nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒09‒16
73 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Search Complementarities, Aggregate Fluctuations,and Fiscal Policy By Jesus Fernandez-Villaverde; Federico Mandelman; Yang Yu; Francesco Zanetti
  2. Credit risk in commercial real estate bank loans: the role of idiosyncratic versus macro-economic factors By Dimitris Mokas; Rob Nijskens
  3. The Countercyclical Capital Buffer and the Composition of Bank Lending By Raphael A. Auer; Steven Ongena
  4. US monetary policy since the 1950s and the changing content of FOMC minutes By Pierre L Siklos
  5. Revisiting the progressive consumption tax: A business cycle perspective By Strehl, Wolfgang
  6. State dependence of monetary policy across business, credit and interest rate cycles By Alpanda, Sami; Granziera, Eleonora; Zubairy, Sarah
  7. Consumer Confidence and Household Investment By Hashmat Khan; Jean-François Rouillard; Santosh Upadhayaya
  8. Mismatch Cycles By Isaac Baley; Ana Figueiredo; Robert Ulbricht
  9. Does my model predict a forward guidance puzzle? By Gibbs, Christopher G.; McClung, Nigel
  10. Fundamental uncertainty about the natural rate of interest: Info-gap as guide for monetary policy By Yakov Ben-Haim; Jan Willem van den End
  11. Monetary Policy Expectations and Money Market in Japan : Analysis of Non-traditional Monetary Policy Regimes By Takayasu Ito
  12. Forecasting ECB Policy Rates with Different Monetary Policy Rules By Ansgar Belke; Jens Klose
  13. Financial structure, institutional quality and monetary policy transmission: A Meta-Analysis. By Bhattacharya, Rudrani; Tripathi, Shruti; Chowdhury, Sahana Roy
  14. Optimal Inflation Targeting in a Dual-Exchange Rate Oil Economy By Hossein Tavakolian; Hamed Ghiaie
  15. A Comprehensive Evaluation of Measures of Core Inflation in Canada: An Update By Helen Lao; Ceciline Steyn
  16. Did interest rates at the zero lower bound affect lending of com-mercial banks? Evidence for the Euro area By Ansgar Belke; Christian Dreger
  17. Understanding low wage growth in the euro area and European countries By Nickel, Christiane; Bobeica, Elena; Koester, Gerrit; Lis, Eliza; Porqueddu, Mario
  18. Investment Demand and Structural Change By Manuel García-Santana; Josep Pijoan-Mas; Lucciano Villacorta
  19. Interest Rate Bands of Inaction and Play-Hysteresis in Domestic Investment - Evidence for the Euro Area By Ansgar Belke; Coletta Frenzel Baudisch
  20. Exposure to Daily Price Changes and Inflation Expectations By Francesco D’Acunto; Ulrike Malmendier; Juan Ospina; Michael Weber
  21. Inflation expectations anchoring: new insights from micro evidence of a survey at high-frequency and of distributions By Nikos Apokoritis; Gabriele Galati; Richhild Moessner; Federica Teppa
  22. Inflation expectations anchoring: new insights from micro evidence of a survey at high-frequency and of distributions By Nikos Apokoritis; Gabriele Galati; Richhild Moessner; Federica Teppa
  23. Temporal disaggregation of short time series with structural breaks: Estimating quarterly data from yearly emerging economies data By Jérôme TRINH
  24. A Macroprudential Theory of Foreign Reserve Accumulation By Fernando Arce; Julien Bengui; Javier Bianchi
  25. On the Markov Switching Welfare Cost of Inflation By Apostolos Serletis; Wei Dai
  26. Should one follow movements in the oil price or in money supply? Forecasting quarterly GDP growth in Russia with higher†frequency indicators By Heiner Mikosch; Laura Solanko
  27. Behavioral learning equilibria in the New Keynesian model By Cars Hommes; Kostas Mavromatis; Tolga Ozden; Mei Zhu
  28. A Crash Course on the Euro Crisis By Markus K. Brunnermeier; Ricardo Reis
  29. Budget Credibility of Subnational Governments: Analyzing the Fiscal Forecasting Errors of 28 States in India. By Chakraborty, Lekha; Chakraborty, Pinaki; Shrestha, Ruzel
  30. The optimal extraction rate versus the expected real return of a sovereign wealth fund By Aase, Knut K.; Bjerksund, Petter
  31. Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective By Kjetil Storesletten; Bo Zhao; Fabrizio Zilibotti
  32. Uncertainty-Induced Reallocations and Growth By Ravi Bansal; Mariano Max Croce; Wenxi Liao; Samuel Rosen
  33. Parameter Learning in Production Economies By Mykola Babiak; Roman Kozhan
  34. French Households’ Portfolio: The Financial Almost Ideal Demand System Appraisal By Sanvi Avouyi-Dovi; Christian Pfister; Franck Sédillot
  35. Financialization made in Germany: A review By Detzer, Daniel
  36. Measuring household uncertainty in EU countries By Ambrocio, Gene
  37. Illiquid Financial Markets and Monetary Policy By Athanasios Geromichalos; Juan M. Licari; Jose Suarez-Lledo
  38. Ramsey Optimal Policy in the New-Keynesian Model with Public Debt By Jean-Bernard Chatelain; Kirsten Ralf
  39. Macroeconomic and Financial Policies for Climate Change Mitigation: A Review of the Literature By Signe Krogstrup; William Oman
  40. 世代内・世代間の受益・負担構造に関する研究 : 全国消費実態調査を用いた世代会計モデルを軸に By 島澤, 諭; 堤, 雅彦; 難波, 了一
  41. Optimal Macroprudential Policy and Asset Price Bubbles By Nina Biljanovska; Lucyna Gornicka; Alexandros Vardoulakis
  42. From Cash to Central Bank Digital Currencies and Cryptocurrencies: a balancing act between modernity and monetary stability By Ansgar Belke; Edoardo Beretta
  43. Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions By Jean-Bernard Chatelain; Kirsten Ralf
  44. Rigid wages and contracts: Time- versus state-dependent wages in the Netherlands By Grajales-Olarte, Anderson; Uras, Burak R.; Vellekoop, Nathanael
  45. Saving Rates in Latin America: A Neoclassical Perspective By Cesar E Tamayo; Andrés Fernández; Ay¸se ?Imrohoro?glu
  46. A Possible Approach to Fiscal Rules in Small Islands — Incorporating Natural Disasters and Climate Change By Ryota Nakatani
  47. Were we really all in it together? The distributional effects of the 2010-2015 UK Coalition government's tax-benefit policy changes By De Agostini, Paula; Hills, John; Sutherland, Holly
  49. Oil price shocks, monetary policy and current account imbalances within a currency union By Ansgar Belke; Timo Baas
  50. Threshold Effects of Inequality on Economic Growth in the US States: The Role of Human Capital to Physical Capital Ratio By Oguzhan Cepni; Rangan Gupta; Zhihui Lv
  51. How does consumption respond to news about inflation? Field evidence from a randomized control trial By Olivier Coibion; Dimitris Georgarakos; Yuriy Gorodnichenko; Maarten van Rooij
  52. Gender Budgeting as PFM in OECD Countries: Empirical Evidence from Sweden. By Chakraborty, Lekha
  53. Biased beliefs, costly external finance, and firm behavior : A Unified theory By Li, Delong; Lu, Lei; Mu, Congming; Yang, Jinqiang
  54. Time Variation in Lifecycle Consumption and Housing Wealth By Yunus Aksoy; Henrique S. Basso; Carolyn St Aubyn
  55. Income distribution and the multiplier: An exploration of nonlinear distribution effects in linear Kaleckian distribution and growth models By Prante, Franz J.
  56. The Intergenerational Correlation of Employment: Is There a Role for Work Culture? By Gabriela Galassi; David Koll; Lukas Mayr
  58. The Interplay between Oil and Food Commodity Prices: Has It Changed over Time? By Gert Peersman; Sebastian K. Rüth; Wouter Van der Veken
  59. Worker Heterogeneity and the Asymmetric Effects of Minimum Wages By Jose Luis Luna-Alpizar
  60. Multilaterale Interchange-Gebühren: Man sollte das Kind nicht mit dem Bade ausschütten By Malte Krüger
  61. Macroprudencial and Monetary Policies : The Need to Dance the Tango in Harmony By Jose David GARCIA REVELO; Yannick LUCOTTE; Florian PRADINES-JOBET
  62. The Relationship between Financial Inclusion and Monetary Policy Transmission: The Case of Egypt By Marwa Elsherif
  63. Death to the Cobb-Douglas Production Function? A Quantitative Survey of the Capital-Labor Substitution Elasticity By Gechert, Sebastian; Havranek, Tomas; Irsova, Zuzana; Kolcunova, Dominika
  64. Timing of Government Intervention and the Multiple Equilibria of Currency Crisis By Young-Han Kim; Hanjoon Jung
  65. Macroeconomic Dynamics at the Cowles Commission from the 1930s to the 1950s By Robert W. Dimand
  66. Financial Access and Productivity Dynamics in Sub-Saharan Africa By Simplice Asongu
  67. Boosting the Hodrick-Prescott Filter By Peter C.B. Phillips; Zhentao Shi
  68. Durables and Lemons: Private Information and the Market for Cars By Richard Blundell; Ran Gu; Soren Leth-Petersen; Hamish Low; Costas Meghir
  69. 日本経済の成長会計分析 : 1885-1970年 By 深尾, 京司; 牧野, 達治; 攝津, 斉彦
  70. Foreign Direct Investment and Tax: OECD Gravity Modelling in a World with International Financial Institutions By Fabian J. Baier
  71. The influence of environment regulation on marine economy efficiency: evidence from China By Hairong Mu
  72. Municipal indebtedness in Poland ? formal and informal conditions By Beata Guziejewska; Joanna Dzia?o
  73. The ideological use and abuse of Freiburg's ordoliberalism By Dold, Malte; Krieger, Tim

  1. By: Jesus Fernandez-Villaverde (University of Pennsylvania); Federico Mandelman (Federal Reserve Bank of Atlanta); Yang Yu (Shanghai University of Finance and Economics); Francesco Zanetti (University of Oxford)
    Abstract: We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails a multiplicity of equilibria. An active static equilibrium with strong joint venture formation, large output, and low unemployment can coexist with a passive static equilibrium with low joint venture formation, low output, and high unemployment. Changes in fundamentals move the system between the two static equilibria,generating large and persistent business cycle fluctuations. The volatility of shocks is important for the selection and duration of each static equilibrium. Sufficiently adverse shocks in periods of low macroeconomic volatility trigger severe and protracted downturns. The magnitude of government intervention is critical to foster economic recovery in the passive static equilibrium, while it plays a limited role in the active static equilibrium.
    Keywords: Aggregate fluctuations, strategic complementarities, macroeconomic volatility, government spending.
    JEL: C63 C68 E32 E37 E44 G12
    Date: 2019–09
  2. By: Dimitris Mokas; Rob Nijskens
    Abstract: The commercial real estate market is pro-cyclical. This feature, together with the relative size of the industry and the large capital inflows, has made this sector relevant for financial stability. Using a novel loan level data set covering the commercial real estate portfolios of Dutch banks we aim to uncover potential drivers of distress in commercial real estate loans. Furthermore, we estimate the relative importance of idiosyncratic and systematic factors and emphasize the importance of bank behavior for distinguishing between good and bad credit growth. We find that loans originated near the peak of the cycle are riskier, confirming the pro-cyclical nature of the market. As opposed to loans originated during busts, the risk of boom loans does not decrease when economic conditions improve. Idiosyncratic factors correlated with higher credit risk are loan-to-value ratios and interest rates, especially when coupled with variable rate contracts. Moreover, we find that collateral type plays a role, as loans for non-residential (office, retail, industrial) real estate with higher vacancy rates are riskier. These results have implications for both macroprudential and microprudential supervision, as they demonstrate the pro-cyclicality of the market and show that indicators like loan-to-value, interest rate structure and vacancy rates must be monitored more carefully in boom times.
    Keywords: macroprudential policy; risk monitoring; commercial real estate; procyclicality of credit
    JEL: E32 E44 E58 G21 G3 G33
    Date: 2019–08
  3. By: Raphael A. Auer; Steven Ongena
    Abstract: Do macroprudential regulations on residential lending influence commercial lending behavior too? To answer this question, we identify the compositional changes in banks’ supply of credit using the variation in their holdings of residential mortgages on which extra capital requirements were uniformly imposed by the countercyclical capital buffer (CCyB) introduced in Switzerland in 2012. We find that the CCyB’s introduction led to higher growth in commercial lending although this was unrelated to conditions in regional housing markets. Interest rates and fees charged to the firms concurrently increased. We rationalize these findings in a model featuring both private and firm-specific collateral.
    Keywords: macroprudential policy, spillovers, credit, bank capital, systemic risk
    JEL: E51 E58 E60 G01 G21 G28
    Date: 2019
  4. By: Pierre L Siklos
    Abstract: Content analysis is used to analyze 60 years of FOMC minutes. Since there is no unique algorithm to quantify content two different algorithms are applied. Wordscores compares content relative to a chosen benchmark while DICTION is an alternative algorithm that is specifically designed to capture various elements that capture the sentiment or tone conveyed in a text. The resulting indicators are then incorporated into a VAR. The content of FOMC minutes is found to be significantly related to the state of the economy, notably real GDP growth and changes in the fed funds rate. However, the relationship between content and macroeconomic conditions changes after 1993 when minutes are made public with a lag. Both content indicators also suggest substantive changes in the content of FOMC minutes since the 1950s in terms of the FOMC’s dovishness or hawkishness.
    Keywords: FOMC minutes, Wordscores, DICTION, monetary policy stance, vector autoregression
    JEL: E58 E52 E31 E37
    Date: 2019–09
  5. By: Strehl, Wolfgang
    Abstract: This paper revisits the personal expenditure tax (PET), the most prominent version of a progressive consumption tax. The PET has a long intellectual tradition in economics, and the merits and demerits of this alternative to the personal income tax have been discussed at length. What has been missing in the literature so far, however, is a systematic account of its effect on the business cycle. This paper therefore seeks to add to the theoretical literature on the PET and the wider literature on automatic fiscal stabilizers by analyzing the PET's macroeconomic properties in a modern business cycle model. To this effect, the paper introduces a highly stylized PET into a standard New Keynesian DSGE model, derives a log-linear version of the model, and draws a comparison with the existing income tax. The model simulations show that the two tax systems lead to quite different macroeconomic dynamics. Furthermore, it is found that the PET yields welfare gains, relative to the income tax, for all the demand shocks considered. The PET yields welfare losses, however, under a supply shock.
    Keywords: Progressive Taxation,Consumption Taxation,Business Cycles,DSGEModel,Welfare Analysis
    JEL: E2 E3 E32 E62 E52
    Date: 2019
  6. By: Alpanda, Sami; Granziera, Eleonora; Zubairy, Sarah
    Abstract: We investigate how the business, credit and interest rate cycles affect the monetary transmission mechanism, using state-dependent local projection methods and data from 18 advanced economies. We exploit the time-series variation within countries, as well as cross-sectional variation across countries, to investigate this issue. We find that the impact of monetary policy shocks on output and most other macroeconomic and financial variables is smaller during periods of economic downturns, high household debt, and high interest rates. We then build a small-scale theoretical model to rationalize these facts. The model highlights the presence of collateral and debt-service constraints on household borrowing and refinancing as a potential cause for state dependence in monetary policy with respect to the business, credit, and interest rate cycles.
    JEL: E21 E32 E52
    Date: 2019–09–06
  7. By: Hashmat Khan (Department of Economics, Carleton University); Jean-François Rouillard (Department of Economics, Université de Sherbrooke); Santosh Upadhayaya (Department of Economics, Carleton University)
    Abstract: Household investment displays a robust leading indicator property over the US business cycle. It has been challenging to account for this stylized fact. In this paper, we develop the hypothesis that consumer confidence drives household investment. Using a survey based consumer confidence measure for 1960Q1–2017Q4 we find that it leads household investment by two quarters and housing starts by one quarter, lending support to the hypothesis. We then use VAR analysis to identify a confidence shock. Household investment increases and follows a persistent hump-shaped response after a positive confidence shock. The responses of total hours-worked and output also show a persistent increase and so do real house prices. Confidence shocks account for a substantial share of variation in household investment, total hours-worked and output. We show that household investment plays a quantitatively important role in the transmission of confidence shocks in the economy. Moreover, confidence shocks do not appear to be related to movements in future fundamentals, total factor productivity and the relative price of investment, representing supply side developments. Our findings, therefore, suggest that demand side forces originating in consumers’ social and psychological factors may be a fruitful direction for studying household investment dynamics and their relationship with the business cycle.
    Keywords: Consumer confidence; Household investment; Confidence Shocks; Business cycles
    JEL: D12 D83 D84 E22 E32
    Date: 2019–09–05
  8. By: Isaac Baley (Universitat Pompeu Fabra); Ana Figueiredo (Erasmus School of Economics); Robert Ulbricht (Boston College)
    Abstract: This paper studies the dynamics of skill mismatch over the business cycle. We build a tractable directed search model, in which workers differ in skills along multiple dimensions and sort into jobs with heterogeneous skill requirements along those dimensions. Skill mismatch arises due to information and labor market frictions. Estimated to the U.S., the model replicates salient business cyclic properties of mismatch. We show that job transitions in and out of bottom job rungs, combined with career mobility of workers, are important to account for the empirical behavior of mismatch. The model suggests significant welfare costs associated with mismatch due to learning frictions.
    Keywords: Business cycles, cleansing, multidimensional sorting, search-and-matching, skill mismatch, sullying
    JEL: E24 E32 J24 J64
    Date: 2019–08–21
  9. By: Gibbs, Christopher G.; McClung, Nigel
    Abstract: We provide suffcient conditions for when a rational expectations structural model predicts bounded responses of endogenous variables to forward guidance announcements. The conditions coincide with a special case of the well-known (E)xpectation-stability conditions that govern when agents can learn a Rational Expectations Equilibrium. Importantly, we show that the conditions are distinct from the determinacy conditions. We show how the conditions are useful for diagnosing the features of a model that contribute to the Forward Guidance Puzzle and reveal how to construct well-behaved forward guidance predictions in standard medium-scale DSGE models.
    JEL: E31 E32 E52 D84 D83
    Date: 2019–09–10
  10. By: Yakov Ben-Haim; Jan Willem van den End
    Abstract: In this paper we assume that the natural rate of interest is fundamentally uncertain. Based on a small scale macroeconomic model, info-gap theory is used to rank different monetary policy strategies in terms of their robustness against this uncertainty. Applied to the euro area, we find that a strategy that is responsive to deviations from the policy targets is more robust against natural rate uncertainty than the historical response of the ECB as reflected in an estimated Taylor rule. An inert or passive monetary strategy is least robust. Our analysis presents a methodology that is applicable in a wide range of policy analyses under deep uncertainty.
    Keywords: Monetary Policy; Monetary Strategy; Knightian uncertainty; info-gaps; satisficing
    JEL: E42 E47 E52
    Date: 2019–08
  11. By: Takayasu Ito (Meiji University, Scool of Commerce)
    Abstract: When the Bank of Japan (BOJ) adopts interest rate targeting under a comprehensive easing policy, the yield curve up to 12 months in the Japanese money market is driven by a single trend. It is caused by monetary policy expectations. The regime of interest rate targeting gives a sense of comfort to market participants that the regular transmission mechanism works in the yield curve of the money market. Thus, monetary policy expectations are fully transmitted to the yield curve end. On the other hand, monetary policy expectations are not fully transmitted to the yield curve end under either the quantitative and qualitative easing policy or the negative easing policy. The quantitative and qualitative easing policy and the negative interest rate policy paralyze the market function in the short-term money market. Central bankers should always keep it in mind that the transmission of interest rates along the yield curve is an integral part of the mechanism through which monetary policy affects the economy.
    Keywords: Monetary Policy Expectations, Money Market, Non-traditional Monetary Policy
    JEL: E40 E58 G10
    Date: 2019–07
  12. By: Ansgar Belke; Jens Klose
    Abstract: This article compares two types of monetary policy rules – the Taylor-Rule and the Orphanides-Rule – with respect to their forecasting properties for the European Central Bank. In this respect the basic rules, results from estimates models and augmented rules are compared. Using quarterly real-time data from 1999 to the beginning of 2019, we find that an estimated Orphanides-Rule performs best in nowcasts, while it is outperformed by an augmented Taylor-Rule when it comes to forecasts. However, also a no-change rule delivers good results for forecasts, which is hard to beat for most policy rules.
    Keywords: Taylor-Rule, Orphanides-Rule, Monetary Policy Rates, Forecasting, European Central Bank
    JEL: E43 E52 E58 C53
    Date: 2019–06
  13. By: Bhattacharya, Rudrani (National Institute of Public Finance and Policy); Tripathi, Shruti (National Institute of Public Finance and Policy); Chowdhury, Sahana Roy (International Management Institute, Kolkata)
    Abstract: The long-standing empirical literature of monetary policy transmission acknowledges weak transmission of monetary policy shock to real activities and inflation in emerging economies. Fragile financial system, low level of financial integration and weak institutions are often cited as the reasons for lack of monetary policy transmission in these economy. This paper investigates to what extent these factors explain the variation in the extent of monetary policy transmission in a comprehensive set of developed and developing economies using meta-analysis framework. We find that the degree of financial development captured by various financial indicators explain cross-country variations in the magnitude and time lag of monetary policy transmission. We also find the role of financial accelerator in transmission magnitude to output growth.
    Keywords: Financial developmen ; Institutions ; Monetary Policy Transmission ; Meta-Analysis
    JEL: C51 E52 E58
    Date: 2019–07
  14. By: Hossein Tavakolian; Hamed Ghiaie (Université de Cergy-Pontoise, THEMA)
    Abstract: This paper develops a DSGE model for a small open oil economy which has two rates at official and free (unofficial) markets for foreign currency. In this model, government has access to foreign currency by supplying oil in international markets. Using the oil revenue, the government provides the Central Bank and essential imported goods with foreign currency at the official rate; Other goods are imported at the unofficial rate. The CB’s objective is to minimize the difference between nominal free and official exchange rates. To do so, the CB uses three policy instruments: i) either holds foreign currency as financial assets or sells it to the free market at the unofficial rate, ii) nominal monetary base growth rate and iii) nominal depreciation of official exchange rate. These instruments are applied in this paper in four scenarios of CPI targeting and PPI targeting in both dual and unified exchange rate regimes. Through a welfare analysis, this paper indicates that PPI targeting works better than CPI targeting in this economy. As well, this paper illustrates that PPI targeting under unified system considerably increases welfare. In addition, the interaction between fiscal and monetary policy is assessed. The results show that monetary and exchange rate policies are also more effective when fiscal authority follows a procyclical fiscal rule.
    Keywords: DSGE model, Dual-Exchange Rate System, PPI Inflation Targeting.
    JEL: E52 E58 F41
    Date: 2019
  15. By: Helen Lao; Ceciline Steyn
    Abstract: We provide an updated evaluation of the value of various measures of core inflation that could be used in the conduct of monetary policy. We find that the Bank of Canada’s current preferred measures of core inflation—CPI-trim, CPI-median and CPI-common—continue to outperform alternative core measures across a range of criteria. These measures remain less biased, less volatile and much more persistent relative to alternative core measures and CPI inflation. They are also still moving with the economic cycle. Our analysis shows that historical revisions have been relatively small among these three core inflation measures since their inception and that CPI-common seems less prone to revisions and sector-specific shocks than CPI-trim and CPI-median.
    Keywords: Inflation and prices; Monetary policy framework
    JEL: E31 E52
    Date: 2019–09
  16. By: Ansgar Belke; Christian Dreger
    Abstract: The paper examines the bank lending activities of banks in a low interest rate environ-ment. External financing of small- and medium-sized enterprises in the euro area primari-ly takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In particular, the results do not indicate that credit is restricted if interest rates move towards the zero-lower bound.
    Keywords: Bank lending, banking regulation, monetary transmission mechanisms, low interest rate environment
    JEL: E44 E51 E52
    Date: 2019–07
  17. By: Nickel, Christiane; Bobeica, Elena; Koester, Gerrit; Lis, Eliza; Porqueddu, Mario
    Abstract: Despite notable improvements in the labour market since 2013, wage growth in the euro area was subdued and substantially overpredicted in 2013-17. This paper summarises the findings of an ESCB expert group on the reasons for low wage growth and provides comparable analyses on wage developments in the euro area as a whole and in individual EU countries. The paper finds that cyclical drivers, as captured by a standard Phillips curve, seem to explain much of the weakness in wage growth during this period, but not all of it. Going beyond the drivers included in standard Phillips curves, other factors are also found to have played a role, such as compositional effects, the possible non-linear reaction of wage growth to cyclical improvements, and structural and institutional factors. In order to increase the robustness of wage forecasts, the paper also proposes ready-to-use tools for cross-checking euro area wage growth forecasts based on wage Phillips curves. These are derived based on a comprehensive real-time forecast evaluation exercise JEL Classification: J30, E24, E31, E32
    Keywords: business cycles, forecasting, structural factors, wages
    Date: 2019–09
  18. By: Manuel García-Santana; Josep Pijoan-Mas; Lucciano Villacorta
    Abstract: In this paper we study the joint evolution of the investment rate and the sectoral composition of developing economies. Using panel data for several countries in different stages of development we document three novel facts: (a) both the investment rate and the industrial weight in the economy are strongly correlated and follow a hump-shaped profile with development, (b) investment goods contain more domestic value added from industry and less from services than consumption goods do, and (c) the evolution of the sectoral composition of investment and consumption goods differs from the one of GDP. We build and estimate a multi-sector growth model to fit these patterns. Our results highlight a novel mechanism of structural change: the evolution of the investment rate driven by the standard income and substitution effect of transitional dynamics explains half of the hump in industry with development, while the standard income and relative price effects explain the rest. We also find that the evolution of investment demand is quantitatively important to understand the industrialization of several countries since 1950 and the deindustrialization of many Western economies since 1970.
    Keywords: structural change; investment; growth; transitional dynamics
    JEL: E23 E21 O41
    Date: 2019–09
  19. By: Ansgar Belke; Coletta Frenzel Baudisch
    Abstract: The interest rate represents an important monetary policy tool to steer investment in order to reach price stability. Therefore, implications of the exact form and magnitude of the interest rate-investment nexus for the European Central Bank’s effectiveness in a low interest rate environment gain center stage. We first present a theoretical framework of the hysteretic impact of changes in the interest rate on macroeconomic investment under certainty and under uncertainty to investigate whether uncertainty over future interest rates in the Euro area hampers monetary policy transmission. In this non-linear model, strong reactions in investment activity occur as soon as changes of the interest rate exceed a zone of inaction, that we call ’play’ area. Second, we apply an algorithm describing path-dependent play-hysteresis to estimate investment hysteresis using data on domestic investment and interest rates on corporate loans for 5 countries of the Euro area in the period ranging from 2001Q1 to 2018Q1. We find hysteretic effects of interest rate changes on investment in most countries. However, their shape and magnitude differ widely across countries which poses a challenge for a unified monetary policy. By introducing uncertainty into the regressions, the results do not change much which may be due to the interest rate implicitly incorporating uncertainty effects in investment decisions, e.g. by risk premia.
    Keywords: European Central Bank, interest rate, investment, monetary policy, non-ideal relay, path-dependence, play-hysteresis, uncertainty
    JEL: C32 E44 E49 E52 F21
    Date: 2019–10
  20. By: Francesco D’Acunto; Ulrike Malmendier; Juan Ospina; Michael Weber
    Abstract: We show that, to form aggregate inflation expectations, consumers rely on the price changes they face in their daily lives while grocery shopping. Specifically, the frequency and size of price changes, rather than their expenditure share, matter for individuals' inflation expectations. To document these facts, we collect novel micro data for a representative US sample that uniquely match individual expectations, detailed information about consumption bundles, and item-level prices. Our results suggest that the frequency and size of grocery-price changes to which consumers are personally exposed should be incorporated in models of expectations formation. Central banks' focus on core inflation---which excludes grocery prices---to design expectations-based policies might lead to systematic mistakes.
    JEL: C83 D14 D84 D9 E31 E52 G11
    Date: 2019–09
  21. By: Nikos Apokoritis; Gabriele Galati; Richhild Moessner; Federica Teppa
    Abstract: We shed new light on the anchoring of long-term euro area inflation expectations since the crisis by using micro evidence from a new survey at high (weekly) frequency. We find that long-term inflation expectations remained well anchored to the ECB's inflation aim, which has acted as a focal point. By contrast, we find no evidence that professional forecasts (reported by Consensus Economics) acted as focal points. But there are subtle signs of long-term inflation expectations not being perfectly well-anchored. Using measures based on the distribution of inflation expectations from a quarterly survey, namely uncertainty based on the full distribution, the probability of expected long-term inflation lying between 1.5% and 2.5%, and the effect of short-term on long-term deflation risk, we find that long-term euro area inflation expectations have remained well-anchored, and have become better-anchored between 2011 and 2018.
    Keywords: Inflation expectations
    JEL: E31 E58
    Date: 2019–08
  22. By: Nikos Apokoritis; Gabriele Galati; Richhild Moessner; Federica Teppa
    Abstract: We shed new light on the anchoring of long-term euro area inflation expectations since the crisis by using micro evidence from a new survey at high (weekly) frequency. We find that long-term inflation expectations remained well anchored to the ECB's inflation aim, which has acted as a focal point. By contrast, we find no evidence that professional forecasts (reported by Consensus Economics) acted as focal points. But there are subtle signs of long-term inflation expectations not being perfectly well-anchored. Using measures based on the distribution of inflation expectations from a quarterly survey, namely uncertainty based on the full distribution, the probability of expected long-term inflation lying between 1.5% and 2.5%, and the effect of short-term on long-term deflation risk, we find that long-term euro area inflation expectations have remained well-anchored, and have become better-anchored between 2011 and 2018.
    Keywords: inflation expectations
    JEL: E31 E58
    Date: 2019–09
  23. By: Jérôme TRINH (Université de Cergy-Pontoise, THEMA)
    Abstract: This article develops a methodology to compute up-to-date quarterly macroeconomic data for emerging countries by adapting a well known method of temporal disaggregation to time series with small sample size and instable relationships between them. By incorporating di erent procedures of structural break detection, the prediction of higher-frequency estimations of yearly official data can be improved. A methodology with a model selection procedure and disaggregation formulas is proposed. Its predictive performance is assessed by using empirical advanced countries data and simulated time series. An application to the Chinese national accounts allows the estimation of the cyclical components of the Chinese expenditure accounts and shows the Chinese economy to have second order moments more in line with emerging countries than advanced economies like the United States.
    Keywords: Time series, macroeconomic forecasting, disaggregation, structural change, business cycles, emerging economies
    JEL: C32 E17 E37
    Date: 2019
  24. By: Fernando Arce; Julien Bengui; Javier Bianchi
    Abstract: This paper proposes a theory of foreign reserves as macroprudential policy. We study an open economy model of financial crises, in which pecuniary externalities lead to overborrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient allocation. The optimal reserve accumulation policy leans against the wind and significantly reduces the exposure to financial crises. The theory is consistent with the joint dynamics of private and official capital flows, both over time and in the cross section, and can quantitatively account for the recent upward trend in international reserves.
    JEL: E0 F3 F31
    Date: 2019–09
  25. By: Apostolos Serletis (University of Calgary); Wei Dai (University of Calgary)
    Abstract: This paper uses the Markov switching approach to account for instabilities in the long- run money demand function and compute the welfare cost of inflation in the United States. In doing so, it circumvents the problem of data-mining of some earlier seminal contributions on these issues, allowing for complicated nonlinear dynamics and sudden changes in the parameters of the money demand function. Moreover, it extends the sample period, and investigates the robustness of results to alternative money demand specifications, monetary aggregation procedures, and assumptions regarding dynamics aspects of the money demand specification.
    Keywords: Welfare cost of inflation, Markov regime switching, Divisia money
    JEL: C22 E41 E52
    Date: 2019–08–30
  26. By: Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Laura Solanko (BOFIT, Bank of Finland, Snellmaninaukio)
    Abstract: GDP forecasters face tough choices over which leading indicators to follow and which forecasting models to use. To help resolve these issues, we examine a range of monthly indicators to forecast quarterly GDP growth in a major emerging economy, Russia. Numerous useful indicators are identified and forecast pooling of three model classes (bridge models, MIDAS models and unrestricted mixed-frequency models) are shown to outperform simple benchmark models. We further separately examine forecast accuracy of each of the three model classes. Our results show that differences in performance of model classes are generally small, but for the period covering the Great Recession unrestricted mixed-frequency models and MIDAS models clearly outperform bridge models. Notably, the sets of top-performing indicators differ for our two subsample observation periods (2008Q1–2011Q4 and 2012Q1–2016Q4). The best indicators in the first period are traditional real-sector variables, while those in the second period consist largely of monetary, banking sector and financial market variables. This finding supports the notion that highly volatile periods of recession and subsequent recovery are driven by forces other than those that prevail in more normal times. The results further suggest that the driving forces of the Russian economy have changed since the global financial crisis.
    Keywords: Keywords: Forecasting, mixed frequency data, Russia, GDP growth
    JEL: C53 E27
    Date: 2018–01
  27. By: Cars Hommes; Kostas Mavromatis; Tolga Ozden; Mei Zhu
    Abstract: We introduce the concept of behavioral learning equilibrium (BLE) into a high dimensional linear framework and apply it to the standard New Keynesian model. For each endogenous variable, boundedly rational agents use a simple, but optimal AR(1) forecasting rule with parameters consistent with the observed sample mean and autocorrelation of past data. The main contributions of our paper are fourfold: (1) we derive existence and stability conditions of BLE in a general linear framework, (2) we provide a general method for Bayesian likelihood estimation of BLE, (3) we estimate the baseline NK model based on U.S. data and show that the relative model fit is better under BLE than REE, (4) we analyze optimal monetary policy under BLE and show that it differs from REE. In particular, we find that the transmission channel of monetary policy is stronger under BLE at the estimated parameter values.
    Keywords: Bounded rationality; Behavioral learning equilibrium; Adaptive learning; behavioral New Keynesian macro-model; Monetary Policy
    JEL: C11 E62 D83 D84
    Date: 2019–09
  28. By: Markus K. Brunnermeier; Ricardo Reis
    Abstract: The financial crises of the last twenty years brought new economic concepts into classrooms discussions. This article introduces undergraduate students and teachers to seven of these models: (i) misallocation of capital inflows, (ii) modern and shadow banks, (iii) strategic complementarities and amplification, (iv) debt contracts and the distinction between solvency and liquidity, (v) the diabolic loop, (vi) regional flights to safety, and (vii) unconventional monetary policy. We apply each of them to provide a full account of the euro crisis of 2010-12.
    JEL: A22 E44 E5 F3 G01
    Date: 2019–09
  29. By: Chakraborty, Lekha (National Institute of Public Finance and Policy); Chakraborty, Pinaki (National Institute of Public Finance and Policy); Shrestha, Ruzel (National Institute of Public Finance and Policy)
    Abstract: Budget credibility, the ability of governments to accurately forecast the macro-fiscal variables, is crucial for effective Public Financial Management (PFM). Fiscal marksmanship analysis captures the extent of errors in the budgetary forecasting. The fiscal rules can determine fiscal marksmanship, as effective fiscal consolidation procedure affects the fiscal behaviour of the states in conducting the budgetary forecasts. Against this backdrop, applying Theil's technique, we analyse the fiscal forecasting errors for 28 States (except Telangana) in India for the period 2011-12 to 2015-16. There is a heterogeneity in the magnitude of errors across subnational governments in India. The forecast errors in revenue receipts have been greater than revenue expenditure. Within revenue receipts, the errors are pronounced more significantly in grants component. Within expenditure budgets, the errors in capital spending are found greater than revenue spending in all the States. Partitioning the sources of errors, we identified that the errors were more broadly random than systematic bias, except for a few crucial macro-fiscal variables where improving the forecasting techniques can provide better estimates.
    Keywords: forecast errors ; fiscal policies ; fiscal forecasting ; political economy ; fiscal marksmanship
    JEL: H6 E62 C53
    Date: 2019–09
  30. By: Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics); Bjerksund, Petter (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: With reference to funds established for the benefits of the public at large, a university endowment, or other similar sovereign wealth fund, we demonstrate that the optimal extraction rate from the fund is significantly smaller than the expected real rate of return on the underlying fund. We consider the situation where the influx to the fund has stopped, it is in a steady state, and is invested broadly in the international financial markets. The optimal spending rate secures that the fund is a perpetuity, i.e., it will last 'forever', where the real value of the fund after payments is stationary, while spending according to the expected rate of return will deplete the fund with probability 1. Optimal portfolio choice and spending are then inconsistent. Our conclusions are contrary to the recommendations of an expert panel to the Norwegian Government Pension Fund Global, as well as at odds with part of the extant literature on the management of endowments of universities.
    Keywords: Optimal extraction rate; endowment funds; expected utility; recursive utility
    JEL: D51 D53 D90 E21 G10 G12
    Date: 2019–09–06
  31. By: Kjetil Storesletten (Department of Economics, University of Oslo); Bo Zhao (National School of Development, Peking University); Fabrizio Zilibotti (Cowles Foundation, Yale University)
    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.
    Keywords: Agriculture, Business Cycle, Capital Accumulation, China, Employment, Lewis, Modernization, Structural Change
    JEL: E32 O11 O13 O14 O41 O47 O53
    Date: 2019–08
  32. By: Ravi Bansal; Mariano Max Croce; Wenxi Liao; Samuel Rosen
    Abstract: Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on medium-term growth and welfare.
    JEL: E3 E6 G18
    Date: 2019–09
  33. By: Mykola Babiak; Roman Kozhan
    Abstract: We examine how parameter learning amplifies the impact of macroeconomic shocks on equity prices and quantities in a standard production economy where a representative agent has Epstein-Zin preferences. An investor observes technology shocks that follow a regime-switching process, but does not know the underlying model parameters governing the short-term and long-run perspectives of economic growth. We show that rational parameter learning endogenously generates longrun productivity and consumption risks that help explain a wide array of dynamic pricing phenomena. The asset pricing implications of subjective long-run risks crucially depend on the introduction of a procyclical dividend process consistent with the data.
    Keywords: parameter learning; equity premium; business cycles; Markov switching
    JEL: D83 E13 E32 G12
    Date: 2019–04
  34. By: Sanvi Avouyi-Dovi; Christian Pfister; Franck Sédillot
    Abstract: Over the last decades, the composition of financial wealth of French households has dramatically changed. We seek explanatory factors for these changes by estimating an extended version of Deaton and Muellbauer (1980) model applied to French households’ portfolio choices. We find that most of the estimated parameters of the benchmark model are in line with economic priors. In particular, wealth and real returns are the key determinants of the long run dynamics of the different asset shares in the portfolio. We use the model to simulate the effect on French households’ portfolio allocation for the replacement in 2018 of the various tax regimes of most financial products with a flat tax on savings income. We find that the flat tax should support investment in equities at the expense of life insurance contracts.
    Keywords: : model, return, saving, wealth.
    JEL: C32 C51 E21
    Date: 2019
  35. By: Detzer, Daniel
    Abstract: This article examines the spread of financialization in Germany before the financial crisis. It provides an up-to date overview on the literature on financialization and reviews which of the phenomena typically associated with financialization have emerged in Germany. In particular, the article aims to clarify how the prevailing institutional structure and its changes had contributed to or had countervailed the spread of financialization and how it had shaped the specific German variant of financialization. For this end, it combines the rich literature on Germany's institutional structure with the more macroeconomic oriented literature on financializaton. With the combination of those different perspectives the article sheds light on the reasons for the spread of financialization and the specific forms it has taken in Germany.
    Keywords: Banking,Corporate Governance,Financialization,Financial Sector,Financial Regulation,Varieties of Capitalism
    JEL: E44 F40 G20 G30 K22
    Date: 2019
  36. By: Ambrocio, Gene
    Abstract: I provide a measure of household uncertainty available for European Union (EU) countries. The measure draws from the same consumer survey data used to construct widely-used consumer sentiment indices. I find that increases in household uncertainty are followed by declines in consumer sentiment and household financial conditions. Using Euro Area-wide indices, I also find that the effects of increases in household uncertainty differ from increases in uncertainty from other sources such as financial markets and economic policy. Notably, household uncertainty shocks are inflationary. These results challenge the notion that (household) uncertainty shocks act like negative demand shocks.
    JEL: C32 D84 E37
    Date: 2019–09–07
  37. By: Athanasios Geromichalos; Juan M. Licari; Jose Suarez-Lledo
    Abstract: This paper analyzes the role of money in asset markets characterized by search frictions. We develop a dynamic framework that brings together a model for illiquid financial assets `a la Duffie, Garleanu, and Pedersen, and a search-theoretic model of monetary exchange `a la Lagos and Wright. The presence of decentralized financial markets generates an essential role for money, which helps investors re-balance their portfolios. We provide conditions that guarantee the existence of a monetary equilibrium. In this case, asset prices are always above their fundamental value, and this differential represents a liquidity premium. We are able to derive an asset pricing theory that delivers an explicit connection between monetary policy, asset prices, and welfare. We obtain a negative relationship between inflation and equilibrium asset prices. This key result stems from the complementarity between money and assets in our framework.
    Date: 2019–09
  38. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: This paper compares Ramsey optimal policy for the new-Keynesian model with public debt with its .scal theory of the price level (FTPL) equilibrium. Both the fiscal theory of the price level and Ramsey optimal policy implies that a de.cit shock is instantaneously followed by an increase of in.ation and output gap. But each optimal policy parameters belongs in di¤erent sets with respect to FTPL. The optimal .scal rule parameter implies local stability of public debt dynamics ("passive fiscal policy"). The optimal Taylor rule parameter for in.ation is larger than one. The optimal Taylor rule parameter for output gap is negative, because of the intertemporal substitution e¤ect of interest rate on output gap. Both Taylor rule optimal parameters implies the local stability of inflation and output gap dynamics.
    Keywords: Fiscal theory of the Price Level,Ramsey optimal policy
    Date: 2019–09
  39. By: Signe Krogstrup; William Oman
    Abstract: Climate change is one of the greatest challenges of this century. Mitigation requires a large-scale transition to a low-carbon economy. This paper provides an overview of the rapidly growing literature on the role of macroeconomic and financial policy tools in enabling this transition. The literature provides a menu of policy tools for mitigation. A key conclusion is that fiscal tools are first in line and central, but can and may need to be complemented by financial and monetary policy instruments. Some tools and policies raise unanswered questions about policy tool assignment and mandates, which we describe. The literature is scarce, however, on the most effective policy mix and the role of mitigation tools and goals in the overall policy framework.
    Keywords: Financial regulation and supervision;Financial crises;Central banking and monetary issues;Economic conditions;Financial management;climate change,fiscal policy,monetary policy,financial policy,policy framework,policy coordination,WP,low-carbon,climate change mitigation,policy tool,climate-related,mitigation
    Date: 2019–09–04
  40. By: 島澤, 諭; 堤, 雅彦; 難波, 了一
    Abstract: 本研究では、政府を通じた個人の生涯にわたる受益と負担を所得階層・年齢階級別のコー ホートに分けて推計し、受益と負担が、世代間のみならず、世代内の所得階層の違いによ ってどの程度異なるのかを明らかにした。その結果、我が国の現在世代及び将来世代が直 面する世代内及び世代間の生涯純負担率は、(1)同一世代内で見ると高所得層ほど生涯 純負担率が大きく、所得再分配機能が機能していること、(2)世代間では総じてみれば 若年世代ほど負担が大きくなっており世代間格差は22~25ポイント(0歳世代と90 歳世代との比較)となっていること、(3)現在世代(0歳世代)と将来世代間の格差は 16~60ポイントとなっており現在世代内の格差の3倍弱にのぼる、つまり、現在世代 内の世代間格差よりも将来性世代と現在世代との間の世代間格差の方が大きいこと、が明 らかになった。また、消費増税と所得増税による財政再建シミュレーションの結果からは 、消費増税は、相対的に高所得の若年世代に有利であるものの、その他の世代では不利で あることが分かった。
    Keywords: 世代会計, 少子高齢化, 財政再建
    JEL: H61 E62 B41
    Date: 2019–08
  41. By: Nina Biljanovska; Lucyna Gornicka; Alexandros Vardoulakis
    Abstract: An asset bubble relaxes collateral constraints and increases borrowing by credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytically and quantitatively that the macroprudential policy should optimally respond to building asset price bubbles non-monotonically depending on the underlying level of indebtedness. If the level of debt is moderate, policy should accommodate the bubble to reduce the incidence of a binding collateral constraint. If debt is elevated, policy should lean against the bubble more aggressively to mitigate the pecuniary externalities from a deflating bubble when constraints bind.
    Keywords: Economic conditions;Financial crises;Demand;Economic stabilization;Price indexes;Collateral constraints,rational bubbles,macroprudential regulation,optimal policy,WP,asset price bubble,overvaluation,asset price,Euler equation,bubble
    Date: 2019–08–30
  42. By: Ansgar Belke; Edoardo Beretta
    Abstract: The paper explores the precarious balance between modernizing monetary systems by means of digital currencies (either issued by the central bank itself or independently) and safeguarding financial stability as also ensured by tangible payment (and saving) instruments like paper money. Which aspects of modern payments systems could contribute to improve the way of functioning of today’s globalized economy? And, which might even threaten the above mentioned instable equilibrium? This survey-paper aims, precisely, at giving some preliminary answers to a complex – therefore, ongoing – debate at scientific as well as banking and political level.
    Keywords: cash, central banks, cryptocurrencies, digital currencies, monetary systems
    JEL: E4 E5 G21 G23
    Date: 2019–09
  43. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: The reference model of frictionless endowment economies includes a Fisher relation for the real interest rate and government intertemporal budget constraint. For this model, Ramsey optimal policy mix is a unique equilibrium with an interest rate peg and a "passive" fiscal rule with a negative-feedback value of its parameter stabilizing public debt. This is a third equilibrium with respect to the two usual equilibria with ad hoc policy rules. The first one has passive fiscal policy and an active monetary policy rule parameter destabilizing in.ation. The second one has an active fiscal policy rule parameter destabilizing public debt and a passive monetary policy which includes the case of an interest rate peg. :
    Keywords: Frictionless endowment economy,Fiscal theory of the Price Level,Ramsey optimal policy,Interest Rate Rule,Fiscal Rule Keywords: Frictionless endowment economy,Fiscal Rule
    Date: 2019–09
  44. By: Grajales-Olarte, Anderson; Uras, Burak R.; Vellekoop, Nathanael
    Abstract: We study nominal wage rigidity in the Netherlands using administrative data, which has three key features: (1) high-frequency (monthly), (2) high-quality (administrative records), and (3) high coverage (the universe of workers and the universe of firms). We find wage rigidity patterns in the data that are similar to wage behavior documented for other European countries. In particular we find that the hazard function has two spikes, one at 12 months and another one at 24 months and wage changes have time and state dependency components. As a novel and important piece of evidence we also uncover substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract. In particular, contracts featuring flexible hours, such as on-call contracts, exhibit a higher probability of a change in the contract wage compared to fixed hour contracts. Once we split the sample based on contract characteristics, we also find that the response of wage changes to the time and state component is heterogeneous across different type of contracts - with relatively more downward adjustments in flexible-hour contract wages in response to aggregate unemployment.
    Keywords: wage rigidity,flexible-hour contracts,microdata,state dependency,time dependency
    JEL: E24 J31
    Date: 2019
  45. By: Cesar E Tamayo; Andrés Fernández; Ay¸se ?Imrohoro?glu
    Keywords: Total factor productivity, Saving rate, Latin America
    JEL: E21 O47
    Date: 2019–09–03
  46. By: Ryota Nakatani
    Abstract: A big challenge for the economic development of small island countries is dealing with external shocks. The Pacific Islands are vulnerable to natural disasters, climate change, commodity price changes, and uncertain donor grants. The question that arises is how should small developing countries formulate a fiscal policy to achieve economic stability and fiscal sustainability when prone to various shocks? We study how natural disasters affect long-term debt dynamics and propose fiscal policy rules that could help insulate the economy from such unexpected shocks. We propose fiscal rules to address these shocks and uncertainties using the example of Papua New Guinea. Our study finds the advantages of expenditure rules, especially a recurrent expenditure rule based on non-resource and non-grant revenue, interdependently determined by government debt and budget balance targets with expected disaster shocks. This paper contributes to the literature and policy dialogue by theoretically analyzing the impact of natural disasters on debt sustainability and proposing fiscal rules against natural disasters and climate changes. Our fiscal policy framework is practically applicable for many developing countries facing increasing frequency and impact of natural disasters and climate change. Our rules-based fiscal framework is crucial for sustainable and countercyclical macroeconomic policies to build resilience against devastating natural hazards.
    Date: 2019–09–06
  47. By: De Agostini, Paula; Hills, John; Sutherland, Holly
    Abstract: This article examines the distributional impacts of changes to benefits, tax credits, pensions and direct taxes between the UK general elections of May 2010 and May 2015. The changes did not have a common effect on all household incomes; nor did the direct tax-benefit changes contribute to deficit reduction. Effectively, reductions in benefits and tax credits financed part of the direct taxes cuts, but the overall net fiscal cost increased pressure for cuts in other public services and increases in other (more regressive) taxes. The main gains were in the upper middle of the income distribution, and the main losers were at the bottom and those close to, but not at, the very top. Across most of the distribution the changes were regressive. By comparing with other analyses of policy changes in the same period, we illustrate the importance of analytical choices and assumptions for detailed conclusions on their distributional effects. We also show how some groups were clear losers or gained little on average – including lone parent families, large families and families with younger children. Others were gainers, including two-earner couples, and those in their fifties and early sixties. The findings show that a dominant feature of the period was that the combination of higher tax-free income tax allowances, financed by cuts in benefits and tax credits, was generally regressive. As this combination also lies at the heart of the proposed policies of the Conservative government since 2015, we would expect these effects to be intensified in the coming years.
    JEL: E6
    Date: 2018–09–01
  48. By: Charu Bhurat (SVKM?s NMIMS Anil Surendra Modi School of Commerce)
    Abstract: Financial inclusion means providing access to financial services at affordable cost to all individuals and businesses especially to the vulnerable and weaker income groups. This paper aims to examine the concept of financial inclusion and its relevance with respect to the world?s emerging economies Brazil, Russian Federation, India, China and South Africa (BRICS). The BRICS nations have been the growth drivers of the world economy and higher financial inclusion means a better level of socio-economic development. Various financial inclusion indicators from The Global Partnership for Financial Inclusion (GPFI) have been used to compare data of these countries. With the help of this paper, an attempt has been made to analyse the state of financial inclusion and digital financial services amongst BRICS nations. Also, the BRICS nations have been compared in terms of income as well as gender disparity for various financial inclusion indicators.
    Keywords: BRICS, Financial inclusion, digital transactions, banking
    JEL: E02 E44 F33
    Date: 2019–06
  49. By: Ansgar Belke; Timo Baas
    Abstract: For more than two decades now, current-account imbalances are a crucial issue in the international policy debate as they threaten the stability of the world economy. More recently, the government debt crisis of the European Union shows that internal current account imbalances inside a currency union may also add to these risks. Oil price fluctuations and a contracting monetary policy that reacts on oil prices, previously discussed to affect the current account may also be a threat to the currency union by changing internal imbalances. Therefore, in this paper, we analyze the impact of oil price shocks on current account imbalances within a currency union. Differences in institutions, especially labor market institutions and trade result in an asymmetric reaction to an otherwise symmetric shock. In this context, we show that oil price shocks can have a long-lasting impact on internal balances, as the exchange rate adjustment mechanism is not available. The common monetary policy authority, however, can reduce such effects by specifying an optimum monetary policy target. Nevertheless, we also show that there is no single best solution. CPI, core CPI or an asymmetric CPI target all come at a cost either regarding an increase in unemployment or increasing imbalances.
    Keywords: Current account deficit, Oil price shocks, DSGE models, Search and matching labor market, Monetary policy
    JEL: E32 F32 Q43
    Date: 2019–03
  50. By: Oguzhan Cepni (Central Bank of the Republic of Turkey, Anafartalar Mah. Istiklal Cad. No:10 06050, Ankara, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Zhihui Lv (KLASMOE & School of Mathematics and Statistics, Northeast Normal University, Changchun 130024, China)
    Abstract: Theory suggests that the effect of inequality on growth varies with the level of economic development, as captured by the ratio of human capital to physical capital. In particular, the effect is shown to be positive at lower levels of this ratio, and turns negative beyond a threshold in such models. Using a comprehensive panel of annual data for the 48 contiguous US states over the period 1948 to 2014, we find overwhelming evidence in support of this theory, unlike prior work on this topic. Hence, our paper highlights the importance of accurately measuring the process of economic development using data on human capital and physical capital, instead of using proxies that are not theoretically consistent. Understandably, if not done so, policymakers would end up undertaking incorrect decisions.
    Keywords: Inequality, Economic Growth, Ratio of Human Capital to Physical Capital, Panel Threshold Model, State-Level Data of the United States
    JEL: C23 C24 E24 O11 O15
    Date: 2019–08
  51. By: Olivier Coibion; Dimitris Georgarakos; Yuriy Gorodnichenko; Maarten van Rooij
    Abstract: We implement a survey of Dutch households in which random subsets of respondents receive information about inflation. The resulting exogenously generated variation in inflation expectations is used to assess how expectations affect subsequent monthly consumption decisions relative to those in a control group. The causal effects of elevated inflation expectations on non-durable spending are imprecisely estimated but there is a sharp negative effect on durable spending. We provide evidence that this is likely driven by the fact that Dutch households seem to become more pessimistic about their real income as well as aggregate spending when they increase their inflation expectations. There is little evidence to support the idea that the degree to which respondents change their beliefs or their spending in response to information treatments depends on their level of cognitive or financial constraints.
    Keywords: survey data; inflation expectations; households; durable and non-durable consumption; randomized control trial
    JEL: E31 C83 D84
    Date: 2019–08
  52. By: Chakraborty, Lekha (National Institute of Public Finance and Policy)
    Abstract: One of the most significant changes in the labour markets of OECD countries especially Sweden - over the past decades has been the reduction in the gender gaps in tertiary education and earnings, and the increasing female labour force participation rates. This paper analyses how Sweden has endeavored to reduce the gender gaps in labour markets and other socio-economic gender disparities using gender budgeting as a tool of accountability. The analysis revealed that despite progress made by Sweden in improving gender equality, there is still gender gap in a few areas. The empirical evidence suggests that Sweden follows a "dual approach" in gender budgeting within the Public Financial Management (PFM) practices. While "gender mainstreaming" within PFM is an essential tool for the ex-post budget analysis through a "gender lens", Sweden has realized that it must be combined with :ex-ante gender assessments" to frame specifically targeted budgetary allocations for tackling gender equality. This Swedish dual approach of gender budgeting within the PFM is a comprehensive model for gender budgeting within the OECD countries. A systematic evolution of :gender neutral" parental leave policy has also been a significant policy ingredient in Sweden towards increasing the work force participation of women.
    Keywords: Public Financial Management ; Gender Budgeting ; OECD
    JEL: E62 J16 H30
    Date: 2019–08
  53. By: Li, Delong; Lu, Lei; Mu, Congming; Yang, Jinqiang
    Abstract: Overconfidence and overextrapolation are two behavioral biases that are pervasive in human thinking. A long line of research documents that such biases influence business decisions by distorting managers' expected productivity. We propose a new mechanism in which the biases change firms' precautionary motives when external financing is costly, finding that the influences of biases on investment, payouts, and refinancing are stronger for financially weaker firms. Moreover, biased and rational firms display di erential responses to economic booms and busts holding financial positions constant. Our work illustrates that managerial traits, when interacting with imperfect capital markets, drive firm dynamics in business cycles.
    JEL: E32 G31 G32 G35
    Date: 2019–09–09
  54. By: Yunus Aksoy (Birkbeck, University of London); Henrique S. Basso (Banco de España); Carolyn St Aubyn (Birkbeck, University of London)
    Abstract: We document systematic and significant time variation in the profiles of lifecycle consumption expenditures in the US. Lifecycle consumption profiles have consistently become flatter through time. Pooling data across different periods to identify consumption profiles masks relevant time variation and may artificially generate the well known hump-shaped consumption age profile. We also identify the effect of perceived housing wealth on lifecycle consumption profiles. Housing influenced lifecycle consumption particularly from 2006 onwards and for older households. We propose mechanisms that may account for the estimated results employing an overlapping generations model with perceived housing wealth and time varying borrowing constraints
    Keywords: Age profile of Consumption, Structural Trends, House Prices
    JEL: E21 J11
    Date: 2019–07
  55. By: Prante, Franz J.
    Abstract: In this paper, I show that the income-autonomous demand multiplier of Keynesian-Kaleckian models is endogenous to changes in income distribution. This effect gives rise to non-linearity of distributional effects, even in basic models. Under certain conditions, an important consequence from the distribution-sensitive multiplier is that a higher wage share can have increasingly expansionary effects, which might even shift a profit-led investment regime to a wage-led one in the basic post-Kaleckian model. Surprisingly, the respective literature on distribution and growth largely ignored these features of Keynesian-Kaleckian macroeconomic models. After a theoretical discussion on the implications of the distribution-sensitive multiplier in basic closed- and openeconomy models, I present a counterfactual illustration based on empirical parameter estimations from the literature and the development of functional income distribution for selected EU countries. My analysis indicates that a rising profit share has put partial downward pressure on the wage-ledness of aggregate demand in many EU countries. These results stress the relevance of this particular form of path dependency for empirical research and policy debates on distribution and growth.
    Keywords: Keynesian models,Kaleckian models,Multiplier,Income distribution,Open economy
    JEL: D31 D33 E11 E12 F41
    Date: 2019
  56. By: Gabriela Galassi; David Koll; Lukas Mayr
    Abstract: We document a substantial positive correlation of employment status between mothers and their children in the United States, linking data from the National Longitudinal Survey of Youth 1979 (NLSY79) and the NLSY79 Children and Young Adults. After controlling for ability, education and wealth, a one-year increase in a mother’s employment is associated with six weeks more employment of her child on average. The intergenerational transmission of maternal employment is stronger to daughters than to sons, and it is higher for low-educated and low-income mothers. Potential mechanisms we were able to rule out included networks, occupation-specific human capital and conditions within the local labor market. By contrast, we provide suggestive evidence for a role-model channel through which labor force participation is transmitted.
    Keywords: Econometric and statistical methods; Economic models; Labour markets
    JEL: E24 J21 J22 J62
    Date: 2019–09
    Abstract: Since the early 2000s overseas borrowing by Indian corporates has gained prominence and has emerged as one of the principal channels of debt flows, changing the pattern of corporate leverage in India. Consistent with the trend in other EMEs, foreign currency borrowing by Indian corporates have assumed prominence, aided primarily by the steady liberalization of the capital account on the one hand and higher international liquidity, on the other hand, leading to a sustained increase in leverage of Indian corporates. This paper analyzes the trends and consequences of corporate leverage of a sample of 825 non-financial firms that have borrowed consistently form international capital markets during 2004 and 2017. In particular, employing the Arellano Bond dynamic GMM technique, it investigates the changing contours of corporate vulnerability arising from the rising leverage and foreign currency debt of these corporates. Further, this paper investigates whether the vulnerabilities in the real sector of the economy get spill over to the financial sector, impairing the asset quality of the Indian banks. The findings of the study indicate that higher leverage of the firms has increased the vulnerability of these firms over time, particularly in the post-global financial crisis period, and that firms? distress increased with higher foreign borrowings. Further, it was also evident that bigger firms were more distressed compared to the smaller size firms, profitable firms were less vulnerable, and that export earning of firms were inadequate to provide a buffer in case of a sudden depreciation of the Indian rupee and could render these firms vulnerable to default. The results of the study also indicated that corporate default (of distressed firms), would erode the Indian banks? asset quality increasing the stress in the banking system. Hedging, whether through natural hedges or financial instruments will be key to protect firms with foreign currency borrowing against severe currency fluctuations. Strengthening macroeconomic fundamentals, together with close monitoring of foreign currency leverage and stricter credit appraisals by banks? is critical for reviving growth in the real sector and boosting the banking sector fundamentals.
    Keywords: Foreign Currency Borrowing, Corporate Vulnerability, Bank Asset Quality, India
    JEL: E44 F40 G01
    Date: 2019–06
  58. By: Gert Peersman; Sebastian K. Rüth; Wouter Van der Veken (-)
    Abstract: Using time-varying BVARs, we find that oil price increases caused by oil supply shocks did not affect food commodity prices before the start of the millennium, but had positive spillover effects in more recent periods. Likewise, shortfalls in global food commodity supply—resulting from bad harvests—have positive effects on crude oil prices since the early 2000s, in contrast to the preceding era. Remarkably, we also document greater spillover effects of both supply shocks on metals and minerals commodity prices in recent periods, as well as a stronger impact on the own price compared to earlier decades. This (simultaneous) time variation of commodity price dynamics cannot be explained by the biofuels revolution and is more likely the consequence of heightened informational frictions and information discovery in more globalized and financialized commodity markets.
    Keywords: Commodity markets, food prices, oil prices, spillovers
    JEL: E31 F30 G15 Q11 Q41
    Date: 2019–09
  59. By: Jose Luis Luna-Alpizar
    Abstract: This paper explores the notion that minimum wages affect different lowskilled workers asymmetrically due to productivity differences. In a search model with worker heterogeneity, a rising minimum wage lowers the employment and labor force participation of the least productive workers by pricing them out of the market, while having the opposite effect on other low-skilled workers that remain hirable. CPS data supports these predictions; a rise in the minimum reduces the employment and labor force participation of teenagers with less than high school education, but has the opposite effect on prime-age workers with high school attainment. The calibrated model requires small firm surpluses to match these observations. If firm surplus is small due to high nonmarket activity values, a moderate rise in the minimum improves aggregate welfare even when the worker's bargaining weight is high.
    Keywords: minimum wages; search and matching; unemployment; worker heterogeneity;
    JEL: E24 J08 J38 J64 J68
    Date: 2019–05
  60. By: Malte Krüger
    Abstract: Die Regulierungsbehörden scheinen in Bezug auf multilaterale Interchange-Gebühren (MIF) ambivalent zu sein. Auf der einen Seite behandeln sie die MIF wie Kartellpreise in konventionellen Märkten. Andererseits haben sie eine Obergrenze für die MIF festgelegt - und damit das Konzept von Preisobergrenzen toleriert. Dieses Papier zeigt, dass diese Haltung der Regulierungsbehörden auf die Komplexität der zweiseitigen Märkte zurückzuführen ist. Es wird verdeutlicht, dass Emittenten nicht im Wettbewerb mit Acquirern und Acquirer nicht im Wettbewerb mit Emittenten stehen. Ebenso wenig besteht eine wettbewerbliche Konkurrenz unter den Emittenten um die Zahlungsakzeptanz am POS. Daher können die MIF kein Kartellpreis sein. Darüber hinaus wird argumentiert, dass die MIF als wirtschaftlicher Höchstpreis ein Bestandteil eines gut funktionierenden Kartenzahlungssystems sind. Alle anderen Optionen der Preisbestimmung leiden unter Trittbrettfahrerproblemen und hohen Transaktionskosten. Um die Funktionsweise eines Systems ohne die MIF richtig zu veranschaulichen, werden das deutsche Geldautomaten-System vor 2011 und die bilateralen Verhandlungen im Rahmen des deutschen electronic cash-Systems näher beleuchtet. Schließlich wird darauf hingewiesen, dass der aktuelle Regulierungsansatz zum Untergang der europäischen Kartensysteme führen kann, die derzeit unter dem Druck von Mastercard und Visa stehen.
    Keywords: Mutilaterale Interchange Gebühren, MIF, Kartenzahlungssysteme, Europäische Kartenzahlungssysteme, Wettbewerbspolitik, Regulierung, zweiseitige Märkte, MIF-Regulierung, Interchange Regulierung
    JEL: D49 E42 L14 L41
    Date: 2019–05
  61. By: Jose David GARCIA REVELO; Yannick LUCOTTE; Florian PRADINES-JOBET
    Keywords: , Macroprudential policy, Monetary policy, Financial stability, Excessive credit growth, Policy synchronisation.
    Date: 2019
  62. By: Marwa Elsherif (Helwan University and Arab Academy for Science, Technology and Maritime Transport)
    Abstract: Financial Inclusion is critical for the competitiveness, employment creation, and for raising incomes and reducing poverty. There is limited literature investigating the specific relationship between financial inclusion and monetary policy transmission. Central bank of Egypt (CBE) has launched three initiatives to support development and achievement of financial inclusion. They include an initiative to support financing small- and medium-sized enterprises (SMEs), another to support the tourism sector, in addition to a real estate financing initiative for medium- and low-income individuals. To explore the relationship between financial inclusion and monetary policy transmission in Egypt for the period of 2000 to 2017, it is proposed to use the principal component analysis (PCA) method to assign the weight of factors in financial inclusion index (by comprising selected indicators of financial development in a single index). And VECM approach to examine financial inclusion and monetary policy transmission, Granger Causality tests, and basic trend analyses, to explore empirically the relationship between financial inclusion indicators and monetary policy. The paper is arranged in sections. After the introduction, section II presents literature survey on links between financial inclusion and the goals of monetary policy, and presents stylized facts about financial inclusion in Egypt. Section III discusses the methodology of analysis. In section IV, results of econometric estimations are presented. Section V summarizes the paper with policy implications.
    Keywords: Financial Inclusion, Monetary Policy, VECM, Granger Causality Test
    JEL: E52 G18 C32
    Date: 2019–06
  63. By: Gechert, Sebastian; Havranek, Tomas; Irsova, Zuzana; Kolcunova, Dominika
    Abstract: We show that the large elasticity of substitution between capital and labor estimated in the literature on average, 0.9, can be explained by three factors: publication bias, use of aggregated data, and omission of the first-order condition for capital. The mean elasticity conditional on the absence of publication bias, disaggregated data, and inclusion of information from the first-order condition for capital is 0.3. To obtain this result, we collect 3,186 estimates of the elasticity reported in 121 studies, codify 71 variables that reflect the context in which researchers produce their estimates, and address model uncertainty by Bayesian and frequentist model averaging. We employ nonlinear techniques to correct for publication bias, which is responsible for at least half of the overall reduction in the mean elasticity from 0.9 to 0.3. Our findings also suggest that a failure to normalize the production function leads to a substantial upward bias in the estimated elasticity. The weight of evidence accumulated in the empirical literature emphatically rejects the Cobb-Douglas specification.
    Keywords: Elasticity of substitution,capital,labor,publication bias,model uncertainty
    JEL: D24 E23 O14
    Date: 2019
  64. By: Young-Han Kim (Sungkyunkwan University); Hanjoon Jung (Tianjin University)
    Abstract: This paper examines how currency crisis is affected by different timing of government intervention in the currency market. Since the seminal paper of Morris and Shin (1998), which shows that the self-fulfilling crisis can be avoided when noisy signals are considered, the conditions for the multiple equilibria have been widely studied. We contribute the studies by focusing on the timing of government intervention in the currency market. When the government intervenes in the market as a first mover, while speculators move as a second mover, the unique equilibrium of the currency market collapses since speculators can successfully coordinate after observing the government?s decisions. If the government moves as a second mover as in the case of Morris and Shin (1998), the unique equilibrium exists with noisy signals. When the government and speculators move simultaneously, there is no equilibrium with noisy information while there might be a unique equilibrium with perfect information. The results implicate that rash government intervention as a first mover might aggravate the currency crisis since the speculators have bigger opportunity for speculative coordination after observing the government?s action. The equilibria are also defined when the government intervention occurs in a repeated fashion, and the implications are discussed.
    Keywords: Currency crises, government intervention timing, multiple equilibria, unique equilibrium in currency regime
    JEL: F42 E61 P11
    Date: 2019–07
  65. By: Robert W. Dimand (Department of Economics, Brock University)
    Abstract: This paper explores the development of dynamic modelling of macroeconomic fluctuations at the Cowles Commission from Roos, Dynamic Economics (Cowles Monograph No. 1, 1934) and Davis, Analysis of Economic Time Series (Cowles Monograph No. 6, 1941) to Koopmans, ed., Statistical Inference in Dynamic Economic Models (Cowles Monograph No. 10, 1950) and Klein’s Economic Fluctuations in the United States, 1921-1941 (Cowles Monograph No. 11, 1950), emphasizing the emergence of a distinctive Cowles Commission approach to structural modelling of macroeconomic fluctuations influenced by Cowles Commission work on structural estimation of simulation equations models, as advanced by Haavelmo (“A Probability Approach to Econometrics,” Cowles Commission Paper No. 4, 1944) and in Cowles Monographs Nos. 10 and 14. This paper is part of a larger project, a history of the Cowles Commission and Foundation commissioned by the Cowles Foundation for Research in Economics at Yale University. Presented at the Association Charles Gide workshop “Macroeconomics: Dynamic Histories. When Statics is no longer Enough,” Colmar, May 16-19, 2019.
    Keywords: Macroeconomic dynamics, Cowles Commission, Business cycles, Lawrence R. Klein, Tjalling C. Koopmans
    Date: 2019–04
  66. By: Simplice Asongu (Yaoundé/Cameroon)
    Abstract: The purpose of this study is to investigate whether enhancing financial access influences productivity in Sub-Saharan Africa. The research focuses on 25 countries in the region with data for the period 1980-2014. The adopted empirical strategy is the Generalised Method of Moments. The credit channel of financial access is considered and proxied by private domestic credit while four main total factor productivity (TFP) dynamics are adopted for the study, namely: TFP, real TFP, welfare TFP and real welfare TFP. It is apparent from the findings that enhancing financial access positively affects welfare TFP whereas the effect is not significant on TFP, real TFP and welfare TFP. Policy implications are discussed. The study complements the extant literature by engaging hitherto unemployed dynamics of TFP in Sub-Saharan Africa.
    Keywords: Economic Output; Financial Development; Sub-Saharan Africa
    JEL: E23 F21 F30 O16 O55
    Date: 2019–01
  67. By: Peter C.B. Phillips (Cowles Foundation, Yale University); Zhentao Shi (The Chinese University of Hong Kong)
    Abstract: The Hodrick-Prescott (HP) filter is one of the most widely used econometric methods in applied macroeconomic research. The technique is nonparametric and seeks to decompose a time series into a trend and a cyclical component unaided by economic theory or prior trend speci?cation. Like all nonparametric methods, the HP filter depends critically on a tuning parameter that controls the degree of smoothing. Yet in contrast to modern nonparametric methods and applied work with these procedures, empirical practice with the HP filter almost universally relies on standard settings for the tuning parameter that have been suggested largely by experimentation with macroeconomic data and heuristic reasoning about the form of economic cycles and trends. As recent research has shown, standard settings may not be adequate in removing trends, particularly stochastic trends, in economic data. This paper proposes an easy-to-implement practical procedure of iterating the HP smoother that is intended to make the filter a smarter smoothing device for trend estimation and trend elimination. We call this iterated HP technique the boosted HP filter in view of its connection to L_2-boosting in machine learning. The paper develops limit theory to show that the boosted HP filter asymptotically recovers trend mechanisms that involve unit root processes, deterministic polynomial drifts, and polynomial drifts with structural breaks – the most common trends that appear in macroeconomic data and current modeling methodology. In doing so, the boosted filter provides a new mechanism for consistently estimating multiple structural breaks. A stopping criterion is used to automate the iterative HP algorithm, making it a data-determined method that is ready for modern data-rich environments in economic research. The methodology is illustrated using three real data examples that highlight the differences between simple HP filtering, the data-determined boosted filter, and an alternative autoregressive approach. These examples show that the boosted HP filter is helpful in analyzing a large collection of heterogeneous macroeconomic time series that manifest various degrees of persistence, trend behavior, and volatility.
    Keywords: Boosting, Cycles, Empirical macroeconomics, Hodrick-Prescott filter, Machine learning, Nonstationary time series, Trends, Unit root processes
    JEL: C22 E20
    Date: 2019–05
  68. By: Richard Blundell (University College London); Ran Gu (University of Essex); Soren Leth-Petersen (University of Copenhagen); Hamish Low (University of Oxford); Costas Meghir (Cowles Foundation, Yale University, NBER, IZA, CEPR, and Institute for Fiscal Studies)
    Abstract: We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss.
    Keywords: Lemons penalty, Car market, Estimated life-cycle equilibrium model
    JEL: D82 E2
    Date: 2019–09
  69. By: 深尾, 京司; 牧野, 達治; 攝津, 斉彦
    Abstract: 日本経済は1868年の明治維新以降,アジアで最初に近代経済成長を開始し,第二次世界大戦後の高度成長期を経て,1970年ごろには欧州の主要国にほぼ追いついた.戦前の経済成長率は西欧諸国とほぼ同水準であったものの,高度成長期に急激な産業構造の変化を伴いながら,アメリカ・イギリスの4倍という高い成長率を達成したことが,このようなキャッチアップを可能とした.本論文では,このおよそ100年間に及ぶ経済成長の過程を,近年整備された新たなGDP推計にもとづき,成長会計の手法を用いて分析する.特に,産業構造の変化,すなわち資源の再配分の効果が,経済成長にどのような影響を与えたのかを明らかにするべく,第一次産業と非第一次産業に分けて分析を試みた.我々の分析の結果,以下の知見を得た.戦前の第一次産業は,企業勃興期から第一次世界大戦ブーム期にかけて労働生産性の上昇が著しかったが,同期間の前半部分においては,TFPの上昇がその主要因となっていたのに対し,後半部分については労働者1人あたり資本ストックおよび耕地面積の寄与が相対的に大きかった.非第一次産業では,戦前期のほぼ全期間を通じて,TFPの上昇が労働生産性上昇を説明する主要因であった.戦後については,高度成長の源泉はTFPの上昇と労働者1人あたり資本ストックの増加の寄与であったが,その上昇率は非第一次産業で圧倒的に大きかった.また,これらの成長要因と比較すると,資源の再配分効果は限定的なものであった., After the Meiji Restoration of 1868, Japan modernized its institutions and economic growth gradually picked up. Growth accelerated especially during the so-called high-speed growth era from 1955 to 1970, when Japan rapidly caught up with Western economies. The long-term sustained high-speed growth recorded during this period was unprecedented not only in Japan but worldwide. While other East Asian countries such as Singapore, Taiwan, South Korea, and China subsequently also experienced remarkable growth over a prolonged period, Japan’s place in history as the first country to record such sustained high-speed growth means that its experience continues to garner worldwide interest. Using newly constructed Hitotsubashi estimates of Japan’s historical GDP statistics and a growth accounting flamework, we analyze the sources of Japan’s economic growth from 1885 to 1970 and try to answer why Japan was not able accomplish such high-speed growth before 1955. Since until the mid-1960s the primary sector accounted for a large share of economic activity and was a major determinant of overall economic growth, we use a Hayashi and Prescott (2008) type two-sector model in which the economy overall is divided into the primary sector and the non-primary sector.
    Date: 2019–05
  70. By: Fabian J. Baier (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: In this paper, bilateral OECD FDI flow data from 1985 to 2017 is evaluated and compiled to create a new dataset in order to clarify the controversial role (in the literature) of corporate tax levels on the decisions of firms regarding whether or not, and where, to undertake investments. In the course of our research we find the need to control for interaction with international financial institutions: Membership in BIS, EBRD, ADB and MIGA. Quantitative analyses via gravity models firstly provide findings which are consistent with previous studies and, secondly, expand the knowledge about FDI and tax by providing new results relevant for policymakers in the context of globalization and international institutions. It is shown that falling corporate tax rate levels lead to increasing FDI inflows, the effect is, however, smaller than expected; if deviation from international cooperation is chosen as a national strategy (i.e. unilateralism), the tax rate, however, gains in importance. On the other hand, unilateralism triggers various effects decreasing FDI inflows, as trade openness is likely to decrease, the opportunity costs for other nations to deviate decrease, and therefore bilateral tax differences are likely to decrease as well; which will further reduce the effect of low tax levels. Evidence for the phenomenon of implementing low corporate tax levels in order to keep domestic firms within the country and reduce their incentives to invest abroad is not found.
    Keywords: Foreign Direct Investment, Corporate Taxation, International Financial Institutions, Gravity Equation, OECD Countries
    JEL: C32 E65 F21 F23 G20
    Date: 2019–08
  71. By: Hairong Mu (Harper Adams University)
    Abstract: With the depletion of terrestrial resources and the development of marine science and technology, marine economy has become a new growth pole in the world economic development. After more than ten years of hard work, many coastal areas have seen significant improvements in their ecological environment. As an important marine country, China is not an exception. To analyze the influence of eco-environment governance policies on marine economy, this paper quantifies the relationship between environmental regulation and marine economic efficiency for 11 provinces (or municipalities) in China's coastal areas. The Super-Efficiency Slacks-Based Measure (SE-SBM) model is used to illustrate the marine economic efficiency considering undesired outputs. The results of the system Generalized Moment Method (GMM) regression support a U-shaped relationship between the two variables, with one threshold effect of the environmental regulation intensity. It is also verified the implementation of the environmental regulation policy has a time-lag effect. During the process of implementation, industrial structure optimization, scientific and technological innovation have different impacts on marine economy. The paper concludes with detailed explanation for the effects of environmental regulation and policy on marine economy development in China. Policymakers can use these insights to formulate appropriate environment policies that aim to realize marine ecological civilization.
    Keywords: environmental regulation; marine economic efficiency; threshold effect
    JEL: E60 K32 Q00
    Date: 2019–07
  72. By: Beata Guziejewska (University of Lodz); Joanna Dzia?o (Lazarski University)
    Abstract: The ongoing processes of decentralization, which are present in many countries, cause a growing proportion of public funds to be collected and spent at the local government tier, which necessitates the use of fiscal rules not only at the state level. This issue may raise some controversy due to the specific character, autonomy and empowerment of local government and local communities. Therefore, the analysed subject is based on three questions: 1. Limited fiscal autonomy of local self-government and it?s consequences 2. A real need for and the scope of the use of fiscal rules in local government finance, 3. The informal factors that directly determine the indebtedness in local governments in the light of literature and selected empirical research. We use a descriptive method supported by an analysis of financial data and a case study as it presents selected aspects of Polish experience in the subject matter. The results of the analysis seem to point to the necessity of the use of fiscal rules in local government finance, which paradoxically strengthens the processes of decentralization, democratization, technological advancement and globalization. Some primary results of our research indicate investment expenditure, own revenues, number of companies (level of GDP) and election cycle as important, significant factors (in statistical meaning) effecting the local deficit and debt. The conclusions list the advantages of the use of fiscal rules at the local government tier and large diversity of informal conditions across the whole country.
    Keywords: municipal finance, fiscal rules, municipal debt
    JEL: E62 H19 H79
    Date: 2019–07
  73. By: Dold, Malte; Krieger, Tim
    Abstract: In the aftermath of the Eurozone crisis, a "battle of ideas" emerged over whether ordoliberalism is part of the cause or the solution of economic problems in Europe. While German ordoliberals argued that their policy proposals were largely ignored before and during the crisis, implying a too small role of ordoliberalism in European economic policy, critics saw too much ordoliberal influence, especially in form of austerity policies. We argue that neither view is entirely correct. Instead, both camps followed their ideological predispositions and argued strongly in favor of their preconceived Weltanschauung. The ordoliberal Freiburg School ceased being an active research program and instead grew to resemble a "tradition" whose proponents shared a certain mindset of convenience. As a result, ordoliberal thinking was both used and abused by its proponents and critics to emphasize their ideologically framed policy recommendations. The present paper analyzes this ongoing debate and reflects on how the different ideological camps refer to the Freiburg School to push their own agendas. Building on this discussion, we end our paper with some constructive thoughts on how a contemporary ordoliberalism might want to react to some of the challenges of the ongoing Eurozone crisis.
    Keywords: Freiburg School,Ordoliberalism,Eurozone Crisis,Austerity,Ideology
    JEL: B29 D43 E61 G18 P16
    Date: 2019

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