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on Macroeconomics |
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Issue of 2014‒07‒21
sixty-four papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Giovanni Melina (City University London); Stefania Villa (University of Foggia) |
| Abstract: | Using a dynamic stochastic general equilibrium model with banking, this paper first provides evidence that, during the Great Moderation, monetary policy leaned against the wind blowing from the loan market in the US. It then shows that the extent to which this occurred delivers a small welfare loss relative to the optimised simple interest-rate rule that features only a response to inflation. The source of business cycle fluctuations is crucial for the optimality of a leaning-against-the-wind policy. In fact, the pro-cyclical nature of lending creates a trade-off between inflation and financial stabilisation when supply shocks are prevalent. |
| Keywords: | lending relationships, augmented Taylor rule, Bayesian estimation, optimal policy. |
| JEL: | E32 E44 E52 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkcam:1402&r=mac |
| By: | J.I.Lopez; V. Olivella Moppett |
| Abstract: | We study the effect of financial shocks in labor market dynamics. We build a model with two types of labor, two types of capital and both search and financial frictions. We find that financial shocks, modeled as exogenous disturbances to the borrowing constraint of firms, can generate realistic movements in aggregate employment and reproduce the volatile and countercyclical ratio of skilled to unskilled employment observed in the data. Tighter financial conditions impact employment through three channels: i) a fall in the marginal product of labor as a result of a reduction in aggregate capital, ii) an increase in the shadow cost of labor in terms of external financing and iii) an endogenous wage rigidity caused by a short-lived increase in households' consumption and in their marginal value of time. This endogenous wage rigidity together with the model’s calibration implying a higher re-hiring probability and lower recruitment costs for unskilled workers, explains the volatility of relative employment. |
| Keywords: | Financial Shocks, Business Cycles, Employment Volatility, Search. |
| JEL: | E24 E32 E44 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:496&r=mac |
| By: | Fitzgerald, Terry J. (Federal Reserve Bank of Minneapolis); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis) |
| Abstract: | This paper makes two straightforward points that we argue are central to understanding the literature and debate surrounding the stability of the Phillips curve. First, the endogeneity of monetary policy implies that aggregate data are largely uninformative as to the existence of a stable relationship between unemployment and future inflation. Second, if the NAIRU model is assumed to be true, regional data can be used to identify the structural relationship between unemployment and future inflation. We find that a 1 percentage point increase in the unemployment rate is associated with a roughly 0.3 percentage point decline in inflation over the next year. |
| Keywords: | Endogenous monetary policy; Stability of the Philips Curve |
| JEL: | E52 E58 |
| Date: | 2014–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:713&r=mac |
| By: | Ángel Estrada (Banco de España); Eva Valdeolivas (Banco de España); Javier Vallés (Banco de España); Daniel Garrote (Harvard Kennedy School) |
| Abstract: | Household debt in many advanced economies has increased significantly since the 1980s and accelerated in the years prior to the Great Recession, resulting in an aggregate reduction of saving rates in the developed economies. Some of those economies are now deleveraging, which may be affecting their recovery. We try to disentangle how these financial developments influence private consumption in a panel of OECD countries, after controlling for the traditional determinants (income, net financial and non-financial wealth, and interest rates). Consistent with the changes in the distribution of financial constraints, we find that aggregate consumption is also driven by the dynamics of housing debt accumulation and deleveraging. Precautionary savings, due to labour income uncertainty, have also influenced household decisions especially, during the 2007-2009 period. |
| Keywords: | private consumption, financial developments, precautionary savings, debt |
| JEL: | E21 E44 F01 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1415&r=mac |
| By: | Yuki Teranishi; Nao Sudo; Tomoyuki Nakajima; Ippei Fujiwara |
| Abstract: | How should monetary policy respond to a global liquidity trap, where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterise optimal monetary policy, and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. The interest-rate rule targeting the producer price index performs very well in this respect. |
| JEL: | E52 E58 F41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:csg:ajrcwp:04&r=mac |
| By: | Kai Liu |
| Abstract: | This paper proposes a new framework to analyze and estimate structural fiscal balances. Stochastic trends are properly incorporated, and the numerical solution of the DSGE model serves as part of the Kalman smoother to extract structural fiscal balances. For the UK, a setting of an integrated random walk for the underlying stochastic trends fits the date best. The response of nominal fiscal revenue to the technology shock is small. The shocks to foreign demand and to foreign goods price both have positive effects on fiscal revenue. An expansionary monetary policy shock has a great positive short-run impact on fiscal revenue, but the influence is not persistent because of the open-economy characteristic of the UK. An expansion in government spending can also increase fiscal revenue, but the effect is not persistent as well due to the domestic and external crowd-out effects. A contractionary fiscal policy (cutting government expenditure or increasing the lump-sum tax temporarily), rather than an expasionary one, will benefit economic recovery and also improve fiscal stance. Compared to a temporary increase of the lump-sum tax, cutting government spending is relatively more effective and it alleviates the two kinds of crowd-out effects. |
| Keywords: | business cycles, structural fiscal balances, DSGE model, Kalman filter and smoother |
| JEL: | C54 E32 E62 H62 |
| Date: | 2014–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1411&r=mac |
| By: | Robert A. Ritz; Ansgar Walther |
| Abstract: | The 2007-9 .financial crisis began with increased uncertainty over funding conditions in money markets. We show that funding uncertainty can explain diverse elements of commercial banks behaviour during the crisis, including:(i) reductions in lending volumes, balance sheets, and profitability;(ii) more intense competition for retail deposits (including deposits turning into a .loss leader.);(iii) stronger lending cuts by more highly extended banks with a smaller deposit base;(iv) weaker pass-through from changes in the central bank.s policy rate to market interest rates; and(v) a binding .zero lower bound.as well as a rationale for unconventional monetary policy. |
| Keywords: | Bank lending, .financial crises, interbank market, interest rate pass-through, liquidity channel, loan-to-deposit ratio, loss leader, monetary policy, zero lower bound. |
| JEL: | D40 E43 E52 G21 |
| Date: | 2014–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1414&r=mac |
| By: | Carvalho, Carlos (Departamento de Economia, Pontifícia Universidade Católica do Rio de Janeiro); Nechio, Fernanda (Federal Reserve Bank of San Francisco) |
| Abstract: | We study how real exchange rate dynamics are affected by monetary policy in dynamic, stochastic, general equilibrium, sticky-price models. Our analytical and quantitative results show that the source of interest rate persistence – policy inertia or persistent policy shocks – is key. When the monetary policy rule has a strong interest rate smoothing component, these models fail to generate high real exchange rate persistence in response to monetary shocks, as policy inertia hampers their ability to generate a hump-shaped response to such shocks. Moreover, in the presence of persistent monetary shocks, increasing policy inertia may decrease real exchange rate persistence. |
| Keywords: | real exchange rates; monetary policy; interest rate smoothing; PPP puzzle; persistence |
| JEL: | E0 F3 F41 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2014-17&r=mac |
| By: | Kai Liu |
| Abstract: | This paper models the US dollar as a global currency and focuses on the effects of US money supply shock upon China’s economy. The special roles of US dollar as a global currency and the special institutional arrangements of China are investigated. Given a positive US money supply shock, both the inflation and real GDP of China will be below their steady state levels in the medium term; while for the US there is no inflation pressure. Welfare calculation shows that a positive 10% US money supply shock will result in a positive 1.25% welfare gain for China, a positive 0.06% welfare gain for US, but a 0.21% welfare loss for the rest of the world. Given that the US dollar’s hegemony is not weakened, the regime with liberalized capital accounts and an exchange rate peg to the US dollar for China is best for the Chinese households under the US money supply shock. However, when the US dollar is no longer the global reserve currency but instead a supranational reserve currency replaces it, then for China this regime is the worst kind of reform, no matter whether or not the dollar standard in international trade is maintained. |
| Keywords: | US dollar, global currency, capital control, exchange rate, business cycle |
| JEL: | E32 E42 E51 F31 F41 F44 |
| Date: | 2014–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1410&r=mac |
| By: | Richhild Moessner |
| Abstract: | We quantify the international spillovers of explicit FOMC policy rate guidance used as an unconventional monetary policy tool at the zero lower bound of the policy rate on international equity markets, considering equity indices of both advanced and emerging economies. We find that explicit FOMC policy rate guidance announcements at the zero lower bound led to higher equity prices in a number of advanced and emerging economies. Moreover, we find that equity indices of economies with lower sovereign ratings rose by more, consistent with the risk-taking channel of monetary policy. |
| Keywords: | Monetary policy; forward guidance; equity prices; international spillovers |
| JEL: | E52 E58 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:427&r=mac |
| By: | Luigi Pierfranco Campiglio (DISCE, Università Cattolica) |
| Abstract: | The aim of the paper is to unbundle the main economic variables involved in the European Crisis and clarify their reciprocal relationship. The variables considered are: unemployment, inflation, consumptions, investments and current accounts. We use annual, quarterly and monthly data, until 2012, mid-2013 or an estimate of 2013 for the main European countries. The main results are the following: a) we show an emerging European economic divide, b) we detect a quasi-Okun relationship between investment and unemployment, c) we show the revival of the Phillips curve, especially in Germany, d) we test for the relationship between unemployment and the Government deficit, e) we show the existence of a relationship between unemployment and current account, f) we show how countries with high unemployment rate could bear the burden, g) we unbundle the unemployment-current account relationship, showing first the relationship between unemployment and final consumption, h) and then between final consumption, imports and current account, i) we show why a stable and growing inflation differential is not sustainable, but argue that internal devalution is not an effective policy, pushing inflation rates to a worrisome lower level and even outright deflation, l) we argue and show how to implement a more effective policy looking to the inflation differentials of specific products, looking to the case of Italy, m) we analyze the trade relationship between Germany and China, arguing that since the onset of the EMU and the successive membership of China to the WTO, a European structural break occurred, with some European countries relying much more on exports rather than domestic demand. A more general issue of sustainability and replicability of the Germany’s export led growth model is raised. |
| Keywords: | Great Recession, Europe, Germany, Unemployment, Inflation, Consumption, Investment, Current Account |
| JEL: | E24 E29 E30 E31 F32 F40 H62 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie5:ispe0067&r=mac |
| By: | Gumbau-Brisa, Fabia (J. P. Morgan); Olivei, Giovanni P. (Federal Reserve Bank of Boston) |
| Abstract: | The authors derive an estimate of the Federal Reserve's assessment of the natural rate of unemployment in real time from the Greenbook forecast of inflation. The estimated natural rate starts to rise noticeably in the second half of the mid-1970s. It stays relatively high in the 1980s, and then declines noticeably in the second half of the 1990s. They compare the Greenbook estimates with the estimates obtained in real time from simple relationships that extract information about the natural rate of unemployment from the dynamics of inflation, aggregate demand, and the functioning of the labor market. When differences between these measures and the Greenbook arise, the improvement to the Greenbook inflation forecast that would have been achieved by using a different estimate of the natural rate of unemployment is typically small. |
| JEL: | E37 E47 E5 |
| Date: | 2013–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:13-24&r=mac |
| By: | Burke, Mary A. (Federal Reserve Bank of Boston); Ozdagli, Ali K. (Federal Reserve Bank of Boston) |
| Abstract: | With nominal interest rates at the zero lower bound, an important question for monetary policy is whether, as predicted in prior theoretical work, an increase in inflation expectations would boost current consumer spending. Using survey panel data for the period from April 2009 to November 2012, we examine the relationship between a household's inflation expectations and its current spending, taking into account other factors such as the household's wage growth expectations, the uncertainty surrounding its inflation expectations, macroeconomic conditions, and unobserved heterogeneity at the household level. We examine spending behavior for large consumer durables as well as for nondurable goods. No evidence is found that consumers increase their spending on large home appliances and electronics in response to an increase in their inflation expectations. In most models, the estimated effects are small, negative, and statistically insignificant. However, consumers do appear more likely to purchase a car as their short-run inflation expectations rise. Additionally, in some models, spending on nondurable goods increases with short-run expected inflation. These estimated effects on nondurables spending are modest, not highly robust, and appear to be driven by the behavior of homeowners who did not have a mortgage. These findings are surprising because theory predicts that consumption of durable goods should be more sensitive to real interest rates than consumption of nondurable goods. In addition, consumers in our sample, on average, did not expect their nominal income growth to match inflation, and therefore an increase in expected inflation would create a negative income effect that discourages spending in both the present and the future. The findings suggest that, as a policy measure, raising inflation expectations may not be effective in boosting present consumption. |
| JEL: | D12 D84 D91 E52 |
| Date: | 2013–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:13-25&r=mac |
| By: | Cebula, Richard |
| Abstract: | Using four decades of data, this empirical study adopts a loanable funds model to investigate the impact of the federal government budget deficit in the U.S. on the ex ante real interest rate yield on ten-year Treasury notes. For the 40-year period 1973-2012, an autoregressive 2SLS estimate finds that the ex ante real interest rate yield on ten-year U.S. Treasury notes was an increasing function of the ex ante real interest rate yield on Moody’s Aaa-rated corporate bonds, the ex ante real interest rate yield on three-month Treasury bills, and the increase in per capita real GDP, while being a decreasing function of net capital inflows (as a percent of GDP), which are treated as endogenous, and the monetary base (as a percent of GDP). In addition, it is found that that the federal budget deficit (relative to the GDP level) exercised a positive and statistically significant impact on the ex ante real interest rate yield on ten-year Treasury notes, a finding consistent in principle with a number of prior studies of other interest rate measures during shorter and earlier time periods. A modest robustness test using the ex ante real seven-year Treasury note yield generates the same conclusions. |
| Keywords: | budget deficits; ex ante real interest rates; international capital flows |
| JEL: | E31 E37 E42 E43 E52 H62 |
| Date: | 2014–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57317&r=mac |
| By: | Mark Aguiar; Manuel Amador; Emmanuel Farhi; Gita Gopinath |
| Abstract: | We characterize fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently. A common monetary authority chooses inflation for the union, also without commitment. We first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over borrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of debt in a monetary union, that is the fraction of high-debt versus low-debt members, on the occurrence of self-fulfilling debt crises. We demonstrate that a high-debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high- and low-debt members, than one where all other members are low-debt. This contrasts with the conventional wisdom that all countries should prefer a union with low-debt members, as such a union can credibly deliver low inflation. These findings shed new light on the criteria for an optimal currency area in the presence of rollover crises. |
| JEL: | E0 F0 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20277&r=mac |
| By: | Briglevics, Tamas (Federal Reserve Bank of Boston); Schuh, Scott (Federal Reserve Bank of Boston) |
| Abstract: | U.S. consumers' demand for cash is estimated with new panel micro data for 2008-2010 using econometric methodology similar to Mulligan and Sala-i-Martin (2000); Attanasio, Guiso, and Jappelli (2002); and Lippi and Secchi (2009). We extend the Baumol-Tobin model to allow for credit card payments and revolving debt, as in Sastry (1970). With interest rates near zero, cash demand by consumers using credit cards for convenience (without revolving debt) has the same small, negative, interest elasticity as estimated in earlier periods and with broader money measures. However, cash demand by consumers using credit cards to borrow (with revolving debt) is interest inelastic. These findings may have aggregate implications for the welfare cost of inflation because then nontrivial share of consumers who revolve credit card debt are less likely to switch from cash to credit. In the 21st century, consumers get cash from bank and nonbank sources with heterogeneous transactions costs, so withdrawal location is essential to identify cash demand properly. |
| Keywords: | cash demand; Baumol-Tobin model; Survey of Consumer Payment Choice; SCPC |
| JEL: | E41 E42 |
| Date: | 2013–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:13-23&r=mac |
| By: | Gliksberg, Baruch (Department of Economics, University of Haifa) |
| Abstract: | I discuss the joint effects of government-taxes and interest-rates. A fiscal authority performs `exogenous' and `endogenous' changes to the income-tax rate and a monetary authority sets the nominal-interest. A wedge between rates of self-financing of tax cuts and the income-tax Laffer curve arrives from the monetary system. I find a new- regime that differs from conventional monetary-fiscal policy interactions. Dynamic scoring exercises show that in the new-regime monetary-policy markedly mitigates negative output effects caused by `exogenous tax actions' designed to reduce public-debt, altogether inducing signi.cant welfare gains. In contrast, where public-debt is at high levels, `exogenous tax cuts' induce welfare losses. |
| Keywords: | Distorting Taxes; Liquidity Constraints; Dynamic Laffer Curve; Global Analysis; Liquidity Traps; Sovereign Default; |
| JEL: | C60 E60 H20 H30 H60 |
| Date: | 2014–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:haf:huedwp:wp201401&r=mac |
| By: | Yuki Teranishi; Ippei Fujiwara |
| Abstract: | Do financial frictions call for policy cooperation? This paper investigates the implications of financial frictions for monetary policy in the open economy. Welfare analysis shows that there are long-run gains which result from cooperation, but, dynamically, financial frictions per se do not require policy cooperation to improve global welfare over business cycles. In addition, inward-looking financial stability, namely eliminating inefficient fluctuations of loan premiums in the home country, is the optimal monetary policy in the open economy, irrespective of the existence of policy coordination. |
| JEL: | E50 F41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:csg:ajrcwp:06&r=mac |
| By: | Rodolfo G. Campos (IESE Business School); Iliana Reggio (Universidad Carlos III) |
| Abstract: | By how much do employed households reduce their consumption when the aggregate unemployment rate rises? In Spain during the Great Recession a 1 percentage point increase in the unemployment rate was related to a strong drop in household consumption of more than 0.7% per equivalent adult. This reduction is the response of forward-looking agents to downward revisions of their expectations on future income growth rates: the shadow of unemployment. Using consumption panel data that include information on physical quantities, we show that the drop in consumption expenditure was indeed a reduction in quantities, and not a switch to cheaper alternatives. |
| Keywords: | consumption, unemployment, income, life-cycle models, Spain, Great Recession |
| JEL: | E21 E24 D12 D84 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1411&r=mac |
| By: | Libich, Jan; Nguyen, Dat; Stehlik, Petr |
| Abstract: | The aftermath of the Global financial crisis has seen two types of monetary policy concerns. Some economists (e.g. Paul Krugman) worry primarily about possible deflation caused by a secular stagnation. In contrast, others (e.g. John Taylor) worry about excessively high inflation caused by quantitative easing and monetization of fiscal imbalances. We show that some countries should fear both - deflation in the short term and high inflation in the long term - whereas some countries are unlikely to experience either. This is done in a game theoretic framework with dynamic leadership (stochastic revisions of actions). Such framework enables us to examine strategic monetary-fiscal interactions as well as policymakers' incomplete information about the economic recovery (such as during 2010-2014). Our empirical section then quantifies indices of monetary and fiscal leadership for high-income countries to assess their deflationary/inflationary prospects. It is shown, for example, that undesirable departures from price stability, both in the short term and long term, are much more likely in the United States and Japan than in Australia or New Zealand. |
| Keywords: | monetary-fiscal interactions; fiscal stress; deflation; active/passive policy regime; Game of chicken; asynchronous moves; dynamic leadership; stochastic timing; equilibrium selection |
| JEL: | E63 |
| Date: | 2014–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57266&r=mac |
| By: | Hashem Pesaran; Ambrogio Cesa-Bianchi; Alessandro Rebucci |
| Abstract: | The 2007-2008 global _financial crisis and the subsequent anemic recovery have rekindled academic interest in quantifying the impact of uncertainty on further assume that these common factors affect volatility and economic activity with a time lag of at least a quarter. Under these assumptions, we show analytically that volatility is forward looking and that the output equation of a typical VAR estimated in the literature is mis-specified as least squares estimates of this equation are inconsistent. Empirically, we document a statistically significant and economically sizable impact of future output growth on current volatility, and no effect of volatility shocks on business cycles, over and above those driven by the common factors. We interpret this evidence as suggesting that volatility is a symptom rather than a cause of economic instability. |
| Keywords: | Uncertainty, Realized volatility, GVAR, Great Recession, Identication,Business Cycle, Common Factors. |
| JEL: | E44 F44 G15 |
| Date: | 2014–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1407&r=mac |
| By: | Gottardi, Piero; Kajii, Atsushi; Nakajima, Tomoyuki |
| Abstract: | We consider an economy where individuals face uninsurable risks to their human capital accumulation, and study the problem of determining the optimal level of linear taxes on capital and labor income together with the optimal path of the debt level. We show both analytically and numerically that in the presence of such risks it is beneficial to tax both labor and capital income and to have positive government debt.. |
| Keywords: | Ramsey equilibrium; Optimal taxation; Incomplete markets; Optimal public debt |
| JEL: | D52 D60 D90 E20 E62 H21 O40 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2014/08&r=mac |
| By: | Glover, Andrew (University of Texas, Austin); Heathcote, Jonathan (Federal Reserve Bank of Minneapolis); Krueger, Dirk (University of Pennsylvania); Rios-Rull, Jose-Victor (Federal Reserve Bank of Minneapolis) |
| Abstract: | We construct a stochastic overlapping-generations general equilibrium model in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of big recessions are distributed across different household age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase assets at depressed prices. In our preferred calibration, asset prices decline 2.4 times as much as wages, consistent with the experience of the US economy in the Great Recession. A model recession is close to welfare neutral for households in the 20–29 age group, but translates into a large welfare loss of more than 8% of lifetime consumption for households aged 70 and over. |
| Keywords: | Great Recession; Overlapping generations; Asset prices; Aggregate risk |
| JEL: | D31 D58 D91 E21 |
| Date: | 2014–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:498&r=mac |
| By: | Stephen Hansen; Michael McMahon; Andrea Prat |
| Abstract: | How does transparency, a key feature of central bank design, affect the deliberation of monetary policymakers? We exploit a natural experiment in the Federal Open Market Committee in 1993 together with computational linguistic models (particularly Latent Dirichlet Allocation) to measure the effect of increased transparency on debate. Commentators have hypothesized both a beneficial discipline effect and a detrimental conformity effect. A difference-in-differences approach inspired by the career concerns literature uncovers evidence for both effects. However, the net effect of increased transparency appears to be a more informative deliberation process. |
| Keywords: | monetary policy, deliberation, FOMC, transparency, career concerns |
| JEL: | E52 E58 D78 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:762&r=mac |
| By: | Pablo Burriel (Banco de España); María Isabel García-Belmonte (Banco de España) |
| Abstract: | In this paper we propose a new real-time forecasting model for euro area GDP growth, D€STINY, which attempts to bridge the existing gap in the literature between large- and small-scale dynamic factor models. By adopting a disaggregated modelling approach, D€STINY uses most of the information available for the euro area and the member countries (around 100 economic indicators), but without incurring in the nite sample problems of the large-scale methods, since all the estimated models are of a small scale. An empirical pseudo-real time application for the period 2004-2013 shows that D€STINY´s forecasting performance is clearly better than the standard alternative models and than the publicly available forecasts of other institutions. This is especially true for the period since the beginning of the crisis, which suggests that our approach may be more robust to periods of highly volatile data and to the possible presence of structural breaks in the sample. |
| Keywords: | business cycles, output growth, time series, Euro-STING model, large-scale model |
| JEL: | E32 C22 E27 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1323&r=mac |
| By: | Gao, Liping; Kim, Hyeongwoo; Saba, Richard |
| Abstract: | This paper evaluates the degree of pass-through from oil price shocks to disaggregate U.S. consumer prices. We find significantly positive effects of the oil price shock only on energy-intensive CPIs, which imply that significantly positive, though quantitatively small, response of the total CPI is mainly driven by substantial increases in prices of energy-related commodities. Unexpected changes in the oil price may result in decreases in the budget for non-energy commodities, if the demand for energy is inelastic (Edelstein and Kilian, 2009). Decreases in the demand for non-energy commodities will then result in limited influences on prices of those goods, which is consistent with our empirical findings. |
| Keywords: | Oil Price Shocks; Pass-Through; Disaggregated Consumer Price Indices; Vector Autoregression |
| JEL: | E21 E31 Q43 |
| Date: | 2014–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:57259&r=mac |
| By: | Domenico Giannone (Libera Università Internazionale degli Studi Sociali Guido Carli (LUISS); Centre for Economic Policy Research (CEPR)); Francesca Monti (Bank of England; Centre for Macroeconomics (CFM)); Lucrezia Reichlin (London Business School (LBS); Centre for Economic Policy Research (CEPR)) |
| Abstract: | This paper shows how and when it is possible to obtain a mapping from a quarterly DSGE model to a monthly specification that maintains the same economic restrictions and has real coefficients. We use this technique to derive the monthly counterpart of the Gali et al (2011) model. We then augment it with auxiliary macro indicators which, because of their timeliness, can be used to obtain a now-cast of the structural model. We show empirical results for the quarterly growth rate of GDP, the monthly unemployment rate and the welfare relevant output gap defined in Gali, Smets and Wouters (2011). Results show that the augmented monthly model does best for now-casting. |
| Keywords: | DSGEmodels, forecasting, temporal aggregation, mixed frequency data, large datasets |
| JEL: | C33 C53 E30 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1416&r=mac |
| By: | Liping Gao; Hyeongwoo Kim; Richard Saba |
| Abstract: | This paper evaluates the degree of the pass-through effect of the oil price shock using disaggregated CPIs in the US. We find a significantly positive effect of the oil price shock only on energy-intensive CPIs, which imply that the strong pass-through effect on the total CPI is mainly driven by substantial increases in prices of energy-related commodities. Unexpected changes in the oil price may result in decreases in the budget for non-energy commodities, if the demand for energy is inelastic (Edelstein and Kilian, 2009). Decreases in the demand for non-energy commodities will then result in limited pass-through effects on prices of those goods, which is consistent with our empirical findings. |
| Keywords: | Oil Price Shocks; Pass-Through Effect; Disaggregated Consumer Price Indices; Vector Autoregression |
| JEL: | E21 E31 Q43 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2014-10&r=mac |
| By: | Morris A. Davis; Stijn Van Nieuwerburgh |
| Abstract: | In this chapter, we review and discuss the large body of research that has developed over the past 10-plus years that explores the interconnection of macroeconomics, finance, and housing. We focus on three major topics -- housing and the business cycle, housing and portfolio choice, and housing and asset returns -- and then review the recent literature that studies housing and the macroeconomy during the great housing boom and bust of 2000-2010. Our emphasis is on calibrated models that can be compared to data. In each section, we discuss the important questions, the typical set of tools used, and the insights that result from important papers. Although great progress has been made in understanding the important role that housing plays in understanding macroeconomic phenomena, work remains. For example, economists cannot fully explain all of the volatility in house prices during the unprecedented boom and bust period of 2000-2010. At the end of the chapter, we discuss a new literature that assesses the macroeconomic effects and welfare implications of housing policies. |
| JEL: | E3 E6 G12 G18 R2 R3 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20287&r=mac |
| By: | Roberto Chang |
| Date: | 2013–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000471:011508&r=mac |
| By: | Veurink, Jan Hessel; Kuper, Gerard H. (Groningen University) |
| Abstract: | This paper investigates whether political pressure from incumbent presidents influences the Fed?s monetary policy during the period that Alan Greenspan was the chairman of the United States Federal Reserve Board. A modified Taylor rule with time-varying coefficients will be used to test wellknown political-economic theories of Nordhaus (1975) and Hibbs (1987). The findings suggest that the Fed under Greenspan did not create election driven monetary cycles, but was less inflation avers with a Democratic president. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:14020-eef&r=mac |
| By: | Paul Cashin; Kamiar Mohaddes; Mehdi Raissi |
| Abstract: | This paper employs a dynamic multi-country framework to analyze the international macroeconomic transmission of El Niño weather shocks. This framework comprises 21 country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for not only direct exposures of countries to El Niño shocks but also indirect effects through third-markets. The results of our Global VAR model of the world economy indicate that the economic consequences of El Niño shocks differ across countries. While Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Niño shock, for other countries, the El Niño shock has a growth-enhancing effect; some (for instance the U.S.) due to direct effects while others (for instance the European region) through positive spillovers from major trading partners. Furthermore, most countries in our sample experience short-run in inflationary pressures as both energy and non-fuel commodity prices increase. Given these findings, macroeconomic policy formulation should take into consideration the likelihood and effects of El Niño episodes. |
| Keywords: | Global VAR (GVAR), interconnectedness, global macroeconomic modeling, impulse responses, international business cycle, El Niño, oil and non-fuel commodity prices. |
| JEL: | C32 E17 E32 F44 F47 Q11 Q41 |
| Date: | 2014–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1418&r=mac |
| By: | L. Lambertini; L. Marattin |
| Abstract: | In this paper we verify the functioning of the standard neoclassical adjustment to equilibrium after a demand shock in a non-cooperative simultaneous Cournot duopoly with complete, symmetric and imperfect information. Our results show that in such a framework the adjustment to the long-run level of output by the entire industry or part of it is no longer guaranteed. We show that the size of the demand shock determines the nature and number of equilibria generated by strategic interaction, whereas the post-adjustment real wage level determines which equilibrium is actually obtained. |
| JEL: | D43 E30 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp952&r=mac |
| By: | Constantino Hevia (World Bank; Universidad Torcuato Di Tella); Martin Gonzalez-Rozada (Universidad Torcuato Di Tella); Martin Sola (Birkbeck, University of London; Universidad Torcuato Di Tella); Fabio Spagnolo (Brunel University) |
| Abstract: | We estimate versions of the Nelson-Siegel model of the yield curve of U.S. government bonds using a Markov switching latent variable model that allows for discrete changes in the stochastic process followed by the interest rates. Our modelling approach is motivated by evidence suggesting the existence of breaks in the behaviour of the U.S. yield curve that depend, for example, on whether the economy is in a recession or a boom, or on the stance of monetary policy. Our model is parsimonious, relatively easy to estimate, and flexible enough to match the changing shapes of the yield curve over time. We also derive the discrete time non-arbitrage restrictions for the Markov switching model. We compare the forecasting performance of these models with that of the standard dynamic Nelson and Siegel model and an extension that allows the decay rate parameter to be time-varying. We show that some parameterizations of our model with regime shifts outperform the single regime Nelson and Siegel model and other standard empirical models of the yield curve. |
| Keywords: | Yield Curve, Term structure of interest rates, Markov regime switching, Maximum likelihood, Risk premium. |
| JEL: | C13 C22 E43 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkcam:1403&r=mac |
| By: | Damián Romero; Luis Ceballos |
| Abstract: | This paper attempts to address the question of how unconventional monetary policies affected the market expectations in both the future paths of the monetary policy rate and economic growth implicit in interest rates in the period 2007-2013 for several developed and developing countries where these kind of policies were applied. The approach used in this paper is to compare the implicit expectations in the yield curve with market surveys and econometric models to see whether the first ones were affected. We conclude that in the period where unconventional monetary policies were applied, the yield curve provided relevant additional information to forecast the monetary policy rate and economic growth, especially in developed economies. |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:732&r=mac |
| By: | Eleni Iliopulos (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPREMAP - Centre pour la recherche économique et ses applications - Centre pour la recherche économique et ses applications); François Langot (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, GAINS-TEPP - Université du Maine, Banque de france - Banque de France, IZA - Institute for the Study of Labor); Thepthida Sopraseuth (CEPREMAP - Centre pour la recherche économique et ses applications - Centre pour la recherche économique et ses applications, THEMA - Théorie économique, modélisation et applications - CNRS : UMR8184 - Université de Cergy Pontoise) |
| Abstract: | We provide a quantitative assessment of welfare costs of fluctuations in a search model with financial frictions. The matching process in the labor market leads positive shocks to reduce unemployment less than negative shocks increase it. We show that the magnitude of this non-linearity is magnified frictions. This asymmetric effect of the business cycle leads to sizable welfare costs. The model also accounts for the responsiveness of the job finding rate to the business cycle as financial frictions endogenously generate counter-cyclical opportunity costs of opening a vacancy and wage sluggishness. |
| Keywords: | Welfare; business cycle; financial friction; labor market search |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01020872&r=mac |
| By: | M. Hashem Pesaran (University of Southern California; Trinity College Cambridge); Ron P Smith (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | The policy innovations that followed the recent Great Recession, such as unconventional monetary policies, prompted renewed interest in the question of how to measure the effectiveness of such policy interventions. To test policy effectiveness requires a model to construct a counterfactual for the outcome variable in the absence of the policy intervention and a way to determine whether the differences between the realised outcome and the model-based counter-factual outcomes are larger than what could have occurred by chance in the absence of policy intervention. Pesaran & Smith propose tests of policy ineffectiveness in the context of macroeconometric rational expectations dynamic stochastic general equilibrium models. When we are certain of the specification, estimation of the complete system imposing all the cross-equation restrictions implied by the full structural model is more efficient. But if the full model is misspecified, one may obtain more reliable estimates of the counterfactual outcomes from a parsimonious reduced form policy response equation, which conditions on lagged values, and on the policy measures and variables known to be invariant to the policy intervention. We propose policy ineffectiveness tests based on such reduced forms and illustrate the tests with an application to the unconventional monetary policy known as quantitative easing (QE) adopted in the UK. |
| Keywords: | Counterfactuals, policy analysis, policy ineffectiveness test, macroeconomics, quantitative easing (QE). |
| JEL: | C18 C54 E65 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1406&r=mac |
| By: | Brindusa Anghel (FEDEA); Sara de la Rica (UPV/EHU & FEDEA); Aitor Lacuesta (Banco de España) |
| Abstract: | This article analyses changes in the occupational employment share in Spain for the period 1997-2012 and the way particular sociodemographics adapt to those changes. There seems to be clear evidence of employment polarisation between 1997 and 2012, which accelerates over the recession. Changes in the composition of the labour supply cannot explain the increase in the share of occupations at the low end of the wage distribution. Sector reallocation might have partially contributed to explaining the polarisation process in Spain during the years of expansion (1997-2007), but it is a minor factor during the recession. The polarisation of occupations within sectors observed especially during the recession appear to be related to a decline in routine tasks. This is compensated by an increase in occupations with non-routine service contents, which are found both at the low and high end of the wage distribution. Instead, abstract content-intensive jobs do not appear to increase their share in total employment during these 15 years. The paper finds that this process has affected males more than females because of the higher concentration of the former in more routine-intensive occupations. Among males, for workers under 30 years we fi nd a decrease in the share of occupations with more routine tasks, which turns into increases in others with more abstract content and particularly with more nonroutine service content. Instead, male workers over 30 years seem to remain in declining occupations to a greater extent. Females of different ages are not affected by the abovementioned changes. |
| Keywords: | employment polarisation, job tasks, routinisation, business cycle |
| JEL: | E24 J24 J62 O33 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1321&r=mac |
| By: | Davide Suverato (LMU University of Munich) |
| Abstract: | This paper develops a two-sector, two-factor trade model with labor market frictions in which workers search for a job also when they are employed. On the job search (OJS) is a key ingredient to explain the response to trade liberalization of sectoral employment, unemployment and wage i equality. OJS generates wage dispersion and it leads to a reallocation of workers from less productive firms that pay lower wages to more productive ones. Following a trade liberalization the traditional selection effects are more severe than without OJS and the tradable sector experiences a loss of employment, while the opposite is true for the non tradable sector. Starting from autarky, the opening to trade has a positive effect on employment but it increases wage inequality. For an already open economy, a further increase of trade openness can, however, lead to an increase of unemployment. The dynamics of labor market variables is obtained in closed form. The model predicts overshooting at the time of implementation of a trade liberalization, then the paths of adjustment follow a stable transitional dynamics. |
| Keywords: | International Trade, Unemployment, Wage Inequality, Firm Dynamics |
| JEL: | F12 F16 E24 |
| Date: | 2014–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:csl:devewp:368&r=mac |
| By: | Liping Gao; Hyeongwoo Kim |
| Abstract: | Chow (1985, 2010, 2011) reports indirect evidence for the permanent income hypothesis using time series observations in China. We revisit this issue by addressing direct evidence of the predictability of consumption growth in China during the post-economic reform regime (1978-2009) as well as the postwar US data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises show that consumption changes are highly predictable. |
| Keywords: | Permanent Income Hypothesis; Consumption; Out-of-Sample Predictability; Diebold-Mariano-West Statistic |
| JEL: | E21 E27 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2014-11&r=mac |
| By: | Paul Mercier |
| Abstract: | Since October 2008, the credit granted by the Eurosystem to the Euro zone banking sector increased in a substantial way, as a result of the implementation of nonconventional measures, in particular the fact that the Eurosystem left to the banks the faculty to determine themselves the quantity of credit that they wished to obtain. This paper first recalls the foundations of the interbank money market and then analyses the evolution of the ?net liquidity needs? of the banking sector. It provided a clarification of the relation between the Eurosystem, the euro zone banking sector and the money market. In particular, it develops arguments against the myth of ?idle money parked with the Eurosystem?. |
| Keywords: | monetary policy implementation, central bank, central bank?s balance sheet, money market, liquidity deficit, excess liquidity |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp092&r=mac |
| By: | Hashem Pesaran; Ron Smith |
| Abstract: | This paper proposes tests of policy ineffectiveness in the context of macroeconometric rational expectations models. It is assumed that there is a policy intervention that takes the form of changes in the parameters of a policy rule, and that there are sufficient observations before and after the intervention. The test is based on the difference between the realisations of the outcome variable of interest and counterfactuals based on no policy intervention, using only the pre-intervention parameter estimates, and in consequence the Lucas Critique does not apply. The paper develops tests of policy ineffectiveness for a full structural model, with and without exogenous, policy or non-policy, variables. Asymptotic distributions of the proposed tests are derived both when the post intervention sample is fixed as the pre-intervention sample expands, and when both samples rise jointly but at different rates. The performance of the test is illustrated by a simulated policy analysis of a three equation New Keynesian Model, which shows that the test size is correct but the power may be low unless the model includes exogenous variables, or if the policy intervention changes the steady states, such as the inflation target. |
| Keywords: | Counterfactuals, policy analysis, policy ine¤ectiveness test, macroeconomics |
| JEL: | C18 C54 E65 |
| Date: | 2014–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1415&r=mac |
| By: | Davide Delle Monache (Queen Mary, University of London); Ivan Petrella (Department of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | This paper proposes a novel and ‡exible framework to estimate autoregressive models with time-varying parameters. Our setup nests various adaptive algorithms that are commonly used in the macroeconometric literature, such as learning-expectations and forgetting-factor algorithms. These are generalized along several directions: specifically, we allow for both Student-t distributed innovations as well as time-varying volatility. Meaningful restrictions are imposed to the model parameters, so as to attain local stationarity and bounded mean values. The model is applied to the analysis of inflation dynamics. Allowing for heavy-tails leads to a significant improvement in terms of fit and forecast. Moreover, it proves to be crucial in order to obtain well-calibrated density forecasts. |
| Keywords: | Time-Varying Parameters, Score-driven Models, Heavy-Tails, Adaptive Algorithms, Inflation. |
| JEL: | C22 C51 C53 E31 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1409&r=mac |
| By: | Aboura, Sofiane; Lépinette-Denis, Emmanuel |
| Abstract: | The post-crisis financial reforms address the need for systemic regulation, focused not only on individual banks but also on the whole financial system. The regulator principal objective is to set banks' capital requirements equal to international minimum standards in order to mimimise systemic risk. Indeed, Basel agreement is designed to guide a judgement about minimum universal levels of capital and remains mainly microprudential in its focus rather than being macroprudential. An alternative model to Basel framework is derived where systemic risk is taken into account in each bank's dynamic. This might be a new departure for prudential policy. It allows for the regulator to compute capital and risk requirements for controlling systemic risk. Moreover, bank regulation is considered in a two-scale level, either at the bank level or at the system-wide level. We test the adequacy of the model on a data set containing 19 banks of 5 major countries from 2005 to 2012. We compute the capital ratio threshold per year for each bank and each country and we rank them according to their level of fragility. Our results suggest to consider an alternative measure of systemic risk that requires minimal capital ratios that are bank-specic and time-varying. |
| Keywords: | Systemic risk; Bank Regulation; Basel Accords; |
| JEL: | E44 E58 G01 G21 G28 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/13633&r=mac |
| By: | Daniel Poveda; Franz Hamann |
| Abstract: | El objetivo de este trabajo es responder dos preguntas de política relacionadas con el uso de un depósito no remunerado como forma de control de capitales en una economía pequeña y abierta como la colombiana: ¿Son un instrumento efectivo para reducir el endeudamiento externo de los agentes nacionales? ¿Cuál es el impacto de su uso sobre el bienestar? Con tal propósito se construye un modelo con mercados financieros incompletos y agentes heterogéneos que tienen problemas de auto-control que los inducen a endeudarse más en el presente en contraposición a la necesidad de ahorrar por precaución. Los resultados sugieren que su efectividad depende de los parámetros que describen las preferencias de los agentes y que existe un rango sobre el cual su uso incrementa el bienestar de la sociedad. |
| Keywords: | Sobreendeudamiento, control de capitales, descuento cuasi-hiperbólico, agentes heterogéneos, mercados incompletos, problemas de tentación y auto-control. |
| JEL: | C61 C63 C68 E32 E61 F21 F34 F41 F44 F47 |
| Date: | 2013–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:011894&r=mac |
| By: | Soren T. Anderson; Ryan Kellogg; Stephen W. Salant |
| Abstract: | We show that oil production from existing wells in Texas does not respond to price incentives. Drilling activity and costs, however, do respond strongly to prices. To explain these facts, we reformulate Hotelling's (1931) classic model of exhaustible resource extraction as a drilling problem: firms choose when to drill, but production from existing wells is constrained by reservoir pressure, which decays as oil is extracted. The model implies a modified Hotelling rule for drilling revenues net of costs and explains why production is typically constrained. It also rationalizes regional production peaks and observed patterns of price expectations following demand shocks. |
| JEL: | E22 L71 Q3 Q4 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20280&r=mac |
| By: | Gopakumar K.U. (Sri Sathya Sai Institute of Higher Learning); V. Pandit (Sri Sathya Sai Institute of Higher Learning) |
| Abstract: | Rapid rise in the price of food grains and their continued upsurge is a matter of concern for not only the government and policy makers but also for all concerned with social welfare. This is particularly so because increased prices of basic food item cause great distress to the poor sections of the society who have to spend a large part of their income on food. Quite naturally, understanding the causes of inflation is of high priority for framing the right policy to tackle the problem needs a clear understanding of the factors that led to the price rise. The current study tries to examine how prices get determined in Indian food grains market. This requires a slightly different approach from the conventional demand and supply framework as government intervenes in the market through open market operations. To this end, we propose a structural model, explaining the behavior of food grain prices in the India since 1980-81 through 2011-12 incorporating role of government interventions. Our results confirm that there is strong impact of demand as well as supply side factors. However, when it comes to controlling of inflation, demand side management turn out to be a highly significant. Under supply side management, increased capital stock is found to be effective, as it significantly boosts production and thereby reducing prices and adding to procurement. Whereas government intervention play a stabilizing role. |
| Keywords: | Food grain output, income, money supply, procurement, support prices, capital stock. |
| JEL: | E31 Q11 Q18 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:238&r=mac |
| By: | Lautier, Delphine; Ling, Julien; Raynaud, Franck |
| Abstract: | We examine the impact, on commodity derivative markets, of two financial crises: the Subprime crisis and the bankruptcy of Lehman Brothers. These crises are "external" for commodity markets: they appeared in the financial sphere. Still, because now commodity markets are highly integrated, between themselves and with other financial markets, such events could have had an impact. In order to fully comprehend this possible impact, we examine prices fluctuations in three dimensions: the observation time, the space dimension – the same underlying asset can be traded simultaneously in two different places – and the maturity of the transactions. We first focus on the efficiency of the shocks propagation: does it improve during crises? Then we concentrate on the paths of shocks propagation: are they modified? How? Finally we focus on the centrality of the prices system: does it change? Does it increase? |
| Keywords: | Commodity markets; Financial markets; Derivative markets; Market integration; Crises; Graph theory; Minimum spanning tree; Centrality; |
| JEL: | E44 F15 G01 Q02 Q40 |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/13632&r=mac |
| By: | Bruno Martorano; Marco Sanfilippo |
| Abstract: | This paper analyses the long run determinants of wage inequality in the manufacturing sector for a group of East Asian countries that have experienced rapid structural transformations over the last decades. In line with the Skill Biased Technological Change hypothesis, our results show that within manufacturing structural change –fostering the participation of higher skilled workers – is a strong determinant of the wage premium. However, the paper highlights also the peculiarity of the East Asian model, which shows how well-designed education policies, a prudent macroeconomic management and selective policies towards foreign capital can contribute to buffer the pressure of structural change on wage inequality, even in an open economy context. |
| Keywords: | Structural change; Wage Inequality; East Asia |
| JEL: | L16 E24 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2014_09.rdf&r=mac |
| By: | Adrien Béranger; Jézabel Couppey Soubeyran; Jézabel Laurence Scialom |
| Abstract: | This paper reviews the various mechanisms and rules that has been proposed to build a banking union in Europe. We argue that the banking union is a promising solution to the Eurozone crisis because it completes the unification of the Euro currency, forms a solution to both the financial and monetary fragmentation of the Euro area financial markets and helps breaking the vicious circle created by domestic banking system impairments and the sovereign debt crisis. We underline not only the shortcomings and hurdles to reach a fully-fledged banking union, and the hazards created by the inconsistencies between their phasing-in in the sequential schedule decided by states. To reduce the loopholes induced by the sequential approach, we propose to implement a rule of shared-bailout during the transition period that consist in a loss-sharing rule among countries hosting an entity of a bank group and indicted in the living wills of the systemic banking companies. |
| Keywords: | Eurozone, banking union, bank supervision, resolution |
| JEL: | G21 G28 H12 E58 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2014-39&r=mac |
| By: | Emma Berenguer (Universidad Pablo de Olavide); Ricardo Gimeno (Banco de España); Juan M. Nave (Universidad de Castilla-La Mancha) |
| Abstract: | Since the seminal paper of Vasicek and Fong (1982), the term structures of interest rates have been fitted assuming that yields are cross-sectionally homoskedastic. We show that this assumption does not hold when there are differences in liquidity, even for bonds of the same issuer. Lower turnover implies higher volatility. In addition, a minimum tick size for bond price negotiation will produce higher volatility for bonds approaching their maturity dates. To show these effects, we use data for Spanish sovereign bonds from 1988 to 2010, covering more than 700 bonds and 5000 trading days. We estimate the out-ofsample error for each bond and day. The variance of these errors is found to be negatively correlated with each bond’s turnover and duration, while the mean of the errors is found to be directly correlated with the estimated variance. As a result, we propose a modified Svensson (1994) yield curve model to fit the term structure, adding a liquidity term and estimating parameters by weighted least-squared errors to take into account the liquidityinduced heteroskedasticity. |
| Keywords: | heteroskedasticity, liquidity premium, yield curve fitting, Spanish sovereign bonds |
| JEL: | G12 C58 E43 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1308&r=mac |
| By: | Diego J. Pedregal (U. Castilla la Mancha); Javier J. Pérez (Banco de España); A. Jesús Sánchez-Fuentes (U. Complutense de Madrid) |
| Abstract: | In this paper we develop a comprehensive short-term fiscal forecasting system of use for the real-time monitoring of the Spanish government’s borrowing requirement. Spain has been at the centre of the recent European sovereign debt crisis, not least because of sizeable failures in meeting public deficit targets. The system comprises a suite of models, with different levels of disaggregation (bottom-up vs top-down; general government vs sub-sectors), which are suitable for the automatic processing of the large amount of monthly/quarterly fiscal data currently published by the Spanish statistical authorities. Our tools are instrumental in the ex-ante detection of risks to official projections, and can thus help reduce the ex-post reputational costs of budgetary slippage. On the basis of our results, we discuss how official monitoring bodies could expand, on one hand, their toolkit to evaluate regular adherence to targets (moving beyond a legalistic approach) and, on the other, their communication policies as regards sources of risks to (ex-ante) compliance with budgetary targets. |
| Keywords: | government accountability, transparency, fiscal Forecasting. |
| JEL: | E65 H6 C3 C82 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1416&r=mac |
| By: | Anton Dobronogov, Alan Gelb, and Fernando Brant Saldanha |
| Abstract: | Natural resources are being discovered in more countries, both rich and poor. Many of the new and aspiring resource exporters are low-income countries that are still receiving substantial levels of foreign aid. Resource discoveries open up enormous opportunities, but also expose producing countries to huge trade and fiscal shocks from volatile commodity markets if their exports are highly concentrated. A large literature on the “resource curse” shows that these are damaging unless countries manage to cushion the effects through countercyclical policy. It also shows that the countries least likely to do so successfully are those with weaker institutions, and these are most likely to remain as clients of the aid system. This paper considers the question of how donors should respond to their clients’ potential windfalls. It discusses several ways in which the focus and nature of foreign aid programs will need to change, including the level of financial assistance. The paper develops some ideas on how a donor like the International Development Association might structure its program of financial transfers to mitigate volatility. The paper outlines ways in which the International Development Association could use hedging instruments to vary disbursements while still working within a framework of country allocations that are not contingent on oil prices. Simulations suggest that the International Development Association could be structured to provide a larger degree of insurance if it is calibrated to hedge against large declines in resource prices. These suggestions are intended to complement other mechanisms, including self-insurance using Sovereign Wealth Funds (where possible) and the facilities of the International Monetary Fund. |
| Keywords: | countercyclical, foreign aid, hedging markets, low-income countries, macroeconomic stabilization, natural resources, volatility |
| JEL: | E63 F35 G23 Q33 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:372&r=mac |
| By: | Alain Beraud (Université de Cergy-Pontoise, THEMA) |
| Abstract: | Say has shown that there is no amount of capital which may not be employed in a country. Such a proposal does not involve the absence of unemployment and crisis. The markets may be glutted. In his first writings, Say advanced that whenever there is a superabundance of several sorts of merchandise, it is because other articles are not produced. People have bought less, because they have made less profit. Disequilibrium in some markets may limit the global demand for goods. Later, he will explain the commercial crises by the abuses of the banks of circulation who, to discount the bills of their customers, issue excessive quantities of notes. The value of the money decreased; the individuals who held notes asked for the payment in species and banks noticing the decrease of their reserves restricted their credits so provoking a crisis. |
| Keywords: | Say, Débouchés, théorie quantitative de la monnaie, crises commerciales. |
| JEL: | B12 B31 E E |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2014-08&r=mac |
| By: | Rodolfo G. Campos (IESE Business school); Iliana Reggio (Universidad Carlos III) |
| Abstract: | We study how estimators used to impute consumption in survey data are inconsistent due to measurement error in consumption. Previous research suggests instrumenting consumption to overcome this problem. We show that, if additional regressors are present, then instrumenting consumption may still produce inconsistent estimators due to the likely correlation between additional regressors and measurement error. On the other hand, low correlations between additional regressors and instruments may reduce bias due to measurement error. We apply our fi ndings by revisiting recent research that imputes consumption data from the CEX to the PSID. |
| Keywords: | consumption, measurement error, instrumental variables, consumer expenditure survey, panel study of income dynamics, income shocks |
| JEL: | C13 C26 E21 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1322&r=mac |
| By: | Raphael A Auer; Aaron Mehrotra |
| Abstract: | Some observers argue that increased real integration has led to greater comovement of prices internationally. We examine the evidence for cross-border price spillovers among economies participating in the pan-Asian cross-border production networks. Starting with country-level data, we find that both producer price and consumer price inflation rates move more closely together between those Asian economies that trade more with one another, ie that share a higher degree of trade intensity. Next, using a novel data set based on the World Input-Output Database (WIOD), we examine the importance of the supply chain for cross-border price spillovers at the sectoral level. We document the increasing importance of imported intermediate inputs for economies in the Asia-Pacific region and examine the impact on domestic producer prices of changes in costs of imported intermediate inputs. Our results suggest that real integration through the supply chain matters for domestic price dynamics in the Asia-Pacific region. |
| Keywords: | globalisation, inflation, Asian manufacturing supply chain, price spillovers |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:447&r=mac |
| By: | Agnese Sacchi; Simone Salotti |
| Abstract: | We study what affects the volatility of sub-central spending in 20 OECD countries. The evidence based on data from 1972 to 2007 shows that the volatility of intergovernmental grants from upper levels is positively associated with the volatility of local expenditure. On the contrary, the volatility of local tax revenues - mainly that of property taxes - exerts the opposite effect. Thus, making local governments rely more on grants than own taxes seems to adversely affect the stability of their spending, while allowing them to autonomously levy taxes on responsive tax bases provides incentives to smooth their expenditure. |
| Keywords: | local spending volatility, local revenues, property taxes, intergovernmental grants. |
| JEL: | E62 H71 H77 R50 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:gov:wpaper:1405&r=mac |
| By: | Lorenz Kueng; Evgeny Yakovlev |
| Abstract: | We use the Anti-Alcohol Campaign in 1986 and the rapid expansion of the beer market after the collapse of the Soviet Union as two quasi-natural experiments to identify highly persistent habit formation in alcohol consumption among Russian males. Importantly, these results apply to all levels of alcohol consumption and are not driven by heavy drinking or alcoholism. The two large shocks combined with persistent habits lead to large cohort differences in consumer behavior even decades later. We derive a basic model of habit formation with homogeneous preferences over two habit-forming goods, which is consistent with these facts. Using placebo tests as well as simple descriptive statistics, we show that habits are formed during early adulthood and remain largely unaffected afterward. The main alternative hypotheses such as income effects, unobserved taste heterogeneity, stepping-stone effects, and changes in culture or social norms are inconsistent with those patterns. Using the experiments as IVs, we estimate the first-order autoregressive coefficient to be 0.83, which is almost three times larger than its OLS estimate. Finally, our results suggest that male mortality in Russia will decrease by one quarter within twenty years even under current policies and prices due to the long-run consequences of the large changes in the alcohol market. |
| JEL: | D12 E21 G02 I10 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20298&r=mac |
| By: | Masao Ogaki; Bruce E. Hansen; Ippei Fujiwara; Hyeongwoo Kim |
| Abstract: | It is well-known that there is a large degree of uncertainty around Rogoff's (1996) consensus half-life of the real exchange rate. To obtain a more efficient estimator, we develop a system method that combines the Taylor rule and a standard exchange rate model to estimate half-lives. Further, we propose a median unbiased estimator for the system method based on the generalized method of moments with nonparametric grid bootstrap confidence intervals. Applying the method to real exchange rates of 18 developed countries against the US dollar, we find that most half-life estimates from the single equation method fall in the range of 3 to 5 years with wide confidence intervals that extend to positive infinity. In contrast, the system method yields median-unbiased estimates that are typically shorter than one year with much sharper 95% confidence intervals. Our Monte Carlo simulation results are consistent with an interpretation of these results that the true half-lives are short but long half-life estimates from single equation methods are caused by the high degree of uncertainty of these methods. |
| JEL: | C32 E52 F31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:csg:ajrcwp:05&r=mac |
| By: | Mariam Camarero (Department of Economics, University Jaume I. Campus de Riu Sec E-12071 Castellón de la Plana, Spain); Gaetano D’Adamo (Department of Applied Economics II, University of Valencia. Av.da dels Tarongers s/n 46022 Valencia, Spain); Cecilio Tamarit (Department of Applied Economics II, University of Valencia. Av.da dels Tarongers s/n 46022 Valencia, Spain) |
| Abstract: | Over the last 15 years, the evolution of labor costs has been very diverse across EMU countries. Since wages have important second-round effects on prices and competitiveness, and EMU countries do not have the tool of the nominal exchange rate to correct for such imbalances, understanding the determinants of the wage is a matter of increasing concern and debate. We estimate the equilibrium wage equation for the Euro Area over the period 1995-2011 using panel cointegration techniques that allow for cross-section dependence and structural breaks. The results show that the equilibrium wage has a positive relation with productivity and negative relation with unemployment, as expected. We also include institutional variables in our analysis, showing that a more flexible labor market is consistent with long-run wage moderation. Allowing for a regime break, we find that, since 2004, possibly due to increased international competition, wage determination was more strictly related to productivity, and real wage appreciation triggers a drop in the real wage. Furthermore, results point to a wage-moderating role of government intervention and concertation in wage bargaining. |
| Keywords: | panel cointegration, wage setting, labor market |
| JEL: | E24 J31 C23 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:1407&r=mac |
| By: | Justin Sandefur and Amanda Glassman |
| Abstract: | Across multiple African countries, discrepancies between administrative data and independent household surveys suggest official statistics systematically exaggerate development progress. We provide evidence for two distinct explanations of these discrepancies. First, governments misreport to foreign donors, as in the case of a results-based aid program rewarding reported vaccination rates. Second, national governments are themselves misled by frontline service providers, as in the case of primary education, where official enrollment numbers diverged from survey estimates after funding shifted from user fees to per pupil government grants. Both syndromes highlight the need for incentive compatibility between data systems and funding rules. |
| Keywords: | Africa, national statistics systems, household surveys, administrative data, immunization, school enrollment, EMIS, HMIS |
| JEL: | C83 E31 I15 I25 I32 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:cgd:wpaper:373&r=mac |
| By: | Vincenzo Patrizii; Anna Pettini; Giuliano Resce |
| Abstract: | Il primo obiettivo di questo lavoro è proporre un metodo di aggregazione del Better Life Index (BLI), che non richieda alcuna scelta riguardo al peso relativo delle singole variabili; il secondo obiettivo è valutare l’efficienza nella produzione del BLI. Per entrambi i fini si sceglie di usare Data Envelopment Analysis integrata con Non Negative Principal Component Analysis (NNPCADEA), in cui gli output (positivi e negativi) sono le variabili di BLI individuati dall’OECD. L’efficienza è valutata inserendo in questo modello due input convenzionali: capitale e lavoro, usati nel processo produttivo dei diversi paesi. I risultati mostrano che, per i paesi più ricchi, il BLI non cresce con il GDP e che avere un alto livello di BLI non sempre equivale a produrlo efficientemente. |
| Keywords: | Data Envelopment Analysis, Better Life Index, Quality of life, GDP, Happiness, Welfare, Well-being |
| JEL: | C61 E23 I31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:frz:wpaper:wp2014_12.rdf&r=mac |
| By: | Xavier Cuadras-Morató; Josep Maria Raya |
| Abstract: | Do political tensions affect economic relations? In particular, does politics significantly affect consumer choices? Firms are often threatened by consumer boycotts that pretend to modify their business strategies and behavior. Sometimes these are caused by general political conflicts. The main objective of the paper is to study the consequences of political conflicts between Spain and Catalonia (a region of Spain) and the subsequent boycott calls on sales of Catalan sparkling wine (cava) in the aggregated Spanish market and also in different regions of the country. We use data from sales of sparkling wine in supermarkets and similar outlets. To determine with precision the boycott period we use data on the number of news about the issue that appeared in the main national Spanish daily newspapers. Although we present some preliminary evidence that the boycott calls affected the market share of Catalan cava in Spain, the results of our main econometric exercise indicate that, once we control for the time trends of the different varieties of sparkling wine, the boycott effects cease to be significant in the aggregate Spanish market. This does not necessarily mean that the boycott calls did not have any significant impact, because we actually find that the effects are very different in each regional market. As a matter of fact, our results indicate that the insignificant impact of the boycott calls at the Spanish aggregate level is a consequence of the combination of a negative impact of the boycott on sales of Catalan cava in some regions and the opposite effect in the Catalan market. |
| Keywords: | consumer boycott, wine sales, political economy |
| JEL: | E40 D74 F14 J64 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:770&r=mac |
| By: | Warwick J. McKibbin (Crawford School of Public Policy, The Australian National University); Adele C. Morris (Brookings Institution); Peter J. Wilcoxen (Maxwell School of Citizenship and Public Affairs, Syracuse University) |
| Abstract: | The United States Environmental Protection Agency (EPA) has begun regulating existing stationary sources of greenhouse gases (GHG) using its authority under the Clean Air Act (the Act). The regulatory process under the Act is long and involved and raises the prospect that significant U.S. action might be delayed for years. This paper examines the economic implications of such a delay. We analyze four policy scenarios using an economic model of the U.S. economy embedded within a broader model of the world economy. The first scenario imposes an economy-wide carbon tax that starts immediately at $15 and rises annually at 4 percent over inflation. The second two scenarios impose different (and generally higher) carbon tax trajectories that achieve the same cumulative emissions reduction as the first scenario over a period of 24 years, but that start after an eight year delay. All three of these policies use the carbon tax revenue to reduce the federal budget deficit. The fourth policy imposes the same carbon tax as the first scenario but uses the revenue to reduce the tax rate on capital income. We find that by nearly every measure, the delayed policies produce worse economic outcomes than the more modest policy implemented now, while achieving no better environmental benefits. |
| JEL: | Q54 H2 E17 |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:een:ccepwp:1408&r=mac |