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on Macroeconomics |
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Issue of 2020‒01‒13
99 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | purba, martin; Nababan, Ade |
| Abstract: | This study aims to look at the effects of shocks that occur in Indonesia using the Mundell-Fleming model. Analysis to see the effects of shocks using the vector autoregression (VAR) model. We chose the VAR model because of the complexity of the economic phenomenon that might occur in the open economy that occurred in Indonesia. The results how the relationship and effects of shocks that occur in gross domestic product, private sector household consumption, direct investment, government consumption expenditure, and net exports occur in Indonesia in the goods market. In addition, this study also examines the relationship and effects of shocks between gross domestic product, the money supply, inflation, and the interest rate that occurs in Indonesia on the money market. |
| Keywords: | Mundell-Fleming, Goods market, Money market. |
| JEL: | E01 E17 E21 E22 E27 F45 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97410&r=all |
| By: | purba, martin |
| Abstract: | The Indonesian economy at this time is inseparable from the economic crisis that occurred in the international market. The government as a fiscal policy maker and Bank Indonesia as a monetary policy maker must be able to take appropriate policies to safeguard economic conditions if there is economic pressure from outside. Money market analysis to discuss the relationship between the interest rate and the level of income that appears on the money market. This study uses quarterly data from 2010-2017, using the two-stage least square simultaneous equation model. The results of this study show that domestic interest rates and inflation do not have a significant effect on changes in Indonesia's GDP, the money supply has an impact on Indonesia's GDP per capita increase, inflation expectations have no effect on changes in Indonesia's GDP, the money supply has an effect on increasing levels Domestic interest and the FED (Federal Reserve System) interest rate influence the decline in domestic interest rates. |
| Keywords: | Gross Domestic Product, Domestic Interest Rate, Money Supply (m2), Inflation, FED interest rate, Inflation Expectation |
| JEL: | E00 E31 E37 E41 E43 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97409&r=all |
| By: | Qazi Haque (The University of Western Australia, Centre for Applied Macroeconomic Analysis); Leandro M. Magnusson (Business School, The University of Western Australia); Kazuki Tomioka (University of Rochester) |
| Abstract: | We study the effects of financial uncertainty on investment dynamics in the U.S. using a vector autoregression with drifting parameters and stochastic volatilities. We find time-varying negative effects of financial uncertainty shocks on investment. These effects have declined in the post-WWII period but became more pronounced in the presence of the zero lower bound episode. We also find that the response of inflation to uncertainty shocks varies over time, and these shocks do not always act like aggregate demand shocks. Remarkably the relevance of financial uncertainty shocks is found to be negligible during the Great Recession. |
| Keywords: | Uncertainty shocks; investment dynamics; TVP-VARs with stochastic volatility; Bayesian VARs; Great Recession |
| JEL: | C11 C32 E22 E32 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:19-18&r=all |
| By: | Mohamad Fadhil Hasan (Supervisory Board of Bank Indonesia); Achmad Nur Hidayat (Supervisory Board of Bank Indonesia); Tutut Dewanto (Supervisory Bank of Indonesia) |
| Abstract: | The external pressures on the domestic economic stability has prompted Bank Indonesia to focus on its monetary policy on the exchange rate measures. However, as part of the policy mix, the stance of monetary policy has been balanced with accommodative macroprudential policies to continue providing its support for the economic growth. Even though they have different targets and in their implementation there are potential conflicts that may occur when we try to achieve the objectives of both policies, the central bank deems a monetary policy and macroprudential policies to be complementary policies. This situation will provide a space for the macroprudential policies to encourage some kind of bank intermediation and to spur a credit growth. A policy support is needed to accelerate the credit growth to achieve its economic financing targets in the next 5 years, namely at 16% yoy.This study was aimed at identifying proper recommendations on the macroprudential policies such as encouraging a credit growth that included easing Loan to Value (LTV) ratios, targeting sectoral credit, easing the Macroprudential Intermediation Ratio (MIR), decreasing the Macroprudential Liquidity Buffer (MLB) ratios, easing the counter cyclical capital buffer (CCB) requirements, and strengthening coordination with other government agencies. |
| Keywords: | Macroprudential policy, monetary policy, credit growth, loan to value ratio, coordination, sustainable economic growth, targeted sectoral lending |
| JEL: | E02 E00 E58 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9712158&r=all |
| By: | Alessandro Secchi (Bank of Italy) |
| Abstract: | This note focuses on a two-tier excess reserve remuneration system, a measure recently introduced by the ECB Governing Council that aims at supporting the bank-based transmission of monetary policy by exempting part of banks’ excess reserves from the negative remuneration resulting from the current application of the deposit facility rate. The analysis shows how this tool helps to preserve the positive contribution of negative rates to the accommodative stance of monetary policy, although a careful calibration is necessary to avoid unwarranted effects on euro short-term rates. The initial experience with the two-tier excess reserve remuneration system has been positive so far: its introduction has taken place without any major tensions in money market rates. |
| Keywords: | interest rates, monetary policy implementation, unconventional monetary measures, liquidity management |
| JEL: | E42 E43 E52 E58 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_534_19&r=all |
| By: | Dacic, Nikola (Goldman Sachs & Co); Melolinna, Marko (Bank of England) |
| Abstract: | We study the effects of firm-level microeconomic fluctuations on aggregate productivity in the United Kingdom. We show that a standard measure of residual productivity growth of the largest UK firms (the ‘granular residual’) produces results that are counter-intuitive and not statistically significant. To combat this, we introduce a unique production function approach to estimate firm-specific technology shocks, accounting for firm-level heterogeneity and common shocks. Using this measure, we find that firm-level shocks matter; the ‘granular residual’ explains around 30% of aggregate UK productivity dynamics. We also show that simplifications of our approach, which omit controlling for firm-level heterogeneity or do not account for common shocks, do not perform well, highlighting the importance of identifying firm-specific shocks correctly in order to properly test the ‘granularity hypothesis’. |
| Keywords: | business cycle; aggregate volatility; granularity hypothesis; firm-level productivity |
| JEL: | E23 E24 E32 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0842&r=all |
| By: | Andrejs Zlobins (Bank of Latvia) |
| Abstract: | This paper empirically evaluates the macroeconomic effects of the European Central Bank's (ECB) forward guidance (FG) on the euro area economy and analyses its interaction with asset purchases. To that end, we employ a battery of structural vector autoregressions (SVARs) with both constant and time-varying parameters and/or the error covariance matrix to explore the propagation of the FG shock over time and account for the changing nature of the ECB's FG (Odyssean since July 2013, Delphic prior to that). The FG shock is identified via both traditional sign and zero restrictions of Arias et al. (2014) and narrative sign restrictions of Antolin-Diaz and Rubio-Ram?rez (2018) which allow us to incorporate additional information about the timing of the shock to sharpen the inference. We find that the ECB's FG on interest rates has been an effective policy tool as its announcement causing a 5 bps drop in interest rate expectations increases output by 0.09%–0.12% and the price level by 0.035%. In addition, multiple evidence suggests that the introduction of the expanded asset purchase programme (APP) in 2015 considerably enhanced the FG credibility. Regarding the transmission mechanism, we find that FG significantly lowered uncertainty in the euro area as well as borrowing costs for both households and firms. |
| Keywords: | forward guidance, central bank communication, unconventional monetary policy, euro area, structural VAR |
| JEL: | C54 E32 E52 E58 |
| Date: | 2019–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:201903&r=all |
| By: | Almut Balleer; Peter Zorn |
| Abstract: | We estimate the effects of monetary policy on price-setting behavior in administrative micro data underlying the German producer price index. We find a strong degree of monetary non-neutrality. After expansionary monetary policy, the mass of additional price adjustments is economically small and the average absolute size across all price changes falls. The aggregate price level hardly adjusts, and monetary policy has real effects. These estimates rule out quantitative structural models that generate small and transient effects of monetary policy through selection on large price adjustments. We provide evidence that monetary policy propagates primarily through production units with weak financial positions. |
| Keywords: | price setting, extensive margin, intensive margin, monetary policy, local projections, menu cost, credit constraints |
| JEL: | E30 E31 E32 E44 E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7978&r=all |
| By: | Antoine Camous; Dmitry Matveev |
| Abstract: | We illustrate how market data can be informative about the interactions between monetary and fiscal policy. Federal funds futures are private contracts that reflect investor’s expectations about monetary policy decisions. By relating price movements of these contracts with President Trump’s tweets on monetary policy, we explore how markets have perceived presidential attempts to influence monetary policy decisions. Overall, our results indicate markets expected the Federal Reserve to adjust monetary policy in the direction suggested by President Trump. |
| Keywords: | Central bank research; Credibility; Financial markets; Monetary Policy |
| JEL: | E44 E52 E58 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-33&r=all |
| By: | Viktors Ajevskis (Bank of Latvia) |
| Abstract: | In the conventional perturbation approach for solving DSGE models, the dynamics of the deviation of solutions from the steady state after a shock hitting an economy represents an impulse response function (IRF). A method to construct the IRF as a deviation from a deterministic global solution is proposed. The approach detects asymmetric reactions of an economy to shocks in different initial conditions. For example, in an economic downturn a negative shock might affect the economy more severely than in normal economic conditions. The method allows for constructing the IRF for highly nonlinear DSGE models. |
| Keywords: | DSGE, perturbation, global solution, trend inflation |
| JEL: | C54 E32 E52 E58 |
| Date: | 2019–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:201904&r=all |
| By: | Emine Meltem Bastan; Umit Ozlale |
| Abstract: | This study aims at decomposing macroeconomic uncertainty into its components and constructs uncertainty indicators using the responses given to the Business Tendency Survey in Turkey with the method of Bachmann et al. (2010).The uncertainty indicators concentrate on questions on production capacity, total orders, expected fixed investment and general conditions. They are decomposed into their determinants using variables related to economic activity, exchange rate, interest rates, oil prices and both domestic and foreign price indices. The results show that variables related to economic activity, exchange rates, interest rates and consumer price indices have significant impact on uncertainty indicators, with the distinguished impact of non-linear variables noted for the exchange rate variables. In addition, the effects of the macroeconomic variables are more in line with expectations for production and total orders’ uncertainty compared to the investment and general conditions’ uncertainty. |
| Keywords: | Macroeconomic uncertainty, Bachmann method, Cross-sectional standard deviation, Business Tendency Survey, Random effects method |
| JEL: | E32 E20 E22 E23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1932&r=all |
| By: | Cumming, Fergus (Bank of England); Hubert, Paul (Sciences Po) |
| Abstract: | This paper investigates how the transmission of monetary policy to the real economy depends on the distribution of household debt. Using an original loan‑level dataset covering the universe of UK mortgages, we assess the effect of monetary shocks on aggregate consumption by exploiting time variation in a measure of the proportion of households close to their borrowing constraint. We find that monetary policy is most potent when there is a large share of constrained households. In contrast, we find no evidence that the average level of borrowing relative‑to‑income of the household sector affects the transmission of monetary policy. |
| Keywords: | Heterogeneity; distributions; mortgage debt; state-dependence |
| JEL: | E21 E52 E58 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0836&r=all |
| By: | Andrejs Zlobins (Bank of Latvia) |
| Abstract: | This paper evaluates the macroeconomic effects of the European Central Bank's (ECB) expanded asset purchase programme (APP) on Latvia and other euro area countries and investigates the cross-border transmission mechanism. To that end, we employ two different vector autoregressive (VAR) models often used to evaluate the spillovers stemming from the monetary policy actions, namely a bilateral structural VAR with block exogeneity (BSVAR-BE) and a multi-country mixed cross-section global VAR with stochastic volatility (MCS-BGVAR-SV), both estimated using Bayesian techniques. We find that the APP had a limited and weakly significant impact on Latvia's output and that most of the effect was generated by spillovers from other countries. However, we provide evidence that the APP had a robust impact on Latvian inflation due to depreciation of the euro. Regarding other jurisdictions, our results suggest that the ECB's asset purchases had a larger impact on industrial production in the countries where the portfolio rebalancing channel was activated. Despite that, our evidence suggests that the APP was mainly transmitted to inflation via exchange rate depreciation rather than through aggregate demand-driven shifts in the Phillips curve. |
| Keywords: | expanded asset purchase programme, quantitative easing, euro area, GVAR, SVAR, Bayesian estimation |
| JEL: | C54 E47 E58 F42 |
| Date: | 2019–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:201902&r=all |
| By: | Simone Auer (Bank of Italy); Marco Bernardini (Bank of Italy); Martina Cecioni (Bank of Italy) |
| Abstract: | We study the differences in the response of industrial production to monetary policy shocks within the euro area manufacturing sector conditional on leverage. Using polynomial state-dependent local projections, we document a non-linear relationship between corporate leverage and the effectiveness of monetary policy. When leverage is low, more indebted industries adjust their production more strongly in response to a monetary policy shock, consistently with a financial accelerator framework. At higher leverage ratios, this positive relation weakens until it reaches a point where additional leverage is associated with a decrease in the sensitivity to monetary policy. We show that this weakening effect is particularly intense within the short-term horizon and in recessions. Our results are consistent with recent studies analyzing the role of default risk in dampening the financial accelerator mechanism. |
| Keywords: | financial heterogeneity, monetary policy, polynomial state-dependent local projections, high-frequency shocks, panel data |
| JEL: | C23 E32 E52 G32 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1258_19&r=all |
| By: | Bermperoglou, Dimitrios; Deli, Yota; Kalyvitis, Sarantis |
| Abstract: | This paper studies how investment tax incentives stimulate output in a medium-scale DSGE model, which allows for a variety of fiscal financing mechanisms. We find that the horizon following a positive shock in investment tax incentives is crucial. The shock is highly expansionary in the long run, with the relevant fiscal multiplier substantially exceeding 1, but this effect only becomes visible after two to three years. Our analysis indicates that a rise in the marginal product of labor and the demand for labor trigger this expansion, which is an effect that partial equilibrium studies ignore. The results suggest that investment tax incentives are even more effective when nominal wages adjust faster. |
| Keywords: | private investment incentives,investment tax credit,fiscal multipliers |
| JEL: | E32 E62 H29 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2143&r=all |
| By: | Kyle F. Herkenhoff; Gajendran Raveendranathan |
| Abstract: | How are the welfare costs from monopoly distributed across U.S. households? We answer this question for the U.S. credit card industry, which is highly concentrated, charges interest rates that are 3.4 to 8.8 percentage points above perfectly competitive pricing, and has repeatedly lost antitrust lawsuits. We depart from existing competitive models by integrating oligopolistic lenders into a heterogeneous agent, defaultable debt framework. Our model accounts for 20 to 50 percent of the spreads observed in the data. Welfare gains from competitive reforms in the 1970s are equivalent to a one-time transfer worth between 0.24 and 1.66 percent of GDP. Along the transition path, 93 percent of individuals are better off. Poor households benefit from increased consumption smoothing, while rich households benefit from higher general equilibrium interest rates on savings. Transitioning from 1970 to 2016 levels of competition yields welfare gains equivalent to a one-time transfer worth between 1.87 and 3.20 percent of GDP. Lastly, homogeneous interest rate caps in 2016 deliver limited welfare gains. |
| Keywords: | welfare costs of monopoly, consumer credit, competition, welfare |
| JEL: | D14 D60 E21 E44 G21 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2019-071&r=all |
| By: | Ekundayo P. Mesagan (Pan Atlantic University, Lekki, Lagos, Nigeria); Ismaila A. Yusuf (University of Strathclyde, Glasgow, Scotland) |
| Abstract: | The study examines the impact of fiscal and monetary policy on economic performance and stabilisation in Nigeria, Gambia, and Ghana between 1980 and 2017. In the study, the real gross domestic product and the exchange rate are used to proxy economic performance and economic stabilisation respectively while fiscal policy is captured with deficit finance and government expenditure. Also, the broad money supply and monetary policy rate are used as proxies of monetary policy. The study obtains country-specific results using the fully modified ordinary least squares technique and findings show that monetary policy has insignificant effect on economic performance in Nigeria and the Gambia, but has significant impact in Ghana while fiscal policy significantly enhances economic performance in Nigeria and Gambia, but is insignificant in Ghana. Result also confirms that monetary policy significantly drives economic stabilisation in Nigeria and the Gambia, but insignificantly in Ghana while fiscal policy has insignificant impact on economic stabilisation in Ghana and Gambia, but significant in Nigeria. Thus, we conclude that fiscal policy is relatively more important in stimulating economic performance in Nigeria and Gambia while monetary policy is relatively more important in determining economic performance in Ghana. For economic stabilisation, both fiscal and monetary policies are important in Nigeria, both are ineffective in Ghana, while monetary policy is more important in the Gambia. The study recommends further reductions in monetary policy rate to put less pressure on the exchange rate and stabilise the various economies. |
| Keywords: | Fiscal Policy; Monetary Policy; Deficit Finance; Economic Performance. |
| JEL: | E52 E62 E63 H62 F31 F43 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/097&r=all |
| By: | Ekundayo P. Mesagan (Pan Atlantic University, Lekki, Lagos, Nigeria); Ismaila A. Yusuf (University of Strathclyde, Glasgow, Scotland.) |
| Abstract: | The study examines the impact of fiscal and monetary policy on economic performance and stabilisation in Nigeria, Gambia, and Ghana between 1980 and 2017. In the study, the real gross domestic product and the exchange rate are used to proxy economic performance and economic stabilisation respectively while fiscal policy is captured with deficit finance and government expenditure. Also, the broad money supply and monetary policy rate are used as proxies of monetary policy. The study obtains country-specific results using the fully modified ordinary least squares technique and findings show that monetary policy has insignificant effect on economic performance in Nigeria and the Gambia, but has significant impact in Ghana while fiscal policy significantly enhances economic performance in Nigeria and Gambia, but is insignificant in Ghana. Result also confirms that monetary policy significantly drives economic stabilisation in Nigeria and the Gambia, but insignificantly in Ghana while fiscal policy has insignificant impact on economic stabilisation in Ghana and Gambia, but significant in Nigeria. Thus, we conclude that fiscal policy is relatively more important in stimulating economic performance in Nigeria and Gambia while monetary policy is relatively more important in determining economic performance in Ghana. For economic stabilisation, both fiscal and monetary policies are important in Nigeria, both are ineffective in Ghana, while monetary policy is more important in the Gambia. The study recommends further reductions in monetary policy rate to put less pressure on the exchange rate and stabilise the various economies. |
| Keywords: | Fiscal Policy; Monetary Policy; Deficit Finance; Economic Performance |
| JEL: | E52 E62 E63 H62 F31 F43 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/097&r=all |
| By: | V. Colombo; A. Paccagnini |
| Abstract: | We investigate the role played by the credit supply shock across the business cycle in the U.S. over the period 1973 - 2018. We estimate a nonlinear VAR including nominal, real, monetary, and financial variables. According to our results, a credit supply shock triggers asymmetric and negative effects on macroeconomic variables. We find that the state-dependent forecast error variance decomposition of industrial production, employment, and inflation due to the shock is from six to eight times larger in recessions than in normal times. |
| JEL: | C32 E32 E52 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1140&r=all |
| By: | Luca Fornaro |
| Abstract: | Since the creation of the euro, capital flows among member countries have been large and volatile. Motivated by this fact, I provide a theory connecting the exchange rate regime to financial integration. The key feature of the model is that monetary policy affects the value of collateral that creditors seize in case of default. Under flexible exchange rates, national governments can expropriate foreign investors by depreciating the exchange rate. Anticipating this, investors impose tight limits on international borrowing. In a monetary union this source of exchange rate risk is absent, because national governments do not control monetary policy. Forming a monetary union thus increases financial integration by boosting borrowing capacity toward foreign investors. This process, however, does not necessarily lead to higher welfare. The reason is that a high degree of financial integration can generate multiple equilibria, with bad equilibria characterized by inefficient capital flights. Capital controls or fiscal transfers can eliminate bad equilibria, but their implementation requires international cooperation. |
| Keywords: | monetary union, international financial integration, exchange rates, optimal currency area, capital flights, euro area |
| JEL: | E44 E52 F33 F34 F36 F41 F45 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1138&r=all |
| By: | Joseph, Andreas (Bank of England); Kneer, Christiane (Bank of England); van Horen, Neeltje (Bank of England); Saleheen, Jumana (Bank of England) |
| Abstract: | Firms with high pre-crisis cash holdings invested significantly more than their cash-poor rivals during the global financial crisis and especially so during the recovery phase. This resulted in a persistent and growing investment gap between cash-rich and cash-poor firms. Cash especially benefited young and small firms and firms in industries where rivals became more financially constrained. The amplification effect of cash was absent in the period preceding the crisis. The ability to continue to invest allowed cash-rich firms to gain market share and accumulate more profits over the long-run. Having a liquid balance sheet when the credit cycle turns thus gives firms a competitive edge that lasts far beyond the crisis years. |
| Keywords: | Firm investment; cash holdings; credit constraints; financial crisis |
| JEL: | E22 E32 E44 G32 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0843&r=all |
| By: | Carlo 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 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1137&r=all |
| By: | Roger Farmer |
| Abstract: | For the past thirty years of the history of macroeconomic thought, the Indeterminacy School of Macroeconomics has used general equilibrium models with indeterminate equilibria to understand the independent role of beliefs in shaping macroeconomic outcomes. In this paper I describe the most recent advances in the indeterminacy agenda, Keynesian Search Theory, in which the steady-state unemployment rate is indeterminate as a consequence of labour-market frictions. In Keynesian Search Theory, the belief of market participants is an independent exogenous variable that selects a steady-state equilibrium. I study two assumptions about beliefs, one where investment is exogenous and one where the belief about the stock market is exogenous and I examine their implications for fiscal policy. |
| JEL: | D50 E12 E24 E32 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26557&r=all |
| By: | Christopher A. Sims (Princeton University) |
| Abstract: | When the interest rate on government debt is low enough, it becomes possible to roll it over indefinitely, never taxing to retire it, without producing a growing debt to GDP ratio. This has been called a situation with zero “fiscal cost†to debt.But when low interest on debt arises from its providing liquidity services, zero fiscal cost is equivalent to finance through seigniorage. Some finance through seigniorage is generally optimal, however, despite results in the literature seeming to show that this is not so. |
| JEL: | E52 E62 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:256&r=all |
| By: | Kurovskiy, Gleb |
| Abstract: | This paper proposes a novel two-step identification procedure of natural interest rate shocks. Altogether, monetary policy and natural interest shocks explain about 90% of total inflation dynamics. The paper exploits (J.E. Arias et al., 2019) procedure, which allows getting canonical impulse response functions to monetary policy shocks. I find no evidence of price and output puzzles. The estimated natural interest rate declines from 2015 to 2019 years. Furthermore, Bank of Russia follows the mandate and reacts to inflation in monetary policy feedback rule, while does not respond to output fluctuations. |
| Keywords: | SVAR, monetary policy, natural interest rate, Russia |
| JEL: | C32 E52 E58 |
| Date: | 2019–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97547&r=all |
| By: | Saki Bigio; Adrien d'Avernas |
| Abstract: | Financial crises are particularly severe and lengthy when banks fail to recapitalize after bearing large losses. We present a model that explains the slow recovery of bank capital and economic activity. Banks provide intermediation in markets with information asymmetries. Large equity losses force banks to tighten intermediation, which exacerbates adverse selection. Adverse selection lowers bank profit margins which slows both the internal growth of equity and equity injections. This mechanism generates financial crises characterized by persistent low growth. The lack of equity injections during crises is a coordination failure that is solved when the decision to recapitalize banks is centralized. |
| JEL: | E32 E44 G01 G21 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26561&r=all |
| By: | Ekundayo P. Mesagan (Pan-Atlantic University, Lagos, Nigeria); Isaac A. Ogbuji (University of Lagos, Nigeria); Yasiru O. Alimi (University of Lagos, Nigeria); Anthonia T. Odeleye (University of Lagos, Nigeria) |
| Abstract: | This study analyses the growth effects of financial market instruments in Ghana between 1991 and 2017. We use the ARDL bounds testing approach to analyse data on real GDP per capita, monetary policy rate, treasury bill rate, stocks traded, bank credits, stock turnover, market capitalisation, foreign direct investment, and gross investment. Findings show the existence of a long-run relationship between both short- and long-term financial market indicators and economic growth. Also, results confirm that long-term financial instruments perform better than the short-term instruments in boosting the country’s economy in the short-run, while in the long-run, both short-term and long-term financial indicators positively impact economic growth in Ghana. We recommend that the bank of Ghana should consider lowering the bank rate further from the current annual rate of 16.0% to enhance bank credits, boosts domestic investment, and improve growth in the long-run. |
| Keywords: | Financial Market Instruments, Market Capitalisation, Economic Growth, ARDL Bounds Test. |
| JEL: | E13 E43 E51 G20 O47 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/095&r=all |
| By: | Gergely Ganics (Banco de España); Florens Odendahl (Banque de France) |
| Abstract: | We incorporate external information extracted from the European Central Bank’s Survey of Professional Forecasters into the predictions of a Bayesian VAR, using entropic tilting and soft conditioning. The resulting conditional forecasts significantly improve the plain BVAR point and density forecasts. Importantly, we do not restrict the forecasts at a specific quarterly horizon, but their possible paths over several horizons jointly, as the survey information comes in the form of one- and two-year-ahead expectations. Besides improving the accuracy of the variable that we target, the spillover effects on “other-than-targeted” variables are relevant in size and statistically significant. We document that the baseline BVAR exhibits an upward bias for GDP growth after the financial crisis, and our results provide evidence that survey forecasts can help mitigate the effects of structural breaks on the forecasting performance of a popular macroeconometric model. Furthermore, we provide evidence of unstable VAR dynamics, especially during and after the recent Great Recession. |
| Keywords: | Survey of Professional Forecasters, density forecasts, entropic tilting, soft conditioning |
| JEL: | C32 C53 E37 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1948&r=all |
| By: | Ekundayo P. Mesagan (Pan-Atlantic University, Lagos, Nigeria); Isaac A. Ogbuji (University of Lagos, Nigeria.); Yasiru O. Alimi (University of Lagos, Nigeria); Anthonia T. Odeleye |
| Abstract: | This study analyses the growth effects of financial market instruments in Ghana between 1991 and 2017. We use the ARDL bounds testing approach to analyse data on real GDP per capita, monetary policy rate, treasury bill rate, stocks traded, bank credits, stock turnover, market capitalisation, foreign direct investment, and gross investment. Findings show the existence of a long-run relationship between both short- and long-term financial market indicators and economic growth. Also, results confirm that long-term financial instruments perform better than the short-term instruments in boosting the country’s economy in the short-run, while in the long-run, both short-term and long-term financial indicators positively impact economic growth in Ghana. We recommend that the bank of Ghana should consider lowering the bank rate further from the current annual rate of 16.0% to enhance bank credits, boosts domestic investment, and improve growth in the long-run. |
| Keywords: | Financial Market Instruments, Market Capitalisation, Economic Growth, ARDL Bounds Test. |
| JEL: | E13 E43 E51 G20 O47 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/095&r=all |
| By: | Antonio M. Conti (Bank of Italy); Elisa Guglielminetti (Bank of Italy); Marianna Riggi (Bank of Italy) |
| Abstract: | We document that the feeble relation between wage growth and unemployment experienced by the euro area since the Global Financial Crisis has been coupled with a change in the response of labour productivity (output per worker) to an increase in employment, from nil up to 2009 (acyclical) to negative since then (countercyclical). We argue that both facts can be explained by the strong persistence of the last recession and of the subsequent recovery. The relevance of the duration of the cyclical phase can be rationalized in a theoretical model where firms use both the extensive and intensive margin of labour and face employment adjustment costs. When demand shocks are persistent firms adjust relatively more the extensive margin, leading to a countercyclical response of labour productivity and only to a small reaction of wages. We take the model to the data using a Bayesian VAR, where persistent demand shocks are identified exploiting the theoretical prediction which associates them with a countercyclical profile of labour productivity. We show that persistent demand shocks (i) induce a lower reaction of wages to employment and (ii) have been a non negligible driver of employment and wage dynamics in the aftermath of the Global Financial Crisis. |
| Keywords: | missing wage growth, productivity, demand shocks, Bayesian VAR models, DSGE models. |
| JEL: | C32 E32 F34 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1257_19&r=all |
| By: | Bennouna, Hicham; Chmielewski, Tomasz; Doukali, Mohamed |
| Abstract: | This paper investigates the impact of monetary policy on firms’ liability structure depending on their specific characteristics (size, age, profit, and collateral) over the period 2010 to 2016 using firm-level data. Our results provide evidence that firms borrowing tend to decrease after a restrictive monetary policy, in line with the traditional interest rate channel. We confirm that small and medium firms are more significantly affected by tight monetary policy conditions than large firms, suggesting the existence of the balance sheet channel in Morocco. |
| Keywords: | Corporate balance sheets, monetary policy transmission, panel data. |
| JEL: | E44 E52 G20 |
| Date: | 2019–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97086&r=all |
| By: | Aiswarya Thomas (INSTITUTE FOR FINANCIAL MANAGEMENT AND RESEARCH,) |
| Abstract: | Though a highly debated and contested idea, the open economy trilemma started to gain significant attention recently after Rey?s argument that; in an open economy setting there is no trilemma but only a dilemma between two choices: capital mobility and independent monetary policy. In other words, Rey concludes that exchange rate regimes do not play any role in deciding between capital mobility and independent monetary policy. Further, a lot of studies have come up which largely discuss about the monetary policy independence in countries that allow free mobility of capital flows, by making comparisons between countries with fixed exchange rate regime and floating exchange rate regime. However, the studies on monetary policy independence of countries with managed floating exchange rate regimes are very scant. Given this context, it becomes quite imperative to undertake a study on the monetary policy independence in India for the fact that India is a unique case in itself with not complete free mobility of capital and a managed float exchange rate regime. . Therefore, this paper employed the auto regressive distributed lag (ARDL) approach to study the monetary policy independence in India. The results of the study reveal that the Indian monetary policy stance is highly integrated with the US and the European Union monetary policy stance. |
| Keywords: | Mundell's trilemma, Monetary policy Independence, Financial Integration, Globalization |
| JEL: | F41 E52 E58 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9711792&r=all |
| By: | Palma, J. G. |
| Abstract: | This is a two-part paper. Part 1 addresses the diversity in the distribution of disposable income across the world; and Part 2, that in market income (i.e., before taxes and transferences). There are many underlying questions to these phenomena: does the diversity of inequality in disposable incomes reflect a variety of fundamentals, or a multiplicity of power structures and choice? Is rising market inequality the product of somehow ‘exogenous’ factors (e.g., r>g), or of complex interactions between political settlements and market failures? If the latter, how do we get through the veils obscuring these interactions and distorting our vision of the often self-constructed nature of inequality? Has neoliberal globalisation broadened the scope for “distributional failures” by, for example, triggering a process of “reverse catching-up” among OECD countries, so that now highly unequal middle-income countries like those in Latin America embody the shape of things to come? If so, are we are all now converging towards features such as mobile élites creaming off the rewards of economic growth, and ‘magic realist’ politics that lack self-respect if not originality? (Should I say, ‘Welcome to the Third World’?) In Part 1 I also develop a new approach for examining and measuring inequality (distance from distributive targets). In turn, Part 2 concentrates on three issues: why there has been such a deterioration of market inequality among countries of the OECD, why this has led to a growing asymmetry between their distributions of market and of disposable incomes, and why inequality seems to move in "waves". The main conclusion is that to understand current distributive dynamics what matters is to comprehend the forces determining the share of the rich — and, in terms of growth, what they choose to do with it (and how they are allowed do it). |
| Keywords: | income distribution, inequality, ideology, reverse catching-up, institutional persistence, neo-liberalism, new left, poverty, Latin America, Southern Africa, US, Western and Eastern Europe, emerging Asia, Palma ratio and sectors |
| JEL: | D31 E11 E22 E24 E25 I32 J31 N16 N30 N36 O50 P16 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:19100&r=all |
| By: | Martinelli, Cesar; Vega, Marco (Banco Central de Reserva del Perú) |
| Abstract: | We apply synthetic control methods to study the long-term consequences of the interventionist and collectivist reforms implemented by the Peruvian military junta of 1968-1975. We compare long-term outcomes for the Peruvian economy following the radical reforms of the early 1970s with those of two controls made of similar countries, one chosen in the Latin American region and another one chosen from the world at large. We find that the economic legacy of the junta includes sizable loses in GDP along two decades, beyond those that can be attributed to adverse international circumstances. The evidence suggests that those loses can be attributed both to a decline in capital accumulation and to a fall in productivity. |
| Keywords: | Output loss, synthetic controls, military nationalism, populism, collectivism, Peruvian Revolution |
| JEL: | E52 E58 E62 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2019-010&r=all |
| By: | Sangmin Aum; Dongya Koh; Raül Santaeulàlia-Llopis |
| Abstract: | We describe the behavior of the labor share in the corporate sector for twenty OECD countries over the first 15 years of the XXI century. Our first finding is that the OECD labor share -a cross-country average- is trendless over this medium-run horizon after adjusting for the labor income generated from IPP rents as in Koh et al. (2017). Second, we find that the behavior of the labor share is largely heterogeneous across countries over this period. Indeed, the corporate labor share significantly increases for equally as many countries (e.g., France, Italy and the United Kingdom) as it decreases (e.g., Germany, Israel and the United States) over this period. Third, a decomposition of the corporate labor share behavior into that of its components shows that the cross-country differences in labor share trends are mainly driven by the differences in labor productivity growth and not wages. |
| Keywords: | labor share, intellectual property products, SNA revisions, cross-country, wages, Labor Productivity |
| JEL: | E01 E22 E25 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1135&r=all |
| By: | Palma, J. G. |
| Abstract: | This is a two-part paper. Part 1 addresses the diversity in the distribution of disposable income across the world; and Part 2, that in market income (i.e., before taxes and transferences). There are many underlying questions to these phenomena: does the diversity of inequality in disposable incomes reflect a variety of fundamentals, or a multiplicity of power structures and choice? Is rising market inequality the product of somehow ‘exogenous’ factors (e.g., r>g), or of complex interactions between political settlements and market failures? If the latter, how do we get through the veils obscuring these interactions and distorting our vision of the often self-constructed nature of inequality? Has neoliberal globalisation broadened the scope for “distributional failures” by, for example, triggering a process of “reverse catching-up” among OECD countries, so that now highly unequal middle-income countries like those in Latin America embody the shape of things to come? If so, are we are all now converging towards features such as mobile élites creaming off the rewards of economic growth, and ‘magic realist’ politics that lack self-respect if not originality? (Should I say, ‘Welcome to the Third World’?) In Part 1 I also develop a new approach for examining and measuring inequality (distance from distributive targets). In turn, Part 2 concentrates on three issues: why there has been such a deterioration of market inequality among countries of the OECD, why this has led to a growing asymmetry between their distributions of market and of disposable incomes, and why inequality seems to move in "waves". The main conclusion is that to understand current distributive dynamics what matters is to comprehend the forces determining the share of the rich — and, in terms of growth, what they choose to do with it (and how they are allowed do it). |
| Keywords: | income distribution, inequality, ideology, reverse catching-up, institutional persistence, neo-liberalism, new left, poverty, Latin America, Southern Africa, US, Western and Eastern Europe, emerging Asia, Palma ratio and sectors |
| JEL: | D31 E11 E22 E24 E25 I32 J31 N16 N30 N36 O50 P16 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1999&r=all |
| By: | Hiro Ito; Robert N McCauley |
| Abstract: | This paper analyses the factors that govern the choice of the currency composition of official foreign exchange reserves. First, we introduce a new panel dataset on the key currencies in foreign exchange reserves of about 60 economies in the 1999-2017 period. Second, we show that the currency composition of reserves relates strongly to the co-movement of the domestic currency with key currencies and the currency invoicing of trade. These factors represent attributes of the dollar or the euro rather than of the United States or the euro area. They exert about equal effects on the currency composition of foreign exchange reserves. We demonstrate that these findings are robust to a host of other possible factors. |
| Keywords: | foreign exchange reserves, international currency, key currency, currency zones, invoicing of trade, currency of international debt, foreign exchange reserve management |
| JEL: | E44 E58 F14 F31 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:828&r=all |
| By: | Boriss Siliverstovs (Bank of Latvia) |
| Abstract: | In this paper we reassess the forecasting performance of the Bayesian mixed-frequency model suggested in Carriero et al. (2015) in terms of point and density forecasts of the GDP growth rate using US macroeconomic data. Following Chauvet and Potter (2013), we evaluate the forecasting accuracy of the model relative to a univariate AR(2) model separately for expansions and recessions, as defined by the NBER business cycle chronology, rather than relying on a comparison of forecast accuracy over the whole forecast sample spanning from the first quarter of 1985 to the third quarter of 2011. We find that most of the evidence favouring the more sophisticated model over the simple benchmark model is due to relatively few observations during recessions, especially those during the Great Recession. In contrast, during expansions the gains in forecasting accuracy over the benchmark model are at best very modest. This implies that the relative forecasting performance of the models varies with business cycle phases. Ignoring this fact results in a distorted picture: the relative performance of the more sophisticated model in comparison with the naive benchmark model tends to be overstated during expansions and understated during recessions. |
| Keywords: | nowcasting, mixed-frequency data, real-time data, business cycle |
| JEL: | C22 C53 |
| Date: | 2019–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:201901&r=all |
| By: | Walter, Timo; Wansleben, Leon (London School of Economics and Political Science) |
| Abstract: | The title of our contribution refers to Alexander Kluge’s movie, “Der Angriff der Gegenwart auf die übrige Zeit” (“the assault of the present on the rest of time”). The question we ask is how financialized capitalism shapes and formats the politics of the future. Our central tenet is that, far from providing an engine ’imagining’ futures that substantively guide (collective) actions, finance ‘consumes’ forecasts, plans, or visions in its present coordination process. While the “oscillation” between present futures and future presents has been identified as a defining feature of modern conceptions of contingency, freedom, and choice (Luhmann; Esposito), these two temporal modalities are collapsed in contemporary financial markets in an ongoing ‘pricing in’ of various possible future states. Projected futures do not substantively shape collective paths towards them or instruct social learning, but are calculatively assimilated to improve coordination between present prices. Fatally, central banks have been at the forefront of “synchronist” (Langenohl) finance, believing that as long as numeric calibration of their own and the markets’ expectations as expressed in prices align, they have rendered capitalism governable. Under this regime, central banks really do not govern inflation, but inflation expectations as expressed in the “yield curve” and built into interest rate derivatives. We argue that financial techniques built on the efficient market hypothesis and the Black-Scholes-Merton formula, as two theoretical articulations of this modern “synchronist” (Langenohl) temporality of finance, allow central banks to ignore possible “random” fluctuations in actual inflation and concentrate on the internal calibration of present futures as the sole criterion for monetary policy success. We show that the resultant “assault” on “future presents” was an important factor in the run-up to the crisis of 2007-9. Central banks deliberately attempted to eliminate uncertainties in markets about the future course of monetary policies. For that purpose, shared fictions about the underlying logics of Western economies (real interest rates, NAIRU etc.) were rigidly built into the structures of asset prices. Moreover, since central banks and market actors aligned their expectations over real interest rates, market actors could act as if their uncertainties about future liquidity needs could be neglected, since current money market and official lending rates were supposed to already define the price of liquidity tomorrow. In the last part of the contribution, we will extend this argument to contemporary quantitative easing, to show how it reinforces the pitfalls of generating expectations of economic prosperity and stability via the contemporary financial system. |
| Date: | 2019–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:8dyq2&r=all |
| By: | Agnieszka Przybylska-Mazur (University of Economics in Katowice) |
| Abstract: | The European Union Member States are required to apply numerical fiscal rules that, while maintaining their consistency with fiscal rules defined in the EU framework, may include specific elements for individual the Member States. The rules should strengthen the conduct of responsible budgetary policies by governments and support adherence of fiscal policy commitments under the Treaty on the Functioning of the European Union (TFEU) in the multiannual framework with regard to the general government.In this article we present the model on the basis of which we assess the impact of fiscal rules on achieving the following objectives: the general government deficit to GDP ratio not exceeding 3% and government debt to GDP ratio not exceeding 60%. We carry out the empirical analysis for Poland. |
| Keywords: | fiscal rule, stability of public finance, general government deficit, government debt |
| JEL: | E62 H62 C02 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9711296&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | We show the existence of involuntary unemployment without assuming wage rigidity. A key point of our analysis is indivisibility of labor supply. We derive involuntary unemployment by considering utility maximization of consumers and marginal cost pricing behavior of firms in an overlapping generations model under perfect competition with indivisibility of labor supply and decreasing or constant returns to scale technology |
| Keywords: | involuntary unemployment, indivisible labor supply, perfect competition |
| JEL: | E12 E24 |
| Date: | 2019–12–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97832&r=all |
| By: | Cumming, Fergus (Bank of England); Dettling, Lisa (Federal Reserve Board of Governors) |
| Abstract: | This paper examines whether monetary policy pass-through to mortgage rates affects household fertility decisions. Using administrative data on UK mortgages and births, our empirical strategy exploits variation in the timing of when families were eligible for a rate adjustment, coupled with the large reductions in interest rates that occurred during the Great Recession. We estimate that each 1 percentage point drop in the policy rate increased birth rates by 2%. In aggregate, this pass-through of accommodative monetary policy to mortgage rates was sufficiently large to outweigh the headwinds of the Great Recession and prevent a ‘baby bust’ in the UK, in contrast to the US. Our results provide new evidence on the nature of monetary policy transmission and suggest a new mechanism via which mortgage contract structures can affect aggregate demand and supply. |
| Keywords: | Mortgages; monetary policy; birth rates; fertility; natality; interest rates |
| JEL: | E43 E52 J13 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0835&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | We show the existence of involuntary unemployment without assuming wage rigidity. A key point of our analysis is indivisibility of labor supply. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations model under monopolistic competition with indivisibility of labor supply. |
| Keywords: | monopolistic competition, involuntary unemployment, indivisible labor supply |
| JEL: | E12 E24 |
| Date: | 2019–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97377&r=all |
| By: | Giuseppe Grande (Bank of Italy); Adriana Grasso (Bank of Italy); Gabriele Zinna (Bank of Italy) |
| Abstract: | In this research note, we assess – both theoretically and empirically – whether net asset purchases by the ECB can further reduce term premiums and bond yields in the euro area. Theory says that, at the effective lower bound, the duration extracted by the central bank is no longer sufficient to assess the price impact of the purchases. In fact, we show empirically that their impact is state-contingent, and is smaller the more the shadow rate is below the short-rate lower bound, and the lower the volatility of bond yields. Nevertheless, central bank asset purchases are still effective in reducing long-term term premiums and bond yields. Moreover, in the euro area, there is room to reduce the duration held by the market. Overall, asset purchases remain a viable tool at the disposal of the ECB for exerting downward pressure on yields. |
| Keywords: | preferred-habitat theory, term premiums, effective lower bound, quantitative easing, large-scale asset purchases, forward guidance |
| JEL: | E43 E52 G12 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_541_19&r=all |
| By: | Halil Ä°brahim Aydin; Ozgur Ozel |
| Abstract: | In this paper we decompose Turkish government bond yields and currency swap rates into expected short rate and term premium components. We use two well-established approaches and find similar results. Our findings show that the term premium displays countercyclical behavior and it is affected from expected inflation and share of foreign investors in bond market. Compared to survey-based expectations, expected short rate estimates of our model are more responsive to global and domestic market developments. Our estimations carry important information about the stance of monetary policy and investor behavior. |
| Keywords: | Interest rates, Term premium, Yield curve |
| JEL: | E43 G10 G12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1933&r=all |
| By: | Markus K. Brunnermeier (Princeton University); Ricardo Reis (London School of Economics) |
| Abstract: | The financial crises of the last twenty years brought new economic concepts into classroom discussions. This article introduces undergraduate students and teachers to seven of these models: (i) misallocation of capital inflows, (ii) modern and shadow banks, (iii) strategic complementarities and amplification, (iv) debt contracts and the distinction between solvency and liquidity, (v) the diabolic loop, (vi) regional flights to safety, and (vii) unconventional monetary policy. We apply each of them to provide a full account of the euro crisis of 2010-12. |
| JEL: | A22 E44 E50 F30 G01 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:258&r=all |
| By: | Attinasi, Maria Grazia; Palazzo, Alessandra Anna; Pierluigi, Beatrice |
| Abstract: | We review the determinants of the discretionary fiscal policy action of governments in the euro area and in other advanced economies during the past 20 years. This is done by estimating fiscal reaction functions using dynamic panel techniques and country-by-country estimates. The results suggest that, on average, discretionary fiscal policy did not deliver economic stabilisation: during good economic times (positive output gaps) it has been on average pro-cyclical both in the euro area and in the other regions. However, the loosening bias during good times has been countered by the presence of efficient public institutions, higher long term interest rates and higher debt-to-GDP ratios. Overall, as a result of various counterbalancing forces, fiscal activism has not been a major feature of policy making in the euro area, nor in other advanced economies during the past 20 years. JEL Classification: E62, H6, C23 |
| Keywords: | business cycle, fiscal stance, government effectiveness, panel estimates |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192344&r=all |
| By: | Jena, Pratap Ranjan (National Institute of Public Finance and Policy); Sikdar, Satadru (National Institute of Public Finance and Policy) |
| Abstract: | The recent debate regarding likely shortfall of revenue receipts in the central government budget needs to be seen in the light of longer term assessment of budget credibility. The uncertainty in one year could be an outlier. A credible budget while respecting budget contracts voted in the parliament, also improves the efficiency of government expenditure. Deviations, as a result of weak capacity to forecast revenue, pose risks to both existing and future program management. The paper assesses the budget credibility at central government level since 2006-07 following the PEFA framework. The record of budget credibility is examined using the performance indicators that are acknowledged as international standards. The paper looks at revenue and expenditure at aggregate and decomposed level to understand the variance from the budget projection. While the deviation from projected revenue and expenditure at aggregate level was found to be low, there are concerns when fiscal variable are put through the budget credibility test at decomposed level. Strengthening the overarching public financial management system by effectively implementing the budget reform programs undertaken intermittently will further improve the credibility of budget. |
| Keywords: | PEFA ; Budgeting System ; Multi-year Expenditure Framework ; Fiscal Rules ; Performance Budgeting |
| JEL: | H61 H68 E62 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:19/284&r=all |
| By: | Christopoulos, Dimitris; McAdam, Peter; Tzavalis, Elias |
| Abstract: | Using a novel methodology, we offer new evidence that a threshold relationship exists for Okun’s law. We use a logistic smoothed transition regression (LSTR) model where possible threshold endogeneity is addressed based on copula theory. We also suggest a new test of the linearity hypothesis against the LSTR model. A combination of structural and policy-related variables accounts for changes (rises) in the Okun’s parameter in the US in recent decades. Accordingly, the unemployment gap is increasingly associated with a smaller output gap. Whilst the Great Recession accelerated that rise, the bulk of the change occurred beforehand. JEL Classification: C46, E23, E24, C24 |
| Keywords: | asymmetries, copula, endogeneity, logistic transition, Monte Carlo, output, test for linearity, unemployment |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192345&r=all |
| By: | Gomis-Porqueras, Pedro; Huangfu, Stella; Sun, Hongfei |
| Keywords: | Monetary Policy, Inflation, Unemployment, Capital, Search Frictions |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2019-19&r=all |
| By: | Edouard Djeutem; Shaofeng Xu |
| Abstract: | This paper studies the implications of model uncertainty for wealth distribution in a tractable general equilibrium model with a borrowing constraint and robustness à la Hansen and Sargent (2008). Households confront model uncertainty about the process driving the return of the risky asset, and they choose robust policies. We find that in the presence of a borrowing constraint, model distortion varies non-monotonically with wealth. Robustness generates two forces that amplify wealth inequality. On the one hand, it increases the speed at which the wealth of unlucky households hits the borrowing constraint. On the other hand, it leads richer households to invest a disproportionately larger share of wealth in the higher yielding asset. Our study also shows that model uncertainty results in an aggregate welfare loss unevenly distributed across households. |
| Keywords: | Asset Pricing; Business fluctuations and cycles; Economic models |
| JEL: | D3 D8 E2 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-48&r=all |
| By: | Acocella, Nicola; Beqiraj, Elton; Di Bartolomeo, Giovanni; Di Pietro, Marco; Felici, Francesco |
| Abstract: | What advice can be given to the policymaker to reduce the burden of public debt after a crisis? In this situation, the debt consolidation calls for fiscal surplus based on increases in taxes and/or reductions in public spending. This paper aims at answering to the above question. Specifically, it evaluates different policy options on the table using the estimated model of the Italian dynamic General Equilibrium Model (IGEM). Our main message is that plans aimed at reducing the public debt based on tax increases rather than expenditure reductions are more effective. Therefore, consolidation should be designed on the former. |
| Keywords: | Austerity,Public debt,Output,Fiscal adjustment plans |
| JEL: | E60 E62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:209707&r=all |
| By: | purba, martin |
| Abstract: | The new problem that arises in the open economy is the domestic currency exchange rate against foreign currencies in this case is the United States dollar recognized as the international currency. The open economy causes the condition of the domestic economy to affect the exchange rate changes. High inflation may cause exchange rate changes. This study started from 1986 to 2017, using simple linear regression analysis, stationery test and granger causal test. The results of this study indicate that the increase in inflation affects the weakening of the rupiah against the US dollar, the test results stationer indicates that inflation and exchange rates are stationary and there is a reciprocal relationship in the form of inflation affect the exchange rate and exchange rate affect inflation. |
| Keywords: | inflation, exchange rate, causality test, stationery test |
| JEL: | E31 F31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97408&r=all |
| By: | Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten |
| Abstract: | Labor productivity in manufacturing differs starkly across regions in China. We document that productivity, wages, and start-up rates of non-state firms have nevertheless experienced rapid regional convergence after 1995. To analyze these patterns, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and entry barriers. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance and growth across prefectures. Entry barriers explain most of the differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector |
| Keywords: | Chinese economic growth; SOEs; firm entry; entry barriers; capital wedges; output wedges; SOE reform. |
| JEL: | O11 O14 O16 O40 O53 P25 R13 D22 D24 E24 |
| Date: | 2020–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-652&r=all |
| By: | Pascal Michaillat; Emmanuel Saez |
| Abstract: | In recent decades, in developed economies, slack on the product and labor markets has fluctuated a lot over the business cycle, while inflation has been very stable. At the same time, these economies have been prone to enter long-lasting liquidity traps with stable positive inflation and high unemployment. Motivated by these observations, this paper develops a simple policy-oriented business-cycle model in which (1) fluctuations in aggregate demand and supply lead to fluctuations in slack but not in inflation; and (2) the aggregate demand structure is consistent with permanent liquidity traps. The model extends the money-in-the-utility-function model by introducing matching frictions and including real wealth into the utility function. Matching frictions allow us to represent slack and to consider a general equilibrium with constant inflation. Wealth in the utility function enriches the aggregate demand structure to be consistent with permanent liquidity traps. We use the model to study the effects of various aggregate demand and supply shocks, and to analyze several stabilization policies---such as conventional monetary policy, helicopter drop of money, tax on wealth, and government spending. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1912.07163&r=all |
| By: | Ilya Musabirov (National Research University Higher School of Economics); Denis Bulygin (National Research University Higher School of Economics); Ekaterina Marchenko (National Research University Higher School of Economics) |
| Abstract: | Esports organisations and athletes, being participants of an attention-driven market, are constantly discussed, compared and evaluated by spectators in a cross-media-based process on such platforms as Twitch, Reddit and others. In this work, we discuss an approach to analyse valuation practices related to esports spectatorship based on the concepts of a brand as an organising device, using computational text analysis tools and reconstruction of personal networks |
| Keywords: | valuation studies, exemplars, brands, esports, network analysis, text analysis |
| JEL: | Z13 E21 M31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:90/soc/2019&r=all |
| By: | CANDRA FAJRI ANANDA (Supervisory Board of Bank Indonesia); ABDUL MANAP PULUNGAN (Supervisory Board of Bank Indonesia); RAHMIA HASNIASARI (Supervisory Board of Bank Indonesia) |
| Abstract: | The financial technology (fintech) has a fundamental impact on the economy, particularly for emerging economies through improving financial inclusion and reducing the poverty level, unemployment, and income inequality (Furche et al, 2017). The rapid development of fintech should not be seen as a favourable condition alone. Several research argue that this phenomenon might impact to the existing financial industry, bank for instance (Wong, 2017; Temelkov, 2018) and at some point it will possibly run beyond the reach of regulation. Thus, regulator needs to start right to minimize the potential drawback of the fintech development including the potential disruption to the financial stability.This research employs the ?separating apples from oranges? framework from Minto et al (2017) that consists of four filters in categorizing fintech and aims to: (1) figure out the most significant part to be regulated in the fintech industry in Indonesia; (2) give an advisable input to central bank in mitigating the issue without burden the growth of fintech. It is interesing to have a further look on the fintech development in Indonesia since it gave significant contribution in the national economy. As an ecosystem of fintech, Delloitte (2016) revealed that digital economy in Indonesia led to the 2% annual GDP and 80% growth of small-medium enterprises (SME). |
| Keywords: | financial technology, central bank, financial regulator, regulation, regulating financial technology |
| JEL: | E58 O10 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9912270&r=all |
| By: | Rodrigo Barbone Gonzalez; Dmitry Khametshin; RJose-Luis Peydro; Andrea Polo |
| Abstract: | Bail-in regulation is a centrepiece of the post-crisis overhaul of bank resolution. It requires major banks to maintain a sufficient amount of "bail-in debt" that can absorb losses during resolution. If resolution regimes are credible, investors in bail-in debt should have a strong incentive to monitor banks and price bail-in risk. We study the pricing of senior bail-in bonds to evaluate whether this is the case. We identify the bail-in risk premium by matching these bonds with comparable senior bonds that are issued by the same banking group but are not subject to bail-in risk. The premium is higher for riskier issuers, consistent with the notion that bond investors exert market discipline on banks. Yet the premium varies pro-cyclically: a decline in marketwide credit risk lowers the bail-in risk premium for all banks, with the compression much stronger for riskier issuers. Banks, in turn, time their bail-in bond issuance to take advantage of periods of low premia. |
| Keywords: | foreign exchange, monetary policy, central bank, bank credit, hedging |
| JEL: | E5 F3 G01 G21 G28 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:832&r=all |
| By: | M. Koray Kalafatcilar; M. Utku Ozmen |
| Abstract: | Demographic transition has been shaping the age structure of emerging countries, leading to huge swings between the working-age and the dependent population. Given the different labor income and consumption behaviors of these groups, the aggregate variables are affected even though personal behaviors remain unchanged. In this paper, we focus on one of these macroeconomic variables: inflation. First, we aim to clarify the inflationary impact by age cohort and try to measure the overall effect. Our empirical findings suggest that while the dependent population (net dis-savers) is associated with inflationary pressures, the working-age population (savers) is associated with deflationary pressures. Combining the demographic developments of last two decades with our empirical findings, we conclude that the shift of age distribution towards the working-age population has generated disinflationary effects in emerging countries and helped them leave behind the era of high-inflation. |
| Keywords: | Demography, Life-cycle behavior, Inflation |
| JEL: | J11 E31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1931&r=all |
| By: | Corbisiero, Giuseppe (Central Bank of Ireland); Faccia, Donata (European Central Bank) |
| Abstract: | This paper uses a unique dataset where credit rejections experienced by euro area firms are matched with firm and bank characteristics. This allows us to study simultaneously the role that bank weakness and firm weakness had in the credit reduction observed in the euro area during the sovereign debt crisis, and in credit developments characterising the post-crisis recovery. Compared with the existing literature matching borrowers’ and lenders’ characteristics, our dataset provides a better representation of euro area firms of small and medium size. Our findings suggest that, while firm balance sheet factors have been strong determinants of credit rejections, in the crisis period bank weakness made it harder to obtain external finance for firms located in stressed countries of the euro area. |
| Keywords: | Credit supply, Bank lending, Credit crunch, European sovereign debt crisis. |
| JEL: | E44 F36 G01 G21 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:12/rt/19&r=all |
| By: | purba, martin |
| Abstract: | This study aims to see the effect of the mundell-fleming model on changes in GDP that occurred in Indonesia in 2010 - 2017. In this study using simultaneous equations because in the mundell-fleming model there are several similarities, so the phenomena that occur in Indonesia can be clearly seen. This study found that in the IS Model direct investment and net exports that occurred in Indonesia did not have an impact on changes in Indonesia's GDP while in the LM model the interest rate and inflation did not have an impact on changes in Indonesia's GDP. This condition is more due to lower sales compared to production that occurred in Indonesia and changes in supply of real money balances. |
| Keywords: | goods market, money market and mundell-fleming model. |
| JEL: | E10 E19 |
| Date: | 2019–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97407&r=all |
| By: | Ulf Lewrick; José María Serena Garralda; Grant Turner |
| Abstract: | Bail-in regulation is a centrepiece of the post-crisis overhaul of bank resolution. It requires major banks to maintain a sufficient amount of "bail-in debt" that can absorb losses during resolution. If resolution regimes are credible, investors in bail-in debt should have a strong incentive to monitor banks and price bail-in risk. We study the pricing of senior bail-in bonds to evaluate whether this is the case. We identify the bail-in risk premium by matching these bonds with comparable senior bonds that are issued by the same banking group but are not subject to bail-in risk. The premium is higher for riskier issuers, consistent with the notion that bond investors exert market discipline on banks. Yet the premium varies pro-cyclically: a decline in marketwide credit risk lowers the bail-in risk premium for all banks, with the compression much stronger for riskier issuers. Banks, in turn, time their bail-in bond issuance to take advantage of periods of low premia. |
| Keywords: | too big to fail, banking regulation, TLAC, financial stability |
| JEL: | E44 E61 G28 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:831&r=all |
| By: | German Cubas; Chinhui Juhn; Pedro Silos |
| Abstract: | Using U.S. time diary data we construct occupation-level measures of coordinated work schedules based on the concentration of hours worked during peak hours of the day. A higher degree of coordination is associated with higher wages but also a larger gender wage gap. In the data women with children allocate more time to household care and are penalized by missing work during peak hours. An equilibrium model with these key elements generates a gender wage gap of 6.6 percent or approximately 30 percent of the wage gap observed among married men and women with children. If the need for coordination is equalized across occupations and set to a relatively low value (i.e. Health care support), the gender gap would fall by more than half to 2.7 percent. |
| JEL: | E24 J2 J3 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26548&r=all |
| By: | Athanasios Geromichalos; Ioannis Kospentaris (Department of Economics, University of California Davis) |
| Abstract: | In an attempt to mitigate the negative effects of clientelism, many governments around the world have adopted meritocratic hiring of public employees. This paper challenges the effectiveness of this common practice by showing that meritocratic government hiring can have unintended negative consequences on macroeconomic aggregates. In many countries, public employees enjoy considerable job security and generous compensation schemes; as a result, many talented workers choose to work for the public sector, which deprives the private sector of productive potential employees. This, in turn, reduces firms' incentives to create jobs, increases unemployment, and lowers GDP. To quantify the effects of this novel channel, we extend the standard Diamond-Mortensen-Pissarides model to incorporate workers of heterogeneous productivity and a government that fills public sector jobs based on merit. We calibrate the model to aggregate data from Greece and perform a series of counterfactual exercises. We find that the adverse effects of our mechanism on the economy's TFP, GDP, and unemployment are sizable. |
| Keywords: | search and matching models, public sector, meritocracy, unemployment |
| JEL: | E24 J30 J45 J64 |
| Date: | 2020–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:335&r=all |
| By: | Liutang Gong (Peking University, Guanghua School of Management and LMEQF); Chan Wang (Central University of Finance and Economics, School of Finance); Heng-fu Zou (Central University of Finance and Economics, China Economics and Management Academy) |
| Abstract: | This paper examines optimal monetary policy rules in a model of vertical production and trade with reference currency. As evidenced by empirical findings, we assume that final-goods prices are sticky, but intermediategoods prices are flexible. We find that even if intermediate-goods prices are flexible, monetary authorities need to respond to the shocks at the stage of intermediate-goods production. We also find that, when a shock occurs at the stage of final-goods production, monetary responses are independent of the expenditure share of finalgoods producers on intermediate goods. For the first time in the literature, our model gives a condition under which both countries are willing to participate in monetary cooperation. Thus the gains from cooperation are real. In addition, we compare the volatility of the nominal exchange rate in Nash case with that in cooperative case, and compare the volatility of the nominal exchange rate in our model with that in a model without vertical production and trade as well. We also extend the model to consider a case of dual price stickiness. We find that the change in solution methods completely alters the conclusions of the model. |
| Keywords: | exchange rates, monetary cooperation, optimal monetary policy, reference-currency pricing, vertical production and trade |
| JEL: | E5 F3 F4 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:cuf:wpaper:611&r=all |
| By: | Tanweer Akram |
| Abstract: | The pace of global economic growth has slowed down in 2019. The slope of the United States (US) Treasury securities yield curve has become flatter. This is raising concerns about the risks of a global economic recession. The US and People’s Republic of China have been the twin engines of global economic growth. Economic performance in both advanced countries and emerging markets is slowing. The US economy is expanding at a moderate pace. However, the recovery in the eurozone is stalling, while Japan faces protracted low inflation. The outcome of Brexit for the United Kingdom economy is uncertain. Monetary authorities in the US and eurozone have eased their target rates and other policies. In emerging markets, there is a clear divergence in performance. Risks to the global economy are tilted to the downside. There are several key long-term challenges for the world economy. This paper analyses current conditions in the global economy. It also examines the near term risks and long-term challenges to the global economy. It proposes some policy actions to address the downside risks and long-term challenges. |
| Keywords: | Global Economy, economic growth, global economic recession, |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:pdb:opaper:130&r=all |
| By: | Konopczak, Karolina (Ministry of Finance in Poland); Łożykowski, Aleksander (Ministry of Finance in Poland) |
| Abstract: | This article proposes an econometric approach to the estimation of changes in the CIT gap as well as to their decomposition into cyclical and structural components. The method was used to estimate changes in the CIT gap in Poland in years 2016 through 2018. The obtained results indicate that around 40 percent of an increase in CIT revenues over this period (i.e. 6 billion PLN) was of structural nature, i.e. cannot be explained either by the growth in the tax base, or the phase of the business cycle. Due to the lack of any major changes in CIT system over this period of time, this increase can be attributed to improved efficiency of tax collection. |
| Keywords: | CIT gap; cyclicality of tax revenues; non-linear cointegration |
| JEL: | C22 C24 E32 H25 H26 |
| Date: | 2019–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:ris:mfplwp:0039&r=all |
| By: | Hacioglu Hoke, Sinem (Bank of England and Data Analytics for Finance and Macro (KCL)) |
| Abstract: | We investigate the macroeconomic effects of political risk in an information-rich SVAR. Using an external instrument based on an index of US partisan conflict for identification, we find that reduced political risk has expansionary impact: it is immediately priced into stock prices; increases firms’ credit availability, employment and investments while households invest and consume more — ultimately output rises. As an important driver of economic dynamics in medium to long term, the shock create an aggregate supply effect where output growth and inflation move in opposite directions, and generates a trade-off between inflation stabilization and output growth during turbulent periods. Key words: political risk shocks, partisan conflict, identification with external instruments. |
| Keywords: | Political; Risk; Shocks |
| JEL: | C36 E03 |
| Date: | 2019–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0841&r=all |
| By: | Ana Beatriz Galvao; James Mitchell; Johnny Runge |
| 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 singlevalued 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 Chart |
| JEL: | C82 E01 D80 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2019-20&r=all |
| By: | George S. Tavlas (Bank of Greece) |
| Abstract: | There has long been a presumption that the price-level-stabilization frameworks of Irving Fisher and Chicagoans Henry Simons and Lloyd Mints were essentially equivalent. I show that there were subtle, but important, differences in the rationales underlying the policies of Fisher and the Chicagoans. Fisher’s framework involved substantial discretion in the setting of the policy instruments; for the Chicagoans the objective of a policy rule was to tie the hands of the authorities in order to reduce discretion and, thus, monetary-policy uncertainty. In contrast to Fisher, the Chicagoans provided assessments of the workings of alternative rules, assessed various criteria -- including simplicity and reduction of political pressures -- in the specification of rules, and concluded that rules would provide superior performance compared with discretion. Each of these characteristics provided a direct link to the rules-based framework of Milton Friedman. Like Friedman’s framework, Simons’s preferred rule targeted a policy instrument. |
| Keywords: | monetary policy rules; Chicago monetary tradition; Irving Fisher; Henry Simons;Lloyd Mints; Milton Friedman |
| JEL: | B22 E52 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:273&r=all |
| By: | Chunzan Wu; Dirk Krueger |
| Abstract: | We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri, and Saporta-Eksten (2016) in U.S. data. In the model, 35% of male and 18% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 32% and 19%: Most of the consumption insurance against permanent male wage shocks is provided through the presence and labor supply response of the female earner. Abstracting from this private intra-household income insurance mechanism strongly biases upward the welfare losses from idiosyncratic wage risk as well as the desired extent of public insurance through progressive income taxation. Relative to the standard one-earner life cycle model, the optimal degree of tax progressivity is significantly lower and the welfare gains from implementing the optimal system are cut roughly in half. |
| Keywords: | household model, male wages, female wages, income insurance |
| JEL: | E20 H21 D19 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2019-072&r=all |
| By: | Kea BARET; Theophilos PAPADIMITRIOU |
| Abstract: | The aim of the paper is to propose simplest advanced indicators to prevent internal imbalances in European Union. The paper also highlights that new methods coming from Machine Learning field could be appropriate to forecast fiscal policy outcomes, instead of traditionnal econometrics approaches. The Stability and Growth Pact (SGP) and especially the 3% limit sets on the fiscal balance purpose to coordinate fiscal policies of the European Union member states and ensure debt sustainability. The Macroeconomic Imbalance Procedure (MIP) scoreboard introduced by the European Commission aims to verify the good conduct of public finances. We propose an analysis of the determinants of the SGP compliance by the 28 European Union members between 2006 ans 2018, through a Support Vector Machine model. More than testing if the MIP scoreboard variables really matter to forecast the risk of unsustainability, we also test a set of macroeconomic, monetary, and financial variables and apply a prior feature selection model which highlights the best predictors. We give some proofs that main primary indicators of the MIP scoreboard are not useful for SGP compliance forecast and we propose new variables to forecast the European Union supranational fiscal rule compliance. |
| Keywords: | Fiscal Rules; Stability and Growth Pact, Forecasting, Machine learning. |
| JEL: | E61 H11 H61 H62 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2019-48&r=all |
| By: | Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia |
| Abstract: | We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial within-village frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity in China by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture. |
| Keywords: | agriculture, misallocation, selection, productivity, China. |
| JEL: | O11 O14 O4 E02 Q1 |
| Date: | 2019–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-651&r=all |
| By: | Reinhard Neck (Alpen-Adria-Universität Klagenfurt); Dmitri Blueschke (Alpen-Adria-Universität Klagenfurt); Viktoria Blueschke-Nikolaeva (Alpen-Adria-Universität Klagenfurt) |
| Abstract: | In this paper, we examine the effects of scrap values on the solutions of dynamic game Problems with a finite time horizon. We show how to include a scrap value in the OPTGAME3 algorithm for the numerical calculation of solutions for dynamic games. We consider two alternative ways of including a scrap value, either only for the state variables or for both the state and control variables. Using a numerical macroeconomic model of a monetary union, we show that the introduction of a scrap value is not appropriate as a substitute for an infinite horizon in dynamic economic policy game problems. |
| Keywords: | dynamic games, scrap value, finite horizon, Pareto solution, feedback Nash equilibrium solution |
| JEL: | C73 E60 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9712064&r=all |
| By: | Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Osaka University, Asian Growth Research Institute, and National Bureau of Economic Research) |
| Abstract: | In this paper, we first discuss the simplest version of the life cycle model, which is arguably the most widely used theoretical model in economics, and then consider whether or not the life cycle model applies in the case of Japan using a variety of methodologies and data and placing emphasis on the author’s own research. In particular, we survey the literature on the impact of the age structure of the population on the saving rate, on the saving behavior of retired households, on saving motives, on the importance of bequests, on bequest motives, on the prevalence of altruism, and on the importance of borrowing (liquidity) constraints and show that almost all previous research suggests that the life cycle model is more applicable in Japan than it is in other countries. Thus, the answer to the question posed in the title of this paper is an unqualified “yes.” Finally, we discuss the policy implications of our finding that the life cycle model applies in the case of Japan. |
| Keywords: | Age structure of the population, Altruism, Bequests, Bequest motives, Borrowing constraints, Consumption, Elderly, Households, Household saving, Inheritances, Intergenerational transfers, Life cycle hypothesis, Life cycle model, Liquidity constraints, Old age, Retirees, Saving, Saving motives, Selfishness |
| JEL: | D12 D14 D64 E21 J14 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2019-j10&r=all |
| By: | Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw); Goran Vuksic |
| Abstract: | Central, East and Southeast Europe Recent Economic Developments and Forecast Table Overview 2017-2018 and outlook 2019-2021 (p. 1) Figures GDP growth in 2018-2021 and contribution of individual demand components in percentage points (p. 2) Albania Institutional clash threatens stability (by Isilda Mara; p. 3) Belarus Economy past the trough (by Rumen Dobrinsky; p. 4) Bosnia and Herzegovina Some positive economic signals despite political stalemate (by Goran Vukšić; p. 5) Bulgaria Exports support an unexpected upturn (by Rumen Dobrinsky; p. 6) Croatia Surprisingly strong start to the year (by Hermine Vidovic; p. 7) Czech Republic Moderate growth continues (by Leon Podkaminer; p. 8) Estonia External demand above expectations (by Sebastian Leitner; p. 9) Hungary Signs of overheating (by Sándor Richter; p. 10) Kazakhstan Trying to preserve the status quo (by Olga Pindyuk; p. 11) Kosovo Stumbling Serbia–Kosovo dialogue (by Isilda Mara; p. 12) Latvia Pace of growth changes to a lower gear (by Sebastian Leitner; p. 13) Lithuania Domestic and external demand remain strong (by Sebastian Leitner; p. 14) Moldova Stable growth supported by lax fiscal policy (by Gábor Hunya; p. 15) Montenegro Impressive surge in employment (by Goran Vukšić; p. 16) North Macedonia On the way back up (by Richard Grieveson; p. 17) Poland Social spending supports high growth (by Leon Podkaminer; p. 18) Romania Still overheating (by Gábor Hunya; p. 19) Russia On the verge of recession (by Vasily Astrov; p. 20) Serbia Adjusting back to reality (by Richard Grieveson; p. 21) Slovakia Growth boosted by Jaguar Land Rover (by Doris Hanzl-Weiss; p. 22) Slovenia Returning to a moderate growth path (by Hermine Vidovic; p. 23) Turkey Still close to the eye of the storm (by Richard Grieveson; p. 24) Ukraine Growth holds steady despite political storm (by Olga Pindyuk; p. 25) |
| Keywords: | economic forecasts, GDP, GDP growth, consumer prices, unemployment, current account, investment, household consumption, net exports, |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:wii:mpaper:mr:2019-06&r=all |
| By: | Sy-Hoa Ho; Jamel Saadaoui |
| Abstract: | This empirical investigation aims at exploring the determinants of money demand in Vietnam by using both linear and nonlinear autoregressive distributed lags models over the period spanning from the third quarter of 2000 to the first quarter of 2018. Our findings can be summarized as follows: firstly, when the shock is symmetric (i.e. a permanent nominal appreciation of one percent), the money demand increases by 3.7 percent in the long term. Secondly, when the shock is asymmetric, for a permanent nominal appreciation of one percent, we observe an increase of 15.6 percent in the money demand. Whereas, for a permanent nominal depreciation of one percent, we observe a decrease of 7.4 percent in the money demand. These results are consistent with symmetry tests and lead us to think that asymmetries occur mainly in the short run and are transmitted to the long run. |
| Keywords: | Money Demand, Exchange Rate, ARDL models, NARDL models, Dollarization. |
| JEL: | C22 E41 F31 F33 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2019-49&r=all |
| By: | Eric J. Bartelsman |
| Abstract: | This paper reviews briefly the scientific literature on new technologies and future trends and on how and why the technologies may affect production, labour relations, and living conditions. Recent evidence points towards a slowing of productivity growth and a growing sense of unease in EU households concerning the impact of future economic developments. The paper argues that new digital technologies not only have the potential to change economic interactions, but also change the framework needed by economists to analyse the supply side of the economy. With appropriate policies, the technological advances can continue apace and will translate into productivity growth, so that households can contribute to and benefit from the new goods and services that the future economy will produce. |
| JEL: | D40 E31 L51 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:113&r=all |
| By: | Marcello Pericoli (Bank of Italy) |
| Abstract: | This paper presents estimates of expected inflation and the inflation risk premium in the euro area inferred from asset prices. A model is developed that exploits both nominal and real bond yields, corrects for market liquidity and anchors expected inflation using survey-based expectation, The resulting estimate of long-term expected inflation fluctuates over time and declines sensibly starting in late 2018. By contrast, expected inflation estimated using inflation swap yields remains roughly unchanged throughout the whole sample period. |
| Keywords: | affine term structure model, expected inflation, inflation risk premium |
| JEL: | C32 E43 G12 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_542_19&r=all |
| By: | Jackson, Emerson Abraham; Tamuke, Edmund; Jabbie, Mohamed |
| Abstract: | In this paper, the researchers have developed a short term inflation forecasting (STIF) model using Box-Jenkins time series approach (ARIMA) for analysing inflation and associated risks in Sierra Leone. The model is aided with fan charts for all thirteen components, including the Headline CPI as communication tools to inform the general public about uncertainties that surround price dynamics in Sierra Leone – this then make it possible for policy makers to utilise expert judgments in a bid to stabilize the economy. The uniqueness of this paper is its interpretation of risks to each of the disaggregated components, while also improving credibility of decisions taken by policy makers at the Bank of Sierra Leone [BSL]. Empirically, Food and Non-Alcoholic Beverages, Housing and Health components indicate that shock arising from within or outside of Sierra Leone can significantly impact headline CPI, with immediate pass-through effect of high prices on consumers’ spending, at least in the short-run. The outcome of this empirical research shows uniqueness of the disaggregated model in tailoring policy makers’ attention towards targeting sector-specific policy interventions. Fan Charts produced have also highlighted degree of risks, which is based on confidence bands, which shows deviation from the baseline forecast. The ultimate goal is to improve sectoral productive capacity, while at the same time, monitoring price volatility spill-over through empirical disaggregation of the CPI basket – in association with this, outcome from the study also shows that the use of multivariate models like VAR would be welcome to monitor events on price dynamics in the national economy. |
| Keywords: | STIF; ARIMA; Disaggregated CPI; Fan Charts; Sierra Leone |
| JEL: | C13 C52 C53 E37 |
| Date: | 2019–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96735&r=all |
| By: | Hoang Khieu; Klaus Wälde |
| Abstract: | Labour income follows a deterministic growth trend and fluctuates between two values. Interest rates are drawn initially, fluctuate between two values and can differ in their arrival rates. Low interest rates imply a stationary long-run wealth distribution, high interest rates imply exploding wealth dynamics. When matching the NLSY 79 evolution of the wealth distribution from 1986 to 2008, we obtain a fit of 96:1%: With a more flexible interest rate distribution, employing “superstar states”, the fit can increase to 96:7%. For the fit of 96:1%, the standard deviation of model returns is much lower than the empirical standard deviation. |
| Keywords: | dynamics of wealth distributions, NLSY 1979 cohort, capital income risk, Fokker-Planck equations |
| JEL: | C60 D30 E20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7970&r=all |
| By: | Andrés Rodríguez-Pose; Roberto Ganau |
| Abstract: | Europe has witnessed a considerable labour productivity slowdown in recent decades. Many potential explanations have been put forward to try to address this so-called productivity ‘puzzle’. However, how the quality of local institutions influences labour productivity in different parts of Europe has been, so far, overlooked by the literature. This paper addresses this gap in our knowledge by evaluating how the quality of local institutions affects changes in labour productivity at a regional level, across 248 European regions during the period between 2003 and 2015. The results indicate that institutional quality plays a crucial role in determining different regional labour productivity trajectories. This role is both direct – as improvements in institutional quality have a substantial impact on productivity growth – as well as indirect – as the returns of investments in human capital and local innovative capacity rise significantly as the quality of government increases. |
| JEL: | E24 J24 O47 R11 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:116&r=all |
| By: | Ipek Turkey; Bayram Cakir |
| Abstract: | This paper aims to analyze the relationship between yield curve -being a line of the interests in various maturities at a given time- and GDP growth in Turkey. The paper focuses on analyzing the yield curve in relation to its predictive power on Turkish macroeconomic dynamics using the linear regression model. To do so, the interest rate spreads of different maturities are used as a proxy of the yield curve. Findings of the OLS regression are similar to that found in the literature and supports the positive relation between slope of yield curve and GDP growth in Turkey. Moreover, the predicted values of the GDP growth from interest rate spread closely follow the actual GDP growth in Turkey, indicating its predictive power on the economic activity. |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1912.12351&r=all |
| By: | Yixiao ZHOU (Crawford School of Public Policy, Australian National University); Rod TYERS (Business School, University of Western Australia; Research School of Economics and Centre for Applied Macroeconomic Analysis (CAMA), Australian National University) |
| Abstract: | Relative wages and the share of total value added accruing to low-skill workers have declined during the past three decades, among both OECD countries and large developing countries. The primary beneficiary until recently has been skill, the supply of which has risen as education investment has increased. The rise in artificial intelligence (AI)-driven automation suggests that declines in value added shares accruing to low-skill workers will continue. Indeed, AI-driven automation creates an impulse for diminished labor market performance by low-skill workers throughout the world but most prominently in high-fertility, relatively youthful regions with comparatively strong growth in low-skill labor forces. The implied bias against such regions will therefore enhance emigration pressure. This paper offers a preliminary analysis of these effects. Central to the paper is a model of the global economy that includes general demography and real wage sensitive bilateral migration behavior, which is used to help quantify potential future growth in real wage disparities and the extent, direction and content of associated migration flows. Overall, global wage inequality is increased by expanded skilled migration, primarily because of large increases in skilled wage premia that arise in developing regions of origin. Inter-regional divergences in skilled wages are reduced, however, due to the additional skilled labour market arbitrage opportunities offered by more open migration policies. |
| Keywords: | Automation, demographic change, migration incentives, labor markets and economic growth |
| JEL: | C68 E22 E27 F21 F43 J11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:uwa:wpaper:19-19&r=all |
| By: | Olegs Krasnopjorovs (Bank of Latvia) |
| Abstract: | This paper investigates internal and external labour reserves in Latvia, Estonia and Lithuania. We find considerable internal labour reserves in the form of still high natural rate of unemployment and in hidden unemployment as many economically inactive people are available for work but are not actively engaged in job seeking. The employment rate is particularly low for upper-middle-aged men, especially those without a tertiary education degree, which is likely to reflect a low incidence of lifelong learning, low digital skills and rapidly deteriorating health condition. We document low employment of youth, mirroring low prevalence of apprenticeships. In Lithuania and Latvia, there is also a postponed entry of young women into the labour market. Moreover, the employment rate of Estonian women of fertile age who hold a tertiary education degree is consistently lower than that of their EU counterparts. These internal labour reserves total more than 25 thousand people in Estonia, 55 thousand in Latvia and 85 thousand in Lithuania, corresponding to 4%–7% of the total employment in these countries. Particular targeting on ethnic minorities and people living in disadvantaged regions is essential for activating these labour reserves. Moreover, we point to considerable external labour reserves in the form of more than a half million Baltic nationals currently residing in wealthier EU countries. |
| Keywords: | labour market, employment, unemployment, participation, migration |
| JEL: | J21 J82 E24 |
| Date: | 2019–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:dpaper:201902&r=all |
| By: | Precious Mncayi (North-West University); Phindile Mdluli (North-West University) |
| Abstract: | It is with no doubt that unemployment, particularly among young people remains one of the most contentious issues confronting the global economy. This is not unique to South Africa as twenty-five years into democracy, unemployment remains one of the most persistent challenges with the official unemployment rate at 29 percent (one of the highest in the world) from 27.6 percent in the first quarter of 2019. The youth remain the most vulnerable with stubbornly high unemployment rates of 56.4 percent for those in the 15-24 age category and 35.6 percent for those between the ages of 25-34, and if they are working, mostly are in low quality paying and temporary employment. The fact that poverty and inequality have continued to rise, despite considerable improvements and policy strives the country has made post-apartheid, has raised questions about the country?s ability to create jobs and most importantly about the factors behind the youth?s reasons for not searching for employment. Using data collected through the 2019 second quarterly labour force survey by Statistics South Africa with a sample size of 4 544 unemployed youth respondents, the study made use of descriptive analysis and cross tabulations to explore the South African youth?s perception of the reasons why are they not looking for employment, over and above the reasons why they are unemployed. A chi-square test was used to further determine whether there are significant differences in the responses. It is believed that understanding these perceptions will perhaps provide a clear root cause to the issue which can assist with the implementation of adequate policies and may explain the effort or lack in young people?s endeavours to address their situation. The findings of the study were statistically significant at the 0.01 significance level, and prove the necessity to create conditions for sustainable employment opportunities, which will be augmented by a growing economy. The findings of the study provide valuable insights within the context of South Africa as a developing country and more so, from the view point of the supply side of the youth labour market. |
| Keywords: | Youth work-seeker, Unemployment, Youth Labour market, South Africa |
| JEL: | E24 J21 O10 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9912247&r=all |
| By: | Stephen T. Onifade (Şelcuk University Konya, Turkey); Savaş Çevik (Şelcuk University Konya, Turkey); Savaş Erdoğan (Şelcuk University Konya, Turkey); Simplice A. Asongu (Yaoundé, Cameroon); Festus Victor Bekun (Istanbul Gelisim University, Istanbul, Turkey) |
| Abstract: | The impacts of public expenditures on economic growth have been revisited in this paper with respect to capital expenditure, recurrent expenditure and the government fiscal expansion in line with support for the budgetary allocations to various sectors in the context of the Nigerian economy. The Pesaran ARDL approach has been applied to carry out the impact analysis using annual time series data from 1981 to 2017. Empirical findings support the existence of a level relationship between public spending indicators and economic growth in Nigeria. Incisively, recurrent expenditures of government were found to be significantly impacting on economic growth in a negative way while the positive impacts of public capital expenditures were not significant to economic growth over the period of the study. Further results from the granger causality test reveal that fiscal expansion of the government that is hinged on debt financing is strongly granger causing public expenditures and domestic investment with the latter also granger causing real growth in the economy. We, therefore, provide some important policy recommendations following the results of the empirical analysis. |
| Keywords: | Nigeria; Fiscal policies; Economic Growth; Debt to GDP ratio; ARDL Models |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/096&r=all |
| By: | Candra Fajri Ananda (Brawijaya University); Imanina Eka Dalilah (Brawijaya University); Tiara Juniar Soewardi (Brawijaya University) |
| Abstract: | The Minister of Finance Regulation (PMK) No. 146/PMK.010/2017 brings pro and cons in the national economy. The interest of government and industry should be taken into consideration. This paper will explore the impact of PMK implementation to tobacco excise revenue, production volume and industry performance. Minister of Finance Regulation (PMK) No. 146/PMK.010/2017 regarding the simplification of cigarettes tiers. Those policy threatened the sustainability of the Tobacco Industry and national excise revenue. As the strategic industry due to its roles in national revenue, employment creation and its value as industrial heritage in Indonesian history, it needs to be explored. This study aims to analyze the impact of PMK No.146/2017 to the tobacco industry by considering people purchasing power. Simulation model with three different scenarios is used to prevail the effect of the regulation to volume products of tobacco industry. Obtaining more details analyses, Focus Group Discussion (FGD) with the stakeholders, e.g., tobacco association, Ministry of Finance, researcher and journalist have been also conducted. The findings of this study showed, first, simplification of the price tiers of cigarettes will decrease the cigarettes production about 20 percent under lower purchasing power assumption. Second, the simplification will make the tobacco excise revenue fall by 2.4 percent under lower purchasing power assumption. Third, simplifying tiers will increase tobacco excise revenue by 8.5 percent under higher purchasing power. Under strategic industry policy, government policy on tobacco industry should take into consideration some factors such as production volume, national revenue and industry performance. Besides, the government should design others alternative of excise tax objects such as plastic, chlorofluorocarbon/CFC, fuel, luxury goods and sugar products. |
| Keywords: | tobacco industry, excise tax, cigarettes tiers, simulation |
| JEL: | E27 E61 H20 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9912231&r=all |
| By: | Matey, Juabin |
| Abstract: | A robust bank industry is a major player in the stability of an economy.This calls for an efficient management the banks to properly situate them in the context of robustness. By way of financial ratios and Z-score, the study analysed UT Bank’s financial performance prior to the recent bank sector reforms in Ghana. Annual financials over a ten year period (2007-2016) were used. Debt management practices of UT Bank per the results obtained were quite on the hind side. Leverage and risk variables were poorly handled. Inability to meet creditors’ claims would have been eminent considering the average mean values of debt-to-assets and debt-to equity ratios of 0.76 and 0.90 respectively. The entire bank sector will be put on a sound footing if credit management practices of individual banks are refreshed. The bank industry regulator should tighten its supervisory and monitoring role over banks to help detect early signs of non-performing banks. The study further recommends that statutory lending limits of banks be re-enforced to uphold the threshold of 10 percent for unsecured loans and 25 percentage for secured loans of net owned funds of the bank. |
| Keywords: | Bank, Debt, Distress, Performance, Credit Management Practice, Z-score |
| JEL: | E5 E58 G1 G20 G21 G24 G28 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:97282&r=all |
| By: | Lerato Mothibi (North West University); Lorainne Ferreira (North West University) |
| Abstract: | The South African economy has made great strides since its advent to democracy in 1994. However, South Africa is constrained by its continuous policy uncertainty generated by the South African government. This has resulted in poor sector performance, declining investments and slow economic growth. Investment, nonetheless, plays a crucial role in growing the South African economy. As such, policymakers often debate whether to focus on FDI or domestic investment, especially in developing countries. In order to point out where most government resources should be allocated, this study will investigate which type of investment ? FDI or domestic investment ? will have the most significant impact on economic growth in South Africa. This study makes use of the autoregressive distributive lag model (ARDL) over the period 1994 to 2018 to determine the impact of both FDI and domestic investment on economic growth in the short- and long-run. The study concludes that when policymakers seek to harness the potential of investment to encourage economic growth, they should not be distinguishing whether domestic or foreign investment should be a priority, but rather, what can be done to make the two forms of investment work together to achieve optimal benefits for the growth of the economy? |
| Keywords: | South Africa, Foreign direct investment, Domestic investment, Economic growth |
| JEL: | A10 C01 E22 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:9912016&r=all |
| By: | Steven Bond-Smith (Bankwest Curtin Economic Centre, Curtin University) |
| Abstract: | Increasing returns to scale is now fundamental to both economics and economic geography. But first generation theories of endogenous growth imply an empirically-refuted scale effect. This scale effect and assumptions to negate the scale effect both imply unintentional spatial consequences. A review of the broad economic geography literature reveals the widespread use and misuse of first generation and semi-endogenous growth techniques despite these distortions. Techniques are suggested for avoiding these unintended spatial consequences. Crucially, the scale-neutral Schumpeterian branch of endogenous growth theory enables research in economic geography to focus on the distinctly spatial mechanisms that define the spatial economy. |
| Keywords: | endogenous growth, scale effects, increasing returns, innovation, economic geography |
| JEL: | E10 L16 O41 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:ozl:bcecwp:wp1904&r=all |
| By: | Alain Cohn; Michel André Maréchal; Frédéric Schneider; Roberto A. Weber |
| Abstract: | We study whether employment history provides information about a worker’s “work attitude,” i.e., the tendency to act cooperatively and reliably in the workplace. We conjecture that, holding all else equal, frequent job changes can indicate poor work attitude and that this information is transmitted through employment histories. We find support for this hypothesis across three studies that employ complementary lab, field, and survey experiments, as well as in labor market panel data. First, a tightly controlled laboratory labor market experiment demonstrates that prior employment information allows employers to screen for reliable and cooperative workers and that these workers obtain better employment outcomes. Second, we conduct a field experiment that varies the frequency of job changes in applicants’ resumes and find that those with fewer job changes receive substantially more callbacks from prospective employers. Third, a survey experiment with Human Resources professionals confirms that the resume manipulations in the field study create different perceptions of work attitude and that these largely account for the callback differences. Finally, we find evidence consistent with our hypothesized relationships in empirical labor market data. Our work highlights the potential importance of job history as a signal of work attitude in labor markets, and points to a potential cost of frequent job changes. |
| JEL: | C90 C93 J01 E24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7976&r=all |
| By: | Olena Kostyshyna; Etienne Lalé |
| Abstract: | The number of workers who hold more than one job (a.k.a. multiple jobholders) has increased recently in Canada. While this seems to echo the view that non-standard work arrangements are becoming pervasive, the increase has in fact been trivial compared with the long-run rise of multiple jobholding that has occurred since the mid-1970s. In this paper, we document this historical evolution and provide a comprehensive account of its underlying dynamics. To this end, we use restricted-access panel micro-data from the Canadian Labour Force Survey to construct transition probabilities into and out of multiple jobholding. We analyze these data through the lens of a trend decomposition that separates out the role of labor market inflows and outflows. The picture that emerges from our analysis is one of continued increases in the propensity of workers to take on second jobs. We argue that changes in technology and in preferences could both be responsible for this evolution. |
| Keywords: | Econometric and statistical methods; Labour markets |
| JEL: | E24 J21 J22 J60 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-49&r=all |
| By: | Bendelová, Marta Paula |
| Abstract: | The small farmers are increasingly an irreplaceable part of Slovak agriculture. Therefore, it is important to identify their main credit constraints and to analyse their access to credit as this input belongs to one of the main factors of farther development of small, young and family farmers. In other words, their access to credit is crucial for the improvement of the Slovak agricultural sector as a whole. In this paper we specify the main sources of credit for small farmers in Slovakia, why there are some difficulties in credit acquisition and what are the main challenges of Slovak small, young and family farmers. |
| Keywords: | access to credit,credit constraints,sources of credit,small farmers |
| JEL: | Q10 Q14 E51 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:209635&r=all |
| By: | Bräuning, Michael; Malikkidou, Despo; Scricco, Giorgio; Scalone, Stefano |
| Abstract: | This paper describes a machine learning technique to timely identify cases of individual bank financial distress. Our work represents the first attempt in the literature to develop an early warning system specifically for small European banks. We employ a machine learning technique, and build a decision tree model using a dataset of official supervisory reporting, complemented with qualitative banking sector and macroeconomic variables. We propose a new and wider definition of financial distress, in order to capture bank distress cases at an earlier stage with respect to the existing literature on bank failures; by doing so, given the rarity of bank defaults in Europe we significantly increase the number of events on which to estimate the model, thus increasing the model precision; in this way we identify bank crises at an earlier stage with respect to the usual default definition, therefore leaving a time window for supervisory intervention. The Quinlan C5.0 algorithm we use to estimate the model also allows us to adopt a conservative approach to misclassification: as we deal with bank distress cases, we consider missing a distress event twice as costly as raising a false flag. Our final model comprises 12 variables in 19 nodes, and outperforms a logit model estimation, which we use to benchmark our analysis; validation and back testing also suggest that the good performance of our model is relatively stable and robust. JEL Classification: E58, C01, C50 |
| Keywords: | bank distress, decision tree, machine learning, Quinlan |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192348&r=all |
| By: | Bednarek, Peter; te Kaat, Daniel Marcel; Ma, Chang; Rebucci, Alessandro |
| Abstract: | Capital flows and real estate are pro-cyclical, and real estate has a substantial weight in economies' income and wealth. In this paper, we study the role of real estate markets in the transmission of bank flow shocks to output growth across German cities. The empirical analysis relies on a new and unique matched data set at the city level and the bank-firm level. To measure bank flow shocks, we show that changes in sovereign spreads of Southern European countries (the so-called GIPS spread) can predict German cross-border bank flows. To achieve identification by geographic variation, in addition to a traditional supply-side variable, we use a novel instrument that exploits a policy assigning refugee immigrants to municipalities on an exogenous basis. We find that output growth responds more to bank flow shocks in cities that are more exposed to tightness in local real estate markets. We estimate that, during the 2009-2014 period, for every 100-basis point increase in the GIPS spread, the most exposed cities grow 15-2 basis points more than the least exposed ones. Moreover, the differential response of commercial property prices can explain most of this growth differential. When we unpack the transmission mechanism by using matched bank-firm-level data on credit, employment, capital expenditure and TFP, we find that firm real estate collateral as measured by tangible fixed assets plays a critical role. In particular, bank flow shocks increase the credit supply to firms and sectors with more real estate collateral. Higher credit supply then leads firms to hire and invest more, without evidence of capital misallocation. |
| Keywords: | BIS Cross-border flows,Capital Flows,Collateral,City Business Cycles,Credit,Germany,Misallocation,GIPS Spread,Real Estate,Tangible Assets |
| JEL: | F3 R3 E3 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:452019&r=all |
| By: | Hamano, Masashige; Pappadà, Francesco |
| Abstract: | This paper revisits the case for exible vs. fixed exchange rate regime in a two-country model with firm heterogeneity and nominal wage rigidity under incomplete financial markets. Dampening nominal exchange rate fluctuations simultaneously stabilizes the firm turnover in the export market. When firms are homogeneous and low productive, the fixed exchange rate regime dominates the flexible one because it reduces the fluctuations in labor demand arising from entry and exit of exporters following a demand shock. We also show that an alternative regulation policy in the export market does not rule out the possible adoption of a managed floating regime. |
| JEL: | F32 F41 E40 |
| Date: | 2020–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2020_001&r=all |
| By: | Beer, Sonja; Matthes, Jürgen; Rusche, Christian |
| Abstract: | The People's Republic of China experienced a tremendous economic development within the last four decades. The increased economic power and political weight of China are challenging the USA and EU. Furthermore, the strategies used by China for its own development, e.g. broad-based industry policy with distortive subsidization, forced technology transfer or investment restrictions, are perceived as unfair, especially in the US, but to a large extent also in the EU. This development in combination with the trade imbalances are resulting in the current conflict between China and the US. The term decoupling was introduced to describe the cutting off of economic ties between China and the US as a consequence of the conflict. Accordingly, we analyze in this article whether a decoupling is going on. [...] |
| JEL: | E61 F02 O24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:442019&r=all |
| By: | de Bondt, Gabe; Gieseck, Arne; Zekaite, Zivile; Herrero, Pablo |
| Abstract: | This study extends a thick modelling tool for aggregated euro area real private consumption of de Bondt et al. (2019) to the four largest euro area countries. The suite of error correction models performs well in and out of sample. The ranges and averages of estimated elasticities are, however, sensitive to the exact model specification. We also show that decomposing disposable income into labour, property and transfer income is essential for understanding and forecasting consumption. Finally, substantial crosscountry heterogeneity in marginal propensities to consume out of income and wealth components calls for caution when interpreting aggregate euro area developments. JEL Classification: C53, D12, E21, E27 |
| Keywords: | income, private consumption, thick modelling, wealth |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192343&r=all |