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on Macroeconomics |
| By: | Bouabdallah, Othman; Jacquinot, Pascal; Patella, Valeria |
| Abstract: | In most euro area countries, the monetary/fiscal policy mix is responsible for the changing history of debt and inflation facts. Using a Dynamic Stochastic General Equilibrium model with Markov-switching policy rules, we identify three distinct monetary/fiscal regimes in France and Italy: a Passive Monetary-Active Fiscal regime (PM/AF) before the late 80s/early 90s; an Active Monetary-Passive Fiscal regime (AM/PF) with central bank independence and EMU convergence; a third regime with policy rates at the effective lower bound combined with fiscal active behavior to sustain the recovery. Our simulations reveal that the PM/AF regime in France led to price volatility and debt stabilisation, while the AM/PF regime resulted in disinflation and rising debt trajectory. Meanwhile, Italy’s procyclical fiscal policy in downturns contributed to persisting imbalances, high aggregate volatility, and low growth. JEL Classification: E63, E62, E32, E52, C32 |
| Keywords: | debt, euro area, inflation, Markov-switching, Monetary-fiscal policy mix |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20232871&r=mac |
| By: | John Cochran |
| Abstract: | Our central banks set interest rate targets, and do not even pretend to control money supplies. How do interest rates affect inflation? We finally have a complete theory of inflation under interest rate targets and unconstrained liquidity. Its long-run properties mirror those of monetary theory: Inflation can be stable and determinate under interest rate targets, including a peg, analogous to a k-percent rule. The zero bound era is confirmatory evidence. Uncomfortably, stability means that higher interest rates eventually raise inflation, just as higher money growth eventually raises inflation. Sticky prices generate some short-run non-neutrality as well: Higher nominal interest rates can raise real rates and lower output. A model in which higher nominal interest rates temporarily lower inflation, without a change in fiscal policy, is a harder task. I exhibit one such model, but it paints a much more limited picture than standard beliefs. We either need a model with a stronger effect, or to accept that higher interest rates have quite limited power to lower inflation. Empirical understanding of how interest rates affect inflation without fiscal help is also a wide-open question. |
| Keywords: | interest rates, inflation, neutrality, non-neutrality |
| JEL: | E4 E5 |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1136&r=mac |
| By: | Ko Munakata (Financial System and Bank Examination Department, Bank of Japan); Takeshi Shinohara (Institute for Monetary and Economic Studies, Bank of Japan); Shigenori Shiratsuka (Faculty of Economics, Keio University); Nao Sudo (Institute for Monetary and Economic Studies, Bank of Japan); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo) |
| Abstract: | Seasonality is among the most salient features of price changes, but it is notably less analyzed than seasonality of quantities and the business cycle component of price changes. To fill this gap, we use the scanner data of 199 categories of goods in Japan to empirically study the seasonality of price changes from 1990 to 2021. We find that the following four features generally hold for most categories: (1) The frequency of price increases and decreases rises in March and September; (2) Seasonal components of the frequency of price changes are negatively correlated with those of the size of price changes; (3) Seasonal components of the inflation rate track seasonal components of net frequency of price changes; (4) The seasonal pattern of the frequency of price changes is stable relative to that of the size of price changes. The pattern is, however, responsive to changes in the category-level annual inflation rate for the year. We conduct a simulation analysis using a simple state-dependent price model and show seasonal cycles in menu costs play an essential role in generating seasonality of price changes in the data. We then discuss the nature of seasonal cycles in menu costs and their implications for macroeconomic dynamics. |
| Keywords: | Scanner Data, Seasonality in Price Changes, New Keynesian Model, Menu Costs |
| JEL: | E31 E32 E37 |
| Date: | 2023–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2023-016&r=mac |
| By: | Friederike Fourné; Robert Lehmann |
| Abstract: | In this paper, we use high-frequency transaction data to develop a weekly tracker for private consumption expenditures. Furthermore, we apply the transaction data in a nowcasting experiment and compare their performance with other, readily available indicators that are regularly linked to private consumption in Germany. The weekly tracker produces precise estimates and can thus be used in real-time, especially in very turbulent times such as a pandemic or the high-inflation-phase in its aftermath. In terms of nowcast accuracy, the tracker outperforms all remaining indicators, making it a powerful tool for applied forecasting work. We plan to regularly publish the weekly consumption tracker in the future, thereby complementing the database for Germany. |
| Keywords: | private consumption expenditures, real-time tracker, high-frequency transaction data, mixed-frequency vectorautoregression, Bayesian estimation |
| JEL: | C32 C53 E01 E21 E27 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10764&r=mac |
| By: | Alkis Blanz (University of Potsdam, MCC Berlin); Ulrich Eydam (University of Potsdam); Maik Heinemann (University of Potsdam); Matthias Kalkuhl (University of Potsdam, MCC Berlin); Nikolaj Moretti (University of Potsdam, MCC Berlin) |
| Abstract: | The effects of energy price increases are heterogeneous between households and firms. Financially constrained poorer households, who spend a larger relative share of their income on energy, are particularly affected. In this analysis, we examine the macroeconomic and welfare effects of energy price shocks in the presence of credit-constrained households that have subsistence-level energy demand. Within a Dynamic Stochastic General Equilibrium (DSGE) model calibrated for the German economy, we compare the performance of different policy measures (transfers and energy subsidies) and different financing schemes (income tax vs. debt). Our results show that credit-constrained households prefer debt over tax financing regardless of the compensation measure due to their difficulty to smooth consumption. On the contrary, rich households tend to prefer tax-financed measures as they increase the labor supply of poor households. From an aggregate perspective, tax-financed measures targeting firms effectively cushion aggregate output losses. |
| Keywords: | energy prices, E-DSGE, fiscal policy, welfare |
| JEL: | E62 E64 H31 H32 Q43 Q52 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:pot:cepadp:70&r=mac |
| By: | Ögren, Anders (Department of Economic History, Uppsala University) |
| Abstract: | A number of central banks have started to investigate the possibility of issuing so-called Central Bank Digital Currencies (CBDCs). The aim may be to compete with cryptocurrencies of different kinds but also to replace digital commercial bank money with central bank issued digital money, i.e. replacing bank money with central bank issued base money. In this paper we study a similar experiment when the Swedish central bank, the Riksbank, in 1903 replaced private banknotes with their own notes. The result of this policy was a massive increase in commercial bank credit due to the increase in base money, spurring the ongoing boom even further. A boom that worsened the 1907 crisis. The result is thus questioning the notion that increased monetary issuance by a monetary authority to replace other financial assets as private money or cryptoassets should lead to increased financial stability – as, in fact, it led to the opposite. |
| Keywords: | Central banking; Commercial banks; Crises; Cryptoassets; Financial stability |
| JEL: | E42 N13 N23 |
| Date: | 2022–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uuehwp:2022_003&r=mac |
| By: | Eric Fischer; Rebecca McCaughrin; Saketh Prazad; Mark Vandergon |
| Abstract: | This paper seeks to estimate the extent to which market-implied policy expectations could be improved with further information disclosure from the FOMC. Using text analysis methods based on large language models, we show that if FOMC meeting materials with five-year lagged release dates—like meeting transcripts and Tealbooks—were accessible to the public in real time, market policy expectations could substantially improve forecasting accuracy. Most of this improvement occurs during easing cycles. For instance, at the six-month forecasting horizon, the market could have predicted as much as 125 basis points of additional easing during the 2001 and 2008 recessions, equivalent to a 40-50 percent reduction in mean squared error. This potential forecasting improvement appears to be related to incomplete information about the Fed’s reaction function, particularly with respect to financial stability concerns in 2008. In contrast, having enhanced access to meeting materials would not have improved the market’s policy rate forecasting during tightening cycles. |
| Keywords: | interest rates; monetary policy; central banks and their policies; sentiment analysis |
| JEL: | E43 E52 E58 C80 |
| Date: | 2023–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:97356&r=mac |
| By: | Clodomiro Ferreira (Bank of Spain); Stefano Pica (Bank of Italy) |
| Abstract: | We study the joint behavior of households’ survey expectations for a wide range of macroeconomic and individual-level variables in the largest six euro area countries, both in the cross-section and time series. Although households disagree, their expectations are correlated in the cross-section. Two principal components explain a significant portion of the variance of all expectations. These components capture households’ perceptions of the sources of macroeconomic dynamics, with the first capturing supply-side views and the second component reflecting demand-side views. This structure of perceptions and disagreement is stable across countries and time and does not vary with demographic or socioeconomic characteristics. We then use these insights to identify two common factors driving expectations over time. The factors co-move strongly with measures of supply and demand disturbances and align well with a narrative based on increasing perceived inflationary pressures coming from supply after the invasion of Ukraine in February 2022. |
| Keywords: | Survey, Expectations, Inflation, Output, Supply, Demand |
| JEL: | D1 D8 E2 E3 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:287&r=mac |
| By: | Manuel Gonzalez-Astudillo; Rakeen Tanvir |
| Abstract: | This paper estimates a time-varying reaction function of the median participant of the Federal Open Market Committee, using a Taylor rule with time-varying coefficients estimated on one- to three-year ahead median forecasts of the federal funds rate, inflation, and the unemployment rate from the Summary of Economic Projections (SEP). We estimate the model with Bayesian methods, incorporating the effective lower bound on the median federal funds rate projections. The results indicate that the monetary policy rule has become significantly more persistent after the pandemic than in the years prior, and it currently reacts strongly to inflation, at more than twice the responsiveness estimated prior to 2020. Our proposed policy rule produces accurate predictions of the median federal funds rate projections in real time for given SEP forecasts of inflation and the unemployment rate, suggesting that the median participant's reaction function is well-represented by our assumed Taylor rule with time-varying coefficients. Our results show that the median participant's reaction function becomes less persistent and less responsive to inflation yet more responsive to the output gap in anticipation of tighter monetary policy conditions. We also find that labor market activity, inflation, and macroeconomic uncertainty correlate significantly with the evolution of the time-varying coefficients of the rule. Finally, we show that in times of a less persistent policy rule or more responsiveness to inflation, markets perceive nominal bonds as better macroeconomic hedges. |
| Keywords: | Summary of Economic Projections; Reaction function; Taylor rule; FOMC communications; Time-varying coefficients; Censored regression |
| JEL: | C32 C34 E52 E58 |
| Date: | 2023–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2023-70&r=mac |
| By: | Schmidpeter, Bernhard |
| Abstract: | I show that workers update expectations about job search and salary growth when exposed to labor market news. To identify the impact of news on expectations, I exploit Foxconn's announcement to build a large production plant in Racine County, Wisconsin. Exposure to positive news leads to an increase in expected salary growth at the current firm, with no discernible differences between workers who are optimistic about receiving any outside offer in the future and those who are not. This suggests that firms and workers bargain frequently over wages, even in the absence of an outside job offer. Moreover, I find that individuals revise their expectations about potential outside wage offers upward, anchoring their beliefs in Foxconn's publicly announced wages. Investigating whether individuals act on their updated beliefs, I find evidence that exposure to the news leads to a small increase in current consumption. Using Foxconn's later announcement of a scaled down version of the initial investment plan, I find that individuals revise their expectations back toward baseline. |
| Keywords: | Beliefs formation, wage expectations, outside options, consumption |
| JEL: | C33 D84 E24 J31 J63 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:279546&r=mac |
| By: | Ibarra, Raul |
| Abstract: | This paper analyzes whether there exists a relationship between the slope of the yield curve and future economic activity in Mexico for the period 2004–2019. In particular, we evaluate whether such a relationship depends on the term premium. For this purpose, we estimate a threshold model in which the relationship between the yield spread and economic activity, measured as either output growth or the probability of a contraction, depends on whether the term premium is above or below a certain threshold. The main results indicate that the slope of the yield curve seems to anticipate the behavior of economic activity only when the term premium is above a threshold. Our results also suggest that the slope of the yield curve has predictive power over the probability of facing a contraction in the future only when the term premium is above a threshold. |
| Keywords: | yield spread; term premium; economic activity |
| JEL: | C53 E32 E37 E43 |
| Date: | 2023–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120717&r=mac |
| By: | - |
| Abstract: | This document is based on the contributions and presentations of the ministerial meeting of the Forum of Ministers and High-Level Authorities of Housing and Urbanism of Latin America and the Caribbean (MINURVI), organised by the Ministry of Territorial Development and Habitat of Argentina, which assumed the presidency of the Forum for the 2023 period. The meeting was held on 10 and 11 April 2023 at the Kirchner Cultural Centre, in the Autonomous City of Buenos Aires 28 member states attended the meeting along with representatives from ECLAC in its role as Technical Secretariat of MINURVI. During this meeting, authorities, leaders, experts in housing and urbanism, and development banks convened with the aim of addressing the issue of financing for climate change mitigation in cities. Strategies and alternatives to address the housing deficit and promote the development of value chains related to construction and sustainable housing were also discussed. The ministerial meeting provided an opportunity to discuss possible strategies for the creation of a green finance fund at the regional level. This fund would seek to expand the financing of projects and programmes with a significant impact on improving climate change resilience and/or reducing greenhouse gas emissions in urban areas. |
| Date: | 2023–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:ecr:col043:68651&r=mac |
| By: | Adil Garohe (Mohammed V University in Rabat); Rachid Zammar (Faculty of Sciences, Mohammed V University in Rabat, Rabat, Morocco.) |
| Abstract: | The COVID-19 pandemic has led to a global economic crisis, prompting unprecedented measures to support economies, entrepreneurship, and businesses. This article explores entrepreneurs' perceptions and actions in the face of this challenging situation. A field survey was conducted among 49 businessmen in the Rabat-Salé-Kénitra region of Morocco, impacted by the pandemic. Data were collected using questionnaires and analyzed with the "Nvivo" qualitative analysis tool. Results reveal that entrepreneurs are primarily concerned about the crisis's economic impact on their businesses. The study emphasizes the crucial role of government actions and the necessary measures for entrepreneurs to overcome this situation. The article's purpose is to support analysts in comprehending how companies have responded to the challenges posed by the COVID-19 pandemic, marked by operational hurdles and substantial shifts in consumer behavior. Subsequent research should delve into the effects of these trends and their connection to potential disruptions. Received: 18 July 2023 / Accepted: 24 October 2023 / Published: 5 November 2023 |
| Keywords: | Adaptation Companies Reality of COVID Criteria Impact and Measures, Adaptation, Companies, Reality of COVID, Criteria Impact and Measures |
| Date: | 2023–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04272996&r=mac |
| By: | Jiang, Jennifer; Lippert, Isabell; Alizadeh, Armin |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:dar:wpaper:141319&r=mac |
| By: | Equipe porteuse : CREM Caen, Tepp |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:tep:tepprr:rr23-09&r=mac |
| By: | Frédéric Chantreuil; Isabelle Lebon; Samuel Lerestif |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:tep:tepprr:rr23-07&r=mac |