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on Macroeconomics |
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Issue of 2012‒09‒16
43 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Sánchez-Fung, José R. (BOFIT) |
| Abstract: | The paper examines the relative significance of monetary aggregates and interest rates in China using the information approach to monetary policy. The analysis reveals the superiority and robustness of a narrow monetary aggregate in contributing information about future movements in inflation. |
| Keywords: | monetary policy and inflation; information approach; monetary aggregates; interest rates; China |
| JEL: | E52 |
| Date: | 2012–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2012_018&r=mac |
| By: | Isabel Correia; Emmanuel Farhi; Juan Pablo Nicolini; Pedro Teles |
| Abstract: | When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that, in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to low interest rates. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:698&r=mac |
| By: | Scott Brave; Jeffrey R. Campbell; Jonas D. M. Fisher; Alejandro Justiniano |
| Abstract: | The Chicago Fed dynamic stochastic general equilibrium (DSGE) model is used for policy analysis and forecasting at the Federal Reserve Bank of Chicago. This article describes its specification and estimation, its dynamic characteristics and how it is used to forecast the US economy. In many respects the model resembles other medium scale New Keynesian frameworks, but there are several features which distinguish it: the monetary policy rule includes forward guidance, productivity is driven by neutral and investment specific technical change, multiple price indices identify inflation and there is a financial accelerator mechanism. |
| Keywords: | Keynesian economics ; Forecasting ; Stochastic analysis |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2012-02&r=mac |
| By: | Constant Lonkeng Ngouana |
| Abstract: | A distinctive feature of market-provided services is that some of them have close substitutes at home. Households may therefore switch between consuming home and market services in response to changes in the real wage - the opportunity cost of working at home - and changes in the price of market services. In order to analyze and quantify the implications of this trade-off for monetary policy, I embed a household sector into an otherwise standard sticky price DSGE model, which I calibrate to the U.S. economy. The results of the model are twofold. At the sectoral level, household production augments the service sector's New Keynesian Phillips curve with a sizable extra component that co-moves negatively with the output gap term, lowering the incentive of service sector firms to change their prices. This mechanism endogenously amplifies the real effects of a monetary shock in that sector, unlike in the nondurable goods sector for which households cannot manufacture substitutes at home. At the aggregate level, household production also implies more sluggish prices and a stronger response of real macroeconomic variables to a monetary shock. Some empirical support for this theory is provided. |
| Keywords: | Economic models , External shocks , Monetary policy , Production , Services sector , United States , |
| Date: | 2012–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/206&r=mac |
| By: | Hideaki Hirata; M. Ayhan Kose; Christopher Otrok; Marco E. Terrones |
| Abstract: | We examine the properties of house price fluctuations across eighteen advanced economies over the past forty years. We ask two specific questions: First, how synchronized are housing cycles across these countries? Second, what are the main shocks driving movements in global house prices? To address these questions, we first estimate the global components in house prices and various macroeconomic and financial variables. We then evaluate the roles played by a variety of global shocks, including shocks to interest rates, monetary policy, productivity, credit, and uncertainty, in explaining house price fluctuations using a wide range of FAVAR models. We find that house prices are synchronized across countries, and the degree of synchronization has increased over time. Global interest rate shocks tend to have a significant negative effect on global house prices whereas global monetary policy shocks per se do not appear to have a sizeable impact. Interestingly, uncertainty shocks seem to be important in explaining fluctuations in global house prices. |
| JEL: | E32 E43 E52 G15 R31 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18362&r=mac |
| By: | Sören Radde |
| Abstract: | This paper argues that counter-cyclical liquidity hoarding by financial intermediaries may strongly amplify business cycles. It develops a dynamic stochastic general equilibrium model in which banks operate subject to financial frictions and idiosyncratic funding liquidity risk in their intermediation activity. Importantly, the amount of liquidity reserves held in the financial sector is determined endogenously: Balance sheet constraints force banks to trade off insurance against funding outflows with loan scale. The model shows that an aggregate shock to the collateral value of bank assets triggers a flight to liquidity, which amplifies the initial shock and induces credit crunch dynamics sharing key features with the Great Recession. The paper thus develops a new balance sheet channel of shock transmission that works through the composition of banks' asset portfolios rather than fluctuations in borrower net worth as in the financial accelerator literature. |
| Keywords: | real business cycles, financial frictions, liquidity hoarding, bank capital channel, credit crunch |
| JEL: | E22 E32 E44 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1242&r=mac |
| By: | Yener Altunbas (Bangor Business School); Leonardo Gambacorta (Bank for International Settlements); David Marques-Ibanez (European Central Bank) |
| Abstract: | We investigate the effect of relatively loose monetary policy on bank risk through a large panel including quarterly information from listed banks operating in the European Union and the United States. We find evidence that relatively low levels of interest rates over an extended period of time contributed to an increase in bank risk. This result holds for a wide range of measures of risk, as well as macroeconomic and institutional controls including the intensity of supervision, securitization activity and bank competition. The results also hold when changes in realized bank risk due to the crisis are accounted for. The results suggest that monetary policy is not neutral from a financial stability perspective. |
| Keywords: | bank risk, monetary policy, credit crisis. |
| JEL: | E44 E52 G21 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:bng:wpaper:12002&r=mac |
| By: | P-R. Agénor; G.J. Bratsiotis; D. Pfajfar |
| Abstract: | This paper examines the behaviour of the finance premium following technology and monetary shocks in a Dynamic Stochastic General Equilibrium (DSGE) model where borrowers use a fraction of their production (output) as collateral. We show that this simple framework is capable of producing a countercyclical finance premium, while matching the macro dynamics of well-documented stylized facts. A key feature is the endogenous derivation of the default probability from break even conditions, that results in the loan rate being set as a countercyclical finance premium over the cost of borrowing from the central bank. The latter is shown to provide an accelerator effect through which shocks can amplify the loan spread and the dynamic response of macro variables. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:172&r=mac |
| By: | Yuriy Gorodnichenko; Olivier Coibion; Gee Hee Hong |
| Abstract: | We study the cyclical properties of sales, regular price changes and average prices paid by consumers ("effective" prices) in a dataset containing prices and quantities sold for numerous retailers across a variety of U.S. metropolitan areas. Both the frequency and size of sales fall when local unemployment rates rise and yet the inflation rate for effective prices paid by consumers declines significantly with higher unemployment. This discrepancy can be reconciled by consumers reallocating their expenditures across retailers, a feature of the data which we document and quantify. We propose a simple model with household shopping effort and store-switching consistent with these stylized facts and document its implications for business cycles and policymakers. |
| Keywords: | Business cycles , Economic conditions , Economic models , Monetary policy , Prices , United States , |
| Date: | 2012–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/207&r=mac |
| By: | Itai Agur (IMF (Singapore Regional Training Institute), 10 Shenton Way, MAS Building #14-03, Singapore 079117); Maria Demertzis (De Nederlandsche Bank, PO Box 98, 1000 AB Amsterdam, The Netherlands) |
| Abstract: | Why should monetary policy "lean against the wind"? Can’t bank regulation perform its task alone? We model banks that choose both asset volatility and leverage, and identify how monetary policy transmits to bank risk. Subsequently, we introduce a regulator whose tool is a risk-based capital requirement. We derive from welfare that the regulator trades off bank risk and credit supply, and show that monetary policy affects both sides of this trade-off. Hence, regulation cannot neutralize the policy rate’s impact, and monetary policy matters for financial stability. An extension shows how the commonality of bank exposures affects monetary transmission. JEL Classification: E43, E52, E61, G01, G21, G28 |
| Keywords: | Macroprudential, leverage, supervision, monetary transmission |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121457&r=mac |
| By: | Coppola, Gianluigi; Marsilia, Natalia |
| Abstract: | This paper is simply a user manual of un APP that simulates the widely used Macroeconomic Models. |
| Keywords: | Macroeconomic Models; Income Expenditure Model; APP |
| JEL: | E0 |
| Date: | 2012–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41071&r=mac |
| By: | Yuriy Gorodnichenko; Lorenz Kueng; John Silvia; Olivier Coibion |
| Abstract: | We study the effects and historical contribution of monetary policy shocks to consumption and income inequality in the United States since 1980. Contractionary monetary policy actions systematically increase inequality in labor earnings, total income, consumption and total expenditures. Furthermore, monetary shocks can account for a significant component of the historical cyclical variation in income and consumption inequality. Using detailed micro-level data on income and consumption, we document the different channels via which monetary policy shocks affect inequality, as well as how these channels depend on the nature of the change in monetary policy. |
| Keywords: | Consumption , External shocks , Income distribution , Monetary policy , |
| Date: | 2012–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/199&r=mac |
| By: | Kim Abildgren (Danmarks Nationalbank, Havnegade 5, DK-1093 Copenhagen K, Denmark) |
| Abstract: | In Denmark official quarterly national accounts are only available for the period since 1977. The paper constructs a set of summary non-seasonally adjusted quarterly national accounts for Denmark for 1948-2010 in current and constant prices as well as a set of other key quarterly macroeconomic indicators covering the Danish economy since 1948. As a first exploratory analysis of these two new data sets the paper reviews some of the stylised empirical evidence on the business cycle, the monetary transmission mechanism and shocks to financial stability that can be uncovered using filtering techniques and reduced-form vector autoregressive (VAR) models. The long-span data sets make it possible to estimate VAR models of a higher dimension than is usually found in the literature due to degrees-of-freedom problems. The results from the VAR analysis indicate a significant and long-lasting negative impact on real GDP following an exogenous shock to the banking sector’s write-down ratio. JEL Classification: C32, C82, E01, E32, E44, E52, N14 |
| Keywords: | Quarterly national accounts, Danish economic history, business cycles, monetary transmission, financial stability, band-pass filters, VAR analysis |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121458&r=mac |
| By: | Ceri Davies; Max Gillman; Michal Kejak |
| Abstract: | The paper presents a human-capital-based endogenous growth, cash-in-advance economy with endogenous velocity where exchange credit is produced in a decentralized banking sector, and money is supplied stochastically by the central bank. From this it derives an exact functional form for a general equilibrium `Taylor rule'. The inflation coefficient is always greater than one when the velocity of money exceeds one; velocity growth enters the equilibrium condition as a separate variable. The paper then successfully estimates the magnitude of the coefficient on inflation from 1000 samples of Monte Carlo simulated data. This shows that it would be spurious to conclude that the central bank has a reaction function with a strong response to inflation in a `Taylor principle' sense, since it is only meeting fiscal needs through the inflation tax. The paper also estimates several deliberately misspecified models to show how an inflation coefficient of less than one can result from model misspecification. An inflation coefficient greater than one holds theoretically along the balanced growth path equilibrium, making it a sharply robust principle based on the economy's underlying structural parameters. |
| Date: | 2012–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:ceu:econwp:2012_13&r=mac |
| By: | Hui Chen; Yu Xu; Jun Yang |
| Abstract: | We build a dynamic capital structure model to study the link between firms' systematic risk exposures and their time-varying debt maturity choices, as well as its implications for the term structure of credit spreads. Compared to short-term debt, long-term debt helps reduce rollover risks, but its illiquidity raises the costs of financing. With both default risk and liquidity costs changing over the business cycle, our calibrated model implies that debt maturity is pro-cyclical, firms with high systematic risk favor longer debt maturity, and that these firms will have more stable maturity structures over the cycle. Moreover, pro-cyclical maturity variation can significantly amplify the impact of aggregate shocks on the term structure of credit spreads, especially for firms with high beta, high leverage, or a lumpy maturity structure. We provide empirical evidence for the model predictions on both debt maturity and credit spreads. |
| JEL: | E32 G32 G33 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18367&r=mac |
| By: | François Gourio (Boston University, Department of Economics, 270 Bay State Road, Boston MA 02215, USA and NBER) |
| Abstract: | A large empirical literature suggests that risk premia on stocks or corporate bonds are large and countercyclical. This paper studies a simple real business cycle model with a small, exogenously time-varying risk of disaster, and shows that it can replicate several important facts documented in the literature. In the model, an increase in disaster risk leads to a decline of output, investment, stock prices, and interest rates, and an increase in the expected return on risky assets. The model matches well business cycle data and asset price data, and the countercyclicality of risk premia. I present an extension of the model with endogenous choice of leverage and endogenous default, and show that the model accounts well for the level and cyclicality of credit spreads, and in particular the relation between investment and credit spreads. JEL Classification: E32, E44, G12 |
| Keywords: | Business cycles, investment, credit spreads, risk premia, rare events |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121463&r=mac |
| By: | Luca Gattini (European Investment Bank, 98-100, Boulevard Konrad Adenauer, Luxembourg L-2950); Huw Pill (Goldman Sachs, Research Department); Ludger Schuknecht (German Ministry of Finance, Wilhelmstraße 97, 10117 Berlin, Germany and European Central Bank) |
| Abstract: | This paper revisits the evidence on the monetary policy transmission channels. It extends the existing literature along three lines: i) it takes a global perspective with aggregate series based on a broader set of countries (ca 70% per cent of the global economy) and a longer time (1960-2010) than previous studies. It, thereby, internalises potential international transmission channels (i.e. via global commodity prices); ii) it examines the interaction between monetary variables, asset prices (notably residential property) and inflation; and iii) it looks at the role of public debt for consumer price developments. On the basis of a VAR analysis, the study finds that i) global money demand shocks affect global inflation and also global commodity prices, which in turn impact on inflation; ii) global asset/property price dynamics appear to respond to financing cost shocks, but not to shocks to global money demand. Moreover, positive house price shocks exert a significant influence on inflation. From a global perspective, the study suggests recognition of global externalities of commodities and asset values as well as the close monitoring of real estate price developments. JEL Classification: E31, E51, E62, C32, F42 |
| Keywords: | VAR, global inflation, global house prices, global money |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121462&r=mac |
| By: | Sosa-Padilla, Cesar |
| Abstract: | Episodes of sovereign default feature three key empirical regularities in connection with the banking systems of the countries where they occur: (i) sovereign defaults and banking crises tend to happen together, (ii) commercial banks have substantial holdings of government debt, and (iii) sovereign defaults result in major contractions in bank credit and production. This paper provides a rationale for these phenomena by extending the traditional sovereign default framework to incorporate bankers that lend to both the government and the corporate sector. When these bankers are highly exposed to government debt a default triggers a banking crisis which leads to a corporate credit collapse and subsequently to an output decline. When calibrated to Argentina's 2001 default episode the model produces default on equilibrium with a frequency in line with actual default frequencies, and when it happens credit experiences a sharp contraction which generates an output drop similar in magnitude to the one observed in the data. Moreover, the model also matches several moments of the cyclical dynamics of macroeconomic aggregates. |
| Keywords: | Sovereign Default; Banking Crisis; Credit Crunch; Optimal Fiscal Policy; Markov Perfect Equilibrium; Endogenous Cost of Default; Domestic Debt |
| JEL: | E62 F34 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41074&r=mac |
| By: | Loukas Karabarbounis |
| Abstract: | This paper explores implications of non-separable preferences with home production for international business cycles. Home production induces substitution effects that break the link between market consumption and its marginal utility and help explain several stylized facts of the open economy. In an estimated two-country model with complete asset markets in which home production generates a labor wedge that mimics its empirical counterpart, output is more correlated than consumption across countries, labor inputs and labor wedges are positively correlated across countries, and relative market consumption is negatively related to the real exchange rate. International time use surveys corroborate predictions of the model, showing a significant relationship between time spent on home production, labor wedges, and real exchange rates, both at business cycle frequencies and in the cross section of countries. By contrast, non-separabilities based on leisure do not help explain variations in labor wedges or real exchange rates. |
| JEL: | E32 F41 F44 J22 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18366&r=mac |
| By: | Olszewski, Krzysztof |
| Abstract: | This article reviews the impact of commercial real estate (CRE hereafter) on macro-financial stability and gives some ideas, how central banks could deal with the risk. First, we present the main features of the CRE market, explain its cycle and outline risks related to this market. Its relation to the financial sector is discussed. Further on, basing on the experience of some countries with CRE crises, we critically assess the reactions of their central banks. The characteristics of the CRE market are presented on the case of Poland, because it is a fast growing market. Its analysis should simplify the understanding why the CRE market should be tracked by the central bank. Finally, we present some ideas for the data collection and analysis of the CRE market. Further on, we provide some hints for the macroeconomic and financial stability policy of central banks, which should help to reduce risk and at the same time enhance the growth of the CRE market. |
| Keywords: | Commercial Real Estate; macro-financial stability policy; banking sector; central banks; |
| JEL: | E30 E58 G28 E44 |
| Date: | 2012–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41059&r=mac |
| By: | Ye, Xiaoxia |
| Abstract: | Based on the classic Gaussian dynamic term structure model A_0(3), I rotate the model to a special representation, the so called 'Companion Form Realization', in which the state variables comprises the short rate and its related expectations. This unique feature makes the representation very useful in analyzing the response of the yield curve to the shocks in the short rate and its related expectations, and monitoring market expectations. Using the estimated model, I quantify a variety of yield responses to the changes in these important state variables; and also give an 'unsurprising' pattern in which changes in state variables have little impact on the long end of the yield curve. Two case studies of recent unconventional monetary policies are also included. |
| Keywords: | term structure of interest rates; market expectations; short rate; LSAP; MEP |
| JEL: | E43 |
| Date: | 2012–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41093&r=mac |
| By: | Chakraborty, Suparna; Otsu, Keisuke |
| Abstract: | What are the economic mechanisms that account for sudden growth spurts? Are these mechanisms similar across episodes? Focusing on the economic resurgence of the BRICs over the last decade, we employ the Business Cycle Ac- counting methodology developed by Chari, Kehoe and McGrattan (2007) to address these questions. Our results highlight that while efficiency wedges do contribute in a large part to growth, especially in Brazil and Russia, there is an increasing importance of investment wedge especially in the late 2000s, noted in China and India. The results are typically related to the stages of development with Brazil and Russia coming off a crisis to grow in the 2000s, while India and China were already on a stable growth path. Our conclusions are robust to alternative methodological extensions where we allow shocks to the trend component of efficiency as opposed to traditional shocks to the cyclical component, as well as to standard modifications where we allow for investment adjustment costs. Relating improvements in wedges to institutional and financial reforms, we find that financial development and improvements in effective governance in BRICs are consistent with improvements in investment and efficiency wedges that led to growth |
| Keywords: | business cycle accounting; efficiency; market frictions; trend shocks; investment adjustment costs |
| JEL: | E32 O57 O4 |
| Date: | 2012–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41076&r=mac |
| By: | Radu Vranceanu (Economics Department - ESSEC Business School); Damien Besancenot (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris XIII - Paris Nord - CNRS : UMR7234) |
| Abstract: | This paper argues that in Euro-area economies, where the ECB cannot bail-out nancially distressed governments, the scal multiplier is adversely affected by the amount of public debt. A regression model on a panel of 26 EU countries over the last 16 years shows that a 10 percentage point increase in the debt- to-GDP ratio is connected to a slowdown in annual growth rates of 0.28 percentage point. Furthermore, the effectiveness of scal spending is adversely affected by the amount of public debt. |
| Keywords: | Fiscal multiplier; Euro-area; Public debt; Illiquidity; the Great Recession |
| Date: | 2012–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-00728230&r=mac |
| By: | Robert Shelburne (United Nations Economic Commission for Europe) |
| Abstract: | The eurozone is in political and economic crisis. This is due to the inadequate design of the institutional structure of the eurozone and to the current poor implementation of macroeconomic policy. In designing the eurozone, well established principles of economics were ignored and major decisions were based primarily upon political considerations. Thus it was only a matter of time before these defects would become apparent. In addressing the current crisis that has developed policy makers have misdiagnosed the causes of the crisis and implemented solutions that are largely counterproductive to solving it. This paper describes the underlying factors that led to the inadequate design and improper macroeconomic response and explains what will be necessary in order to create an institutional structure and macroeconomic policy framework that can restore economic stability and growth to the region. |
| Keywords: | eurozone crisis, financial stability, European macroeconomics, fiscal policy, European monetary system |
| JEL: | E60 E61 E62 E63 E65 E66 E58 F55 H60 H87 N14 N94 O52 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ece:dispap:2012_3&r=mac |
| By: | Assaf Razin; Steven Rosefielde |
| Abstract: | The global financial crisis which erupted in the United States instantaneously swept across Europe. Like the United States, the European Monetary Union (EMU) was ripe for a crash. It had its own real estate bubble, specifically in Ireland and Spain, indulged in excessive deficit spending, financially deregulated, and rapidly expanded credit Policy responses and recovery patterns for key EU members like Germany and France, within the Eurozone, were similar. However, after the bubble burst and the crisis began unfolding it became clear that the Eurozone plight differed from America's in one fundamental respect. There was no exact counterpart of Eurozone GIIPS (Greece, Italy, Ireland, Portugal, and Spain) in the United States. Some American states had over-borrowed, but the sovereign debt crisis didn't place individual states at deflationary risk, or threaten the viability of the federal union. Not so for some members within the Eurozone. Politicians on both sides of the Atlantic can be uncooperative, but inter-state disputes are more easily finessed under the American federal system than the Eurozone politically weakly integrated system. The disparity is traced to the EU's and Eurozone's special form of governance called "supra-nationality" (a partially sovereign transnational organization) that has been largely ignored in economic treatises about the costs and benefits of monetary unions. The EZ members have put themselves in a monetary cage, akin to the gold standard, in which member states have surrendered control over their monetary and foreign exchange rate policies to the German dominated European Central Bank (ECB), without supplementary central fiscal, private banking and political union institutions. |
| JEL: | E00 F10 N0 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18352&r=mac |
| By: | Ravi Bansal; Ivan Shaliastovich |
| Abstract: | We show that bond risk-premia rise with uncertainty about expected inflation and fall with uncertainty about expected growth; the magnitude of return predictability using these two uncertainty measures is similar to that by multiple yields. Motivated by this evidence, we develop and estimate a long-run risks model with time-varying volatilities of expected growth and inflation. The model simultaneously accounts for bond return predictability and violations of uncovered interest parity in currency markets. We find that preference for early resolution of uncertainty, time-varying volatilities, and non-neutral effects of inflation on growth are important to account for these aspects of asset markets. |
| JEL: | E0 F0 F3 F31 G0 G1 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18357&r=mac |
| By: | Oliver Hutengs; Georg Stadtmann |
| Abstract: | We estimate Okun coefficients for five different age cohorts for several Eurozone countries. We find a stable pattern for all countries: The relationship between business-cycle fluctuations and the unemployment rate is the strongest for the youngest cohort and gets smaller for the elderly cohorts. |
| Keywords: | Okun's law, labor market, youth unemployment |
| JEL: | E24 F50 C23 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1243&r=mac |
| By: | Michael T. Kiley |
| Abstract: | I develop empirical models of the U.S. economy that distinguish between the aggregate demand effects of short- and long-term interest rates-one with clear "microfoundations" and one more loosely motivated. These models are estimated using government and private long-term bond yields. Estimation results suggest short- and long-term interest rates both influence aggregate spending. The results indicate that the short-term interest rate has a larger influence on economic activity, through its impact on the entire term structure, than term and risk premiums (for equal-sized movements in long-term interest rates). Potential policy implications are discussed. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2012-54&r=mac |
| By: | Giulio Nicoletti (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany and Bank of Italy); Raffaele Passaro (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany) |
| Abstract: | We investigate the predictive content of credit and government interest spreads with respect to the Italian GDP growth. Our analysis with Dynamic Model Averaging identifies when interest spreads were more useful predictors of economic activity: these periods are not limited to the Great Recession. For credit spreads we gather information from both bank loans and corporate bonds and we compare their predictive role over time and over different forecasting horizons. JEL Classification: C52, E37 |
| Keywords: | GDP forecasting, Bayesian Econometrics, Model Averaging |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121447&r=mac |
| By: | Masahiro Kawai (Asian Development Bank Institute (ADBI)); Peter J. Morgan |
| Abstract: | A key lesson of the 2007–2009 global financial crisis (GFC) was the importance of containing systemic financial risk and the need for a “macroprudential†approach to surveillance and regulation that can identify system-wide risks and take appropriate actions to maintain financial stability. By virtue of their overview of the economy and the financial system and their responsibility for payments and settlement systems, there is a broad consensus that central banks should play a key role in monitoring and regulating financial stability. Emerging economies face additional challenges because of their underdeveloped financial systems and vulnerability to volatile international capital flows, especially “sudden stops†or reversals of capital inflows. This paper reviews the recent literature on this topic and identifies relevant lessons for central banks, especially those in Asia’s emerging economies. Major topics discussed include the debate about the definition of financial stability, the consistency of a financial stability objective with the more traditional and well-established central bank objective of price stability, the appropriate governance structure for coordination of macroprudential policy with other financial supervisors and entities, and the appropriate policy instruments to achieve macroprudential policy objectives, including conventional, unconventional, and macroprudential tools. Finally, the paper considers issues involved with regional financial regulatory cooperation. Overall, the report concludes that the “lean versus clean†debate has been resolved largely in favor of the former, and that central banks should have a financial stability mandate and the policy tools to successfully pursue that mandate. |
| Keywords: | Asia, Central Banking, Financial Stability, GFC lessons, systemic financial risk, emerging economies, macroprudential, financial system, financial regulatory cooperation, central banks |
| JEL: | E52 F31 G28 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23328&r=mac |
| By: | Masahiro Kawai (Asian Development Bank Institute (ADBI)); Peter J. Morgan |
| Abstract: | A key lesson of the 2007–2009 global financial crisis (GFC) was the importance of containing systemic financial risk and the need for a “macroprudential†approach to surveillance and regulation that can identify system-wide risks and take appropriate actions to maintain financial stability. By virtue of their overview of the economy and the financial system and their responsibility for payments and settlement systems, there is a broad consensus that central banks should play a key role in monitoring and regulating financial stability. Emerging economies face additional challenges because of their underdeveloped financial systems and vulnerability to volatile international capital flows, especially “sudden stops†or reversals of capital inflows. This paper reviews the recent literature on this topic and identifies relevant lessons for central banks, especially those in Asia’s emerging economies. Major topics discussed include the debate about the definition of financial stability, the consistency of a financial stability objective with the more traditional and well-established central bank objective of price stability, the appropriate governance structure for coordination of macroprudential policy with other financial supervisors and entities, and the appropriate policy instruments to achieve macroprudential policy objectives, including conventional, unconventional, and macroprudential tools. Finally, the paper considers issues involved with regional financial regulatory cooperation. Overall, the report concludes that the “lean versus clean†debate has been resolved largely in favor of the former, and that central banks should have a financial stability mandate and the policy tools to successfully pursue that mandate. |
| Keywords: | Asia, Central Banking, Financial Stability, GFC lessons, systemic financial risk, emerging economies, macroprudential, financial system, financial regulatory cooperation, central banks |
| JEL: | E52 F31 G28 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:eab:govern:23328&r=mac |
| By: | Masahiro Kawai (Asian Development Bank Institute (ADBI)); Peter J. Morgan |
| Abstract: | A key lesson of the 2007–2009 global financial crisis (GFC) was the importance of containing systemic financial risk and the need for a “macroprudential†approach to surveillance and regulation that can identify system-wide risks and take appropriate actions to maintain financial stability. By virtue of their overview of the economy and the financial system and their responsibility for payments and settlement systems, there is a broad consensus that central banks should play a key role in monitoring and regulating financial stability. Emerging economies face additional challenges because of their underdeveloped financial systems and vulnerability to volatile international capital flows, especially “sudden stops†or reversals of capital inflows. This paper reviews the recent literature on this topic and identifies relevant lessons for central banks, especially those in Asia’s emerging economies. Major topics discussed include the debate about the definition of financial stability, the consistency of a financial stability objective with the more traditional and well-established central bank objective of price stability, the appropriate governance structure for coordination of macroprudential policy with other financial supervisors and entities, and the appropriate policy instruments to achieve macroprudential policy objectives, including conventional, unconventional, and macroprudential tools. Finally, the paper considers issues involved with regional financial regulatory cooperation. Overall, the report concludes that the “lean versus clean†debate has been resolved largely in favor of the former, and that central banks should have a financial stability mandate and the policy tools to successfully pursue that mandate. |
| Keywords: | Asia, Central Banking, Financial Stability, GFC lessons, systemic financial risk, emerging economies, macroprudential, financial system, financial regulatory cooperation, central banks |
| JEL: | E52 F31 G28 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:23328&r=mac |
| By: | Luca Guerrieri; Michelle Welch |
| Abstract: | When stress tests for the banking sector use a macroeconomic scenario, an unstated premise is that macro variables should be useful factors in forecasting the performance of banks. We assess whether variables such as the ones included in stress tests for U.S. bank holding companies help improve out of sample forecasts of chargeoffs on loans, revenues, and capital measures, relative to forecasting models that exclude a role for macro factors. Using only public data on bank performance, we find the macro variables helpful, but not for all measures. Moreover, even our best-performing models imply bands of uncertainty around the forecasts so large as to make it challenging to distinguish the implications of alternative macro scenarios. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2012-49&r=mac |
| By: | Antonello D’Agostino (European Financial Stability Facility (EFSF), 43 avenue John F. Kennedy, L-1855 Luxembourg and the Central Bank and Financial Services Authority of Ireland); Bernd Schnatz (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany) |
| Abstract: | Reliable and timely information about current economic conditions is crucial for policy makers and expectations formation. This paper demonstrates the efficacy of the Survey of Professional Forecasters (SPF) and the Purchasing Manager Indices (PMI) in anticipating US real economic activity. We conduct a fully-fledged real-time out-ofsample forecasting exercise linking these surveys to US GDP and industrial production growth over a long sample period. We find that both indicators convey valuable information for assessing current economic conditions. The SPF clearly outperforms the PMI in forecasting GDP growth, while it performs quite poorly in anticipating industrial production growth. Combining the information included in both surveys further improves the accuracy of both, the PMI and the SPF-based forecast. JEL Classification: E37, E47, C22, C53 |
| Keywords: | US, business cycle, PMI, forecasting, real time data |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121455&r=mac |
| By: | Furukawa, Yuichi |
| Abstract: | Technological leadership has shifted at various times from one country to another. This analysis proposes a mechanism that endogenously explains this perpetual cycle of technological leapfrogging by incorporating international knowledge spillovers into a two-country dynamic model of innovation with the dynamic optimization of an infinitely-lived consumer. In the model, innovation productivity in each country endogenously increases over time because of domestic learning-by-doing and learning from foreign capital. The analysis shows that if international spillovers through learning from foreign capital are sufficiently large, technological leadership may first shift from one country to another, and then perpetually alternate between the two countries. |
| Keywords: | Perpetual leapfrogging; innovation; spillovers |
| JEL: | E32 O41 F12 F43 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40126&r=mac |
| By: | Michael J. Fishman; Jonathan A. Parker |
| Abstract: | Valuation has an externality: it creates information on which adverse selection can occur. We study a market in which investors (or lenders) buy uncertain future cash flows that are ex ante identical but ex post heterogeneous across assets from sellers (or borrowers) with reservation values. There exists a limited amount of a costly technology that can be purchased before the market opens that allows an investor to value an asset — to get a private signal of the future payoff of that asset. Because sellers of assets that are valued and are rejected can sell to other investors, there are strategic complementarities in the choice of the capacity to do valuation, the private benefits to valuation exceed its social benefits, the market can exhibit multiple equilibria, and the market can deliver a unique valuation equilibrium when it is more efficient to transact without valuation. In the region of multiplicity, the move from a pooling equilibrium to a valuation equilibrium is always socially inefficient and has many features of a financial crisis: interest rate spreads rise, trade declines, unsophisticated investors leave the market, and sophisticated investors make profits. The efficient equilibrium in the region of multiplicity can be ensured by a large investor with the ability to commit to a price. We characterize several policies that can improve on market outcomes. |
| JEL: | E44 G01 G2 G28 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18358&r=mac |
| By: | Geoff Kenny (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany); Thomas Kostka (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt, Germany); Federico Masera (Universidad Carlos III de Madrid, Economics Department, C/ Madrid 126, 28903 Getafe (Madrid), España) |
| Abstract: | In this paper, we propose a framework to evaluate the subjective density forecasts of macroeconomists using micro data from the euro area Survey of Professional Forecasters (SPF). A key aspect of our analysis is the evaluation of the entire predictive densities, including an evaluation of the impact of density features such as location, spread, skew and tail risk on density forecast performance. Overall, we find considerable heterogeneity in the performance of the surveyed densities at the individual level. Relative to a set of simple benchmarks, this performance is somewhat better for GDP growth than for inflation, although in the former case it diminishes substantially with the forecast horizon. In addition, we report evidence of some improvement in the relative performance of expert densities during the recent period of macroeconomic volatility. However, our analysis also reveals clear evidence of overconfidence or neglected risks in expert probability assessments, as reflected in frequent occurrences of events which are assigned a zero probability. Moreover, higher moment features of expert densities, such as skew or the degree of probability mass in their tails, are shown not to contribute significantly to improvements in individual density forecast performance. JEL Classification: C22, C53. |
| Keywords: | Forecast evaluation, neglected risks, real-time data, Survey of Professional Forecasters. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121446&r=mac |
| By: | Russo, Alberto |
| Abstract: | We briefly describe the recent evolution of the crisis and, by reviewing some of its explanations based on different theories, we proceed towards our own interpretation. The deregulation wave of the last decades has created new profit opportunities in various contexts – from labour flexibility to privatisation, from financialisation to globalisation – so promoting a renewed process of capitalist accumulation after the stagflation of the 1970s. This has taken place at the cost of a wide-ranging increase of inequality and instability, thus implying a crescendo of crises until the last one (and maybe beyond). |
| Keywords: | deregulation; capitalist accumulation; inequality; instability; crisis |
| JEL: | E66 P17 G01 |
| Date: | 2012–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:41088&r=mac |
| By: | Götz Thomas B.; Hecq Alain; Urbain Jean-Pierre (METEOR) |
| Abstract: | We combine the issues of dealing with variables sampled at mixed frequencies and the use ofreal-time data. In particular, the repeated observations forecasting (ROF) analysis of Stark andCroushore (2002) is extended to an autoregressive distributed lag setting in which the regressorsmay be sampled at higher frequencies than the regressand. For the US GDP quarterly growth rate, wecompare the forecasting performances of an AR model with several mixed-frequency models amongwhich the MIDAS approach. The additional dimension provided by different vintages allows us tocompute several forecasts for a given calendar date and use them to construct forecast densities.Scoring rules are employed to test for their equality and to construct combinations of them. Giventhe change of the implied weights over time, we propose time-varying ROF-based weights usingvintage data which present an alternative to traditional weighting schemes. |
| Keywords: | macroeconomics ; |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2012021&r=mac |
| By: | Masahiro Kawai (Asian Development Bank Institute (ADBI)); Peter J. Morgan |
| Abstract: | The Great East Japan Earthquake on 11 March 2011 was the biggest earthquake recorded in Japanese seismic history, and the fourth largest recorded in the world. The scope of the disaster far exceeded that of the Hanshin Earthquake of 1995. The repercussions of this disaster spread far beyond the geographical areas directly affected. For example, Electric power supply capacity in the Kanto area, which accounts for about 40% of Japanese gross domestic product (GDP), fell at one stage by about 40% from the normal peak—a severe constraint on economic activity, and the supply of nuclear-generated electric power has largely been cut off since then. Production supply chains were significantly disrupted, not only in Japan, but all over Asia. The disaster also highlighted Japan’s many other structural challenges besides reconstruction needs, including persistently low growth, population aging and low fertility, burgeoning government debt, declining international competitiveness, and uncertain energy supplies. Moreover, the global financial crisis and the ongoing euro area financial crisis suggest that Japan needs to create its own growth momentum without relying excessively on markets in the United States (US) and Europe. This paper discusses the scope of these challenges and sets out a long-term strategy for overcoming them and putting the Japanese economy on a stable growth path. Domestically, key areas that need to be focused on are supply-side reforms, including support for R&D in high-technology, knowledge-intensive, green growth areas; deregulation to promote growth in service sectors and agriculture; corporate tax reduction; and increased energy security; as well as fiscal and social security reforms to put the public debt to GDP ratio on a sustainable basis. Externally, Japan needs to link its economy firmly with the strong growth track of emerging Asia and its rapidly growing middle class. It needs to promote greater economic links with the rest of Asia, including moves toward an East Asian FTA and support for the TPP that could eventually develop into a trans-Pacific FTAAP. |
| Keywords: | Japan, growth strategy, The Great East Japan Earthquake, the Japanese economy |
| JEL: | E58 E62 F13 H2 H53 J13 L4 O25 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:eab:macroe:23327&r=mac |
| By: | Pereira, Luiz C. Bresser (Luiz Carlos Bresser) |
| Abstract: | The history of independent Brazil may be divided into three major state–society cycles, and, after 1930, five political pacts or class coalitions can be identified. These pacts were nationalist; only in the 1990s did the Brazilian elites surrender to the neoliberal hegemony. Yet, since the mid-2000s they have been rediscovering the idea of the nation. The main claim of the essay is that Brazilian elites and Brazilian society are “national–dependent”, that is, they are ambivalent and contradictory, requiring an oxymoron to define them. They are dependent because they often see themselves as “European” and the mass of the people as inferior. But Brazil is big enough, and there are enough common interests around its domestic market, to make the Brazilian nation less ambivalent. Today Brazil is seeking a synthesis between the last two political cycles – between social justice and economic development in the framework of democracy. |
| Date: | 2012–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:317&r=mac |
| By: | Andrew Coleman (Motu Economic and Public Policy Research and the New Zealand Treasury) |
| Abstract: | This paper analyses how much different cohorts can expect to contribute into the PAYGO-funded New Zealand Superannuation scheme, and contrasts it with the amount each cohort can be expected to obtain in benefits if the current scheme is continued. The analysis is based on historic census and contributions data and SNZ projections of future population trends. The results show that cohorts born prior to 1980 can expect to pay half as much as they can expect to get in retirement benefits, because of the small number of pension recipients when they made the bulk of their payments. |
| Keywords: | retirement incomes, intergenerational transfers, government pension schemes |
| JEL: | E24 H55 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:12_11&r=mac |
| By: | Barnett, Richard C.; Bhattacharya, Joydeep; Puhakka, Mikko |
| Abstract: | We compare two institutions head on, a family compact – a parent makes a transfer to her parent in anticipation of a possible future gift from her children – with a pay-as-you-go, social security system in a lifecycle model with endogenous fertility wherein children are valued both as consumption and investment goods. Our focus is strictly on the pension dimension of these competing institutions. We show that an optimally-chosen family compact and a social security system cannot co-exist; indeed, the former may be preferred. A strong-enough negative shock to middle-age incomes destroys family compacts. While such a setting might appear ideal for the introduction of a social security system – as the experience of Europe, circa 1880s, would suggest – this turns out not to be the case: if incomes are too depressed to allow family compacts to flourish, they are also too low to permit introduction of an optimal social security system. |
| Keywords: | Fertility; social security; pensions; family compacts; intergenerational cooperation; self-enforcing constitutions |
| JEL: | E21 E32 |
| Date: | 2012–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:35442&r=mac |