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on Macroeconomics |
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Issue of 2012‒03‒21
57 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Saroj Bhattarai; Gauti Eggertsson; Raphael Schoenle |
| Abstract: | We study the implications of increased price flexibility on aggregate output volatility in a dynamic stochastic general equilibrium (DSGE) model. First, using a simplified version of the model, we show analytically that the results depend on the shocks driving the economy and the systematic response of monetary policy to inflation: More flexible prices amplify the effect of demand shocks on output if interest rates do not respond strongly to inflation, while higher flexibility amplifies the effect of supply shocks on output if interest rates are very responsive to inflation. Next, we estimate a medium-scale DSGE model using post-WWII U.S. data and Bayesian methods and, conditional on the estimates of structural parameters and shocks, ask: Would the U.S. economy have been more or less stable had prices been more flexible than historically? Our main finding is that increased price flexibility would have been destabilizing for output and employment. |
| Keywords: | Prices ; Productivity ; Equilibrium (Economics) ; Monetary policy ; Inflation (Finance) |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:540&r=mac |
| By: | Bask, Mikael (Department of Economics); Proaño, Christian R (Department of Economics) |
| Abstract: | We show that a so-called expectations-based optimal monetary policy rule has desirable properties in a standard New Keynesian model augmented with a cost channel and inflation rate expectations that are partly backward-looking. In particular, optimal monetary policy under commitment is associated with a determinate rational expectations equilibrium that is stable under least squares learning for all parameter constellations considered, whereas, under discretion in policy-making, the central bank has to be sufficiently inflation rate averse for the rational expectations equilibrium to have the same properties. |
| Keywords: | Commitment; Cost Channel; Determinacy; Discretion; Inflation Inertia; Least Squares Learning; Optimal Monetary Policy |
| JEL: | C62 E52 |
| Date: | 2012–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2012_007&r=mac |
| By: | Eric M. Leeper; Todd B. Walker |
| Abstract: | The Great Recession and worldwide financial crisis have exploded fiscal imbalances and brought fiscal policy and inflation to the forefront of policy concerns. Those concerns will only grow as aging populations increase demands on government expenditures in coming decades. It is widely perceived that fiscal policy is inflationary if and only if it leads the central bank to print new currency to monetize deficits. Monetization can be inflationary. But it is a misperception that this is the only channel for fiscal inflations. Nominal bonds, the predominant form of government debt in advanced economies, derive their value from expected future nominal primary surpluses and money creation; changes in the price level can align the market value of debt to its expected real backing. This introduces a fresh channel, not requiring explicit monetization, through which fiscal deficits directly affect inflation. The paper describes various ways in which fiscal policy can directly affect inflation and explains why these fiscal effects are difficult to detect in time series data. |
| JEL: | E31 E52 E62 E63 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17903&r=mac |
| By: | Domenico Giannone; Michèle Lenza; Lucrezia Reichlin |
| Abstract: | This paper uses a data-set including time series data on macroeconomic variables, loans, deposits and interest rates for the euro area in order to study the features of financial intermediation over the business cycle. We find that stylized facts for aggregate monetary and real variables are re- markably similar to what has been found for the US by many studies while we uncover new facts on disaggregated loans and deposits. During the crisis the cyclical behavior of short term interest rates, loans and deposits remain stable but we identify unusual dynamics of longer term loans, deposits and longer term interest rates. |
| Keywords: | Money; Loans; Non-financial corporations; Monetary policy; euro area |
| JEL: | E32 E51 E52 C32 C51 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/112202&r=mac |
| By: | Stefano Eusepi; Marc Giannoni; Bruce Preston |
| Abstract: | Under rational expectations, monetary policy is generally highly effective in stabilizing the economy. Aggregate demand management operates through the expectations hypothesis of the term structure: Anticipated movements in future short-term interest rates control current demand. This paper explores the effects of monetary policy under imperfect knowledge and incomplete markets. In this environment, the expectations hypothesis of the yield curve need not hold, a situation called unanchored financial market expectations. Whether or not financial market expectations are anchored, the private sector’s imperfect knowledge mitigates the efficacy of optimal monetary policy. Under anchored expectations, slow adjustment of interest rate beliefs limits scope to adjust current interest rate policy in response to evolving macroeconomic conditions. Imperfect knowledge represents an additional distortion confronting policy, leading to greater inflation and output volatility relative to rational expectations. Under unanchored expectations, current interest rate policy is divorced from interest rate expectations. This permits aggressive adjustment in current interest rate policy to stabilize inflation and output. However, unanchored expectations are shown to raise significantly the probability of encountering the zero lower bound constraint on nominal interest rates. The longer the average maturity structure of the public debt, the more severe is the constraint. |
| Keywords: | Monetary policy ; Rational expectations (Economic theory) ; Interest rates ; Inflation (Finance) |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:547&r=mac |
| By: | Marco Del Negro; Frank Schorfheide |
| Abstract: | Dynamic stochastic general equilibrium (DSGE) models use modern macroeconomic theory to explain and predict comovements of aggregate time series over the business cycle and to perform policy analysis. We explain how to use DSGE models for all three purposes—forecasting, story telling, and policy experiments—and review their forecasting record. We also provide our own real-time assessment of the forecasting performance of the Smets and Wouters (2007) model data up to 2011, compare it with Blue Chip and Greenbook forecasts, and show how it changes as we augment the standard set of observables with external information from surveys (nowcasts, interest rate forecasts, and expectations for long-run inflation and output growth). We explore methods of generating forecasts in the presence of a zero-lower-bound constraint on nominal interest rates and conditional on counterfactual interest rate paths. Finally, we perform a postmortem of DSGE model forecasts of the Great Recession and show that forecasts from a version of the Smets-Wouters model augmented by financial frictions, and using spreads as an observable, compare well with Blue Chip forecasts. |
| Keywords: | Stochastic analysis ; Equilibrium (Economics) ; Time-series analysis ; Econometric models ; Monetary policy ; Economic forecasting ; Recessions |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:554&r=mac |
| By: | Marc P. Giannoni |
| Abstract: | This paper compares the properties of interest rate rules such as simple Taylor rules and rules that respond to price-level fluctuations—called Wicksellian rules—in a basic forward-looking model. By introducing appropriate history dependence in policy, Wicksellian rules perform better than optimal Taylor rules in terms of welfare and robustness to alternative shock processes, and they are less prone to equilibrium indeterminacy. A simple Wicksellian rule augmented with a high degree of interest rate inertia resembles a robustly optimal rule—that is, a monetary policy rule that implements the optimal plan and is also completely robust to the specification of exogenous shock processes. |
| Keywords: | Interest rates ; Inflation (Finance) ; Taylor's rule ; Price levels ; Monetary policy |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:546&r=mac |
| By: | Brahima Coulibaly |
| Abstract: | During the 2008-2009 global financial crisis, emerging market economies (EMEs) loosened monetary policy considerably to cushion the shock. In previous crises episodes, by contrast, EMEs generally had to tighten monetary policy to defend the value of their currencies, to contain capital flight, and to bolster policy credibility. Our study aims to understand the factors that enabled this remarkable shift in monetary policy, and also to assess whether this marks a new era in which EMEs can now conduct countercyclical policy, more in line with advanced economies. The results indicate statistically significant linkages between some characteristics of the economies and their ability to conduct countercyclical monetary policy. We find that macroeconomic fundamentals and lower vulnerabilities, openness to trade, and international capital flows, financial reforms, and the adoption of inflation targeting all facilitated the conduct of countercyclical policy. Of these factors, the most important have been the financial reforms achieved over the past decades and the adoption of inflation targeting. As long as EMEs maintain these strong economic fundamentals, continue to reform their financial sector, and adopt credible and transparent monetary policy frameworks such as inflation targeting, the conduct of countercyclical monetary policy will likely be sustainable. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1042&r=mac |
| By: | Valdivia , Daney; Loayza, Lilian |
| Abstract: | Introduction of inflation targeting has global effects on dynamic of prices and economic growth. In case of a developing country with an increasing remonetization since 2007 – 2008 and modest growing later than 2009 it’s important to assess the adoption of a new regime and how it helps to both control inflation dynamics and expectations; and how it stabilize the business cycle of economic growth. In order to assess inflation targeting we use the methodology applied by Vega and Winkelried (2006). Results have shown that in case of the Bolivian economy the adoption of the regime is significant. In this sense, implementation of inflation targeting reduces monthly inflation expectations, -7.33% and its structural component in -1.02%. At the same time, the variance of output reduces -1.2%. |
| Keywords: | Inflation targeting; propensity score; economic growth |
| JEL: | E32 E42 C52 E52 |
| Date: | 2010–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37328&r=mac |
| By: | Christian Bustamante; Luis E. Rojas |
| Abstract: | This paper propose indicator variables for the implementation of monetary policy in an inflation targeting regime. Using constant interest rate projections, the notion of a target-compatible interest rate is presented. This variable allows to extract some characteristics that the expected future path of the interest rate have to fulfill in order to be compatible with the target. The specific formulation of the target-compatible interest rate is presented under alternative assumptions over the forecasting horizon (unconditional or conditional forecasts) and the objective of the monetary authority (inflation target or a loss function). The empirical counterpart of the various formulations is shown using a DSGE model for Colombia; a small open economy with an inflation targeting regime. |
| Date: | 2012–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:009383&r=mac |
| By: | Eric T. Swanson; John C. Williams |
| Abstract: | The zero lower bound on nominal interest rates has constrained the Federal Reserve’s setting of the overnight federal funds rate for over three years running. According to many macroeconomic models, such an extended period of being stuck at the zero bound has important implications for the effectiveness of monetary and fiscal policies. However, economic theory also implies that households’ and firms’ decisions depend on the entire path of expected future short-term interest rates, not just the current level of the overnight rate. Thus, interest rates with a year or more to maturity are arguably the most relevant for the private sector, and it is unclear to what extent the zero lower bound has affected those rates. In this paper, we propose a novel approach to measure when and to what extent the zero lower bound affects interest rates of any maturity. We compare the sensitivity of interest rates of various maturities to macroeconomic news during periods when short-term interest rates are very low to that during normal times. We find that yields on Treasury securities with six months or less to maturity have been strongly affected by the zero bound during most or all of the period when the federal funds rate was near zero. In stark contrast to this finding, yields with more than two years to maturity have responded to economic news during the past three years in their usual way. One- and two-year Treasury yields represent an intermediate case, being partially constrained by the zero bound over part of the period when the funds rate was near zero. We provide two explanations for these results. First, market participants have consistently expected the zero bound to constrain policy for only about a year into the future, minimizing its effect on longer-term yields. Second, the Federal Reserve’s unconventional policy actions may be offsetting the effects of the zero bound on longer-term yields. |
| Keywords: | Interest rates ; Monetary policy ; Fiscal policy |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2012-02&r=mac |
| By: | Alessio Anzuini (Bank of Italy); Marco J. Lombardi (European Central Bank); Patrizio Pagano (Bank of Italy) |
| Abstract: | Global monetary conditions are often cited as a driver of commodity prices. This paper investigates the empirical relationship between US monetary policy and commodity prices by means of a standard VAR system, commonly used in analysing the effects of monetary policy shocks. The results suggest that expansionary US monetary policy shocks drive up the broad commodity price index and all of its components. While these effects are significant, they do not, however, appear to be overwhelmingly large. This finding is confirmed under different identification strategies for the monetary policy shock. |
| Keywords: | monetary policy shock, oil prices, VAR |
| JEL: | E31 E40 C32 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_851_12&r=mac |
| By: | Cheick Kader M'baye (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | Under what conditions should a central bank adopt an inflation targeting regime ? This is the main question we address in this paper. A large part of the literature puts forward that these regimes should have to be adopted, as they yield higher macroeconomic performances. We analyze the issue of optimal inflation targeting in a new theoretical framework, which conciliates the interaction between the degree of price stickiness, and the degree of strategic complementarities in fi-rms’ price setting. We show that adopting a target for inflation, crucially depends on the sequential but complementary importance of the model’s parameters. In particular, we show that strategic complementarities appear to be the fi-rst driving force. When they are low, the central bank must adopt an inflation targeting regime whatever the importance of other parameters in the model. By contrast, when the degree of strategic complementarities is high, adopting a target for in ation depends on both the degree of price stickiness and the precision of central bank’s information about the fundamentals of the economy. When prices are exible enough, adopting an inflation target is never optimal. However, when prices are strongly sticky, and the central bank holds precise information about the fundamentals, the central bank should adopt an explicit target for inflation. |
| Keywords: | Inflation targeting, price stickiness, heterogeneous information,strategic complementarities |
| JEL: | E52 E58 E61 E31 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1202&r=mac |
| By: | Cheick Kader M'Baye (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon) |
| Abstract: | Under what conditions should a central bank adopt an inflation targeting regime ? This is the main question we address in this paper. A large part of the literature puts forward that these regimes should have to be adopted, as they yield higher macroeconomic performances. We analyze the issue of optimal inflation targeting in a new theoretical framework, which conciliates the interaction between the degree of price stickiness, and the degree of strategic complementarities in fi-rms' price setting. We show that adopting a target for inflation, crucially depends on the sequential but complementary importance of the model's parameters. In particular, we show that strategic complementarities appear to be the fi-rst driving force. When they are low, the central bank must adopt an inflation targeting regime whatever the importance of other parameters in the model. By contrast, when the degree of strategic complementarities is high, adopting a target for in ation depends on both the degree of price stickiness and the precision of central bank's information about the fundamentals of the economy. When prices are exible enough, adopting an inflation target is never optimal. However, when prices are strongly sticky, and the central bank holds precise information about the fundamentals, the central bank should adopt an explicit target for inflation. |
| Keywords: | Inflation targeting ; price stickiness ; heterogeneous information ; strategic complementarities |
| Date: | 2012–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00677671&r=mac |
| By: | Joshua Chan (College of Business and Economics, Australian National University); Gary Koop (Department of Economics, University of Strathclyde); Simon Potter (Federal Reserve Bank of New York) |
| Abstract: | This paper introduces a new model of trend (or underlying) inflation. In contrast to many earlier approaches, which allow for trend inflation to evolve according to a random walk, ours is a bounded model which ensures that trend inflation is constrained to lie in an interval. The bounds of this interval can either be fixed or estimated from the data. Our model also allows for a time-varying degree of persistence in the transitory component of inflation. The bounds placed on trend inflation mean that standard econometric methods for estimating linear Gaussian state space models cannot be used and we develop a posterior simulation algorithm for estimating the bounded trend inflation model. In an empirical exercise with CPI inflation we find the model to work well, yielding more sensible measures of trend inflation and forecasting better than popular alternatives such as the unobserved components stochastic volatility model. |
| Keywords: | Constrained inflation, non-linear state space model, underlying inflation, inflation targeting, inflation forecasting, Bayesian |
| JEL: | E31 E37 C11 C53 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1202&r=mac |
| By: | Rafiq, Sohrab; Zeufack, Albert |
| Abstract: | This paper explores the stabilisation properties of fiscal policy in Malaysia using a model incorporating nonlinearities into the dynamic relationship between fiscal policy and real economic activity over the growth cycle. The paper also investigates how output multipliers for government purchases may alter for different components of government spending. The authors find that fiscal policy in Malaysia has become increasingly pro-cyclical over the last 25 years and establish that the size of fiscal multipliers tend to change over the growth cycle. A 1 Malaysian Ringgit rise in government (investment) spending leads to a maximum output multiplier of around 2.7 during growth recessions, and around 2 in normal times. The returns to government spending in Malaysia are greater when the focus is on public investment, as opposed to consumption. Changes in tax policy are less effective in stimulating economic activity than direct government spending. These results provide empirical backing to conjectures in the recent literature implying that procyclicality in fiscal policy reduces the effectiveness of fiscal actions in emerging markets. |
| Keywords: | Debt Markets,Consumption,Public Sector Expenditure Policy,Economic Theory&Research,Public Sector Economics |
| Date: | 2012–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5982&r=mac |
| By: | Alex Segura-Ubiergo |
| Abstract: | This paper highlights that real interest rates in Brazil have declined substantially over time, but are still well above the average of emerging market inflation targeting regimes. The adoption of an inflation-targeting regime and better economic fundamentals (reduction in inflation volatility and improvements in the fiscal and external positions) has helped Brazil sustain significantly lower real interest rates than in the past. Going forward, the paper shows that Brazil can converge towards lower equilibrium real interest rates if domestic savings increase to the level of other emerging market countries. The effect is particularly pronounced if the increase in domestic savings is achieved through higher levels of public savings. Still, econometric results suggest that, controlling for everything else in the model, real interest rates in Brazil are about two full percentage points higher than in other countries in the sample, suggesting that there are still Brazil-specific factors that have not been captured by the empirical analysis. Some of these factors may include credit market segmentation and inflation inertia generated by still pervasive indexation practices. |
| Keywords: | Emerging markets , Inflation targeting , Interest rates , Monetary policy , |
| Date: | 2012–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/62&r=mac |
| By: | Olivier Armantier; Scott Nelson; Giorgio Topa; Wilbert van der Klaauw; Basit Zafar |
| Abstract: | Understanding the formation of consumer inflation expectations is considered crucial for managing monetary policy. This paper investigates how consumers form and update their inflation expectations using a unique “information” experiment embedded in a survey. We first elicit respondents’ expectations for future inflation either in their own consumption basket or for the economy overall. We then randomly provide a subset of respondents with inflation-relevant information: either past-year food price inflation, or a median professional forecast of next-year overall inflation. Finally, inflation expectations are re-elicited from all respondents. This design creates unique panel data that allow us to identify the effects of new information on respondents’ inflation expectations. We find that respondents revise their inflation expectations in response to information, and do so meaningfully: revisions are proportional to the strength of the information signal, and inversely proportional to the precision of prior inflation expectations. We also find systematic differences in updating across demographic groups and by question wording, underscoring how different types of information may be more or less relevant for different groups, and how the observed impact of information may depend on methods used to elicit inflation expectations. |
| Keywords: | Inflation (Finance) ; Consumer behavior ; Information theory ; Consumer surveys |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:543&r=mac |
| By: | Szilárd Benk; Zoltán M. Jakab |
| Abstract: | Using an estimated DSGE model for Hungary, the paper identifies the possible non-Keynesian channels through which a fiscal consolidation may manifest as expansionary. Simulations show that fiscal consolidation policies are typically contractionary. Nevertheless, taking into account some specific features of the Hungarian economy, there is a possibility that expansionary effects arise. These effects may take the form of a drop in interest rate risk premium or favourable balance sheet effects through the appreciation of the currency. However, the credibility of fiscal consolidation is key in achieving positive output effects. A non-credible consolidation is unlikely to expand output, regardless of the assumptions regarding the specific features of the economy, and regardless of the composition of a consolidation package.<P>Les effets non-Keynésiens de l'assainissement budgétaire : une analyse avec un modèle DSGE estimé pour l'économie hongroise<BR>À partir d’un modèle d’équilibre général dynamique et stochastique (DSGE) estimé pour la Hongrie, ce papier identifie les canaux non-Keynésiens susceptibles de donner un caractère expansionniste à un assainissement budgétaire. Les simulations montrent que les politiques d’ajustement budgétaire se traduisent généralement par une contraction de l’activité. Toutefois, compte tenu de certaines caractéristiques propres à l’économie hongroise, il est probable que des effets expansionnistes surviennent. Ces effets peuvent prendre la forme d’une baisse de la prime de risque de taux d’intérêt ou d’effets de bilan favorables du fait d’une appréciation du taux de change. Cela étant, la crédibilité de l’assainissement budgétaire est indispensable pour obtenir des effets positifs sur la production. Un ajustement non crédible a peu de chances de produire de tels effets, quelles que soient les hypothèses retenues à propos des caractéristiques de l’économie et quelle que soit la composition du programme d’assainissement. |
| Keywords: | taxation, government expenditure, fiscal consolidation, DSGE model, non-Keynesian effects, fiscalité, assainissement budgétaire, modèle DSGE, effets non-Keynésiens, dépense publique |
| JEL: | E27 E62 H30 H50 |
| Date: | 2012–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:945-en&r=mac |
| By: | Andrea Ferrero |
| Abstract: | One of the most striking features of the period before the Great Recession is the strong positive correlation between house price appreciation and current account deficits, not only in the United States but also in other countries that have subsequently experienced the highest degree of financial turmoil. A progressive relaxation of credit standards can rationalize this empirical observation. Lower collateral requirements facilitate access to external funding and drive up house prices. The current account turns negative because households borrow from the rest of the world. At the same time, however, the world real interest rate counterfactually increases. The two key ingredients that reconcile a demand-based explanation of house price booms and current account deficits with the evidence on real interest rates are nominal interest rates lower than the predictions of a standard monetary policy rule in leveraged economies and foreign exchange rate pegs in saving countries. |
| Keywords: | Housing - Prices ; Credit ; Interest rates ; Monetary policy ; Balance of payments |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:541&r=mac |
| By: | Cosmin Ilut; Martin Schneider |
| Abstract: | This paper considers business cycle models with agents who dislike both risk and ambiguity (Knightian uncertainty). Ambiguity aversion is described by recursive multiple priors preferences that capture agents' lack of confidence in probability assessments. While modeling changes in risk typically requires higher-order approximations, changes in ambiguity in our models work like changes in conditional means. Our models thus allow for uncertainty shocks but can still be solved and estimated using first-order approximations. In our estimated medium-scale DSGE model, a loss of confidence about productivity works like 'unrealized' bad news. Time-varying confidence emerges as a major source of business cycle fluctuations. |
| JEL: | E32 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17900&r=mac |
| By: | Francis Vitek; Scott Roger |
| Abstract: | This paper examines the transitional macroeconomic costs of a synchronized global increase in bank capital adequacy requirements under Basel III, as well as a capital increase covering globally systemically important banks. The analysis, using an estimated multi-country model, contributed to the work of the Macroeconomic Assessment Group analysis, especially in estimating the potential international spillovers associated with a global increase in capital requirements. The magnitude of the effects found in this analysis is relatively modest, especially if monetary policies have scope to ease in response to a widening of interest rate spreads by banks. |
| Keywords: | Banks , Capital , Cross country analysis , Economic models , Monetary policy , Spillovers , |
| Date: | 2012–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/44&r=mac |
| By: | Anita Doraisami (Asian Development Bank Institute (ADBI)) |
| Abstract: | Several countries have employed countercyclical fiscal policy to ameliorate the impact of the global financial crisis. This study identifies some of the issues and policy implications associated with this policy response in developing countries. Included are case studies of four developing countries in the Asian region—Malaysia, Indonesia, the Philippines, and Singapore. The findings point to a rich diversity in both the size and composition of fiscal stimulus and the challenges which are confronted. This study suggests several steps that countries might take to improve the impact of expansionary fiscal policy in response to future downturns. These include (i) embedding automatic stabilizing impulses through the provision of social safety nets; (ii) increasing tax revenues collected from personal and corporate taxes, by reducing labor market informality through improvements in the business environment; (iii) safeguarding fiscal sustainability; (iv) rebalancing growth by strengthening other sectors of the economy; (v) reducing expenditures on subsidies; and (vi) ensuring smooth and efficient budget execution. |
| Keywords: | global financial crisis, Countercyclical Fiscal Policy, Malaysia, the the Philippines, and Singapore |
| JEL: | E60 E61 E62 E63 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23248&r=mac |
| By: | Russell Cooper |
| Abstract: | This paper studies the role of exit from a monetary union during a debt crisis. A monetary union, such as the European Monetary Union, needs to establish a procedure for exit as a tool to cope with debt default. The paper studies various forms of exit and argues that “Euroization” is both a credible and effective means of punishment for countries in default. |
| JEL: | E02 E58 E61 E63 F33 F34 F36 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17908&r=mac |
| By: | Anita Doraisami (Asian Development Bank Institute (ADBI)) |
| Abstract: | Several countries have employed countercyclical fiscal policy to ameliorate the impact of the global financial crisis. This study identifies some of the issues and policy implications associated with this policy response in developing countries. Included are case studies of four developing countries in the Asian region—Malaysia, Indonesia, the Philippines, and Singapore. The findings point to a rich diversity in both the size and composition of fiscal stimulus and the challenges which are confronted. This study suggests several steps that countries might take to improve the impact of expansionary fiscal policy in response to future downturns. These include (i) embedding automatic stabilizing impulses through the provision of social safety nets; (ii) increasing tax revenues collected from personal and corporate taxes, by reducing labor market informality through improvements in the business environment; (iii) safeguarding fiscal sustainability; (iv) rebalancing growth by strengthening other sectors of the economy; (v) reducing expenditures on subsidies; and (vi) ensuring smooth and efficient budget execution. |
| Keywords: | global financial crisis, Countercyclical Fiscal Policy, Malaysia, the the Philippines, and Singapore |
| JEL: | E60 E61 E62 E63 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:eab:govern:23248&r=mac |
| By: | Yung Chul Park (Asian Development Bank Institute (ADBI)) |
| Abstract: | This paper analyzes the role and scope of macroprudential policy in preventing financial instability in the context of East Asian economies. It analyzes the behavior of the housing market in a dynamic setting to identify some of the factors responsible for the volatility of housing markets and their susceptibility to boom-bust cycles, which it identifies as a key source of financial imbalances in these economies. It then discusses the causal nexus between price and financial stability and the roles and complementary nature of macroprudential and monetary policies in addressing aggregate risk in the financial system. The paper identifies currency and maturity mismatches, which contributed to the 1997–1998 Asian financial crisis, as ongoing concerns in these economies although the high levels of reserves in the region now act as a buffer. |
| Keywords: | Macroprudential Policy, Financial Stability, East Asia, Emerging Markets, monetary policy |
| JEL: | E52 E58 G01 G15 G28 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23252&r=mac |
| By: | Yung Chul Park (Asian Development Bank Institute (ADBI)) |
| Abstract: | This paper analyzes the role and scope of macroprudential policy in preventing financial instability in the context of East Asian economies. It analyzes the behavior of the housing market in a dynamic setting to identify some of the factors responsible for the volatility of housing markets and their susceptibility to boom-bust cycles, which it identifies as a key source of financial imbalances in these economies. It then discusses the causal nexus between price and financial stability and the roles and complementary nature of macroprudential and monetary policies in addressing aggregate risk in the financial system. The paper identifies currency and maturity mismatches, which contributed to the 1997–1998 Asian financial crisis, as ongoing concerns in these economies although the high levels of reserves in the region now act as a buffer. |
| Keywords: | Macroprudential Policy, Financial Stability, East Asia, Emerging Markets, monetary policy |
| JEL: | E52 E58 G01 G15 G28 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:23252&r=mac |
| By: | Yung Chul Park (Asian Development Bank Institute (ADBI)) |
| Abstract: | This paper analyzes the role and scope of macroprudential policy in preventing financial instability in the context of East Asian economies. It analyzes the behavior of the housing market in a dynamic setting to identify some of the factors responsible for the volatility of housing markets and their susceptibility to boom-bust cycles, which it identifies as a key source of financial imbalances in these economies. It then discusses the causal nexus between price and financial stability and the roles and complementary nature of macroprudential and monetary policies in addressing aggregate risk in the financial system. The paper identifies currency and maturity mismatches, which contributed to the 1997–1998 Asian financial crisis, as ongoing concerns in these economies although the high levels of reserves in the region now act as a buffer. |
| Keywords: | Macroprudential Policy, Financial Stability, East Asia, Emerging Markets, monetary policy |
| JEL: | E52 E58 G01 G15 G28 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:eab:govern:23252&r=mac |
| By: | Kunieda, Takuma; Shibata, Akihisa |
| Abstract: | We develop a dynamic general equilibrium growth model with infinitely lived heterogeneous agents to describe a self-fulfilling financial crisis accompanied by an asset bubble burst as a rational expectations equilibrium. Because of financial market imperfections, asset bubbles appear under mild parameter conditions even though we assume infinitely lived agents. Although these bubbles have both a crowd-in liquidity effect and a crowd-out effect on investment, the former effect always dominates the latter. Thus, a self-fulfilling financial crisis accompanied by an asset bubble burst results in an economic recession. This phenomenon is consistent with empirical observations on financial crises in the existing literature. In addition, we present an effective government policy to avoid self-fulfilling financial crises. |
| Keywords: | Crowd-in effect of bubbles; Financial market imperfections; Sunspots; Self-fulfilling financial crisis; Economic growth |
| JEL: | E44 |
| Date: | 2012–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37309&r=mac |
| By: | Carlos Madeira; Basit Zafar |
| Abstract: | Using the panel component of the Michigan Survey of Consumers, we show that individuals, in particular women and ethnic minorities, are highly heterogeneous in their expectations of inflation. We estimate a model of inflation expectations based on learning from experience that also allows for heterogeneity in both private information and updating. Our model vastly outperforms existing models of inflation expectations in explaining the heterogeneity in the data. We find that women, ethnic minorities, and less educated agents have a higher degree of heterogeneity in their private information, and are also slower to update their expectations. In addition, we show that personal income forecasts are positively related to subjective inflation expectations. During the 2000s, consumers believe inflation to be more persistent in the short term, but temporary fluctuations in inflation have less effect on income and long-term inflation expectations. Finally, we find evidence that sticky expectations and the heterogeneity of new information received by consumers generate higher mark-ups and inflation. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:536&r=mac |
| By: | Ramon Marimon; Juan Pablo Nicolini; Pedro Teles |
| Abstract: | We study the interplay between competition and trust as efficiency-enhancing mechanims 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 effciency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved. The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good. |
| Keywords: | Currency competition; Trust; Inflation |
| JEL: | E40 E50 E58 E60 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2011/24&r=mac |
| By: | Luis Araujo (Michigan State University and Sao Paulo School of Ecoonmics - FGV); Raoul Minetti (Michigan State University) |
| Abstract: | We investigate the effects of a credit crunch in an economy where firms can operate a mature technology or restructure their activity and adopt a new technology. We show that firms’ collateral and credit relationships ease firms’ access to credit and investment but can also inhibit firms’ restructuring. When this occurs, negative collateral or productivity shocks and the resulting drop in the price of collateral assets squeeze collateral-poor firms out of the credit market but foster the restructuring of collateral-rich firms. We characterize conditions under which such an increase in firms’ restructuring occurs within existing credit relationships or through their breakdown. The analysis reveals that the credit and asset market policies adopted during the recent credit crunch can promote investment but might also slow down a process of Shumpeterian restructuring in the credit market. |
| Keywords: | Aggregate restructuring, Collateral, Credit relationships, Credit crunch. |
| JEL: | E44 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:lui:casmef:1204&r=mac |
| By: | Adél Bosch; Franz Ruch |
| Abstract: | This paper applies a Markov switching model to the South African economy to provide an alternative classification of the business cycle. Principal components analysis (PCA) is applied to 114 of the 186 variables used in the dating of the business cycle by the South African Reserve Bank. PCA establishes the co-movement in the dataset to calculate the reference turning points over the period 1982 to 2009. The large dataset broadens the information set available to date the turning points. The number of factors are chosen using a modified Bai and Ng (2002) method. The Markov switching model is also applied to Gross Domestic Product (GDP) as this is a commonly used variable to date the business cycle in the literature and provides a benchmark to the factor model. Our results indicate that the factor model accurately dates the South African business cycle and compares favourably to the SARB dating. |
| Keywords: | Markov switching model, business cycles |
| JEL: | E32 C10 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:267&r=mac |
| By: | Volodymyr Vysochansky (Uzhhorod University) |
| Abstract: | World financial crisis unveiled the shaky state of modern monetary system, based on a centralized fiat money supply and fractional-reserve banking. The scale of the crisis and the threat of major inflation, which has already become a reality on commodities markets, confirm the instability of the monetary system. In order to discover weak spots of the system and consider possible solutions on how to remove them, it is necessary to revise the nature of its elements, first of all, money. The article is devoted to the issues of commodities backed money and approaches of its implementation. Model of unregulated money circulation, which is based on ETF technology and exchange infrastructure, is proposed as an incentive to stimulate discussion about possible improvement of the modern monetary system. |
| Keywords: | money, commodities, exchange traded funds, monetary system regulation |
| JEL: | E4 E5 G1 |
| Date: | 2012–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:nos:wuwpfi:vysochansky_volodymyr.52267-1&r=mac |
| By: | Berardi, N.; Eife, T. A.; Gautier, E. |
| Abstract: | This paper studies firms' price-setting decision during a currency changeover. Buyers' difficulties with the new nominal price level create incentives to raise prices temporarily but doing so comes at the risk of damaging a seller's reputation in the long run. We model firms' trade-off and study under which conditions increasing or decreasing prices is optimal. A key variable in the decision is buyers' information about a firm's conversion, which in turn is affected by (i) a firm's size, (ii) the proportion of regular buyers, and (iii) the visibility of a good's price. Difference-in-differences analyses based on micro-data of French restaurants strongly support the model's predictions empirically. Indeed, prices around the 2002 changeover in the European Monetary Union are less likely to rise in larger and non-tourist restaurants, especially when prices are advertised. |
| Keywords: | Price setting, changeover, euro, inflation. |
| JEL: | E31 F33 M39 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:371&r=mac |
| By: | Kornstad, Tom (Statistics Norway); Nymoen, Ragnar (Dept. of Economics, University of Oslo); Skjerpen, Terje (Statistics Norway) |
| Abstract: | Macroeconomic theories take polar views on the importance of choice versus chance. At the micro level, it seems realistic to assume that both dimensions play a role for individual employment outcomes, although it might be difficult to separate these two effects. Nevertheless the choice and chance dimension are seldom treated symmetrically in models that use micro data. We estimate a logistic model of the probability of being employed among married or cohabitating women that are in the labor force. Besides variables that measure individual characteristics (choice), we allow a full set of indicator variables for observation periods that represent potential effects of aggregate shocks (chance) on job probabilities. To reduce the number of redundant indicator variables as far as possible and in a systematic way, an automatic model selection is used, and we assess the economic interpretation of the statistically significant indicator variables with reference to a theoretical framework that allows for friction in the Norwegian labor market. In addition, we also estimate models that use the aggregate female and male unemployment rates as ‘sufficient’ variables for the chance element in individual employment outcomes. Data are for Norway and span the period 1988q22008q4. |
| Keywords: | Job probability; Automatic model selection; Random utility modeling |
| JEL: | C21 J21 J64 |
| Date: | 2012–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2012_003&r=mac |
| By: | Shyamala Gopinath (Asian Development Bank Institute (ADBI)) |
| Abstract: | This paper provides an overview of the Reserve Bank of India’s approach to macroprudential regulation and systemic risk management, and reviews lessons drawn from the Indian experience. It emphasizes the need for harmonization of monetary policy and prudential objectives, which may not be possible if banking supervision is separated from central banks. It also notes that supervisors need to have the necessary independence and flexibility to act in a timely manner on the basis of available information. Macroprudential regulation is an inexact science with limitations and needs to be used in conjunction with other policies to be effective. |
| Keywords: | Macroprudential regulation, Reserve Bank of India, systemic risk managemen, banking supervision |
| JEL: | E52 E58 G28 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23250&r=mac |
| By: | Louis Morel |
| Abstract: | The author constructs a measure of foreign activity that takes into account the composition of foreign demand for Canadian exports. It has a number of interesting features. First, the foreign activity measure captures both the composition of demand in the United States (by including components of U.S. private final domestic demand) and economic activity outside of the United States. Second, its coefficients have been estimated over the sample period 1981–2009 controlling for the effect of changes in relative prices. Third, compared with the Bank’s previous U.S. activity index (introduced in the July 2009 Monetary Policy Report), the foreign activity measure provides some improvements for forecasting Canadian exports, especially at longer horizons. For instance, at eight quarters ahead, the gain in terms of forecast accuracy is as much as 22 per cent. Finally, the foreign activity measure helps to explain why Canadian exports dropped by 20 per cent during the global recession of 2008–09 and have only partially recovered since that time. |
| Keywords: | Balance of payments and components; Exchange rates; Recent economic and financial developments |
| JEL: | E00 F17 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:12-1&r=mac |
| By: | Taro, Abe |
| Abstract: | We develop a Kaleckian model of growth with an endogenous employment rate and investigate the features following Cassetti(2003) which has considered bargaining power of workers and firms and technical progress. We assume that both of the target wage share and the technical progress depend on the rate of change of employment rate, and they become zero in steady state. We also assume that capital accumulation is a decreasing function in employment to consider maturity which defines the present capitalism society. From the above refinements, we get results different from Cassetti(2003). An increase in the saving rate does not make the growth rate decrease, but the utilization decrease. In addition to that, an increase in the rate of labor productivity exerts a positive impact on growth. |
| Keywords: | Income distribution; Bargaining; Growth; Technical progress; maturity |
| JEL: | E25 E12 E22 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37308&r=mac |
| By: | Degol Hailu (UNDP SURF); Admasu Shiferaw (College of William and Mary) |
| Abstract: | This paper analyses macroeconomic aspects of exit from aid-dependence. By ?exit from aid?, we mean substantial and enduring decline over time in Official Development Assistance (ODA) as a share of Gross Domestic Product (GDP). The relevant macroeconomic variables are identified by systematically comparing two groups of countries. These are countries that initially had similar and very high degrees of dependence on international aid but followed dramatically different trajectories of aid-dependence afterwards. This comparison was carried out over five decades since the 1960s using both non-parametric and parametric approaches. We find that the likelihood of exit from aid increases significantly with macroeconomic stability in the sense of maintaining moderate inflation, the rate of investment; aggressive effort at domestic resource mobilisation; and structural change in favour of a growing industrial sector, particularly manufacturing. We conclude that if donors and recipients were to coordinate their aid efforts to support the above-mentioned policy objectives, aid could still be a development tool with diminishing importance. (?) |
| Keywords: | Macroeconomic Determinants of Exit from Aid-Dependence |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:ipc:wpaper:90&r=mac |
| By: | Brendan Walsh (University College Dublin) |
| Abstract: | Answers to the Eurobarometer question on Life Satisfaction are used to explore the effects of macroeconomic performance and institutional quality on average levels of self-assessed well-being in the countries of the enlarged European Union between 2004 and 2011. It is found that variations in national levels of life satisfaction can largely be accounted by a small number of socio-economic indicators. Life satisfaction is lowest in poor, corrupt countries where income inequality is pronounced. The adverse effect of higher unemployment on life satisfaction is partially offset by the positive impact of lower inflation. However, even when these factors are allowed for, significant country-level differences persist. |
| Keywords: | Life Satisfaction, Living Standards, Unemployment, Inflation, Corruption, Income Inequality |
| Date: | 2012–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201208&r=mac |
| By: | Charles Brendon; Martin Ellison |
| Abstract: | A well-known time-inconsistency problem hinders optimal decision-making when policymakers are constrained in their pesent choices by expectations of future outcomes. The time-inconsistency problem is caused by differences in the preferences of policymakers who exist at different points in time. Adapting the arguments of Rawls (1971), we propose that these differences can be eliminated if policy is set from behind a ‘veil of ignorance’, without knowledge of when the policy will be implemented. We set up a well-defined choice problem that captures this normative perspective. The policies that it generates have a number of appealing properties. |
| Keywords: | Macroeconomic policy, Rawls, Time inconsistency, Veil of ignorance |
| JEL: | E52 E61 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:595&r=mac |
| By: | William Hardin (Department of Finance and Real Estate, Florida International University); Sheng Guo (Department of Economics, Florida International University) |
| Abstract: | The present research, which covers the latest residential boom and bust cycle, highlights that there are no uniform or constant time invariant wealth, housing, and income relations. Even more important, wealth composition is shown to be a significant determinant of consumption. The marginal effects of housing wealth, financial wealth, and income differ substantially with wealth composition. Households with the highest percentage of net worth in financial assets have much lower income effects, have substantially higher marginal effects associated with stock holdings, and have housing equity effects that differ noticeably from other households. Income effects for groups with the smallest amounts of relative financial wealth are dramatically higher than for households with greater financial wealth. Wealth and its composition affect consumption. |
| Keywords: | Consumption, Income, Wealth Composition, Wealth Effect, Housing Effect |
| JEL: | E21 D11 D12 D14 D91 G11 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:1201&r=mac |
| By: | María L. Granda; Carla Zambrano |
| Abstract: | Este documento ofrece un análisis de los incentivos de los pequeños negocios para incluirse y permanecer en el Régimen Impositivo Simplificado Ecuatoriano (RISE) a través del pago cumplido de sus cuotas. Con información de los contribuyentes que se han acogido a este régimen durante los dos primeros años de su vigencia, se efectúa un análisis de los factores que más influyen en el pago a tiempo de las cuotas, utilizando un modelo de regresión logística. Los resultados sugieren que, a pesar de los esfuerzos de la Administración Tributaria, los pequeños contribuyentes no logran incorporar las ventajas de pertenecer al RISE. |
| Keywords: | Economía :: Desarrollo y crecimiento económicos, Economía :: Política fiscal, pequeños negocios, impuestos, Ecuador |
| JEL: | E26 H22 H32 |
| Date: | 2012–02 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:63338&r=mac |
| By: | Estrada, Fernando |
| Abstract: | The hypothesis of this paper is as follows: during the twentieth century, the governments have used measures to overcome emergency crisis. Such measures have had better results in revenue in fiscal expenditures, which have caused severe imbalances in public policy. Otherwise, in Colombia there has been no welfare state but to state contrasts with The minimal state, in the terms used by Robert Nozick |
| Keywords: | Power to tax; State; Colombia |
| JEL: | E62 H20 E63 H23 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37212&r=mac |
| By: | R. Orsi; D. Raggi; F. Turino |
| Abstract: | We study a new approach to estimating the underground economy that is based on a dynamic and stochastic general equilibrium (DSGE) framework. In particular, we generalize an otherwise standard two-sector DSGE model by introducing explicitly underground production and irregular market sectors. In this setup, firms can choose to produce goods for the regular market as well as for the underground sector, and households can evade taxes by reallocating their worked hours from the regular to the irregular labor market. The firms can be discovered evading with a given probability and forced to pay a penalty surcharge. Empirical evidence based on Italian data stresses that this phenomenon is relevant in Italy because the estimated size of the underground economy is approximately 22% of the GDP, which is 3 percentage points larger than the number reported in the official statistics. Counterfactual analysis suggests that an increase in the probability of being discovered and in the penalty surcharge, along with a moderate tax reduction, causes a sensitive reduction in the size of the underground economy and a positive stimulus to the official economy that jointly increases the total fiscal revenues. |
| JEL: | E65 O41 O52 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp818&r=mac |
| By: | Dietrich Domanski (Asian Development Bank Institute (ADBI)); Philip Turner |
| Abstract: | In mid-September 2008, following the bankruptcy of Lehman Brothers, international interbank markets froze and interbank lending beyond very short maturities virtually evaporated. Despite massive central bank support operations and purchases of key assets, many financial markets remained impaired for a long time. Why was this funding crisis so much worse than other past major bank failures and why has it proved so hard to cure? This paper suggests that much of that answer lies in the balance sheets of international banks and their customers. It outlines the basic building blocks of liquidity management for a bank that operates in many currencies and then discusses how the massive development of foreign exchange (forex) and interest rate derivatives markets transformed banks’ strategies in this area. It explains how the pervasive interconnectedness between major banks and markets magnified contagion effects. Finally, the paper provides some recommendations for how strategic borrowing choices by international banks could make them more stable and how regulators could assist in this process. |
| Keywords: | liquidity freeze, international banking, liquidity management, derivatives markets |
| JEL: | E44 G01 G15 G18 G24 G28 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23245&r=mac |
| By: | Dietrich Domanski (Asian Development Bank Institute (ADBI)); Philip Turner |
| Abstract: | In mid-September 2008, following the bankruptcy of Lehman Brothers, international interbank markets froze and interbank lending beyond very short maturities virtually evaporated. Despite massive central bank support operations and purchases of key assets, many financial markets remained impaired for a long time. Why was this funding crisis so much worse than other past major bank failures and why has it proved so hard to cure? This paper suggests that much of that answer lies in the balance sheets of international banks and their customers. It outlines the basic building blocks of liquidity management for a bank that operates in many currencies and then discusses how the massive development of foreign exchange (forex) and interest rate derivatives markets transformed banks’ strategies in this area. It explains how the pervasive interconnectedness between major banks and markets magnified contagion effects. Finally, the paper provides some recommendations for how strategic borrowing choices by international banks could make them more stable and how regulators could assist in this process. |
| Keywords: | liquidity freeze, international banking, liquidity management, derivatives markets |
| JEL: | E44 G01 G15 G18 G24 G28 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:23245&r=mac |
| By: | Chalongphob Sussangkarn (Asian Development Bank Institute (ADBI)); Deunden Nikomborirak |
| Abstract: | Since the Asian financial crisis in 1997, Thailand has become highly dependent on export as the engine of economic recovery and growth. In 2008, the ratio of export to gross domestic product (GDP) was 76.5%. The global economic crisis triggered by the sub-prime loans debacle in the United States has prompted Thailand to rethink her export-led growth strategy. Year-on-year export growth plunged from a positive 22.7% in the third quarter of 2008 to a negative 7.75% in the fourth quarter and remained negative for another four quarters, leading to a negative growth of GDP for five consecutive quarters. This paper examines the options for external and internal economic rebalancing strategies for Thailand. External rebalancing will require Thailand to rely less on the US market for her exports. The paper thus examines the possibility of promoting greater regional trade by means of trade agreements and exchange rate coordination. As for internal rebalancing, the paper emphasizes the need to boost domestic public and private investment in terms of both quantity and quality in order to narrow the current savings–investment gap, bearing in mind the need to ensure fiscal sustainability. Finally, the paper examines broader rebalancing strategies that will help Thailand to become less dependent on exports. These include the need to (1) improve productivity by means of technological acquisition, innovation, and skills development; (2) increase economic efficiency by exposing the non-traded sectors, in particular the service sector, to greater competitive pressures; (3) deepen the production structure and create new dynamic industries; and (4) generate new growth poles. |
| Keywords: | Trans-Pacific Rebalancing, Thailand, savings–investment gap, Fiscal Sustainability |
| JEL: | E21 E22 E65 E66 F31 F40 H54 H60 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23263&r=mac |
| By: | Chalongphob Sussangkarn (Asian Development Bank Institute (ADBI)); Deunden Nikomborirak |
| Abstract: | Since the Asian financial crisis in 1997, Thailand has become highly dependent on export as the engine of economic recovery and growth. In 2008, the ratio of export to gross domestic product (GDP) was 76.5%. The global economic crisis triggered by the sub-prime loans debacle in the United States has prompted Thailand to rethink her export-led growth strategy. Year-on-year export growth plunged from a positive 22.7% in the third quarter of 2008 to a negative 7.75% in the fourth quarter and remained negative for another four quarters, leading to a negative growth of GDP for five consecutive quarters. This paper examines the options for external and internal economic rebalancing strategies for Thailand. External rebalancing will require Thailand to rely less on the US market for her exports. The paper thus examines the possibility of promoting greater regional trade by means of trade agreements and exchange rate coordination. As for internal rebalancing, the paper emphasizes the need to boost domestic public and private investment in terms of both quantity and quality in order to narrow the current savings–investment gap, bearing in mind the need to ensure fiscal sustainability. Finally, the paper examines broader rebalancing strategies that will help Thailand to become less dependent on exports. These include the need to (1) improve productivity by means of technological acquisition, innovation, and skills development; (2) increase economic efficiency by exposing the non-traded sectors, in particular the service sector, to greater competitive pressures; (3) deepen the production structure and create new dynamic industries; and (4) generate new growth poles. |
| Keywords: | Trans-Pacific Rebalancing, Thailand, savings–investment gap, Fiscal Sustainability |
| JEL: | E21 E22 E65 E66 F31 F40 H54 H60 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:23263&r=mac |
| By: | Chalongphob Sussangkarn (Asian Development Bank Institute (ADBI)); Deunden Nikomborirak |
| Abstract: | Since the Asian financial crisis in 1997, Thailand has become highly dependent on export as the engine of economic recovery and growth. In 2008, the ratio of export to gross domestic product (GDP) was 76.5%. The global economic crisis triggered by the sub-prime loans debacle in the United States has prompted Thailand to rethink her export-led growth strategy. Year-on-year export growth plunged from a positive 22.7% in the third quarter of 2008 to a negative 7.75% in the fourth quarter and remained negative for another four quarters, leading to a negative growth of GDP for five consecutive quarters. This paper examines the options for external and internal economic rebalancing strategies for Thailand. External rebalancing will require Thailand to rely less on the US market for her exports. The paper thus examines the possibility of promoting greater regional trade by means of trade agreements and exchange rate coordination. As for internal rebalancing, the paper emphasizes the need to boost domestic public and private investment in terms of both quantity and quality in order to narrow the current savings–investment gap, bearing in mind the need to ensure fiscal sustainability. Finally, the paper examines broader rebalancing strategies that will help Thailand to become less dependent on exports. These include the need to (1) improve productivity by means of technological acquisition, innovation, and skills development; (2) increase economic efficiency by exposing the non-traded sectors, in particular the service sector, to greater competitive pressures; (3) deepen the production structure and create new dynamic industries; and (4) generate new growth poles. |
| Keywords: | Trans-Pacific Rebalancing, Thailand, savings–investment gap, Fiscal Sustainability |
| JEL: | E21 E22 E65 E66 F31 F40 H54 H60 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:23263&r=mac |
| By: | K. P. Krishnan (Asian Development Bank Institute (ADBI)) |
| Abstract: | Financial markets that function well are crucial for the long-run economic growth of a country. This paper, in the first instance, looks at how the financial development of an economy can be measured. It then traces the financial development of India through the 1990s to the present, assessing the development of each segment of financial markets. In doing so, it highlights the dualistic development of the financial sector. Finally, the paper makes an attempt to offer an explanation of this dualistic development and proposes a road map for the future development of financial markets in India. |
| Keywords: | financial development, Emerging Markets, India, financial markets |
| JEL: | E44 G18 G28 N25 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23260&r=mac |
| By: | John Geanakoplos (Cowles Foundation, Yale University); Robert Axtell (George Mason University); Doyne J. Farmer (Santa Fe Institute); Peter Howitt (Brown University); Benjamin Conlee (Ellington Management Group); Jonathan Goldstein (George Mason University); Matthew Hendrey (George Mason University); Nathan M. Palmer (George Mason University); Chun-Yi Yang (George Mason University) |
| Abstract: | Systemic risk must include the housing market, though economists have not generally focused on it. We begin construction of an agent-based model of the housing market with individual data from Washington, DC. Twenty years of success with agent-based models of mortgage prepayments give us hope that such a model could be useful. Preliminary analysis suggests that the housing boom and bust of 1997-2007 was due in large part to changes in leverage rather than interest rates. |
| Keywords: | Agent based models, Housing prices, Boom and bust, Leverage, Interest rates, Foreclosures, Systemic risk |
| JEL: | E3 E31 E32 E37 E44 E63 R2 R20 R21 R23 R28 R3 R30 R31 R38 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1852&r=mac |
| By: | Keuschnigg, Christian |
| Abstract: | Dieser Beitrag erörtert die möglichen Ursachen für das Entstehen der aktuellen Verschuldungs- und Finanzkrise im Euroraum und diskutiert Zukunftsszenarien für die Europäische Union. Nach den jüngsten Beschlüssen zeichnet sich eine institutionelle Weiterentwicklung der Union mit folgenden Elementen ab: (i) stärkere Überwachung und Durchsetzung der Fiskalregeln; (ii) Ausbau des europäischen Stabilitätsfonds ESM zur Kreditvergabe an überschuldete Mitgliedsländer unter strikten Sanierungsauflagen; und (iii) Anhebung der minimalen Eigenkapitalquoten der Banken für mehr Systemstabilität und zur Durchsetzung von mehr Marktdisziplin bei der Kreditvergabe an Mitgliedsstaaten. Die Finanzierungskapazität des Stabilitätsfonds auch mit den aufgestockten Mitteln des IWF dürfte jedoch zu klein sein, um die Gefahr einer systemischen Krise bei drohender Insolvenz von grossen Mitgliedsländern wirksam zu bannen. Auch das Grundproblem einer Währungsunion mit geringer Lohnflexibilität und fixem Wechselkurs, nämlich die Tendenz zu Zahlungsbilanzkrisen aufgrund divergierender Wettbewerbsfähigkeit, bleibt ungelöst. Ein unabhängiger, europäischer Währungsfonds, der Kredite nur gegen strenge Reformauflagen vergibt und in Ausnahmesituationen Zugang zur Refinanzierung bei der EZB hätte, verbunden mit der Option eines freiwilligen Austritts besonders bedrängter Mitgliedsländer, könnte die beschlossenen Reformen wirksam ergänzen. |
| Keywords: | Staatsschuldenkrise, Währungsunion, Stabilitätsfonds, Fiskalregeln |
| JEL: | E58 E61 E62 G28 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2012:01&r=mac |
| By: | Muritala, Taiwo; Taiwo, Abayomi |
| Abstract: | This study attempts to empirically examine the trends as well as effects of government spending on the growth rates of real GDP in Nigeria over the last decades (1970-2008) using econometrics model with Ordinary Least Square (OLS) technique. The paper test for presence of stationary between the variables using Durbin Watson unit root test. The result reveals absence of serial correlation and that all variables incorporated in the model were non-stationary at their levels. In an attempt to establish long-run relationship between public expenditure and economic growth, the result reveals that the variables are co integrated at 5% and 10% critical level. The findings show that there that there is a positive relationship between real GDP as against the recurrent and capital expenditure. It could therefore be recommended that government should promote efficiency in the allocation of development resources through emphasis on private sector participation and privatization\commercialization. |
| Keywords: | Current expenditure; capital expenditure; macroeconomics; economic development |
| JEL: | E62 B22 O16 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:37293&r=mac |
| By: | Askenazy, P.; Cette, G.; Maarek, P. |
| Abstract: | Through panel estimates using OECD country-industry statistics, this paper aims to clarify the determinants of rent creation and the mechanisms of rent sharing, and the role of market regulations in these processes. It uses a panel database of 4,136 observations, comprising industry-level data on 17 OECD countries over the period 1988 to 2007. This dataset merges the STAN database and regulation indicators, both compiled by the OECD. Our approach presents three original features. First, the empirical analysis is carried out in two steps. The first explains the rent creation process. For each country-industry-year observation, the size of rents, measured by the value added price relative to the GDP price, is assumed to depend solely on direct anti-competitive regulations on services and goods. The second step explains the rent sharing process. The second original feature is that three destinations of rents are distinguished for each country-industry-year observation: upstream industries, capital and labour. Finally, the cross-country-industry analysis makes it possible to estimate more complex relations than at the country data level. The main empirical findings are as follows. Regarding the rent creation step, direct anti-competitive regulations are associated with a very significant rise in rent size. Concerning the rent sharing step, the capital share in value added appears to i) increase with rent size, decrease with anti-competitive regulation in upstream sectors and increase with the industry specific output gap; ii) decrease with the national output gap, increase with the national employment rate and decrease with employment protection regulation; iii) increase with the interaction of rent size and the unemployment rate and decrease with the interaction of rent size and employment protection regulations. These results confirm the existence of three destinations for rents (labour remuneration, capital remuneration and upstream industries). They also show that the magnitude of each destination depends on the market power of its beneficiary. All these results are robust to a variety of sensitivity checks. |
| Keywords: | Rents, capital share, prices, market regulations, output gap, unemployment. |
| JEL: | E25 J20 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:369&r=mac |
| By: | Keuschnigg, Christian |
| Abstract: | Moving towards a fiscal union does not address the problems of divergence in Europe. Given cultural heterogeneity and diverse preferences, fiscal policy should remain under national sovereignty while important regulatory power is assigned to the Union. The paper argues that more credible fiscal rules combined with tighter surveillance reduce negative policy spillovers. A better capitalized banking sector imposes more market discipline with sovereign risk-premia. Institutional lending by the ESM (European Stabilization Mechanism) to distressed countries is subject to strict conditionality and will impose structural adjustment that was neglected ex ante. Further reform seems necessary to strengthen the financial capacity and institutional independence of the ESM and to impose tighter regulation and more ambitious recapitalization of European banks to contain cross-country contagion on financial markets. Such reform should prevent or at least much reduce the negative consequences of national decision making on other member countries and would in turn support the political goals of establishing peace and harmony in Europe. |
| Keywords: | Fiscal crisis, fiscal rules, common currency area |
| JEL: | E62 F15 H63 H77 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2012:05&r=mac |