|
on Macroeconomics |
|
Issue of 2011‒08‒02
forty-nine papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Mandler, Martin |
| Abstract: | We estimate monetary policy reaction functions with threshold effects for the Deutsche Bundesbank using a real-time data set. Estimates based on the deviation of inflation from the Bundesbank's inflation target as threshold variable suggest a switch to a stronger output gap response in the reaction function if past inflation was high. The reaction function in the regime with higher inflation implies an overall less contractionary monetary policy than that for the low inflation regime. A modified model with three regimes shows this result to be related to periods of substantial excess inflation. We explore a threshold reaction function with a moving inflation target that captures a gradual adjustment of an intermediate to a long-term inflation target and find the Bundesbank to follow a more restrictive monetary policy stance if inflation is above the intermediate-term inflation target. |
| Keywords: | Deutsche Bundesbank; monetary policy reaction function; threshold regression; instrumental variables; real-time data |
| JEL: | E58 E52 C22 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32430&r=mac |
| By: | Lena Dräger (University of Hamburg and ETH Zurich) |
| Abstract: | The DSGE model with endogenous and time-varying sticky information in Dräger (2010) is extended by allowing agents’ recursive choice between forecasts under rational or sticky information to affect the model solution. Dynamic equilibrium paths generate highly persistent series for output, inflation and the nominal interest rate. Agents choose predictors in a near-rational manner and we find that the share of agents with rational expectations reacts to the overall variability of aggregate variables. The model can generate hump-shaped responses of inflation and output to a monetary policy shock if the degree of inattentiveness is sufficiently high. Finally, feedback from agents’ degree of inattentiveness to the model solution affects the determinacy region of the model. The Taylor principle is then only a necessary condition for determinacy, and monetary policy should target the output gap as well in order to ensure a unique and stable solution. |
| Keywords: | Endogenous sticky information, heterogeneous expectations, DSGE models, persistence. |
| JEL: | E31 E37 E52 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:201103&r=mac |
| By: | Albaity, Mohamed Shikh |
| Abstract: | Previous studies found that Islamic stock market index in Malaysia (KLSI), does not react, or react negatively to interest rate, although one of the main criteria of Islamic finance is to avoid business and activities that yield interest because of its prohibition in Islamic laws. On the other hand, studies of Islamic stock market index in the US (DJIMI) found that there is no impact of interest rate on DJIMI. These two stock market indices have different screening criteria and different composite of securities. This study aims at investigating the monetary policy variables impact, the effect of interest rate, and the use of stock market indices as a hedge against inflation. It also examines the volatilities of monetary variables, interest rates, and inflation rate on two Islamic stock market indices. Using time series analysis such as GARCH the results are as follows. It is found that in the variance univariate models of the conventional indices that M1, M3, inflation rate, and real growth in GDP are significant in influencing KLCI volatility, while M2, M3, inflation rate and interest rate affected DJINA volatility. On the other hand, in the Islamic indices, KLSI and DJIMI variance is influenced by M2, M3, and inflation rate. In addition, in the multivariate model, DJIMI is influenced by the interest rate and the inflation rate in the mean and variance equations. In contrast, KLSI is influenced commonly in the mean and variance equations by M3, and the inflation rate. -- |
| Keywords: | Macroeconomic volatility,GARCH,Islamic index |
| JEL: | E4 E6 F4 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201126&r=mac |
| By: | Vitor M. Carvalho (CEF.UP, Faculdade de Economia do Porto, Universidade do Porto); Manuel M. F. Martins (CEF.UP, Faculdade de Economia do Porto, Universidade do Porto) |
| Abstract: | We develop a new-Keynesian DSGE model with an extended fiscal policy block to assess the conditions for expansionary fiscal consolidations. In addition to several taxes, we consider public employment expenditures and government spending, which may have different degrees of productivity. We calibrate the model for the Euro Area and use it to simulate alternative fiscal consolidations with changes in the budget composition. Among the main conclusions we find that: (i) if conducted with a cut in weaklyproductive spending and a symmetric increase in highly-productive spending, fiscal consolidations have expansionary effects on investment and output; (ii) if consolidation is pursued through a pure reduction in weaklyproductive public employment, the effects on output decrease with the degree of labor market competition and turn out to be positive under perfect competition. |
| Keywords: | fiscal policy, fiscal consolidation, new-Keynesian DSGE model |
| JEL: | E12 E62 H63 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:421&r=mac |
| By: | Ruediger Bachmann; Jinhui Bai |
| Abstract: | What fraction of the business cycle volatility of government purchases is accounted for as endogenous reactions to overall macroeconomic conditions? We answer this question in the framework of a neoclassical representative household model where the provision of a public consumption good is decided upon endogenously and in a time-consistent fashion. A simple frictionless version of such a model with aggregate productivity as the sole driving force can explain almost all the volatility of U.S. non-defense government consumption expenditures. However, such a model fails to match other important features of the business cycle dynamics of public consumption, which comes out as not persistent enough and too synchronized with the cycle. We add implementation lags and implementation costs in the budgeting process to the model, plus taste shocks for public consumption relative to private consumption, and achieve a substantially better match to the data. All these ingredients are essential to improve the fit. Depending on the precise specification of the flow utility function over private consumption, public consumption and leisure, 25-40 percent of the variance of public consumption is driven by aggregate productivity shocks. |
| JEL: | E30 E32 E60 E62 H30 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17230&r=mac |
| By: | Raissi, M. |
| Abstract: | Ravenna and Walsh (2010) develop a linear quadratic framework for optimal monetary policy analysis in a New Keynesian model featuring search and matching frictions and show that maximization of expected utility of the representative household is equivalent to minimizing a quadratic loss function that consists of inflation, and two appropriately defined gaps involving unemployment and labor market tightness. This paper generalizes their analysis, most importantly by relaxing the Hosios (1990) condition which eliminates the distortions resulting from labor market inefficiencies, such that the equilibrium level of unemployment under flexible prices would not necessarily be optimal. I take account of steady-state distortions using the methodology of Benigno and Woodford (2005) and derive a quadratic loss function that involves the same three terms, albeit with different relative weights and definitions for unemployment- and labor market tightness gaps. I evaluate the resulting loss function subject to a simple set of log-linearized equilibrium relationships and perform policy analysis. The key result of the paper is that search externalities give rise to an endogenous cost push term in the new Keynesian Phillips curve, suggesting a case against complete price stability as the only goal of monetary policy, because there is now a trade-off between stabilizing inflation and reducing inefficient unemployment fluctuations. Transitory movements of inflation in this environment helps job creation and hence prevents excessive volatility of unemployment. |
| JEL: | E52 E61 J64 |
| Date: | 2011–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1146&r=mac |
| By: | Jaromir Baxa; Roman Horvath; Borek Vasicek |
| Abstract: | We examine whether and how selected central banks responded to episodes of financial stress over the last three decades. We employ a new monetary-policy rule estimation methodology which allows for time-varying response coefficients and corrects for endogeneity. This flexible framework applied to the USA, the UK, Australia, Canada, and Sweden, together with a new financial stress dataset developed by the International Monetary Fund, not only allows testing of whether central banks responded to financial stress, but also detects the periods and types of stress that were the most worrying for monetary authorities and quantifies the intensity of the policy response. Our findings suggest that central banks often change policy rates, mainly decreasing them in the face of high financial stress. However, the size of the policy response varies substantially over time as well as across countries, with the 2008–2009 financial crisis being the period of the most severe and generalized response. With regard to the specific components of financial stress, most central banks seemed to respond to stock-market stress and bank stress, while exchange-rate stress is found to drive the reaction of central banks only in more open economies. |
| Keywords: | Endogenous regressors, financial stress, monetary policy, Taylor rule, time-varying parameter model. |
| JEL: | E43 E52 E58 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2011/03&r=mac |
| By: | Itai Agur; Maria Demertzis |
| Abstract: | If monetary policy is to aim also at financial stability, how would it change? To analyze this question, this paper develops a general-form, axiomatic framework. Financial stability objectives are shown to make a monetary authority more aggressive. By that we mean that in reaction to negative shocks, cuts are deeper but shorter-lived than otherwise. Keeping cuts brief is crucial as bank risk responds primarily to rates that are kept "too low for too long". Within this shorter time span, cuts must then be deeper than otherwise to also achieve standard objectives. |
| Keywords: | Monetary policy; Financial stability |
| JEL: | E52 G21 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:303&r=mac |
| By: | Kakarot-Handtke, Egmont |
| Abstract: | The quantity theory is disjunct to the hard core of general equilibrium theory. It does not relate to the formal foundations of standard economics and, vice versa, from the behavioral axioms of standard economics a rationale for using money cannot be derived. The present paper leaves the standard axioms aside and reconstructs the quantity theory from entirely new structural axiomatic foundations. This gives a coherent view of the interrelations of quantity of money, transaction money, saving–dissaving, liquidity–illiquidity, rates of interest, leverage, allocation, prices, profits, unit of account, and employment. |
| Keywords: | New framework of concepts; Structure-centric; Axiom set; Money-credit symmetry; Endogeneity; Accommodation; Neutrality; Store of value; Overlapping generations; Full gold-backing; Declarative changes of the unit of account; Contract equation; Perfect inflation; Real balance effect |
| JEL: | E10 E40 E20 |
| Date: | 2011–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32421&r=mac |
| By: | Frankel, Jeffrey A. (Harvard University) |
| Abstract: | Seven possible nominal variables are considered as candidates to be the anchor or target for monetary policy. The context is countries in Latin America and the Caribbean (LAC), which tend to be price takers on world markets, to produce commodity exports subject to volatile terms of trade, and to experience procyclical international finance. Three anchor candidates are exchange rate pegs: to the dollar, euro and SDR. One candidate is orthodox Inflation Targeting. Three candidates represent proposals for a new sort of inflation targeting that differs from the usual focus on the CPI, in that prices of export commodities are given substantial weight and prices of imports are not: PEP (Peg the Export Price), PEPI (Peg an Export Price Index), and PPT (Product Price Targeting). The selling point of these production-based price indices is that each could serve as a nominal anchor while yet accommodating terms of trade shocks, in comparison to a CPI target. CPI-targeters such as Brazil, Chile, and Peru are observed to respond to increases in world prices of imported oil with monetary policy that is sufficiently tight to appreciate their currencies, an undesirable property, which is the opposite of accommodating the terms of trade. As hypothesized, a product price target generally does a better job of stabilizing the real domestic prices of tradable goods than does a CPI target. Bottom line: A Product Price Targeter would appreciate in response to an increase in world prices of its commodity exports, not in response to an increase in world prices of its imports. CPI targeting gets this backwards. |
| JEL: | E50 F40 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp11-027&r=mac |
| By: | Tommaso Monacelli; Roberto Perotti |
| Abstract: | During a fiscal stimulus, does it matter, for the size of the government spending multiplier, which category of agents bears the brunt of the current and/or future adjustment in taxes? In an economy with heterogeneous agents and imperfect financial markets, the answer depends on whether or not New Keynesian features, such are price rigidity, are present. If prices are flexible, the tax-financing rule is either neutral or quasi-neutral. If prices are sticky, who bears the brunt of the adjustment, whether financially constrained borrowers as opposed to unconstrained savers, does matter. The differential effect on the multiplier, however, depends crucially on (i) the degree of persistence of the fiscal expansion, and (ii) on whether the expansion is balanced-budget as opposed to debt-financed. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:409&r=mac |
| By: | Marco Cornia; Kristopher S. Gerardi, Adam Hale Shapiro; Adam Hale Shapiro (Bureau of Economic Analysis) |
| Abstract: | We analyze price dispersion in the airline industry in order to determine the e®ects of the business cycle on markup variations. We ¯nd that the cycle can a®ect the degree to which airlines can price discriminate between di®erent consumer types, ultimately a®ecting the degree of price dispersion. Performing a ¯xed-e®ects panel analysis on 17 years of data covering two business cycles, we ¯nd that price dispersion is highly procyclical. Estimates show that a rise in the output gap of one percentage point increases the interquartile range by 1.6 percent. These results suggest that markups move procyclically in the airline industry, such that during booms in the cycle, the ¯rm can signi¯cantly raise the markup charged to those with high willingness to pay. Our analysis suggests that this impact on the ¯rm's ability to price discriminate imposes extra pro¯t risk to the ¯rm over and above cost variations. |
| JEL: | E60 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0056&r=mac |
| By: | Carol E. Moylan (Bureau of Economic Analysis) |
| Abstract: | Paper presented at the Third International Seminar on Early Warning and Business Cycle Indicators |
| JEL: | E60 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0099&r=mac |
| By: | Jorge C. Avila |
| Abstract: | We analyze the relationship between fiscal deficit, macroeconomic uncertainty and growth for the period 1915-2006, and conclude that the deficit, possibly through the volatility in relative prices it generates, is a significant restriction on per-capita income growth in Argentina. |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:456&r=mac |
| By: | Nathan Perry; Matias Vernengo |
| Abstract: | Conventional wisdom contends that fiscal policy was of secondary importance to the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilized gold inflows to increase the money supply. Often, this is shown by measuring the fiscal multipliers, and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery. |
| Keywords: | Fiscal Policy; Great Depression |
| JEL: | E62 E63 N12 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_678&r=mac |
| By: | Zaheer, S.; Ongena, S.; Wijnbergen, S.J.G. van (Tilburg University, Center for Economic Research) |
| Abstract: | We investigate the differences in banks’ responses to monetary policy shocks across bank size, liquidity, and type, i.e., conventional versus Islamic, in Pakistan between 2002:II to 2010:I. We find that following a monetary contraction, small banks with liquid balance sheets cut their lending less than other small banks. In contrast large banks maintain their lending irrespective of their liquidity positions. Islamic banks, though similar in size to small banks, respond to monetary policy shocks as large banks. Hence ceteris paribus the credit channel of monetary policy may weaken when Islamic banking grows in relative importance. |
| Keywords: | Monetary policy;Islamic Banking;Pakistan. |
| JEL: | E5 G2 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011078&r=mac |
| By: | Zheng Liu; Pengfei Wang; Tao Zha |
| Abstract: | We argue that positive comovements between land prices and business investment are a driving force behind the broad impact of land-price dynamics on the macroeconomy. We develop an economic mechanism that captures the comovements by incorporating two key features into a DSGE model: we introduce land as a collateral asset in firms' credit constraints, and we identify a shock that drives most of the observed fluctuations in land prices. Our estimates imply that these two features combine to generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through the joint dynamics of land prices and business investment. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2011-11&r=mac |
| By: | Jeffrey A. Frankel |
| Abstract: | The paper studies forecasts of real growth rates and budget balances made by official government agencies among 33 countries. In general, the forecasts are found: (i) to have a positive average bias, (ii) to be more biased in booms, (iii) to be even more biased at the 3-year horizon than at shorter horizons. This over-optimism in official forecasts can help explain excessive budget deficits, especially the failure to run surpluses during periods of high output: if a boom is forecasted to last indefinitely, retrenchment is treated as unnecessary. Many believe that better fiscal policy can be obtained by means of rules such as ceilings for the deficit or, better yet, the structural deficit. But we also find: (iv) countries subject to a budget rule, in the form of euroland’s Stability and Growth Path, make official forecasts of growth and budget deficits that are even more biased and more correlated with booms than do other countries. This effect may help explain frequent violations of the SGP. One country, Chile, has managed to overcome governments’ tendency to satisfy fiscal targets by wishful thinking rather than by action. As a result of budget institutions created in 2000, Chile’s official forecasts of growth and the budget have not been overly optimistic, even in booms. Unlike many countries in the North, Chile took advantage of the 2002-07 expansion to run budget surpluses, and so was able to ease in the 2008-09 recession. |
| JEL: | E62 H50 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17239&r=mac |
| By: | Bayoumi, Tamim; Vitek, Francis |
| Abstract: | This paper analyzes past and possible future spillovers from the Euro Area Sovereign Debt Crisis, both within the Euro Area and to the rest of the world. This analysis is based on a structural macroeconometric model of the world economy, disaggregated into fifteen national economies. We find that macroeconomic and financial market spillovers have been small outside of countries with high trade or financial exposures, but that they could become large if severe financial stress were to spread beyond Greece, Ireland and Portugal. |
| Keywords: | Contagion; Euro Area Sovereign Debt Crisis; Panel unobserved components model; Spillovers |
| JEL: | E44 F41 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8497&r=mac |
| By: | Kitov, Ivan; Kitov, Oleg |
| Abstract: | We have modeled the employment/population ratio in the largest developed countries. Our results show that the evolution of the employment rate since 1970 can be predicted with a high accuracy by a linear dependence on the logarithm of real GDP per capita. All empirical relationships estimated in this study need a structural break somewhere between 1975 and 1995. Such breaks might be caused by revisions to monetary policy (e.g. inflation targeting) or/and changes in measurement units. Statistically, the link between measured and predicted rate of employment is characterized by the coefficient of determination from 0.84 (Australia) to 0.95 (Japan). The model residuals are likely to be associated with measurement errors. |
| Keywords: | employment; unemployment; real GDP; modeling; Okun’s law |
| JEL: | E24 J21 |
| Date: | 2011–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32404&r=mac |
| By: | Faiz ur, rehman; Wasim, shahid malik |
| Abstract: | The study aims at investigating, whether or not the cost channel of monetary policy is effective in Pakistan. The cost channel is one of the theoretical justifications of Price Puzzle, a phenomenon that has been observed in a number of empirical studies. Using Structural Vector Autoregression (SVAR) and data from different industries of manufacturing sector of Pakistan over the period 2001:M07-2008:M04, we find strong evidence in favor of Price Puzzle in major industries. In industries like textile, food and beverages, pharmaceuticals, automobiles, and fertilizers, cost channel dominates the traditional demand channel. Same behavior is observed for aggregate price level in the overall manufacturing sector. The main reason for the result is the dependency of the above mentioned industries on short-term borrowing to finance their operational liquidity. |
| Keywords: | Cost Channel; Price Puzzle; Working Capital; Monetary Policy; Marginal Cost; Structural Vector Autoregression (SVAR) |
| JEL: | E32 E31 C22 |
| Date: | 2010–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32349&r=mac |
| By: | Jonathan A. Parker |
| Abstract: | We do not have a good measure of the effects of fiscal policy in a recession because the methods that we use to estimate the effects of fiscal policy — both those using the observed outcomes following different policies in aggregate data and those studying counterfactuals in fitted model economies -- almost entirely ignore the state of the economy and estimate 'the' government multiplier, which is presumably a weighted average of the one we care about — the multiplier in a recession — and one we care less about — the multiplier in an expansion. Notable exceptions to this general claim suggest this difference is potentially large. Our lack of knowledge stems significantly from the focus on linear dynamics: VARs and linearized (or close-to-linear) DSGEs. Our lack of knowledge also reflects a lack of data: deep recessions are few and nonlinearities hard to measure. The lack of statistical power in the estimation of nonlinear models using aggregate data can be addressed by exploiting estimates of partial-equilibrium responses in dissaggregated data. Microeconomic estimates of the partial-equilibrium causal effects of a policy can discipline the causal channels inherent in any DSGE model of the general equilibrium effects of policy. Microeconomic studies can also provide measures of the dependence of the effects of a policy on the states of different agents which is a key component of the dependence of the general-equilibrium effects of fiscal policy on the state of the economy. |
| JEL: | E17 E5 E62 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17240&r=mac |
| By: | Ana Aizcorbe; Ralph Bradley; Ryan Greenaway-McGrevy; Brad Herauf; Richard Kane; Eli Liebman; Sarah Pack; Lyubov Rozental (Bureau of Economic Analysis) |
| Abstract: | Spending on medical care is a large and growing component of GDP. There are wellknown measurement problems that are estimated to overstate inflation and understate real growth for this sector by as much as 1-1/2 percentage points per year. Because of its size, this would translate into an overstatement of inflation for the overall economy of about ¼ percentage point with an equal understatement in real GDP growth. In this paper, we use data from the Medical Expenditure Panel Survey to obtain new, more comprehensive estimates for this bias and to explore a possible adjustment to existing official price indexes. The MEPS data show an upward bias to price growth in this sector of 1 percentage point, which translates into an overstatement of overall inflation of .2 percentage point and an understatement of GDP growth of the same amount. We also find that an adjustment recently used in Bradley et al provides a useful approximation to the indexes advocated by health economists. |
| JEL: | E60 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0069&r=mac |
| By: | Ildeberta Abreu |
| Abstract: | This paper evaluates the performance of the macroeconomic forecasts disclosed by three leading international organisations - the IMF, the European Commission and the OECD - and compares it with that of the mean forecasts of two surveys of private analysts - the Consensus Economics and The Economist. The publication of forecasts twice a year by international organisations always receives a great deal of public attention but the timely forecasts disclosed monthly by private institutions have been gaining increased visibility. The aim of this work is to help forecast users in answering the question of how much (little) confidence they should place in the alternative forecasts that are available at each moment. The evaluation covers real GDP growth and inflation projections for nine main advanced economies, over the period 1991-2009. Several evaluation criteria are used. The quantitative accuracy of forecasts is assessed and their unbiasedness and efficiency is tested. The directional accuracy of forecasts and the ability to predict economic recessions are also examined. The results suggest that the forecasting performance of the international organisations is broadly similar to that of the surveys of private analysts. By and large, current-year forecasts present desirable features and clearly outperform year-ahead forecasts for which evidence is more mixed both in terms of quantitative and qualitative accuracy. |
| JEL: | E37 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201120&r=mac |
| By: | Kakarot-Handtke, Egmont |
| Abstract: | Unemployment is usually explained with reference to the equilibrium of supply and demand in the labour market. This approach rests on specific behavioral assumptions that are formally expressed as axioms. The standard set of axioms is replaced in the present paper by a set of structural axioms. This approach yields the objective determinants of employment. They consist of effective demand, the actual outcome of price formation, structural stress as determined by the heterogeneity within the business sector and the income distribution. Sudden changes of employment are effected by latent relative switchers that are hard to spot empirically. |
| Keywords: | New framework of concepts; Structure-centric; Axiom set; Full employment; Employment–profit ratio trade-off; Causality; Economic law; Historical specificity; Latent relative switcher |
| JEL: | E24 E21 |
| Date: | 2011–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32257&r=mac |
| By: | Ramon Marimon; Juan Pablo Nicolini; Pedro Teles |
| Abstract: | We study the interplay between competition and trust as efficiency enhancing mechanisms in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on efficiency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved.<br>The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good. |
| JEL: | E40 E50 E58 E60 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201118&r=mac |
| By: | Javier Alonso; Rafael Domenech; David Tuesta |
| Abstract: | The debt crisis in the Economic and Monetary Union has revealed the need in many member countries to engage in an unprecedented fiscal consolidation process, not only in the short term, but also in the long term. Therefore, the urgent need to accelerate in many cases the reforms of their pension systems with a view to ensuring the sustainability of their public finance over time has been revived. This paper analyzes the circumstances that led to the reforms of the pension systems in Europe and the measures adopted, with a view to extracting some lessons that may be of use for Latin American countries. With this objective, reforms undertaken in Latin America are also described, specifically in Colombia and Peru, which are two cases where the capitalization and distribution systems continue to compete simultaneously. This paper also quantifies and compares the actuarial balance of these countries, which is related to their financial sustainability in the long term. |
| Keywords: | Pensions, fiscal deficit, actuarial debt, Europe, Latin America. |
| JEL: | E32 C22 E27 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1124&r=mac |
| By: | João Sousa; Ricardo M. Sousa |
| Abstract: | The goal of this paper is to analyze predictability of future asset returns in the context of modeluncertainty. Using data for the Euro Area, the US and the U.K., we show that one can improve the forecasts of stock returns using a Bayesian Model Averaging (BMA) approach, and there is a large amount of model uncertainty.<br>The empirical evidence for the Euro Area suggests that several macroeconomic, financial and macro-financial variables are consistently among the most prominent determinants of risk premium.As for the US, only a few number of predictors play an important role. In the case UK, future stock returns are better forecasted by financial variables. These results are corroborated for both the M-open and the M-closed perspectives and in the context of "in-sample" and out-of-sample" forecasting. Finally, we highlight that the predictive ability of the BMA framework is stronger at longer periods, and clearly outperforms the constant expected returns and the autoregressive benchmark models. |
| JEL: | E21 G11 E44 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201119&r=mac |
| By: | Tatom, John |
| Abstract: | The United States economy has suffered over the past four years from crises in mortgage foreclosures and in financial markets, as well as a long recession that some have referred to as the Great Recession. The links between these events, or more broadly the causes, extent and effects of these developments, are sources of continuing controversy and uncertainty. This paper attempts to disentangle the links between the mortgage foreclosure crisis, the financial crisis, a possible banking crisis and the Great Recession, at least in terms of timing, and also to provide an alternative view to the conventional wisdom, especially for the link of crises to the recession. |
| Keywords: | Foreclosure crisis; banking crisis; financial crisis; recession |
| JEL: | E32 E44 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31914&r=mac |
| By: | Benjamin Bridgman (Bureau of Economic Analysis) |
| Abstract: | The world trade collapsed in the most recent recession. Some analysts have suggested the increasing offshoring of the supply chain, or vertical specialization (VS) trade, can explain the apparent increase in volatility of trade over the business cycle. This paper develops a model of VS trade to examine its impact on the volatility of trade. The model features increased trade volatility as VS trade increases when goods production is more volatile than services production. While the simulated model generates the observed increase in relative volatility of trade to GDP from 1967 to 2002, most of the increase is due to GDP’s shift to less volatile services production. VS trade only accounts for a third of the increase. Counterintuitively, VS trade can moderate trade volatility. |
| JEL: | E60 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0059&r=mac |
| By: | Adema, Y.; Bonenkamp, J.; Meijdam, A.C. (Tilburg University, Center for Economic Research) |
| Abstract: | This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model. We analyse this interaction both in a partial-equilibrium and general-equilibrium setting. Retirement flexibility is often seen as a hedge against capital-market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement fl exibility is weakened - and under some conditions even turned around - if not only capital-market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general-equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure. |
| Keywords: | retirement (in)fl exibility;portfolio allocation;risk;intratemporal substitution elasticity |
| JEL: | E21 G11 J26 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2011077&r=mac |
| By: | Javier Alonso; Rafael Domenech; David Tuesta |
| Abstract: | La crisis de deuda en la Unión Económica y Monetaria ha planteado la necesidad en muchos de sus paÃses miembros de abordar una consolidación fiscal sin precedentes, no sólo a corto sino también a largo plazo. Por esta razón se ha reavivado la urgente necesidad de acelerar en muchos casos las reformas de sus sistemas de pensiones con la finalidad de asegurar la sostenibilidad intertemporal de sus finanzas públicas. Este trabajo analiza las circunstancias que han dado lugar a las reformas de los sistemas de pensiones en Europa y las medidas adoptadas, con la finalidad de extraer algunas lecciones que pueden ser de utilidad para los paÃses de América Latina. Con este objetivo, se describen también las reformas realizadas en Latinoamérica, y en concreto en Colombia y Perú, que son dos casos en los que continúan compitiendo simultáneamente los sistemas de capitalización y reparto. Este trabajo también cuantifica y compara el equilibrio actuarial de dichos paÃses, que se pone en relación con su sostenibilidad financiera a largo plazo. |
| Keywords: | Pensiones, deficit fiscal, deuda actuarial, Europa, Latinoamerica |
| JEL: | E32 C22 E27 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1123&r=mac |
| By: | Dave Wasshausen (Bureau of Economic Analysis) |
| Abstract: | Paper presented at the Conference on Strengthening Sectoral Position and Flow Data in the Macroeconomic Accounts - Jointly organized by the IMF and OECD |
| JEL: | E60 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0100&r=mac |
| By: | Estrada, Fernando; Mutascu, Mihai; Tiwari, Aviral |
| Abstract: | The present study is, in particular, an attempt to test the relationship between tax level and political stability by using some economic control variables and to see the relationship among government effectiveness, corruption, and GDP. For the purpose, we used the Vector Autoregression (VAR) approach in the panel framework, using a country-level panel data from 59 countries for the period 2002 to 2008. The salient features of this model are: (a) simplicity is based on a limited number of variables (five) are categorical or continuous and not dependent on complex interactions or nonlinear effects. (b) accuracy: a low level of errors, the model achieves a high percentage of accuracy in distinguishing countries with inclination to political instability, compared to countries with political stability, (c) generality: the model allows to distinguish types of political instability, both resulting from acts of violence and failure of democracies to show, and (d) novelty: the model incorporates a tool that helps evaluate and exclude many variables used by the conventional literature. This approach is mainly based on the recognition of state structures and the relations between elites and parties. |
| Keywords: | Taxation; Political Stability; Connection; Effects; Panel VAR analysis |
| JEL: | E62 N10 B22 C93 D53 D70 E17 C02 C72 H20 O50 E63 C70 C33 C53 B23 A12 C23 D72 B41 |
| Date: | 2011–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32414&r=mac |
| By: | Marián Dinga (CERGE-EI); Vilma Dingová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This paper studies the effect of the euro introduction on international FDI flows. Using country-pair data on 35 OECD economies during 1997-2008 and adopting the propensity score matching as identification strategy, we investigate the impact of the euro on capital reallocation. In general, the euro exhibits no significant impact on FDI. However, the effect becomes significant on the subset of EU countries, increasing FDI flows by 14.3 to 42.5 percent. Furthermore, we find that the EU membership fosters FDI flows much more than the euro, increasing FDI flows by 55 to 166 percent. Among other FDI determinants, high gross domestic product, low distance between countries and low unit labor costs in target country have a positive effect on FDI. On the contrary, long-term exchange rate volatility deters FDI flows. |
| Keywords: | monetary union, foreign direct investment, common currency area, euro |
| JEL: | E42 F15 F21 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2011_25&r=mac |
| By: | Boubtane, Ekrame (University Paris 1); Coulibaly, Dramane (CEPII, Paris); Rault, Christophe (University of Orléans) |
| Abstract: | This paper examines the causality relationship between immigration, unemployment and economic growth of the host country. We employ the bootstrap panel Granger causality testing approach of Kónya (2006) that allows to test for causality on each individual country separably by accounting for dependence across countries. Using annual data over the period 1980-2005 for 22 OECD countries, we find that, only in Portugal, unemployment negatively causes immigration, while in any country, immigration does not cause unemployment. We also find that, in France, Iceland, Norway and United Kingdom, growth positively causes immigration, while in any country, immigration does not cause growth. |
| Keywords: | immigration, growth, unemployment, Granger causality |
| JEL: | E20 F22 J61 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5853&r=mac |
| By: | Mary L. Streitwieser (Bureau of Economic Analysis) |
| Abstract: | This paper introduces new users to the basics of the U.S. industry economic accounts. It provides an overview of each of BEA’s industry accounts and how they may be used to answer a variety of questions about the U.S. economy, industry activity, and the flow of goods and services throughout the economy. |
| JEL: | E60 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0058&r=mac |
| By: | Roe, Terry L.; Shane, Mathew; Heerman, Kari |
| Abstract: | This paper explores the emergence of large current account imbalances in a few large countries, the factors behind the emergence, the role of those imbalances in the financial crisis of 2008-09, and the implications of achieving global balance. Imbalances reflect a countryâs net savings and suggest that growth in GDP of a surplus country is partly dependent upon growth in external demand of deficit countries. Although a country can incur a surplus or deficit for ever, we suggest that the increasing surpluses of relatively large and rapidly growing countries is likely to be destabilizing to global growth in the long-run. The adjustment will likely require a surplus country, such as China, to rely more on domestic demand for growth while a deficit country, such as the U.S., may need to rely more on external demand for growth. We suggest the Eurozone imbalances are not directly linked to U.S. imbalances. There are a variety of potential causes of global imbalances including excess savings in surplus countries, the twin deficit hypothesis, the export-led growth hypothesis, and the possible miss-measurement of the U.S. current account due to repatriation of profits from U.S. owned foreign affiliates. However, whatever the combination of causes of the growing imbalances, adjustments need to be made to return to long-terms sustainable growth. |
| Keywords: | International Relations/Trade, |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:ags:umciwp:109244&r=mac |
| By: | António Brandão Moniz (IET, Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia) |
| Abstract: | The majority of papers published in the last decades on European Union policy strongly stress the importance of the so-called Lisbon Strategy approved in the year 2000. The same applies to studies and reports on the shift of the European countries towards modernisation and restructuring policy in recent years. This EU development strategy defines a new direction for the coordination of national policies. But why has it become so important? One of the reasons is the fact that many of the papers are based on the concept of “knowledge society” as the key driver for an increased competitiveness of all political and economic regions of Europe. In this context, the term “knowledge” means the inter-linkage of education (including training, qualification, skills) and innovation (including research, information and communication). The use of the concept represents an important shift in the European strategy: further development would not only be based on investment in material infrastructures, but also more on the immaterial ground. However, this Lisbon Strategy was criticised by many politicians and opinion-makers in the first years of this century because the European structures were not prepared for such a quick change. At the same time, the focus for investment moved away from the traditional support of industrial sectors (manufacturing, agriculture and fisheries, construction) towards the “new economy” sectors. The vision of a knowledge society remained appealing also in a changing international context: the Middle East wars (Afghanistan, Iraq and Israel-Palestine) and the fast growth of the Chinese economy. However, the shadows of new recessions have strongly questioned the options made by the European Council. New challenges have emerged with the need to redefine collective strategies in terms of European development as set by the Lisbon strategy. “Europe 2020” is one more attempt to define a new strategy. But at present no clear path has been identified. Whether the programme will bring about progress for the European economies, or is again an illusion, is not yet clear. This shows, however, that new paths and common strategies are still needed in Europe. |
| Keywords: | European Union, Lisbon Strategy, knowledge society, innovation |
| JEL: | E61 H5 O38 O47 O52 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ieu:wpaper:32&r=mac |
| By: | Micah Hartman; Robert Kornfeld; Aaron Catlin (Bureau of Economic Analysis) |
| Abstract: | This paper provides a most detailed reconciliation to date of the National Health Expenditure Accounts (NHEA), the official estimates of health care spending in the United States from the Centers for Medicare and Medicaid Services (CMS), and the estimates of health expenditures that are part of gross domestic product (GDP) produced by the Bureau of Economic Analysis (BEA) as part of the national income and product accounts (NIPAs). For the period from 1997-2008, the estimates of total national health spending in the NHEA and in the GDP data are relatively similar, differing by less than 2 percent annually. Well over 90 percent of the total estimated expenditures in the two accounts appear to consist of the same expenditures. The differences in the estimates of expenditures for specific categories of health care – physician services, hospitals, drugs, health insurance, investment in equipment, and government programs – are, however, proportionately larger. The differences in the estimates of spending for specific categories of health care partly reflect differences in the way CMS and BEA classify certain healthrelated expenditures that are included in both accounts. The differences in the two estimates of health care spending also reflect some differences in the composition of health care spending in the two accounts, the use of some different estimation methods, and the use of some different data sources. |
| JEL: | E60 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0060&r=mac |
| By: | Raymond Mattaloni Jr. (Bureau of Economic Analysis) |
| Abstract: | This paper examines whether the productivity of U.S. business es- tablishments is related to the extent to which their parent rms are globally engaged{from being an exporter to being a edgling multi- national that has taken a few cautious forays into foreign markets to being a seasoned multinational with extensive foreign operations. |
| JEL: | E60 F14 D24 F23 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0070&r=mac |
| By: | Merrbach, Martin |
| Abstract: | -- |
| JEL: | E44 G15 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hswwdp:092011&r=mac |
| By: | Kaygusuz, Remzi |
| Abstract: | In the past decades, elimination of the pay-as-you-go system in U.S. has been extensively discussed and studied. Such an elimination would also eliminate the intra-cohort redistribution done by the following policies of social security. Due to spousal and survivor's benefit provisions, the system redistributes (mostly) to single-earner married households (not necessarily progressive). Retirement benefits are a concave function of past mean earnings. Hence, the system redistributes from high earners to low earners. Finally, the existence of a cap on social security taxable earnings makes the system regressive. This is the first paper that quantifies redistributive, labor supply, and welfare implications of these policies using a general equilibrium life-cycle model. Agents start out as permanently married or single and with education levels and wage profiles, where the latter depend both on education and gender. The household is the decision maker and decides on the labor supply of its member(s) and saving. The aggregate production function has as inputs capital and labor aggregated by efficiency. Elimination of these policies results in a 6.1% increase in married female labor force participation rate. The middle-income single-earner married households experience the largest welfare losses whereas the high-income two-earner households together with high-income single households experience the largest welfare gains. |
| Keywords: | Social Security; Two-earner households; Labor Force Participation |
| JEL: | E62 H55 H31 J12 |
| Date: | 2011–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32358&r=mac |
| By: | Abe Dunn (Bureau of Economic Analysis) |
| Abstract: | The pharmaceutical industry is characterized as having substantial investment in R&D and a large number of new product introductions, which poses special problems for price measurement caused by the quality of drug products changing over time. This paper applies recent demand estimation techniques to construct a constant- quality price index for anti-cholesterol drugs. Demand is estimated using a nationally representative sample of individuals over the period 1996 to 2007 that includes detailed information on individual health conditions, demographics, insurance, and prescription drug choices. Although the average price for anti-cholesterol drugs does not change over the sample period, I .nd that the constant-quality price index drops by 22 percent, a pace more in line with our expectations in such a dynamic segment of the industry. This result is robust to a number of alternative assumptions, highlighting the importance of controlling for quality in markets with signi.cant innovation. The demand estimates also reveal that the bene.ts from new innovations depend on the health conditions of individuals which may impact quality-adjusted prices for di¤erent populations. |
| JEL: | E60 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0057&r=mac |
| By: | Szarowska, Irena |
| Abstract: | The aim of the paper is to analyze changes in taxation and their impact on economic growth in the European Union. The analysis is performed on adjusted annual panel data of 24 European Union countries in a period 1995–2008. Panel regression with fixed effects is used as a basic method of research. The panel regression is based on analysis the effect of total tax quota changes on GDP growth in model 1, of changes in its components (social contribution, direct and indirect tax quotas) in model 2 and of personal and corporate income tax quota changes in model 3. Results of empirical tests verify statistically significant negative effect of tax burden on GDP growth. Total tax quota increased by 1% decreases the GDP growth rate by 0.29% in the same year. Estimations confirm a statistically significant negative effect of direct taxes on GDP growth as well. A cut in the direct tax quota by 1% raises the GDP growth rate by 0.43%. The model also presents a high negative impact of an increase in the corporate income tax quota on GDP growth (a value of the regression coefficient is minus 1.28%) expresses the high negative. The effect of social contribution quota on GDP growth is not statistically significant in any estimation. |
| Keywords: | taxation; tax burden; economic growth; panel regression |
| JEL: | E62 C23 H25 |
| Date: | 2010–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32354&r=mac |
| By: | Bettina Aten; Eric Figueroa; Troy Martin (Bureau of Economic Analysis) |
| Abstract: | Notes on Estimating the Multi-Year Regional Price Parities by 16 Expenditure Categories: 2005-2009 |
| JEL: | E60 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0071&r=mac |
| By: | Matthew J Osborne; Nathan H. Miller (Bureau of Economic Analysis) |
| Abstract: | We develop an estimator for models of competition among spatially differentiated firms. In contrast to existing methods (e.g., Houde (2009)), the estimator has flexible data requirements and is implementable with data that are observed at any level of aggregation. Further, the estimator is the first to be applicable to models in which firms price discriminate among consumers based on location. We apply the estimator to the portland cement industry in the U.S. Southwest over 1983-2003. We estimate transportation costs to be $0.30 per tonne-mile and show that, given the topology of the U.S. Southwest, these transportation costs permit more geographically isolated plants to discriminate among consumers. We conduct a counterfactual experiment and determine that disallowing this spatial price discrimination would increase consumer surplus by $12 million annually, relative to a volume of commerce of $1.3 billion. Heretofore it has not been possible examine the surplus implications of spatial price discrimination in specific, real-world settings; these implications have been known to be ambiguous theoretically since at least Gronberg and Meyer (1982) and Katz (1984). Additionally, our methodology can be used to construct transportation margins, which are an important component of input-output tables. |
| JEL: | E60 C51 L11 L40 L61 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0072&r=mac |
| By: | Yougbaré, Lassana |
| Abstract: | The paper studies the misalignment2-exchange rate regime linkages by pursing three avenues. First, does misalignment vary across alternative de jure and de facto exchange rate systems? Second, can these misalignment-effects be explained by different probabilities of undervaluation and overvaluation episodes? Lastly, does delivering the promised exchange rate regime pay off? The regression analysis reveals that misalignment is larger in fixed systems, with middle income and the CFA countries displaying the largest effect. This result likely stems from more (less) frequent overvaluation (undervaluation) episodes. Intermediate regimes are found to be associated with a smaller misalignment in middle income countries and a larger misalignment in low and high income countries. But only in the latter does this misalignment-impact appear to result from more frequent overvaluation episodes. In the other groups of countries it may come from over and undervaluation episodes with different magnitudes. |
| Keywords: | equilibrium real exchange rate; misalignment; exchange rate regimes |
| JEL: | E42 F41 F31 |
| Date: | 2011–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:32362&r=mac |
| By: | Abe Dunn (Bureau of Economic Analysis) |
| Abstract: | This paper examines the impact of coverage on demand for health insurance in the Medicare Advantage (MA) insurance market. Estimating the e¤ects of coverage on demand poses a challenge for researchers who must must consider both the hundreds of bene.ts that a¤ect out-of-pocket costs (OOPC) to consumers, but also the endogeneity of coverage. These problems are addressed in a discrete choice demand model by employing a unique measure of OOPC that considers a consumer.s expected payments for a .xed bundle of health services and applying instrumental variable techniques to address potential endogneity bias. The results of the demand model show that OOPC have a signi.cant e¤ect on consumer surplus and that not instrumenting for OOPC results in a signi.cant underestimate of the value of coverage. |
| JEL: | E60 |
| Date: | 2010–09 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0061&r=mac |