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on Macroeconomics |
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Issue of 2013‒04‒20
43 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Carlos De Resende; Ali Dib; René Lalonde; Nikita Perevalov |
| Abstract: | Using BoC-GEM-Fin, a large-scale DSGE model with real, nominal and financial frictions featuring a banking sector, we explore the macroeconomic implications of various types of countercyclical bank capital regulations. Results suggest that countercyclical capital requirements have a significant stabilizing effect on key macroeconomic variables, but mostly after financial shocks. Moreover, the bank capital regulatory policy and monetary policy interact, and this interaction is contingent on the type of shocks that drive the economic cycle. Finally, we analyze loss functions based on macroeconomic and financial variables to arrive at an optimal countercyclical regulatory policy in a class of simple implementable Taylor-type rules. Compared to bank capital regulatory policy, monetary policy is able to stabilize the economy more efficiently after real shocks. On the other hand, financial shocks require the regulator to be more aggressive in loosening/tightening capital requirements for banks, even as monetary policy works to counter the deviations of inflation from the target. |
| Keywords: | Economic models; Financial Institutions; Financial stability; International topics |
| JEL: | E32 E44 E5 G1 G2 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:13-8&r=mac |
| By: | Miyazaki, Tomomi |
| Abstract: | This paper examines the relationship between fiscal policy and regional business cycle fluctuations in Japan. In particular, we focus on the effects of “discretionary” changes in public investment, a portion of investment unrelated to the current state of macroeconomic circumstances. The empirical results show that such types of public investment amplify regional business cycle fluctuations. |
| Keywords: | Public investment in Japan, Business cycle fluctuation, Volatility in the regional economy |
| JEL: | E32 E62 H30 H54 R53 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hituec:583&r=mac |
| By: | Tanaka Hiroatsu (Federal Reserve Board) |
| Abstract: | I study how two different monetary policy regimes characterized by their difference in degrees of credibility (a 'commitment' regime, in which the central bank can credibly commit to future policy and a 'discretion' regime, in which it cannot) affect the term structure of interest rates and attempt to evaluate which monetary policy regime seems more consistent with the data on macroeconomic variables and term structure dynamics. To this end, I construct a no-arbitrage affine-term structure model based on a New-Keynesian type micro-foundation. The model is augmented with Epstein-Zin (EZ) preferences, real wage rigidity and a simple central bank optimization problem. A shock structure that exhibits stochastic volatility in long-run risk of TFP growth parsimoniously generates time-varying term premia. The estimation of the model suggests that the assumption of a discretion regime performs better than a commitment regime in terms of quantitatively ÃÂfitting some salient features of the US data on the term structure and the business cycle during the Volcker-Greenspan-Bernanke era. The lack of policy credibility leads to volatile and persistent inflation, which generates volatile expected long-run inflation that is negatively correlated with future continuation values. This is perceived particularly risky by EZ nominal bond holders and results in upward sloping average nominal yields, long-term yield volatility and excess return predictability closer to the magnitude observed in the data while keeping the unconditional volatilities of consumption growth and inflation realistic. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:557&r=mac |
| By: | Benjamin M. Friedman |
| Abstract: | The standard workhorse models of monetary policy now commonly in use, both for teaching macroeconomics to students and for supporting policymaking within many central banks, are incapable of incorporating the most widely accepted accounts of how the 2007-9 financial crisis occurred and incapable too of analyzing the actions that monetary policymakers took in response to it. They also offer no point of entry for the frontier research that many economists have subsequently undertaken, especially research revolving around frictions in financial intermediation. This paper suggests a simple model that bridges this gap by distinguishing the interest rate that the central bank sets from the interest rate that matters for the spending decisions of households and firms. One version of this model adds to the canonical “new Keynesian” model a fourth equation representing the spread between these two interest rates. An alternate version replaces this reduced-form expression for the spread with explicit supply and demand equations for privately issued credit obligations. The discussion illustrates the use of both versions of the model for analyzing the kind of breakdown in financial intermediation that triggered the 2007-9 crisis, as well as “unconventional” central bank actions like large-scale asset purchases and forward guidance on the policy interest rate. |
| JEL: | E52 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18960&r=mac |
| By: | Lanzafame, Matteo; Nogueira, Reginaldo |
| Abstract: | Inflation Targeting (IT) can be expected to play a role in structurally reducing nominal interest rates, by lowering a country’s inflation expectations and risk premium. Relying on a panel of 52 advanced and emerging economies over the 1975-2009 years, we carry out a formal investigation of this hypothesis. Our econometric strategy adopts a flexible and efficient panel estimation framework, controlling for a number of issues usually neglected in the literature, such as parameter heterogeneity and cross-section dependence. Our findings are supportive of the optimistic view on IT, indicating that adoption of this monetary regime leads to lower nominal interest rates. |
| Keywords: | Inflation targeting; Interest rates; panel data; multifactor modeling. |
| JEL: | E40 E52 E58 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46153&r=mac |
| By: | Nikola Mirkov (Universität St.Gallen); Gisle James Natvik (Norges Bank (Central Bank of Norway)) |
| Abstract: | If central banks value the ex-post accuracy of their forecasts, previously announced interest rate paths might affect the current policy rate. We explore whether this "forecast adherence" has influenced the monetary policies of the Reserve Bank of New Zealand and the Norges Bank, the two central banks with the longest history of publishing interest rate paths. We derive and estimate a policy rule for a central bank that is reluctant to deviate from its forecasts. The rule can nest a variety of interest rate rules. We find that policymakers appear to be constrained by their most recently announced forecasts. |
| Keywords: | Interest rates, Forecasts, Taylor rule, Adherence |
| JEL: | E43 E52 E58 |
| Date: | 2013–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2013_11&r=mac |
| By: | Schlicht, Ekkehart |
| Abstract: | Economists are widely familiar with the Ricardian equivalence thesis. It maintains that, given the time-path of government spending, a change in taxation does not alter the set of feasible life-time consumption plans of the households and affects neither the demand for commodities and services nor the rate of interest, provided the households act rationally. In this note a surprising finding is established. Assuming that the agents in a standard infinite horizon growth model hold the very expectations the thesis proposes (“Ricardian expectations”), it is shown that these expectations are invalidated. This divergence from the Ricardian equivalence thesis is traced to the omission of interest payments on public debt as part of the households' disposable income. The non-equivalence is valid in a wide class of models. |
| Keywords: | Barro-Ricardo equivalence; Ricardian equivalence; fiscal policy; debt; taxation; rational expectations; Ricardian expectations; Barro expectations; tax neutrality |
| JEL: | E2 E12 E6 H6 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:14847&r=mac |
| By: | Stephen Millard (Bank of England); Eran Yashiv (Tel Aviv University); Renato Faccini (Queen Mary, University of London) |
| Abstract: | We embed convex hiring and investment costs and their interaction in a New Keynesian DSGE model with Nash wage bargaining. We explore the implications with respect to inflation dynamics in the New Keynesian Phillips curve. We use two structural estimation methods (GMM and Bayesian estimation) and two aggregate data sets (the U.S. and the U.K. economies). Our results indicate that : (i) one-step ahead inflation rate predictions are much closer to the data in the model with hiring and investment costs than in the standard New-Keynesian model without these costs. (ii) The model provides new estimates for hiring and investment frictions, price adjustment costs, wage bargaining power and the disutility of labor. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:556&r=mac |
| By: | Arenas, Paúl (Universidad Nacional Mayor de San Marcos); Morales, Daniel (Rímac Seguros) |
| Abstract: | We use the results of business tendency surveys (BTS) to forecast private investment growth in Peru, exploring the possible non-linear link between the BTS and private investment for forecasting purposes. We find that business confidence indices extracted from BTS, in particular the one calculated by the Central Reserve Bank of Peru (CRBP), are useful to forecast private investment growth in Peru. Moreover, models constructed only with indices extracted from BTS have a higher predictive power than models including control variables such as lagged GDP growth, inflation or interest rates. We also find that non-linear models are not superior to linear ones in forecasting Peruvian private investment. Additionally, the linear model finally selected would allow us to estimate real private investment growth for the current quarter with a 75-day lead with respect to the official publication date, almost twice the lead associated with the estimation methodology used by practitioners. |
| Keywords: | Business Tendency Surveys, Business cycles, Private Investment, Forecasting |
| JEL: | E22 E27 E32 E37 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2013-003&r=mac |
| By: | Kihaule, Arnold Mathias |
| Abstract: | This paper examines the outcomes of the fiscal adjustment policies adopted during the period in which Tanzania experienced economic shocks. The econometric models are used to determine the impact of exogenous and economic policy shocks on gdp growth, public spending and the fiscal balance. The results revealed that policy shocks resulted in structural changes in output growth and public spending instability in Tanzania. Specifically, economic policy shocks led to changes in macroeconomic conditions, which adversely affected the fiscal position after 1986. The results suggest that fiscal adjustment policies should not be undertaken when a number of economic policy changes are envisaged in an economy. |
| Keywords: | fiscal adjustment policies, fiscal deficit, public spending, economic policy shock, Tanzania, |
| JEL: | E62 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46151&r=mac |
| By: | Taro Ikeda (Kurume University, Faculty of Economics) |
| Abstract: | This paper provides a piece of results regarding asymmetric forecasting and commitment monetary policy with a robust control algorithm. Previous studies provide no clarification of the connection between asymmetric preference and robust commitment policy. Three results emerge from general equilibrium modeling with asymmetric preference: (i) the condition for system stability implies an average inflation bias with respect to asymmetry (ii) the effect of asymmetry can be mitigated if policy makers relinquish a concern for robustness, and (iii) commitment policy may be superior to discretionary policy under widely used calibration sets, regardless of asymmetry. |
| Keywords: | asymmetric forecasting, commitment monetary policy, robust control |
| JEL: | E50 E52 E58 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1306&r=mac |
| By: | Kazandziska, Milka |
| Abstract: | This paper has the goal to explore the functionality of the economic development in emerging countries, which are on their way of joining a currency union based on the concept of macroeconomic policy regimes (MPRs). Functional MPRs are considered those that deliver sustainable economic growth, employment and more equitable income distribution. A macroeconomic policy regime consists of policies (foreign economic policy, industrial policy, wage policy, monetary policy and fiscal policy), the financial system, and the institutional frameworks in which the economies are embedded. The MPRs of emerging countries, candidates for a currency union, applied to the case of Latvia will be analysed using a Post Keynesian approach. It will be argued that the institutional changes in Latvia have paved the way for a dysfunctional policy mix, such that led to high current account deficits, capital flow volatility, large employment losses and instable economic development. This paper suggests that to reduce the current account deficits and achieve a more sustainable growth, foreign economic policy and the industrial policy should be given high priority. -- |
| Keywords: | macroeconomic regime,open economy policies and institutions,emerging countries,industrial policy,Latvia |
| JEL: | E02 E58 E61 E65 F41 F43 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:212013&r=mac |
| By: | Kazuo Ueda (Faculty of Economics, University of Tokyo) |
| Abstract: | 　　 　　 Japan's Prime Minister, Shinzo Abe, has declared the adoption of a policy package that assigns a key role for aggressive monetary easing by the Bank of Japan—the so-called Abenomics. Since the announcement, the yen has weakened against the dollar by 25% and Nikkei 225 has risen by 40%. In this paper I discuss the backgrounds for such large asset price response. I base the discussion on the theory and empirical analysis of non-conventional monetary policy measures that have been carried out by major central banks so far. I argue that a non-negligible portion of the asset price response seems based on investors' excess optimism concerning the effectiveness of non-conventional monetary policy to stimulate the economy and raise prices. In that sense, there is a good chance that asset prices may go back to previous levels. But I also point out that given that expectations have changed so much, they have a chance of raising inflation to the target rate of 2%, in which case they will have become self-fulfilling. |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2013cf885&r=mac |
| By: | Dmitriev, Mikhail; Hoddenbagh, Jonathan |
| Abstract: | We study the conduct of monetary policy in a continuum of small open economies. We solve the model globally in closed form without restricting the elasticity of substitution between home and foreign goods to one. Using this global closed-form solution, we give an exact characterization of optimal monetary policy and welfare with and without international policy cooperation. We consider the cases of internationally complete asset markets and financial autarky, producer currency pricing and local currency pricing. Under producer currency pricing, it is always optimal to mimic the flexible-price equilibrium through a policy of price stability. Under local currency pricing, policy should fix the exchange rate. Even if substitutability differs from one, the continuum of small open economies implies that the share of each country's output in the world consumption basket (and therefore the impact of the country's monopoly power) is negligible. This removes the incentive to deviate from price stability under producer currency pricing or a fixed exchange rate under local currency pricing. There are no gains from international monetary cooperation in all cases examined. Our results stand in contrast to those in the literature on optimal monetary policy for large open economies, where strategic interactions drive optimal policy away from price stability or fixed exchange rates, and gains from cooperation are present, when substitutability differs from one. |
| Keywords: | Open economy macroeconomics; Optimal monetary policy; Price stability. |
| JEL: | E50 F41 F42 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46132&r=mac |
| By: | Slim, Sadri |
| Abstract: | The purpose of this paper is to present an extended version of the IS/LM model, with illegal economy and money laundering in a closed economy, which allows an macroeconomic analysis of the effects of this presence on short-term equilibrium. Without disregarding the FATF´s money laundering typology, we propose to differentiate the money laundering activities by the degree of crime organization. Thus, in a closed economy, we suppose two money laundering channels, through consumption and investment, which are reflecting the reintegration of the illegal money by individual criminals and by the organized crime. It is shown that the multiplier effect of the illegal economic activities is always negative on formal GDP, while the effect on the interest rate depends on the structure of the considered economy. |
| Keywords: | Money Laundering; ISLM Model; Multiplier effects; Informal Economy |
| JEL: | E12 E26 E4 O17 |
| Date: | 2013–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46304&r=mac |
| By: | Scott Dressler (Villanova University) |
| Abstract: | This paper assesses the long-run and short-run (i.e. along the transition path) welfare implications of permanent changes in inflation in an environment with essential money and perfectly competitive markets. The model delivers a monetary distribution that matches moments of the distribution seen in the US data. Although there is potential for wealth redistribution to deliver welfare gains from inflation, the (total) costs of 10 percent inflation relative to zero is over 7 percent of consumption. While these results suggest a dominating real-balance effect of inflation, a politico-economic analysis concludes that the prevailing (majority rule) inflation rate is above the Friedman Rule. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:546&r=mac |
| By: | Christian Dreger; Yanqun Zhang |
| Abstract: | The Chinese economic development affects GDP growth and inflation in the advanced countries. A GVAR approach is used to model the interdependencies between the business cycles in China and industrial countries, including the US, the euro area and Japan. For robustness, the results are compared to those obtained by leading structural econometric models, such as NiGEM and OEF. Evidence is based on the responses to a Chinese shock stemming from the recent fiscal stimulus package. The results indicate that the impact on GDP growth in the advanced economies is substantial for the Asian region. The expansionary effects to the US and the euro area responses are much lower and decrease due to rising inflation pressure. The analysis also reveals that China is still highly vulnerable to shocks in industrial countries, including the government debt crisis in the euro area. |
| Keywords: | GVAR, Chinese integration, shock transmission, euro area debt crisis |
| JEL: | E32 F15 C51 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2013:i:116&r=mac |
| By: | Sen Gupta, Abhijit; Sengupta, Rajeswari |
| Abstract: | Increased integration with global financial markets has amplified the complexity of macroeconomic management in India. The diverse objectives of a robust growth rate, healthy current account deficit, competitive exchange rate, adequate external capital to finance investment, moderate inflation, targeted monetary and credit growth rate, minimizing financial fragilities and maintaining adequate reserves need to be balanced in an era of volatile capital flows. In this paper we analyze India’s experience in negotiating the trade-offs between these varied objectives. We find that to minimize risks associated with financial fragilities India has adopted a calibrated and gradual approach towards opening of the capital account, prioritizing the liberalization of certain flows. Using empirical methods we find that instead of adopting corner solutions, India has embraced an intermediate approach in managing the conflicting objectives of the well-known Impossible Trinity – monetary autonomy, exchange rate stability and an open capital account. Our results indicate that the intermediate approach has been associated with an asymmetric intervention in the foreign exchange market, with the objective of resisting pressures of appreciation, and resulted in large accumulation of reserves. We also show that sterilization of this intervention has been incomplete at times leading to rapid increase in monetary aggregates and fueling inflation. Finally, we conclude that while the greater flexibility in exchange rate since 2007, has allowed pursuit of a more independent monetary policy and the exchange rate to act as a shock absorber, the hands-off approach has resulted in reserves remaining virtually stagnant since 2007, leading to a significant deterioration in the reserve adequacy measures. |
| Keywords: | Capital controls, Macroeconomic trilemma, Financial integration, Foreign exchange intervention, Sterilization, Exchange market pressure, Reserve adequacy. |
| JEL: | E4 E5 F3 F4 |
| Date: | 2013–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46217&r=mac |
| By: | Franz Alonso Hamann Salcedo; Rafael Hernández; Luisa Fernanda Silva EScobar; Fernando Tenjo Galarza |
| Abstract: | The recent financial crisis has renewed the interest of economists, both at the theoretical and empirical level, in developing a better understanding of credit and its mechanisms. A rapidly growing strand of the literature views banks as facing funding restrictions that condition their borrowing to a risk-based capital constraint which, in turn, affects bank lending. This work explores the way banks in Colombia manage their balance sheet and sheds light into the dynamics of credit and leverage during the business cycle. Using a sample of monthly bank balance sheets for the period 1994-2012, we find not only that the Colombian banking sector is predominantly pro-cyclical, but also that the composition of bank liabilities provides important information to policy makers regarding the phase of the cycle of the economy. Shifts from low non-core liability ratios to higher ones during the upward phase of the leverage cycle could play the role of an early warning indicator of financial vulnerability. In addition, we find that bank heterogeneity matters and thus, an aggregate measure of bank leverage can mask successfully a fragile financial sector. |
| Keywords: | Banks, credit, leverage, non-core liabilities, balance sheet, business cycle, Colombia. Classification JEL: E32, G21, G32 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:762&r=mac |
| By: | Mahamat MASSOUD (Laboratoire de Recherche sur l'Industrie et l'Innovation. ULCO) |
| Abstract: | L’étude présente le contexte institutionnel de la Banque des Etats de l’Afrique Centrale (BEAC) et procède à l’analyse de sa gouvernance. Il en ressort un management aux objectifs imprécis ou contraires à ceux de la Communauté Economique et Monétaire de l’Afrique Centrale (CEMAC)1. Le postulat est que des degrés de liberté pour une politique monétaire originale existent. Son avènement suppose une appropriation des principes de bonne gouvernance applicables aux banques centrales, une requalification des critères de recrutement des dirigeants et un réajustement des priorités de la BEAC. The study presents the institutional context of the Bank of the Central African States (BEAC) and proceeds to the analysis of its governance. It shows a management where the purposes are unclear or in conflict with those of the economic and monetary community of Central Africa States (CEMAC)[1]. The premise is that degrees of freedom for the development of an original monetary policy exist. Its development needs the implementation of the principles of good governance to central banks, a redefinition of leaders’ recruitment criteria and an adjustment of the priorities of the BEAC. |
| Keywords: | politique monétaire, banque centrale, gouvernance, CEMAC |
| JEL: | E5 E52 E58 O55 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:rii:riidoc:259&r=mac |
| By: | Barbara Annicchiarico; Fabio Di Dio; Francesco Felici; Libero Monteforte |
| Abstract: | This paper provides a full technical account of the Italian General Equilibrium Model (IGEM), a new dynamic general equilibrium model for the Italian economy developed at the Department of Treasury of the Italian Ministry of the Economy and Finance. IGEM integrates typical New Keynesian elements, such as imperfect competition and nominal rigidities, into a general equilibrium framework. One of the key features of the model is the detailed representation of the labor market, designed to capture the dualism of the Italian economic system. The new model will serve as a laboratory for policy analysis. |
| Keywords: | Dynamic General Equilibrium Model, Simulation Analysis, Italy |
| JEL: | E27 E30 E60 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:wp2013-04&r=mac |
| By: | De Koning, Kees |
| Abstract: | An Income Gap Theory and it effects on Unemployment and Economic Growth By Drs Kees De Koning Abstract An income gap is often described as the difference in incomes between the rich and poor. This is a relative gap. In economies a different income gap can occur which can be defined as the absolute income gap. Such a gap emerges when collectively individual households show an income shortfall and become unable to buy all goods and services available in an economy. The principal cause why such a gap can emerge is to be found in the use of savings. Savings -financial assets- are turned into financial liabilities -loans or other commitments to governments, banks, companies or other individuals. If any of these households do not return such savings for the full amount or only with a lower return a financial loss will occur. The net worth of all individual households - their equity base- will be written down. In this study the focus has been on the U.S. and the U.K. In 2004 in both countries the respective governments plus their individual households had accelerated their borrowing levels from earlier years to the highest levels since 1996. In the U.S. 17.41% of the GDP value was financed by the increase in government’ plus individual households’ borrowings in 2004. In the U.K. the level was 14.50% in the same year. Government’ and individual household debt has been added up for the simple reason that individual households are ultimately responsible to service both debts. More than 70% of individual households’ borrowings are used for buying a home. When the pace of borrowing accelerates, the volume of house building usually can not keep pace with the money flows and home prices start to increase rapidly. This happened in 2003 and 2004 and in the years in the run up to 2008. Of course incomes did not grow at the same speed as these borrowing levels. Banks did invent all kinds of loan features to get low income families on the property ladder. They also sold a substantial part of the risks to outside investors. The results were enormous loan losses, which translated in even bigger losses to the net worth of individual households in 2008. In the U.S in 2008 these households lost the equivalent of 110% of the value of the U.S. GDP from their net worth. In the U.K. the loss was about 90% of the U.K.’s GDP in the same year. Individual households did not mean to lose these amounts, however they were at the receiving end of the loss making activities of banks and the financial sector. Individual households were generally speaking not the gamblers. The effects of such equity losses were substantial. Job losses occurred, which meant income losses; lower labour force participation rates showed up which again caused additional income losses; wages settlements did no longer keep pace with inflation levels. This also caused income losses. Furthermore individual households started to save more and repay their outstanding home mortgage debt, which caused another drain on economic growth. The net equity loss caused a substantial income loss to individual households, further aggravated by the rapidly increasing government debt situations. When income levels are down, one usually looks at the savings levels. However the main savings element is pension funds and they are currently prevented by government rules for turning some of the individual households’ equity into cash incomes at times when the income gap occurs. There are ways to counteract and prevent the absolute income gap occurring. The key is to act as fast as possible as lost individual incomes from jobs cannot be recouped in future years. Pension funds can help as they currently have accumulated funds both in the U.S. and the U.K. outstripping total financial liabilities of individual households. Long term fixed rates mortgages can help, which if granted through one major vehicle, can help slow down or speed up mortgage lending in a country. The key to economic growth can be found, but also has to be found, through considering what happened and happens to the collective of individual households, their equity and income position and their actions taken by them and for them. What governments, central banks, banks and companies do is all reflected in the net equity base and income developments of individual households. Economic studies should start with individual households rather than focussing so strongly on governments, central banks and banks. |
| Keywords: | Absolute Income Gap, Individual households' net worth,losses on savings, losses on incomes, unemployment, wages increase below inflation, economic easing,national mortgage bank |
| JEL: | E21 E24 E43 E6 E64 |
| Date: | 2013–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46098&r=mac |
| By: | Stefan Notz (University of Zurich) |
| Abstract: | I develop a Dynamic Stochastic General Equilibrium (DSGE) model featuring imperfect competition in banking to shed light on the macroeconomic repercussions of U.S. banking deregulation during the 1980s and 1990s. Banks function as traditional financial intermediaries, transferring funds from private households to entrepreneurs in the economy. Prior to deregulation, banks exploit their market power and charge high interest rates on loans to entrepreneurs. Financial liberalisation leads to more vigorous competition among banks, which effectively ameliorates credit market access of investors. I construct model generated panel data and reproduce various regression exercises implemented in related studies. In doing so, I contribute to bridging the gap between my theoretical framework and the vast empirical literature on U.S. banking deregulation. The model succeeds in both qualitatively and quantitatively replicating several empirical findings. In particular, bank market integration is associated with (i) an increase in investment in new firms, (ii) a decline in average firm size, (iii) an erosion of the bank capital ratio, (iv) a reduction of state business cycle volatility, and (v) improved consumption risk sharing of entrepreneurs. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:552&r=mac |
| By: | S. Boraǧan Aruoba; Francis X. Diebold; Jeremy Nalewaik; Frank Schorfheide; Dongho Song |
| Abstract: | We provide a new and superior measure of U.S. GDP, obtained by applying optimal signal-extraction techniques to the (noisy) expenditure-side and income-side estimates. Its properties – particularly as regards serial correlation – differ markedly from those of the standard expenditure-side measure and lead to substantially-revised views regarding the properties of GDP. |
| JEL: | E01 E32 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18954&r=mac |
| By: | Peter Claeys (Faculty of Economics, University of Barcelona); Borek Vašícek (Czech Czech National Bank, Economic Research Department) |
| Abstract: | We use the forecast-error variance decompositions from a VAR with daily sovereign bonds spreads since 2000 to detail the linkages between EU sovereign bond markets and banks over time. Using new summary statistics on the matrix of bilateral linkages, we show Spain is systemic for Europe. Its fiscal problems expose it to trouble in sovereign bond markets of the other Club Med countries, whereas its internationally grown banking sector transmits domestic economic trouble to the rest of Europe. This spillover has substantially increased since the outbreak of the Fiscal Crisis in the Eurozone in May 2010. We develop a real-time indicator to follow the degree of spillover on a daily basis. |
| Keywords: | spillover, contagion, sovereign bond spreads, fiscal policy, Eurozone, financial crisis, sovereign ratings.. JEL classification: G12, C14, E43, E62, G12, H62, H63 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:aqr:wpaper:201301&r=mac |
| By: | Eerola, Essi; Määttänen, Niku |
| Abstract: | Abstract:We develop a model of the housing market that features both financial and matching frictions. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Each household either rents or owns its house. Some renter households become dissatisfied with rental housing and want to buy a house. Prospective sellers and buyers meet randomly and bargain over the price. We show how the outcome of the bargaining process depends on buyer’s and seller’s asset positions. The results also illustrate how financial frictions magnify the effects of matching frictions. For instance, because of the borrowing constraint, some matches do not result in trade and identical houses are traded at different prices. |
| Keywords: | housing, matching, house prices |
| JEL: | E21 R21 C78 |
| Date: | 2013–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:rif:wpaper:3&r=mac |
| By: | Dimitri O. Ledenyov; Viktor O. Ledenyov |
| Abstract: | The accurate characterization of the business cycles in the nonlinear dynamic financial and economic systems in the time of globalization represents a formidable research problem. The central banks and other financial institutions make their decisions on the minimum capital requirements, countercyclical capital buffer allocation and capital investments, going from the precise data on the business cycles. We consider the two possible interaction scenarios, when there are: the linear interactions, and the non-linear interactions. In our opinion, the main parameters of the business cycle may deviate during the business cycle nonlinear interaction with the nonlinear dynamic financial and economic systems, because of the origination of the nonlinear effects such as the Four Waves Mixing (FWM), Stimulated Brillouin Scattering (SBS), Stimulated Raman Scattering (SRS), Carrier Induced Phase Modulation. |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1304.4807&r=mac |
| By: | Heutel, Garth (University of North Carolina at Greensboro, Department of Economics); Ruhm, Christopher J. (University of Virginia) |
| Abstract: | Prior research demonstrates that mortality rates increase during economic booms and decrease during economic busts, but little analysis has been conducted investigating the role of environmental risks as potential mechanisms for this relationship. We investigate the contribution of air pollution to the procyclicality of deaths by combining state-level data on overall, cause-specific, and age-specific mortality rates with state-level measures of ambient concentrations of three types of pollutants and the unemployment rate. After controlling for demographic variables and state and year fixed-effects, we find a significant positive correlation between carbon monoxide (CO) concentrations and mortality rates. Controlling for CO, particulate matter (PM10), and ozone (O3) attenuates the relationship between overall mortality and the unemployment rate by 30 percent. The attenuation is particularly large, although imprecisely measured, for fatalities from respiratory diseases and is frequently substantial for age groups unlikely to be involved in the labor market. Our results are consistent with those of other studies in the economics and public health literatures measuring the mortality effects of air pollution. |
| Keywords: | Pollution; Health; Mortality; Business Cycles |
| JEL: | E32 I10 Q53 |
| Date: | 2013–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:ris:uncgec:2013_007&r=mac |
| By: | Osuna, Victoria |
| Abstract: | This paper evaluates the implications for employment, productivity and wages of allowing for more flexibility in weekly hours worked introduced in the recent Spanish labour market reform (the 2012 reform). A crucial aspect of the model will be the extent to which firms will be able to choose the workweek when subject to demand shocks. The model is calibrated so that it reproduces the cross-sectional distribution of workweeks across plants and households and some features of the Spanish economy. The author compares the status quo steady-state, where a 40 hour workweek is imposed and no flexibility is allowed, with the steady state of economies with a higher degree of flexibility in weekly hours: the 2012 Reform, the Work sharing and the Full flexibility scenarios. She finds that the 2012 reform preserves employment and generates a 1.72% increase in productivity. In the work sharing scenario, the increase in employment (1.86%) comes at the expense of a lower productivity increase (1.31%) and a decrease in weekly hours worked (4%). Finally, the full flexibility scenario preserves employment and generates a substantial increase in productivity (2.6%) by allowing firms to completely adapt to changing economic conditions, by expanding or contracting the working week. -- |
| Keywords: | workweek,wages,employment,productivity |
| JEL: | E24 E60 J21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201327&r=mac |
| By: | Gemmell, Norman; Kneller, Richard; Sanz, Ismael |
| Abstract: | The literature testing for aggregate impacts of taxes on long-run growth rates in the OECD has generally used tax rate measures constructed from macroeconomic aggregates such as tax revenues. These have a number of advantages but two major disadvantages: they are typically average, rather than marginal, rates, and are constructed from endogenous tax revenues. Theory predicts a number of responses to both average and marginal tax rates, but empirical analogues of the latter tend to be at the micro level. In addition though most OECD economies are best regarded as small open economies, previous macroeconomic tests of OECD tax-growth relationships have implicitly been based on closed-economy models, focusing on domestic tax rates. This paper explores the relevance of these two aspects – "macro average‟ versus "micro marginal‟ tax rates, and open economy dimensions – for test of tax-growth effects in OECD countries. We use annual panel data on a number of average and marginal tax rate measures and find: (i) statistically small and/or non-robust effects of macro-based average tax rates on capital income and consumption but more evidence for average labor income tax effects; (ii) statistically robust GDP growth effects of modest size from changes in marginal income tax rates at both the personal and corporate levels; (iii) international tax competition, in which both domestic and foreign corporate tax rates play a role, is consistent with the data; (iv) tax effects on GDP growth appear to operate largely via impacts on factor productivity rather than factor accumulation. |
| Keywords: | marginal tax rates, average tax rates, personal tax, corporate tax, GDP growth, |
| Date: | 2013–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:vuw:vuwcpf:2706&r=mac |
| By: | George Mavrotas; Syed Mansoob Murshed; Sebastian Torres |
| Abstract: | We look at the type of natural resource dependence and growth in developing countries. Certain natural resources called point-source, such as oil and minerals, exhibit concentrated and capturable revenue patterns, while revenue flows from resources such as agriculture are more diffused. Developing countries that export the former type of products are regarded prone to growth failure due to institutional failure.We present an explicit model of growth collapse with micro-foundations in rent-seeking contests with increasing returns. Our econometric analysis is among the few in this literature with a panel data dimension. Point-source-type natural resource dependence does retard institutional development in both governance and democracy, which hampers growth. The resource curse, however, is more general and not simply confined to mineral exporters. |
| Keywords: | conflict, Natural resource dependence, economic performance, growth collapse, rent-seeking, resource curse |
| JEL: | E60 F34 F35 F43 H21 H63 O11 Q33 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:081&r=mac |
| By: | Olivier Allain (Centre d’Economie de la Sorbonne); Jochen Hartwig (KOF Swiss Economic Institute); Mark Hayes (University of Cambridge) |
| Abstract: | This Symposium consists of individual comments by three authors on papers previously published by the other two (Allain, 2009, Hartwig, 2007 and Hayes, 2007) on the topic of Keynes’s principle of effective demand as set out in The General Theory. The Symposium includes updated versions of PKSG working papers 1210, 1211 and 1212 together with an introduction by all three authors. As Allain puts it, there is a closure problem, in our understanding if not in The General Theory itself. Allain’s solution is to redefine effective demand so that it becomes the end point of a process of convergence of expectations on outcomes. Hartwig (following Chick, 1992, in particular) requires entrepreneurs to form a view about aggregate demand rather than simply their own industry price. Hayes retains Keynes’s definition of effective demand and price-taking firms but introduces a division of entrepreneurs between employers and dealers which is not explicit in Keynes’s text. |
| Keywords: | Keynes, effective demand, formation of expectations |
| JEL: | E12 B22 B31 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1302&r=mac |
| By: | Cuenca, Leonidas (Apoyo Consultoría); Flores, Julio (Apoyo Consultoría); Morales, Daniel (Rímac Seguros) |
| Abstract: | The Consumer Confidence Index of APOYO Consultoría (INDICCA) is computed based on the responses to ten questions of a monthly survey in the city of Lima which aim to reflect the consumers’ spending intentions. We evaluate some sub-components of INDICCA in terms of their predictive and explanatory power of private consumption. In this process, we also evaluate the disaggregation on socioeconomic levels of this index, and a synthetic indicator of confidence based on dynamic factor models suggested by Jonsson and Lindén (2009) as an alternative way to combine the information contained in the sub-components of this index. We find that the explanatory and predictive power of private consumption models in Peru is enhanced when consumer confidence indices are included. However, this improvement is only marginal when other control variables such as employment or inflation are added. In particular, the optimal consumer confidence indicator is the synthetic indicator constructed with the dynamic factor model procedure. The results presented in this paper, although valid for some sub-components, are still inconclusive for the overall INDICCA. |
| Keywords: | consumer confidence, consumer tendency surveys, private consumption, forecasting |
| JEL: | E21 E27 C22 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2013-004&r=mac |
| By: | Kurt Mitman (University of Pennsylvania) |
| Abstract: | Bankruptcy laws govern consumer default on unsecured credit. Foreclosure laws regulate default on secured mortgage debt. In this paper I use a structural model to argue that bankruptcy and foreclosure are inter-related. This interaction is important for understanding the cross-state variation in bankruptcy rates and evaluating reforms to default policies. To study this interaction, I construct a general-equilibrium model where heterogeneous households have access to unsecured borrowing and can finance housing purchases with mortgages. Households can default separately on both types of debt. The calibrated model is quantitatively consistent with the observed cross-state correlation between policies and default rates. In particular, the model correctly predicts that bankruptcy rates are lower in states with more generous homestead exemptions (the amount of home equity that may be retained after filing for bankruptcy), despite the decreased penalty of declaring bankruptcy. In equilibrium, that lower penalty of going bankrupt in high exemption states raises the price of unsecured credit. Households respond to the higher price by taking on more highly leveraged mortgages and less unsecured credit. As a result, bankruptcy rates are lower in high exemption states than in low exemption states, but foreclosure rates are higher. I use the model to evaluate the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act which made it more difficult for high income households to declare bankruptcy. Despite being intended to reduce bankruptcy rates, I find that the reform substantially increases them. In addition, the reform has the unintended consequence of considerably increasing foreclosure rates. Nevertheless, the reform yields large welfare gains. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed012:563&r=mac |
| By: | Callan Windsor (Reserve Bank of Australia); Jarkko Jääskelä (Reserve Bank of Australia); Richard Finlay (Reserve Bank of Australia) |
| Abstract: | This paper explores the positive relationship betwen home prices and household spending by following a panel of Australian households over the period 2003 to 2010. There are three hypotheses put forth in the literature to explain this relationship: (1) increases in home prices raise spending via a 'traditional wealth effect'; (2) increases in home prices raise spending by easing credit constraints; and (3) home prices and spending are influenced by a common 'third factor' such as something that affects expectations regarding future income. Identifying differences in behaviour across households of different ages helps to distinguish among these hypotheses. Younger homeowners exhibit the largest home-price wealth effects, with a 3 to 4 cent increase in spending per dollar increase in home price. As young homeowners are more likely to be credit constrained, their relatively large marginal propensity to spend supports hypothesis (2) as an important determinant of the co-movement between home prices and household spending. Further, the non-response of young renters to changes in home prices argues against hypothesis (3). |
| Keywords: | dwelling prices; consumption; micro data |
| JEL: | E21 R21 R31 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2013-04&r=mac |
| By: | Philippe Bergevin (C.D. Howe Institute) |
| Abstract: | The Canadian labour market suffered a severe blow during the last recession, with more than 430,000 persons losing their jobs and the unemployment rate reaching levels unseen since the latter half of the 1990s. Subsequently, the labour market has shown great resilience, and there are now 900,000 more Canadians employed since the beginning of the recovery. Important weaknesses remain, however: long-term and youth unemployment still stand at obstinately high levels – despite a recent growth in job vacancies. This E-Brief argues the best way to further support the Canadian labour market would be through policies that enhance labour mobility and emphasize skills training to help ensure unemployed Canadians have the right skill sets to integrate into the workforce. |
| Keywords: | Economic Growth and Innovation |
| JEL: | E24 E63 J0 J6 |
| URL: | http://d.repec.org/n?u=RePEc:cdh:ebrief:154&r=mac |
| By: | Valeria Andreoni (European Commission – JRC - IPTS); Arto Inaki (European Commission – JRC - IPTS); Jose Manuel Rueda Cantuche (Pablo Olavide University); Nuno Sousa (European Commission – DG Trade) |
| Abstract: | This note provides an overview of the employment impact of exporting activity in the EU. We find that the exports of goods and services to the rest of the world supported around 25 million jobs in Europe in 2007 (an increase of 3 million since 2000). Two main additional insights stand out from this analysis: the importance of the complementary relation between the Single Market and external trade for job creation in Europe, and the “servicification” of the employment supported by exports. |
| Keywords: | Trade; Employment; Production Chain; Spillover Effect; Input-Output Analysis; EU27 |
| JEL: | E24 F16 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc71120&r=mac |
| By: | Lahura, Erick (Banco Central de Reserva del Perú; PUCP); Vega, Marco (Banco Central de Reserva del Perú; PUCP) |
| Abstract: | En este documento se realiza una evaluación de la literatura teórica y empírica sobre la relación entre los regímenes cambiarios y el desempeño macroeconómico. La principal conclusión es que la distinción entre regímenes cambiarios fijos y flexibles parece ser importante para economías en desarrollo, mas no así para economías desarrolladas. En particular, los regímenes cambiarios flexibles parecen ser más favorables para una economía emergente, tanto a nivel teórico como empírico. Sin embargo, la evidencia actual no es totalmente robusta al método de clasificación de los regímenes cambiarios. |
| Keywords: | Regímenes cambiarios |
| JEL: | E42 F31 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2013-006&r=mac |
| By: | Daron Acemoglu (Department of Economics, Massachusetts Institute of Technology); Ufuk Akcigit (Department of Economics, University of Pennsylvania); Nicholas Bloom; William R. Kerr (Entrepreneurial Management Unit, Harvard University) |
| Abstract: | We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms. 0n the contrary, substantial improvements (of the order of 5% improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry. |
| Keywords: | entry, growth, industrial policy, innovation, R&D, reallocation, selection |
| JEL: | E2 L1 |
| Date: | 2013–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-018&r=mac |
| By: | David Lagakos (Arizona State University); Benjamin Moll (Princeton University); Tommaso Porzio (Yale University); Nancy Qian (Yale University, NBER, CEPR, BREAD) |
| Abstract: | Using recently available large-sample micro data from 36 countries, we document that experience-earnings profiles are flatter in poor countries than in rich countries. Motivated by this fact, we conduct a development accounting exercise that allows the returns to experience to vary across countries but is otherwise standard. When the country-specific returns to experience are interpreted in such a development accounting framework - and are therefore accounted for as part of human capital - we find that human and physical capital differences can account for almost two thirds of the variation in cross-country income differences, as compared to less than half in previous studies. |
| Keywords: | Human Capital, Experience-Earnings Profiles, Development Accounting |
| JEL: | E24 J24 O11 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2012-021&r=mac |
| By: | Peter Claeys (Faculty of Economics, University of Barcelona); Borek Vašícek (Czech Czech National Bank, Economic Research Department) |
| Abstract: | Although there is by now strong evidence that sovereign risk premia are driven by a common factor, little is known about the detailed linkages between sovereign bond markets. We employ the VAR method by Diebold and Yilmaz (2009) to analyse the strength and direction of bilateral linkages between EU sovereign bond markets using daily data on sovereign bond yield spreads and a common factor. The forecast-error variance decomposition of this FAVAR indicates a lot of heterogeneity in the bilateral spillover sent and received between bond markets. Spillover is more important than domestic factors for all eurozone countries. The CE countries mostly affect each other. Only Denmark, Sweden and the UK are rather insulated from spillover. The spillover has increased substantially since 2007, despite starting from a high level. We use this framework to measure the impact of sovereign rating news and analyse the dynamic linkages between spreads and the ratings of the main credit rating agencies. We find a two-sided relation between rating news and sovereign risk premia. The spillover of rating news is very heterogeneous, and it is substantially stronger for downgrades at lower grades. The impact is often weaker domestically than on bond spreads of other sovereigns. |
| Keywords: | Contagion, eurozone, FAVAR, financial crisis, fiscal policy, sovereign bond spreads, sovereign ratings, spillover. JEL classification: C14, E43, E62, G12, H62, H63 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:aqr:wpaper:201209&r=mac |
| By: | Jürgen Bitzer (University of Oldenburg, Department of Economics); Erkan Gören |
| Abstract: | From an engineering perspective, a capital good’s service is energy conversion – e.g., the physical ‘work’ done by a machine – and can thus be measured directly by the energy consumed in production. We show important empirical advantages of our concept over traditional measures. The empirical application reveals that our concept avoids a number of conceptual problems of the latter. Furthermore, our measure is more sensitive to fluctuations in economic activity and therefore captures the utilization of the capital stock better. In a growth accounting exercise, this results in higher TFP growth rates, especially in times of global recession. |
| Keywords: | capital service, utilization, energy consumption, total factor productivity, growth accounting |
| JEL: | E22 D24 O47 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:old:wpaper:351&r=mac |
| By: | Aiginger, Karl; Guger, Alois |
| Abstract: | There are several narratives connecting the financial crisis - as well as the Great Depression of the 1930s - with the functional or personal income distribution and its pre-crisis movements. The paper investigates whether this claim can be supported with evidence showing that the crisis was deeper in countries in which incomes were more polarized or where wage shares were lower. Empirical evidence for 37 mainly industrialized countries does not generally support the hypothesis that either the level of or the change in distribution was closely linked to the performance of a country during the crisis. Some evidence shows a tentatively improved performance if wage shares as well as polarization decreased. Declining wage shares could have increased the resilience of firms in the crisis; the lower income differences may have bolstered consumption of domestic goods. The existence of more compelling evidence for the impact of distribution on the crisis may have been diluted by the global character of economies. Savings in one country or region can lead to low interest rates as well as financial or real investment in other regions via international capital flows which might stop abruptly in the crisis. -- |
| Keywords: | income distribution,wage shares,financial crisis,great recession,anti crisis strategies |
| JEL: | E64 G01 J3 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201325&r=mac |