|
on Macroeconomics |
|
Issue of 2013‒09‒28
fifty-six papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | McKay, Alisdair; Reis, Ricardo |
| Abstract: | Most countries have automatic rules in their tax-and-transfer systems that are partly intended to stabilize economic fluctuations. This paper measures how effective they are. We put forward a model that merges the standard incomplete-markets model of consumption and inequality with the new Keynesian model of nominal rigidities and business cycles, and that includes most of the main potential stabilizers in the U.S. data, as well as the theoretical channels by which they may work. We find that the conventional argument that stabilizing disposable income will stabilize aggregate demand plays a negligible role on the effectiveness of the stabilizers, whereas tax-and-transfer programs that affect inequality and social insurance can have a large effect on aggregate volatility. However, as currently designed, the set of stabilizers in place in the United States has barely had any effect on volatility. According to our model, expanding safety-net programs, like food stamps, has the largest potential to enhance the effectiveness of the stabilizers. |
| Keywords: | Countercyclical fiscal policy; Fiscal multipliers; Heterogeneous agents |
| JEL: | E32 E62 H30 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9454&r=mac |
| By: | Backus, David; Chernov, Mikhail; Zin, Stanley E. |
| Abstract: | Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several macro-finance models with Taylor rules. When the shock to the rule is observed by agents but not economists, identification of the rule's parameters requires restrictions on the form of the shock. We show how such restrictions work when we observe the state directly, indirectly, or infer it from observables. |
| Keywords: | exponential-affine models; forward-looking models; information sets; monetary policy |
| JEL: | E43 E52 G12 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9611&r=mac |
| By: | Michael Woodford |
| Abstract: | This paper reviews a variety of alternative approaches to the specification of the expectations of economic decisionmakers in dynamic models, and reconsiders familiar results in the theory of monetary and fiscal policy when one allows for departures from the hypothesis of rational expectations. The various approaches are all illustrated in the context of a common model, a log-linearized New Keynesian model in which both households and firms solve infinite-horizon decision problems; under the hypothesis of rational expectations, the model reduces to the standard “3-equation model” used in studies such as Clarida et al. (1999). The alternative approaches considered include rationalizable equilibrium dynamics (Guesnerie, 2008); restricted perceptions equilibria (Branch, 2004); decreasing-gain and constant-gain variants of least-squares learning dynamics (Evans and Honkapohja, 2001); rational belief equilibria (Kurz, 2012); and near-rational expectations equilibria (Woodford, 2010). Issues treated include Ricardian equivalence; the determinacy of equilibrium under alternative interest-rate rules; non-fundamental sources of aggregate instability; the trade-off between inflation stabilization and output-gap stabilization; and the possibility of a “deflation trap.” |
| JEL: | E52 E63 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19368&r=mac |
| By: | Forni, Mario; Gambetti, Luca; Lippi, Marco; Sala, Luca |
| Abstract: | In a situation where agents can only observe a noisy signal of the shock to future economic fundamentals, SVAR models can still be successfully employed to estimate the shock and the associated impulse response functions. Identification is reached by means of dynamic rotations of the reduced form residuals. We use our identification approach to investigate the role of the "noise" shock the component of the signal observed by agents which is unrelated to economic fundamentals as a source of business cycle fluctuations. We find that noise shocks generate hump-shaped responses of GDP, consumption and investment and account for about a third of their prediction error variance at business cycle horizons. |
| Keywords: | Business cycle; Imperfect information; News; Noise; Nonfundamentalness; SVAR |
| JEL: | C32 E32 E62 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9601&r=mac |
| By: | Hart, Oliver; Zingales, Luigi |
| Abstract: | We study the role of fiscal policy in a complete markets model where the only friction is the non-pledgeability of human capital. We show that the competitive equilibrium is constrained inefficient, leading to too little risky investment. We also show that fiscal policy following a large negative shock can increase ex ante welfare. Finally, we show that if the government cannot commit to the promised level of fiscal intervention, the ex post optimal fiscal policy will be too small from an ex ante perspective. |
| Keywords: | aggregate shocks; fiscal policy; liquidity; nonpledgeability; pecuniary externalities |
| JEL: | E41 E51 G21 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9537&r=mac |
| By: | Kristina Spantig (Graduate Programme "Global Financial Markets") |
| Abstract: | This paper scrutinizes the debate of Keynes and Hayek concerning the adequate re- sponse to economic crises from a historical perspective. In a first step the develop- ment of the Keynesian economic theory, its ascent during the Great Depression and its use during financially sound times is analyzed. In a second step the Hayekian cri- tique to discretionary government intervention and its long run consequences is scru- tinized. In the last step it is analyzed why, in the wake of a crisis, short-run oriented Keynesian therapy dominates long-run Hayekian therapy as in the most recent crisis. |
| Keywords: | Keynes, discretionary fiscal policy, monetary policy |
| JEL: | B20 E12 E52 E62 |
| Date: | 2013–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:hlj:hljwrp:45-2013&r=mac |
| By: | Lukkezen, Jasper; Teulings, Coen N |
| Abstract: | This paper derives and estimates rules for fiscal policy that prescribe the optimal response to changes in unemployment and debt. We combine the reducedform model of the economy from a linear VAR with a non-linear welfare function and obtain analytic solutions for optimal policy. The variables in our reducedform model – growth, unemployment, primary surplus – have a natural rate that cannot be affected by policy. Policy can only reduce fluctuations around these natural rates. Our welfare function contains future GDP and unemployment, the relative weights of which determine the optimal response. The optimal policy rule demands an immediate and large policy response that is procyclical to growth shocks and countercyclical to unemployment shocks. This result holds true when the weight of unemployment in the welfare function is reduced to zero. The rule currently followed by policy makers responds procyclically to both growth and unemployment shocks, and does so much slower than the optimal rule, leading to significant welfare losses. |
| Keywords: | debt sustainability; fiscal consolidation; fiscal policy rules; optimal control; optimal policy |
| JEL: | E6 H6 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9473&r=mac |
| By: | Reis, Ricardo |
| Abstract: | What set of institutions can support the activity of a central bank? Designing a central bank requires specifying its objective function, including the bank's mandate at different horizons and the choice of banker(s), specifying the resource constraint that limits the resources that the central bank generates, the assets it holds, or the payments on its liabilities, and finally specifying how the central bank will communicate with private agents to affect the way they respond to policy choices. This paper summarizes the relevant economic literature that bears on these choices, leading to twelve principles on central bank design. |
| Keywords: | Mechanism Design; Monetary Policy |
| JEL: | E50 E58 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9567&r=mac |
| By: | Bacchetta, Philippe; van Wincoop, Eric |
| Abstract: | While the 2008-2009 financial crisis originated in the United States, we witnessed steep declines in output, consumption and investment of similar magnitudes around the globe. This raises two questions. First, given the observed strong home bias in goods and financial markets, what can account for the remarkable global business cycle synchronicity during this period? Second, what can explain the difference relative to previous recessions, where we witnessed far weaker co-movement? To address these questions, we develop a two-country model that allows for self-fulfilling business cycle panics. We show that a business cycle panic will necessarily be synchronized across countries as long as there is a minimum level of economic integration. Moreover, we show that several factors generated particular vulnerability to such a global panic in 2008: tight credit, the zero lower bound, unresponsive fiscal policy and increased economic integration. |
| Keywords: | Contagion; Great Recession; International co-movements |
| JEL: | E32 F40 F41 F44 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9487&r=mac |
| By: | Anton Korinek; Enrique G. Mendoza |
| Abstract: | The 1990s Sudden Stops in emerging markets were a harbinger for the 2008 global financial crisis. During Sudden Stops, countries lost access to credit, causing abrupt current account reversals, and suffered Great Recessions. This paper reviews a class of models that yields quantitative predictions consistent with these observations, based on an occasionally binding credit constraint that limits debt to a fraction of the market value of incomes or assets used as collateral. Sudden Stops are infrequent events nested within regular business cycles, and occur in response to standard shocks after periods of expansion increase leverage ratios sufficiently. When this happens, the Fisherian debt-deflation mechanism is set in motion, as lower asset or goods prices tighten further the constraint causing further deflation. This framework also embodies a pecuniary externality with important implications for macro-prudential policy, because agents do not internalize how current borrowing decisions affect collateral values during future financial crises. |
| JEL: | E44 F34 F41 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19362&r=mac |
| By: | Michael W. Klein; Jay C. Shambaugh |
| Abstract: | A central result in international macroeconomics is that a government cannot simultaneously opt for open financial markets, fixed exchange rates, and monetary autonomy; rather, it is constrained to choosing no more than two of these three. In the wake of the Great Recession, however, there has been an effort to address macroeconomic challenges through intermediate measures, such as narrowly targeted capital controls or limited exchange rate flexibility. This paper addresses the question of whether these intermediate policies, which round the corners of the triangle representing the policy trilemma, afford a full measure of monetary policy autonomy. Our results confirm that extensive capital controls or floating exchange rates enable a country to have monetary autonomy, as suggested by the trilemma. Partial capital controls, however, do not generally enable a country to have greater monetary control than is the case with open capital accounts unless they are quite extensive. In contrast, a moderate amount of exchange rate flexibility does allow for some degree of monetary autonomy, especially in emerging and developing economies. |
| JEL: | E52 F3 F33 F41 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19461&r=mac |
| By: | Jinill Kim; Seth Pruitt |
| Abstract: | Did the Federal Reserve's response to economic fundamentals change with the onset of the Global Financial Crisis? Estimation of a monetary policy rule to answer this question faces a censoring problem since the interest rate target has been set at the zero lower bound since late 2008. Surveys by forecasters allow us to sidestep the problem and to use a conventional regression. We find that the Fed's inflation response has decreased and that the unemployment response has remained as strong; this suggests that the Federal Reserve's commitment to stable inflation has become weaker in the eyes of the professional forecasters. |
| Keywords: | monetary policy, policy rule, survey data, market perceptions, censoring, zero lower bound, Blue Chip survey |
| JEL: | E53 E58 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-53&r=mac |
| By: | Paul Beaudry; Franck Portier |
| Abstract: | There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating its relevance. In particular, we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations, while at the same time we emphasize the many challenges that must be addressed before a proper assessment of its role in business cycles can be established. |
| JEL: | E00 E3 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19411&r=mac |
| By: | Sasaki, Hiroaki |
| Abstract: | This paper investigates the effect of profit sharing on the economy by using a Kaleckian model. Unlike exiting studies, we endogenize the profit share. Our analysis shows that if the size of the productivity-enhancing effect of profit sharing is small, profit sharing decreases the equilibrium rate of capacity utilization whereas if the size is large, profit sharing increases the equilibrium rate of capacity utilization. |
| Keywords: | profit sharing, income distribution, regular and non-regular employment, wage-gap, cyclical fluctuations, demand-led growth |
| JEL: | E12 E24 E25 E32 J31 J33 J53 J82 J83 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hit:ccesdp:50&r=mac |
| By: | Den Haan, Wouter |
| Abstract: | Investment in inventories is known to be important for observed changes in GDP. However, inventory investment and the possibility that firms may fail to sell all goods are typically ignored in business cycle models. Using US data, the ability to sell is shown to be strongly procyclical. By including both a goods-market friction and a standard labor-market search friction, the model developed here can---in principal---substantially magnify and propagate shocks, even when prices and wages are not sticky. Despite its simplicity, the model can also replicate key inventory facts. However, when these inventory facts are used to discipline the choice of parameter values, then the analysis indicates that the quantitative importance of goods-market frictions is not that large, at least not in this type of model without sticky prices and wages. |
| Keywords: | magnification; matching models; propagation; search frictions |
| JEL: | E12 E24 E32 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9628&r=mac |
| By: | Raphael A. Espinoza; Dimitrios P. Tsomocos |
| Abstract: | We show that, in a monetary equilibrium, trade and asset prices depend on both the supply of the liquidity by the Central Bank and the liquidity of assets and commodities. As a result, monetary aggregates are informative for the conduct of monetary policy. We also show asset prices are higher in liquidity-constrained states of nature. This generates a term premium even in absence of aggregate uncertainty. These results hold in any monetary economy with heterogeneous agents and short-term liquidity effects, where monetary costs act as transaction costs and the quantity theory of money is verified. |
| Keywords: | Monetary policy;Central banks;Liquidity;Asset prices;Interest rate structures;Economic models;Liquidity ; Cash-in-advance constraints ; Term structure of interest rates |
| Date: | 2013–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/85&r=mac |
| By: | Romain Bouis; Ane Kathrine Christensen; Boris Cournède |
| Abstract: | In the run-up to the financial crisis, indebtedness of households and non-financial businesses rose to historically high levels in many OECD countries; gross debt of financial companies rose dramatically relative to GDP. Much of the debt accumulation appears to have been based on excessive risk-taking and exceptional macro-economic conditions and therefore not sustainable. Since the start of the crisis, non-financial private sector debt has receded substantially in the United States and the United Kingdom. Other OECD countries have not experienced significant debt reduction but already achieved some adjustment in terms of private saving and investment (with the seeming contradiction between these two observations explained by the private sector accumulating gross financial assets at a faster pace). Some macro-economic risks related to future household deleveraging nevertheless remain in a few OECD countries where indebtedness has risen in recent years. In the financial sector, possible future deleveraging will be more damaging to growth if it involves reducing assets rather than retaining (or raising) equity. To speed up the deleveraging process and minimising its impact on prosperity, bad loans should be recognised swiftly, losses taken, insolvent banks wound down orderly and capital shortfalls plugged at still solvent banks. Désendettement : Enjeux, progrès et politiques économiques Dans la période qui a précédé la crise, l’endettement des ménages et des entreprises non financières a augmenté jusqu’à des niveaux historiquement élevés dans de nombreux pays de l’OCDE. La dette brute des entreprises financières s’est accrue de manière spectaculaire par rapport au PIB. Une grande part de cet endettement, qui semble avoir été la contrepartie d’une prise de risque excessive dans un environnement macro-économique exceptionnellement favorable, ne paraît pas soutenable. Depuis le commencement de la crise, la dette du secteur privé non financier a reculé aux États-Unis et au Royaume-Uni. Aucune réduction significative de l’endettement n’a été observée dans plusieurs autres pays de l’OCDE qui ont toutefois effectué une part d’ajustement en termes d’épargne privée et d’investissement immobilier. La contradiction apparente entre ces deux observations s’explique dans ces pays par une accélération de l’acquisition d’actifs financiers bruts par le secteur privé. La possibilité d’un désendettement des ménages continue néanmoins de faire peser un risque macroéconomique sur certains pays de l’OCDE qui ont connu une augmentation de l’endettement au cours des dernières années. S’agissant du secteur financier, une éventuelle baisse du ratio d’endettement sera plus dommageable à la croissance si elle se produit au moyen de réductions d’actifs plutôt que par l’accumulation de capital. Afin d’accélérer le processus de réduction de l’effet de levier et de réduire ses conséquences défavorables pour la prospérité économique, il convient d’identifier rapidement les prêts improductifs, de comptabiliser les pertes qui leur sont associées, de liquider les banques non solvables et de combler les besoins en capital des banques qui demeurent solvables. |
| Keywords: | financial regulation, non-performing loans, housing prices, household saving, deleveraging, non-financial corporation debt, financial sector debt, household debt, residential investment, épargne des ménages, crédits en souffrance, investissement immobilier résidentiel, dette des entreprises non financières, dette du secteur des entreprises financières, prix des logements, réduction de l’effet de levier, prêts non productifs, prix de l'immobilier d'habitation |
| JEL: | E21 E44 E51 G21 G28 |
| Date: | 2013–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1077-en&r=mac |
| By: | Enes Sunel |
| Abstract: | This study investigates the distributional and welfare consequences of disinflation in emerging economies using a monetary model of a small open economy with uninsured idiosyncratic earnings risk. The model is calibrated to Turkish data and is used to compare stationary equilibria with quarterly inflation rates of 14.25% (for 1987 : Q1-2002 : Q4) and 2.25% (for 2003 : Q1- 2010 : Q2). Reduction in inflationary finance is assumed to affect lump-sum transfers, since government spending-to-GDP ratios have been roughly stable during disinflation in a number of emerging economies. Disinflation is found to lower aggregate welfare by 1.23% in terms of compensating consumption variation. This is because the reduction in the distortionary impediments of inflation on the poor falls short of the decline in their redistributive transfers income that is mainly financed by the rich. The shrinkage of cash transfers also tightens natural debt limits and increases the precautionary savings motive. |
| Keywords: | Small open economy, incomplete markets, disinflation |
| JEL: | D31 F41 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1334&r=mac |
| By: | Misra, Kanishka; Surico, Paolo |
| Abstract: | Almost half of American families did not adjust their consumption following receipt of the 2001 or 2008 tax rebates. Another 20%, with low income and more likely to rent, spent a small but significant amount. Households with large spending propensity held high mortgage debt. The heterogeneity is concentrated in a few non-durable categories and a handful of `new vehicle' purchases. The predictions of the heterogeneous response model appear far more accurate than their homogeneous response model counterparts, offering new insights on the evaluation of the two fiscal stimulus programmes. |
| Keywords: | fiscal policy; heterogeneity; stimulus payments |
| JEL: | D91 E21 E62 H31 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9530&r=mac |
| By: | Ahmet Benlialper; Hasan Cömert |
| Abstract: | Especially, after the 2000s, many developing countries let exchange rates float and began implementing inflation targeting regimes based on mainly manipulation of expectations and aggregate demand. However, most developing countries implementing inflation targeting regimes experienced considerable appreciation trends in their currencies. Might have exchange rates been utilized as implicit tools even under inflation targeting regimes in developing countries? To answer this question and investigate the determinants of inflation under an inflation targeting regime, as a case study, this paper analyzes the Turkish experience with the inflation targeting regime between 2002 and 2008. There are two main findings of this paper. First, the evidence from a Vector Autoregressive (VAR) model suggests that the main determinants of inflation in Turkey during this period are supply side factors such as international commodity prices and the variation in exchange rate rather than demand side factors. �Since the Turkish lira (TL) was considerably over-appreciated during this period, it is apparent that the Turkish Central Bank benefited from the appreciation of the TL in its fight against inflation during this period. Second, our findings suggest that the appreciation of the TL is related to the deliberate asymmetric policy stance of the Bank with respect to the exchange rate. �Both the econometric analysis from a VAR model and descriptive statistics indicate that appreciation of the Turkish lira was tolerated during the period under investigation whereas depreciation was responded aggressively by the Bank. We call this policy stance under the inflation targeting regimes as “implicit asymmetric exchange rate peg”. �The Turkish experience indicates that, as opposed to rhetoric of central banks in developing countries, inflation targeting developing countries may have an asymeyric stance toward exchange rates and favour appreciation of their currencies to hit their inflation targets. In this sense, IT seems to contribute to the ignorance of dangers regarding to over-appreciation of currencies in developing countries. � � |
| Keywords: | Inflation Targeting, Central Banking, Developing Countries, Exchange Rates |
| JEL: | E52 E58 E31 F31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp333&r=mac |
| By: | Marco Bassetto; Marco Cagetti; Mariacristina De Nardi |
| Abstract: | We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business in this set-up, we show that, by reducing entrepreneurial firm size and earnings, negative shocks have a very persistent effect on real activity. In determining the speed of recovery from an adverse economic shock, the most important factor is the extent to which the shock erodes entrepreneurial wealth. |
| JEL: | E2 E21 E23 E6 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19296&r=mac |
| By: | Kalemli-Ozcan, Sebnem; Luttini, Emiliano; Sørensen, Bent E |
| Abstract: | Using a variance decomposition of shocks to GDP, we quantify the role of international factor income, international transfers, and saving in achieving risk sharing during the recent European crisis. We focus on the sub-periods 1990--2007, 2008--2009, and 2010 and consider separately the European countries hit by the sovereign debt crisis in 2010. We decompose risk sharing from saving into contributions from government and private saving and show that fiscal austerity programs played an important role in hindering risk sharing during the sovereign debt crisis. |
| Keywords: | Capital Markets; Income Insurance; International Financial Integration |
| JEL: | E2 E6 F15 G15 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9541&r=mac |
| By: | David Greenlaw; James D. Hamilton; Peter Hooper; Frederic S. Mishkin |
| Abstract: | Countries with high debt loads are vulnerable to an adverse feedback loop in which doubts by lenders lead to higher sovereign interest rates which in turn make the debt problems more severe. We analyze the recent experience of advanced economies using both econometric methods and case studies and conclude that countries with debt above 80% of GDP and persistent current-account deficits are vulnerable to a rapid fiscal deterioration as a result of these tipping-point dynamics. Such feedback is left out of current long-term U.S. budget projections and could make it much more difficult for the U.S. to maintain a sustainable budget course. A potential fiscal crunch also puts fundamental limits on what monetary policy is able to achieve. In simulations of the Federal Reserve’s balance sheet, we find that under our baseline assumptions, in 2017-18 the Fed will be running sizable income losses on its portfolio net of operating and other expenses and therefore for a time will be unable to make remittances to the U.S. Treasury. Under alternative scenarios that allow for an emergence of fiscal concerns, the Fed’s net losses would be more substantial. |
| JEL: | E63 H63 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19297&r=mac |
| By: | Jorgen Mortensen |
| Abstract: | The present paper first takes a step backwards with an attempt to situate the adoption of this Treaty in discussion of the SGP and the “Maastricht criteria” (the criteria for EMU membership fixed in the Maastricht Treaty) in a longer perspective of the sharing of competences for macroeconomic policy making within the EU from the initial Treaty to the Maastricht Treaty and the Stability and Growth Pact (SGP). It then presents the main features of the Fiscal Treaty and its relation to the SGP and draws some conclusions as regards the importance and relevance of this new step in the process of economic policy coordination. It concludes that the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union does not seem to offer a definitive solution to the problem of finding the appropriate budgetarymonetary policy mix in the EMU already well identified in the Delors report in 1989 and regularly emphasised ever since and now seriously aggravated due to the Crisis. Furthermore, the implementation of this Treaty may under certain circumstances contribute to an increase in the uncertainties as regards the distribution of the competences between the European Parliament and national parliaments and between the former and the Commission and the Council. |
| Keywords: | Economic Policy Coordination, Stability and Growth Pact, Maastricht Treaty, Fiscal Treaty, Sustainability of Fiscal Policy |
| JEL: | E61 E62 E52 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnstan:0459&r=mac |
| By: | Nao Sudo; Kozo Ueda; Kota Watanabe |
| Abstract: | We study micro price dynamics and their macroeconomic implications using daily scanner data from 1988 to 2013. We provide five facts. First, posted prices in Japan are ten times as flexible as those in the U.S. scanner data. Second, regular prices are almost as flexible as those in the U.S. and Euro area. Third, the heterogeneity of frequency and size of price change across products is sizable and maintained throughout the sample period. Fourth, during Japan's lost decades, temporary sales have played an increasingly important role in households' consumption expenditure. Fifth, the frequency of upward regular price revisions and the frequency of sales are significantly correlated with the macroeconomic environment in particular indicators associated with a labor market while other components of price changes are not. |
| Keywords: | Lost decade; deflation; temporary sales; regular prices; scanner data; price stickiness |
| JEL: | E3 E31 E5 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-63&r=mac |
| By: | Gary Hansen; Selo Imrohoroglu |
| Abstract: | Past government spending in Japan is currently imposing a significant fiscal burden that is reflected in a net debt to output ratio near 150 percent. In addition, the aging of Japanese society implies that public expenditures and transfers payments relative to output are projected to continue to rise until at least 2050. In this paper we use a standard growth model to measure the size of this burden in the form of additional taxes required to finance these projected expenditures and to stabilize government debt. The fiscal adjustment needed is very large, in the range of 30-40% of total consumption expenditures. Using a distorting tax such as the consumption tax or the labor income tax requires either tax to rise to unprecedented highs, although the former is much less distorting than the latter. The extremely high tax rates we find highlight the importance of considering alternatives that attenuate the projected increases in public spending and/or enlarge the tax base. |
| JEL: | E2 E62 H6 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19431&r=mac |
| By: | Simon Gilchrist; Egon Zakrajsek |
| Abstract: | Estimating the effect of Federal Reserve’s announcements of Large-Scale Asset Purchase (LSAP) programs on corporate credit risk is complicated by the simultaneity of policy decisions and movements in prices of risky financial assets, as well as by the fact that both interest rates of assets targeted by the programs and indicators of credit risk reacted to other common shocks during the recent financial crisis. This paper employs a heteroskedasticity-based approach to estimate the structural coefficient measuring the sensitivity of market-based indicators of corporate credit risk to declines in the benchmark market interest rates prompted by the LSAP announcements. The results indicate that the LSAP announcements led to a significant reduction in the cost of insuring against default risk—as measured by the CDX indexes—for both investment- and speculative-grade corporate credits. While the unconventional policy measures employed by the Federal Reserve to stimulate the economy have substantially lowered the overall level of credit risk in the economy, the LSAP announcements appear to have had no measurable effect on credit risk in the financial intermediary sector. |
| JEL: | E44 E58 G2 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19337&r=mac |
| By: | Michael Kromov (Gaidar Institute for Economic Policy) |
| Abstract: | This paper deals with Russia's banking sector in 2012. The author focuses on relationship between banks and corporate customers, foreign transactions in the banking sector, banking regulation. |
| Keywords: | Russian economy, banking sector, foreign transactions, banking regulation |
| JEL: | E41 E51 E58 G28 G21 G24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:147&r=mac |
| By: | Santosh Anagol; Alvin Etang; Dean Karlan |
| Abstract: | We examine the returns from owning cows and buffaloes in rural India. We estimate that when valuing labor at market wages, households earn large, negative average returns from holding cows and buffaloes, at negative 64% and negative 39% respectively. This puzzle is mostly explained if we value the household’s own labor at zero (a stark assumption), in which case estimated average returns for cows is negative 6% and positive 13% for buffaloes. Why do households continue to invest in livestock if economic returns are negative, or are these estimates wrong? We discuss potential explanations, including labor market failures, for why livestock investments may persist. |
| JEL: | E21 M4 O12 Q1 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19437&r=mac |
| By: | Ian Dew-Becker; Stefano Giglio |
| Abstract: | In affine asset pricing models, the innovation to the pricing kernel is a function of innovations to current and expected future values of an economic state variable, for example consumption growth, aggregate market returns, or short-term interest rates. The impulse response of this priced variable to fundamental shocks has a frequency (Fourier) decomposition, which captures the fluctuations induced in the priced variable at different frequencies. We show that the price of risk for a given shock can be represented as a weighted integral over that spectral decomposition. The weight assigned to each frequency then represents the frequency-specific price of risk, and is entirely determined by the preferences of investors. For example, standard Epstein-Zin preferences imply that the weight of the pricing kernel lies almost entirely at extremely low frequencies, most of it on cycles longer than 230 years; internal habit-formation models imply that the weight is shifted to high frequencies. We estimate the frequency-specific risk prices for the equity market, focusing on economically interesting frequencies. Most of the pricing weight falls on low frequencies – corresponding to cycles longer than 8 years – broadly consistent with Epstein-Zin preferences. |
| JEL: | E2 E21 G0 G1 G12 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19416&r=mac |
| By: | Giovanni Melina; Stefania Villa |
| Abstract: | This paper studies how fiscal policy affects loan market conditions in the US. First, it conducts a Structural Vector-Autoregression analysis showing that the bank spread responds negatively to an expansionary government spending shock, while lending increases. Second, it illustrates that these results are mimicked by a Dynamic Stochastic General Equilibrium model where the bank spread is endogenized via the inclusion of a banking sector exploiting lending relationships. Third, it shows that lending relationships represent a friction that generates a financial accelerator effect in the transmission of the fiscal shock. |
| Keywords: | Fiscal policy;United States;Banking sector;Loans;Economic models;Fiscal policy; deep habits; lending relationships |
| Date: | 2013–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/141&r=mac |
| By: | Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi |
| Abstract: | This study analyzes the cross-country effects of monetary policy on innovation and international technology transfer. We consider a scale-invariant North-South quality-ladder model that features innovative R&D in the North and adaptive R&D in the South. To model money demand, we impose cash-in-advance constraints on these two types of R&D investment. We find that an increase in the Southern nominal interest rate causes a permanent decrease in the rate of international technology transfer, a permanent increase in the North-South wage gap, and a temporary decrease in the rate of Northern innovation. An increase in the Northern nominal interest rate causes a temporary decrease in the rate of Northern innovation, a permanent decrease in the North-South wage gap, and an ambiguous effect on the rate of international technology transfer depending on the relative size of the two economies. We also calibrate the model to China-US data and find that the cross-country welfare effects of monetary policy are quantitatively significant. Specifically, permanently decreasing the nominal interest rate to zero in China leads to a welfare gain of 3.37% in China and a welfare gain of 1.25% in the US. Permanently decreasing the nominal interest rate to zero in the US leads to welfare gains of 0.33% in the US and 1.24% in China. |
| Keywords: | monetary policy, economic growth, R&D, North-South product cycles, FDI |
| JEL: | E4 F43 O3 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49533&r=mac |
| By: | Alex Klein; Keisuke Otsu |
| Abstract: | In this paper, we analyze the International Great Depression in the US and Western Europe using the business cycle accounting method a la Chari, Kehoe and McGrattan (CKM 2007). We extend the business cycle accounting model by incorporating endogenous factor utilization which turns out to be an important transmission mechanism of the disturbances in the economy. Our main findings are that in the US labor wedges account for roughly half of the drop in output while efficiency and investment wedges each account for a quarter of it during the 1929-1933 period while in Western Europe labor wedges account for more than one-third of the output drop and efficiency, government and investment wedges are responsible for the remaining during the 1929-1932 period. Our findings are consistent with several strands of existing descriptive and empirical literature on the International Great Depression. |
| Keywords: | International Great Depression; Business Cycle Accounting; Efficiency; Market Distortions |
| JEL: | E13 E32 N10 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1317&r=mac |
| By: | Ogunyiola, Ayorinde |
| Abstract: | This study empirically investigates the long-run relationship and short-run dynamics between financial development and economic growth in Cape Verde for the period 1980 - 2011. The study employs the Johansen and Juselius approach to cointegration, pairwise granger causality test for causality and the VECM approach was also explored. The analysis was carried out using three indicators to measure financial development which are the money supply as a percentage of GDP(M2), ratio of credit provided by commercial banks as a percentage of GDP(DCPB) and the ratio of domestic credit to the private sector as a percentage of GDP (DCTP). Control variables such as interest rate and population growth rate were included in the analysis. The empirical result indicates the existence of a long run relationship between economic growth and financial development variables in Cape Verde. However, no short run relationship exists between economic growth and financial development variables but between the control variables and economic growth. The study also found a unidirectional relationship running from financial development to economic growth when money supply( M2) is used as well as a bidirectional causality running from financial development to economic growth and vice versa, when domestic credit provided by commercial bank (DCPB) is used. The study found a unidirectional causality from economic growth to domestic credit to private sector (DCTP). |
| Keywords: | Financial Development, Economic Growth, Endogenous Growth, Cape Verde, VECM |
| JEL: | E52 G1 O4 O42 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49783&r=mac |
| By: | Bertola, Giuseppe |
| Abstract: | When economic integration fosters expectations of productivity convergence, capital flows are driven by consumption-smoothing anticipation of income growth patterns as well as by factor-intensity equalization. In the euro area, financial integration eased accumulation of international imbalances, but the convergence that appears to have been expected was not realized. The resulting crisis casts doubt on the sustainability of the current configuration of the European integration process. A robust and coherent European market and policy integration process would require supranational implementation of the behavioral constraints and contingent redistribution schemes that traditionally operate within National socio-economic systems, and have been weakened in recent experience by uncoordinated policy competition. |
| Keywords: | Current accounts; Economic integration; Income distribution |
| JEL: | E2 F3 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9471&r=mac |
| By: | Swamy, Vighneswara |
| Abstract: | This paper while emphasising the importance of the concept of financial stability in wake of recent global financial crisis in particular and other (banking and financial) crises in general attempts to highlight the significance of the soundness of banking sector in emerging economies where banking sector constitutes a lion’s share in the financial system. This study examines banking sector stability by constructing a micro vector auto regressive (VAR) model and establishes the significance of the interrelatedness of the bank-specific variables such as; Liquidity, Asset Quality, Capital Adequacy and Profitability. Further, the paper offers a substantive review of literature on the concept of financial stability in backdrop of the ongoing definition debate for financial stability. A significant contribution of this study is that, by employing the most appropriate key determinants of banking sector soundness, the paper constructs a recursive micro VAR model to explain the interdependence and comovement of the banking stability covariates in a bank-dominated financial system that aids in understanding the dynamics of financial stability of emerging economies |
| Keywords: | financial stability, instability, banks, financial institutions |
| JEL: | E44 E58 G1 G21 G28 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49597&r=mac |
| By: | Anton Cheremukhin; Mikhail Golosov; Sergei Guriev; Aleh Tsyvinski |
| Abstract: | This paper studies structural transformation of Soviet Russia in 1928-1940 from an agrarian to an industrial economy through the lens of a two-sector neoclassical growth model. We construct a large dataset that covers Soviet Russia during 1928-1940 and Tsarist Russia during 1885-1913. We use a two-sector growth model to compute sectoral TFPs as well as distortions and wedges in the capital, labor and product markets. We find that most wedges substantially increased in 1928-1935 and then fell in 1936-1940 relative to their 1885-1913 levels, while TFP remained generally below pre-WWI trends. Under the neoclassical growth model, projections of these estimated wedges imply that Stalin's economic policies led to welfare loss of -24 percent of consumption in 1928-1940, but a +16 percent welfare gain after 1941. A representative consumer born at the start of Stalin's policies in 1928 experiences a reduction in welfare of -1 percent of consumption, a number that does not take into account additional costs of political repression during this time period. We provide three additional counterfactuals: comparison with Japan, comparison with the New Economic Policy (NEP), and assuming alternative post-1940 growth scenarios. |
| JEL: | E6 N23 N24 O4 O41 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19425&r=mac |
| By: | Dean Corbae; Erwan Quintin |
| Abstract: | How much of the recent rise in foreclosures can be explained by the large number of high-leverage mortgage contracts originated during the housing boom? We present a model where heterogeneous households select from a set of mortgage contracts and choose whether to default on their payments given realizations of income and housing price shocks. The set of mortgage contracts consists of loans with high downpayments and loans with low downpayments. We run an experiment where the use of low downpayment loans is initially limited by payment-to-income requirements but then becomes unrestricted for 8 years. The relaxation of approval standards causes homeownership rates, high-leverage originations and the frequency of high interest rate loans to rise much like they did in the US between 1998-2006. When home values fall by the magnitude observed in the US from 2007-08, default rates increase by over 180% as they do in the data. Two distinct counterfactual experiments where approval standards remain the same throughout suggest that the increased availability of high-leverage loans prior to the crisis can explain between 40% to 65% of the initial rise in foreclosure rates. Furthermore, we run policy experiments which suggest that recourse could have had significant dampening effects during the crisis. |
| JEL: | E44 G21 R3 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19323&r=mac |
| By: | Giovanni Scarano |
| Abstract: | The idea that effective demand is closely connected with money supply has emerged a number of times in the history of economic thought, within approaches differing in origin and formulation. In particular, we analyse Lange and Patinkin’s theses and those of Luxemburg and the money circuit theorists. The principal thesis proposed is that the idea is closely bound up with the more or less explicit assumption of two fundamental hypotheses. The first is that Say’s law or, more generally, Walras’ law no longer applies, or in any case that there is no form of complementarity in the exchanges of goods and services within the social product. The second hypothesis is that money is a particular “good”. We stress that this theoretical paradigm is incompatible not only with money as a store of value, but also with commodity money or endogenous money supplied strictly in connection with the credit cycle. |
| Keywords: | Effective Demand, Money Supply, Say’s Law, Walras’ Law, Store of Value, Endogenous Money |
| JEL: | D50 E41 E51 E11 E13 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0181&r=mac |
| By: | Loechel, Horst; Packham, Natalie; Walisch, Fabian |
| Abstract: | As part of its effort to internationalize the Renminbi, China's government has promoted the establishment of a regulated offshore Renminbi capital market hub in Hong Kong, where, among other activities, it issues RMB-denominated government bonds providing foreign investors access to Chinese bond markets. In a VAR model where yield curves are represented by Nelson-Siegel latent factors and which includes macroeconomic variables, we find that onshore government bond yields are primarily driven by policy-related factors such as the policy rate and money supply, whereas offshore government bond yields are additionally driven by market-related factors such as consumer confidence, GDP and FX rate expectations as well as liquidity constraints. At the current stage of market development there are virtually no spillover effects between the onshore and offshore government bond curves. Our results add quantitative evidence that China's efforts to internationalize its currency results in a simultaneous liberalization of its financial system. -- |
| Keywords: | Chinese government bond yields,Chinese offshore market,RMB,Hong Kong |
| JEL: | E43 E47 E63 G18 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fsfmwp:202&r=mac |
| By: | Egorov, Alexey (BOFIT); Kovalenko , Olga (BOFIT) |
| Abstract: | Russian banks exhibit a range of behaviors that have led to distinct segmentation within the interbank lending market. This paper provides an overview of the core groups of banks operating in the market (state banks, private banks, and foreign-owned banks), as well as a discussion of their assets and liability structures. The 2007–2010 financial crisis had considerable impact on the Russian financial sector. As conditions deteriorated and recovered in global money markets, Russian banks adjusted their behavior with respect to other domestic banks and foreign banks. We conduct a comparative analysis of the Russian interbank lending market structure in the pre-crisis period and during recovery to reveal the tactical shifts in the various bank groups. |
| Keywords: | interbank markets; Russia; interest rates |
| JEL: | C22 E43 E44 |
| Date: | 2013–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2013_023&r=mac |
| By: | Gary B. Gorton; Andrew Metrick |
| Abstract: | This paper surveys the role of the Federal Reserve within the financial regulatory system, with particular attention to the interaction of the Fed’s role as both a supervisor and a lender-of-last-resort (LOLR). The institutional design of the Federal Reserve System was aimed at preventing banking panics, primarily due to the permanent presence of the discount window. This new system was successful at preventing a panic in the early 1920s, after which the Fed began to discourage the use of the discount window and intentionally create “stigma” for window borrowing – policies that contributed to the panics of the Great Depression. The legislation of the New Deal era centralized Fed power in the Board of Governors, and over the next 75 years the Fed expanded its role as a supervisor of the largest banks. Nevertheless, prior to the recent crisis the Fed had large gaps in its authority as a supervisor and as LOLR, with the latter role weakened further by stigma. The Fed was unable to prevent the recent crisis, during which its LOLR function expanded significantly. As the Fed begins its second century, there are still great challenges to fulfilling its original intention of panic prevention. |
| JEL: | E5 E6 G21 N0 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19292&r=mac |
| By: | Antipin, Jan-Erik (Finnish Tax Administration); Boumediene, Farid Jimmy (Confederation of Swedish Enterprise); Österholm, Pär (National Institute of Economic Research) |
| Abstract: | In this paper, we assess the usefulness of constant gain least squares (CGLS) when forecasting the unemployment rate. Using quarterly data from 1970 to 2009, we conduct an out-of-sample forecast exercise in which univariate autoregressive models for the unemployment rate in Australia, Sweden, the United Kingdom and the United States are em-ployed. Results show that CGLS very rarely outperforms OLS. At horizons of six to eight quarters, OLS is always associated with higher forecast precision, regardless of model size or gain employed for Australia, Sweden and the United States. Our findings suggest that while CGLS has been shown valuable when forecasting certain mac-roeconomic time series, it has shortcomings when forecasting the unemployment rate. One problematic feature is found to be an increased tendency for the autoregressive model to have explosive dynamics when estimated with CGLS. |
| Keywords: | Out-of-sample; forecasts |
| JEL: | E24 E27 |
| Date: | 2013–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nierwp:0129&r=mac |
| By: | Nicolas Arregui; Jaromir Benes; Ivo Krznar; Srobona Mitra; Andre Santos |
| Abstract: | The paper proposes a simple, new, analytical framework for assessing the cost and benefits of macroprudential policies. It proposes a measure of net benefits in terms of parameters that can be estimated: the probability of crisis, the loss in output given crisis, policy effectiveness in bringing down both the probability and damage during crisis, and the output-cost of a policy decision. It discusses three types of policy leakages and identifies instruments that could best minimize the leakages. Some rules of thumb for policymakers are provided. |
| Keywords: | Macroprudential Policy;Financial sector;Financial risk;Financial crisis;Risk management;Macroprudential Policy, Cost and Benefits, Policy Effectiveness |
| Date: | 2013–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/167&r=mac |
| By: | Rashid , Abdul; Kocaaslan, Ozge Kandemir |
| Abstract: | This paper empirically examines the relation between energy consumption volatility and unpredictable variations in real gross domestic product (GDP) in the UK. Estimating the Markov switching ARCH model we find a significant regime switching in the behavior of both energy consumption and GDP volatility. The results from the Markov regime-switching model show that the variability of energy consumption has a significant role to play in determining the behavior of GDP volatilities. Moreover, the results suggest that the impacts of unpredictable variations in energy consumption on GDP volatility are asymmetric, depending on the intensity of volatility. In particular, we find that while there is no significant contemporaneous relationship between energy consumption volatility and GDP volatility in the first (low-volatility) regime, GDP volatility is significantly positively related to the volatility of energy utilization in the second (high-volatility) regime. |
| Keywords: | energy consumption volatility; GDP volatility; asymmetry; Markov switching ARCH models; Markov regime switching models |
| JEL: | C22 E32 |
| Date: | 2013–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49580&r=mac |
| By: | Bessec, Marie |
| Abstract: | In recent years, factor models have received increasing attention from both econometricians and practitioners in the forecasting of macroeconomic variables. In this context, Bai and Ng (2008) find an improvement in selecting indicators according to the forecast variable prior to factor estimation (targeted predictors). In particular, they propose using the LARS-EN algorithm to remove irrelevant predictors. In this paper, we adapt the Bai and Ng procedure to a setup in which data releases are delayed and staggered. In the pre-selection step, we replace actual data with estimates obtained on the basis of past information, where the structure of the available information replicates the one a forecaster would face in real time. We estimate on the reduced dataset the dynamic factor model of Giannone, Reichlin and Small (2008) and Doz, Giannone and Reichlin (2011), which is particularly suitable for the very short-term forecast of GDP. A pseudo real-time evaluation on French data shows the potential of our approach. |
| Keywords: | Factor model; GDP forecasting; Large dataset; Targeted predictors; Variable selection; |
| JEL: | C22 E32 E37 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ner:dauphi:urn:hdl:123456789/10079&r=mac |
| By: | Sahin, Afsin (Gazi University); Tansel, Aysit (Middle East Technical University); Berument, Hakan (Bilkent University) |
| Abstract: | This paper investigates the nature of the output-employment relationship by using the Turkish quarterly data for the period 1988-2008. Even if we fail to find a long-run relationship between aggregate output and total employment, there are long-run relationships for the aggregate output with non-agricultural employment and sectoral employment levels for seven of nine sectors that we consider. However, a further investigation for the output and employment relationship within a short-run perspective do not reveal statistically significant relationships for either total employment, or non-agriculture employment or the eight out of the nine sectors that we consider. Although there are various long-run relationships between output and employment, the short-run links between demand and employment are weak. The various implications of this for the economy and the labor market are discussed. As a result, maintaining high levels of output in the long-run creating the demand is essential for employment generation. |
| Keywords: | seasonal cointegration, employment, output |
| JEL: | C32 E24 E32 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7599&r=mac |
| By: | Eser, Fabian; Schwaab, Bernd |
| Abstract: | We assess the yield impact of asset purchases within the ECB’s Securities Markets Programme in five euro area sovereign bond markets during 2010-11. Identification is non-trivial and based on time series panel data regression on predetermined purchases and control covariates. In addition to large and economically significant announcement effects, we find an average impact at the five year maturity per e1 bn of bond purchases of approximately -1 to -2 bps (Italy), -3 bps (Ireland), -4 to -6 bps (Spain), -6 to -9 bps (Portugal), and up to -17 to -21 bps (Greece). The impact depends on market size and a default risk signal, and is approximately -3 basis points at a five-year maturity for purchases of 1/1000 of the respective debt market. Bond yield volatility is lower on intervention days for most SMP countries, due to less extreme movements occurring when the Eurosystem is active as a buyer. A dynamic specification points to both transitory and longer-lived effects from purchases. JEL Classification: C32, G12 |
| Keywords: | Central bank asset purchases, effectiveness of non-standard monetary policy measures, European Central Bank, Securities Markets Programme |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131587&r=mac |
| By: | Nicolas R. Blancher; Srobona Mitra; Hanan Morsy; Akira Otani; Tiago Severo; Laura Valderrama |
| Abstract: | There has recently been a proliferation of new quantitative tools as part of various initiatives to improve the monitoring of systemic risk. The "SysMo" project takes stock of the current toolkit used at the IMF for this purpose. It offers detailed and practical guidance on the use of current systemic risk monitoring tools on the basis of six key questions policymakers are likely to ask. It provides "how-to" guidance to select and interpret monitoring tools; a continuously updated inventory of key categories of tools ("Tools Binder"); and suggestions on how to operationalize systemic risk monitoring, including through a systemic risk "Dashboard." In doing so, the project cuts across various country-specific circumstances and makes a preliminary assessment of the adequacy and limitations of the current toolkit. |
| Keywords: | Financial sector;Financial risk;Financial institutions;Spillovers;Financial crisis;Cross country analysis;Sytemic Risk; Risk Indicators; Risk Monitoring; Macroprudential Policy |
| Date: | 2013–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/168&r=mac |
| By: | Hai, Rong; Krueger, Dirk; Postlewaite, Andrew |
| Abstract: | We propose a new classification of consumption goods into nondurable goods, durable goods and a new class which we call memorable goods. A good is memorable if a consumer can draw current utility from its past consumption experience through memory. We propose a novel consumption-savings model in which a consumer has a well-defined preference ordering over both nondurable goods and memorable goods. Memorable goods consumption differs from nondurable goods consumption in that current memorable goods consumption may also impact future utility through the accumulation process of the stock of memory. In our model, households optimally choose a lumpy profile of memorable goods consumption even in a frictionless world. Using Consumer Expenditure Survey data, we then document levels and volatilities of different groups of consumption goods expenditures, as well as their expenditure patterns, and show that the expenditure patterns on memorable goods indeed differ significantly from those on nondurable and durable goods. Finally, we empirically evaluate our model's predictions with respect to the welfare cost of consumption fluctuations and conduct an excess-sensitivity test of the consumption response to predictable income changes. We find that (i) the welfare cost of household-level consumption fluctuations may be overstated by 1.7 percentage points (11.9% points as opposed to 13.6% points of permanent consumption) if memorable goods are not appropriately accounted for; (ii) the finding of excess sensitivity of consumption documented in important papers of the literature might be entirely due to the presence of memorable goods. |
| Keywords: | Consumption Volatility; Memorable Goods; Welfare Cost |
| JEL: | D91 E21 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9623&r=mac |
| By: | Javier Gómez Restrepo; Juan Sebastián Rojas Bohórquez |
| Abstract: | International reserves are very important for emerging economies, as they allow to buffer possible liquidity vulnerabilities within a countries' balance of payments. Consequently, the issue of how many reserves should each country hold is a relevant issue for economic policy. The literature has identified two different methodological approaches to deal with this issue, namely reserve optimality and reserve adequacy indicators, which are carefully reviewed in this paper to determine which is the most appropriate to guide policy decisions in the Colombian case. The indicator proposed by the IMF (2011) was adopted to find the adequate level that this country should hold by calibrating it with historical data for Colombia. This new conservative index suggests that the accumulated levels of reserves have been adequate in recent years and that only in very extreme scenarios there is room to acquire additional reserves. Finally, it is worth highlighting that the methodology developed in this article provides a complementary indicator to the existing ones in order to evaluate the international reserves levels that Colombia should accumulate to reduce its vulnerability to external shocks. |
| Keywords: | International reserves, Reserve optimality, Reserve adequacy. Classification JEL: E58, F32 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:781&r=mac |
| By: | Mehlum, Halvor (Dept. of Economics, University of Oslo); Torsvik, Ragnar (Norwegian University of Science and Technology); Valente, Simone (Norwegian University of Science and Technology) |
| Abstract: | China's growth is characterized by massive capital accumulation, made possible by high and increasing domestic savings. In this paper we develop a model with the aim of explaining why savings rates have been high and increasing, and we investigate the general equilibrium effects on capital accumulation and growth. We show that increased savings and capital accumulation stimulates further savings and capital accumulation, through an intergenerational distribution effect and an old-age requirement effect. We introduce what we term the savings multiplier, and we discuss why and how the one-child policy, and the dismantling of the cradle-to-grave social benefits provided through the state owned enterprises, have stimulated savings and capital accumulation. |
| Keywords: | China; One-child policy; Overlapping generations; Growth; Savings |
| JEL: | D91 E21 O11 |
| Date: | 2013–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2013_017&r=mac |
| By: | Christian E. Weller; Ghazal Zulfiqar |
| Abstract: | Macroeconomic instability has stunted growth in many developing economies in the past two decades. As a result, the governments of these economies are looking for ways to better manage the economic factors that contribute to instability. Encouraging the creation of diverse financial markets, characterized by a wide range of financial institutions, may be one such option for better macroeconomic risk management. Greater institutional diversity could broaden the reach of financial markets, thus reducing liquidity constraints. And diversity may offer some insurance against the fallout from boom-and-bust cycles in each institutional type since each institutional type only covers a limited market segment.� But greater institutional diversity could contribute to instability. Many institutions may not fully capture economies of scale, driving up costs and fees for customers and exacerbating liquidity constraints. This may especially be the case if governments try to incentivize the creation of institutions in otherwise underserved markets through regulatory preferences and subsidies. Institutions may also compete for a limited number of creditworthy projects, potentially funding an increasing number of speculative projects. Liquidity constraints and speculation could raise economic instability. And financial market contagion may limit the insurance value of diversified financial markets. We study the link between financial market diversity and economic instability in developing economies for the past few decades, using aggregate data from the Fraser Institute’s Economic Freedom database, the International Monetary Fund’s International Financial Statistics, the World Bank’s Global Financial Development database, the Bank for International Settlements’ international banking statistics and the BankScope database. We find that financial market diversity matters for economic stability for most subperiods during the past two decades as well as for most regions. Our research particularly suggests that greater diversity is associated with faster growth, larger credit markets, a broader deposit base, and a smaller chance of asset bubbles, all of which could contribute to more stability.� |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp332&r=mac |
| By: | Matthew J. Bezreh; Jonathan P. Goldstein |
| Abstract: | This paper conducts a causal analysis of determinants of the profit share of income for nonfinancial corporations in the Neoliberal era. The analysis focuses on power relations across and amongst three classes: labor, industrial capitalists and financial capitalists. Particular attention is paid to the multidimensional power spectrum of financial capitalists. Regression results establish a financial profit squeeze, the specific elements of financial capitalist’s power responsible for the squeeze and the pervasive nature of low road labor strategies in the Neoliberal era. |
| Keywords: | profit share, financial profit squeeze |
| JEL: | B51 E11 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp307&r=mac |
| By: | Bartels, Bernhard; Weder di Mauro, Beatrice |
| Abstract: | This paper compares the sovereign rating performance of a large European based rating agency with the Big Three. Using monthly ratings for 56 advanced and emerging economies from June 1999 to October 2012, we explore if Feri behaves differently with respect to rating levels, propensity of down- or upgrade and volatility. In addition, we test for herding behaviour among agencies and "neighbourhood bias" using a gravity model. We find that Feri tends to have a negative "neighbourhood bias", i.e it was tougher on European countries than its anglo-saxon competitors before the crisis and downgraded them more swiftly and aggressively during the crisis. Also, Feri's sovereign ratings tend to be more volatile than the ones of the Big Three though less prone to herding. |
| Keywords: | Credit Rating Agencies; European Rating Agency; Sovereign Risk |
| JEL: | E62 F34 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9512&r=mac |
| By: | van den Berg, Gerard J. (University of Mannheim); Modin, Bitte (Centre for Health Equity Studies - CHESS) |
| Abstract: | We analyze interaction effects of birth weight and the business cycle at birth on individual cardiovascular (CV) mortality later in life. In addition, we examine to what extent these long-run effects run by way of cognitive ability and education and to what extent those mitigate the long-run effects. We use individual records of Swedish birth cohorts from 1915–1929 covering birth weight, family characteristics, school grades, sibling identifiers, and outcomes later in life including the death cause. The birth weight distribution does not vary over the business cycle. The association between birth weight (across the full range) and CV mortality rate later in life is significantly stronger if the individual is born in a recession. This is not explained by differential fertility by social class over the cycle. Ability itself, as measured at age 10, varies with birth weight and the cycle at birth. But the long-run effects of early-life conditions appear to mostly reflect direct biological mechanisms. We do not find evidence of indirect pathways through ability or education, and the long-run effects are not mitigated by education. |
| Keywords: | longevity, genetic determinants, health, business cycle, life expectancy, cardiovascular disease, school grades, siblings, fetal programming, cause of death, life course, developmental origins, nature and nurture, cognitive ability, education, stratified partial likelihood, recession |
| JEL: | I10 I12 I21 I31 J10 J13 N34 C41 E32 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7605&r=mac |