nep-mac New Economics Papers
on Macroeconomics
Issue of 2023‒10‒02
thirteen papers chosen by
Daniela Cialfi, Universita' di Teramo

  1. Optimal Monetary Policy and Rational Asset Bubbles By Jacopo Bonchi; Salvatore Nisticò
  2. Monetary policy surprises shocks under different fiscal regimes: a panel analysis of the Euro Area By António Afonso; José Alves; Serena Ionta
  3. Households' Response to the Wealth Effects of Inflation By Philip Schnorpfeil; Michael Weber; Andreas Hackethal
  5. Monetary Approach to Balance of Payments: Empirical Evidence from ECOWAS Countries By Cham, Yaya
  6. Forecasting inflation and inflation expectations in small open economies: A comparison of market and survey based approaches for Jamaica By Uluc Aysun; Cardel Wright
  7. An Unconventional FX Tail Risk Story By Carlos Cañon; Eddie Gerba; Alberto Pambira; Evarist Stoja
  8. Monetary Policy Surprises on the Banking Sector: the Role of the Information and Pure Monetary Shocks By Felipe Beltrán; David Coble
  9. Managers' Choice of Disclosure Complexity By Jeremy Bertomeu
  10. Local power: understanding the adoption and design of county wind energy regulation By Lerner, Michael
  11. Entrepreneurial Higher Education Education, Knowledge and Wealth Creation By Rahmat Ullah; Rashid Aftab; Saeed Siyal; Kashif Zaheer
  12. Recent Developments in Hedge Funds’ Treasury Futures and Repo Positions: is the Basis Trade “Back"? By Daniel Barth; R. Jay Kahn; Robert Mann
  13. A Strategic Approach to Bankruptcy Problems Based on the TAL Family of Rules By Bouwhuis, Dirck; Borm, Peter; Hendrickx, Ruud

  1. By: Jacopo Bonchi; Salvatore Nisticò
    Abstract: Using a New Keynesian model with stochastic asset market participation, we analyze the normative implications of bubbly fluctuations for monetary policy. We show that stochastic asset-market participation allows rational bubbles to emerge in equilibrium despite the fact that households are infinitely lived. A central bank concerned with social welfare faces an additional tradeoff implied by the effect of bubbly fluctuations on consumption dispersion across market participants, which makes, in general, strict inflation targeting a suboptimal monetary-policy regime. Deviations from inflation targeting are welfare improving in particular when the economy fluctuates around a balanced-growth path where equilibrium bubbles are small or absent, and the endogenous tradeoff is more stringent, requiring larger deviations of inflation/output gap to mitigate bubbly fluctuations in wealth and thus consumption inequality. The specific optimal monetary-policy response to bubbly fluctuations depends however on the intrinsic features of latter, and the associated effects on wealth inequality.
    Keywords: Rational bubbles, Optimal monetary policy, Stochastic Asset Market Participation, Consumption dispersion
    JEL: E21 E32 E44 E58
    Date: 2023–08
  2. By: António Afonso; José Alves; Serena Ionta
    Abstract: We study the effect of monetary policy surprise shocks on real output and the price level, conditioned on different fiscal stances in the period 2001Q4-2021Q4 for a panel of the 19 countries of the Euro Area. Applying local projection methodology, we find that the effect of monetary shocks depends on each country's fiscal stance, specifically, if for output response the debt is more important in the effect of monetary policy, for prices, the "Ricardian" nature of fiscal policy appears to be far more crucial. However, regarding inflation targeting, monetary policy is most effective in the low debt regime and in the high fiscal sustainability one. Our results are robust to different specifications and models and have important policy implications notably for monetary policy, which should consider different fiscal stances when pursuing specific monetary policy objectives.
    Keywords: monetary policy surprises, public debt, fiscal sustainability, localprojection models, fiscal-monetary policy mix, Euro area.
    JEL: C32 E58 E62 E63
    Date: 2023–08
  3. By: Philip Schnorpfeil; Michael Weber; Andreas Hackethal
    Abstract: We study the redistributive effects of inflation combining administrative bank data with an information provision experiment during an episode of historic inflation. On average, households are well-informed about prevailing inflation and are concerned about its impact on their wealth; yet, while many households know about inflation eroding nominal assets, most are unaware of nominal-debt erosion. Once they receive information on the debt-erosion channel, households update upwards their beliefs about nominal debt and their own real net wealth. These changes in beliefs causally affect actual consumption and hypothetical debt decisions. Our findings suggest that real wealth mediates the sensitivity of consumption to inflation once households are aware of the wealth effects of inflation.
    JEL: D12 D14 D83 D84 E21 E31 E52
    Date: 2023–09
  4. By: T. Saungweme (University of South Africa); N.M. Odhiambo (University of South Africa)
    Abstract: The optimal balance between fiscal and monetary policy in achieving price stability has been contested in literature. In the main, however, it is widely recognised that whether public debts are financed in a monetary way or otherwise, the choice of policy action affects the effectiveness of monetary policy in ensuring price stability. This study contributes to the debate by testing the dynamic causal relationship between public debt and inflation in Tanzania covering the period 1970-2020. The study applies the autoregressive distributed lag (ARDL) bounds testing technique to cointegration and the ECM-based Granger-causality test to explore this relationship. In order to address the omission-of-variable bias, which has been the major methodological deficiency detected in some previous studies, two monetary variables, namely money supply and interest rate, were added as intermittent variables alongside public debt and inflation. The findings from this study show that there is a consistent long-run cointegrating relationship between public debt, inflation, money supply and interest rate in Tanzania. However, the results fail to find evidence of causality between public debt and inflation in Tanzania, irrespective of whether the causality is estimated in the short run or in the long run. The findings of this study, therefore, show that Tanzania’s current debt is not inflationary; hence, policymakers may continue to pursue the desirable fiscal policies necessary for the country’s long-term optimal growth path.
    Date: 2021–11
  5. By: Cham, Yaya
    Abstract: The study primarily presents a critical and imperative analytical framework, accentuating the intricate interplay between the demand for money and the supply of money in shaping the economic equilibrium of the balance of payments (BOP). The focal point of this paper involves a meticulous examination of the monetary perspective regarding the BOP within the ECOWAS countries spanning the temporal domain from 2005 to 2019. This investigation is accomplished through the adept utilization of the second-generation unit root tests, namely the Common Augmented Dickey-Fuller (CADF) test and the Cross-sectional Augmented IPS (CIPS) test, alongside the comprehensive Westerlund cointegration test to ascertain the enduring nexus existing within the examined series. By adopting the dynamic homogeneous panel estimator, this study conducts an exhaustive scrutiny of both the short-term and long-term dynamics. The empirical findings, gleaned from the Pooled Mean Group analysis, unveil the pivotal role of monetary variables in determining BOP. In the medium and extended temporal spectra, ameliorations in domestic credit within the ECOWAS region are juxtaposed with a concomitant decline in net foreign assets, thus manifestly contributing to the deterioration of the BOP milieu in the aforementioned zones. Furthermore, a parallel analysis divulges a counteractive relationship between economic growth and inflation with net foreign assets in the short run, while this association transforms a synergistic correlation over the long haul. Conversely, the money supply engenders a positive and consequential influence on net foreign assets, evinced across both the transient and enduring periods. Essentially, the research findings substantiate the veracity of the monetary approach within the purview of the zones under contemplation. Consequently, monetary variables wield substantial and pronounced impacts on the BOP, with an escalating BOP, forth as a harbinger of enhanced equilibrium within the zones' balance of payments framework. Concerning policy implications, the underlying study underscores the monetary approach as an adept and fitting strategy, elucidating the notion that an outsized BOP deficit could potentially foster an environment conducive to the propagation of excessive domestic credit. Knowledge obtained from this research will go a long way in helping policy formulation and will also help the region in ensuring smooth developments in the external sector especially during the implementation of monetary policy.
    Keywords: Yaya Cham Monetary Approach Balance of Payments West African Monetary Institute Central Bank of The Gambia ARDL ECOWAS Crossectional
    JEL: E5 E51 E52 E58 O55 O57 Y40 Y50
    Date: 2023–08
  6. By: Uluc Aysun (University of Central Florida, Orlando, FL); Cardel Wright (Bank of Jamaica, Kingston, Jamaica)
    Abstract: This paper builds a dynamic factor model to obtain both in-sample and out-of-sample forecasts of inflation in Jamaica. The model is estimated with both survey and market data. For the latter, a global latent factor is first extracted from international financial data and then included as an exogenous variable in the estimations with Jamaican data. The results indicate that the estimations with market data provide a much better fit for in-sample and out-of-sample values of inflation and inflation expectations. The dynamic factor, under a parsimonious representation, also outperforms univariate models, Bank of Jamaica's in-house forecasts of inflation and those obtained from an estimated DSGE model.
    Keywords: Jamaica, inflation expectations, forecasting, dynamic factor model, survey data.
    JEL: E32 E44 F33 F44
    Date: 2023–09
  7. By: Carlos Cañon; Eddie Gerba; Alberto Pambira; Evarist Stoja
    Abstract: We examine how the tail risk of currency returns over the past 20 years were impacted by central bank (monetary and liquidity) measures across the globe with an original and unique dataset that we make publicly available. Using a standard factor model, we derive theoretical measures of tail risks of currency returns which we then relate to the various policy instruments employed by central banks. We find empirical evidence for the existence of a cross-border transmission channel of central bank policy through the FX market. The tail impact is particularly sizeable for asset purchases and swap lines. The effects last for up to 1 month, and are proportionally higher for joint QE actions. This cross-border source of tail risk is largely undiversifiable, even after controlling for the U.S. dollar dominance and the effects of its own monetary policy stance.
    Keywords: unconventional and conventional monetary policy, liquidity measures, currency tail risk, systematic and idiosyncratic components of tail risk
    JEL: E44 G12 G15 E52
    Date: 2023
  8. By: Felipe Beltrán; David Coble
    Abstract: This paper analyzes how monetary policy surprises in Chile affects the real and financial sector separating between a pure monetary policy shock and an information shock. Using inter-day movements of futures of interest rate in the banking system, we identify an information shock when labor data is released and a pure monetary policy shock when the central bank reveals their interest rate decision, and their effects are quantified through an external vector autoregression model. Our results suggest that a pure monetary policy shock produce an appreciation of nominal exchange rate, and contractionary effects on the economy. However, an information shock does not necessarily produce adverse effects. This paper contribute to the literature in two dimensions: studying the effect of the main driver behind the central bank announcements, and their transmission to the banking sector and consequently to the real and monetary sector.
    Date: 2023–04
  9. By: Jeremy Bertomeu
    Abstract: Aghamolla and Smith (2023) make a significant contribution to enhancing our understanding of how managers choose financial reporting complexity. I outline the key assumptions and implications of the theory, and discuss two empirical implications: (1) a U-shaped relationship between complexity and returns, and (2) a negative association between complexity and investor sophistication. However, the robust equilibrium also implies a counterfactual positive market response to complexity. I develop a simplified approach in which simple disclosures indicate positive surprises, and show that this implies greater investor skepticism toward complexity and a positive association between investor sophistication and complexity. More work is needed to understand complexity as an interaction of reporting and economic transactions, rather than solely as a reporting phenomenon.
    Date: 2023–08
  10. By: Lerner, Michael
    Abstract: The majority of U.S. states have set targets for renewable energy, but the prospects for meeting most of these goals hinge on the willingness of local governments to allow large-scale renewable energy projects in their communities. In this paper, I investigate how exposure to lobbying by wind developers and the actions of neighboring jurisdictions inform the adoption and design of rules for siting commercial wind farms. Using data collected from 1603 counties in 23 states, I find local policymakers are more likely to enact wind ordinances when they have more time to interact with wind developers and when neighboring counties have adopted wind ordinances or approved the construction of wind farms. I also observe that counties tend to adopt more stringent rules when more wind farms have been built in neighboring counties. This evidence suggests that efforts to scale up renewable energy generation may encounter increasing resistance from local governments.
    Keywords: climate change; comparative governance; developed countries; economic development; energy; innovation
    JEL: N0
    Date: 2022–03–01
  11. By: Rahmat Ullah; Rashid Aftab; Saeed Siyal; Kashif Zaheer
    Abstract: This book presents detailed discussion on the role of higher education in terms of serving basic knowledge creation, teaching, and doing applied research for commercialization. The book presents an historical account on how this challenge was addressed earlier in education history, the cases of successful academic commercialization, the marriage between basic and applied science and how universities develop economies of the regions and countries. This book also discusses cultural and social challenges in research commercialization and pathways to break the status quo.
    Date: 2023–08
  12. By: Daniel Barth; R. Jay Kahn; Robert Mann
    Abstract: In short, the answer is "probably", at least to some degree. This note summarizes recent developments in hedge funds' Treasury futures and repo positions derived from the Commodities Futures and Trading Commission's (CFTC's) Traders in Financial Futures data and the Office of Financial Research's ("OFR") Cleared Repo Collection.
    Date: 2023–08–30
  13. By: Bouwhuis, Dirck (Tilburg University, Center For Economic Research); Borm, Peter (Tilburg University, Center For Economic Research); Hendrickx, Ruud (Tilburg University, Center For Economic Research)
    Keywords: Bankruptcy problems; Strategic games; TAL family; Nash equilibrium
    Date: 2023

This nep-mac issue is ©2023 by Daniela Cialfi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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