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on Macroeconomics |
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Issue of 2017‒09‒17
88 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Marcello Miccoli (Bank of Italy); Marianna Riggi (Bank of Italy); Lisa Rodano (Bank of Italy); Laura Sigalotti (Bank of Italy) |
| Abstract: | Assessing underlying inflation developments is crucial for a correct calibration of the monetary policy stance. To monitor the adjustment in the path of euro area inflation towards the ECB’s definition of price stability, we select a number of indicators of price dynamics in the area. We then construct a composite index summarizing the information contained in those indicators by estimating several univariate probability models. The index, which provides a synthetic measure of inflationary pressures net of the most volatile components, can be interpreted as gauging the probability of inflation returning to 1.9 per cent or over within a given time horizon. Our findings, which are based on the information available in July 2017, signal that, despite the improvement in price dynamics since the beginning of the year, the adjustment of inflation rates towards levels below, but close to, 2 per cent over the medium term is still limited and far from being sustained. |
| Keywords: | euro area, determinants of inflation, inflation, statistical aggregation |
| JEL: | C35 C38 E31 E58 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_395_17&r=mac |
| By: | Maria Teresa Punzi (Department of Economics, Vienna University of Economics and Business); Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | We study the impact of macroprudential policies using a novel model which takes into account households’ ability to borrow under different loan-to-value ratios which are tied to their collateral values. Such model generates a larger amplification in real and financial variables, compared to standard models that assume homogeneity in the leveraging and deleveraging process. Conditional on this model, we consider the implications of macroprudential policies that aim to lean against an excessive credit cycle. In particular, we allow macroprudential authorities to tighten excessive lending to higher leveraged households, whose riskiness had been evaluated too optimistically. We find that a policy that targets only the group of households that most strongly deleveraged after an adverse idiosyncratic housing investment risk shock, is welfare-improving at social and individual levels, relative to a macroprudential policy which targets all households in the economy. |
| Keywords: | Endogenous Loan-to-Value ratio, Heterogeneity, Macroprudential Policy |
| JEL: | E23 E32 E44 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp253&r=mac |
| By: | Jean-François Rouillard (Département d'économique, Université de Sherbrooke) |
| Abstract: | Through the lens of a dynamic model that features financial frictions and downward nominal wage rigidities (DNWR), I simulate a credit crunch similar to the one experienced by the US during the 2007-09 recession. Since the constraint on nominal wage infl ation binds, this induces important cutbacks in hours worked. For a 2% infl ation- target regime, the minimal deviation of hours worked is 2.72 greater with DNWR than with flexible wages. Total losses in hours worked are also 43% lower when the infl ation target is elevated from 2% to 4%. Moreover, the model can account for a large part of the upward shift in the labor wedge that occurred during the recession. This result arises because the marginal rate of substitution of consumption for leisure signi cantly deviates from real wages with DNWR. |
| Keywords: | borrowing constraints, monetary policy, in flation target, labor wedge. |
| JEL: | E24 E32 E44 E52 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:17-05&r=mac |
| By: | Atif Mian; Amir Sufi; Emil Verner |
| Abstract: | Does an expansion in credit supply affect the economy by increasing productive capacity, or by boosting demand? We design a test to uncover which of the two channels is more dominant, and we apply it to the United States in the 1980s where the degree of banking deregulation generated differential local credit supply shocks across states. The stronger expansion in credit supply in early deregulation states primarily boosted local demand, especially by households, as opposed to improving labor productivity of firms. States with a more deregulated banking sector see a large relative increase in household debt from 1983 to 1989, which is accompanied by an increase in the price of non-tradable relative to tradable goods, an increase in wages in all sectors, an increase in non-tradable employment, and no change in tradable employment. Credit supply shocks lead to an amplified business cycle, with GDP, employment, residential investment, and house prices increasing by more in early deregulation states during the expansion, and then subsequently falling more during the recession of 1990 and 1991. The worse recession outcomes in early deregulation states appear to be related to downward nominal wage rigidity, household debt overhang, and banking sector losses. |
| JEL: | E3 E32 E44 E51 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23802&r=mac |
| By: | David Hendry; John Muellbauer |
| Abstract: | Abstract The adoption as policy models by central banks of representative agent New Keynesian dynamic stochastic general equilibrium models has been widely criticised, including for their simplistic micro-foundations. At the Bank of England, the previous generation of policy models is seen in its 1999 medium-term macro model (MTMM). Instead of improving that model to correct its considerable flaws, many shared by other non-DSGE policy models such as the Federal Reserve’s FRB/US, it was replaced in 2004 by the DSGE-based BEQM. Though this clearly failed during and after the global financial crisis, it was replaced in 2011 by the DSGE COMPASS, complemented by a ‘suite of models’. We provide a general critique of DSGE models for explaining, forecasting and policy analyses at central banks, and suggest new directions for improving current empirical macroeconomic models based on empirical modelling broadly consistent with better theory, rather than seeking to impose simplistic and unrealistic theory. |
| Keywords: | DSGE, central banks, macroeconomic policy models, finance and the real economy, financial crisis, consumption, credit constraints, household portfolios, asset prices |
| JEL: | E17 E21 E44 E51 E52 E58 G01 |
| Date: | 2017–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:832&r=mac |
| By: | Thomas McGregor |
| Abstract: | This paper investigates the link between commodity price movements and risk premiums in resource-dependent,developing economies. I develop a stochastic general equilibrium model of a small open economy that receives a stream of resourc erevenues.The government sells bonds to foreign investors which it can renege on in the future, at some cost, whilst international investors form expectations on the likelihood of sovereign default. This delivers an endogenous risk premium which is inversely related to the price of oil.The model is able to explain a large proportion of the business cycle fl uctuations in interest-rate spreads in resource dependent developing economies. I then ask how specific structural features of developing economies affect the relationship between commodity prices and the optimal price of sovereig ndebt, including:a higher dependence on natural resource revenues, impatient consumers and governments,a higher degree of risk-aversion, and a lower ability to substitute consumption inter-temporally. Including them in the model significantly improves the ability of the model to explain the key macroeconomic co-movements in a resource rich, developing economy context. Model simulations reveal an interesting policy insight. An endogenous risk premium that is driven by falling oil prices, provides an additional rationale for a volatility fund in which liquidity buffers are accumulated to manage debt repayments. These buffers should be larger the stronger the link between oil prices and the domestic economy is, the more impatient policymakers are and the more willing they are to substitute current for future consumption. |
| Keywords: | Pricing sovereign debt, default, natural resources, BBC, volatility fund |
| JEL: | E13 E32 E44 F34 O11 O13 O16 H63 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:oxcrwp:194&r=mac |
| By: | Adam, Klaus; Weber, Henning |
| Abstract: | We present a sticky-price model incorporating heterogeneous firms and systematic firm-level productivity trends. Aggregating the model in closed form, we show that it delivers radically different predictions for the optimal inflation rate than canonical sticky price models featuring homogenous firms: (1) the optimal steady-state inflation rate generically differs from zero and (2) inflation optimally responds to productivity disturbances. Using micro data from the US Census Bureau to estimate the inflation-relevant productivity trends at the firm level, we find that the optimal US inflation rate is positive. It was slightly above 2 percent in the year 1986, but continuously declined thereafter, reaching about 1 percent in the year 2013. |
| Keywords: | optimal inflation rate,sticky prices,firm heterogeneity |
| JEL: | E52 E31 E32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:252017&r=mac |
| By: | Lewis, Vivien; Roth, Markus |
| Abstract: | The European Central Bank's asset purchase programs, while intended to stabilize the economy, may have unintended side effects on financial stability. This paper aims at gauging the effects on financial markets, the banking sector, and lending to non-financial firms. Using a structural vector autoregression analysis, we find both in the euro area and in Germany a positive effect on output, while prices do not respond significantly. Asset purchases reduce financial stress, but this beneficial effect is overturned in the medium run. In Germany, implicit firm default rates rise, while loan write-offs by banks decrease. This could point to an avoidance of balance sheet repair in the financial sector. |
| Keywords: | asset purchase programs,balance sheet,monetary policy,central bank,shock identification,VAR |
| JEL: | C32 E44 E52 E58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:232017&r=mac |
| By: | Sangyup Choi (Yonsei University); Davide Furceri (IMF); Prakash Loungani (IMF); Saurabh Mishra (IMF); Marcos Poplawski-Ribeiro (IMF) |
| Abstract: | We study the impact of fluctuations in global oil prices on domestic inflation using an unbalanced panel of 72 advanced and developing economies over the period from 1970 to 2015. We find that a 10 percent increase in global oil inflation increases, on average, domestic inflation by about 0.4 percentage on impact, with the effect vanishing after two years and being similar between advanced and developing economies. We also find that the effect is asymmetric, with positive oil price shocks having a larger effect than negative ones. The impact of oil price shocks, however, has declined over time due in large part to a better conduct of monetary policy. We further examine the transmission channels of oil price shocks on domestic inflation during the recent decades, by making use of a monthly dataset from 2000 to 2015. The results suggest that the share of transport in the CPI basket and energy subsidies are the most robust factors in explaining cross-country variations in the effects of oil price shocks during the this period. |
| Keywords: | oil price shocks, inflation pass-through, monetary policy, local projections |
| JEL: | E31 E37 Q43 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2017rwp-111&r=mac |
| By: | Nachane, Dilip M (Indira Gandhi Institute of Development Research); Aditi Chaubal (Australian Consulate General, Mumbai) |
| Abstract: | The Laspeyres-type consumer price index (CPI) is traditionally used to measure the changes in cost-of-living over time. Studies indicate this CPI suffers from a plutocratic bias, attaching greater weightage to expenditure by rich compared to poor; while democratic CPI uses equal weights. We calculate the plutocratic bias for the new Indian CPI (launched in 2012), rural and urban CPI, and CPI of three Indian states from 2012-2015. We develop democratic CPI indexes for commodity groups: necessities, luxuries, housing and others; and separate indexes for three consumption brackets. Our analysis has important implications for monetary policy and indexation of transfer payments. |
| Keywords: | Laspeyres index numbers, plutocratic bias, democratic CPI, expenditure elasticity, consumption brackets, India |
| JEL: | E01 E3 E31 E52 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2017-011&r=mac |
| By: | Stefano Neri (Banca d'Italia); Giuseppe Ferrero (Banca d'Italia) |
| Abstract: | The debate on the underlying causes of the decline of interest rates to historically low levels is ongoing both in academia and among policy makers. Several explanations have been put forward, ranging from those citing real and structural factors to those underscoring the importance of cyclical and financial phenomena. However, the empirical evidence regarding their relative importance is still limited. These different but complementary views can be framed around the concept of the natural rate of interest and the monetary transmission mechanism. The low interest rate environment that still characterizes advanced economies raises important questions regarding the implications for monetary policy in the medium- and long-run. Our work provides a systematic outline of the potential changes to monetary policy strategies that could ensue. |
| Keywords: | interest rates, natural rate, monetary policy, secular stagnation, financial cycle |
| JEL: | E43 E52 E58 G01 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_392_17&r=mac |
| By: | Kazuo Mino (Faculty of Economics, Doshisha University) |
| Abstract: | This paper reviews the real the real business cycle models that display equilibrium indeterminacy. We first summarize the main fi ndings in the seminal contributions by Benhabib and Farmer (1994) and Farmer and Guo (1994). We then discuss the relevant extinctions of the baseline model explored in the last two decades. We also refer to the recent development in the fi eld after the global financial crisis of 2007-2008. |
| Keywords: | equilibrium indeterminacy, business cycles, sunspots, extrinsic uncertainty |
| JEL: | E21 E32 O41 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:973&r=mac |
| By: | Kyle F. Herkenhoff; Lee E. Ohanian; Edward C. Prescott |
| Abstract: | This paper studies the impact of state-level land-use restrictions on U.S. economic activity, focusing on how these restrictions have depressed macroeconomic activity since 2000. We use a variety of state-level data sources, together with a general equilibrium spatial model of the United States to systematically construct a panel dataset of state-level land-use restrictions between 1950 and 2014. We show that these restrictions have generally tightened over time, particularly in California and New York. We use the model to analyze how these restrictions affect economic activity and the allocation of workers and capital across states. Counterfactual experiments show that deregulating existing urban land from 2014 regulation levels back to 1980 levels would have increased US GDP and productivity roughly to their current trend levels. California, New York, and the Mid-Atlantic region expand the most in these counterfactuals, drawing population out of the South and the Rustbelt. General equilibrium effects, particularly the reallocation of capital across states, accounts for much of these gains. |
| JEL: | E24 E3 E6 R11 R12 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23790&r=mac |
| By: | Gallic, Ewen; Vermandel, Gauthier |
| Abstract: | How much do weather shocks matter? This paper analyzes the role of weather shocks in the generation and propagation of business cycles. We develop and estimate an original DSGE model with a weather-dependent agricultural sector. The model is estimated using Bayesian methods and quarterly data for New Zealand over the sample period 1994:Q2 to 2016:Q4. Our model suggests that weather shocks play an important role in explaining macroeconomic fluctuations over the sample period. A weather shock -- as measured by a drought index -- acts as a negative supply shock characterized by declining output and rising relative prices in the agricultural sector. Increasing the variance of weather shocks in accordance with forthcoming climate change leads to a sizable increase in the volatility of key macroeconomic variables and causes significant welfare costs up to 0.58% of permanent consumption. |
| Keywords: | Business Cycles; Climate Change; Weather Shocks; DSGE |
| JEL: | C11 C13 E32 E37 Q54 |
| Date: | 2017–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81230&r=mac |
| By: | Philippopoulos, Apostolis; Varthalitis, Petros; Vassilatos, Vanghelis |
| Abstract: | We welfare rank various tax-spending-debt policies in a New Keynesian model of a small open economy featuring sovereign interest-rate premia and loss of monetary policy independence. When we compute optimized state-contingent policy rules, our results are: (a) Debt consolidation comes at a short-term pain but the medium- and long-term gains can be substantial. (b) In the early phase of pain, the best fiscal policy mix is to cut public consumption spending to address the debt problem, and, at the same time, to cut income tax rates to mitigate the recessionary effects of debt consolidation. (c) In the long run, the best way of using the fiscal space created is to reduce capital taxes. |
| Keywords: | Feedback policy, New Keynesian, Sovereign premia, Debt consolidation |
| JEL: | E6 F3 H6 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81327&r=mac |
| By: | Salim, DEHMEJ (Bank Al-Maghrib, Département de la Recherche); Leonardo, GAMBACORTA (Bank for International Settlements (BIS)) |
| Abstract: | Using a simple New Keynesian model of a monetary union that incorporates financial frictions, we show that country-targeted macroprudential policy could complement a single monetary policy at the union level. In particular, macroprudential policy helps taming financial and economic imbalances in presence of countercyclical financial shocks and imperfect transmission of monetary policy to financial conditions in a monetary union. These results are even stronger when different economies are hit by asymmetric shocks that cancel out without provoking any monetary policy reaction. In addition, we show that when coordinated with monetary policy, country-targeted macroprudential policy (implemented by national or supranational authorities) has advantages over a federally implemented policy that reacts to average financial indicators. |
| Keywords: | Monetary Union; Macroprudential Policy; New-Keynesian Model |
| JEL: | E12 E50 G18 |
| Date: | 2017–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:bkamdt:2017_004&r=mac |
| By: | Nelimarkka, Jaakko |
| Abstract: | Fiscal foresight, economic agents receiving information about future fiscal policy, affects the consistency of results about the causal effects of government spending. This study explores the propagation of government spending shocks using a noncausal VAR model that allows for anticipation of exogenous fiscal policy changes. Overcoming the issue of insufficient information, the government spending shock is extracted from an anticipated error term by using institutional information about the conduct of fiscal policy. In addition, the approach nests the conventional causal structural VAR as a special case. In the U.S. economy, the identified spending shock comoves with defence expenditures. The shock increases consumption, employment and output one and a half years prior to its materialisation in government spending. After the shock arrives, real wages respond positively while investment turns negative. The estimated fiscal multiplier is close to unity. |
| Keywords: | Government spending, Fiscal foresight, Nonfundamentalness, Noncausal VAR, Structural VAR |
| JEL: | C18 C32 E32 E62 |
| Date: | 2017–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81303&r=mac |
| By: | Flodén, Martin; Kilström, Matilda; Sigurdsson, Josef; Vestman, Roine |
| Abstract: | We examine the cash-flow channel of monetary policy, i.e. the effect of monetary policy on spending when households hold debt linked to short-term rates such as adjustable rate mortgages (ARMs). Using registry-based data on Swedish households, we estimate substantial heterogeneity in consumption responses to a change in monetary policy through the cash-flow channel. Our findings imply that monetary policy has a stronger effect on real economic activity when households are highly indebted and have ARMs. For homeowners with a debt-to-income ratio of around 3 and ARMs, the estimated response is equivalent to a marginal propensity to consume of 0.5. |
| Keywords: | adjustable rate mortgages; Consumption; Household Debt; monetary policy; variable interest rates |
| JEL: | D14 E21 E52 G11 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12270&r=mac |
| By: | Daniel Kaufmann |
| Abstract: | Measurement error in historical data distorts descriptive analyses based on binary classifications. Modern replications of deficiencies in retrospective CPI estimates for the 19th century show that measurement issues cause misclassification of inflationary and deflationary episodes. We therefore underestimate the shortfall in real activity during deflation. Using various approaches to control for measurement error in 19th century US CPI data, a series of stylized facts emerge: (i) Real activity was on average substantially lower during deflations; (ii) CPI deflations were associated with at least as severe shortfalls in real activity as equity price declines and banking crises; (iii) Only severe deflations were associated with declines in real activity; (iv) Transitory and persistent deflations, as well as, monetary and nonmonetary deflations were equally associated with lower GDP growth. |
| Keywords: | Deflation, real activity, monetary history, measurement error, binary regressors, misclassification bias, bounds, GMM |
| JEL: | E31 E32 N11 C2 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:irn:wpaper:17-09&r=mac |
| By: | Morais Bernardo; Peydró José-Luis; Roldán-Peña Jessica; Ruiz Claudia |
| Abstract: | We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico matched with firm and bank data, and by exploiting foreign monetary policy shocks in a country with a large presence of European and U.S. banks. The robust results show that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock mainly affects supply via their respective banks, in turn implying strong real effects, with lower elasticities from QE. The impact of low foreign monetary policy rates and expansive QE is stronger on local borrowers with higher ex-ante loan rates -reach-for-yield- and with higher ex-post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest spillovers of core-countries´ monetary policies on emerging markets, both in the foreign monetary softening and tightening part. |
| Keywords: | Monetary policy;financial globalization;quantitative easing (QE);credit supply;risk-taking;foreign banks |
| JEL: | E52 E58 G01 G21 G28 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2017-15&r=mac |
| By: | Cory Cutsail; Farley Grubb |
| Abstract: | Beginning in 1712, North Carolina’s assembly emitted its own paper money and maintained some of its paper money in public circulation for the rest of the colonial period. This paper money has been reviled as an archetype of what was bad about the paper monies issued by American colonial legislatures. Yet little systematic analysis of North Carolina’s paper money has been undertaken. We correct that here. We reconstruct North Carolina’s paper money regime from original sources—providing yearly quantitative data on printings, net new emissions, redemptions and removals, amounts remaining in circulation, denominational structure, as well as the paper money’s current market value in pounds sterling. We identify different paper money regimes based on how the assembly structured and executed its paper money laws. We model and estimate how the market value of this money was determined. We compare the quantity theory of money with an asset-pricing model that treats the money as zero-coupon bonds to see which explains the observed market value of the paper money better. The asset-pricing model wins by a mile. Finally, we explore counterfactual redemption architectures to show how redemption affected monetary performance in periods of value collapse. |
| JEL: | E42 E51 G12 N11 N21 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23783&r=mac |
| By: | Carolina Pagliacci (Banco Central de Venezuela) |
| Abstract: | Although there are several mechanisms within modern theoretical models acknowledging that supply shocks can account for an important part of output fluctuations, even in the short-run, policy practitioners continue endorsing the idea that only demand shocks explain them. This article provides firstly, empirical evidence showing that supply shocks are much more important for explaining output (and price) fluctuations than what the common wisdom indicates; secondly, a more agnostic implementation of the Blanchard-Quah type of structural analysis that focuses on policy evaluation. Empirical evidence on several Latin American countries and the United States shows that the share of output variance explained by supply shocks in the short-run is substantial. Results are based on the identification of supply and demand shocks in the context of a bi-variate structural VAR (SVAR) that uses inflation information and sign restrictions for short-run identification. The identification strategy uses the notion tht supply and demand disturbances can be distinguished by the direction of their effects on output and prices. For policy analysis purposes, we suggest computing the historical decomposition of output growth for each type of shock and propose two-related new indicators that should guide monetary policy interventions more adequately than traditional output gaps. |
| Keywords: | Cyclical fluctuation, structural demand and supply identification, sign restriction identification. |
| JEL: | E32 E31 C32 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:cml:docinv:21&r=mac |
| By: | Bartzsch, Nikolaus; Uhl, Matthias |
| Abstract: | To facilitate a more detailed study of the volume of euro banknotes in circulation issued by the Deutsche Bundesbank, it is broken down into the components of foreign demand, domestic hoarding and domestic transaction balances. These banknote demand components are estimated using the direct approach “net shipments and foreign travel” as well as an indirect approach known as the “seasonal method”. According to the new estimates, which are based on a combination of the two approaches, around 65% to 70% of the arithmetical volume of euro banknotes issued by the Bundesbank were in circulation outside Germany at the end of 2015; of this figure, 40 to 50 percentage points were in circulation outside the euro area, and 20 to 30 percentage points in other euro-area countries. Between 30% and 35% of the Bundesbank’s cumulated net issuance was in circulation in Germany, of which 25 percentage points were hoarded and 5 to 10 percentage points held for transaction purposes. The newly estimated time series for domestic hoardings does not feature a noticeable break due to the euro area’s low-interest-rate environment; instead, Bundesbank-issued euro banknotes may be circulating in other euro-area countries in greater numbers. |
| Keywords: | Euro banknote demand,foreign demand,transaction balances,hoardings |
| JEL: | E41 E58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iccp17:168370&r=mac |
| By: | Jan Willem van den End |
| Abstract: | We apply complexity theory to financial markets to show that excess liquidity created by the Eurosystem has led to critical transitions in the configuration of interest rates. Complexity indicators turn out to be useful signals of tipping points and subsequent regime shifts in interest rates. We find that the critical transitions are related to the increase of excess liquidity in the euro area. These insights can help central banks to strike the right balance between the intention to support the financial system by injecting liquidity and potential unintended side-effects on market functioning. |
| Keywords: | interest rates; central banks and their policies; monetary policy |
| JEL: | E43 E58 E52 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:567&r=mac |
| By: | Juraj Zeman (National Bank of Slovakia); Biswajit Banerjee (Bank of Slovenia); Ludovit Odor (EU Independent Fiscal Institution); William O. Riiska Jr. (Hutchin Hill Capital) |
| Abstract: | Based on intra-day high-frequency data, this paper investigates the effect of sterilized interventions on the Slovak koruna/euro exchange rate for different time windows during a period that coincides with Slovakia’s preparation for EU accession and euro adoption. Results confirm a significant relationship between intervention and exchange rate change. The maximum effect of intervention is reflected in the exchange rate change within a couple of hours and the effect over longer time windows weakens only gradually. The initial impact of sales interventions is stronger than that of purchase interventions. |
| Keywords: | Foreign exchange market intervention, koruna/euro exchange rate, monetary policy framework, ERM II participation, Slovakia |
| JEL: | E44 E58 F31 G15 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1045&r=mac |
| By: | Petrova, Katerina (University of St Andrews); Kapetanios, George (School of Management and Business, Kings College, London); Masolo, Riccardo (Bank of England); Waldron, Matthew (Bank of England) |
| Abstract: | e estimate a time varying parameter structural macroeconomic model of the UK economy, using a Bayesian local likelihood methodology. This enables us to estimate a large open-economy DSGE model over a sample that comprises several different regimes and an incomplete set of data. Our estimation identifies a gradual shift to a monetary policy regime characterised by a marked increase in the responsiveness of monetary policy to inflation alongside a decrease in the level of trend inflation down to the 2% target level. The time varying model also performs remarkably well in forecasting and delivers statistically significant accuracy improvements for most variables and horizons in both point and density forecast performance compared to the standard fixed parameter version. |
| Keywords: | DSGE models; Bayesian methods; local likelihood; time varying parameters; forecasting |
| JEL: | C11 C53 E27 |
| Date: | 2017–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0677&r=mac |
| By: | Erik Eyster; Kristof Madarasz; Pascal Michaillat |
| Abstract: | This paper proposes a theory of price rigidity consistent with survey evidence that firms stabilize prices out of fairness to their consumers. The theory relies on two psychological assumptions. First, customers care about the fairness of prices: fixing the price of a good, consumers enjoy it more at a low markup than at a high markup. Second, customers underinfer marginal costs from prices: when prices rise due to an increase in marginal costs, customers underappreciate the increase in marginal costs and partially misattribute higher prices to higher markups. Firms anticipate customers’ reaction and trim their price increases. Hence, the passthrough of marginal costs into prices falls short of one—prices are somewhat rigid. Embedded in a simple macroeconomic model, our pricing theory produces nonneutral monetary policy, a short-run Phillips curve that involves both past and future inflation rates, a hump-shaped impulse response of output to monetary policy, and a nonvertical long-run Phillips curve. |
| JEL: | D21 D42 E52 L11 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23778&r=mac |
| By: | Erick Lahura (Central Reserve Bank of Peru) |
| Abstract: | This paper investigates empirically the usefulness of monetary aggregates as information variables in the conduct of monetary policy. For this purpose, some recent advances on the topic were used, which include the analysis of both real-time and revised final data, and the application of Bayesian model averaging to allow for model uncertainty regarding the lag length and number of cointegrating relationships. In this paper, money is considered as an information variable for Wt (e.g. output or prices) if the following two criteria are satisfied: (i) Mt is strongly exogenous, and (ii) Mt Granger-causes Wt. Strong exogeneity is relevant because it validates conditional forecasting of Wt using monetary aggregates as conditioning variables. The results show no strong evidence supporting the usefulness of monetary aggregates as information variables for prices or output. However, this does not preclude their potential use as information variables for other macroeconomic targets such as financial stability. |
| Keywords: | Bayesian Model Averaging, cointegration, Granger causality, monetary aggregates, monetary policy, real-time data, strong exogeneity. |
| JEL: | C32 E52 E58 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkcam:1704&r=mac |
| By: | Paola Boel |
| Abstract: | I quantify the redistributive effects of expected inflation in a sample of OECD countries using a microfounded model of money where agents differ in their consumption risk. The model is calibrated using harmonized wealth microdata from the Luxembourg Wealth Study. I find that inflation acts as a regressive tax in all countries considered. The magnitude of inflation’s redistributive impact, however, depends not only on wealth distribution but also, and importantly, on the shape of the money demand curve. A higher and less elastic money demand leads to more regressive effects of inflation, thus implying such effects are not necessarily stronger in a country with a more unequal wealth distribution. |
| Keywords: | Money,Heterogeneity,Calibration,Welfare Cost of Inflation |
| JEL: | E4 E5 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:lis:lwswps:25&r=mac |
| By: | Xing, Victor |
| Abstract: | Officials from major central banks have previously acknowledged QE programs’ distributional effects but expected aggregate economic benefits of these unconventional policies to outweigh their costs. Post-crisis asset price appreciation became well entrenched under the effect of QE, which out-paced median wage growth to unintentionally burden low-to-middle income households and individuals with limited asset ownership. Subsequently, rising inequality fueled discontent and contributed to the rise of anti-establishment political candidates Efforts by elected officials to ease the effects of policy-induced inequality would likely bolster support toward further redistribution policies such as “helicopter money” to threaten central bank monetary policy independence |
| Keywords: | Quantitative Easing, Distributional Effects, Helicopter Money, Debt Monetization |
| JEL: | E50 E52 H50 |
| Date: | 2017–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81269&r=mac |
| By: | Sapre, Amey; Sengupta, Rajeswari |
| Abstract: | In this paper we study revisions in the annual estimates of India’s GDP data. The objective of our analysis is to understand the revision policy adopted by the Central Statistical Organisation (CSO) and the issues therein. Using historic data, we study the magnitude and quality of revisions in the aggregate as well as the sectoral GDP series. We analyse the computation of the sectoral revised estimates and compare the extent of revision in growth rates from the first release to the final estimate. To understand the magnitude of revisions, we compute the standard deviation of revisions in growth rates for each sector and use that to build confidence bands around the initial estimates. The confidence bands provide a means to understand the extent of variation in the final growth rate estimate, and at the same time, provide a mechanism to contain revisions. Based on our analysis, we highlight some of the major issues in CSO’s revision policy. We outline possible solutions that can be implemented to improve the quality of GDP data revisions. We identify sectors with large variations in growth rates and argue that improving or changing the low quality indicators can help contain growth rate revisions and enhance the credibility of the estimates. |
| Keywords: | GDP, National Accounts, Revisions, India |
| JEL: | C18 E00 E01 |
| Date: | 2017–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81340&r=mac |
| By: | Adriana Lojschova (National Bank of Slovakia) |
| Abstract: | We find evidence that households in Slovakia do benefit from the ECB asset purchase programme. On the individual banklevel data of 26 financial institutions (full representation of the banking sector) we establish and confirm a traditional relationship between bank lending and changes to deposit ratio. We find the long-run relationship to be twice as strong in the household sector as in the sector of non-financial corporations. Controlling for interest rate changes and other factors, we also introduce asset purchases into the model. We document some, although limited, evidence of the presence of the bank lending channel of asset purchases in the household sector. |
| Keywords: | Bank lending channel, quantitative easing, panel data |
| JEL: | E52 G21 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1042&r=mac |
| By: | Emil Verner (Princeton University); Amir Sufi (University of Chicago); Atif Mian (Princeton University) |
| Abstract: | An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 countries from 1960 to 2012. Low mortgage spreads are associated with an increase in the household debt to GDP ratio and a decline in subsequent GDP growth, highlighting the importance of credit supply shocks. Economic forecasters systematically over-predict GDP growth at the end of household debt booms, suggesting an important role of flawed expectations formation. The negative relation between the change in household debt to GDP and subsequent output growth is stronger for countries with less flexible exchange rate regimes. We also uncover a global household debt cycle that partly predicts the severity of the global growth slowdown after 2007. Countries with a household debt cycle more correlated with the global household debt cycle experience a sharper decline in growth after an increase in domestic household debt. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:673&r=mac |
| By: | Verona, Fabio |
| Abstract: | The empirical performance of the Q theory of investment can be significantly improved by simultaneously considering the time- and the frequency-varying features of the investment-Q relationship. Using continuous wavelet tools, I assess the investment-Q sensitivity at different frequencies and its evolution over time, as well as the interaction of the financial cycle with the Q theory. The results show that there is a positive, stable medium-to-long-run relationship between investment and Q that begins after a positive, stable long-run relationship between credit and Q materializes. In such case, credit leads and slowly fuels the stock price boom. |
| JEL: | C49 E22 G31 |
| Date: | 2017–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2017_026&r=mac |
| By: | Herskovic, Bernard; Kelly, Bryan; Lustig, Hanno; van Nieuwerburgh, Stijn |
| Abstract: | Firm volatilities co-move strongly over time, and their common factor is the dispersion of the economy-wide firm size distribution. In the cross section, smaller firms and firms with a more concentrated customer base display higher volatility. Network effects are essential to explaining the joint evolution of the empirical firm size and firm volatility distributions. We propose and estimate a simple network model of firm volatility in which shocks to customers influence their suppliers. Larger suppliers have more customers and the strength of a customer-supplier link depends on the size of the customer. The model produces distributions of firm volatility, size, and customer concentration that are consistent with the data. |
| Keywords: | aggregate volatility; firm size distribution; Firm volatility; granularity; networks |
| JEL: | E20 E3 G1 L14 L25 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12284&r=mac |
| By: | Khan, Dr. Muhammad Irfan; Mehar, Dr. Muhammad Ayub; Iqbal, Dr. Athar Iqbal |
| Abstract: | Purpose: This paper is based on the models derived by the researchers to explain the patterns of corporate governance, firms’ financial policies and liquidity position. Methodology: A deductive approach has been adopted to reconcile and examine the different models of corporate governance and firms’ financial policies. Findings: The study showed that corporate savings is a good predictor of the macro level investment in a country. The magnitude of national investment will increase by improvement in corporate savings. In fact the corporate savings indicate the expansion in business activities which may be an indicator of the trust and confidence of private sector. On the other hand it explains the financial health of corporate sector, which may provide the significant portion of tax revenue to the government for developing projects in public sector. The study has concluded that corporate governance is a significant variable in determining the liquidity and circularity debts. In this way corporate governance becomes a crucial determinant of the national investment. Implications:The bad corporate governance may deteriorate the investment activities at national level, which may damage the economy for a longer term. This study also indicates that capital structure and the patterns of ownership play important role in the determination of corporate governance of an institution. |
| Keywords: | Corporate Governance, Gross Fixed Capital Formation, Development Finance |
| JEL: | E60 M48 O10 |
| Date: | 2015–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80745&r=mac |
| By: | Sangyup Choi (Yonsei University); Davide Furceri (IMF); Joao Tovar Jalles (IMF) |
| Abstract: | Medium-term growth can be enhanced by fiscal stabilization. However, to date, no systematic effort has been made to study the specific channels through which fiscal stabilization affects growth. This paper examines the effect of fiscal stabilization on industrial growth and how this effect depends on different technological characteristics. It does so by applying a difference-in-difference approach to an unbalanced panel of 22 manufacturing industries for 55 advanced and developing economies over the period 1970-2014. The results suggest that fiscal stabilization fosters growth in industries with: i) higher external financial dependence and lower asset fixity; ii) higher degree of labor intensity; iii) higher investment lumpiness and relationship-specific input usage. These effects tend to be larger during economic recessions. The results are robust to different measures of fiscal stabilization and the inclusion of various interactions between a broad set of macroeconomic variables and production technologies. |
| Keywords: | industry-level data, fiscal stabilization; time varying coefficients; growth, technologies of production |
| JEL: | E62 H50 H60 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2017rwp-110&r=mac |
| By: | Bryan A. Stuart |
| Abstract: | This paper examines the long-run effects of the 1980-1982 recession on education and income. Using confidential Census data, I estimate generalized difference-in-differences regressions that exploit variation across counties in the severity of the recession and across cohorts in age at the time of the recession. I find that children born in counties with a more severe recession are less likely to obtain a college degree and, as adults, earn less income and experience higher poverty rates. The negative effects on college graduation are most severe and essentially constant for individuals age 0-13 in 1979, suggesting that the underlying mechanisms are a decline in childhood human capital or a long-term decline in parental resources to pay for college. I find little evidence that states with more generous or more progressive transfer systems mitigated these long-run effects. The magnitude of my estimates and the large number of affected individuals suggest that the 1980-1982 recession depresses aggregate economic output today. |
| Keywords: | human capital development, income, education, recessions |
| JEL: | E32 I20 I30 J13 J24 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:17-52&r=mac |
| By: | Florian Gerth |
| Abstract: | This paper argues that the fall and persistently low level of UK Total Factor Productivity (TFP) following the Great Recession was caused by the turnover (entry and exit) of firms, rather than by resource misallocation between firms within industries. I conduct a misallocation exercise employing the Hsieh and Klenow (2009) and the Olley and Pakes (1996) methods using the FAME microlevel dataset that contains more than 9 million firms within the UK over the 2006 - 2014 period. The main findings are that, first, service sector TFP drops far more than manufacturing TFP and therefore drives the fall and long-lasting depression in aggregate productivity. Second, within-industry misallocation cannot account for the drop in TFP. Third, the entry and exit of firms both contribute to the decline in aggregate TFP while the entry of firms has a larger negative effect on TFP than the exit of firms. And fourth, the pattern of within-industry misallocation and firm dynamics is the same for the manufacturing and the service sector. |
| Keywords: | Great Recession in the UK; Factor Misallocation; FAME dataset |
| JEL: | D24 E13 E32 L11 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1714&r=mac |
| By: | Annette Alstadsæter; Niels Johannesen; Gabriel Zucman |
| Abstract: | This paper attempts to estimate the size and distribution of tax evasion in rich countries. We combine random audits—the key source used to study tax evasion so far—with new micro-data leaked from large offshore financial institutions—HSBC Switzerland (“Swiss leaks”) and Mossack Fonseca (“Panama Papers”)—matched to population-wide wealth records in Norway, Sweden, and Denmark. We find that tax evasion rises sharply with wealth, a phenomenon random audits fail to capture. On average about 3% of personal taxes are evaded in Scandinavia, but this figure rises to close to 30% in the top 0.01% of the wealth distribution, a group that includes households with more than $45 million in net wealth. A simple model of the supply of tax evasion services can explain why evasion rises steeply with wealth. Taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly, highlighting the need to move beyond tax data to capture income and wealth at the top, even in countries where tax compliance is generally high. We also find that after reducing tax evasion—by using tax amnesties—tax evaders do not legally avoid taxes more. This result suggests that fighting tax evasion can be an effective way to collect more tax revenue from the very wealthy. |
| JEL: | E21 H26 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23772&r=mac |
| By: | Zhou, Haiwen |
| Abstract: | By studying a two-sector general equilibrium model in which firms engage in oligopolistic competition and unemployment is a result of the existence of efficiency wages, we derive the following results analytically. A country’s comparative advantage in producing manufactured goods increases with the level of efficiencies in the labor market. The opening of international trade leads to the equalization of wage rates even though countries differ in their factor endowments and labor market efficiencies. If countries have the same level of labor market efficiencies but differ in their endowments of labor and land, the opening to international trade leads to an increase in the wage rate in both countries. |
| Keywords: | Unemployment, international trade, oligopoly, efficiency wages, increasing returns |
| JEL: | E24 F12 J64 |
| Date: | 2017–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81354&r=mac |
| By: | Estéfano Rubio (Centro de Estudios Públicos, Santiago) |
| Abstract: | Son conocidas las grandes diferencias salariales entre personas de distinto nivel de calificación. Sin embargo, cuando se piensa en las condiciones laborales de los individuos, son muchas otras variables las que también entran en juego. ¿En cuántas de éstas se encuentran peor las personas menos educadas? ¿En cuáles las diferencias son mayores? ¿Cómo ha evolucionado la inserción laboral según el nivel de estudios? Este trabajo indaga en estas preguntas y otorga respuestas preocupantes, que dejan en evidencia las muchas desigualdades en el empleo de personas de alto y bajo nivel de calificación. En particular, se comprueba que, conforme aumenta el grado académico de los individuos, mayores son sus tasas de participación y ocupación, mayores son sus ingresos laborales, suelen trabajar en jornada completa y con menor probabilidad de hacerlo más de nueve horas al día, es más probable que tengan contrato, que trabajen de forma dependiente y que realicen cotizaciones previsionales. También es más probable que trabajen en el sector público, en relación a quienes son menos calificados; y que se desempeñen en empresas de mayor tamaño. De esta forma este documento expone un serio problema: en la mayoría de los casos quienes presentan carencias en alguna de las dimensiones de sus condiciones laborales, al mismo tiempo las evidencian en varias otras. Es así como se observan casos extremos en donde hay trabajos de muy buenas condiciones y otros sumamente precarios. Por último, este documento también posee un foco secundario, centrado en poder entender de mejor manera cómo se explican los niveles de desempleo contenido o moderado que se han observado últimamente, a pesar de la desaceleración económica existente. Hecho que ha mantenido en intriga a varios economistas en el último período. Se señala que un aumento de la cantidad absoluta de inactivos no parece ser la mejor hipótesis para explicar el fenómeno. En cambio, se sugiere tener en cuenta que: (i) han existido leves aumentos del porcentaje de la población en la fuerza laboral que podrían estar ocultando un aumento en el número de desempleados, siendo que estos incrementos probablemente han sido absorbidos por la categoría de ocupados; y (ii) que las empresas sí serían sensibles al menor crecimiento, pero harían sus ajustes vía salarios y no vía despidos. |
| Keywords: | empleo; califiación del capital humano; desigualdades laborales; condiciones laborales |
| JEL: | E24 J21 J24 J28 J31 J81 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpt:wpaper:446&r=mac |
| By: | Manjhi, Ganesh (Gargi College, Delhi University); Mehra, Meeta Keswani (Jawaharlal, Nehru University) |
| Abstract: | This paper derives the solution to differential games, when there are four sets of players, namely - two political parties (politicians), voters and a special interest group. The basic results are similar as Lambertini (2001, 2014). We find that, an open-loop equilibrium collapses to a closed-loop equilibrium. Therefore, the open-loop equilibrium is a sub-game perfect. Further, the private optimum is always higher than the social optimum in terms of the provision of the expenditure on public good. That is, if both the parties have access to public expenditure for the provision of the expenditure on public good they have the tendency to overspend and can incur higher deficits. Consequently, voters vote retrospectively to the party which overspend and results in higher fiscal deficits. Similarly, a larger private optimal regulatory benefit helps the political parties to receive higher financial contribution. Overall, the fiscal deficit in excess of certain level of threshold can create higher cost to the voters and hence the economy as the future tax and this is more so in the presence of special interest group. |
| Keywords: | Special Interest Group ; Public Good ; Fiscal Deficit ; Regulatory Benefit ; Financial Contribution ; Differential Games |
| JEL: | C73 E6 H3 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:17/206&r=mac |
| By: | Francisco Ruge-Murcia (McGill University); Jinill Kim (Korea University) |
| Abstract: | This paper studies the positive and normative implication of extreme shocks for monetary policy. The analysis is based on a small-scale New Keynesian model with sticky prices and wages where shocks are drawn from asymmetric generalized extreme value (GEV) distributions. A nonlinear perturbation of the model is estimated by the simulated method of moments. Under both the Taylor and Ramsey policies, the central bank responds non-linearly and asymmetrically to shocks. The trade-off between targeting a gross inflation rate above $1$ as insurance against extreme shocks, and strict price stability is unambiguously solved in favour of the latter. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:605&r=mac |
| By: | Ales Marsal (National Bank of Slovakia); Lorant Kaszab (Central Bank of Hungary); Roman Horvath (Charles University) |
| Abstract: | We explore asset pricing implications of productive, wasteful and utility enhancing government expenditures in a New Keynesian macro-finance model with Epstein-Zin preferences. We decompose the pricing kernel into four underlying macroeconomic factors (consumption growth, inflation, time preference shocks, long run risks for consumption and leisure) and design novel method to quantify the contribution of each factor to bond prices. Our methodology extends the performance attribution analysis typically used in finance literature on portfolio analysis. Using this framework, we show that bonds can serve as an insurance vehicle against the fluctuations in investors wealth induced by government spending. Increase in uncertainty surrounding government spending rises the demand for bonds leading to decrease in yields over the whole maturity profile. Bonds insure investors by i) providing buffer against bad times, ii) hedging inflation risk and iii) hedging real risks by putting current consumption gains against future losses. In a special case where the central bank does not respond to changes in output bonds leverage inflation risk. Spending reversals strongly reduce the sensitivity of bond prices to changes in government spending. |
| Keywords: | Macro-finance, New Keynesian model, Government expenditures, Bond prices |
| JEL: | C12 C22 C52 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1044&r=mac |
| By: | Chung Tran; Sebastian Wende |
| Abstract: | We quantify marginal excess burden, defined as the change in deadweight loss for an additional dollar of tax revenue, for different taxes. We use a dynamic general equilibrium, overlapping generations model featured with heterogeneous agents and a realistic structure of corporate finance and taxes. Our main results, based on an economy calibrated to Australian data, indicate that company taxes are more distorting than personal income and consumption taxes. Specifically, the marginal excess burden for the company income tax is 83 cents per dollar of tax revenue raised, compared to 34 cents and 24 cents for the personal income and consumption taxes, respectively. A broader analysis of more tax instruments confrim that the relatively larger excess burden of company taxes ultimately falls on households. Importantly, the marginal excess burden is distributed unevenly across skill types, generations and ages. This highlights political challenges when obtaining popular support for raising taxes. Hence, our analysis demonstrates that marginal excess burden can be an useful tool for evaluating both eciency and distributional implications of a tax increase at the margin. |
| Keywords: | Taxation, scal distortion, overlapping generations, skill hetero-geneity, corporate nance, deadweight loss, dynamic general equilibrium, welfare |
| JEL: | E62 H21 H22 H24 H25 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2017-652&r=mac |
| By: | Martijn (M.I.) Droes (University of Amsterdam & Amsterdam School of Real Estate; Tinbergen Institute, The Netherlands); Ryan van Lamoen (Dutch Central Bank); Simona Mattheussens (Dutch Central Bank) |
| Abstract: | This paper examines whether the ECB's Quantitative Easing (QE) policy is causing government bond prices to deviate from their fundamental value. We use a recent advance in the methodology to measure exuberant price behavior in financial time series introduced by Phillips et al. (2015). We extend this methodology and apply it to government bond prices. The results show that the QE policy substantially inflated government bond prices in Euro Area countries to such an extent that bond prices are no longer in line with the underlying fundamental value. We argue that careful monitoring is required when the QE policy is eventually reversed. The test procedure outlined in this paper provides a monitoring tool to do so. |
| Keywords: | government bond yields; asset price bubbles; monetary policy |
| JEL: | G12 G15 E52 |
| Date: | 2017–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20170080&r=mac |
| By: | Marcelo Arbex (Department of Economics, University of Windsor); Michael Batu (Department of Economics, University of Windsor) |
| Abstract: | We introduce temperature shocks and environmental preferences in a real business cycle model with natural resources. Our findings suggest that permanent and temporary weather shocks propagation and their welfare implications depend crucially on whether agents exhibit environmental preferences. |
| Keywords: | Business Cycles; Temperature Shocks; Climate Change. |
| JEL: | E32 Q54 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:wis:wpaper:1707&r=mac |
| By: | Robert Hall (Stanford University); Mark Watson (Princeton University); James Stock (Harvard); John Fernald (FRB San Francisco) |
| Abstract: | The U.S. economy has been expanding slowly since the recession trough in 2009. Though unemployment has declined at about the same rate as in previous recoveries, output has grown much more slowly than in the past. We explore explanations for the shortfall in output growth, using a quantitative decomposition based on growth economics. Two components of the decomposition stand out: slow growth in productivity, and a growing shortfall of labor-force participation relative to its demographic determinants. The slow growth in both components predated the recession. Our analysis gives a full treatment to cyclical effects. Our conclusion is that powerful non-cyclical forces at least partially unrelated to the financial crisis of 2008 account for the poor record of output growth during the ongoing recovery from the crisis-induced recession. This combination of the adverse cyclical influence, and the noncyclical forces we study, resulted in a shortfall of capital formation that holds back output even today. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:610&r=mac |
| By: | Pavel Gertler (National Bank of Slovakia); Roman Horvath (Charles University) |
| Abstract: | This paper examines the financial market impact of intermeeting communication of the members of the European Central Bank’s Governing Council (GC) using high frequency data in the period 2008–2013. Constructing a rich dataset of GC members’ public statements (speeches, conference discussions and media interviews) between monetary policy meetings allows us to investigate a detailed pattern of market responses to the ad-hoc communication of central bankers. Using least squares and quantile regressions, we document the impact of policymakers’ public statements on interest rates and the stock market with very little or no impact on exchange rates. In general, we find little evidence that the timing, sequencing or content of communication matters in immediate response. On the contrary, the results suggest that the market concentrates on the communication of key members of the committee. |
| Keywords: | Central bank, communication, European Central Bank |
| JEL: | C1 E5 G21 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1043&r=mac |
| By: | Claudius Gräbner; Philipp Heimberger; Jakob Kapeller; Bernhard Schütz |
| Abstract: | This paper analyses economic developments in the Eurozone since its inception in 1999. In doing so, we document a process of economic divergence and polarization among those countries that joined the Eurozone during its first two years, which fits a typical ‘core – periphery’ pattern. We show how this polarization process first manifested in increasing current account imbalances before the crisis, before it translated unto the level of general macroeconomic development after the crisis. Empirically, we demonstrate how this divergence is tied to a ‘structural polarization’ in terms of the sectoral composition of Eurozone countries: specifically, the emergence of export-driven growth in core countries and debt-driven growth in the European periphery coincides with differences in technological capabilities and firm performance. Pushing for convergence within Europe requires the implementation of three intertwined policy programs: macroprudential financial regulation, active industrial policies aiming at a technological catch-up process in periphery countries, and progressive redistributional policies to sustain adequate levels of aggregate demand throughout the Eurozone. |
| Keywords: | polarization, European Monetary Union, industrial policy, financial regulation, growth trajectories |
| JEL: | B5 E6 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2017_15&r=mac |
| By: | Ilzetzki, Ethan; Simonelli, Saverio |
| Abstract: | We measure output per worker in nearly 8,000 municipalities in the Italian electoral process using ballot counting times in the 2013 general election and two referenda in 2016. We document large productivity dispersion across provinces in this very uniform and low-skill task that involves nearly no technology and requires limited physical capital. Using a development accounting framework, this measure explains up to half of the firm-level productivity dispersion across Italian provinces and more than half the north-south productivity gap in Italy. We explore potential drivers of our measure of labor efficiency and find that its association with measures of work ethic and trust is particularly robust. |
| Keywords: | cultural economics; Development accounting; labor productivity; work ethic |
| JEL: | E24 J24 O47 Z10 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12273&r=mac |
| By: | Gabriela Mordecki (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía) |
| Abstract: | After more than a decade of dictatorship (June-1973/Feb-1985), in March 1985 the new democratic government takes charge of the Uruguayan economy, which had suffered a deep crisis that bottomed out in 1982. From there the monetary, fiscal, wage policy was redefined, and entered with great hope in a new growth path. However, international and regional conditions greatly limited economic growth and macroeconomic stability, and comes to 1989 with GDP stagnation, high inflation and fiscal deficit. Under these conditions, since 1990 a new neoliberal government established a stabilization plan with exchange rate anchor, labor market flexibility and tried to achieve fiscal balance. The stabilization policies generated a strong currency appreciation, that combined with the Mercosur’s creation and Argentinean convertibility policy and Brazil’s “Plan Real” generated a high regional dependence. After Brazilian devaluation of January 1999, the Uruguayan economy began to shrink, and rushed to another deep crisis after Argentina abandoned convertibility in December 2001. These facts led to a bank run that lasted until August 2002, when a 3-day bank holiday and a change in the economic team managed to stop it, with tough measures: banks closures and deposit freeze. The living conditions of Uruguayans rapidly deteriorated, with high unemployment, sharp increase in poverty, which implied migration and different survival strategies. The economy began to grow in 2003, and in 2005 the left-wing party, for the first time in power, made structural reforms (tax, social security, health, labor market, etc.) and with favorable international conditions, the economic growth continued for more than a decade. At the same time, promoted social and labor market improvements, although in recent years appeared some macroeconomic imbalances, such as inflation above the target range and high fiscal deficit. Thus, in this paper we analyze the impact of different economic policies implemented and the results obtained in Uruguay, in the context of the changing international and regional situation. |
| Keywords: | economic policy, economic growth, Uruguay |
| JEL: | E61 E63 N16 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ulr:wpaper:dt-08-17&r=mac |
| By: | Sangyup Choi (Yonsei University); Davide Furceri (IMF); Yi Huang (Graduate Institute, Geneva); Prakash Loungani (IMF) |
| Abstract: | We show that an increase in aggregate uncertainty?measured by stock market volatility?reduces productivity growth more in industries that depend heavily on external finance. The mechanism at play is that during periods of high uncertainty, firms that are credit constrained switch the composition of investment by reducing productivity-enhancing investment?such as on ICT capital?which is more subject to liquidity risks (Aghion et al., 2010). The effect is larger during recessions, when financing constraints are more likely to be binding, than during expansions. Our statistical method?a difference-in-difference approach using productivity growth of 25 industries from 18 advanced economies over the period 1985-2010?mitigates concerns with omitted variable bias and reverse causality. The results are robust to the inclusion of other sources of interaction effects, instrumental variable approaches, and different datasets. The results also hold if economic policy uncertainty (Baker et al., 2016) is used instead of stock market volatility as a measure of aggregate uncertainty. |
| Keywords: | productivity growth; financial dependence; uncertainty; Information and communication technology investment |
| JEL: | E22 F43 O30 O47 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2017rwp-109&r=mac |
| By: | Fritz Breuss (WIFO) |
| Abstract: | Ten years ago, the global financial crisis started to unwind in the USA and triggered the greatest recession since World War II. Although the crisis of 2007-08 was caused in the USA, their economy was not hit so hard in the Great Recession of 2009 as in Europe, and in particular in the Euro area. The USA also recovered more rapidly and sustained from the crisis than the Euro area. Additionally, the specific Euro (debt) crisis of 2010 led to a double-dip recession in the Euro area, not joined by the USA. This divergent post-crisis development since then accumulated to a considerable growth gap between the USA and the Euro area. What are the factors behind this different performance? Would a more aggressive fiscal and/or monetary policy in the Euro area have closed the growth gap? As our simulation exercises show: the answer is no. However, the unconventional monetary policy by the ECB since 2014-15 contributed to the most recent recovery in the Euro area. We identify the pivotal reason of Euro areas growth lagging behind the USA in the different experiences in the crises management. The USA has a long-lasting experience in handling financial crises. In historical comparison, the Euro area – the Economic and Monetary Union (EMU) of the EU – is still a "teenager". The crises revealed, that the legal basis of the institutional set-up of EMU and hence of the Euro area was not enough crises-proven. Rescue instruments had newly to be implemented. The global financial crisis was the first great shock which was badly absorbed by the still quite heterogeneous Euro countries. The Euro area, shattered by a succession of external (global financial crisis, Great Recession) and internal (Euro crisis) shocks, could therefore not unfold its growth potential in the last decade. If – hypothetically – the Euro area would have profited from the faster-growing production inputs (capital and labour) as in the USA, the growth gap could have been closed. |
| Keywords: | USA, Euro area, European integration, business cycles; economic growth |
| Date: | 2017–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2017:i:541&r=mac |
| By: | Julian Kozlowski (New York University) |
| Abstract: | What are the linkages between maturity of corporate debt, liquidity of financial markets and the real economy? Firms in developing countries borrow at shorter maturities and those assets are traded in less liquid markets, relative to advance economies. To understand these facts, this paper studies how firms choose and finance investment projects in a production economy subject to an over-the-counter trading friction in financial markets and a time-to-build constraint on investment. Long-term assets rely on the possibility of being traded in secondary markets. Hence, the credit spread due to liquidity increases with the maturity of the asset, which generates an upward sloping yield curve. As a result, an improvement in market liquidity flattens the yield curve and benefits long-term borrowing. On the other hand, investment choices depend on financial costs. The time-to-build constraint implies that in order to produce a more profitable firm, an entrepreneur needs borrowing for a longer period of time. Hence, when borrowing costs at longer horizons decline, firms invest in more profitable longer-term projects. To evaluate the quantitative importance of this mechanism, I calibrate the model to match the US corporate debt market. Counterfactual exercises show that the liquidity of the secondary market can account for variations in maturity choices of 30. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:699&r=mac |
| By: | Punzi, Maria Teresa; Rabitsch, Katrin |
| Abstract: | We study the impact of macroprudential policies using a novel model which takes into account households´ ability to borrow under different loan-to-value ratios which are tied to their collateral values. Such model generates a larger amplification in real and financial variables, compared to standard models that assume homogeneity in the leveraging and deleveraging process. Conditional on this model, we consider the implications of macroprudential policies that aim to lean against an excessive credit cycle. In particular, we allow macroprudential authorities to tighten excessive lending to higher leveraged households, whose riskiness had been evaluated too optimistically. We find thata policy that targets only the group of households that most strongly deleveraged after an adverse idiosyncratic housing investment risk shock, is welfare-improving at social and individual levels, relative to a macroprudential policy which targets all households in the economy. |
| Keywords: | Endogenous Loan-to-Value ratio, Heterogeneity, Macroprudential Policy |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:5731&r=mac |
| By: | Michele Patanè; Mattia Tedesco; Stefano Zedda |
| Abstract: | Gold and Oil have always had a central role within the international economy, and meet the interests of many investors, and in particular, speculators. The Euro introduction (1999) has added the Euro-Dollar exchange rate as a further main variable that the operators, investing on these commodities, have to consider when implementing their strategies. This paper analyzes the mutual relationship between commodities prices (gold and oil) and the Euro/Dollar exchange rate, within the time frame from 2004 to 2014, so to find which specific variable can give significant information on the ex-pected variation of which other variable, and on which time horizon. This can support the of investors’ choices on tak-ing more effective speculative positions. Results obtained by means of a VAR model show some significant statistical relationship between the three variables on the short term (i.e. when considering daily data), but also some possible relationship on a longer term (monthly data), suggesting that oil prices can give significant information on the expected value of the Euro/Dollar exchange rate. |
| Keywords: | Commodities; Euro/Dollar Exchange Rate; Relationship |
| JEL: | C22 E3 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:759&r=mac |
| By: | Rotta, Tomas N. |
| Abstract: | In this paper I offer an innovative analysis of unproductive accumulation in the United States economy from 1947 to 2011. I develop a new theoretical and empirical framework to analyze the accumulation of capital in its productive and unproductive forms. I also develop a methodology to compute Marxist categories predicated on the idea that the production of knowledge and information is an unproductive activity that relies on the creation of knowledge-rents. In particular, I provide new empirical estimates to uncover the shifting balance between productive and unproductive forms of accumulation. The accumulation pattern observed during the 1947-1979 phase that prioritized productive accumulation gave way after the 1980s to a contrasting pattern prioritizing unproductive accumulation. Unproductive activity has been growing at a fast pace in terms of incomes, fixed assets, and employment. Among all forms of unproductive activity, my approach places special attention on how the production of knowledge and information has constituted a rising share of total unproductive income and capital stock. Additionally, productive stagnation and rapid unproductive accumulation have been related to greater exploitation of productive workers and to widening income inequality. |
| Keywords: | Unproductive activity; Capital accumulation; Exploitation; Inequality; Stagnation |
| JEL: | B51 E01 O34 |
| Date: | 2017–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:gpe:wpaper:14059&r=mac |
| By: | Ethan Ilzetzki (London School of Economics, Centre for Macroeconomics, and CEPR); Saverio Simonelli (University of Naples "Federico II" and CSEF) |
| Abstract: | We measure output per worker in nearly 8,000 municipalities in the Italian electoral process using ballot counting times in the 2013 general election and two referenda in 2016. We document large productivity dispersion across provinces in this very uniform and low-skill task that involves nearly no technology and requires limited physical capital. Using a development accounting framework, this measure explains up to half of the firm-level productivity dispersion across Italian provinces and more than half the north-south productivity gap in Italy. We explore potential drivers of our measure of labor efficiency and we find that its association with measures of work ethic and trust are particularly robust. |
| Keywords: | Labor productivity, development accounting, work ethic, cultural economics. |
| JEL: | O47 E24 J24 Z10 |
| Date: | 2017–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:483&r=mac |
| By: | Yasuhiro Sakai (Faculty of Economics, Shiga University) |
| Abstract: | This paper is concerned with the important question of how and to what extent great economists such as Keynes, Knight, Hicks, Samuelson, Takata, and Morishima have been intermingled with each other. Our discussion focuses on the two key concepts in the labor markets; involuntary unemployment and "involuntary employment." On the one hand, there are so many persons in the street who are willing to work at the existing wages but cannot find jobs because of a shortage of the effective demand as a whole. This is clearly the issue of involuntary unemployment, which has been energetically tackled by J. M. Keynes and his followers since the 1930s.On the other hand, since the 1990s, there also have emerged so many people who must work unwillingly for their survivals at the minimal level of wages. This is a new issue of "involuntary employment" or "non-regular workers", which has recently been investigated by Nobuaki Takahashi, a rising Japanese economist. Although the Takahashi approach is an attractive one, it nevertheless seems to remain at the embryo stage, thus requiring further developments in many ways. The second Keynes would urgently be needed. |
| Keywords: | Keynes, involuntary unemployment,Takata,sociological factors,non-regular workers,Takahashi, "involuntary employment" |
| JEL: | B22 E12 E24 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:shg:dpapea:25&r=mac |
| By: | Ramos Francia Manuel; García-Verdú Santiago |
| Abstract: | We empirically assess the extent to which relative growth rates in labor productivity, output, and wage, and growth in a proxy of firms' concentration can explain relative bank credit growth at a sectorial level in the Mexican economy. To that end, we divide our sectors into two groups based on their average concentration. Then, we estimate a panel regression with fixed effects for each group, positing relative credit growth as dependent variable. We document that changes in concentration growth contribute to explaining relative credit growth, particularly so in the group with high average concentration. However, in the group with low average concentration, relative credit growth seems to be also explained by relative labor productivity, output, and wage growth rates. We also discuss some mechanisms that might explain these results. Such mechanisms could lead to counterproductive dynamics between concentration growth and relative credit growth, for which we provide some empirical evidence. |
| Keywords: | Credit;Concentration;Productivity;Mexico |
| JEL: | E51 J24 L13 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2017-14&r=mac |
| By: | Claudiu Albulescu (UPT - Politehnica University of Timisoara - Politehnica University of Timisoara); Christian Aubin (Axe 2 : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS - Unite mixte de service maison des sciences de l'homme et de la société de Poitiers - Université de Poitiers - CNRS - Centre National de la Recherche Scientifique, CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers); Daniel Goyeau (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers, Axe 2 : « Marchés, Cultures de consommation, Autonomie et Migrations » (MSHS Poitiers) - MSHS - Unite mixte de service maison des sciences de l'homme et de la société de Poitiers - Université de Poitiers - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We test for the long-run relationship between stock prices, inflation and its uncertainty for different U.S. sector stock indexes, over the recent time-span, namely 2006M1-2015M5. For this purpose we use a cointegration analysis with one structural break to capture the crisis effect, and two alternative measures of inflation uncertainty relying on a time-varying unobserved component model. In line with recent empirical studies we discover that in the long-run, the inflation and its uncertainty negatively impact the stock prices, opposed to the well-known Fisher effect. However, in the short-run the results are mixed, providing evidence for complex interdependences between stock prices, inflation and its uncertainty. Our results are robust regarding the use of a bounded or unbounded inflation trend for measuring the uncertainty, and a slight difference is noticed between different sector indexes. |
| Keywords: | stock prices, inflation uncertainty, cointegration with structural breaks |
| Date: | 2016–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-01394897&r=mac |
| By: | Leal-Ordoñez Julio C. |
| Abstract: | I show that, under standard assumptions, input-output (or network) economies are equivalent to value-added ones. Using a generalized version of the model in Acemoglu et al. (Econometrica, 2012), I show that the degree of influence of a given sector is equal to its value added share. This occurs because --by using the input-output network-- the output of a given sector indirectly contributes to the production of the final consumption of the rest of the sectors, which constitutes the source of its value. Thus, value-added economies deliver the same aggregate response to sectoral shocks than input-output ones. Despite this equivalence, the Leontief multiplier, which applies to sales and gross output, is intact. |
| Keywords: | Input-output;Degree of influence;Value added;Network economies;Sectoral shocks |
| JEL: | E10 C67 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2017-13&r=mac |
| By: | Sangyup Choi (Yonsei University) |
| Abstract: | I document that US nancial uncertainty shocks, measured by an increase in VIX, have a substantial impact on the output of emerging market economies (EMEs) without a material impact on US output during the last two decades. To understand this puzzling phenomenon, I propose a credit channel as a propagation mechanism of US nancial uncertainty shocks to EMEs. I augment a boom-bust cycle model of EMEs by Schneider and Tornell [2004] with a portfolio choice model of constrained international investors. As international investors pull their money from EMEs|to satisfy their Value-at-Risk constraints|in response to nancial uncertainty shocks, borrowing costs increase and domestic credit contracts. Higher borrowing costs and a decline in domestic credit, in turn, lead to a fall in investment in the non-tradable sector that causes a real depreciation via currency mismatch prevalent in EMEs and a decline in total output through sectoral linkages. The empirical regularity obtained by estimating structural VARs of 18 EMEs is consistent with the prediction of the model. |
| Keywords: | Uncertainty shocks; Emerging market economies; Credit channel; Vector Autoregressions; Portfolio choice model; Value-at-Risk constraint |
| JEL: | E30 F30 G10 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2017rwp-113&r=mac |
| By: | Mathieu Taschereau-Dumouchel (University of Pennsylvania Wharton Schoo) |
| Abstract: | This paper proposes a simple theory of production in which the network of input-output linkages is endogenously determined by the firms' decisions to operate. Since producers benefit from having multiple suppliers, the economy features complementarities between the operating decisions of nearby firms. As a result, tightly connected clusters of producers emerge around productive firms. In addition, after a firm is hit by a severe shock, a cascade of shutdowns might spread from neighbor to neighbor as the network reorganizes itself. While well-connected firms are better able to withstand shocks, they trigger larger cascades upon shut down. The theory also predicts how the shape of the network interacts with the business cycle. As in the U.S. data, periods of low economic activity feature fewer well-connected producers and less clustering among firms. Once calibrated, the model predicts that allowing the network to reorganize itself in response to shocks leads to substantially smaller variations in aggregate output, suggesting that endogenous changes in the shape of the production network have a significant impact on the aggregation of microeconomic shocks into macroeconomic fluctuations. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:700&r=mac |
| By: | Jang-Ting Guo; Alan Krause |
| Abstract: | Abstract: We compare optimal nonlinear savings taxation under different assumptions with regard to the government's ability to commit to its future tax policy. In particular, we incorporate the possibility that individuals may differ in their beliefs regarding the probability of commitment. When these beliefs are homogeneous, we find that optimal marginal savings tax rates always fall between those under the polar cases of full-commitment (zero marginal savings taxation) and no-commitment (progressive marginal savings taxation). However, this result no longer holds when beliefs are postulated to be heterogeneous. The effects of beliefs changing in response to past commitment or no-commitment decisions by the government are also quantitatively explored. |
| Keywords: | Savings taxation, commitment, multi-dimendional screening |
| JEL: | E69 H21 H24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:17/09&r=mac |
| By: | Dagfinn Rime (Norges Bank (Central Bank of Norway) and BI Norwegian Business School); Andreas Schrimpf (BIS and CEPR); Olav Syrstad (Norges Bank (Central Bank of Norway)) |
| Abstract: | This paper studies the violation of the most basic no-arbitrage condition in international finance — Covered Interest Parity (CIP). We find that the CIP puzzle largely stems from funding liquidity differences, reflected in the marginal funding rates of the main arbitrageurs. With severe funding liquidity differences, it becomes impossible for FX swap intermediaries to quote prices such that CIP holds across the full rate spectrum. A narrow set of global top-tier banks enjoys risk-less arbitrage opportunities as dealers set quotes to avert order flow imbalances. A situation with persistent arbitrage opportunities emerges as an equilibrium outcome due to the constellation of market segmentation, the abundance of excess reserves and their remuneration in central banks’ deposit facilities. |
| Keywords: | Covered Interest Parity, Money Market Segmentation, Funding Liquidity Premia, FX Swap Market, U.S. Dollar Funding |
| JEL: | E43 F31 G15 |
| Date: | 2017–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2017_15&r=mac |
| By: | Guender, Alfred V. |
| Abstract: | This paper examines the role of credit providers in the EMU and assesses the effects of credit spreads and credit quantities on economic activity. Movements in credit spreads are far more successful than movements in the external finance mix in predicting near-term changes in real economic activity in ten EMU countries. However, the forecasting performance of the three credit spreads evaluated in this paper is uneven. A risk premium extracted from individual corporate bond yields predicts three measures of economic activity fairly well in Germany and Southern Europe. Two other credit spreads, the ‘spread’ and the ‘ECB-spread’, have predictive power for some measures of economic activity but they fail to predict consistently across either a range of economic indicators or countries |
| Keywords: | credit spreads, finance mix, bank vs open market debt, economic activity, financial crises |
| JEL: | E3 E4 G1 |
| Date: | 2017–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2017-6&r=mac |
| By: | Christian Fons-Rosen; Sebnem Kalemli- Özcan; Bent E. Sørensen; Carolina Villegas-Sanchez; Vadym Volosovych |
| Abstract: | We study the impact of foreign direct investment (FDI) on total factor productivity (TFP) of domestic firms using a new, representativ firm-level data set spanning six countries. A novel finding is that firm-level spillovers from foreign firms to domestic companies can be significantly positive, non-existent, or even negative, depending on which sectors receive FDI. When foreign firms produce in the same narrow sector as domestic firms, the latter are negatively affected by increasing competition and positively a ected by knowledge spillovers. We find that the positive spillovers dominate if foreign firms enter sectors where firms are "technologically close," controlling for the endogeneity of their entry decision into such sectors. Positive technology spillovers also affect firms in other sectors, if those sectors are technologically close to the sectors receiving FDI. Increasing FDI in sectors that are technologically close to other sectors boosts TFP of domestic firms by twice as much as increasing FDI by the same amount across all sectors. |
| Keywords: | Multinationals, competition, technology, selection, FDI, TFP. |
| JEL: | E32 F15 F36 O16 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1580&r=mac |
| By: | Ben Nasr Adnen (BESTMOD, Institut Supérieur de Gestion de Tunis, Tunisia); Mehmet Balcilar (Eastern Mediterranean University, Northern Cyprus, via Mersin 10, Turkey, Montpellier Business School, Montpellier, France and University of Pretoria, Pretoria, 0002, South Africa); Seyi Saint Akadiri (Eastern Mediterranean University, Northern Cyprus, via Mersin 10, Turkey); Rangan Gupta (University of Pretoria, Pretoria, 0002, South Africa) |
| Abstract: | The relationship between long-run economic growth and income inequality has gained a growing attention in economic research for over decades. This study employed advanced time series techniques to examine the existence of an inverted U-shaped long-run relationship between economic growth and income inequality. Using long-span and very recent data for the United States, for the periods 1917 to 2012, and the concept of summability, balancedness and co-summability, which was advanced to analyze nonlinear long-run relations among stochastic processes. The empirical results find no evidence in support of nonlinear long-run (inverted U-shaped) relationship for the US, but findings from vocal set of economists strongly lends the basis upon which conclusions are drawn in this study. |
| Keywords: | Income inequality, economic growth, summability, balancedness, co-summability |
| JEL: | C22 E62 F34 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201763&r=mac |
| By: | Javier G. Gómez-Pineda (Banco de la República de Colombia) |
| Abstract: | The paper presents some evidence on the overwhelming relevance of systemic risk and the lesser importance of US interest rates in the global transmission of shocks. This evidence suggests that the literature could benefit from incorporating global confidence variables into global frameworks in the study of the global transmission of shocks. As framework, we used a global semi-structural model (GSSM) augmented with common factors for country risk and country credit. We approximated country risk with historical stock volatility, a measure that is uniform and available across countries; in addition, we measured spillovers as the share of forecast error variance explained by different volatility factors. We found that systemic risk is the main volatility factor in all systemic economies, and also accounts for the bulk of spillovers into non systemic economies. Other volatility factors such as global credit, foreign interest rates and trade-related factors rarely accounted for shares of forecast error variance above one percent. Classification JEL: E58; E37; E43; Q43 |
| Keywords: | Spillovers; Systemic risk; Systemic Economies; Global semi structural model |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1011&r=mac |
| By: | Anthony Savagar |
| Abstract: | I analyze two opposing effects of firm dynamics on productivity over the business cycle. Consider net exit, on the one hand it reallocates resources to incumbents whose productivity improves through scale economies, on the other hand it reduces the competitive pressure incumbents face which depresses productivity. Contrarily net entry strengthens competition, thus increasing productivity, but worsens incumbents' scale economies, thus decreasing productivity. I outline a theory that focuses on two industrial features (1) slow firm entry/exit and (2) firm pricing that depends on the number of competitors. In this environment a negative shock strikes incumbents due to slow exit responses. This weakens their scale thus worsening productivity but the effect recedes as exit occurs which reallocates resources to incumbents. However, the remaining firms face fewer competitors and thus charge higher markups which damages productivity. I analyze this trade-off between productivity improving resource reallocation and productivity degrading market power, by developing a continuous time, analytically tractable DGE model of endogenous firm entry/exit and endogenous markups. |
| Keywords: | Endogenous markups; Entry; Endogenous Productivity; Imperfect product markets; dynamical systems |
| JEL: | E32 D21 D43 L13 C62 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1713&r=mac |
| By: | Christian Fons-Rosen; Sebnem Kalemli-Ozcan; Bent E. Sørensen; Carolina Villegas-Sánchez; Vadym Volosovych |
| Abstract: | We study the impact of foreign direct investment (FDI) on total factor productivity (TFP) of domestic firms using a new, representative firm-level data set spanning six countries. A novel finding is that firm-level spillovers from foreign firms to domestic companies can be significantly positive, non-existent, or even negative, depending on which sectors receive FDI. When foreign firms produce in the same narrow sector as domestic firms, the latter are negatively affected by increasing competition and positively affected by knowledge spillovers. We find that the positive spillovers dominate if foreign firms enter sectors where firms are “technologically close,” controlling for the endogeneity of their entry decision into such sectors. Positive technology spillovers also affect firms in other sectors, if those sectors are technologically close to the sectors receiving FDI. Increasing FDI in sectors that are technologically close to other sectors boosts TFP of domestic firms by twice as much as increasing FDI by the same amount across all sectors. |
| Keywords: | multinationals, competition, technology, selection, FDI, TFP |
| JEL: | E32 F15 F36 O16 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:986&r=mac |
| By: | Gilles Saint-Paul (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, New York University Abu Dhabi); Davide Ticchi (Marche Polytechnic University); Andrea Vindigni (University of Genova) |
| Abstract: | If people understand that some macroeconomic policies are unsustainable, why would they vote for them in the .first place? We develop a political economy theory of the endogenous emergence of fiscal crises, based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote in favor of policies that are more likely to lead to a crisis. People are entitled to a certain level of a publicly provided good, which may be rationed in times of crises. After voting on that level, society votes on the extend to which it will be financed by debt. Under bad enough macro shocks, a crisis arises: taxes are set at their maximum but despite that some agents do not get their entitlement. Some social groups do better in this rationing process than others. We show that public debt .which makes crises more likely .is higher, as is the probability of a crisis, the greater the level of favoritism. If the favored group is important enough to be pivotal when society votes on the entitlement level, favoritism also leads to greater public expenditure. We show that the favored group may strategically favor a weaker state in order to make crises more frequent. Finally, the decisive voter when choosing expenditure may be different from the one when voting on debt. In such a case, constitutional limits on debt may raise the utility of all the poor, relative to the equilibrium outcome absent such limits. |
| Keywords: | Political Economy,Fiscal Crises,Favoritism,Entitlements,Public Debt,In- equality,State Capacity |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01584043&r=mac |
| By: | Michel Aglietta; Virginie Coudert |
| Abstract: | Fears of disruption in international relationships, raised by Trump’s access to power, have been confirmed by his first half-year in office. Uncertainty has spread in international relationships. Surprisingly few in-depth studies in political economy have been made to define “Trumponomics” and to analyze the economic consequences of implementing his intentions for the US and the world. Since the question pertains to radical uncertainty, the usual quantitative methods and indicators go astray. Financial markets are not at ease with political uncertainty. In this environment, the financial community takes refuge in denying that business as usual might be derailed. However, it may be useful to raise a lively debate in political economy to figure out the rising forces of change that might trigger the unraveling of the financial globalization founded with Reaganomics in the 1980s that spread all over the world with the Washington Consensus. We will first question the consistency of Trump’s revealed intents. Do they amount to a coherent doctrine? What might be the economic consequences? What type of dilemma will he face? To deepen the analysis, we will resort to history. Can Trumponomics be compared to Reaganomics? Both have claimed to overhaul social relationships in emphasizing supply-side economics. Revisiting the consequences of Reaganomics gives clues for assessing the pitfalls that can undermine Trumponomics, since the initial economic and financial conditions are opposite to those that prevailed when Reagan took office. Finally, the third part of the paper will try to assess the consequences for the world and for Europe if Trump’s policy triggers a dual rise in US interest rates and in the dollar. |
| Keywords: | Trumponomics;Supply Side Economics;Bond Market Crash;Dollar Appreciation |
| JEL: | E62 E65 F31 H62 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepipb:2017-17&r=mac |
| By: | Luigi Infante (Bank of Italy); Bianca Sorvillo (Bank of Italy) |
| Abstract: | This paper studies the performance of the market value of the derivatives for Italian banks by using the financial accounts and proposing an international comparison. An estimate of the market value was also obtained for the period from the first quarter of 2001 to the third quarter of 2008 by exploiting the continuity of the notional values found in the supervisory reports. Our analysis of the performance of banking derivatives in the major countries shows that their value has significantly decreased since the financial crisis. At the end of 2015, the amount of financial derivatives reported in the assets of monetary financial institutions was 4 per cent of the total financial assets in Italy, a much lower value than in the UK, Germany and France. |
| Keywords: | derivatives, financial accounts, banks |
| JEL: | C82 E01 G1 G2 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_389_17&r=mac |
| By: | Benos, Evangelos (Bank of England); Ferrara, Gerardo (Bank of England); Gurrola-Perez, Pedro (Bank of England) |
| Abstract: | Large-value payment systems (LVPS) often have a tiered structure where only a limited number of banks have direct access to these systems and every other institution accesses the system through agency arrangements with the direct participants. As such, a high degree of tiering is often perceived as being associated with credit and operational risks. In this paper we use data around five recent de-tiering events in the United Kingdom’s LVPS(CHAPS), to assess the impact of de-tiering on these risks as well as on liquidity usage. We find that the impact of de-tiering is largest on credit risk, where average intraday exposures between first and second-tier banks drop by anywhere between £0.3 billion and £1.5 billion per bank, while the cost of insuring against losses arising from these exposures drops by about £4 million to £19 million per bank, per year. On the other hand, the impact of these de-tiering events on operational risk and liquidity usage appears to be economically small. |
| Keywords: | Payment systems; tiering |
| JEL: | E42 G23 |
| Date: | 2017–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0676&r=mac |
| By: | Colin Caines (Federal Reserve Board) |
| Abstract: | Explaining asset price booms poses a difficult question for researchers in macroeconomics: how can large and persistent price growth be explained in the absence large and persistent variation in fundamentals? This paper argues that boom-bust behavior in asset prices can be explained by a model in which boundedly-rational agents learn the process for prices. The key feature of the model is that learning operates in both the demand for assets and the supply of credit. Interactions between agents on either side of the market create complementarities in their respective beliefs, providing an additional source of propagation. In contrast, the paper shows why learning involving only one side on the market, which has been the focus of most of the literature, cannot plausibly explain persistent and large price booms. Quantitatively, the model explains recent experiences in US housing markets. A single unanticipated mortgage rate drop generates 20 quarters of price growth whilst capturing the full appreciation in US house prices in the early 2000s. The model is able to generate endogenous liberalizations in household lending conditions during price booms, consistent with US data, and replicates key volatilities of housing market variables at business cycle frequencies. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:695&r=mac |
| By: | Anete Pajuste (Stockholm School of Economics in Riga (SSE Riga)); Hernán Ruffo (UTDT) |
| Abstract: | Wage rigidity generates higher unemployment volatility in matching mod- els. By comparing the wage dynamics and workers’ mobility during the period 2004-11 in Spain and Latvia we provide empirical evidence to this effect. We find that wages in Spain were rigid even during periods of ris- ing and high unemployment. In contrast, Latvian wages were reduced by about 10 percent and wage cuts affected 60 percent of jobs. At the same time, the elasticity of finding and separation rates to productivity shocks was four times higher in Spain than in Latvia, and that these responses were more persistent in Spain. We use finding and separation conditions from a matching model to show that these empirical results are in line with what a model would predict. We also emphasize that separations are very responsive to shocks, more so in a rigid-wage economy, a fact that has not been highlighted in theoretical literature. |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:bic:rpaper:4&r=mac |
| By: | Russell Cooper (Penn State University) |
| Abstract: | We study the employment and output effects of the short-time work (STW) policy in Ger- many between 2009 and 2010. This intervention facilitated reductions in hours worked per employee with the goal of preventing layoffs. Using confidential German micro-level data we estimate a search model with heterogeneous multi-worker firms. Our findings suggest that STW can prevent increases in unemployment during a recession. However, the policy leads to a decrease in the allocative efficiency of the labor market, resulting in significant output losses. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:613&r=mac |
| By: | Thomas Goda; Santiago Sanchez |
| Abstract: | This paper uses national accounts data to adjust market and disposable Top 10% and Top 1% household survey income shares for 39 developed and developing countries that are part of the Luxembourg Income Study (LIS). An additional novelty of this study is the distinction between labor and capital income. The obtained results suggest that for most countries top income shares are significantly higher than those reported in household surveys, which mainly underestimate top capital income. While the presented results should be treated with some caution, our easy-to-implement approach seems suitable for countries for which no tax data is available. |
| Keywords: | top income shares, personal income inequality, income distribution, LIS household surveys, system of national accounts (SNA) |
| JEL: | D31 E25 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:lis:liswps:715&r=mac |
| By: | Giorgio Albareto (Bank of Italy); Giuseppe Cappelletti (European Central Bank); Andrea Cardillo (Bank of Italy); Luca Zucchelli (Bank of Italy) |
| Abstract: | The total costs of investment in an open-end fund include those that are charged on the fund and those directly attributed to subscribers (subscription and redemption fees). Subscriptions of funds characterized by the presence of costs directly attributed to investors have increased significantly in recent years. The paper presents an estimate of the Total Shareholders Cost (TSC) made using the information provided by the investment management companies in the supervisory reports. The estimates obtained show that in the period 2006-2016 the TSC was on average 1.58 per cent of the total assets of funds (1.74 per cent at the end of 2016). Subtracting direct and indirect costs borne by investors, the return on open-end funds is reduced from 3.5 per cent on average to 2 per cent. Based on preliminary results, the presence of subscription and redemption fees reduces the elasticity of subscriptions and redemptions with respect to returns. |
| Keywords: | mutual funds, Total Expense Ratio, Total Shareholders Cost |
| JEL: | G11 G23 E60 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_391_17&r=mac |
| By: | Alfredo Marvão Pereira (Department of Economics, The College of William and Mary, Williamsburg VA 23187); Rui Manuel Pereira (Department of Economics, The College of William and Mary, Williamsburg VA 23187) |
| Abstract: | Using a newly-developed data set for Portugal, we analyze the industry-level effects of infrastructure investment. Focusing on the divide between traded and non-traded industries, we find that infrastructure investments have a non-traded bias, as these shift the industry mix towards private and public services. We also find that the industries that benefit the most in relative terms are all non-traded: construction, trade, and real estate, among the private services, and education and health, amongst the public services. Similarly, emerging trading sectors, such as hospitality and professional services stand to gain. The positive impacts on traded industries are too small to make a difference. These results highlight that infrastructure-based strategies are not neutral in terms of the industry mix. Moreover, with most of the benefits accruing to non-traded industries, such a development model that is heavily based on domestic demand may be unsustainable in light of Portugal’s current foreign account position |
| Keywords: | Infrastructure Investment, Economic Performance, Industry Mix, Traded and Non-traded Sectors, VAR, Portugal. |
| JEL: | C32 E22 H54 O52 L90 L98 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0078&r=mac |
| By: | Christian Fons-Rosen (Universitat Pompeu Fabra, CEPR, and Barcelona Graduate School of Economics, Spain); Sebnem Kalemli-Ozcan (University of Maryland, CEPR, and NBER, the USA); Bent E. Sorensen (University of Houston and CEPR, the USA); Carolina Villegas-Sanchez (ESADE - Universitat Ramon Llull, Spain); Vadym (V.) Volosovych (Erasmus University Rotterdam, Erasmus Research Institute of Management, the Netherlands; Tinbergen Institute, The Netherlands) |
| Abstract: | We study the impact of foreign direct investment (FDI) on total factor productivity (TFP) of domestic firms using a new, representative firm-level data set spanning six countries. A novel finding is that firm-level spillovers from foreign firms to domestic companies can be significantly positive, non-existent, or even negative, depending on which sectors receive FDI. When foreign firms produce in the same narrow sector as domestic firms, the latter are negatively affected by increasing competition and positively affected by knowledge spillovers. We find that the positive spillovers dominate if foreign firms enter sectors where firms are "technologically close,'' controlling for the endogeneity of their entry decision into such sectors. Positive technology spillovers also affect firms in other sectors, if those sectors are technologically close to the sectors receiving FDI. Increasing FDI in sectors that are technologically close to other sectors boosts TFP of domestic firms by twice as much as increasing FDI by the same amount across all sectors. |
| Keywords: | Multinationals; Competition; Technology; Selection; FDI; TFP |
| JEL: | E32 F15 F36 O16 |
| Date: | 2017–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20170078&r=mac |
| By: | Sinitskaya, Ekaterina; Tesfatsion, Leigh |
| Abstract: | Real-world decision-makers are forced to be locally constructive; that is, their decisions are necessarily constrained by their interaction networks, information, beliefs, and physical states. This study transforms an otherwise standard dynamic macroeconomic model into an open-ended dynamic game by requiring consumers and firms with intertemporal utility and profit objectives to be locally constructive. Tested locally-constructive decision processes for the consumers and firms range from simple reactive reinforcement learning to adaptive dynamic programming (ADP). Computational experiments are used to explore macroeconomic performance under alternative decision-process combinations relative to a social planner benchmark solution. A key finding is that simpler decision processes can outperform more sophisticated decision processes such as ADP. However, memory length permitting some degree of adaptive foresight is critical for good performance.;Note: Accepted for publication, Journal of Economic Dynamics and Control, September, 2015 |
| Date: | 2015–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:201509200700001008&r=mac |
| By: | Michal Rubaszek; Margarita Rubio |
| Abstract: | The size of the rental housing market in most countries around the globe is low. In this article we claim that this may be detrimental for macroeconomic stability. Toward this aim we, determine the reasons behind rental market underdevelopment by conducting an original survey among a representative group of 1005 Poles, a country that is characterized by high homeownership ratio. We find that households' preferences are strongly influenced by economic and psychological factors. Next, we propose a DSGE model in which households satisfy housing needs both by owning and renting. We use it to show that reforms enhancing the rental housing market contribute to macroeconomic stability. This micro-macro approach allows us to dig into the causes of rental market underdevelopment and design appropriate policy recommendations. |
| Keywords: | Rental housing market; survey data; DSGE model |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:17/06&r=mac |
| By: | Annette Alstadsæter; Niels Johannesen; Gabriel Zucman |
| Abstract: | Drawing on newly published macroeconomic statistics, this paper estimates the amount of household wealth owned by each country in offshore tax havens. The equivalent of 10% of world GDP is held in tax havens globally, but this average masks a great deal of heterogeneity—from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. We use these estimates to construct revised series of top wealth shares in ten countries, which account for close to half of world GDP. Because offshore wealth is very concentrated at the top, accounting for it increases the top 0.01% wealth share substantially in Europe, even in countries that do not use tax havens extensively. It has considerable effects in Russia, where the vast majority of wealth at the top is held offshore. These results highlight the importance of looking beyond tax and survey data to study wealth accumulation among the very rich in a globalized world. |
| JEL: | E21 H26 H87 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23805&r=mac |