a NGDP target or something else--must be very loose. Even the most sincere of central bankers will often fail to hit their targets, due to unforeseen shocks. I therefore propose only a mild innovation: the FOMC could include nominal GDP in its Summary of Economic Projections. I also offer a final thought regarding a different kind of constraint: if Fed independence from political influence is compromised, monetary policy will likely become more pro-cyclical. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp19-003&r=all |
| By: | Leonardo Costa (Universidade Católica Portuguesa, Católica Porto Business School and CEGE) |
| Abstract: | Neste artigo discutimos a crise e o futuro da União Europeia (UE). O método consiste num diagnóstico e análise críticos daquilo que tem sido a crise europeia e na subsequente discussão de duas propostas para o futuro, com vista a recuperar uma Europa com um rosto humano. Os resultados mostram que a visão económica que transparece da atuação das Instituições Europeias (IE) padece de fortes limitações. Ao fim de uma década, a UE ainda não conseguiu ultrapassar os problemas levantados pela crise financeira de 2008. A crise europeia é mais profunda e tem as suas origens na globalização financeira dos anos 1970’s, na unificação da Alemanha e no fim da guerra fria, em 1989 e 1991, no tratado de Maastricht e no aparecimento do Euro (no âmbito da União Económica e Monetária) nos anos 1990’s. A Área do Euro (AE) não é uma zona monetária ótima e completa. A crise financeira de 2008 atingiu fortemente a banca do centro e norte da Europa, sendo que as IE converteram o problema numa crise das dívidas soberanas e moral dos Estados Membros (EM) da coesão e da Itália (PIIGS/GIPSI) e do orçamento da UE. Entrando em linha de conta com as transferências por via do mercado único, a posição líquida que países como a Alemanha e Portugal têm, no que refere ao orçamento europeu, inverte-se, sendo a Alemanha beneficiária líquido da UE e Portugal um contribuinte líquido. Duas alterações ajudariam a UE a refundar-se com um rosto humano e a parar a afirmação dos nacionalismos populistas e xenófobos no continente: o orçamento da UE passar a ser pago exclusivamente com recursos próprios (impostos europeus); a UE adotar aproximações territoriais (“place-based”) em todas as suas políticas. |
| Keywords: | Aproximações territoriais, crise, contribuintes líquidos, financiamento, mercado único, orçamento, União Europeia |
| JEL: | E02 E58 F15 H10 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cap:wpaper:032019&r=all |
| By: | Laurent Ferrara; Anna Simoni |
| Abstract: | Nowcasting GDP growth is extremely useful for policy-makers to assess macroeconomic conditions in real-time. In this paper, we aim at nowcasting euro area GDP with a large database of Google search data. Our objective is to check whether this specific type of information can be useful to increase GDP nowcasting accuracy, and when, once we control for official variables. In this respect, we estimate shrunk bridge regressions that integrate Google data optimally screened through a targeting method, and we empirically show that this approach provides some gain in pseudo-real-time nowcasting of euro area GDP quarterly growth. Especially, we get that Google data bring useful information for GDP nowcasting for the four first weeks of the quarter when macroeconomic information is lacking. However, as soon as official data become available, their relative nowcasting power vanishes. In addition, a true real-time analysis confirms that Google data constitute a reliable alternative when official data are lacking. |
| Keywords: | Nowcasting, Big data, Sure Independence Screening, Ridge Regularization. |
| JEL: | C53 E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:717&r=all |
| By: | Demekas, Dimitri G. |
| Abstract: | A decade after the global financial crisis, the task of building a financial stability policy framework has unfinished business. Fundamental questions about the goal of financial stability and the policies to achieve it were sidelined by the excessive focus on the minutiae of macroprudential policy. Increased responsibilities were given to central banks without a proper discussion about the right degree of delegation and accountability. A comprehensive framework for financial stability should have three pillars: macroprudential policy, microprudential supervision, and financial safety nets. Sufficient operational independence should be given to the agency(ies) responsible for financial stability but determining the goal, institutional architecture, and agency assignments, resolving any policy tradeoffs, and ensuring accountability should be a political responsibility. Even with the best framework, however, given the variety of structural, behavioral, and political economy factors affecting financial stability and our limited understanding of the financial system, securing this goal will remain a challenge. |
| Keywords: | financial stability; macroprudential policy; banks; policy design; governance |
| JEL: | G10 G18 G20 G28 G38 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100483&r=all |
| By: | Tran, Thi Ha |
| Abstract: | The paper examines the impacts of exchange rate on Vietnam’s trade balance with Japan based on the employment of industry-level data in a set of linear and nonlinear auto-regressive distributed lag models. Results from the models indicate a degree of bias in regression when using aggregate data and a linear ARDL approach. Among 19 industries under consideration, the NARDL model presents different responses from 16 industries, which account for 40% of imports and 60% of exports between Vietnam and Japan, to exchange rate movements. The trade balance of each industry responds differently towards exchange rate and asymmetric reactions are found in 9 out of 16 industries affected by changes in exchange rate. The model using aggregate data shows that exchange rate positively affects Vietnam-Japan trade balance in case of currency depreciation, whereas currency appreciation has no impact on the trade balance between the two countries. Besides, results of the model using aggregate data reveal that the level of economic activity of Japan exerts positive impacts on Vietnam’s trade balance with Japan. |
| Keywords: | Trade balance, exchange rate, ARDL, NARDL |
| JEL: | E4 E5 F10 F3 F31 |
| Date: | 2019–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93286&r=all |
| By: | Kenny S, Victoria |
| Abstract: | Why do more educated workers experience lower unemployment rates and lower employment volatility? A closer look at the data reveals that these workers have similar job finding rates, but much lower and less volatile separation rates than their less educated colleagues. Therefore, this study examines the Effects of human capital investment on unemployment Volatility in Nigeria from 1981-2015 with a primary focal objective on the composition of human capital investment in Nigeria. We show that investments in match-specific human capital reduces the outside option of workers, implying less incentive to separate and thus longer job spells. The theoretical model generates unemployment dynamics that are consistent with the observed patterns for unemployment, separation and job finding rates across education groups. While the Error correction result revealed that Government current investment in human capital in terms of spending on education needs to increase in quantum for its significance to be meaningful. Hence, the government needs to put more effort in human capital investment in order to reduce unemployment rate in Nigeria. |
| Keywords: | Unemployment Volatility, Human Capital, Labour |
| JEL: | E0 |
| Date: | 2019–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93295&r=all |
| By: | Pierpaolo Benigno (LUISS and EIEF) |
| Abstract: | Can currency competition affect central banks' control of interest rates and prices? Yes, it can. In a two-currency world, the growth rate of the cryptocurrency sets an upper bound on the nominal interest rate and the attainable inflation rate, if the government currency is to retain its role as medium of exchange. In a world of multiple competing currencies issued by profit-maximizing agents, the nominal interest rate and inflation are both determined by structural factors, and thus not subject to manipulation, a result hailed by the proponents of currency competition. The article also proposes some fixes for the classical problem of indeterminacy of exchange rates. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1905&r=all |
| By: | Kenny S, Victoria |
| Abstract: | The effects of the recent global economic crisis on Nigeria have reaffirmed the urgent need for the diversification of the economy. Although, no country is immune to such global crisis, the over-reliance on oil export revenue by Nigeria exposes her exchange rate and economy excessively to external shocks. Therefore, there is the need to conduct a research of this nature to examine Nigeria’s exchange rate sensitivity. This study employed Neo-Classical theory with financial intervention using Cobb Douglas growth model in assessing the impact of manufacturing productivity, exchange rate volatility on inclusive growth in Nigeria using the time series data from 1981 to 2015. The study investigates the long run agriculturally driven economic inclusive growth using Johansen Co-integration test and Normalized Co-integration. This study found out there is a long run relationship between these variables. While manufacturing sector exact more long run effect on per capita income. |
| Keywords: | Global crisis, economic diversification and growth |
| JEL: | E0 |
| Date: | 2019–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93296&r=all |
| By: | Rosengren, Eric S. (Federal Reserve Bank of Boston) |
| Abstract: | Now is a good time to reflect on the Federal Reserve’s monetary policy framework. The U.S. and many developed economies are likely to be challenged by the implications of a low interest rate environment for their ability to offset recessions. The reality of limited monetary policy space provides important context for why the Federal Reserve should broadly consider its current policies and their likely outcomes. While I would currently prefer moving to an inflation range, I look forward to future discussions. A key matter for me will be considering whether the possible changes to the Fed’s monetary policy framework could provide policy space for action in a hypothetical future economic downturn. |
| Keywords: | monetary policy; interest rates; financial stability; fiscal policy; markets; economic outlook |
| Date: | 2019–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:143&r=all |
| By: | Broadberry, Stephen; Gardner, Leigh |
| Abstract: | Estimates of GDP per capita are provided on an annual basis for eight SubSaharan African economies for the period since 1885. Although the growth experienced in most of SSA since the mid-1990s has had historical precedents, there have also been episodes of negative growth or “shrinking”, so that long run progress has been limited. Despite some heterogeneity across countries, this must be seen as a disappointing performance for the region as a whole, given the possibilities of catch-up growth. Avoiding episodes of shrinking needs to be given a higher priority in understanding the transition to sustained economic growth. |
| Keywords: | growth; Africa; historical national accounts |
| JEL: | E01 N17 O47 O55 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100473&r=all |
| By: | Asriyan, Vladimir; Laeven, Luc; Martin, Alberto |
| Abstract: | We develop a new theory of information production during credit booms. In our model, entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources towards private consumption. Lenders can protect themselves from such diversion in two ways: collateralization and costly screening, which generates durable information about projects. In equilibrium, the collateralization-screening mix depends on the value of aggregate collateral. High collateral values raise investment and economic activity, but they also raise collateralization at the expense of screening. This has important dynamic implications. During credit booms driven by high collateral values (e.g. real estate booms), the economy accumulates physical capital but depletes information about investment projects. As a result, collateral-driven booms end in deep crises and slow recoveries: when booms end, investment is constrained both by the lack of collateral and by the lack of information on existing investment projects, which takes time to rebuild. We provide new empirical evidence using US firm-level data in support of the model's main mechanism. JEL Classification: E32, E44, G01, D80 |
| Keywords: | collateral, credit booms, crises, information production, misallocation |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192266&r=all |
| By: | Baum-Snow, Nathaniel (University of Toronto); Hartley, Daniel (Federal Reserve Bank of Chicago); Kwan Ok , Lee (National University of Singapore) |
| Abstract: | A number of prominent studies examine the long-run effects of neighborhood attributes on children by leveraging variation in neighborhood exposure through household moves. However, much neighborhood change comes in place rather than through moving. Using an urban economic geography model as a basis, this paper estimates the causal effects of changes in neighborhood attributes on long-run outcomes for incumbent children and households. For identification, we make use of quasi-random variation in 1990-2000 and 2000-2005 skill specific labor demand shocks hitting each residential metro area census tract in the U.S. Our results indicate that children in suburban neighborhoods with a one standard deviation greater increase in the share of resident adults with a college degree experienced a 0.4 to 0.7 standard deviation improvement in credit outcomes 12-17 years later. Since parental outcomes are not affected, we interpret these results as operating through neighborhood effects. Finally, we provide evidence that most of the estimated effects operate through public schools. |
| Keywords: | Employment; Neighborhoods; Human capital; Households; Population |
| JEL: | D1 E24 R3 |
| Date: | 2019–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2019-02&r=all |
| By: | Sebastian Doerr; Stefan Gissler; José-Luis Peydró; Hans-Joachim Voth |
| Abstract: | Do financial crises radicalize voters? We analyze a canonical case – Germany during the Great Depression. After a severe banking crisis in 1931, caused by foreign shocks and political inaction, radical voting increased sharply in the following year. Democracy collapsed six months later. We collect new data on pre-crisis bank-firm connections and show that banking distress led to markedly more radical voting, both through economic and non-economic channels. Firms linked to two large banks that failed experienced a bank-driven fall in lending, which caused reductions in their wage bill and a fall in city-level incomes. This in turn increased Nazi Party support between 1930 and 1932/33, especially in cities with a history of anti-Semitism. While both failing banks had a large negative economic impact, only exposure to the bank led by a Jewish chairman strongly predicts Nazi voting. Local exposure to the banking crisis simultaneously led to a decline in Jewish-gentile marriages and is associated with more deportations and attacks on synagogues after 1933. |
| Keywords: | Financial crises, banking, Great Depression, democracy, anti-Semitism |
| JEL: | E44 G01 G21 N20 P16 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1651&r=all |
| By: | Polbin, Andrey; Shumilov, Andrei; Bedin, Andrey; Kulikov, Alexander |
| Abstract: | In this paper we analyze the relationship between the real Russian ruble exchange rate and real oil prices using the error correction model with Markov regime switching, which allows for changes in exchange rate policy. We find that during the period 1999-2018 real exchange rate dynamics was characterized by two clearly distinguishable regimes, one with fast and the other with slow adjustment to long-term equilibrium in response to oil price shocks. Further model testing shows that long-term relationship between real exchange rate and oil price is invariant to regime change. We also find that, despite adoption of a floating exchange rate policy in 2014, inflexible real exchange rate regime has been periodically identified in recent years. This could be due to the new budget rule, according to which Russian Ministry of Finance in February 2017 started purchasing foreign currencies in amount of excess oil and gas earnings of the federal budget. |
| Keywords: | real effective exchange rate; Russia; oil prices; Markov regime switching model; error correction model |
| JEL: | C22 C51 E52 F31 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93310&r=all |
| By: | Alexander Chudik (Federal Reserve Bank of Dallas); Mohammad Hashem Pesaran; Kamiar Mohaddes |
| Abstract: | The paper contributes to the growing global VAR (GVAR) literature by showing how global and national shocks can be identified within a GVAR framework. The usefulness of the proposed approach is illustrated in an application to the analysis of the interactions between public debt and real output growth in a multi-country setting, and the results are compared to those obtained fromstandard single country VAR analysis. We find that on average (across countries) global shocks explain about one third of the long-horizon forecast error variance of output growth, and about one fifth of the long run variance of the rate of change of debt-to-GDP. Evidence on the degree of cross-sectional dependence in these variables and their innovations are exploited to identify the global shocks, and priors are used to identify the national shocks within a Bayesian framework. It is found that posterior median debt elasticity with respect to output is much larger when the risein output is due to a fiscal policy shock, as compared to when the rise in output isdue to a positive technology shock. The cross country average of the median debt elasticity is 1.58 when the rise in output is due to a fiscal expansion as compared to 0.75 when the rise in output follows from a favorable output shock. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:erg:wpaper:1286&r=all |
| By: | Puigvert Jonathan; Juárez-Torres Miriam |
| Abstract: | This paper studies the labour force participation in Mexico between 2005 and 2018 at the aggregate level. While the ageing of the labour force produced modest reductions in the participation rate, changes in the educational level countervailed these effects for the period of study. In particular, the marked rise in the educational level of the population propelled the participation rate, especially among women. In addition, this paper also explores the effects of the business cycle in the labour force participation rate using a semi-parametric estimation that controls for changes in the profile of the population. The results of this analysis show no conclusive evidence that the participation of females is counter-cyclical, unlike previous studies for Mexico. Instead, our findings suggest that the participation rate is moderately pro-cyclical for males and females, albeit with a stronger effect on the labour participation of males. |
| Keywords: | labour force;business cycle |
| JEL: | J21 E32 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2019-04&r=all |
| By: | Olmstead-Rumsey, Jane |
| Abstract: | Since around 2000, U.S. aggregate productivity growth has slowed and product market (sales) concentration has risen. At the same time, productivity differences among firms in the same sector appear to have risen dramatically. In this paper I propose a rich model of competition and innovation to explain the coincidence of these three observations. In the model a key parameter governing all three phenomena is the probability that innovating firms make radical innovations. Thus one explanation for rising concentration, slower productivity growth, and wider technology differences among firms is that the incidence of radical innovations has slowed relative to the 1990s, when the internet and other information technology radically transformed production and sales technology in many sectors. |
| Keywords: | Endogenous growth; market concentration; market power; productivity slowdown; superstar firms |
| JEL: | E23 L1 O3 O4 |
| Date: | 2019–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93260&r=all |
| By: | Choong Hyun Nam (Economic Research Institute, Bank of Korea) |
| Abstract: | This paper tries to explain why a certain type of technology is skill-biased. In contrast with existing literature, this paper regards skilled workers as overhead labour, and presents a model wherein skilled workers constitute a fixed input, required to produce a new product. The demand for skill increases with product variety, and information technology is skill-biased because it raises product variety by lowering the fixed cost of product creation. However, skill-biased change does not necessarily raise measured productivity because product diversification reallocates resources into fixed inputs, which is consistent with the historical fact that skill-biased change did not always accompany productivity growth. |
| Keywords: | Skill demand, Product innovation, Inequality, Productivity |
| JEL: | E24 J31 L1 O3 O4 |
| Date: | 2019–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:bok:wpaper:1915&r=all |
| By: | Proaño Acosta, Christian; Lojak, Benjamin |
| Abstract: | In this paper we investigate the risk-related effects of monetary policy both in normal times, as well as in periods where the zero lower bound (ZLB) binds, in a stylized macroeconomic model with boundedly rational beliefs. In our model, financial market participants use heuristics to assess the risk premium over the policy rate in accordance to an "implicit Taylor rule" that measures the stance of conventional monetary policy and which serves as an informative instrument during times when the funds rate is constrained by the ZLB. In such a case, conventional monetary policy is exhausted so that the central bank is forced to use unconventional types of policy. We propose alternative monetary policy measures to help the economy out of the liquidity trap which take into account this assumed form of bounded rationality. |
| Keywords: | Behavioral Macroeconomics,Monetary Policy,Zero Lower Bound,Bounded Rationality |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:148&r=all |
| By: | Ogawa, Shogo |
| Abstract: | In this study, we construct a simple disequilibrium growth model to explore the dynamic property of effective demand. This study's main concern is the effect of the quantity constraint: How do the quantities of consumption and investment goods demand and the productive capacity affect capital accumulation? To answer this, we build a two-sector growth model with quantity constraints. One interesting result is that consumption goods demand enhances capital accumulation when the capital is sufficiently accumulated but impedes it when the capital is insufficient. The latter case is shown as a shrinking path by graphical analysis and a numerical experiment. |
| Keywords: | Disequilibrium macroeconomics; Non-Walrasian analysis; Economic growth; Two-sectors; Quantity constraints |
| JEL: | E12 O41 |
| Date: | 2019–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93336&r=all |
| By: | Stefano Giglio; Matteo Maggiori; Johannes Stroebel; Stephen Utkus |
| Abstract: | We administer a newly-designed survey to a large panel of retail investors who have substantial wealth invested in financial markets. The survey elicits beliefs that are crucial for macroeconomics and finance, and matches respondents with administrative data on their portfolio composition and their trading activity. We establish five facts in this data: (1) Beliefs are reflected in portfolio allocations. The sensitivity of portfolios to beliefs is small on average, but varies significantly with investor wealth, attention, trading frequency, and confidence. (2) It is hard to predict when investors trade, but conditional on trading, belief changes affect both the direction and the magnitude of trades. (3) Beliefs are mostly characterized by large and persistent individual heterogeneity; demographic characteristics explain only a small part of why some individuals are optimistic and some are pessimistic. (4) Investors who expect higher cash flow growth also expect higher returns and lower long-term price-dividend ratios. (5) Expected returns and the subjective probability of rare disasters are negatively related, both within and across investors. These five facts challenge the rational expectation framework for macro-finance, and provide important guidance for the design of behavioral models. |
| JEL: | E4 F3 G02 G1 H31 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25744&r=all |
| By: | Fiedor, Pawel (Central Bank of Ireland); Katsoulis, Petros (University of London) |
| Abstract: | We have developed a macroprudential stress testing framework of investment funds. This framework is a tool specifically designed to engage with the Bank’s data, and allows financial stability analysts to rapidly prototype stress tests. This enables the Bank to assess financial stability concerns within the investment funds sector in a targeted and timely manner. Further to the description of the architecture of the framework, we present the results of a baseline stress test, which acts as an initial implementation of the framework. These results show that contagion among investment funds is expected to be limited under normal market conditions. However, under heightened market illiquidity and increased investor sensitivity to fund returns we document the potential for significant spillovers and indirect contagion due to common asset holdings in the investment funds sector domiciled in Ireland. |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:2/fs/19&r=all |
| By: | Pippenger, John |
| Abstract: | Uncovered interest parity is widely used in open economy macroeconomics. But the evidence rejects UIP and implies forward bias. There are many suggested explanations for the failure of UIP and forward bias, but none are widely accepted, at least partially because none appear to explain the related puzzles discussed below. This paper shows how sterilized “leaning against the wind†and a combination of inflationary and liquidity effects of open market operations can explain forward bias and the failure of UIP even when expectations are rational. They also appear to be able to explain the related puzzles. |
| Keywords: | Social and Behavioral Sciences, JEL: E43, E44, F30, F31, G14, G15. |
| Date: | 2018–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucsbec:qt1778z416&r=all |
| By: | José M. Ordóñez-de-Haro (Department of Economics, University of Málaga); José L. Torres (Department of Economics, University of Málaga) |
| Abstract: | This paper studies the implications of the sharing or collaborative economy on the rest of the economy. During the last decade, the so-called collaborative economy has experienced an intensive process of expansion, mainly in certain tourism and transport services, by renting household durables stock excess capacity. Technological progress and the development of Information and Communication Technologies (ICTs) have removed barriers to market access and information constraints, which provides households with a marketplace to rent goods and services produced by using household capital. In this paper we propose a general equilibrium theoretical framework within which to study the collaborative economy sector, together with both the market production and household production sectors. Our model considers that production within the collaborative economy falls between market production and domestic production, and combines some features of both environments, but di¤ers in others. We found that a positive neutral technological shock to market production has a positive impact on the accumulation of durable goods, consistent with the data. By contrast, a positive productivity shock to the sharing economy sector reduces durables investment and increases business capital investment. Finally, an investment-speci?c technological shock to durables has a positive e¤ect on household capital but a negative one on business capital. |
| Keywords: | Collaborative consumption; Sharing economy; Household production; Durable goods |
| JEL: | D13 E22 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:mal:wpaper:2019-1&r=all |
| By: | Jost, Thomas |
| Abstract: | Die sogenannte Troika aus EU-Kommission, Europäischer Zentralbank und Internationalem Währungsfonds sollte die in eine schwere Staatschuldenkrise geratenen Mitgliedsländer der Europäischen Wirtschafts- und Währungsunion durch die Ausarbeitung und Überwachung von Hilfsprogrammen vor einem Staatsbankrott retten und damit das Auseinanderbrechen der Eurozone verhindern. Die Zusammenarbeit dieser Institutionen, die aus der Not geboren wurde, konnte Erfolge aufweisen, schuf aber auch anhaltende Probleme. Mit dem weiteren Anwachsen der Staatsverschuldung in Italien wächst die Gefahr einer neuerlichen Krise im Euroraum. Der Europäische Stabilitätsmechanismus soll nach Beschlüssen des EU-Gipfels vom Dezember 2019 in Zukunft zusammen mit der EU-Kommission die Troika ersetzen und im Falle von Krisen die Rolle eines Europäischen Währungsfonds spielen. Die aktuellen Weichenstellungen sind allerdings wenig geeignet die Kernprobleme der Eurozone anzupacken und Krisen zu vermeiden, die vor allem auf die ausufernde Staatsverschuldung und die mangelnde internationale Wettbewerbsfähigkeit einiger Mitglieder der Währungsunion zurückzuführen sind. |
| Keywords: | European Economic and Monetary Union,European Monetary Fund,International Monetary Fund,Euro-Crisis |
| JEL: | E61 F02 F33 F55 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hawdps:66&r=all |
| By: | Koop, Gary (University of Strathclyde); McIntyre, Stuart (University of Strathclyde); Mitchell, James (University of Warwick); Poon, Aubrey (University of Strathclyde) |
| Abstract: | Output growth estimates for the regions of the UK are currently published at the annual frequency only, released with a long delay and offer limited historical coverage. To improve the regional database this paper develops a mixed-frequency multivariate model and uses it to produce consistent estimates of quarterly regional output growth dating back to 1970. We describe how these estimates are updated and evaluated on an ongoing, quarterly basis to publish online (at www.escoe.ac.uk/regionalnowcasting) more timely regional growth estimates. We illustrate how the new quarterly data can contribute to our historical understanding of business cycle dynamics and connectedness between regions. |
| Keywords: | Regional data; Mixed frequency; Temporal disaggregation; Nowcasting; Bayesian methods; Real-time data; Vector autoregressions; JEL Classification Numbers: C32 ; C51 ; C53; E37 ; |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkemf:20&r=all |
| By: | Ben-David, Itzhak (Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)); Towbin, Pascal (Swiss National Bank); Weber, Sebastian (International Monetary Fund (IMF)) |
| Abstract: | We assess the role of price expectations in forming the U.S. housing boom in the mid-2000s by studying the dynamics of vacant properties. When agents anticipate price increases, they amass excess capacity. Thus, housing vacancy discriminates between price movements related to shocks to demand for housing services (low vacancy) and expectation shocks (high vacancy). We implement this idea using a structural vector autoregression with sign restrictions. In the aggregate, expectation shocks are the most important factor explaining the boom, immediately followed by mortgage rate shocks. In the cross-section, expectation shocks are the major factor explaining price movements in the Sand States, which experienced unprecedented booms. |
| JEL: | E23 G12 R31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2019-8&r=all |
| By: | Imbs, Jean; Pauwels, Laurent |
| Abstract: | Global trade can give rise to global hubs, centers of activity whose influence on the global economy is large enough that local disturbances have consequences in the aggregate. This paper investigates the nature, existence, and rise of such hubs using the World Input-Output Tables (WIOT) to evaluate the importance of vertical trade in creating global hubs that significantly affect countries volatility and their co-movement. Our results suggest that the world has become more granular since 1995, with significant consequences on GDP volatility and co-movements especially in developed countries. These consequences are well explained by international trade. |
| Keywords: | aggregate volatility; GDP synchronization; global hubs; granularity; input-output linkages; World Input-Output Tables |
| JEL: | E32 F44 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13662&r=all |
| By: | Reinhart, Carmen (Harvard Kennedy School) |
| Abstract: | This article, based on my Adam Smith Lecture at the 60th NABE Annual Meeting on September 2018, takes a selective global tour of some of the prominent economic and financial risks in advanced, emerging, and low-income developing economies. The primary emphasis is on near-term risks. The discussion covers areas where vulnerabilities have either already become manifest, or those where risks are mounting but have not yet sounded a glaring alarm. For the advanced economies, the topics cover aspects of the recent surge in collateralized lending obligations (CLOs) in the United States and Europe that are reminiscent of the pre-crisis boom in mortgage-backed securities as well as Italy's unresolved debt overhang. On emerging markets (EMs) and developing economies, the themes cover: the curious case of the missing defaults (2011-2018); global factors and EM turbulence; and China's international lending to low-income countries and its consequences. A brief discussion of some persistent medium-to-long-term concerns about the rising levels of US public debt and the tensions that arise from internal economic objectives and the external pressures associated with the US dollar's role as the world's principal reserve currency completes the discussion. The tour starts with an assessment of the 2008-2009 global financial crisis' recovery experience. |
| JEL: | E00 F00 G00 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp19-005&r=all |
| By: | Akcigit, Ufuk; Ates, Sina T. |
| Abstract: | In the past several decades, the U.S. economy has witnessed a number of striking trends that indicate a rising market concentration and a slowdown in business dynamism. In this paper, we make an attempt to understand potential common forces behind these empirical regularities through the lens of a micro-founded general equilibrium model of endogenous firm dynamics. Importantly, the theoretical model captures the strategic behavior between competing firms, its effect on their innovation decisions, and the resulting ``best versus the rest'' dynamics. We focus on multiple potential mechanisms that can potentially drive the observed changes and use the calibrated model to assess the relative importance of these channels with particular attention to the implied transitional dynamics. Our results highlight the dominant role of a decline in the intensity of knowledge diffusion from the frontier firms to the laggard ones in explaining the observed shifts. We conclude by presenting new evidence that corroborates a declining knowledge diffusion in the economy. We document a higher concentration of patenting in the hands of firms with the largest stock and a changing nature of patents, especially in the post-2000 period, which suggests a heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge. These findings present a potential avenue for future research on the drivers of declining knowledge diffusion. |
| Keywords: | business dynamism; Competition; knowledge diffusion; Market concentration |
| JEL: | E22 E25 L12 O31 O33 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13669&r=all |
| By: | Clarida, Richard H. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2019–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:1054&r=all |
| By: | Kenny S, Victoria |
| Abstract: | This study employed an econometric approach to assess the relationship between effective real exchange rate and selected macroeconomic variables in Nigeria from 1981to 2014. This study investigate the relationship between REER misalignment and economic growth as well as examine the short run and long run relationship between real effective exchange rates misalignment and macroeconomic performance. The study found evidence of a long run relationship between real effective exchange rate and macroeconomic variables with 46 percent speed of adjustment. Also, the positive relationship exists between effective exchange rate, openness and terms of trade indicated that the Nigerian economy is highly opened and this openness has made it highly vulnerable to external shocks and exchange rate policy changes. Likewise, the real gross domestic leads to the appreciation of naira. Hence, the government should stimulate the productive sector of the domestic economy |
| Keywords: | Real exchange rate, Naira, Macroeconomic Indicators, Regression |
| JEL: | E00 |
| Date: | 2019–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93292&r=all |
| By: | Howard, Greg (University of Illinois at Urbana-Champaign); Liebersohn, Jack (Ohio State University (OSU) - Fisher College of Business) |
| Abstract: | We develop a theory whereby increased demand for living in housing-supply-inelastic regions raises aggregate house prices, and we show that this channel contributed significantly to the U.S. house price boom from 2000 to 2006. As an example of our framework, we show that a decline in manufacturing, an industry concentrated in elastic areas, raises national house prices. Our framework also predicts that changes in the price-rent ratio, from interest rates or other changes in the mortgage market, increase relative locational demand for high-rent areas, which are typically inelastic. Changes in locational demand therefore fill in a missing link between changes in aggregate credit conditions and aggregate house prices. We show evidence of this in the data. |
| JEL: | E31 R23 R31 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ohidic:2018-17&r=all |
| By: | Jared Berry; Felicia Ionescu; Robert J. Kurtzman; Rebecca Zarutskie |
| Abstract: | In this note, we examine how U.S. banks' NIMs have varied over the most recent monetary policy tightening episode compared with the three previous monetary policy tightening episodes. |
| Date: | 2019–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2019-04-19-2&r=all |
| By: | Klemperer, Paul |
| Abstract: | This paper adds new material, including about implementations of the product-mix auction and more detail about the bidding languages, to Klemperer (2008) [see next page for details]. Software (pro bono) to run several versions of product-mix auctions is now available at http://pma.nuff.ox.ac.uk. |
| Keywords: | Auction; Bank of England; bidding language; geometric bidding language; Multi-object auction; multi-product auction; product mix auction; product-mix auction; Simultaneous ascending auction; simultaneous multiple round auction |
| JEL: | D44 E58 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13667&r=all |
| By: | Mitu Gulati (Duke University Law School); Ugo Panizza (IHEID, Graduate Institute of International and Development Studies, Geneva); W. Mark C. Weidemaier (University of North Carolina School of Law); Gracie Willingham (Duke University Law School) |
| Abstract: | During the European sovereign debt crisis of 2011-13, some nations faced with rising borrowing costs adopted commitments to treat bondholders as priority claimants. That is, if there was a shortage of funds, bondholders would be paid first. In this article, we analyze the prevalence and variety of these types of commitments and ask whether they impact borrowing costs. We examine a widely-touted reform at the height of the Euro sovereign debt crisis in 2011, in which Spain enshrined in its constitution a strong commitment to give absolute priority to public debt claimants. We find no evidence that this reform had any impact on Spanish sovereign bond yields. By contrast, our examination of the U.S. Commonwealth of Puerto Rico suggests that constitutional priority promises can have an impact, at least where the borrower government is subject to supervening law and legal institutions. |
| Keywords: | Sovereign Debt, Debt Sustainability, Sovereign Spreads |
| JEL: | E62 H62 H63 P16 |
| Date: | 2019–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp07-2019&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Uchenna R. Efobi (School of Business, Covenant University, Nigeria); Belmondo V. Tanankem (MINEPAT, Cameroon); Evans S. Osabuohien (Covenant University, Ota, Nigeria) |
| Abstract: | This study assesses the relationship between globalisation and the economic participation of women (EPW) in 47 Sub-Saharan African countries for the period 1990-2013. EPW is measured with the female labour force participation and employment rates. The empirical evidence is based on Panel-corrected Standard Errors and Fixed Effects regressions. The findings show that the positive effect of the overall globalisation index on EPW is dampened by its political component and driven by its economic and social components, with a higher positive magnitude from the former or economic globalisation. For the most part, the findings are robust to the control for several structural and institutional characteristics. An extended analysis by unbundling globalisation shows that the positive incidence of social globalisation is driven by information flow (compared to personal contact and cultural proximity) while the positive effect of economic globalisation is driven by actual flows (relative to restrictions). Policy implications are discussed with some emphasis on how to elevate women’s social status and potentially reduce their victimisation to male dominance. |
| Keywords: | Globalisation; female; gender; inequality; inclusive development; labour force participation; Africa |
| JEL: | E60 F40 F59 D60 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/019&r=all |
| By: | Clarida, Richard H. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2019–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:1041&r=all |
| By: | Gulati, Mitu; Panizza, Ugo; Weidemaier, Mark; Willingham, Grace |
| Abstract: | During the European sovereign debt crisis of 2011-13, some nations faced with rising borrowing costs adopted commitments to treat bondholders as priority claimants. That is, if there was a shortage of funds, bondholders would be paid first. In this article, we analyze the prevalence and variety of these types of commitments and ask whether they impact borrowing costs. We examine a widely-touted reform at the height of the Euro sovereign debt crisis in 2011, in which Spain enshrined in its constitution a strong commitment to give absolute priority to public debt claimants. We find no evidence that this reform had any impact on Spanish sovereign bond yields. By contrast, our examination of the U.S. Commonwealth of Puerto Rico suggests that constitutional priority promises can have an impact, at least where the borrower government is subject to supervening law and legal institutions. |
| Keywords: | debt sustainability; Sovereign debt; Sovereign spreads |
| JEL: | E62 H62 H63 P16 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13673&r=all |
| By: | Ufuk Akcigit; Sina T. Ates |
| Abstract: | In this paper, we review the literature on declining business dynamism and its implications in the United States and propose a unifying theory to analyze the symptoms and the potential causes of this decline. We first highlight 10 pronounced stylized facts related to declining business dynamism documented in the literature and discuss some of the existing attempts to explain them. We then describe a theoretical framework of endogenous markups, innovation, and competition that can potentially speak to all of these facts jointly. We next explore some theoretical predictions of this framework, which are shaped by two interacting forces: a "composition effect" that determines the market concentration and an "incentive effect" that determines how firms respond to a given concentration in the economy. The results highlight that a decline in "knowledge diffusion" between frontier and laggard firms could be a significant driver of empirical trends observed in the data. This study emphasizes the potential of growth theory for the analysis of factors behind declining business dynamism and the need for further investigation in this direction. |
| JEL: | E22 K20 L10 L41 O33 O34 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25755&r=all |
| By: | Chung Tran; Nabeeh Zakariyya |
| Abstract: | We study the progressivity of Australia's personal income tax system after the introduction of a New Tax System (Goods and Services Tax) Act 1999. We use two data sets: administrative data from Australian Tax Office (ATO) 2004-16 and survey data from the Household Income and Labour Dynamics in Australia (HILDA) survey 2001-16. We first document the distributions of income and tax liabilities, properties of the joint distributions of taxes paid and income, and discuss how taxes are varied across households and over time. We next provide estimates of tax progressivity using two approaches: one based on tax liability progression and one based on tax liability distribution relative to income distribution. The result obtained from the tax progression approach implies a significant decline in the average level of tax progressivity since 2004. Meanwhile, the result obtained from the tax distribution approach indicates a tax progressivity cycle with a modest decline up to 2006, then a sharp increase until 2010, and a slight decline thereafter. The personal income tax cuts for all taxpayers in early 2000s and the introduction of tax offset for low income earners (LITO) are main driving forces. Moreover, the evolution of income distribution and its interactions with bracket creep strongly affect the overall progressivity level of Australia's income tax system. Hence, our findings provide new insights into the dynamics of income growth and tax progressivity, which has implications for tax policy debates in Australia. |
| Keywords: | Taxation, progressiveness, income dynamics, inequality, parametric tax function, Suits index, Kakwani index. |
| JEL: | E62 H24 H31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2019-667&r=all |
| By: | Kazeem B. Ajide (University of Lagos, Lagos, Nigeria); Olorunfemi Y. Alimi (University of Lagos, Lagos, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | Studies on the causes of income differences between the rich and the poor have received an extensive attention in the inequality empirics. While ethnic diversity hasalso been identified as one of the fundamental causes of income inequality, the role of institutions as a mediating factor in the ethnicity-inequality nexus has not received the scholarly attention it deserves. To this end, this study complements the existing literature by investigating the extent to which institutional framework corrects the noisy influence originating from the nexus between “ethnic diversity” and inequality in 26 sub-Saharan African countries for the period 1996-2015. The empirical evidence is based on pooled OLS, fixed effects and system GMM estimators. The main findings reveal that the mediating influences of institutional settingsaredefective, thus making it extremely difficult to modulatethe noisy impacts of ethno-linguistic and religious heterogeneity on inequality. In addition, the negative influencesorchestrated by ethnolinguistic and religious diversities on inequality fail toattenuate the impact of income disparityeven when interacted with institutions. On the policy front, institutional reforms tailored toward economic, political and institutional governances should be targeted. |
| Keywords: | Linguistic, religious, ethnicity, inequality, Institutions, Kuznets curve |
| JEL: | C23 D02 D63 E02 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/018&r=all |
| By: | Akcigit, Ufuk; Ates, Sina T. |
| Abstract: | In this paper, we review the literature on declining business dynamism and its implications in the United States and propose a unifying theory to analyze the symptoms and the potential causes of this decline. We first highlight 10 pronounced stylized facts related to declining business dynamism documented in the literature and discuss some of the existing attempts to explain them. We then describe a theoretical framework of endogenous markups, innovation, and competition that can potentially speak to all of these facts jointly. We next explore some theoretical predictions of this framework, which are shaped by two interacting forces: a "composition effect" that determines the market concentration and an "incentive effect" that determines how firms respond to a given concentration in the economy. The results highlight that a decline in "knowledge diffusion" between frontier and laggard firms could be a significant driver of empirical trends observed in the data. This study emphasizes the potential of growth theory for the analysis of factors behind declining business dynamism and the need for further investigation in this direction. |
| Keywords: | business dynamism; Competition; Innovation; knowledge diffusion; Market concentration; Markups; patenting |
| JEL: | E22 K20 L10 L41 O33 O34 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13668&r=all |
| By: | Jon Frost; Leonardo Gambacorta; Yi Huang; Hyun Song Shin; Pablo Zbinden |
| Abstract: | We consider the drivers and implications of the growth of "BigTech" in finance - ie the financial services offerings of technology companies with established presence in the market for digital services. BigTech firms often start with payments. Thereafter, some expand into the provision of credit, insurance, and savings and investment products, either directly or in cooperation with financial institution partners. Focusing on credit, we show that BigTech firms lend more in countries with less competitive banking sectors and less stringent regulation. Analysing the case of Argentina, we find support for the hypothesis that BigTech lenders have an information advantage in credit assessment relative to a traditional credit bureau. For borrowers in both Argentina and China, we find that firms that accessed credit expanded their product offerings more than those that did not. It is too early to judge the extent of BigTech's eventual advance into the provision of financial services. However, the early evidence allows us to pose pertinent questions that bear on their impact on financial stability and overall economic welfare. |
| Keywords: | BigTech, FinTech, credit markets, data, technology, network effects, regulation |
| JEL: | E51 G23 O31 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:779&r=all |
| By: | López-Martín Bernabé |
| Abstract: | We develop a quantitative theoretical model of firm dynamics to analyze key determinants of the elasticity of exports with respect to the exchange rate. The model incorporates mechanisms that determine the firms? capacity to react when the profitability of exports change due to fluctuations in the exchange rate. The framework allows for a quantitative assessment of different mechanisms: distribution costs represent the most important factor, as well as the exogenous and gradual growth dynamics of new exporters, and the currency denomination of sunk-entry costs into the foreign market. The different versions of the model are evaluated by contrasting the behavior of simulated variables with empirical estimates and evidence found in the literature. In addition, we present an assessment of the effects on the intensive and extensive margins of exports. |
| Keywords: | export dynamics;hysteresis;exchange rates;heterogeneous firms;exchange rate passthrough |
| JEL: | J21 E32 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2019-05&r=all |