|
on Macroeconomics |
|
Issue of 2010‒04‒04
53 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Borek Vasicek |
| Abstract: | This paper has three objectives. First, it aims at revealing the logic of interest rate setting pursued by monetary authorities of 12 new EU members. Using estimation of an augmented Taylor rule, we find that this setting was not always consistent with the official monetary policy. Second, we seek to shed light on the inflation process of these countries. To this end, we carry out an estimation of an open economy Philips curve (PC). Our main finding is that inflation rates were not only driven by backward persistency but also held a forward-looking component. Finally, we assess the viability of existing monetary arrangements for price stability. The analysis of the conditional inflation variance obtained from GARCH estimation of PC is used for this purpose. We conclude that inflation targeting is preferable to an exchange rate peg because it allowed decreasing the inflation rate and anchored its volatility. |
| Keywords: | open emerging economies, CEE countries, monetary policy rules, open economy Phillips curve, conditional inflation variance |
| JEL: | E31 E52 E58 P24 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-968&r=mac |
| By: | Jordi Galí |
| Abstract: | Much recent research has focused on the development and analysis of extensions of the New Keynesian framework that model labor market frictions and unemployment explicitly. The present paper describes some of the essential ingredients and properties of those models, and their implications for monetary policy. |
| Keywords: | Nominal rigidities, labor market frictions, wage rigidities. |
| JEL: | E32 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1198&r=mac |
| By: | Hendrickson, Joshua |
| Abstract: | The emerging consensus in monetary policy and business cycle analysis is that money aggregates are not useful as an intermediate target for monetary policy or as an information variable. The uselessness of money as an intermediate target is driven by empirical research that suggests that money demand is unstable. In addition, the informational quality of money has been called into question by empirical research that fails to identify a relationship between money growth and inflation, nominal income growth, and the output gap. Nevertheless, this research is potentially flawed by the use of simple sum money aggregates, which are not consistent with economic, aggregation, or index number theory. This paper therefore re-examines previous empirical evidence on money demand and the role of money as an information variable using monetary services indexes as monetary aggregates. These aggregates have the advantage of being derived from microtheoretic foundations as well as being consistent with aggregation and index number theory. The results of the re-evaluation suggest that previous empirical work might be driven by mismeasurement. |
| Keywords: | monetary aggregates; money; business cycles; money demand; cointegrated VAR |
| JEL: | E32 E31 E42 E41 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21477&r=mac |
| By: | Borek Vasicek |
| Abstract: | The paper seeks to shed light on inflation dynamics of four new EU member states (the Czech Republic, Hungary, Poland and Slovakia). To this end, the New Keynesian Phillips curve augmented for open economies is estimated and additional statistical tests applied. We find the following. (1) The claim of New Keynesians that the real marginal cost is the main inflation-forcing variable is fragile. (2) Inflation seems to be driven by external factors. (3) Although inflation holds forward-looking component, the backward-looking one is substantial. An intuitive explanation for higher inflation persistence may be rather adaptive than rational price setting of local firms. |
| Keywords: | Inflation dynamics, New Keynesian Phillips curve, CEE countries, GMM estimation |
| JEL: | C32 E31 |
| Date: | 2009–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-971&r=mac |
| By: | L. Marattin; S. Salotti |
| Abstract: | The ongoing massive fiscal policy stimulus triggered increasing concerns on the potential impact on interest rate levels, as economic theory predicts. Particularly, the deterioration of some EMU countries’ fiscal positions has been putting at risk Eurozone’ financial stability. In this paper, we estimate a Panel VAR (PVAR) model on the EMU area employing annual data from 1970 to 2008 in order to assess the qualitative and quantitative impact of public debt on interest rates Our results show that prior to the introduction of the Euro an increase in public debt led to positive and significant effect on long-term nominal interest rates, with a stronger effect for high-debt countries. After the introduction of the single currency, the effect vanishes (in line with Bernoth 2004). We interpret this result as a confirmation of the crucial role of the monetary union in weakening the automatic risk-premium-based channel between debt shocks and returns on government bond. |
| JEL: | E62 G12 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:695&r=mac |
| By: | Xavier Freixas; Antoine Martin; David Skeie |
| Abstract: | A major lesson of the recent financial crisis is that the interbank lending market is crucial for banks facing large uncertainty regarding their liquidity needs. This paper studies the efficiency of the interbank lending market in allocating funds. We consider two different types of liquidity shocks leading to different implications for optimal policy by the central bank. We show that, when confronted with a distributional liquidity-shock crisis that causes a large disparity in the liquidity held among banks, the central bank should lower the interbank rate. This view implies that the traditional tenet prescribing the separation between prudential regulation and monetary policy should be abandoned. In addition, we show that, during an aggregate liquidity crisis, central banks should manage the aggregate volume of liquidity. Two different instruments, interest rates and liquidity injection, are therefore required to cope with the two different types of liquidity shocks. Finally, we show that failure to cut interest rates during a crisis erodes financial stability by increasing the risk of bank runs. |
| Keywords: | Bank liquidity, interbank markets, central bank policy, financial fragility, bank runs. |
| JEL: | G21 E43 E44 E52 E58 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1202&r=mac |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Stephen M. Miller (College of Business, University of Las Vegas, Nevada); Dylan van Wyk (Department of Economics, University of Pretoria) |
| Abstract: | This paper considers how monetary policy, a Federal funds rate shock, affects the dynamics of the US housing sector and whether the financial market liberalization of the early 1980’s influenced those dynamics. The analysis uses impulse response functions obtained from a large-scale Bayesian Vector Autoregression (LBVAR) model over the periods 1968:01 to 1982:12 and 1989:01 to 2003:12, including 21 housing-sector variables at the national and four census regions. Overall, the 100 basis point Federal funds rate shock produces larger effects on the real house prices, both at the regional level and the national level, in the post-liberalization period when compared to the pre-liberalization era. While the precision of the estimates do not imply significant differences, the finding does offer a caution. That is, the housing market appears more sensitive to monetary policy shocks in the post-liberalization period. On the one hand, this suggests that monetary policy possesses increased leverage. On the other hand, the housing market cycle traditionally contributes an important component to the aggregate business cycle. Thus, the monetary authorities may need to exercise more care in implementing Federal funds rate adjustments going forward. In addition, contractionary monetary policy exerts a negative effect on house prices at the national level, indicating the absence of the price puzzle in small structural vector autoregressive models. The puzzle’s absence in the housing sector possibly emerges as a result of proper identification of monetary policy shocks within a data-rich environment. Finally, we find that the reaction of housing sector proves heterogeneous across regions, with the housing sector in the South driving the national data after liberalization, while before liberalization, the Middle West appears to drive the housing market. The responses in the West differ the most from the other regions. |
| Keywords: | Monetary policy, Housing sector dynamics, Large-Scale BVAR models |
| JEL: | C32 R31 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201009&r=mac |
| By: | Juan Ignacio Aldasoro; Václav Žďárek |
| Abstract: | In this paper, we present evidence on the statistical features of observed dispersion in HICP inflation rates in the Euro area. Our descriptive exercise shows that there is still a remarkable dispersion of HICP inflation rates across the member countries. We find that most of dispersion originates in the non-traded categories of the HICP. This suggests that the main source of dispersion in countries' headline inflation rates is in those components of the HICP where non-traded goods (services, (public) goods with regulated and administered prices) are more intensely represented. We then examine the determinants of inflation differentials in a panel of the states of the Euro area in 1999–2007 using alternative classifications of this group and three different datasets. The evidence presented shows that output gaps and a proxy for price level convergence were statistically significant. On the other hand, some determinants that were found significant in previous studies (for example Honohan and Lane, 2003, 2004; ECB, 2003) has no impact on inflation in our expanded time span (e.g. exchange rate movements) The dispersion of HICP inflation is expected to increase in the coming years as the new EU member states will join the Euro area. There are some risks for these countries connected with the common monetary policy, which is adjusted more to the conditions of stabilized advanced economies forming the core of the Euro area. This creates potential problems for the EU common monetary policy (ECB), in particular negative (positive) interest rates, their repercussions on investment processes, consumption and the possibility of creating asset bubbles. |
| Keywords: | inflation differentials, price convergence, exchange rate, panel data |
| JEL: | C23 E31 F15 F41 |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-958&r=mac |
| By: | Rangan Gupta (University of Pretoria); Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas); Dylan van Wyk (University of Pretoria) |
| Abstract: | This paper considers how monetary policy, a Federal funds rate shock, affects the dynamics of the US housing sector and whether the financial market liberalization of the early 1980Çs influenced those dynamics. The analysis uses impulse response functions obtained from a large-scale Bayesian Vector Autoregression (LBVAR) model over the periods 1968:01 to 1982:12 and 1989:01 to 2003:12, including 21 housing-sector variables at the national and four census regions. Overall, the 100 basis point Federal funds rate shock produces larger effects on the real house prices, both at the regional level and the national level, in the post-liberalization period when compared to the pre-liberalization era. While the precision of the estimates do not imply significant differences, the finding does offer a caution. That is, the housing market appears more sensitive to monetary policy shocks in the post-liberalization period. On the one hand, this suggests that monetary policy possesses increased leverage. On the other hand, the housing market cycle traditionally contributes an important component to the aggregate business cycle. Thus, the monetary authorities may need to exercise more care in implementing Federal funds rate adjustments going forward. In addition, contractionary monetary policy exerts a negative effect on house prices at the national level, indicating the absence of the price puzzle in small structural vector autoregressive models. The puzzleÇs absence in the housing sector possibly emerges as a result of proper identification of monetary policy shocks within a data-rich environment. Finally, we find that the reaction of housing sector proves heterogeneous across regions, with the housing sector in the South driving the national data after liberalization, while before liberalization, the Middle West appears to drive the housing market. The responses in the West differ the most from the other regions. |
| Keywords: | Monetary policy, Housing price dynamics, Large-Scale BVAR models |
| JEL: | C32 R31 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2010-06&r=mac |
| By: | Ansgar Belke; Ingo G. Bordon; Torben W. Hendricks |
| Abstract: | This paper examines the interactions between money, interest rates, goods and commodity prices at a global level. For this purpose, we aggregate data for major OECD countries and follow the Johansen/Juselius cointegrated VAR approach. Our empirical model supports the view that, when controlling for interest rate changes and thus different monetary policy stances, money (defi ned as a global liquidity aggregate) is still a key factor to determine the long-run homogeneity of commodity prices and goods prices movements. The cointegrated VAR model fi ts with the data for the analysed period from the 1970s until 2008 very well. Our empirical results appear to be overall robust since they pass inter alia a series of recursive tests and are stable for varying compositions of the commodity indices. The empirical evidence is in line with theoretical considerations. The inclusion of commodity prices helps to identify a signifi cant monetary transmission process from global liquidity to other macro variables such as goods prices. We fi nd further support of the conjecture that monetary aggregates convey useful information about variables such as commodity prices which matter for aggregate demand and thus infl ation. Given this clear empirical pattern it appears justifi ed to argue that global liquidity merits attention in the same way as the worldwide level of interest rates received in the recent debate about the world savings and liquidity glut as one of the main drivers of the current fi nancial crisis, if not possibly more. |
| Keywords: | Commodity prices; cointegration; CVAR analysis; global liquidity; infl ation; international spillovers |
| JEL: | E31 E52 C32 F42 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0167&r=mac |
| By: | Kim , Insu |
| Abstract: | This paper investigates wage dynamics assuming the potential presence of dual wage stickiness: with respect to both the frequency as well as the size of wage adjustments. In particular, this paper proposes a structural model of wage inflation dynamics assuming that although workers adjust wage contracts at discrete time intervals, they are limited in their abilities to adjust wages as much as they might desire. The dual wage stickiness model nests the baseline model, based on Calvo-type wage stickiness, as a particular case. Empirical results favor the dual sticky wage model over the baseline model that assumes only one type of wage stickiness in several dimensions. In particular, it outperforms the baseline model in terms of goodness of fitness as well as in the ability to explain the observed reverse dynamic cross-correlation between wage inflation and real output - which the baseline model fails to capture. |
| Keywords: | Wage inflation, sticky wages, sticky prices, new Keynesian, hybrid. |
| JEL: | E32 E31 J30 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21494&r=mac |
| By: | Xavier Freixas |
| Abstract: | This paper examines the monetary policy followed during the current financial crisis from the perspective of the theory of the lender of last resort. It is argued that standard monetary policy measures would have failed because the channels through which monetary policy is implemented depend upon the well functioning of the interbank market. As the crisis developed, liquidity vanished and the interbank market collapsed, central banks had to inject much more liquidity at low interest rates than predicted by standard monetary policy models. At the same time, as the interbank market did not allow for the redistribution of liquidity among banks, central banks had to design new channels for liquidity injection. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1200&r=mac |
| By: | Sokic, Alexandre |
| Abstract: | The paper emerges from the failure of the traditional models of hyperinflation with rational expectations or perfect foresight. Using the insights from two standard optimizing monetary settings the paper shows that the possibility of perfect foresight monetary hyperinflation paths depends robustly on the essentiality of money. We show that the popular semilogarithmic form of the demand for money is not appropriate to analyse monetary hyperinflation with perfect foresight. We propose a simple test of money essentiality for the appropriate specification of the demand for money equation in empirical studies of hyperinflation. |
| Keywords: | monetary hyperinflation; inflation tax; money essentiality |
| JEL: | E31 E41 |
| Date: | 2010–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21503&r=mac |
| By: | James Mitchell; Bache, I.W., Ravazzolo, F., Vahey, S.P. |
| Abstract: | We argue that the next generation of macro modellers at Inflation Targeting central banks should adapt a methodology from the weather forecasting literature known as `ensemble modelling\\\'. In this approach, uncertainty about model specifications (e.g., initial conditions, parameters, and boundary conditions) is explicitly accounted for by constructing ensemble predictive densities from a large number of component models. The components allow the modeller to explore a wide range of uncertainties; and the resulting ensemble `integrates out\\\' these uncertainties using time-varying weights on the components. We provide two examples of this modelling strategy: (i) forecasting inflation with a disaggregate ensemble; and (ii) forecasting inflation with an ensemble DSGE. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:337&r=mac |
| By: | Kalina Dimitrova; Luca Fantacci |
| Abstract: | The Bulgarian monetary system was established, immediately after independence. Having experienced it already under Ottoman rule, newly independent Bulgaria adopted the bimetallic standard. Without being a member of the Latin Monetary Union, it tried broadly to follow the principles of the convention, yet with some exceptions, the most important of which concerned the limit on silver coinage. The absence of such a clause in Bulgaria turned out to be crucial since the financial needs of the recently established state triggered excessive silver coinage which resulted in a persistent agio - a positive and variable difference between the legal and the commercial value of silver coins. The interference of fiscal authorities obstructed the Bulgarian National Bank's ability to manage money in circulation and to secure the monetary stability required by economic development). The attempts of the Bulgarian monetary authorities to eliminate the agio were unsuccessful until they acquired the right to issue silver-backed banknotes. Soon after that, in 1906, Bulgaria introduced a short-lived typical Gold standard. |
| Keywords: | financial stability, monetary autonomy, fiscal interference, Bulgaria |
| JEL: | E42 E51 E63 |
| Date: | 2010–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2010-979&r=mac |
| By: | Alexandra Ferreira-Lopes (ISCTE - Lisbon University Institute - Department of Economics, UNIDE-ERC and DINÂMIA); Tiago Neves Sequeira (UBI and INOVA-UNL) |
| Abstract: | In this article we document the features of business cycles in German Länders from 1970 and 2007. Specifically, we answer the question if German Länders are becoming more synchronized or not. All results indicate that the synchronization of cycles is stronger inside the former Western Germany and inside the former Eastern Germany. The reunification process has had a strong influence in terms of business cycle association. However, a process of cyclical convergence has begun, although slowly, after the reunification. |
| Keywords: | Business Cycle Association, Synchronization, and Convergence, Germany Reunification. |
| JEL: | C14 C65 E32 F33 O52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:isc:wpaper:ercwp0410&r=mac |
| By: | Peter Heemeijer; Cars Hommes; Joep Sonnemans; Jan Tuinstra |
| Abstract: | We investigate how non-specialists form inflation expectations by running an experiment using a basic Overlapping Generations (OLG) model. The participants of the experiment are students of the University of Amsterdam, who predict inflation during 50 successive periods and are rewarded based on their accuracy. We include a central bank in the OLG model which increases the money supply at a constant rate. Participants are placed in separate OLG economies and are divided over two treatments: one with a "low" and one with a "high" money supply growth. We find that participants in the second treatment have substantially more difficulty in stabilizing inflation development by submitting accurate predictions than participants in the first treatment. However, when linear prediction rules are estimated on individual predictions, there is little difference between the two treatments. In both treatments, the most popular rules are Fundamentalist Expectations (predictions equal to the inflation sample mean) and Focal Expectations (predictions equal to a constant close to equilibrium). To verify whether participants adjust their prediction rules during the experiment, the estimated rules are checked for structural breaks. We find a surprisingly small number of structural breaks in both treatments. |
| Keywords: | Experimental economics; Expectations feedback; Inflation expectations; Price stability; Anchoring. |
| JEL: | C D E1 E2 E6 G J |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:241&r=mac |
| By: | Williamson, Stephen D.; Wright, Randall |
| Abstract: | This essay articulates the principles and practices of New Monetarism, our label for a recent body of work on money, banking, payments, and asset markets. We first discuss methodological issues distinguishing our approach from others: it has something in common with Old Monetarism, but there are also some important differences; it has little in common with Old or New Keynesianism. We describe the key principles of these schools and contrast them with our approach. To show how it works in practice, we build a benchmark New Monetarist model, and use it to address frontier issues concerning asset markets and banking. |
| Keywords: | New Monetarism; Monetary economoics; financial intermediation; New Keynesian |
| JEL: | E5 E6 E10 E4 G21 |
| Date: | 2010–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21486&r=mac |
| By: | Ansgar Belke; Jens Klose |
| Abstract: | We assess diff erences that emerge in Taylor rule estimations for the Fed and the ECB before and after the start of the subprime crisis. For this purpose, we apply an explicit estimate of the equilibrium real interest rate and of potential output in order to account for variations within these variables over time. We argue that measures of money and credit growth, interest rate spreads and asset price infl ation should be added to the classical Taylor rule because these variables are proxies of a change in the equilibrium interest rate and are, thus, also likely to have played a major role in setting policy rates during the crisis. Our empirical results gained from a state-space model and GMM estimations reveal that, as far as the Fed is concerned, the impact of consumer price infl ation, and money and credit growth turns negative during the crisis while the sign of the asset price infl ation coeffi cient turns positive. Thus we are able to establish signifi cant diff erences in the parameters of the reaction functions of the Fed before and after the start of the subprime crisis. In case of the ECB, there is no evidence of a change in signs. Instead, the positive reaction to credit growth, consumer and house price infl ation becomes even stronger than before. Moreover we fi nd evidence of a less inertial policy of both the Fed and the ECB during the crisis. |
| Keywords: | Subprime crisis; Federal Reserve; European Central Bank; equilibrium real interest rate; Taylor rule |
| JEL: | E43 E52 E58 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0166&r=mac |
| By: | Sella Lisa |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:200912&r=mac |
| By: | Moore, Winston; Lewis-Bynoe, Denny; Howard, Stacia |
| Abstract: | Since 1970, private sector credit has grown quite rapidly in the Caribbean. More recently, between 2004 and 2006, total real credit in the Caribbean has risen by a cumulative 55.7 percent, or approximately 19 percent per annum. In some countries, the rate of expansion has even been stronger, which is of concern given the likely negative macroeconomic consequences of credit booms. This paper attempts to identify the factors that have led to credit booms and conversely busts in the Caribbean, employing annual data for 13 Caribbean countries covering the period 1970 to 2006 in the analysis. This study employs a panel count data regression approach. Three key groups of variables are considered: (1) macroeconomic developments; (2) macroeconomic policy, and (3) external shocks. The reported results suggest that macroeconomic developments were the main determinants of credit booms in the Caribbean, with low inflation, high growth in GDP per capita, investment booms as well as less developed financial systems leading to the emergence of credit booms and conversely for busts. |
| Keywords: | Credit Booms; Credit Busts; Caribbean; Count Data Model |
| JEL: | E32 E51 |
| Date: | 2010–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21472&r=mac |
| By: | Cerdeiro, Diego A. |
| Abstract: | The paper extends Bernanke and Mihov's [6] closed-economy strategy for identification of monetary policy shocks to open-economy settings, accounting for the simultaneity between interest-rate and exchange-rate innovations. The methodology allows a separate treatment of two distinct monetary policy shocks, one that operates through open market operations, and another one that takes place through interventions in the foreign exchange market. Implementation of this strategy to the case of Argentina provides the stylized facts necessary to choose among competing theoretical models of this economy. In addition to studying the effects of monetary policy innovations, the present study sheds light on the endogenous component of monetary policy. In this regard, the paper finds that, notwithstanding the relative stability of the exchange rate and the accumulation of large amounts of international reserves, the central bank in Argentina has been far from absorbing balance of payments shocks in a currency-board fashion. The growing level of international reserves can be rationalized, instead, as the monetary authority's response to terms of trade, supply and domestic currency demand shocks. |
| Keywords: | Currencies and Exchange Rates,Debt Markets,Economic Stabilization,Emerging Markets,Economic Theory&Research |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5252&r=mac |
| By: | Zahid, Asghar; Frahat , Tahira |
| Abstract: | This study attempts to estimate the rate of inflation in Pakistan by a stochastic approach to index numbers which provides not only point estimate but also confidence interval for inflation estimate. There are two approaches to index number theory namely: the functional economic approach and the stochastic approach. The attraction of stochastic approach is that it estimates the rate of inflation in which uncertainty and statistical ideas play a major roll of screening index numbers. We have used extended stochastic approach to index numbers for measuring the Pakistan inflation by allowing for the systematic changes in the relative prices. We use CPI data covering the period July 2001--March 2008. |
| Keywords: | Stochastic Approach; Index numbers; Inflation;OLS |
| JEL: | E31 |
| Date: | 2010–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21513&r=mac |
| By: | Alberto Martin; Jaume Ventura |
| Abstract: | We develop a stylized model of economic growth with bubbles. In this model, financial frictions lead to equilibrium dispersion in the rates of return to investment. During bubbly episodes, unproductive investors demand bubbles while productive investors supply them. Because of this, bubbly episodes channel resources towards productive investment raising the growth rates of capital and output. The model also illustrates that the existence of bubbly episodes requires some investment to be dynamically inefficient: otherwise, there would be no demand for bubbles. This dynamic inefficiency, however, might be generated by an expansionary episode itself. |
| Keywords: | asset bubbles, dynamic inefficiency, economic growth, financial frictions, pyramid schemes. |
| JEL: | E32 E44 O40 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1214&r=mac |
| By: | Medina, Leandro |
| Abstract: | The recent boom and bust in commodity prices has raised concerns about the impact of volatile commodity prices on Latin American countries’ fiscal positions. Using a novel quarterly dataset─ which includes unique country specific commodity price indices and a comprehensive measure of public expenditures─ this paper analyzes the dynamic effects of commodity price fluctuations on fiscal revenues and expenditures for 8 commodity exporting Latin American countries. The results indicate that Latin American countries’ fiscal positions generally react strongly to shocks to commodity prices, yet there are marked differences across countries in observed reactions. Fiscal variables in Venezuela display the highest sensitivity to commodity price shocks, with expenditures reacting significantly more than revenues. On the other side of the spectrum, Chile’s fiscal indicators react very little to commodity price fluctuations, and their dynamic responses are very similar to those seen in high-income commodity exporting countries. A plausible explanation to this distinct behavior across countries could be related to the efficient application of fiscal rules, accompanied by strong institutions, political commitment and high standards of transparency. |
| Keywords: | Latin America; Emerging Economies; Commodity Prices; Fiscal Policy; Macroeconomics; Procyclicality; Procyclical; Dynamic Effects;Government Spending |
| JEL: | E62 H50 O13 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21690&r=mac |
| By: | Thomas I Palley |
| Abstract: | The Federal Reserve has recently activated its newly acquired powers to pay interest on reserves of depository institutions. The Fed maintains its new policy increases economic efficiency and intends it to play a lead role in the exit from quantitative easing. This paper argues it is a bad policy that (1) has a deflationary bias; (2) is costly to taxpayers and that cost will increase as normal conditions return; and (3) establishes institutional lock-in that obstructs desirable changes to regulatory policy. The paper recommends repealing the Fed’s power to pay interest on bank reserves. Second, the Fed should repeal regulation Q that prohibits payment of interest on demand deposits. Third, the Fed should immediately implement an alternative system of asset based reserve requirements (liquidity ratios) that will improve monetary control and can help exit quantitative easing at no cost to the public purse. Now is the optimal time for this change. Lastly, the paper argues the new policy of paying interest on reserves reveals the troubling political economy governing the actions of the Federal Reserve and policy recommendations of the economics profession. |
| Keywords: | Interest on reserves, asset based reserve requirements, liquidity ratios |
| JEL: | E40 E42 E43 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp221&r=mac |
| By: | Philip Hans Franses (Erasmus School of Economics, Erasmus University Rotterdam); Michael McAleer (Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute); Rianne Legerstee (Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute) |
| Abstract: | Macroeconomic forecasts are frequently produced, published, discussed and used. The formal evaluation of such forecasts has a long research history. Recently, a new angle to the evaluation of forecasts has been addressed, and in this review we analyse some recent developments from that perspective. The literature on forecast evaluation predominantly assumes that macroeconomic forecasts are generated from econometric models. In practice, however, most macroeconomic forecasts, such as those from the IMF, World Bank, OECD, Federal Reserve Board, Federal Open Market Committee (FOMC) and the ECB, are based on econometric model forecasts as well as on human intuition. This seemingly inevitable combination renders most of these forecasts biased and, as such, their evaluation becomes non-standard. In this review, we consider the evaluation of two forecasts in which: (i) the two forecasts are generated from two distinct econometric models; (ii) one forecast is generated from an econometric model and the other is obtained as a combination of a model, the other forecast, and intuition; and (iii) the two forecasts are generated from two distinct combinations of different models and intuition. It is shown that alternative tools are needed to compare and evaluate the forecasts in each of these three situations. These alternative techniques are illustrated by comparing the forecasts from the Federal Reserve Board and the FOMC on inflation, unemployment and real GDP growth. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2010cf729&r=mac |
| By: | Ray Barrell; Ian Hurst; Simon Kirby |
| Abstract: | The national debt stock of the UK is rising sharply as a result of the economic crisis, and equilibrium output is falling, with the capital stock contracting. Both problems could be alleviated by the rapid introduction (but slow implementation) of a policy to extend working lives. The paper analyses a delayed extension of working lives in the UK. A distinction is drawn between the impacts of these changes on output (GDP) and income (GNP) in open economies with capital mobility. Increasing working lives will in equilibrium raise consumption and tax revenues and reduce pension spending. These gains by the government can be used to improve services, cut taxes or pay off debts. |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:333&r=mac |
| By: | Lilia Costabile |
| Abstract: | In this Working Paper, PERI Research Associate Lilia Costabile explores the potential causal links running from our international monetary system to global imbalances, and from these to the crisis. She asks whether the global imbalances contribute to the current crisis, whether these imbalances are, in turn, favored by, or rooted in, the current organization of the international monetary system, and whether a Keynesian monetary system reformed might cut some of the causes of global crises at their roots. Answering these with three qualified ‘yeses,’ Costabile considers possible remedies and considers some alternative interpretations of the global crisis. |
| Keywords: | Key currencies, Keynes Plan, Global imbalances, Global crisis, International monetary system |
| JEL: | E12 F33 F41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp220&r=mac |
| By: | roman Horvath; Radovan Fiser |
| Abstract: | We examine the effects of the Czech National Bank communication, macroeconomic news and interest rate differential on exchange rate volatility using generalized autoregressive conditional heteroscedasticity model. Our results suggest that central bank communication has a calming effect on exchange rate volatility. The timing of central bank communication seems to matter, too, as financial markets respond more to the communication before the policy meetings than after them. Next, macroeconomic news releases are found to reduce exchange rate volatility, while interest rate differential seems to increase it. |
| Keywords: | central bank communication, exchange rate, GARCH |
| JEL: | E52 E58 F31 |
| Date: | 2009–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-962&r=mac |
| By: | Ray Barrell; Martin Weale |
| Abstract: | We assess fiscal policy from the perspective of fairness between generations and the relationship between this and national saving , in the context where the United Kingdom is the lowest-saving of all the OECD economies. Cross-section and pooled data suggest that governments are in a position to influence national saving and we set out a simple overlapping generation model to show the effects of national debt, of pay as you benefit systems, of legacies and movements to land prices as means of effecting transfers between generations. Having shown that governments can influence the distribution of resources between generations we then discuss three notions of fairness between generations, i) that each cohort should pay its own way, ii) that a social planner should reallocate resources between generations to achieve and inter-temporal optimum and iii ) that resources should be reallocated so that generations alive at the same time have similar living standards. In the light of these observations we di cuss appropriate responses to a variety of economic shocks and we conclude with implications for policy in the aftermath of the recession. |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:338&r=mac |
| By: | Russo, Alberto |
| Abstract: | We firstly provide a brief description of the crisis episodes, from the 2007-8 "liquidity crisis" to the 2008-9 "global recession". Then, we discuss some possible interpretations of the recent evolution, focussing on diverse aspects of the crisis: from the "elements of novelty" (financial innovations and new practices of risk management) to "known mechanisms" (the pro-cyclicality of the credit supply and the role of finance in a monetary production economy) and its "fundamental causes" which, in our opinion, date back to the deregulation policies implemented in many countries during the last decades, starting from the US and the UK. These decisions have created new profit opportunities in various contexts, so promoting a renewed process of capitalist accumulation. This process has taken place at the cost of a wide-ranging increase of inequality and instability, thus implying a "crescendo" of crisis episodes (both at the national and the international level) until the more recent one. Accordingly, we think that the current crisis is linked to the underlying movements of capitalist accumulation (from the financiarization of advanced economies to the gradual shift of the centre of the world economy towards China and other Asian emerging countries), its functioning as a monetary production economy and its political dimension. |
| Keywords: | deregulation; capitalist accumulation; inequality; instability; crisis |
| JEL: | E66 P17 |
| Date: | 2010–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21648&r=mac |
| By: | Zuzana Brixiova; Laura Vartia; Andreas Woergoetter |
| Abstract: | From 2000 to 2007, Estonia was one of the fastest growing emerging market economies. A housing boom, fuelled by capital inflows and credit, resulted in skyrocketing house prices and an over-expanded construction sector. However, the currency board limited the Bank of Estonia’s ability to curb credit growth, while the fiscal policy framework amplified the cycle through pro-cyclical spending increases and tax cuts. As credit was mostly financed by cross-border loans from foreign banks, the risks of disruptions to credit flows and financial contagion have increased. Some have already materialised through tightened lending standards and capital outflows. Estonia is now in a severe recession. To restore high and sustainable growth, the country will need to rebalance its resources from non-tradables towards exports. Regaining external competitiveness will be challenging, however, given the fixed exchange rate and recent devaluations in partner countries. Flexibility of the economy will thus be crucial. Over the medium term, policymakers could also strengthen incentives for a better functioning of the housing finance market and gradually remove the pro-cyclical bias of fiscal policy. |
| Keywords: | capital inflows; credit; household debt; boom-bust cycle; Estonia |
| JEL: | E3 E62 C2 |
| Date: | 2009–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-965&r=mac |
| By: | DANIEL DAIANU; LAURIAN LUNGU |
| Abstract: | What are the prospects for New Member States to join the euro-zone in the not too distant future? They seem to be in a catch-22 situation Because of the current financial crisis some Maastricht criteria would be more difficult to fulfil in the short and medium term, which would make it hard for them to join the eurozone. But there is also an argument, which highlight benefits of a faster accession due to dynamic effects for the countries involved and for the eurozone as a whole. |
| Keywords: | finance, EU, Europe, eurozone, enlargement |
| JEL: | E52 F36 |
| Date: | 2009–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-947&r=mac |
| By: | Fabio Canova; David Lopez-Salido; Claudio Michelacci |
| Abstract: | We analyze how unemployment, job finding and job separation rates react to neutral and investment-specific technology shocks. Neutral shocks increase unemployment and explain a substantial portion of unemployment volatility; investment-specific shocks expand employment and hours worked and mostly contribute to hours worked volatility. Movements in the job separation rates are responsible for the impact response of unemployment while job finding rates for movements along its adjustment path. Our evidence qualifies the conclusions by Hall (2005) and Shimer (2007) and warns against using search models with exogenous separation rates to analyze the effects of technology shocks. |
| Keywords: | Unemployment, technological progress, labor market flows, business cycle models. |
| JEL: | E00 J60 O33 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1213&r=mac |
| By: | Friedrich Schneider; Ursula Windischbauer |
| Abstract: | The term "Money Laundering" originates from the US describing the Mafia's attempt to "launder" illegal money via cash-intensive washing salons, which where controlled by company acquisitions or business formations. Estimated two to five per cent of the global gross domestic product stems from illicit sources. A great deal of the money derives from drug-dealing, with a total revenue of 810 Billion USD in 2003. In 2005 the Austrian Police secured drugs worth 49266800 Euro (drug seizures in terms of street prices), in total 25.892 persons were charged for violation of the Austrian Narcotics Act. Most of all illegal transactions are processed by cash since there is the smallest risk to leave one's mark; nevertheless there exists an obvious tendency to misuse the internet in order to undertake illicit transactions in form of Online- Banking, Cyber money and Electronic Purse. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diweos:diweos25&r=mac |
| By: | Das, Rituparna |
| Abstract: | A major part of this paper is literature review. The paper compiles in a nutshell all studies on definitions and measures of Money supply in India in a chronological yet logically consistent manner In doing so, alternative measures of money supply have been compared in this paper and it is found that the measure used by RBI is statistically more significant than the other advocated by a number of authors. |
| Keywords: | bank; RBI; deposit; money supply; money stock; M1; M3 |
| JEL: | E51 |
| Date: | 2010–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21391&r=mac |
| By: | Ansgar Belke; Joscha Beckmann; Michael Kühl |
| Abstract: | This paper examines the importance of diff erent economic sentiments, e.g. consumer moods, for the Central and Eastern European countries (CEECs) during the transition process. We fi rst analyze the importance of economic confi dence with respect to the CEECs’ fi nancial markets. Since the integration of formerly strongly-regulated markets into global markets can also lead to an increase in the dependence of the CEECs’ domestic market performance on global sentiments, we also investigate the relationship between global economic sentiments and domestic income and share prices. Finally, we test whether the impact of global sentiments and stock prices on domestic variables increases proportionally with the degree of integration. We also account for eff ects stemming from global income. For these purposes, we apply a restricted cointegrating VAR (CVAR) framework based upon a restricted autoregressive model which allows us to distinguish between the long-run and the short-run dynamics. For the long run we fi nd evidence supporting relationships between sentiments, income and share prices in the case of the Czech Republic. Our results for the short run suggest that economic sentiments in general are infl uenced by share prices but also off er some predictive power with respect to the latter. What is more, European sentiments play an important role in particular for the CEECs’ share prices and income. The signifi cance of this link increases with economic integration. |
| Keywords: | Cointegration; European integration; fi nancial markets; restricted autoregressive model; sentiments |
| JEL: | E44 G15 P2 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0174&r=mac |
| By: | Ansgar Belke; Holger Zemanek; Gunther Schnabl |
| Abstract: | In the past decade, a set of euro area countries has accumulated large current account defi cits. After a brief relaxation of the euro area internal imbalances in the wake of the fi nancial crisis, it appears as if this pattern arises anew when times normalize again and Germany still sticks to export-led growth. This issue has been labelled one of the most challenging economic policy issues for Europe inter alia by the European Commission and some other players on the EU level. In this paper, we analyse the role of private restructuring and structural reforms for the urgently needed sustainable readjustment of intra-euro area current account balances. A panel regression reveals a signifi cant impact of structural reforms on intra-euro area current account balances. This implies that in particular structural reforms and wage restraint in notorious current account and budget defi cit countries such as Greece are highly suitable to support long-term economic stability in Europe. |
| Keywords: | Structural reforms; current account balances; euro area; dynamic panel estimation; interaction term |
| JEL: | E24 F15 F16 F32 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0176&r=mac |
| By: | Amado, Raúl Oscar |
| Abstract: | In the past 30 years, the historiography of colonial Pampean agriculture showed a radical change. The “Bonaerense Campaign”, which was thought extensively devoted to cattle, was recently named one of the most important grain-producing regions of the Spanish Empire. This new hermeneutics of colonial agriculture differs radically from the descriptions and analysis that made the eighteenth-century writers for whom the agricultural production was in crisis. One of the main sources for forming this "new vision" of colonial agriculture was the “Diezmos” (Tithe). In this research, we propose first to review the source from another perspective. In considering which were the diezmos as they were intended, we understand much better if they serve or not as a tool for know the reality of the Bonaerense Campaing in the eighteenth-century. Second, we review the collection of diezmos between 1767 and 1801, only the years that "Administración General de Diezmos" was responsible for their collection. These data are deflated by Consumer Price Index and and compared with wheat prices for the same period. Finally we discuss the technology and labor productivity in the pampas. Our goal is to determine if there really was a great agricultural production or on the contrary this is an inflationary period that influenced the collection of agricultural taxes. |
| Keywords: | agriculture; inflation; prices; Viceroyalty of the Rio de la Plata; Buenos Aires; Bonaerense Campaign; labor productivity; colonial agricultural technology; |
| JEL: | E31 C20 C02 E23 B41 N56 |
| Date: | 2010–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21651&r=mac |
| By: | Moore, Winston |
| Abstract: | The 1990s were a turbulent time for Latin American and Caribbean countries. During this period, the region suffered from no less than sixteen banking crises. One of the most important determinants of the severity of banking crises is commercial bank liquidity. Banking systems, which are relatively liquid, are better able to deal with the large deposit withdrawals that tend to accompany bank runs. This study provides an assessment of the main determinants of bank liquidity as well as an evaluation of the impact of banking crises on liquidity. The results show that on average, bank liquidity is about 8% less than what is consistent with economic fundamentals during financial crises. |
| Keywords: | Liquidity; Financial Crisis; Banks |
| JEL: | E44 G21 |
| Date: | 2009–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21473&r=mac |
| By: | Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)) |
| Abstract: | The US banking crisis and the transatlantic banking crisis, respectively, have caused a global recession and thus raised the debt-GDP ratio in many OECD countries and worldwide. In the analysis presented at first some critical points about financial market innovations and inconsistencies in the institutional framework of the economies are raised. Moreover, the main drivers of the banking crisis have been identified and at the same time a short list of key pro-posals for reforms are presented; a major element for national policymakers here is the introduction of a new tax system which taxes the variance of the rate of return on equity capital - this is an institutional innovation which would criti-cally affect the incentives in the banking sector. The main impact is not necessar-ily to raise the overall tax burden for the banking sector but rather to give incen-tives for sustainable banking: Bankers should face incentives to take a more long term view and to thereby contribute to systemic stability in the banking sector and in the overall economy. Governments which consider responsible economic policy reforms as a key priority on the way to more stability and also as a means for limiting the debt-GDP ratio will pick up the proposed innovation in tax pol-icy. Some of the relevant potential key features based on German data are sketched in the analysis presented. The analysis presented here shows the relevance of institutional developments for the banking crisis and also highlights the need to adequately adjust the institutional framework in OECD countries. |
| Keywords: | Institutionelle Inovationen, Innovationen in Steuerpolitik, Bankenkrise, nachhaltige Enwicklung |
| JEL: | E61 F20 G21 O11 H23 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei171&r=mac |
| By: | Galo Nuño (Banco de España) |
| Abstract: | How much should be spent in research and development (R&D)? How should R&D vary over the business cycle? In this paper we answer both questions in the context of a calibrated dynamic general equilibrium model with Schumpeterian endogenous growth. Firstly, we demonstrate that, although the existence of distortions in a decentralized economy produces underinvestment in R&D, a simple proportional subsidy to R&D spending alone cannot restore the first best allocation. The optimal proportional R&D subsidy attains a second best allocation in which R&D spending exceeds its first best level. Secondly, we show how the observed procyclicality of R&D is socially inefficient. However, the welfare loss due to this dynamic inefficiency is much smaller than the loss due to underinvestment in R&D. |
| Keywords: | Schumpeterian growth, technology adoption, optimal subsidy |
| JEL: | E32 O38 O40 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1009&r=mac |
| By: | Balazs Egert; Tomasz Kozluk; Douglas Sutherland |
| Abstract: | Investment in network infrastructure can boost long-term economic growth in OECD countries. Moreover, infrastructure investment can have a positive effect on growth that goes beyond the effect of the capital stock because of economies of scale, the existence of network externalities competition enhancing effects. This paper analyses the empirical relationship between infrastructure and economic growth. Time-series results reveal a positive impact of infrastructure investment on growth. They also show that this effect varies across countries and sectors and over time. In some cases, these results reveal evidence of possible over-investment. Bayesian model averaging of cross-section growth regressions confirms that infrastructure investment in telecommunications and the electricity sectors has a robust positive effect on long-term growth (but not in railways and road networks). Furthermore, this effect is highly nonlinear as the impact is stronger if the physical stock is lower. |
| Keywords: | investment, infrastructure, network industry, economic growth, cointegration, Bayesian model averaging |
| JEL: | E22 O11 O40 |
| Date: | 2009–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-957&r=mac |
| By: | Christophe RAULT; Guglielmo Maria CAPORALE; Thouraya HADJ AMOR |
| Abstract: | The aim of this paper is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979-2004, and carries out "second-generation" tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries |
| Keywords: | emerging economies, real exchange rate, financial integration, misalignment, second-generation panel unit-root and cointegration tests |
| JEL: | E31 F0 F31 C15 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2009-970&r=mac |
| By: | Smith, Constance (University of Alberta, Department of Economics) |
| Abstract: | Large current account deficits have become a policy concern. The trend toward international capital market liberalization has improved access to foreign pools of saving which has allowed the expansion of current account deficits. There are minimal barriers to capital flows within a country, so an understanding of the determinants of within-country regional external balances could illustrate the likely path of external balances between countries as international economic integration proceeds. This study investigates the determinants of external balances for the regions within a single country— Canada—in order to provide a benchmark for country-level comparisons. The estimates show that the short run response of the external balance to disturbances, such as a deterioration in the terms of trade,is typically larger for Canadian provinces than for a sample of 18 OECD countries. The larger response at the regional level is consistent with greater financial market integration which facilitates the movement of capital and goods. The empirical results also reveal a much greater speed of adjustment of the external balance in the Canadian provinces. This faster adjustment speed, combined with the larger response of net exports, suggests that economic integration may promote the quicker resolution of external imbalances, but it may also allow larger deficits to emerge before they are addressed by market adjustments. |
| Keywords: | current account; external balance; economic integration; financial market liberalization |
| JEL: | E60 F32 F36 F41 |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2010_008&r=mac |
| By: | Klaus Desmet (Universidad Carlos III de Madrid); Esteban Rossi-Hansberg (Princeton University) |
| Abstract: | We present a theory of spatial development. A continuum of locations in a geographic area choose each period how much to innovate (if at all) in manufacturing and services. Locations can trade subject to transport costs and technology diffuses spatially across locations. The result is an endogenous growth theory that can shed light on the link between the evolution of economic activity over time and space. We apply the model to study the evolution of the U.S. economy in the last few decades and find that the model can generate the reduction in the employment share in manufacturing, the increase in service productivity in the second part of the 1990s, the increase in land rents in the same period, as well as several other spatial and temporal patterns. |
| Keywords: | Dynamic Spatial Models, Growth, Innovation, Land Rent Evolution, Structural Transformation, Technology Diffusion, Trade |
| JEL: | E32 O11 O18 O33 R12 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2010.26&r=mac |
| By: | David A. Dodge (Bennett Jones LLP); Alexandre Laurin (C.D. Howe Institute); Colin Busby (C.D. Howe Institute) |
| Abstract: | As Canada’s babyboom generation approaches retirement age, public concern about the adequacy of retirement income is mounting, note the authors. Most of the public debate has been about potential reform of the tax and fiduciary rules governing corporate pension plans, the possibility of expanding contributory public pension plans such as the CPP/QPP, about how much tax-deferred saving the Income Tax Act should allow, and for how long. To date, say the authors, there has been little focus on the fraction of annual earnings that must be saved by Canadians – either through employer plans, private saving, or expanded contributions to a public plan – to provide adequate and reasonably assured retirement incomes. |
| Keywords: | Pension Papers, retirement income, Registered Retirement Savings (RRSPs), Canada Pension Plan (CPP/QPP), Income Tax Act |
| JEL: | E21 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:cdh:ebrief:95&r=mac |
| By: | Hasan, Zubair |
| Abstract: | This paper raises the issue of an initial structure-objective mismatch in the launching of Islamic finance. The abolition of interest and promotion of growth with equity were goals of the conceived system. These goals expressed a long run vision to improve the condition of the Muslim communities across the world. However, the organizational form adopted for Islamic finance was of the existing commercial banks which provided essentially short-term loans on interest to trade industry and commerce. The choice thus involved an intrinsic mismatch between the structure and objectives of Islamic finance. The mismatch did carry some advantages, but on a more important side it exposed Islamic finance to commitments and influences which could not mostly align well with the goals the pioneers had in mind. Note that in focus here is not the reversal of the mismatch but its consequences that have forced the nascent Islamic system to convergence and competition with the mature conventional finance the West dominates. It is not the ground realities that are being adapted to Shari’ah norms; it is the norms that are being stretched to limit for meeting the demands of the conventional system. Ordinary Muslims who hoped to benefit from Islamic financing remain unattended. Thus, what Islamic finance can or cannot change will depend on where its ongoing integration with the conventional system leads it to. Currently, most merits claimed for the Islamic system defy evidence. The basic reforms financial systems require in the face of current crisis are the control of credit, leverage lure, and speculation. Islamic finance is in principle better equipped to achieve these ends. |
| Keywords: | Keywords: Islamic finance; convergence; Shari’ah compliance; credit creation; leverage; derivatives; financial crisis |
| JEL: | E51 E42 E50 E44 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21536&r=mac |
| By: | Donatella Gatti; Christophe Rault; Anne-Gael Vaubourg |
| Abstract: | sing annual data for 18 OECD countries over the period 1980-2004, we investigate how labour and financial factors interact to determine unemployment by estimating a dynamic panel model using the system generalized method of moments (GMM). We show that the impact of financial variables depends strongly on the labour market context. Increased market capitalization as well as decreased banking concentration reduce unemployment if the level of labour market regulation, union density and coordination in wage bargaining is low. The above financial variables have no effect otherwise. Increasing intermediated credit and banking concentration is beneficial for employment when the degree of labour market regulation, union density and coordination in wage bargaining is high. These results suggest that the respective virtues of ed and market-based finance are crucially tied to the labour market context. |
| Keywords: | Unemployment, institutional complementarities and substituabilities, labour market, financial system. |
| JEL: | E24 J23 P17 |
| Date: | 2010–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2010-973&r=mac |
| By: | Hassan Benchekroun; Cees Withagen |
| Abstract: | We provide the closed form solution to the Dasgupta-Heal-Solow-Stiglitz (DHSS) model. The DHSS model is based on the seminal articles Dasgupta and Heal (Rev. Econ. Stud., 1974), Solow (Rev. Econ. Stud., 1974) and Stiglitz (Rev. Econ. Stud., 1974) and describes an economy with two assets, man-made capital and a nonrenewable resource stock. We explicitly characterize, for such an economy, the dynamics along the optimal trajectory of all the variables in the model and from all possible initial values of the stocks. We use the analytical solution to prove several properties of the optimal consumption path. In particular, we show that the initial consumption under a utilitarian criterion starts below the maximin rate of consumption if and only the resource is abundant enough and that under a utilitarian criterion, it is not necessarily the present generation that benefits most from a windfall of resources. |
| JEL: | E20 Q30 C65 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:mcl:mclwop:2010-01&r=mac |
| By: | Torsten Schmidt; Simeon Vosen |
| Abstract: | Despite similar levels of per capita income, education, and technology the development of labour shares in OECD countries has displayed diff erent patterns since 1960. The paper examines the role of demography in this regard. Employing an overlapping generations model we fi rst examine the mechanisms through which demographic change can aff ect labour shares. Model simulations show that demographic eff ects on the labour share are larger in open than in closed economies. Empirical estimates, conducted using panel cointegration techniques for a panel of 18 OECD countries, provide strong support for demographic eff ects on the labour share. In line with the simulation results, we also fi nd evidence that openness increases this impact. |
| Keywords: | Labour share; demographic change; panel cointegration |
| JEL: | E25 J10 D91 C23 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0165&r=mac |
| By: | Fernando, Estrada |
| Abstract: | This article describes the argumentative structure of Hayek on the relationship between power to tax and redistribution. It is observed throughout its work giving special attention to two works: The Constitution of Liberty (1959) and Law, Legislation and Liberty, vol3, The Political Order of Free People, University of Chicago Press, Chicago, 1979.) Hayek describes one of the arguments most complete information bout SFP progressive tax systems (progressive tax). According to the author the history of the tax progressive system, works against such a tax model and deploys a variety of arguments in his favorite spot by critics: liberal democracy. |
| Keywords: | Hayek; Power to Tax; Redistribution; Government; Progressive Tax; Democracy |
| JEL: | E62 O23 B13 B2 E6 |
| Date: | 2010–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:21526&r=mac |