nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒12‒02
ninety papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary Policy and Wealth Inequality over the Great Recession in the UK An Empirical Analysis By Haroon Mumtaz; Angeliki Theophilopoulou
  2. Monetary Aggregates and Macroeconomic Performance: the Portuguese Escudo, 1911-1999 By João Tovar Jalles
  3. Credit, Bankruptcy, and Aggregate Fluctuations By Nakajima, Makoto; Rios-Rull, Jose-Victor
  4. Firm-Level Political Risk: Measurement and Effects By Tarek A. Hassan; Stephan Hollander; Laurence van Lent; Ahmed Tahoun
  5. Anchored or de-anchored? That is the question By Francesco Corsello; Stefano Neri; Alex Tagliabracci
  6. Double Whammy: Implicit Subsidies and the Great Financial Crisis By Edward Kane
  7. Wages and prices in the euro area: exploring the nexus By Antonio M. Conti; Andrea Nobili
  8. Monetary Policy Transparency in Ghana: Recent Evidence By Akosah, Nana; Alagidede, Paul; Schaling, Eric
  9. Persistent Effects of Autonomous Demand Expansions By Daniele Girardi; Walter Paternesi Meloni; Antonella Stirati
  10. Firms' Inflation Expectations under Rational Inattention and Sticky Information: An Analysis with a Small-Scale Macroeconomic Model By Tomiyuki Kitamura; Masaki Tanaka
  11. Potential Output in Theory and Practice: A Revision and Update of Okun`s Original Method By Claudia Fontanari,; Antonella Palumbo; Chiara Salvatori
  12. Estimates of the Natural Rate of Interest and the Stance of Monetary Policies: A Critical Assessment By Enrico S. Levrero
  13. Lost in deflation: Why Italy`s woes are a warning to the whole Eurozone By Servaas Storm
  14. Negative Monetary Policy Rates and Systemic Banks’ Risk-Taking: Evidence from the Euro Area Securities Register By Johannes Bubeck; Angela Maddaloni; José-Luis Peydró
  15. Disinflationary shocks and inflation target uncertainty By Stefano Neri; Tiziano Ropele
  16. Output-volatility reducing effect of automatic stabilizers: Evidence from nine EMU member states By Şen, Hüseyin; Kaya, Ayşe
  17. The Propagation of Monetary Policy Shocks in a Heterogeneous Production Economy By Pasten, Ernesto; Schoenle, Raphael
  18. Negative monetary policy rates and systemic banks’ risk-taking: Evidence from the Euro area securities register By Johannes Bubeck; Angela Maddaloni; José-Luis Peydró
  19. Optimal monetary and macroprudential policies for financial stability in a commodity-exporting economy By Ivan Khotulev; Konstantin Styrin
  20. Heterogeneous Beliefs, Monetary Policy, and Stock Price Volatility By Katsuhiro Oshima
  21. The Impact of Uncertainty and Financial Shocks in Recessions and Booms By Salzmann, Leonard
  22. News and consumer card payments By Guerino Ardizzi; Simone Emiliozzi; Juri Marcucci; Libero Monteforte
  23. Wagner and the Fading Voracity Effect: Short vs. Long-Run Effects in Developing Countries By João Tovar Jalles
  24. A Skeptical Note on the Role of Constant Elasticity of Substitution in Labor Income Share Dynamics By Paul, Saumik
  25. State Expansionary Austerity and Reverse Causality: A Critique of the Conventional Approach By Christian Breuer
  26. Populism - What next? A first look at populist walking-stick economies By Christopher Ball; Andreas Freytag; Miriam Kautz
  27. Informed Corporate Credit Market Before Monetary Policy Surprises: Explaining Pre-FOMC Stock Market Movements By Farshid Abdi; Botao Wu;
  28. Differences in Euro-Area Household Finances and their Relevance for Monetary-Policy Transmission By Hintermaier, Thomas; Koeniger, Winfried
  29. Household Debt and Aging in Japan By Charles Yuji Horioka; Yoko Niimi
  30. Subjective Beliefs, Monetary Policy, and Stock Price Volatility By Katsuhiro Oshima
  31. Monetary policy regimes and inflation persistence in the United Kingdom By Shayan Zakipour-Saber
  32. ROMANIA’S FOREIGN DEBT CRISIS IN THE 1980s, Determinants and consequences By Georgescu, George
  33. Race to the Bottom: Low Productivity, Market Power, and Lagging Wages By Lance Taylor; Ozlem Omer
  34. Forecasting inflation in the euro area: countries matter! By Angela Capolongo; Claudia Pacella
  35. Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s By David Elliott; Ralf R. Meisenzahl; José-Luis Peydró; Bryce C. Turner
  36. Forecasting with instabilities: an application to DSGE models with financial frictions By Roberta Cardani; Alessia Paccagnini; Stefania Villa
  37. Monetary Easing, Leveraged Payouts and Lack of Investment By Viral V. Acharya; Guillaume Plantin
  38. The Formation of Firms' Inflation Expectations: A Survey Data Analysis By Haruhiko Inatsugu; Tomiyuki Kitamura; Taichi Matsuda
  39. A new economic policy uncertainty index for Spain By Corinna Ghirelli; Javier J. Pérez; Alberto Urtasun
  40. Bounded rationality in Keynesian beauty contests: A lesson for central bankers? By Mauersberger, Felix; Nagel, Rosemarie; Bühren, Christoph
  41. European integration in the time of mistrust By Francesco Spadafora
  42. Monetary Circuit, Capitalist Reproduction and Financial Accounting By Hernando Matallana
  43. Quantitative Easing and the Term Premium as a Monetary Policy Instrument By Etienne Vaccaro-Grange
  44. Parliamentary sovereignty and democratic accountability: matters of prerogative powers and legal reasoning By O D Delaney, Marianne
  45. Leverage over the Firm Life Cycle, Firm Growth, and Aggregate Fluctuations By Dinlersoz, Emin M.; Kalemli-Ozcan, Sebnem; Hyatt, Henry; Penciakova, Veronika
  46. Harnessing international remittances for financial development: The role of monetary policy By Haruna, Issahaku
  47. The Wharton School of the University of Pennsylvania By Gani Ramadani; Neda Predrag Pandiloski
  48. Liquidity Risk and Funding Cost By Alexander Bechtel; Angelo Ranaldo; Jan Wrampelmeyer
  49. Lithuanian house price index: modelling and forecasting By Laurynas Narusevicius; Tomas Ramanauskas; Laura Gudauskaitė; Tomas Reichenbachas
  50. Domestic and global determinants of inflation: evidence from expectile regression By Fabio Busetti; Michele Caivano; Davide Delle Monache
  51. Internal and External Determinants of Housing Price Booms in Hong Kong, China By Taghizadeh-Hesary, Farhad; Yoshino, Naoyuki; Chiu, Alvin
  52. Safe Asset Carry Trade By Benedikt Ballensiefen; Angelo Ranaldo
  53. The Predictive Power of the Term Spread on Inequality in the United Kingdom: An Empirical Analysis By Mehmet Balcilar; Edmond Berisha; Oguzhan Cepni; Rangan Gupta
  54. Toward Rebuilding of Modern Macroeconomic Theory: Market Failure in a Macro Economy and Keynes's Unemployment Equilibrium By Eizo Kawai
  55. An ARIMA analysis of the Indian Rupee/USD exchange rate in India By NYONI, THABANI
  56. The Effect of U.S. Stress Tests on Monetary Policy Spillovers to Emerging Markets By Emily Liu; Friederike Niepmann; Tim Schmidt-Eisenlohr
  57. Capital and public investment in Italy: macroeconomic effects, measurement and regulatory weaknesses By Fabio Busetti; Cristina Giorgiantonio; Giorgio Ivaldi; Sauro Mocetti; Alessandro Notarpietro; Pietro Tommasino
  58. Should the CCYB be enhanced with a sectoral dimension? The case of Italy By Roberta Fiori; Claudia Pacella
  59. Central bank tone and the dispersion of views within monetary policy committes By Paul Hubert; Fabien Labondance
  60. A simple model of time zone differences, virtual trade and informality By Mandal, Biswajit; Prasad, Alaka Shree
  61. What do almost 20 years of micro data and two crises say about the relationship between central bank and interbank market liquidity? Evidence from Italy By Massimiliano Affinito
  62. Drivers of bank loan growth in China: government or market? By Xiaohong Chen; Paul Wohlfarth
  63. Immobilienkredite in Deutschland und der Schweiz: Die Rolle von Zinsen und Zinsbindung By Clostermann, Jörg; Seitz, Franz
  64. The international transmission of US tax shocks: a proxy-SVAR approach By Luca Metelli; Filippo Natoli
  65. The expansion of consumer credit in Italy and in the Euro Area: what are the drivers and the risks? By Silvia Magri; Valentina Michelangeli; Sabrina Pastorelli; Raffaella Pico
  66. Consumption Insurance Against Wage Risk: Family Labor Supply and Optimal Progressive Income Taxation By Chunzan Wu; Dirk Krueger
  67. Is Monetary Policy Always Effective? Incomplete Interest Rate Pass-through in a DSGE Model By Hilde C. Bjørnland; Andrew Binning; Junior Maih
  68. Proxy structural vector autoregressions, informational sufficiency and the role of monetary policy By Mirela S. Miescu; Haroon Mumtaz
  69. Average Inflation Targeting and Interest-Rate Smoothing By Eo, Yunjong; Lie, Denny
  70. Markov-Switching Proxy BVARs By Shayan Zakipour-Saber
  71. Policy Maker's Credibility with Predetermined Instruments for Forward-Looking Targets By Jean-Bernard Chatelain; Kirsten Ralf
  72. Co-movement between residential and commercial housing prices: Evidence from a new database By Juan Carlos Cuestas
  73. Proxy VAR Models in a Data-Rich Environment By Martin Bruns
  74. La industria del cannabis medicinal en Colombia. Una ventana de oportunidad para la transformación productiva de Colombia By Juan Mauricio Ramírez; Luis Fernando Mejía; Fedesarrollo
  75. Why has Deflation Continued under Extraordinary Monetary Expansion? By KOBAYASHI Keiichiro
  76. Greece and the Euro: A Mundellian Tragedy By George Alogoskoufis
  77. Financial Conditions and 'Growth at Risk' in Italy By Piergiorgio Alessandri; Leonardo Del Vecchio; Arianna Miglietta
  78. Timely indicators for labour income inequality By Franecsca Carta
  79. Ven-ICE: a new indicator for the economy of the Veneto region By Massimo Gallo; Sonia Soncin; Andrea Venturini
  80. Inequality in the 21st Century:A Critical Analysis of Piketty`s Work By Nadia Garbellini
  81. "On the "Utilization Controversy": A Rejoinder and Some Comments" By Michalis Nikiforos
  82. Does austerity really kill? By Toffolutti, Veronica; Suhrcke, Marc
  83. Of clerks & cleaners: the heterogeneous impact of monetary policy on the US labor market By Zens, Gregor; Böck, Maximilian; Zörner, Thomas O.
  84. Expectations switching in a DSGE model for the UK By Anette Borge; Gunnar Bårdsen; Junior Maih
  85. Labor Market Frictions and Lowest Low Fertility By Guner, Nezih; Kaya, Ezgi; Sánchez Marcos, Virginia
  86. The European Central Bank, Italy and the next Eurozone crisis By Ryan, John
  87. New Zealand as a Niche Player in World Markets By Ralph G. Lattimore
  88. Polluting Emissions and GDP: Decoupling Evidence from Brazilian States By João Tovar Jalles
  89. Implications of Foreign Direct Investment, Capital Formation and its Structure for Global Value Chains By Amat Adarov; Robert Stehrer
  90. 41 Decisiones inaplazables para Bogotá. La ruta para llevarlas a cabo By Andi; ProBogotá; Fedesarrollo

  1. By: Haroon Mumtaz (Queen Mary, University of London); Angeliki Theophilopoulou (Brunel University London)
    Abstract: We use detailed micro information at household level from the Wealth and Assets Survey to construct measures of wealth inequality from 2005 to 2016 at the monthly frequency. We investigate the dynamic relationship between monetary policy and the evolution of wealth inequality measures. Our findings suggest that expansionary monetary policy shocks lead to an increase in wealth inequality and contributed significantly to its fluctuations. This effect is heterogeneous across the wealth distribution with the monetary shock affecting the median household relative to the 20th percentile by a larger amount than the right tail. Our results suggest that the shock is transmitted through changes in net property and financial wealth that constitute the bulk of total wealth of households near the median of the wealth distribution.
    Keywords: Inequality, Wealth, FAVAR, Monetary Policy Shocks
    JEL: D31 E21 E44 E52
    Date: 2019–10–31
  2. By: João Tovar Jalles
    Abstract: This paper takes a long time span approach to provide a full characterization of several monetary aggregates over Portuguese’s historical economic business cycles. By focusing on the 1911-1999 period (the life span of the currency Escudo), the paper also revisits the issue of the role of money on real macroeconomic outcomes. We get inspiration from the monetarists versus Keynesians debate about direction of causality in the output-money relation and the quest for validity of money (non-)neutrality. By means of descriptive statistics we first uncover that money changes were associated with changes in real economic activity. Most monetary aggregates are more volatile than GDP, display high serial autocorrelation, are generally countercyclical and lead the economic cycle (except checking accounts). Then, through formal time series techniques, our results show that our monetary series were characterized by unit roots and were cointegrated with real GDP (after accounting for endogenously estimated breaks). Evidence suggested that money supply Granger-caused real GDP supporting the money non-neutrality hypothesis in the case of Portugal.
    Keywords: monetary aggregates, unit roots, structural breaks, cointegration, causality
    JEL: E3 E44 E52
    Date: 2019–11
  3. By: Nakajima, Makoto (Federal Reserve Bank of Philadelphia); Rios-Rull, Jose-Victor (Federal Reserve Bank of Philadelphia)
    Abstract: We document the cyclical properties of unsecured consumer credit (procyclical and volatile) and of consumer bankruptcies (countercyclical and very volatile). Using a growth model with household heterogeneity in earnings and assets with access to unsecured credit (because of bankruptcy costs) and aggregate shocks, we show that the cyclical behavior of household earnings growth accounts for these properties, albeit not for the large volatility of credit. We find that tilting household consumption towards goods that can be purchased on credit and a slight countercyclicality in the terms of access to credit match the sizes of credit and bankruptcy volatilities. We also find that when the right to file for bankruptcy does not exist unsecured credit is countercyclical.
    Keywords: consumer credit; default; bankruptcy; debt; business cycle; heterogeneous agents; incomplete markets
    JEL: D91 E21 E32 E44 K35
    Date: 2019–11–21
  4. By: Tarek A. Hassan (Boston University); Stephan Hollander (Tilburg University); Laurence van Lent (Frankfurt School of Finance and Management); Ahmed Tahoun (London Business School)
    Abstract: We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm`s actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. These results continue to hold after controlling for news about the mean (as opposed to the variance) of political shocks. Interestingly, the vast majority of the variation in our measure is at the firm level rather than at the aggregate or sector level, in the sense that it is neither captured by the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter.
    Keywords: Political uncertainty, quantification, firm-level, lobbying
    JEL: D8 E22 E24 E32 E6 G18 G32 G38 H32
    Date: 2019–06
  5. By: Francesco Corsello (Bank of Italy); Stefano Neri (Bank of Italy); Alex Tagliabracci (Bank of Italy)
    Abstract: This paper shows that long-term inflation expectations have de-anchored from the ECB Governing Council’s inflation aim. Long-term expectations from the ECB’s Survey of Professional Forecasters have not returned to the levels that prevailed before the 2013-14 disinflation, and their distribution remains tilted to the downside. Long-term expectations have become sensitive to short-term ones and to negative surprises to inflation. Forecasters who have participated to most of the survey rounds are the most responsive to short-term developments in inflation.
    Keywords: inflation expectations, anchoring, monetary policy
    JEL: E31 E52 E58
    Date: 2019–10
  6. By: Edward Kane (Boston College)
    Abstract: This paper concerns itself with the joint effect of implicit subsidies that are built into the US housing-finance system and financial safety net. These subsidies are implicit because they are channeled through the regulatory, supervisory, and tax systems in hard-to-observe ways. In the last two economic booms, the stealthy way banks have pursued these subsidies allowed hidden leverage and arcane loss exposures to build up to a disastrous degree. When lenders` safety-net support was finally tested by creditor runs, the struggle to reallocate losses and loss exposures away from the banks that had concealed them pushed the world`s financial system into open crisis. Post-crisis regulatory reforms seem to have blunted the force of these subsidies, but the instruments assigned to this task are too weak to work for long. With the connivance of regulators, US megabanks are already re-establishing their ability to use dividends and stock buybacks to rebuild their leverage back to dangerous levels. Meantime a number of European megabanks (exemplified by Deutsche Bank) have remained in a zombie or near-zombie condition throughout the last decade. In the coming years, these banks' perilous condition and the possibility of extending safety-net coverage to support subsidized loans for bankrupt students, pension funds, and state and local entities could easily trigger another crisis. Besides trying to avoid future crises and directing bailouts when a crisis occurs, top regulators seem to believe that an important part of their job is to convince taxpayers that the next crash can be contained within the financial sector and won`t be allowed to hurt ordinary citizens in the ways that previous crises have. This paper seeks to convince readers that, until the law begins to hold individual bankers civilly and criminally responsible for using the safety net to enrich themselves by recklessly putting their banks` survival at risk, these rosy claims are bullsh*t.
    Keywords: Too big to fail, financial safety, financial reform, financial crises, implicit subsidies, political economy
    JEL: E02 E32 E42 E52 E58
    Date: 2018–09
  7. By: Antonio M. Conti (Bank of Italy); Andrea Nobili (Bank of Italy)
    Abstract: We investigate the structural relationship between wages dynamics and core inflation in the euro area using Bayesian VAR models. We find that the pass-through from wages to consumer prices net of food and energy is less than unity and depends on the nature of the shocks hitting the economy. A monetary policy shock implies a positive co-movement between these variables, which is similar in magnitude to that stemming from an aggregate demand shock. Financial shocks, as captured by credit spreads and indicators of systemic stress, are instead associated with a negative co-movement between wages and prices and generate firms’ countercyclical mark-ups, consistently with recent models featuring financial frictions and nominal rigidities. These findings may explain why the recent pick-up in wages is not associated with a sustained path of core inflation in the euro area.
    Keywords: wage-price pass-through, countercyclical mark-ups, financial shocks, Bayesian VAR
    JEL: E30 E32 E51
    Date: 2019–10
  8. By: Akosah, Nana; Alagidede, Paul; Schaling, Eric
    Abstract: Monetary policy involves a dual role as central banks must not only be a heedful observer of outcomes but must also be able to shape the outcomes. In view of this, greater policy transparency has been endorsed to boost credibility, effectiveness and flexibility of monetary policy. With more than a decade of practicing of fully-fledged IT regime, it is of paramount interest to ascertain the pace of policy transparency in Ghana. Consequently, this paper determines the extent of policy transparency in Bank of Ghana, utilizing both methodologies of Dincer and Eichengreen (2008) and Al-Mashat and others (2018). The application of the two transparency measures reveals that policy transparency environment of Bank of Ghana (BOG) has indeed improved since 2009. Our score suggests that monetary policy in Ghana is 41% -57% transparent as at end 2018. The relatively moderate score for BOG emanated largely from low level of transparency about its policy framework (FPAS model) and the procedural policy processes. To further boost transparency, BOG is required to increase transparency in the documentation and publication of the Bank’s core quarterly projection model, as well as evaluating and publishing how each decision on policy instrument or target are attained. Publication of other core variables (aside inflation) in the baseline forecasts and regular external evaluation of the policy framework along with public disclosure of the findings are necessary to boost policy transparency.
    Keywords: Transparency Inflation targeting Accountability Monetary Policy Ghana
    JEL: E0 E3 E31 E52 E58
    Date: 2019–09
  9. By: Daniele Girardi (University of Massachusetts, Amherst.); Walter Paternesi Meloni (Roma Tre University); Antonella Stirati (Roma Tre University)
    Abstract: The prevailing wisdom that aggregate demand shocks determine short-run cyclical fluctuations around a supply-determined equilibrium growth rate and an associated equilibrium unemployment rate (or NAIRU) has been called into question by various strands of literature over the last few decades. Specifically, a recently revived literature on hysteresis finds significant persistence in the effects of negative aggregate demand shocks (e.g. Blanchard et al. 2015; Fatas and Summers 2016; Martin et al. 2015). This paper aims to assess this tendency to return to a supply-determined potential output, independent of aggregate demand, after episodes of demand expansion. In line with the hysteresis literature, we assess the persistence of aggregate demand effects on key macroeconomic outcomes. However, in contrast with much of that literature, we assess whether persistence is detected also in instances of demand expansion. We study 94 episodes of demand expansion in 34 OECD countries between 1960 and 2015. We look at the sum of primary public expenditure and exports, a variable we call `autonomous demand`. We define an expansion as a large yearly percentage increase in autonomous demand, `large` meaning greater than a standard deviation above the country mean. We analyze the impact of these expansions on key macroeconomic outcomes in the subsequent decade, using various techniques to deal with endogeneity. We employ two main approaches: a dynamic two-way fixed-effects model, analogous to a standard difference-in-differences estimation; and a propensity score-based specification which explicitly models selection bias. We find a highly significant persistent effect on the GDP level: a one-off expansion in our autonomous demand variable by (an average of) 5% is associated 10 years later with a GDP level around 3% higher than in the control group, with no sign of mean reversion. We also document strong persistent effects on capital stock, employment and participation rates. Effects on productivity and the unemployment rate are also strong and quite persistent, but evidence regarding their permanence is more mixed. We do not find that expansions, on average, cause high or accelerating inflation. Our results lead us to ask whether hysteresis should be considered a distortion in the working of market economies that holds only in specific circumstances – as the mainstream literature has generally suggested – or whether it is, in fact, a pervasive phenomenon which holds most of the time.
    Keywords: Hysteresis; Aggregate demand and potential output; Inflation and unemployment; capital formation; Keynesian economics
    JEL: E12 E22 E23 E24 E62
    Date: 2018–02
  10. By: Tomiyuki Kitamura (Bank of Japan); Masaki Tanaka (Bank of Japan)
    Abstract: In this paper, we construct a small-scale macroeconomic model that incorporates three hypotheses on the formation of inflation expectations: the full-information rational expectations (FIRE), rational inattention, and sticky information hypotheses. Using data for Japan, including survey data on firms' inflation expectations, we estimate the model to examine the empirical validity of each hypothesis, and analyze how rational inattention and sticky information affect the dynamics of firms' inflation expectations. Our main findings are twofold. First, each one of the three hypotheses has a role to play in explaining the mechanism of the formation of firms' inflation expectations in Japan. In this sense, the manner in which firms form their inflation expectations in Japan is complex. Second, although firms' inflation expectations have been pushed up by the Bank of Japan's introduction of its "price stability target" and the expansion in the output gap amid the Bank's Quantitative and Qualitative Monetary Easing (QQE), the presence of rational inattention and information stickiness has slowed the pace of the rise in firms' inflation expectations.
    Keywords: Survey inflation expectations; Rational inattention; Sticky information
    JEL: D84 E31 E52
    Date: 2019–11–22
  11. By: Claudia Fontanari, (Roma Tre University.); Antonella Palumbo (Roma Tre University.); Chiara Salvatori (Roma Tre University.)
    Abstract: This paper challenges the mainstream view of potential output, and enquires into the supposed effects of Great Recession on potential growth. We identify in the demand-led growth perspective a more promising theoretical framework both to define the notion and to gauge the long-term effects of a demand slow down. Based on the poor reliability of standard estimates of potential output, we also propose an alternative calculation. This is based on an update of Arthur M. Okun`s original method for estimating potential output, which, differently from the estimation methods currently in use, does not rely on the notion of NAIRU, thus being immune to its theoretical and empirical shortcomings. Our calculation, based on a re-estimation of Okun`s Law on US quarterly data, shows both how far an economy generally operates from its production possibilities, and how much potential growth is affected by the actual growth of demand over time. These wide margins for expansion of actual and potential output growth imply that a determined policy of demand expansion would create, given time, the very capacity that justifies it.
    Keywords: potential output; Okun`s law; unemployment; demand-led growth
    JEL: E60 E23 E24 O40 E11 E12 C22
    Date: 2019–03
  12. By: Enrico S. Levrero (Roma Tre University)
    Abstract: Starting with the literature on the estimates of the natural rate of interest, this paper critically analyzes the modern practice of identifying the benchmark rate of monetary policy with an equilibrium or neutral interest rate reflecting `fundamental forces` unaffected by monetary factors. After briefly mentioning the determinants of the natural rate of interest in the New- Keynesian models, the paper discusses the different notions of it that we find in these models and the problems encountered when the natural rate is estimated. It states that these problems are not only related to the difficulties in distinguishing the kind and persistency of economic shocks, but pertain to theory, namely to model specification and the alleged independence of the average or normal interest rate from monetary policy. Following Keynes`s suggestion regarding the monetary nature of interest rates, some final remarks will thus be advanced on their effects on prices and income distribution as well as on the objectives and stance of monetary policies.
    Keywords: Natural rates of interest, Structural and semi-structural models, Monetary policies,Taylor-rule, Interest rates and income distribution
    JEL: E43 E52 E58 E13 E12 E11
    Date: 2019–01
  13. By: Servaas Storm (Delft University of Technology, The Netherlands)
    Abstract: Using macroeconomic data for 1960-2018, this paper analyzes the origins of the crisis of the `post-Maastricht Treaty order of Italian capitalism`. After 1992, Italy did more than most other Eurozone members to satisfy EMU conditions in terms of self-imposed fiscal consolidation, structural reform and real wage restraint and the country was undeniably successful in bringing down inflation, moderating wages, running primary fiscal surpluses, reducing unemployment and raising the profit share. But its adherence to the EMU rulebook asphyxiated Italy`s domestic demand and exports—and resulted not just in economic stagnation and a generalized productivity slowdown, but in relative and absolute decline in many major dimensions of economic activity. Italy`s chronic shortage of demand has clear sources: (a) perpetual fiscal austerity; (b) permanent real wage restraint; and (c) a lack of technological competitiveness which, in combination with an overvalued euro, weakens the ability of Italian firms to maintain their global market shares in the face of increasing competition of low-wage countries. These three causes lower capacity utilization, reduce firm profitability and hurt investment, innovation and diversification. The EMU rulebook thus locks the Italian economy into economic decline and impoverishment. The analysis points to the need to end austerity and devise public investment and industrial policies to improve Italy`s `technological competitiveness` and stop the structural divergence between the Italian economy and France/Germany. The issue is not just to revive demand in the short run (which is easy), but to create a self-reinforcing process of investment-led and innovation-driven process of long-run growth (which is difficult).
    Keywords: Italian macroeconomic performance; Eurozone; secular stagnation; demand; real wage restraint; fiscal austerity; export growth.
    JEL: E20 E60 F60 O10 O40
    Date: 2019–04
  14. By: Johannes Bubeck; Angela Maddaloni; José-Luis Peydró
    Abstract: We show that negative monetary policy rates induce systemic banks to reach-for-yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private sector (financial and non-financial) securities and dollar-denominated securities. Affected banks also take higher risk in loans.
    Keywords: negative rates, non-standard monetary policy, reach-for-yield, securities, banks
    JEL: E43 E52 E58 G01 G21
    Date: 2019–11
  15. By: Stefano Neri (Bank of Italy); Tiziano Ropele (Bank of Italy)
    Abstract: In New Keynesian models favourable cost-push shocks lower inflation and increase output. Yet, when the central bank�s inflation target is not perfectly observed these shocks turn contractionary as agents erroneously perceive a temporary reduction in the target. This effect is amplified when monetary policy is constrained by the effective lower bound on the policy rate.
    Keywords: inflation target, imperfect information, monetary policy
    JEL: E31 E52 E58
    Date: 2019–07
  16. By: Şen, Hüseyin; Kaya, Ayşe
    Abstract: In this paper, we explore the output-volatility reducing role of automatic stabilizers in the nine EMU member states comprising Austria, Finland, France, Germany, Ireland, Italy, Portugal, the Netherlands, and Spain for the period 1995-2017. Overall, the empirical results obtained by using the Pooled Mean Group estimator proposed by Pesaran et al. (1999) suggest that automatic stabilizers deliver a significant counter-effect on output volatility measured by the real GDP per capita volatility in the short run. More specifically, output-volatility responses to automatic stabilizers by a reduction between -1.2 and -9.7 percentage points depending on the proxy measure used for automatic stabilizers. However, the output-volatility reducing effect of automatic stabilizers is statistically insignificant in the long run. The results support the view that automatic stabilizers are an important fiscal mechanism for the short-run output stabilization, but their output-volatility offsetting role is largely subject to what the proxy measures are used for automatic stabilizers.
    Keywords: Automatic stabilizers,Fiscal policy,PMG estimator,EMU member states
    JEL: E31 E32 E62
    Date: 2019
  17. By: Pasten, Ernesto (Central Bank of Chile); Schoenle, Raphael (Federal Reserve Bank of Cleveland)
    Abstract: Realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages in the transmission of monetary policy shocks. Quantitatively, heterogeneity in price stickiness is the central driver for real effects. Input-output linkages and consumption shares alter the identity of the most important sectors to the transmission. Reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and ignoring heterogeneous consumption shares and input-output linkages identifies the wrong sectors from which the real effects originate.
    Keywords: input-output linkages; multi-sector Calvo model; monetary policy;
    JEL: E31 E32 O40
    Date: 2019–11–15
  18. By: Johannes Bubeck; Angela Maddaloni; José-Luis Peydró
    Abstract: We exploit the ECB’s negative interest rate policy (NIRP) and administrative data from Italy, severely hit by the Eurozone crisis, to study the transmission of NIRP to the economy through the banking system. NIRP has expansionary effects on credit supply—and hence the real economy— through a portfolio rebalancing channel. By contrast, there is no evidence of a retail deposits channel. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets. NIRP-affected banks rebalance their portfolios from liquid assets to credit—especially to riskier and smaller firms—and cut loan rates, inducing sizable real effects. By shifting the entire yield curve downward, NIRP differs from rate cuts just above the ZLB.
    Keywords: Negative rates, non-standard monetary policy, reach-for-yield, securities, banks
    JEL: E43 E52 E58 G01 G21
    Date: 2019–03
  19. By: Ivan Khotulev (Bank of Russia, Russian Federation); Konstantin Styrin (Bank of Russia, Russian Federation)
    Abstract: We develop a model to analyze the optimal combination of macroprudential and monetary policies in a small open commodity-exporting economy. Unlike a closed economy, where monetary and macroprudential policies tend to be substitutes, in a small open economy the optimal policy mix depends on the specifics of shocks and economic structure. Monetary and macroprudential policies tend to be complements when the degree of pass-through of credit spreads into marginal costs and prices is sufficiently high, or when a credit boom is caused by a commodity boom, a fraction of consumers lacks access to financial markets, and the government follows a fiscal policy rule. The two policies are substitutes when the complementarity between domestic and imported production inputs is sufficiently high.
    Keywords: Monetary policy, macroprudential policy, financial stability, commodity exporter, small open economy.
    JEL: E52 E58 G01 G28
    Date: 2019–11
  20. By: Katsuhiro Oshima (Graduate School of Economics, Kyoto University)
    Abstract: This paper investigates how the stance of monetary policy affects stock price volatilities in an economy where two types of households with subjective and objective beliefs about expected capital gains from stock prices exist. I assume that investors construct subjective beliefs about expected capital gains by Bayesian learning from observed growth rates of stock prices. In a model with only homogenous subjective beliefs, the effect of the interest rate on stock prices tends to be unrealistically strong. In contrast, assuming heterogeneity by including investors with both subjective and objective beliefs improves the fit of theoretical moments to the data and especially helps to explain stock price volatility under interest rate shocks with conventional sizes. This quantitative improvement in stock price reactions to interest rate shocks allows me to conduct realistic analysis about how the stance of monetary policy affects stock price volatilities. Strong inertia of monetary policy rule does not necessarily reduce asset price volatilities. This depends on what kind of shock the economy is experiencing. When the monetary policy is persistent, stock price volatilities magnify under an unexpected monetary policy shock
    Keywords: stock price, asset pricing, heterogeneity, subjective belief, monetary policy, sticky prices, New Keynesian
    JEL: D83 D84 E44 E52 G12 G14
    Date: 2019–11
  21. By: Salzmann, Leonard
    Abstract: The literature has widely discussed the role of financial and economic uncertainty shocks for the macroeconomy. However, empirically isolating them is difficult and uncertainty is increasingly considered as endogenous with respect to financial and other shocks. To obtain a more complete picture I model financial and uncertainty shocks jointly in a state-dependent FAVAR setup and provide agnostic identification bounds on their effects. Results for the U.S. document that (i) uncertainty shocks are of limited relevance for real activity and asset prices in boom periods but have significantly contractionary effects in recessions. (ii) By comparison, financial shocks have higher explanatory power for asset prices and are contractionary both in recessions and boom periods. (iii) Financial conditions are key for understanding uncertainty shocks. (iv) Uncertainty transmits financial shocks to a notable degree in recessions.
    Keywords: Macroeconomic tail events,nonlinear FAVARs,financial shocks
    JEL: E32 E44
    Date: 2019
  22. By: Guerino Ardizzi (Bank of Italy); Simone Emiliozzi (Bank of Italy); Juri Marcucci (Bank of Italy); Libero Monteforte (Bank of Italy and Parliamentary Budget Office)
    Abstract: We exploit a unique daily data set on debit card expenditures to study the reaction of consumers to daily news relating to Economic Policy Uncertainty (EPU). Payments with debit cards are a proxy for consumption in the quarterly national accounts. Using big data techniques we construct daily EPU indexes, using either articles from Bloomberg news-wire or tweets from Twitter. Our empirical analysis at high frequency required estimates of daily seasonal components, finding strong patterns both within the week and within the month. Using local projections we find that daily shocks to EPU temporarily reduce debit card purchases, especially during the recent crisis; the main results are confirmed using monthly data and controlling for financial uncertainty and macroeconomic surprises. Furthermore, economic policy uncertainty affects the ratio between ATM withdrawals and debit card purchases, signaling an increase in households' preference for cash.
    Keywords: consumption, payment system, policy uncertainty, big data, daily seasonality, local projections
    JEL: C11 C32 C43 C52 C55 E52 E58
    Date: 2019–10
  23. By: João Tovar Jalles
    Abstract: This paper empirically revisits the validity of Wagner’s proposition in a panel of 149 developing countries between 1980-2015 by focusing on different components of government expenditure. We rely on an ARDL approach which allow us to uncover short and long-run cyclicality coefficients. Our results do not overwhelmingly support the existence of higher than unity long-run elasticities of government spending components vis-a-vis economic growth, suggesting that the Wagner’s regularity is more the exception than the norm. Moreover, the case for voracity is fading away as developing countries catch-up the development ladder and graduate from procyclicality. In fact, most short-run elasticities are countercyclical. Finally, some macroeconomic and institutional and political characteristics affect the degree of government spending cyclicality.
    Keywords: government expenditure; fiscal policy; government size; political economy; mean group; panel stationarity; cross-sectional dependency; weighted least squares; autoregressive distributed lag
    JEL: C33 E62 H50 O47
    Date: 2019–11
  24. By: Paul, Saumik (Asian Development Bank Institute)
    Abstract: The constancy of the elasticity of factor substitution (σ) makes its role as a driver of the labor income share exogenous. The constant elasticity of substitution (CES) production function has predominantly been used to support this causal relationship. We argue that (i) capital-labor ratio determines the value of σ, and (ii) both capital-labor ratio and σ vary over time. We use a variable elasticity of substitution (VES) production framework that allows both labor income share and σ to change over time. Statistically significant empirical support is provided using the Japanese industrial productivity data. This suggests that the CES model may not be an ideal choice to examine the factor income share dynamics.
    Keywords: substitution elasticity; labor income share; production function parameters
    JEL: E21 E22 E25
    Date: 2019–04–22
  25. By: Christian Breuer (Chemnitz University of Technology)
    Abstract: In this paper we methodologically review and criticize a broad literature of empirical work on the effects of fiscal policy (the `conventional approach`). Beyond previous critiques of this approach, we show that the cyclical adjustment strategy as used in this literature entails erroneous assumptions that necessarily produce flawed results in support of expansionary austerity. Specifically, the cyclically-adjusted primary balance (CAPB) strategy this literature employs fails to correct for cyclical effects in the expenditure GDP ratio, so that the estimates of the results of expansionary fiscal consolidation are affected by reverse causality, i.e. increasing GDP causally decreases expenditure GDP ratios, rather than vice versa. We provide suggestions on how to fix this incomplete cyclical adjustment problem with a new approach. After replicating two famous articles of the conventional literature and controlling for this bias, the expansionary effects of fiscal adjustments disappear or turn into their opposites.
    Keywords: Austerity; Fiscal adjustment; Conventional approach; Blanchard method; Cyclical adjustment; Reverse causality
    JEL: E60 E62 E65
    Date: 2019–06
  26. By: Christopher Ball (Quinnipiac University); Andreas Freytag (Friedrich-Schiller-University Jena, University of Stellenbosch, CESifo Research Network); Miriam Kautz (Friedrich-Schiller-University Jena)
    Abstract: The recent rise in populist governments has led to much work on the question "why now?". Our work takes the next logical step by asking "what next?". That is, given populists in power, what should we expect to be the economic consequences of populist regimes. To answer this, we characterize populist economic policies and argue that they generate an inverted J-curve effect, which we term a "walking stick" effect, in macro-level data, specifically GDP and inflation. To test this claim, we construct a unique data set on 13 Latin American countries from 1976 to 2012 and incorporate more modern and nuanced definitions of populism. Our contribution is both to test the walking stick claim and to present a novel dataset for studying the economic effects of populism. We find compelling evidence for our walking stick hypothesis in both GDP per capita and inflation, suggesting that the answer to "what next" is that we will see on average short-run booms followed by declines under populist regimes.
    Keywords: Populism, Latin America, Business Cycle, Political Economy
    JEL: E39 E60 H11 N16
    Date: 2019–11–22
  27. By: Farshid Abdi; Botao Wu;
    Abstract: We show that U.S. corporate bond market movements during the days preceding FOMC announcements can predict monetary policy surprises, as well as the pre-FOMC stock market movements. Starting several days before an expansionary (contractionary) surprise in FOMC decisions, corporate bond prices surge (decline) and yield spreads decline (surge). The pattern is statistically and economically significant. Moreover, corporate bond customers buy (sell) more often from dealers before expansionary (contractionary) surprises, suggesting that in aggregate they have more accurate information about the outcome of FOMC announcements. A portfolio that mimics customer trades is profitable with a Sharpe ratio of 0.64 and is profitable before both contractionary and expansionary surprises. Furthermore, consistent with the informativeness of corporate bond transactions, we show that lagged corporate bond customer-dealer trade imbalances can predict pre-FOMC stock market movements and explain pre-FOMC drift. Corporate bond yield changes "Granger-cause" stock pre-FOMC movements, and a 1% surge in the constructed TRACE bond yield during a 2 p.m.-to-2 p.m. period ending one day before an FOMC announcement, predicts a 5.8% decline in the S&P 500 index for the 2 p.m.-to-2 p.m. period ending on the FOMC meeting day. This bond-to-stock granger causality does not exist for non-pre-FOMC periods and is stronger for the companies with higher probability of default.
    Keywords: Pre-FOMC Announcement Drift, Corporate Bond, Credit Risk, Enhanced TRACE, TAQ
    JEL: G10 G12 E44 E52
    Date: 2018–08
  28. By: Hintermaier, Thomas (University of Bonn); Koeniger, Winfried (University of St. Gallen)
    Abstract: This paper quantifies the extent of heterogeneity in consumption responses to changes in real interest rates and house prices in the four largest economies in the euro area: France, Germany, Italy, and Spain. We first calibrate a life-cycle incomplete-markets model with a financial asset and housing to match the large heterogeneity of households asset portfolios, observed in the Household Finance and Consumption Survey (HFCS) for these countries. We then show that the heterogeneity in household finances implies that responses of consumption to changes in the real interest rate and in house prices differ substantially across countries, and within countries by household characteristics such as age, housing tenure, and asset positions. The different consumption responses quantified in this paper point towards important heterogeneity in monetary-policy transmission in the euro area.
    Keywords: european household portfolios, consumption, monetary policy transmission, international comparative finance, housing
    JEL: D14 D31 E21 E43 G11
    Date: 2019–11
  29. By: Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Osaka University, Asian Growth Research Institute, and National Bureau of Economic Research); Yoko Niimi (Doshisha University and Asian Growth Research Institute)
    Abstract: In this paper, we analyze the borrowing behavior of Japanese households in comparison to the other Group of Seven (G7) countries and also broken down by the age group of the household head. We find that pre-retirement households (households with a head in the 50-59 age group) in Japan do not have inordinate amounts of debt and that their financial health is satisfactory. However, we also find that households with a head in the 30-39 age group have shown a sharp increase in debt holdings in recent years, due partly to the fact that tax breaks for housing purchase, reforms in the housing loan market since the early 2000s, and expansionary monetary policy enabled Japanese households to purchase housing at a younger age than they could previously. We therefore need to monitor the borrowing behavior of this cohort over time as the Bank of Japan normalizes its monetary policy, especially since households have become more vulnerable to rising interest rates as the share of households who have chosen variablerate housing loans has increased in recent years.
    Keywords: Aging, Borrowing, Debt, Households, Housing, Japan, Liabilities, Loans, Retirement
    JEL: D14 E21 J14 R21
    Date: 2019–11
  30. By: Katsuhiro Oshima (Graduate School of Economics, Kyoto University)
    Abstract: The main purpose of this study is to understand how the stance of monetary policy affects stock price volatility in a New Keynesian model with investors who have subjective beliefs about stock price growth. I assume that investors construct subjective beliefs about expected capital gains from stock prices by Bayesian learning from observed growth rates of stock prices. I design the model so that the effects of the existence of subjective households are minimal, i.e., it affects only stock prices. I find that higher monetary policy persistence increases stock price volatilities under the interest rate shock because the subjective beliefs imply myopic pricing in which near-term pricing kernels (or real interest rates) and near-term dividends matter. This result contrasts with stock pricing under the rational expectation, in which future discounted dividends matter.
    Keywords: stock price, asset pricing, subjective belief, sticky prices, New Keynesian
    JEL: D83 D84 E44 E52 G12 G14
    Date: 2019–11
  31. By: Shayan Zakipour-Saber (Central Bank of Ireland)
    Abstract: This paper conducts a structural analysis of inflation persistence in the United Kingdom between 1965-2009. I allow for the possibility of shifts in the UK economy by estimating open-economy dynamic stochastic general equilibrium models in which parameters of a Taylor-type monetary policy rule, New Keynesian Phillips curve, and volatilities of structural economic shocks, follow Markov processes (Markov-switching DSGEs). The best-fitting model allows for changes in monetary policy and stochastic shock volatility. The first policy regime responds passively to movements in inflation, adjusting the nominal interest rate less than one-for-one and is estimated to be in place from the early 1970s until the late 1980s. The other regime responds actively to inflation and places less weight on exchange rate movements. This regime is present for the rest sample and almost coincides with the period after the Bank of England explicitly adopted an inflation target in 1992. I find a small but insignificant decrease in inflation persistence in the policy regime that responds more actively to inflation.
    Keywords: Markov-Switching, DSGE, Inflation persistence, Bayesian estimation
    JEL: C11 E31 E52
    Date: 2019–10–15
  32. By: Georgescu, George ("Costin C. Kirițescu" National Institute for Economic Research, Romanian Academy)
    Abstract: Based on more recent research and evidence, including declassified information regarding the communist period in Romania, the study focuses on examining the 1980s foreign debt crisis context, its determinants and consequences, the impact of internal and external factors, intending to provide an image closer to reality of this dramatic episode. The global economy faced a severe economic and financial crisis at the beginning of the 1980s, when more than 30 developing countries entered default or restructuring on the sovereign debt. In the case of Romania, the impact of the foreign debt crisis triggered in 1981-1982 proved to be extremely hard, worsened by the overlap between the internal vulnerabilities accumulated in previous decades and the external shock coming from the major changes in the global economic, financial and geopolitical context at the end of 1979. The FED monetary policy at that time has led to the explosive rise in interest rates of the outstanding loans contracted from international commercial banks, to which Romania was highly indebted. The decision of simple-minded Ceausescu to liquidate the foreign debt and other serious errors concerning the crisis management had a destructive impact on the Romanian economy, which degenerated in a system crisis ended with its implosion in December 1989. Some consequences of the foreign debt crisis were felt also afterwards, slowing down significantly the pace of Romania’s transition to the market economy.
    Keywords: foreign debt crisis; oil crisis shocks; IMF; FED monetary policy; interest rates; sovereign debt restructuring; Romania
    JEL: B22 E44 E62 F34 H63 N44
    Date: 2018–10
  33. By: Lance Taylor (New School for Social Research); Ozlem Omer (New School for Social Research)
    Abstract: `Dualism` in the structure of production across sectors of the US economy, employment by sector, productivity levels and growth, real wages, and intersectoral terms-of trade increased markedly between 1990 and 2016. The discussion focuses on 16 sectors. Seven were `stagnant` - construction, education and health, other services, entertainment, accommodation and food, business services, and transportation and warehousing. They had low productivity levels, productivity growth rates hovering around zero, and low real wages. Their share of total employment rose from 47% in 1990 to 61% in 2016. The other `dynamic` sectors had higher and positively growing productivity while the terms-of- trade shifted against them. This bifurcation between industries is discussed in terms of a simple model. Increasing duality and secular stagnation are distinct possibilities.
    Keywords: economic dualism, industrial structure, productivity, low wages, employment
    JEL: D31 D33 E2 E12 E24 J40 L11
    Date: 2018–08
  34. By: Angela Capolongo (ECARES, Université Libre de Bruxelles); Claudia Pacella (Bank of Italy)
    Abstract: We construct a Bayesian vector autoregressive model with three layers of information: the key drivers of inflation, cross-country dynamic interactions, and country-specific variables. The model provides good forecasting accuracy with respect to the popular benchmarks used in the literature. We perform a step-by-step analysis to shed light on which layer of information is more crucial for accurately forecasting euro area inflation. Our empirical analysis reveals the importance of including the key drivers of inflation and taking into account the multi-country dimension of the euro area. The results show that the complete model performs better overall in forecasting inflation excluding energy and unprocessed food, while a model based only on aggregate euro area variables works better for headline inflation.
    Keywords: inflation, forecasting, euro area, Bayesian estimation
    JEL: C32 C53 E31 E37
    Date: 2019–06
  35. By: David Elliott; Ralf R. Meisenzahl; José-Luis Peydró; Bryce C. Turner
    Abstract: We show that credit supply effects and associated real effects of monetary policy depend on the size of nonbank presence in the respective lending market. Nonbank presence also alters how monetary policy affects the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase credit supply and risk-taking by banks, we find that higher monetary policy rates shifts credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially across lending markets. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment.
    Keywords: negative rates, non-standard monetary policy, reach-for-yield, securities, banks
    JEL: E51 E52 G21 G23 G28
    Date: 2019–11
  36. By: Roberta Cardani (European Commission); Alessia Paccagnini (University College Dublin); Stefania Villa (Bank of Italy)
    Abstract: We assess the importance of parameter instabilities from a forecasting standpoint in a set of medium-scale DSGE models with and without financial frictions using US real-time data. We find that failing to update DSGE model parameter estimates with new data arrival deteriorates point forecasts due to the estimated parameters variation. We also find that the presence of financial frictions helps to better forecast GDP and inflation.
    Keywords: Bayesian estimation, forecasting, financial frictions, parameter instabilities
    JEL: C11 C13 C32 E37
    Date: 2019–10
  37. By: Viral V. Acharya; Guillaume Plantin
    Abstract: This paper studies a model in which a low monetary policy rate lowers the cost of capital for entrepreneurs, potentially spurring productive investment. Low interest rates, however, also induce entrepreneurs to lever up so as to increase payouts to equity. Whereas such leveraged payouts privately benefit entrepreneurs, they come at the social cost of reducing their incentives thereby lowering productivity and discouraging investment. If leverage is unregulated (for example, due to the presence of a shadow-banking system), then the optimal monetary policy seeks to contain such socially costly leveraged payouts by stimulating investment in response to adverse shocks only up to a level below the first-best. The optimal monetary policy may even consist of “leaning against the wind,” i.e., not stimulating the economy at all, in order to fully contain leveraged payouts and maintain productive efficiency.
    JEL: E52 E58 G01 G21 G23 G28
    Date: 2019–11
  38. By: Haruhiko Inatsugu (Bank of Japan); Tomiyuki Kitamura (Bank of Japan); Taichi Matsuda (Bank of Japan)
    Abstract: In this paper, using both semi-aggregate and firm-level survey data of the inflation expectations of Japanese firms, we examine the empirical validity of three hypotheses on the formation of inflation expectations: the full-information rational expectations (FIRE), noisy information, and sticky information hypotheses. Our main findings are as follows. First, the results of our panel VAR analysis using semi-aggregate data show that, while firms' inflation expectations have a forward-looking aspect consistent with FIRE, they are not fully consistent with FIRE in that they tend to incorporate the changes in the actual inflation rate only gradually. Second, the forecast errors of semi-aggregate inflation expectations correlate with the past revisions of expectations, implying that FIRE does not hold for all firms. Third, the results of firm-level dynamic panel regressions show that firms' inflation expectations depend to a great extent on their past expectations, which is consistent with both the noisy information and sticky information hypotheses. The regression results also show that the short-term expectations of small firms are influenced by their perception of their own business conditions, which is consistent with the noisy information hypothesis, especially the rational inattention variant. These findings suggest that firms in Japan form their inflation expectations in a complex manner that cannot be described by a single theory.
    Keywords: Firms' inflation expectations; Survey data; FIRE; Noisy information; Sticky information
    JEL: D84 E31 E52
    Date: 2019–11–22
  39. By: Corinna Ghirelli (Banco de España); Javier J. Pérez (Banco de España); Alberto Urtasun (Banco de España)
    Abstract: We construct a new Economic Policy Uncertainty (EPU) index for Spain, building on the influential methodology of Baker, Bloom and Davis (2016), and compare it with the EPU for Spain that these authors provide. We refine the index in several dimensions: we expand the headline newspaper coverage from 2 to 7, including economic-financial ones, use a much richer set of keywords to form the search expressions, and cover a longer sample period. Two results stand out: (i) the new index presents a more consistent chronology of economic policy events; (ii) the macroeconomic effects of uncertainty shocks identified from the new index yield significant negative responses of GDP, private consumption and private investment, compared to mute responses obtained using the original one. Beyond the results for the Spanish case, our results suggest that, in addition to the richness of the keywords in the search expressions, widening the press and time coverage is key to improve the quality of the aggregate EPU index.
    Keywords: economic uncertainty, policy uncertainty, uncertainty shocks.
    JEL: D8 C43 E2 E3
    Date: 2019–03
  40. By: Mauersberger, Felix; Nagel, Rosemarie; Bühren, Christoph
    Abstract: The goal of this paper is to show how adding behavioral components to micro-foundated models of macroeconomics may contribute to a better understanding of real world phenomena. The authors introduce the reader to variations of the Keynesian Beauty Contest (Keynes, The General Theory of Employment, Interest, and Money, 1936), theoretically and experimentally with a descriptive model of behavior. They bridge the discrepancies of (benchmark) solution concepts and bounded rationality through step-level reasoning, the so-called level-k or cognitive hierarchy models. These models have been recently used as building blocks for new behavioral macro theories to understand puzzles like the lacking rise of inflation after the financial crisis, the effectiveness of quantitative easing, the forward guidance puzzle and the effectiveness of temporary fiscal expansion.
    Keywords: beauty contest game,expectation formation,equilibration,level-k reasoning,macroeconomics,game theory,experimental economics
    JEL: E12 E13 D80 D9 C91
    Date: 2019
  41. By: Francesco Spadafora (Bank of Italy and International Monetary Fund)
    Abstract: This paper reviews the debate on completing the institutional architecture of the European Economic and Monetary Union (EMU). In response to the sovereign debt crisis, reforms have resulted in significant progress towards greater integration, as best epitomized by the establishment of the European Stability Mechanism and the first two pillars of a Banking Union. In addition, the fiscal governance framework has been overhauled, with stricter rules and more powers at the supranational level to affect national budgetary policies. Because of these reforms, as well as of other policy measures at the national level, risks in the sovereign and banking sectors have been substantially reduced. The paper argues that major advances in risk reduction have not been matched by parallel progress in risk sharing: this asymmetry leaves the EMU vulnerable and may undermine its longer-term viability. Priority needs to be given to closing the gap between risk sharing and risk reduction as, at the current juncture, the former is in and of itself a conduit for the latter.
    Keywords: economic and monetary union, banking union, fiscal capacity, sovereign-bank nexus
    JEL: E58 E62 F42 F45 G28 H63
    Date: 2019–10
  42. By: Hernando Matallana
    Abstract: A key issue in heterodox economics is the theoretical determination of the inner logic of the economic process through which the functional conditions of social reproduction are systematically recreated in capitalism. The monetary circuit is a particular moment of the economic process through which the recreation of private property as the capitalist social relation takes place. The understanding of the monetary logic of what Marx called the “process of circulation of capital” is thus a central element of a monetary heterodox theory of capitalism. Financial accounting methods currently applied as a powerful tool of control of society can be used critically to illuminate the capitalist circulation process. *** Una cuestión clave en la economía heterodoxa es la determinación teórica de la lógica interna del proceso económico a través del cual son recreadas sistemáticamente las condiciones funcionales de la reproducción social en el capitalismo. El circuito monetario es un momento particular del proceso económico a través del cual tiene lugar la recreación de la propiedad privada como la relación social capitalista. La comprensión de la lógica monetaria de lo que Marx llamó el “proceso de circulación del capital” es por tanto un elemento central de la teoría heterodoxa monetaria del capitalismo. Los métodos de la contabilidad financiera utilizados comúnmente como una herramienta poderosa de control social son utilizados aquí para iluminar el proceso de circulación capitalista.
    Keywords: Capitalism, economic circuit, financial accounting, monetary production economy, social reproduction
    JEL: E11 E12 E25 M41
    Date: 2019–11–22
  43. By: Etienne Vaccaro-Grange (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The transmission of Quantitative Easing to aggregate macroeconomic variables through the yield curve is disentangled in two yield channels: the term premium channel, captured by a term premium series, and the signaling channel, that corresponds to the interest rate expectations counterpart. Both yield components are extracted from a term structure model and plugged into a Structural VAR with Euro Area macroeconomic variables in which shocks are identified using sign restrictions. With this set-up, I show how the central bank can use the term premium as a single monetary policy instrument to foster output and prices. However, I also show that there has been a cost channel in the transmission of QE to inflation between 2015 and 2017. This cost channel provides a new explanation as to why inflation has been so muted during this period, despite the easing monetary environment. Finally, a policy rule for the term premium is estimated.
    Keywords: quantitative easing,shadow-rate term structure model,BVAR,sign restrictions
    Date: 2019–11
  44. By: O D Delaney, Marianne
    Abstract: This paper aims to contribute to the extant literature on the matter by highlighting how and why it is necessary to delineate between matters of public interests, national security – and ultimately the need to balance interests of democratic accountability and parliamentary (legislative) sovereignty from a background of the context, content and prevailing matters of public policy and constitutional relevance – even as intended by the rule of law and the application of separation of powers. Further, it highlights why the role of the judiciary becomes all the more important in ensuring that an appropriate balance and favorable consensus is reached between politically motivated goals and the need to uphold democratic accountability – particularly given the fact that the legislative and executive branches are more intricately linked – such that there are greater possibilities of conflicts of interest between these two branches.
    Keywords: democratic accountability; rule of law; separation of powers; parliamentary sovereignty; Congress; parliament; Brexit
    JEL: E4 E44 K2 K23 K49
    Date: 2019–09
  45. By: Dinlersoz, Emin M. (U.S. Census Bureau); Kalemli-Ozcan, Sebnem (University of Maryland); Hyatt, Henry (U.S. Census Bureau); Penciakova, Veronika (Federal Reserve Bank of Atlanta)
    Abstract: We study the leverage of U.S. firms over their life cycles and the connection between firm leverage, firm growth, and aggregate shocks. We construct a new dataset that combines private and public firms’ balance sheets with firm-level data from U.S. Census Bureau’s Longitudinal Business Database for the period 2005–12. Public and private firms exhibit different leverage dynamics over their life cycles. Firm age and size are systematically related to leverage for private firms but not for public firms. We show that private firms, but not public ones, deleveraged during the Great Recession and that this deleveraging is associated with a reduction in firm revenue and employment growth. Exploiting sectoral variation, we find that the leverage dynamics of firms is also relevant for aggregate fluctuations.
    Keywords: leverage; firm dynamics; firm growth; firm life-cycle; financial constraints; borrowing limits; short-term debt; aggregate shocks
    JEL: E23 G32
    Date: 2019–11–01
  46. By: Haruna, Issahaku
    Abstract: This study investigates how remittances and monetary policy independently and interactively shape the financial system of developing countries. It employs single equation instrumental variable based estimation procedures to test the hypothesis that, to boost financial development, remittances require a complementary domestic monetary policy framework which ensures price stability while limiting price distortions. The results show that remittances stimulate financial development only in countries with a favourable monetary environment. Building on these results and employing various indicators of financial development, the results suggest that remittances rise to cushion migrant households from the repercussions of poor financial intermediation, weak institutions and unfavourable business environment in the home country. By extension, the findings are germane to monetary and financial policy in developing countries.
    Keywords: Remittances, Monetary Policy, Financial Development, Developing Country, Financial Development Index
    JEL: E5 E52 F3 G2
    Date: 2019–03–19
  47. By: Gani Ramadani (National Bank of the Republic of North Macedonia); Neda Predrag Pandiloski (The Wharton School of the University of Pennsylvania)
    Abstract: We analyze the determinants of the inflation trends in ten Southeast European (SEE) countries. Global cost-related factors and euro area (EA) inflation developments play an important role in explaining inflation dynamics in SEE countries. Changes in world food and energy prices, together with related changes in administered prices, similarly contribute to these trends. In general, we show that disinflationary spillovers from the euro area have been an important factor for fixed exchange rate regime countries, especially those with more trade exchange with countries in the euro area. Furthermore, our heterogeneity analysis shows that countries with less rigid exchange rate regimes but with relatively high exposure of trade exchange to euro area market appear to be susceptible to inflation spillovers from the euro area. Moreover, nominal effective exchange rate plays an important role on inflation process in SEE countries, particularly in floating regime countries. In line with several recent findings about flattening of the Phillips curve in many economies across the world, cyclical unemployment does not appear to be significant in our sample. We conclude with some policy implications of our results.
    Keywords: inflation, Phillips curve, panel data, euro area inflation, commodity prices, Southeast European countries
    JEL: C33 E12 E31
    Date: 2019
  48. By: Alexander Bechtel; Angelo Ranaldo; Jan Wrampelmeyer
    Abstract: We propose and test a new channel that links funding liquidity risk and interest rates in short-term funding markets. Borrowers with high liquidity risk are willing to pay a markup to lock in their funding, independent of risk premiums demanded by lenders. We test the channel using unique trade-by-trade data and reveal systematic an persistent differences in borrowers' funding liquidity risk that lead to systematic and persistent heterogeneity in funding costs. Our results have important implications for financial stability, the transmission of monetary policy, and banks' asset and liability management
    Keywords: Funding liquidity risk, short-term interest rates, risk premiums, funding costs, interbank market
    JEL: G12 G18 G21 E43 E52 D40
    Date: 2019–05
  49. By: Laurynas Narusevicius (Bank of Lithuania); Tomas Ramanauskas; Laura Gudauskaitė (Bank of Lithuania); Tomas Reichenbachas (Bank of Lithuania)
    Abstract: Timely monitoring of the housing market developments in Lithuania is one of the key elements in the analysis framework of the macroprudential authority aiming to contribute to financial stability in Lithuania. In this paper, we addressed three important questions related to Lithuanian house prices, namely, whether house prices are under- or over valuated, which explanatory variables have the biggest impact on the growth of house prices and what the future development of the Lithuanian house price index could be. Three separate modelling and forecasting exercises were performed in order to tackle these questions. The first exercise employs the vector error correction modelling (VECM) approach to assess under- or overvaluation of the house prices. We then use an autoregressive distributed lag model (ARDL) to evaluate which explanatory variables have the biggest impact on house price growth. As the last exercise, we develop a suite of models that are used to forecast future development of the house price index. The analysis presented in this paper may be viewed as a further step towards more formalised modelling and forecasting of the Lithuanian house price index.
    Keywords: House price index, fundamental value, time series models, forecasting, forecast combination
    JEL: C22 C32 C53 E37 R30
    Date: 2019–11–19
  50. By: Fabio Busetti (Bank of Italy); Michele Caivano (Bank of Italy); Davide Delle Monache (Bank of Italy)
    Abstract: The paper investigates the role of domestic and global determinants of euro area core inflation. We analyse the entire conditional distribution of inflation by estimating a Phillips curve type relationship using an expectile regression approach, extended to capture time-varying effects. The main findings are as follows. First, both the domestic and foreign output gap are significant drivers of euro area core inflation, once external demand pressures are properly orthogonalized in a modified measure of domestic gap. However, the inflationary impact of the domestic component is relatively stronger. Second, the domestic output gap has a bigger influence in the right tail of the conditional distribution of inflation. Third, adding international price pressures in the regression weakens the link between inflation and the foreign output gap. Fourth, in a time- varying perspective, there is an increase in the response of inflation to the domestic gap in the last decade but only at the lower quantiles. Overall, the evidence on the so-called “globalization hypothesis” is mixed: while the pass-through to inflation of foreign prices and the exchange rate increased over time at all quantiles, the impact of global slack remained broadly stable, particularly in the central part of the distribution.
    Keywords: asymmetric least squares, globalization, inflation quantiles, Phillips curve, time varying parameters
    JEL: C53 E17
    Date: 2019–06
  51. By: Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute); Chiu, Alvin (Asian Development Bank Institute)
    Abstract: Hong Kong, China’s housing market witnessed dramatic appreciations recently, with the price index for private domestic housing units being 3 times higher than 10 years ago. This trend is supported by both internal and external factors. By providing a theoretical model and empirical analysis on the key variables influencing housing prices, we find that changes in housing price index reinforce price trends in the long term. Hong Kong, China’s dollar quantitative easing, and the gross domestic product of the People’s Republic of China (PRC) are positively related to housing prices and negatively to lending. The inability to increase supplies in response to rising demand since 2003 has also much to do with the skyrocketing prices. Moreover, mortgage-to-total loans value is shrinking due to the unaffordability of housing units at current prices. This trend has to be tackled in time, otherwise the PRC may incur severe consequences similar to Japan’s experience in the 1990s.
    Keywords: housing bubble; housing prices; housing market; quantitative easing (QE); monetary policy
    JEL: E31 E51 R31
    Date: 2019–05–09
  52. By: Benedikt Ballensiefen; Angelo Ranaldo
    Abstract: We provide an asset pricing analysis of one of the main categories of near-money or safe assets, the repurchase agreement (repo). Heterogeneity in repo rates allows for a remunerative carry trade. The return on this carry trade, our carry factor, together with a market factor explain the temporal and cross-sectional variation in repo rates within a no-arbitrage framework: While the market factor determines the level of short-term interest rates, the carry factor accounts for the cross-sectional dispersion. Consistent with the safe asset literature, the carry factor reflects heterogeneity in convenience premia and is explained by the safety premium, the liquidity premium, and the opportunity cost of holding money.
    Keywords: Safe Asset, Near-Money Asset, Repo, Carry Trade, Asset Pricing, Short-Term Interest Rates, Convenience Premium
    JEL: E40 E41 G00 G01 G10 G11
    Date: 2019–07
  53. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University, Famagusta, via Mersin 10, Northern Cyprus, Turkey); Edmond Berisha (Feliciano School of Business, Montclair State University, Montclair, NJ 07043); Oguzhan Cepni (Central Bank of the Republic of Turkey, Anafartalar Mah. Istiklal Cad. No:10 06050 Ankara, Turkey); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)
    Abstract: A common tool in forecasting literature used in predicting future economic conditions is the term spread, which tends to contract near peaks and rise near troughs. Building on this known relationship, this paper explores the predictive power of the yield spread on the distribution of income in the United Kingdom (UK). The results reveal that income inequality responds negatively to increases in the yield spread over the medium-term. Specifically, we show that the term spread can help to predict UK’s income inequality growth both in- and out-of-sample. Our empirical findings show that it is the expected component of the term spread that has predictive power for lower income inequality in the UK.
    Keywords: Yield Spread, Inequality, Term Premium, Predictions
    JEL: C32 C53 E30 E43 D63 G10
    Date: 2019–11
  54. By: Eizo Kawai
    Abstract: The present study aims to perceive an unacceptable unreality of a macro price mechanism: that is, the unreality that under any severe recession, deterioration of deflation or a consistent decrease in the rate of inflation will lead an economy to full employment equilibrium. This unreality results from an arbitrary assumption that the micro price mechanism operates even in a macro economy. This study challenges the existing modern macroeconomics theories on price mechanism and unemployment based on the skepticism toward existing theories based on the observations of a real economy. The study reveals two main results. First, market failure in a macro economy, that is, the price mechanism is significantly incomplete and does not function, in particular, under deflation. This differs significantly from "the market failure due to the inflexibility of wages and prices, asymmetry of information, and so on," as stated by new Keynesianism. The key reason for market failure in a short-run macro economy is the unavoidable spillover effects, or derived demand effects between goods and labor markets under disequilibrium due to inflexible wages and prices. Macro price mechanism completely overlooks these effects because of the arbitrary assumption, thus leading to the unrealistic price mechanism stated earlier. Considering the spillover effects, or derived demand effects under disequilibrium, the assumption of full employment equilibrium, along with the assumption of flexible wages and prices, does not hold. Although these effects are the results of the short-run analysis, there would be market failure in a macro economy even in the long run as an inevitable conjecture. To rebuild dynamic stochastic general equilibrium (DSGE) models, it is important to study the aforementioned fundamental and theoretical problem that macro price mechanism does not function. A static model is enough to explain the mechanism and dynamic models appear unnecessary and unfeasible. Second, Keynes's unemployment equilibrium is realized owing to market failure in a macro economy. Market failure in a macro economy shows that involuntary unemployment results from quantitative and not price aspects. In other words, involuntary unemployment is not a result of the rigidity of real wages but of a shortage in labor demand under rigid real wages. This is possible by reinterpreting the Shapiro-Stiglitz efficiency wage model. Finally, demand is a critical factor in both the short run and the long run.
    Date: 2019–10
    Abstract: This study uses annual time series data on the Indian Rupee / USD exchange rate from 1960 to 2017, to model and forecast exchange rates using the Box-Jenkins ARIMA technique. Diagnostic tests indicate that R is an I (1) variable. Based on Theil’s U, the study presents the ARIMA (0, 1, 6) model, the diagnostic tests further show that this model is quite stable and hence acceptable for forecasting the Indian Rupee / USD exchange rates. The selected optimal model the ARIMA (0, 1, 6) model shows that the Indian Rupee / USD exchange rate will appreciate over the period 2018 – 2022, after which it will depreciate slightly until 2027. The main policy prescription emanating from this study is that the Reserve Bank of India (RBI) should devalue the Rupee, firstly to restore the much needed exchange rate stability, secondly to encourage local manufacturing and thirdly to promote foreign capital inflows.
    Keywords: ARIMA; exchange rate; forecasting; India; Indian Rupee/USD
    JEL: C53 E37 E47 F37 O24
    Date: 2019–11–03
  56. By: Emily Liu; Friederike Niepmann; Tim Schmidt-Eisenlohr
    Abstract: This paper shows that monetary policy and prudential policies interact. U.S. banks issue more commercial and industrial loans to emerging market borrowers when U.S. monetary policy eases. The effect is less pronounced for banks that are more constrained through the U.S. bank stress tests, reflected in a lower minimum capital ratio in the severely adverse scenario. This suggests that monetary policy spillovers depend on banks’ capital constraints. In particular, during a period of quantitative easing when liquidity is abundant, banks are more flexible, and the scope for adjusting lending is larger when they have a bigger capital buffer. We conjecture that bank lending to emerging markets during the zero-lower bound period would have been even higher had the United States not introduced stress tests for their banks.
    Keywords: U.S. bank lending ; Stress tests ; Emerging markets ; Monetary policy spillovers
    JEL: E44 F31 G15 G21 G23
    Date: 2019–11–22
  57. By: Fabio Busetti (Bank of Italy); Cristina Giorgiantonio (Bank of Italy); Giorgio Ivaldi (Bank of Italy); Sauro Mocetti (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Pietro Tommasino (Bank of Italy)
    Abstract: Public investment expenditure in Italy has decreased markedly in the last few years. Several indicators suggest that the quantity and quality of Italy’s public capital are lower than in the other main euro area economies. The paper presents some estimates of the macroeconomic effects of an increase in public investment. It also discusses how the public capital stock can be measured and looks at public investment dynamics in the main euro-area economies. Finally, it reviews some regulatory aspects which could slow down public works in Italy. The authors conclude that an increase in public investment can only have a significant macroeconomic impact if the resources are utilized efficiently, interventions are appropriately chosen and implemented quickly, and good financial conditions are preserved. It appears crucial to improve evaluation, planning and monitoring of public infrastructure projects.
    Keywords: public investment multiplier, public capital, public procurement
    JEL: E62 H54 K23 R42
    Date: 2019–10
  58. By: Roberta Fiori (Bank of Italy); Claudia Pacella (Bank of Italy)
    Abstract: The paper investigates whether there is sufficient empirical support in Italy for the introduction of a sectoral countercyclical capital buffer (CCyB) in the macroprudential framework. We study the sectoral decomposition of the credit-to-GDP gap over the period 1990Q1-2017Q2. Overall, our results suggests that a sectoral CCyB could be a useful addition to the macroprudential framework as both the timing for activation and the size of the capital buffer can differ when accounting for the sectoral dimension of the credit-to-GDP gap. We find that the synchronicity of sectoral credit cycles decreases as we move from a two-sector to a six-sector decomposition. Moreover, the contribution of sectoral cycles to systemic stress, as measured by the system-wide new bad debt rate, as well as the prudential requirements associated with their risk exposure differ quite significantly. While exuberance in the non-real-estate related segment of corporate lending is usually followed by a surge in systemic stress, exuberance in the real-estate related segment of business lending does not.
    Keywords: credit cycle, sectoral decomposition, synchronicity, cyclical systemic risk
    JEL: E32 G01 G21 G28
    Date: 2019–06
  59. By: Paul Hubert (Sciences Po - OFCE); Fabien Labondance (Université de Bourgogne Franche-Comté, CRESE)
    Abstract: Does policymakers’ choice of words matter? We explore empirically whether central bank tone conveyed in FOMC statements contains useful information for financial market participants. We quantify central bank tone using computational linguistics and identify exogenous shocks to central bank tone orthogonal to the state of the economy. Using an ARCH model and a high-frequency approach, we find that positive central bank tone increases interest rates at the 1-year maturity. We therefore investigate which potential pieces of information could be revealed by central bank tone. Our tests suggest that it relates to the dispersion of views among FOMC members. This information may be useful to financial markets to understand current and future policy decisions. Finally, we show that central bank tone helps predicting future policy decisions.
    Date: 2019–11
  60. By: Mandal, Biswajit; Prasad, Alaka Shree
    Abstract: In this paper we attempt to model virtual trade resulting from time zone differences in an otherwise Heckscher-Ohlin set up which is absent in the literature. So, this paper tries to add some value to the existing stuff on the trade theory and the role of time zones. In doing so, it has been proved that exploitation of time zone difference benefits skilled labor only under reasonable assumption. Contrarily, in output font, time zone difference exploiting sector expands and the other sector contracts irrespective of any factor intensity assumption. The model has been extended to examine how distance may also lead to similar outcomes. In addition, the model is further extended to explore the effect of virtual trade on an economy also endowed with a huge supply of unskilled labor causing the occurrence of informality and associated corruption. Interestingly trade turns out to be beneficial to unskilled workers and lead to a fall in the number of workers engaged in corrupt activities in the economy though the informal sector expands.
    Keywords: Trade; Time Zone; Factor Prices; Informality; Corruption
    JEL: D73 E26 F1 F11 J31
    Date: 2018
  61. By: Massimiliano Affinito (Bank of Italy)
    Abstract: This paper studies the mutual interplay between central bank (CB) liquidity provisions and interbank markets (IM) liquidity exchanges exploring whether the relationship changes during IM impairments and CB massive liquidity injections in the global and sovereign crises. The analysis leverages on a dataset containing seventeen years of monthly bank-by-bank and counterparty-by-counterparty data from 1998 to 2015 in Italy. The results show the existence of a complementarity relationship. Banks receiving CB liquidity redistribute more to other banks. When CB liquidity increases exponentially in the crises some healthy banks specialize in interbank lending. The complementarity relationship helps to offset the euro-area fragmentation via domestic interbank relationships and to adjust collateral and maturity profiles of banks’ liquidity.
    Keywords: liquidity, financial and sovereign crises, central bank intervention, interbank
    JEL: G21 E52 C30
    Date: 2019–10
  62. By: Xiaohong Chen (Birkbeck, University of London); Paul Wohlfarth (Birkbeck, University of London)
    Abstract: This paper investigates China’s banking system in a post-crisis environment, 2008- 2018, focusing on determinants of bank lending. We use a panel of 14 Chinese listed banks, for which there is data over this period. We group these 14 banks into various bank-clusters, classified by ownership and systemic importance. Possible determinants of loan growth are divided into two sets of variables: bureaucratic variables and economic variables. We find that for individual banks and bank groups bureaucratic variables are very significant and the economic variables have comparatively little influence, which is consistent with the state retraining quite a lot of control. However, pooling of the data gives evidence for the influence of economic variables. The size of the coefficients is similar to the average of the individual banks but they are now significant, reflecting the larger sample size. Thus the pooled estimates are more supportive of the role of bankspecific market forces in determining loan growth.
    Keywords: Loan growth, Listed banks, Bureaucratic effects, Market effects, China
    JEL: E51 P34 C32
    Date: 2019–11
  63. By: Clostermann, Jörg; Seitz, Franz
    Abstract: Wir vergleichen Immobilienkredite in Deutschland und der Schweiz im Hinblick auf Zinskonditionen und Zinsbindung seit Anfang der 1960er Jahre. Speziell stehen der Anteil fixer versus variabler Zinsen, die effektive Zinsbelastung und die Laufzeit des Kredites im Vordergrund. Wir finden, dass in beiden Ländern eine Finanzierung mit variablen Zinsen voreilhaft ist. Allerdings ist dieser Vorteil in der Schweiz weit weniger ausgeprägt. Dagegen ist die Volatilität der tatsächlich realisierten Finanzierungskosten in Abhängigkeit vom gewählten Startzeitpunkt in beiden Ländern ähnlich. Die Liquiditätsanspannung bei Immobilienkrediten mit variablem Zins ist infolge volatiler Rückzahlungsraten für die Kreditnehmer in der Schweiz erheblich stärker. Insgesamt sind die Bedingungen in einem Land nicht ohne weiteres auf das andere zu übertragen.
    Keywords: Zinsbindung,Zinsspread,variable Zinsen,Immobilienkredit
    JEL: E43 E47 G21
    Date: 2019
  64. By: Luca Metelli (Bank of Italy); Filippo Natoli (Bank of Italy)
    Abstract: We investigate the international propagation of tax rate shocks originating in the United States using a global vector error-correction model (GVAR). We identify shocks to corporate and personal income tax rates by using narrative series as external instruments, following the proxy-SVAR methodology. The main results of the paper are the following: (1) the domestic effects of corporate tax shocks are stronger than those of personal income tax shock; (2) spillovers are in most cases positive and significant, albeit of small size; (3) the boost to exports in recipient economies, stimulated both by stronger US demand and by real exchange rate depreciation vis-à-vis the US dollar, is the main transmission channel; financial channels (through long-term interest rates) also play a role.
    Keywords: international fiscal spillovers, proxy SVAR, GVAR
    JEL: C22 E62 F42
    Date: 2019–06
  65. By: Silvia Magri (Bank of Italy); Valentina Michelangeli (Bank of Italy); Sabrina Pastorelli (Bank of Italy); Raffaella Pico (Bank of Italy)
    Abstract: Since 2015 consumer loans have been rising fast in France, Germany, Italy, and Spain. Credit demand, specifically for consumer durables, has played a crucial role; the easing of supply conditions has been relevant only in Italy and Spain, which experienced stronger credit tightening during the past crises. Risks stemming from the growth of consumer credit are mitigated by its lower incidence, compared with mortgages, on households’ total debt and income; exposure to interest rate risk is also decreasing due to the high share of fixed-rate contracts. There is wide risk heterogeneity across countries, with Italy and Spain having the highest share of delinquent households (even for less than 90 days). In Italy, however, debt is increasingly concentrated among more affluent households, which are better able to withstand negative economic shocks; this trend is sustaining the drop in the ratio of new non-performing consumer loans.
    Keywords: consumer loans, credit demand and supply, non-performing loans
    JEL: D12 D91 E32 G21 I32
    Date: 2019–06
  66. By: Chunzan Wu; Dirk Krueger
    Abstract: We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and Saporta-Eksten (2016) in U.S. data. In the model, 35% of male and 18% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 32% and 19%. Most of the consumption insurance against permanent male wage shocks is provided through the presence and labor supply response of the female earner. Abstracting from this private intra-household income insurance mechanism strongly biases upward the welfare losses from idiosyncratic wage risk as well as the desired extent of public insurance through progressive income taxation. Relative to the standard one-earner life cycle model, the optimal degree of tax progressivity is significantly lower and the welfare gains from implementing the optimal system are cut roughly in half.
    JEL: E21 H21 H31
    Date: 2019–11
  67. By: Hilde C. Bjørnland; Andrew Binning; Junior Maih
    Abstract: We estimate a regime-switching DSGE model with a banking sector to explain incomplete and asymmetric interest rate pass-through, especially in the presence of a binding zero lower bound (ZLB) constraint. The model is estimated using Bayesian techniques on US data between 1985 and 2016. The framework allows us to explain the time-varying interest rate spreads and pass-through observed in the data. We ?nd that pass-through tends to be delayed in the short run, and incomplete in the long run. All this impacts the dynamics of the other macroeconomic variables in the model. In particular, we ?nd monetary policy to be less e?ective under incomplete pass-through. Furthermore, the behavior of pass-through in the loan rate is di?erent from that of the deposit rate shocks. This creates asymmetric dynamics at the zero lower bound, and incomplete pass-through exacerbates that asymmetry.
    Keywords: banking sector, incomplete or symmetric interest rate pass-through, DSGE
    Date: 2019–11
  68. By: Mirela S. Miescu (Lancaster University); Haroon Mumtaz (Queen Mary University of London)
    Abstract: We show that the contemporaneous and longer horizon impulse responses estimated using small-scale Proxy structural vector autoregressions (SVARs) can be severely biased in the presence of information insufficiency. Instead, we recommend the use of a Proxy Factor Augmented VAR (FAVAR) model that remains robust in the presence of this problem. In an empirical exercise, we demonstrate that this issue has important consequences for the estimated impact of monetary policy shocks in the US. We find that the impulse responses of real activity and prices estimated using a Proxy FAVAR are substantially larger and more persistent than those suggested by a small-scale Proxy SVAR.
    Keywords: information sufficiency, dynamic factor models, instrumental variables, monetary policy, structural VAR
    JEL: C36 C38 E52
    Date: 2019–09–16
  69. By: Eo, Yunjong; Lie, Denny
    Abstract: We study the welfare implication of average inflation targeting as a simple interest-rate rule, in which the monetary authority adjusts its short-term policy rate in response to the output gap as well as average inflation deviation from its target instead of reacting to the contemporaneous inflation rate as in a Taylor-type rule. We find that the welfare improvement achieved by switching to average inflation targeting from a standard Taylor rule is modest with a high degree of interest-rate smoothing, whereas it is significant without interest-rate smoothing. We show that average inflation targeting is welfare-improving in the same way as interest-rate smoothing by making the conduct of monetary policy history-dependent. Thus, the high degree of monetary policy inertia in the estimated interest-rate rules in many advanced economies implies that the welfare gain from adopting the average inflation targeting rule would be modest.
    Keywords: New Keynesian model; History-dependent policy; Welfare analysis; Ramsey policy; Interest-rate rule; Monetary policy inertia;
    Date: 2019–11
  70. By: Shayan Zakipour-Saber (Central Bank of Ireland)
    Abstract: This paper extends the Bayesian proxy SVAR model (BP-SVAR) of Caldara and Herbst (2019) to examine changes in the transmission of structural shocks in the presence of regime shifts in an economy. I provide a Metropolis-within-Gibbs sampling algorithm to approximate the posterior distribution of model parameters. The model is then used to examine the role of credit spreads on the transmission of monetary policy shocks in the United States between 1994-2007, where identification is achieved using a proxy constructed from high-frequency financial data. The main finding is that the effect of credit spreads differs across regime. Credit spreads significantly change the transmission of monetary policy shocks from 2000-2007 supporting Caldara and Herbst (2019), although, their inclusion appears to only alter the response of industrial production in the short-term with no other significant changes to the rest of the economy during the mid to late 1990s. This result highlights the empirical relevance of accounting for regime changes when assessing the impact of economic shocks.
    Keywords: Markov-Switching, External Instruments, Proxy BVAR, Monetary Policy shocks
    JEL: C2 C11 E3
    Date: 2019–10–15
  71. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school, INSEEC - INSEEC Business School - Institut des hautes études économiques et commerciales Business School (INSEEC))
    Abstract: The aim of the present paper is to provide criteria for a central bank of how to choose among di¤erent monetary-policy rules when caring about a number of policy targets such as the output gap and expected in ‡ation. Special attention is given to the question if policy instruments are predetermined or only forward looking. Using the new-Keynesian Phillips curve with a cost-push-shock policy-transmission mechanism, the forward-looking case implies an extreme lack of robustness and of credibility of stabilization policy. The backward-looking case is such that the simple-rule parameters can be the solution of Ramsey optimal policy under limited commitment. As a consequence, we suggest to model explicitly the rational behavior of the policy maker with Ramsey optimal policy, rather than to use simple rules with an ambiguous assumption leading to policy advice that is neither robust nor credible.
    Keywords: Determinacy,Proportional Feedback Rules,Dynamic Stochastic General Equilibrium,Ramsey Optimal Policy under Quasi-Commitment Keywords: Determinacy,Ramsey Optimal Policy under Quasi-Commitment
    Date: 2019–11
  72. By: Juan Carlos Cuestas (Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: The aim of this paper is to shed some light on the issue of the co-movement between residential real estate and commercial real estate using a newly developed database by the Bank if International Settlements. Our results point for the existence of a unique common nonlinear trend in the five countries analysed.
    Keywords: housing market, macropudential policies, nonlinearities
    JEL: E21 E51 R20
    Date: 2019
  73. By: Martin Bruns
    Abstract: Structural VAR models require two ingredients: (i) Informational sufficiency, and (ii) a valid identification strategy. These conditions are unlikely to be met by small-scale recursively identified VAR models. I propose a Bayesian Proxy Factor-Augmented VAR (BP-FAVAR) to combine a large information set with an identification scheme based on an external instrument. In an application to monetary policy shocks I find that augmenting a standard small-scale Proxy VAR by factors from a large set of financial variables changes the model dynamics and delivers price responses which are more in line with economic theory. A second application shows that an exogenous increase in uncertainty affects disaggregated investment series more negatively than consumption series.
    Keywords: Dynamic factor models, external instruments, monetary policy, uncertainty shocks
    JEL: C38 E60
    Date: 2019
  74. By: Juan Mauricio Ramírez; Luis Fernando Mejía; Fedesarrollo
    Abstract: Agenda: 1. Mercado internacional del cannabis. 2. Industria del cannabis medicinal en Colombia. 3. Retos del sector.
    Keywords: Cannabis Medicinal, Industria del Cannabis Medicinal, Transformación Productiva, Exportaciones, Producción del cannabis, Colombia
    JEL: D24 O47 E24
    Date: 2019–09–19
  75. By: KOBAYASHI Keiichiro
    Abstract: We propose a theoretical argument for a new rational expectations equilibrium hypothesis in the intergenerational economy, where each generation is intergenerationally altruistic and rational. The intergenerationally-rational expectations equilibrium implies that deflation can continue under an extreme increase in money supply.
    Date: 2019–10
  76. By: George Alogoskoufis
    Abstract: This paper analyzes the process of destabilization, crisis and adjustment in the Greekeconomy since the accession of the country to the European Union and, subsequently, the euro area. It reviews four policy cycles of the past 40 years, the four acts of the Greektragedy, and discusses alternative ways forward, following the sudden stop and the great depression of the 2010s. It concludes that despite the significant constraints implied by continued participation in the euro area, namely a stark Mundellian conflict between internal and external balance, exiting the euro area risks further destabilizingthe economy and bringing about a return of the problems of the 1980s. The currentchallenge for Greece is to seek to remain and prosper in the euro area. This would require a policy mix based on supply side reforms which would allow for a sustained recovery without the reemergence of external imbalances.
    Keywords: Greece, Euro Area, fiscal policy, monetary policy, competitiveness, current account
    Date: 2019–05
  77. By: Piergiorgio Alessandri (Bank of Italy); Leonardo Del Vecchio (Bank of Italy); Arianna Miglietta (Bank of Italy)
    Abstract: This paper studies the relationship between financial conditions and economic activity in Italy using quantile regression techniques in the spirit of Adrian, Boryachenko and Giannone (2019). We exploit the volatility of the 2008-2012 period to assess the plausibility of ‘tail’ predictions obtained from a broad range of financial indicators. We find that, although spikes in financial distress are typically followed by economic contractions, using this relationship for out-of-sample forecasting is not trivial. To some extent, the models predict the slowdowns experienced by Italy after 2008, but the forecasts are volatile, their quality varies across indicators and horizons, and the predictions tend to overestimate the likelihood of an upcoming recession. As such, these tools represent a complement to, rather than a substitute for, an articulated and diversified systemic risk assessment framework.
    Keywords: financial conditions, quantile regression, growth risk
    JEL: C21 E37
    Date: 2019–10
  78. By: Franecsca Carta (Bank of Italy)
    Abstract: In this paper I propose a methodology to obtain timely indicators for labour income inequality using the Italian Labour Force Survey (ILFS), a database which collects detailed information not only on individuals’ labour market status, but also on their households and wages. I develop a framework to estimate household labour income and I use it to construct timely indicators of the labour income distribution, to be used as complements to the standard and richer information provided by the household income surveys, like the Survey on Household Income and Wealth (SHIW) and the EU Statistics on Income and Living Conditions (EU-SILC). I discuss the assumptions and measurement issues underlying the proposed methodology and show that the ILFS-based Gini index closely tracks those calculated on standard household income surveys. The proposed measure is then a tool for monitoring the evolution of labour income inequality following labour market adjustments.
    Keywords: inequality, employment
    JEL: C53 D31 E24 J21
    Date: 2019–07
  79. By: Massimo Gallo (Bank of Italy); Sonia Soncin (Bank of Italy); Andrea Venturini (Bank of Italy)
    Abstract: In the absence of timely quarterly information about regional GDP dynamics, this work establishes a new indicator of economic activity for the Veneto region, providing a monthly real-time estimation of the medium- and long-term dynamics of regional GDP. The methodology is based on the use of a Generalized Dynamic Factor Model to extract a few common components from about 120 local time series at monthly or quarterly frequency. Therefore, this indicator exploits the large amount of information available at local level: the official Istat statistics, the financial statistics provided by the Bank of Italy, and the many statistics produced by trade associations and by the local governments in the Veneto region. The model makes it possible to flexibly manage the many regional time series and to estimate the dynamics of regional economic activity with a three-month delay, instead of the twelve-month delay of Istat’s annual regional economic accounts.
    Keywords: Economic cycle, regional economy, dynamic factor models
    JEL: R15 C55 E37
    Date: 2019–06
  80. By: Nadia Garbellini (Universita di Bergamo)
    Abstract: Thomas Piketty`s (2014) Capital in the XXI Century aims to analyze distributions of income and wealth in a set of developed countries and their determinants, from the nineteenth century to the present. The objective is a bold one, made even more so by the fact that Piketty pursues it not only from a theoretical, but also, from an empirical point of view. The task is particularly impressive not only because of the enormous effort required in collecting and organizing data, but also because the work entails attaching a deterministic interpretation to facts and figures from radically different countries over a time span that covers almost two centuries, thereby forcing comparison between numbers coming from clearly incommensurable contexts. These difficulties are not lost to Piketty, who states that ``[w]ithout precisely defined sources, methods, and concepts, it is possible to see everything and its opposite.`` (Piketty, 2014, pp.2-3) This study argues that the empirical `methods and concepts` adopted by Piketty are not always consistent with those coming from his reference theoretical framework, nor from National Accounts (United Nations, 2009).
    Keywords: Capital, Capital output ratio, Income distribution, Inequality, Growth theory, National accounts.
    JEL: E01 E20 D30 D31 D33
    Date: 2018–01
  81. By: Michalis Nikiforos
    Abstract: The critique by Gahn and Gonzalez (2019) of the conclusions in Nikiforos (2016) regarding what data should be used to evaluate whether capacity utilization is endogenous to demand is weak for the following reasons: (i) The Federal Reserve Board (FRB) measure of utilization is not appropriate for measuring long-run variations of utilization because of the method and purpose of its construction. Even if its difference from the measures of the average workweek of capital (AWW) were trivial, this would still be the case; if anything, it would show that the AWW is also an inappropriate measure. (ii) Gahn and Gonzalez choose to ignore the longest available estimate of the AWW produced by Foss, which has a clear long-run trend. (iii) Their econometric results are not robust to more suitable specifications of the unit root tests. Under these specifications, the tests overwhelmingly fail to reject the unit root hypothesis. (iv) Other estimates of the AWW, which were not included in Nikiforos (2016) confirm these conclusions. v) For the comparison between the AWW series and the FRB series, they construct variables that are not meaningful because they subtract series in different units. When the comparison is done correctly, the results confirm that the difference between the AWW series and the FRB series has a unit root. (vi) A stationary utilization rate is not consistent with any theory of the determination of capacity utilization. Even if demand did not play a role, there is no reason to expect that all the other factors that determine utilization would change in a fashion that would keep utilization constant.
    Keywords: Capacity Utilization; Workweek of Capital; Stationarity
    JEL: C22 D24 E11 E23
    Date: 2019–11
  82. By: Toffolutti, Veronica; Suhrcke, Marc
    Abstract: A growing body of the literature has argued that austerity has been bad for health, though without directly measuring austerity. This paper explicitly distinguishes the association of mortality with macroeconomic fluctuations from that with fiscal policy measures, using data for 28 European Union (EU) countries covering the period 1991-2013. The main results present a nuanced, complex picture about the mortality impact of fiscal policies. We confirm the mortality decreasing (increasing) effect of recessions (booms), with the exception of suicide mortality, which shows the opposite effects. Austerity regimes are associated with an increase in all-cause mortality (0.7%). At the same time, fiscal stimuli tend to significantly increase death rates due to cirrhosis or chronic liver disease (3%) and those due to vehicle accidents (4.3%). Overall, the results appear to be sensitive to the set of countries included: when excluding the Baltics, Romania and Hungary, austerity policies turn out to significantly increase suicide-related mortality (2.8%), while the effect on all-cause mortality remains the same (0.7%).
    Date: 2019–03–08
  83. By: Zens, Gregor; Böck, Maximilian; Zörner, Thomas O.
    Abstract: In this paper we estimate the effect of monetary policy on the US labor market using disaggregated data based on large scale micro surveys. By employing a Bayesian factor-augmented vector autoregression framework, we investigate the impact of an unanticipated interest rate change on the unemployment rate in 32 occupation groups. Our results on the aggregate level are in line with the literature and point towards a strong influence of monetary policy on economic activity, overall unemployment and investment. A closer look on the disaggregated level reveals heterogeneous impacts across occupation groups. This heterogeneity can partially be explained by the amount of routine tasks and the degree of offshorability of an particular occupation group. These results suggest that workers who are highly vulnerable to medium-term and long-term developments such as automatization and offshoring are also hit disproportionately hard by short-term economic fluctuations.
    Keywords: Monetary Policy, Unemployment, FAVAR, Occupation-level, Bayesian Analysis
    Date: 2019–11
  84. By: Anette Borge (Department of Economics, Norwegian University of Science and Technology); Gunnar Bårdsen (Department of Economics, Norwegian University of Science and Technology); Junior Maih (Norges Bank and Norwegian Business School BI)
    Abstract: Rational expectations (RE) has been dominant both in the economic literature and in the macromodels routinely used in Central banks. The RE assumption has recently come under attack as one of the drawbacks of the Dynamic Stochastic General Equilibrium (DSGE modeling) paradigm. This study attempts to investigate whether other ways of modeling expectations would necessarily find a better support in the data. We investigate the relevance of the RE assumption by introducing regime switching into the expectations formation of an otherwise standard DSGE model by Justiniano and Preston (2010). In our model, expectations switch between RE and Adaptive expectations (AE). The model is estimated on UK data using Bayesian techniques. By introducing a switching mechanism, the model explains the data better than both the pure RE and the pure AE models. Expectation formation switches to AE during changes in monetary policy and the financial crisis. The dynamics of the economic system is different under the two expectation regimes. Hence, should the UK economy switch to an AE regime after Brexit, the dynamics of the economic system could be substantially more uncertain than under RE, given the model.
    Date: 2019–10–15
  85. By: Guner, Nezih (CEMFI, Madrid); Kaya, Ezgi (Cardiff University); Sánchez Marcos, Virginia (Universidad de Cantabria)
    Abstract: The total fertility rate is well below its replacement level of 2.1 children in high- income countries. Why do women choose such low fertility levels? We study how labor market frictions affect the fertility of college-educated women. We focus on two frictions: uncertainty created by dual labor markets (the coexistence of jobs with temporary and open-ended contracts) and inflexibility of work schedules. Using rich administrative data from the Spanish Social Security records, we show that women are less likely to be promoted to permanent jobs than men. Temporary contracts are also associated with a lower probability of first birth. With Time Use data, we also show that women with children are less likely to work in jobs with split-shift schedules, which come with a fixed time cost. We then build a life-cycle model in which married women decide whether to work or not, how many children to have, and when to have them. In the model, women face a trade-off between having children early and waiting and building their careers. We show that reforms that reduce the labor market duality and eliminate split-shift schedules increase the completed fertility of college-educated from 1.52 to 1.88. These reforms enable women to have more children and have them early in their life-cycle. They also increase the labor force participation of women and eliminate the employment gap between mothers and non-mothers.
    Keywords: fertility, labor market frictions, temporary contracts, split-shift schedules
    JEL: E24 J13 J21 J22
    Date: 2019–11
  86. By: Ryan, John
    Abstract: The European Central Bank (ECB) is the least accountable central bank among advanced nations. Its degree of independence has only one precedence: the German Reichsbank, a central bank with one of history’s most disastrous records. The lessons of German history do not seem to be interpreted correctly by the ECB.
    Keywords: Bundesbank; European Central Bank; Eurozone
    JEL: J1 L81 E6
    Date: 2018–11–17
  87. By: Ralph G. Lattimore (University of Waikato)
    Abstract: This short paper was originally designed as a backgrounder for small and medium sized firms who are searching for new ventures in export markets. The paper surveys the export performance of New Zealand over the period 1989 to 2018 using United Nations 2 and 4-digit Harmonised System data in an attempt to provide some clues on where one might look further and deeper for production and trade opportunities.
    Keywords: New Zealand; exports; trade trends; comparative advantage; export competitiveness
    JEL: D22 E61 E65 F13 F14
    Date: 2019–11–26
  88. By: João Tovar Jalles
    Abstract: We provide a comprehensive analysis of the relationship between greenhouse gas (GHG) emissions and GDP in Brazil using both aggregate and state-level data. The trend or Kuznets elasticity is about 0.8 for Brazil, higher than that in advanced countries but below that of major emerging markets. The elasticity is somewhat higher for consumption-based emissions than for production-based emissions, providing evidence against the “pollution haven” hypothesis. Additional evidence comes from state-level data analysis where one can observe a great deal of heterogeneity but also some hope as far as decoupling is concerned. In addition to the trend relationship between emissions and output, we find that there does not seem to exist a cyclical relationship holding in Brazil at the aggregate level (despite having become more procyclical over time), but it does exist in a few states.
    Keywords: Green House Gas, Cycle, Environmental Kuznets Curve, Brazil, Regional analysis, Detrending, Filtering
    JEL: E32 O44 Q43 Q54 Q56
    Date: 2019–11
  89. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In the age of globalisation, international trade and foreign direct investment (FDI) have become integral elements of cross-country production sharing. In this paper we empirically assess the impact of FDI, as well as capital dynamics and structure, on the formation of global value chains (GVC) and trade in value added at country and sectoral levels based on a database constructed for a sample of European countries over the period 2000-2014. The analysis reveals that inward FDI is especially conducive to the formation of backward linkages while outward FDI facilitates forward GVC participation, especially in high-tech manufacturing sectors. A particularly robust influence of FDI and capital accumulation on GVC integration is identified in the textile and clothing industry. While capital accumulation in general intensifies GVC linkages for most sectors, ICT capital appears to be especially instrumental for backward integration of electrical and transportation equipment sectors. Disclaimer Financial support from the Joint Research Centre (JRC) of the European Commission is gratefully acknowledged (grant contract number 936041 - 2018 A8 AT).
    Keywords: global value chains, value added trade, foreign direct investment, capital, capital composition, gravity model, fractional response model
    JEL: F14 F15 F21 E22
    Date: 2019–11
  90. By: Andi; ProBogotá; Fedesarrollo
    Abstract: La Asociación Nacional de Empresarios de Colombia-ANDI, Fedesarrollo y ProBogotá Región estamos convencidos de que la mejor manera de contribuir al desarrollo de la ciudad es proponiendo soluciones concretas. Con base en un diagnóstico detallado sobre las fortalezas y las debilidades de las ciudad. Con este fin, decidimos sumarnos y formular un plan dirigido al próximo Alcalde o Alcaldesa Mayor y su equipo de gobierno, orientado a fomentar las condiciones que estimulen el crecimiento económico, una equitativa distribución de la riqueza y a fortalecer las capacidades en seguridad ciudadana para transformar a Bogotá en una ciudad más competitiva y atractiva para vivir. Este documento está organizado en diez (10) capítulos que contienen un diagnóstico de la temática, 41 decisiones que se recomienda adoptar para dar solución a los retos de ciudad y las 123 acciones a promover para hacer realidad cada una de estas. Así mismo, se caracteriza la naturaleza de las medidas a adoptar (política pública, normatividad, gestión institucional y presupuestal). El diagnóstico de los capítulos fue construido a partir del análisis y sistematización de las propuestas que a lo largo de varios años han trabajado la Gerencia Seccional de Bogotá-Cundinamarca y Boyacá, las áreas transversales y las cámaras sectoriales de la ANDI, de los estudios de Fedesarrollo sobre la economía de la ciudad, y del conocimiento sobre planeación urbana, futuro del empleo, finanzas distritales, seguridad y sostenibilidad ambiental generado por ProBogotá Región.
    Keywords: Gobernanza, Planificación Regional, Movilidad, Logística, Transporte, Infraestructura, Seguridad, Salud, Educación, Empleo, Innovaciones, Emprendimiento, Ciudad Inteligente, Política Pública, Bogotá
    JEL: G34 O18 L91 I10 I20 J21 O30 L26 E60
    Date: 2019–10–31

This nep-mac issue is ©2019 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.