|
on Macroeconomics |
|
Issue of 2019‒04‒29
fifty-two papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Thomas J. Carter; Xin Scott Chen; José Dorich |
| Abstract: | Cette note met à jour l’évaluation par le personnel de la Banque du taux neutre canadien, c’est-à-dire le taux directeur requis pour maintenir la production à son niveau potentiel et l’inflation à son taux cible, une fois disparus les effets des chocs cycliques. Ce concept de moyen à long terme sert de point de référence pour évaluer le degré de détente monétaire résultant d’une politique donnée. Selon l’évaluation globale du personnel, qui est basée sur la juxtaposition des résultats de quatre approches distinctes, le taux neutre canadien se situe probablement dans une fourchette allant de 2,25 à 3,25 % en termes nominaux, ce qui est un peu plus bas que la fourchette de 2,5 à 3,5 % publiée lors de la dernière mise à jour, en avril 2018. Même si cette révision à la baisse découle surtout d’une réduction de la valeur estimée du taux neutre mondial, l’évaluation globale résulte également d’une meilleure modélisation, qui a permis au personnel de mieux rendre compte des effets à moyen et long terme des risques macroéconomiques sur le niveau du taux neutre. Par ailleurs, bien que la fourchette du taux neutre estimée par le personnel tienne compte d’importantes sources d’incertitude, elle ne devrait pas pour autant être vue comme la résultante de l’ensemble des incertitudes qui entourent le taux neutre. |
| Keywords: | Modèles économiques; Politique monétaire; Taux d'intérêt |
| JEL: | E40 E43 E50 E52 E58 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-11fr&r=all |
| By: | Dany Brouillette; Julien Champagne; Carol Khoury; Natalia Kyui; Jeffrey Mollins; Youngmin Park |
| Abstract: | La production potentielle devrait afficher une croissance moyenne de 1,8 % de 2019 à 2021 et de 1,9 % en 2022. Même si l’apport du facteur travail tendanciel à la croissance de la production potentielle devrait diminuer entre 2019 et 2022, celui de la productivité tendancielle du travail devrait augmenter. Le profil des taux de croissance de la production potentielle est similaire à celui établi lors de la réévaluation d’avril 2018, malgré une légère révision à la baisse pour 2020 et 2021. Ce nouveau profil tient compte d’un assombrissement des perspectives d’investissement des entreprises, en grande partie contrebalancé par des projections à la hausse pour ce qui est de la croissance démographique. Selon les divers scénarios étudiés, la fourchette des estimations de croissance de la production potentielle s’élargit, allant de 1,5 à 2,1 % en 2019 et de 1,3 à 2,5 % en 2022. |
| Keywords: | Marchés du travail; Production potentielle; Productivité |
| JEL: | E00 E22 E23 E24 E37 E6 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-10fr&r=all |
| By: | Thomas J. Carter; Xin Scott Chen; José Dorich |
| Abstract: | This note provides an update on Bank of Canada staff’s assessment of the Canadian neutral rate. The neutral rate is the policy rate needed to keep output at its potential level and inflation at target once the effects of any cyclical shocks have dissipated. This medium- to long-run concept serves as a benchmark for gauging the degree of monetary stimulus provided by a given policy setting. Staff’s overall assessment, which is based on the combined output of a suite of four distinct approaches, is that the Canadian neutral rate likely lies in a range of 2.25 to 3.25 per cent in nominal terms, lower than the range of 2.5 to 3.5 per cent reported at the time of the last update in April 2018. Although this downward shift stems mainly from a lower assessed global neutral rate, the overall assessment also reflects some improved modelling techniques enabling staff to better capture the medium- to long-run impact of macroeconomic risk on the level of the neutral rate. Moreover, while staff’s assessed range for the neutral rate captures important sources of uncertainty, it should not be interpreted as reflecting the full extent of the uncertainties surrounding the neutral rate. |
| Keywords: | Labour markets; Potential output; Productivity |
| JEL: | E40 E43 E50 E52 E58 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-11&r=all |
| By: | Dany Brouillette; Julien Champagne; Carol Khoury; Natalia Kyui; Jeffrey Mollins; Youngmin Park |
| Abstract: | Potential output is expected to grow on average at 1.8 per cent over 2019–21 and at 1.9 per cent in 2022. While the contribution of trend labour input to potential output growth is expected to decrease between 2019 and 2022, the contribution of trend labour productivity is projected to increase. Relative to the April 2018 reassessment, the profile for potential output growth rates is similar, albeit revised slightly down in 2020 and 2021. Underlying this new profile are negative revisions to the business investment outlook relative to April 2018 that are mostly offset by stronger projections for population growth. Based on various alternative scenarios, the range for potential output growth estimates widens from 1.5 to 2.1 per cent in 2019 to 1.3 to 2.5 per cent in 2022. |
| Keywords: | Labour markets; Potential output; Productivity |
| JEL: | E00 E22 E23 E24 E37 E6 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-10&r=all |
| By: | Kohei Hasui (Faculty of Economics, Matsuyama University); Teruyoshi Kobayashi (Faculty of Economics, Kobe University); Tomohiro Sugo (Bank of Japan) |
| Abstract: | Real-world central banks have a strong aversion to policy reversals. Nevertheless, theoretical models of monetary policy within the dynamic general equilibrium framework normally ignore the irreversibility of interest rate control. In this paper, we develop a formal model that incorporates a central bank's discretionary optimization problem with an aversion to policy reversals. We show that, even under a discretionary regime, the optimal timing of liftoff from the zero lower bound is characterized by its history dependence, which arises from the option value to waiting, and there exists an optimal degree of reversal aversion at which the social loss is minimized. |
| Keywords: | Monetary policy, policy irreversibility, reversal aversion, liquidity trap |
| JEL: | E31 E52 E58 E61 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1906&r=all |
| By: | Belke, Ansgar; Göcke, Matthias |
| Abstract: | The interest rate is generally considered as a monetary policy tool and, at the same time, via Tobin's q, as an important driver of macroeconomic investment. As an innovation, this paper derives the exact shape of the "hysteretic" impact of changes in the interest rate on macroeconomic investment under the scenarios of certainty and uncertainty. We capture the direct interest rate-hysteresis effects on investment and the capital stock and, explicitly, stochastic changes of the interest rate-investment hysteresis relationship. Starting with hysteresis effects on a microeconomic level of a single firm, we apply an explicit aggregation procedure to derive the interest rate-hysteresis effects on a macroeconomic level. Based on our simple model we are quite skeptical regarding the efficacy of the central bank in providing incentives for macroeconomic investment in times of low or even zero interest rates and high uncertainty. Only if the central bank implements monetary policy strategies such as "forward guidance" and is able to credibly commit to low interest rates also for the foreseeable future, our quite strong verdict may be of less relevance. |
| Keywords: | forward guidance,interest rate,investment,Mayergoyz-Preisach model,monetary policy,path dependence,non-ideal relay,sunk-cost hysteresis,uncertainty,zero lower bound |
| JEL: | C61 E22 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:801&r=all |
| By: | Lakdawala, Aeimit (Michigan State University, Department of Economics); Bauer, Michael (Federal Reserve Bank of San Francisco); 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. |
| Keywords: | monetary policy uncertainty; Federal Reserve; event study; monetary transmission; implied volatility |
| JEL: | E43 E44 E47 |
| Date: | 2019–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:msuecw:2019_002&r=all |
| By: | Mönnig, Anke; Schneemann, Christian (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Zika, Gerd (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Helmrich, Robert |
| Abstract: | "This study focuses on the economic effects of the phenomenon of the electrification of powertrains in passenger cars (e-mobility). The automotive industry is one of the leading sectors in Germany and the country is one of the world's leading car producers. Therefore the economic impact could be extensive. Using the scenario technique, a number of assumptions have been made and integrated into the QINFORGE analytical tool. At the beginning of the scenario, the underlying assumptions have a positive effect on the economic development. However, in the long run they lead to a lower GDP and level of employment. The change in technology will lead to 114,000 job cuts by the end of 2035. The economy as a whole will lose nearly 20 billion euros (0.6 % of the GDP). In the scenario, we assumed a share of only 23 percent of electric cars as compared to all new registered cars in 2035. The electrification of powertrains will have negative effects especially on skilled workers. The demand for specialist and expert activities will also decrease with a time delay. A much higher market penetration could lead to stronger economic effects. Furthermore, a higher market share of domestically produced cars and traction batteries could generate more positive economic effects." (Author's abstract, IAB-Doku) ((en)) |
| JEL: | E17 E23 E24 E27 |
| Date: | 2019–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:201908&r=all |
| By: | Kronick, Jeremy M.; Villarreal, Francisco G. |
| Abstract: | This paper asks whether tepid inflation in Canada since the financial crisis can in part be explained by the effects of monetary policy on inequality. Using different structural vector autoregression models we show that expansionary monetary policy post-crisis has led to increased inequality as more resources are shifted away from lower-income individuals, which in general have higher marginal propensities to consume. As a result, aggregate demand has not risen as much as it otherwise would have, leading to a more muted inflationary response. Our results suggest that failure to account for the heterogeneity of consumption responses across the income distribution could lead to an underestimation of the magnitude of inflation’s response to a monetary policy shock. |
| Keywords: | monetary policy, inequality, inflation puzzles |
| JEL: | E25 E31 E52 |
| Date: | 2019–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93483&r=all |
| By: | Chao Gu (University of Missouri); Cyril Monnet (University of Berne); Ed Nosal (FRB Atlanta); Randall Wright (University of Wisconsin) |
| Abstract: | Are financial intermediaries inherently unstable? If so, why? What does this suggest about government intervention? To address these issues we analyze whether model economies with financial intermediation are particularly prone to multiple, cyclic, or stochastic equilibria. Four formalizations are considered: a dynamic version of Diamond-Dybvig incorporating reputational considerations; a model with delegated monitoring as in Diamond; one with bank liabilities serving as payment instruments similar to currency in Lagos-Wright; and one with Rubinstein-Wolinsky intermediaries in a decentralized asset market as in Duffie et al. In each case we find, for different reasons, that financial intermediation engenders instability in a precise sense. |
| Keywords: | Banking, Financial Intermediation, Instability, Volatility |
| JEL: | D02 E02 E44 G21 |
| Date: | 2019–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1901&r=all |
| By: | Dave, Chetan (University of Alberta, Department of Economics); Ghate, Chetan (Indian Statistical Institute); Gopalakrishnan, Pawan (Reserve Bank of India); Tarafdar, Suchismita (Shiv Nadar University) |
| Abstract: | We build a small open economy RBC model with financial frictions to analyze the incidence of expansionary fiscal consolidations in emerging market economies (EMEs). We calibrate the model to India, a proto-typical EME. We show that a spending based fiscal consolidation has an expansionary effect on output. In contrast, tax based consolidations are always contractionary. Either measure of consolidation, however, tends to increase the fiscal deficit and therefore the sovereign risk premia in our framework. Our findings support the results in the IMF WEO (2010), that tax based consolidation measures are more costly (in terms of GDP losses) than spending based consolidations in the short run. We identify new mechanisms that underlie the dynamics of fiscal reforms and their implications for successful fiscal consolidations. |
| Keywords: | Expansionary Fiscal Consolidations; Fiscal Policy in Small Open Economies; Emerging Market Business Cycles; Financial Frictions |
| JEL: | E32 E62 |
| Date: | 2019–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2019_005&r=all |
| By: | Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This paper provides econometric evidence on the impact of labour market regulations on (‘structural’) unemployment rates. Based on a data set for 23 OECD countries over the time period 1985‑2013, the panel regression results suggest that standard institutional labour market indicators – such as employment protection legislation, trade union density, tax wedge, minimum wages – largely underperform in explaining (medium-term) unemployment, while cyclical macroeconomic factors – in particular capital accumulation, but also the long-term real interest rate – are essential determinants. These results underscore that the existing macroeconometric evidence in favour of the view that labour market rigidities are at the heart of increased ‘structural’ unemployment in advanced economies is modest at best. Some labour market variables do have an impact on unemployment, but it is in general smaller than the impact of relevant macroeconomic variables. To understand the development of unemployment in OECD countries, researchers and policy-makers therefore should consider aggregate demand dynamics and focus on capital accumulation. |
| Keywords: | unemployment, labour market institutions, NAIRU, capital accumulation |
| JEL: | C54 E24 E62 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:164&r=all |
| By: | Andersson, Fredrik N. G. (Department of Economics, Lund University); Jonung, Lars (Department of Economics, Lund University) |
| Abstract: | This paper discusses the history and future of the Swedish fiscal framework. First, we claim that the fiscal framework has contributed to a sharp decline in the debt-to-GDP ratio, from one of the highest to one of the lowest in the European Union. Next, we focus on the future. Despite its success, we argue that the framework is unsustainable. Running large surpluses over the long run is not a steady-state solution. We recommend two changes to the framework. First, that the public pension system is excluded, and second that the Swedish fiscal authorities shift attention from maintaining a budget surplus of 1/3 percent of GDP over the business cycle to sustaining a stable debt-to-GDP ratio of 25 percent of GDP +/- 5 percentage points. A debt anchor at this level will provide sufficient insurance in case of a future major economic crisis judging from recent cross-country evidence. In addition, a debt anchor around 25 percent of GDP would contribute to political stability in time of crises. In a world, where populism and austerity fatigue are rampant, we stress the importance of a fiscal framework allowing successful consumption and tax smoothing in case of major negative shocks to the fiscal space. We conclude with a set of recommendations for the fiscal governance of the EU. |
| Keywords: | Fiscal policy; fiscal framework; fiscal policy council; financial crisis; debt crisis; consumption smoothing; Sweden; EU |
| JEL: | E61 E62 E63 G02 H12 H30 N14 O52 |
| Date: | 2019–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2019_006&r=all |
| By: | Prante, Franz J.; Barmucci, Alessandro; Hein, Eckhard; Truger, Achim |
| Abstract: | The aim of our contribution is to present an innovative instrument to teach macroeconomics at the undergraduate and master level. We develop a digital learning platform to present and explore some controversies at the very foundations of macroeconomic theory. For this purpose, we explicitly present two competing paradigms, the new-Keynesian and the post-Keynesian one. Several interactive scenarios are made available where the user can take control over different economic policy instruments and is guided through a set of problems that require appropriate actions in the context of the different approaches. |
| Keywords: | macroeconomics teaching,simulations,pluralism,new Keynesian macroeconomics,post-Keynesian macroeconomics |
| JEL: | A22 A23 E12 E17 E60 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1172019&r=all |
| By: | Eric T. Swanson |
| Abstract: | A flexible labor margin allows households to absorb shocks to asset values with changes in hours worked as well as changes in consumption. This ability to partially offset wealth shocks by varying hours of work can significantly alter the household’s attitudes toward risk, as shown in Swanson (2012). In this paper, I analyze how frictional labor markets affect that analysis. Household risk aversion (as measured by willingness to pay to avoid a wealth shock) is higher: 1) in countries with more frictional labor markets, 2) in recessions, and 3) for households that have more difficulty finding a job. These predictions are consistent with empirical evidence from a variety of sources. Quantitatively, I show that labor market frictions in Europe are large enough to play a substantial contributing role to risk aversion in those countries. Nevertheless, labor markets in the U.S. and Europe are sufficiently flexible that risk aversion is much closer to the frictionless benchmark in Swanson (2012) than to traditional measures that assume labor is fixed. |
| JEL: | D81 E24 E44 G12 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25764&r=all |
| By: | Daniel Schaefer (School of Economics, University of Edinburgh); Carl Singleton (Department of Economics, University of Reading) |
| Abstract: | Using UK employer-employee panel data, we present novel facts on how wages and working hours respond to the business cycle within jobs. Firms reacted to the Great Recession with substantial real wage cuts and by recruiting more part-time workers. A one percentage point increase in the unemployment rate led to an average decline in real hourly wages of 2.8 percent for new hires and 2.6 percent for job stayers. Hiring hours worked were substantially procyclical, while job-stayer hours were acyclical. These results show that real wages are not rigid and that the labor costs of new hires are especially flexible. |
| Keywords: | Wage rigidity, Great Recession, Hours worked, Job-level analysis |
| JEL: | E24 E32 J30 |
| Date: | 2019–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2019-03&r=all |
| By: | Jonas E Arias (FRB Philadelphia); Guido Ascari (University of Oxford, University of Pavia, Bank of Finland); Nicola Branzoli (Bank of Italy); Efrem Castelnuovo (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne) |
| Abstract: | This paper studies the challenge that increasing the inflation target poses to equilibrium determinacy in a medium-sized New Keynesian model without indexation fitted to the Great Moderation era. For moderate targets of the inflation rate, such as 2 or 4 percent, the probability of determinacy is near one conditional on the monetary policy rule of the estimated model. However, this probability drops significantly conditional on model-free estimates of the monetary policy rule based on real-time data. The difference is driven by the larger response of the federal funds rate to the output gap associated with the latter estimates. |
| Keywords: | trend inflation, determinacy, monetary policy |
| JEL: | E52 E3 C22 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2018n09&r=all |
| By: | Matthew Clance (University of Pretoria, Department of Economics, Pretoria, 0002, South Africa); Wei Ma (Xi'an Jiaotong-Liverpool University, International Business School Suzhou, Suzhou, People's Republic of China); Ruthira Naraidoo (University of Pretoria, Department of Economics, Pretoria, 0002, South Africa) |
| Abstract: | This paper investigates the implications of international consumption risk sharing for a panel 69 developed and developing countries over the period 1986-2006. We theoretically derive the international consumption insurance proposition within an international real business cycle setup that involves consumption correlation with the real exchange rate to incorporate salient features that impede consumption risk sharing, namely trade costs and capital market imperfections, making use of the gravity structural model to obtain the trade costs estimates and output volatility to proxy capital market imperfections. We analyze the implications of the theory based on panel data estimation. We find that trade costs significantly impede risk sharing for the aggregate sample of countries and a 10% increase in trade costs can decrease consumption by almost 0:7% and 0:6% for trade between developed and developing countries and for intra-developing country trade respectively while intra-developed country trade seems to be affected by temporary changes in trade costs. Developed countries seem to be in line with insuring against output volatility while low income group face asset market constraints as output uncertainty increases. Policy implication hence involves lowering international trade costs in an attempt to alleviate issues of consumption allocations. |
| Keywords: | Trade costs, international consumption insurance, developed, developing, low income countries, capital market imperfection |
| JEL: | E21 E44 F14 F41 G15 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201932&r=all |
| By: | Latsos, Sophia |
| Abstract: | This paper scrutinizes the role of prolonged, expansionary monetary policy on the savings behavior of Japanese households, focusing on the dramatic change of the household savings behavior since 1998, from high to low savings. Existing literature generally attributes this behavioral change to the country's shift from a high-growth to a low-growth economy and its demographic change. In contrast, this paper empirically examines changes in the incentives for saving and the ability to save connected to monetary policy. It finds that monetary policy has had a significant impact on Japan's household behavior via three channels: the interest rate channel, the redistribution channel, and the wealth channel. |
| Keywords: | household saving,interest-rate elasticity of saving,Japanese household savings,Bank of Japan,low interest rate policy |
| JEL: | E21 E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:159&r=all |
| By: | Belke, Ansgar; Gros, Daniel |
| Abstract: | The asset purchase programme of the euro area, active between 2015 and 2018, constitutes an interesting special case of Quantitative Easing (QE) because the ECB's Public Sector Purchase Programme (PSPP) involved the purchase of peripheral euro area government bonds, which were clearly not riskless. Moreover, these purchases were undertaken by national central banks at their own risk. Intuition suggests, and a simple model confirms, that, ceteris paribus, large purchases by a national central bank of the bonds of their own sovereign should increase the risk for the remaining private bond holders. This might seem incompatible with the observation that risk spreads on peripheral bonds fell when QE in the euro area was announced. However, the initial fall in risk premiums may have been due to expectations of the bond purchases proving effective in lowering risk-free rates. When these expectations were disappointed, risk premiums returned to their initial level. Formal statistical tests confirm that indeed risk premiums on peripheral bonds did not follow a random walk (contrary to what is assumed in event studies). Nor did the announcements of bond buying change the stochastics of these premiums. There is thus no reason to consider the impact effect to have been permanent. |
| Keywords: | European Central Bank,quantitative easing,unconventional monetary policies,spreads,structural breaks,time series econometrics |
| JEL: | E43 E58 G12 G15 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:803&r=all |
| By: | Acharya, Viral V.; Imbierowicz, Björn; Steffen, Sascha; Teichmann, Daniel |
| Abstract: | We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the January 2006 to June 2010 period. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks, even as it lowers deposit rates for both high-risk and low-risk banks. This adversely affects the balance sheets of high-risk bank borrowers, leading to lower payouts, lower capital expenditures, and lower employment. Overall, our results suggest that banks' capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank lending channel and the effectiveness of the central bank as a lender of last resort. |
| Keywords: | Central bank liquidity,Monetary policy transmission,Corporate deposits,Financial crisis,Lender of last resort,Banking crisis,Loans,Real effects |
| JEL: | E43 E58 G01 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:620&r=all |
| By: | Giovanni Caggiano (Monash University and University of Padova); Efrem Castelnuovo (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Gabriela Nodari (Reserve Bank of Australia) |
| Abstract: | We employ real-time data available to the US monetary policy makers to estimate a Taylor rule augmented with a measure of financial uncertainty over the period 1969-2008. We find evidence in favor of a systematic response to financial uncertainty over and above that to expected inflation, output gap, and output growth. However, this evidence regards the Greenspan-Bernanke period only. Focusing on this period, the "risk-management" approach is found to be responsible for monetary policy easings for up to 75 basis points of the federal funds rate. |
| Keywords: | Risk management-driven policy rate gap, uncertainty, monetary policy, Taylor rules, real-time data |
| JEL: | C2 E4 E5 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2018n10&r=all |
| By: | Christina D. Romer; David H. Romer |
| Abstract: | In OECD countries over the period 1980–2017, countries with lower debt-to-GDP ratios responded to financial distress with much more expansionary fiscal policy and suffered much less severe aftermaths. Two lines of evidence together suggest that the relationship between the debt ratio and the policy response is driven partly by problems with sovereign market access, but even more so by the choices of domestic and international policymakers. First, although there is some relationship between more direct measures of market access and the fiscal response to distress, incorporating the direct measures attenuates the link between the debt ratio and the policy response only slightly. Second, contemporaneous accounts of the policymaking process in episodes of major financial distress show a number of cases where shifts to austerity were driven by problems with market access, but at least as many where the shifts resulted from policymakers’ choices despite an absence of difficulties with market access. These results may have implications for the conduct of policy both in normal times and in the wake of a financial crisis. |
| JEL: | E32 E62 G01 N10 N20 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25768&r=all |
| By: | Olkhov, Victor |
| Abstract: | This paper presents further development of our economic model. We describe economic and financial transactions between agents as factors that define evolution of economic variables. We show that change of risk ratings of agents as their coordinates on economic space due to economic activity or due to other reasons induce flows of economic transactions that contribute significantly to macroeconomic evolution. Transactions are made under numerous expectations of agents and agents establish their expectations on base of economic variables, transactions, other factors that impact economic evolution. We argue that economic value of expectations should be regarded proportionally to economic value of transactions made under these expectations. We describe transition from modeling transactions and expectations of separate agents to description of density functions of transactions and expectations on economic space. We derive systems of equations that describe density functions of transactions, expectations and their flows. We explain how transactions and expectations determine asset pricing and derive price equations. We use our model equations on economic variables, transactions, expectations and their flows for description of particular economic problems in Part III. |
| Keywords: | Economic Theory, Risk Ratings, Economic Space, Economic Transactions, Expectations, Asset Pricing |
| JEL: | C4 C5 E0 E1 E3 G0 |
| Date: | 2019–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93428&r=all |
| By: | Hochmuth, Brigitte; Moyen, Stephane; Stähler, Nikolai |
| Abstract: | How do labor market reforms affect international competitiveness and net foreign assets? To answer this question, we build a two-region RBC model with labor market frictions, idiosyncratic consumption risk, and limited cross-sectional heterogeneity to establish a direct link between labor market reforms and changes in net foreign assets via a precautionary savings channel. We apply the model to simulate far-reaching labor market reforms in Germany during the mid-2000s. We find that reducing the generosity of unemployment benefits decreases wages, fosters employment and augments competitiveness as well as trade. In addition, we can explain a significant share of the observed increase in German net foreign assets. A standard representative agent framework is not able to generate any notable effects on net foreign assets and the current account. |
| Keywords: | unemployment benefits reform,current account imbalances,precautionary savings,Hartz reform |
| JEL: | E21 E24 F16 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:132019&r=all |
| By: | EL OTHMANI, Jawad (Bank Al-Maghrib, Département de la Recherche) |
| Abstract: | Ce travail porte sur l'estimation d'un modèle hybride néo-keynesien (HNKM) formé de trois équations structurelles caractérisant l'économie marocaine. Il s'agit de la courbe de demande, de la courbe d'o¤re et d'une règle Taylor augmentée des réserves de change. Le modèle est estimé par une approche bayésienne à partir des données trimestrielles couvrant la période 1998Q1-2016Q4. Parallèlement et s'inspirant des travaux de Del Negro et Schorfheide (2004), un modèle BVAR-DSGE a été estimé en exploitant les priors issus du modèle HNKM. Les fonctions de réponse impulsionnelles ont été comparées et les performances prédictives de ces deux modèles structurels ont été confrontées à des modèles statistiques alternatifs: le VAR classique et le BVAR. Il ressort des résultats des modèles HNKM et BVAR-DSGE que les réactions des variables aux di¤érents chocs sont globalement similaires et conformes aux prédictions de la théorie économique. L'étude de la qualité prévisionnelle des di¤érents modèles indique que le BVAR-DSGE et le HNKM présentent des avantages comparatifs mais sans dominer, en tous points, les modèles statistiques tels que le VAR classique et le VAR bayésien. |
| Keywords: | HNKM; BVAR-DSGE; BVAR; estimation bayésienne |
| JEL: | C10 C11 C13 E10 E12 E17 |
| Date: | 2018–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:bkamdt:2018_005&r=all |
| By: | Baldi, Guido; Forster, Stephan |
| Abstract: | Models of political budget cycles assume that politicians use fiscal policy to increase their chances of re-election. However, empirical results for advanced economies provide ambiguous support for the existence of such electoral cycles. Also, studies focusing on the regional or local level of advanced economies have found a variety of different results. In this paper, we use data at the sub-federal level of Switzerland from 1978 through 2015 to test for the presence of political budget cycles. Swiss regions called cantons are highly autonomous with regard to budgetary policy and have established direct democratic systems with frequent referendums that often affect budgetary issues. In most cantons, there are fiscal policy rules that restrict the budgetary leeway of governments. Overall, the system of government is designed to foster consensus seeking and gradual adjustment. These features should make the short-run opportunistic or partisan use of fiscal policy less likely in Swiss cantons. Rather surprisingly, however, we find at least some evidence for an electoral cycle in government spending. For government revenue or the overall budget, our empirical results do not point to an electoral cycle. |
| Keywords: | Political budget cycle,fiscal policy,direct democracy |
| JEL: | D72 E62 H62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:195930&r=all |
| By: | Gallo, Ettore |
| Abstract: | In recent years, the role attached to the autonomous components of aggregate demand has attracted rising attention, as testified by the development of the Sraffian Supermulti plier model (SSM) and the attempts to include autonomous demand in the Neo-Kaleckian model. This paper reviews and empirically tests the validity and the policy conclusions of the two models in the Euro Area. First, we theoretically assess whether the SSM may con stitute a complex variant of the Neo-Kaleckian model. In this sense, it is shown that results compatible with the SSM can be obtained by implementing a set of mechanisms in a modified Neo-Kaleckian model, leading to the convergence towards a desired rate of utilization. Furthermore, the chief diffierence between the models is recognized to be the role attached to the rate of capacity utilization in the long run. Second, the paper empirically tests the main implications of the models in the Euro Area, based on Eurostat data. In particular, the discussion outlines the short and long-run relation between autonomous demand and output, by testing both the cointegration and the direction of causality between the two with a VECM model. Moreover, the role accounted by both theories to the actual rate of capacity utilization and its discrepancies from the normal rate is empirically assessed, through a time-series estimation of the Sraffian and Neo-Kaleckian investment functions. While confirming the theoretical relation between autonomous demand and output in the long run, the results show that the dynamics of the rate of capacity utilization still plays a key role in the short-run adjustment mechanism - despite its stationary behaviour in the long term. Therefore, admitting that Keynesian results may hold even after the traverse, our work suggests to be Kaleckian in the short run and Sraffian in the long run. |
| Keywords: | distribution,effective demand,Eurozone,growth,Neo-Kaleckian,Sraffian,Supermultiplier |
| JEL: | B51 E11 E12 O41 O47 O52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1162019&r=all |
| By: | Andri Chassamboulli; Pedro Gomes |
| Abstract: | We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as nepotism in hiring in the public sector, on unemployment and rent seeking. Conditional on inefficiently high public-sector wages, more nepotism in public sector hiring lowers the unemployment rate because it limits the size of queues for public-sector jobs. Public-sector wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections. |
| Keywords: | Public-sector employment; nepotism; public-sector wages; unemployment. |
| JEL: | E24 J31 J45 J64 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:08-2019&r=all |
| By: | Daniel Cooper; María José Luengo-Prado; Jonathan A. Parker |
| Abstract: | Using variation in minimum wages across cities and controlling for differences in business-cycle factors and long-run local economic trends, we find that following minimum wage increases, both prices and nominal spending rise modestly. These gains are larger for certain sub-categories of goods such as food away from home and in locations where low-wage workers are a larger share of employment. Further, minimum wage increases are associated with reduced total debt among households with low credit scores, higher auto debt, and increased access to credit. |
| JEL: | D14 E20 E31 J20 J38 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25761&r=all |
| By: | Valdivia Coria, Joab Dan; Valdivia Coria, Daney David |
| Abstract: | El uso de políticas macroprudenciales en los últimos años cobro relevancia en diferentes economías. A consecuencia de la crisis financiera de 2008, este instrumento fue de utilidad en economías emergentes para disminuir los efectos del adverso contexto internacional. La relación entre la intermediación financiera y el sector real es positiva, a 2016 la respuesta del crecimiento sectorial a shocks en el crédito productivo es de 0.15pp. Asimismo, la modificación de la tasa de encaje legal puede proveer o retirar liquidez del sistema financiero, en el primer caso, el objetivo es incrementar de colocación de cartera, lo cual repercute en los sectores productivos y su desenvolvimiento. Por lo tanto, surge la necesidad de evaluar el efecto de ese instrumento (encaje legal) en el crecimiento sectorial de Bolivia, contralado por el ciclo financiero porque episodios de Credit Crunch afectan al sector real (se amplifica el ciclo económico a la baja). Las metodologías empleadas fueron del Método de Efectos Fijos (EF), Aleatorios (EA) y Vectores Autoregresivos en panel (Panel-VAR) y versiones recursivas de los mismos. Las estimaciones muestran los efectos positivos de la política macroprudencial y cambios en la postura que tuvo este instrumento a lo largo del tiempo, en función al ciclo financiero, Leaning Against the Wind. Bajas en la tasa de encaje legal de moneda doméstica impactan positivamente en el crecimiento sectorial y se evidencia con las versiones recursivas efectos positivos e incrementos paulatinos del crédito hacia a la actividad sectorial. |
| Keywords: | Encaje Legal, tasas de interés, Efectos Fijos (EF), Efectos Aleatorios (EA), Panel VAR, Estimación Recursiva, Leaning Against the Wind. |
| JEL: | C5 E51 E52 |
| Date: | 2018–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93441&r=all |
| By: | Engelbert Stockhammer; Karsten Kohler |
| Abstract: | In this article, we analyze the implications of financialization for domestic demand formation by linking the concept of financialization to the post-Keynesian analysis of demand regimes. We examine how the financialization of households in advanced economies gave rise to distinct but interdependent demand regimes. In the Anglo-Saxon and southern European countries, financialization in the form of property price inflation and rising household debt contributed to the development of a debt-driven demand regime with large current account deficits. Economic development in eastern Europe was shaped by catching-up through foreign direct investment from northern Europe and accompanied by worsening current account positions. Northern Europe, in contrast, relied on an export-driven demand regime with a weaker role for financialization. The export-driven demand regime relies on the financialization of southern Europe and the Anglo-Saxon countries, which helped create export demand for northern Europe. We argue that this constellation of demand regimes gives rise to divergent economic performance and macroeconomic instability. While with deleveraging the growth effects of the debt-driven model have gone into reverse, the fundamental configuration has not changed since the crisis. |
| Keywords: | Financialization, demand regimes, post-Keynesian economics |
| JEL: | E02 E60 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1911&r=all |
| By: | Hein, Eckhard |
| Abstract: | This paper compares Marx's economics with those by Sraffa, Keynes, Kalecki and Minsky. The paper takes an "ex post" view on the matter and rather looks at the output side of the respective authors, but not at the input side. This means no attempt is made at studying in a systematic way, if and to what extent Sraffa, Keynes, Kalecki and Minsky were individually influenced by Marx's work. First, the relationship between Marx's theory of value and Sraffa's reformulation of the classical theory of prices and distribution is reviewed. Then the relationship between Marx's and Keynes's monetary theory is examined relying on an interpretation of Marx's theory of value as a "monetary theory of value". Next, some light is shed on the Marx-Kalecki connection focusing on Marx's theory of simple and extended reproduction and the built-in, although not fully elaborated "principle of effective demand" and the related theories of distribution and accumulation. Finally, Marx's and Minsky's views on financial instability and crises are scrutinised. It is concluded that Marx should not be considered as an "early post-Keynesian" but rather as an important forerunner of modern post-Keynesianism, with certain similarities, but also some important differences, and several areas of compatibility. |
| Keywords: | Marx,Kalecki,Keynes,Minsky,Sraffa,comparison of economic theories |
| JEL: | B14 B24 B50 B51 E11 E12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1182019&r=all |
| By: | Gilles Dufrénot (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE & CEPII); Meryem Rhouzlane (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Etienne Vaccaro-Grange (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE) |
| Abstract: | We estimate the yield curve gap in Japan and examine whether it has contributed to the sustained low growth and low inflation rates observed since the beginning 2000s. We use a semi-structural empirical model that generalizes Laubach and Williams’ approach, considering the entire range of maturities of the interest rates and dealing with the issue of mixed frequency sampling. We consider global factors exerting downward pressures on inflation and examine how the neutral yield curve has affected the snowball effect in the dynamics of the Japanese public debt ratio. |
| Keywords: | yield curve, potential growth, state-space model, Japan |
| JEL: | C32 E43 E52 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1912&r=all |
| By: | Gyöngyösi, Győző; Ongena, Steven; Schindele, Ibolya |
| Abstract: | We study the impact of monetary conditions on the supply of mortgage credit by banks to households. Using comprehensive credit register data from Hungary, we first establish a "bank-lending-to-households" channel by showing that monetary conditions affect the supply of mortgage credit in volume. We then study the impact of monetary conditions on the composition of mortgage credit along its currency denomination and borrower risk. We find that expansionary domestic monetary conditions increase the supply of mortgage credit to all households in the domestic currency and to risky households in the foreign currency. Because most households are unhedged, bank lending in multiple currencies may involve additional risk taking. Changes in foreign monetary conditions affect lending in the foreign currency more than in the domestic currency, and also differ in their compositional impact along firm risk. |
| Keywords: | bank balance-sheet channel,household lending,monetary policy,foreign currency lending |
| JEL: | E51 F3 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2124&r=all |
| By: | Demary, Markus |
| Abstract: | Pessimism determines the experts' predictions for the second and third quarter of 2019 which can be inferred from the downward revisions of the experts' forecasts. All in all, more downward revisions than upward revisions can be found in the forecasts indicating that the experts have interpreted the incoming information between end of December 2018 and end of March 2019 as bad news. Part or the forecast revision for the interest rates is due to their subdued inflation and growth outlook. All experts have revised their growth outlooks for Germany and the Euro Area downwards. So were Inflation forecasts for Germany revised downwards by 12 experts and inflation outlooks for the Euro Area were revised downwards by 8 experts. The other part of the interest rate forecast revisions were due to revisions about the future part of monetary policy interest rates, which also reflect a subdued inflation and growth outlook. While no experts expect the ECB to change its monetary policy, 12 experts have revised their forecasts for the federal funds rate downwards. |
| JEL: | G12 G17 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:152019&r=all |
| By: | Paul R. Bergin; Giancarlo Corsetti |
| Abstract: | Motivated by the long-standing debate on the pros and cons of competitive devaluation, we propose a new perspective on how monetary and exchange rate policies can contribute to a country’s international competitiveness. We refocus the analysis on the implications of monetary stabilization for a country’s comparative advantage. We develop a two-country New-Keynesian model allowing for sectoral differences in the production of tradables in each economy: while in one sector firms are perfectly competitive, in another sector firms produce differentiated goods under monopolistic competition and subject to nominal rigidities, hence their performance is more sensitive to macroeconomic uncertainty. We show that, by stabilizing inflation and the output gap, monetary policy can foster the competitiveness of these firms, encouraging investment and entry in the differentiated goods sector, and ultimately affecting the composition of domestic output and exports. Welfare implications of alternative monetary policy rules that shift comparative advantage are found to be substantial in a calibrated version of the model. |
| JEL: | F41 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25765&r=all |
| By: | Serafin Frache; Rodrigo Lluberas |
| Abstract: | Using data from a unique and novel monthly firm-level survey on inflation expectations in Uruguay we first present stylized facts about the inflation expectation formation process and then show how information acquisition affects firms' inflation expectations. We show that firms' forecasts are close to observed inflation, that a sizable proportion of firms do not revise their expectations, and that there is substantial disagreement about future inflation among firms. We also present evidence on industrial sector effects on inflation forecasts and show that the correlation between inflation expectations and cost expectations increases with the forecast time horizon. We then exploit peculiarities of the collective wage bargaining negotiation mechanism to estimate the impact of acquiring information about past inflation on expected future inflation. Our results imply that firms that adjust wages expect lower inflation, revise their expectations downwards and make smaller forecast errors than firms that do not adjust wages. We find no effect of wage adjustments on firms' own cost expectations and that disagreement among firms is lower in the months of wage adjustment. The latter suggests that inflation expectations tend to converge as firms are more informed about past inflation. |
| Keywords: | inflation expectations, firms' survey, new information |
| JEL: | D22 D84 E31 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:781&r=all |
| By: | David Altig; Alan J. Auerbach; Patrick C. Higgins; Darryl R. Koehler; Laurence J. Kotlikoff; Michael Leiseca; Ellyn Terry; Yifan Ye |
| Abstract: | The Tax Cut and Jobs Act of 2017 (TCJA) made significant changes to corporate and personal federal income taxation, including limiting the SALT (state and local property, income and sales taxes) deductibility to $10,000. States with high SALT tend to vote Democratic. This paper estimates the differential effect of the TCJA on red- and blue-state taxpayers and investigates the importance of the SALT limitation to this differential. We calculate the effect of permanent implementation of the TCJA on households using The Fiscal Analyzer: a life-cycle, consumption-smoothing program incorporating all major federal and state fiscal policies. We find that the average percentage increase in remaining lifetime spending under the TCJA is 1.6 percent in red states versus 1.3 percent in blue states. Among the richest 10 percent of households, this differential is larger. Rich households in red states enjoyed a 2.0 percent increase compared to a 1.2 percent increase among the rich in blue-state households. This gap is driven almost entirely by the limitation on the SALT deduction. Excluding the SALT limitation from the TCJA results in a spending gain of 2.6 percent for rich red-state households compared to 2.7 percent for rich blue-state households. |
| JEL: | D31 D72 E62 H20 H22 H71 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25770&r=all |
| By: | Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Graph of the month Top 5 imports into the EU from DCFTA countries, 2017 Opinion corner Permanent fiscal deficits are desirable for the high income countries by Leon Podkaminer The polarisation of production structures in the Euro area by Philipp Heimberger The Euro area’s economic upswing over the course of the year 2018 has masked continued underlying polarisation of production capabilities between core and periphery countries. Ensuring long-term macroeconomic convergence and stability of the monetary union will require coordinated fiscal, wage and industrial policies. Economic disintegration of the European Union not improbable by Leon Podkaminer In this paper it is argued that European integration has not fulfilled its chief economic promises. Output growth has been increasingly weak and unstable. Productivity growth has been following a decreasing trend. This sorry state of affairs is likely to continue – and likely to precipitate further exits, or eventually, the dissolution of the Union. However, this outcome is not unavoidable. Moreover, the negative consequences implicit in the current architecture of the common currency could be neutralised. However, the basic paradigms of the economic policies to be followed in the EU would have to be radically changed. First, the unconditional fiscal consolidation provisions still in force would have to be repelled. Second, ‘beggar-thy-neighbour’ (or mercantilist) wage policies would have to be ‘outlawed’. Next EU budget and the financing of the Cohesion policy by Sándor Richter In the EU’s next Multiannual Financial Framework the share of Cohesion policy funds will likely be smaller than in the current one, leading to serious conflicts between net contributor and net beneficiary member states. The solution to avoid these conflicts may be the integration of a market based support of investment following the pattern of the “Juncker Plan” into the future cohesion policy. Statistical Annex Monthly and quarterly statistics for Central, East and Southeast Europe |
| Keywords: | foreign trade, DCFTA, fiscal, deficit, fiscal policy, polarisation of production structures, core and periphery countries, macroeconomic convergence, Euro area, disintegration, EU, EU budget, Cohesion policy, EFSI, Juncker Plan |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:wii:mpaper:mr:2018-10&r=all |
| By: | Giovanni Razzu (Department of Economics, University of Reading); Carl Singleton (Department of Economics, University of Reading); Mark Mitchell (School of Economics, University of Edinburgh) |
| Abstract: | Using over four decades of British micro data, this paper asks why the narrowing of the gender employment rate gap has stalled since the early 1990s. We find that changes to the structure of employment both between and within industry sectors impacted the gap at approximately constant rates throughout the period, and does not account for the stall. Instead, changes to how the characteristics of women's partners affected their own employment rates address most of the gap's shift in trend. There is also evidence that increases in women's employment when they had children or higher qualifications continued to narrow the gender gap even after it had stalled overall. |
| Keywords: | gender employment gaps, structural change, micro time series dataset |
| JEL: | E24 J16 J21 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2019-02&r=all |
| By: | Lilit Popoyan; Mauro Napoletano; Andrea Roventini |
| Abstract: | We develop a macroeconomic agent-based model to study how financial instability can emerge from the co-evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy. The model is populated by heterogenous firms, consumers, and banks that locally interact in different markets. In particular, banks provide credit to firms according to a Basel II or III macro-prudential frameworks and manage their liquidity in the interbank market. The Central Bank performs monetary policy according to different types of Taylor rules. We find that the model endogenously generates market freezes in the interbank market which interact with the financial accelerator possibly leading to firm bankruptcies, bank- ing crises and the emergence of deep downturns. This requires the timely intervention of the Central Bank as a liquidity lender of last resort. Moreover, we find that the joint adoption of a three mandate Taylor rule tackling credit growth and the Basel III macro-prudential frame- work is the best policy mix to stabilize financial and real economic dynamics. However, as the Liquidity Coverage Ratio spurs financial instability by increasing the pro-cyclicality of banksù liquid reserves, a new counter-cyclical liquidity buffer should be added to Basel III to improve its performance further. Finally, we find that the Central Bank can also dampen financial in- stability by employing a new unconventional monetary-policy tool involving active management of the interest-rate corridor in the interbank market. |
| Keywords: | financial instability; interbank market freezes; monetary policy; macro-prudential policy; Basel III regulation; Tinbergen principle; agent-based models. |
| Date: | 2019–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2019/11&r=all |
| By: | Ghosh, Sunandan; Kundu, Srikanta |
| Abstract: | We try to comprehensively analyze the nuances of Central Bank’s intervention in the foreign exchange market under a managed float exchange rate regime. We employ a three regime threshold VAR model and identify two endogenously determined threshold values of exchange rate cycle beyond which the Reserve Bank of India (RBI) intervenes in the Indian Rupee–US Dollar (Re/$) exchange rate market. We find that, as FIIs flow in, RBI’s interventions, mainly through open market operations, are successful in bringing the Re/$ exchange rate within the desired band. Within the band, the RBI tries only to mitigate domestic inflationary conditions. |
| Keywords: | Central bank intervention, Foreign exchange market, Managed float, Threshold VAR |
| JEL: | E58 F31 |
| Date: | 2019–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93466&r=all |
| By: | Bustelo, Monserrat; Flabbi, Luca; Piras, Claudia; Tejada, Mauricio |
| Abstract: | The labor force participation of women is lower than the labor force participation of men. This empirical regularity is particularly acute in Latin America and the Caribbean (LAC). In terms of labor market productivity and growth potential, these lower participation rates constitute a reserve of untapped resources. Providing an estimate of the impact that increased female participation in the labor force has on labor market outcomes and GDP is therefore crucial but challenging. Two issues are of importance: sample selection and equilibrium effects. We develop a labor market model that is able to address these issues. We estimate the model on the microdata of five LAC countries. We find that both a childcare policy and a policy increasing women’s productivity generate a positive impact on female participation and significant increases in GDP per capita. Our results suggest that relatively modest policies that are able to increase the participation of women in the labor market can provide a significant increase in GDP. However, we are not able to take into account the fiscal costs necessary to implement the policies or the possible negative externalities on household production. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:9420&r=all |
| By: | Audi, Marc; Ali, Amjad |
| Abstract: | This study analyses the impact of advancement in information and communication technologies (ICT) on economic development over the period of 2000 to 2017 in the case of 87 developed and developing countries. The developed and developing countries are selected following the ranking of International Monetary Fund's World Economic Outlook Database, October 2018. This article uses three types of analysis: the first is based on the whole sample, and for comparative analysis developed and developing countries’ analysis are done separately. The results of panel least squares reveal that advancement in information and communication technologies has an insignificant relationship with economic development, whereas the advancement in information and communication technologies is playing a positive and significant role in the economic development of developing countries. This shows that developed countries are getting more benefits from advancement in information and communication technologies in comparison with developing countries in the process of economic development. The developed countries have a more stable macroeconomic environment in comparison with developing countries, so macroeconomic stability is playing more significant role in the case of developed countries. If developing countries want to achieve higher economic development, they must increase trade and physical capital with stable macroeconomic environment. Moreover, developing countries should adopt advancement in information and communication technologies (ICT) to compete with developed countries in the process of economic development. |
| Keywords: | ICT, economic development, macroeconomic stability |
| JEL: | E31 L86 O1 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:93476&r=all |
| By: | Andri Chassamboulli; Pedro Gomes |
| Abstract: | We set up a search and matching model with a private and a public sector to understand the effects of employment and wage policies in the public sector on unemployment and education decisions. The effects of wages and employment of skilled and unskilled public-sector workers on the educational composition of the labor force depend crucially on the structure of the labor market. An increase of skilled public-sector wages has a small positive impact on educational composition and larger negative impact on the private employment of skilled workers, if the two sectors are segmented. If search across the two sectors is random, it has a large positive impact on education and a large positive impact on skilled private employment. We highlight the usefulness of the model for policymakers by calculating the value of public-sector job security for skilled and unskilled workers. |
| Keywords: | Public-sector employment; public-sector wages; unemployment; skilled workers; human capital accumulation, education decision, public-sector job security premium |
| JEL: | E24 J31 J45 J64 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:07-2019&r=all |
| By: | Bergh, Andreas (Lund University) |
| Abstract: | This note describes how research on the link between globalization and openness has changed over time. Early contributions assumed that countries develop welfare states to compensate for volatility caused by economic openness (the compensation hypothesis). Recent findings have cast doubts on several steps in the causal chain implied by the compensation hypothesis. In many ways economic openness has been shown to be particularly beneficial for countries with high taxes and high income equality. Countries with large welfare states can use economic openness to mitigate some of the unintended side-effects of social protection and high taxes. The compensation hypothesis can thus be reformulated: Through trade, the citizens in large welfare states can enjoy some of the benefits associated with cheap labor and high wage dispersion despite their domestic economy being characterized by the opposite. |
| Keywords: | Economic integration; Welfare state; Globalization |
| JEL: | E02 F10 H53 |
| Date: | 2019–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1273&r=all |
| By: | Mikael Khan; Taylor Webley |
| Abstract: | We use a recently developed model and loan-level micro data to decompose movements in housing resales since 2015. We find that fundamental factors, namely housing affordability and full-time employment, have had offsetting effects on resales over our study period. Recent mortgage rule changes have likely contributed to slower resale activity in Canada, but their impact is estimated to be relatively small. Thus, much of the variation in resales since 2015 reflects deviations from long-run fundamentals, most notably in British Columbia and Ontario. We show that the deviations from fundamentals in these provinces are strongly correlated with house price expectations, which rose rapidly in 2016 but then retreated following provincial housing policy changes. |
| Keywords: | Econometric and statistical methods; Financial stability; Financial system regulation and policies; Housing; Recent economic and financial developments |
| JEL: | C22 E2 R21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-12&r=all |
| By: | Michael P. Clements (Henley Business School, University of Reading) |
| Abstract: | We draw on fixed-event and fixed-horizon survey expectations to better understand macro-economic forecasting behaviour. Fixed-event forecasts facilitate testing for herding behaviour,while fixed-horizon forecasts lend themselves to modelling the effects of consensus forecasts on individual forecasts. By pursuing these two approaches simultaneously for each individual forecaster, we can determine when the significance of the consensus forecasts in explaining an individuals forecasts is consistent with enhancing forecast accuracy, and when it reects strategic behaviour in response to other motives. |
| Keywords: | macro-forecasting, (anti-)herding, ?xed-event forecasts, ?xed-horizon forecasts. |
| JEL: | E37 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:icmadp:icma-2018-01&r=all |
| By: | David Berger (Northwestern University); Kyle Herkenhoff (University of Minnesota); Simon Mongey (University of Chicago) |
| Abstract: | What are the welfare implications of labor market power? We provide an answer to this question in two steps: (1) we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market, (2) we estimate key parameters using within-firm-state, across-market differences in wage and employment responses to state corporate tax changes in U.S. Census data. We validate the model against recent evidence on productivity-wage pass-through, and new measurements of the distribution of local market concentration. The model implies welfare losses from labor market power that range from 2.9 to 8.0 percent of lifetime consumption. However, despite large contemporaneous losses, labor market power has not contributed to the declining labor share. Finally, we show that minimum wages can deliver moderate, and limited, welfare gains by reallocating workers from smaller to larger, more productive firms. |
| Keywords: | wage setting, market structure, labor markets |
| JEL: | E20 J20 J42 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2019-027&r=all |
| By: | Daniel Schaefer (School of Economics, University of Edinburgh); Carl Singleton (Department of Economics, University of Reading) |
| Abstract: | Using a linked employer-employee dataset covering large firms, we present new evidence on British wage inequality trends over the past two decades. Differences between firms in the average wages they paid did not drive these trends. Between 1996 and 2005, greater wage variance within firms accounted for eighty-six percent of the total increase in wage variance among employees. In the following decade, wage inequality between firms continued to increase, whereas overall wage dispersion decreased. Approximately all the contribution to inequality dynamics from estimated firm-specific factors, throughout the employee wage distribution, disappears after accounting for the changing occupational content of wages. |
| Keywords: | wage inequality, within-firm inequality, occupational wage premiums |
| JEL: | D22 E24 J31 |
| Date: | 2019–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2019-01&r=all |
| By: | Mikael Khan; Taylor Webley |
| Abstract: | Nous utilisons un modèle élaboré récemment et des microdonnées sur les prêts individuels pour décomposer les mouvements sur le marché de la revente depuis 2015. Nous constatons que les facteurs fondamentaux, notamment l’accessibilité au logement et l’emploi à temps plein, ont fait contrepoids aux ventes de maisons existantes pendant la période visée par notre étude. Les modifications apportées récemment aux règles hypothécaires ont vraisemblablement contribué à ralentir l’activité de revente au Canada, mais nous estimons que leur incidence a été relativement faible. Ainsi, les variations des reventes depuis 2015 reflètent surtout des écarts par rapport aux fondamentaux de long terme, principalement en Colombie-Britannique et en Ontario. Nous montrons que les écarts dans ces provinces présentent une forte corrélation avec les attentes à l’égard des prix des logements, qui ont crû rapidement en 2016 puis diminué compte tenu des nouvelles orientations des politiques provinciales du logement. |
| Keywords: | Évolution économique et financière récente; Logement; Méthodes économétriques et statistiques; Réglementation et politiques relatives au système financier; Stabilité financière |
| JEL: | C22 E2 R21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-12fr&r=all |