nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒09‒02
76 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Bank Assets, Liquidity and Credit Cycles By Lubello, Federico; Petrella, Ivan; Santoro, Emiliano
  2. A Risk-centric Model of Demand Recessions and Speculation By Caballero, Ricardo; Simsek, Alp
  3. Prudential Monetary Policy By Caballero, Ricardo; Simsek, Alp
  4. Investment behaviour and “bull & bear” dynamics: Modelling real and stock market interactions By Serena Sordi; Marwil J. Dávila-Fernández
  5. The Neutrality of Nominal Rates: How Long is the Long Run? By João Ritto; João Valle e Azevedo; Pedro Teles
  6. (Macro) Prudential Taxation of Good News By Flemming, Jean; Lhuillier, Jean-Paul; Piguillem, Facundo
  7. Lumpy Durable Consumption Demand and the Limited Ammunition of Monetary Policy By Alisdair McKay; Johannes F. Wieland
  8. Improving U.S. Monetary Policy Communications By Cecchetti, Stephen G; Schoenholtz, Kermit
  9. Monetary Policy Announcements and Expectations: Evidence from German Firms By Enders, Zeno; Hünnekes, Franziska; Müller, Gernot
  10. Monetary Policy for a Bubbly World By Asriyan, Vladimir; Fornaro, Luca; Martín, Alberto; Ventura, Jaume
  11. Kinks and Gains from Credit Cycles By Jensen, Henrik; Ravn, Søren Hove; Santoro, Emiliano
  12. Phillips curves in the euro area By Moretti, Laura; Onorante, Luca; Zakipour-Saber, Shayan
  13. Synchronization in Sunspot Models By Patir, Assaf
  14. Optimal Monetary Policy when Information is Market-Generated By Benhima, Kenza; Blengini, Isabella
  15. Colombian Economic Growth, Investment and Saving: From 1954 to 2019 and Beyond By posada
  16. Inequality, the risk of secular stagnation and the increase in household deb By Ansgar Rannenberg
  17. Multivariate Filter Estimation of Potential Output for the United States: An Extension with Labor Market Hysteresis By Ali Alichi; Hayk Avetisyan; Douglas Laxton; Shalva Mkhatrishvili; Armen Nurbekyan; Lusine Torosyan; Hou Wang; Armen Nurbekyan; Lusine Torosyan
  18. An Update to the Budget and Economic Outlook: 2019 to 2029 By Congressional Budget Office
  19. The Effect of Unconventional Monetary Policy on Cross‐Border Bank Loans: Evidence from an Emerging Market By Koray Alper; Fatih Altunok; Tanju Çapacıoğlu; Steven Ongena
  20. Economic integration and macroeconomic shocks in Eurasia By Gharleghi, Behrooz
  21. "Evolving International Monetary and Financial Architecture and the Development Challenge: A Liquidity Preference Theoretical Perspective" By Jorg Bibow
  22. No evidence of an oil curse: Natural resource abundance, capital formation and productivity By Al Raee, Mueid; De Crombrugghe, Denis; Ritzen, Jo
  23. Does Domestic Investment Contribute to Economic Growth in Uruguay? What did the Empirical Facts Say? By Bakari, Sayef; Tiba, Sofien; Fakraoui, Nissar
  24. Predicting Consumer Default: A Deep Learning Approach By Albanesi, Stefania; Vamossy, Domonkos
  25. In Fed Watchers’ Eyes: Hawks, Doves and Monetary Policy By Klodiana Istrefi
  26. How forecast accuracy depends on conditioning assumptions By Engelke, Carola; Heinisch, Katja; Schult, Christoph
  27. Persistent Government Debt and Aggregate Risk Distribution By Croce, Mariano Massimiliano; Nguyen, Thien; Raymond, Steve
  28. Does Experience Shape Subjective Expectations? By Rossmann, Tobias
  29. MARTIN Has Its Place: A Macroeconometric Model of the Australian Economy By Alexander Ballantyne; Tom Cusbert; Richard Evans; Rochelle Guttmann; Jonathan Hambur; Adam Hamilton; Elizabeth Kendall; Rachael McCririck; Gabriela Nodari; Daniel Rees
  30. Bridging Canadian Business Lending and Market-Based Risk Measures By Guillaume Ouellet Leblanc; Maxime Leboeuf
  31. Euro area fiscal policy changes: stylised features of the past two decades By Cláudia Braz; Nicolas Carnot
  32. Is liberalizing finance the game in town for Nigeria ? By Sulaiman, Saidu; Masih, Mansur
  33. Financial Frictions, Durable Goods and Monetary Policy By Ugochi Emenogu; Leo Michelis
  34. Economic consequences of high public debt and challenges ahead for the euro area By Maria Manuel Campos; Cristina Checherita-Westphal; Pascal Jacquinot; Pablo Burriel; Francesco Caprioli
  35. Persistent Government Debt and Aggregate Risk Distribution By Mariano Max Croce; Thien T. Nguyen; Steve Raymond
  37. The new ESCB methodology for the calculation of cyclically adjusted budget balances: an application to the Portuguese case By Cláudia Braz; Maria Manuel Campos; Sharmin Sazedj
  38. Time-Varying Impact of Uncertainty Shocks on Macroeconomic Variables of the United Kingdom: Evidence from Over 150 Years of Monthly Data By Christina Christou; David Gabauer; Rangan Gupta
  39. Housing Wealth Effects and Mortgage Borrowing: The Effect of Subjective Unanticipated Changes in Home Values on Home Equity Extraction in Denmark By Andersen, Henrik Yde; Leth-Petersen, Søren
  40. Tarjetas de crédito en personas de ingresos medios y bajos en Colombia: ¿qué determina su uso? By Luis E. Arango; Lina Cardona-Sosa
  41. Does Domestic Investment Contribute to Economic Growth in Uruguay? What did the Empirical Facts Say? By Bakari, Sayef; Tiba, Sofien; Fakraoui, Nissar
  42. Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective. By Kjetil Storesletten; Bo Zhao; Fabrizio Zilibotti
  43. Credit, Default, and Optimal Health Insurance By Jang, Youngsoo
  44. The Formation of Consumer Inflation Expectations: New Evidence From Japan's Deflation Experience By Jess Diamond; Kota Watanabe; Tsutomu Watanabe
  45. Macroeconomic Policies and the Iranian Economy in the Era of Sanctions By Magda Kandil; Ida A. Mirzaie
  46. Predicting Consumer Default: A Deep Learning Approach By Stefania Albanesi; Domonkos F. Vamossy
  47. The Industrial Revolution in Services By Hsieh, Chang-Tai; Rossi-Hansberg, Esteban
  48. Stable genius? The macroeconomic impact of Trump By Born, Benjamin; Müller, Gernot; Schularick, Moritz; Sedlacek, Petr
  49. An Evaluation of Effective Prosperity Measure: A Case of Wellbeing Index By Khan, Abdul Jalil; Ahmad, Hafiz Rizwan
  50. ECB, BoE and Fed Monetary-Policy announcements: price and volume effects on European securities markets By Eurico Ferreira; Ana Paula Serra
  51. Prioritization of sustainability indicators for promoting the circular economy: The case of developing countries By Ngan, Sue Lin; How, Bing Shen; Teng, Sin Yong; Promentilla, Michael Angelo B.; Yatim, Puan; Er, Ah Choy; Lam, Hon Loong
  52. Detecting turning points in global economic activity By Baumann, Ursel; Salvador, Ramón Gómez; Seitz, Franz
  53. The lead-lag relationship between the rubber price and inflation rate: an evidence from Malaysia By Hamid, Zuraini; Masih, Mansur
  54. Methods of Economic Theory: Variables, Transactions and Expectations as Functions of Risks By Olkhov, Victor
  55. Global factors and trend inflation By Gunes Kamber; Benjamin Wong
  56. El Sistema Pensional en Colombia By López, Martha; Sarmiento G., Eduardo
  57. Inspecting the Mechanism of Quantitative Easing in the Euro Area By Ralph S. J. Koijen; Francois Koulischer; Benoit Nguyen; Motohiro Yogo
  58. A European safe asset to complement national government bonds By Giudice, Gabriele; de Manuel Aramendía, Mirzha; Kontolemis, Zenon; Monteiro, Daniel P.
  59. Partial Default By Cristina Arellano; Xavier Mateos-Planas; José-Víctor Ríos-Rull
  60. Macroeconomic Impacts of Trade Credit: An Agent-Based Modeling Exploration By Michel Alexandre; Gilberto Tadeu Lima
  61. Minnesota-type adaptive hierarchical priors for large Bayesian VARs By Joshua C. C. Chan
  62. The equalizing spiral in early 21st century Brazil: a Kaleckian model with sectoral heterogeneity By Clara Brenck; Laura Carvalho
  63. A Model of Fickle Capital Flows and Retrenchment By Caballero, Ricardo; Simsek, Alp
  64. Who Bears the Burden of Universal Health Coverage? An Assessment of Alternative Financing Policies Using an Overlapping generations General Equilibrium Model By Sameera Awawda; Mohammad Abu-Zaineh; Bruno Ventelou
  65. Incremental Risk Charge Methodology By Xiao,Tim
  66. The Negative Mean Output Gap By Shekhar Aiyar; Simon Voigts
  67. Are instant payments becoming the new normal? A comparative study By Hartmann, Monika; Gijsel, Lola Hernandez-van; Plooij, Mirjam; Vandeweyer, Quentin
  68. Monthly Forecasting of GDP with Mixed Frequency Multivariate Singular Spectrum Analysis By António Rua; Hossein Hassani; Emmanuel Sirimal Silva; Dimitrios Thomakos
  69. Monetary Policy, Crisis and Capital Centralization in Corporate Ownership and Control Networks: a B-Var Analysis By Emiliano Brancaccio; Raffaele Giammetti; Milena Lopreite; Michelangelo Puliga
  70. Come sorridere anche noi: Sviluppo economico, accesso alle conoscenze, e riduzione delle diseguaglianze By Ugo Pagano; Maria Alessandra Rossi
  71. Animal spirits and household spending in Europe and the US By Bahar Öztürk; Ad Stokman
  72. Pakistan Input-Output Table 2010-11 By Muhammad Zeshan; Muhammad Nasir
  73. Les Fluctuations Cycliques De La Production Et Du Chômage Au Maroc : Une Approche Sectorielle De La Loi D’Okun By Zakaria El Faiz; Said Tounsi
  74. Back to the Future - Changing Job Profiles in the Digital Age By Stephany, Fabian; Lorenz, Hanno
  75. Labour Taxation and Inclusive Growth By Athena Kalyva; Savina Prince; Alexander Leodolter; Caterina Astarita
  76. Into the heterogeneities in the Portuguese labour market: an empirical assessment By Fernando Martins; Domingos Seward

  1. By: Lubello, Federico; Petrella, Ivan; Santoro, Emiliano
    Abstract: We study how bank collateral assets and their pledgeability affect the amplitude of credit cycles. To this end, we develop a tractable model where bankers intermediate funds between savers and borrowers. If bankers default, savers acquire the right to liquidate bankers' assets. However, due to the vertically integrated structure of our credit economy, savers anticipate that liquidating financial assets (i.e., loans) is conditional on borrowers being solvent on their debt obligations. This friction limits the collateralization of bankers' financial assets beyond that of real assets (i.e., capital). In this context, increasing the pledgeability of financial assets eases more credit and reduces the spread between the loan and the deposit rate, thus attenuating capital misallocation as it typically emerges in credit economies à la Kiyotaki and Moore (1997). We uncover a close connection between the collateralization of bank loans, macroeconomic amplification and the degree of procyclicality of bank leverage.
    Keywords: Bank Collateral; Banking; capital misallocation; liquidity; macroprudential policy
    JEL: E32 E44 G21 G28
    Date: 2019–06
  2. By: Caballero, Ricardo; Simsek, Alp
    Abstract: We theoretically analyze the interactions between asset prices, financial speculation, and macroeconomic outcomes when output is determined by aggregate demand. If the interest rate is constrained, a decline in risky asset valuations generates a demand recession. This reduces earnings and generates a negative feedback loop between asset prices and aggregate demand. In the recession phase, beliefs matter not only because they affect asset valuations but also because they determine the strength of the amplification mechanism. In the ex-ante boom phase, belief disagreements (or heterogeneous asset valuations) matter because they induce investors to speculate. This speculation exacerbates the crash by reducing high-valuation investors' wealth when the economy transitions to recession. Macroprudential policy that restricts speculation in the boom can Pareto improve welfare by increasing asset prices and aggregate demand in the recession.
    Keywords: aggregate demand; asset prices; booms and recessions; exogenous and endogenous uncertainty; heterogeneous beliefs; interest rate rigidity; monetary and macroprudential policy; Speculation; the Fed put; Time-varying risk premium
    JEL: E00 E12 E21 E22 E30 E40 G00 G01 G11
    Date: 2019–06
  3. By: Caballero, Ricardo; Simsek, Alp
    Abstract: Should monetary policy have a prudential dimension? That is, should policymakers raise interest rates to rein in financial excesses during a boom? We theoretically investigate this issue using an aggregate demand model with asset price booms and financial speculation. In our model, monetary policy affects financial stability through its impact on asset prices. Our main result shows that, when macroprudential policy is imperfect, small doses of prudential monetary policy (PMP) can provide financial stability benefits that are equivalent to tightening leverage limits. PMP reduces asset prices during the boom, which softens the asset price crash when the economy transitions into a recession. This mitigates the recession because higher asset prices support leveraged, high-valuation investors' balance sheets. An alternative intuition is that PMP raises the interest rate to create room for monetary policy to react to negative asset price shocks. The policy is most effective when there is extensive speculation and leverage limits are neither too tight nor too slack.
    Keywords: aggregate demand; Business cycle; effective lower bound; leaning against the wind; leverage; macroprudential policies; monetary policy; regulation; Speculation
    JEL: E00 E12 E21 E22 E30 E40 G00 G01 G11
    Date: 2019–06
  4. By: Serena Sordi; Marwil J. Dávila-Fernández
    Abstract: We develop a simple behavioural macrodynamic model in continuous-time with the purpose of investigating the interaction of the real economy and the ?financial markets. Building on Westerfhoff (2012), we improve the specification of aggregate demand by distinguishing between consumption and investment expenditure and assuming that the latter is determined by the ?flexible accelerator principle. We remove the ad-hoc nonlinearity in the fundamentalist behavioural rule and allow the composition of the population between chartists and fundamentalists to be endogenously determined. The resulting nonlinear dynamic systems are shown to generate various dynamic regimes, among which the coexistence of periodic attractors with interesting economic implications.
    Keywords: Real-financial interaction, multiplier, nonlinear accelerator, heterogenous speculators, complex dynamics.
    JEL: E12 E24 E32 E44
    Date: 2019–01
  5. By: João Ritto; João Valle e Azevedo; Pedro Teles
    Abstract: How can inflation be raised in economies such as Japan and the euro area where it has been below the objective for quite some time? We estimate an empirical model aimed at identifying the effects of permanent and temporary monetary shocks for the U.S., Japan, France, the U.K., Germany and the euro area. We find that the permanent monetary shock leads to a permanent rise in nominal rates and inflation. Importantly, the short-run effects of this permanent shock are similar to the long-run effects: inflation responds positively and immediately to a permanent rise in nominal rates, confirming the results in Uribe (2017, 2018). We also reinvestigate the long-run relation between inflation and nominal short interest rates. Using data for 41 developed countries covering the last 50 years, we document a strong, yet below one-for-one relationship between nominal rates and inflation, that tends to be less visible over the more recent period, characterized by inflation targeting at low common levels.
    JEL: E31 E32 E52 E58
    Date: 2019
  6. By: Flemming, Jean; Lhuillier, Jean-Paul; Piguillem, Facundo
    Abstract: We analyze the optimal macroprudential policy under the presence of news shocks. News are shocks to the growth rate that convey information about future growth. In this context, crises are characterized by long periods with positive shocks (and good news) that eventually revert,rendering the collateral constraint binding and triggering deleveraging. In this environment it is optimal to tax borrowing during good times, and let agents act freely leaving the allocations undistorted, including borrowing and lending, when the economy reverts to a bad state. We contrast our findings to the case of standard, shocks to the level of income, where it is optimal to tax debt in bad times, when agents need to borrow the most for precautionary savings motives. Also, taxes are used much less often and are around one-tenth of those under level shocks.
    Keywords: financial crises; macroprudential policy; Pecuniary externality
    JEL: E32 E44 G18
    Date: 2019–06
  7. By: Alisdair McKay; Johannes F. Wieland
    Abstract: In a fixed-cost model of durable consumption demand, we show that an important channel of monetary policy transmission is to prompt households to accelerate the timing of their adjustments. We highlight three ways in which the power of monetary policy is reduced relative to the standard New Keynesian model. First, there is an intertemporal trade-off in aggregate demand as encouraging households to adjust today leaves fewer households acquiring durables going forward. Second, households make a short-term decision—adjusting now rather than in the near future—so the short-term real interest rate is the opportunity cost of adjusting today. As a result, forward guidance is less effective at shifting aggregate demand than contemporaneous interest rate cuts. Third, monetary policy becomes less powerful in a recession. The literature has debated whether fixed-cost models generate state dependence in general equilibrium; we show that if one conditions on the magnitude of the recession, the model's state dependence is unaffected by general equilibrium attenuation.
    JEL: E21 E43 E52
    Date: 2019–08
  8. By: Cecchetti, Stephen G; Schoenholtz, Kermit
    Abstract: The Federal Open Market Committee (FOMC) publishes vast amounts of information regarding monetary policy, including its goals, strategy and outlook. By reinforcing the commitment to price stability and maximum sustainable employment, this transparency has helped improve U.S. economic performance in recent decades. Based on two dozen interviews with policy experts, we identify three objectives that guide our search for further improvements in communications practices: simplifying public statements, clarifying how policy will react to changing conditions, and highlighting uncertainty and risks. As examples, we propose a simpler post-meeting policy statement and the introduction of a concise Report on Economic Projections, the elements of which are mostly available in existing publications. A broader, systematic application of these objectives could also help the FOMC streamline other aspects of its communications framework.
    Keywords: central bank accountability; central bank communication; Federal Reserve; forward guidance; monetary policy; Monetary policy credibility; Policy Transparency; Reaction functions
    JEL: E50 E58 E61
    Date: 2019–08
  9. By: Enders, Zeno; Hünnekes, Franziska; Müller, Gernot
    Abstract: We assess empirically whether monetary policy announcements impact firm expectations. Two features of our data set are key. First, we rely on a survey of production and price expectations of German firms, that is, expectations of actual price setters. Second, we observe the day on which firms submit their answers to the survey. We compare the responses of firms before and after monetary policy surprises and obtain two results. First, firm expectations respond to policy surprises. Second, the response becomes weaker as the surprise becomes bigger. A contractionary surprise of moderate size reduces firm expectations, while a moderate expansionary surprise raises them. Large surprises, both negative and positive, fail to alter expectations. Consistent with this result, we find that many of the ECB's announcements of non-conventional policies did not affect expectations significantly. Overall, our results are consistent with the notion that monetary policy surprises generate an information effect which is endogenous to the size of the policy surprise.
    Keywords: European Central Bank; Firm expectations; information effect; Monetary policy announcements; survey data
    JEL: E3 E52 E58
    Date: 2019–08
  10. By: Asriyan, Vladimir; Fornaro, Luca; Martín, Alberto; Ventura, Jaume
    Abstract: What is the role of monetary policy in a bubbly world? To address this question, we study an economy in which financial frictions limit the supply of assets. The ensuing scarcity generates a demand for "unbacked" assets, i.e., assets that are backed only by the expectation of their future value. We consider two types of unbacked assets: bubbles, which are created by the private sector, and money, which is created by the central bank. Bubbles and money share many features, but they also differ in two crucial respects. First, while the rents from the creation of bubbles accrue to entrepreneurs and foster investment, the rents from money creation accrue to the central bank. Second, while bubbles are driven by market psychology, and can rise and fall according to the whims of the market, money is under the control of the central bank. We characterize the optimal monetary policy and show that, through its ability to supply assets, monetary policy plays a key role in the bubbly world. The model sheds light on the recent expansion of central bank liabilities in response to the bursting of bubbles.
    Keywords: bubbles; Financial Frictions; liquidity trap; Optimal monetary policy
    JEL: E32 E44 O40
    Date: 2019–06
  11. By: Jensen, Henrik; Ravn, Søren Hove; Santoro, Emiliano
    Abstract: Credit-market imperfections are at the centre stage of several theories of business fluctuations. Since a lot of research seeks to address the welfare consequences of stabilization policies, we revisit the fundamental question of quantifying the cost of business cycles in a model where household borrowing is subject to a collateral constraint. Business cycles occasionally change the credit-market conditions, making households temporarily unconstrained and better off. This effect can dominate the conventional losses from uncertainty, thus making fluctuations welfare-dominate certainty.
    Keywords: Collateral constraints; Cost of business cycles; precautionary saving
    JEL: E20 E32 E66
    Date: 2019–06
  12. By: Moretti, Laura (European Central Bank); Onorante, Luca (European Central Bank); Zakipour-Saber, Shayan (Central Bank of Ireland)
    Abstract: We perform a robust estimation of the Phillips curve in the euro area using a battery of 630 theory-driven models.We extend the existing literature by adding model specifications, taking into account the uncertainty in the measurement of variables and testing for potential non-linearities and structural changes. Using Dynamic Model Averaging, weidentify the most important determinants of inflation over the sample. We then forecast core inflation 12 quarters ahead and present its probability distribution. We compare the distribution of forecasts performed in recent years, and we assess, in a probabilistic manner, the convergence towards a sustainable path of inflation.
    Keywords: Phillips curves, Dynamic Model Averaging, nonlinearities, structural changes, density forecast.
    JEL: C30 E52 F41 E32
    Date: 2019–08
  13. By: Patir, Assaf
    Abstract: This note illustrates how agents' beliefs about economic outcomes can dynamically synchronize and de-synchronize to produce business-cycle-like fluctuations in a simple macroeconomic model. I consider a simple macroeconomic model with multiple equilibria, which are different ways that sunspots can forecast future output in a self-fulfilling manner. Agents are assumed to learn to use the sunspot variable through econometric learning. I show that if different agents have different interpretations of the sunspot, this leads to a complex nonlinear dynamic of synchronization of beliefs about the equilibrium being played. Depending on the extent of disagreement on the interpretation of the sunspot, the economy will be more or less volatile. The dispersion of the agents' beliefs is inversely related to volatility, since low dispersion implies that output is very sensitive to extrinsic noise (the sunspot). When disagreement crosses a critical threshold, the sunspot is practically ignored and the output is stable. The equation describing the evolution of the economy can be interpreted as a nonlinear-stochastic version of the Kuramoto model, a prototypical model of synchronization phenomena, and simulations confirm that the qualitative features of the model are in agreement with results from the Kuramoto literature.
    Keywords: sunspots, learning, synchronization
    JEL: D83 E0 E32
    Date: 2019–08–25
  14. By: Benhima, Kenza; Blengini, Isabella
    Abstract: The nature of the private sector's information changes the optimal conduct of monetary policy. When firms observe their individual demand and use it as a signal of real shocks, the optimal policy consists in maximizing the information content of that signal. When real shocks are deflationary (like labor supply shocks), the optimal policy is countercyclical and magnifies price movements, which contrasts with the exogenous information case, where optimal monetary policy is procyclical and stabilizes prices. When the central bank communicates its information to the public, this policy is still optimal if firms pay limited attention to central bank announcements.
    Keywords: central bank communication; endogenous information; Expectations; Information Frictions; Optimal monetary policy
    JEL: D83 E32 E52 F32
    Date: 2019–06
  15. By: posada
    Keywords: Colombian Economic Growth; Cass-Koopmans-Ramsey Model; Small OpenEconomy; Technical Change; Interest Rate; Investment; Households Savings.
    JEL: E13 E21 E22 F41 F43 O11 O41 O54
    Date: 2019–08–20
  16. By: Ansgar Rannenberg (Economics and Research Department, National Bank of Belgium)
    Abstract: I investigate the effect of rising income inequality on the natural rate of interest in an economy with “rich” households with preferences over wealth and “non-rich” households, a housing market and credit market frictions. Simulating the increase in interpersonal and functional income inequality over the 1981-2016 period replicates the downward trend in the natural rate of interest estimated by Laubach and Williams (2016), most of the increase in the debt-to-income ratio of the bottom 90 % of households and the upward trend in house prices observed during this period.
    Keywords: Income inequalitynatural rate of interestsecular stagnation
    JEL: E25 E52 E43 D14
    Date: 2019–08
  17. By: Ali Alichi; Hayk Avetisyan; Douglas Laxton; Shalva Mkhatrishvili; Armen Nurbekyan; Lusine Torosyan; Hou Wang (Dilijan Training and Research Centre, Central Bank of Armenia); Armen Nurbekyan (Economic Research Department, Central Bank of Armenia); Lusine Torosyan
    Abstract: This paper extends the multivariate filter approach of estimating potential output developed by Alichi and others (2018) to incorporate labor market hysteresis. This extension captures the idea that long and deep recessions (expansions) cause persistent damage (improvement) to the labor market, thereby reducing (increasing) potential output. Applying the model to U.S. data results in significantly smaller estimates of output gaps, and higher estimates of the NAIRU, after the global financial crisis, compared to estimates without hysteresis. The smaller output gaps partly explain the absence of persistent deflation despite the slow recovery during 2010-2017. Going forward, if strong growth performance continues well beyond 2018, hysteresis is expected to result in a structural improvement in growth and employment.
    Keywords: Macroeconomic Modeling, Potential Output
    JEL: C51 E31 E52
    Date: 2019–02
  18. By: Congressional Budget Office
    Abstract: CBO estimates that the federal budget deficit for 2019 will be $960 billion. Under current law, budget deficits are projected to average $1.2 trillion a year between 2020 and 2029, boosting debt held by the public to 95 percent of GDP in that year—its highest level since just after World War II. Economic output is projected to grow by 2.3 percent in 2019, supporting strong labor market conditions that feature low unemployment and rising wages. After 2019, in CBO’s projections, economic growth averages 1.8 percent per year, which is less than the historical average.
    JEL: E20 E60 E62 E66 H20 H50 H60 H61 H62 H63 H68
    Date: 2019–08–21
  19. By: Koray Alper (Government of the Republic of Turkey - Central Bank of the Republic of Turkey); Fatih Altunok (Central Bank of the Republic of Turkey); Tanju Çapacıoğlu (Central Bank of Turkey); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: We analyze the impact of quantitative easing by the Federal Reserve, European Central Bank and Bank of England on cross‐border credit flows. Relying on comprehensive loan‐level data, we find that Fed QE strongly boosts cross‐border credit granted to Turkish banks by banks located in the US, Euro Area and UK, while ECB and BoE QEs work only moderately through banks in the EA and UK, respectively. In general QE works at short maturities across bank locations and loan currencies, more strongly for weaker lenders and borrowers, and may have resulted in maturity mismatches in Turkish banks searching for yield.
    Keywords: bank lending channel; bank borrowing channel; monetary transmission; quantitative easing (QE); cross‐border bank loans, micro‐level data, capital requirements, financial de‐globalization
    JEL: E44 E52 F42 G15 G21
    Date: 2019–07
  20. By: Gharleghi, Behrooz
    Abstract: The main objective of this research is to make an assessment of the symmetry/asymmetry of underlying macroeconomic shocks in the Eurasia region. A model is developed to distinguish structural global supply shocks, regional supply shocks, and domestic supply shocks using a reduced-form structural vector autoregressive model (SVAR). Empirical results reveal that the correlation between domestic and regional shocks, as well as between domestic and global shocks, are clearly divided into two groups of countries: (i) domestic (country-specific) supply shocks are more correlated with global shocks in the European part of the region (Armenia, Belarus, Georgia, and Ukraine; with the exception of Mongolia here); and (ii) domestic shocks are mostly correlated with regional shocks in the Central Asian part of the region (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, and Azerbaijan; with the exception of Moldova here). This has implications for the Chinese economy in the region.
    Keywords: Eurasia, China, Macroeconomic shocks
    JEL: E50 E60
    Date: 2019–08–01
  21. By: Jorg Bibow
    Abstract: This paper investigates the peculiar macroeconomic policy challenges faced by emerging economies in today's monetary (non)order and globalized finance. It reviews the evolution of the international monetary and financial architecture against the background of Keynes's original Bretton Woods vision, highlighting the US dollar's hegemonic status. Keynes's liquidity preference theory informs the analysis of the loss of policy space and widespread instabilities in emerging economies that are the consequence of financial hyperglobalization. While any benefits promised by mainstream promoters remain elusive, heightened vulnerabilities have emerged in the aftermath of the global crisis.
    Keywords: Emerging Economies; Hyperglobalization; Liquidity; Liquidity Preference Theory; Reserve Accumulation; US Dollar Hegemony
    JEL: B22 E43 E44 F02 F36 G12
    Date: 2019–08
  22. By: Al Raee, Mueid (UNU-MERIT); De Crombrugghe, Denis (SBE, Maastricht University); Ritzen, Jo (UNU-MERIT, Maastricht University)
    Abstract: This chapter examines the relationship between labour productivity, capital formation, and natural resource extraction in countries with natural resource reserves. We develop a theoretical two-sector model for a closed economy that maximises consumption over time, and examine how the control variables - natural resource extraction and the savings rate - determine fixed capital investment. We find that in a closed economy, the overall labour productivity is a positive function of capital investment per labour. That is in turn related to the externally given natural resource price, natural resource reserves and the resource extraction ratio. High natural resource prices and extraction rates provide opportunities to increase the overall investment in fixed capital and thus boost the labour productivity. We empirically test this model for oil as a natural resource. The data covers 36 years from 1980 to 2015 and includes 149 countries. 85 of these countries possessed commercially recoverable oil reserves in at least a part of the time period covered. We are able to exploit the panel and carry out the estimation using two-way fixed effects. We observe that oil price has an overall positive impact on labour productivity growth in the modern sector. The savings rate and schooling are positively correlated to labour productivity growth as well as fixed capital formation per capita. We find that the oil sector variables - oil reserves and oil extraction ratio - do not contribute to labour productivity growth directly, rather through increased capital formation per capita.
    Keywords: structural change, natural resource curse, GCC, theoretical modelling, empirical application, capital formation
    JEL: E21 E24 O13 O47 Q32
    Date: 2019–07–01
  23. By: Bakari, Sayef; Tiba, Sofien; Fakraoui, Nissar
    Abstract: The fundamental role of domestic investment to provide economic prosperity is very well recognized by the economic theory since the Mercantilist theory. Hence, we investigate the impact of domestic investment on economic growth for the case of the Uruguayan economy over the period 1960-2017. For this aim, we employ the Vector Error Correction Model (VECM). Our highlights reveal the absence of a significant impact of domestic investment on growth in the short- and long-run. Due to the marginal role of domestic investment played in the Uruguayan economy, the weak saving rate couldn’t significantly help the economy and creating wealth. Therefore, a strong saving policy is required to encourage domestic investors and reevaluate their crucial role in the economic process of Uruguay.
    Keywords: Domestic investment, Economic growth, VECM, Uruguay.
    JEL: E2 E22 E23 O4 O40 O47 O54
    Date: 2019–08
  24. By: Albanesi, Stefania; Vamossy, Domonkos
    Abstract: We develop a model to predict consumer default based on deep learning. We show that the model consistently outperforms standard credit scoring models, even though it uses the same data. Our model is interpretable and is able to provide a score to a larger class of borrowers relative to standard credit scoring models while accurately tracking variations in systemic risk. We argue that these properties can provide valuable insights for the design of policies targeted at reducing consumer default and alleviating its burden on borrowers and lenders, as well as macroprudential regulation.
    Keywords: Consumer default; credit scores; deep learning; macroprudential policy
    JEL: C45 D1 E27 E44 G21 G24
    Date: 2019–08
  25. By: Klodiana Istrefi
    Abstract: I construct a novel measure of policy preferences of the Federal Open Market Committee (FOMC) as perceived in public. This measure is based on newspaper and financial media coverage of 130 FOMC members serving during 1960-2015. Narratives reveal that about 70percent of these FOMC members are perceived to have had persistent policy preferences over time, as either inflation-fighting hawks or growth-promoting doves. The rest are perceived as swingers, switching between types, or remained an unknown quantity to markets. Hawk and Dove perceptions capture "true" tendencies as expressed in preferred rates, forecasts and dissents of these FOMC members well. At the FOMC level the composition of hawks and doves varies significantly, featuring slow- and fast-switching hawkish and dovish regimes, due to the rotation of voting rights each year, members’ turnover and swings in preferences.
    Keywords: Monetary Policy, Federal Reserve, FOMC, Policy Preferences, Inflation.
    JEL: E43 E47 E63 G12
    Date: 2019
  26. By: Engelke, Carola; Heinisch, Katja; Schult, Christoph
    Abstract: This paper examines the extent to which errors in economic forecasts are driven by initial assumptions that prove to be incorrect ex post. Therefore, we construct a new data set comprising an unbalanced panel of annual forecasts from different institutions forecasting German GDP and the underlying assumptions. We explicitly control for different forecast horizons to proxy the information available at the release date. Over 75% of squared errors of the GDP forecast comove with the squared errors in their underlying assumptions. The root mean squared forecast error for GDP in our regression sample of 1.52% could be reduced to 1.13% by setting all assumption errors to zero. This implies that the accuracy of the assumptions is of great importance and that forecasters should reveal the framework of their assumptions in order to obtain useful policy recommendations based on economic forecasts.
    Keywords: forecasts,accuracy,forecast errors,external assumptions,forecast efficiency,forecast horizon
    JEL: C53 E02 E32
    Date: 2019
  27. By: Croce, Mariano Massimiliano; Nguyen, Thien; Raymond, Steve
    Abstract: When government debt is sluggish, consumption exhibits lower expected growth, more long-run uncertainty, and more long-run downside risk. Simultaneously, the risk premium on the consumption claim (Koijen et al. (2010), Lustig et al. (2013)) increases and features more positive (adverse) skewness. We rationalize these fi ndings in an endogenous growth model in which fi scal policy is distortionary, the value of innovation depends on fiscal risk, and the representative agent is sensitive to the resulting distribution of consumption risk. Our model suggests that committing to a rapid reduction of the debt-to-output ratio can enhance the value of innovation, aggregate wealth, and welfare.
    Keywords: asset prices; Endogenous Growth Risk; Fiscal policy
    JEL: E62 G1 H2 H3
    Date: 2019–08
  28. By: Rossmann, Tobias (LMU Munich)
    Abstract: This paper documents that individuals\' expectations about macroeconomic outcomes are systematically linked with the experiences of these macroeconomic outcomes they have made during life. Focusing on expectations about national inflation, national unemployment and national business conditions, I measure individual-specific experiences as weighted averages of these variables over the respondents\' lifetime, respectively. I find that experience significantly predicts respondents\' expectations in each of these domains and show that individuals generally put more weight on recent rather than distant years when aggregating past information. The empirical model also allows for heterogeneity with respect to observed socio-economic characteristics. The estimates suggest the existence of a gender effect. Compared to females, males put relatively more weight on distant years when aggregating past information, and the association between expectations and past experiences is generally weaker for men.
    Keywords: expectations; experience; inflation; unemployment; business conditions;
    JEL: D84 E24 E31
    Date: 2019–08–23
  29. By: Alexander Ballantyne (Reserve Bank of Australia); Tom Cusbert (Reserve Bank of Australia); Richard Evans (Reserve Bank of Australia); Rochelle Guttmann (Reserve Bank of Australia); Jonathan Hambur (Reserve Bank of Australia); Adam Hamilton (Reserve Bank of Australia); Elizabeth Kendall (Reserve Bank of Australia); Rachael McCririck (Reserve Bank of Australia); Gabriela Nodari (Reserve Bank of Australia); Daniel Rees (Reserve Bank of Australia)
    Abstract: This paper introduces MARTIN – the Reserve Bank of Australia's (RBA) current model of the Australian economy. MARTIN is an economy-wide model used to produce forecasts and conduct counterfactual scenario analysis. In contrast to other large-scale models used at the RBA – and at many other central banks – which adhere to a narrow theoretical view of how the economy operates, MARTIN is a macroeconometric model that consists of a system of reduced form equations built to strike a balance between theoretical rigour and empirical realism. Most of the model's equations align closely with the way RBA staff typically interpret the behaviour of individual economic variables. However, combining these individual equations in a system can bring fresh insights that are not possible without model-based analysis. In the paper we provide an overview of the model, outline its core behavioural equations and describe its empirical properties. The Online Appendix presents the full set of model equations.
    Keywords: Australian economy; macroeconomic model
    JEL: C32 C53 E10 E17 E47
    Date: 2019–08
  30. By: Guillaume Ouellet Leblanc; Maxime Leboeuf
    Abstract: Lending to business is central to economic growth because it supports investment by firms. Knowing how market participants view risk in the financial system can give the Bank of Canada information about future growth in business loans. In this note, we look at three market-based risk measures and find that sudden increases in the perception of risk in the Canadian banking system are associated with a weaker outlook for business loans and real gross domestic product.
    Keywords: Business fluctuations and cycles; Financial markets
    JEL: E32 E44 G12
    Date: 2019–08
  31. By: Cláudia Braz; Nicolas Carnot
    Abstract: The paper provides a narrative of euro area fiscal policy changes since 1997, the year when Maastricht criteria were met for inception of the euro. Changes in the budget balance are decomposed into a discretionary component, a cyclical component and a net residual, with each component broken down in turn into broad categories of expenditure and revenues. The paper then examines the output effects of fiscal changes. We summarise our findings in six stylised features. In brief, fiscal changes and fiscal effects are relatively large. They stem in similar proportions from discretionary actions and from the automatic stabilisers. Discretionary changes tend to involve both revenue and expenditure measures and do not appear systematically driven by cyclical developments. Fiscal changes as a whole have contributed to smooth the euro area growth path, but mostly due to the automatic stabilisers.
    JEL: E32 E62 H30 H6
    Date: 2019
  32. By: Sulaiman, Saidu; Masih, Mansur
    Abstract: Stemming from the McKinnon-Shaw’s advocacy for financial liberalization in “less-developed countries” and its attendant unresolved intellectual gymnastics, the authors primarily attempt to model the relationship between; financial liberalisation and economic growth on the one hand and financial liberalisation and investment on the other. With an array of rich variable mix, necessary variable interaction terms, and improvement on some past researches whilst inculcating the Autoregressive Distributed Lag (ARDL) methodology, the study establishes the long-run and short-run relationship between financial liberalisation, investment and growth in a time series framework. Secondarily, Granger causality is also employed to determine the direction of causality between financial development and economic growth. The results obtained suggest that there is a positive long-run equilibrium relationship between financial liberalisation; investment and growth. The study also finds a causal relationship between financial development and economic growth in Nigeria. This might mean that the financial liberalisation process in Nigeria has stimulated financial development leading to significant contribution to economic growth. The results might lay credence to the view that financial development plays a crucial role in the process of economic development, as such, reducing government inefficiencies might be a choice policy in freeing resources for the development of financial institutions.
    Keywords: financial liberalization, growth, investment, Nigeria, ARDL
    JEL: C58 E43 E52
    Date: 2017–12–29
  33. By: Ugochi Emenogu; Leo Michelis
    Abstract: Financial frictions affect how much consumers spend on durable and non-durable goods. Borrowers can face both loan-to-value (LTV) constraints and payment-to-income (PTI) constraints. In this setting, a monetary contraction drastically reduces the amount consumers can borrow to purchase durable goods. We examine these effects in a dynamic stochastic general equilibrium (DSGE) model. DSGE models with durables predict that when monetary policy tightens, non-durable consumption will fall and durable consumption will rise. But this prediction contradicts empirical evidence, which shows that both types of consumption fall, and durables fall more than non-durables. Studies have tried to resolve this puzzle by integrating LTV constraints into the model, but without much success. In our model, we use a broader set of financial frictions that includes PTI limits on borrowing. We show that using both LTV and PTI constraints in the model solves the counterfactual increase in durables following a contractionary monetary shock and delivers the correct correlation. Including the PTI limit in the model leads to a decrease in labour supply. This reduces output, which, in turn, makes it more likely that total durable expenditures will fall.
    Keywords: Financial system regulation and policies; Monetary Policy
    JEL: E44 E52
    Date: 2019–08
  34. By: Maria Manuel Campos; Cristina Checherita-Westphal; Pascal Jacquinot; Pablo Burriel; Francesco Caprioli
    Abstract: The aim of this paper is to reflect on the economic consequences of high public debt and the challenges ahead for the euro area. The paper reviews the economic risks associated with regimes of high public debt through DSGE model simulations and stresses the need for comprehensive solutions to mitigate such risks in the future. While the large public debt build-up following the global financial and economic crisis acted as a shock absorber for output, keeping public debt at high levels is a source of vulnerability in itself, particularly given the arising fiscal and economic pressures from ageing. Moreover, in the euro area, where monetary policy focuses on the area-wide aggregate, countries with high levels of indebtedness are poorly equipped to withstand asymmetric shocks. Looking at the historical evidence, the paper reviews the menu of tools at hand for euro area governments to further reduce their debt ratios. It posits that the urgency of efforts in this respect depends on risks to public debt sustainability. In the context of the broader reform agenda on how to strengthen EMU resilience, the paper acts as a reminder that further risk reduction and institutional reform is needed.
    JEL: E43 E62 H63 O40
    Date: 2019
  35. By: Mariano Max Croce; Thien T. Nguyen; Steve Raymond
    Abstract: When government debt is sluggish, consumption exhibits lower expected growth, more long-run uncertainty, and more long-run downside risk. Simultaneously, the risk premium on the consumption claim (Koijen et al. (2010), Lustig et al. (2013)) increases and features more positive (adverse) skewness. We rationalize these findings in an endogenous growth model in which fiscal policy is distortionary, the value of innovation depends on fiscal risk, and the representative agent is sensitive to the resulting distribution of consumption risk. Our model suggests that committing to a rapid reduction of the debt-to-output ratio can enhance the value of innovation, aggregate wealth, and welfare.
    JEL: E62 G1 H2 H3
    Date: 2019–08
  36. By: Liudmila Kitrar (National Research University Higher School of Economics); Tamara Lipkind (National Research University Higher School of Economics)
    Abstract: The paper presents the Business Climate Indicator (BCI) in the Russian manufacturing including the medium and high-tech (MHT) manufacturing industries. The authors explain the feasibility of a new alternative measure that summarizes common information of business tendency surveys cleared up of specific fluctuations in individual variables, and give arguments to prove its effectiveness. The resulting BCI reflects the quantitative changes in manufacturing growth more accurately and with a lead compared to the traditional confidence indicator. Identification of the BCI cyclic profile and its visualization through a tracer demonstrate all significant waves of manufacturers’ optimism and pessimism for the period from January 2005 to January 2019. To construct BCI-MHT, the units of observation and the input information are divided into three groups according to the technological level of industries. The dynamics of BCI-MHT is close to those of BCI; however, during the protracted recession in 2016-2018, the sentiments of manufacturers of medium- and high-tech products were less pessimistic compared with the sentiments of all manufacturers.
    Keywords: business tendency surveys, business climate indicator, medium- and high-tech industries, short-term cycle
    JEL: C38 E32
    Date: 2019
  37. By: Cláudia Braz; Maria Manuel Campos; Sharmin Sazedj
    Abstract: The analysis of public finance developments relies, amongst other indicators, on estimates of cyclically adjusted budget balances (CABs), which correct headline government balances for business cycle fluctuations. The European System of Central Banks (ESCB) endorsed in late 2018 a new aggregate methodology for the calculation of CABs, developed by Bouabdallah et al., 2019. This paper presents the application of this new cyclical adjustment methodology to the Portuguese case, providing details on the calculation of the underlying fiscal-to-base and base-to-output elasticities. Additionally, it describes the output gap estimations used to assess the cyclical position of the economy. The paper also presents the analytical tool developed by Bouabdallah et al., 2019 to disentangle the drivers of structural fiscal developments, providing details on its application to Portugal.
    JEL: E62 H20 H60
    Date: 2019
  38. By: Christina Christou (School of Economics and Management, Open University of Cyprus, 2252, Latsia, Cyprus); David Gabauer (Institute of Applied Statistics, Johannes Kepler University, Altenbergerstraße 69, 4040 Linz, Austria. Department of Business and Management, Webster Vienna Private University, Praterstraße 23, 1020 Vienna, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: In this paper, we analyse the impact of uncertainty (corporate bond spread) shock on inflation rate, unemployment rate, monetary policy rate, and the nominal exchange rate returns of the United Kingdom over the monthly period of 1855:01 to 2016:12. Given that we use data spanning over one and a half century, we use a time-varying parameter vector autoregressive (TVP-VAR) model. We find that a positive uncertainty shock reflects a negative demand shock as suggested by theory, and results in declines in the inflation, interest rate and dollar-pound exchange rate returns, and an increase in unemployment rate. However, this impact varies over time, with the strongest effect observed for the period after World War II until the start of the Great Moderation, and during the recent global crisis. Our results are in general robust to an alternative econometric framework (breaks-based VAR) and a metric of uncertainty (stock market volatility).
    Keywords: Uncertainty, Macroeconomic Effects, Time-Varying Vector Autoregression, United Kingdom
    JEL: C32 E30 E40 F31
    Date: 2019–08
  39. By: Andersen, Henrik Yde; Leth-Petersen, Søren
    Abstract: In this paper we examine whether changes in home values drive mortgage-based equity extraction. To do this we use longitudinal survey data with subjective information about current and expected future home values to calculate unanticipated home value changes. We link this information at the individual level to high quality administrative records containing information about mortgage borrowing as well as savings in various financial instruments. We find that the marginal propensity to increase mortgage debt is 2-5 percent of unanticipated home value gains. We find no adjustment to other components of the portfolio, and we find that mortgage extraction leads to an increase in spending. The effect is driven by young households with high loan-to-value ratios which is consistent with the effect being driven by collateral constraints. Further, we find that the effect is driven by home owners who actively take out a new mortgage. The price effect is magnified among FRM borrowers who have an incentive to refinance their loans to lock in a lower market rate. These results point to the importance of the mortgage market in transforming price increases into spending and suggest that monetary policy can play an important role in transforming housing wealth gains into spending by affecting interest rates on mortgage loans.
    Keywords: Analysis of survey and administrative data; House price expectations; Housing wealth effect; mortgage market
    JEL: D12 D14 E21 E52
    Date: 2019–08
  40. By: Luis E. Arango (Banco de la República de Colombia); Lina Cardona-Sosa (Banco de la República de Colombia)
    Abstract: Se investigan los determinantes del uso de la tarjeta Crédito Fácil Codensa, utilizando las características demográficas de los tarjetahabientes. Este mecanismo de financiación, de uso generalizado en Bogotá por parte de personas cuyos ingresos se encuentran en la parte baja de la distribución, se utiliza para la financiación de consumo de bienes semidurables (muebles, electrodomésticos, computadores, etc.) y no durables (alimentos, prendas de vestir, etc.). Son algo más de 1.000.000 de clientes al finalizar el período de estudio. Analizamos los determinantes del cupo de crédito, la probabilidad de uso de la tarjeta y el valor de las compras para el período 2010-2015. Ingreso, educación, edad, género, estrato y vivienda propia son determinantes del cupo de crédito junto con variables indicadoras de la fase del ciclo, el comportamiento del mercado laboral y la liquidez de la economía (tasa de intervención de la autoridad monetaria, aproximada por la Tasa Interbancaria, TIB). La probabilidad de compra está determinada no solo por el ambiente macroeconómico, sino también por variables individuales, entre las cuales, el ingreso permanente figura reduciendo dicha probabilidad. El monto de las compras mensuales está determinado por la tasa de interés vigente en el mes de las compras, la tasa de usura y por características individuales como el ingreso, la edad, la educación y el género. Se presenta evidencia de restricciones de liquidez para personas que tienen una alta utilización el cupo; sin embargo, las decisiones de la mayoría de los agentes no distan de la hipótesis de ciclo de vida-ingreso permanente. **** ABSTRACT: The determinants of the Crédito Fácil Codensa card usage are investigated, using the demographic characteristics of cardholders. This financing mechanism, widely used in Bogotá by people (more than 1.000.000 at the end of the sample period) whose income is in the lower part of the distribution, is used to finance the consumption of semi-durable goods (furniture, household appliances, computers, etc.) and non-durable goods (food, clothing, etc.). We analyze the determinants of the credit quota, the probability of using the card and the value of purchases for the period 2010-2015. Income, education, age, gender stratum and own housing are determinants of the credit limit along with variables indicating the phase of the cycle, the labor market performance, and the liquidity of the economy represented by the policy rate (proxied by the Interbank Rate, TIB). The probability of purchase is determined not only by the macroeconomic environment, but also by individual variables. Permanent income reduces the likelihood of buying. The amount of monthly purchases is determined by the current interest rate in the month of purchases or usury rate and by individual characteristics such as income, age, education, gender of the individual. There is evidence of liquidity restrictions for people who have a high use of the card limit. However, the decisions of most agents are not that far from the permanent income-life cycle hypothesis.
    Keywords: tarjeta de crédito, cupo de crédito, probabilidad de uso, monto de compras, ingresos permanente y transitorio, restricciones de liquidez, política monetaria, credit card, credit quota, probability of use, amount of purchases, permanent and transitory income, liquidity restrictions, monetary policy.
    JEL: D12 E29 E50 G21 L67 L68
    Date: 2019–08
  41. By: Bakari, Sayef; Tiba, Sofien; Fakraoui, Nissar
    Abstract: The fundamental role of domestic investment to provide economic prosperity is very well recognized by the economic theory since the Mercantilist theory. Hence, we investigate the impact of domestic investment on economic growth for the case of the Uruguayan economy over the period 1960-2017. For this aim, we employ the Vector Error Correction Model (VECM). Our highlights reveal the absence of a significant impact of domestic investment on growth in the short- and long-run. Due to the marginal role of domestic investment played in the Uruguayan economy, the weak saving rate couldn’t significantly help the economy and creating wealth. Therefore, a strong saving policy is required to encourage domestic investors and reevaluate their crucial role in the economic process of Uruguay.
    Keywords: Domestic investment, Economic growth, VECM, Uruguay
    JEL: E2 E22 O4 O47 O54
    Date: 2019–08
  42. By: Kjetil Storesletten; Bo Zhao; Fabrizio Zilibotti
    Abstract: We document that the nature of business cycles evolves over the process of development and structural change. In countries with large declining agricultural sectors, aggregate employment is uncorrelated with GDP. During booms, employment in agriculture declines while labor productivity increases in agriculture more than in other sectors. We construct a unified theory of business cycles and structural change consistent with the stylized facts. The focal point of the theory is the simultaneous decline and modernization of agriculture. As capital accumulates, agriculture becomes increasingly capital intensive as modern agriculture crowds out traditional agriculture. Structural change accelerates in booms and slows down in recessions. We estimate the model and show that it accounts well for both the structural transformation and the business cycle fluctuations of China.
    JEL: E32 O11 O13 O14 O41 O53 Q11
    Date: 2019–08
  43. By: Jang, Youngsoo
    Abstract: How do defaults and bankruptcies affect optimal health insurance policy? I answer this question using a life-cycle model of health investment with the option to default on emergency room (ER) bills and financial debts. I calibrate the model for the U.S. economy and compare the optimal health insurance in the baseline economy with that in an economy with no option to default. With no option to default, the optimal health insurance is similar to the health insurance system in the baseline economy. In contrast, with the option to default, the optimal health insurance system (i) expands the eligibility of Medicaid to 22 percent of the working-age population, (ii) replaces 72 percent of employer-based health insurance with a private individual health insurance plus a progressive subsidy, and (iii) reforms the private individual health insurance market by improving coverage rates and preventing price discrimination against people with pre-existing conditions. This result implies that with the option to default, households rely on bankruptcies and defaults on ER bills as implicit health insurance. More redistributive healthcare reforms can improve welfare by reducing the dependence on this implicit health insurance and changing households’ medical spending behavior to be more preventative.
    Keywords: Credit, Default, Bankruptcy, Optimal Health Insurance
    JEL: E21 H51 I13 K35
    Date: 2019–07
  44. By: Jess Diamond (Department of Economics, Hosei University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo)
    Abstract: Using a new micro-level dataset we investigate the relationship between the inflation experience and inflation expectations of households in Japan. We focus on the period after 1995, when Japan began its era of deflation. Our key findings are fourfold. Firstly, we find that inflation expectations tend to increase with age. Secondly, we find that measured inflation rates of items purchased also increase with age. However, we find that age and inflation expectations continue to have a positive correlation even after controlling for the household-level rate of inflation. Further analysis suggests that the positive correlation between age and inflation expectations is driven to a significant degree by the correlation between cohort and inflation expectations, which we interpret to represent the effect of historical inflation experience on expectations of future inflation rates.
    Keywords: Inflation Expectations; Deflation; Monetary Policy; Household Level Inflation Data; Japan
    Date: 2019–08–19
  45. By: Magda Kandil (Central Bank of the United Arab Emirates); Ida A. Mirzaie (Department of Economics, The Ohio State University)
    Abstract: This paper examines the impact of macroeconomic policies in the era of sanctions on the Iranian economy. The results illustrate the role of the money supply and government spending in supporting growth, but contributing to inflationary pressures in the long-run, attesting to supplyside constraints. In the short-run, policies have aimed to provide support to the economy in the face of continued fluctuations with the oil price and spillovers from the geopolitical tensions attributed to sanctions. The exchange rate has played a key role in absorbing, but at times magnifying the adverse effects of these tensions. Continued deterioration of the fundamentals of the Iranian economy forced an official devaluation as the exchange rate proved to be misaligned with the fundamentals of the economy against the backdrop of the limited capacity of the Central Bank to continue to intervene to defend it. In the meantime, a parallel exchange rate market has been flourishing to satisfy the market’s needs for foreign exchange as culminated in the spread between the market exchange rate and the official exchange rate. A wider spread between the parallel market rate and the official rate has signified overvaluation of the rial and proved to be a major source of inflationary expectations and pressures. Wider spread has demanded frequent interventions by the Central Bank to defend the official rate and ultimately has forced an official devaluation of the exchange rate, further increasing inflationary pressures with negative effects on the output supply given high dependency on imports for consumption and investment. As the Iranian economy continues to be challenged by the effects of the unfolding sanctions, policy priorities should be focused on easing structural bottlenecks and enhancing domestic production capacity to reduce the adverse effects of the exchange rate devaluation on output supply and inflationary pressures.
    Date: 2019–08–21
  46. By: Stefania Albanesi; Domonkos F. Vamossy
    Abstract: We develop a model to predict consumer default based on deep learning. We show that the model consistently outperforms standard credit scoring models, even though it uses the same data. Our model is interpretable and is able to provide a score to a larger class of borrowers relative to standard credit scoring models while accurately tracking variations in systemic risk. We argue that these properties can provide valuable insights for the design of policies targeted at reducing consumer default and alleviating its burden on borrowers and lenders, as well as macroprudential regulation.
    JEL: C45 D14 D18 E44 G0 G2
    Date: 2019–08
  47. By: Hsieh, Chang-Tai; Rossi-Hansberg, Esteban
    Abstract: The rise in national industry concentration in the US between 1977 and 2013 is driven by a new industrial revolution in three broad non-traded sectors: services, retail, and wholesale. Sectors where national concentration is rising have increased their share of employment, and the expansion is entirely driven by the number of local markets served by firms. Firm employment per market has either increased slightly at the MSA level, or decreased substantially at the county or establishment levels. In industries with increasing concentration, the expansion into more markets is more pronounced for the top 10\% firms, but is present for the bottom 90\% as well. These trends have not been accompanied by economy-wide concentration. Top U.S. firms are increasingly specialized in sectors with rising industry concentration, but their aggregate employment share has remained roughly stable. We argue that these facts are consistent with the availability of a new set of fixed-cost technologies that enable adopters to produce at lower marginal costs in all markets. We present a simple model of firm size and market entry to describe the menu of new technologies and trace its implications.
    JEL: E23 E24 L16 L22 R12
    Date: 2019–06
  48. By: Born, Benjamin; Müller, Gernot; Schularick, Moritz; Sedlacek, Petr
    Abstract: How much credit does Donald Trump deserve for the macroeconomic performance of the US economy? Growth and job creation have been robust during the first 2.5 years since he took office, but this does not prove that Trump made a difference. In this note we develop a counterfactual scenario for how the US economy would have evolved without Trump---we let a matching algorithm determine which combination of other economies best resembles the pre-election path of the US economy. We then compare the post-election performance of the US economy to this synthetic "doppelganger". For now there is little evidence for a Trump effect.
    Keywords: counterfactual; Economic Growth; Macroeconomic Performance; President Trump; stable genius; synthetic control method
    JEL: E30 E60
    Date: 2019–06
  49. By: Khan, Abdul Jalil; Ahmad, Hafiz Rizwan
    Abstract: Prosperity has been considered the most desirable real outcome of all human efforts however usually measured through gross domestic output of the economy that may not capable to comprehend it effectively. This paper evaluates wellbeing measured through some economic, social and institutional aspects considering the dynamic behavior of variables based on Legatum Prosperity Index (LPI), Maslow’s theory of human needs and Minsky financial instability hypothesis. Considering the data within the context of economic quality, business, education, health, financial security and environment, a comparative analysis has been made to judge the level of prosperity engrossed through LPI. Annual data related to Pakistan from 1960 to 20016 has been examined for about hundred variables after reducing them into 21 exogenous and four endogenous variables through index-transformation. Two Stage Least Squares (TSLS) regression technique to solve the simultaneous equations models prove relevant. The major findings reveal that LPI has successfully measure the wellbeing scenario in case of Pakistan, further it ascertains that social and institutional dimensions are vital complement for wellbeing in addition to economic dimension which cannot uniquely be relied upon for sustainable prosperity.
    Keywords: Two Stage Least Squares (IV) Estimation; Legatum Prosperity Index; Measurement of National Income; Social and Institutional Aspects; Minsky’s Instability Hypothesis; Maslow’ need theory; Wellbeing or Prosperity
    JEL: C36 C43 E01 E02 E32 I31
    Date: 2017–12–14
  50. By: Eurico Ferreira; Ana Paula Serra
    Abstract: As a response to the recent global financial crisis, the main central banks implemented several programs of unconventional monetary policies. This paper assesses the announcement effects of the policy measures taken by the European Central Bank, the Bank of England and the Federal Reserve on European securities markets. We measure the impact of these announcements on government bond and stock prices and trading volumes. Using the event study methodology, we evaluate the reaction of some of the major European market indices around the announcement dates of unconventional monetary policies, over the period between 2008 and 2016. Our results show that the overall impact of the announcements of unconventional monetary policy measures is significant for European stock markets. Further, results suggest that the impact was more significant with the announcement of “Forward Guidance” and “Asset Purchases” policy measures, respectively, on stock prices and trading volumes. If events are categorized using a narrow definition of “Forward Guidance”, the effects for this category are positive but not always statistically significant.
    JEL: E52 E58 G12 G14
    Date: 2019
  51. By: Ngan, Sue Lin; How, Bing Shen; Teng, Sin Yong; Promentilla, Michael Angelo B.; Yatim, Puan; Er, Ah Choy; Lam, Hon Loong
    Abstract: The concept of the circular economy has gained well-recognition across the world for the past decades. With the heightening risk of the impact of climate change, resource scarcity to meet the increasing world population, the need to transition to a more sustainable development model is urgent. The circular economy is often cited as one of the best solutions to support sustainable development. However, the diffusion of this concept in the industrial arena is still relatively slow, particularly in the developing country, which collectively exerts high potential to be the world’s largest economies and workforce. It is crucial to make sure that the development of these nations is sustainable and not bearing on the cost of future generation. Thus, this work aims to provide a comprehensive review of the circular economy concept in developing country context. Furthermore, a novel model is proposed by adopting Fuzzy Analytics Network Process (FANP) to quantify the priority weights of the sustainability indicators to provide guidelines for the industry stakeholders at different stages of industry cycle to transition toward the circular economy. The results revealed that improvement in economic performance and public acceptance are they key triggers to encourage stakeholders for sustainable development. The outcomes serve as a reference to enhance the overall decision-making process of industry stakeholders. Local authorities can adopt the recommendations to design policy and incentive that encourage the adoption of circular economy in real industry operation to spur up economic development, without neglecting environmental well-being and jeopardizing social benefits.
    Keywords: Circular economy; sustainable development; Fuzzy Analytic Network Process (FANP); industry life-cycle analysis; palm oil industry
    JEL: A1 A10 A11 B0 C0 E0 E1 E2 E3 E6 F1 L1 L2 L6 O1 O2 O4
    Date: 2019–06–01
  52. By: Baumann, Ursel; Salvador, Ramón Gómez; Seitz, Franz
    Abstract: We present non-linear models to capture the turning points in global economic activity as well as in advanced and emerging economies from 1980 to 2017. We first estimate Markov Switching models within a univariate framework. These models support the relevance of three business cycle regimes (recessions, low growth and high growth) for economic activity at the global level and in advanced and emerging economies. In a second part, we find that the regimes of the Markov Switching models can be well explained with activity, survey and commodity price variables within a discrete choice framework, specifically multinomial logit models, therefore reinforcing the economic interpretation of the regimes. JEL Classification: C34, C35, E32
    Keywords: global GDP, Markov Switching, multinomial logit, turning points
    Date: 2019–08
  53. By: Hamid, Zuraini; Masih, Mansur
    Abstract: The objective of this paper to study the causality between inflation and rubber price in Malaysia. This study is the first attempt to investigate the causality by applying Auto Regressive Distributive Lag (ARDL) model which has taken care of a major limitation of the conventional co-integrating tests which suffer from pre-test biases between the variables. Error Correction Model (ECM) using ARDL approach, Variance Decompositions (VDC) technique and Impulse Response Functions (IRF) are also applied to test the exogeneity and endogeneity of the variables and reaction of these variables when a shock is imposed on them. The data used in this study are monthly data from Datastream comprising of inflation rate (CPI as the proxy), Malaysian rubber price: SMR20 and SMR10, Thailand rubber price, US synthetic rubber price and exchange rate. From the study, it is noted that inflation leads the Malaysian rubber price, Thailand rubber price, synthetic rubber price and exchange rate, respectively. This has an important policy implication for the national policy makers and rubber regulators in developing rubber industry in Malaysia.
    Keywords: Rubber, Inflation, Synthetic, ARDL, ECM, VDC, Malaysia
    JEL: C58 G15
    Date: 2017–12–30
  54. By: Olkhov, Victor
    Abstract: This paper develops methods and framework of economic theory free from general equilibrium tools and assumptions. We model macroeconomics as system of agents those perform transactions with other agents under action of numerous expectations. Agents expectations are formed by economic and financial variables, transactions, expectations of other agents, other factors that impact macro economy. We use risk ratings of agents as their coordinates on economic domain and approximate description of economic variables, transactions and expectations of numerous separate agents by density functions of variables, transactions and expectations of aggregated agents on economic domain. Motion of separate agents on economic domain due to change of agents risk rating produce economic flows of variables, transactions and expectations. These risk flows define dynamics of economic variables and disturb any supposed market equilibrium states all the time. Permanent evolution of market supply-demand states due to risk flows makes general equilibrium concept too doubtful. As example we apply our methods to model assets pricing and return fluctuations.
    Keywords: economic theory; risk ratings; economic flows; density functions
    JEL: C00 C50 E30 G0
    Date: 2019–08–19
  55. By: Gunes Kamber; Benjamin Wong
    Abstract: We develop an empirical model to study the influence of global factors in driving trend inflation and the inflation gap. We apply our model to 7 developed economies and 21 emerging market economies. Our results suggest that while global factors can have a sizeable influence on the inflation gap, they play only a marginal role in driving trend inflation. Much of the influence of global factors in the inflation gap may be reflecting commodity price shocks. Finally, we find that the effect of global factors to be greater in our sample of emerging market economies relative to the developed economies. There is some evidence which suggest propagation mechanisms, which may reflect institutional structures or policy choices, can explain the greater role for global factors in driving trend inflation in emerging market economies.
    Keywords: Trend inflation, foreign shocks, Beveridge-Nelson decomposition
    JEL: C32 E31 F41
    Date: 2019–08
  56. By: López, Martha; Sarmiento G., Eduardo
    Abstract: En el documento se describe el sistema pensional colombiano. Luego de la reforma de la Ley 100 mejoraron las afiliaciones, lo cual implica un aumento también de las cotizaciones y la cobertura de los pensionados en el futuro. En la actualidad la cobertura de las pensiones es apenas 23% y menos de 1,5 millones de personas. Esto se debe, en parte, a la existencia de un mercado laboral con un sector informal amplio (47,3%). Las mayores tasas de reemplazo del sistema público con respecto al privado ocasionan traslados del segundo al primero, lo que pone más presión en las finanzas públicas. Por lo anterior, se propone establecer un sistema de 3 pilares vigente en otros países como Chile. Actualmente, por nivel de ingreso, cerca de 80% de los cotizantes corresponde a personas con menos de 2 SMMLV; sin embargo, un alto monto de los subsidios del RPM se destina a la población con mayores ingresos. El gasto en transferencias con cargo a la Nación fue de 3,4% del PIB y el pasivo pensional fue cercano al 130% del PIB. Teniendo en cuenta las anteriores consideraciones, en este documento se plantea la necesidad de una reforma pensional que mejore la cobertura, aumente las transferencias a la población más pobre y no incremente los requerimientos de presupuesto de la Nación.
    Keywords: Pensiones; cobertura; finanzas públicas; tasa de reemplazo
    JEL: E21 G23 H55 H62 H68 I31
    Date: 2019–09
  57. By: Ralph S. J. Koijen; Francois Koulischer; Benoit Nguyen; Motohiro Yogo
    Abstract: Using new data on security-level portfolio holdings by investor type and across countries in the euro area, we study portfolio rebalancing during the European Central Bank’s (ECB) purchase programme that started in March 2015. To quantify changes in risk concentration, we estimate the evolution of the distribution of duration, government, and corporate credit risk exposures across investor sectors and regions until the last quarter of 2017. Using these micro data, we show that 60% of ECB purchases are sold by non-euro area investors, and we do not find evidence that risks get concentrated in certain sectors or geographies. We estimate a sector-level asset demand system using instrumental variables to connect the dynamics of portfolio rebalancing to asset prices. Our estimates imply that government yields declined by 47bp, on average, but the estimates range from -28bp to -57bp across countries.
    JEL: E52 F21 G11 G12
    Date: 2019–08
  58. By: Giudice, Gabriele; de Manuel Aramendía, Mirzha; Kontolemis, Zenon; Monteiro, Daniel P.
    Abstract: This paper expands the growing literature on common safe assets in the context of the euro area financial system by employing credit risk simulation techniques to investigate the properties of different safe asset models and their impact on national bond markets. The paper explores in particular the E-bonds model, whereby a supranational institution would raise funds in the markets and provide bilateral senior loans to Member States corresponding to a fixed proportion of GDP, complementing the issuance of national government bonds, without risks of mutualisation. The main findings are that E-bonds could reach a volume of 15 to 30% of euro area GDP with a high degree of safety while becoming the reference safe asset for the banking sector, capital markets and monetary policy operations in the euro area. As regards the impact on remaining national bonds, such volumes would be consistent with Germany maintaining its top credit rating. The average funding costs of Member States would remain broadly stable, while marginal funding costs would tend to experience limited increases, which should enhance market discipline.
    Keywords: Safe Assets; Eurozone; EMU Deepening; E-bonds; E-bills; SBBS; ESBies; Banking Union; Capital Markets Union; International Role of the Euro; Sovereign Bonds; Eurobills; Blue Bonds; Purple Bonds; Credit Risk
    JEL: E63 F36 G12 H63
    Date: 2019–08–20
  59. By: Cristina Arellano; Xavier Mateos-Planas; José-Víctor Ríos-Rull
    Abstract: In the data sovereign default is always partial and varies in its duration. Debt levels during default episodes initially increase and do not experience reductions upon resolution. This paper presents a theory of sovereign default that replicates these properties, which are absent in standard sovereign default theory. Partial default is a flexible way to raise funds as the sovereign chooses its intensity and duration. Partial default is also costly because it amplifies debt crises as the defaulted debt accumulates and interest rate spreads increase. This theory is capable of rationalizing the large heterogeneity in partial default, its comovements with spreads, debt levels, and output, and the dynamics of debt during default episodes. In our theory, as in the data, debt grows during default episodes, and large defaults are longer, and associated with higher interest rate spreads, higher debt levels, and deeper recessions.
    JEL: E44 F3
    Date: 2019–07
  60. By: Michel Alexandre; Gilberto Tadeu Lima
    Abstract: This paper explores the effects of trade credit by assessing its macroeconomic impacts on several dimensions. To that end, we develop an agent-based model (ABM) with two types of firms: downstream firms, which produce a final good for consumption purposes using intermediate goods, and upstream firms, which produce and supply those intermediate goods to the downstream firms. Upstream firms can act as trade credit suppliers, by allowing delayed payment of a share of their sales to downstream firms. Our results suggest a potential trade-off between financial robustness as measured by the proportion of non-performing loans and the average output level. The intuitive reason is that greater availability of trade credit, which however does not necessarily imply proportionately greater actual use of it by downstream firms, allows more financial resources to remain in the real sector, favoring the latter’s financial robustness. Yet, given that trade credit is proportionally more beneficial to smaller downstream firms, it enhances market competition. This results in a decrease in markups and thereby in profits and dividends, which contributes negatively to aggregate demand formation
    Keywords: Trade credit; agent-based modeling; macroeconomic effects
    JEL: C63 E27 G32
    Date: 2019–08–19
  61. By: Joshua C. C. Chan
    Abstract: Large Bayesian VARs with stochastic volatility are increasingly used in empirical macroeconomics. The key to make these highly parameterized VARs useful is the use of shrinkage priors. We develop a family of priors that captures the best features of two prominent classes of shrinkage priors: adaptive hierarchical priors and Minnesota priors. Like the adaptive hierarchical priors, these new priors ensure that only ‘small’ coefficients are strongly shrunk to zero, while ‘large’ coefficients remain intact. At the same time, these new priors can also incorporate many useful features of the Minnesota priors, such as cross-variable shrinkage and shrinking coefficients on higher lags more aggressively. We introduce a fast posterior sampler to estimate BVARs with this family of priors - for a BVAR with 25 variables and 4 lags, obtaining 10,000 posterior draws takes about 3 minutes on a standard desktop. In a forecasting exercise, we show that these new priors outperform both adaptive hierarchical priors and Minnesota priors.
    Keywords: shrinkage prior, forecasting, stochastic volatility, structural VAR
    JEL: C11 C52 E37
    Date: 2019–08
  62. By: Clara Brenck; Laura Carvalho
    Abstract: The relative success of the Brazilian and other South American economies in combining higher growth rates with a reduction of income inequality in the 2000s can be better understood through the study of the relationship between wage distribution, consumption patterns and the composition of employment. By starting from the Neo-Kaleckian framework, this paper builds a two-sector open economy model with two types of workers. An unstable cumulative causation mechanism through which a reduction in wage inequality increases consumption of non-tradable goods, leading to higher demand for low-skilled labor and a further reduction in inequality may arise.
    Keywords: growth, distribution, wage inequality, employment composition, Kaleckian model
    JEL: C62 E12 E25 O38 O54
    Date: 2019–08–19
  63. By: Caballero, Ricardo; Simsek, Alp
    Abstract: We develop a model of gross capital flows and analyze their role in global financial stability. In our model, consistent with the data, when a country experiences asset fire sales, foreign investments exit (fickleness) while domestic investments abroad return home (retrenchment). When countries have symmetric expected returns and financial development, the benefits of retrenchment dominate the costs of fickleness and gross flows increase fire-sale prices. Fickleness, however, creates a coordination problem since it encourages local policymakers to restrict capital inflows. When countries are asymmetric, capital flows are driven by additional mechanisms, reach-for-safety and reach-for-yield, that can destabilize the receiving country.
    Keywords: asset fire sales; capital controls; fickleness; Global liquidity; Gross capital flows; Policy Coordination; reach-for-safety; reach-for-yield; retrenchment; scarcity of safe assets
    JEL: E3 E4 F3 F4 G1
    Date: 2019–06
  64. By: Sameera Awawda (Aix-Marseille University); Mohammad Abu-Zaineh (Aix-Marseille University); Bruno Ventelou (Aix-Marseille University)
    Abstract: In their quest for Universal Health Coverage (UHC), many developing countries use alternative financing strategies including general revenues and budget transfers to expand health coverage to the whole population. Unless a policy adjustment is undertaken, future generations may foot the bill of the UHC. This raises the important policy questions of who bears the burden of the UHC and whether the UHC-fiscal stance is sustainable in the long-term. These two questions are addressed using an overlapping generations model within a general equilibrium framework (OLG-CGE) applied to Palestine. We assessed and compare alternative ways of financing the deficit-ridden UHC (viz. deferred-debt-finance, current, and phased-manner finance) and their implications on intergenerational inequalities. Results show that in the absence of any policy adjustment, the implementation of UHC would explode the fiscal deficit and debt-GDP ratio. This indicates that the UHC-fiscal stance is rather unsustainable in the long-term, thus, calling for a policy adjustment to service the UHC-debt. Among the policies we examined, a current rather, than deferred, debt-finance through consumption taxation emerged to be preferred over other policies in terms of its implications for both fiscal sustainability and intergenerational inequality.
    Date: 2019–08–21
  65. By: Xiao,Tim
    Abstract: The incremental risk charge (IRC) is a new regulatory requirement from the Basel Committee in response to the recent financial crisis. Notably few models for IRC have been developed in the literature. This paper proposes a methodology consisting of two Monte Carlo simulations. The first Monte Carlo simulation simulates default, migration, and concentration in an integrated way. Combining with full re-valuation, the loss distribution at the first liquidity horizon for a subportfolio can be generated. The second Monte Carlo simulation is the random draws based on the constant level of risk assumption. It convolutes the copies of the single loss distribution to produce one year loss distribution. The aggregation of different subportfolios with different liquidity horizons is addressed. Moreover, the methodology for equity is also included, even though it is optional in IRC.
    Keywords: Incremental risk charge (IRC),constant level of risk,,liquidity horizon,constant loss distribution,Merton-type model,concentration
    JEL: E44 G21 G24 G32 G33 G18 G28
    Date: 2019
  66. By: Shekhar Aiyar; Simon Voigts
    Abstract: We argue that in an economy with downward nominal wage rigidity, the output gap is negative on average. Because it is more difficult to cut wages than to increase them, firms reduce employment more during downturns than they increase employment during expansions. This is demonstrated in a simple New Keynesian model with asymmetric wage adjustment costs. Using the model's output gap as a benchmark, we further show that common output gap estimation methods exhibit a systematic bias because they assume a zero mean. The bias is especially large in deep recessions when potential output tends to be most severely underestimated.
    Date: 2019–08–23
  67. By: Hartmann, Monika; Gijsel, Lola Hernandez-van; Plooij, Mirjam; Vandeweyer, Quentin
    Abstract: As a result of technological advancements, instant delivery of digital services has become the norm in today’s society. Yet, until recently, this trend did not extend to retail payment services, which normally took one or up to a few working days from the end user's perspective. Following Europe’s recent launch of its own SEPA-wide instant payment platform, now is the time to ask the question: will instant payment services become “the new normal” and what would this new normal look like? This paper assesses the overall prospects of instant payments in the euro area. It identifies structural drivers and blockers to the adoption of instant payments based on the analysis of country cases where instant payments became operational in the last few years. JEL Classification: E41, E42, E58
    Keywords: instant payments, money demand, payment system
    Date: 2019–08
  68. By: António Rua; Hossein Hassani; Emmanuel Sirimal Silva; Dimitrios Thomakos
    Abstract: The literature on mixed-frequency models is relatively recent and has found applications across economics and finance. The standard application in economics considers the use of (usually) monthly variables (e.g. industrial production) in predicting/fitting quarterly variables (e.g. real GDP). In this paper we propose a Multivariate Singular Spectrum Analysis (MSSA) based method for mixed frequency interpolation and forecasting, which can be used for any mixed frequency combination. The novelty of the proposed approach rests on the grounds of simplicity within the MSSA framework. We present our method using a combination of monthly and quarterly series and apply MSSA decomposition and reconstruction to obtain monthly estimates and forecasts for the quarterly series. Our empirical application shows that the suggested approach works well, as it offers forecasting improvements on a dataset of eleven developed countries over the last 50 years. The implications for mixed frequency modelling and forecasting, and useful extensions of this method, are also discussed.
    JEL: C1 C53 E1
    Date: 2019
  69. By: Emiliano Brancaccio; Raffaele Giammetti; Milena Lopreite; Michelangelo Puliga
    Abstract: Based on a connection between network analysis and B-VAR models, this paper provides a first empirical evidence of the relationships between capital centralization expressed in terms of network control on one hand and monetary policy guidelines and business cycles on the other. Our findings suggest that a tightening monetary policy leads to a decrease in the fraction of top shareholders of network control which results in a higher centralization of capital; and that a higher centralization of capital, in turn, leads to a reduction of GDP with respect to its trend. These relations are confirmed both for the United States and the Euro Area.
    Keywords: network analysis; ownership and control networks; centralization of capital; monetary policy; business cycle; financial crisis; B-VAR models.
    Date: 2019–08–22
  70. By: Ugo Pagano; Maria Alessandra Rossi
    Abstract: Negli anni recenti si è molto modificata la “curva del sorriso” che descrive la catena del valore. Si è svalorizzata l’incidenza delle parti attribuite ai processi produttivi materiali rispetto alle parti che si riferiscono ai diritti di proprietà intellettuali. Questa trasformazione del capitalismo moderno ha portato a una monopolizzazione della conoscenza, a un forte aumento della diseguaglianza e a una lunga stagnazione economica. Questo lavoro analizza l’interdipendenza fra questi fenomeni e avanza delle proposte che hanno lo scopo di diffondere il benessere consentito dalle nuove tecnologie. Finora il rapido progresso tecnologico di questi anni ha prevalentemente permesso di sorridere solo a coloro che hanno avuto accesso ai nuovi monopoli che caratterizzano il capitalismo moderno
    Keywords: proprietà intellettuale, diseguaglianza, stagnazione economica
    JEL: B52 E11 E12 F55 G01
    Date: 2019–03
  71. By: Bahar Öztürk; Ad Stokman
    Abstract: We investigate whether consumer confidence has an independent effect on household spending. First, we control for a common set of factors that drive both consumer confidence and household spending. Next, we interpret the non-systematic residuals in the country consumer confidence equations as a proxy for animal spirits, "a spontaneous urge to action rather than inaction" in Keynes' words, and subsequently include this proxy in the spending equations as an additional explanatory variable. Our results suggest that animal spirits exist and may have a considerable impact on spending growth in Europe and the US.
    Keywords: animal spirits; private consumption
    JEL: E21
    Date: 2019–08
  72. By: Muhammad Zeshan (Pakistan Institute of Development Economics, Islamabad); Muhammad Nasir (Pakistan Institute of Development Economics, Islamabad)
    Abstract: This paper develops Pakistan’s first Input-Output table (IOT) that follows the 2008 System of National Accounts. An IOT examines the structural changes in an economy. The present paper provides Pakistan’s IOT 2010-11 in an industry-by-industry format (42*42). The analysis of backward and forward linkages reveals that manufacturing of food products, beverages, textiles, electricity, gas, steam, air-conditioning and accommodation sectors have strong backward linkages while mining and quarrying, wood products, chemicals and chemical products, electricity, gas, steam, air-conditioning, warehousing and support activities for transportation sectors have strong forward linkages. For national economic growth to be sustainable, the government should facilitate economic activities in these sectors.
    Keywords: System of National Accounts, Supply and Use Tables, Input-Output Table, Backward and Forward Linkages, Pakistan
    JEL: C67 D57 E01 L16 R15
    Date: 2019
  73. By: Zakaria El Faiz (Mohammed V University); Said Tounsi (Laboratory of Applied Economics, Mohammed V University)
    Abstract: The aim of this paper is to test the relevance and the stability of Okun’s law for the case of Morocco over the period 2000-2014 using quarterly data. One of the features of our approach is the adoption of dynamic modelling to assess the sensitivity of cyclical unemployment over the periodes of expansion and contraction of the output cycle, as well as its response to sectoral output fluctuations. Our results show the existence of a structural break in the Okun’s relationship for the Moroccan case, and a high rigidity in the unemployment’s dynamic. Also, the asymmetry test of the relationship showed that cyclical unemployment is only linked to contractions in cyclical output, and more particularly to those in the tertiary sector. The policy implications of these results are important for three principal reasons. First, the assumption that “higher growth leads to lower unemployment” is not valid, at least, in the short term. Second, the introduction of policies to make the labour market more flexible is necessary, and finally, the adoption of supply-side policies is required to ensure a structural transformation of the Moroccan economy.
    Date: 2019–08–21
  74. By: Stephany, Fabian; Lorenz, Hanno
    Abstract: The uniqueness of human labour is at question in times of smart technologies. The 250 years-old discussion on technological unemployment reawakens. Frey and Osborne (2013) estimate that half of US employment will be automated by algorithms within the next 20 years. Other follow-up studies conclude that only a small fraction of workers will be replaced by digital technologies. The main contribution of our work is to show that the diversity of previous findings regarding the degree of job automation is, to a large extent, driven by model selection and not by controlling for personal characteristics or tasks. For our case study, we consult Austrian experts in machine learning and industry professionals on the susceptibility to digital technologies in the Austrian labour market. Our results indicate that, while clerical computer-based routine jobs are likely to change in the next decade, professional activities, such as the processing of complex information, are less prone to digital change.
    Keywords: Classification,Employment,GLM,Technological Change
    JEL: E24 J24 J31 J62 O33
    Date: 2019
  75. By: Athena Kalyva; Savina Prince; Alexander Leodolter; Caterina Astarita
    Abstract: The importance of tackling income inequality has been stressed in the context of the European Pillar of Social Rights. In this context, the 2018 Annual Growth Survey underlined the relevance of labour taxes to pursue inclusive growth, as it has an important impact on economic growth but also on income inequality. Not all labour tax reforms, however, can simultaneously foster growth and reduce income inequality: some reforms imply a trade-off while others offer a win-win situation. This paper focusses on those labour tax reforms which offer complementarities between growth and income inequality objectives. It expands on work carried out for the Eurogroup (tax wedge, financing labour tax cuts) and the Economic Policy Committee (secondary earners, design of labour taxation) in supporting the EU political imperative of addressing income inequalities while fostering growth.
    JEL: D1 D2 D3 E6 H2 H21 J08 J2
    Date: 2018–07
  76. By: Fernando Martins; Domingos Seward
    Abstract: This paper provides a comprehensive study of the heterogeneity in the Portuguese labour market. We use Labour Force Survey microdata covering a complete business cycle, from 1998:1 to 2018:1, to evaluate the labour market attachment of several labour states and assess the most suitable allocation of individuals across statuses. We also evaluate the adequacy of the conventional unemployment criteria. Following the relevant strand of literature on this topic, we apply an evidence-based categorisation of labour market status by exploiting the information on the results of the behaviour of non-employed. To that end, we use multinomial and binary logit models of the determinants of transitions of workers across labour market states to test for the equivalence between non-employed groups. We conclude that heterogeneity is an evident feature of the Portuguese labour market, both between and within the conventional non-employment states. In particular, we find that the status comprising those inactive workers which want work constitutes a distinct state in the labour market and displays a transition behaviour closer to unemployment than to the group of inactive workers which do not want work. Moreover, the classification as inactive workers of individuals which report "waiting" as a reason for not having searched for a job, those individuals who have searched for a job but are still considered to be out-of-the-labour-force, as well as those individuals which are due to start work in more than three months might not be reasonable, since they show considerable attachment to the labour market and we reject the pooling of such states with their counterparts.
    JEL: C82 E24 J20
    Date: 2019

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