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on Macroeconomics |
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Issue of 2014‒09‒25
76 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Aruoba, S. Boragan (Federal Reserve Bank of Minneapolis) |
| Abstract: | Inflation expectations have recently received increased interest because of the uncertainty created by the Federal Reserve’s unprecedented reaction to the Great Recession. The effect of this reaction on the real economy is also an important topic. In this paper I use various surveys to produce a term structure of inflation expectations – inflation expectations at any horizon from 3 to 120 months – and an associated term structure of real interest rates. Inflation expectations extracted from this model track actual (ex-post) realizations of inflation quite well, and in terms of forecast accuracy they are at par with or superior to some popular alternatives obtained from financial variables. Looking at the period 2008–2013, I conclude that the unconventional policies of the Federal Reserve kept long-run inflation expectations anchored and provided a large level of monetary stimulus to the economy. |
| Keywords: | Inflation expectations; Real interest rate; Unconventional policies; |
| JEL: | C22 E31 E43 E58 |
| Date: | 2014–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:502&r=mac |
| By: | Hibiki Ichiue (Bank of Japan); Shusaku Nishiguchi (Bank of Japan) |
| Abstract: | Standard theoretical models predict that higher inflation expectations generate greater current consumer spending at the zero lower bound of interest rates. However, a recent empirical study using US micro data finds negative results for this relationship. We use micro data for Japan, which has experienced low interest rates for a prolonged period, to estimate ordered probit models with a variety of controls. We find evidence supporting the prediction of standard models: survey respondents with higher expected inflation tend to indicate that their household has increased real spending compared with one year ago but will decrease it in the future. This relationship appears to be stronger for asset holders and older people. |
| Keywords: | Inflation expectations; Survey data; Monetary policy; Zero lower bound; Japan |
| JEL: | E20 E21 E30 E31 E50 E52 |
| Date: | 2013–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-11&r=mac |
| By: | Leo Kaas (University of Konstanz); Patrick Pintus (Aix-Marseille Université (Aix-Marseille School of Economics), CNRS & EHESS); Simon Ray (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, and Banque de France.) |
| Abstract: | The value of land in the balance sheet of French firms correlates positively with their hiring and investment flows. To explore the relationship between these variables, we develop a macroeconomic model with firms that are subject to both credit and labor market frictions. The value of collateral is driven by the forward-looking dynamics of the land price, which reacts endogenously to fundamental and non-fundamental (sunspot) shocks. We calibrate the model to French data and find that land price shocks give rise to significant amplification and hump-shaped responses of investment, vacancies and unemployment that are in line with the data. |
| Keywords: | financial shocks, labor market frictions. |
| JEL: | E24 E32 E44 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:1443&r=mac |
| By: | Hylton Hollander (Department of Economics, University of Stellenbosch); Guangling Liu (Department of Economics, University of Stellenbosch) |
| Abstract: | This paper establishes the prevailing financial factors that influence credit spread variability, and its impact on the U.S. business cycle over the Great Moderation and Great Recession periods. To do so, we develop a dynamic general equilibrium framework with a central role of financial intermediation and equity assets. Over the Great Moderation and Great Recession periods, we find an important role for bank market power (sticky rate adjustments and loan rate markups) on credit spread variability in the U.S. business cycle. Equity prices exacerbate movements in credit spreads through the financial accelerator channel, but cannot be regarded as a main driving force of credit spread variability. Both the financial accelerator and bank capital channels play a significant role in propagating the movements of credit spreads. We observe a remarkable decline in the influence of technology and monetary policy shocks over three recession periods. From the demand-side of the credit market, the influence of LTV shocks has declined since the 1990 - 91 recession, while the bank capital requirement shock exacerbates and prolongs credit spread variability over the 2007 - 09 recession period. Across the three recession periods, there is an increasing trend in the contribution of loan markup shocks to the variability of retail credit spreads. |
| Keywords: | financial intermediation, credit spreads, financial frictions, great recession |
| JEL: | E32 E43 E44 E51 E52 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers220&r=mac |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Sharon G. Harrison (Barnard College, Columbia University) |
| Abstract: | This paper quantitatively examines the empirical plausibility of equilibrium indeterminacy and sunspot-driven cyclical fluctuations in a real business cycle model with two distinct production sectors that yield consumption and investment goods, together with separable or non-separable preferences. When calibrated to match the observed progressivity of the U.S. federal individual income tax schedule, each version of our model economy exhibits an indeterminate steady state under empirically realistic combinations of the household's labor supply elasticity and the degree of productive externalities in the investment goods sector. Therefore, macroeconomic instability due to agents' self-fulfilling expectations may in fact be a prevalent feature of the U.S. |
| Keywords: | Indeterminacy, Progressive Taxation, Sector-Specific Externalities. |
| JEL: | E30 E32 E62 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201403&r=mac |
| By: | Maarten Dossche (National Bank of Belgium, Research Department); Vivien Lewis (Center for Economic Studies, KU Leuven, Belgium); Céline Poilly (University of Lausanne, HEC-DEEP Switzerland) |
| Abstract: | We characterize optimal monetary policy in a New Keynesian search-and-matching model where multiple-worker firms satisfy demand in the short run by adjusting hours per worker. Imperfect product market competition and search frictions reduce steady state hours per worker below the efficient level. Bargaining results in a convex ‘wage curve’ linking wages to hours. Since the steadystate real marginal wage is low, wages respond little to hours. As a result, firms overuse the hours margin at the expense of hiring, which makes hours too volatile. The Ramsey planner uses inflation as an instrument to dampen inefficient hours fluctuations. |
| Keywords: | employment, hours, wage curve, optimal monetary policy |
| JEL: | E30 E50 E60 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201409-262&r=mac |
| By: | Aiyar, Shekhar (International Monetary Fund); Calomiris, Charles (Columbia Business School); Wieladek, Tomasz (Bank of England) |
| Abstract: | We use data on UK banks’ minimum capital requirements to study the interaction of monetary policy and capital requirement regulation. UK banks were subject to both time-varying capital requirements and changes in interest rate policy. Tightening of either capital requirements or monetary policy reduces the supply of lending. Lending by large banks reacts substantially to capital requirement changes, but not to monetary policy changes. Lending by small banks reacts to both. There is little evidence of interaction between these two policy instruments. The differences in the responses of small and large banks, and the lack of interaction between capital requirement changes and monetary policy, have important policy implications. Our results confirm the theoretical consensus view that monetary policy should focus on price stability objectives and that capital requirement changes are a more effective tool to achieve financial stability objectives related to loan supply. We also identify important distributional consequences within the financial system of these two policy instruments. Finally, our findings do not corroborate theoretical models that raise concerns about complex interactions between monetary policy and macroprudential variation in capital requirements. |
| Keywords: | loan supply; capital requirements; monetary policy; macroprudential regulation |
| JEL: | E44 E51 E52 G18 G21 |
| Date: | 2014–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0508&r=mac |
| By: | Gary B. Gorton (Yale School of Management, National Bureau of Economic Research); Guillermo L. Ordoñez (Department of Economics, University of Pennsylvania, National Bureau of Economic Research) |
| Abstract: | To end a financial crisis, the central bank is to lend freely, against good collateral, at a high rate, according to Bagehot’s Rule. We argue that in theory and in practice there is a missing ingredient to Bagehot’s Rule: secrecy. Re-creating confidence requires that the central bank lend in secret, hiding the identities of the borrowers, to prevent information about individual collateral from being produced and to create an information externality by raising the perceived value of average collateral. Ironically, the participation of "bad" borrowers, with low quality collateral, in the central bank’s lending program is a desirable part of re-creating confidence because it creates stigma. Stigma is critical to sustain secrecy because no borrower wants to reveal his participation in the lending program, and it is limited by the central bank charging a high rate for its loans. |
| Keywords: | Central Bank, Discount Window, Financial Crisis, Confidence |
| JEL: | E32 E44 E58 |
| Date: | 2014–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:14-025&r=mac |
| By: | Yulia Vymyatnina; Mikhail Pakhnin |
| Abstract: | The global financial crisis of 2007–2008, consequences of which continue to adversely affect the world economy, is often called a ‘Minsky crisis’. A prominent American economist Hyman Philip Minsky studied capitalist economic system paying special attention to its major properties, in particular, instability and high importance of money. He developed a consistent way to explain the nature of economic crises, which, according to him, are generated through financial mechanisms. Minsky’s financial instability hypothesis states that the fragility of financial system increases in periods of booms and thus crises arise from the very structure of business cycles. In this paper we give a short review of Minsky’s ideas and show that the last financial crisis could be persuasively explained in the framework of financial instability hypothesis. Moreover, we provide the extension of Minsky’s hypothesis and apply his insights to the ‘state-dominated economies’. Interesting and vivid examples of such economies are modern Russian economy (characterized by weak institutions, resource curse and dominance of state-related companies in the financial as well as non-financial sectors) and planned economy of the Soviet Union. We analyze the financial crisis 2008–2009 in Russia and the breakdown of the USSR and argue that these events could be interpreted along Minsky’s line of argument. |
| Keywords: | Hyman Minsky, financial crisis, financial instability hypothesis, endogenous money, planned economies, fall of the USSR, theory of money, business cycles, Minsky moment |
| JEL: | B50 E12 E32 E42 E44 E5 E60 G01 P2 |
| Date: | 2014–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:eus:wpaper:ec0314&r=mac |
| By: | Juan Sebastián Amador; Celina Gaitán-Maldonado; José Eduardo Gómez-González; Mauricio Villamizar-Villegas; Héctor Manuel Zárate |
| Abstract: | The history of economic recessions has shown that every deep downturn has been accompanied by disruptions in the financial sector. Paradoxically, up until the financial world crisis of 2007-2009, little attention was given to macroeconomic and financial interdependence. And, in spite of a renewed interest on the matter, significant effort is still warranted in order to attain a comprehensive understanding of the causal links between the financial sector and the rest of the economy. In this paper we study the relationship between financial and real business cycles for a sample of thirty-three countries in the frequency domain. Specifically, we characterize the interdependence of credit and output cycles and conduct Granger-type causality tests in the frequency domain. We also perform cluster analysis to analyze groups of countries with similar cyclical dynamics. Our main findings indicate that: (i) on average, credit cycles are larger and longer-lasting than output cycles, (ii) the likelihood of cycle interdependence is highest when considering medium-term frequencies (we find that that Granger causality runs in both directions), and (iii) emerging markets tend to have cycles of shorter duration but are more profound than those exhibited in developed economies. Classification JEL: E32, E44, C38. |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:843&r=mac |
| By: | Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This study presents an overlapping-generations model featuring endogenous growth, collective wage-bargaining, and probabilistic voting over fiscal policy. We charac- terize a Markov-perfect political equilibrium of the voting game within and across generations and show the following results. First, greater bargaining power of unions lowers the growth rate of capital and creates a positive correlation between unem- ployment and government debt. Second, greater political power of the old lowers the growth rate and shifts government expenditure from the unemployed to the old. Third, a balanced budget requirement increases the growth rate but may benefit the old at the expense of the unemployed. |
| Keywords: | Economic Growth; Fiscal Policy; Government Debt; Unemployment; Voting |
| JEL: | E24 E62 H60 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1430&r=mac |
| By: | Epstein, Brendan (Board of Governors of the Federal Reserve System (U.S.)); Shapiro, Alan Finkelstein (University of the Andes) |
| Abstract: | Many countries have large employment shares in micro and small firms that have limited access to formal financing and therefore rely on input credit. Such countries are mainly emerging and developing economies, whose business cycle dynamics are increasingly important for the global economy in light of the dramatic rise in international linkages and spillovers that have occurred over the last several decades. Emerging and developing economies implemented a host of countercyclical labor market policies amid the global financial crisis, but data limitations on high-frequency labor and job flows prevent a detailed empirical assessment of the effectiveness of these policies. To address this problem, we develop a business cycle model with frictional labor markets that is novel in light of its consistency with the employment and firm structure of emerging and developing economies. We use the model to assess the aggregate impact of key countercyclical labor market policies. We find that hiring subsidies and job intermediation services for large firms are particularly effective in aiding recoveries. Policies targeting smaller firms yield limited aggregate benefits and may even be detrimental to the recovery process. The labor market structure shapes sectoral allocation and explains the economy's differential response to policy. |
| Keywords: | Business cycles; search frictions; fiscal policy; self employment; small firms; input credit |
| JEL: | E24 E32 J64 |
| Date: | 2014–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1115&r=mac |
| By: | Hibiki Ichiue (Bank of Japan); Yoichi Ueno (Bank of Japan) |
| Abstract: | This paper estimates an affine term structure model (ATSM) and a shadow rate model (SRM) using Japanese, US, and UK data until March 2013. These models produce very different results, which are attributable to the ATSM's neglect of the zero lower bound (ZLB). The 10-year term premium estimated by the ATSM occasionally deviates from that estimated by the SRM by around 2 percentage points, and the deviation has recently widened in the US and the UK. The ATSM consistently overestimates the long-run level of the short rate, which appears to contribute to the tendency to underestimate the term premium. |
| Keywords: | Affine term structure model; Shadow rate model; Zero lower bound; Term premium; Monetary policy |
| JEL: | E43 E52 G12 |
| Date: | 2013–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-8&r=mac |
| By: | Michalis Nikiforos |
| Abstract: | The paper examines the long-run fluctuations in growth and distribution through the prism of wage-and profit-led growth. We argue that the relation between distribution of income and growth changes over time. We propose an endogenous mechanism that leads to fluctuations between wage- and profit-led periods. Our model is a linear version of Goodwin's predator–prey model, but with a reversal of the roles for predator and prey: the growth rate acts as the predator and the distribution of income as the prey. These fluctuations need to be taken into account when someone estimates empirically the effect of a change in distribution on utilization and growth. We also examine our argument in relation to the double movement of Karl Polanyi, the Kuznets curve, and the theories of long swings proposed by Albert Hirschman and Michal Kalecki. |
| Keywords: | Distribution-led; Long Swings; Oscillations; Predator-prey |
| JEL: | B22 E11 E12 E21 E22 E32 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_814&r=mac |
| By: | Steven Fazzari (Washington University in St. Louis); James Morley (School of Economics, University of New South Wales); Irina Panovska (Rauch Business Center, Lehigh University) |
| Abstract: | We investigate the eects of government spending on U.S. output with a threshold structural vector autoregressive model. We consider Bayesian model comparison and generalized impulse response analysis to test for nonlinearities in the responses of output to government spending. Our empirical ndings support state-dependent eects of scal policy, with the government spending multiplier larger and more persistent whenever there is considerable economic slack. Based on capacity utilization as the preferred threshold variable, the estimated multiplier is large (1.6) for a low-utilization regime that accounts for more than half of the sample observations from 1967-2012 according to the estimated threshold level. |
| Keywords: | Government Spending, Threshold Model, Vector Autoregression, Nonlinear Dynamics, Impulse-Response Comparison, Bayesian |
| JEL: | C32 E32 E62 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2012-27c&r=mac |
| By: | Aaron Hedlund (Department of Economics, University of Missouri-Columbia) |
| Abstract: | This paper quantitatively accounts for the cyclical dynamics of key macroeconomic housing and mortgage market variables using a tractable, search-theoretic model of housing with equilibrium mortgage default. To explain these dynamics, the model highlights the importance of liquidity spirals which arise from the interaction of search frictions and en- dogenous credit constraints. During housing busts, longer selling times spill over into higher foreclosure risk, thereby magnifying the response of credit constraints to the depressed housing market. This contraction in credit then deepens the downturn. During booms, the reverse occurs. Based on these insights, I consider a foreclosure reform that makes all mortgages full recourse, and I show that implementing such a reform would reduce foreclosures and dampen housing dynamics. and output. In a parametrized model, I establish that the optimal estate tax rate is significantly above zero. |
| Keywords: | housing, liquidity, search theory, credit constraints, household debt, foreclosure |
| JEL: | D31 D83 E21 E22 G11 G12 G21 R21 R31 |
| Date: | 2014–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1416&r=mac |
| By: | Mauro Napoletano (OFCE); Jean-Luc Gaffard (OFCE); Andrea Roventini (Department of economics) |
| Abstract: | We build an agent-based model to study how _scal multipliers can change over the business cycle. Our approach considers the economy as a complex evolving system. In that, _scal state-dependent multipliers are emergent disequilibrium phenomenon stemming from the interaction among an ecology of heterogeneous agents. We study _scal multipliers in response to di_erent microeconomic shocks hitting the economy. We show that de_cit-spending _scal policy dampens the e_ect of a shock and lowers its persistence. Moreover, we show that the size and dynamics of the _scal multi- plier is inversely related to the evolution of credit rationing in the aftermath of the shock. We also investigate the e_ects of two di_erent balanced budget rules. In the _rst type of such experiments, government expenditure is constrained to be equal to tax revenues of each period. In the second one the tax rate is eventually raised to balance a given level of government expenditure. We show that _scal multipliers are very low with both balanced-budget rules. Finally, we show that _scal multipliers are higher into more leveraged economies. |
| Keywords: | keynesian economics; fiscal multipliers; corridor effects; agent based models; liquidity constraints |
| JEL: | E63 E21 C63 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1qt6uk68r08rsovoiog8v7gg4d&r=mac |
| By: | William Tayler; Roy Zilberman |
| Abstract: | We study the macroprudential roles of bank capital regulation and monetary policy in a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs. These frictions induce financial accelerator mechanisms and motivate the examination of a macroprudential toolkit. Following credit shocks, countercyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability. For supply shocks, combining macroprudential regulation with a stronger anti-inflationary policy stance is optimal. The findings emphasize the importance of the Basel III accords and cast doubt on the desirability of conventional Taylor rules during periods of financial distress. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:63933064&r=mac |
| By: | Ichiro Muto (Bank of Japan) |
| Abstract: | In this study, we theoretically investigate the potential role of the reference rate in stabilizing or destabilizing an interbank market with an environment where individual banks cannot fully identify the nature of underlying shocks affecting their interbank transactions. We show that a noise-free reference rate based on a sufficient number of sample transactions can help to make the market interest rate less volatile, whereas the stabilizing effects of the reference rate are significantly reduced if the reported interest rates contain some noisy components. Nevertheless, by increasing the number of sample transactions reflected in the reference rate, the adverse effects of the noise can be mitigated (or eliminated) provided the noise is idiosyncratic to individual transactions. However, if the noise is common to multiple transactions, then the adverse effects of the noisy reference rate cannot be reduced simply by increasing the number of sample transactions. This suggests that the noise in the interest rates reported by just a few of large banks can end up making the entire market more volatile, thereby impairing the transmission mechanism of monetary policy. |
| Keywords: | Interbank Market; Reference Rate; LIBOR; Imperfect Information; Financial Stability; Transmission Mechanism of Monetary Policy |
| JEL: | E43 E44 G14 |
| Date: | 2012–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:12-e-10&r=mac |
| By: | Kedan, Danielle (Central Bank of Ireland); Stuart, Rebecca (Central Bank of Ireland) |
| Abstract: | When setting monetary policy, central banks seek to aect the entire term structure of interest rates. Most central banks with a price stability or in ation mandate do this by targeting a very short-term market rate. This Letter presents a comparative analysis of the correlation between policy rate changes and bond yields in the euro area, where the implicit target of monetary policy is the overnight rate, and Switzerland, where the target is a three- month rate. The analysis indicates that unanticipated policy rate changes by the European Central Bank and Swiss National Bank are signicantly and positively correlated with changes in German and Swiss government bond yields out to 6 years and 20 years, respectively. |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:04/el/14&r=mac |
| By: | Plosser, Charles I. (Federal Reserve Bank of Philadelphia) |
| Abstract: | President Plosser gives his views on the economy and the FOMC's most recent policy decisions. He also explains how a detailed monetary policy report produced by the FOMC would lead to better decisions and better economic outcomes over the longer run. |
| Keywords: | Monetary policy; FOMC; |
| Date: | 2014–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpsp:102&r=mac |
| By: | Y. Kalantzis |
| Abstract: | Episodes of large capital inflows in small open economies are often associated with a shift of resources from the tradable to the non-tradable sector and sometimes lead to balance-of-payments crises. This paper builds a two-sector dynamic model to study the evolution of the sectoral structure and its impact on financial fragility. The model embeds a static mechanism of balance-of-payments crisis which produces multiple equilibria within a single time period when the non-tradable sector is large enough compared to the tradable sector. The paper studies the dynamics induced by an increase in financial openness. It shows that the relative size of the non-tradable sector overshoots, which makes the economy more likely to be financially fragile during the transitory dynamics. Using an extended version of the model, the paper conducts a quantitative analysis and shows that this mechanism accounts well for several episodes of large capital inflows that led to financial crises. |
| Keywords: | two-sector models, capital account liberalization, balance-of-payments crises, foreign currency debt, borrowing constraint, euro area crisis. |
| JEL: | E44 F32 F34 F43 O41 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:505&r=mac |
| By: | Pablo Galaso (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Sandra Rodriguez (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía) |
| Abstract: | This study estimates a composite leading business cycle indicator for the Uruguayan economy following the methodology of The Conference Board. Prediction is based on the analysis of multiple series that have a leading relationship to the Industrial Production Index, which is used as the reference variable of the overall economic activity. Once selected, these series are aggregated into a single composite indicator. Our index covers a 20-year period (from 1994 to 2013). It includes variables covering diverse aspects of economic activity and reaches to advance the two turning points occurred in Uruguay during that period. |
| Keywords: | leading indicator, business cycle, turning points, Uruguay |
| JEL: | C53 E32 E37 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ulr:wpaper:dt-09-14&r=mac |
| By: | World Bank |
| Keywords: | Environmental Economics and Policies Banks and Banking Reform Economic Theory and Research Finance and Financial Sector Development - Debt Markets Finance and Financial Sector Development - Currencies and Exchange Rates Macroeconomics and Economic Growth Environment |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20028&r=mac |
| By: | Nicoletta Berardi (Centre de recherche de la Banque de France - Banque de France); Erwan Gautier (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272); Hervé Le Bihan (Centre de recherche de la Banque de France - Banque de France,) |
| Abstract: | Using micro price data, we document new facts on price rigidity in France: (i) each month 20.1% of prices are changed, which compares with 24.1% in the United States. Excluding sales, however, the fraction of prices modified each month is about the same in France and in the United States (around 17%); (ii) the distribution of price changes is quite dispersed; (iii) the frequencies of price increases and decreases contribute a lot to inflation variations, and price increases are more frequent in January even when sales are excluded; (iv) sales contribute significantly to the volatility of inflation but are much less sensitive to macroeconomic fluctuations than regular price changes; (v) during the Great Recession patterns of price adjustment were only slightly modified. |
| Keywords: | Price stickiness; inflation; consumer prices; sales; product substitution |
| Date: | 2014–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01060564&r=mac |
| By: | Claudio Borio |
| Abstract: | This essay argues that the Achilles heel of the international monetary and financial system is that it amplifies the “excess financial elasticity” of domestic policy regimes, ie it exacerbates their inability to prevent the build-up of financial imbalances, or outsize financial cycles, that lead to serious financial crises and macroeconomic dislocations. This excess financial elasticity view contrasts sharply with two more popular ones, which stress the failure of the system to prevent disruptive current account imbalances and its tendency to generate a structural shortage of safe assets – the "excess saving" and "excess demand for safe assets" views, respectively. In particular, the excess financial elasticity view highlights financial rather than current account imbalances and a persistent expansionary rather than contractionary bias in the system. The failure to adjust domestic policy regimes and their international interaction raises a number of risks: entrenching instability in the global system; returning to the modern-day equivalent of the divisive competitive devaluations of the interwar years; and, ultimately, triggering an epoch-defining seismic rupture in policy regimes, back to an era of trade and financial protectionism and, possibly, stagnation combined with inflation. |
| Keywords: | Interbank markets, networks, entropy, intermediation, systemic risk |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:456&r=mac |
| By: | Mauro Bambi; Cristina Di Girolami; Salvatore Federico; Fausto Gozzi |
| Abstract: | In this paper we argue that differences in the investment projects’ features can help to explain the observed differentials in output growth and in output volatility across countries. This result is achieved by studying analytically an endogenous growth model where investments are (generically) distributed over multi-period flexible projects leading to new capital once completed. Recently developed techniques in dynamic programming are adapted and used to fully characterized the balanced growth path and transitional dynamics of this model. Based on this analytical ground, several numerical exercises are performed to show how the key results of our analysis are also quantitatively relevant. |
| Keywords: | investment projects, distributed delays, optimal control, dynamic programming, infinite dimensional problem. |
| JEL: | E22 E32 O40 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:14/15&r=mac |
| By: | Eurilton Araújo; Alexandre B. Cunha |
| Abstract: | We quantitatively compare three macroeconomic policies in a cash-credit goods framework. The policies are: the optimal one; another one that fully smoothes out oscillations in output; and a simple one that prescribes constant values for tax and monetary growth rates. As often found in the related literature, the welfare gains or losses from changing from a given policy to another are small. We also show that the simple policy dominates the one that leads to constant output |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:360&r=mac |
| By: | Haroon Bhorat; Alan Hirsch; Ravi Kanbur; Mthuli Ncube (Development Policy Research Unit; Director and Professor) |
| Abstract: | As the 20th anniversary of the transition to democracy approaches in 2014, the economic policy debates in South Africa are in full flow. The forthcoming Oxford Companion to the Economics of South Africa contributes to the policy and analytical debate by drawing together perspectives on a range of issues – micro, macro, sectoral, country wide and global – from leading economists working on South Africa. |
| Keywords: | South Africa, Economic Growth, Macroeconomic Policy, Structural Transformation, Poverty, Inequality, Unemployment, Public Services |
| JEL: | E60 F50 I30 J30 J40 J50 O10 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:ctw:wpaper:201401&r=mac |
| By: | Christophe Blot (OFCE Sciences Po); Marion Cochard (OFCE Sciences Po); Bruno Ducoudré (Ofce,Sciences Po); Danielle Schweisguth (OFCE Sciences Po); Xavier Timbeau (OFCE Sciences Po); Jérôme Creel (OFCE Sciences Po, ESCP Europe) |
| Abstract: | EMU countries have engaged in a consolidation of fiscal policies since 2011. This paper deals with the public debt and output dynamic consequences of this strategy. To thisend, we develop a simple macroeconomic modelof the Euro area, where fiscal multipliers time-varying. Recent empirical evidence has indeed shown that fiscal multipliers werehigher in time of crisis. We then analyze the ability of EMU countries to comply with thenew fiscal rules on public debt. he path of public debt and output gap is simulated according to different hypothesis related to fiscal multiplier, monetary policy andhysteresis effects. Not all EMU countries would be able to reach a 60% debt-to-GDP ratio in 2032. An alternative strategy may be to spread austerity in order to report part of consolidation to periods where the fiscal multiplier will be weaker. The gain of spreading austerity may yet be partly offset by higher risk premium. There is then a need to find institutional arrangements to avoid panics in the sovereign debt markets. Finally, it is shown that it would not be very efficient to implement an expansionary fiscal policy in Germany in order to balance austerity in the Euro area. Since output gap is nearly closed in Germany, the multiplier effect of a positive fiscal stance would be low and spillover effects would not be significant |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1414&r=mac |
| By: | Angelo Marsiglia Fasolo |
| Abstract: | This paper describes the steady state allocations and prices for small open economies under optimal monetary and fiscal policy in a medium-scale DSGE model. The model encompasses the most common nominal and real rigidities normally found in the literature in a single framework. The Ramsey solution for the optimal monetary and fiscal policy is computed for a large space of the parameter set and for different combinations of fiscal policy instruments. Results show that, despite the large number of frictions in the model, optimal fiscal policy follows the usual results in the literature, with high taxes over labor income and low taxes (subsidies) on capital income. On the other hand, the choice of fiscal policy instruments is critical to characterize optimal monetary policy. Frictions associated with the small open economy framework do not play a critical role in characterizing the Ramsey planner's policy choices |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:357&r=mac |
| By: | Gianluca Mele |
| Keywords: | Finance and Financial Sector Development - Access to Finance Banks and Banking Reform Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19973&r=mac |
| By: | Liu, Weiling; Moench, Emanuel (Federal Reserve Bank of New York) |
| Abstract: | We reassess the predictability of U.S. recessions at horizons from three months to two years ahead for a large number of previously proposed leading-indicator variables. We employ an efficient probit estimator for partially missing data and assess relative model performance based on the receiver operating characteristic (ROC) curve. While the Treasury term spread has the highest predictive power at horizons four to six quarters ahead, adding lagged observations of the term spread significantly improves the predictability of recessions at shorter horizons. Moreover, balances in broker-dealer margin accounts significantly improve the precision of recession predictions, especially at horizons further out than one year. |
| Keywords: | recession predictability; ROC; term spread; leading indicators; efficient probit estimator |
| JEL: | C52 C53 E32 E37 |
| Date: | 2014–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:691&r=mac |
| By: | Artur Tarassow (Universität Hamburg (University of Hamburg)) |
| Abstract: | This paper attempts to test whether financial supply-side shifts explain the low-investment climate of private firms in Germany. The core contention is that a firm's financial position contributes to its access to external finance on credit markets. Special emphasizes is put on small and medium-sized enterprises as these are usually assumed to be more informationally opaque. The application of a non-linear panel threshold model makes it possible to group firms endogenously according to their financial position. Various observable balance sheet indicators such as leverage, interest coverage ratio or measures of solvency are used as potential threshold variables. The firm-level panel dataset covers the period between 2006 and 2012. We find strong evidence for a positive but non-linear nexus between cash flow and fixed investments, suggesting that financially fragile firms rely more heavily on internal funds. Surprisingly, firm size does not seem to be a relevant grouping variable. |
| Keywords: | Non-linear panel model, Firm investment, Corporate finance, Business cycle, Financial frictions, Credit rationing, Cash flow, Monetary policy |
| JEL: | C23 D24 E22 E30 G31 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:201405&r=mac |
| By: | Miguel Lebre de Freitas (Universidade de Aveiro and NIPE) |
| Abstract: | In this paper, we investigate the conditions under which expected inflation might influence the money demand, using a microeconomic model where the transactions of the representative agent are facilitated by its holdings of money. We assume that the agent holds a real asset, along with a range of nominal assets, that may include domestic money, foreign money, domestic bonds and foreign bonds. In this model, the optimal choice between money and bonds is embedded in a portfolio choice between the real asset and risky assets (the Merton problem). We show that, as long as the agent is not constrained in her holdings of bonds, the demand for domestic money will not, in general, depend on expected inflation. The demand for money may however become a positive function of the inflation rate in case the agent is constrained in her holdings of foreign bonds. The only case in which the demand for domestic money may depend negatively on the inflation rate is when the agent faces a binding constraint in her holdings of domestic bonds. |
| Keywords: | Money Demand, Currency Substitution, Portfolio Theory |
| JEL: | E41 F41 G11 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:13/2014&r=mac |
| By: | Nikola Mirkov; Andreas Steinhauer |
| Abstract: | We conducted an anonymous survey in December 2013 asking around 200 economists worldwide to provide an interval (a to b) of average inflation in the US expected "over the next two years". The respondents were also instructed to give a probability of inflation being higher or lower than the mid-interval (a+b)/2. The aggregate distribution of inflation expectations we obtain closely resembles the outcome of the Survey of Professional Forecasters for 1Q2014. More importantly, we find that the subjective probability mass on either side of the mid-interval is not statistically different from 0.5, which means that the subjective distributions are symmetric. Our results align well with several papers evaluating the Survey of Professional Forecasters or similar data sets and finding no significant departures from symmetry. |
| Keywords: | Inflation expectations, subjective probability distributions |
| JEL: | C42 E31 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:173&r=mac |
| By: | World Bank Group |
| Keywords: | Public Sector Economics Finance and Financial Sector Development - Currencies and Exchange Rates Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Public Sector Development Macroeconomics and Economic Growth |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19974&r=mac |
| By: | Arghyrou, Michael G (Cardiff Business School) |
| Abstract: | We use a macro-theory framework of analysis to assess Greek economic policy, with emphasis on the current period of the Greek debt crisis. We argue that this is mainly the result of misguided past internal policies deviating substantially from the policy lessons of modern macroeconomics. The current policy, however, is consistent with mainstream macro and provides a credible platform for achieving sustainable growth. We argue that Greece has entered the process of economic recovery, but this is still fragile and exposed to risks. Overall, we support the continued participation of Greece to the euro: Although a country’s currency is not per se a determinant of long-term economic prosperity, supply-side reforms and institutional performance are; and both these objectives are better served for Greece within the EMU rather than outside. |
| Keywords: | Macroeconomics; Greece; euro |
| JEL: | B22 E00 F4 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2014/16&r=mac |
| By: | Owen Eli Ceballos (El Colegio de México A.C) |
| Abstract: | This paper provides a semi-parametric characterization of financial sources along Mexican families' life-cycles. A synthetic household panel is constructed by using seven household surveys for the 2000-2012 period, and to estimate a partially linear model of savings and of debt payments. Results show that Mexican families do use higher levels of credits at early ages and higher levels of savings when older. By the end of the life-cycle, households' savings flows are relatively high and not similar to those predicted by the life-cycle standard model. The paper also identifies that debt payments reach a maximum at a household head´s age of about 45 years old, which is 5 years earlier than the maximum of household´s income level and 15 years earlier than the maximum of its saving level. These results are in line with the previous knowledge that in Mexico there are important liquidity restrictions at the early stages of family live, and that households' precautionary savings show up after the maximum income flow is reached |
| JEL: | E21 D12 |
| Date: | 2014–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:smx:wpaper:2014003&r=mac |
| By: | NGUENA Christian-Lambert (Yaoundé/Cameroun); NANFOSSO Roger (Yaoundé/Cameroun) |
| Abstract: | This article empirically estimates a micro-founded model with the aim to investigate the leading macroeconomic determinants and dynamics of financial deepening in the CEMAC sub-region. For this purpose, we adopted an empirical investigation in both static and dynamic panel data econometrics which has led to the following global recommendations: firstly, the CEMAC sub-region authorities should implement expansionary policies of GDP growth rate, population density, savings rate and exchange rate. Secondly, they should review their policy of trade liberalization since it appears to be negatively related to financial deepening. Concerning the dynamic aspect, a convergent dynamic and the feasibility of common monetary policy targeting depth in CEMAC sub-region have been highlighted. |
| Keywords: | Financial deepening, panel data econometrics, CEMAC, principal component analysis, economic growth. |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:14/015&r=mac |
| By: | Eustáquio Reis |
| Abstract: | The paper reviews the sluggish growth and inclusive developments of the Brazilian economy in the last decade. The first section analyzes the macroeconomic performance pointing export growth as the engine of growth. The second evaluates social policies and their relationship with the improvements in the labor market. The third examines Brazilian policy reactions to the global crisis that managed to recover consumption but failed to sustain investment and growth. The discussion of challenges for a sustainable development concludes the paper. Investment in education and infrastructure are consensual policy advices but there are plenty of disagreements and controversies with regards to industrial policies, financing strategies and the role to be played by the public sector. |
| Keywords: | Brazil, Macroeconomic performance, Social policies, Financial crisis, Growth strategy |
| JEL: | E63 E64 E65 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:une:wpaper:134&r=mac |
| By: | Julien Albertini; Arthur Poirier; ; |
| Abstract: | In this paper we investigate the labor market dynamics in a matching model where fluctuations are driven by movements in the discount factor. A comparison with the standard productivity shock is provided. Movements in the discount factor can be used as a proxy for variations in financial risks, especially the expected payoff from hiring workers. It is shown that the canonical matching model under a very standard calibration is able to generate an important volatility of unemployment and vacancies with respect to output. We estimate the structural model with the two shocks and using the Bayesian methodology. The bulk of variations in unemployment and vacancies is mainly explained by disturbances pertaining to the discount factor. Productivity shocks account for most of the historical output variations but the discount factor plays a more important role over the last two decades. |
| Keywords: | Search and matching, discount factor shock, Bayesian estimation, unemployment volatility puzzle. |
| JEL: | E3 J6 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2014-033&r=mac |
| By: | Lars Peter Hansen (The University of Chicago) |
| Abstract: | Asset pricing theory has long recognized that financial markets compensate investors who are exposed to some components of uncertainty. This is where macroeconomics comes into play. The economy-wide shocks, the primary concern of macroeconomists, by their nature are not diversifiable. Exposures to these shocks cannot be averaged out with exposures to other shocks. Thus returns on assets that depend on these macroeconomic shocks reflect “risk†premia and are a linchpin connecting macroeconomic uncertainty to financial markets. A risk premium reflects both the price of risk and the degree of exposure to risk. I will be particularly interested in how the exposures to macroeconomic impulses are priced by decentralized security markets.   |
| Keywords: | uncertainty, Knightian Uncertainty, Asset pricing, dynamic models |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2014-06&r=mac |
| By: | Diewert, Erwin; Fox, Kevin J. |
| Abstract: | The paper studies the problems associated with the construction of price indexes for commercial properties that could be used in the System of National Accounts. Property price indexes are required for the stocks of commercial properties in the Balance Sheets of the country. Related service price indexes for the land and structure input components of a commercial property are required in the Production Accounts of the country if the Multifactor Productivity of the Commercial Property Industry is calculated as part of the System of National accounts. The paper reviews existing methods for constructing an overall Commercial Property Price Index (CPPI) and concludes that most methods are biased (due to their neglect of depreciation) and more importantly, not able to provide separate land and structure subindexes. A class of hedonic regression models that is not subject to these problems is discussed. |
| Keywords: | Commercial property price indexes, Net Operating Income, discounted cash flow, System of National Accounts, Balance Sheets, methods of depreciation, l |
| JEL: | C2 C23 C43 D12 E31 R21 |
| Date: | 2014–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:bricol:erwin_diewert-2014-40&r=mac |
| By: | Nikita Céspedes-Reynaga (Banco Central de Reserva del Perú); Fabrizio Orrego (Banco Central de Reserva del Perú) |
| Abstract: | Estimamos el indicador de competencia H de Panzar y Rosse (1987) en la industria bancaria en el Perú para el periodo enero de 2001 hasta diciembre de 2013. Encontramos que este índice se encuentra alrededor de 0.5, consistente con una estructura de mercado de competencia monopolística. No obstante, en los últimos años el comportamiento de H sugiere que la competencia en la industria bancaria en el Perú habría crecido. Estos resultados están en línea con la trayectoria creciente del número de bancos y la reducción del margen de intermediación promedio durante el periodo en consideración. Extendemos el análisis a la industria de las cajas municipales y encontramos que el grado de competencia es mayor que en la industria bancaria. Asimismo, el indicador de competencia tiene una tendencia creciente desde inicios de la muestra, aunque se habría estabilizado en los últimos años. Este resultado está en línea con la trayectoria del margen de intermediación y no guarda relación con el número de competidores. |
| Keywords: | Competencia bancaria, concentración bancaria, márgenes de intermediación |
| JEL: | D43 E44 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2014-017&r=mac |
| By: | Huynh, Kim P.; Schmidt-Dengler, Philipp; Stix, Helmut |
| Abstract: | The use of payment cards, either debit or credit, is becoming more and more widespread in developed economies. Nevertheless, the use of cash remains significant. We hypothesize that the lack of card acceptance at the point of sale is a key reason why cash continues to play an important role. We formulate a simple inventory model that predicts that the level of cash demand falls with an increase in card acceptance. We use detailed payment diary data from Austrian and Canadian consumers to test this model while accounting for the endogeneity of acceptance. Our results confirm that card acceptance exerts a substantial impact on the demand for cash. The estimate of the consumption elasticity (0.23 and 0.11 for Austria and Canada, respectively) is smaller than that predicted by the classic Baumol-Tobin inventory model (0.5). We conduct counterfactual experiments and quantify the effect of increased card acceptance on the demand for cash. Acceptance reduces the level of cash demand as well as its consumption elasticity. |
| Keywords: | Bank notes; Econometric and statistical methods; E-money; Financial services. |
| JEL: | E41 C35 C83 |
| Date: | 2014–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:472&r=mac |
| By: | Shantanu Bagchi (Department of Economics, Towson University) |
| Abstract: | The maximum amount of earnings in a calendar year that can be taxed by Social Security in the U.S. is currently capped at $106,800. In this paper, I use a general-equilibrium overlapping-generations model to examine if removing this cap can solve Social Security's budgetary problems. I find that in general, removal of the cap increases Social Security revenues, but by only a small percentage, and most of these extra revenues go towards paying benefits to high-income retirees no longer subject to the cap. Even when the cap is removed only from taxes but retained on the amount of earnings creditable towards Social Security benefits, the fiscal advantages are quite small. |
| Keywords: | Social Security, Tax cap, Mortality risk, Productivity shock, Partial insurance, general equilibrium. |
| JEL: | E21 E62 H55 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:tow:wpaper:2014-05&r=mac |
| By: | World Bank |
| Keywords: | Banks and Banking Reform Finance and Financial Sector Development - Debt Markets Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Bankruptcy and Resolution of Financial Distress Macroeconomics and Economic Growth |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19987&r=mac |
| By: | Kazuo Nishimura (RIEB, Kobe University - Kobe University, KIER, Kyoto University - Kyoto University); Carine Nourry (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique); Thomas Seegmuller (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM)); Alain Venditti (AMSE - Aix-Marseille School of Economics - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales (EHESS) - Ecole Centrale Marseille (ECM), EDHEC Business School - Département Comptabilité, Droit, Finance et Economie) |
| Abstract: | We introduce public debt in a Ramsey model with heterogenous agents and a public spending externality affecting utility which is financed by income tax and public debt. We show that public debt considered as a fixed portion of GDP can have a stabilizing or destabilizing effect depending on some fundamental elasticities. When the public spending externality is weak and the elasticity of capital labor substitution is low enough, public debt can only be destabilizing, generating damped or persistent macroeconomic fluctuations. Whereas when the public spending externality and the elasticity of capital labor substitution are strong enough, public debt can be stabilizing, driving to monotone convergence an economy experiencing damped or persistent fluctuations without debt. |
| Keywords: | endogenous cycles; heterogeneous agents; public spending; public debt; borrowing constraint |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01059567&r=mac |
| By: | Kenneth L. Judd (Hoover Institution, Stanford University); Lilia Maliar (Department of Economics, Stanford University); Serguei Maliar (Leavey School of Business, Santa Clara University) |
| Abstract: | We propose a novel methodology for evaluating the accuracy of numerical solutions to dynamic economic models. Specifically, we construct a lower bound on the size of approximation errors. A small lower bound on errors is a necessary condition for accuracy: If a lower error bound is unacceptably large, then the actual approximation errors are even larger, and hence, we reject the hypothesis that a numerical solution is accurate. Our accuracy analysis is logically equivalent to hypothesis testing in statistics. As an illustration of our methodology, we assess approximation errors in the first- and second-order perturbation solutions for two stylized models: a neoclassical growth model and a new Keynesian model. The errors are small for the former model but unacceptably large for the latter model under some empirically relevant parameterizations. |
| Keywords: | approximation errors; best case scenario, error bounds, Euler equation residuals; accuracy; numerical solution; algorithm; new Keynesian model |
| JEL: | C61 C63 C68 E31 E52 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:byu:byumcl:201406&r=mac |
| By: | Naoko Hara (Bank of Japan); Shotaro Yamane (Bank of Japan) |
| Abstract: | This paper proposes a new approach for nowcasting as yet unavailable GDP growth by estimating monthly GDP growth with a large dataset. The model consists of two parts: (i) a few indicators that explain a large part of the variation in GDP growth, and (ii) principal components, which are orthogonal to those indicators and are extracted from a number of GDP source data, capturing the rest of the variation. The approach relies on a static factor model comprising a number of indicators that have a simultaneous relationship with GDP. Applying this approach to data for Japan, we find that our model produces more precise estimates of recent GDP growth at an earlier stage of nowcasting than the nowcasts of professional forecasters. |
| Keywords: | Factor Models; Forecasting; Nowcasting; Monthly GDP; Real-time Data |
| JEL: | C53 C82 E37 |
| Date: | 2013–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-14&r=mac |
| By: | Yusuke Kumano (Bank of Japan); Ichiro Muto (Bank of Japan); Akihiro Nakano (Bank of Japan) |
| Abstract: | Since the mid-2000s, Japan's industrial production (IP) has been characterized by increasing volatility. To examine the background to this, we apply the structural factor analysis developed by Foerster, Sarte, and Watson (2011) and decompose variations in Japan's IP into aggregate and sectoral shocks taking input-output relationships between sectors into account. We find that aggregate shocks explain most of the fluctuations in Japan's IP and are highly correlated with variations in overseas economic growth, especially since the early 2000s. However, we find a large increase in the relative importance of sectoral shocks when focusing on the more recent increase in the volatility of IP. Specifically, our analysis suggests that the intersectoral spillovers brought about by the disruptions of supply chain network in the wake of Great East Japan Earthquake and the declines of domestic production (or production capacity) in some sectors as a result of a deterioration in global competitiveness or the shift to overseas production have contributed to the recent fluctuations of Japan's IP. |
| Keywords: | Industrial Production; Structural Factor Analysis; Lehman Shock; Great East Japan Earthquake; Supply Chain Network; Input-output Matrix |
| JEL: | E23 E32 C32 |
| Date: | 2013–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-10&r=mac |
| By: | Koichiro Kamada (Bank of Japan); Jouchi Nakajima (Bank of Japan) |
| Abstract: | This paper shows how purchasing power parity (PPP) can be used to construct a measure for inflation expectations and discusses the properties of this measure from both a theoretical and an empirical perspective. Under the PPP hypothesis, inflation expectations in one country are equal to inflation expectations in another country plus the expected depreciation rate of the nominal exchange rate. Exploiting this formula, we calculate Japanese inflation expectations from the break-even inflation rates (BEI) and FX forward spreads for five countries (United States, United Kingdom, Australia, Canada, and Sweden). The resulting PPP-based measure of inflation expectations follows a trend that largely coincides with long-run developments in the Japanese BEI. However, we find that both levels of and variations in the new measure differ across the reference countries, and that a recent gap between the new measure and the Japanese BEI is not negligible from a short-run perspective. Consequently, there remain several issues that need to be addressed to assess the usefulness of this new formula. |
| Keywords: | BEI; Foreign exchange forward spread; Inflation expectations; Inflation-indexed bonds; PPP |
| Date: | 2013–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:13-e-13&r=mac |
| By: | Shanu Biswas |
| Keywords: | Private Sector Development - Business Environment Private Sector Development - Business in Development Gender - Gender and Law Private Sector Development - Competitiveness and Competition Policy Macroeconomics and Economic Growth - Regional Economic Development |
| Date: | 2014–03 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19911&r=mac |
| By: | Fatih Akcelik; Mustafa Utku Ozmen |
| Abstract: | In this paper, we revisit the unsettled discussion of whether retail fuel oil prices respond asymmetrically to oil price shocks. Using a novel micro approach that considers each price spell separately; we find evidence of pass-through asymmetry in the fuel oil market in Turkey. With our approach it is possible to analyze asymmetry at various other grounds including source and size of the cost shock. We show that exchange rate (oil price) is the main factor fueling asymmetry in case of cost increases (decreases). Also, if the magnitude of positive cost shock is higher, pass-through will be lower. Finally, empirical evidence suggests that pricing behavior in terms of pass-through degree and asymmetry varies across firms. The market power of the firms is suggested as the main explanation of the asymmetry, yet there are factors limiting the use of market power in price setting. |
| Keywords: | Fuel oil, Oil price, Exchange rate, Pass-through asymmetry, Gasoline, Diesel; Micro data, Turkey |
| JEL: | D22 D43 E31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1431&r=mac |
| By: | Guglielmo Maria Caporale; Stefano Di Colli; Roberto Di Salvo; Juan Sergio Lopez |
| Abstract: | This paper provides new evidence on the contribution of local banking to local economic growth (i.e. at county level - the Italian "province") in Italy. A comprehensive dataset is used, which includes control variables for social capital and human capital as well as indicators of the quality of local infrastructures and the production structure of the local economy. A linear within-estimator technique with fixed effects is applied to a modified version of the so-called Barro regression (Cecchetti and Karrhoubi, 2013) in order to address the well-known econometric issues of reverse causality and estimation bias resulting from unobserved district-specific influences. |
| Keywords: | Bank lending, local growth, panel data |
| JEL: | C33 E44 G01 G32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1409&r=mac |
| By: | Baas, Timo; Belke, Ansgar |
| Abstract: | Member countries of the Economic and Monetary Union (EMU) initiated wide-ranging labour market reforms in the last decade. This process is ongoing as countries that are faced with serious labour market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbour policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyse the impact of labour market reforms on the transmission of macroeconomic shocks in both non-reforming and reforming countries. By analysing the impact of reforms on foreign debt, we contribute to the debate on whether labour market reforms increase or reduce current account imbalances. |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:eps:cepswp:9621&r=mac |
| By: | Reza Y. Siregar; Narith Chan |
| Abstract: | Cambodia has never officially adopted the U.S. dollar or other foreign currency as means for transaction, unit account or store of value. Yet, over the past decade, the country has become one of the most “dollarized” economies in the world. The objective of this study is to provide some insights into motives behind the usage of foreign currencies by domestic households. While early studies have been constrained by their reliance on official macroeconomic and financial data, especially from the banking sector, our analyses will largely be based on a unique database generated from a survey conducted on 1500 households across rural and urban areas of 17 provinces (out of total 24 provinces) in the country. |
| Keywords: | Foreign Currency in Circulation, Dollarization, Household, Cambodia |
| JEL: | E50 G21 G28 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2014-58&r=mac |
| By: | Hilde C. Bjørnland (BI Norwegian Business School and Norges Bank (Central Bank of Norway)); Leif Anders Thorsrud (BI Norwegian Business School) |
| Abstract: | Traditional studies of the Dutch disease do not account for productivity spillovers between the booming resource sector and other domestic sectors. We put forward a simple theory model that allows for such spillovers. We then identify and quantify these spillovers using a Bayesian Dynamic Factor Model (BDFM). The model allows for resource movements and spending effects through a large panel of variables at the sectoral level, while also identifying disturbances to the commodity price, global demand and non-resource activity. Using Australia and Norway as representative cases studies, we find that a booming resource sector has substantial productivity spillovers on non-resource sectors, effects that have not been captured in previous analysis. That withstanding, there is also evidence of two-speed economies, with non-traded industries growing at a faster pace than traded. Furthermore, commodity prices also stimulate the economy, but primarily if an increase is caused by higher global demand. Commodity price growth unrelated to global activity is less favourable, and for Australia, there is evidence of a Dutch disease effect with crowding out of the tradable sectors. As such, our results show the importance of distinguishing between windfall gains due to volume and price changes when analysing the Dutch disease hypothesis. |
| Keywords: | Resource boom, Commodity prices, Dutch disease, Learning by doing, Two-speed economy, Bayesian Dynamic Factor Model (BDFM) |
| JEL: | C32 E32 F41 Q33 |
| Date: | 2014–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2014_12&r=mac |
| By: | Ece Oral; Turknur Brand |
| Abstract: | The ability to measure the predictive power of consumer surveys is very important especially for central banks in order to have a forward-looking perspective about consumer tendencies and expenditures. Particularly, most studies have found that diffusion indices obtained from surveys are linked to aggregate GDP or consumer expenditures. Therefore, the performance of prediction can be assessed at an aggregate level via the diffusion indices. On the other hand, our paper, while restricting itself to the evaluation of Turkish data provided by Consumer Tendency Survey (CTS) for the period 2003-2012, differs from previous studies in looking at disaggregated measures of both consumers’ opinion and household’s expenditures. In particular, various demographic characteristics such as employment type, age and income of the people interviewed are considered in this paper. Moreover, as a reference series, different categories of consumption are used (services, food and non-food items) instead of more aggregate measures of economic activity (total consumption, GDP). First of all, the survey results are analyzed monthly and quarterly. The quarterly series, which shows less volatility compared with monthly series, are used in order to examine the leading/coincident relationships with the related reference series; then, we test the significance of these relationships. We also construct regression models. The disaggregated analysis confirms that the CTS-consumption relationship is stronger for different demographic categories of consumers and some specific groups of expenditures than the aggregated categories of consumers. |
| Keywords: | Consumers, Consumption, Time series, Demographics |
| JEL: | N3 E2 C1 J11 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1432&r=mac |
| By: | Angelopoulos, Konstantinos; Asimakopoulos, Stylianos; Malley, James |
| Abstract: | This paper undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity, endogenous skill formation and stochastic shocks to public consumption as well as total factor and capital equipment productivity. Our main finding is that an empirically relevant restriction which does not allow the relative supply of skilled labour to adjust in response to aggregate shocks, signi cantly changes the cyclical properties of optimal labour taxes. Under a restricted relative skill supply, the government fi nds it optimal to adjust labour income tax rates so that the average net returns to skilled and unskilled labour hours exhibit the same dynamic behaviour as under fl exible skill supply. |
| Keywords: | skill premium, tax smoothing, optimal scal policy, |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:561&r=mac |
| By: | World Bank |
| Keywords: | Finance and Financial Sector Development - Access to Finance Public Sector Expenditure Policy Transport Economics Policy and Planning Public Sector Economics Macroeconomics and Economic Growth - Subnational Economic Development Transport Public Sector Development |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20050&r=mac |
| By: | Aaronson, Stephanie (Board of Governors of the Federal Reserve System (U.S.)); Cajner, Tomaz (Board of Governors of the Federal Reserve System (U.S.)); Fallick, Bruce C. (Federal Reserve Bank of Cleveland); Galbis-Reig, Felix (Board of Governors of the Federal Reserve System (U.S.)); Smith, Christopher (Board of Governors of the Federal Reserve System (U.S.)); Wascher, William L. (Board of Governors of the Federal Reserve System (U.S.)) |
| Abstract: | Since 2007, the labor force participation rate has fallen from about 66 percent to about 63 percent. The sources of this decline have been widely debated among academics and policymakers, with some arguing that the participation rate is depressed due to weak labor demand while others argue that the decline was inevitable due to structural forces such as the aging of the population. In this paper, we use a variety of approaches to assess reasons for the decline in participation. Although these approaches yield somewhat different estimates of the extent to which the recent decline in participation reflects cyclical weakness rather than structural factors, our overall assessment is that much - but not all - of the decline in the labor force participation rate since 2007 is structural in nature. As a result, while we see some of the current low level of the participation rate as indicative of labor market slack, we do not expect the participation rate to show a substantial increase from current levels as labor market conditions continue to improve. |
| Keywords: | Labor force participation; retirement behavior; disability insurance; implications of an aging population; youth employment; labor market slack; labor market fluctuations and the business cycle |
| Date: | 2014–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2014-64&r=mac |
| By: | George J. Bratsiotis; Wayne A. Robinson |
| Abstract: | The conventional New Keynesian Phillips Curve (NKPC), driven by unit labor costs has been criticized for failing to match infl?ation dynamics and for explaining the duration of fi?xed price contracts. This paper extends recent attempts in the literature to fi?nd an alternative marginal cost proxy for the NKPC, by introducing a fuller marginal cost proxy, '?unit total costs'? that is derived from both labor and non-labor unit costs, where the latter includes, capital related costs and production taxes. Borrowing costs are also examined separately, as in the cost channel literature. Unit total costs are shown to improve the fi?t of the short-run variation inin?ation and strengthen the empirical support for the role of expectations-based in?ation persistence. They also imply a duration of fi?xed nominal contracts that is closer to those suggested by fi?rm-level surveys. The cost channel becomes relatively less important when unit total costs, rather than unit labor costs, are used as a marginal cost proxy. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:192&r=mac |
| By: | World Bank |
| Keywords: | Banks and Banking Reform Macroeconomics and Economic Growth - Subnational Economic Development Social Protections and Labor - Labor Policies Economic Theory and Research Transport Economics Policy and Planning Finance and Financial Sector Development Transport |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:19999&r=mac |
| By: | Davide Pettenuzzo (International Business School, Brandeis University); Rossen Valkanov (University of California San Diego); Allan Timmermann (University of California San Diego) |
| Abstract: | We propose a new approach to predictive density modeling that allows for MI- DAS e¤ects in both the ?rst and second moments of the outcome and develop Gibbs sampling methods for Bayesian estimation in the presence of stochastic volatility dy- namics. When applied to quarterly U.S. GDP growth data, we ?nd strong evidence that models that feature MIDAS terms in the conditional volatility generate more accurate forecasts than conventional benchmarks. Finally, we ?nd that forecast combination methods such as the optimal predictive pool of Geweke and Amisano (2011) produce consistent gains in out-of-sample predictive performance. |
| Keywords: | MIDAS regressions; Bayesian estimation; stochastic volatility; out- of-sample forecasts; GDP growth. |
| JEL: | C53 C11 C32 E37 |
| Date: | 2014–07 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:76&r=mac |
| By: | Annarita COLASANTE (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Alberto RUSSO (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali) |
| Abstract: | In this paper we focus on the impact of involuntary unemployment on wage formation using experimental evidence. We use the well-known Gift Exchange Game to analyze players' interaction in a simplified job market. The aim of this paper is twofold: on the one hand, we are interested in analyzing the relation between involuntary unemployment and wages; on the other hand, we aim at understanding whether the interaction between employers and employees could be affected by reciprocity. Our results show that unemployment has a negative impact on wages. Moreover, there is a positive correlation between wage and effort. |
| Keywords: | Gift Exchange, Reciprocity, Unemployment |
| JEL: | C91 E24 J28 J30 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:404&r=mac |
| By: | World Bank |
| Keywords: | Finance and Financial Sector Development - Access to Finance Energy - Energy Production and Transportation Economic Theory and Research Private Sector Development - Emerging Markets Infrastructure Economics and Finance - Infrastructure Economics Macroeconomics and Economic Growth |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20021&r=mac |
| By: | Tobias R. Rühl; Michael Stein |
| Abstract: | In this study, we analyze the effect of US macroeconomic announcements on European stock returns, return volatility and bid-ask spreads using intraday data. We find that certain announcements are generally more important to the European stock market than others, and that the direction of news is important for returns. We provide first evidence that a stock-individual analysis is crucial to disentangle overall market reactions from stock-specific impacts and that effects vary dramatically between stocks. The analysis of quoted spreads reveals that return volatility affects the spread size positively, and that spreads are systematic ally higher directly after news releases. This is followed by structurally lower spreads, indicating quickly decreasing asymmetric information in the market after announcements. Additionally, spreads tend to react to announcements even if the returns or the volatility of the underlying stock is not significantly affected. This points at the importance of the analysis of news events beyond return and volatility analyses. |
| Keywords: | Macroeconomic announcement effects; european stock market; market microstructure; intraday analysis; bid-ask spreads |
| JEL: | E44 G14 G15 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0500&r=mac |
| By: | Francesco Porcelli (Business School, University of Exeter, UK); Riccardo Trezzi (Faculty of Economics, University of Cambridge, UK) |
| Abstract: | Although earthquakes are large idiosyncratic shocks for affected regions, little is known of their impact on economic activity. Seismic events are rare, the data is crude (the Richter scale measures the magnitude but says nothing of the associated damages) and counterfactuals are often entirely absent. We suggest an innovative identification strategy to address these issues based on the so-called ’Mercalli scale’ ranks - a geophysical methodology devised to gauge seismic damages relying on a newly compiled dataset following 95 Italian provinces from 1986 to 2011 (including 22 seismic episodes) offering an ideal ground for identification. Also, we carry out counterfactuals taking advantage of ex ante identical neighboring provinces that only differ ex post in terms of damages. Contrary to conventional views, we find that the impact of seismic events on output is negligible (or even positive) including after the most devastating events. |
| Keywords: | Natural disasters, Mercalli scale |
| JEL: | Q54 E00 J01 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:ipu:wpaper:7&r=mac |
| By: | World Bank |
| Keywords: | Law and Development - Trade Law International Economics and Trade - Free Trade Economic Theory and Research Private Sector Development - Emerging Markets Finance and Financial Sector Development - Debt Markets Macroeconomics and Economic Growth |
| Date: | 2014–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20010&r=mac |
| By: | Xavier Cuadras Morató; Josep M. 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:upf:upfgen:1438&r=mac |
| By: | Bernd Funovits |
| Abstract: | In general, linear multivariate rational expectations models do not have a unique solution. This paper reviews some procedures for determining whether there exists a solution, whether it is unique, and infers on the dimension of indeterminacy and the number of free parameters in a parametrization thereof. A particular emphasis is given to stochastic singularity, i.e. the case in which the number of outputs is strictly larger than the number of (stochastic) inputs. First, it is shown that assuming stochastic singularity of the exogenous driving process has the same effects as (but is more natural than) assuming that some variables are predetermined, i.e have trivial one-step-ahead prediction error. Second, the dimension of the solution set is in general different from the one derived in the case where the number of outputs and inputs coincide. We derive this result in both the framework of [37, 34] (which impose nonexplosiveness conditions) and [9, 11] (which do not impose non-explosiveness conditions). In this context, the results of [34] and [11] are corrected and extended. Last, we note that the framework of [11] can be adjusted to incorporate non-explosiveness conditions and lends itself to an identifiability analysis of dynamic stochastic general equilibrium (DSGE) models. |
| JEL: | C62 C63 E00 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:vie:viennp:1405&r=mac |
| By: | Tito Nícias Teixeira da Silva Filho; Francisco Marcos Rodrigues Figueiredo |
| Abstract: | Since 2000, Banco Central do Brasil (BCB) announces measures of core inflation in its Inflation Reports. Throughout this period, the set of measures has been altered as the result of either the evolution of the Brazilian economy or the incorporation of new approaches to measuring core inflation. This article reassesses the current set of core measures published by BCB. The evidences show that within the classes of measures (exclusion, trimmed means and double weighted), the chosen measures here do not differ substantially from those currently disclosed. Furthermore, regarding the performance in terms of capturing the inflation trend, the ranking among classes remains, highlighting the results for the measures using smoothed trimmed means |
| Date: | 2014–05 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:356&r=mac |
| By: | Mickaël Clévenot (CEPN - Centre d'Economie de l'Université de Paris Nord (ancienne affiliation) - Université Paris 13 - CNRS : UMR7115); Marie Silvère Mbome (LASER - Università degli studi di Milano) |
| Abstract: | The article examines the sensibility of economic growth to macroeconomic volatility, and the impact of financial development on volatility for a sample of 85 countries and OECD countries over two periods covering 1975 to 2006. In that purpose, we implented nonstationary panel techniques that account for cross-section dependence issue. We checked for the existence of a cointegrating relationship between variables. Finally we estimated such relationship using the Augmented mean group (AMG) method. We confirm the Ramey (1995) findings of the negative correlation between output growth and volatility for the full sample and the subsample of OECD countries, however our results are stronger for OECD countries. Moreover accounting for the interaction between volatility and financial development leads to stronger results. Indeed the interaction seems to impact positively on growth, but at the same times, it seems to magnify vulnerability to shocks. |
| Keywords: | Macroeconomic volatility, growth, cross-section dependence, unit root test and panel cointegration |
| Date: | 2014–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00951544&r=mac |
| By: | Roehlano M. Briones |
| Keywords: | Crops and Crop Management Systems Macroeconomics and Economic Growth - Markets and Market Access Economic Theory and Research Food and Beverage Industry Private Sector Development - Emerging Markets Industry Agriculture |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:20070&r=mac |