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on Macroeconomics |
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Issue of 2015‒09‒18
103 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Cole, Stephen |
| Abstract: | The unconventional monetary policy of forward guidance operates through the management of expectations about future paths of interest rates. This paper examines the link between expectations formation and the effectiveness of forward guidance. A standard New Keynesian model is extended to include forward guidance shocks in the monetary policy rule. Agents form expectations about future macroeconomic variables via either the standard rational expectations hypothesis or a more plausible theory of expectations formation called adaptive learning. The results show the efficacy of forward guidance depends on the manner in which agents form their expectations. In response to forward guidance, the paths of the output gap and inflation under adaptive learning overshoot and undershoot those implied by rational expectations. The adaptive learning impulse responses of the endogenous variables to a forward guidance shock exhibit more persistence before and after the forward guidance shock has been realized upon the economy. During an economic crisis (e.g. a recession), the assumption of rational expectations overstates the effects of forward guidance relative to adaptive learning. Specifically, the output gap is higher under rational expectations than adaptive learning. Thus, if monetary policy is based on a model with rational expectations, which is the standard assumption in the macroeconomic literature, the results of forward guidance could be potentially misleading. |
| Keywords: | Forward Guidance; Monetary Policy; Adaptive Learning; Expectations |
| JEL: | D84 E30 E50 E52 E58 E60 |
| Date: | 2015–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:65207&r=all |
| By: | Jimeno, Juan F. |
| Abstract: | The Great Recession and the subsequent European crisis may have long-lasting effects on aggregate demand, aggregate supply, and, hence, on macroeconomic performance over the medium and long-run. Besides the fact that financial crisis last longer and are succeeded by slower recoveries, and apart from the hysteresis effects that may operate after episodes of long-term unemployment, the combination of high (public and private) debt and low population and productivity growth may create significant constraints for monetary and fiscal policies. In this paper I develop an OLG model, one earlier used by Eggertsson and Mehrotra (2014) to rationalize the "secular stagnation hypothesis", to show how high debt, and low population and productivity growth may condition the macroeconomic performance of some European countries over the medium and long-run. JEL Classification: E20, E43, E52, E66 |
| Keywords: | inter-generational transfers, natural rate of interest, population and productivity growth, secular stagnation, zero lower bound |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20151832&r=all |
| By: | Orphanides, Athanasios |
| Abstract: | The Federal Reserve's muddled mandate to attain simultaneously the incompatible goals of maximum employment and price stability invites short-term-oriented discretionary policymaking inconsistent with the systematic approach needed for monetary policy to contribute best to the economy over time. Fear of liftoff-the reluctance to start the process of policy normalization after the end of a recession-serves as an example. Causes of the problem are discussed, drawing on public choice and cognitive psychology perspectives. The Federal Reserve could adopt a framework that relies on a simple policy rule subject to periodic reviews and adaptation. Replacing meeting-by-meeting discretion with a simple policy rule would eschew discretion in favor of systematic policy. Periodic review of the rule would allow the Federal Reserve the flexibility to account for and occasionally adapt to the evolving understanding of the economy. Congressional legislation could guide the Federal Reserve in this direction. However the Federal Reserve may be best placed to select the simple rule and could embrace this improvement on its own, within its current mandate, with the publication of a simple rule along the lines of its statement of longer-run goals. |
| Keywords: | Federal Reserve,liftoff,discretion,policy rules,policy normalization |
| JEL: | E32 E52 E58 E61 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:95&r=all |
| By: | Laura Pagenhardt; Dieter Nautz; Till Strohsal; Strohsal |
| Abstract: | Well-anchored inflation expectations are a key factor for achieving economic stability. This paper provides new empirical results on the anchoring of long-term inflation expectations in the euro area. In line with earlier evidence, we find that euro area inflation expectations have been anchored until fall 2011. Since then, however, they respond significantly to macroeconomic news. Our results obtained from multiple endogenous break point tests suggest that euro area inflation expectations have remained de-anchored ever since. |
| Keywords: | Anchoring of Inflation Expectations, Break-Even Inflation Rates, News-Regressions, Multiple Structural Break Tests |
| JEL: | E31 E52 E58 C22 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2015-044&r=all |
| By: | Jannsen, Nils; Potjagailo, Galina; Wolters, Maik H. |
| Abstract: | We study the macroeconomic effects of monetary policy during financial crises using a Bayesian panel vector autoregressive (PVAR) model for 20 advanced economies. We interact all of the endogenous variables with financial crisis dummies, which are constructed using the narrative approach. We also distinguish between an acute initial phase of financial crises and a subsequent recovery phase. We show that an expansionary monetary policy shock has large positive effects on output and inflation during the acute phase of a financial crisis. These effects are larger than those during non-crisis periods. Decreased uncertainty as well as increases in consumer confidence and share prices explain these large effects, whereas these variables are much less relevant for monetary policy transmission outside financial crises. Counterfactual analysis shows that the transmission mechanism would be impaired without the effects of monetary policy on these variables, where credit would not react at all and the response of output would be substantially lower. During the recovery phase of a financial crisis, output and inflation are generally non-responsive to monetary policy shocks. |
| Keywords: | monetary policy transmission,financial crisis,financial stability,state-dependence,uncertainty,panel VAR |
| JEL: | C33 E52 E58 G01 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201504&r=all |
| By: | Skott, Peter (University of Massachusetts Amherst and Aalborg University); |
| Abstract: | Fiscal policy and public debt may be required to maintain full employment and avoid secular stagnation. This conclusion emerges from a range of different models, including OLG specifications and stock-flow consistent (post-) Keynesian models. One of the determinants of the required long-run debt ratio is the rate of economic growth. Low growth leads to high debt, and empirical correlations between growth and debt may reflect this causal effect of growth on debt, rather than negative effects of debt on growth. A second result relates directly to austerity policies. The level of government consumption and the structure of taxation influence the required debt ratio and, paradoxically, austerity policies are counterproductive on their own terms: cuts in government consumption lead to an increase in the required level of debt. |
| Keywords: | functional finance, zero lower bound, liquidity trap, fiscal policy, secular stagnation, austerity, public debt. |
| JEL: | E62 E22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2015-12&r=all |
| By: | Barend Abeln; Jan P. A. M. Jacobs |
| Abstract: | Seasonality in macroeconomic time series can obscure movements of other components in a series that are operationally more important for economic and econometric analyses. Indeed, in practice one often prefers to work with seasonally adjusted data to assess the current state of the economy and its future course. Recently, two most widely used seasonal adjustment methods, Census X-12-ARIMA and TRAMO-SEATS, merged into X-13ARIMA-SEATS to become a new industry standard. In this paper, we compare and contrast X-13ARIMA-SEATS with a seasonal adjustment program called CAMPLET, an acronym of its tuning parameters. CAMPLET consists of a simple adaptive procedure which separates the seasonal component and the non-seasonal component from an observed time series. Once this process has been carried out there will be no need to revise these components at a later stage when more observations become available, in contrast with other seasonal adjustment methods. The paper briefly reviews of X-13ARIMA-SEATS and describes the main features of CAMPLET. We evaluate the outcomes of both methods in a controlled simulation framework using a variety of processes. Finally, we apply the X-13ARIMA-SEATS and CAMPLET methods to three time series: U.S. non-farm payroll employment, operational income of Ahold, and real GDP in the Netherlands. |
| Keywords: | seasonal adjustment, real-time, seasonal pattern, simulations, employment, operational income, real GDP, |
| JEL: | C22 E24 E32 E37 |
| Date: | 2015–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2015s-35&r=all |
| By: | Jackson, Christopher (Bank of England); Noss, Joseph (Bank of England) |
| Abstract: | Money markets play an important role in the implementation of monetary policy. Their structure and dynamics have, however, changed significantly in recent years. In particular, a number of new banking regulations will affect the behaviour of money market participants, and so have the potential to affect money market interest rates. This paper offers a model to examine how prudential regulation might affect interbank overnight interest rates where the central bank implements monetary policy using a corridor system. Combined with a set of assumptions as to the cost banks might incur in meeting regulatory capital requirements, it offers a framework with which to explore how such prudential regulation might affect the dynamics of overnight interest rates. The results — which are illustrative — estimate the interest rates at which banks might borrow and lend reserves overnight in the presence of prudential regulation. They suggest that risk-weighted capital requirements might increase the average level of overnight interbank interest rates, while the regulatory minimum leverage ratio might decrease it. If applied to real-world data on central bank reserves balances and regulatory metrics, this model also offers an insight into how central bank policymakers could — if they so choose — amend their operational frameworks to account for the effects of regulation. |
| Keywords: | Monetary policy implementation; money markets; bank regulation; central bank operations. |
| JEL: | E43 E43 E58 G12 |
| Date: | 2015–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0548&r=all |
| By: | Daniel Kaufmann (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Florian Huber (Oesterreichische Nationalbank, Vienna, Austria) |
| Abstract: | We estimate a multivariate unobserved components-stochastic volatility model to explain the dynamics of a panel of six exchange rates against the US Dollar. The empirical model is based on the assumption that both countries' monetary policy strategies may be well described by Taylor rules with a time-varying inflation target, a time-varying natural rate of unemployment, and interest rate smoothing. The estimates closely track major movements along with important time-series properties of the real and nominal exchange rates across all currencies considered. The model generally outperforms a simple benchmark model that does not account for changes in trend inflation and trend unemployment. |
| Keywords: | Exchange rate models, trend inflation, natural rate of unemployment, Taylor rule, unobserved components-stochastic volatility model |
| JEL: | F31 E52 F41 C5 E31 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:15-393&r=all |
| By: | Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This study presents an overlapping-generations model featuring capital accumu- lation, collective wage-bargaining, and probabilistic voting over fiscal policy. We characterize 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 unemployment and public debt. Second, greater political power of the old lowers the growth rate and shifts government expenditure from the unemployed to the old. Third, when the government finances its spending by issuing public debt, an introduction of 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:1430r&r=all |
| By: | Dong, Feng (Shanghai Jiao Tong University); Wang, Pengfei (Hong Kong University of Science and Technology); Wen, Yi (Federal Reserve Bank of St. Louis) |
| Abstract: | The supply and demand of credit are not always well aligned and matched, as is reflected in the countercyclical excess reserve-to-deposit ratio and interest spread between the lending rate and the deposit rate. We develop a search-based theory of credit allocations to explain the cyclical fluctuations in both bank reserves and the interest spread. We show that search frictions in the credit market can not only naturally explain the countercyclical bank reserves and interest spread, but also generate endogenous business cycles driven primarily by the cyclical utilization rate of credit resources, as long conjectured by the Austrian school of the business cycle. In particular, we show that credit search can lead to endogenous local increasing returns to scale and variable capital utilization in a model with constant returns to scale production technology and matching functions, thus providing a micro-foundation for the indeterminacy literature of Benhabib and Farmer (1994) and Wen (1998). |
| Keywords: | Search Frictions; Credit Utilization; Credit Rationing; Self-fulfilling Prophecy. Business Cycles. |
| JEL: | E1 E2 E3 E4 |
| Date: | 2015–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2015-023&r=all |
| By: | Vipul Bhatt (Department of Economics, James Madison University); Andre R. Neveu (Department of Economics, James Madison University) |
| Abstract: | This paper provides an empirical measure of debt burden based on a flow measure of debt we call "DaaF". This paper provides an empirical measure of debt burden based on a flow measure of debt we call "DaaF". We find that although both measures have witnessed substantial growth, especially following the 2008 crisis, the growth in debt-to-GDP ratio is much more substantial. Given the increased scrutiny of the U.S. debt policy, primarily stemming from the narrative surrounding the high and rapidly rising debt-to-GDP ratio, our findings here provide a counterpoint based on a more reasonable measure of the debt burden. |
| Keywords: | Debt, Fiscal Policy, Interest Rate, Debt Management |
| JEL: | E62 E66 E6 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2014-004&r=all |
| By: | Melolinna, Marko |
| Abstract: | This paper studies factors behind inflation dynamics in the euro area, the UK and the US. It introduces a factor-augmented vector autoregression (FAVAR) framework with sign restrictions to study the effects of fundamental macroeconomic shocks on inflation in the three economies. The FAVAR model framework is also applied to study the effects on inflation subcomponents in the more recent past. The FAVAR models suggest that headline inflation in the three economies has reacted in a relatively similar fashion to macroeconomic shocks over the last four decades, with demand shocks causing the most persistent effects on inflation. According to the subcomponent FAVAR models, the responses of inflation subcomponents to macroeconomic shocks have also been relatively similar in the three economies. However, there is evidence of a stronger foreign exchange channel of monetary policy transmission as well as supply shocks in the responses of non-energy tradable goods prices in the UK than the other two economies, while the reaction of services inflation has been more muted to all types of shocks in the euro area than the other two economies. JEL Classification: C22, C32, E31, E52 |
| Keywords: | FAVAR, inflation, macroeconomic shocks, sign restrictions |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141802&r=all |
| By: | Wouter Den Haan (London School of Economics; Centre for Macroeconomics (CFM); Centre for Economic Policy Research (CEPR)); Pontus Rendahl (Univesrity of Cambridge; Centre for Macroeconomics (CFM)); Markus Riegler (Univesrity of Bonn; Centre for Macroeconomics (CFM)) |
| Abstract: | The interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features - in isolation - dampen them. During recessions, fears of unemployment stir up precautionary sentiments which induces agents to save more. The additional savings may be used as investments which induces agents to save more. The additional savings may be used as investments in both a productive asset (equity) and an unproductive asset (money). But even a small rise in money demand has important consequences. The desire to hold money puts deflationary pressure on the economy, which, provided that nominal wages are sticky, increases wage costs and reduces firm profits. Lower profits repress the desire to save in equity, which increases (the fear of) unemployment, and so on. This is a powerful mechanism which casues the model to behave differently from both its complete markets version, and a version with incomplete markets but without aggregate uncertainty. In contrast to previous results in the literature, agents uniformly prefer non-trivial levels of unemployment insurance. |
| Keywords: | Keynesian unemployment, business cycles, search frictions, magnification, propogation, heterogenous agents |
| JEL: | E12 E24 E32 E41 J64 J65 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1521&r=all |
| By: | BLINOV, Sergey |
| Abstract: | In 2003, President of Russia Vladimir Putin set the task of doubling the GDP. However, this task is yet to be accomplished. Why has not this goal been achieved yet? What needs to be done to double Russia’s GDP? To answer these questions is exactly what this paper sets out to do. We can see that it is quite possible to double the GDP, but to do that, it takes an absolutely different perspective of the monetary policy of the Central Bank of Russia. |
| Keywords: | GDP, economic growth, money supply, monetary policy |
| JEL: | E37 E41 E52 E58 E65 O11 O17 O42 |
| Date: | 2015–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66625&r=all |
| By: | Fabio C. Bagliano; Claudio Morana |
| Abstract: | A large-scale model of the global economy is used to investigate the structural determinants of the Great Moderation and the transition to the Great Recession (1986-2010). Beside the global economy perspec- tive, the model presents the novel feature of a broad range of included ?nancial variables and risk factors measures. The results point to the relevance of various mechanisms related to the global monetary policy stance (Great Deviation), ?nancial institutions? risk taking behavior (Great Leveraging) and global imbalances (savings glut), in shaping aggregate ?uctuations. The paper ?nally contributes to the literature on early warning indicators, assessing the information content of risk factor innovations for the prediction of the timing and depth of the Great Recession. |
| Keywords: | Great Moderation, Great Recession, risk factors, early warning system, macro-?nancial instability; FAVAR models. |
| JEL: | E32 E44 G01 G15 C22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:424&r=all |
| By: | Skott, Peter (Department of Economics, University of Massachusetts, Amherst, MA 01003,USA, and Aalborg University); Soon, Ryoo (Department of Finance and Economics, Adelphi University) |
| Abstract: | This paper examines the role of fiscal policy in the long run. We show that (i) dynamic inefficiency in a standard OLG model generates aggregate demand problems in a Keynesian setting, (ii) fiscal policy can be used to achieve full-employment growth, (iii) the required debt ratio is inversely related to both the growth rate and government consumption, and (iv) a simple and distributionally neutral tax scheme can maintain full employment in the face of variations in ‘household confidence’. |
| Keywords: | Public debt, Keynesian OLG model, secular stagnation, structural liquidity trap, dynamic efficiency, confidence |
| JEL: | E62 E22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2015-13&r=all |
| By: | BLINOV, Sergey |
| Abstract: | In 2003, President of Russia Vladimir Putin set the task of doubling the GDP. However, this task is yet to be accomplished. Why this goal has not been achieved yet? What needs to be done to double Russia’s GDP? To answer these questions is exactly what this paper sets out to do. We can see that it is quite possible to double the GDP, but to do that, it takes an absolutely different perspective of the monetary policy of the Central Bank of Russia. |
| Keywords: | GDP, economic growth, money supply, monetary policy |
| JEL: | E37 E41 E52 E58 E65 O11 O17 O42 |
| Date: | 2015–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66583&r=all |
| By: | Yannick Kalantzis (Banque de France); Kenza Benhima (University of Lausanne (HEC)); Philippe Bacchetta (University of Lausanne) |
| Abstract: | In this paper we analyze the link between the ZLB and slow growth in a model with heterogeneous agents and explicit money demand. While the model is neoclassical with small shocks, a large deleveraging shock in the spirit of Eggertsson and Krugman (2012) has permanent effects even with flexible prices. It affects supply rather than demand and implies a long-term decrease in potential output and an increase in cash holding. The basic reason is that in a liquidity trap, saving is allocated to cash rather than physical capital. With short-term price stickiness, monetary policy in the form of an expansion in money supply is effective in reducing unemployment in the short-run, but not in affecting the long term output level. An increase in debt may help exiting the ZLB, but it may lower the capital stock because of higher interest rates. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:661&r=all |
| By: | Adam, Klaus; Tzamourani, Panagiota |
| Abstract: | We study the distributional consequences of housing price, bond price and equity price increases for Euro Area households using data from the Household Finance and Consumption Survey (HFCS). The capital gains from bond price and equity price increases turn out to be concentrated among relatively few households, while the median household strongly benefits from housing price increases. The capital gains from bond price increases (relative to household net wealth) do not correlate with household net wealth (or income). Bond price increases thus leave net wealth inequality largely unchanged. In contrast, equity price increases largely benefit the top end of the net wealth (and income) distribution, thus amplify net wealth inequality. Housing price increases display a hump shaped pattern over the net wealth distribution, with the poorest and richest households benefitting least. With regard to the latter finding there exists considerable heterogeneity across Euro Area countries. |
| Keywords: | monetary policy,asset prices,net wealth distribution,inequality,household survey |
| JEL: | D14 D31 E21 E31 E52 E58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:272015&r=all |
| By: | Paredes, Joan; Pérez, Javier J.; Pérez Quirós, Gabriel |
| Abstract: | Should rational agents take into consideration government policy announcements? A skilled agent (an econometrician) could set up a model to combine the following two pieces of information in order to anticipate the future course of fiscal policy in real-time: (i) the ex-ante path of policy as published/announced by the government; (ii) incoming, observed data on the actual degree of implementation of ongoing plans. We formulate and estimate empirical models for a number of EU countries (Germany, France, Italy, and Spain) to show that government (consumption) targets convey useful information about ex-post policy developments when policy changes significantly (even if past credibility is low) and when there is limited information about the implementation of plans (e.g. at the beginning of a fiscal year). In addition, our models are instrumental to unveil the current course of policy in real-time. Our approach complements a well-established branch of the literature that finds politically-motivated biases in policy targets. JEL Classification: C54, H30, H68, E61, E62 |
| Keywords: | fiscal policy, forecasting, learning, policy credibility |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20151834&r=all |
| By: | Francois Gourio (FRB Chicago); Jonas Fisher (Federal Reserve Bank of Chicago) |
| Abstract: | As labor markets improve and projections have inflation heading back toward target, the Fed has begun to contemplate lifting the federal funds rate from its zero lower bound (ZLB). Under what conditions should the Fed start raising rates? We lay out an argument that calls for caution. It is founded on a risk management principle that says policy should be formulated taking into account the dispersion of outcomes around the mean forecast. On the one hand, raising rates early increases the likelihood of adverse shocks driving a fragile economy back to the ZLB. On the other hand, delaying lift-off when the economy turns out to be resilient could lead to an unwelcome bout of inflation. Since the tools available to counter the first scenario are hard to implement and may be less effective than the traditional tool of raising rates to counter the second scenario, the costs of premature lift-o exceed those of delay. This article shows in a canonical framework that uncertainty about being constrained by the ZLB in the future implies an optimal policy of delayed lift-o. We present evidence that such a risk manage- ment policy is consistent with past Fed actions and that unconventional tools will be hard to implement if the economy were to be constrained by the ZLB after a hasty exit. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:665&r=all |
| By: | Masaya Sakuragawa (Faculty of Economics, Keio University) |
| Abstract: | A great concern is whether there is any means of monetary policy that works for the "leaning against the wind" policy in the bubbly economy. This paper explores the scope for monetary policy that can control bubbles within the framework of the stochastic version of overlapping-generations model with rational bubbles. The policy that raises the cost of external finance, could be identified as monetary tightening, represses the boom, but appreciate bubbles. In contrast, an open market operation using public bonds is conductive as the "leaning against the wild" policy. Selling public bonds in the open market by the central bank raises the interest rate, represses the boom, and depreciates bubbles. In conducting monetary tightening, the central bank faces the tradeoff between the loss from killing the boom and the gain from lessening the loss of the bursting of bubbles. |
| Keywords: | rational bubbles, monetary policy, open market operation |
| JEL: | E52 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2015-002&r=all |
| By: | Xiaoming Cai (Tongji University); Wouter Den Haan (London School of Economics; Centre for Macroeconomics (CFM); Centre for Economic Policy Research (CEPR)); Jonathan Pinder (London School of Economics; Centre for Macroeconomics (CFM)) |
| Abstract: | Should an unexpected change in real GMP of x% lead to an x% change in the forecasts of future GNP? The answer could be no even if GNP is a random walk. We show that US economic downturns often go together with changes in long-term GNP forecasts that are substantially smaller than the initial drop. But not always! Essential for our results is that GNP forecasts are not based on a univariate time series model, which is not uncommon. Our alternative forecasts are based on a simple multivariate representation of GNP's expenditure components. |
| Keywords: | forecasting, unit root, business cycles |
| JEL: | C53 E32 E37 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1520&r=all |
| By: | Jaimovich, Nir; Rebelo, Sérgio; Wong, Arlene |
| Abstract: | We document two facts. First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. So, when households trade down, labor demand falls, increasing the severity of recessions. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the response of these economies to real and monetary shocks. |
| Keywords: | business cycle; quality choice; recessions |
| JEL: | E2 E3 E4 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10807&r=all |
| By: | Soon, Ryoo (Department of Finance and Economics, Adelphi University); Skott, Peter (Department of Economics, University of Massachusetts, Amherst, MA 01003,USA, and Aalborg University) |
| Abstract: | This paper examines the implications of different monetary and fiscal policy rules in an economy characterized by Harrodian instability. We show that (i) a monetary rule along Taylor lines can be stabilizing for low debt ratios but becomes de-stabilizing if the debt ratio exceeds a certain threshold, (ii) a `Keynesian' fiscal policy rule can stabilize the economy at full employment, (iii) a fiscal `austerity' rule that links fiscal parameters to deviations from a target debt ratio fails to adjust the `warranted' to the `natural' growth rate and destabilizes the warranted path, (iv) instability may arise from a combination of fiscal and monetary policy rules which separately would stabilize the system, and (v) austerity rules can in some circumstances enhance the stabilizing effects of monetary policy. |
| Keywords: | functional finance, fiscal policy rule, austerity, public debt, Harrodian instability |
| JEL: | E12 E52 E62 E63 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2015-15&r=all |
| By: | Ricardo Reis (Columbia University); Alisdair McKay (Boston University) |
| Abstract: | This paper studies the design of fiscal policies that serve as automatic stabilizers in an incomplete markets economy affected by inefficient business cycle fluctuations. We make three contributions. First, we provide a model that combines nominal rigidities, idiosyncratic income shocks and incomplete markets, but which is sufficiently simple that we can analyze it with an AS-AD diagram to show how sticky prices and incomplete markets interact to determine the effect of and desirability of the automatic stabilizers. Second, we characterize social welfare and show that it depends on the variance of an output gap and inflation as well as on a measure of time-varying inequality. The interaction of nominal rigidities and incomplete markets raises the costs of business cycles making room for stabilization policy to achieve large gains. Third, we calibrate the model to match the main facts about inequality in order to solve for the optimal set of automatic stabilizers. We show that stabilization concerns make the income tax more progressive, unemployment benefits and income support policies more generous. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:608&r=all |
| By: | Jacek Suda (National Bank of Poland); Patrick Pintus (Aix-Marseille School of Economics) |
| Abstract: | This paper develops a simple business-cycle model in which financial shocks have large macroeconomic effects when private agents are gradually learning their uncertain environment. When agents update their beliefs about the parameters that govern the unobserved process driving financial shocks to the leverage ratio, the responses of output and other aggregates under adaptive learning are significantly larger than under rational expectations. In our benchmark case calibrated using US data on leverage, debt-to-GDP and land value-to-GDP ratios for 1996Q1-2008Q4, learning amplifies leverage shocks by a factor of about three, relative to rational expectations. When fed with actual leverage innovations observed over that period, the learning model predicts a sizeable recession in 2008-10, while its rational expectations counterpart predicts a counter-factual expansion. In addition, we show that procyclical leverage reinforces the amplification due to learning and, accordingly, that macro-prudential policies enforcing countercyclical leverage dampen the effects of leverage shocks. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:577&r=all |
| By: | Dilger, Alexander |
| Abstract: | In diesem Beitrag wird anhand verschiedener Unternehmensinteressen untersucht, welche Unternehmen vom Euro profitieren und welche nicht. Im Ergebnis ist die Gemeinschaftswährung vor allem für exportstarke Unternehmen in exportstarken Ländern wie Deutschland von Vorteil, was ihre Befürwortung trotz Eurokrise erklären dürfte. Dagegen verlieren Unternehmen in den Krisenländern eher, fürchten aber vielleicht trotzdem die Auflösung der Eurozone. |
| Abstract: | This paper analyses by looking at their different interests which companies profit from the euro and which do not. The main result is that the common currency is advantageous primarily for companies with strong exports in exporting countries like Germany. This could explain their support for the euro in spite of the euro crisis. In contrast, most companies in the crisis countries are hit hard. The may fear a break-up of the euro zone nevertheless. |
| JEL: | E31 E42 F02 G01 L21 M21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:umiodp:82015&r=all |
| By: | Angela Abbate (Deutsche Bundesbank and European University Institute, Department of Economics); Dominik Thaler (European University Institute, Department of Economics) |
| Abstract: | Motivated by VAR evidence on the risk-taking channel in the US, we develop a New Keynesian model where low levels of the risk-free rate induce banks to grant credit to riskier borrowers. In the model an agency problem between depositors and equity holders incentivizes banks to take excessive risk. As the real interest rate declines these incentives become stronger and risk taking increases. We estimate the model on US data using Bayesian techniques and assess optimal monetary policy conduct in the estimated model, assuming that the interest rate is the only available instrument. Our results suggest that in a risk taking channel environment, the monetary authority should seek to stabilize the path of the real interest rate, trading off more inflation volatility in exchange for less interest rate and output volatility. |
| Keywords: | Bank Risk; Monetary policy; DSGE Models |
| JEL: | E12 E44 E58 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201509-287&r=all |
| By: | John Creedy; Grant Scobie (The Treasury) |
| Abstract: | This paper analyses long-term fiscal sustainability with a model which incorporates a number of feedback effects. When fiscal policy responds to ensure long-term sustainability, these feedback effects can potentially modify the intended outcomes by either enhancing or dampening the results of the policy interventions. The feedbacks include the effect on labour supply in response to changes in tax rates, changes in the country risk premium in response to higher public debt ratios, and endogenous changes in the rate of productivity growth and savings that respond to interest rates. A model of government revenue, expenditure and public debt which incorporates these feedbacks is used to simulate the outcome of a range of fiscal policy responses. In addition the effects of population ageing and productivity growth are explored. |
| JEL: | E62 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:15/11&r=all |
| By: | Jhuvesh Sobrun; Philip Turner |
| Abstract: | Financial conditions in the emerging markets (EMs) have become more dependent on the 'world' long-term interest rate, which has been driven down by monetary policies in the advanced economies - notably Quantitative Easing (QE) - and by several non-monetary factors. This paper analyses some new mechanisms that link global long-term rates to monetary policy and to domestic bank lending in the EMs. Understanding these mechanisms could help EM central banks prepare for the exit from QE and higher (and perhaps divergent) policy rates in advanced economies. Although monetary policy in the EMs has continued to be guided by domestic objectives, it has nevertheless lost some traction. Difficult trade-offs now confront central banks. |
| Keywords: | Exit from QE, long-term interest rate, emerging market economies, bond markets |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:508&r=all |
| By: | Stavros Zografakis (Bank of Greece); Alexandros Sarris (Bank of Greece) |
| Abstract: | The paper investigates quantitatively the economic implications of the various stabilization and adjustment policies, adopted by the Greek government in the period 2008-2013, to deal with the unsustainable public finances. To this end a static computable general equilibrium model is presented, that is capable of simulating the main macroeconomic and especially distributional aspects of the Greek crisis that has afflicted the country since 2008. The model is designed to explore in a comparative static manner the outcomes of different policies, and has considerable sectoral and distributional detail. The model is fitted to a 2004 social accounting matrix that includes much detail about the relevant economic actors. Policy simulations are made under a closure rule that seems to fit the Greek economy during the crisis. Simulations of the large shocks that have affected Greece between 2008-2013 indicate that the model reproduces the main outcomes of the economy during the implementation of the policy package adopted during the crisis, and indicates that the package adopted has been very regressive. The policy simulations suggest that the mixture of policies adopted during the stabilization programme by the Greek government has resulted in a large GDP decrease, a large employment decline, and as a painful consequence, a substantial decrease in the public sector deficit, but at the cost of very large decreases in private real incomes and an even larger increase in income inequality. It remains to be seen whether there can be other policy packages that can achieve similar public sector deficit reductions without the adverse income and distributional implications |
| Keywords: | Greek economy; macrosectoral models; stabilization policies; distributional implications of macro policies; computable general equilibrium models |
| JEL: | C68 E61 E65 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:196&r=all |
| By: | Williamson, Stephen D. (Federal Reserve Bank of St. Louis) |
| Abstract: | A two-sector general equilibrium banking model is constructed to study the functioning of a floor system of central bank intervention. Only retail banks can hold reserves, and these banks are also subject to a capital requirement, which creates “balance sheet costs” of holding reserves. An increase in the interest rate on reserves has very different qualitative effects from a reduction in the central bank’s balance sheet. Increases in the central bank’s balance sheet can have redistributive effects, and can reduce welfare. A reverse repo facility at the central bank puts a floor un- der the interbank interest rate, and is always welfare improving. However, an increase in reverse repos outstanding can increase the margin between the interbank interest rate and the interest rate on government debt. |
| JEL: | E4 E5 |
| Date: | 2015–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2015-024&r=all |
| By: | Monica de Bolle (Peterson Institute for International Economics) |
| Abstract: | Public lending by the Brazilian Development Bank (BNDES) may have done more harm than good in Brazil, adversely affecting real interest rates and productivity growth. Specifically, BNDES’s large amounts of subsidized lending are responsible for substantial credit market segmentation, choking off monetary policy transmission. As a result, to maintain price stability the Central Bank of Brazil is forced to raise interest rates more than it might do otherwise in the absence of BNDES lending. Restoring Brazil’s capacity to grow in the medium term requires a thorough rethinking of the role of BNDES. In particular, the bank’s lending rates should be aligned with market prices, term and risk premia, while taking into account that, with an adequate transparency framework, public development banks can increase private sector participation instead of crowding it out. |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb15-16&r=all |
| By: | Ghassan, Hassan B.; Al-Jefri, Essam H. |
| Abstract: | This paper analyses the current account in the intertemporal model framework. Based on Obstfeld and Rogoff’s book (1996), we aim to model the ratio of the current account to GDP explicitly in the long run. Also, we criticize the tautological approach in the paper of Cerrato et al. (2014) which supposes a strong hypothesis that the output growth is the sum of the population growth and the per-capita GDP growth. This hypothesis leads to the identical equation of the ratio current account to GDP expressed by level or per capita. In this paper, we consider the overlapping generations to determine precisely the equation of the per-capita current account using the relevant variables. Then, this model appears more interesting and testable. It allows to verify the validity of the intertemporal model of the current account through the semi-elasticity of the ratio of per-capita current account to the per-capita GDP to the per-capita GDP growth or the per-capita consumption growth. |
| Keywords: | Current account, Intertemporal Model, Long-run, Per-capita GDP, Consumption. |
| JEL: | E21 F41 |
| Date: | 2015–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66527&r=all |
| By: | Raphael Schoenle (Brandeis University); Ernesto Pasten (Banco Central de Chile, Toulouse School of Economics) |
| Abstract: | In a quantitative rational inattention model, monetary non-neutrality quickly vanishes as rms price more goods while monetary non-neutrality is strong in a single-product setting under otherwise identical conditions. This result is due to (1) economies of scope that arise naturally in the multi-product setting, where processing information is costly but using already internalized information is free, and (2) good-specic shocks that account for a nonzero fraction of the within-rm dispersion of log price changes, which we document in U.S. data. As a consequence, as rms price more goods, they shift attention from good-specic to common shocks, such as monetary shocks. Aggregate prices then respond much faster to monetary shocks due to strategic complementarity. |
| Keywords: | rational inattention, multi-product rms, monetary non-neutrality |
| JEL: | E3 E5 D8 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:brd:wpaper:91&r=all |
| By: | Bonciani, Dario; van Roye, Björn |
| Abstract: | In this paper we investigate the effects of uncertainty shocks on economic activity in the euro area by using a Dynamic Stochastic General Equilibrium (DSGE) model with heterogeneous agents and a stylized banking sector. We show that frictions in credit supply amplify the effects of uncertainty shocks on economic activity. This amplification channel stems mainly from the stickiness in banking retail interest rates. This stickiness reduces the effectiveness in the transmission mechanism of monetary policy. JEL Classification: E32, E52 |
| Keywords: | Financial frictions, Perturbation Methods, Stochastic Volatility, Third-order approximation, Uncertainty Shocks |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20151825&r=all |
| By: | Claudio Campanale |
| Abstract: | Most macroeconomic models are based on the assumption of a single homogeneous consumption good. In the present paper we consider a model with two goods: A basic good and a luxury good. We then apply this assumption to a standard general equi- librium heterogeneous agent model. We ¯nd a substantial reduction in precautionary savings compared to a standard model. The e®ect on wealth inequality turns out to be ambiguous and to depend on the size of the assumed earnings risk. |
| Keywords: | precautionary savings, wealth inequality, luxury consumption, non-homothetic utility |
| JEL: | E21 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:423&r=all |
| By: | Horacio Aguirre (Central Bank of Argentina); Tamara Burdisso (Central Bank of Argentina); Federico Grillo (Central Bank of Argentina); Emiliano Giupponi (Central Bank of Argentina) |
| Abstract: | We study the interest rate spread of the Argentine financial system during the last eighteen years. We analyze Granger causality of selected variables, and estimate econometric models that relate spread to macroeconomic and microeconomic factors. Results indicate that output growth and monetization reduce spread during the whole period, while country risk and prices are significant only by subperiods, suggesting changes in macroeconomic context. Banking system variables also have significant impacts, including: taxes, administrative expenses, non-performing loans, the use of own resources and liquidity. |
| Keywords: | Argentina, emerging economies, financial stability, financial system, interest rate spreads |
| JEL: | C22 E44 G21 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:bcr:wpaper:201564&r=all |
| By: | Ludovic Gauvin; Cyril Rebillard |
| Abstract: | China’s rapid growth over the past decade has been one of the main drivers of the rise in mineral commodity demand and prices. At a time when concerns about the sustainability of China’s growth model are rising, this paper assesses to what extent a hard landing in China would impact other countries, with a focus on trade and commodity price channels. After reviewing the main arguments pointing to a hard landing scenario – historical rebalancing precedents, overinvestment, unsustainable debt trends, and a growing real estate bubble – we focus on a sample of 36 countries, and use a global VAR methodology adapted to conditional forecasting to simulate the impact of a Chinese hard landing. We model metal and oil markets separately to account for their different end-use patterns and consumption intensity in China, and we identify three specific transmission channels to net commodity exporters: through real exports, through income effects (related to commodity prices), and through investment (a fall in commodity prices reducing incentives to invest in the mining and energy sectors); we also look at the role played by the exchange rate as a shock absorber. According to our estimates, emerging economies (ex. China) would be hardest hit – with a 7.5 percent cumulated growth loss after five years –, in particular in South-East Asia but also in commodity-exporting regions such as Latin America; advanced economies would be less affected. The "growth gap" between emerging and advanced economies would be considerably reduced, leading to partial recoupling. |
| Keywords: | China, hard landing, spillovers, global VAR, conditional forecast, commodities, recoupling. |
| JEL: | C32 F44 E32 E17 F47 Q02 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2015-21&r=all |
| By: | Albuquerque, Bruno; Baumann, Ursel; Seitz, Franz |
| Abstract: | We analyse the forecasting power of different monetary aggregates and credit variables for US GDP. Special attention is paid to the influence of the recent financial market crisis. For that purpose, in the first step we use a three-variable single-equation framework with real GDP, an interest rate spread and a monetary or credit variable, in forecasting horizons of one to eight quarters. This first stage thus serves to pre-select the variables with the highest forecasting content. In a second step, we use the selected monetary and credit variables within different VAR models, and compare their forecasting properties against a benchmark VAR model with GDP and the term spread. Our findings suggest that narrow monetary aggregates, as well as different credit variables, comprise useful predictive information for economic dynamics beyond that contained in the term spread. However, this finding only holds true in a sample that includes the most recent financial crisis. Looking forward, an open question is whether this change in the relationship between money, credit, the term spread and economic activity has been the result of a permanent structural break or whether we might go back to the previous relationships. JEL Classification: E41, E52, E58 |
| Keywords: | credit, forecasting, money |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20141803&r=all |
| By: | I. Mammi |
| Abstract: | This paper focuses on the estimation of fiscal response functions for advanced economies and on the performance of alternative specifications of the Generalized Method of Moments (GMM) estimator for the rule’s parameters. We first estimate the parameters on simulated data through Monte Carlo experiments; we then run an empirical test on data for the European Monetary Union (EMU). We estimate both the Cyclicallyadjusted primary balance (CAPB) and the Primary balance (PB) models, and check the robustness of the estimates to different specifications of the GMM estimator and to alternative settings of the parameters. We also compare alternative instrument reduction strategies in a context where several endogenous variables enter the model. We find that the system GMM estimator is the best-performing in this framework and the high instrument count comes out not to be problematic. We also make the algebraic links between the parameters in the CAPB and in the PB models explicit, suggesting an effective strategy to estimate the discretionary fiscal response from the coefficients of the PB model. In the empirical application on a dataset for EMU Countries, we find that the evidence of a-cyclicality of discretionary policies is robust to all the specifications of the GMM estimator. |
| JEL: | C15 C33 E62 H60 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1028&r=all |
| By: | Franck Portier (Toulouse School of Economics); Dana Galizia (University of British Columbia); Paul Beaudry (University of British Columbia) |
| Abstract: | Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions mainly reflect periods of needed liquidation resulting from past over-investment. According to the main proponents of this view, government spending should not be used to mitigate such a liquidation process, as doing so would simply result in a needed adjustment being postponed. In contrast, ever since the work of Keynes, many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy. In this paper we reexamine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets. We show why and how liquidations can produce periods where the economy functions particularly inefficiently, with many socially desirable trades between individuals remaining unexploited when the economy inherits too many capital goods. In this sense, our model illustrates how liquidations can cause recessions characterized by deficient aggregate demand and accordingly suggests that Keynes' and Hayek's views of recessions may be much more closely linked than previously recognized. In our framework, interventions aimed at stimulating aggregate demand face the trade-off emphasized by Hayek whereby current stimulus mainly postpones the adjustment process and therefore prolongs the recessions. However, when examining this trade-off, we find that some stimulative policies may nevertheless remain desirable even if they postpone a recovery. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:616&r=all |
| By: | Dmitriy Sergeyev (Bocconi University); Neil Mehrotra (Brown University) |
| Abstract: | The labor market recovery since the end of the Great Recession has been characterized by a marked decline in labor market turnover. In this paper, we provide evidence that the housing crisis and financial nature of the Great Recession account for this decline in job flows. We exploit MSA-level variation in job flows and housing prices to show that a decline in housing prices diminishes job creation and lagged job destruction. Moreover, we document differences across firm size and age categories, with middle-sized firms (20-99 employees) and new and young firms (firms less than 5 years of age) most sensitive to a decline in house prices. We propose a quantitative model of firm dynamics with collateral constraints, calibrating the model to match the distribution of employment by firm size and age. Financial shocks in our firm dynamics model depresses job creation and job destruction and replicates the empirical pattern of the sensitivity of job flows across firm age and size categories. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:520&r=all |
| By: | Roberto Duncan (Ohio University) |
| Abstract: | Traditionally, the literature that attempts to explain the link between the current account and output finds a linear negative relationship (e.g., Backus et al., 1995). Using nonparametric regressions, we find a robust U-shaped relationship between the U.S. current account and the GDP cycle. When output is above (below) its trend the current account and detrended output are positively (negatively) correlated. We argue that this nonlinearity might be caused by persistent productivity shocks coupled with uncertainty shocks about future productivity. |
| Keywords: | U.S. current account, uncertainty shocks, business cycles, nonparametric regression |
| JEL: | E3 F3 F4 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2015-051&r=all |
| By: | Michal Moszynski (Nicolaus Copernicus University, Poland) |
| Abstract: | The unemployment rate in Germany after reaching a peak of 12.1% in 2005 began to decline steadily, and the improvement of the situation on the labour market followed even in the face of the global economic crisis after 2007. These positive trends, especially in comparison with other EU countries, draw attention and are discussed in the literature. Reference is made to the exceptionally favourable macroeconomic configuration for the German economy: low interest rates (since autumn 2008), low oil prices and the weak euro (since mid-2014). Secondly, an active employment and the labour market policy is boasted in the face of crisis. Finally, the institutional aspects of the German labour market are emphasized: long-term effects of labour market reforms as part of the Hartz package of 2003-2005 and the specificity of the German model of industrial relations as an effective constellation of three key actors in the labour market: trade unions, employers' organizations and works councils. The objective of this study is an attempt to clarify the institutional conditions of the functioning of the labour market in Germany that are relevant to the response to the crisis. Accordingly, the buffers are examined to mitigate shocks with particular emphasis on instruments of internal flexibility, social partners behaviour and institutional connections of labour markets with other domains of economic order on the example of dual education system. |
| Keywords: | crisis, Germany, labour market institutions, employment, unemployment |
| JEL: | E24 H12 J52 A11 A14 B16 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2015:no159&r=all |
| By: | Michele Berardi (University of Manchester); Jaqueson K. Galimberti (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | Adaptive learning introduces persistence in the evolution of agents’ beliefs over time. For applied purposes this is a convenient feature to help explain why economies present sluggish adjustments towards equilibrium. The pace of learning is directly determined by the gain parameter, which regulates how quickly new information is incorporated into agents’ beliefs. We document renewed empirical calibrations of plausible gain values for adaptive learning applications to macroeconomic data. We cover a broad range of model specifications of applied interest. Our analysis also includes innovative approaches to the endogenous determination of time-varying gains in real-time, and a thorough discussion of the different theoretical interpretations of the learning gain. We also evaluate the merits of different approaches to the gain calibration according to their performance in forecasting macroeconomic variables and in matching survey forecasts. Our results indicate a great degree of heterogeneity in the gain calibrations according to the variable forecasted and the lag length of the model specifications. Calibrations to match survey forecasts are found to be lower than those derived according to the forecasting performance, suggesting some degree of bounded rationality in the speed with which agents update their beliefs. |
| Keywords: | expectations, forecasting, bounded rationality, real-time, recursive estimation |
| JEL: | D83 E37 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:15-392&r=all |
| By: | Klaus, Benjamin; Ferroni, Filippo |
| Abstract: | We study the business cycle properties of the four largest euro area economies in the wake of the recent recession episodes. The analysis is based on the factors estimated from a multi-country and multi-sector data-rich environment. We measure alikeness of business cycles by studying the synchronization of up and down phases, the convergence properties of country fluctuations towards the euro area cycles and the contribution of the euro area factor to national GDP volatilities. While the economic fluctuations of the four euro area member states were similar before the global financial turmoil, we gather compelling evidence of an asymmetric behaviour of Spanish fluctuations relative to the euro area one. JEL Classification: C51, E32, O52 |
| Keywords: | Hierarchical factor models, International business cycles, Synchronization and Convergence ECB |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20151819&r=all |
| By: | Robert Ambrisko |
| Abstract: | The Balassa-Samuelson (B-S) effect implies that highly productive countries have higher inflation and appreciating real exchange rates because of larger productivity growth differentials between tradable and nontradable sectors relative to advanced economies. The B-S effect might pose a threat to converging European countries, which would like to adopt the Euro because of the limits imposed on inflation and nominal exchange rate movements by the Maastricht criteria. The main goal of this paper is to judge whether the B-S effect is a relevant issue for the Czech Republic to comply with selected Maastricht criteria before adopting the Euro. For this purpose, a two-sector DSGE model of a small open economy is built and estimated using Bayesian techniques. The simulations from the model suggest that the B-S effect is not an issue for the Czech Republic when meeting the inflation and nominal exchange rate criteria. The costs of early adoption of the Euro are not large in terms of additional inflation pressures, which materialize mainly after the adoption of the single currency. Also, nominal exchange rate appreciation, driven by the B-S effect, does not breach the limit imposed by the ERM II mechanism. |
| Keywords: | Balassa-Samuelson effect; DSGE; European Monetary Union; exchange rate regimes; Maastricht convergence criteria; |
| JEL: | E31 E52 F41 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp547&r=all |
| By: | Dirk Krueger; Alexander Ludwig |
| Abstract: | In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium. |
| JEL: | E62 H21 H24 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21538&r=all |
| By: | Engler, Philipp; Grosse Steffen, Christoph |
| Abstract: | This paper studies the bank-sovereign link in a dynamic stochastic general equilibrium set-up with strategic default on public debt. Heterogeneous banks give rise to an interbank market where government bonds are used as collateral. A default penalty arises from a breakdown of interbank intermediation that induces a credit crunch. Government borrowing under limited commitment is costly ex ante as bank funding conditions tighten when the quality of collateral drops. This lowers the penalty from an interbank freeze and feeds back into default risk. The arising amplification mechanism propagates aggregate shocks to the macro-economy. The model is calibrated using Spanish data and is capable of reproducing key business cycle statistics alongside stylized facts during the European sovereign debt crisis. JEL Classification: E43, E44, F34, H63 |
| Keywords: | Bank-sovereign link, Domestic debt, Interbank market, Non-Ricardian effects, Occasionally binding constraint, Secondary markets, Sovereign default |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20151840&r=all |
| By: | Manabu Shimasawa (Senior Researcher National Institute for Research Advancement); Kazumasa Oguro (Associate Professor Faculty of Economics, Hosei University); Minoru Masujima (Director for Macroeconomic Analysis Cabinet Office, Government of Japan) |
| Abstract: | We employed the Generational Accounting model in estimating the generation-specific lifetime (both past and the future) benefits/burdens and income and evaluating their values as of 2010, thus estimating the lifetime net burden ratio (= lifetime net burden/lifetime income). As a result, the following points were elucidated: 1) Among the current living generations, the lifetime net burden ratio of the 0-year-old generation is about 25 percentage points higher than that of the current 90-year-old generation; 2) The lifetime net burden ratio of the future generations is about 31 percentage points higher than that of the 0-year-old generation; 3) The net burden of the current generations would have to be increased in order to narrow the generational gap between the current generations and the future generations, which would inevitably lead to an expansion of the intragenerational gap of the current generations; and 4) In order to prevent conflict of interest between the current generations, in particular the younger generations and future generations, and at the same time, narrow the intergenerational gap, it is desirable to increase the income of the current generations, in particular that of the younger generations, by achieving a high economic growth rate and implementing macroeconomic policy management that would inhibit increase in the risk premium included in the interest rate. |
| Keywords: | Generational Accounting, falling birthrates and aging population, fiscal sustainability, government debt |
| JEL: | H61 E62 B41 |
| URL: | http://d.repec.org/n?u=RePEc:mof:wpaper:ron258&r=all |
| By: | Pierre Boudes (LIPN - Laboratoire d'Informatique de Paris-Nord - CNRS - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - Institut Galilée); Antoine Kaszczyc (LIPN - Laboratoire d'Informatique de Paris-Nord - CNRS - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - Institut Galilée); Luc Pellissier (LIPN - Laboratoire d'Informatique de Paris-Nord - CNRS - Université Paris 13 - Université Sorbonne Paris Cité (USPC) - Institut Galilée) |
| Abstract: | An agent-based simulation of a monetary economy as a whole should be stock-flow consistent [7]. We aim at providing a compile-time verification of the preservation of this invariant by the computation. We guarantee this invariant by wrapping the accounting operations in a monad. Our objective is to increase the confidence in the SFCness of an existing complex simulation with a minimal refactoring of code. |
| Keywords: | Stock-Flow Consistency,Agent-based simulation,Functional Programming,Monads,Static Typing,Strong Type Discipline |
| Date: | 2015–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01181278&r=all |
| By: | Ledenyov, Dimitri O.; Ledenyov, Viktor O. |
| Abstract: | In this research article: 1) the new quantum macroeconomics and microeconomics theories in the quantum econophysics science are formulated, 2) the notion on the wave function in the quantum macroeconomics and microeconomics theories in the quantum econophysics science is introduced, and 3) the quantum econophysical wave equations in the quantum macroeconomics and microeconomics theories in the quantum econophysics science are derived for the first time. Authors show that there is a certain conceptual scientific analogy between 1) the wave functions in the quantum econophysical wave equations in the quantum macroeconomics and microeconomics theories in the quantum econophysics science as well as 2) the wave function in the Schrödinger quantum mechanical wave equation in the quantum mechanics science. The wave function theories are created to make: 1) the economy’s state prediction at the certain time moment, using the wave function in the quantum econophysical wave equation in the quantum macroeconomic theory in the quantum econophysics science; and 2) the firm’s state prediction at the certain time moment, using the wave function in the quantum econophysical wave equation in the quantum microeconomic theory in the quantum econophysics science. Authors use the quantum econophysical wave equations in the quantum econophysics science to develop a new software program for the application by the central / commercial / investment banks with the purpose the make the accurate characterization and forecasting of: 1) the national/global economic performance changes, including the GIP((t), GDP(t), GNP(t) dependences changes, in agreement with the quantum macroeconomics theory in the quantum econophysics science, and 2) the firm’s economic performance changes, including the EBITDA(t) dependence changes in agreement with the quantum microeconomics theory in the quantum econophysics science. |
| Keywords: | economy’s performance state prediction problem at certain time moment, firm’s performance state prediction problem at the certain time moment, wave functions in quantum econophysical wave equations in quantum macroeconomics/microeconomics theories in quantum econophysics science, wave function in Schrödinger quantum mechanical wave equation in quantum mechanics science, econophysics, econometrics, nonlinear dynamic economic system, economy of scale and scope, macroeconomics, microeconomics. |
| JEL: | C0 C02 C4 C60 D0 D01 D8 D80 E0 N1 O3 |
| Date: | 2015–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66577&r=all |
| By: | Markus Hertrich; Heinz Zimmermann (University of Basel) |
| Abstract: | <span lang="EN-US">The sheer existence of EUR/CHF put options with strike prices below the EUR/CHF 1.20 floor, trading at non-zero cost, challenged the full credibility of the Swiss National Bank (SNB) in enforcing the lower barrier implemented in September 6, 2011 and abandoned on January 15, 2015. We estimate the risk-neutral break probabilities of a realignment of the floor from market prices of put options, using an extension of the Veestraeten option pricing model which assumes that the underlying security price exhibits a lower barrier. We estimate probabilities considerably different from zero, even when the exchange rate traded far above the EUR/CHF 1.20 floor. We observe a drastic increase in the break-probabilities after August 2014, reaching a level of nearly 50%. The credibility of the SNB in maintaining the floor, as seen from the option market, was thus substantially lower than publicly claimed.</span> |
| Keywords: | currency options, central banking, credibility, Euro/Swiss franc floor, Vanna-Volga method, barrier |
| JEL: | E42 E58 F31 G13 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2015/09&r=all |
| By: | Canova, Fabio; Ferroni, Filippo; Matthes, Christian |
| Abstract: | The paper studies how parameter variation affects the decision rules of a DSGE model and structural inference. We provide diagnostics to detect parameter variations and to ascertain whether they are exogenous or endogenous. Identification and inferential distortions when a constant parameter model is incorrectly assumed are examined. Likelihood and VAR-based estimates of the structural dynamics when parameter variations are neglected are compared. Time variations in the financial frictions of a Gertler and Karadi's (2010) model are studied. |
| Keywords: | endogenous variations; misspecification; Structural model; time varying coefficients |
| JEL: | C10 E27 E32 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10803&r=all |
| By: | Barry Eichengreen; Donghyun Park; Kwanho Shin |
| Abstract: | Productivity growth is slowing around the world. In 2014, according to the Conference Board’s Total Economy Data Base, the growth of total factor productivity (TFP) hovered around zero for the third straight year, down from 1 per cent in 1996-2006 and ½ per cent in 2007-12. In this paper we identify previous episodes of sharp and sustained decelerations in TFP growth using data for a large sample of countries and years. TFP slumps are ubiquitous: we find as many as 77 such episodes, depending on definition, in low-, middle- and high-income countries. Low levels of educational attainment, unusually high investment rates and weak political systems are among the significant country-specific correlates of TFP slumps, while increases in risk (higher TED spreads) and energy-price shocks are among the significant global factors. |
| JEL: | E0 E1 O3 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21556&r=all |
| By: | Chadwick C. Curtis; Steven Lugauer; Nelson C. Mark |
| Abstract: | We present a model of household life-cycle saving decisions in order to quantify the impact of demographic changes on aggregate household saving rates in Japan, China, and India. The observed age distributions help explain the contrasting saving patterns over time across the three countries. In the model simulations, the growing number of retirees suppresses Japanese saving rates, while decreasing family size increases saving for both China and India. Projecting forward, the model predicts lower household saving rates in Japan and China. |
| JEL: | E2 J1 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21555&r=all |
| By: | Velauthapillai, Jeyakrishna |
| Abstract: | Obwohl die Idee der makroökonomischen Perspektive der Regulierung des Banken- und Finanzmarktes bereits in den 1970er und 1980er Jahren entstand, hat dieser Ansatz erst durch die Immobilien- und Finanzkrise dieses Jahrhunderts große Bedeutung erlangt. Aufgrund mangelnder Erfahrungen der Industrieländer mit dieser Art der Regulierung gibt es in den letzten Jahren große Bestrebungen sowohl auf nationaler als auch auf internationaler Ebene einen geeigneten Politikrahmen zu entwickeln und die Operationalisierung dieser Politik voranzutreiben. Dieser Aufsatz gibt einen Überblick über die Literatur, die sich mit der makroprudenziellen Regulierung auseinandersetzt und liefert eine Einführung in die wichtigsten relevanten Aspekte dieser Politik. |
| Keywords: | makroprudenzielle Regulierung,Finanzstabilität,Banken- und Finanzmarkt,regulatorische Politik |
| JEL: | G21 G28 E52 E58 E44 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:116781&r=all |
| By: | Matthew S. Jaremski; David C. Wheelock |
| Abstract: | Established by a three person Reserve Bank Organization Committee (RBOC) in 1914, the structure of the Federal Reserve System has remained essentially unchanged ever since, despite criticism at the time and over ensuing decades. This paper examines the selection of cities for Reserve Banks and branches, and of district boundaries. We show that each aspect of the Fed’s structure reflected the preferences of national banks, including adjustments to district boundaries after the Fed was established. Further, using newly-collected information on the locations of each national bank’s correspondents, we find that banker preferences mirrored established interbank connections. The Federal Reserve was thus formed on top of the structure that it was meant to replace. |
| JEL: | E58 N21 N22 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21553&r=all |
| By: | Jean-Christophe Poutineau (CREM - Centre de Recherche en Economie et Management - CNRS - Université de Caen Basse-Normandie - UR1 - Université de Rennes 1); Karolina Sobczak (Poznan University of Economics, CREM - Centre de Recherche en Economie et Management - CNRS - Université de Caen Basse-Normandie - UR1 - Université de Rennes 1); Gauthier Vermandel (CREM - Centre de Recherche en Economie et Management - CNRS - Université de Caen Basse-Normandie - UR1 - Université de Rennes 1) |
| Abstract: | This paper aims at providing a self-contained presentation of the ideas and solution procedure of New Keynesian Macroeconomics models. Using the benchmark " 3 equation model " , we introduce the reader to an intuitive, static version of the model before incorporating more technical aspects associated with the dynamic nature of the model. We then discuss the relative contribution of supply, demand and policy shocks to the fluctuations of activity, inflation and interest rates, depending on the key underlying parameters of the economy. |
| Keywords: | Taylor rule,output gap,New Keynesian Phillips Curve,New Keynesian Macroeconomics,Dynamic IS curve,impulse response analysis |
| Date: | 2015–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01194642&r=all |
| By: | Bouoiyour, Jamal; Selmi, Refk |
| Abstract: | The present research seeks to address whether internet search drives oil market. For this purpose, we perform two analyses to empirically gauge the relevance of Google search Index as a measure of investors’ attention. Firstly, we test if extracting public moods oriented to crude oil using web contents, can help to predict crude oil. Secondly, we analyze the informational content of three oil events (OPEC cuts, 2008 global financial crisis and Libya war) in terms of their effects on the behavior of the crude oil. To achieve this goal, we intend to decompose the causality between attention and oil price into different time scales and frequencies using frequency domain causality test and nonlinear causality test-based wavelet. To ascertain the robustness of our results, we replicate the same testing procedure using another attention proxy which is the number of tweets. The paper decisively confirms that there is a short-run relationship between attention and crude oil. In addition, we show that world crude oil responding to oil events display sharp differentiation. If OPEC cuts had short- and medium-run causality and Libya war exhibits a short-term causality, the attention to global financial collapse had a longer time interval and a wider scale of influence. The first finding implies that internet search is a very practical way to compute investors’ attention that can help in predicting short-run fluctuations in the oil market. For the second outcome, different shock origins and distinct properties of oil events may be advanced as possible element of explanation that may exhibit different effects on crude oil. |
| Keywords: | Crude oil; oil events; investors’ attention; Google Trends; Twitter; time-frequency approaches. |
| JEL: | E3 E31 Q43 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66214&r=all |
| By: | Mirko Abbritti (​University of Navarra); Salvatore Dell'Erba (International Monetary Fund); ​Antonio Moreno (University of Navarra); Sergio Sola (International Monetary Fund) |
| Abstract: | This paper introduces global factors within a FAVAR framework in an empirical affine term structure model. We apply our method to a panel of international yield curves and show that global factors account for more than 80 percent of term premia in advanced economies. In particular they tend to explain long-term dynamics in yield curves, as opposed to domestic factors which are instead more relevant to short-run movements. We uncover the key role for global curvature in shaping term premia dynamics. We show that this novel factor precedes global economic and financial instability. In particular, it coincides with immediate expectations of permanent expansionary monetary policy during the recent crisis |
| Date: | 2014–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:una:unccee:wp0114&r=all |
| By: | Razmi, Arslan (University of Massachusetts at Amherst); |
| Abstract: | Growth in low-income developing economies with large sectors characterized by underemployment is unlikely to be wage-led in the traditional neo-Kaleckian sense of the term. Output and employment in the sectors of the economy producing non-tradable output could be demand-led, however, and policies directly aimed at more equitable distribution in these sectors could boost long-run growth. Some of the fast growing Asian economies may have been examples of wage-led growth in this rather different sense of the term. Over time, re-distributive measures in the traditional sector, such as land reforms, could lead to faster wage and output growth across the economy. |
| Keywords: | Demand regime, income distribution, wage-led growth, stagnationism, exhilarationism, neo-Kaleckian models, dependent economy models. |
| JEL: | F43 O41 O11 E12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2015-16&r=all |
| By: | Martinez, Pablo |
| Abstract: | The massive expenditures on foreign aid programs by developed nations and international institutions, in combination with the perceived lack of results from these disbursements, raise important questions as to the actual effectiveness of monetary assistance to less developed countries (LDCs). In this analysis, I focus on 104 low- and medium-development countries, and measure the impact that foreign aid has on their growth rates of gross domestic product, using dummy variables for geography and conflict in a geometric lag model. The results indicate that foreign aid donations do have a positive impact on the economic growth of the recipient nation. The effect is extremely modest, however, and other factors such as armed conflict and geography can easily mitigate this impact, in some cases to the extent that foreign aid becomes detrimental to economic growth. Further analysis of the results indicate that this impact is quickly felt, with half of the total impact of foreign aid felt in approximately six months |
| Keywords: | foreign aid, growth, developing countries |
| JEL: | E02 F35 |
| Date: | 2015–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:66588&r=all |
| By: | Guvenen, Fatih (University of Minnesota); Kuruscu, Burhanettin (University of Toronto); Tanaka, Satoshi (University of Queensland); Wiczer, David (Federal Reserve Bank of St. Louis) |
| Abstract: | What determines the earnings of a worker relative to his peers in the same occupation? What makes a worker fail in one occupation but succeed in another? More broadly, what are the factors that determine the productivity of a worker-occupation match? In this paper, we propose an empirical measure of skill mismatch for a worker-occupation match, which sheds light on these questions. This measure is based on the discrepancy between the portfolio of skills required by an occupation and the portfolio of abilities possessed by a worker for learning those skills. This measure arises naturally in a dynamic model of occupational choice and human capital accumulation with multidimensional skills and Bayesian learning about one’s ability to learn these skills. In this model, mismatch is central to the career outcomes of workers: it reduces the returns to occupational tenure, and it predicts occupational switching behavior. We construct our empirical analog by combining data from the National Longitudinal Survey of Youth 1979 (NLSY79), the Armed Services Vocational Aptitude Battery (ASVAB) on workers, and the O*NET on occupations. Our empirical results show that the effects of mismatch on wages are large and persistent: mismatch in occupations held early in life has a strong negative effect on wages in future occupations. Skill mismatch also significantly increases the probability of an occupational switch and predicts its direction in the skill space. These results provide fresh evidence on the importance of skill mismatch for the job search process. |
| Keywords: | Skill mismatch; match quality; Mincer regression; ASVAB; O*NET; occupational switching |
| JEL: | E24 J24 J31 |
| Date: | 2015–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2015-022&r=all |
| By: | Guvenen, Fatih (Federal Reserve Bank of Minneapolis); Kuruscu, Burhanettin (University of Toronto); Tanaka, Satoshi (University of Queensland); Wiczer, David (Federal Reserve Bank of St. Louis) |
| Abstract: | What determines the earnings of a worker relative to his peers in the same occupation? What makes a worker fail in one occupation but succeed in another? More broadly, what are the factors that determine the productivity of a worker-occupation match? In this paper, we propose an empirical measure of skill mismatch for a worker-occupation match, which sheds light on these questions. This measure is based on the discrepancy between the portfolio of skills required by an occupation and the portfolio of abilities possessed by a worker for learning those skills. This measure arises naturally in a dynamic model of occupational choice and human capital accumulation with multidimensional skills and Bayesian learning about one’s ability to learn these skills. In this model, mismatch is central to the career outcomes of workers: it reduces the returns to occupational tenure, and it predicts occupational switching behavior. We construct our empirical analog by combining data from the National Longitudinal Survey of Youth 1979 (NLSY79), the Armed Services Vocational Aptitude Battery (ASVAB) on workers, and the O*NET on occupations. Our empirical results show that the effects of mismatch on wages are large and persistent: mismatch in occupations held early in life has a strong negative effect on wages in future occupations. Skill mismatch also significantly increases the probability of an occupational switch and predicts its direction in the skill space. These results provide fresh evidence on the importance of skill mismatch for the job search process. |
| Keywords: | Skill mismatch; Match quality; Mincer regression; ASVAB; O*NET; Occupational switching |
| JEL: | E24 J24 J31 |
| Date: | 2015–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:729&r=all |
| By: | Ferrando, Annalisa; Popov, Alexander; Udell, Gregory F. |
| Abstract: | We investigate the effect of sovereign stress and of unconventional monetary policy on small firms’ financing patterns during the euro area debt crisis. We find that after the crisis started, firms in stressed countries were more likely to be credit rationed, both in the quantity and in the price dimension, and to increase their use of debt securities. We also find evidence that the announcement of the ECB’s Outright Monetary Transactions Program was followed by an immediate decline in the share of credit rationed firms and of firms discouraged from applying. In addition, firms reduced their use of debt securities, trade credit, and government-subsidized loans. Firms with improved outlook and credit history were particularly likely to benefit from easier credit access. JEL Classification: D22, E58, G21, H63 |
| Keywords: | Credit Access, SMEs, Sovereign debt, unconventional monetary policy |
| Date: | 2015–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20151820&r=all |
| By: | Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This study presents an overlapping-generation model featuring probabilistic vot- ing over two policy issues: pensions and public goods. The results show that as the population ages, the pension-to-GDP ratio and the growth rate of capital increase, but the public goods-to-GDP ratio decreases. Moreover, per retiree pension-to- GDP shows a hump-shaped pattern in response to population aging, but only a rising phase is valid under empirically plausible parameter values. |
| Keywords: | Economic Growth; Population Aging; Probabilistic Voting; Public Pension; Public Goods Provision |
| JEL: | D70 E24 H55 |
| Date: | 2014–04 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1417r&r=all |
| By: | Bart Hobijn (Federal Reserve Bank of San Francisco); Fernanda Nechio (Federal Reserve Bank of San Francisco) |
| Abstract: | We take a quasi-experimental approach to estimate the value for the across-sector elasticity of substitution. To that end, we use the effects of changes in value added tax (VAT) rates on long-run movements in relative prices to identify the magnitude of the elasticity of substitution across expenditure categories. Using a standard model of imperfect competition with Cobb-Douglas production and Dixit-Stiglitz preferences both within and across sectors, we show that the long-run response of relative prices to changes in VAT is a simple function of the labor share and the elasticity of substitution across sectors. We construct a novel data set of VAT rate changes by expenditure categories in the European Union matched to their respective inflation rates. Estimates of the effect of VAT rate change on inflation in the long-run suggest that the magnitude of the elasticity of substitution across expenditure categories nears 3. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:697&r=all |
| By: | Andersson, Matts (KTH); Dehlin, Fredrik (PwC Norway); Jörgensen, Peter (WSP); Pädam, Sirje (WSP) |
| Abstract: | This paper starts out with by discussing the definitions of Wider Economic Impacts/Benefits and regional development. Each area where WEIs could be present is then treated: economic growth (production and cost function studies), labour market (agglomeration, labour supply), commodity market and housing market. A theoretical background is given, the empirics are summarized and the relation to CBA is discussed. |
| Keywords: | Wider economic impacts; Wider economic benefits; Regional development; Cost-benefit analysis; Agglomeration; Labour supply; Labour market; Housing market; Commodity market |
| JEL: | D61 E24 H40 R40 |
| Date: | 2015–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ctswps:2015_014&r=all |
| By: | George J. Bratsiotis; Jakob Madsen; Christopher Martin |
| Abstract: | This paper argues that the adoption of an inflation target reduces the persistence of inflation. We develop the theoretical literature on inflation persistence by introducing a Taylor Rule for monetary policy into a model of persistence and showing that inflation targets reduce inflation persistence. We investigate changes in the time series properties of inflation in seven countries that introduced inflation targets in the late 1980s or early 1990s. We find that the persistence of inflation is greatly reduced or eliminated following the introduction of inflation targets. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:211&r=all |
| By: | Pantelis Kammas (Department of Economics, University of Ioannina); Vassilis Sarantides (Department of Economics, University of Sheffield) |
| Abstract: | This paper examines whether policy intervention around elections affects income inequality and actual fiscal redistribution. We first develop a simplified theoretical framework which allows us to examine fiscal redistribution around elections when democracy is not “the only game in town” and there is a threat of revolution from some groups of agents. Subsequently, employing data for a panel of 65 developed and developing countries during the period of 1975-2010, we provide robust empirical evidence of electoral cycles on income inequality and actual fiscal redistribution in countries characterized as new democracies. Moreover, our analysis suggests that this effect is mainly driven by a political instability channel which induces incumbents to redistribute resources - through fiscal policy - towards the poorer segments of the society in order to convince them that “democracy works”. In contrast, inequality and actual fiscal redistribution are not affected by elections in countries characterized as established democracies. |
| Keywords: | elections, new democracy, redistribution, income inequality |
| JEL: | D63 D72 E62 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2015019&r=all |
| By: | Basile Grassi (University of Oxford); Vasco Carvalho (University of Cambridge and CREi) |
| Abstract: | Building on the standard firm dynamics setup of Hopenhayn (1992), we develop a quantitative theory of aggregate fluctuations arising from idiosyncratic shocks to firm level productivity. This allows us to generalize the theoretical results in Gabaix (2011) to account for persistent micro-level shocks, optimal size decisions as well as endogenous firm entry and exit. We then use our model to provide a quantitative evaluation of Gabaix's "granular hypothesis" and find that it yields aggregate fluctuations of the same order of magnitude as a standard representative-firm real business cycle model. A calibration of our model to the US economy with a large number of firms leads to sizable aggregate fluctuations: the standard deviation of aggregate TFP (respectively output) is 0.8% (respectively 1.7%). We use this calibration to explore firms' comovement over the business cycle. The model predicts that the differential growth between large and small firms is pro-cyclical as it is in the data. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:617&r=all |
| By: | Soren Radde (European Central Bank); Wei Cui (University College London) |
| Abstract: | We endogenize asset liquidity in a dynamic general equilibrium model with search frictions on asset markets. In the model, asset liquidity is tantamount to the ease of issuance and resaleability of private financial claims, which is driven by investors' participation on the search market. Limited funding ability of private claims creates a role for liquid assets, such as government bonds or fiat money, to ease funding constraints. We show that liquidity and asset prices can positively co-move. When the capacity of the asset market to channel funds to entrepreneurs deteriorates, investment drops while the hedging value of liquid assets increases. Our model is thus able to match the liquidity hoarding observed during recessions, together with the dynamics of key macro variables. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:546&r=all |
| By: | Calza, Alessandro; Zaghini, Andrea |
| Abstract: | We estimate the shoe-leather costs of inflation in the euro area using monetary data adjusted for holdings of euro banknotes abroad. While we find evidence of marginally negative shoe-leather costs for very low levels of the nominal interest rate, our estimates suggest that the shoe-leather costs are non-negligible even for relatively moderate levels of anticipated inflation. We conclude that, despite the increased circulation of euro banknotes abroad, in the euro area the inflation tax is still predominantly borne by domestic agents, with transfers of resources from abroad remaining small. JEL Classification: E41, C22 |
| Keywords: | currency abroad, euro, money demand, welfare cost of inflation |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20151824&r=all |
| By: | Adam Posen (Peterson Institute for International Economics); Nicolas Veron (Peterson Institute for International Economics) |
| Abstract: | Given no generally accepted framework for financial stability, policymakers in developing Asia need to manage, not avoid, financial deepening. This paper supports Asian policymakers’ judgment through analysis of the recent events in the United States and Europe and of earlier crisis episodes, including Asia during the 1990s. There is no simple linear relationship between financial repression and stability—financial repression not only has costs but, so doing can itself undermine stability. Bank-centric financial systems are not inherently safer than systems that include meaningful roles for securities and capital markets. Domestic financial systems should be steadily diversified in terms of both number of domestic competitors and types of savings and lending instruments available (and thus probably types of institutions). Financial repression should be focused on regulating the activities of financial intermediaries, not on compressing interest rates for domestic savers. Cross-border lending should primarily involve creation of multinational banks’ subsidiaries in the local economy—and local currency lending and bond issuance should be encouraged. Macroprudential tools can be useful, and, if anything, are more effective in less open or less financially deep economies than in more advanced financial centers. |
| Keywords: | Financial stability, fi nancial development, nonbank institutions, macroprudential policy, capital flows |
| JEL: | E44 G28 O16 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp15-13&r=all |
| By: | Andrew B. Abel |
| Abstract: | The crowding-out coefficient is the ratio of the reduction in privately-issued bonds to the increase in government bonds that are issued to finance a tax cut. If (1) Ricardian equivalence holds, and (2) households do not simultaneously borrow risklessly and have positive gross positions in other riskless assets, the crowding-out coefficient equals the fraction of the aggregate tax cut that accrues to households that borrow. In the conventional case in which all households receive equal tax cuts, the crowding-out coefficient equals the fraction of households that borrow. In the United States, about 75% of households borrow, so the crowding-out coefficient is predicted to be 0.75, which differs from econometric estimates that are around 0.5. I explore extensions of the model, such as a departure from Ricardian Equivalence or the introduction of cross-sectional variation in taxes, that might account for this difference. |
| JEL: | E62 G11 H6 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21550&r=all |
| By: | Basu, Deepankar (Department of Economics, University of Massachusetts, Amherst); Das, Debarshi (Department of Humanities and Social Sciences, Indian Institute of technology, Guwahati) |
| Abstract: | Using a state-industry panel data set at the 3 digit national industrial classification (NIC) level of disaggregation for 19 major Indian states over the period 1983-84 to 2007-08, we analyze the contemporaneous and long run impacts of the rate of profit and its components - profit share, capacity utilization rate, and capacity-capital ration - on investment. Our results show that: (a) the rate of profit has both short and long run positive impacts on investment; (b) the profit share and capacity-capital ration have only long run positive impacts, and the capacity utilization rate has only a contemporaneous positive impact on investment. |
| Keywords: | profitability, investment, manufacturing, India |
| JEL: | B51 E12 E22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2015-14&r=all |
| By: | Randall Jackson (Regional Research Institute, West Virginia University); Juan Tomas Sayago-Gomez (Regional Research Institute, West Virginia University) |
| Abstract: | This document provides an overview of the theoretical foundations and general assumptions of the WVU Econometric Input-Output (ECIO) model. WVU Econometric Input-Output (ECIO) model (hereafter, ECIO model) is a time-series enabled hybrid econometric input-output (IO) model that combines the capabilities of econometric modeling with the strengths of IO modeling. It is designed to facilitate the estimation of economic (specifically, employment and income) impacts of energy technology development, deployment, and operation over a specified forecast period. |
| Keywords: | input-output model, econometric model, forecasting models |
| JEL: | R15 C32 E27 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:rri:wpaper:2015rd02&r=all |
| By: | Kaoru Hosono (Professor Faculty of Economics, Gakushuin University); Shogo Isobe (Researcher, Policy Research Institute) |
| Abstract: | This paper investigates the impact of the unconventional policies implemented by the Federal Reserve, the Bank of England, the European Central Bank, and the Bank of Japan on the returns on a broad class of assets in a comprehensive and consistent manner. Controlling for market expectations, we find that for most economies and periods, policies had the effect of lowering long-term government bond yields and the exchange rate of the home currency; for some economies and periods we also find an impact on corporate bond spreads, interbank loan spreads, and stock prices. We further find that policy announcements that were accompanied by forward guidance tended to have a more significant and greater impact on a broad range of assets than policy announcements without forward guidance. |
| Keywords: | Unconventional monetary policies; Event study; Announcement |
| JEL: | E58 G12 F31 |
| URL: | http://d.repec.org/n?u=RePEc:mof:wpaper:ron259&r=all |
| By: | Ryoji Hiraguchi; Keiichiro Kobayashi |
| Abstract: | We investigate a monetary model `a la Lagos and Wright (2005), in which there are two kinds of decentralized markets, and each agent stochastically chooses which one to participate in by expending effort. In one market, the pricing mechanism is competitive, whereas in the other market, the terms of trade are determined by Nash bargaining. It is shown that the optimal monetary policy may deviate from the Friedman rule. As the nominal interest rate deviates from zero, buyers expend more effort because a higher interest rate increases the gain for buyers from entering the competitive market, while the marginal increase in social welfare by entering the competitive market is also positive. |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:15-002e&r=all |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Charl Jooste (Department of Economics, University of Pretoria); Omid Ranjbar (Ministry of Industry, Mine and Trade, Tehran, Iran) |
| Abstract: | We study inflation persistence in South Africa using a quantile regression approach. We control for structural breaks using a quantile structural break test on a long span of inflation data. Our study includes persistence estimates for headline and core inflation - thus controlling for possible biases emanating from extremely volatile periods. South Africa's inflation persistence is lowest during the inflation targeting period regardless of the inflation measure. Inflation persistence is also constant over all quantiles during the inflation targeting regime for core inflation. There is a difference between the estimates from headline and core - headline persistence increases in relation to higher quantiles. Thus energy and food price shocks might de-stabilise inflation altogether. |
| Keywords: | Inflation persistence, quantile regression, structural breaks |
| JEL: | C21 E31 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201563&r=all |
| By: | Bindseil, Ulrich; Domnick, Clemens; Zeuner, Jörg |
| Abstract: | In parts of the German media, with the support of a number of German economists, the ECB’s low nominal interest rate policy is criticised as unnecessary, ineffective and as expropriating the German saver. This paper provides a review of the relevant arguments. It is recalled that returns on savings are anchored to the real rate of return on capital. Good monetary policy tries to avoid being a source of disturbance in itself, and may be able to smooth the effects of temporary external shocks, but beyond that cannot structurally improve the real rate of return on capital. Against this general background, the paper critically analyses a number of recent arguments as to why low interest rate policies could actually be counterproductive. Finally, the paper reviews what can be done about the medium to long-term real rate of return on capital, which remains in any case the basic issue for the saver, focusing on the specific case of Germany. The key policies identified relate to demographics, education, labour markets, infrastructure and technology. Low growth dynamics in the coming decades and correspondingly low real rates of return on investments are not inevitable. JEL Classification: D81 |
| Keywords: | growth, natural rate, real interest rate, zero lower bound |
| Date: | 2015–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2010161&r=all |
| By: | Margherita Bottero; Simone Lenzu; Filippo Mezzanotti |
| Abstract: | We examine the transmission of a bank balance sheet shock to corporate credit, and its effects on investments and employment. Using a novel matched firm-bank panel data set in Italy, we show that the exogenous shock to sovereign securities held by financial intermediaries, which was triggered by the Greek sovereign bailout (2010), was passed on to firms through a contraction of credit supply. The supply shock was similar in size for both large and small firms. However, it led to a reduction in investment and employment only for the smaller firms, and firms which heavily rely on external finance. Moreover, we show that the real effects of the credit shock were exacerbated by the geographical segmentation of credit markets. Our evidence is consistent with the hypothesis that small firms are more sensitive to bank shocks, as they face higher credit frictions and they can only access a local market for bank credit. Investigating the heterogeneity of the bank lending channel across financial intermediaries, we find a sharper tightening of credit supply among the more leveraged banks, particularly among those with a binding regulatory capital constraint. We conclude that the interaction of bank's and firms' balance sheet is crucial for understanding the transmission of credit supply shocks to the real economy. |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:220976&r=all |
| By: | Kocherlakota, Narayana R. (Federal Reserve Bank of Minneapolis) |
| Date: | 2015–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsp:0137&r=all |
| By: | Sebnem Kalemli-Ozcan; Bent Sorensen; Carolina Villegas-Sanchez; Vadym Volosovych; Sevcan Yesiltas |
| Abstract: | Firm-level data on productivity, financial activity and firms' international linkages have become essential for research in the fields of macro, international finance and growth. This paper describes the development of a firm-level global panel dataset for public and private companies based on the administrative micro-dataset ORBIS, provided commercially by Bureau van Dijk Electronic Publishing (BvD). The ORBIS database provides data on firms' financial and productive activities from balance sheets and income statements together with detailed information on firms' domestic and international ownership structure for over 130 million companies across the world. Researchers need to overcome several challenges before making the database usable for research. First, the database is not designed for large downloads that is essential for an econometric analysis. Second, there are several inherent biases in the database that affect the download process and lead to missing information. Third, the raw data may contain a number of irregularities which, if not dealt with, will result in data loss during a standard cleaning procedure. In combination, these issues cause minimal coverage of small firms, extensive missing data, and poor national representation. We give detailed instructions on the data gathering process from ORBIS in terms of downloading methodology and cleaning procedure so that a researcher can construct a database that is nationally representative with minimal missing information. We provide examples from several European countries to present the process and discuss the resulting dataset in detail. |
| JEL: | E0 F0 O0 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21558&r=all |
| By: | Derviz, Alexis; Mendicino, Caterina; Moyen, Stéphane; Nikolov, Kalin; Stracca, Livio; Clerk, Laurent; Suarez, Javier; Vardoulakis, Alexandros P. |
| Abstract: | We develop a dynamic general equilibrium model for the positive and normative analysis of macroprudential policies. Optimizing financial intermediaries allocate their scarce net worth together with funds raised from saving households across two lending activities, mortgage and corporate lending. For all borrowers (households, firms, and banks) external financing takes the form of debt which is subject to default risk. This “3D model” shows the interplay between three interconnected net worth channels that cause financial amplification and the distortions due to deposit insurance. We apply it to the analysis of capital regulation. JEL Classification: E3, E44, G01, G21 |
| Keywords: | Default risk, Financial frictions, Macroprudential policy |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20151827&r=all |
| By: | Alessandro Dovis (Pennsylvania State University); Luigi Bocola (Northwestern University and FRB of Minneapolis) |
| Abstract: | How important was non-fundamental risk in driving interest rate spreads during the euro-area sovereign debt crisis? To answer this question, we consider a quantitative model of sovereign borrowing with three key ingredients: multiple debt maturities, risk averse lenders and coordination failures a la Cole and Kehoe (2000). In this environment, lenders' expectations of a default can be self-fulfilling, and market sentiments contribute to variation in interest rate spreads along with economic fundamentals. We show that the joint distribution of interest rate spreads and debt duration provides information to distinguish between these two sources of default risk. We make use of this result by calibrating the model to match the empirical distribution of Italian sovereign spreads and debt duration. The process for the lenders' stochastic discount factor, a key input in our analysis, is disciplined using moments from the yield curve on safe assets and the euro-area stock price-consumption ratio. Our preliminary results indicate that the rise in Italian interest rate spreads over the 2011-2012 period was mostly the result of bad economic fundamentals and high risk premia, with a limited role played by non-fundamental uncertainty. We show how this information can be used to understand the implications of the OMT program announced by the ECB. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:694&r=all |
| By: | Beck, Günter W.; Kotz, Hans-Helmut; Zabelina, Natalia |
| Abstract: | The global financial crisis (as well as the European sovereign debt crisis) has led to a substantial redesign of rules and institutions - aiming in particular at underwriting financial stability. At the same time, the crisis generated a renewed interest in properly appraising systemic financial vulnerabilities. Employing most recent data and applying a variety of largely only recently developed methods we provide an assessment of indicators of financial stability within the Euro Area. Taking a "functional" approach, we analyze comprehensively all financial intermediary activities, regardless of the institutional roof - banks or non-bank (shadow) banks - under which they are conducted. Our results reveal a declining role of banks (and a commensurate increase in non-bank banking). These structural shifts (between institutions) are coincident with regulatory and supervisory reforms (implemented or firmly anticipated) as well as a non-standard monetary policy environment. They might, unintendedly, actually imply a rise in systemic risk. Overall, however, our analyses suggest that financial imbalances have been reduced over the course of recent years. Hence, the financial intermediation sector has become more resilient. Nonetheless, existing (equity) buffers would probably not suffice to face substantial volatility shocks. |
| Keywords: | bank and non-bank financial intermediation,shadow banking,financial stability,systemic risk,financial regulation |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewh:29&r=all |
| By: | Jonathan Willis (Federal Reserve Bank of Kansas City); Russell Cooper (Pennsylvania State University) |
| Abstract: | This paper studies the effects of discounting on plant-level and aggregate investment. We study a number of date based processes to represent the state dependent discount factor. Empirically, the stochastic discount factor is procyclical. The investment decision at the plant level is sensitive to the specification of the stochastic discount factor. Non- convexities in adjustment costs at the plant level have aggregate implications: lumpy investment is not smoothed. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:607&r=all |
| By: | Schmitt, Noemi; Westerhoff, Frank |
| Abstract: | The seminal cobweb model by Brock and Hommes reveals that fixed-point dynamics may turn into increasingly complex dynamics as firms switch more quickly between competing expectation rules. While policy-makers may be able to manage such rational routes to randomness by imposing a proportional profit tax, the stability-ensuring tax rate may cause a very high tax burden for firms. Using a mix of analytical and numerical tools, we show that a rather small profit-dependent lump-sum tax may even be sufficient to take away the competitive edge of cheap destabilizing expectation rules, thereby contributing to market stability. |
| Keywords: | cobweb models,discrete choice approach,intensity of choice,profit taxes,tax burden,stability analysis |
| JEL: | D84 E30 Q11 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:104&r=all |
| By: | krolikowski, Pawell (Federal Reserve Bank of Cleveland) |
| Abstract: | Workers who suffer job displacement experience surprisingly large and persistent earnings losses. This paper proposes an explanation for this robust empirical puzzle in a model of search over match-quality with a significant job ladder. In addition to capturing the depth and persistence of displaced-worker-earnings losses, the model is able to match a) separation rates by tenure; b) the empirical decomposition of earnings losses into reduced wages and employment; c) observed wage dispersion; d) the pattern of employer-to-employer transitions after layoff, and e) the degree of serial correlation in separations. |
| Keywords: | Displacement; earnings; search; match-quality |
| JEL: | D83 E24 J63 J64 |
| Date: | 2015–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1514&r=all |
| By: | Basit Zafar (Federal Reserve Bank of New York); Theresa Kuchler (NYU Stern School of Business) |
| Abstract: | We use novel survey panel data to estimate how personal experiences affect expectations about aggregate economic outcomes in housing and labor markets. We exploit cross-sectional and time series variation in differences in locally experienced house prices to show that respondents systematically extrapolate from personally experienced home prices when asked for their expectations about US house price development. In addition, higher volatility of locally experienced house prices causes respondents to report a wider distribution over expected future national house price movements. We find similar results for labor market expectations, where we exploit within-individual variation in labor market status to estimate the effect of own experience on national labor market expectations. Personally experiencing unemployment leads respondents to be significantly more pessimistic about future nationwide unemployment. Extrapolation from personal experiences is more pronounced for less sophisticated individuals for both housing and unemployment expectations. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:678&r=all |
| By: | Hideo Akabayashi (Faculty of Economics, Keio University); Akiko Kamesaka (School of Business Administration, Aoyama Gakuin University); Ryosuke Nakamura (Graduate School of Economics, Hitotsubashi University); Masao Ogaki (Faculty of Economics, Keio University); Teruyuki Tamura (Graduate School of Economics, Sophia University) |
| Abstract: | In the standard intergenerational altruism model in which the child's utility level is an argument in the parent's utility function, there are no conflicts of interests between the parent and the child if they need to reach an agreement about the amount and the timing of a present that child receives from a third party. On the other hand, in the intergenerational altruism models of cultural transmission of preferences, this may not be true. This difference in two classes of the models can be used to distinguish between them in experiments. We conducted a time preference experiment to compare individual and joint decision makings with parent-child pairs in which (1)the child alone, (2) the parent alone, and (3) the parent-child pair as a group make decisions about the amount and the timing of the payment to the child. The experimental results are not consistent with the standard intergenerational altruism model but consistent with models of cultural transmission of preferences. |
| Keywords: | intergenerational altruism, model of cultural transmission of preferences, time preference experiment, individual and joint decisions |
| JEL: | C93 D14 E2 |
| Date: | 2014–08 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2014-005&r=all |
| By: | Nicholas Kilimani (Department of Economics, University of Pretoria) |
| Abstract: | The volatile changes in climate are increasingly becoming a threat to many economies globally. This study assesses Uganda’s vulnerability to climatic variability in the context of how these volatile changes in climate are likely to affect long-run water resources availability. This is done by using household survey data, rainfall data as well as findings from a water resource accounting study on Uganda. First, we use the results from the water accounts to establish the current level of demand for available water resources. Second, these findings are mirrored to the drought prevalence results with a view to highlight the potential adverse affects on water availability, and ultimately economic activity in Uganda. Whereas the country’s water resource accounting position shows that the current level of water resources is still adequate to meet current demand, drought is affecting economic activity primarily in the agricultural sector since it is rain-fed. It is also affecting the water recharge system as a big proportion of precipitation is lost through evapo-transpiration. This has implications for long-run water availability for the country. The findings point to the need for policy interventions that can ensure optimal water use in the economy. These may include improved hydrological planning and the development of water supply infrastructure. |
| Keywords: | Water accounting, Drought, Standardized Precipitation Index, Economic activity, Uganda |
| JEL: | E01 Q56 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201562&r=all |
| By: | Erwan Gautier (Banque de France - Banque de France - Banque de France, LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - UN - Université de Nantes); Ronan Le Saout (Ecole Polytechnique, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique) |
| Abstract: | En utilisant des millions de relevés individuels de prix entre 2007 et 2009, cette étude décrit plusieurs faits stylisés sur l’ajustement des prix des carburants en France : ils changent en moyenne une fois par semaine ; ils sont plus souvent modifiés le mardi et le vendredi ; la concurrence accroît la fréquence des changements de prix ; la distribution des tailles de changements de prix présente peu de changements inférieurs à 2% ; taille des changements de prix et durée des prix sont corrélées ; l’inflation des prix des carburants est surtout déterminée par la part relative des stations-service augmentant ou baissant leur prix. Les modèles de coût d’ajustement incluant des rigidités informationnelles reproduisent le mieux ces faits stylisés. |
| Keywords: | inflation, prix des carburants ,rigidité des prix |
| Date: | 2015–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01195759&r=all |
| By: | Andrew B. Abel |
| Abstract: | In this paper I analyze the relationships among investment, q, and cash flow in a tractable stochastic model in which marginal q and average q are identically equal. After analyzing the impact of changes in the distribution of the marginal operating profit of capital, I extend the model to include measurement error and analyze the cash-flow coefficient in regressions of investment on q and cash flow. In empirical studies, the estimated cash-flow coefficient is generally positive and larger for rapidly growing firms. Such findings are typically interpreted as evidence of financial frictions facing firms. I derive closed-form expressions for the cash-flow coefficient that are positive and larger for faster growing firms, yet there are no financial frictions in the model. |
| JEL: | D21 E22 G31 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21549&r=all |
| By: | Schmitt, Noemi; Tuinstra, Jan; Westerhoff, Frank |
| Abstract: | In order to demonstrate that nonlinear tax systems may have surprising and potentially undesirable side effects, we develop an evolutionary market entry model in which firms decide on the basis of past profit opportunities whether or not to enter a competitive market. Our main focus is on the case of a proportional tax on positive profits. Such a piecewise-linear tax scheme induces a kink in the profit functions of firms' strategies, and may lead to abrupt changes in a market's dynamics, coexisting attractors and hysteresis problems. Since these phenomena can also be observed in more general models, a proper understanding of their basic mechanism may be helpful to explain the intricate behavior of many economic systems. |
| Keywords: | market entry model,replicator dynamics,evolutionary fitness,nonlinear profit taxes,stability analysis,policy implications |
| JEL: | D84 E30 H20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bamber:103&r=all |
| By: | Hiroshi Onishi (Faculty of Economics, Keio University); Ryo Kanae (Faculty of Economics, Kyoto University (Lecturer)) |
| Abstract: | While it appears that small-population economies were advantageous for growth when Asia's newly industrialized economies (NIEs) were expanding rapidly, we are now seeing a different trend in which large-population countries like China and India have become the most rapidly growing nations in the world. This is true for the BRIC states (Brazil, Russia, India, and China) as a whole. Brazil and Russia also have large populations of over 100 million, and their geopolitical and economic influence is crucial. This is one of the most important features of the present geopolitical economy. The present paper first demonstrates this trend statistically and then proposes the hidden historical law underlying these phenomena. This anti-Malthusian law can be explained by Marxian Optimal Growth Theory, as developed by our research group. This shows that each country experiences its own rapid growth phase over a certain period and finally realizes a higher per capita GDP similar to that of the present advanced nations. Under this trend, GDP balance among countries will become closer to the population balance among countries. It should be a much more equal world. |
| Keywords: | NIES, BRICS, Large-Population Country, Marxian Optimal Growth Model |
| JEL: | E11 N30 O11 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2014-009&r=all |
| By: | Aysegul Sahin (Federal Reserve Bank of New York); Benjamin Pugsley (Federal Reserve Bank of New York) |
| Abstract: | Abstract We document two striking facts about U.S. firm dynamics and interpret their significance for aggregate employment dynamics. The first observation is the steady decline in the firm entry rate over the last thirty years, and the second is the gradual shift of employment from younger to older firms over the same period. Both hold across industries and geography. We show that despite these trends, firms' lifecycle dynamics and their business cycle properties have remained virtually unchanged. Consequently, the reallocation of employment towards older firms results entirely from the cumulative effect of the 30-year decline in firm entry. This 'startup deficit' has both an immediate and a delayed (by shifting the age distribution) effect on aggregate employment dynamics. Recognizing this evolving heterogeneity is crucial for understanding shifts in aggregate behavior of employment over the business cycle. With mature firms less responsive to business cycle shocks, the cyclical component of aggregate employment growth diminishes with the increasing share of mature firms. At the same time, the trend decline in firm entry masks the diminishing cyclicality in contractions and reinforces it during expansions, which generates the appearance of jobless recoveries where aggregate employment recovers slowly relative to output. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:655&r=all |
| By: | Bram De Rock (ECARES-ULB, Avenue Franklin Roosevelt 50, CP 114/04, 1050 Bruxelles); Bart Capéau |
| Abstract: | On the basis of a concatenation of fifteen Belgian household budget surveys from 1995/96 to 2010, we investigate the impact of demographic factors, such as ageing and changing household composition, on saving behaviour. Not focusing on high frequency events (e.g. business cycles and unexpected shock), we find that saving behaviour is fundamentally driven by the change in household size and composition. Older people seem to be more impatient, and thus save less, though this evidence is not clear cut. Contrary to the usual practice of considering the allocation of household income over consumption and saving to be the result of one particular household’s member decision, we present here a more individually based analysis of the data. By lack of true panel data, the assumptions that have to be made for such an approach (identical intertemporal preferences among household members) are severe, but not necessarily less preferable than those, if any, underlying the common practice of assuming one single individual decision maker. |
| Keywords: | Saving, consumption, life-cycle, intertemporal choice, household demographics. |
| JEL: | D14 D91 E21 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201509-286&r=all |