nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒05‒13
72 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Uncertainty, Financial Markets, and Monetary Policy over the Last Century By Sangyup Choi; Chansik Yoon
  2. Makroökonomie: Blind Spot Gender: Erweiterung makroökonomischer Indikatoren durch eine Gender-Komponente am Beispiel der empirischen Phillips-Kurve By Elke Holst; Denise Barth
  3. Search Complementarities, Aggregate Fluctuations, and Fiscal Policy By Fernandez-Villaverde, Jesus; Mandelman, Federico S.; Yu, Yang; Zanetti, Francesco
  4. On Money as a Medium of Exchange in Near-Cashless Credit Economies By Ricardo Lagos; Shengxing Zhang
  5. Multiperiod Loans, Occasionally Binding Constraints, and Monetary Policy: A Quantitative Evaluation By Bluwstein, Kristina; Brzoza-Brzezina, Michal; Gelain, Paolo; Kolasa, Marcin
  6. Market power and monetary policy By Aquilante, Tommaso; Chowla, Shiv; Dacic, Nikola; Haldane, Andrew; Masolo, Riccardo; Schneider, Patrick; Seneca, Martin; Tatomir, Srdan
  7. Variation in the Phillips Curve Relation across Three Phases of the Business Cycle By Ashley, Richard; Verbrugge, Randal
  8. State-dependent pricing and its implications for monetary policy By Le, Vo Phuong Mai; Meenagh, David; Minford, Patrick
  9. The causal relationship between short- and long-term interest rates: an empirical assessment of the United States By Levrero, Enrico Sergio; Deleidi, Matteo
  10. Market-based monetary policy uncertainty By Michael D. Bauer; Aeimit Lakdawala; Philippe Mueller
  11. Traditional and Shadow Banks By Chretien, Edouard; Lyonnet, Victor
  12. Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or is It Just Hibernating? By Peter Hooper; Frederic S. Mishkin; Amir Sufi
  13. Three Dimensions of Central Bank Credibility and Inferential Expectations: The Euro Zone By Timo Henckel; Gordon D. Menzies; Peter Moffat; Daniel J. Zizzo
  14. Stagnant wages, sectoral misallocation and slowing productivity growth By Schmöller, Michaela
  15. The Fiscal Roots of Inflation By John H. Cochrane
  16. Credit risk-taking and maturity mismatch: the role of the yield curve By Giuseppe Ferrero; Andrea Nobili; Gabriele Sene
  17. High-Frequency Credit Spread Information and Macroeconomic Forecast Revision By Bruno Deschamps; Christos Ioannidis; Kook Ka
  18. Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements By Cecilia Dassatti Camors; José-Luis Peydró; Francesc R Tous
  19. Measuring credit-to-gdp gaps. The hodrick-prescott filter revisited By Jorge E. Galán
  20. Monetary policy, firms’ inflation expectations and prices: causal evidence from firm-level data By Marco Bottone; Alfonso Rosolia
  21. Negative interest rate policy in a permanent liquidity trap By Murota, Ryu-ichiro
  22. Tying Down the Anchor: Monetary Policy Rules and the Lower Bound on Interest Rates By Mertens, Thomas M.; Williams, John C.
  23. Assessing Abenomics: Evidence from Inflation-Indexed Japanese Government Bonds By Christensen, Jens H. E.; Spiegel, Mark M.
  24. Assets and Job Choice: Student Debt, Wages and Amenities By Mi Luo; Simon Mongey
  25. Negative Monetary Policy Rates and Portfolio Rebalancing: Evidence from Credit Register Data By Margherita Bottero; Camelia Minoiu; José-Luis Peydró; Andrea Polo; Andrea F. Presbitero; Enrico Sette
  26. A new approach to dating the reference cycle By Máximo Camacho; María Dolores Gadea; Ana Gómez Loscos
  27. Monetary policy and the top one percent: Evidence from a century of modern economic history By Mehdi El Herradi; Aurélien Leroy
  28. Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit, and Global Financial Cycles By Rodrigo Barbone Gonzalez; Dmitry Khametshin; José-Luis Peydró; Andrea Polo
  29. A world of low interest rates By Claude Bismut; Ismael Ramajo
  30. Assessing financial stability risks from the real estate market in Italy: an update By Federica Ciocchetta; Wanda Cornacchia
  31. Uncertainty shocks, monetary policy and long-term interest rates By Amisano, Gianni; Tristani, Oreste
  32. Inflation expectations and firms’ decisions: new causal evidence By Olivier Coibion; Yuriy Gorodnichenko; Tiziano Ropele
  33. Media Reporting and Business Cycles: Empirical Evidence based on News Data By Lamla, Michael J.; Lein, Sara M.; Sturm, Jan-Egbert
  34. Neoclassical Inequality By Carroll, Daniel R.; Young, Eric R.
  35. Fiscal policy and the assessment of output gaps in real time: An exercise in risk management By Larch, Martin; Cugnasca, Alessandro; Kumps, Diederik; Orseau, Eloïse
  36. Allocative Efficiency and Finance By Andrea Linarello; Andrea Petrella; Enrico Sette
  37. Safety traps, liquidity and information-sensitive assets By Michele Loberto
  38. Assessing Global Potential Output Growth: April 2019 By Fares Bounajm; Jean-Philippe Cayen; Michael Francis; Christopher Hajzler; Kristina Hess; Guillaume Poulin-Bellisle; Peter Selcuk
  39. Targeting financial stability: macroprudential or monetary policy? By Aikman, David; Giese, Julia; Kapadia, Sujit; McLeay, Michael
  40. Firm expectations and economic activity By Zeno Enders; Franziska Hünnekes; Gernot Müller
  41. Savings externalities and wealth inequality By Konstantinos Angelopoulos; Spyridon Lazarakis; Jim Malley
  42. Using Brexit to Identify the Nature of Price Rigidities By Hobijn, Bart; Nechio, Fernanda; Shapiro, Adam Hale
  43. Financial Engineering and Economic Development By Amaral, Pedro S.; Corbae, Dean; Quintin, Erwan
  44. Coupling Cycle Mechanisms: Minsky debt cycles and the Multiplier-Accelerator By S Devrim Yilmaz; Engelbert Stockhammer
  45. Leverage and Deepening Business Cycle Skewness By Jensen, Henrik; Petrella, Ivan; Ravn, Soren; Santoro, Emiliano
  46. The Synchronization of Business Cycles and Financial Cycles in the Euro Area By William Oman
  47. Interest rates, inflation, and exchange rates in fragile EMEs: A fresh look at the long-run interrelationships By Hüseyin Şen; Ayşe Kaya; Savaş Kaptan; Metehan Cömert
  48. Unemployment Fluctuations Over the Life Cycle By Jean-Olivier Hairault; François Langot; Thepthida Sopraseuth
  49. After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade By Benguria, Felipe; Taylor, Alan M.
  50. The International Monetary and Financial System By Gourinchas, Pierre-Olivier; Rey, Hélène; Sauzet, Maxime
  51. Cashless Stores and Cash Users By Shy, Oz
  52. Productivity Indexes and National Statistics: Theory, Methods and Challenges By Diewert, Erwin; Fox, Kevin
  53. Balance económico de Arauca: incertidumbre y perspectivas By Juan Gonzalo Zapata; Daniela Trespalacios
  54. An indicator of macro-financial stress for Italy By Arianna Miglietta; Fabrizio Venditti
  55. Does an Oligopolistic Primary Market Matter? The Case of an Asian Housing Market By Tang, Edward Chi Ho; Leung, Charles Ka Yui; Ng, Joe Cho Yiu
  56. The distribution of well-being among Europeans By Andrea Brandolini; Alfonso Rosolia
  57. From Finance to Fascism: The Real Effect of Germany’s 1931 Banking Crisis By Sebastian Doerr; Stefan Gissler; José-Luis Peydró; Hans-Joachim Voth
  58. The Effect of Higher Capital Requirements on Bank Lending: The Capital Surplus Matters By Dominika Kolcunova; Simona Malovana
  59. Monetary policy, credit institutions and the bank lending channel in the euro area By Altavilla, Carlo; C. Andreeva, Desislava; Boucinha, Miguel; Holton, Sarah
  60. Identifying monetary policy rules in South Africa with inflation expectations and unemployment By Harris Laurence; Bold Shannon
  61. The economic impact and efficiency of state and federal taxes in Australia By Jason Nassios; John Madden; James Giesecke; Janine Dixon; Nhi Tran; Peter Dixon; Maureen Rimmer; Philip Adams; John Freebairn
  62. Évaluation de la croissance de la production potentielle mondiale : avril 2019 By Fares Bounajm; Jean-Philippe Cayen; Michael Francis; Christopher Hajzler; Kristina Hess; Guillaume Poulin-Bellisle; Peter Selcuk
  63. Memantau Risiko Makro Finansial di dalam Perekonomian Indonesia By Mansur, Alfan
  64. Nominal GDP Targeting as “Optimal Monetary Policy for the Masses” By Bullard, James B.
  65. Arbitrage Crashes, Financial Accelerator, and Sudden Market Freezes By Ally Zhang
  66. The boom, the bust, and the dynamics of oil resource management in Ghana By Aryeetey Ernest; Ackah Ishmael
  67. Wages and employment: The role of occupational skills By Esther Mirjam Girsberger; Matthias Krapf; Miriam Rinawi
  68. Understanding the implications of the boom-bust cycle of global copper prices for natural resources, structural change, and industrial development in Zambia By Liebenthal Robert; Cheelo Caesar
  69. The information content of the yield spread about future inflation in South Africa By Harris Laurence; Ntshakala Manqoba
  70. La Guajira: caracterización departamental y municipal By Astrid Martínez
  71. The Economy-Wide Impact of Subsidy Reform: A CGE Analysis By Louise Roos; Philip Adams
  72. Parents, Schools and Human Capital Differences across Countries By Marta De Philippis; Federico Rossi

  1. By: Sangyup Choi (Yonsei University); Chansik Yoon (Yonsei University)
    Abstract: What has been the effect of uncertainty shocks in the U.S. economy over the last century? What are the historical roles of the financial channel and monetary policy channel in propagating uncertainty shocks? Our empirical strategies enable us to distinguish between the effects of uncertainty shocks on key macroeconomic and financial variables transmitted through each channel. A hundred years of data further allow us to answer these questions from a novel historical perspective. This paper finds robust evidence that financial conditions have played a crucial role in propagating uncertainty shocks over the last century, supporting many theoretical and empirical studies emphasizing the role of financial frictions in understanding uncertainty shocks. However, heightened uncertainty does not amplify the adverse effect of financial shocks, suggesting an asymmetric interaction between uncertainty and financial shocks Interestingly, the stance of monetary policy seems to play only a minor role in propagating uncertainty shocks, which is in sharp contrast to the recent claim that binding zero-lower-bound amplifies the negative effect of uncertainty shocks. We argue that the contribution of constrained monetary policy to amplifying uncertainty shocks is largely masked by the joint concurrence of binding zero-lower-bound and tightened financial conditions.
    Keywords: uncertainty shocks; financial channel; counterfactual VARs; local projections; zero-lowerbound
    JEL: E31 E32 E44 G10
    Date: 2019–04
  2. By: Elke Holst; Denise Barth
    Abstract: Dieser Beitrag möchte einen Impuls zur stärkeren Berücksichtigung von Genderaspekten in makroökonomischen Modellen geben. Am Beispiel der Philipps-Kurve geht es um die Frage, ob sich das Erwerbsverhalten von Frauen und Männern so stark voneinander unterscheidet, dass sich dies im Verlauf des Zusammenhangs von Inflation und Arbeitslosigkeit niederschlägt. Erste Hinweise dafür werden in deskriptiven Analysen für die Beobachtungszeiträume 1971 bis 1990 und 1991 bis 2017 gefunden. Die Studie bezieht sich auf die klassische Phillips-Kurve, die den empirischen Zusammenhang zwischen Inflation und Arbeitslosigkeit untersucht. Von einer Modellierung nach neukeynesianschem Vorbild wird zunächst abgesehen. Die Phillips-Kurve büßte in dieser Zeit erheblich an Erklärungskraft ein. Aus dem teilweise gegensätzlichen Verlauf der Philipps-Kurve unter Verwendung geschlechterspezifischer Erwerbslosenquoten wird abgeleitet, dass sich diese Entwicklung im Zuge der stark gestiegenen Erwerbsbeteiligung von Frauen noch beschleunigt hat. Die geschlechterspezifischen Unterschiede im Verlauf der Philipps-Kurve werden besonders deutlich unter Verwendung der von konjunkturellen Schwankungen weitgehend befreiten Erwerbslosenquote. Dies wird als Indiz für strukturelle Unterschiede im Erwerbsverhalten von Frauen und Männern gewertet. Das Ergebnis stärkt damit die Argumentation nach einer stärkeren Berücksichtigung von Genderaspekten in makroökonomischen Modellen. Weitere Forschungsarbeiten sind notwendig, um Aussagen über kausale Zusammenhänge treffen zu können.
    Keywords: Macroeconomics, Phillips-Curve, Gender, Unemployment, Inflation
    JEL: C18 C54 E17 E24 E31 J16
    Date: 2019
  3. By: Fernandez-Villaverde, Jesus (University of Pennsylvania); Mandelman, Federico S. (Federal Reserve Bank of Atlanta); Yu, Yang (Shanghai University of Finance and Economics); Zanetti, Francesco (University of Oxford)
    Abstract: We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails a multiplicity of equilibria. An active equilibrium with strong joint venture formation, large output, and low unemployment coexists with a passive equilibrium with low joint venture formation, low output, and high unemployment. {{p}} Changes in fundamentals move the system between the two equilibria, generating large and persistent business cycle fluctuations. The volatility of shocks is important for the selection and duration of each equilibrium. Sufficiently adverse shocks in periods of low macroeconomic volatility trigger severe and protracted downturns. The magnitude of government intervention is critical to foster economic recovery in the passive equilibrium, while it plays a limited role in the active equilibrium.
    Keywords: aggregate fluctuations; strategic complementarities; macroeconomic volatility; government spending
    JEL: C63 C68 E32 E37 E44 G12
    Date: 2019–05–01
  4. By: Ricardo Lagos; Shengxing Zhang
    Abstract: We study the transmission of monetary policy in credit economies where money serves as a medium of exchange. We find that—in contrast to current conventional wisdom in policy-oriented research in monetary economics—the role of money in transactions can be a powerful conduit to asset prices and ultimately, aggregate consumption, investment, output, and welfare. Theoretically, we show that the cashless limit of the monetary equilibrium (as the cash-and-credit economy converges to a pure-credit economy) need not correspond to the equilibrium of the nonmonetary pure-credit economy. Quantitatively, we find that the magnitudes of the responses of prices and allocations to monetary policy in the monetary economy are sizeable—even in the cashless limit. Hence, as tools to assess the effects of monetary policy, monetary models without money are generically poor approximations—even to idealized highly developed credit economies that are able to accommodate a large volume of transactions with arbitrarily small aggregate real money balances.
    JEL: E31 E4 E41 E42 E43 E44 E5 E51 E52 E58
    Date: 2019–05
  5. By: Bluwstein, Kristina (Bank of England); Brzoza-Brzezina, Michal (Narodowy Bank Polski and SGH Warsaw School of Economics); Gelain, Paolo (Federal Reserve Bank of Cleveland); Kolasa, Marcin (Narodowy Bank Polski and SGH Warsaw School of Economics)
    Abstract: We study the implications of multiperiod mortgage loans for monetary policy, considering several realistic modifications—fixed interest rate contracts, a lower bound constraint on newly granted loans, and the possibility of the collateral constraint to become slack—to an otherwise standard DSGE model with housing and financial intermediaries. We estimate the model in its nonlinear form and argue that all these features are important to understand the evolution of mortgage debt during the recent US housing market boom and bust. We show how the nonlinearities associated with the two constraints make the transmission of monetary policy dependent on the housing cycle, with weaker effects observed when house prices are high or start falling sharply. We also find that higher average loan duration makes monetary policy less effective and may lead to asymmetric responses to positive and negative monetary shocks.
    Keywords: mortgages; fixed-rate contracts; monetary policy;
    JEL: E44 E51 E52
    Date: 2019–05–03
  6. By: Aquilante, Tommaso (Bank of England); Chowla, Shiv (Bank of England); Dacic, Nikola (Bank of England); Haldane, Andrew (Bank of England); Masolo, Riccardo (Bank of England); Schneider, Patrick (Bank of England); Seneca, Martin (Bank of England); Tatomir, Srdan (Bank of England)
    Abstract: In this paper we explore the link between monetary policy and market power. We start by establishing several facts on market power in UK markets using micro data. First, while no clear trend emerges for market concentration, market power measured by markups estimated at the firm level have clearly increased in recent years, with the rise being reasonably broad-based across sectors. Second, we show that the increase is heavily concentrated in the upper tail of the distribution — companies whose mark-ups are in, say, the top quartile. Third, internationally-oriented firms are the driving force behind the rise in markups. Fourth, following Díez et al (2018), we find some reduced-form evidence of a non-monotonic relation between markups and investment at the firm level, with high levels of markups being associated with lower investment. Having established these facts, we show that the Phillips curve becomes steeper in the textbook New Keynesian model when firms tend to have more market power, reducing the sacrifice ratio for monetary policy. As inflation becomes less costly in an economy with high market power, however, the optimal targeting rule for monetary policy also changes. A rise in both the trend and volatility of mark-ups may lead to a significant rise in inflation variability. But a secular rise in mark-ups by itself improves monetary policy’s ability to stabilise inflation without inducing large movements in output.
    Keywords: Markups; market power; secular trends; monetary policy; DSGE
    JEL: D20 D40 E31 E52
    Date: 2019–05–03
  7. By: Ashley, Richard (Virginia Tech); Verbrugge, Randal (Federal Reserve Bank of Cleveland)
    Abstract: We use recently developed econometric tools to demonstrate that the Phillips curve unemployment rate–inflation rate relationship varies in an economically meaningful way across three phases of the business cycle. The first (“bust phase”) relationship is the one highlighted by Stock and Watson (2010): A sharp reduction in inflation occurs as the unemployment rate is rising rapidly. The second (“recovery phase”) relationship occurs as the unemployment rate subsequently begins to fall; during this phase, inflation is unrelated to any conventional unemployment gap. The final (“overheating phase”) relationship begins once the unemployment rate drops below its natural rate. We validate our findings in a forecasting exercise and find statistically significant episodic forecast improvement. Our analysis allows us to provide a unified explanation of many prominent findings in the literature.
    Keywords: overheating; recession gap; persistence dependence; NAIRU;
    JEL: C22 C32 E00 E31 E5
    Date: 2019–05–03
  8. By: Le, Vo Phuong Mai (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School)
    Abstract: Strong evidence now exists both in macro and micro data that price/wage durations are depent on the state of the economy and especially inflation. We embed this dependence in a macro model of the US that otherwise does well in matching the economy's behaviour in the last three decades; it now also matches it over the whole post-war period. This finding implies a major role for monetary polic influencing the economy's price stickiness. We find that by targetin nominal GDP monetary policy can achieve high price stability while also preventing large cyclical output fluctuations.
    Keywords: state-dependence; New Keynesian; Rational Expectations crises; price stability; nominalGDP
    JEL: E2 E3
    Date: 2019–05
  9. By: Levrero, Enrico Sergio; Deleidi, Matteo
    Abstract: This paper addresses one of the central aspects of the transmission mechanism of monetary policy, namely the ability of central banks to affect the structure of interest rates. To shed light on this issue, we assess the causal relationship between short- and long-term interest rates, that is, the Effective Federal Funds Rate (FF), the Moody's Seasoned Aaa Corporate Bond Yield (AAA), and the 10-Year Treasury Constant Maturity Rate (GB10Y). We apply Structural Vector Autoregressive (SVAR) models to monthly data provided by the Federal Reserve Economic Data (FRED). Our findings – estimated for the 1954-2018 period – outline an asymmetry in the relationship between short- and long-term interest rates. In particular, although we found a bidirectional relationship when the 10-year treasury bond GB10Y was included as the long-run rate, a unidirectional relationship that moves from short- to long-term interest rates is estimated when the interest rate on corporate bonds ranked AAA is taken into consideration. Furthermore, the conclusions drawn by the impulse response functions (IRFs) are confirmed and strengthened by the Forecast Error Variance Decomposition (FEVD) which shows that monetary policy is able to permanently affect long-term interest rates over a long temporal horizon, i.e., not only in the short run but also in the long run. In this way, following the Keynesian tradition, long-term interest rates appear to be strongly influenced by the central bank. Finally, despite the fact that the Federal Fund rate (FF) is weakly affected by long-term interest rate shocks, the estimated FEVD shows that FF is mainly determined by its own shock allowing us to assume that the central bank has a certain degree of freedom in setting the levels of short-run interest rates.
    Keywords: Monetary policy, short- and long-term interest rates, yield curve, SVAR analysis
    JEL: B26 E11 E43 E52
    Date: 2019–04–29
  10. By: Michael D. Bauer; Aeimit Lakdawala; Philippe Mueller
    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
  11. By: Chretien, Edouard (National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)); Lyonnet, Victor (Ohio State University (OSU))
    Abstract: We propose a theory of the coexistence of traditional and shadow banks. In our model, shadow banks escape the costly regulation traditional banks must comply with, but forgo deposit insurance, which traditional banks can rely upon. In a crisis, shadow banks repay their creditors by selling assets at fire-sale prices to traditional banks, which fund these purchases with insured deposits. Our model is consistent with several facts from the 2007 financial crisis. The analysis implies an increase in traditional banks' debt capacity leads to an increase in the relative size of the shadow banking sector.
    JEL: E32 E44 E61 G01 G21 G23 G38
    Date: 2019–04
  12. By: Peter Hooper; Frederic S. Mishkin; Amir Sufi
    Abstract: This paper reviews a substantial range of empirical evidence on whether the Phillips curve is dead, i.e. that its slope has flattened to zero. National data going back to the 1950s and 60s yield strong evidence of negative slopes and significant nonlinearity in those slopes, with slopes much steeper in tight labor markets than in easy labor markets. This evidence of both slope and nonlinearity weakens dramatically based on macro data since the 1980s for the price Phillips curve, but not the wage Phillips curve. However, the endogeneity of monetary policy and the lack of variation of the unemployment gap, which has few episodes of being substantially below zero in tis sample period, makes the price Phillips curve estimates from this period less reliable. At the same time, state level and MSA level data since the 1980s yield significant evidence of both negative slope and nonlinearity in the Phillips curve. The difference between national and city/state results in recent decades can be explained by the success that monetary policy has had in quelling inflation and anchoring inflation expectations since the 1980s. We also review the experience of the 1960s, the last time inflation expectations became unanchored, and observe both parallels and differences with today. Our analysis suggests that reports of the death of the Phillips curve may be greatly exaggerated.
    JEL: E31 E52 E65
    Date: 2019–05
  13. By: Timo Henckel (Australian National University & Centre for Applied Macroeconomic Analysis); Gordon D. Menzies (University of Technology Sydney & Centre for Applied Macroeconomic Analysis); Peter Moffat (University of East Anglia); Daniel J. Zizzo (University of Queensland & Centre for Applied Macroeconomic Analysis)
    Abstract: We use the behavior of inflation among Eurozone countries to provide information about the degree of credibility of the European Central Bank (ECB) since 2008. We define credibility along three dimensions-official target credibility, cohesion credibility and anchoring credibility - and show in a new econometric framework that the latter has deteriorated in recent history; that is, price setters are less likely to rely on the ECB target when forming inflation expectations.
    Keywords: credibility; infl?ation; expectations; anchoring; monetary union; inferential expectations
    JEL: C51 D84 E31 E52
    Date: 2019–02–21
  14. By: Schmöller, Michaela
    Abstract: I propose a two-sector endogenous growth model with heterogeneous sectoral productivity and sector-specific, nonlinear hiring costs to analyse the link between sectoral resource allocation, low productivity growth and stagnant real wages. My results suggest that an upward shift in the labor supply, triggered for instance by a labor market reform, as among others implemented in Germany in 2003-2005, is beneficial in the long-run as it raises growth of technology, labor productivity and real wages. I show, however, that in the immediate phase following the labor supply shock, labor productivity and real wages stagnate as employment gains are initially disproportionally allocated to low-productivity sectors, limiting the capacity for technology growth and depressing real wages and productivity. I demonstrate that due to the learning-by-doing growth externality in the high-productivity sector the competitive equilibrium is ineffcient as firms fail to internalize the effect of their labor allocation on aggregate growth. Subsidies to high-productivity sector production can alleviate welfare losses along the transition path.
    JEL: E20 E24 E60 O40 O41
    Date: 2019–05–06
  15. By: John H. Cochrane
    Abstract: Unexpected inflation devalues nominal government bonds. This change in value must correspond to a change in expected future surpluses, a change in their discount rates, or a contemporaneous change in nominal bond returns. I develop a linearized version of the government debt valuation equation, and I measure each component via a vector autoregression. I find that discount rate variation is important. Unexpected inflation corresponds entirely to a rise in discount rates, with no change in the sum of expected future surpluses. A recession shock, which lowers inflation and output, signals persistent deficits, but also lower interest rates, which raise the value of debt and account fully for the lower inflation. A monetary policy shock, defined here as a rise in interest rates with no change in expected future surpluses, raises inflation immediately and persistently. Nominal rates rise more than real rates, raising the discount factor and thus accounting for the inflation. In these calculations, the present value of surpluses changes by more than current inflation. Persistently higher inflation and nominal interest rates cause current long term bonds to fall in value, soaking up variation in the present value of surpluses. By this mechanism monetary policy spreads fiscal shocks to persistent inflation rather than price level jumps. I also decompose the value of government debt. Half of the value of debt corresponds to forecasts of future primary surpluses, and half to discount rates, driven by variation in bond expected returns.
    JEL: E31 E63
    Date: 2019–05
  16. By: Giuseppe Ferrero (Bank of Italy); Andrea Nobili (Bank of Italy); Gabriele Sene (Bank of Italy)
    Abstract: We study the credit-risk-taking behaviour of Italian banks in response to changes in the term structure of interest rates using a confidential dataset on new loans to non-financial firms. We find that ex-ante risk-taking is negatively related to the short end of the yield curve but positively to the long end. Banks’ balance sheet conditions, as captured not only by capitalization but also by the maturity mismatch between assets and liabilities, are key to relating these findings to the theoretical literature.
    Keywords: yield curve, risk-taking channel, reach-for-yield
    JEL: E30 E32 E51
    Date: 2019–04
  17. By: Bruno Deschamps (Nottingham University Business School China); Christos Ioannidis (Aston Business School, Aston University); Kook Ka (Economic Research Institute, Bank of Korea)
    Abstract: We examine whether professional forecasters incorporate high-frequency information about credit conditions when revising their economic forecasts. Using Mixed Data Sampling regression approach, we find that daily credit spreads have significant predictive ability for monthly forecast revisions of output growth, at both aggregate and individual forecast levels. The relations are shown to be notably strong during ¡®bad¡¯ economic conditions, suggesting that forecasters anticipate more pronounced effects of credit tightening during economic downturns, indicating the amplification effect of financial developments on macroeconomic aggregates. Forecasts do not incorporate the totality of financial information received in equal measures, implying the presence of information rigidities in the incorporation of credit spread information.
    Keywords: Forecast Revision, GDP Forecast, Credit Spread, High-Frequency Data, Mixed Data Sampling (MIDAS)
    JEL: C53 E32 E44
    Date: 2019–05–03
  18. By: Cecilia Dassatti Camors; José-Luis Peydró; Francesc R 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
  19. By: Jorge E. Galán (Banco de España)
    Abstract: The credit-to-GDP gap computed under the methodology recommended by Basel Committee for Banking Supervision (BCBS) suffers of important limitations mainly regarding the great inertia of the estimated long-run trend, which does not allow capturing properly structural changes or sudden changes in the trend. As a result, the estimated gap currently yields large negative values which do not reflect properly the position in the financial cycle and the cyclical risk environment in many countries. Certainly, most countries that have activated the Countercyclical Capital Buffer (CCyB) in recent years appear not to be following the signals provided by this indicator. The main underlying reason for this might not be only related to the properties of statistical filtering methods, but to the particular adaptation made by the BCBS for the computation of the gap. In particular, the proposed one-sided Hodrick-Prescott filter (HP) only accounts for past observations and the value of the smoothing parameter assumes a much longer length of the credit cycle that those empirically evidenced in most countries, leading the trend to have very long memory. This study assesses whether relaxing this assumption improves the performance of the filter and would still allow this statistical method to be useful in providing accurate signals of cyclical systemic risk and thereby inform macroprudential policy decisions. Findings suggest that adaptations of the filter that assume a lower length of the credit cycle, more consistent with empirical evidence, help improve the early warning performance and correct the downward bias compared to the original gap proposed by the BCBS. This is not only evidenced in the case of Spain but also in several other EU countries. Finally, the results of the proposed adaptations of the HP filter are also found to perform fairly well when compared to other statistical filters and model-based indicators.
    Keywords: credit-to-GDP gap, cyclical systemic risk, early-warning performance, macroprudential policy, statistical filters
    JEL: C18 E32 E58 G01 G28
    Date: 2019–04
  20. By: Marco Bottone (Bank of Italy); Alfonso Rosolia (Bank of Italy)
    Abstract: We empirically explore the direct and immediate response of firms’ inflation expectations to monetary policy shocks. We use the Bank of Italy’s quarterly Survey of Inflation and Growth Expectations, in operations since 2000, and compare average point inflation expectations of firms interviewed in the days following scheduled ECB Governing Council meetings with those of firms interviewed just before them; we then relate the difference we find to the change in the nominal market interest rates recorded on Governing Council meeting days, a gauge of the unanticipated component of monetary policy communications. We find that unanticipated changes in market rates are negatively correlated in a statistically significant way with the differences in inflation expectations between the two groups of firms and that this effect has become stronger since 2009. We do not find evidence that firms’ pricing plans are affected by these monetary policy shocks nor that firms perceive significant changes in the main determinants of their pricing choices.
    Keywords: inflation expectations, firm surveys, monetary policy, high frequency identification
    JEL: D22 E3 E5
    Date: 2019–04
  21. By: Murota, Ryu-ichiro
    Abstract: Using a dynamic general equilibrium model, this paper theoretically analyzes a negative interest rate policy in a permanent liquidity trap. If the natural nominal interest rate is above the lower bound set by the presence of vault cash held by commercial banks, a reduction in the nominal rate of interest on excess bank reserves can get an economy out of the permanent liquidity trap. In contrast, if the natural nominal interest rate is below the lower bound, then it cannot do so, but instead a rise in the rate of tax on vault cash is useful for doing so.
    Keywords: aggregate demand, liquidity trap, negative nominal interest rate, unemployment
    JEL: E12 E31 E58
    Date: 2019–04–21
  22. By: Mertens, Thomas M. (Federal Reserve Bank of San Francisco); Williams, John C. (Federal Reserve Bank of New York)
    Abstract: This paper uses a standard New Keynesian model to analyze the effects and implementation of various monetary policy frameworks in the presence of a low natural rate of interest and a lower bound on interest rates. Under a standard inflation-targeting approach, inflation expectations will be anchored at a level below the inflation target, which in turn exacerbates the deleterious effects of the lower bound on the economy. Two key themes emerge from our analysis. First, the central bank can eliminate this problem of a downward bias in inflation expectations by following an average-inflation targeting framework that aims for above-target inflation during periods when policy is unconstrained. Second, dynamic strategies that raise inflation expectations by keeping interest rates “lower for longer” after periods of low inflation can both anchor expectations at the target level and further reduce the effects of the lower bound on the economy.
    JEL: E52
    Date: 2019–05–01
  23. By: Christensen, Jens H. E. (Federal Reserve Bank of San Francisco); Spiegel, Mark M. (Federal Reserve Bank of San Francisco)
    Abstract: We assess the impact of news concerning the reforms associated with “Abenomics” using an arbitrage-free term structure model of nominal and real yields. Our model explicitly accounts for the deflation protection enhancement embedded in Japanese inflation-indexed bonds issued since 2013, which pay their original nominal principal when deflation has occurred from issue to maturity. The value of this enhancement is sizable and time-varying, with substantive impacts on estimates of expected inflation compensation. After properly accounting for deflation protection, our results suggest that Japanese inflation risk premia were mostly negative during this period. Moreover, long-term inflation expectations remained positive throughout, despite extensive spells of realized deflation. Finally, initial market responses to policy changes associated with Abenomics and afterwards were not as inflationary as they appear under standard modeling procedures, implying that the program was less “disappointing” than many perceive.
    JEL: C32 E43 E52 G12 G17
    Date: 2019–05–07
  24. By: Mi Luo; Simon Mongey
    Abstract: If consumption and non-wage amenities of work enter utility, holding few assets may induce a trade-off between wages and amenities when searching for a job. We establish this in a model of search with asset accumulation, extended to accommodate amenities. We then provide empirical evidence of this trade-off in the context of student debt, finding that higher debt causes graduates to accept jobs with higher wages and lower job satisfaction. In a representative sample of college graduates, we infer causality by exploiting within-college, across cohort changes in financial aid. A quantitative extension of our theoretical framework that explicitly models student debt accounts well for our empirical results. Identifying the utility value of amenities through observed search behavior, we find that high satisfaction jobs are valued at 6 percent of lifetime consumption relative to low satisfaction jobs. This trade-off is economically significant; a policy maker using only wage data to assess the welfare effects of with an income-based repayment policy would mistakenly conclude that graduates prefer a fixed repayment policy.
    JEL: E21 E24 J32 J38
    Date: 2019–05
  25. 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
  26. By: Máximo Camacho; María Dolores Gadea (University of Zaragoza); Ana Gómez Loscos (Banco de España)
    Abstract: This paper proposes a new approach to the analysis of the reference cycle turning points, defined on the basis of the specific turning points of a broad set of coincident economic indicators. Each individual pair of specific peaks and troughs from these indicators is viewed as a realization of a mixture of an unspecified number of separate bivariate Gaussian distributions whose different means are the reference turning points. These dates break the sample into separate reference cycle phases, whose shifts are modeled by a hidden Markov chain. The transition probability matrix is constrained so that the specification is equivalent to a multiple changepoint model. Bayesian estimation of finite Markov mixture modeling techniques is suggested to estimate the model. Several Monte Carlo experiments are used to show the accuracy of the model to date reference cycles that suffer from short phases, uncertain turning points, small samples and asymmetric cycles. In the empirical section, we show the high performance of our approach to identifying the US reference cycle, with little difference from the timing of the turning point dates established by the NBER. In a pseudo real-time analysis, we also show the good performance of this methodology in terms of accuracy and speed of detection of turning point dates.
    Keywords: business cycles, turning points, finite mixture models
    JEL: E32 C22 E27
    Date: 2019–05
  27. By: Mehdi El Herradi; Aurélien Leroy
    Abstract: This paper examines the distributional implications of monetary pol-icy from a long-run perspective with data spanning a century of modern economic history in 12 advanced economies between 1920 and 2015. We employ two complementary empirical methodologies for estimating the dynamic responses of the top 1% income share to a monetary policy shock: vector auto-regressions and local projections. We notably exploit the implications of the macroeconomic policy trilemma to identify exogenous variations in monetary conditions. The obtained results indicate that ex-pansionary monetary policy strongly increases the share of national income held by the top one percent. Our findings also suggest that this e?ect is arguably driven by higher asset prices, and holds irrespective of the state of the economy.
    Keywords: Monetary policy; Income inequality; Local projections; Panel VAR
    JEL: D63 E62 E64
    Date: 2019–04
  28. 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: 2019–03
  29. By: Claude Bismut (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Ismael Ramajo (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: The interest rates have remained low in recent years, after long decline over the past thirty-five years in OECD countries. This evolution is associated to a slowdown of output growth, while inflation stabilized around its two percent target. In trying to provide a better understanding on how we got there, we review the macroeconomic developments during almost sixty years. Conventional analysis of the role of macroeconomic policy does not provide a satisfactory explanation of the observed long-term trends. In particular, large fiscal deficits and growing debt ratios did not lead to higher interest rates, except in a few countries, whose governments were facing serious fiscal troubles. Conservative monetary policy can explain the low level of inflation that have prevailed since the middle of the eighties, but not the continuous decline of the real interest rate. Based on a few stylized facts we suggest a direction for a plausible characterization of a low growth / low interest rate regime
    Keywords: interest rates,growth,inflation,macroeconomics,long term,public debt,fiscal policy,monetary policy
    Date: 2019
  30. By: Federica Ciocchetta (Bank of Italy); Wanda Cornacchia (Bank of Italy)
    Abstract: We provide an update of the analytical framework to assess financial stability risks arising from the real estate sector in Italy. The enhancement concerns the definition of a new vulnerability indicator, measured in terms of the flow of total non-performing loans (NPLs) and not, as done previously, in terms of bad loans only. We focus separately on households (as an approximation for residential real estate, RRE) and on firms engaged in construction, management and investment services in the real estate sector (as an approximation for commercial real estate, CRE). Two early warning models are estimated using the new vulnerability indicator for RRE and CRE, respectively, as dependent variable. Both models exhibit good forecasting performances: the median predictions fit well the new vulnerability indicators in out-of-sample forecasts. Overall, models’ projections indicate that potential risks for banks stemming from the real estate sector will remain contained in the next few quarters.
    Keywords: real estate markets, early warning models, bayesian model averaging, banking crises
    JEL: C52 E58 G21
    Date: 2019–04
  31. By: Amisano, Gianni; Tristani, Oreste
    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 inflation expectations induced by conventional, autoregressive shocks. Long-term inflation expectations implied by our model are in line with those based on survey data over the 1980s and 1990s, but less strongly anchored in the 2000s. JEL Classification: C11, C34, E40, E43, E52
    Keywords: Bayesian estimation, monetary policy rules, regime switches, term structure of interest rates, uncertainty shocks
    Date: 2019–05
  32. By: Olivier Coibion (University of Texas, Austin); Yuriy Gorodnichenko (University of California, Berkeley); Tiziano Ropele (Bank of Italy)
    Abstract: We use a unique design feature of a survey of Italian firms to study the causal effect of inflation expectations on firms’ economic decisions. In the survey, a randomly chosen subset of firms is repeatedly treated with information about recent inflation whereas other firms are not. This information treatment generates exogenous variation in inflation expectations. We find that higher inflation expectations on the part of firms leads them to raise their prices, increase their utilization of credit, and reduce their employment. However, when policy rates are constrained by the effective lower bound, demand effects are stronger, leading firms to raise their prices more and no longer reduce their employment.
    Keywords: inflation expectations, surveys, inattention
    JEL: E2 E3
    Date: 2019–04
  33. By: Lamla, Michael J.; Lein, Sara M.; Sturm, Jan-Egbert
    Abstract: Recent literature suggests that news shocks could be an important driver of economic cycles. In this article, we use a direct measure of news sentiment derived from media reports. This allows us to examine whether innovations in the reporting tone correlate with changes in the assessment and expectations of the business situation as reported by rms in the German manufacturing sector. We nd that innovations in news reporting aect business expectations, even when conditioning on the current business situation and industrial production. The dynamics of the empirical model conrm theoretical predictions that news innovations aect real variables such as production via changes in expectations. Looking at individual sectors within manufacturing, we nd that macroeconomic news is at least as important for business expectations as sector-specic news. This is consistent with the existence of information complementarities across sectors.
    Keywords: Media reporting; news-driven business cycles; sectoral information complementarities
    JEL: E32 D82
    Date: 2019–02–26
  34. By: Carroll, Daniel R. (Federal Reserve Bank of Cleveland); Young, Eric R. (University of Virginia and Zhejiang University)
    Abstract: In a model with a worker-capitalist dichotomy, we show that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth generally lowers inequality, except under extreme parameterizations. In particular, the elasticity of substitution between capital and labor in production needs to be considerably greater than 1 in order for income inequality be higher with zero growth. If this condition is not met, factor prices adjust strongly causing the fall in the return to capital (the rise in wages) to reduce income inequality. Our results extend to models with endogenous growth.
    Keywords: inequality; growth; elasticity of substitution;
    JEL: D31 D33 D52 E21
    Date: 2017–09–06
  35. By: Larch, Martin; Cugnasca, Alessandro; Kumps, Diederik; Orseau, Eloïse
    Abstract: Fiscal policymakers are expected to conduct countercyclical policies to mitigate cyclical fluctuations of output, but the assessment of cyclical conditions in real time is subject to considerable uncertainty. They face two types of risk: (i) launching discretionary measures to support or dampen aggregate demand when no measures are required (type I error), or (ii) not launching any stabilising measures when this is warranted by cyclical conditions (type II error). A rational policymaker could manage these risks by correcting real-time estimates for past errors, notably the apparent tendency to underestimate good times when they occur. In practice, however, fiscal policy has been largely pro-cyclical or a-cyclical at best. Using statistical decision theory, we calculate thresholds for realtime output gap estimates beyond which governments could launch stabilisation measures, so as to reduce the risk of running pro-cyclical policies. We consider different preferences for avoiding type I or type II errors, and for addressing upside and downside growth risks. We show that the tendency to run pro-cyclical fiscal policy and the ensuing deficit bias can reflect two factors: a preference for activism that is, attaching a lower cost to type I errors, combined with an inclination to be gloomy about cyclical conditions.
    Keywords: fiscal stabilisation,pro-cyclical fiscal policy,risk management,real-time output gap estimates
    JEL: E62 E63 H68
    Date: 2019
  36. By: Andrea Linarello (Bank of Italy); Andrea Petrella (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: This paper studies the effect of bank lending shocks on aggregate labor productivity. Exploiting a unique administrative dataset covering the universe of Italian manufacturing firms between 2000 and 2015, we apply the Melitz and Polanec (2015) decomposition at the 4-digit industry level to distinguish the contribution to aggregate productivity growth of: changes in surviving firms’ average productivity, market share reallocation among surviving firms, and firm entry and exit. We estimate the impact of credit shocks on each of these components, using data from the Italian Credit Register to construct industry-specific exogenous credit supply shocks. Only for the 2008-2015 period, we find that a tightening in the supply of credit lowers average productivity but increases the covariance between market share and productivity among incumbents, thus boosting the reallocation of labor. We find no significant effects of credit supply shocks on the contribution made by firm entry and exit. We find that the effects of negative credit shocks on average productivity and reallocation are concentrated in industries with a lower share of tangible capital and collateralized debt.
    Keywords: credit supply shocks, labor productivity, allocative efficiency
    JEL: L25 O47 G01 E44
    Date: 2019–04
  37. By: Michele Loberto (Bank of Italy)
    Abstract: We investigate the implications of a scarcity of safe assets in a framework in which the safety of an asset is an equilibrium outcome. The intrinsic characteristics and supply of the assets determine their liquidity properties and degree of safeness. The equilibrium can be inefficient even if assets are plentiful and information insensitive. Only a sufficiently broad expansion of a particular class of safe information-insensitive assets can achieve the first-best allocation, while a marginal increase in their supply can be ineffective. We conclude that microfounding assets safety is fundamental to understand the effects and policy implications of safe assets scarcity.
    Keywords: safe assets, private information, liquidity, asset prices
    JEL: D8 E4 E5 E6 G1
    Date: 2019–04
  38. By: Fares Bounajm; Jean-Philippe Cayen; Michael Francis; Christopher Hajzler; Kristina Hess; Guillaume Poulin-Bellisle; Peter Selcuk
    Abstract: This note presents the updated estimates of potential output growth for the global economy through 2021. Global potential output is expected to grow by 3.3 per cent per year over the projection horizon. Two common themes are weighing on potential output growth across regions: trade disputes, which are reducing total factor productivity growth in the United States and China; and aging, which is having a negative impact on labour force participation in the United States, China, the euro area and Japan. While potential output growth is expected to remain fairly stable in the United States, there are offsetting dynamics across other regions. In emerging-market economies, potential growth is projected to strengthen, mainly due to a recovery of investment as well as structural reforms contributing to total factor productivity growth. Potential output is expected to slow in Japan, China and the euro area, as the effects on growth of population aging and declining labour inputs intensify in these regions over the next three years. A moderation in investment growth will also contribute to slower potential growth in China.
    Keywords: International topics; Potential output; Productivity
    JEL: E10 E20 O4
    Date: 2019–05
  39. By: Aikman, David; Giese, Julia; Kapadia, Sujit; McLeay, Michael
    Abstract: This paper explores monetary-macroprudential policy interactions in a simple, calibrated New Keynesian model incorporating the possibility of a credit boom precipitating a financial crisis and a loss function reflecting financial stability considerations. Deploying the countercyclical capital buffer (CCyB) improves outcomes significantly relative to when interest rates are the only instrument. The instruments are typically substitutes, with monetary policy loosening when the CCyB tightens. We also examine when the instruments are complements and assess how different shocks, the effective lower bound for monetary policy, market-based finance and a risk-taking channel of monetary policy affect our results. JEL Classification: E52, E58, G01, G28
    Keywords: countercyclical capital buffer, credit boom, financial crises, financial stability, macroprudential policy, monetary policy
    Date: 2019–05
  40. By: Zeno Enders; Franziska Hünnekes; Gernot Müller
    Abstract: We assess how survey expectations impact production and pricing decisions on the basis of a large panel of German firms. We identify the causal effect of expectations by matching firms with the same fundamentals but different views about the future. The probability to raise (lower) production is 15 percentage points higher for optimistic (pessimistic) firms than for neutral firms. Optimistic firms are also more likely to raise prices. In a second step, we find optimism and pessimism to matter even if they turn out to be incorrect ex-post. Lastly, we quantify the contribution of incorrect optimism and pessimism to aggregate fluctuations.
    Keywords: expectations, firms, survey data, propensity score matching, business cycle, news, noise, incorrect optimism
    JEL: E32 D84
    Date: 2019
  41. By: Konstantinos Angelopoulos; Spyridon Lazarakis; Jim Malley
    Abstract: Incomplete markets models imply heterogeneous household savings behaviour which in turn generates pecuniary externalities via the interest rate. Conditional on differences in the processes determining household earnings for distinct groups in the population, these savings externalities may contribute to inequality. Working with an open economy heterogenous agent model, where the interest rate only partially responds to domestic asset supply, we find that differences in the earnings processes of British households with university and non-university educated heads entail savings externalities that increase wealth inequality between the groups and within the group of the non-university educated households. We further find that while the inefficiency effects of these externalities are quantitatively small, the distributional effects are sizeable.
    Keywords: incomplete markets, productivity differences, savings externalities
    JEL: E21 E25 H23
    Date: 2019
  42. By: Hobijn, Bart (Arizona State University); Nechio, Fernanda (Federal Reserve Bank of San Francisco); Shapiro, Adam Hale (Federal Reserve Bank of San Francisco)
    Abstract: Using price quote data that underpin the official U.K. consumer price index (CPI), we analyze the effects of the unexpected passing of the Brexit referendum to the dynamics of price adjustments. The sizable depreciation of the British pound that immediately followed Brexit works as a quasi-experiment, enabling us to study the transmission of a large common marginal cost shock to inflation as well as the distribution of prices within granular product categories. A large portion of the inflationary effect is attributable to the size of price adjustments, implying that a time-dependent price-setting model can match the response of aggregate inflation reasonably well. The state-dependent model fares better in capturing the endogenous selection of price changes at the lower end of the price distribution, however, it misses on the magnitude of the adjustment conditional on selection.
    JEL: D40 E31 F31
    Date: 2019–04–30
  43. By: Amaral, Pedro S. (Federal Reserve Bank of Cleveland); Corbae, Dean (Wisconsin School of Business); Quintin, Erwan (Wisconsin School of Business)
    Abstract: The vast literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development and productivity. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. We describe a dynamic extension of Allen and Gale (1989)’s optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lowering security creation costs in that environment leads to more financial investment, but it has ambiguous effects on capital formation, output, and aggregate productivity. Much of the investment boom caused by increased securitization activities can, in fact, be spent on securitization costs and intermediation rents, with little or even negative effects on development and productivity.
    Keywords: Endogenous security markets; financial development; economic development;
    JEL: E30 E44
    Date: 2017–06–13
  44. By: S Devrim Yilmaz (AFD - Agence française de développement, CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); Engelbert Stockhammer (Kingston University [London])
    Abstract: While there exists a substantial literature on different business cycle mechanisms, there is little literature on economies with more than one business cycle mechanism operating and the relation of stability of these subsystems with the stability of the aggregate system. We construct a model where a multiplier-accelerator subsystem in output-investment space (a real cycle) and a Minskyian subsystem in investment-debt space (a financial cycle) can generate stable/unstable cycles in 2D in isolation. We then derive a theorem showing that if two independent cycle mechanisms that generate stable closed orbits in 2D share a self-destabilizing common variable and the true representation of the system is a fully-coupled 3D system where a weighted average of the common variable is in effect, then the 3D system will generate locally stable closed orbits in 3D if and only if the subsystems have the same frequencies and/or the self-destabilizing effects of the common variable evaluated at the fixed point are equal in both subsystems. Our results indicate that in the presence of multiple cycle mechanisms which share common variables in an economy, the stability of the aggregate economy crucially depends on the frequencies of these sub-cycle mechanisms. Abstract While there exists a substantial literature on di¤erent business cycle mechanisms, there is little literature on economies with more than one business cycle mechanism operating and the relation of stability of these subsystems with the stability of the aggregate system. We construct a model where a multiplier-accelerator subsystem in output-investment space (a real cycle) and a Minskyian subsystem in investment-debt space (a …nancial cycle) can generate stable/unstable cycles in 2D in isolation. We then derive a theorem showing that if two independent cycle mechanisms that generate stable closed orbits in 2D share a self-destabilizing common variable and the true representation of the system is a fully-coupled 3D system where a weighted average of the common variable is in e¤ect, then the 3D system will generate locally stable closed orbits in 3D if and only if the subsystems have the same frequencies and/or the self-destabilizing e¤ects of the common variable evaluated at the …xed point are equal in both subsystems. Our results indicate that in the presence of multiple cycle mechanisms which share common variables in an economy, the stability of the aggregate economy crucially depends on the frequencies of these sub-cycle mechanisms.
    Keywords: Business cycles,Minsky models,Multiplier-accelerator
    Date: 2019–02–09
  45. By: Jensen, Henrik (University of Copenhagen); Petrella, Ivan (University of Warwick); Ravn, Soren (University of Copenhagen); Santoro, Emiliano (University of Copenhagen)
    Abstract: We document that the U.S. and other G7 economies have been characterized by an increasingly negative business cycle asymmetry over the last three decades. This finding can be explained by the concurrent increase in the financial leverage of households and firms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Improved access to credit increases the likelihood that financial constraints become non-binding in the face of expansionary shocks, allowing agents to freely substitute intertemporally. Contractionary shocks, on the other hand, are further amplified by drops in collateral values, since constraints remain binding. As a result, booms become progressively smoother and more prolonged than busts. Finally, in line with recent empirical evidence, financially-driven expansions lead to deeper contractions, as compared with equally-sized non-financial expansions.
    Keywords: Credit constraints; business cycles; skewness; deleveraging; JEL Classification Numbers: E32 ; E44
    Date: 2019
  46. By: William Oman (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, International Monetary Fund (IMF))
    Abstract: Using a frequency-based filter, I document the existence of a euro-area financial cycle and high- and low-amplitude national financial cycles. Applying concordance and similarity analysis to business and financial cycles, I provide evidence of five empirical regularities: (i) the aggregate euro-area creditto- GDP ratio behaved procyclically in the years preceding euro-area recessions; (ii) financial cycles are less synchronized than business cycles; (iii) business cycle synchronization has increased while financial cycle synchronization has decreased; (iv) financial cycle desynchronization was more pronounced between high-amplitude and low-amplitude countries, especially Germany; (v) high-amplitude countries and Germany experienced divergent leverage dynamics after 2002.
    Keywords: Business cycle,Economic integration,Euro area,Financial cycle,Monetary policy
    Date: 2019–03
  47. By: Hüseyin Şen (AYBU - Ankara Yıldırım Beyazıt University); Ayşe Kaya; Savaş Kaptan; Metehan Cömert
    Abstract: This study attempts to establish the possible existence of the long-run interrelationship between interest rates, inflation, and exchange rates in five fragile emerging market economies (Brazil, India, Indonesia, South Africa, and Turkey), what is so-called by Morgan Stanley ‘Fragile Five'. To do so, we utilize Li and Lee's (2010) Autoregressive Distributed Lag (ADL) test for threshold cointegration and apply it to sample countries' monthly time-series data from 2013:1 to 2018:12. Overall, our primary results are threefold: First, there seems to be a long-run positive relationship between inflation rates and nominal interest rates supporting the validity of the Fisher hypothesis for all the sample countries. Second, sample countries' data supports the existence of a cointegration relationship between interest rates and exchange rates for the case of Brazil, India, and Turkey but not for the case of Indonesia and South Africa. Lastly, without exception, exchange rates and inflation in all countries examined tend to co-move in the long-run, implying that increases in exchange rates affect inflation through raising the prices of foreign goods imported into the sample countries. The results above are widely compatible with theoretical expectations and with the results of the most previous empirical studies on the long-run interrelationships between interest rates, inflation, and exchange rates in the literature.
    Keywords: Macroeconomic policy,emerging market economies.,macroeconomic policy management,autoregressive distributed lag,threshold cointegration,emerging market economies
    Date: 2019–04–10
  48. By: Jean-Olivier Hairault (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); François Langot (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université, TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique); Thepthida Sopraseuth (CEPREMAP - Centre pour la recherche économique et ses applications)
    Abstract: In this paper, we show that (i) the volatility of worker flows increases with age in US CPS data, and (ii) a search and matching model with life-cycle features, endogenous separation and search effort, is well suited to explain this fact. With a shorter horizon on the labor market, older workers' outside options become less responsive to new employment opportunities, thereby making their wages less sensitive to the business cycle. Their job finding and separation rates are then more volatile along the business cycle. The horizon effect cannot explain the significant differences between prime-age and young workers as both age groups are far away from retirement. A lower bargaining power on the youth labor market brings the model closer to the data. JEL Classification: E32, J11, J23
    Keywords: life cycle,business cycle,matching,search
    Date: 2019–01–17
  49. By: Benguria, Felipe; Taylor, Alan M.
    Abstract: Are financial crises a negative shock to demand or a negative shock to supply? This is a fundamental question for both macroeconomics researchers and those involved in real-time policymaking, and in both cases the question has become much more urgent in the aftermath of the recent financial crisis. Arguments for monetary and fiscal stimulus usually interpret such events as demand-side shortfalls. Conversely, arguments for tax cuts and structural reform often proceed from supply-side frictions. Resolving the question requires models capable of admitting both mechanisms, and empirical tests that can tell them apart. We develop a simple small open economy model, where a country is subject to deleveraging shocks that impose binding credit constraints on households and/or firms. These financial crisis events leave distinct statistical signatures in the empirical time series record, and they divide sharply between each type of shock. Household deleveraging shocks are mainly demand shocks, contract imports, leave exports largely unchanged, and depreciate the real exchange rate. Firm deleveraging shocks are mainly supply shocks, contract exports, leave imports largely unchanged, and appreciate the real exchange rate. To test these predictions, we compile the largest possible crossed dataset of 200+ years of trade flow data and event dates for almost 200 financial crises in a wide sample of countries. Empirical analysis reveals a clear picture: after a financial crisis event we find the dominant pattern to be that imports contract, exports hold steady or even rise, and the real exchange rate depreciates. History shows that, on average, financial crises are very clearly a negative shock to demand.
    Keywords: Deleveraging; exports; financial crises; Imports; local projections
    JEL: E44 F32 F36 F41 F44 G01 N10 N20
    Date: 2019–04
  50. By: Gourinchas, Pierre-Olivier; Rey, Hélène; Sauzet, Maxime
    Abstract: International currencies fulfill different roles in the world economy with important synergies across those roles. We explore the implications of currency hegemony for the external balance sheet of the United States, the process of international adjustment, and the predictability of the US dollar exchange rate. We emphasize the importance of international monetary spillovers, of the exorbitant privilege, and analyse the emergence of a new `Triffin dilemma'.
    Keywords: Exchange Rates; External assets and liabilities; Global financial cycle; International adjustment; International Currencies; Triffin dilemma
    JEL: E0 F3 F4 G1
    Date: 2019–05
  51. By: Shy, Oz (Federal Reserve Bank of Atlanta)
    Abstract: The emergence of cashless stores has led several cities and states to ban such stores. This paper investigates this issue by characterizing consumers who pay cash for in-person purchases and consumers who do not have credit or debit cards. I construct a model of consumer payment choice and use data on payments to calibrate the burden imposed on consumers who do not have credit or debit cards from switching to cashless stores. The conclusion provides a discussion of alternatives to cash for in-person purchases that may be needed before all brick-and-mortar stores become cashless.
    Keywords: cashless stores; consumer payment choice; in-person purchases; alternatives to cash
    JEL: D9 E42
    Date: 2019–05–01
  52. By: Diewert, Erwin; Fox, Kevin
    Abstract: This paper reviews the theory underlying the index number approaches used by National Statistical Offices in the construction of productivity indexes. It reviews approaches for measuring output, labour and capital, and highlights persistent and emerging measurement problems.
    Keywords: Productivity measurement, index numbers, GDP mismeasurement, productivity slowdown, digital economy
    JEL: C43 C8 D24 E23 O3 O4
    Date: 2019–04–25
  53. By: Juan Gonzalo Zapata; Daniela Trespalacios
    Abstract: Este trabajo tiene como finalidad actualizar las cifras e indicadores principales del departamento y los municipios de Arauca y proporcionar una perspectiva de crecimiento de corto plazo, para lo cual se contó con el apoyo técnico de la Dirección de Análisis Macroeconómico y Sectorial (DAMS) de Fedesarrollo. El proyecto estuvo dividido en dos partes: la primera consistió en un balance económico de la región a la luz de un listado de indicadores propuesto por la CCA y otras variables macroeconómicas que se consideraron relevantes. Al respecto se entregó un informe de avance en el mes de febrero. Este informe final, recupera parte del informe anterior y lo incorpora en un balance económico de Arauca que tiene en cuenta el valioso trabajo de campo que se hizo en marzo de 2018. Se realizaron dos talleres y varias entrevistas a funcionarios públicos, funcionarios de las Cámaras de Comercio de Arauca y de Tame y empresarios de todas las ramas de actividad económica. Adicionalmente, se incluirá un anexo en el que se muestran los principales indicadores económicos y sociales del departamento de Arauca y sus municipios, que fueron entregados en el balance económico de enero. Debido a que estas cifras no han variado desde esa entrega, se realizará un breve análisis de estas variables a través del anexo.
    Keywords: Desarrollo Regional, Economía Regional, Desarrollo Económico y Social, Finanzas Públicas, Finanzas Territoriales, Regalías, Estructura Productiva, Crisis Fronteriza, Conflictos Sociales, Venezuela, Arauca
    JEL: R58 R11 O47 E60
    Date: 2018–04–30
  54. By: Arianna Miglietta (Bank of Italy); Fabrizio Venditti (Bank of Italy)
    Abstract: We develop a measure of systemic stress for the Italian financial markets (FCI-IT) that aggregates information from five major segments of the whole financial system, i.e. the money market, the bond market, the equity market, the foreign exchange market and the market for stocks of financial intermediaries. The index builds on the methodology of the Composite Indicator of Systemic Stress (CISS) developed by Hollò, Kremer and Lo Duca (2012) for the euro area. We set up a simple TVAR model to verify whether the proposed measure is able to provide significant and consistent information about the evolution of macroeconomic variables when financial conditions change. The indicator’s performance is evaluated against two alternative metrics publicly available (e.g. the euro-area CISS and the Italian CLIFS). Our results show that FCI-IT behaves quite similarly to the other indexes considered in signalling high-stress periods, but it also identifies episodes of financial distress for the Italian economy which are disregarded by the other two. During periods of high stress, the effects of financial shocks on gross domestic product are significant.
    Keywords: Financial stability, systemic risk, financial condition index
    JEL: G01 G10 G20 E44
    Date: 2019–04
  55. By: Tang, Edward Chi Ho; Leung, Charles Ka Yui; Ng, Joe Cho Yiu
    Abstract: This paper takes advantage of the oligopolistic structure of the Hong Kong primary housing market and examines whether the time-variations of the market concentration are caused by or cause the variations of the local economic factors. The analysis also takes into consideration of the changes of the U.S. variables and commodity prices, which arguably may represent changes in the construction cost. We find clear evidence of time-varying responses of housing market variables to macroeconomic variables. Policy implications and directions for future research are also discussed.
    Keywords: Oligopoly, market share, Herfindahl index, macroeconomic variables, dynamic factor model, Time-Varying Bayesian Factor Augmented VAR
    JEL: E30 L12 L85 R31
    Date: 2018–06
  56. By: Andrea Brandolini (Bank of Italy); Alfonso Rosolia (Bank of Italy)
    Abstract: We analyse the evolution of EU citizens’ living standards, considering the EU as a single country. Average living standards have improved considerably as the European integration process has unfolded. EU28 income inequality has steadily declined, mostly as a result of the macroeconomic convergence of new EU-accession countries. EU15 income inequality fell steadily until the mid-1980s, but picked up again during the economic turmoil following the Great Recession, largely reflecting the divergence between periphery and core countries in the euro area. Using a common EU standard reveals more progress in terms of poverty reduction. It also shows that the patterns of income convergence across member states differ across categories of residents, thus calling for a more careful consideration of the personal and national dimensions of EU policies.
    Keywords: European Union, Euro Area, European integration, income inequality, welfare analysis
    JEL: D31 D63 E01 I32
    Date: 2019–04
  57. 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: 2019–05
  58. By: Dominika Kolcunova; Simona Malovana
    Abstract: This paper studies the impact of higher additional capital requirements on growth in loans to the private sector for banks in the Czech Republic. The empirical results indicate that higher additional capital requirements have a negative effect on loan growth for banks with relatively low capital surpluses. In addition, the results confirm that the relationship between the capital surplus and loan growth is also important at times of stable capital requirements, i.e. it does not serve only as an intermediate channel of higher additional capital requirements.
    Keywords: Bank lending, banks' capital surplus, regulatory capital requirements
    JEL: C22 E32 G21 G28
    Date: 2019–04
  59. By: Altavilla, Carlo; C. Andreeva, Desislava; Boucinha, Miguel; Holton, Sarah
    Abstract: As the euro area has a predominantly bank-based financial system, changes in the composition and strength of banks’ balance sheets can have very sizeable implications for the transmission of monetary policy. This paper provides an overview of developments in banks’ balance sheets, profitability and risk-bearing capacity and analyses their relevance for monetary policy. We show that, while the transmission of standard policy interest rate cuts to firms and households was diminished during the crisis, in a context of financial market stress and weak bank balance sheets, unconventional monetary policy measures have helped to restore monetary policy transmission and pass-through to interest rates. We also document the extent to which these non-standard measures were successful in stimulating lending and which bank business models were more strongly affected. Finally, we show that the estimated impact of recent monetary policy measures on bank profitability does not appear to be particularly strong when all the effects on the macroeconomy and asset quality are taken into account. JEL Classification: G21, G20, E52, E43
    Keywords: banks, credit, interest rates, monetary policy
    Date: 2019–05
  60. By: Harris Laurence; Bold Shannon
    Abstract: This paper investigates whether a Taylor rule accurately describes the South African Reserve Bank’s reaction function in setting interest rates using quarterly data, covering the period since inflation targeting was formally adopted in 2000. The classic Taylor rule is modified to determine whether the South African Reserve Bank takes into account inflation expectations and labour market conditions.Our findings indicate that a modified Taylor rule does describe the South African Reserve Bank’s policy rate adjustments. Our estimates of the modified rule yield two significant findings: the South African Reserve Bank’s policy rate decisions respond to expected inflation (rather than current inflation), and its relationship to real economy fluctuations is evident in measures of labour market conditions rather than output gap variables.We conclude that under inflation targeting, South Africa’s monetary policy has had a forward-looking inflation target that is pursued flexibly in the light of labour market conditions.
    Keywords: output gap,Taylor rule,Unemployment gap,Monetary policy,Employment,Labour
    Date: 2018
  61. By: Jason Nassios; John Madden; James Giesecke; Janine Dixon; Nhi Tran; Peter Dixon; Maureen Rimmer; Philip Adams; John Freebairn
    Abstract: The Henry Review of Australia's Future Tax System (2009), made several recommendations to promote resilience, fairness, and prosperity via tax reform. Some of the key reforms suggested include a reduction in Australia's federally-imposed corporate income tax rate from 30 to 25 per cent; and the removal of property transfer duties levied by state governments. The review by Henry et al. (2009) utilised a long-run, comparative static computable general equilibrium (CGE) model of the Australian economy to study the tax system. Implicit within this framework is a single layer of government. In reality, Australia's state government levied tax rates differ across the eight states and territories; some, such as state land tax, health insurance and life insurance levies, are applied in a subset of states and territories only. A general lack of interstate coordination is evident in setting, developing and reforming Australian tax policy. In this paper, we present a meticulous and detailed analysis of Australia's state and federal tax system, using a bottom-up multi-regional CGE model of Australia's states and territories, called VURMTAX. The general framework underlying VURMTAX is similar to the Monash multi-regional forecasting (MMRF) model and its successor VURM; see Adams et al. (2015). A state/local government agent therefore operates within each region, with an overarching federal government agent operating across all state and territories. VURMTAX differs from MMRF/VURM in several ways. For example, we include new theory to model the interaction between Australia's corporate and personal tax system via full dividend imputation. This involves the introduction of two types of investment agents: foreign and local investors. In VURMTAX, the tax rate levied on corporate profits accruing to these two classes of investor differ, because only the domestic investor can claim franking credits. We also give careful consideration to industry-specific foreign capital ownership shares. This means the mining sector, for example, has a larger foreign capital ownership share than the economy-wide average in VURMTAX. We also modify the standard Klein-Rubin utility function that governs the consumption choices facing region-specific representative households in MMRF/VURM, to take account of important distortions in consumer choice caused by Australia's tax system. More specifically, we model the impact of housing tenure choice distortions introduced by owner-occupied housing exemptions in state land taxes and personal income tax, using a nested CES framework. The elasticity of substitution between rented and owner-occupied housing is then calibrated based on findings from an appropriately specified discrete choice model of housing tenure choice. We also alter the standard household decision theory to properly account for the impact of property transfer duties on the demand for the bundle of goods typically consumed by households or businesses when moving house or factory/office. We call this bundle of goods moving services. These services include real estate services contracted to sell a house/buy a property, legal services contracted to prepare necessary transfer forms, and public administration services that are demanded to formally update title office documents. We also account for the impact of motor vehicle taxes on transport modal choice by households. As such, when the motor vehicle registration duty is increased in VURMTAX, we allow for direct modal substitution between, e.g, road passenger transport (taxis), and private transport. Among other theoretical developments, we account for the impact of jurisdiction-specific payroll tax thresholds in Australia on the output levels of monopolistically competitive firms, which yields insights into whether a reduction in payroll tax rates or a rise in payroll tax thresholds are more effective means of stimulating a regional economy. We also embed within VURMTAX a detailed equation system to account for Australia's goods and services tax (GST). We apply this new theory to quantify: (i) the relative economic efficiency of unilateral state tax policy reforms in a single Australian state, New South Wales (NSW); (ii) the excess burden of Australia's three main federally-imposed taxes; and (iii) the broader macroeconomic, state and industry impacts of federal tax policy, and unilateral state tax policy, reforms. Our assessment of the relative efficiency of NSW state and Australian federal taxes yields a set of marginal and average excess burdens, which are summarised and discussed. In total, we calculate excess burdens for nineteen major Australian taxes, of which sixteen are levied at the state/local government level. In addition to our study of the allocative efficiency impacts of the various state and federal taxes, detailed long-run (21 years postreform) results are provided and described, to quantify the economic and industry effects of Australian tax policy reforms. With regard to state taxes, we find residential property transfer duties to be the most damaging of the state government levied taxes. More specifically, we derive a marginal excess burden for residential property transfer duties that exceeds 100 cents per dollar of revenue raised. Contrary to many past studies of Australia's tax system, we also derive a negative marginal excess burden for company tax in Australia. We compare and contrast this result to past studies, and elucidate some key differences in parameter assumptions and modelling methodology that drive this result.
    Keywords: Taxation policy CGE modelling Dynamics Excess burden
    JEL: C68 E20 E62 H2
    Date: 2019–04
  62. By: Fares Bounajm; Jean-Philippe Cayen; Michael Francis; Christopher Hajzler; Kristina Hess; Guillaume Poulin-Bellisle; Peter Selcuk
    Abstract: Cette note présente les estimations actualisées de la croissance de la production potentielle pour l’économie mondiale jusqu’en 2021. La production potentielle mondiale devrait croître à un rythme de 3,3 % par année au cours de la période de projection. Deux éléments pèsent sur la croissance de la production potentielle dans l’ensemble des régions : les différends commerciaux, qui entravent la croissance de la productivité totale des facteurs aux États-Unis et en Chine, et le vieillissement démographique, qui influe négativement sur le taux d’activité de la population aux États-Unis, en Chine, dans la zone euro et au Japon. La production potentielle devrait continuer de croître à un rythme assez stable aux États-Unis, mais on observe des dynamiques qui se contrebalancent dans les autres régions. Ainsi, la croissance de la production potentielle devrait se raffermir dans les économies émergentes, notamment grâce à une reprise de l’investissement et à des réformes structurelles contribuant à un accroissement de la productivité totale des facteurs. Au Japon, en Chine et dans la zone euro, en revanche, on s’attend à un ralentissement sous l’effet modérateur croissant du vieillissement de la population et de la diminution du facteur travail au cours des trois prochaines années. Dans le cas de la Chine, une modération du taux de progression des investissements participera aussi au ralentissement de la croissance potentielle.
    Keywords: Production potentielle; Productivité; Questions internationales
    JEL: E10 E20 O4
    Date: 2019–05
  63. By: Mansur, Alfan
    Abstract: This paper adopts model of MCM Spidergram: Macro Financial Environment Tool (Ms Muffet) developed by the IMF as an analytical tool for assessment of risks and macro-financial conditions which affect Indonesian financial system stability. This model comprises 68 indicators merged into 6 composite indices reflecting 4 risks and 2 macro-financial conditions. The results show that this model perform well in signaling building up risks of instability in the Indonesian financial system during period of 2015 – 2016. Therefore, this model can be a valuable tool complementary to existing tools used to gauge Indonesian financial system stability. In addition, this model is also be able to cover a number of drawbacks arising in the previous models to measure financial system stability.
    Keywords: Financial system stability, Ms Muffet, risks, macro-�financial conditions
    JEL: E20 F30 F41 G10 G30
    Date: 2017–11–28
  64. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: St. Louis Fed President James Bullard participated on a policy panel during a conference hosted by the Hoover Institution at Stanford University. The conference was titled “Strategies for Monetary Policy: A Policy Conference,” and the policy panel focused on “Monetary Strategies in Practice.” Chaired by Charles Plosser of the Hoover Institution, the panel also included San Francisco Fed President Mary Daly, Dallas Fed President Robert Kaplan and Cleveland Fed President Loretta Mester.
    Date: 2019–05–03
  65. By: Ally Zhang (University of Zurich and Swiss Finance Institute)
    Abstract: We develop an infinite horizon model that links the intermediation in both the financial and real sectors. Intermediaries provide market liquidity and exploit the arbitrage profits in segmented financial markets. To do so, they use their productive capital as collateral. We show that the weakened intermediation and arbitrage losses are mutually reinforcing during an economic downturn. This forces intermediaries to de-lever and leads to liquidity spirals in both financial and real sectors. Also, the distress might further open up the possibility of sudden run-like market freezes, where intermediaries are denied access to renewed funding through arbitrage. We evaluate the effect of three intervention policies: direct purchase of distressed assets, interest rate cuts, and capital injection. We find that capital injection is most effective as it loosens the margin requirement. The interest cut is least effective because it exacerbates the capital misallocation.
    Keywords: limit of arbitrage, financial intermediary, haircut, segmented markets, financial crises, market liquidity, collateral constraints
    JEL: D52 D58 E44 G01 G12 G33
    Date: 2017–11
  66. By: Aryeetey Ernest; Ackah Ishmael
    Abstract: Oil resources are neither a curse nor a blessing. The sound management of these resources can make them beneficial or otherwise. In order to translate Ghana’s oil resources into inclusive development amid high expectations, several laws and regulations have been passed and new institutions created.Despite the presence of the new institutions, laws, and regulations, spending from petroleum revenues appears to be rather thinly spread and not efficient. This defeats the purpose of diversification and leads to high debt and cost overruns.On a positive note, the Minister for Finance, the Public Interest and Accountability Committee, and Bank of Ghana have been complying with most of the transparency requirements specified in the laws. It is essential that spending from petroleum revenues is guided by a medium- to long-term inclusive development strategy that is based on proper needs assessment, global trends, feasibility studies, and possible growth dynamics of the country.In addition, expenditure of the annual budget funding amount needs to be rationalized and investment guidelines developed and implemented to focus within-priority expenditures to not more than three project/expenditure categories.
    Keywords: diversification,Macroeconomic policy,Oil,Petroleum revenues,Resource revenues
    Date: 2018
  67. By: Esther Mirjam Girsberger (Economics Discipline Group, University of Technology Sydney); Matthias Krapf (University of Basel, Switzerland); Miriam Rinawi (Swiss National Bank, Switzerland)
    Abstract: We study how skills acquired in vocational education and training (VET) affect wages and employment dynamics in Switzerland. We present and estimate a search and matching model for workers with a VET degree who differ in their interpersonal, cognitive and manual skills. Assuming a match productivity which exhibits worker-job complementarity, we estimate how workers’ skills map into job offers, wages and unemployment. Firms value cognitive skills on average almost twice as much as interpersonal and manual skills. Moreover, they prize complementarity in cognitive and interpersonal skills. We estimate average returns to VET skills in hourly wages of 9%. Furthermore, VET improves labour market opportunities through higher job arrival rate and lower job destruction. Workers thus have large benefits from getting a VET degree.
    Keywords: Occupational training; labour market search; multidimensional skills.
    JEL: E23 J23 J24 J64
    Date: 2019–01–29
  68. By: Liebenthal Robert; Cheelo Caesar
    Abstract: This paper is about understanding the cycle of global copper price booms and busts over Zambia’s economic history.We explore how the mining industry has been managed, and wider economic management during boom periods. We find that successive Zambian governments did not use copper revenues to accumulate productive assets, focusing instead on financing consumption subsidies and sustaining inefficient state-owned companies.In recent times, Zambia has accumulated worryingly high levels of sovereign debt with virtually no prospect of official debt relief. Nonetheless, a reasonable chance exists of avoiding debt distress, provided the authorities consistently pursue strong fiscal management and discipline.Ultimately, Zambia’s ability to ringfence and prudently use the mineral revenues from copper mining in building productive capacities remains elusive. Instead recurrent consumption expenditure demands dominate the fiscal landscape and the agenda of the fiscal authorities.
    Keywords: Mining,Boom,Bust,Copper prices,Economic management,Fiscal
    Date: 2018
  69. By: Harris Laurence; Ntshakala Manqoba
    Abstract: The proposition that inflation expectations can be extracted as inflation predictions from the government bond yield curve has been tested, with partially positive results, using data from the United States and European countries. Despite the abundance of empirical studies of the proposition, relatively few of these studies relate to emerging markets, as most emerging markets lack bond markets with the liquidity, breadth, information availability, and range of maturities that would permit such studies. South Africa’s highly developed capital markets do have such characteristics, warranting this study’s examination of the proposition’s validity for South Africa.Using South African time series data, we find strong evidence for the proposition that the slope of the yield curve, measured as a long- to short-term spread, contains information on the future path of inflation. Examining the sub-periods separated by the adoption, in 2000, of inflation targeting, we find that the monetary policy regime shift strengthened the relationship between the yield spread and future inflation. The results suggest that the yield spread can be used by policy makers and the private sector to help forecast inflation in South Africa.
    Keywords: Monetary policy,Inflation (Finance),Rational expectations (Economic theory)
    Date: 2018
  70. By: Astrid Martínez
    Abstract: En este documento se describen los activos con que cuenta el departamento de La Guajira en cuanto a sus recursos naturales y talento humano, así como su infraestructura y sus instituciones. De igual forma, se analizan sus indicadores económicos y sociales y se identifican sus brechas internas y con respecto del resto del país. Esta región estratégica para el país, que es parte del Gran Caribe y que tiene frontera con Venezuela, tiene un gran potencial de desarrollo, pero también grandes desafíos en cuanto a ofrecer a su población condiciones dignas de vida y oportunidades para la reducción de la desigualdad, el reconocimiento de su diversidad cultural, el fortalecimiento de sus instituciones y la diversificación de su economía. A las acciones ya emprendidas por el Gobierno Nacional, en el marco de las órdenes dadas por la Corte Constitucional para asegurar la protección de la infancia y la adolescencia wayuu, hay que sumar un plan de inversiones que garantice el desarrollo productivo del departamento, concertado en un contrato plan o en un nuevo Pacto territorial.
    Keywords: Minería, Desarrollo Económico y Social, Geografía Económica, Demografía, Estructura Productiva, Instituciones, Finanzas Departamentales, Conflictividad, Departamentos, Municipios, Educación, Salud, Pobreza, Wayuu, La Guajira
    JEL: L71 O15 I25 O47 E02 H70 D74 I32
    Date: 2019–01–18
  71. By: Louise Roos; Philip Adams
    Abstract: Oil prices fell from around $US110 per barrel in 2014 to less than $US50 per barrel at the start of 2017. This put enormous pressure on government budgets within the Gulf Cooperation Council (GCC) region. The focus of GCC economic policies quickly shifted to fiscal reform, including the removal of domestic subsidies on energy products. In this paper we use a dynamic Computable General Equilibrium (CGE) model to investigate the economic impact of the gradual removal of subsidies on refined petroleum and electricity, with specific reference to the Kingdom of Saudi Arabia (KSA). Our study shows that removing subsidies eliminates a large distortion in the economy. This improves the efficiency of resource use, so that even though employment and capital in most years fall relative to baseline levels, real GDP rises. In addition, we show that fully-funded compensation payments offset the increases in energy prices, leaving economic welfare of the Saudi-national population little affected. Removing the energy subsidies leads to an improvement in the net volume of trade, while leading to a mixed outcome for industries.
    Keywords: Computable General Equilibrium (CGE) models, Energy Subsidies, Trade
    JEL: C68 D58 E63 O53
    Date: 2019–05
  72. By: Marta De Philippis; Federico Rossi
    Abstract: This paper studies the contribution of parental influence in accounting for cross-country gaps in human capital achievements. We argue that the cross-country variation in unobserved parental characteristics is at least as important as the one in commonly used observable proxies of parental socio-economic background. We infer this through an indirect empirical approach, based on the comparison of the school performance of second-generation immigrants. We document that, within the same host country or even the same school, students whose parents come from high-scoring countries in the PISA test do better than their peers with similar socio-economic backgrounds. Differential selection into emigration does not explain this finding. The result is larger when parents have little education and have recently emigrated, suggesting the importance of country-specific cultural traits that parents progressively lose as they integrate in the new host country, rather than of an intergenerational transmission of education quality. Unobserved parental characteristics account for about 15% of the cross-country variance in test scores, roughly doubling the overall contribution of parental influence.
    JEL: O15 J24 E24 I25
    Date: 2019–05

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