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on Macroeconomics |
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Issue of 2019‒06‒10
111 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Keister, Todd (Rutgers University); Sanches, Daniel R. (Federal Reserve Bank of Philadelphia) |
| Abstract: | We study how the introduction of a central bank-issued digital currency affects interest rates, the level of economic activity, and welfare in an environment where both central bank money and private bank deposits are used in exchange. Banks in our model are financially constrained, and the liquidity premium on bank deposits affects the level of aggregate investment. We study the optimal design of a digital currency in this setting, including whether it should pay interest and how widely it should circulate. We highlight an important policy tradeoff: while a digital currency tends to promote efficiency in exchange, it can also crowd out bank deposits, raise banksfunding costs, and decrease investment. Despite these effects, introducing a central bank digital currency often raises welfare. |
| Keywords: | Monetary policy; liquidity premium; collateral constraint; aggregate investment; cryptocurrency |
| JEL: | E32 E42 E52 G28 |
| Date: | 2019–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:19-26&r=all |
| By: | Robert J. Hill (University of Graz, Austria); Miriam Steurer (University of Graz, Austria); Sofie R. Waltl (Luxembourg Institute of Socio-Economic Research, Luxembourg) |
| Abstract: | The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. How - and whether - it is included in the Consumer Price Index (CPI) affects inflation expectations, the measured level of real interest rates, and the behavior of governments, central banks and market participants. We show that none of the existing treatments of OOH are fit for purpose. Hence, we propose a new simplified user cost method with better properties. Using a micro-level dataset, we then compare the empirical behavior of eight different treatments of OOH. Our preferred user cost approach pushes up the CPI during housing booms (by 2 percentage points or more). Our findings relate to the following important debates in macroeconomics: the behavior of the Phillips curve in the US during the global financial crisis, and the response of monetary policy to housing booms, secular stagnation, and globalization. |
| Keywords: | Measurement of inflation; Owner occupied housing; User cost; Rental equivalence; Quantile regression; Hedonic imputation; Housing booms and busts; Inflation targeting; Leaning against the wind; Phillips curve; Disinflation puzzle; Secular stagnation |
| JEL: | C31 C43 E01 E31 E52 R31 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2019-05&r=all |
| By: | Tarek A. Hassan (Boston University, NBER, and CEPR); Stephan Hollander (Tilburg University); Laurence van Lent (Frankfurt School of Finance and Management); Ahmed Tahoun (London Business School) |
| Abstract: | We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm’s actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. These results continue to hold after controlling for news about the mean (as opposed to the variance) of political shocks. Interestingly, the vast majority of the variation in our measure is at the firm level rather than at the aggregate or sector level, in the sense that it is neither captured by the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm-level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter. |
| Keywords: | Political uncertainty, quantification, firm-level, lobbying |
| JEL: | D8 E22 E24 E32 E6 G18 G32 G38 H32 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:bos:iedwpr:dp-325&r=all |
| By: | Samuel Huber; Jaehong Kim; Alessandro Marchesiani |
| Abstract: | We develop a dynamic general equilibrium model to analyze the relationship between monetary policy, money demand, and unemployment. Our model succeeds in replicating the empirical fact of a downward sloping Phillips curve for low infl ation rates and an upward sloping curve for high inflation rates. The reason is that low in flation rates make saving, as opposed to consumption, more attractive. Less consumption is associated with less output and therefore higher unemployment. To the contrary, when inflation exceeds a certain threshold, money is too costly to hold, which results in a decrease in output and an increase in unemployment. |
| Keywords: | Money, infl ation, overlapping generations, unemployment |
| JEL: | D90 E31 E41 E50 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:324&r=all |
| By: | Marek Dabrowski |
| Abstract: | Twenty years of euro history confirms the euro’s stability and position as the second global currency. It also enjoys the support of majority of the euro area population and is seen as a good thing for the European Union. The European Central Bank has been successful in keeping inflation at a low level. However, the European debt and financial crisis in the 2010s created a need for deep institutional reform and this task remains unfinished. |
| Keywords: | European Union, Economic and Monetary Union, common currency area, monetary policy, fiscal policy |
| JEL: | E58 E62 E63 F33 H62 H63 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:sec:report:0497&r=all |
| By: | Markus K. Brunnermeier; Dirk Niepelt |
| Abstract: | We develop a generic model of money and liquidity that identifies sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the "Chicago Plan,'' cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability. |
| JEL: | E40 E41 E42 E44 E51 E52 E58 G21 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25877&r=all |
| By: | Dolmas, James (Federal Reserve Bank of Dallas); Koenig, Evan F. (Federal Reserve Bank of Dallas) |
| Abstract: | Trimmed-mean Personal Consumption Expenditure (PCE) inflation does not clearly dominate ex-food-and-energy PCE inflation in real-time forecasting of headline PCE inflation. However, trimmed-mean inflation is the superior communications and policy tool because it is a less-biased real-time estimator of headline inflation and because it more successfully filters out headline inflation’s transitory variation, leaving only cyclical and trend components. |
| Keywords: | inflation; trimmed mean; labor market slack; real-time data; |
| JEL: | E31 E37 E52 |
| Date: | 2019–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1903&r=all |
| By: | OH, Joonseok |
| Abstract: | This paper studies the effects of uncertainty shocks on economic activity, focusing on inflation. Using a VAR, I show that increased uncertainty has negative demand effects, reducing GDP and prices. I then consider standard New Keynesian models with Rotemberg-type and Calvo-type price rigidities. Despite the belief that the two schemes are equivalent, I show that they generate different dynamics in response to uncertainty shocks. In the Rotemberg model, uncertainty shocks decrease output and inflation, in line with the empirical results. By contrast, in the Calvo model, uncertainty shocks decrease output but raise inflation because of firms' precautionary pricing motive. |
| Keywords: | uncertainty shocks, inflation, Rotemberg pricing, Calvo pricing |
| JEL: | C68 E31 E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2019/01&r=all |
| By: | Brinca, Pedro (Nova School of Business and Economics, Center for Economics and Finance at UP); Faria-e-Castro, Miguel (Federal Reserve Bank of St. Louis); Ferreira, Miguel H. (Nova School of Business and Economics); Holter, Hans (University of Oslo) |
| Abstract: | We argue that the fiscal multiplier of government purchases is increasing in the spending shock, in contrast to what is assumed in most of the literature. The fiscal multiplier is largest for large positive government spending shocks and smallest for large contractions in government spending. We empirically document this fact using aggregate U.S. data. We find that a neoclassical, life-cycle, incomplete markets model calibrated to match key features of the US economy can explain this empirical finding. The mechanism hinges on the relationship between fiscal shocks, their form of financing, and the response of labor supply across the wealth distribution. The model predicts that the aggregate labor supply elasticity is increasing in the size of the fiscal shock, and this holds regardless of whether shocks are deficit- or balanced-budget financed (albeit through different mechanisms). We find evidence of our mechanism in micro data for the US. |
| Keywords: | Fiscal Multipliers; Nonlinearity; Asymmetry; Heterogeneous Agents |
| JEL: | E21 E62 |
| Date: | 2019–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-015&r=all |
| By: | Krouglov, Alexei |
| Abstract: | Presented here are simplified mathematical models to evaluate the long-term investment values. A framework of the single product economy is used, which clarifies conceptual explanation. The short-term effects are mostly discarded and focus is done on the long-term economic trends. Two models are examined. The first model estimates an equity value for the stable earnings. The second model assesses an equity value for the unstable earnings with instability caused by the capital investments. |
| Keywords: | Equity value; mathematical models; investment |
| JEL: | E22 E32 E43 |
| Date: | 2019–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94080&r=all |
| By: | Björklund, Maria (Uppsala University); Carlsson, Mikael (Uppsala University and Sveriges Riksbank); Nordström Skans, Oskar (Uppsala University, UCLS and IZA) |
| Abstract: | We study the importance of wage rigidities for the monetary policy transmission mechanism. Using uniquely rich micro data on Swedish wage negotiations, we isolate periods when the labor market is covered by fixed wage contracts. Importantly, negotiations are coordinated in time but their seasonal patterns are far from deterministic. Using a two-regime VAR model, we document that monetary policy shocks have a larger impact on production during fixed wage episodes as compared to the average response. The results are not driven by the periodic structure, nor the seasonality, of the renegotiation episodes. |
| Keywords: | Monetary Policy; Wages; Nominal rigidities; Micro-data |
| JEL: | E23 E24 E58 J41 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0368&r=all |
| By: | Konopczak, Karolina (Ministry of Finance in Poland) |
| Abstract: | In this study we propose a novel approach to modelling wage and workforce adjustments in response to business cycle fluctuations, using non-linear cointegration methods. By exploring the sectoral dimension of the data we address the question of interchangeability between wage and employment adjustments. The results obtained for Polish industry show virtually no sign of a trade-off between price and quantity responses. Workforce resilience to demand fluctuations is rather matched with wage rigidity. Conversely, sectors with more flexible wages tend also to be responsive in terms of workforce. |
| Keywords: | Labour adjustments; Wage rigidity; Business cycles; Non-linear cointegration |
| JEL: | D22 E24 E32 |
| Date: | 2019–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:mfplwp:0035&r=all |
| By: | Duffy, Denise (Federal Reserve Bank of Cleveland); Haubrich, Joseph G. (Federal Reserve Bank of Cleveland); Kovner, Anna (Federal Reserve Bank of New York); Musatov, Alex (Federal Reserve Bank of Dallas); Prescott, Edward Simpson (Federal Reserve Bank of Cleveland); Rosen, Richard J. (Federal Reserve Bank of Chicago); Tallarini, Thomas D. (Federal Reserve Bank of Minneapolis); Vardoulakis, Alexandros (Federal Reserve Board); Yang, Emily (Federal Reserve Bank of New York); Zlate, Andrei (Federal Reserve Board) |
| Abstract: | This paper presents a tabletop exercise designed to analyze macroprudential policy. Several senior Federal Reserve officials were presented with a hypothetical economy as of 2020:Q2 in which commercial real estate and nonfinancial debt valuations were very high. After analyzing the economy and discussing the use of monetary and macroprudential policy tools, participants were then presented with a hypothetical negative shock to commercial real estate valuations that occurred in the second half of 2020. Participants then discussed the use of the tools during an incipient downturn. Some of the findings of the exercise were that during an asset boom, there were limits to the effectiveness of US macroprudential tools in controlling narrow risks and that changes to the fed funds rate may not always simultaneously meet macroeconomic and financial stability goals. Some other findings were that during a downturn, it would be desirable to use high-frequency indicators for deciding when to release the countercyclical capital buffer (CCyB) and that tensions exist between microprudential and macroprudential goals when using the CCyB and the stress test. |
| Keywords: | financial stability; macroprudential policy; monetary policy; tabletop exercise; |
| JEL: | E58 G01 G18 |
| Date: | 2019–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:191100&r=all |
| By: | Ikeda, Daisuke (Bank of Japan) |
| Abstract: | Asymmetric information is crucial for understanding the disruption of the supply of credit. This paper studies a dynamic economy featuring asymmetric information and resulting adverse selection in credit markets. Entrepreneurs seek loans from banks for projects, but asymmetric information about entrepreneurs' riskiness causes a lemons problem: relatively safe entrepreneurs do not get funded. An increase in the riskiness of some entrepreneurs raises interest rate spreads, aggravates adverse selection, and shrinks the supply of bank credit. The model calibrated to the U.S. economy generates significant business fluctuations including severe recessions comparable to the Great Recession of 2007-09. |
| Keywords: | Adverse selection; Mechanism design approach; separating contract |
| JEL: | D82 E32 E44 |
| Date: | 2019–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:361&r=all |
| By: | Zakipour-Saber, Shayan (Central Bank of Ireland) |
| Abstract: | Are monetary policy regimes state-dependent? To answer the question this paper estimates New Keynesian general equilibrium models that allow the state of the economy to influence the monetary authority’s stance on inflation. I take advantage of recent developments in solving rational expectations models with state-dependent parameter drift to estimate three models on U.S. data between 1965-2009. In these models, the probability of remaining in a monetary policy regime that is relatively accommodative towards inflation, varies over time and depends on endogenous model variables; in particular, either deviations of inflation or output from their respective targets or a monetary policy shock. The main contribution of this paper is that it finds evidence of state-dependent monetary policy regimes. The model that allows inflation to influence the monetary policy regime in place, fits the data better than an alternative model with regime changes that are not state-dependent. This finding points towards reconsidering how changes in monetary policy are modeled. |
| Keywords: | Markov-Switching DSGE, State-dependence, Bayesian Estimation |
| JEL: | C13 C32 E42 E43 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:4/rt/19&r=all |
| By: | Crump, Richard K. (Federal Reserve Bank of New York); Eusepi, Stefano (University of Texas at Austin); Giannoni, Marc (Federal Reserve Bank of Dallas); Sahin, Aysegul (University of Texas at Austin) |
| Abstract: | This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators, such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach, which employs reduced-form models and DSGE models, relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a forward-looking Phillips curve that links inflation to current and expected deviations of unemployment from its unobserved natural rate. We estimate that the natural rate of unemployment was around 4.0 percent toward the end of 2018 and that the unemployment gap was roughly closed. Identification of a secular downward trend in the unemployment rate, driven solely by the inflow rate, facilitates the estimation of u*. We identify the increase in labor force attachment of women, decline in job destruction and reallocation intensity, and dual aging of workers and firms as the main drivers of the secular downward trend in the inflow rate. |
| Keywords: | firm dynamics; demographics; business dynamism; macroeconomics |
| JEL: | D22 E24 J11 |
| Date: | 2019–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:889&r=all |
| By: | Lutho Mbekeni (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University) |
| Abstract: | High unemployment rates is one of the greatest economic challenges facing post-apartheid South African government over the past two decades and this problem has become more worrisome in the post-global financial crisis period. Our study examines the determinants of unemployment for the South African economy in the post-crisis period over a quarterly frequency period of 2009:Q1 to 2018:Q4. The determinants are examined for 4 classes of unemployment rates (total, male, female and youth) and we further partition possible unemployment determinants into fiscal, monetary and macroeconomic variables. The estimation results from the employed autoregressive distributive lag (ARDL) models find income tax, repo rates, economic growth, trade, investment, household debt and savings to be significant determinants of unemployment in the post-crisis South African economy and yet we note discrepancies of the significance of these determinants amongst different unemployment categories. Relevant policy implications are matched against our obtained empirical findings. |
| Keywords: | Unemployment; Determinants; ARDL; financial-crisis; South Africa. |
| JEL: | C13 C32 C52 E24 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mnd:wpaper:1903&r=all |
| By: | Mbekeni, Lutho; Phiri, Andrew |
| Abstract: | High unemployment rates is one of the greatest economic challenges facing post-apartheid South African government over the past two decades and this problem has become more worrisome in the post-global financial crisis period. Our study examines the determinants of unemployment for the South African economy in the post-crisis period over a quarterly frequency period of 2009:Q1 to 2018:Q4. The determinants are examined for 4 classes of unemployment rates (total, male, female and youth) and we further partition possible unemployment determinants into fiscal, monetary and macroeconomic variables. The estimation results from the employed autoregressive distributive lag (ARDL) models find income tax, repo rates, economic growth, trade, investment, household debt and savings to be significant determinants of unemployment in the post-crisis South African economy and yet we note discrepancies of the significance of these determinants amongst different unemployment categories. Relevant policy implications are matched against our obtained empirical findings. |
| Keywords: | Unemployment; determinants; ARDL; financial crisis; South Africa. |
| JEL: | C13 C32 C52 E24 |
| Date: | 2019–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94159&r=all |
| By: | Jonathan Chiu; Mohammad Davoodalhosseini; Janet Hua Jiang; Yu Zhu |
| Abstract: | Many central banks are considering whether to issue a new form of electronic money that would be accessible to the public. This new form is usually called a central bank digital currency (CBDC). Issuing a CBDC would have implications on the financial system and more broadly on the wider economy. The effects of a CBDC on the banking sector, output and welfare depend crucially on the level of competition in the market for bank deposits. We show that when banks have no market power, issuing a deposit-like CBDC (that people can use like a debit card in transactions) would crowd out private banking. It would shift deposits away from the banking system, reducing bank lending. However, in a more realistic scenario, when banks have market power in the deposit market, issuing a deposit-like CBDC with a proper interest rate would encourage banks to pay higher interest or offer better services to keep their customers. They can do so because they earn a positive profit. As a result, banks would attract more deposits and extend more loans. In this case, issuing a CBDC would not necessarily crowd out private banking. In fact, the CBDC would serve as an outside option for households, thus limiting banks’ market power, and improve the efficiency of bank intermediation. We show quantitatively that the effects of a CBDC on lending, deposits, output and welfare can be sizable. We also analyze how different designs of a CBDC affect our results, including whether the CBDC is deposit-like or cash-like and whether the CBDC can be used to satisfy banks’ reserve requirements. |
| Keywords: | Digital Currencies and Fintech; Market structure and pricing; Monetary Policy; Monetary policy framework |
| JEL: | E50 E58 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-20&r=all |
| By: | Enrico Sergio Levrero; Matteo Deleidi; Francesca Iafrate |
| Abstract: | This paper aims to estimate fiscal multipliers in eleven Eurozone countries. To do this, we make use of yearly data provided by the OECD for the 1970–2016 period. By using the Local Projections approach on a panel dataset and considering different model specifications, we estimate the magnitude assumed by fiscal multipliers in order to assess whether an increase in government investment generates a ‘Keynesian effect’ on the level of the GDP. Our findings suggest that fiscal multipliers tend to be larger than one and an increase in public investment engenders a permanent and persistent effect on the level of output. Additional model specifications suggest that government investment fiscal multipliers are lower when the post-crisis period is excluded by our sample and are larger in Southern countries than Northern ones. |
| Keywords: | Fiscal Multipliers; Government Investment; Local Projections; Euro area |
| JEL: | E12 H54 E62 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0247&r=all |
| By: | Michael S. Lee-Browne (The George Washington University) |
| Abstract: | This paper presents an approach for empirically estimating long-run monetary policy rules in small open economies. The approach utilizes the cointegrated VAR methodology and statistical tests on long- and short-run relations, and investigates policy responses. An application is presented for the case of Trinidad and Tobago. The analysis reveals an empirically supported long-run monetary policy rule for the nominal exchange rate, and provides empirical evidence that oil price shocks are transmitted through the TT economy in part via the effects on US prices. Dynamic specification of the nominal exchange rate reveals significant adjustment towards the target equilibrium level, and significant effects from foreign and domestic variables save for the exchange rate. Forecast analysis reveals the significance of oil-price forecasts, and forecast-errors, on monetary policy. The parsimonious model and its parameter estimates are empirically constant and generate reliable forecasts that provide important implications for using estimated policy rules. |
| Keywords: | Cointegration, exogeneity, Fisher open parity, forecast-encompassing, monetary policy, PPP, small open economies, Trinidad and Tobago, UIP |
| JEL: | C51 C52 E52 E58 F31 F41 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2019-001&r=all |
| By: | Erwan Gautier; Sebastien Roux; Milena Suarez-Castillo |
| Abstract: | How do minimum wages (MW) shape the aggregate wage dynamics when wage adjustment is lumpy? In this paper, we document new empirical findings on the effect of MW on wage rigidity using quarterly micro wage data matched with sectoral bargained MW. We estimate a micro empirical model of wage rigidity taking into account minimum wage dynamics and we use a simulation method to investigate implications of lumpy micro wage adjustment for the aggregate wage dynamics. Our main findings are the following. Both national and sectoral MW have a large effect on the timing and on the size of wage adjustments. At the aggregate level, MW contribute to amplify, by a factor of 1.7, the response of wages to past inflation. Ignoring MW leads to underestimate the speed of aggregate wage adjustment by about a year. The elasticities of wages with respect to past inflation, the national MW and industry-level MW are respectively 0.42, 0.17 and 0.16. Finally, there are significant spillover effects of the NMW on higher wages transiting through industry-level MW. |
| Keywords: | wage rigidity, minimum wage, collective bargaining. |
| JEL: | E24 E52 J31 J50 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:720&r=all |
| By: | Konopczak, Karolina (Ministry of Finance in Poland) |
| Abstract: | In this study we develop a regime-dependent ARDL model in order to investigate how labour costs feed through into prices conditional on the business cycle position. The estimation results allow us to make inference on the cyclical behaviour of markups. The proposed methodology is applied to Polish industrial sectors. The obtained estimates point to procyclicality as the prevailing pattern of markup adjustment. Thus, overall markups in Polish industry seem to have a mitigating effect on business cycle fluctuations. The degree of procyclicality seems, however, to be positively correlated with the industry's degree of competition. |
| Keywords: | Non-linear cointegration; Regime-dependence; Cost pass-through; Markup cyclicality |
| JEL: | C22 E31 E32 |
| Date: | 2019–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:mfplwp:0036&r=all |
| By: | Sergey Ivashchenko; Willi Mutschler |
| Abstract: | Both the investment adjustment costs parameters in Kim (2003) and the monetary policy rule parameters in An & Schorfheide (2007) are locally not identifiable. We show means to dissolve this theoretical lack of identification by looking at (1) the set of observed variables, (2) functional specifications (level vs. growth costs, output-gap definition), (3) model features (capital utilization, partial inflation indexation), and (4) additional shocks (investment-specific technology, preference). Moreover, we discuss the effect of these changes on the strength of parameter identification from a Bayesian point of view. Our results indicate that researchers should treat parameter identification as a model property, i.e. from a model building perspective. |
| Keywords: | identification, weak identification, investment adjustment costs, Taylor rule, model features, shocks |
| JEL: | C18 C51 C68 E22 E52 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:cqe:wpaper:8319&r=all |
| By: | Bitros, George C. |
| Abstract: | The objective in this paper is to highlight the complex linkages of capital input to potential output in the U.S. nonfarm private business sector. For this purpose the analytical framework used by the Congressional Budget Office (CBO) is adapted and re-estimated using data from the U.S. Bureau of Economic Analysis (BEA) and the U.S. Bureau of Labor Statistics (BLS) over the period 1949-2016. By focusing on the changes in the composition of the capital stock in terms of structures, equipment and intangibles, average service lives, and the relative prices of producer’s to consumer’s goods, the paper allows for their influence on the capital input and traces the latter’s effects on the potential output. It is found that: (a) when the capital input is adjusted to reflect all aforementioned changes, the potential output decelerated in recent decades even faster than suggested by CBO’s estimates; (b) in the post-2007 period the shortfall in the estimated potential output widened relative to that computed by CBO, and (c) the faster deceleration of the potential output emanated from the declining share of structures in the capital stock and the spectacular decline in the prices of equipment relative to structures. Drawing on these findings it is concluded that, although the real economy may have overshoot its potential in the last few years, the forces that slow down potential output through changes in the capital input remain intact and, unless some remedial policies are instituted, they will continue to function as significant headwinds to U.S. economic growth, along with all others that are well known. |
| Keywords: | Potential output, capital input, capital stock, economic growth, economic growth headwinds, secular stagnation |
| JEL: | E01 E22 O47 |
| Date: | 2019–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94141&r=all |
| By: | Eric Kemp-Benedict (Stockholm Environment Institute (SE)) |
| Abstract: | This paper describes a hybrid post-Keynesian and classical/neo-Marxian model with a 'center of gravity' where the actual, warranted, and natural growth rates coincide. In the model, investment determines saving in the short run, while investment depends on anticipated demand. The Keynesian stability is assumed not to hold, so the model features short-run Harrodian instability, which is bounded by a ceiling and floor. The resulting Kaleckian-Harrodian model is shown to produce some key stylized facts as long-run tendencies, to exhibit wage-led behavior, and to produce depressions in some circumstances. |
| Keywords: | Kaleckian, Harrodian, classical, neo-Marxian, cycles, technological change |
| JEL: | B50 E32 O40 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1913&r=all |
| By: | Sagiri Kitao; Tomoaki Yamada |
| Abstract: | Inequality has become a central policy issue across the world. We study trends of inequality in earnings, income and wealth across households in Japan, using the National Survey of Family Income and Expenditure (NSFIE) from 1984 to 2014. We focus on the transition of inequality unconditionally and conditionally across various dimensions of household heterogeneity such as age, cohort, employment and marital status of household heads, sources of income, family size, etc. Inequality in earnings, income and wealth all increased during the last three decades. Changes in earnings and income inequality were mostly driven by demographic shift in the population towards the elderly, who tend to have higher inequality. Wealth inequality rose not only in the aggregate but also among the young, and this is due to a major increase in the fraction of households who own zero or very low wealth across all age groups. Critical factors in understanding inequality trends in Japan that we identified are aging demographics, changes in typical household structure, and macroeconomic trends of the past decades including the financial bubble period and a decades-long slow-down thereafter. |
| Keywords: | Distributions of wealth, earnings and income, inequality, demographic aging, Japanese economy. |
| JEL: | D31 E21 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-36&r=all |
| By: | Jaromir Baxa; Tomas Sestorad |
| Abstract: | After the introduction of an exchange rate commitment and an immediate 7% depreciation of the Czech koruna of in 2013, output growth resumed but inflation remained low. Consequently, the Czech National Bank did not return policy to normal for more than three years. Using a time-varying parameter VAR model with stochastic volatility, we show that this was not surprising. The exchange rate pass-through to prices had been rather low and gradually decreasing since the early 2000s, suggesting limited potential effects of the exchange rate commitment on inflation. On the other hand, the pass-through to output growth increased. These results hold even when the period of the exchange rate floor and the zero lower bound is excluded from the sample, and they are robust to other sensitivity checks. Our results are consistent either with a flattened Phillips curve, or rising quality of the Czech exports and participation in global value chains, or a small effect of the exchange rate commitment on inflation expectations when not paired with temporary price-level targeting. Moreover, we highlight the usefulness of models accounting for time variation of parameters for policy analysis. |
| Keywords: | Exchange rate commitment, exchange rate pass-through, time-varying parameters, VAR, zero lower bound |
| JEL: | C32 E52 F41 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2019/1&r=all |
| By: | Yeva Nersisyan; L. Randall Wray |
| Abstract: | This paper follows the methodology developed by J. M. Keynes in his How to Pay for the War pamphlet to estimate the "costs" of the Green New Deal (GND) in terms of resource requirements. Instead of simply adding up estimates of the government spending that would be required, we assess resource availability that can be devoted to implementing GND projects. This includes mobilizing unutilized and underutilized resources, as well as shifting resources from current destructive and inefficient uses to GND projects. We argue that financial affordability cannot be an issue for the sovereign US government. Rather, the problem will be inflation if sufficient resources cannot be diverted to the GND. And if inflation is likely, we need to put in place anti-inflationary measures, such as well-targeted taxes, wage and price controls, rationing, and voluntary saving. Following Keynes, we recommend deferred consumption as our first choice should inflation pressures arise. We conclude that it is likely that the GND can be phased in without inflation, but if price pressures do appear, deferring a small amount of consumption will be sufficient to attenuate them. |
| Keywords: | Green New Deal; Keynes; How to Pay for the War; Modern Money Theory |
| JEL: | B50 E0 E2 E3 E6 H6 Q0 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_931&r=all |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Gregor von Schweinitz (Halle Institute for Economic Research, Germany and Leipzig University, Germany) |
| Abstract: | In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growh, conditional on the fragility of government finances. Based on the database of fiscal plans in OECD countries, we show that spending shocks are less detrimental than tax-based consolidation. In times of fiscal fragility, our results indicate strongly that governments should consolidate through surprise policy changes rather than announcements of consolidation at a later horizon. |
| Keywords: | Fiscal multipliers; fiscal consolidation; local projections |
| JEL: | E62 H63 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:201905&r=all |
| By: | Martin M. Andreasen (University of Aarhus and CREATES) |
| Abstract: | This paper estimates a New Keynesian model that explains key macro series, the ten-year nominal yield curve, and the ability of the spread between long- and short-term bond yields to predict future excess bond returns. The model also generates an upward sloping nominal and real yield curve, produces a positive inflation risk premium, and recovers the prediction by the expectations hypothesis of no return predictability when historical bond yields are risk-adjusted using term premia from the proposed model. Key to obtaining these results is a new specification of stochastic volatility that allows high current inflation to generate high future uncertainty. |
| Keywords: | Bond return predictability, Term premia, Robust structural estimation, Stochastic volatility |
| JEL: | E44 G12 |
| Date: | 2019–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2019-11&r=all |
| By: | Paola Boel (Sveriges Riksbank); Gabriele Camera (Economic Science Institute, Chapman University & University of Bologna) |
| Abstract: | We investigate the effects of banks’ operating costs on allocations and welfare in a low interest rate environment. We introduce an explicit production function for banks in a microfounded model where banks employ labor resources, hired on a competitive market, to run their operations. In equilibrium, this generates a spread between interest rates on loans and deposits, which naturally reflects the underlying monetary policy and the efficiency of financial intermediation. In a deflation or low inflation environment, equilibrium deposits yield zero returns. Hence, banks end up soaking up labor resources to offer deposits that do not outperform idle balances, thus reducing aggregate efficiency. |
| Keywords: | banks; frictions; matching |
| JEL: | C70 D40 E30 J30 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:19-12&r=all |
| By: | Céline Antonin (Observatoire français des conjonctures économiques); Mattia Guerini (Scuola Superiore Sant'Anna); Mauro Napoletano (Observatoire français des conjonctures économiques); Francesco Vona (Observatoire français des conjonctures économiques) |
| Abstract: | With its public debt amounting to 132.1% of GDP and its negative productivity growth over the last twenty years, Italy appears to be the sick man of the European Union. In this Policy brief, we focus on its two main plights: high public debt burden on the one hand, sluggish GDP and productivity growth on the other hand. Both issues are intimately related: a slow growth limits the budgetary margins and casts doubts on public debt sustainability; the reduced fiscal space in turn weighs on growth and public investment. The first part is dedicated to describing the history and causes of Italian public debt. A first phase, from the 1960s to the 1980s, was characterized by a positive but moderate growth of debt. A second phase saw the explosion of public debt, from 54% of GDP in 1980 to roughly 117% in 1994. The budget law of the Amato's government in 1992 initiated a third phase, marked by a significant fiscal consolidation effort, and the decrease of the public debt to GDP ratio. The Great Recession interrupted this consolidation era and a last phase began from 2008 on, when the public debt-to-GDP ratio consequently increased. In the second part, we review some of the structural weaknesses of the Italian economy. We notably emphasize the specialization bias towards low tech sectors, the “nanism” of Italian firms, the misallocation of talents and resources, the North-South divide and its related labor market consequences. We conclude with four policy recommendations for a revival of growth in Italy. Our first proposal is technical and proposes a new European fiscal golden rule which would remove specific public investments from the computation of structural primary balance. Our second and third proposals are related to the regulation of the labor market, with the introduction of a minimum wage on the one hand, and the facilitation of retraining policies on the other hand. Last, we call for a revival of industrial policies in order to foster knowledge accumulation and firm learning. Our view is that Italy's fate is inextricably related to Europe's and that Italy needs more rather than less Europe. |
| Keywords: | Italy; Growth; Productivity; Public debt |
| JEL: | E60 E61 O40 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7ebbvbelkk9oq90vtohpd2346t&r=all |
| By: | Clemens C. Struck; Adnan Velic |
| Abstract: | To rationalize a substantial income share of labor despite progressive task automation over the centuries, we present a simple model in which demand moves along a vertically differentiated production structure toward goods of increasing sophistication. Automation of more sophisticated goods requires capital of increasing quality. Quality capital remains scarce along the growth path. This is why labor keeps up a substantial fraction of income. Real capital, however, that is capital measured in units of the quality of some base year, becomes abundant relative to labor. While our model features an entirely different mechanism, we show that its aggregate representation is the one of a neoclassical growth model with labor-augmenting technical change. |
| Keywords: | Uzawa's theorem; Automation; Goods quality; Structural change; Reallocations; Growth; Nonhomothetic preferences; Hierarchical demand |
| JEL: | E23 E24 E25 J23 J24 O14 O31 O33 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201912&r=all |
| By: | Linas Jurksas (Vilnius University & Bank of Lithuania); Hector Carcel (Bank of Lithuania) |
| Abstract: | In this paper, we analyze the relationship between various risk factors and euro area government bond yield spreads, focusing particularly on the monetary policy stance. Our results show that credit and common risk factors are consistently priced in government bond yield spreads, while liquidity differentials are relevant especially during periods of stressed market conditions. We demonstrate that the liquidity component has been more prominent during periods of declining interest rates and increasing reserves, while it has diminished on announcement days of monetary policy decisions related to PSPP. Overall, the liquidity component has been statistically insignificant since the announcement of accommodative non-standard monetary policy measures. |
| Keywords: | monetary policy, liquidity, government bonds, yield spreads, panel analysis |
| JEL: | C23 E62 H50 |
| Date: | 2019–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:60&r=all |
| By: | Diewert, Erwin; Fox, Kevin J. |
| Abstract: | Firms have greatly increased their cash holdings since the mid-1990s. These holdings have an opportunity cost; i.e., allocating firm financial capital into monetary deposits means that investment in real assets is reduced. Traditional measures of Total Factor Productivity (TFP) do not take into account these holdings of monetary assets. Given the recent large increases in these holdings in the U.S. and other advanced economies, it is expected that adding these monetary assets to the list of traditional sources of capital services will reduce the TFP of the business sector. We measure this effect for the U.S. corporate and non-corporate business sectors. |
| Keywords: | Productivity, money, national accounts, capital services Here. |
| JEL: | D24 E01 E41 |
| Date: | 2019–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:pmicro:erwin_diewert-2019-9&r=all |
| By: | Martin Møller Andreasen (University of Aarhus and CREATES); Kasper Jørgensen (Board of Governors of the Federal Reserve System); Andrew Meldrum (Board of Governors of the Federal Reserve System) |
| Abstract: | This paper documents a significantly stronger relationship between the slope of the yield curve and future excess bond returns on Treasuries from 2008-2015 than before 2008. This new predictability result is not matched by the standard shadow rate model with Gaussian factor dynamics, but extending the model with regime-switching in the (physical) dynamics of the factors at the lower bound resolves this shortcoming. The model is also consistent with the downwards trend in surveys on short rate expectations at long horizons, but requires a break in the level of its factors to closely fit the low level of these surveys since 2015. |
| Keywords: | Dynamic term structure model, bond return predictability, shadow rate model, structural break, regime-switching |
| JEL: | E43 E44 G12 |
| Date: | 2019–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2019-10&r=all |
| By: | Ranpati Dewage Thilini Sumudu Kumari (Economics Discipline, Business School, The University of Western Australia and Central Bank of Sri Lanka); Sam Hak Kan Tang (Economics Discipline, Business School, The University of Western Australia) |
| Abstract: | This study aims to identify how much of economic growth is driven by improvement in Total Factor Productivity (TFP) in Sri Lanka, a small open economy, in comparison to other Asian economies. To examine this, aggregate TFP growth was calculated for Sri Lanka by using both primal and dual growth accounting frameworks. The study covers the period 1980-2016 and eight sub-periods, classified according to distinctive socio-economic-politico changes. For the whole period, TFP growth accounts for 45 percent of the total output growth. The annual average TFP growth rates under the primal and dual approaches are 2.3 percent and 3.6 percent, respectively. Though the growth accounting framework has limitations, the results were robust enough to draw comparative conclusions with those of other Asian countries. Sri Lanka’s TFP growth under both methods has been positive and higher than some Asian countries, except for China. Further, though Indonesia and Sri Lanka have similar per capita GDP levels, Sri Lanka’s TFP growth has been higher than that of Indonesia. Additionally, we show that the two growth drivers in Sri Lanka have been capital accumulation and productivity growth. |
| Keywords: | Dual Approach, Growth Accounting, Primal Approach, Sources of Growth, Sri Lanka, Total Factor Productivity |
| JEL: | D24 E22 E23 F43 O47 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:19-05&r=all |
| By: | Carlo Altavilla; Miguel Boucinha; José-Luis Peydró |
| Abstract: | We analyse the impact of standard and non-standard monetary policy on bank profitability. We use both proprietary and commercial data on individual euro area bank balance-sheets and market prices. Our results show that a monetary policy easing – a decrease in short-term interest rates and/or a flattening of the yield curve – is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions. Accommodative monetary conditions asymmetrically affect the main components of bank profitability, with a positive impact on loan loss provisions and non-interest income offsetting the negative one on net interest income. A protracted period of low monetary rates has a negative effect on profits that, however, only materialises after a long time period and is counterbalanced by improved macroeconomic conditions. Monetary policy easing surprises during the low interest rate period improve bank stock prices and CDS. |
| Keywords: | E52, E43, G01, G21, G28 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1101&r=all |
| By: | Benjamín García; Sebastián Guarda; Markus Kirchner; Rodrigo Tranamil |
| Abstract: | The Extended Model for Analysis and Simulations (XMAS) is the Central Bank of Chile's newest dynamic stochastic general equilibrium (DSGE) model for macroeconomic projections and monetary policy analysis. Building on Medina and Soto (2007), the model includes several new features, in line with recent developments in the modeling of small open economies, particularly commodityexporting emerging economies such as Chile. The extensions over the base model include the modeling of non-core inflation dynamics, a commodity sector with endogenous production and investment, a labor market with search and matching frictions that allows for labor variation on both the intensive and extensive margins, an augmented fiscal block, as well as additional shocks and other real and nominal frictions. These features allow for a more granular analysis and more comprehensive forecasts of the Chilean economy, improving the fit of the model to macroeconomic data in several dimensions. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:833&r=all |
| By: | Fatih Karahan; Benjamin Pugsley; Ayşegül Şahin |
| Abstract: | We propose a simple explanation for the long-run decline in the startup rate. It was caused by a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel explains roughly two-thirds of the decline and why incumbent firm survival and average growth over the lifecycle have been little changed. We show these results in a standard model of firm dynamics and test the mechanism using shocks to labor supply growth across states. Finally, we show that a longer startup rate series imputed using historical establishment tabulations rises over the 1960-70s period of accelerating labor force growth. |
| JEL: | D22 E24 J11 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25874&r=all |
| By: | Foerster, Andrew (Federal Reserve Bank of San Francisco); Hornstein, Andreas (Federal Reserve Bank of Richmond); Sarte, Pierre-Daniel G. (Federal Reserve Bank of Richmond); Watson, Mark W. (Princeton University) |
| Abstract: | We find disparate trend variation in TFP and labor growth across major U.S. production sectors over the post-WWII period. When aggregated, these sector-specific trends imply secular declines in the growth rate of aggregate labor and TFP. We embed this sectoral trend variation into a dynamic multi-sector framework in which materials and capital used in each sector are produced by other sectors. The presence of capital induces important network effects from production linkages that amplify the consequences of changing sectoral trends on GDP growth. Thus, in some sectors, changes in TFP and labor growth lead to changes in GDP growth that may be as large as three times these sectors' share in the economy. We find that trend GDP growth has declined by more than 2 percentage points since 1950, and that this decline has been primarily shaped by sector-specific rather than aggregate factors. Sustained contractions in growth specific to Construction, Nondurable Goods, and Professional and Business and Services make up close to sixty percent of the estimated trend decrease in GDP growth. In addition, the slow process of capital accumulation means that structural changes have endogenously persistent effects. We estimate that trend GDP growth will continue to decline for the next 10 years absent persistent increases in TFP and labor growth. |
| Keywords: | trend growth; multi-sector model; production linkages |
| JEL: | C32 E23 O41 |
| Date: | 2019–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:19-11&r=all |
| By: | Francisco Lasso-Valderrama (Banco de la República de Colombia); Héctor M. Zárate-Solano (Banco de la República de Colombia) |
| Abstract: | Accurate predictions of future magnitudes of the unemployment rate are crucial for monetary policy. This paper investigates whether the use of disaggregated household survey data improves the forecasts of the Colombian 13 cities unemployment rate. We conduct an outof-sample forecast exercise to compare the performance of a model that incorporates flows of workers across different states of the labour market to that of various macroeconomic non-structural models. The paper follows the approach proposed by Barnichon & Nekarda (2013). Our results indicate that the two-state-flow model provides substantially better forecasts of the unemployment rate over longer horizons (more than five months ahead). Additionally, when forecasts are combined, significant gains in every forecasting horizon occurs. This combined forecast shows a 23% reduction in overall RMSE. **** ABSTRACT: En este documento se evalúan los pronósticos de la tasa de desempleo urbana en Colombia utilizando varias metodologías. La primera se basa en las propiedades estadísticas de la serie de tiempo de la tasa de desempleo. La segunda considera la relación entre el crecimiento del producto y los cambios en el desempleo, conocida como la Ley de Okun. Finalmente, con base en los microdatos de las encuestas de hogares se calculan los flujos de trabajadores del mercado laboral para pronosticar la tasa de desempleo de acuerdo con Barnichon y Nekarda (2013). La evaluación de los pronósticos fuera de muestra indica que el modelo de dos estados (ocupado-desocupado) es el mejor en horizontes superiores a cinco meses. Por su parte, los modelos ARIMA y la Ley de Okun compiten en precisión en horizontes de corto plazo. Cabe destacar que la combinación de los modelos de pronóstico genera ganancias significativas en todos los horizontes, alcanzando una reducción global de 23% en la raíz del error cuadrático medio. Classification-JEL: C53, E24, E27, E3, J64 |
| Keywords: | Forecasting, unemployment, VAR models, labour market flows, Pronósticos, desempleo, modelos VAR, flujos del mercado laboral |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1073&r=all |
| By: | Anindya Banerjee (University of Birmingham); Victor Bystrov (University of Lodz); Paul Mizen (University of Nottingham) |
| Abstract: | In this paper we examine the influence of monetary policy at the ECB on mortgage and business lending rates offered by banks in the major euro area countries (Germany, France, Italy and Spain). Since there are many different policy measures that have been undertaken, we utilise a dynamic factor model, which allows examination of impulse responses to policy shocks conditioned by structurally identified latent factors. The distinct feature of this paper is that it explores the effects of three channels of policy transmission - short-term rates, long-term rates and perceived risk - ultimately directed towards bank lending rates. The analysis of the pass through is carried out in pre-crisis and post-crisis sub-samples after the financial crisis to demonstrate the changing influence of different policy measures on lending rates. |
| Keywords: | monetary policy, dynamic factor models, interest rates, pass through |
| JEL: | C32 C53 E43 E4 |
| Date: | 2019–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:ann:wpaper:1/2019&r=all |
| By: | Juan Tenorio (Georgetown University); Maritza Huanchi (Universidad Nacional del Callao) |
| Abstract: | Durante los últimos años, el Perú atravesó recesiones debido a la dependencia externa estableciendo políticas fiscales para la reactivación económica. Sin embargo, la diversidad de impuestos y su escaso estudio no permitieron definir una política adecuada debido a la no consideración de heterogeneidad de sus efectos. Esta investigación estima el impacto de shocks del IGV y el IR considerando las limitaciones anteriores. Asimismo, a través del modelo de Equilibrio General Dinámico Estocástico (DSGE) Bayesiano se evidenció que un shock por IGV incrementa la economía en 2.2%, disminuye el empleo, aumenta el consumo en el periodo inicial y retrae la inversión. Por otra parte, un shock de IR impulsa la economía en 4.8%, retrae el consumo pero eleva el empleo casi proporcionalmente, e incrementa la inversión. Finalmente, se concluyó que una reforma tributaria de IR tiene efectos más satisfactorios, logrando una recaudación de 12.3% del PBI, en comparación del IGV (8.9%). |
| Keywords: | Reactivación económica, política fiscal, impuestos, DSGE Bayesiano |
| JEL: | E62 H22 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:148&r=all |
| By: | Konopczak, Karolina (Ministry of Finance in Poland) |
| Abstract: | Numerous empirical studies suggest that the responses of prices to exchange rate movements are muted, i.e. the exchange rate pass-through is incomplete. In this study we investigate whether this result can be explained by inaction to small changes in the exchange rate, in which case the incompleteness would constitute merely an artefact introduced by the linear specification of the pass-through equation. To this end we extend the non-linear ARDL framework of Shin et al. (2014) by allowing for threshold reactions, specifically in the form of a ‘band of inaction’. The results obtained for Polish industry show significant sign- and size-dependence in the sensitivity of export prices to exchange rate movements, but only in a few cases they fully account for the incompleteness of the pass-through. The tendency for inaction is to a large extent determined by industry’s characteristics, with sectors more technologically advanced and more involved in international activities, more willing or able to absorb exchange rate movements in their markups, thereby stabilising their prices in the destination markets. |
| Keywords: | exchange rate pass-through; non-linear cointegration; non-linear ARDL; band of inaction |
| JEL: | C32 E31 F14 |
| Date: | 2019–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:mfplwp:0037&r=all |
| By: | Karahan, Fatih (Federal Reserve Bank of New York); Pugsley, Benjamin (University of Notre Dame); Sahin, Aysegul (University of Texas Austin, NBER) |
| Abstract: | We propose a simple explanation for the long-run decline in the startup rate. It was caused by a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel explains roughly two-thirds of the decline and why incumbent firm survival and average growth over the lifecycle have been little changed. We show these results in a standard model of firm dynamics and test the mechanism using shocks to labor supply growth across states. Finally, we show a longer startup rate series, imputed using historical establishment tabulations, that rises over the 1960-70s period of accelerating labor force growth. |
| Keywords: | firm dynamics; demographics; business dynamism; macroeconomics |
| JEL: | D22 E24 J11 |
| Date: | 2019–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:888&r=all |
| By: | Markus Brunnermeier; Simon Rother; Isabel Schnabel |
| Abstract: | We analyze the relationship between asset price bubbles and systemic risk, using bank-level data covering almost thirty years. Systemic risk of banks rises already during a bubble’s build-up phase, and even more so during its bust. The increase differs strongly across banks and bubble episodes. It depends on bank characteristics (especially bank size) and bubble characteristics, and it can become very large: In a median real estate bust, systemic risk increases by almost 70 percent of the median for banks with unfavorable characteristics. These results emphasize the importance of bank-level factors for the build-up of financial fragility during bubble episodes. |
| Keywords: | Asset price bubbles, systemic risk, financial crises, credit booms, CoVaR, MES |
| JEL: | E32 G01 G12 G20 G32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_095&r=all |
| By: | Alexey Ponomarenko (Bank of Russia, Russian Federation) |
| Abstract: | When a central bank accumulates foreign reserves, there are two possible ways of balance of payments adjustment: (1) decreasing commercial banks’ net foreign assets and (2) decreasing the non-banking sector’s net foreign assets and/or increasing the current account surplus. In the latter case, money is created. It does not matter whether the central bank sterilizes the bank reserves that it supplied to the money market and prevents the interest rate change – money will be created anyway (although sterilization may prevent further money creation through credit extension). Our empirical analysis shows that for emerging markets the type (2) adjustment is more common than type (1). Therefore, the accumulation of foreign reserves is likely to create money even when sterilized (i.e. it does not lead to lower money market interest rates). |
| Keywords: | Money supply, credit, foreign exchange interventions, foreign exchange reserves, emerging markets. |
| JEL: | E51 E58 F31 G21 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps40&r=all |
| By: | Andrew Foerster; Andreas Hornstein; Pierre-Daniel Sarte; Mark W. Watson |
| Abstract: | We find disparate trend variation in TFP and labor growth across major U.S. production sectors over the post-WWII period. When aggregated, these sector-specific trends imply secular declines in the growth rate of aggregate labor and TFP. We embed this sectoral trend variation into a dynamic multi-sector framework in which materials and capital used in each sector are produced by other sectors. The presence of capital induces important network effects from production linkages that amplify the consequences of changing sectoral trends on GDP growth. Thus, in some sectors, changes in TFP and labor growth lead to changes in GDP growth that may be as large as three times these sectors' share in the economy. We find that trend GDP growth has declined by more than 2 percentage points since 1950, and that this decline has been primarily shaped by sector-specific rather than aggregate factors. Sustained contractions in growth specific to Construction, Nondurable Goods, and Professional and Business and Services make up close to sixty percent of the estimated trend decrease in GDP growth. In addition, the slow process of capital accumulation means that structural changes have endogenously persistent effects. We estimate that trend GDP growth will continue to decline for the next 10 years absent persistent increases in TFP and labor growth. |
| JEL: | E23 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25867&r=all |
| By: | Akinwande Atanda; W. Robert Reed (University of Canterbury) |
| Abstract: | In his 2008 Journal of Health Economics paper, Jochen Hartwig claimed that Baumol’s Cost Disease (BCD) theory could explain observed increases in health care expenditures in OECD countries. This paper replicates Hartwig’s results and demonstrates that he tested the wrong hypothesis. When one tests the correct hypothesis, Hartwig’s conclusions are not supported. Rather than providing evidence in favor of BCD, Hartwig’s estimation procedures, when applied correctly, strongly reject BCD as an explanation for health expenditure increases for the OECD data he examined. |
| Keywords: | Baumol's cost disease, health care expenditures, health care costs, OECD, panel data |
| JEL: | I11 J30 E24 |
| Date: | 2019–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:19/05&r=all |
| By: | Mariacristina De Nardi (University College London / Federal Reserve Bank of Chicago / IFS / NBER); Giulio Fella (Queen Mary University of London); Marike Knoef (Leiden University); Gonzalo Paz-Pardo (University College London); Raun Van Ooijen (University of Groningen) |
| Abstract: | We document new facts on the distributions of male wages, male earnings, and household earnings and income (before and after taxes) in the Netherlands and the United States. We find that, in both countries, wages display rich dynamics, including substantial asymmetries and nonlinearities by age and previous earnings levels. Individual-level male wage and earnings risk is relatively high for younger and older people, and for those in the lower and upper parts of the income distribution. In the Netherlands, the behavior of hours and family labor supply have noticeable effects on earnings persistence and on the skewness and kurtosis of wage changes, but government transfers are a major source of insurance. Instead, the role of family insurance is much larger in the U.S. and also affects the standard deviation of wage changes, in addition to its skewness and kurtosis, and wage persistence. Family and government insurance reduce, but do not eliminate these non-linearities in household disposable income by age and previous earnings in both countries. |
| Keywords: | wage risk, self-insurance, social insurance, progressive taxation, redistribution, life cycle |
| JEL: | D31 E24 J31 H31 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2019-035&r=all |
| By: | Mucai Lin; Linlin Niu |
| Abstract: | This paper examines the spillover effects of announcements of quantita- tive easing (QE) conducted by the central banks of U.S., U.K., Eurozone, and Japan on Chinese Treasury yield curve. Despite China’s firewall of cap- ital control and managed exchange rate regime, the QE announcements of U.S. move the Chinese yield curve immediately with significance, through the channels of signaling as well as portfolio balancing. The U.S. QE impact is particularly strong. The results are robust across a variety of event analy- sis methods. Using the heteroskedasticity assumption for identification and allowing for existence of alternative sources of shocks, we find the U.S. QE impact is sizable even compared to China’s own monetary policy shocks. |
| Keywords: | QE announcements, Spillover, Signaling Effects, Portfolio Balancing Effects, Yield Curve |
| JEL: | E43 E52 |
| Date: | 2019–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:wyi:wpaper:002405&r=all |
| By: | Rosengren, Eric S. (Federal Reserve Bank of Boston) |
| Abstract: | Boston Fed president Eric Rosengren explored the current economic environment, characterized by low unemployment and lower-than-target inflation – which are somewhat opposing signals for monetary policymakers. |
| Keywords: | tariffs; dual mandate; Fed policy; monetary policy; economic outlook; interest rates; inflation; trade; markets |
| Date: | 2019–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:144&r=all |
| By: | Levy, Daniel; Young, Andrew |
| Abstract: | We study the cost of breaching an implicit contract in a goods market, building on a recent study that documented the presence of such a contract in the Coca-Cola market, in the US, during 1886‒1959. The implicit contract promised a serving of Coca-Cola of a constant quality (the “real thing”), and of a constant quantity (6.5oz in a bottle or from the fountain), at a constant nominal price of 5¢. We offer two types of evidence. First, we document a case that occurred in 1930, where the Coca-Cola Company chose to incur a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost, to prevent a quality adjustment of Coca-Cola, which would be considered a breach of the implicit contract. Second, we explore the consequences of the Company’s 1985 decision to replace the original Coke with the “New Coke.” Using the model of Exit, Voice, and Loyalty (Hirschman 1970), we argue that the unprecedented public outcry that followed the New Coke’s introduction, was a response to the Company’s breaching of the implicit contract. We document the direct and quantifiable costs of this implicit contract breach, and demonstrate that the indirect, although unquantifiable, costs in terms of lost customer goodwill were substantial. |
| Keywords: | Implicit Contract, Cost of Breaching a Contract, Cost of Breaking a Contract, Invisible Handshake, Customer Market, Long-Term Relationship, Price Rigidity, Sticky Prices, Nickel Coke, Coca-Cola, Secret Formula |
| JEL: | A14 E12 E31 K10 L14 L16 L66 M30 M31 N80 |
| Date: | 2019–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94148&r=all |
| By: | Stann, Carsten M.; Grigoriadis, Theocharis |
| Abstract: | In this paper, we argue that the ECB's unconventional monetary policy announcements have generated significant spillover effects in Russia and Eastern Europe. The hypothesis is tested using OLS estimations of event-based regressions on monetary policy event dummies and seven financial variables in eleven East European countries including Russia. Overall, the empirical results associate the ECB's unconventional policy announcements with the appreciation of East European currencies, rising stock market indices as well as falling long-term government bond yields and lower sovereign CDS spreads in Eastern Europe and Russia. Notably, bilateral integration with the eurozone is a key determinant of the strength of spillovers, with spillovers strongest in non-euro EU countries and weakest in non-EU East European countries. Interestingly, we find differentiated strength of spillovers to Russia compared to other non-EU East European countries, which we attribute to its fixed exchange rate regime. Lastly, we test for the presence of the portfolio rebalancing and confidence transmission channels. |
| Keywords: | monetary policy transmission,spillovers,European Central Bank,transmission channels,Eastern Europe,Russia |
| JEL: | E52 E58 F34 F37 F42 P51 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20196&r=all |
| By: | Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis); Andrew T. Young (College of Business Administration, Texas Tech University, USA) |
| Abstract: | We study the cost of breaching an implicit contract in a goods market, building on a recent study that documented the presence of such a contract in the Coca-Cola market, in the US, during 1886‒1959. The implicit contract promised a serving of Coca-Cola of a constant quality (the “real thing”), and of a constant quantity (6.5oz in a bottle or from the fountain), at a constant nominal price of 5¢. We offer two types of evidence. First, we document a case that occurred in 1930, where the Coca-Cola Company chose to incur a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost, to prevent a quality adjustment of Coca-Cola, which would be considered a breach of the implicit contract. Second, we explore the consequences of the Company’s 1985 decision to replace the original Coke with the “New Coke.” Using the model of Exit, Voice, and Loyalty (Hirschman 1970), we argue that the unprecedented public outcry that followed the New Coke’s introduction, was a response to the Company’s breaching of the implicit contract. We document the direct and quantifiable costs of this implicit contract breach, and demonstrate that the indirect, although unquantifiable, costs in terms of lost customer goodwill were substantial. |
| Keywords: | Implicit Contract, Cost of Breaching a Contract, Cost of Breaking a Contract, Invisible Handshake, Customer Market, Long-Term Relationship, Price Rigidity, Sticky Prices, Nickel Coke, Coca-Cola, Secret Formula |
| JEL: | A14 E12 E31 K10 L14 L16 L66 M30 N80 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:19-11&r=all |
| By: | Levy, Daniel; Young, Andrew T. |
| Abstract: | We study the cost of breaching an implicit contract in a goods market, building on a recent study that documented the presence of such a contract in the Coca-Cola market, in the US, during 1886‒1959. The implicit contract promised a serving of Coca-Cola of a constant quality (the “real thing”), and of a constant quantity (6.5oz in a bottle or from the fountain), at a constant nominal price of 5¢. We offer two types of evidence. First, we document a case that occurred in 1930, where the Coca-Cola Company chose to incur a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost, to prevent a quality adjustment of Coca-Cola, which would be considered a breach of the implicit contract. Second, we explore the consequences of the Company’s 1985 decision to replace the original Coke with the “New Coke.” Using the model of Exit, Voice, and Loyalty (Hirschman 1970), we argue that the unprecedented public outcry that followed the New Coke’s introduction, was a response to the Company’s breaching of the implicit contract. We document the direct and quantifiable costs of this implicit contract breach, and demonstrate that the indirect, although unquantifiable, costs in terms of lost customer goodwill were substantial. |
| Keywords: | Implicit Contract,Cost of Breaching a Contract,Cost of Breaking a Contract,Invisible Handshake,Customer Market,Sticky Prices,Long-Term Relationship,Coca-Cola,Nickel Coke,Price Rigidity,Secret Formula |
| JEL: | A14 E12 E31 K10 L14 L16 L66 M30 N80 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:197001&r=all |
| By: | Daniel Levy (Bar-Ilan University); Andrew T. Young |
| Abstract: | We study the cost of breaching an implicit contract in a goods market, building on a recent study that documented the presence of such a contract in the Coca-Cola market, in the US, during 1886‒1959. The implicit contract promised a serving of Coca-Cola of a constant quality (the “real thing”), and of a constant quantity (6.5oz in a bottle or from the fountain), at a constant nominal price of 5¢. We offer two types of evidence. First, we document a case that occurred in 1930, where the Coca-Cola Company chose to incur a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost, to prevent a quality adjustment of Coca-Cola, which would be considered a breach of the implicit contract. Second, we explore the consequences of the Company’s 1985 decision to replace the original Coke with the “New Coke.” Using the model of Exit, Voice, and Loyalty (Hirschman 1970), we argue that the unprecedented public outcry that followed the New Coke’s introduction, was a response to the Company’s breaching of the implicit contract. We document the direct and quantifiable costs of this implicit contract breach, and demonstrate that the indirect, although unquantifiable, costs in terms of lost customer goodwill were substantial. |
| Keywords: | Implicit Contract, Cost of Breaching a Contract, Cost of Breaking a Contract, Invisible Handshake, Customer Market, Long-Term Relationship, Price Rigidity, Sticky Prices, Nickel Coke, Coca-Cola, Secret Formula. |
| JEL: | A14 E12 E31 K10 L14 L16 L66 M30 N80 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2019-04&r=all |
| By: | Ludwig von Auer; Jochen Wengenroth |
| Abstract: | Various fields of economic analysis (e.g., growth and productivity) and economic policy (e.g., monetary and social policy) rely on accurate measures of price change. Unfortunately, the price index formulae that most price statisticians consider as particularly accurate – the superlative indices of Fisher, Törnqvist, and Walsh – are believed to violate the property of consistency in aggregation. This property, however, is indispensable for economic studies that attempt to disaggregate the overall result into the contributions of individual entities such as sectors of the economy or groups of products. The present paper introduces a thoroughly motivated formal definition of consistency in aggregation and proves that, contrary to general perception, the three superlative price indices can be considered as consistent in aggregation. Furthermore, many other price indices are shown to be consistent in aggregation. The theoretical findings are applied to the Swedish consumer price index. |
| Keywords: | Consistent aggregation, index theory, superlative price index, decomposition, CPI |
| JEL: | C43 E31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:201913&r=all |
| By: | Soroosh Soofi-Siavash (Bank of Lithuania & Kaunas University of Technology); Kristina Barauskaite (Bank of Lithuania & ISM University of Management and Economics) |
| Abstract: | In this paper, we develop and describe quarterly data on disaggregated sectors in Lithuania which covers the period 1998-2018. The data is useful for empirical studies requiring panels with a large number of time observations and a large number of cross-sectional units. We follow the NACE2 level of disaggregation in developing our data, thus allowing us to combine the data with world input-output tables which we in turn use to identify the hubs and the main importing and exporting sectors within the economy. The data is then used for forecasting the growth rate of GDP. There is a substantial increase in the degree of covariation among sectoral production growth rates, which is observed using a split sample around 2008. When we apply factor methods, we find that this strong covariation can be explained by a few factors which are closely correlated to the growth of the retail and wholesale sectors. For GDP growth, the forecasts we consider are the diffusion index forecasts produced using a few indexes that summarize sectoral data, and the forecasts produced using the production growth of selected hubs and importing and exporting sectors. We find that the diffusion indexes and the production growth of sectors that make heavy use of imported inputs in their production have interesting forecasting power for the growth rate of GDP in the 2006-2011 and 2012-2018 periods. |
| Keywords: | factor model, forecasting, input-output linkages, intersectoral networks |
| JEL: | E27 E37 C3 C67 |
| Date: | 2019–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:lie:dpaper:12&r=all |
| By: | Todd Keister; Yuliyan Mitkov |
| Abstract: | We study the interaction between a government’s bailout policy during a bank- ing crisis and individual banks’ willingness to impose losses on (or “bail in†) their investors. Banks in our model hold risky assets and are able to write complete, state-contingent contracts with investors. In the constrained efficient allocation, banks experiencing a loss immediately bail in their investors and this bail-in removes any incentive for investors to run on the bank. In a competitive equi- librium, however, banks may not enact a bail-in if they anticipate being bailed out. In some cases, the decision not to bail in investors provokes a bank run, creating further distortions and leading to even larger bailouts. We ask what macroprudential policies are useful when bailouts crowd out bail-ins. |
| Keywords: | Financial Fragility, Bailouts, Bail-ins, Limited Commitment |
| JEL: | E61 G21 G28 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_091&r=all |
| By: | Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, North Cyprus); David Roubaud (Montpellier Business School, Montpellier, France); Ojonugwa Usman (Department of Economics, Eastern Mediterranean University, North Cyprus); Mark E. Wohar (Department of Economics, University of Nebraska-Omaha, USA) |
| Abstract: | This paper investigates not only the question of whether there is exchange rate and oil price pass-through (EROPPT) but also the extent to which the pass-through is asymmetric or state dependent in the BRICS countries. Using monthly data and the nonlinear Vector Smooth Transition Autoregressive (VSTAR) model, we find evidence of period specific pass-through between the upper and lower regime periods, governed by the selected transition variables. We also find asymmetric pass-through in all the countries with strong evidence of higher pass-through when the size of the shocks to the transition variable moves the system above a threshold level. The result further divulges that output growth asymmetrically reacts to the shocks. The implication of these findings is that the pass-through is strongly affected by the state of the economy. |
| Keywords: | Exchange rate pass-through, Oil price pass-through, Inflation, VSTAR |
| JEL: | C22 C58 E31 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:emu:wpaper:15-49.pdf&r=all |
| By: | Jonathan Eberle (Department of Geography, Philipps University Marburg) |
| Abstract: | Regional fiscal equalization in Germany aims to reduce fiscal disparities by allocating financial resources to less promising regions in order to support the supply of public goods. This paper aims to analyse secondary economic effects of regional fiscal equalization on several economic in- and output variables. Additionally, the paper examines the potential regional characteristics to influence the transformation of fiscal inputs into economic outcomes. Lastly, I compare the effects of fiscal equalization to these of the major German structural funding program GRW. My findings reveal a significant positive effect of fiscal equalization on the regional employment rate. Moreover, the findings suggest different transmission channels of fiscal equalization in East and West Germany. Particularly, I find higher effects in right-wing CDU/CSU preferring regions on the employment, human capital and private-sector investment rate. Finally, while structural funding affects more economic variables significantly, the magnitude of the estimated economic responses of fiscal equalization compared to these of German structural funding are not statistically different. |
| Keywords: | fiscal equalization, regional economic growth, production function, political ideology, SpPVAR, impulse response function |
| JEL: | C33 E62 R11 R58 O38 O47 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pum:wpaper:2019-01&r=all |
| By: | Marisa Berbegal-Ibanez; Juan Casado-Asensio; Friederike Rühmann; Aussama Bejraoui; Guillaume Delalande; Julia Benn |
| Abstract: | This Working Paper summarises the main findings and recommendations of the pilot study carried out in Costa Rica as part of the development of the total official support for sustainable development (TOSSD) measurement framework. The Paper includes first approximations of TOSSD flows to Costa Rica. These flows in 2016 amount to around USD 559 million of official development finance and USD 60 million of private finance mobilised through official development interventions. These first estimations were reached using OECD DAC statistics. However, these figures are likely to be largely underestimated owing to a lack of available information, particularly concerning official support to Costa Rica from the People’s Republic of China and other non-DAC providers. The pilot study also indicated that the government is able to access, collect, collate, analyse and use data on external financing to the country using national data, thanks to its institutional and IT systems. However, the legislative framework requires adjustment and there is scope for improving co‑ordination in order to avoid duplication of effort. |
| Keywords: | Costa Rica Transparency, Development Finance, Economic Development, SDG, Sustainable Development, TOSSD |
| JEL: | C4 O11 F3 E44 |
| Date: | 2019–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dcdaaa:56-en&r=all |
| By: | Chiaki Hara (Institute of Economic Research, Kyoto University) |
| Abstract: | In a continuous-time equilibrium model of heterogeneous consumers, we formulate and prove the statement that the more heterogeneous the consumers are in their impatience, the more dynamically consistent the representative consumer is. We apply this result to interest rate models, and, in particular, accommodate heterogeneous impatience in the model of Cox, Ingersoll, and Ross (1985) to come up with a new form of short-rate processes. |
| Keywords: | Discount factor, discount rate, representative consumer, decreasing impatience, cumulant-generating function, term structure of interest rates, short-rate processes |
| JEL: | D51 D53 D61 D81 D91 E43 G12 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1009&r=all |
| By: | Emily Breza; Supreet Kaur; Nandita Krishnaswamy |
| Abstract: | Social norms have the potential to alter the functioning of economic markets. We test whether norms shape the aggregate labor supply curve by preventing workers from supplying labor at wage cuts—leading decentralized individuals to implicitly behave as a cartel to maintain wage floors in their local labor markets. We partner with 183 existing employers, who offer jobs to 502 workers in informal spot labor markets in India. Unemployed workers are privately willing to accept jobs below the prevailing wage, but rarely do so when this choice is observable to other workers. In contrast, social observability does not affect labor supply at the prevailing wage. Workers give up 49% of average weekly earnings to avoid being seen as breaking the social norm. In addition, workers pay to punish anonymous laborers who have accepted wage cuts—indicating that cartel behavior is reinforced through the threat of social sanctions. Punishment occurs for workers in one’s own labor market and for those in distant regions, suggesting the internalization of norms in moral terms. Finally, consistent with the idea that norms could have aggregate implications, measures of social cohesion correlate with downward wage rigidity and business cycle volatility across India. |
| JEL: | D71 E24 J22 J31 J43 J50 O15 O17 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25880&r=all |
| By: | Jacinta C. Nwachukwu (Coventry University, UK); Aqsa Aziz (Coventry University, UK); Uchenna Tony-Okeke (Coventry University, UK); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | This study compares the responsiveness of microcredit interest rates to age, scale of lending and organisational charter. It uses an unbalanced panel of 300 MFIs from 107 developing countries from 2005 to 2015. Three key trends emerge from the results of a 2SLS regression. First, the adoption of formal microbanking practices raises interest rates compared with other forms of microlending. Second, large scale lending lowers interest rates only for those MFIs that already hold legal banking status. Third, age of operation in excess of eight years exerts a negative impact on interest rates, regardless of scale and charter type of MFI. Collectively, our results indicate that policies which incentivise mature MFIs to share their knowledge will be more effective in helping the nascent institutions to overcome their cost disadvantages compared with reforms to transform them into licensed banks. For MFIs which already hold permits to operate as banks, initiatives to increase loan sizes are key strategic pricing decisions, irrespective of the institution’s age. This study is original in its differentiation of the impact on interest rates of regulations which promote formal banking principles, credit market extension vis-Ã -vis knowledge sharing between mature and nascent MFIs. |
| Keywords: | Microfinance, microbanks, non-bank financial institutions |
| JEL: | G21 G23 G28 E43 N20 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:18/006&r=all |
| By: | Ana Beatriz Galvao; James Mitchell |
| Abstract: | Historical economic data are often uncertain due to sampling and non-sampling errors. But data uncertainty is rarely communicated quantitatively. An exception are the “fan charts†for historical GDP growth published at the Bank of England. We propose a generic loss function based approach to extract from these ex ante density forecasts a quantitative measure of unforecastable data uncertainty. We find GDP data uncertainty in the UK rose sharply at the onset of the 2008/9 recession; and that data uncertainty is positively correlated with popular estimates of macroeconomic uncertainty. |
| Keywords: | data revisions, fan charts, macroeconomic uncertainty, backcasts, ex ante uncertainty, ex post uncertainty, density forecast calibration, real time data |
| JEL: | C53 E32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2019-08&r=all |
| By: | Milena del Rosario Escobar Morillo; Lya Paola Sierra Suárez; José Tomás Peláez Soto (Faculty of Economics and Management, Pontificia Universidad Javeriana Cali) |
| Keywords: | Colombia, precio del petróleo, producción manufacturera |
| JEL: | E20 E30 Q43 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ddt:wpaper:41&r=all |
| By: | Christelle Meniago (Sol Plaatje University, South Africa); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | The study assesses the role of financial development on income inequality in a panel of 48 African countries for the period 1996 to 2014. Financial development is defined in terms of depth (money supply and liquid liabilities), efficiency (from banking and financial system perspectives), activity (at banking and financial system levels) and stability while, three indicators of inequality are used, namely, the: Gini coefficient, Atkinson index and Palma ratio. The empirical evidence is based on Generalised Method of Moments. When financial sector development indicators are used exclusively as strictly exogenous variables in the identification process, it is broadly established that with the exception of financial stability, access to credit (or financial activity) and intermediation efficiency have favourable income redistributive effects. The findings are robust to the: control for unobserved heterogeneity in terms of time effects and inclusion of time invariant variables as strictly exogenous variables in the identification process. The findings are also robust to the Kuznets hypothesis: a humped shaped nexus between increasing GDP per capita and inequality. Policy implications are discussed. |
| Keywords: | Africa; Finance; Inequality; Poverty |
| JEL: | D60 E25 G20 I30 O55 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:18/014&r=all |
| By: | Chimere O. Iheonu (University of Nigeria, Nsukka) |
| Abstract: | The study empirically examined the impact of governance on domestic investment in 16 African countries with a balanced panel data set, between the years 2002 and 2015. The study employed six unbundled governance indicators from the World Bank, World Governance Indicators and constructed three bundled governance indicators using the Principal Component Analysis. The Driscoll and Kraay Fixed Effects model which accounts for serial correlation, groupwise heteroskedasticity and cross-sectional dependence were employed with empirical results revealing that all the indicators of governance positively and significantly influence domestic investment in Africa, except for government effectiveness which happens to be insignificant. Also, Voice/Accountability and the Control of Corruption exert more influence on domestic investment as indicated by their coefficient values. Furthermore, economic growth is also an important factor in explaining domestic investment in Africa. Policy recommendations are discussed. |
| Keywords: | Governance; Domestic Investment; Africa; PCA; Fixed Effects Model |
| JEL: | C1 E2 R5 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:19/002&r=all |
| By: | Franses, Ph.H.B.F.; S. Vasilev (Simeon) |
| Abstract: | This paper provides a balanced panel data set for real GDP growth in Africa. For 18 of the 52 countries there are missing data. We use a model-based imputation technique based on World Bank data to fill in the gaps. |
| Keywords: | Balanced panel data, Africa, real GDP growth, Missing data, Imputation, Principal components regression |
| JEL: | E0 N1 |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:116541&r=all |
| By: | Roger E.A. Farmer |
| Abstract: | This article surveys a subset of literature in macroeconomics which embraces the existence of multiple equilibria. This indeterminacy agenda in macroeconomics uses multiple-equilibrium models to integrate economics with psychology. Economists have long argued that business cycles are driven by shocks to the productivity of labour and capital. According to the indeterminacy agenda, the self-fulfilling beliefs of financial market participants are additional fundamental factors that drive periods of prosperity and depression. The indeterminacy agenda provides a microeconomic foundation to Keynes’ General Theory that does not rely on the assumption that prices and wages are costly to change. |
| JEL: | D5 E40 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25879&r=all |
| By: | Sagiri Kitao; Minamo Mikoshiba; Hikaru Takeuchi |
| Abstract: | The speed and magnitude of ongoing demographic aging in Japan are unprecedented. A rapid decline in the labor force and a rising fiscal burden to finance social security expenditures could hamper growth over a prolonged period. We build a dynamic general equilibrium model populated by overlapping generations of males and females who differ in employment type and labor productivity as well as life expectancy. We study how changes in the labor market over the coming decades will affect the transition path of the economy and fiscal situation of Japan. We find that a rise in the labor supply of females and the elderly of both genders in an extensive margin and in labor productivity can significantly mitigate effects of demographic aging on the macroeconomy and reduce fiscal pressures, despite a decline in wage during the transition. We also quantify effects of alternative demographic scenarios and fiscal policies. The study suggests that a combination of policies that remove obstacles hindering labor supply and that enhance a more efficient allocation of male and female workers of all age groups will be critical to keeping government deficit under control and raising income across the nation. |
| Keywords: | Japanese Economy, Demographic Trends, Female and Elderly Labor Force Participation, Overlapping Generation Model. |
| JEL: | E62 J11 J21 H55 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-37&r=all |
| By: | Hassler, John (IIES, Stockholm University, University of Gothenburgh, CEPR and SEM); Krusell, Per (IIES, Stockholm University, University of Gothenburg, CEPR and NBER); Olovsson, Conny (Research Department, Central Bank of Sweden) |
| Abstract: | We construct an integrated assessment model with multiple energy sources-two fossil fuels and “green energy" - and use it to evaluate ranges of plausible estimates for the climate sensitivity as well as for the sensitivity of the economy to climate change. Rather than focusing on uncertainty explicitly, we look at extreme scenarios defined by the upper and lower limits given in available studies in the literature. We compare optimal policy with laissez faire and we point to the possible policy errors that could arise. By far the largest policy error arises when the climate policy is “overly passive"; “overly zealous" climate policy (i.e., a high carbon tax applied when climate change and its negative on the economy are very limited) does not hurt the economy much as there is considerable substitutability between fossil and non-fossil energy sources. |
| Keywords: | Climate change; integrated assessment model; uncertainty |
| JEL: | E60 H23 O44 Q43 Q54 |
| Date: | 2019–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0369&r=all |
| By: | Nicolas Crouzet; Janice C. Eberly |
| Abstract: | We document that the rise of factors such as software, intellectual property, brand, and innovative business processes, collectively known as “intangible capital” can explain much of the weakness in physical capital investment since 2000. Moreover, intangibles have distinct economic features compared to physical capital. For example, they are scalable (e.g., software) though some also have legal protections (e.g., patents or copyrights). These characteristics may have enabled the rise in industry concentration over the last two decades. Indeed, we show that the rise in intangibles is driven by industry leaders and coincides with increases in their market share and hence, rising industry concentration. Moreover, intangibles are associated with at least two drivers of rising concentration: market power and productivity gains. Productivity gains derived from intangibles are strongest in the Consumer sector, while market power derived from intangibles is strongest in the Healthcare sector. These shifts have important policy implications, since intangible capital is less interest-sensitive and less collateralizable than physical capital, potentially weakening traditional transmission mechanisms. However, these shifts also create opportunities for policy innovation around new market mechanisms for intangible capital. |
| JEL: | E22 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25869&r=all |
| By: | Adrian, Tobias (International Monetary Fund); Duarte, Fernando M. (Federal Reserve Bank of New York); Grinberg, Federico (International Monetary Fund); Mancini-Griffoli, Tommaso (International Monetary Fund) |
| Abstract: | Loose financial conditions forecast high output growth and low output volatility up to six quarters into the future, generating time-varying downside risk to the output gap, which we measure by GDP-at-Risk (GaR). This finding is robust across countries, conditioning variables, and time periods. We study the implications for monetary policy in a reduced-form New Keynesian model with financial intermediaries that are subject to a Value at Risk (VaR) constraint. Optimal monetary policy depends on the magnitude of downside risk to GDP, as it impacts the consumption-savings decision via the Euler constraint, and financial conditions via the tightness of the VaR constraint. The optimal monetary policy rule exhibits a pronounced response to shifts in financial conditions for most countries in our sample. Welfare gains from taking financial conditions into account are shown to be sizable. |
| Keywords: | monetary policy; financial conditions; financial stability |
| JEL: | E52 |
| Date: | 2019–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:890&r=all |
| By: | Ariane Szafarz; Marie Brière |
| Abstract: | Using large-cap exchange-traded funds (ETFs), this paper provides guidance onenhancing the performance of long-only factor portfolios through sector-based blending. The blending method builds ETF portfolios that optimize the factor exposure of sectors. We use the original factors of Fama and French asbenchmarks. The results show that blended portfolios combine the diversification benefits of sector investing with the risk premia of factor investing, and so constitute a promising extension of pure factor ETFs. |
| Keywords: | Portfolio management, asset allocation, factor, industry, sector, crisis |
| JEL: | G11 C61 E44 G01 |
| Date: | 2019–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/287753&r=all |
| By: | Gerardo Uña; Richard I Allen; Nicolas M Botton |
| Abstract: | A well-functioning financial management information system (FMIS) provides timely, reliable, and comprehensive reports that support implementation of the government’s fiscal policies and fiscal rules, and the formulating, controlling, monitoring, and executing of the budget. The architecture of FMISs has undergone a transformation since these systems were first developed in the 1980s. Rather than attempting to cover all or most public financial management (PFM) functions, many FMISs now focus on a few core functions such as accounting and reporting, budget execution, and cash management. Yet a survey of 46 countries shows that many face severe challenges in transforming their FMIS into an effective tool of fiscal governance. These challenges relate to weaknesses in the system’s core functions, its institutional coverage, the information technology platforms it uses, and the ease of sharing data with other IT systems. This How to Note discusses how to address these chal-lenges. Replacing an FMIS with an entirely new system may not be an optimal strategy. By utilizing the latest technology, a better approach may be to update or replace one or more core modules of the system: the so-called modular approach. Implementation of an effective FMIS, however, depends on two critical preconditions: strong political motivation and commitment, and the system’s ability to meet ongoing and anticipated PFM needs. |
| Keywords: | Financial management information systems;Financial Management Information Systems, fiscal policy, fiscal rules, accounting, reporting, budget execution, cash management |
| Date: | 2019–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfhtn:19/03&r=all |
| By: | Mendicino, Caterina; Nikolov, Kalin; Suarez, Javier; Supera, Dominik |
| Abstract: | How far should capital requirements be raised in order to ensure a strong and resilient banking system without imposing undue costs on the real economy? Capital requirement increases make banks safer and are beneficial in the long run but also entail transition costs because their imposition reduces credit supply and aggregate demand on impact. In the baseline scenario of a quantitative macro-banking model, 25% of the long-run welfare gains are lost due to transitional costs. The strength of monetary policy accommodation and the degree of bank riskiness are key determinants of the trade-off between the short-run costs and long-run benefits from changes in capital requirements. JEL Classification: E3, E44, G01, G21 |
| Keywords: | default risk, effective lower bound, macroprudential policy, transitional dynamics |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192286&r=all |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Lunan Jiang (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan) |
| Abstract: | The current state-of-the-art estimation of yield curves relies on the dynamic state space version of the Nelson and Siegel (1987) model proposed in the seminal paper by Diebold et al. (2006). However, things become difficult when applying their approach to emerging economies with less frequently bond issuance and more sparse maturity available. Therefore, the traditional state space representation, which requires dense and fixed grids of maturities, may not be possible. One remedy is to use the traditional Nelson and Siegel (1987) OLS estimation instead, though it sacrifices efficiency by ignoring the time dimension. We propose a simple augmentation of the Diebold et al. (2006) framework, which is more efficient than OLS estimation as it allows exploiting information from all available bonds and the time dependency of yields. We demonstrate the efficiency gains generated by our method in five case studies for major emerging economies including four of the BRICS. |
| Keywords: | Yield curve, dynamic modeling, state space model, efficiency, BRICS |
| JEL: | E52 E43 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:201904&r=all |
| By: | Mickael Melki; Andrew Pickering |
| Abstract: | We document a robust positive correlation between the size of government and the labor share of income in data from European countries covering the period 1869-1975. Following Facchini et al (2017), we interpret this correlation as evidence that labor costs drive public spending. The long-term increase in the labor share observed over this period explains half of the overall growth of central government. The relationship holds when the labor share is instrumented with movements in technological change at the frontier. When decomposing public spending, transfers, not intensive in labor, are the only component not associated with the labor share. |
| Keywords: | Labor share, Public Spending, 20th Century Europe. |
| JEL: | N4 J3 E25 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:19/07&r=all |
| By: | Rod Tyers (Business School, University of Western Australia and Research School of Economics, Centre for Applied Macroeconomic Analysis (CAMA), Australian National University); Yixiao Zhou (School of Economics, Finance and Property, Curtin Business School, Curtin University) |
| Abstract: | With the recent rise of populism and authoritarian politics multilateral agreements have been resisted and there are increasing trade disputes, the US-China conflict being a case in point. This paper uses a calibrated global macro model to assess the potential economic consequences of this conflict under explicit assumptions about monetary and fiscal policy. US unilateral protection emerges as “beggar thy neighbor” policy, by most if new tariff revenue affords capital tax relief. China’s proportional losses are large, little mitigated by its retaliation, which nonetheless constrains US net gains. Avoiding leakage by protecting against all sources causes large losses in third regions trading with China and the US. |
| Keywords: | Trade disputes, China, macroeconomic policy, general equilibrium analysis, numerical theory |
| JEL: | F13 F41 F47 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:19-02&r=all |
| By: | Jakob Everding; Jan Marcus |
| Abstract: | Although unemployment likely entails various externalities, research examining its spillover effects on spouses is scarce. This is the first paper to estimate effects of unemployment on the smoking behavior of both spouses. Using German Socio-Economic Panel data, we combine matching and difference-in-differences estimation, employing the post-double-selection method for control-variable selection via Lasso regressions. One spouse’s unemployment increases both spouses’ smoking probability and intensity. Smoking relapses and decreased smoking cessation drive the effects. Effects are stronger if the partner already smokes and if the male partner becomes unemployed. Of several mechanisms discussed, we identify smoking to cope with stress as relevant. |
| Keywords: | smoking, risky health behaviors, unemployment, job loss, spillover effects, post-double-selection method |
| JEL: | I12 J63 J65 C23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp1037&r=all |
| By: | Luc Jacolin; Massil Keneck; Alphonse Noah |
| Abstract: | This paper investigates the impact of mobile financial services - MFS (mobile money, and mobile credit and savings) on the informal sector. Using both parametric and non-parametric methods on panel data from 101 emerging and developing countries over the period 2000-15, we find that MFS negatively affect the size of the informal sector. According to estimates derived from propensity score matching, MFS adoption decreases the informal sector size in a range of 2.4 – 4.3 percentage points of GDP. These formalization effects may stem from different possible transmission channels: improvement in credit access, increase in the productivity/profitability of informal firms attenuating subsistence constraints typical of entrepreneurship in the informal sector, as well as possible induced growth of firms already in the formal sector. The robustness of these results is supported by the use of an alternative estimation approach (instrumental variables). These findings lay the groundwork for the scarce literature on the macroeconomic impact of mobile financial services, a major dimension of the growing drive towards economic digitalization transiting through industry-level MW. |
| Keywords: | Mobile financial services, Mobile money, Financial innovation, Digitalization, Informal sector, Developing countries. |
| JEL: | C26 E26 O33 G29 L96 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:721&r=all |
| By: | Huber, Florian (University of Salzburg); Koop, Gary (University of Strathclyde); Onorante, Luca (European Central Bank) |
| Abstract: | Time-varying parameter (TVP) models have the potential to be over-parameterized, particularly when the number of variables in the model is large. Global-local priors are increasingly used to induce shrink- age in such models. But the estimates produced by these priors can still have appreciable uncertainty. Sparsification has the potential to remove this uncertainty and improve forecasts. In this paper, we develop computationally simple methods which both shrink and sparsify TVP models. In a simulated data exercise we show the benefits of our shrink-then-sparsify approach in a variety of sparse and dense TVP regressions. In a macroeconomic forecast exercise, we find our approach to substantially improve forecast performance relative to shrinkage alone. |
| Keywords: | Sparsity; shrinkage; hierarchical priors; time varying parameter regression |
| JEL: | C11 C30 D31 E30 |
| Date: | 2019–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sbgwpe:2019_002&r=all |
| By: | Pühringer, Stephan; Liedl, Bernd |
| Abstract: | Aufbauend auf neueren und älteren Forschungsergebnissen zum Einfluss von ÖkonomInnen auf politische Entscheidungsprozesse und mediale wirtschaftspolitische Debatten wird in diesem Beitrag ein eklatantes politökonomisches Machtungleichgewicht unter einflussreichen ökonomischen ExpertInnen aufgezeigt: Es kann vor allem in Deutschland eine starke Dominanz von neo- bzw. ordoliberalen Interessenskoalitionen bzw. -netzwerken gegenüber alternativen, keynesianischen oder gewerkschaftsnahen Netzwerken konstatiert werden, wohingegen in Österreich durch eine noch stärkere Bedeutung korporatistischer Strukturen dieses Ungleichgewicht zumindest schwächer ausgeprägt ist. Auf Basis dieses Beitrags kann argumentiert werden, dass das politökonomische Machtungleichgewicht in der Ökonomik als einer der Grundpfeiler der Persistenz neoliberaler Wirtschaftspolitiken zugunsten ökonomisch Mächtiger zu verstehen ist. |
| Keywords: | Neoliberales Gedankenkollektiv,Manipulation,Ordoliberalismus,Marktfundamentalismus,Informationsgesellschaft,Marktkonzept |
| JEL: | B13 B25 B53 E60 G14 P10 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cuswps:oek40&r=all |
| By: | Williams, John C. (Federal Reserve Bank of New York) |
| Abstract: | Remarks at the Conference Celebrating the 50th Anniversary of the Journal of Money, Credit and Banking, Federal Reserve Bank of New York, New York City. |
| Keywords: | Zero Lower Bound (ZLB); large-scale asset purchases (LSAPs) |
| Date: | 2019–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:321&r=all |
| By: | Fernando Alvarez (University of Chicago and NBER); Francesco Lippi (LUISS University and EIEF) |
| Abstract: | We propose a new method to analyze the propagation of a once and for all shock in a broad class of sticky price models. The method is based on the eigenvalue-eigenfunction representation of the cross-sectional process for price adjustments and provides a thorough characterization of the entire impulse response function of any moment or function of interest, in response to a once-and-for-all aggregate shock (any displacement of the initial distribution). We use the method (i) to discuss a general analytic characterization of the “selection effect” in sticky-price models, (ii) to show that the response of the cross-sectional dispersion of prices to a small shock is zero at all horizons, (iii) to derive a parsimonious representation of the output response to monetary shocks, and the key parameters determining its shape, (iv) to study the propagation of monetary shocks after a change in volatility. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1910&r=all |
| By: | Chakrabarti, Anindya S.; Kumar, Sudarshan |
| Abstract: | Central banks of different countries are some of the largest economic players at the global scale and they are not static in their monetary policy stances. They change their policies substantially over time in response to idiosyncratic or global factors affecting the economies. A very prominent and empirically documented feature arising out of central banks’ actions, is that the relative importance assigned to inflation vis-a-vis output fluctuations evolve substantially over time. We analyze the leading and lagging behavior of central banks of various countries in terms of adopting low inflationary environment vis-a-vis high weight assigned to counteract output fluctuations, in a completely data-driven way. To this end, we propose a new methodology by combining complex Hilbert principle component analysis with state-space models in the form of Kalman filter. The CHPCA mechanism is non-parametric and provides a clean identification of leading and lagging behavior in terms of phase differences of time series in the complex plane. We show that the methodology is useful to characterize the extent of coordination (or lack thereof), of monetary policy stances taken by central banks in a cross-section of developed and developing countries. In particular, the analysis suggests that US Fed led other countries central banks in the pre-crisis period in terms of pursuing low-inflationary regimes. |
| Date: | 2019–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:14608&r=all |
| By: | Aligishiev, Z.; Ben-Gad, M.; Mountford, A.; Pearlman, J. |
| Abstract: | We analyze the role of public and private financial frictions in the 2007–2008 economic crisis in the United States by extending the model of Drautzburg and Uhlig (2015) to eleven observable variables using data on all three interest rates in the model (policy, private and public). We also include a preference shock in the model, and present an alternative method for describing shock decompositions during and preceding the crisis designed to isolate the impact of the pre-crisis shocks. The estimated model produces an intuitive description of the evolution of the postwar U.S. economy overall and of the economic crisis at the end of the sample period. We find, in contrast to Drautzburg and Uhlig, that monetary and fiscal policy shocks played a significant role in mitigating the effects of the financial crisis. |
| Keywords: | DSGE model; Shock decomposition; Financial Frictions; Fiscal Policy |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:cty:dpaper:19/08&r=all |
| By: | Javier Alejo (Centro de Estudios Distributivos Laborales y Sociales (CEDLAS) - Instituto de Investigaciones Económicas, Facultad de Ciencias Económicas, Universidad Nacional de La Plata); Victor Funes (Facultad de Ciencias Económicas, Universidad Nacional de La Plata) |
| Abstract: | This working paper explores the effect of joint labor decisions on the study of wage regression models. The estimation of Mincer equations suffers from numerous sources of bias, including the sample selection problem generated by the fact that the agent decision to work is not independent of the wage. Most of the papers corrects this bias using a model of individual labor participation. However, recent trends in the labor market show greater participation of women in the labor force and seem to indicate that the joint decision of the spouses is increasingly relevant in determining the selection mechanism. A bivariate version of Heckman's method appears as an interesting alternative to solve this problem. Although the estimates are in line with the previous literature, the results indicate that the joint decision of the couple is a relevant factor in the selection bias. Este documento de trabajo explora el efecto de las decisiones laborales conjuntas sobre el estudio de los determinantes del salario laboral. La estimación de ecuaciones de Mincer sufre de numerosas fuentes de sesgos, entre ellas el problema de selección muestral generado por el hecho de que la decisión de trabajar no es independiente del salario individual. La mayoría de los trabajos corrigen dicho sesgo consideran un modelo de participación laboral individual. Sin embargo, las tendencias recientes del mercado laboral muestran una mayor participación de las mujeres en la fuerza de trabajo y parecieran indicar que la decisión conjunta de los cónyuges es cada vez más relevante en la determinación del mecanismo de selección. Una versión bivariada del método de Heckman permite incorporar una solución cuantitativa a este problema. Si bien las estimaciones realizadas están en línea con la literatura previa, los resultados indican que la decisión conjunta de la pareja es un factor relevante en el sesgo por selección muestral. |
| JEL: | C51 D13 E24 J31 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:dls:wpaper:0246&r=all |
| By: | Francesco Pappada; Yanos Zylberberg |
| Abstract: | We show that, in many countries, tax compliance is volatile and markedly responds to fiscal policy. To explore the consequence of this novel stylized fact, we build a model of sovereign debt with limited commitment and imperfect tax enforcement. Fiscal policy persistently affects the size of the informal economy, which impact future fiscal revenues and thus default risk. Thismechanism captures one key empirical regularity of economies with imperfect tax enforcement: the low sensitivity of debt price to fiscal consolidations. The interaction of imperfect tax enforcement and limited commitment strongly constrains the dynamics of optimal scal policy. During default crises, high tax distortions force the government towards extreme scal policies, notably including costly austerity spells. |
| Keywords: | China, productivity. |
| Date: | 2019–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:19/714&r=all |
| By: | Triantafyllou, Athanasios; Vlastakis, Nikolaos; Kellard, Neil |
| Abstract: | This paper examines the impact of oil price uncertainty shocks on economic activity. To do so, we define the uncertainty shock as the unanticipated component of oil price fluctuations. We find that this unanticipated component has a significantly negative and long-lasting impact on economic activity, with its cumulative effect on the US macroeconomy being much larger compared to that of popular uncertainty proxies such as stock market volatility and Economic Policy Uncertainty. Unlike our preferred measure of oil price uncertainty, volatility and the price spikes in oil futures prices present only a small and transitory effect on the real economy. Overall, our findings show that the US economy is significantly impaired when the degree of oil price unpredictability rises, while it is relatively immune to predictable fluctuations in the oil market. |
| Keywords: | Oil market, Uncertainty, Realized Variance, Economic Activity |
| Date: | 2019–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:esy:uefcwp:24735&r=all |
| By: | Maas, Benedikt |
| Abstract: | This paper aims to assess whether Google search data is useful when predicting the US unemployment rate among other more traditional predictor variables. A weekly Google index is derived from the keyword “unemployment” and is used in diffusion index variants along with the weekly number of initial claims and monthly estimated latent factors. The unemployment rate forecasts are generated using MIDAS regression models that take into account the actual frequencies of the predictor variables. The forecasts are made in real-time and the forecasts of the best forecasting models exceed, for the most part, the root mean squared forecast error of two benchmarks. However, as the forecasting horizon increases, the forecasting performance of the best diffusion index variants decreases over time, which suggests that the forecasting methods proposed in this paper are most useful in the short-term. |
| Keywords: | Forecasting, Unemployment rate, MIDAS, Google Trends |
| JEL: | C32 C53 E32 |
| Date: | 2019–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94066&r=all |
| By: | Gulan, Adam; Haavio, Markus; Kilponen, Juha |
| Abstract: | We study macroeconomic consequences of a major trade disruption using the example of the Finnish-Soviet trade collapse in 1991. This is a rare case of a well-identified large trade shock in a developed economy. We find that the shock had a significant effect on Finnish output. While the direct trade channel effect was rather moderate, the shock led to significant tightening of financial conditions. It was therefore endogenously amplified due to the propagation through the domestic financial sector. Even so, the trade collapse was insufficient to generate an all-out economic crisis. It can account for only a part of the Finnish Great Depression (1990 − 1993). The crisis was triggered and prolonged by the meltdown of the overheated financial and banking sectors since 1989. We show that the financial system remained a major independent source of shocks throughout the depression. |
| Date: | 2019–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_009&r=all |
| By: | Yuliyan Mitkov |
| Abstract: | I study how the distribution of wealth influences the government’s response to a banking crisis and the fragility of the financial system. Distributional concerns tend to make full government guarantees of deposits in a systemic crisis credible for relatively poor agents, but not for wealthier agents. As a result, wealthier agents will have a stronger incentive to panic and, in equilibrium, the institutions in which they invest will be endogenously more likely to experience a run and receive a partial bailout. Thus, even under a utilitarian policy maker, bailout payments may be directed towards the wealthy at the expense of the general public. Moreover, the shape of the wealth distribution affects the level of fragility in the financial system. The recognition of this fact may alter the government’s desire to redistribute wealth ex ante. |
| Keywords: | Inequality, Financial Fragility, Bailouts, Limited Commitment |
| JEL: | E61 G21 G28 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_090&r=all |
| By: | Auray, Stéphane (CREST-Ensai; ULCO); Fuller, David L. (University of Wisconsin-Oshkosh); Vandenbroucke, Guillaume (Federal Reserve Bank of St. Louis) |
| Abstract: | The proportion of multiple jobholders (moonlighters) is negatively correlated with productivity (wages) in cross-sectional and time series data, but positively correlated with education. We develop a model of the labor market to understand these seemingly contradictory facts. An income effect explains the negative correlation with productivity while a comparative advantage of skilled workers explains the positive correlation with education. We provide empirical evidence of the comparative advantage in CPS data. We calibrate the model to 1994 data on multiple jobholdings, and assess its ability to reproduce the 2017 data. There are three exogenous driving forces: productivity, number of children and the proportion of skilled workers. The model accounts for 68.7% of the moonlithing trend for college-educated workers, and overpredicts it by 33.7 percent for high school-educated workers. Counterfactual experiments reveal the contribution of each exogenous variable. |
| Keywords: | Macroeconomics; labor supply; multiple jobholders; productivity; full-time job; part-time job; comparative advantage; income effect |
| JEL: | E1 J2 J22 J24 O4 |
| Date: | 2019–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-016&r=all |
| By: | Céline Antonin (Observatoire français des conjonctures économiques); Mattia Guerini (Scuola Superiore Sant'Anna); Mauro Napoletano (Observatoire français des conjonctures économiques); Francesco Vona (Observatoire français des conjonctures économiques) |
| Abstract: | With public debt amounting to 132.1% of GDP and negative productivity growth over the last twenty years, Italy appears to be stuck in a high-debt and low-growth trap. We focus on the causes of Italy's two main economic plights and discuss how they are intimately related: a slow growth limits the budgetary margins and casts doubts on public debt sustainability; the reduced fiscal space and the tight fiscal rules in turn weighs on growth and public investment. In the first part, we discuss the roots of the explosion of Italian public debt, the country's consolidation attempts in the 1990s and early 2000s and finally, the effects of the Great Recession and fiscal austerity. In the second part, we identify the structural weaknesses of the Italian economy. We notably emphasize the specialization bias towards low tech sectors, the “nanism” of Italian firms, the misallocation of talents and resources, the North-South divide and its related labor market consequences. We conclude with some policy recommendations for a revival of growth in Italy. Our first proposal calls for industrial policies which foster knowledge accumulation and firm learning. The second proposal envisages a new European fiscal golden rule which would remove specific public investments from the computation of structural primary balance. Our third proposal is instead related to labor market regulation, and advocates for the introduction of a minimum wage on the one hand, and the facilitation of retraining policies on the other hand. Our fourth proposal highlights the need to complete the banking union and to solve the issue of non-performing loans in order to improve the robustness of the Italian banking sector. Lastly, we conclude that Italy's fate is inextricably related to Europe's and that Italy needs more rather than less Europe to escape its high-debt and low-growth trap |
| Keywords: | Public debt; Negative productivity growth; Public investment; Fiscal rules; Industrial policy; Labour market |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/me28b7aoi8k7qunqdg5qlgrqk&r=all |
| By: | Brown, Heather; D'Amico, Francesco; Knapp, Martin; Orrell, Martin; Rehill, Amritpal; Vale, Luke; Robinson, Louise |
| Abstract: | Objectives: Identify if cost-effectiveness of Maintenance Cognitive Simulation Therapy (MCST) differs by type of living arrangement and cognitive ability of the person with dementia. Next, a value of information analysis is performed to inform decisions about future research. Methods: Incremental cost-effectiveness analysis applying seemingly unrelated regressions using data from a multicentre RCT of MCST versus treatment as usual in a population which had already received 7 weeks of CST for dementia (ISRCTN: 26286067). The findings from the cost-effectiveness analysis are used to inform a value of information analysis. Results: The results are dependent upon how quality adjusted life years (QALYs) are measured. MCST might be cost-effective compared to standard treatment for those who live alone and those with higher levels of cognitive functioning. If a further RCT was to be conducted for this sub-group of the population, value of information analysis suggests a total sample of 48 complete cases for both sub-groups would be required for a two-arm trial. The expected net gain of conducting this future research is £920 million. Conclusion: Preliminary results suggest that MCST may be most cost-efficient for people with dementia who live alone and/or who have higher cognition. Future research in this area is needed. |
| Keywords: | cognitive functioning; cost-effectiveness; expected value of sample information; Maintenance cognitive simulation therapy; residency |
| JEL: | E6 |
| Date: | 2019–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100841&r=all |
| By: | Bullard, James B. (Federal Reserve Bank of St. Louis) |
| Abstract: | St. Louis Fed President James Bullard discussed the end of U.S. monetary policy normalization in a presentation to the Foreign Correspondents’ Club in Hong Kong. He noted that the Federal Open Market Committee’s monetary policy normalization program has been successful in that U.S. real economic performance has been very good during the normalization. |
| Date: | 2019–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:334&r=all |
| By: | Hiroshi Onishi (Faculty of Economics, Keio University) |
| Abstract: | In the field of commercial capital theory, recently Yano (2006) and Murakami (2014) have tried to incorporate the commercial sector into the reproduction scheme. However, Yano's formulation put the commercial capital outside the reproduction formula, and his explanation is too complex. Moreover, Murakami's formation still has a problem owing to his methodology that uses only the numerical examples. Therefore, this paper incorporates the commercial sector into the reproduction scheme as a perfect equation system based on the equalized profit rate. It is because equalized profit rate is also applied to the commercial sector to determine its weight in the whole economy. As a result of these calculations, this paper also identified that average profit rate is determined by the technological conditions only in the industrial sectors. |
| Keywords: | Commercial Sector, Reproduction Scheme, Equalized Profit Rate, Transformation Problem |
| JEL: | B51 E11 B14 |
| Date: | 2019–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2019-014&r=all |
| By: | Floreani, Vincent A. (European Investment Fund); Lopez-Acevedo, Gladys (World Bank); Rama, Martin (World Bank) |
| Abstract: | Despite record economic growth in the decade that followed the fall of the Taliban regime, poverty remained stubbornly high in Afghanistan, and especially so in regions that suffered less from conflict. This paper aims to explain this puzzle by combining a model of conflict intensity at the province level in 2007–14 with a model of consumption at the household level in 2011. The estimates show that large troop deployments reduced conflict intensity but also boosted local consumption, an effect reinforced by foreign aid flows being larger in conflict-affected areas. Out-of-sample simulations suggest that declining international troops and foreign aid after 2014 would lead to an increase in conflict intensity and a decline in consumption per capita, two trends validated by independent data sources. |
| Keywords: | Afghanistan, conflict, poverty, foreign aid, troops, growth |
| JEL: | D74 E21 F35 I32 O17 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izapps:pp149&r=all |
| By: | Anping Chen (School of Economics, Jinan University); Nicolaas Groenewold (Economics Discipline, Business School, The University of Western Australia) |
| Abstract: | Since 2007 China’s growth has fallen from around 10% to about 6-7% per annum. This paper investigates the experience of this slowdown at the provincial level. We use a vector-autoregressive modelling approach and annual data from 1978 to decompose each province’s growth into various factors. We find that (1) all provinces experienced the slowdown; (2) there is considerable variation in this experience across provinces; (3) national factors dominate the provincial slowdown while province-specific factors explain most of the interprovincial variation; (4) when the national factor is separated into supply and demand components, the supply component dominates. |
| Keywords: | China, growth, slowdown, provincial effects |
| JEL: | E61 R50 O53 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:19-07&r=all |
| By: | Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Jarko Fidrmuc (Zeppelin University, Friedrichshafen, Germany); Steven Yamarik (California State University Long Beach, CA) |
| Abstract: | We test the Rajan hypothesis using data for 75 highly heterogeneous Russian regions between the Russian crisis and the introduction of international sanctions (2000-2012). Applying static as well as dynamic panel data models, we show that a rise in income inequality measured by regional Gini indices is significantly correlated with the growth of personal loans. Thus, the rising inequality in Russia is likely to have implications on financial staiblity and occurrence of banking crises. Moreover, the correlation of inequality and corporate loans indicates that inequality affects loans growth across more channels than those implied by the Rajan hypothesis. |
| Keywords: | Income inequality, bank loans, Rajan hypothesis, Russia |
| JEL: | E51 G01 R11 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:fds:dpaper:201906&r=all |
| By: | Marco Gallegati (Dipartimento di Scienze Economiche e Sociali - Universita' Politecnica delle Marche); James B. Ramsey (Department of Economics, New York University) |
| Abstract: | The aim of this study is to investigate the exact nature of Phillips' (1958) findings. We show that the application of the simplest type of wavelet basis function developed by Haar in 1910 allows to replicate the output of Phillips' data transformation procedure, i.e. the six mean coordinates. Specifically, the resemblance between the coarsest scale level coefficients from the Haar wavelet filter and the six crosses suggests the long-term nature of Phillips' (wage-unemployment) relationship. The application of the Haar wavelet filter allows us to examine the effects of two main features of Phillips' 'unorthodox' averaging procedure: the arbitrarily choice of variable-width intervals and the choice of sorting observations in ascending order of unemployment rate values. Our results show that the arbitrary selection of intervals affects only the smoothness (regularity) of the nonlinear pattern of the wage-unemployment relationship, but not its shape which is determined by sorting and grouping unemployment rate values in ascending order. Indeed, when observations are ordered according to a chronological sequence a simple linear relationship is evident. These findings are robust to different samples, 1861-1913 and 1861-1958. |
| Keywords: | Phillips curve, Haar wavelet transform, Moving average filter |
| JEL: | B22 C63 E24 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:437&r=all |
| By: | Mark Setterfield (Department of Economics, New School for Social Research) |
| Abstract: | This reply to Botte (2019) responds to criticisms of the methods used to estimate the normal rate of capacity utilization and a tolerable interval of variation in the actual rate of capacity utilization around the normal rate in Setterfield (2019a). It concludes with some further reflections on the concept of corridor instability. |
| Keywords: | Normal rate of capacity utilization, Harrodian instability, corridor instability |
| JEL: | E11 E12 O41 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1905&r=all |
| By: | Piton, Sophie (Bank of England) |
| Abstract: | From the introduction of the euro up to the 2008 global financial crisis, macroeconomic imbalances widened among Member States. This divergence took the form of strong differences in the dynamics of unit labour costs. This paper asks why this happened. Is it the result of distortionary public spending, or the consequence of economic integration? To answer this question, this paper builds a theoretical framework that provides a decomposition of the growth in unit labour costs into various effects of economic integration and policy intervention. Using a novel dataset, it then measures the contribution of each effect in 12 countries of the euro area from 1995 to 2015. Results show that the process of economic integration was an important driver of increasing unit labour costs in peripheral economies before the global financial crisis. |
| Keywords: | Economic integration; productivity; structural change; non-tradable sector; macroeconomic imbalances; capital flows; growth accounting; euro area |
| JEL: | E65 F41 O33 O41 O47 O52 |
| Date: | 2019–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0799&r=all |
| By: | Sophie Piton (Bank of England; Centre for Macroeconomics (CFM)) |
| Abstract: | From the introduction of the Euro up to the 2008 global financial crisis, macroeconomic imbalances widened among Member States. This divergence took the form of strong differences in the dynamics of unit labour costs. This paper asks why this happened. Is it the result of distortionary public spending, or the consequence of economic integration? To answer this question, this paper builds a theoretical framework that provides a decomposition of the growth in unit labour costs into various effects of economic integration and policy intervention. Using a novel dataset, it then measures the contribution of each effect in 12 countries of the Euro area from 1995 to 2015. Results show that the process of economic integration was an important driver of increasing unit labour costs in peripheral economies before the global financial crisis. |
| JEL: | E65 F41 O33 O41 O47 O52 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1910&r=all |
| By: | Becker, Torbjörn (Stockholm Institute of Transition Economics) |
| Abstract: | This paper looks at how the Russian economy has developed under the leadership of Putin and how it spills over to its neighbours in the CIS region. It stresses the importance of international oil prices as a determinant of policies and outcomes in Russia and highlights how this has impacted macroeconomic performance during Putin’s different terms in office. Although Russia is not an economic superpower globally, the size and importance of Russia for the CIS region is significant and thus oil price changes also drive the economic development of non-fuel exporting CIS countries to a significant degree. |
| Keywords: | Russia; Putin; macroeconomis; CIS; transition |
| JEL: | E60 F40 O52 |
| Date: | 2019–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hasite:0048&r=all |