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on Macroeconomics |
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Issue of 2019‒07‒22
105 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Tomohide Mineyama (Bank of Japan); Wataru Hirata (Bank of Japan); Kenji Nishizaki (Bank of Japan) |
| Abstract: | Analyzing the costs and benefits of inflation has been a primary subject in monetary economics. This article presents a summary of Mineyama, Hirata, and Nishizaki (2019), which investigates the relationship between inflation and social welfare expressed as the economic satisfaction of households for Japan and the U.S. The authors' analysis employs a New Keynesian model which embeds the major factors affecting the costs and benefits of inflation. The analysis suggests (1) social welfare is maximized when the steady-state inflation rate, the level to which the inflation rate converges in the long run, is close to two percent for both Japan and the U.S.; and (2) around one percentage point absolute deviation from the close-to-two-percent rate induces only a minor change in social welfare. Note, however, that the estimates are subject to a considerable margin of error due to parameter uncertainty in the zero lower bound of nominal interest rates. |
| Keywords: | Inflation; Social welfare; New Keynesian model; Downward nominal wage rigidity; Zero lower bound; Forward guidance |
| JEL: | E31 E43 E52 |
| Date: | 2019–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojlab:lab19e02&r=all |
| By: | Aguiar-Conraria, Luís; Martins, Manuel M.F.; Soares, Maria Joana |
| 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 in flation 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, infl ation is explained by expectations. |
| JEL: | C49 E24 E32 |
| Date: | 2019–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_012&r=all |
| By: | Taisuke Nakata; Takeki Sunakawa |
| Abstract: | We analyze credible forward guidance policies in a sticky-price model with an effective lower bound (ELB) constraint on nominal interest rates by solving a series of optimal sustainable policy problems indexed by the duration of reputational loss. Lower-for-longer policies---while effective in stimulating the economy at the ELB---are potentially time-inconsistent, as the associated overheating of the economy in the aftermath of a crisis is undesirable ex post. However, if reneging on a lower-for-longer promise leads to a loss of reputation and prevents the central bank from effectively using lower-for-longer policies in future crises, these policies can be time-consistent. We find that, even without an explicit commitment technology, the central bank can still credibly keep the policy rate at the ELB for an extended period---though not as extended under the optimal commitment policy---and meaningfully mitigate the adverse effects of the ELB constraint on economy activit y. |
| Keywords: | Credibility ; Effective Lower Bound ; Forward Guidance ; Sustainable Plan ; Time-Consistency |
| JEL: | E63 E52 E61 E62 E32 |
| Date: | 2019–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-37&r=all |
| By: | Alice, Albonico; Alessia, Paccagnini; Patrizio, Tirelli |
| Abstract: | We estimate a medium scale DSGE model for the Euro area with Limited Asset Market Participation (LAMP). Our results suggest that in the recent EMU years LAMP is particularly sizeable (39% during 1993-2012) and important to understand business cycle features. The Bayes factor and the forecasting performance show that the LAMP model is preferred to its representative household counterpart. In the RA model the risk premium shock is the main driver of output volatility in order to match consumption correlation with output. In the LAMP model this role is played by the investment-specific shock, because Non-Ricardian households introduce a Keynesian multiplier effect and raise the correlation between consumption and investments. We also detect contractionary role of monetary policy shocks during the post-2007 years. In this period consumption of Non-Ricardian households fell dramatically, but this outcome might have been avoided by a more aggressive policy stance. |
| Keywords: | DSGE, Limited Asset Market Participation, Bayesian Estimation, Euro Area, Business Cycle |
| JEL: | C11 C13 C32 E21 E32 E37 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:391&r=all |
| By: | Clara De Luigi (Foreign Research Division, Oesterreichische Nationalbank); Martin Feldkircher (Foreign Research Division, Oesterreichische Nationalbank); Philipp Poyntner (Department of Economics, Vienna University of Economics and Business); Helene Schuberth (Foreign Research Division, Oesterreichische Nationalbank) |
| Abstract: | We assess the impact of the ECB’s unconventional monetary policy (UMP) on the wealth distribution of households in ten euro area countries. For this purpose, we estimate the effects of an ECB balance sheet expansion on financial asset and housing prices by means of vector autoregressions. We then use the estimates to carry out micro simulations based on data from the Household Finance and Consumption Survey (HFCS). We find that the overall effect of UMP on the net wealth distribution of households differs depending on which wealth inequality indicators we use. There is an inequality-increasing effect for the majority of the countries under review when we use wealth inequality indicators that are sensitive to changes at the tails of the wealth distribution. The effect is more equalizing when we base our assessment on the Gini coefficient. It is also important to note that one-third of the households in our sample does not hold financial or housing wealth and is thus not directly affected by UMP measures via the asset price channel. |
| Keywords: | Monetary Policy, Inequality, Wealth, Quantitative Easing |
| JEL: | D14 D31 E44 E52 E58 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp286&r=all |
| By: | Matthieu Darracq Paries (European Central Bank); Jenny Korner (d-fine - analytical. quantitative. tech.); Niki Papadopoulou (Central Bank of Cyprus) |
| Abstract: | This paper contributes to the debate on the macroeconomic effectiveness of expansionary non-standard monetary policy measures in a regulated banking environment. Based on an estimated DSGE model, we explore the interactions between central bank asset purchases and bank capital-based financial policies (regulatory, supervisory or macroprudential) through its influence on bank risk-shifting motives. We find that weakly-capitalised banks display excessive risk-taking which reinforces the credit easing channel of central bank asset purchases, at the cost of higher bank default probability and risks to financial stability. In such a case, adequate bank capital demand through higher minimum capital requirements curtails the excessive credit origination and restores a more efficient propagation of central bank asset purchases. As supervisors can formulate further capital demands, uncertainty about the supervisory oversight provokes precautionary motives for banks. They build-up extra capital buffer attenuating non-standard monetary policy. Finally, in a weakly-capitalised banking system, countercyclical macroprudential policy attenuates banks risk-taking and dampens the excessive persistence of the non-standard monetary policy impulse. On the contrary, in a well-capitalised banking system, the macroeconomic stabilisation with central bank asset purchases outweigh the marginal financial stability benefits with macroprudential policy. |
| Keywords: | non-standard monetary policy; asset purchases; bank capital regulation; risk-taking; regulatory uncertainty; effective lower bound |
| JEL: | E44 E52 E58 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cyb:wpaper:2019-1&r=all |
| By: | Michael T. Belongia; Peter N. Ireland |
| Abstract: | In the 1920s, Irving Fisher extended his previous work on the Quantity Theory to describe, through an early version of the Phillips Curve, how changes in the money stock could be associated with cyclical movements in output, employment, and inflation. At the same time, Holbrook Working designed a quantitative rule for achieving price stability through control of the money supply. This paper develops a structural vector autoregressive time series model that allows these "classical" channels of monetary transmission to operate alongside the now-more-familiar interest rate channel of the New Keynesian model. Even with Bayesian priors that intentionally favor the New Keynesian view, the United States data produce posterior distributions for the model's key parameters that are consistent with the ideas of Fisher and Working. Changes in real money balances enter importantly into the model's aggregate demand relationship, while growth in Divisia M2 appears in the estimated monetary policy rule. Contractionary monetary policy shocks reveal themselves through persistent declines in nominal money growth instead of rising nominal interest rates and account for important historical movements in output and inflation. |
| JEL: | B12 E31 E32 E41 E43 E52 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26056&r=all |
| By: | Robert J. Hill (Department of Economics, University of Graz); Miriam Steurer (Department of Economics, University of Graz); Sofie R. Waltl (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. How -- and whether -- it is included in the Consumer Price Index (CPI) affects inflation expectations, the measured level of real interest rates, and the behavior of governments, central banks and market participants. We show that none of the existing treatments of OOH are fit for purpose. Hence we propose a new simplified user cost method with better properties. Using a micro-level dataset, we then compare the empirical behavior of eight different treatments of OOH. Our preferred user cost approach pushes up the CPI during housing booms (by 2 percentage points or more). Our findings relate to the following important debates in macroeconomics: the behavior of the Phillips curve in the US during the global financial crisis, and the response of monetary policy to housing booms, secular stagnation, and globalization. |
| Keywords: | Measurement of inflation, Owner occupied housing, User cost, Rental equivalence, Quantile regression, Hedonic imputation, Housing booms and busts, Inflation targeting, Leaning against the wind, Phillips curve, Disinflation puzzle, Secular stagnation |
| JEL: | C31 C43 E01 E31 E52 R31 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp285&r=all |
| By: | Ricardo J. Caballero; Gunes Kamber |
| Abstract: | Global risk-off shocks can be highly destabilizing for financial markets and, absent an adequate policy response, may trigger severe recessions. Policy responses were more complex for developed economies with very low interest rates after the Global Financial Crisis (GFC). We document, however, that the unconventional policies adopted by the main central banks were effective in containing asset price declines. These policies impacted long rates and inspired confidence in a policy-put framework that reduced the persistence of risk-off shocks. We also show that domestic macroeconomic and financial conditions play a key role in benefiting from the spillovers of these policies during risk-off episodes. Countries like Japan, which already had very low long rates, benefited less. However, Japan still benefitted from the reduced persistence of risk-off shocks. In contrast, since one of the main channels through which emerging markets are historically affected by global risk-off shocks is through a sharp rise in long rates, the unconventional monetary policy phase has been relatively benign to emerging markets during these episodes, especially for those economies with solid macroeconomic fundamentals and deep domestic financial markets. We also show that unconventional monetary policy in the US had strong effects on long interest rates in most economies in the Asia-Pacific region (which helps during risk-off events but may be destabilizing otherwise—we do not take a stand on this tradeoff). |
| JEL: | E40 E44 E52 E58 F30 F41 F44 G01 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26031&r=all |
| By: | Byrne, David (Central Bank of Ireland); Kelly, Robert (Central Bank of Ireland) |
| Abstract: | We investigate the role that monetary policy plays in influencing the riskiness of bank lending via the “risk-taking channel” of the transmission mechanism. This affects banks’ perception of, and preference for, extendingnewrelatively risky lending. Using data on the lending of US banks to different risk categories of borrowers, we show that unanticipated increases in expected future interest rates, as measured by the term spread, induce banks to increase the riskiness of their lending. They do this both on an intensive margin, decreasing their lending to less risky borrowers in favour of riskier borrowers, and on an extensive margin also. We show that a one percentage point increase in the term spread leads banks to increase the relative share of riskier lending by 12.6 percent. Our results are relevant for understanding the channels of the monetary policy transmission mechanism and for thinking about the linkages between monetary policy and financial stability. |
| Keywords: | Monetary Policy, Risk Taking, Bank Lending |
| JEL: | E51 E52 E58 G21 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:6/rt/19&r=all |
| By: | Eiji Goto (The George Washington University); Constantin Bürgi (St. Mary’s College of Maryland) |
| Abstract: | We estimate Okun's law at the sectoral level for the US, the UK, Japan, and Switzerland to test several hypotheses that may explain why the aggregate Okun's coefficients are different across countries. Specifically, we show that the sectoral composition is not a driver and find that the sectoral coefficients are proportional to the aggregate in all four countries. We also show that the standard deviation of unemployment is the main driver of the cross-country differences. This is consistent with labor market policies being crucial to explain the cross-country cyclical differences in the aggregate Okun's coefficient. |
| Keywords: | Okun's law, Cross-country differences, Sectors |
| JEL: | E24 E32 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2019-002&r=all |
| By: | Geoffrey R. Dunbar; Amy (Qijia) Li |
| Abstract: | The adoption of inflation targeting (IT) by central banks leads to an increase of 10 to 20 percent in measures of financial development, with a lag. We also find evidence that the financial sector benefits of IT adoption were higher for early-adopting central banks. Our results suggest that roughly 12 to 14 years after the Reserve Bank of New Zealand adopted inflation targeting in 1989, the benefits for financial development for new adopters of inflation targeting may have been negligible. |
| Keywords: | Financial Institutions; Inflation targets; Transmission of monetary policy |
| JEL: | E44 E58 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-21&r=all |
| By: | Akcay, Ümit; Güngen, Ali Riza |
| Abstract: | Turkish economic growth depends on capital inflows and access to cheap credit sources. Once the global financial conditions tightened in 2018, Turkey was among the emerging markets that suffered the most. This article analyses the making of Turkey's economic crisis in 2018-2019, while elaborating the phases of Turkish financialisation. It locates the slow-motion drift of Turkish economy within the context of dependent financialisation and argues that a long-term account is needed to grasp the economic turmoil of recent years. |
| Keywords: | Turkey,Dependent Financialisation,Economic Crises,Crisis Management |
| JEL: | E44 E52 E6 F31 G01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1202019&r=all |
| By: | Jacopo Bonchi |
| Abstract: | I extend a standard two-period OLG model to investigate the interplay between the risks of a binding zero lower bound and asset price bubbles in a low interest rates environment. The nature of the bubble is crucial when the risk-free real interest rate is low because there is a negative natural interest rate. Bubbles are fully leveraged when they are sustained by borrowers, or they are fully unleveraged when they are sustained by lenders. Leveraged bubbles emerge naturally when there is a negative natural interest rate, and they are more likely to collapse. Unleveraged bubbles appear, in contrast, if the natural rate of interest is extremely low and the probability of the bubble bursting is not extremely high. Both bubbles are more likely to emerge with a high inflation target and will potentially be larger, but only leveraged bubbles substantially mitigate the risk of a zero lower bound episode by raising the natural rate of interest |
| Keywords: | zero lower bound, low interest rates, asset price bubbles, inflation target |
| JEL: | E43 E44 E52 |
| Date: | 2019–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2019-01&r=all |
| By: | Mikkelsen, Jakob; Poeschl, Johannes |
| Abstract: | We show that systemic risk in the banking sector breeds macroeconomic uncertainty. In a production economy with a banking sector, financial constraints of banks can lead to disastrous banking panics. We find that a higher probability of a banking panic increases uncertainty in the aggregate economy. We explore the implications of this banking panic-driven uncertainty for business cycles, asset prices and macroprudential regulation. Banking panic-driven uncertainty amplifies business cycle volatility, increases risk premia on asset prices and yields a new benefit from countercyclical bank capital buffers. |
| Keywords: | Banking Panics, Systemic Risk, Endogenous Uncertainty, Macroprudential Policy |
| JEL: | E44 G12 G21 G28 |
| Date: | 2019–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94729&r=all |
| By: | Alice, Albonico; Guido, Ascari; Alessandro, Gobbi |
| Abstract: | This paper studies the debt multiplier, that is, the effects of a temporary and pure change in government debt on economic activity. Contrary to an infinitely-lived representative agent model, in an overlapping generations (OLG) framework output increases even after a temporary increase in debt due to a lump-sum tax reduction that is totally reversed in the future. When nominal interest rates are positive, the debt multiplier is generally quite small. However, the debt multiplier is much larger when the nominal interest rate is at the zero lower bound. Hence, the call for fiscal consolidation in recession times seems ill-advised. Moreover, the steady state level of debt matters in an OLG framework. Multipliers tend to increase with the level of debt in steady state. A rise in the steady state debt-to-GDP level increases the steady state real interest rate and thus it provides an alternative route to increase the room for manoeuvre for monetary policy facing de flationary shocks. |
| Keywords: | Fiscal Policy, Public Debt, Multiplier, Overlapping Generations. |
| JEL: | E52 E62 H63 |
| Date: | 2018–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:396&r=all |
| By: | Youngjin Yun (Bank of Korea) |
| Abstract: | Reserve accumulation is funded by the central bank’s domestic borrowing as it al- ways sterilizes reserve purchases by increasing domestic liabilities. The central bank borrowing could crowd out firms’ borrowing under imperfect international capital mo- bility. I present a model that illustrates the mechanism and examine monthly balance sheets of Korean banks from September 2003 to August 2008 to find that bank lending to firms did decline after reserve accumulation. Controlling for individual effects and time effects, it is estimated that bank lending declined by 50 cents after one addi- tional dollar of reserve accumulation. A causal relationship is verified by differences- in-differences identification. After one standard deviation reserve accumulation shock, primary dealer banks and foreign bank branches cut lending growth by 0.4 and 1.6 per- centage points more than non-primary dealer banks and domestic banks, respectively. |
| Keywords: | Foreign Exchange Reserves, Sterilization, Crowding-out, Bank Loans |
| JEL: | E22 E58 F31 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2018_007&r=all |
| By: | Peter Tillmann (Justus Liebig University Giessen) |
| Abstract: | When in 2013 the Federal Reserve started to discuss unwinding its asset purchases and exiting unconventional monetary policy (”tapering talk”), markets adjusted expectations and asset prices dropped sharply, in particular in emerging markets. In this paper we quantify the effect of the tapering talk on emerging financial markets. We use the entire stream of tapering-related messages sent on Twitter.com, the social media network, to build a series of market participants’ beliefs of an early tapering. This series is then included in a VAR system, in which a tapering belief shock is identified using sign restrictions. We find that the tapering shock has significant effects on emerging financial market and explains almost the entire dynamics of bond prices, stock prices, exchange rates and CDS-spreads during the ”taper tantrum”. The results remain robust if we exclude retweets and control for major policy events. |
| Keywords: | Tapering, unconventional monetary policy, emerging mar- kets, quantitative easing, Twitter |
| JEL: | E32 E44 E52 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2016_014&r=all |
| By: | Barnichon, Régis; Mesters, Geert |
| Abstract: | Despite decades of research, the consistent estimation of structural forward looking macroeconomic equations remains a formidable empirical challenge because of pervasive endogeneity issues. Prominent cases ---the estimation of Phillips curves, of Euler equations for consumption or output, or of monetary policy rules--- have typically relied on using pre-determined variables as instruments, with mixed success. In this work, we propose a new approach that consists in using sequences of independently identified structural shocks as instrumental variables. Our approach is robust to weak instruments and is valid regardless of the shocks' variance contribution. We estimate a Phillips curve using monetary shocks as instruments and find that conventional methods (i) substantially under-estimate the slope of the Phillips curve and (ii) over-estimate the role of forward-looking inflation expectations. |
| Keywords: | Impulse Responses; instrumental variables; Robust inference; Structural equations |
| JEL: | C14 C32 E32 E52 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13765&r=all |
| By: | Christopher M. Gunn; Alok Johri; Marc-Andre Letendre |
| Abstract: | We uncover a new fact: U.S. banks counter-cyclically vary the ratio of charge-offs to defaulted loans. The variance of this ratio is roughly 15 times larger than that of GDP. Canonical financial accelerator models cannot explain this variance. We show that introducing stochastic default costs into the model helps to resolve the discrepancy with the data. Estimating the augmented model using Bayesian techniques reveals that the estimated default cost shocks not only help account for the variance of the banking data but also help account for a significant fraction of the U.S. business cycle between 1984 and 2015. |
| Keywords: | Charge-offs and defaults, default cost shocks, financial accelerator models, business cycles. |
| JEL: | E3 E44 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2019-06&r=all |
| By: | Milan Deskar-Škrbić (The Croatian National Bank, Croatia); Karlo Kotarac (The Croatian National Bank, Croatia); Davor Kunovac (The Croatian National Bank, Croatia) |
| Abstract: | In this paper, we study the readiness of Bulgaria, Croatia and Romania to adopt the common monetary policy of the ECB in the context of the third round of euro area enlargement. Following the later stages of the optimal currency area (OCA) theory we focus on the coherence of economic shocks between candidate countries and the euro area and analyse the relevance of euro area shocks for key macroeconomic variables in these countries. Our results, based on a novel empirical approach, show that the overall importance of those shocks that are relevant for the ECB is fairly similar in candidate countries and the euro area. The cost of joining the euro area should, therefore, not be pronounced, at least from the aspect of the adoption of the common counter-cyclical monetary policy. This conclusion holds for all three candidates, despite important differences in monetary and exchange rate regimes. |
| Keywords: | euro area enlargement, economic shocks, BVAR, common monetary policy, Mundellian trilemma |
| JEL: | E32 E52 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:hnb:wpaper:57&r=all |
| By: | International Monetary Fund |
| Abstract: | Rwanda has made considerable progress in sustaining high and inclusive growth and reducing poverty. Despite numerous shocks, macroeconomic management has been strong and debt risks have remained low. Going forward, the authorities’ National Strategy for Transformation (NST) aims to make progress toward the SDGs, but its financing will be challenging. A more neutral medium-term fiscal policy stance can help, reinforced with commitments for more domestic revenue mobilization and mitigation of fiscal risks. The central bank moved to a new interest-rate based monetary policy framework and, with inflation below its target range, eased the policy stance. To support their policies and NST implementation, the authorities are requesting approval of a 3-year program supported by the Policy Coordination Instrument (PCI). |
| Date: | 2019–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/211&r=all |
| By: | Crowley, Patrick M.; Hudgins, David |
| Abstract: | It is widely recognized that the policy objectives of fiscal and monetary policymakers usually have different time horizons, and this feature may not be captured by traditional econometric techniques. In this paper, we first decompose U.S macroeconomic data using a time-frequency domain technique, namely discrete wavelet analysis. We then model the behavior of the U.S. economy over each wavelet frequency range and use our estimated parameters to construct a tracking model. To illustrate the usefulness of this approach, we simulate jointly optimal fiscal and monetary policy with different short-term targets: an inflation target, a money growth target, an interest rate target, and a real exchange rate target. The results determine the reaction in fiscal and monetary policy that is required to achieve an inflation target in a low inflation environment, and when both fiscal and monetary policy are concerned with meeting certain economic growth objectives. The combination of wavelet decomposition in an optimal control framework can also provide a new approach to macroeconomic forecasting. |
| JEL: | C61 C63 C88 E52 E61 F47 |
| Date: | 2019–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_011&r=all |
| By: | James A. Kahn; Benjamin S. Kay |
| Abstract: | We provide new evidence that credit supply shifts contributed to the U.S. subprime mortgage boom and bust. We collect original data on both government and private mortgage insurance premiums from 1999-2016, and document that prior to 2008, premiums did not vary across loans with widely different observable characteristics that we show were predictors of default risk. Then, using a set of post-crisis insurance premiums to fit a model of default behavior, and allowing for time-varying expectations about house price appreciation, we quantify the mispricing of default risk in premiums prior to 2008. We show that the flat premium structure, which necessarily resulted in safer mortgages cross-subsidizing riskier ones, produced substantial adverse selection. Government insurance maintained an even flatter premium structure even post-crisis, and consequently also suffered from adverse selection. But after 2008 it reduced its exposure to default risk through a combination of hi gher premiums and rationing at the extensive margin. |
| Keywords: | Default Risk ; Financial Crisis ; Housing Finance ; Mortgage Insurance |
| JEL: | E32 G21 E44 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-46&r=all |
| By: | Soybilgen, Baris |
| Abstract: | We use dynamic factors and neural network models to identify current and past states (instead of future) of the US business cycle. In the first step, we reduce noise in data by using a moving average filter. Then, dynamic factors are extracted from a large-scale data set consisted of more than 100 variables. In the last step, these dynamic factors are fed into the neural network model for predicting business cycle regimes. We show that our proposed method follows US business cycle regimes quite accurately in sample and out of sample without taking account of the historical data availability. Our results also indicate that noise reduction is an important step for business cycle prediction. Furthermore using pseudo real time and vintage data, we show that our neural network model identifies turning points quite accurately and very quickly in real time. |
| Keywords: | Dynamic Factor Model; Neural Network; Recession; Business Cycle |
| JEL: | C38 E32 E37 |
| Date: | 2018–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94715&r=all |
| By: | Putra, Adhitya |
| Abstract: | Abstract A country is seen as successful or not, in solving the economic problems of its own country can be seen from the country's macro and micro-economy. Macroeconomics is a study of activities that discuss the economy of a country. One of the macroeconomic indicators used to see/measure a country's economic stability is inflation. Changes in this indicator will have an impact on the dynamics of economic growth. In an economic perspective, inflation is a monetary phenomenon in a country where inflation fluctuations tend to result in economic turmoil. Inflation is a phenomenon where the general price level increases continuously. The price increase of just one or two items cannot be said to be inflation unless the increase extends or results in an increase in prices for other goods. Both the conventional economic system and the Islamic economic system, the roles of both demand and supply are emphasized in pricing. In fact, Islamic scholars are aware of centuries that the importance of demand and supply caused inflation. From the problems above this study uses qualitative methods to describe the related problems and is reinforced with secondary data in the form of journals, books, and related articles. |
| Keywords: | Keyword: Inflation, Islamic Economy, Conventional Economy |
| JEL: | D2 D3 E3 E63 |
| Date: | 2019–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94791&r=all |
| 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. 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. A lowering of the housing supply elasticity implies a stronger price responsiveness to demand shocks, whereas quantity reacts less. Consistent with this, we find that an expansionary monetary policy shock has a considerably stronger effect on house prices during the recent recovery than during the previous housing boom. At the same time, building permits respond less. |
| Keywords: | House prices, Heterogeneity, Housing supply elasticities, Monetary policy |
| JEL: | C23 E32 E52 R31 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:19/972&r=all |
| By: | Ekinci, Mehmet Fatih |
| Abstract: | Decomposing time series data into trend and cyclical components is among the top priorities for policy maker institutions. Comparing with the unrestricted Beveridge-Nelson decomposition and Hodrick-Prescott filter, we implement a restricted Beveridge-Nelson filter developed by Kamber et. al. (2018) which limits the volatility of trend component. Utilizing the quarterly real GDP series and monthly real exchange rate data for Turkey, we find that Beveridge-Nelson filter provides more persistent and larger cyclical values than Beveridge-Nelson decomposition. Taking the output gap estimates of Central Bank of Turkey as a benchmark, our results indicate that Beveridge-Nelson filter method yields more sensible results. We also develop a measure to make an assessment on the end-point bias. Our results show that restricted Beveridge-Nelson filter performs better than Hodrick-Prescott filter regarding the magnitude of end point bias. |
| Keywords: | Beveridge-Nelson decomposition, Beveridge-Nelson filter, Hodrick-Prescott filter, output gap, real exchange rate cycles, signal-to-noise ratio. |
| JEL: | C22 E17 E32 F31 |
| Date: | 2019–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94698&r=all |
| By: | Martellini, Paolo (University of Pennsylvania); Menzio, Guido (New York University); Visschers, Ludo (University of Edinburgh) |
| Abstract: | We revisit the hypothesis that labor market fluctuations 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, fluctuations 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 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12441&r=all |
| By: | Maurice Obstfeld |
| Abstract: | This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that U.S. monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest, r*) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the U.S. economy from the disproportionate impact of U.S. monetary policy on the outside world. In themselves, global factors need not undermine a central bank's ability to control the price level over the long term -- after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path. |
| JEL: | E52 E58 F36 F41 G15 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26039&r=all |
| By: | Katrin Assenmacher; Franz Seitz; Jörn Tenhofen |
| Abstract: | Knowing the part of currency in circulation that is used for transactions is important information for a central bank. For several countries, the share of banknotes that is hoarded or circulates abroad is sizeable, which may be particularly relevant for large-denomination banknotes. We analyse the demand for Swiss banknotes over a period starting in 1950 to 2017 and use different methods to derive the evolution of the amount that is hoarded. Our findings indicate a sizeable amount of hoarding, in particular for large denominations. The hoarding shares increased around the break-up of the Bretton Woods system, were comparatively low in the mid-1990s and have increased significantly since the turn of the millennium and the recent financial and economic crises. |
| Keywords: | Currency in Circulation, Cash, Demand for Banknotes, Hoarding of Banknotes, Banknotes Held by Non-residents |
| JEL: | E41 E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2019-02&r=all |
| By: | Lilia Maliar; John B. Taylor |
| Abstract: | During the recent economic crisis, when nominal interest rates were at their effective lower bounds, central banks used forward guidance announcements about future policy rates to conduct their monetary policy. Many policymakers believe that forward guidance will remain in use after the end of the crisis; however, there is uncertainty about its effectiveness. In this paper, we study the impact of forward guidance in a stylized new Keynesian economy away from the effective lower bound on nominal interest rates. Using closed-form solutions, we show that the impact of forward guidance on the economy depends critically on a specific monetary policy rule, ranging from non-existing to immediate and unrealistically large, the so-called forward guidance puzzle. We show that the size of the smallest root (or eigenvalue) captures model dynamics better than the underlying parameters. We argue that the puzzle occurs under very special empirically implausible and socially sub-optimal monetary policy rules, whereas empirically relevant Taylor rules lead to sensible implications. |
| JEL: | C5 E4 E5 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26053&r=all |
| By: | Matthieu Darracq Paries (European Central Bank); Niki Papadopoulou (Central Bank of Cyprus) |
| Abstract: | Through the euro area crisis, financial fragmentation across jurisdictions became a prime concern for the single monetary policy. The ECB broadened the scope of its instruments and enacted a series of non-standard measures to engineer an appropriate degree of policy accommodation. The transmission of these measures through the currency union remained highly dependent on the financial structure and conditions prevailing in various regions. This paper explores the country-specific macroeconomic transmission of selected non-standard measures from the ECB using a global DSGE model with a rich financial sector: we extend the six-region multi-country model of Darracq Paries et al. (2016), introducing credit and exchange rate channels for central bank asset purchases. The portfolio rebalancing frictions are calibrated to match the sovereign yield and exchange rate responses after ECB's Asset Purchase Programme (APP) first announcement. The domestic transmission of the APP through the credit intermediation chain is significant and quite heterogeneous across the largest euro area countries. The introduction of global portfolio frictions on euro area government bond holdings by international investors opens up for a larger depreciation of the euro. The interaction between international and domestic channels affect the magnitude and the cross-country distribution of the APP impact. |
| Keywords: | DSGE models; banking; financial regulation; cross-country spillovers; bank lending rates; non-standard measures |
| JEL: | E4 E5 F4 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cyb:wpaper:2019-2&r=all |
| By: | Oleksandr Faryna (National Bank of Ukraine); Magnus Jonsson (Sveriges Riksbank); Nadiia Shapovalenko (National Bank of Ukraine) |
| Abstract: | This paper examines the cost of disinflation as measured by the sacrifice ratio and the central bank loss function in closed and small open economies. We show that the sacrifice ratio is slightly higher in the small open economy if monetary policy in both economies follow identical Taylor rules. However, if monetary policies follow optimized simple rules the sacrifice ratio becomes slightly lower in the small open economy. The cost in terms of the central bank loss is higher in the small open economy irrespective of monetary policies. Imperfect central bank credibility changes the results quantitatively, but not qualitatively. Finally, in both economies, the optimal implementation horizon is approximately two quarters in advance and approximately four quarters if central bank credibility is imperfect. |
| Keywords: | disinflation, small open economy, new Keynesian model, imperfect credibility, implementation |
| JEL: | E31 E5 F41 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:ukb:wpaper:01/2019&r=all |
| By: | Ellison, Martin; Macaulay, Alistair |
| Abstract: | We show that introducing rational inattention into a model with uninsurable unemployment risk can generate multiple steady states, when the same model with full information has a unique steady state. The model features heterogeneity and persistence in household labour market expectations, consistent with survey evidence. In a heterogeneous agent New Keynesian model, we find that rational inattention to the future hiring rate generates a high employment steady state with moderate inflation, and an unemployment trap with very low (but positive) inflation and a low job hiring rate. |
| Keywords: | multiple equilibria; rational inattention; unemployment |
| JEL: | D83 E10 E24 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13761&r=all |
| By: | Jonas Heipertz; Amine Ouazad; Romain Rancière |
| Abstract: | The paper uses bank- and instrument-level data on asset holdings and liabilities to identify and estimate a general equilibrium model of trade in financial instruments. Bilateral ties are formed as each bank selects the size and the diversification of its assets and liabilities. Shocks propagate due to the response, rather than the size, of bilateral ties to such shocks. This general equilibrium propagation of shocks reveals a financial network where the strength of a tie is determined by the sensitivity of an instrument’s return to other instruments’ returns. General equilibrium analysis predicts the propagation of real, financial and policy shocks. The network’s shape adjusts endogenously in response to shocks, to either amplify or mitigate partial equilibrium shocks. The network exhibits key theoretical properties: (i) more connected networks lead to less amplification of partial equilibrium shocks, (ii) the influence of a bank’s equity is independent of the size of its holdings; (ii) more risk-averse banks are more diversified, lowering their own volatility but increasing their influence on other banks. The general equilibrium based network model is structurally estimated on disaggregated data for the universe of French banks. We used the estimated network to assess the effects of ECB quantitative easing policy on asset prices, balance-sheets, individual bank distress risk, and networks systemicness. |
| JEL: | E44 E52 G11 G12 G21 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26049&r=all |
| By: | Darmouni, Olivier; Geisecke, Oliver; Rodnyanky, Alexander |
| Abstract: | An increasing share of firms' borrowing occurs through bond markets. We present high-frequency evidence from the Eurozone that bond-reliant firms are more responsive to monetary shocks: in contrast to standard bank lending channel predictions, unexpected ECB policy changes affect their stock prices by more, even conditional on total debt and industry fixed-effects. We develop an organizing framework to decompose the stock price, credit risk and investment response of large firms. We emphasize the role of corporate liquidity management: firms react to rate hikes by being prudent in good times, reducing investment in favor of hoarding liquid assets. Since bond financing is less flexible in bad times than relationship banking, this effect can rationalize why the mix of bank and bond financing matters for monetary transmission. A mitigating force is that bonds generally have longer duration and lower interest-rate pass-through relative to loans. Our findings suggest that the recent global growth in bond debt following quantitative easing could interact with conventional interest rate policy going forward. |
| Keywords: | Monetary policy, ECB, Debt Structure, Bank loans, Corporate bonds |
| JEL: | E44 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95141&r=all |
| By: | Bernardo Morais; José-Luis Peydró; Jessica Roldán-Peña; Claudia Ruiz-Ortega |
| Abstract: | We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit supply in Mexico via U.K. banks), inducing strong firm-level real effects. Results support an international risk-taking channel and spill overs of core countries’ monetary policies to emerging markets, both in the foreign monetary softening part (with higher credit and liquidity risk-taking by foreign banks) and in the tightening part (with negative local firm-level real effects). |
| Keywords: | monetary policy, financial globalization, quantitative easing (QE), credit supply, risk-taking, foreign banks |
| JEL: | E52 E58 G01 G21 G28 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1102&r=all |
| By: | Artur Rutkowski |
| Abstract: | We provide ex ante welfare, fiscal and general macroeconomic evaluation of the voluntary old-age saving scheme recently introduced in Poland (Pracownicze Plany Kapita³owe, Employees’ Capital Plans). ECPs provide tax redemptions as well as lump-sum transfers with the objective to foster old-age savings. Reduction in capital income tax revenues and a rise in expenditure needs to be compensated through adjustment in other taxes. We employ an overlapping generations model (OLG) to gauge the plausible magnitude of the macroeconomic and welfare effects and provide insights in terms of microfoundations of these adjustments. Our OLG model features voluntary participation and innovates relative to the literature by introducing agents with hand-to-mouth preferences. We find relatively high crowding out of private savings. In our preferred specification roughly 0.08 to 0.09 PLN of each 1 PLN allocated to ECPs are actually new savings, the rest being displaced from unincentivized private voluntary savings. The plausible values of the effective capital growth range between 0.03 and 0.42 of 1 PLN in ECPs. ECPs reduce welfare of the fully rational agents, unless they offer a sufficiently large annuity. ECPs provide consumption smoothing and interest income to HTM agents. |
| Keywords: | overlapping generations, ECPs, incomplete rationality |
| JEL: | C68 D63 E17 E21 H55 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:ibt:wpaper:wp062019&r=all |
| By: | P.J. Glandon (Kenyon College); Ken Kuttner (Williams College); Sandeep Mazumder (Wake Forest University); Caleb Stroup (Davidson College) |
| Abstract: | What is the state of macroeconomics? We answer this question by hand collecting information about the epistemological approaches, theoretical and empirical methods, and data sources used by macroeconomists in their research. During the past 40 years there has been an increasing reliance on mathematical theory, particularly DSGE models, with theory-based papers now occupying the majority of space in macro journals. This shift is mirrored by a decline in the use of empirical falsification methods testing theoretical predictions. Microeconometric techniques have displaced time series methods, and empirical papers increasingly rely on micro and proprietary data sources. We document a decline and subsequent resurgence of financial frictions appearing in macro theory. Finally, we find that topics outside of macroeconomics are studied in more than three fourths of macro field journal publications. |
| Keywords: | macroeconomics, methods, research, macroeconomic publications |
| JEL: | A11 A14 B22 E00 O30 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2019-06&r=all |
| By: | International Monetary Fund |
| Abstract: | The Swiss economy has performed relatively well since the global financial crisis. Growth compares favorably with most other advanced countries and aggregate employment has grown robustly. The fiscal position is strong and the external trade surplus remains large and stable despite several episodes of intense appreciation pressure owing to the Swiss franc’s reputation as a safe haven. Growth is expected to temporarily dip to 1.1 percent in 2019 on weakness in external demand. Risks to the outlook are tilted down. Switzerland is also facing several policy challenges: low interest rates are fueling risks in the real estate and mortgage markets; persistent subdued inflation has decreased the operational space for monetary policy; and population aging and technological change will require further upskilling and generate new demands for public resources. |
| Date: | 2019–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/180&r=all |
| By: | Finn Robinson; Jamie Culling; Gael Price (Reserve Bank of New Zealand) |
| Abstract: | The Reserve Bank of New Zealand sets monetary policy to achieve two operational objectives: to keep future annual inflation between 1 and 3 percent over the medium term (with a focus on the 2 percent mid-point) and to support maximum sustainable employment (MSE). The target inflation rate is observable data measured by the Consumers Price Index and produced by Stats NZ. However, the maximum sustainable level of employment is not directly measurable. The Reserve Bank has always monitored the labour market. Such analysis is important for understanding the transmission of monetary policy and avoiding unnecessary volatility in the real economy. The aspect which is new in the current environment is the concept of maximum sustainable employment as an operational objective. The analysis in this Note provides an initial consideration of this new part of the Reserve Bank’s mandate, allowing us to document our current thinking and learnings about the labour market. This Note evaluates how well measures of labour market slack are able to explain and forecast key variables – non-tradables inflation, wage inflation, and employment growth. The 44 measures explored in this paper capture aspects of the labour market that are covered in previous Reserve Bank publications, as well as aspects that are new to us. We evaluate the Reserve Bank’s more-traditional measures of capacity pressure. We also evaluate additional labour market indicators, including measures of underemployment, underutilisation, flows in and out of employment, and different dimensions of unemployment, including unemployment by region, age, and ethnicity. Our results show that labour market indicators that are particularly sensitive to business cycle fluctuations are better at forecasting employment, wages growth, and non-tradables inflation. These well-performing measures include Maori and youth unemployment rates, a reduced form Philips curve model, underutilisation, and the job finding rate. This exercise may give us some indication of which measures we should pay closer attention to when assessing where employment is compared to MSE. We still see value in keeping track of the full suite of labour market indicators. Different measures can be informative in different situations, and monetary policy formulation benefits from having a holistic view of the labour market over time. By consolidating all these indicators in one suite, we have a more detailed picture of the labour market. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbans:2019/09&r=all |
| By: | Ion Stancu (Institute of Financial Studies Bucharest); Andrei Tudor Stancu (Norwich Business School, UK); Iulian Panait (Financial Supervisory Authority) |
| Abstract: | In each issue of the Financial Studies Review, we update and publish the Financial Stability Index (FSI) of our Institute of Financial Studies, which tracks the correlation between economic growth and macroeconomic and financial factors in Romania.We constructeda composite index using a linear combination of financial variables that are considered to have a significant impact on economic activity. These financial variables are weighted with respect to their cumulated two quarters impulse response on GDP growth, as estimated by a VAR model.Developing such a composite index of financial stability or financial stresshas two main utilities:•The analysis of the correlation between financial variables and the real economy placed in the context of different historical episodes of financial crisis. Also, this correlation analysis reveals, in each period, the significant positive or negative contribution of each financial variable to real economic growth. Following this analysis, the FSIcan measure the impact of economic and financial policy measures aimed at mitigating financial crises. The short-term prediction of real economic growth estimated by forecasting the next period evolution of the real economic activity (GDPt+1) using current period GDPtand FSItand economic and financial variables in the FSItcomposition. |
| Keywords: | composite index, financial stress index, economic growth, VAR model, short-term prediction |
| JEL: | E63 G01 G28 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:fst:wpaper:0025&r=all |
| By: | Nicoletta Berardi; Marie Lalanne; Paul Seabright |
| Abstract: | This paper examines how networks of professional contacts contribute to the development of the careers of executives of North American and European companies. We build a dynamic model of career progression in which career moves may both depend upon existing networks and contribute to the development of future networks. We test the theory on an original dataset of nearly 73 000 executives in over 10 000 firms. In principle professional networks could be relevant both because they are rewarded by the employer and because they facilitate job mobility. Our econometric analysis suggests that, although there is a substantial positive correlation between network size and executive compensation, with an elasticity of around 20%, almost all of this is due to unobserved individual characteristics. The true causal impact of networks on compensation is closer to an elasticity of 1 or 2% on average, all of this due to enhanced probability of moving to a higher-paid job. And there appear to be strongly diminishing returns to network size. |
| Keywords: | professional networks, labor mobility, executive compensation. |
| JEL: | E02 E32 E62 F41 H20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:723&r=all |
| By: | Hill, Robert J.; Steurer, Miriam; Waltl, Sofie R. |
| Abstract: | The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. How -- and whether -- it is included in the Consumer Price Index (CPI) affects inflation expectations, the measured level of real interest rates, and the behavior of governments, central banks and market participants. We show that none of the existing treatments of OOH are fit for purpose. Hence we propose a new simplified user cost method with better properties. Using a micro-level dataset, we then compare the empirical behavior of eight different treatments of OOH. Our preferred user cost approach pushes up the CPI during housing booms (by 2 percentage points or more). Our findings relate to the following important debates in macroeconomics: the behavior of the Phillips curve in the US during the global financial crisis, and the response of monetary policy to housing booms, secular stagnation, and globalization. |
| Keywords: | Measurement of inflation, Owner occupied housing, User cost, Rental equivalence, Quantile regression, Hedonic imputation, Housing booms and busts, Inflation targeting, Leaning against the wind, Phillips curve, Disinflation puzzle, Secular stagnation |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:7039&r=all |
| By: | Kimberly A. Berg (Miami University); Nelson Mark (University of Notre Dame and NBER) |
| Abstract: | Asset market participants generally do not like uncertainty. In studying the cross-section of carry- trade-generated currency excess returns and their exposure to macroeconomic uncertainty, we find it also to be true for those participating in this market. A global, news-based measure of macroeconomic uncertainty is negatively and robustly priced into these excess returns, which is consistent with the existence of a global uncertainty factor. |
| Keywords: | Currency excess returns, global uncertainty, beta-risk, carry trade |
| JEL: | E21 E43 F31 G12 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2017_002&r=all |
| By: | Marc-Andre Letendre; Sabreena Obaid |
| Abstract: | The recent literature studying the source of business cycles in emerging market economies (EMEs) has debated the relative importance of productivity trend shocks versus interest rate shocks coupled with financial frictions. Importantly, the papers where an important role was assigned to interest rate shocks did not force their models to match the historical paths of the world or country interest rate. This could have led to poorly identified interest rate shocks and inaccurate measures of contributions of shocks to EME business cycles. To address this issue, we estimate a small open economy model for Argentina and Mexico using Bayesian methods where world and country interest rate series are included as observables. This estimation strategy brings quantitative accuracy by imposing discipline on the estimated shocks. Although we find evidence in favour of both shocks, including interest rates as observables, shifts explanatory power away from trend shocks towards interest rate shocks. |
| Keywords: | Business Fluctuations; Cycles; Financial Markets and the Macroeconomy |
| JEL: | F44 E44 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2019-07&r=all |
| By: | Pervin Dadashova (National Bank of Ukraine); Magnus Jonsson (Sveriges Riksbank) |
| Abstract: | We examine how to implement macroprudential policies – stricter capital requirements and loan-tovalue limits – in order to mitigate the output loss of corporate debt deleveraging. The analysis is performed in a dynamic general equilibrium model calibrated to fit the U.S. economy. Stricter capital requirements are generally costlier in terms of output losses than stricter loan-to-value limits. For both instruments, the output loss is a convex function of the debt-to-GDP ratio. Finally, the output loss can be significantly reduced by implementing the requirements gradually, and by activating a countercyclical capital buffer. |
| Keywords: | capital requirements, loan-to-value requirements, output loss, gradual implementation |
| JEL: | C54 E44 G28 G38 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:ukb:wpaper:02/2019&r=all |
| By: | Adalgiso Amendola; Mario di Serio; Matteo Fragetta; Giovanni Melina |
| Abstract: | We build a factor-augmented interacted panel vector-autoregressive model of the Euro Area (EA) and estimate it with Bayesian methods to compute government spending multipliers. The multipliers are contingent on the overall monetary policy stance, captured by a shadow monetary policy rate. In the short run (one year), whether the fiscal shock occurs when the economy is at the effective lower bound (ELB) or in normal times does not seem to matter for the size of the multiplier. However, as the time horizon increases, multipliers diverge across the two regimes. In the medium run (three years), the average multiplier is about 1 in normal times and between 1.6 and 2.8 at the ELB, depending on the specification. The difference between the two multipliers is distributed largely away from zero. More generally, the multiplier is inversely correlated with the level of the shadow monetary policy rate. In addition, we verify that EA data lend support to the view that the multiplier is larger in periods of economic slack, and we show that the shadow rate and the state of the business cycle are autonomously correlated with its size. The econometric approach deals with several technical problems highlighted in the empirical macroeconomic literature, including the issues of fiscal foresight and limited information. |
| Date: | 2019–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/133&r=all |
| By: | Punnoose Jacob; Thomas van Florenstein Mulder (Reserve Bank of New Zealand) |
| Abstract: | The Phillips curve embodies the relationship between measures of inflation and economic activity. This correlation has declined over time in New Zealand and other developed economies, a phenomenon commonly known as the flattening of the Phillips curve. This paper provides a framework to think about the potential causes of the waning correlation between inflation and activity in New Zealand. Does this declining correlation imply that prices have become less volatile due to price-setting by firms becoming less sensitive to demand pressures? Has demand become less volatile due to households becoming less responsive to the interest rate? Have the random disturbances influencing aggregate supply and demand changed? We first run computational experiments in a simple model of demand and supply to demonstrate how the declining correlations observed in the data can be generated by two causal mechanisms: changes in the behaviour of economic actors or changes in the composition of random business cycle disturbances hitting the economy. The key message of the experiment is that if disturbances influencing the supply side of the economy are more potent than those affecting the demand side, the correlation between inflation and activity can diminish. In the next step, we estimate an extended version of the model on New Zealand data to point out potential reasons for the flattening of the Phillips curve over the inflation targeting era. Our methodology does not isolate any particular feature as a single dominant driver of the diminishing correlations observed in the data. Instead, we identify a number of potential mechanisms that contribute to the flattening of the Phillips curve. Our results suggest that changes in the structure of the economy have been fairly mild. However, business cycle disturbances on the supply side have been become much more variable than those influencing the demand side. These supply-side disturbances are very influential in driving the waning correlation between inflation and activity. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbans:2019/06&r=all |
| By: | Trent Saunders (Reserve Bank of Australia); Peter Tulip (Reserve Bank of Australia) |
| Abstract: | Setting interest rates higher than macroeconomic conditions would warrant due to concerns about financial stability is called 'leaning against the wind'. Many recent papers have attempted to quantify and evaluate the effects of this policy. This paper summarises this research and applies the approach to Australia. The papers we survey see the benefit of leaning against the wind as avoiding financial crises, such as those that affected Australia in 1990 or other countries in 2008. Most of the international research finds that interest rates have too small an effect on the probability of a crisis for this benefit to be worth higher unemployment. Using Australian data, we find similar results. We estimate the costs of leaning against the wind to be three to eight times larger than the benefit of avoiding financial crises. However, research has not yet quantified the increased resilience of household balance sheets, which may be an extra benefit of leaning against the wind. |
| Keywords: | financial stability; monetary policy; evidence-based policy |
| JEL: | E52 E58 G18 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2019-05&r=all |
| By: | International Monetary Fund |
| Abstract: | Seychelles has made noticeable progress toward economic stability and sustainability under successive Fund programs through prudent macroeconomic policies and bold reforms since the crisis in 2008. Despite significant headway, the country remains vulnerable to external shocks as a small, open, and tourism-dependent economy. Seychelles could face challenges to reconcile its goals to reduce its infrastructure gap, enhance its resilience to climate change, and bolster its medium-term fiscal and external sustainability. |
| Date: | 2019–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/194&r=all |
| By: | International Monetary Fund |
| Abstract: | The economy is growing steadily, benefiting from a benign regional environment, particularly in Russia, the source of most remittances and non-gold export receipts. Low inflation, lower fiscal deficits, and a stable banking sector point to the success of stabilization policies implemented by the government and National Bank of the Kyrgyz Republic (NBKR, the central bank) under eight successive Fund-supported programs. However, the economy remains vulnerable to external shocks because of the high level of remittances (29 percent of GDP), the concentration of exports on gold (37 percent of exports of goods), the level and composition of the public debt (56 percent of GDP, 4/5 of which is denominated in foreign currency), and the level of the current account deficit (8.7 percent of GDP). In addition, economic growth has been insufficient to significantly raise living standards and continue to reduce poverty. |
| Date: | 2019–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/208&r=all |
| By: | Knoblach, Michael |
| Abstract: | The evolution of the U.S. skill premium over the past century has been characterized by a U-shaped pattern. The previous literature has attributed this observation mainly to the existence of exogenous, unexpected technological shocks or changes in institutional factors. In contrast, this paper demonstrates that a U-shaped evolution of the skill premium can also be obtained using a simple two-sector growth model that comprises both variants of skill-biased technological change (SBTC): technological change (TC) that is favorable to high-skilled labor and capital-skill complementarity (CSC). Within this framework, we derive the conditions necessary to achieve a non-monotonic evolution of relative wages and analyze the dynamics of such a case. We show that in the short run for various parameter constellations an educational, a relative substitutability, and a factor intensity effect can induce a decrease in the skill premium despite moderate growth in the relative productivity of high-skilled labor. In the long run, as the difference in labor productivity increases, the skill premium also rises. To underpin our theoretical results, we conduct a comprehensive simulation study. |
| Keywords: | Skill-Augmenting Technological Change,Capital-Skill Complementarity,Skill Premium,Neoclassical Growth Model |
| JEL: | E24 J24 J31 O33 O41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tudcep:0319&r=all |
| By: | Bua, Giovanna (Central Bank of Ireland); Dunne, Peter G. (Central Bank of Ireland); Sorbo, Jacopo (Unipol Gruppo S.p.A.) |
| Abstract: | Using a unique dataset, covering more than 40 percent of euro area money market funds by asset value, we assess monetary policy effects on fund behaviour and performance.We find a strong but heterogeneous association between fund performance and the policy rate of the currency in which funds report and from this we ascertain how different combinations of conventional and unconventional monetary policies affect fund behaviour. Evidence from the speed of response to policy changes indicates a shortening of investment term when policy is easing and vice versa. This has supply-offunding implications across the first two years of the term structure. When euro area monetary policy is at its limit and when policy is expanded to include the use of unconventional measures, the gap between the rate earned at the ECB’s deposit facility and the yield on short term debt securities widens. In these conditions euro-reporting funds make indirect recourse to the deposit facility and raise their investments in euro-denominated tradable certificates of deposits. This behaviour progressively reduces the impact of unconventional measures on MMF performance. Otherwise, heterogeneity in fund responses to the monetary policy mix can be attributed to differential mandates and involves some combination of increased risktaking and diversification into assets issued by foreign entities. |
| Keywords: | Money Market Funds; Monetary Policy; Negative Interest Rates. |
| JEL: | E52 G15 G23 G28 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:7/rt/19&r=all |
| By: | Adrian Pagan |
| Abstract: | The paper provides a short account of the major complete macroeconometric models that have been constructed in Australia. Initially these were by academics but later both the Treasury and Reserve Bank of Australia developed these for policy analysis and forecasting, so that the history focusses a good deal on what was developed in those institutions. The basic strategy of the paper is to set out the modelling themes that were occurring overseas and then to discuss the same variants in Australia. In a number of instances Australian research might be considered to have been well ahead of overseas developments. |
| Keywords: | Macroeconometric Models, DSGE Models |
| JEL: | B23 E17 E27 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-50&r=all |
| By: | International Monetary Fund |
| Abstract: | The economy continues to grow at a fast pace, driven by port activity and cotton production. The execution of the 2019 budget is on track to bring the fiscal deficit within the WAEMU convergence criterion of 3 percent of GDP this year. Program implementation remains very satisfactory with all end-December 2018 quantitative performance criteria (QPCs) and structural benchmarks (SBs) met. |
| Date: | 2019–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/203&r=all |
| By: | McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis); Miyachi, Kazuaki (Asia Pacific Department, International Monetary Fund); Peralta-Alva, Adrian (International Monetary Fund) |
| Abstract: | Japan is facing the problem of how to finance retirement, health care, and long-term care expenditures as the population ages. This paper analyzes the impact of policy options intended to address this problem by employing a dynamic general equilibrium overlapping generations model, specifically parameterized to match both the macro- and microeconomic level data of Japan. We find that financing the costs of aging through gradual increases in the consumption tax rate delivers better macroeconomic performance and higher welfare for most individuals relative to other financing options, including raising social security contributions, debt financing, and a uniform increase in health care and long-term care copayments. |
| Keywords: | Retirement; Health care; Taxation; Aging; Japan |
| JEL: | E62 H51 H55 I13 |
| Date: | 2019–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:586&r=all |
| By: | International Monetary Fund |
| Abstract: | Actions by the new government since taking office in April 2018 helped to stabilize macroeconomic conditions, but the situation remains challenging. Overall growth remained subdued. While elevated, inflation is tracking down. Program performance is broadly on track, though progress on structural measures has been slower than anticipated. Healthy revenues and significant underspending resulted in a lower-than-programed fiscal deficit. All quantitative targets were met, except the end-December performance criterion on net domestic assets (NDA) of the central bank and the end-March indicative target on poverty-related spending. |
| Date: | 2019–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/217&r=all |
| By: | Ismail, Yusra; Masih, Mansur |
| Abstract: | This study highlights the impact of inflation on financial development, using NARDL approach and the annual data available allow us to cover a period of 56 years. Sudan is used as a case study. The relationship between inflation and financial development remains an important issue in both theoretical and empirical literature because of its important implications on macroeconomic stabilization policies. The importance of the study comes from examining a developing country which is witnessing an economic deterioration generally and a hyper-inflation crisis that marked it as the second highest inflation rate in Africa in the 1st quarter of 2019. We test whether the relationship between the variables is symmetrical or asymmetrical in both short run and long run. Applying the autoregressive distributed lags model (ARDL) and Nonlinear ARDL approaches proposed by Pesaran et al. (2001) and Shin et al. (2014) respectively, results confirm the presence of long run equilibrium relationship between inflation and financial development. Our findings tend to suggest that the long run relationship is symmetrical, while evidence is in support of asymmetrical short- run trade-off between the variables. Two main contributions are added to the previous literature. First, it applies a recent methodology that is Nonlinear ARDL (NARDL). Secondly it presents a new evidence from one of the high indebted poor countries-HIPC (Sudan) using data from 1961 to 2017. |
| Keywords: | Inflation, financial development, non-linear ARDL |
| JEL: | C58 E44 |
| Date: | 2019–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94694&r=all |
| By: | Yuki M. Asano; Jakob J. Kolb; Jobst Heitzig; J. Doyne Farmer |
| Abstract: | Standard macroeconomic models assume that households are rational in the sense that they are perfect utility maximizers, and explain economic dynamics in terms of shocks that drive the economy away from the stead-state. Here we build on a standard macroeconomic model in which a single rational representative household makes a savings decision of how much to consume or invest. In our model households are myopic boundedly rational heterogeneous agents embedded in a social network. From time to time each household updates its savings rate by copying the savings rate of its neighbor with the highest consumption. If the updating time is short, the economy is stuck in a poverty trap, but for longer updating times economic output approaches its optimal value, and we observe a critical transition to an economy with irregular endogenous oscillations in economic output, resembling a business cycle. In this regime households divide into two groups: Poor households with low savings rates and rich households with high savings rates. Thus inequality and economic dynamics both occur spontaneously as a consequence of imperfect household decision making. Our work here supports an alternative program of research that substitutes utility maximization for behaviorally grounded decision making. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1907.02155&r=all |
| By: | Fiona Price (Reserve Bank of Australia); Benjamin Beckers (Reserve Bank of Australia); Gianni La Cava (Reserve Bank of Australia) |
| Abstract: | We explore the relationship between owner-occupier mortgage debt and spending using detailed panel data on Australian households. We find evidence consistent with a 'debt overhang effect' – households cut back on their spending when they have higher levels of outstanding mortgage debt. This overhang effect holds even when households' net housing wealth remains constant, implying that households reduce their spending when the gross value of both their debt and assets increases. This suggests that changes in the composition of household balance sheets affect spending, which runs counter to macroeconomic models that combine assets and liabilities into a single measure of net wealth. We find the overhang effect to be pervasive across owner-occupier households and not exclusively driven by households that are financially constrained or that have strong precautionary saving motives. We find evidence that indebted households reduce their spending by more than other households during adverse macroeconomic shocks, such as the global financial crisis, but the negative effect of debt is also pervasive at other times. |
| Keywords: | household debt; consumption; borrowing constraints; liquidity constraints; precautionary saving; household survey data |
| JEL: | D12 D14 E21 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2019-06&r=all |
| By: | Andrew Lilley; Matteo Maggiori; Brent Neiman; Jesse Schreger |
| Abstract: | The failure to find fundamentals that co-move with exchange rates or forecasting models with even mild predictive power – facts broadly referred to as “exchange rate disconnect” – stands among the most disappointing, but robust, facts in all of international macroeconomics. In this paper, we demonstrate that U.S. purchases of foreign bonds, which did not co-move with exchange rates prior to 2007, have provided significant in-sample, and even some out-of-sample, explanatory power for currencies since then. We show that several proxies for global risk factors also start to co-move strongly with the dollar and with U.S. purchases of foreign bonds around 2007, suggesting that risk plays a key role in this finding. We use security-level data on U.S. portfolios to demonstrate that the reconnect of U.S. foreign bond purchases to exchange rates is largely driven by investment in dollar-denominated assets rather than by foreign currency exposure alone. Our results support the narrative emerging from an active recent literature that the US dollar’s role as an international and safe-haven currency has surged since the global financial crisis. |
| JEL: | E44 E47 F31 F32 F37 G11 G15 G23 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26046&r=all |
| By: | Punnoose Jacob; Finn Robinson (Reserve Bank of New Zealand) |
| Abstract: | The Reserve Bank uses an output gap indicator suite (OGIS) to help estimate the current degree of capacity pressure in the economy. When the output gap is positive, capacity pressures are high and the labour market is likely to be tight. As a consequence, inflation is likely to increase through the Phillips curve relationship. The output gap is hence very important for monetary policy. Unlike GDP, we cannot directly measure the output gap and the estimates of the output gap obtained from statistical models tend to get revised as new datapoints are added. This is particularly true for estimates of the output gap at the endpoint of history. Using a wider range of indicators to assess capacity pressures reduces the degree to which the output gap needs to be revised. This paper augments the existing suite with new indicators. It also evaluates how well each indicator explains inflation in a Phillips curve model, and how well it forecasts inflation and GDP. Overall, we find that the indicators perform well in these evaluations, which confirms that they are useful variables to look at when assessing capacity pressures in New Zealand. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbans:2019/08&r=all |
| By: | Luttmer, Erzo G. J. (Federal Reserve Bank of Minneapolis) |
| Abstract: | Most firms begin very small, and large firms are the result of typically decades of persistent growth. This growth can be understood as the result of some form of organization capital accumulation. In the US, the distribution of firm size k has a right tail only slightly thinner than 1/k. This is shown to imply that incumbent firms account for most aggregate organization capital accumulation. And it implies potentially extremely slow aggregate convergence rates. A benchmark model is proposed in which managers can use incumbent organization capital to create new organization capital. Workers are a specific factor for producing consumption, and they require managerial supervision. Through the lens of the model, the aftermath of the Great Recession of 2008 is unsurprising if the events of late 2008 and early 2009 are interpreted as a destruction of organization capital, or as a belief shock that made consumers want to reduce consumption and accumulate more wealth instead. |
| Keywords: | Business cycles; Firm size distribution; Slow recoveries; Zipf’s law |
| JEL: | E32 L11 |
| Date: | 2019–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:585&r=all |
| By: | International Monetary Fund |
| Abstract: | Economic activity has been recovering, driven by robust performance in the export and agricultural sectors. Fiscal consolidation efforts have continued; Togo complied with the WAEMU deficit convergence criteria in 2017 and 2018, two years ahead of the timeline agreed by member states; public debt declined from 81 percent of GDP at end-2016 to 76 percent of GDP at end-2018. Inflation stood at 2 percent in March 2019 (y-o-y). The external position has improved. The privatization process for the first public bank encountered delays. |
| Date: | 2019–07–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/205&r=all |
| By: | Juan Pablo Alfonso Zorro |
| Abstract: | En este documento se desarrolló un análisis de mercado que derivó en un modelo econométrico con miras a determinar el comportamiento del Índice de Precios al Consumidor en un horizonte de tiempo de 2 años, para dar apoyo a la toma de decisiones financieras de inversión y financiamiento. En el análisis se tuvieron en cuenta las Encuestas a expertos y los Pronósticos a entidades financieras. Sin embargo, al enfrentar dicha información con el IPC observado, se concluyó que los pronósticos y encuestas mencionadas no tenían una capacidad de predicción a dos años confiable. Debido a que el mercado no permitió cumplir con el objetivo propuesto, fue necesario desarrollar un modelo econométrico de tipo ARIMA con datos mensuales desde entre enero de 2010 y diciembre de 2018. En la construcción del modelo se determinó que la volatilidad del IPC estaba fuertemente influida por el precio de los alimentos, y por ende serían el fenómeno del niño y los paros de transporte las variables idóneas en la conformación del modelo. Como resultado, se obtuvo una proyección del IPC a dos años. No obstante, el pronóstico presentó una desviación estándar considerable y creciente en el tiempo que redujo la efectividad del modelo a un año. En el desarrollo del modelo como paso a seguir, se plantea necesario realizar una función impulso respuesta de las variables Dummy y adaptar el modelo a la nueva metodología del IPC propuesta por el DANE para 2019. *** In this document, a market analysis was developed which derived in an econometric model with a view to determining the behaviour of the Consumer Price Index in a time horizon of 2 years, to give support to the financial decision making of investment and financing. The analysis took into account the Surveys to experts and the Forecasts to financial entities. However, when facing said information with the observed CPI, it was concluded that the forecasts and surveys mentioned did not have a reliable two-year prediction capacity. Since the market did not comply with the proposed objective, it was necessary to develop an ARIMA-type econometric model with monthly data from January 2010 to December 2018. In the construction of the model, it was determined that the volatility of the CPI was strongly influenced by the food price, and therefore the El Niño phenomenon and transport stoppages would be the ideal variables in shaping the model. As a result, a two-year CPI projection was obtained. However, the forecast presented a considerable and increasing standard deviation over time that reduced the effectiveness of the model to one year. In the development of the model as a step to follow, it is necessary to carry out a response impulse function of the Dummy variables and to adapt the model to the new CPI methodology proposed by DANE for 2019. |
| Keywords: | IPC, Fan Chart, ARIMA, fenómeno “El Niño”, paro de transportes, devaluación |
| JEL: | C53 C51 C52 E37 E31 |
| Date: | 2019–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:col:000176:017329&r=all |
| By: | Eser, Fabian; Lemke, Wolfgang; Nyholm, Ken; Radde, Sören; Vladu, Andreea Liliana |
| Abstract: | We trace the impact of the ECB’s asset purchase programme (APP) on the sovereign yield curve. Exploiting granular information on sectoral asset holdings and ECB asset purchases, we construct a novel measure of the “free-float of duration risk” borne by price-sensitive investors. We include this supply variable in an arbitrage-free term structure model in which central bank purchases reduce the free-float of duration risk and hence compress term premia of yields. We estimate the stock of current and expected future APP holdings to reduce the 10y term premium by 95 bps. This reduction is persistent, with a half-life of five years. The expected length of the reinvestment period after APP net purchases is found to have a significant impact on term premia. JEL Classification: C5, E43, E52, E58, G12 |
| Keywords: | central bank asset purchases, European Central Bank, non-standard monetary policy measures, term premia, term structure of interest rates |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192293&r=all |
| By: | Chi Gong (Sichuan University); Soyoung Kim (Seoul National University) |
| Abstract: | This paper examines the effects of regional versus global integration and trade versus financial integration on regional business cycle synchronization in three regions containing developing and emerging countries (East Asia, Latin America, and Central and Eastern Europe). The main empirical results are as follows: (1) strong and similar common global linkages, especially financial linkages, have significant positive effects on the synchronization of regional business cycles; (2) after controlling global linkages, regional trade integration has a positive effect on regional business cycle synchronization, whereas regional financial integration has a negative effect; and (3) although the direction for the effect of each type of integration is similar across regions, the relative importance of each in explaining regional business cycle synchronization is different. Specifically, while global financial linkages play the most important role in East Asia and Latin America, regional trade integration is most important in Central and Eastern Europe. |
| Keywords: | regional business cycle synchronization, regional and global economic integration, trade and financial integration, emerging and developing countries |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2017_014&r=all |
| By: | Susanto Basu |
| Abstract: | A number of recent papers have argued that US firms exert increasing market power, as measured by their markups of price over marginal cost. I review three of the main approaches to estimating economy-wide markups and show that all are based on the hypothesis of firm cost-minimization. Yet different assumptions and methods of implementation lead to quite different conclusions regarding the levels and trends of markups. I survey the literature critically, and argue that some of the startling findings of steeply-rising markups are difficult to reconcile with other evidence and with aggregate data. Existing methods cannot determine whether markups have been stable or whether they have risen modestly over the past several decades. Even relatively small increases in markups are consistent with significant changes in aggregate outcomes, such as the observed decline in labor’s share of national income. |
| JEL: | E23 E32 L11 L16 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26057&r=all |
| By: | Benati, Luca (University of Bern); Lucas, Robert E. (University of Chicago); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Weber, Warren E. (University of South Carolina) |
| Abstract: | We explore the long-run demand for M1 based on a dataset comprising 38 countries and relatively long sample periods, extending in some cases to over a century. Overall, we find very strong evidence of a long-run relationship between the ratio of M1 to GDP and a short-term interest rate, in spite of a few failures. The standard log-log specification provides a very good characterization of the data, with the exception of periods featuring very low interest rate values. This is because such a specification implies that, as the short rate tends to zero, real money balances become arbitrarily large, which is rejected by the data. A simple extension imposing limits on the amount that households can borrow results in a truncated log-log specification, which is in line with what we observe in the data. We estimate the interest rate elasticity to be between 0.3 and 0.6, which encompasses the well-known squared-root specification of Baumol and Tobin. |
| Keywords: | Long-run money demand; Cointegration |
| JEL: | C32 E41 |
| Date: | 2019–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:587&r=all |
| By: | Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria) |
| Abstract: | Nigeria adopted the Structural Adjustment Programme (SAP) in 1986 after the crash in world oil price in the early 1980s. Financial reforms are part of the reforms implemented during the SAP. Since, industrialisation is seen as an engine of growth, we conduct an empirical assessment of the effects of financial sector reforms on industrialisation in Nigeria using an annual time series data over 1981 - 2015. Using an autoregressive distributed lag (ARDL) model, our findings show that financial reforms have a positive and significant impact on industrialisation. |
| Keywords: | Financial reforms, Financial repression, Industrialisation, ARDL bounds test |
| JEL: | C32 E44 O14 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/014&r=all |
| By: | Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria) |
| Abstract: | The study empirically examined the impact of governance on domestic investment in 16 African countries with a balanced panel data set, between the years 2002 and 2015. The study employed six unbundled governance indicators from the World Bank, World Governance Indicators and constructed three bundled governance indicators using the Principal Component Analysis. The Driscoll and Kraay Fixed Effects model which accounts for serial correlation, groupwise heteroskedasticity and cross-sectional dependence were employed with empirical results revealing that all the indicators of governance positively and significantly influence domestic investment in Africa, except for government effectiveness which happens to be insignificant. Also, Voice/Accountability and the Control of Corruption exert more influence on domestic investment as indicated by their coefficient values. Furthermore, economic growth is also an important factor in explaining domestic investment in Africa. Policy recommendations are discussed. |
| Keywords: | Governance; Domestic Investment; Africa; PCA; Fixed Effects Model |
| JEL: | C1 E2 R5 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/001&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa) |
| Abstract: | This study investigates the stability of demand for money in the proposed Southern African Monetary Union (SAMU). The study uses annual data for the period 1981 to 2015 from ten countries making-up the Southern African Development Community (SADC). A standard function of demand for money is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries in the stability of money. This divergence is articulated in terms of differences in cointegration, CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long-term determinants and error correction in event of a shock. Policy implications are discussed in the light of the convergence needed for the feasibility of the proposed SAMU. This study extends the debate in scholarly and policy circles on the feasibility of proposed African monetary unions. |
| Keywords: | Stable; demand for money; bounds test |
| JEL: | E41 C22 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/025&r=all |
| By: | International Monetary Fund |
| Abstract: | Germany’s economic performance has been strong for the past decade, but external factors and structural challenges are now weighing on growth. The export-dependent economy has been hit by the recent slowdown in global demand, while medium-term growth is expected to fall due to low productivity growth and adverse demographics. External imbalances remain large, partly reflecting rising top income inequality, macro-financial vulnerabilities are rising, and the financial sector continues to suffer from weak profitability. Still, fundamentals are sound, with public and private balance sheets remaining healthy, and the unemployment rate at record lows. Inflation is subdued, but wage growth is continuing to pick up, reflecting the strength of the labor market and increasingly binding capacity constraints. |
| Date: | 2019–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/213&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa) |
| Abstract: | The research assesses how information and communication technology (ICT) modulates the effect of foreign direct investment (FDI) on economic growth dynamics in 25 countries in Sub-Saharan Africa for the period 1980-2014. The employed economic growth dynamics areGross Domestic Product (GDP) growth, real GDP and GDP per capita while ICT is measured by mobile phone penetration and internet penetration. The empirical evidence is based on the Generalised Method of Moments. The study finds that both internet penetration and mobile phone penetration overwhelmingly modulate FDI to induce overall positive net effects on all three economic growth dynamics. Moreover, the positive net effects are consistently more apparent in internet-centric regressions compared to “mobile phone”-oriented specifications. In the light of negative interactive effects, net effects are decomposed to provide thresholds at which ICT policy variables should be complemented with other policy initiatives in order to engender favorable outcomes on economic growth dynamics. Practical and theoretical implications are discussed. |
| Keywords: | Economic Output; Foreign Investment; Information Technology; Sub-Saharan Africa |
| JEL: | E23 F21 F30 L96 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/038&r=all |
| By: | Feldkircher, Martin; Poyntner, Philipp; Schuberth, Helene |
| Abstract: | We assess the impact of the ECB's unconventional monetary policy (UMP) on the wealth distribution of households in ten euro area countries. For this purpose, we estimate the effects of an ECB balance sheet expansion on financial asset and housing prices by means of vector autoregressions. We then use the estimates to carry out micro simulations based on data from the Household Finance and Consumption Survey (HFCS). We find that the overall effect of UMP on the net wealth distribution of households differs depending on which wealth inequality indicators we use. There is an inequality-increasing effect for the majority of the countries under review when we use wealth inequality indicators that are sensitive to changes at the tails of the wealth distribution. The effect is more equalizing when we base our assessment on the Gini coefficient. It is also important to note that one-third of the households in our sample does not hold financial or housing wealth and is thus not directly affected by UMP measures via the asset price channel. |
| Keywords: | Monetary Policy, Inequality, Wealth, Quantitative Easing |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:7040&r=all |
| By: | Andrew K. Rose (University of California, Berkeley) |
| Abstract: | I investigate whether countries that use unconventional monetary policy (UMP) experience export booms. I use a popular gravity model of trade which requires neither the exogeneity of UMP, nor instrumental variables for UMP. In practice, countries that engage in UMP experience a drop in exports vis-à-vis countries that are not engaged in such policies, holding other things constant. Quantitative easing is associated with exports that are about 10% lower to countries not engaged in UMP; this amount is significantly different from zero and similar to the effect of negative nominal interest rates. Thus there is no evidence that countries have gained export markets through unconventional monetary policy; any currency wars launched have been lost. |
| Keywords: | quantitative; easing; negative; nominal; interest; trade; gravity; bilateral; data; empirical |
| JEL: | F14 E58 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2017_003&r=all |
| By: | Matthew E. Kahn; Kamiar Mohaddes; Ryan N. C. Ng; M. Hashem Pesaran; Mehdi Raissi; Jui-Chung Yang |
| Abstract: | We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labour productivity is affected by country-specific climate variables - defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04oC per year, in the absence of mitigation policies, reduces world real GDP per capita by 7.22 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01oC per annum, reduces the loss substantially to 1.07 percent. These effects vary significantly across countries. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labour productivity and employment. |
| Keywords: | Climate change, economic growth, adaptation, counterfactual analysis |
| JEL: | C33 O40 O44 O51 Q51 Q54 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-49&r=all |
| By: | Emna Trabelsi (Unité de Recherche d'Analyses Quantitatives Appliquées - Université de Tunis [Tunis]) |
| Abstract: | A well-developed banking sector is crucial to achieve a sustained economic growth. To attain this goal, both central banks and government have embraced operational and institutional arrangements. In this paper, I offer an empirical lookup on how monetary independence and transparency of macroprudential and fiscal policies are linked to bank development. Drawing upon a panel dataset for the period 1998-2014, I find that both macroprudential transparency (proxied by central bank financial stability transparency) and fiscal transparency are positively related to the share of credit granted by banks to the private sector, implying that more transparency enhances bank development. More independence from central banks seems, however, to decrease the ratio of bank credit to GDP. By considering interactions, the marginal effect of central bank financial stability transparency on bank credit/GDP, conditional on the levels of independence, is positive but decreases under a particular range of independence values. If central bank independence interacts with fiscal transparency, the marginal effect of fiscal transparency is positive and significant over a specific range of the degree of central bank independence but there is no statistical support that the marginal effect decreases within the same range unless I use the independence index of Garriga (2016). |
| Keywords: | central bank independence,central bank financial stability transparency,fiscal transparency,bank credit,dynamic panel |
| Date: | 2019–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02162780&r=all |
| By: | Adam Aboobaker (Department of Economics, University of Massachusetts Amherst) |
| Abstract: | Much of the recent interest in the relationship between growth and distribution has focused on advanced economies and neglected issues of development and structural transformation. The purpose of this paper is to make a contribution to this gap by arguing that, even in the short-run, some of the conclusions from neo-Kaleckian models may not be robust to developing country contexts with extreme income inequality and correspondingly polarized patterns of consumption. This argument is supported by a review of, amongst other, Kalecki's writing on development and a two-sector model building on Razmi et al (2012). The paper can be interpreted as a call for greater consideration of structural heterogeneity in extending the analysis of advanced economies to developing economies and as a caution against calls for general aggregate demand policy, in this case shifts in income distribution, to address structural transformation problems. |
| Keywords: | Growth and distribution; Kaleckian models; Development; Structural change; Kalecki |
| JEL: | O1 O4 E1 B3 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2019-11&r=all |
| By: | International Monetary Fund |
| Abstract: | Pakistan’s economy is at a critical juncture. Misaligned economic policies, including large fiscal deficits, loose monetary policy, and defense of an overvalued exchange rate, fueled consumption and short-term growth in recent years, but steadily eroded macroeconomic buffers, increased external and public debt, and depleted international reserves. Structural weaknesses remained largely unaddressed, including a chronically weak tax administration, a difficult business environment, inefficient and loss making SOEs, and low labor productivity amid a large informal economy. Without urgent policy action, economic and financial stability could be at risk, and growth prospects will be insufficient to meet the needs of a rapidly growing population. |
| Date: | 2019–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/212&r=all |
| By: | International Monetary Fund |
| Abstract: | Owing to improved policy frameworks and favorable external conditions, Grenada’s economy has been growing rapidly. Policies have remained prudent, helping reduce public debt and financial system vulnerabilities. The domestic policy debate is increasingly focused on using potential fiscal space for spending on public pensions and investment on building resilience to natural disasters. |
| Date: | 2019–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/192&r=all |
| By: | Kaplan, Robert S. (Federal Reserve Bank of Dallas) |
| Abstract: | An essay by Robert S. Kaplan, President and CEO of the Federal Reserve Bank of Dallas. |
| Date: | 2019–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddsp:181&r=all |
| By: | International Monetary Fund |
| Abstract: | President Touadéra signed a new peace agreement on February 6, 2019 with 14 armed groups. This agreement calls for the establishment of an inclusive government, the deployment of joint brigades, an acceleration of decentralization efforts, and the co-management of natural resources. While its implementation has started, including with the appointment of more inclusive government, the security situation remains volatile. The World Bank (WB) and the European Union (EU) have substantially increased their budgetary support (grants) for 2019–20. The authorities have expressed a strong interest in a successor arrangement. |
| Date: | 2019–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/216&r=all |
| By: | International Monetary Fund |
| Abstract: | A 36-month EFF with access of SDR 3.035 billion (435 percent of quota or about US$4.204 billion) was approved on March 11, 2019. Economic activity is projected to decelerate further in 2019 as fiscal consolidation and a slowdown in credit growth weigh on economic growth. However, external financing conditions have improved on the back of rising oil prices and the approval of the IMF program, with sovereign bond spreads falling by 250 basis points since January 1, 2019. |
| Date: | 2019–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/210&r=all |
| By: | Magdalena Vlahova-Veleva (Sofia University “St. Kliment Ohridski”, Faculty of Economics and Business Administration) |
| Abstract: | A single currency could bring both benefits and challenges, hence, this paper examines one of the various dimensions of euro adoption. Moreover, although previous studies have illuminated the euro effect on inflation and trade, the research on manufacturing remains limited. The paper aims to make an assessment of whether euro area accession has an impact on industrial output in the context of the manufacturing sector, as this sector is considered to have a crucial role for sustainable economic growth. The research fits a panel regression model for seven-euro area member states from Central and Eastern Europe and covers a 16-year period from 2003 to 2018. The findings suggest that the participation in the monetary union might increase manufacturing turnover for its members. |
| Keywords: | Economic and Monetary Union, euro, panel regression, manufacturing. |
| JEL: | E50 L60 O52 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2019-06&r=all |
| By: | International Monetary Fund |
| Abstract: | Financial Sector Assessment Program; Technical Note-Macrofinancial Analysis and Macroprudential Policy |
| Date: | 2019–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/187&r=all |
| By: | Charles Engel (University of Wisconsin at Madison) |
| Abstract: | In many open-economy models based on Dornbusch (1976), the speed of convergence of the real exchange rate is tied to the stickiness of prices. The “purchasing power parity puzzle” concerns the empirical fact that real exchange rates appear to converge more slowly than nominal prices. In some New Keynesian models, when there is no interest-rate smoothing, the stickiness of prices does not matter at all for persistence, as Benigno (2004) showed. We show that in the presence of interest-rate smoothing, price stickiness does matter and endogenous real-exchange rate persistence is bounded above by the interest rate smoothing parameter and by the probability of a firm not changing prices under Calvo pricing. We also explain the relationship between the New Keynesian framework with Calvo pricing, and the Dornbusch framework where price stickiness is integral to real exchange rate convergence. |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2017_011&r=all |
| By: | Benati, Luca (University of Bern); Lucas, Robert E. (University of Chicago); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Weber, Warren E. (University of South Carolina) |
| Abstract: | This appendix supports Staff Report 587. An earlier version of this Staff Report circulated as Working Paper 738. |
| Keywords: | Long-run money demand; Cointegration |
| JEL: | C32 E41 |
| Date: | 2019–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:588&r=all |
| By: | R. Matthew Darst; Ehraz Refayet |
| Abstract: | We study how adverse selection distorts equilibrium investment allocations in a Walrasian credit market with two-sided heterogeneity. Representative investor and partial equilibrium economies are special cases where investment allocations are distorted above perfect information allocations. By contrast, the general setting features a pecuniary externality that leads to trade and investment allocations below perfect information levels. The degree of heterogeneity between informed agents' type governs the direction of the distortion. Moreover, contracts that complete markets dampen the impact of pecuniary externalities and change equilibrium distortions. Implications for empirical design in credit market studies and financial stability are discussed. |
| Keywords: | Asymmetric Information ; Cost Of Capital ; Credit Default Swaps ; Investment ; Pecuniary Externality ; Signalling |
| JEL: | D82 E44 G32 D52 D53 |
| Date: | 2019–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-44&r=all |
| By: | Schnabl, Gunther |
| Abstract: | Seit Einführung des Euro im Jahr 1999 ist die Geldpolitik der Europäischen Zentralbank sehr locker. Die Leitzinsen sind auf und unter null gefallen. Die umfangreichen Kredite an Geschäftsbanken und Anleihekaufprogramme haben die Bilanz der Europäischen Zentralbank deutlich ausgeweitet. Das daraus resultierende starke Geldmengenwachstum hat negative Wachstums- und Verteilungseffekte, die über finanzielle Repression, Lohnrepression und die Inflationierung der Vermögenspreise auf die Gesellschaft wirken. Die wachsende Ungleichheit ist mit einer wachsenden politischen Destabilisierung verbunden, die marktwirtschaftliche Prinzipien und damit den Wohlstand gefährdet. |
| Keywords: | Geldpolitik,EZB,Ungleichheit,Vermögenspreisinflation,politischeInstabilität,Generationengerechtigkeit |
| JEL: | E52 E64 H23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:160&r=all |
| By: | Darlena Tartari; Albi Tola |
| Abstract: | The paper analyzes the impact of International Monetary Fund (IMF) programs, in conjunction with country-specific fundamentals and global factors, on the sovereign spreads in selected European emerging market economies (EMEs) from 2000 to 2016. For this purpose, we construct IMF indexes to capture the size of financial resources and the degree of implementation of IMF programs. Our sample is limited to countries belonging to the same region and having IMF programs and data on sovereign spreads over the same period. Our findings are unique in the current literature. They suggest that the size of financial resources and the degree of implementation of IMF programs matter for sovereign spreads, whereas the mere presence of IMF programs does not seem to affect them. Available IMF financial resources and a good implementation of IMF programs are associated with lower sovereign spreads in our panel. In addition, our results show that country-specific fundamentals and global factors remain the primary drivers of sovereign spreads. |
| Keywords: | Sovereign spreads, emerging markets, IMF arrangements, global risk |
| JEL: | E44 F33 G15 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2019-01&r=all |
| By: | A. M. B. Araujo; P. R. B. Lustosa |
| Abstract: | A controversy involving loan loss provisions in banks concerns their relationship with the business cycle. While international accounting standards for recognizing provisions (incurred loss model) would presumably be pro-cyclical, accentuating the effects of the current economic cycle, an alternative model, the expected loss model, has countercyclical characteristics, acting as a buffer against economic imbalances caused by expansionary or contractionary phases in the economy. In Brazil, a mixed accounting model exists, whose behavior is not known to be pro-cyclical or countercyclical. The aim of this research is to analyze the behavior of these accounting models in relation to the business cycle, using an econometric model consisting of financial and macroeconomic variables. The study allowed us to identify the impact of credit risk behavior, earnings management, capital management, Gross Domestic Product (GDP) behavior, and the behavior of the unemployment rate on provisions in countries that use different accounting models. Data from commercial banks in the United Kingdom (incurred loss), in Spain (expected loss), and in Brazil (mixed model) were used, covering the period from 2001 to 2012. Despite the accounting models of the three countries being formed by very different rules regarding possible effects on the business cycles, the results revealed a pro-cyclical behavior of provisions in each country, indicating that when GDP grows, provisions tend to fall and vice versa. The results also revealed other factors influencing the behavior of loan loss provisions, such as earning management. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1907.07491&r=all |
| By: | International Monetary Fund |
| Abstract: | The regional strategy has helped stabilize the regional economic position thanks to large fiscal consolidation efforts, a tighter monetary policy, and external financial assistance. The external position improved, and external reserves picked up. However, the region remains dependent on oil revenues, with little progress in economic diversification, under-performing budget non-oil revenues and weaknesses in the financial sector. The policy assurances included in BEAC’s letter of December 2018 were implemented as planned and the CEMAC authorities reiterated their full commitment to the strategy and their readiness to implement additional corrective measures if needed. Progress was made towards new IMF-supported program in Congo and Equatorial Guinea. |
| Date: | 2019–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/215&r=all |
| By: | Jovicic, Sonja |
| Abstract: | In der letzten Zeit haben die Herausforderungen der chinesischen Wirtschaft zugenommen, unter anderem aufgrund der eskalierenden Handelsspannungen mit den USA und der relativ schwachen Inlandsnachfrage. Dies hat die Regierung dazu veranlasst, möglichst rasch Konjunkturmaßnahmen zur Unterstützung des Wirtschaftswachstums zu ergreifen. Angesichts der hohen Verschuldung der chinesischen Wirtschaft könnte sich dies jedoch negativ auf die Finanzstabilität und damit auf das mittelfristige Wachstum auswirken. Vor diesem Hintergrund erscheint eine moderate Wachstumsverlangsamung als durchaus realistisch und selbst ein deutlicher Einbruch der Wirtschaftsleistung Chinas ist nicht auszuschließen, falls es zu einer Finanzmarktkrise und einer ökonomischen Abwärtsspirale kommt. Die Ergebnisse der Simulationen anhand des Oxford Global Economic Model zeigen, dass eine Wachstumsverlangsamung in China das globale Wirtschaftswachstum hart treffen würde. Eine Reduzierung des Wirtschaftswachstums in China um 1 Prozentpunkt jährlich würde das globale Wirtschaftswachstum um 0,2 Prozentpunkte (gegenüber dem Basisszenario) im Jahr 2020 senken. Dies gilt somit als eines der größten Risiken für das Weltwirtschaftswachstum. Das globale Bruttoinlandsprodukt würde damit um 242,5 Milliarden Euro im Jahr 2020 geringer ausfallen. Sollte die chinesische Wirtschaft in einer krisenhaften Entwicklung mit 3 Prozent deutlich einbrechen, könnte das globale Wirtschaftswachstum im Jahr 2020 sogar um bis zu 0,6 Prozentpunkte zurückgehen, was in etwa einem preisbereinigten Betrag von 722,12 Milliarden Euro in Preisen des Jahres 2010 entspricht. |
| JEL: | E17 E66 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:242019&r=all |
| By: | Apopo, Natalay; Phiri, Andrew |
| 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: | 2019–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94712&r=all |
| By: | Laliotis, Dimitrios; Buesa, Alejandro; Leber, Miha; Población García, Francisco Javier |
| Abstract: | We assess the effects of regulatory caps in the loan-to-value (LTV) ratio using agent-based models (ABMs). Our approach builds upon a straightforward ABM where we model the interactions of sellers, buyers and banks within a computational framework that enables the application of LTV caps. The results are first presented using simulated data and then we calibrate the probability distributions based on actual European data from the HFCS survey. The results suggest that this approach can be viewed as a useful alternative to the existing analytical frameworks for assessing the impact of macroprudential measures, mainly due to the very few assumptions the method relies upon and the ability to easily incorporate additional and more complex features related to the behavioral response of borrowers to such measures. JEL Classification: D14, D31, E50, R21 |
| Keywords: | borrower-based measures, HFCS survey, house prices, macroprudential policy |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192294&r=all |
| By: | Jakhotiya, Girish |
| Abstract: | The entire globe has, in varying measures, experienced the good and the bad impact of China’s growth story this past decade. China is hastening to project itself such that, it be viewed as the ‘global growth engine’. Whether duly or unduly, like secretly many a country would want to, China is rushing all out to replace USA from the foray and become the sole unparalleled global leader. The Chinese have already compromised with Russia, by signing a long-term contract for oil supply. China’s economic numbers and the trend displayed so far, reasonably indicates its hunger for growth. China is ambitious to grow vertically on the economic scale and horizontally on the geographic scale. This is what is likely to spell disaster for the world, especially for the democratic countries. |
| Keywords: | China, Communist Party, Communism, Capitalism, Global Turbulence, Development, Democracy, Growth, Geo-political |
| JEL: | E66 F51 O11 |
| Date: | 2019–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94721&r=all |
| By: | Massimo Guidolin; Manuela Pedio |
| Abstract: | We use monthly data on the US riskless yield curve for a 1982-2015 sample to show that mixing simple regime switching dynamics with Nelson-Siegel factor forecasts from time series models extended to encompass variables that summarize the state of monetary policy, leads to superior predictive accuracy. Such spread in forecasting power turns out to be statistically significant even controlling for parameter uncertainty and sample variation. Exploiting regimes, we obtain evidence that the increase in predictive accuracy is stronger during the Great Financial Crisis in 2007-2009, when monetary policy underwent a significant, sudden shift. Although more caution applies when transaction costs are accounted for, we also report that the increase in predictive power owed to the combination of regimes and of monetary variables that capture the stance of unconventional monetary policies is tradeable. We devise and test butterfly strategies that trade on the basis of the forecasts from the models and obtain evidence of riskadjusted profits both per se and in comparisons to simpler models. |
| Keywords: | Term structure of interest rates, Dynamic Nelson-Siegel factors, regime switching, butterfly strategies, unconventional monetary policy |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp19106&r=all |
| By: | Mujahidin, Muhamad |
| Abstract: | This article describes how the opportunities and challenges of FinTech Sharia in the face of the industrial revolution 4.0. By using a negation approach, this study concludes that FinTech Sharia which is the development of technological innovations that are in accordance with sharia provisions and becomes a solution to avoid interest transactions. The synergy between the Islamic financial sector and information technology innovation should also be a challenge as well as an opportunity for all actors in the Islamic finance industry to catch up with the conventional financial industry. |
| Keywords: | Financial Technology, FinTech, FinTech Sharia, Islamic Finance |
| JEL: | A10 E40 G21 G23 G30 O14 O32 |
| Date: | 2019–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94844&r=all |
| By: | Goldbaum, Sergio; Pedrozo Junior, Euclides |
| Abstract: | Despite the well-documented counter-cyclical relationship between import protection and GDP growth, the deep economic recession that has been affecting Brazil since 2014 was followed by a decrease in the number of antidumping investigations. To investigate the relationship between import protection through antidumping (AD) filings and economic activity we updated and adapted the Bown and Crowley 2012 and 2013 papers. We run a negative binomial panel regression model where the independent variable and the main independent variable are on a country-bilateral basis. Our database included samples from both emerging economies and developed countries. The results suggest that the counter cyclical relationship between AD filings and imposing country GDP is valid only for developed countries, while emerging economies show rather a pro-cyclical trend. Results should be regarded with caution since the expected negative relationship between exporting country GDP and AD filings has not been confirmed and annual data may not be appropriate to analyze the relationship under scrutiny. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:504&r=all |
| By: | Rolando Caballero Martinez (Ministerio de Econom�a y Finanzas P�blicas) |
| Abstract: | Taking advantage of the change of trend in 2006 in aggregate tax collection, as well as in the main taxes and their tax bases, this paper makes an evaluation of the effects of the new prevailing economic conditions as from implementation of the Economic Social Comunitarian Productive Model (MESCP, in Spanish) on tax collection in the period between 2006-First Quarter of 2017, compared to the results obtained from 1990 to 2005. The study is based on the quantification of tax buoyancy for both periods, for which impulse response functions, cointegration vectors and error correction models are estimated. The results suggest that the buoyancies in the second period are largely attributed to the economic context resulting from application of the MESCP. In addition, the estimations show that the tax bases have a useful predictive content to determine the future behavior in the collection of these taxes. |
| Keywords: | Tax buoyancy, Cointegration, Error Correction Model |
| JEL: | E69 H11 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:efp:wpaper:2017-2&r=all |
| By: | Lu, Lina (Federal Reserve Bank of Boston); Pritsker, Matthew (Federal Reserve Bank of Boston); Zlate, Andrei (Federal Reserve Board); Anadu, Kenechukwu E. (Federal Reserve Bank of Boston); Bohn, James (Federal Reserve Bank of Boston) |
| Abstract: | This paper studies whether U.S. public pension funds reach for yield by taking more investment risk in a low interest rate environment. To study funds’ risk-taking behavior, we first present a simple theoretical model relating risk-taking to the level of risk-free rates, to their underfunding, and to the fiscal condition of their state sponsors. The theory identifies two distinct channels through which interest rates and other factors may affect risk-taking: by altering plans’ funding ratios, and by changing risk premia. The theory also shows the effect of state finances on funds’ risk-taking depends on incentives to shift risk to state debt holders. To study the determinants of risk-taking empirically, we create a new methodology for inferring funds’ risk from limited public information on their annual returns and portfolio weights for the interval 2002-2016. In order to better measure the extent of underfunding, we revalue funds’ liabilities using discount rates that better reflect their risk. We find that funds on average took more risk when risk-free rates and funding ratios were lower, which is consistent with both the funding ratio and the risk premia channels. Consistent with risk-shifting, we also find more risk-taking for funds affiliated with state or municipal sponsors with weaker public finances. We estimate that up to one-third of the funds’ total risk was related to underfunding and low interest rates at the end of our sample period. |
| Keywords: | U.S. public pension funds; reach for yield; Value at Risk; underfunding; duration-matched discount rates; state public debt. |
| JEL: | E43 G11 G23 G32 H74 |
| Date: | 2019–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbqu:rpa19-2&r=all |
| By: | Mujahidin, Muhamad |
| Abstract: | This article describes how the opportunities and challenges of FinTech Sharia in the face of the industrial revolution 4.0. By using a negation approach, this study concludes that FinTech Sharia which is the development of technological innovations that are in accordance with sharia provisions and becomes a solution to avoid interest transactions. The synergy between the Islamic financial sector and information technology innovation should also be a challenge as well as an opportunity for all actors in the Islamic finance industry to catch up with the conventional financial industry. |
| Keywords: | Financial Technology, FinTech, FinTech Sharia, Islamic Finance |
| JEL: | A10 E40 G21 G23 G30 O14 O32 |
| Date: | 2019–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94842&r=all |