nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒01‒06
76 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Natural Rate Puzzle: Global Macro Trends and the Market-Implied r* By Josh Davis; Cristian Fuenzalida; Alan M. Taylor
  2. (Un)expected monetary policy shocks and term premia By Kliem, Martin; Meyer-Gohde, Alexander
  3. The Investment Network, Sectoral Comovement, and the Changing U.S. Business Cycle By Christian vom Lehn; Thomas Winberry
  4. Understanding Why Fiscal Stimulus Can Fail through the Lens of the Survey of Professional Forecasters By Hyeongwoo Kim; Shuwei Zhang
  5. Dynamic effects of persistent shocks By Mario Alloza; Jesús Gonzalo; Carlos Sanz
  6. Measuring the output gap, potential output growth and natural interest rate from a semi-structural dynamic model for Peru By Luis Eduardo Castillo; David Florián Hoyle
  7. The Effect of Central Bank Credibility on Forward Guidance in an Estimated New Keynesian Model By Enrique Martinez-Garcia; Stephen J. Cole
  8. Indeterminacy with preferences featuring multiplicative habits in consumption By Aleksandar Vasilev
  9. Rethinking Fiscal Rules in the Region By Samuel Alarcón Gambarte; Pablo Cachaga Herrera; Martin Vallejos Tarqui
  10. Labor productivity, effort and the euro area business cycle By Lewis, Vivien; Villa, Stefania; Wolters, Maik H.
  11. Firm and Worker Dynamics in a Frictional Labor Market By Adrien G. Bilal; Niklas Engbom; Simon Mongey; Giovanni L. Violante
  12. Deep Habits in New Keynesian model with durable goods By Rui Faustino
  13. Q-factors and Investment CAPM By Lu Zhang
  14. The Short-Run and Long-Run Determinants of Household Saving:Evidence from OECD countries By Philemon Kwame Opoku
  15. Financial Intermediation, Capital Accumulation and Crisis Recovery By Hans Gersbach; Jean-Charles Rochet; Martin Scheffel
  16. Banking supervision, monetary policy and risk-taking: Big data evidence from 15 credit registers By Carlos Altavilla; Miguel Boucinha; José-Luis Peydró; Frank Smets
  17. Checks and Imbalances: Exploring the Links between Political Constraints and Banking Crises using Econometric Mediation By Jacob M. Meyer
  18. Sharia Banking Dynamics and the Macroeconomic Responses: Evidence from Indonesia By Mansur, Alfan
  19. Interaction of Monetary and Fiscal Policies in Turkey By Tayyar Buyukbasaran; Cem Cebi; Erdal Yilmaz
  20. Minimum Wage Increases and Vacancies By Marianna Kudlyak; Murat Tasci; Didem Tuzemen
  21. Tax and spending shocks in the open economy: are the deficits twins? By Klein, Mathias; Linnemann, Ludger
  22. Private news and monetary policy - Forward guidance as Bayesian persuasion By Ippei Fujiwara; Yuichiro Waki
  23. Examining Factors that Drive Government Spending in South Africa By Phindile Mdluli; Precious Mncayi; Thabang Mc Camel
  24. Mortgage Cash-flows and Employment By Fergus Cumming
  25. A Tale of Two Countries: Cash Demand in Canada and Sweden By Engert, Walter; Fung, Ben; Segendorf, Björn
  26. Unconventional monetary policy and funding liquidity risk By d'Avernas, Adrien; Vandeweyer, Quentin; Darracq Pariès, Matthieu
  27. Sovereign debt crisis in Portugal and in Spain By António Afonso; Nuno Verdial
  28. Why are Average Hours Worked Lower in Richer Countries? By Alexander Bick; Nicola Fuchs-Schündeln; David Lagakos; Hitoshi Tsujiyama
  29. Directed technical change as a response to natural-resource scarcity By Hassler, John; Krusell, Per; Olovsson, Conny
  30. New VAR evidence on monetary transmission channels: temporary interest rate versus inflation target shocks By Elizaveta Lukmanova; Katrin Rabitsch
  31. Inflation in the euro area since the Global Financial Crisis By Dennis Bonam; Gabriele Galati; Irma Hindrayanto; Marco Hoeberichts; Anna Samarina; Irina Stanga
  32. U.S. Economic Outlook: Third Quarter 2019 By -
  33. The role of global relative price changes in international comovement of inflation By Aleksei Kiselev; Aleksandra Zhivaykina
  34. Endogenous Quality and Firm Entry By Rui Faustino
  35. Cyclically Adjusted Current Account Balance of Turkey By Okan Eren; Gulnihal Tuzun
  36. Understanding Macro and Asset Price Dynamics During the Climate Transition By Michael Donadelli; Patrick Grüning; Steffen Hitzemann
  37. Feinstein Fulfilled: Updated Estimates of UK GDP 1841†1920 By Solomos Solomou; Ryland Thomas
  38. The effects of oil supply shocks on the macroeconomy: a Proxy-FAVAR approachThe effects of oil supply shocks on the macroeconomy: a Proxy-FAVAR approach By Dominik Bertsche
  39. Asymmetric Transmission of the Monetary Policy: Empirical Evidence from the Consumer Credit Rates in Indonesia By Fitri Ami Handayani; Febrio Nathan Kacaribu
  40. The SHERLOC: an EWS-based index of vulnerability for emerging economies By Irma Alonso; Luis Molina
  41. درنگی سنجشگرایانه درباره‌ی نئولیبرالیسم By Vahabi, Mehrdad; Mohajer, Nasser
  42. Belize; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Belize By International Monetary Fund
  43. Hungary; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Hungary By International Monetary Fund
  44. Mexico’s Monetary Policy Communication and Money Markets By Alicia Garcia-Herrero; Eric Girardin; Arnoldo Lopez-Marmolejo
  45. Who did it? A European Detective Story. Was it Real, Financial, Monetary and/or Institutional: Tracking Growth in the Euro Area with an Atheoretical Tool By Mariarosaria Comunale; Francesco Paolo Mongelli
  46. Mind the gap! Stylized dynamic facts and structural models By Canova, Fabio; Ferroni, Filippo
  47. American Precious Metals and their Consequences for Early Modern Europe By Nuno Palma
  48. Forecasting energy commodity prices: A large global dataset sparse approach By Davide Ferrari; Francesco Ravazzolo; Joaquin Vespignani
  49. Communicating Data Uncertainty: Experimental Evidence for U.K. GDP By Galvao, Ana Beatriz; Mitchell, James; Runge, Johnny
  50. Forecasting Energy Commodity Prices: A Large Global Dataset Sparse Approach By Davide Ferrari; Francesco Ravazzolo; Joaquin L. Vespignani
  51. The Determination of Public Debt under both Aggregate and Idiosyncratic Uncertainty By YiLi Chien; Yi Wen
  52. The industrial impact of economic uncertainty shocks in Australia By Hamish Burrell; Joaquin Vespignani
  53. Malawi; Second and Third Reviews Under the Three-Year Extended Credit Facility Arrangement and Requests for Waivers of Nonobservance of Performance Criteria and Augmentation of Access-Press Release; Staff Report; and Statement by the Executive Director for Malawi By International Monetary Fund
  54. Banking supervision, monetary policy and risk-taking: big data evidence from 15 credit registers By Altavilla, Carlo; Boucinha, Miguel; Peydró, José-Luis; Smets, Frank
  55. Analyse systématique du modèle de Bhaduri-Marglin à prix flexibles. "Ca dépend de la valeur des paramètres" By Florian Botte; Thomas Dallery
  56. Determinants of Wealth Inequality and Mobility in General Equilibrium By Fischer, Thomas
  57. Welfare gains of bailouts in a sovereign default model By Pancrazi, Roberto; Seoane, Hernán D.; Vukotic, Marija
  58. Euro area longer-term inflation expectations revisited By Byrne, David; Zekaite, Zivile
  59. Cyprus; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Cyprus By International Monetary Fund
  60. SFX Interventions, Financial Intermediation, and External Shocks in Emerging Economies By Alex Carrasco; David Florian Hoyle; Rafael Nivin
  61. Between communism and capitalism: long-term inequality in Poland, 1892-2015 By Bukowski, Pawel; Novokmet, Filip
  62. More (or Less) Economic Limits of the Blockchain By Joshua S. Gans; Neil Gandal
  63. Electoral cycles in macroprudential regulation By Müller, Karsten
  64. Economic Models in the Aftermath of the Financial Crisis–the Deflationary Equilibrium and the Managed Growth of Debt (Japanese) By KOBAYASHI Keiichiro
  65. Capital regulations and the management of credit commitments during crisis times By Paul Pelzl; María Teresa Valderrama
  66. Private debt, public debt, and capital misallocation By Alimov, Behzod
  67. European macroprudential database By Boh, Samo; Borgioli, Stefano; Coman, Andra; Chiriacescu, Bogdan; Koban, Anne; Kusmierczyk, Piotr; Pirovano, Mara; Schepens, Thomas; Veiga, Joao
  68. Estimating a Behavioral New Keynesian Model By Joaquim Andrade; Pedro Cordeiro; Guilherme Lambais
  69. The Economic Impact of Yield Curve Compression: Evidence from Euro Area Conventional and Unconventional Monetary Policy By Goodhead, Robert
  70. Flexibility or certainty? The aggregate effects of casual jobs on labour markets By Rachel Scarfe
  71. How Central Bankers Learned to Love Financialization: The Fed, the Bank, and the Enlisting of Unfettered Markets in the Conduct of Monetary Policy By Walter, Timo; Wansleben, Leon
  72. The relationship between institutions and economic development By Samarasinghe, Tharanga
  73. Fighting African Capital Flight: Trajectories, Dynamics and Tendencies By Simplice A. Asongu; Joseph I. Uduji; Elda N. Okolo-Obasi
  74. Fighting African Capital Flight: Trajectories, Dynamics and Tendencies By Simplice A. Asongu; Joseph I. Uduji; Elda N. Okolo-Obasi
  75. Parents, schools and human capital differences across countries By De Philippis, Marta; Rossi, Federico
  76. "Don't know" Tells: Calculating Non-Response Bias in Firms' Inflation Expectations Using Machine Learning Techniques By Yosuke Uno; Ko Adachi

  1. By: Josh Davis; Cristian Fuenzalida; Alan M. Taylor
    Abstract: Benchmark finance models deliver estimates of bond risk premia based on components of Treasury bond yields. Benchmark macroeconomic models deliver estimates of the natural rate of interest based on growth, inflation, and other macro factors. But estimates of the natural rate implied by the former are wildly inconsistent with those of the latter; and estimates of risk premia implied by the latter are wildly inconsistent with those of the former. This is the natural rate puzzle, and we show that it applies not only in the United States but also across several advanced economies. A unified model should not fail such consistency tests. We estimate a unified macro-finance model with long-run trend factors which delivers paths for a market-implied natural rate r* consistent with inflation expectations π* and bond risk premia. These paths are plausible and our factors improve the explanatory power of yield and return regressions. Trading strategies based on signals incorporating both r* and π* trends outperform both yield- only strategies like level and slope and strategies which only add trend inflation. The estimates from our unified model satisfy consistency and deliver a resolution to the puzzle. They show that most of the variation in yields has come from shifts in r* and π*, not from bond risk premia. Our market-implied natural rate differs from consensus estimates, and is typically lower, intensifying concerns about secular stagnation and proximity to the effective lower-bound on monetary policy in advanced economies.
    JEL: C13 C32 E43 E44 E47 G12
    Date: 2019–12
  2. By: Kliem, Martin; Meyer-Gohde, Alexander
    Abstract: The term structure of interest rates is crucial for the transmission of monetary policy to financial markets and the macroeconomy. Disentangling the impact of monetary policy on the components of interest rates, expected short rates and term premia, is essential to understanding this channel. To accomplish this, we provide a quantitative structural model with endogenous, time-varying term premia that are consistent with empirical findings. News about future policy, in contrast to unexpected policy shocks, has quantitatively significant effects on term premia along the entire term structure. This provides a plausible explanation for partly contradictory estimates in the empirical literature.
    Keywords: DSGE model,Bayesian estimation,Time-varying risk premia,Monetary policy
    JEL: E13 E31 E43 E44 E52
    Date: 2019
  3. By: Christian vom Lehn; Thomas Winberry
    Abstract: We argue that the input-output network of investment goods across sectors is an important propagation mechanism for understanding business cycles. First, we show that the empirical network is dominated by a few “investment hubs” that produce the majority of investment goods, are highly volatile, and are strongly correlated with the cycle. Second, we embed this network into a multisector model and show that shocks to investment hubs have large aggregate effects while shocks to non-hubs do not. Finally, we measure realized sector-level productivity shocks in the data, feed them into our model, and find that hub shocks account for a large and increasing share of aggregate fluctuations. This fact allows the model to match the decline in the cyclicality of labor productivity and other business cycle changes since the 1980s. Our model also implies that investment stimulus policies increase employment throughout the economy but have unequal effects across sectors.
    JEL: E22 E23 E24 E32 E62
    Date: 2019–11
  4. By: Hyeongwoo Kim; Shuwei Zhang
    Abstract: This paper shows that fiscal policy in the U.S. has become ineffective due to lack of coordination between monetary and fiscal policy. We present a New Keynesian model that generates strong output effects of government spending shocks only when monetary policy coordinates well with fiscal policy. Employing the post-war U.S. data, we report strong stimulus effects of fiscal policy during the pre-Volcker era, which rapidly dissipate when we shift the sample period to the post-Volcker era. Finding a negligible role of the real interest rate in the propagation of government spending shocks, we propose an alternative explanation using a consumer sentiment channel. Employing the Survey of Professional Forecasters data, we show that forecasters tend to systematically over-estimate real GDP growth in response to positive innovations in government spending when policies coordinate well with each other. On the other hand, they are likely to formulate pessimistic forecasts when the monetary authority maintains a hawkish stance that conflicts with the fiscal stimulus. The fiscal stimulus, under such circumstances, may generate consumer pessimism, which decreases private spending and ultimately weakens the output effects of fiscal policy. We also provide statistical evidence that confirms an important role of the sentiment channel under different regimes of policy coordination.
    Keywords: Fiscal Policy; Time-varying Effectiveness; Policy Coordination; Consumer Sentiment; Survey of Professional Forecasters
    JEL: E32 E61 E62
    Date: 2019–12
  5. By: Mario Alloza (Banco de España); Jesús Gonzalo (Universidad Carlos III de Madrid); Carlos Sanz (Banco de España)
    Abstract: We show that several shocks identified without restrictions from a model, and frequently used in the empirical literature, display some persistence. We demonstrate that the two leading methods to recover impulse responses to shocks (moving average representations and local projections) treat persistence differently, hence identifying different objects. In particular, standard local projections identify responses that include an effect due to the persistence of the shock, while moving average representations implicitly account for it. We propose methods to re-establish the equivalence between local projections and moving average representations. In particular, the inclusion of leads of the shock in local projections allows to control for its persistence and renders the resulting responses equivalent to those associated to counterfactual non-serially correlated shocks. We apply this method to well-known empirical work on fiscal and monetary policy and find that accounting for persistence has a sizable impact on the estimates of dynamic effects.
    Keywords: impulse response function, local projection, shock, fiscal policy, monetary policy
    JEL: C32 E32 E52 E62
    Date: 2019–12
  6. By: Luis Eduardo Castillo (Central Reserve Bank of Peru); David Florián Hoyle (Central Reserve Bank of Peru)
    Abstract: This paper uses a calibrated version of the Quarterly Projection Model (MPT, for its acronym in Spanish), a semi-structural dynamic model used by the Central Reserve Bank of Peru for forecasting and policy scenario analysis, to jointly estimate the output gap, potential output growth and natural interest rate of the Peruvian economy during the inflation targeting regime (between 2002 and 2017). The model is employed as a multivariate filter with a sophisticated economic structure that allows us to infer the dynamics of non-observable variables from the information provided by other variables defined ex-ante as observable. As the results from the Kalman filter are sensible to the variables declared as observable, we use five groups of variables to be defined as such to build probable ranges for our estimates. The results indicate that the estimated output gap is large in amplitude and highly persistent while potential output growth is very smooth. Therefore, most of the variation in Peruvian economic activity during the inflation targeting regime can be attributed to the former. The estimation of the output gap also proves that monetary policy has been extensively responsive to this leading indicator of inflation. Meanwhile, the real natural interest rate is estimated to be considerable stable, averaging 1,6 percent in the sample with only a sharp decline to 1,3 percent during the financial crisis. The main finding of the paper, however, is that there has been a steady deceleration of potential output growth since 2012. A growth-accounting exercise proves that this trend follows mostly a reduction in total factor productivity (TFP) growth during the same time frame (although the drop of capital and labour contributions jointly explain almost a third part of average potential output growth slowdown between 2010-2013 and 2014-2017).
    Keywords: Potential output, Output gap, Natural Interest Rate, Kalman Filter, Peru
    JEL: C51 E32 E52
    Date: 2019–12
  7. By: Enrique Martinez-Garcia; Stephen J. Cole
    Abstract: This paper examines the effectiveness of forward guidance in an estimated New Keynesian model with imperfect central bank credibility. Forward guidance and the credibility of the central bank are uniquely modeled by utilizing a game-theoretic evolutionary framework. We estimate credibility for the U.S. Federal Reserve with Bayesian methods exploiting survey data on interest rate expectations from the Survey of Professional Forecasters (SPF). The results provide important takeaways: (1) The estimate of Federal Reserve credibility in terms of forward guidance announcements is relatively high, which indicates a degree of forward guidance effectiveness, but still one that is below the fully credible case. (2) If a central bank is perceived as less credible, anticipation effects are attenuated and, accordingly, output and inflation do not respond as favorably to forward guidance announcements. (3) Imperfect credibility and forward guidance are an important aspect to resolve the so-called “forward guidance puzzle,” which the literature shows arises from the unrealistically large responses of macroeconomic variables to forward guidance statements in structural models with perfect credibility. (4) Imperfect central bank credibility can also explain the evidence of forecasting error predictability based on forecasting disagreement found in the SPF data. Thus, accounting for imperfect credibility is important to model the formation of expectations in the economy and to understand the transmission mechanism of forward guidance announcements.
    Keywords: Evolutionary Games; Expectations; Monetary Policy; Forward Guidance; Central Bank Credibility
    JEL: D84 E30 E50 E52 E58 E60
    Date: 2019–12–16
  8. By: Aleksandar Vasilev
    Abstract: We introduce consumption habits into an exogenous growth model augmented with a detailed government sector, and calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We show that in contrast to the case without habits, e.g., Vasilev (2009), when the economy features saddle-path stability, the habit motive alone leads to equilibrium indeterminacy in the model. When habits enter multiplicatively in the representative agent’s utility function, the setup exhibits ”sink” dynamics, and equilibrium paths are determined by ”animal spirits.” These results are in line with the findings in the literature, e.g., Benhabib and Farmer (1994, 1996) and Farmer (1999), and have major implications for polcy-making and welfare.
    Keywords: Equilibrium indeterminacy, animal spirits, multiplicative consumption habits, Bulgaria.
    JEL: E32 E22 E37
    Date: 2019–10–08
  9. By: Samuel Alarcón Gambarte (Ministerio de Economía y Finanzas Públicas); Pablo Cachaga Herrera (Banco Central de Bolivia); Martin Vallejos Tarqui (Postgraduate student at the University Higher School of Economics (Russia))
    Abstract: In recent years, Latin America has experienced significant fluctuations in its terms of trade. In this context, the countries subject to fiscal rules failed to fully mitigate the impact of adverse external shocks on their economies through the use of fiscal policy. In this sense, using a SVAR, we find that, in face of negative shocks in the terms of trade, the fiscal rules applied by the South American countries do not necessarily guarantee effectiveness of the fiscal policy to stabilize the business cycle fluctuations. Moreover, an expansive fiscal policy for some countries in the region could help reduce volatility of the cycle.
    Keywords: Fiscal Policy, Terms of Trade, Business Cycle, Fiscal Rules
    JEL: E62 F41 E32
    Date: 2018–12
  10. By: Lewis, Vivien; Villa, Stefania; Wolters, Maik H.
    Abstract: The Euro Area is characterized by little variation in unemployment and strongly procyclical labor productivity. We capture both characteristics in a New Keynesian business cycle model with labor search frictions, where labor can vary along three margins: employment, hours, and effort. We estimate the model with Bayesian methods and find evidence for a significant use of the effort margin in generating procyclical productivity. We show that a model with labor effort is more successful at matching the business cycle facts than is one with variable capital utilization or dominant technology shocks. Finally, we demonstrate that effort dampens the response of inflation to exogenous shocks.
    Keywords: effort,labor utilization,labor productivity,inflation
    JEL: E30 E50 E60
    Date: 2019
  11. By: Adrien G. Bilal; Niklas Engbom; Simon Mongey; Giovanni L. Violante
    Abstract: This paper develops a random-matching model of a frictional labor market with firm and worker dynamics. Multi-worker firms choose whether to shrink or expand their employment in response to shocks to their decreasing returns to scale technology. Growing entails posting costly vacancies, which are filled either by the unemployed or by employees poached from other firms. Firms also choose when to enter and exit the market. Tractability is obtained by proving that, under a parsimonious set of assumptions, all workers’ and firm decisions are characterized by their joint marginal surplus, which in turn only depends on the firm’s productivity and size. As frictions vanish, the model converges to a standard competitive model of firm dynamics which allows a quantification of the misallocation cost of labor market frictions. An estimated version of the model yields cross-sectional patterns of net poaching by firm characteristics (e.g., age and size) that are in line with the micro data. The model also generates a drop in job-to-job transitions as firm entry declines, offering an interpretation to U.S. labor market dynamics around the Great Recession. All these outcomes are a reflection of the job ladder in marginal surplus that emerges in equilibrium.
    JEL: E24 E32 J41 J63 J64
    Date: 2019–12
  12. By: Rui Faustino
    Abstract: Empirical evidence for the United States suggests that private consumption of durable and nondurable goods have a positive response to government spending shocks. Moreover, the markups for both goodstend be procyclical on productivity shocks and countercyclical on demand shocks.These facts contrast with the results obtained from standard two-sector New Keynesian models with perfect financial markets. In this paper we address these shortcomings by introducing habit formation on the consumption of bothdurable and nondurable goods. Habit formation on differentiated goods - i.e. Deep Habits - proves to significantly alter the dynamics of the model. However, the effects from habits on durable goods are only meaningful when defined over purchases rather than stocks. When we introduce capital formation into the model, it continues to be consistent with the responses observed in the data.
    Keywords: Durable goods, sticky prices, habit formation, time varying markups
    JEL: E21 E32 L16
    Date: 2019–12
  13. By: Lu Zhang
    Abstract: The q-factor model shows strong explanatory power and largely summarizes the cross section of average stock returns. In particular, the q-factor model fully subsumes the Fama-French (2018) 6-factor model in head-to-head factor spanning tests. The q-factor model is an empirical implementation of the investment CAPM. The basic philosophy is to price risky assets from the perspective of their suppliers (firms), as opposed to their buyers (investors). As a disruptive innovation, the investment CAPM has broad-ranging implications for academic finance and asset management practice.
    JEL: E13 E22 E32 E44 G12 G14 G31 M41
    Date: 2019–12
  14. By: Philemon Kwame Opoku
    Abstract: This paper examines the relationship between interest rates and household saving rates for an uneven panel of 19 OECD countries during the period 1995 to 2018. Unlike earlier studies, it uses the pooled mean group (PMG) methodology to investigate which of the interest rate effects, income or substitution, dominates in the short run, long run, or both periods. With the baseline estimations, I find that the income effect outweighs the substitution effect in the short run, and vice versa in the long run. I also finf that inflation (both expected and actual) household wealth through housing prices, unemployment rate, current taxes on income and wealth, and general government debt have significant negative impact on household saving in the long run. Current taxes on income and wealth has a strong negative impact on household saving in the short run.
    Keywords: household saving,interest rates,ination,taxation,unemployment rate,dynamic heterogeneous panel data model
    JEL: E21 E24 E43 C23
    Date: 2019–12
  15. By: Hans Gersbach (ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)); Jean-Charles Rochet (GFRI, University of Geneva; Swiss Finance Institute; University of Zurich - Swiss Banking Institute (ISB)); Martin Scheffel (Karlsruhe Institute of Technology)
    Abstract: We integrate bank and bond financing into a two-sector neoclassical growth model to examine the stabilization effect of endogenous bank leverage adjustment. We show that although bank leverage amplifies shocks, the increase of leverage to a decline in bank equity is an automatic stabilizer in downturns, since it partially offsets the decline of bank lending to financially constrained firms. Regulatory capital limits and wage rigidities impair the re-allocation of capital between sectors and weaken the automatic stabilization channel. A quantitative analysis of the US in the Great Recession shows that the magnitude of automatic stabilization is significant and informs about potentially high costs of strict capital regulation or wage rigidities in banking crises.
    Keywords: financial intermediation, capital accumulation, banking crises, macroeconomic shocks, business cycles, bust-boom cycles, managing recoveries
    JEL: E21 E32 F44 G21 G28
    Date: 2019–12
  16. By: Carlos Altavilla; Miguel Boucinha; José-Luis Peydró; Frank Smets
    Abstract: We analyse the effects of supranational versus national banking supervision on credit supply, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change leading to the centralisation of European banking supervision; (iii) high-frequency monetary policy surprises; (iv) differences across euro area countries, also vis-à-vis non-euro area countries. We show that supranational supervision reduces credit supply to firms with very high ex-ante and ex-post credit risk, while stimulating credit supply to firms without loan delinquencies. Moreover, the increased risk-sensitivity of credit supply driven by centralised supervision is stronger for banks operating in stressed countries. Exploiting heterogeneity across banks, we find that the mechanism driving the results is higher quantity and quality of human resources available to the supranational supervisor rather than changes in incentives due to the reallocation of supervisory responsibility to the new institution. Finally, there are crucial complementarities between supervision and monetary policy: centralised supervision offsets excessive bank risk-taking induced by a more accommodative monetary policy stance, but does not offset more productive risk-taking. Overall, we show that using multiple credit registers – first time in the literature – is crucial for external validity.
    Keywords: Supervision, banking, AnaCredit, monetary policy, euro area crisis.
    JEL: E51 E52 E58 G01 G21 G28
    Date: 2019–12
  17. By: Jacob M. Meyer
    Abstract: Political institutions can influence the likelihood of banking crises through both direct and indirect causal pathways. They may influence domestic economic conditions, thereby indirectly impacting the likelihood of a banking crisis, or they may directly affect the likelihood of banking crises through confidence and expectations-related mechanisms. I apply econometric moderated multiple-mediation to estimate this combination of effects for veto player theory - a common framework for analysing political institutional constraints - using a dynamic panel approach and a dataset of 111 developing economies and emerging markets from 1990-2012. I find more veto players indirectly reduce the likelihood of banking crises by reducing inflation and increasing GDP growth in the pre-crisis period. However, they also increase the likelihood of banking crises by increasing credit growth. When global risk is high, more veto players impede policy responses to changing conditions. This directly increases the likelihood of crises. When global risk is low, more veto players reduce policy volatility. This directly reduces the likelihood of crises. Rising global volatility has larger effect on the likelihood of crises in relatively constrained political systems.
    Keywords: Banking Crises, Political Institutions, Econometric Moderated Mediation, Veto Player Theory, Empirical International Finance.
    JEL: E02 E50 E51
    Date: 2019–10–07
  18. By: Mansur, Alfan
    Abstract: Sharia banking industry in Indonesia has been established since early 1990s and growing remarkably after 1998. How the industry contributed to the Indonesian economy and what shocks drove the sharia banks' financing in Indonesia were investigated in this paper using a Structural Vector Auto-regression (SVAR) model with recursive short run restrictions as its identification strategy. The results showed that GDP growth, core inflation, and business activity responded to increase in sharia banks' financing positively, but with lags. Expanding sharia financing by 1 per cent boosted up GDP growth by 0.06 per cent. In the short-run, the contribution of sharia banks' financing to the macroeconomic variables was limited, but it then escalated in the long run with the main channel of transmission through its ability to drive people's purchasing power. Another result showed that sharia banks' financing had a negative relationship with the central bank's monetary policy. In order to improve the performance of sharia banking in Indonesia, the demands of domestic sharia financing have to be strengthened with regards to the large number of Moslems in Indonesia. At the same time, Islamic banks have to improve their business processes. Rather than capping their profit margins or murabahah-based financing, they should promote more profit sharing mudharabah-based financing with prioritizing principle of mutual help among Moslems.
    Keywords: Sharia banks' financing, Structural Vector Auto-regression (SVAR), macroeconomic variables, shock
    JEL: C13 C32 E51 F43 G21
    Date: 2019–02–02
  19. By: Tayyar Buyukbasaran; Cem Cebi; Erdal Yilmaz
    Abstract: This paper aims to investigate the interaction between monetary and fiscal policies in Turkey. For this purpose, a Bayesian Structural Vector Auto-Regression (SVAR) model with sign and zero restrictions is used. We particularly focus on how the fiscal and monetary policy variables respond to various macroeconomic shocks and whether the type of shocks matters. Our results confirm the importance of nature of shocks in terms of interaction between monetary and fiscal policies with the finding that both policy shocks are complementary in response to demand and supply shocks while they are substitute in response to shocks caused by the each other. Our main findings are robust to alternative variable definitions and identifying restrictions.
    Keywords: Monetary policy, Fiscal policy, Structural VAR, SVAR, Bayesian VAR, Sign and zero restrictions
    JEL: C11 C32 E52 E62
    Date: 2019
  20. By: Marianna Kudlyak (Federal Reserve Bank of San Francisco; Federal Reserve Bank of Richmond); Murat Tasci (Federal Reserve Bank of Cleveland); Didem Tuzemen
    Abstract: We estimate the impact of minimum-wage increases on the quantity of labor demanded as measured by firms’ vacancy postings. We use propriety, county-level vacancy data from the Conference Board’s Help Wanted Online database. Our identification relies on the disproportionate effects of minimum-wage hikes on different occupations, as the wage distribution around the binding minimum wage differs by occupation. We find that minimum-wage increases during the 2005-2018 period have led to substantial declines in vacancy postings in at-risk occupations, occupations with a larger share of employment around the prevailing minimum wage. Our estimate implies that a 10 percent increase in the binding minimum- wage level reduces vacancies by 2.4 percent in this group. The negative effect is concentrated not exclusively in the routine jobs, but more in the manual occupations.
    Keywords: Minimum Wage; Vacancies; Hiring; Search and Matching
    JEL: E24 E32 J30 J41 J63 J64
    Date: 2019–12–23
  21. By: Klein, Mathias (Research Department, Central Bank of Sweden); Linnemann, Ludger (TU Dortmund University)
    Abstract: We present evidence on the open economy consequences of US fiscal policy shocks identified through proxy-instrumental variables. Tax shocks and government spending shocks that raise the government budget deficit lead to persistent current account deficits. In particular, the negative response of the current account to exogenous tax reductions through a surge in the demand for imports is among the strongest and most precisely estimated effects. Moreover, we find that the reduction of the current account is amplified when the tax reduction is due to lower personal income taxes and when the government increases its consumption expenditures. Historically, a much larger share of current account dynamics has been due to tax shocks than to government spending shocks.
    Keywords: Tax policy; government spending; proxy-vector autoregressions; current account; twin deficits
    JEL: E32 E62 F41
    Date: 2019–08–01
  22. By: Ippei Fujiwara; Yuichiro Waki
    Abstract: When the central bank has information that can help the private sector predict the future better, should it communicate such information to the public? In a simple New Keynesian model, such Delphic forward guidance unambiguously reduces ex ante welfare by increasing the variability of inflation and the output gap. In other words, it cannot persuade private agents to change their actions in favor of the central bank. In more elaborate DSGE models, the welfare effect may be either positive or negative, depending on the type of shock as well as distortions and frictions. These results suggest that improving welfare by Delphic forward guidance may be particularly difficult under model uncertainty.
    Keywords: news shock, optimal monetary policy, private information, Bayesian persuasion, forward guidance, New Keynesian models
    JEL: E30 E40 E50
    Date: 2019–12
  23. By: Phindile Mdluli (North-West University); Precious Mncayi (North-West University); Thabang Mc Camel (North-West University)
    Abstract: The structure of budgets has changed drastically in the past three decades both globally and locally. Most economies have consistently had growing government spending, some spending way more than what they earn especially following the aftermath of the global financial crisis. Literature shows that government spending in high-income countries has been more on social protection, while public servants compensation has dominated spending in many low-income countries, especially in Africa. In South Africa, a weak investment climate, established years of slow economic progress, rising unemployment and poverty levels which have negatively affected the tax base and therefore revenue collection. The country has been spending more money than it earns, to an enormous degree raising worries to research the drivers of this growth in expenditure, subsequently the essential objective of this study was to pinpoint the key factors that have added to this situation. The study adopted a quantitative research approach through the use of quarterly time series data spanning from 1995 through to 2018. An autoregressive distributed lag (ARDL) model was utilized so as to determine the long-and short-run impacts of the chosen variables on government spending. The findings of the study show that government spending in South Africa, particularly after 1994 has been driven more by current spending than capital spending which presents significant economic effects in the long-run. Among the most significant factors, explicitly in the short run, incorporate unemployment levels, rising debt and inflation. Results further revealed that political instability, low economic growth as well as a growing public size and bailouts of unproductive state owned entities (SOEs) induced significant long term consequences on spending. The continued worsening of spending patterns suggests the presence of fundamental obstacles including the country?s high unemployment levels, for both adults and youth, inferring that the revenue base keeps on narrowing, while the growing poverty levels forces spending towards current spending such as the growing social welfare needs rather than productive activities such as investment spending. The study recommends that the size of the public wage bill be reduced and many unproductive SOEs be privatized to relieve spending. Additionally, a multidimensional approach is needed which entails the reduction of debt accumulation to have low interest repayments, restructuring the labour market to improve outcomes, expanding the revenue base, creating an environment conducive to private spending and economic growth and promoting a stable and transparent political climate.
    Keywords: Expenditure, government spending, capital expenditure, current expenditure, South Africa
    JEL: E20 E62 H50
    Date: 2019–10
  24. By: Fergus Cumming (Centre for Macroeconomics (CFM); Bank of England)
    Abstract: This paper quantifies the impact of the cash-flow channel of monetary policy on employment by combining novel micro datasets with near-universal coverage. When policy interest rates fall, families with a mortgage spend the extra cash-flow in their local economy and this increases labor demand. Overall, a reduction in mortgage payments of £1,000 per household led to a 0.3 percentage point increase in locally non-tradable employment growth over three years of the Great Recession, with the most pronounced effects in the restaurant sector. Spatial variation in labor and mortgage market structures leads to regional heterogeneity in the traction of monetary policy.
    Keywords: Employment, Interest rates, Monetary policy, Mortgages
    JEL: E24 E52 G21
    Date: 2019–12
  25. By: Engert, Walter (Bank of Canada); Fung, Ben (Bank of Canada); Segendorf, Björn (Financial Stability Department, Central Bank of Sweden)
    Abstract: Cash is being used less and less for making payments in many countries, including Canada and Sweden, which might suggest that cash will eventually disappear. However, cash in circulation in most countries, including Canada, has been stable for decades, and even rising in recent years. In contrast, aggregate cash demand in Sweden has been falling steadily. This paper explains these differences between Canada and Sweden by focusing separately on the transactions demand for cash and on the store-of-value demand. We find a long-term downward trend in small-denomination bank notes relative to gross domestic product in both Canada and Sweden. This reflects similar experiences in decreasing cash use for transactions over time due to the adoption of payment innovations. This means that payment innovations and diffusion are not sufficient to explain why aggregate cash demand has been declining rapidly in Sweden but not in Canada. Instead, the difference in the trends of cash demand between these two countries is due more to the behaviour of larger-denomination, store-of-value bank notes. Finally, we identify influences and frictions that help explain the persistent decline in the demand for larger bank notes in Sweden relative to Canada.
    Keywords: Bank notes; Digital currencies and fi ntech; Financial services; Payment clearing and settlement systems.
    JEL: E40 E41 E42 E50
    Date: 2019–08–01
  26. By: d'Avernas, Adrien; Vandeweyer, Quentin; Darracq Pariès, Matthieu
    Abstract: This paper investigates the efficiency of various monetary policy instruments to stabilize asset prices in a liquidity crisis. We propose a macro-finance model featuring both traditional and shadow banks subject to funding risk. When banks are well capitalized, they have access to money markets and efficiently mitigate funding shocks. When aggregate bank capital is low, a vicious cycle arises between declining asset prices and funding risks. The central bank can partially counter these dynamics. Increasing the supply of reserves reduces liquidity risk in the traditional banking sector, but fails to reach the shadow banking sector. When the shadow banking sector is large, as in the US in 2008, the central bank can further stabilize asset prices by directly purchasing illiquid securities. JEL Classification: E43, E44, E52, G12
    Keywords: asset pricing, money markets, quantitative easing, shadow banks
    Date: 2020–01
  27. By: António Afonso; Nuno Verdial
    Abstract: The 2007-2008 financial crisis and the European sovereign debt crisis effects rippled through the financial system, banks and sovereign states. We analyze these events, focusing on the Portuguese and Spanish case after providing an insight into the Eurozone. We assessed the pricing of sovereign risk by performing an OLS/2SLS fixed effects panel analysis on a pool of Eurozone countries and a SUR regression with Portugal and Spain covering the period 1999:11 until 2019:6. Our results show that the pricing of sovereign risk changed with the crisis and the “whatever it takes” speech of Mario Draghi. Specifically, market pricing of the Eurozone credit risk, liquidity risk and the risk appetite increased after the crisis and it relaxed afterwards. We did not find evidence of specific pricing regime changes after the speech in the Portuguese and Spanish case.
    Keywords: Sovereign debt, Yield spreads, Crises, Unconventional Monetary Policy, Portugal, Spain
    JEL: C23 E44 E52 G01
    Date: 2019–12
  28. By: Alexander Bick; Nicola Fuchs-Schündeln; David Lagakos; Hitoshi Tsujiyama
    Abstract: Why are average hours worked per adult lower in rich countries than in poor countries? Two natural candidates to consider are income effects in preferences, in which leisure becomes more valuable when income rises, and distortionary tax systems, which are more prevalent in richer countries. To assess the importance of these two forces, we build a simple model of labor supply by heterogeneous individuals and calibrate it to match international data on labor income taxation, government transfers relative to GDP, and hours worked per adult. The model predicts that income effects are the main driving force behind the decline of average hours worked with GDP per capita. We reach a similar conclusion in an extended model that matches cross-country patterns of labor supply along the extensive and intensive margins and of the prevalence of subsistence self-employment.
    JEL: E24 H2 O11
    Date: 2019–12
  29. By: Hassler, John (IIES, University of Gothenburg and CEPR); Krusell, Per (IIES, CEPR and NBER); Olovsson, Conny (Research Department, Central Bank of Sweden)
    Abstract: How do markets economize on scarce natural resources? With an applica-tion to fossil energy, we emphasize technological change aimed at saving on the scarce resource. We develop quantitative macroeconomic theory as a tool for interpreting the past and thinking about the future. We argue, first, that aggre-gate U.S. data calls for a short-run substitution elasticity between energy and the capital/labor inputs that is near Leontief. Given this fact and an aggregate CES function, we note that energy-saving technical change took o right as the oil shocks hit in the 1970s. We rationalize this observation using a theory that views technical change as directed: it can be used to save on different inputs and, hence, the long-run substitutability between inputs becomes higher than Leontief. For our application, we estimate long-run dependence on fossil energy - measured by its factor share - to climb to a little below 10%; absent endogenous technical change directed toward energy-saving, it would go to 100%.
    Keywords: Sustainability; Natural resource scarcity; technological change; economic growth; energy
    JEL: E13 E20 Q30 Q43
    Date: 2019–07–01
  30. By: Elizaveta Lukmanova; Katrin Rabitsch
    Abstract: We augment a standard monetary VAR on output growth, inflation and the nominal interest rate with the central bank's inflation target, which we estimate from a New Keynesian DSGE model. Inflation target shocks give rise to a simultaneous increase in inflation and the nominal interest rate in the short run, at no output expense, which stands at the center of an active current debate on the Neo-Fisher effect. In addition, accounting for persistent monetary policy changes reflected in inflation target changes improves identification of a standard temporary nominal interest rate shock in that it strongly alleviates the price puzzle.
    Date: 2018–11–28
  31. By: Dennis Bonam; Gabriele Galati; Irma Hindrayanto; Marco Hoeberichts; Anna Samarina; Irina Stanga
    Abstract: This study analyzes the behavior of inflation observed in the euro area over the past decade from a broad perspective. We first document changes in the inflation process, i.e. the dynamics of inflation and its response to shocks. We then discuss whether the Phillips curve is still a useful analytical paradigm. Next, we present evidence based on an Unobserved Components Model that the Phillips curve is "alive and well", in the sense that estimates show a positive and significant relationship between slack in the economy and inflation. At the same time, there is evidence of a downward trend in inflation in a sample that covers the past decades (1985-2017). While this past trend can be associated with a decline over time in inflation expectations, other deeper factors may be also at work, including the ongoing globalization trend, the declining bargaining power of labor, technological progress and the rise of e-commerce, demographic changes and financial factors. The complex nature of these forces and their interaction underscores the uncertainty that characterizes the current macroeconomic environment, and future research is needed to analyze to what extent these forces are likely to persist. Finally, we discuss possible implications of our analysis for monetary policy.
    Date: 2019–09
  32. By: -
    Abstract: Highlights • In the third quarter of 2019, the U.S. economy grew at a 2.1% annualized rate. Growth was driven by consumer and government spending, and a buildup in inventories. • The third quarter of 2019 was the 41st consecutive quarter of growth and November the 125th month of consecutive growth for the U.S. economy. The current expansion is the longest on record. • The Federal Open Market Committee (FOMC) cut the federal funds rate three times this year, in July, September and October, due to slowing global growth and trade uncertainty, contributing to diminish recession fears. Federal Reserve Chairman Jerome Powell has announced a “wait-and-see” posture for future changes in monetary policy. • The nominal trade deficit narrowed by 7.6% in October to US$ 47.2 billion. It has narrowed in four of the past five months and is the narrowest since the first half of 2018. It is expected to make a positive contribution to growth in the fourth-quarter. • U.S. employers added 266,000 jobs in November, beating expectations and confirming the continued strength of the labor market. The unemployment rate dropped back to a historic low of 3.5%, and hourly earnings increased 3.1% over the past year, also exceeding estimates. • In November, U.S. consumer price inflation edged up (0.3%) following another rise in October (0.4%). Over the last 12 months, the all items Consumer Price Index (CPI) rose 2.1%. The core CPI was up 2.3%.
    Date: 2019–12–18
  33. By: Aleksei Kiselev (Bank of Russia, Russian Federation); Aleksandra Zhivaykina (Bank of Russia, Russian Federation)
    Abstract: In this paper we investigate the impact of global relative price changes on domestic inflation. We use a dynamic hierarchical factor model (DHFM) to decompose consumer basket products’ inflation in a panel of countries into (i) a global factor, common to all price series and all countries, (ii) a price change shock at product group level, (iii) a price change shock at product subgroup level, and (iv) an idiosyncratic component. Using monthly data for 29 economies from 2003 to 2018 we find that product inflation rates demonstrate different sensitivity to common price shocks. For energy, some food and manufactured goods, global relative price changes may account for up to 49% of inflation variation which is quite high for this frequency and level of disaggregation. Moreover, common factors from the DHFM have significant explanatory power for overall CPI and its aggregate components across different countries.
    Keywords: Dynamic hierarchical factor model, global inflation, relative prices, Russia
    JEL: C38 E31 F42
    Date: 2019–12
  34. By: Rui Faustino
    Abstract: During economic expansions the net product creation and average product quality increase as firms introduce new products with higher quality.The introduction of new products with higher quality producesa quality bias in price level measures. In this paper I develop a firm-entry model with endogenous qualityof consumer goods. Following a TFP shock, the price level increases not only due to a larger number of varieties but also due to a higher average quality.Simultaneously, the channel of endogenous quality actsas a propagation mechanism to other variables in the economy, amplifying their response to shocks. This channel can also be either contractionary or shut down, depending on how consumers derive utility from quality.
    Keywords: Firm-entry, business cycle, quality, prices.
    JEL: E32 E20 L11
    Date: 2019–12
  35. By: Okan Eren; Gulnihal Tuzun
    Abstract: We estimate the impact of the domestic and trade partners’ business cycles on the current account balance of Turkey and build a cyclically-adjusted current account balance from 2003Q1 to 2019Q1. To this end, we adopt a methodology that is based on the estimation of domestic and foreign business cycles by a modified version of HP filter and the approximation of their impact on the goods and services trade balances, separately. Our findings suggest that the level and evolution of the current account balance are mainly determined by non-cyclical factors although the size of cyclical adjustment reaches up to 1.4 percent of GDP in certain periods. The domestic business cycles seem to be the main driver of the cyclical changes in the current account balance throughout the period of analysis. Furthermore, the cyclical adjustment is more pronounced in the goods trade balance than the services trade balance. Foreign business cycles have a much bigger effect on the services trade balance than the goods trade balance when compared to the impact of domestic business cycles. Finally, the incorporation of price cycles into the analysis points out that the final cyclically-adjusted current account balance turns out to be more positive in recent periods unlike the case in which only the business cycles are taken into account.
    Keywords: Current Account Balance, Cyclical Adjustment, Business Cycles
    JEL: E32 F14 F32
    Date: 2019
  36. By: Michael Donadelli (University of Brescia, Research Center SAFE); Patrick Grüning (Bank of Lithuania, Vilnius University); Steffen Hitzemann (Rutgers Business School)
    Abstract: This paper analyzes the transition to a low-carbon economy and its effects on macroeconomic quantities and asset prices. Empirically, we document that the relative valuation of fossil fuel firms has significantly declined with the rise of climate change risk awareness. We develop a macro asset pricing model for the climate transition that matches this empirical fact and allows us to characterize the dynamics of macroeconomic aggregates and asset prices during and after the transition. In particular, we analyze (i) firm valuation dynamics, (ii) climate policy risk premia, (iii) capital reallocation between sectors, and (iv) the behavior of oil prices.
    Keywords: Climate change, Policy risk, General equilibrium, Risk premia, Oil market
    JEL: E2 E3 G12 Q43
    Date: 2019–12–27
  37. By: Solomos Solomou; Ryland Thomas
    Abstract: This paper attempts to bring together some of the improvements to C19th national income estimates since the publication of Charles Feinstein’s 1972 volume National Income, Expenditure and Output of the United Kingdom, 1855-1965. Most of the improvements and refinements were made by Feinstein himself and this paper makes a start in bringing the different elements together focusing chiefly on reconstructing the income-ased estimates, but also outlining where improvements might be made on the output and expenditure sides. We have also incorporated the improvements of other scholars and provided a new set of benchmark compromise estimates. We compare the productivity puzzle of the late C19th and early C20th with that of a similar puzzle observed since the Great Financial Crisis and show that many similar measurement issues are present in both episodes. In particular, we argue that further investigation of the GDP deflator and its sub- components over the 1841-1920 period is warranted.
    Keywords: Economic History, Economic Growth, Economic Cycles
    JEL: E01 N13 O47
    Date: 2019–08
  38. By: Dominik Bertsche (Department of Economics, University of Konstanz)
    Abstract: Oil supply shocks have been found to be important drivers of US business cycles. The literature studies the effects of two types of shortfalls in supply separately: a ‘flow’ supply shock revealing an immediate drop in production as well as a ‘news’ shock associated with unanticipated shifts in future oil production. In this paper, I simultaneously identify both kinds of supply shocks allowing me to assess their relative importance within one model. For this purpose, I develop a factor-augmented vector autoregressive model that is identified by external instruments (Proxy-FAVAR). The framework ensures that the identified shocks are orthogonal to each other while also using a rich information set and a credible identification scheme. My results suggest that these shocks have substantially distinguishable effects: While news shocks clearly dominate the reaction of the oil price, flow supply surprises have more pronounced effects on many macroeconomic indicators and financial variables.
    Keywords: Oil market, Factor-Augmented Vector Autoregression (FAVAR), Identification via External Instruments, Bayesian Inference
    JEL: C32 C36 C38 Q43
    Date: 2019–12–12
  39. By: Fitri Ami Handayani (Graduate School of Economic Science Faculty of Economics and Business Universitas Indonesia); Febrio Nathan Kacaribu (Institute for Economic and Social Research Faculty of Economics and Business Universitas Indonesia (LPEM FEB UI))
    Abstract: This paper empirically examines asymmetric transmissions from money market rates to various consumer rates throughout a sample period that comprises monetary policy shifting in Indonesia from 2011 to 2017. We adopt modification of Asymmetric Error Correction Models (AECM), which incorporate three-error correction term. This allows us to inspect the different adjustment when the disequilibria are: large-positive, large-negative, and small. Our findings shows that there are varying asymmetric adjustment in response to different shocks across products in lending market. Thus, the monetary authorities should notice that both easing and tightening monetary policy appear to have varying impact to different credit market.
    Keywords: monetary policy — asymmetric adjustment — Indonesia
    JEL: C22 E43 G21
    Date: 2019–09
  40. By: Irma Alonso (Banco de España); Luis Molina (Banco de España)
    Abstract: This paper presents a tool to detect the accumulation of risks in emerging market economies based on a synthetic index of “vulnerability” for three different types of crisis (sovereign, currency and banking crises). To build the index we first use a signalling approach (Auroc) to preselect the variables that issue adequate signals before the blown up of a crisis. The short-term interbank rate is a leading indicator for the three different types of crises and short term external debt also plays a prominent role. These variables are then introduced in a logistic estimation to obtain the predicted probability of being in a “vulnerable” state for each type of crisis. These indexes, labelled SHERLOC, which stands for Signalling Heightened Emerging Risks that Lead to the Occurrence of Crises, outperform all best single indicators in terms of in-sample and out-of-sample validation. Additionally, a synthetic index for each type of crisis seems to predict better “vulnerable” states than the use of an aggregate index for all types of crises.
    Keywords: emerging economies, crisis, vulnerabilities, early warning models, risks
    JEL: E44 F01 F34 F37 G01
    Date: 2019–12
  41. By: Vahabi, Mehrdad; Mohajer, Nasser
    Abstract: This paper discusses different meanings and ambiguities of “neoliberalism” as a concept. Three dimensions of this concept as an economic doctrine, principles of economic policies (Washington Consensus) and a particular type of accumulation regime (post-Fordism) are explored. It also explores the evolution of this concept among its left and right advocates since the financial Crisis in 2008 notably the “authoritarian liberalism” and the “crisis of liberalism”. Finally, it reviews this concept is used in explaining certain aspects of the political economy of the Islamic Republic of Iran.
    Keywords: Neoliberalism, Authoritarian liberalism, Classical Liberalism, Social Liberalism, Washington Consensus, Keynes, Hayek, Mises, Friedman, Accumulation regime
    JEL: B2 E5 E58 G2 H7 N4
    Date: 2019–12–26
  42. By: International Monetary Fund
    Abstract: Belize’s economic recovery continues but the pace is slowing. Real GDP grew by 3.2 percent in 2018, but recent data indicate a slowdown, reflecting a severe drought, with growth projected to average 2 percent during 2019-20. The primary fiscal surplus reached 2.1 percent of GDP in FY2018/19––a 4 percent of GDP rise from two years ago––but the primary surplus is expected to narrow this year and remain below 2 percent of GDP for the following two years. Public debt remains above 90 percent of GDP, the current account deficit is projected to remain large over the medium term, and international reserves are just below 3 months of imports of goods and services. The pace of structural reform has been slow. Downside risks, including from slower U.S. growth, natural disasters, crime, and renewed pressures on correspondent banking relationships (CBRs) could weaken growth and financial stability.
    Date: 2019–12–09
  43. By: International Monetary Fund
    Abstract: In an increasingly uncertain global economic environment, Hungary’s growth registered one of the highest rates in Europe in 2018. The economy now appears to be running above capacity and wages are growing rapidly amid historically low unemployment. It is thus likely that growth will slow down over the medium-term. Supply-side reforms can help sustain the momentum.
    Keywords: Financial crises;Central banks;Economic indicators;External debt;Monetary policy;ISCR,CR,MNB,SMEs,percent of GDP,percentage change,Hungarian authority
    Date: 2019–12–05
  44. By: Alicia Garcia-Herrero (Bruegel - affiliation inconnue, HKUST - Hong Kong University of Science and Technology); Eric Girardin (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); Arnoldo Lopez-Marmolejo (Inter-American Development Bank - Inter-American Development Bank)
    Abstract: Central bank communication is becoming a key aspect of monetary policy. How much financial markets listen and, possibly, understand Banco de Mexico's communication on its monetary policy stance should be a key consideration for the central bank to further modernize its monetary policy toolkit. In this paper, we tackle this issue empirically by using our own index of the tone of communication based on Banco de Mexico's speeches and statements and find that Mexican money markets do not only listen but they also understand the stance of monetary policy conveyed in the central bank's words. Regarding the ability to listen we find that both the volatility and volume in the money market rates change right after communication from Banco de Mexico's governing body. As for the markets' understanding, we document a statistically significant rise in money market rates the more hawkish communication is. All in all, our results show strong evidence of effective oral and written communication from the Central Bank towards Mexico's money markets.
    Keywords: Mexico monetary policy communication,money market
    Date: 2019–02
  45. By: Mariarosaria Comunale (Bank of Lithuania); Francesco Paolo Mongelli (European Central Bank)
    Abstract: During the past thirty years, euro area countries have undergone significant changes and experienced diverse shocks. We aim to investigate which variables have consistently supported growth in this tumultuous period. The paper unfolds in three parts. First, we assemble a set of 35 real, financial, monetary and institutional variables for all euro area countries covering the period between 1990Q1 and 2016Q4. Second, using the Weighted-Average Least Squares (WALS) method, as well as other techniques, we gather clues about which variables to select. Third, we quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of institutional reforms on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run as well as a decline in sovereign and systemic stress. The debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to NFCs positively affect the core euro area. An increase in global GDP also supports growth.
    Keywords: euro area, GDP growth, monetary policy, fiscal policy, institutional integration, financial crisis, systemic stress, synchronization
    JEL: C23 E40 F33 F43
    Date: 2019–12–27
  46. By: Canova, Fabio (Norwegian Business School, CAMP and CEPR); Ferroni, Filippo (Federal Reserve Bank of Chicago)
    Abstract: We study what happens to identified shocks and to dynamic responses when the data generating process features q disturbances but less than q variables are used in the empirical model. Identified shocks are mongrels: they are linear combinations of current and past values of all structural disturbances and do not necessarily combine disturbances of the same type. Sound restrictions may be insufficient to obtain structural dynamics. The theory used to interpret the data and the disturbances it features determine whether an empirical model is too small. An example shows the magnitude of the distortions and the steps needed to reduce them. We revisit the evidence regarding the transmission of house price and of uncertainty shocks.
    Keywords: Deformation; state variables; dynamic responses; structural models; house price shocks; uncertainty shocks
    JEL: C31 E27 E32
    Date: 2019–08–01
  47. By: Nuno Palma (Department of Economics, University of Manchester; Instituto de Ciências Sociais, Universidade de Lisboa; CEPR)
    Abstract: Over the early modern period and beyond, massive amounts of silver and gold were found and mined in the Americas. In this paper, I review the consequences for the European economies. Some second-order receiver countries such as England benefited in both the short and long run. First-order receivers such as Spain and Portugal also benefited in the short-run, but their continued exposure to the arrival of massive quantities of precious metals eventually led to loss of competitiveness and an institutional resource curse.
    Keywords: American Precious Metals, Early Modern Period, Dutch Disease, Political Institutions, Economic growth, comparative development
    JEL: E02 E4 N14 O11
    Date: 2019–12
  48. By: Davide Ferrari; Francesco Ravazzolo; Joaquin Vespignani
    Abstract: This paper focuses on forecasting quarterly energy prices of commodities, such as oil, gas and coal, using the Global VAR dataset proposed by Mohaddes and Raissi (2018). This dataset includes a number of potentially informative quarterly macroeconomic variables for the 33 largest economies, overall accounting for more than 80% of the global GDP. To deal with the information on this large database, we apply a dynamic factor model based on a penalized maximum likelihood approach that allows to shrink parameters to zero and to estimate sparse factor loadings. The estimated latent factors show considerable sparsity and heterogeneity in the selected loadings across variables. When the model is extended to predict energy commodity prices up to four periods ahead, results indicate larger predictability relative to the benchmark random walk model for 1-quarter ahead for all energy commodities. In our application, the largest improvement in terms of prediction accuracy is observed when predicting gas prices from 1 to 4 quarters ahead.
    Keywords: Energy Prices, Forecasting, Dynamic Factor model, Sparse Estimation, Penalized Maximum Likelihood
    JEL: C1 C5 C8 E3 Q4
    Date: 2019–12
  49. By: Galvao, Ana Beatriz (University of Warwick); Mitchell, James (University of Warwick); Runge, Johnny (NIESR)
    Abstract: Many economic statistics are subject to data revisions. But initial estimates of GDP growth are commonly published without any direct quantitative indication of their uncertainty. To assess if and how the public and experts interpret and understand UK GDP data uncertainty, we conduct both a randomised controlled experiment and a targeted expert survey. The surveys are designed to assess: (1) perceptions of the uncertainty in single-valued GDP growth numbers; (2) the public’s interpretation and understanding of uncertainty information communicated in different formats; and (3) how communicating uncertainty affects trust in the data and the producer of these data. We find that the majority of the public understand that there is uncertainty inherent in GDP numbers, but communicating uncertainty information improves the public’s understanding of why data revisions happen. It encourages them not to take GDP point estimates at face-value but does not decrease trust in the data. We find that it is especially helpful to communicate uncertainty information quantitatively using intervals, density strips and bell curves.
    Keywords: data uncertainty ; uncertainty communication ; data revisions ; fan charts
    JEL: C82 E01 D80
    Date: 2019
  50. By: Davide Ferrari; Francesco Ravazzolo (Universitätt Bozen; Erasmus Universiteit Rotterdam; Norges Bank; Federal Reserve Bank of San Francisco; University of California Santa Cruz; Tinbergen Instituut; Handelshøyskolen BI; Centre for Applied Macro- and Petroleum economics (CAMP)); Joaquin L. Vespignani
    Abstract: This paper focuses on forecasting quarterly energy prices of commodities, such as oil, gas and coal, using the Global VAR dataset proposed by Mohaddes and Raissi (2018). This dataset includes a number of potentially informative quarterly macroeconomic variables for the 33 largest economies, overall accounting for more than 80% of the global GDP. To deal with the information in this large database, we apply a dynamic factor model based on a penalized maximum likelihood approach that allows us to shrink parameters to zero and to estimate sparse factor loadings. The estimated latent factors show considerable sparsity and heterogeneity in the selected loadings across variables. When the model is extended to predict energy commodity prices up to four periods ahead, results indicate larger predictability relative to the benchmark random walk model for 1-quarter ahead for all energy commodities. In our application, the largest improvement in terms of prediction accuracy is observed when predicting gas prices from 1 to 4 quarters ahead.
    Keywords: Energy Prices; Forecasting; Dynamic Factor Model; Sparse Estimation; Penalized Maximum Likelihood
    JEL: C1 C5 C8 E3 Q4
    Date: 2019–12–20
  51. By: YiLi Chien; Yi Wen
    Abstract: We analyze the Ramsey planner's decisions to finance stochastic public expenditures under incomplete insurance markets for idiosyncratic risk. We show analytically that whenever the market interest rate lies below the time discount rate, the Ramsey planner has a dominant incentive to increase debt to meet the private sector's demand for full self-insurance regardless of the relative size of aggregate shocks---suggesting a departure from tax smoothing. However, if a full self-insurance Ramsey allocation is infeasible in the absence of a government debt limit, an interior or bounded Ramsey equilibrium does not exist. The strong incentives for the Ramsey planner to smooth both individual consumption (via increasing public debt) and aggregate consumption (via tax smoothing) imply that (i) the long-run Ramsey equilibrium is characterized by full self-insurance and constant taxes if state-contingent bonds are available and (ii) when state-contingent bonds are not available, the government's attempt to balance the competing incentives between tax smoothing and individual consumption smoothing---even at the cost of extra tax distortion---implies a bounded stochastic unit root component in optimal taxes and in the bond supply. In all cases considered in this paper, a sufficiently high average level of public debt (financed by distortionary taxation) to support full self-insurance is desirable and welfare improving. Therefore, adding a liquidity premium into the value of government bonds via incomplete financial markets can bring the theory of public finance into closer conformity with realty.
    Keywords: Optimal Public Debt; Tax Smoothing; Ramsey Problem; Incomplete Markets
    JEL: E13 E62 H21 H30
    Date: 2019–12–05
  52. By: Hamish Burrell; Joaquin Vespignani
    Abstract: This study establishes the first empirical evidence of the impact of economic uncertainty shocks on industry-level investment, output and employment in Australia. We find the Construction and Financial and Insurance Services industries are the most impacted by a shock to economic uncertainty. Statistically significant declines are observed for investment, output and employment in the Construction industry, and in terms of magnitude, the declines in output and employment are the largest across all industries studied. Likewise, the Financial and Insurance Services industry experiences declines across investment, output and employment, and undergoes the largest decline in investment in comparison to all other industries examined. Economic uncertainty explains the most substantial portion of the variation in Financial and Insurance Services investment and output, highlighting the detrimental effect it has on the Financial and Insurance Services industry. Furthermore, Health Care and Social Assistance output and Professional, Scientific and Technical Services investment experience considerable declines, and in contrast, Public Administration and Safety is shown to be the least impacted industry.
    Keywords: Economic Uncertainty, Economic Uncertainty Shocks, SVAR, Australian economy, Australian Industries
    JEL: C10 C32 E00 E30
    Date: 2019–12
  53. By: International Monetary Fund
    Abstract: Economic growth is recovering after last year’s drought and insect infestations—despite the impact of Tropical Cyclone Idai in the south and political protests following the May 2019 presidential election. The authorities are requesting an augmentation of access under the Extended Credit Facility (ECF) of 20 percent of quota (SDR 27.76 million) to finance significant reconstruction imports.
    Date: 2019–12–06
  54. By: Altavilla, Carlo; Boucinha, Miguel; Peydró, José-Luis; Smets, Frank
    Abstract: We analyse the effects of supranational versus national banking supervision on credit supply, and its interactions with monetary policy. For identification, we exploit: (i) a new, proprietary dataset based on 15 European credit registers; (ii) the institutional change leading to the centralisation of European banking supervision; (iii) high-frequency monetary policy surprises; (iv) differences across euro area countries, also vis-à-vis non-euro area countries. We show that supranational supervision reduces credit supply to firms with very high ex-ante and ex-post credit risk, while stimulating credit supply to firms without loan delinquencies. Moreover, the increased risk-sensitivity of credit supply driven by centralised supervision is stronger for banks operating in stressed countries. Exploiting heterogeneity across banks, we find that the mechanism driving the results is higher quantity and quality of human resources available to the supranational supervisor rather than changes in incentives due to the reallocation of supervisory responsibility to the new institution. Finally, there are crucial complementarities between supervision and monetary policy: centralised supervision offsets excessive bank risk-taking induced by a more accommodative monetary policy stance, but does not offset more productive risk-taking. Overall, we show that using multiple credit registers – first time in the literature – is crucial for external validity. JEL Classification: E51, E52, E58, G01, G21, G28
    Keywords: AnaCredit, banking, euro area crisis, monetary policy, supervision
    Date: 2020–01
  55. By: Florian Botte (CLERSE - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019 - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique); Thomas Dallery (CLERSE - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019 - ULCO - Université du Littoral Côte d'Opale - Université de Lille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The calibration and the study of the plausibility of models as stylised as the post-kaleckian model is debated. In this article, we present a numerical simulation method to study the stability properties of a model that depend on its calibration. Rather than calibrating a model by selecting the values of the non-observable parameters that produce "realistic" values of the equilibrium variables, we suggest looking at what happens in a model when estimating the non-observable parameters and then combined them: does the model then produce plausible values for the equilibrium variables? We use this method to the model of Bhaduri and Marglin with price adjustment. We show that the model struggles to produce a satisfactory number of plausible equilibrium values. We also study the stability conditions of the model (in size and proportion), and we demonstrate that theoretically conceivable configurations have no numerically plausible counterpart for realistic values of the parameters of the model. The fine study of a calibration thus conceived allows to relativize the probability to meet all the dynamics which are theoretically possible.
    Abstract: La calibration et l'étude de la plausibilité de modèles aussi stylisés que le modèle post-kaleckien fait débat. Dans cet article, nous présentons une méthode de simulation numérique permettant d'étudier les propriétés de stabilité d'un modèle qui dépendent de sa calibration. Plutôt que de calibrer un modèle en retenant les valeurs des paramètres non-observables qui produisent des valeurs « réalistes » des variables d'équilibre, nous proposons de regarder ce qui arrive dans un modèle quand on estime les paramètres non-observables et qu'on les combine: le modèle produit-il alors des valeurs plausibles pour les variables d'équilibre? Nous utilisons cette méthode au modèle de Bhaduri et Marglin avec ajustement des prix. Nous montrons que le modèle peine à produire un nombre satisfaisant de valeurs d'équilibres plausibles. Nous étudions également les conditions de stabilité du modèle (en dimension et en proportion), et nous démontrons que des configurations théoriquement envisageables n'ont pas de contrepartie numériquement plausibles pour des valeurs réalistes des paramètres composant le modèle. L'étude fine d'un calibrage ainsi pensé permet de relativiser la probabilité de rencontrer l'ensemble des dynamiques possibles sur le plan analytique.
    Keywords: plausibilité,simulations,Mots-clés: Instabilité,modèle kaleckien Codes JEL : E11,E12,C62
    Date: 2019–12–01
  56. By: Fischer, Thomas (Department of Economics, Lund University)
    Abstract: What determines inequality and mobility of wealth? This paper quantifies in closed form both the bottom and the top (Pareto) tail of the distribution for a rich continuous-time model. The distribution is especially shaped by bequest motives, demographics, and the asset portfolio composition under idiosyncratic wealth risk. Factors that increase inequality also reduce mobility. The model - enriched by a realistic income process and non-trivial portfolio constraints - is solved in general equilibrium and calibrated to match US evidence. A bequest tax is shown to reduce inequality and increase mobility. Several partial-equilibrium intuitions do not carry over into general equilibrium.
    Keywords: wealth inequality; mobility of wealth; portfolio selection; fat tails; bequest tax
    JEL: C68 D31 E21 G11 H23
    Date: 2019–12–19
  57. By: Pancrazi, Roberto; Seoane, Hernán D.; Vukotic, Marija
    Abstract: We examine the welfare effects of bailouts in economies exposed to sovereign default risk. When a government of a small open economy requests a bailout from an international financial institution, it receives a non-defaultable loan of size G that comes with imposed debt limits. The government endogenously asks for the bailout during recessions and repays it when the economy recovers. Hence, the bailout acts as an imperfect state contingent asset that makes the economy better off. The bailout duration is endogenous and increases with its size. The bailout size creates non-trivial tradeoffs between receiving a larger amount of relatively cheap resources precisely in times of need on the one hand, and facing longer-lasting financial constraints and accumulated interest payments, on the other hand. We characterize and quantify these tradeoffs and document that welfare gains of bailouts are hump-shaped in the size of bailout loans.
    JEL: E44 F32 F34
    Date: 2019–12–18
  58. By: Byrne, David (Central Bank of Ireland); Zekaite, Zivile (Central Bank of Ireland)
    Abstract: This Letter examines recent dynamics in ination expectations, which are an important determinant of actual ination, as they impact economic decisions, such as households’ spending decisions and rms’ pricing plans. It is therefore important that expectations are well-anchored and that longer-term expectations are at levels consistent with the Eurosystem’s ination objective and insensitive to shocks to the economy or prices. We show some evidence for weaker anchoring since 2013 through increased sensitivity to shocks. As both the ination risk premium and the expected level of ination have declined more recently, monetary policymakers should continue monitoring developments in ination expectations closely.
    Date: 2019–10
  59. By: International Monetary Fund
    Abstract: Following a period of very rapid growth in the aftermath of the crisis, growth is gradually settling in at a more sustainable but still relatively robust pace despite the external slowdown. Output is projected to rise by around 3 percent in 2019–20, supported by construction and services sectors. Good progress has been made in addressing domestic and external stability risks arising from legacies of the financial crisis. Sales of non-performing loans (NPLs), amendments to the foreclosure and insolvency framework and resolution of a large systemic bank have helped strengthen bank balance sheets. Large fiscal surpluses have reduced risk premia to historical lows and reduced financing risks. Nonetheless, vulnerabilities remain: political pressure to unwind some of these reforms has recently escalated; NPLs in the banking system and debt levels are still high; bank profitability remains low; and difficulties in debt workouts and the resulting debt overhang weigh on productive investments. Productivity growth has also been weak, reflecting financial sector difficulties as well as a slower pace of technological diffusion and institutional inefficiencies.
    Date: 2019–12–09
  60. By: Alex Carrasco (Central Reserve Bank of Peru); David Florian Hoyle (Central Reserve Bank of Peru); Rafael Nivin (Central Reserve Bank of Peru)
    Abstract: In this document, we study the role of sterilized foreign exchange (SFX) interventions as an additional monetary policy instrument for emerging market economies in response to external shocks. We develop a model in order to analyze SFX interventions as a balance sheet policy induced by a financial friction in the form of an agency problem between banks and depositors. The severity of the bank’s agency problem depends directly on a measure of currency mismatch at the bank level. Moreover, credit and deposit dollarization coexists in equilibrium as endogenous variables. In this context, SFX interventions can lean against the response of the bank’s lending capacity and ultimately the response of real variables by moderating the response of the exchange rate. Furthermore, we take the model to data by calibrating it to replicate some financial steady-state targets for the Peruvian banking system as well as matching the impulse responses of the macroeconomic model to the impulse responses implied by an SVAR model. Our results indicate that SFX interventions successfully reduce GDP and investment volatility by about 6% and 14%, respectively, when compared to a flexible exchange rate regime. Moreover, SFX interventions reduce the response of GDP to foreign interest rate and commodity price shocks by around 11 and 22 percent, respectively. Hence, this policy produces significant welfare gains when responding to external shocks: if the Central Bank does not intervene in the Forex market in the face of external shocks, there would be a welfare loss of 1.1%.
    Keywords: Sterilized Forex Interventions, External Shocks, Financial Cycle, Dollarization, Monetary Policy
    Date: 2019–12
  61. By: Bukowski, Pawel; Novokmet, Filip
    Abstract: How has Polish inequality evolved between communism and capitalism to reach one of the highest levels in Europe today? To address this question, we construct the first series on the long-term distribution of income in Poland by combining tax, household survey and national accounts data. We document a U-shaped evolution of inequalities from the end of the 19th century until today: (i) inequality was high before WWII; (ii) abruptly fell after the introduction of communism in 1947 and stagnated at low levels during the whole communist period; (iii) experienced a sharp rise with the return to capitalism in 1989. Between 1989 and 2015 the top 10% income share increased from 23% to 35% and the top 1% income share from 4% to 13%. Frequently quoted Poland’s transition success has largely benefited top income groups. We find that inequality was high in the first half of the 20th century due to strong concentration of capital income at the top of the distribution. The secular fall after WW2 was largely to a combination of capital income shocks from war destructions with communist policies both eliminating private ownership and forcing wage compression. The rise of inequality after the return to capitalism in the early 1990s was induced both by the rise of top labour and capital incomes. We attribute this to labour market liberalisation and privatisation. However, the strong rise in inequality in the 2000s was driven solely by the increase in top capital incomes, which is likely related to current globalization forces. Yet overall, the unique Polish inequality history speaks about the central role of policies and institutions in shaping inequality in the long run.
    Keywords: income inequality; transformation; Poland
    JEL: D31 E01 J30 N34
    Date: 2019
  62. By: Joshua S. Gans; Neil Gandal
    Abstract: This paper extends the blockchain sustainability framework of Budish (2018) to consider proof of stake (in addition to proof of work) consensus mechanisms and permissioned (where the number of nodes are fixed) networks. It is demonstrated that an economically sustainable network will involve the same cost regardless of whether it is proof of work or proof of stake although in the later the cost will take the form of illiquid financial resources. In addition, it is shown that regulating the number of nodes (as in a permissioned network) does not lead to additional cost savings that cannot otherwise be achieved via a setting of block rewards in a permissionless (i.e., free entry) network. This suggests that permissioned networks will not be able to economize on costs relative to permissionless networks.
    JEL: D00 E50 L10
    Date: 2019–12
  63. By: Müller, Karsten
    Abstract: Do politics matter for macroprudential policy? I show that changes to macroprudential regulation exhibit a predictable electoral cycle in the run-up to 221 elections across 58 countries from 2000 through 2014. Policies restricting mortgages and consumer credit are systematically less likely to be tightened before elections during credit booms and economic expansions. Consistent with theories of opportunistic political cycles, this pattern is stronger when election outcomes are uncertain or in countries where political interference is more likely. In contrast to monetary policy, I find limited evidence that central banks are uniquely insulated from political cycles in macroprudential policy. These results suggest that political pressures may limit the ability of regulators to “lean against the wind.” JEL Classification: G18, G21, G28, D72, D73, P16
    Keywords: central bank independence, electoral cycles, macroprudential regulation, political economy, regulatory cycles
    Date: 2019–12
  64. By: KOBAYASHI Keiichiro
    Abstract: This paper compares the standard models of macroeconomics before and after the global financial crisis. It shows that the standard models cannot address crucial issues such as the growth and collapse of asset-price bubbles and the deflationary stagnation in the aftermath of the crisis. The problem comes from the transversality condition (TVC). We consider a new theoretical model in which the TVC does not hold in the equilibrium. The findings present new implications for the deflationary equilibrium and growing government debt.
    Date: 2019–10
  65. By: Paul Pelzl; María Teresa Valderrama
    Abstract: Drawdowns on credit commitments by firms reduce a bank's regulatory capital ratio. Using the Austrian Credit Register, we provide novel evidence that during the 2008-09 financial crisis, capital-constrained banks managed this concern by substantially cutting partly or fully unused credit commitments. Controlling for a bank's capital position, we also find that greater liquidity problems induced banks to considerably cut such credit commitments during the crisis. These results suggest that banks actively manage both capital and liquidity risk caused by undrawn credit commitments in periods of financial distress, but thereby reduce liquidity provision to firms exactly when they need it most.
    Keywords: Capital Regulations; Credit Commitments; Financial Crisis
    JEL: E51 G01 G21 G28 G32
    Date: 2019–12
  66. By: Alimov, Behzod
    Abstract: Does finance facilitate efficient allocation of resources? Our aim in this paper is to find out whether increases in private and public indebtedness affect capital misallocation, which is measured as the dispersion in the return to capital across firms in different industries. For this, we use a novel dataset containing industrylevel data for 18 European countries and control for different macroeconomic indicators as potential determinants of capital misallocation. We exploit the within-country variation across industries in such indicators as external finance dependence, technological intensity, credit constraints and competitive structure, and find that private debt accumulation disproportionately increases capital misallocation in industries with higher financial dependence, higher R&D intensity, a larger share of credit-constrained firms and a lower level of competition. On the other hand, we fail to find any significant and robust effect of public debt on capital misallocation within our country-sector pairs. We believe the distortionary effects of private debt found in our analysis needs a deeper theoretical investigation.
    Keywords: private debt,public debt,capital misallocation,productivity
    JEL: D24 D61 E44 F34 H63 O47
    Date: 2019
  67. By: Boh, Samo; Borgioli, Stefano; Coman, Andra; Chiriacescu, Bogdan; Koban, Anne; Kusmierczyk, Piotr; Pirovano, Mara; Schepens, Thomas; Veiga, Joao
    Abstract: This paper describes the Macroprudential Database (MPDB) of the European CentralBank (ECB), which is an important component of the ECB’s Statistical DataWarehouse. After explaining the rationale for creating the MPDB, the paper illustrateshow it supports the macroprudential analysis conducted by the European System ofCentral Banks (ESCB), the European Systemic Risk Board (ESRB) and the nationalauthorities of the Single Supervisory Mechanism (SSM) and the European Union. Thestructure of the database and a broad overview of available indicators are thenpresented, with a description of the relevant confidentiality issues. Examples illustratehow the MPDB is used for monitoring purposes and econometric modelling. Finally,the paper discusses remaining data gaps and expected future enhancements of thedatabase. JEL Classification: C82, E60
    Keywords: macroprudential, statistics
    Date: 2019–12
  68. By: Joaquim Andrade; Pedro Cordeiro; Guilherme Lambais
    Abstract: This paper analyzes identification issues of a behavorial New Keynesian model and estimates it using likelihood-based and limited-information methods with identification-robust confidence sets. The model presents some of the same difficulties that exist in simple benchmark DSGE models, but the analytical solution is able to indicate in what conditions the cognitive discounting parameter (attention to the future) can be identified and the robust estimation methods is able to confirm its importance for explaining the proposed behavioral model.
    Date: 2019–12
  69. By: Goodhead, Robert (Central Bank of Ireland)
    Abstract: This Economic Letter studies the eects of conventional and unconventional monetary policy on nancial and macroeconomic variables using euro area data. I use market movements during meeting days of the ECB Governing Council as measures of policy surprises and then distinguish between conventional and unconventional surprises in a general way. Surprises that reduce rates and steepen the yield curve are understood to represent conventional policy, and surprises that reduce rates and atten the yield curve as unconventional policy. I study the eects of these surprises in an empirical model of the euro area macroeconomy. I provide conditional and unconditional forecasts of key euro area aggregates under dierent policy actions by the ECB Governing Council. Unconventional monetary policy surprises are found to have strong eects on macroeconomic variables, though they have a somewhat delayed eect relative to conventional policy.
    Date: 2019–11
  70. By: Rachel Scarfe
    Abstract: There is much debate about the extent to which governments should regulate labour markets. One discussion concerns casual jobs, where ï¬ rms do not need to guarantee workers certain, ï¬ xed, hours of work and instead “call-up†workers as and when needed. These jobs, sometimes known as “zero-hours†, “contingent†or “on-demand†, provide flexibility for ï¬ rms to change the size of their workforce cheaply and quickly and for workers to choose whether to supply labour in every period. This flexibility comes at the expense of certainty for both ï¬ rms and workers. In this paper I develop a search and matching model incorporating casual jobs, which I use to evaluate the effect of labour market policies on aggregate outcomes. I ï¬ nd that a ban on casual jobs leads to higher unemployment, but also to higher production and aggregate worker utility. I also consider the effect of a higher minimum wage for casual jobs. I ï¬ nd that the effects are limited. These results are due to an offsetting mechanism: although higher wages lead to higher unemployment, as ï¬ rms offer more full-time jobs, the number of workers actually called-up to work increases.
    Keywords: unemployment; welfare; minimum wages; contingent work; ondemand work; policy
    JEL: E24 J21 J48 J64
    Date: 2019–12
  71. By: Walter, Timo; Wansleben, Leon (London School of Economics and Political Science)
    Abstract: Central banks’ role in financialization has received increasing attention in recent years. These debates have predominantly revolved around authorities’ “benign neglect” of asset bubbles, their de-regulatory policies, and the safety-nets they provide for speculative exuberance. Most analyses refer to the dominance of pro-market interests and ideas to explain these actions. The present article moves beyond these accounts by showing how an alignment between techniques of monetary governance and ‘unfettered’ financial markets can explain central banks’ endorsement of increasingly fragile structures of liquidity and their strategic ignorance towards growing amounts of debt. We analyze the processes of abstraction and formalization by which the “programmes” and “technologies” of monetary governance have been made compatible with the texture of contemporary finance; and we show how central banks’ attempts to make markets more amenable to their methods of policy implementation shaped new conduits for financial growth. As empirical cases, we discuss the Federal Reserve’s experiments with different policy frameworks in the 1980s and the Bank of England’s twisted path to inflation targeting from 1979 to 1997. These cases allow us to demonstrate that the infrastructural power of contemporary central banking is predicated on the same institutional foundations that have made financialization possible.
    Date: 2018–11–07
  72. By: Samarasinghe, Tharanga
    Abstract: Development is a continuous process which increase choices available for human beings. However, there is a huge disparity throughout the world in relation to economic development. Differences in the institutions show a direct relationship with difference in the economic development. Established political and economic institutions affects the level of investments for human capital, physical capital and technology formation which decide the capacity of good and service production in a particular country. Through that, established institutions of a country influences directly on the level of development in a particular country. This article discusses the institutions, evolution and types of institutions, relationship between institutions and markets, and functions of institutions for economic development. Further this article discusses the way that trust and anti-corruption affects the economic development and link between political power and institutions. Finally, some evidences to show the impacts of institutions on economic development are discussed.
    Keywords: development, institutions, political institutions, economic institutions, inclusive institutions, extractive institutions
    JEL: D02 E02 O1 O10 O43
    Date: 2019–12–22
  73. By: Simplice A. Asongu (Yaoundé/Cameroon); Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria); Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria)
    Abstract: An April 2015 World Bank report on attainment of the Millennium Development Goal (MDG) extreme poverty target has revealed that extreme poverty has been decreasing in all regions of the world with the exception of sub-Saharan Africa (SSA), in spite of the sub-region enjoying more than two decades of growth resurgence. This study builds on a critique of Piketty’s ‘capital in the 21st century’ and recent methodological innovations on reverse Solow-Swan to review empirics on the adoption of common policy initiatives against a cause of extreme poverty in SSA: capital flight. The richness of the dataset enables the derivation of 14 fundamental characteristics of African capital flight based on income-levels, legal origins, natural resources, political stability, regional proximity and religious domination. The main finding reveals that regardless of fundamental characteristic, from a projection date of 2010, a genuine timeframe for harmonizing policies is between 2016 and 2023. In other words, the beginning of the post-2015 agenda on sustainable development goals coincides with the timeframe for common capital flight policies.
    Keywords: Econometric modeling; Capital flight; Poverty; Africa
    JEL: C50 E62 F34 O19 O55
    Date: 2019–01
  74. By: Simplice A. Asongu (Yaoundé/Cameroon); Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria); Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria)
    Abstract: An April 2015 World Bank report on attainment of the Millennium Development Goal (MDG) extreme poverty target has revealed that extreme poverty has been decreasing in all regions of the world with the exception of sub-Saharan Africa (SSA), in spite of the sub-region enjoying more than two decades of growth resurgence. This study builds on a critique of Piketty’s ‘capital in the 21st century’ and recent methodological innovations on reverse Solow-Swan to review empirics on the adoption of common policy initiatives against a cause of extreme poverty in SSA: capital flight. The richness of the dataset enables the derivation of 14 fundamental characteristics of African capital flight based on income-levels, legal origins, natural resources, political stability, regional proximity and religious domination. The main finding reveals that regardless of fundamental characteristic, from a projection date of 2010, a genuine timeframe for harmonizing policies is between 2016 and 2023. In other words, the beginning of the post-2015 agenda on sustainable development goals coincides with the timeframe for common capital flight policies.
    Keywords: Econometric modeling; Capital flight; Poverty; Africa
    JEL: C50 E62 F34 O19 O55
    Date: 2019–01
  75. By: De Philippis, Marta; Rossi, Federico
    Abstract: This paper studies the contribution of parental influence in accounting for cross-country gaps in human capital achievements. We argue that the cross-country variation in unobserved parental characteristics is at least as important as the one in commonly used observable proxies of parental socio-economic background. We infer this through an indirect empirical approach, based on the comparison of the school performance of second generation immigrants. We document that, within the same host country or even the same school, students whose parents come from high-scoring countries in the PISA test do better than their peers with similar socioeconomic backgrounds. Differential selection into emigration does not explain this finding. The result is larger when parents have little education and have recently emigrated, suggesting the importance of country-specific cultural traits that parents progressively lose as they integrate in the new host country, rather than of an intergenerational transmission of education quality. Unobserved parental characteristics account for about 15% of the cross-country variance in test scores, roughly doubling the overall contribution of parental influence.
    JEL: O15 J24 E24
    Date: 2019–05
  76. By: Yosuke Uno (Bank of Japan); Ko Adachi (Bank of Japan)
    Abstract: This paper examines the "don't know" responses for questions concerning inflation expectations in the Tankan survey. Specifically, using machine learning techniques, we attempt to extract "don't know" responses where respondent firms are more likely to "know" in a sense. We then estimate the counterfactual inflation expectations of such respondents and examine the non-response bias based on the estimation results. Our findings can be summarized as follows. First, there is indeed a fraction of firms that respond "don't know" despite the fact that they seem to "know" something in a sense. Second, the number of such firms, however, is quite small. Third, the estimated counterfactual inflation expectations of such firms are not statistically significantly different from the corresponding official figures in the Tankan survey. Fourth and last, based on the above findings, the non-response bias in firms' inflation expectations likely is statistically negligible.
    Keywords: inflation expectations; PU classification; non-response bias
    JEL: C55 E31
    Date: 2019–12–25

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