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on Macroeconomics |
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Issue of 2018‒02‒26
120 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Guido Bulligan (Bank of Italy); Elisa Guglielminetti (Bank of Italy); Eliana Viviano (Bank of Italy) |
| Abstract: | One of the key questions about the current economic recovery in the euro area is why the decline in unemployment recorded since the second half of 2013 has been accompanied by subdued growth in nominal wages. In this paper we adopt a Phillips curve framework to assess whether alternative indicators of labour market slack can explain the current modest wage dynamics in the euro area and in its five largest economies. Our results suggest that the intensive margin of labour utilization plays a relevant role in wage growth: our estimates indicate that the shape of the Phillips curve becomes flatter for lower levels of hours per worker, implying that wage growth is less responsive to unemployment. Looking ahead, a significant recovery in the intensive margin appears key to achieve a robust increase in nominal wage growth. |
| Keywords: | wage growth, Phillips curve, intensive margin |
| JEL: | E24 E31 J21 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_413_17&r=mac |
| By: | Pavel Vidal; Gilberto Ramírez; Lya Paola Sierra (Faculty of Economics and Management, Pontificia Universidad Javeriana Cali) |
| Abstract: | Using a BVAR model and the data of the Monthly Economic Activity Indicator (IMAE), the effect of different monetary and external sector shocks on the cyclical growth of the department of Valle del Cauca is estimated, and compared with the effect of these same shocks on the national cycle. We found that the economy of the Valle del Cauca differs from the national average by presenting larger response to variations in the real exchange rate. This is precisely the factor that in a greater proportion -almost by 50 %- explains the higher growth of the economy of Valle del Cauca since the end of 2013. The estimates show the null effect that the changes in the price of oil have on the departmental growth andthe greater the impact on the economy of the Valley of the changes in the US GDP and the country risk. The version here presented corresponds to the updated study. |
| Keywords: | Regional, Monetary Policy, Transmission Mechanisms, BVAR, Valle del Cauca |
| JEL: | E32 E37 C43 C53 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:ddt:wpaper:33&r=mac |
| By: | Pablo Ottonello; Thomas Winberry |
| Abstract: | We study the role of heterogeneity in firms' financial positions in determining the investment channel of monetary policy. Empirically, we show that firms with low leverage or high credit ratings are the most responsive to monetary policy shocks. We develop a heterogeneous firm New Keynesian model with default risk to interpret these facts and study their aggregate implications. In the model, firms with high default risk are less responsive to monetary shocks because their marginal cost of external finance is high. The aggregate effect of monetary policy therefore depends on the distribution of default risk across firms. |
| JEL: | D22 E22 E44 E52 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24221&r=mac |
| By: | Beaudry, Paul; Portier, Franck |
| Abstract: | In this paper we present a generalized sticky price model which allows, depending on the parameterization, for demand shocks to maintain strong expansionary effects even in the presence of perfectly flexible prices. The model is constructed to incorporate the standard three-equation New Keynesian model as a special case. We refer to the parameterizations where demand shocks have expansionary effects regardless of the degree of price stickiness as Real Keynesian parameterizations. We use the model to show how the effects of monetary policy-- for the same degree of price stickiness-- differ depending whether the model parameters are within the Real Keynesian subset or not. In particular, we show that in the Real Keynesian subset, the effect of a monetary policy that tries to counter demand shocks creates the opposite tradeoff between inflation and output variability than under more traditional parameterizations. Moreover, we show that under the Real Keynesian parameterization neo-Fisherian effects emerge even though the equilibrium remains unique. We then estimate our extended sticky price model on U.S. data to see whether estimated parameters tend to fall within the Real Keynesian subset or whether they are more in line with the parameterization generally assumed in the New Keynesian literature. In passage, we use the model to justify a new SVAR procedure that offers a simple presentation of the data features which help identify the key parameters of the model. The main finding from our multiple estimations, and many robustness checks is that the data point to model parameters that fall within the Real Keynesian subset as opposed to a New Keynesian subset. We discuss both (i) how a Real Keynesian parametrization offers an explanation to puzzles associated with joint behavior of inflation and employment during the zero lower bound period and during the Great Moderation period, (ii) how it potentially changes the challenge faced by monetary policy if authorities want to achieve price stability and favor employment stability. |
| Keywords: | Business cycle; monetary policy |
| JEL: | E24 E3 E32 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12604&r=mac |
| By: | Jalali Naini, Ahmad Reza; Naderian, Mohammad Amin |
| Abstract: | Impulse for business cycles in Iran are largely generated from oil price (terms of trade) shocks and propagated through fiscal policies. The classic mission of monetary policy is to conduct countercyclical policy, however, this is not a universal norm. Pro-cyclical fiscal and monetary policies during boom periods has been observed in a number of developing countries. Such policies tend to amplify the impact of positive oil price (terms of trade) shocks through aggregated demand expansion. The consequence has been strengthening of domestic inflationary pressures and appreciation of the real exchange rate. This paper attempts to examine if monetary policy in Iran is countercyclical and what is the impact of fiscal policy in this regard. It will be argued that the stance of fiscal policy and how government expenditures are financed can have a significant effect on how monetary policy is conducted. Our empirical observations regarding the experience of the Iranian economy indicates that, in a fiscally dominated structure, fiscal and monetary policies are generally expansionary, particularly during economic booms. This entails subsequent very large managed depreciation of the exchange rate, higher inflation rates, and an economic downturn. Under fiscal dominance monetary policy will be ineffective and both targets and instruments of monetary policy making will not be under the control of monetary authority. The policy package of a structural balanced fiscal rule combined with smoothing of quasi-fiscal operations is the appropriate policy measure that enhances the ability of central bank to conduct more effective countercyclical monetary policies. |
| Keywords: | Pro-cyclicality, Fiscal Dominance, Monetary policy, Ricardian |
| JEL: | E5 |
| Date: | 2017–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84480&r=mac |
| By: | Ana Arencibia Pareja (Banco de España); Samuel Hurtado (Banco de España); Mercedes de Luis López (Banco de España); Eva Ortega (Banco de España) |
| Abstract: | The Quarterly Model of Banco de España (MTBE, Modelo Trimestral del Banco de España), is a large-scale macro-econometric model used for medium term macroeconomic forecasting of the Spanish economy, as well as for performing scenario simulations. The model is specified as a large set of error correction equations, and, especially in the short run, is mostly demand driven. This paper presents an update of the model, estimated with data from 1995 to 2014. In this iteration, a big revamp to the econometric techniques used in estimation has been implemented. Despite that, changes in coefficients and simulation results with respect to the previous version of the model are smaller than what we saw in earlier updates. Compared with MTBE-2014, this new version (MTBE-2017) shows less response of demand to interest rates and stock market prices but more to credit, less response of GDP to world demand but more to world prices and to the price of oil, more positive effects to output and employment from price and wage moderation, and slightly faster and bigger fiscal multipliers for some shocks (government consumption and investment, direct taxes to households) but smaller for others (indirect taxes, direct taxes to firms). |
| Keywords: | Spanish economy, macroeconometric model |
| JEL: | E10 E17 E20 E60 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:1709&r=mac |
| By: | Eijffinger, Sylvester C W; Malagon, Jonathan |
| Abstract: | This paper aims to determine if there is a differential incidence between conventional and unconventional monetary policy of developed economies in Latin American financial markets, evaluating six hypotheses that can be extracted from the economic literature. Financial spillovers are considered on two dimensions: financial asset prices (fixed income and equity markets) and interest rates (monetary policy rate and loans rates). The main finding is that both conventional and unconventional monetary policies in US and Eurozone have a significant and direct incidence on Latin American fixed income markets, although the effect of unconventional monetary policy is low. In contrast, only unconventional monetary policy has a significant effect on Latin American equity markets. On the other hand, regardless of the exchange rate pass-through of Latin American economies, the conventional monetary policy of the United States and Eurozone has a low but significant incidence on both monetary policy rates and lending interest rates in Latin America, while the unconventional monetary policies have no incidence. As anticipated, US conventional and unconventional monetary policy have a higher incidence on Latin American financial markets with respect to the monetary policy decisions in Eurozone and Japan. Finally, free trade agreements between developed economies and Latin American economies do not have a significant impact on the relationship between international monetary policy and Latin American financial markets. |
| Keywords: | central banking; financial asset prices; financial globalization; Financial spillovers; Latin America; monetary policy |
| JEL: | E40 E43 E50 E52 E58 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12678&r=mac |
| By: | Pasten, Ernosto; Schoenle, Raphael; Weber, Michael |
| Abstract: | We study the ability of sectoral shocks to generate aggregate fluctuations in a multi-sector general equilibrium model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We show fat-tailed distributions of sectoral size or network centrality are neither necessary nor sufficient for idiosyncratic shocks to generate aggregate fluctuations when the responsiveness of prices to shocks varies across sectors. We derive conditions under which a frictional origin of aggregate fluctuations arises, that is, when micro shocks contribute to aggregate fluctuations in an economy with heterogeneous price rigidities but equal sector size and network centrality across sectors. We calibrate a 341-sector version of the to the United States and a quantitatively large frictional effect. When we allow for heterogeneities in price rigidity, sector size, and network centrality, the effect of micro shocks on GDP volatility doubles relative to a frictionless economy. Heterogeneity in price rigidity also substantially changes the identity of the sectors from which GDP fluctuations originate. |
| JEL: | E31 E32 O40 |
| Date: | 2018–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2018_003&r=mac |
| By: | Schüler, Yves S. |
| Abstract: | Hamilton (2017) criticises the Hodrick and Prescott (1981, 1997) filter (HP filter) because of three drawbacks (i. spurious cycles, ii. end-of-sample bias, iii. ad hoc assumptions regarding the smoothing parameter) and proposes a regression filter as an alternative. I demonstrate that Hamilton's regression filter shares some of these drawbacks. For instance, Hamilton's ad hoc formulation of a 2-year regression filter implies a cancellation of two-year cycles and an amplification of cycles longer than typical business cycles. This is at odds with stylised business cycle facts, such as the one-year duration of a typical recession, leading to inconsistencies, for example, with the NBER business cycle chronology. Nonetheless, I show that Hamilton's regression filter should be preferred to the HP filter for constructing a credit-to-GDP gap. The filter extracts the various medium-term frequencies more equally. Due to this property, a regression-filtered credit-to-GDP ratio indicates that imbalances prior to the global financial crisis started earlier than shown by the Basel III creditto-GDP gap. |
| Keywords: | detrending,spurious cycles,business cycles,financial cycles,Basel III |
| JEL: | C10 E32 E58 G01 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:032018&r=mac |
| By: | Imran Hussain Shaha (Department of Economics, University of Bath, Bath, UK.); Simón Sosvilla-Rivero (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.) |
| Abstract: | We propose an Economic Stability Index (ESI) incorporating house prices and stock prices as components of the measure of the inflation rate in order to allow the European Central Bank (ECB) to achieve both price and macroeconomic stability. We use an optimisation approach to estimate target weights for different sectoral prices in the broader price index, which depend on sectoral parameters other than those used to compute the Harmonised Index of Consumer Prices applied by the ECB to gauge price stability in the euro area (EA). Our results suggest that if the ECB had targeted the ESI, it would have implemented a different monetary policy which would had increased stability in the EA’s economic activity and would have helped to create adequate preconditions for sustainable economic growth and job creation. |
| Keywords: | Stock prices; House prices; Inflation targeting; Macroeconomic stabilization; Euro area. |
| JEL: | C32 D53 E31 E52 E58 G12 O52 R31 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:wpaper:1707&r=mac |
| By: | Andrew Filardo; Jouchi Nakajima |
| Abstract: | Have unconventional monetary policies (UMPs) become less effective at stimulating economies in persistently low interest rate environments? This paper examines that question with a time-varying parameter VAR for the United States, the United Kingdom, the euro area and Japan. One advantage of our approach is the ability to measure an economy's evolving interest rate sensitivity during the post-GFC macroeconomy. Another advantage is the ability to capture time variation in the "natural", or steady state, rate of interest, which allows us to separate interest rate movements that are associated with changes in the stance of monetary policy from those that are not. |
| Keywords: | lending rate, quantitative easing, time-varying parameter VAR model, unconventional monetary policy |
| JEL: | E43 E44 E52 E58 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:691&r=mac |
| By: | Vasilev, Aleksandar |
| Abstract: | We introduce a pro-cyclical endogenous utilization rate of physical capital stock into a real-business-cycle model augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the endogenous depreciation rate, and the capital utilitization mechanism working through the use of energy for cyclical fluctuations in Bulgaria. In particular, a positive shock to energy prices in the model works like a negative technological shock. Allowing for variations in factor utilization and the presence of energy as a factor of production improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework with constant depreciation and a fixed utilization rate of physical capital, e.g., Vasilev (2009). |
| Keywords: | Business fluctuations,capital utilization rate,endogenous depreciation rate,energy prices,Bulgaria |
| JEL: | E32 E22 E37 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:173966&r=mac |
| By: | Süssmuth, Bernd; Wieschemeyer, Matthias |
| Abstract: | Inflation and earnings growth can push some tax payers into higher brackets in the absence of inflation-indexed schedules. Moreover, inflation may affect the composition of individuals' income sources. As a result, depending on the relative tax burden of labour and capital, inflation may decrease or increase the difference between before-tax and after-tax income. However, whether some and if so which percentiles of the income distribution net benefit from inflation via taxation is a widely unexplored question. We make use of a novel dataset on U.S. pre-tax and post-tax income distribution series provided by Pike ty et al. (2018) for the years 1962 to 2014 to answer this question. To this end, we estimate local projections to quantify dynamic effects. We find that inflation shocks increase progressivity of taxation not only contemporaneously but also with some repercussion of several years after the shock. While particularly the bottom two quintiles gain in share, it is not the top but the fourth quintile that lastingly loses. |
| Keywords: | bracket creep,progressive income taxation,inflation,income distribution |
| JEL: | D31 E31 E44 E52 E62 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:332017&r=mac |
| By: | Ragna Alstadheim (Norges Bank (Central Bank of Norway)); Christine Blandhol (University of Chicago and Statistics Norway) |
| Abstract: | We investigate the importance of a global financial cycle for gross capital inflows based on monthly balance sheet data for Norwegian banks. The VIX index has been interpreted as an “investor fear gauge” and associated with a global financial cycle. This index has also been found to impact real activity. We include both a global activity variable and the VIX index in our structural VAR model of capital inflows. We find that when global activity falls, banks’ foreign funding share falls. Our results suggest that global real activity rather than a global financial cycle is a main driver behind the volume of bank capital inflows. We also study domestic monetary policy and implications for capital flows. Domestic monetary policy helps absorb VIX shocks and there is no indication of procyclical (“carry trade”) effects on funding. Monetary policy affects activity and inflation in a standard fashion, and the exchange rate acts as a buffer when shocks hit the economy. |
| Keywords: | Bank Capital flows, Uncertainty-shocks, Structural VAR |
| JEL: | E32 E44 F32 G15 |
| Date: | 2018–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2018_02&r=mac |
| By: | Rachel, Lukasz; Smith, Thomas D |
| Abstract: | Long-term real interest rates across the world have fallen by about 450 basis points over the past 30 years. The co-movement in rates across both advanced and emerging economies suggests a common driver: the global neutral real rate may have fallen. In this paper we attempt to identify which secular trends could have driven such a fall. Although there is huge uncertainty, under plausible assumptions we think we can account for around 400 basis points of the 450 basis points fall. Our quantitative analysis highlights slowing global growth as one force that may have pushed down on real rates recently, but shifts in saving and investment preferences appear more important in explaining the long-term decline. We think the global saving schedule has shifted out in recent decades due to demographic forces, higher inequality and to a lesser extent the glut of precautionary saving by emerging markets. Meanwhile, desired levels of investment have fallen as a result of the falling relative price of capital, lower public investment, and due to an increase in the spread between risk-free and actual interest rates. Moreover, most of these forces look set to persist and some may even build further. This suggests that the global neutral rate may remain low and perhaps settle at (or slightly below) 1% in the medium to long run. If true, this will have widespread implications for policymakers — not least in how to manage the business cycle if monetary policy is frequently constrained by the zero lower bound. |
| Keywords: | Equilibrium interest rate; long-term yields; global saving and investment; global trend growth. |
| JEL: | E10 E20 E40 E50 E60 F0 F41 F42 F47 J11 O30 O40 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86242&r=mac |
| By: | Edward Nelson |
| Abstract: | This paper analyzes Milton Friedman's (1968) article "The Role of Monetary Policy," via a discussion of seven fallacies concerning the article. These fallacies are: (1) "The Role of Monetary Policy" was Friedman’s first public statement of the natural rate hypothesis. (2) The Friedman-Phelps Phillips curve was already presented in Samuelson and Solow's (1960) analysis. (3) Friedman's specification of the Phillips curve was based on perfect competition and no nominal rigidities. (4) Friedman’s (1968) account of monetary policy in the Great Depression contradicted the Monetary History's version. (5) Friedman (1968) stated that a monetary expansion will keep the unemployment rate and the real interest rate below their natural rates for two decades. (6) The zero lower bound on nominal interest rates invalidates the natural rate hypothesis. (7) Friedman's (1968) treatment of an interest-rate peg was refuted by the rational expectations revolution. The discussion lays out the reasons why each of these seven items is a fallacy and infers key aspects of the framework underlying Friedman’s (1968) analysis. |
| Keywords: | Fisher effect ; Milton Friedman ; Phillips curve ; Liquidity effect ; Natural rate hypothesis ; Price stickiness ; Zero lower bound |
| JEL: | E31 E43 E52 |
| Date: | 2018–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-13&r=mac |
| By: | Gu, Grace Weishi (University of California, Santa Cruz); Prasad, Eswar (Cornell University) |
| Abstract: | Employer-provided nonwage benefit expenditures now account for one-third of U.S. firms' labor costs. We show that a broad measure of real labor costs including such benefit expenditures has become countercyclical during 1982-2014, contrary to the conventional view that labor costs are procyclical. Using BLS establishment-job data, we find that even real wages, the main focus of prior literature, have become countercyclical. Benefit expenditures are less rigid than nominal wages, although both components of labor costs have become more rigid. These rigidities, along with the rising relative importance of aggregate demand shocks (including the financial crisis), help explain countercyclical labor costs. |
| Keywords: | wages, benefits, compensation, economic fluctuations, cyclicality |
| JEL: | E24 J32 E32 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11311&r=mac |
| By: | Murphy, Anthony (Federal Reserve Bank of Dallas) |
| Abstract: | Are inflation dynamics well captured by Phillips Curve models, or has this framework become less relevant over time? The evidence for the U.S. suggests that the slopes of the price and wage Phillips Curves– the short-run inflation-unemployment trade-offs – are low and have got a little flatter. For example, the recursive estimate of the unemployment coefficient in the core PCE Phillips Curve has fallen a little from -0.09 to -0.07 since the Great Recession. However, the decline is not statistically significant. Dynamic forecasts from the wage and price Phillips Curves estimated using data ending in 2007q4, almost 10 years ago, are pretty close to inflation today. This suggests that (i) low current inflation is not that surprising, and (ii) factors such as increased globalization, increased e-commerce activity, changes in concentration, the aging of the U.S. population and mismeasurement of the NAIRU are not that important (or offset each other). The Phillips Curve is still a useful, albeit imprecise, framework for understanding inflation. |
| Keywords: | inflation; wage inflation; Phillips Curve; slack |
| JEL: | E31 E37 |
| Date: | 2018–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1801&r=mac |
| By: | Benigno, Gianluca; Fornaro, Luca |
| Abstract: | We provide a Keynesian growth theory in which pessimistic expectations can lead to very persistent, or even permanent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps, because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth depresses aggregate demand and pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms’ investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth. |
| Keywords: | Secular Stagnation; Liquidity Traps; Growth Traps; Endogenous Growth; Multiple Equilibria. |
| JEL: | E32 E43 E52 O42 |
| Date: | 2016–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86241&r=mac |
| By: | Farm, Ante (Swedish Institute for Social Research, Stockholm University) |
| Abstract: | While traditional macroeconomics is organized around different theories for the short-run, the medium run and the long run, this text is an introduction to macroeconomics which applies to every year, not only every year of the short run, but also every year of the medium run and the long run. Based on a new benchmark model of pricing, it clarifies the determinants of inflation. Based on macroeconomic identities, it clarifies the determinants of aggregate profits. Based on a complete model of labour demand, it clarifies the determinants of employment. And based on the definition of unemployed as people without employment looking for jobs, it clarifies the determinants of unemployment, including matching problems. |
| Keywords: | Output; inflation; employment; unemployment. |
| JEL: | E23 E24 E31 |
| Date: | 2018–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sofiwp:2018_001&r=mac |
| By: | Javier Andres; Jose E. Bosca; Javier Ferri; Cristina Fuentes-Albero |
| Abstract: | Using the Panel Survey of Income Dynamics, we identify six household types as a function of their balance sheet composition. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a DSGE model with search and matching frictions, we explore how changes in the distribution of households affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the magnitude of the fiscal multipliers, and the distributional consequences of fiscal shocks. While the output and consumption multipliers are positively correlated with the share of households with negative wealth, the size of the employment multiplier is negatively correlated. For calibrations based on the empirical household weights after the Great Recession, our model delivers jobless fiscal expansions. |
| Keywords: | Fiscal policy ; Panel Survey of Income Dynamics ; Heterogeneity ; Household balance sheet ; Search and matching |
| JEL: | E21 E62 |
| Date: | 2018–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-12&r=mac |
| By: | Hyunju Kang (Korea Capital Market Institute); Jaevin Park (University of Mississippi); Hyunduk Suh (Inha University) |
| Abstract: | During the Great Recession, the U.S. economy witnessed a substantial rise in part-time employment for sustained periods. We extend the New Keynesian-unemployment model by Gali et al. (2012) to allow substitution between full-time and part-time labor and estimate the model's parameters using the Bayesian method. In our model, households and firms can optimally allocate full-time and part-time labor. Moreover, disturbances exist in part-time labor supply (household disutility in part-time labor) and part-time labor demand (firms' efficiency to utilize part-time labor). Although several shocks were found to cause the transition to part-time jobs during the recession, the most important factor was the part-time labor supply shock that increases part-time participation. The transition from full-time to part-time jobs, caused by part-time labor market shocks, mitigated the contraction in output during the recession. Part-time labor supply shock also explains a significant portion of slow recovery in gross wage during the recession, as the shock lowers part-time wage as well as the proportion of full-time workers in total employment. |
| Keywords: | Part-time labor, Great Recession, Unemployment, New Keynesian model |
| JEL: | E24 E47 E52 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:inh:wpaper:2018-1&r=mac |
| By: | Boneva, Lena (Monetary Policy Committee Unit, Bank of England); Cloyne, James (Monetary Policy Committee Unit, Bank of England); Weale, Martin (Monetary Policy Committee Unit, Bank of England); Wieladek, Tomasz (Monetary Policy Committee Unit, Bank of England) |
| Abstract: | This paper investigates the effect of quantitative easing (QE) and other unconventional monetary policies on inflation and wage expectations of UK manufacturing firms. To identify the effect of QE on firms’ expectations, we use a novel approach of combining microeconometric data with macroeconomic shocks: QE is exogenous to inflation expectations of individual firms, and so are other macroeconomic developments like aggregate inflation or GDP growth. We find that firms’ inflation expectations increase by 0.22 percentage points in response to £50 billion of QE, implying that inflation expectations are part of the transmission mechanism of QE. In contrast, we find a positive but small and insignificant effect of forward guidance on inflation and wage expectations. |
| Keywords: | Inflation expectations; firm survey data; unconventional monetary policy; quantitative easing |
| JEL: | D22 E31 E52 |
| Date: | 2016–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:mpc:wpaper:0047&r=mac |
| By: | Gauti B. Eggertsson; Jacob A. Robbins; Ella Getz Wold |
| Abstract: | The macroeconomic data of the last thirty years has overturned at least two of Kaldor’s famous stylized growth facts: constant interest rates, and a constant labor share. At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin’s Q, and a divergence between the marginal and the average return on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy, i.e., the emergence of a non-zero-rent economy, along with forces that have led to a persistent long term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new stylized macroeconomic facts. |
| JEL: | E3 E5 E6 O4 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24287&r=mac |
| By: | Auray Stéphane (CREST-ENSAI ; ULCO); Eyquem Aurélien (ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE)); Mairesse Xiaofei (ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE)) |
| Abstract: | We develop a two-country model with an explicitly microfounded interbank market and sovereign default risk. Both features interact and give rise to a debt-banks-credit loop by which sovereign default risk can have large contractionary effects on the economy. Calibrated to the Euro Area, the model performs well in matching key business cycle facts on real, ?nancial and ?scal time series. We then use the model to assess the effects of the Great Recession and quantify the potential effects of alternative unconventional policies on the dynamics of European economies. All the policies considered can bring sizable reductions in the welfare losses from the Great Recession, but policies targeted at sovereign bonds and interbank loans are more efficient than standard credit interventions. |
| Keywords: | recession, interbank market, sovereign default risk, monetary policy |
| JEL: | E32 E44 E58 F34 |
| Date: | 2017–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2017-60&r=mac |
| By: | Syed Hassan (School of Management, Swansea University); Sarosh Shabi (School of Management, Swansea University); Taufiq Choudhry (School of Business, University of Southampton) |
| Abstract: | This paper investigates the impact of the US economic uncertainty on the business cycles (changes in the industrial production) of twelve European Union (EU) countries before and during the global financial crisis. Empirical tests are conducted using the linear and nonlinear causality tests, impulse response function and variance decomposition. Results show ample evidence of causality from the US uncertainty to EU business cycles only when the crisis period is included in the analysis. Both the linear and non-linear tests confirm the significance of US uncertainty as a short-term predictor of business cycles of the EU. |
| Keywords: | Business cycles, Jurado index, uncertainty, nonlinear causality. |
| JEL: | E3 E32 |
| Date: | 2018–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:swn:wpaper:2018-05&r=mac |
| By: | Cristina Conflitti (Bank of Italy); Riccardo Cristadoro (Bank of Italy) |
| Abstract: | In line with other recent studies, we find that oil price changes have had a statistically significant impact on long-term inflation expectations in the euro area since the global financial crisis. However, over the same period, (i) oil prices have shifted together with economic indicators, such as stock prices, and (ii) the correlation between short- and long-term expectations has increased. Once these factors are taken into account, the effect of oil prices on long-term inflation expectations is no longer significant. This suggests that the link between oil prices and long-term inflation expectations is not direct, but rather the result of underlying factors: the prolonged feeble economic conditions and the possible de-anchoring of long-term inflation expectations from the objective of price stability. |
| Keywords: | inflation expectations, oil prices, inflation swaps, de-anchoring, monetary policy |
| JEL: | C20 E31 E59 Q41 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_423_18&r=mac |
| By: | Xing, Victor |
| Abstract: | Executive summary: • A flattening yield curve highlights Federal Reserve rate hikes’ inability to tighten financial conditions, as low long-term interest rates continued to induce institutional investors to “reach for yield” by moving up the risk ladder • Central banks initiating “short volatility positions” via QE have dampened long-term sovereign bond yields, which crowded out private capital and induced investors to “find something else to do” by buying more esoteric assets • A flat yield curve alone would only pave the way, rather than directly trigger events that result in recession, as persistently low long-term bond yields increase the probability and magnify the impacts of balance sheet crises • Prolonged easy financial conditions as a result of ineffective tightening is not costless, for uneven wage growth and rapid asset price appreciation have exacerbated inequality to heighten financial, social and political instability |
| Keywords: | Yield curve, monetary policy, balance sheet normalization, quantitative easing |
| JEL: | E0 E5 G12 |
| Date: | 2018–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84471&r=mac |
| By: | Eva (E.F.) Janssens (Tinbergen Institute; Erasmus University of Rotterdam); Robin (R.) Lumsdaine (American University, Erasmus University of Rotterdam); Sebastiaan (S.H.L.C.G.) Vermeulen (Tinbergen Institute; Erasmus University of Rotterdam) |
| Abstract: | This paper develops a discrete-time epidemiological model for the spread of crises across sectors in the United States for the period 1952-2015. It is the first to use an epidemiological approach with macroeconomic (Flow of Funds) data. An extension of the usual one-period Markov model to a two-period setting incorporates the concept of downturns that may either precede a crisis or from which the sector may recover and avert a crisis. The results indicate that the nonfinancial business and private depository institutions & money market mutual funds sectors are highly contagious while the monetary authority is the least contagious. |
| Keywords: | Flow of Funds; economic downturns; Susceptible-Infected-Removed(SIR); contagion; epidemiology |
| JEL: | E37 E32 E01 G01 |
| Date: | 2018–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180008&r=mac |
| By: | Jinill, Kim; Ruge-Murcia, Francisco |
| Abstract: | This paper studies the 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 distributions. A nonlinear perturbation solution of the model is estimated by the simulated method of moments. Under the Ramsey policy, the central bank responds nonlinearly and asymmetrically to shocks. The trade-off between targeting a gross inflation rate above 1 (or a net inflation rate above 0) as insurance against extreme shocks and targeting an average gross inflation at unity to avoid adjustment costs is unambiguously decided in favour of strict price stability. |
| JEL: | E4 E5 |
| Date: | 2018–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2018_004&r=mac |
| By: | Alessandro Ferrari (Bank of Italy) |
| Abstract: | Data demonstrate a correlation between demographic variables and financial cycle: an increase in the working-age population is associated with an expansion of the financial cycle, that is, credit growth and increased housing prices. To account for this stylized fact, this paper uses an OLG model with data on housing prices, life-cycle of income, and consumption. A transitory baby boom, which increases the working-age population, leads to higher housing prices and household borrowing. |
| Keywords: | financial cycle, demographic trends, overlapping generations, housing |
| JEL: | D53 E21 E32 J11 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1149_17&r=mac |
| By: | Laura Bartiloro (Bank of Italy); Marco Bottone (Bank of Italy); Alfonso Rosolia (Bank of Italy) |
| Abstract: | Quite a lot. We investigate how the cross-sectional heterogeneity of firms’ inflation expectations reflects information availability and awareness of recent macroeconomic developments, observable firm characteristics and broader macroeconomic developments using the Bank of Italy’s survey on businesses’ inflation and growth expectations. We find that: on average about half of the dispersion of expectations is traceable to a lack of information about the most recent price developments; firms incorporate new information into their expectations within a quarter; the dispersion of expectations is related in a statistically significant way to some important aggregate economic variables, and it is greater when current inflation is farther away from the ECB’s price stability goal. Since 2015 the weight attributed to prior beliefs of low inflation has steadily increased and the uncertainty surrounding them has decreased. Furthermore, since 2014 there has no longer been an empirical connection between the dispersion of expectations and the distance from the ECB price stability. These two facts suggest an increased risk of inflation expectations being de-anchored." |
| Keywords: | Inflation Expectations, Learning, Firms |
| JEL: | D22 D8 E31 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_414_17&r=mac |
| By: | Stephane Auray (CREST;ENSAI); Aurelien Eyquem (Université Lumière Lyon 2; GATE L-SE) |
| Abstract: | The inception of the euro allowed countries from the periphery to experience a large fall in the cost of borrowing. Lower nominal rates were only partially o?set by lower in?ation rates. We rationalize this real interest rate reversal using a two-region model of a monetary union where, consistently with real interest rate data, discount factors are initially heterogeneous, leading the periphery to be borrowing-constrained. We model the inception of the euro as a partial convergence process in in?ation rates and a slow rise in the discount factor of the periphery, relaxing the borrowing constraint. This simple set-up accounts for the bulk of post-euro ?uctuations in both regions. In particular, it replicates very well the observed joint dynamics of current accounts and terms of trade |
| Keywords: | Monetary union; in?ation convergence; current account imbalances; borrowing constraints |
| JEL: | E32 E52 F32 F41 |
| Date: | 2017–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2017-64&r=mac |
| By: | Alberto Martin; Jaume Ventura |
| Abstract: | This paper provides a guide to macroeconomic applications of the theory of rational bubbles. It shows that rational bubbles can be easily incorporated into standard macroeconomic models, and illustrates how they can be used to account for important macroeconomic phenomena. It also discusses the welfare implications of rational bubbles and the role of policy in managing them. Finally, it provides a detailed review of the literature. |
| JEL: | E32 E44 O40 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24234&r=mac |
| By: | Rehbein, Oliver |
| Abstract: | I show that natural disasters transmit to firms in non-disaster areas via their banks. This spillover of non-financial shocks through the banking system is stronger for banks with less regulatory capital. Firms connected to a disaster-exposed bank with below median capital reduce their employment by 11% and their fixed assets by 20% compared to firms in the same region without such a bank during the 2013 flooding in Germany. Relationship banking and higher firm capital also mitigate the effects of such negative cross-regional spillovers. |
| Keywords: | natural disaster,real effects,shock transmission,bank capital |
| JEL: | E24 E44 G21 G29 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:42018&r=mac |
| By: | Beetsma, Roel; Cima, Simone; Cimadomo, Jacopo |
| Abstract: | Recent debate has focused on the introduction of a central stabilisation capacity as a completing element of the Economic and Monetary Union. Its main objective would be to contribute cushioning country-specific economic shocks, especially when national fiscal stabilisers are run down. There are two main potential objections to such schemes proposed so far: first, they may lead to moral hazard, i.e. weaken the incentives for sound fiscal policies and structural reforms. Second, they may generate permanent transfers among countries. Here we present a scheme that is relatively free from moral hazard, because the transfers are based on changes in world trade in the various sectors. These changes can be considered as largely exogenous, hence independent from an individual government's policy; therefore, the scheme is better protected against manipulation. Our scheme works as follows: if a sector is hit by a bad shock at the world market level, then a country with an economic structure that is skewed towards this sector receives a (one-time) transfer from the other countries. The scheme is designed such that the transfers add up to zero each period, hence obviating the need for a borrowing capacity. We show that the transfers generated by our scheme tend to be countercyclical and larger when economies are less diversified. Cumulated over time, a country's transfers generally tend to stabilise and to move towards zero, thus suggesting that permanent transfers are inherently ruled out under this scheme. Finally, we show that transfers are quite robust to revisions in the underlying export data. |
| Keywords: | central fiscal capacity; EMU; exports; moral hazard |
| JEL: | E32 E62 E63 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12600&r=mac |
| By: | Goodhart, Charles A; Hudson, Michael |
| Abstract: | In this paper we recall the history of Jubilee debt cancellations, emphasizing what their social purpose was at that time. We note that it would not be possible to copy that procedure exactly nowadays, primarily because most debt/credit relationships are intermediated via financial institutions, such as banks, insurance companies, etc., rather than by governments or wealthy families directly. But we argue that the underlying social purpose of such Jubilees- to keep debt within the reasonable ability to be paid without social and economic polarisation - could be recreated via alternative mechanisms, and we discuss the politico-economic arguments for, and against, doing so |
| Keywords: | Inequality; Debt-Canceling Jubilees; Babylonian and Byzantine Empires; Equity Participation; Student Loans; Land Tax |
| JEL: | E60 E61 E62 E65 H10 H23 H80 N30 N35 P43 Q15 R52 Z13 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12605&r=mac |
| By: | Adrian, Tobias; Duarte, Fernando |
| Abstract: | We present a microfounded New Keynesian model that features financial vulnerabilities. Financial intermediaries' occasionally binding value at risk constraints give rise to variation in the pricing of risk that generate time varying risk in the conditional mean and volatility of the output gap. The conditional mean and volatility are negatively related: during times of easy financial conditions, growth tends to be high, and risk tends to be low. Monetary policy affects output directly via the IS curve, and indirectly via the pricing of risk that relates to the tightness of the value at risk constraint. The optimal monetary policy rule always depends on financial vulnerabilities in addition to the output gap, inflation, and the natural rate. We show that a classic Taylor rule exacerbates deviations of the output gap from its target value of zero relative to an optimal interest rate rule that includes vulnerability. Simulations show that optimal policy significantly increases welfare relative to a classic Taylor rule. Alternative policy paths using historical examples illustrate the usefulness of the proposed policy rule. |
| Keywords: | Financial Stability; Macro-Finance; monetary policy |
| JEL: | E52 G10 G12 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12680&r=mac |
| By: | Croce, Mariano Massimiliano; Marchuk, Tatyana; Schlag, Christian |
| Abstract: | In this paper, we compute conditional measures of lead-lag relationships between GDP growth and industry-level cash-flow growth in the US. Our results show that firms in leading industries pay an average annualized return 4% higher than that of firms in lagging industries. The difference in the returns of leading and lagging firms is priced in the cross section of equity returns, even after we control for a large number of risk factors. This finding can be rationalized in a model in which (a) agents price growth news shocks, and (b) leading industries provide valuable resolution of uncertainty about the growth prospects of lagging industries. |
| JEL: | E32 E44 G10 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12631&r=mac |
| By: | Martín, Alberto; Ventura, Jaume |
| Abstract: | This paper provides a guide to macroeconomic applications of the theory of rational bubbles. It shows that rational bubbles can be easily incorporated into standard macroeconomic models, and illustrates how they can be used to account for important macroeconomic phenomena. It also discusses the welfare implications of rational bubbles and the role of policy in managing them. Finally, it provides a detailed review of the literature. |
| Keywords: | bubbles; Business Cycles; credit; Economic Growth; Financial Frictions; pyramid schemes |
| JEL: | E32 E44 O40 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12641&r=mac |
| By: | Simon Gilchrist; Vivian Z. Yue; Egon Zakrajsek |
| Abstract: | This paper uses high-frequency data to analyze the effects of US monetary policy--during the conventional and unconventional policy regimes--on foreign government bonds markets in advanced and emerging market economies. The results indicate that an expansionary US monetary policy steepens the foreign yield curve--denominated in local currency--during a conventional US monetary policy regime and flattens the foreign yield curve during an unconventional policy regime. The passthrough of unconventional US monetary policy to foreign bond yields is, on balance, comparable to that of conventional policy. In addition a conventional US monetary easing leads to a significant narrowing of the credit spreads on dollar-denominated sovereign bonds that are issued by countries with a speculative-grade sovereign credit rating. However, during the unconventional policy regime, yields on speculative-grade sovereign debt denominated in dollars move one-to-one with yields on comparable-maturity US Treasury securities. |
| Keywords: | Conventional and unconventional US monetary policy ; Financial spillovers ; Sovereign yields and credit spreads |
| JEL: | E4 E5 F3 |
| Date: | 2018–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-14&r=mac |
| By: | Giannetti, Mariassunta (Stockholm School of Economics); Saidi, Farzad (Stockholm School of Economics) |
| Abstract: | We conjecture that lenders’ decisions to provide liquidity are affected by the extent to which they internalize negative spillovers. We show that lenders with a large share of loans outstanding in an industry provide liquidity to industries in distress when spillovers are expected to be strong, because fire sales are likely to ensue. Lenders with a large share of outstanding loans also provide liquidity to customers and suppliers of industries in distress, especially when the disruption of supply chains is expected to be costly. Our results suggest a novel channel explaining why credit concentration may favor financial stability. |
| Keywords: | syndicated loans; bank concentration; supply chains; fire sales; externalities |
| JEL: | E23 E32 E44 G20 G21 L14 |
| Date: | 2017–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0348&r=mac |
| By: | Lennard, Jason (Department of Economic History, Lund University) |
| Abstract: | This paper investigates the impact of economic policy uncertainty on the macroeconomy of interwar Britain. A new index of economic policy uncertainty constructed from contemporary newspapers indicates that this was a period of great anxiety. Time series evidence suggests that this uncertainty reduced output, raised unemployment and contributed to macroeconomic volatility. |
| Keywords: | business cycles; interwar Britain; local projections; narrative identification; uncertainty |
| JEL: | E32 E60 N14 N44 |
| Date: | 2018–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:luekhi:0170&r=mac |
| By: | MacDonald, Stephen; Meyer, Leslie |
| Abstract: | One revelation from the 2008 Global Financial Crisis was the fragility of models and assumptions based on samples too short to include periods of high volatility, and this study attempts to remedy that short-coming for USDA’s development of long run cotton price projections. Real cotton prices have fallen significantly since 1900, but statistical verification of the presence of a long-run downward trend has proven elusive. Cotton price volatility has varied widely over the last 226 years, largely correlated with macroeconomic instability. Cotton’s period of greatest instability—during the U.S. Civil War—was primarily driven by cotton-specific trade and production disruptions, but since the Civil War, cotton volatility has largely coincided with broader commodity price volatility. One of cotton’s most volatility\e episodes since 18th century occurred over 2009-12, and was in part a consequence of nearly unprecedented macroeconomic instability and, in part due to factors specific to cotton markets. Looking ahead, cotton price volatility over 2018-27 is likely to be greater than the volatility experienced during 2016-17, when volatility was unusually low, likely reduced by China’s large sales from its National Reserve. |
| Keywords: | cotton, commodity prices, price volatility, GARCH, China, Bretton Woods, Gold Standard |
| JEL: | D40 D41 E31 E32 N50 Q11 Q17 |
| Date: | 2018–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84484&r=mac |
| By: | Jalali Naini, Ahmad Reza; Naderian, Mohammad Amin |
| Abstract: | This paper develops a new Keynesian DSGE model compatible with the structural characteristics of commodity exporting developing economies (financial vulnerability, relatively high pass-through rates, procyclical fiscal policy, and high terms of trade volatility) to compare the performance of alternative policy regimes, namely flexible domestic inflation targeting, flexible consumer price index inflation targeting, and the real exchange rate targeting. Evaluation of the above alternative policy regimes and relative stability of key macroeconomic variables are conducted through an optimal Ramsey policy method. The policy evaluation results based both on stabilization and welfare measures obtained for the case of Iran imply that for the developing commodity (oil) exporting economies stabilization with a broader inflation targeting framework in which the real exchange rate is also targeted is the superior policy regime. Optimality of the alternative policy regimes and their rank are sensitive to the degree of financial vulnerability. Financial vulnerability in this model explains why departure from floating exchange rate in an inflation targeting framework is the appropriate policy and not merely a “fear”. As the degree of financial development increases sufficiently, the standard flexible inflation targeting becomes the superior policy regime. A policy rule to weaken procyclicality of fiscal policy further enhances the welfare performance of this regime. |
| Keywords: | Financial vulnerability; inflation targeting; fear of floating; Ramsey method. |
| JEL: | E52 |
| Date: | 2017–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84481&r=mac |
| By: | Francesca Rondina (Department of Economics, University of Ottawa, Ottawa, ON) |
| Abstract: | This paper uses an econometric model and Bayesian estimation to reverse engineer the path of inflation expectations implied by the New Keynesian Phillips Curve and the data. The estimated expectations roughly track the patterns of a number of common measures of expected inflation available from surveys or computed from financial data. In particular, they exhibit the strongest correlation with the inflation forecasts of the respondents in the University of Michigan Survey of Consumers. The estimated model also shows evidence of the anchoring of long run inflation expectations to a value that is in the range of the target inflation rate. |
| Keywords: | Phillips curve, expectations, survey data, Bayesian estimation. |
| JEL: | C1 E3 E5 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ott:wpaper:1804e&r=mac |
| By: | Benjamin Garcia; Arsenios Skaperdas |
| Abstract: | We estimate a shadow rate consistent with the paths of time series capturing real activity. This allows us to quantify the real effects of unconventional monetary policy in terms of equivalent short-term interest rate movements. We find that large-scale asset purchases and forward guidance had significant real effects equivalent of up to a four percent reduction in the federal funds rate. |
| Keywords: | External instrument VAR ; Kalman filter ; Unconventional monetary policy ; Effective lower bound ; Shadow rate |
| JEL: | E43 E47 E52 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-106&r=mac |
| By: | Cortuk, Orcan |
| Abstract: | In this paper, we empirically examine the theoretical concept of “impossible trinity” (financial trilemma) for Sweden for the period of 2010-2017. While doing this, we modified the Aizenman, Chinn and Ito approach by adding an extra interaction term to the main regression which shows whether these three policies are implemented in harmony without creating any trade-offs. Similarly, this interaction term also reflects the effectiveness of all supportive policies (i.e. hoarding international reserves, liquidity policies etc.) in order to eliminate the trade-offs between the monetary independence, exchange rate stability and capital openness. Our results indicate that the standard ACI approach is not sufficient in explaining Sweden’s economic policies and adding an interaction term to the main trilemma regression is both necessary and critical. From the latter perspective, the interaction term has a negative contribution indicating that Sweden could achieve to relax the binding trilemma trade-offs in this period. Lastly, our analysis continues by exploring the implications of the interaction term for inflation in a VAR and Granger Causality analyses where we find that interaction term has certain decreasing impact on inflation. |
| Keywords: | Financial Trilemma, impossible trinity, Sweden's economy |
| JEL: | E44 E5 F4 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84458&r=mac |
| By: | Pugsley, Benjamin; Sedlacek, Petr; Sterk, Vincent |
| Abstract: | Only half of all startups survive past the age of five and surviving businesses grow at vastly different speeds. Using micro data on employment in the population of U.S. businesses, we estimate that the lion's share of these differences is driven by ex-ante heterogeneity across firms, rather than by ex-post shocks. We embed such heterogeneity in a firm dynamics model and study how ex-ante differences shape the distribution of firm size, ``up-or-out'' dynamics, and the associated gains in aggregate output. ``Gazelles'' --a small subset of startups with particularly high growth potential-- emerge as key drivers of these outcomes. Analyzing changes in the distribution of ex-ante firm heterogeneity over time reveals that the birth rate and growth potential of gazelles has declined, creating substantial aggregate losses. |
| Keywords: | Big Data; Firm Dynamics; Macroeconomics; Startups |
| JEL: | D22 E23 E24 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12670&r=mac |
| By: | Giacomini, Raffaella; Skreta, Vasiliki; Turen, Javier |
| Abstract: | We formulate a theory of expectation updating that fits the dynamics of accuracy and disagreement in a new survey dataset where agents can update at any time while observing each other’s expectations. Agents use heterogeneous models and can be inattentive but, when updating, they follow Bayes’ rule and assign homogeneous weights to public information. Our empirical findings suggest that agents do not herd and, despite disagreement, they place high faith in their models, whereas during a crisis they lose this faith and undergo a paradigm shift. This simple, “micro-founded” theory could enhance the explanatory power of macroeconomic and finance models. |
| Keywords: | Bayesian learning; Information rigidities; Heterogeneous agents; Expectation formation; Disagreement; Forecast accuracy; Herding. |
| JEL: | D80 D83 E27 E37 |
| Date: | 2016–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86245&r=mac |
| By: | Hafedh Bouakez; Rigas Oikonomou; Romanos Priftis |
| Abstract: | We study optimal debt management in the face of shocks that can drive the economy into a liquidity trap and call for an increase in public spending in order to mitigate the resulting recession. Our approach follows the literature of macroeconomic models of debt management, which we extend to the case where the zero lower bound on the short-term interest rate may bind. We wish to identify the conditions under which removing long-maturity government debt from the secondary market can be an optimal policy outcome. We show that the optimal debt-management strategy is to issue short-term debt if the government faces a sizable exogenous increase in public spending and if its initial liability is not very large. In this case, our results run against the standard prescription of the debt-management literature. In contrast, if the initial debt level is high, then issuing long term government bonds is optimal. Finally, we find a role for revisions in the debt management strategy during LT episodes, whereby the government actively manages the maturity structure, in some cases removing long bonds from the secondary market. |
| Keywords: | debt management, debt maturity, fiscal policy, liquidity trap, monetary policy, tax smoothing, portfolio rebalancing |
| JEL: | E43 E62 H63 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:09-2017&r=mac |
| By: | Vasilev, Aleksandar |
| Abstract: | We augment an otherwise standard business cycle model with a richer government sector, and add a modified cash in advance considerations, and one-period-ahead nominal wage contracts. In particular, the cash in advance constraint of Cooley and Hansen (1989) is extended to include private investment and government consumption. This specification, together with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999-2016), gives a role to money in propagating economic uctuations. In addition, the combinations of these ingredients allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular. |
| Keywords: | business cycles,modified cash-in-advance constraint,one-period nominal wage contracts |
| JEL: | E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:174488&r=mac |
| By: | Victor, Xing |
| Abstract: | Executive Summary: • Many economists expect poor data to precede financial market weakness under the framework that buoyant asset markets reflect economic strength, and benign indicators would imply a rise in volatility is far from imminent • Rising financialization has amplified the impact of non-bank financing on the real economy, for yield-seeking institutional investors depressed risk-free returns and “moved up the ladder” in duration, credit and liquidity risks • As monetary authorities turn to quantitative tightening, heightened asset price volatility would threaten entities reliant on non-bank financing, thus turning weakness in asset markets into a constraint on real economic activities |
| Keywords: | Volatility, non-bank financing, contagion risk, spill-over impact |
| JEL: | E0 E50 G23 |
| Date: | 2017–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84470&r=mac |
| By: | Alvarez, Fernando; Lippi, Francesco |
| Abstract: | We analyze a sticky price model where firms choose a price plan, namely a set of two prices. Changing the plan entails a "menu cost", but either price in the plan can be charged at any point in time. We analytically solve for the optimal policy and for the output response to a monetary shock. The setup rationalizes the coexistence of many price changes, most of which are temporary, with a modest flexibility of the aggregate price level. We present evidence consistent with the model implications using CPI data for Argentina across a wide range of inflation rates. |
| Keywords: | menu cost models; price flexibility; price plans; reference prices; sticky prices; temporary price changes |
| JEL: | E3 E5 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12638&r=mac |
| By: | Bernd Hayo; Florian Neumeier |
| Abstract: | In this paper, we study how inflation is viewed by the general population of New Zealand. Based on unique representative survey data collected in 2016 and using descriptive statistics and multivariate regressions, we explore various aspects of how laypersons perceive inflation and form inflation expectations. We focus on how an individual’s economic situation, information search and interest in inflation, economic knowledge, and attitudes and values are related to inflation perception and expectation, as well as the individual’s reaction to them. We interpret our findings as a clear indication that laypersons’ knowledge about inflation is much better described by the imperfect information view prevailing in social psychology than by the rational actor view typically assumed in economics. |
| Keywords: | Inflation perception, inflation expectation, New Zealand, monetary policy, household survey. |
| JEL: | E52 E58 Z10 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_255&r=mac |
| By: | Trebesch, Christoph; Zettelmeyer, Jeromin |
| Abstract: | We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable "twist" of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis, but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased. |
| Keywords: | Central Bank Asset Purchases; eurozone crisis; Market Segmentation; Securities Markets Programme; sovereign risk |
| JEL: | E43 E58 F34 G12 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12635&r=mac |
| By: | Trebesch, Christoph; Zettelmeyer, Jeromin |
| Abstract: | We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable "twist" of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis, but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased. |
| Keywords: | Central Bank Asset Purchases,Securities Markets Programme,Eurozone Crisis,Sovereign Risk,Market Segmentation |
| JEL: | E43 E58 F34 G12 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2101&r=mac |
| By: | Bernd Hayo (University of Marburg); Florian Neumeier (Ifo Institute–Leibniz Institute for Economic Research at the University of Munich) |
| Abstract: | In this paper, we study how inflation is viewed by the general population of New Zealand. Based on unique representative survey data collected in 2016 and using descriptive statistics and multivariate regressions, we explore various aspects of how laypersons perceive inflation and form inflation expectations. We focus on how an individual’s economic situation, information search and interest in inflation, economic knowledge, and attitudes and values are related to inflation perception and expectation, as well as the individual’s reaction to them. We interpret our findings as a clear indication that laypersons’ knowledge about inflation is much better described by the imperfect information view prevailing in social psychology than by the rational actor view typically assumed in economics. |
| Keywords: | Inflation perception, inflation expectation, New Zealand, monetary policy, household survey |
| JEL: | E52 E58 Z1 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201805&r=mac |
| By: | Belke, Ansgar; Klose, Jens |
| Abstract: | Is the Euro area as a whole, or are individual Euro-area member countries facing a period of sustained lower economic growth, a phenomenon known as secular stagnation? We tackle this question by estimating equilibrium real interest rates and comparing them to actual real rates. Since the financial crisis has altered the degree of leverage in several European economies, we expand our model to incorporate the financial cycle. We estimate the model for the Euro area as a whole and for nine Euro-area member countries. Incorporating the financial cycle changes the estimated equilibrium real interest rates: For some Euro-area member countries, estimates of the equilibrium real interest rate are substantially higher than the standard estimates. In other cases, including our estimates for the Euro area as a whole, the estimated equilibrium real rates are slightly lower than without taking the financial cycle into account but are still higher than the actual rates. This indicates that real monetary policy rates were set even more systematically and consistently below (or not as far above) the natural real rate. Comparing the sequence of actual and equilibrium real rates, only Belgium, France, and Greece are likely to face a period of secular stagnation. |
| Keywords: | equilibrium real interest rate,Euro area,financial cycle,heterogeneity,monetary policy,secular stagnation |
| JEL: | E43 C32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:182&r=mac |
| By: | Ansgar Belke; Jens Klose |
| Abstract: | Is the Euro area as a whole, or are individual Euro-area member countries facing a period of sustained lower economic growth, a phenomenon known as secular stagnation? We tackle this question by estimating equilibrium real interest rates and comparing them to actual real rates. Since the financial crisis has altered the degree of leverage in several European economies, we expand our model to incorporate the financial cycle. We estimate the model for the Euro area as a whole and for nine Euro-area member countries. Incorporating the financial cycle changes the estimated equilibrium real interest rates: For some of Euro-area member countries, estimates of the equilibrium real interest rate are substantially higher than the standard estimates. In other cases, including our estimates for the Euro area as a whole, the estimated equilibrium real rates are slightly lower than without taking the financial cycle into account but are still higher than the actual rates. This indicates that real monetary policy rates were set even more systematically and consistently below (or not as far above) the natural real rate. Comparing the sequence of actual and equilibrium real rates, only Belgium, France, and Greece are likely to face a period of secular stagnation. |
| Keywords: | equilibrium real interest rate, secular stagnation, euro-area countries, heterogeneity |
| JEL: | E43 C32 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:rmn:wpaper:201801&r=mac |
| By: | Baas, Timo; Belke, Ansgar |
| Abstract: | For more than two decades now, current-account imbalances are a crucial issue in the international policy debate as they threaten the stability of the world economy. More recently, the government debt crisis of the European Union shows that internal current account imbalances inside a currency union may also add to these risks. Oil price fluctuations and a contracting monetary policy that reacts on oil prices, previously discussed to affect the current account may also be a threat to the currency union by changing internal imbalances. Therefore, in this paper, we analyze the impact of oil price shocks on current account imbalances within a currency union. Differences in institutions, especially labor market institutions and trade result in an asymmetric reaction to an otherwise symmetric shock. In this context, we show that oil price shocks can have a long-lasting impact on internal balances, as the exchange rate adjustment mechanism is not available. The common monetary policy authority, however, can reduce such effects by specifying an optimum monetary policy target. Nevertheless, we also show that there is no single best solution. CPI, core CPI or an asymmetric CPI target all come at a cost either regarding an increase in unemployment or increasing imbalances. |
| Keywords: | current account deficit,oil price shocks,DSGE models,search and matching labor market,monetary policy |
| JEL: | E32 F32 Q43 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:740&r=mac |
| By: | Baas, Timo (University of Duisburg-Essen); Belke, Ansgar H. (University of Duisburg-Essen) |
| Abstract: | For more than two decades now, current-account imbalances are a crucial issue in the international policy debate as they threaten the stability of the world economy. More recently, the government debt crisis of the European Union shows that internal current account imbalances inside a currency union may also add to these risks. Oil price fluctuations and a contracting monetary policy that reacts on oil prices, previously discussed to affect the current account may also be a threat to the currency union by changing internal imbalances. Therefore, in this paper, we analyze the impact of oil price shocks on current account imbalances within a currency union. Differences in institutions, especially labor market institutions and trade result in an asymmetric reaction to an otherwise symmetric shock. In this context, we show that oil price shocks can have a long-lasting impact on internal balances, as the exchange rate adjustment mechanism is not available. The common monetary policy authority, however, can reduce such effects by specifying an optimum monetary policy target. Nevertheless, we also show that there is no single best solution. CPI, core CPI or an asymmetric CPI target all come at a cost either regarding an increase in unemployment or increasing imbalances. |
| Keywords: | current account deficit, oil price shocks, DSGE models, search and matching labor market, monetary policy |
| JEL: | E32 F32 Q43 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11252&r=mac |
| By: | Cooke, Dudley (University of Exeter); Kara, Engin (Cardiff University) |
| Abstract: | We develop an open economy New Keynesian model with heterogeneity in price stickiness and positive trend inflation. The main insight of our analysis is that, in the presence of heterogeneity in price stickiness, there is a strong link between trend inflation and the timing of the peak response of the real exchange rate to a monetary policy shock. Without trend inflation, the real exchange rate peaks almost immediately. With trend inflation set at historical values, the peak occurs at around 2 years. Delayed overshooting is a consequence of the interaction between heterogeneity in price stickiness and trend inflation. |
| JEL: | E52 F41 F44 |
| Date: | 2018–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:334&r=mac |
| By: | Adrian, Tobias; Duarte, Fernando; Grinberg, Federico; Mancini-Griffoli, Tommaso |
| Abstract: | Loose financiall conditions forecast high output growth and low output volatility up to six quarters into the future, generating time varying downside risk to the output gap which we measure by GDP-at-Risk (GaR). This finding is robust across countries, conditioning variables, and time periods. We study the implications for monetary policy in a reduced form New Keynesian model with financial intermediaries that are subject to a Value at Risk (VaR) constraint. Optimal monetary policy depends on the magnitude downside risk to GDP, as it impacts the consumption-savings decision via the Euler constraint, and the financial conditions via the tightness of the VaR constraint. The optimal monetary policy rule exhibits a pronounced response to shifts in financial conditions for most countries in our sample. Welfare gains from taking financial conditions into account are shown to be sizable. |
| Keywords: | financial conditions; Financial Stability; monetary policy |
| JEL: | E52 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12681&r=mac |
| By: | Ai, Hengjie; Croce, Mariano Massimiliano; Diercks, Anthony; Li, Kai |
| Abstract: | We propose a production-based general equilibrium model to study the link between timing of cash flows and expected returns both in the cross section of stocks and along the aggregate equity term structure. Our model incorporates long-run growth news with time-varying volatility and slow learning about the exposure that firms have with respect to these shocks. Our framework provides a unified explanation of the stylized features of the slope of the term structure of equity returns, its variations over the business cycle, and the negative relationship between cash-flow duration and expected returns in the cross section of book- to-market-sorted portfolios. |
| JEL: | E2 E3 G1 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12661&r=mac |
| By: | Hernán Rincón-Castro; Norberto Rodríguez-Niño |
| Abstract: | This paper examines the nature of the pass-through of exchange rate shocks on prices along the distribution chain, and estimates its short and long-term path. It uses monthly data from a small open economy and a smooth transition auto-regressive vector model estimated by Bayesian methods. The main finding is that exchange rate pass-through is nonlinear and state and shock dependent. There are two main policy implications of these findings. First, models used by central banks for policymaking should take into account the nonlinear and endogenous nature of the pass-through. Second, a specific rule on pass-through for monetary policy decisions should be avoided. |
| Keywords: | exchange rate pass-through to prices, pricing along the distribution chain, statedependent, shock-dependent, LST-VAR, Bayesian estimation |
| JEL: | F31 E31 E52 C51 C52 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:690&r=mac |
| By: | Sophia Chen; Lev Ratnovski; Pi-Han Tsai |
| Abstract: | We jointly estimate credit and fiscal multipliers in China. We use the tenure of the provincial party secretary, interacted with the type of stimulus used in other provinces, to obtain separate instruments for provincial credit and government expenditure. We estimate a fiscal multiplier of 0.8 and a credit multiplier of 0.2 in 2001-2015. The multipliers have changed over time. The fiscal multiplier has increased from 0.75 in 2001-2008 to 1.4 in 2010-2015. The credit multiplier has declined from 0.17 to zero over the same periods. Our results suggest that reducing credit growth in China is unlikely to disrupt output growth, whereas fiscal policy may be effective in supporting macroeconomic adjustment. |
| Keywords: | Asia and Pacific;China;Macroprudential Policy;Fiscal stimulus;Credit Growth, Multipliers, Comparative or Joint Analysis of Fiscal and Monetary or Stabilization Policy, General, Size and Spatial Distributions of Regional Economic Activity |
| Date: | 2017–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/273&r=mac |
| By: | Jon D. Wisman; Michael Cauvel |
| Abstract: | Unemployment has almost always been traumatic for its victims. In earlier times, it threatened extreme privation, if not starvation. Still today, it dramatically decreases its victims' standard of living, human capital, social standing, and self-respect. It is associated with poorer health, family dissolution, and suicide. Unemployment also entails considerable costs to society such as lost output, increased crime, decayed neighborhoods, and when extreme, political unrest. Why, then, is it tolerated? Why, especially, have workers and their advocates not demanded that employment be guaranteed to all? This article explores why what has always been foremost to workers' interests – security of employment – has only rarely resulted in a demand for guaranteed employment. The primary reason has been the overpoweringly seductive ideology serving the interests of the owners of the means of production. Capitalist ideology has blamed the unemployed for their fate, creating hostility to the very idea of guaranteed employment. |
| Keywords: | right to employment, employer of last resort, unemployment, worker struggles, ideology |
| JEL: | E24 J38 H10 N30 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:2017-09&r=mac |
| By: | FitzGerald, John (Trinity College, Dublin); Kenny, Seán (Department of Economic History, Lund University) |
| Abstract: | This paper provides a consistent series for the Irish national debt since the foundation of the state in 1922. It also provides a continuous series for bond yields over the same period. The paper examines the factors behind the fluctuations in the debt burden over almost a century. The management of the debt burden by the Irish authorities has evolved over time, seeking to minimise both the burden on the economy and the risks which the debt represented to the state. The paper also examines how the cost of borrowing for the Irish government compared to that for the UK and, since the break with sterling, for Germany. This cost of borrowing was, in turn affected by developments in the domestic economy. |
| Keywords: | public debt; debt sustainability; debt management; fiscal policy; Ireland |
| JEL: | E62 H60 H63 N00 N14 |
| Date: | 2018–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:luekhi:0171&r=mac |
| By: | Shibata, Akihisa (Kyoto University); Shintani, Mototsugu (University of Tokyo); Tsuruga, Takayuki (Osaka University) |
| Abstract: | The current account in developed countries is highly persistent and volatile in comparison to output growth. The standard intertemporal current account model with rational expectations (RE) fails to account for the observed current account dynamics together with persistent changes in consumption. The RE model extended with imperfect capital mobility by Shibata and Shintani (1998) can account for persistent changes in consumption, but only at the cost of the explanatory power for the volatility of the current account. This paper replaces RE in the intertemporal current account model with sticky information (SI) in which consumers are inattentive to shocks to their income and infrequently adjust their consumption. The SI model can better explain a persistent and volatile current account than the RE model but it overpredicts the persistence of changes in consumption. The SI model extended with imperfect capital mobility almost fully explains current account dynamics and the persistence of changes in consumption, if high degrees of information rigidity and imperfect capital mobility are taken into account. |
| JEL: | E21 F21 F32 F41 |
| Date: | 2018–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:335&r=mac |
| By: | Thomas M. Eisenbach (Research and Statistics Group, Federal Reserve Bank of New York); Gregory Phelan (Williams College) |
| Abstract: | In standard Walrasian macro-finance models, pecuniary externalities such as fire sales lead to overinvestment in illiquid assets or underprovision of liquidity. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the externality and find that this is far from guaranteed. In a standard model of liquidity shocks, when liquidity is sufficiently scarce, Cournot competition leads to even less liquidity than the Walrasian equilibrium. In a standard model of productivity shocks, the Cournot equilibrium over-corrects for the fire-sale externality and holds less capital than socially efficient. Implications for welfare and regulation therefore depend highly on the nature of the shocks and the competitiveness of the industry considered. |
| Keywords: | liquidity, fire sales, overinvesment, financial regulation, macroprudential regulation |
| JEL: | D43 D62 E44 G18 G21 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2018-01&r=mac |
| By: | Takeo Hori (Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology); Koichi Futagami (Graduate School of Economics, Osaka University) |
| Abstract: | We examine the optimality of the Friedman rule by considering recent developments in behavioral economics. We construct a simple macroeconomic model where agents discount consumption and leisure at different rates. We also consider a standard exponential discounting model and a hyperbolic discounting model, assuming that the same discounting applies to both consumption and leisure. Money is introduced via a cash-in-advance constraint. Although the three models are observationally equivalent, they provide different policy implications. The Friedman rule is optimal in the latter two models, whereas it is not optimal in the first model when agents discount consumption at a higher rate than leisure. |
| Keywords: | Non-unitary discount rate, Hyperbolic discounting, Exponential discounting, Friedman rule, Optimal inflation |
| JEL: | E5 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1804&r=mac |
| By: | Güneş Kamber; Benjamin Wong |
| Abstract: | We develop a model to empirically study the influence of global factors in driving trend inflation and the inflation gap.We apply our model to five established inflation targeters and a group of heterogeneous Asian economies. Our results suggest that while global factors can have a sizeable influence on the inflation gap, they play only a marginal role in driving trend inflation. Much of the influence of global factors in the inflation gap may be reflecting commodity price shocks. We also find global factors have a greater influence on inflation, and especially trend inflation, for the group of Asian economies relative to the established inflation targeters. A possible interpretation is that inflation targeting may have reduced the influence of global factors on inflation, and especially so on trend inflation. |
| Keywords: | trend inflation, foreign shocks, Beveridge-Nelson decomposition |
| JEL: | C32 E31 F41 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:688&r=mac |
| By: | John Fitzgerald (Department of Economics, Trinity College Dublin); Seán Kenny (University of Lund) |
| Abstract: | This paper provides a consistent series for the Irish national debt since the foundation of the state. It also provides a continuous series for bond yields over the same period. The paper examines the factors behind the fluctuations in the debt burden over almost a century. The management of the debt burden by the Irish authorities has evolved over time, seeking to minimise both the burden on the economy and the risks which the debt represented to the state. The paper also examines how the cost of borrowing for the Irish government compared to that for the UK and, since the break with sterling, for Germany. This cost of borrowing was, in turn affected by developments in the domestic economy. |
| Keywords: | National debt, Ireland,debt burden |
| JEL: | E62 H6 H63 N00 N14 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0118&r=mac |
| By: | Florian, David (Banco Central de Reserva del Perú); Limnios, Chris (Providence College); Walsh, Carl (University of California, Santa Cruz) |
| Abstract: | This paper studies a channel system for implementing monetary policy when bank lending is subject to frictions. These frictions affect the spread between the interbank rate and the loan rate. We show how the width of the channel, the nature of random payment flows in the interbank market and the presence of frictions in the loan market affect the propagation of financial shocks that originate either in the interbank market or in the loan market. We study the transmission mechanism of two different financial shocks: 1) An increase in the volatility of the payment shock that banks face once the interbank market has closed and 2) An exogenous termination of loan contracts that directly affects the probability of continuation of credit relationships. Both financial shocks are propagated through the interaction of the marginal value of having excess reserves as collateral relative to other bank assets, the real marginal cost of labor for all active firms and the reservation productivity that selects the mass of producing firms. Our results suggest that financial shocks produce a reallocation of bank assets towards excess reserves as well as intensive and extensive margin effects over employment. The aggregation of those effects produce deep and prolonged recessions that are associated to fluctuations in the endogenous component of total factor productivity that appears as an additional input in the aggregate production function of the economy. We show that this wedge depends on aggregate credit conditions and on the mass of producing firms. |
| Keywords: | Monetary policy implementation, channel system, central bank, credit frictions |
| JEL: | E4 G21 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2018-001&r=mac |
| By: | Roger Farmer |
| Abstract: | This paper constructs a general equilibrium model where asset price fluctuations are caused by random shocks to beliefs about the future price level that reallocate consumption across generations. In this model, asset prices are volatile, and price-earnings ratios are persistent, even though there is no fundamental uncertainty and financial markets are sequentially complete. I show that the model can explain a substantial risk premium while generating smooth time series for consumption. In my model, asset price fluctuations are Pareto inefficient and there is a role for treasury or central bank intervention to stabilize asset price volatility. |
| JEL: | E0 G1 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24261&r=mac |
| By: | Alberto Cavallo; W. Erwin Diewert; Robert C. Feenstra; Robert Inklaar; Marcel P. Timmer |
| Abstract: | We show that online prices can be used to construct quarterly purchasing power parities (PPPs) with a closely-matched set of goods and identical methodologies in a variety of developed and developing countries. Our results are close to those reported by the International Comparisons Program (ICP) in 2011 and the OECD in 2014, and can be used to obtain more up-to-date estimates of real consumption across countries without the need for consumer price index extrapolations. We discuss advantages and limitations associated with the use of online prices for PPs, including issues of representativeness and limited coverage of product categories and countries. |
| JEL: | E3 E31 F0 F41 O47 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24292&r=mac |
| By: | Schilirò, Daniele |
| Abstract: | This paper examines the growth theory of Robert Solow , which has been a point of reference of economic growth since the 1950s. First, the article analyzes the path-breaking model of growth contained in Solow’s article “A Contribution to the Theory of Economic Growth” published in The Quarterly Journal of Economics (1956). Second, it looks at the contribution of Solow to growth accounting and to the new method of studying capital formation in economic growth through the vintage approach. Therefore, the work analyzes the article “Technical Change and the Aggregate Production Function” published in The Review of Economics and Statistics (1957). In the latter publication, Solow, through the aggregate production function, tries to measure growth and provide an explanation of the nature of technical progress. The article also examines Solow’s 1960 essay “Investment and Technical Progress” based on the hypothesis of embodied technological progress and the vintage approach. |
| Keywords: | Aggregate Production Function; Capital Accumulation; Solow’s Models of Growth; Technological Change |
| JEL: | B22 E10 E23 O10 O33 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84531&r=mac |
| By: | Baqaee, David Rezza |
| Abstract: | Household expectations of the inflation rate are much more sensitive to inflation than to disinflation. To the extent that workers have bargaining power in wage determination, this asymmetry in their beliefs can make wages respond quickly to inflationary forces but sluggishly to deflationary ones. I microfound asymmetric household expectations using ambiguity-aversion: households, who do not know the quality of their information, overweight inflationary news since it reduces their purchasing power, and underweight deflationary news since it increases their purchasing power. I embed asymmetric beliefs into a general equilibrium model and show that, in such a model, monetary policy has asymmetric effects on employment, output, and wage inflation in ways consistent with the data. Although wages are downwardly rigid in this environment, monetary policy need not have a bias towards using inflation to grease the wheels of the labor market. |
| JEL: | E27 |
| Date: | 2016–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:86246&r=mac |
| By: | Foroni, Claudia; Marcellino, Massimiliano; Stevanović, Dalibor |
| Abstract: | Temporal aggregation in general introduces a moving average (MA) component in the aggregated model. A similar feature emerges when not all but only a few variables are aggregated, which generates a mixed frequency model. The MA component is generally neglected, likely to preserve the possibility of OLS estimation, but the consequences have never been properly studied in the mixed frequency context. In this paper, we show, analytically, in Monte Carlo simulations and in a forecasting application on U.S. macroeconomic variables, the relevance of considering the MA component in mixed-frequency MIDAS and Unrestricted-MIDAS models (MIDASARMA and UMIDAS-ARMA). Specifically, the simulation results indicate that the short-term forecasting performance of MIDAS-ARMA and UMIDAS-ARMA is better than that of, respectively, MIDAS and UMIDAS. The empirical applications on nowcasting U.S. GDP growth, investment growth and GDP deflator inflation confirm this ranking. Moreover, in both simulation and empirical results, MIDAS-ARMA is better than UMIDAS-ARMA. |
| Keywords: | temporal aggregation,MIDAS models,ARMA models |
| JEL: | E37 C53 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:022018&r=mac |
| By: | Diego Aparicio; Alberto Cavallo |
| Abstract: | We study the impact of targeted price controls for supermarket products in Argentina from 2007 to 2015. Using web-scraping, we collected daily prices for controlled and non-controlled goods and measured the differential effects on inflation, product availability, and price dispersion. We first show that, although price controls are imposed on goods with significant CPI weight, they have a temporary effect on aggregate inflation and no downward effect on other goods. Second, contrary to common beliefs, we find that controlled goods are consistently available for sale. Third, firms compensate for price controls by introducing new product varieties at higher prices. This behavior, which increases price dispersion within narrow categories, is consistent with a standard vertical differentiation model in the presence of price controls. |
| JEL: | D22 E31 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24275&r=mac |
| By: | Marcello Perez-Alvarez; Holger Strulik |
| Abstract: | Schooling outcomes matter for economic development. At the same time, educational policies around the globe often fail to effectively improve them. This paper suggests perceived nepotism as an important barrier to the development of cognitive skills as schooling outcomes. We argue that students in countries that perceive labor markets to be nepotistic experience a weaker economic motive to invest in human capital. To formally motivate this relationship, we develop a dynamic general equilibrium model in which nepotism is explained as an evolving cultural norm. We test the central prediction of the model by relating the PISA scores to an indicator for perceived nepotism at the country level. The findings show that, on average, an increase in one standard deviation of the perceived nepotism indicator decreases the PISA reading scores by 0.21 standard deviations, conditioning for overall corruption perception. Several robustness checks corroborate the stability of our estimate. The analysis implies that recruitment practices in labor markets strongly shape individual's efforts to accumulate human capital. Accordingly, the consideration thereof may enhance educational policy efforts. |
| Keywords: | nepotism; cognitive skills; human capital; economic growth; norm transmission |
| JEL: | E24 I21 I25 O10 O40 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:2018-02&r=mac |
| By: | Ayse Imrohoroglu; Cagri S. Kumru; Arm Nakornthab |
| Abstract: | In this paper, we study optimal income taxation in a model with entrepreneurial activity. We conduct two types of changes in tax policy: changing the overall progressivity of taxes versus changing the tax rate of the richest 1% of the population. We study the implications of these tax policies on welfare, inequality, and government revenues. Our results indicate that increasing the overall progressivity of taxes results in lower wealth inequality and higher welfare relative to increasing the tax rate on the richest 1% of the population. |
| Keywords: | Entrepreneurship, taxation, progressivity, labor supply |
| JEL: | D31 E21 H2 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2018-660&r=mac |
| By: | Stefano BOSI; David DESMARCHELIER |
| Abstract: | In this article, we embed a model of disease spread into a Ramsey model. A stock of pollution, viewed as a productive externality, affects both the disease transmission and the consumption demand. An ecofriendly government levies a proportional Pigouvian tax on production to depollute. We show the coexistence of two steady states in the long run: a disease-free and an endemic steady state. At the endemic steady state, a higher green-tax rate always reduces the pollution level. In the short run, we show the existence of limit cycles (through a Hopf bifurcation) as well as more complex dynamics of codimension two (a Gavrilov-Guckenheimer bifurcation). We complete the study with a numerical illustration of these bifurcations and a new facet of the Green Paradox: a higher tax rate can allow more scope for cycles by lowering the critical aversion to pollution and, thus, contribute to destabilize the economy and promote intergenerational inequalities. |
| Keywords: | SIS model, Ramsey model, pollution, transcritical bifurcation, Hopf bifurcation, Gavrilov-Guckenheimer bifurcation. |
| JEL: | C61 E32 O44 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2018-11&r=mac |
| By: | Auray Stéphane (CREST-ENSAI ; ULCO); Eyquem Aurélien (ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE)); Gomme Paul (Concordia University ; CIREQ) |
| Abstract: | Following the Great Recession, U.S. government debt levels exceeded 100% of output. We develop a macroeconomic model to evaluate the role of various shocks during and after the Great Recession; labor market shocks have the greatest impact on macroeconomic activity. We then evaluate the consequences of using alternative fiscal policy instruments to implement a fiscal austerity program to return the debt-output ratio to its pre-Great Recession level. Our welfare analysis reveals that there is not much difference between applying fiscal austerity through government spending, the labor income tax, or the consumption tax; using the capital income tax is welfare-reducing. |
| Date: | 2017–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2017-61&r=mac |
| By: | Brautzsch, Hans-Ulrich; Schultz, Birgit |
| Abstract: | This paper examines the effects of the minimum wage introduction in Germany in 2015 on the skilled crafts sector in Saxony-Anhalt. Using novel survey data on the skilled crafts sector in Saxony-Anhalt, we examine three questions: (1) How many employees are affected by the minimum wage introduction in the skilled crafts sector in Saxony- Anhalt? (2) What are the effects of the minimum wage introduction? (3) How have firms reacted to wage increase? We find that about 8% of all employees in the skilled crafts sector in Saxony-Anhalt are directly affected by the minimum wage introduction. A difference-in-difference estimation reveals no significant employment effects of the minimum wage introduction. We test for alternative adjustment strategies and observe a significant increase of output prices. |
| Keywords: | minimum wage,employment,difference-in-differences estimations,Saxony-Anhalt |
| JEL: | C31 E24 J23 J38 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:312017&r=mac |
| By: | Nicole Aregger |
| Abstract: | Motivated by the potential contribution of China's unilateral peg to asset price in flation in the US before the financial crisis of 2007-2009, this paper studies the effect of alternative exchange rate regimes ( flexible versus fixed) on the response of asset prices to economic shocks. I use a two-country general equilibrium model with sticky prices and extend earlier work on this topic by making use of a newer method for analyzing portfolio choice in DSGE models. My findings suggest that asset price responses to shocks differ across regimes. In particular, under a fixed regime, which is operated by the foreign country, responses to shocks in the home country are stronger than under a flexible regime. For home asset prices, however, the amplification of shock responses tends to be small. Applied to the US and China, this implies that, under China's prevailing unilateral peg, the Fed's expansionary monetary policy before the crisis resulted in a slightly but not substantially stronger US asset price infl ation relative to the one that would have been observed under a floating USD/CNY exchange rate. |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:szg:worpap:1801&r=mac |
| By: | Baley, Isaac; Ljungqvist, Lars; Sargent, Thomas J |
| Abstract: | Ljungqvist and Sargent (1998, 2008) show that worse skill transition probabilities for workers who suffer involuntary layoffs (i.e., increases in turbulence) generate higher unemployment in a welfare state. den Haan, Haefke and Ramey (2005) challenge this finding by showing that if higher turbulence means that voluntary quits are also exposed to even a tiny risk of skill loss, then higher turbulence leads to lower unemployment within their matching model. We show (1) that there is no such brittleness of the positive turbulence-unemployment relationship in the matching model of Ljungqvist and Sargent (2007) even if we add such "quit turbulence", and (2) that if den Haan et al. had calibrated their productivity distribution to fit observed unemployment patterns that they miss, then they too would have found a positive turbulence-unemployment relationship in their model. Thus, we trace den Haan et al.'s finding to their assuming a narrower productivity distribution than Ljungqvist and Sargent had. Because den Haan et al. assume a distribution with such narrow support that it implies small returns to reallocating labor, even a small mobility cost shuts down voluntary separations. But that means that the imposition of a small layoff cost in tranquil times has counterfactually large unemployment suppression effects. When the parameterization is adjusted to fit historical observations on unemployment and layoff costs, a positive relationship between turbulence and unemployment reemerges. |
| Keywords: | layoff costs; layoffs; matching model; quits; skills; turbulence; unemployment |
| JEL: | E24 J63 J64 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12683&r=mac |
| By: | Bianchi, Francesco; Lettau, Martin; Ludvigson, Sydney |
| Abstract: | This paper presents evidence of infrequent shifts, or regimes,in the mean of the consumption-wealth variable cay that are strongly associated with low frequency fluctuations in the real value of the Federal Reserveís primary policy rate, with low policy rates associated with high asset valuations, and vice versa. By contrast, there is no evidence that infrequent shifts to high asset valuations and low policy rates are associated with higher economic growth or lower economic uncertainty; indeed the opposite is true. Additional evidence shows that low interest rate/high asset valuation regimes coincide with significantly lower equity market risk premia. |
| JEL: | G10 G12 G17 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12671&r=mac |
| By: | Guido Matias Cortes; Nir Jaimovich; Henry E. Siu |
| Abstract: | We document a new finding regarding changes in labor market outcomes for men and women in the US. Since 1980, conditional on being a college-educated man, the probability of working in a cognitive/high-wage occupation has fallen. This contrasts starkly with the experience for college-educated women: their probability of working in these occupations rose, despite a much larger increase in the supply of educated women relative to men. We consider these facts in light of a general neoclassical model of the labor market. One key channel capable of rationalizing these findings is a greater increase in the demand for female-oriented skills in cognitive/high-wage occupations relative to other occupations. Using occupation-level data, we find evidence that this relative increase in the demand for female skills is due to an increasing importance of social skills within such occupations. Evidence from both male and female wages is also indicative of an increase in the demand for social skills. |
| JEL: | E24 J16 J23 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24274&r=mac |
| By: | Andrew Sharpe, Myeongwan Kim |
| Abstract: | This report contributes to the debate on the role of Aboriginal people in the Canadian long-term economic growth by projecting the contribution of Métis people to future labour force growth in Canada as a whole and across regions under various projection scenarios. Based on our projections for the Métis labour force over the period 2011-2036, we find that the contribution of Métis to the total Canadian labour force is significant given their 1.2 per cent share in the total working age population in Canada. In our baseline scenario, the Métis people is projected to account for 6.4 per cent of total labour force growth. The Métis contribution is especially large in the regions with which the Métis has historical ties: namely the Prairie provinces and the Northern region. The contribution in these jurisdictions ranges from 11.8 per cent to 17.0 per cent. We find that the role of ethnic mobility is especially important for the Métis population growth. If we assume no ethnic mobility, the Métis contribution is projected to be 1.9 per cent of the total labour force growth in Canada. Nevertheless, this is still greater than the Métis share in the Canadian working age population in 2011. |
| Keywords: | Labour Force, Growth, Aboriginal, Canada, Trends, contributions, Ethnic Mobility, Population, Age Demographics, Labour Force Participation Rates |
| JEL: | J21 N1 J11 E24 I31 F00 I2 J17 O15 F43 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:sls:resrep:1708&r=mac |
| By: | Suman S Basu; Marcos Chamon; Christopher W. Crowe |
| Abstract: | This paper summarizes a suite of early warning models to assess the probabilities of growth, fiscal, and financial crises in advanced economies and emerging markets. We estimate separate signal-extraction models for each type of crisis and sample of countries, and we use our results to generate “histories of vulnerabilities” for countries, regions, and the world. For the global financial crisis, our models report that vulnerabilities in advanced economies were rooted in the bursting of leveraged bubbles, while vulnerabilities in emerging markets stemmed from lengthy booms in credit and asset prices combined with growing weaknesses in the corporate and external sectors. |
| Date: | 2017–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/282&r=mac |
| By: | Adam M. Guren (Boston University); Timothy J. McQuade (Stanford University) |
| Abstract: | We present a dynamic search model in which foreclosures exacerbate housing busts and delay the housing market;s recovery. By eroding lender equity, destroying the credit of potential buyers, and making buyers more selective, foreclosures freeze the market for non-foreclosures can cause price-default spirals that amplify an initial shock. To quantitatively asses these channels, the model is calibrated to the recent bust. The amplification is significant: ruined credit and choosey buyers account for 22.5 percent of the total decline in non-distressed prices and lender losses account for an additional 30 percent. We use our model to evaluate foreclosure mitigation policies and find that payment reduction is quite effective, but creating a single seller of foreclosures that holds them off the market until demand picks up is the most effective policy. Policies that slow down the pace of foreclosures can be counterproductive. |
| Keywords: | Housing Prices & Dynamics, Foreclosures, Search, Great Recession |
| JEL: | E30 R31 |
| URL: | http://d.repec.org/n?u=RePEc:bos:wpaper:wp2018-007&r=mac |
| By: | Tyrowicz, Joanna (University of Warsaw); Smyk, Magdalena (University of Warsaw) |
| Abstract: | Income inequality in the context of large structural change has received a lot of attention in the literature, but most studies relied on household post-transfer inequality measures. This study utilizes a novel and fairly comprehensive collection of micro data sets from between 1980's and 2010 for both advanced market economies and economies undergoing transition from central planning to market based system. We show that wage inequality was initially lower in transition economies and immediately upon the change of the economic system surpassed the levels observed in advanced economies. We find a very weak link between structural change and wages in both advanced and post-transition economies, despite the predictions from skill-biased technological change literature. The decomposition of changes in wage inequality into a part attributable to changes in characteristics (mainly education) and a part attributable to changes in rewards does not yield any leading factors. |
| Keywords: | wage inequality, structural change, transition, skill biased technological change |
| JEL: | E24 D31 N34 O57 P36 P51 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11250&r=mac |
| By: | Axel H. Börsch-Supan; Klaus Härtl; Duarte N. Leite |
| Abstract: | In response to the challenges of increasing longevity, an obvious policy response is to gradually increase the statutory eligibility age for public pension benefits and to shut down pathways to early retirement such as special rules for women. This is, however, very unpopular. As an alternative, many countries have introduced “flexibility reforms” which allow combining part-time work and partial retirement. A key measure of these reforms is the abolishment of earnings tests. It is claimed that these reforms increase labor supply and therefore, also the sustainability of pension systems. We show that these claims may not be true in the circumstances of most European countries. To this end, we employ a life-cycle model of consumption and labor supply where the choices of labor force exit and benefit claiming age are endogenous and potentially separate. Earnings tests force workers to exit the labor market when claiming a pension. After abolishing the earnings test, workers can claim their benefits and can keep on working, potentially increasing labor supply. Our key result is that the difference between exit and claiming age strongly depends on the actuarial neutrality of the pension system and can become very large. Abolishing an earnings test as part of a “flexibility reform” may therefore create more labor supply but at the same time, reduce the average claiming age when adjustments remain less than actuarial, thereby worsening rather than improving the sustainability of public pension systems. |
| JEL: | D91 E17 E21 H55 J11 J22 J26 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24294&r=mac |
| By: | Thomaidou, Fotini |
| Abstract: | The purpose of this study is to explore the effects of exogenous social security system parameters on welfare. The set up is an overlapping generations economy, with skills heterogeneity, which distinguishes consumers between high and low skilled. The lowskilled receive an extra supplement pension. The social security system has three exogenous parameters: the benefits, the contributions, and the funding parameter. The author examines and compares the effects of these three exogenous social security parameters, first under inelastic and then under elastic labor supply, on individuals welfare. He finds that when labor supply is inelastic, the parameters affect differently the welfare of the high and the low-skilled, since for the latter, we must also take into account the indirect effects through the supplement pension provision. When labor supply is elastic, the effects of changes in the social security parameters on welfare are the same for both the high and the low skilled, as in the case of inelastic labor supply. |
| Keywords: | social security,pensions,PAYGO,funded systems,welfare,skills heterogeneity |
| JEL: | D11 E21 H55 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20185&r=mac |
| By: | Efraim Benmelech; Nittai Bergman; Hyunseob Kim |
| Abstract: | We analyze the effect of local-level labor market concentration on wages. Using Census data over the period 1977–2009, we find that: (1) local-level employer concentration exhibits substantial cross-sectional and time-series variation and increases over time; (2) consistent with labor market monopsony power, there is a negative relation between local-level employer concentration and wages that is more pronounced at high levels of concentration and increases over time; (3) the negative relation between labor market concentration and wages is stronger when unionization rates are low; (4) the link between productivity growth and wage growth is stronger when labor markets are less concentrated; and (5) exposure to greater import competition from China (the “China Shock”) is associated with more concentrated labor markets. These five results emphasize the role of local-level labor market monopsonies in influencing firm wage-setting behavior and can potentially explain some of the stagnation of wages in the United States over the past several decades. |
| JEL: | E24 J21 J23 J31 J42 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24307&r=mac |
| By: | Braggion, Fabio; Manconi, Alberto; Zhu, Haikun |
| Abstract: | We study whether and to what extent peer-to-peer (P2P) credit helps circumvent loan-to-value (LTV) caps, a key macroprudential tool to contain household leverage. We exploit the tightening of mortgage LTV caps in a number of cities in China in 2013 as our testing ground, in a difference-in-differences setting, and we base our tests on a novel, hand-collected database covering all lending transactions at RenrenDai, a leading Chinese P2P credit platform. P2P loans increase at the cities affected by the LTV cap tightening relative to the control cities, consistent with borrowers tapping P2P credit to circumvent the regulation. The granularity of our data allows us to separate credit demand from credit supply effects, with a fixed effects strategy. Our results also indicate that P2P lenders do not adjust their pricing and screening to the influx of new borrowers after 2013, despite the fact that their loans ex post have higher delinquency and default rates. Symmetric effects are associated with a loosening of mortgage LTV caps in 2015. Our test provides empirical evidence on the capacity of P2P credit to undermine LTV caps. More broadly, our analysis informs the debate on the challenges posed by the interaction between FinTech and credit regulation. |
| Keywords: | peer-to-peer credit; household leverage; macroprudential regulation; loan-to-value caps |
| JEL: | G01 G23 G28 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12668&r=mac |
| By: | Boarini, Romina; Causa, Orsetta; Fleurbaey, Marc; Grimalda, Gianluca; Woolard, Ingrid |
| Abstract: | The authors propose a policy compact to achieve more inclusive growth in G20 countries so that economic growth regains the ultimate sense of improving all people's lives. Guiding principles are: 1) prosperity is not just about income but about all relevant outcomes of well-being and capabilities to overcome the initial social disadvantage; 2) it is also about including people in participatory decision-making to enhance their dignity and control over their lives; 3) excluding people from reaping the benefits of growth will thwart social cohesion and well-being; 4) integrated policy approaches are needed to achieve inclusive growth, across policy domains and between national and global actions, including responsible management of migratory movements. Concrete policy actions are described that span education, labor, fiscal instruments, public and private governance. |
| Keywords: | inclusive growth,social cohesion,inequalities,well-being |
| JEL: | D63 O40 E60 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20187&r=mac |
| By: | Adrian, Tobias; Estrella, Arturo; Shin, Hyun Song |
| Abstract: | One of the most robust stylized facts in macroeconomics is the forecasting power of the term spread for future real activity. We propose a possible causal mechanism for the forecasting power of the term spread, deriving from the balance sheet management of financial intermediaries and the risk-taking channel of monetary policy. Monetary tightening leads to the flattening of the term spread, reducing net interest margin and credit supply. We provide empirical support for the risk-taking channel. |
| Keywords: | risk taking channel of monetary policy |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12677&r=mac |
| By: | Lena Dräger (Johannes Gutenberg University Mainz); Giang Nghiem (Goethe-University Frankfurt am Main) |
| Abstract: | Evaluating two new survey datasets of German consumers, we test whether individual consumption spending decisions are formed according to an Euler equation derived from consumption life-cycle models. Measured in qualitative individual changes, our results suggest that current and planned spending are positively correlated, thus supporting the hypothesis of consumption smoothing. Also, current spending is positively correlated with inflation expectations, and negatively with nominal interest rate expectations. Interestingly, the effect of perceived real interest rates is only significant for financial market participants, financially unconstrained households and those with high financial literacy, implying that these are important conditions for the ability to smooth consumption over time. Moreover, these households are better positioned in the wealth and income distributions. In that sense, the ability to smooth consumption may be a channel through which distributional effects of policy shocks may occur. Finally, news on inflation and monetary policy observed by the consumer strengthen the effect of their inflation expectations on current spending, suggesting that imperfect information may also influence the Euler equation relationship. |
| Keywords: | Euler equation; consumption plans; macroeconomic expectations; households; survey micro data |
| JEL: | D12 D84 E52 |
| Date: | 2016–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1802&r=mac |
| By: | Blaise Gnimassoun |
| Abstract: | Economists are divided on the effect of exchange rate regimes on economic growth. In this article we study the particular case of the West African Economic and Monetary Union (WAEMU), which is one of the oldest monetary unions in the world resulting from French colonization. The objective is to study the impact of this integration on the economic growth of the region. To this end, we propose an empirical model of economic growth specific to the zone. We also address the problem of simultaneity bias between integration and growth relying on a gravity-based IV strategy. Our econometric results show that although West African regional integration is one of the most important in Africa, it has not led to significant economic growth in the Union. We propose measures to strengthen community transport infrastructures, which are essential to boost integration and its impact on the growth of We propose a massive investment plan in the community transport infrastructure, which is essential to strengthen integration and its impact on the growth of the area. |
| Keywords: | Regional integration, Monetary Union, Empirical growth model |
| JEL: | F15 O47 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2018-11&r=mac |
| By: | Lassila, Jukka |
| Abstract: | We study how aggregate demographic and economic risks affect the finances of the Finnish earnings-related pension system and the different generations of the insured. As a partially funded defined-benefit system, demographic risks and asset yield risks directly affect the contributions. Our analysis, based on a general equilibrium overlapping-generations model, show that these risks also affect wages and thus pension benefits and replacement rates. Productivity growth also affects wages and thus both contributions and benefits. We also analyze quantitatively the use of pension funds with the aim of smoothing contributions over time and compare the outcomes of the current system to an alternative system with the same benefit rules but no funding. Smoothing is affected by the revisions in long-term forecasts and is thus imperfect. In addition, variation in asset yields often cause clashes with solvency limits. We find that funding results in more varying contributions over time than would be the case without funding. Concerning generational equity, young generations benefit from funding in the form of lower contributions and higher wages, and their consumption possibilities are further increased by the improved fiscal stance of the state and municipalities. |
| Keywords: | Pensions, funding, contribution smoothing, risks, generational fairness |
| JEL: | E17 H55 J11 |
| Date: | 2018–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:rif:wpaper:57&r=mac |
| By: | Sojourner, Aaron J. (University of Minnesota); Pacas, José (University of Minnesota) |
| Abstract: | This paper develops the first evidence on how individuals' union membership status affects their net fiscal impact, the difference between taxes they pay and cost of public benefits they receive, enriching our understanding of how labor relations interacts with public economics. Current Population Survey data between 1994 and 2015 in pooled cross-sections and individual first-difference models yield evidence that union membership has a positive net fiscal impact through the worker-level channels studied. |
| Keywords: | labor union, taxes, public economic, labor relations, industrial relations, public benefits, collective bargaining, net fiscal impact, social insurance |
| JEL: | J5 H24 J31 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11310&r=mac |
| By: | Brendon, Charles; Ellison, Martin |
| Abstract: | This paper proposes and characterises a new normative solution concept for Kydland and Prescott problems, allowing for a commitment device. A policy choice is dominated if either (a) an alternative exists that is superior to it in a time-consistent subdomain of the constraint set, or (b) an alternative exists that Pareto-dominates it over time. Policies may be time-consistently undominated where time-consistent optimality is not possible. We derive necessary and sufficient conditions for this to be true, and show that these are equivalent to a straightforward but significant change to the first-order conditions that apply under Ramsey policy. Time-consistently undominated policies are an order of magnitude simpler than Ramsey choice, whilst retaining normative appeal. This is illustrated across a range of examples. |
| Keywords: | Ramsey Policy; Time Consistency; Undominated Policy |
| JEL: | D02 E61 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12656&r=mac |
| By: | Sen Gupta, Abhijit; Atri, Pragya |
| Abstract: | The sharp increase in volatility of capital flows in recent years has resulted in many countries altering the regulations governing the ow of foreign capital only to find such changes having a limited impact. We postulate that one reason for the limited effectiveness of such changes in regulations is the level of financial sector development in the country. As a country enhances its level of financial sector development, it also develops more and more sophisticated financial instruments. The more advanced the domestic financial instruments are, and the deeper is the integration of the domestic financial markets with the world markets, the greater is the likelihood of developing strategies to bypass capital account management measures. In this paper, we undertake various empirical techniques to identify the impact of financial sector development on capital flows, accounting for regulatory regime. The empirical results indicate that there is a threshold effect in the financial sector development capital flow relationship. In particular, financial sector development augments greater integration with global capital flows only above a threshold level. Below the threshold level we find financial development reduces the extent of integration with global capital markets. |
| Keywords: | Capital Flows, Financial Sector Development, Macroeconomic Management |
| JEL: | E52 F36 F41 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84416&r=mac |
| By: | Antonino Fazio (Bank of Italy); Fabio Zuffranieri (Bank of Italy) |
| Abstract: | AThis paper outlines how a paradigm shift is required when approaching cyber risk management for interbank payment systems, which are affected by the growing interconnectedness of systems, the digitalization of financial services and continuously evolving cyber threats. In this scenario, cyber threats may derive from a wider number of actors, who are constantly active on the Internet and able to exploit an increasing number of vulnerabilities and attack vectors to achieve their goals. Financial institutions should therefore assume that specific cyber threats can overcome any defence. Firstly, the paper outlines the theoretical reasons for this necessary paradigm shift; secondly, it aims to highlight the importance of all the stakeholders in strengthening the cyber resilience of payment systems, in particular the central and enabling role of messaging service operators, by providing an analysis of a real case study - the recent Bangladesh Bank cyber fraud; and finally, the paper aims to encourage discussion on the new paradigm and the adequacy of current regulatory frameworks and supervisory approaches. |
| Keywords: | payment systems, cyber security, cyber resilience |
| JEL: | E42 F50 L50 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_418_18&r=mac |
| By: | Sarah Brown (Department of Economics, University of Sheffield); Alexandros Kontonikas (Essex Business School, University of Essex); Alberto Montagnoli (Department of Economics, University of Sheffield); Mirko Moro (Stirling Management School, University of Stirling); Luisanna Onnis (Huddersfield Business School, University of Huddersfield) |
| Abstract: | This paper examines the linkages between fiscal austerity and life satisfaction across sixteen European countries using a sample of repeated cross-sections of individuals from 1983 to 2013 (N=853,482). Austerity is identified using changes in the cyclically-adjusted primary balance. Our dataset allows us to control for several individual-specific characteristics that are known to affect life satisfaction. In our empirical framework, we account for the role of macroeconomic developments and expectations. We find that austerity is inversely associated with life satisfaction, with the effect operating through an economic channel. Specifically, it is only the part of austerity correlated with macroeconomic developments, that is shown to empirically matter. Moreover, we show that the negative effect of austerity is mediated by expectations. Individuals with positive expectations about their future prospects are less affected, in terms of falling life satisfaction, by contractionary fiscal policies. |
| Keywords: | Expectations; Fiscal Austerity; Government Policy; Life Satisfaction |
| JEL: | E62 I31 D84 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2018001&r=mac |
| By: | Brendon, C.; Ellison, M. |
| Abstract: | This paper proposes and characterises a new normative solution concept for Kydland and Prescott problems, allowing for a commitment device. A policy choice is dominated if either (a) an alternative exists that is superior to it in a time-consistent subdomain of the constraint set, or (b) an alternative exists that Paretodominates it over time. Policies may be time-consistently undominated where time-consistent optimality is not possible. We derive necessary and sufficient conditions for this to be true, and show that these are equivalent to a straightforward but significant change to the first-order conditions that apply under Ramsey policy. Time-consistently undominated policies are an order of magnitude simpler than Ramsey choice, whilst retaining normative appeal. This is illustrated across a range of examples. |
| Keywords: | Time Consistency, Undominated Policy, Ramsey Policy |
| JEL: | D02 E61 |
| Date: | 2018–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1809&r=mac |
| By: | Alberto F. Alesina; Carlo Favero; Francesco Giavazzi |
| Abstract: | This paper summarizes the results of a large recent literature on multi year fiscal plans for deficit reduction (austerity). The key results are that deficit reduction policies based upon spending cuts are much less costly in terms of short run output losses than tax based adjustments. On average fiscal adjustment based upon spending cuts have very small output costs and in some cases they are expansionary. We then discuss which possible models can explain these findings and discuss how the evidence can disentangle them. |
| JEL: | E0 H0 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24246&r=mac |
| By: | Johnstone, I. M; Onatski, A. |
| Abstract: | We consider the five classes of multivariate statistical problems identified by James (1964), which together cover much of classical multivariate analysis, plus a simpler limiting case, symmetric matrix denoising. Each of James' problems involves the eigenvalues of {code} where H and E are proportional to high dimensional Wishart matrices. Under the null hypothesis, both Wisharts are central with identity covariance. Under the alternative, the non-centrality or the covariance parameter of H has a single eigenvalue, a spike, that stands alone. When the spike is smaller than a case-specific phase transition threshold, none of the sample eigenvalues separate from the bulk, making the testing problem challenging. Using a unified strategy for the six cases, we show that the log likelihood ratio processes parameterized by the value of the sub-critical spike converge to Gaussian processes with logarithmic correlation. We then derive asymptotic power envelopes for tests for the presence of a spike. |
| Keywords: | Likelihood ratio test, hypergeometric function, principal components analysis, canonical correlations, matrix denoising, multiple response regression |
| JEL: | E20 |
| Date: | 2018–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1806&r=mac |
| By: | Verdolini, Elena; Bak, Céline; Ruet, Joël; Venkatachalam, Anbumozhi |
| Abstract: | The authors recommend that the G20 target innovative green-technology SMEs as an opportunity to promote financial de-risking while addressing Paris Agreement commitments and UN Sustainable Development Goals. This should be achieved by creating signals for private investors through: (1) a reporting system that can help monitor the scale-up of green-technology SMEs; (2) the use of public funds to signal innovative green-technology SMEs to investors; and (3) the inclusion of SMEs in the design of green finance platforms. By implementing these recommendations, the G20 will ensure that innovative, low-carbon SMEs become attractive, low(er)-risk investment opportunities for the private sector. |
| Keywords: | innovation,green technology,eco-efficiency,SMEs,financial de-risking |
| JEL: | O31 Q55 Q58 E60 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20188&r=mac |
| By: | Rosa Duarte (Universidad de Zaragoza); Cristina Sarasa (Universidad de Zaragoza); Mònia Serrano (Universitat de Barcelona) |
| Abstract: | Economic growth has different impacts on gender gaps. Despite that the incorporation of women into the labour market drove towards a convergence with male participation in recent decades, a notable gender pay gap still persists standing at around 15% on average in the European Union. In this context, this paper evaluates the impact of economic growth patterns on the evolution of female employment and gender pay gaps. As a case study, we examine Spanish economic growth from 1980 to 2007 and the influences on the size, composition (by skill), and distribution (by sector) of female and male employment, as well as the consequences for gender gaps. First, sectorial feminization, direct discrimination, and structural change factors are identified and evaluated as sources of change in gender pay gap. Second, we explore the influence of demand, technology, and intensity factors on the evolution of employment in Spain, combining gender, skill, sectorial, and temporal perspectives. |
| Keywords: | Female participation, Gender pay gap, Structural change, Structural decomposition analysis, Input-output analysis. |
| JEL: | A30 B54 C67 E24 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ewp:wpaper:371web&r=mac |
| By: | Holtemöller, Oliver; Pohle, Felix |
| Abstract: | This paper contributes to the empirical literature on the employment effects of minimum wages. We analysed the introduction of a statutory minimum wage in Germany in 2015 exploiting cross-sectional variation of the minimum wage affectedness. We construct two variables that measure the affectedness for approximately 300 state-industry combinations based on aggregate monthly income data. The estimation strategy consists of two steps. We test for (unidentified) structural breaks in a model with cross-section specific trends to control for state-industry specific developments prior to 2015. In a second step, we test whether the trend deviations are correlated with the minimum wage affectedness. To identify the minimum wage effect on employment, we assume that the minimum wage introduction is exogenous. Our results point towards a negative effect on marginal employment and a positive effect on socially insured employment. Furthermore, we analyse if the increase in socially insured employment is systematically related to the reduction of marginal employment but do not detect evidence. |
| Keywords: | minimum wage,employment effects,minimum wage affectedness,structural break model |
| JEL: | C21 E24 J38 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:282017&r=mac |
| By: | Alesina, Alberto; Favero, Carlo A.; Giavazzi, Francesco |
| Abstract: | This paper summarizes the results of a large recent literature on multi year fiscal plans for deficit reduction (austerity). The key results are that deficit reduction policies based upon spending cuts are much less costly in terms of short run output losses than tax based adjustments. On average fiscal adjustment based upon spending cuts have very samll otput costs and in come cases they are expansionary. We then discuss which possible models can explain these findings and discuss how the evidence can disentangle them. |
| Keywords: | austerity |
| JEL: | E62 H60 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12655&r=mac |
| By: | Bhalotra, Sonia R. (University of Essex); Kambhampati, Uma (University of Reading); Rawlings, Samantha (University of Reading); Siddique, Zahra (University of Bristol) |
| Abstract: | We examine the impact of business cycle variation on intimate partner violence using representative data from thirty one developing countries, through 2005 to 2016. We distinguish male from female unemployment rates, identifying the influence of each conditional upon the other. We find that a one percent increase in the male unemployment rate increases the incidence of physical violence against women by 0.50 percentage points, or 2.75 percent. This is consistent with the financial and psychological stress generated by unemployment. Increases in female unemployment rates (corresponding to decreases in women's employment opportunities), conditional upon rates of male unemployment reduce the incidence of violence; a one percent increase being associated with a decrease in the probability of victimization of 0.52 percentage points, or 2.87 percent. This is consistent with 'male backlash'. These patterns of behaviour are stronger among better educated women and weaker among women who have had at least one son. |
| Keywords: | intimate partner violence, women's labour force participation |
| JEL: | D19 J11 J12 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11274&r=mac |
| By: | Lorendana Fattorini (IMT School for advanced studies); Mahdi Ghodsi (The Vienna Institute for International Economic Studies); Armando Rungi (IMT School for advanced studies) |
| Abstract: | In this paper, we empirically test the effects of the EU ‘cohesion policy’ on the performance of about 500,000 European manufacturing firms after combining regional policy data at NUTS- 2 level with firm-level data. In a framework of heterogeneous firms and different absorptive capacity of regions, we show that financing of ‘cohesion policy’ by European Regional Development Fund (ERDF) aimed at direct investments in R&D correlates with improvement of firms’ productivity in a region. Conversely, funding designed at overall Business Support correlates with negative productivity growth rates. In both cases, we registered an asymmetric impact along the firms’ productivity distribution, where a stronger impact can be detected in the first quartile, i.e. less efficient firms in a region. We finally argue that considering the heterogeneity of firms allows a better assessment of the impact of ‘cohesion policy’ measures. |
| Keywords: | firm performance, total factor productivity, cross-country analysis, convergence, regional policy |
| JEL: | D22 D24 E23 F15 L25 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:ial:wpaper:2/2018&r=mac |
| By: | Matteo Bugamelli (Bank of Italy); Francesca Lotti (Bank of Italy); Monica Amici (Bank of Italy); Emanuela Ciapanna (Bank of Italy); Fabrizio Colonna (Bank of Italy); Francesco D’Amuri (Bank of Italy); Silvia Giacomelli (Bank of Italy); Andrea Linarello (Bank of Italy); Francesco Manaresi (Bank of Italy); Giuliana Palumbo (Bank of Italy); Filippo Scoccianti (Bank of Italy); Enrico Sette (Bank of Italy) |
| Abstract: | Productivity is the main factor holding back long-term economic growth in Italy. Since the second half of the 1990s, productivity growth has been feeble both by historical standards and compared with the other main euro area countries. Understanding the reasons for such a performance and finding the most effective policy levers is crucial to increase Italy’s potential growth rate. Against this background, we provide a detailed analysis of the data and a critical review of the available empirical evidence to identify both the structural weaknesses limiting productivity growth and the strengths of the Italian productive system that may support it looking forward. Since the end of the 1990s and more intensively since the second half of 2011, the reform effort has been particularly effective in the regulation of product and labor markets and industrial policy. On other factors which are very relevant for productivity dynamics, the reform action has been less effective so far. |
| Keywords: | productivity, growth, business dynamics, innovation, human capital, labor, finance, regulation, policies |
| JEL: | D0 E0 F0 G0 H0 J08 K0 L0 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_422_18&r=mac |
| By: | Marshall, Katherine; Casey, Shaun; Fitzgibbon, Attalah; Karam, Azza M.; Lyck-Bowen, Majbritt; Nitschke, Ulrich; Owen, Mark; Phiri, Isabel Apawo; Quatrucci, Alberto; Soetendorp, Rabbi Awraham; Vitillo, Robert J.; Wilson, Erin |
| Abstract: | Religious entities play significant roles in the current forced migration crisis. These roles include innovative and experience based ideas to address flawed aspects of the humanitarian system, overall advocacy on behalf of refugees and migrants based on humanitarian and spiritual principles, direct action in refugee camps and communities, action in communities that refugees and migrants flee, and support for refugee integration in host countries, including explicit efforts to promote social cohesion and address trauma. Further, assumptions about religion and the religious identity of refugees and migrants play an influential role in societal and policy debates surrounding the crisis, particularly in relation to security and violent extremism. Broadly, however, religious factors and contributions are poorly understood and insufficiently taken into account by policy makers and in think tank analyses of these (among other) issues. In each area of measures to increase religious engagement, including understanding, harmonization and coordination of efforts, and support, could increase impact. G20 agendas and gatherings, as well as those of think tanks, can benefit from purposeful attention to these often neglected dimensions of a central global challenge. |
| Keywords: | refugees,resettlement,migration,sustainable development,religion,humanitarian values |
| JEL: | E61 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201811&r=mac |
| By: | Ciccone, Antonio |
| Abstract: | A new dataset by Bazzi and Blattman (2014) allows examining the effects of international commodity prices on the risk of civil war outbreak with more comprehensive data. I find that international commodity price downturns sparked civil wars in Sub-Saharan Africa. Another finding with the new dataset is that commodity price downturns also sparked civil wars beyond Sub-Saharan Africa since 1980. Effects are sizable relative to the baseline risk of civil war outbreak. My conclusions contrast with those of Bazzi and Blattman, who argue that the new dataset rejects that commodity price downturns cause civil wars. The reason is that I calculate commodity price shocks using time invariant (fixed) export shares as commodity weights. Bazzi and Blattman also calculate commodity price shocks using export shares as commodity weights but but the exports shares they use are time varying. Using time-invariant export shares as commodity weights ensures that time variation in price shocks solely reflects changes in international commodity prices. Price shocks based on time varying export shares partly reflect (possibly endogenous) changes in the quantity and variety of countries' exports, which jeopardizes causal estimation. I also show that setting time-invariant export shares equal to average export shares over the sample period, can be a way of dealing with attenuation bias due to mismeasured export shares. When I differentiate between agricultural commodities on the one hand and minerals, oil, and gas on the other, I find stronger increases in the risk of civil war outbreak following downturns in agricultural commodity prices. |
| Keywords: | civil wars; commodity price downturns |
| JEL: | E3 O1 Q1 Q10 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12625&r=mac |