nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒07‒08
114 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. How to disappear completely: non-linearity and endogeneity in the new keynesian wage Phillips curve By Sebastião Abreu, Daniel; Silva Lopes, Artur
  2. Flexible Majority Rules for Cryptocurrency Issuance By Hans Gersbach
  3. Announcement-Specific Decompositions of Unconventional Monetary Policy Shocks and Their Macroeconomic Effects By Lewis, Daniel J.
  4. The Phillips Curve at 60: time for time and frequency By Luís Aguiar-Conraria; Manuel M. F. Martins; Maria Joana Soares
  5. To Create or to Redistribute? That is the Question By Demetris Koursaros; Nektarios Michail; Niki Papadopoulou; Christos Savva
  6. Monetary Policy and Macroeconomic Stability Revisited By Hirose, Yasuo; Van Zandweghe, Willem; Kurozumi, Takushi
  7. Banks’ Business Model and Credit Supply in Chile: The Role of a State-Owned Bank By Biron Miguel; Felipe Córdova; Antonio Lemus
  8. Measuring euro area monetary policy By Altavilla, Carlo; Brugnolini, Luca; Gürkaynak, Refet S.; Motto, Roberto; Ragusa, Giuseppe
  9. Back to the real economy: the effects of risk perception shocks on the term premium and bank lending By Bluwstein, Kristina; Yung, Julieta
  10. Can loss aversion shed light on the deflation puzzle? By Jenny N. Lye; Ian M. McDonald
  11. EDB Macroreview, April 2019. Republic of Belarus: trends and forecasts By Kuznetsov, Aleksei; Berdigulova, Aigul
  12. The New Keynesian Model and Sacrifice Ratios: Some Measurement Issues By André Lunardelli; Marcio Issao Nakane
  13. Inflation and Social Welfare in a New Keynesian Model: The Case of Japan and the U.S. By Tomohide Mineyama; Wataru Hirata; Kenji Nishizaki
  14. Financial Stability Implications of Policy Mix in a Small Open Commodity-Exporting Economy By Irina Kozlovtceva; Alexey Ponomarenko; Andrey Sinyakov; Stas Tatarintsev
  15. Stock Market Wealth and the Real Economy: A Local Labor Market Approach By Gabriel Chodorow-Reich; Plamen T. Nenov; Alp Simsek
  16. The Reversal Interest Rate By Markus K. Brunnermeier; Yann Koby
  17. Monetary Policy in Perspective Conventional Economy and Islamic Economics By Mujahidin, Muhamad
  18. Monetary policy, inflation target and the great moderation: An empirical investigation By Qazi Haque
  19. The Phillips Curve at 60: time for time and frequency By Luís Aguiar-Conraria; Manuel M. F. Martins; Maria Joana Soares
  20. EDB Macroreview, April 2019. Republic of Tajikistan: trends and forecasts By Kuznetsov, Aleksei; Berdigulova, Aigul
  21. External debt financing and macroeconomic instability in emerging market economies By Ashima Goyal; Rajeswari Sengupta; Akhilesh Verma
  22. Public Support for the Euro and Trust in the ECB. The First Two Decades of the Common Currency By Roth, Felix; Jonung, Lars
  23. The 2019 Long-Term Budget Outlook By Congressional Budget Office
  24. Yield Curve and Financial Uncertainty: Evidence Based on US Data By Efrem Castelnuovo
  26. ¿Cómo y qué tanto impacta la deuda pública a las tasas de interés de mercado? By Carlos David Ardila-Dueñas; Hernán Rincón-Castro
  27. The effectiveness of monetary policy in China: Evidence from a Qual VAR By Hongyi Chen; Kenneth Chow; Peter Tillmann
  28. Revisiting the Hypothesis of High Discounts and High Unemployment By J. Paolo Martellini; Guido Menzio; Ludo Visschers
  29. China’s overinvestment and international trade conflict By Gunther Schnabl
  30. Technological unemployment and income inequality: a stock-flow consistent agent-based approach By Laura Carvalho; Corrado Di Guilmi
  31. Why Do Americans Spend So Much More on Health Care than Europeans? (REVISED) By Hui He; Kevin X.D. Huang; Lei Ning
  32. Analysing monetary policy statements of the Reserve Bank of India By Aakriti Mathur; Rajeswari Sengupta
  33. EDB Macroreview, April 2019. Russian Federation: trends and forecasts By Kuznetsov, Aleksei; Berdigulova, Aigul
  34. EDB Macroreview, April 2019. Kyrgyz Republic: trends and forecasts By Kuznetsov, Aleksei; Berdigulova, Aigul
  35. A Rebalancing Chinese Economy: Drivers and Challenges By Guonan Ma; Ivan Roberts; Gerard Kelly
  36. EDB Special report 2019. Exchange rate pass-through effects on inflation in EDB Member Countries By Kuznetsov, Aleksei; Berdigulova, Aigul
  37. Bank asset quality and monetary policy pass-through By Kelly, Robert; Byrne, David
  38. Impact of higher capital buffers on banks’ lending and risk-taking: evidence from the euro area experiments By Cappelletti, Giuseppe; Peeters, Jonas; Budrys, Žymantas; Varraso, Paolo; Marques, Aurea Ponte
  39. Economic Uncertainty and Subjective Inflation Expectations By Rossmann, Tobias
  40. Capital Income Taxation and Aggregate Instability By Kevin X.D. Huang; Qinglai Meng; Jianpo Xue
  41. Credit, House Prices and the Macroeconomy in Cyprus By Lena Cleanthous-Petoussi; Elena Eracleous; Nektarios A. Michail
  42. Determinants of firm-level investment in India: Does size matter? By Parul Bhardwaj; Abhishek Kumar
  43. Fiat Money as a Public Signal, Medium of Exchange, and Punishment By Gomis-Porqueras, Pedro; Sun, Ching-jen
  44. Rethinking capital regulation: the case for a dividend prudential target By Muñoz, Manuel
  45. The broad policy toolkit for financial stability: Foundations, fences, and fire doors By Etienne Lepers; Caroline Mehigan
  46. Business Cycles and Production Networks By Olsson, Maria
  47. Revisions of potential output estimates in the EU after the Great Recession By Jonas Dovern; Christopher Zuber
  48. Investigating fiscal and monetary policies coordination and public debt in Kenya: Evidence from regime-switching and self-exciting threshold autoregressive models By Ng'ang'a, William Irungu; Chevallier, Julien; Ndiritu, Simon Wagura
  49. Financial Interconnectedness, Amplification, and Cross-Border Activity By Daisuke Ikeda; Mayumi Ojima; Koji Takahashi
  50. Federal Investment, 1962 to 2018 By Congressional Budget Office
  51. The Lucas Imperfect Information Model with Imperfect Common Knowledge By Ui, Takashi
  52. Monetary policy transmission to consumer financial stress and durable consumption By Dimitris Georgarakos; Konstantinos Tatsiramos
  53. What does peer-to-peer lending evidence say about the risk-taking channel of monetary policy? By Huang, Yiping; Li, Xiang; Wang, Chu
  54. Inflation Expectations and Monetary Policy Surprises By Snezana Eminidou; Marios Zachariadis; Elena Andreou
  55. Monetary Policy, Inflation Target and the Great Moderation: An Empirical Investigation By Qazi Haque
  56. Financial cycles across G7 economies: A view from wavelet analysis By Mandler, Martin; Scharnagl, Michael
  57. Ciclos económicos y clusters regionales en Europa By María Dolores Gadea-Rivas; Ana Gómez-Loscos; Eduardo Bandrés
  58. Investigating Fiscal and Monetary Policies Coordination and Public Debt in Kenya: Evidence from regime-switching and self-exciting threshold autoregressive models By William Ng'ang'a; Julien Chevallier; Simon Ndiritu
  59. Do We Really Know that U.S. Monetary Policy was Destabilizing in the 1970s? By Qazi Haque; Nicolas Groshenny; Mark Weder
  60. Bitcoin and web search query dynamics: is the price driving the hype or is the hype driving the price? By Bernd Süssmuth
  61. What works for Active Labor Market Policies? A meta analysis By Eduardo Levy Yeyati; Martín Montané; Luca Sartorio
  62. Delayed Collection of Unemployment Insurance in Recessions By Xie, Zoe
  63. The Beveridge curve and labour market flows - a reinterpretation By Nils Gottfries; Karolina Stadin
  64. Is the relationship between housing price and banking debt symmetric or non-symmetric? evidence from Malaysia based on NARDL By Azwan, Nurul Iman; Masih, Mansur
  65. The Industrial Revolution in Services By Chang-Tai Hsieh; Esteban Rossi-Hansberg
  66. Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates By Luca Dedola; Georgios Georgiadis; Johannes Gräb; Arnaud Mehl
  67. Measuring the Competitiveness of the Cyprus Economy: the Case of Unit Labour Costs By Marios Polemidiotis; Maria C. Papageorgiou; Maria G. Mithillou
  68. Does one size fit all in the Euro Area? Some counterfactual evidence By Destefanis, Sergio; Fragetta, Matteo; Gasteiger, Emanuel
  69. Banking Crises, Bail-ins and Money Holdings By Martin Brown; Ioanna S. Evangelou; Helmut Stix
  70. Financial stability and the Fed: evidence from congressional hearings By Arina Wischnewsky; David-Jan Jansen; Matthias Neuenkirch
  71. Taking Stock of Trade Policy Uncertainty: Evidence from China’s Pre-WTO Accession By George A. Alessandria; Shafaat Y. Khan; Armen Khederlarian
  72. Does Housing Wealth Affect Consumption? The Case of Cyprus By Nektarios Michail; George Thucydides
  73. Osteuropa trotzt dem globalen Gegenwind By Vasily Astrov; Julia Grübler
  74. Surveying Business Uncertainty By David Altig; Jose Maria Barrero; Nicholas Bloom; Steven J. Davis; Brent H. Meyer; Nicholas Parker
  75. Does the Early Retirement Policy Really Benefit Women? By Hyun Lee; Kai Zhao; Fei Zou
  76. United States; 2019 Article IV Consultation - Press Release; Staff Report; and Statement by the Executive Director for the United States By International Monetary Fund
  77. Intratemporal Nonseparability Between Housing and Nondurable Consumption:Evidence from Reinvestment in Housing Stock By Khorunzhina, Natalia
  78. Intratemporal nonseparability between housing and nondurable consumption: evidence from reinvestment in housing stock By Natalia Khorunzhina
  79. The Impact of Trade Openness, Foreign Direct Investment and Domestic Investment on Economic Growth: New Evidence from Asian Developing Countries By Bakari, Sayef; Sofien, Tiba
  80. A Factor Model Analysis of the Australian Economy and the Effects of Inflation Targeting By Hartigan, Luke; Morley, James
  81. Introduction : Economic policies in the Euro Area after the Crisis By Catherine Mathieu
  82. Multilateral Sato-Vartia Index for International Comparisons of Prices and Real Expenditures By Abe, Naohito; Rao, D.S.Prasada
  83. Federal Reserve Structure, Economic Ideas, and Monetary and Financial Policy By Bordo, Michael D.; Prescott, Edward Simpson
  84. From finance to fascism: The real effect of Germany's 1931 banking crisis By Doerr, Sebastian; Gissler, Stefan; Peydró, José-Luis; Voth, Hans-Joachim
  85. The effect of house prices on household borrowing: a new approach By Cloyne, James; Huber, Kilian; Ilzetzki, Ethan; Kleven, Henrik
  86. La mejora de la situación de las finanzas públicas de las corporaciones locales en la última década By Mario Alloza; Pablo Burriel
  87. Implications of partial information for econometric modeling of macroeconomic systems By Adrian Pagan; Tim Robinson
  88. Interpolation of Japan's Household Consumption during World War II By Ryoji Koike
  89. An automated prior robustness analysis in Bayesian model comparison By Joshua C. C. Chan; Liana Jacobi; Dan Zhu
  90. The Relationship Between Offshoring, Growth and Welfare By Gregory Huffman
  91. Efficient selection of hyperparameters in large Bayesian VARs using automatic differentiation By Joshua C. C. Chan; Liana Jacobi; Dan Zhu
  92. Dynamics of Female Labor Force Participation and Welfare with Multiple Social Reference Groups By Mihaela Pintea
  93. The Term Structure of Exchange Rate Predictability: Commonality, Scapegoat, and Disagreement By Shuo Cao; Huichou Huang; Ruirui Liu; Ronald MacDonald
  94. Nominal and Real Effective Exchange Rates for Europe, 1870-2016: Some methodological issues By Ljungberg, Jonas
  95. Quantities and Prices in China’s Monetary Policy Transmission From Window Guidance to Interbank Rates By Naoyuki Yoshino; Stefan Angrick
  96. What drives total real unit energy costs globally? A novel LMDI decomposition approach By Kaltenegger, Oliver
  97. The Quarterly Japanese Economic Model (Q-JEM): 2019 version By Naohisa Hirakata; Kazutoshi Kan; Akihiro Kanafuji; Yosuke Kido; Yui Kishaba; Tomonori Murakoshi; Takeshi Shinohara
  98. James Bullard Discusses Nominal GDP Targeting By Bullard, James B.
  99. Financing a Renewable Energy Feed-in Tariff with a Tax on Carbon Dioxide Emissions: A Dynamic Multi-Sector General Equilibrium Analysis for Portugal By Rui Marvão Pereira; Alfredo Marvão Pereira
  100. Asset Liquidity and Indivisibility By Han Han; Benoit Julien; Asgerdur Petursdottir; Liang Wang
  101. El Sistema Pensional en Colombia By Martha López; Eduardo Sarmiento G.
  102. Euro area Macroeconomics - Where do we stand 20 years later ? By Catherine Mathieu; Henri Sterdyniak
  103. "Optimal Monetary Policy for the Masses," 28th Annual Hyman P. Minsky Conference, Levy Economics Institute of Bard College, Annandale-on-Hudson, N.Y. By Bullard, James B.
  104. Estimating macroeconomic uncertainty and discord using info-metrics By Kajal Lahiri; Wuwei Wang
  105. Effect of aging on housing prices: evidence from a panel data By Sun, Tianyu; Chand, Satish; Sharpe, Keiran
  106. The decades-long dispute over scale effects in the theory of economic growth By Steven Bond-Smith
  107. Non-linearities, cyber attacks and cryptocurrencies By Guglielmo Maria Caporale; Woo-Young Kang; Fabio Spagnolo; Nicola Spagnolo
  108. A Model-Based Assessment of the Distributional Impact of Structural Reforms By Werner Roeger; Janos Varga; Jan in 't Veld; Lukas Vogel
  109. "Classic Policy Benchmarks for Heterogeneous Agent Economies," Monetary Policy and Heterogeneity Conference, Hong Kong Monetary Authority and Federal Reserve Bank of New York, Hong Kong, China. By Bullard, James B.; DiCecio, Riccardo
  110. Crecimiento de la productividad total de los factores en Costa Rica e inestabilidad macroeconómica By Edgar A. Robles
  111. Fiscal Policy Options for Japan By Olivier J Blanchard; Takeshi Tashiro
  112. Fed Listens in Cincinnati: How Does Monetary Policy Affect Your Community : a speech at the Policy Summit 2019: Connecting People and Places to Opportunity, Federal Reserve Bank of Cleveland, Cincinnati, Ohio, June 21, 2019. By Brainard, Lael
  113. On the (in)efficiency of cryptocurrencies: Have they taken daily or weekly random walks? By Natalya Apopo; Andrew Phiri
  114. Changing supply elasticities and regional housing booms By Knut Are Aastveit; Bruno Albuquerque; André Anundsen

  1. By: Sebastião Abreu, Daniel; Silva Lopes, Artur
    Abstract: We use a three-regime threshold regression model to assess the ability of the New Keynesian Wage Phillips Curve (NKWPC) to describe wage inflation in the U.S. over the 1965-2018 period. Non-linearity is clearly supported by the data and it easily resists an endogeneity correction. However, this correction exposes more clearly the shortcomings of the NKWPC as a successful description of wage dynamics in the extreme phases of the business cycles, when unemployment is either low or high. In both cases it becomes completely flat.
    Keywords: Phillips curve; wage rigidity; threshold regression; endogeneity
    JEL: C22 E24 E31 E32
    Date: 2019–06–19
  2. By: Hans Gersbach (ETH Zurich, Switzerland)
    Abstract: We suggest that flexible majority rules for currency issuance decisions foster the stability of a cryptocurrency. With flexible majority rules, the voteshare needed to approve a particular currency issuance growth is increasing with this growth rate. By choosing suitable parameters for these flexible majority rules, we show that optimal growth rates can be achieved in simple settings. Moreover, with flexible majority rules, changes in the composition of growth-friendly and growth-adverse agents only have a comparatively moderate impact on growth rates, and extreme growth rates are avoided. Finally, we show that optimal money growth rates are realized if agents entering financial contracts anticipate ensuing inflation rates determined by these flexible majority rules.
    Keywords: Digital currency, central bank, voting, majority rule, flexible majority rules
    JEL: D72 E31 E42 E52 E58
    Date: 2019–06
  3. By: Lewis, Daniel J. (Federal Reserve Bank of New York)
    Abstract: I propose to identify announcement-specific decompositions of asset price changes into monetary policy shocks based on intraday time-varying volatility. This approach is the first to accommodate changes in both the nature of shocks and the state of the economy across announcements. I compute daily historical decompositions with respect to three monetary policy shocks for the United States from 2007 to 2018. I derive expressions for the asymptotic variance of such historical decompositions and apply them to assess the statistical significance of notable announcements. Only a handful spark significant shocks, and I discuss the characteristics of those announcements in detail. For many announcements, asset purchase shocks lower corporate borrowing costs, but spreads increase in response to both asset purchases and forward guidance. Turning to the real economy, I find that the asset purchase shock has significant effects on consumer and professional expectations of inflation and GDP growth. I compute dynamic responses of inflation and GDP growth; asset purchases have significant expansionary effects, while fed funds shocks and forward guidance do not.
    Keywords: high-frequency identification; time-varying volatility; monetary policy shocks; forward guidance; quantitative easing
    JEL: C32 C58 E44 E52 E58
    Date: 2019–06–01
  4. By: Luís Aguiar-Conraria (NIPE and Department of Economics, University of Minho); Manuel M. F. Martins (cef.up and Faculty of Economics, University of Porto); Maria Joana Soares (NIPE and Department of Mathematics and Applications, University of Minho)
    Abstract: We estimate the U.S. New Keynesian Phillips Curve in the time-frequency domain with continuous wavelet tools, to provide an integrated answer to the three most controversial issues on the Phillips Curve. (1) Has the short-run tradeoff been stable? (2) What has been the role of expectations? (3)Is there a long-run tradeoff? First, we find that the short-run tradeoff is limited to some specific episodes and short cycles and that there is no evidence of nonlinearities or structural breaks. Second, households' expectations captured trend inflation and were anchored until the Great Recession, but not since 2008. Then, inflation over-reacted to expectations at short cycles. Finally, there is no significant long-run tradeoff. In the long-run, inflation is explained by expectations.
    Keywords: Phillips Curve; Inflation; Unemployment; Business Cycles; Continuous Wavelet Transform; Partial Wavelet Gain.
    JEL: C49 E24 E32
    Date: 2019–06
  5. By: Demetris Koursaros (Cyprus University of Technology); Nektarios Michail (Central Bank of Cyprus); Niki Papadopoulou (Central Bank of Cyprus); Christos Savva (Cyprus University of Technology)
    Abstract: This study attempts to explain low corporate investment in the post-crisis period, which persisted despite aggressive easing of financial conditions. Agents utilize available funding by either investing in new capital creation or by acquiring existing assets (asset redistribution). The former increases total income and employment, while the latter alters the distribution of wealth amongst agents. Theoretical explanations and empirical evidence are provided to support the argument that during recessions investors deem it more profitable and banks find it safer to fund re-purchases of existing assets, rather than create new assets. This trend exacerbates a recession and slows recovery as it deprives entrepreneurs of funding. Furthermore, this scenario provides an explanation of the phenomenon of rising inequality and social harm over the course of a recession. As asset redistribution is predominantly a privilege of the rich, an increase in inequality encourages more income redistribution, thus further exacerbating recessions. Finally, it is demonstrated that macroprudential policies promoting access to finance for new capital investments can discourage asset redistribution and potentially boost recovery.
    Keywords: investment; business cycles; asset redistribution; inequality
    JEL: E52 E25 E32 E21
    Date: 2018–07
  6. By: Hirose, Yasuo (Keio University); Van Zandweghe, Willem (Federal Reserve Bank of Cleveland); Kurozumi, Takushi (Bank of Japan)
    Abstract: A large literature has established that the Fed’ change from a passive to an active policy response to inflation led to US macroeconomic stability after the Great Inflation of the 1970s. This paper revisits the literature’s view by estimating a generalized New Keynesian model using a full-information Bayesian method that allows for equilibrium indeterminacy and adopts a sequential Monte Carlo algorithm. The model empirically outperforms canonical New Keynesian models that confirm the literature’s view. Our estimated model shows an active policy response to inflation even during the Great Inflation. More importantly, a more active policy response to inflation alone does not suffice for explaining the US macroeconomic stability, unless it is accompanied by a change in either trend inflation or policy responses to the output gap and output growth. This extends the literature by emphasizing the importance of the changes in other aspects of monetary policy in addition to its response to inflation.
    Keywords: Monetary policy; Great Inflation; Indeterminacy; Trend inflation; Sequential Monte Carlo;
    JEL: C11 C52 C62 E31 E52
    Date: 2019–06–27
  7. By: Biron Miguel; Felipe Córdova; Antonio Lemus
    Abstract: During the recent financial crisis, banks suffered losses on a scale not witnessed since the Great Depression, partly due to two structural developments in the banking industry; deregulation combined with financial innovation. The regulatory response concentrated on the Basel III recommendations, affected banks’ business model and funding patterns. Consequently, these changes have had implications on how banks grant loans, how they react to monetary policy shocks, and on how they respond to global shocks. We find evidence of significant interactions between banks’ lending and both monetary and global shocks in Chile. In particular, these interactions have been significantly shaped by the counter-cyclical behavior of the state-owned bank. The good governance of this institution along with a sound legal and economic environment, have propitiated this result.
    Keywords: bank lending channel, global factors, Banco Estado
    JEL: E40 E44 E51 E52 E58 G21
    Date: 2019
  8. By: Altavilla, Carlo; Brugnolini, Luca; Gürkaynak, Refet S.; Motto, Roberto; Ragusa, Giuseppe
    Abstract: We study the information flow from the ECB on policy dates since its inception, using tick data. We show that three factors capture about all of the variation in the yield curve but that these are different factors with different variance shares in the window that contains the policy decision announcement and the window that contains the press conference. We also show that the QE-related policy factor has been dominant in the recent period and that Forward Guidance and QE effects have been very persistent on the longer-end of the yield curve. We further show that broad and banking stock indices' responses to monetary policy surprises depended on the perceived nature of the surprises. We find no evidence of asymmetric responses of financial markets to positive and negative surprises, in contrast to the literature on asymmetric real effects of monetary policy. Lastly, we show how to implement our methodology for any policy-related news release, such as policymaker speeches. To carry out the analysis, we construct the Euro Area Monetary Policy Event- Study Database (EA-MPD). This database, which contains intraday asset price changes around the policy decision announcement as well as around the press conference, is a contribution on its own right and we expect it to be the standard in monetary policy research for the euro area.
    Keywords: ECB policy surprise,event-study,intraday,persistence,asymmetry
    JEL: E43 E44 E52 E58 G12 G14
    Date: 2019
  9. By: Bluwstein, Kristina (Bank of England); Yung, Julieta (Bates College)
    Abstract: We develop a dynamic stochastic general equilibrium framework that can account for important macroeconomic and financial moments, given Epstein-Zin preferences, heterogeneous banking and third-order approximation methods that yield a time-varying term premium that feeds back to the real economy. A risk perception shock increases term premia, lowers output, and reduces short-term credit in the private sector in response to higher loan rates and constrained borrowers, as banks rebalance their portfolios. A ‘bad’ credit boom, driven by investors mispricing risk, leads to a more severe recession and is less supportive of economic growth than a ‘good’ credit boom based on fundamentals.
    Keywords: Stochastic discount factor; DSGE; long-term interest rate; risk mispricing; macro-financial linkages; bank lending
    JEL: E43 E44 E58 G12
    Date: 2019–06–21
  10. By: Jenny N. Lye; Ian M. McDonald
    Abstract: This paper argues that the application of loss aversion to wage determination can explain the deflation puzzle: the failure of persistently high unemployment to exert a persistent downward impact on the rate of inflation in money wages. This is an improvement on other theories of the deflation puzzle which simply assume downward wage rigidity; which are the hysteresis theory, the lubrication theory and the efficiency wage theory. The paper presents estimates that support the loss aversion explanation of the deflation puzzle for both the US and Australia. Furthermore, our estimation approach gives a more precise estimate of the potential rate of unemployment than does the natural rate approach and reveals a potential rate of unemployment for the US and Australia at the current time (end of 2017) of about 4% and 3.3% respectively.
    Keywords: unemployment, inflation, Phillips curve, hysteresis, loss aversion, behavioural macroeconomics
    JEL: E12 E24 E31
    Date: 2019–06
  11. By: Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: In 2018, the Belarusian economy showed a high growth rate as it recovered after the recession in 2015–2016. Economic growth was supported by increasing consumer and investment activity as lending expanded, the population’s income grew, and the real sector’s economic sentiment improved. The economic growth rate in 2018 gradually slowed down as the monetary conditions’ stimulating effect decreased and the low base effect petered out. The EDB predicts Belarusian GDP to increase annually by 1.5–2% in the medium term in the absence of additional stimulation. The Belarusian ruble was highly volatile in 2018. The Belarusian currency was affected by aggravating geopolitical tension that caused the exchange rate of the Russian ruble and other EDB member countries’ currencies to fluctuate. In the medium term, the Belarusian ruble will devalue at a moderate rate as inflation in Belarus stays higher than in its main trade partner countries. Inflation in 2018 kept within the NB RB’s target range, managed by a balanced monetary policy. Yet, after reaching its historic minimum in June and July 2018, inflation began accelerating in the second semester as food and fuel price growth increased and inflation in the RF accelerated while consumer demand remained high. The buildup of inflationary pressure led the NB RB to suspend its refinancing rate reduction cycle in 2nd half of 2018. In 2019, inflation is expected to accelerate temporarily and perhaps exceed its end-of-year target level of 5%. Consumer price growth may be brought about by inflation increasing in the RF, gradual evaluation of the Belarusian ruble, and the persistent inflationary influence of wages. We predict this to be a temporary process, however, and in 2020 and 2021 inflation will be close to the NB RB’s targets. The IBC rate is expected to be in the 10–11% range, which is consistent with its neutral level. The Republic’s budget surplus expanded considerably in 2018 due to temporary factors, including commodity price growth and a high recovery growth rate in the national economy. The budget surplus reduced the country’s need to refinance its public debt. In the medium term, the budgetary and fiscal policy will remain focused on the improvement of fiscal and debt stability.
    Keywords: macroeconomy; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2019–05–21
  12. By: André Lunardelli; Marcio Issao Nakane
    Abstract: There is some confusion in the literature about how to calculate sacrifice ratios (SRs), and we show that correcting for this problem implies that the way computed by Ascari and Ropele (2012) generates values four times larger than the way reported by most of the empirical studies. Therefore, contrary to their claim, their baseline simulations with the medium-scale New Keynesian model with past inflation indexation do not generate realistic sacrifice ratios, and simulations with plausible but less frequently used parameters can only reach the very low end of the range of the estimates obtained in the empirical studies.
    Keywords: Disinflation; sacrifice ratio; inflation persistence.
    JEL: D03 E31 E32 E42 E5 J6
    Date: 2019–07–01
  13. By: Tomohide Mineyama (Bank of Japan); Wataru Hirata (Bank of Japan); Kenji Nishizaki (Bank of Japan)
    Abstract: In this paper, we investigate the steady-state inflation rate that maximizes social welfare in a New Keynesian model. We calibrate the model on the Japanese and the U.S. economies, and we solve the model employing a computation method that addresses the non-linear dynamics associated with four major factors affecting the costs and benefits of inflation: (i) nominal price rigidity; (ii) money holdings; (iii) downward nominal wage rigidity (DNWR); and (iv) the zero lower bound of the nominal interest rates (ZLB). The calibrated model suggests the steady-state inflation rate that maximizes social welfare is close to two percent for both Japan and the U.S., though the main driver differs by country: the ZLB for Japan, but the DNWR for the U.S. In addition, around one percentage point absolute deviation from the close-to-two-percent rate induces only a minor change in social welfare. We also find that the lower-end of the range that is acceptable in terms of welfare losses is reduced when we introduce forward guidance in monetary policy through which private agents anticipate a prolonged zero interest rate once the ZLB binds. The estimates of the steady-state inflation rate are subject to a considerable margin of error due to parameter uncertainty in ZLB parameterization.
    Keywords: Inflation; Social welfare; New Keynesian model; Downward nominal wage rigidity; Zero lower bound; Forward guidance
    JEL: E31 E43 E52
    Date: 2019–06–27
  14. By: Irina Kozlovtceva (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Andrey Sinyakov (Bank of Russia, Russian Federation); Stas Tatarintsev (Bank of Russia, Russian Federation)
    Abstract: In this paper, we study how systematic monetary policy under inflation targeting in a commodity-exporting economy not fully isolated from commodity price volatility by fiscal policy may contribute to financial instability by fueling the credit cycle when commodity prices increase or by amplifying the credit crunch when commodity prices decline. We report several empirical observations that illustrate the potential procyclicality (relative to credit developments) of inflation targeting policy where commodity price fluctuations are the main drivers of macroeconomic developments. Namely, we find that relative prices in commodity-exporting economies are much more volatile than in other countries. The length of periods when relative prices grow or decline is comparable to the monetary policy horizon of most inflation targeters (2-3 years). Note that the central banks that target inflation, including those of the commodity-exporting countries, usually target the headline CPI. This index accommodates relative price changes by design. We proceed with formal statistical testing using panel structural VARs and local projection models. The tests support the procyclicality of inflation targeting, but only in a group of emerging market economies, which in practice have more procyclical fiscal policy than advanced economies: monetary policy eases in response to a higher price of an exported commodity while real credit grows. Counterfactual exercises show that endogenous monetary policy responses to commodity shocks explain around 20% on average of the real credit growth in a group of commodity exporting countries for which the reaction of policy rates to commodity shocks is statistically significant. We cross-check the empirical findings by reviewing a collection of papers with estimated DSGE models and analysing impulse responses of real policy rates to commodity price changes. We also conduct a theoretical analysis and compare stabilization properties (while accounting for financial stability risks) of the inflation-targeting policy rule and the ‘leaning against the wind’ policy rules. Notably, we do this exercise conditionally on the role of commodity price shocks for the economy. For this purpose, we use the DSGE with financial frictions and a banking sector estimated basing for the Russian economy and measure the efficiency of policy results with different sensitivity to credit developments (the ‘leaning against the wind’ rules) under different variance of oil price shocks (which may be interpreted also as different efficiency of fiscal policy in insulating the economy from a given oil price volatility). Results show that when commodity price volatility is relatively high (fiscal policy is not countercyclical), leaning against the wind outperforms pure inflation targeting, thus supporting our empirical findings. Interestingly, even when the financial stability risks associated with the volatility of credit developments are negligible, a moderate leaning against the wind policy is still preferable. As policy implication, we point that a commodity-exporting economy should have countercyclical fiscal policy for inflation targeting to become countercyclical in a commodity cycle.
    Keywords: systematic monetary policy, optimal central bank policy, inflation targeting, macroprudential policy, relative prices, credit cycle, financial frictions, leaning against the wind, commodity prices
    JEL: E31 E52 E58 F41 F47
    Date: 2019–06
  15. By: Gabriel Chodorow-Reich; Plamen T. Nenov; Alp Simsek
    Abstract: We provide evidence on the stock market consumption wealth effect by using a local labor market analysis and regional heterogeneity in stock market wealth. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, while having no effect on employment in tradable industries. In a model with consumption wealth effects and geographic heterogeneity, these responses imply a marginal propensity to consume out of a dollar of stock wealth of 2.8 cents per year. We also use the model to quantify the aggregate effects of a stock market wealth shock when monetary policy is passive. A 20% increase in stock valuations, unless countered by monetary policy, increases the aggregate labor bill by at least 0.85% and aggregate hours by at least 0.28% two years after the shock.
    JEL: E21 E32 E44
    Date: 2019–06
  16. By: Markus K. Brunnermeier (Department of Economics, Princeton University (E-mail:; Yann Koby (Department of Economics, Princeton University (E-mail:
    Abstract: The reversal interest rate is the rate at which accommodative monetary policy reverses and becomes contractionary for lending. Its determinants are 1) banks' fixed-income holdings, 2) the strictness of capital constraints, 3) the degree of pass-through to deposit rates, and 4) the initial capitalization of banks. Quantitative easing increases the reversal interest rate and should only be employed after interest rate cuts are exhausted. Over time the reversal interest rate creeps up since asset revaluation fades out as fixed-income holdings mature while net interest income stays low. We calibrate a New Keynesian model that embeds our banking frictions.
    Keywords: Monetary Policy, Lower Bound, Negative Rates, Banking
    JEL: E43 E44 E52 G21
    Date: 2019–06
  17. By: Mujahidin, Muhamad
    Abstract: This article describes the perspective of differences between monetary policy in conventional economics and Islamic economics. By using a negation approach, this study concludes that Islamic monetary policy offers an economic system that is more resistant to monetary crises because the Islamic monetary system does not use an interest rate system so that it can stabilize prices more and be able to control inflation compared to the conventional monetary system.
    Keywords: Islamic Economics, Sharia Economy, Monetary, Islamic Monetary
    JEL: A10 B22 B26 E02 E44 E52 E58 F40
    Date: 2019–06–20
  18. By: Qazi Haque
    Abstract: This paper estimates a New Keynesian model with trend inflation and contrasts Taylor rules featuring fixed versus time-varying inflation target while allowing for passive monetary policy. The estimation is conducted over the Great Inflation and the Great Moderation periods. Time-varying inflation target empirically fits better and active monetary policy prevails in both periods, thereby ruling out sunspots as an explanation of the Great Inflation episode. Counterfactual simulations suggest that the decline in inflation volatility since the mid-1980s is mainly driven by monetary policy, while the reduction in output growth variability is explained by the reduced volatility of technology shocks.
    Keywords: Monetary policy, Trend Inflation, Inflation Target, Indeterminacy, Great Inflation, Great Moderation, Sequential Monte Carlo
    JEL: C11 C52 C62 E31 E32 E52
    Date: 2019–06
  19. By: Luís Aguiar-Conraria (Department of Economics / NIPE, University of Minho); Manuel M. F. Martins (Cef.up and Faculty of Economics, University of Porto,); Maria Joana Soares (NIPE and Department of Mathematics, University of Minho,)
    Abstract: We estimate the U.S. New Keynesian Phillips Curve in the time-frequency domain with continuous wavelet tools, to provide an integrated answer to the three most controversial issues on the Phillips Curve. (1) Has the short-run tradeoff been stable? (2) What has been the role of expectations? (3)Is there a long-run tradeoff? First, we fi nd that the short-run tradeoff is limited to some speci c episodes and short cycles and that there is no evidence of nonlinearities or structural breaks. Second, households expectations captured trend inflation and were anchored until the Great Recession, but not since 2008. Then, inflation over-reacted to expectations at short cycles. Finally, there is no signi cant long-run tradeoff. In the long-run, inflation is explained by expectations.
    Keywords: Phillips Curve; Inflation; Unemployment; Business Cycles; Continuous Wavelet Transform; Partial Wavelet Gain
    JEL: C49 E24 E32
    Date: 2019
  20. By: Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: 2018 saw the highest economic growth rate since 2014. GDP increased by 7.3% after 7.1% in 2017. As a result, the economy continued along its steady growth acceleration path, somewhat above the potential level. Investment and consumer activity was the key factor behind the growth acceleration in 2018. The State infrastructural development programs continue to support investment demand and lay the basis of economic growth. The revival of domestic demand in 2018 was partially the effect of households’ deferred demand as inflation reached a record low. In the 2nd half of 2018, inflation reached the target range of 7% (±2 pp); it was 5.4% at the end of the year. The inflation trends were shaped by the world food market, the base effect in the fruit and vegetables sector, and transport and electricity tariff policy. The current account deficit expanded as the negative goods and services balance widened, partially due to growing imports of machines and equipment for the implementation of large-scale infrastructural projects. The expansion of the State budget deficit in 2018 also resulted from growing public investment. The State budget’s expenditures on the development of energy sector infrastructure grew 2.2 fold compared to 2017. Public debt stabilized in 2018, largely because most of the external funding was raised in the form of grants. In early 2018, the NBT reduced its refinancing rate from 16.0% to 14.0%. However, due to unforeseen external shocks that increased the volatility of EDB member countries’ currencies, inflationary risks increased again, and the monetary authorities suspended their rate reduction round. The banking system is moving in the direction of recovery, but the indicators remain weak. In 2018 the credit portfolio stopped shrinking and increased by 2.0%. In the projection period, the economic growth rate is expected to stabilize near 7%. The investment drive will continue to support the economy. Consumer demand expansion will slow down somewhat as remittance inflow decelerates and the low inflation background’s favorable effect on household income peters out. Inflation will depend on the situation prevailing in the world food markets. World food prices are expected to start recovering in the 1st half of 2019, and by the beginning of 2020 their trend will stabilize, which in turn will impact the trajectory of consumer price growth in the RT.
    Keywords: macroeconomy; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2019–05–21
  21. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Rajeswari Sengupta (Indira Gandhi Institute of Development Research); Akhilesh Verma (Indira Gandhi Institute of Development Research)
    Abstract: We study the relationship between external debt financing and risk to macroeconomic stability using a panel vector autoregression model for a sample of ten major emerging market economies. We also focus on the linkages of key channels of external debt financing, namely external debt securities and cross-border loans. We find that external debt securities substantially impact the yield spread and the exchange rate for emerging market economies, both before and after the global financial crisis of 2008. On the other hand, the impact of cross-border flows is found to be relatively subdued for these economies in the post-crisis period. We also find that emerging economies that were already receiving a high level of external debt securities inflows experienced a relatively larger yield compression and greater exchange rate pressure compared to the economies that had a low level of external debt securities flows. It indicates higher risk exposure for EMEs with larger external debt securities flows.
    Keywords: External debt securities, cross border loans, financial stability risk, panel VAR
    JEL: E44 E51 F34 G15
    Date: 2019–05
  22. By: Roth, Felix (Department of Economics, University of Hamburg); Jonung, Lars (Department of Economics, Lund University)
    Abstract: This chapter examines the evolution of public support for the euro and public trust in the European Central Bank (ECB) during the new currency’s first two decades. Using a unique set of opinion poll data that is not available for any other currency, we find that a majority of citizens in every member country of the euro area (EA) support the euro. The economic crisis in the EA following the Great Recession and the euro crisis led to a slight decline in public support for the euro but a sharp fall in trust in the ECB. The recent economic recovery has strengthened support for the euro as well as trust in the ECB. We suggest that support for the euro as a medium of exchange was not strongly affected by the crisis, while trust in the ECB, as the framer of monetary policy, was measurably weakened by the crisis. Our econometric work demonstrates that unemployment is a key driver of support for the euro and its governance. Given these developments, we discuss whether the present levels of support for the euro equip the currency to weather populist challenges in the coming decade.
    Keywords: Euro; public support; trust; unemployment; optimum currency area; monetary union; ECB; EU
    JEL: E42 E52 E58 F33
    Date: 2019–06–14
  23. By: Congressional Budget Office
    Abstract: If current laws generally remained unchanged, CBO projects, large budget deficits over the next 30 years would drive federal debt held by the public to unprecedented levels—from 78 percent of gross domestic product in 2019 to 144 percent by 2049. That level of debt would be the highest in the nation’s history by far, and it would be on track to increase even more.
    JEL: E20 E60 E61 E62 E66 H50 H51 H53 H55 H60 H61 H62 H63 H68
    Date: 2019–06–25
  24. By: Efrem Castelnuovo (University of Melbourne, University of Padova, Centre for Applied Macroeconomic Analysis)
    Abstract: How do short and long term interest rates respond to a jump in financial uncertainty? We address this question by conducting a local projections analysis with US monthly data, period: 1962-2018. The state-of-the-art financial uncertainty measure proposed by Ludvigson, Ma, and Ng (2019) is found to predict movements in interest rates at different maturities. In particular, an increase in financial uncertainty is found to trigger a negative and significant response of both short and long term interest rates. The response of the short end of the yield curve (i.e., of short term interest rates) is found to be stronger than that of the long end (i.e., of long term ones). In other words, a financial uncertainty shock causes a temporary steepening of the yield curve. This result is consistent, among other interpretations, with medium-term expectations of a recovery in real activity after a financial uncertainty shock.
    Keywords: financial uncertainty shocks, yield curve, local projections, in‡flation dynamics, output growth
    JEL: C22 E32 E52
    Date: 2019–06
  25. By: Matteo Deleidi; Mariana Mazzucato
    Abstract: The paper investigates the determinants of economic growth from both a theoretical and an empirical perspective. The paper combines the Sraffian supermultiplier model of growth with the Neo-Schumpeterian framework that emphasizes the entrepreneurial role of the state. We aim to detect the macroeconomic effect generated by alternative fiscal policies: generic ones and “mission-oriented” ones. Using a SVAR model for the US economy for the 1947–2018 period, we show that mission-oriented policies produce a larger positive effect on GDP (fiscal multiplier) and on private investment in R&D (crowd-in effect) than the effect produced by generic public expenditures.
    Keywords: Mission-oriented innovation policies, Sraffian supermultiplier, SVAR, fiscal multiplier, crowding-in effect.
    JEL: C32 E22 E62 O25 O30
    Date: 2019–06
  26. By: Carlos David Ardila-Dueñas (Banco de la República de Colombia); Hernán Rincón-Castro (Banco de la República de Colombia)
    Abstract: La relación entre la deuda pública y las tasas de interés de mercado ha sido un tema de amplia discusión en la literatura internacional, por sus implicaciones sobre los mercados financieros, las decisiones de ahorro e inversión de los agentes económicos y el agregado de la economía. En este artículo se analiza cómo y qué tanto impacta la deuda del pública la pendiente o spread de la estructura a plazos de las tasas de interés en Colombia en el periodo 2003-2017. Para alcanzar su objetivo, primero se estima el spread a diferentes plazos, mediante un modelo de estado-espacio. Posteriormente, se determina el impacto de la deuda sobre aquel; utilizando modelos de series de tiempo univariados y multivariados. Por último, se realiza una descomposición histórica de choques del spread. Los principales resultados obtenidos muestran que la deuda pública tiene un efecto positivo sobre el spread, tanto la emitida a tasa fija como a tasa variable. Así mismo se encuentra que la emisión de deuda a tasa variable tiene un mayor efecto sobre el spread de las tasas de interés de corto plazo, mientras la de tasa fija, más sensible a las condiciones del mercado, tiene un mayor impacto sobre el spread de las tasas de interés de largo plazo. La implicación de política más importante es el llamado a la reducción del endeudamiento público, con el objetivo de aminorar su impacto no deseado sobre el mercado financiero y la actividad económica. **** ABSTRACT: The relationship between public debt and market interest rates has been a subject of wide discussion in the international literature, due to its implications for the financial markets, saving and investment decisions of economic agents and for the aggregate of the economy. This article analyzes how and how much public debt impacts the slope or spread of the term structure of interest rates in Colombia in the period 2003-2017. To reach its objective, the spread is estimated at different terms, using a state-space model. Subsequently, the impact of the debt on the spread is determined; using univariate and multivariate time series models. Finally, a historical decomposition of the spread shocks is carried out. The main results obtained show that the public debt has a positive effect on the spread, both debts issued at a fixed rate and at a variable rate. It is also found that the issuance of debt at a variable rate has a greater effect on the spread of the short-term interest rates, while the fixed-rate debt, which is more sensitive to market conditions, has a greater impact on the spread of long-term rates. The most important policy implication is the call for the reduction of public indebtedness, with the aim of reducing its undesired impact on the financial market and economic activity.
    Keywords: deuda pública, estructura a plazos de las tasas de interés, spread, filtro de kalman, VAR-X, descomposición histórica
    JEL: E44 E62 H63 C22 C32
    Date: 2019–06
  27. By: Hongyi Chen (Hong Kong Institute for Monetary Research); Kenneth Chow (Hong Kong Monetary Authority); Peter Tillmann (Justus Liebig University Giessen)
    Abstract: Analyzing monetary policy in China is not straightforward because the People's Bank of China (PBoC) implements policy by using more than one instrument. In this paper we use a Qual VAR, a conventional VAR system augmented with binary policy announcements, to extract a latent indicator of tightening and easing pressure, respectively, for China. The model acknowledges that policy announcements are endogenous and summarizes policy by a single indicator. The Qual VAR allows us to study the impact of monetary policy in terms of unexpected changes in these latent variables, which we identify using sign restrictions. We show that the transmission of monetary policy impulses to the rest of the economy is similar to the transmission process in advanced economies in terms of both output growth and inflation despite a very different monetary policy framework. We find that bank loans are not sensitive to policy changes, which implies that window guidance is still a necessary policy tool. We also find that the impact of monetary policy shocks is asymmetric in terms of asset prices, that is, the asset price reactions differ in their sensitivity to tightening shocks and easing shocks, respectively. In particular, an easing of monetary conditions boosts stock prices while a tightening shock leaves stock prices unaffected. This shows that monetary policy is not a suitable tool to stabilize asset prices, which raises implications for financial stability and macroprudential policy.
    Keywords: China, monetary policy, Qual VAR, transmission mechanism, asset prices, financial stability
    JEL: E4 E5 C3
  28. By: J. Paolo Martellini (Department of Economics, University of Pennsylvania); Guido Menzio (Department of Economics, New York University); Ludo Visschers (School of Economics, University of Edinburgh)
    Abstract: We revisit the hypothesis that labor market ?uctuations are driven by shocks to the discount rate. Using a model in which the UE and the EU rates are endogenous, we show that an increase in the discount rate leads to a decline in both the UE and the EU rates. In the data, though, the UE and EU rates move against each other at business cycle frequency. Using a lifecycle model with human capital accumulation on the job, we show that an increase in the discount rate does indeed lead to a decline in the aggregate UE rate and to an increase in the aggregate EU rate. However, the decline in the UE rate is larger for younger workers than for older workers and the EU rate increases only for younger workers. In the data, ?uctuations in the UE and EU rates at the business cycle frequency are nearly identical across age groups.
    Keywords: Unemployment Fluctuations, Discount Rate, Human Capital, Lifecycle Earnings
    JEL: E24 J63 J64
    Date: 2019–06–20
  29. By: Gunther Schnabl
    Abstract: For a long time, China’s impressive growth performance has been driven by investment and high productivity gains. Based on the recent discussion on possible overcapacities and overinvestment in China, the paper investigates the sustainability of China’s investment- and export-driven growth model. It is shown that since the turn of the millennium buoyant capital inflows and low interest rates have been at the roots of overinvestment and misallocation of capital, which necessitated export subsidies to clear markets. The overinvestment boom is argued to have ended around 2014. Since then, the overcapacities have weakened China’s bargaining position in the US-Chinese trade conflict and have tempted the Chinese authorities to postpone a restructuring of the Chinese economy by low-interest credit provision. The resulting gradual reemergence of quasi soft budget constraints is seen to undermine China’s long-term growth potential.
    Keywords: China, investment, overinvestment, trade policy, credit growth, rebalancing, soft budget constraints, zombification
    JEL: E22 E43 E58 F13
    Date: 2019
  30. By: Laura Carvalho; Corrado Di Guilmi
    Abstract: The paper presents a stock-flow consistent agent-based model with effective demand, endogenous credit creation, and labor-saving technological progress. The aim is to study the joint dynamics of both personal and functional distribution of income as a result of technological unemployment, together with the effect on household debt. Numerical simulations show the potentially destabilizing effect of technological unemployment and reveal that an increase in the profit share of income amplifies the negative effect of income inequality on business cycle and growth. The sensitivity analysis provides indications on the effectiveness of possible mixes of fiscal and redistributive policies, but also demonstrates that the effectiveness of policy measures is strongly dependent on behavioral and institutional factors.
    Keywords: stock-flow agent-based consistent model; income inequality; functional distribution; technological unemployment; social imitation
    JEL: C63 D31 E21 E25
    Date: 2019–02–05
  31. By: Hui He (International Monetary Fund); Kevin X.D. Huang (Vanderbilt University); Lei Ning (Shanghai University of Finance and Economics)
    Abstract: Empirical evidence shows that both leisure and medical care are important for maintaining health. And taxation may affect the allocation of these two inputs. We build a life-cycle overlapping-generations model in which taxation and relative health care price are key determinants of the composition of the two inputs in the endogenous accumulation of health capital. In the model, a lower tax wedge leads to using relatively more medical care and less leisure in maintaining health, while a higher relative health care price implies an opposite substitution in quantity (away from medical care towards leisure) that weakens the direct bearing of the higher price on overall health spending. We show that differences in taxation and in relative health care price between the US and Europe can jointly account for a bulk of their differences in health expenditure- GDP ratio and in leisure time allocated for health production, with the taxation channel playing a quantitatively more significant role.
    Keywords: Macro-health, Taxation, Relative health care price, Health care expenditure, Time allocation, Life cycle, Overlapping generations
    JEL: E6 H2
    Date: 2019–04–09
  32. By: Aakriti Mathur (The Graduate Institute of International and Development Studies, Geneva); Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: In this paper we quantitatively analyse monetary policy statements of the Reserve Bank of India (RBI) from 1998 to 2017, across the regimes of five governors. We first ask whether the content and focus of the statements have changed with the adoption of inflation-targeting as a framework for conducting monetary policy. Next, we study the influence of various aspects of monetary policy communication on structural complexity that capture governor-specific trends in communication. We find that while RBI's monetary policy communication is linguistically complex on average, the length of monetary policy statements has gone down and readability has improved significantly in the recent years. We also find that there has been a persistent semantic shift in RBI's monetary policy communication since the adoption of inflation-targeting. Finally, using a simple regression model we find that lengthier and less readable statements are linked to both higher trading volumes and higher returns volatility in the equity markets, though the effects are not persistent.
    Keywords: Monetary policy, central bank communication, linguistic complexity, financial markets, textual analysis, natural language processing
    JEL: E52 E58 G12 G14
    Date: 2019–05
  33. By: Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: In 2018, the Russian economy grew at its highest rate since 2012. Higher net exports were the main factor behind accelerated growth. Consumer and investment activity remained positive contributors to economic growth. We expect Russia’s GDP growth to slow temporarily, constrained by the increased tax load and the impact of the key rate increase in late 2018. Increased investment expenditures of the federal budget and gradual normalization of monetary policy from 2nd half of 2019 will foster a mid-term economic recovery to the potential rate, that we estimate at 2% per annum. The Russian ruble’s exchange rate became more volatile in 2018 amid exacerbated geopolitical tension. Harsher U. S. sanctions rhetoric caused greater capital outflow from the Russian economy, reflected in quicker weakening of the ruble. Barring additional shocks, we expect the Russian currency to strengthen over 2019 from the level of late 2018, in particular because return on Russian assets will remain high. Inflation accelerated in 2018, driven by a weakening ruble, faster growth of some food prices and price correction in advance of the VAT increase. The increase in inflation in 2nd half of 2018, accompanied by growing inflationary expectations, led the CB RF to raise its key rate twice, by 0.25 pp in September and December, to 7.75% at the end of 2018. We expect the acceleration of inflation to continue into the 1st half of 2019, mainly driven by the VAT increase. Starting in 2nd half of 2019, inflationary pressure will decrease gradually and allow inflation to return to its target level in 2020. As inflation slows, the key rate is expected to return to its neutral level, that we estimate at 6.5– 7%, in 2020. In 2018, the federal budget posted a surplus for the first time since 2011, assisted by a favorable commodity price background in most of 2018. The budget is expected to remain in surplus in the medium term, with oil prices staying above USD 60 per barrel. The budgetary policy focus will gradually move towards higher investment expenses in the coming years, with effects including a higher potential economic growth rate.
    Keywords: macroeconomy; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2019–05–21
  34. By: Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: After two years of economic recovery, GDP growth slowed to 3.5% in 2018, from 4.7% in 2017. The economic slowdown was caused by a decline of production at the Kumtor gold mine and stabilization of the growth rates in other sectors at near potential levels. Domestic demand in 2018 showed unstable growth, reflecting the volatility of households’ real incomes. A slowdown in lending and remittances inflows growth rates in 2018 compared to 2017, as well as deferred demand of the public sector, also constrained domestic demand. The deviation of inflation from the target during 2018 resulted from weak prices in the world food markets as well as from the high base effect in the vegetables and solid fuel segments. The current account deficit expanded as the negative goods and services balance widened, while the net inflow of current transfers remained virtually the same as in 2017. The state budget posted a deficit of 1.1% of GDP in 2018, down from 3.1% of GDP the year before. The decreased State budget deficit resulted from lower public spending and slightly higher budget revenues. The slower growth in budget revenues was due to lower grants received from other countries’ governments and international organizations, while tax revenue growth was unchanged. Public debt decreased in nominal terms, mainly on account of the debt to the Russian Federation being written off pursuant to an agreement between the countries. In May 2018, the National Bank of the Kyrgyz Republic reduced its policy rate from 5.0% to 4.75% as inflation was low, and took a number of decisions concerning the width of the interest band during the year. In 2019, economic activity in the Kyrgyz Republic is projected to accelerate, largely on account of optimistic assessments of its gold production volumes and moderate expansion of public sector demand. In the medium term the economy is expected to grow steadily at near potential rates. The inflation trends will depend on the world food market. According to our assessment, world food prices will start recovering in the 1st half of 2019 and stabilize by early 2020, which, in turn, will shape the growth trajectory of the consumer price index in the Kyrgyz Republic.
    Keywords: macroeconomy; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2019–05–21
  35. By: Guonan Ma (Reserve Bank of Australia); Ivan Roberts (Reserve Bank of Australia); Gerard Kelly (Reserve Bank of Australia)
    Abstract: This paper presents macroeconomic evidence that a rebalancing from a lop-sided investment- and export-driven pattern of growth towards more consumption-driven growth is already occurring in China, supported by a declining return to capital and a now-rising labour share of income. We argue that the extraordinary strength of Chinese household consumption in recent years casts doubt on hypotheses that Chinese consumption has been repressed through factor price distortions. Based on evidence from China’s flow-of-funds accounts, we also contend that conventional analysis has understated the role of investment by households in supporting growth of gross fixed capital formation in recent years. While recent discussions stress the need to reform financial markets to foster rebalancing, we argue that rebalancing will probably happen anyway as a natural outcome of dwindling income windfalls from worsening demographics, fading positive productivity shocks and maturing housing markets, all of which helped drive the imbalances in the first place. An analysis of historical ‘rebalancing’ episodes in other economies further suggests that the bulk of adjustment in coming years is likely to occur through slowing investment rather than an increase in the growth rate of consumption.
    Keywords: internal rebalancing, external rebalancing, China
    JEL: E21 E22 O11 O53
  36. By: Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: This Special Report examines the pass-through effect of the exchange rate on inflation in member countries of the Eurasian Development Bank. Special attention is paid to assessing pass-through effect changes that occurred in recent years and to analyzing asymmetric and non-linear relationships between exchange rates and inflation in the region’s countries. The results obtained confirm the exchange rates’ significance for inflation movements in EDB economies. That said, in 2015-2018 the exchange rate’s pass-through effect on inflation decreased in magnitude in most of the States under review, possibly on account of the monetary and exchange rate policy reforms implemented – in particular, a switch to a more flexible exchange rate and more effective monetary policies. In a number of Eurasian Development Bank member countries, the pass-through was noted to have an asymmetric effect, with consumer prices being more responsive to weakening than to strengthening of their national currencies.
    Keywords: macroeconomy; inflation; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2019–06–25
  37. By: Kelly, Robert; Byrne, David
    Abstract: The funding mix of European firms is weighted heavily towards bank credit, which underscores the importance of efficient pass-through of monetary policy actions to lending rates faced by firms. Euro area pass-through has shifted from being relatively homogenous to being fragmented and incomplete since the financial crisis. Distressed loan books are a crisis hangover with direct implications for profitability, hampering banks ability to supply credit and lower loan pricing in response to reductions in the policy rate. This paper presents a parsimonious model to decompose the cost of lending and highlight the role of asset quality in diminishing pass-through. Using bank-level data over the period 2008-2014, we empirically test the implications of the model. We show that a one percentage point increase in the impairment ratio lowering short run pass-through by 3 percent. We find that banks with severely impaired balance sheets do not adjust their loan pricing in response to changes in the policy rate at all. We derive a measure of the hidden bad loan problem, the NPL gap, which we define as the excess of non-performing loans over impaired loans. We show that it played a significant role in the fragmentation of euro area pass-through post-crisis. JEL Classification: D43, E51, E52, E58, G21
    Keywords: impaired loans, interest rates, monetary policy pass-through, non-performing loans
    Date: 2019–07
  38. By: Cappelletti, Giuseppe; Peeters, Jonas; Budrys, Žymantas; Varraso, Paolo; Marques, Aurea Ponte
    Abstract: We study the impact of higher bank capital buffers, namely of the Other Systemically Important Institutions (O-SII) buffer, on banks' lending and risk-taking behaviour. The O-SII buffer is a macroprudential policy aiming to increase banks' resilience. However, higher capital requirements associated with the policy may likely constrain lending. While this may be a desired effect of the policy, it could, at least in the short-term, pose costs for economic activity. Moreover, by changing the relative attractiveness of different asset classes, a higher capital requirement could also lead to risk-shifting and therefore promote the build-up (or deleverage) of banks' risk-taking. Since the end of 2015, national authorities, under the EBA framework, started to identify banks as O-SII and impose additional capital buffers. The identification of the O-SII is mainly based on a cutoff rule, ie. banks whose score is above a certain threshold are automatically designated as systemically important. This feature allows studying the effects of higher capital requirements by comparing banks whose score was close to the threshold. Relying on confidential granular supervisory data, between 2014 and 2017, we find that banks identified as O-SII reduced, in the short-term, their credit supply to households and financial sectors and shifted their lending to less risky counterparts within the non-financial corporations. In the medium-term, the impact on credit supply is defused and banks shift their lending to less risky counterparts within the financial and household sectors. Our findings suggest that the discontinuous policy change had limited effects on the overall supply of credit although we find evidence of a reduction in the credit supply at the inception of the macroprudential policy. This result supports the hypothesis that the implementation of the O-SII's framework could have a positive disciplining effect by reducing banks' risk-taking while having only a reduced adverse impact JEL Classification: E44, E51, E58, G21, G28
    Keywords: bank capital-based measures, bank risk-shifting, credit supply, macroprudential policy, systemic risk
    Date: 2019–06
  39. By: Rossmann, Tobias (LMU Munich)
    Abstract: Measuring economic uncertainty is crucial for understanding investment decisions by individuals and firms. Macroeconomists increasingly rely on survey data on subjective expectations. An innovative approach to measure aggregate uncertainty exploits the rounding patterns in individuals\' responses to survey questions on inflation expectations (Binder, 2017). This paper uses the panel dimension of household surveys to study individual-level heterogeneity in this measure of individual uncertainty. The results provide evidence for the existence of considerable heterogeneity in individuals\' response behavior and inflation expectations.
    Keywords: uncertainty; inflation; expectations; mixture models;
    JEL: C10 D80 D83 D84 E31
    Date: 2019–06–25
  40. By: Kevin X.D. Huang (Vanderbilt University); Qinglai Meng (Oregon State University); Jianpo Xue (Renmin University of China)
    Abstract: This paper overturns the conventional wisdom that reliance on capital tax rate adjustment to ensure fiscal sustainability is immune to extrinsic uncertainty. The interaction of capital taxation and endogenous capital utilization generates fiscal increasing returns and factor share redistribution to induce sunspots expectations. Capital depreciation allowance debilitates this mechanism to preempt policy induced instability while achieving budget objective. Self-fulfilling fluctuations can occur in real-world economies, unless their depreciation allowances are sufficiently higher or income tax rates lower than the current levels. This adds a short-run motivation to the long-run approach to capital taxation and the supply-side view of fiscal policy reforms.
    Keywords: Capital income taxation, Depreciation allowance, Endogenous utilization, Fiscal increasing returns, Self-fulfilling prophecies
    JEL: E6 E3
    Date: 2019–03–27
  41. By: Lena Cleanthous-Petoussi (Central Bank of Cyprus); Elena Eracleous (University of Cyprus); Nektarios A. Michail (Central Bank of Cyprus)
    Abstract: This paper examines the existence of a link between house prices, credit and macroeconomic conditions in Cyprus, using a vector error correction model (VECM) and quarterly data from 2005Q4 to 2016Q4. Overall, the results suggest that a link exists and that house prices have a bi-directional relationship with loans and the unemployment rate. Macroeconomic conditions matter for the Cyprus economy as an unexpected shock in unemployment is found to have a persistent impact on all the variables in the model. The interest rate is also found to have an effect on wages and house prices.
    Keywords: credit, house prices, VECM, Cyprus
    JEL: E44 E50 R20
    Date: 2017–12
  42. By: Parul Bhardwaj (Confederation of Indian Industry); Abhishek Kumar (Indira Gandhi Institute of Development Research)
    Abstract: The study estimates the dynamic panel version of augmented neoclassical investment model using ARDL specification. There are evidences in support of interest rate and credit channels of monetary transmission, both in the short as well as in the long run. Our evidence of interest rate channel is robust and is not driven by outliers on the basis of size, investment to capital and cash flow to capital ratio. We also correct for the presence of financially distressed and constrained firms. The heterogeneous impact of cash flow to capital stock ratio on investment spending of small and large firms provides further evidence in favour of working of credit channel.
    Keywords: Monetary policy, Investment spending, Dynamic System GMM, Interest rate channel, Credit rate channel
    JEL: E4 E5 E6
    Date: 2019–05
  43. By: Gomis-Porqueras, Pedro; Sun, Ching-jen
    Abstract: This paper studies different welfare-enhancing roles that fiat money can have. To do so, we consider an indivisible monetary framework where agents are randomly and bilaterally matched and the government has weak enforcement powers. Within this environment, we analyze state contingent monetary policies and characterize the resulting equilibria under different government record-keeping technologies. We show that a threat of injecting fiat money, conditional on private actions, can improve allocations and achieve efficiency. This type of state contingent policy is effective even when the government cannot observe any private trades and agents can only communicate with the government through cheap talk. In all these equilibria fiat money and self-enforcing credit are complements in the off equilibrium. Finally, this type of equilibria can also emerge even when the injection of fiat money is not a public signal.
    Keywords: cheap talk; record-keeping; fiat money.
    JEL: E40 E52
    Date: 2019–05–30
  44. By: Muñoz, Manuel
    Abstract: The paper investigates the effectiveness of dividend-based macroprudential rules in complementing capital requirements to promote bank soundness and sustained lending over the cycle. First, some evidence on bank dividends and earnings in the euro area is presented. When shocks hit their profits, banks adjust retained earnings to smooth dividends. This generates bank equity and credit supply volatility. Then, a DSGE model with key financial frictions and a banking sector is developed to assess the virtues of what shall be called dividend prudential targets. Welfare-maximizing dividend-based macroprudential rules are shown to have important properties: (i) they are effective in smoothing the financial and the business cycle by means of less volatile bank retained earnings, (ii) they induce welfare gains associated to a Basel III-type of capital regulation, (iii) they mainly operate through their cyclical component, ensuring that long-run dividend payouts remain unaffected, (iv) they are flexible enough so as to allow bank managers to optimally deviate from the target (conditional on the payment of a sanction), and (v) they are associated to a sanctions regime that acts as an insurance scheme for the real economy. JEL Classification: E44, E61, G21, G28, G35
    Keywords: bank dividends, capital requirements, dividend prudential target, financial stability, macroprudential regulation
    Date: 2019–07
  45. By: Etienne Lepers; Caroline Mehigan
    Abstract: The post financial crisis period has been associated with increased countercyclical use of various financial policies, including residency-based measures. This paper analyses in a single analytical framework the relative effectiveness of three types of financial policies – macroprudential (foundations), currency-based (fences), and residency-based measures (fire doors). The findings in this paper are based on a granular quarterly database of adjustments in these policies that covers both advanced and emerging economies from 2000 to 2015. The results show that residency-based measures on bonds and credit reduce capital inflows but provide limited support for a credit-mitigation role. While no evidence emerges that macroprudential measures alter capital inflows, most appear effective in reducing credit growth. Currency-based measures may reduce both inflows and credit growth (particularly FX reserve requirements and FX lending regulations). These results indicate that the impact of policies needs to be analysed at a granular level and that policy makers should adopt an integrated view of the financial policy toolkit.
    JEL: E58 F32 F34 G15 G21 G28
    Date: 2019–07–04
  46. By: Olsson, Maria (Department of Economics)
    Abstract: Where do business cycles originate? The traditional view is that a business cycle is the result of shocks correlated across sectors. This view is complemented by a recently emerging literature showing that idiosyncratic shocks to large or highly interconnected sectors contribute to aggregate variation. This paper addresses the relative empirical importance of these two channels of business cycle variation. Results indicate that up to one-third of the business cycle is driven by idiosyncratic productivity variation together with network amplifications.
    Keywords: Production Networks; Micro to Macro; Aggregate Volatility; Sectoral Distortions
    JEL: D52 D57 E32 L11
    Date: 2019–02–14
  47. By: Jonas Dovern; Christopher Zuber
    Abstract: Using European Commission real-time data, we show that potential output (PO) estimates were substantially and persistently revised downwards after the Great Recession. We decompose PO revisions into revisions of the capital stock, trend labor, and trend total-factor productivity (TFP). Initially, trend TFP revisions contribute most to the overall PO revisions while all three components are almost equally important in the longer run. Revisions of the capital stock happen quickly while revisions of trend labor, mainly driven by revisions of the non-accelerating wage rate of unemployment (NAWRU), are made gradually. The relative contributions of the components to overall PO revisions differ systematically across countries. This suggests that heterogeneous policies are needed to push different countries back to their previous growth paths.
    Keywords: potential output, trend, output gap, hysteresis, EC
    JEL: E32
    Date: 2019
  48. By: Ng'ang'a, William Irungu; Chevallier, Julien; Ndiritu, Simon Wagura
    Abstract: This study explored the nature of fiscal and monetary policy coordination and its impact on long-run sustainability in Kenya. The study employed annual time series data from 1963 to 2014. Two objectives were investigated. (i) The determinants ofmonetary and fiscal policy rules under different policy regimes. (ii) The nature of fiscal and monetary policy regimes coordination in Kenya. Markov switching models were used to determine fiscal and monetary policy regimes endogenously. The fiscal policy regime was regarded as passive if the coefficient of debt in the MS model was significant and negative. This fiscal policy regime is regarded as unsustainable since the rise in debt is associated with a deterioration of the fiscal balance. On the other hand, the active monetary policy is synonymous with contractionary monetary policy since real in interest rate reacts positively to an increase in inflation. Robust analysis conducted using self-exciting threshold models confirms that monetary and fiscal policy reaction functions are nonlinear. The study findings show that passive or unsustainable fiscal regime was more dominant over the study period. There is evidence to support coordination between fiscal and monetary policy. There is a tendency for monetary policy to actively and prudently respond to unsustainable fiscal policy. Secondly, monetary policy sequentially responds to fiscal policy. The study recommended the adoption of systematic monetary response to a periodic deviation of fiscal policy from a long-run sustainability path.
    Keywords: policy regimes,fiscal and monetary policy management,Markov-switching,SETAR
    JEL: E62 F30 H61
    Date: 2019
  49. By: Daisuke Ikeda (Bank of Japan); Mayumi Ojima (Bank of Japan); Koji Takahashi (Bank of Japan)
    Abstract: Interconnectedness is an essential feature of banks, but it can be a shock-amplifier. We explore changes in, and implications and underlying drivers of interconnectedness among major banks in the world, focusing on their stock market volatilities. The estimated vector autoregressive model reveals significant changes in interconnectedness between before and after the global financial crisis of 2007-09. Specifically, the estimation shows a significant increase in connectedness from foreign banks to Japanese banks. The impulse responses to a credit shock show that changes in the estimated interconnectedness can be an amplifier for Japanese banks in particular. A panel regression analysis suggests that Japanese banks' cross-border activity, especially lending, has likely driven an increase in connectedness from foreign banks.
    Keywords: Global financial linkages; Stock price volatilities; LASSO
    JEL: E44 G15 G21
    Date: 2019–06–28
  50. By: Congressional Budget Office
    Abstract: The federal government pays for a wide range of goods and services that are expected to be useful some years in the future. Those purchases, called investment, fall into three categories: physical capital, education and training, and research and development. In 2018, the federal government spent $492 billion on investment, which represented 12 percent of federal spending and 2 percent of GDP.
    JEL: E22 H54 I22 O00
    Date: 2019–06–27
  51. By: Ui, Takashi
    Abstract: In the Lucas Imperfect Information model, output responds to unanticipated monetary shocks. We incorporate more general information structures into the Lucas model and demonstrate that output also responds to (dispersedly) anticipated monetary shocks if the information is imperfect common knowledge. Thus, the real effects of money consist of the unanticipated part and the anticipated part, and we decompose the latter into two effects, an imperfect common knowledge effect and a private information effect. We then consider an information structure composed of public and private signals. The real effects disappear when either signal reveals monetary shocks as common knowledge. However, when the precision of private information is fixed, the real effects are small not only when a public signal is very precise but also when it is very imprecise. This implies that a more precise public signal can amplify the real effects and make the economy more volatile.
    Keywords: real effects, neutrality of money, iterated expectations, the Lucas model, imperfect, common knowledge
    Date: 2019–06
  52. By: Dimitris Georgarakos; Konstantinos Tatsiramos
    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
  53. By: Huang, Yiping; Li, Xiang; Wang, Chu
    Abstract: This paper uses loan application-level data from a Chinese peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we are the first to provide quantitative evidence of the impact of monetary policy on the risk-taking of nonbank financial institution. We find that the search-for-yield is the main workhorse of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and a greater riskiness of credit allocation, but these changes do not necessarily relate to a larger loan amount on average.
    Keywords: monetary policy,risk-taking,non-bank financial institution,search-for-yield,risk-shifting
    JEL: E52 G23
    Date: 2019
  54. By: Snezana Eminidou (University of Cyprus); Marios Zachariadis (University of Cyprus); Elena Andreou (University of Cyprus)
    Abstract: We use monthly data across 15 euro area economies for the period 1985:1-2015:3 to obtain monetary policy changes that can be regarded as surprises for different types of consumers. A novel feature of our empirical approach is the estimation of monetary policy surprises based on changes in monetary policy that were unanticipated according to consumers’ stated beliefs about the economy. We look at how these surprises affect consumers’ inflation expectations. We find that such monetary policy surprises can have the opposite impact on inflation expectations to those obtained under the assumption that consumers are well-informed about a set of macroeconomic variables describing the state of the economy. When we relax the latter assumption and focus instead on consumers’ stated beliefs about the economy, unanticipated increases in the interest rate raise inflation expectations before the crisis. This is consistent with imperfect information theoretical settings where unanticipated increases in interest rates are interpreted as positive news about the state of the economy by consumers that know policymakers have relatively more information. This impact changes sign since the crisis and varies, e.g. across low versus high-income consumers in a manner consistent with the latter becoming rationally attentive in a period during which signal extraction is presumably more difficult and the incentive to extract information greater.
    Keywords: Imperfect information, rational inattention, shocks, beliefs, crisis
    Date: 2018–03
  55. By: Qazi Haque (The University of Western Australia and Centre for Applied Macroeconomic Analysis)
    Abstract: This paper estimates a New Keynesian model with trend inflation and contrasts Taylor rules featuring fixed versus time-varying inflation target while allowing for passive monetary policy. The estimation is conducted over the Great Inflation and the Great Moderation periods. Time-varying inflation target empirically fits better and active monetary policy prevails in both periods, thereby ruling out sunspots as an explanation of the Great Inflation episode. Counterfactual simulations suggest that the decline in inflation volatility since the mid-1980s is mainly driven by monetary policy, while the reduction in output growth variability is explained by the reduced volatility of technology shocks.
    Date: 2019
  56. By: Mandler, Martin; Scharnagl, Michael
    Abstract: We analyse the cross-country dimension of financial cycles by studying cyclical co-movements in credit, house prices, equity prices and interest rates across the G7 economies. We use wavelet-based statistics to assess at which frequencies cyclical fluctuations and their crosscountry co-movements are important and how these change over time. We show cycles in interest rates and equity prices to be at least as synchronised as cycles in real GDP while cycles in credit and house prices are less synchronised. As a result, cross-country common cycles in equity prices and long-term interest rates account for a larger share of the volatility of these variables at the country level than common cycles in credit aggregates and house prices. A cluster analysis shows a high degree of similarity in the spectral characteristics of cycles in interest rates and equity prices across all countries but less similarities for cycles in credit and house price. For credit and house price cycles country-specific developments turn out to be more important than the common cross-country cycles.
    Keywords: financial cycles,wavelet analysis,cluster analysis,cross-country synchronisation
    JEL: C32 C38 E44 E51
    Date: 2019
  57. By: María Dolores Gadea-Rivas (Universidad de Zaragoza); Ana Gómez-Loscos (Banco de España); Eduardo Bandrés (Universidad de Zaragoza y Funcas)
    Abstract: El análisis de los ciclos económicos de las regiones europeas pone de relieve la existencia de importantes asimetrías, que pueden esquematizarse en la configuración de distintos clusters caracterizados por patrones de comportamiento diferentes. La identificación de los distintos grupos debería revelar las singularidades territoriales que afronta cada país y, por tanto, la necesidad de complementar las políticas macroeconómicas comunes con otras dirigidas a atender situaciones específicas de carácter regional. El artículo muestra que la introducción del euro ha sido decisiva para aumentar la sincronización de los ciclos regionales, al tiempo que supuso una mayor distancia entre el grupo central de regiones europeas y los países que quedaron fuera de la moneda única. También resulta destacable que, a pesar del efecto del euro, se mantienen importantes singularidades entre las regiones alemanas, por una parte, y entre las de Grecia, Portugal e Italia, por otra.
    Keywords: datado del ciclo económico, regiones, modelos de Markov con mixturas finitas de distribuciones
    JEL: C32 E32 R11
    Date: 2019–07
  58. By: William Ng'ang'a (UP8 - Université Paris 8 Vincennes-Saint-Denis, Strathmore University); Julien Chevallier (IPAG Paris, UP8 - Université Paris 8 Vincennes-Saint-Denis); Simon Ndiritu (Strathmore University)
    Abstract: This study explored the nature of fiscal and monetary policy coordination and its impact on long-run sustainability in Kenya. The study employed annual time series data from 1963 to 2014. Two objectives were investigated. (i) The determinants of monetary and fiscal policy rules under different policy regimes. (ii) The nature of fiscal and monetary policy regimes coordination in Kenya. Markov switching models were used to determine fiscal and monetary policy regimes endogenously. Fiscal policy regime was regarded as passive if the coefficient of debt in the MS model was significant and negative. This fiscal policy regime is regarded as unsustainable since the rise in debt is associated with a deterioration of the fiscal balance. On the other hand, the active monetary policy is synonymous with contractionary monetary policy since real in interest rate reacts positively to an increase in inflation. Robust analysis conducted using self-exciting threshold models confirms that monetary and fiscal policy reaction functions are nonlinear. The study findings show that passive or unsustainable fiscal regime was more dominant over the study period. There is evidence to support coordination between fiscal and monetary policy. There is a tendency for monetary policy to actively and prudently respond to unsustainable fiscal policy. Secondly, monetary policy sequentially responds to fiscal policy. The study recommended the adoption of systematic monetary response to a periodic deviation of fiscal policy from a long-run sustainability path. JEL Codes: E62; F30; H61
    Keywords: Policy regimes,Fiscal and Monetary policy management,Markov-Switching,SETAR
    Date: 2019–06–14
  59. By: Qazi Haque (Centre for Applied Macroeconomic Analysis and The University of Western Australia); Nicolas Groshenny (Centre for Applied Macroeconomic Analysis and The University of Adelaide); Mark Weder (Aarhus University and Centre for Applied Macroeconomic Analysis)
    Abstract: The paper re-examines whether the Federal Reserves monetary policy was a source of instability during the Great Inflation by estimating a sticky-price model with positive trend inflation, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage-rigidity and finds that the Federal Reserve responded aggressively to inflation but negligibly to the output gap. In the presence of non-trivial real imperfections and well-identified commodity price-shocks, U.S. data prefers a determinate version of the New Keynesian model: monetary policy-induced indeterminacy and sunspots were not causes of macroeconomic instability during the pre-Volcker era.
    Date: 2019
  60. By: Bernd Süssmuth
    Abstract: Using a battery of timely multivariate time series techniques I study the Bitcoin cryptocurrency price series and web search queries with regard to their mutual predictability, Granger-causality and cause-effect delay structure. The Bitcoin is at first treated as a general currency, then as a generic asset. Google queries, although cointegrated, are found to be not helpful in predicting the USD exchange rate of Bitcoin as the speculative bubble in the latter antedates explosive behavior in the former. Chinese Baidu engine queries and compounded Baidu-Google queries predict Bitcoin price dynamics at relatively high frequencies ranging from two to five months. In the other direction, causality runs from the cryptocurrency price to queries statistics across nearly all frequencies. In both directions, the reaction time computed from a phase delay measure for the relevant frequency bands with significant causality ranges from slightly more than one month to about four months.
    Keywords: bitcoin, bubbles, frequency domain, causality
    JEL: C32 E32 E42 G12 G15
    Date: 2019
  61. By: Eduardo Levy Yeyati; Martín Montané; Luca Sartorio
    Abstract: All around the world, countries are spending in Active Labor Market Policies (ALMPs) to improve the probability of workers´ finding a job and improving their earnings. It is important to assess the evidence included in rigorous evaluations to know what works in terms of impact and cost effectiveness. We present the first systematic review of 102 interventions evaluated exclusively through Randomized Controlled Trials (RCTs) for a total of 652 estimated impacts. We find that (i) a third of these estimates are positive and statistical significant (PPS) at conventional levels (ii) programs are more likely to yield positive results when GDP growth is higher and unemployment is lower; (iii) programs that aim at building human capital, such as vocational training, independent worker assistance and wage subsidies show significant positive impact, and (iv) program length, monetary incentives, individualized follow up and activity targeting are all key features in determining the effectiveness the interventions.
    Keywords: vocational training, labor policies, wage subsidies, randomized controlled trials.
    JEL: J21 J48 E24
    Date: 2019
  62. By: Xie, Zoe (Federal Reserve Bank of Atlanta)
    Abstract: Using variations in unemployment insurance policies over time and across U.S. states, this paper provides evidence that allowing unemployed workers to delay the collection of benefits increases their job-finding rate. In a model with discrete job take-up decisions, benefit entitlement, wage-indexed benefits, and heterogeneous job types, I demonstrate that the policy can increase an unemployed worker's willingness to work, even though more benefits in general reduce the relative value of employment. In a calibrated quantitative model, I find that allowing delayed benefit collection increases the overall job finding rates and may lower the unemployment rate both in a steady state stationary economy and over a transition path during 2008–12.
    Keywords: health; frailty index; life cycle profiles
    JEL: E24 J65
    Date: 2019–06–01
  63. By: Nils Gottfries; Karolina Stadin
    Abstract: According to search-matching theory, the Beveridge curve slopes downward because vacancies are filled more quickly when unemployment is high. Using monthly panel data for local labour markets in Sweden we find no (or only weak) evidence that high unemployment makes it easier to fill vacancies. Instead, there are few vacancies when unemployment is high because there is a low inflow of new vacancies. We construct a simple model with on-the-job search and show that it is broadly consistent with the cyclical behaviour of stocks and flows in the labour market also without search frictions. In periods of high unemployment, fewer employed job seekers find new jobs and this leads to a smaller inflow of new vacancies.
    Keywords: Beveridge curve, frictional unemployment, matching function, turnover, mismatch, vacancy chain
    JEL: E24 J23 J62 J63 J64
    Date: 2019
  64. By: Azwan, Nurul Iman; Masih, Mansur
    Abstract: The increasing price of housing property in Malaysia has become a concern as it increases the cost of living through debt payment by households. The purpose of the paper is to investigate whether the housing price has an asymmetric relationship with banking debt. The asymmetric relationship will be tested using the NARDL method. The research will aid the policymakers in deciding whether measures to control housing loan or alternatively, the initiatives and controls on the housing supply-side is better to curb increasing price of houses. The paper finds that the relationship between banking debt and housing prices is asymmetric in the short run and symmetric in the long run. However, we find that the relationship between housing debt and housing prices is asymmetric in both the short and long run. A positive change in housing debt will affect the housing price inflation more than a negative change. Through the causality tests, we find that policies should focus on the supply-side and price control policies to affect the housing price, rather than the controls on banking debt
    Keywords: housing price, banking debt, NARDL, Malaysia
    JEL: C58 E44
    Date: 2019–06–23
  65. By: Chang-Tai Hsieh; Esteban Rossi-Hansberg
    Abstract: The rise in national industry concentration in the US between 1977 and 2013 is driven by a new industrial revolution in three broad non-traded sectors: services, retail, and wholesale. Sectors where national concentration is rising have increased their share of employment, and the expansion is entirely driven by the number of local markets served by firms. Firm employment per market has either increased slightly at the MSA level, or decreased substantially at the county or establishment levels. In industries with increasing concentration, the expansion into more markets is more pronounced for the top 10% firms, but is present for the bottom 90% as well. These trends have not been accompanied by economy-wide concentration. Top U.S. firms are increasingly specialized in sectors with rising industry concentration, but their aggregate employment share has remained roughly stable. We argue that these facts are consistent with the availability of a new set of fixed-cost technologies that enable adopters to produce at lower marginal costs in all markets. We present a simple model of firm size and market entry to describe the menu of new technologies and trace its implications.
    JEL: E23 E24 L11 L22 L25 R11 R12
    Date: 2019–06
  66. By: Luca Dedola (European Central Bank); Georgios Georgiadis (European Central Bank); Johannes Gräb (European Central Bank); Arnaud Mehl (European Central Bank)
    Abstract: We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons rele- vant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate de- termination. We then proxy unobserved QE shocks by future changes in the relative size of central banks’ balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate. For example, our estimates imply that the ECB’s APP program which raised the ECB’s balance sheet relative to that of the Federal Reserve by 35 percentage points between September 2014 and the end of 2016 depreciated the euro vis-`a-vis the US dollar by 12%. Regarding transmission channels, we find that a relative QE shock that ex- pands the ECB’s balance sheet relative to that of the Federal Reserve depreciates the US dollar-euro exchange rate by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in currency risk premia. Changes in the expectations about the future monetary policy stance, reflecting the “signalling” channel of QE, also contribute to the exchange rate response to QE shocks.
    Keywords: Quantitative easing, interest rate parity condition, CIP deviations
    JEL: E5 F3
  67. By: Marios Polemidiotis (Central Bank of Cyprus); Maria C. Papageorgiou (Central Bank of Cyprus); Maria G. Mithillou (Central Bank of Cyprus)
    Abstract: The focus of this paper is on developments in unit labour costs (ULC) in Cyprus, an important indicator of competitiveness. The data points to a significant correction in the nominal ULC index in the period 2013-2016, almost exclusively driven by the significant wage declines observed in the public and private sectors, with the decline in the private sector driven mainly by construction and the trade, transport and tourism sectors. Once the index is adjusted for the impact of prices (to arrive at the real ULC index, a complementary indicator that is sometimes informative to analyse), the data points to an earlier and more pronounced correction in ULC. The marginal rise in the ULC index in 2017 is due to the small rise in wages, largely in the public sector, which still leaves the level of the index well below its pre-crisis level. Furthermore, developments in the ULC index are in line with recent macroeconomic performance. Overall, the significant wage moderation observed prior to the crisis, and especially the immediate and continuous adjustment of wages (as well as that of prices) following the March 2013 events, demonstrates the Cyprus economy’s potential to achieve internal devaluation as a mechanism for the correction of macroeconomic imbalances.
    Keywords: Competitiveness, labour productivity, unit labour costs, wages, crisis
    JEL: E24 J08 J21 J31 J38 J45 J68
    Date: 2018–07
  68. By: Destefanis, Sergio; Fragetta, Matteo; Gasteiger, Emanuel
    Abstract: This paper examines whether Euro Area countries would have faced a more favorable inflation output variability tradeoff without the Euro. We provide evidence that this claim is true for the periods of the Great Recession and the European Sovereign Debt Crisis. For the Euro Area as a whole, the deterioration of the tradeoff becomes insignificant with Draghi's "whatever it takes" announcement onwards. However, a more detailed analysis shows that the detrimental effect of the Euro is more severe and long-lasting for peripheral countries, pointing to structural differences among Euro Area countries as a key element of the detrimental effect of the Euro. We base our results on a novel empirical strategy that, consistently with monetary theory, models the joint determination of the variability of inflation and output conditional on structural supply shocks. Moreover, our findings are robust to potential endogeneity concerns related to adoption of the Euro.
    Keywords: Euro Area,Monetary Policy,Difference-in-Differences
    JEL: C32 E50
    Date: 2019
  69. By: Martin Brown (University of St.Gallen); Ioanna S. Evangelou (Central Bank of Cyprus); Helmut Stix (Oesterreichische Nationalbank)
    Abstract: We study changes in deposit and cash holdings by households following the 2013 banking crisis in Cyprus. During this crisis the two largest banks in the country were resolved involving a bail-in of uninsured depositors and debt holders. Our analysis is based on anonymized survey data covering households with differential exposures to the resolved banks: uninsured deposits, subordinated debt and equity holdings. In line with the portfolio theory of money demand, we find that in the intermediate aftermath of the crisis households significantly reduced their holding of bank deposits and increased their cash holdings. This flight to cash was much stronger for clients which experienced a bail-in of deposits or subordinated debt than for households which held equity in the resolved banks or did not suffer any financial loss. In the medium term, however, there was no difference in depositor confidence or money holdings between households which suffered a bail-in and those which did not.
    Keywords: Financial crises, bank resolution, bail-in, deposits, cash, money demand.
    JEL: E41 G01 G11 G21 G28
    Date: 2018–01
  70. By: Arina Wischnewsky; David-Jan Jansen; Matthias Neuenkirch
    Abstract: This paper retraces how financial stability considerations interacted with U.S. monetary policy before and during the Great Recession. Using text-mining techniques, we construct indicators for financial stability sentiment expressed during testimonies of four Federal Reserve Chairs at Congressional hearings. Including these text-based measures adds explanatory power to Taylor-rule models. In particular, negative financial stability sentiment coincided with a more accommodative monetary policy stance than implied by standard Taylor-rule factors, even in the decades before the Great Recession. These findings are consistent with a preference for monetary policy reacting to financial instability rather than acting pre-emptively to a perceived build-up of risks.
    Keywords: monetary policy, financial stability, Taylor rule, text mining
    Date: 2019
  71. By: George A. Alessandria; Shafaat Y. Khan; Armen Khederlarian
    Abstract: We study the effects on trade from the annual tariff uncertainty about China’s MFN status renewal prior to joining the WTO. We have three main findings. First, counter to the evidence elsewhere, trade increases strongly in anticipation of uncertain future increases in tariffs. Second, even though the trade response can be quite large, the probability of a tariff increase was perceived to be relatively small, with an average annual probability of non-renewal of about 5.5 percent. And third, what matters more is the expected future tariff rather than the uncertainty around it. We identify these effects using within-year variation in the risk of trade policy changes around the renewal vote and trade flows. We show that an (s,s) inventory model generates this behavior and that variation in the strength of the stockpiling in advance of the vote is increasing in the storability of goods. The model is also consistent with a sizeable fraction of the cross-industry variation in annual trade flows documented elsewhere. Our results explain why trade may hold up well in advance of a prospective policy change such as Brexit or the US escalating tariff war of 2018-19, but may fall off sharply even if expected tariff increases do not materialize.
    JEL: E32 E60 F12 F13 F14
    Date: 2019–06
  72. By: Nektarios Michail (Central Bank of Cyprus); George Thucydides (Central Bank of Cyprus)
    Abstract: In this paper we investigate the relationship between housing wealth and consumption in Cyprus. To this end, we employ a vector error correction mechanism to examine interlinkages among house prices, private consumption, disposable income, financial assets and financial liabilities. We find that house prices affect private consumption, particularly in the short term, albeit to a lesser extent than similar studies for other countries. Financial liabilities are found to be important for consumption behaviour, while financial assets of Cypriot households appear to not affect significantly their consumption. Distinguishing consumption between durable and non-durable goods, we find that an increase in house prices boosts consumption of durables, while non-durables are found to register an insignificant effect.
    Keywords: House prices, consumption, VECM analysis
    JEL: C1 C32 E21 R30
    Date: 2018–07
  73. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Julia Grübler (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This publication is available in German language only. For a brief English summary see further below. Die Konjunktur in den mittel-, ost- und südosteuropäischen Ländern (MOSOEL) kühlt sich zwar ab, aber viel weniger als noch im Frühjahr erwartet Die Prognosen für heuer wurden für die Mehrheit der Länder nach oben revidiert. Vor allem in der EU-MOE-Region hat sich das Wachstum vom Abschwung im Euro-Raum recht deutlich abgekoppelt. In einigen Ländern mehren sich sogar die Anzeichen einer Überhitzung, die allerdings nur in Rumänien Anlass zur Sorge gibt. Die Westbalkanländer profitieren von steigenden FDI-Zuflüssen, mehrere GUS-Länder von der expansiven Fiskalpolitik. In Russland dagegen hat der restriktive fiskalpolitische Kurs die Wirtschaft an den Rand einer Rezession gebracht. Die Wirtschaftskrise in der Türkei erwies sich zwar tiefer als früher erwartet, dürfte aber spätestens 2020 überwunden sein. Insbesondere die Visegrád-Staaten gehören zu Österreichs wichtigsten Wirtschaftspartnern. Ihnen waren im Jahr 2018 mehr als 10% des österreichischen Güterhandels, 20% der Einkommen aus Direktinvestitionen sowie 40% der Auslandsforderungen österreichischer Banken zuzurechnen. Gleichzeitig sind sie auch EU-Mitglieder mit brisanten politischen und wirtschaftlichen Herausforderungen, von welchen auch Österreich nicht unberührt bleiben wird. English Summary Eastern Europe standing firm in face of global headwinds The economy in the Central, East and Southeast European countries (CESEE) is cooling down, but much less than expected in the spring the forecasts for this year have been revised upwards for the majority of countries. Particularly in the EU-CEE region, growth has decoupled quite clearly from the downturn in the euro area. In several countries there are even signs of overheating, although only in Romania this is a cause for concern. The Western Balkans are benefiting from rising FDI inflows, while several CIS countries from expansionary fiscal policy. In Russia, on the other hand, the restrictive fiscal policy has brought the economy to the brink of recession. Although the economic crisis in Turkey proved to be deeper than previously expected, it should be overcome by 2020 at the latest. The Visegrád countries, in particular, prove very important for the Austrian economy. In 2018, they accounted for more than 10% of Austrian goods trade, 20% of income generated by Austrian investment abroad, as well as 40% of foreign claims of Austrian banks. At the same time, they are among the EU Member States facing increasing political and economic challenges, by which Austria will not be unaffected.
    Keywords: Konjunkturprognose, Mittelosteuropa, Westbalkan, Visegrád, Österreich, EU-Osterweiterung, Außenhandel, Investitionen, FDI, Automatisierung, Arbeitskräftemangel, Migration, economic forecast, Central and Eastern Europe, Western Balkans, Visegrád, Austria, EU Eastern Enlargement, international trade, investment, FDI, automation, labour shortages, migration
    JEL: E20 E66 O52 O57 P24 P27 P33 P52
    Date: 2019–07
  74. By: David Altig; Jose Maria Barrero; Nicholas Bloom; Steven J. Davis; Brent H. Meyer; Nicholas Parker
    Abstract: We develop a new monthly panel survey of business executives and a new question design that elicits subjective probability distributions over own-firm outcomes at a one-year look-ahead horizon. Our Survey of Business Uncertainty (SBU) began in 2014 and now covers 1,500 firms drawn from all 50 states, every major industry in the nonfarm private sector, and a full range of firm sizes. We use SBU data to measure expected future outcomes for the growth of sales, employment, and investment for each firm and the uncertainty surrounding those expectations. Mean expectations are highly predictive of realized growth rates in the firm-level data, and subjective uncertainty is highly predictive of absolute forecast errors. We also use the SBU data to produce a Business Expectations Index (first moment) and a Business Uncertainty Index (second moment) for the U.S. economy. In Granger causality tests, the Business Expectations Index has statistically significant predictive power for a range of prominent business cycle indicators. The SBU also includes special questions that elicit additional information, including the perceived effects of specific government policy developments on the firm’s decisions and outcomes
    JEL: D20 E0
    Date: 2019–06
  75. By: Hyun Lee (University of Connecticut); Kai Zhao (University of Connecticut); Fei Zou (University of Connecticut)
    Abstract: China’s mandatory retirement policy requires most female workers to retire five years earlier than their male counterparts. The conventional wisdom behind this policy is that it benefits women by relieving them from work earlier and providing them with more years of public pension benefits than men. However, is the early retirement policy really welfare-improving for women? In this paper, we quantitatively evaluate the welfare consequence of China’s gender-specific mandatory retirement policy using a calibrated Overlapping-Generation model with heterogeneous agents and incomplete markets. We find that the early mandatory retirement reduces welfare for women. An important reason behind this welfare result is that China’s public pension benefits are only partially indexed to growth, and therefore women who retire earlier also benefit less from economic growth than men. Our quantitative results suggest that equalizing the retirement age across gender can generate a welfare gain for both men and women.
    Keywords: Social Security, China, Mandatary Retirement, Gender
    JEL: E20 E60 H30
    Date: 2019–07
  76. By: International Monetary Fund
    Abstract: The U.S. economy is in the longest expansion in recorded history. Unemployment is at levels not seen since the late 1960s, real wages are rising, and inflationary pressures remain subdued. Economic activity, while still growing above potential, is expected to slow to around 2.6 percent this year and 1.9 percent in 2020.
    Date: 2019–06–24
  77. By: Khorunzhina, Natalia (Department of Economics, Copenhagen Business School)
    Abstract: Using the data on maintenance expenditures and self-assessed house value, I separate the measure of individual housing stock and house prices, and use these data for testing whether nondurable consumption and housing are characterized by intratemporal nonseparability in households’ preferences. I find evidence in favor of intratemporal dependence between total nondurable consumption and housing. I reach a similar conclusion for some separate consumption categories, such as food and utility services. My findings also indicate households are more willing to substitute housing and nondurable consumption within a period than to substitute composite consumption bundles over different time periods.
    Keywords: Intratemporal Nonseparability; Housing; Nondurable Consumption
    JEL: C51 D12 D13 E21 R21
    Date: 2019–05–14
  78. By: Natalia Khorunzhina
    Abstract: Using the data on maintenance expenditures and self-assessed house value, I separate the measure of individual housing stock and house prices, and use these data for testing whether nondurable consumption and housing are characterized by intratemporal nonseparability in households’ preferences. I find evidence in favor of intratemporal dependence between total nondurable consumption and housing. I reach a similar conclusion for some separate consumption categories, such as food and utility services. My findings also indicate households are more willing to substitute housing and nondurable consumption within a period than to substitute composite consumption bundles over different time periods.
    Keywords: intratemporal nonseparability, housing, nondurable consumption
    JEL: C51 D12 D13 E21 R21
    Date: 2019
  79. 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 F13 F14 F15 O11 O16 O47 O53
    Date: 2019–01
  80. By: Hartigan, Luke; Morley, James
    Abstract: We conduct factor model analysis to investigate how inflation targeting has affected the Australian economy. Estimating a dynamic factor model for a dataset with more than one hundred variables, we find that Australia has a similar factor structure to other economies, with a sizeable portion of macroeconomic fluctuations accounted for by two common factors that have clear "real'' and "nominal" interpretations based on their links to different types of variables. The factor structure appears to have changed soon after the introduction of inflation targeting, corresponding to a large reduction in the volatility of common movements in macroeconomic variables compared to idiosyncratic movements. Estimates from a block exogenous factor augmented vector autoregressive model suggest that the transmission and responsiveness of monetary policy have also changed, with monetary policy becoming more effective and responsive to foreign shocks following the introduction of inflation targeting.
    Keywords: inflation targeting; monetary policy; factor modelling; structural change; impulse response functions
    Date: 2019–07
  81. By: Catherine Mathieu (Observatoire français des conjonctures économiques)
    Abstract: In 2019, 20 years after the launch of the single currency, the euro area policy framework remains highly debated among politicians, academics, and citizens. The need to improve this framework had been highlighted by the widening of imbalances prior to the 2007 financial crisis, and afterwards by the huge impact of the financial crisis, the sovereign debt crisis in Southern European countries, and the Great Recession. The issues under debate may be divided into four main axes.
    Keywords: Euro area governance; Fiscal rules; Bank stability
    Date: 2019–05
  82. By: Abe, Naohito; Rao, D.S.Prasada
    Abstract: The Sato-Vartia (SV) index for bilateral price comparisons has impressive analytical properties and is used intensively in recent international trade and macroeconomic analyses. In this paper we propose several ways of constructing transitive multilateral version of the SV index. We show that the SV index is only one of many logarithmic indices that satisfy the factor reversal test discussed in index number theory. We derive closed form expressions for the generalized SV indices and empirically implement the new indices for making cross-country price comparison using World Bank data from the 2011 International Comparison Program.
    Keywords: Sato-Vartia Index, Multilateral comparisons, Transitivity, Factor Reversal Test
    JEL: C13 C83 E01 E31
    Date: 2019–06
  83. By: Bordo, Michael D. (Rutgers University); Prescott, Edward Simpson (Federal Reserve Bank of Cleveland)
    Abstract: The decentralized structure of the Federal Reserve System is evaluated as a mechanism for generating and processing new ideas on monetary and financial policy. The role of the Reserve Banks starting in the 1960s is emphasized. The introduction of monetarism in the 1960s, rational expectations in the 1970s, credibility in the 1980s, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System is documented. Contributions by Reserve Banks to policy on bank structure, bank regulation, and lender of last resort are also discussed. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s. Furthermore, the Reserve Banks were able to succeed at this because of their private-public governance structure, a structure set up in 1913 for a highly decentralized Federal Reserve System, but which survived the centralization of the System in the Banking Act of 1935. We argue that this role of the Reserve Banks is an important benefit of the Federal Reserve’s decentralized structure and contributes to better policy by allowing for more competition in ideas and reducing groupthink.
    Keywords: Federal Reserve System; monetary policy; financial regulation; governance;
    JEL: B0 E58 G28 H1
    Date: 2019–06–21
  84. By: Doerr, Sebastian; Gissler, Stefan; Peydró, José-Luis; Voth, Hans-Joachim
    Abstract: Do financial crises radicalize voters? We analyze a canonical case - Germany during the Great Depression. After a severe banking crisis in 1931, caused by foreign shocks and political inaction, radical voting increased sharply in the following year. Democracy collapsed six months later. We collect new data on pre-crisis bank-firm connections and show that banking distress led to markedly more radical voting, both through economic and non-economic channels. Firms linked to two large banks that failed experienced a bank-driven fall in lending, which caused reductions in their wage bill and a fall in city-level incomes. This in turn increased Nazi Party support between 1930 and 1932/33, especially in cities with a history of anti-Semitism. While both failing banks had a large negative economic impact, only exposure to the bank led by a Jewish chairman strongly predicts Nazi voting. Local exposure to the banking crisis simultaneously led to a decline in Jewish-gentile marriages and is associated with more deportations and attacks on synagogues after 1933.
    JEL: E44 G01 G21 N20 P16
    Date: 2019
  85. By: Cloyne, James; Huber, Kilian; Ilzetzki, Ethan; Kleven, Henrik
    Abstract: We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from the idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel through a multivariate and nonparametric heterogeneity analysis of proxies for collateral and wealth effects.
    JEL: D14 E32 R31
    Date: 2019–06–01
  86. By: Mario Alloza (Banco de España); Pablo Burriel (Banco de España)
    Abstract: Las Corporaciones Locales han registrado desde 2012 un superávit fiscal, que contrasta con el déficit registrado en el resto de las Administraciones Públicas. A pesar de la heterogeneidad en la composición del sector, esta mejora en las finanzas públicas se extiende a una amplia mayoría de municipios. Su origen se remonta a la reducción y a la posterior contención de los gastos no financieros surgidas en 2012, especialmente relevantes en el caso del gasto en inversión pública. Las Corporaciones Locales han utilizado esta evolución favorable de sus presupuestos para mejorar significativamente su situación financiera. En particular, desde 2012 el sector ha iniciado un proceso de desendeudamiento, que, si bien presenta cierto grado de heterogeneidad, ha supuesto una reducción notable de su stock de deuda. Esta reducción del pasivo ha venido acompañada de una sustancial mejora de los activos financieros, materializada, en particular, en la acumulación de efectivo y depósitos. Si bien a escala agregada el sector presenta una situación financiera saneada, holgadamente compatible con los límites de deuda establecidos en la Ley Orgánica de Estabilidad Presupuestaria y Sostenibilidad Financiera, aún muestra cierto margen de mejora, en particular en el caso de los ayuntamientos de tamaño medio.
    Keywords: corporaciones locales, superávit fiscal, deuda pública
    JEL: E62 H71 H72 H74
    Date: 2019–07
  87. By: Adrian Pagan; Tim Robinson
    Abstract: Representative models of the macroeconomy (RMs), such as DSGE models, frequently contain unobserved variables. A finite-order VAR representation in the observed variables may not exist, and therefore the impulse responses of the RMs and SVAR models may differ. We demonstrate this divergence often is: (i) not substantial; (ii) reflects the omission of stock variables from the VAR; and (iii) when the RM features I (1) variables can be ameliorated by estimating a latent-variable VECM. We show that DSGE models utilize identifying restrictions stemming from common factor dynamics reflecting statistical, not economic, assumptions. We analyze the use of measurement error, and demonstrate that it may result in unintended consequences, particularly in models featuring I (1) variables.
    Keywords: SVAR, Partial Information, Identification, Measurement Error, DSGE
    JEL: E37 C51 C52
    Date: 2019–06
  88. By: Ryoji Koike (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper reconstructs a comparable series of Japan's household consumption in the 1940s, using historical records about household outlays and black-market transactions, and interpolating missing values in the existing statistics. Specifically, nominal outlays of urban and farm households are estimated, and then converted into real outlays by effective price indexes containing black-market transactions. Household outlay per capita is then computed by taking the average of urban and farm household outlays using population shares as weights. Real outlay in 1945 is estimated at a little less than 50 percent compared to that in 1940, although statistics are missing for 1945. Even considering alternative estimates using other records, real outlay in 1945 is a little more than 50 percent compared to that in 1940. Thus, it is concluded that Japan's household consumption in 1945 declined to the level in 1875-1880.
    Keywords: Household survey, Black-market prices, Effective prices, In- kind outlay, World War II
    JEL: N35 Y10 D19 E21
    Date: 2019–06
  89. By: Joshua C. C. Chan; Liana Jacobi; Dan Zhu
    Abstract: The marginal likelihood is the gold standard for Bayesian model comparison although it is well-known that the value of marginal likelihood could be sensitive to the choice of prior hyperparameters. Most models require computationally intense simulation-based methods to evaluate the typically high-dimensional integral of the marginal likelihood expression. Hence, despite the recognition that prior sensitivity analysis is important in this context, it is rarely done in practice. In this paper we develop efficient and feasible methods to compute the sensitivities of marginal likelihood, obtained via two common simulation-based methods, with respect to any prior hyperparameter alongside the MCMC estimation algorithm. Our approach builds on Automatic Differentiation (AD), which has only recently been introduced to the more computationally intensive setting of Markov chain Monte Carlo simulation. We illustrate our approach with two empirical applications in the context of widely used multivariate time series models.
    Keywords: automatic differentiation, model comparison, vector autoregression, factor models
    JEL: C11 C53 E37
    Date: 2019–06
  90. By: Gregory Huffman (Vanderbilt University)
    Abstract: A dynamic model of offshoring is studied which permits the analysis of how offshoring can affect economic and welfare outcomes. Firm owners make location decisions based on the future returns from locating in either foreign or domestic markets, or ceasing operations altogether. It is shown that increased offshoring can raise growth and welfare in both the domestic and foreign economies. Imposing a tax on firms that relocate abroad can make firms delay this move, but at the cost of lowering both domestic and foreign welfare, as well as growth. A tax on domestic profits has an ambiguous impact on growth, while lowering domestic welfare. The effect that these policy or parameter changes have on domestic income inequality, and international wage inequality is also studied. In contrast to the view that the economic impact of outsourcing is equivalent to that of admitting more immigrants, the present model implies that these policies are nearly the opposite of each other. Immigration reduces growth, and lowers the welfare of both foreign and domestic agents.
    Keywords: Economic Growth, Offshoring, Innovation, Firm Exit, Tax Policy, Creative Destruction
    JEL: E00 E62 H23 O10 O30 O40
    Date: 2019–06–24
  91. By: Joshua C. C. Chan; Liana Jacobi; Dan Zhu
    Abstract: Large Bayesian VARs with the natural conjugate prior are now routinely used for forecasting and structural analysis. It has been shown that selecting the prior hyperparameters in a data-driven manner can often substantially improve forecast performance. We propose a computationally efficient method to obtain the optimal hyperparameters based on Automatic Differentiation, which is an efficient way to compute derivatives. Using a large US dataset, we show that using the optimal hyperparameter values leads to substantially better forecast performance. Moreover, the proposed method is much faster than the conventional grid-search approach, and is applicable in high-dimensional optimization problems. The new method thus provides a practical and systematic way to develop better shrinkage priors for forecasting in a data-rich environment.
    Keywords: automatic differentiation, vector autoregression, optimal hyperparameters, forecasts, marginal likelihood
    JEL: C11 C53 E37
    Date: 2019–06
  92. By: Mihaela Pintea (Department of Economics, Florida International University)
    Abstract: I develop a model with status concerns to analyze how different economic factors affect female labor participation and welfare, as well as average household incomes and wages. Reductions in the price of domestic goods and increases in female wages have positive effects on female participation. Increases in male wages have different effects on female participation depending on whether they affect female wages or not. Events that lead to increases in female participation are usually associated with decreases in the welfare of stay-at-home wives but are not necessarily associated with increases in welfare of working wives. Allowing for part-time work can lead to an increase in overall female labor force participation, but some women that would have worked full-time end up working part-time. If female wages are endogenous, an increase in male wages leads to an increase in the female participation rate even if it is not associated with a decrease in the gender wage gap. The positive feedback of increased female participation on their wages can lead to hysteresis of dual equilibria of high and low female labor force participation and a discontinuous transition between these equilibria.
    Keywords: Female Labor Force Participation, Relative Income, Gender Wage Gap
    JEL: D62 E24 J16
    Date: 2019–06
  93. By: Shuo Cao (Shenzhen Stock Exchange); Huichou Huang (Broad Reach Investment Management); Ruirui Liu (King’s College London); Ronald MacDonald (University of Glasgow)
    Abstract: In this paper we study the exchange rate predictability across a range of investment horizons by proposing a generalized (term structure) model to capture the risk premium component of exchange rates with a broad set of variables meanwhile handle both parameter and model uncertainty. We demonstrate the existence of time-varying term-structural effect and model disagreement effect of exchange rate predictors as well as the projections of predictive information over the term structure. We further utilize the time-variation in the probability weighting to identify the scapegoat drivers of customer order flows. Our findings suggest that heterogeneous agents learn to forecast exchange rates and switch trading rules over time, resulting in the dynamic country-specific and global exposures of exchange rates to short- run non-fundamental risk and long-run business cycle risk. Hedging pressure and liquidity are identified to contain predictive information that is common to a range of forecasting horizons. Policy-related predictors are important for short-run forecasts up to 3 months while crash risk indicators matter for long-run forecasts from 9 months to 12 months. We further comprehensively evaluate both statistical and economic significance of the model allowing for a full spectrum of currency investment management, and find that the model generates substantial performance fees of 6.5% per annum. The outperformance is mainly due to (i) the relaxing of restrictions imposed on structural parameters via model generalization, and (ii) the use of factor structure to extract common useful information from noisy data and reduce estimation errors.
    Keywords: Exchange Rate Forecasting, Disconnect Puzzle, Carry Trade Risk Premia, Term Structure Factors, Scapegoat Variables, Model Disagreement, Customer Order Flows
    JEL: C52 E43 F31 F37 G11
  94. By: Ljungberg, Jonas (Department of Economic History, Lund University)
    Abstract: This paper presents and discusses a new database on nominal and real effective exchange rates for an extensive range of European countries spanning 1870-2016. Indeed, with the exception of a few countries, such long run historical series have not been previously constructed. To gage the validity of these series, comparisons with the BIS and IMF indices are conducted. In addition to stretching further back in time, it is shown that the new indices are more consistent and transparent in construction, even over the recent period. Limitations of the new series, relating to both some underlying data and the index problem are considered. Supplementary to the effective exchange rate indices, is a collection of cost of living or CPI indices 1870-1990, which are based on a critical survey in this paper of those indices which are widely used and abused.
    Keywords: effective exchange rates; Europe; index problem; CPI
    JEL: E31 F31 N13 N14
    Date: 2019–06–27
  95. By: Naoyuki Yoshino (Asian Development Bank Institute); Stefan Angrick (Keio University)
    Abstract: Whereas monetary policy in most major economies is conducted by an independent central bank manipulating the interbank overnight interest rate to achieve a price stability target, monetary policy in China is influenced by multiple actors and char- acterised by both quantity-based and price-based instruments and targets. Chinese monetary policy is further exercised through non-public practices such as “window guidance”, a policy by which authorities seek to guide commercial banks’ lending volumes by persuasion. The resulting complex interplay of these different factors is the subject of this study, which investigates the transmission mechanism of Chinese monetary policy for the period 2000–2015 in order to determine the effectiveness of different policy instruments and, subsequently, the effect of bank financing on the broader macroeconomy. Towards this end, a qualitative institutional analysis is con- ducted, followed by quantitative econometric analyses based on exogeneity tests and Structural Vector Autoregression models. The study explicitly accounts for the in- fluence of window guidance by incorporating information from a text-based analysis of People’s Bank of China reports in the tradition of Romer & Romer (1989). To trace the evolution of each instrument, estimations are also applied to subsamples as indicated by a Chow test for structural breaks. Results indicate that window guid- ance has played an important role in Chinese monetary policymaking in the period up to the Global Financial Crisis. Since then, the interbank overnight rate appears to have become more influential and exogenous. The study concludes by providing suggestions for further strengthening this interest rate channel, the stated goal of the People’s Bank of China.
    Keywords: monetary policy, China, SVAR, narrative approach, window guidance
    JEL: E52 E58
  96. By: Kaltenegger, Oliver
    Abstract: This paper presents a novel logarithmic mean Divisia index (LMDI) decomposition framework that is tailor-made for unit cost indicators. It adds four new models to the existing LMDI model family. The main novelty of the new framework lies in the separation of quantity and price effects captured in unit cost indicators, while retaining the same desirable properties of traditional models. Four case studies apply the novel LMDI framework to the total real unit energy costs (total RUEC) indicator. Total RUEC represents the sum of direct energy costs (for energy products) and indirect energy costs (energy costs embedded in intermediate inputs and passed on along global value chains) as a fraction of value added. This yardstick allows for monitoring shifts in the burden of energy costs on industries. The first three case studies, based on the World Input-Output Database, cover the period between 1995 and 2009. For an up-to-date analysis, a fourth case study collects additional data for 2009-2016 from energy and economic statistics' institutions. Globally, up until 2009, rising costs for crude petroleum/natural gas and the rise of China in the global economy were the largest drivers of total RUEC. In general, increases of indirect energy costs were more substantial than were those of direct energy costs. The total RUEC of Chinese car manufacturers increased much more strongly than did that of American car manufacturers. After 2009 (until 2016), prices for crude petroleum/natural gas and value added generation were major decelerating factors of global direct RUEC, while increases in energy consumption had offsetting effects. This paper provides a suitable tool to scientists who want to build on unit cost indicators in their research in general and to all policy-oriented institutions concerned with monitoring and analysing the energy transition in particular.
    Keywords: Logarithmic mean Divisia index,Structural decomposition analysis,Total real unit energy costs,Monitoring energy transition,Environmental-economic accounting,Multi-regional input-output analysis
    JEL: C43 C67 C82 E01 Q43
    Date: 2019
  97. By: Naohisa Hirakata (Bank of Japan); Kazutoshi Kan (Bank of Japan); Akihiro Kanafuji (Bank of Japan); Yosuke Kido (Bank of Japan); Yui Kishaba (Bank of Japan); Tomonori Murakoshi (Bank of Japan); Takeshi Shinohara (Bank of Japan)
    Abstract: In this paper, we introduce the updated version of the Quarterly Japanese Economic Model (Q-JEM), which was first developed by Ichiue et al. (2009) and updated by Fukunaga et al. (2011). Q-JEM is a large-scale semi-structural model of the Japanese economy, which is designed to incorporate greater disaggregation of expenditure components and detailed financial market information. Compared to Dynamic Stochastic General Equilibrium (DSGE) models, Q-JEM puts more emphasis on fitting data, while relaxing some theoretical discipline. To improve public access to the model, we share the replication files of the simulations conducted in the paper.
    Keywords: Macroeconomic model; Japanese economy
    JEL: E17
    Date: 2019–06–26
  98. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: What is nominal GDP targeting, and how does it differ from inflation targeting? What would be some of the advantages and disadvantages of using nominal GDP targeting? Have any central banks used it? St. Louis Fed President James Bullard addresses these and related questions.
    Date: 2019–04–19
  99. By: Rui Marvão Pereira; Alfredo Marvão Pereira
    Abstract: Renewable energy production subsidies alleviate the pressure on electricity prices associated with carbon and energy pricing policies in the process of decarbonization and electrification of the Portuguese economy. Our simulation results show that a feed in tariffs financed by a carbon tax leads to adverse macroeconomic as well as adverse and regressive distributional welfare effects. On the flip side, however, we show that use of the carbon tax revenues to finance a feed in tariff is an improvement over the simple carbon tax case along all the relevant policy dimensions. The feed in tariff mechanism when added to the carbon tax leads to better environmental outcomes at lower costs both in terms of the economic and social justice implications. The policy implications are clear. First, because of its adverse economic and distributional effects a carbon tax should not be used in isolation. The use of the revenues to finance a feed in tariff dominates the simple carbon tax case in all dimensions. Second, the search for the appropriate recycling mechanisms in addition to feed in tariffs is an issue as relevant as the carbon tax itself as it pertains to the potential reversal of the adverse effects of such a tax.
    Keywords: Dynamic General Equilibrium, Renewable Energy, Feed-in Tariff, Carbon Taxation, Macroeconomic Effects, Distributional Effects, Environmental Effects, Portugal
    JEL: C68 E62 H23 Q43 Q48
    Date: 2019–06
  100. By: Han Han (School of Economics Peking University); Benoit Julien (UNSW Australia); Asgerdur Petursdottir (University of Bath); Liang Wang (University of Hawaii Manoa and NSD/CCER)
    Abstract: We study asset liquidity in a search-theoretic framework where divisible assets can facilitate exchange for an indivisible consumption good. The distinctive characteristics of our theory are that the asset dividend can be either positive or negative and buyers can choose whether or not to carry the asset and trade for the indivisible good. Buyers' participation determines the demand for asset liquidity and hence asset price carries a component of liquidity premium to reflect its function of trade facilitation. The economy features multiple equilibria when the asset dividend is negative, due to the trade-off between the probability of trade and the endogenous cost of holding the asset.
    Keywords: Asset, Indivisibility, Liquidity, Search
    JEL: D51 E40 G12
    Date: 2019–06
  101. By: Martha López (Banco de la República de Colombia); Eduardo Sarmiento G. (Escuela Colombiana de Ingeniería)
    Abstract: En el documento se describe el sistema pensional colombiano. Luego de la reforma de la Ley 100 mejoraron las afiliaciones, lo cual implica un aumento también de las cotizaciones y la cobertura de los pensionados en el futuro. En la actualidad la cobertura de las pensiones es apenas 23% y menos de 1,5 millones de personas. Esto se debe, en parte, a la existencia de un mercado laboral con un sector informal amplio (47,3%). Las mayores tasas de reemplazo del sistema público con respecto al privado ocasionan traslados del segundo al primero, lo que pone más presión en las finanzas públicas. Por lo anterior, se propone establecer un sistema de 3 pilares vigente en otros países como Chile. Actualmente, por nivel de ingreso, cerca de 80% de los cotizantes corresponde a personas con menos de 2 SMMLV; sin embargo, un alto monto de los subsidios del RPM se destina a la población con mayores ingresos. El gasto en transferencias con cargo a la Nación fue de 3,4% del PIB y el pasivo pensional fue cercano al 130% del PIB. Teniendo en cuenta las anteriores consideraciones, en este documento se plantea la necesidad de una reforma pensional que mejore la cobertura, aumente las transferencias a la población más pobre y no incremente los requerimientos de presupuesto de la Nación. **** ABSTRACT: The document describes the Colombian pension system. After the reforms of the Law 100, affiliations improved which also implies an increase of the contributions and the coverage of the pensioners in the future. At present, the coverage of pensions is only 23% and less than 1,5 million people. This is partly due to the existence of a labor market with a broad informal sector (47,3%). The public system has higher replacement rates than the private one causing transfers from the second to the first, which puts more pressure on public finances. Therefore, this document proposes to establish a 3 pillars scheme that exists in other countries like Chile. Currently, by level of income, about 80% of contributors correspond to people who earn less than 2 SMMLV, but substantial RPM subsidies goes to the population with the highest income. Pension transfers in charge of the Nation were 3,4% of GDP and pension liabilities were close to 130% of GDP. Taking into account the above considerations, this document raises the need for a pension reform that improves coverage, increases transfers to the poorest population and does not increase the Nation's budget requirements.
    Keywords: Pensiones, cobertura, finanzas públicas, tasa de reemplazo
    JEL: E21 G23 H55 H62 H68 I31
    Date: 2019–06
  102. By: Catherine Mathieu (Observatoire français des conjonctures économiques); Henri Sterdyniak (Observatoire français des conjonctures économiques)
    Abstract: For almost 20 years, euro area countries have been sharing a single currency. The drawbacks of the euro area framework were highlighted by the widening of imbalances prior to the 2007 financial crisis, and thereafter by the huge impact of the financial crisis, the public debt crisis in Southern European countries, and the Great Recession. Prior to and after the crisis, EU institutions and Member States (MS) have not been able to implement either a common economic strategy or satisfactory economic policy coordination
    Keywords: Euro area; Single currency; Financial market; Fiscal rules; Economic Policies coordination
    Date: 2019–05
  103. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: In a presentation at the 28th Annual Hyman P. Minsky Conference in Annandale-on-Hudson, N.Y., St. Louis Fed President James Bullard discussed his working paper on whether monetary policy can be conducted in a way that benefits all households even in a world with substantial income, financial wealth and consumption inequality. In the paper, nominal GDP targeting constitutes “optimal monetary policy for the masses,” he said.
    Date: 2019–04–17
  104. By: Kajal Lahiri; Wuwei Wang
    Abstract: We apply generalized beta and triangular distributions to histograms from the Survey of Professional Forecasters (SPF) to estimate forecast uncertainty, shocks and discord using information framework, and compare these with moment-based estimates. We find these two approaches to produce analogous results, except in cases where the underlying densities deviate significantly from normality. Even though the Shannon entropy is more inclusive of different facets of a forecast density, we find that with SPF forecasts it is largely driven by the variance of the densities. We use Jenson-Shannon Information to measure ex ante “news” or “uncertainty shocks” in real time, and find that this ‘news’ is closely related to revisions in forecast means, countercyclical, and raises uncertainty. Using standard vector auto-regression analysis, we confirm that uncertainty affects the economy negatively.
    Keywords: density forecasts, uncertainty, disagreement, entropy measures, Jensen-Shannon information, Survey of Professional Forecasters
    JEL: E37
    Date: 2019
  105. By: Sun, Tianyu; Chand, Satish; Sharpe, Keiran
    Abstract: We empirically test the effect of ageing on housing prices. Our analysis shows that a decline in the fertility rate and an increase in longevity – the two main causes of an ageing population – have divergent effects on housing prices. This empirical finding helps us to reconcile a conflict which has lasted for 30 years in literature. We show that a decline in the fertility rate generally lowers housing prices because there are fewer workers in the population. At the same time, the workers and retirees react differently towards the impact of longer lifespans. In particular, the workers are urged to purchase more houses as a form of of saving and thus raise the prices, while the retirees tend to sell a greater fraction of the housing for extra funding. The conclusions correspond well with the Life Cycle Hypothesis and are drawn by using a semi-parametric method on an international panel data.
    Keywords: Ageing, Fertility, Longevity, Housing prices, Semi-parametric analysis
    JEL: C14 E31 J11 R21
    Date: 2018–11–01
  106. By: Steven Bond-Smith (Bankwest Curtin Economic Centre, Curtin University)
    Abstract: The so-called ‘new growth theory’ is characterized by the now Nobel Prize winning insight that ideas are a non-rival input to and output from endogenous investment in innovation. Non-rivalry implies increasing returns to scale, but this also unintentionally creates an empirically-disputed scale effect that a growing population implies an ever-increasing growth rate. Empirical evidence supports fully-endogenous growth without scale effects, but theoretical issues sustain the decades-long dispute over exactly how to negate the scale effect. This article surveys theoretical approaches to resolving the scale effect and shows how four generations of endogenous growth theory are defined by the maturing of modeling techniques for constraining increasing returns. The synthesis suggests that the dispute over scale effects is really a narrative about how the powerful application of increasing returns has followed a standard theoretical development pattern. This implies that a fourth generation is now emerging that negates the scale effect while retaining fully-endogenous growth without relying on assumptions of linearity. Instead, the market response to excessive increasing returns to innovation constrains explosive growth by expanding the market, rather than by a linear assumption. This latest class of endogenous growth models may be the final chapter to resolving the long running dispute.
    Keywords: endogenous growth, scale effects, increasing returns, innovation, invention
    JEL: E10 L16 O41
    Date: 2019–03
  107. By: Guglielmo Maria Caporale; Woo-Young Kang; Fabio Spagnolo; Nicola Spagnolo
    Abstract: This paper uses a Markov-switching non-linear specification to analyse the effects of cyber attacks on returns in the case of four cryptocurrencies (Bitcoin, Ethernam, Litecoin and Stellar) over the period 8/8/2015 - 28/2/2019. The analysis considers both cyber attacks in general and those targeting cryptocurrencies in particular, and also uses cumulative measures capturing persistence. On the whole, the results suggest the existence of significant negative effects of cyber attacks on the probability for cryptocurrencies to stay in the low volatility regime. This is an interesting finding, that confirms the importance of gaining a deeper understanding of this form of crime and of the tools used by cybercriminals in order to prevent possibly severe disruptions to markets.
    Keywords: crypto currencies, cyber attacks, regime switching
    JEL: C22 E40 G10
    Date: 2019
  108. By: Werner Roeger; Janos Varga; Jan in 't Veld; Lukas Vogel
    Abstract: This paper studies the effects of structural reforms on the functional distribution of income in EU Member States. To study this mechanism we use a DSGE model (Roeger et al. 2008) with households supplying three types of labour, low-, medium- and high-skilled. We assume that households receive income from labour, tangible capital, intangible capital, financial wealth and transfers and we trace how structural reforms affect these types of incomes. The quantification of structural reforms is based on changes in structural indicators that can significantly close the gap of a country’s average income towards the best performing countries in the EU. We find a general trade-off between an increase in employment of a particular group and the income of the average group member relative to income per capita. In general, reforms which aim at increasing employment of low skilled workers are associated with a fall in wages relative to income per capita. Capital owners generally benefit from labour market reforms, with an increasing share in total income, due to limited entry into the final goods production sector. This suggests that labour market re-forms may lead to suboptimal distributional effects if there are rigidities in goods markets present, a finding which confirms the importance of ensuring that such reforms are accompanied or preceded by product market reforms.
    JEL: C53 E10 F47 O20 O30 O41
    Date: 2019–02
  109. By: Bullard, James B. (Federal Reserve Bank of St. Louis); DiCecio, Riccardo (Federal Reserve Bank of St. Louis)
    Abstract: There has been increasing interest in large-scale heterogeneous agent DSGE models. These models have realistic degrees of heterogeneity—approaching observed Gini coefficients in U.S. data. They more directly address issues around income, financial wealth and consumption inequality. What is the role of monetary policy?
    Date: 2019–05–23
  110. By: Edgar A. Robles (Universidad de Costa Rica)
    Abstract: El presente trabajo utiliza la metodología de contabilidad de crecimiento, llamada Two-Deflator Approach, para estimar la productividad total de los factores (PTF) en Costa Rica entre 1960 y 2017. Los resultados indican que el 69 por ciento del crecimiento económico es explicado por el crecimiento de la PTF. El resto del crecimiento económico se asocia a las contribuciones del capital y del trabajo, las cuales han sido positivas durante todas las décadas de este periodo. En cuanto a la contribución del trabajo, su aporte al crecimiento económico ha sido por la cantidad y no por la calidad de la mano de obra, con excepción del último periodo (2010-2017) en donde la calidad aportó positivamente al crecimiento económico. Una vez estimada la PTF, se utiliza un modelo GARCH para estimar la relación entre la instabilidad macroeconómica y el crecimiento de la PTF. Así, se encontró evidencia de que el crecimiento de la PTF en Costa Rica se ve afectado negativamente por inflaciones altas. Por su parte, el crecimiento de la PTF se beneficia de un mayor crecimiento de la apertura comercial, medida por la suma de importaciones y exportaciones a PIB, y se perjudica cuando existe una mayor volatilidad de la profundización financiera, medida por la razón de M2 al PIB.
    Keywords: Productividad Total de los Factores (PTF), crecimiento económico, inestabilidad macroeconómica, economía de Costa Rica.
    Date: 2019–06
  111. By: Olivier J Blanchard (Peterson Institute for International Economics); Takeshi Tashiro (Peterson Institute for International Economics)
    Abstract: For many years, the Japanese government has promised an eventual return to primary budget surpluses, but it has not delivered on these promises. Its latest goal is to return to primary balance by 2025. Blanchard and Tashiro, however, argue that, in the current economic environment in Japan, primary deficits may be needed for a long time, because they may be the best tool to sustain demand and output, alleviate the burden on monetary policy, and increase future output. What primary deficits are used for, however, is equally important, and the Japanese government should put them to better use. The authors recommend that, given Japan’s aging population, the government should spend on measures aimed at increasing fertility—and by implication population and output growth—which are likely to more than pay for themselves.
    Date: 2019–05
  112. By: Brainard, Lael (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2019–06–24
  113. By: Natalya Apopo (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: The legitimacy of virtual currencies as an alternative form of monetary exchange has been the centre of an ongoing heated debated since the catastrophic global financial meltdown of 2007-2008. We contribute to the relative fresh body of empirical research on the informational market efficiency of cryptomarkets by investigating the weak-form efficiency of the top-five cryptocurrencies. In differing from previous studies, we implement random walk testing procedures which are robust to asymmetries and unobserved smooth structural breaks. Moreover, our study employs two frequencies of cryptocurrency returns, one corresponding to daily returns and the other to weekly returns. Our findings validate the random walk hypothesis for daily series hence validating the weak-form efficiency for daily returns. On the other hand, weekly returns are observed to be stationary processes which is evidence against weak-form efficiency for weekly returns. Overall, our study has important implications for market participants within cryptocurrency markets.
    Keywords: Efficient Market Hypothesis (EMH); Cryptocurrencies; Random Walk Model (RWM); Flexible Fourier Form (FFF) unit root tests; Smooth structural breaks.
    JEL: C22 C32 C51 E42 G14
    Date: 2019–06
  114. By: Knut Are Aastveit; Bruno Albuquerque; André Anundsen
    Abstract: Recent developments in US house prices mirror those of the 1996-2006 boom, but the recovery in construction activity has been weak. Using data for 254 US metropolitan areas, we show that housing supply elasticities have fallen markedly in recent years. Consistent with this, we ?nd that monetary policy shocks have a stronger e?ect on house prices during the recent recovery than the previous boom. At the same time, building permits respond less. Finally, we ?nd that housing supply elasticities have declined more in areas where land-use regulation has tightened the most, and in areas that experienced the sharpest housing busts.
    Keywords: House prices, Heterogeneity, Housing supply elasticities, Monetary Policy
    Date: 2019–06

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