|
on Macroeconomics |
|
Issue of 2014‒03‒08
forty-one papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Mauro Napoletano (OFCE); Andrea Roventini (Department of economics); Giovanni Dosi (Laboratory of Economics and Management); Giorgio Fagiolo (Laboratory of Economics and Management (LEM)); Tania Treibich |
| Abstract: | In this paper we explore the effects of alternative combinations of fiscal and monetary policies under different income distribution regimes. In particular, we aim at evaluating fiscal rules in economies subject to banking crises and deep recessions. We do so using an agent-based model populated by heterogeneous capital- and consumption-good forms, heterogeneous banks, workers/consumers, a Central Bank and a Government. We show that the model is able to reproduce a wide array of macro and micro empirical regularities, including stylised facts concerning financial dynamics and banking crises. Simulation results suggest that the most appropriate policy mix to stabilise the economy requires unconstrained counter-cyclical fiscal policies, where automatic stabilisers are free to dampen business cycles fluctuations, and a monetary policy targeting also employment. Instead, discipline-guided" fiscal rules such as the Stability and Growth Pact or the Fiscal Compact in the Eurozone always depress the economy, without improving public finances, even when escape clauses in case of recessions are considered. Consequently, austerity policies appear to be in general self-defeating. Furthermore, we show that the negative effects of austere fiscal rules are magnified by conservative monetary policies focused on ination stabilisation only. Finally, the effects of monetary and fiscal policies become sharper as the level of income inequality increases. |
| Keywords: | Agent based model; fiscal policy; monetary policy; banking crises; income inequality; austerity policies; disequilibrium dynamics |
| JEL: | C63 E32 E6 E52 G21 O4 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/f6h8764enu2lskk9p6go0e900&r=mac |
| By: | Peersman, G.; Wagner, W.B. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: Shocks to bank lending, risk-taking and securitization activities that are orthogonal to real economy and monetary policy innovations account for more than 30 percent of U.S. output variation. The dynamic effects, however, depend on the type of shock. Expansionary securitization shocks lead to a permanent rise in real GDP and a fall in inflation. Bank lending and risktaking shocks, in contrast, have only a temporary effect on real GDP and tend to lead to a (moderate) rise in the price level. Furthermore, there is evidence for a strong search-for-yield effect on the side of investors in the transmission mechanism of monetary policy. These effects are estimated with a structural VAR model, where the shocks are identified using a model of bank risk-taking and securitization. |
| Keywords: | Bank lending;risk-taking;securitization;SVARs |
| JEL: | C32 E30 E44 E51 E52 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2014019&r=mac |
| By: | Rod Cross (Department of Economics, University of Strathclyde) |
| Abstract: | This paper argues that the natural rate of unemployment hypothesis, in which equilibrium unemployment is determined by “structural†variables alone, is wrong: it is both implausible and inconsistent with the evidence. Instead, equilibrium unemployment is haunted by hysteresis. The curious history of the natural rate hypothesis is considered, curious because the authors of the hypothesis thought hysteresis to be relevant. The various methods that have been used to model hysteresis in economic systems are outlined, including the Preisach model with its selective, erasable memory properties. The evidence regarding hysteresis effects on output and unemployment is then reviewed. The implications for macroeconomic policy, and for the macroeconomics profession, are discussed. |
| Keywords: | Unemployment, Natural Rate Hypothesis, Hysteresis |
| JEL: | B22 C60 E12 E24 E31 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1402&r=mac |
| By: | Hein, Eckhard; Dodig, Nina |
| Abstract: | In this paper we review the empirical and theoretical literature on the effects of changes in the relationship between the financial sector and the non-financial sectors of the economy associated with 'financialisation' on distribution, growth, instability and crises. We take a macroeconomic perspective and examine four channels of transmission of financialisation to the macroeconomy: first, the effect on income distribution, second, the effects on investment in capital stock, third, the effects on household debt and consumption, and fourth, the effects on net exports and current account balances. For each of these channels we briefly review some empirical and econometric literature supporting the presumed channels, some theoretical and modelling literature examining the macroeconomic effects via these channels, and finally, we present small models generating the most important macroeconomic effects. We show that, against the background of redistribution of income at the expense of the labour income share and depressed investment in capital stock, each a major feature of financialisation, short- to medium-run dynamic 'profits without investment' regimes may emerge, which can be driven by flourishing consumption demand or by rising export surpluses, compensating for low or falling investment in capital stock. However, each type of these regimes, the 'debt-led consumption boom' type and the 'export-led mercantilist' type, contains internal contradictions, with respect to household debt in the first regime and with respect to foreign debt of the counterpart current account deficit countries in the second regime, which finally undermine the sustainability of these regimes and lead to financial and economic crises. -- |
| Keywords: | financialisation,distribution,growth,instability,financial and economic crisis,Kaleckian models,current account imbalances |
| JEL: | E12 E22 E24 E44 F41 G01 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:352014&r=mac |
| By: | Salman Huseynov, Vugar Ahmadov (Central Bank of the Republic of Azerbaijan) |
| Abstract: | In this study, we investigate the nature and possible sources of economic fluctuations in oil exporting countries using principle component and impulse-response analysis. The principal component analysis shows that the first two components can be statistically significantly explained by world GDP, but not by oil prices. We further develop our study using impulse-response analysis and find that a global demand shock is as important as oil supply and oil demand shocks in determining the dynamics of macroeconomic variables of interest. Though previous studies in this field underline the importance of institutional factors, we find that rising global political and economic integration can play a critical role in explaining business cycles of these economies. With increasing integration into the world economic system, oil exporting countries have become more susceptible to world business cycles, the sources of economic fluctuations have become more diversified, and consequently, the role of oil has declined over time. These results have crucial policy implications for the role of the fiscal and monetary policy in managing economic fluctuations in these economies. |
| Keywords: | Business Cycles; Oil Exporting Countries; Oil price; Bayesian methods |
| JEL: | C11 C32 E30 E32 |
| Date: | 2014–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp03-2014&r=mac |
| By: | Josheski, Dushko |
| Abstract: | Applying IS-MP-IA model and the Taylor rule, this study finds that for selected CESEE economies (Albania, Bosnia and Herzegovina, Macedonia and Serbia), lower expected inflation rate, real exchange rate appreciation, a lower world interest rate which is calculated like a federal funds rate minus inflation in US, and more world output would help to increase output of the selected economies in the sample. A lower ratio of government consumption spending to GDP would also increase the output of the selected economies. Hence, fiscal prudence is needed, and the conventional approach of real depreciation to stimulate exports and raise real output does not apply to the selected CESEE economies. When private household consumption is in the model the coefficient on government spending to nominal GDP is insignificant implying that Ricardian equivalence does hold for the selected countries. These results are robust because they are controlled in the period of four decades from 1969 to 2013. Study uses 4 decadal dummies that control for each decade. -- |
| Keywords: | IS-MP-IA,Taylor Rule |
| JEL: | E52 F41 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:92955&r=mac |
| By: | Zied Ftiti; Walid Hichri |
| Abstract: | This paper analyzes the relevance of the inflation targeting (IT) policy in achieving its primary goal of medium-term price stability. Contrary to previous studies, we propose, in this work, a new approach; an intermediate approach that consists in conducting a time-series analysis (employed in the literature under unilateral cases-absolute approach-) with a comparison of inflation performance of IT countries and those of non-IT countries (comparison made in literature under the relative approach). Empirically, we employ a frequency analysis based on evolutionary spectral theory of Priestley (1965-1996) in order to distinguish between different inflation horizons; short-run and the medium-run inflation rate. To check the stability of spectral density functions for inflation series for each country under studied frequencies, we apply a Bai and Perron (2003a, b) test. Our results show that after IT framework implementation, there is no break point in inflation series in short and medium terms. This result is not verified for non-IT countries. Therefore, IT is more relevant in achieving price stability and consequently more effective on inflation expectation anchoring than other monetary policies. |
| Keywords: | Inflation Targeting, Inflation Stability, Structural Change, Evolutionary Spectral Analysis, intermediate approach, pre-requisite. |
| JEL: | C40 E52 E63 |
| Date: | 2014–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-099&r=mac |
| By: | G. Chiesa |
| Abstract: | This paper constructs a simple general equilibrium model to analyse the interactions between the financial and the real sector in an environment where liquidity holdings is an input of the credit/investment process. The supply of liquidity is constrained in that income pledgeability limits inside liquidity, and not all sovereign debt is safe/liquid. We pin down the determinants of liquidity/collateral premia and bond spreads, and with reference to the eurozone: (i) the implications of the ECB’s policies on liquidity provision and credit, and (ii) the debt management policy that would increase welfare with no need for transfer payments. |
| JEL: | E44 H63 G18 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp927&r=mac |
| By: | Ali Abcha |
| Abstract: | This paper is an empirical study that aims at explaining economic fluctuations and behavior mark-up. Inspired by the method of Roeger (1995), we perform a study of four OECD countries (Denmark, Finland, Italy and the United States) for 17 manufacturing industries covering the period 1986-2008. This study provides a comparison between our estimates of mark-up and other observations on mark-up pricing (Oliveira, Scarpetta and Pilat (1996), Roger (1995) and Rotemberg and Woodford (1992)). It also provides an interpretation of the estimated markups that depend on the type of market structure. An application of a VAR model is used to examine the relationship between imperfect competition and the effects fiscal policy on output and mark-up, based on the method of Rotemberg and Woodford (1999). |
| Keywords: | Mark-up, Imperfect competition, Fiscal Policy |
| JEL: | E3 E62 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2014-11&r=mac |
| By: | Zied Ftiti; Duc Khuong Nguyen; Khaled Guesmi; Frédéric Teulon |
| Abstract: | The main objective of this paper consists to study what we learned about the dynamic of Tunisian inflation rate in the last two decades. This question is overriding concern to monetary policy analysis because it gives us information’s on inflation forecasting. In other words, before given monetary policy recommendations to Tunisian policy makers, after the actual downward of economic indicators and the disarmed of monetary policy consequently of Arabic spring, it is consistent to learn and to know the main characteristics of inflation history in this country. In this work, we suggest studying the specifics of Tunisian inflation dynamic’s on two dimensions. Firstly, we think that is useful to learn the different Tunisian inflation experiences regimes. Then, we try to analysis the nature of Tunisian inflation rate response to shocks; we try to analysis the inflation persistence in order to determine the nature of economy response’s to different chocks. This is the first paper proposing this methodology to analyse monetary policy and there is the first one proposing a measure of inflation persistence. In this work, we contribute to empirical literature of inflation persistence by it proposing a new measure based on the theory of evolutionary co-spectral analysis proposed by Priestley and Tong (1973). The mains findings of this paper show a stable inflation regime around 5.5% in the last ten years. We prove that the Tunisia inflation had a higher degree of inertia which traduce it’s gradually response on shocks. Consequently, we suggest to policy makers to make institutional reforms to reduce inflation. |
| Keywords: | Inflation, Strcutural Break, Spectral Analysis, auto-spectral analysis, Bai Berron test, inflation persistence. |
| JEL: | C16 E52 E63 |
| Date: | 2014–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-124&r=mac |
| By: | Sheen, Jeffrey; Wang, Ben Z. |
| Abstract: | We estimate small open economy models with involuntary unemployment using Australian data from 1993 to 2007, focusing on hiring costs and real wage rigidity. We find a strong preference for models with hiring costs, which account for 0.97% of GDP. The data favour models with real over nominal wage rigidity. Impulse responses to technology shocks reveal no productivity-employment puzzle for the preferred model. In the short run, technology shocks, operating through hiring costs via labour demand, explain most unemployment variance, while labour preference shocks explain most real wage variance. Demand shocks dominate supply shocks in explaining output variance. In the long run, these contributions reverse. Out-of-sample conditional forecasts perform well but cannot predict the confidence effects of the crisis. |
| Keywords: | DSGE; Hiring cost; Wage rigidities; Bayesian estimation; Small open economy |
| JEL: | C11 C13 E32 F41 J64 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:035&r=mac |
| By: | ,; Diewert, Erwin |
| Abstract: | The paper considers some of the problems associated with the indirectly measured components of financial service outputs in the System of National Accounts (SNA), termed FISIM (Financial Intermediation Services Indirectly Measured). The paper considers how to integrate financial transactions into the balance sheet and production accounts of a firm; i.e., the paper looks at FISIM more broadly. In order to minimize the role of imputations, the paper considers a firm that raises capital at the beginning of the accounting period, engages in some form of productive activity during the period and then distributes the initial capital and any profits back to the capitalists who financed the firm. |
| Keywords: | User costs, banking services, deposit services, loan services, production accounts, System of National Accounts, FISIM, Financial Intermediation Servi |
| JEL: | C82 D24 D92 E22 E01 E22 E31 E41 E43 E44 |
| Date: | 2014–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:bricol:erwin_diewert-2014-8&r=mac |
| By: | Angel Ubide (Peterson Institute for International Economics) |
| Abstract: | Inflation in the euro area is too low, and the European Central Bank (ECB) is at risk of missing its price stability mandate. With the market forecasting average inflation in the euro area over the next five years in the 1.25 to 1.5 percent range, the ECB must prepare to act forcefully to push inflation higher. The ECB should (1) update the definition of price stability as inflation at 2 percent over 2 to 3 years to eliminate the ambiguity over the inflation objective; (2) reduce risk premia in the yield curve via a program of quantitative easing, making clear that this is a monetary policy operation—and thus legal under the Maastricht Treaty; and (3) ease the quantitative credit shortages to small and medium enterprises (SMEs) via a well-designed lending program, offering long-term funds at the policy rate to banks who lend to SMEs. These actions would restore price stability and encourage sustainable growth. |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb14-5&r=mac |
| By: | Kizuku Takao (Graduate School of Economics, Osaka University) |
| Abstract: | Tax changes are often announced before the implementations and are not permanent but only temporary. R&D firms will optimally adjust their investment decision to a tax schedule accordingly. This paper analyzes how anticipated and temporary tax changes dynamically affect the innovation activities. For the purpose, we consider adjustment costs for the investment process and allow firms to make a forward looking investment decision in the framework of an R&D-based endogenous growth model. Calibrating the model with U.S. data, we obtain new insights on how to design the corporate taxation policy. A dividend tax cut is not an effective policy instrument irrespective of how it is implemented. On the other hand, a capital gains tax cut and a rise of the R&D tax credit rate are an effective policy instrument irrespective of how they are implemented. However, the implementation lags of these tax changes worsen the effectiveness of them. |
| Keywords: | Fiscal policy, R&D, Economic growth |
| JEL: | E62 O32 O41 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1410&r=mac |
| By: | Eric Eisenstat; Rodney W. Strachan |
| Abstract: | This paper discusses estimation of US inflation volatility using time varying parameter models, in particular whether it should be modelled as a stationary or random walk stochastic process. Specifying inflation volatility as an unbounded process, as implied by the random walk, conflicts with priors beliefs, yet a stationary process cannot capture the low frequency behaviour commonly observed in estimates of volatility. We therefore propose an alternative model with a change-point process in the volatility that allows for switches between stationary models to capture changes in the level and dynamics over the past forty years. To accommodate the stationarity restriction, we develop a new representation that is equivalent to our model but is computationally more efficient. All models produce effectively identical estimates of volatility, but the change-point model provides more information on the level and persistence of volatility and the probabilities of changes. For example, we find a few well defined switches in the volatility process and, interestingly, these switches line up well with economic slowdowns or changes of the Federal Reserve Chair. |
| Keywords: | Inflation volatility, monetary policy, time varying parameter model, Bayesian estimation, Change-point model |
| JEL: | C11 C32 E52 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2014-21&r=mac |
| By: | Luis-Gonzalo Llosa (AFP Profuturo) |
| Abstract: | This paper analyzes how terms of trade affect aggregate productivity using a two-country monopolistic competitive business cycle model driven by aggregate technology shocks. The inefficiency of the equilibrium implies that each country’s productivity is affected by the terms of trade. This introduces a novel mechanism for business cycle synchronization. Moreover, for each country, foreign technology shocks have almost the same effects as domestic technology shocks. The paper also shows how terms of trade movements can lead to excess volatility of consumption and highly persistent productivity. On the quantitative side, the model delivers a degree of business cycle synchronization that is close to the actual comovement of the U.S. economy with the rest of the world. The model also implies that for some small open economies, specially emerging economies, foreign shocks can outperform domestic shocks in explaining their business cycles. Finally, the paper provides a quantification of the influence of the terms of trade on emerging countries’ productivity and finds that it can be large. |
| Keywords: | Imperfect Competition, Input-Output Linkages, Terms of Trade, Business Cycles, Total Factor Productivity |
| JEL: | C67 E23 F12 F41 F43 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2014-007&r=mac |
| By: | Michael Kuklik (Long Island University); Nikita Céspedes (Central Bank of Peru) |
| Abstract: | The optimal capital income tax rate is 36 percent as reported by Conesa, Kitao, and Krueger (2009). This result is mainly driven by the market incompleteness as well as the endogenous labor supply in a life-cycle framework. We show that this model fails to account for the basic life-cycle features of the labor supply observed in the U.S. data. In this paper, we introduce into this model non-linear wages and inter-vivos transfers into this model in order to account for the life-cycle features of labor supply. The former makes hours of work highly persistent and helps to account for labor choices at the extensive margin over the life cycle. The latter allows us to account for labor choices early in life. The suggested model delivers an optimal capital income tax rate of 7.4 percent, which is significantly lower than what Conesa, Kitao, and Krueger (2009) found. |
| Keywords: | Labor supply, optimal taxation, capital taxation, non-linear wage, inter-vivos transfer |
| JEL: | E13 H21 H24 H25 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2014-008&r=mac |
| By: | Apostolos Serletis (University of Calgary) |
| Abstract: | In the aftermath of the global Â…financial crisis questions have been raised regarding the value and applicability of modern macroeconomics. Motivated by these developments and recent advances in dynamical systems theory, the papers in this special issue of Macroeconomic Dynamics deal with specifiÂ…c aspects of the economy as a complex evolving dynamic system. |
| Date: | 2014–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2014-40&r=mac |
| By: | Rajmund Mirdala |
| Abstract: | Responsiveness of exchange rates to external price shocks as well as their ability to serve as a traditional vehicle for a transmission of these shocks to domestic prices is affected by exchange rate arrangement adopted by monetary authorities. As a result, exchange rate volatility determines the overall dynamics of pass-through effects and associated absorption capability of exchange rate. Ability of exchange rates to transmit external (price) shocks to the national economy represents one of the most discussed areas relating to the current stage of the monetary integration in the European single market. The problem is even more crucial when examining crisis related redistributive effects. In the paper we analyze exchange rate pass-through to domestic prices in the European transition economies. We estimate VAR model to investigate (1) responsiveness of exchange rate to the exogenous price shock to examine the dynamics (volatility) in the exchange rate leading path followed by the unexpected oil price shock and (2) effect of the unexpected exchange rate shift to domestic price indexes to examine its distribution along the internal pricing chain. To provide more rigorous insight into the problem of exchange rate pass-through to the domestic prices in countries with different exchange rate arrangements we estimate models for two subsequent periods 2000-2007 and 2000-2012. Our results suggest that there are different patterns of exchange rate pass-through to domestic prices according to the baseline period as well as the exchange rate regime diversity. |
| Keywords: | exchange rate pass-through, inflation, VAR, Cholesky decomposition, impulse-response function |
| JEL: | C32 E31 F41 |
| Date: | 2014–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2014-1070&r=mac |
| By: | Mohamed Arouri; Aviral Kumar Tiwari; Arif Billah Dar; Niyati Bhanja; FrédéricTeulon |
| Abstract: | The nexus between stock return and inflation is assessed for Pakistan using the methodology of frequency based causality and continuous wavelet transform over a long sample period 1961:M07 - 2012:M02. The preliminary investigation using the frequency based causality suggests interdependence of stock return and inflation. Our deeper investigation using the tools of wavelet coherency and wavelet phase angle in the continuous wavelet transform framework, however, explore dependency between stock returns and inflation over certain time periods; especially for lower time scales. For higher time scales, the study finds stock returns and inflation to be in the phase (positively related) when consumers’ price inflation is considered and independent when producers’ price inflation is utilized. Overall results based on both the inflation measures indicate that, inflation does not erode the value of stocks in Pakistan and stocks could be used as hedge against inflation at least in the long-run. |
| Keywords: | Stock prices, inflation, Fisher effect, Pakistan stock market, frequency domain causality, wavelet coherency |
| JEL: | C40 G10 G12 E31 |
| Date: | 2014–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-108&r=mac |
| By: | Katarina Juselius (Department of Economics, Copenhagen University); Abdulaziz Reshid (Linnaeus University); Finn Tarp (Department of Economics, Copenhagen University) |
| Abstract: | A recent study of 36 Sub Saharan African countries found a positive impact of aid in the absolute majority of these countries. However, for Tanzania and Ghana, two major aid recipients, aid did not seem to have been equally beneficial. This paper singles out these two countries for a more detailed empirical investigation. The focus is now on the effect of aid when allowing external and nominal factors to play a role in the macroeconomic transmission mechanism. We conclude that aid played a significantly positive - but very different - role in the two countries. Due in part to generous aid inflows Tanzania experienced positive investment and GDP growth from the late 1960s to 2007. But, until the mid-1980s, the impact of aid on growth was well below its potential as the large inflows of aid facilitated a serious over-appreciation of the real exchange rate. In Ghana, declining aid in the 1970s was associated with lacking growth while the reactivation of aid flows in the 1980s supported an economic rebound. When monetary and external factors are properly accounted for, we find that aid has been pivotal to growth in both real GDP and investment. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1402&r=mac |
| By: | Nicolas Barbaroux (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France, Université Jean Monnet, Saint-Etienne, F-42000, France); Patrizia Michel Bellet (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France, Université Jean Monnet, Saint-Etienne, F-42000, France) |
| Abstract: | Myrdal’s works are usually analysed with a dual and separated point of view : on the one hand the methodological papers concerning the value problem and based on a strong non neutrality thesis ; on the other part the theoretical analysis concerning monetary theory and policy, with a Wicksellian filiation. In fact both the dimensions are strongly connected by a common way : the application of the Hägerström’s Swedish guillotine between is and ought, but also the construction of a bridge between economic science and political views on social engineering and economic policy. Myrdal wants to address this problem : how economic science can become politically relevant ? This paper analyses two stages of that unique project : the proposition of a "technology of economics" (1930), and the selection process for a "norm for monetary policy" (1939). It shows that Myrdal distorts an initial end and means scheme by proposing some intermediary concepts between positive and normative fields. From a theoretical and statistical framework and an explicit value judgment these concepts enable to elaborate an iterative tree of selection of a speci-c monetary policy. If the Myrdal’s project encounters difficulties in conciliating a non-cognitivist thesis with economic prescriptions and in proposing a tractable method, it remains an important benchmark for the analysis of the links between positive and normative views concerning monetary policy. |
| Keywords: | value judgment, monetary policy, positive analysis, normative analysis |
| JEL: | B20 E52 B40 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1408&r=mac |
| By: | Christian Dreger; Hans-Eggert Reimers |
| Abstract: | This paper explores the long run relationship between public and private investment in the euro area in terms of capital stocks and gross investment flows. Panel techniques accounting for international spillovers are employed. While private and public capital stocks are cointegrated, the evidence is quite fragile for public and private investment flows. They enter a long run relationship only after fundamental drivers of private investment, such as demand and financing costs are included. According to the impulse response analysis, private investment reacts to shocks in public investment both in terms of stock and flow variables. In contrast, public investment is rather exogenous. Therefore, the lack of public investment might have restricted private investment and GDP growth in the euro area. The results have strong implications for the future direction of fiscal austerity programs to combat the euro area debt crisis. |
| Keywords: | Public and private investment, fiscal austerity, panel VAR |
| JEL: | C23 E22 E62 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1365&r=mac |
| By: | Kizuku Takao (Graduate School of Economics, Osaka University) |
| Abstract: | This paper provides a theoretical explanation for why the presence of asset bubbles can lead to higher economic growth in concurrence with high consumption by using a simple endogenous growth model. In the model economy, long-lived valuemaximizing firms continuously improve the quality of their specific products through in-house R&D, while at the same time new firms also enter into the market. Due to an absence of intergenerational altruism, asset bubbles can exist as pyramid schemes whose value is not backed by fundamental value. The presence of asset bubbles then leads to higher interest rates. This requires product proliferation to be impeded, which would result in an increase in the demand for differentiated goods at the level of an individual firm. A larger scale of production at the level of an individual firm can encourage in-house R&D of firms and promote economic growth. |
| Keywords: | Bubbles, R&D, Overlapping generations |
| JEL: | E44 O32 O41 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1411&r=mac |
| By: | Kai Zhao (University of Connecticut) |
| Abstract: | In a quantitative model of Social Security with endogenous health, I argue that Social Security increases the aggregate health spending of the economy because it redistributes resources to the elderly whose marginal propensity to spend on health is high. I show by using computational experiments that the expansion of US Social Security can account for over a third of the dramatic rise in US health spending from 1950 to 2000. In addition, Social Security has a spill-over effect on Medicare. As Social Security increases health spending, it also increases the payments from Medicare, thus raising its financial burden. |
| Keywords: | Social Security, Health Spending, Saving, Longevity |
| JEL: | E20 E60 H30 I00 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2014-04&r=mac |
| By: | Detzer, Daniel; Herr, Hansjörg |
| Abstract: | This paper analyses financial crises from a theoretical point of view. For this it reviews what different schools of economic thought have to say about financial crises. It examines first the approaches that regard financial crises as a disturbing factor of a generally stable real economy (Wicksell, Hayek, Schumpeter, Fisher, and the early Keynes). Thereafter, approaches, where the dichotomy between the monetary and the real sphere is lifted, are reviewed. Here in particular the later works of Keynes and the contributions of Minsky are of importance. Lastly, it is looked at the behavioural finance approaches. After having reviewed the different approaches, it is examined where those approaches have similarities and where they can be combined fruitfully. Based on this, we develop an own theoretical framework methodologically based on a Wicksellian cumulative process, however, overcoming the neoclassical dichotomy. The paper ends with some policy recommendations based on the developed theoretical framework. -- |
| Keywords: | financial crisis,crisis theory,behavioral finance,Hayek,Keynes,Minsky,Schumpeter,Wicksell |
| JEL: | E12 E13 G01 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:322014&r=mac |
| By: | Davide Antonioli; Paolo Pini |
| Abstract: | The crisis of work in Europe and in Italy. Towards a radical change The economic crisis since 2008 has reduced income and destroyed jobs, and the economic recovery announced in 2014 will not reabsorb unemployment especially in Europe. ILO and IMF forecast a jobless recovery. Nevertheless, the economic policy in Europe will continue in line with the past, based on two pillars: fiscal austerity and labour flexibility. The Jobs Act will contribute to change the route even in Europe only if it signs a change toward labour policy, industrial policy and innovation policy for which relevant economic public resources have to be invested. This would open a way out from the expansionary austerity trap. Otherwise, it will sign a further step towards the stagnation trap. |
| Keywords: | Jobs; European Economic Policy; Wages; Bargaining; Jobs Act; Industrial and Innovation Policy |
| JEL: | E61 J08 J38 O47 |
| Date: | 2014–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:udf:wpaper:2014053&r=mac |
| By: | Marianna Endrész (Magyar Nemzeti Bank (the central bank of Hungary)); Péter Harasztosi (Magyar Nemzeti Bank (the central bank of Hungary)) |
| Abstract: | The paper investigates the impact of foreign currency lending in the Hungarian corporate sector on real investment. Using a rich micro dataset we consider two questions. First we test whether foreign currency (FX) lending – by lowering user cost and easing liquidity constraints – contributed to larger investment before the crisis. The second question focuses on balance sheet effects – whether the large domestic currency depreciation observed during the great recession resulted in lower investment rate for firms with foreign currency loans. We try to separate and measure both the competitiveness and balance sheet effect of depreciation. In order to answer these questions several methods are employed – OLS regression, regression enhanced with interaction-terms, and matching. The uniqueness of the paper lies in its almost full coverage in terms of firms and FX exposures, and the richness of the dataset. The results show that before the crisis FX lending increased investment rates. In addition, evidence is found on the liquidity easing channel being effective, i.e. the effect was larger in the case of smaller and non-traded firms. During the crisis the investment rate of firms with FX loans declined more because of balance sheet effects triggered by the depreciation. More liquidity constrained firms suffered more. On the other hand, the evidence on the competitiveness effect is weaker and less robust. Although one would expect that the effect of the exchange rate is non-linear and heterogeneous, the more general non-parametric approach (matching) yields estimates that do not statistically differ from the simple linear regression coefficients. |
| Keywords: | liability dollarization, currency mismatch, investment, balance sheet effects, liquidity constraints |
| JEL: | E44 G01 G31 G32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2014/1&r=mac |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana; Yuliya Lovcha |
| Abstract: | This paper investigates the empirical relevance of different unemployment theories in three major economies, namely the UK, the US and Japan, by estimating the degree of dependence in the unemployment series. Both univariate and multivariate long memory methods are used. The results vary depending on whether the former or the latter approach is followed. Specifically, when taking a univariate approach, the unit root null cannot be rejected in case of the UK and Japanese unemployment series, and some degree of mean reversion (d |
| Keywords: | unemployment rate, multivariate long memory, fractional integration |
| JEL: | C22 C32 E24 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_4570&r=mac |
| By: | Dixon, Huw (Cardiff Business School); Seaton, Jonathan (Loughborough University); Waterson, Michael (Department of Economics, University of Warwick) |
| Abstract: | This paper delivers a significantly different empirical perspective on micro pricing behaviour and its impact on macroeconomic processes than previous studies, largely resulting from the fact that our weekly price data for the three major British supermarkets spans a seven year period including the crisis years 2008-2010. We find that there is a large and significant change in the behaviour of prices from 2008 onwards: prices change more frequently and the average duration of price spells declines significantly. Several of our findings run strongly counter to established empirical regularities, in particular the high overall frequency of regular or reference price changes we uncover, the greater intensity of change in more turbulent times and the numerical dominance of price falls over rises. The pricing behaviour revealed also significantly challenges the implicit assumption that prices are tracking cost changes. Key words: Micro pricing ; price flexibility ; regular prices ; menu costs JEL classification: E30 ; E31 ; L81 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1041&r=mac |
| By: | Dodig, Nina; Herr, Hansjörg |
| Abstract: | This paper analyses several severe financial crises observed in the history of capitalism which led to a longer period of stagnation or low growth. Comparative case studies of the Great Depression, the Latin American debt crisis of the 1980s and the Japanese crisis of the 1990s and 2000s are presented. The following questions are asked: What triggered big financial crises? Which factors intensified financial crises? And most importantly, which factors prevented the return of prosperity for a long time? The main conclusion is that stagnation after big financial crises becomes likely when the balance sheets of economic units are not quickly cleaned, when the nominal wage anchor breaks, and when there is no big and longer growth stimulus by the state. Some tentative conclusions for the subprime financial crisis and the Great Recession are drawn. -- |
| Keywords: | financial crises,stagnation,deflation,lost decade,Great Depression,Latin American debt crisis,Japanese crisis,Great Recession |
| JEL: | E65 G01 N12 N15 N16 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:332014&r=mac |
| By: | Michel DE VROEY (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | In this review article of Backhouse and Boianovsky’s book, Transforming modern macroeconomics. Exploring disequilibrium microfoundations, 1956-2003, I make the following points: (a) Backhouse and Boianovsky’s too broad understanding of the disequilibrium approach results in their bringing together theories that should be kept separate. While the disequilibrium label fits the works of Patinkin, Clower and Leijonhuvud, it betrays the project of Barro and Grossman, Drèze and Benassy who strived at producing an equilibrium theory. (b) I put in question their claim that an inner link exists between disequilibrium and fixed price equilibrium theories and imperfect competition modeling. (c) I try to identify the deep nature of the controversy in which these authors were involved. (d) I put forward a few conjectures about the reason why fixed price modeling petered out. |
| Keywords: | Disequilibrium theory, non-Walrasian equilibrium models, Keynesian macroeconomics |
| JEL: | B E E |
| Date: | 2014–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2014006&r=mac |
| By: | Mohamed Arouri; Yahya Rashid; Muhammad Shahbaz; Frédéric Teulon |
| Abstract: | This paper contributes to the literature by determining macroeconomic drivers of brain drain in case of Pakistan over the period of 1972-2012 using the ARDL bounds testing approach. Our findings show that economic growth and financial development have negative impact on brain drain. However, inflation, unemployment and trade openness aggravate brain drain. This study highlights macroeconomic insights for policy makers to control brain drain problem in Pakistan. |
| Date: | 2014–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-113&r=mac |
| By: | Anand, Mukesh (National Institute of Public Finance and Policy) |
| Abstract: | A hornet's nest could be an apt simile for fossil fuel prices in India. Over years a policy maze has evolved around it, with sharply diverging influence on disparate constituencies. We estimate the increase in total cost of farming as a multiple of direct input costs of fossil fuels in farming. Over the period between 1990-1 and 2010-1, direct use of fossil fuels on farms has risen and there is also increasing indirect use of fossil fuels for non-energy purposes. Consequently, for Indian agriculture both energy intensity and fossil fuel intensity are rising. But, these are declining for the aggregate Indian economy. Thus, revision of fossil fuel prices has acquired greater significance for Indian agriculture than for the remainder of the economy. We validate these findings by utilising an input-output table for the Indian economy to assess the impact of fossil fuel price increase. We assess that fossil fuels sector has strong forward linkages and increase in its price has a steep inflationary impact. Using a three-sector I-O model for Indian economy, we estimate that a 10 per cent increase in fossil fuel price could cause, ceteris paribus, the wholesale price index (WPI) to rise about 4.3 percentage points with 0.7 percentage points being contributed by the farm sector alone. |
| Keywords: | Agriculture ; Fossil-fuel intensity ; Inflation ; Input-output analysis |
| JEL: | C67 E31 Q12 Q43 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:14/132&r=mac |
| By: | Poschke, Markus (McGill University) |
| Abstract: | How and why does the firm size distribution differ across countries? Using two datasets covering more than 30 countries, this paper documents that several features of the firm size distribution are strongly associated with income per capita: the entrepreneurship rate and the fraction of small firms fall with per capita income across countries, while average firm employment, the median and higher percentiles of the firm size distribution, and the dispersion and skewness of employment all rise with per capita income. The paper broadens existing evidence on the first three facts to cover more countries and newly introduces the last three to the literature. It then proposes a simple theory of skill-biased change in entrepreneurial technology motivated by recent microeconomic literature that fits with the evidence. For this, it introduces two additional features into an otherwise standard occupational choice, heterogeneous firm model a la Lucas (1978): technological change does not benefit all potential entrepreneurs equally, and there is a positive relationship between an individual's potential payoffs in working and in entrepreneurship. If some firms consistently benefit more from technological progress than others, they stay closer to the frontier, while others fall behind. Because wages rise for all workers, marginal entrepreneurs exit and become workers. Quantitatively, the model fits both the U.S. time series experience and cross-country patterns well. |
| Keywords: | occupational choice, entrepreneurship, firm size, skill-biased technical change |
| JEL: | E24 J24 L11 L26 O30 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7991&r=mac |
| By: | Vipin Arora; Yiyong Cai |
| Abstract: | We evaluate potential global impacts of increase in U.S. natural gas exports as a result of the shale gas boom. To our knowledge this is the first such analysis using a global economic model to understand this timely policy issue. Our primary conclusion is that world economic activity is higher through most of the simulation period [2014-2035] when U.S. natural gas exports rise. The overall U.S. results mirror the global ones, but the magnitude of income gains depends upon how the rate of increase and level of exports are determined, and the price elasticity of natural gas supply. The U.S. benefits more when export increases and levels depend on natural gas production rather than when they are pre-determined by assumption. The economic impacts on other natural gas importers and exporters can change as well based on how export levels are determined. The effects on natural gas prices, consumption, and production in individual countries vary with the scenarios and model parameter values. |
| Keywords: | natural gas, exports, shale, general equilibrium, international |
| JEL: | E17 F47 Q31 Q43 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2014-22&r=mac |
| By: | Mthuli Ncube; Zuzana Brixiova; Qingwei Meng |
| Abstract: | The global financial crisis has reiterated the need for Africa to build resilience to global output shocks. In this paper we examine empirically the role of intra-regional and intra-African trade linkages in being an absorber of the global output shocks in two African regional economic communities. We find that deeper intra-regional and intra-African trade ties have helped the East African Community (EAC) absorb the global output shocks. In contrast, the Southern Africa Custom Union (SACU) region has been less able to cope with global output shocks partly due to weaker regional integration. Intra-regional and intra-African trade with fast-growing economies, together with geographically diversified trade links, can strengthen the capacity to absorb global shocks. |
| Keywords: | Intra-regional trade; output co-movement; regional economic communities, Africa |
| JEL: | E32 F42 F15 C53 |
| Date: | 2014–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2014-1073&r=mac |
| By: | Hein, Eckhard; Dodig, Nina; Budyldina, Natalia |
| Abstract: | This paper surveys some of the important literatures on financial, economic and social systems with an eye towards explaining the tendencies towards 'financialisation'. We focus on important strands of this literature: the French Regulation School, the US-based Social Structures of Accumulation approach, the contributions by several Post-Keynesian authors, with a focus on the long-run views contained in Hyman Minsky's work, in particular. In our comparative assessment of these approaches, we adopt the following four steps procedure: First, we sketch the basic structure of the approaches in order to single out how each of them views the interaction between social institutions and the economy and the related dynamics regarding the development of the institutional structure and the associated stages or regimes of economic development. Second, we describe how these approaches view the structural breaks or the regime shifts in the long-run development of modern capitalism, which has triggered or at least has contributed to the emergence of a type of capitalism dominated by finance (financialisation). Third, we outline how these different approaches view the main characteristics and features of financialisation. Fourth, we deal with the respective views on the consequences of financialisation for long-run economic and social development including the crisis of this stage of development. -- |
| Keywords: | French Regulation School,Social Structures of Accumulation,Post-Keynesian approach,Minsky,financialisation,stages of capitalist development,finance-led growth regime,global neoliberal SSA,finance-dominated capitalism,money manager capitalism,financial, economic and social systems |
| JEL: | E02 E11 E12 G01 P10 P16 P51 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:342014&r=mac |
| By: | Giang Huong Nguyen (The State Bank of Vietnam) |
| Abstract: | In this paper, I apply three methods to estimate the output gap for Vietnam to support the conduct of monetary policy of the State Bank: the Hodrick-Prescott Filter, the production function approach and Bayesian estimation. I then compare the results obtained from these approaches and discuss their advantages and disadvantages to choose the optimal method for the estimation of the output gap for the State Bank of Vietnam. For the Bayesian approach, my paper closedly relies on the paper of Tim Willems (2011) with some modifications to fit the situation of Vietnam. The output gap estimated by Bayesian method appears to be the most consistent with the economic developments of Vietnam. |
| Date: | 2014–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp05-2014&r=mac |
| By: | Cialani, Catia (Department of Economics, Umeå School of Business and Economics) |
| Abstract: | This thesis consists of a summary and four self-contained papers. Paper [I] Following the 1987 report by The World Commission on Environment and Development, the genuine saving has come to play a key role in the context of sustainable development, and the World Bank regularly publishes numbers for genuine saving on a national basis. However, these numbers are typically calculated as if the tax system is non-distortionary. This paper presents an analogue to genuine saving in a second best economy, where the government raises revenue by means of distortionary taxation. We show how the social cost of public debt, which depends on the marginal excess burden, ought to be reflected in the genuine saving. We also illustrate by presenting calculations for Greece, Japan, Portugal, U.K., U.S. and OECD average, showing that the numbers published by the World Bank are likely to be biased and may even give incorrect information as to whether the economy is locally sustainable. Paper [II] This paper examines the relationships among per capita CO2 emissions, per capita GDP and international trade based on panel data spanning the period 1960-2008 for 150 countries. A distinction is also made between OECD and Non-OECD countries to capture the differences of this relationship between developed and developing economies. We apply panel unit root and cointegration tests, and estimate a panel error correction model. The results from the error correction model suggest that there are long-term relationships between the variables for the whole sample and for Non-OECD countries. Finally, Granger causality tests show that there is bidirectional short-term causality between per capita GDP and international trade for the whole sample and between per capita GDP and CO2 emissions for OECD countries. Paper [III] Fundamental questions in economics are why some regions are richer than others, why their growth rates differ, whether their growth rates tend to converge, and what key factors contribute to explain economic growth. This paper deals with the average income growth, net migration, and changes in unemployment rates at the municipal level in Sweden. The aim is to explore in depth the effects of possible underlying determinants with a particular focus on local policy variables. The analysis is based on a three-equation model. Our results show, among other things, that increases in the local public expenditure and income taxe rate have negative effects on subsequent income income growth. In addition, the results show conditional convergence, i.e. that the average income among the municipal residents tends to grow more rapidly in relatively poor local jurisdictions than in initially “richer” jurisdictions, conditional on the other explanatory variables. Paper [IV] This paper explores the relationship between income growth and income inequality using data at the municipal level in Sweden for the period 1992-2007. We estimate a fixed effects panel data growth model, where the within-municipality income inequality is one of the explanatory variables. Different inequality measures (Gini coefficient, top income shares, and measures of inequality in the lower and upper part of the income distribution) are examined. We find a positive and significant relationship between income growth and income inequality measured as the Gini coefficient and top income shares, respectively. In addition, while inequality in the upper part of the income distribution is positively associated with the income growth rate, inequality in the lower part of the income distribution seems to be negatively related to the income growth. Our findings also suggest that increased income inequality enhances growth more in municipalities with a high level of average income than in municipalities with a low level of average income. |
| Keywords: | Genuine saving; welfare change; taxation; per capita GDP; per capita CO2; international trade; net migration; unemployment; growth; inequality |
| JEL: | C33 D31 D60 D63 E24 H21 I31 O47 Q28 Q48 Q56 R11 R23 |
| Date: | 2014–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0875&r=mac |
| By: | O.A. Carboni; P. Russu |
| Abstract: | Economic and environmental efficiency has being receiving growing attention among researchers. In general terms, this concept is related to the capability of the economic systems to employ natural resources efficiently, so as to increase economic and human wealth. This clearly implies that both the economic and ecological aspects of decisions ought to be considered. Bearing this in mind, this paper considers economic and ecological performance together, by applying data envelopment analysis (DEA) and the Malmquist productivity index (MPI) to investigating the efficiency of the 20 Italian regions from 2004 to 2011. The results reveal that the northern regions have been more efficient than the southern ones, highlighting the strong geographical differences between the two. Furthemore this paper uses the Grey System Theory to forecast regional economic and environmental efficiency. The results of the forecasting analysis show that the North-south duality remains strong and will possibly increase since the regions in the south get worse in term of environmental and economic efficiency. |
| Keywords: | panel data, forecasting, Data envelopment analysis (DEA), Malmquist productivity index (MPI), Grey system theory |
| JEL: | E17 C61 C23 C14 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cns:cnscwp:201401&r=mac |