|
on Macroeconomics |
|
Issue of 2012‒12‒22
thirty-one papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Faraglia, Elisa; Marcet, Albert; Oikonomou, Rigas; Scott, Andrew |
| Abstract: | In the context of a sticky price DSGE model subject to government expenditure and preference shocks where governments issue only nominal non-contingent bonds we examine the implications for optimal inflation of changes in the level and average maturity of government debt. We analyse these relationships under two different institutional settings. In one case government pursues optimal monetary and fiscal policy in a coordinated way whereas in the alternative we assume an independent monetary authority that sets interest rates according to a Taylor rule and where the fiscal authority treats bond prices as a given. We identify the main mechanisms through which inflation is affected by debt and debt maturity (a real balance effect and an implicit profit tax) and also study additional channels through which the government achieves fiscal sustainability (tax smoothing, interest rate twisting and endogenous fluctuations in bond prices). In the case of optimal coordinated monetary and fiscal policy we find that the persistence and volatility of inflation depends on the sign, size and maturity structure of government debt. High levels of government debt do lead to higher inflation and longer maturity debt leads to more persistent inflation. However even in the presence of modest price stickiness the role of inflation is minor with the majority of fiscal adjustment achieved through changes in taxes and the primary surplus. However in the case of an independent monetary authority where debt management, monetary policy and fiscal policy are not coordinated then inflation has a much more substantial and more persistent role to play. Inflation is higher, more volatile and more persistent especially in response to preference shocks and plays a major role in achieving fiscal solvency. |
| Keywords: | fiscal insurance; fiscal sustainability; government debt; inflation; interest rates; maturity |
| JEL: | E52 E62 H21 H63 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9257&r=mac |
| By: | Schmitt-Grohé, Stephanie; Uribe, Martín |
| Abstract: | The great contraction of 2008 pushed the U.S. economy into a protracted liquidity trap (i.e., a long period with zero nominal interest rates and inflationary expectations below target). In addition, the recovery was jobless (i.e., output growth recovered but unemployment lingered). This paper presents a model that captures these three facts. The key elements of the model are downward nominal wage rigidity, a Taylor-type interest-rate feedback rule, the zero bound on nominal rates, and a confidence shock. Lack-of-confidence shocks play a central role in generating jobless recoveries, for fundamental shocks, such as disturbances to the natural rate, are shown to generate recessions featuring recoveries with job growth. The paper considers a monetary policy that can lift the economy out of the slump. Specifically, it shows that raising the nominal interest rate to its intended target for an extended period of time, rather than exacerbating the recession as conventional wisdom would have it, can boost inflationary expectations and thereby foster employment. |
| Keywords: | Confidence shock; Jobless Recoveries; Liquidity Traps; Taylor Rule; Wage rigidity |
| JEL: | E32 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9237&r=mac |
| By: | Enders, Zeno; Jung, Philip; Müller, Gernot |
| Abstract: | In contrast to the notion that the exchange-rate regime is non-neutral, there is little evidence that EMU has systematically changed the European business cycle. In fact, we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro. Exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross-country correlations. To account for this finding, we develop a two-country business cycle model which is able to replicate key features of European data. In particular, the model correctly predicts a limited effect of EMU on standard business cycles statistics. However, further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism. Cross-country spillovers have become relatively more, domestic shocks relatively less important in accounting for economic fluctuations under EMU. This explains why there is little change in unconditional volatilities. |
| Keywords: | cross-country spillovers; EMU; euro; European business cycles; exchange rate regime; monetary policy; optimum currency area |
| JEL: | E32 F41 F42 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9233&r=mac |
| By: | Christopher Hanes; Paul W. Rhode |
| Abstract: | Most American financial crises of the postbellum gold-standard era were caused by fluctuations in the cotton harvest due to exogenous factors such as weather. The transmission channel ran through export revenues and financial markets under the pre-1914 monetary regime. A poor cotton harvest depressed export revenues and reduced international demand for American assets, which depressed American stock prices, drained deposits from money-center banks and precipitated a business-cycle downturn - conditions that bred financial crises. The crises caused by cotton harvests could have been prevented by an American central bank, even under gold-standard constraints. |
| JEL: | E32 E4 N11 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18616&r=mac |
| By: | Ekin Ayse Ozsuca (Department of Economics, METU); Elif Akbostanci (Department of Economics, METU) |
| Abstract: | The mechanism by which monetary policy affects financial institutions’ risk perception and/or tolerance has been called the ‘risk-taking channel’ of monetary policy. It has been recently argued that periods of low interest rates due to expansionary monetary policy, might induce an increase in bank risk-appetite and risk-taking behavior. This paper investigates the bank specific characteristics of risk-taking behavior of the Turkish banking sector as well as the existence of risk taking channel of monetary policy in Turkey. Using bank level quarterly data over the period 2002-2012 a dynamic panel model is estimated. Our sample accounts for 53 banks that have been active in Turkey during the period. To deal with the potential endogeneity between risk and bank specific characteristics, which are explanatory variables in our model, the GMM estimator proposed by Arellano and Bover (1995) and Blundell and Bond (1998) is used. Four alternative risk measures are used in the analysis; three accounting-based risk indicators and a market-based indicator- Expected Default Frequency. We find evidence that low levels of interest rates have a positive impact on banks’ risk-taking behavior for all the risk measures. Specifically, low short term interest rates reduce the risk of outstanding loans; however short term interest rates below a theoretical benchmark increase risk-taking of banks. This result holds for macroeconomic controls as well. Furthermore, in terms of bank specific characteristics, our analysis suggests that large, liquid and well-capitalized banks are less prone to risk-taking. |
| Keywords: | Monetary policy, Transmission mechanisms, Risk-taking channel, Turkey, Panel Data |
| JEL: | E44 E52 G21 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:1208&r=mac |
| By: | Virginia Maestri; Andrea Roventini |
| Abstract: | In this work, we study the short- and long-run properties of different inequality series vis-\`{a}-vis the most important macroeconomic series for a set of OECD countries. We employ standard tools of time series macro-econometrics (e.g. stationarity tests, detrending, comovements analysis, Granger-causality tests, etc.) in order to possible uncover some fresh stylized facts about inequality. The broad picture emerging from our empirical analysis is one where some common patterns coexist together with several country specificities. More specifically, most of inequality series are not stationary; long-run equilibrium relationships between share prices and inequality emerge in Canada, the U.S., and the U.K.; at the business cycle frequencies, most inequality series are counter-cyclical (with the exception of Germany), negatively correlated with inflation and positively correlated with unemployment; consumption inequality is counter-cyclical in Europe, whereas pro-cyclical in English-speaking countries; the comovements between inequality series and government consumption appear to be heavily dependent on the institutions of the countries under analysis; Granger-causality tests suggest that in some cases inequality Granger-causes output. |
| Keywords: | inequality, business cycles, detrending, cross-correlations, non-stationarity, cointegration, Granger causality tests |
| Date: | 2012–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2012/21&r=mac |
| By: | Oren Levintal (Bar-Ilan University) |
| Abstract: | This paper explains the emergence of liquidity traps in the aftermath of large-scale financial crises, as happened in the US 1930s, Japan 1990s and recently in the US and Europe. The paper introduces a new balance sheet channel that links equity capital to the risk-free interest rate. When equity capital falls, bankruptcy risks rise. Firms become more vulnerable to external shocks, which makes financial disasters more likely to happen. Consequently, demand for safe assets increases, and the interest rate falls to the lower bound. Simulations show that the interest rate may stay at the lower bound for a long time. |
| Keywords: | liquidity trap, financial crisis, rare disasters, equity capital, leverage, bankruptcy risk. |
| JEL: | E32 E43 E44 E52 G12 G32 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2012-07&r=mac |
| By: | Claudio Borio |
| Abstract: | It is high time we rediscovered the role of the financial cycle in macroeconomics. In the environment that has prevailed for at least three decades now, it is not possible to understand business fluctuations and the corresponding analytical and policy challenges without understanding the financial cycle. This calls for a rethink of modelling strategies and for significant adjustments to macroeconomic policies. This essay highlights the stylised empirical features of the financial cycle, conjectures as to what it may take to model it satisfactorily, and considers its policy implications. In the discussion of policy, the essay pays special attention to the bust phase, which is less well explored and raises much more controversial issues. |
| Keywords: | financial cycle, business cycle, medium term, financial crises, monetary economy, balance sheet recessions, balance sheet repair |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:395&r=mac |
| By: | Alberto Botta |
| Abstract: | In this paper, we analyze the role of the current institutional setup of the eurozone in fostering the ongoing peripheral euro countries' sovereign debt crisis. In line with Modern Money Theory, we stress that the lack of a federal European government running anticyclical fiscal policy, the loss of euro member-states' monetary sovereignty, and the lack of a lender-of-last-resort central bank have significantly contributed to the generation, amplification, and protraction of the present crisis. In particular, we present a Post-Keynesian eurozone center-periphery model through which we show how, due to the incomplete nature of eurozone institutions with respect to a full-fledged federal union, diverging trends and conflicting claims have emerged between central and peripheral euro countries in the aftermath of the 2007-08 financial meltdown. We emphasize two points. (1) Diverging trends and conflicting claims among euro countries may represent decisive obstacles to the reform of the eurozone toward a complete federal entity. However, they may prove to be self-defeating in the long run should financial turbulences seriously deepen in large peripheral countries. (2) Austerity packages alone do not address the core problems of the eurozone. These packages would make sense only if they were included in a much wider reform agenda whose final purpose was the creation of a government banker and a federal European government that could run expansionary fiscal stances. In this sense, the unlimited bond-buying program recently launched by the European Central Bank is interpreted as a positive, albeit mild step in the right direction out of the extreme monetarism that has thus far shaped eurozone institutions. |
| Keywords: | Eurozone Debt Crisis; Modern Money Theory; Post-Keynesian Center-Periphery Model |
| JEL: | E02 E12 H63 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_740&r=mac |
| By: | Atsushi Tanaka (School of Economics, Kwansei Gakuin University) |
| Abstract: | The Bank of Japan has used some unconventional monetary easing measures for more than a decade, and it is often pointed out that it might damage the Bank’s capital and thus jeopardize its credibility. First, this paper reviews the past literature on the role of central bank capital and how a damaged balance sheet hurts credibility. Then, this paper examines the recent situation of the Bank of Japan by applying its financial statement data in 2005-2011 to the model of Ize (2005). The examination shows that the Bank was in an unfavorable situation, but not bad enough to jeopardize its credibility thanks to its moderate use of unconventional measures. Finally, this paper summarizes some studies that should be developed in the future. |
| Keywords: | central bank, the Bank of Japan, capital, credibility, unconventional monetary policy |
| JEL: | E5 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:97&r=mac |
| By: | Croonenbroeck, Carsten; Stadtmann, Georg |
| Abstract: | We run out-of-sample forecasts for the inflation rate of 15 euro-zone countries using a NAIRU Phillips curve and a naïve reference model. Comparisons show that the naïve model returns better forecasts in almost all cases. We provide evidence that the Phillips curves' goodness of fit is rather high. However, forecasting power is comparatively low. -- |
| Keywords: | Phillips Curve,Forecasting,Europe,RMSE |
| JEL: | C53 E31 E37 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:euvwdp:329&r=mac |
| By: | Chakraborty, Lekha (National Institute of Public Finance and Policy) |
| Abstract: | Controlling for the capital flows, using the high frequency macrodata of financially deregulated regime, the paper examined whether there is any evidence of fiscal deficit determining interest rate in the context of India. The period of analysis is FY 2006-07[04] to FY 2011[04]. Quite contrary to the debates in the policy circles, the results found that increase in fiscal deficit does not cause the rise in interest rates. Using the asymmetric vector autoregressive model, it is established that the rate of interest is affected by the reserve money changes, expected inflation and volatility in the capital flows, but not the fiscal deficit. This result has significant policy implications for interest rate determination in India. The long term and short term interest rates are analysed to determine the occurrence of financial crowding out, but fiscal deficit does not appear to be causing both shorts and longs. |
| Keywords: | Fiscal deficit ; Asymmetric vector autoregressive model ; Financial crowding out |
| JEL: | E62 C32 H6 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:12/110&r=mac |
| By: | Taylor, Alan M. |
| Abstract: | In broad perspective, there have been essentially two competing views of the global financial crisis, albeit there are some complementarities among them. One view looks across the border: it mainly blames external imbalances, the large-scale mix of unprecedented pattern current account deficits and surpluses which entailed massive and growing net and gross international financial flows in the last decade. The alternative view looks within the border: it finds more fault in the domestic arena of the afflicted countries, attributing the problems to financial systems where risks originated in excessive credit booms in local banks. This paper uses the lens of macroeconomic and financial history to confront these dueling hypotheses with evidence. Of the two, the credit boom explanation stands out as the most plausible predictor of financial crises since the dawn of modern finance capitalism in the late nineteenth century. Historically, we find that global imbalances are not as important as a factor in financial crises as is often perceived, and they have much less correlation with subsequent episodes of financial distress compared to direct indicators like credit drawn from the financial system itself. |
| Keywords: | credit booms; external imbalances; financial crises |
| JEL: | E3 E4 E5 F3 F4 N1 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9255&r=mac |
| By: | Ncube, Mthuli; Eliphas Ndou; Nombulelo Gumata |
| Abstract: | Structural vector autoregression (SVAR) models were used in this study to investigate how unexpected increases in euro area bond yields and monetary stimulus are transmitted to the South African economy using data from January 1999 to June 2008. Firstly, evidence is found that this is consistent with the predictions of the capital flow effects on asset prices, which include depressed bond yields, evaluation of stock prices and exchange rate appreciation due to euro area monetary stimulus. Secondly, the perverse effects of a large economy’s monetary stimulus into a small open economy predicted by the Mundell–Fleming model was assessed. A significant drop was found in the growth of broad money supply, interest rates declined and the trade balance deteriorated. Thirdly, the study finds that a positive shock to euro area bond yields leads to an increase in nominal bond yields and a significant, but delayed, depreciation in the exchange rate of the rand. The results of a model that extended the sample to May 2011 to include the current period of economic instability and applying counterfactual analysis thereafter suggest that the exchange rate was overvalued between 2010 and 2011. |
| Date: | 2012–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:439&r=mac |
| By: | Alvarez, Fernando E; Lippi, Francesco; Paciello, Luigi |
| Abstract: | We study a model in which prices respond slowly to shocks because firms must pay a fixed cost to observe the determinants of the profit maximizing price, as pioneered by Caballero (1989) and Reis (2006). We extend their analysis to the case of random tran- sitory variation in the firm’s observation cost and characterize the mapping from the distribution of observation cost to the distribution of the times between consecutive re- views/price adjustments of a firm. We aggregate a continuum of firms and characterize analytically the cross-sectional distribution of the duration of reviews/prices. We establish the dependence of the real effect of a monetary shock on the distribution of price durations and hence on the distribution of observation costs and discuss applications. |
| Keywords: | impulse responses.; inattentiveness; monetary shocks; observation costs |
| JEL: | E5 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9228&r=mac |
| By: | Marthinus C. Breitenbach, Francis Kemegue and Mulatu F. Zerihun |
| Abstract: | This paper investigates structural symmetry among SADC countries in order to establish, judged by modern OCA theory, which of these countries may possibly make for a good monetary matrimony and which countries may be left out in the cold. SADC remains adamant that it would conclude monetary union by 2018. It can ill afford a repeat of the type of financial and fiscal instability brought about by ex ante structural economic differences and asynchronous business cycles in the EU. This study contributes to the literature on macro-economic convergence in the SADC region. We make use of the Triples test to analyse each country’s business cycles for symmetry and then evaluate SADC countries’ ratio of relative intensity of co-movements in business cycles with co-SADC country and versus that of major trade partners. We find that not all countries in SADC conform to OCA criteria judged by both asymmetrical business cycles and weak co-movements in business cycles. |
| Keywords: | Triples test, optimal currency area, SADC, structural symmetry |
| JEL: | E32 F15 F33 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:319&r=mac |
| By: | William B. Peterman |
| Abstract: | There are large differences between the microeconometeric estimates of the Frisch labor supply elasticity (0-0.5) and the values used by macroeconomists to calibrate general equilibrium models (2-4). The microeconometric estimates of the Frisch are typically estimated by regressing changes in hours on changes in wages conditional on the individual being a married male head of household, working some minimum number of hours and being of prime working age. In contrast macroeconomic calibration values are typically set such that fluctuations in a general equilibrium model match the observed changes in the aggregate hours and wages from the whole population over time. This paper aims to explain the gap by estimating an aggregate Frisch elasticity which is consistent with the concept of macro calibration values using the microeconometric techniques. In order to estimate the Frisch consistent with the macro concept, this paper alters the typical microeconometric approach in order to incorporate fluctuations on the extensive margin and also broadens the scope of the sample to include single males, females, secondary earners, young individuals, and old individuals. This paper finds that estimates of the aggregate macro Frisch elasticity are in the middle of the range of macroeconomic calibration values (around 3.0). Furthermore, it finds that the key to explaining the difference are the fluctuations on the extensive margin of single males, females, secondary earners, older individuals, and younger individuals. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2012-75&r=mac |
| By: | Misch, Florian; Seymen, Atılım |
| Abstract: | The paper investigates the effects of temporary consumption tax cuts using firm-level data. As part of its countercyclical measures implemented during the recent global economic crisis, Turkey temporarily lowered consumption taxes on selected durables. Using data on the change of sales of firms that benefited from this measure and of those that did not over different periods, we perform a difference-in-difference analysis where we also control for various unobservable effects including sector-specific shocks to address potential endogeneity. We find positive and robust effects of consumption tax cuts on the change of firm sales which is consistent with theoretical predictions. -- |
| Keywords: | countercyclical fiscal policy,consumption tax cuts,firm-level data |
| JEL: | E32 E62 H20 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:12082&r=mac |
| By: | Luba Petersen (Simon Fraser Unviersity); Abel Winn (Chapman University) |
| Abstract: | Our experiments refine and extend the work of Fehr and Tyran (2001), who suggest that money illusion can contribute significantly to nominal inertia in strategically complementary environments. By controlling for strategic uncertainty, visual focal points and cognitive load we find that participants exhibit no first order money illusion, though second order money illusion plays a minor role. The presence of a focal point in our experiments reduces the duration of price stickiness compared to FT’s original experiments when participants played against one another. What stickiness remains is explained by the difficulty of finding the NE among 1800 payoffs. Second order money illusion appears to explain the persistent asymmetry between price adjustment following positive and negative monetary shocks. However, this is a modest effect manifested in an apparent preference for (aversion to) high (low) nominal payoffs within a set of maximum real payoffs. These findings indicate that FT’s proposed form of money illusion is not a compelling explanation for sluggish price adjustment. |
| Keywords: | Money illusion, price adjustment, money, shock, laboratory experiment, strategic complementarities |
| JEL: | D21 D43 D84 D83 E4 E5 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp12-19&r=mac |
| By: | Raphael Anton Auer |
| Abstract: | What are the drivers of the large Target2 (T2) balances that have emerged in the European Monetary Union since the start of the financial crisis in 2007? This paper examines the extent to which the evolution of national T2 balances can be statistically associated with cross-border financial flows and current account (CA) balances. In a quarterly panel spanning the years 1999 to 2012 and twelve countries, it is shown that while the CA and the evolution of T2 balances were unrelated until the start of the 2007 financial crisis, since then, the relation between these two variables has become statistically significant and economically sizeable. This reflects the partial "sudden stop" to private sector capital that funded CA imbalances beforehand. I next examine how different types of financial flows have evolved over the last years and how this can be related to the evolution of T2 balances. While changes in cross-border positions in the interbank market are associated with increasing T2 imbalances, cross-border inter-office flows between banks belonging to the same financial institution have reduced T2 imbalances. Flows to the banking sector that originate from private investors and non-financial firms are large in magnitude, but are only weakly correlated with the evolution of T2 balances; changes in banks' holdings of foreign government debt and deposit flows are strongly correlated with the post-2007 evolution of T2 balances. Overall, these findings point to a sizeable transfer of risk from the private to the public sector within T2 creditor nations the via the use of central bank liquidity. |
| Keywords: | European Monetary Union, Euro, fiscal divergence, current account imbalances, TARGET2, central bank balance sheet, financial crisis, payment system |
| JEL: | E42 E58 F33 F32 F55 G14 G15 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2012-15&r=mac |
| By: | Kakarot-Handtke, Egmont |
| Abstract: | In a programmatic article Alfred Eichner explained, from a Post Keynesian perspective, why neoclassical economics is not yet a science. This was some time ago and one would expect that Post Keynesianism, with a heightened awareness of scientific standards, has done much better than alternative approaches in the meantime. There is wide agreement that this is not the case. Explanations, though, differ widely. The present – strictly formal – inquiry identifies an elementary logical flaw. This strengthens the argument that the Post Keynesian motto ‘it is better to be roughly right than precisely wrong!’ is methodologically indefensible. |
| Keywords: | new framework of concepts; structure-centric; axiom set; consistency; Post Keynesian hard core; logical rigor; loose verbal reasoning; hypothetico-deductive method; profit; retained profit; saving; general complementarity; IS-fallacy |
| JEL: | E12 B22 B41 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43171&r=mac |
| By: | Lehmann, Hartmut (University of Bologna); Muravyev, Alexander (St. Petersburg University GSOM and IZA) |
| Abstract: | This paper analyzes, using country-level panel data from transition economies and Latin America, the impact of labor market institutions on informal economic activity. The measure of informal economic activity is taken from Schneider et al. (2010), the most comprehensive study to date. The data on institutions, which cover employment protection legislation (EPL), the tax wedge, the unemployment benefit level, unemployment benefit duration and union density, are assembled at the IZA (transition countries) and the World Bank (LAC countries). We find that a more regulated labor market (higher EPL) increases the size of the informal economy. There is also evidence that a larger tax wedge increases informality. The tax wedge elasticity of informal economy, when evaluated at the sample mean, is rather modest, around 0.1%. Our results are broadly in line with the literature, which identifies labor market regulation and the tax wedge as important drivers of informality. |
| Keywords: | labor market institutions, informality, macroeconometric regressions, transition countries, Latin America |
| JEL: | E24 J21 J42 O17 P20 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7035&r=mac |
| By: | Ratti, Ronald (University of Western Sydney, School of Business); Vespignani, Joaquin (School of Economics and Finance, University of Tasmania) |
| Abstract: | Movement in China’s money supply drives the movement in world money supply over the last twenty years. Within the framework advanced by Kilian (2009) that identifies the supply and demand side factors driving oil price changes we introduce the influence of liquidity in China and other countries on oil price changes. Structural shocks are large for both G3 (U.S., Eurozone and Japan) real M2 and China’s real M2. However, the cumulative impact of real G3 M2 shocks on real oil prices is small in contrast to a large cumulative effect of China’s real M2 on the real price of crude oil. It is shown that increased liquidity in China relative to that in the U.S., Eurozone and Japan significantly raises real oil prices over 1996:1-2011:12. Following a sharp fall in real oil price in the last half of 2008, the cumulative impact of China’s real M2 on the real price of crude oil is particularly substantial in the recovery of oil price during 2009 from a low of $41.68 for January 2009. The analysis sheds light on the causes of movement in oil prices over the last twenty five years and in assessing the relative importance of China in the upsurge of the real price of crude oil. |
| Keywords: | Oil Price, China’s Global Influence, Oil Price and Liquidity |
| JEL: | E31 E32 Q43 |
| Date: | 2012–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:tas:wpaper:15062&r=mac |
| By: | Michele Manna (Bank of Italy); Alessandro Schiavone (Bank of Italy) |
| Abstract: | In this paper we conduct a simulation run on a sample of Italian banks where a trigger shock, a one-off event fairly large in size, spreads through the interbank network in a set-up featuring among the actors both commercial banks and the authorities. The banks deleverage to comply with a regulatory capital (leverage) ratio, roll off interbank loans, bid for central bank liquidity, seek help within their own group and dispose of assets. As the shock spreads, borrowers who lack liquid assets may be forced to undertake fire sales, letting their capital position deteriorate. A vicious circle arises in which capital and liquidity risks amplify the crisis. When authorities intervene, unconventional monetary policies smooth the contagion over but these measures become less effective when the shock is very large, when the situation is best addressed by policies aiming at strengthening banksÂ’ capital. In a theoretical scenario, in which authorities do not enact specific measures, a small fraction of the banking system (in terms of total assets) may be in default at the end of the simulation, while a larger share of banks would need to be recapitalized. |
| Keywords: | banking crises, contagion, leverage, interbank market, central bank operations |
| JEL: | E58 G01 G21 G28 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_893_12&r=mac |
| By: | Åsa Johansson; Yvan Guillemette; Fabrice Murtin; David Turner; Giuseppe Nicoletti; Christine de la Maisonneuve; Guillaume Bousquet; Francesca Spinelli |
| Abstract: | This report presents the results from a new model for projecting growth of OECD and major non-OECD economies over the next 50 years as well as imbalances that arise. A baseline scenario assuming gradual structural reform and fiscal consolidation to stabilise government-debt-to GDP ratios is compared with variant scenarios assuming deeper policy reforms. One main finding is that growth of the non-OECD G20 countries will continue to outpace OECD countries, but the difference will narrow substantially over coming decades. In parallel, the next 50 years will see major changes in the composition of the world economy. In the absence of ambitious policy changes, global imbalances will emerge which could undermine growth. However, ambitious fiscal consolidation efforts and deep structural reforms can both raise long-run living standards and reduce the risks of major disruptions to growth by mitigating global imbalances.<P>Un regard vers 2060 : Perspectives de croissance globale à long terme<BR>Cette étude présente les résultats d’un nouveau modèle de projection de la croissance économique des pays de l’OCDE et des pays majeurs hors-OCDE sur un horizon de 50 ans ainsi que des déséquilibres qui apparaissent. Un scénario de référence, qui comprend des réformes structurelles graduelles et un assainissement budgétaire suffisant pour stabiliser les ratios de dette/PIB, est comparé à des scénarios alternatifs qui incluent des réformes plus profondes des politiques publiques. Une des conclusions principales est que la croissance des pays du G20 non membres de l’OCDE continuera de dépasser celle des pays membres, mais la différence s’amenuisera au cours des prochaines décennies. Parallèlement, les 50 prochaines années verront des changements majeurs dans la composition de l’économie mondiale. En absence de refonte ambitieuse des politiques publiques, des déséquilibres mondiaux dangereux pour la croissance émergeront. Cependant, une rationalisation plus prononcée des finances publiques combinée à des réformes structurelles profondes pourrait à la fois faire augmenter les niveaux de vie et réduire les risques de déraillement majeur de la croissance en réduisant les déséquilibres mondiaux. |
| Keywords: | growth, human capital, productivity, long-term projections, current accounts, saving, global imbalances, Conditional convergence, fiscal and structural policy, productivité, croissance, capital humain, projections à long terme, compte courant, épargne, déséquilibres mondiaux, convergence conditionnelle, politiques fiscales et structurelles |
| JEL: | E27 F43 H68 I25 J11 O11 O43 O47 |
| Date: | 2012–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaab:3-en&r=mac |
| By: | Giulio Bottazzi; Marco Duenas |
| Abstract: | This paper performs an empirical analysis of the international cross sectional distribution of gross domestic product (GDP) growth rates and business cycles. We consider a balanced panel of 91 countries in the period 1960-2010 and two different measures of GDP fluctuations: the logarithmic growth rates and the Hodrick-Prescott cycles. Both measures are characterized by fat-tailed distributions and strong heteroscedasticity. The latter is the result of a scale relation between the variance of the fluctuations and the size of the country. The analysis of the time evolution of these properties shows that distribution tails become asymmetrically fatter during the period of study, suggesting an increased probability of finding high amplitude fluctuations in more recent years. Moreover, we observe significant changes in the scale parameter characterizing the relation between volatility and country size. These findings enrich the discussion about robust properties of business cycles and reveal more evidence about scaling-law relations in economic systems. |
| Keywords: | Growth Rates Distribution; International Business Cycles; Scaling-laws in Economics |
| Date: | 2012–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2012/22&r=mac |
| By: | Massimiliano Caporin; Loriana Pelizzon; Francesco Ravazzolo; Roberto Rigobon |
| Abstract: | This paper analyzes the sovereign risk contagion using credit default swaps (CDS) and bond premiums for the major eurozone countries. By emphasizing several econometric approaches (nonlinear regression, quantile regression and Bayesian quantile regression with heteroskedasticity) we show that propagation of shocks in Europe's CDS has been remarkably constant for the period 2008-2011 even though a significant part of the sample periphery countries have been extremely affected by their sovereign debt and fiscal situations. Thus, the integration among the different eurozone countries is stable, and the risk spillover among these countries is not affected by the size of the shock, implying that so far contagion has remained subdue. Results for the CDS sample are confirmed by examining bond spreads. However, the analysis of bond data shows that there is a change in the intensity of the propagation of shocks in the 2003-2006 pre-crisis period and the 2008-2011 post-Lehman one, but the coefficients actually go down, not up! All the increases in correlation we have witnessed over the last years come from larger shocks and the heteroskedasticity in the data, not from similar shocks propagated with higher intensity across Europe. This is the first paper, to our knowledge, where a Bayesian quantile regression approach is used to measure contagion. This methodology is particularly well-suited to deal with nonlinear and unstable transmission mechanisms. |
| Keywords: | Sovereign Risk, Contagion |
| JEL: | E58 F34 F36 G12 G15 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:bny:wpaper:0009&r=mac |
| By: | Cole, Harold; Kim, Soojin; Krueger, Dirk |
| Abstract: | This paper constructs a dynamic model of health insurance to evaluate the short- and long run effects of policies that prevent firms from conditioning wages on health conditions of their workers, and that prevent health insurance companies from charging individuals with adverse health conditions higher insurance premia. Our study is motivated by recent US legislation that has tightened regulations on wage discrimination against workers with poorer health status (Americans with Disability Act of 2009, ADA, and ADA Amendments Act of 2008, ADAAA) and that will prohibit health insurance companies from charging different premiums for workers of different health status starting in 2014 (Patient Protection and Affordable Care Act, PPACA). In the model, a trade-off arises between the static gains from better insurance against poor health induced by these policies and their adverse dynamic incentive effects on household efforts to lead a healthy life. Using household panel data from the PSID we estimate and calibrate the model and then use it to evaluate the static and dynamic consequences of no-wage discrimination and no-prior conditions laws for the evolution of the cross-sectional health and consumption distribution of a cohort of households, as well as ex-ante lifetime utility of a typical member of this cohort. In our quantitative analysis we find that although a combination of both policies is effective in providing full consumption insurance period by period, it is suboptimal to introduce both policies jointly since such policy innovation induces a more rapid deterioration of the cohort health distribution over time. This is due to the fact that combination of both laws severely undermines the incentives to lead healthier lives. The resulting negative effects on health outcomes in society more than offset the static gains from better consumption insurance so that expected discounted lifetime utility is lower under both policies, relative to only implementing wage nondiscrimination legislation. |
| Keywords: | Health; Incentives; Insurance; No-Prior-Condition-Legislation; Wage Discrimination |
| JEL: | E61 H31 I18 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9239&r=mac |
| By: | Laura Barbieri (DISCE, Università Cattolica); Maurizio Baussola (DISCE, Università Cattolica); Chiara Mussida (DISCE, Università Cattolica) |
| Abstract: | The effects of the recent economic recession have been widely discussed, particularly at the macro economic level. However, the economic downturn has been pervasive and has also determined a range of economic effects at different territorial levels. It has therefore become necessary to set up appropriate analytical tools aimed at investigating the impact of the economic downturn at the regional level, and to implement adequate policy options to mitigate such negative impacts. We propose a new macro-micro econometric framework which incorporates simultaneously both aggregate labour demand and supply, and the labour market flows determining the steady-state unemployment rate. We can thus simulate demand or supply shocks and therefore assess their impacts on labour demand and supply, and also on unemployment and labour market flows. This enables us to pinpoint the dynamic effects of such shocks and to compare the different behaviours of the regional framework and of the economy as a whole. |
| Keywords: | regional econometric models, labour demand and supply, labour market flows, steady-state unemployment rate. |
| JEL: | E1 E17 R2 R23 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie2:dises1288&r=mac |
| By: | Beetsma, Roel; Mavromatis, Konstantinos |
| Abstract: | We analyse different forms of international debt mutualisation in a simple framework with a political distortion and (partial) default under adverse economic circumstances. One form is a debt repayment guarantee, which can be "unlimited" or "limited", i.e. only be invoked when the guarantee threshold is not exceeded. We also explore the "blue-red" bonds proposal, under which blue debt is guaranteed by the other countries in a union, while red debt is not guaranteed. Only a suitably chosen limited guarantee induces the government to reduce debt and raises social welfare. Making the guarantee also conditional on sufficient structural reform may stimulate reform effort. However, now a trade-off exists between extracting more reform and inducing the government to limit debt issuance. |
| Keywords: | blue and red bonds; debt bias; debt guarantee; eurobonds; political distortions; social welfare; structural reform |
| JEL: | E60 E62 H60 H63 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9244&r=mac |
| By: | Gary Gorton; Andrew Metrick |
| Abstract: | We survey the literature on securitization and lay out a research program for its open questions. Securitization is the process by which loans, previously held to maturity on the balance sheets of financial intermediaries, are sold in capital markets. Securitization has grown from a small amount in 1990 to a pre-crisis issuance amount that makes it one of the largest capital markets. In 2005 the amount of non-mortgage asset-backed securities issued in U.S. capital markets exceeded the amount of U.S. corporate debt issued, and these securitized bonds – even those unrelated to subprime mortgages -- were at center of the recent financial crisis. Nevertheless, despite the transformative effect of securitization on financial intermediation, the literature is still relatively small and many fundamental questions remain open. |
| JEL: | E0 G0 G2 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18611&r=mac |