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on Macroeconomics |
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Issue of 2019‒06‒24
89 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Mitman, Kurt (Stockholm University); Rabinovich, Stanislav (University of North Carolina, Chapel Hill) |
| Abstract: | Countercyclical unemployment benefit extensions in the United States act as a propagation mechanism, contributing to both the high persistence of unemployment and its weak correlation with productivity. We show this by modifying an otherwise standard frictional model of the labor market to incorporate a stochastic and state-dependent process for unemployment insurance estimated on US data. Accounting for movements in both productivity and unemployment insurance, our calibrated model is consistent with unemployment dynamics of the past 50 years. In particular, it explains the emergence of jobless recoveries in the 1990's as well as their absence in previous recessions, the low correlation between unemployment and labor productivity, and the apparent shifts in the Beveridge curve following recessions. Next, we embed this mechanism into a medium-scale DSGE model, which we estimate using standard Bayesian methods. Both shocks to unemployment benefits and their systematic component are shown to be important for the sluggish recovery of employment following recessions, in particular the Great Recession, despite the fact that shocks to unemployment benefits account for little of the overall variance decomposition. If we also incorporate other social safety nets, such as food stamps (SNAP), the estimated model assigns an even bigger role to policy in explaining sluggish labor market recovery. We also find that unemployment benefit extensions prevented deflation in the last three recessions, thus acting similarly to a wage markup shock. |
| Keywords: | unemployment insurance, business cycles, jobless recoveries |
| JEL: | E24 E32 J65 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12365&r=all |
| By: | Robert Calvert Jump; Engelbert Stockhammer |
| Abstract: | The natural rate hypothesis states that there exists an unemployment rate at which inflation is stable, and that this unemployment rate is independent of aggregate demand shocks. The hysteresis hypothesis, in contrast, states that the long run unemployment rate can be affected by aggregate demand shocks. While policy makers have warned of the risk of hysteresis since the 2008 financial crash, hysteresis effects are not incorporated into the macroeconometric models used by policy making institutions. This paper presents Bayesian estimates of hysteresis effects using unobserved components models of the type used by the European Commission and OECD. We demonstrate that the posterior probability of the natural rate hypothesis holding in Germany, France, and the UK is very low, lending empirical support to the hysteresis hypothesis. We suggest that the models used by the European Commission and OECD should be amended to reflect policy makers' views on hysteresis. |
| Keywords: | Unemployment, Hysteresis, NAIRU, Business Cycles |
| JEL: | E24 E60 E61 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:45-2019&r=all |
| By: | Gabriel Chodorow-Reich; Loukas Karabarbounis; Rohan Kekre |
| Abstract: | The Greek economy experienced a boom until 2007, followed by a prolonged depression resulting in a 25 percent shortfall of GDP by 2016. Informed by a detailed analysis of macroeconomic patterns in Greece, we develop and estimate a rich dynamic general equilibrium model to assess quantitatively the sources of the boom and bust. Lower external demand for traded goods and contractionary fiscal policies account for the largest fraction of the Greek depression. A decline in total factor productivity, due primarily to lower factor utilization, substantially amplifies the depression. Given the significant adjustment of prices and wages observed throughout the cycle, a nominal devaluation would only have short-lived stabilizing effects. By contrast, shifting the burden of adjustment from taxes toward spending or from capital taxes toward other taxes would generate significant longer-term production and consumption gains. |
| JEL: | E20 E32 E44 E62 F41 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25900&r=all |
| By: | Galli, Carlo |
| Abstract: | This paper studies the circular relationship between sovereign credit risk, government fiscal and debt policy, and output. I consider a sovereign default model with fiscal policy and private capital accumulation. I show that, when fiscal policy responds to borrowing conditions in the sovereign debt market, multiple equilibria exist where the expectations of lenders are self-fulfilling. In the bad equilibrium, pessimistic beliefs make sovereign debt costly. The government substitutes borrowing with taxation, which depresses private investment and future output, increases default probabilities and verifies lenders’ beliefs. This result is reminiscent of the European debt crisis of 2010-12: while recessionary, fiscal austerity may be the government best response to excessive borrowing costs during a confidence crisis. |
| Keywords: | Self-fulfilling debt crises; sovereign default; multiple equilibria; fiscal austerity |
| JEL: | E44 E62 F34 |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100942&r=all |
| By: | Takuji Fueki (Bank of Japan); Kohei Maehashi (Bank of Japan) |
| Abstract: | Over the past decade, one of the central questions in macroeconomics has been the missing link observed between inflation and fluctuations in economic activity. We approach this issue with a particular focus on advances in robots, or what are essentially autonomous machines. The contributions of the paper are twofold. First, using a country level balanced panel dataset, we provide significant evidence to show that advances in robots are one factor behind the missing link. Second, we ask a standard New-Keynesian model to rationalize this fact. The distinguishing feature is the introduction of capital which is substituted for human labor, and can therefore be interpreted as the use of robots. Due to this feature and developments in robot, firms can adjust their production by using robots, whose efficiency is getting higher, instead of employing human labor. Hence, the responsiveness of marginal costs to changes in economic activity becomes weakened, and thus, our model supports the empirical fact that advances in robots are one factor behind the missing link. |
| Keywords: | Robot; Labor-substitute capital; Phillips curve; Missing inflation |
| JEL: | E12 E22 E31 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp19e09&r=all |
| By: | Thomas I. Palley |
| Abstract: | Recently, there has been a burst of interest in modern money theory (MMT). The essential claim of MMT is sovereign currency issuing governments do not need taxes or bonds to finance government spending and are financially unconstrained. MMT rests on a triad of arguments concerning: (i) the macroeconomics of money financed budget deficits, (ii) the employer of last resort or job guarantee program, and (iii) the history of money. This primer analyzes that triad and shows each element involves suspect economic arguments. That leads MMT to underestimate the economic costs and exaggerate the capabilities of money financed fiscal policy. MMT's analytic shortcomings render it poor economics. However, its simplistic printing press economics is proving a popular political polemic, countering the equally simplistic and wrong-headed household economics of neoliberal austerity polemic. |
| Keywords: | Modern money theory (MMT), budget deficits, job guarantee program |
| JEL: | E00 E12 E40 E58 E60 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:44-2019&r=all |
| By: | Mengheng Li (University of Technology Sydney); Ivan Mendieta-Munoz (University of Utah) |
| Abstract: | We propose a multivariate simultaneous unobserved components framework to determine the two-sided interactions between structural trend and cycle innovations. We relax the standard assumption in unobserved components models that trends are only driven by permanent shocks and cycles are only driven by transitory shocks by considering the possible spillover effects between structural innovations. The direction of spillover has a structural interpretation, whose identification is achieved via heteroskedasticity. We provide identifiability conditions and develop an efficient Bayesian MCMC procedure for estimation. Empirical implementations for both Okun’s law and the Phillips curve show evidence of significant spillovers between trend and cycle components. |
| Keywords: | Unobserved components; identification via heteroskedasticity; trends and cycles; permanent and transitory shocks; state space models; spillover structural effects |
| JEL: | C11 C32 E31 E32 E52 |
| Date: | 2019–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:2019/08&r=all |
| By: | Michael McLeay; Silvana Tenreyro |
| Abstract: | Several academics and practitioners have pointed out that inflation follows a seemingly exogenous statistical process, unrelated to the output gap, leading some to argue that the Phillips curve has weakened or disappeared. In this paper we explain why this seemingly exogenous process arises, or, in other words, why it is difficult to empirically identify a Phillips curve, a key building block of the policy framework used by central banks. We show why this result need not imply that the Phillips curve does not hold – on the contrary, our conceptual framework is built under the assumption that the Phillips curve always holds. The reason is simple: if monetary policy is set with the goal of minimising welfare losses (measured as the sum of deviations of inflation from its target and output from its potential), subject to a Phillips curve, a central bank will seek to increase inflation when output is below potential. This targeting rule will impart a negative correlation between inflation and the output gap, blurring the identification of the (positively sloped) Phillips curve. We discuss different strategies to circumvent the identification problem and present evidence of a robust Phillips curve in US data. |
| JEL: | E31 E52 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25892&r=all |
| By: | Hibiki Ichiue (Bank of Japan); Maiko Koga (Bank of Japan); Tatsushi Okuda (Bank of Japan); Tatsuya Ozaki (Bank of Japan) |
| Abstract: | We theoretically and empirically investigate the implications of heterogeneity in households' inflation expectations formation within an economy. We develop a rational inattention model in which households attempt to minimize the expected loss from insufficient bargain-hunting and inefficient inter-temporal consumption allocation. The model focuses on households' allocation of attention to two variables: the cheapest price of a particular product they can find, and the inflation rate the central bank aims to achieve in the long run. The model yields the clear prediction that households with a tighter liquidity constraint will allocate more attention to finding the cheapest price of a good by visiting different stores and less attention to information on the inflation rate the central bank aims to achieve in the long run including messages sent out by the central bank. Using a unique and rich micro dataset of Japanese households, we find empirical support for the testable prediction of our model. The model provides the important policy implication that households pay more attention to messages emitted by the central bank if monetary easing successfully relieves households' liquidity constraints. |
| Keywords: | Rational inattention; inflation expectations; anchoring; liquidity constraints; Euler equation |
| JEL: | E50 E21 E61 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp19e08&r=all |
| By: | Gonzalez, Ignacio; Trivin, Pedro |
| Abstract: | The labor income share has been decreasing across countries since the early 1980s, sparking a growing literature about the causes of this trend (Karabarbounis and Neiman, 2014; Piketty and Zucman, 2014; among many others). At the same time, there has been a steady increase in asset prices. We build a simple model to argue that the increase in the value of financial assets crowds out capital formation. The negative impact of asset prices on the capital-output ratio declines the labor share if capital and labor are aggregate complements. Based on a common factor model, we find that the global increase of Tobin's Q can account for up to 57% of the labor share decline. We highlight three potential factors that operate through the same theoretical channel: capital income taxes, capitalized market power rents and corporate governance frictions. |
| Keywords: | Tobin's Q, Labor Share, Asset Prices, Capital-Output ratios. |
| JEL: | E22 E25 E44 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94587&r=all |
| By: | Ayres, JoaÞo; García, Marcio; Guillen, Diogo; Kehoe, Patrick |
| Abstract: | Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-in inflation period (1995-2016) was characterized by improvements in all of these features, but it did not lead to significant improvements in economic growth. In addition, we document a strong positive correlation between inflation rates and seignior age revenues, although in inflation rates are relatively high for modest levels of seignior age revenues. Finally, we discuss the role of the weak institutional framework surrounding the scale and monetary authorities and the role of monetary passiveness and in inflation indexation in accounting for the unique features of inflation dynamics in Brazil. |
| JEL: | H62 E42 E63 H63 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:9602&r=all |
| By: | Carli, Francesco; Gomis Porqueras, Pedro |
| Abstract: | We study how limited commitment in credit markets affects the implementation of open market operations and characterize when they result in real indeterminacies and when they have real effects. To do so, we consider a frictional and incomplete market framework where agents face stochastic trading opportunities and limited commitment in some markets. When limited commitment does not constraint agents’ choices, we find necessary and sufficient conditions for the existence of a unique monetary equilibrium. However, real indeterminacies are possible when buyers face a binding no-default constraint. We also show that when the no-default constraint binds and bonds are not priced fundamentally, open market operations generically have real effects. A sale of government bonds can increase or decrease interest rates, depending on the nature of equilibria. The direction of the interest rate effects critically depend on the size of the liquidity premium on government bonds. Finally, government bonds purchases can be used to rule out real indeterminacies, thus finding another rationale for such policy. |
| Keywords: | taxes; inflation; liquidity premium. |
| JEL: | E26 E40 E61 H21 |
| Date: | 2019–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94088&r=all |
| By: | Hohberger, Stefan (European Commission – JRC); Priftis, Romanos (Bank of Canada); Vogel, Lukas (European Commission) |
| Abstract: | This paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area. The model includes two groups of households: (i) wealthier households, who own financial assets and are able to smooth consumption over time, and (ii) poorer households, who only receive labor and transfer income and live ‘hand to mouth’. We use the model to compare the impact of policy shocks on constructed measures of income and wealth inequality (net disposable income, net asset position, and relative per-capita income). Except for the short term, expansionary conventional policy and QE shocks tend to mitigate income and wealth inequality between the two population groups. In light of the coarse dichotomy of households that abstracts from richer income and wealth dynamics at the individual level, the analysis emphasizes the functional distribution of income. |
| Keywords: | Bayesian estimation; distributional effects; open-economy DSGE model; portfolio rebalancing; quantitative easing |
| JEL: | E44 E52 E53 F41 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:201812&r=all |
| By: | Rujiwattanapong, W. Similan |
| Abstract: | This paper investigates the impact of endogenous unemployment insurance (UI) extensions on the dynamics of unemployment and its duration structure in the US. Using a search and matching model with worker heterogeneity, I allow for the maximum UI duration to depend on unemployment and for UI benefits to depend on worker characteristics. UI extensions have a large effect on long-term unemployment during the Great Recession via job search responses and a moderate effect on total unemployment via job separations. Disregarding rational expectations about the timing of UI extensions implies an overestimation of the unemployment rate by over 2 percentage points. |
| Keywords: | Business cycles; long-term unemployment; unemployment insurance; unemployment duration; rational expectations |
| JEL: | E24 E32 J24 J64 J65 |
| Date: | 2019–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100948&r=all |
| By: | Kotsogiannis, Christos; Mateos-Planas, Xavier |
| Abstract: | This paper studies income-tax evasion in a quantitative incomplete-markets setting with heterogeneous agents. A central aspect is that, realistically, evaded taxes are a form of contingent debt. Since evasion becomes part of a portfolio decision, risk and credit considerations play a central part in shaping it. The model calibrated to match estimated average levels of evasion does a good job in producing observed cross-sectional average evasion rates that decline with age and with earnings. The model also delivers implications for how evasion varies in the cross sectional distribution of wealth and tax arrears. Evasion has substantial effects on macroeconomic variables and welfare, and agent heterogeneity and general equilibrium are very important elements in the explanation. The analysis also considers the response of evasion to a flat-tax policy reform. In spite of the direct incentives to evade less under a flat tax rate, the reform causes households to save more, rendering the change in overall evasion modest. |
| Keywords: | Tax evasion; contingent debt; incomplete markets with heterogeneous agents; portfolio choice; risk sharing; tax progressivity |
| JEL: | E20 E62 H30 |
| Date: | 2019–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100941&r=all |
| By: | Damar, H. Evren; Gropp, Reint; Mordel, Adi |
| Abstract: | We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of nonmortgage liabilities. This, however, only translates into lower levels of consumption for low income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects. |
| Keywords: | credit supply,banking,financial crisis,consumption expenditure,liquid assets,consumption smoothing |
| JEL: | E21 E44 G01 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:112019&r=all |
| By: | Luca MAzzone (Swiss Finance Institute; University of Zurich) |
| Abstract: | Importance of distributional channels in macroeconomic dynamics has been the object of considerable attention in empirical studies. Despite significant amount of effort aimed at incorporating heterogeneity into macroeconomics, however, their explicit inclusion in the standard policy toolbox is far from widespread. A relevant obstacle, in such cases, is the computation of equilibria. I propose a global solution method for the computation of infinite-horizon, heterogeneous agent macroeconomic models with aggregate uncertainty. Details of the algorithm are illustrated by presenting its application to a an example model: in it, aggregate dynamics depends explicitly on firm entry and exit, and individual choices are often constrained by a form of market incompleteness. Existing computational strategies are either unfeasible or provide inaccurate solutions. Moreover, global solutions are computationally expensive because the minimal representation of the aggregate state space - and thus the aggregate law of motion - faces the curse of dimensionality. The proposed strategy thus combines adaptive sparse grids with a cross-sectional density approximation, and introduces a framework for solving the more general class of dynamic models with firm or household heterogeneity accurately. |
| JEL: | C63 E32 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1901&r=all |
| By: | David Gabauer (Institute of Applied Statistics, Johannes Kepler University, Altenbergerstraẞe 69, 4040 Linz, Austria and Department of Business and Management, Webster Vienna Private University, Praterstraẞe 23, 1020 Vienna, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa) |
| Abstract: | We investigate the spillover across real estate (REU), macroeconomic (MU) and financial uncertainties (FU) in the United States based on monthly data covering the period of July, 1970 to December, 2017. To estimate the propagation of uncertainties across the sectors, a time-varying parameter vector autoregression (TVP-VAR)-based connectedness procedure has been applied. In sum, we show that that since the 1970s, FU has been the main transmitter of shocks driving both, MU and REU, with MU dominating the REU. Our results support the need for better macroprudential policy decisions. |
| Keywords: | Dynamic Connectedness, Uncertainty Transmission, Real Estate Uncertainty, Macroeconomic Uncertainty, Financial Uncertainty, TVP-VAR |
| JEL: | C32 E32 F42 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201944&r=all |
| By: | El-Shagi, Makram; von Schweinitz, Gregor |
| Abstract: | In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growth, conditional on the fragility of government finances. Based on a 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:132019&r=all |
| By: | Rishab Guha; Serena Ng |
| Abstract: | This paper analyzes weekly scanner data collected for 108 groups at the county level between 2006 and 2014. The data display multi-dimensional weekly seasonal effects that are not exactly periodic but are cross-sectionally dependent. Existing univariate procedures are imperfect and yield adjusted series that continue to display strong seasonality upon aggregation. We suggest augmenting the univariate adjustments with a panel data step that pools information across counties. Machine learning tools are then used to remove the within-year seasonal variations. A demand analysis of the adjusted budget shares finds three factors: one that is trending, and two cyclical ones that are well aligned with the level and change in consumer confidence. The effects of the Great Recession vary across locations and product groups, with consumers substituting towards home cooking away from non-essential goods. The adjusted data also reveal changes in spending to unanticipated shocks at the local level. The data are thus informative about both local and aggregate economic conditions once the seasonal effects are removed. The two-step methodology can be adapted to remove other types of nuisance variations provided that these variations are cross-sectionally dependent. |
| JEL: | E21 E32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25899&r=all |
| By: | Bitros, George C. |
| Abstract: | Two alternative measures of demand adjusted capital input for the U.S. non-farm private business sector are derived and their differential impacts on the potential supply of output are compared to those obtained using the unadjusted index of capital input published by the Congressional Budget Office (CBO). The results show that, allowing for the demand pressure on the fixed assets of firms, leads to three effects. It raises the level of estimated potential output well above CBO’s estimates; with the exception of the 1990s, the estimated growth rates turn out to be higher than those computed by CBO; and, lastly, the long term trend of the growth rates with and without the demand adjustment to the capital input is sloping downwards. The latter finding was not unexpected since aggregate demand, as reflected in the utilization rate of fixed assets by firms, has been trending downwards throughout the postwar period. Drawing on these findings it is concluded that the path to secular stagnation that the U.S. economy is following in the postwar period is not due solely to headwinds on the supply side. To some degree, perhaps significant, the deceleration in the expansion of productive capacity as well as in the intensity of its utilization is due to the declining long term aggregate demand. |
| Keywords: | Potential output, capital input, capital stock, economic growth, economic growth headwinds, secular stagnation |
| JEL: | E01 E22 O47 |
| Date: | 2019–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94146&r=all |
| By: | Johanna Garnitz; Robert Lehmann; Klaus Wohlrabe |
| Abstract: | Comprehensive and international comparable leading indicators across countries and continents are rare. In this paper, we use a free and instantaneous available source of leading indicators, the ifo World Economic Survey (WES), to forecast growth of Gross Domestic Product (GDP) in 44 countries and three country aggregates separately. We come up with three major results. First, for more than three-fourths of the countries or country-aggregates in our sample a model containing one of the major WES indicators produces on average lower forecast errors compared to a benchmark model. Second, the most important WES indicators are either the economic climate or the expectations on future economic development for the next six months. And third, adding the WES indicators of the main trading partners leads to a further increase of forecast accuracy in more than 50% of the countries. It seems therefore reasonable to incorporate economic signals from the domestic economy’s main trading partners. |
| Keywords: | world economic survey, economic climate, forecasting GDP |
| JEL: | E17 E27 E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7691&r=all |
| By: | Boneva, Lena; Cloyne, James; Weale, Martin; Wieladek, Tomasz |
| Abstract: | Firms’ expectations play a central role in modern macroeconomic models, but little is known empirically about how these are formed or whether they matter for economic outcomes. Using a novel panel data set of manufacturing firms’ expectations about prices and wage rates, new orders, employment and unit costs for the United Kingdom, we document a range of stylized facts about the properties of firms’ expectations and their relationship with recent experience. There is wide dispersion of expectations across firms. Expected future price and wage growth are influenced by firm-specific factors but macroeconomic factors also matter. Expectations of employment and new orders are influenced by firm-specific measures of past orders while expected unit costs seem to be influenced more by firm-specific cost pressures and aggregate import prices. After controlling for a wide range of variables we find a significant connection between past expected price and wage increases and their out-turns. But there is also strong evidence that firms’ expectations are clearly not rational. |
| Keywords: | Firm expectations; price setting; rationality; survey data; inflation expectations |
| JEL: | C23 E31 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100943&r=all |
| By: | Rybacki, Jakub |
| Abstract: | During the period of policy easing in 2013 and prospective tightening in 2017-2019 the National Bank of Poland (NBP) applied the forward guidance to manage expectations of market participants. The goal of such a policy was to lower the uncertainty related to the future decisions of the Monetary Policy Council. We attempt to verify whether the central bank’s communication indeed reduced disagreement, based on the results of the professional forecasters’ survey. We found that the forward guidance policy introduced in 2013 lowered the perceived interest rate risk in both one-year and two-year horizons. On the other hand, abandoning the policy in 2014 increased the disagreement in the disproportionately large manner. The more pronounced forward guidance reintroduced in 2017 again allowed to reduce short-term uncertainty. However, it took over a year to strengthen the impact reducing the disagreement especially in case of two-year forecasts. The forward guidance most likely prevented increase of disagreement during the so called NBP image crisis in the late 2018 and in the first quarter of 2019. Overall our research highlights that it is relatively easy to lose confidence with ill-considered communication, but building credibility requires systematic long work. |
| Keywords: | forward guidance, density forecasts, survey of professional forecasters |
| JEL: | E52 E58 |
| Date: | 2019–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94465&r=all |
| By: | Ayres, Joao; Garcia, Marcio; Guillen, Diogo; Kehoe, Patrick J. |
| Abstract: | Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960–1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-inflation period (1995–2016) was characterized by improvements in all of these features, but it did not lead to significant improvements in economic growth. In addition, we document a strong positive correlation between inflation rates and seigniorage revenues, although inflation rates are relatively high for modest levels of seigniorage revenues. Finally, we discuss the role of the weak institutional framework surrounding the fiscal and monetary authorities and the role of monetary passiveness and inflation indexation in accounting for the unique features of inflation dynamics in Brazil. |
| JEL: | N0 F3 G3 |
| Date: | 2018–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100935&r=all |
| By: | Jean-Christophe Delfim (University of Geneva); Martin Hoesli (University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Geneva - Research Center for Statistics; University of Aberdeen - Business School) |
| Abstract: | Using U.S. data for 1986-2017, the paper focuses on the impacts of macroeconomic risk factors and leverage on the performance of the various types of real estate exposure (direct, non-listed, and listed). The response of core funds to economic risk factors is akin to that of direct investments; however, real estate fund and direct investment performance are less tightly related as more aggressive (i.e., value-added and opportunistic) strategies are envisaged. Only REIT performance is linked to that of the stock market. Leverage matters as it amplifies the responses to the economic factors and hence investment risk. |
| Keywords: | Direct real estate; Non-listed real estate; Listed real estate; Macroeconomy; Leverage. |
| JEL: | E44 G10 R33 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1933&r=all |
| By: | Shah, Syed Sibghatullah |
| Abstract: | Trust among individuals in society may have various economic and social implications. Though, worldwide data on economic growth rarely consider trust as an ingredient in manipulating economic outcomes. Thus, we include trust instigating from individual, affecting community and state thus, forming trust-based economy. In order to explore the relationship of trust with growth and its benefits implications, this study suggests a model which is validated by Markov process. Consequently, results indicate significant impact of trust on economic growth by achieving convergence in very few iterations in the case of trust-based economy. On the other hand, economy with lowest trust level shows delayed convergence and takes around 4 times more iterations to attain equilibrium. Additionally, socio-economic benefits are more visible in a trust-based economy. |
| Keywords: | Trust, Markov process, Equilibrium, Convergence, Economic Growth |
| JEL: | C15 C53 D71 E21 H20 O47 Z10 Z13 |
| Date: | 2019–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94095&r=all |
| By: | James D. Hamilton |
| Abstract: | The Federal Reserve characterizes its current policy decisions in terms of targets for the fed funds rate and the size of its balance sheet. The fed funds rate today is essentially an administered rate that is heavily influenced by regulatory arbitrage and divorced from its traditional role as a signal of liquidity in the banking system. The size of the Fed’s balance sheet is at best a very blunt instrument for influencing interest rates. In this paper I compare the current operating system with the historical U.S. system and the procedures of other central banks. I then examine strategies for transitioning from the current system to one that would give the Federal Reserve more accurate tools with which to achieve its strategic objective of influencing inflation and output. |
| JEL: | E4 E5 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25911&r=all |
| By: | Hapanyengwi, Hamadziripi Oscar; Mutongi, Chipo; Nyoni, Thabani |
| Abstract: | This research uses annual time series data on inflation rates in the Kingdom of Eswatini from 1966 to 2017, to model and forecast inflation using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the H series is I (1). The study presents the ARIMA (0, 1, 1) model for predicting inflation in the Kingdom of Eswatini. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for predicting inflation in the Kingdom of Eswatini. The results of the study apparently show that inflation in the Kingdom of Eswatini is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in the Kingdom of Eswatini. |
| Keywords: | Eswatini, Forecasting, Inflation |
| JEL: | E31 |
| Date: | 2019–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94560&r=all |
| By: | Georgarakos, Dimitris (Goethe University Frankfurt); Tatsiramos, Konstantinos (University of Luxembourg, LISER) |
| Abstract: | We examine the effects of monetary policy on household self-assessed financial stress and durable consumption using panel data from eighteen annual waves of the British Household Panel Survey. For identification, we exploit random variation in household exposure to interest rates generated by the random timing of household interview dates with respect to policy rate changes. After accounting for household and month-year-of-interview fixed effects, we uncover significant heterogeneities in the way monetary policy affects household groups that differ in housing and saving status. In particular, an increase in the interest rate induces financial stress among mortgagors and renters, while it lessens financial stress of savers. We find symmetric effects on durable consumption, mainly driven by mortgagors with high debt burden or limited access to liquidity and younger renters who are prospective home buyers. |
| Keywords: | monetary policy, mortgage debt, debt burden, financial stress, consumption |
| JEL: | G21 E21 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12359&r=all |
| By: | Murray, Tim |
| Abstract: | Many retirees retain housing equity and do not utilize it to help finance spending on consumption. In this paper, I examine how older Americans (age 55+) may engage in precautionary savings where households would sell their house in the event they face an increase in out-of-pocket medical expenses due to a health shock. Using a counterfactual experiment, I find that older households are 13-percentage points less likely to own a home in their late retirement years when they know they will not have any out-of-pocket medical expenses. This indicates that many older households prefer not to own a home but choose to do so knowing they may get sick and thus are engaging in precautionary savings using their house. I conduct a policy experiment to examine how an insurance policy that would cover all out-of-pocket medical expenses would impact home ownership. I find that when an insurance policy of this nature is offered that costs four percent of income, the baseline economy has the same homeownership and moving rates as the counterfactual experiment where households do not have to pay for out-of-pocket medical expenses. This suggests that if seniors had more adequate health care coverage, they would be more willing to use the equity in their house to increase consumption in retirement. |
| Keywords: | housing, equity, precautionary savings, Medicare, insurance |
| JEL: | D14 E13 E21 R21 R31 |
| Date: | 2019–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94463&r=all |
| By: | Cravo, Tulio; Schimanski, Caroline |
| Abstract: | While the relationship between business cycles and employment is a topic of continuing interest, it has received limited attention in the literature focusing on developing countries. This study adds to the literature as it analyzes the heterogeneous correlations of business cycles with employment, unemployment and participation rate by different age, education, gender and ethnic groups in a developing country setting. Using data from the monthly PME employment surveys between 2002 and 2016 in Brazil, we assess how these labour market measures in specific demographic groups are affected by the business cycles. The results provide evidence of the existence of large heterogeneities among demographic groups. Interestingly, demographic groups’ labour market measures in levels are not necessarily aligned with their sensitivity to economic cycles when controlling for other demographic characteristics. Understanding how levels of labour market measures related to their sensitivity to cycles is crucial to design better policies. |
| JEL: | J24 J21 E24 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:9546&r=all |
| By: | Kontogeorgos, Georgios; Lambrias, Kyriacos |
| Abstract: | The Eurosystem/ECB staff macroeconomic projection exercises constitute an important input to the ECB's monetary policy. This work marks a thorough analysis of the Eurosystem/ECB projection errors by looking at criteria of optimality and rationality using techniques widely employed in the applied literature of forecast evaluation. In general, the results are encouraging and suggest that Eurosystem/ECB staff projections abide to the main characteristics that constitute them reliable as a policy input. Projections of GDP - up to one year - and inflation are optimal - in the case of inflation they are also rational. A main finding is that GDP forecasts can be substantially improved, especially at long horizons. JEL Classification: C53, E37, E58 |
| Keywords: | Eurosystem/ECB forecasts, forecast errors, forecast evaluation |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192291&r=all |
| By: | International Monetary Fund |
| Abstract: | Program implementation continued to be satisfactory despite a somewhat less favorable external environment in 2018. Macroeconomic stability was maintained, external debt to GDP declined, official reserves rose, and some fiscal space was created by strong revenue performance and exceptional extractive proceeds, albeit also by under-execution of public investment. Structural reform implementation progressed as planned. The economic outlook has improved, buoyed by more favorable terms of trade and the upcoming development of a large offshore gas field. Growth is projected to accelerate to 6¾ percent this year, supported by a recovery in extractive sectors and continued broad-based non-extractive growth reflecting strong domestic demand and budding diversification. Downside risks related to global economic developments, commodity price volatility, and regional security concerns remain elevated. |
| Date: | 2019–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/145&r=all |
| By: | Melo-Velandia, Luis Fernando; Loaiza, Rubén; Villamizar-Villegas, Mauricio |
| Abstract: | Typically, central banks use a variety of individual models (or a combination of models) when forecasting inflation rates. Most of these require excessive amounts of data, time, and computational power; all of which are scarce when monetary authorities meet to decide over policy interventions. In this paper we use a rolling Bayesian combination technique that considers inflation estimates by the staff of the Central Bank of Colombia during 2002-2011 as prior information. Our results show that: 1) the accuracy of individual models is improved by using a Bayesian shrinkage methodology, and 2) priors consisting of staff's estimates outperform all other priors that comprise equal or zero-vector weights. Consequently, our model provides readily available forecasts that exceed all individual models in terms of forecasting accuracy at every evaluated horizon. |
| Keywords: | Bayesian shrinkage; Inflation forecast combination; Internal forecasts; Rolling window estimation |
| JEL: | C22 C53 C11 E31 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:8&r=all |
| By: | Melo-Velandia, Luis Fernando; Loaiza, Rubén; Villamizar-Villegas, Mauricio |
| Abstract: | Typically, central banks use a variety of individual models (or a combination of models) when forecasting inflation rates. Most of these require excessive amounts of data, time, and computational power; all of which are scarce when monetary authorities meet to decide over policy interventions. In this paper we use a rolling Bayesian combination technique that considers inflation estimates by the staff of the Central Bank of Colombia during 2002-2011 as prior information. Our results show that: 1) the accuracy of individual models is improved by using a Bayesian shrinkage methodology, and 2) priors consisting of staff's estimates outperform all other priors that comprise equal or zero-vector weights. Consequently, our model provides readily available forecasts that exceed all individual models in terms of forecasting accuracy at every evaluated horizon. |
| Keywords: | Bayesian shrinkage; Inflation forecast combination; Internal forecasts; Rolling window estimation |
| JEL: | C22 C53 C11 E31 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:9&r=all |
| By: | International Monetary Fund |
| Abstract: | Context: Availability of buffers has enabled Qatar to successfully absorb the adverse shocks from the 2014–16 decline in oil prices and the 2017 diplomatic rift. The policy priorities are fiscal consolidation, strengthened fiscal policy frameworks, enhanced resiliency of the financial sector, financial inclusion, and a diversified economy. Outlook and risks: Stronger real GDP growth is envisaged in the near term, with a recovery in hydrocarbon output. Medium-term growth will be buoyed by increased gas production and non-hydrocarbon growth. Expenditure consolidation would help to sustain fiscal and external surpluses. Ample liquidity will enable credit growth to support non-hydrocarbon GDP. Trade and geopolitical tensions could undermine investor confidence and weaken fiscal and external positions. Qatar is well placed to contain the adverse macro-financial implications of downside risks in view of considerable buffers. |
| Date: | 2019–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/146&r=all |
| By: | Drechsel, Thomas; Tenreyro, Silvana |
| Abstract: | Emerging economies, particularly those dependent on commodity exports, are prone to highly disruptive economic cycles. This paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles. The economy consists of two sectors, one of which produces commodities with prices subject to exogenous international fluctuations. These fluctuations affect both the competitiveness of the economy and its borrowing terms, as higher commodity prices are associated with lower spreads between the country's borrowing rate and world interest rates. Both effects jointly result in strongly positive effects of commodity price increases on GDP, consumption, and investment, and a negative effect on the total trade balance. Furthermore, they generate excess volatility of consumption over output and a large volatility of investment. Besides explicitly incorporating a double role of commodity prices, the model structure nests the various candidate sources of shocks proposed in previous work on emerging economy business cycles. Estimating the model on Argentine data, we find that the contribution of commodity price shocks to fluctuations in post-1950 output growth is in the order of 38%. In addition, commodity prices account for around 42% and 61% of the variation in consumption and investment growth, respectively. We find transitory productivity shocks to be an important driver of output fluctuations, exceeding the contribution of shocks to the trend, which, though smaller, is not negligible |
| Keywords: | 681664-Research on Macroeco-nomic Fluctuations and Trade |
| JEL: | N0 |
| Date: | 2018–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86517&r=all |
| By: | Nooman Rebei (International Monetary Fund, Washington, DC 20431, USA); Rashid Sbia (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE, Marseille, France & Ministry of Finance of United Arab Emirates) |
| Abstract: | This paper documents the determinants of real oil price in the global market based on SVAR model embedding transitory and permanent shocks on oil demand and supply as well as speculative disturbances. We find evidence of significant differences in the propagation mechanisms of transitory versus permanent shocks, pointing to the importance of disentangling their distinct effects. Permanent supply disruptions turn out to be a bigger factor in historical oil price movements during the most recent decades, while speculative shocks became less influential. |
| Keywords: | oil market, vector autoregressions, narrative analysis, Bayesian estimation, Kalman filtering |
| JEL: | Q41 Q43 C32 E32 G28 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1918&r=all |
| By: | International Monetary Fund |
| Abstract: | Cyprus has achieved an impressive turnaround since its banking crisis. Output growth has been accelerating for three consecutive years and is now strong, while unemployment is on a rapidly-declining path. The fiscal primary balance has swung from a large deficit to a moderate surplus. Emergency liquidity assistance to banks has been fully repaid and their deposit bases are growing. House prices have corrected. Yet private sector debt and nonperforming loans (NPLs)—key legacies of the previous boom-bust cycle—remain extremely large. Also, the pace of NPL reduction has been slow despite several years of robust GDP growth. Public debt is also elevated. Dynamic growth is set to persist for the next few years, underpinned by ongoing large construction projects and (albeit undesirable) continued weak payment discipline alongside slow progress with NPLs. Elevated financial sector vulnerabilities and the potential for a new construction boom, supported by possibly-volatile capital flows, pose risks to this outlook. |
| Keywords: | Article IV consultation reports;Economic recovery;Fiscal policy;Fiscal sustainability;Economic growth;Private sector;Debt reduction;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Press releases;Staff Reports;Cyprus; |
| Date: | 2017–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/375&r=all |
| By: | Olga Diukanova (European Commission - JRC); Andrea Conte (European Commission - JRC); Simone Salotti (European Commission - JRC) |
| Abstract: | The European Commission's Joint Research Centre (JRC) is supporting an Innovation Agenda for the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, Republic of North Macedonia and Serbia). Smart Specialisation is the European Union (EU) place-based policy aiming at more thematic concentration in research and innovation (R&I) investments via the evidence-based identification of the strengths and potential of a given economy. Access to data and economic analysis are key to a better identification of both current and future socio-economic policy challenges. The EU Instrument for Pre-accession Assistance (IPA) supports reforms in the enlargement countries with financial and technical help. Out of the almost €650 million destined to Albania over the programming period 2014-2022, €44 are supporting competitiveness and innovation. Policy simulations using CGE modelling techniques show positive macro-economic effects of the IPA funds for competitiveness and innovation both in the short run and in the long run thanks to productivity improvements. |
| Keywords: | rhomolo, region, growth, impact assessment, modelling, R&D, R&I, Western Balkans, Albania, investment |
| JEL: | C68 E62 R13 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc115438&r=all |
| By: | International Monetary Fund |
| Abstract: | Zimbabwe faces deep macroeconomic imbalances. After a period of relative macroeconomic stability when hyperinflation was broken in 2008 with the move to full dollarization, the fiscal situation has deteriorated sharply since 2015. Large fiscal deficits during 2016–18, financed by the issuance of quasi-currency instruments nominally at par to the U.S. dollar, built up pressure in the dollarized economy. The fragile equilibrium was maintained by exchange controls and other restrictions on access to foreign exchange (FX). |
| Date: | 2019–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/144&r=all |
| By: | André Binette; Karyne B. Charbonneau; Nicholas Curtis; Gabriela Galassi; Scott Counts; Justin Cranshaw |
| Abstract: | Labour markets in Canada and around the world are evolving rapidly with the digital economy. Traditional data are adapting gradually but are not yet able to provide timely information on this evolution. |
| Keywords: | Central bank research; Labour markets; Monetary Policy |
| JEL: | C80 E24 J21 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-18&r=all |
| By: | Eduardo Rosas Rojas; Mónica C. Mimbrera Delgado |
| Keywords: | Incertidumbre inflacionaria; Inflación; Independencia; Transparencia; Volatilidad cambiaria; inflation uncertainty; inflation; independence; transparency; exchange rate volatility. |
| JEL: | C51 E31 F31 |
| Date: | 2018–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000418:017297&r=all |
| By: | Langedijk, Sven (European Commission); Fontana, Alessandro (European Insurance and Occupational Pension Authority) |
| Abstract: | We propose a simple model that captures the link between bank and sovereign credit risk. It allows evaluating policy options to address this ‘doom loop’ in which the government may need to raise debt to recapitalise banks, and an increase in government debt raises sovereign risk and in turn generates potential bank losses via their (sovereign) bond holdings. Hence, an initial shock originating either in the banking or sovereign sector is amplified by the feedback relation. We set up a framework based on detailed actual bank balance sheets and test the model on 35 large EU banking groups, across 7 European countries. The effects of the feedback loops in most cases more than double the effect of the initial shock on bank losses and the sovereign risk premium. We show that a single EU bank resolution mechanism, European Stability Mechanism (ESM) direct bank recapitalisations, and bondholder “bail-in” can be effective to dampen the bank-sovereign loop. Addressing the home bias in banks sovereign bond holdings by reducing excessive exposure to domestic sovereigns has only limited benefit in terms of lower crisis doom loop effects as contagion effects increase. |
| Keywords: | Credit Risk, Banks, Sovereign, Financial Stability, ESM, Direct Recapitalisation |
| JEL: | E44 G01 G21 H63 H81 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:201910&r=all |
| By: | Altavilla, Carlo; Burlon, Lorenzo; Giannetti, Mariassunta; Holton, Sarah |
| Abstract: | Exploiting confidential data from the euro area, we show that sound banks can pass negative rates on to their corporate depositors without experiencing a contraction in funding. These pass-through effects become stronger as policy rates move deeper into negative territory. Banks offering negative rates provide more credit than other banks suggesting that the transmission mechanism of monetary policy is not hampered. The negative interest rate policy (NIRP) provides further stimulus to the economy through firms’ asset rebalancing. Firms with high current assets linked to banks offering negative rates appear to increase their investment in tangible and intangible assets and to decrease their cash holdings to avoid the costs associated with negative rates. Overall, our results challenge the commonly held view that conventional monetary policy becomes ineffective when policy rates reach the zero lower bound. JEL Classification: E52, E43, G21, D22, D25 |
| Keywords: | corporate channel, lending channel, monetary policy, negative rates |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192289&r=all |
| By: | Oulton, Nicholas |
| Abstract: | What effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfare? I examine this issue through two versions of a textbook, Hecksher-Ohlin-Samuelson (HOS), two-good model of a small, open economy. In the first version both goods are for final consumption. In the second, one good is an imported intermediate input into the other. In both versions, economic theory suggests that an improvement in the terms of trade raises welfare (consumption) but leaves aggregate output (GDP) unchanged. This follows from a continuous-time analysis using Divisia index numbers. I then show that a national income accountant applying the principles of the 2008 System of National Accounts (SNA) would reach the same conclusions. |
| Keywords: | GDP; welfare; SNA; Hecksher-Ohlin-Samuelson; terms of trade; Divisia |
| JEL: | E01 F11 C43 D60 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100945&r=all |
| By: | José U. Mora Mora; Alberto J. Hurtado Briceño; Sadcidi Zerpa de Hurtado (Faculty of Economics and Management, Pontificia Universidad Javeriana Cali) |
| Abstract: | Este artículo analiza desde el enfoque monetarista la propuesta de crear una nueva moneda en el Mercado Común del Sur (MERCOSUR) como opción para recuperar el dinamismo observado en la década precedente. La hipótesis sugiere que la creación de una nueva moneda es deseable si se consigue aumentar la tasa de crecimiento del producto real y disminuir la volatilidad de los precios. Los resultados obtenidos permiten concluir que la alternativa de crear e implementar una nueva moneda a nivel regional es una opción deseable y altamente factible debido a la correlación positiva entre los ciclos económicos y en las tasas de depreciación de las monedas de los países del bloque, así como por la posibilidad de crear una institución comunitaria responsable de la política monetaria común con bajo sesgo inflacionario. |
| Keywords: | integración monetaria, política monetaria, tipo de cambio, MERCOSUR |
| JEL: | E52 E61 F15 F33 F41 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:ddt:wpaper:45&r=all |
| By: | Barbiellini Amidei, Federico; Gomellini, Matteo; Piselli, Paolo |
| Abstract: | A few studies lately explored the relationship between changes in the demographic structure and inflation using mainly cross-country analyses. In this paper we investigate how the evolution in the age structure of the population affected price dynamics in Italy, using annual data for a panel of provinces in the period 1982-2016. The within-country approach allows us to wipe out the effects of supranational shocks, as well as to better take into account the effects of monetary policy, main common driver of price dynamics over the medium-term. We use a set of indicators, namely young age, old age and overall dependency ratios, and the share of working age population. Our results suggest that the ongoing ageing process likely contributed to dampening price dynamics. |
| Keywords: | Demographic change, price dynamics, panel cointegration |
| JEL: | E31 J11 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94435&r=all |
| By: | Jess Benhabib; Bálint Szőke |
| Abstract: | We generalize recent results of Bassetto and Benhabib (2006) and Straub and Werning (2018) in a model with endogenous labor-leisure choice where all agents are allowed to save and accumulate capital. In particular, using a neoclassical infinite horizon model with standard balanced growth preferences and agents heterogeneous in their initial wealth holdings, we provide a sufficient condition under which optimal redistributive capital taxes can remain at their allowed upper bound forever, even if the resulting equilibrium trajectory converges to a unique steady state with positive and finite consumption, capital, and labor. We first generate some simple parametric examples which satisfy our sufficient condition and for which closed form solutions exist. We then provide an interpretation of our sufficient condition for equilibria induced by general constant returns neo-classical production functions. Using recent evidence on wealth distribution in the United States, we argue that our sufficient condition is empirically plausible. |
| JEL: | E62 H21 H23 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25895&r=all |
| By: | International Monetary Fund |
| Abstract: | While many advanced economies are experiencing slower growth, Norway’s output has continued to expand strongly, helped by a robust labor market, positive terms of trade, and some competitiveness gains. Core inflation has picked up to close to 2¼ percent. Residential house price growth has softened significantly but prices remain overvalued, and household debt continues to rise. Commercial real estate risks are also intensifying and combine with mounting external risks to cloud the outlook. The Christian Democrats have recently joined Prime Minister Solberg’s governing coalition, which now enjoys a majority in parliament. |
| Date: | 2019–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/159&r=all |
| By: | Antoni, Manfred; Koetter, Michael; Müller, Steffen; Sondershaus, Talina |
| Abstract: | Asset purchase programmes (APPs) may insulate banks from having to terminate relationships with unproductive customers. Using administrative plant and bank data, we test whether APPs impinge on industry dynamics in terms of plant entry and exit. Plants in Germany connected to banks with access to an APP are approximately 20% less likely to exit. In particular, unproductive plants connected to weak banks with APP access are less likely to close. Aggregate entry and exit rates in regional markets with high APP exposures are also lower. Thus, APPs seem to subdue Schumpeterian cleansing mechanisms, which may hamper factor reallocation and aggregate productivity growth. |
| Keywords: | plant exit,factor reallocation,asset purchase programmes |
| JEL: | E58 G21 G28 G33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:122019&r=all |
| By: | International Monetary Fund |
| Abstract: | Mozambique’s economic situation had been improving until Tropical Cyclone Idai and Kenneth hit the country in March and April, respectively. Economic growth was recovering gradually and becoming broader based, and inflation reached low single digits. Economic activity is expected to decelerate sharply in 2019 due to the supply shock to productive capacity, but it should rebound to pre-cyclone levels by 2020. In April, the IMF Executive Board approved US$118 million in emergency assistance under the Rapid Credit Facility (RCF). The authorities are committed to macroeconomic stability while fostering inclusive growth and addressing governance challenges. |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:91/166&r=all |
| By: | Razak, Nursakina; Masih, Mansur |
| Abstract: | The purpose of this study is to find the Granger-causal relationship between house price and income. Singapore is taken as a case study and standard time-series approach is employed. The outcome of this relationship will determine the lead-lag relation between house price and income which will then provide some policy implications to tackle the rising housing price and income distribution as well as housing affordability in Singapore. However, the empirical findings based on the generalised VDC (forecast variance decompositions) tend to indicate that unemployment rate is the most lagging factor, while house price is the most leading variable followed by the income variable. This happens due to the probability that house price is controlled and determined by HDB (Housing Development Board), the government entity for public housing in Singapore. This has strong policy implications. |
| Keywords: | HDB, CPI, GDP, House price, cointegration, unemployment, Singapore |
| JEL: | C58 E44 |
| Date: | 2018–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94212&r=all |
| By: | Gharleghi, Behrooz |
| Abstract: | Economic integration is a process that aims to reduce barriers that exist in economic, social, and cultural affairs between countries. Integration in its current format has risen significantly since the 1980s, when several trade agreements were made to facilitate collaboration between developed and developing countries. However, there is a need to measure outcomes and understand the phenomena of integration in various respects besides the economic perspective. The idea of tighter economic integration in Eurasia is gaining attraction, largely based on the experiences of other regional economic integration projects, such as NAFTA, the EU, CEMAC, and ASEAN. The economic integration of Eurasian states has been an issue for policymakers over the last two decades. Efforts have been made to promote initiatives to integrate these countries through creating a custom union and facilitating labour and capital mobility, but so far there has not been any attempt to coordinate the monetary policies. The region of Eurasia which is going to be analysed in this project includes thirteen states: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Mongolia, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. Therefore this research is trying to identify the level of integration among these economies. |
| Keywords: | Eurasia Integration Index, Institution, socio-culture |
| JEL: | E0 E5 O1 |
| Date: | 2019–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94347&r=all |
| By: | Volker Grossmann; Benjamin Larin; Hans Torben Löfflad; Thomas Steger |
| Abstract: | The upward sloping trend of rents and house prices has initiated a debate on the consequences of surging housing costs for wealth inequality and welfare. We employ a frictionless two-sectoral macroeconomic model with a housing sector to investigate the dynamics of wealth inequality and the determinants of welfare. Households have non-homothetic preferences, implying that the poor choose a higher housing expenditure share, which is compatible with Schwabe’s Law. We first examine the isolated effects of increasing housing costs in partial equilibrium. The model is closed by introducing a production sector that enables us to analyze the general equilibrium consequences of a widely discussed policy option, which aims at dampening the growth of housing costs. Abolishing zoning regulations triggers a slower rent growth and reduces wealth inequality by 0.7 percentage points (measured by the top 10 percent share). Average welfare increases by 0.5 percent. The household-specific welfare effects are asymmetric. The poor benefit more than the rich, and the richest wealth decile is even worse off. |
| Keywords: | macroeconomics and housing, long-term growth, Schwabe’s Law, wealth inequality, welfare |
| JEL: | E10 E20 O40 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7684&r=all |
| By: | Jack Favilukis; Pierre Mabille; Stijn Van Nieuwerburgh |
| Abstract: | Housing affordability is the main policy challenge for many large cities in the world. Zoning changes, rent control, housing vouchers, and tax credits are the main levers employed by policy makers. But how effective are they at combatting the affordability crisis? We build a new framework to evaluate the effect of these policies on the well-being of its citizens. It endogenizes house prices, rents, construction, labor supply, output, income and wealth inequality, as well as the location decisions of households. Its main novel features are risk, risk aversion, and incomplete risk-sharing. We calibrate the model to the New York MSA, incorporating current zoning and affordable housing policies. Housing affordability policies carry substantial insurance value but cause misallocation in labor and housing markets. Housing affordability policies that enhance access to this insurance especially for the neediest households create large net welfare gains. |
| JEL: | E21 E6 G11 G12 G18 H2 H76 R1 R13 R21 R28 R3 R31 R41 R51 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25906&r=all |
| By: | Maxime Menuet (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper develops a discrete-time stochastic endogenous growth model to study the amplification role of fiscal rules. In our model, transitory shocks exert permanent effects on the level of variables in equilibrium (hysteresis), and can be strongly amplified by the public debt adjustment, leading to a procyclical amplification mechanism (the "public debt accelerator"). This procyclical stance depends on the speed of adjustment of the debt-to-GDP ratio under a fixed-fiscal rule. A cold turkey strategy removes the public debt shock, but at the risk of destabilizing other variables, while a gradualist strategy has a stabilization effect, with detrimental consequences in the long-run. Finally, we show that a flexible-fiscal rule helps smooth aggregate variables by limiting the cuts in productive public spending. |
| Keywords: | Endogenous growth model,Hysteresis,Fiscal Rules |
| Date: | 2019–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02153887&r=all |
| By: | Kym Anderson; Sundar Ponnusamy |
| Abstract: | Understanding how and why economies structurally transform as they grow is crucial for sound national policy making. Typically analysts of this issue focus on sectoral shares of GDP and employment. This paper extends that to include exports, including of services. It also considers mining in addition to agriculture and manufacturing, and recognizes some of the products of those four sectors are nontradable. The theory section’s general equilibrium model provides hypotheses about structural change in different types of economies as they grow, and tests them econometrically with annual data for a sample of 117 countries for the period 1991-2014. The results point to the futility of adopting protective policies aimed at slowing de-agriculturalization and subsequent de-industrialization in terms of sectoral shares, since those trends inevitably will accompany economic growth. Fortuitously governments now have far more efficient and equitable ways of supporting the adjustments needed by people choosing or being pushed to leave declining industries. |
| Keywords: | patterns of structural change, comparative advantage, productivity growth, declining sectors |
| JEL: | D51 E23 F11 F43 N50 N60 O13 O14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pas:papers:2018-26&r=all |
| By: | Oulton, Nicholas; Rincon-Aznar, Ana; Samek, Lea; Srinivasan, Sylaja |
| Abstract: | Real GDP measured from the output side, GDP(O), should equal real GDP measured from the expenditure side, GDP(E), just as corresponding two approaches to measuring GDP in current prices are necessarily equal. But this is only the case even in theory if real value added in each industry is measured by double deflation. We set out the theory of double deflation using a matrix algebra treatment based on the framework of the Supply and Use Tables. The context is the UK’s national accounts which measures volume growth by chained Laspeyres indices and which currently use single not double deflation. Initially we use simplified assumptions about prices. Later we introduce more realistic assumptions. We analyse the conditions on prices under which real GDP(O) equals real GDP(E). We consider three alternative methods of implementing double deflation. The preferred method makes use of all the price indices which the Office for National Statistics currently collects: Producer Price Indices, Services Producer Price Indices, Consumer Price Indices, Export Price Indices and Import Price Indices. We implement a simplified version of double deflation, using the same data as in the latest vintage of the national accounts, and compare our estimates with the official ones. In this version the same price index is used for each product regardless of whether the product is an output or an input. We find that double-deflated industry growth rates are consistently lower than the official single-deflated ones and also considerably more variable year-to-year. We interpret this finding as reinforcing the case for careful selection of the set of deflators to use for double deflation. |
| Keywords: | Double deflation; supply and use tables; value added; national accounts |
| JEL: | E01 O11 O40 O47 C67 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100927&r=all |
| By: | International Monetary Fund |
| Abstract: | The economy is doing well, but supply constraints are biting. Growth has slowed as the economy has reached capacity limits, with very low unemployment even as participation has increased. Recent wage increases have been very strong, ahead of productivity. So far, inflation remains contained. The economy continues to run a current account surplus, even though domestic absorption has picked up. But the housing market is pressured, especially in metropolitan areas. Policies should balance risks of overheating against a faster-than-expected slowdown and aim to boost potential growth. |
| Date: | 2019–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/160&r=all |
| By: | Mills, Terence C.; Capie, Forrest; Goodhart, C. A. E. |
| Abstract: | It is well known that the slope of the term structure of interest rates contains information for forecasting the likelihood of a recession in the US. This column examines whether the same is true for the UK. Focusing on three periods – the pre-WWI era, the inter-war years, and the post-WWII period – it finds strong support for the inverted yield curve being a predictor of UK recessions for both the pre-WWI and post-WWII periods, but the evidence is less conclusive for the inter-war years. |
| Keywords: | economic history; monetary policy; yield curve; recessions; UK; term structure |
| JEL: | N0 E6 |
| Date: | 2019–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100964&r=all |
| By: | Jan Behringer; Till van Treeck |
| Abstract: | In this paper, we analyze how corporate sector behavior has affected national current account balances in a sample of 25 countries for the period 1980-2015. A consistent finding is that an increase (decrease) in corporate net lending leads to an increase (decrease) in the current account, controlling for standard current account determinants. We disentangle the current account effects of corporate saving and investment and we explore a number of alternative explanations of our results, including incomplete piercing of the "corporate veil" by households, foreign direct investment activities, a temporary crisis phenomenon, and changes in income inequality. We conclude that corporate sector saving is an important driver of macroeconomic trends and that the rise of corporate net lending especially in a number of current account surplus countries has contributed considerably to global current account imbalances. |
| Keywords: | Corporate sector, sectoral financial balances, current account determinants |
| JEL: | E21 F41 G35 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:43-2019&r=all |
| By: | Brandolini, Andrea (Bank of Italy); Rosolia, Alfonso (Bank of Italy) |
| Abstract: | We analyse the evolution of EU citizens' living standards, considering the EU as a single country. Average living standards have improved considerably as the European integration process has unfolded. EU28 income inequality has steadily declined, mostly as a result of the macroeconomic convergence of new EU-accession countries. EU15 income inequality fell steadily until the mid-1980s, but picked up again during the economic turmoil following the Great Recession, largely reflecting the divergence between periphery and core countries in the euro area. Using a common EU standard reveals more progress in terms of poverty reduction. It also shows that the patterns of income convergence across member states differ across categories of residents, thus calling for a more careful consideration of the personal and national dimensions of EU policies. |
| Keywords: | European Union, Euro Area, European integration, income inequality, welfare |
| JEL: | D31 D63 E01 I32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12350&r=all |
| By: | Ahiadorme, Johnson Worlanyo; Sonyo, Emmanuel; Ahiase, Godwin |
| Abstract: | The study utilized time series analysis models and employed the Johansen's cointegration procedure and the vector error correction model to examine the short run and long run dynamics of the relationship between interest rates and stock market returns. The results of this study show that contrary to popular evidence from extant research, interest rate changes positively and significantly affect stock market returns in the long run and the deviation from the long run equilibrium is corrected each period following a shock to the stock market in the short run. The positive linkages between interest rate changes and stock market outturns may be explained by the relative strength of banking stocks on the Ghana Stock Exchange. The analysis shows that as the long run equilibrium is approached, the deviations in the short term decrease significantly. |
| Keywords: | Interest rate, stock returns, cointegration, time series analysis, VECM |
| JEL: | E43 E44 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94292&r=all |
| By: | Brey, Björn; Hertweck, Matthias S. |
| Abstract: | This paper examines the dynamic effects of monsoon rainfall shocks on yield, wages, and prices in the Indian agricultural sector. We distinguish between positive and negative rainfall shocks and explicitly consider their spatial dimension (local/regional). We find that particularly negative regional shocks exert adverse effects. The enormous drop in agricultural yield is short-lived, but elicits a persistent decline (increase) in wages (food prices). Negative local shocks affect only wages, but not prices. This indicates that, in the food market, intra-regional trading mitigates the impact of local shocks. However, in the labour market, the arbitrage mechanism through migration appears substantially weaker. |
| Keywords: | rainfall shocks,agricultural yield,wages,food prices |
| JEL: | C33 E32 O13 Q11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:182019&r=all |
| By: | Vejlin, Rune Majlund (Aarhus University); Veramendi, Gregory (Arizona State University) |
| Abstract: | This paper develops a sufficient statistics approach for estimating the role of search frictions in wage dispersion and lifecycle wage growth. We show how the wage dynamics of displaced workers are directly informative of both for a large class of search models. Specifically, the correlation between pre- and post-displacement wages is informative of frictional wage dispersion. Furthermore, the fraction of displaced workers who suffer a wage loss is informative of frictional wage growth, independent of the job-offer distribution. Applying our methodology to US data, we find that search frictions account for less than 20 percent of wage dispersion. In addition, we estimate an employed job-offer to job-destruction ratio less than one, implying little frictional wage growth. We finish by estimating two versions of a random search model to show how at least two different mechanisms — involuntary job transitions or compensating differentials — can reconcile our results with the job-to-job mobility seen in the data. Regardless of the mechanism, the estimated models show that frictional wage growth accounts for about 15% of lifecycle wage growth. |
| Keywords: | search models, wage dispersion, wage growth, sufficient statistics, displacement |
| JEL: | E24 J31 J64 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12387&r=all |
| By: | Maxime Menuet (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Alexandru Minea (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Patrick Villieu (LEO - Laboratoire d'Economie d'Orleans - Université d'Orléans) |
| Abstract: | In a seminal contribution, Guo and Harrison (2004, JET) showed that, under a balanced-budget rule, the neoclassical growth model exhibits saddle-path stability when the adjustment is based on wasteful public spending. The present paper challenges this result in an endogenous growth framework with non-trivial dynamics of the debt-to-GDP ratio. We show that the emergence of aggregate instability dramatically depends on the strength of social labor externalities. If the labor demand is positively sloped and steeper than the labor supply, two reachable balanced-growth paths appear-a no growth trap, and a positive growth solution-that gives birth to both local and global indeterminacy, hence aggregate instability driven by self-fulfilling beliefs (sunspots). In addition, we show that a fiscal rule such that the tax rate strongly responds to public-debt increases can remove the no-growth trap, and secure positive long-run growth. JEL classification: E62; O41 |
| Keywords: | Endogenous growth,indeterminacy,balanced-budget rules |
| Date: | 2019–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02153853&r=all |
| By: | Zachary Parolin |
| Abstract: | Routine-biased technological change has emerged as a leading explanation for the differential wage growth of routine occupations, such as manufacturers or office clerks, relative to less routine occupations. Less clear, however, is how the effects of technological advancement on occupational wage trends vary across political-institutional context. This paper investigates the extent to which collective bargaining agreements and union coverage shape the relative wage growth of occupations at higher risk of automation. Using data from the Luxembourg Income Study and the U.S. Current Population Survey, I measure the ‘routine task intensity’ of occupations across 15 OECD Member States and the 50 United States from the 1980s onward. Findings suggest that bargaining coverage is more consequential for the wage growth of high routine occupations relative to less routine occupations, and that high routine occupations lose coverage at a faster rate when bargaining coverage at the national level declines. As a result, declines in bargaining coverage within a country are associated with declining relative wage growth for occupations at higher risk of automation. Estimates suggest that had union coverage in the U.S. not declined from 1984 levels, the earnings of high routine occupations might have grown at the same rate as low pay occupations between 1984 and 2015, rather than experiencing a relative wage decline. However, the findings also suggest that gains in the relative wage growth may increasingly come at the cost of reduced employment shares of high routine occupations. |
| JEL: | E24 J51 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:lis:liswps:767&r=all |
| By: | FUJIWARA Ippei; HORI Shunsuke; WAKI Yuichiro |
| Abstract: | How does a grayer society affect the political decision making regarding inflation rates? Is deflation preferred as society ages? In order to answer these questions, we compute the optimal inflation rates for the young and the old respectively and explore how they change with demographic factors, by using a New Keynesian model with overlapping generations. According to our simulation results, there indeed exists a tension between the young and the old on the optimal inflation rates. The optimal inflation rates are different between the young and the old. Also, they can be significantly different from zero, in particular, when heterogeneous impacts from inflation via nominal asset holdings are considered. The optimal inflation rates for the old can be largely negative, reflecting their positive nominal asset holdings as well as lower effective discount factor. Societal aging may exert downward pressure on inflation rates through a politico-economic mechanism. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19021&r=all |
| By: | Bakari, Sayef; Sofien, Tiba |
| Abstract: | The objective of this paper is to examine the impact of openness, foreign investment inflows, and domestic investment on economic growth for the case of 24 Asian economies over the time span 2002-2017 through the use of the fixed and random effect models. Our empirical results pointed out that domestic investment positively influences economic growth. However, we found that foreign direct investment and exports are negatively affecting the growth path. Also, the population, imports, and final consumption expenditure have no real impact on economic growth. Due to the importance of the positive externalities linked to the trade openness and foreign direct investments inflow, in terms of technology transfer bias, financial capacities, human expertise, large markets size, and spillover effect added to the domestic capacities and the national investment, the pace of the phenomenal economic performance of the Asian economies is very well justified. |
| Keywords: | Trade openness, FDI, Domestic Investment, Economic Growth. |
| JEL: | E22 F14 F15 O16 O47 O53 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94453&r=all |
| By: | Richiardi, Matteo G.; Valenzuela, Luis |
| Abstract: | Using a static model of firm behaviour with imperfect competition on the product and labour markets, we quantify the effect of firm heterogeneity in total factor productivity, market power, capital, wages and prices on the aggregate labour share. In particular, we suggest a new decomposition of the aggregate labour share in terms of the first moments of the joint distribution of these variables across firms, providing a bridge between the micro and the macro approach to functional distribution. We provide an application of our method to the UK manufacturing sector, using firm-level data for the period 1998-2014. The analysis confirms that heterogeneity matters: in an economy populated only by representative firms, the labour share would be 10 percentage points lower. Among all the dimensions studied, heterogeneity in total factor productivity and labour market power are the most relevant ones, whereas heterogeneity in product market power matters the least, with wages and prices in between. However, the observed fall in the aggregate labour share over the period is mostly explained by a widening of the disconnect between average productivity and real wages, with a smaller role for an increase in the average product and labour market power of firms after the Great Recession, while changes in the dispersion of these variables mostly offset each other. |
| Keywords: | labour share, firm heterogeneity, market power, firm level data |
| JEL: | D20 D33 D42 D43 E25 L10 |
| Date: | 2019–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94561&r=all |
| By: | Teodora Diana Corsatea; Soeren Lindner; Inaki Arto (Basque Centre for Climate Change (BC3)); Maria Victoria Roman (European Commission – JRC); Jose Manuel Rueda-Cantuche (European Commission – JRC); Agustin Velezquez Afonso (European Commission – JRC); Antonio F. Amores (European Commission – JRC); Frederik Neuwahl (European Commission – JRC) |
| Abstract: | This report describes the approach adopted for the update of the World Input-Output Database (WIOD) environmental accounts for the period 2000-2016. In constructing the WIOD-based energy and emission accounts we follow closely the methodology developed by Genty et al. (2012), with some adjustments due to changes in system boundaries, which are further detailed. This report illustrates the data adjustment steps required to reconcile energy and economic data which stem, for example, from different accounting principles. Special care has been taken to address problems related to time series breaks in order to achieve a smooth transition between the years 2009 and 2010 at the intersection between the original and new WIOD releases. Results for EU countries are compared with other data sources such as the previous WIOD time series, the Physical Energy Flows Accounts (PEFA) and the National Accounts Matrices with Environmental Extensions (NAMEA) showing a satisfactory goodness of fit, with some exceptions. A final comparison of the inter-temporal structure across periods is proposed in order to identify possible reasons of changes in the patterns of gross energy use. |
| Keywords: | Energy accounts, Emission accounts, World Input-Output Database |
| JEL: | C67 E01 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc116234&r=all |
| By: | Maxime Menuet (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Alexandru Minea (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Patrick Villieu (LEO - Laboratoire Economie Orléans - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | The present paper develops a simple theoretical setup to examine the role of the tax-spending mix of fiscal adjustments on aggregate (in)stability in indebted economies. To this end, we build an AK endogenous growth model with public debt dynamics. If the adjustment of the government's budget constraint is based on a single instrument (taxes or public spending), the economy converges towards a high-growth path. With mixed adjustment, however, another equilibrium appears (the no-growth path) that can be locally over-determine (unstable) or under-determined (stable). A hopf bifurcation can occurs at the border between the last two cases, which leads to cyclical dynamics. We also show that global indeterminacy is likely to emerge if fiscal adjustment is mainly based on public spending. A calibration of the model shows that area of indeterminacy covers reasonable values for parameters. |
| Keywords: | hopf bifurcation,balanced-budget rules,indeterminacy,Endogenous growth |
| Date: | 2019–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02153840&r=all |
| By: | Paolo Bertoletti; Federico Etro |
| Abstract: | We study monopolistic competition equilibria with free entry and social planner solutions under symmetric Generalized Additively Separable preferences (that encompass known cases such as additive, homothetic, translog and other preferences). This setting can jointly produce competition and selection effects of entry, incomplete pass-through of cost changes and pricing to market. We characterize the inefficiencies of the market equilibrium under Gorman-Pollak preferences and show its optimality under implicit CES preferences. We propose a new specification of generalized translated power preferences for trade and macroeconomic applications. |
| Keywords: | Monopolistic competition, GAS preferences, Heterogeneous firms |
| JEL: | D1 D4 E3 L1 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2019_17.rdf&r=all |
| By: | NISHIOKA Shuichiro; TANAKA Mari |
| Abstract: | The evolution of product markups has important implications for macroeconomic dynamics. However, thus far, the trends and distributions of product markups have been very different, depending on how they are estimated. This paper uses plant-product matched data from Japan, and theoretically and empirically compares two alternative measures of product markups. One measure is De Loecker and Warzynski's (2012) state-of-the-art production approach that estimates production function parameters and computes markups from the output elasticities of an input divided by that input's revenue share. An alternative measure, which has been much less frequently applied empirically to micro data, is Diewert and Fox's (2008) approach that derived markups from the revenues divided by the total costs. Markups derived from the latter approach are consistent with the theoretical predictions: The markups increase as their market power increases and as their marginal costs decline. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19018&r=all |
| By: | Wu, Dong Frank (International Monetary Fund); Schneider, Friedrich (University of Linz) |
| Abstract: | This paper is the first attempt to directly explore the long-run nonlinearity of the shadow economy. Using a dataset of 158 countries over the period from 1996 to 2015, our results reveal a robust U-shaped relationship between the shadow economy size and GDP per capita. Our results imply that the shadow economy tends to increase when economic development surpasses a given threshold or at least does not disappear with economic growth. Our findings suggest that special attention should be given to the country's level of development when designing policies to tackle issues related to the shadow economy. |
| Keywords: | shadow economy, level of development, nonlinearity, GDP per capita |
| JEL: | E26 H26 O17 O43 I25 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12385&r=all |
| By: | Hart, Robert A. (University of Stirling) |
| Abstract: | This paper provides estimates of labor productivity for one-third of UK manufacturing during the Great Depression. It covers engineering and allied industries, and metal working industries. A unique data set of actual hours of work is combined with comparable real output and employment statistics. It establishes that output per worker-hour was countercyclical in the 1929-1932 peak-to-trough years of the Depression. This result has also been found for US manufacturing over the same period. Working time is found to play a crucial role the UK productivity response. Countercyclical productivity is discussed in terms of (i) the strong final output and consumer price deflations of 1929 to 1934, (ii) an absence of significant labor hoarding, and (c) diminishing returns to long weekly hours of work. |
| Keywords: | labor productivity, Great Depression, diminishing returns to hours |
| JEL: | O47 E32 N64 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12379&r=all |
| By: | Li, Yiting; Wang, Chien-Chiang |
| Abstract: | We study cryptocurrency in a monetary economy with imperfect information. The network imperfection provides traders opportunities to engage in double spending fraud, but the trackability of transaction messages allows us to impose proof-of-work (PoW), proof-of-stake (PoS), and currency exclusion to mitigate fraud incentives. However, PoW consumes energy, and PoS requires extra cryptocurrency to be held as deposits, so deterring fraud may not be optimal. We find that forks can serve as signals to detect double spending fraud and to trigger punishments. If the probability is high that forks appear under double spending, imposing PoW and PoS to deter fraud is optimal; otherwise, it is optimal to save the cost but allow for double spending. Finally, by endogenizing the incentives to double spend and the size of PoW and PoS, we show that cryptocurrency economy can achieve efficient allocation as the imperfectness of the internet is sufficiently low. |
| Keywords: | cryptocurrency, money, search, imperfect information, fraud |
| JEL: | D80 E40 G10 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94309&r=all |
| By: | Roy Bahl (Regents Professor of Economics and Founding Dean, Emeritus, Andrew Young School of Policy Studies, Georgia State University); Baoyun Qiao (Professor of Economics and Dean of China Academy of Public Finance Policy, Central University of Finance and Economics, Beijing) |
| Abstract: | Beijing is one of the most populous cities in the world, and its economy is still growing rapidly. It has the peculiar status of being both a province and a metropolitan city government, and it is home to the national capital. Both of these features challenge its expenditure demands and its finances. In this paper we explore the governance, service delivery and financing of the Beijing metropolitan area government. The basic question we ask is the extent to which Beijing City captures some of the advantages of being a metropolitan areawide government, and the extent to which it avoids some of the disadvantages. In particular, we are interested in whether metropolitan governance can lead to a higher rate of revenue mobilization at the local government level. Is there a next step that cities like Beijing might take to improve their fiscal position, and what can other countries learn from the Chinese experience with metropolitan government finance? |
| Keywords: | Financing, metropolitan government |
| JEL: | A10 E20 H00 I30 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:unt:wpmpdd:wp/19/01&r=all |
| By: | Pawel Bukowski; Filip Novokmet |
| Abstract: | How has Polish inequality evolved between communism and capitalism to reach one of the highest levels in Europe today? To address this question, we construct the first series on the long-term distribution of income in Poland by combining tax, household survey and national accounts data. We document a U-shaped evolution of inequalities from the end of the 19th century until today: (i) inequality was high before WWII; (ii) abruptly fell after the introduction of communism in 1947 and stagnated at low levels during the whole communist period; (iii) experienced a sharp rise with the return to capitalism in 1989. Between 1989 and 2015 the top 10% income share increased from 23% to 35% and the top 1% income share from 4% to 13%. Frequently quoted Poland's transition success has largely benefited top income groups. We find that inequality was high in the first half of the 20th century due to strong concentration of capital income at the top of the distribution. The secular fall after WW2 was largely to a combination of capital income shocks from war destructions with communist policies both eliminating private ownership and forcing wage compression. The rise of inequality after the return to capitalism in the early 1990s was induced both by the rise of top labour and capital incomes. We attribute this to labour market liberalisation and privatisation. However, the strong rise in inequality in the 2000s was driven solely by the increase in top capital incomes, which is likely related to current globalization forces. Yet overall, the unique Polish inequality history speaks about the central role of policies and institutions in shaping inequality in the long run. |
| Keywords: | income inequality, transformation, Poland |
| JEL: | D31 E01 J3 N34 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1628&r=all |
| By: | Snir, Avichai; Levy, Daniel |
| Abstract: | 9-ending prices are a dominant feature of many retail settings, which according to the existing literature, is because consumers perceive them as being relatively low. Are 9-ending prices really lower than comparable non 9-ending prices? Surprisingly, the empirical evidence on this question is scarce. We use 8 years of weekly scanner price data with over 98 million price observations to document four findings. First, at the category level, 9-ending prices are usually higher, on average, than non 9-ending prices. Second, at the product level, in most cases, 9-ending prices are, on average, higher than prices with other endings. Third, sale prices are more likely to be non-9 ending than the corresponding regular prices. Fourth, among sale prices, 9-ending prices are often lower, on average, than comparable non 9-ending prices. The first three findings imply that although consumers may associate 9-ending prices with low prices, the data indicates otherwise. The fourth finding offers a possible explanation for this misperception. Retailers may be using 9-ending prices to draw consumers’ attention to particularly large price cuts during sales, which perhaps conditions the shoppers to associate 9-ending prices with low prices. |
| Keywords: | Behavioral Pricing, Psychological Prices, Price Perception, Image Effect, 9-Ending Prices, Price Points, Regular Prices, Sale Prices |
| JEL: | D12 D22 D40 D80 D83 D90 E31 K42 L11 L16 L20 L4 L49 L81 M21 M30 M31 M37 |
| Date: | 2019–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94469&r=all |
| By: | Snir, Avichai; Levy, Daniel |
| Abstract: | 9-ending prices are a dominant feature of many retail settings, which according to the existing literature, is because consumers perceive them as being relatively low. Are 9-ending prices really lower than comparable non 9-ending prices? Surprisingly, the empirical evidence on this question is scarce. We use 8 years of weekly scanner price data with over 98 million price observations to document four findings. First, at the category level, 9-ending prices are usually higher, on average, than non 9-ending prices. Second, at the product level, in most cases, 9-ending prices are, on average, higher than prices with other endings. Third, sale prices are more likely to be non-9 ending than the corresponding regular prices. Fourth, among sale prices, 9-ending prices are often lower, on average, than comparable non 9-ending prices. The first three findings imply that although consumers may associate 9-ending prices with low prices, the data indicates otherwise. The fourth finding offers a possible explanation for this misperception. Retailers may be using 9-ending prices to draw consumers’ attention to particularly large price cuts during sales, which perhaps conditions the shoppers to associate 9-ending prices with low prices. |
| Keywords: | Behavioral Pricing,Psychological Prices,Price Perception,Image Effect,9-Ending Prices,Price Points,Regular Prices,Sale Prices |
| JEL: | M30 M31 L11 L16 L81 D12 D22 D40 D90 D91 E31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:198044&r=all |
| By: | Sergio Mayordomo (Banco de España); Antonio Moreno (School of Economics and Business, University of Navarra); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)); Maria Rodriguez-Moreno (Banco de España) |
| Abstract: | This paper studies the effects of the bank capital requirements imposed by the European authorities in October 2011 on loan collateral and personal guarantees usage to enhance capital ratios. We use detailed information on the loan contracts granted by a representative Spanish bank and several subsidiaries to nonfinancial corporations around that date. We document that personal guarantees usage increases more than that of collateral, especially at subsidiaries with lower capital ratios. However, although the former type of guarantees demonstrably disciplined firms in their risk-taking before 2011, their subsequent overuse may have blunted their impact and may have even undermined firm performance and investment. |
| Keywords: | Banks, Asymmetric Information, Real Guarantees, Personal Guarantees, Risk Taking, Capital Requirements |
| JEL: | D43 E32 G21 G32 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1928&r=all |
| By: | Luis Cárdenas; Paloma Villanueva; Ignacio Álvarez; Jorge Uxó |
| Abstract: | Since 2014 the Spanish economy has recovered positive GDP growth, and the country has been growing well above the Eurozone average. This recovery has sparked an academic and political debate concerning the role that structural reforms, prescribed by the 'Troika', have played in peripheral Europe. For certain scholars and institutions, these structural reforms have allowed the market, through greater wage flexibility, to make the necessary adjustments to restore economic growth, resulting in a 'healthy' economic recovery. But, to what extent is this mainstream narrative solidly backed up by the empirical evidence? Can Spain be held up as an international example of the success of these reforms? The aim of this paper is to shed light on this debate. We consider that labor market reforms and wage devaluation policy are not the drivers of economic recovery. Instead, we offer an alternative explanation for recovery based on the theory of demand-led growth. |
| Keywords: | Spain, demand-led growth, structural reforms, wage devaluation |
| JEL: | E60 E12 J38 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:40-2018&r=all |
| By: | Thomas I. Palley |
| Abstract: | This paper argues the mainstream economics profession is threatened by theories of the financial crisis and ensuing stagnation that attribute those events to the policies recommended and justified by the profession. Such theories are existentially threatening to the dominant point of view. Consequently, mainstream economists resist engaging them as doing so would legitimize those theories. That resistance has contributed to blocking the politics and policies needed to address stagnation, thereby contributing to a political vacuum which is being filled by odious forces. Those ugly political consequences are unintended, but they are still there and show the dangerous consequences of the death of pluralism in economics. The critique of mainstream economists is not about "values" or lack of "change": it is about academic practice that suppresses ideas which are existentially threatening. |
| Keywords: | Income inequality, stagnation, neoliberalism, Keynesianism, pluralism |
| JEL: | A0 A11 B50 E00 E12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:42-2019&r=all |
| By: | Daniel Levy (Bar-Ilan University); Avichai Snir (Bar-Ilan University) |
| Abstract: | 9-ending prices are a dominant feature of many retail settings, which according to the existing literature, is because consumers perceive them as being relatively low. Are 9-ending prices really lower than comparable non 9-ending prices? Surprisingly, the empirical evidence on this question is scarce. We use 8 years of weekly scanner price data with over 98 million price observations to document four findings. First, at the category level, 9-ending prices are usually higher, on average, than non 9-ending prices. Second, at the product level, in most cases, 9-ending prices are, on average, higher than prices with other endings. Third, sale prices are more likely to be non-9 ending than the corresponding regular prices. Fourth, among sale prices, 9-ending prices are often lower, on average, than comparable non 9-ending prices. The first three findings imply that although consumers may associate 9-ending prices with low prices, the data indicates otherwise. The fourth finding offers a possible explanation for this misperception. Retailers may be using 9-ending prices to draw consumers’ attention to particularly large price cuts during sales, which perhaps conditions the shoppers to associate 9-ending prices with low prices. |
| Keywords: | Behavioral Pricing, Psychological Prices, Price Perception, Image Effect, 9-Ending Prices, Price Points, Regular Prices, Sale Prices |
| JEL: | M30 M31 L11 L16 L81 D12 D22 D40 D90 D91 E31 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2019-06&r=all |
| By: | Ioana Moldovan; Shu-Chun Susan Yang; Luis-Felipe Zanna |
| Abstract: | This paper assesses the optimal setting of fiscal spending and foreign exchange rate intervention policies in response to volatile foreign aid, in a small open economy model that incorporates typical features of low-income countries. Within a class of policy rules, it jointly considers the optimal aid spending and international reserve accumulation policies. The results show that it is optimal to adjust government spending gradually in response to unpredictable fluctuations in aid, while partially accumulating foreign exchange reserves to offset Dutch disease effects. Also, allocating relatively more of the government spending to productive public investment, and less to government consumption, is welfare improving. |
| Date: | 2019–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/126&r=all |
| By: | Jakhotiya, Girish |
| Abstract: | Most of the good and bad economic events of last three decades have proven that the western economists some where have lost a macro-logic essential for resolving the critical socio-economic issues. This was partly due to excessive attempt of quantifying the subjective elements of economic analysis. The other reason for their collective failure is a simple negligence of the bigger canvas that presents an integrated view of many complex and interdependent economic factors. Especially after the global economy started impacting the western countries, the western economists lost their way and started focusing on only oversimplified reasons of the economic debacle of western economies. They also underemphasised the need of horizontal and qualitative economic analysis to support the vertical and quantitative dissection of economic facts. The third world countries (and especially China) complicated the global exercise of economic activism. Western economists need to look at the present socio-economic and geo-political uncertainties with a fresh and revised perspective. They should also realize and admit that some of the old western economic doctrines are no more workable in a new global economy. Therefore, they need to reorient their economic thinking. |
| Keywords: | Development Index, Qualitative analysis, Economic Modelling, Economic Equilibrium |
| JEL: | E6 |
| Date: | 2019–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94318&r=all |