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on Macroeconomics |
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Issue of 2019‒09‒23
94 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Haque, Qazi; Groshenny, Nicolas; Weder, Mark |
| Abstract: | The paper re-examines whether the Federal Reserve’s monetary policy was a source of instability during the Great Inflation by estimating a sticky-price model with positive trend inflation, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage-rigidity and finds that the Federal Reserve responded aggressively to inflation but negligibly to the output gap. In the presence of non-trivial real imperfections and well-identified commodity price-shocks, U.S. data prefers a determinate version of the New Keynesian model: monetary policy-induced indeterminacy and sunspots were not causes of macroeconomic instability during the pre-Volcker era. |
| JEL: | E32 E52 E58 |
| Date: | 2019–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_020&r=all |
| By: | Kantur, Zeynep; Özcan, Gülserim |
| Abstract: | In addition to the stabilization of inflation and output gap, the responsibility of preventing financial crises and providing stable financial system is assumed by the central banks. In the aftermath of the Great Recession, the policymakers gave financial stability mandate more prominence to preemptively obliterate the fluctuations in the financial market. New models with alternative policy tools have emerged during this period to analyze the impact of financial shocks, and their linkages with the real economy. However, for the policymaker, it might not be possible to verify these models with existing information, which leads to uncertainty. This paper proposes robust optimal policy under uncertainty in response to financial and inflation shocks by acknowledging financial stability as an explicit objective of monetary policy. To do so, we extend the framework of De Paoli and Paustian (2017) by introducing model misspecification. We show that model ambiguity in the financial side requires a passive monetary policy stance. However, if the uncertainty originates from the supply side of the economy, an aggressive response of interest rate is required. We also show the contribution of an additional tool to the dynamics of the economy. |
| Keywords: | Financial Uncertainty, Financial Stability, Optimal Monetary Policy, Robust Control |
| JEL: | D81 E44 E52 E58 |
| Date: | 2019–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95920&r=all |
| By: | Jesus Fernandez-Villaverde; Francesco Zanetti; Federico Mandelman; Yang Yu |
| 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: | 2019–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:880&r=all |
| By: | Jordi Galí |
| Abstract: | I analyze the effects of a money-financed fiscal stimulus and compare them with those resulting from a conventional debt-financed stimulus. I study the effects of both a tax cut and an increase in government purchases, with and without a binding zero lower bound (ZLB) on the nominal interest rate. When the ZLB is not binding, a money-financed fiscal stimulus is shown to have much larger multipliers than a debt-financed fiscal stimulus. That difference in effectiveness persists, but is much smaller, under a binding ZLB. Nominal rigidities are shown to play a major role in shaping those effects |
| JEL: | E32 E52 E62 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26249&r=all |
| By: | Hertweck, Matthias S.; Lewis, Vivien; Villa, Stefania |
| Abstract: | We introduce two types of effort into an otherwise standard labor search model to examine indeterminacy and sunspot equilibria. Variable labor effort gives rise to increasing returns to hours in production. This makes workers more valuable and contributes to self-fulfilling profit expectations, raising the likelihood of indeterminacy. Variable search effort makes workers search more intensively in a tighter labor market, which alleviates congestion and reduces the likelihood of indeterminacy. Indeterminacy disappears completely when vacancy posting costs are replaced with hiring costs. |
| Keywords: | determinacy,effort,hours,labor market frictions,search intensity |
| JEL: | E23 E24 E32 E64 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:292019&r=all |
| By: | De Koning, Kees |
| Abstract: | The two key financial decisions that nearly all households have to make are related to a place to live (especially if this involves a mortgage), and the savings needed to have an acceptable income during retirement: pension savings. In a previous paper: “After the Great Recession: the Laws of Unintended Consequences” the writer sets outs the impact on U.S. mortgage holders as a result of the U.S. financial crisis of 2007-2008. This paper will explore the situation in the Eurozone countries (which share one base rate for the Euro, but have fundamentally different inflation rates and government bond yields) after first examining the links between the U.S. financial crisis and the pensions crisis in Europe. Pension savings, by their very nature, represent postponed expenditure. This raises a number of issues: what are the returns going to be? Should such savings be made in collective vehicles - like pension funds, either company or industry wide ones - or in individual accounts? Setting aside savings for future pension payments automatically affects an individual’s current spending levels. The reward for postponing current spending depends mainly on Central Banks’ and Governments’ economic policies. As will be explained in this paper, the main problem is that government bond yields no longer compensate for inflation levels in some countries. Pension savings are very much a national issue, rather than a Eurozone area one. Therefore national solutions need to be found, rather than pan-Eurozone ones. One option that will be explored is to compensate pension savers on their government bond holdings to a level equivalent of CPI levels plus 0.25%. The economic implications of this for both a central bank and a government will be set out in this paper. The Netherlands –as the country that in the Eurozone has the highest accumulated collective pension savings compared to its GDP- has been selected to show how this may work. As the current levels of interest rates are a consequence of the 2007-2008 financial crisis that started in the U.S., attention will first be paid to what was, and what was not, done to solve that crisis. |
| Keywords: | Pension crisis, U.S. financial crisis 2007-2008,returns on pension savings, QE by Fed in the U.S. and by ECB, alternative solutions to pension and mortgage crises |
| JEL: | D12 D14 E2 E21 E22 E24 E4 E42 E44 E5 |
| Date: | 2019–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95934&r=all |
| 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; Centre for Macroeconomics (CFM)) |
| 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: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1917&r=all |
| By: | Behzad Diba (Department of Economics, Georgetown University); Olivier Loisel (CREST (ENSAE)) |
| Abstract: | We develop a model of monetary policy with a simple departure from the basic New Keynesian (NK) model. In this model, the central bank sets independently the interest rate on bank reserves and the nominal stock of bank reserves. As long as demand for real reserves is not fully satiated, the model delivers local-equilibrium determinacy under permanently exogenous monetary-policy instruments. As a result, it does not share the puzzling and paradoxical implications of the basic NK model under a temporary interest rate peg (e.g., in the context of a liquidity trap). More specifically, it offers a resolution of the “forward-guidance puzzle,” a related puzzle about fiscal multipliers, and the “paradox of flexibility,” even for an arbitrarily small departure from the basic NK model. It still solves or attenuates these puzzles and that paradox for a vanishingly small departure, and also solves the “paradox of toil” in that case. We argue that our non-satiation assumption is reasonable for analyzing the role of monetary policy during the Great Recession. |
| Keywords: | New Keynesian puzzles, forward guidance, interest on reserves, price determinacy |
| JEL: | E52 E58 |
| Date: | 2019–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~19-19-05&r=all |
| By: | Magda Ciżkowicz-Pękała (Narodowy Bank Polski); Witold Grostal (Narodowy Bank Polski); Joanna Niedźwiedzińska (Narodowy Bank Polski); Elżbieta Skrzeszewska-Paczek (Narodowy Bank Polski); Ewa Stawasz-Grabowska (University of Lodz); Grzegorz Wesołowski (Narodowy Bank Polski); Piotr Żuk (Narodowy Bank Polski) |
| Abstract: | Over the last three decades, inflation targeting has become one of the most widespread monetary policy frameworks used in economies striving to conduct independent monetary policy. However, the recent global financial crisis provoked criticism of the way monetary policies had been conducted, including under an inflation targeting strategy, and called for some adjustments to the monetary policy regimes. Against this background, the report is aimed at showing that introducing changes to inflation targeting has been an ongoing process. This is illustrated by discussing the key modifications that have been applied to the inflation targeting framework over the last decades, as well as by pointing to some less commonly reviewed adjustments of the strategy as practiced by some central banks in the past. While quite a number of more recent studies on inflation targeting emphasise lessons learnt from the global financial crisis, this report looks at the full 30 years of experiences with the regime and covers rather diversified array of issues relevant for understanding the strategy, reaching also for more distant examples of its modifications. Importantly, the focus is put on strategic elements of the framework, and consequently the topics related to macroprudential policy and monetary policy instruments are discussed rather briefly. |
| Keywords: | Monetary Policy, Central Banking, Policy Design |
| JEL: | E31 E52 E58 E61 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:314&r=all |
| By: | Donato Masciandaro |
| Abstract: | This article discusses the relationships between populism, economic policy design and central bank independence (CBI). Assuming that 1) a macro (banking) shock can occur, 2) the incumbent government can face a trade - off between bail-out and bail-in and can finance its public spending choosing between taxes and debt; 3) an independent central bank design the monetary policy strategy assuming a long run perspective – i.e. welfare function maximization; 3) labour and financial assets represent the citizens endowment, with the possibility of monetary and banking externalities, it is possible that the majority of citizens prefer an overall policy design – including monetary policy - that are different from the social optimal ones. Then if the incumbent government wishes to please the voters, the political pressure measures the difference between the government goals and the central bank choices. The political pressure can be considered a proxy for a contingent demand of CBI reform – a metrics for de facto CBI. If we define as populist any policy that guarantees anti- elites redistribution without regard for longer term distortions, a populist pressure that promote a more politically dependent central bank can arise when the elites are sophisticated investors, while the majority of citizens are unsophisticated investors. |
| Keywords: | Populism, Financial Inequality, Monetary Policy, Central bank Independence, Political Economics |
| JEL: | D72 D78 E31 E52 E58 E62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp19111&r=all |
| By: | Elena Deryugina (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation) |
| Abstract: | We estimated a Non-Stationary Dynamic Factor model and used it to generate artificial episodes of disinflation (permanent change in the mean inflation rate). These datasets were used to test the forecasting abilities of alternative underlying inflation indicators (i.e. the measures that capture sustained movements in inflation extracted from information in a disaggregated set of price data). We found that the out of sample forecast errors of the benchmark underlying inflation measures (based on unobserved trend extraction) are more severely affected by disinflation than the alternative simpler methods (based on exclusion or reweighting approaches). We also show that a Non-Stationary Dynamic Factor model may be employed for extraction of the unobserved trend to be used as an underlying inflation measure. |
| Keywords: | Underlying inflation, Non-Stationary Dynamic Factor model, Russia. |
| JEL: | E31 E32 E52 C32 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps44&r=all |
| By: | Neyer, Ulrike; Stempel, Daniel |
| Abstract: | This paper theoretically analyzes the macroeconomic effects of gender discrimination against women in the labor market in a New Keynesian model. We extend standard frameworks by including unpaid household production in addition to paid labor market work, by assuming that the representative household consists of two agents, and by introducing discriminatory behavior on the firms' side. We find that, in steady state, this discrimination implies that women work inefficiently more in the household and less in the paid labor market than men. This inefficient working time allocation between women and men leads to a discrimination-induced gender wage gap, lower wages for women and men, lower aggregate output, and lower welfare. The analysis of dynamic effects reveals that households benefit less from positive technology shocks. Moreover, the transmission of expansionary monetary policy shocks on output and in ation is lower in the discriminatory environment. |
| Keywords: | New Keynesian Models,Gender Discrimination,Household Production,Monetary Policy Transmission |
| JEL: | D13 D31 E32 E52 J71 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:324&r=all |
| By: | Schmöller, Michaela; Spitzer, Martin |
| Abstract: | This paper analyses the procyclicality of euro area total factor productivity and its role in business cycle amplification by estimating a medium-scale DSGE model with endogenous productivity mechanism on euro area data. Total factor productivity evolves endogenously as a consequence of costly investment in R&D and adoption of new technologies. We find that the endogeneity of TFP induces a high degree of persistence in the euro area business cycle via a feedback mechanism between overall economic conditions and investment in productivity-enhancing technologies. As to the sources of the euro area productivity slowdown, we conclude that a decrease in the efficiency of R&D investment is among the key factors generating the pre-crisis productivity slowdown, while starting from the Great Recession an increase in liquidity demand is identified as the most important driving force. The endogenous technology mechanism further exerts a dampening effect on the inflation response over the business cycle which helps rationalizing both the negligible fall in inflation during the Great Recession and the sluggish increase of inflation in the subsequent recovery. |
| JEL: | E24 E32 O31 |
| Date: | 2019–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_021&r=all |
| By: | Mumtaz Ahmad (Department of Economics, Carleton University); John Fernald (Department of Economics and Political Science Area, INSEAD); Hashmat Khan (Department of Economics, Carleton University) |
| Abstract: | We estimate constant returns or slightly decreasing returns at the industry level in the private U.S. economy over the past 30 years, using two separate industry datasets. An intuitive identity linking returns to scale, the markup, and the profit rate, gives an implied markup of approximately 12 percent, smaller than the estimates in the recent literature ranging from 15–40 percent. Put differently, given our estimated profit rate, large markups imply strongly increasing returns, which are not evident in the aggregate data.These findings suggest that approximately constant returns to scale in the U.S. economy are consistent with a relatively small aggregate markup in the post-1990 period. |
| Keywords: | Returns to scale, profit rates, markups |
| JEL: | E22 E32 |
| Date: | 2019–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:19-07&r=all |
| By: | Adam, Klaus; Merkel, Sebastian |
| Abstract: | We present a simple model that quantitatively replicates the behavior of stock prices and business cycles in the United States. The business cycle model is standard, except that it features extrapolative belief formation in the stock market, in line with the available survey evidence. Extrapolation amplifies the price effects of technology shocks and - in response to a series of positive technology surprises - gives rise to a large and persistent boom and bust cycle in stock prices. Boom-bust dynamics are more likely when the risk-free interest rate is low because low rates strengthen belief-based amplification. Stock price cycles transmit into the real economy by generating inefficient price signals for the desirability of new investment. The model thus features a 'financial accelerator', despite the absence of financial frictions. The financial accelerator causes the economy to experience persistent periods of over- and under-accumulation of capital. JEL Classification: E32, E44, G12 |
| Keywords: | booms and busts, business cycles, financial accelerator, stock market volatility |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192316&r=all |
| 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: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1668&r=all |
| By: | Simon Mongey; Giovanni L. Violante |
| Abstract: | We merge QCEW and JOLTS microdata to study the recruiting intensity of firms in the cross-section and over time. Vast establishment-level heterogeneity in vacancy filling rates is entirely explained by differences in gross hiring rates. Through the lens of standard theory, we aggregate firm-level decisions into an measure of aggregate recruiting intensity (ARI). Procyclicality of ARI is primarily due to cutting recruiting effort in slack labor markets. Given this we provide an ARI index easily computable from publicly available macroeconomic data. Declining ARI in the Great Recession accounted for much of the increase in unemployment, but little of its persistence. |
| JEL: | E24 E32 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26231&r=all |
| By: | Michael Brei; Claudio Borio |
| Abstract: | This paper investigates how the prolonged period of low interest rates affects bank intermediation activity. We use data for 113 large international banks headquartered in 14 major advanced economies during the period 1994–2015. We find that low interest rates induce banks to shift their activities from interest-generating to fee-related and trading activities. This rebalancing is stronger for low capitalised banks. Banks also moderately adjust their funding structure, away from short-term market funding towards deposits. We observe a concomitant decline in the risk-weighted asset ratio and a reduction in loan-loss provisions, which is consistent with signs of evergreening. |
| Keywords: | monetary policy, bank business models, financial crisis |
| JEL: | C53 E43 E52 G21 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:807&r=all |
| By: | Angelini, Elena; Bokan, Nikola; Christoffel, Kai; Ciccarelli, Matteo; Zimic, Srečko |
| Abstract: | This paper presents the blueprint of a new ECB multi-country model. The version documented in the following pages is estimated on euro area data. As a prelude to the country models, this version is meant to enhance the understanding of the main model mechanisms, enlarge the suite of area wide tools, and provide a tool for a top down approach between euro area and country modelling. The model converges to a well-defined steady state and its properties are in line with macroeconomic theory and standard empirical benchmarks. The design is aligned to its role as workhorse model in the context of the forecasting and policy simulation exercises at the ECB. JEL Classification: C3, C5, E1, E2, E5 |
| Keywords: | euro area, forecasting, monetary policy, Semi-structural model, simulations |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192315&r=all |
| By: | Naudé, Wim (UNU-MERIT, Maastricht University, RWTH Aachen, and IZa, Bonn.) |
| Abstract: | Entrepreneurship in most advanced economies is in decline. This comes as a surprise: many scholars have expected an upsurge in entrepreneurship. What are the reasons for the decline? In this paper I first document the extent of the decline in terms of entrepreneurial entry rates; the share of young and small firms; and in terms of labor market mobility and in innovativeness. I then critically discuss the explanations that have been offered in the literature: slow population growth, market concentration, zombie-firm congestion, slower diffusion of knowledge, and burdensome business regulations. While having merit, these explanations are largely supply-side oriented and moreover fail to explain why the decline in entrepreneurship is associated with high levels of economic complexity. I argue that we need to consider the potential of negative scale effects and evolutionary pressures from rising complexity, as well as long-run changes in aggregate demand and energy costs. Whether the decline in entrepreneurship and the ossification of the economy is undesirable, is a point for debate, calling for more research and more attention to entrepreneurship in growth theories. |
| Keywords: | Entrepreneurship, start-ups, development, economic complexity, growth theory |
| JEL: | O47 O33 J24 E21 E25 |
| Date: | 2019–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2019030&r=all |
| By: | Ngotran, Duong |
| Abstract: | The author develops a dynamic model with two types of electronic money: reserves for transactions between bankers and zero-maturity deposits for transactions in the non-bank private sector. Using this model, he assesses the efficacy of unconventional monetary policy since the Great Recession. After quantitative easing, keeping the interest on reserves near zero too long might create deflation. The central bank can safely get out of the "low rate-cum-deflation" trap by "raising rate and raising money supply". |
| Keywords: | interest on reserves,quantitative easing,unwinding QE,e-money,excess reserves,raise rate raise money supply |
| JEL: | E4 E5 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201949&r=all |
| By: | Max Raskin; Fahad Saleh; David Yermack |
| Abstract: | This paper provides a systematic evaluation of the different types of digital currencies. We express skepticism regarding centralized digital currencies and therefore focus our economic analysis on private digital currencies. Specifically, we highlight the potential for private digital currencies to improve welfare within an emerging market with a selfish government. In that setting, we demonstrate that a private digital currency not only improves citizen welfare but also encourages local investment and enhances government welfare. |
| JEL: | E42 E5 E58 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26219&r=all |
| By: | Rybacki, Jakub |
| Abstract: | During the period 2015-2018 European Central Bank (ECB) has implemented a large-scale asset purchases program in order to revive inflation expectations and achieve sustainable annual HICP dynamics close to 2%. Furthermore, bank communicated that policy should remain accommodative for a long time in the foreseeable future. Based on an extended Taylor rule with Wu-Xia shadow rates and variable Holston-Laubach-Williams natural rates we analyzed discretionary deviation in policy of ECB, US Federal Reserve (Fed) and Bank of England. We identified a widening dovish bias in ECB Governing Council policy during the years 2015-2019. Such policy resulted in increase of real estate prices and the risk of market bubble measured by the UBS index. The likely consequence of this problem is a decrease in public trust in central banks and increase of support for populist movements. |
| Keywords: | forward guidance, large scale asset purchases, quantitative easing, time consistency, real estate bubbles |
| JEL: | E52 E58 |
| Date: | 2019–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95906&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | We present a continuous time version of a dynamic analysis of debt-to-GDP ratio, and examine the effects of a fiscal policy which realizes full-employment from a state of under-employment or with deflationary GDP gap. We show that the larger the extra growth rate of real GDP by a fiscal policy is, the smaller the debt-to-GDP ratio at the time when full-employment is realized is, and a fiscal policy for full-employment can reduce the debt-to-GDP ratio. Therefore, full-employment can be realized by an aggressive fiscal policy with smaller debt-to-GDP ratio than before the fiscal policy. An increase in the government expenditure may induce a rise of the interest rate. Since the higher the interest rate is, the larger the debt-to-GDP ratio is, we need an appropriate monetary policy which maintains the low interest rate. Also we show that even if the propensity to consume is very small, an aggressive fiscal policy can realize full-employment without increasing debt-to-GDP ratio. |
| Keywords: | fiscal policy, full-employment, debt-to-GDP ratio, continuous time debt dynamics |
| JEL: | E62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95878&r=all |
| By: | Guido Ascari; Timo Haber |
| Abstract: | This paper proposes a minimal test of two basic empirical predictions that ag-gregate data should exhibit if sticky prices were the key transmission mechanism of monetary policy, as implied by the benchmark DSGE-New Keynesian models. First, large monetary policy shocks should yield proportionally larger initial re-sponses of the price level and smaller real effects on output. Second, in a high trend inflation regime, prices should be more flexible, and thus the real effects of monetary policy shocks should be smaller and the response of the price level larger. Our analysis provides some statistically significant evidence in favor of a sticky price theory of the transmission mechanism of monetary policy shocks. |
| Keywords: | Sticky prices, local projections, smooth transition function, time-dependent pricing, state-dependent pricing |
| JEL: | E30 E52 C22 |
| Date: | 2019–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:869&r=all |
| By: | Fontaine, Idriss (Université de la Réunion); Galvez-Iniesta, Ismael (Universidad Carlos III de Madrid); Gomes, Pedro Maia (Birkbeck, University of London); Vila-Martin, Diego (University of Amsterdam) |
| Abstract: | For the period between 2003 and 2018, we document a number of facts about worker gross flows in France, the United Kingdom, Spain and the United States, focussing on the role of the public sector. Using the French, Spanish and UK Labour Force Survey and the US Current Population Survey data, we examine the size and cyclicality of the flows and transition probabilities between private and public employment, unemployment and inactivity. We examine the stocks and flows by gender, age and education. We decompose contributions of private and public job-finding and job-separation rates to fluctuations in the unemployment rate. Public-sector employment contributes 20 percent to fluctuations in the unemployment rate in the UK, 15 percent in France and 10 percent in Spain and the US. Private-sector workers would forgo 0.5 to 2.9 percent of their wage to have the same job security as public-sector workers. |
| Keywords: | worker gross flows, job-finding rate, job-separation rate, public sector, public-sector employment |
| JEL: | E24 E32 J21 J45 J60 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12579&r=all |
| By: | Kneezevic, David (Kommuninvest of Sweden); Nordström, Martin (Örebro University School of Business); Österholm, Pär (Örebro University School of Business) |
| Abstract: | In this paper we investigate how the five-year Swedish municipal bond yield has been related to the corre-sponding yield on government bonds during the period that the Riksbank has conducted unconventional monetary policy in terms of bond purchases. Using daily Swedish data on bond yields from February 2015 to January 2018, we first conduct an event study to assess the short-run effects of the Riksbank’s bond-purchase announcements. We then estimate bivariate vector autoregressive models in order to study the dynamic relationship between the yields. Results from the event study suggest that the accumulated short-run effect of the Riksbank’s announcements was to lower the government bond yield by approximately 40 to 50 basis points and municipal bond yields by 30 to 35 basis points. Our vector autoregressive analysis indicates – in line with the event study – that an unexpected decrease in the government bond yield initially increases the municipal bond-yield spread. However, after approximately four weeks, the effect has been reversed and the municipal bond-yield spread is lower than it was initially. By conducting this analysis, we contribute to the understanding of the transmission of unconventional monetary policy. |
| Keywords: | Spread; Event study; Vector autoregression; Cointegration |
| JEL: | C32 E44 G10 |
| Date: | 2019–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2019_006&r=all |
| By: | Rasaki, Mutiu Gbade; Malikane, Christopher |
| Abstract: | The paper formulates and estimates an open economy monetary DSGE model to investigate the quantitative significance of the financial accelerator mechanism in business cycle fluctuations for African countries. We employ the Bayesian technique to evaluate the statistical importance of the financial accelerator channel in African countries. We compare the model with financial accelerator model to the model without financial accelerator. The estimation shows that financial accelerator channels are empirically important in African economies. The marginal likelihood results clearly favour the model with financial accelerator in African economies. Moreover, the results show that the financial accelerator channel dampens the expansionary effects of exchange rate depreciation in African economies. African countries should deepen their domestic debt markets to minimize their vulnerability to exchange rate shocks. |
| Keywords: | Financial accelerator, Bayesian technique, Marginal likelihood, Business cycle. |
| JEL: | C11 E32 F41 |
| Date: | 2017–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95977&r=all |
| By: | Fernando Borraz (Banco Central del Uruguay; Departamento de Economía. Facultad de Ciencias Sociales. Universidad de la República (Uruguay)); Laura Zacheo (Banco Central del Uruguay) |
| Abstract: | This paper uses a rich and unique data set with eight years of monthly inflation expectation and subjective probability distributions to analyze the expectation formation process of firms in Uruguay. First, firms exhibit a very high degree of attention to current inflation conditions which we link to the countries' historical inflation experience. Second, the forecasters fail to incorporate all of the available information and firms' forecasts are more accurate than those of professional forecasters in Uruguay. Third, there is disagreement between forecasters at the short run but also at the long run and the disagreement is higher for forecasters that revise than for forecasters that do not revise. Therefore, there must be some noise or friction that prevents agents that changes prices to get access to perfect information. Fourth, the disagreement is not fully explained by differences in the information set because one in five forecasts is not internal consistent. |
| Abstract: | Este documento analiza el proceso de formación de expectativas de las empresas en Uruguay examinando una base de datos única, con ocho años de expectativas de inflación mensuales y distribuciones de probabilidad subjetiva. En primer lugar, las empresas muestran un alto grado de atención a las condiciones inflacionarias actuales, aspecto que vinculamos con la experiencia histórica de inflación del país. En segundo lugar, al realizar proyecciones los agentes no incorporan toda la información disponible; además, las proyecciones de las empresas son más precisas que las de los analistas profesionales en Uruguay. En tercer lugar, existe desacuerdo entre las empresas respecto a sus proyecciones a corto plazo pero también a largo plazo y el desacuerdo es mayor para aquellas que revisan sus proyecciones que para las que no revisan. Por lo tanto, debe haber algún ruido o fricción que impida a los agentes que modifican los precios obtener acceso a la información perfecta. Cuarto, el desacuerdo no es explicado completamente por las diferencias en el conjunto de información porque una de cada cinco proyecciones de inflación no es consistente internamente. |
| Keywords: | inflation expectation, inattention, disagreement, subjective probability distribution |
| JEL: | D84 E31 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bku:doctra:2018007&r=all |
| By: | Raphael Auer |
| Abstract: | The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, ie a regulatory framework that provides for compliance in tokenised markets to be automatically monitored by reading the market's ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralised market is modelled that replaces today's intermediary-based verification of legal data with blockchain-enabled data credibility based on economic consensus. The key results set out the conditions under which the market's economic consensus would be strong enough to guarantee that transactions are economically final, so that supervisors can trust the distributed ledger's data. The paper concludes with a discussion of the legislative and operational requirements that would promote low-cost supervision and a level playing field for small and large firms. |
| Keywords: | tokenisation, asset-backed tokens, stablecoins, cryptoassets, cryptocurrencies, regtech, suptech, regulation, supervision, Basel III, proportionality, blockchain, distributed ledger technology, digital currencies, proof-of-work, proof-of-stake, permissioned DLT, economic consensus, economic finality, fintech, compliance, auditing, accounting, privacy, digitalisation, finance, banking |
| JEL: | D40 D20 E42 E51 F31 G12 G18 G28 G32 G38 K22 L10 L50 M40 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:811&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | We examine the effects of a fiscal policy by tax reduction which realizes full-employment from a state of under-employment or with deflationary GDP gap. We show that the larger the growth rate of real GDP by tax reduction is, the smaller the debt-to-GDP ratio at the time when full-employment is realized is, and an aggressive fiscal policy by tax reduction for full-employment can reduce the debt-to-GDP ratio. Therefore, full-employment can be realized with smaller debt-to-GDP ratio than before the tax reduction policy. However, for this result we need that the marginal propensity to consume is considerably large. |
| Keywords: | tax reduction, full-employment, debt-to-GDP ratio, continuous and discrete time debt dynamics |
| JEL: | E62 |
| Date: | 2019–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95912&r=all |
| By: | Evren Erdogan Cosar; Ayse Arzu Yavuz |
| Abstract: | This study examines the long-term relationship in Turkey between Gross Domestic Product (GDP) and two labor market variables, employment and unemployment rate. Markov switching (MS) models are estimated to capture non-linear effects under Okun’s law, using quarterly data for 1989 to 2018. The aim is to determine whether these labor market variables exhibit asymmetric behavior in response to GDP changes. Asymmetric effects determine the course of the recovery in GDP and employment after a crisis, so it is important to determine elasticities among these variables to implement active labor market policies. This study is novel in that we investigate the existence of these asymmetric relationships in the Turkish economy while taking into consideration the expansion and recession phases of both variables. In a MS model with two states being expansion and recession, we find asymmetric relationships between labor market variables and GDP both within and between phases. In addition, labor market variables in Turkey respond more strongly to GDP changes during recessions. |
| Keywords: | Okun’s law, Markov-switching models, Asymmetry, Turkey |
| JEL: | C22 E24 E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1927&r=all |
| By: | Oddmund Berg (Statistics Norway) |
| Abstract: | In the early 2000s, eight Norwegian energy producing municipalities sold up to ten years of future electricity earnings and let two brokers from Terra Securities make investments on their behalf. In the wake of the 2007 credit crash the municipalities lost up to 80 percent of their assets. This paper uses a difference in difference analysis to show that this tightening of the local government budget, and accompanying uncertainty about future economic outcomes, led to a reduction in private consumption of around 2 percent in 2008. I show that the response is driven by households who are the largest recipients of public services - the young and the elderly. The reduction in consumption is a result of households saving more, and not a direct consequence of changes in their disposable income. I also find that households in the affected municipalities rebalance their portfolios to holding a lower share of risky assets. The results are interpreted as households holding back consumption, and reallocating towards safer assets, until uncertainty regarding fiscal outcomes is resolved. |
| Keywords: | Fiscal uncertainty; consumption and saving; panel data; natural experiment |
| JEL: | D12 E21 E65 H31 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:913&r=all |
| By: | Aubhik Khan (Ohio State University); Julia Thomas (Ohio State University); Tatsuro Senga (Queen Mary University of London) |
| Abstract: | We develop a model with endogenous entry and exit in an economy subject to non-stationary shocks to aggregate total factor productivity. Firms exhibit a life-cycle consistent with microeconomic data, and our model reproduces key moments of the empirical firm age and size distribution. In this setting, persistent shocks to trend growth can drive long term reductions in business formation. The economic consequences of a persistent decline in entry grow over time and, together with "wait-and-see" effects on aggregate capital investment, can compound and protract a productivity slowdown. We apply our model to understanding the last decade of U.S. economic activity, an episode marked by slow GDP growth and persistently low entry rates and business fixed investment in the aftermath of the Great Recession. Firms vary in the permanent and transitory components affecting their productivity and in their capital stocks, and their capital adjustments are subject to one period time-to-build, alongside convex and nonconvex costs. Thus, the economy's aggregate state includes a distribution of firms over productivity and capital, and changes in this distribution have a persistent influence on economic activity. Epstein-Zin preferences and a time-varying relative price of capital goods combine to accommodate countercyclical risk premia capable of driving large changes in firm values. Following a persistent shock to trend growth, equilibrium movements in firms' stochastic discount factors imply long-run reductions in the value of entry. The resulting declines in new business formation propagate the shock's effects on investment and GDP, slowing aggregate recovery. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1453&r=all |
| By: | Shutao Cao (Bank of Canada); Wei Dong (Bank of Canada) |
| Abstract: | Commodity price fluctuations have macroeconomic implications not only through resource reallocation, currency value changes and monetary policy reaction, but also through production network linkages. In this paper, we study the propagation of commodity price shocks in a multiple-sector general equilibrium model for a small open economy that exports commodity. In the small open economy, a shock to commodity prices is both aggregate and sectoral. As an aggregate shock, commodity price movements lead to changes in the value of domestic currency, impacting the macro economy due to its size and triggering monetary policy responses. As a sectoral shock, changes in commodity price impact non-commodity sectors in two aspects: impacting demand for the upstream goods and impacting the cost of production in the downstream sectors. Calibrated to the Canadian data, our model suggests that, following a positive shock to commodity prices, production and exports in the commodity sector rises, while the net impact on the rest of the economy's production is negative. The aggregate gross domestic output increases primarily owing to growth in investment and improved trade balance. The export connection with the rest of the world in the open economy production network plays an important role in the process of adjusting to a commodity price shock, while the import connections do not matter nearly as much. We show that these propagation channels of shocks to commodity price explain a large fraction of drop in Canadian real GDP in 2015 following the sharp decline in commodity prices that started in late 2014. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:612&r=all |
| By: | Ngouhouo, Ibrahim; Tchoffo, Rodrigue |
| Abstract: | When the government collects a supplementary indirect tax on an output, the price of that output increases by consequence. Then, using the resulting revenue for public investments will lead to an underconsumption of the total revenue invested. This is due to an inflation that has been created by this mechanism. This paper investigates the determination of the net amount of investment projects taking into account the effect of inflation. We use the computable general equilibrium model to test our hypothesis. As result, we show that, some simulations are needed in order to reach the equilibrium. |
| Keywords: | Government spending; inflation; taxes; investment; computable general equilibrium |
| JEL: | C68 E62 H50 |
| Date: | 2019–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95914&r=all |
| By: | Tatsushi Okuda (Bank of Japan); Tomohiro Tsuruga (International Monetary Fund); Francesco Zanetti (University of Oxford; Centre for Macroeconomics (CFM)) |
| Abstract: | We establish novel empirical regularities on firms’ expectations about aggregate and idiosyncratic components of sectoral demand using industry-level survey data for the universe of Japanese firms. Expectations of the idiosyncratic component of demand differ across sectors, and they positively co-move with expectations about the aggregate component of demand. To study the implications for inflation, we develop a model with firms that form expectations based on the inference of distinct shocks from a common signal. We show that the sensitivity of inflation to changes in demand decreases with the volatility of idiosyncratic component of demand that proxies the degree of shock heterogeneity. We apply principal component analysis on Japanese sectoral-level data to estimate the degree of shock heterogeneity, and we establish that the observed increase in shock heterogeneity plays a significant role for the reduced sensitivity of inflation to movements in real activity since the late 1990s. |
| Keywords: | Imperfect information, Shock heterogeneity, Inflation dynamics |
| JEL: | C72 D82 E31 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1918&r=all |
| By: | Guerrazzi, Marco; Giribone, Pier Giuseppe |
| Abstract: | In this paper, we explore the out-of-equilibrium dynamics of working hours and wages in a model economy where workers and firms have agreed upon an implicit contract that smooths long-run consumption. Specifically, we analyse a deterministic and a stochastic framework in which a firm inter-temporally sets its level of labour utilization by considering that workers' earnings tend to adjust in the direction of a fixed level that seeks to stabilize their consumption. Without any uncertainty in labour effectiveness, this theoretical setting may have one, two or no stationary solution. The dynamics of the deterministic economy, however, can be assessed only in the two-solution case and it reveals that wages move counter-cyclically towards the allocation preferred by the firm. Adding uncertainty in labour effectiveness does not overturn the counter-cyclical pattern of wages but is helpful in explaining the wage stickiness observed at the macro level. |
| Keywords: | Implicit contract theory; Consumption smoothing; Out-of-equilibrium dynamics; Optimal Control |
| JEL: | D86 E24 J41 |
| Date: | 2019–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95978&r=all |
| By: | Jeffrey Campbell (Federal Reserve Bank of Chicago); Filippo Ferroni (Chicago FED); Jonas Fisher (Federal Reserve Bank of Chicago); Leonardo Melosi (Federal Reserve Bank of Chicago) |
| Abstract: | Forward guidance allows the Fed to influence private-sector expectations and thereby potentially improve macroeconomic outcomes. This tool's viability depends on the horizon over which the Fed is able to communicate its intentions and its influence on expectations over that horizon. We develop a tractable model of imperfect central bank communications and use it to measure how effectively the Fed has managed private-sector expectations about the future path of the federal funds rate and how its imperfect communications have influenced macroeconomic outcomes. Standard models assume the central bank has perfect control over the private sector's expectations about the policy rate up to an arbitrarily long horizon and this is the source of the so-called ``forward guidance puzzle.'' Our estimated model suggests that the Fed's ability to affect expectations at horizons that are sufficiently long to give rise to the forward guidance puzzle is substantially limited. We also find that imperfect communication has influenced the propagation of forward guidance and is a source of macroeconomic volatility. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1109&r=all |
| By: | Angel De la Fuente |
| Abstract: | En esta nota se describe brevemente la última actualización de RegData, una base de datos que recoge los principales agregados económicos y demográficos de las regiones españolas durante las últimas seis décadas. En su mayoría, las series comienzan en 1950 o 1955 y se extienden hasta 2018. This note briefly describes the latest update of RegData, a database that collects the main economic and demographic aggregates of the Spanish regions over the last six decades. For the most part, the series begin in 1950 or 1955 and run until 2018. |
| Keywords: | Demographics, Demográfico, Population, Población, RegData, RegData, income, renta, Employment, Trabajo, Spain, España, Regional Analysis Spain, Análisis Regional España, Working Papers, Documento de Trabajo |
| JEL: | E01 R1 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1908&r=all |
| By: | Abdullah Kazdal; Halil Ibrahim Korkmaz; Muhammed Hasan Yilmaz |
| Abstract: | In this study, the main aim is to construct an index using high-frequency data related to financial markets and intermediation services for Turkey, termed as High-Frequency Financial Conditions Index by employing alternative statistical techniques. In a complementary manner, the informative nature of the constructed indices with respect to the course of economic activity is examined. The paper also includes detailed empirical analysis about the relationship between financial conditions and growth tendencies. The findings of the time series analysis and forecast exercises show that the constructed series are quite informative regarding the economic activity. More importantly, probit model estimations indicate that index can be qualified as an early indicator to predict “loss of momentum” episodes in economic growth by also considering the lead-lag relationship. When similar methodology is applied on emerging market economies, indices can be produced with a high level of co-movements with growth indicators. Panel Vector Autoregression estimation shows that, after controlling for country-specific characteristics, a shock coming to financial conditions is creating a significant overall response in emerging market countries. In terms of policy-making, we believe that constructed indices will contribute to a better understanding of the current financial environment and relation with economic activity. |
| Keywords: | Financial conditions, Growth dynamics, Factor models, Forecasting, Probit models, Panel VAR |
| JEL: | G10 E17 E44 E66 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1926&r=all |
| By: | Koffi, Siméon |
| Abstract: | This paper empirically explores the impact of public debt on economic growth in Sub-Saharan African (SSA) countries over the period 1960 to 2015 by using a system Generalized Methods of Moments (s-GMM). Specifically, this work studies the nonlinear relationship between public debt and economic growth. To do so, we perform the Sasabuchi-Lind-Mehlum’s test (or U-test) to check if the required and sufficient conditions are met for an inverted U-shape. The results strongly suggest the presence of a nonlinear relationship between public debt and economic growth. By applying the Delta method, this threshold is evaluated at about 36.18 percent ratio debt-to-GDP with its confidence interval associated (13, 59). The public debt boosts the economic growth when its level is less than this turning point. Above this threshold, an increase in public debt would lower the economic growth. Accordingly, a re-examination of the public debt level of some convergence policies which set this level (debt-to-GDP ratio) to 70 per cent (cf. Boxes 1 and 2) is proposed. |
| Keywords: | s-GMM, U-test, Delta method. |
| JEL: | E6 F3 F4 N4 |
| Date: | 2019–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96067&r=all |
| By: | Ali, Amjad; Şenturk, İsmail |
| Abstract: | During the 1980’s child survival first time attached with biological and social factors for its determination (Mosley and Chen, 1984). Socioeconomic factors need some proximate factor to impact child survival, at that time policymakers believe that socioeconomic factors indirect impact on child survival. But maternal factors, environmental contamination, nutrient deficiency and injury have direct impact on child survival. This study has tried to justify the fact that economic deprivation, health, infrastructure and maternal status impact under-five child mortality in Pakistan over the period of 1980 to 2017. For checking the stationarity of the data, Augmented Dickey-Fuller (ADF) unit root test is applied. Autoregressive Distributed Lag (ARDL) model has been used for examining the co-integration among the variables of the model. Granger causality test has been applied to explore the causal relationship among the variables. The estimated results show that there is a long run relationship among the variables of the model. The results of Granger causality test highlight that there is unidirectional causality is running from independent variables to the dependent variable. The findings suggest that for reducing under-five child mortality, the government of Pakistan should improve the maternal status and health infrastructure whereas economic deprivation should be minimized. |
| Keywords: | economic deprivation, health, infrastructure, maternal status, under-five child mortality |
| JEL: | E24 E31 H75 I14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96055&r=all |
| By: | International Monetary Fund |
| Abstract: | Economic growth has remained strong, raising people’s incomes towards those in advanced EU countries. However, macroeconomic imbalances have become increasingly evident the current account and fiscal deficits have been widening and inflation pressures are building. Economic growth is expected to stay above potential in 2019 on the back of continued fiscal stimulus, but slow down over the medium term due to faltering investment and reforms. The growing imbalances are eroding policy room for maneuver and increasing the risk that the convergence with EU could suffer a setback, triggered by domestic policy excesses or swings in global investor sentiment. |
| Keywords: | Economic indicators;Central banks;Financial and Monetary Sector;Balance of payments;Monetary policy;ISCR,CR,NBR,Proj,account deficit,current account deficit,Stand-By |
| Date: | 2019–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/278&r=all |
| By: | International Monetary Fund |
| Abstract: | This is the first Article IV mission to DRC since June 2015. The inauguration of President Tshisekedi in January 2019 marks the first peaceful transfer of power since independence. He has pledged to improve governance and scale up public investment. Challenges abound. Poverty and unemployment are widespread. Violent conflict persists in some regions, and the worst ever outbreak of the deadly Ebola disease is ongoing. Dependence on mineral exports leaves DRC vulnerable to commodity shocks. Tackling corruption and improving governance are imperative. The main risks include an escalation of the Ebola epidemic; fiscal loosening leading to monetization of budget deficits; a relapse in copper and cobalt prices; an intensification of ongoing armed conflicts; and resistance to reform from vested interests. |
| Keywords: | External sector;Economic indicators;Central banks;Balance of payments;Financial and Monetary Sector;ISCR,CR,DRC,Congolese authority,bcc,arrears,percent of GDP |
| Date: | 2019–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/285&r=all |
| By: | Ibrahima Amadou Diallo (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper performs a comparison of the Taylor Rule and Nominal GDP Targeting by estimating a DSGE model with Bayesian techniques. The first part builds a New Keynesian DSGE model with investment adjustment costs, prices and real wages rigidities, a government sector, and imperfect competition, alongside various shocks. The second part estimates and contrasts the models using Bayesian methods on Euro Area data. The results show that the data strongly prefer the Nominal GDP Targeting Rule over the Taylor Rule. We conduct numerous robustness checks to guarantee the solidity of our results. We also provide impulse response functions evaluation of the two Monetary Policy Rules. |
| Keywords: | Nominal GDP Targeting,Taylor Rule,Bayesian Model Comparison,DSGE Model,Monetary Policy |
| Date: | 2019–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02281971&r=all |
| By: | Gerba, Eddie |
| Abstract: | I examine the importance of fiscal policy in stabilizing the Euro Area economy and the degree of interaction with monetary policy. The results provide solid evidence of a common fiscal reaction in the monetary union despite the lack of a formal fiscal union. I identify area-wide shocks and find statistically significant (endogenous) responses of fiscal policies to shocks. I also find strong evidence for interactions between fiscal-and monetary policy. Said that, the nature of interactions depends very much on the shocks that hit the economy. At the same time, the way the two fiscal policies interact with monetary policy is also different and independent of each other. Furthermore, the spending multiplier is higher than the tax multiplier. Nonetheless, their relative efficacy has changed over time, with the spending (tax) multiplier falling (rising) since the onset of the Great Recession. To conclude, there are considerable differences in the nature of Euro Area monetary-fiscal interactions compared to the US. Not only are the impulse responses to different shocks significantly different, but also the fiscal multipliers vary a lot. Keynesian (or spending-oriented) fiscal policy is more effective in expanding output in the Euro Area while tax reductions are more effective in the US. |
| Keywords: | structural BVAR; sign restrictions; fiscal multipliers; fiscal and monetary transmission; debt channel |
| JEL: | F3 G3 |
| Date: | 2018–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:88300&r=all |
| By: | Aubhik Khan (Ohio State University); Ben Lidofsky (Ohio State University) |
| Abstract: | We explore business cycles in overlapping generations economies driven by shocks to total factor productivity growth. Households have uncertain lifetimes and face both uninsurable earnings and employment risk. Unemployment risk is countercyclical and we allow for time-varying volatility of aggregate shocks. Households, with non-separable preferences, save using capital and the relative price of capital varies over time. This setting--with both idiosyncratic and aggregate uncertainty shocks--drives large, countercyclical risk premium and generates high levels of precautionary savings. We find that changes in precautionary savings have important implications for aggregate consumption. Persistent negative shocks to TFP growth, and increases in their uncertainty, drive large declines in consumption. This helps explain the slowdown observed since the onset of the Great Recession. An empirically consistent, moderate shock to TFP growth rates implies a large and persistent fall, against trend, in aggregate consumption. Moreover, a rise in aggregate uncertainty reconciles the recovery in TFP growth rates with a more protracted decline in consumption. Uninsurable income risk helps shape the aggregate response of the economy over the business cycle. Changes in households' precautionary savings motives not only affect the distribution of wealth, it also changes the volatility of aggregate consumption and investment. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1459&r=all |
| By: | Korobilis, Dimitris |
| Abstract: | This paper proposes two distinct contributions to econometric analysis of large information sets and structural instabilities. First, it treats a regression model with time-varying coefficients, stochastic volatility and exogenous predictors, as an equivalent high-dimensional static regression problem with thousands of covariates. Inference in this specification proceeds using Bayesian hierarchical priors that shrink the high-dimensional vector of coefficients either towards zero or time-invariance. Second, it introduces the frameworks of factor graphs and message passing as a means of designing efficient Bayesian estimation algorithms. In particular, a Generalized Approximate Message Passing (GAMP) algorithm is derived that has low algorithmic complexity and is trivially parallelizable. The result is a comprehensive methodology that can be used to estimate time-varying parameter regressions with arbitrarily large number of exogenous predictors. In a forecasting exercise for U.S. price inflation this methodology is shown to work very well. |
| Keywords: | high-dimensional inference; factor graph; Belief Propagation; Bayesian shrinkage; time-varying parameter model |
| JEL: | C01 C11 C13 C52 C53 C61 E31 E37 |
| Date: | 2019–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96079&r=all |
| By: | International Monetary Fund |
| Abstract: | Mali is a low-income fragile country facing significant development challenges that have intensified due to insurgency, terrorism, and social tensions. Implementation of the 2015 peace agreement is challenging, and the authorities have limited control over the North and Center regions. Mali’s social development could be further undermined by the recent instability and interethnic violence that complicates the government’s ability to implement basic social and poverty-reducing programs. The economic outlook for Mali remains positive but subject to important downside risks. The potential real growth rate is estimated at about 5 percent per year and inflation is expected to continue to be contained by the CFAF’s peg to the euro. Downside risks relate to the possible further deterioration of the security situation, potential shocks to the terms of trade (the price of gold, cotton, and fuels), and adverse weather conditions. In addition, a continued shortfall in domestically-financed public investment, if revenue mobilization does not improve as expected, could adversely affect growth potential and performance. |
| Keywords: | Balance of payments;External sector;Fiscal policy;Economic growth;Domestic debt;ISCR,CR,percent of GDP,ECF,overall balance,GDP,net lend |
| Date: | 2019–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/289&r=all |
| By: | Ernesto Pasten; Raphael Schoenle; Michael Weber |
| Abstract: | We study the transmission of monetary policy shocks in a model in which realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages, and derive conditions under which these heterogeneities generate large real effects. Quantitatively, heterogeneity in the frequency of price adjustment is the most important driver behind large real effects. Heterogeneity in input-output linkages and consumption shares contribute only marginally to real effects but alter substantially the identity and contribution of the most important sectors to the transmission of monetary shocks. In the model and data, reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and for the real effects of nominal shocks and ignoring heterogeneous consumption shares and input-output linkages identifies the wrong sectors from which the real effects originate. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:842&r=all |
| By: | Eunseong Ma (Texas A&M University) |
| Abstract: | This study investigates the relation between monetary policy and inequality by asking how one affects the other: the effect of monetary policy on inequality and the impact of the long-run level of inequality on the effectiveness of monetary policy. To this end, I incorporate nominal wage contracts and cash-in-advance constraints into a heterogeneous agent model economy with indivisible labor. I find that expansionary monetary policy reduces income, wealth, and consumption inequalities mainly due to a rise in employment from the bottom of the distributions. There are heterogeneous effects on income across the wealth distribution: in response to an unanticipated monetary easing, households in the bottom of the wealth distribution benefit from an increase in employment while rich households benefit from a rise in the real asset returns in a relative sense. An unexpected monetary expansion also has asymmetric responses of consumption between the poor and the rich: asset-poor households increase their consumption while it falls for wealthy households. This implies that inflation hurts the rich more. I also find that the long-run prevailing levels of inequality matter for the effectiveness of monetary policy by determining the shape of reservation wage distribution. All else being equal, a more equal economy is associated with more effective monetary policy in terms of output. I also provide empirical evidence for this model result using state-level panel data: the effects of monetary policy shocks on output are larger for low-inequality states. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:250&r=all |
| By: | Stark, Oded (University of Bonn); Byra, Lukasz (University of Warsaw) |
| Abstract: | Drawing on a model in which utility is derived from consumption and effort (labor supply), we ask how the deportation of a number of undocumented migrants influences the decisions regarding labor supply, consumption, and savings of the remaining undocumented migrants. We assume that the intensity of deportation serves as an indicator to the remaining undocumented migrants when they assess the probability of being deported. We find that a higher rate of deportation induces undocumented migrants to work harder, consume less and, as a result of those responses, to save more. Assuming that the purpose of deportation policy is to reduce the aggregate labor supply of undocumented migrants in order to raise the wages of low-skilled native workers, we conclude that the policy can backfire: an increase in the labor supply of the remaining undocumented migrants can more than offset the reduction in the labor supply arising from the deportation of some undocumented migrants. Simulation shows that if the number of deportations in relation to the size of the undocumented migrant workforce is small, then the combined effect of the reduction in the labor supply of the deportees and the increase in the labor supply of the remaining undocumented migrants can be that the aggregate labor supply of undocumented migrants will increase. It follows that an effective deportation policy has to involve the expulsion of a substantial proportion of the total number of undocumented migrants in the workforce. |
| Keywords: | consumption of undocumented migrants, labor supply of undocumented migrants, savings of undocumented migrants, aggregate labor supply of undocumented migrants, efficacy of a deportation policy of a number of undocumented migrants |
| JEL: | D81 E21 F22 J61 J78 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12583&r=all |
| By: | Francesco D'Acunto (Boston College); Daniel Hoang (Karlsruhe Institute of Technology); Maritta Paloviita (Bank of Finland); Michael Weber (University of Chicago) |
| Abstract: | Intertemporal substitution is at the heart of modern macroeconomics and finance as well as economic policymaking, but a large fraction of a representative population of men -- those below the top of the distribution by cognitive abilities (IQ) -- do not change their consumption propensities with their inflation expectations. Low-IQ men are also less than half as sensitive to interest-rate changes when making borrowing decisions. Our microdata include unique administrative information on cognitive abilities, as well as economic expectations, consumption and borrowing plans, and total household debt from Finland. Heterogeneity in observables such as education, income, other expectations, and financial constraints do not drive these patterns. Costly information acquisition and the ability to form accurate forecasts are channels that cannot fully explain these results. Limited cognitive abilities could be human frictions in the transmission and effectiveness of fiscal and monetary policies that operate through household consumption and borrowing decisions. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:339&r=all |
| By: | robert barsky (Federal Reserve Bank of Chicago); Christoph Boehm (UT Austin); Christopher House (University of Michigan); Miles Kimball (University of Colorado at Boulder) |
| Abstract: | We analyze monetary policy in a New Keynesian model with durable and non-durable goods each with a separate degree of price rigidity. The model behavior is governed by two New Keynesian Phillips Curves. If durable goods are sufficiently long-lived we obtain an intriguing variant of the well-known “divine coincidence.” In our model, the output gap depends only on inflation in the durable goods sector. We then analyze the optimal Taylor rule for this economy. If the monetary authority wants to stabilize the aggregate output gap, it places much more emphasis on stabilizing durable goods inflation (relative to its share of value-added in the economy). In contrast, if the monetary authority values stabilizing aggregate inflation, then it is optimal to respond to sectoral inflation in direct proportion to their shares of economic activity. Our results flow from the inherently high interest elasticity of demand for durable goods. We use numerical methods to verify the robustness of our analytical results for a broader class of model parameterizations. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:264&r=all |
| By: | Dan Cao (Georgetown University); Guangyu Nie (Shanghai University of Finance and Economics); Wenlan Luo (Tsinghua University) |
| Abstract: | In this paper, we build a nonlinear two-sector DSGE model with capital accumulation, in which the Zero Lower Bound (ZLB) of interest rate and the collateral constraint are occasionally binding. We show the interaction of ZLB and the deleveraging cycle triggered by a binding collateral constraint can be a powerful mechanism in exacerbating the financial crisis as well as generating the prolonged liquidity trap and stagnation after the crisis. In particular, a binding ZLB can be triggered by capital over-accumulation, and when ZLB is binding, output is decreasing in capital stock. We also find an equilibrium does not exist when the capital stock is too high, while the existence of equilibrium can be restored by adding the adjustment cost of capital into the model. In our numerical results, we find the amplification effect of the collateral constraint is modest when the ZLB is not binding, but is quantitatively large when the ZLB is binding. In addition, with collateral constraint and ZLB, the recovery of the economy is slow since it takes longer for the borrowers to restore their net worth, and due to insufficient demand, the duration of the liquidity trap is longer. Lastly, in a society with better access to the credit market, the borrowers use higher leverage ex ante, and the average duration of ZLB is longer once the economy is hit by adverse shocks. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:961&r=all |
| By: | International Monetary Fund |
| Abstract: | Maldives’ fiscal position is weak, and its external reserves are critically low. The country has a long history of fiscal and external imbalances. The debt ratio is above 80 percent of GDP, and deficits above 10 percent. This loose fiscal stance has contributed to current account deficits of over 25 percent of GDP and sustained pressure on reserves, which has been compounded recently by large debt repayments. Gross reserves could drop to $250 million (1½ months of imports) by February, with the freely usable portion falling to just $50 million. |
| Keywords: | Real sector;External sector;Balance of payments;Fiscal sector;Financial and Monetary Sector;ISCR,CR,MMA,monetization,article IV consultation,Proj,net lend |
| Date: | 2019–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/283&r=all |
| By: | Tatsushi Okuday (Bank of Japan); Tomohiro Tsurugaz (International Monetary Fund); Francesco Zanetti (University of Oxford) |
| Abstract: | We establish novel empirical regularities on firms' expectations about aggregate and idiosyncratic components of sectoral demand using industry-level survey data for the universe of Japanese firms. Expectations of the idiosyncratic component of demand differ across sectors, and they positively co-move with expectations about the aggregate component of demand. To study the implications for inflation, we develop a model with firms that form expectations based on the inference of distinct shocks from a common signal. We show that the sensitivity of inflation to changes in demand decreases with the volatility of idiosyncratic component of demand that proxies the degree of shock heterogeneity. We apply principal component analysis on Japanese sectoral-level data to estimate the degree of shock heterogeneity, and we establish that the observed increase in shock heterogeneity plays a significant cant role for the reduced sensitivity of inflation to movements in real activity since the late 1990s. |
| JEL: | E31 D82 C72 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkcam:1906&r=all |
| By: | Fethi Ogunc |
| Abstract: | In this paper, we discuss the forecasting performance of Bayesian vector autoregression (BVAR) models for inflation under alternative specifications. In particular, we consider modelling in levels or in differences; choice of tightness; estimating BVARs of different model sizes and the accuracy of conditional and unconditional forecasts. Our empirical results point out that BVAR forecasts using variables in log-difference form outperform the ones using log-levels of the data. When we evaluate forecast performance in terms of model size, the lowest forecast errors belong to the models having relatively small number of variables, though we find only small difference in forecast accuracy among models of various sizes up to two quarter ahead. Finally, the conditioning seems to help to forecast inflation. Overall, pseudo evaluation findings suggest that small to medium size BVAR models having wisely selected variables in difference form and conditioning on the future paths of some variables appear to be a good choice to forecast inflation in Turkey. |
| Keywords: | Inflation, Forecasting, Bayesian vector autoregression, Turkey |
| JEL: | C51 C52 E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1925&r=all |
| By: | Li, Fanghui; Wang, Gaowang |
| Abstract: | In the paper we solve the general case of the Lucas (1990) optimal capital taxation model with endogenous growth driven by endogenous learning. We prove Lucas (1990)'s conjecture on zero limiting capital tax and display the possibility of multiple equilibria (i.e., multiple BGPs) in the model. |
| Keywords: | Multiple Equilibria; Capital Income Tax; Endogenous Growth; Endogenous Learning |
| JEL: | E62 H21 |
| Date: | 2019–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96005&r=all |
| By: | Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi; Liao, Chih-Hsing |
| Abstract: | This study explores the effects of minimum wage on automation and innovation in a Schumpeterian growth model. We find that raising the minimum wage decreases the employment of low-skill workers and has ambiguous effects on innovation and automation. Specifically, if the elasticity of substitution between low-skill workers and high-skill workers in production is less (greater) than unity, then raising the minimum wage leads to an increase (a decrease) in automation and innovation. We also calibrate the model to aggregate data to quantify the effects of minimum wage on the macroeconomy. |
| Keywords: | minimum wage, unemployment, innovation, automation |
| JEL: | E24 O3 O4 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95824&r=all |
| By: | George Alessandria (University of Rochester); Carter Mix (University of Rochester) |
| Abstract: | We evaluate the aggregate effects of changes in trade barriers in a model in which trade re- sponds gradually to changes in trade policy and trade policy changes are gradual. Our model offers insights into how changing trade barriers affects the economy and how business cycle shocks can affect trade. We find that a fall in current trade barriers has an expansionary effect while a decline in future trade costs can be recessionary on impact. We find that cancelling agreed upon declines in barriers to be expansionary in the short-run but substantially lowers growth over the medium run. We also find that even controlling for composition, trade tends to lag the recovery in demand for tradables. We capture the growth and trade factors driving the economy with movements in productivity, investment efficiency, the labor wedge, and trade costs. We estimate the model to match the key time series on trade integration and business cycles since 1970. Our estimation yields a path for current and expected future trade barriers and allows us to decompose the source of aggregate fluctuations and integration. We find that trade barriers have been expected to decline but that these declines have been repeatedly delayed. We find that aside from these delays that the outlook on future trade barriers did not change much between 2012 and 2016, but deteriorated substantially since. We also decompose the sources of the trade and growth slowdowns since the Great Recession. We show that data on export participation is helpful to identify future trade costs when exporting is a dynamic decision. We use our model to consider the impact of alternative unilateral and bilateral changes in trade barriers being contemplated. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:545&r=all |
| By: | Vladimir Asriyan (CREi, UPF, and Barcelona GSE); Alberto Martin (CREI, UPF and Barcelona GSE); Jaume Ventura (CREI) |
| Abstract: | This paper studies a production economy with financial frictions and shows that the existence of rents gives rise to multiple equilibria. In our model, some agents – entrepreneurs – are capable of investing in capital whereas others – savers – are not. Agents are also endowed with ``trees,’’ which are assets that entitle them to a stream of dividends. We show that, in the absence of financial frictions, the economy has a unique equilibrium: the interest rate equals the marginal product of capital and the price of trees equals the discounted value of the dividend stream. With financial frictions, however, the economy has multiple equilibria. In one of them, the capital stock is low and the interest rate consequently high. Given this high interest rate, the discounted value of dividends – and thus the price of trees – is low, tightening borrowing constraints and confirming the low capital stock. In another equilibrium, the capital stock is high and the interest rate consequently low. Given this low interest rate, the discounted value of dividends – and thus the price of trees – is high, relaxing borrowing constraints and confirming the high capital stock. Both equilibria are fundamental, in the sense that in both of them the price of trees equals the discounted value of the dividends they generate, i.e., there are no bubbles in our economy. Our analysis therefore shows how the presence of financial frictions can give rise to multiple fundamental equilibria, which implies that investor sentiment can play a crucial role in driving the business cycle even in the absence of bubbles. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1577&r=all |
| By: | Gerald Carlino (Federal Reseve Bank of Philadelphia); Nicholas Zarra (New York University); Robert Inman (Wharton School, University of Pennsylvania); Thorsten Drautzburg (Federal Reserve Bank of Philadelphia) |
| Abstract: | States have become an increasingly important agent of fiscal policy in the U.S. Motivated by the large literature that finds increases in partisanship among policymakers, we analyze whether partisanship affects state fiscal policy and what its macroeconomic effects are. Using data from close elections, we find strong partisanship effects in the passthrough of federal transfers to state: Republican governors spend less of federal funds and, instead, cut distortionary taxes. Transfers are an important vehicle of federal policies, with a share of 40% in the 2009 stimulus bill and funding the 2014 Medicaid expansion. We provide causal evidence that the passthrough of federal transfers by state governments varies between Republican and Democratic governors, using a regression-discontinuity design. To analyze the macroeconomic effects of this partisan behavior, we use a structural model of Republican and Democratic regions in a monetary union. The model delivers an aggregate transfer multiplier that is significantly lower with partisan differences. This is due to distortionary tax cuts that lower the initial aggregate demand effects, but make Republican states more competitive with a delay. Our model implies that the transfer multiplier varies over time with the partisan affiliation of governors and we find empirical support for this prediction using local-projection methods. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:434&r=all |
| By: | Salih Fendoglu; Mehmet Selman Colak; Yavuz Selim Hacihasanoglu |
| Abstract: | We show that higher foreign currency indebtedness raises the degree of exchange rate pass-through to domestic producer prices. For identification, we use micro-level data from Turkey, an emerging market economy that has experienced large exchange rate movements over the last decade. Matching the Credit Register of Turkey with disaggregated manufacturing sector data on domestic prices and foreign currency revenues from international trade, we show that sectors with higher ex-ante net foreign-currency liabilities raise their prices significantly more following domestic currency depreciation. The results are stronger if foreign currency liabilities are short term. |
| Keywords: | Exchange rate pass-through, Producer prices, Foreign currency indebtedness, Emerging market economies |
| JEL: | E31 F31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1924&r=all |
| By: | International Monetary Fund |
| Abstract: | The economy of the Federated States of Micronesia (FSM) has performed well in recent years, with relatively high growth and low inflation. Fiscal and current account balances have recorded large surpluses since 2017, owing to the authorities’ decision to save revenue windfalls. Nonetheless, the FSM faces significant medium-term uncertainty as various economic supports under the Compact Agreement with the United States are set to expire in 2023. Unless they are renewed, the FSM is expected to lose access to Compact grants, giving rise to a fiscal cliff in 2023; banking sector oversight by the Federal Deposit Insurance Corporation; and post-disaster rehabilitation assistance. The country is highly vulnerable to climate change, while private sector activity remains anemic. |
| Keywords: | Real sector;Tax policy;Tax revenue;External sector;Gross domestic product;ISCR,CR,FSM,percent of GDP,CTF,compact grant,trust fund |
| Date: | 2019–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/288&r=all |
| By: | Anna Sznajderska (Warsaw School of Economics and Narodowy Bank Polski); Mariusz Kapuściński (Warsaw School of Economics and Narodowy Bank Polski) |
| Abstract: | The slowdown of economy and widening of domestic imbalances in China bothers economists and politicians across the globe. The effects of a Chinese transition to a new growth model for other countries are uncertain. We quantify them by estimating the influence of a negative output shock in China on a number of different economies. We concentrate on China’s neighbouring countries. We compare the results from the Global VAR model and from the Bayesian VAR models that include Chinese variables as endogenous. Also we search for determinants of Chinese spillovers for the global economy. To this end, having a large number of factors potentially explaining differences in responses compared to the number of observations, we use Bayesian model averaging. We find that spillovers are stronger to economies with less flexible exchange rates, a higher share of manufacturing in gross value added and to economies which are larger. |
| Keywords: | global VAR, Bayesian VAR, China’s slowdown, spillovers, structural characteristics |
| JEL: | C32 E32 F10 O53 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:315&r=all |
| By: | International Monetary Fund |
| Abstract: | Maldives’ growth performance over the last decade has been strong, but the outlook has become more uncertain. The slowdown in growth in 2000 is likely to prove temporary and a rebound is expected in 2001 . Medium-term prospects are generally favorable, provided policy discipline is restored within a consistent macroeconomic policy framework, and inflationary pressures arising from the recent devaluation are contained. |
| Keywords: | Exchange rate policy;Real effective exchange rates;Central banks;Economic growth;Real sector;ISCR,CR,fishery sector,staff team,percent change,overall balance,MMA |
| Date: | 2019–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/279&r=all |
| By: | Ragchaasuren Galindev; Tsolmon Baatarzorig; Nyambaatar Batbayar; Delgermaa Begz; Unurjargal Davaa; Oyunzul Tserendorj |
| Abstract: | The Government of Mongolia began implementing an IMF program under the Extended Fund Facility agreement (EFF) in May 2017. Under the program, the government has decreased expenditures and increased taxes to achieve debt sustainability via fiscal consolidation and stable growth. At the same time, the government has faced challenges because of its commitment of fiscal consolidation to the IMF: the rising price of fuel and its own fuel-subsidy policies. We used the PEP standard static CGE model to examine the impact of fiscal consolidation on the Mongolian economy under various conditions. Moreover, we used a poverty (microsimulation) model to analyze those impacts at a household level. Our analysis of the impact of fiscal consolidation under pessimistic and optimistic mineral-commodity-price scenarios showed that Mongolia’s economy was closely tied to international commodity prices. Our examination of the government’s alternative policies on fuel subsidies in an environment of fiscal consolidation demonstrated that the effect of increased fuel prices on the economy depended upon government fuel-subsidy policy. |
| Keywords: | CGE model, Mongolian economy, Mining, Fiscal consolidation |
| JEL: | D58 E62 I32 Q33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:mpiacr:2019-20&r=all |
| By: | Piotr Bańbuła (Narodowy Bank Polski); Arkadiusz Kotuła (Narodowy Bank Polski); Agnieszka Paluch (Narodowy Bank Polski); Mateusz Pipień (Narodowy Bank Polski); Piotr Wdowiński (Narodowy Bank Polski) |
| Abstract: | This study presents estimates of the optimal level of aggregate Tier 1 capital ratio in the Polish banking sector. The analysis takes into account macroeconomic benefits of raising Tier 1 capital ratio and macroeconomic costs related to it. The main macroeconomic benefit from a higher capital captured in the study is a higher resilience of the banking sector and consequently a reduction in the likelihood of a banking crisis. The benefit of higher capital ratios is expressed as the product of a decrease in the likelihood of a crisis and the expected cost of a crisis. The latter was calibrated based on the literature review. The probabilities of crisis for different levels of capital were calculated based on probit models estimated on macro data and a simulation model reflecting some of the main features of the banking sector in Poland. The SVAR model estimated on data for the Polish economy was used to assess the scale of the slowdown in GDP growth due to a rise of capital ratios. The net effect of an increase of capital ratios, expressed as a percentage of GDP, reflects the difference between their expected benefits due to the reduction in the probability of a crisis and their economic costs in the form of a decrease in the expected GDP growth rate. The level of Tier 1 ratio, at which the net effect, i.e. the difference between benefits and costs of raising capital ratios, is the largest, is called optimal from a macroeconomic perspective. The results indicate that the optimal level of aggregate Tier 1 ratio is in the range of 11%-23% with the expected value derived from this analysis and the literature at the level of 18%. |
| Keywords: | financial crisis, macroprudential policy, bank capital, banking sector regulation |
| JEL: | G01 C25 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:312&r=all |
| By: | International Monetary Fund |
| Abstract: | The weak external environment continues to depress growth. Tourism and fisheries-the Maldives’ economic lifelines-are slowly recovering, but have not yet regained the ground lost in 200 1. After over two decades of uninterrupted gains, per capita income likely remained flat in 2002. The pass-through from last year’s devaluation has been contained and inflation is not a policy concern. |
| Keywords: | Central banks;Social indicators;Economic growth;International reserves;Development;ISCR,CR,net lend,percent of GDP,capital spend,percent change,domestic export |
| Date: | 2019–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/280&r=all |
| By: | Ewa Stanisławska (Narodowy Bank Polski); Maritta Paloviita (Bank of Finland); Tomasz Łyziak (Narodowy Bank Polski) |
| Abstract: | Using a novel approach based on micro-level survey responses, we assess the reliability of aggregated inflation expectations estimates in the European Commission Consumer Survey. We identify the share of consumers, whose qualitative and quantitative views on expected increase of prices do not match each other. Then we consider the impact of inconsistent survey responses on balance statistics and mean values of quantitative inflation expectations. We also analyze expectations’ formation estimating the sticky-information models. The results, based on Finnish and Polish data, suggest that even if the fraction of inconsistent survey responses is non-negligible, it matters neither for the aggregated figures of inflation views, nor for understanding of the formation of inflation expectations by consumers. We conclude that micro-level inconsistencies do not reduce the reliability of the current EC Consumer Survey dataset. Our results also indicate that inconsistent responses are not important drivers of the inflation overestimation bias displayed in the data. |
| Keywords: | inflation expectations, European Union, consumer survey. |
| JEL: | D12 D84 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:313&r=all |
| By: | Ragchaasuren Galindev; Tsolmon Baatarzorig; Nyambaatar Batbayar; Delgermaa Begz; Unurjargal Davaa; Oyunzul Tserendorj |
| Abstract: | This paper examines the impact of Foreign Direct Investment (FDI) intended to increase the exporting capacity of the coal sector on the Mongolian economy and environment by using a recursive dynamic Computable General Equilibrium model. FDI was used to expand the coal-export sector as well as to construct a railway line connecting the Mongolian main coal reserve and the Chinese border. FDI had a positive impact on macroeconomic variables such as GDP, employment, investment, and household consumption but produced a Dutch disease effect in some sectors. The new railway reduced the environmental impact of transporting coal. |
| Keywords: | CGE model, Mongolian economy, Mining, Fiscal consolidation |
| JEL: | D58 E62 I32 Q33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:mpiacr:2019-21&r=all |
| By: | Robert Calvert Jump (University of the West of England, Bristol); Cars Hommes (University of Amsterdam); Paul Levine (University of Surrey) |
| Abstract: | We present a New Keynesian model in which a fraction n of agents are fully rational, and a fraction 1 − n of agents are bounded rational. After deriving a simple reduced form, we demonstrate that the Taylor condition is sufficient for determinacy and stability, both when the proportion of fully rational agents is held fixed, and when it is allowed to vary according to reinforcement learning. However, this result relies on the absence of persistence in the monetary policy rule, and we demonstrate that the Taylor condition is not sufficient for determinacy and stability in the presence of interest rate smoothing. For monetary policy rules that imply indeterminacy, we demonstrate the existence of limit cycles via Hopf bifurcation, and explore a rational route to randomness numerically. Our results support the broader literature on behavioural New Keynesian models, in which the Taylor condition is known to be a useful guide to monetary policy, despite not always being sufficient for determinacy and/or stability. |
| Date: | 2018–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:20181807&r=all |
| By: | Friese, Max |
| Abstract: | This paper investigates how demographic change affects the financial sustainability of a defined benefit pay-as-you-go social security system in an environment with collective bargaining on the labor market. Temporary equilibrium analysis shows that the contribution rate decreases, if the old-age dependency ratio rises. The government balances the social security budget by aiming indirectly at a higher level of employment. In the intertemporal equilibrium the opposite applies. The government increases the contribution rate due to additional effects of demographic change on capital accumulation and labor demand. In contrast to a perfect labor market scenario, the imposed financing burden from an aging society is overcompensated by favorable labor market effects on the social security budget. |
| Keywords: | demographic change,PAYG pension,social security,trade union,collective bargaining,unemployment |
| JEL: | E24 H55 J11 J51 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:roswps:148r&r=all |
| By: | Daiki Maeda |
| Abstract: | Based on findings in the behavioral economics literature, we incorporate non-unitary discounting into a monetary search model to study optimal monetary policy. We apply non-unitary discounting, that is, discount rates that are different across goods. With this extension to the model, we find that there are cases where optimal monetary policy deviates from the Friedman rule. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1062&r=all |
| By: | Ryosuke Okazawa (Graduate School of Economics, Osaka City University); Katsuya Takii (Osaka School of International Public Policy, Osaka University) |
| Abstract: | This paper analyzes the determinants of voter preferences on consumption tax hike using an opinion survey of Japanese citizens. We find robust evidence that the older voter is more likely to support consumption tax hike. We also find that the most of inter-generational difference toward consumption tax policy is explained by the gap between citizens under sixty and over sixty. We investigate how individual economic environment changes in 60 years old as a result of mandatory retirement system and pension system and find that the hours of work do not change but their degree of dependence on the pension in household income increases at the age of 60. Utilizing these facts, we conjecture that individuals may realize the importance of consumption tax in order to save the value of their assets. |
| Keywords: | Consumption Tax, Fiscal Consolidation, Pension, RDD |
| JEL: | E6 H2 H31 H63 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:19e009&r=all |
| By: | Jesus Fernandez-Villaverde (University of Pennsylvania); Federico Mandelman (Federal Reserve Bank of Atlanta); Francesco Zanetti (University of Oxford); Yang Yu (Shanghai University of Finance and Economics) |
| Abstract: | We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails multiplicity of equilibria. An active equilibrium with strong joint venture formation, large production, and low unemployment coexists with a passive equilibrium with low joint venture formation, low production, and high unemployment. Changes in fundamentals move the system between the two equilibria, generating large and persistent business cycle fluctuations. The volatility of shocks is important for the selection and duration of each 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 equilibrium while it plays a limited role in the active equilibrium. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:380&r=all |
| By: | International Monetary Fund |
| Abstract: | The Maldives suffered devastating damage from the December 2004 tsunami. Although human casualties were limited, damage to infrastructure was extensive, with the cost of reconstruction estimated at nearly a half of GDP. Tourism declined by a third and the economy contracted in 2005. Fiscal management has deteriorated and foreign reserves declined from 3½ months of imports a year ago to 2½ months. |
| Keywords: | Balance of payments;Development;International reserves;Economic indicators;Monetary authorities;ISCR,CR,MMA,percent of GDP,overall balance,domestic export,GNFS |
| Date: | 2019–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/281&r=all |
| By: | Gregor Jarosch; Jan Sebastian Nimczik; Isaac Sorkin |
| Abstract: | We build a model where firm size is a source of labor market power. The key mechanism is that a granular employer can eliminate its own vacancies from a worker's outside option in the wage bargain. Hence, a granular employer does not compete with itself. We show how wages depend on employment concentration and then use the model to quantify the effects of granular market power. In Austrian micro-data, we find that granular market power depresses wages by about ten percent and can explain 40 percent of the observed decline in the labor share from 1997 to 2015. Mergers decrease competition for workers and reduce wages even at non-merging firms. |
| JEL: | E2 J01 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26239&r=all |
| By: | Sebastian Dyrda (University of Toronto); Benjamin Pugsley (University of Notre Dame) |
| Abstract: | From 1980 to 2012 the share of U.S. business receipts from businesses organized as pass-through entities (for example LLCs and S-corporations) rather than traditional C-corporations nearly triples. This paper investigates the origins of the secular rise of pass-throughs and evaluates it's macroeconomic consequences. We exploit the panel dimension of the administrative data from the Longitudinal Business Dynamics dataset to document a number of facts characterizing the pass-throughs and C-corporations and to estimate the transition matrices between the legal forms. We show that the entry margin and switching margin account for the most of the rise of pass-throughs. Further, using the Statistics of the U.S. Businesses we argue that the shift in the distribution of organizational forms is related to the structural transformation of the U.S. economy and to some other economic forces, such as rise in the dispersion of productivities, which account for within-sector increase of pass-throughs role. We quantify the impact of different economic forces using the structural macroeconomic model, in which entrepreneurs in both sectors choose endogenously the legal form of organization. We proceed to evaluate the macroeconomic consequences of growing importance of pass-through businesses for the U.S. economy with particular focus on the role of microeconomic heterogeneity for macroeconomic outcomes, propagation of aggregate shocks, misallocation and finally welfare. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1343&r=all |
| By: | Gaye Del Lo |
| Abstract: | This paper examines the link between oil and renewable energy markets. To this end, on the one hand, we identify high and low volatility states of oil markets, using the regime-switching EGARCH (1,1) model, and analyze its effects on the renewable energy market. On the other hand, we develop a methodology to identify positive and negative oil shocks and investigate their implications for renewable energy markets. We show that: (1) state shifts are clearly present in the oil and renewable energy data; (2) the volatility links between oil and renewable energy markets are regime-dependent. When the oil market is in a high-volatility regime, it exacerbates the volatility of renewable energy markets, but in a low-volatility regime, it has no effect or a stabilizing effect on the volatility of renewable energy market; (3) the results also reveal that the renewable energy market reacts positively to extreme upward movements of oil prices and negatively to extreme downward movements. These results have several implications in terms of policies, portfolio optimization and risk management. |
| Keywords: | Cliometrics, renewable energy; oil price; EGARCH(1,1); markov-switching; VaR. |
| JEL: | Q42 E44 C58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2019-31&r=all |
| By: | Morris, Sebastian |
| Abstract: | In this paper we bring together the findings of Subramanian, A. (2019) and Morris and Kumari (2019), and others to claim that the problems with the new national income series are real and need to be addressed. The CPI11-12 too is problematic since the weight of basic food in the CPI11-12 is as high as 45% when there is no wat the same could have been more than 34%. As a result macroeconomic policy may have been handicapped pushing it to restrictive especially monetary policies that may have been one of the underlying causes of the current recession in the economy. |
| Date: | 2019–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:iim:iimawp:14611&r=all |
| By: | Steven J. Davis |
| Abstract: | I review evidence of rising policy uncertainty in the U.S. and global economies, drawing heavily on newspaper-based measures. Examples from countries around the world illustrate the role of political and policy developments as drivers of fluctuations in economic uncertainty. I also highlight the prominent role of trade policy as a source of uncertainty and stock market volatility since March 2018, when U.S.-China tensions began to escalate. Lastly, I offer remarks on the interplay between policy uncertainty and economic performance. |
| JEL: | D80 E20 F13 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26243&r=all |
| By: | Ibrahim D. Raheem (EXCAS, Liège, Belgium); Aviral K. Tiwari (Kochi, India); Daniel Balsalobre-lorente (Ciudad Real, Spain) |
| Abstract: | This study explores the role of the information and communication Technology (ICT) and financial development (FD) on both carbon emissions and economic growth for the G7 countries for the period 1990-2014. Using PMG, we found that ICT has a long run positive effect on emissions, while FD is a weak determinant. The interactive term between the ICT and FD produces negative coefficients. Also, both variables are found to impact negatively on economic growth. However, their interactions show they have mixed effects on economic growth (i.e., positive in the short-run and negative in the long-run). Policy implications were designed based on these results. |
| Keywords: | ICT; Financial development; Carbon emissions; Economic growth and G7 countries |
| JEL: | E23 F21 F30 O16 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/058&r=all |
| By: | Sarracino, Francesco; O'Connor, Kelsey J. |
| Abstract: | Recent studies suggest that economic growth and well-being can grow together in the long run in presence of generous social safety nets, increasing social capital and declining income inequality. We put these conditions to a test in an attempt to explain the absence of a relation between economic growth and well-being in Luxembourg. To this aim we apply an error correction model to a panel of 15 Western European countries, and we use the results to predict life satisfaction in Luxembourg between 1991 and 2015. We find that the flat trend of life satisfaction in Luxembourg is likely the result of four forces acting in opposite directions. This suggests that the available list of moderating conditions -- although not exhaustive -- is a promising starting point to design new policies to durably improve well-being. |
| Keywords: | time-series; subjective well-being; error correction model; life satisfaction; dynamics; inclusive growth |
| JEL: | D60 E6 I31 O11 O21 |
| Date: | 2019–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96013&r=all |
| 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: | 2019–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95949&r=all |
| By: | Christina Patterson (Massachusetts Institute of Technology) |
| Abstract: | Recessions are thought to be larger than the shocks that cause them, and the incidence of recessions is unequally distributed across workers. This paper shows empirically that the unequal incidence of recessions is a core channel through which aggregate shocks are amplified. I show that the aggregate marginal propensity to consume (MPC) is larger when income shocks disproportionately hit high-MPC individuals, and I define the Matching Multiplier as the increase in the output multiplier originating from the matching of workers to jobs with different income elasticities – a greater matching multiplier translates into more powerful amplification in a range of business cycle models. Using administrative data from the United States, I document that the earnings of individuals with a higher marginal propensity to consume are more exposed to recessions. I show that this covariance between worker MPCs and the elasticity of their earnings to GDP is large enough to increase shock amplification by 40 percent over a benchmark in which all workers are equally exposed. Using local labor market variation, I validate this amplification mechanism by showing that areas with higher matching multipliers experience larger employment fluctuations over the business cycle. Lastly, I derive a generalization of the matching multiplier in an incomplete markets model and show numerically that this mechanism is quantitatively similar within this structural framework. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:95&r=all |
| By: | Adrien Auclert (Stanford University); Paul Goldsmith-Pinkham (Yale University); Will Dobbie (Princeton University) |
| Abstract: | This paper argues that the debt forgiveness provided by the U.S. consumer bankruptcy system helped stabilize the level of employment during the Great Recession. We begin by documenting that states with more and less generous bankruptcy exemptions had statistically identical employment outcomes during the 2001-2007 period. Starting in 2008, however, states with more generous bankruptcy exemptions had significantly smaller declines in local non-tradable employment and larger increases in unsecured debt write-downs compared to states with less generous exemptions. We interpret these responses as the causal effect of the debt relief provided by the consumer bankruptcy system on employment across states, and develop a general equilibrium model to recover the aggregate effect of this debt relief. The model yields three key results. First, substantial nominal rigidities are required to rationalize our reduced form cross-state estimates. Second, with monetary policy at the zero lower bound, traded good demand spillovers from more generous to less generous states boosted employment everywhere. Finally, the ex-post debt forgiveness provided by the consumer bankruptcy system during the Great Recession increased aggregate employment by almost two percent. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:355&r=all |
| By: | Sokolovskyi, Dmytro |
| Abstract: | The article deals with an investigation of principles, factors, and conditions of the government tax behaviour by changing the tax rate. The research base is all countries in the world for which statistics are available. We define a set of potential indicators of the economic efficiency, based on GDP and FDI, nominal and per capita, as well as the ratio of FDI to GDP. By using the statistical analysis techniques we found a correlation between government behaviour and each of the selected indicators. In order to reduce the randomness of the results, we carry out cumulative testing of the hypothesis of independence of government tax behaviour from the efficiency of the economy for all possible partitions of the countries' totality with different interrelations of the countries’ sets behaviour with different economic efficiency levels. Based on the research, it can be argued that government tax behaviour, in general, is not maximizer behaviour. We argue that the factors GDP, FDI, and GDP per capita have the biggest impact on the government tax decisions. The obtained results allow to understand the principles of governments’ decision-making, and, therefore, to forecast in some way their behaviour in certain economic conditions. In particular, partitions accumulations can help identify behavioural trends. The present paper differs from previous studies both by the topic, studying the relations between government’s tax behavior and efficiency of countries' economies and by the approach to define this dependence, since the latest can be observed only when each variant of government’s tax reaction is analyzed separately. |
| Keywords: | economic efficiency; tax rate; government tax behaviour; CIT; GDP; FDI; per capita |
| JEL: | C12 E22 H30 |
| Date: | 2019–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95827&r=all |
| By: | Pedro Brinca (Universidade Nova de Lisboa); Hans Holter (University of Oslo); Miguel Faria-e-Castro (Federal Reserve Bank of St. Louis); Miguel Ferreira (Nova SBE) |
| Abstract: | We argue that the fiscal multiplier of government purchases is increasing in the shock, in contrast to what is assumed in most of the literature: the fiscal multiplier is largest for large positive government spending shocks and smallest for large contractions in government spending. We empirically document this fact by analyzing two independent datasets and using two different empirical approaches. We find that a neoclassical, life-cycle, incomplete markets model calibrated to match key features of the US economy, including the distribution of wealth, can well explain this empirical finding. The mechanism works through the relationship between fiscal shocks, the distribution of wealth and the aggregate labor supply elasticity: liquidity constrained agents have less elastic labor supply responses to changes in future income. An increase (decrease) in government spending today acts as a negative (positive) shock to future income, as future wages will be lower (higher). A large increase (decrease) in government spending today will induce saving (borrowing) and move a larger fraction of the agents in the economy away from (towards) the borrowing limit. Analysis of micro-data confirms the mechanism. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:934&r=all |
| By: | International Monetary Fund |
| Abstract: | This Climate Change Policy Assessment (CCPA) takes stock of the Federated States of Micronesia (FSM)’s climate response plans, from the perspective of their macroeconomic and fiscal implications. The CCPA is a joint initiative by the IMF and World Bank to assist small states to understand and manage the expected economic impact of climate change, while safeguarding longrun fiscal and external sustainability. It explores the possible impact of climate change and natural disasters and the cost of FSM’s planned response. It suggests macroeconomically relevant reforms that could strengthen the national strategy and identifies policy gaps and resource needs. |
| Date: | 2019–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/292&r=all |
| By: | Yan Bai (University of Rochester); Fabrizio Perri (Federal Reserve Bank of Minneapolis); Patrick Kehoe (Stanford University) |
| Abstract: | Data shows that, in the cross section of emerging countries, sovereign spreads are highly correlated, much more so than local economic conditions. However, in standard models of sovereign default the main drivers of sovereign spreads are local conditions. This paper proposes a mechanism that can explain, at the same time, the high correlation of spreads and the low correlation of local conditions. The model features a large developed economy, which lends to a large number of developing economies, using long run bonds that can be defaulted on. The key feature of the model is the presence of long run risk (as in Bansal and Yaron, 2005). We first show that the model can account for the dynamics of several real variables and of sovereign spreads in the cross section of developing economies. We then use the model for examining how much of the fluctuations in spreads in developing economies arise from the changes in long risk in the developed economy (the price of risk), v/s changes in long run risk in the developing economies themselves (the quantity of risk). We find that 2/3 of fluctuations in spreads are explained by the quantity of risk. Our conclusion is that world financial cycle is largely driven by a world-wide, low frequency long run risk component, rather than simply by fluctuations in the price of risk driven that shocks in developed countries that alter their willingness to lend. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1545&r=all |
| By: | Abe, Naohito; Fukao, Kyoji; Ikeuchi, Kenta; Rao, D.S. Prasada |
| Abstract: | Purchasing power parities (PPPs) from the International Comparison Program (ICP) are used for cross-country comparisons of price levels and real gross domestic product (GDP), household consumption and investment. PPPs from the ICP are also used in compiling internationally comparable output aggregates and making productivity comparisons in the KLEMS initiative. PPP compilation is anchored on the principle of comparing the like with like and price data are collected for goods and services with detailed specifications in the form of structural product descriptions. While this approach works well for goods, it is not effective in the case of services. If differences in service quality exist, these get reflected in the PPPs from the ICP. In this paper, we focus on the USA-Japan bilateral price comparison in the 2014 ICP in the OECD region and estimate bias induced by differences in quality of services in. Service quality is driven by various unobservable factors. In this paper we make use of data on quality differences and consumers’ willingness to pay collected through a specialised survey conducted by the Japan Productivity Center early in 2017. Data are collected from a large sample of 517 respondents from USA and 519 respondents from Japan, covering 28 service items including transport, restaurants, retail services, health and education. Estimates of consumers’ willingness to pay for quality differences in services by the US and Japanese consumers are obtained using standard econometric methodology, these are in turn used in estimating quality adjustment factors that can be applied to price data used in PPP computation. Using the Sato-Vartia index, which has useful analytical and decomposition properties, we find PPP for household consumption (including real estate services) of 113 JPY per US dollar reduces to 104 JPY per dollar after adjusting for quality differences. When real estate services are not included, PPP reduces from 95 JPY to 87 JPY after quality adjustment. The paper also presents labour productivity estimates before and after quality adjustment for a number of service sectors including transport and storage; retail trade; hotels and restaurants; and other subsectors. Our exploratory study demonstrates that adjustment for quality differences in services is feasible and such adjustments are important for making meaningful international price comparisons. |
| Keywords: | International comparisons, services, quality differences, willingness to pay, Sato-Vartia Index |
| JEL: | C43 E31 O47 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:hit:sspjdp:dp18-006&r=all |