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on Macroeconomics |
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Issue of 2020‒02‒17
106 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Omotosho, Babatunde S. |
| Abstract: | This paper develops a two-agent New Keynesian model, which is suitable for identifying the drivers of business cycle fluctuations in small open, resource-rich, resource-dependent emerging economies. We confront the model with Nigerian data on eleven macro-economic variables using the Bayesian likelihood approach and show that output fluctuations are driven mainly by oil and monetary policy shocks in the short run and domestic supply shocks in the medium term. On the other hand, monetary and domestic supply shocks jointly account for around 70 per cent of short run variations in headline and core measures of inflation while oil shocks play a less prominent role owing partly to the low pass-through effect arising from the extant fuel subsidy regime in the country. Interrogating these findings further, we find that negative oil price shocks generate a persistent negative impact on output and a short-lived positive effect on headline inflation. In terms of policy responses, the estimated Taylor rule indicates a hawkish monetary policy stance over the sample period while the estimated fiscal rule provides evidence for a pro-cyclical and rather muted fiscal policy. Since domestic supply and oil-related shocks are key sources of macroeconomic fluctuations, the study calls for a more creative use of the country’s stabilisation funds as well as strategic fiscal interventions aimed at addressing the issues of domestic supply constraints and promoting private sector investments. |
| Keywords: | Business cycles, resource-rich economy, DSGE model |
| JEL: | E31 E32 E52 E58 F41 Q43 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98351&r=all |
| By: | Barnett, William; Bella, Giobanni; Ghosh, Taniya; Mattana, Paolo; Venturi, Beatrice |
| Abstract: | The paper shows that in a New Keynesian (NK) model, an active interest rate feedback monetary policy, when combined with a Ricardian passive fiscal policy, à la Leeper-Woodford, may induce the onset of a Shilnikov chaotic attractor in the region of the parameter space where uniqueness of the equilibrium prevails locally. Implications, ranging from long-term unpredictability to global indeterminacy, are discussed in the paper. We find that throughout the attractor, the economy lingers in particular regions, within which the emerging aperiodic dynamics tend to evolve for a long time around lower-than-targeted inflation and nominal interest rates. This can be interpreted as a liquidity trap phenomenon, produced by the existence of a chaotic attractor, and not by the influence of an unintended steady state or the Central Bank's intentional choice of a steady state nominal interest rate at its lower bound. In addition, our finding of Shilnikov chaos can provide an alternative explanation for the controversial “loanable funds” over-saving theory, which seeks to explain why interest rates and, to a lesser extent inflation rates, have declined to current low levels, such that the real rate of interest is below the marginal product of capital. Paradoxically, an active interest rate feedback policy can cause nominal interest rates, inflation rates, and real interest rates unintentionally to drift downwards within a Shilnikov attractor set. Policy options to eliminate or control the chaotic dynamics are developed. |
| Keywords: | Shilnikov chaos criterion, global indeterminacy, long-term un-predictability, liquidity trap |
| JEL: | C6 C61 C62 E12 E5 E52 E6 E63 |
| Date: | 2020–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98417&r=all |
| By: | Martin Holm (University of Oslo); Pascal Paul; Andreas Tischbirek (HEC Lausanne, University of Lausanne) |
| Abstract: | We investigate the transmission of monetary policy to household consumption using detailed administrative data on the universe of households in Norway. Based on a novel series of identified monetary policy shocks, we estimate the dynamic responses of consumption, income, and saving along the liquid asset distribution of households. We find that low-liquidity but also high-liquidity households show strong responses, interest rate changes faced by borrowers and savers feed into consumption, and indirect effects of monetary policy outweigh direct effects, albeit with a delay. Overall, the results support the importance of financial frictions, cash-flow channels, and heterogeneous effects of monetary policy. |
| Keywords: | Monetary policy; Household balance sheets; Liquidity constraints; Heterogeneous agent New Keynesian models |
| JEL: | D31 E12 E21 E24 E32 E43 E52 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:87419&r=all |
| By: | Nicolas Caramp; Dejanir H. Silva (Department of Economics, University of California Davis) |
| Abstract: | This paper studies the role of wealth effects in the monetary transmission mechanism in New Keynesian models. We propose a decomposition of consumption that extends the Slutsky equation to a general equilibrium setting. Wealth effects, and their amplification in general equilibrium, explain a large fraction of the consumption and inflation response to changes in nominal interest rates in the standard equilibrium. In RANK, wealth effects are determined, generically, by the revaluation of public debt and the fiscal response to monetary policy. In a medium-scale DSGE model, we find a fiscal response that is several times larger than the response we estimate in the data. Therefore, the model is unable to generate sufficiently strong effects. In an analytical HANK model with positive private debt, private wealth effects amplify the response to monetary policy and improve the quantitative performance of the DSGE model. |
| Keywords: | New Keynesian, Monetary Policy, Fiscal Policy, Wealth Effects |
| JEL: | E21 E52 E63 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:337&r=all |
| By: | Sanjay R. Singh; Nicolas Caramp (Department of Economics, University of California Davis) |
| Abstract: | Safe asset shortages can expose the economy to liquidity traps. The nature of these traps is determined by the cyclicality of the bond premium. Self-fulfilling liquidity traps are associated with a counter-cyclical bond premium. Small issuances of government debt crowd out private debt and exacerbate these pessimism-driven recessions. In contrast, fundamental liquidity traps arise under a pro-cyclical bond premium and government debt is expansionary. In the data, we find evidence of a counter-cyclical bond premium and a pro-cyclical supply of safe assets. We propose robust policies that prevent the existence of self-fulfilling traps and are expansionary in fundamental traps. |
| Keywords: | bond premium, endogenous safe assets, liquidity trap |
| JEL: | E0 E1 E5 E32 E52 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:336&r=all |
| By: | Christopher A. Sims; Marco Del Negro |
| Abstract: | The monetary base in the United States, defined as currency plus bank reserves, grew from about $800 billion in 2008 to $2 trillion in 2012, and to roughly $4 trillion at the end of 2014 (see chart below). Some commentators have viewed this increase in the monetary base as a sure harbinger of inflation. For example, one economist wrote that this ?unprecedented expansion of the money supply could make the '70s look benign.? These predictions of inflation rest on the monetarist argument that nominal income is proportional to the money supply. The fact that the money supply has expanded rapidly while real income has grown very modestly means that sooner or later prices will have to catch up. Most academic economists (from Cochrane to Krugman and Mankiw) disagree. The monetarist argument arguably applies only to non-interest-bearing central bank liabilities, but since October 2008 a large fraction of the monetary base has consisted of reserves that pay interest (the so-called IOER, or interest on excess reserves) and one linchpin of the Fed?s ?policy normalization principles? consists precisely in raising the IOER along with the federal funds rate. Since reserves pay close to market interest rates, they are close substitutes for other short-term assets such as Treasury bills from a bank?s perspective. As long as the central bank can affect the return on these short-term assets by adjusting the IOER, controlling inflation with a large balance sheet seems no different than it was before the Great Recession. |
| Keywords: | solvency; central bank’s balance sheet; monetary policy |
| JEL: | E2 E5 H00 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87020&r=all |
| By: | Saito, Makoto |
| Abstract: | A macroeconomic policy debate has been ongoing in Japan for over the past two decades, with one side proposing drastic fiscal reforms to avoid hyperinflation and the other recommending expansionary policies to escape from a liquidity trap. However, neither side has been able to explain why mild deflation has continued for such a long time, despite primary budget deficits and unprecedented monetary expansion. This paper presents an alternative theory, arguing that fiscal sustainability will be restored in the future not as a result of drastic fiscal reforms, hyperinflation, or continuous mild inflation, but largely through a one-off surge in the price level, such that the price level becomes several times higher than before. Such a price surge is considered a rare event accompanied by catastrophic endowment shocks in the following years. Within this framework, mild deflation coexists with fiscal unsustainability until this sharp surge in the price level occurs. |
| Keywords: | the fiscal theory of the price level, fiscal sustainability, mild deflation, price surges, yield curves |
| JEL: | E31 E41 E58 E63 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hituec:703&r=all |
| By: | Omotosho, Babatunde S. |
| Abstract: | Effective central bank communication is useful for anchoring market expectations and enhancing macroeconomic stability. In this paper, the communication strategy of the Bank of Ghana (BOG) is analysed using BOG’s monetary policy committee press releases for the period 2018-2019. Specifically, we apply text mining techniques to investigate the readability, sentiments and hidden topics of the policy documents. Our results provide evidence of increased central bank communication during the sample period, implying improved monetary policy transparency. Also, the computed Coleman and Liau (1975) readability index shows that the word and sentence structures of the press releases have become less complex, indicating increased readability. Furthermore, we find an average monetary policy net sentiment score of 3.9 per cent. This means that the monetary policy committee expressed positive sentiments regarding policy and macroeconomic outlooks during the period. Finally, the estimated topic model reveals that the topic proportion for “monetary policy and inflation” was prominent in the year 2018 while concerns regarding exchange rate were strong in 2019. The paper recommends that in order to enhance monetary policy communication, the Bank of Ghana should continue to improve on the readability of the monetary policy press releases. |
| Keywords: | Central bank communication, text mining, monetary policy |
| JEL: | E52 E58 E65 |
| Date: | 2019–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98297&r=all |
| By: | Marco Del Negro; Raiden B. Hasegawa; Frank Schorfheide; Marc Giannoni |
| Abstract: | GDP contracted 4 percent from 2008:Q2 to 2009:Q2, and the unemployment rate peaked at 10 percent in October 2010. Traditional backward-looking Phillips curve models of inflation, which relate inflation to measures of ?slack? in activity and past measures of inflation, would have predicted a substantial drop in inflation. However, core inflation declined by only one percentage point, from 2.2 percent in 2007 to 1.2 percent in 2009, giving rise to the ?missing deflation? puzzle. Based on this evidence, some authors have argued that slack must have been smaller than suggested by indicators such as the unemployment rate or deviations of GDP from its long-run trend. On the contrary, in Monday?s post, we showed that a New Keynesian DSGE model can explain the behavior of inflation in the aftermath of the Great Recession, despite large and persistent output gaps. An implication of this model is that information about the future stance of monetary policy is very important in determining current inflation, in contrast to backward-looking Phillips curve models where all that matters is the current and past stance of policy. |
| Keywords: | Great Recession; DSGE Models; Missing Disinflation |
| JEL: | E2 E5 G1 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86961&r=all |
| By: | Kevin L. Kliesen |
| Abstract: | Deciding to undertake a series of tightening actions present unique challenges for Federal Reserve policymakers. These challenges are both political and economic. Using a variety of economic and financial market metrics, this article examines how the economy and financial markets evolved in response to the five tightening episodes enacted by the FOMC since 1983. The primary aim is to compare the most-recent episode, from December 2015 to December 2018, with the previous four episodes. The findings in this article indicate that the current episode bears some resemblance to previous Fed tightening episodes, but also differs in several key dimensions. For example, in the first four episodes, the data show the FOMC was generally tightening into a strengthening economy with building price pressures. In contrast, in the fifth episode the FOMC began its tightening regime during a deceleration in economic activity and with headline and core inflation remaining well below the FOMC’s 2 percent inflation target. Moreover, both short- and long-term inflation expectations were drifting lower. These developments helped explain why there was a one-year gap between the first and second increases in the federal funds target rate in the most-recent episode. Another key difference is that in three of the first four episodes, the FOMC continued to tighten after the yield curve inverted; a recession then followed shortly thereafter. However, in the final episode, the FOMC ended its tightening policy about eight months before the yield curve inverted. It remains to be seen if a recession follows this inversion. |
| Keywords: | Federal Open Market Committee; monetary policy; macroeconomy; inflation; yield curve; recession |
| JEL: | E3 E4 E5 N1 |
| Date: | 2020–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:87418&r=all |
| By: | Isaac Baley; Ana Figueiredo; Robert Ulbricht |
| Abstract: | This paper studies the dynamics of skill mismatch over the business cycle. We build a tractable directed search model, in which workers differ in skills along multiple dimensions and sort into jobs with heterogeneous skill requirements along those dimensions. Skill mismatch arises due to information and labor market frictions. Estimated to the U.S., the model replicates salient business cyclic properties of mismatch. We show that job transitions in and out of bottom job rungs, combined with career mobility of workers, are important to account for the empirical behavior of mismatch. The predicted career dynamics provide a novel narrative for the scarring effect of unemployment. The model suggests significant welfare costs associated with mismatch due to learning frictions. |
| Keywords: | Business cycles, cleansing, learning about skills, multidimensional sorting, scarring effect of unemployment, search-and-matching, skill mismatch, sullying. |
| JEL: | E24 E32 J24 J64 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1694&r=all |
| By: | Jason Taylor (Department of Economics, Central Michigan University); Wenjun Xue (Department of Economics and Finance, Shanghai University); Hakan Yilmazkuday (Department of Economics, Florida International University) |
| Abstract: | This paper investigates the effects of Chinese financial and fiscal policies designed to counter the worldwide Great Recession of 2008. We examine how policies designed to increase bank credit and health (i.e., asset liquidity, capital adequacy ratio, profitability, and bad loan ratio) influenced firm-level output, employment and investment. We also explore the impact of China’s expansionary fiscal policy with regard to these firm-level variables. We find that the policy effects varied based on firm-level characteristics such as size, liability ratio, profitability, ownership and the industry in which the firm operates. With respect to the dynamic effects, our results suggest that Chinese financial and fiscal policies were generally effective in the short run, but their positive impacts ceased within two years. |
| Keywords: | Banking System, 2008 Economic Stimulus Plan, The Great Recession, Chinese Recovery, Panel VAR Model, Firm-Level Investigation |
| JEL: | E32 E62 G21 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:2002&r=all |
| By: | Tarek Hassan (Boston University); Laurence van Lent (Frankfurt School of Finance and Management); Stephan Hollander (Tilburg University); Ahmed Tahoun (London Business School) |
| Abstract: | Using tools from computational linguistics, we construct new measures of the impact of Brexit on listed firms in the United States and around the world; these measures are based on the proportion of discussions in quarterly earnings conference calls on the costs, benefits, and risks associated with the UK’s intention to leave the EU. We identify which firms expect to gain or lose from Brexit and which are most affected by Brexit uncertainty. We then estimate effects of the different types of Brexit exposure on firm-level outcomes. We find that the impact of Brexit- related uncertainty extends far beyond British or even European firms; US and international firms most exposed to Brexit uncertainty lost a substantial fraction of their market value and have also reduced hiring and investment. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expect negative direct effects from Brexit (the first moment) should it come to pass. Most prominently, firms expect difficulties from regulatory divergence, reduced labor mobility, limited trade access, and the costs of post-Brexit operational adjustments. Consistent with the predictions of canonical theory, this negative sentiment is recognized and priced in stock markets but has not yet significantly affected firm actions. |
| Keywords: | Brexit, uncertainty, sentiment, machine learning, cross-country effects |
| JEL: | D8 E22 E24 E32 E6 F0 G18 G32 G38 H32 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:106&r=all |
| By: | Min Zhang (East China Normal University, Faculty of Economics and Management, School of Economics); Yahong Zhang (Department of Economics, University of Windsor) |
| Abstract: | This paper develops a novel while plausible way to model the Chinese monetary transmission via open market operations (OMOs). In the model, monetary injections through OMOs, together with differentiated collateral regulation in the banking sector, directly affect banks' loan capacities, which then influences sectoral investments and aggregate GDP. The quantitative analysis shows that the 2009--2010 monetary expansion explains nearly 90 percent of the rise in GDP growth. Moreover, balancing credit allocation across sectors and applying unified banking regulations jointly enhance the GDP growth rate by 2.15 percentage points, with the contribution of the unified banking regulations proving more important. |
| Keywords: | Monetary stimulus, Bank credit channel, Open market operation rule, Chinese economy |
| JEL: | E32 E44 E52 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:wis:wpaper:2001&r=all |
| By: | Pamfili Antipa (Sciences Po and Banque de France); Christophe Chamley (Boston University and Paris School of Economics) |
| Abstract: | The French Wars (1793-1815) forced unprecedented coordination between fiscal and monetary authorities and a revolution in the role of the Bank of England. Using hand-collected data, this analysis of the fiscal and monetary policies at that time, and of their impacts on the price of the pound in the internal and the external markets, highlights how the steady overarching commitment to fiscal balance led to the extraordinary success of a flexible implementation of this principle in four sharply defined regimes between 1793 and 1821, “tax-smoothing as usual†(1793-1797), “Real Bills and war tax†(1797-1810), “whatever it takes†(1810-1810), “exit†(1815-1821). |
| Keywords: | : Interactions between monetary and fiscal policies, central bank balance sheet, policy commitment, Fiscal Theory of the Price Level. |
| JEL: | N13 H63 E58 E62 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:bos:iedwpr:dp-327&r=all |
| By: | Jan Behringer |
| Abstract: | The corporate sector has turned from a net borrowing position to a net lending position in many advanced countries over the past decades. This phenomenon is rather unusual as the corporate sector had historically borrowed funds from other sectors in the economy. In this paper, we analyze how changes in the distribution of income between wages and profits have affected corporate net lending in a sample of 40 countries for the period 1990-2016. A consistent finding is that an increase (decrease) in the corporate profit share leads to an increase (decrease) in corporate net lending, controlling for other corporate net lending determinants. We disentangle the effects of the profit share on corporate saving and investment and explore a number of alternative explanations of our results, including changes in the cost of capital, shifts in the composition of industrial sectors, the growing importance of intangible capital, and a temporary crisis phenomenon. We conclude that factor shares are an important driver of macroeconomic trends and that the rise in corporate profits has contributed considerably to the improvement in the corporate net lending positions across countries. |
| Keywords: | Corporate saving, investment, income distribution, cost of capital |
| JEL: | E21 E22 E25 G30 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:53-2019&r=all |
| By: | Micah Smith (Research and Statistics Group); Marco Del Negro; Sara Shahanaghi (Research and Statistics Group); Marc Giannoni; Matthew Cocci |
| Abstract: | In a recent series of blog posts, the former Chairman of the Federal Reserve System, Ben Bernanke, has asked the question: ?Why are interest rates so low?? (See part 1, part 2, and part 3.) He refers, of course, to the fact that the U.S. government is able to borrow at an annualized rate of around 2 percent for ten years, or around 3 percent for thirty years. If you expect that inflation is going to be on average 2 percent over the next ten or thirty years, this implies that the U.S. government can borrow at real rates of interest between 0 and 1 percent at the ten- and thirty-year maturities. This phenomenon is by no means limited to the United States. Governments in Japan and Germany are able to borrow for ten years at nominal rates below 1 percent, and the ten-year yield on Swiss government debt is slightly negative. Why is that? |
| Keywords: | low interest rates |
| JEL: | E2 E5 G1 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87032&r=all |
| By: | Federico Bassi (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Most empirical studies provide evidence that the rate of capacity utilization is stable around a constant Non-accelerating inflation rate of capacity utilization (NAIRCU). Nevertheless , available statistical series of the rate of capacity utilization, which is unobservable, are constructed by assuming that it is stable over time. Hence, the stability of the NAIRCU is an artificial artefact. In this paper, we develop a method to estimate the rate of capacity utilization without imposing stability constraints. Partially inspired to the Production function methodology (PFM), we estimate the parameters of a production function by imposing aggregate correlations between the rate of capacity utilization and a set of macroeconomic variables, namely investment , labor productivity and unemployment. Our results show that the NAIRCU is not a constant rate but a non-stationary time-varying trend, and that chronicle under-utilization of capacity with stable inflation is a plausible equilibrium. Hence, persistent deviations of GDP might reflect persistent shocks to capacity utilization rather than exogenous shocks to total factor productivity. As a corollary, expansionary demand policies do not necessarily create permanent inflationary pressures if the NAIRCU is below full-capacity output, namely in post-crisis periods. Abstract Most empirical studies provide evidence that the rate of capacity utilization is stable around a constant Non-accelerating inflation rate of capacity utilization (NAIRCU). Nevertheless, available statistical series of the rate of capacity utilization, which is unobservable, are constructed by assuming that it is stable over time. Hence, the stability of the NAIRCU is an artificial artefact. In this paper, we develop a method to estimate the rate of capacity utilization without imposing stability constraints. Partially inspired to the Production function methodology (PFM), we estimate the parameters of a production function by imposing aggregate correlations between the rate of capacity utilization and a set of macroeconomic variables, namely investment, labor productivity and unemployment. Our results show that the NAIRCU is not a constant rate but a non-stationary time-varying trend, and that chronicle under-utilization of capacity with stable inflation is a plausible equilibrium. Hence, persistent deviations of GDP might reflect persistent shocks to capacity utilization rather than exogenous shocks to total factor productivity. As a corollary, expansionary demand policies do not necessarily create permanent inflationary pressures if the NAIRCU is below full-capacity output, namely in post-crisis periods. |
| Keywords: | Capacity utilization,NAIRCU,Potential GDP,Hysteresis,Secular stagnation |
| Date: | 2019–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02360456&r=all |
| By: | Ismail Baydur (School of Economics, Singapore Management University); Toshihiko Mukoyama (Department of Economics, Georgetown University) |
| Abstract: | This paper studies the cyclical behavior of job separation and the characteristics of matches between workers and jobs. We estimate a proportional hazard model with competing risks, distinguishing between different types of separations. A higher unemployment rate at the start of an employment relationship increases the probability of job-to-job transitions, whereas its effect on employment-to-unemployment transitions is negative. We then build a simple job-ladder model to interpret our empirical results. A model with two-dimensional heterogeneity in match (job) characteristics has the same qualitative features as the data. Once the model is calibrated to include cyclicality in the offered match characteristics, it can fit the quantitative features of the data. |
| Keywords: | business cycles, match characteristics, job duration, unemployment, job-to-job transitions |
| JEL: | E24 E32 J22 J63 J64 |
| Date: | 2020–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~20-20-01&r=all |
| By: | Kollmann, Robert |
| Abstract: | This paper studies rational bubbles in non-linear dynamic general equilibrium models of the macroeconomy. The term ‘Rational bubble’ refers to multiple equilibria due to the absence of a transversality condition (TVC) for capital. The lack of TVC can be due to an OLG population structure. If a TVC is imposed, the macro models considered here have a unique solution. Bubbles reflect self-fulfilling fluctuations in agents’ expectations about future investment. In contrast to explosive rational bubbles in linearized models (Blanchard (1979)), the rational bubbles in non-linear models here are bounded. Bounded rational bubbles provide a novel perspective on the drivers and mechanisms of business cycles. I construct bubbles (in non-linear models) that feature recurrent boom-bust cycles characterized by persistent investment and output expansions which are followed by abrupt contractions in real activity. Both closed and open economies are analyzed. In a non-linear two-country model with integrated financial markets, bubbles must be perfectly correlated across countries. Global bubbles may, thus, help to explain the synchronization of international business cycles. |
| Keywords: | E1,E3,F3,F4, C6 |
| JEL: | C6 E1 E3 F3 F4 |
| Date: | 2020–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98412&r=all |
| By: | Evzen Kocenda (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Czech Republic. Address: IES, Opletalova 26, 110 00 Prague.; Institute of Theory of Information and Automation, Czech Academy of Sciences, Prague; CESifo Munich; IOS Regensburg.); Karen Poghosyan (Central Bank of Armenia, Economic Research Department, V. Sargsyan 6, 0010, Yerevan, Armenia) |
| Abstract: | We analyze the performance of a broad range of nowcasting and short-term forecasting models for a representative set of twelve old and six new member countries of the European Union (EU) that are characterized by substantial differences in aggregate output variability. In our analysis, we generate ex-post out-of-sample nowcasts and forecasts based on hard and soft indicators that come from a comparable set of identical data. We show that nowcasting works well for the new EU countries because, although that variability in their GDP growth data is larger than that of the old EU economies, the economic significance of nowcasting is on average somewhat larger. |
| Keywords: | Bayesian VAR, dynamic and static principal components, European OECD countries, factor augmented VAR, nowcasting, real GDP growth, short-term forecasting |
| JEL: | C33 C38 C52 C53 E37 E52 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2020_05&r=all |
| By: | Valeria Bejarano-Salcedo (Banco de la República de Colombia); Juan Manuel Julio-Román (Banco de la República de Colombia); Edgar Caicedo-García (Banco de la República de Colombia); Julián Alonso Cárdenas-Cárdenas (Banco de la República de Colombia) |
| Abstract: | Proponemos nuevos modelos para el efecto de “El Niño Southern Oscillation”, ENSO, sobre los precios de los alimentos en Colombia. Estudiamos el efecto del “Oceanic Niño Index”, ONI, la medida de ENSO preferida, y de las precipitaciones locales sobre los precios de los alimentos perecederos. Estos modelos surgen de hechos estilizados conocidos, los cuales resumimos en este escrito, y admiten representaciones tiempo-variantes espacio-estado, de las que derivamos las reglas ´optimas de pron´ostico. Encontramos que una funci´on de transferencia simple, condicional a la intensidad de ENSO, es suficiente para explicar estas relaciones. En adici´on al bien conocido hecho que la Ni˜na tiene un efecto distinto al del Ni˜no sobre los precios de los alimentos, tambi´en hallamos que el efecto de ENSO cambia con su intensidad. Reconocer que el ONI es un indicador imperfecto de las condiciones clim´aticas locales mejora el ajuste de nuestro modelo, lo cual se refleja en sus pron´osticos. El modelo para la precipitaci´on, sin embargo, no necesita de este recurso. Tambi´en surgen ganancias en eficiencia debido al modelamiento de la heterocedasticidad. Finalmente, estos modelos pueden servir para entender el efecto de ENSO en otras variables como el PIB. **** ABSTRACT: We propose models for the effect of El Ni˜no Southern Oscillation, ENSO, on food prices. We study the effect of the Oceanic Ni˜no Index, ONI, the preferred ENSO measure, and rainfall on fresh food prices. These models arise from well known stylized facts, which we summarize in this paper, and have time-varying state space forms from which we derive optimal forecasts. We found that a simple transfer function, conditional on ENSO intensity, suffices to model these relationships. In addition to the well known fact that Ni˜nas’ effect on food prices differs from Ni˜nos’ effect, we also found that ENSO’s effect varies with its intensity. Furthermore, acknowledging that ONI is an imperfect measure of local climatic conditions improves the model fit, which yields sensible forecasts. The rainfall-based model, however, does not employ this methodology. We also report efficiency gains from heteroskedasticity modelling. Finally, these models may also serve to study ENSO effect on other variables such as the GDP. |
| Keywords: | Inflación de Alimentos, El Niño, Pronóstico de la Inflación, Política Monetaria, Food inflation, “El Niño”, Inflation forecasting, Monetary Policy |
| JEL: | C53 E31 E37 E58 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1102&r=all |
| By: | E.GAUTIER (Banque de France - Université de Nantes); S. ROUX (Insee - Ined - Crest); M. SUAREZ CASTILLO (Insee - Crest) |
| Abstract: | How do minimum wages (MW) shape the aggregate wage dynamics when wage adjustment is lumpy? In this paper, we document new empirical findings on the effects of MW on wage rigidity using quarterly micro wage data matched with sectoral bargained MW. We first estimate a micro empirical model of wage rigidity taking into account minimum wage dynamics. We then use a simulation method to investigate implications of lumpy micro wage adjustment for the aggregate wage dynamics. Our main findings are the following. Both national and sectoral MW have a large effect on the timing and on the size of wage adjustments. At the aggregate level, MW contribute to amplify, by a factor of 1.7, the response of wages to past inflation. Ignoring MW leads to underestimate the speed of aggregate wage adjustment by about a year. The elasticities of wages with respect to past inflation, the national MW and industry-level MW are respectively 0.42, 0.17 and 0.16. Finally, there are significant spillover effects of the NMW on higher wages transiting through industry-level MW. |
| Keywords: | Wage Rigidity, Minimum Wage, Collective Bargaining |
| JEL: | E24 E52 J31 J50 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nse:doctra:g2019-09&r=all |
| By: | الرسول, أد/ أحمد أبواليزيد; عبدالراضي, صابرين صبره; عون, أد/ عون خيرالله; عبدالرازق, د ياسمين صلاح |
| Abstract: | The research aimed to study the causes and sources of inflation in the Egyptian economy and the agricultural sector, and to analyze the indicators and measures of that phenomenon at the two levels during the period 1995-2016. A number of indices were used, namely: the urban consumer price index, the rural consumer price index, the general consumer price index, the producer price index, and the implicit index. By tracking the evolution of changes in the price level during the study period, it was found that those indexes have taken an upward trend along the time series under study, and the index numbers have doubled from three to four times, which confirms the suffering of the Egyptian economy from high inflation rates. The results of using the criterion of the cash stability factor that showed positive along the length of the chain also showed the size of the gap between the value of real GDP and the size of the money supply in the sense of M1 and M2. While the increase in the real GDP reached 159.60%, the increase in the size of the money supply About 1711% and 1373%, respectively. The results also showed that the surplus of demand began to appear from 2012 and continued to increase until it reached its maximum in 2016. As for the net surplus of demand, it began to appear from 2014 to 2016, and its maximum reached in 2016 with an increase estimated at 93.20%. As for the agricultural sector as one of the pivotal sectors in the national economy, a number of agricultural indices were analyzed that reflected the extent of the phenomenon of inflation in the agricultural sector, and the factors causing inflation in the agricultural sector can be classified into factors outside the agricultural sector that affect the presence of inflation within the sector, including the budget deficit The general state of the country, the money supply surplus, the deficit in the trade balance, which are the same factors that caused inflation in the Egyptian economy, in addition to internal factors specific to the agricultural sector, such as poor distribution and use of agricultural resources, a low percentage of For the self-sufficiency of some crops, especially food ones, and the high cost of agricultural production requirements, in addition to a group of other factors addressed in the research. استهدف البحث دراسة أسباب ومصادر التضخم في الاقتصاد المصري وفي القطاع الزراعي، و تحليل مؤشرات ومقاييس تلك الظاهرة على المستوىين خلال الفترة 1995-2016. وقد تم الاستعانة بعدد من الأرقام القياسية وهي: الرقم القياسي لأسعار المستهلكين بالحضر، الرقم القياسي لأسعار المستهلكين بالريف، الرقم القياسي العام لأسعار المستهلكين، الرقم القياسي لأسعار المنتجين، الرقم القياسي الضمني. وبتتبع تطور التغيرات على مستوى الأسعار خلال فترة الدراسة تبين أن تلك الأرقام القياسية قد سلكت اتجاهاً تصاعدياً على طول السلسلة الزمنية محل الدراسة وقد تضاعفت الأرقام القياسية خلالها من ثلاث لأربع مرات وهو ما يؤكد معاناة الاقتصاد المصري من معدلات تضخم عالية. كما أظهرت نتائج استخدام معيار معامل الاستقرار النقدي الذي ظهر موجباً على مدى طول السلسلة حجم الفجوة بين قيمة الناتج المحلي الإجمالي الحقيقي وحجم المعروض النقدي بمفهوميه M1 ، M2 ففي حين بلغت نسبة الزيادة في الناتج المحلي الإجمالي الحقيقي 159.60%، بلغت نسبة الزيادة في حجم المعروض النقدي نحو 1711%، 1373% على الترتيب. كما أظهرت النتائج أن فائض الطلب قد بدأ بالظهور من عام 2012 واستمر بالزيادة حتى بلغ أقصاه عام 2016 أما عن صافي فائض الطلب فقد بدأ بالظهور من عام 2014 حتى عام 2016، وبلغ حده الأقصى عام 2016 بنسبة زيادة قدرت بنحو 93.20%. أما بالنسبة للقطاع الزراعي كأحد القطاعات المحورية في الاقتصاد القومي فقد تم تحليل عدد من الأرقام القياسية الزراعية التي عكست المدي الذي وصلت اليه ظاهرة التضخم بالقطاع الزراعي ويمكن تصنيف العوامل المسببة للتضخم في القطاع الزراعي إلى عوامل خارج القطاع الزراعي تؤثر على وجود التضخم داخل القطاع منها عجز الموازنة العامة للدولة، فائض المعروض النقدي، العجز في الميزان التجاري وهي ذات العوامل التي كانت سبباً في وجود التضخم على مستوى المقتصد المصري، إضافة إلى عوامل داخلية يختص بها القطاع الزراعي مثل سوء توزيع واستخدام الموارد الزراعية، انخفاض نسبة الاكتفاء الذاتي من بعض المحاصيل وخاصةً الغذائية منها وارتفاع تكلفة مستلزمات الإنتاج الزراعية إضافة إلى مجموعة من العوامل الأخرى تناولها البحث. |
| Keywords: | التضخم، التنمية الاقتصادية، النمو الاقتصادي، الأرقام القياسية. Inflation, Economic Development, Economic Growth, index Numbers. |
| JEL: | E5 E52 Q11 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98572&r=all |
| By: | Nir Jaimovich; Itay Saporta-Eksten; Henry Siu; Yaniv Yedid-Levi |
| Abstract: | The U.S. economy has experienced a significant drop in the fraction of the population employed in middle wage, “routine task-intensive” occupations. Applying machine learning techniques, we identify characteristics of those who used to be employed in such occupations and show they are now less likely to work in routine occupations. Instead, they are either non-participants in the labor force or working at occupations that tend to occupy the bottom of the wage distribution. We then develop a quantitative, heterogeneous agent, general equilibrium model of labor force participation, occupational choice, and capital investment. This allows us to quantify the role of advancement in automation technology in accounting for these labor market changes. We then use this framework as a laboratory to evaluate various public policies aimed at addressing the disappearance of routine employment and its consequent impacts on inequality. |
| Keywords: | Polarization, automation, routine employment, labor force participation, universal basic income, unemployment insurance, retraining |
| JEL: | E00 E23 E25 E60 J01 J2 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:340&r=all |
| By: | Adam Copeland (Research and Statistics Group; National Bureau of Economic Research; Federal Reserve Bank of New York; Federal Reserve Bank; University of Minnesota); Louis J. Maccini; George Hall |
| Abstract: | The Federal Reserve has kept interest rates at historic lows for the last six years, but eventually rates will return to their long-term averages. That means both policymakers and the public will once again be asking one of the classic questions in monetary economics: What are the impacts of rising interest rates on the real economy? Our recent New York Fed staff report ?Interest Rates and the Market for New Light Vehicles,? considers this question for the U.S. market for new cars and light trucks. We find strong evidence that rising rates will dampen activity: Our model predicts that in the short-run a 100-basis-point increase in interest rates will cause light vehicle production to fall at an annual rate of 12 percent and sales to fall at an annual rate of 3.25 percent. |
| Keywords: | inventories; automobiles; interest rates |
| JEL: | E2 E5 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87082&r=all |
| By: | Christian Breuer (Chemnitz University of Technology, Department of Economics, Junior Professorship for European Economics and ZBW - Leibniz Information Centre for Economics); Chang Woon Nam (ifo Institute Munich, CESifo and University of Applied Management Ismaning) |
| Abstract: | We apply a "new" conventional (CAPB-based) measure of fiscal policy, which is less prone to endogeneity issues, and find that a 1-percent of GDP fiscal consolidation leads to the improvement of the current account-to-GDP ratio by approximately 0.8 percent of GDP, while previous research based on conventional measures found a relationship of only 0.1-0.3 percentage points. We suggest that revious results based on conventional measures are biased towards underestimating the twin-deficit linkage because of endogeneity issues and the failure to adjust the CAPB for cyclical effects. After adjustment, the twin-deficit ffect is particularly pronounced in the case of expenditure cuts and in Eurozone countries. These findings are in line with previous evidence based on narrative measures. |
| Keywords: | fiscal adjustment; current account; twin deficit; Eurozone Countries |
| JEL: | E62 E63 H50 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:tch:wpaper:cep035&r=all |
| By: | Wee Chian Koh (World Bank); M. Ayhan Kose (World Bank, Brookings Institution, CAMA); Peter S. Nagle (World Bank); Franziska L. Ohnsorge (World Bank, CAMA); Naotaka Sugawara (World Bank) |
| Abstract: | Emerging market and developing economies have experienced recurrent episodes of rapid debt accumulation over the past fifty years. This paper examines the consequences of debt accumulation using a three-pronged approach: an event study of debt accumulation episodes in 100 emerging market and developing economies since 1970; a series of econometric models examining the linkages between debt and the probability of financial crises; and a set of case studies of rapid debt buildup that ended in crises. The paper reports four main results. First, episodes of debt accumulation are common, with more than 500 episodes occurring since 1970. Second, around half of these episodes were associated with financial crises which typically had worse economic outcomes than those without crises— after 8 years output per capita was typically 6-10 percent lower and investment 15-22 percent weaker in crisis episodes. Third, a rapid buildup of debt, whether public or private, increased the likelihood of a financial crisis, as did a larger share of short-term external debt, higher debt service, and lower reserves cover. Fourth, countries that experienced financial crises frequently employed combinations of unsustainable fiscal, monetary and financial sector policies, and often suffered from structural and institutional weaknesses. |
| Keywords: | Financial crises, currency crises, debt crises, banking crises, public debt, private debt, external debt. |
| JEL: | E32 E61 G01 H12 H61 H63 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:2001&r=all |
| By: | Christoffer Koch; Gary Richardson; Patrick Van Horn |
| Abstract: | Countercyclical capital buffers (CCyBs) are an old idea recently resurrected. CCyBs compel banks at the core of financial systems to accumulate capital during expansions so that they are better able to sustain operations during downturns. To gauge the potential impact of modern CCyBs, we compare the behavior of large and highly-connected commercial banks during booms before the Great Depression and Great Recession. Before the former, core banks did not expect bailouts and were subject to regulations that incentivized capital accumulation during booms. Before the later, core banks expected bailouts and kept capital levels close to regulatory minima. Our analysis indicates that the pre-Depression regulatory regime induced money-center banks to build capital buffers between 3% and 5% of total assets during economic expansions, which is up to double the maximum modern CCyB. These buffers enabled those banks to continue operations without government assistance during severe crises. This historical analogy indicates that modern countercyclical buffers may achieve their immediate goals of protecting core banks during crises but raises questions about whether they will contribute to overall financial stability. |
| JEL: | E02 E42 G01 G2 G21 G3 N1 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26710&r=all |
| By: | Marco Del Negro; Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research); Stefano Eusepi; Marc Giannoni; Bianca De Paoli; Argia M. Sbordone |
| Abstract: | The Federal Reserve Bank of New York (FRBNY) has built a DSGE model as part of its efforts to forecast the U.S. economy. On Liberty Street Economics, we are publishing a weeklong series to provide some background on the model and its use for policy analysis and forecasting, as well as its forecasting performance. In this post, we briefly discuss what DSGE models are, explain their usefulness as a forecasting tool, and preview the forthcoming pieces in this series. |
| Keywords: | DSGE Models; Forecasting |
| JEL: | E2 E5 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86975&r=all |
| By: | Joseph E. Gagnon (Peterson Institute for International Economics); Olivier Jeanne (Peterson Institute for International Economics) |
| Abstract: | This paper shows that the scope for bond yields to fall below zero is strictly limited by market expectations about how far below zero central banks are willing to set their short-term policy rates. If a central bank communicates a credible commitment to keeping its policy rate above a given level under all circumstances, then bond yields must be higher than that level. This result holds true even in a model in which central banks are able to depress the term premium in bond yields below zero via large-scale purchases of long-term bonds, also known as quantitative easing (QE). QE becomes less effective as bond yields approach their lower bound. |
| Keywords: | Negative interest rate, quantitative easing |
| JEL: | E43 E58 G12 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp20-2&r=all |
| By: | M. Ayhan Kose (Prospects Group, World Bank; Brookings Institution; CEPR; CAMA); Naotaka Sugawara (Prospects Group, World Bank); Marco E. Terrones (Department of Economics and Finance, Universidad del Pacifico) |
| Abstract: | The world economy has experienced four global recessions over the past seven decades: in 1975, 1982, 1991, and 2009. During each of these episodes, annual real per capita global GDP contracted, and this contraction was accompanied by weakening of other key indicators of global economic activity. The global recessions were highly synchronized internationally, with severe economic and financial disruptions in many countries around the world. The 2009 global recession, set off by the global financial crisis, was by far the deepest and most synchronized of the four recessions. As the epicenter of the crisis, advanced economies felt the brunt of the recession. The subsequent expansion has been the weakest in the post-war period in advanced economies as many of them have struggled to overcome the legacies of the crisis. In contrast, most emerging market and developing economies weathered the 2009 global recession relatively well and delivered a stronger recovery than after previous global recessions. |
| Keywords: | Global economy; global expansion; global recession; global recovery; synchronization of cycles; financial markets; real activity. |
| JEL: | E32 F44 N10 O47 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:2002&r=all |
| By: | Abhi Gupta; Pearl Li; Marco Del Negro; Michael Cai; Marc Giannoni |
| Abstract: | The years following the Great Recession were challenging for forecasters for a variety of reasons, including an unprecedented policy environment. This post, based on our recently released working paper, documents the real-time forecasting performance of the New York Fed dynamic stochastic general equilibrium (DSGE) model in the wake of the Great Recession. We show that the model?s predictive accuracy was on par with that of private forecasters and proved to be quite a bit better, at least in terms of GDP growth, than that of the median forecasts from the Federal Open Market Committee?s (FOMC) Summary of Economic Projections (SEP). |
| Keywords: | Great Recession; Real-time Forecasts; DSGE Models; Financial Frictions |
| JEL: | C1 C3 C5 E4 E4 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87256&r=all |
| By: | Jaimovich, Nir (University of Zurich); Saporta-Eksten, Itay (Tel Aviv University); Siu, Henry E. (University of British Columbia); Yedid-Levi, Yaniv (Interdisciplinary Center (IDC) Herzliya) |
| Abstract: | The U.S. economy has experienced a significant drop in the fraction of the population employed in middle wage, "routine task-intensive" occupations. Applying machine learning techniques, we identify characteristics of those who used to be employed in such occupations and show they are now less likely to work in routine occupations. Instead, they are either non-participants in the labor force or working at occupations that tend to occupy the bottom of the wage distribution. We then develop a quantitative, heterogeneous agent, general equilibrium model of labor force participation, occupational choice, and capital investment. This allows us to quantify the role of advancement in automation technology in accounting for these labor market changes. We then use this framework as a laboratory to evaluate various public policies aimed at addressing the disappearance of routine employment and its consequent impacts on inequality. |
| Keywords: | polarization, automation, routine employment, labor force participation, universal basic income, unemployment insurance, retraining |
| JEL: | E22 E24 J23 J24 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12913&r=all |
| By: | Radoslaw Stefanski (University of St Andrews); Alex Trew (University of Glasgow) |
| Abstract: | The risk-free rate of return has been declining in real terms over millennia. We isolate the role of time preference – or patience – in explaining this decline. Three facts support our approach: experimental evidence finds significant heterogeneity in patience; individual preference characteristics are highly intergenerationally persistent; and, longitudinal data shows that patience is positively related with fertility decisions. Together these suggest we should expect average societal levels of patience to increase over time as the composition of the population shifts towards ever more patient dynasties. We test this mechanism in a Barro-Becker model of fertility with heterogeneous dynasties. We use the present day distribution of patience to calibrate the model. We are able match – both quantitatively and qualitatively – the decline in the risk-free return over the last eight centuries. |
| Keywords: | Heterogeneous agents; interest rates; patience; selection |
| JEL: | E21 E43 J11 N30 O11 |
| Date: | 2020–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:2002&r=all |
| By: | Radoslaw Stefanski (University of St Andrews); Alex Trew (University of Glasgow) |
| Abstract: | The risk-free rate of return has been declining in real terms over millennia. We isolate the role of time preference – or patience – in explaining this decline. Three facts support our approach: experimental evidence finds significant heterogeneity in patience; individual preference characteristics are highly intergenerationally persistent; and, longitudinal data shows that patience is positively related with fertility decisions. Together these suggest we should expect average societal levels of patience to increase over time as the composition of the population shifts towards ever more patient dynasties. We test this mechanism in a Barro-Becker model of fertility with heterogeneous dynasties. We use the present day distribution of patience to calibrate the model. We are able match – both quantitatively and qualitatively – the decline in the risk-free return over the last eight centuries. |
| Keywords: | Heterogeneous agents; interest rates; patience; selection |
| JEL: | E21 E43 J11 N30 O11 |
| Date: | 2020–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:2001&r=all |
| By: | Constantin Bürgi (St. Mary’s College of Maryland); Tara M. Sinclair (The George Washington University) |
| Abstract: | This paper shows in a simple model that the part of uncertainty measured by forecaster disagreement rises in advance of and during recessions. Subsequently, it is tested using the Survey of Professional Forecasters in a dynamic probit model. It is shown that increases in disagreement help predict recessions in an out of sample context for the US. |
| Keywords: | Expectations, SPF, Uncertainty, Dynamic Probit |
| JEL: | C22 C52 C53 E17 E37 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2020-001&r=all |
| By: | Böhm, Hannes; Schaumburg, Julia; Tonzer, Lena |
| Abstract: | We analyse whether financial integration between countries leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996-2017, we find that the spillover effects are positive on average but much larger during periods of financial stress, pointing towards stronger business cycle synchronisation. Dismantling GDP growth into value added growth of ten major industries, we observe that some sectors are strongly affected by positive spillovers (wholesale & retail trade, industrial production), others only to a weaker degree (agriculture, construction, finance), while more nationally influenced industries show no evidence for significant spillover effects (public administration, arts & entertainment, real estate). |
| Keywords: | financial integration,business cycle synchronisation,industry dynamics,spatial model |
| JEL: | E32 F44 G10 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:22020&r=all |
| By: | A. BOURGEOIS (Insee); A. BRIAND (Insee) |
| Abstract: | Ce document présente le modèle Avionic (Analyse variantielle input/output nationale importée et en contenus) développé au département des comptes nationaux de l’Insee. Le modèle s’appuie sur les tableaux entrées-sorties symétriques français, afin de proposer trois types de modélisations : l’estimation des montants d’importations ou de valeur ajoutée générés par une composante de la demande finale (modélisation en contenus de la demande finale) ; l’effet sur la production et les importations d’un choc exogène sur la demande finale française (modélisation d’une variation de la demande finale) ; et enfin l’effet sur le prix de production d’un choc exogène sur le prix des intrants (modélisation de variation de prix). Le modèle est applicable à un niveau détaillé de la nomenclature (niveau G, 138 produits). Sa modélisation en prix est assez novatrice car elle intègre des coefficients de transmission des prix qui traduisent le fait que la propagation d’une hausse de prix dépend dans chaque branche, du comportement des entreprises. Le modèle permet aussi d’envisager des extensions en mobilisant des données variées (données d’emploi, de matières…). Enfin le modèle s’adapte aux bases de données internationales développées récemment à l’OCDE (TiVA) ou à Eurostat (Figaro) qui s’appuient sur des TES inter-pays. |
| Keywords: | national accounts, input/output model, contents, variations, value added, imports, intercountry TES, TiVA, Figaro |
| JEL: | D31 E21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nse:doctra:g2019-02&r=all |
| By: | Anderson, Gareth (Bank of England); Cesa-Bianchi, Ambrogio (Bank of England, CFM and CEPR) |
| Abstract: | We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms’ expected default — the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy. |
| Keywords: | Monetary policy; heterogeneity; credit spreads; excess bond premium; credit channel; financial accelerator; event-study; identification |
| JEL: | E44 F44 G15 |
| Date: | 2020–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0854&r=all |
| By: | Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Chi Keung Marco Lau (Huddersfield Business School, University of Huddersfield, Huddersfield, HD1 3DH, United Kingdom); Jacobus A Nel (University of Pretoria, 0002, South Africa); Xin Sheng (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, United Kingdom) |
| Abstract: | We use the recently created monthly Interest Rate Uncertainty measure, to investigate monetary policy uncertainty across the US, Germany, France, Italy, Spain, UK, Japan, Canada, and Sweden in both the time and frequency domains. We find that the largest spillover indices are from innovations in the country itself, however, there are some instances where spillover indices between countries are large. These relationships change over time and we observe large variances in pairwise spillovers during the global financial crisis. We find that most of the volatility is confined to the crisis period. |
| Keywords: | Connectedness, Frequency domain spillover, Monetary policy uncertainty, Pairwise spillovers, Uncertainty spillover |
| JEL: | C32 D80 E52 F42 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202005&r=all |
| By: | Jesœs Fern‡ndez-Villaverde (University of Pennsylvania - Department of Economics); Daniel R. Sanches (Federal Reserve Banks - Federal Reserve Bank of Philadelphia); Linda Schilling (Ecole Polytechnique- CREST); Harald Uhlig (University of Chicago - Department of Economics) |
| Abstract: | The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, we show that the rigidity of the central bankÕs contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endangered maturity transformation. |
| Keywords: | central bank digital currency, central banking, intermediation, maturity transformation, bank runs, lender of last resort |
| JEL: | E58 G21 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-04&r=all |
| By: | Etienne Lalé (Université du Québec à Montréal, CIRANO and IZA); Linas Tarasonis (Vilnius University and Bank of Lithuania) |
| Abstract: | We use survey micro-data for 31 European countries, and estimate the life-cycle profiles of worker transition probabilities across employment, unemployment and nonparticipation. The estimated transition probabilities are then used to explain aggregate difference in employment rates between Lithuania and Europe. We show that the separations from employment is a key in understanding differences in labor market outcomes of both genders, and that demographics play a large negative role for Lithuanian employment rates. The results have important implications for economic policies that are discussed at the end of the analysis. |
| Keywords: | Employment, Unemployment, Labor Force Participation, Life cycle, Worker Flows, Labor Market Institutions |
| JEL: | E02 E24 J21 J64 J82 |
| Date: | 2020–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:lie:opaper:32&r=all |
| By: | M. Ayhan Kose (Prospects Group, World Bank; Brookings Institution; CEPR; CAMA); Naotaka Sugawara (Prospects Group, World Bank); Marco E. Terrones (Department of Economics and Finance, Universidad del Pacifico) |
| Abstract: | The world economy has experienced four global recessions over the past seven decades: in 1975, 1982, 1991, and 2009. During each of these episodes, annual real per capita global GDP contracted, and this contraction was accompanied by weakening of other key indicators of global economic activity. The global recessions were highly synchronized internationally, with severe economic and financial disruptions in many countries around the world. The 2009 global recession, set off by the global financial crisis, was by far the deepest and most synchronized of the four recessions. As the epicenter of the crisis, advanced economies felt the brunt of the recession. The subsequent expansion has been the weakest in the post-war period in advanced economies as many of them have struggled to overcome the legacies of the crisis. In contrast, most emerging market and developing economies weathered the 2009 global recession relatively well and delivered a stronger recovery than after previous global recessions. |
| JEL: | E32 F44 N10 O47 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:162&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | We show the existence of involuntary unemployment without assuming wage rigidity. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations model under monopolistic competition with increasing or constant returns to scale technology and homothetic preferences of consumers. Indivisibility of labor supply may be a ground for the existence of involuntary unemployment. However, we show that under some conditions there exists involuntary unemployment even when labor supply is divisible. |
| Keywords: | involuntary unemployment, monopolistic competition, divisible labor supply. |
| JEL: | E12 E24 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98406&r=all |
| By: | Adelowokan, Oluwaseyi; Adesoye, Adesola; Akpa, Emeka; Maku, Olukayode |
| Abstract: | The question of whether remittances and foreign aid at the macro level impact private consumption in SSA has been explored in this study. Twenty-nine (29) SSA countries were sampled for the study from 2002 to 2017. The System Generalized Method of Moment (SGMM) estimator was applied in the study to account for the dynamics in the model. Empirical evidence showed that foreign aid and remittances exerted positive but insignificant impact on private consumption. |
| Keywords: | Remittances, Foreign Aid, Private Consumption, System GMM |
| JEL: | E2 E21 F24 F35 |
| Date: | 2020–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98362&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | We show the existence of involuntary unemployment without assuming wage rigidity. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations model under perfect competition with decreasing or constant returns to scale technology. Indivisibility of labor supply may be a ground for the existence of involuntary unemployment. However, we show that under some conditions there exists involuntary unemployment even when labor supply is divisible. |
| Keywords: | involuntary unemployment, perfect competition, divisible labor supply |
| JEL: | E12 E24 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98405&r=all |
| By: | Mohanty, Ranjan Kumar (National Institute of Public Finance and Policy); Bhanumurthy, N.R. (National Institute of Public Finance and Policy) |
| Abstract: | The role of fiscal policy in affecting interest rates has been examined extensively in emerging market economies such as India. While the findings of the existing studies diverge, some suggesting crowding out while a few suggesting otherwise, the relationship is ever-evolving depending upon the structure of the economy and the strength of the financial markets. Hence, it is necessary to continuously validate some of the macro relations such as the relationship between fiscal policy and interest rates. Towards this, the present paper tries to revisit the empirical relationship by using the Structural Vector Autoregression and Toda-Yamamoto causality approach. The study tries to empirically examine and understand the transmission channel through which fiscal policy could affect short-term, medium-term and long-term interest rate in India. Our results suggest that the fiscal deficit has direct and indirect effects on the interest rates. While there appear to have a marginal impact in the short-term, however, through the indirect channel, i.e., through inflation, fiscal policy has a larger positive impact on interest rates in the long run. It also finds that shocks to foreign interest rate and inflation tend to increase interest rates in India. In terms of the policy, in the long run, there is a need for containing structural part of fiscal deficit within the Fiscal Responsibility and Budget Management (FRBM) framework. |
| Keywords: | Fiscal Deficit ; Interest Rate ; Structural Vector Autoregression (SVAR) ; India |
| JEL: | H62 E40 C32 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:20/296&r=all |
| By: | Gérard Mondello (Université Côte d'Azur, France; GREDEG CNRS); Elena Sinelnikova (Center for the Study of Central Banks, Institute for Applied Economic Studies, RANEPA); Pavel Trunin (Macroeconomics and Finance Division, Division Head Gaidar Institute for Economic Policy, Moscow) |
| Abstract: | After the emergence and widespread of cryptocurrencies central banks are studying how their own digital currencies may help and favor the monetary policy implementation. There are many challenges to this process both in legal and economic (financial, monetary) areas. The paper studies the potential movement from a two-tier banking system (central bank and banks) to a one-tier banking system in case of CBDCs emission, including the issues of competition and commercial banking profitability. More specific question is the change of the transmission of monetary policy with CBDC emission. |
| Keywords: | CBDC, digital currency, cryptocurrency, monetary policy |
| JEL: | B53 E42 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2020-02&r=all |
| By: | Dominika Ehrenbergerova; Simona Malovana |
| Abstract: | This paper outlines a flexible and consistent model-based framework suitable for forecasting selected macro-financial variables of the Czech economy and conducting policy analysis to support the decision-making process. We enhance an existing semi-structural model of the Czech economy in order to replicate some of the characteristics of the financial cycle, i.e. co-movement between credit and house prices, higher persistence of respective macro-financial variables and a pronounced impact of shocks on the business cycle. |
| Keywords: | Financial cycle, forecasting, macro-financial variables, semi-structural model |
| JEL: | C32 E47 E58 G21 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2019/6&r=all |
| By: | Tanaka, Yasuhito |
| Abstract: | We show the existence of involuntary unemployment without assuming wage rigidity. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations model under perfect competition with decreasing or constant returns to scale technology. We show that there exists involuntary unemployment even when labor supply is divisible. We consider homothetic utility functions of consumers including log-linear function. |
| Keywords: | involuntary unemployment, perfect competition, divisible labor supply |
| JEL: | E12 E24 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98407&r=all |
| By: | Alexis Derviz |
| Abstract: | We study a stochastic dynamic model with risky real investment and a positive long-term growth rate. With growing wealth, the economy gets clogged with increasing complexity costs (the classical "Leviathanian" inefficiencies in the form of implicit taxation and abuse of power, red tape, outlays on conflict resolution between special interest groups, etc.). To escape the Leviathan, agents can, in addition to the usual investment in physical capital, access the universe of crypto assets outside the reach of the mainstream state-supported economy. Crypto assets enjoy no legal protection, so converting them back into the real life consumption good is risky (due to digital criminality, hacking, regulatory crackdowns, etc.). A global ergodic solution is found for this model, demonstrating that crypto and conventional assets are capable of long-term coexistence, although the use of crypto assets, far from being universal, tends to be the choice of the wealthier part of the population. |
| Keywords: | Crypto assets, DSGE, ergodic distribution, full distribution solution, investment |
| JEL: | C61 C63 D58 E02 E26 G23 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2019/7&r=all |
| By: | Ayşegül Sahin; Benjamin Pugsley (University of Notre Dame; Federal Reserve Bank of New York; University of Chicago); Fatih Karahan; Samuel Kapon (Research and Statistics Group); Robert C. Dent |
| Abstract: | This is the third in a series of blog posts on the topic of measuring labor market slack. In this post, we assess the relationships between short- and long-term unemployment and wages by comparing the differences in states? experiences over the business cycle. While all states felt the impact of the Great Recession, some fared better than others. Consequently, it is possible to use differences in the composition and shifts of short- and long-term unemployment to determine whether short-term unemployment exerts a greater influence on wage determination. The results suggest that there is little difference in how long-term and short-term unemployment affect wages, and as a consequence, the long-term unemployed shouldn?t be dismissed when evaluating labor market slack. |
| Keywords: | Wage inflation; Slack; Labor |
| JEL: | E2 J00 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86994&r=all |
| By: | Congressional Budget Office |
| Abstract: | To show how the federal budget might be affected if economic conditions differed from those in its current economic forecast, CBO has developed “rules of thumb†that provide a sense of how changes in four key economic variables would affect revenues, outlays, and deficits. |
| JEL: | E23 E31 E47 H60 J21 |
| Date: | 2020–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:report:56096&r=all |
| By: | George Monokroussos (Amazon - Seattle); Yongchen Zhao (Department of Economics, Towson University) |
| Abstract: | We construct a "Google Recession Index" (GRI) using Google Trends data on internet search popularity, which tracks the public’s attention to recession-related keywords in real time. We then compare nowcasts made with and without this index using both a standard dynamic factor model and a Bayesian approach with alternative prior setups. Our results indicate that using the Bayesian model with GRI-based "popularity priors" we could identify the 2008Q3 turning point in real time, without sacrificing the accuracy of the nowcasts over the rest of the sample periods. |
| Keywords: | Gibbs Sampling, Factor Models, Kalman Filter, Real-Time Data, Google Trends Monetary Policy, Great Recession. |
| JEL: | C11 C22 C53 E37 E52 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:tow:wpaper:2020-01&r=all |
| By: | Oguzhan Cepni (Central Bank of the Republic of Turkey, Anafartalar Mah. Istiklal Cad. No:10 06050 Ankara, Turkey); David Gabauer (Business and Management, Webster Vienna Private University, Praterstraße 23, 1020 Vienna, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Khuliso Ramabulana (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa) |
| Abstract: | In the wake of an unprecedented increase in the trade policy-related uncertainty of the US since 2017, we analyze the ability of a newspaper-based trade policy uncertainty index of the US in predicting the growth rate of emerging market economies using a novel multivariate time-varying causality framework. We provide overwhelming evidence of the role of trade uncertainty in negatively impacting the growth of emerging markets in a statistically significant manner, with the effect being on the rise since the Great Recession. Our results are robust to the usage of an alternative econometric methodology, metric of trade uncertainty, and also over an out-of-sample forecasting exercise. Policy conclusions of our results are discussed. |
| Keywords: | Trade Policy Uncertainty of the United States, Time-Varying Multivariate Causality, Emerging Market Economies |
| JEL: | C32 E32 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202002&r=all |
| By: | Gert Bijnens; Jozef Konings |
| Abstract: | Using 30 years of data from all for-profit firms incorporated in Belgium, we show that business dynamism and entrepreneurship have been declining over recent decades. This decline set in around the year 2000 following a decade of declining start-up rates. We also observe a decreasing share of young firms that become high-growth firms and more importantly a declining propensity for small (not necessarily young) firms to experience fast growth. Interestingly, a similar decline in business dynamism occurred in the U.S., where firms face a far less rigid institutional environment than in Belgium. These remarkable similarities suggest that global trends rather than country specific changes are at the basis of this evolution. We show evidence that points to the role of ICT intensity and in explaining the secular decline in business dynamism. |
| Keywords: | business dynamism, firm dynamics, firm growth, entry, reallocation, high-growth firms, high-impact firms |
| JEL: | D21 E24 J6 L25 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:liv:livedp:20181&r=all |
| By: | Benedict Guttman-Kenney; Andreas Fuster (Schweizerische Nationalbank; Federal Reserve Bank of New York; National Bureau of Economic Research); Eilidh Geddes (Research and Statistics Group); Andrew F. Haughwout |
| Abstract: | Housing is by far the most important asset for most households, and, not coincidentally, housing debt dwarfs other household liabilities. The relationship between housing debt and housing values figures significantly in financial and macroeconomic stability, as events during the housing bust of 2006-12 clearly demonstrated. This week, Liberty Street Economics presents five posts touching on various aspects of housing, from the changing relationship between mortgage debt and housing equity to the future of homeownership. In today?s post, we provide estimates of housing equity and explore how vulnerable households are to declines in house prices, using methods introduced in our paper ?Tracking and Stress Testing U.S. Household Leverage.? |
| Keywords: | Mortgages; Stress Testing; Leverage |
| JEL: | D1 G2 E2 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87173&r=all |
| By: | Mary Amiti (Board of Governors of the Federal Reserve System (U.S.); Schweizerische Nationalbank; Federal Reserve Bank of New York; Universität St. Gallen; Centre for Economic Policy Research (CEPR); Internationaler Währungsfonds; Research and Statistics Group; Chinese University of Hong Kong; University of Melbourne; Universitätt Bern; National Bureau of Economic Research); Mark Choi (Emerging Markets and International Affairs Group) |
| Abstract: | U.S. import prices of consumer goods shipped from China have been moderating in recent quarters, following an upward surge of 11 percent between mid-2010 and the end of 2011. These price changes have far-reaching consequences for U.S. businesses and consumers, because China is the largest single supplier of imports to the United States, accounting for more than 20 percent of nonoil imports and more than 30 percent of consumer goods. In this post, we track U.S. import price movements in different product categories from China by constructing import price indexes that use highly disaggregated data. We also explore various underlying factors that might explain these important trends. |
| Keywords: | China; inflation; appreciation; price index |
| JEL: | E2 F00 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86852&r=all |
| By: | Jose Sanchez-Fung (University of Nottingham, Ningbo) |
| Abstract: | The paper examines the life-cycle artistic productivity of three leading Latin American photographers of the twentieth century: Manuel à lvarez Bravo (Mexico), Sergio Larraín (Chile), and Sebastião Salgado (Brazil). The analysis constructs narratives using art books and other sources of expert commentary, following the approach in earlier contributions to the economic literature on the subject (David W. Galenson, 2007, Old masters and young geniuses: The two life cycles of artistic creativity, Princeton University Press). The research identifies Manuel à lvarez Bravo as a ‘conceptual innovator’, a feature that caught the French surrealists’ attention early in his career. In contrast, Sergio Larraín and Sebastião Salgado accomplish their contributions to photography like ‘experimental innovators’. The investigation assembles and evaluates metrics from museum holdings and selected retrospectives to gauge the robustness of the conclusions emerging from the benchmark narratives. |
| Keywords: | life-cycle artistic productivity; conceptual and experimental innovators; age-output profiles; photographers; Latin America |
| JEL: | Z1 Z11 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cue:wpaper:awp-05-2019&r=all |
| By: | Pinshi, Christian |
| Abstract: | The cointégration methodology has bridged the growing gap between economists and econometricians in understanding dynamics, equilibrium and bias on the reliability of macroeconomic and financial analysis, which is subject to non-stationary behavior. This paper proposes a comprehensive literature review on the relevance of the error correction model. Econometricians and economists have shown that error-correction model is a powerful machine that provides the economic system and macroeconomic policy with a refinement in the econometric results |
| Keywords: | Cointegration, Error correction model, Macroeconomics |
| JEL: | C32 E0 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98202&r=all |
| By: | Michael P. Clements (ICMA Centre, Henley Business School, University of Reading) |
| Abstract: | We analyze individual professional forecasters' beliefs concerning the persistence of GDP shocks. Despite substantial apparent heterogeneity in perceptions, with around one half of the sample of professional forecasters believing shocks do not have permanent effects, we show that these apparent differences may be largely due to short-samples and survey respondents being active at different times. When we control for these effects, using a bootstrap, we formally do not reject the null that individuals' long-horizon expectations are interchangeable at a given point in time. When we apply the same bootstrap approach to their medium-term expectations, we do reject the null. We explore this difference between long and medium-horizon forecasts by decomposing revisions in forecasts into permanent and transitory components. |
| Keywords: | long-horizon forecasts, output persistence, heterogeneous beliefs, bootstrap test |
| JEL: | C53 C55 C83 E32 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:icmadp:icma-dp2020-02&r=all |
| By: | King Yoong Lim; Shuonan Zhang |
| Abstract: | We present a dynamic model in which a resource-rich State allocates its resource revenue between a resource stabilization fund and investments in state-owned enterprises (SOEs). Despite being less productive efficient, SOEs' operation benefits from scale economies tied to the resource sector: its profitability is procyclical to commodity shocks. We identify analytically a threshold share of fiscal allocation to SOEs above which SOEs make non-zero profits. Based on a Bayesian-estimated model, we solve for an optimal resource revenue allocation between SOE investments and Resource Fund, and find the optimal share of SOE investment to be in the range of 9.0-12.9 percent. |
| Keywords: | Commodity Shocks, Fiscal Management, Open-economy DSGE models, Resource Wealth, State-owned Enterprises. |
| JEL: | E32 F41 H54 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbs:wpaper:2020/02&r=all |
| By: | Ryan Bush (Markets Group); Marco Huwiler; Eric LeSueur (Markets Group); Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York) |
| Abstract: | It is essential for policymakers and financial market participants to understand market expectations for the path of future policy rates because these expectations can have important implications for financial markets and the broader economy. In this post?which is meant to complement prior Liberty Street Economics posts, including Crump et al. (2014a, 2014b ) and Brodsky et al. (2016a, 2016b)?we offer some insights into estimating and interpreting market expectations for increases in the federal funds target range at upcoming meetings of the Federal Open Market Committee (FOMC). |
| Keywords: | market expectations; Policy rate; Desk surveys |
| JEL: | D8 E5 G1 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87230&r=all |
| By: | Lubik, Thomas A.; Matthes, Christian; Mertens, Elmar |
| Abstract: | We study equilibrium determination in an environment where two kinds of agents have different information sets: The fully informed agents know the structure of the model and observe histories of all exogenous and endogenous variables. The less informed agents observe only a strict subset of the full information set. All types of agents form expectations rationally, but agents with limited information need to solve a dynamic signal extraction problem to gather information about the variables they do not observe. In this environment, we identify a new channel that leads to equilibrium indeterminacy: Optimal information processing of the less informed agent introduces stable dynamics into the equation system that lead to self-fulling expectations. For parameter values that imply a unique equilibrium under full information, the limited information rational expectations equilibrium is indeterminate. We illustrate our framework with a monetary policy problem where an imperfectly informed central bank follows an interest rate rule. |
| Keywords: | limited information,rational expectations,signal extraction,belief shocks |
| JEL: | C11 C32 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:012020&r=all |
| By: | Claude Bismut (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - UM - Université de Montpellier - INRA - Institut National de la Recherche Agronomique); Ismael Ramajo (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - UM - Université de Montpellier - INRA - Institut National de la Recherche Agronomique) |
| Abstract: | This paper revisits the economic theory of the interest rates and presents some estimation results obtained on annual macroeconomic data for a panel of OECD countries. The conventional macroeconomic theory based on the saving investment balance falls short of producing a consistent picture for the medium-term trends of the interest rates and related variables. The main reason lies in the fact that the usual propensity to save specification does not account for the observed saving behavior, and it turns out that an intertemporal approach works better. Some other extensions of the basic model are also discussed to account for the external influence and the risk premia on public bonds. Based on this theoretical discussion, an econometric relation is estimated on annual data for a panel of 19 OECD countries. The tests confirm the influence of the factors suggested by the theory and, in particular, the link between the fall in the interest rate and the economic slowdown. The role of the inflation expectations, of the real exchange rate and of the risk premia on public debt is also discussed and clarified. |
| Abstract: | Cet article revient sur la théorie économique des taux d'intérêt et présente quelques résultats d'estimations économétriques sur données annuelles pour un panel de pays de l'OCDE. La théorie macroéconomique conventionnelle fondée sur l'équilibre épargne-investissement ne rend pas compte de manière cohérente des évolutions à moyen terme des taux d'intérêt et des variables macroéconomiques associées. La principale raison réside dans le fait que la notion keynésienne de propension à épargner ne permet pas de comprendre les comportements d'épargne observés. Pour cela, une approche intertemporelle apparaît mieux appropriée. On discute également d'autres extensions du modèle de base pour tenir compte des influences extérieures et des primes de risque sur les obligations publiques. Sur la base de cette discussion théorique, on estime une relation économétrique sur des données annuelles pour un panel de 19 pays de l'OCDE. Les tests confirment l'influence des facteurs suggérés par la théorie et, en particulier, le lien entre la baisse du taux d'intérêt et le ralentissement économique. Le rôle de l'inflation anticipée, du taux de change réel et des primes de risque est aussi discuté et clarifié |
| Keywords: | Interest rate,real interest rate,risk premia macroeconomic policy,potential growth,stagnation,panel data,Taux d’intérêt,taux d’intérêt réel,primes de risque,politique macroéconomique,croissance potentielle,économétrie de panels. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02355139&r=all |
| By: | Constantin Bürgi (St. Mary’s College of Maryland) |
| Abstract: | There are substantial di erences between general in ation expec- tations as reported in consumer surveys and CPI in ation. This paper proposes that some of this di erence can be explained by the fact that households are not weighted the same in the two measures. In the CPI, households are weighted according to their expenditure, while they have equal weights in the consumer survey. To estimate the im- pact of the weighting di erence, it is assumed that households predict the in ation of their own consumption basket. New empirical evidence is provided that supports this assumption as consumers do not predict CPI in ation and they predict a basket of goods. The estimated dif- ference in mean expectations explained by the di erence in weights is 0.7 percentage points or 20-25% of the di erence for the US. |
| Keywords: | CPI; CPI Expectations; Consumer In ation Expectations; Democratic CPI; Plutocratic CPI |
| JEL: | E31 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2020-002&r=all |
| By: | Adam Spiegel; Matthew Kessler (Markets Group); Julia Gouny (Markets Group); Marco Cipriani (New York University; Federal Reserve Bank; Federal Reserve Bank of New York; George Washington University; National Bureau of Economic Research) |
| Abstract: | The Federal Reserve Bank of New York will begin publishing the overnight bank funding rate (OBFR) sometime in the first few months of 2016. The OBFR will be a broad measure of U.S. dollar funding costs for U.S.-based banks as it will be calculated using both fed funds and Eurodollar transactions, as reported in a new data collection?the FR 2420 Report of Selected Money Market Rates. In a recent post, ?The Eurodollar Market in the United States,? we described the Eurodollar activity of U.S.-based banks and compared recent fed funds and Eurodollar rates. Here, we look at the historical relationship between overnight fed funds and Eurodollars and compare the new OBFR rate to the fed funds rate. |
| Keywords: | Eurodollars; OBFR; Fed funds |
| JEL: | G1 E5 D1 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87079&r=all |
| By: | Fenoaltea, Stefano |
| Abstract: | This paper summarizes the evolution of Italy’s historical national accounts, and presents an updated reconstruction of the production side, the expenditure side, and the composition of investment from Unification to the Great War. On the production side, the major improvements stem from the recovery of evidence on harvest fluctuations, which increases short-term volatility, and the removal of gross errors in the estimates for the services, which sharply reduces pre-War GDP. The expenditure-side disaggregation reaffirms the Kuznets- cycle path of fixed investment; the cut in GDP yields a cut in consumption, but does not imply a lower standard of living. |
| Keywords: | Italy, Production, Measurement, Historical National Accounts |
| JEL: | C13 E01 N01 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98350&r=all |
| By: | Bill Dupor (Federal Reserve Bank of St Louis); Rong Li; M. Saif Mehkari; Yi-Chan Tsai |
| Abstract: | New vehicle sales in the U.S. fell nearly 40 percent during the past recession, causing significant job losses and unprecedented government interventions in the auto industry. This paper explores three potential explanations for this decline: increasing oil prices, falling home values, and falling household income expectations. First, we use the historical macroeconomic relationship between oil prices and vehicle sales to show that the oil price spike explains roughly 15 percent of the auto sales decline between 2007 and 2009. Second, we establish that declining home values explain only a small portion of the observed reduction in household new vehicle sales. Using a county-level panel from the episode, we find (1) a one-dollar fall in home values reduced household new vehicle spending by 0.5 to 0.7 cents and overall new vehicle spending by 0.9 to 1.2 cents and (2) falling home values explain between 16 and 19 percent of the overall new vehicle spending decline. Next, examining state-level data for 1997-2016, we find (3) the short-run responses of new vehicle consumption to home value changes are larger in the 2005-2011 period relative to other years, but at longer horizons (e.g. 5 years), the responses are similar across the two sub-periods and (4) the service flow from vehicles, as measured by miles traveled, responds very little to house price shocks. We also detail the sources of the differences between our findings (1) and (2) from existing research. Third, we establish that declining current and expected future income expectations potentially played an important role in the auto market's collapse. We build a permanent income model augmented to include infrequent repeated car buying. Our calibrated model matches the pre-recession distribution of auto vintages and the liquid-wealth-to-income ratio, and exhibits a large vehicle sales decline in response to a mild decline in expected permanent income due to a transitory slowdown in income growth. In response to the shock, households delay replacing existing vehicles, allowing them to smooth the effects of the income shock without significantly adjusting the service flow from their vehicles. Augmenting our model with a richer set of household expectations allows us to match 65 percent of the overall new vehicle spending decline (i.e. roughly the portion of the decline not explained by oil prices and falling home values). Combining our negative results regarding housing wealth and oil prices with our positive model-based findings, we interpret the auto market collapse as consistent with existing permanent income based approaches to durable goods purchases (e.g., Leahy and Zeira (2005)). |
| Keywords: | new auto sales; 2007-2009 recession |
| JEL: | E27 E32 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:87441&r=all |
| By: | Jan Priewe |
| Abstract: | The 60 percent debt cap and the 3 percent deficit cap, enshrined in the EU Treaties since 1992, are cornerstones of the complex fiscal policy framework of the Euro area. Both numbers came into the Maastricht Treaty more or less by coincidence. There is no sound economic justification for the caps, in particular for the 60 percent debt cap if combined with the 3 percent deficit limit. The taboo of not questioning them in debates about reforming the EU fiscal framework prevents innovative thinking. We analyse attempts to explain or justify both caps by the EU Commission and compare them with other propositions from the IMF and in academia. The rules entail a bias for contractionary policy, thus dampening growth and employment, especially since the Fiscal Compact (2011). This becomes best visible if the debt and deficit dynamics in the EMU are compared with the U.S. The paper pleads for a thorough reconsideration of the EU fiscal policy rulebook in face of a fundamental change in the relationship of interest and growth rates, a key determinant of public debt. The deficit rule should allow for a more effective counter-cyclicality and for more fiscal space for public investment. Furthermore, high-debt countries in EMU should have the option to carry their legacy debt over a longer period to avoid growth-dampening austerity. |
| Keywords: | Fiscal policy, public debt, Stability and Growth Pact, Fiscal Compact, austerity Schuldenbremse, Stabilitäts- und Wachstumspakt, Fiskalpakt, Defizitregeln, Austerität, Staatsverschuldung |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:imk:studie:66-2020&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa) |
| Abstract: | This study investigates the stability of demand for money in the proposed Southern African Monetary Union (SAMU). The study uses annual data for the period 1981 to 2015 from ten countries making-up the Southern African Development Community (SADC). A standard function of demand for money is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across countries in the stability of money. This divergence is articulated in terms of differences in cointegration, CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long-term determinants and error correction in event of a shock. Policy implications are discussed in the light of the convergence needed for the feasibility of the proposed SAMU. This study extends the debate in scholarly and policy circles on the feasibility of proposed African monetary unions. |
| Keywords: | Stable; demand for money; bounds test |
| JEL: | E41 C22 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:19/025&r=all |
| By: | International Monetary Fund |
| Abstract: | This note discusses how to design subnational fiscal rules, including how to select them and calibrate them. It expands on the guidance provided at the national level on rule selection and calibration in IMF (2018a) and IMF (2018b). Thinking on subnational fiscal rules is still evolving, including their effectiveness (for example, Heinemann, Moessinger, and Yeter 2018; Kotia and Lledó 2016; Foremny 2014), and this note only provides a first analysis based on international experiences and the technical assistance provided by the IMF. Main findings are summarized in Box 1. The note is divided into five sections. The first section defines fiscal rules. The second section discusses the rationale for subnational rules. The third section provides some guidance on how to select the appropriate rule(s) and whether they should differ across individual jurisdictions. The fourth section explores the issue of flexibility by looking at how rules should adjust to shocks. Finally, the last section focuses on the “calibration” of the rules. |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfhtn:20/01&r=all |
| By: | Emanuel Moench (Deutsche Bundesbank; Halle (Saale); Bank für Internationalen Zahlungsausgleich); Carlo Rosa; Jeremiah P. Boyle; Matthew Raskin; Lisa Stowe (Markets Group); Richard K. Crump |
| Abstract: | Market prices provide timely information on policy expectations. But as we emphasized in our previous post, they can deviate from investors? expectations of the most likely path because they embed risk premiums and represent probability-weighted averages over different possible paths. In contrast, surveys explicitly ask respondents for their views on the likely path of economic variables. In this post, we highlight two surveys conducted by the Federal Reserve Bank of New York that provide information about expectations that can complement market-based measures. |
| Keywords: | Federal funds rate; Survey of Market Participants; Policy expectations; Survey of Primary Dealers |
| JEL: | E5 G1 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86999&r=all |
| By: | Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school, INSEEC - INSEEC Business School - Institut des hautes études économiques et commerciales Business School (INSEEC)) |
| Abstract: | The aim of the present paper is to provide criteria for a central bank of how to choose among di¤erent monetary-policy rules when caring about a number of policy targets such as the output gap and expected in ‡ation. Special attention is given to the question if policy instruments are predetermined or only forward looking. Using the new-Keynesian Phillips curve with a cost-push-shock policy-transmission mechanism, the forward-looking case implies an extreme lack of robustness and of credibility of stabilization policy. The backward-looking case is such that the simple-rule parameters can be the solution of Ramsey optimal policy under limited commitment. As a consequence, we suggest to model explicitly the rational behavior of the policy maker with Ramsey optimal policy, rather than to use simple rules with an ambiguous assumption leading to policy advice that is neither robust nor credible. |
| Keywords: | Determinacy,Proportional Feedback Rules,Dynamic Stochastic General Equilibrium,Ramsey Optimal Policy under Quasi-Commitment Keywords: Determinacy,Ramsey Optimal Policy under Quasi-Commitment |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02371913&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa) |
| Abstract: | The research assesses how information and communication technology (ICT) modulates the effect of foreign direct investment (FDI) on economic growth dynamics in 25 countries in Sub-Saharan Africa for the period 1980-2014. The employed economic growth dynamics areGross Domestic Product (GDP) growth, real GDP and GDP per capita while ICT is measured by mobile phone penetration and internet penetration. The empirical evidence is based on the Generalised Method of Moments. The study finds that both internet penetration and mobile phone penetration overwhelmingly modulate FDI to induce overall positive net effects on all three economic growth dynamics. Moreover, the positive net effects are consistently more apparent in internet-centric regressions compared to “mobile phone†-oriented specifications. In the light of negative interactive effects, net effects are decomposed to provide thresholds at which ICT policy variables should be complemented with other policy initiatives in order to engender favorable outcomes on economic growth dynamics. Practical and theoretical implications are discussed. |
| Keywords: | Economic Output; Foreign Investment; Information Technology; Sub-Saharan Africa |
| JEL: | E23 F21 F30 L96 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:19/038&r=all |
| By: | Shigeto Kitano (Research Institute for Economics and Business Administration, Kobe University, Japan); Kenya Takaku (Faculty of International Studies, Hiroshima City University, Japan) |
| Abstract: | We examine how the degree of financial market incompleteness affects welfare gains from international cooperation on capital controls. When financial markets are incomplete, international risk sharing is disturbed. However, the optimal global policy significantly reverses the welfare deterioration due to inefficient risk-sharing. We show that when financial markets are more incomplete, the welfare gap between the optimal global policy and the Nash equilibrium increases, and the welfare gains from international cooperation on capital controls then become larger. |
| Keywords: | Financial markets; Incomplete markets; Policy cooperation; Capital controls; Optimal policy; Welfare; Ramsey policy; Open-loop Nash game |
| JEL: | D52 E61 F32 F38 F42 G15 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2020-05&r=all |
| By: | Julien Albertini (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Stéphane Auray (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, ULCO - Université du Littoral Côte d'Opale); Hafedh Bouakez (HEC Montréal - HEC Montréal, CIREQ - Centre interuniversitaire de recherche en économie quantitative); Aurélien Eyquem (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We propose a model with involuntary unemployment, incomplete markets, and nominal rigidity, in which the effects of government spending are state-dependent. An increase in government purchases raises aggregate demand, tightens the labor market and reduces unemployment. This in turn lowers unemployment risk and thus precautionary saving, leading to a larger response of private consumption than in a model with perfect insurance. The output multiplier is further amplified through a composition effect, as the fraction of high-consumption households in total population increases in response to the spending shock. These features, along with the matching frictions in the labor market, generate significantly larger multipliers in recessions than in expansions. As the pool of job seekers is larger during downturns than during expansions, the concavity of the job-finding probability with respect to market tightness implies that an increase in government spending reduces unemployment risk more in the former case than in the latter, giving rise to countercyclical multipliers. |
| Keywords: | Government spending,Multipliers,Precautionary saving,State dependence,Unemployment risk |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02452369&r=all |
| By: | Fukunaga,Ichiro; Komatsuzaki,Takuji; Matsuoka,Hideaki |
| Abstract: | This paper quantitatively assesses the effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies using simulation and estimation approaches. The simulations based on the debt dynamics equation and estimations of impulse responses by local projections both suggest that a 1 percentage point shock to the inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points. The results also suggest that the impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant. These results imply that modestly higher inflation, even if accompanied by some financial repression, could reduce the public debt burden only marginally in many advanced economies. |
| Date: | 2020–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:9129&r=all |
| By: | Roc Armenter (Federal Reserve Bank of Philadelphia; Board of Governors of the Federal Reserve System (U.S.); Northwestern University; United States); Benjamin Lester; Gara M. Afonso |
| Abstract: | As a consequence of the Federal Reserve?s large-scale asset purchases from 2008-14, banks? reserve balances at the Fed have increased dramatically, rising from $10 billion in March 2008 to more than $2 trillion currently. In that new environment of abundant reserves, the FOMC put in place a framework for controlling the fed funds rate, using the interest rate that it offered to banks and a different, lower interest rate that it offered to non-banks (and banks). Now that the Fed has begun to gradually reduce its asset holdings, aggregate reserves are shrinking as well, and an important question becomes: How does a change in the level of aggregate reserves affect trading in the fed funds market? In our recent paper, we show that the answer depends not just on the aggregate size of reserve balances, as is sometimes assumed, but also on how reserves are distributed among banks. In particular, we show that a measure of the typical trade in the market known as the effective fed funds rate (EFFR) could rise above the rate paid on banks? reserve balances if reserves remain heavily concentrated at just a few banks. |
| Keywords: | Monetary policy implementation; federal funds market; over-the-counter markets |
| JEL: | E5 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87264&r=all |
| By: | Oriol Valles Codina (Department of Economics, New School for Social Research) |
| Abstract: | The paper proposes a simple model of multi-sectorial growth along classical, computational and evolutionary lines where equilibrium in prices and quantities is not presumed, but dynamically attained by the systematic, decentralized operation of economic competition over time. The model thus provides a parsimonious and innovative solution to the classic problem of the dynamic convergence of a competitive economy to equilibrium. The model views economic competition as a statistical process over time that results in the dynamic equalization of prices, industry supply and demand, and inter-industrial profit rates in the aggregate. It is disaggregated by firms under an evolving heterogeneous technology operating under alternative micro-foundations, without any recourse to utility or profit maximization, but instead based on reproduction as fundamental closure. In order to relate macro-level patterns to micro-level observations over time, the theoretical framework re-conceptualizes equilibrium as a stationary property of statistical distributions of micro-economic variables, which allows a more realistic empirical description of the economy beyond the conventional notion of equilibrium as a single-point, rest state. The model generates a variety of stylized facts as macro-level emergent outcomes of the competitive process: price dispersion around the competitive value, a spectrum of profitability differentials re specting cost differences, evolutionary selection of the lowest-cost firm, tent-shaped distributions of profit and growth rates that are consistent with the empirical evidence, cost-plus markup pricing, downward-sloping demand curves, and industry-level business cycles in prices and inventories. |
| JEL: | B51 B52 C63 D21 D58 E11 E14 E30 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:2001&r=all |
| By: | Christian Breuer (Chemnitz University of Technology, Department of Economics, Junior Professorship for European Economics and ZBW - Leibniz Information Centre for Economics); Carsten Colombier (FiFo - Institute for Public Economics, University of Cologne, Germany; Federal Finance Department, Bern, Switzerland) |
| Abstract: | In this paper we examine the relationship between public debt and economic growth in a large historical panel dataset of 17 OECD economics over the period 1870 - 2016. We do not provide evidence for a statistically significant and robust relationship between government debt and growth. While our baseline regressions support the "conventional view" that government debt is negatively associated with economic growth, particularly in the aftermath of World War II, these results appear to be not robust to alternative specifications. |
| Keywords: | Goverment Debt, Economic Growth, Robustness |
| JEL: | E62 H56 H63 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:tch:wpaper:cep036&r=all |
| By: | Marco Del Negro; Frank Schorfheide; Michael Cai; Edward Herbst (Board of Governors of the Federal Reserve System (U.S.); Institute for Empirical Macroeconomics; Tel Aviv University); Ethan Matlin; Reca Sarfati |
| Abstract: | The estimation of dynamic stochastic general equilibrium (DSGE) models is a computationally demanding task. As these models change to address new challenges (such as household and firm heterogeneity, the lower bound on nominal interest rates, and occasionally binding financial constraints), they become even more complex and difficult to estimate?so much so that current estimation procedures are no longer up to the task. This post discusses a new technique for estimating these models which belongs to the class of sequential Monte Carlo (SMC) algorithms, an approach we employ to estimate the New York Fed DSGE model. To learn more, check out this paper of ours. |
| Keywords: | Sequential Monte Carlo; DSGE models; Online |
| JEL: | E2 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87349&r=all |
| By: | Miroudot, Sébastien; Ye, Ming |
| Abstract: | Several papers using intercountry input-output tables have developed frameworks to decompose value added in gross exports and to remove potential double-counting in intermediate inputs. But these papers rely on different definitions for the domestic value added, foreign value added and double-counting terms, depending in particular on the perspective from which gross exports are decomposed (world level, country level or bilateral level). At this stage, it is very difficult for any user of value-added trade statistics to know what is calculated and which type of decomposition should be used. In this paper, we provide a general framework that relies on extraction matrices to unambiguously and consistently define domestic and foreign value-added terms in the world, country and bilateral perspective. This framework allows us to classify existing decompositions based on the perspective taken and their definition of double-counting. We also indicate the most relevant decompositions for different types of trade analysis. |
| Keywords: | Trade accounting,input-output table, Value-added decomposition, Global value chains, double counting |
| JEL: | D57 E01 E16 F14 |
| Date: | 2019–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98232&r=all |
| By: | Jon Frost |
| Abstract: | Fintech is being adopted across markets worldwide - but not evenly. Why not? This paper reviews the evidence. In some economies, especially in the developing world, adoption is being driven by an unmet demand for financial services. Fintech promises to deliver greater financial inclusion. In other economies, adoption can be related to the high cost of traditional finance, a supportive regulatory environment, and other macroeconomic factors. Finally, demographics play an important role, as younger cohorts are more likely to trust and adopt fintech services. Where fintech helps to make the financial system more inclusive and efficient, this could benefit economic growth. Yet the market failures traditionally present in finance remain relevant, and may manifest themselves in new guises. |
| Keywords: | fintech, digital innovation, financial inclusion, financial regulation |
| JEL: | E51 G23 O33 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:838&r=all |
| By: | Ayşegül Şahin; Rachel Schuh (Research and Statistics Group); Andreas I. Mueller (Columbia Business School); R. Jason Faberman; Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York) |
| Abstract: | Most people find themselves looking for work at some point in their adult lives. But what brings employers and job seekers together? And does searching for a new job while unemployed lead to different outcomes than searching while employed? Little is known about the job search process for unemployed workers. Even less is known about the search process and outcomes for currently employed workers?so?called ?on?the?job? search. This Liberty Street Economics post aims to shed light on these questions and to draw some conclusions for our understanding of labor market dynamics more generally. |
| Keywords: | job offers; On-The-Job search; job search |
| JEL: | J00 E2 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87186&r=all |
| By: | Isiaq O. Oseni (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria) |
| Abstract: | Policy ambiguity in the form of non-directional and non-purposeful use of state resources has made sustainable growth outcomes a mirage in Nigeria. Recent economic crisis prompted the debate on how increased government spending induces sustainable economic growth in Nigeria. This paper examines the validity or otherwise of Wagner’s theory in Nigeria for the realisation of the Sustainable Development Goals (SDGs) from 1980 through 2017. Using time-series data on real gross domestic product, total government expenditure, money supply and domestic investment and adopting the two-step Engle and Granger estimation procedure, result shows that increased government spending significantly predicts variations in real gross domestic product and thus leaned empirical credence to Wagner’s hypothesis as an essential concept for the attainment of Sustainable Development Goals in Nigeria. This paper recommended that the government should exhaust all possible options to increase expenditure in order to realise sustainable growth in Nigeria. |
| Keywords: | Government Expenditure, Economic Growth, Wagner law, Granger Causality |
| JEL: | E62 O11 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:20/006&r=all |
| By: | Timothy J. Besley; Isabelle A. Roland; John Van Reenen |
| Abstract: | This paper studies the implications of perceived default risk for aggregate output and productivity. Using a model of credit contracts with moral hazard, we show that a firm’s probability of default is a sufficient statistic for capital allocation. The theoretical framework suggests an aggregate measure of the impact of credit market frictions based on firm-level probabilities of default which can be applied using data on firm-level employment and default risk. We obtain direct estimates of firm-level default probabilities using Standard and Poor’s PD Model to capture the expectations that lenders were forming based on their historical information sets. We implement the method on the UK, an economy that was strongly exposed to the global financial crisis and where we can match default probabilities to administrative data on the population of 1.5 million firms per year. As expected, we find a strong correlation between default risk and a firm’s future performance. We estimate that credit frictions (i) cause an output loss of around 28% per year on average; (ii) are much larger for firms with under 250 employees and (iii) that losses are overwhelmingly due to a lower overall capital stock rather than a misallocation of credit across firms with heterogeneous productivity. Further, we find that these losses accounted for over half of the productivity fall between 2008 and 2009, and persisted for smaller (although not larger) firms |
| JEL: | D24 E32 L11 O47 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26686&r=all |
| By: | Ayşegül Şahin; Victoria Gregory (Research and Statistics Group); Christina Patterson; Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York) |
| Abstract: | Fluctuations in unemployment are mostly driven by fluctuations in the job-finding prospects of unemployed workers?except at the onset of recessions, according to various research papers (see, for example, Shimer [2005, 2012] and Elsby, Hobijn, and Sahin [2010]). With job losses back to their pre-recession levels, the job-finding rate is arguably one of the most important indicators to watch. This rate?defined as the fraction of unemployed workers in a given month who find jobs in the consecutive month?provides a good measure of how easy it is to find jobs in the economy. The chart below presents the job-finding rate starting from 1990. Clearly, the job-finding rate is still substantially below its pre-recession levels, suggesting that it is still difficult for the unemployed to find work. In this post, we explore the underlying reasons behind the low job-finding rate. |
| Keywords: | job-finding rate; labor market; matching function; match efficiency |
| JEL: | J00 E2 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86926&r=all |
| By: | Isiaq O. Oseni (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria) |
| Abstract: | Policy ambiguity in the form of non-directional and non-purposeful use of state resources has made sustainable growth outcomes a mirage in Nigeria. Recent economic crisis prompted the debate on how increased government spending induces sustainable economic growth in Nigeria. This paper examines the validity or otherwise of Wagner’s theory in Nigeria for the realisation of the Sustainable Development Goals (SDGs) from 1980 through 2017. Using time-series data on real gross domestic product, total government expenditure, money supply and domestic investment and adopting the two-step Engle and Granger estimation procedure, result shows that increased government spending significantly predicts variations in real gross domestic product and thus leaned empirical credence to Wagner’s hypothesis as an essential concept for the attainment of Sustainable Development Goals in Nigeria. This paper recommended that the government should exhaust all possible options to increase expenditure in order to realise sustainable growth in Nigeria. |
| Keywords: | Government Expenditure, Economic Growth, Wagner law, Granger Causality |
| JEL: | E62 O11 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/006&r=all |
| By: | Ayşegül Sahin; Robert C. Dent; Benjamin Pugsley (University of Notre Dame; Federal Reserve Bank of New York; University of Chicago); Fatih Karahan; Samuel Kapon (Research and Statistics Group) |
| Abstract: | In this second post in our series on measuring labor market slack, we analyze the labor market outcomes of long-term unemployed workers to assess their employability and labor force attachment. If long-term unemployed workers are essentially nonparticipants, their job-finding prospects and attachment to the labor force should resemble those of nonparticipants who are not looking for a job and should differ considerably from those of short-term unemployed workers. Using data that allow us to follow workers over longer time periods, we find that differences in labor market outcomes between short- and long-term unemployed workers exist, but these differences narrow at longer horizons. In contrast, labor market outcomes for the long-term unemployed are substantially different from those of nonparticipants who do not want a job. |
| Keywords: | long-term unemployment; slack in the labor market; wage pressure |
| JEL: | E2 J00 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86993&r=all |
| By: | Ayşegül Sahin; Benjamin Pugsley (University of Notre Dame; Federal Reserve Bank of New York; University of Chicago); Fatih Karahan; Robert C. Dent; Samuel Kapon (Research and Statistics Group) |
| Abstract: | There has been some debate in the Liberty Street Economics blog and in other outlets, such as Krueger, Cramer, and Cho (2014) and Gordon(2013), about whether the short-term unemployment rate is a better measure of slack than the overall unemployment rate. As the chart below shows, the two measures are sending different signals, with the short-term unemployment rate back to its pre-recession level while the overall rate is still elevated because of a high long-term unemployment rate. One can argue that the unemployment rate is exaggerating the extent of underutilization in the labor market, based on the premise that the long-term unemployed are, in practice, out of the labor force and likely to exert little pressure on earnings. If this is indeed the case, inflationary pressures might start building up sooner than suggested by the overall unemployment rate. In a three-part series, we study the available evidence on the long-term unemployed and argue against this premise. The long-term unemployed should not be excluded from measures of labor market slack. |
| Keywords: | labor market slack; long-term unemployment; wage pressure |
| JEL: | E2 J00 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:86992&r=all |
| By: | Eric LeSueur (Markets Group); Bonni Brodsky (Markets Group); Marco Del Negro; Ari Morse; Joseph Fiorica (Markets Group); Anthony P. Rodrigues |
| Abstract: | Over the past year, market pricing on interest rate derivatives linked to the federal funds rate has suggested a significantly lower expected path of the policy rate than responses to the New York Fed?s Survey of Primary Dealers (SPD) and Survey of Market Participants (SMP). However, this gap narrowed considerably from December 2015 to January 2016, before widening slightly at longer horizons in March. This post argues that the narrowing between December and January was mostly the result of survey respondents placing greater weight on lower rate outcomes, while the subsequent widening between January and March likely reflects an increased demand for insurance against states of the world where the policy rate remains at very low levels. |
| Keywords: | policy rate; survey expectations |
| JEL: | E5 G1 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87115&r=all |
| By: | Mahmut Gunay |
| Abstract: | In this paper, we analyze short-term forecasts of Turkish GDP growth using Mixed DAta Sampling (MIDAS) approach. We consider six alternatives for functional form of the lag polynomial in the MIDAS equation, five to twelve lags of the explanatory high frequency variables and produce short-term forecasts for nine forecast horizons starting with the release of data for six months before the start of the target quarter to the release of the data for the last month of the quarter. Our results indicate that functional form of the lag polynomials play non-negligible role on the short-term forecast performance but a specific functional form does not perform globally well for all forecast horizons, for all lag lengths or for all indicators. Import quantity indices perform relatively better until first month’s data for the target quarter become available. As data accumulate for the monthly indicators for the target quarter, real domestic turnover and industrial production indicators stand out in terms of short-term forecasting performance. When all of the three months’ realizations for the monthly indicators become available for the quarter that we want to forecast, unrestricted MIDAS type equations with around five lags with real domestic turnover and industrial production indicators track the GDP growth relatively successfully. |
| Keywords: | GDP, Forecasting, MIDAS, Polynomial form |
| JEL: | C53 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:2002&r=all |
| By: | Joseph Fiorica (Markets Group); Bonni Brodsky (Markets Group); Anthony P. Rodrigues; Marco Del Negro; Eric LeSueur (Markets Group); Ari Morse |
| Abstract: | In our previous post, we showed that the gap between the market-implied path for the federal funds rate and the survey-implied mean expectations for the federal funds rate from the Survey of Primary Dealers (SPD) and the Survey of Market Participants (SMP) narrowed from the December survey to the January survey. In particular, we provided explanations for this narrowing as well as for the subsequent widening from January to March. This post continues the discussion by presenting a novel approach called ?tilting? that yields insights by measuring how much the survey probability distributions have to be altered to match the market-implied path of the federal funds rate. We interpret any discrepancy between the original and tilted distributions as arising from either risk premia or dispersion in beliefs. |
| Keywords: | policy rate; survey expectations; KLIC |
| JEL: | E5 G1 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87116&r=all |
| By: | Dimitri B. Papadimitriou; Michalis Nikiforos; Gennaro Zezza |
| Abstract: | 2019 marked the third year of the continuing economic recovery in Greece, with real GDP and employment rising, albeit at modest rates. In this Strategic Analysis we note that the expansion has mainly been driven by net exports, with tourism playing a dominant role. However, household consumption and investment are still too far below their precrisis levels, and a stronger and sustainable recovery should target these components of domestic demand as well. Fiscal austerity imposed on the Greek government has achieved its target in terms of public finances, such that some fiscal space is now available to stimulate the economy. Our simulations for the 2019-21 period show that under current conditions the economy is likely to continue on a path of modest growth, and that the amount of private investment needed for a stronger recovery is unlikely to materialize. |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:gsa_1_20&r=all |
| By: | Aronsson, Thomas; Ghosh, Sugata; Wendner, Ronald |
| Abstract: | Based on an endogenous growth model, this paper characterizes the conditions under which positional preferences do not give rise to intertemporal distortions as well as derives an optimal tax policy response in cases where these conditions are not satisfied. In our model, individuals can be positional both in terms of their consumption and wealth, the relative concerns partly reflect comparisons with people in other countries, and we distinguish between a (conventional) welfarist government and a paternalist government that does not respect positional preferences. We also extend the analysis to a multi-country framework and show that Nash-competition among local paternalist governments leads to a global social optimum, whereas Nash-competition among local welfarist governments does not. |
| Keywords: | Positional preferences, efficiency, intertemporal distortions, welfarist government, paternalist government, endogenous growth |
| JEL: | D62 E61 H11 O43 |
| Date: | 2020–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98425&r=all |
| By: | Wilbert Van der Klaauw; Kyle Smith (Research and Statistics Group); Gizem Koşar |
| Abstract: | Households cope with considerable uncertainty in forming plans and making decisions. This includes uncertainty about their personal situations as well as about their external environment. An important source of uncertainty arises from (often abrupt) changes in government policy, including changes in tax rates and in the benefit level of social programs. Tracking individuals? subjective beliefs about future policy changes is important for understanding their behavior as consumers and workers. For example, knowing the extent to which tax changes and other shifts in public policy are anticipated is important for understanding their impacts on spending, work, and savings decisions. When fully anticipated, a change in a policy may generate little change in behavior at the point it is implemented, while showing more noticeable impacts when first discussed or announced. Indeed, our previous research has shown that the ultimate magnitude and timing of a policy change?s impact on economic outcomes will depend strongly on the degree to which it was anticipated. |
| Keywords: | SCE Public Policy Survey; Medicare reform; Wilbert van der Klaauw; Center for Microeconomic Data; Survey of Consumer Expectations; minimum wage policy; Social Security reform; public policy outlook; Medicare expansion; Gizem Kosar |
| JEL: | D8 E6 J3 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87360&r=all |
| By: | Ayşegül Şahin; Laura Pilossoph; Samuel Kapon (Research and Statistics Group); Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York); Luis Armona |
| Abstract: | Since the peak of the recession, the unemployment rate has fallen by almost 5 percentage points, and observers continue to focus on whether and when this decline will lead to robust wage growth. Typically, in the wake of such a decline, real wages grow since there is more competition for workers among potential employers. While this relationship has historically been quite informative, real wage growth more recently has not been commensurate with observed declines in the unemployment rate. |
| Keywords: | Labor Economics; Macroeconomics |
| JEL: | E2 J00 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87060&r=all |
| By: | Christian Pinshi (UNIKIN - University of Kinshasa) |
| Abstract: | The cointégration methodology has bridged the growing gap between economists and econometricians in understanding dynamics, equilibrium and bias on the reliability of macroeconomic and financial analysis, which is subject to non-stationary behavior. This paper proposes a comprehensive literature review on the relevance of the error correction model. Econometricians and economists have shown that error-correction model is a powerful machine that provides the economic system and macroeconomic policy with a refinement in the econometric results. |
| Keywords: | Keys words : Cointegration,Error correction model,Macroeconomics JEL Classification : C32,E0 |
| Date: | 2020–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02454971&r=all |
| By: | Pawel Krolikowski; Kurt Graden Lunsford |
| Abstract: | We collect rich establishment-level data about advance layoff notices filed under the Worker Adjustment and Retraining Notification (WARN) Act since January 1990. We present in-sample evidence that the number of workers affected by WARN notices leads state-level initial unemployment insurance claims, changes in the unemployment rate, and changes in private employment. The effects are strongest at the one and two-month horizons. After aggregating state-level information to a national-level “WARN factor” using a dynamic factor model, we find that the factor substantially improves out-of-sample forecasts of changes of manufacturing employment in real time. |
| Keywords: | WARN act; mass layoffs; plant closings; unemployment; employment; initial UI claims. |
| JEL: | E27 J65 K31 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:87416&r=all |
| By: | Florian Exler; Michéle Tertilt |
| Abstract: | While vocational education is meant to provide occupational-specific skills that are directly employable, their returns may be limited in fast-changing economies. Conversely, general education should provide learning skills, but these may have little value at low levels of education. This paper sheds light on this debate by exploiting a recent Spanish reform that postpones students’ choice between these two educational pathways from age 14 to 16. To identify exogenous changes in its staggered implementation, we instrument this with the pre-reform across-province variation in the share of students in general education. Results indicate that, by shifting educational investment from vocational to general education after age 16, the reform improves occupational outcomes, and results in a significant rise in monthly wages. The effects are larger after the financial crisis, but are concentrated among middle to high-skilled individuals. In contrast, those who acquire only basic general education have worse long-term employment prospects than vocationally-trained individuals. |
| Keywords: | Consumer Debt, Bankruptcy, Chapter 7, Default, Credit Cards, Charge-offs |
| JEL: | C60 E20 G20 O30 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_153&r=all |
| By: | Gagnon, Nickolas (Maastricht University); Bosmans, Kristof (Maastricht University); Riedl, Arno (Maastricht University) |
| Abstract: | Labor market opportunities and wages may be unfair for various reasons, and how workers respond to different types of unfairness can have major economic consequences. Using an online labor platform, where workers engage in an individual task for a piece-rate wage, we investigate the causal effect of neutral and gender-discriminatory unfair chances on labor supply. We randomize workers into treatments where we control relative pay and chances to receive a low or a high wage. Chances can be fair, unfair based on an unspecified source, or unfair based on gender discrimination. Unequal pay reduces labor supply of low-wage workers, irrespective of whether the low wage is the result of fair or unfair chances. Importantly, the source of unfair chances matters. When a low wage is the result of gender-discriminatory chances, workers matched with a high-wage worker substantially reduce their labor supply compared to the case of equal low wages (–22%). This decrease is twice as large as those induced by low wages due to fair chances or unfair chances coming from an unspecified source. In addition, exploratory analysis suggests that in response to unequal pay, low-wage male workers reduce labor supply irrespective of the source of inequality, whereas low-wage female workers reduce labor supply only if unequal pay is due to gender-discriminatory chances. Our results concerning gender discrimination indicate a new reason for the lower labor supply of women, which is a prominent explanation for the gender gap in earnings. |
| Keywords: | labor supply, wage inequality, procedural fairness, gender discrimination |
| JEL: | D90 E24 J22 J31 J71 M5 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12912&r=all |
| By: | Ryan Niladri Banerjee; Boris Hofmann; Aaron Mehrotra |
| Abstract: | Using firm-level data for 18 major global economies, we find that the exchange rate affects corporate investment through a financial channel: exchange rate depreciation dampens corporate investment through firm leverage and FX debt. These findings are consistent with the predictions of a stylised model of credit risk in which exchange rates can affect investment through FX debt or borrowing in local currency from foreign lenders. Empirically, the channel is more pronounced in emerging market economies (EMEs), reflecting their greater dependence on foreign funding and their less developed financial systems. Moreover, we find that exchange rate depreciation induces highly leveraged firms to increase their cash holdings, supporting from a different angle the notion of a financial channel of the exchange rate. Overall, these findings suggest that the large depreciation of EME currencies since 2011 was probably a significant amplifying factor in the recent investment slowdown in these economies. |
| Keywords: | corporate investment, emerging markets, exchange rates, financial channel, financial constraints |
| JEL: | E22 F31 F41 O16 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:839&r=all |
| By: | Jorge Miranda-Pino (University of Queensland); Daniel Murphy (University of Virginia Darden School of Business); Eric R. Young (Carnegie Mellon University; University of Virginia); Kieran Walsh (Darden Graduate School of Business Administration; Yale University; Vassar College) |
| Abstract: | We document four features of consumption and income microdata: (1) household-level consumption is as volatile as household income on average, (2) household-level consumption has a positive but small correlation with income, (3) many low-wealth households have marginal propensities to consume near zero, and (4) lagged high expenditure is associated with low contemporaneous spending propensities. Our interpretation is that household expenditure depends on time-varying consumption thresholds where marginal utility discontinuously increases. Our model with consumption thresholds matches the four facts better than does a standard model. Poor households in our model also exhibit “excess sensitivity” to anticipated income declines. |
| Keywords: | D14; E21 |
| Date: | 2020–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:87435&r=all |