nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒10‒14
101 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Una regla empírica de tasa de interés de política monetaria para una economía emergente, pequeña y abierta By Montoya Ramírez, Jaime Horacio
  2. Monetary policy for commodity booms and busts By Drechsel, Thomas; McLeay, Michael; Tenreyro, Silvana
  3. Monetary policy in a model with commodity and financial market By Vo Phuong Mai Le; Ruthira Naraidoo
  4. A Plucking Model of Business Cycles By Stéphane Dupraz; Emi Nakamura; Jón Steinsson
  5. Stock Market's Assessment of Monetary Policy Transmission: The Cash Flow Effect By Gürkaynak, Refet S.; Karasoy Can, Gokce; Lee, Sang Seok
  6. Algebra de un modelo simple IS-MR-AD-AS: Notas de clase By Montoya Arbeláez, Jaime Alberto; Rhenals Monterrosa, Remberto
  7. Fixed investment in Russia in 2018 By Izryadnova Olga
  8. Negative interest rates in the euro area: does it hurt banks? By Jan Stráský; Hyunjeong Hwang
  9. Correlated shocks, hysteresis, and the sacrifice ratio: Evidence from India By Ashima Goyal; Gagan Goel
  10. The monetary policy of the South African Reserve Bank: stance, communication and credibility By Alberto Coco; Nicola Viegi
  11. How important are consumer confidence shocks for the propagation of business cycles in Bulgaria? By Vasilev, Aleksandar
  12. Fiscal Policy and the Nominal Term Premium By Roman Horvath; Lóránt Kaszab; Ales Marsal
  13. Determinants of Fiscal Multipliers Revisited By Roman Horvath; Lóránt Kaszab; Ales Marsal; Katrin Rabitsch
  14. Monetary Policy Autonomy and International Monetary Spillovers By Demir, Ishak
  15. Determinantes del ahorro interno en Colombia: un acercamiento desde las Cuentas Nacionales Trimestrales para el período 1994-2017 By Montoya Ramírez, Jaime Horacio
  16. Riders on the Storm By Jordá, Óscar; Taylor, Alan M.
  17. Churn on the labor market in the Czech Republic By Bo?ena Kade?ábková; Emílie Ja?ová
  18. Inflation convergence and anchoring of expectations in India By Ashima Goyal; Prashant Parab
  19. International Spillovers of U.S. Monetary Policy By Demir, Ishak
  20. Traspaso de tipo de cambio a precios y relación con la credibilidad de la política monetaria By Laura Zacheo; Margarita Güenaga
  21. The Long-term Rate and Interest Rate Volatility in Monetary Policy Transmission By Chen, Zhengyang
  22. The Consumption Response to Trade Shocks: Evidence from the US-China Trade War By Michael E. Waugh
  23. Fiscal distress and banking performance: The role of macroprudential regulation By Balfoussia, Hiona; Dellas, Harris; Papageorgiou, Dimitris
  24. Can more public information raise uncertainty? The international evidence on forward guidance By Ehrmann, Michael; Gaballo, Gaetano; Hoffmann, Peter; Strasser, Georg
  25. Modeling consumers' confidence and inflation expectations By Ashima Goyal; Prashant Parab
  26. The Brexit Vote, Productivity Growth and Macroeconomic Adjustments in the United Kingdom By Broadbent, Ben; DiPace, Federico; Drechsel, Thomas; Harrison, Richard; Tenreyro, Silvana
  27. Preferred Habitat, Policy, and the CIP Puzzle By Paul Wohlfarth
  28. The FOMC Risk Shift By Kroencke, Tim; Schmeling, Maik; Schrimpf, Andreas
  29. Threats to Central Bank Independence: High-Frequency Identification with Twitter By Bianchi, Francesco; Kind, Thilo; Kung, Howard
  30. Financial Frictions and the Wealth Distribution By Fernández-Villaverde, Jesús; Hurtado, Samuel; Nuño, Galo
  31. The Dollar During the Great Recession: US Monetary Policy Signaling and The Flight To Safety By Stavrakeva, Vania; Tang, Jenny
  32. Bank intermediation activity in a low interest rate environment By Borio, Claudio; Brei, Michael; Gambacorta, Leonardo
  33. Fiscal episodes in the EMU: Elasticities and non-keynesian effects By António Afonso; Frederico Silva Leal
  34. Taylor rule implementation of the Optimal policy at the zero lower bound: Does the cost channel matter? By Siddhartha Chattopadhyay; Taniya Ghosh
  35. Policy transmission in Indian money markets: The role of liquidity By Ashima Goyal; Deepak Kumar Agarwal
  36. Retirement in the Shadow (Banking) By Guillermo Ordoñez; Facundo Piguillem
  37. The Role of Economic Policy Uncertainty in Predicting Output Growth in Emerging Markets: A Mixed-Frequency Granger Causality Approach By Mehmet Balcilar; George Ike; Rangan Gupta
  38. The reaction function channel of monetary policy and the financial cycle By Andrew Filardo; Paul Hubert; Phurichai Rungcharoenkitkul
  39. Credit-to-GDP gap calculation using multivariate HP filter By Levente Kocsis; Miklos Sallay
  40. Credit mechanics: a precursor to the current money supply debate By Decker, Frank; Goodhart, C. A. E.
  41. Facts on Business Dynamism in Turkey By Akcigit, Ufuk; Akgunduz, Yusuf Emre; Cilasun, Seyit Mumin; Ozcan Tok, Elif; Yilmaz, Fatih
  42. Assessment of the tax and transfer changes in Hungary between 2010 and 2017 using a microsimulation model By Mihály Szoboszlai; Zoltán Bögöthy; Pálma Mosberger; Dávid Berta
  43. Emergency Liquidity Injections By Nicholas Garvin
  44. Self-employed income in the OECD countries: some consequencies for functional income distribution By Enrico D'Elia; Stefania Gabriele
  45. Fiscal Policy and Adjustment in a Foreign Exchange Constrained Economy: Evidence from Malawi By Bertha C. Bangara; Amos C. Peters
  46. Government support of small and medium sized entrepreneurship in Russia By Barinova Vera; Zemtsov Tsepan; Tsareva Yulia
  47. Cash is King - Effects of ECB's Conventional and Unconventional Measures By Martin Baumgaertner; Jens Klose
  48. Uncertainty shocks and financial crisis indicators By Hristov, Nikolay; Roth, Markus
  49. The Primary Cause of European Inflation in 1500-1700: Precious Metals or Population? The English Evidence By Edo, Anthony; Melitz, Jacques
  50. Stable Money and Central Bank Independence: Implementing Monetary Institutions in Postwar Germany By Carsten Hefeker
  51. Aggregate demand management, policy errors and optimal monetary policy in India By Barendra Kumar Bhoi; Abhishek Kumar; Prashant Mehul Parab
  52. Global Dimensions of US Monetary Policy By Maurice Obstfeld
  53. The Transformation and Performance of Emerging Market Economies Across the Great Divide of the Global Financial Crisis By Michael D. Bordo; Pierre Siklos
  54. Russian industrial sector in 2018: slowdown of exiting from stagnation of 2012–2016 (on business surveys’ findings) By Tsukhlo Sergey
  55. Forecasting European Economic Policy Uncertainty By Degiannakis, Stavros; Filis, George
  56. A New Keynesian DSGE model for Low Income Economies with Foreign Exchange Constraints By Bertha C. Bangara
  57. The impact of interest rates on economic growth in the Republic of North Macedonia By Elmi Aziri
  58. The US-China “Trade War”: The War Nobody Can Win By Bahri Yilmaz
  59. Beyond the LTV ratio: new macroprudential lessons from Spain By Jorge E. Galán; Matías Lamas
  60. When the U.S. catches a cold, Canada sneezes: a lower-bound tale told by deep learning By Lepetyuk, Vadym; Maliar, Lilia; Maliar, Serguei
  61. Productivity estimates for South Africa from CES production functions By Daan Steenkamp
  62. Zur Aussagekraft der VGR der Länder - Revisionspraxis und Verbesserungsvorschläge By Döhrn, Roland
  63. Managing Inequality over the Business Cycles: Optimal Policies with Heterogeneous Agents and Aggregate Shocks By xavier Ragot
  64. Emerging African Economies:Digital Structures, Disruptive Responses and Demographic Implications By Nwaobi, Godwin
  65. Micro Jumps, Macro Humps: monetary policy and business cycles in an estimated HANK model By Adrien Auclert; Ludwig Straub; Matthew Rognlie
  66. A Crash Course on the Euro Crisis By Brunnermeier, Markus K; Reis, Ricardo
  67. Financial Business Cycles By Sebastian Di Tella; Robert Hall
  68. Pigouvian Cycles By Renato Faccini; Leonardo Melosi
  69. Redistributive Growth By Döttling, Robin; Perotti, Enrico C
  70. What drives implementation of the European Union's policy recommendations to its member countries? By Efstathiou, Konstantinos; Wolff, Guntram B.
  71. What Works for Active Labor Market Policies? By Eduardo Levy Yeyati
  72. Beliefs, Aggregate Risk, and the U.S. Housing Boom By Margaret Jacobson
  73. The Interaction Between ConventionalMonetary Policy and Financial Stability: Chile, Colombia, Japan, Portugal and the UK By Zoe Venter
  74. Hedging Macroeconomic and Financial Uncertainty and Volatility By Ian Dew-Becker; Stefano Giglio; Bryan T. Kelly
  75. On Latin American Populism, And Its Echoes Around the World By Sebastian Edwards
  76. Public Debt and the Slope of the Term Structure By Thien Nguyen
  77. The One-Child Policy and Chinese Saving Behavior By Zhongchen Song; Tom Coupé; W. Robert Reed
  78. Application Cycles By Niklas Engbom
  79. Mediciones del crecimiento económico regional y local en Colombia, 1950-2017: una revisión By Vallecilla Gordillo, Jaime
  80. The Cost of Holding Foreign Exchange Reserves By Eduardo Levy Yeyati
  81. "Inflation Target and Anchor of Inflation Forecasts in Japan" By Shin-ichi Fukuda; Naoto Soma
  82. Monetary Policy and the Limits to Arbitrage: Insights from a New Keynesian Preferred Habitat Model By Walker Ray
  83. Supervisory Governance, Capture and Non-Performing Loans By Niccolò Fraccaroli
  84. Macroeconomic Indicator Forecasting with Deep Neural Networks By Thomas Cook
  85. Misallocation Under Trade Liberalization By Jin, Keyu
  86. Perception of Acceptance Barriers and Cashless Payments Value: Evidence from Russian Merchants By Ekaterina Semerikova; Egor Krivosheya; Alexander Dobrynin
  87. Investment under Rational Inattention: Evidence from US Sectoral Data By Peter Zorn
  88. Labor Market Trends and the Changing Value of Time By Boerma, Job; Karabarbounis, Loukas
  89. Shadow Banking and the Great Recession By Patrick Feve
  90. Oil Price Shocks and Uncertainty: How stable is their relationship over time? By Degiannakis, Stavros; Filis, George; Panagiotakopoulou, Sofia
  91. Financial innovations role in consumer behavior at Russian retail payments market By Egor Krivosheya; Polina Belyakova
  92. Hyperinflation in Venezuela: A Stabilization Handbook By Gonzalo Huertas
  93. Economic Policy Uncertainty and the Supply of Business Loans By Santiago Barraza; Andrea Civelli
  94. The dynamics and pattern of Russia’s economic growth in 2018 By Izryadnova Olga
  95. Global Effective Lower Bound and Unconventional Monetary Policy By Jing Cynthia Wu; Ji Zhang
  96. Structural Asymmetries and Financial Imbalances By Ivan Jaccard
  97. Financial Constraints, Sectoral Heterogeneity, and the Cyclicality of Investment By Cooper Howes
  98. Accounting for the Slow Recovery from the Great Recession: The Role of Credit Constraints. By Francisco Buera; Juan Pablo Nicolini
  99. US Fiscal Cycle and the Dollar By Zhengyang Jiang
  100. Monetary Policy in Sudden Stop-prone Economies By Louphou Coulibaly
  101. Macroeconomic Effects of Market Structure Distortions By Flavien Moreau; Ludovic Panon

  1. By: Montoya Ramírez, Jaime Horacio
    Abstract: Resumen: En el presente trabajo, se formula y se estima una regla sencilla y empírica de la tasa de interés de intervención del Banco de La República, en el caso de una economía pequeña, emergente y abierta; además de la brecha de inflación, construida con las expectativas de los agentes sobre la inflación y la meta de inflación del Banco de La República, y la del PIB rezagada, se introducen otros tres tipos variables, uno para el sector externo, un segundo asociado a la dinámica financiera y crediticia interna y el tercero a la política de intervención del Banco de La República en el mercado interbancario de divisas; en primer grupo, se incluyen la tasa de interés externa, el diferencial de tipos de interés de largo plazo, el precio internacional del petróleo, los desalineamientos del tipo de cambio nominal así como las expectativas tipo chartistas sobre la tasa de cambio; en el segundo, el diferencial entre las brechas observadas del margen de intermediación financiera y su tendencia de largo plazo y la brecha entre la tasa de intervención del banco y la tasa de interés interbancaria; el tercer grupo, se instrumentalizó por las compras de divisas por parte del Banco de La República; la estimación se hace por OLS y los resultados obtenidos para todas las variables son significativos estadísticamente y cuantitativamente; además se superan las pruebas relativas a la normalidad, autocorrelación, correlación serial, heteroscedasticidad, test de Ramsey, test Cusum y Cusum cuadrado, test de multicolinealidad y el de Davidson y MacKinnon, propuesto en Eviews 9, y que es una variante del test de Hausman para probar la endogeneidad. Los resultados abren la posibilidad para otras investigaciones futuras que permitan escudriñar mejor el comportamiento real de un Banco Central. / Abstract : In the present work, it is formulated and estimated a simple and empirical rule of the interest rate of intervention by the Bank of the Republic, in the case of a small, emerging and open economy; in addition to the gap of inflation, built with the expectations of agents on inflation and the Central Bank inflation goal, and lag behind GDP, other three variable types are introduced, one for the external sector, a second group for to the dynamics financial and credit internal, and the third to the policy of intervention from the Bank of the Republic in the interbank currency market; first group, includes the foreign interest rate, differential interest rates on long term, the international price of oil, misalignments of the nominal exchange rate as well as the expectations kind of charts on the nominal exchange rate; in the second, the differential between the financial intermediation margin observed gaps and their long-term trend and the gap between the Bank intervention rate and the interbank interest rate; the third group was represented by the purchases of foreign currency by the Bank of the Republic; the estimation is made by OLS and the results obtained for all of the variables are significant statistically and quantitatively; also overcome the evidence regarding the normality, autocorrelation, correlation serial, heteroscedasticity, test of Ramsey, test Cusum and Cusum square, test of multicollinearity and Davidson and MacKinnon, proposed in Eviews 9, and that is a variant of the test of Hausman to test the endogeneity. The findings open the possibility for other future research allowing to better scrutinize the actual behavior of a central bank.
    Keywords: tasa de intervención de política monetaria, tasa de cambio nominal, inflación, intervención en el mercado de divisas, precios del petróleo.
    JEL: E31 E32 E43 E52
    Date: 2017–11–01
  2. By: Drechsel, Thomas; McLeay, Michael; Tenreyro, Silvana
    Abstract: Macroeconomic volatility in commodity-exporting economies is closely tied to fluctuations in international commodity prices. Commodity booms improve exporters' terms of trade and loosen their borrowing conditions, while busts lead to the reverse. This paper studies optimal monetary policy for commodity exporters in a small open economy framework that includes a key role for financial conditions. We incorporate the interaction between the commodity and financial cycles via a working capital constraint for commodity producers, which loosens as commodity prices increase. A rise in global commodity prices causes an inefficient reallocation towards the commodity sector, which expands and increases its demand for inputs. The real exchange-rate appreciates, but because domestic fims do not internalize that the appreciation reduces the scale of the reallocation, they do not raise prices enough. An inefficient boom takes place, with inflation rising and output increasing relative to its welfare-maximizing level. Returning inflation to target is not sufficient to close the output gap, leaving the policymaker facing a stabilization tradeoff. The optimal policy lets the exchange rate appreciate and raises interest rates, with a larger rate rise required the greater the loosening in borrowing conditions. The paper compares alternative policy rules and discusses a key practical challenge for emerging and developing economies: how to transition to a stable path from initial conditions of high and persistent inflation.
    Keywords: Commodity financialization; commodity prices; Exchange Rates; monetary policy; small open economy
    JEL: E31 E52 E58 F41 Q02 Q30
    Date: 2019–09
  3. By: Vo Phuong Mai Le; Ruthira Naraidoo
    Abstract: This paper builds a small open economy model for a net commodity exporter to consider financial frictions and monetary policies in order to investigate the main determinants of business cycles. Since we make a distinction to the access of financial markets between the commodity and non-commodity sectors, we notice that as usual, a commodity price shock benefits the competitiveness of the economy and its borrowing terms. We outline a novel effect in this paper which we dub the financial market effect following a positive commodity price shock that decreases the credit premium and hence exacerbate the commodity price boom. However the negative sectoral downturn affects entrepreneur credit together with disinflationary pressures of a real exchange rate appreciation. This opens the role for stabilization policies which we analyze comparing three types of monetary regimes. Estimating the model on South Africa, a major commodity exporting economy with inflation targeting regime, we .find as conventional wisdom suggests that a hypothetical Taylor rule targeting the price-level allows for adjustment in inflation expectations that can dampen disinflationary pressures. Furthermore, due to smoother change in nominal rate of interest, there is lesser variability in financial markets.
    Keywords: Business cycles, Small open economy, Commodity prices, financial frictions, Monetary policy, Price-level targeting, South Africa economy
    JEL: E32 E44 E58 F41 F44 O16
    Date: 2019–05
  4. By: Stéphane Dupraz; Emi Nakamura; Jón Steinsson
    Abstract: In standard models, economic activity fluctuates symmetrically around a “natural rate” and stabilization policies can dampen these fluctuations but do not affect the average level of activity. An alternative view—labeled the “plucking model” by Milton Friedman—is that economic fluctuations are drops below the economy’s full potential ceiling. If this view is correct, stabilization policy, by dampening these fluctuations, can raise the average level of activity. We show that the dynamics of the unemployment rate in the US display a striking asymmetry that strongly favors the plucking model: increases in unemployment are followed by decreases of similar amplitude, while the amplitude of the increase is not related to the amplitude of the previous decrease. We develop a microfounded plucking model of the business cycle. The source of asymmetry in our model is downward nominal wage rigidity, which we embed in an explicit search model of the labor market. Our search framework implies that downward nominal wage rigidity is consistent with optimizing behavior and equilibrium. In our plucking model, stabilization policy lowers average unemployment and thereby yields sizable welfare gains.
    JEL: E24 E32 E52
    Date: 2019–10
  5. By: Gürkaynak, Refet S.; Karasoy Can, Gokce; Lee, Sang Seok
    Abstract: We show that firm liability structure and associated cash flow matter for firm behavior, and that financial market participants price stocks accordingly. Looking at firm level stock price changes around monetary policy announcements, we find that firms that have more cash flow exposure see their stock prices affected more. The stock price reaction depends on the maturity and type of debt issued by the firm, and the forward guidance provided by the Fed. This effect has remained intact during the ZLB period. Importantly, we show that the effect is not a rule of thumb behavior outcome and that the marginal stock market participant actually studies and reacts to the liability structure of firm balance sheets. The cash flow exposure at the time of monetary policy actions predicts future net worth, investment, and assets, verifying the stock pricing decision and also providing evidence of cash flow effects on firms' real behavior. The results hold for S&P500 firms that are usually thought of not being subject to tight financial constraints.
    Keywords: Cash flow effect of monetary policy; Financial Frictions; Investor sophistication; stock pricing
    JEL: E43 E44 E52 E58 G14
    Date: 2019–09
  6. By: Montoya Arbeláez, Jaime Alberto; Rhenals Monterrosa, Remberto
    Abstract: Resumen: Este documento ilustra la derivación matemática de una versión simple de un modelo Nuevo Keynesiano presentado en el texto de Macroeconomía de Jones (2013) que explica el ajuste de una economía cuando se enfrenta a choques exógenos. En este sentido, la configuración del modelo utiliza tres ecuaciones que representan la curva IS, la oferta agregada y la regla de política monetaria y describe el comportamiento dinámico de tres variables: producción agregada, inflación y tasa de interés real. Además, se discute la formación de expectativas por parte de los agentes económicos, las diferencias entre las expectativas racionales y las adaptativas, y el camino seguido por las variables si una de ellas se introduce en el modelo. Finalmente, se muestra cómo cambian las tres variables cuando se presentan tres tipos de choques. Primero, un choque de oferta relacionado con una disminución de la productividad o un aumento de los costos. Segundo, un shock de demanda, que se asocia con un aumento en el componente de gasto autónomo de la demanda agregada, como las compras del gobierno. Tercero, una variación en la meta de inflación, que es la forma de introducir la política monetaria en este modelo. / Abstract : This document illustrates the mathematical derivation of a simple version of a New Keynesian model presented in textbook of Macroeconomics of Jones (2013), that explains the adjustment of an economy when it faces exogenous shocks. In this sense, the model's set up uses three equations that represent IS curve, aggregate supply and monetary policy rule, which allow to describe the dynamic behavior of three variables: aggregate output, inflation and real interest rate. Moreover, expectations formation by economic agents is discussed, the differences between rational and adaptive expectations, and what is the path followed by the variables if one of them is introduced in the model. Finally, it shows how the three variables change when are presented three types of shocks. First, a supply shock related to a decrease in productivity or an increase in costs. Second, a demand shock, which is associated to an increase in autonomous expenditure component of aggregate demand, like government purchases. Third, a variation in inflation targeting, that is the way to introduce monetary policy in this model.
    Keywords: Producción, inflación, tasa de interés real, expectativas racionales, expectativas adaptativas, oferta agregada, demanda agregada, política monetaria
    JEL: D84 E12 E31 E32 E52
    Date: 2019–08–01
  7. By: Izryadnova Olga (Gaidar Institute for Economic Policy)
    Abstract: Macroeconomic situation in 2017–2018 was marked by the outstripping growth rates of fixed investments relative to GDP performance and final consumption of households. In 2018, amid fixed investments increase by 4.3 percent, GDP growth constituted 2.3 percent relative to the corresponding period of the previous year. However, despite the upward trend of fixed investments seen in 2017–2018, the economy has retained the impact from the acute investment crisis of 2014–2016. Vis-a-vis pre-crisis 2012 fixed investments registered in 2018 came to merely 97.3 percent and the construction work volume to 95.7 percent.
    Keywords: Russian economy, fixed investment
    JEL: E20 E21 E22 E60
    Date: 2019
  8. By: Jan Stráský; Hyunjeong Hwang
    Abstract: The negative interest rate policy (NIRP) has been in place in the euro area since June 2014. While the NIRP can provide additional monetary accommodation in the situation where the neutral rate of interest is most likely negative, there are also unintended consequences for banks’ profitability and potential financial stability risks associated with this policy. The paper assesses the effect of the NIRP on the net interest rate margins of the euro area banks using quarterly consolidated bank level data for some 50 banking groups directly supervised by the Single Supervisory Mechanism. Since our data set extends to 2018, it allows us to examine the period of negative short-term interest rates separately from the period of low, but positive policy rates. The econometric results confirm the effect of the interest rate level on bank profitability and, in some specifications, also suggest an additional negative effect on bank profitability in the period of negative euro area short-term interest rates. This additional effect of the NIRP is the strongest when looking at the disaggregated components of net interest income, i.e. interest income and interest expense. However, the effects are not particularly robust across various profitability measures and tend to disappear when conditioning on macroeconomic variables, such as expected real GDP growth and inflation expectations. Therefore, in line with other existing studies, we find weak evidence of possible negative effects on bank profitability from keeping rates low for an extended period of time. Statistical analysis of the bank-level data also points to an ongoing compression of non-interest income, in particular for the best performing banks, and a slow recovery in return on total assets among all banks over the analysed period.This Working Paper relates to the 2018 OECD Economic Survey of Euro Area( rea-and-european-union-economic-snapshot /)
    Keywords: bank profitability, lower bound, monetary policy, negative rates
    JEL: E43 E52 E58 G21 G28
    Date: 2019–10–14
  9. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Gagan Goel (Indira Gandhi Institute of Development Research)
    Abstract: In an emerging market subject to frequent shocks output sacrifice from disinflation depends not only on the Phillips curve slope but also on shifts in demand and supply. Introducing shocks and correlations between shocks in a Kalman filter based estimation, the slope flattens, correlation between permanent output shocks (supply) and output gap (demand) shocks is negative and a new decomposition of output between trend and output gap shocks is obtained. The flat supply curve is robust to parameter changes, and business cycle turning points are tracked well, but the decomposition varies. More stable inflation expectation and rise in forward-looking behaviour increases volatility of trend growth and reduces the output gap. Inflation targeting had such effects in India. Estimated sacrifice ratio varies with the period and method, but it rises to 6.7 over 2011-17 if such hysteresis is included. Simultaneous equation estimation corroborates the results. In the estimation period, inflation targeting affected expectations but not inflation.
    Keywords: Sacrifice ratio, Phillips curve slope, correlated demand and supply shocks, hysteresis
    JEL: E32 E52 E31
    Date: 2019–08
  10. By: Alberto Coco; Nicola Viegi
    Abstract: This paper analyses the evolution of the monetary policy stance, communication and credibility of the South African Reserve Bank (SARB) since 2000, when it adopted a flexible Inflation Targeting (IT) regime to facilitate the achievement of its price stability mandate. Empirical results indicate that the stance became accommodative after the global financial crisis of 2009, with a tendency of the implicit inflation target to increase, while after 2014 it turned tighter and the implicit target started declining. In addition, after the crisis the monetary policy has become less active, with a lower response of policy rates to output and inflation gaps, partially explained with the extension of the mandate to include financial stability. At the same time, applying Natural Language Processing techniques to the SARB monetary policy statements shows a move towards a more ‘forward-looking’ and balanced communication strategy, complementing to some extent the less frequent changes of monetary policy rates. Finally, the behavior of market interest rates and inflation expectations shows that monetary policy has been gradually better at anchoring expectations, especially in the last few years. The analysis helps to understand the interaction between policy, communication and credibility by showing a consistent picture across all different aspects of monetary policy making.
    Keywords: Inflation targeting, Taylor rule, Natural Language Processing, inflation expectations, South Africa
    JEL: C22 E42 E43 E52 E58
    Date: 2019–07
  11. By: Vasilev, Aleksandar
    Abstract: This paper takes an otherwise standard real-business-cycle setup with government sector, and augments it with shocks to consumer confidence to study business cycle fluctuations. A surprise increase in consumer confidence generates higher utility, as the household values consumption more in that scenario. As a test case, the model is calibrated to Bulgaria after the introduction of the currency board (1999-2018). We find that shocks to consumer confidence by themselves cannot be the main driving force behind business cycle fluctuations, but when combined with technology shocks, model performance improves substantially. Therefore, allowing for additional factors, such as consumer confidence, to interact with technology shocks can be useful in explaining business cycle movements.
    Keywords: consumer confidence shocks,business cycles,Bulgaria
    JEL: E32 E62 E21
    Date: 2019
  12. By: Roman Horvath (Charles University in Prague); Lóránt Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Ales Marsal (National Bank of Slovakia)
    Abstract: We estimate a New Keynesian model on post-war US data with generalised method of moments using either constant or time-varying debt and labor income taxes. We show that accounting for government debt and distortionary taxes help the New Keynesian model match the level of the nominal term premium with a lower relative risk-aversion than typically found in the literature.
    Keywords: zero-coupon bond, nominal term premium, balanced budget rule, government debt, income taxation
    JEL: E13 E31 E43 E44 E62
    Date: 2019
  13. By: Roman Horvath (Charles University in Prague); Lóránt Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Ales Marsal (National Bank of Slovakia); Katrin Rabitsch (Vienna University of Economics and Business)
    Abstract: We generalize a simple New Keynesian model and show that a flattening of the Phillips curve reduces the size of fiscal multipliers at the zero lower bound (ZLB) on the nominal interest rate. The factors behind the flatting are consistent with micro- and macroeconomic empirical evidence: it is a result of, not a higher level of price rigidity, but an increase in the degree of strategic complementarity in price-setting -- invoked by the assumption of a specific instead of an economy-wide labour market, and decreasing instead of constant-returns-to-scale. In normal times, the efficacy of fiscal policy and resulting multipliers tends to be small because negative wealth effects crowd out consumption, and because monetary policy endogenously reacts to fiscally-driven increases in inflation and output by raising rates, offsetting part of the stimulus. In times of a binding ZLB and a fixed nominal rate, an increase in (expected) inflation instead lowers the real rate, leading to larger fiscal multipliers. Conditional on being in a ZLB-environment, under a flatter Phillips curve, increases in expected inflation are lower, so that fiscal multipliers at the ZLB tend to be lower. Finally, we also discuss the role of solution methods in determining the size of fiscal multipliers.
    Keywords: Fiscal multipliers, strategic complementarity, Phillips curve, zero lower bound, New Keynesian model
    JEL: E52 E62
    Date: 2019
  14. By: Demir, Ishak
    Abstract: While Federal Reserve continues to normalize its monetary policy on the back of a strengthening U.S. economy, the possibility of mimicking U.S. policy actions and so the debate of monetary autonomy has been particularly heated in the most of developing countries, even in advanced economies. We analyse the role played by country-specific characteristics in domestic monetary policy autonomy to set short-term interest rates in the face of spillovers from of U.S. monetary policy as global external shocks. First, we extricate the non-systematic (non-autonomous) component of domestic interest rates which is related to business cycle synchronisation across countries. Then we employ an interacted panel VAR model, which allows impulse response functions to vary by country characteristics for a broad sample of countries. We find strong empirical evidence for the role of exchange rate flexibility, capital account openness in line with trilemma, but also a significant role for other country characteristics, such as dollarisation in the financial system, the presence of a global bank, use of macroprudential policies, and the credibility of fiscal and monetary policy.
    Keywords: monetary policy autonomy,global financial cycle,international spillovers,trilemma,country-specific characteristics,cross-country difference,dilemma
    JEL: C38 E43 E52 E58 F42 G12
    Date: 2019
  15. By: Montoya Ramírez, Jaime Horacio
    Abstract: Resumen: El presente trabajo es un intento, en primer lugar, para convalidar con información del Sistema de Cuentas Nacionales Trimestrales, algunos de los hallazgos de estudios nacionales e internacionales sobre los determinantes de la tasa de ahorro domestico o del componente cíclico de la tasa de ahorro doméstico que usan fundamentalmente información procedente del Sistema de Cuentas Nacionales Anuales (de agregados macroeconómicos y por agentes). Un problema crucial en el uso de las cuentas nacionales anuales consiste en que ellas no miden el ahorro consistentemente con definiciones teóricas; los investigadores del ahorro han tenido que realizar cálculos propios, tomando las cuentas nacionales anuales como materia prima y ajustándola con información suministrada por otras instituciones públicas y privadas, para tratar de obtener medidas más próximas a las nociones conceptuales. En ésta investigación no se realiza ninguna transformación de la información trimestral, pero si se usa la evidencia hallada en los estudios anuales. En segundo lugar, se trata de obtener evidencia sobre otro grupo de posibles determinantes del componente transitorio de la tasa de ahorro en el caso de la economía colombiana. Para los propósitos anteriores, se estimó una ecuación reducida por mínimos cuadrados para el componente cíclico de la tasa ahorro interno y como variables independientes a los componentes transitorios de: el crecimiento del PIB real, la profundización financiara (medida por el agregado monetario M2), de los impuestos, de la tasa de dependencia (aproximada por la proporción entre la tasa de ocupación y la tasa de desempleo), la tasa de inflación; las variables anteriores son comunes, aunque cuantitativamente medidas de forma diferente, en los estudios sobre el ahorro; las variables que adicionalmente se incluyen en la estimación son los componentes cíclicos de la tasa de interés de política monetaria, del precio internacional del petróleo, de la tasa de interés externa y de la tasa de cambio nominal. Los resultados son favorables para todas las variables (aunque los coeficientes para el precio internacional del petróleo y la tasa de cambio nominal son pequeños) y son robustos con R2 tendiendo a 1; no hay autocorrelación ni correlación serial, la especificación lineal del modelo es correcta según el test de Ramsey, los test cusum y cusum cuadrado indican estabilidad de los coeficientes, ausencia de multicolinealidad o ésta es moderada (ICJ=3.6), el test de Haussman (la versión de Davidson and MacKinnon (1989,1993) para la endogeneidad indica que ésta no existe o es débil. Igualmente, se destaca el rechazo a la hipótesis del ingreso permanente. / Abstract : The present work is an attempt to, firstly, to validate with information from the system of quarterly national accounts, some of the findings of national and international studies on the determinants of the rate of domestic savings or component cyclic rate of domestic savings, mainly using information from the system of annual national accounts (of macroeconomic aggregates and agents). A crucial problem in the use of annual national accounts is that they do not measure saving consistently with theoretical definitions; saving researchers have had to own calculations, taking the national accounts as raw and adjusting it with information provided by other public and private institutions, to try to obtain measurements closer to the conceptual notions. In this research there is no transformation of the quarterly information, but if used the evidence found in annual studies. Secondly, it is to obtain evidence about another group of possible determinants of the transitory component of the rate of savings in the case of the Colombian economy. For the above purposes, a reduced by least squares equation was estimated for the cyclical component of the rate saving internal and as independent variables to transient components of: the growth of real GDP, the deepening financial) as measured by the monetary aggregate M2), taxes, the dependency ratio (approximated by the ratio between the rate of occupation and the unemployment rate), the rate of inflation; the previous variables are common, although quantitatively measured differently, in studies on saving; the variables that are additionally included in the estimate are the cyclical components of interest rate in monetary policy, the international price of oil, the foreign interest rate and the nominal exchange rate. The results are favorable for all variables (although the coefficients for the international price of oil and the nominal exchange rate are small) and are robust with R2 tending to 1; There is no autocorrelation or serial correlation, the linear specification of the model is correct according to the Ramsey test, the test cusum and Cusum square indicate stability of the coefficients, absence of multicolinearity or this is moderate (ICJ = 3.6), the test of Haussman (the version of Davidson and MacKinnon (1989.1993) for endogeneity indicates that it does not exist or is weak. The rejection of the permanent income hypothesis is also highlighted.
    Keywords: componente cíclico de la tasa de ahorro nacional, PIB real, tasa de interés de política monetaria, tasa de dependencia económica, impuestos, restricciones de liquidez, inflación
    JEL: E21 E22 E23 E24 E31 E32 E52 E58 E62 F41
    Date: 2019–06–03
  16. By: Jordá, Óscar; Taylor, Alan M.
    Abstract: Interest rates in major advanced economies have drifted down and in greater unison over the past few decades. A country's rate of interest can be thought of as reflecting movements in the global neutral rate of interest, the domestic neutral rate, and the stance of monetary policy. Only the latter is controlled by the central bank. Estimates from a state space New Keynesian model show that central bank policy explains less than half of the variation in interest rates. The rest of the time, the central bank is catching up to trends dictated by productivity growth, demography, and other factors outside of its control.
    Keywords: Kalman filter; monetary policy stance; neutral rate of interest; state-space model
    JEL: E43 E44 E52 E58 F36 N10
    Date: 2019–09
  17. By: Bo?ena Kade?ábková (University of Economics in Prague); Emílie Ja?ová (Institute for Forcast)
    Abstract: The aim of this article is to present the differences between the different flows on the labor market in the Czech Republic. The problem is significant economically, socially and politically. The empirical part of the study focuses on the quantification of so-called churn. The specific features of the Czech Republic's churn include the fact that the overall churn has an anti-cyclical character in the Czech Republic, and that in the period of growth of the total churn, the share of wages and salaries in total in GDP at current prices has increased, which is both contrary to the conclusions of world research. The revival of the economy is accompanied by an increase in total churn, but it does not lead to an increase in wages and salaries resulting from company-to-business movements, as would be the case with economic theory.
    Keywords: churn, labour market, wage
    JEL: E24 E32 E37
    Date: 2019–10
  18. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Prashant Parab (Indira Gandhi Institute of Development Research)
    Abstract: Careful research on the inflation targeting regime's impact on anchoring inflation expectations as well as an empirical examination of convergence is used to assess the direction of convergence between core and headline inflation as well as the efficacy of the expectation channel compared to the aggregate demand channel of monetary transmission. There is evidence of more anchoring, with RBI communications as well as headline inflation affecting short-run inflation expectations and core inflation dominating in the long-run. The Repo rate has hardly any affect. While persistently high headline affects core, normally a volatile headline reverts to a more stable core. Transitory shocks to components of core have kept it sticky, but it is also softening, so that both core and headline can be expected to approach the inflation target. Our evidence supports the expectation channel of monetary transmission to inflation but not the aggregate demand channel. It follows monetary policy should focus on clear communication and accurate forecasts, while avoiding excessively high policy rates.
    Keywords: Inflation expectations, targeting, convergence, anchoring, transmission channel
    JEL: E31 E58 E52
    Date: 2019–07
  19. By: Demir, Ishak
    Abstract: We estimate a structural dynamic factor model on large panel quarterly data to analyse the spillovers of U.S. monetary policy to the advanced economies and emerging and frontier market economies. The estimated model suggests that monetary contraction in U.S. leads to a significant decrease in real GDP with typical inverted hump-shape almost for all countries. It reduces permanently aggregate price level, increases interest rate and leads appreciation of U.S. dollar. However, contagion of U.S. monetary policy to the individual countries shows heterogeneity. For instance, its impact is larger in developing countries. We also find that global financial crisis has amplified the impact of U.S monetary policy on the rest of world in particular on developing countries. Lastly, the empirical results suggest that the cross-country heterogeneity in responses may be consequence of difference in country-specific characteristics such as exchange rate regimes, currency of price settings of firms, central bank independence and geographical distance from Unites States.
    Keywords: cross-country heterogeneity,country-specific characteristic,international monetary spillovers,structural factor model,monetary policy
    JEL: C38 E43 E52 E58 F42 G12
    Date: 2019
  20. By: Laura Zacheo (Banco Central del Uruguay); Margarita Güenaga (Banco Central del Uruguay)
    Abstract: This paper focuses on the effects of monetary policy design and credibility on exchange rate pass-through. In order to do that, we estimate conditional pass-through coefficients on the most relevant shocks in explaining exchange rate variation in Uruguay from 2005 to 2017. The analysis is framed in a general equilibrium model, which is estimated in the present work through Bayesian techniques. The conditional pass-through is then estimated through the impulse response functions from the model. As in previous studies we find that the conditional pass-through varies greatly between different types of shocks in the case of Uruguay. Pass-through is bigger when international financial shocks or unanticipated monetary disturbances that affect the economy occur than to the one observed after international price shocks. This paper shows that the credibility of monetary policy is a key factor to explain the size of the pass-through coefficient: increasing the deviation of inflation expectations by 1% doubles the size of the pass-through coefficient when inflation expectations are not aligned with the inflation target. The paper also shows a second-order effect of changes in the weights in the monetary policy rule on the size of pass through.
    Abstract: En este documento se analiza el efecto del diseño de la política monetaria y la credibilidad sobre el traspaso de tipo de cambio a precios. Con este objetivo se estiman coeficientes de traspaso condicionales a los shocks más relevantes en cuanto a su poder explicativo de la variación del tipo de cambio en Uruguay en el período 2005-2017. El análisis se enmarca en un modelo de equilibrio general, el cual se estima a través de técnicas bayesianas. Al igual que en estudios previos se encuentra que el traspaso condicional varía significativamente entre distintos tipos de shocks para el caso de Uruguay, siendo mayor cuando ocurren shocks financieros a nivel internacional o perturbaciones monetarias no anticipadas que afectan a la economía en contraposición con los shocks de precios internacionales. Este trabajo muestra que la credibilidad de la política monetaria es un factor determinante para explicar la magnitud del coeficiente de pass-through: aumentar la desviación de las expectativas de inflación en 1% duplica el tamaño del coeficiente cuando las expectativas no están alineadas con la meta de inflación. El trabajo también muestra un efecto de segundo orden de cambios en los ponderadores en la regla de política monetaria sobre el tamaño del pass-through.
    Keywords: Exchange rate pass-through, inflation expectations, monetary policy credibility, NeoKeynesian models, traspaso de tipo de cambio, expectativas de inflación, credibilidad de la política monetaria, modelos Neokeynesianos
    JEL: D84 E31 E58
    Date: 2019
  21. By: Chen, Zhengyang
    Abstract: The federal funds rate became uninformative about the stance of monetary policy from December 2008 to November 2015. During the same period, unconventional monetary policy actions, like large-scale asset purchases, show the Federal Reserve’s intention to depress longer-term interest rates. This paper considers a long-term real interest rate as an alternative monetary policy indicator in a structural VAR framework. Based on an event study of FOMC announcements, I advance a novel measure of long-term interest rate volatility with important implication for monetary policy identification. I find that monetary policy shocks identified with this volatility measure drive significant swings in credit market sentiments and real output. In contrast, monetary policy shocks identified by otherwise standard unexpected policy rate changes lead to muted responses of financial frictions and production. Our results support the validity of the risk-taking channel and suggest an indispensable role of financial markets in monetary policy transmission.
    Keywords: Monetary policy transmission; Risk-taking channel; Structural vector autoregression; High-frequency identification
    JEL: E3 E4 E5 G0
    Date: 2019–09–30
  22. By: Michael E. Waugh
    Abstract: This paper provides evidence on the consumption effects of trade shocks by exploiting changes in US and Chinese trade policy between 2017 and 2018. The analysis uses a unique data set with the universe of new auto sales at the US county level, at a monthly frequency, and a simple difference-in-difference approach to measure the effect of changes in trade policy on county-level consumption. As a lower bound, I estimate the elasticity of consumption growth to Chinese retaliatory tariffs to be around –1. This implies that counties in the upper quartile of the retaliatory-tariff distribution experienced a 3.8 percentage point decline in consumption growth. I further show that the consumption response corresponds with a decline in employment growth. These results suggest that Chinese retaliation is leading to concentrated welfare losses in the US.
    JEL: A0 E0 E21 E65 F0 F13 F4
    Date: 2019–10
  23. By: Balfoussia, Hiona; Dellas, Harris; Papageorgiou, Dimitris
    Abstract: Fiscal fragility can undermine a government's ability to honor its bank deposit insurance pledge and induces a positive correlation between sovereign default risk and financial (bank) default risk. We show that this positive relation is reversed if bank capital requirements in fiscally weak countries are allowed to adjust optimally. The resulting higher requirements buttress the banking system and support higher output and welfare relative to the case where macroprudential policy does not vary with the degree of fiscal stress. Fiscal tenuousness also exacerbates the effects of other risk shocks. Nonetheless, the economy's response can be mitigated if macroprudential policy is adjusted optimally. Our analysis implies that, on the basis of fiscal strength, fiscally weak countries would favor and fiscally strong countries would object to banking union.
    Keywords: bank performance; Banking Union; Fiscal distress; Greece; optimal macroprudential policy
    JEL: E3 E44 G01 G21 O52
    Date: 2019–09
  24. By: Ehrmann, Michael; Gaballo, Gaetano; Hoffmann, Peter; Strasser, Georg
    Abstract: Central banks have used different types of forward guidance. This paper reports cross-country evidence showing that, in general, forward guidance mutes the response of government bond yields to macroeconomic news. However, calendar-based guidance with a short horizon counter-intuitively raises it. Using a stylized model where agents learn from market signals, it shows that the public release of more precise information about future rates lowers the informativeness of market signals and, as a consequence, may increase uncertainty and amplify the reaction of expectations to macroeconomic news.
    Keywords: central bank communication; disagreement; forward guidance; heterogeneous beliefs; Macroeconomic news
    JEL: D83 E43 E52 E58
    Date: 2019–09
  25. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Prashant Parab (Indira Gandhi Institute of Development Research)
    Abstract: Using Consumer Confidence Survey data we analyze socio-economic as well as macroeconomic factors that influence inflation expectations of Indian households. We discover that inflation expectations of households depend largely on inflation perceptions, income and education of the respondents, as well as their outlook on the economy, employment and spending. Women, lower income individuals and less educated persons tend to have higher inflation expectations. Macroeconomic variables like inflation, repo rate and GDP growth rate influence inflation expectations positively. Along with these variables, Reserve Bank of India inflation projections influence inflation expectations. Therefore, the Reserve Bank has a significant role in anchoring inflation expectations via communications. Since a rise in Repo, as well as lower growth, raise inflation expectations, it must also give weight to growth under inflation targeting.
    Keywords: Consumer confidence survey, Inflation expectations, Socio-economic variables, Ordered logit, Central Bank communications
    JEL: C30 D83 D84 E52 E58
    Date: 2019–07
  26. By: Broadbent, Ben; DiPace, Federico; Drechsel, Thomas; Harrison, Richard; Tenreyro, Silvana
    Abstract: The UK economy has experienced significant macroeconomic adjustments following the 2016 referendum on its withdrawal from the European Union. This paper develops and estimates a small open economy model with tradable and non-tradable sectors to characterize these adjustments. We demonstrate that many of the effects of the referendum result can be conceptualized as news about a future slowdown in productivity growth in the tradable sector. Simulations show that the responses of the model economy to such news are consistent with key patterns in UK data. While overall economic growth slows, an immediate permanent fall in the relative price of non-tradable output (the real exchange rate) induces a temporary "sweet spot" for tradable producers before the slowdown in the tradable sector productivity associated with Brexit occurs. Resources are reallocated towards the tradable sector, tradable output growth rises and net exports increase. These developments reverse after the productivity decline in the tradable sector materializes. The negative news about tradable sector productivity also lead to a decline in domestic interest rates relative to world interest rates and to a reduction in investment growth, while employment remains relatively stable. As a by-product of our Brexit simulations, we provide a quantitative analysis of the UK business cycle.
    Keywords: Brexit; Exchange Rate Adjustment; growth; productivity; Tradable Sector; Trade; UK Economy
    JEL: E13 E32 F17 F47 O16
    Date: 2019–09
  27. By: Paul Wohlfarth (Birkbeck, University of London)
    Abstract: A crucial no-arbitrage condition on foreign exchange markets, covered interest parity (CIP),held almost exactly before the Global Financial Crisis (GFC) and failed since then. CIP deviations have been particularly puzzling in relatively calm markets after 2014. This paper explains deviations from CIP, measured by the cross-currency basis from swaps (CCBS), in terms of significant policy and volatility effects in a preferred habitat model of the Eurodollar swap market. Estimation is done using EGARCH in mean for a set of CCBS maturities. The term structure of the CCBS is further analysied in a Vector Error Correction Model(VECM).
    Keywords: Macro Finance, International Monetary Economics, Preferred Habitat, Foreign Exchange Markets, International Finance
    JEL: E43 E44 E5 F31 G12 G15
    Date: 2019–10
  28. By: Kroencke, Tim; Schmeling, Maik; Schrimpf, Andreas
    Abstract: A large share of stock returns around FOMC meetings is driven by shocks that are uncorrelated with news about risk-free rates but seem closely related to changes in investors' perception of risk. These "FOMC risk shifts" can only partly be traced to fundamental news. However, FOMC risk shifts are accompanied by sizeable shifts in fund flows reminiscent of "risk on/off" modes and strong price pressure, which accounts for up to half of returns. Our results highlight the role of investor heterogeneity as an important factor to understanding the short-term dynamics of stock returns in response to monetary policy news.
    Keywords: Equity premium; Fund flows; Monetary Policy Surprises; Portfolio rebalancing; Price pressure
    JEL: E44 G10 G12
    Date: 2019–10
  29. By: Bianchi, Francesco; Kind, Thilo; Kung, Howard
    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, which poses a significant threat to central bank independence.
    Keywords: central bank independence; fed funds target; High-Frequency Identification; monetary policy; Twitter
    JEL: E52 E58 G1
    Date: 2019–09
  30. By: Fernández-Villaverde, Jesús; Hurtado, Samuel; Nuño, Galo
    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.
    Keywords: Aggregate shocks; continuous-time; Heterogeneous Agents; Machine Learning; structural estimation
    JEL: C45 C63 E32 E44 G01 G11
    Date: 2019–09
  31. By: Stavrakeva, Vania; Tang, Jenny
    Abstract: Conventional wisdom holds that lowering a home country's interest rate relative to another's will depreciate the domestic currency. We document that US monetary policy easings actually had the opposite effect during the Great Recession. We attribute this effect to calendar-based forward guidance that signaled economic weakness which resulted in a flight-to-safety effect and lower expected inflation in the United States. Our results imply that accusations that the Federal Reserve engaged in a "competitive devaluation" over the Great Recession were unfounded.
    JEL: E52 F31 G01
    Date: 2019–10
  32. By: Borio, Claudio; Brei, Michael; Gambacorta, Leonardo
    Abstract: This paper investigates how the prolonged period of low interest rates affects bank intermediation activity. We use data for 113 large international banks headquartered in 14 major advanced economies during the period 1994â??2015. We find that low interest rates induce banks to shift their activities from interest-generating to fee-related and trading activities. This rebalancing is stronger for low capitalised banks. Banks also moderately adjust their funding structure, away from short-term market funding towards deposits. We observe a concomitant decline in the risk-weighted asset ratio and a reduction in loan-loss provisions, which is consistent with signs of evergreening.
    Keywords: bank business models; financial crisis; monetary policy
    JEL: C53 E43 E52 G21
    Date: 2019–09
  33. By: António Afonso; Frederico Silva Leal
    Abstract: We estimate short-and long-run elasticities of private consumption forfiscal instruments,using a Fixed Effects model for the19-euroarea countries duringthe period of 1960-2017, to asses show fiscal elasticities vary during fiscal episodes.According to the results, positive “tax revenue”elasticities indicate that consumers have aRicardian behaviour, whereby they perceive an increase in taxation to bea sign of future government spending. “Social benefits”appear to have a non-keynesian effecton private consumption. In addition, using a narrative approach to identify fiscal consolidations, it is seen that private consumption continues to exhibit a non-keynesian response to tax increases, both in the short and long-run, and “other expenditures” have a recessive impact during “normal times”. Furthermore, “social benefits”are more contractionary in consolidations than in both expansions and “normal times”. Additionally, after the launch of the EMU, expansionary fiscal consolidations became harder to observe, and “other expenditure”and “investment”lost their non-keynesian role.
    Keywords: Non-Keynesian Effects, Fiscal Episodes, Fiscal policy, Fiscal Elasticities, EMU
    JEL: B22 E12 E62
    Date: 2019–09
  34. By: Siddhartha Chattopadhyay (Department of Humanities and Social Sciences, IIT Kharagpur); Taniya Ghosh (Indira Gandhi Institute of Development Research)
    Abstract: This paper analyzes the implementation of the optimal policies at the Zero Lower Bound (ZLB) by the Taylor rule in the presence of cost channel. We find that, the presence of cost channel significantly impairs the ability of the Taylor rule to implement optimal policies when economy is subject to the ZLB. The main findings of the paper are, (i) the Taylor rule with optimally chosen inflation target partially implements the optimal discretionary policy but cannot implement the optimal policy under commitment, and (ii) the T-only policy, which follows discretion after an optimally chosen exit date from the ZLB, is the best that can be implemented by the Taylor rule in the presence of cost channel.
    Keywords: New-Keynesian Model, Cost Channel, ZLB
    JEL: E63 E52 E58
    Date: 2019–06
  35. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Deepak Kumar Agarwal
    Abstract: We derive testable implications for transmission from Indian policy rate and liquidity provision to market rates as well as the interaction between rate and liquidity channels, from an analysis of operating procedures and estimate using event window regressions. The interest rate transmission channel is dominant, but the quantity channel has an indirect impact on the size of interest rate pass through. Short run government securities (G-Secs) yields are most responsive to changes in policy rates. Asymmetry or faster and more adjustment during tightening is found only for G-Secs rates. Liquidity changes matter for short term rates and durable liquidity for longer term government securities. Collateralized short-term market rates respond to the direction of change in Repo when liquidity changes are aligned. These or short-run G-Secs should form the operating target. Liquidity variables increase the size of the G-Secs Repo coefficients, suggesting aligned liquidity increases the impact of a change in the Repo Rate. The results highlight an important asymmetry in monetary transmission for emerging markets in the special role of liquidity in comparison to rates. Implications follow for policy.
    Keywords: Money markets, transmission, Repo Rate, liquidity
    JEL: E51 E58 E42
    Date: 2019–08
  36. By: Guillermo Ordoñez; Facundo Piguillem
    Abstract: The U.S. economy has recently experienced two, seemingly unrelated, phenomena: a large increase in post-retirement life expectancy and a major expansion in securitization and shadow banking activities. We argue they are intimately related. Agents rely on financial intermediaries to save for post-retirement consumption. When expecting to live longer, they rely more heavily on intermediaries that use securitization, with riskier but higher returns. A quantitative evaluation of the model shows the potential of the demographic transition to account for a boom in credit and output, but only when it triggers a more extensive use of securitization and shadow banking.
    JEL: E21 E44 G21 J11
    Date: 2019–10
  37. By: Mehmet Balcilar (Eastern Mediterranean University, Famagusta, North Cyprus, via Mersin 10, Turkey and University of Pretoria, Pretoria, 0002, South Africa); George Ike (Eastern Mediterranean University, Famagusta, North Cyprus, via Mersin 10, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)
    Abstract: We employ time series data to empirically determine the causal relationship between economic policy uncertainty and the GDP growth rates of seven emerging market economies while controlling for the effect of oil price, interest rates and the CPI. Due to differences in sampling frequencies between the GDP series and other variables, a multi-horizon mixed frequency VAR model is employed. This model fully exploits the mixed frequency Granger causality test in order to circumvent the distorting effects of temporal aggregation. The empirical results show a strong statistical evidence for direct causality flowing from economic policy uncertainty (EPU) to GDP in Chile, India and Mexico while a weaker statistical evidence is found for Brazil, Colombia and Russia. For comparative analysis, the low frequency Granger causality test is also employed and strong statistical evidence of direct causality flowing from EPU to GDP in Brazil, Chile, India, Mexico and Russia is uncovered. Analyzing the causal patterns uncovered in both specifications show that the low frequency Granger causality results are less intuitively appealing than those that are obtained from the mixed frequency Granger causality test. The results have empirical as well as policy implications which are discussed.
    Keywords: Economic policy uncertainty, mixed frequency, Granger causality, temporal aggregation, emerging market economies.
    JEL: E32 E37 C32
    Date: 2019–10
  38. By: Andrew Filardo (Bank for International Settlements (BIS)); Paul Hubert (Observatoire français des conjonctures économiques); Phurichai Rungcharoenkitkul (Bank for International Settlements (BIS))
    Abstract: This paper examines whether monetary policy reaction function matters for financial stability. We measure how responsive the Federal Reserve’s policy appears to be to imbalances in the equity, housing and credit markets. We find that changes in these policy sensitivities predict the later development of financial imbalances. When monetary policy appears to respond more countercyclically to market overheating, imbalances tend to decline over time. This effect is distinct from that of current and anticipated interest rate levels – the risk-taking channel. The evidence highlights the importance of a “policy reaction function” channel of monetary policy in shaping the financial cycle.
    Keywords: Policy reaction function channel; Asset price booms; Credit booms; Monetary policy; Financial cycles; Time varying models
    JEL: E50 E52 G00 G12
    Date: 2019–10
  39. By: Levente Kocsis; Miklos Sallay
    Abstract: Periods of excessive credit growth can imply emergence of systemic financial stress which may result in financial crisis causing severe losses in the real economy. The base indicators of overheatedness in the credit markets are the expansion of the credit-to-GDP ratio and its deviation from its long-term trend, the credit-to-GDP gap. When calculating the latter, the major methodological challenge is to develop a model capable of executing the most reliable trend-cycle decomposition. This study presents a multivariate Hodrick-Prescott approach for the decomposition process, which defines the cycle with the inclusion of explanatory variables chosen by considering both statistical and economic selection criteria, successfully solving the problems raised by previous Hungarian research. The model also plays a role in the Hungarian macroprudential policy as in the future it will serve a basis for the calculation of the country specific, additional credit-to-GDP gap: one of the main quantitative factors influencing decisions regarding the countercyclical capital buffer (CCyB).
    Keywords: excessive credit growth, financial stability, credit-to-GDP gap, multivariate HP filter, countercyclical capital buffer.
    JEL: E44 G01 G17 G18 G21
    Date: 2018
  40. By: Decker, Frank; Goodhart, C. A. E.
    Abstract: This paper assesses the theory of credit mechanics within the context of the current money supply debate. Credit mechanics and related approaches were developed by a group of German monetary economists during the 1920s-1960s. Credit mechanics overcomes a one-sided, bank-centric view of money creation, which is often encountered in monetary theory. We show that the money supply is influenced by the interplay of loan creation and repayment rates; the relative share of credit volume neutral debtor-to-debtor and creditor-to-creditor payments; the availability of loan security; and the behavior of non-banks and non-borrowing bank creditors . With the standard textbook models of money creation now discredited, we argue that a more general approach to money supply theory involving credit mechanics needs to be established.
    Keywords: balances mechanics; bank credit; money creation; credit creation; credit mechanics; money supply theory
    JEL: E40 E41 E50 E51
    Date: 2018–10
  41. By: Akcigit, Ufuk; Akgunduz, Yusuf Emre; Cilasun, Seyit Mumin; Ozcan Tok, Elif; Yilmaz, Fatih
    Abstract: In this paper, we investigate various trends on competition and business dynamism in the Turkish manufacturing sector. More specifically, using micro level administrative data sets of firm balance sheets, credit registry and social security records, we focus on moments such as firm entry, exit, profitability, worker reallocation, labor share, labor productivity and credit distributions, among several others. Our results indicate that business dynamism in the Turkish manufacturing sector was relatively stable and even improving until 2012 but has been declining since then. We find that market concentration and exit rates have started to rise, yet new business creation, labor share of output and economic activities of young firms have declined. Using a model with endogenous market competition, we show that a adverse shock to cost of R&D investment can explain these empirical trends. We identify increases in financing costs after 2012 of followers as a potential mechanism for our findings in Turkey. We next perform a policy analysis with our model which suggests that providing support (e.g., R&D subsidy) to immediate followers can undo the adverse effects of the negative shock to financing costs and therefore foster competition and faster growth.
    Keywords: business dynamism; Competition; Market concentration; Turkish economy
    JEL: E22 E25 L12 O31 O33 O34
    Date: 2019–09
  42. By: Mihály Szoboszlai (Magyar Nemzeti Bank (Central Bank of Hungary)); Zoltán Bögöthy (Magyar Nemzeti Bank (Central Bank of Hungary)); Pálma Mosberger (Magyar Nemzeti Bank (Central Bank of Hungary)); Dávid Berta (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In this study, we analyse the immediate budgetary and the long-term macroeconomic and fiscal effects of measures concerning taxes, contributions and transfers in the period between 2010 and 2017 with a microsimulation model. The corresponding tool is an updated and extended version of the behavioural general equilibrium microsimulation model developed by the Magyar Nemzeti Bank. Among the relevant fiscal policy measures, we primarily took into account the changes in labour taxes, the main elements of the transformation of social benefits and indirectly several other tax changes (on sales, capital and consumption taxes) over the period between 2010 and 2017. Our results suggest that the policy measures examined might contribute to Hungarian GDP growth by nearly 6 percent with a labour supply growth exceeding 6 percent from 2010 onward. The measures have a positive effect on the general government balance, improving the fiscal position over the long run by more than HUF 200 billion. The effects of the statutory changes are evaluated separately and cumulatively. The results of the study might be significantly influenced by the calibrated parameter values in the macromodel that is linked to the microsimulation.
    Keywords: behavioural microsimulation, micro macro model, taxation, transfers, tax reform
    JEL: C54 E62 H22 H31
    Date: 2018
  43. By: Nicholas Garvin (Reserve Bank of Australia)
    Abstract: This paper compares the effectiveness of different forms of emergency liquidity injections, including secured lending (repo), unsecured lending and securities purchases. The model features an endogenous banking crisis, funding and market liquidity interactions, and fire sale externalities. Injection policies are compared by their effects on ex ante incentives and on ex post outcomes. The model demonstrates that lending to banks via repo can curb fire selling of relatively illiquid securities that are accepted as collateral, due to binding collateral constraints. The mitigated securities price depression, relative to an unsecured lending policy, counteracts the effects of fire sale externalities. This reduces banks' losses on illiquid securities without incentivising more liquidity risk-taking. Under an unsecured or secured lending policy, the authority can charge 'penalty rates' to deter liquidity risk-taking, but to be credible, lending should be long term so that repayments are due after liquidity conditions improve. Otherwise, the repayments can cause further liquidity distress, compromising the policy objectives. Liquidity injections via securities purchases cannot credibly be penalising, because the policy does not require banks to commit future income.
    Keywords: banking crisis; bailout; repo; collateral; market liquidity; funding liquidity
    JEL: G01 G12 G21 E52 E58
    Date: 2019–10
  44. By: Enrico D'Elia; Stefania Gabriele
    Abstract: Functional income distribution can be an important driver of inequality. When the market remuneration of labour and capital is very uneven across individuals, as they have been in recent decades, the personal distribution of income tends to polarise, jeopardising social cohesion. This explains a renewed interest in functional distribution. Nevertheless, the role of self-employed income has been often misunderstood in estimating factor income shares. National accounts provide estimates of the compensation of employees and the operating surplus, but do not refer to self-employed workers as a specific productive factor, implicitly including their income in the ‘mixed income’ aggregate and in some other minor items. Most analysts estimate the income of self-employed workers by attributing to them the average unit compensation of the employees, although in fact this is not necessarily consistent with the GDP estimates. Other estimates take a fixed share of the ‘mixed income’, usually the same for every country. When national accounts are very detailed, as in the case of Italy, under some assumptions it is possible to accurately estimate self-employment income from sectors’ non-financial accounts. In this paper we analyse four estimation approaches for self-employed incomes, since only the total amount of ‘mixed income’ received by households is available for most countries. We analyse the data of the OECD countries focusing mainly on eight large economies: the US, Japan, the UK, Germany, France, the Netherlands, Spain and Italy. The results are somehow unexpected. First of all, evaluating the income of the self-employed properly, the overall labour share is declining much faster than reported by the official data in some countries, and more countries showed a decrease in the 2000s. Indeed, the real unit compensation of the self-employed declined significantly in most of the eight countries (and in some of the others) after the mid or the end of the nineties, since self-employment has been used extensively to reduce the overall labour cost. Unit labour cost (ULC) also increased much slower (or even declined more) after 2000 in most countries, shedding new light on the pattern of international competitiveness and the drivers of inflation. The share of operative surplus of non-financial and financial corporations, properly recalculated, has exhibited different dynamics, whereas the component related to imputed rentals of owner occupied houses played an unexpectedly important role. Finally, the mark-up on variable production costs has been higher than expected and its evolution has been faster in most countries than what reported before, showing a lower sensitivity to the business cycle.
    Keywords: Functional distribution, labour income, self-employed workers, ULC, mark-up
    JEL: E25 E24 O47
    Date: 2019–10
  45. By: Bertha C. Bangara; Amos C. Peters
    Abstract: Most of the recent literature analysing the adjustments of macroeconomic variables to fiscal policy shocks rely on the inclusion of non-Ricardian households to generate a positive response of consumption to an increase in government spending. This paper examines the dynamic effects of government financing behaviour in a foreign exchange constrained low income economy on key macroeconomic aggregates such as output, consumption, wages and labour supply. Using a dynamic stochastic general equilibrium (DSGE) model with Ricardian households calibrated to Malawian data, we find that consumption, wages and labour supply increase with increased government expenditure. This is contrary to popular arguments that government expenditure is inversely associated with the private consumption of intertemporal optimizing households in DSGE models. We argue that the positive response of consumption to increased government expenditure arises from the inclusion of aid in the government budget since government expenditure in low income economies may rise with increases in aid inflows for a given level of taxes. We also show that a positive shock to aid relaxes the foreign exchange constraint and improves the economy although it induces an appreciation of the real exchange rate.
    Keywords: fiscal policy, Foreign Exchange Constraint, DSGE, Malawi
    JEL: E32 F31 F35 H32
    Date: 2019–04
  46. By: Barinova Vera (Gaidar Institute for Economic Policy); Zemtsov Tsepan (Gaidar Institute for Economic Policy); Tsareva Yulia (Gaidar Institute for Economic Policy)
    Abstract: Support of the small and medium sized entrepreneurship (SME) sector is recognized to be one of Russia’s economic policy priorities2,3. It is customary to speak of that sector’s low level of development compared with other countries. However, when comparable estimates are applied, the gap does not appear to be catastrophic. The relative share of SMEs in the value added produced by Russia’s business sector amounts to about 44 percent, in the developed countries – OECD member states it amounts on average to 55 percent, in the USA – to 48 percent, and in Canada – to 30 percent. The problems faced by Russian SMEs, in qualitative terms, are as follows: the percentage of exporters and technological startups is low, and a greater part of that sector is unregulated; in 2018, the relative share of medium sized firms and the number of technological startups shrank even further. The conditions for and specific features of the SME sector’s development vary across Russia’s regions, and this fact is completely overlooked by prevailing legislation. According to our estimations, entrepreneurial activity in the regions does not depend on government support, instead responding to macroeconomic and institutional changes. In 2018, in a majority of Russian regions, the number of SME subjects and their turnover declined in response to shrinking personal income, especially in the regions with a high relative share taken up by the shadow sector, while the same indices increased in those regions that hosted the FIFA World Cup events.
    Keywords: Russian economy, small businesses, medium-sized enterprises
    JEL: C53 E37 L21 L52
    Date: 2019
  47. By: Martin Baumgaertner (THM Business School); Jens Klose (THM Business School)
    Abstract: In this paper we distinguish the responses of conventional and unconventional monetary policy measures on macroeconomic variables, using a high frequency data set which measures the impact of the ECB's monetary policy decisions. For the period 2002:01 to 2019:06 we show that unconventional and conventional monetary policy measures dffer considerably with respect to inflation. While conventional measures show the expected response, i.e. an interest rate cut increases inflation and vice versa, unconventional measure appear to have no signicant influence. But this holds not for QE, which is found to have similar influence on inflation as conventional interest rate changes.
    Keywords: Unconventional Monetary Policy, High-Frequency Data, ECB
    JEL: E52 E58 C36
    Date: 2019
  48. By: Hristov, Nikolay; Roth, Markus
    Abstract: The current paper broadens the understanding for the role of uncertainty in the context of a macroeconomic environment. It focuses on the implications of uncertainty shocks on 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 accompanied by favorable effects to economic activity, are followed by unfavorable reactions of financial crisis indicators. We conclude that uncertainty indicators contain some useful information on the potential buildup of vulnerabilities in the financial system.
    Keywords: uncertainty,crisis indicators,structural macroeconomic shocks,signrestrictions
    JEL: D89 C32 E44 G01
    Date: 2019
  49. By: Edo, Anthony; Melitz, Jacques
    Abstract: We perform the first econometric test to date of the influences of inflows of precious metals and population growth on the "Great Inflation" in Europe following the discov-ery of the New World. The English evidence strongly supports the near-equivalent im-portance of both influences. For 1500-1700, silver is the only relevant precious metal in the estimates. The study controls for urbanization, government spending, mortality crises and climatic changes. The series for inflows of the precious metals into Europe from America and European mining are newly constructed based on the secondary sources.
    Keywords: " Demography; European economic history 1500-1700; Precious metals; The "Great Inflation
    JEL: E31 F00 J10 N13 N33
    Date: 2019–09
  50. By: Carsten Hefeker (University of Siegen)
    Abstract: Germany prides itself in having one of the most successful central banks and currencies with respect to independence and stability. I show that not only were both imposed on the country after 1945 but that there was also initial resistance to both among German experts and officials. This was then a rare case of successful imposition of institutions from abroad. Events are discussed in light of Peter Bernholz’s requirements for stable money and a successful central bank.
    Keywords: Currency reform, Bundesbank, central bank independence, institutional reform
    JEL: E42 E58 N14 N24
    Date: 2019
  51. By: Barendra Kumar Bhoi (Indira Gandhi Institute of Development Research); Abhishek Kumar (Indira Gandhi Institute of Development Research); Prashant Mehul Parab (Indira Gandhi Institute of Development Research)
    Abstract: This paper evaluates the rule-based interest rate policy for India since 2000 Q1, which has become more relevant in the flexible inflation targeting (FIT) regime. Based on results of the reduced form Taylor-rule, we observed two episodes of possible policy errors since 2001. First, in the aftermath of the global financial crisis, RBI brought down repo rate much below the level warranted by the Taylor rule that fueled inflation. Moreover, monetary policy tightening, followed thereafter, during March 2009 to June 2011 was insufficient in controlling prices. Second, despite favorable supply shocks, repo rate was above the rule-based policy rate during June 2013 to March 2016, leading to very high real interest rate. In the post-crisis period, we observed significant increase in the interest rate persistence, which could be attributed to RBI's reluctance to cut policy rate despite softening of inflation, leading to growth slowdown. Our results suggest that the optimal policy rate ranges from 4 to 5 for the last quarter of 2018. Actual repo rate at 6.5 in December 2018 was 150 to 250 basis points above the optimal rate. RBI has reduced repo rate by a cumulative 110 basis points since December 2018. As the negative output gap has widened and inflation remains subdued, there is scope to cut the repo rate further.
    Keywords: Optimal Monetary Policy, Flexible Inflation Targeting, Taylor Rule, Growth Slowdown
    JEL: E47 E52 E58
  52. By: Maurice Obstfeld (Peterson Institute for International Economics)
    Abstract: This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that US monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest, r*) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the US economy from the disproportionate impact of US monetary policy on the outside world. In themselves, global factors need not undermine a central bank's ability to control the price level over the long term--after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.
    Keywords: Monetary policy, natural rate of interest, Phillips curve, current account, capital flows, policy spillbacks
    JEL: E52 F32 F41
    Date: 2019–10
  53. By: Michael D. Bordo; Pierre Siklos
    Abstract: The process of central bank (CB) evolution by emerging market economies (EMEs), including central bank independence (CBI) and transparency (CBT), converged towards that of the advanced economies (AEs) before the Global Financial Crisis (GFC) of 2007-2008. It was greatly aided by the adoption of inflation targeting. In this paper we evaluate this convergence process for a representative set of EMEs and AEs since the disruption of the GFC. We use several measures of institutional development (changes in CBI, changes in CBT, changes in a new index of institutional resilience and changes in a new measure of CB credibility). We then use panel VARs based on both factor models and observed data to ascertain the impact of global shocks, financial shocks, trade shocks and credibility shocks on the EMEs versus the AEs. We find that although some EMEs did maintain the levels of CBI and CBT that they had before the crisis, on average they experienced a decline in institutional resilience to shocks and in the quality of their governance. Moreover it appears that CB credibility in EMEs was more fragile than was the case for the AEs in the face of the global shocks (from the US) than was the case for the AEs.
    JEL: E52 E58 F0
    Date: 2019–10
  54. By: Tsukhlo Sergey (Gaidar Institute for Economic Policy)
    Abstract: Prolonged period of industrial business surveys conducted by the Gaidar Institute and representative range of indicators permit to resolve the first task – analyze the situation in the sector in 2018 – determine the place for the year 2018 in all the 27 years since the IET launched and carried out business surveys between 1992–2018. For this purpose, we will use aggregate indicators. The latter are usually calculated on a monthly basis on the findings obtained from monthly surveys. They became widely popular owing to promptness of the findings and shortage of data released on the Russian industrial sector. However, this approach to present surveys’ findings complicates assessment of each year as a whole. That is why we analyze all consolidated indicators in a year-on-year basis
    Keywords: Russian economy, industrial sector, industrial output
    JEL: C53 E37 L21 L52
    Date: 2019
  55. By: Degiannakis, Stavros; Filis, George
    Abstract: Forecasting the economic policy uncertainty in Europe is of paramount importance given the on-going sovereign debt crisis. This paper evaluates monthly economic policy uncertainty index forecasts and examines whether ultra-high frequency information from asset market volatilities and global economic uncertainty can improve the forecasts relatively to the no-change forecast. The results show that the global economic policy uncertainty provides the highest predictive gains, followed by the European and US stock market realized volatilities. In addition, the European stock market implied volatility index is shown to be an important predictor of the economic policy uncertainty.
    Keywords: Economic policy uncertainty, forecasting, financial markets, commodities markets, HAR, ultra-high frequency information
    JEL: C22 C53 E60 E66 G10
    Date: 2019
  56. By: Bertha C. Bangara
    Abstract: The existing literature is clear that low income economies tend to suffer from foreign exchange shortages exacerbated by their exports. Most importantly, the concentration of their exports renders these countries susceptible to international price fluctuations. This frequently affects the level of foreign exchange, causing excess demand for foreign exchange leading to foreign exchange shortages. Using a four-sector New Keynesian dynamic stochastic general equilibrium (DSGE) model with foreign exchange constraints faced by importing rms, we calibrate the model to Malawian economy to investigate the implications of foreign exchange constraints on key macroeconomic variables in low income import dependent economies. We demonstrate that imports are a vital part of the production process for LIEs and determine the response and direction of output and consumption. Second, the degree of the foreign exchange constraint determines the degree of variability of the shock, but, does not change the direction of the shock. Third, increasing imports in an effort to increase productivity reduces output and consumption and induces a depreciation of the exchange rate. Fourth, the model illustrates that the domestic contractionary monetary policy produces the conventional results on output, consumption and other variables.
    Keywords: Low income economies, Foreign Exchange Constraints, DSGE, Malawi
    JEL: E32 F31 F35 O55
    Date: 2019–09
  57. By: Elmi Aziri (Faculty of Contemporary Social Science, South East European University, Tetovo)
    Abstract: The Republic of Macedonia is considered a developing country and is still in transition and is accompanied by numerous macroeconomic problems such as high unemployment, high interest rates, low level of domestic investment. Therefore, the main purpose of this paper is to present and explain, based on concrete facts and relevant results of economic activity in the Republic of Macedonia, the occurrence of interest rates, their level, their causes and their impact on other economic processes, with particular emphasis gross domestic production and economic growth. By using regression analysis and small squares estimation (OLS) we will present variables links that will help us better investigate this phenomenon. The data we will present below date from 1993 to 2013. Earlier scholars of this phenomenon have verified the close correlation of interest rates with economic development. The data, the analysis and the conclusions to be drawn in this paper show the close and negative link between the interest rate and the economic growth of the Republic of Macedonia.
    Keywords: interest rates, economic growth, GDP, monetary measures, economic development
    Date: 2019–10
  58. By: Bahri Yilmaz (Sabanci University, Koc University)
    Abstract: The main aim of this paper is to analyze US-China trade relations and the so-called “trade war” between the two countries. As a first step, we will look at the trade relations between the two countries and explain why President Trump is eagerly following a protectionist trade policy toward China and fighting with some of America’s oldest trading partners. Finally, we will focus on the possible effects of the trade war on both countries’ economies. The US and EU governments and other leading economic actors have underestimated China’s rapid eco-nomic growth and were unprepared for the dawning of new economic power. Forty years lat-er, the first reaction to new economic power and its expansionary economic policy came from US President Donald Trump and later by the EU and Germany. The trade conflict be-tween the United States and China has not yet affected trade flows, which are still growing in favour of China. Despite the Trump administration’s penalty tariffs on China, the US trade deficit in goods with the country could not be reduced at all. Obviously, the initial round of tariffs imposed by the United States has not stopped Chinese firms from exporting more goods to the United States in the last year. For the time being, nobody can make any predic-tions about the outcome of the trade war. It seems nobody can easily win this war, and it will be costly. The continuation of the trade war between China and the United States will more or less cause strong economic turbulence in every nation as long as both Trump and Xi hold on tight to their trade policies and do not be-have as responsible statesmen. As a final state-ment, to borrow words from Paul Krugman, “at this rate, we may have to wait for a new pres-ident to clean up this mess, if she can.”
    Keywords: China, USA, Trade War, Mercantilism, Exchange Change Regime.
    JEL: E6 F1 F4 N1
    Date: 2019–10
  59. By: Jorge E. Galán (Banco de España); Matías Lamas (Banco de España)
    Abstract: Booming house prices have been historically correlated with the loosening of banks’ lending standards. Nonetheless, the evidence in Spain shows that the deterioration of lending policies may not be fully captured by the popular loan-to-value (LTV) ratio. Drawing on two large datasets comprising more than five million mortgage operations that cover the last financial cycle, we show that the LTV indicator may exhibit a misleading picture of actual mortgage credit imbalances and risk. In turn, risk identification improves when other metrics are considered. In particular, we show that loan-to-price (LTP) as well as ratios that consider the income of borrowers are major determinants of mortgage defaults. Moreover, we identify relevant non-linear effects of lending standards on default risk. Finally, we document that the relationship between lending standards and default rates changes over the cycle. Overall, the findings provide useful insights for the design of the macroprudential policy mix and, in particular, for the implementation of borrower-based measures.
    Keywords: housing market, lending standards, defaults, macroprudential policy
    JEL: C25 E58 G01 G21 R30
    Date: 2019–10
  60. By: Lepetyuk, Vadym; Maliar, Lilia; Maliar, Serguei
    Abstract: The Canadian economy was not initially hit by the 2007-2009 Great Recession but ended up having a prolonged episode of the effective lower bound (ELB) on nominal interest rates. To investigate the Canadian ELB experience, we build a "baby" ToTEM model -- a scaled-down version of the Terms of Trade Economic Model (ToTEM) of the Bank of Canada. Our model includes 49 nonlinear equations and 21 state variables. To solve such a high-dimensional model, we develop a projection deep learning algorithm -- a combination of unsupervised and supervised (deep) machine learning techniques. Our findings are as follows: The Canadian ELB episode was contaminated from abroad via large foreign demand shocks. Prolonged ELB episodes are easy to generate in open-economy models, unlike in closed-economy models. Nonlinearities associated with the ELB constraint have virtually no impact on the Canadian economy but other nonlinearities do, in particular, the degree of uncertainty and specific closing condition used to induce the model's stationarity.
    Keywords: central banking; clustering analysis large-scale model; deep learning; Machine Learning; neural networks; New Keynesian Model; supervised learning; ToTEM; ZLB
    JEL: C61 C63 C68 E31 E52
    Date: 2019–09
  61. By: Daan Steenkamp
    Abstract: This paper provides estimates of the elasticity of substitution and total factor productivity (TFP) for South Africa. Estimates are based on constant elasticity of substitution (CES) production functions. Estimates of potential output and the output gap implied by different CES model specifications are also compared to those from other models.
    Keywords: constant elasticity of substitution, production functions, productivity, Output gap
    JEL: E23 E25 O41 D33
    Date: 2019–07
  62. By: Döhrn, Roland
    Abstract: Die Volkswirtschaftlichen Gesamtrechnungen (VGR) der Länder werden oft als Erfolgsnachweis der Wirtschaftspolitik eines Bundeslandes verwendet. Allerdings werden die Angaben im Laufe der Zeit erheblich revidiert. Dadurch ändert sich die Positionierung der Länder in einer "Wachstumsrangliste" im Laufe der Zeit erheblich. Der vorliegende Beitrag analysiert Revisionen der VGR der Länder. Er zeigt, dass die Angaben zum BIP kräftiger revidiert werden als die zum Arbeitsmarkt, so dass die daraus abgeleitete Produktivität im Zuge des Revisionsprozesses stark variiert. Überraschend sind die kräftigen Revisionen der Deflatoren, da auf der Ebene der Wirtschaftsbereiche für alle Länder einheitliche Preisindizes verwendet werden. Besonders ausgeprägt sind die Revisionen aller Größen beim Baugewerbe. Eine Plausibilisierung der Angaben der VGR der Länder mit Hilfe von Länderergebnissen der Konjunkturumfragen der IHK für fünf große Bundesländer zeigt, dass erstere die konjunkturellen Unterschiede zwischen den Ländern überzeichnen könnten. Alles in allem liefert die Evaluation der Revisionspraxis Hinweise, wie die Revisionen der VGR der Länder verringert werden könnten. So sollten den weniger revisionsanfälligen Angaben zum Arbeitsmarkt ein höheres Gewicht beigemessen und die Produktivität und die Deflatoren als Kontrollgrößen verwendet werden.
    Keywords: Volkswirtschaftliche Gesamtrechnungen der Länder,Datenrevisionen
    JEL: C82 E01 E66
    Date: 2019
  63. By: xavier Ragot (SciencesPo)
    Abstract: We present a projection theory on the space of idiosyncratic histories for heterogeneous-agents models. This allows solving for optimal Ramsey policies in heterogeneous-agent models with aggregate shocks, using a Lagrangian approach. In addition, it allows improving current simulation methods using perturbation techniques, by using more steady-state information. We apply this to study the optimal level distorting tax on labor and unemployment insurance over the business cycle in a production economy. In the quantitative exercise, the average optimal replacement rate is 10% higher than the one implies by a sufficient-statistics approach, due to saving distortions. Moreover, the optimal replacement rate is countercyclical.
    Date: 2019
  64. By: Nwaobi, Godwin
    Abstract: Indeed, the world economy is a complex system that has undergone many different phases in the past century. Particularly, the African economy is undergoing a series of transformations (transitions) that subject the future to considerable uncertainty, complexity and unpredictability. In fact, some transformations are cyclical while others are longer-term and more structural in nature. Yet, these transitions or emergence interact in shaping the future; making extrapolation from the past an increasingly unreliable source for future predictions. Thus unlike the previous revolutions, the fourth industrial revolution is characterized by the emergence of various technologies such as virtual (augmented) realities, nanotechnologies, 3D printing, machine learning, big data, cloud computing, drones, autonomous vehicles, robotics, artificial intelligence and blockchain technologies. Again, in this digitization era, work is constantly reshaped by technological progress, while firms adopt new ways of production and markets expand. In other worlds, digital technology brings opportunity, pave the way to create new jobs and increase productivity. Unfortunately, this paper argued that while the digital revolution has forged ahead, its analog complements (regulated entry and competition, new economy skills access and accountable institutions) have not kept pace in Africa. Consequently, African governments should formulate digital development strategies that are much broader than current ICTs strategies. That is, they should create a policy and institutional environment for technology that fosters the greatest benefits to African people of twenty-first century and beyond.
    Keywords: Africa, Digitization, Industrial Revolution, Technologies, Disruptions, Development, Old Work, Innovation, Automation, ICTs, E-commerce Robotics, Artificial Intelligence Block Chain, Cryptology, Fintech, Productivity, New Skills, Human Capital, Institutions, Policies, Emergence, Transformations, Economies, Analog Complements, Unemployment, New Jobs, Social Protection
    JEL: D80 D83 E24 E60 G10 I2 J10 J40 J6 J60 L50 O10 O30 O31 O33 O38
    Date: 2019–10–03
  65. By: Adrien Auclert (Stanford); Ludwig Straub (Harvard); Matthew Rognlie (Northwestern University)
    Abstract: We estimate a Heterogeneous-Agent New Keynesian model that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic ev- idence on the impulse response to a monetary policy shock. We rule out habit forma- tion as an explanation for the hump shape of output, but show that sticky information in the sense of Mankiw and Reis (2002) can rationalize both the micro and the macro data. Our estimated model implies a central role for investment in the monetary transmission mechanism.
    Date: 2019
  66. By: Brunnermeier, Markus K; Reis, Ricardo
    Abstract: The financial crises of the last twenty years brought new economic concepts into classroom discussions. This article introduces undergraduate students and teachers to seven of these models: (i) misallocation of capital inflows, (ii) modern and shadow banks, (iii) strategic complementarities and amplification, (iv) debt contracts and the distinction between solvency and liquidity, (v) the diabolic loop, (vi) regional flights to safety, and (vii) unconventional monetary policy. We apply each of them to provide a full account of the euro crisis of 2010-12.
    Keywords: Amplification; Euro crisis; financial crisis; Pecuniary externalities; safe asset; shadow banking; systemic risk; teaching
    JEL: E44 F32 G01
    Date: 2019–09
  67. By: Sebastian Di Tella (Stanford); Robert Hall (STANFORD UNIVERSITY)
    Abstract: We propose an equilibrium model of business cycles driven by risk-premium shocks that act like demand shocks for investment. There are no nominal rigidities. Instead, the main short-run friction is that capital and labor cannot be immediately reallocated. This creates a countercyclical labor wedge that depresses employment, investment, and consumption. We model risk-premium shocks in a general way that nests most asset pricing theories, but treat it as an exogenous residual and discipline it with asset- pricing data. We calibrate the model using sectoral employment data, and show that risk-premium shocks create quantitatively realistic business cycles.
    Date: 2019
  68. By: Renato Faccini (Queen Mary University); Leonardo Melosi (Chicago Fed)
    Abstract: Low-frequency variations in current and expected unemployment rates are important to identify TFP news shocks and to allow a general equilibrium rational expectations model to generate Pigouvian cycles: a large fraction of the comovement of output, consumption, investment, employment, and real wages is explained by changes in expectations unrelated to TFP fundamentals. The model predicts that the start (end) of most U.S. recessions is associated with agents realizing that previous enthusiastic (lukewarm) expectations about future TFP would not be met.
    Date: 2019
  69. By: Döttling, Robin; Perotti, Enrico C
    Abstract: We study long term effects of the technological shift to intangible capital, whose creation relies on the commitment of skilled human capital in firm production. Humancapital cannot be owned, so firms need less financing. Human capital cannot be credibly committed so firms need to reward it by deferred compensation, diluting future profits. As human capital income is not tradeable, total investable assets fall. The general equilibrium effect is a gradual fall in interest rates and a re-allocation of excess savings into rising valuations of existing assets such as real estate. The concomitant rise in house prices and wage inequality leads to higher household leverage.
    Keywords: excess savings; Human Capital; Intangible Capital; knowledge based technological change; mortgage credit; skill premium
    JEL: D33 E22 G32 J24
    Date: 2019–09
  70. By: Efstathiou, Konstantinos; Wolff, Guntram B.
    Abstract: We use a newly-compiled dataset to investigate whether and why European Union countries implement the economic policy recommendations they receive from the EU. We find that implementation rates are modest and have worsened at a time when the economic environment has improved and market pressure on sovereigns has subsided. Implementation has deteriorated in particular among countries designated as having 'excessive' macroeconomic imbalances. We then empirically test three factors that could influence implementation rates: (i) the macroeconomic environment; (ii) pressure from financial markets; and (iii) the strength of EU-level macroeconomic surveillance. The econometric estimates indicate that larger fiscal and current account deficits and a higher probability of sovereign default increase the likelihood of implementation. However, stronger surveillance under the Macroeconomic Imbalances Procedure (MIP) does not seem to drive implementation rates. The quality of governance, the fragmentation of government coalitions and fewer recommendations received are connected to increased implementation, whereas for countries under the MIP, implementation slowed during election years. Finally, recommendations on financial services have a much greater chance of being implemented, whereas those on broadening the tax base, the long-term sustainability of public finance and pension systems, and competition in services are much less likely to be implemented. Overall, economic fundamentals and political economy factors provide only a small part of the answer to the question of why countries reform: ultimately, reform decisions are down to factors outside of the models.
    Date: 2019–09
  71. By: Eduardo Levy Yeyati
    Abstract: The past 5 years have witnessed a flurry of RCT evaluations that shed new light on the impact and cost effectiveness of Active Labor Market Policies (ALMPs) aiming to improve workers´ access to new jobs and better wages. We report the first systematic review of 102 RCT interventions comprising a total of 652 estimated impacts. We find that (i) a third of these estimates are positive and statistically significant (PPS) at conventional levels; (ii) programs are more likely to yield positive results when GDP growth is higher and unemployment lower; (iii) programs aimed at building human capital, such as vocational training, independent worker assistance and wage subsidies, show significant positive impact, and (iv) program length, monetary incentives, individualized follow up and activity targeting are all key features in determining the effectiveness of the interventions.
    Keywords: vocational training, labor policies, wage subsidies, randomized controlled trials
    JEL: J21 J48 E24
    Date: 2019–07
  72. By: Margaret Jacobson (Indiana University)
    Abstract: This paper investigates the quantitative importance of the interaction of beliefs with credit conditions in explaining the run-up of house prices during the U.S. housing boom. To allow for interacting beliefs and credit conditions while maintaining computational tractability, I will introduce adaptive expectations into a general equilibrium life-cycle model with aggregate risk, incomplete markets, and defaultable debt. I will compare results from the model solved under adaptive expectations derived from ZIP code level house price data to results solved under rational expectations. Although house prices grew by 40 percent relative to their pre-boom level in the data, positive income shocks only generate a 5 percent increase in house prices under rational expectations in the model.
    Date: 2019
  73. By: Zoe Venter
    Abstract: The relationship between monetary policy and financial stability has gained importance in recent years as Central Bank policy rates neared the zero-lower bound. The need to coordinate policy choices, to expand the scope of monetary policy measures and lastly, the need to target financial stability objectives while maintaining a primary objective of financial stability, has become essential. We use an SVAR model and impulse response functions to study the impact of monetary policy shocks on three proxiesforfinancial stabilityas well as a proxy for economic growth. Our main results show that the Central Bank policy rate may be used to correct asset mispricing due to the inverse relationship between the policy rate and the stock market index. The results also show that, in line with theory,the exchange rate appreciates following a positive interest rate shock. Although the impact is only statistically significant for industrial production for the case of the UK, conventional monetary policy may indeed be able to contribute to financial stability when used in conjunction with alternative policy choices.
    Keywords: Monetary Policy, Financial Stability, Structural Vector Autoregressive Model
    JEL: E52 F42 F34 F55
    Date: 2019–09
  74. By: Ian Dew-Becker; Stefano Giglio; Bryan T. Kelly
    Abstract: We study the pricing of uncertainty shocks using a wide-ranging set of options that reveal premia for macroeconomic risks. Portfolios hedging macro uncertainty have historically earned zero or even significantly positive returns, while those exposed to the realization of large shocks have earned negative premia. The results are consistent with an important role for "good uncertainty". Options for nonfinancials are particularly important for spanning macro risks and good uncertainty. The results dictate the role of uncertainty and volatility in structural models and we show they are consistent with a simple extension of the long-run risk model.
    JEL: E32 G12 G13
    Date: 2019–09
  75. By: Sebastian Edwards
    Abstract: In this paper I discuss the ways in which populist experiments have evolved historically. Populists are charismatic leaders that use a fiery rhetoric to pitch the interests of “the people” against those of banks, large firms, multinational companies, the IMF, and immigrants. Populists implement redistributive policies that violate the basic laws of economics, and in particular budget constraints. Most populist experiments go through five distinct phases that span from euphoria to collapse. Historically, the vast majority of populist episodes end up with declines in national income. When everything is over, incomes of the poor and middle class tend to be lower than when the experiment was launched. I argue that many of the characteristics of traditional Latin American populism are present in more recent manifestations from around the globe.
    JEL: D71 D72 D74 D78 E52 E62 N16
    Date: 2019–10
  76. By: Thien Nguyen (Ohio State University)
    Abstract: This paper documents that the public debt-to-GDP ratio predicts negatively one- to five-year cumulative nominal consumption growth. Moreover, a higher debt-to-GDP ratio is associated with higher yield spreads, controlling for output gap and inflation. I examine these facts in a New Keynesian DSGE model in which growth and inflation are endogenous. In this model, high government debt forecasts low growth and deflation, making bonds attractive assets in high debt states. Furthermore, due to mean-reversions of fundamental processes that drive the economy, longer-term bonds are better hedges than shorter-term ones, resulting in increases in the slope of the term structure at times of high public debt and hence the empirical regularities seen in the data. My paper thus furthers our understanding of what determine bond yields and the impact of quantitative easing.
    Date: 2019
  77. By: Zhongchen Song; Tom Coupé (University of Canterbury); W. Robert Reed (University of Canterbury)
    Abstract: Researchers have long puzzled over China’s high saving rate. Some have hypothesized that the explanation lies with China’s One-Child Policy (OCP). According to this hypothesis, faced with fewer children to support them in their old age, Chinese parents increased their saving to finance retirement. Previous research relied on empirical studies of the relationship between children and saving behavior. However, all of these studies based their analysis on data after the OCP was implemented. Their implicit counterfactual for China without an OCP was households with multiple children living in an OCP environment. In contrast, we compare Chinese people with people from regions that do not have restrictive population policies (Taiwan, Hong Kong, Singapore, Malaysia, Japan, and South Korea). These regions share many cultural and demographic characteristics with China that suggest they can be used as a counterfactual for China. This approach also enables us to employ a Blinder-Oaxaca decomposition procedure to identify the different channels by which children could affect savings. Our main finding is that there is little difference in the saving behavior of Chinese people with their regional counterfactuals. This is evidence against the hypothesis that the OCP was a major contributor to China’s high saving rate. It also suggests that the recent relaxation of the OCP cannot be counted upon to boost Chinese consumption.
    Keywords: China, One-Child Policy, Saving rate, Demographics, Blinder-Oaxaca decomposition
    JEL: D14 E21 J13 J18 O10
    Date: 2019–10–01
  78. By: Niklas Engbom (Federal Reserve Bank of Minneapolis)
    Abstract: This paper asserts that separation rate shocks are a dominant source of business cycle fluctuations in the vacancy-to-unemployment ratio, overturning conventional wisdom. Motivated by new micro-data, I develop a richer model of the hiring process in which unemployed and employed workers decide what positions to apply for based on an imperfect signal of how good a fit they would be, while firms screen applicants to determine whom to hire. Because the unemployed apply for many positions that they are unlikely to be a good fit for, it is harder for firms to ascertain who is qualified for the job during periods of high unemployment, dampening incentives to create jobs. By highlighting an additional source of congestion in labor markets, I find that separation rate shocks explain two thirds of business cycle volatility in the vacancy-to-unemployment ratio and generate a strong negative Beveridge curve, in line with the data.
    Date: 2019
  79. By: Vallecilla Gordillo, Jaime
    Abstract: Resumen: El artículo contiene una revisión de las principales mediciones del PIB y otras mediciones macroeconómicas en el nivel departamental y municipal en el periodo 1950-2017. Se espera que esta revisión pueda ser de utilidad para las investigaciones sobre la economía regional y urbana de Colombia al señalar sus limitaciones metodológicas y temporales. El común denominador de las diversas mediciones, básicamente PIB departamental y de Bogotá, es su discontinuidad y el reducido número de años de estas estimaciones, exceptuando aquellas realizadas por el DANE, Planeación Departamental de Antioquia y Valle, CEGA y el autor (hasta 2011). Con la serie del PIB del DANE, y la que fue iniciada en CEGA y continuada por el autor, es posible ampliar el horizonte temporal al periodo 1975-2017 e incluso extenderlo hasta mediados del siglo XX. / Abstract : This article contains a review of the main measurements of GDP and other macroeconomic measures at the departmental and municipal level in the period 1950-2017. It aims at being useful for research on the regional and urban economics of Colombia by pointing out methodological and temporary limitations. The common denominator of the several measurements, basically of departmental and Bogota’s GDP, is the discontinuity and the reduced number of years of these estimates, except those calculated by DANE, departmental planning of Antioquia and Valle, CEGA and the author (until 2011). GDP series calculated by DANE, and those initiated by CEGA and continued by the author, can be extended to the period 1975-2017 and back further into the mid-twentieth century.
    Keywords: cuentas macroeconómicas regionales, medición del PIB departamental, agregación económica, datos macroeconómicos.
    JEL: C82 E01 R11 R15
    Date: 2017–12–01
  80. By: Eduardo Levy Yeyati
    Abstract: Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effects empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate.
    Keywords: international reserves, exchange rate policy, capital flows, financial crisis
    JEL: E42 E52 F33 F41
    Date: 2019–05
  81. By: Shin-ichi Fukuda (Faculty of Economics, The University of Tokyo); Naoto Soma (Faculty of Economics, The University of Tokyo)
    Abstract: In literature, a number of studies argued that an explicit inflation targeting regime provides less uncertainty about future inflation rates through anchoring expectations. However, it is far from clear whether the argument still holds true when the central bank faces a serious difficulty in achieving the target. The Bank of Japan (BOJ) is a central bank that has adopted an explicit inflation target but faced a serious difficulty in achieving it. The purpose of this paper is to explore whether the explicit inflation targeting regime could anchor inflation expectations in Japan. In the analysis, we estimate panel Phillips curves by using Japanese forecaster-level data of “ESP Forecast†. We find significant structural changes in how to form inflation expectations. Before the BOJ announced the 2% inflation target, the estimated anchor of inflation expectations was negative. The new target increased the estimated anchor to significant positive values. This suggests that the BOJ’s explicit inflation target could partly anchor inflation expectations. However, the estimated anchor has never reached the target. More importantly it started to decline when it turned out that the 2% target would not be feasible in the short-run. This implies that an explicit inflation targeting needs to be a feasible one to anchor inflation expectations persistently.
    Date: 2019–01
  82. By: Walker Ray (UC Berkeley)
    Abstract: With conventional monetary policy unable to stabilize the economy in the wake of the global financial crisis, central banks turned to unconventional tools. This paper embeds a model of the term structure of interest rates featuring market segmentation and limits to arbitrage within a New Keynesian model to study these policies. Because the transmission of monetary policy depends on private agents with limited risk-bearing capacity, financial market disruptions reduce the efficacy of both conventional policy as well as forward guidance. Conversely, financial crises are precisely when large scale asset purchases are most effective. Policymakers can take advantage of the inability of financial markets to fully absorb these purchases, which can push down long-term interest rates and help stabilize output and inflation.
    Date: 2019
  83. By: Niccolò Fraccaroli (DEF University of Rome "Tor Vergata")
    Abstract: Supervisory governance is believed to affect financial stability. While the literature has identified pros and cons of having a central bank or a separate agency responsible for microprudential banking supervision, the advantages of having this task shared by both institutions have received considerably less attention in the literature. Shared supervision has however inherent benefits for the stability of the banking system, as it increases the costs of supervisory capture: capturing a single supervisor, be it the central bank or an agency, has in fact lower costs than capturing two. Nevertheless, while this argument has been proposed theoretically, it has never been tested empirically. This paper fills this void introducing a new dataset on the supervisory governance of 116 countries from 1970 to 2016. It finds that, while nonperforming loans are not significantly affected by supervisory governance per se, they are significantly lower in countries where supervision is shared and the risk of capture is high. This last result, which is robust to a number of controls and robustness checks, proves new evidence in support of the detrimental impact of shared supervision on supervisory capture.
    Keywords: banking supervision, supervisory capture, NPLs
    JEL: G18 G38 E58 P16 D73
    Date: 2019–10–08
  84. By: Thomas Cook (Federal Reserve Bank of Kansas City)
    Abstract: Economic policymaking relies upon accurate forecasts of economic conditions. Current methods for unconditional forecasting are dominated by inherently linear models that exhibit model dependence and have high data demands. We explore deep neural networks as an opportunity to improve upon forecast accuracy with limited data and while remaining agnostic as to functional form. We focus on predicting civilian unemployment using models based on four different neural network architectures. Each of these models outperforms bench- mark models at short time horizons. One model, based on an Encoder Decoder architecture outperforms benchmark models at every forecast horizon (up to four quarters).
    Date: 2019
  85. By: Jin, Keyu
    Abstract: This paper incorporates firm-level distortions into a Melitz model and characterizes welfare under misallocation. We derive an analogue to the well-known ACR result in an economy with distortions. We highlight a channel through which trade can reduce welfare by exacerbating misallocation. A key statistic to infer welfare is the gap between input and output shares. Using Chinese manufacturing data for quantitative analysis, we show that trade integration can lead to a 18% welfare loss coming from a reduction in allocative efficiency. The overall gains to trade is substantially smaller than implied by standard calculations.
    Keywords: Capital and labor wedges; Gains from trade; industrial policy; Misallocation; trade liberalization
    JEL: E23 F12 F14 L25 O47
    Date: 2019–09
  86. By: Ekaterina Semerikova (Moscow School of Management SKOLKOVO); Egor Krivosheya (Moscow School of Management SKOLKOVO); Alexander Dobrynin (National Research University - Higher School of Economics)
    Abstract: This study is aimed to examine the effect caused by perception of higher card acceptance barriers on cashless revenue share of Russian merchants. The empirical testing is conducted based on two representative samples of Russian nation-wide merchants survey data collected in 2014 and 2017. The analysis considers a set of regional controls, as well as merchant-specific characteristics. The statistically significant evidence in favor of negative impact caused by perception of higher infrastructural barriers on cashless revenue share is found in both samples, while only a partial significance of higher perceived institutional and human capital barriers may be observed. No significant evidence for merchants? rationality with respect to acceptance barrier has been found based on the comparison of perceived and actual barriers effects.
    Keywords: retail payments; financial services; merchants; barriers; card acceptance
    JEL: G21 D53 E42
    Date: 2019–10
  87. By: Peter Zorn (University of Munich)
    Abstract: I document the effects of macroeconomic and sector-specific shocks on investment in disaggregate sectoral capital expenditure data. The response of sectoral investment to macroeconomic shocks is hump-shaped, just as in aggregate data. By contrast, the effects of sector-specific innovations are monotonically decreasing. I build and calibrate a model of investment with convex capital adjustment costs and rational inattention to explain these features of the data. The model matches the empirical responses of sectoral investment to both shocks. The interaction of information frictions and physical adjustment costs is key to this result.
    Date: 2019
  88. By: Boerma, Job; Karabarbounis, Loukas
    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.
    Keywords: Consumption; inequality; Leisure Productivity; time use
    JEL: D10 E21 J22
    Date: 2019–09
  89. By: Patrick Feve
    Abstract: We argue that shocks to credit supply by shadow and retail banks were key to understand the behavior of the US economy during the Great Recession and the Slow Recovery. We base this result on an estimated DSGE model featuring a rich representation of credit flows. Our model selects the two banking shocks as the most important drivers of the crisis because they account simultaneously for the fall in real activity, the decline in credit intermediation, and the rise in lending-borrowing spreads. On the other hand, in contrast with the existing literature, our results assign only a moderate role to productivity and investment efficiency shocks.
    Date: 2019
  90. By: Degiannakis, Stavros; Filis, George; Panagiotakopoulou, Sofia
    Abstract: This paper investigates the time-varying relationship between economic/financial uncertainty and oil price shocks in the US. A structural VAR (SVAR) model and a time-varying parameter VAR (TVP-VAR) model are estimated, using six indicators that reflect economic and financial uncertainty. The findings of the study reveal that static frameworks (SVAR) do not show the full dynamics of the oil price shocks effects to the US economic/financial uncertainty. This is owing to the evidence provided by the time-varying framework (TVP-VAR), which convincingly shows that uncertainty responses to the three oil price shocks are heterogeneous both over time and over the different oil price shocks. In particular, uncertainty responses seem to experience a shift in the post global financial crisis period. Thus, the conventional findings that economic fundamentals response marginally, positively or negatively to supply-side, aggregate demand and oil specific demand shocks, respectively, do not necessarily hold at all periods. Rather, they are impacted by the prevailing economic conditions at each time period. The findings are important to policy makers and investors, as they provide new insights on the said relationships.
    Keywords: Economic policy uncertainty, financial uncertainty, realized volatility, oil price shock, SVAR, TVP-VAR, US.
    JEL: C32 C51 G15 Q40
    Date: 2018
  91. By: Egor Krivosheya (Moscow School of Management SKOLKOVO; National Research University - Higher School of Economics); Polina Belyakova (National Research University - Higher School of Economics)
    Abstract: This study estimates the effect of contactless payment and various financial innovations on the frequency of payments in terms of number of transactions for different individuals at the Russian retail payments market. Using the representative nation-wide survey of 1500 individuals, it was found that various types of financial innovations promote activity of consumers at the retail payments market. This paper contributes to the existing literature in payment economics by empirically analyzing the effects of emerging and existing retail financial innovations on the consumers? behavior at Russian retail payments market. The results of the paper provide important implications for both consumers and merchants, as well as help to overcome barriers that prevent spread and use various financial innovations in the future.
    Keywords: Retail payments; payment cards; customers? behavior; financial services; benefits; financial innovation
    JEL: G21 D53 E42
    Date: 2019–10
  92. By: Gonzalo Huertas (Peterson Institute for International Economics)
    Abstract: The unrelenting surge in prices in Venezuela has crippled the economy and deepened the humanitarian crisis there. Huertas lays out a feasible stabilization plan to stop Venezuela’s hyperinflation. The extent of the humanitarian crisis and shortage of basic goods and services suggests that, on the fiscal side, a stabilization plan should focus primarily on reallocating rather than reducing spending. The authorities should avoid austerity policies and instead spend on taking care of the Venezuelan people. Stabilizing the price level while providing relief to the country’s population would require significant financial assistance from the rest of the world, so it is critical that Venezuela secure strong financial support from the international community. Successful stabilization requires a credible plan to transition to a responsible fiscal policy, the financial resources to carry it out, and the political will to sustain it.
    Date: 2019–09
  93. By: Santiago Barraza (Universidad de San Andres); Andrea Civelli (University of Arkansas)
    Abstract: Using a Vector Autoregressive framework of analysis, we show that banks contract their supply of business credit in response to an exogenous increase in economic policy uncertainty. This contraction takes two main, distinct forms. On the one hand, banks restrict their supply of spot funds, which we document using flows of loans and term loan originations. On the other, banks also curtail their provision of liquidity insurance, reducing the amount of new credit lines and embedding in them a pricing structure that reduces the probability of borrowers ever drawing down on the lines.
    Keywords: economic policy uncertainty, bank lending, business, credit
    JEL: D80 E66 G21 G28
    Date: 2019–10
  94. By: Izryadnova Olga (Gaidar Institute for Economic Policy)
    Abstract: In 2016–2018, the economic situation was characterized by the gradual recovery of GDP positive dynamics with GDP growth rates increasing from 100.3 percent in 2016 to 101.6 percent and 102.3 percent in 2017 and 2018, respectively. The GDP real volume surpassed by 1.6 percentage point the indicator of 2014, having compensated the crisis decrease seen in 2015. Unlike the conditions of the previous two years, the nature of development of the economy in 2017-2018 was determined by simultaneous growth in demand on the international and domestic markets. With a relatively favorable foreign economic situation and sustainable positive dynamics, in 2018 exports amounted to 119.4 percent (as per the methods of the system of national accounts (SNA)) as compared to 2014. With the speed-up of the growth rates of the volume of exports to 6.3 percent, in 2018 the contribution of net exports to GDP increased to 3.5 percent against the indicator of 2.8 percent a year before in comparable prices (10.0 percent against 5.3 percent in current prices). Growth in net exports had a considerable effect on the dynamics and pattern of formation of GDP and compensated the weakening of domestic market dynamics.
    Keywords: Russian economy, production, external and internal demand, GDP structure
    JEL: G28
    Date: 2018
  95. By: Jing Cynthia Wu (University of Notre Dame); Ji Zhang (PBC School of Finance, Tsinghua University)
    Abstract: In a standard open-economy New Keynesian model, the effective lower bound causes anomalies: output and terms of trade respond to a supply shock in the opposite direction compared to normal times. We introduce a tractable framework to accommodate for unconventional monetary policy. In our model, these anomalies disappear. We allow unconventional policy to be partially active and asymmetric between countries. Empirically, we nd the US, Euro area, and UK have implemented a considerable amount of unconventional monetary policy: the US follows the historical Taylor rule, whereas the others have done less compared to normal times.
    Date: 2019
  96. By: Ivan Jaccard (European Central Bank)
    Abstract: Many southern European economies experience large capital inflows during periods of expansion that are followed by abrupt reversals when a recession hits. This paper studies the dynamics of capital flows between the North and South of Europe in a two-country DSGE model with incomplete international asset markets. Over the business cycle, the direction of capital flows between the two regions can be explained in a model in which common shocks have asymmetric effects on debtor and creditor economies. This mechanism explains why aggregate consumption is more volatile in the South than in the North and generates a higher welfare cost of business cycle fluctuations in the region that experiences procyclical net capital inflows. We also study the adjustment to asymmetric financial shocks.
    Date: 2019
  97. By: Cooper Howes (UT Austin)
    Abstract: While investment in most sectors declines in response to a contractionary monetary policy shock, investment in the manufacturing sector increases. Using manually digitized aggregate income and balance sheet data for the universe of US manufacturing firms, I show this increase is driven by the types of firms which are least likely to be financially constrained. A two-sector New Keynesian model with financial frictions can match these facts; unconstrained firms are able to take advantage of the decline in the user cost of capital caused by the monetary contraction while constrained firms are forced to cut back. Counterfactual exercises suggest that aggregate investment should become more strongly countercyclical as fewer sectors face financial constraints.
    Date: 2019
  98. By: Francisco Buera (Washington University at St. Louis); Juan Pablo Nicolini (Minneapolis Fed)
    Abstract: We study a model with heterogeneous producers that face collateral and cash-in-advance constraints. A tightening of the collateral constraint results in a credit-crunch-generated recession that reproduces several features of the financial crisis that unraveled in 2007 in the United States. As a reaction to the crisis, the US government increased substantially the net supply of its liabilities (money and bonds, which at the zero bound are perfect substitutes). A calibrated model that incorporates both the credit crunch and the policy response of the government can account for a substantial fraction of the slow recovery in investment and output, as observed since the great recessio
    Date: 2019
  99. By: Zhengyang Jiang (Kellogg School of Management, Northwestern University)
    Abstract: I document a new pattern unique to the US: When the US fiscal condition is strong, the dollar is strong and continues to appreciate in the next 3 years. This pattern makes the dollar an extraordinary asset, because most assets have lower prices when their expected returns increase. A stylized model accounts for this pattern, provided that the US fiscal cycle comoves with the US investors' risk premium. This model further predicts that the US fiscal cycle explains the forward premium puzzle, the term premium, the dollar carry trade, and currency return momentum, all confirmed in the data. What makes this fiscal-currency comovement unique to the US? I conjecture its exceptional external balance sheet and its special role as the hegemon issuer of the world's reserve assets are contributing factors, and provide suggestive evidence from cross-border capital flows and official foreign reserves.
    Date: 2019
  100. By: Louphou Coulibaly (University of Montreal)
    Abstract: Monetary policy procyclicality is a pervasive feature of emerging market economies. In this paper, I propose a parsimonious theory explaining this fact in a model where access to foreign financing depends on the real exchange rate and the government lacks commitment. The discretionary monetary policy is procyclical to mitigate balance sheet effects originating from exchange rate depreciations during sudden stops. Committing to an inflation targeting regime is found to increase social welfare and reduce the frequency of financial crises, despite increasing their severity. Finally, the ability to use capital controls induces a less procyclical discretionary monetary policy and delivers higher welfare gains than an inflation targeting regime by reducing both the frequency and the severity of crises.
    Date: 2019
  101. By: Flavien Moreau (UCLA); Ludovic Panon (Sciences Po)
    Abstract: This paper develops a quantitative framework with heterogenous firms and endogenous markups to assess the macroeconomic implications of sectoral distortions to market structure, namely the existence of cartels. The direct negative welfare impact of cartels is compounded by increases in non-colluders’ prices (umbrella pricing). We then build a dataset on firm- and sector-level collusive cases constructed from the textual analysis of two decades of antitrust decisions taken by the French Competition Authority that we combine with exhaustive administrative firm microdata to test the predictions of our model.
    Date: 2019

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