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on Macroeconomics |
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Issue of 2019‒11‒04
108 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Heikki Oksanen |
| Abstract: | The conflicting standpoints on reforming the euro are creating more controversies than practical results. Mistrust between the participants led to short-sighted fiscal discipline that has amplified the economic disturbances. Expert analysis on the proposed reforms is often deficient as the potential of conducting policies under the existing institutional features is not adequately analysed. This shortcoming notably concerns the functions of the Eurosystem. In the present article, reforming the euro successfully calls for a convincing high-level commitment to preserve the euro also in unexpected circumstances and pragmatic improvements in its key functions. In fiscal policy the focus should be shifted to long-term sustainability. The tasks of the Eurosystem to promote the smooth operation of the payment systems at all times and to function as the lender of last resort to solvent governments should be confirmed. Adequate smoothing of short-term asymmetric shocks can be based on the automatic stabilisers in national budgets, possibly accompanied by a specific mechanism with a clause to strictly prevent permanent transfers. Public finances should be directed to mitigating climate change and saving energy. The EU should take a leading role globally in meeting these long-term challenges. |
| Keywords: | euro reform, fiscal policy, monetary policy |
| JEL: | E42 E62 E63 H10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7912&r=all |
| By: | Vogel, Lukas |
| JEL: | E31 E52 E58 E62 C11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203586&r=all |
| By: | Wieschemeyer, Matthias; Süssmuth, Bernd |
| JEL: | D31 E31 E44 E52 E62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203634&r=all |
| By: | Refet S. Gürkaynak; Hatice Gökce Karasoy-Can; Sang Seok Lee |
| Abstract: | We show that firm liability structure and associated cash flow matter for firm behavior, and that financial market participants price stocks accordingly. Looking at firm level stock price changes around monetary policy announcements, we find that firms that have more cash flow exposure see their stock prices affected more. The stock price reaction depends on the maturity and type of debt issued by the firm, and the forward guidance provided by the Fed. This effect has remained intact during the ZLB period. Importantly, we show that the effect is not a rule of thumb behavior outcome and that the marginal stock market participant actually studies and reacts to the liability structure of firm balance sheets. The cash flow exposure at the time of monetary policy actions predicts future net worth, investment, and assets, verifying the stock pricing decision and also providing evidence of cash flow effects on firms’ real behavior. The results hold for S&P500 firms that are usually thought of not being subject to tight financial constraints. |
| Keywords: | cash flow effect of monetary policy, investor sophistication, financial frictions, stock pricing |
| JEL: | E43 E44 E52 E58 G14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7898&r=all |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Miroslav Gabrovski (University of Hawaii at Manoa) |
| Abstract: | In the context of a prototypical New Keynesian model, this paper examines the theoretical interrelations between two tractable formulations of progressive taxation on labor income versus (i) the equilibrium degree of nominal wage rigidity as well as (ii) the resulting volatilities of hours worked and output in response to a monetary shock. In sharp contrast to the traditional stabilization view, we analytically show that linearly progressive taxation always operates like an automatic destabilizer which leads to higher cyclical fluctuations within the macroeconomy. We also obtain the same business cycle destabilization result under continuously progressive taxation if the initial degree of tax progressivity is sufficient low. |
| Keywords: | Progressive Taxation, Nominal Wage Rigidity, Automatic Stabilizer, Business Cycles. |
| JEL: | E12 E32 E62 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201913&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7900&r=all |
| By: | Kai Carstensen (University of Kiel, Ifo Institute, CESifo); Markus Heinrich (University of Kiel); Magnus Reif (University of Kiel, Ifo Institute); Maik H. Wolters (University of Jena, Kiel Institute for the World Economy, IMFS at Goethe University Frankfurt) |
| Abstract: | We estimate a Markow-switching dynamic factor model with three states based on six leading business cycle indicators for Germany preselected from a broader set using the Elastic Net soft-thresholding rule. The three states represent expansions, normal recessions and severe recessions. We show that a two-state model is not sensitive enough to reliably detect relatively mild recessions when the Great Recession of 2008/2009 is included in the sample. Adding a third state helps to clearly distinguish normal and severe recessions, so that the model identifies reliably all business cycle turning points in our sample. In a real-time exercise the model detects recessions timely. Combining the estimated factor and the recession probabilities with a simple GDP forecasting model yields an accurate nowcast for the steepest decline in GDP in 2009Q1 and a correct prediction of the timing of the Great Recession and its recovery one quarter in advance. |
| Keywords: | Markov-Switching Dynamic Factor Model, Great Recession, Turning Points, GDP Nowcasting, GDP Forecasting |
| JEL: | C53 E32 E37 |
| Date: | 2019–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2019-006&r=all |
| By: | Belke, Ansgar; Volz, Ulrich |
| JEL: | E32 E44 E58 E65 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203629&r=all |
| By: | Kerssenfischer, Mark |
| JEL: | E52 E44 E32 C32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203524&r=all |
| By: | Lamla, Michael; Pfajfar, Damjan; Rendell, Lea |
| JEL: | E31 E37 E58 D84 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203644&r=all |
| By: | Merkl, Christian |
| JEL: | E24 E00 E60 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203549&r=all |
| By: | Schmöller, Michaela |
| JEL: | E20 E24 E60 O40 O41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203598&r=all |
| By: | Weiske, Sebastian |
| JEL: | E32 E37 E6 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203604&r=all |
| By: | Gülçin Tap??n (?stanbul Ticaret Üniversitesi) |
| Abstract: | Central Banks use monetary policy tools in order to reach such ultimate aims as enabling price stability, stabilizing output gap and increasing employment. The effects of monetary policies applied in accordance with the business cycles on the mentioned macroeconomic variables are realized by means of monetary transmission channels. The analysis of monetary transmission mechanisms indicating the macroeconomic outcomes of the change in the monetary policy tools is of high importance in terms of these policies? efficiency. This study examines the efficiency of monetary transmission mechanism in Turkey for the years between 1995:01-2018:11 by using the Toda-Yamamoto causality test. |
| Keywords: | Monetary Policy, Monetary Transmission Mechanism, Toda-Yamamoto causality test |
| JEL: | E52 E40 E50 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9111508&r=all |
| By: | Patrick Honohan (Peterson Institute for International Economics) |
| Abstract: | Should central banks take more account of ethical distributional and environmental concerns in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes, central bank mandates justify paying more attention to such broad issues, especially if policy choices have a significant potential impact. Carefully managed steps in this direction could actually strengthen central bank independence while making some contribution to improving the effectiveness of public policy on these matters. |
| Keywords: | Monetary Policy, Central Banking |
| JEL: | E42 E52 E58 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp19-18&r=all |
| By: | Schiman, Stefan; Klein, Mathias |
| JEL: | C32 E24 E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203593&r=all |
| By: | Goemans, Pascal; Belke, Ansgar |
| JEL: | E62 E32 C32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203538&r=all |
| By: | Mattia Guerini (Université Côte d'Azur, CNRS, GREDEG, France; Sciences Po., OFCE); Duc Thi Luu (University of Kiel); Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School) |
| Abstract: | We propose a novel approach to investigate the synchronization of business cycles and we apply it to a Eurostat database of manufacturing industrial production time-series in the European Union (EU) over the 2000-2017 period. Our approach exploits Random Matrix Theory and extracts the latent information contained in a balanced panel data by cleaning it from possible spurious correlation. We employ this method to study the synchronization among different countries over time. Our empirical exercise tracks the evolution of the European synchronization patterns and identifies the emergence of synchronization clusters among different EU economies. We find that synchronization in the Euro Area increased during the first decade of the century and that it reached a peak during the Great Recession period. It then decreased in the aftermath of the crisis, reverting to the levels observable at the beginning of the 21st century. Second, we show that the asynchronous business cycle dynamics at the beginning of the century was structured along a East-West axis, with eastern European countries having a diverging business cycle dynamics with respect to their western partners. The recession brought about a structural transformation of business cycles co-movements in Europe. Nowadays the divide can be identified along the North vs. South axis. This recent surge in asynchronization might be harmful for the European Union because it implies countries’ heterogeneous responses to common policies. |
| Keywords: | Business Cycle Synchronization, Random Matrix Theory, European Union |
| JEL: | E32 F44 F45 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2019-30&r=all |
| By: | Uluc Aysun (University of Central Florida, Orlando, FL); Zeynep Yom (School of Business, Villanova University) |
| Abstract: | This paper shows that technology shocks have the largest impact on economies when industries adopt innovations of other industries at a high rate, if costs of adopting new technologies and adjusting R&D expenditures are low, and if innovators face a high degree of competition. It is not the level but the spillover of innovations across industries that is the key determinant of these findings. Under the conditions mentioned above, R&D becomes less procyclical and smoother along the business cycle yet R&D driven innovations have a larger impact on output since these innovations spillover at a higher rate. These inferences are drawn from a dynamic stochastic general equilibrium framework describing a real economy with endogenous growth. The latter feature allows us to infer the welfare implications of R&D processes. |
| Keywords: | Research and development, spillover effects, endgenous growth |
| JEL: | E30 E32 O30 O33 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cfl:wpaper:2019-04ua&r=all |
| By: | Christoph Görtz; Christopher Gunn; Thomas A. Lubik |
| Abstract: | We study the effects of news shocks on inventory accumulation in a structural VAR framework. We establish that inventories react strongly and positively to news about future increases in total factor productivity. Theory suggests that the transmission channel of news shocks to inventories works through movements in marginal costs, through movements in sales, or through interest rates. We provide evidence that changes in external and internal rates of return are central to the transmission for such news shocks. We do not find evidence of a strong substitution effect that shifts production from the present into the future. |
| Keywords: | structural VAR, news shocks, inventories |
| JEL: | C32 E22 E32 G31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7891&r=all |
| By: | Ooft, G.; Bhaghoe, S.; Franses, Ph.H.B.F. |
| Abstract: | For many countries, statistical information on macroeconomic variables is not abundant and hence creating forecasts can be cumbersome. This paper addresses the creation of current year forecasts from a MIDAS regression for annual inflation rates where monthly inflation rates are the explanatory variables, and where the latter are only available for the last one and a half decade. The model can be viewed as a hybrid New-Keynesian Philips curve (NKPC). Specific focus is given to the forecast accuracy concerning the high inflation period in 2016-2017. |
| Keywords: | Inflation, New Keynesian Phillips curve, Rational Expectations, MIDAS Regression, Forecasting |
| JEL: | E12 E17 |
| Date: | 2019–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:120337&r=all |
| By: | Gergely Ganics; Florens Odendahl |
| Abstract: | We incorporate external information extracted from the European Central Bank's Survey of Professional Forecasters into the predictions of a Bayesian VAR, using entropic tilting and soft conditioning. The resulting conditional forecasts significantly improve the plain BVAR point and density forecasts. Importantly, we do not restrict the forecasts at a specific quarterly horizon, but their possible paths over several horizons jointly, as the survey information comes in the form of one- and two-year-ahead expectations. Besides improving the accuracy of the variable that we target, the spillover effects to ``other-than-targeted'' variables are relevant in size and statistically significant. We document that the baseline BVAR exhibits an upward bias for GDP growth after the financial crisis and our results provide evidence that survey forecasts can help mitigate the effects of structural breaks on the forecasting performance of a popular macroeconometric model. |
| Keywords: | : Survey of Professional Forecasters, Density forecasts, Entropic tilting, Soft conditioning. |
| JEL: | C53 C32 E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:733&r=all |
| By: | Christl, Michael |
| JEL: | J62 J63 E24 E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203551&r=all |
| By: | Prein, Timm |
| JEL: | E44 E62 F34 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203654&r=all |
| By: | Aaron Mehrotra; Richhild Moessner; Chang Shu |
| Abstract: | We analyse how movements in the components of sovereign bond yields in the United States affect long-term rates in 10 advanced and 21 emerging economies. The paper documents significant global spillovers from both the expectations and term premia components of long-term rates in the United States. We find that spillovers to domestic long-term rates in emerging economies from the US expectations components tend to be more sizeable than those from the US term premia. Finally, spillovers from US term premia are larger when an emerging economy displays greater macro-financial vulnerabilities. |
| Keywords: | interest rate spillovers, term premia, emerging economies |
| JEL: | E52 E43 F42 F65 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7896&r=all |
| By: | Ryan Chahrour (Boston College); Kristoffer Nimark (Cornell University); Stefan Pitschner (Uppsala University) |
| Abstract: | We formalize the editorial role of news media in a multi-sector economy and show that media can be an independent source of business cycle fluctuations, even when the information they report is accurate. Our approach tightly links agents’ beliefs to real economic developments and allows for incomplete information without exogenous noise shocks. In the model, media monitor the economy, making state-dependent decisions on which subset of sectors to report. Accurate public reporting about sectoral developments that are newsworthy but unrepresentative, causes firms in all sectors to over- or underinvest in productive capacity. We construct historical time series of sectoral news coverage in the US and use them to calibrate a multi-sector model driven only by sectoral TFP shocks. Time-varying media focus generates demand-like aggregate fluctuations that are orthogonal to productivity. Presented with historical productivity shocks constructed by the BEA, the model reproduces the 2009 Great Recession. |
| Keywords: | News media; Business Cycles; Information frictions; Sectoral linkages |
| JEL: | E32 D83 D84 |
| Date: | 2019–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:987&r=all |
| By: | Gries, Thomas; Mitschke, Alexandra |
| JEL: | E44 E52 G11 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203582&r=all |
| By: | Quast, Josefine; Wolters, Maik H. |
| JEL: | C18 E32 E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203535&r=all |
| By: | Brendler, Pavel; Abraham, Arpad; Carceles, Eva |
| JEL: | E20 E44 H24 H31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203619&r=all |
| By: | Lindner, Axel; Heinisch, Katja |
| JEL: | D12 E32 E37 C83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203501&r=all |
| By: | Föll, Tobias; Hartmann, Anna |
| JEL: | E02 E24 J51 J62 J64 O33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203558&r=all |
| By: | Süssmuth, Bernd |
| JEL: | C32 E32 E42 G12 G15 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203566&r=all |
| By: | Iveta Polaskova; Lubos Komarek; Michal Skoda |
| Abstract: | This paper is devoted to the monetary policy context of gold in central banks' reserves. It examines the correlation between the nominal and real price of gold and selected macroeconomic variables and financial assets over the financial and business cycles. In this context, it analyses the investment diversification opportunity that gold offers central banks and other investors. The paper also highlights differences in gold holdings between the central banks of advanced economies (including those with reserve currencies) and those of emerging market and developing economies. It goes on to outline the history of gold holdings from the establishment of the independent Czechoslovakia at the end of 1918 to the present day. It concludes by presenting the rationale for the position of the CNB, which ranks among the modern central banks holding minimal amounts of reserve gold. |
| Keywords: | Central bank, gold, international monetary system, international reserves |
| JEL: | E42 E58 F33 Q31 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2019/01&r=all |
| By: | Guay C. Lim (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Robert Dixon (University of Melbourne); Jan C. van Ours (Erasmus University Rotterdam, Tinbergen Institute, University of Melbourne) |
| Abstract: | This paper studies the relationship between the change in the unemployment rate and output growth using an approach based on labour market flows. The framework shows why the Okun coefficient may be constant/time-varying and/or symmetric/asymmetric and that the outcome lies with the behaviour of the labour flows in response to growth. The encompassing framework nests the conditions to determine the properties of the Okun coefficient without the need to rely on retrospective arbitrary dating of recessions. The framework also highlights the potential mispecification in conventional models of Okun's Law unless stringent conditions are assumed about the behavior of labour flows. The empirical analysis is based on the stock-consistent labour market flows data developed by the BLS for the period 1990:2-2017:3. |
| Keywords: | Labour flows, time-varying Okun, asymmetry |
| JEL: | E24 E32 J21 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2019n01&r=all |
| By: | Strobel, Johannes; Lee, Gabriel; Dorofeenko, Victor; Salyer, Kevin |
| JEL: | E3 E5 E2 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203491&r=all |
| By: | Reslow, André (Department of Economics) |
| Abstract: | This paper assesses to what extent forecasters make effcient use of competitors' forecasts. Using a panel of forecasters, I find that forecasters underuse information from their competitors in their forecasts for current and next year's annual GDP growth and inflation. The results also show that forecasters increase the attention to their competitors as the forecast horizon decreases. In a model of noisy information with fixed target forecasts, I confirm the empirical results of underuse of competitors' information. I also extend the model to include a revision cost and show how this can explain the observed ineffciency and observed horizon dynamics. Using the same model framework, I also rule out overconfidence as the main explanation of the observed behavior. |
| Keywords: | Forecast Behavior; Efficiency; Revision Cost; Forecast Smoothing; Overconfidence |
| JEL: | C53 D82 E17 E37 |
| Date: | 2019–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2019_009&r=all |
| By: | Carsten Hefeker |
| Abstract: | Germany prides itself in having one of the most successful central banks and currencies with respect to independence and stability. I show that not only were both imposed on the country after 1945 but that there was also initial resistance to both among German experts and officials. This is a rare case of the successful imposition of institutions from abroad. Events are discussed in light of Peter Bernholz’s requirements for stable money and a successful central bank. |
| Keywords: | currency reform, Bundesbank, central bank independence, institutional reform |
| JEL: | E42 E58 N14 N24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7892&r=all |
| By: | Stempel, Daniel; Neyer, Ulrike |
| JEL: | D13 D31 E32 E52 J71 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203556&r=all |
| By: | Semedo Leite, Duarte Nuno; Härtl, Klaus |
| JEL: | C68 E27 E31 J11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203514&r=all |
| By: | Heinrichs, Katrin |
| JEL: | E21 E52 E64 D33 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203649&r=all |
| By: | Naba Kumar Adak (Sabang Sajanikanta Mahavidyalaya) |
| Abstract: | The purpose of this paper is to show how the Austrian School of Economics? suggestions and prescriptions can cause complete chaos and anarchy in the economic system. The Austrian School of Economics? diagnosis of the defects in the functioning and practice of economics are more or less as the following. It thinks that the creation of money out of thin air and lowering interest rate for lending that money are the primary causes of inflation and boom-bust cycle, both of which are detrimental to the economy. Besides, this School?s opinion is that the government in connivance with the central bank adopts such policies like bailing out and spending excessively. It increases the government debt unnecessarily. To repay this debt, the government increases tax which in turn reduces the spending capacity of the tax-payers. Thus, according to this School, both the monetary policy of the central bank and the fiscal policy of the government (government intervention in the economics and financial system) cause unnatural and harmful effects on the overall economic condition of a nation.To ameliorate these defects, the Austrian School of Economics prescribes the following remedies. This School thinks, as money is not anchored to any commodity, so the central bank and government are in a position to increase the money supply without limit; this increase in money supply causes inflation which in turn leads to more demand for money supply. To meet this new demand for money the central bank creates and supplies more amount of money and lower the interest rate than the natural rate of interest. This increase in money-supply, again, causes inflation and renewed demand for extra money; again extra supply of money, again inflation increases. Thus the vicious circle of money supply and inflation leads to boom and bust. Therefore, this School suggests that money-creation should be anchored to some commodity so that creation of money cannot be unlimited. This School thinks that if money-creation is based on the standard of gold and silver then there will be no fiat money or easy money and inflation will be controlled and there will be little chance of occurring boom-bust cycle. There other suggestion is that the central bank should be dissolved or abolished and there should not be any central authority to impose any uniform monetary policy on the economy. In every area there will be banks independent of any superior authority; the monetary policy and the interest rates will be formulated by the market forces of the concerned area where the authority of a bank will be operative. This School prescribes unfettered market system. This School also suggests that government should not interfere into the economic and financial activities neither in the positive way like bailing out any falling bank or corporate nor by enforcing any law that may control the economy in any way. This School also suggests that government should minimize its expenditure even by curtailing its spending for what is considered as public works. This School is also of the opinion that government should lower its tax-rate or abolish tax altogether.According to the Austrian School of Economics, in the present economics system, the central bank creates fiat money or debt money to give loans and thus increases the supply of money. The Austrian School suggests that if money creation is followed strictly with the commodity (gold) standard then loan can be given only by using the savings and there will be no possibility of increase in the money-supply as existing money that is saved will be used for lending purposes. Therefore, no question of inflation due to increase in money-supply (fiat money that is created out of nothing) will arise.It will be simply impossible to deal with all the prescriptions and suggestions of the Austrian School in this paper and to suggest how those prescriptions may be developed further so as to make them function flawless or more correctly. It also becomes imperative to explain in which way the diagnosis and prescriptions of other Schools are wrong. It seems me that the differences of opinion among these Schools are mostly due to the absence of any universally accepted definition and function of money and how money should be oriented to suit our purpose of achieving a sustainable economic growth unhampered by occasional visit of boom-bust cycles. Therefore, the purpose of this paper is to suggest that while it is correct that money should be anchored to commodity, yet more thoughts are necessary as to how the growing demand for money with the expanding monetary activities could be met. If we can arrive at a correct definition of money and how we can orient the money to function in the way to eliminate those harmful effects that, the Austrian School of Economics has shown, occur in the present economic system. Therefore, primary aim of this paper is to examine how far the assertion that money must be any commodity is workable in the economic and financial systems of a country. |
| Keywords: | Natural rate of interest, commodity money, fiat money, boom-bust cycle, government intervention in financial matters, inflation, free market |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:8910937&r=all |
| By: | Mankart, Jochen; Ludwig, Alexander; Wiederholt, Mirko; Quintana, Jorge; Vellekoop, Nathanael |
| JEL: | D14 D84 D31 E21 E30 G21 R21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203516&r=all |
| By: | Camilla Mastromarco (Dipartimento di Scienze dell'Economia, Universita degli Studi del Salento.); Lèopold Simar (Institut de Statistique, Biostatistique et Sciences Actuarielles, Universite Catholique de Louvain.); Valentin Zelenyuk (School of Economics and Centre for Efficiency and Productivity Analysis (CEPA) at The University of Queensland, Australia) |
| Abstract: | In this paper, we merge two streams of literature: nonparametric methods to estimate frontier efficiency of an economy, which allows us to develop a new measure of output gap, and nonparametric methods to estimate probability of an economic recession. To illustrate the new framework we use quarterly data for Italy from 1995 to 2019, and find that our model, using either nonparametric or the linear probit model is able to provide useful insights |
| Keywords: | Output Gap, Robust Nonparametric Frontier, Generilized Nonparametric Quasi-Likelihood Method, Italian recession. |
| JEL: | C5 C14 C13 C32 D24 E37 O4 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqcepa:141&r=all |
| By: | Bertsche, Dominik; Brüggemann, Ralf; Kascha, Christian |
| JEL: | C32 C51 C55 E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203656&r=all |
| By: | Julien Albertini; Arthur Poirier; Thepthida Sopraseuth (Université de Cergy-Pontoise, THEMA) |
| Abstract: | We shed light on the driving forces behind unemployment uctuations and short-run changes in the informality rate on the Argentine labor market. Using Argentine survey data, we measure worker ows between formal employment, informal employment, unemployment and non-participation. We propose a methodology to correct for the discontinuity of Argentine survey data and that is able to compute consistent time series of quarterly ins and outs of informal work. Using variance decompositions and counterfactual exercises, we show that the ins and outs of informal employment are key drivers of labor market uctuations. In particular, out ows from unemployment to informal employment account for 37% of uctuations in the unemployment rate. In addition, our analysis suggests that informality is: (i) a exible sector that is used in recessionary periods as a bu er against income losses and (ii) a stepping stone towards formal employment. The observed large changes in the informality rate are well explained by the change in job mobility between the formal and informal sectors as well as variations in hirings from unemployment and non-participation in the informal sector. |
| Keywords: | worker ows, informality, unemployment, business cycle, emerging market. |
| JEL: | E24 E26 J6 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2019-13&r=all |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Juin-Jen Chang (Academia Sinica); Wei-Neng Wang (Academia Sinica) |
| Keywords: | Indeterminacy, Increasing Returns to Variety, Sector-Specific Externalities. |
| JEL: | E30 E32 O41 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201916&r=all |
| By: | Ettmeier, Stephanie; Kriwoluzky, Alexander |
| JEL: | C11 C15 E63 E65 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203609&r=all |
| By: | Tae-Hwy Lee (Department of Economics, University of California Riverside); Eric Hillebrand (CREATES, Aarhus University); Huiyu Huang (ICBC Credit Suisse Asset Management); Canlin Li (Federal Reserve Board) |
| Abstract: | Following Diebold and Li (2006), we use the Nelson-Siegel (NS, 1987) yield curve factors. However the NS yield curve factors are not supervised for a specific forecast target in the sense that the same factors are used for forecasting different variables, e.g., output growth or inflation. We propose a modifed NS factor model, where the new NS yield curve factors are supervised for a specific target variable to forecast. We show that it outperforms the conventional (non-supervised) NS factor model in out-of-sample forecasting of monthly US output growth and inflation. The original NS yield factor model is to combine information (CI) of predictors and uses factors of predictors (the entire yield curve). The new supervised NS factor model is to combine forecasts (CF) and uses factors of forecasts of output growth or inflation conditional on each point of the yield curve. We formalize the concept of supervision, and demonstrate, both analytically and numerically, how supervision works. For both CF and CI schemes, principal components (PC) may also be used in place of the NS factors. In out-of-sample forecasting of U.S. monthly output growth and inflation, we find that supervised CF-factor models (CF-NS and CF-PC) are substantially better than unsupervised CI-factor models (CI-NS and CI-PC), especially at longer forecast horizons. |
| Keywords: | Level, slope, and curvature of the yield curve; Nelson-Siegel factors; Supervised factor models; Combining forecasts; Principal components. |
| JEL: | C5 E4 G1 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201903&r=all |
| By: | Antony, Jürgen; Klarl, Torben |
| JEL: | Q30 E21 O44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203640&r=all |
| By: | Oliver Bachmann; Klaus Gründler; Niklas Potrafke; Ruben Seiberlich |
| Abstract: | We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed’s Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46 per centage points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73 percentage points when Donald Trump became president. We employ the Blinder-Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democratic-dominated versus Republican-dominated states is based on how partisans respond to changes in the White House’s occupant (partisan bias). The results also corroborate the belief that voters’ misperceptions of economic conditions decline when the president belongs to the party that voters support. |
| JEL: | C13 D72 E31 P44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_311&r=all |
| By: | Neugebauer, Frederik |
| JEL: | E52 E58 G12 G14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203554&r=all |
| By: | International Monetary Fund |
| Abstract: | São Tomé and Príncipe is a fragile, small island-state, with limited resources and capacity. The last Extended Credit Facility (ECF) arrangement expired at end-2018 having gone off-track amid parliamentary elections, power outages, internal and external imbalances, and high debt vulnerability. Growth slowed, inflation rose, the fiscal position deteriorated, and foreign reserves declined sharply in 2018, while some critical structural reforms were delayed. Higher and more inclusive growth is needed to reduce poverty and unemployment, particularly among the large youth population. |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/315&r=all |
| By: | Poeschl, Johannes; Zhang, Xue |
| JEL: | E44 G24 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203520&r=all |
| By: | TAKAHASHI Wataru |
| Abstract: | This paper discusses Japan's monetary policy during the Heisei Period (1989–2019), an era of roughly 30 years that included the boost and bursting of the bubble economy and the subsequent deflationary period. In doing so, in addition to focusing on points of dispute regarding the individual unconventional monetary policies that began about 20 years ago and continue today, it also will discuss monetary discipline, inflation targeting, and their relationship to fiscal policy. Lastly, it will discuss the role that should be taken by the Bank of Japan as an independent central bank in changing environments. Monetary discipline means making the best use of market mechanisms to manage monetary policy. It has the features of adopting competitive bidding, limiting the purchase of assets for market operation to short- term government debt, and minimizing the size of central bank assets. Although central banks have traditionally emphasized this type of discipline, unconventional monetary policy is the process of loosening the constraints of monetary policy. Japan is typical. The current monetary policy, Quantitative and Qualitative Monetary Easing (QQE), has not achieved its targets after six years of operation. This is mainly due to the stagnant growth potential of the economy. The former discussion of central bank independence in controlling inflation in the 1990s no longer makes sense in the current environment. As an independent agency, the central bank is expected to check government economic policies from a non-political and longer-term standpoint than government agencies. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:19055&r=all |
| By: | Böhm, Hannes; Eichler, Stefan |
| JEL: | G21 G15 G28 F3 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203515&r=all |
| By: | Klaus Adam; Henning Weber |
| Abstract: | We document a new stylized fact for the life-cycle behavior of consumer prices: relative to a narrowly defined set of competing products, the price of individual products tends to fall over the product lifetime. This holds true for more than 90% of the expenditure items underlying the U.K. consumer price index and has important normative implications. Constructing a sticky price model featuring a product life cycle and rich amounts of heterogeneity, we explain how the optimal inflation target can be estimated from the observed trends in relative prices. The optimal inflation target for the U.K. is found to range between 2.6% and 3.2% and to have steadily increased over the period 1996 to 2016. We show how changes in relative price trends contributed to this development. |
| Keywords: | optimal inflation rate, product life cycle, U.K. micro price data |
| JEL: | E31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7889&r=all |
| By: | Giovannini, Massimo; Hohberger, Stefan; Ratto, Marco; Vogel, Lukas |
| JEL: | E32 F41 F44 F45 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203548&r=all |
| By: | Sondershaus, Talina |
| Abstract: | Events which have an adverse or positive effect on some firms can disseminate through the economy to firms which are not directly affected. By exploiting the first large sovereign bond purchase programme of the ECB, this paper investigates whether more lending to some firms spill over to firms in the surroundings of direct beneficiaries. Firms operating in the same industry and region invest less and reduce employment. The paper shows the importance to consider spillover effects when assessing unconventional monetary policies: Differences between treatment and control groups can be entirely attributed to negative effects on the control group. |
| Keywords: | asset purchase programmes,small and medium enterprises,investments |
| JEL: | D22 E58 G21 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:222019&r=all |
| By: | Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria) |
| Abstract: | Nigeria adopted the Structural Adjustment Programme (SAP) in 1986 after the crash in world oil price in the early 1980s. Financial reforms are part of the reforms implemented during the SAP. Since, industrialisation is seen as an engine of growth, we conduct an empirical assessment of the effects of financial sector reforms on industrialisation in Nigeria using an annual time series data over 1981 - 2015. Using an autoregressive distributed lag (ARDL) model, our findings show that financial reforms have a positive and significant impact on industrialisation. |
| Keywords: | Financial reforms, Financial repression, Industrialisation, ARDL bounds test |
| JEL: | C32 E44 O14 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/014&r=all |
| By: | Klug, Thorsten; Mayer, Eric; Schuler, Tobias |
| JEL: | E32 F32 F45 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203523&r=all |
| By: | Klose, Jens |
| JEL: | E43 F45 G01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203484&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa) |
| Abstract: | This study investigates the stability of demand for money in the proposed Southern African Monetary Union (SAMU). The study uses annual data for the period 1981 to 2015 from ten countries making-up the Southern African Development Community (SADC). A standard function of demand for money is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries in the stability of money. This divergence is articulated in terms of differences in cointegration, CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long-term determinants and error correction in event of a shock. Policy implications are discussed in the light of the convergence needed for the feasibility of the proposed SAMU. This study extends the debate in scholarly and policy circles on the feasibility of proposed African monetary unions. |
| Keywords: | Stable; demand for money; bounds test |
| JEL: | E41 C22 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/025&r=all |
| By: | MORIKAWA Masayuki |
| Abstract: | This study presents an ex post evaluation of the accuracy of long-term macroeconomic forecasts made by economics researchers. The results indicate, first, that the economic growth and inflation forecasts for the next ten years are biased upward. Second, there are positive correlations between real gross domestic product (GDP) and total factor productivity (TFP) growth forecasts, and between nominal GDP growth and consumer price index (CPI) inflation forecasts, resulting in the same correlations between forecasting errors for these macroeconomic variables. Third, GDP growth forecasts by academic researchers in economics are less upwardly biased than those by professional forecasters in private institutes. However, the upward bias of academic researchers specializing in macroeconomics and economic growth is larger than those in the other research fields. These results indicate that long-term economic forecasting involves significant uncertainty, even for economists. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19084&r=all |
| By: | Calisse, Frank |
| JEL: | C63 E44 G00 G11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203591&r=all |
| By: | MORIKAWA Masayuki |
| Abstract: | This study presents ex post evaluation of the accuracy of long-term macroeconomic forecasts presented by economics researchers. The results indicate, first, that the GDP growth and inflation forecasts for the next ten years are biased upward. Second, there are positive correlations between real GDP and TFP growth forecasts and between nominal GDP growth and CPI inflation forecasts, resulting in the same correlations between forecasting errors for these macroeconomic variables. Third, academic researchers' GDP growth forecasts are less upward biased than those of professional forecasters in private institutions. However, the upward bias of academic researchers specializing in macroeconomics and economic growth is larger than those in the other research areas. These results indicate that long-term economic forecasting involves significant uncertainty even for professional economists. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:19058&r=all |
| By: | Sergei Seleznev (Bank of Russia, Russian Federation) |
| Abstract: | We construct priors for the tempered hierarchical Dirichlet process vector autoregression model (tHDP-VAR) that in practice do not lead to explosive forecasting dynamics. Additionally, we show that tHDP-VAR and its variational Bayesian approximation with heuristics demonstrate competitive or even better forecasting performance on US and Russian datasets. |
| Keywords: | Bayesian nonparametrics, forecasting, hierarchical Dirichlet process, infinite hidden Markov model. |
| JEL: | C11 C32 C53 E37 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps47&r=all |
| By: | Rövekamp, Ingmar |
| JEL: | E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203525&r=all |
| By: | Saskia ter Ellen; Vegard H. Larsen; Leif Anders Thorsrud |
| Abstract: | We propose a method to quantify narratives from textual data in a structured manner, and identify what we label "narrative monetary policy surprises" as the change in economic media coverage explained by central bank communication accompanying interest rate meetings. Our proposed method is fast and simple, and relies on a Singular Value Decomposition of the different texts and articles coupled with a unit rotation identifi cation scheme. Identifying narrative surprises in central bank communication using this type of data and identifi cation provides surprise measures that are uncorrelated with conventional monetary policy surprises, and, in contrast to such surprises, have a signifi cant effect on subsequent media coverage. In turn, narrative monetary policy surprises lead to macroeconomic responses similar to what recent monetary policy literature associates with the information component of monetary policy communication. Our study highlights the importance of written central bank communication and the role of the media as information intermediaries. |
| Keywords: | communication, monetary policy, factor identification, textual data |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0078&r=all |
| By: | Baur, Dirk |
| JEL: | D10 D31 D42 D63 E47 E58 R30 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203547&r=all |
| By: | Stylianos Asimakopoulos; Marco Lorusso; Francesco Ravazzolo |
| Abstract: | This paper develops a Dynamic Stochastic General Equilibrium (DSGE) model to evaluate the economic repercussions of cryptocurrency. We assume that cryptocurrency offers an alternative currency option to government currency for households and we have an endogenous supply and demand for cryptocurrency. We estimate our model with Bayesian techniques using monthly data for the period 2013:M6-2019:M3. Our results indicate a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. In addition, real balances of cryptocurrency exhibit a countercyclical reaction to these shocks. Moreover, we find that government currency demand shocks have larger effects on the economy than shocks to cryptocurrency demand. Our results also show that cryptocurrency productivity shocks have negative effects on output and on the exchange rate between government currency and cryptocurrency, with a more pronounced negative reaction to output if the central bank increases its weight to government currency growth. Overall, our results provide novel insights on the underlying mechanisms of cryptocurrency and spillover effects to the economy. |
| Keywords: | DSGE Model, Government Currency, Cryptocurrency, Bayesian Estimation |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0079&r=all |
| By: | Teresa Sastre (Banco de España); Laura Heras Recuero (Banco de España) |
| Abstract: | Previous research using country or firm data has been inconclusive on the sign of the relation between domestic and foreign investment. Though several hypotheses have been formulated, the factors determining the sign of this relationship are not clearly identified yet. In this paper we explore the role of industry integration in determining the relation between outward foreign direct investment (FDI) and domestic investment by using disaggregated data at the industry level and several indicators of industry integration. The proportion of intangible investment is used as a proxy of horizontal integration and several measures of participation in Global Value Chains (GVCs) as proxies of vertical integration. The empirical results confirm that the relationship between outward FDI and domestic investment is very varied and differs across industries and countries. That relation is positive (complementary) for those industries with low intensity in intangible investment and high forward integration in GVCs –two features of vertically integrated industries– and becomes negative for those industries with high intangible investment (usually more horizontally integrated). |
| Keywords: | investment, foreign direct investment, vertical and horizontal integration, global value chains |
| JEL: | E22 F21 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1933&r=all |
| By: | Sergio de Ferra; Kurt Mitman; Federica Romei |
| Abstract: | We study the role of heterogeneity in the transmission of foreign shocks. We build a Heterogeneous-Agent New-Keynesian Small Open Model Economy (HANKSOME) that experiences a current account reversal. Households' portfolio composition and the extent of foreign currency borrowing are key determinants of the magnitude of the contraction in consumption associated with a sudden stop in capital inflows. The contraction is more severe when households are leveraged and owe debt in foreign currency. In this setting, the revaluation of foreign debt causes a larger contraction in aggregate consumption when debt and leverage are concentrated among poorer households. Closing the output gap via an exchange-rate devaluation may therefore be detrimental to household welfare due to the heterogeneous impact of the foreign debt revaluation. Our HANKSOME framework can rationalize the observed "fear of floating" in emerging market economies, even in the absence of contractionary devaluations |
| JEL: | E21 F32 F41 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26402&r=all |
| By: | International Monetary Fund |
| Abstract: | Lebanon’s economic position continues to be very difficult, with very low growth, high public debt and large twin deficits. While financial stability has been maintained, deposit inflows, critical to finance the budget and external deficits, slowed down during the past year, reducing the authorities’ room for maneuver. The new government has taken some important policy steps to start the needed policy adjustment, which could help raise confidence among investors and donors. The parliament has approved a plan to reform the electricity sector and reduce its fiscal cost as well as a budget that aims to reduce the overall fiscal deficit in 2019. However, substantial new measures are still needed to reduce the exceptionally large domestic and external imbalances and mitigate Lebanon’s vulnerabilities. |
| Keywords: | Economic conditions;Central banks;Financial crises;External sector;Economic growth;ISCR,CR,BdL,Proj,percent of GDP,lBP,concessional |
| Date: | 2019–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/312&r=all |
| By: | Steger, Thomas; Grossmann, Volker; Larin, Benjamin; Löfflad, Hans Torben |
| JEL: | E10 E20 O40 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203613&r=all |
| By: | Soretz, Susanne; Ott, Ingrid |
| JEL: | H10 E60 O40 R50 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203624&r=all |
| By: | Hirsch, Patrick |
| JEL: | E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203633&r=all |
| By: | Pulapre Balakrishnan (Ashoka University, Sonipat); M. Parameswaran (Centre for Development Studies, Thiruvananthapuram) |
| Abstract: | In mainstream macroeconomics today inflation is related to the ‘output gap’, defined as the deviation of output from its ‘natural’ level. This view of inflation has been adopted by the leading central banks, including India’s, underpinning the move to ‘inflation targeting’ as the sole objective of monetary policy. We present an alternative model of inflation based on features that would be considered typical of the Indian economy and a specific understanding of what drives the inflationary process here. We then test both the models across data from India over different periods and at differing frequencies. The exercise is conclusive, and bears significance for what will constitute an appropriate antiinflationary policy. |
| Keywords: | Inflation in India, New Keynesian Phillips Curve, Structuralist macroeconomics |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:16&r=all |
| By: | International Monetary Fund |
| Abstract: | Macroprudential policy setting faces the challenge of identifying growth of financial and macroeconomic variables above and below potential. The gaps between actual performance and potential are crucial for policy makers but are unobserved. This is especially true for financial variables such as capital and risk of default of borrowers (firms and banks) and lenders (banks and households). Against this backdrop, a macrofinancial structural model is presented that captures (i) sectoral dynamics of firms and banks and feedbacks between them, (ii) capital and default risk dynamics of each sector, (iii) capital and risk gaps i.e., deviations of capital and default risk from potential (the welfare maximizing optimum), and it provides (iv) a quantitative method for measurement. |
| Date: | 2019–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/324&r=all |
| By: | Gräbner, Claudius; Heimberger, Philipp; Kapeller, Jakob; Schütz, Bernhard |
| JEL: | E14 E6 F15 F4 L52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203487&r=all |
| By: | Taisuke Kameda; Ryoichi Namba; Takayuki Tsuruga |
| Abstract: | Recent studies on fiscal policy use cross-sectional data and estimate local fiscal multipliers along with spillovers. This paper estimates local fiscal multipliers with spillovers using Japanese prefectural data comparable with the national accounts. We estimate the local fiscal multiplier on output to be 1.7 at the regional level. The regional fiscal multiplier consists of the prefecture-specific components and a component common across prefectures within the same region, which we interpret as the region-wide effect. Converting the latter component into the spillover, we find that the spillover is positive and small in size. We decompose the regional fiscal multiplier on output into multipliers on expenditure components. The regional fiscal multiplier on absorption exceeds 2.0 because of the crowding-in effect on consumption and investment. Moreover, we find that the spillover to absorption is considerable in contrast to the spillover to output. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1065&r=all |
| By: | Trimborn, Timo; Schünemann, Johannes |
| JEL: | E62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203577&r=all |
| By: | Hott, Christian |
| JEL: | E21 J11 J26 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203642&r=all |
| By: | Andrea Barbon (Università della Svizzera italiana (USI), Lugano; Swiss Finance Institute, Students); Virginia Gianinazzi (Università della Svizzera italiana (USI), Lugano; Swiss Finance Institute) |
| Abstract: | Since the introduction of its Quantitative and Qualitative Easing program in 2013, the Bank of Japan has been increasing its holdings of Japanese equity through large scale purchases of index-linked ETFs with the intention of lowering assets' risk premia. We exploit the cross-sectional heterogeneity of the shock to supply induced by the policy to identify a positive, sizeable and persistent impact on stock prices consistent with a portfolio balance channel. The evidence suggests that demand curves for stocks are downward sloping in the long-run. We estimate an increase of 22 basis points in aggregate market valuation per trillion Yen invested into the program, corresponding to a price elasticity of 1. We show that the purchases of ETFs tracking the price-weighted Nikkei 225 index generate significant pricing distortions relative to a value-weighted benchmark. Finally, we provide a rigorous framework to discuss the consequences of a potential exit strategy from QE. |
| Keywords: | ETFs, quantitative easing, portfolio balance channel, unconventional monetary policy, Bank of Japan |
| JEL: | E52 E58 B26 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1955&r=all |
| By: | Gries, Thomas |
| JEL: | D33 O40 E10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203576&r=all |
| By: | Lustenhouwer, Joep; Hagenhoff, Tim |
| JEL: | E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203553&r=all |
| By: | Sanchez-Romero, Miguel; Lee, Ron; Fürnkranz-Prskawetz, Alexia |
| JEL: | E24 J10 J18 H55 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203628&r=all |
| By: | Adrian Pagan (School of Economics, University of Sydney, CAMA, Australian National University); Tim Robinson (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne) |
| Abstract: | Implications of partial information for applied macroeconomic modelling along four dimensions are shown, and analysis provided on how they can be addressed. First, when permanent shocks are present a Vector Error-Correction Model including latent, as well as observed, variables is required to capture macroeconomic dynamics. Second, the assumption in Dynamic Stochastic General Equilibrium models that shocks are autocorrelated provides identifying information usable in Structural Vector AutoRe-gressions. Third, estimating models with more shocks than observed variables must yield correlated estimated structural shocks. Fourth, including measurement error, as commonly specified, implies a lack of co-integration between variables, even when actually present |
| Keywords: | SVAR; Partial Information; Identification; Measurement Error; DSGE. |
| JEL: | E37 C51 C52 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2019n12&r=all |
| By: | International Monetary Fund |
| Abstract: | Macroprudential policy in France is the joint responsibility with several European institutions. With the operationalization of the EU Capital Requirement Directive and Capital Requirement Regulation (CRD/CRR), the French authorities have implemented, several capital buffers, as well as the liquidity coverage ratio (LCR), based on this framework. In France, Haut conseil de stabilité financière (HCSF) is the macroprudential authority established in accordance with recommendation European Systemic Risk Board (ESRB)/2011/13 and the designated authority established in accordance with Article 136 of CRD and is in charge of activating several measures in the CRD/CRR framework as well has direct responsibilities over several tools outside this framework, for example borrower-based tools. |
| Date: | 2019–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/327&r=all |
| By: | Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric R. Young |
| Abstract: | There is a new and now extensive literature analyzing government policies for financial stability based on models with endogenous borrowing constraints. These normative analyses often build upon the concept of constrained efficient allocation, where the social planner is constrained by the same borrowing limit that agents face. In this paper, we show that the same set of policy tools that implement the constrained efficient allocation can be used optimally by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. We establish this in the context of a well-known model economy, but the result is relevant whenever the policy instrument that is assigned to the planner can affect the market price that determines the value of collateral in the borrowing constraint. The result implies that a robust normative analysis in this model class requires explicit computations of the Ramsey optimal policy problem. |
| JEL: | E61 F38 F41 G01 G18 H23 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26397&r=all |
| By: | Hinterlang, Natascha |
| JEL: | C45 C53 E47 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203503&r=all |
| By: | Tae-Hwy Lee (Department of Economics, University of California Riverside); Yundong Tu (Peking University) |
| Abstract: | This paper examines the theoretical and empirical properties of a supervised factor model based on combining forecasts using principal components (CFPC), in comparison with two other supervised factor models (partial least squares regression, PLS, and principal covariate regression, PCovR) and with the unsupervised principal component regression, PCR. The supervision refers to training the predictors for a variable to forecast. We compare the performance of the three supervised factor models and the unsupervised factor model in forecasting of U.S. CPI inflation. The main finding is that the predictive ability of the supervised factor models is much better than the unsupervised factor model. The computation of the factors can be doubly supervised together with variable selection, which can further improve the forecasting performance of the supervised factor models. Among the three supervised factor models, the CFPC best performs and is also most stable. While PCovR also performs well and is stable, the performance of PLS is less stable over different out-of-sample forecasting periods. The effect of supervision gets even larger as forecast horizon increases. Supervision helps to reduce the number of factors and lags needed in modelling economic structure, achieving more parsimony. |
| Keywords: | Combining forecasts; Principal components; Supervision matrix; Fixed point; Principal covariate regression; Partial least squares. |
| JEL: | C53 C55 E31 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201909&r=all |
| By: | Pawel Bukowski; Filip Novokmet |
| Abstract: | How has inequality in Poland evolved between communism and capitalism to reach one of the highest levels in Europe today? Pawel Bukowski and Filip Novokmet chart a century of data on Polish inequality, 1892-2015, to examine the key causes. Their work illustrates the central role of policies and institutions in shaping long-run inequality. |
| Keywords: | income inequality, transformation, poland |
| JEL: | D31 E01 J3 N34 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepcnp:562&r=all |
| By: | SASAKI Yuri; YOSHIDA Yushi; Piotr Kansho OTSUBO |
| Abstract: | Against the background of the two percent inflation target set in Japan that started in 2013, we investigate the impediments in the process of passing exchange rate fluctuations to the core consumer price index. To this end, we construct industry-level nominal effective exchange rate and industry-level producer price indices, which are matched with the industry classifications used for import price indices. Time-varying parameter vector autoregression analysis reveals that, in general, exchange rate pass-throughs increased, especially after the global financial crisis. Among the pass-throughs that occur at the import price, domestic producer price, and consumer price stages, we find that the weakest link exists between the import price and domestic producer price. However, the impact on the industry is not negligible; the small spillover effect on other industries at the producer price stage prevents consumer prices from rising after depreciation. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:19078&r=all |
| By: | De Grauwe, Paul; Ji, Yuemei |
| Abstract: | With the spectre of a recession looming in the eurozone (and elsewhere), the policy question arises as to how much leeway do the fiscal authorities in the eurozone have to follow counter-cyclical fiscal policies aimed at providing some stimulus to the economy. |
| JEL: | N0 |
| Date: | 2019–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:101737&r=all |
| By: | Domenico Delli Gatti; Jakob Grazzini |
| Abstract: | We propose two novel methods to “bring ABMs to the data”. First, we put forward a new Bayesian procedure to estimate the numerical values of ABM parameters that takes into account the time structure of simulated and observed time series. Second, we propose a method to forecast aggregate time series using data obtained from the simulation of an ABM. We apply our methodological contributions to a medium-scale macro agent-based model. We show that the estimated model is capable of reproducing features of observed data and of forecasting one-period ahead output-gap and investment with a remarkable degree of accuracy. |
| Keywords: | agent-based models, estimation, forecasting |
| JEL: | C11 C13 C53 C63 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7894&r=all |
| By: | Rieth, Malte; Menkhoff, Lukas; Stöhr, Tobias |
| JEL: | F31 F33 E58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203504&r=all |
| By: | Mauersberger, Felix |
| JEL: | C91 C92 D84 E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc19:203600&r=all |
| By: | Akintoye V. Adejumo (Obafemi Awolowo University, Ile-Ife, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | Globally, investments in physical and human capital have been identified to foster real economic growth and development in any economy. Investments, which could be domestic or foreign, have been established in the literature as either complements or substitutes in varying scenarios. While domestic investments bring about endogenous growth processes, foreign investment, though may be exogenous to growth, has been identified to bring about productivity and ecological spillovers. In view of these competing–conflicting perspectives, this chapter examines the differential impacts of domestic and foreign investments on green growth in Nigeria during the period 1970-2017. The empirical evidence is based on Auto-regressive Distributed Lag (ARDL) and Granger causality estimates. Also, the study articulates the prospects for growth sustainability via domestic or foreign investments in Nigeria. The results show that domestic investment increases CO2 emissions in the short run while foreign investment decreases CO2 emissions in the long run. When the dataset is decomposed into three sub-samples in the light of cycles of investments within the trend analysis, findings of the third sub-sample (i.e. 2001-2017) reveal that both types of investments decrease CO2 emissions in the long run while only domestic investment has a negative effect on CO2 emissions in the short run. This study therefore concludes that as short-run distortions even out in the long-run, FDI and domestic investments has prospects for sustainable development in Nigeria through green growth. |
| Keywords: | Investments; Productivity; Sustainability; Growth |
| JEL: | E23 F21 F30 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/078&r=all |
| By: | Marco Rossi (Department of Social Sciences and Economics, Sapienza University of Rome (IT)) |
| Abstract: | In this paper we studied the implications for welfare of an increasing share of adults in the population of cannabis. This demographic process is already significant in Italy, which is leading European greying: a decrease in birth rate and youth, and an increasing proportion of older people in the general population. We make the hypothesis here that adult users are going through a process of social integration and normalization, by which they are changing their patterns of use and socio-economic status. In order to verify the empirical relevance of the share of adults and the above hypotheses, we interviewed a targeted, non- representative, sample of cannabis users, namely visitors at the biggest Italian cannabis fair. Our data suggest that the role and weight of adults in the cannabis market is quantitatively significant and qualitatively different from that of younger people. We analyzed the links between the aging issue and the views supporting cannabis market restrictions (defined as paternalism, economics externalities, and moral externalities). Finally, we developed a very stylized model to see how the benefit of cannabis market restrictions decreases as the share of adults in the cannabis user population increases. |
| Keywords: | cannabis, aging, normalization, social integration, paternalism, externalities, welfare, regulation. |
| JEL: | E31 E52 E64 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:saq:wpaper:11/19&r=all |
| By: | Kazuya Kamiya (Research Institute for Economics and Business Administration, Kobe University, Japan); Hajime Kobayashi (Faculty of Economics, Kansai University); Tatsuhiro Shichijo (School of Economics, Osaka Prefecture University); Takashi Shimizu (Graduate School of Economics, Kobe University) |
| Abstract: | In this paper, we investigate a search model with divisible fiat money in a laboratory setting where transaction prices are endogenously determined. In the model, there exist welfare-ranked multiple stationary monetary equilibria and gift-giving equilibria. We find that endogenizing transaction prices enhanced the coordination of subjects through monetary exchange and deteriorated it through gift-giving. In other words, the subjects endogenously reduced the trade friction of monetary exchanges. We also compare our experimental results with those in search models with exogenously given transaction prices. |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2019-21&r=all |
| By: | Takahiro Akita (Rikkyo University, International University of University); Awaludin Aji Riadi (Directorate General of Taxation, Ministry of Finance, Indonesia); Ali Rizal (Directorate General of Taxation, Ministry of Finance, Indonesia) |
| Abstract: | This study analyzes the level and trend of fiscal disparity across districts and explores the determinants of fiscal disparity by two inequality decomposition methods. Disparity in per capita shared revenue (DBH) has been the highest since 2003 due to the very unevenspatial distribution of natural resources and tax bases. DBH is unambiguously aninequality-increasing fiscal transfer. While general allocation grant (DAU) has served toequalize fiscal revenue, fiscal disparity is still very high. To further reduce the disparity,it may be necessary to modify the DAU allocation formula. This study proposes a newallocation formula. Though the reduction in fiscal disparity is not substantial under thenew formula, it would encourage resource-poorer districts to raise own source revenue(PAD). This could create a virtuous cycle, since the rise in PAD would enable districtgovernments to promote their economy through further development of human resources and infrastructure and this would in turn raise PAD. Another option to reduce fiscal disparity would be the further expansion of special allocation grant (DAK). If the government allocates the DAK funds effectively across districts, then it could make DAKan inequality-decreasing fiscal transfer. |
| Keywords: | fiscal disparity, decentralization, general allocation grant, inequality decomposition analysis, Indonesia |
| JEL: | H71 H77 R51 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2019_05&r=all |
| By: | International Monetary Fund |
| Abstract: | The Thai insurance sector is a relatively small but growing part of the country’s financial services industry. Insurance sector assets have grown from 10 percent of gross domestic product (GDP) in 2006 to over 22 percent of GDP in 2016, constituting 9 percent of total financial industry assets. Similarly, between 2008 and 2017, gross premiums written have grown at an average annual rate of approximately 16.9 percent, substantially above nominal GDP growth of 9.9 percent during the same period. As a result, the insurance penetration ratio (the ratio of premiums written to GDP) has gradually increased from 3.63 percent in 2008 to 5.39 percent in 2017. |
| Date: | 2019–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/320&r=all |
| By: | Reza Najarzadeh (Tarbiat Modares University, Tehran, Iran); Elham Khorasani (Tarbiat Modares University, Tehran, Iran) |
| Abstract: | Wagner's Law holds that the relative size of public sector increases with the growth of per capita income. The aim of this study is to investigate the validity of Wagner’s Law in Iran. We test the Wagner’s Law by incorporating a vector Autoregression model and vector error correction model for the Iranian economy using 1985-2018 health and education data. The results of the estimates show that this law holds in Iran. The elasticity of government expenditures with respect to national income must be greater than one for the Wagner’s law to hold. However, government spending on health and education have been less than expected. This could suggest that the state does not pay enough attention to health and education. One can conclude that health and education are not priorities of the government in allocating funds to these two sectors. |
| Keywords: | Gross Domestic Product, Wagner's Law, Government Expenditure, Vector Autoregression, Vector Error Correction Model |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:smo:epaper:004rz&r=all |
| By: | De Cao, Elisabetta; McCormick, Barry; Nicodemo, Catia |
| Abstract: | We study the effect of unemployment on birth outcomes by exploiting geographical variation in the unemployment rate across local areas in England, and comparing siblings born to the same mother via family fixed effects. Using rich individual data from hospital administrative records between 2003 and 2012, babies’ health is found to be strongly procyclical. A one-percentage point increase in the unemployment rate leads to an increase in low birth weight and preterm babies of respectively 1.3 and 1.4%, and a 0.1% decrease in foetal growth. We find heterogenous responses: unemployment has an effect on babies’ health which varies from strongly adverse in the most deprived areas, to mildly favourable in the most prosperous areas. We provide evidence of three channels that can explain the overall negative effect of unemployment on new-born health: maternal stress; unhealthy behaviours - namely excessive alcohol consumption and smoking; and delays in the takeup of prenatal services. While the heterogenous effects of unemployment by area of deprivation seem to be explained by maternal behaviour. Most importantly, we also show for the first time that selection into fertility is the main driver for the previously observed, opposite counter-cyclical results, e.g., Dehejia and Lleras-Muney (2004). Our results are robust to internal migration, different geographical aggregation of the unemployment rate, the use of gender-specific unemployment rates, and potential endogeneity of the unemployment rate which we control for by using a shift-share instrumental variable approach |
| JEL: | E24 I10 I12 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:102270&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Uchenna R. Efobi (CEPDeR, Covenant University, Ota, Nigeria); Belmondo V. Tanankem (MINEPAT, Cameroon); Evans S. Osabuohien (CEPDeR, Covenant University, Ota, Nigeria) |
| Abstract: | This study assesses the relationship between globalisation and the economic participation of women (EPW) in 47 Sub-Saharan African countries for the period 1990-2013. EPW is measured with the female labour force participation and employment rates. The empirical evidence is based on Panel-corrected Standard Errors and Fixed Effects regressions. The findings show that the positive effect of the overall globalisation index on EPW is dampened by its political component and driven by its economic and social components, with a higher positive magnitude from the former or economic globalisation. For the most part, the findings are robust to the control for several structural and institutional characteristics. An extended analysis by unbundling globalisation shows that the positive incidence of social globalisation is driven by information flow (compared to personal contact and cultural proximity) while the positive effect of economic globalisation is driven by actual flows (relative to restrictions). Policy implications are discussed with some emphasis on how to elevate women’s social status and potentially reduce their victimisation to male dominance. |
| Keywords: | Globalisation; female; gender; inequality; inclusive development; labour force participation; Africa |
| JEL: | E60 F40 F59 D60 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/019&r=all |
| By: | Hamza Saoudi |
| Abstract: | Ce papier évalue les effets asymétriques des cycles économiques sur le chômage et la pauvreté au Maroc, à travers un modèle VAR estimé sur des données trimestrielles allant de 2003 à 2012. Ce modèle inclut les composantes cycliques de quatre variables à savoir : l’output-gap, le salaire minimum réel, le taux de chômage et le taux de pauvreté. Afin de tester la robustesse des résultats, deux versions du modèle VAR ont été estimées, en utilisant les composantes cycliques calculées selon deux filtres statistiques, Hodrick-Prescott (1997) et Hamilton (2017). |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ocp:ppaper:rp19/01&r=all |
| By: | Kazeem B. Ajide (University of Lagos, Lagos, Nigeria); Olorunfemi Y. Alimi (University of Lagos, Lagos, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | Studies on the causes of income differences between the rich and the poor have received an extensive attention in the inequality empirics. While ethnic diversity hasalso been identified as one of the fundamental causes of income inequality, the role of institutions as a mediating factor in the ethnicity-inequality nexus has not received the scholarly attention it deserves. To this end, this study complements the existing literature by investigating the extent to which institutional framework corrects the noisy influence originating from the nexus between “ethnic diversity†and inequality in 26 sub-Saharan African countries for the period 1996-2015. The empirical evidence is based on pooled OLS, fixed effects and system GMM estimators. The main findings reveal that the mediating influences of institutional settingsaredefective, thus making it extremely difficult to modulatethe noisy impacts of ethno-linguistic and religious heterogeneity on inequality. In addition, the negative influencesorchestrated by ethnolinguistic and religious diversities on inequality fail toattenuate the impact of income disparityeven when interacted with institutions. On the policy front, institutional reforms tailored toward economic, political and institutional governances should be targeted. |
| Keywords: | Linguistic, religious, ethnicity, inequality, Institutions, Kuznets curve |
| JEL: | C23 D02 D63 E02 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/018&r=all |
| By: | International Monetary Fund |
| Abstract: | The government has in recent years implemented large-scale investments to develop transport and logistics infrastructures. Combined with business climate reforms, this development strategy has fueled strong growth and positioned Djibouti well to become a regional trade and logistics hub. However, it has come at the cost of rising debt vulnerabilities, and fiscal revenues have lagged due to large tax expenditure. Despite some progress on social indicators, unemployment and poverty remain high. |
| Date: | 2019–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/314&r=all |