|
on Macroeconomics |
|
Issue of 2010‒03‒20
forty-two papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Jae Won Lee (Rutgers University, Department of Economics) |
| Abstract: | This paper presents and estimates a sticky-price model with heterogenous households and financial frictions. Frictions in state-contingent asset markets lead to imperfect risk-sharing among households with idiosyncratic labor incomes. I study the impacts of the introduced financial frictions on optimal monetary policy by documenting implications for the central bank's objective function, the equation that characterizes inflation-output gap trade-offs, targeting rules, interest rate rules, and welfare of the economy. Employing the estimated model, the paper argues that the central bank should place a stronger emphasis on stabilizing inflation than it has, and failing to do so can generate nontrivial welfare costs. |
| Keywords: | monetary policy, financial frictions, heterogeneous households, New Keynesian, nominal rigidities |
| JEL: | E |
| Date: | 2010–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201002&r=mac |
| By: | Hutchison, Michael; Sengupta, Rajeswari; Singh, Nirvikar |
| Abstract: | We investigate whether the seemingly discretionary and flexible approach of India’s central bank, the Reserve Bank of India (RBI), can in practice be described by a Taylor-type rule. We estimate an exchange rate-augmented Taylor rule for India over the period 1980Q1 to 2008Q4, allowing for potential structural shifts between the pre- and post-liberalization periods in order to capture the potential impact of macroeconomic and institutional changes on the RBI's monetary policy rule. Overall, we find that the output gap seems to matter more to the RBI than inflation, there is greater sensitivity to Consumer Price (CPI) inflation that Wholesale Price (WPI) inflation, and exchange rate changes do not play an important role in constraining monetary policy. Moreover, the post-1998 conduct of monetary policy seems to have changed in the direction of less inertia. |
| Keywords: | Reserve Bank of India; Monetary Policy; Taylor Rule; Indian Economy |
| JEL: | E43 E58 E52 |
| Date: | 2010–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21106&r=mac |
| By: | Sevim Kosem Alp |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1004&r=mac |
| By: | Ozge Senay; Alan Sutherland |
| Abstract: | Much of the literature on optimal monetary policy uses models in which the degree of nominal price flexibility is exogenous. There are, however, good reasons to suppose that the degree of price flexibility adjusts endogenously to changes in monetary conditions. This paper extends the standard New Keynesian model to incorporate an endogenous degree of price flexibility. The model shows that endo?genising the degree of price flexibility tends to shift optimal monetary policy towards complete inflation stabilisation, even when shocks take the form of cost-push distur?bances. This contrasts with the standard result obtained in models with exogenous price flexibility, which show that optimal monetary policy should allow some degree of inflation volatility in order to stabilise the welfare-relevant output gap. |
| Keywords: | Welfare, Endogenous Price Flexibility, Optimal Monetary Policy. |
| JEL: | E31 E52 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1007&r=mac |
| By: | Mandler, Martin |
| Abstract: | This paper studies regime dependence in the effects of monetary policy shocks for the U.S. using a threshold vector autoregressive model. In a high inflation regime the standard results from the literature obtain. In a low inflation regime output shows no significant response to monetary policy while the inflation response is negative. The paper endogenously determines two distinct regimes, while the literature thus far only considers alternative subsamples. |
| Keywords: | monetary policy shocks; threshold vector autoregression |
| JEL: | C32 E58 E52 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21215&r=mac |
| By: | Martin Mandler (University of Giessen, Department of Economics and Business, Licher Straße 66, D-35394 Gießen) |
| Abstract: | This paper studies regime dependence in the effects of monetary policy shocks for the U.S. using a threshold vector autoregressive model. In a high inflation regime the standard results from the literature obtain. In a low inflation regime output shows no significant response to monetary policy while the inflation response is negative. The paper endogenously determines two distinct regimes, while the literature thus far only considers alternative subsamples. |
| Keywords: | monetary policy shocks, threshold vector autoregression |
| JEL: | E52 E58 C32 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201008&r=mac |
| By: | Eschenhof, Sabine |
| Abstract: | This paper examines the role of exchange rate changes in the monetary policy for the Euro Area. Moreover, it compares different Taylor-type policy rules with respect to the numerical results as well as the impulse responses to exogenous shocks and the fit of the different data model specifications when using the underlying data. Overall, a monetary policy rule which includes the expected inflation rate as well as the output gap performs best and supports a possible role of exchange rate changes in the Euro Area's monetary policy. |
| Keywords: | Bayesian Estimation, Small Open Economy, Monetary Policy, Taylor Rule |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:dar:vpaper:40392&r=mac |
| By: | Eschenhof, Sabine |
| Abstract: | This paper examines the role of exchange rate changes in the monetary policy for the Euro Area. Moreover, it compares different Taylor-type policy rules with respect to the numerical results as well as the impulse responses to exogenous shocks and the fit of the different data model specifications when using the underlying data. Overall, a monetary policy rule which includes the expected inflation rate as well as the output gap performs best and supports a possible role of exchange rate changes in the Euro Area's monetary policy. |
| Keywords: | Bayesian Estimation, Small Open Economy, Monetary Policy, Taylor Rule |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:dar:ddpeco:40392&r=mac |
| By: | Frantisek Brazdik |
| Abstract: | The novelty of this work is the presentation of the theoretical framework that allows to model annonced change of the monetary regime. I analyze behavior of small open economy that announced to adopt a monetary policy regime with focus on offsetting nominal exchange rate changes in given number of periods. First, I analyze effects for macroeconomic stability of choice of the monetary regime for transition period. For this analysis, I consider representative types of monetary regimes in the annoncement-change period. I also try to rank the examined regimes in terms of loss functions. Moreover, I try to analyze the evolution of business cycles synchronization over the transition. |
| Keywords: | New Keynesian Models, Small Open Economy, Monetary regime change. |
| JEL: | E17 E31 E52 E58 E61 F02 F41 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp402&r=mac |
| By: | Moritz Ritter (Department of Economics, Temple University) |
| Abstract: | This paper incorporates a distortionary tax into a microfoundations of money framework and revisits the optimum quantity of money. The money constraint in the decentralized market plays a key role in the optimal policy. Only if the constraint is binding can fiscal policy alter the agents’ surplus shares; monetary, but not fiscal, policy affects the agents’ bargaining position, leaving a special role for monetary policy. If the buyers surplus share is inefficiently small, the intensive margin is distorted and the constrained optimal policy includes a money growth rate above that prescribed by the Friedman rule, even in the presence of fiscal policy instruments. |
| Keywords: | Money, Search, Friedman Rule, Sales Tax |
| JEL: | E62 E63 H21 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:tem:wpaper:1005&r=mac |
| By: | Haider, Adnan; Ramzi, Drissi |
| Abstract: | In this paper we estimate four competing closed economy DSGE models: a standard Calvo (1983) type pricing model; Hernandez’s (2004) state-dependent pricing model; Mankiw and Reis (2002) standard sticky information model; and a mixed version of sticky price-information model. Each model incorporates various other standard New-Keynesian features such as habit formation, costs of adjustment in capital accumulation and variable capacity utilization. Using Bayesian Simulation techniques, we estimate each DSGE model for the Euro Area. While estimation, we also studies the welfare properties of various monetary policies. In particular, the Ramsey allocation has been computed, giving a natural benchmark for welfare comparisons. Our interesting results show that despite the apparent similarities of all models, their responses to shocks and fit to data are quite different and there is no agreement on their relative performance. As a result, Monetary Authorities cannot afford to rely on a single reference model of the economy but need a large number of alternative modeling tools available when they take their decision of optimal monetary policy. |
| Keywords: | new Keynesian economics; DSGE models; nominal rigidities; monetary policy; Bayesian Approach |
| JEL: | E32 E31 E37 |
| Date: | 2010–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21227&r=mac |
| By: | E. M. Bentour; W. A. Razzak |
| Abstract: | The Gulf Cooperation Council countries (GCC) include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Their monetary policy objective is to stabilize the foreign price, i.e., exchange rate instead of the domestic price level, where the nominal interest rate is equalized with the US federal fund rate, but the inflation rates are independent. High oil prices and the depreciating US dollar caused inflation to rise and real interest rates to be persistently negative in the UAE and Qatar. Asset prices bubbles formed then burst creating large loses. They could have moderated the effect of, or avoided, the bubble had they floated the currency and stabilized domestic prices. |
| Keywords: | Inflation, real interest rate, bubbles. |
| JEL: | E31 E37 E58 |
| Date: | 2010–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2010_03&r=mac |
| By: | Tarassow, Artur |
| Abstract: | The paper attempts to verify Richard Goodwin's (1967) endogenous business cycle theory which states that the driving forces behind fluctuations are class struggles between capitalists and workers about income distribution. Based on a Marxian profit-led model, non-linear differential equations lead to endogenous cycles in the wage-share-employment-space which can be observed empirically. Applying a bivariate vector autoregressive model we analyze the relationship between real unit labor costs and the employment rate for the US economy over a period from 1948:1 to 2006:4. Granger-causality tests, orthogonalized impulse response functions and forecast error variance decomposition are conducted for the raw data as well as the cyclical components of the Hodrick-Prescott and Baxter-King filter methods. We verify the profit-led character of the US goods market and find that income distribution is driven by labor market dynamics. |
| Keywords: | Business cycle; Goodwin; Econometrics; Marxian Economics; Post Keynesian Economics; Functional income distribution |
| JEL: | E12 E32 E25 E24 E11 |
| Date: | 2010–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21012&r=mac |
| By: | Ray C. Fair (Cowles Foundation, Yale University) |
| Abstract: | This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of a Chinese yuan appreciation. The estimated effects on U.S. output and employment are modest. Positive effects on U.S. output from a decrease in imports from China are offset by negative effects on U.S. output from increased inflation and from a decrease in U.S. exports to China because of a Chinese contraction. |
| Keywords: | Yuan appreciation |
| JEL: | E17 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1755&r=mac |
| By: | Elmar Mertens |
| Abstract: | In models of monetary policy, discretionary policymaking often lacks the ability to manage public beliefs, which explains the theoretical appeal of policy rules and commitment strategies. But as shown in this paper, when a policymaker possesses private information, belief management becomes an integral part of optimal discretion policies and improves their performance. ; Solving for optimal policy in a simple New Keynesian model, this paper shows how discretionary losses are reduced when the policymaker has private information. Furthermore, disinflations are pursued more vigorously, when the hidden information problem is larger, even when inflation is partly backward-looking. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2010-11&r=mac |
| By: | Williamson, Stephen D.; Wright, Randall |
| Abstract: | he purpose of this paper is to discuss some of the models used in New Monetarist Economics, which is our label for a body of recent work on money, banking, payments systems, asset markets, and related topics. A key principle in New Monetarism is that solid microfoundations are critical for understanding monetary issues. We survey recent papers on monetary theory, showing how they build on common foundations. We then lay out a tractable benchmark version of the model that allows us to address a variety of issues. We use it to analyze some classic economic topics, like the welfare effects of inflation, the relationship between money and capital accumulation, and the Phillips curve. We also extend the benchmark model in new ways, and show how it can be used to generate new insights in the study of payments, banking, and asset markets. |
| Keywords: | monetarism; monetary theory; monetary policy; banking; financial intermediation |
| JEL: | E5 E4 E3 |
| Date: | 2010–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21030&r=mac |
| By: | Ray C. Fair (Cowles Foundation, Yale University) |
| Abstract: | This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of the U.S. stimulus bill passed in February 2009. The analysis has the advantage of taking into account many endogenous effects. Real U.S. output is estimated to be $554 billion larger when summed over the 12-year period 2009:1-2020:4 (0.29 percent of the total sum of output). The average number of jobs is 509 thousand larger (0.37 percent). There is some redistribution of output and employment away from 2012-2015. At the end of 2020 the federal government debt is larger by $637 billion in real terms (the debt/GDP ratio is larger by 3.19 percentage points), which may increase the risk of negative asset-market reactions. |
| Keywords: | Stimulus effects, Government spending multipliers |
| JEL: | E17 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1756&r=mac |
| By: | Waldron, Matt (Bank of England); Zampolli, Fabrizio (Bank of England) |
| Abstract: | Household debt and house prices in the United Kingdom rose substantially between 1987 and 2006. In this paper we use a calibrated overlapping generations model of the household sector to examine the extent to which changes in demographics, lower inflation, and a lower long-run real interest rate may explain the build-up of debt and the rise in house prices over that period. Our model suggests that lower real interest rates were particularly important. If households expected lower real interest rates to persist, then the model can more than explain the rise in debt and can explain most of the rise in house prices. However, the model leaves a puzzle because it predicts that an unanticipated fall in real interest rates should lead to a consumption boom that did not materialise in the data. |
| Keywords: | Consumption; housing market; collateral constraints; life cycle; OLG |
| JEL: | E21 R31 |
| Date: | 2010–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0379&r=mac |
| By: | Herman Stekler (Department of Economics The George Washington University); Ullrich Heilemann |
| Abstract: | The major focus of this paper is to determine whether the accuracy of German macroeconomic forecasts has improved over time. We examine one-year-ahead forecasts of real GDP and inflation for the years 1967 to 2008 made by three major German forecasting groups and the OECD. We examine the accuracy of the forecasts over the entire period and in four sub-periods. We conclude that, with some exceptions, the errors of the German forecasters were similar to those of their U.S. and U.K. counterparts. While the absolute size of the forecast errors has declined, this is not the case for relative accuracy. A benchmark comparison of these predictions with the ex post forecasts of a macroeconometric model indicates that the quality of the growth forecasts can be improved but that the expected increase in accuracy may not be substantial. |
| Keywords: | Forecast evaluations; macroeconomic forecasting; accuracy limits |
| JEL: | E37 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2010-001&r=mac |
| By: | David Altig; Lawrence J. Christiano; Martin Eichenbaum; Jesper Linde |
| Abstract: | This paper formulates and estimates a three-shock US business cycle model. The estimated model accounts for a substantial fraction of the cyclical variation in output and is consistent with the observed inertia in inflation. This is true even though firms in the model reoptimize prices on average once every 1.8 quarters. The key feature of our model underlying this result is that capital is firm-specific. If we adopt the standard assumption that capital is homogeneous and traded in economy-wide rental markets, we find that firms reoptimize their prices on average once every 9 quarters. We argue that the micro implications of the model strongly favor the firm-specific capital specification. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:990&r=mac |
| By: | Ozge Senay; Alan Sutherland |
| Abstract: | Using a standard open economy DSGE model, it is shown that the timing of asset trade relative to policy decisions has a potentially important impact on the welfare evaluation of monetary policy at the individual country level. If asset trade in the initial period takes place before the announcement of policy, a national pol?icymaker can choose a policy rule which reduces the work effort of households in the policymaker¡¯s country in the knowledge that consumption is fully insured by optimally chosen international portfolio positions. But if asset trade takes place after the policy announcement, this insurance is absent and households in the poli?cymaker¡¯s country bear the full consumption consequences of the chosen policy rule. The welfare incentives faced by national policymakers are very different between the two cases. Numerical examples confirm that asset market timing has a significant impact on the optimal policy rule. |
| Keywords: | Optimal Policy, Timing of Asset Trade, Monetary Policy in Open Economies. |
| JEL: | E52 F41 G15 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1006&r=mac |
| By: | Kristie M. Engemann; Kevin L. Kliesen; Michael T. Owyang |
| Abstract: | Hamilton (2005) noted that nine of the last ten recessions in the United States were preceded by a substantial increase in the price of oil. In this paper, we consider whether oil price shocks significantly increase the probability of recessions in a number of countries. Because business cycle turning points generally are not available for other countries, we estimate the turning points together with oil's effect in a Markov-switching model with time-varying transition probabilities. We find that, for most countries, oil shocks do affect the likelihood of entering a recession. In particular, an average sized shock to oil prices increases the probability of recession in the U.S. by about 60 percentage points over the following year. |
| Keywords: | Business cycles ; Petroleum industry and trade |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2010-007&r=mac |
| By: | Dmitriev, Mikhail |
| Abstract: | In this paper financial frictions are represented by agents heterogeneity. Presence of savers and borrowers permits to analyse financial frictions in a simple and tractable framework. Different types of borrowers create an effect of costly state verification models. Comparatively to these standard CSV framework different types of shocks are modelled, such as expected increase in the income of borrowers or change in the distribution of borrowers quality. Modellin these effects is hard in representative agent framework and such shocks were not analysed in CSV framework before. |
| Keywords: | Financial Frictions; DSGE; Business Cycles |
| JEL: | E2 E21 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21149&r=mac |
| By: | Hein, Eckhard; Truger, Achim |
| Abstract: | We analyse the long-run imbalances of finance-dominated capitalism underlying the present crisis – which began in 2007 – with a focus on developments in the US and Germany. We argue that beyond inefficient regulation of the financial sector, the severeness of the present crisis has been mainly caused by increasing inequalities of income distribution and rising imbalances in the world economy associated with finance-dominated capitalism. From this it follows that in the near and not so near future, the US will no longer be able to act as the driving force for world demand. In order to avoid a period of deflationary stagnation in major parts of the world economy, we finally propose the policy package of a Global Keynesian New Deal which should consist of: 1. re-regulation of the financial sector, 2. re-orientation of macroeconomic policies along (Post-)Keynesian lines, and 3. re-construction of international macroeconomic policy co-ordination, in particular on the European level, and a new world financial order. |
| Keywords: | Finance-dominated capitalism; financial crisis; macroeconomic policies; Global Keynesian New Deal |
| JEL: | E32 E65 E63 E44 E61 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21175&r=mac |
| By: | Harrison, Richard (Bank of England); Oomen, Özlem (Bank of England) |
| Abstract: | We build a small open economy dynamic stochastic general equilibrium model, featuring many types of nominal and real frictions that have become standard in the literature. In recent years it has become possible to estimate such models using Bayesian methods. These exercises typically involve augmenting a stochastically singular model with a number of shocks to structural equations to make estimation feasible, even though the motivation for the choice of these shocks is often unspecified. In an attempt to put this approach on a more formal basis, we estimate the model in two stages. First, we evaluate a calibrated version of the stochastically singular model. Then, we augment the model with structural shocks motivated by the results of the evaluation stage and estimate the resulting model using UK data using a Bayesian approach. Finally, we reassess the adequacy of this augmented and estimated model in reconciling the dynamics of the model with the data. Our findings suggest that the shock processes play a crucial role in helping to match the data. |
| Keywords: | DSGE models; model evaluation; Bayesian estimation; monetary policy |
| JEL: | E40 E50 |
| Date: | 2010–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0380&r=mac |
| By: | Jae Won Lee (Rutgers University, Department of Economics) |
| Abstract: | This paper introduces heterogeneous households into an otherwise standard sticky-price model with industry-specific labor markets. Households differ in labor incomes and asset markets are incomplete. I show that household heterogeneity affects equilibrium dynamics nontrivially by amplifying price stickiness endogenously through wealth effects on labor supply. To quantify the importance of household heterogeneity in amplifying stickiness, I estimate and compare representative and heterogeneous household models. The quantitative exercise shows the heterogenous household model performs better than its representative counterpart in accounting for aggregate and sectoral dynamics in the U.S., while being more consistent with empirical evidence on nominal rigidity at the aggregate and sectoral levels, thanks to the stickiness endoge |
| Keywords: | DSGE model, heterogeneity, multiple sectors, real rigidities, price stickiness |
| JEL: | E |
| Date: | 2010–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201001&r=mac |
| By: | Andrea Raffo |
| Abstract: | Understanding the joint dynamics of international prices and quantities remains a central issue in international business cycles. International relative prices appreciate when domestic consumption and output increase more than their foreign counterparts. In addition, both trade flows and trade prices display sizable volatility. This paper incorporates Hicks-neutral and investment-specific technology shocks into a standard two-country general equilibrium model with variable capacity utilization and weak wealth effects on labor supply. Investment-specific technology shocks introduce a source of fluctuations in absorption similar to taste shocks, thus reconciling theory and data. The paper also presents implications for the transmission mechanism of technology shocks across countries and for the Barro and King (1984) critique of investment shocks. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:992&r=mac |
| By: | Jesús Fernández-Villaverde; Lee Ohanian |
| Abstract: | This paper studies the recent evolution of the Spanish economy in the context of the developments of the world economy and presents a benchmark model with …nancial frictions to assess the sources of these ‡uctuations. We pay particular attention to the comparison with the United States and some of Spain’s European peers in the 1994-2009 period. First, we document the long expansion between 1994 and early 2008 in terms of the main economic aggregates and the boom in the real estate market. Second, we also report on the fast downturn of these economies in the second half of 2008. Third, we use our benchmark model with …nancial frictions to evaluate how much we understand of the mechanism behind these large changes in aggregate behavior. We conclude with some policy remarks. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2010-03&r=mac |
| By: | Fabio Tramontana (Department of Economics, University of Ancona, Italy); Laura Gardini (Department of Economics and Quantitative Methods, University of Urbino, Italy); Piero Ferri (Department of Economics, University of Bergamo, Italy) |
| Abstract: | We consider a model of inflation and unemployment proposed in Ferri et al. (JEBO, 2001), in which the dynamics are described by a discontinuous piecewise linear map, made up of two branches. We shall show that the bounded dynamics may be classified in two cases: we may have either regular dynamics with stable cycles of any period or quasiperiodic trajectories, or only chaotic dynamics (pure chaos in which a unique absolutely continuous invariant ergodic measure exists, and structurally stable),in a rich variety of cyclical chaotic intervals. The main results are the analytical formulation of the border collision bifurcation curves, through which we give a complete picture of the possible outcomes of the model. |
| Keywords: | Phillips curve, Regime switching, NAIRU, Nonlinearities, Discontinuous maps. |
| JEL: | E31 E32 C62 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:10_04&r=mac |
| By: | Eschenhof, Sabine |
| Abstract: | In this paper we want to estimate basic Taylor rules with a cross country study approach for European countries before the reorganization of the system of central banks. We compare basic and extended Taylor rules to give a hint if the exchange rate plays a significant role in the decision making of monetary policy. Fixed Effects, GMM and SGMM estimators are used to check for robustness. The obtained results adumbrate that there may be an influence of exchange rate changes on the monetary policy decision making process but the results are not fully robust and deliver only a weak tendency. |
| Keywords: | Cross Country Study, Taylor Rules, Exchange Rate, FE Estimation, SGMM Estimation |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:dar:vpaper:40391&r=mac |
| By: | Arnab Bhattacharjee; Sean Holly |
| Abstract: | Until recently, much effort has been devoted to the estimation of panel data regression models without adequate attention being paid to the drivers of diffusion and interaction across cross section and spatial units. We discuss some new methodologies in this emerging area and demonstrate their use in measurement and inferences on cross section and spatial interactions. Specifically, we highlight the important dis?tinction between spatial dependence driven by unobserved common factors and those based on a spatial weights matrix. We argue that, purely factor driven models of spatial dependence may be somewhat inadequate because of their connection with the exchangeability as?sumption. Limitations and potential enhancements of the existing methods are discussed, and several directions for new research are highlighted. |
| Keywords: | Cross Sectional and Spatial Dependence, Spatial Weights Matrix, Interactions and Diffusion, Monetary Policy Committee, Generalised Method of Moments. |
| JEL: | E42 E43 E50 E58 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1003&r=mac |
| By: | Karagedikli, Özer (Reserve Bank of New Zealand); Mumtaz, Haroon (Bank of England); Tanaka, Misa (Bank of England) |
| Abstract: | Recent research has found evidence of increasing comovement in CPI inflation rates across industrialised countries. This paper considers whether this can be attributed to greater global integration of product markets. To examine this question, we build a data set of 28 matched product category price indices for fourteen advanced economies for 1998 Q1 to 2008 Q2, and decompose the inflation rates into a world factor, country-specific factors, and category-specific factors using a Bayesian dynamic factor model with Gibbs sampling. We find that the category-specific factors account for a large part of the comovement in the prices of goods which are intensive in internationally traded primary commodities; but this is less evident for other traded goods. We also find that both the world factor and the category-specific factors become more significant in explaining the movement in the relative prices in the second half of our sample. |
| Keywords: | Disaggregated international price; dynamic factor model; Gibbs sampling |
| JEL: | E30 E52 |
| Date: | 2010–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0381&r=mac |
| By: | Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Patrick Rakotomarolahy (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | The aim of this paper is to introduce a new methodology to forecast the monthly economic indicators used in the Gross Domestic Product (GDP) modelling in order to improve the forecasting accuracy. Our approach is based on multivariate k-nearest neighbors method and radial basis function method for which we provide new theoretical results. We apply these two methods to compute the quarter GDP on the Euro-zone, comparing our approach, with GDP obtained when we estimate the monthly indicators with a linear model, which is often used as a benchmark. |
| Keywords: | k-nearest neighbors method, radial basis function method, non-parametric, forecasts, GDP, Euro-area. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00461711_v1&r=mac |
| By: | Ozge Senay; Alan Sutherland |
| Abstract: | The implications of local currency pricing (LCP) for monetary regime choice are analysed for a country facing foreign monetary shocks. In this analysis expenditure switching is potentially welfare reducing. This contrasts with the existing LCP literature, which focuses on productivity shocks and thus analyses a world where expenditure switching is welfare enhancing. This paper shows that, when home and foreign pro?ducers follow LCP, expenditure switching is absent and a floating rate is preferred by the home country. But when only home producers follow LCP, expenditure switching is present and a fixed rate can be welfare enhancing for the home country. |
| Keywords: | Monetary Policy, Foreign Monetary Shocks, Expenditure Switching, Exchange Rates, Local Currency Pricing, Reference Currency. |
| JEL: | E52 F41 F42 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1005&r=mac |
| By: | Dean Baker |
| Abstract: | The Great Recession has left tens of millions of families facing unemployment, underemployment and the threat of losing their home. However, concerns over the deficit threaten to derail efforts to turn around the economy and spur employment. This report attempts to correct many of the misperceptions about the deficit that have brought the issue to the center of national debate. In a time when cogent, effective policies are needed to address the suffering stemming from the economic downturn, the tactics of the deficit hawks distract the public and policy makers from the policies necessary to bring the economy back to full employment. |
| Keywords: | budget deficit, deficit, healthcare, health care, fiscal responsibility, unemployment, deficit spending |
| JEL: | E E6 E60 E61 E62 E63 E64 E65 E66 H H2 H5 H6 H60 H61 H62 H63 H68 I I1 I11 I18 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2010-04&r=mac |
| By: | Dror Goldberg (Department of Economics, Bar Ilan University) |
| Abstract: | A government can promote the use of an object as the general medium of exchange by accepting it in tax payments. I prove this old claim in a dynamic model and compare the mechanism to convertibility. The government can often keep its favourite money in circulation even while increasing its quantity and thus causing it to decrease in value. This opens the door for an inflationary policy. Most successful fiat moneys have been acceptable for tax payments, typically due to legal tender laws. Numerous historical failures of fiat moneys are consistent with the theory. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2009-5&r=mac |
| By: | Yu-Fu Chen; Gylfi Zoega |
| Abstract: | Strong hysteresis in the labour market (see Cross, 1995) requires workers to be heterogeneous in terms of the cost of hiring and firing. We show how such heterogeneity arises naturally in labour markets due to differences in workers’ age by showing that both the hiring and the firing thresholds for productivity are age dependent. The presence of strong hysteresis does not for this reason depend on ad-hoc differences in the cost of hiring and firing workers. |
| Keywords: | Hysteresis, hiring and firing costs, heterogeneous workers |
| JEL: | E24 J41 J64 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:dun:dpaper:230&r=mac |
| By: | Dror Goldberg (Department of Economics, Bar Ilan University) |
| Abstract: | The legal foundation of the monetary system is the law of legal tender. The “legal tender” concept is used in models to describe almost anything except for what it really means in actual laws. Such errors prevent an accurate evaluation of the importance of this legal status. This note explains in simple terms what “legal tender” really means. |
| Keywords: | Legal tender; Contract law; Taxes |
| JEL: | E42 K12 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2009-4&r=mac |
| By: | Swagel, Phillip |
| Abstract: | This paper reviews the policy response to the 2007–09 financial crisis from the perspective of a senior Treasury official at the time. Government agencies faced severe constraints in addressing the crisis: lack of legal authority for potentially helpful financial stabilization measures, a Congress reluctant to grant such authority, and the need to act quickly in the midst of a market panic. Treasury officials recognized the dangers arising from mounting foreclosures and worked to facilitate limited mortgage modifications, but going further was politically unacceptable because public funds would have gone to some irresponsible borrowers. The suddenness of Bear Stearns’ collapse in March 2008 made rescue necessary and led to preparation of emergency options should conditions worsen. The Treasury saw Fannie Mae and Freddie Mac’s rescue that summer as necessary to calm markets, despite the moral hazard created. After Lehman Brothers failed in September, the Treasury genuinely intended to buy illiquid securities from troubled institutions but turned to capital injections as the crisis deepened. |
| Keywords: | financial crisis; Treasury Department; TARP; housing; foreclosures; Lehman Brothers |
| JEL: | E0 N2 |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21104&r=mac |
| By: | Torben G. Andersen (Kellogg School of Management, Northwestern University, Evanston, IL; NBER, Cambridge, MA; and CREATES, Aarhus, Denmark); Luca Benzoni (Federal Reserve Bank of Chicago, Chicago, Illinois, USA.) |
| Abstract: | We give an overview of a broad class of models designed to capture stochastic volatility in financial markets, with illustrations of the scope of application of these models to practical finance problems. In a broad sense, this model class includes GARCH, but we focus on a narrower set of specifications in which volatility follows its own random process and is therefore a latent factor. These stochastic volatility specifications fit naturally in the continuous-time finance paradigm, and there- fore serve as a prominent tool for a wide range of pricing and hedging applications. Moreover, the continuous-time paradigm of financial economics is naturally linked with the theory of volatility mod- eling and forecasting, and in particular with the practice of constructing ex-post volatility measures from high-frequency intraday data (realized volatility). One drawback is that in this setting volatility is not measurable with respect to observable information, and this feature complicates estimation and inference. Further, the presence of an additional state variable|volatility|renders the model less tractable from an analytic perspective. New estimation methods, combined with model restrictions that allow for closed-form solutions, make it possible to address these challenges while keeping the model consistent with the main properties of the data. |
| Keywords: | Stochastic Volatility, Realized Volatility, Implied Volatility, Options, Volatility Smirk, Volatility Smile, Dynamic Term Structure Models, Affine Models |
| JEL: | E43 G12 |
| Date: | 2010–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2010-10&r=mac |
| By: | Tausch, Arno |
| Abstract: | This article attempts to develop a perspective for radical reform of the Austrian and European universities. The article takes up anew a simple idea, already presented in an article in the widely circulated European political magazine “Die Zukunft” (Vienna) in 1991, proposing full University democracy, implying free elections of the university governing bodies, combined with a net household income per capita income weighted fully-fledged and credit supported tuition system. Another "pillar" of a European university reform would imply stronger rewards for publications in peer-reviewed international journals. After the fall of the Berlin Wall, the continental European university has become the last bastion of the inefficient command economy. Only a thorough Anglo-American reform perspective can nowadays save the continental European University from the abyss of the implosion of the system. A "Scandinavian" alternative, based on a government-taxation-funded reform would be possible only in principle, but under the present political economic conditions in continental Europe, too many special interests of small stakeholders in the political system block such an alternative. The harsh and bitter predictions of the 1991 article came true all too quickly - the empty “shelves” in the European command economy University system remind us of the all too well-known economics of shortage, Janos Kornai style. Our empirical multiple regressions, based on OECD and standard international higher education data show that the introduction of tuition fees would have a major impact on the performance criteria of the University system according to different operationalizations of the University of Shanghai global rankings. Our empirical calculations also show that tuition fees and a strong role of the private sector and its contributions to university life are the most efficient strategy to achieve a high number of world class universities and high number of University graduates per age cohort, controlling for the effects of development level. Additional partial correlations (again keeping constant the development level) also show that the level of annual tuition fees are also highly and significantly associated with other societal performance criteria, like the predictable recovery from the current crisis (based on IMF data), indicators of a liberal society, and indicators of avoiding passive globalization. It is also true that a high level of social protection (as measured by the OECD statistics on public social expenditures per GDP), does not impede a higher proportion of public educational expenditure on tertiary education. But it is also true that the political culture of social protection almost automatically tends to regard the university system as a preserve of the State, and culturally excludes new models of private funding, oriented at the best-practice Anglo-American model. Our data also analyse current global entrance examinations regimes to universities around the world, as well as the efficiency ratios of the amount of the estimated purchasing power of salaries of researchers and scientists to the status of a country as a headquarter of global universities (per capita number of "world class Universities"). While the author personally believes that numerus clausus regimes, knock-out tests in the studies orientation phase, and other access restrictions are the wrong way to guarantee a proper university landscape in a mature capitalistic society, the list of international tests and filtering by state authorities already in existence is really impressive, and – paradoxically enough for the proponents of a Scandinavian state oriented alternative higher education policy – includes many Scandinavian countries. So in effect, there is no alternative to the Anglo-Americanization of our continental European universities. Free access, functioning capitalist universities, paid at least partially by their consumers – the students - are essential to the "normal" functioning of a free, capitalist society. The continental European failure to reform its Universities deepens the societal inertia, parochialism, xenophobia and racism in our continent. The present command economic University system, in addition, excludes an atmosphere of social responsibility, and creates a mentality of the command economy and party cadres. The reorganization of the continental European and outdated “habilitation procedure”, creating an intellectual climate of serfdom of assistant professors to their masters – the professors - and its substitution by an innovation oriented impact analysis of the intellectual production of candidates in leading peer reviewed journals or international book publishing would be also a major step towards a solution of the continental European University crisis. |
| Keywords: | E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; F15 - Economic Integration; H52 - Government Expenditures and Education; I21 - Analysis of Education; I22 - Educational Finance; I23 - Higher Education Research Institutions |
| JEL: | E24 I21 I23 H52 I22 |
| Date: | 2010–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21234&r=mac |
| By: | Petra Dünhaupt (Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation) |
| Abstract: | During the past two decades, there has been a shift of significance from the real to the financial sector. This development is often referred to as "financialization". Most industrial countries have experienced a decline in the share of labor income. Based on a review of empirics and literature, this paper seeks to determine who gained from the fall in the labor share of income in the USA and Germany, respectively. If financialization is indeed responsible for the decline, rentiers should be the beneficiaries. In order to identify the relevant effects, the profit share of the two countries under observation is split up between the share of retained earnings and the share of net property income (= rentiers' income). The presented evidence shows that the development of the rentier income share indeed corresponds quite well with the stages of development of financialization. |
| Keywords: | Financialization, income distribution, rentier income share |
| JEL: | E25 E44 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:2-2010&r=mac |