|
on Macroeconomics |
|
Issue of 2019‒10‒07
108 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Kolasa, Marcin; Rubaszekz, Michał; Walerych, Małgorzata |
| Abstract: | In this paper we challenge the conventional view that increasing working time exibility limits the amplitude of unemployment fluctuations. We start by showing that hours per worker in European countries are much less procyclical than in the US, and in some economies even co-move negatively with output. This is confirmed by the results from a structural VAR model for the euro area, in which working hours increase after a contractionary monetary shock, exacerbating the upward pressure on unemployment. To understand these counterintuitive results, we develop a structural search and matching macroeconomic model with endogenous job separation. We show that this feature is key to generate countercyclical adjustments in working hours. When we augment the model with frictions in working hours adjustment and estimate it using euro area time series, we find that increasing flexibility of working time amplifies cyclical movements in unemployment. |
| JEL: | E24 E32 J22 J64 |
| Date: | 2019–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_024&r=all |
| By: | DiGabriele, Jim; Ojo, Marianne |
| Abstract: | Is the Philips Curve Still Applicable in Today’s Financial Environment? The relationship between wage inflation and unemployment, is not only considered by Gali and Gambetti (2018:2) to be a “a key link of the relation between prices and economic activity” but also regarded as the focus of Phillips (1958) original work, is widely perceived to be at the heart of the "twin puzzle.” Further they add that, “the failure of wage inflation to respond sufficiently to the tightening of the labor market in recent years is generally viewed as one of the main factors behind the extremely accommodating monetary policies” at central banks like the Federal Reserve or the ECB.” Why can some economic indicators still be considered to be applicable and relevant – even in an environment where so many advancements and financial instruments have significantly altered the financial landscape which existed over the years? In particular, why can the Philips Curve still be considered applicable and relevant – with reference to wage inflation and productivity? More importantly, what economic indicators can serve to provide more reliable indicators of inflationary levels once more temporary elements, as induced by import prices, have diminished? |
| Keywords: | exchange rates; inflation targeting; monetary policy; interest rates; Philips Curve; wage rate |
| JEL: | E3 E32 E37 E4 E41 E42 E43 E44 E5 E51 K2 M2 M41 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95110&r=all |
| By: | Hördahl, Peter; Tristani, Oreste |
| Abstract: | We propose a regime-switching approach to deal with the lower bound on nominal interest rates in dynamic term structure modelling. In the “lower bound regime”, the short term rate is expected to remain constant at levels close to the effective lower bound; in the “normal regime”, the short rate interacts with other economic variables in a standard way. State-dependent regime switching probabilities ensure that the likelihood of being in the lower bound regime increases as short rates fall closer to zero. A key advantage of this approach is to capture the gradualism of the monetary policy normalization process following a lower bound episode. The possibility to return to the lower bound regime continues exerting an influence in the early phases of normalization, pulling expected future rates downwards. We apply our model to U.S. data and show that it captures key properties of yields at the lower bound. In spite of its heavier parameterization, the regime-switching model displays a competitive out-of-sample forecasting performance. It can also be used to gauge the risk of a return to the lower bound regime in the future. As of mid-2018, it provides a more benign assessment than alternative measures. JEL Classification: E31, E40, E44, E52, E58, E62, E63 |
| Keywords: | monetary policy rate expectations, regime switches, term premia, term structure of interest rates, zero lower bound |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192320&r=all |
| By: | Markus K. Brunnermeier; Harold James; Jean-Pierre Landau |
| Abstract: | The ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange. We may see an unbundling of the separate roles of money, creating fiercer competition among specialized currencies. On the other hand, digital currencies associated with large platform ecosystems may lead to a re-bundling of money in which payment services are packaged with an array of data services, encouraging differentiation but discouraging interoperability between platforms. Digital currencies may also cause an upheaval of the international monetary system: countries that are socially or digitally integrated with their neighbors may face digital dollarization, and the prevalence of systemically important platforms could lead to the emergence of digital currency areas that transcend national borders. Central bank digital currency (CBDC) ensures that public money remains a relevant unit of account. |
| JEL: | E41 E42 E51 E52 E58 G21 G23 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26300&r=all |
| By: | Kambale Kavese (Eastern Cape Socio Economic Consultation Council); Andrew Phiri (Department of Economics, Nelson Mandela University) |
| Abstract: | The most recent sub-prime crisis, the Euro-debt crisis and the global recessionary period have resurrected a debate on the nature of fiscal cyclicality in the South African economy. Our study questions whether the cyclicality of public policy has evolved asymmetrically and holds differently over the recessionary and expansionary phases of the South African business cycle for a quarterly period of 2001:01 – 2018:04. To ensure that the business cycle is inherent to our estimation process we rely on the nonlinear autoregressive distributive lag (N-ARDL) model as empirical framework. Our empirical results point to nonlinear cyclicality in fiscal expenditures where government behaves procyclical in the upswing of the business cycle whilst behaving countercyclical during economic downswings. These findings are robust to alternative specifications, inclusion of control variables and estimations across different subsamples. Policy implications are also offered. |
| Keywords: | Fiscal cyclicality; Business cycles; Nonlinear autoregressive distributive lag (NARDL) model; South Africa; Emerging Market economies, Sub-Saharan Africa (SSA). |
| JEL: | C32 C51 C52 E32 E62 H61 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:mnd:wpaper:1909&r=all |
| By: | Thibaut Piquard; Dilyara Salakhova |
| Abstract: | We study the substitution between secured and unsecured interbank markets. Banks are competitive and subject to reserve requirements in a corridor rate system with deposit and lending facilities. Banks face counterparty risk in the unsecured market and incur an opportunity cost to pledge collateral. The model provides insights on interest rates, trading volumes and substitution between the two markets. Using transaction data on the Euro money market, we provide new empirical findings that the model accounts for: (i) borrowing banks are active on both markets even when their collateral constraint is not binding, (ii) secured interest rates may fall below the deposit facility rate. We derive and empirically test predictions on how "conventional" and "unconventional" monetary policies impact interbank markets, depending on whether marketable collateral is purchased or not. |
| Keywords: | : Monetary Policy, Interbank Markets, Secured and Unsecured Funding. |
| JEL: | E42 E52 E58 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:730&r=all |
| By: | Giuseppe Vitaletti (Università di Viterbo) |
| Abstract: | This paper covers three closely interrelated stages. The first regards Sraffa’s theory. It is argued in particular that: a) Sraffa’s 1925 and 1926 articles are closely linked to Production of Commodities by means of Commodities, inasmuch they state the minimal cost, which informs indirectly the 1960 book; b) minimum costs are linear and parallel to the x axis in competition, so they are independent of the quantity produced; c) any deviation from this situation entails rents; d) rents can derive from decreasing returns (agriculture, mines) or from increasing returns (oligopoly, monopoly). Sraffa’s system solutions are discussed in depth. Particular attention is attached to the determination of the rate of interest. This leads to interconnections with the Keynesian system, which are developed in the second stage. Here the necessity emerges of rendering structural what it now conjunctural, pushing the rate of interest towards zero. This target can be reached by a fiscal instrument, i.e. by levying a tax on gross interest, close to 100%. Thus public debt ceases to be a risk, and the public deficit may increase, as happens in the majority of countries worldwide. The third stage regards the fiscal system. To obtain a similar treatment of interest, and also to try to hit oligopolies effectively, we need to render the fiscal system global. The problem arises with the remaining fiscal structure, now dominated by the principle of a worldwide basis. It is shown that this circumstance has to cease, and that internal revenue must be collected on bases which are exclusively internal. Therefore primarily the direct taxation, and then the indirect, must be reshaped. It is most interesting that a consonance is found with the taxation in vigour up the Seventies, and with De Viti theory of fiscal systems, which is national and based on the benefit principle. |
| Keywords: | Sraffa’s system, Falling interests, De Viti’s fiscal system, Marginalist views |
| JEL: | D01 D33 D43 D50 E20 E24 E40 E43 H20 H26 H62 H63 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ipu:wpaper:80&r=all |
| By: | Povilas Lastauskas (CEFER, Bank of Lithuania & Vilnius University); Julius Stakenas (Vilnius University) |
| Abstract: | Do labor market reforms initiated in periods of loose monetary policy yield different outcomes from those that were introduced in periods when monetary tightening prevailed? Since economic theory usually pays attention to the steady state change and ignores business cycle interactions of structural reforms, we connect local projection methodology with the Mallow’s Cp averaging criterion to arrive at an inference that does not require knowledge of the exact functional form, is robust to mis-specification, admits non-linearities, and cross-sectional dependence and addresses uncertainty regarding interactions between labor reforms and macroeconomy. We also develop a test to check the importance of monetary policy for any horizon and the entire impulse response function, taking the multiple testing problem into account. We document that replacement rates deliver substantially different outcomes on real GDP, inflation and real effective exchange rate, whereas labor activation schemes bear different effects on unemployment in low- and high-interest rate environments. There is also evidence of monetary policy trend playing an important role as well as increasing synchronized monetary and labor market policies across European countries. |
| Keywords: | Labor market reforms, nonlinear responses, Mallow’s Cp criterion for model averaging, error factor structure, low and high interest rate environments |
| JEL: | C33 C54 E52 E62 J08 J38 |
| Date: | 2019–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:66&r=all |
| By: | Povilas Lastauskas; Julius Stakénas |
| Abstract: | Do labor market reforms initiated in periods of loose monetary policy yield different outcomes from those that were introduced in periods when monetary tightening prevailed? Since economic theory usually pays attention to the steady state change and ignores business cycle interactions of structural reforms, we connect local projection methodology with the Mallow’s Cp averaging criterion to arrive at an inference that does not require knowledge of the exact functional form, is robust to mis-specification, admits non-linearities, and cross-sectional dependence and addresses uncertainty regarding interactions between labor reforms and macroeconomy. We also develop a test to check the importance of monetary policy for any horizon and the entire impulse response function, taking the multiple testing problem into account. We document that replacement rates deliver substantially different outcomes on real GDP, inflation and real effective exchange rate, whereas labor activation schemes bear different effects on unemployment in low- and high-interest rate environments. There is also evidence of monetary policy trend playing an important role and increasing synchronized monetary and labor market policies across European countries. |
| Keywords: | labor market reforms, nonlinear responses, Mallow’s Cp criterion for model averaging, error factor structure, low and high interest rate environments |
| JEL: | C33 C54 E52 E62 J08 J38 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7844&r=all |
| By: | Lutho Mbekeni (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University) |
| Abstract: | In this paper, we evaluate whether the South African Reserve Bank (SARB) has been successful at fulfilling it’s mandate of protecting the purchasing power of the country’s citizens. To this end, we use monthly data covering the post-inflation targeting era of 2002:01 to 2018:04 to re-examine Fisher’s hypothesis for the South African economy by testing for stationarity in real interest rates. Our study makes three noteworthy empirical contributions. Firstly, we use three measures of inflation in computing the real interest rate variable. Secondly, our inflation expectations variables are constructed in alignment with the inflation forecast horizons of 12 to 24 months as practiced by the SARB. Thirdly, we rely on the more powerful flexible Fourier unit root test in testing for integration properties of the real exchange rate. All-in-all, our findings highlight the Reserve Bank’s struggles in protecting the purchasing power of citizen’s for periods subsequent to the global financial crisis but not for periods before the crisis. Policy recommendations are also provided. |
| Keywords: | Fisher effect; SARB; Fourier unit root test; Monetary Policy. |
| JEL: | C12 C13 C22 E52 E58 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:mnd:wpaper:1906&r=all |
| By: | Andrea Berardi (Ca Foscari University of Venice - Dipartimento di Economia); Michael Markovich (Investment Strategy - Private Banking Wealth Management; Vienna Institute of Finance); Alberto Plazzi (Swiss Finance Institute; USI Lugano); Andrea Tamoni (Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick; London School of Economics & Political Science (LSE)) |
| Abstract: | We show that the difference between the natural rate of interest and the current level of monetary policy stance, dubbed Convergence Gap (CG), contains information that is valuable for bond predictability. Adding CG in forecasting regressions of bond excess returns significantly raises the R-squared, and restores countercyclical variation in bond risk premia that is otherwise missed by forward rates. The convergence gap also predicts changes in future yields, and consistently plays the role of an unspanned variable within an affine term structure framework. The importance of the gap remains robust out-of-sample, and in countries other than the U.S. Furthermore, its inclusion brings significant economic gains in the context of dynamic conditional asset allocation. |
| Keywords: | Bond Risk Premia, Forward Rates, Monetary Policy, Natural Rate of Interest, Bond Predictability |
| JEL: | E0 E43 G0 G12 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1952&r=all |
| By: | Dániel Baksa (International Monetary Fund & Central European University); Zsuzsa Munkácsi (International Monetary Fund) |
| Abstract: | The empirical and theoretical evidence on the inflation impact of population aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies’ data and a DSGE-OLG model - a multi-period general equilibrium framework with overlapping generations, - we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first to discuss, using this framework, how aging affects the short-term cyclical behavior of the economy and the transmission channels of monetary policy. Further, we are also the first to examine the interplay between aging and optimal central bank policies. As aging redistributes wealth among generations, generations behave differently, and the labor force becomes more scarce with aging, our model suggests that aging makes monetary policy less effective, and aggregate demand less elastic to changes in the interest rate. Moreover, in more gray societies central banks should react more strongly to nominal variables, and in a very old society the nominal GDP targeting rule might become the most effective monetary policy rule to compensate for higher inflation volatility. |
| Keywords: | aging, monetary policy transmission, optimal monetary policy, inflation targeting |
| JEL: | E31 E52 J11 |
| Date: | 2019–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:67&r=all |
| By: | Mordi, Charles N. O.; Adebiyi, Michael A.; Omotosho, Babatunde S. |
| Abstract: | This paper investigates the size and adjustment pattern of the interest rate pass-through (IRPT) between the policy-controlled interest rate (MPR) and seven (7) retail interest rates (lending and deposit rates) in Nigeria. This study departs from previous studies on Nigeria in the sense that it takes account of the effects of structural breaks in our modelling approach. First, we confirm the existence of long-run relationships between MPR and two retail rates (prime lending rate and savings deposit rate), albeit with significant structural breaks occurring in their cointegrating vectors at different periods. Second, we find evidence of incomplete pass-through in the response of the retail rates to MPR shocks. Third, most of the retail interest rates adjust symmetrically to changes in the policy rate, with the exception of the savings rate. This implies that the response of savings rate varies depending on whether the innovation in the MPR is positive or negative. Fourth, positive innovations in the MPR are fully reflected in the savings rate within 2 months as against 8 months for negative MPR shocks. Fifth, innovations in the MPR are fully transmitted to the prime lending rate in about 14 months while the complete pass-through to the 6-month time deposit rate occurs in about 11 months. In view of these findings, we recommend that the monetary authority should always have an eye on the size of the pass-through as well as the heterogeneities found in the adjustment process of the retail rates while taking decisions on its policy rate. Also, the low IRPT obtained suggests a stronger monetary policy stance or other supplementary measures if the objectives of MPR changes are to be fully realized. |
| Keywords: | Interest rate pass-through, Co-integration, Asymmetric adjustments, Structural Break |
| JEL: | E43 E52 E58 |
| Date: | 2019–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96171&r=all |
| By: | Carolin Pflueger; Emil Siriwardane; Adi Sunderam |
| Abstract: | We propose a novel measure of risk perceptions: the price of volatile stocks (PVS t ), defined as the book-to-market ratio of low-volatility stocks minus the book-to-market ratio of high-volatility stocks. PVS t is high when perceived risk directly measured from surveys and option prices is low. When perceived risk is high according to our measure, safe asset prices are high, risky asset prices are low, the cost of capital for risky firms is high, and real investment is forecast to decline. Perceived risk as measured by PVS t falls after positive macroeconomic news. These declines are predictably followed by upward revisions in investor risk perceptions. Our results suggest that risk perceptions embedded in stock prices are an important driver of the business cycle and are not fully rational. |
| JEL: | E22 E44 G12 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26290&r=all |
| By: | Panagiotis Konstantinou (AUEB); Andromachi Partheniou (AUEB) |
| Abstract: | Using a panel of OECD and non-OECD economies, we estimate the effects of three types of government expenditure (compensation of government employees, government use of goods and services and government investment) and social benefits on output, private consumption and investment. In OECD economies, we find that compensation of government employees and government investment generate significantly positive multipliers, whereas government use of goods and services does not. However, only the multipliers of compensation of government employees are found higher during recessions and only for horizons of up to two years ahead. In non-OECD economies, the multipliers of compensation of government employees and government investment are positive but smaller than those for the OECD group and they do not tend to differ in recessions and in expansions. We also provide evidence that social benefits generate increases of private consumption, for both OECD and non-OECD countries. |
| Keywords: | Fiscal Policy, Government Spending Multipliers, State-Dependent Multipliers, Local Projections, Non-Linear Models |
| JEL: | E62 E32 C33 |
| Date: | 2019–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1904&r=all |
| By: | Jesús Fernández-Villaverde; Samuel Hurtado; Galo Nuño |
| Abstract: | This paper investigates how, in a heterogeneous agents model with financial frictions, idiosyncratic individual shocks interact with exogenous aggregate shocks to generate time-varying levels of leverage and endogenous aggregate risk. To do so, we show how such a model can be efficiently computed, despite its substantial nonlinearities, using tools from machine learning. We also illustrate how the model can be structurally estimated with a likelihood function, using tools from inference with diffusions. We document, first, the strong nonlinearities created by financial frictions. Second, we report the existence of multiple stochastic steady states with properties that differ from the deterministic steady state along important dimensions. Third, we illustrate how the generalized impulse response functions of the model are highly state-dependent. In particular, we find that the recovery after a negative aggregate shock is more sluggish when the economy is more leveraged. Fourth, we prove that wealth heterogeneity matters in this economy because of the asymmetric responses of household consumption decisions to aggregate shocks. |
| JEL: | C45 C63 E32 E44 G01 G11 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26302&r=all |
| By: | Fatih Guvenen; Gueorgui Kambourov; Burhan Kuruscu; Sergio Ocampo; Daphne Chen |
| Abstract: | How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent heterogeneity in rates of return across individuals, we revisit this question. With such heterogeneity, the two tax systems have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average lifetime utility to a newborn (about 7.5% in consumption-equivalent terms). Turning to optimal taxation, the optimal wealth tax (OWT) in a stationary equilibrium is positive and yields even larger welfare gains. In contrast, the optimal capital income tax (OCIT) is negative—a subsidy—and large, and it delivers lower welfare gains than the wealth tax. Furthermore, the subsidy policy increases consumption inequality, whereas the wealth tax reduces it slightly. We also consider an extension that models the transition path and find that individuals who are alive at the time of the policy change, on average, would incur large welfare losses if the new policy is OCIT but would experience large welfare gains if the new policy is an OWT. We conclude that wealth taxation has the potential to raise productivity while simultaneously reducing consumption inequality. |
| Keywords: | Wealth taxation, Capital income tax, Rate of return heterogeneity, Power law models, Wealth inequality |
| JEL: | E21 E22 E62 H21 |
| Date: | 2019–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-648&r=all |
| By: | Francesco Bianchi; Howard Kung; Thilo Kind |
| Abstract: | This paper presents market-based evidence that President Trump influences expectations about monetary policy. The main estimates use tick-by-tick fed funds futures data and a large collection of Trump tweets criticizing the conduct of monetary policy. These collected tweets consistently advocate that the Fed lowers interest rates. Identification in our high-frequency event study exploits a small time window around the precise time stamp for each tweet. The average effect of these tweets on the expected fed funds rate is strongly statistically significant and negative, with a cumulative effect of around negative 10 bps. Therefore, we provide evidence that market participants believe that the Fed will succumb to the political pressure from the President, which poses a significant threat to central bank independence. |
| JEL: | E52 E58 G1 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26308&r=all |
| By: | Peter Andre; Carlo Pizzinelli; Christopher Roth; Johannes Wohlfart |
| Abstract: | We propose a method to measure people’s subjective models of the macroeconomy. Using a sample of 2,200 households representative of the US population and a sample of more than 1,000 experts, we measure beliefs about how the unemployment rate and the inflation rate respond to four different hypothetical exogenous shocks: a monetary policy shock, a government spending shock, an income tax shock, and an oil price shock. While expert predictions are quantitatively close to benchmarks from standard DSGE models and VAR evidence and relatively homogeneous, there is strong heterogeneity among households. Households predict changes in unemployment that are largely in line with the experts’ responses for all four shocks. However, their predictions of changes in inflation are at odds with those of experts both for the tax shock and the interest rate shock. We show that a substantial fraction of deviations of household predictions from expert predictions can be explained by the use of a simple heuristic according to which people expect a positive co-movement among variables they perceive as good and among variables they perceive as bad. Our findings inform the validity of central assumptions about the expectation formation process and have important implications for the optimal design of fiscal and monetary policy. |
| Keywords: | expectation formation, subjective models, macroeconomic shocks, monetary policy, fiscal policy |
| JEL: | D12 D14 D83 D84 E32 G11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7850&r=all |
| By: | Christoph Görtz (University of Birmingham); Christopher Gunn (Department of Economics, Carleton University); Thomas Lubik (Federal Reserve Bank of Richmond) |
| Abstract: | We study the effects of news shocks on inventory accumulation in a structural VAR framework. We establish that inventories react strongly and positively to news about future increases in total factor productivity. Theory suggests that the transmission channel of news shocks to inventories works through movements in marginal costs,through movements in sales, or through interest rates. We provide evidence that changes in external and internal rates of return are central to the transmission for such news shocks. We do not find evidence of a strong substitution effect that shifts production from the present into the future. |
| Keywords: | Structural VAR, News Shocks, Inventories |
| JEL: | C32 E22 E32 G31 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:19-09&r=all |
| By: | Christoph Gortz (University of Birmingham); Christopher Gunn (Carleton University); Thomas A. Lubik (Federal Reserve Bank of Richmond) |
| Abstract: | We study the e¤ects of news shocks on inventory accumulation in a structural VAR framework. We establish that inventories react strongly and positively to news about future increases in total factor productivity. Theory suggests that the transmission channel of news shocks to inventories works through movements in marginal costs, through movements in sales, or through interest rates. We provide evidence that changes in external and internal rates of return are central to the transmission for such news shocks. We do not find evidence of a strong substitution effect that shifts production from the present into the future. |
| Keywords: | Structural VAR, News Shocks, Inventories |
| JEL: | C32 E22 E32 G31 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:19-09&r=all |
| By: | John V. Leahy; Aditi Thapar |
| Abstract: | We study whether the effects of monetary policy are dependent on the demographic structure of the population. We exploit cross-sectional variation in the response of US states to an identified monetary policy shock. We find that there are three distinct age groups. In response to an increase in interest rates, the responses of private employment and personal income are weaker the greater the share of population under 35 years of age, are stronger the greater the share between 40 and 65 years of age, and are relatively unaffected by the share older than 65 years. We find that all age groups become more responsive to monetary policy shocks when the proportion of middle aged increases. We provide evidence consistent with middle aged entrepreneurs starting and expanding businesses in response to an expansionary monetary shock. |
| JEL: | E32 E52 J11 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26324&r=all |
| By: | Gu, Ran |
| Abstract: | Postgraduate degree holders experience lower cyclical wage variation than those with undergraduate degrees. Moreover, postgraduates have more specific human capital than undergraduates. Using an equilibrium search model with long-term contracts and imperfect monitoring of worker effort, this paper attributes the cyclicality of the postgraduate-undergraduate wage gap to the differences in specific capital. Imperfect monitoring creates a moral hazard problem that requires firms to pay efficiency wages. More specific capital leads to lower mobility, thereby alleviating the moral hazard and improving risk-sharing. Estimates reveal that specific capital explains the differences both in labour turnover and in wage cyclicality across education groups. |
| Keywords: | specific human capital, postgraduate, wage premium, wage cyclicality, long-term contracts |
| JEL: | E24 E32 I24 J31 J64 |
| Date: | 2019–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96254&r=all |
| By: | Aaron Mehrotra; Richhild Moessner; Chang Shu Author-X-Name_First: Chang |
| Abstract: | We analyse how movements in the components of sovereign bond yields in the United States affect long-term rates in 10 advanced and 21 emerging economies. The paper documents significant global spillovers from both the expectations and term premia components of long-term rates in the United States. We find that spillovers to domestic long-term rates in emerging economies from the US expectations components tend to be more sizeable than those from the US term premia. Finally, spillovers from US term premia are larger when an emerging economy displays greater macro-financial vulnerabilities. |
| Keywords: | interest rate spillovers, term premia, emerging economies |
| JEL: | E52 E43 F42 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:814&r=all |
| By: | Isaac Baley; Andrés Blanco |
| Abstract: | In economies with lumpy microeconomic adjustment, we establish structural relationships between the dynamics of the cross-sectional distribution of agents and its steady-state counterpart and discipline these relationships using micro data. Applying our methodology to firm lumpy investment, we discover that the dynamics of aggregate capital are structurally linked to two cross-sectional moments of the capital-to-productivity ratio: its dispersion and its covariance with the time elapsed since the last adjustment. We compute these sufficient statistics using plant–level data on the size and frequency of investments. We find that, in order to explain investment dynamics, the benchmark model with fixed adjustment costs must also feature a precise combination of irreversibility and random opportunities of free adjustment. |
| Keywords: | inaction, lumpiness, transitional dynamics, non convex adjustment costs, sufficient statistics, firm investment, adjustment hazard, Ss models |
| JEL: | D30 D80 E20 E30 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1116&r=all |
| By: | Isaac Baley; Andrés Blanco |
| Abstract: | In economies with lumpy microeconomic adjustment, we establish structural relationships between the dynamics of the cross-sectional distribution of agents and its steady-state counterpart and discipline these relationships using micro data. Applying our methodology to firm lumpy investment, we discover that the dynamics of aggregate capital are structurally linked to two cross-sectional moments of the capital-to-productivity ratio: its dispersion and its covariance with the time elapsed since the last adjustment. We compute these sufficient statistics using plant–level data on the size and frequency of investments. We find that, in order to explain investment dynamics, the benchmark model with fixed adjustment costs must also feature a precise combination of irreversibility and random opportunities of free adjustment. |
| Keywords: | inaction, lumpiness, transitional dynamics, non convex adjustment costs, sufficient statistics, firm investment, adjustment hazard, Ss models. |
| JEL: | D30 D80 E20 E30 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1670&r=all |
| By: | Nikolay Hristov; Markus Roth |
| Abstract: | The current paper broadens the understanding of the role played by uncertainty in the context of macroeconomic fluctuations. It focuses on the implications of uncertainty shocks for indicators that tend to precede financial crises. In an empirical analysis we show for a set of four euro area countries that negative uncertainty shocks, while boosting economic activity, are followed by unfavorable reactions of financial crisis indicators. We conclude that standard uncertainty measures contain some useful information on the potential buildup of vulnerabilities in the financial system. |
| Keywords: | uncertainty, crisis indicators, structural macroeconomic shocks, sign restrictions |
| JEL: | D89 C32 E44 G01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7839&r=all |
| By: | Huw D. Dixon; Christian Grimme |
| Abstract: | We take a monthly panel of German firms over the period 1980–2017 to examine the relative importance of time and state dependence in the decisions of firms to raise, lower or leave their price constant. In addition, we seek to estimate the relative importance of macroeconomic factors and firm-specific factors within state dependence. While price decreases can be well explained by time dependence alone, price increases are best predicted by the interaction of time-dependent and firm-specific state factors. Whilst on their own macroeconomic variables might seem important, once we add firm-specific variables the effects of macroeconomic variables become much smaller in magnitude. Our empirical results suggest that theoretical models should integrate both time and state dependence rather than developing the approaches separately. We also show that time dependence is better captured if we allow for different hazard functions for price increases and decreases. |
| Keywords: | survey data, price setting, extensive margin, state-dependent pricing, time-dependent pricing |
| JEL: | E30 E31 E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7842&r=all |
| By: | Jonathan Chiu; Thorsten Koeppl |
| Abstract: | A cryptocurrency system such as Bitcoin relies on a decentralized network of anonymous validators to maintain and update copies of the ledger in a process called mining. In such a permissionless system, someone can cheat by spending a coin twice, which leads to the so-called double-spending problem. A well-functioning cryptocurrency system must ensure that users do not have an incentive to double spend. We develop a general-equilibrium model of a cryptocurrency. We use the model to obtain a condition that rules out double spending and study the optimal design of cryptocurrencies. We also quantify the welfare costs of using a cryptocurrency as a payment instrument. We find that it is better to use the revenue from currency creation rather than transaction fees to finance the costly mining process. We estimate that Bitcoin generates a large welfare loss that is about 500 times bigger than the welfare loss in a monetary economy with 2 percent inflation. This welfare loss can be lowered in an optimal design to the equivalent of that in a monetary economy with moderate inflation of about 45 percent. |
| Keywords: | Digital Currencies and Fintech; Monetary Policy; Payment clearing and settlement systems |
| JEL: | E4 E5 L5 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-40&r=all |
| By: | Enrique G. Mendoza; Sergio Villalvazo |
| Abstract: | We propose a simple and fast fixed-point iteration algorithm FiPIt to obtain the global, non-linear solution of macro models with two endogenous state variables and occasionally binding constraints. This method uses fixed-point iteration on Euler equations to avoid solving two simultaneous nonlinear equations (as with the time iteration method) or creating modified state variables requiring irregular interpolation (as with the endogenous grids method). In the small-open-economy RBC and Sudden Stops models provided as examples, FiPIt is used on the bonds and capital Euler equations to solve for the bonds decision rule and the capital pricing function. In a standard Matlab platform, FiPIt solves both models much faster than time iteration and various hybrid methods. The choice of functions that FiPIt iterates on using the Euler equations can vary across models, and there can be more that one arrangement for the same model. |
| JEL: | E17 E44 F34 F41 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26310&r=all |
| By: | Mariko Hatase (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: mariko.hatase@boj.or.jp)); Yoichi Matsubayashi (Graduate School of Economics, Kobe University (E-mail: myoichi@econ.kobe-u.ac.jp)) |
| Abstract: | Tax devices have occasionally been adopted as policy tools to promote economic growth in major industrialized countries after the Second World War. In Japan, various accelerated depreciation schemes under the name 'special depreciation' were employed as major devices to stimulate investments. In this paper, we manually collect firm-level data series in the heyday of the device from the mid-1950s to the early 1970s. The findings from firm-level data are as follows: the aggregated special depreciation hit two peaks when the schemes were expanded, applying special depreciation tax incentives prevailed among listed companies, and the actual amounts varied across firms with strong upward biases. A detailed examination of each firm's financial statements indicates that each firm retained its discretion when applying the scheme and sometimes chose not to enjoy the full benefits. An empirical analysis reveals that firms with relatively less capital to labor tended to use larger special depreciation, hinting at the probability of intended effects of policy devices. Increases in the number of designated machines for the scheme- once considered to represent its inefficiency-actually activated the usage of schemes by firms. |
| Keywords: | Capital investments, Corporate taxes, Special depreciation, Investment policy, High-growth era |
| JEL: | E22 E62 H25 N15 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:19-e-17&r=all |
| By: | Flora Lutz; Leopold Zessner-Spitzenberg |
| Abstract: | We propose a small open economy model where agents borrow internationally and invest in liquid foreign assets to insure against liquidity shocks, which tem-porarily shut out the economy of short-term credit markets. Due to the presence of a pecuniary externality individual agents borrow too much and hold too little liquid assets relative to a social planner. This ine?ciency rationalizes macropru-dential policy interventions in the form of reserve accumulation at the central bank coupled with a tax on foreign borrowing. Unless combined with other measures, a tax on foreign borrowing is detrimental to welfare; it reduces agents’ incentives to invest in liquid assets and thereby increases ?nancial instability. Our model can quantitatively match the simultaneous depreciation of the exchange rate and con-tractions in output, gross trade ?ows, foreign liabilities and liquid reserves during Sudden Stop episodes. |
| JEL: | D62 E44 F32 F34 F41 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1907&r=all |
| By: | Karlsson, Sune (Örebro University School of Business); Österholm, Pär (Örebro University School of Business) |
| Abstract: | In this paper we assess whether the relation between the corporate bond-yield spread and the real economy has been stable over time. Using quarterly US data from 1953Q1 to 2018Q2, we estimate Bayesian VAR models which allow for drifting parameters and/or stochastic volatility and conduct formal model selection in a Bayesian setting. Our results indicate that the relation between the variables has been stable; we do, however, find strong support for stochastic volatility. We conclude that the corporate bond-yield spread’s usefulness for predicting real economic activity has not changed to a relevant extent after the Great Reces-sion. |
| Keywords: | Bayesian VAR; Time-varying parameters; Stochastic volatility; Model selection |
| JEL: | C11 C32 C52 E44 E47 G17 |
| Date: | 2019–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2019_007&r=all |
| By: | Ṣebnem Kalemli-Özcan |
| Abstract: | I show that monetary policy divergence vis-a-vis the U.S. has larger spillover effects in emerging markets than advanced economies. The monetary policy of the U.S. affects domestic credit costs in other countries through its effect on global investors’ risk perceptions. Capital flows in and out of emerging market economies are particularly sensitive to fluctuations in such risk perceptions and have a direct effect on local credit spreads. Domestic monetary policy is ineffective in mitigating this effect as the pass-through of policy rate changes into short-term interest rates is imperfect. This disconnect between short rates and monetary policy rates is explained by changes in risk perceptions. A key policy implication of my findings is that emerging markets’ monetary policy actions designed to limit exchange rate volatility can be counterproductive. |
| JEL: | E0 F0 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26297&r=all |
| By: | Crowley, Patrick M.; Hughes Hallett, Andrew |
| Abstract: | Understanding the relationship between national income GDP components is an essential part of macroeconomics. This study investigates quarterly real GDP component data for the U.S. and the U.K. and applies continuous wavelet analysis on cross comparisons of the data, from both within and between the two datasets. The results show that the cyclical interactions between consumption and investment are the most complex and most substantial at several different frequencies. The relationship of exports with other macroeconomic variables has also developed over time, likely due to the evolution of an international business cycle. |
| JEL: | C49 E32 F44 |
| Date: | 2019–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_023&r=all |
| By: | Javier Bianchi; Pablo Ottonello; Ignacio Presno |
| Abstract: | The excess procyclicality of fiscal policy is commonly viewed as a central malaise in emerging economies. We document that procyclicality is more pervasive in countries with higher sovereign risk and provide a model of optimal fiscal policy with nominal rigidities and endogenous sovereign default that can account for this empirical pattern. Financing a fiscal stimulus is costly for risky countries and can render countercyclical policies undesirable, even in the presence of large Keynesian stabilization gains. We also show that imposing austerity can backfire by exacerbating the exposure to default, but a well-designed “fiscal forward guidance” can help reduce the excess procyclicality. |
| JEL: | E62 F34 F41 F44 H50 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26307&r=all |
| By: | Sokbae Lee; Yuan Liao; Myung Hwan Seo; Youngki Shin |
| Abstract: | We investigate state-dependent effects of fiscal multipliers and allow for endogenous sample splitting to determine whether the US economy is in a slack state. When the endogenized slack state is estimated as the period of the unemployment rate higher than about 12 percent, the estimated cumulative multipliers are significantly larger during slack periods than non-slack periods and are above unity. We also examine the possibility of time-varying regimes of slackness and find that our empirical results are robust under a more flexible framework. Our estimation results points out the importance of the heterogenous effects of fiscal policy. |
| Keywords: | fiscal policy; threshold regression; recession |
| JEL: | C32 E62 H20 H62 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2019-11&r=all |
| By: | International Monetary Fund |
| Abstract: | New Zealand’s expansion lost momentum in 2017-18, as some key drivers started to weaken. Despite the long expansion, inflation remains weak, reflecting imported disinflation as well as strong net inward migration, which has boosted labor supply. Macrofinancial vulnerabilities have increased with a housing boom but have been contained through macroprudential policy intervention. After recent declines, growth picked up in early 2019 and is expected to remain close to trend in 2019-20 on the back of increased policy support, despite external headwinds. Inflation should pick up gradually. Downside risks to the growth outlook have increased, reflecting: higher global risks; prospects for a weaker fiscal impulse given recent implementation lags; and the housing market cooling morphing into an actual downturn. |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/303&r=all |
| By: | Konstantinos Angelopoulos; Spyridon Lazarakis; Jim Malley |
| Abstract: | We develop a theoretical framework where the cross-sectional distributions of hours, earnings, wealth and consumption are determined jointly with a set of expenditure targets defining peer and aspirational pressure for members of different social classes. We show existence of a stationary socio-economic equilibrium, under idiosyncratic stochastic productivity and socio-economic class participation. We calibrate a model belonging to this framework using British data and find that it captures the main patterns of inequality, between and within the social groupings. We find that the effects of peer pressure on within-group inequality differ between groups. We also find that wealth and consumption inequality increase within groups who aspire to match social targets from a higher class, despite a reduction in within-group inequality in hours and earnings. |
| Keywords: | inequality, incomplete markets, peer pressure, aspirations |
| JEL: | E21 E25 D01 D31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7838&r=all |
| By: | Mansur, Alfan; Nizar, Muhammad Afdi |
| Abstract: | In a number of occasions during the bad times where financial markets are under pressure, Indonesia often suffers the most compared to neighbors or peer countries. It indicates that there is something fundamental as the driving factors and the depth of the Indonesian financial sector may be the major factor. This research aims to investigate how deep and develop the Indonesian financial sector using multiple indicators and metrics. This research also investigates the causal relationship between financial sector development and the economic growth whether the Indonesian financial sector is supply-leading or demand-following. Moreover, this research attempts to identify the determinants of the financial sector development in Indonesia. The results show that the development of the Indonesian financial sector has been focused on the access aspect, while the development of its depth as well as efficiency is still limited. The depth level by the end of 2018 was even still lower than the level in the mid-1990s. The research's results also show that the financial sector development in Indonesia is demand-following or it develops as the economy grows. Lastly, the results show that the financial sector development in Indonesia is affected by multi-aspect factors ranging from macroeconomic factors and institutions to the openness levels either trade openness or financial openness. On those many structural aspects, Indonesia is inferior compared with many countries, so it is not a coincidence that the Indonesian financial sector is less developed compared to the many countries. |
| Keywords: | financial sector, development, market, depth, economy |
| JEL: | C12 C43 E44 G10 G18 G21 G28 |
| Date: | 2019–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96265&r=all |
| By: | Fausto, Cavalli; Ahmad, Naimzada; Nicolò, Pecora |
| Abstract: | In this paper we consider a nonlinear model for the real economy described by a multiplieraccelerator setup. The model comprises the government sector, which infl uences the output dynamics by means of the fiscal policy, and the money market, where the money supply depends upon the fl uctuations in the economic activity. Through rigorous analytical tools combined with numerical simulations, we investigate the stability conditions of the unique steady state and the emergence of different kinds of endogenous dynamics, which are the results of the fraction of the fiscal and the monetary policy through their reactivity degrees. Such policies, if properly tuned, can lead the economy toward the desired full employment target but, on the other hand, can also generate endogenous fluctuations in the pace of the economic activity, associated with the occurrence of closed invariant curves and multistability phenomena. |
| Keywords: | nonlinear dynamics; monetary and fiscal policies; bifurcations; multistability. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:409&r=all |
| By: | Rohan Kekre (University of Chicago); Moritz Lenel (Princeton University) |
| Abstract: | We explore the effects of monetary, fiscal, and macroprudential policies on risk premia and investment in a heterogeneous agent New Keynesian environment. Heterogeneity in agents' marginal propensity to save in capital (MPSK) summarizes differences in risk aversion, portfolio constraints, and background risk. Policies which redistribute to agents with high MPSKs reduce risk premia and, absent a monetary policy tightening, raise investment. We quantitatively evaluate the role of this mechanism for the transmission of conventional monetary policy. An unexpected reduction in the nominal interest rate redistributes to agents with high MPSKs. We characterize the necessary heterogeneity in MPSKs to rationalize the observed stock market and investment responses to monetary policy shocks. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1423&r=all |
| By: | Chaoran Chen; Diego Restuccia; Raul Santaeulalia-Llopis |
| Abstract: | We assess the effects of land markets on misallocation and productivity by exploiting policy-driven variation in land rentals across time and space arising from a large-scale land certification reform in Ethiopia, where land remains owned by the state. Our main finding from detailed micro panel data is that land rentals substantially reduce misallocation and increase agricultural productivity. Our evidence builds from an empirical difference-in-difference strategy, an instrumental variable approach, and a calibrated quantitative macroeconomic framework with heterogeneous household-farms that replicates, without targeting, the empirical effects. These effects are nonlinear, impacting more farms farther away from efficient operational scale, consistent with our theory. Using our model, we find that more active land markets reduce inequality, an important concern for the design of land policy. We also find that the positive effects of land markets are mainly driven by formal market rentals as opposed to informal rentals. Finally, our analysis also provides evidence that land markets increase the adoption of more advanced technologies such as the use of fertilizers. |
| Keywords: | Land markets, rentals, effects, misallocation, productivity, inequality, micro data, quantitative macro, informal markets, technology, fertilizers. |
| JEL: | E02 O10 O11 O13 O43 O55 Q10 Q15 Q18 Q24 D5 |
| Date: | 2019–09–26 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-649&r=all |
| By: | Laura Coroneo; Fabrizio Iacone; Fabio Profumo |
| Abstract: | We evaluate the real-time predictive ability of density forecasts from the European Central Bank’s Survey of Professional Forecasters (ECB SPF) using the Diebold and Mariano (1995) and West (1996) test. As the sample size for the ECB SPF is fairly small, we use fixed-b and fixed-m asymptotics to alleviate size distortions. We verify in an original Monte Carlo design that fixed-smoothing asymptotics delivers correctly sized tests in this framework. Empirical results indicate that ECB SPF density forecasts for unemployment and real GDP growth beat simple benchmarks at one-year horizon. ECB SPF density forecasts for inflation instead do not easily outperform simple benchmarks, as up to 2008 ECB SPF inflation expectations are close to the target. After 2008, we find that the predictive ability of the ECB SPF is more conspicuous for all variables, even though inflation expectations are still loosely anchored to the target. |
| Keywords: | real-time density forecast evaluation, ECB SPF, Diebold-Mariano-West test, fixed-smoothing asymptotics |
| JEL: | C12 C22 E17 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:19/14&r=all |
| By: | Rupal Kamdar (UC Berkeley) |
| Abstract: | Expectations play a crucial role in macroeconomic models and are commonly assumed to be full-information rational. However, information is vast, costly to obtain, and difficult to understand. Using survey data, I show that consumer beliefs about economic variables are driven by a single component: sentiment. When consumers are "optimistic" (have positive sentiment), they expect the economy to expand but inflation to decline. This correlation stands in contrast to recent U.S. experience. I explain these stylized facts with a model of a rationally inattentive consumer who faces uncertainty about fundamentals. To economize on information costs, the consumer chooses to reduce the dimensionality of the problem and obtain a signal that is a linear combination of fundamentals. Optimal information gathering results in covariances of beliefs that differ from the underlying data-generating process, and in particular leads to countercyclical price beliefs. Thus, monetary policies that aim to stimulate the economy by raising inflation expectations can have counterproductive consequences. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:647&r=all |
| By: | Hutter, Christian (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Klinger, Sabine (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Trenkler, Carsten; Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]) |
| Abstract: | "The strong and sustained labour market upswing in Germany is widely recognized. In a developing literature, various relevant studies highlight different specific reasons. The underlying study, instead, simultaneously considers a broad set of factors in a unified methodological framework and systematically weighs the candidate reasons for the labour market upswing against each other on an empirical basis. The candidates are: shocks on (de)regulation of employment or job creation intensity, the efficiency of the matching process, wage determination, the separation propensity, the size of the labour force, technology, business cycle and working time. We develop a structural macroeconometric framework that leaves as manyof the systematic interlinkages as possible for empirical determination while operating with a minimal set of restrictions in order to identify economically meaningful shocks. For this purpose, we combine short- and long-run restrictions based on search-and-matching theory and established assumptions on labour force development and technological change. Matching efficiency, job creation intensity, labour force, and separation propensity yield the largest contributions in explaining the German labour market upswing." (Author's abstract, IAB-Doku) ((en)) |
| JEL: | C32 E24 J21 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:201920&r=all |
| By: | Francesco Zanetti; Tatsushi Okuda; Tomohiro Tsuruga |
| 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: | E31 D82 C72 |
| Date: | 2019–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:881&r=all |
| By: | Feng Dong (Shanghai Jiao Tong University); Yi Wen (Federal Reserve Bank of St. Louis) |
| Abstract: | We build an analytically tractable model of dynamic production networks with incomplete insurance markets and heterogeneous money demand. We use the model to quantify the classic Baumol-Tobin redistribution channel of monetary policy. Our model can explain (i) the joint distribution of household consumption and money demand and (ii) the strong propagation mechanism of monetary shocks for the business cycle found in empirical VARs across production sectors. We show that the Baumol-Tobin redistribution channel of monetary non-neutrality can be greatly magnified and propagated through endogenous leisure choices and production networks. Our model can account for the hump-shaped impulse responses of sectoral output and employment to monetary shocks, thanks to the endogenous linkage between the distribution of household money demand and firms' input-output coefficient matrix. Our model provides an alternative framework to the Heterogeneous Agent New Keynesian (HANK) model for monetary policy analysis. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1464&r=all |
| By: | David Childers (Carnegie Mellon University); Ross Doppelt (Penn State) |
| Abstract: | A growing literature seeks to understand how inequality changes over the business cycle. Various measures of income dispersion appear to be countercyclical. Our goal is to study the cyclical dynamics of the earnings distribution, but we want to do more than summarize the distribution, conditional on the economy being in expansion or recession. For instance, one might think that dispersion looks different in an expansion caused by a technology shock, compared to an expansion caused by a monetary shock. Likewise, one might think that a given shock has different effects on different conditional distributions, such as the earnings distribution for college graduates and the earnings distribution for high school graduates. We will develop tools for measuring how the distribution responds to identified macroeconomic shocks. Our strategy will be to combine tools from structural time series with tools from non-parametric Bayesian statistics. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1541&r=all |
| By: | Bernardino Adão (Banco de Portugal); Andre Silva (Nova School of Business and Economics) |
| Abstract: | We calculate the effects of an increase in government spending financed with labor income taxes or inflation. We consider government spending in the form of government consumption or transfers. We use a model in which agents increase the use of financial services to avoid losses from inflation, as empirically the financial sector increases with inflation. The financial sector size is constant in standard cash-in-advance models, which implies optimal positive inflation. We reverse this result when we take into account the increase in the financial sector. In our framework, it is optimal to use taxes to finance the government. This result is robust to alternative specifications and definitions of seigniorage and government spending |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:350&r=all |
| By: | Perekunah B. Eregha (Pan-Atlantic University, Lekki-Lagos. Nigeria); Arcade Ndoricimpa (University of Burundi, Burundi) |
| Abstract: | The study applies a BEKK GARCH-M model to examine the effect of uncertainty on the levels of inflation and output growth in Nigeria. The results suggest a significant positive effect of inflation uncertainty on the level of inflation, supporting the Cukierman and Meltzer (1986) hypothesis. In addition, uncertainty about inflation is found to be detrimental to output growth, supporting the Friedman’s (1977) hypothesis of a negative effect of inflation uncertainty on output growth. Uncertainty about growth does not have a significant effect on both the levels of inflation and output growth. The evidence in this study suggests that Nigeria should put in place policies minimizing inflation uncertainty to avoid its adverse effects on the economy. In addition, the independence relationship between output growth and its uncertainty in Nigeria suggest that they can be treated separately as suggested by business cycle models. |
| Keywords: | Inflation, Inflation Uncertainty, Output, Output Uncertainty, BEKK GARCH-M |
| JEL: | C22 E0 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/060&r=all |
| By: | International Monetary Fund |
| Abstract: | The economy continued to strengthen. Robust growth in 2018 was propelled by infrastructure and private investments, while private consumption continued to expand into 2019, supported by growing real incomes and bank lending recovery. Inflation slowed in 2018, but pressures are building up. The labor market improved significantly, with strengthening labor force participation, employment growth, and falling unemployment. |
| Date: | 2019–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/305&r=all |
| By: | Pedro Henrique da Silva Castro |
| Abstract: | Is monetary policy power reduced in the presence of governmental credit with subsidized interest rates, insensitive to the monetary cycle? I argue this question has not yet been reasonably answered even though a virtual consensus seems to have been reached. Using a general analytical decomposition I show that the available microeconometric evidence is not necessarily informative about the macroeconomic effect of interest, due to the presence of general equilibrium effects. Moreover, evidence of decreased power over output does not imply that power over inflation is also decreased. A simple New Keynesian model where fi rms take credit, from both the market and the government, to finance working capital needs is presented to exemplify those possibilities. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:505&r=all |
| By: | Angelos Angelopoulos; Konstantinos Angelopoulos; Spyridon Lazarakis; Apostolis Philippopoulos |
| Abstract: | Rent seeking leads to a misallocation of resources that worsens economic outcomes and reduces aggregate welfare. We conduct a quantitative examination of the distributional effects of rent extraction via the financial sector. Rent seeking introduces a possibility for insurance against idiosyncratic earnings risk that is more valuable for poorer households that are lacking in means of self insurance. However, it also creates a wedge that discourages savings, thus reducing self insurance via asset accumulation. When the model is calibrated to US data, the distorting effects dominate, implying welfare losses for all households, and an increase in wealth inequality. Nevertheless, welfare losses are bigger for households with higher initial wealth. Therefore, a policy reform to reduce rent seeking via the financial sector, despite being Pareto improving, will benefit predominantly wealthier households. |
| Keywords: | conditional welfare changes, wealth distribution, rent seeking |
| JEL: | E02 D31 H10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7835&r=all |
| By: | Lorenzo Bretscher (London Business School); Andrea Tamoni (London School of Economics); Aytek Malkhozov (Federal Reserve Board) |
| Abstract: | We examine the role of expectation, or news, shocks for the measurement of macroeconomic risk and the natural rate of interest. To this end, we estimate a New-Keynesian dynamic stochastic general equilibrium model that allows us to infer agents’ expectations about future fundamentals at different horizons. Accounting for news shocks results in better-specified macroeconomic risk factors that have significant explanatory power for the cross-section of stock and long-term bond returns. Further, anticipated changes in future productivity growth induce sizeable fluctuations in the natural rate of interest, which we show to have important implications for the conduct of monetary policy. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:100&r=all |
| By: | Gabriela Cugat (Northwestern University) |
| Abstract: | I argue that household heterogeneity plays a key role in the transmission of aggregate shocks in emerging market economies. Using Mexico's 1995 crisis as a case study, I first document empirically that working in the tradable versus non-tradable sector is a crucial determinant of the income and consumption losses of different types of households. Specifically, households in the non-tradable sector suffered much larger income and consumption losses regardless of other household characteristics. To account for the effect of this observation on macroeconomic dynamics, I construct a New Keynesian small open economy model with household heterogeneity along two dimensions: uninsurable sector-specific income and limited financial-market participation. I find that the propagation of shocks in this economy is affected by both dimensions of heterogeneity, with uninsurable sector-specific income playing a quantitatively larger role. In terms of policy, a managed exchange rate policy is more costly overall when households are heterogeneous; however, households in the non-tradable sector benefit from it. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:526&r=all |
| By: | Simone Auer (Bank of Italy); Marco Bernardini (Bank of Italy); Martina Cecioni (Bank of Italy) |
| Abstract: | Using country-industry level data and high-frequency identified monetary policy shocks, we find evidence of a positive but non-linear relationship between corporate leverage and the effectiveness of monetary policy in the euro area. More leveraged industries tend to increase their production more strongly after an expansionary monetary policy shock, pointing to a non-negligible role of financial frictions in the transmission mechanism. However, at high leverage ratios this positive relation becomes weaker and eventually inverts. This finding is consistent with recent theoretical studies arguing about the role of credit risk in dampening the financial accelerator channel. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1102&r=all |
| By: | Francesco Ferrante (Federal Reserve Board); Matthias Paustian (Federal Reserve Board) |
| Abstract: | We develop an incomplete-markets heterogeneous agent New-Keynesian (HANK) model in which households are allowed to borrow using nominal debt. We show that, in this framework, forward guidance, that is the promise by the central bank to lower future interest rates, can be a powerful policy tool, especially when the economy is in a liquidity trap. In our model, expected lower rates imply a future transfer of wealth from savers to borrowers, reducing precautionary motives and stimulating current demand and inflation. In addition, at the time of the policy announcement, debt deflation generates also a wealth transfer towards constrained agents, who have high marginal propensity to consume, further increasing aggregate consumption and inflation, and igniting a positive feedback loop. These results contrast with previous research on HANK models, which focused on frameworks where agents were not allowed to borrow, and which found negligible effects of forward guidance. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1256&r=all |
| By: | Ahmad, Naimzada; Marina, Pireddu |
| Abstract: | Starting from a Muthian cobweb model, we extend the profit-based evolutionary setting in Hommes and Wagener (2010) populated by pessimistic, optimistic and unbiased fundamentalists, by assuming that agents face heterogeneous information costs, inversely proportional to the entity of their bias. Hommes and Wagener (2010) proved that, when the unique steady state of their model is globally eductively stable in the sense of Guesnerie (2002), the equilibrium under evolutionary learning may be just locally, but not globally, stable, due to the presence of a period-two cycle. Thanks to the introduction of information costs, we find that the equilibrium, when globally eductively stable, may be not even locally stable under evolutionary learning. More precisely, we analyze our setting by measuring the influence of agents’ heterogeneity through the parameter describing the degree of optimism and pessimism. According to the considered parameter configuration, the unique steady state, which coincides with the fundamental, may be (locally or globally) stable for every value of the bias, like in Hommes and Wagener (2010), or it may be stable just for suitably small and for suitably large values of the bias. Hence, increasing beliefs’ heterogeneity can be stabilizing when information costs are taken into account. We give an interpretation of such counterintuitive result in terms of profits, on which the share updating rule is based. |
| Keywords: | Muthian cobweb model; heterogeneous agents; evolutionary learning; information costs; double stability threshold. |
| JEL: | B52 C62 D84 E32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:406&r=all |
| By: | Brochier, Lidia; Freitas, Fábio |
| Abstract: | The paper addresses the features of stock-flow consistent (SFC) canonical versions of neo-kaleckian and supermultiplier models that introduce the accumulation of debt of households and firms. The aim of this comparison is twofold: (i) to analyze under which conditions the paradox of debt emerges in the household and firms sector in each model; (ii) to evaluate the extent in which these conditions differ due to each models' specific closure. Preliminary results suggest that the paradox of debt in firms' sector is not a necessary result of supermultiplier models. As for households sector, the paradox of debt is a feature of the canonical supermultiplier model, yet there may be episodes of rising debt-to-income ratios and financial crisis as precipitated by policy decisions. |
| Keywords: | Paradox of debt, neo-Kaleckian model, Supermultiplier model, autonomous expenditures, SFC |
| JEL: | E11 E12 O41 |
| Date: | 2019–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96252&r=all |
| By: | Fernando Martin (Federal Reserve Bank of St. Louis) |
| Abstract: | Societies have come to rely on simple rules to restrict the size and behavior of governments: constraints on monetary policy, revenue, budget balance and debt. I study the merit of these constraints in a dynamic stochastic model in which fiscal and monetary policies are jointly determined. Under several specifications, a revenue ceiling is the only rule that effectively induces the government to lower spending and dominates other policy constraints in terms of welfare by an order of magnitude. However, the reduction in spending is modest and comes at the cost of higher debt and inflation. Monetary policy rules are not desirable as they severely hinder distortion-smoothing and may lead to large welfare losses if implemented incorrectly. Budget balance and debt rules are generally benign, with the former being always preferable to the latter. All types of fiscal rules are usually best implemented at all times, but can be suspended in adverse times, often at a minor cost. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1181&r=all |
| By: | Christian Matthes (Federal Reserve Bank of Richmond); Felipe Schwartzman (Federal Reserve Bank Richmond) |
| Abstract: | We use economic theory to rank the impact of structural shocks across sectors. This ranking helps us to identify the origins of U.S. business cycles. To do this, we introduce a Hierarchical Vector Auto-Regressive (Hi-VAR) model, encompassing aggregate and sectoral variables. We find that shocks whose impact originate in the “demand” side (monetary, household and government consumption) account for 2.4 times more of the variance of U.S. GDP growth at business cycle frequencies then identified shocks originating in the “supply” side (technology and energy). Furthermore, corporate financial shocks, which theory suggests propagate to large extent through demand channels, account for 1.4 times as much as those same supply shocks. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1122&r=all |
| By: | Fernando Arce; Julien Bengui; Javier Bianchi |
| Abstract: | This paper proposes a theory of foreign reserves as macroprudential policy. We study an open-economy model of financial crises in which pecuniary externalities lead to overborrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient allocation. The optimal reserve accumulation policy leans against the wind and significantly reduces the exposure to financial crises. The theory is consistent with the joint dynamics of private and official capital flows, both over time and in the cross-section, and can quantitatively account for the recent upward trend in international reserves. |
| Keywords: | Balance of payments and components; Financial stability; Financial system regulation and policies; Foreign reserves management; International financial markets |
| JEL: | D52 D62 F34 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-43&r=all |
| By: | Kozo Ueda (Waseda University) |
| Abstract: | Central banks across the globe are paying increasing attention to the distributional aspects of monetary policy. In this study, we focus on reallocation among heterogeneous firms triggered by nominal growth. Japanese firm-level data show that large firms tend to grow faster than small firms under higher inflation. We then construct a model that introduces nominal rigidity into endogenous growth with heterogeneous firms. The model shows that, under a high nominal growth rate, firms of inferior quality bear a heavier burden of menu cost payments than do firms of superior quality. This outcome increases the market share of superior firms, while some inferior firms exit the market. This reallocation effect, if strong, yields a positive effect of monetary expansion on both real growth and welfare. The optimal nominal growth can be strictly positive even under nominal rigidity, whereas standard New Keynesian models often conclude that zero nominal growth is optimal. Moreover, the presence of menu costs can improve welfare. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:128&r=all |
| By: | Nina Biljanovska (International Monetary Fund); Alexandros Vardoulakis (Federal Reserve Board); Lucyna Gornicka (International Monetary Fund) |
| Abstract: | An asset bubble relaxes collateral constraints and increases borrowing of credit-constrained agents. At the same time, as the bubble deflates when constraints start binding, it amplifies downturns. We show analytically and quantitatively that the macroprudential policy should optimally respond to building asset price bubbles in a non-linear fashion depending on the underlying indebtedness. If credit is moderate, policy should accommodate the bubble to reduce the incidence of binding collateral constraints. If credit is elevated, policy should lean against the bubble more aggressively to mitigate the pecuniary externalities from a deflating bubble when constraints bind. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:663&r=all |
| By: | John Geanakoplos (Yale University); David Rappoport (Federal Reserve Board) |
| Abstract: | A synthesis of new and old approaches in understanding macroeconomic fluctuations and the role of monetary policy (MP) is the credit surface, where the interest rate is a function of multiple credit terms: leverage, credit rating, term, etc. We gauge credit conditions using the credit surface in mortgage, corporate bond, and peer-to-peer lending markets, and explore its relationship with economic activity in these segments of the economy. In addition, we study the transmission of MP through the corporate bond credit surface. Our results suggest that the passthrough of MP is heterogeneous and non-monotonic in ex-ante riskiness, initially declining as risk increases but then increasing. Our preliminary results support the view that the credit surface is important for macroeconomic fluctuations and the transmission of MP. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1516&r=all |
| By: | Federico, Salvatore (Center for Mathematical Economics, Bielefeld University); Ferrari, Giorgio (Center for Mathematical Economics, Bielefeld University); Schuhmann, Patrick (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | Consider a central bank that can adjust the inflation rate by increasing and decreasing the level of the key interest rate. Each intervention gives rise to proportional costs, and the central bank faces also a running penalty, e.g., due to misaligned levels of inflation and interest rate. We model the resulting minimization problem as a Markovian degenerate two-dimensional bounded-variation stochastic control problem. Its characteristic is that the mean-reversion level of the diffusive inflation rate is an affine function of the purely controlled interest rate's current value. By relying on a combination of techniques from viscosity theory and free-boundary analysis, we provide the structure of the value function and we show that it satisfies a second-order smooth-fit principle. Such a regularity is then exploited in order to determine a system of functional equations solved by the two monotone curves that split the control problem's state space in three connected regions. |
| Keywords: | singular stochastic control, Dynkin game, viscosity solution, free boundary, smooth-fit, inflation rate, interest rate |
| Date: | 2019–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:bie:wpaper:624&r=all |
| By: | Bobana Cegar; Francisco J Parodi |
| Abstract: | Based on a new database of State-Owned Enterprise (SOE) financial statements, we find that SOEs in Bosnia and Herzegovina are mostly in poor financial shape. We estimate the overall size and composition of the SOE sector, and identify individual companies that affect fiscal and macroeconomic performance. Financial analysis suggests that SOEs are not contributing enough to the economy. We also review the SOE governance framework and find that governments do not exercise their ownership function in line with WB/OECD guidelines. Reforms to the governance frameworks are necessary to foster transparency and improve accountability. More fundamental reform of the SOE sector might increase overall GDP by 3 percent per year. |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/201&r=all |
| By: | Álvaro Chamizo (BBVA.); Alfonso Novales (Instituto Complutense de Análisis Económico (ICAE), and Department of Economic Analysis, Facultad de Ciencias Económicas y Empresariales, Universidad Complutense, 28223 Madrid, Spain.) |
| Abstract: | We provide a methodology to estimate a Global Credit Risk Factor (GCRF) from CDS spreads using the information provided by the default-related component of observed spreads. These are previ- ously estimated using Pan and Singleton (2008) methodology. The estimated factor contains higher explanatory power on CDS spread fluctuations across sectors than standard credit indices like iTraxx or CDX. We find a positive association between GCRF and implied volatility variables, and a negative association with MSCI stock market sector indices as well as with interest rates and with the slope and the curvature of the term structure. Such correlations provide useful insights for risk management as well as for the hedging of credit portfolios. Indeed, we present a synthetic factor regression model for GCRF that we apply in a stress testing methodology for credit portfolios as well as to evaluate future credit risk scenarios. Finally, we show evidence suggesting that the exposure to systemic credit risk was priced in the market during the 2006-2015 period. |
| Keywords: | Credit Risk; Systemic Risk; Idiosyncratic Risk; Stress Tests; Factor Models; Market Pricing. |
| JEL: | E44 F34 G01 G11 G23 G32 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1927&r=all |
| By: | Miyazaki, Koichi |
| Abstract: | Although many countries give workers the right to return to their previous workplace after a temporary leave period ends, little is known about the details of such policies. This study characterizes the optimal paid job-protected leave policy using a model in which a worker has to leave his or her job with a certain probability and chooses whether to return to work after the leave period ends. An optimal policy, consisting of the consumption of a worker, that of a worker on leave, and the length of the leave, maximizes social welfare subject to the resource feasibility constraint and incentive constraint under which a worker on leave voluntarily chooses to return to work after the leave period ends. The present study finds that when the incentive constraint does not bind, the income risk caused by the leave should be perfectly shared among workers and workers on leave and that the leave period balances the marginal welfare gain and loss from a slight increase in the leave period. When the incentive constraint binds, the income risk caused by the leave is not perfectly shared among workers and workers on leave and that workers consume more than workers on leave because the constrained-optimal allocation has to give an incentive to workers on leave to return to work. By lengthening the leave period, another feasible allocation improves social welfare, which implies that the length of the leave period at the constrained-optimal allocation is too short. In addition, the study compares two economies, one that experiences a high discount factor and the other that experiences a low discount factor. In the former economy, the incentive constraint does not bind, whereas it does bind in the latter economy. Comparing the constrained-optimal allocations in these two economies, I find that workers consume more in the latter economy than in the former economy and that {¥it total} consumption during the leave period in the former economy is larger than that in the latter economy. Moreover, as an application of the theory, the study focuses on the paid parental leave policies adopted by most OECD countries. Using a numerical simulation, I conclude that the negative relationship between the replacement rate, namely the ratio of cash benefits during the leave to wages while working, and length of the leave period could result from constrained-optimal allocations. |
| Keywords: | Paid job-protected leave policy; lack of commitment; incentive constraint; constrained-optimal allocation; paid parental leave policy |
| JEL: | E24 H21 J18 |
| Date: | 2019–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96223&r=all |
| By: | Francesco Bianchi (Duke University); Howard Kung (London Business School); Mikhail Tirskikh (London Business School) |
| Abstract: | We construct and estimate a dynamic stochastic general equilibrium model that features demand- and supply-side uncertainty. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand-side and supply-side uncertainty imply large contractions in real activity and an increase in term premia, but supply-side uncertainty has larger effects on inflation and investment. We introduce a novel analytical decomposition to illustrate how multiple distinct risk propagation channels account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple in the aftermath of the Great Recession. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:245&r=all |
| By: | Daniel Baksa; Zsuzsa Munkacsi |
| Abstract: | The evidence on the inflation impact of aging is mixed, and there is no evidence regarding the volatility of inflation. Based on advanced economies’ data and a DSGE-OLG model, we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper is also the first, using this framework, to discuss how aging affects the transmission channels of monetary policy. We are also the first to examine aging and optimal central bank policies. As aging redistributes wealth among generations and the labor force becomes more scarce, our model suggests that aging makes monetary policy less effective and in more gray societies central banks should react more strongly to nominal variables. |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/198&r=all |
| By: | Vincent Sterk (University College London); Wei Cui (University College London) |
| Abstract: | Is Quantitative Easing (QE) an effective substitute for conventional monetary policy? We study this question using a quantitative heterogeneous-agents model with nominal rigidities, as well as liquid and partially liquid wealth. The direct effect of QE on aggregate demand is determined by the difference in marginal propensities to consume out of the two types of wealth, which is large according to the model and empirical studies. A comparison of optimal QE and interest rate rules reveals that QE is indeed a very powerful instrument to anchor expectations and to stabilize output and inflation. However, QE interventions come with strong side effects on inequality, which can substantially lower social welfare. A very simple QE rule, which we refer to as Real Reserve Targeting, is approximately optimal from a welfare perspective when conventional policy is unavailable. We further estimate the model on U.S. data and find that QE interventions greatly mitigated the decline in output during the Great Recession. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:29&r=all |
| By: | Bindseil, Ulrich |
| Abstract: | In some recent studies, the question of the origins of central banking has been revisited, suggesting that beyond Swedish and British central banking, a number of earlier European continental institutions would also have played an important role. However, it has often been difficult to access the charters and regulations of these early central banks – in particular in English. This paper contributes to closing this gap by introducing and providing translations of some charters and regulations of six pre 1800 central banks in France and Germany. The six early public banks displayed varying levels of success and duration, and qualify to a different degree as central banks. An overview table maps the articles of the early central banks’ charters and regulations into key central banking topics. The texts also provide evidence of the role of central banking legislation, and of the distinction between, on the one side, the statutes and charters of the banks, and on the other side the operational aspects which tend to be framed by separate rules and regulations. Finally, the texts provide evidence of the policy objectives of early central banks, including in particular those of a monetary nature. To put these documents into context, the objectives, balance sheet structure, achievements and closure of each central bank are briefly summarised. JEL Classification: E32, E5, N23 |
| Keywords: | central bank governance, central bank mandates, central bank operations, central bank regulations, origins of central banking |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2019234&r=all |
| By: | Gabriel Chodorow-Reich (Harvard University); Loukas Karabarbounis (University of Minnesota); Rohan Kekre (University of Chicago) |
| Abstract: | The Greek economy has experienced three distinct phases in the past 20 years: a boom from 1999 to 2007, a crash from 2007 to 2012, and a flattening from 2012 to 2017. We explore these dynamics using a quantitative model of a two-sector small open economy with nominal frictions, collateral constraints, and endogenous utilization. We first evaluate the roles of shocks to productivity, financial conditions, fiscal policy, external demand, and disaster risk in contributing to the cycle. We then ask whether counterfactual policies such as an unexpected devaluation or an alternative mix of fiscal adjustments could have facilitated the recovery. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1396&r=all |
| By: | Isaac Baley (Universitat Pompeu Fabra, CREi & Barcelona GSE); Julio Blanco (University of Michigan) |
| Abstract: | We develop new tools to analyze the aggregate implications of lumpiness in microeconomic adjustment. We derive a set of structural relationships between the steady state moments and the business cycle dynamics, and we show how to discipline these relationships using micro panel data. As an application, we implement our machinery in a standard framework of rm investment with xed adjustment costs. We demonstrate analytically that, in order to explain aggregate capital dynamics, that model must match two steady state moments related to capital misallocation and the time since the last investment. Using plant-level data from Chile, we compute these two moments, and discover that there does not exist a calibration of the lumpy investment model that is consistent with the data. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:903&r=all |
| By: | Dean Corbae (University of Wisconsin); Erwan Quintin (Wisconsin Business School) |
| Abstract: | We provide a simple corporate finance environment with endogenous security design which aggregates to a standard macroeconomic model. The model is quantitatively consistent with the cyclical properties of safe corporate debt issues, in particular with the fact that those issues are less procyclical than other sources of corporate financing. It is also consistent with the countercyclicality of risk spreads on corporate debt. We then use the model to measure the effect of a protracted periods of low safe yields, one of the main features of the so-called "saving glut" the global economy is currently experiencing. A long period of low interest rates on safe debt has little impact on the level of economic activity but causes output and investment volatility to fall. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:368&r=all |
| By: | Alvar Kangur; Koralai Kirabaeva; Jean-Marc Natal; Simon Voigts |
| Abstract: | We study the properties of the IMF-WEO estimates of real-time output gaps for countries in the euro area as well as the determinants of their revisions over 1994-2017. The analysis shows that staff typically saw economies as operating below their potential. In real time, output gaps tend to have large and negative averages that are largely revised away in later vintages. Most of the mis-measurement in real time can be explained by the difficulty in predicting recessions and by overestimation of the economy’s potential capacity. We also find, in line with earlier literature, that real-time output gaps are not useful for predicting inflation. In addition, countries where slack (and potential growth) is overestimated to a larger extent primary fiscal balances tend to be lower and public debt ratios are higher and increase faster than projected. Previous research suggests that national authorities’ real-time output gaps suffer from a similar bias. To the extent these estimates play a role in calibrating fiscal policy, over-optimism about long-term growth could contribute to excessive deficits and debt buildup. |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/200&r=all |
| By: | Abdou Ndiaye (Federal Reserve Bank of Chicago) |
| Abstract: | As America's largest generation, the baby boom generation, approaches re- tirement in increasing numbers, we should expect that the consumption and savings decisions of this group would have a signicant social and economic eect, to some degree directly through changing demand for goods, but more interestingly in determining the necessity or plausibility Social Security and Medicare reform. According to standard theoretical macroeconomic models, individuals maximize their welfare by maintaining relatively constant consump- tion throughout their lives, saving when income is high and borrowing or using savings when income is low, as in retirement or during unemployment. The question addressed is thus whether boomers adhere to this predicted consump- tion trend, and whether they behave as predicted when faced with a shock like the Great Recession or face a health shock. This paper will use panel data on consumption, wealth, and other variables from PSID between 2001 and 2015 in the United States. It then uses the Consumption Expenditures Survey as a robustness check for results. The paper will then explore some policy implica- tions. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:711&r=all |
| By: | Job Boerma; Loukas Karabarbounis |
| Abstract: | During the past two decades, households experienced increases in their average wages and expenditures alongside with divergent trends in their wages, expenditures, and time allocation. We develop a model with incomplete asset markets and household heterogeneity in market and home technologies and preferences to account for these labor market trends and assess their welfare consequences. Using micro data on expenditures and time use, we identify the sources of heterogeneity across households, document how these sources have changed over time, and perform counterfactual analyses. Given the observed increase in leisure expenditures relative to leisure time and the complementarity of these inputs in leisure technology, we infer a significant increase in the average productivity of time spent on leisure. The increasing productivity of leisure time generates significant welfare gains for the average household and moderates negative welfare effects from the rising dispersion of expenditures and time allocation across households. |
| JEL: | D10 E21 J22 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26301&r=all |
| By: | Si Guo (International Monetary Fund); Yun Pei (University at Buffalo, SUNY); Zoe Xie (Federal Reserve Bank of Atlanta) |
| Abstract: | We build an infinite horizon equilibrium model of fiscal federation, where anticipation of transfers from the central government creates incentives for local governments to overborrow. Absent commitment, the central government over-transfers, which distorts the central-local distribution of resources. Applying the model to fiscal decentralization, we find when decentralization widens local government’s fiscal gap, borrowings by both local and central governments rise. Quantitatively, fiscal decentralization accounts for 19–40% of changes in general government debt in Spain during 1988–2006. A macroprudential tax on local borrowing that implements Pareto optimal allocation would reduce debt by 27% and raise welfare by 3.75%. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1229&r=all |
| By: | Ricardo Reyes-Heroles (Federal Reserve Board); Gabriel Tenorio |
| Abstract: | We characterize optimal macroprudential policy in response to external risks---shocks to the level and volatility of world interest rates--in a small open economy subject to financial crises. Low and stable world interest rates reinforce overborrowing arising from a pecuniary externality generated by collateral constraints that depend on asset prices. We show that this mechanism leads to greater exposure to crises typically accompanied by abrupt increases in interest rates and a persistent rise in their volatility, as commonly observed for crises in emerging market economies. A tax on international borrowing implementing the optimal policy depends on two factors, the incidence and severity of future crises. We show that the interaction of these factors implies that the tax responds to external risks even though equilibrium allocations do not, and that it does so non-monotonically with respect to the direction of external shocks|higher macroprudential taxes are not always the optimal policy in response to an increase in external risks|. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1138&r=all |
| By: | Joris Tielens (KU Leuven) |
| Abstract: | In a production network, shocks originating in individual sectors do not remain confined to individual sectors but permeate through the pricing chain. The notion of “pipeline pressures” alludes to this cascade effect. In this paper we provide a structural definition of pipeline pressures to inflation and use Bayesian techniques to infer their presence from quarterly U.S. data. We document two insights. (i) Due to price stickiness along the supply chain, we show that pipeline pressures take time to materialize which renders them an important source of inflation persistence. (ii) As we trace their origins to 35 disaggregate sectors, pipeline pressures are docu- mented to be a key source of headline/disaggregated inflation volatility. Finally, we contrast our results to the dynamic factor literature which has traditionally inter- preted the comovement of price indices arising from pipeline pressures as aggregate shocks. Our results highlight the role of sectoral shocks – joint with the production architecture – to understand the micro origins of disaggregate/headline inflation persistence/volatility. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:856&r=all |
| By: | Alex Clymo (University of Essex) |
| Abstract: | In this paper we use rich Swedish micro-data to show that increased dispersion during recessions is primarily a demand-side phenomenon. The key novelty of our analysis is that we use goods-level data on prices to estimate firm-level demand shocks, and production-line-level data on reported capacity utilization to accurately measure firm-level supply (TFPQ) shocks. We document that the dispersion of both TFPQ and demand growth across firms rose during the Great Recession, but that the increased dispersion in TFPQ growth is reduced by up to 1/4 after controlling for capacity utilization. We then perform a semi-structural variance decomposition exercise for firm-level sales growth. We show that 2/3 of the increased dispersion in sales growth in 2009 is explained by the increased dispersion of demand, while TFPQ dispersion plays essentially no role. Key to this finding is that we estimate a low level of passthrough from TFPQ shocks to prices, limiting the ability of increased TFPQ shock dispersion to affect sales dispersion. Consistent with this, we find evidence that demand curves are kinked. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1125&r=all |
| By: | Guimarães, Luis; Gil, Pedro |
| Abstract: | We study the effects of an automation-augmenting shock in an economy with matching frictions and endogenous job destruction. In the model, tasks can be produced by workers or by machines, but workers have a comparative advantage in producing advanced tasks. Firms choose the input at the time of entry. And according to the evolution of the workers’ comparative advantage, some firms using labor prefer to fire the worker and automate the task. In our model, an automation-augmenting shock reduces the labor share, increases job creation, and increases job destruction. The effects on employment depend on how rapidly workers may lose their comparative advantage: an automation-augmenting shock increases employment in slow-changing environments but catastrophically reduces it in rapid-changing ones. |
| Keywords: | Automation; Employment; Labor-Market Frictions; Technology Choice |
| JEL: | E24 J64 L11 O33 |
| Date: | 2019–09–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96238&r=all |
| By: | Hassan Afrouzi (Columbia University); Laura Veldkamp (Columbia University) |
| Abstract: | Recent work finds that people's beliefs about inflation are systematically upward biased. Since inflation expectations are central to the efficacy of monetary policy, understanding these expectations, and their biases, is important for policy. While one can always find preference-based explanations for bias, the fact that more informed agents have less upward bias, suggests some connection to information, as opposed to preferences. This paper proposes a rational Bayesian explanation for the bias: Agents with parameter uncertainty over positively-skewed distributions have a positive bias in their forecast. We use inflation and survey data to show that this mechanism can quantitatively explain the magnitude of the bias. The model implies that communicating about inflation skewness may be an important dimension of forward guidance. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:894&r=all |
| By: | Matteo Leombroni (Stanford); Ciaran Rogers (Stanford University) |
| Abstract: | We study the heterogeneity of consumption responses across households to a common monetary policy shock. Households vary in age, wealth and ex-ante asset allocation. We combine an asset pricing framework with heterogeneous agents and incomplete markets with a life-cycle model. Within our environment, the transmission of monetary policy does not only work through the usual income and substitution motives, but also through an endogenous portfolio rebalancing effect which generates changes in equilibrium asset prices and a subsequent wealth effect on consumption. We find that, if the shock is such that prices are unchanged, the response of consumption is fully transitory, where younger households increase, and older households decrease, consumption. If equilibrium prices rise as a result of the monetary shock, wealth effects mitigate heterogeneity in current consumption responses, but introduce persistence in responses that increase significantly with age. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:684&r=all |
| By: | Karikari-Apau, Ellen; Abeti, Wilson |
| Abstract: | Economic growth which is considered as one of the best indicator of measuring the robustness of every economy is essential in understanding its relationship with unemployment which is an important macroeconomic indicator that reflects the incompetence of any economy to make full use of its human resources. Hence, a macro-economic secondary and time series data was extracted from the World Development Indicator (WDI) for the period of 1991-2018 in China. In conducting the econometric analysis of the study, both the Augmented Dickey-Fuller Test and Phillips Perron Test were employed to test and confirm the stationary level of the variables of study; the Autoregressive Distributed Lagged (ARDL) cointegration and the ARDL Bounds test were employed to test for the short-run and the long-run cointegration of the variables of study since both variable were stationary at first difference I (1). The finding of the study reveals that there are negative short-run and a long-run relationship between unemployment and economic growth. However, Granger causality Test also reveals that both unemployment and economic growth do not impact each other. |
| Keywords: | Granger causality, Economic growth, Unemployment rate, Stationarity and Cointegration |
| JEL: | O11 |
| Date: | 2019–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96192&r=all |
| By: | Rosati, Nicoletta (European Commission -- JRC); Bellia, Mario (European Commission -- JRC); Matos, Pedro Verga (University of Lisbon); Oliviera, Vasco (University of Lisbon) |
| Abstract: | In this paper we propose a novel approach in analysing the impact of changes in sovereign credit ratings on stock markets. We study the evolution of a segmented form of the stock market index for several crisis-hit countries, including both European and Asian markets. Such evolution is modelled by a homogeneous Markov chain, where the transition probabilities from one starting level of the index to a new (lower or higher) level in the next period depend on some explanatory variables, namely the country’s rating, GDP and interest rate, through a generalised ordered probit model. The credit ratings turn out to be determinant in the dynamics of the stock markets for all three European countries considered - Portugal, Spain and Greece, while not all considered Asian countries show evidence of correlation of market indices with the ratings. |
| Keywords: | Credit ratings; financial crisis; Europe; Markov chains; generalized ordered probit models |
| JEL: | C25 C58 E44 G01 G15 G24 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:201908&r=all |
| By: | Julian Andres VILLAMIL; Luis Felipe QUINTERO; Gustavo Adolfo HERNANDEZ-DIAZ |
| Abstract: | En los últimos años ha existido el consenso de que la economía colombiana es muy dependente del sector minero – energético, por lo cual se deben encontrar formas de transformar el aparato productivo. El análisis insumo-producto ayuda a identificar cuales pueden ser los sectores que pueden contribuir a una mayor diversificación de economía, además de la clasificación por clústeres, los cuales no han cambiado tanto en los últimos quince años. |
| Keywords: | Clústeres, encadenamientos y matrices insumo – producto |
| JEL: | C38 C67 E01 Y B51 |
| Date: | 2019–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:col:000118:017505&r=all |
| By: | Christopher Johnson (UC Davis) |
| Abstract: | The Great Recession featured a global collapse in real and financial economic activity that was highly synchronized across countries. Two unique precursors to the crisis were the rise in the shadow banking sector and increased securitization. I develop a model that is the first to explain the extent to which these factors contributed to the international transmission of the crisis that mostly originated in the United States. Using a two-country model with commercial and shadow banking sectors, I show that a country-specific financial shock leads to a simultaneous decline in real and financial aggregates in both countries. My model is the first to include both shadow and commercial banking in an open-economy framework. While commercial banks transfer funds from borrowers to lenders, shadow banks securitize loans and sell them to intermediaries internationally as asset-backed securities. Transmission occurs through a balance sheet channel, which is stronger when intermediaries hold more securities from abroad. I also consider the implications of capital controls on the transmission of a financial crisis. In general, I find that capital controls can reduce transmission. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:780&r=all |
| By: | Lukasz Drozd (Federal Reserve Bank of Philadelphia); Michal Kowalik (Federal Reserve Bank of Boston) |
| Abstract: | We analyze the role of promotional "teaser" rates on credit card plans prior, during, and after the 2007-08 financial crisis. We show that promotional offers were ubiquitous prior to the crisis. They were typically chained by borrowers to, in effect, borrow for the long term on low promotional rates. We then show that promotional activity collapsed in mid 2008, which coincided with a massive deleveraging on credit card plans between 2008 and 2011. We build a new equilibrium theory that can relate these phenomenona, analytically characterize equilibrium contracts, and take it to the data. The key insight from our analysis is that a decline in the availability of promotional offerings introduced as an exogenous shock can account for deleveraging. Our model suggests this shock had a discernible impact on consumption demand after 2008, consistent with the narrative that the credit card market played a more direct role in the transmission of the 2008 financial turmoil to aggregate demand. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:1047&r=all |
| By: | Eric Monnet; Damien Puy |
| Abstract: | We estimate world cycles using a new quarterly dataset of output, credit and asset prices assembled using IMF archives and covering a large set of advanced and emerging economies since 1950. World cycles, both real and financial, exist and are generally driven by US shocks. But their impact is modest for most countries. The global financial cycle is also much weaker when looking at credit rather than asset prices. We also challenge the view that syncronization has increased over time. Although this is true for prices (goods and assets), this not true for quantities (output and credit). The world business and credit cycles were as strong during Bretton Woods (1950–1972) as during the Globalization period (1984-2006). For most countries, the way their output co-moves with the rest of the world has changed little over the last 70 years. We discuss the reasons behind these new findings and their policy implications for small open economies. |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/202&r=all |
| By: | Zheng Liu (Federal Reserve Bank of San Francisco); Pengfei Wang (Hong Kong University of Science and Technology); Tao Zha (Federal Reserve Bank of Atlanta) |
| Abstract: | Housing demand shocks are an important source of housing price fluctuations and, through the collateral channel, they drive macroeconomic fluctuations as well. However, these reduced-form shocks in the standard macro models fail to generate the observed large fluctuations in the housing price-to-rent ratio. We build a tractable heterogeneous-agent model that provides a microeconomic foundation for housing demand shocks. Households with high marginal utility of housing face binding credit constraints, giving rise to a liquidity premium in the aggregated housing Euler equation. The liquidity premium drives a wedge between the house price and the average rent and allows credit supply shocks to generate large fluctuations in house prices and the price-to-rent ratio. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed019:78&r=all |
| By: | Jaylson Jair da Silveira; Gilberto Tadeu Lima |
| Abstract: | As there is evidence on persistent heterogeneity in unemployment expectations across workers, it is a reasonable premise that the expected cost of job loss and the provision of effort on the job are also heterogeneous across workers. Based on such premise, we show that the positive correlation between pessimistic unemployment expectations and actual unemployment which is observed with survey data can arise in a heterogeneous expectations-augmented efficiency wage model through a composition effect which is empirically testable. |
| Keywords: | Labor market conditions; unemployment expectations; unemployment rate |
| JEL: | E1 J3 J6 |
| Date: | 2019–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2019wpecon38&r=all |
| By: | Fernando M. Aragon Sanchez; Diego Restuccia; Juan Pablo Rud |
| Abstract: | We revisit the long-standing empirical evidence of an inverse relationship between farm size and productivity using rich microdata from Uganda. We show that farm size is negatively related to yields (output per hectare), as commonly found in the literature, but positively related to farm productivity (a farm-specific component of total factor productivity). These conflicting results do not arise because of omitted variables such as land quality, measurement error in output or inputs, or specification issues. Instead, we reconcile the findings emphasizing the role of farm-specific distortions and returns to scale in traditional farm production. We exploit unique regional variation in land tenure regimes in Uganda in evaluating the role of farm-specific distortions. Our findings point to the limited value of yields (or land productivity) in establishing the farm size-productivity relationship. More generally, we demonstrate the limitation of using farm size in guiding policy applications. |
| JEL: | C33 D24 E02 E13 O11 O12 O13 O4 O5 Q15 Q18 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26331&r=all |
| By: | Ufuk Akcigit; Sina T. Ates |
| Abstract: | In the past several decades, the U.S. economy has witnessed a number of striking trends that indicate a rising market concentration and a slowdown in business dynamism. In this paper, we make an attempt to understand potential common forces behind these empirical regularities through the lens of a micro-founded general equilibrium model of endogenous firm dynamics. Importantly, the theoretical model captures the strategic behavior between competing firms, its effect on their innovation decisions, and the resulting “best versus the rest” dynamics. We focus on multiple potential mechanisms that can potentially drive the observed changes and use the calibrated model to assess the relative importance of these channels with particular attention to the implied transitional dynamics. Our results highlight the dominant role of a decline in the intensity of knowledge diffusion from the frontier firms to the laggard ones in explaining the observed shifts. We conclude by presenting new evidence that corroborates a declining knowledge diffusion in the economy. We document a higher concentration of patenting in the hands of firms with the largest stock and a changing nature of patents, especially in the post-2000 period, which suggests a heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge. These findings present a potential avenue for future research on the drivers of declining knowledge diffusion. |
| Keywords: | business dynamism, market concentration, competition, knowledge diffusion, step-by-step innovations, transitional dynamics |
| JEL: | E22 E25 L12 O31 O33 O34 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7854&r=all |
| By: | João Carlos Lopes; José Carlos Coelho; Vítor Escária |
| Abstract: | The main purpose of this paper is to studythe functional distribution of income in Portugal in the long run, considering the period between 1953 and 2017. The labour share in income or value added depends on two fundamental variables, the labour productivity and the average labour compensation.The trends of these variables are quantified, for the aggregate economy and for its main productive sectors. An interesting result emerges, namely the different dynamics across sectors, both for the (unadjusted)wage share (considering only the wages of employees) and for the adjusted labour share (considering also as labour compensation one fraction of mixed income). Moreover, a shift-share analysis is used, in order to distinguish the importanceof each sector’s wage share evolution (“within”effect) and the changes in each sector’s weight (structural changes, or “between”effect). Finally, a first attempt to incorporate the effect of wage inequalityon the functional distribution of income is made, subtracting the labour compensation of the highest paid workers (top 10%, 5% and 1%) in order to calculate the wage share of the (so-called) typical workers. |
| Keywords: | Functional Income Distribution;Labour Share;Sectoral Analysis; Shift-Share Analysis; Wage Inequalities; Portugal. |
| JEL: | D33 E25 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0912019&r=all |
| By: | Javier Cravino; Andrei A. Levchenko; Marco Rojas |
| Abstract: | We propose and quantify a novel mechanism behind the structural transformation process: older individuals devote a larger share of their expenditures to services, so the relative size of the service sector grows as the population ages. We document that for a large sample of countries, increases in population age are accompanied by the rise in the relative size of the service sector. We use household-level data from the US Consumer Expenditure Survey to show that the fraction of expenditures devoted to services increases with household age. We use a shift-share decomposition and a quantitative model to show that changes in the US population age distribution accounted for about a fifth of the increase in the share of services in consumption expenditures observed between 1982 and 2016. In our quantitative model, population aging plays a much larger role than changes in real income in accounting for the structural change observed in the US during this period. |
| JEL: | E2 O1 O4 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26327&r=all |
| By: | Phuong Le; Cuong Le Van; Anh Ngoc Nguyen; Ngoc Minh Nguyen; Phu Nguyen-Van; Dinh-Tri Vo |
| Abstract: | We first consider the question of the productivity of the economy of Vietnam at the macro level. With theoretical models and empirical data, we find out the Leontief production function, and its associated TFP (Total Factor Productivity). We show that the TFP is one of the main engines of Vietnam economic growth. However when we move to the micro level with the capital productivity of 2,835 State Owned Enterprises (SOEs), we discover there exists an over utilization of the physical capital and more importantly, diversion of the capital stock. This diversion may be due to a waste of capital stocks or to a special form of bribery we call "hidden overhead". To summarize, economic growth in Vietnam my be enhanced by investing in the founding components of TFP such as new technology, Human Capital, better organisational system, but also by fighting the bribery and the over utilization of the physical capital. |
| Keywords: | Productivity; Production Function; TFP; Hidden Overhead. |
| JEL: | E60 O11 P21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2019-36&r=all |
| By: | Narula, Rajneesh (Henley Business School, University of Reading, UK) |
| Abstract: | The 2013 Rana Plaza disaster led external stakeholders to insist on higher labour standards in apparel global value chains (GVCs). Stakeholders now expect MNEs to take 'full-chain' responsibility. However, the increased monitoring and enforcement costs of a large network of suppliers have been non-trivial. MNEs instead implement a 'cascading compliance' approach, coupled with a partial re-internalisation. Elevated costs are further exacerbated in developing countries where the informal and formal sector are linked, and cost competitiveness greatly depends on this duality. Monitoring actors in the informal sector is difficult, and few informal actors can achieve compliance. GVCs have therefore reduced informal sector engagement by excluding non-compliant actors and investing in greater automation. By seeking to strictly enforce compliance, MNEs are attenuating some of the positive effects of MNE investment, particularly the prospects for employment creation (especially among women), and enterprise growth in the informal sector. I discuss how these observations might inform other cross-disciplinary work in development, ethics, and sociology. Finally, I note implications for IB theory from the disparities between the ownership, control and responsibility boundaries of the firm. |
| Keywords: | informal economy, MNEs, duality, Bangladesh, compliance, GVCs |
| JEL: | E26 F23 J8 |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2019034&r=all |
| By: | Julian Andres VILLAMIL; Luis Felipe QUINTERO; Gustavo Adolfo HERNANDEZ-DIAZ |
| Abstract: | En este trabajo se utiliza la metodología insumo – producto para analizar la creación del empleo desde la perspectiva sectorial, al utilizar los multiplicadores del empleo los multiplicadores del empleo y mostrar las relaciones del empleo entre e intra – clúster de la economía. Se encuentra que los clústeres más cercanos a la demanda final son los de agro – industria e industria y construcción. Si se realiza algún estímulo sobre la demanda de los productos finales de estos clústeres se va a generar una mayor absorción del trabajo, no solo dentro de cada clúster, sino en el sistema productivo en general. El efecto se refuerza si existen conexiones fuertes con clústeres proveedores netos de insumos, tales como el de servicios o el de industria minero – energética. |
| Keywords: | Clústeres, empleo y matrices insumo – producto. |
| JEL: | C38 C67 E01 Y B51 |
| Date: | 2019–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:col:000118:017506&r=all |
| By: | Parantap Basu (Durham University Business School); Tooraj Jamasb (Durham University Business School) |
| Abstract: | We develop an endogenous growth model to address a long standing question whether sustainable green growth is feasible by re-allocating resource use between green (natural) and man-made (carbon intensive) capital. In our model, Önal output is produced with two reproducible inputs, green and man-made capital. The growth of the man-made capital causes depreciation of green capital via carbon emissions which the private sector does not internalize. A benevolent government uses carbon taxes to encourage Örms to substitute carbon intensive man-made capital with green capital that the production technology allows. Doing so, the damage to natural capital by emissions can be reversed through a lower, but socially optimal long run growth. This trade-o§ between environmental policy and long-run growth can be overcome by a combination of an investment in pollution abatement and higher total factor productivity |
| Keywords: | Green growth, sustainability, carbon tax, clean growth, resource substitution |
| JEL: | E1 O3 O4 Q2 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:dur:durham:2019_06&r=all |
| By: | Bichler, Shimshon; Nitzan, Jonathan |
| Abstract: | Trump has promised to ‘make America great again’. As a self-proclaimed expert on everything of import, he knows exactly how to increase domestic investment and consumption, boost exports, reduce the country’s trade deficit, expand employment and bolster wages. And as America’s leader-and-policymaker-in-chief, he has taken the necessary steps to achieve every one of these goals, or so he says. Capitalists and pundits follow him like imprinted ducks. His tweets rattle markets, his announcements are dissected by academics and his utterances are analysed to exhaustion by various media. A visiting alien might infer that he actually runs the world. And the alien wouldn’t be alone. The earthly population too, conditioned by ivory-tower academics and popular opinion makers, tends to think of political figureheads as ‘leaders’ and ‘policymakers’. Situated at the ‘commanding heights’ of their respective nation states and international organizations, these ‘leaders’ supposedly set the rules, make policies, steer their societies and determine the course of history. Or at least that’s the belief. The reality, though, is quite different. |
| Keywords: | America's decline,capitalist mode of power,economic policy,Trump |
| JEL: | E61 F13 F1 P16 F23 F51 D3 O24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:204466&r=all |
| By: | Ufuk Akcigit; Sina T. Ates |
| Abstract: | In this paper, we review the literature on declining business dynamism and its implications in the United States and propose a unifying theory to analyze the symptoms and the potential causes of this decline. We first highlight 10 pronounced stylized facts related to declining business dynamism documented in the literature and discuss some of the existing attempts to explain them. We then describe a theoretical framework of endogenous markups, innovation, and competition that can potentially speak to all of these facts jointly. We next explore some theoretical predictions of this framework, which are shaped by two interacting forces: a composition effect that determines the market concentration and an incentive effect that determines how firms respond to a given concentration in the economy. The results highlight that a decline in knowledge diffusion between frontier and laggard firms could be a significant driver of empirical trends observed in the data. This study emphasizes the potential of growth theory for the analysis of factors behind declining business dynamism and the need for further investigation in this direction. |
| Keywords: | business dynamism, market concentration, markups, competition, knowledge diffusion, innovation, patenting |
| JEL: | E22 K20 L10 L41 O33 O34 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7849&r=all |
| By: | Charles I. Jones; Christopher Tonetti |
| Abstract: | Data is nonrival: a person's location history, medical records, and driving data can be used by any number of firms simultaneously. Nonrivalry leads to increasing returns and implies an important role for market structure and property rights. Who should own data? What restrictions should apply to the use of data? We show that in equilibrium, firms may not adequately respect the privacy of consumers. But nonrivalry leads to other consequences that are less obvious. Because of nonrivalry, there may be large social gains to data being used broadly across firms, even in the presence of privacy considerations. Fearing creative destruction, firms may choose to hoard data they own, leading to the inefficient use of nonrival data. Instead, giving the data property rights to consumers can generate allocations that are close to optimal. Consumers balance their concerns for privacy against the economic gains that come from selling data to all interested parties. |
| JEL: | E0 O4 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26260&r=all |
| By: | Fernando Aragon, Diego Restuccia, Juan Pablo Rud (Simon Fraser University); Diego Restuccia (University of Toronto and NBER); Juan Pablo Rud (Royal Holloway, University of London and Institute for Fiscal Studies) |
| Abstract: | We revisit the long-standing empirical evidence of an inverse relationship between farm size and productivity using rich microdata from Uganda. We show that farm size is negatively related to yields (output per hectare), as commonly found in the literature, but positively related to farm productivity (a farm-specific component of total factor productivity). These conflicting results do not arise because of omitted variables such as land quality, measurement error in output or inputs, or specification issues. Instead, we reconcile the findings emphasizing the role of farm-specific distortions and returns to scale in traditional farm production. We exploit unique regional variation in land tenure regimes in Uganda in evaluating the role of farm-specific distortions. Our findings point to the limited value of yields (or land productivity) in establishing the farm size-productivity relationship. More generally, we demonstrate the limitation of using farm size in guiding policy applications. |
| Keywords: | Farm size, productivity, yields, land markets, distortions, agriculture, policy, regions, technology |
| JEL: | O4 O5 O11 O12 O13 E02 E13 Q15 Q18 C33 D24 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp19-05&r=all |
| By: | Fernando Aragon; Diego Restuccia; Juan Pablo Rud |
| Abstract: | We revisit the long-standing empirical evidence of an inverse relationship between farm size and productivity using rich microdata from Uganda. We show that farm size is negatively related to yields (output per hectare), as commonly found in the literature, but positively related to farm productivity (a farm-specific component of total factor productivity). These conflicting results do not arise because of omitted variables such as land quality, measurement error in output or inputs, or specification issues. Instead, we reconcile the findings emphasizing the role of farm-specific distortions and returns to scale in traditional farm production. We exploit unique regional variation in land tenure regimes in Uganda in evaluating the role of farm-specific distortions. Our findings point to the limited value of yields (or land productivity) in establishing the farm size-productivity relationship. More generally, we demonstrate the limitation of using farm size in guiding policy applications. |
| Keywords: | Farm size, productivity, yields, land markets, distortions, agriculture, policy, regions, technology. |
| JEL: | O4 O5 O11 O12 O13 E02 E13 Q15 Q18 C33 D24 |
| Date: | 2019–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-647&r=all |