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on Macroeconomics |
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Issue of 2019‒10‒21
83 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Efrem Castelnuovo |
| Abstract: | This survey features three parts. The first one covers the recent literature on domestic (i.e., country-specific) uncertainty and offers ten main takeaways. The second part reviews contributions on the fast-growing strand of the literature focusing on the macroeconomic effects of uncertainty spillovers and global uncertainty. The last part proposes a novel measure of global financial uncertainty and shows that its unexpected variations are associated to statistically and economically fluctuations of the world business cycle. |
| Keywords: | Uncertainty, uncertainty shocks, spillovers, global financial uncertainty, world business cycle |
| JEL: | C22 E32 E52 E62 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-75&r=all |
| By: | Fernández-Villaverde, Jesús; Mandelman, Federico; Yu, Yang; Zanetti, Francesco |
| Abstract: | We develop a quantitative business cycle model with search complementarities in the inter-firm matching process that entails a multiplicity of equilibria. An active static equilibrium with strong joint venture formation, large output, and low unemployment can coexist with a passive static equilibrium with low joint venture formation, low output, and high unemployment. Changes in fundamentals move the system between the two static equilibria, generating large and persistent business cycle fluctuations. The volatility of shocks is important for the selection and duration of each static equilibrium. Sufficiently adverse shocks in periods of low macroeconomic volatility trigger severe and protracted downturns. The magnitude of government intervention is critical to foster economic recovery in the passive static equilibrium, while it plays a limited role in the active static equilibrium. |
| Keywords: | Aggregate fluctuations; government spending; Macroeconomic volatility; strategic complementarities |
| JEL: | C63 C68 E32 E37 E44 G12 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13950&r=all |
| By: | OH, Joonseok; ROGANTINI PICCO, Anna |
| Abstract: | This paper illustrates how households' heterogeneity is crucial for the propagation of uncertainty shocks. We empirically show that an uncertainty shock generates a drop in aggregate consumption, job finding rate, and inflation: the aggregate consumption response is mainly driven by the consumption response of the bottom 60% of the income distribution. A heterogeneous-agent New Keynesian model with search and matching frictions and Calvo pricing rationalizes our findings. Uncertainty shocks induce households' precautionary saving and firms' precautionary pricing behaviors, triggering a fall in aggregate demand and supply. The two precautionary behaviors increase the unemployment risk of the imperfectly insured, who strengthen their precautionary saving behavior. When the feedback loop between unemployment risk and precautionary saving is strong enough, a rise in uncertainty leads to a decrease in inflation. Contrary to standard representative agent New Keynesian models, our model qualitatively and quantitatively matches the empirical evidence on uncertainty shock propagation. |
| Keywords: | Uncertainty; Inflation; Unemployment risk; Precautionary savings |
| JEL: | E12 E31 E32 J64 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2019/02&r=all |
| By: | Tanweer Akram; Huiqing Li |
| Abstract: | Nominal yields for Japanese government bonds (JGBs) have been remarkably low for several decades. Japanese government debt ratios have continued to increase amid a protracted period of stagnant nominal GDP, low inflation, and deflationary pressures. Many analysts are puzzled by the phenomenon of JGBs' low nominal yields because Japanese government debt ratios are elevated. However, this paper shows that the Bank of Japan's (BoJ) highly accommodative monetary policy is primarily responsible for keeping JGB yields low for a protracted period. This is consistent with Keynes's view that the short-term interest rate is the key driver of the long-term interest rate. This paper also relates the BoJ's monetary policy and economic developments in Japan to the evolution of JGBs' long-term interest rates. |
| Keywords: | Japanese Government Bonds; Long-Term Interest Rates; Nominal Bond Yields; Monetary Policy; Bank of Japan; John Maynard Keynes |
| JEL: | E43 E50 E58 E60 G10 G12 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_938&r=all |
| By: | Auer, Raphael; Ongena, Steven |
| Abstract: | Do macroprudential regulations on residential lending influence commercial lending behavior too? To answer this question, we identify the compositional changes in banks' supply of credit using the variation in their holdings of residential mortgages on which extra capital requirements were uniformly imposed by the countercyclical capital buffer (CCyB) introduced in Switzerland in 2012. We find that the CCyB's introduction led to higher growth in commercial lending although this was unrelated to conditions in regional housing markets. Interest rates and fees charged to the firms concurrently increased. We rationalize these findings in a model featuring both private and firm-specific collateral. |
| Keywords: | bank capital; credit; macroprudential policy; Spillovers; systemic risk |
| JEL: | E51 E58 E60 G01 G21 G28 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13942&r=all |
| By: | De Koning, Kees |
| Abstract: | According to the latest data from the OECD, from all OECD countries Denmark came out on top with an accumulated pension savings representing 199.0% of the Danish GDP. The Netherlands came second with an accumulated pension fund savings of 171% of GDP. Size matters, especially the changes in size that have taken place over time. For instance in 2007, the Assets Under Management (AUM) of all Dutch pension funds represented just 108.8% of the 2007 Dutch GDP level. Since then, Dutch pension fund assets have grown much faster than GDP levels. Size also matters for the Dutch government debt levels. In 1995 it reached its highest level of the last 24 years at 73.1% of GDP; the level stood at 56.8% in 2009 and by 2018 the level was 52.4%. Over time, Dutch Finance Ministers have managed to reduce the borrowing levels; in other words taxes were used to repay outstanding government debt levels relative to GDP levels. The 52.4% of GDP represents €406 billion in Dutch government debt for 2018. Compare this to the total savings in Dutch pension funds in 2019 of € 1428 billion and it is clear that all pension funds together could potentially only invest 28.4% of their portfolio in Dutch government bonds. Of course, this is unrealistic given that some private domestic and foreign investors might wish to buy some Dutch government bonds as well. The ECB has been a buyer of bank bonds since 2015. Its Quantitative Easing program of €2.6 trillion is spread over all Eurozone countries on basis of each country’s relative share in the Eurozone GDP. With the Dutch share of 4.8% of the Eurozone GDP, such purchases amounted to €125 billion. This leaves Dutch pension funds with a much-reduced opportunity to buy Dutch bank risks. The flaws in the Dutch pension system are linked with the government’s assessment of the adequacy of providing for future pension payouts. The law states that such assessment should be made on basis of the Ultimate Forward Rate, which in 2015 was reduced to 3.3%. Three factors are currently in play: negative interest rates on government bonds; diminished Dutch bank risks on offer due to ECB’s quantitative easing and thirdly the expected slow down in economic growth, which is already manifesting itself in the sharp drop of share prices on the European stock markets. |
| Keywords: | Dutch pensions; Pension agreement; Threat of cuts in pension payments; ECB QE, |
| JEL: | E21 E24 E4 E44 E6 E62 |
| Date: | 2019–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96348&r=all |
| By: | Federico Sturzenegger (Universidad de San Andres) |
| Abstract: | This paper reviews the various macroeconomic stabilization programs implemented during the Macri government between 2015 and 2019. We find that after an initial success, each program was discontinued because of a distinct form of fiscal dominance: as pensions are indexed with a lag and represent a large portion of spending, quick disinflations jeopardize fiscal consolidation. Lack of progress on the fiscal front made these reversals unavoidable. |
| Keywords: | inflation targeting, inflation targets, fiscal policy, backward indexation, Lebacs, Macri´s Presidency |
| JEL: | E58 E62 E63 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sad:wpaper:135&r=all |
| By: | Guangling Liu; Thabang Molise |
| Abstract: | This paper develops a dynamic general equilibrium model with banking and a macro-prudential authority, and studies the extent to which the Basel III bank capital regulation promotes financial and macroeconomic stability in the context of South African economy. The decomposition analysis of the transition from Basel II to Basel III suggests that it is the counter-cyclical capital buffer that effectively mitigates the pro-cyclicality of its predecessor, while the impact of the conservative buffer is marginal. Basel III has a pronounced impact on the financial sector compared to the real sector and is more effective in mitigating fluctuations in financial and business cycles when the economy is hit by financial shocks. In contrast to the credit-to-GDP ratio, the optimal policy analysis suggests that the regulatory authority should adjust capital requirement to changes in credit and output when implementing the counter-cyclical buffer. |
| Keywords: | Bank capital regulations, Financial Stability, counter-cyclical capital buffer, DSGE |
| JEL: | E44 E47 E58 G28 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:757&r=all |
| By: | Cornel OROS (CRIEF, Université de Poitiers et LEO, Université d'Orléans); Blandine ZIMMER (LaRGE Research Center, Université de Strasbourg) |
| Abstract: | Governments fear spending disturbances. To derive their optimal scal decisions, they use the robust control approach developed by Hansen and Sargent (2005, 2008). Results show that myopic governments, being more concerned by short-term spending imperatives than by the economy's output level, react to central bank conservatism by setting high taxes, detrimental to macroeconomic performances. Consequently, delegating monetary policy to not too a conservative central bank seems appropriate. |
| Keywords: | budget uncertainty, robust control, monetary delegation. |
| JEL: | E58 E60 E62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2019-06&r=all |
| By: | Alan J. Auerbach; Yuriy Gorodnichenko; Daniel Murphy |
| Abstract: | We link detailed data on defense spending, wages, hours, employment, establishments, and GDP across U.S. cities to study the effects of fiscal stimulus. Our small-open-economy empirical setting permits us to estimate key macroeconomic outcomes and elasticities, including the responses of the labor share and the labor wedge to demand shocks and the elasticity of output with respect to labor inputs. We also decompose changes in work hours into different margins (hours per worker, the employment rate, and the labor force) and examine effects on local rental prices, wages, and firm entry. We compare our findings with the predictions of macroeconomic models and propose modifications to existing theory that can accommodate our findings. |
| JEL: | E32 E62 H5 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26365&r=all |
| 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,Structural VAR,Risk-taking channel,High-frequency identification |
| JEL: | E3 E4 E5 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:204579&r=all |
| By: | Garyn Tan |
| Abstract: | How do banks operate in a negative policy rate environment? Bank profitability is threatened by policy rate cuts in negative territory because the zero lower bound on retail deposit rates prevents banks from benefiting from cheaper deposit funding costs. Contrary to some earlier research, this paper finds that banks most affected by negative rates through this retail deposits channel increase their lending relative to less affected banks. The response is limited to mortgage lending, and is driven by banks with high household deposit ratios and banks with high overnight deposit ratios. Overall, net interest margins are unaffected, which implies that the volume effect is large enough to offset the adverse impact on bank profitability. However, the positive effect on lending dissipates as negative rates persist. This suggests that although the "reversal rate" has not been breached, it may creep up over time as banks become more limited in their options to maintain profit margins. The results also point to an important role for bank capitalisation - net interest margins of relatively highly capitalised banks are squeezed, whereas the net interest margins of less capitalised banks are unaffected. This can be explained by differences in capacity for shock absorbency. |
| Keywords: | negative rates; zero lower bound; bank lending channel; monetary policy Transmission |
| JEL: | E43 E52 E58 G20 G21 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:649&r=all |
| By: | Juan Carlos Cuestas (Department of Economics, Universitat Jaume I, Castellón, Spain); Merike Kukk (Department of Economics and Finance, Tallinn University of Technology, Estonia) |
| Abstract: | This paper investigates the mutual dependence between housing prices and housing credit in Estonia, a country which experienced rapid debt accumulation during the 2000s and big swings in house prices during that period. We use Bayesian econometric methods on data spanning 2000–2015. The estimations show the interdependence between house prices and housing credit. More importantly, negative housing credit innovations had a stronger effect on house prices than positive ones. The asymmetry in the linkage between housing credit and house prices highlights important policy implications, in that if central banks increase capital buffers during good times, they can release credit conditions during hard times to alleviate the negative spillover into house prices and the real economy. |
| Keywords: | house prices, housing credit, credit cycle, asymmetries, Bayesian |
| JEL: | E32 E44 E51 G21 R21 R31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2019/06&r=all |
| By: | Guido Ascari (Department of Economics, University of Oxford (UK).); Jacopo Bonchi (Department of Social Sciences and Economics, Sapienza University of Rome (IT).) |
| Abstract: | We investigate the possibility to reflate an economy experiencing a long-lasting zero lower bound episode with subdued or negative inflation, by imposing a minimum level of wage inflation. Our proposed income policy relies on the same mechanism behind past disinflationary policies, but it works in the opposite direction. It is formalized as a downward nominal wage rigidity (DNWR) such that wage inflation cannot be lower than a fraction of the inflation target. This policy allows to dissolve the zero lower bound steady state equilibrium in an OLG model featuring “secular stagnation” and in a infinite-life model, where this equilibrium emerges due to deflationary expectations. |
| Keywords: | zero lower bound, wage indexation, income policy, inflation expectations. |
| JEL: | E31 E52 E64 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:saq:wpaper:10/19&r=all |
| By: | Carriero, Andrea; Clark, Todd; Marcellino, Massimiliano |
| Abstract: | This paper uses a large vector autoregression to measure international macroeconomic uncertainty and its effects on major economies. We provide evidence of signi cant commonality in macroeconomic volatility, with one common factor driving strong comovement across economies and variables. We measure uncertainty and its effects with a large model in which the error volatilities feature a factor structure containing time-varying global components and idiosyncratic components. Global uncertainty contemporaneously affects both the levels and volatilities of the included variables. Our new estimates of international macroeconomic uncertainty indicate that surprise increases in uncertainty reduce output and stock prices, adversely affect labor market conditions, and in some economies lead to an easing of monetary policy. |
| Keywords: | Business cycle uncertainty; large datasets; stochastic volatility |
| JEL: | C11 E32 F44 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13970&r=all |
| By: | Olatunji A. Shobande (Business School, University of Aberdeen, UK); Oladimeji T. Shodipe (Eastern Illinois University, USA); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | The study examines the role of global predictors on national monetary policy formation for Kenya and Ghana within the New Keynesian DSGE framework. We developed and automatically calibrated our DSGE model using the Bayesian estimator, which made our model robust to rigorous stochastic number of subjective choices. Our simulation result indicates that global factors account for the inability of national Central Banks to predict the behaviour of macroeconomic and financial variables among these developing nations. |
| Keywords: | Business Cycle, Macroeconomic policy, Financial crises |
| JEL: | E32 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/066&r=all |
| By: | Olatunji A. Shobande (Business School, University of Aberdeen, UK); Oladimeji T. Shodipe (Eastern Illinois University, USA); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | The study examines the role of global predictors on national monetary policy formation for Kenya and Ghana within the New Keynesian DSGE framework. We developed and automatically calibrated our DSGE model using the Bayesian estimator, which made our model robust to rigorous stochastic number of subjective choices. Our simulation result indicates that global factors account for the inability of national Central Banks to predict the behaviour of macroeconomic and financial variables among these developing nations. |
| Keywords: | Business Cycle, Macroeconomic policy, Financial crises |
| JEL: | E32 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/066&r=all |
| By: | Svensson, Lars E.O. |
| Abstract: | How would the policy rule of forecast targeting work for the Federal Reserve? To what extent is the Federal Reserve already practicing forecast targeting? Forecast targeting means selecting a policy rate and policy-rate path so that the forecasts of inflation and employment "look good," in the sense of best fulfilling the dual mandate of price stability and maximum employment, that is, best stabilize inflation around the inflation target and employment around its maximum level. It also means publishing the policy-rate path and the forecasts of inflation and employment forecasts and, importantly, explaining and justifying them. This justification may involve demonstrations that other policy-rate paths would lead to worse mandate fulfillment. Publication and justification will contribute to making the policy-rate path and the forecasts credible with the financial market and other economic agents and thereby more effectively implement the Federal Reserve's policy. With such information made public, external observers can review Federal Reserve policy, both in real time and after the outcomes for inflation and employment have been observed, and the Federal Reserve can be held accountable for fulfilling its mandate. In contrast to simple policy rules that rely on very partial information in a rigid way, such as Taylor-type rules, forecast targeting allows all relevant information to be taken into account and has the flexibility and robustness to adapt to new circumstances. Forecast targeting can also handle issues of time consistency and determinacy. The Federal Reserve is arguably to a considerable extent already practicing forecast targeting. |
| Keywords: | Discretion and commitment; Flexible inflation targeting; monetary policy rules |
| JEL: | E52 E58 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13949&r=all |
| By: | Francesco Simone Lucidi |
| Abstract: | This paper identifies credit booms in 11 Euro Area countries by tracking private loans from the banking sector. The events are associated with both financial crises and specific macro fluctuations, but the standard identification through threshold methods does not allow to catch credit booms in real time data. Thus, an early warning model is employed to predict the explosive dynamics of credit through several macro-financial indicators. The model catches a large part of the in-sample events and signals correctly both the global financial crisis and the sovereign debt crisis in an out-of-sample setting by issuing signals in real-time data. Moreover, while tranquil booms are driven by global dynamics, crisis-booms are related to the resilience of domestic banking systems to adverse financial shocks. The results suggest an ex-ante policy intervention can avoid dangerous credit booms by focusing on the solvency of the domestic banking system and financial market's overheating. |
| Keywords: | Credit Boom; Euro Area; Early Warning; Multivariate Logit |
| JEL: | C32 G01 E32 E51 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp189&r=all |
| By: | Florian Huber (Paris Lodron University of Salzburg, Salzburg Centre of European Union Studies); Katrin Rabitsch (Institute for International Economics and Development, Department of Economics, Vienna University of Economics and Business) |
| Abstract: | In this paper, we reconsider the question how monetary policy influences exchange rate dynamics. To this end, a vector autoregressive (VAR) model is combined with a two-country dynamic stochastic general equilibrium (DSGE) model. Instead of focusing exclusively on how monetary policy shocks affect the level of exchange rates, we also analyze how they impact exchange rate volatility. Since exchange rate volatility is not observed, we estimate it alongside the remaining quantities in the model. Our findings can be summarized as follows. Contractionary monetary policy shocks lead to an appreciation of the home currency, with exchange rate responses in the short-run typically undershooting their long-run level of appreciation. They also lead to an increase in exchange rate volatility. Historical and forecast error variance decompositions indicate that monetary policy shocks explain an appreciable amount of exchange rate movements and the corresponding volatility. |
| Keywords: | Monetary policy, Exchange rate overshooting, stochastic volatility modeling, DSGE priors |
| JEL: | E43 E52 F31 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp295&r=all |
| By: | Manuel Moreno (Department of Economic Analysis and Finance, University of Castilla-La Mancha, Toledo, Spain.); Alfonso Novales (Instituto Complutense de Análisis Económico (ICAE), and Department of Economic Analysis, Facultad de Ciencias Económicas y Empresariales, Universidad Complutense, 28223 Madrid, Spain.); Federico Platania (Léonard de Vinci Pôle Universitaire, Paris La Défense, France.) |
| Abstract: | We propose a flexible yet tractable model of the term structure of interest rates (TSIR). Term structure models attempt to explain how interest rates depend on their maturities at a given point in time, characterizing the rela- tionship between short-term and long-term rates. Our model can reproduce and fit a variety of TSIR shapes by capturing cyclical fluctuations of interest rates, different monetary policy reactions as witnessed pre- and post-crisis as well as the effect of the business cycle or exogenous shocks. Our modelling approach also provides a characterization of long-term fluctuations in the mean level of interest rates unveiling the effects of monetary policy in- terventions in interest rates. Furthermore, using daily US data, we compare the empirical ability of our model to both fit and forecast the TSIR under different economic scenarios. We show that our model improves pricing and risk management by fitting and predicting interest rates more accurately and precisely than do existing TSIR models. |
| Keywords: | Term structure of interest rates; cyclical fluctuations; bond pricing; TSIR fitting performance, interest rates forecast. |
| JEL: | D53 E43 G13 C58 E32 C31 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1931&r=all |
| By: | Altavilla, Carlo; Burlon, Lorenzo; Giannetti, Mariassunta; Holton, Sarah |
| Abstract: | Exploiting confidential data from the euro area, we show that sound banks pass negative rates on to their corporate depositors without experiencing a contraction in funding and that the tendency to charge negative rates becomes stronger as policy rates move deeper into negative territory. The negative interest rate policy (NIRP) provides stimulus to the economy through firms' asset rebalancing. Firms with high current assets linked to banks offering negative rates appear to increase their investment in tangible and intangible assets and to decrease their cash holdings to avoid the costs associated with negative rates. Overall, our results challenge the commonly held view that conventional monetary policy becomes ineffective when policy rates reach the zero lower bound. |
| Keywords: | corporate channel; Lending Channel; monetary policy; negative rates |
| JEL: | D2 E43 E52 G21 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14050&r=all |
| By: | Stefan Ederer (Austrian Institute of Economic Research (AT)); Miriam Rehm |
| Abstract: | The paper investigates how including the distribution of wealth changes the demand effects of redistributing functional income. It develops a model with an endogenous wealth distribution and shows that the endogenous rise in wealth inequality resulting from a redistribution towards profits weakens the growth effects of this redistribution. Consequently, a wage-led regime becomes more strongly wage-led. A profit-led regime on the other hand becomes less profit-led and there may even be a regime switch – in this case the short-run profit-led economy becomes wage-led in the long run due to the endogenous effects of wealth inequality. The paper thereby provides a possible explanation for the instability of demand regimes over time. |
| Keywords: | Wealth, Distribution, Aggregate Demand |
| JEL: | D31 D33 E12 E21 E25 E64 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1918&r=all |
| By: | Laurentiu Guinea (Universidad Complutense de Madrid and ICAE.); Luis A. Puch (Universidad Complutense de Madrid and ICAE.); Jesús Ruiz (Universidad Complutense de Madrid and ICAE.) |
| Abstract: | In this paper we investigate how the economy responds to anticipated (news) shocks to future investment decisions. Using structural vector autoregressions (SVARs), we show that news about the future relative price of residential investment explains a high fraction of the variance of output, aggregate investment and residential investment for Spain. In contrast, for Germany it is the news shocks on business structures and equipment that explain a higher fraction of the variance of output, consumption and non-residential investment. To interpret our empirical findings we propose a stylized two-sector model of the willingness to substitute current consumption for future investment in housing, structures or equipment. The model combines a wealth effect driven by the expectation of rising house prices, with frictions in labour reallocation. We find that the model calibrated for Spain displays a response to anticipated house price shocks that stimulate residential investment, whereas for Germany those shocks enhance investment in equipment and structures. The results stress that the propagation mechanism of anticipated shocks to future investment is consistent with the housing booms in Spain. |
| Keywords: | Investment-specifi technical change; News shocks; Housing booms; Wealth eff. |
| JEL: | C32 D84 E22 E32 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1932&r=all |
| By: | Guler, Ozan; Mariathasan, Mike; Mulier, Klaas; Okatan, Nejat G. |
| Abstract: | This paper reviews the rapidly growing literature on the real effects of bank credit supply fluctuations and identifies several worthwhile avenues for future research. In terms of the transmission of credit supply shocks into real effects, we suggest to further investigate the roles of (i) private borrower information, (ii) employment protection legislation, (iii) corporate governance, (iv) bank specialization, and (v) alternative financing sources. We also call for additional analyses of how these shocks affect (vi) investment efficiency, (vii) market structure, and (viii) the allocation of human capital, and emphasize the need for more evidence on (ix) the persistency, (x) asymmetry, and (xi) heterogeneity of their effects. |
| Keywords: | Credit supply; Bank health; Real effects |
| JEL: | E22 E24 E50 G21 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96542&r=all |
| By: | Cédric Tille (IHEID, Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | The Swiss Federal government finances are in an excellent shape: debt is small (and decreasing), and carries a low interest rate. This paper reviews the prospects for the Swiss finances drawing on the recent literature. We argue that the current policy of running surpluses and paying down the debt is inefficient, and propose three alternatives. First, as the interest rate on the debt is much lower than the GDP growth rate – a pattern that is not unusual – Switzerland could stabilize the debt to GDP ratio and run a primary deficit of abut CHF 2.6 billion (0.37% of GDP). Second, the low cost of debt implies that investments in education and infrastructure are more attractive than in the past. Third, Switzerland could use its implicit asset (the trust of investors) and set up a sovereign wealth fund financed by government debt. We estimate that a fund amounting to 10% of GDP could generate an annual revenue between CHF 0.7 to 2 billion (0.1% to 0.3% of GDP), though these estimates could be refined further. |
| Keywords: | public debt, low interest rates, sovereign wealth fund, Switzerland |
| JEL: | E62 F3 H6 |
| Date: | 2019–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp14-2019&r=all |
| By: | Hang Bai; Erica X.N. Li; Chen Xue; Lu Zhang |
| Abstract: | Yes, most likely. The firm-level evidence on costly reversibility is even stronger than the prior evidence at the plant level. The firm-level investment rate distribution is highly skewed to the right, with a small fraction of negative investments, 5.79%, a tiny fraction of inactive investments, 1.46%, and a large fraction of positive investments, 92.75%. When estimated via simulated method of moments, the standard investment model explains the average value premium, while simultaneously matching the key properties of the investment rate distribution, including the cross-sectional volatility, skewness, and the fraction of negative investments. The combined effect of costly reversibility and operating leverage is the key driving force behind the model’s quantitative performance. |
| JEL: | E22 E44 G12 G14 G31 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26372&r=all |
| By: | Cédric Tille (IHEID, Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | The Swiss Federal government finances are in an excellent shape: debt is small (and decreasing), and carries a low interest rate. This paper reviews the prospects for the Swiss finances drawing on the recent literature. We argue that the current policy of running surpluses and paying down the debt is inefficient, and propose three alternatives. First, as the interest rate on the debt is much lower than the GDP growth rate – a pattern that is not unusual – Switzerland could stabilize the debt to GDP ratio and run a primary deficit of abut CHF 2.6 billion (0.37% of GDP). Second, the low cost of debt implies that investments in education and infrastructure are more attractive than in the past. Third, Switzerland could use its implicit asset (the trust of investors) and set up a sovereign wealth fund financed by government debt. We estimate that a fund amounting to 10% of GDP could generate an annual revenue between CHF 0.7 to 2 billion (0.1% to 0.3% of GDP), though these estimates could be refined further. |
| Keywords: | public debt, low interest rates, sovereign wealth fund, Switzerland |
| JEL: | E62 F3 H6 |
| Date: | 2019–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp15-2019&r=all |
| By: | Barbieri Góes, Maria Cristina |
| Abstract: | This paper develops a stylized short-run neo-Kaleckian model incorporating personal income inequality and income taxes based on You and Dutt (1996). The main goal is to investigate how changes in income taxes and personal income distribution affect output growth. The theoretical discussion of the stylized model is then empirically assessed, using data for Italy retrieved from the Survey of Household Income and Wealth published by the Bank of Italy. The empirical analysis confirms both the heterogeneity of the propensities to consume of Italian households and the dominance of absolute income effects in the Italian consumer behavior that assures the negative trade-off between inequality and aggregate demand. More specifically, it is shown that, overall, Italians are still income constrained, not allowing for a compensation of the demand-depressing effects of raising inequality via debt and wealth-based consumption. Likewise, it is argued that decreasing personal income inequality via progressive income tax reforms would have positive effects on aggregate demand, utilization, and growth. |
| Keywords: | Income inequality,Personal Income Distribution,Income Taxes,Kaleckian model |
| JEL: | D11 D12 D31 E12 E21 H24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1262019&r=all |
| By: | Lagos, Ricardo; Zhang, Shengxing |
| Abstract: | We study the transmission of monetary policy in credit economies where money serves as a medium of exchange. We find that-in contrast to current conventional wisdom in policy-oriented research in monetary economics-the role of money in transactions can be a powerful conduit to asset prices and ultimately, aggregate consumption, investment, output, and welfare. Theoretically, we show that the cashless limit of the monetary equilibrium (as the cash-and-credit economy converges to a pure-credit economy) need not correspond to the equilibrium of the nonmonetary pure-credit economy. Quantitatively, we find that the magnitudes of the responses of prices and allocations to monetary policy in the monetary economy are sizeable-even in the cashless limit. Hence, as tools to assess the effects of monetary policy, monetary models without money are generically poor approximations- even to idealized highly developed credit economies that are able to accommodate a large volume of transactions with arbitrarily small aggregate real money balances. |
| Keywords: | asset prices; Cashless; credit; leverage; liquidity; margin; monetary policy |
| JEL: | D83 E52 G12 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14057&r=all |
| By: | Maas, Benedikt |
| Abstract: | This paper introduces the Super Learner to nowcast and forecast the probability of a US economy recession in the current quarter and future quarters. The Super Learner is an algorithm that selects an optimal weighted average from several machine learning algorithms. In this paper, elastic net, random forests, gradient boosting machines and kernel support vector machines are used as underlying base learners of the Super Learner, which is trained with real-time vintages of the FRED-MD database as input data. The Super Learner’s ability to categorise future time periods into recessions versus expansions is compared with eight different alternatives based on probit models. The relative model performance is evaluated based on receiver operating characteristic (ROC) curves. In summary, the Super Learner predicts a recession very reliably across all forecast horizons, although it is defeated by different individual benchmark models on each horizon. |
| Keywords: | Machine Learning; Nowcasting; Forecasting; Business cycle analysis |
| JEL: | C32 C53 E32 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96408&r=all |
| By: | Joshua C.C. Chan |
| Abstract: | Time-varying parameter VARs with stochastic volatility are routinely used for structural analysis and forecasting in settings involving a few macroeconomic variables. Applying these models to high-dimensional datasets has proved to be challenging due to intensive computations and over-parameterization concerns. We develop an efficient Bayesian sparsification method for a class of models we call hybrid TVP-VARs - VARs with time-varying parameters in some equations but constant coefficients in others. Specifically, for each equation, the new method automatically decides (i) whether the VAR coefficients are constant or time-varying, and (ii) whether the error variance is constant or has a stochastic volatility specification. Using US datasets of various dimensions, we find evidence that the VAR coefficients and error variances in some, but not all, equations are time varying. These large hybrid TVP-VARs also forecast better than standard benchmarks. |
| Keywords: | large vector autoregression, time-varying parameter, stochastic volatility, trend output growth, macroeconomic forecasting |
| JEL: | C11 C52 E37 E47 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-77&r=all |
| By: | Lu Zhang (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | To what extent do large drops in house prices drive household consumption? Using a large panel of Dutch households over the period 2007 to 2014, when house price dropped 27%, we find a significantly positive relationship between house prices and household (durable) consumption. A 10% change in home values leads to a 0.7% change in household consumption for homeowners, but a negligible response for renters. Young and middle-aged homeowners have larger consumption sensitivities to house prices than old households. Delving into the underlying channels, a pure wealth effect can explain part of the consumption sensitivity to house prices. Furthermore, we find strong evidence that house prices affect consumption through the borrowing collateral (and precautionary saving) channel. |
| JEL: | D12 D14 E21 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:396&r=all |
| By: | Bansal, Ravi; Croce, Mariano Massimiliano; Liao, Wenxi; Rosen, Samuel |
| Abstract: | Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on medium-term growth and welfare. |
| Keywords: | growth; reallocation; Uncertainty shocks |
| JEL: | E3 E6 G18 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13964&r=all |
| By: | Stefania Albanesi; Domonkos F. Vamossy |
| Abstract: | We develop a model to predict consumer default based on deep learning. We show that the model consistently outperforms standard credit scoring models, even though it uses the same data. Our model is interpretable and is able to provide a score to a larger class of borrowers relative to standard credit scoring models while accurately tracking variations in systemic risk. We argue that these properties can provide valuable insights for the design of policies targeted at reducing consumer default and alleviating its burden on borrowers and lenders, as well as macroprudential regulation. |
| Keywords: | consumer default, credit scores, deep learning, macroprudential policy |
| JEL: | D14 E44 G21 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2019-056&r=all |
| By: | Corrado, Carol; Haskel, Jonathan; Jona-Lasinio, Cecilia |
| Abstract: | How has capital reallocation affected productivity growth since the financial cri- sis? For example, have low interest rates disrupted the reallocation process? This paper calculates the effect on productivity growth of capital reallocation between industries. It uses an accounting framework, due to Jorgenson and his co-authors, that computes the contribution of capital services to productivity growth relative to one where rates of return are equalised between sectors: if capital persists in the low return sectors, the reallocation measure falls. Using data from 11 countries (the major EU economies plus the US), in 1997-2013, we nd: (a) the contribution of capital reallocation to productivity growth is lower in most economies after than before the financial crisis, notably in Mediterranean countries; (b) more capital real- location is correlated with lower real interest rates, contrary to the hypothesis that low real interest rates have hurt capital reallocation; (c) controlling for shocks, lower capital reallocation is associated with lower optimism, and weaker financial systems. |
| Keywords: | capital reallocation; Intangible Capital; Productivity Growth |
| JEL: | E01 E22 O47 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13972&r=all |
| By: | Faia, Ester |
| Abstract: | This paper studies the optimal design of equity and liquidity regulations in a dynamic macro model with information-based bank runs. Although the latter are privately efficient, since they discipline bank managers efforts into the projects' re-deploying activity, they induce aggregate externalities. Technological inefficiencies arise if bank managers extract rents which are higher than the technological costs of re-deploying projects. Pecuniary externalities arise since, when choosing leverage, bank managers do not internalize the fall in asset price ensuing from the aggregate costs of projects' liquidation in a run event. This creates scope for regulation. Equity and liquidity requirements are complementary, as the first tackles the solvency region, while the second the illiquid-solvent one. Finally, in presence of anticipatory effects prudential policies may have unintended consequences as banks adjust their behaviour when a shift in prudential regime is announced. The more so the higher the credibility of the announcement. |
| Keywords: | Basel regimes; equity requirements; information-based bank runs; liquidity requirements; Pecuniary externalities; Ramsey plan |
| JEL: | E0 E5 G01 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14055&r=all |
| By: | Li, Defu; Bental, Benjamin |
| Abstract: | Based on a general growth model, this paper finds that the steady-state direction of technological progress is determined by the scale return of the production function and the relative factor supply elasticities. A specific version of that model extends Acemoglu (2002) to provide the underlying determinants of the supply elasticities and demonstrates that the relative price (Hicks, 1932) and relative market size (Acemoglu, 2002) have only a short-term impact on the direction of technological progress. A consequence of the analysis is that the steady-state technological progress is purely labor-augmenting (i.e. delivers Uzawa’s steady-state theorem) if and only if the scale return of the production function is constant and the supply elasticity of capital is infinite. Analogously, an infinite labor supply elasticity is required if labor-augmenting technological progress is to be excluded prior to the Industrial Revolution. Accordingly, changing factor supply elasticities may have induced the Industrial Revolution. |
| Keywords: | Economic Growth, Direction of Technological Progress, Returns to Scale, Factor Supply Elasticities, Uzawa’s Steady-State Theorem, Industrial Revolution |
| JEL: | E13 E25 O33 O41 |
| Date: | 2019–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96509&r=all |
| By: | Lenel, Moritz; Piazzesi, Monika; Schneider, Martin |
| Abstract: | In modern monetary economies, most payments are made with inside money provided by payment intermediaries. This paper studies interest rate dynamics when payment intermediaries value short bonds as collateral to back inside money. We estimate intermediary Euler equations that relate the short safe rate to other interest rates as well as intermediary leverage and portfolio risk. Towards the end of economic booms, the short rate set by the central bank disconnects from other interest rates: as collateral becomes scarce and spreads widen, payment intermediaries reduce leverage, and increase portfolio risk. We document stable business cycle relationships between spreads, leverage, and the safe portfolio share of payment intermediaries that are consistent with the model. Structural changes, especially in regulation, induce low frequency shifts, such as after the financial crisis. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13947&r=all |
| By: | Tchoffo, Rodrigue; Nkemgha, Guivis; Paul, Tadzong |
| Abstract: | The objective of this article is to develop a policy of indirect taxation on output factors that reconciles losses in case of a waiver of the direct tax in Cameroon. This initiative would help in solving the “Anglophone crisis” in Cameroon by addressing the half of the total tax collected that amounts at CFAF 2429.15 billion to their victims. A static computable general equilibrium model has enabled us to determine the equivalent rate applicable to the labor factor that would make it possible to compensate for losses if the government shifts away from taxation of household income. This rate is 34.569% for an income tax rate of 20%. It also enables boosting growth with an impact on GDP of 7.8%. Besides, each household group that receipts all the other half of tax collected from an indirect tax rate of 10% earns on well-being whereas in case of an equal sharing only the poor households benefit from it. |
| Keywords: | taxation, prices, factors, crisis, computable general equilibrium |
| JEL: | C68 E62 H30 H55 |
| Date: | 2019–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96457&r=all |
| By: | Rutger Teulings (CPB Netherlands Bureau for Economic Policy Analysis); Bram Wouterse (CPB Netherlands Bureau for Economic Policy Analysis); Kan Ji (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | We estimate the contemporaneous relationship between household debt and consumption for the period 2006 to 2015. Using Dutch administrative data, we fi nd that the average consumption of households with high debt has decreased much more during the crisis than that of other households. We disentangle this into an effect through the availability of credit for direct consumption and an effect through household debt overhang. On the micro level, the consumption drop is the sharpest for the households who are less able or willing to fi nance one-off high consumption with new debts after the crisis. On the macro level, however, the drop in consumption of households who have negative home equity for a longer period had a much bigger impact on macro consumption, because their number sharply increased during the crisis. Our results suggest that precautionary savings motives among the highly indebted households contributed most to the consumption decline during the crisis. |
| JEL: | D12 D14 E21 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:395&r=all |
| By: | Adamopoulou, Effrosyni (University of Mannheim); Kaya, Ezgi (Cardiff University) |
| Abstract: | This paper explores the impact of the 2007 EU enlargement on the consumption behavior of immigrant households. Using data from a unique Italian survey and a diff-in-diff approach, we find that the enlargement induced a consumption increase for immigrants from new member states. This effect concerned both undocumented and documented immigrants, albeit through different channels. Detailed information on immigrants' legal status and sector of employment allows us to shed light on the exact mechanisms. Following the enlargement, previously undocumented immigrants experienced increases in labor income by moving away from the informal sector, whereas immigrants who were already working legally in Italy benefitted from an increased probability of getting permanent contracts. Enhanced employment stability in turn reduced uncertainty, leading to an increase in documented immigrants' consumption. |
| Keywords: | (un)documented immigrants, informality, citizenship, consumption, work permit |
| JEL: | D12 E21 F22 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12642&r=all |
| By: | Lagos, Ricardo; Zhang, Shengxing |
| Abstract: | We formulate a generalization of the traditional medium-of-exchange function of money in contexts where there is imperfect competition in the intermediation of credit, settlement, or payment services used to conduct transactions. We find that the option to settle transactions directly with money strengthens the stance of sellers of goods and services vis-a-vis intermediaries. We show this mechanism is operative even for sellers who never exercise the option to sell for cash, and that these latent money demand considerations imply monetary policy remains effective through medium-of-exchange channels even if the share of monetary transactions is arbitrarily small. |
| Keywords: | Cashless; credit; liquidity; monetary policy; money |
| JEL: | D83 E52 G12 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14051&r=all |
| By: | Daniel Kaufmann; Tobias Renkin |
| Abstract: | We analyze export price adjustment of Swiss manufacturing firms using a novel data set of matched export, import, and domestic prices. After a large, unexpected, and permanent appreciation of the Swiss franc, export prices set in domestic currency fell less than export prices set in foreign currency. This difference prevails if we control for variation in firms' marginal cost. Through the lens of a structural model, this difference can be traced back to strategic complementarity in price setting for firms pricing in foreign currency. Meanwhile, firms setting prices in domestic currency exhibit no strategic complementarity and follow a constant markup-pricing rule. |
| Keywords: | Nominal exchange rate, border prices, currency choice, variable markups, pricing-to-market, price rigidity, exchange rate pass through, exchange rate sensitive factor costs. |
| JEL: | E3 E5 F3 F4 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:irn:wpaper:19-07&r=all |
| By: | Stark, Oded; Byra, Lukasz |
| Abstract: | Drawing on a model in which utility is derived from consumption and effort (labor supply), we ask how the deportation of a number of undocumented migrants influences the decisions regarding labor supply, consumption, and savings of the remaining undocumented migrants. We assume that the intensity of deportation serves as an indicator to the remaining undocumented migrants when they assess the probability of being deported. We find that a higher rate of deportation induces undocumented migrants to work harder, consume less and, as a result of those responses, to save more. Assuming that the purpose of deportation policy is to reduce the aggregate labor supply of undocumented migrants in order to raise the wages of low-skilled native workers, we conclude that the policy can backfire: an increase in the labor supply of the remaining undocumented migrants can more than offset the reduction in the labor supply arising from the deportation of some undocumented migrants. Simulation shows that if the number of deportations in relation to the size of the undocumented migrant workforce is small, then the combined effect of the reduction in the labor supply of the deportees and the increase in the labor supply of the remaining undocumented migrants can be that the aggregate labor supply of undocumented migrants will increase. It follows that an effective deportation policy has to involve the expulsion of a substantial proportion of the total number of undocumented migrants in the workforce. |
| Keywords: | Consumption of undocumented migrants,Labor supply of undocumentedmigrants,Savings of undocumented migrants,Aggregate labor supply ofundocumented migrants,Efficacy of a deportation policy of a number ofundocumented migrants |
| JEL: | D81 E21 F22 J61 J78 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:122&r=all |
| By: | Iwasaki, Ichiro; Tokunaga, Masahiro |
| Abstract: | In this paper, we perform a meta-analysis of foreign direct investment in transition economies. The first part examines how transition-specific factors affect FDI in CEE and FSU countries. The latter part explores how large is the impact of FDI on macroeconomic growth in the region. The results of meta-analysis revealed that empirical results reported in previous studies present the close relationship between the progress in transition to a market economy and FDI and a positive effect of FDI on macroeconomic growth in the literature as a whole; this suggests that, in transition economies, the success of transformation towards a marketoriented system and foreign capital flow has created a kind of virtuous cycle. |
| Keywords: | transition economies, foreign direct investment (FDI), determinants of FDI, macroeconomic impacts of FDI, meta-analysis, publication selection bias |
| JEL: | E22 F21 F23 F43 P33 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2019-8&r=all |
| By: | Bengui, Julien; Bianchi, Javier |
| Abstract: | The outreach of macroprudential policies is likely limited in practice by imperfect regulation enforcement, whether due to shadow banking, regulatory arbitrage, or other regulation circumvention schemes. We study how such concerns affect the design of optimal regulatory policy in a workhorse model in which pecuniary externalities call for macroprudential taxes on debt, but with the addition of a novel constraint that financial regulators lack the ability to enforce taxes on a subset of agents. While regulated agents reduce risk taking in response to debt taxes, unregulated agents react to the safer environment by taking on more risk. These leakages do undermine the effectiveness of macruprudential taxes, yet they do not necessarily call for weaker interventions. Quantitatively, we find that a well-designed macroprudential policy that accounts for leakages remains successful at mitigating the vulnerability to financial crises. |
| Keywords: | capital flow management; financial crises; limited regulation enforcement; macroprudential policy; regulatory arbitrage |
| JEL: | E58 F32 G28 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13951&r=all |
| By: | Shumilov, Andrei |
| Abstract: | The study compares the explanatory power of two alternative long-term determinants of the real effective exchange rate of the Russian ruble, oil prices and oil export revenues, in three variants of the error correction model. The linear model shows that during the period of managed nominal exchange rate from January 1999 to October 2014 explanatory properties of oil prices and oil export revenues are identical. In the model with structural break-in short-run parameters in November 2014 (when the Central Bank of Russia switched to a floating exchange rate and inflation-targeting policy) and in the Markov regime-switching model with two states, the oil price has higher explanatory power. This result could be explained, first, by the fact that since November 2014 oil revenue changes were mainly due to oil price movements rather than fluctuations in the volume of oil exports. In addition, information channel played an important role in the exchange rate dynamics. In this channel, with the non-instant adjustment of oil export price contracts, increase or decrease in the world price of oil forms expectations about the future rise (drop) of contract prices of exported oil, leading to an instant appreciation (depreciation) of the nominal and real exchange rates. |
| Keywords: | real effective exchange rate; Russia; oil export revenues; error correction model; Markov regime switching; impulse response functions |
| JEL: | C22 C51 E58 F31 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96400&r=all |
| By: | Crump, Richard K.; Eusepi, Stefano; Giannoni, Marc; Sahin, Aysegul |
| Abstract: | This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach which comprises reduced form models and DSGE models relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a forward-looking Phillips curve linking inflation to current and expected deviations of unemployment from its unobserved natural rate. We estimate that the natural rate of unemployment is around 4.0% toward the end of 2018 and that the unemployment gap is roughly closed. Identification of a secular downward trend in the unemployment rate, driven solely by the inflow rate, facilitates the estimation of u*. We identify the increase in labor force attachment of women, decline in job destruction and reallocation intensity, and dual aging of workers and firms as the main drivers of the secular downward trend in the inflow rate. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13939&r=all |
| By: | Tamayo, Cesar E.; Fernandez, Andres; Imrohoroglu, Ayse |
| Abstract: | This paper examines the time path of saving rates between 1970 and 2010 in Chile, Colombia, and Mexico through the lens of the neoclassical growth model. The findings indicate that two factors, the growth rate of TFP and fiscal policy, are able to account for some of the major fluctuations in saving rates observed during this period. In particular, we nd that the model accounts for the low saving rates in Chile compared to Colombia until the late 1980s and the reversal in the saving rates thereafter. Also, a combination of high TFP growth and tax reforms that substantially reduced capital taxation seems to be responsible for the impressive increase in Chile's saving rate in mid 1980s. |
| Keywords: | Total factor productivity; Saving rate; Latin America |
| JEL: | E21 O47 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:19&r=all |
| By: | Benigno, Pierpaolo; Schilling, Linda Marlene; Uhlig, Harald |
| Abstract: | We analyze a two-country economy with complete markets, featuring two national currencies as well as a global (crypto)currency. If the global currency is used in both countries, the national nominal interest rates must be equal and the exchange rate between the national currencies is a risk- adjusted martingale. We call this result Crypto-Enforced Monetary Policy Synchronization (CEMPS). Deviating from interest equality risks approaching the zero lower bound or the abandonment of the national currency. If the global currency is backed by interest-bearing assets, additional and tight restrictions on monetary policy arise. Thus, the classic Impossible Trinity becomes even less reconcilable. |
| Keywords: | cryptocurrency; currency competition; Exchange Rates; impossible trinity; independent monetary policy; uncovered interest parity |
| JEL: | D53 E4 F31 G12 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13943&r=all |
| By: | Ralph G. Lattimore |
| Abstract: | It has been over 30 years since New Zealand initiated a trade liberalisation strategy as part of its radical economic reforms. Specifically, trade policies were changed in the early 1980’s and this liberalisation was brought to a halt around 2002. This paper uses revealed comparative advantage indices of 4-digit export categories to explore the changing composition of exports from 1989 to 2018. |
| Keywords: | trade liberalisation; New Zealand exports; revealed comparative advantage |
| JEL: | D22 E61 E65 F13 F14 |
| Date: | 2019–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:19/10&r=all |
| By: | Hans-Werner Sinn |
| Abstract: | While the formal decision of the ECB Council to impose interest on Target claims and liabilities is meaningless, this paper shows that the pooling of primary interest income among national central banks in the Eurozone implies that Target and cash balances do, in fact, bear an effective rate of interest. The magnitude of this effective rate of interest is given by a weighted average of the ECB’s policy interest rates where (i) the relative country sizes and (ii) the uses of alternative sources and sinks of international liquidity flows determine the weights. Without countervailing transactions, which would effectively service the Target claims and liabilities, Target balances grow with compound interest. The payment of interest on Target balances internalizes the competitive externality that otherwise could induce excessive money supply in a decentralized monetary system of the kind characterizing the Eurozone. It also implies that the recording of Target balances in the balance sheets of national central banks is compatible with fair value accounting. |
| Keywords: | Target2, ECB, interest, competitive seignorage externality |
| JEL: | E40 F41 H60 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7878&r=all |
| By: | Arce, Fernando; Bengui, Julien; Bianchi, Javier |
| Abstract: | This paper proposes a theory of foreign reserves as macroprudential policy. We study an open economy model of financial crises, in which pecuniary externalities lead to overborrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient allocation. The optimal reserve accumulation policy leans against the wind and significantly reduces the exposure to financial crises. The theory is consistent with the joint dynamics of private and official capital flows, both over time and in the cross section, and can quantitatively account for the recent upward trend in international reserves. |
| Keywords: | financial crises; International Reserves; macroprudential policy |
| JEL: | D52 D62 F24 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13952&r=all |
| By: | Canova, Fabio; Ferroni, Filippo |
| Abstract: | We study what happens to identified shocks and to dynamic responses when the data generating process features q disturbances but less than q variables are used in the empirical model. Identified shocks are mongrels: they are linear combinations of current and past values of all structural disturbances and do not necessarily combine disturbances of the same type. Sound restrictions may be insufficient to obtain structural dynamics. The theory used to interpret the data and the disturbances it features determine whether an empirical model is too small. An example shows the magnitude of the distortions and the steps needed to reduce them. We revisit the evidence regarding the transmission of house price and of uncertainty shocks. |
| Keywords: | Deformation; dynamic responses; house price shocks; state variables; Structural models; Uncertainty shocks |
| JEL: | C31 E27 E32 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13948&r=all |
| By: | Syed Abul, Basher; Alfred A, Haug; Perry, Sadorsky |
| Abstract: | This paper investigates the impact of economic policy uncertainty shocks and shocks to commodity prices on the realized stock market volatility of the CARB (Canada, Australia, Russia, and Brazil) countries. The CARB countries are important countries to study because they are major commodity exporters. The analysis is conducted using sign restricted impulse response functions (IRFs) and structural vector-autoregressive IRFs. There are some common results across the CARB countries. A positive shock to commodity prices lowers realized stock market volatility while a shock to economic policy uncertainty has a significant positive impact on realized stock market volatility. The magnitudes of the initial impact of these two shocks are similar. Shocks to global economic activity and short-term interest rates lower realized stock market volatility. The impacts of these shocks are more pronounced in models that use sign restrictions. These results have implications for investors and policy makers. |
| Keywords: | Economic policy uncertainty; commodity prices; stock market volatility, sign restricted VAR. |
| JEL: | E60 G15 G18 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96577&r=all |
| By: | Antonio Cutanda (Department of Economic Analysis, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Juan A. Sanchis Llopis (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).) |
| Abstract: | In this paper we test the three first-order conditions of an intertemporal optimization model for a representative individual who chooses simultaneously for her level of consumption and leisure, assuming a separable utility function. We estimate these first order conditions separately and jointly using a Spanish pseudo-panel data set built by combining the Family Expenditure Survey and the Labour Survey for Spain over the period 1987-1997. Our results confirm previous empirical evidence as regards the elasticity of intertemporal substitution for consumption, that we estimate around 0.4/0.5, and provide an estimate for the leisure intertemporal elasticity around 0.2/0.3. Finally, we provide further evidence controlling for human capital. This allows checking that the model ignoring human capital produces biased estimates for the elasticity of intertemporal substitution for leisure. |
| Keywords: | Euler equation, Instrumental variables, Intertemporal Substitution, Panel data |
| JEL: | C33 C36 E21 E24 J22 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:1909&r=all |
| By: | Thorvaldur Gylfason; Gylfi Zoega |
| Abstract: | Unsustainable accumulation of debt precedes financial crises. The recent Western financial crisis was no exception in this regard. The external debt of Greece, Iceland, Ireland, and Spain increased exponentially, in Iceland at a rate higher than the rate of interest on foreign debt. The Ponzi scheme that played out in Iceland begs the question why a country would set out on a path that could lead to a financial crisis. We address this question and describe the private incentives faced by bankers, financiers, politicians and others. In particular, we show how private incentives and a culture that valued financial gains above all else collided with socially desirable outcomes. The root of the problem in Iceland as well as in other crisis countries was a failure at the state level to align private incentives with what was socially prudent, a failure due, at least in Iceland, to a combination of mistakes, incompetence and what can only be called corruption. Furthermore, misplaced belief in a market economy where morals and ethics play no role paved the way to serious lapses in accounting and in the operation of the banks. |
| Keywords: | financial crises, corruption, culture, Iceland, quality of governance, rent seeking |
| JEL: | E44 G01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7874&r=all |
| By: | Amankwah, Ernest; Atta Sarfo, Prince |
| Abstract: | This study instigates the causal linkages among money growth, inflation and interest rate in Ghana. The essence of ensuring price stability, a considerable increase in money growth that enhances economic growth and development and favorable rate of interest that encourage domestic business and foreign direct investment cannot be over emphasized. The data was extracted from two main sources. The main variable under study were money supply, interest rate and inflation rate. Other variables that affect inflation rate such as exchange rate, real gross domestic product were controlled for. Data on money supply, interest rate and exchange rate Twere extracted from world development indicator (WDI) whereas data on inflation and the GDP growth were extracted from annual report of the Central Bank. The data comprises of of missed order of cointegration. That is I (0) and I(1). So bounds test of cointegration proposed by Pesaran, Shin and Smith (2001) was used. It was found out that money growth has both short run and long run relationship with inflation and all the other variables are insignificant in influencing inflation. The Granger causality test was conducted to help find the causality among the variables of interest. The null hypothesis that inflation rate does not does not Granger cause money growth was rejected at 5% which implies that there is a uni-directional causality between inflation and money growth. It was recommended that, in an attempt of reducing inflation both in the long run and short run, increase in money supply should be reasonable. |
| Keywords: | Money growth, Inflation and Interest rate in Ghana |
| JEL: | E42 |
| Date: | 2019–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96485&r=all |
| By: | Giuseppe Marotta |
| Abstract: | The revealed preference for dominated insurance-based personal pension plans in Italy is a decade-long puzzle. I surmise that a motivation from the supply side is a sales force factor deriving from the geographical distribution of financial providers, including the countrywide network of the state controlled Post Office. I provide supporting evidence using three biennial waves of the Bank of Italy’s survey on household finances from 2010 to 2014. The time interval includes a public pension system reform sharply raising the statutory age retirement, legislated in December 2011 to defuse a sovereign debt crisis. I show that the salience effect on the awareness of the benefits of supplementing lower perspective public pensions with personal pension plans strengthened the explanatory power of financial strength indicators. Exploiting a module in the 2010 wave I estimate a surprising decrease in the probability of subscription to personal pension plans in 2014 associated to the indicator for the highest financial literacy level. |
| Keywords: | Pensions, Private pension systems, Retail financial products distribution, Italy |
| JEL: | D91 E21 G11 H55 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:mod:wcefin:0077&r=all |
| By: | Issler, João Victor; Soares, Ana Flávia |
| Abstract: | Credibility is elusive and no generally agreed upon measure of it exists. Despite that, Blinder (2000) generated a consensus in the literature by arguing that ”A central bank is credible if people believe it will do what it says”. It is very hard to argue against such a definition of credibility, being the reason why it became so popular among central bankers and academics alike. |
| Date: | 2019–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:812&r=all |
| By: | Paul J. Burke (Arndt-Corden Department of Economics, Crawford School of Public Policy, The Australian National University); Rohan Best; Frank Jotzo (Crawford School of Public Policy, The Australian National University) |
| Abstract: | Around one-third of Australia’s coal-fired power stations closed during 2012–2017, with most of the remainder expected to close over coming decades. Current investment in generation capacity is primarily in the form of alternative power, especially wind and solar. In this paper we conduct an event study to assess the local unemployment effects of Australia’s coal-fired power station closures. This is an issue of considerable interest given the prominence of coal-fired power stations in local economies. Our analysis uses monthly regional labour force survey data from the Australian Bureau of Statistics. We find that there has on average been an increase in local unemployment of around 0.7 percentage points after the closures of coal-fired power stations, an effect that tends to persist beyond the months immediately after closure. The findings raise questions about appropriate policy responses for dealing with local structural adjustment issues facing coal-reliant communities. |
| JEL: | J65 E24 L94 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:ccepwp:1809&r=all |
| By: | Accominotti, Olivier; Lucena, Delio; Ugolini, Stefano |
| Abstract: | This paper presents a detailed analysis of how liquid money market instruments â?? sterling bills of exchange â?? were produced during the first globalisation. We rely on a unique data set that reports systematic information on all 23,493 bills re-discounted by the Bank of England in the year 1906. Using descriptive statistics and network analysis, we reconstruct the complete network of linkages between agents involved in the origination and distribution of London bills. Our analysis reveals the truly global dimension of the London bill market before the First World War and underscores the crucial role played by London intermediaries (acceptors and discounters) in overcoming information asymmetries between borrowers and lenders on this market. The complex industrial organisation of the London money market ensured that risky private debts could be transformed into extremely liquid and safe monetary instruments traded throughout the global financial system. |
| Keywords: | bill of exchange; Industrial Organisation; information asymmetry; money market |
| JEL: | E42 G23 L14 N20 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14058&r=all |
| By: | Afridi, Farzana (Indian Statistical Institute); Bishnu, Monisankar (Indian Statistical Institute); Mahajan, Kanika (Ashoka University) |
| Abstract: | We highlight the role of home productivity in explaining the gender gap in labor force participation (LFP), and the non-monotonic relationship of women's LFP with their education in developing countries (India) in contrast to the developed economies (United Kingdom, U.K.). We construct a model of couples' time allocation decisions allowing for both market and home productivity to improve with own education. Our theoretical predictions match the data for India at low levels of women's education but over-predict labor supply at higher levels, unlike the U.K.. Incorporating constraints imposed by social norms regarding the gendered division of labor shows that norms can act as a binding constraint, producing much smaller increases in women's labor supply to market work at higher education levels in transition economies. Our analysis suggests that home productivity, along with social norms regarding couples' time allocation, can be critical determinants of women's labor supply in developing countries. |
| Keywords: | women's labor supply, social norms, home production, education, India, U.K. |
| JEL: | E24 J22 J16 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12666&r=all |
| By: | Colvin, Christopher L.; Winfree, Paul |
| Abstract: | As a new field of academic enquiry, applied history has a unique opportunity to learn lessons from other applied fields. In this essay, we set out how we think applied historians can learn from the mistakes of applied economists and economic policymakers in their use, and abuse, of economic theory and economic history. What we call the New Applied History has the potential to improve the way policymaking is conducted. But only if its practitioners understand the power, and limitations, of theory. We apply our ideas to the case of budgetary policymaking in the United States. |
| Keywords: | applied history,budgetary policy |
| JEL: | B15 B22 E12 E63 N12 N41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:qucehw:201907&r=all |
| By: | Reyer Gerlagh; Roweno J.R.K. Heijmans; Knut Einar Rosendahl |
| Abstract: | For any emission trading system (ETS) with quantity-based endogenous supply of allowances, there exists a negative demand shock, e.g. induced by abatement policy, that increases aggregate supply and thus cumulative emissions. We prove this green paradox for a general model and then apply it to the details of EU ETS. In 2018, new rules for a Market Stability Reserve (MSR) were agreed on and implemented. We show that abatement policies announced in early periods but realized in the future, are inverted by the new rules and increase cumulative emissions. We provide quantitative evidence of our result for a model disciplined on the price rise in the EU ETS that followed the introduction of the MSR. |
| Keywords: | emissions trading, green paradox, EU ETS, environmental policy, dynamic modeling |
| JEL: | D59 E61 H23 Q50 Q54 Q58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7862&r=all |
| By: | Perekunah B. Eregha (Pan-Atlantic University, Lekki-Lagos, Nigeria) |
| Abstract: | This study examines the effect of exchange rate regimes on Foreign Direct Investment (FDI) flow for WAMZ. The Arellano Panel Correction for Serial Correlation and Heteroskedaticity option of the Within Estimator for fixed effect panel data model as well as the Dynamic Panel Data Instrumental Variable Approach by Anderson and Hsiao (1981) for the countries selected based on data availability for the period 1980-2016 were used. The fixed exchange rate regime was found to hamper FDI flow in the zone while intermediate policy had a significantly positive effect in facilitating FDI flow during periods of declining foreign reserves and narrowing current account balance in WAMZ. This implies that the transmission of the effect of exchange rate regimes on FDI inflows depends on the positions of the foreign reserves and current account balance in the zone. Consequently, the fixed regime is not a good policy in periods of narrowing current account balance and depleting foreign exchange reserves. The study therefore recommends the need for monetary authorities to be cautious in managing their exchange rates especially in periods of depleting foreign reserves and narrowing current account so as not to deter the much needed FDI inflow. |
| Keywords: | Exchange Rate Regimes; Inflationary Expectation; Exchange rate uncertainty; Foreign Direct Investment Flow; Panel Data Analysis |
| JEL: | E31 F21 F31 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/069&r=all |
| By: | Perekunah B. Eregha (Pan-Atlantic University, Lekki-Lagos, Nigeria) |
| Abstract: | This study examines the effect of exchange rate regimes on Foreign Direct Investment (FDI) flow for WAMZ. The Arellano Panel Correction for Serial Correlation and Heteroskedaticity option of the Within Estimator for fixed effect panel data model as well as the Dynamic Panel Data Instrumental Variable Approach by Anderson and Hsiao (1981) for the countries selected based on data availability for the period 1980-2016 were used. The fixed exchange rate regime was found to hamper FDI flow in the zone while intermediate policy had a significantly positive effect in facilitating FDI flow during periods of declining foreign reserves and narrowing current account balance in WAMZ. This implies that the transmission of the effect of exchange rate regimes on FDI inflows depends on the positions of the foreign reserves and current account balance in the zone. Consequently, the fixed regime is not a good policy in periods of narrowing current account balance and depleting foreign exchange reserves. The study therefore recommends the need for monetary authorities to be cautious in managing their exchange rates especially in periods of depleting foreign reserves and narrowing current account so as not to deter the much needed FDI inflow. |
| Keywords: | Exchange Rate Regimes; Inflationary Expectation; Exchange rate uncertainty; Foreign Direct Investment Flow; Panel Data Analysis |
| JEL: | E31 F21 F31 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/069&r=all |
| By: | Zhao Chen; Xian Jiang; Zhikuo Liu; Juan Carlos Suárez Serrato; Daniel Xu |
| Abstract: | A universal fact of firm-level data is that investment is lumpy: firms either replace a considerable fraction of their existing capital (spike) or do not invest at all (inaction). This paper incorporates the lumpy nature of investment into the study of how tax policy affects investment behavior. We show that tax policy can directly impact the lumpiness of investment and that the effectiveness of tax incentives in stimulating investment depends crucially on interactions with investment frictions. We illustrate these results by studying one of the largest tax incentives for investment in recent history: China's 2009 VAT reform. Using administrative tax data and a difference-in-differences design, we document that the reform increased investment by 36% and that this effect is driven by additional investment spikes. We then simulate the fiscal cost of stimulating investment through different tax policies using a dynamic investment model that is consistent with the reduced-form effects of the reform. Policies that directly reduce the likelihood of firm inaction (e.g., investment tax credits) are more effective at stimulating investment than policies that only reduce the tax cost of investment (e.g., corporate income tax cuts). |
| JEL: | E22 H25 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26336&r=all |
| By: | Aysu Celgin; Tuba Yilmaz |
| Abstract: | [TR] Bu calismada, enflasyon uzerindeki talep ve kapasite baskilarini takip etmek uzere bir cikti acigi gostergesi turetilmektedir. Bu amacla, ilk asamada COICOP 4 ve 5-basamakli TUFE detayi kullanilarak her bir alt kalem icin ilgili iktisadi faaliyet/talep gostergeleri tespit edilmistir. Bu gostergeler, Hodrick-Prescott (HP) filtresiyle egilimlerinden arindirilarak sektorel cikti acigi serileri olusturulmustur. Bu serilerin ilgili olduklari kalemin TUFE icindeki payiyla agirliklandirilarak toplulastirilmasi yoluyla 2005-2018 donemi icin aylik frekansta takip edilebilecek bir cikti acigi gostergesi elde edilmistir. Alternatif cikti acigi gostergeleriyle karsilastirmak amaciyla 2006 C2-2018 C4 donemi icin enflasyon dinamigini yansitan standart Phillips denklemleri tahmin edilmis ve denklemler aciklayici guc (uyarlanmis R2) ile orneklem disi tahmin performanslari itibariyla degerlendirilmistir. Bulgular, cikti acigini olcmede sektorel unsurlarin da dikkate alinmasinin onemine isaret etmektedir. [EN] In this study, an output gap indicator is derived to monitor demand and capacity pressures on inflation. Accordingly, indicators for economic activity or demand are obtained for each sub-item using the COICOP 4 and 5-digit detail of the CPI. These indicators are detrended by Hodrick-Prescott (HP) filter to form sectoral output gap series. Aggregate output gap measure is calculated as the sum of sectoral output gaps weighted by the related CPI weights, which can be tracked in monthly frequency for 2005-2018 period. To analyze the comparison with alternative output gap indicators, standard Phillips curve equations are estimated for the period of 2006Q2-2018Q4 and compared in terms of their explanatory power (adjusted R2) and out-of-sample forecast performance. Results imply that taking sectoral factors into account is important while measuring output gap. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:econot:1910&r=all |
| By: | Florian Eckert; Rob J Hyndman; Anastasios Panagiotelis |
| Abstract: | This paper conducts an extensive forecasting study on 13,118 time series measuring Swiss goods exports, grouped hierarchically by export destination and product category. We apply existing state of the art methods in forecast reconciliation and introduce a novel Bayesian reconciliation framework. This approach allows for explicit estimation of reconciliation biases, leading to several innovations: Prior judgment can be used to assign weights to specific forecasts and the occurrence of negative reconciled forecasts can be ruled out. Overall we find strong evidence that in addition to producing coherent forecasts, reconciliation also leads to improvements in forecast accuracy. |
| Keywords: | hierarchical forecasting, Bayesian forecast reconciliation, Swiss exports, optimal forecast combination |
| JEL: | C32 C53 E17 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:msh:ebswps:2019-14&r=all |
| By: | Julio-Román, Juan Manuel |
| Abstract: | The adoption of a Time-Varying Vector Auto-Regression with residual Stochastic Volatility approach to address the state and time dependency of the exchange rate pass-through, ERPT, is proposed. This procedure is employed to estimate the size, duration and stability of the ERPT to flexible relative price changes in Colombia through a fairly simple Phillips curve. For this, the generalized impulse responses, i.e. pass-throughs, from different periods of time are compared. It was found that the ERPT is bigger and faster than previous estimates for broader price indexes. It was also also found that regardless of the existence of time-varying shock sizes, i.e. time varying standard deviations, the ERPT before full Inflation Targeting, IT, is marked and significantly larger before than during full IT, and also that the ERPT relates to real exchange rate volatility. The second results relates to the benefits derived from the adoption of full IT in this country. It was finally found that the output gap and flexible relative price change residual volatilities drop permanently and importantly at 1998Q3, emphasizing the role of the free float regime adoption in the success of IT in this country. |
| Keywords: | Pass-Through; Price Stickiness; Phillips Curve |
| JEL: | C22 F31 F41 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:21&r=all |
| By: | Duncan MacDonald (OECD) |
| Abstract: | This paper examines how the increase in under-employment since the financial crisis stems from both cyclical and structural factors, notably the gradual shift of employment toward more demand-driven service sectors. The increase in under-employment has disproportionately affected young, female and low-skilled workers, meaning that they face lower wage growth, particularly at the bottom of the income distribution. |
| JEL: | E32 J22 J23 |
| Date: | 2019–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:234-en&r=all |
| By: | Holzmann, Robert (University of New South Wales); Ayuso, Mercedes (University of Barcelona); Alaminos, Estefanía (University of Barcelona); Bravo, Jorge Miguel (Universidade Nova de Lisboa) |
| Abstract: | The lifecycle approach is the workhorse to model saving decisions of individuals. It conjectures individuals preferring a constant consumption stream across their lifecycle saving till retirement and dis-saving thereafter. The reality is often at odd with this assumption giving rise to our conjectured three-tier life-cycle model by income groups. The low-income tier does little saving and in consequence little dissaving; the high-income tier does save during active life and profits often from bequests, but no dissaving is taking place unless hit by a major shock; only the middle tier behaves broadly as predicted. The drivers for such a differentiated behavior are conjectured to be threefold: External settings such as a multitude of shocks; preferences deviations such a behavioral bias, and institutional settings and interventions, such as minimum income provisions. The paper outlines these corresponding hypotheses, presents some first conceptual and empirical support, and reviews the international literature on the conjectured drivers. The review of international literature does not shatter our conjecture of a broadly three-tiered and reframed applicability of the life cycle model but offers some first precisions and wrinkles. The paper proposes next conceptual and empirical steps, including enriching existing wealth distribution estimates at retirement with sound estimates of social insurance wealth (pension and health), focused hypothesis testing of the key drivers with household panel data, and formulating policy responses if the new hypotheses are not rejected. |
| Keywords: | shocks and saving/dissaving, wealth distribution, financial wealth, property, social security wealth |
| JEL: | D31 E21 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12655&r=all |
| By: | Mirela Miescu |
| Abstract: | The paper investigates the effects of uncertainty shocks in emerging economies (EMEs). We construct a global uncertainty indicator as well as country uncertainty measures for fifteen relatively small emerging economies. We adopt an instrumental variable approach to identify exogenous uncertainty shocks in the EMEs. To deal with the data limitations specific to emerging countries, we develop a new Bayesian algorithm to estimate a proxy panel structural vector autoregressive (SVAR) model. We find that uncertainty shocks in EMEs cause severe falls in GDP and stock price indexes, generate inflation, depreciate the currency and are not followed by a subsequent overshoot in activity. Estimation implies considerable heterogeneity across economies in the response to uncertainty shocks which can be (in part) explained by country characteristics. |
| Keywords: | Uncertainty shocks, proxy SVAR, Emerging economies, Panel data |
| JEL: | C3 C11 E3 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:277077821&r=all |
| By: | David Bounie (Télécom ParisTech); Abel François; Emmanuelle Politronacci; Adeline Moret |
| Abstract: | Bulletin de la Banque de France 220/2-NOVEMBRE-DÉCEMBRE 2018 L'usage des espèces en France : priorité aux transactions de faible valeur Cet article exploite les données françaises d'une enquête sur l'utilisation des espèces dans la zone euro, publiée fin 2017 pour le compte de la Banque centrale européenne. Les espèces s'avèrent être le moyen de paiement privilégié dans les points de vente de la zone euro : elles représentent trois paiements sur quatre et plus de la moitié de la valeur des achats. Les résultats par pays sont toutefois hétérogènes, la France se distinguant par un usage concentré sur les achats de petit montant et par une forte propension aux paiements scripturaux. Parmi les déterminants de l'usage des espèces, les caractéristiques sociodémographiques des consom-mateurs (genre, âge, revenu, profession) sont peu significatives. En revanche, les caractéristiques des trans actions jouent un rôle prépondérant : en particulier, la part des paiements en espèces diminue lorsque la valeur de la trans action augmente, et elle s'accroît lorsque la trans action s'effectue dans un commerce de proximité. Codes JEL E4, E41 68 % la part des paiements réalisés en espèces au point de vente en France (en volume) 73,5 % la part des achats en espèces réalisés par les Français âgés de 55 à 64 ans 90 % la part des paiements d'une valeur inférieure à 5 euros qui sont réglés en espèces |
| Date: | 2018–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02068735&r=all |
| By: | Mause, Karsten |
| Abstract: | This paper gives an overview of the topic "economic governance". This term is used in economics and neighboring social sciences as a generic term under which usually all activities are subsumed that are conducted by economic policymakers to 'steer' or 'control' the economic system, individual markets therein or certain economic actors (e.g., businesses, consumers). In addition to a more detailed clarification of the concept of "economic governance" and the presentation of actors and instruments of economic governance, the paper discusses why and in what situations economic governance is necessary. The latter issue is the subject of a continuing debate in politics, the public and the social sciences. |
| Keywords: | Governance, Economic Policy, Political Economy, Governance Research, Public Policy Analysis, Market Failure, Government Activity. |
| JEL: | D72 D78 E6 H1 L51 P16 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96468&r=all |
| By: | Egzona Hani Selimi (National Bank of the Republic of North Macedonia); Milan Eliskovski (National Bank of the Republic of North Macedonia) |
| Abstract: | The empirical literature points the financial intermediation, measured by the level of credits relative to GDP in the economy, as one of the factors which affects the current account dynamics in a given country. This paper tries to estimate and then quantify the possible impact that household and enterprise credits have on the current account deficit in North Macedonia. The motivation stems from the expectation that different kind of borrowers might vary in terms of the use of credit and thus might have different effects on macroeconomic variables. The results we get by using a vector error correction model (VECM) and data covering the 2005q1-2017q3 period, suggest that credits allocated to the household sector have a negative impact on the current account balance, while the enterprise credits have a positive and statistically significant effect on the external balance. The findings are in line with our prior expectation, given the import pressures that households’ credits might induce and the positive impact that corporate credit might have on the overall productivity and competitiveness of the economy. The study is policy-relevant as it provides quantification on the effects that different types of credits might have on the current account balance. |
| Keywords: | household credit, enterprise/corporate credit, current account balance, current account deficit |
| JEL: | F32 F41 F14 E51 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:mae:wpaper:2018-09&r=all |
| By: | Kalemli-Ozcan, Sebnem |
| Abstract: | I show that monetary policy divergence vis-a-vis the U.S. has larger spillover effects in emerging markets than advanced economies. The monetary policy of the U.S. affects domestic credit costs in other countries through its effect on global investors' risk perceptions. Capital flows in and out of emerging market economies are particularly sensitive to fluctuations in such risk perceptions and have a direct effect on local credit spreads. Domestic monetary policy is ineffective in mitigating this effect as the pass-through of policy rate changes into short-term interest rates is imperfect. This disconnect between short rates and monetary policy rates is explained by changes in risk perceptions. A key policy implication of my findings is that emerging markets' monetary policy actions designed to limit exchange rate volatility can be counterproductive. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14053&r=all |
| By: | Diewert, Erwin; Shimizu, Chihiro |
| Abstract: | While fluctuations in commercial property prices have an enormous impact on economic systems, the development of related statistics that can capture these fluctuations is one of the areas that is lagging the furthest behind. The reasons for this are that, in comparison to housing, commercial property has a high level of heterogeneity and there are extremely significant data limitations. Focusing on the Tokyo office market, this study estimated commercial property price indexes using the data available in the property market, and clarified discrepancies in commercial property price indexes based on differences in the method used to create them. Specifically, we estimated a quality adjusted price index with the hedonic price method using property appraisal prices and transaction prices. The international System of National Accounts (SNA) requires a decomposition of property values into price and volume (quantity) components for both the structure and land components of property value. The paper shows how this can be accomplished for Commercial properties. |
| Keywords: | Commercial property price indexes, System of National Accounts, the builder’s model, transaction based indexes, appraisal prices, assessment prices |
| JEL: | C2 C23 C43 D12 E31 R21 |
| Date: | 2019–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:pmicro:erwin_diewert-2019-12&r=all |
| By: | Naudé, Wim (Maastricht University) |
| Abstract: | This paper shows that African economies have generally not de-industrialized, that manufacturing growth is very possible, and moreover that the contribution of manufacturing in Africa has been underestimated. As far as the future is concerned, African countries will in differing degrees experience three varieties of industrialization, all influenced by new and emerging technologies. In one variety, labelled "acquiring traditional manufacturing capabilities" technological change is too fast and complex for some countries to immediately benefit, requiring an estimated 15-year window to put the complementary investments and business ecosystems in place, while promoting old-fashioned labor-intensive manufacturing. In a second variety, technological innovation is changing the nature of manufacturing and is turning services into the main sector for structural transformation. This variety is labelled "fostering sectors with the characteristics of manufacturing" to denote that services now perform functions previously expected from manufacturing. A third variety of future industrialization is labelled "resurgent entrepreneurship-lead industrialization" denoting that some African countries will take part in new and advanced types of manufacturing, through indigenous entrepreneurs starting high-technology firms. This third variety is elaborated with reference to recent examples. The paper concludes with broad suggestions for industrial policies that are consistent with these varieties of industrialization. |
| Keywords: | technology, entrepreneurship, manufacturing, industrial policy, Africa |
| JEL: | O47 O33 J24 E21 E25 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12678&r=all |
| By: | Mongey, Simon; Violante, Giovanni L. |
| Abstract: | We merge QCEW and JOLTS microdata to study the recruiting intensity of firms in the cross section and over time. Vast establishment-level heterogeneity in vacancy filling rates is entirely explained by differences in gross hiring rates. Through the lens of standard theory, we aggregate firm-level decisions into an measure of aggregate recruiting intensity (ARI). Procyclicality of ARI is primarily due to cutting recruiting effort in slack labor markets. Given this we provide an ARI index easily computable from publicly available macroeconomic data. Declining ARI in the Great Recession accounted for much of the increase in unemployment, but little of its persistence. |
| Keywords: | Aggregate Matching Efficiency; Firm Heterogeneity; Recruiting Intensity; unemployment; Vacancies |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14004&r=all |
| By: | Donaldson, Jason Roderick; Piacentino, Giorgia |
| Abstract: | We develop a model in which, as in practice, bank debt is both a financial security used to raise funds and a kind of money used to facilitate trade. This dual role of bank debt provides a new rationale for why banks do what they do. In the model, banks endogenously perform the essential functions of real-world banks: they transform liquidity, transform maturity, pool assets, and have dispersed depositors. Moreover, they make their debt redeemable on demand. Thus, they are endogenously fragile. We show novel effects of narrow banking, suspension of convertibility, and some other policies. |
| Keywords: | Banking; demandable debt; financial fragility; Private money |
| JEL: | E40 G21 G32 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13955&r=all |