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on Macroeconomics |
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Issue of 2005‒04‒16
155 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Thomas Y. Mathä; Patrick Lünnemann |
| Abstract: | This paper analyses the degree of price rigidity and of inflation persistence across different product categories with particular focus on regulated prices and services for the individual EU15 countries, as well as for the EU15 and the euro area aggregates. We show that services and those HICP sub-indices considered being subject to price regulation exhibit larger degrees of nominal price rigidities, with less frequent but larger price index changes as well as stronger asymmetries between price index increases and decreases. With regard to what extent services and regulated prices contribute to the degree of overall inflation persistence, we find that, for most of the EU15 countries as well as for the EU15 and the euro area aggregates, excluding services from the full HICP results in a reduction in the measured degree of inflation persistence; for regulated indices such an effect is also discernible, albeit to a lesser extent. |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etude_14&r=mac |
| By: | Pasquale Scaramozzino; Jonathan Temple; Nir Vulkan |
| Abstract: | The economic boom of the USA in the 1990s was remarkable in its duration, the sustained rise in equipment investment, the reduced volatility of productivity growth, and continued uncertainty about the trend growth rate. In this paper we link these phenomena using an extension of the classic model of implementation cycles due to Shleifer (1986). The key idea is that uncertainty about the trend growth rate can lead firms to bring forward the implementation of innovations, temporarily eliminating expectations-driven business cycles, because delay is risky when beliefs are not common knowledge. |
| Keywords: | Implementation cycles, New Economy, multiple equilibria. |
| JEL: | E32 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:bri:uobdis:05/569&r=mac |
| By: | Luis Fernando Melo Velandia; Alvaro José Riascos Villegas |
| Abstract: | En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés. |
| Date: | 2004–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000070:000176&r=mac |
| By: | Fabio H. Nieto |
| Abstract: | In this theoretical report, the identifiability property of a coincident index model is studied. As a result, characterization of the identifiability conditions solves a model specification problem, which was detected in the design of an earlier index for the Colombian economy.In this theoretical report, the identifiability property of a coincident index model is studied. As a result, characterization of the identifiability conditions solves a model specification problem, which was detected in the design of an earlier index for the Colombian economy.In this theoretical report, the identifiability property of a coincident index model is studied. As a result, characterization of the identifiability conditions solves a model specification problem, which was detected in the design of an earlier index for the Colombian economy.In this theoretical report, the identifiability property of a coincident index model is studied. As a result, characterization of the identifiability conditions solves a model specification problem, which was detected in the design of an earlier index for the Colombian economy.In this theoretical report, the identifiability property of a coincident index model is studied. As a result, characterization of the identifiability conditions solves a model specification problem, which was detected in the design of an earlier index for the Colombian economy.In this theoretical report, the identifiability property of a coincident index model is studied. As a result, characterization of the identifiability conditions solves a model specification problem, which was detected in the design of an earlier index for the Colombian economy.In this theoretical report, the identifiability property of a coincident index model is studied. As a result, characterization of the identifiability conditions solves a model specification problem, which was detected in the design of an earlier index for the Colombian economy.In this theoretical report, the identifiability property of a coincident index model is studied. As a result, characterization of the identifiability conditions solves a model specification problem, which was detected in the design of an earlier index for the Colombian economy. |
| Keywords: | Coincident Economic Index, |
| Date: | 2003–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:col:000070:000301&r=mac |
| By: | Luis Eduardo Arango; Luz Adriana Flórez |
| Abstract: | Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos, los que predice la teoría. La capacidad de pronóstico del modelo es mejor para el período entre 6 y 12 meses adelante que para periodos superiores.Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos, los que predice la teoría. La capacidad de pronóstico del modelo es mejor para el período entre 6 y 12 meses adelante que para periodos superiores.Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos, los que predice la teoría. La capacidad de pronóstico del modelo es mejor para el período entre 6 y 12 meses adelante que para periodos superiores.Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos, los que predice la teoría. La capacidad de pronóstico del modelo es mejor para el período entre 6 y 12 meses adelante que para periodos superiores.Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos, los que predice la teoría. La capacidad de pronóstico del modelo es mejor para el período entre 6 y 12 meses adelante que para periodos superiores.Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos, los que predice la teoría. La capacidad de pronóstico del modelo es mejor para el período entre 6 y 12 meses adelante que para periodos superiores.Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos, los que predice la teoría. La capacidad de pronóstico del modelo es mejor para el período entre 6 y 12 meses adelante que para periodos superiores.Se presenta evidencia clara a favor de la hipótesis de que la estructura a plazo real contiene información sobre las expectativas de la actividad económica en Colombia para los plazos entre 6 y 12, 6 y 24, y 12 y 24 meses adelante. Los signos de los coeficientes estimados son, en todos los casos, los que predice la teoría. La capacidad de pronóstico del modelo es mejor para el período entre 6 y 12 meses adelante que para periodos superiores. |
| Keywords: | Estructura a plazo, |
| JEL: | E43 |
| Date: | 2004–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:col:000070:000616&r=mac |
| By: | Mauricio Avella Gómez |
| Abstract: | Aunque Colombia no participó directamente en las hostilidades de la segunda guerra mundial, las consecuencias internacionales del conflicto ejercieron una clara influencia en las políticas macroeconómicas de la época. Este ensayo explora el papel jugado por la deuda pública interna en los diferentes escenarios macroeconómicos surgidos durante la guerra, así como en los primeros años de la posguerra.Aunque Colombia no participó directamente en las hostilidades de la segunda guerra mundial, las consecuencias internacionales del conflicto ejercieron una clara influencia en las políticas macroeconómicas de la época. Este ensayo explora el papel jugado por la deuda pública interna en los diferentes escenarios macroeconómicos surgidos durante la guerra, así como en los primeros años de la posguerra.Aunque Colombia no participó directamente en las hostilidades de la segunda guerra mundial, las consecuencias internacionales del conflicto ejercieron una clara influencia en las políticas macroeconómicas de la época. Este ensayo explora el papel jugado por la deuda pública interna en los diferentes escenarios macroeconómicos surgidos durante la guerra, así como en los primeros años de la posguerra.Aunque Colombia no participó directamente en las hostilidades de la segunda guerra mundial, las consecuencias internacionales del conflicto ejercieron una clara influencia en las políticas macroeconómicas de la época. Este ensayo explora el papel jugado por la deuda pública interna en los diferentes escenarios macroeconómicos surgidos durante la guerra, así como en los primeros años de la posguerra.Aunque Colombia no participó directamente en las hostilidades de la segunda guerra mundial, las consecuencias internacionales del conflicto ejercieron una clara influencia en las políticas macroeconómicas de la época. Este ensayo explora el papel jugado por la deuda pública interna en los diferentes escenarios macroeconómicos surgidos durante la guerra, así como en los primeros años de la posguerra.Aunque Colombia no participó directamente en las hostilidades de la segunda guerra mundial, las consecuencias internacionales del conflicto ejercieron una clara influencia en las políticas macroeconómicas de la época. Este ensayo explora el papel jugado por la deuda pública interna en los diferentes escenarios macroeconómicos surgidos durante la guerra, así como en los primeros años de la posguerra.Aunque Colombia no participó directamente en las hostilidades de la segunda guerra mundial, las consecuencias internacionales del conflicto ejercieron una clara influencia en las políticas macroeconómicas de la época. Este ensayo explora el papel jugado por la deuda pública interna en los diferentes escenarios macroeconómicos surgidos durante la guerra, así como en los primeros años de la posguerra.Aunque Colombia no participó directamente en las hostilidades de la segunda guerra mundial, las consecuencias internacionales del conflicto ejercieron una clara influencia en las políticas macroeconómicas de la época. Este ensayo explora el papel jugado por la deuda pública interna en los diferentes escenarios macroeconómicos surgidos durante la guerra, así como en los primeros años de la posguerra. |
| Date: | 2004–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000070:000841&r=mac |
| By: | Ricardo Ernesto ROCHA GARCIA; Hermes Fernando MARTINEZ |
| Abstract: | Se trata de un trabajo exploratorio de la validez de la conexión pobreza-criminalidad-crecimiento económico desde una perspectiva de la literatura del desarrollo económico, donde las privaciones de la población y el menor costo de oportunidad asociado a las menores dotaciones fevorecen la criminalidad, al cual tiene repercusiones adversas sobre los procesos de ahorro-inversión.Se trata de un trabajo exploratorio de la validez de la conexión pobreza-criminalidad-crecimiento económico desde una perspectiva de la literatura del desarrollo económico, donde las privaciones de la población y el menor costo de oportunidad asociado a las menores dotaciones fevorecen la criminalidad, al cual tiene repercusiones adversas sobre los procesos de ahorro-inversión.Se trata de un trabajo exploratorio de la validez de la conexión pobreza-criminalidad-crecimiento económico desde una perspectiva de la literatura del desarrollo económico, donde las privaciones de la población y el menor costo de oportunidad asociado a las menores dotaciones fevorecen la criminalidad, al cual tiene repercusiones adversas sobre los procesos de ahorro-inversión.Se trata de un trabajo exploratorio de la validez de la conexión pobreza-criminalidad-crecimiento económico desde una perspectiva de la literatura del desarrollo económico, donde las privaciones de la población y el menor costo de oportunidad asociado a las menores dotaciones fevorecen la criminalidad, al cual tiene repercusiones adversas sobre los procesos de ahorro-inversión.Se trata de un trabajo exploratorio de la validez de la conexión pobreza-criminalidad-crecimiento económico desde una perspectiva de la literatura del desarrollo económico, donde las privaciones de la población y el menor costo de oportunidad asociado a las menores dotaciones fevorecen la criminalidad, al cual tiene repercusiones adversas sobre los procesos de ahorro-inversión.Se trata de un trabajo exploratorio de la validez de la conexión pobreza-criminalidad-crecimiento económico desde una perspectiva de la literatura del desarrollo económico, donde las privaciones de la población y el menor costo de oportunidad asociado a las menores dotaciones fevorecen la criminalidad, al cual tiene repercusiones adversas sobre los procesos de ahorro-inversión.Se trata de un trabajo exploratorio de la validez de la conexión pobreza-criminalidad-crecimiento económico desde una perspectiva de la literatura del desarrollo económico, donde las privaciones de la población y el menor costo de oportunidad asociado a las menores dotaciones fevorecen la criminalidad, al cual tiene repercusiones adversas sobre los procesos de ahorro-inversión.Se trata de un trabajo exploratorio de la validez de la conexión pobreza-criminalidad-crecimiento económico desde una perspectiva de la literatura del desarrollo económico, donde las privaciones de la población y el menor costo de oportunidad asociado a las menores dotaciones fevorecen la criminalidad, al cual tiene repercusiones adversas sobre los procesos de ahorro-inversión. |
| Keywords: | crecimiento |
| Date: | 2003–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:col:000107:000413&r=mac |
| By: | Carlos Alberto CASTRO IRAGORRI |
| Abstract: | This paper sums up the results of an ongoing research on the construction of indexes for Colombian economic activity and the characteristics of the business cycle. The author uses the statistical framework known as the generalized dynamic factor model (Forni, Lippi, Hallin, Reichlin, 2000) to build a lagging, coincident, and leading quarterly index for Colombian economic activity.This paper sums up the results of an ongoing research on the construction of indexes for Colombian economic activity and the characteristics of the business cycle. The author uses the statistical framework known as the generalized dynamic factor model (Forni, Lippi, Hallin, Reichlin, 2000) to build a lagging, coincident, and leading quarterly index for Colombian economic activity.This paper sums up the results of an ongoing research on the construction of indexes for Colombian economic activity and the characteristics of the business cycle. The author uses the statistical framework known as the generalized dynamic factor model (Forni, Lippi, Hallin, Reichlin, 2000) to build a lagging, coincident, and leading quarterly index for Colombian economic activity.This paper sums up the results of an ongoing research on the construction of indexes for Colombian economic activity and the characteristics of the business cycle. The author uses the statistical framework known as the generalized dynamic factor model (Forni, Lippi, Hallin, Reichlin, 2000) to build a lagging, coincident, and leading quarterly index for Colombian economic activity.This paper sums up the results of an ongoing research on the construction of indexes for Colombian economic activity and the characteristics of the business cycle. The author uses the statistical framework known as the generalized dynamic factor model (Forni, Lippi, Hallin, Reichlin, 2000) to build a lagging, coincident, and leading quarterly index for Colombian economic activity.This paper sums up the results of an ongoing research on the construction of indexes for Colombian economic activity and the characteristics of the business cycle. The author uses the statistical framework known as the generalized dynamic factor model (Forni, Lippi, Hallin, Reichlin, 2000) to build a lagging, coincident, and leading quarterly index for Colombian economic activity.This paper sums up the results of an ongoing research on the construction of indexes for Colombian economic activity and the characteristics of the business cycle. The author uses the statistical framework known as the generalized dynamic factor model (Forni, Lippi, Hallin, Reichlin, 2000) to build a lagging, coincident, and leading quarterly index for Colombian economic activity.This paper sums up the results of an ongoing research on the construction of indexes for Colombian economic activity and the characteristics of the business cycle. The author uses the statistical framework known as the generalized dynamic factor model (Forni, Lippi, Hallin, Reichlin, 2000) to build a lagging, coincident, and leading quarterly index for Colombian economic activity. |
| Keywords: | generalized dynamic factor model |
| Date: | 2003–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000107:000424&r=mac |
| By: | Gustavo Adolfo HERNANDEZ |
| Abstract: | En el presente trabajo se presenta una metodología para la construcción de una Matriz de Contabilidad Social Financiera para Colombia. En particular, esta se centra en la construcción de esta clases de matrices para incorporarla dentro del modelo IMMPA (Integrated Macroeconomic Model for Poverty Analysis) desarrollado por el Banco Mundial.En el presente trabajo se presenta una metodología para la construcción de una Matriz de Contabilidad Social Financiera para Colombia. En particular, esta se centra en la construcción de esta clases de matrices para incorporarla dentro del modelo IMMPA (Integrated Macroeconomic Model for Poverty Analysis) desarrollado por el Banco Mundial.En el presente trabajo se presenta una metodología para la construcción de una Matriz de Contabilidad Social Financiera para Colombia. En particular, esta se centra en la construcción de esta clases de matrices para incorporarla dentro del modelo IMMPA (Integrated Macroeconomic Model for Poverty Analysis) desarrollado por el Banco Mundial.En el presente trabajo se presenta una metodología para la construcción de una Matriz de Contabilidad Social Financiera para Colombia. En particular, esta se centra en la construcción de esta clases de matrices para incorporarla dentro del modelo IMMPA (Integrated Macroeconomic Model for Poverty Analysis) desarrollado por el Banco Mundial.En el presente trabajo se presenta una metodología para la construcción de una Matriz de Contabilidad Social Financiera para Colombia. En particular, esta se centra en la construcción de esta clases de matrices para incorporarla dentro del modelo IMMPA (Integrated Macroeconomic Model for Poverty Analysis) desarrollado por el Banco Mundial.En el presente trabajo se presenta una metodología para la construcción de una Matriz de Contabilidad Social Financiera para Colombia. En particular, esta se centra en la construcción de esta clases de matrices para incorporarla dentro del modelo IMMPA (Integrated Macroeconomic Model for Poverty Analysis) desarrollado por el Banco Mundial.En el presente trabajo se presenta una metodología para la construcción de una Matriz de Contabilidad Social Financiera para Colombia. En particular, esta se centra en la construcción de esta clases de matrices para incorporarla dentro del modelo IMMPA (Integrated Macroeconomic Model for Poverty Analysis) desarrollado por el Banco Mundial.En el presente trabajo se presenta una metodología para la construcción de una Matriz de Contabilidad Social Financiera para Colombia. En particular, esta se centra en la construcción de esta clases de matrices para incorporarla dentro del modelo IMMPA (Integrated Macroeconomic Model for Poverty Analysis) desarrollado por el Banco Mundial. |
| Keywords: | Matrices de Contabilidad Social Financieras |
| Date: | 2003–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:col:000107:000433&r=mac |
| By: | Matthias HAGMANN (HEC-University of Lausanne and FAME); Carlos LENZ (University of Basel, Department of Economics) |
| Abstract: | We shed new light on the negative relationship between real stock returns or real interest rates and (i) post inflation, (ii) expected inflation, (iii) unexpected inflation and (iv) changes in expected inflation. Using the structural vector autoregression methodology, we propose a decomposition of those series into economically interpretable components driven by aggregate supply, real demand and money market shocks. Our empirical results support Fama’s ‘proxy hypothesis’ and the predictions of several general equilibrium models. Concerning the negative relation between the real rate of interest and inflation, we find that the Mundell-Tobin model and the explanation of Fama and Gibbons (1982) are not competitors: both add insight in their own way about the reasons for the negative correlation between those variables. However, the importance of the latter explanation decreased since the 1980’s. |
| Keywords: | Real stock returns; Real rate of interest; Expected and unexpected inflation; 'Fisher hypothesis'; Structural VAR |
| JEL: | E44 G1 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp118&r=mac |
| By: | Angela Black (University of Aberdeen Business School); Patricia Fraser (University of Aberdeen Business School); Martin Hoesli |
| Abstract: | This paper studies actual house prices relative to fundamental house prices. Using UK data and a time-varying present value approach, we find that deviations of house prices fromtheir fundamental value (as warranted by real disposable income) are significant but not dominated by speculative activity; the driving force appears to be over-sensitivity to expectations over fundamentals. Our findings suggest that inflation (excluding house prices) responds asymmetrically with more impact on future inflation from turning points at peaks of overevaluation compared to turning points at troughs of underevaluation; and the turning points appear to have independent forecasting ability for inflation. This suggests that house prices have information about inflation which could be exploited by the MOnetary Policy Committee (MPC). |
| Keywords: | House Prices, Fundamentals, Inflation, Monetary Policy |
| JEL: | E52 E58 R31 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp129&r=mac |
| By: | Jean-Pierre Danthine (Université de Lausanne, FAME and CEPR); John B. Donaldson (Columbia University); Christos Giannikos (Baruch College, City University of New York); Hany Guirguis (Manhattan College) |
| Abstract: | This paper introduces state dependent utility into the standard Mehra and Prescott (1985) economy by allowing the representative agent’s coefficient of relative risk aversion to vary with the underlying economy’s growth rate. Existence of equilibrium is proved and its asymptotic properties analyzed. This generalization leads to level dependent marginal rates of substitution, a property that sharply distinguishes this model from the standard construct. For very low coefficients of relative risk aversion, the equilibrium risk free and risky security returns are demonstrated to have volatilities and an associated equity premium that substantially exceed what is found in the data. This provides a contrasting perspective on the classic “equity premium puzzle.” |
| Keywords: | state dependent utility; equity premium; equity premium puzzle |
| JEL: | D91 E21 G00 G12 |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp73&r=mac |
| By: | Jean-Pierre Danthine (HEC-University of Lausanne, CEPR & FAME); John B. Donaldson (Columbia University) |
| Abstract: | We are interested in the macroeconomic implications of the separation of ownership and control. An alternative decentralized interpretation of the stochastic growth model is proposed, one where shareholders hire a self-interested manager who is in charge of the firm’s hiring and investment decisions. Delegation is seen to give rise to a generic conflict of interests between shareholders and managers. This conflict fundamentally results from the different income base of the two types of agents, once aggregate market clearing conditions are taken into account. An optimal contract exists resulting in an observational equivalence between the delegated management economy and the standard representative agent business cycle model. The optimal contract, however, appears to be miles away from standard practice: the manager’s remuneration is tied to the firm’s total income net of investment expenses, abstracting totally from wage costs. In order to align the interest of a manager more conventionally remunerated on the basis of the firm’s operating results to those of stockholder-workers, the manager must be made nearly risk neutral. We show the limited power of convex contracts to accomplish this goal and the necessity, if the manager is too risk averse (log or higher than log), of considerably downplaying the incentive features of his remuneration. The difficulty in reconciling the viewpoints of a manager with powers of delegation and of a representative firm owner casts doubt on the descriptive validity of the macro-dynamics highlighted in the representative agent macroeconomic model. |
| Keywords: | business cycles, delegated management, contracting |
| JEL: | E32 E44 |
| Date: | 2003–06 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp88&r=mac |
| By: | Cappelen , Alexander W. (Dept. of Economics, University of Oslo); Tungodden, Bertil (Norwegian School of Economics and Business Administration and Chr. Michelsen) |
| Abstract: | This paper shows how two important interregional transfer schemes,the foundation grant and the power equalization grant, can be seen as two different interpretations of equal opportunity ethics. It provides characterizations of both transfer schemes by the use of basic liberal egalitarian principles. Both the foundation grant and the power equalization grant scheme make use of specific reference levels. The paper also shows how reasonable requirements on the transfer schemes restrict the set of possible reference levels. |
| Keywords: | transfer schemes; foundation grant; power equalization grant; liberal egalitarian principles |
| JEL: | E62 |
| Date: | 2004–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2004_024&r=mac |
| By: | Erlandsen, Solveig (Norges Bank); Nymoen, Ragnar (Dept. of Economics, University of Oslo) |
| Abstract: | In this paper the effects on aggregate consumption of changes in the age distribution of the population are analysed empirically. Economic theories predict that age influences individuals’ saving and consumption behaviour. Despite this, age structure effects are rarely controlled for in empirical consumption functions. Our findings suggest that they should. By analysing Norwegian quarterly time series data we find that changes in the age distribution of the population have significant and life cycle consistent effects on aggregate consumption. Furthermore, controlling for age structure effects stabilizes the other parameters of the consumption function and reveals significant real interest rate effects. Simulation experiments show that the numerical effect on the savings rate of age structure changes is substantial when the indirect effects via wealth and income are accounted for. |
| Keywords: | Consumption; demography; savings; time series models; cointegration. |
| JEL: | C51 C53 E21 J10 |
| Date: | 2005–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2004_027&r=mac |
| By: | Bryan, Michael F. (Federal Reserve Bank of Cleveland); Palmqvist, Stefan (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | This paper considers the evidence of “near-rationality,” as described by Akerlof, Dickens, and Perry (2000). Using detailed surveys of household inflation expectations for the United States and Sweden, we find that the data are generally unsupportive of the near-rationality hypothesis. However, we document that household inflation expectations tend to settle around discrete and largely fixed “focal points,” suggesting that both U.S. and Swedish households gauge inflation prospects in rather broad, qualitative terms. Moreover, the combination of a low-inflation environment and an inflation target in Sweden has been accompanied by a disproportionately high proportion of Swedish households expecting no inflation. However, a similar low-inflation trend in the United States, which does not have an explicit inflation target, reveals no such rise in the proportion of households expecting no inflation. This observation suggests that the way the central bank communicates its inflation objective may influence inflation expectations independently of the inflation trend it actually pursues. |
| Keywords: | inflation expectations; rationality; inflation targeting; Phillips curve |
| JEL: | D10 D70 E60 |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0183&r=mac |
| By: | Welz, Peter (Department of Economics); Österholm, Pär (Department of Economics) |
| Abstract: | This paper contributes to the recent debate about the estimated high partial adjustment coefficient in dynamic Taylor rules, commonly interpreted as deliberate interest rate smoothing on the part of the monetary authority. We argue that a high coefficient on the lagged interest rate term may be a consequence of an incorrectly specified central bank reaction function. Focusing on omitted variables, our Monte Carlo study first generates the well-known fact that all coefficients in the misspecified equation are biased in such cases. In particular, if relevant variables are left out from the estimated equation, a high partial adjustment coefficient is obtained even when it is in fact zero in the data generating process. Misspecification also leads to considerable size distortions in two tests that were recently proposed by English, Nelson, and Sack (2003) in order to distinguish between interest rate smoothing and serially correlated disturbances. Our results question the common interpretation of very slow partial adjustment as interest rate smoothing in estimated dynamic Taylor rules. |
| Keywords: | Monetary policy; Taylor rule; Interest rate smoothing; Serially correlated error term; Omitted variables |
| JEL: | C12 C15 E52 |
| Date: | 2005–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2005_014&r=mac |
| By: | Alejandro Micco (Inter-American Development Bank); Ugo Panizza (Inter-American Development Bank) |
| Abstract: | This paper examines whether bank ownership (public versus private, domestic versus foreign) is correlated with bank lending behavior over the business cycle. The paper finds that state-owned banks may play a useful credit-smoothing role because their lending is less responsive to macroeconomic shocks than the lending of private banks. The paper investigates whether this differential behavior is due to an explicit objective of stabilizing credit or to the presence of "lazy" public bank managers; evidence is found in support of the former hypothesis. In the case of foreign-owned banks, the paper finds that the results are less clear-cut and argues that this finding is in line with existing theoretical models. |
| Keywords: | State-owned banks; Foreign-owned banks; Credit cycle |
| JEL: | G21 H11 E44 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:1015&r=mac |
| By: | Frankel, David M.; Burdzy, Krzysztof |
| Abstract: | A popular theory of business cycles is that they are driven by animal spirits: shifts in expectations brought on by sunspots. A prominent example is Howitt and McAfee (AER, 1992). We show that this model has a unique equilibrium if there are payoff shocks of any size. This equilibrium still has the desirable property that recessions and expansions can occur without any large exogenous shocks. We give an algorithm for computing the equilibrium and study its comparative statics properties. This work generalizes Burdzy, Frankel, and Pauzner (2000) to the case of endogenous frictions and seasonal and mean-reverting shocks. |
| JEL: | C7 E3 |
| Date: | 2005–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12274&r=mac |
| By: | James E. Alt (Department of Government, Harvard University); David Dreyer Lassen (Institute of Economics, University of Copenhagen) |
| Abstract: | We investigate the effects of fiscal transparency and political polarization on the prevalence of electoral cycles in fiscal balance. The recent political economy literature on electoral cycles identifies such cycles mainly in weak and recent democracies. In contrast, we show, conditioning on a new index of institutional fiscal transparency, that electoral cycles in fiscal balance are a feature also of advanced industrialized economies. Using a sample of nineteen OECD countries in the 1990’s, we identify a persistent pattern of electoral cycles in low(er) transparency countries, while no such cycles can be observed in high(er) transparency countries. Furthermore, we find, in accordance with recent theory, that electoral cycles are larger in more politically polarized countries. |
| Keywords: | fiscal transparency; political polarization; fiscal policy; budget deficits; political budget cycles; electoral policy cycles |
| JEL: | D72 E62 H62 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:05-03&r=mac |
| By: | Katarina Juselius (Institute of Economics, University of Copenhagen); Søren Johansen (Department of Mathematical Statistics, University of Copenhagen) |
| Abstract: | The cointegrated VAR model is proposed as an empirically coherent framework for analyzing macroeconomic phenomena within a dynamic system of pulling and pushing forces. As an illustration we show how an economic theory for inflation and money demand gives rise to a number of hypotheses formulated as testable parameter restrictions on cointegrating relations and common trends. The procedure not only allows us to test prior theoretical hypotheses in a valid maximum likelihood framework but also provides additional empirical results suggesting how to modify or improve our theoretical understanding. The latter is important when theoretical implications fail to hold in the data. |
| Keywords: | cointegrated VAR; inflation; money growth; empirical methodology |
| JEL: | B41 C32 E40 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0505&r=mac |
| By: | Dimitri B. Papadimitriou; Anwar M. Shaikh; Claudio H. Dos Santos; Gennaro Zezza |
| Abstract: | As we projected in a previous strategic analysis, the U.S. economy experienced growth rates higher than 4 percent in 2004. The question we want to raise in this strategic analysis is whether these rates will persist or come back down. We believe that several signs point in the latter direction. In what follows, we analyze the evidence and explore the alternatives facing the U.S. economy. |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_mar_05&r=mac |
| By: | Greg Hannsgen |
| Abstract: | Recently, many economists have credited the late-1990s economic boom in the United States for the easy money policies of the Federal Reserve. On the other hand, observers have noted that very low interest rates have had very little positive effect on the chronically weak Japanese economy. Therefore, some theory of how money affects the economy when it is endogenous would be useful. This paper pursues several such explanations, including the effects of interest rate changes on (1) investment; (2) consumer spending; (3) the exchange rate; and (4) financial markets. The theories of such authors as Kalecki, Keynes, Minsky, and J. K. Galbraith are discussed and evaluated, with an emphasis on the role of cash flow. Some of these theories turn out to be stronger than others when subjected to tests of logic and empirical evidence. |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp412&r=mac |
| By: | Jaan Masso; Karsten Staehr |
| Abstract: | The paper seeks to explain the inflationary dynamics in the Baltic countries since the mid-1990s. While single-equation estimations generally yield poor results, panel data estimations provide statistically and economically satisfactory findings. Our main result is that the observed gradual disinflation can to a large extent be explained by adjustment to international prices. Stringent fixed exchange rate systems have exerted downward pressure on inflation both directly and via expectations of future inflation. Measures of excess capacity in the labour market have no effect on inflation, while industrial output gaps have some explanatory power. Real oil price shocks have an immediate but short-lived impact on inflation. |
| Keywords: | Inflation, exchange rates, Phillips curve |
| JEL: | E31 E42 P24 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mtk:febawb:35&r=mac |
| By: | DUFOUR, Jean-Marie; FARHAT, Abdekjelik; HALLIN, Marc |
| Abstract: | We consider the problem of testing whether the observations X1, ..., Xn of a time series are independent with unspecified (possibly nonidentical) distributions symmetric about a common known median. Various bounds on the distributions of serial correlation coefficients are proposed: exponential bounds, Eaton-type bounds, Chebyshev bounds and Berry-Esséen-Zolotarev bounds. The bounds are exact in finite samples, distribution-free and easy to compute. The performance of the bounds is evaluated and compared with traditional serial dependence tests in a simulation experiment. The procedures proposed are applied to U.S. data on interest rates (commercial paper rate). |
| Keywords: | autocorrelation ; serial dendence ; nonrametric test ; distribution-free test ; heterogeneity ; heteroskedasticity ; symmetric distribution ; robustness ; exact test ; bound ; exnential bound ; large deviations ; Chebyshev inequality ; Berry-Esséen ; interest rates. |
| JEL: | C14 C22 C12 C32 E4 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2005-05&r=mac |
| By: | Adam Copeland; Wendy Dunn; George Hall |
| Abstract: | This paper studies the within-model-year pricing and production of new automobiles. Using new monthly data on U.S. transaction prices, we document that for the typical new vehicle, prices fall over the model year at a 9.2 percent annual rate. Concurrently, both sales and inventories are hump shaped. To explain these time series, we formulate a market equilibrium model for new automobiles in which inventory and pricing decisions are made simultaneously. On the demand side, we use micro-level data to estimate time-varying aggregate demand curves for each vehicle. On the supply side, we solve a dynamic programming model of an automaker that, while able to produce only one vintage of a product at a time, may accumulate inventories and consequently sell multiple vintages of the same product simultaneously. The profit maximizing pricing and production strategies under a build-to-stock inventory policy imply declining prices and hump-shaped sales and inventories of the magnitudes observed in the data. Further, roughly half of the price decline is driven by inventory control considerations, as opposed to decreasing demand. |
| JEL: | D21 D42 E22 L11 L62 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11257&r=mac |
| By: | Fernando Alexandre (Universidade do Minho - NIPE and Birkbeck College); Pedro Bação (Universidade de Coimbra) |
| Abstract: | The role of monetary policy during periods of asset price volatility has been the subject of discussion among economists and policymakers at least since the 1920s and the Great Depression that followed. In this paper we survey the recent and rapidly growing literature on this topic, with an emphasis on the investment channel. We present a detailed discussion of the hypotheses that have been used to justify, or criticise, a response to asset prices. These hypotheses concern imperfections in financial markets, bubbles in asset prices, and the information on which firm managers and central banks base their decisions. |
| Keywords: | Investment; Asset Prices; Inflation Targeting; Fundamentals. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:3/2005&r=mac |
| By: | Eric F.Y. Lam (City University of Hong Kong); Gregory C. Chow (Department of Economics, Princeton University) |
| Abstract: | Calibrating the robust asset pricing model with power utility suggest the degree of robustness of 19th century US consumer-investor to be 0.00387. When constant relative risk aversion (CRRA) is 2 and subjective discount factor equals 0.99, the mean burden-compensation for reallocating a dollar from stock to bond is estimated to be 0.05090 annually. When this mean is above 0.04801, the mean-variance of intertemporal marginal rate of substitution meets the Hansen-Jagannathan (1991) type volatility bound. For CRRA of 4, 74.25% of the empirical equity premium is due to pessimism and the rest is due to excess return’s positive correlation with consumption. |
| Keywords: | Asset pricing, equity premium, investor pessimism, robust control |
| JEL: | G10 G12 E44 |
| Date: | 2003–09 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:204&r=mac |
| By: | S. Brock Blomberg (Claremont McKenna College); Gregory D. Hess (Claremont McKenna College); Athanasios Orphanides (Division of Monetary Affairs) |
| Abstract: | We perform an empirical investigation of the macroeconomic consequences of international terrorism and interactions with alternative forms of collective violence. Our analysis is based on a rich unbalanced panal data set with annual observations on 177 countries from 1968 to 2000, which brings together information from the Penn World Table dataset, the ITERATE dataset for terroist events, and dataset of external and internal conflict. We explore these data with cross-sectional and panal groth regression analysis and a structural VAR model. We find that, on average, the incidence of terrorism may have an economically significant negative effect on growth, albeit one that is considerably smaller and less persistant that that associated with either external wars or internal conflict. As well, terrorism is associated with a redirection or economic activity away from investment spending and towards government spending. However, our investigation also suggests important differences both regardng the incidence and the economic consequences of terrorism among different sets of countries. In OECD economies, in particular, terrorist incidents are considerably more frequent than in other nations, but the negative influence of these incidents on growth is smaller. |
| Keywords: | Growth, Conflict, Terrorism, International terrorism, collective violence, macroeconomic consequences |
| JEL: | E6 H1 H5 D74 O11 |
| Date: | 2004–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:100&r=mac |
| By: | Yose Rizal Damuri (Department of Economics, Centre for Strategic and International Studies); Ari A. Perdana (Department of Economics, Centre for Strategic and International Studies) |
| Abstract: | The paper seeks to quantitatively measure the impact of fiscal policy on income distribution and poverty in Indonesia using WAYANG, the CGE model for Indonesian economy. We find that scenarios for fiscal expansion significantly influence income distribution and poverty. Fiscal expansion mainly benefits urban households and non-labour rural households – basically, the wealthiest segments of the society. We have are several explanations. First, factors of production owned by these segments allowed them to reap the most benefits from fiscal expansions. Second, these households are least affected by price increases due to their consumption structure. Finally, we find that, in real terms, the Indonesia’s taxation system burdens poorer households more than richer ones. |
| Keywords: | Indonesia, income distribution, poverty, economic modelling, fiscal policy |
| Date: | 2003–05 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:58&r=mac |
| By: | Tubagus Feridhanusetyawan (Department of Economics, Centre for Strategic and International Studies); Mari Pangestu (Department of Economics, Centre for Strategic and International Studies) |
| Abstract: | This paper presents an illustrative analysis of the crisis from a macroeconomic perspective, by focusing on the various economic adjustments both in the real and monetary sectors. It argues that the complex nature of the political and economic reform process has resulted in sub – optimal growth rates. The paper discusses, first, the evolution of the crisis. Then it provides an account of the developments in the real sector and growth in general. The authors then present monetary adjustments, including inflation, exchange rate, and other issues related to the banking and financial sectors. The fourth section discusses the balance of payment trends, by focusing more on the adjustments of exports and imports. This is followed by a discussion on debt issues and fiscal sustainability, while the last part concludes with the prospect of achieving macroeconomic stability. |
| Keywords: | Indonesia, crisis, macroeconomic adjustment |
| Date: | 2004–02 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:63&r=mac |
| By: | Seonghoon Cho (Korea Development Institute); Antonio Moreno (School of Economics and Business Administration, University of Navarra); Geert Bekaert (Columbia Business School, Columbia University) |
| Abstract: | This article complements the structural New-Keynesian macro framework with a no-arbitrage affine term structure model. Whereas our methodology is general, we focus on an extended macro-model with an unobservable time varying inflation target and the natural rate of output which are filtered from macro and term structure data. We obtain large and significant estimates of the Phillips curve and real interest rate response parameters. Our model also delivers strong contemporaneous responses of the entire term structure to various macroeconomic shocks. The inflation target dominates the variation in the “level factor” whereas the monetary policy shocks dominate the variation in the “slope and curvature factors”. |
| JEL: | E31 E32 E43 E52 G12 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:una:unccee:wp0405&r=mac |
| By: | Marco Raberto (DIBE-CINEF, University of Genoa); Andrea Teglio (DIBE-CINEF, University of Genoa); Silvano Cincotti (DIBE- CINEF, University of Genoa) |
| Abstract: | This paper presents a heterogeneous agent model of a sequential monetary production economy. A deterministic dynamic flow model is employed. The model is characterized by three classes of agents: a single homogeneous representative consumer, heterogeneous firms and a banking sector. There are three asset classes (or debts): a single homogeneous physical good, money and debt securities. The homogeneous commodity is produced by firms and, if saved, increases their capital stock. Firms issue debts to finance growth. Firms are homogeneous as regarding production technology but are heterogeneous relative to expected in°ation. Consumers provide labor force and make the decision of consumption and saving of their income. They own all the equities of firms and banks. The banking sector collects consumer savings and provides credit supply to firms. The main result of the model is that real economic variables are strongly affected by the level of credit supply in relation to the level of savings. |
| Keywords: | Heterogeneous agents, financial markets and the macroeconomy, computer simulation |
| JEL: | D92 E17 E44 |
| Date: | 2005–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpco:0503002&r=mac |
| By: | Luca Correani (University of Tuscia, Department of economics - Viterbo, Italy) |
| Abstract: | Is democracy exportable? A present-day political doctrine seems to recommend exporting democracy to those countries where diffused religious and social values do not allow the spontaneous growth of democratic institutions. In this paper we present a model that allows us to study the dynamics induced by the exogenous imposition of democracy, when the society is dominated by antidemocratic preferences. We analyze the dynamics of the distribution of democratic values in a population where agents have heterogeneous preferences about democracy, distinguishing between fundamentalist-antidemocratic agents and democratic agents (implicit references to Moslem societies are pervasive in this paper). Cultural traits and norms are acquired through a process of intergenerational cultural transmission and socialization. The driving force in the equilibrium selection process is the education effort exerted by parents; this depends on the distribution of democratic values in the population and on expectations about future policies affecting formal and informal institutions. The main result is that when fundamentalism is sufficiently diffused in all institutional dimensions of social life, the imposition of formal democratic rules do not significantly affect social preferences. This occurs because the existing democratic types perceive their children’s “conversion” to fundamentalism as less costly than the utility cost perceived by fundamentalist types when their children adopt democratic preferences: so fundamentalists’ education effort dominates the dynamic of preferences. As soon as the exogenous imposition is removed the system will again converge to fundamentalist and antidemocratic institutions. We argue that shortsighted behaviour like this by democratic agents might be strongly correlated to the level of economic development. On the other hand the model shows how a cruel fundamentalist dictatorship can not wholly destroy democratic preferences in the population; the sole result is a fictitious homologation of manifested attitudes, with no preferences dynamics and the previous real attitudes immediately emerging as soon as dictatorship falls. JEL classification: E13; P16 Keywords: Democracy, Cultural change, Formation of Preferences |
| JEL: | E13 P16 |
| Date: | 2005–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0501011&r=mac |
| By: | Grigorii Pushnoi (International Bogdanov Institute) |
| Abstract: | The exact mathematical formulation of new System Method based on ideas of “system potential” and “conditions of its realization” is given. Cyclical dynamics of “efficiency of work” of a complex adaptive system follows from this Method. These cycles have the properties like to the properties of typical business cycles. It is proposed to identify these evolution cycles of complex adaptive systems as applied to economic system with business cycles. |
| Keywords: | business cycle, catastrophe jump, economic potential, complex adaptive system |
| JEL: | E |
| Date: | 2005–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0502003&r=mac |
| By: | Matteo M. Pelagatti (University of Milan-Bicocca) |
| Abstract: | A methodology based on the multivariate generalized Butterwoth filter for extracting the business cycles of the whole economy and of its productive sectors is developed. The method is then illustrated through an application to the Italian gross value added time series of the main economic sectors. |
| Keywords: | Business cycle, Butterworth filter, Unobserved components, Kalman Filter |
| JEL: | C13 C32 E32 |
| Date: | 2005–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpem:0503006&r=mac |
| By: | Patrick Crowley (Texas A&M University - Corpus Christi) |
| Abstract: | Wavelet analysis, although used extensively in disciplines such as signal processing, engineering, medical sciences, physics and astronomy, has not yet fully entered the economics discipline. In this discussion paper, wavelet analysis is introduced in an intuitive manner, and the existing economics and finance literature that utilises wavelets is explored. Extensive examples of exploratory wavelet analysis are given, many using Canadian, US and Finnish industrial production data. Finally, potential future applications for wavelet analysis in economics are also discussed and explored. |
| Keywords: | statistical methodology, multiresolution analysis, wavelets, business cycles, economic growth |
| JEL: | C19 C87 E32 |
| Date: | 2005–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpem:0503017&r=mac |
| By: | rea cipollini (queen mary university of london); giuseppe missaglia (iccrea) |
| Abstract: | In this paper, we focus on measuring the risk associated to a bank loan portfolio. In particular, we depart from the standard one factor model representation of portfolio credit risk. In particular, we consider an hetrogeneous portfolio, and we account for stochastic dependent recoveries. We also examine the influence of either one systemic shock (interpreted as the state of the business cycle) or two systemic shocks (interpreted as demand and supply innovations) on portfolio credit risk. The identification and estimation of the common shocks is obtained by fitting a Dynamic Factor model to a large number of macro credit drivers. The scenarios are obtained by employing Montecarlo stochastic simulation. |
| Keywords: | Risk management default correlation Dynamic Factor |
| JEL: | C32 E17 G20 |
| Date: | 2005–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0502010&r=mac |
| By: | Sutthisit Jamdee (Kent State University); Cornelis A. Los (Kent State University) |
| Abstract: | This paper identifies the Multifractal Models of Asset Return (MMARs) from the eight nodal term structure series of US Treasury rates as well as the Fed Funds rate and, after proper synthesis, simulates those MMARs. We show that there is an inverse persistence term structure in the sense that the short term interest rates show the highest persistence, while the long term rates are closer to the GBM's neutral persistence. The simulations of the identified MMAR are compared with the original empirical time series, but also with the simulated results from the corresponding Brownian Motion and GARCH processes. We find that the eight different maturity US Treasury and the Fed Funds rates are multifractal processes. Moreover, using wavelet scalograms, we demonstrate that the MMAR outperforms both the GBM and GARCH(1,1) in time-frequency comparisons, in particular in terms of scaling distribution preservation. Identified distributions of all simulated processes are compared with the empirical distributions in snapshot and over time-scale (frequency) analyses. The simulated MMAR can replicate all attributes of the empirical distributions, while the simulated GBM and GARCH(1,1) processes cannot preserve the thick-tails, high peaks and proper skewness. Nevertheless, the results are somewhat inconclusive when the MMAR is applied on the Fed Funds rate, which has globally a mildly anti-persistent and possibly chaotic diffusion process completely different from the other nodal term structure rates. |
| Keywords: | MMAR, multifractal spectrum, long memory, scaling, term stucture, persistence, Brownian motion, GARCH, time-frequency analysis |
| JEL: | C19 C23 C52 C53 E44 G11 |
| Date: | 2005–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0502021&r=mac |
| By: | Marcos Mailoc López de Prado (UBS); Achim Peijan (UBS) |
| Abstract: | We measure the loss potential of Hedge Funds by combining three market risk measures: VaR, Draw-Down and Time Under-The-Water. Calculations are carried out considering three different frameworks regarding Hedge Fund returns: i) Normality and time-independence, ii) Non-normality and time- independence and iii) Non-normality and time-dependence. In the case of Hedge Funds, our results clearly state that market risk may be substantially underestimated by those models which assume Normality or, even considering Non-Normality, neglect to model time- dependence. Moreover, VaR is an incomplete measure of market risk whenever the Normality assumption does not hold. In this case, VaR results must be compared with Draw-Down and Time Under-The-Water measures in order to accurately assess about Hedge Funds loss potential. |
| Keywords: | Hedge Fund, Value-at-Risk, risk, performance, drawdown, under- the-water, normal returns, non-normal returns, time-dependence, ARMA, Monte Carlo, skewness, kurtosis, mixture of gaussian distributions, survival probability, styles, investment strategies |
| JEL: | G0 G1 G2 G15 G24 E44 |
| Date: | 2005–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0503010&r=mac |
| By: | Sungsup Ra (Korea University, Asian Development Bank) |
| Abstract: | The Paper shows why and how the excessive use of commercial paper by financial institutions and corporations contributed to the vulnerability of the Korean economy to external shocks. We review the unfolding process of the Korean currency crisis,focusing on the role of the commercial paper. We examine how the excessive utilization of commercial paper led to bad credit equilibria in both financial and corporate sectors. We investigate the underlying institutional and market factors leading to the abnormal utilization of commercial paper before the Korean currency crisis erupted in November 1997. The factors identified are: interest rate differentials between the commercial and merchant banking sectors; relatively lax regulation in the commercial paper market; corporations' preference of debt financing over equity financing due to the concerns of ownership, tax subsidies and sluggish equity market; and equity market; and lack of good credit rating agencies. |
| Keywords: | Korean currency crisis, commercial paper, merchant banks |
| JEL: | E22 E65 G30 |
| Date: | 2005–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0503012&r=mac |
| By: | Kirby Adam J.R. Faciane (Kirby Faciane / KAJR Faciane) |
| Abstract: | This brief paper first discusses some of the crucial concepts involved in analyzing macro investment functions. The paper then gives a brief preview of the subject as it now stands, and finally suggests a convenient framework to study the various theories of investment. |
| Keywords: | investment; capital budgeting; capital expenditures; strategic planning |
| JEL: | G0 |
| Date: | 2005–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0503024&r=mac |
| By: | Gourdel (CERMSEM); Triki (CERMSEM) |
| Abstract: | We consider an extension of a general equilibrium model with incomplete markets that considers cash-in-advance constraints. The total amount of money is supplied by an authority, which produces at no cost and lends money to agents at short term nominal rates of interest, meeting the demand. Agents have initial nominal claims, which in the aggregate, are the counterpart of an initial public debt. The authority covers its expenditures, including initial debt, through public revenues which consists of taxes and seignorage, and distributes its eventual budget surpluses through transfers to individuals, while no further instruments are available to correct eventual budget deficits. We define a concept of equilibrium in this extended model, and prove that there exists a monetary equilibrium with no transfers. Moreover, we show that if the price level is high enough, a monetary equilibrium with positive transfers exists. |
| Keywords: | Cash-in-advance constraints, incomplete markets, nominal assets, monetary equilibrium, money, nominal interest rate, transfers, price levels |
| JEL: | C62 D52 E40 E50 G10 |
| Date: | 2005–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0503026&r=mac |
| By: | P. Marcelo Oviedo (Iowa State University) |
| Abstract: | By simplifying the computational tasks and by providing step-by-step explanations of the procedures required to study a linear dynamic rational expectations (LDRE) model, this paper and the accompanying ``LDRE Toolbox' of Matalb functions guide a researcher with almost no experience in computational work to resolve and study his own model. After coding the model following specific guidelines, a single function call is all that is needed to log-linearize the model; simulate it under exogenous sequences of shocks; compute sample and population moment conditions; and obtain impulse-response functions. Three classical models in the Real-Business-Cycles literature are solved and studied throughout to give detailed examples of the steps involved in solving and studying LDRE models using the LDRE Toolbox. Namely, the economies in Brock and Mirman (Optimal Growth and Uncertainty: the Discounted Case, Journal of Economic Theory, 4(3): 479-513; 1972); King, Plosser, and Rebelo (Production, Growth and Business Cycles I: The Basic Neoclassical Model, Journal of Monetary Economics 21: 195-232; 1988); and Mendoza (Real Business Cycles in a Small Open Economy, American Economic Review 81(4): 797-818; 1991). |
| Keywords: | RBC models; Solution method; Toolbox of Matlab functions; Log- linear approximation techniques |
| JEL: | C63 C68 E32 F41 |
| Date: | 2005–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpge:0501004&r=mac |
| By: | Kaloyan Ganev (Agency for Economic Analysis & Forecasting) |
| Abstract: | Total factor productivity measurement enables researchers to determine the contribution of supply-side production factors to economic growth. For Bulgaria, which is a transition economy, it is difficult to construct a production function with stable parameters, mostly because there are atypical developments of capital and labor during periods of economic growth, as well as due to the lack of sufficiently long and dependable data series. In this respect, growth accounting enables us to identify the basic sources and directions of influences. The calculations that have been carried out in this paper help in the identification of total factor productivity development as the main driving force of economic growth. The likely reasons for this strong influence have been also outlined. |
| Keywords: | Economic Growth, total factor productivity |
| JEL: | E22 O47 |
| Date: | 2005–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpge:0504004&r=mac |
| By: | Martin Melecky (University of New South Wales, School of Economics) |
| Abstract: | This paper attempts to carry out a study of relative importance of anticipated and unanticipated external crises for the dynamics of economic growth. The estimations are carried out within a two equation system capturing the possibility of a common shock to external crises and growth. The effect of current-account reversals on growth appears to be similar across considered regions, however, one cannot draw any general conclusion about the importance of the unanticipated component of the reversals for growth. The effect of currency crises appears to vary across the regions of Central and Eastern Europe, Latin America and Asia. The unanticipated component of the currency crises is significant only in CEE. The unanticipated component in the effect of the joint crisis on growth appears to be important in Latin America, and with lower precision also in CEE and Asia. |
| Keywords: | Anticipations, External Crises, Growth Cycle, Panel Data. |
| JEL: | E32 F31 F32 O52 O53 O54 |
| Date: | 2005–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502003&r=mac |
| By: | Geoffrey Kingston (School of Economics, University of New South Wales); Martin Melecky (School of Economics, University of New South Wales) |
| Abstract: | We investigate the theory and empirics of currency substitution and currency complementarity. Analytical tractability is facilitated by focussing on a small currency. Data spanning 1985 to the turn of the century contain evidence of the Australian dollar’s substitution for the mark and complementarity with the yen, consistent with our theory that international variables will in general affect the demand for domestic money. Our theory also predicts third-currency effects, and the data reveal several of these. For example, rises in the US Federal Funds rate were associated with depreciations of the Australian dollar against the yen, controlling for the spread between interest rates in Australia and Japan. |
| Keywords: | Atemporally non-separable preferences; Money demand; Cash in advance; Third-currency effects; Uncovered Interest Parity |
| JEL: | E41 F31 F36 |
| Date: | 2005–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0502006&r=mac |
| By: | Gunther Schnabl (Tuebingen University); Christian Danne (Tuebingen University) |
| Abstract: | This paper studies the role of the yen/dollar exchange rate in the Bank of Japan’s monetary policy reaction function. In contrast to prior estimations of reaction functions based on the Taylor-rule, we allow for regime shifts by estimating rolling coefficients from January 1974 to March 1999. The results show a temporary impact of the exchange rate on monetary policy around 1978/79 and a persistently increasing impact of the yen/dollar exchange rate after 1986. The ris ing importance of the yen/dollar exchange rate for Japanese monetary policy is in line with increasing efforts to stabilize the yen/dollar exchange rate by foreign exchange intervention after March 1999, when the nominal interest rate reached the zero boundary. |
| Keywords: | Japan, Monetary Policy Reaction Function, Bank of Japan, Interest Rate Rules, Exchange Rates, Taylor Rule, GMM. |
| JEL: | E43 E52 E58 F41 |
| Date: | 2005–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503001&r=mac |
| By: | Abhijit Sen Gupta (University of Califonia, Santa Cruz) |
| Abstract: | This paper aims to look at the relationship between capital account openness and inflation in the 1990s. It argues that widespread capital account liberalization during the early 1990s appears to have contributed to the world-wide disinflation observed during that decade. The paper attempts to provide a theoretical and empirical evidence for a strong negative link between capital account liberalization and disinflation. Capital account openness appears to discipline monetary authorities, or to help them convince the private sector that they will be more disciplined in the future. |
| Keywords: | Capital Account, Openness and Inflation |
| JEL: | F36 F41 E32 |
| Date: | 2005–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503002&r=mac |
| By: | ALICIA GARCIA HERRERO (BANCO DE ESPAÑA); ALVARO ORTIZ (REPSOL-YPF) |
| Abstract: | This paper assesses empirically whether global risk aversion (GRA) and some if its determinants (US economic growth and the US long term interest rates) explain developments in Latin American sovereign spreads. We find that GRA is significant and positively related to Latin American sovereign spreads and that its impact varies across countries and over time. Chile, with a lower sovereign risk, is relatively more affected. The opposite is true for Argentina, Ecuador and Venezuela. In addition, the influence of GRA on spreads has risen since the Enron scandal. Finally, both an increase in US economic growth and US long term interest rates are found to reduce spreads while the opposite is true for US short-term interest rates. |
| Keywords: | global risk aversion, sovereign spreads, Latin America |
| JEL: | F3 F34 E43 |
| Date: | 2005–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503005&r=mac |
| By: | Martin Melecky |
| Abstract: | The ECB recommends to prospective euro-area members that they choose the central parities, for fixing their currencies against the euro, consistent with a broad range of economic indicators while taking account of the market rate as well. In this paper, we estimate a behavioral model of the real exchange rates for a group of the EU 5 countries, along with equilibrium real exchange rates. In addition, we propose a methodology for estimating an optimal timing for ERM II entry based on convergence properties of the equilibrium real exchange rate. We find that the estimated optimal timing for ERM II entry derived from the analysis of the equilibrium real exchange rate suggests that fixing the national currencies of the EU 5 countries in forthcoming years would not be in contradiction with the convergence properties of the real equilibrium exchange rate. |
| Keywords: | Equilibrium Exchange Rate, ERM II Entry, Time-Series Panel Data |
| JEL: | C52 C53 E58 E61 F31 |
| Date: | 2005–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0503008&r=mac |
| By: | António Portugal Duarte (Faculty of Economicas & GEMF, University of Coimbra) |
| Abstract: | This study aims to analyse the Portuguese economic policy of disinflation through a nominal stabilization policy of the Portuguese escudo. We study the pegging of the Portuguese escudo (PTE) to the Deutsch mark (DM) knowing the reputation of the Bundesbank for its anti- inflationary record and the role played by the Deutsch mark in the stability processes of foreign exchange and European price levels. The study was based on the attainment of co-integrating relations using Johansen’s methodology, the construction of a Near-VAR model and the establishment of a simulation analysis. The acceptance of German monetary policy and the pegging of the escudo to the Deutsch mark allowed the Portuguese economy to achieve its primary goal of price stability. However, despite the credibility and stability gains obtained, the adoption of a disinflation policy led to a real appreciation of the escudo. This study tries to clarify the influence that an appreciation of the real exchange rate can have on GDP and price levels. It cannot be denied that Portugal has made great progress in its European integration, successfully integrating into the group of EMU member-states. However we can point to a decrease in Portuguese competitiveness as the price paid for the disinflation process. This reflects itself in lower wages, which in turn limit output growth. We find that it is of primary importance to realise both the benefits of disinflation, and the costs of the policies in terms of output. |
| Keywords: | Monetary Policy, European Union, Disinflation, Co-Integration, Near-VAR and Simulation |
| JEL: | C32 C51 E42 E58 F31 F33 |
| Date: | 2005–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpif:0504005&r=mac |
| By: | Leonard J. Mirman (University of Virginia, Department of Economics); Marc Santugini (University of Virginia, Department of Economics) |
| Abstract: | The object of this paper is to study learning and experimentation in dynamic models in which the link between periods is not only beliefs but also capital. We study the influence of learning and experimentation on investment under both signal-dependence and signal-independence. A problem is signal-dependent when the signal the economic agent uses to update his beliefs about the unknown parameter has either a direct impact on the next period maximand or an indirect impact through a law of motion constraining his decision in the next period. A problem that does not satisfy this definition is signal-independent. We first study a class of dynamic and signal-independent models, using an example that yields a closed-form solution for the infinite-horizon program. The closed-form solution enables us to study the effect of learning on investment, the dynamics, as well as the steady state. We then study how signal-dependence influences the effect of experimentation on investment. We are able to break the effect of experimentation into two effects: the dynamic effect and the belief effect. These two effects are different under signal-dependence and signal-independence. Several examples are presented to study the direction of learning and experimentation on investment in finite-horizon programs under both signal-dependent and signal-independent framework. |
| Keywords: | Signal-Dependence, Information, Investment, Growth. |
| JEL: | D42 D83 D92 E22 L12 O12 Q20 |
| Date: | 2005–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0502013&r=mac |
| By: | Severin Borenstein (Haas School of Business, University of California, Berkeley) |
| Abstract: | Between 1995 and 2004, I find that airline prices fell more than 20% adjusted for inflation. I also show that premia at hub airports declined and that there is now substantially less disparity between the cheaper and more expensive airports than there was a decade ago. Still, I find that prices remain quite high at a few dominated airports. |
| Keywords: | Airline Competition, Airline Hubs, Price Indices |
| JEL: | L13 L93 E31 |
| Date: | 2005–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0504016&r=mac |
| By: | Boris Majcen (Institute for Economic Research Ljubljana); Miroslav Verbic (Institute for Economic Research Ljubljana); Sasa Knezevic (Institute for Economic Research Ljubljana) |
| Abstract: | The new version of the CGE model of the Slovenian economy, based on the 1998 SAM, was used for simulations of the consequences of further foreign trade liberalization after 1998 as the outcome of the finished processes of implementation of Free Trade Agreements and the European Agreement, adaptation of the Customs Tariff to the EU Common External Tariff for the manufacturing products, adoption of the EU Common External Tariff after the accession of Slovenia to the EU as well as the estimated transfers between both budgets. Results obtained show a positive net outcome of the Slovenian accession to the EU in the long run. On the other hand, rational behaviour of the government will certainly moderate possible short run negative effects and improve favourable long run effects. |
| Keywords: | Computable General Equilibrium Model, EU-Accession, Financial Flows, Trade Liberalization, Transition Country, Regionalism |
| JEL: | D58 F15 F43 E2 |
| Date: | 2005–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpit:0501011&r=mac |
| By: | Taiji Harashima (University of Tsukuba & Cabinet Office of Japan) |
| Abstract: | The paper explores the impacts of heterogeneity in degree of relative risk aversion on the balance on current account in a two-country endogenous growth model. It concludes that, like the heterogeneity of demographic changes, the heterogeneity in degree of relative risk aversion generates persisting current account deficits. The deficit continues permanently, but its ratio to output stabilizes. With evidence that the degree of relative risk aversion in Japan is relatively higher than that in the U.S., there is a possibility that the persisting bilateral trade deficit of the U.S. with Japan is partially generated by this mechanism. |
| Keywords: | Current account; Trade deficits; Capital flows; Endogenous growth; Risk aversion |
| JEL: | F41 F21 F43 O40 E10 |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpit:0502001&r=mac |
| By: | William Barnett (University of Kansas); Mehmet Dalkir (University of Kansas) |
| Abstract: | This paper investigates the transmission mechanisms of noise and volatility between economies through trade links, and the effects of synchronization on business cycles. We investigate the transmission of outside noise and the fluctuations that the noise generates. We identify conditions under which international economic links reduce the economic output noise emanating from noise within the individual economies. Under certain conditions, devaluation of a country's currency causes reduction in the business cycle noise and volatility as seen by that country's exporters, while increased valuation of a country's currency produces higher noise and volatility, as seen by the country's importers. |
| Keywords: | business cycles, synchronization, international trade, stochastic systems |
| JEL: | D5 D9 E |
| Date: | 2005–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpit:0504004&r=mac |
| By: | A. J. Julius (New School University) |
| Abstract: | Comparing a process of labor- and capital-augmenting technical change directed by capitalists' maximization of profits with a counterfactual in which decentralized innovation decisions are governed by noncapitalist property relations, I claim that if the two economies start from the same technology and capital stock there's a date T such that after T per-capita consumption is always strictly greater on the counterfactual. |
| Keywords: | Directed technical change, golden rule, growth-distribution duality |
| JEL: | E25 O31 O41 P51 |
| Date: | 2005–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501030&r=mac |
| By: | Robert Barsky (University of Michigan); Christopher L. House (University of Michigan); Miles Kimball (University of Michigan) |
| Abstract: | This paper shows that there are striking implications that stem from including durable goods in otherwise conventional sticky price models. The behavior of these models depends heavily on whether durable goods are present and whether these goods have sticky prices. If long-lived durables have sticky prices, then even small durables sectors can cause the model to behave as though most prices were sticky. Conversely, if durable goods prices are flexible then the model exhibits unwelcome behavior. Flexibly priced durables contract during periods of economic expansion. The tendency towards negative comovement is very robust and can be so strong as to dominate the aggregate behavior of the model. In an instructive limiting case, money has no effects on aggregate output even though most prices in the model are sticky. |
| Keywords: | Sticky prices, Durables, Comovement, Neutrality |
| JEL: | E21 E30 E31 E32 |
| Date: | 2005–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501031&r=mac |
| By: | Lucjan T Orlowski (Sacred Heart University) |
| Abstract: | A flexible approach to direct inflation targeting is a viable monetary policy choice for transition economies that is believed to facilitate both the economic transition and the monetary convergence to the euro. Following this assumption, an analytical model investigating the link between the inflation process and monetary variables in transition economies is advanced in this study. The empirical testing is conducted for Poland, the Czech Republic and Hungary. The analysis recommends that the monetary convergence begins with inflation targeting and concludes with a full-fledged euroization. It further advocates the application of flexible benchmarks of monetary convergence that would accommodate various non-monetary factors affecting inflation in transition economies. |
| Keywords: | transition economies, European Union candidate countries, inflation targeting, inflation targeting, monetary convergence |
| JEL: | E32 E52 P33 |
| Date: | 2005–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501032&r=mac |
| By: | Lucjan T Orlowski (Sacred Heart University) |
| Abstract: | This study proposes the adoption of money growth rules as indicator variables of monetary policies by the countries converging to a common currency system, in particular, by the eurozone candidate countries. The analytical framework assumes an inflation target as the ultimate policy goal. The converging countries act in essence as “takers” of the inflation target, which, in this case, is the eurozone’s inflation forecast. The study advances a forward-looking money growth model that might be applied to aid monetary convergence to the eurozone. However, feasibility of adopting money growth rules depends on stable relationships between money and target variables, which are low inflation and stable exchange rate. Long-run interactions between these variables are examined for Poland, Hungary and the Czech Republic by employing a Johansen cointegration test, along with short-run effects assessed with a vector error correction procedure. |
| Keywords: | common currency system, eurozone, monetary convergence, money growth rules, inflation targeting. |
| JEL: | E42 E52 F36 P24 |
| Date: | 2005–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501033&r=mac |
| By: | Lucjan T Orlowski (Sacred Heart University) |
| Abstract: | This paper proposes a new monetary policy framework for effectively navigating the path to adopting the euro. The proposed policy is based on relative inflation forecast targeting and incorporates an ancillary target of declining exchange rate risk, which is suggested as a key criterion for evaluating the currency stability. A model linking exchange rate volatility to differentials over the euro zone in both inflation (target variable) and interest rate (instrument variable) is proposed. The model is empirically tested for the Czech Republic, Poland and Hungary, the selected new Member States of the EU that use direct inflation targeting to guide their monetary policies. The empirical methodology is based on the TARCH(p,q,r)-M model. |
| Keywords: | exchange rate risk, inflation targeting, monetary convergence, euro area, new EU Member States |
| JEL: | E42 E52 F36 P24 |
| Date: | 2005–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501034&r=mac |
| By: | Edgar L. Feige (University of Wisconsin-Madison); M. Parkin (University of Manchester); R Avery (University of Wisconsin-Madison); C. Stones (University of Manchester) |
| Abstract: | What is the optimum quantity of money in a society? This paper answers this question both from the perspective of a utility maximizing model with real balances in the utility function, and employing an inventory theoretic model which focuses attention on the costs of transacting in different markets and on the storage costs of holding money. We find that socially optimal transactions patterns and inventory holdings can be induced by paying interest on money and bonds equal to the net rate of return on capital. This conclusion is however only valid if it is costless for the society to institute and operate such an interest payment mechanism. In a world where it is costly to institute and operate an interest payment mechanism, a social optimum requires that the rate of return on money and bonds must equal the net rate of return on capital minus the social cost of inducing individuals to hold optimal quantities of financial assets. It is therefore necessary to take account of both the potential gains in welfare from instituting interest payments on money and the real potential costs of such a policy. Reference: Economica, November, 1973 pp. 416-431 |
| JEL: | E41 E50 E59 E52 E31 G11 |
| Date: | 2005–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501035&r=mac |
| By: | Lucjan T Orlowski (Sacred Heart University) |
| Abstract: | This study examines the link between various monetary policy regimes and the ability to manage inflation and exchange rate risk premiums in the EU candidate countries as they undergo monetary convergence to the eurozone. The underlying hypothesis is that a system of 'flexible inflation targeting' may be an optimal policy choice for managing these two categories of risk. A model of inflation and exchange rate risk premiums within the context of inflation targeting is proposed. Recent trends in these risk premiums in Hungary, the Czech Republic and Poland are tested by using the GARCH(1,1) methodology. |
| Keywords: | inflation risk premium, exchange rate risk premium, inflation targeting, monetary convergence, transition economies |
| JEL: | E32 E52 P33 |
| Date: | 2005–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501037&r=mac |
| By: | Lucjan T Orlowski (Sacred Heart University) |
| Abstract: | This study views inflation targeting as a viable regime for more advanced transition economies. A dynamic approach to the trajectory of disinflation and the flexibility of direct inflation targeting is presented in the context of achieving monetary convergence to the EU/EMU. The candidate countries are advised to begin from strict inflation targeting and to follow with a more flexible inflation targeting regime before they establish a necessary 'foundational credibility' and monetary stability. These steps, ultimately followed by the euro-peg, are necessary in preparing for accession to the eurozone. The early experiences of the Czech Republic and Poland with inflation targeting are examined. |
| JEL: | E32 E52 P33 |
| Date: | 2005–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0501038&r=mac |
| By: | Shiu-Sheng Chen (Department of Economics, National Taiwan University) |
| Abstract: | This paper investigates whether monetary policy has asymmetric effects on stock returns using Markov-switching models. Different measures of the stance of monetary policy are adopted. Empirical evidence from monthly returns on the standard & Poor 500 (S&P 500) price index suggests that monetary policy has larger effects on stock returns in bear markets. Furthermore, it has been shown that contractionary monetary policy leads to a higher probability of switching to a recession in stock markets. |
| Keywords: | Monetary Policy, Stock Returns, Markov-switching |
| JEL: | E52 E32 G10 |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502001&r=mac |
| By: | Michal Brzoza-Brzezina (National Bank of Poland, Warsaw School of Economics) |
| Abstract: | In this paper we analyse the potential for lending booms in three biggest new EU member states (Czech Republic, Hungary and Poland) during the process of Euro adoption. Experience of old members (Greece, Ireland and Portugal) as well as econometric evidence speak in favour of strong increases in credit in Hungary and Poland and against such an event in the Czech Republic. However, the expected lending booms are smaller than those Ireland and Portugal witnessed recently. We state that, given the current data set, no substantial risk to the banking sectors of the new member states should be expected. We also find that the monetary consequences of these booms for the Euro-area as a whole will be almost negligible. |
| Keywords: | lending booms, Euro area, banking sector stability, new member states |
| JEL: | E51 E58 G21 |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502002&r=mac |
| By: | Leonardo Rhenals Rojas (Departamento Nacional de Planeación) |
| Abstract: | El documento analiza la evolución del costo de uso del capital en el periodo 1997 –2003 en Colombia. A diferencia de los trabajos anteriores se construye una serie del costo de uso del capital a partir de la información suministrada por las empresas a la Superintendencia de Sociedades, lo cual evita los errores generados por la utilización de variables macroeconómicas agregadas. Durante los últimos siete años las tasas de interés y la inflación se han reducido drásticamente luego de la crisis de finales de los noventa, lo cual ha repercutido sobre el costo de uso del capital en Colombia. Por otra parte, las tasas impositivas han permanecido relativamente constantes, a pesar de las numerosas reformas tributarias las cuales han estado más orientadas a aumentar la base gravable. Estos dos factores afectan las decisiones de inversión y financiamiento por parte de las empresas lo cual se ve reflejado en el crecimiento económico de mediano y largo plazo. Durante el periodo de estudio el costo de uso se ha reducido en poco más de un tercio desde su nivel en 1997, sin embargo en términos reales sigue siendo alto. Medidas adoptadas recientemente para estimular la inversión vía descuento de inversiones en activos productivos tendrían un impacto limitado sobre el costo de uso del capital con respecto a medidas de política monetaria tendientes a reducir las tasas de interés y la inflación. |
| Keywords: | Colombia;LAC;Latinoamerica;Costo de uso del capital;Tributación |
| JEL: | E22 E62 L0 |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502003&r=mac |
| By: | Edgar L. Feige (University of Wisconsin-Madison) |
| Abstract: | The size, growth and causes of the US “underground economy” are examined in light of new estimates of foreign holdings of US currency. World dollarization partially resolves the “currency enigma” which refers to the anomaly that roughly 80% of the US currency supply is “missing” and an estimated ten trillion dollars of cash payments can not be accounted for. US currency that is used overseas suggests that there is a world wide unrecorded economy that could rival the size of the US economy. Large and variable overseas holdings of US currency imply that monetary aggregates must be redefined to include only domestically held currency. The paper defines and estimates the size of the ‘domestic money supply”. Reference: Proceedings of the 49th Congress of the International Institute of Public Finance, Berlin 1993, Supplement to Public Finance Vol. 49 (1994) pp.119-136. |
| Keywords: | underground economy, dollarization, currency, money supply, monetary base,unreported income, unrecorded income. |
| JEL: | E41 E51 E52 H26 |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502004&r=mac |
| By: | Edgar L. Feige (University of Wisconsin-Madison) |
| Abstract: | This paper examines the problem of appropriately specifying and estimating the money demand function in the presence of adaptive expectations and partial adjustment mechanisms. The paper demonstrates the difficulty of interpreting distributed lag reduced form representations of the monetary sector when both expectation and adjustment mechanisms are present. It finally presents and empirically estimates an identified model of the monetary sector with partial adjustment mechanisms and multiple expectation formation mechanisms and finds that the elasticity of adjustment appears to be unity, and the adaptive expectation elasticity of income conforms to that proposed by Friedman’s permanent income hypothesis. Reference: American Economic Review, Vol. LVII, No. 2 May, 1967, pp. 462-473. |
| Keywords: | money demand, expectations, adjustments, distributed lags, identification, adaptive expectations, pasrtial adjustments, permanent income. |
| JEL: | E41 E42 C1 C3 D84 |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502005&r=mac |
| By: | stanley c. w. salvary (Canisius College) |
| Abstract: | This paper addresses a theme in an historical setting that financial accounting measurement contributes to: (1) retardation of national economic growth by the failure of financial accounting to provide for the replacement of capital goods in its measurement process; and (2) the business cycle owing to the illusory profits reported in financial statements. The author explores the issues and concludes that the arguments against accounting are based upon misunderstandings. |
| Keywords: | retardation of economic growth; national or social accounting; replacement cost accounting; Harrod's 'instability principle'; maintenance of physical capacity; illusory profits. |
| JEL: | E |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502006&r=mac |
| By: | Pedro S. Amaral (Southern Methodist University); Erwan Quintin (Federal Reserve Bank of Dallas) |
| Abstract: | We present a model in which the importance of financial intermediation for development can be measured. We generate financial differences by varying the degree to which contracts can be enforced. Economies where enforcement is poor employ less capital and less efficient technologies. Calibrated simulations reveal that both effects are important. Yet, accounting for all the observed dispersion in output requires a higher capital share or a lower elasticity of substitution between capital and labor than usually assumed. We find that the effects of changes in those technological parameters on output are markedly larger when financial frictions are present. Finance, that is, matters. |
| JEL: | E |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502007&r=mac |
| By: | Edgar L. Feige (University of Wisconsin-Madison) |
| Abstract: | This paper examines a broad set of alternative temporal cross- section specifications of the demand for money as a means of estimating the degree of substitution between demand deposits and other liquid assets. Despite differences in data bases, model specifications and estimation techniques, the results are surprisingly robust; suggesting that the own rate of return on demand deposits is an important argument of the demand function ; that other liquid assets are relatively weak substitutes for demand deposits; and that the income elasticity of demand deposits is less than unity. Reference: The Journal of Finance, Vol. XXIX No. 3, June 1974. |
| Keywords: | Money demand, substitutibility, liquid assets, temporal cross- section specifications, income elasticity. |
| JEL: | E41 E42 C1 C31 |
| Date: | 2005–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502009&r=mac |
| By: | Edgar L. Feige (University of Wisconsin-Madison) |
| Abstract: | This paper examines the available evidence on the size the UK’s underground (unobserved) economy and presents preliminary evidence on the size and growth of the unobserved economy for the period 1960-1980 based on Feige’s transaction approach. Reference: Journal of Economic Affairs, Vol.1 No.4 July, 1981, pp. 205-212. |
| Keywords: | UNDERGROUND ECONOMY, UNOBSERVED ECONOMY, TRANSACTIONS METHOD, DISCREPANCY MEASURES. |
| JEL: | E1 H26 O17 |
| Date: | 2005–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502012&r=mac |
| By: | Edgar L. Feige (University of Wisconsin-Madison); Robert T. McGee (University of Wisconsin-Madison) |
| Abstract: | Recent research on the unobserved economy suggests that the phenomenon has important implications for both macroeconomic policy and public finance. Attention is focused on the public finance implications by examining a macro-model model from which it is possible to derive a family of Laffer curves. The model reveals that the final shape and position of the Laffer curve depends upon the strength of supply side effects, the progressivity of the tax system and the size of the unobserved economy. Using alternative parameterizations of each of these effects, we obtain rough empirical estimates of the Laffer curve for the UK. Reference: Journal of Economic Affairs, Vol. 3, No.1, October, 1982, pp.36-42. |
| Keywords: | UNOBSERVED ECONOMY, UNDERGROUND ECONOMY, LAFFER CURVE, SUPPLY SIDE, |
| JEL: | E1 E6 H26 O17 |
| Date: | 2005–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502013&r=mac |
| By: | Kaiji Chen (University of Southern California); Ayse Imrohoroglu (University of Southern California); Selo Imrohoroglu (University of Southern California) |
| Abstract: | Japanese and U.S. saving rates have been significantly different over the last forty years. Can a standard growth model explain this difference? The answer is yes. Our results indicate that both an infinite horizon, complete markets setup and an overlapping generations model with incomplete markets are about equally able to generate saving rates that are remarkably similar to the data during 1961-1998. Our quantitative findings identify changes in the growth rate of total factor productivity and the low initial capital stock as the main factors generating the time series behavior of the net national saving rate in Japan. We show that if the Japanese had faced the U.S. TFP and initial conditions, their saving rate would have looked very similar to that of the U.S. households. In other words, it seems that there is nothing peculiar about the Japanese saving behavior. |
| Keywords: | Neoclassical Growth Model, Saving Behavior, Total Factor Productivity |
| JEL: | E |
| Date: | 2005–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502017&r=mac |
| By: | stanley c. w. salvary (Canisius College) |
| Abstract: | In the literature, nominal money has been decried as a reliable measure. However, before condemning money as a defective measure, it is necessary to examine in a historical context the nature and the role of money in a money economic system, and the changes over time in the types of money (commodity money versus paper money). Using historical evidence and logical analysis, this paper attempts to establish the validity of nominal money as a valid device for the measurement of organizational perfor mance. This paper reveals that: (1) the deficiencies of commodity money (and the historical arguments associated with it) are attributed to paper (fiat) money; (2) in a historical setting, there are very restrictive conditions under which paper money would be a defective measuring device; and (3) under general economic conditions, paper money is a reliable measure. |
| Keywords: | organizing economic activities; commodity money; representative paper money; transaction cost reduction; extrinsic and intrinsic values; uncertain nominal value; non specified purchasing power; individual preferenc;stored entitlements. |
| JEL: | E |
| Date: | 2005–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502018&r=mac |
| By: | Paul A. David (Stanford University &) |
| Abstract: | Both the macroeconomic and the microeconomic evidence from U. S. economy’s experience over the past two centuries leads to a view of technological change (broadly conceived) as having not been “neutral” in its effects upon growth. The specific meaning of “non-neutrality” in this context is that technical and organizational innovation had effects upon the derived demands for factors of production, and these tended to alter the relative prices of the heterogeneous array of productive assets in the economy. By directly and indirectly impinging on relative real rates of remuneration established in the markets for particular types of human labor and skill, and for the services of specific tangible and intangible capital, “technological change” altered key conditions governing the absolute and relative growth rates of the various macroeconomic factors of production. On the other hand, because innovation exhibited strong cumulative features reflecting the influence of “localized learning,” past domestic factor market conditions exerted a persisting influence upon the globally non-neutral trajectory of American technological and organizational development. This essay thus explores two broad and related historical themes. Firstly, the non- neutrality of the impacts of innovations on the demand side of the markets for productive inputs implies that “innovation” should be understood as contributing to complex interactions among all the proximate “sources of growth.” Even though the latter are usually presented by exercises in “growth accounting” as distinct and separate dynamic elements contributing to the rise of labor productivity and per capita real output, the identification of the total factor productivity “residual” as the “contribution” of technological change is mistaken in ignoring the quantitatively important effect of successive capital- deepening “traverses” to the growth of labor productivity. The second theme underscores a fundamental contrast between the twentieth and the nineteenth century growth processes, in regard to the impacts of the predominant “bias” of the direction of innovation: the relative shift away from the accumulation of stocks of tangible reproducible capital and towards the formation of intangible productive assets by in investments in education, training and the search for new scientific and technological knowledge. |
| JEL: | E |
| Date: | 2005–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502019&r=mac |
| By: | David Andolfatto (Simon Fraser University) |
| Abstract: | This paper re-examines the so-called coexistence puzzle in terms of a modified version of the legal restrictions hypothesis initially put forth by Bryant and Wallace (1980). The modification is in terms of dropping a questionable assumption in the original hypothesis; i.e., that large denomination government bonds cannot be intermediated by private banks. This restriction is replaced by one that is arguably more palatable; i.e., that the intermediated monetary instruments created by private banks are not universally acceptable as payment for all exchanges (unlike government money). The friction that gives rise to this latter restriction is one that is commonly employed in monetary models where fiat money is essential for exchange. |
| JEL: | E |
| Date: | 2005–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502020&r=mac |
| By: | Paul A. David (All Souls College, Oxford & Stanford University) |
| Abstract: | This monograph is concerned with the nature of the process of macroeconomic growth that has characterized the U. S. experience, and manifested itself in the changing pace and sources of the continuing rise real output per capita over the course of the past two hundred years. A key observation that emerges from the long-term quantitative economic record is that the proximate sources of increases in real GDP per head in the century between 1889 and 1999 were quite different from those which obtained during the first hundred years of American national experience. Baldly put, the economy's ascent to a position of twentieth century global industrial leadership entailed a transition from growth based upon the interdependent development and extensive exploitation of its natural resources and the substitution of tangible capital for labor, towards a the maintenance of an productivity leadership through rising rates of intangible investment in the formation and exploitation of technological and organizational knowledge. The study's scope is indicated by the following: |
| JEL: | E |
| Date: | 2005–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502021&r=mac |
| By: | Paul A. David (Stanford University & All Souls College, Oxford) |
| Abstract: | Three styles of explanation have been advanced by economists seeking to account for the so-called 'productivity paradox'. The coincidence of a persisting slowdown in the growth of measured total factor productivity (TFP) in the US, since the mid-1970's, with the wave of information technology (It) innovations, is said by some to be an illusion due to the mismeasurement of real output growth; by others to expose the mistaken expectations about the benefits of computerization; and by still others to reflect the amount of time, and the volume of intangible investments in 'learning', and the time required for ancillary innovations that allow the new digital technologies to be applied in ways that are reflected in measured productivity growth. This paper shows that rather than viewing these as competing hypotheses, the dynamics of the transition to a new technological and economic regime based upon a general purpose technology (GPT) should be understood to be likely to give rise to all three 'effects.' It more fully articulates and supports this thesis, which was first advanced in the 'computer and dynamo' papers by David (1990, 1991). The relevance of that historical experience is re-asserted and supported by further evidence rebutting skeptics who have argued that the diffusion of electrification and computerization have little in common. New evidence is produced about the links between IT use, mass customization, and the upward bias of output price deflators arising from the method used to 'chain in' new products prices. The measurement bias due to the exclusion of intangible investments from the scope of the official national product accounts also is examined. Further, it is argued that the development of the general-purpose PC delayed the re-organization of businesses along lines that would have more directly raised task productivity, even though the technologies yielded positive 'revenue productivity' gains for large companies. The paper concludes by indicating the emerging technical and organizational developments that are likely to deliver a sustained surge of measured TFP growth during the decades that lie immediately ahead. |
| JEL: | E |
| Date: | 2005–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502022&r=mac |
| By: | Paul A. David (All Souls College & Stanford University); Gavin Wright (Stanford University) |
| Abstract: | A marked acceleration of total factor productivity (TFP) growth in U.S. manufacturing followed World War I. This development contributed substantially to the absolute and relative rise of the domestic economy's aggregate TFP residual, which is observed when the 'growth accounts' for the first quarter of the twentieth century are compared with those for the second half of the nineteenth century. Two visions of the dynamics of productivity growth are germane to an understanding of these developments. One emphasizes the role of forces affecting broad sections of the economy, through spillovers of knowledge and the diffusion of general purpose technologies (GPT's). The second view considers that possible sources of productivity increase are multiple and idiosyncratic. Setting aside possible measurement errors, the latter approach regards sectoral and economy-wide surges of the TFP growth to be simply the result of which carried more weight than others. Although there is room for both views in an analysis of the sources of the industrial TFP acceleration during the 1920's, we find the evidence more compelling in support of the first approach. The proximate source of the TFP surge lay in the switch from declining or stable capital productivity to a rising output-capital ratio, which occurred at this time in many branches of manufacturing, and which was not accompanied by slowed growth in labor productivity. The 1920's saw critical advances in the electrification industry, the diffusion of a GTP that brought significant fixed capital-savings. But the same era also witnessed profound transformations in the American industrial labor market, followed the stoppage of mass immigration from Europe; rising real wages provided strong impetus to changes in workforce recruitment and management practices that were underway in some branches of the economy before the War. The productivity surge reflected the confluence of these two forces. This historical study has direct relevance for policies intended to increase the rate of productivity growth. In many respects, the decade of the 1920's launched the US economy on a high-growth path that lasted until the 1970's. If we hope to return to the growth performance of that era, we would be well advised to understand how it began. |
| JEL: | E |
| Date: | 2005–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502023&r=mac |
| By: | Tetsuya Nakajima (Osaka City University) |
| Abstract: | Constructing a general equilibrium model which compactly incorporates the markets for outputs, labor, money, and equities, we examine equilibrium unemployment. While a mechanism of an efficiency wage brings about nominal wage rigidity, unemployment occurring in our model definitely has Keynesian features. For instance, a reduction in wages rather enhances unemployment through a decrease in consumption. In addition, our paper shows a possibility of Pareto improvement through an increase in unemployment benefits. |
| Keywords: | Unemployment, Keynesian, Efficiency wages |
| JEL: | E12 E24 E62 |
| Date: | 2005–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502024&r=mac |
| By: | Mariusz Jarmuzek (CASE Center for Social & Economic Research); Lucjan T. Orlowski (Sacred Heart University); Artur Radziwill (CASE Center for Social & Economic Research) |
| Abstract: | This paper quantifies transparency of monetary policy in the three EU New Member States that have adopted direct inflation targeting strategy. Two measures of transparency are applied. The institutional measure reflects the extent to which a central bank discloses information that is related to the policymaking process. The behavioural measure reflects the clarity among the financial market participants about the true course of monetary policy. The paper shows an ambiguous association between the two measures of transparency, which may be attributed to the active exchange rate management policy that undermines the actual transparency proxied by the behavioural measure. |
| Keywords: | monetary policy, institutional and behavioural transparency, direct inflation targeting, EU New Member States, European Monetary Union |
| JEL: | E52 E58 P52 |
| Date: | 2005–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502025&r=mac |
| By: | Marco Vega (Central Bank of Peru & London School of Economics); Diego Winkelried (Cambridge University) |
| Abstract: | This paper estimates the effects of inflation targeting (IT) adoption over inflation dynamics using a wide control group. We contribute to the current IT evaluation literature by considering the adoption of IT by a country as a treatment, just as in the program evaluation literature. Hence, we perform propensity score matching to determine suitable counterfactuals to the actual inflation targeters. With this approach we find that IT has helped in reducing the level and volatility of inflation in the countries that adopted it. This result is robust to alternative definitions of treatment and control groups. We also find that the e ect of IT in the persistence of inflation is rather weak and not as categorical as the one associated with the mean and volatility of inflation. |
| Keywords: | Inflation Targeting, matching methods |
| JEL: | E |
| Date: | 2005–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502026&r=mac |
| By: | Sheikh Selim (University of Southampton) |
| Abstract: | This paper examines dynamic optimal income taxation problem in a two- sector neoclassical model where the government is able to commit to a sequence of tax plans for future. It finds that (1) while it is optimal to set a zero long run capital tax for the capital goods sector, steady state optimal capital tax can be nonzero in the consumption goods sector; (2) if the government faces an ex ante constraint of setting equal factor income taxes, the optimal levels of both capital tax rates are nonzero. The distortion created by the nonzero capital tax in consumption goods sector, given the other capital tax is set at zero, is in no way explosive in nature, since economic agents can avoid the compounding tax liabilities simply by shifting depreciated capital. |
| Keywords: | Optimal Taxation, Primal Approach, Two-sector Model, Ramsey Problem. |
| JEL: | H |
| Date: | 2005–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502027&r=mac |
| By: | Thierry Buchs |
| Abstract: | The paper discusses and revisits some of the most popular stories behind the 2001 financial crisis in Argentina, i.e. the prolonged overvaluation of the peso owing to the Currency Board arrangement, the lack of fiscal adjustment, and the negative external environment which triggered a “sudden stop” of capital inflows. In doing so, the paper surveys and attempts to make sense of the contradictory theories and explanations surrounding these different stories. It also tries to shed some light on one possible missing link, that is the growth performance during the Convertibiity period. Finally, the paper discusses some important policy issues pertaining to the effects of global financial integration, such as capital account opening, exchange rate policies, alternatives to debt financing and the role of the international financial institutions. The central message is that the very nature of the Argentine crisis was not fundamentally different from the pattern of inconsistent macroeconomic policies which triggered many of the speculative attacks against the Peso in the 1970s and the 1980s. Although the problem was for once not monetary, the time inconsistency problem of the exchange rate policy followed between 1991 and 2001, together with the lack of nationally coherent fiscal and development policies, led to a classic debt solvency trap. From this perspective, the 2001 default does not provide for a new “type” of crisis, although crisis management. This being said, the real sector of the economy during the 1990s is certainly one of the most overlooked elements in the crisis, and certainly led to overoptimistic expectations about the capacity of the Argentine economy to rebound. |
| Keywords: | financial liberalization, currency crisis, debt, fiscal policy, Argentina |
| JEL: | E44 E62 F14 F31 F34 H3 H63 |
| Date: | 2005–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502028&r=mac |
| By: | David Eagle (Eastern Washington University) |
| Abstract: | A relatively simple analysis of central banks pegging interest rates applies whenever prices are determined in a price-flexible model where the central bank pursues a singular price-level or nominal-income target. Applying the model empirically in the U.S. and find that prior to 1980, the Federal Reserve would have met its price-level or nominal- income targets best by using the M1 definition of money. However, after 1982, the Federal Reserve would have more effectively met is targets by pegging the interest rate. We also further the analysis in a general- equilibrium, cash-in-advance model with explicit state-contingent securities that complete markets. |
| Keywords: | interest-rate targeting, price-level targeting, nominal-income targeting, cash-in-advance models, monetary economics, price determinism |
| JEL: | E |
| Date: | 2005–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502029&r=mac |
| By: | stanley c. w. salvary |
| Abstract: | The view that prediction is the only important concern when policy is to be developed has led to the strict adherence to a money supply rule via the Quantity Theory of Money with its debilitating consequences. The monetarists place the emphasis on the level of the money supply in the determination of price level changes and monetary control is exercised. Along with this line of thinking, statistical elegance transcends empirical reality. Thus, the ensuing consequences of monetary control are not surprising. There are continuous increases in the general level of prices and increasing problems of unemployment, which fuel the flames of business downsizing. In this paper, an alternative to the monetarist explanation of the determination of the price level is advanced. The alternative explanation does not rely on changes in the supply of money but on changes in the composition of aggregate demand and supply. Absent monetary dislocation or revaluation of the currency, change in the general price level is attributed to the net effect of the realignment of relative prices. It is argued that a rethinking of the situation would result in monetary policy that is compatible with the economic setting and not monetary control which crowds out fiscal policy. |
| Keywords: | endogenous nature of money; general price level; money supply; Quantity Theory; price instability; consumer loans outstanding; Fisher effect; money supply rule. |
| JEL: | E |
| Date: | 2005–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502030&r=mac |
| By: | ERWIN HARDIANTO (AIRLANGGA UNIVERSITY) |
| Abstract: | Since Indonesia has two different type of banking system (shariah and interest rate system) debtor or investor can chose appropriate system for their investment. When monetary instrument became tightening (high interest rate) so instrument from shariah system will substituted it. This situation arises because of nature from shariah instrument (revenue sharing) that flexible for price volatility. The other circumstances are revenue sharing can reduce inflation because with this system possibility to make equal growth among monetary sectors and real sectors appears. Such phenomenon like that will be investigate by VAR methodologies. Result from forecast error variance decompositions indices that shariah transmission mechanism move from one-month SBI (sertipikat bank indonesia) interest rate to inter-bank rate and finally affect shariah share. Proportion of shariah share shock to CPI inflation are small even that the shock remains (have new equilibrium) within CPI inflation. It proves by IRF (Impulse Response Function) from shariah share to CPI inflation. |
| Keywords: | shariah share, CPI inflation, transmission mechanism |
| JEL: | E |
| Date: | 2005–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502031&r=mac |
| By: | Sebastian Dullien (Financial Times Deutschland) |
| Abstract: | This paper argues that the tradtitional way of gauging a country's fiscal policy stance by looking at government budget deficit or cyclically adjusted budget deficits is misleading in the case of China, since a lot of what usually would be considered fiscal policy is conducted via investment by state owned enterprises. The paper therefore proposes a different indicator for the fiscal policy stance, constructed from government consumption, government expenditure, the state-owned- enterprises' investments and tax revenue. Using this indicator, it can be shown that fiscal policy has been strongly counter-cyclical in China over the past two decades. |
| Keywords: | Fiscal Policy, China, State-Owned Enterprises, Statistics |
| JEL: | E62 |
| Date: | 2005–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502032&r=mac |
| By: | Stanley C. W. Salvary |
| Abstract: | Perceptions of money do influence monetary policy, and monetary policy does have an impact on the functioning of the economy. For instance, a high interest rate policy usually entails high levels of bankruptcies and unemployment. Also, given a loss of confidence in the issuing authority (monetary dislocation), paper money can and does fail in all its functions as a medium of exchange, a unit of account, and a store of nominal value. In a money economy in which nominal money is the medium of exchange, nominal money prices reflect the underlying exchange ratios of the various commodities that are produced and exchanged for nominal money. In the absence of monetary dislocation (monetary revaluation or devaluation), any change in the nominal price of a commodity reflects a change in its purchasing power (a change in its exchange ratio vis-a-vis other commodities). Monetary policy prescriptions, which ignore this reality, result in significant displacement costs to members of society. A ‘pure science’ approach to economic research engenders policy prescriptions based upon assumptions of the economic system which are not aligned with the empirical reality. Hence, to avoid severe social costs, the ‘pure science’ approach to economics needs to be modified to deal with social reality. |
| Keywords: | monetary policy decisions; economic policy; federal funds target range; purchasing power uncertainty; interest rate targeting; reserves targeting; instruments for the prediction of observable phenomena. |
| JEL: | E |
| Date: | 2005–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502033&r=mac |
| By: | Areendam Chanda (Louisiana State University) |
| Abstract: | This paper explores the consequences of rising returns to human capital investment on the personal savings rate. Over the past two decades, the return to college education has increased relative to high school education leading economists to argue the presence of 'skill biased technological progress'. The literature explaining household savings has also burgeoned considerably, motivated by its declining rate in the US over the past couple of decades. Stylized facts suggest a negative relationship between returns to education and savings rates across most of the past century and also a negative relationship between education spending and savings rates across OECD countries. In this paper, we present a model where a declining savings rate emerges as an outcome of an exogenously driven increase in the return to education. The link between the two is attributed to optimizing behavior of altruistic households. The results of our model are robust to the inclusion of life cycle savings and unintentional bequests. Some of the interesting results of our model are (i) a rise in the return to education raises education spending ratio by less than what it reduces the aggregate savings rate (ii) for some parameter values it actually reduces both the education spending rate and the aggregate savings rate and finally, (iii) it also raises the return to capital due to physical capital-human capital complementarity. |
| Keywords: | Skill Biased Technological Change, Savings, Education, Economic Growth |
| JEL: | D91 E21 O33 |
| Date: | 2005–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502034&r=mac |
| By: | Balázs Romhányi (Hungarian Ministry of Finance) |
| Abstract: | Recent empirical results about the US term structure are difficult to reconcile with the classical hypothesis of rational expectations even if time-varying but stationary term premia are allowed for. A hypothesis of rational learning about the conditional variance of the log pricing kernel is put forward. In a simple, illustrative consumption-based asset pricing model the long-term interest rate turns out to have an economic meaning distinct from both price stability and full employment, namely to measure the market perception of aggregate level of future risk in the economy. Implications for economic modeling and monetary policy are explored. |
| Keywords: | term structure; interest rate; learning; uncertainty; monetary policy |
| JEL: | D8 E4 E5 G12 |
| Date: | 2005–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503001&r=mac |
| By: | Ratto M. (European Commission - Joint Research Centre); Roeger W. (European Commission - DG Economic & Financial Affairs); in’t Veld J. (European Commission - DG Economic & Financial Affairs); Girardi R. (European Commission - Joint Research Centre) |
| Abstract: | In recent years a new consensus has emerged in macroeconomics in general and in model building in particular, the so called New Keynesian Paradigm (NKM). This paper applies Bayesian estimation techniques to a time series data set of the euro area and presents estimates of a DSGE model. The purpose of this paper is not to estimate the current version of the QUEST model directly with these methods but rather to estimate a prototype new generation New-Keynesian DSGE model. This model can then serve as a benchmark for an estimation of a QUEST specification. In fact in some dimensions the QUEST model may need to be adjusted to come closer to a DSGE model. |
| Keywords: | Bayesian Analysis, General Equilibrium Models, SDGE, Estimation |
| JEL: | E22 C11 D58 |
| Date: | 2005–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503002&r=mac |
| By: | Nelson H Barbosa-Filho (Institute of Economics, Federal University of Rio de Janeiro) |
| Abstract: | This paper presents the main issues involved in estimating potential output. The objective is to describe the alternative methods and analyze their application and implications for growth forecasts and macroeconomic policy in Brazil. The text emphasizes the determinants of potential output under fixed and flexible coefficients of production. Given the wide use of aggregate measures of total factor productivity in growth accounting, and the sensitivity of such a variable to economic assumptions and errors of measurement, the text also presents the main applied critiques and alternatives to aggregate growth-accounting exercises. The main conclusions are: (1) the annual potential growth rate of Brazil’s GDP varies substantially depending on the method and hypotheses adopted and, what is most important, potential GDP is not separable from effective GDP in the long-run; (2) growth-accounting and time-series studies of Brazil result in low potential-output growth rates because they extrapolate the slow growth of 1981-2003 to the future; (3) capital seems to be the main constraint on growth in Brazil and, therefore, a demand-led increase in investment can raise both its effective and potential output levels; (4) however, because of the slow adjustment of the capital stock, an investment boom can also hit a supply constraint before the stock of capital has time to adjust to the growth rate of investment; and (5) aggregate measures of potential output do not carry much information about the economy and, therefore, they should be complemented by sectoral estimates of capacity utilization to identify the bottlenecks in inter-industry flows and the corresponding demand pressures on inflation. |
| Keywords: | Potential Output, Brazil |
| JEL: | E |
| Date: | 2005–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503003&r=mac |
| By: | Frank Browne (EMI); Gabriel Fagan (EMI); Jerome Henry (EMI) |
| Abstract: | Money demand is probably one of the most extensively studied economic relationship in applied economics. While useful surveys of existing literature are available, much of the attention has focused on the US. However, a considerable number of papers have recently been produced dealing with the situation in the EU, both at a country and at an area- wide level, with much of this research being carried out at EU central banks. Therefore, it appears useful to also examine this recent work, both in order to assess the current situation, and to guide future research. The first part of the paper covers a range of general issues arising such as the theoretical models, the specifications, the variables employed, and estimation techniques that have been used. It is emphasised that the basis of all these papers appears to be a benchmark model, in which money is a function of a scale variable, of interest rates and, when necessary, of variables accounting for financial innovation. The second part of the paper focuses on the estimated equations for the individual countries, paying particular attention to the case of Germany. A reasonable summary of the results obtained in general is that money demand equations perform fairly well in EU countries. Estimated parameters have the signs, if not always the magnitudes, predicted by economic theory. In most cases, the evidence points to the existence of the long-run equilibrium relation between money and a few determinant variables (real income, prices and interest rates) although the size of the adjustment coefficients indicate that deviations from the steady state may be of long duration. The next section provides a review of empirical evidence of aggregate money demand in grouping of EU countries taken together, an area in which interest is increasing as EMU approaches. In this strand of the literature, there seems to be a consensus that EU-wide equations yield satisfactory results, with area-wide equations often performing better than comparable national equations. Some reasons underlying this result are also examined. |
| Keywords: | Money demand, Cross-country comparisons, European union |
| JEL: | E41 E52 |
| Date: | 2005–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503004&r=mac |
| By: | David Navrátil (Èeská spoøitelna); Viktor Kotlán (Èeská spoøitelna) |
| Abstract: | This paper asks to what extent the market prices in the future monetary policy decisions of the Czech National Bank (CNB), how this policy predictability has evolved over time, and whether the change in the central bank’s forecasting methodology in mid-2002 had any impact. Using a sample up to mid-2004, the results are threefold. First, three- quarters of the CNB’s decisions were in line with medium-term money market expectations. Notwithstanding this relatively high predictability of CNB policy, the average mistake in the expectations was biased upwards: over the entire IT period the market has priced in a higher repo rate than has actually turned out to be the case. Second, our analysis shows that the period in which forecasts with an active monetary policy (unconditional forecasts) have been used is characterized by smaller “surprises” of the money market. On the one hand, this may be connected with a change in the CNB’s communication of the forecast, including releases of verbal comments on the interest rate trajectory that is consistent with the outlook. On the other hand, it may reflect a different economic environment in the second stage of IT in the Czech Republic. Third, we analyze whether there is convergence or divergence between the central bank’s forecast-consistent interest rate trajectory and market forward rates. We show that in most cases market rates converged toward the CNB’s interest rate trajectory after the publication of the forecast. |
| Keywords: | Financial market reaction, inflation targeting, monetary policy predictability, term structure of interest rates. |
| JEL: | E43 E44 E52 |
| Date: | 2005–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503005&r=mac |
| By: | Georg Müller (Strategic Pricing Group); Mark Bergen (University of Minnesota); Shantanu Dutta (University of Sourthern California); Daniel Levy (Bar-Ilan University) |
| Abstract: | Using weekly retail transaction scanner price data from a large U.S supermarket chain, we find significantly higher retail price rigidity for private label products than for nationally branded products during the Christmas and Thanksgiving holiday periods relative to the rest of the year. The finding cannot be explained by changes in holiday period promotional practices because we find that private label promotions appear to diminish at least as much as national brands. The increased rigidity of private label products relative to national brands is only partially accounted for by increased rigidity of wholesale prices. After ruling out other potential explanations, we suggest that the higher private label price rigidity might be due to the increased emphasis on social consumption during holiday periods, raising the customers’ value of nationally branded products relative to the private labels. |
| Keywords: | Price Rigidity, Holidays, Private Label, National Brand, Social Consumption |
| JEL: | E12 E31 L11 L20 L16 M21 M31 |
| Date: | 2005–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503006&r=mac |
| By: | Halicioglu Ferda |
| Abstract: | This study utilizes the new macroeconomic theory and multivariate cointegration analysis in search of the effects of aggregate defense spending on aggregate output in Turkey. This study provides the empirical evidence that there is a strong positive long-run relationship between aggregate defense spending and aggregate output in Turkey over the estimation period. The findings of this study contradict the previous empirical results on the same topic obtained from the neoclassical production function and traditional regression analysis. JEL Classification: E69; E60; H50. |
| Keywords: | Aggregate defense spending; Aggregate output; Cointegration analysis, Turkey |
| JEL: | E |
| Date: | 2005–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503009&r=mac |
| By: | Ferda Halicioglu (The University of Greenwich, London) |
| Abstract: | This study is concerned with the components of the total seigniorage revenues that have been collected by the Turkish governments during the years 1970-1997. Traditionally, a government can increase the monetary base in order to finance its expenditures partially. This form of monetary finance is related to active seigniorage revenues. On the other hand, as real economic growth takes place, a government can also benefit from this process as a result of an increase in demand for the real money balances which is termed as passive seignoirage revenues. This paper presents empirically that Turkish governments have benefited from both types of seignoirage revenues in order to finance its budget deficits during the years 1970-1997 but this policy seems to lose its effectiveness in the recent years due to the financial liberalization. |
| Keywords: | Seigniorage, Monetary, Policies, Budget Deficits, Turkey |
| JEL: | E52 E62 |
| Date: | 2005–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503010&r=mac |
| By: | Ferda Halicioglu (The University of Greenwich, London) |
| Abstract: | The existing economic literature on the black economy and its measurable size is mainly based on industrialized western countries. This paper, however, tries to estimate the size of the black economy empirically in the case of a developing country: Turkey. According to the monetary approach that this paper has also adopted, the size of the black economy in Turkey has an ever increasing trend and reached nearly 10% of its GNP in 1997. Moreover, this paper also suggests that there is further scope for the black economy in Turkey since the tax burden is relatively low. And currently, the Turkish government is trying to increase taxes, which may lead to a further expansion in the size of the black economy in Turkey. |
| Keywords: | black economy, monetary policy, Turkey |
| JEL: | E |
| Date: | 2005–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503011&r=mac |
| By: | Stefan Collignon |
| Abstract: | France and Germany have been the motor of European integration for half a century. During this process their economies have converged to a remarkable degree. Their present difficulties in terms of economic growth, unemployment and public debt are shown to depend largely on fallacies of macroeconomic management, rather than on the “European social model”, which they have adopted. However, European monetary union has profoundly changed the conduct of macroeconomic management in Euroland. Structural reforms alone cannot improve the economic performance in large regions of a monetary union, unless they are supported by fiscal policies determined at the European level. This opens important questions for democracy and the governance of Europe. |
| Keywords: | Learning to live in Euroland - The role of France and Germany France and Germany in the International Division of Labour |
| JEL: | E |
| Date: | 2005–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503012&r=mac |
| By: | Peralta-Alva Adrian (University of MIami); Pere Gomis- Porqueras (University of Miami) |
| Abstract: | The weight of the average American adult has increased by 12 pounds and obesity rates have doubled since the early 1960s. Recent studies show these changes in weight can be attributed to the dramatic rise in the consumption of prepared food and food away from home. We investigate the role of taxes and the gender wage gap in accounting for the trends in the composition of the food consumed by the average American adult. According to our general equilibrium analysis, the observed movements in the personal income tax rate and in the gender wage gap can account for more than one half of the increased caloric intake, consumption of prepared food, food away from home, and capital specific for cooking activities of Americans. Furthermore, our theory is also qualitatively consistent with the patterns of time use on market and food preparation activities of the data. |
| Keywords: | Obesity, Price per calorie, Gender wage gap, Taxes, Technological change, general equilibrium, price of food, relative price of food |
| JEL: | E |
| Date: | 2005–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503014&r=mac |
| By: | Patrick Crowley (Texas A&M University - Corpus Christi); Jim Lee (Texas A&M University - Corpus Christi) |
| Abstract: | This article analyses the frequency components of European business cycles using real GDP by employing multiresolution decomposition (MRD) with the use of maximal overlap discrete wavelet transforms (MODWT). Static wavelet variance and correlation analysis is performed, and phasing is studied using co-correlation with the eurozone by scale. Lastly dynamic conditional correlation GARCH models are used to obtain dynamic correlation estimates by scale against the EU to evaluate synchronicity of cycles through time. The general …ndings are that eurozone members fall into one of three categories: i) high static and dynamic correlations at all frequency cycles (e.g. France, Belgium, Germany), ii) low static and dynamic correlations, with little sign of convergence occurring (e.g. Greece), and iii) low static correlation but convergent dynamic correlations (e.g. Finland and Ireland) |
| Keywords: | Business cycles, growth cycles, European Union, multiresolution analysis, wavelets, co-correlation, dynamic correlation. |
| JEL: | E32 O52 |
| Date: | 2005–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503015&r=mac |
| By: | Juan Paez-Farrell (Hull University) |
| Abstract: | Modern monetary policy analysis is built around the concept of an interest rate rule that responds to both inflation and output. This paper evaluates the quantitative implications of having a policy rule target different definitions of the output gap in a New Keynesian model with endogenous capital. One crucial result is that different model specifications result in alternative values for potential output, raising the issue of which output gap to target. The results of this paper suggest that targeting the true output gap can be well approximated by a rule that only reacts to inflation. |
| Keywords: | Monetary Policy Rules, Output Gap |
| JEL: | E31 E32 E43 E52 E58 |
| Date: | 2005–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503016&r=mac |
| By: | William Barnett (University of Kansas) |
| Abstract: | This entry on monetary aggregation will appear under that title in The New Palgrave Dictionary of Economics, 2nd edition, edited by Steven Durlauf and Lawrence Blume. The entry provides an up-to-date overview of state-of-the-art research on monetary aggregation and index number theory, from its origins in 1980 to the current time. At the end of this dictionary entry, emphasis is placed on ongoing research on extensions to risk and to multilateral aggregation within multicountry areas, such as the euro area. Research on monetary aggregation theory has been especially successful in solving the 'puzzles' that have appeared in the monetary economics literature over the past 35 years. |
| Keywords: | monetary aggregation, Divisia index, money demand, monetary policy, dictionary, Divisia monetary aggregates |
| JEL: | E41 G12 C43 C22 |
| Date: | 2005–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503017&r=mac |
| By: | Elke Muchlinski (Freie Universitaet Berlin) |
| Abstract: | This paper provides textual evidence of Keynes´s position on monetary policy and shaping international monetary relations. One result of my contribution is that the famous dichotomy 'rules versus discretion' is of no relevance to his economic theory, because he used the term 'rules' not in the meaning of a formal brilliantly designed notion. He definitely made a distinction between non-rigidly-fixed-rules and discretion. I give an explanation why his economic theory is not compatible with principles of constructivism, empiricism and ontological realism by referring to a key term of his economic writings, i.e., discretionary decision. |
| Keywords: | Key words: History of Economic Thought since 1925, Methodology, Central Banking, International Monetary Arrangements and Institutions |
| JEL: | B22 B E58 F33 |
| Date: | 2005–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503018&r=mac |
| By: | Elke Muchlinski (Freie Universität Berlin) |
| Abstract: | Considering the history of macroeconomics it is surprising that Tinbergens theory of policy is identified with so-called Keynesian economics by Lucas and Lucasians. Keynesian macropolicy is accused of neglecting the role of expectations and the effects of any changes of institutions. Due to textual evidence this paper explains that both the disregard of expectations and the institutional evolutionary process can not be addressed to Keynes's analysis. |
| Keywords: | Keynes on expectations, macroeconomics and modelbuildung contra Lucas and Tinbergen |
| JEL: | B B B E E |
| Date: | 2005–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503019&r=mac |
| By: | Jorge L. Andere (El Colegio de Mexico) |
| Abstract: | In this work it is reviewed the external retard of monetary policy within the framework of theoretical and methodological resources present in this analysis. Within the scope of the economic theory, it is confirmed that model IS-LM-MC is useful and allows to analyze deeply the monetary policy for a small and open economy with a flexible exchange rate (Mexico case). It is also fundamental to discuss the transmission mechanisms (from a Neokeynesian perspective) , the basic concepts to understand the policy retards, and to bring to end the theoretical review, it is studied Poole ‘s analysis about the decision of taking monetary attachés or the interest rate as instruments of monetary policy. Within the methodological scope, the technique of Granger’s causation, different methods to apply the “ econometrics of retards” (Kyock, PDL and VAR) and Chow’s test of structural change are reviewed. Finally, in the conclusions, the author propounds the necessary variables for a further approach of the empiric analysis (statistical and econometric) of the problem which takes up our attention as well as the techniques that could be used and the length of their study. |
| Keywords: | Monetary Policy. Growth. Inflation. |
| JEL: | E |
| Date: | 2005–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503020&r=mac |
| By: | Sourav Ray (McMaster University); Haipeng Chen (University of Miami); Mark Bergen (University of Minnesota); Daniel Levy (Bar- Ilan University) |
| Abstract: | Asymmetric pricing is the phenomenon where prices rise more readily than they fall. We articulate, and provide empirical support for, a theory of asymmetric pricing in wholesale prices. In particular, we show how wholesale prices may be asymmetric in the small but symmetric in the large, when retailers face costs of price adjustments. Such retailers will not adjust prices for small changes in their costs. Upstream manufacturers then see a region of inelastic demand where small wholesale price changes do not translate into commensurate retail price changes. The implication is asymmetric – small wholesale increases are more profitable because manufacturers will not lose customers from higher retail prices; yet, small wholesale decreases are less profitable, because these will not create lower retail prices, hence no extra revenue from greater sales. For larger changes, this asymmetry at wholesale vanishes as the costs of changing prices are compensated by increases in retailers’ revenue that result from correspondingly large retail price changes. We first present a formal economic model of a channel with forward looking retailers facing costs of price adjustment to derive the testable propositions. Next, we test these on manufacturer prices in a supermarket scanner dataset to find support for our theory. We discuss the contributions of the results for the asymmetric pricing, distribution channels and cost of price adjustment literatures, and implications for public policy. |
| Keywords: | Asymmetric Pricing, Channel Pricing, Costs of Price Adjustment, Menu Costs, Wholesale Prices, Channels of Distribution, Retailing, Scanner Data |
| JEL: | E31 E12 L11 L16 L22 L81 M21 M31 |
| Date: | 2005–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503021&r=mac |
| By: | Lucjan T Orlowski (Sacred Heart University) |
| Abstract: | This study reviews monetary policy options that are seemingly viable for adopting the euro by the new Member States of the European Union. A fully autonomous direct inflation targeting is believed to be suboptimal for convergence to the euro as it does not incorporate convergence parameters into the central bank reaction function and instrument rules. In an attempt to correct for such deficiency, this study advocates adopting a framework of relative inflation forecast targeting where a differential between the domestic and the eurozone inflation forecasts becomes the main objective of the central bank’s decisions. At the same time, some attention to the exchange rate stability objective becomes necessary for facilitating the monetary convergence process. Foreign exchange market interventions, rather than interest rate adjustments, are viewed as a preferred way of achieving this objective. |
| Keywords: | Monetary convergence, euro adoption, ERM II, new Member States |
| JEL: | E58 E61 F33 P24 |
| Date: | 2005–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503022&r=mac |
| By: | Francesco Belviso (Princeton University & University of Chicago); Fabio Milani (Princeton University) |
| Abstract: | Factor-augmented VARs (FAVARs) have combined standard VARs with factor analysis to exploit large data sets in the study of monetary policy. FAVARs enjoy a number of advantages over VARs: they allow a better identification of the monetary policy shock; they can avoid the use of a single variable to proxy theoretical constructs, such as the output gap; they allow researchers to compute impulse responses for hundreds of variables. Their shortcoming, however, is that the factors are not identified and, therefore, lack any economic interpretation. This paper seeks to provide an interpretation to the factors. We propose a novel Structural Factor-Augmented VAR (SFAVAR) model, where the factors have a clear meaning: 'Real Activity' factor, 'Price Pressures' factor, 'Financial Market' factor, 'Credit Conditions' factor, 'Expectations' factor, etc. The paper employs a Bayesian approach to extract the factors and jointly estimate the model. This framework is then suited to study the effects on a wide range of macroeconomic variables of monetary policy and non-policy shocks. |
| Keywords: | VAR, Dynamic Factors, Monetary Policy, Structural FAVAR. |
| JEL: | C32 C43 E50 E52 E58 |
| Date: | 2005–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503023&r=mac |
| By: | Ahmad Zubaidi Baharumshah (Universiti Putra Malaysia); Evan Lau (Universiti Malaysia Sarawak) |
| Abstract: | In the aftermath of the 1997 Asian financial crisis, fiscal policy is playing a bigger role in smoothing the business cycle and getting the crisis-affected countries back on their growth paths. The main purpose of this paper is to assess empirically the fiscal policy regimes in five Asian countries using a formal framework based on the government’s intertemporal budget constraints (GIBC). For this purpose, we relied on an array of time-series methods and quarterly frequency data of nearly three decades that ended in 2003:Q2. Our conclusions are; first, the evidence indicates that the fiscal stance in Thailand and Korea are on their sustainable path while the Philippines and Malaysia satisfy only the necessary condition for sustainability. Second, we found that revenues are growing at a rate faster than government spending for Singapore, a country that have recorded large surpluses for most of the sample period. Third, the results show a one-way causation from expenditure to revenue for Korea, Singapore and Thailand. This finding indicates that reducing the size of government spending may improve fiscal budget deficits without having to undergo changes in the overall strategy. Fourth, we observed a long-run feedback causality in the revenue-expenditure nexus for the case of Malaysia and the Philippines, which may require fiscal synchronization instrument policies to moderate the post-crisis fiscal imbalances. Together, these results demonstrate the diverse fiscal patterns but they should be useful as a means of understanding the complexities of economic integration in the region. |
| Keywords: | fiscal sustainability, government intertemporal budget constraint, nonstationarity. |
| JEL: | E |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504001&r=mac |
| By: | Evan Lau (UNIMAS); Ahmad Zubaidi Baharumshah (UPM) |
| Abstract: | Maintaining sustainable fiscal policy has been increasingly important in the scope of economists and the policy makers as the key requirement of macroeconomic stability and sustainability of an economy. Without exception, the issue of fiscal sustainability also being in the spotlight for the developing countries especially in Asian, after the financial shock in 1997. Motivated by this development, this paper test the mean-reverting behavior of fiscal position by adopting families of univariate and panel unit root tests for the panel of ten Asian countries. Univariate unit root tests indicates that the fiscal position follows a non-stationary process of I(1) while mean reverting property were detected when we adopt the commonly used panel unit roots techniques. By utilizing the series-specific panel unit root test developed by Breuer et al. (2002, SURADF) that allows one to test for the presence of non-stationarity within individual cross sectional of the panel, we found that four out of ten countries in the panel are stationary suggesting little evidence of fiscal sustainability in Asian. These results also confirm the complexity properties of the panel data. |
| Keywords: | fiscal policy, mean reversion, sustainability, government intertemporal budget constraint, unit root tests, Asian |
| JEL: | E |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504002&r=mac |
| By: | Henri Nathanson (FernUniversität Hagen) |
| Abstract: | Die Heckscher-Ohlin-Modellierung mit den Faktoren nieder- und höherqualifizierte Arbeitskraft und Arbeitslosigkeit beziehungsweise einem Minimallohn wird einer genaueren Analyse unterzogen und erfährt dabei deutliche Kritik. Anschließend wird ein Ansatz zur Remodellierung der von ihr behandelten Problematik vorgestellt, der recht vielversprechend ist und in der Lage sein sollte, ihre Schwächen mehr als nur auszugleichen. Der Remodellierungsansatz leitet aus einer Verteilung der Faktoren nach Qualifikationsniveau über eine stochastische Interpretation die Angebotsseite des Gütermarktes her. |
| Keywords: | Heckscher, Ohlin, skilled and unskilled workers, Europe America, specialisation, NIE, NIC, factor and goods distribution curve |
| JEL: | E10 F10 |
| Date: | 2005–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504006&r=mac |
| By: | Ferda Halicioglu (the University of Greenwich, London) |
| Abstract: | This study prsents new empirical evidence on the relationship between the level of of economic growth and defense expenditures in the case of Turkey for the period of 1950-2002. On using new macroeconomic and multivariate cointegration procedure, this study demonstrates empirically that there exists apositive relationship between aggregate defense spending and aggregate output in Turkey. In addition, the CUSUM and CUSUMSQ tests confirm the stability of aggregateb output function. The results obtained from this study are, by and large, in line with the previous studies concerning Turkey. |
| Keywords: | aggregate output, aggregate defense spending, cointegration, stability tests, Turkey |
| JEL: | E69 E60 H50 |
| Date: | 2005–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504011&r=mac |
| By: | Suparna Chakraborty (University of Minnesota & Federal Reserve Bank of Minneapolis) |
| Abstract: | This paper investigates the causes of business cycle fluctuations that Japan experienced over the period 1980 to 2000. To this end, I build a dynamic general equilibrium model with endogenous borrowing constraints where business cycle fluctuations are the result of TFP fluctuations and investment frictions. I identify land tax changes since 1984 as a possible source of investment frictions, the idea being that given a strong preference for debt-financing and widespread use of land as collateral in Japan, land tax changes will cause fluctuations in land price that can potentially affect output and investment by affecting borrowing capacity of firms. Calibrating the model using Japanese data and feeding in observed TFP and land taxes one by one and in unison, I find that TFP and land tax fluctuations can significantly account for observed fluctuations in output, but cannot account for land price fluctuations unless agents expect land tax changes to be permanent. I further identify redistribution of land holding between commercial and residential uses in response to land tax and TFP changes as an important channel through which the effect of these external fluctuations on output gets amplified. Observed data of land use in Japan provides evidence of such redistribution. |
| Keywords: | Real estate, borrowing constraint, business cycle, japan |
| JEL: | E |
| Date: | 2005–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504012&r=mac |
| By: | Refet Gurkaynak (Federal Reserve Board); Brian Sack (Federal Reserve Board); Eric Swanson (Federal Reserve Board) |
| Abstract: | We investigate the effects of U.S. monetary policy on asset prices using a high frequency event-study analysis. We test whether these effects are adequately captured by a single factor—changes in the federal funds rate target—and find that they are not. Instead, we find that two factors are required. These factors have a structural interpretation as a “current federal funds rate target” factor and a “future path of policy” factor, with the latter closely associated with FOMC statements. We measure the effects of these two factors on bond yields and stock prices using a new intraday dataset going back to 1990. According to our estimates, both monetary policy actions and statements have important but differing effects on asset prices, with statements having a much greater impact on longer-term Treasury yields. |
| JEL: | E |
| Date: | 2005–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504013&r=mac |
| By: | Paolo Surico (Bank of England & University of Bari) |
| Abstract: | The New-Keynesian Phillips curve plays a central role in modern macroeconomic theory. A vast empirical literature has estimated this structural relationship over various postwar full-samples. While it is well know that in a New-Keynesian model a weak central bank response to inflation generates sunspot fluctuations, the consequences of pooling observations from different monetary policy regimes for the estimates of the Phillips curve had not been investigated. Using Montecarlo simulations from a purely forward-looking model, this paper shows that indeterminacy can introduce a sizable persistence in the estimated process of inflation. This persistence however is not an intrinsic feature of the economy; rather it is the result of self full-filling expectations. By neglecting indeterminacy the estimates of the forward- looking term of the Phillips curve are shown to be biased downward. The implications are in line with the empirical evidence for the UK and US. |
| Keywords: | indeterminacy, New-Keynesian Phillips curve, Montecarlo, bias, persistence |
| JEL: | E58 E31 E32 |
| Date: | 2005–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504014&r=mac |
| By: | Zenon Kontolemis (International Monetary Fund); Kevin Ross (International Monetary Fund) |
| Abstract: | This paper assesses the role of exchange rates in moderating the impact of economic disturbances in the new member states of the European Union, and finds some evidence in favour of this proposition. Exchange rates are mostly driven by real (demand) shocks, whilst output by real supply shocks. Nominal shocks, which have no long-run impact on output, are nevertheless important in explaining exchange rate fluctuations implying that less exchange rate flexibility may indeed be warranted in the run- up to the adoption of the euro. We find that while interest rate shocks generally do not explain exchange rate fluctuations, credit shocks matter in certain cases and seem to have considerable impact on exchange rate developments (e.g., for Poland). The analysis also shows that based on the average responses of exchange rates to different shocks, the adoption of narrow bands inside ERM II may be risky. |
| Keywords: | Exchange rate fluctuations, transmission economies, ERM II, EMU, structural VAR |
| JEL: | E |
| Date: | 2005–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504015&r=mac |
| By: | Ryo Horii (Graduate School of Economics, Osaka University); Yoshiyasu Ono (ISER, Osaka University) |
| Abstract: | This paper examines a mechanism of liquidity-preference fluctuations caused by people's learning behavior. % about the frequency of a liquidity shock. When observing a financial shock, they rationally update their belief so that the subjective probability of encountering it again is higher, immediately raise liquidity preference and reduce consumption. As a period without the shock lasts after that, they gradually decrease the subjective probability, lower liquidity preference and increase consumption. Particularly, when the shock is observed many times in succession, recovery is first slow because people do not easily change their pessimistic view, then gradually accelerates, and eventually slows down as they become fully optimistic. |
| Keywords: | Bayesian Learning, Liquidity Preference, Precautionary Motive, Markov Switching |
| JEL: | D83 E41 E32 |
| Date: | 2005–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504016&r=mac |
| By: | Kisu Simwaka (Reserve Bank of Malawi, P.O. Box 30063, Lilongwe, Malawi) |
| Abstract: | The paper investigates some of the key factors that have influenced exchange rate movements since the foreign exchange market was liberalized in 1994. The paper adopts a general empirical specification of the exchange rate equation involving the interest rate and price differentials, as well as current account balance and net external flows to explain the exchange rate movements. In general, the empirical results indicate that increases in interest rates differential, has tended to attract, though insignificantly, private capital flows, leading to exchange rate appreciation. Deteriorations in current account, and reductions in net capital flows, on the other hand, are associated with depreciation of exchange rate. A rise in the price differential (widening gap between domestic and foreign prices) leads to exchange rate depreciation. Subject to the usual limitations of any econometric enquiry, the above results offer the following tentative conclusions. The insignificant impact of interest rate differential on attracting capital flows points to the need for government to address some structural bottlenecks. For instance, infrastructure services such road network and utilities (electricity and water supply) require improvement. Hence the current policy of lowering interest rates is therefore in line with maintaining a relatively depreciated currency. This implies that a demand for low interest rate regime must lead to a relatively weak Malawi kwacha internationally. On the other hand, changes in the current account balance have a bearing on the exchange rate market. Thus policies that influence exports and imports of goods and services also determine exchange rate movements. Likewise, prospects concerning donor funding influence the direction of market forces in determining the exchange rate movements. Therefore, government’s credibility regarding the use of external public funds and implementation of related reforms is important in as far as stability of the foreign exchange market and overall macroeconomic stability are concerned. |
| Keywords: | Exchange rate fluctuations, seasonality, error correction model |
| JEL: | E |
| Date: | 2005–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504017&r=mac |
| By: | Claudio Dos Santos (The Levy Economics Institute); Gennaro Zezza (The Levy Economics Institute & University of Cassino, Italy) |
| Abstract: | A Simplified Stock-Flow Consistent Post-Keynesian Growth Model Claudio H. Dos Santos* and Gennaro Zezza** Abstract: Despite being arguably the most rigorous form of structuralist/post-Keynesian macroeconomics, stock-flow consistent models are quite often complex and difficult to deal with. This paper presents a model that, despite retaining the methodological advantages of the stock-flow consistent method, is intuitive enough to be taught at an undergraduate level. Moreover, the model can easily be made more complex to shed light on a wealth of specific issues. |
| Keywords: | Post-Keynesian Growth, Stock-Flow Consistency, Real-Financial Interactions |
| JEL: | E12 E17 E44 E60 |
| Date: | 2005–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504019&r=mac |
| By: | Bruno José Marques Pinto (Graduate School of Economics at Fundacao Getulio Vargas EPGE/FGV); Thais Machado de Matos Vilela (Graduate School of Economics at Fundacao Getulio Vargas EPGE/FGV); Ursula Silveira Monteiro de Lima (Graduate School of Economics at Fundacao Getulio Vargas EPGE/FGV) |
| Abstract: | Fundamental sources of the Russian financial crisis in 1998 are discussed. Focus is made on the time horizon of judgements concerning sustainability of the economic policy. It is argued that the macroeconomic policy pursued by the monetary authorities was not robust in a medium run, but, in the absence of external shocks was far from the crisis area, and required moderate, feasible modifications to be viable in a medium run. After the sharp deterioration in the terms of trade the previously pursued policy was no more sustainable even in a short run. The implications of the crisis were aggravated by the overly optimistic expectations by the monetary authorities of the near-term recovery in the terms of trade. |
| Keywords: | Crise Financeira, Crise Cambial, Russia, Russa, Financial Crisis, Currency Crisis |
| JEL: | E5 |
| Date: | 2005–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0504020&r=mac |
| By: | Gopinath VadirajaRao Bangalore (No affiliation) |
| Abstract: | Marshall's Utility which is nothing but need or usefulness satisfies the requirements of wealth. It can be expressed in units of wealth. It can be changed into other forms of wealth. It also moves from higher concentration to lower concentration. Like water in chemistry, this utility is a universal solvent in economics in which all other forms of wealth dissolve. This utility is made up of two components; A)goods and services that are otherwise called WANTS and B)money and money related wealth forms that are called MEANS. Utility complex of any economic system say, individual, family, state, nation, business entity, association etc., tries to attain equilibrium between these two components of wealth. True equilibrium is a rare phenomenon. As one approaches the true equilibrium state one gets more active economically. Deficit budgetting helps a nation approach equilibrium state and there by increases economic activity. |
| Keywords: | equilibrium, utility, law of conservation, |
| JEL: | E |
| Date: | 2005–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0503002&r=mac |
| By: | Antonio Quesada (Universitat Rovira i Virgili, Spain) |
| Abstract: | Two results showing the limitations of the “as if” methodology are proved under relatively mild assumptions. In an interpretation of the results, a competitive market cannot simulate the outcome of a market M in which the single price assumption does not hold. In a second interpretation, the market M resulting from the aggregation of a finite number of competitive markets is not competitive. In both cases there is no ground to sustain the fiction that M operates as if it were competitive. |
| Keywords: | “As if” methodology; Competitive market; Market aggregation; Market simulation; Price aggregation. |
| JEL: | D40 E10 |
| Date: | 2005–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0504003&r=mac |
| By: | Paul Evans (Department of Economics, Ohio State University); Xiaojun Wang (Department of Economics, University of Hawaii at Manoa) |
| Abstract: | This paper adopts a New Keynesian approach to analyze the relationship between nominal interest rates and prices. In this new framework, both a positive relation between interest rates and price levels (i.e., a positive Gibson effect) and a negative relation between interest rates and subsequent price changes (i.e., a negative Fama-Fisher effect) arise when money is supplied inelastically and prices are flexible. Such an economy is subject to Gibson’s Paradox, a long-standing puzzle in monetary economics, and a novel paradox identified here, a Fama-Fisher Paradox. By contrast, economies characterized by elastic money and sticky prices are not so paradoxical since nominal interest rates are positively related to subsequent inflation and ambiguously related to the price level. Empirical analysis of nearly two centuries of data for ten countries supports the new theory. |
| Keywords: | Fama-Fisher Paradox, Gibson’s Paradox, inelastic money, flexible prices, gold standard |
| JEL: | E31 E42 E43 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:200506&r=mac |
| By: | Paul Evans (Department of Economics, Ohio State University); Xiaojun Wang (Department of Economics, University of Hawaii at Manoa) |
| Abstract: | Including both monetary gold and nonmonetary gold in a standard money-in-utility model, we establish a presumption that the price elasticity of money demand should be less than one under commodity standards. Applying cointegration methods to data of the world, the United Kingdom, and the United States, we find support for the new theory. |
| Keywords: | money demand, price homogeneity, commodity standard |
| JEL: | E41 E42 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:200508&r=mac |
| By: | Gaël Giraud (CERMSEM); Dimitrios Tsomocos (University of Oxford) |
| Abstract: | We define a non-tâtonnement dynamics in continuous-time for pure- exchange economies with outside and inside fiat money. Traders are myopic, face a cash-in-advance constraint and play dominant strategies in a short-run monetary strategic market game involving the limit-price mechanism. The profits of the Bank are redistributed to its private shareholders, but they can use them to pay their own debts only in the next period. Provided there is enough inside money, monetary trade curves converge towards Pareto optimal allocations ; money has a positive value along each trade curve, except on the optimal rest-point where it becomes a veil while trades vanish. Moreover, generically, given initial conditions, there is a piecewise globally unique trade-and-price curve not only in real, but also in nominal variables. Finally, money is locally neutral in the short-run and non-neutral in the long-run. |
| Keywords: | Bank, money, price-quantity dynamics, limit-price mechanism, inside money, outside money |
| JEL: | D50 E40 E41 E50 E58 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:b04121&r=mac |
| By: | Cuong Le Van (CERMSEM); Yiannis Vailakis (CERMSEM) |
| Abstract: | We prove existence of competitive equilibrium in a version of a Ramsey model in which leisure enters the utility function. The analysis is carried out by means of a direct and technically simple approach that allows us to obtain detailed results concerning the behavior of equilibrium allocations and prices. |
| Keywords: | Single-Sector growth model, competitive equilibrium, elastic labor supply. |
| JEL: | C62 D51 E13 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:b04123&r=mac |
| By: | Pascal Gourdel (CERMSEM); Leila Triki (CERMSEM) |
| Abstract: | We consider an extension of a general equilibrium model with incomplete markets that considers cash-in-advance constraints. The total amount of money is supplied by an authority, which produces at no cost and lends money to agents at short term nominal rates of interest, meeting the demand. Agents have initial nominal claims, which in the aggregate, are the counterpart of an initial public debt. The authority covers its expenditures, including initial debt, through public revenues that consists of taxes and seignorage, and distributes its eventual budget surpluses through transfers to individuals, while no further instruments are available to correct eventual budget deficits. We define a concept of equilibrium in this extended model, and prove that there exists a monetary equilibrium with no transfers. Moreover, we show that if the price level is high enough, a monetary equilibrium with transfers exists. |
| Keywords: | Cash-in-advance constraints, incomplete markets, nominal assets, monetary equilibrium, money, nominal interest rate |
| JEL: | C62 D52 E40 E50 G10 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:b05024&r=mac |
| By: | Jérôme Héricourt (TEAM) |
| Abstract: | This paper aims at providing better supported results regarding monetary policy transmission in Central and Eastern European countries (CEECs). In the general frame of VAR models, our study differs from previous research in two main respects. Firstly, we provide estimations that do not rely on the hypothesis of cointegration usually exploited in the related literature, but economically meaningless over less than ten years spans and statistically very fragile. Secondly, we present another set of results, relying on real GDP monthly data that have been rebuilt using the Chow and Lin (1971) method; this allows for an alternative to the traditional industrial production data, a partial and highly unstable proxy variable for output. These original methodological insights lead to results emphasizing the general prevalence of exchange rate and domestic credit channels for monetary policy transmission across the studied countries, despite some persistent national specificity. The empirical evidence also incites to be reasonably optimistic regarding the relevancy of a close integration of these countries into euro area. |
| Keywords: | Monetary policy transmission, VAR models, CEECs |
| JEL: | E52 E58 F47 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:bla05020&r=mac |
| By: | Célia Firmin (MATISSE) |
| Abstract: | Transition processes reflect the institutional hierarchy. Financial and monetary institutions changes seem to be the main explanatory factors of these processes. These institutions definition influences also directly macroeconomic operation and by this way others institutions. In the theory of Regulation framework, we will analyse Argentinean regime of accumulation in place under Peron and transition factors towards the current regime, which is characterized by market finance importance. Social confrontation plays here a central role as institutional evolution factor. We will see then financial and monetary institutions changes consequences on macroeconomic operation and employment. Employment becomes in the current accumulation regime the adjustment variable. |
| Keywords: | Theory of regulation, history of economic facts, institutional changes, shareholder capitalism, Argentina |
| JEL: | E24 E42 E44 E61 N2 N26 N46 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:r05028&r=mac |
| By: | Chahnez Boudaya (EUREQua and CIRPEE) |
| Abstract: | This paper investigates principally the effects of a technological innovation on hours worked in a sticky price model. Our challenge is to reproduce the short-run decline in employment supported by a large range of recent works, inspired by Gali (1999), regardless of any monetary policy consideration. The model simulations concern the postwar U.S. economy under two different monetary policy : an exogenous rule targeting money supply and a simple Taylor rule. The most interesting result is that the introduction of an input-output production structure counterbalances the full-accommodation of a technological innovation when monetary policy is governed by a Taylor rule, by (i) providing the model with more price rigidities ; (ii) inducing a substitution effect between intermediate goods and labor input for plausible values of intermediate inputs share. |
| Keywords: | Technology shocks, sticky prices, labor, intermediate inputs, Taylor rule, exogenous monetary policy |
| JEL: | E23 E24 E31 E32 E52 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:v05013&r=mac |
| By: | Gonzalo Llosa (Central Bank of Peru); Shirley Miller (Central Bank of Peru) |
| Abstract: | Uno de los elementos claves para el régimen de metas de inflación es la correcta identificación de las presiones inflacionarias y deflacionarias a través de la brecha producto. En este trabajo brindamos una estimación de la brecha producto para la economía peruana utilizando un modelo multivariado de componentes no observados (MUC), el cual se basa en una relación explícita de corto plazo entre la inflación y la brecha producto (Curva de Phillips) y restricciones estructurales sobre la dinámica del producto. Los resultados muestran que el estimado MUC de la brecha producto es menos sensible al problema de fin de muestra y exhibe una dinámica más cercana al proceso de inflación que las brechas estimadas a partir de metodologías estándares. |
| Keywords: | Brecha producto, Inflación, Modelo de componentes no observados |
| JEL: | E32 E31 C51 C52 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2005-004&r=mac |
| By: | Nelson Ramirez-Rondan (Central Bank of Peru); Juan Carlos Aquino (Pontificia Universidad Católica del Perú) |
| Abstract: | En este trabajo se analizan los efectos de largo plazo de períodos de crisis de inflación sobre el crecimiento de la Productividad Total de los Factores (PTF) para 18 países de Latinoamérica durante el período de 1961 al 2000, utilizando la metodología de estimación de Método Generalizado de Momentos (GMM) en un modelo de datos de panel dinámico. Los resultados muestran efectos no lineales de la inflación sobre el crecimiento de la PTF, en el sentido de que períodos de altos niveles de inflación han tenido efectos negativos sobre el crecimiento la productividad (consistente con los modelos de crecimiento endógeno), mientras que períodos de bajos niveles de inflación parecen no tener efectos permanentes (tal como predice la teoría monetaria).También, encontramos efectos negativos de la volatilidad de la inflación sobre el crecimiento de la productividad. Cabe mencionar que estos resultados son robustos a una serie de variables de control, como por ejemplo choques de oferta, apertura comercial y carga del gobierno. |
| Keywords: | Inflación, productividad total de los factores, datos de panel dinámico |
| JEL: | C23 E31 O54 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2005-005&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas); Shu Wu (Department of Economics, The University of Kansas) |
| Abstract: | We extend the monetary-asset user-cost risk adjustment of Barnett, Liu, and Jensen (1997) and their risk-adjusted Divisia monetary aggregates to the case of multiple non-monetary assets and intertemporal non-separability. Our model can generate potentially larger and more accurate CCAPM user-cost risk adjustments than those found in Barnett, Liu, and Jensen (1997). We show that the risk adjustment to a monetary asset¡¯s user cost can be measured easily by its beta. We show that any risky nonmonetary asset can be used as the benchmark asset, if its rate of return is adjusted in accordance with our formula. These extensions could be especially useful, when own rates of return are subject to exchange rate risk, as in Barnett (2003). |
| Keywords: | User costs, Monetary Aggregation, Risk, Pricing kernel, CAPM |
| JEL: | E41 G12 C43 C22 |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:200404&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas; Department of Economics, The University of Kansas) |
| Abstract: | This paper investigates the transmission mechanisms of noise and volatility between economies through trade links, and the effects of synchronization on business cycles. We investigate the transmission of outside noise and the fluctuations that the noise generates. We identify conditions under which international economic links reduce the economic output noise emanating from noise within the individual economies. Under certain conditions, devaluation of a country's currency causes reduction in the business cycle noise and volatility as seen by that country's exporters, while increased valuation of a country's currency produces higher noise and volatility, as seen by the country's importers. |
| Keywords: | business cycles, synchronization, international trade, stochastic systems |
| JEL: | D5 D9 E |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:200511&r=mac |
| By: | Tomáš Holub |
| Abstract: | This paper discusses the role of foreign exchange interventions in the inflation-targeting regime, focusing on the Czech experience since 1998. It proposes criteria for assessing whether the interventions are consistent with the inflation targeting. While the CNB’s interventions in mid- 1998 and in 2002 pass these criteria easily, the judgement might be more uncertain concerning the interventions in early-1998 and in 1999/2000. It is also stressed that the literature on managed floating usually ignores the difficulty in defining clear procedural rules for the interventions. This contrasts with the procedures guiding the interest rate decisions under the inflation targeting regime, which may occasionally create tensions in the policy regime, as demonstrated by the Czech experience, too. The interventions’ effectiveness in the Czech Republic is also discussed. It seems that sometimes they might have had an immediate impact lasting up to 2 or 3 months, but no strategy can be identified that would work in all episodes. Moreover, even many of the “successful” interventions were not able to prevent quite prolonged periods of exchange rate overvaluation in 1998 and in 2002. It is concluded that the signalling role of foreign exchange interventions is more important than their “market-equilibrating effect”, implying a rather unstable transmission between the central bank actions and the market reactions. Finally, the paper analyses the sterilisation costs, which are shown to have been quite substantial in the Czech Republic. It is argued that the financial sustainability of the interventions is quite important for their credibility and effectiveness. |
| Keywords: | Exchange rate, foreign exchange interventions, inflation targeting, sterilisation. |
| JEL: | E42 E44 E52 E58 E65 F31 |
| Date: | 2004–01 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2004/01&r=mac |
| By: | Martin Čihák |
| Abstract: | The note is a review of the literature on the quantitative methods used to assess the vulnerabilities of financial systems to risks. In particular, the author focuses on the role of system-wide stress testing. He summarizes the recent developments in the literature, highlighting topics relevant for the Czech case. He presents the key concepts relating to systemwide stress tests, overviews the stress tests performed by central banks and international financial institutions, and discusses conceptual issues relating to modeling of individual risk factors. |
| Keywords: | Financial soundness, macroprudential analysis, stress tests. |
| JEL: | G21 G28 E44 |
| Date: | 2004–04 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2004/02&r=mac |
| By: | Martin Čihák |
| Abstract: | The note discusses key issues involved in designing a suitable set of stress tests for the Czech banking system. The aim of the note is to propose stress tests that could be used by the Czech National Bank on a regular basis to assess the soundness of domestic banks, both for purposes of macroprudential surveillance and for banking supervision. The author suggests that the exercise be broadly based on the stress tests conducted during the 2001 IMF-World Bank Financial Sector Assessment Program (FSAP) mission to the Czech Republic. He summarizes the FSAP stress tests, and proposes a number of extensions and modifications. The key recommendations are presented in a table that covers also data requirements and a suggested timeframe for implementation. The note includes results of a replication of the Czech FSAP stress tests for mid-2003 data. |
| Keywords: | Banking system, stress tests. |
| JEL: | G21 G28 E44 |
| Date: | 2004–04 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2004/03&r=mac |
| By: | David Navrátil; Viktor Kotlán |
| Abstract: | This paper asks to what extent the market prices in the future monetary policy decisions of the Czech National Bank (CNB), how this policy predictability has evolved over time, and whether the change in the central bank’s forecasting methodology in mid-2002 had any impact. Using a sample up to mid-2004, the results are threefold. First, three-quarters of the CNB’s decisions were in line with medium-term money market expectations. Notwithstanding this relatively high predictability of CNB policy, the average mistake in the expectations was biased upwards: over the entire IT period the market has priced in a higher repo rate than has actually turned out to be the case. Second, our analysis shows that the period in which forecasts with an active monetary policy (unconditional forecasts) have been used is characterized by smaller “surprises” of the money market. On the one hand, this may be connected with a change in the CNB’s communication of the forecast, including releases of verbal comments on the interest rate trajectory that is consistent with the outlook. On the other hand, it may reflect a different economic environment in the second stage of IT in the Czech Republic. Third, we analyze whether there is convergence or divergence between the central bank’s forecast-consistent interest rate trajectory and market forward rates. We show that in most cases market rates converged toward the CNB’s interest rate trajectory after the publication of the forecast. |
| Keywords: | Financial market reaction, inflation targeting, monetary policy predictability, term structure of interest rates. |
| JEL: | E43 E44 E52 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2005/01&r=mac |
| By: | VladimÃr BezdÄ›k; Kamil Dybczak; AleÅ¡ Krejdl |
| Abstract: | What is the size of quasi-fiscal operations and their impact on the overall fiscal balance and public debt in the Czech Republic? Is the recent increase in Czech fiscal deficits fully attributable to the business cycle, or are there non-cyclical factors in place? And last but not least, what are the long-term perspectives of the fiscal system given the size and speed of the expected population ageing process? These are the issues dealt with in the paper. Our results, although being surrounded by some margin of uncertainty, are quite cautionary. The transparency of the fiscal accounts seems to be insufficient and the size of off-budget operations is not negligible. Moreover, we have been witnessing a rapid increase in the cyclically-adjusted deficits, and Czech fiscal policy exhibits mainly pro-cyclical features. Looking into the more distant future reveals that our current fiscal system is extremely vulnerable to demographic pressures, even by international comparison. We argue that the fiscal authorities should increase the overall transparency of the fiscal accounts, mitigate the pro-cyclical characteristics of fiscal policy and make the whole fiscal system more resistant to the expected demographic pressures. |
| Keywords: | ageing populations, cyclically-adjusted balance, fiscal policy, fiscal stance, offbudget transactions, quasi-fiscal policy. |
| JEL: | E62 H11 H5 H6 H81 |
| Date: | 2003–11 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/07&r=mac |
| By: | Tomáš Holub; Martin Čihák |
| Abstract: | The paper provides a theoretical reference point for discussions on adjustments in price levels and relative prices. The authors present a “nested†model integrating the Balassa–Samuelson model of the real equilibrium exchange rate with a model of accumulation of capital and with the demand side of the economy. Consequently, they show how the model can be generalised to a case of numerous commodities with different degrees of tradability. The predictions of the model are generally consistent with empirical findings for Central and Eastern European countries. The authors show how the theoretical model can be used for internally consistent simulations of the future convergence process in a transition economy. |
| Keywords: | Balassa–Samuelson model, inflation, relative prices. |
| JEL: | E31 E52 E58 F15 P22 |
| Date: | 2003–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/08&r=mac |
| By: | Luboš Komárek; Zdeněk Čech; Roman Horváth |
| Abstract: | In this paper we provide a survey of the optimum currency area theory, estimate the degree of the explanatory power of the optimum currency area criteria, and also calculate the optimum currency area index in the case of the Czech Republic. The results indicate that the traditional optimum currency area criteria to certain extent explain exchange rate variability. Our results may be interpreted as an attempt to assess the benefit-cost ratio of implementing a common currency for a pair of countries. Our results also suggest that from the point of view of the optimum currency area theory the costs of adopting the euro for the Czech Republic may be relatively low, at least in comparison with other EMU member countries. We conclude that if the European Monetary Union is sustainable, the accession of the Czech Republic should not change it. |
| Keywords: | Convergence, EU/eurozone, exchange rate, optimum currency area theory, transition. |
| JEL: | E58 E52 F42 F33 |
| Date: | 2003–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/10&r=mac |
| By: | Luboš Komárek; Zdeněk Čech, Roman Horváth |
| Abstract: | With EU accession looming, a new chapter has been opened in the debate about the candidate countries’ exchange rate strategies. A heated discussion has arisen in relation to ERM2 membership. The experience of the present eurozone members with ERM/ERM2 membership shows that none of them faced a significant challenge in the two-year “evaluation†period in terms of the exchange rate stability convergence criterion. This could also be attributable to the stability policies prescribed by the Maastricht Treaty. However, for catching-up countries in the run-up to joining the eurozone, given the existing functioning of the mechanism, the ERM2 appears be of little help for ensuring exchange rate stability. The mechanism should be viewed rather as a tool for “persuading†the markets of the appropriateness of the euro-locking rate. Since the Maastricht rules do not allow downward adjustment of the central parity within the ERM2 for two years before introduction of the euro, the authorities should be familiar with the preferred real exchange rate path prior to entering the mechanism. We conclude that countries could face large costs if they fail to do so. |
| Keywords: | EU/eurozone, convergence, exchange rate, transition. |
| JEL: | E58 E52 E32 F42 F33 |
| Date: | 2003–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/11&r=mac |
| By: | Tibor Hlédik |
| Abstract: | Since the introduction of inflation targeting in the Czech Republic in 1998, supply-side factors have had a strong direct influence on CPI inflation on several occasions. This paper uses a small-scale dynamic rational expectations model based on an open-economy version of Fuhrer– Moore-type staggered wage setting to quantify the second-round effects of selected supply-side shocks and of shocks to the nominal exchange rate on wages and subsequently on inflation. In order to analyse the desired reaction of the central bank to these shocks, optimal time-consistent policy rules are derived within the presented New-Keynesian framework. Impulse response analyses are then carried out to demonstrate the model’s dynamics under various policy rules corresponding to different loss functions of the central bank. The conclusions presented in the paper suggest that the second-round effects of shocks to import prices and the nominal exchange rate on inflation should not be ignored in practical policy-making. |
| Keywords: | monetary policy, optimal policy rules, inflation targeting. |
| JEL: | E52 E31 F41 |
| Date: | 2003–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2003/12&r=mac |
| By: | Alexis Derviz; Jiřà Podpiera |
| Abstract: | In this paper we investigate the determinants of the movements in the long-term Standard & Poors and CAMELS bank ratings in the Czech Republic during the period when the three biggest banks, representing approximately 60% of the Czech banking sector’s total assets, were privatized (i.e., the time span 1998–2001). The same list of explanatory variables corresponding to the CAMELS rating inputs employed by the Czech National Bank’s banking sector regulators was examined for both ratings in order to select significant predictors among them. We employed an ordered response logit model to analyze the monthly long-run S&P rating and a panel data framework for the analysis of the quarterly CAMELS rating. The predictors for which we found significant explanatory power are: Capital Adequacy, Credit Spread, the ratio of Total Loans to Total Assets, and the Total Asset Value at Risk. Models based on these predictors exhibited a predictive accuracy of 70%. Additionally, we found that the verified variables satisfactorily predict the S&P rating one month ahead. |
| Keywords: | Bank rating, CAMELS, ordered logit model, panel data analysis. |
| JEL: | C53 E58 G21 G33 |
| Date: | 2004–01 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/01&r=mac |
| By: | Ian Babetskii |
| Abstract: | There are two opposite points of view on the link between economic integration and business cycle synchronization. De Grauwe (1997) classifies these competing views as “The European Commission View†and “The Krugman Viewâ€. According to the European Commission (1990), closer integration leads to less frequent asymmetric shocks and to more synchronized business cycles between countries. On the other hand, for Krugman (1993) closer integration implies higher specialization and, thus, higher risks of idiosyncratic shocks. Drawing on the evidence from a group of transition countries which have experienced a notable increase in trade openness and economic integration with the European Union during the past decade, this paper tries to determine whose argument is supported by the data. This is done by confronting estimated time-varying coefficients of supply and demand shock asymmetry with indicators of trade intensity and exchange rates. We find that (i) an increase in trade intensity leads to higher symmetry of demand shocks; the effect of integration on supply shock asymmetry varies from country to country; (ii) a decrease in exchange rate volatility has a positive effect on demand shock convergence. The results for demand shocks can be interpreted in favor of “The European Commission Viewâ€, also known as the endogeneity argument by Frankel and Rose (1998) in the OCA criteria discussion, according to which trade links reduce asymmetries between countries. Overall, our results support Kenen’s (2001) argument that the impact of trade integration on shock asymmetry depends on the type of shock. |
| Keywords: | EU enlargement, business cycle, trade, OCA (optimal currency area) |
| JEL: | E32 F30 F42 |
| Date: | 2004–03 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/02&r=mac |
| By: | Anca Pruteanu |
| Abstract: | With this work, we aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996–2001, we study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit market’s supply side allows us to make inferences on the operativeness of the credit channel (the bank lending channel and the broad credit channel) of the monetary transmission mechanism. We find that changes in monetary policy alter the growth rate of loans with considerably stronger magnitude in the period 1999–2001 than in the period 1996–1998. From the analysis intended to capture the characteristics of the supply of loans, we conclude that the lending channel was operative in the period 1996–1998: we find cross-sectional differences in the lending reactions to monetary policy shocks due to degree of capitalization and liquidity. For the subsequent period 1999– 2001, the results also show distributive effects of monetary policy due to bank size and a bank’s proportion of classified loans. In the context of steadily decreasing interest rates, this bolsters the supposition of credit rationing and hence that of an operative broad credit channel. At the same time, we find evidence of linear relationships between bank characteristics and the growth rate of loans, and again these relationships change between the two time periods. This bodes well with the changes in the structure and attitude towards lending of the Czech commercial banks. |
| Keywords: | Bank lending channel, broad credit channel, credit rationing, monetary transmission mechanism. |
| JEL: | E52 E51 E58 G21 |
| Date: | 2004–04 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/03&r=mac |
| By: | Jiřà Podpiera |
| Abstract: | In this paper we propose an alternative method for deriving the business cycle. We interpret the varying inflationary responses to a constant demand shock in a partial equilibrium model. An above-average inflationary response indicates a boom phase and a below-average response shows an economic slowdown. Our model uses data for prices and household budget shares which are not subject to revisions and are consistent with the inflation measure. Hence, it mitigates the common drawbacks of usually applied techniques, such as real-time data mismeasurement or end-point bias of univariate filters. It follows that the results are altered neither by GDP data revisions, labor share determination and NAIRU estimation and total productivity smoothing, nor by the end-point bias of data filtering. The proposed method is thus preferred to other complementary methods such as GDP series filtering or the production function approach in showing truly the inflation environment. It is applied to the Czech quarterly data during 1994- 2003 and compared to other available business cycle estimates for the Czech economy. Comparing our business cycle estimation method with the production function method, used by the Economic Intelligence Unit and the Czech Ministry of Finance, and the Kalman filter, used by the Czech National Bank, we found the highest correlation between our measure and the Economic Intelligence Unit’s indicator. |
| Keywords: | Business cycle, inflation environment, simultaneous model. |
| JEL: | E31 E32 E37 C30 |
| Date: | 2004–05 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/04&r=mac |
| By: | JaromÃr BeneÅ¡; David Vávra |
| Abstract: | We follow a Beveridge-Nelson like time series decomposition method (into trend, business cycle and irregular components), and examine a stylized model of price inflation determination using the Czech data. We characterize the estimated components of CPI, IPPI and import inflations, together with the real production wage and real output, and survey their basic correlation properties; furthermore we compute structural innovations imposing restrictions on their long-run effects, draw the impulse responses, and test the results by means of bootstrap simulation. We conclude that major room for further refinement of the research is found in two areas, First, from an economist’s perspective, in the construction of real marginal cost indicators, and second, from a statistiacian’s perspective, in further investigation of the robustness of the method. |
| Keywords: | bootstrap, business cycle, inflation, structural VAR, time series decomposition |
| JEL: | C32 E32 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2004/08&r=mac |
| By: | Miguel Lebre de Freitas (Departamento de Economia e Gestão Industrial, Universidade de Aveiro) |
| Abstract: | In this paper, we analyse the relationship between money and inflation in a small open economy where domestic and foreign currencies are perfect substitutes as means of payment. It is shown that, if the path of domestic money supply is such that individuals find it optimal to change the currency in which transactions are settled, there will be an adjustment period during which domestic inflation adjusts so as to equalise the foreign inflation rate. In the case of a disinflation program, it is shown that the foreign currency is not necessarily abandoned as means of payment. The results obtained are consistent with both dollarisation hysteresis and reversibility, without requiring the specification of dollarisation costs. |
| Keywords: | currency substitution, dollarisation, money-demand and hysteresis |
| JEL: | E41 E52 F41 |
| Date: | 2003–08 |
| URL: | http://d.repec.org/n?u=RePEc:ave:wpaper:022003&r=mac |
| By: | Francisco Torres (Departamento de Economia e Gestão Industrial, Universidade de Aveiro) |
| Abstract: | This paper argues that a shift from an intergovernmental form of governance to a supranational regulation form of governance, as is the case of EMU, may not only do away with the efficiencylegitimacy trade-off but also enhance the democratic quality and effectiveness of European governance in the monetary sphere. The emerging role of the European Parliament in enhancing the democratic accountability of decision-making in supranational regulation (monetary policy) may prove quite powerful with respect to avoiding such a trade-off and indeed improving efficiency, transparency and accountability in European governance. It is argued that the democratic accountability of governance in the EU increased very much as the direct result of the making of EMU, that is, of the democratic delegation of executive powers to the ECB by the European Council and the EU Council of Ministers. That democratic accountability has also been substantially enhanced thanks to the emerging (and still evolving) role of the European Parliament as a principal of the European Central Bank (ECB). That new role of the EP materialised because of the change in the nature of delegation, i.e. the initial principal (the Council) delegated to an agent (the ECB) in order for the agent to control its behaviour in regard to monetary policy. That led to a change in the assignment between agents and principals. The new principal (still in the making one could argue) has also allowed for increased participation in and deliberation on the discussions about the conduct of monetary policy by the ECB, contributing in this way to its greater transparency. |
| Keywords: | Governance; supranational regulation; monetary policy effectiveness; accountability; delegation; principal-agent relations |
| JEL: | E5 |
| Date: | 2003–10 |
| URL: | http://d.repec.org/n?u=RePEc:ave:wpaper:032003&r=mac |