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on Macroeconomics |
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Issue of 2014‒06‒28
63 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Christoph E. Boehm; Christopher L. House |
| Abstract: | We analyze the optimal Taylor rule in a standard New Keynesian model. If the central bank can observe the output gap and the inflation rate without error, then it is typically optimal to respond infinitely strongly to observed deviations from the central bank’s targets. If it observes inflation and the output gap with error, the central bank will temper its responses to observed deviations so as not to impart unnecessary volatility to the economy. If the Taylor rule is expressed in terms of estimated output and inflation then it is optimal to respond infinitely strongly to estimated deviations from the targets. Because filtered estimates are based on current and past observations, such Taylor rules appear to have an interest smoothing component. Under such a Taylor rule, if the central bank is behaving optimally, the estimates of inflation and the output gap should be perfectly negatively correlated. In the data, inflation and the output gap are weakly correlated, suggesting that the central bank is systematically underreacting to its estimates of inflation and the output gap. |
| JEL: | E3 E31 E4 E43 E5 E52 E58 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20237&r=mac |
| By: | Francesco Bianchi; Leonardo Melosi |
| Abstract: | While high uncertainty is an inherent implication of the economy entering the zero lower bound, deflation is not, because agents are likely to be uncertain about the way policymakers will deal with the large stock of debt arising from a severe recession. We draw this conclusion based on a new-Keynesian model in which the monetary/fiscal policy mix can change over time and zero-lower-bound episodes are recurrent. Given that policymakers' behavior is constrained at the zero lower bound, beliefs about the exit strategy play a key role. Announcing a period of austerity is detrimental in the short run, but it preserves macroeconomic stability in the long run. A large recession can be avoided by abandoning fiscal discipline, but this results in a sharp increase in macroeconomic instability once the economy is out of the recession. Contradictory announcements by the fiscal and monetary authorities can lead to high inflation and large output losses. The policy trade-off can be resolved by committing to inflate away only the portion of debt resulting from an unusually large recession. |
| JEL: | D83 E31 E52 E62 E63 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20238&r=mac |
| By: | Julio A. Carrillo; Céline Poilly |
| Abstract: | This paper studies the effects of three financial shocks in the economy: a net-worth shock, an uncertainty or risk shock, and a credit-spread shock. We argue that only the latter can push the nominal interest rate against its zero lower bound. Further, a recessionary shock to the net worth or the credit spread generates a positive response for loans, which is counter-intuitive during an economic downturn. Finally, we find that there is an optimal commitment period for the central bank to keep the nominal interest rate equal to zero (forward guidance) after a financial turmoil. Beyond that optimal period, the volatility of inflation and output rise quick and sharply. Thus, an excessive forward guidance policy may destabilize the economy. |
| Keywords: | Zero Lower Bound, Financial Accelerator, Financial Shocks |
| JEL: | E31 E44 E52 E58 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2014-01&r=mac |
| By: | Abhijit Sen Gupta (Asian Development Bank); Rajeswari Sengupta (Indira Gandhi Institute of Development Research) |
| Abstract: | In this paper we analyze whether the current macroeconomic environment in India is suitable for implementation of inflation targeting as a monetary policy strategy, in light of the recommendation of the Urjit Patel Committee Report. Our results indicate that historically the Reserve Bank of India has given more importance to inflation compared to output growth and exchange rate changes in its monetary policy conduct and that in recent times there has been an increased emphasis on monetary independence thereby comfortably placing the RBI on a path to move towards flexible inflation targeting. However we also find factors, which are traditionally outside the control of monetary policy do exert a strong impact on aggregate prices in India thereby making the choice of nominal anchor a tricky one. Furthermore, the success of monetary policy in containing inflation is found to be crucially contingent on an appropriate fiscal policy as well. |
| Keywords: | Reserve Bank of India, Monetary Policy, Taylor Rule, Financial trilemma, Inflation, Nominal anchor, Fiscal deficit |
| JEL: | E43 E52 E58 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2014-019&r=mac |
| By: | Julio A. Carrillo; Gert Peersman; Joris Wauters |
| Abstract: | Wage indexation practices have changed. Evidence on the U.S. for instance suggests that wages were heavily indexed to past inflation during the Great Inflation but not during the Great Moderation. However, most DSGE models assume fixed indexation parameters in wage setting, which might not be structural in the sense of Lucas (1976). This paper presents a New-Keynesian model in which workers, by maximizing their welfare, set their wage indexation rule in response to aggregate shocks and monetary policy. We find that workers index their wages to past inflation when technology and permanent inflation-target shocks drive output fluctuations; when aggregate demand shocks do, workers index to trend-inflation. In addition, workers' choices do not coincide with the social planner's choice, which may explain the observed changes in wage indexation in the post-WWII U.S. data. |
| Keywords: | Wage indexation, Welfare costs, Nominal rigidities |
| JEL: | E24 E32 E58 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2013-19&r=mac |
| By: | ELALAOUI, AICHA |
| Abstract: | This paper describes the key features of the Moroccan business cycles during the period 1980:q1-2012:q1. In particular, this paper identifies the chronologies in classical and growth cycles (expansion and contraction phases and full cycles in real gross domestic product). Using the modified BB algorithm, I have found eight business cycles and the ninth is not yet achieved. Then, I have would to analysis of the main features in these cycles by applying the method of Harding and Pagan (2001) which has shown that the Moroccan economy characterized by the average cumulative gain is more important than the cumulative loss and by the domination of expansion phases. |
| Keywords: | Classical cycle, Growth cycle, HP filter, Morocco |
| JEL: | E2 E23 E3 E30 E32 |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56811&r=mac |
| By: | Buiter, Willem H. |
| Abstract: | The authors provides a rigorous analysis of Milton Friedman's parable of the 'helicopter' drop of money - a permanent/irreversible increase in the nominal stock of fiat base money which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury - the State. Examples are a temporary fiscal stimulus funded permanently through an increase in the stock of base money and permanent QE - an irreversible, monetised open market purchase by the Central Bank of non-monetary sovereign debt. Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable - viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists a combined monetary and fiscal policy action that boosts private demand - in principle without limit. Deflation, 'lowflation' and secular stagnation are therefore unnecessary. They are policy choices. -- |
| Keywords: | helicopter money,liquidity trap,seigniorage,secular stagnation,central bank,quantitative easing |
| JEL: | E2 E4 E5 E6 H6 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201424&r=mac |
| By: | Asongu, Simplice |
| Abstract: | Economic theory traditionally suggests that monetary policy can influence the business cycle, but not the long-run potential output. Despite well documented theoretical and empirical consensus on money neutrality in the literature, the role of money as an informational variable for monetary policy decision has remained opened to debate with empirical works providing mixed outcomes. This paper addresses two substantial challenges to this debate: the neglect of developing countries in the literature and the use of new financial dynamic fundamentals that broadly reflect monetary policy. The empirics are based on annual data from 34 African countries for the period 1980 to 2010. Using a battery of tests for integration and long-run equilibrium properties, results offer overall support for the traditional economic theory. |
| Keywords: | Monetary policy; Credit; Empirics; Africa |
| JEL: | E51 E52 E58 E59 O55 |
| Date: | 2013–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56796&r=mac |
| By: | Joseph Haslag (Department of Economics, University of Missouri-Columbia); William Brock (Department of Economics, University of Missouri-Columbia) |
| Abstract: | In this paper, we examine the relationship between the price level and output and the inflation rate and output at business-cycle frequencies. In the first part of the paper, we develop a methodological approach to characterizing joint business cycle correlations. In particular, we are interested in providing a characterization of the frequency that a pair of correlation coefficients will occur. We apply this methodology to the contemporaneous correlation between the price level and output and between the inflation rate and output. We apply linear filters to the cyclical components, create a time series and compute the correlations. It is straightforward to construct histograms of the two correlation co-efficients. In the second part, we specify a model economy with a form of rational inattention. In this setting, we perform numerical simulations to determine if the model economy can generate correlations quantitatively similar to those observed in the data. It can. |
| Keywords: | countercyclical price level, acyclical inflation, phase shift, model uncertainty |
| JEL: | C82 E31 E32 |
| Date: | 2014–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1404&r=mac |
| By: | Bertrand Candelon; Norbert Metiu; Stefan Straetmans |
| Abstract: | We propose a novel nonparametric method to distinguish between recessions vs. depressions and expansions vs. booms in aggregate economic activity. Four depression and |
| Keywords: | Business cycles, Depression, Multinomial logistic regression, Outlier |
| JEL: | C14 C35 E32 |
| Date: | 2014–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-328&r=mac |
| By: | Thorvald Grung Moe (Norges Bank) |
| Abstract: | The 1951 Treasury–Federal Reserve Accord is an important milestone in central bank history. It led to a lasting separation between monetary policy and the Treasury's debtmanagement powers and established an independent central bank focused on price and macroeconomic stability. This paper revisits the history of the Accord and elaborates on the role played by Marriner Eccles in the events leading up to the Accord. As chairman of the Board of Governors since 1934, Eccles was also instrumental in drafting key banking legislation that enabled the Federal Reserve System to assume a more independent role following the Accord. The global financial crisis has generated renewed interest in the Accord and its lessons for central bank independence. This paper shows that Eccles' support for the Accord—and central bank independence—was clearly linked to the strong inflationary pressures in the US economy at the time, and that he was equally supportive of deficit financing in the 1930s. This broader interpretation of the Accord holds the key to a more balanced view of Eccles's role at the Federal Reserve, where his contributions from the mid-1930s up to the Accord are seen as equally important. Accordingly, the Accord should not be viewed as the final triumph of central bank independence, but rather as an enlightened vision for a more symmetric policy role for central banks, with equal weight given to fighting inflation and preventing depressions. |
| Keywords: | Marriner Eccles; Central Banking; Monetary Policy; Fiscal Policy |
| JEL: | B31 E52 E58 E63 N12 |
| Date: | 2014–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2014_06&r=mac |
| By: | Federico Etro (Department of Economics, University of Venice Ca' Foscari); Lorenza Rossi (Department of Economics and Management, University of Pavia) |
| Abstract: | We derive a New Keynesian Phillips Curve under Calvo staggered pricing and price competition. Firms strategic interactions induce price adjusters to change their prices less when there are more fi?rms that do not adjust. This reduces the slope of the Phillips curve and generates an additional source of real rigidity that magnifi?es the impact of monetary shocks on the economic activity. Endogenous entry amplifi?es the impact of both monetary and real shocks. We study the design of the optimal Taylor rule in the case of a ?fixed number of ?firms and we characterize the optimal monetary policy to restore the social planner allocation and the optimal Ramsey steady state in the case of endogenous entry. |
| Keywords: | New Keynesian Phillips Curve, Real rigidities, Sticky prices, Optimal monetary policy, Infl?ation, Endogenous entry |
| JEL: | E3 E4 E5 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0079&r=mac |
| By: | Gabriel Chodorow-Reich |
| Abstract: | Monetary policy affects the real economy in part through its effects on financial institutions. High frequency event studies show the introduction of unconventional monetary policy in the winter of 2008-09 had a strong, beneficial impact on banks and especially on life insurance companies. I interpret the positive effects on life insurers as expansionary policy recapitalizing the sector by raising the value of legacy assets. Expansionary policy had small positive or neutral effects on banks and life insurers through 2013. The interaction of low nominal interest rates and administrative costs forced money market funds to waive fees, producing a possible incentive to reach for yield to reduce waivers. I show money market funds with higher costs reached for higher returns in 2009-11, but not thereafter. Some private defined benefit pension funds increased their risk taking beginning in 2009, but again such behavior largely dissipated by 2012. In sum, unconventional monetary policy helped to stabilize some sectors and provoked modest additional risk taking in others. I do not find evidence that the financial institutions studied formented a tradeoff between expansionary policy and financial stability at the end of 2013. |
| JEL: | E44 E52 G20 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20230&r=mac |
| By: | Alessandro Flamini (Department of Economics and Management, University of Pavia); Iftekhar Hasan (Fordham University and Bank of Finland); Costas Milas (University of Liverpool) |
| Abstract: | In an open-economy faced with model uncertainty, this paper uses distribution forecasts to investigate the impact of alternative infl?ation targeting policies on macroeconomic volatility and their potential implications on ?financial stability. Theoretically, Domestic Infl?ation Targeting (DIT) leads to less volatility than Consumer Price index In?flation Targeting (CPIIT) for several macroeconomic variables and, in particular, for the interest rate. Empirically, a positive relationship between interest rate volatility and fi?nancial instability emerges for the US, UK and Sweden since the early 1990s. Bridging theory and empirical evidence, we conclude that the choice of the in?flation targeting regime has an important impact on macroeconomic volatility and potential implications for fi?nancial stability. |
| Keywords: | Macroeconomic volatility; fi?nancial stability; interest rate volatility; multiplicative uncertainty; Markov jump linear quadratic systems; open-economy; optimal montary policy; infl?ation index. |
| JEL: | E52 E58 F41 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:080&r=mac |
| By: | Jesús Rodríguez-López (Department of Economics, Universidad Pablo de Olavide de Sevilla); Mario Solís-García (Department of Economics, Macalester College, Saint Paul (USA)) |
| Abstract: | We apply the business cycle methodology proposed by Chari, Kehoe, and McGrattan (2007) to identify the sources of Spanish business fluctuations during two outstanding cyclical episodes: the recession alongside the transition to democracy in 1977 and the great recession of 2008. We find that the labor wedge plays a key role during both recessions and that taxes and labor market institutions are likely behind the wedge movements. We conclude that any model that tries to understand the causes of recessions that occurred in the last three decades should focus on the labor wedge. |
| Keywords: | Business cycle accounting, efficiency wedge, labor wedge, investment wedge |
| JEL: | E32 O11 O41 O47 O53 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:pab:wpaper:14.05&r=mac |
| By: | Stefan Notz; Peter Rosenkranz |
| Abstract: | Understanding differences in business cycle phenomena between Emerging Market Economies (EMEs) and industrialized countries has been at the center of recent research on macroeconomic fluctuations. The purpose of this paper is to investigate the importance of certain credit market imperfections in different EMEs. To this end, we develop a small open economy Dynamic Stochastic General Equilibrium (DSGE) framework featuring both permanent and transitory productivity shocks, differentiated home and foreign goods, and endogenous exchange rate movements. Furthermore, our model incorporates liability dollarization as a particular form of financial frictions in EMEs. In this vein, we account for the fact that emerging markets traditionally have had difficulties in borrowing in domestic currency on international capital markets and thus allow for valuation effects in our analysis. We estimate our model using Bayesian techniques for a number of EMEs and thereby control for potential heterogeneity across countries. Contrary to previous studies in this strand of the literature, we include a (vector-)autoregressive measurement error component to capture off-model dynamics. Regarding business cycles in emerging markets, our main findings are that (i) even though we incorporate financial frictions in the framework, trend shocks are the main determinant of macroeconomic fluctuations, (ii) accounting for liability dollarization ameliorates the model fit, and (iii) valuation effects on average stabilize changes in the net foreign asset position. |
| Keywords: | Emerging markets, liability dollarization, valuation effects, financial frictions, real business cycles, DSGE Model, Bayesian estimation |
| JEL: | E13 E44 F32 F34 F41 F44 F47 O11 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:163&r=mac |
| By: | Jing Cheng (Université de Strasbourg (BETA), CNRS); Meixing Dai (Université de Strasbourg (BETA), CNRS); Frédéric Dufourt (Aix-Marseille UniversitÈ (Aix-Marseille School of Economics), CNRS-GREQAM & EHESS and Institut Universitaire de France) |
| Abstract: | We analyze the conditions of emergence of a twin banking and sovereign debt crisis within a monetary union in which: (i) the central bank is not allowed to provide direct financial support to stressed member states or to play the role of lender of last resort in sovereign bond markets, and (ii) the responsibility of fighting against large scale bank runs, ascribed to domestic governments, is ensured through the implementation of a financial safety net (banking regulation and government deposit guarantee). We show that this broad institutional architecture, typical of the Eurozone at the onset of the financial crisis, is not always able to prevent the occurrence of a twin banking and sovereign debt crisis triggered by pessimistic investors' expectations. Without significant backstop by the central bank, the financial safety net may actually aggravate, instead of improve, the financial situation of banks and of the government. |
| Keywords: | banking crisis, sovereign debt crisis, bank runs, financial safety net, liquidity regulation, government deposit guarantee, self-fulfilling propheties |
| JEL: | E32 E44 F3 F4 G01 G28 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1428&r=mac |
| By: | Peter Rosenkranz; Tobias Straumann; Ulrich Woitek |
| Abstract: | In historical accounts of the world economic crisis of the 1930s, Switzerland is known for its staunch defense of the gold standard and the rise of corporatist policies. Yet, so far, the literature has not discussed the implications of these two features. This paper tries to show how the combination of hard-currency policy and nominal rigidities introduced by corporatist policies proved to be fatal for growth. Estimating a New Keynesian small open economy model for the period 1926-1938, we show that the decision to participate in the Gold Bloc after 1933 at an overvalued currency can be identified as the main reason for the unusual long lasting recession and that price rigidities from 1931 to 1936 significantly slowed down the adjustment process. |
| Keywords: | Great Depression, Switzerland, New Keynesian Business Cycle Model |
| JEL: | E12 E32 N14 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:164&r=mac |
| By: | F. Alvarez; H. Le Bihan; F. Lippi |
| Abstract: | We document the presence of both small and large price changes in individual price records from the CPI in France and the US. After correcting for measurement error and cross-section heterogeneity, the size-distribution of price changes has a positive excess kurtosis. We propose an analytical menu cost model that encompasses several classic models, as Taylor (1980), Calvo (1983), Reis (2006), Golosov and Lucas (2007) and accounts for observed cross-sectional patterns. We show that the ratio of kurtosis to the frequency of price changes is a sufficient statistics for the real effects of monetary policy in a large class of models. |
| Keywords: | price setting, micro evidence, size-distribution of price changes, kurtosis of price changes, menu-cost, Calvo pricing rule, output response to monetary shocks. |
| JEL: | E3 E5 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:492&r=mac |
| By: | Lorenzo Menna; Patrizio Tirelli |
| Abstract: | Models based on the representative agent assumption cannot rationalize observed equity premia. In response to this, exchange economy models have introduced agents heterogeneity, typically in the form of bond and equity holders. We reconsider the issue introducing Limited Asset Market Participation in an otherwise standard medium scale DSGE model. Our model fits financial and macroeconomic data well. We obtain that the correlation between asset holders consumption and financial returns strongly increases in the share of agents excluded from financial markets participation, The predicted unconditional equity premium is therefore large. Further, the strong correlation between dividends and Ricardian households' consumption unambiguously increases precautionary savings and reduces the riskless rate. |
| Keywords: | asset pricing, equity premium, limited asset market participation, business cycle, DSGE, sticky prices. |
| JEL: | E32 G12 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:275&r=mac |
| By: | Gabriel Cuadra; Manuel Ramos Francia |
| Abstract: | There is an ongoing debate about austerity and stimulus in the Euro zone. Moreover, given the fiscal and financial problems in the region, a default has appeared likely at times. In this context, this paper develops a dynamic stochastic quantitative model of sovereign default with fiscal policy, which captures the most salient features of the recent fiscal and debt situation in the Euro zone. In this setting, this highlights the economic nature of the decision to default, the key role of official aid in avoiding such event and, thus, improving the overall economic outlook. |
| Keywords: | Sovereign Default, Fiscal Policy. |
| JEL: | E62 F34 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2014-10&r=mac |
| By: | C. Bortoli; L. Harreau; C. Pouvelle |
| Abstract: | In this paper, we estimate the determinants of the spreads between the 10-year sovereign bond yields and the (interest rate) swap rate for a sample of 22 OECD countries over the January 1999-December 2013 period, using various models. Our main, fixed-effect, model highlights the crucial role of GDP growth, public deficit and debt liquidity in explaining the level of spreads, while the public debt-to-GDP ratio plays a lesser role. We find that our results are mainly driven by observations on euro area countries after the onset of the 2008 crisis, with observed spreads found to significantly exceed estimated values during the crisis for a number of euro area countries. We also shed light on the effect of unconventional monetary policies, while Target 2 balances are used for euro area countries in order to reflect concerns on the stability of the euro area. Finally, according to our cointegration model, we find a long-term relationship between the spread, the debt-to-GDP ratio, and potential GDP growth, with a larger impact of the latter variable. |
| Keywords: | interest rates; sovereign spreads; public debt; panel data. |
| JEL: | C23 E43 E44 G15 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:494&r=mac |
| By: | Marcin Kacperczyk; Jaromir B. Nosal; Luminita Stevens |
| Abstract: | What contributes to the growing income inequality across U.S. households? We develop an information- based general equilibrium model that links capital income derived from financial assets to a level of investor sophistication. Our model implies income inequality between sophisticated and unsophisticated investors that is growing in investors' aggregate and relative sophistication in the market. We show that our model is quantitatively consistent with the data from the U.S. market. In addition, we provide supporting evidence for our mechanism using a unique set of cross-sectional and time-series predictions on asset ownership and stock turnover. |
| JEL: | E24 E25 E44 G11 G12 G23 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20246&r=mac |
| By: | Mariolis, Theodore |
| Abstract: | This paper argues that Marx’s theory of economic crises constitutes a system of three discrete ‘sub-theories’ on: (i) distributive growth cycles; (ii) effective demand; and (iii) the tendency of the average profit rate to fall. The paper explores the relationships between these sub-theories and concludes that the third sub-theory overdetermines the other two. Finally, it evaluates the Marxian system of crises on the basis of modern economic science findings. |
| Keywords: | Bhaduri-Marglin accumulation function; Goodwin’s growth cycle models; Law of the tendency of the average profit rate to fall; Marx’s system of eco-nomic crises; Sraffian theory; Total factor productivity |
| JEL: | E11 E22 E32 O33 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56831&r=mac |
| By: | Fatma Pinar Erdem (Central Bank of the Republic of Turkey); Erdal Ozmen (Department of Economics, METU) |
| Abstract: | This paper investigates the impacts of domestic and external factors along with exchange rate regimes on business cycles in a large panel of advanced and emerging market economies by employing panel logit, cointegration and autoregressive distributed lag model estimation procedures. The results for classical business cycles suggest that emerging market economies tend to experience much deeper recessions and relatively steeper expansions during almost the same duration. The probability of expansions significantly increases with exchange rate regimes flexibility. Our results, different from the bipolar view, strongly support exchange rate regime flexibility for both AE and EME other than the East Asian countries. The impacts of external real and financial shocks and domestic variables are significantly greater under managed regimes as compared to floats. Our results strongly suggest that the evolution and determinants of both classical business and growth cycles are not invariant to the prevailing exchange rate regimes. |
| Keywords: | Business cycles, Exchange rate regimes, Emerging markets. |
| JEL: | C33 E32 F33 F41 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:1404&r=mac |
| By: | Hans Dewachter (National Bank of Belgium, Research Department; Center for Economic Studies, University of Leuven; CESifo); Leonardo Iania (Louvain School of Management, Université Catholique de Louvain; Center for Economic Studies, University of Leuven); Marco Lyrio (Insper Institute of Education and Research); Maite de Sola Perea (National Bank of Belgium, Research Department) |
| Abstract: | We estimate the 'fundamental' component of euro area sovereign bond yield spreads, i.e. the part of bond spreads that can be justified by country-specific economic factors, euro area economic fundamentals, and international influences. The yield spread decomposition is achieved using a multi-market, no-arbitrage affine term structure model with a unique pricing kernel. More specifically, we use the canonical representation proposed by Joslin, Singleton, and Zhu (2011) and introduce next to standard spanned factors a set of unspanned macro factors, as in Joslin, Priebsch, and Singleton (2013). The model is applied to yield curve data from Belgium, France, Germany, Italy, and Spain over the period 2005-2013. Overall, our results show that economic fundamentals are the dominant drivers behind sovereign bond spreads. Nevertheless, shocks unrelated to the fundamental component of the spread have played an important role in the dynamics of bond spreads since the intensification of the sovereign debt crisis in the summer of 2011. |
| Keywords: | Euro area sovereign bonds, yield spread decomposition, unspanned macro factors, fair spreads |
| JEL: | E43 E44 E47 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201406-259&r=mac |
| By: | Peter Kriesler (School of Economics, Australian School of Business, the University of New South Wales); John Nevile (School of Economics, Australian School of Business, the University of New South Wales) |
| Abstract: | The two books reviewed in this article are very different in style, quite different in content, but completely united in their purpose and major conclusions. Both books analyse the events from 2007 to 2010 to ascertain why the disaster happened and what must be done to put the United States economy (on which both books focus) on a more secure footing and prevent any recurrence of the extended crisis of those years. Both target the increasing influence of market liberalism over the last thirty years, and the institutions of capitalist economies which they have encouraged. Taylor focusses more on the participants in, and those responsible for, regulating the international financial sector, while Palley places more blame on the shoulders of those responsible for labour market policy. Both agree that each of these played a part in precipitating the events of 2007 to 2010 and need to be dealt with if the United States economy is to be restored to health. Both argue strongly that the growing income inequality in the United States must be reversed before the US economy can significantly improve. Finally, they stress the interrelationship between political ideology and economic explanation, and argue that value free positive economics is a myth. |
| Keywords: | global financial crisis, neoliberalism, Keynesian economics, macroeconomic policy, income inequality |
| JEL: | E32 E60 E24 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2014-27&r=mac |
| By: | Stefano Grassi; Tommaso Proietti; Cecilia Frale; Massimiliano Marcellino; Gianluigi Mazzi |
| Abstract: | The paper deals with the estimation of monthly indicators of economic activity for the Euro area and its largest member countries that possess the following attributes: relevance, representativeness and timeliness. Relevance is obtained by referring our monthly indicators to gross domestic product at chained volumes, the most important measure of the level of economic activity. Representativeness is achieved by entertaining a very large number of (timely) time series on monthly indicators relating to the level of economic activity, providing a more or less complete coverage. The indicators are modelled with a large scale parametric factor model. We discuss its specification and provide details on the statistical treatment. Computational efficiency is crucial for estimating a large scale parametric factor model of the dimension considered in our application (considering about 170 series). To achieve it we apply state of the art state space methods that can handle temporal aggregation, and any pattern of missing values. |
| Keywords: | Index of coincident indicators. Temporal Disaggregation. Multivariate State Space Models. Dynamic factor Models. Quarterly National accounts |
| JEL: | E32 E37 C53 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1406&r=mac |
| By: | Jochen Hartwig (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | Okun’s Law postulates a stable relationship between quarterly output growth and changes in (un)employment. This proposition has so far been tested with macroeconomic data at the highest level of aggregation. The paper goes beyond that in extending the analysis to industry data from Switzerland, applying a method suggested by the International Monetary Fund. Another focus is on whether expansions in production have become more ‘jobless’ over the most recent business cycle compared to earlier on. This does not seem to be the case in Switzerland, except in the construction industry. |
| Keywords: | Okun’s Law, Jobless growth, Industry data, Switzerland |
| JEL: | C22 E12 E20 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:14-357&r=mac |
| By: | Michael Ehrmann; Damjan Pfajfar; Emiliano Santoro |
| Abstract: | This paper studies the formation of consumers’ inflation expectations using micro-level data from the Michigan Survey. It shows that beyond the well-established socio-economic determinants of inflation expectations such as gender, income or education, other characteristics such as the households’ financial situation and their purchasing attitudes also matter. Respondents with current or expected financial difficulties, pessimistic attitudes about major purchases, or expectations that income will go down in the future have considerably higher forecast errors, are further away from professional forecasts, and have a stronger upward bias in their expectations than other households. However, their bias shrinks by more than that of the average household in response to increasing media reporting about inflation. |
| Keywords: | Inflation and prices |
| JEL: | C53 D84 E31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:14-28&r=mac |
| By: | Maxime Leboeuf; Louis Morel |
| Abstract: | In this paper, the authors develop a new tool to improve the short-term forecasting of real GDP growth in the euro area and Japan. This new tool, which uses unrestricted mixed-data sampling (U-MIDAS) regressions, allows an evaluation of the usefulness of a wide range of indicators in predicting short-term real GDP growth. In line with previous Bank studies, the results suggest that the purchasing managers’ index (PMI) is among the best-performing indicators to forecast real GDP growth in the euro area, while consumption indicators and business surveys (the PMI and the Economy Watchers Survey) have the most predictive power for Japan. Moreover, the results indicate that combining the predictions from a number of indicators improves forecast accuracy and can be an effective way to mitigate the volatility associated with monthly indicators. Overall, our preferred U-MIDAS model specification performs well relative to various benchmark models and forecasters. |
| Keywords: | Econometric and statistical methods, International topics |
| JEL: | C C5 C50 C53 E E3 E37 E4 E47 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:14-3&r=mac |
| By: | Mayumi Ojima (Bank of Japan); Junnosuke Shino (Bank of Japan); Kozo Ueda (Waseda University) |
| Abstract: | This paper considers the macroeconomic effects of retailers' market concentra- tion and buyer-size discounts on inflation dynamics. During Japan's "lost decades," large retailers enhanced their market power, leading to increased exploitation of buyer-size discounts in procuring goods. We incorporate this effect into an other- wise standard New-Keynesian model. Calibrating to the Japanese economy during the lost decades, we find that despite a reduction in procurement cost, strength- ened buyer-size discounts did not cause deflation; rather, they caused inflation of 0.1% annually. This arose from an increase in the real wage due to the expansion of production. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:018&r=mac |
| By: | John Fernald |
| Abstract: | U.S. labor and total-factor productivity growth slowed prior to the Great Recession. The timing rules out explanations that focus on disruptions during or since the recession, and industry and state data rule out “bubble economy” stories related to housing or finance. The slowdown is located in industries that produce information technology (IT) or that use IT intensively, consistent with a return to normal productivity growth after nearly a decade of exceptional IT-fueled gains. A calibrated growth model suggests trend productivity growth has returned close to its 1973-1995 pace. Slower underlying productivity growth implies less economic slack than recently estimated by the Congressional Budget Office. As of 2013, about ¾ of the shortfall of actual output from (overly optimistic) pre-recession trends reflects a reduction in the level of potential. |
| JEL: | E23 E32 O41 O47 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20248&r=mac |
| By: | Mark Rempel |
| Abstract: | Information on the allocation and pricing of over-the-counter (OTC) markets is scarce. Furfine (1999) pioneered an algorithm that provides transaction-level data on the OTC interbank lending market. The veracity of the data identified, however, is not well established. Using permutation methods, I estimate an upper bound on the daily false positive rate of this algorithm to be slightly above 10%. I propose refinements that reduce the bound below 10% with negligible power loss. The results suggest that the inferred prices and quantities of overnight loans do provide viable estimates of interbank lending market activity. |
| Keywords: | Econometric and statistical methods, Financial markets, Interest rates, Payment clearing and settlement systems |
| JEL: | E42 E44 C53 C38 G10 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:14-25&r=mac |
| By: | Kilian, Lutz; Vigfusson, Robert J. |
| Abstract: | Although oil price shocks have long been viewed as one of the leading candidates for explaining U.S. recessions, surprisingly little is known about the extent to which oil price shocks explain recessions. We provide the first formal analysis of this question with special attention to the possible role of net oil price increases in amplifying the transmission of oil price shocks. We quantify the conditional recessionary effect of oil price shocks in the net oil price increase model for all episodes of net oil price increases since the mid-1970s. Compared to the linear model, the cumulative effect of oil price shocks over course of the next two years is much larger in the net oil price increase model. For example, oil price shocks explain a 3% cumulative reduction in U.S. real GDP in the late 1970s and early 1980s and a 5% cumulative reduction during the financial crisis. An obvious concern is that some of these estimates are an artifact of net oil price increases being correlated with other variables that explain recessions. We show that the explanatory power of oil price shocks largely persists even after augmenting the nonlinear model with a measure of credit supply conditions, of the monetary policy stance and of consumer confidence. There is evidence, however, that the conditional fit of the net oil price increase model is worse on average than the fit of the corresponding linear model, suggesting much smaller cumulative effects of oil price shocks for these episodes of at most 1%. -- |
| Keywords: | real GDP,nonlinearity,asymmetry,time variation,conditional response,prediction |
| JEL: | E32 E37 E51 Q43 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:460&r=mac |
| By: | Francesco Cendron; Gianfranco Tusset (University of Padova) |
| Abstract: | Evidence of the evolution of ideas on central bank transparency can be found in the central bankersÕ speeches during the period 1997-2012. Exploratory analysis of the central bankersÕ speeches provides an overview of their use of language: speeches define the historical evolution of central banksÕ discourses, and thus suggest how the concept of transparency has evolved. The paper invites reconsideration of the role of central banksÕ transparency through analysis of central bankersÕ speeches and their use of language as a part of their communication framework. While literature on transparency indexes shows increasing central bank transparency, the semantic area of transparency in central bankersÕ speeches changed over the period 1997-2012. The paper investigates this evolution until recent shift towards new semantic areas pertaining more to the financial and real economy than to traditional inflation concerns. |
| Keywords: | central banks; transparency; language; speeches; content analysis. |
| JEL: | B59 E58 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0178&r=mac |
| By: | Giovanni Caggiano (University of Padova); Efrem Castelnuovo (University of Padova); Valentina Colombo (University of Padova); Gabriela Nodari (University of Verona) |
| Abstract: | We estimate nonlinear VARs to assess to what extent fiscal spending multipliers are countercyclical in the United States. We deal with the issue of nonfundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures. This measure of anticipated fiscal shocks is shown to carry valuable information of future dynamics of public spending. Results based on generalized impulse responses suggest that fiscal spending multipliers in recessions are greater than one, but not statistically larger than in expansions. However, nonlinearities arise when focusing on deep recessions vs. strong expansionary periods. |
| Keywords: | Fiscal news, Fiscal foresight, Fiscal spending multipliers, Smooth Transition Vector-AutoRegressions. |
| JEL: | C32 E32 E52 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0179&r=mac |
| By: | Jaime Zurita |
| Abstract: | El sector bancario espanol ha experimentado uno de los procesos de reestructuracion mas completos y profundos de la zona euro. En el ariculo se realiza una revision de las sucesivas medidas adoptadas para reformar el sector bancario desde el inicio de la crisis, especialmente las adoptadas a partir de febrero de 2012 para ajustar el valor de los activos, la firma del Memorandum Of Understanding con el Eurogrupo que fija el libro de ruta para completar la reestructuracion, y los cambios y procesos de ajuste que se acometieron en cumplimiento del mismo, que culminaron en la recapitalizacion de una parte del sector con fondos publicos. Asimismo, se analiza la situacion competitiva en que ha quedado el sector tras la reforma y se realiza una valoracion de las medidas mas recientes adoptadas para favorecer una solucion adecuada a la refinanciacion de creditos, asi como eliminar ciertas trabas a la renegociacion de deudas, y la capacidad del sector bancario para apoyar la incipiente recuperacion de la economÃa espanola |
| Keywords: | solvencia, MOU, recapitalizacion, reestructuracion, reforma |
| JEL: | E42 E44 E58 G21 G28 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1412&r=mac |
| By: | Fair, Ray C. |
| Abstract: | An important question for central banks is how they should report the uncertainty of their forecasts. This paper discusses a way in which a central bank could report the uncertainty of its forecasts in a world in which it used a single macroeconometric model to make its forecasts and guide its policies. Suggestions are then made as to what might be feasible for a central bank to report given that it is unlikely to be willing to commit to a single model. A particular model is used as an illustration. -- |
| Keywords: | central bank,uncertainty,stochastic simulation |
| JEL: | E50 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201425&r=mac |
| By: | Orphanides, Athanasios |
| Abstract: | This paper reviews developments in the Cypriot economy following the introduction of the euro on 1 January 2008 and leading to the economic collapse of the island five years later. The main cause of the collapse is identi?ed with the election of a communist government in February 2008, within two months of the introduction of the euro, and its subsequent choices for action and inaction on economic policy matters. The government allowed a rapid deterioration of public finances, and despite repeated warnings, damaged the country’s creditworthiness and lost market access in May 2011. The destruction of the island’s largest power station in July 2011 subsequently threw the economy into recession. Together with the intensification of the euro area crisis in the summer and fall of 2011, these events weakened the banking system which was vulnerable due to its exposure in Greece. Rather than deal with its ?scal crisis, the government secured a loan from the Russian government that allowed it to postpone action until after the February 2013 election. Rather than protect the banking system, losses were imposed on banks and a campaign against them was coordinated and used as a platform by the communist party for the February 2013 election. The strategy succeeded in delaying resolution of the crisis and avoiding short-term political cost for the communist party before the election, but also in precipitating a catastrophe right after the election. -- |
| Keywords: | Cyprus,euro area,crisis,sovereign debt,populism. |
| JEL: | D72 E32 E65 F34 H12 H63 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:79&r=mac |
| By: | W. Erwin Diewert (University of British Columbia and School of Economics, Australian School of Business, the University of New South Wales); Kevin J. Fox (School of Economics, Australian School of Business, the University of New South Wales) |
| Abstract: | This paper develops a new framework for measuring prices and quantities of commercial properties. In particular, it addresses problems associated with obtaining separate estimates for the land and structure components of a property. A key contribution is to address the problem of estimating structure depreciation taking into account the fixity of the structure. We find that structure depreciation is determined primarily by the cash flows that the property generates rather than physical deterioration of the building. |
| Keywords: | Property price indexes, net operating income, discounted cash flow, System of National Accounts, Balance Sheets, land and structure prices, goodwill amortization, intangible assets |
| JEL: | C2 C23 C43 D12 E31 R21 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2014-28&r=mac |
| By: | Khaled Guesmi; Ilyes Abid; Olfa Kaabia |
| Abstract: | The paper analyses the time-varying conditional correlations between stock markets and oil |
| Keywords: | Oil Prices, stock markets, conditional correlations, DCC-GJR-GARCH model. |
| JEL: | Q43 E44 G15 C1 |
| Date: | 2014–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-334&r=mac |
| By: | Tri Vi Dang (Department of Economics, Columbia University); Gary Gorton (Department of Economics, Yale University); Beng Holmstrom (Department of Economics, MIT and NBER); Guillermo Ordonez (Department of Economics, University of Pennsylvania) |
| Abstract: | Banks are optimally opaque institutions. They produce debt for use as a transaction medium (bank money), which requires that information about the backing assets – loans – not be revealed, so that bank money does not fluctuate in value, reducing the efficiency of trade. This need for opacity conflicts with the production of information about investment projects, needed for allocative efficiency. Intermediaries exist to hide such information, so banks select portfolios of information-insensitive assets. For the economy as a whole, firms endogenously separate into bank finance and capital market/stock market finance depending on the cost of producing information about their projects. |
| Keywords: | Banks vs. Capital Markets, Financial Intermediation, Information and Opacity, Optimal Portfolio, Private Money |
| JEL: | G21 D82 G11 G14 E44 |
| Date: | 2014–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:14-022&r=mac |
| By: | Thomas Y. Mathä; Alessandro Porpiglia; Michael Ziegelmeyer |
| Abstract: | Results from the Eurosystem Household Finance and Consumption Survey reveal substantial variation in household net wealth across euro area countries that await explanation. This paper focuses on three main factors for the wealth accumulation process, i) homeownership, ii) housing value appreciation and iii) intergenerational transfers. We show that these three factors, in addition to the common household and demographic factors, are relevant for the net wealth accumulation process in all euro area countries, and moreover that, using various decomposition techniques, differences therein, in particular in homeownership rates and house price dynamics, are important for explaining wealth differences across euro area countries. |
| Keywords: | household wealth, homeownership, property prices, inheritance, euro area |
| JEL: | D31 E21 O52 C42 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp091&r=mac |
| By: | Juan Arroyo Miranda; Roberto Gómez Cram; Carlos Lever Guzmán |
| Abstract: | We use a novel data set on firm vacancies and job seekers from a Mexican government job placement service to analyze whether changes in matching frictions can explain the large and persistent increase in Mexican unemployment after the 2008 global financial crisis. We find evidence of a statistically signicant reduction in the efficiency of the matching function during the crisis. The estimated effect explains about 70 basis points of the 233 basis points observed increase in the unemployment rate. Hence, these results suggest that changes in matching frictions cannot explain most of the increase in unemployment. |
| Keywords: | Matching function estimation, Unemployment, Vacancies |
| JEL: | J63 J64 E24 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2014-08&r=mac |
| By: | Paula Sánchez-Romeu; Ernesto Rattia-Lima |
| Abstract: | This paper analyzes the adjustment strategies used by some Mexican firms to face supply and demand shocks. The information is provided by a survey carried out in 2012 by Banco de México among 1,138 firms from different sectors. The results show that the response of firms to both types of shocks is not symmetrical in general, and that firms react to these shocks combining adjustment strategies (mostly choosing to reduce costs) to smooth the pass-through to prices and production. Stronger competition makes firms use the adjustment strategies more intensively, and it encourages price flexibility. For all shocks, the costs more likely to be reduced are non-labor costs, followed by temporary employment. A high degree of competition and a high labor share make the pass-through of shocks to employment stronger. On the other hand, collective wage agreements smooth this pass-through. Nominal wage rigidity is evident in the presence of any shock. |
| Keywords: | Firms survey, price, cost, wage, and employment adjustment, supply and demand shocks, competition, Wage Dynamics Network (WDN) |
| JEL: | J30 J31 D21 D22 E3 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2013-11&r=mac |
| By: | Daniel Vaughan |
| Abstract: | I study the diffusion process of permanent disinflationary shocks in the Mexican economy using disaggregated price data for 283 goods across 46 cities in the period 1995-2012. I first show that the distribution of shocks shows considerable heterogeneity, with more than 80% of all cases having experienced a break. I then show that both the likelihood and timing are spatially correlated across cities, and find a positive and concave relationship between CPI weights and the likelihood and timing of a break. These findings suggest that the process of structural change follows a diffusion process across the spatial and goods dimensions. |
| Keywords: | Structural change, inflation, spatial econometrics, trend-stationary, emerging economy, Mexico |
| JEL: | E30 E31 N16 N26 O54 C21 C22 C24 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2013-12&r=mac |
| By: | Tsermenidis, Konstantinos |
| Abstract: | Η Εθνική Αποταμίευση κατά την περίοδο της εικοσαετίας 1990-2010 εμφανίζεται συνεχώς μειούμενη. Οι αιτίες αυτού του φαινομένου μπορούν να εντοπιστούν τόσο στα συστατικά της, όσο και σε άλλους παράγοντες οι οποίοι συντέλεσαν στην εικόνα αυτή. Προβαίνοντας σε μια μελέτη άλλων χωρών της Ευρωζώνης, αρχικά εντοπίζουμε κάποιους από τους παράγοντες οι οποίοι συνδέονται με τα επίπεδα της αποταμίευσης και στη συνέχεια με μια συγκριτική ανάλυση με την Ελλάδα, αναδεικνύουμε κάποιες από τις αιτίες της πορείας αυτής. Εστιάζοντας στην Ελλάδα, εντοπίζουμε τα Εισοδήματα από την Αλλοδαπή και το Ισοζύγιο Μεταβιβάσεων, ως παράγοντες βαρύνουσας σημασίας στην πορεία της Εθνικής Αποταμίευσης, κάνοντας τη διάκριση μεταξύ αυτής και της Εγχώριας. Έχοντας στη συνέχεια υπόψη τους εξωτερικούς αυτούς παράγοντες από τη μία και την Εγχώρια Αποταμίευση από την άλλη, επιχειρούμε μία ανάλυση της επίδρασης αυτών των παραγόντων στην Ανάπτυξη. Τα κύρια ευρήματα της μελέτης μας είναι ότι τα επίπεδα της Εθνικής αποταμίευσης στην Ελλάδα μπορούν να αιτιολογηθούν μέσα από ένα υπόδειγμα βασισμένο σε χώρες της Ζώνης του Ευρώ χρησιμοποιώντας ως παραμέτρους τις Εξαγωγές, τον Πληθωρισμό, τη μεταβολή των Δαπανών της Γενικής Κυβέρνησης και την ίδια την Ανάπτυξη. Επιπλέον, με το πέρας των ετών, ενώ η Εθνική Αποταμίευση συγκριτικά με τις υπόλοιπες χώρες είναι σαφώς μεγαλύτερη της Εγχώριας, υπονοώντας την επίδραση των στοιχείων της Εθνικής αποταμίευσης που σχετίζονται με το εξωτερικό, δηλαδή των Εισοδημάτων και των Μεταβιβάσεων, στο τέλος της εικοσαετίας παρατηρείται μία ταύτιση των δύο εξαιτίας της εξάλειψης αυτών των εξωτερικών παραγόντων. Εστιάζοντας στη συνέχεια σε αυτούς τους παράγοντες και συνδέοντας τους με την ανάπτυξη, βρίσκουμε θετικές επιδράσεις σε αυτήν τόσο από την Εγχώρια Αποταμίευση, όσο και από τα Εισοδήματα και τις Μεταβιβάσεις. Τα θετικά παρ' όλα αυτά οφέλη για την ανάπτυξη από μία θετική μεταβολή αυτών των παραγόντων, μπορεί να μην είναι ορατά παρά μόνο από το τρίτο έτος της μεταβολής. Μολονότι οι εξωτερικοί παράγοντες έχουν πλέον σχεδόν εξαλειφθεί, σημαντικό είναι το γεγονός ότι και η Εγχώρια Αποταμίευση από μόνη της μπορεί να ωφελεί την Ανάπτυξη. Τα αποτελέσματα παρ' όλα αυτά, θα πρέπει να ληφθούν υπόψη με επιφύλαξη, κυρίως εξαιτίας του μικρού μεγέθους του δείγματός μας, αλλά και πιθανού σφάλματος των υποθέσεων που κάναμε στην εφαρμογή των υποδειγμάτων. |
| Keywords: | national savings; growth; income from abroad; net transfers from abroad; εθνική αποταμίευση; ανάπτυξη; εισοδήματα από την αλλοδαπή; ισοζύγιο πληρωμών |
| JEL: | E2 E21 E6 F14 F4 F43 H5 O43 O47 O49 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56773&r=mac |
| By: | Adrian Blundell-Wignall |
| Abstract: | The financial crisis has led to a widespread loss of trust in financial intermediaries of all kinds, perhaps helping to open the way towards the general acceptance of alternative technologies. This paper briefly summarises the crypto-currency phenomenon, separating the ‘currency’ issues from the potential technology benefits. With respect to crypto currencies, the paper argues that these can’t undermine the ability of central banks to conduct monetary policy. They do, however, raise consumer protection and bank secrecy issues. The valuation of Bitcoins and price volatility issues are discussed, as well as electronic theft, contract failures, etc., all of which could result in large losses to users and hence ultimate costs to the taxpayer (e.g. the failure to provide adequate private pensions resulting in increased reliance on public pensions). The anonymity features of the crypto-currencies also facilitate tax evasion and money laundering, both of which are major public policy concerns. The technology associated with crypto-currencies, on the other hand, could ultimately shift the entire basis of trust involved in any financial transaction. It is an innovation that creates the ability to carry out transactions without the need for a trusted third party; i.e. a move towards trust-less transactions. This mechanism could work to eliminate the role of many intermediaries, thereby reducing transactions costs by introducing much needed competition to incumbent firms. The generic issues that policy makers need to examine are summarised. |
| Keywords: | monetary policy, intermediaries, plenary powers, Bitcoin, Gold standard, trust-less transaction, payment technology, legal tender |
| JEL: | E5 F39 G19 G2 |
| Date: | 2014–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dafaad:37-en&r=mac |
| By: | Asongu, Simplice |
| Abstract: | The employment of financial development indicators without due consideration to country/regional specific financial development realities remains an issue of substantial policy relevance. Financial depth in the perspective of money supply is not equal to liquid liabilities in every development context. This paper introduces complementary indicators to the existing Financial Development and Structure Database (FDSD). Dynamic panel system GMM estimations are applied. Different specifications, non-overlapping intervals and control variables are used to check the consistency of estimated coefficients. Our results suggest that from an absolute standpoint (GDP base measures), all financial sectors are pro-poor. However, three interesting findings are drawn from measures of sector importance. (1) The expansion of the formal financial sector to the detriment of other financial sectors has a disequalizing income effect. (2) Growth of informal and semi-formal financial sectors at the expense of the formal financial sector has an income equalizing effect. (3) The positive income redistributive effect of semi-formal finance in financial sector competition is higher than the corresponding impact of informal finance. It unites two streams of research by contributing at the same time to the macroeconomic literature on measuring financial development and responding to the growing field of economic development by means of informal financial sector promotion and microfinance. The paper suggests a practicable way to disentangle the effects of the various financial sectors on economic development. The equation of financial depth in the perspective of money supply to liquid liabilities has put on the margin the burgeoning informal financial sector in developing countries. The phenomenon of mobile banking is such an example. |
| Keywords: | Financial Development; Shadow Economy; Poverty; Inequality; Africa |
| JEL: | E00 G20 I30 O17 O55 |
| Date: | 2013–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56806&r=mac |
| By: | Julio C. Leal-Ordoñez |
| Abstract: | Some authors argue that informality is associated with distorted firm decisions and inefficiency. In this paper, I assess the quantitative effect of incomplete tax enforcement on aggregate output and productivity using a dynamic general equilibrium framework. I calibrate the model using data for Mexico and investigate the effects of introducing enforcement improvements. Under complete enforcement, labor productivity and output would be 19% higher under perfect competition and 34% higher under monopolistic competition. The source of this gain is the removal of distortions induced by incomplete enforcement of taxes which affect the economy in three ways: by reducing the capital-labor ratios of informal establishments; by allowing low-productive entrepreneurs to enter; and by misallocating resources towards low-productive establishments. I isolate the effects of pure factor misallocation, distorted occupational choices, capital accumulation, and complementarities. |
| Keywords: | Tax enforcement, TFP, the informal sector |
| JEL: | E23 E26 O17 O40 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2013-22&r=mac |
| By: | J-S. Mésonnier; A. Monks |
| Abstract: | We exploit a unique monthly dataset of bank balance sheets to document the lending behaviour of euro area banks that were subject to the EBA's 2011/12 Capital Exercise. This exercise was announced in October 2011 and required large European banking groups to meet a higher Tier 1 capital ratio by June 2012, after accounting for an unprecedented temporary buffer against exposure to sovereign debt. Controlling for bank characteristics and demand at the level of country of residence, we find that banks in a banking group that had to increase its capital by 1 percent of risk-weighted assets tended to have annualized loan growth (over the 9 month period of the exercise) that was between 1.2 and 1.6 percentage points lower than for banks in groups that did not have to increase their capital ratio. Looking at aggregate effects at the country level, we also find that banks that did not have to recapitalize did not substitute for more constrained lenders. Our results are of particular relevance for the decisions facing the new European Single Supervisor in advance of its Asset Quality Review due in November 2014. |
| Keywords: | bank capital ratios, credit supply, EBA, euro area, asset quality review. |
| JEL: | C21 E51 G21 G28 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:491&r=mac |
| By: | Hillebrand, Marten |
| Abstract: | The paper develops a dynamical systems approach to study asset bubbles in OLG economies with stochastic production. We derive necessary and sufficient conditions for bubbly equilibria to exist and chracterize the maximum sustainable bubble. Even if they exist, bubbles are temporary and the economy converges to a bubbleless equilibrium with probability one. We also demonstrate that the existence conditions can be relaxed if frictions such as borrowing constraints are introduced. -- |
| Keywords: | asset bubbles,OLG,stochastic production,capital accumulation,dynamical systems,borrowing constraints |
| JEL: | C61 C62 E23 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:kitwps:57&r=mac |
| By: | Olav Syrstad (Norges Bank) |
| Abstract: | This paper investigates the effectiveness of the Federal Reserve's Term Auction Facility (TAF) in alleviating the liquidity shortage in USD and reducing the spread between the 3-month Libor rate and the expected policy rate. I construct a proxy for the 3-month liquidity risk premium based on data from the FX forward market which enables me to (i) decompose the Libor spread into a liquidity premium and a credit premium, and (ii) test the effectiveness of the TAF in reducing the liquidity premium in money market spreads. I find that long-term (84-day) TAF auctions were effective in reducing the 3-month liquidity premium. Furthermore, a reduction in the liquidity premium led to a fall in the 3-month Libor spread in USD. Credit risk, however, seems to have been a rather modest factor in explaining the increase in the Libor spread during the financial crisis. |
| Keywords: | Term Auction Facility, liquidity premium, credit premium, Libor-OIS spread |
| JEL: | E41 E43 E51 |
| Date: | 2014–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2014_07&r=mac |
| By: | Norris, Sam; Pendakur, Krishna |
| Abstract: | We assess the evolution of consumption inequality in Canada over the years 1997 to 2009. We correct the imputation of shelter consumption for owner-occupiers to allow for unobserved differences in housing quality correlated with selection into rental tenure, and we account for measurement error in this imputation. Using the Surveys of Household Spending 1997-2009, we find that household-level consumption inequality measured by the Gini coefficient has increased from 0.251 to 0.275 over 1997 to 2006, and then declined to 0.264 by 2009. Individual level inequality similarly increased from 0.199 in 1997 to 0.216 in 2006, but fell to 0.207 in 2009. Income inequality followed a similar hump-shaped pattern, but the post-2006 decline was large enough to entirely wipe out pre-2006 gains. We also explore a possible correction for tail non-response bias in inequality measurement, and find that the increase in measured consumption inequality is robust to this correction. |
| Keywords: | Consumption, Inequality, Canada |
| JEL: | E21 D63 |
| Date: | 2014–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:clssrn:clsrn_admin-2014-29&r=mac |
| By: | Heng Chen; Marie-Hélène Felt; Kim Huynh |
| Abstract: | We exploit the panel dimension of the Canadian Financial Monitor (CFM) data to estimate the impact of retail payment innovations on cash usage. We estimate a semiparametric panel data modelthat accounts for unobserved heterogeneity and allows for general forms of non-random attrition. We use annual data from the CFM on the methods of payment and cash usage for the period 2010–12. Estimates based on cross-sectional methods find a large impact of retail payment on cash usage (around 10 percent). However, after correcting for attrition, we find that contactless credit cards and multiple stored-value cards (reloadable) have no significant impact on cash usage, while single-purpose stored-value cards reduce the usage of cash by 2 percent in terms of volume. These results point to the uneven pace of the diffusion of payment innovations, especially contactless credit. |
| Keywords: | Bank notes, E-Money, Econometric and statistical methods, Financial services |
| JEL: | C35 E41 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:14-27&r=mac |
| By: | Claudia M. Buch; Oliver Holtemöller |
| Abstract: | The economic and financial crisis that emerged in 2008 also initiated an intense discussion on macroeconomic research and the role of economists in society. The debate focuses on three main issues. Firstly, it is argued that economists failed to predict the crisis and to design early warning systems. Secondly, it is claimed that economists use models of the macroeconomy which fail to integrate financial markets and which are inadequate to model large economic crises. Thirdly, the issue has been raised that economists invoke unrealistic assumptions concerning human behaviour by assuming that all agents are self-centred, rationally optimizing individuals. In this paper, we focus on the first two issues. Overall, our thrust is that the above statements are a caricature of modern economic theory and empirics. A rich field of research developed already before the crisis and picked up shortcomings of previous models. |
| Keywords: | financial crisis, economic forecasting and early warning systems, macroeconomic modelling |
| JEL: | B4 C5 E1 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:iwh:dispap:8-14&r=mac |
| By: | Asongu, Simplice |
| Abstract: | The Ali (2013, EB) findings on the nexuses among institutions, finance and investment could have an important influence on policy and academic debates. This paper relaxes his hypotheses on the conception, definition and measurement of finance and institutions because they are less realistic to developing countries to which the resulting policy implications are destined. We dissect with great acuteness the contextual underpinnings of financial development dynamics and elucidate why the Acemoglu & Johnson (2005) justification provided for the measurement of property rights institutions (PRI) is lacking in substance. Using updated data (1996-2010) from 53 African countries, we provide more robust evidence on the substitution of institutions and finance in investment. Results under many baseline and augmented scenarios are not consistent with the underlying paper. Justifications for the differences in findings are discussed. As a policy implication, the Ali (2013, EB) findings for countries with poor financial systems may not be relevant for Africa. |
| Keywords: | Finance; Institutions; Investment: Property Rights; Africa |
| JEL: | E0 G20 G24 O55 P14 |
| Date: | 2014–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56814&r=mac |
| By: | Siekmann, Helmut; Wieland, Volker |
| Abstract: | This note reviews the legal issues and concerns that are likely to play an important role in the ongoing deliberations of the Federal Constitutional Court of Germany concerning the legality of ECB government bond purchases such as those conducted in the context of its earlier Securities Market Programme or potential future Outright Monetary Transactions. -- |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:71&r=mac |
| By: | Peter H. Lindert |
| Abstract: | Thomas Piketty’s monumental Capital in the Twenty-First Century has transported us to a higher understanding of historical movements in inequality. This essay ranks the promise of different paths that scholars can usefully follow from the point to which his book has guided us. The main path to follow is the income inequality history so well paved by Piketty and his team, supported by the book’s history of twentieth-century shocks and political responses. Less promising is the book’s emphasis on wealth, capital, and the rate of return. Following the income route to better inequality predictions requires merging his team’s history of top income shares with the history of inequality movements within the lower 90 percent. It also invites a merger with other scholarship that has shown positive growth effects of the kind of democracy Piketty calls for. |
| JEL: | D31 D63 E01 H20 N10 N30 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20232&r=mac |
| By: | Harold L. Cole (Department of Economics, University of Pennsylvania and NBER); Soojin Kim (Krannert School of Management, Department of Economics, Purdue University); Dirk Krueger (Department of Economics, University of Pennsylvania, CEPR, CFS, NBER and Netspar) |
| Abstract: | This paper constructs a dynamic model of health insurance to evaluate the short- and long-run effects of policies that prevent firms from conditioning wages on health conditions of their workers, and that prevent health insurance companies from charging individuals with adverse health conditions higher insurance premia. Our study is motivated by recent US legislation that has tightened regulations on wage discrimination against workers with poorer health status (such as Americans with Disability Act of 1990, ADA, and its amendment in 2008, the ADAAA) and that prohibits health insurance companies from charging different premiums for workers of different health status starting in 2014 (Patient Protection and Affordable Care Act, PPACA). In the model, a trade-off arises between the static gains from better insurance against poor health induced by these policies and their adverse dynamic incentive effects on household efforts to lead a healthy life. Using household panel data from the PSID we estimate and calibrate the model and then use it to evaluate the static and dynamic consequences of no-wage discrimination and no-prior conditions laws for the evolution of the cross-sectional health and consumption distribution of a cohort of households, as well as ex-ante lifetime utility of a typical member of this cohort. In our quantitative analysis we find that although the competitive equilibrium features too little consumption insurance and a combination of both policies is effective in providing such insurance period by period, it is suboptimal to introduce both policies jointly since such a policy innovation severely undermines the incentives to lead healthier lives and thus induces a more rapid deterioration of the cohort health distribution over time. This effect more than offsets the static gains from better consumption insurance so that expected discounted lifetime utility is lower under both policies, relative to implementing wage nondiscrimination legislation alone. This is true despite the fact that both policy options are strongly welfare improving relative to the competitive equilibrium. |
| Keywords: | Health Risks, Social Insurance, Health Effort Choices |
| JEL: | E61 H31 I18 |
| Date: | 2014–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:14-023&r=mac |
| By: | Juan Contreras; Elena Patel; Ignez Tristao |
| Abstract: | We analyze the contribution of production factors to revenue growth in almost the complete universe of U.S. hospitals, accounting for quality and productivity. Production factors (capital, labor, energy, materials and drugs) contributed 70% (drugs alone contributed 52 %), better health outcomes (higher quality) contributed 5 %, and better use of resources (productivity) contributed 25 %. We find increasing returns to scale, a markup of between 15% and 36% and a much larger productivity dispersion in the hospital sector than the one found in manufacturing, with gains coming mainly from within-hospital productivity growth and almost zero coming from net entry. |
| Keywords: | Health care cost growth, Health care productivity, Health production |
| JEL: | D24 I12 E22 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2013-13&r=mac |
| By: | Asongu, Simplice |
| Abstract: | The contribution of this paper to complement theoretical and qualitative mobile penetration literature with empirical evidence is twofold: firstly, we assess the income-redistributive effect of mobile phone penetration and; secondly, the instrumentality of financial development dynamics in this nexus. Main findings suggest an equalizing income-redistributive effect of ‘mobile phone penetration’ and ‘mobile banking’, with a higher income-equalizing effect in the latter than in the former. Poverty alleviation channels explaining this difference in inequality mitigating propensity are discussed. The empirical evidence is based on 52 African countries and deviates from mainstream country-specific and microeconomic survey-based approaches. |
| Keywords: | Banking; Mobile Phones; Shadow Economy; Financial Development; Africa |
| JEL: | E00 G20 L96 O17 O33 |
| Date: | 2013–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:56800&r=mac |