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on Macroeconomics |
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Issue of 2018‒08‒20
114 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Alban Moura; Kyriacos Lambrias |
| Abstract: | We describe LU-EAGLE, a DSGE model developed at the Banque centrale du Luxembourg. LU-EAGLE borrows its general structure from the Euro Area and GLobal Economy (EAGLE) model developed by the European System of Central Banks and also embeds specific features to capture some important characteristics of Luxembourg's economy. In particular, the model reproduces the high levels of exports and imports relative to GDP, as well as the significant share of cross-border workers in Luxembourg's labor market. We calibrate LU-EAGLE and discuss simulation results describing the effects of a set of standard shocks, originating both in Luxembourg and abroad. The model suggests that international spillovers make Luxembourg more responsive to monetary policy shocks and less responsive to fiscal policy shocks. Moreover, it highlights how fluctuations in foreign demand have a significant impact on domestic developments. |
| Keywords: | DSGE models, open economy models, policy analysis, Luxembourg. |
| JEL: | C54 E17 E32 E37 E62 F47 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp122&r=mac |
| By: | Timothy Jackson; Laurence J. Kotlikoff |
| Abstract: | Bank failures are generally liquidity as well as solvency events. Whether it is households running on banks or banks running on banks, defunding episodes are full of drama. This theater has, arguably, lured economists into placing liquidity at the epicenter of financial collapse. But loss of liquidity describes how banks fail. Bad news about banks explains why they fail. This paper models banking crises as triggered by news that the degree (share) of banking malfeasance is likely to be particularly high. The malfeasance share follows a state-dependent Markov process. When this period’s share is high, agents rationally raise their probability that next period’s share will be high as well. Whether or not this proves true, agents invest less in banks, reducing intermediation and output. Deposit insurance prevents such defunding and stabilizes the economy. But it sustains bad banking, lowering welfare. Private monitoring helps, but is no panacea. It partially limits banking malfeasance. But it does so inefficiently as households needlessly replicate each others’ costly information acquisition. Moreover, if private audits become public, private monitoring breaks down due to free-riding. Government real-time disclosure of banking malfeasant mitigates, if not eliminates, this public goods problem leading to potentially large gains in both non-stolen output and welfare. |
| JEL: | D83 E23 E32 E44 E58 G01 G21 G28 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24751&r=mac |
| By: | Niepelt, Dirk |
| Abstract: | I offer a macroeconomic perspective on the "Reserves for All" (RFA) proposal to let the general public use electronic central bank money. After distinguishing RFA from cryptocurrencies and relating the proposal to discussions about narrow banking and the abolition of cash I propose an equivalence result according to which a marginal substitution of outside for inside money does not affect macroeconomic outcomes. I identify key conditions on bank and government (central bank) incentives for equivalence and argue that these conditions likely are violated, implying that RFA would change macroeconomic outcomes. I also relate my analysis to common arguments in the discussion about RFA and point to inconsistencies and open questions. |
| Keywords: | CADcoin; CBDC; e-krona; e-Peso; Fedcoin; J Coin; narrow banking |
| JEL: | E42 E51 E58 E61 E63 H63 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13065&r=mac |
| By: | Ademmer, Martin; Jannsen, Nils |
| Abstract: | Business investment in the euro area strongly declined during the Global Financial Crisis and the Sovereign Debt Crisis. It has not yet rebounded to its pre-crisis trend despite the very expansionary monetary policy measures of the ECB. We analyse the sluggish recovery in business investment in the euro area and the role of monetary policy in three steps. We investigate the main factors that have impeded business investment since the Global Financial Crisis. We empirically analyse how business investment has developed compared to typical patterns during other financial crises. Based on these results, we then discuss how effective monetary policy has been in stimulating business investment since the Global Financial Crisis. We conclude that business investment in the euro area has developed broadly in line with typical post-crisis patterns. Monetary policy significantly contributed to stabilize business investment at the beginning of the crises. In the aftermath of the crises, however, there seems to be little scope for monetary policy to further stimulate investment. |
| Keywords: | business investment,crisis,monetary policy,local projections |
| JEL: | E22 E32 E52 C32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkie:180839&r=mac |
| By: | Vadim Elenev; Tim Landvoigt; Stijn Van Nieuwerburgh |
| Abstract: | How much capital should financial intermediaries hold? We propose a general equilibrium model with a financial sector that makes risky long-term loans to firms, funded by deposits from savers. Government guarantees create a role for bank capital regulation. The model captures the sharp and persistent drop in macro-economic aggregates and credit provision as well as the sharp change in credit spreads observed during the Great Recession. Policies requiring intermediaries to hold more capital reduce financial fragility, reduce the size of the financial and non-financial sectors, and locally increase macro-economic volatility. They redistribute wealth from savers to the owners of banks and non-financial firms. Current capital requirements are close to optimal. |
| JEL: | E02 E1 E20 E44 E6 G12 G18 G21 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24757&r=mac |
| By: | Joerg Schmidt (Justus-Liebig-Universitat Giessen) |
| Abstract: | This paper studies risk-taking by European banks. We construct a measure of risk-taking which relates changes in three month ahead expected credit standards for several non-financial private sector categories to risk of the macroeconomic environment banks operate in to re flect whether credit standards react disproportionately to changes in the monetary policy stance. We use an estimated bond market based measure to assess the overall riskiness prevailing in the economy. With this approach we shed some light on whether banks act excessively risky and provide new evidence as well as an alternative assessment on the amplifying nature of the risk-taking channel of monetary policy. We include our measure in a VAR in which structural innovations are identified with sign restrictions. The key outcomes of this paper are the following: Restrictive (expansionary) monetary policy shocks increase (decrease) our measure of risk-taking. Increases (decreases) in our measure are caused by disproportionately strong (weak) reactions in credit standards compared to the overall macroeconomic risk, especially during the recent financial crisis. Disproportionately in the sense that our macroeconomic risk measure is less affected by restrictive (expansionary) monetary policy shocks than credit standards. We conclude that expansionary monetary policy shifts the portfolio of banks to overall riskier asset holdings. The credit granting reaction depends on the category: In general, credit to non-financial corporations are less sensitive to monetary policy shocks while mortgages seem to be affected. |
| Keywords: | monetary policy, euro area, bank risk-taking, credit standards, sign restrictions VAR |
| JEL: | E44 E52 G12 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201824&r=mac |
| By: | COULIBALY, Louphou |
| Abstract: | In a model featuring sudden stops and pecuniary externalities, I show that the ability to use capital controls has radical implications for the conduct of monetary policy. Absent capital controls, following an inflation targeting regime is nearly optimal. However, if the central bank lacks commitment, it will follow a monetary policy that is excessively procyclical and not desirable from an ex ante welfare prospective: it increases overall indebtedness as well as the frequency of financial crisis and reduces social welfare relative to an inflation targeting regime. Access to capital controls can correct this monetary policy bias. With capital controls, relative to an inflation targeting regime, the time-consistent regime reduces both the frequency and magnitude of crises, and increases social welfare. This paper rationalizes the procyclicality of the monetary policy observed in many emerging market economies. |
| Keywords: | Financial crises; monetary policy; capital controls; time consistency; aggregate demand externality; pecuniary externality |
| JEL: | E44 E52 F41 G01 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2018-03&r=mac |
| By: | Bluwstein, Kristina (Bank of England); Brzoza-Brzezina, Michał (Narodowy Bank Polski); Gelain, Paolo (Federal Reserve Bank of Cleveland); Kolasa, Marcin (Narodowy Bank Polski) |
| Abstract: | We study the implications of multi-period mortgage loans for monetary policy, considering several realistic modifications — fixed interest rate contracts, lower bound constraint on newly granted loans, and possibility for the collateral constraint to become slack — to an otherwise standard DSGE model with housing and financial intermediaries. We estimate the model in its nonlinear form and argue that all these features are important to understand the evolution of mortgage debt during the recent US housing market boom and bust. We show how the nonlinearities associated with the two constraints make the transmission of monetary policy dependent on the housing cycle, with weaker effects observed when house prices are high or start falling sharply. We also find that higher average loan duration makes monetary policy less effective, and may lead to asymmetric responses to positive and negative monetary shocks. |
| Keywords: | Mortgages; fixed-rate contracts; monetary policy |
| JEL: | E44 E51 E52 |
| Date: | 2018–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0749&r=mac |
| By: | Lorenzo Burlon; Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy) |
| Abstract: | In this paper we evaluate the effectiveness of an open-ended Asset Purchase Programme (APP) for the euro area. To this purpose, we build on the large-scale New Keynesian dynamic general equilibrium model calibrated to the euro area and the rest of the world developed in Burlon et al. (2017), but, different from that contribution, we assume that the central bank does not announce the ending date of the programme, while leaving open the possibility of extending it in future periods conditionally on inflation developments. We assume that agents form their expectations about possible additional purchases beyond the horizon of the announcement by the central bank according to a rule linking them to the expected inflation gap. It is showed that the open-ended APP is more effective in immediately stimulating macroeconomic conditions than committing ex ante to an ending date. Importantly, the open-ended dimension provides a hedge against the materialization of negative euro-area aggregate demand shocks that pushes inflation away from its path towards the target. The effectiveness is further reinforced by a forward guidance on monetary policy rates. |
| Keywords: | central bank communication, open-ended announcement, non-standard monetary policy, DSGE models, open-economy macroeconomics, euro area |
| JEL: | E43 E44 E52 E58 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1185_18&r=mac |
| By: | Julien BENGUI; Toan PHAN |
| Abstract: | We develop a simple model of defaultable debt and rational bubbles in the price of an asset, which can be pledged as collateral in a competitive credit pool. When the asset pledgeability is low, the down payment is high, and bubble investment is unleveraged, as in a standard rational bubble model. When the pledgeability is high, the down payment is low, making it easier for leveraged borrowers to invest in the bubbly asset. As loans are packaged together into a competitive pool, the pricing of individual default risk may facilitate risk-taking. In equilibrium, credit-constrained borrowers may optimally choose a risky leveraged investment strategy – borrow to invest in the bubbly asset and default if the bubble bursts. The model predicts joint boom-bust cycles in asset prices and securitized credit. |
| Keywords: | rational bubbles, collateral, credit pool, household debt, equilibrium default |
| JEL: | E12 E24 E44 G01 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:07-2018&r=mac |
| By: | BENGUI, Julien; PHAN, Toan |
| Abstract: | We develop a simple model of defaultable debt and rational bubbles in the price of an asset, which can be pledged as collateral in a competitive credit pool. When the asset pledgeability is low, the down payment is high, and bubble investment is unleveraged, as in a standard rational bubble model. When the pledgeability is high, the down payment is low, making it easier for leveraged borrowers to invest in the bubbly asset. As loans are packaged together into a competitive pool, the pricing of individual default risk may facilitate risk-taking. In equilibrium, credit-constrained borrowers may optimally choose a risky leveraged investment strategy – borrow to invest in the bubbly asset and default if the bubble bursts. The model predicts joint boom-bust cycles in asset prices and securitized credit. |
| Keywords: | Rational bubbles; collateral; credit pool; household debt; equilibrium default |
| JEL: | E12 E24 E44 G01 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2018-04&r=mac |
| By: | Paolo Pasimeni |
| Abstract: | One of the classical problems of political economy has been to understand the relation between labour compensation and labour productivity; in more recent years, then, wage growth has become a key concern for the conduct of monetary policy by major central banks. This paper studies to what extent increases in productivity translate into increases in compensations. While previous studies had investigated this relation in the case of the US, this work enlarges the scope of the analysis to a set of 34 advanced economies over the past half century. The results show on average a significant link between growth in productivity and growth in compensation, however there is no one-to-one relation, there is instead a significant gap. Cyclical conditions as well as labour market structures greatly affect this relation. These findings imply that policies aiming at increasing productivity are a necessary but not sufficient condition to achieve also appropriate pay growth, because other factors intervene to weaken the link between the two. Although this topic has gained more prominence in the US, the analysis shows that these findings apply to the EU and to other advanced economies as well. Finally, to the extent that the gap between productivity and compensation affects aggregate demand, understanding it is crucial for the conduct of macroeconomic policies. |
| JEL: | D3 E24 E25 J3 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:079&r=mac |
| By: | Chizonde, Bright |
| Abstract: | This research investigates the determinants of economic growth in Zambia using the Bounds Approach to Cointegration developed by Persaran (1999). Since Zambia’s economy is said to be dependent on copper mining, economic analysts postulate that economic growth in Zambia is dependent on international copper prices and thus externally determined. This is somewhat problematic because it absorbs policy makers and government of the responsibility to generate sustainable growth. In order to test the validity of this postulation, the study estimates an Autoregressive Distributed Lags (ARDL) Model with copper prices as one of the variables of interest. Estimation results indicate that, in the long-run, economic growth is determined by physical capital, exchange rate, inflation, crude oil price, government spending and agricultural productivity; international copper prices only influence growth in the short-run. Therefore, with proper planning and strategic policy interventions, Zambia can still achieve higher sustainable economic growth even when international copper prices are falling. |
| Keywords: | Autoregressive Distributed Lags (ARDL) Model, copper prices, Economic growth, Zambia |
| JEL: | E0 E5 E6 O1 O11 Q3 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87854&r=mac |
| By: | David Greenlaw; James D. Hamilton; Ethan Harris; Kenneth D. West |
| Abstract: | We review the recent U.S. monetary policy experience with large scale asset purchases (LSAPs) and draw lessons for monetary policy going forward. A rough consensus from previous studies is that LSAP purchases reduced yields on 10-year Treasuries by about 100 basis points. We argue that the consensus overstates the effect of LSAPs on 10-year yields. We use a larger than usual population of possible events and exploit interpretations provided by the business press. We find that Fed actions and announcements were not a dominant determinant of 10-year yields and that whatever the initial impact of some Fed actions or announcements, the effects tended not to persist. In addition, the announcements and implementation of the balance-sheet reduction do not seem to have affected rates much. Going forward, we expect the Federal Reserve’s balance sheet to stay large. This calls for careful consideration of the maturity distribution of assets on the Fed’s balance sheet. Our conclusion is that the most important and reliable instrument of monetary policy is the short term interest rate, and we discuss the implications of this finding for Fed policy going forward. |
| JEL: | E42 E52 G12 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24687&r=mac |
| By: | André C. Silva; Bernardino Adão |
| Abstract: | We find that the Friedman rule is not optimal with government transfers and distortionary taxation. This result holds for heterogeneous agents, standard homogeneous preferences, and constant returns to scale production functions. The presence of transfers changes the standard optimal taxation result of uniform taxation. As transfers cannot be taxed, a positive nominal net interest rate is the indirect way to tax the additional income derived from transfers. The higher the transfers, the higher is the optimal inflation rate. We calibrate a model with transfers to the US economy and obtain optimal values for inflation substantially above the Friedman rule. |
| JEL: | E52 E62 E63 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201803&r=mac |
| By: | Bronson Argyle; Taylor D. Nadauld; Christopher Palmer; Ryan D. Pratt |
| Abstract: | A central question in the study of business cycles and credit is the relationship between asset prices and borrowing conditions. In this paper, we investigate the effects of cross-sectional credit-supply shocks on the prices of durable goods. Understanding how prices capitalize credit in the cross-section is important for understanding the incidence, transmission, and aggregation of credit-supply shocks. Using loan-level data on the prices paid for used cars by millions of borrowers and hundreds of auto-loan lenders, we measure what happens to individual-level prices when only some borrowers are exposed to an exogenous shock to the user cost of credit. Holding car quality fixed with a battery of age-make-model-trim by month fixed effects, we document that loan maturity is capitalized into the price treated borrowers pay for identical cars, attenuating the benefit of cheaper financing. For a car buyer with an annual discount rate less than 8.9%, the benefits of being offered cheaper credit are more than offset by the higher purchase price of the car. Overall, our estimates suggest that one additional year of loan maturity is worth 2.8% of the car’s purchase price, an implied elasticity of price with respect to monthly payment size of -0.23. |
| JEL: | E31 E43 E51 G21 H22 L11 L62 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24699&r=mac |
| By: | Kristin Forbes; Ida Hjortsoe; Tsvetelina Nenova |
| Abstract: | A major challenge for monetary policy is predicting how exchange rate movements will impact inflation. We propose a new focus: directly incorporating the underlying shocks that cause exchange rate fluctuations when evaluating how these fluctuations “pass through” to import and consumer prices. A standard open-economy model shows that the relationship between exchange rates and prices depends on the shocks which cause the exchange rate to move. We build on this to develop a structural Vector Autoregression (SVAR) framework for a small open economy and apply it to the UK. We show that prices respond differently to exchange rate movements based on what caused the movements. For example, exchange rate pass-through is low in response to domestic demand shocks and relatively high in response to domestic monetary policy shocks. This framework can improve our ability to estimate how pass-through can change over short periods of time. For example, it can explain why sterling’s post-crisis depreciation caused a sharper increase in prices than expected, while the effect of sterling’s 2013-15 appreciation was more muted. We also apply this framework to forecast the extent of pass-through from sterling’s sharp depreciation corresponding to the UK’s vote to leave the European Union. |
| JEL: | E31 E41 E52 F3 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24773&r=mac |
| By: | Romanos Priftis; Srecko Zimic |
| Abstract: | This paper finds that debt-financed government spending multipliers vary considerably depending on the location of the debt buyer. In a sample of 33 countries, we find that government spending multipliers are larger when government purchases are financed by issuing debt to foreign investors (non-residents), compared with when government purchases are financed by issuing debt to home investors (residents). A theoretical model (with flexible or sticky prices) shows that the location of the government creditor produces these differential responses to the extent that private investment is crowded out in each case. Increasing international capital mobility of the resident private sector decreases the difference between the two types of financing, both in the model and in the data. |
| Keywords: | Debt Management, Economic models, Fiscal Policy, International financial markets |
| JEL: | E2 E62 F41 H3 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:18-32&r=mac |
| By: | Jesus Crespo Cuaresma (Department of Economics, Vienna University of Economics and Business); Jan Capek (Masaryk University) |
| Abstract: | We analyse the role played by data and specification choices as determinants of the size of the fiscal multipliers obtained using structural vector autoregressive models. The results, based on over twenty million fiscal multiplier estimated for European countries, indicate that many seemingly harmless modelling choices have a significant effect on the size and precision of fiscal multiplier estimates. In addition to the structural shock identification strategy, these modelling choices include the definition of spending and taxes, the national accounts system employed, the use of particular interest rates or inflation measures, or whether data are smoothed prior to estimation. |
| Keywords: | Fiscal multiplier, structural VAR, meta-analysis |
| JEL: | E62 C32 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp268&r=mac |
| By: | Thomas Palley |
| Abstract: | This paper reconstructs the income - expenditure (IE) model to include a distinction between government purchases of output versus government production. The distinction has important consequences for output and employment multipliers. The paper also extends the IE model to incorporate a government job guarantee program (JGP), and the extended model illuminates the automatic stabilizer properties of a JGP. The model is then extended to include Kaleckian income distribution effects. That generates a novel Kaleckian balanced budget multiplier driven by changed composition of government spending. The paper concludes with some economic and political economy concerns about a JGP that are flagged by the model. |
| Keywords: | Government spending, spending composition, balanced budget multiplier, job guarantee program |
| JEL: | E10 E12 E62 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:30-2018&r=mac |
| By: | Escañuela Romana, Ignacio |
| Abstract: | New solutions to the basic standard New Keynesian model are explored. I extend De Grauwe’s model (2012), distinguishing two types of agents and different expectations rules. The central bank fixes the rate of interest. Families and firms determine aggregated demand and supply. Neither of them follows the hypothesis of perfect rational expectations. However, Popper’s principle of rationality is applied. From a situation of limited information, even though they learn through rational processes, they are unable to understand their mutual behaviour. Therefore, the expectations in the three equations do not coincide. As a result, the solution does not tend to a single, stationary equilibrium. This conclusion does not depend on the hypothesis of the "animal spirits". Finally, the possibility of a successful learning process is studied. It is considered whether the central bank could learn from the data, finally reaching a stationary optimum equilibrium. The answer is no. The New Keynesian model seems to be basically unstable when agents have limited information. The problem lies in the impossibility to get adequate coordination. |
| Keywords: | Business Cycles, Imperfect Information, Learning, Monetary Policy. |
| JEL: | D83 E10 E32 E52 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88015&r=mac |
| By: | Jarko Fidrmuc (Zeppelin University Friedrichshafen); Moritz Degler |
| Abstract: | We present an analysis of interregional consumption risk sharing in Russia between 1999 and 2009 using novel estimation methods. In addition to standard fixed effects panel estimations, we use system and difference GMM estimators to reflect time dynamic properties and possible endogeneity between output and consumption. Furthermore, we apply spatial models that control for spatial dependence across regions. The results show that regional consumption deviations from the national average are highly persistent in time and space. Nevertheless, regional consumption risk sharing in Russia is relatively high with 70 to 90 per cent of idiosyncratic risk being smoothed. Finally, fiscal policy and the degree of financial development appear to contribute to the consumption smoothing. |
| Keywords: | Russia, financial development, risk sharing, spatial models, GMM |
| JEL: | E32 E21 R12 P25 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ost:wpaper:373&r=mac |
| By: | Roberto Blanco (Banco de España); Noelia Jiménez (Banco de España) |
| Abstract: | Using a dataset that merges information of loan applications from the Spanish CCR with firms’ financial accounts, we find that during the great recession access to credit of firms with weak balance sheets deteriorated relative to other firms. However, contrary to the financial accelerator theory, we find that during the recovery phase after the latest recession access to credit of weaker firms did not improve relative to other firms and it even further deteriorated somewhat. We also provide empirical evidence that lending policies of banks with firms they are exposed to before the lending decision is taken are comparatively less sensitive to public information than those applied to new firms. This result, together with the positive correlation we find between firms’ access to bank loans and the number of firms’ bank credit relationships, might be linked to the existence of private information developed by banks through their interaction with borrowers. We also find that this relationship lending contributed to smooth credit contraction during the crisis. |
| Keywords: | access to credit, borrower-lender relationships, loan applications |
| JEL: | E32 E51 G21 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1826&r=mac |
| By: | Mari Tanaka; Nicholas Bloom; Joel M. David; Maiko Koga |
| Abstract: | Ever since Keynes’ famous quote about animal spirits, there has been an interest in linking firms’ expectations and actions. However, empirical evidence has been limited due to a lack of firm-level panel data on expectations and outcomes. In this paper, we build such a dataset by combining a unique survey of Japanese firms’ GDP forecasts with company accounting data for 25 years for over 1,000 large Japanese firms. We find four main results. First, firms’ GDP forecasts are positively associated with their employment, investment, and output growth in the subsequent year. Second, both optimistic and pessimistic forecast errors lower profitability. Third, while over-optimistic forecasts lower measured productivity, over-pessimistic forecasts do not tend to have an effect on productivity. Overall, these results are stronger for firms whose performance is more sensitive to the state of macroeconomy. We show that a simple model of firm input choice under uncertainty and costly adjustment can rationalize there results. Finally, larger and more cyclically sensitive firms make more accurate forecasts, presumably reflecting a higher return to accuracy for these firms. More productive, older, and bank-owned firms also make more accurate forecasts, suggesting that forecasting ability is also linked to management ability, experience, and governance. Collectively, our results highlight the importance of firms’ forecasting ability for micro and macro performance. |
| JEL: | E0 M0 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24776&r=mac |
| By: | Topan, Ligia; Castro, César; Jerez, Miguel; Barge-Gil, Andrés |
| Abstract: | Oil price showed sharp fluctuations in recent years which have revived the interest on its effect on inflation rates. In this paper we discuss the relationship between oil price and inflation in Spain. We adjust econometric models to predict the effect of oil price shocks on inflation both at national and regional level and under different scenarios. Our results show that almost half of inflation rates are explained by variations in oil price, that one-year ahead inflation will likely be moderate and that important differences across regions exist. |
| Keywords: | inflation; deflation; oil price; forecasting; simulation |
| JEL: | E31 E37 Q43 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87821&r=mac |
| By: | Jacques Rouillard (Département d'histoire, Université de Montréal); Jean-François Rouillard (Département d'économique, Université de Sherbrooke) |
| Abstract: | Dans cet article, nous examinons l’évolution des salaires réels au Québec en distinguant deux périodes : 1940-1977 et 1978-2016. La première est marquée par une augmentation substantielle de la rémunération des salariés qui suit de près la progression de la productivité du travail, alors que la deuxième voit leurs salaires croître à peu près au même rythme que l’augmentation des prix à la consommation. L’évolution de la productivité du travail se démarque alors de celle des salaires réels. Nous relevons également un renversement de la part du PIB provincial allouée à la rémunération du travail. Après avoir atteint un sommet à la fin des années 1970, cette part chute par la suite alors que les bénéfices des sociétés connaissent une envolée. Il nous apparaît que l'évolution des salaires réels est liée pour beaucoup au rapport de force que les salariés peuvent détenir sur le marché du travail et que le degré d’interventionnisme de l’État est un facteur déterminant dans la constitution de ce rapport de force. |
| Keywords: | salaires réels, productivité, histoire économique, part du travail dans le PIB, Québec. |
| JEL: | E24 J3 E25 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:18-04&r=mac |
| By: | Gauti Eggertsson (Brown University); Vaishali Garga (Brown University) |
| Abstract: | This paper shows that government spending multiplier at the zero lower bound (ZLB) is larger under sticky information than under sticky prices. Similarly, well known paradoxes, e.g., the paradox of toil and the paradox of flexibility become more severe under sticky information. These results depend crucially on the duration of the fiscal policy stimulus relative to the fundamental shock in the economy. Such policy coordination is all the more important in the sticky information framework. In the aftermath of the Great Recession, a number of papers documented that fiscal policy is extremely effective to increase demand at the ZLB. In particular, the classic government spending multiplier is greater than one, while under normal circumstances it is not for then monetary policy can do the job via interest rate cuts. Examples include Eggertsson (2011), Christiano, Eichenbaum and Rebelo (2009), Woodford (2011). The literature also uncovered peculiar paradoxes, such as the paradox of toil (Eggertsson (2010)) and the paradox of flexibility (Bhattarai, Eggertsson and Schoenle (2014)). These results could be interpreted either as a serious challenge to the conventional wisdom or reflect some fundamental flaws of the New Keynesian framework. These results were, however, derived under the assumption that prices are sticky, as in Calvo (1983). It has long been recognized that the Calvo model of price setting has many peculiar features. This led researchers to explore alternatives, such as information frictions. One of the most prominent proposal to replace the New Keynesian Phillips curve based upon Calvo prices is the assumption of sticky information, proposed by Mankiw and Reis (2001). According to their hypothesis, firms adjust their prices slowly because they do not continuously update their information set. Mankiw and Reis argued that this alternative assumption helps explain the data better along certain dimensions. A very natural question, in the light of the radical findings documented in the Calvo model at the ZLB, is if these results carry over to a setting where information rigidities are assumed instead of sticky prices. The main conclusion of this paper is that the answer is yes. In an important and intriguing recent paper, Kiley (2016), documents experiments in which the fiscal policy results of the Calvo model are overturned upon assuming informational frictions as in Mankiw and Reis. The thought experiment Kiley conducts is as follows: Suppose the Central Bank follows an interest rate peg for 100 periods. What happens if the government increases spending for 1, 2, . . . upto 25 periods? What happens if taxes are increased for 1 to 25 periods? Kiley documents that while under Calvo prices the predictions are in line with the existing literature at the ZLB, the predictions are different under informational frictions. In particular, the government spending multiplier is small, tax multiplier is negative and the paradox of flexibility disappears. Kiley’s experiment is referred to in this paper as an interest rate peg experiment (PEG-EX). Kiley interprets these findings as suggesting that the sticky-information model is free from policy paradoxes, and thus to be favored over the Calvo model. Here, instead, we argue that these findings are an artifact of the thought experiment considered. The paradoxes in the sticky information framework in fact get even stronger in policy experiments that correspond more closely to those considered in the existing literature. This paper compares sticky prices and sticky information doing a different experiment. This experiment is identical to the one conducted in Eggertsson (2011), Christiano, Eichenbaum and Rebelo (2009), Eggertsson (2010), Woodford (2011). The ZLB is binding due to exogenous fundamental shocks. Once the shocks are over, the policy is given by a simple inflation target (which is missed for the duration of the shocks, due to the ZLB). This experiment is referred to as ZLB experiment (ZLB-EX). This paper documents that the results derived in the literature under sticky prices in the ZLB-EX are even more extreme if sticky prices are replaced with sticky information. The government spending multiplier becomes larger, and the paradox of toil and flexibility become more pronounced. This is because in the purely forward looking sticky-price model, current policy leaves expectations of future variables unchanged. Hence, there is only a "direct" effect of current policy on current output. In the backward looking sticky-information model, however, current policy has an additional "indirect" effect on current output, which comes from its effect on the expectations of future variables. While this may seem to contradict Kiley’s findings, it does not. Instead it clarifies that Kiley’s PEG-EX is a fundamentally different experiment than done in the existing literature. What is particularly subtle – and interesting – about the comparison, and likely to trigger confusion, is that under sticky prices the ZLB-EX and PEG-EX lead to exactly the same result. It is only when assuming sticky information that the results of the ZLB-EX and the PEG-EX are different. This does not have anything to do with the nature of the nominal frictions. Instead, it is a consequence of the fact that the sticky-information model has infinite number of endogenous state variables. Meanwhile the Calvo model is purely forward looking. The presence of endogenous state variables in the sticky-information model implies that comparing the reaction of an economy assuming an exogenous interest rate peg, versus the reaction of the economy if the central bank’s policy is bounded by zero due to fundamental shocks, leads to very different results. The same does not apply for perfectly forward looking systems like the Calvo model of price stickiness. This paper first shows analytical examples that clarify the intuition behind these findings. It then moves to numerical examples that replicate Kiley’s results. These examples confirm that Kiley’s results are driven by the difference in experiments being conducted rather than anything fundamental about the assumption of price stickiness. Arguably, the ZLB-EX is more economically relevant than PEG-EX. It seems of more limited economic interest – at least in the context of the crisis that started in 2008 – to explore the behavior of New Keynesian models if the short-term interest rate is temporarily pegged for no apparent reasons. Instead, the most economically interesting experiment appears to be when the interest rate is pegged due to the fact that the ZLB is binding on account of a fundamental recessionary shock that prevents the central bank from achieving its objective of stabilizing inflation and output. In a numerical exercise, the two models are calibrated to produce a 10% drop in output and 2% annual deflation on impact. It clearly demonstrates that in the ZLB-EX, government spending is more expansionary at zero interest rate than at positive interest rate and that tax cuts are contractionary at the ZLB, in both the models of nominal stickiness. Moreover, these paradoxes are starker under sticky information. Specifically, the government spending multiplier is three times larger, and the tax multiplier is four times larger in the sticky information model relative to the sticky price model. Finally, this paper also illustrates numerically that the paradox of flexibility is starker under sticky-information. This result is harder to intuit from an analytical example, because the response of output to increased flexibility in the sticky information model depends on the persistence of the underlying fundamental rate shock. Overall, the paradoxical results for fiscal policy multiplier at the ZLB could be interpreted as reflecting a weakness of the Calvo model. This paper, however, clarifies that these paradoxes are not a product of the Calvo assumption, but rather are a fundamental feature of models with nominal rigidities, irrespective of its source, be it sticky prices or sticky information. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:577&r=mac |
| By: | Jesus Ferreiro; Carmen Gómez |
| Abstract: | For mainstream economics, rigidities in the labour market are the primary determinants of high and persistent long-term unemployment rates, leading to the need to reform labour market institutions and make them more flexible. Flexible labour markets would not only help to smooth normal business cycle fluctuations (implying a small impact of these fluctuations on employment and unemployment) but also to reduce the negative impacts on labour market of structural shocks. If we focus on the labour market performances in the European Union during the Great Recession, we can easily detect the existence of significant differences in the impact of this common structural shock on the domestic labour markets. For mainstream economics, the countries with the best results in terms of unemployment and employment would have been those that had a more flexible labour market at the beginning of the crisis and/or those having implemented reforms to increase this flexibility.The aim of this paper is to determine the validity of this argument, that is, whether labour reforms making the labour market more flexible effectively ensure macroeconomic stability by reducing the impact on the labour market of economic shocks. Using panel data techniques, we investigate whether, as mainstream studies argue, the evolution of employment and unemployment in the EU labour markets is explained, and to what extent, by the levels and changes registered in the indicators of employment protection legislation. Conversely, we examine whether, as heterodox and post-Keynesian studies suggest, this evolution is explained by the changes registered in economic activity (i.e., GDP growth). |
| Keywords: | employment, unemployment, Great Recession, employment protection |
| JEL: | C23 E24 J21 J64 J88 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:31-2018&r=mac |
| By: | António Afonso; Frederico Silva Leal |
| Abstract: | We compute the value of fiscal multipliers (for government primary expenditure, Income and wealth taxes and for Production and import ones) in the Eurozone countries since the creation of the currency union (2001Q1-2016Q4), and to understand how the values may vary according to the public debt level, the rhythm of economic growth and the output gap. Imposing quarterly fiscal shocks in the period 2000-2016, the results shown that the government expenditure had a positive effect on output, with an annual accumulated multiplier of 0.64 while the tax multipliers presented negative signs - the Income and wealth and the Production and import taxes stood at -0.10 and -0.32, respectively. Furthermore, the multipliers shown higher values for countries with higher levels of public debt (to small levels, the expenditure multiplier is close to zero and the tax multipliers seem to have positive signs),during recessions, and in countries with positive output gaps. |
| Keywords: | Fiscal multiplier, Structural VAR, Fiscal policy |
| JEL: | B22 E62 H62 H63 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0472018&r=mac |
| By: | David Rezza Baqaee; Emmanuel Farhi |
| Abstract: | The goal of this paper is to simultaneously unbundle two interacting reduced-form building blocks of traditional macroeconomic models: the representative agent and the aggregate production function. We introduce a broad class of disaggregated general equilibrium models with Heterogeneous Agents and Input-Output networks (HA-IO). We elucidate their properties through two sets of results describing the propagation and aggregation of shocks. First, we characterize how shocks affect prices and quantities of goods and factors. Even with purely microeconomic shocks, the mapping from structural primitives to observed effects is complicated by “local” general equilibrium forces. Our framework shows how to account for these forces, and helps interpret IV-based cross-sectional regression results. We also uncover a surprising property of a large class of efficient representative agent models: they feature symmetric propagation in that a shock to producer i affects the sales of producer j in exactly the same way that a shock to j affects the sales of i. This improbable symmetry breaks in the presence of heterogeneous agents or distortions. Second, we provide aggregation results characterizing the responses of industry-level variables such as markups and productivity. The behavior of these aggregates is particularly delicate in inefficient economies: they respond to microeconomic shocks outside of the industry; and they can give rise to fallacies of composition whereby aggregates move in the opposite direction of their microeconomic counterparts. Our results shed light on many seemingly disparate applied questions, such as: sectoral co-movement in business cycles; factor-biased technical change in task-based models; structural transformation; the effects of corporate taxation; and the dependence of fiscal multipliers on the composition of government spending. |
| JEL: | E23 E3 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24684&r=mac |
| By: | Jordi Galí |
| Abstract: | I provide an overview of recent developments in monetary economics, with an emphasis on extensions of the New Keynesian framework that assume a zero lower bound on the short term nominal rate, as well as models with household heterogeneity. |
| JEL: | E32 E52 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24845&r=mac |
| By: | Lawrence J. Christiano; Martin S. Eichenbaum; Mathias Trabandt |
| Abstract: | The outcome of any important macroeconomic policy change is the net effect of forces operating on different parts of the economy. A central challenge facing policy makers is how to assess the relative strength of those forces. Dynamic Stochastic General Equilibrium (DSGE) models are the leading framework that macroeconomists have for dealing with this challenge in an open and transparent manner. This paper reviews the state of DSGE models before the financial crisis and how DSGE modelers responded to the crisis and its aftermath. In addition, we discuss the role of DSGE models in the policy process. |
| JEL: | E0 E3 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24811&r=mac |
| By: | Nikolay Iskrev |
| Abstract: | We propose two measures of the impact of calibration on the estimation of macroeconomic models. The first quantifies the amount of information introduced with respect to each estimated parameter as a result of fixing the value of one or more calibrated parameters. The second is a measure of the sensitivity of parameter estimates to perturbations in the calibration values. The purpose of the measures is to show researchers how much and in what way calibration affects their estimation results -- by shifting the location and reducing the spread of the marginal posterior distributions of the estimated parameters. This type of analysis is often appropriate since macroeconomists do not always agree on whether and how to calibrate structural parameters in macroeconomic models. The methodology is illustrated using the models estimated in Smets and Wouters (2007) and Schmitt-Grohé and Uribe (2012). |
| JEL: | C32 C51 C52 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201801&r=mac |
| By: | Richard T. Thakor; Robert C. Merton |
| Abstract: | We develop a theory of trust in lending, distinguishing between trust and reputation, and use it to analyze the competitive interactions between banks and non-bank lenders (fintech firms). Trust enables lenders to have assured access to financing, whereas a loss of investor trust makes this access conditional on market conditions and lender reputation. Banks endogenously have stronger incentives to maintain trust. When borrower defaults erode trust in lenders, banks are able to survive the erosion of trust when fintech lenders do not. Trust is also asymmetric in nature—it is more difficult to gain it than to lose it. |
| JEL: | E44 E51 E52 G21 G23 G28 H12 H81 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24778&r=mac |
| By: | Miguel Sarmiento (The Central Bank of Colombia) |
| Abstract: | This paper identifies bank-specific-characteristics and market conditions that contribute to determine prices and demand for liquidity in the interbank market as wells as banks’ access to this market. Results indicate that riskier banks pay higher prices and borrow less liquidity, concurrent with the existence of market discipline. More capitalized and liquid banks tend to pay less for their funds and to have greater access to the interbank market. We find that banks pay higher prices and hoard liquidity when liquidity positions across them are more imbalanced and during a monetary policy tightening. Besides, small banks are found to suffer more as their credit risk and liquidity risk increase. We show that lending relationships benefit banks in hedging liquidity risk. We also document that central bank liquidity increments are associated with a downward pressure on interbank funds’ prices and augmented market activity. Overall, our results have implications for financial stability and for the transmission of the monetary policy as well. |
| Keywords: | interbank markets; market discipline; liquidity risk; risk taking; monetary policy; financial stability. |
| JEL: | E43 E58 L14 G12 G21 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp14-2016&r=mac |
| By: | Walter Paternesi Meloni; Matteo Deleidi |
| Abstract: | Mature European countries have recently experienced a slackening in output growth and stagnating labour productivity, which may result both from poor ‘within sector’ growth and/or ‘structural change’. In this regard, the contribution of the paper is twofold. First, we assess the weight of ‘structural change’ versus ‘within sector’ growth in affecting overall productivity dynamics by means of a shift-share analysis. Second, we investigate the impact of demand factors on ‘within sector’ productivity growth by estimating the Kaldor-Verdoorn long-run coefficients in response to the dynamics of autonomous demand (1980-2015). We find that: (i) productivity growth is mainly driven by the ‘within sector effect’, with a relatively smaller role played by structural change; (ii) autonomous demand growth is relevant in determining productivity dynamics, especially in manufacturing. A major policy implication is that coordinated expansionary policies would matter for productivity growth in the EU, and at the same time contribute to sustain employment. |
| Keywords: | Structural Change; Tertiarisation; Shift-Share Analysis; Labour Productivity; Kaldor-Verdoorn Law. |
| JEL: | E24 L16 O47 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0239&r=mac |
| By: | Omar Barbiero; Emmanuel Farhi; Gita Gopinath; Oleg Itskhoki |
| Abstract: | We analyze the dynamic macroeconomic effects of border adjustment taxes, both when they are a feature of corporate tax reform (C-BAT) and for the case of value added taxes (VAT). Our analysis arrives at the following main conclusions. First, C-BAT is unlikely to be neutral at the macroeconomic level, as the conditions required for neutrality are unrealistic. The basis for neutrality of VAT is even weaker. Second, in response to the introduction of an unanticipated permanent C-BAT of 20% in the U.S. the dollar appreciates strongly, by almost the size of the tax adjustment, U.S. exports and imports decline significantly, while the overall effect on output is small. Third, an equivalent change in VAT by contrast generates only a weak appreciation of the dollar, a small decline in imports and exports, but has a large negative effect on output. Lastly, border taxes increase government revenues in periods of trade deficit, however, given the net foreign asset position of the U.S., they result in a long-run loss of government revenues and an immediate net transfer to the rest of the world. |
| JEL: | E0 F0 H0 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24702&r=mac |
| By: | Olivier Coibion; Yuriy Gorodnichenko; Saten Kumar; Mathieu Pedemonte |
| Abstract: | We assess whether central banks may use inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear, especially for firms. Two additional limitations prevent policy-makers from being able to actively manage inflation expectations. First, available surveys of firms’ expectations are systematically deficient, which can only be addressed through the creation of large, nationally representative surveys of firms. Second, neither households’ nor firms’ expectations respond much to monetary policy announcements in low-inflation environments. We provide suggestions for how monetary policy-makers can pierce this veil of inattention through new communication strategies. At this stage, there remain a number of implementation issues and open research questions that need to be addressed to enable central banks to use inflation expectations as a policy tool. |
| JEL: | C83 D84 E31 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24788&r=mac |
| By: | International Monetary Fund |
| Abstract: | Georgia continues to make progress in addressing macroeconomic imbalances, supported by its Extended Fund Facility (EFF) arrangement. Since the 2016 Article IV consultation, growth has picked up, the fiscal deficit has been contained, the banking sector has been stable, and the external position has strengthened. However, structural challenges hinder growth, calling for maintaining the reform momentum. |
| Date: | 2018–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/198&r=mac |
| By: | Zimmermann, Klaus F. |
| Abstract: | Central banks need to be concerned about wages since they are a major driver of inflation. Rising wages are needed to signal directions for market adjustments to ensure growth. Wage growth is driven by relative scarcity, labor productivity and expectations about inflation and future growth. Migration plays a significant role to balance wages across regions and countries. Wage growth has been low in most developed economies because of underutilized labor if properly measured. Germany seems to be an exception, but the scarcity of workers has been tamed by internal flexibility resulting from more decentralized wage setting and labor market reforms. |
| Keywords: | Phillips-curve,wages,union wages,decentralized wage bargaining,labor market reforms,internal flexibility,unemployment,underemployment,mobility and wages |
| JEL: | E24 J31 J52 J61 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:230&r=mac |
| By: | Andrew K. Rose |
| Abstract: | I investigate whether countries that use unconventional monetary policy (UMP) experience export booms. I use a popular gravity model of trade which requires neither the exogeneity of UMP, nor instrumental variables for UMP. In practice, countries that engage in UMP experience a drop in exports vis-á-vis countries that are not engaged in such policies, holding other things constant. Quantitative easing is associated with exports that are about 10% lower to countries not engaged in UMP; this amount is significantly different from zero and similar to the effect of negative nominal interest rates. Thus, there is no evidence that countries have gained export markets through unconventional monetary policy; currency wars that have been launched have also been lost. UMP is also associated with a comparable drop in imports and exchange rates, suggesting that countries engage in UMP when they are experiencing adverse macroeconomic shocks concurrent with those that eviscerate international trade. |
| JEL: | E58 F14 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24817&r=mac |
| By: | Andrew Phiri (Department of Economics, Nelson Mandela University) |
| Abstract: | With the inflation-growth nexus being a hotly debated issue within the academic paradigm, the purpose of our study is to examine the relationship for Swaziland between 1975 and 2016 of which there currently exists very limited country-specific evidence. In the design of our study we theoretically depend on an endogenous monetary model of economic growth augmented with a credit technology which causes a nonlinear relationship between inflation and growth. Econometrically, we rely on the smooth transition regression (STR) which allows us to estimate an optimal inflation rate characterized by smooth transition between different inflation regimes. Our empirical results point to an inflation threshold estimate of 7.64% at which economic growth gains are maximized or similarly growth losses are minimized. In particular, we find that above the inflation threshold economic agents may be able to protect themselves from inflation through credit technology and a more urbanized population yet such high inflation adversely affects the influence of exports on economic growth. This noteworthy since a majority of government revenues is from trade activity via the country’s affiliation with the Southern African Customs Union (SACU). Nevertheless, the major contribution of this paper is that it becomes the first to use endogenous growth theory to estimate the inflation threshold for any African country which will hopefully pave a way for similar studies on other African countries. |
| Keywords: | Inflation, Economic growth, Endogenous monetary growth model, Smooth transition regression, Swaziland, African country. |
| JEL: | C22 C32 C51 C52 E31 O47 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:mnd:wpaper:1827&r=mac |
| By: | Phiri, Andrew |
| Abstract: | With the inflation-growth nexus being a hotly debated issue within the academic paradigm, the purpose of our study is to examine the relationship for Swaziland between 1975 and 2016 of which there currently exists very limited country-specific evidence. In the design of our study we theoretically depend on an endogenous monetary model of economic growth augmented with a credit technology which causes a nonlinear relationship between inflation and growth. Econometrically, we rely on the smooth transition regression (STR) which allows us to estimate an optimal inflation rate characterized by smooth transition between different inflation regimes. Our empirical results point to an inflation threshold estimate of 7.64% at which economic growth gains are maximized or similarly growth losses are minimized. In particular, we find that above the inflation threshold economic agents may be able to protect themselves from inflation through credit technology and a more urbanized population yet such high inflation adversely affects the influence of exports on economic growth. This noteworthy since a majority of government revenues is from trade activity via the country’s affiliation with the Southern African Customs Union (SACU). Nevertheless, the major contribution of this paper is that it becomes the first to use endogenous growth theory to estimate the inflation threshold for any African country which will hopefully pave a way for similar studies on other African countries. |
| Keywords: | Inflation; Economic growth; Endogenous monetary growth model; Smooth transition regression; Swaziland; African country |
| JEL: | C22 C32 C51 C52 E31 O47 |
| Date: | 2018–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88258&r=mac |
| By: | Silvia Gabrieli; Claire Labonne |
| Abstract: | We measure the relative role of sovereign-dependence risk and balance sheet (credit) risk in euro area interbank market fragmentation from 2011 to 2015. We combine bank-to-bank loan data with detailed supervisory information on banks’ cross-border and cross-sector exposures. We study the impact of the credit risk on banks’ balance sheets on their access to, and the price paid for, interbank liquidity, controlling for sovereign-dependence risk and lenders’ liquidity shocks. We find that (i) high non-performing loan ratios on the GIIPS portfolio hinder banks’ access to the interbank market throughout the sample period; (ii) large sovereign bond holdings are priced in interbank rates from mid-2011 until the announcement of the OMT; (iii) the OMT was successful in closing this channel of cross-border shock transmission; it reduced sovereigndependence and balance sheet fragmentation alike. |
| Keywords: | Interbank market, credit risk, fragmentation, sovereign risk, country risk, credit rationing, market discipline |
| JEL: | G01 E43 E58 G15 G21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:687&r=mac |
| By: | Takayuki Tsuruga; Shota Wake |
| Abstract: | Previous studies argue that, based on the New Keynesian framework, a fiscal stimulus financed by money creation has a strong positive effect on output under a reasonable degree of nominal price rigidities. This paper investigates the effects of implementation lag in the money-financed fiscal stimulus on output. We show that if a money-financed government purchase has a time lag between the decision and the implementation: (1) it may cause a recession rather than a boom when the economy is in normal times; (2) it may deepen a recession when the economy is caught in a liquidity trap; (3) the longer is the implementation lag, the deeper is the recession; and (4) the depth of the recession depends on the interest semi-elasticity of money demand. Our results imply that to strengthen the efficacy of the money-financed fiscal stimulus, policymakers should shorten the implementation lag based on detailed knowledge of the money demand function. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1038&r=mac |
| By: | International Monetary Fund |
| Abstract: | The economy has been doing very well, with high growth and the lowest unemployment rate in the EU. So far, there are no major macroeconomic imbalances: wages have been increasing rapidly, but inflation remains close to the target; credit growth is broadly in line with the growth of nominal GDP; the banking system is well capitalized and funded; fiscal policy has been conservative; and the economy runs a small surplus with the rest of the world. But the economy is already hitting the limits of supply, and the labor force is expected to continue to shrink while the population ages. |
| Date: | 2018–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/187&r=mac |
| By: | Gianluca Cafiso; Roberto Cellini |
| Abstract: | We study whether and how much the interest bill conditions the size and composition of public expenditures. The group of EU 15 countries over the 1995-2016 period is the object of analysis. We study both total public expenditures and public expenditures by function of government in order to unveil which sectors are more responsive to an interest bill variation. |
| Keywords: | interest bill, public expenditures, public debt |
| JEL: | H61 H62 H63 E62 E63 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7147&r=mac |
| By: | NYONI, THABANI |
| Abstract: | The economy of Burundi is currently under life support and private investment is still in its embryonic stage, after a series of civil wars that have characterised Burundi’s post – independence era. The political woes that Burundi continues to experience are one of the fundamental hindrances to private investment growth and development. Probably, this is the reason why most researchers, academicians and observers analyze the situation of Burundi only with political glasses; thereby undermining the role played by the economic structure. The perspective adopted in this study is quite different: the idea is to present a picture of Burundi from an economic point of view, partially leaving politics in the background and yet based on empirical evidence. This kind of approach does not imply that politics is unimportant! Our humble view is that politics is often constrained or even controlled, by economics! Private investment is the backbone of every economy and Burundi cannot be an exception. The study, while restricted to non – political determinants of private investment; seeks to uncover those factors that really matter to private investment, other than politics. Results indicate that population growth; exports and private sector credit are the most powerful factors that affect private investment in Burundi. The results provide a concrete justification for the policy recommendations suggested. |
| Keywords: | Private investment, public investment, private sector credit, population growth, Burundi |
| JEL: | E22 E6 |
| Date: | 2018–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87614&r=mac |
| By: | Jouchi Nakajima |
| Abstract: | This paper estimates the impact of household debt on consumption behaviour using data from the Japanese Preference Parameters Study. Covering the 2005-13 period, the survey is the first of its kind for Japan. It features responses to forward-looking questions about key risks to income, shedding light on the motives for household savings behaviour. The analysis finds that household marginal propensities to consume (MPCs) were significantly higher for highly-indebted Japanese households than for those with little-to-no debt - a type of variation that is consistent with findings for other countries. The evidence points to a significant precautionary saving motive by Japanese households, with savers particularly concerned about (unlikely) future unemployment spells and longevity risks. |
| Keywords: | household debt, marginal propensity to consume, precautionary saving motive |
| JEL: | D14 D81 D84 E21 G11 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:736&r=mac |
| By: | Capek, Jan; Crespo Cuaresma, Jesus |
| Abstract: | We analyse the role played by data and specification choices as determinants of the size of the fiscal multipliers obtained using structural vector autoregressive models. The results, based on over twenty million fiscal multiplier estimated for European countries, indicate that many seemingly harmless modelling choices have a significant effect on the size and precision of fiscal multiplier estimates. In addition to the structural shock identification strategy, these modelling choices include the definition of spending and taxes, the national accounts system employed, the use of particular interest rates or inflation measures, or whether data are smoothed prior to estimation. |
| Keywords: | Fiscal multiplier, structural VAR, meta-analysis |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:6451&r=mac |
| By: | Christian Osterhold; Ana Fontoura Gouveia |
| Abstract: | Productivity growth is slowing down among OECD countries, coupled with increased misallocation of resources. A recent strand of literature focuses on the role of non-viable firms ("zombie firms") to explain these developments. Using a rich firm-level dataset for one of the OECD countries with the largest drop in barriers to firm exit and restructure, we assess the role of zombies on firm dynamics, both in the extensive and intensive margins. We confirm the results on the high prevalence of zombie firms, significantly less productive than their healthy counterparts and thus dragging aggregate productivity down. Moreover, while we find evidence of positive selection within zombies, with the most productive restructuring and the least productive exiting, we also show that the zombies' productivity threshold for exit is much lower than that of non-zombies, allowing them to stay in the market, distorting competition and sinking resources. Zombie prevalence curbs the growth of viable firms, in particular the most productive, harming the intra-sectoral resource reallocation. We show that a reduction in exit and restructuring barriers promotes a more effective exit channel and fosters the restructuring of the most productive, highlight the role of public policy in addressing zombies' prevalence, fostering a more efficient resource allocation and enabling productivity growth. |
| JEL: | D24 E22 E24 G33 J24 L25 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201811&r=mac |
| By: | Alex Clymo (University of Essex) |
| Abstract: | Can the large decline in aggregate employment during the US’s Great Recession be explained by the unusually large decline in employment of young firms? In this paper I develop a quanti- tative heterogeneous-firm model with both financial and nominal frictions and use it to analyse the recent recession through the lens of firm-level data. I first use BDS data for the US to show that 40% of the decline in aggregate employment during the recession can be accounted for by declining employment in young firms (age 0-5). While this supports the role of financial frictions in impeding employment, it still leaves 60% of the decline to be explained by old firms (age 6+). Decomposing this further into changes in average employment within firms, and the number of firms, I find that most of the total decline in employment can be accounted for by (1) a decline in the number of young firms by over 25%, and (2) a decline in employment within old firms of 7.5%. I then extend the heterogeneous firm model of Khan and Thomas (2013) to include nominally denominated firm debt, downwards nominal wage rigidity (DNWR), and the zero lower bound (ZLB). Absent nominal features, a financial shock is only able to match the response of young firms during the crisis, because declines in real factor prices reallocate resources from young to old firms. However, adding DNWR and the ZLB inhibits this fall in wages and interest rates, leading the financial crisis to spill over to old firms. This allows the model to better match the data across the whole firm age distribution. Additionally, rather than leading to the misalloca- tion of resources across firms, the crisis instead manifests as a drastic decline in employment, as occurred in the US. Finally, I show how the power of fiscal policy at the ZLB depends on the firm distribution. The government spending multiplier is larger when more firms are financially constrained, and fiscal transfers to young firms are more powerful than transfers to older firms. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:912&r=mac |
| By: | Bilal, Adrien; Rossi-Hansberg, Esteban |
| Abstract: | The location of individuals determines their job opportunities, living amenities, and housing costs. We argue that it is useful to conceptualize the location choice of individuals as a decision to invest in a `location asset'. This asset has a cost equal to the location's rent, and a payoff through better job opportunities and, potentially, more human capital for the individual and her children. As with any asset, savers in the location asset transfer resources into the future by going to expensive locations with good future opportunities. In contrast, borrowers transfer resources to the present by going to cheap locations that offer few other advantages. As in a standard portfolio problem, holdings of this asset depend on the comparison of its rate of return with that of other assets. Differently from other assets, the location asset is not subject to borrowing constraints, so it is used by individuals with little or no wealth that want to borrow. We provide an analytical model to make this idea precise and to derive a number of related implications, including an agent's mobility choices after experiencing negative income shocks. The model can rationalize why low wealth individuals locate in low income regions with low opportunities even in the absence of mobility costs. We document the investment dimension of location, and confirm the core predictions of our theory with French individual panel data from tax returns. |
| JEL: | D14 E21 J61 R23 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13063&r=mac |
| By: | Damir Filipović (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute); Sander Willems (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute) |
| Abstract: | Over the last decade, dividends have become a standalone asset class instead of a mere side product of an equity investment. We introduce a framework based on polynomial jump-diffusions to jointly price the term structures of dividends and interest rates. Prices for dividend futures, bonds, and the dividend paying stock are given in closed form. We present an efficient moment based approximation method for option pricing. In a calibration exercise we show that a parsimonious model specification has a good fit with Euribor interest rate swaps and swaptions, Euro Stoxx 50 index dividend futures and dividend futures options, and Euro Stoxx 50 index options. |
| Keywords: | Dividend derivatives, interest rates, polynomial jump-diffusion, term structure, moment-based option pricing |
| JEL: | C32 G12 G13 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1752&r=mac |
| By: | Laura Bakkensen (University of Arizona); Lint Barrage (Brown University) |
| Abstract: | How do environmental shocks affect macroeconomic outcomes? A growing and influential body of empirical work has sought to quantify the impacts of climate shocks on economic growth. However, this literature currently faces three fundamental gaps: First, empirical studies have found a wide range of seemingly contradictory results, ranging from positive effects of climatic disasters (e.g., Skidmore and Toya, 2002) to large negative effects of tropical storms (e.g., Hsiang and Jina, 2015) and temperature shocks (e.g., Dell, Jones, and Olken, 2011). These results have yet to be reconciled. Second, the empirical literature has remained largely disconnected from macroeconomic growth models (e.g., Ikefuji and Hoori, 2012), making it difficult to compare results across approaches. Third, empirical studies' findings on climate shocks and growth have have generally not been incorporated into climate-economy models. Attempts to do so have shown the potential for significant policy implications, but have again highlighted the challenge of mapping reduced form growth estimates into the structure of climate-economy models (Moore and Diaz, 2015). This disconnect is of concern not only for policy makers (Obama, 2017), but echoes a broader micro-macro gap afflicting the climate change economics literature. This paper thus brings a novel macroeconomic model-based perspective to the data in order to advance the literature in these three dimensions. First, building on incomplete markets approaches (Krebs, 2003), we present a stochastic endogenous growth model where households face both aggregate and idiosyncratic (partly uninsurable) risks from climatic shocks. In particular, disasters may affect both the deprecation and productivity of different types of capital (analogous to business cycle risks in Krebs, 2003). We then revisit the empirical literature through the lens of this model. In particular, we analytically map the impact estimates identified by competing empirical estimation approaches into their structural counterparts in the model. The first main results is that the diverging results of key prior empirical studies can be reconciled as measuring different components of the overall impact of disasters on growth. For example, cross-sectional regressions identify the impact of disaster risk on long-run growth, which can be positive or negative depending on whether precautionary savings effects outweigh rate-of-return effects, in line with empirical studies (e.g., Skidmore and Toya, 2002). In contrast, panel fixed effects regressions of wind speed realizations estimate the effect of disaster strikes, which the model predicts to be negative and persistent, again in line with the empirical evidence (e.g., Hsiang and Jina, 2015). Importantly, the model also demonstrates the limitations of reduced form output-growth estimates for gauging welfare effects of climate change: An increase in climate risk can affect growth and welfare in opposite ways. Second, we propose an alternative approach to estimating disaster impacts that can be directly incorporated into structural climate-economy models and therefore inform estimates of the welfare costs of climate change. This approach specifically focuses on quantifying climate shock impacts on the structural determinants of growth - such as total factor productivity and capital depreciation - rather than on the endogenous equilibrium outcome of output growth itself. Third, we empirically showcase how to implement this approach by producing novel estimates of the impacts of tropical cyclones and climate change on economic outcomes and welfare in Vietnam. Our approach (i) matches the empirical literature's standard of causal identification by using plausibly exogenous variation in extreme weather events to identify their impacts on productivity and income risks, (ii) accounts for adaptation to climate change by explicitly modeling how households respond to changes in the weather risk distribution, and (iii) thus produces welfare estimates in a fully specified decisions-under-uncertainty endogenous growth climate-economy model. On the economic side, the estimation combines standard data on aggregate factors with detailed, nationally representative survey data from the Vietnam Household Living Standards Survey (2004-2014) to quantify the impacts of climate shocks on household income risks. On the climate side, we combine detailed historical cyclone data with synthetic cyclone track projections under future climate change (Emanuel, 2008) to estimate the change in the probability distribution of climate shocks facing households. The benchmark results suggest that changes in cyclone risks by 2100 will depress long-run growth in Vietnam by an economically significant 0.07-0.14 percentage points - on the same order of magnitude as recent estimates of the effect of U.S. business cycles on U.S. growth (Krebs, 2003, Barlevy, 2004). The associated welfare costs are estimated to range from -0.9% to -1.7% of initial consumption. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:1198&r=mac |
| By: | Paul Beaudry (University of British Columbia); Franck Portier (Toulouse School of Economics) |
| 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 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, how it potentially changes the challenge faced by monetary policy if authorities want to achieve price stability and favor employment stability. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:61&r=mac |
| By: | Nikolay Iskrev |
| Abstract: | Standard economic intuition suggests that asset prices are more sensitive to news than other economic aggregates. This has led many researchers to conclude that asset price data would be very useful for the estimation of business cycle models containing news shocks. This paper shows how to formally evaluate the information content of observed variables with respect to unobserved shocks in structural macroeconomic models. The proposed methodology is applied to two different real business cycle models with news shocks. The contribution of asset prices is found to be relatively small. The methodology is general and can be used to measure the informational importance of observables with respect to latent variables in DSGE models. Thus, it provides a framework for systematic treatment of such issues, which are usually discussed in an informal manner in the literature. |
| JEL: | C32 C51 C52 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201802&r=mac |
| By: | Francisco Buera; Sudipto Karmakar |
| Abstract: | What are the heterogeneous effects of financial shocks on firms' behavior? This paper evaluates and answers this question from both an empirical and a theoretical perspective. Using micro data from Portugal during the sovereign debt crisis, starting in 2010, we document that highly leveraged firms and firms that had a larger share of short-term debt on their balance sheets contracted more in the aftermath of a financial shock. We use a standard model to analyze the conditions under which leverage and debt maturity determine the sensitivity of firms' investment decisions to financial shocks. We show that the presence of long-term investment projects and frictions to the issuance of long-term debt are needed for the model to rationalize the empirical findings. We conclude that the differential responses of firms to a financial shock do not provide unambiguous information to identify these shocks. Rather, we argue that this information should be use to test for the relevance of important model assumptions. |
| JEL: | E44 F34 G12 H63 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201806&r=mac |
| By: | International Monetary Fund |
| Abstract: | New Zealand's economy has enjoyed a solid expansion since 2011. With a persistent net migration wave, potential output has moved closely in line with actual output, and economic slack has decreased slowly. Macroeconomic imbalances overall have narrowed, although macro-financial vulnerabilities have risen with rapid house price increases. The new coalition government seeks to make growth more inclusive. |
| Date: | 2018–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/202&r=mac |
| By: | André C. Silva; Bernardino Adão |
| Abstract: | Firm cash holdings increased substantially from 1980 to 2013. The overall distribution of firm cash holdings changed in the same period. We study the implications of these changes for monetary policy. We use Compustat data and a model with financial frictions that allows the calculation of the monetary policy effects according to the distribution of cash holdings. We find that the interest rate channel of the transmission of monetary policy has become more powerful, as the impact of monetary policy over real interest rates increased. With the observed changes in firm cash holdings, the real interest rate takes 3.4 months more to return to its initial value after a shock to the nominal interest rate. |
| JEL: | E40 E50 G12 G31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201804&r=mac |
| By: | Itay Goldstein; Jonathan Witmer; Jing Yang |
| Abstract: | Recent research suggests that quantitative easing (QE) may affect a broad range of asset prices through a portfolio balance channel. Using novel security-level holding data of individual US mutual funds, we establish evidence that portfolio rebalancing occurred both within and across funds. Contrary to conventional wisdom, portfolio rebalancing by fund managers into riskier assets is much smaller in magnitude than into other government bonds. We find that mutual funds replaced QE securities with other government bonds that have similar characteristics. Intriguingly, this shift occurred mainly into newly issued government bonds. Such within-fund portfolio rebalancing is material. For every $100 in QE bonds sold, mutual funds replenished their portfolios with about $50 to $60 of newly issued government bonds. Thus, QE played an important role in funding treasury debt issuance during this period. Meanwhile, the rebalancing into riskier assets, such as corporate bonds, did occur, but was mainly carried out by the end investors of the funds instead of the fund managers themselves. |
| Keywords: | Monetary Policy, Monetary policy implementation, Transmission of monetary policy |
| JEL: | E5 E58 G23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:18-33&r=mac |
| By: | Orrenius, Pia M. (Federal Reserve Bank of Dallas); Zavodny, Madeline (University of North Florida) |
| Abstract: | Immigrants’ descendants typically assimilate toward mainstream social and economic outcomes across generations. Hispanics in the United States are a possible exception to this pattern. Although there is a growing literature on intergenerational progress, or lack thereof, in education and earnings among Hispanics, there is little research on employment differences across immigrant generations. Using data from 1996 to 2017, this study reveals considerable differences in Hispanics’ employment rates across immigrant generations. Hispanic immigrant men tend to have higher employment rates than non-Hispanic whites and second- and third-plus generation Hispanics. Hispanic immigrant women have much lower employment rates, but employment rates rise considerably in the second generation. Nonetheless, U.S.-born Hispanic women are less likely than non-Hispanic white women to work. The evidence thus suggests segmented assimilation, in which the descendants of Hispanic immigrants have worse outcomes across generations. While relatively low education levels do not appear to hamper Hispanic immigrants’ employment, they play a key role in explaining low levels of employment among Hispanic immigrants’ descendants. Race and selective ethnic attrition may also contribute to some of the patterns uncovered here. |
| Keywords: | Hispanics; immigrant generations; assimilation |
| JEL: | E24 J11 J15 |
| Date: | 2018–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1809&r=mac |
| By: | Nwachukwu, Jacinta; Aziz, Aqsa; Tony-Okeke, Uchenna; Asongu, Simplice |
| Abstract: | This study compares the responsiveness of microcredit interest rates to age, scale of lending and organisational charter. It uses an unbalanced panel of 300 MFIs from 107 developing countries from 2005 to 2015. Three key trends emerge from the results of a 2SLS regression. First, the adoption of formal microbanking practices raises interest rates compared with other forms of microlending. Second, large scale lending lowers interest rates only for those MFIs that already hold legal banking status. Third, age of operation in excess of eight years exerts a negative impact on interest rates, regardless of scale and charter type of MFI. Collectively, our results indicate that policies which incentivise mature MFIs to share their knowledge will be more effective in helping the nascent institutions to overcome their cost disadvantages compared with reforms to transform them into licensed banks. For MFIs which already hold permits to operate as banks, initiatives to increase loan sizes are key strategic pricing decisions, irrespective of the institution’s age. This study is original in its differentiation of the impact on interest rates of regulations which promote formal banking principles, credit market extension vis-à-vis knowledge sharing between mature and nascent MFIs. |
| Keywords: | : Microfinance, microbanks, non-bank financial institutions, interest rates, age, economies of scale, developing countries |
| JEL: | E43 G21 G23 G28 N20 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87866&r=mac |
| By: | International Monetary Fund |
| Abstract: | The IMF-supported program (2014-17) succeeded in reducing Honduras' macroeconomic imbalances. The next step is to adopt institutional reforms to entrench macroeconomic stability to put Honduras on a higher potential growth path. |
| Date: | 2018–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/206&r=mac |
| By: | International Monetary Fund |
| Abstract: | Unemployment is low, inflation is well contained, and growth is set to accelerate. During the course of this administration, the economy is expected to enter the longest expansion in recorded U.S. history. |
| Date: | 2018–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/207&r=mac |
| By: | Thiago Christiano Silva; Solange Maria Guerra; Michel Alexandre da Silva; Benjamin Miranda Tabak |
| Abstract: | We develop a novel approach to understand how central bank policy rates affect individual firms and banks and how aspects of interconnectedness accentuate these effects in nontrivial ways. Changes in policy rate impact – either direct or indirectly – these agents, depending on their balance-sheet composition and network relationships. Interest rate shocks change bank capital on spot, which in turn reflects on how banks issue credit to firms. Firms experience increasing financial costs that revert to banks in the form of credit defaults, exacerbating the aftereffects of the monetary policy change. We apply the model to a unique data set from Brazil and find nonlinear and asymmetric effects on firms and banks that depend on the magnitude and direction of policy rate changes. The effects of interest rate changes are distinct in environments of expansion and recession. Finally, we find that monetary policy can have linear and nonlinear implications for financial stability, depending on the magnitude of the interest rate shock and network relationship patterns. Particularly, we show that big swings in the interest rate can cause undesirable nonlinear consequences to the financial stability |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:478&r=mac |
| By: | International Monetary Fund |
| Abstract: | Lithuania's economic performance has been impressive, but the country now risks falling into the middle-income trap. The economy is growing at a healthy pace, and external and internal imbalances have been corrected. Nevertheless, significant mediumterm challenges have yet to be addressed. These include tackling adverse demographics, transitioning from a low-wage to high-productivity growth model and addressing high income inequality. Addressing these challenges will require ambitious structural reforms. |
| Keywords: | Europe;Lithuania; |
| Date: | 2018–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/185&r=mac |
| By: | Òscar Jordà; Moritz Schularick; Alan M. Taylor; Felix Ward |
| Abstract: | This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk appetite across global equity markets. These fluctuations are transmitted across both fixed and floating exchange rate regimes, but the effects are more muted in floating rate regimes. |
| JEL: | E50 F33 F42 F44 G12 N10 N20 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24677&r=mac |
| By: | Vértesy, László |
| Abstract: | The paper analyses and compares some constitutional examples, especially in the 29 NISPAcee countries, how the states settle the bases of the economy and public finance in their constitutions or fundamental laws. The main hypothesis can be formulated as, is there any correlation between the constitutional provisions (or other relevant law sources) and the performance of the economy (GDP growth), sound and sustainable fiscal policy (budgeting, government debt, taxation, audit), furthermore monetary policy (price and exchange rate stability); also after the amendments can any changes be identified or not. |
| Keywords: | law and economics, constitutional economics, fiscal policy, monetary policy, economics |
| JEL: | E30 K10 N14 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88185&r=mac |
| By: | Chakraborty, Lekha (National Institute of Public Finance and Policy); Chakraborty, Pinaki (National Institute of Public Finance and Policy) |
| Abstract: | This paper tests economic convergence across States in India by incorporating federal fiscal asymmetries and differentials in gross fixed capital formation at the state level. Using dynamic panel models, it is observed that there is no unconditional convergence of economic growth. Controlling for state-wise asymmetries in fiscal policy variables, financial parameters, capital formation and human development outcomes using Arenallo and Bond (1991) panel data methodology, no strong evidence for conditional convergence is observed. It is observed from the GMM estimations that public capital spending has positive and significant relationship with economic growth. It is also observed that the quality of human capital formation is a pre-requisite for economic growth, both for club and (aggregate) conditional convergence. |
| Keywords: | economic convergence ; asymmetric federalism ; dynamic panel estimation ; GMM ; fiscal policy |
| JEL: | C33 E62 H77 R11 R58 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:18/232&r=mac |
| By: | International Monetary Fund |
| Abstract: | Tuvalu is a fragile micro state. The country’s remoteness, narrow production base, and weak banking sector constrain private sector activity, leaving public expenditure as the main source of growth. The DSA finds that Tuvalu remains at high risk of debt distress. |
| Date: | 2018–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/209&r=mac |
| By: | Pascal Seppecher (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); Isabelle Salle (Utrecht School of Economics - Utrecht University [Utrecht]); Marc Lavoie (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This paper studies coordination between firms in a multi-sectoral macroeconomic model with endogenous business cycles. Firms are both in competition and interdependent, and set their prices with a markup over unit costs. Markups are heterogeneous and evolve under market pressure. We observe a systematic coordination within firms in each sector, and between each sector. The resulting pattern of relative prices are consistent with the labor theory of value. Those emerging features are robust to technology shocks. |
| Keywords: | General interdependence, Pricing, Agent-based modeling |
| Date: | 2017–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01486597&r=mac |
| By: | José R. Maria; Paulo Júlio |
| Abstract: | We present a DSGE model for a small euro area economy comprising a banking sector empowered with regulatory capital requirements, defaulted loans and occasionally binding endogenous credit restrictions. Under non-financial shocks no important amplifications arise due to balancing forces: while banks' equity acts as a shock absorber, the observance of regulatory capital requirements acts as a shock amplifier. Under moderately-sized "bad" financial-based shocks defaulted loans increase and banks' value drop. As a result, credit becomes supply constraint for some time, severely amplifying and protracting output downfalls. Endogenous inertia implies a slow recovery in banks' capital and thus an enduring fragility of the banking system. Defaulted loans and credit restrictions are strongly intertwined, since the former severely impact banks' value, hence leveraging the amplification size. |
| JEL: | E62 F41 H62 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201813&r=mac |
| By: | Kumar, Anil (Federal Reserve Bank of Dallas); Liang, Che-Yuan (Uppsala University) |
| Abstract: | We exploit the 1998 and 2003 constitutional amendment in Texas—allowing home equity loans and lines of credit for non-housing purposes—as natural experiments to estimate the effect of easier credit access on the labor market. Using state-level as well as county-level data and the synthetic control approach, we find that easier access to housing credit led to a notably lower labor force participation rate between 1998 and 2007. We show that our findings are remarkably robust to improved synthetic control methods based on insights from machine-learning. We explore treatment effect heterogeneity using grouped data from the basic monthly CPS and find that declines in the labor force participation rate were larger among females, prime age individuals, and the college-educated. Analysis of March CPS data confirms that the negative effect of easier home equity access on labor force participation was largely concentrated among homeowners, with little discernible impact on renters, as expected. We find that, while the labor force participation rate experienced persistent declines following the amendments that allowed access to home equity, the impact on GDP growth was relatively muted. Our research shows that labor market effects of easier credit access should be an important factor when assessing its stimulative impact on overall growth. |
| Keywords: | Credit Constraints and Labor Supply; Synthetic Control with Machine Learning |
| JEL: | E24 E65 J21 R23 |
| Date: | 2018–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1810&r=mac |
| By: | International Monetary Fund |
| Abstract: | Strong economic performance since 2012, with average annual growth of 9 percent, reflected the economic recovery following political normalization, improved business environment, strong program of reforms, and supportive fiscal policy. A key policy challenge is to sustain robust growth and make it more inclusive and private sector-driven. |
| Date: | 2018–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/182&r=mac |
| By: | Ulrike Malmendier; Leslie Sheng Shen |
| Abstract: | We show that personal experiences of economic shocks can “scar'” consumer behavior in the long run. We first illustrate the effects of experience-based learning in a simple stochastic life-cycle consumption model with time-varying financial constraints. We then use data from the Panel Study of Income Dynamics (PSID), the Nielsen Homescan Panel, and the Consumer Expenditure Survey (CEX) to estimate the long-term effects of lifetime experiences on consumption. We show that households who have lived through times of high local and national unemployment, or who have experienced more personal unemployment, spend significantly less on food and total consumption, after controlling for income, wealth, employment, demographics, and macro-economic factors, such as the current unemployment rate. The reverse holds for past experiences of low unemployment. We also estimate significant experience-based variation in consumption within household, i. e., after including household fixed effects. At the same time, lifetime experiences do not predict individuals' future income. The Nielsen data reveals that households who have lived through times of high unemployment are particularly likely to use coupons and to purchase sale items or lower-end products. As predicted by the experience-based learning model, the effects of a given macro shock are stronger for younger than for older cohorts. Finally, past experiences predict beliefs about future economic conditions in the Michigan Survey of Consumers (MSC), implying a beliefs-based channel. Our results suggest a novel micro-foundation of fluctuations of aggregate demand, and explain long-run effects of macroeconomic shocks. |
| JEL: | D12 D83 D91 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24696&r=mac |
| By: | Robert D. Ebel (International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State Univeristy) |
| Abstract: | The World Bank’s report on Somalia Economic Update/Special Focus on Intergovernmental Relations concludes that although Somalis face a daunting and long term development challenge to overcome two decades of conflict and fragility, with a commitment of a new government substantial progress is being made to support a potentially vibrant private sector economy, improve human and economic development outcomes, and prioritize the establishment of intergovernmental (central and member government) institutions for effective macro-fiscal management (World Bank, 2015). |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1814&r=mac |
| By: | International Monetary Fund |
| Abstract: | The economy strengthened in 2017. Higher-than-expected GDP growth was driven by strong domestic demand and a positive external environment. Inflation slowed, driven by regulated and food prices, prudent policies and exchange rate appreciation, to below the target of the National Bank of Moldova (NBM). |
| Date: | 2018–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/205&r=mac |
| By: | Gilbert Cette; Jimmy Lopez; Giorgio Presidente; Vincenzo Spiezia |
| Abstract: | ICT components, such as microprocessors, may be embodied in other capital goods not recorded as ICT in National Accounts. We name ‘indirect ICT investment’ the value of embodied ICT components in non-ICT investment. The paper provides estimates of ‘indirect ICT investment’ based on detailed and unpublished Supply-Use tables (SUT) in 12 OECD countries: Australia, Belgium, Canada, Chile, Czech Republic, Denmark, France, Germany, Japan, Israel, Mexico, New Zealand, the United Kingdom, and the United States. Our main finding is that ICT investment appears significantly higher when considering its indirect component, the average increase being about 35%. The inclusion of indirect ICT investment, excluding software (for which firms’ expenditures are difficult to measure), changes significantly the relative position of countries with respect to the ICT intensity of their investments. The inclusion of software further increases indirect ICT investment but the increase is smaller (in percentage) than without this inclusion. A final result, but concerning only three countries, it that the diagnosis of a stabilisation, or even a decrease, of ICT investment in percentage of GDP or of total investment, observed from the beginning of the century, is not modified if we take into account the indirect ICT investment. |
| Keywords: | Investment; ICT; Technology |
| JEL: | D24 E22 O33 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:686&r=mac |
| By: | Aubhik Khan (Ohio State University); Julia Thomas (Ohio State University); Tatsuro Senga (Queen Mary University of London) |
| Abstract: | We develop a model with endogenous entry and exit in an economy subject to aggregate total factor productivity shocks that are non-stationary. Firms exhibit a life-cycle consistent with data and our model economy reproduces both their size and age distribution. In this setting, persistent shocks to aggregate total factor productivity growth rates endogenously drive long term reductions in business formation. The economic consequences of this persistent decline in entry grows over time. In our model, individual firms vary in both the permanent and transitory components of their total factor productivity and in their capital stock. Capital adjustment is subject to one period time-to-build and involves both convex and nonconvex costs. Our dynamic stochastic general equilibrium model involves an aggregate state that includes a distribution of firms over total factor productivity and capital. Changes in this distribution, following aggregate shocks to the common component of TFP, drive persistent fluctuations in aggregate economic activity. We show that equilibrium movements in firms' stochastic discount factors, following persistent shocks to TFP growth, imply long-run declines in the value of entry. The resulting fall in the number of firms propagates a reduction in economic activity. This slows down the recovery. We apply our model to understanding the last decade of economic activity in the U.S. This period began with a large recession followed by a period of slow economic growth. At the same time there was a persistent reduction in the new business formation. Our dynamic stochastic general equilibrium analysis is consistent with relatively small reductions in the level of total factor productivity, as seen in the last recession, and large reductions in GDP and Business Fixed Investment. Moreover, the recovery from such a large recession is slowed by a persistent reduction in firm entry. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:707&r=mac |
| By: | Katz, Matthijs; van der Kwaak, Christiaan (Groningen University) |
| Abstract: | We examine the macroeconomic implications of bailing-in banks? creditors after a systemic financial crisis, whereby bank debt is partially written off. We do so within a RBC model that features an endogenous leverage constraint which limits the size of banks? balance sheets by the amount of bank net worth. Our simulations show that an unanticipated bail-in effectively ameliorates macroeconomic conditions as more net worth relaxes leverage constraints, which allows an expansion of investment. In contrast, an anticipated bail-in will be priced in ex-ante by bank creditors, thereby transferring the bail-in gains from banks to creditors. Therefore the intervention has zero impact on the macroeconomy relative to the no bail-in case. The effectiveness of the bail-in policy can be restored by implementing a temporary tax on debt outflows once creditors start to anticipate a bail-in. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:gro:rugsom:2018009-eef&r=mac |
| By: | Schnabl, Gunther; Siemon, Klaus |
| Abstract: | Das Papier analysiert die EU-Richtlinie zum vorinsolvenzlichen Verfahren (2016/0359 (COD)) vor dem Hintergrund der anhaltend lockeren Geldpolitik aus ordnungspolitischer Perspektive. Es wird gezeigt, dass die Voraussetzungen geschaffen werden, durch strategische Kreditvergabe an Unternehmen im vorinsolvenzlichen Verfahren auf Kosten anderer Gläubiger auf Bewertungsgewinne durch Insolvenz zu spekulieren. Zudem kann in einem Umfeld zunehmender Zombifizierung die Haftung von wirtschaftlich schwachen Unternehmen auf Kosten von leistungsfähigen Unternehmen und Banken aufgeweicht werden. Aus ordnungspolitischer Sicht ist die Richtlinie deshalb kritisch zu betrachten. |
| Keywords: | Insolvenz,Vorinsolvenzliches Verfahren,EU Direktive 2016/0359 (COD),Nullzinspolitik,Spekulation,Zombifizierung,Insolvencency,Preventive Restructuring Framework,EU Directive 20146/0359 (COD),Zero Interest Rate-Policy,Zombification |
| JEL: | E52 E61 H81 K23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:154&r=mac |
| By: | Ray C. Fair (Cowles Foundation, Yale University) |
| Abstract: | This paper examines the question whether information is contained in forecasts from DSGE models beyond that contained in lagged values, which are extensively used in the models. Four sets of forecasts are examined. The results are encouraging for DSGE forecasts of real GDP. The results suggest that there is information in the DSGE forecasts not contained in forecasts based only on lagged values and that there is no information in the lagged-value forecasts not contained in the DSGE forecasts. The opposite is true for forecasts of the GDP deflator. |
| Keywords: | DSGE forecasts, Lagged values |
| JEL: | E10 E17 C53 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2140&r=mac |
| By: | International Monetary Fund |
| Abstract: | The Germany economy has performed very well in recent years, supported by prudent economic management and past structural reforms. Growth is robust, employment is rising, and the unemployment rate has fallen to levels not seen in decades. Inflation remains low but wage growth is picking up, reflecting the strength of the labor market. Looking beyond these positive cyclical developments, unfavorable demographics will soon weigh on potential growth and put pressure on public finances. Having already accumulated sizable buffers through savings, Germany should now prioritize domestic investment in physical and human capital to prepare for the future. The new government's coalition agreement contains several welcome measures in this direction, but more forceful actions to boost labor supply and increase labor productivity would help stimulate domestic investment and reduce Germany’s large current account surplus. |
| Date: | 2018–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/208&r=mac |
| By: | Stephan Imhof, Cyril Monnet and Shengxing Zhang |
| Abstract: | We study the implications of liquidity regulations and monetary policy on depositmaking and risk-taking. Banks give risky loans by creating deposits that firms use to pay suppliers. Firms and banks can take more or less risk. In equilibrium, higher liquidity requirements always lower risk at the cost of lower investment. Nevertheless, a positive liquidity requirement is always optimal. Monetary conditions affect the optimal size of liquidity requirements, and the optimal size is countercyclical. It is only optimal to impose a 100% liquidity requirement when the nominal interest rate is sufficiently low. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:szg:worpap:1803&r=mac |
| By: | Armand Fouejieu; Sergio Rodriguez; Sohaib Shahid |
| Abstract: | This paper estimates fiscal multipliers for the Gulf Cooperation Council (GCC) countries. Using OLS panel fixed effects on a sample of six countries from 1990-2016, results indicate that GCC fiscal multipliers have declined in recent years which would make the on-going fiscal consolidation less costly than previously thought. Though both capital and current multipliers have declined in recent years, capital multipliers are larger than current multipliers, which implies that reducing (less productive) current spending will help limit the adverse impact of such measures on growth. |
| Keywords: | Economic growth;Government expenditures;Fiscal policy;Fiscal policy;Fiscal stimulus and multipliers;Gulf Cooperation Council (GCC);Fiscal Multiplier, GCC, General, Asia including Middle East |
| Date: | 2018–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/133&r=mac |
| By: | International Monetary Fund |
| Abstract: | The Irish economy continues to grow at a rapid pace, well above the EU average. Although headline data are distorted by the volatility of multinationals’ activity, the broad recovery of domestic demand underpins the expansion. Improving labor market conditions have led to some wage pressures, while inflation remains subdued, mainly due to pound sterling weakness. Crisis legacies are on the mend but vulnerabilities persist. |
| Date: | 2018–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/194&r=mac |
| By: | Imura, Yuko (Bank of Canada); Shukayev, Malik (University of Alberta, Department of Economics) |
| Abstract: | This paper studies the effects of monetary policy shocks on firms’ participation in exporting. We develop a two-country dynamic stochastic general equilibrium model in which heterogeneous firms make forward-looking decisions on whether to participate in the export market and prices are staggered across firms and time. We show that while lower interest rates and a currency depreciation associated with an expansionary monetary policy help to increase the value of exporting, the inflationary effects of the policy stimulus weaken the competitiveness of some firms, resulting in a contraction in firms’ export participation. In contrast, positive productivity shocks lead to a currency depreciation and an expansion in export participation at the same time. We show that, overall, the extensive margin is more sensitive to firms’ price competitiveness with other firms in the export market than to exchange rate movements or interest rates. |
| Keywords: | Exporter dynamics; monetary policy; firm heterogeneity; exchange rate |
| JEL: | E52 F12 F44 |
| Date: | 2018–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2018_011&r=mac |
| By: | Wolski, Marcin |
| Abstract: | We assess the impact of the sovereign risk spill-overs onto corporate cost of borrowing in selected euro area countries. We utilize a novel nonparametric dependence filtering frame- work to remove the effects of sovereign risk in the interest rate pass-through context. The main findings confirm the heterogeneity in sovereign risk spill-overs. We also find divergence in sovereign risk transmission between core and peripheral Member States during financial and sovereign debt crises. We discover that the standard linear models may underestimate the underlying pass-through distortions, suggesting the existence of nonlinear sovereign risk effects. |
| Keywords: | counterfactual distributions,nonparametric methods,sovereign risk,cost of borrowing,pass-through |
| JEL: | C14 E43 E52 G21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201805&r=mac |
| By: | Thomas Walther; Lanouar Charfeddine; Tony Klein; |
| Abstract: | This paper contributes to the large debate regarding the impact of oil price changes on U.S. GDP growth. Firstly, it replicates empirical findings of prominent studies and finds that the proposed oil price measures have a dissipating effect with recent data up to 2016Q4. Secondly, it re-examines the issue and provides evidence that oil price decreases affect the GDP growth, when taking into consideration mixed data sampling technique. Finally, it puts particular focus on nonlinearity and a possible instability and shows that combining Markov switching and mixed data sampling models allows to identify different regimes permanently changing with the Great Moderation. |
| Keywords: | Oil prices, GDP growth, Asymmetry, Nonlinearity, Markov switching models, Mixed Data Sampling |
| JEL: | C24 E32 F43 Q43 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2018:16&r=mac |
| By: | Bellido, Héctor; Marcén, Miriam |
| Abstract: | This paper studies the effect of the business cycle on the marriage rate, using a panel data of 30 European countries covering 1991 to 2013. We find a negative effect of the business cycle on the marriage rate, pointing to the pro-cyclical behaviour of marriage decisions, which holds after controlling for country-level specific characteristics and family law, and after taking possible endogeneity problems into account. We also analyse this issue considering a wide range of country-level regulations affecting couples (taxation, property division, and reproduction, among others). Supplemental analysis reveals gender differences in the impact of the business cycle on the marital decision, depending on the previous legal marital status of the individuals. |
| Keywords: | Marriage,unemployment,business cycle |
| JEL: | J12 J64 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:229&r=mac |
| By: | Hauzenberger, Niko; Böck, Maximilian; Pfarrhofer, Michael; Stelzer, Anna; Zens, Gregor |
| Abstract: | In this paper we estimate a Bayesian vector autoregressive model with factor stochastic volatility in the error term to assess the effects of an uncertainty shock in the Euro area. This allows us to treat macroeconomic uncertainty as a latent quantity during estimation. Only a limited number of contributions to the literature estimate uncertainty and its macroeconomic consequences jointly, and most are based on single country models. We analyze the special case of a shock restricted to the Euro area, where member states are highly related by construction. We find significant results of a decrease in real activity for all countries over a period of roughly a year following an uncertainty shock. Moreover, equity prices, short-term interest rates and exports tend to decline, while unemployment levels increase. Dynamic responses across countries differ slightly in magnitude and duration, with Ireland, Slovakia and Greece exhibiting different reactions for some macroeconomic fundamentals. JEL Classification: C30, F41, E32 |
| Keywords: | Bayesian vector autoregressive models, factor stochastic volatility, un-certainty shocks |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:201880&r=mac |
| By: | Sebastian Heise (Federal Reserve Bank of New York); Aysegul Sahin (Federal Reserve Bank of New York); Fatih Karahan (Federal Reserve Bank of New York) |
| Abstract: | The Phillips curve, which links inflation and unemployment, has in its various forms guided monetary policy for more than fifty years. However, recent U.S. experience with low levels of unemployment and inflation has led many economists to question whether the Phillips curve is still relevant, see Gordon (2015) and Blanchard (2016). Reacting to this, we reconsider, and explore empirically, mechanisms underlying the interaction between labor market slack, wage setting and producer prices. Specifically, this paper builds on an idea, also put forth in Faberman and Justiniano (2015) and Moscarini and Postel-Vinay (2016, 2017), that aggregate wage growth springs from heightened competition for workers and the latter is best summarized by job-to-job transitions---moves from one job to another one without an intervening spell of unemployment. We test this hypothesis using state-level variation based on data from the Quarterly Workforce Indicators (QWI), which provide a set of economic indicators including earnings of new hires by detailed firm and worker characteristics. We find large and significant effects on earnings growth from job-to-job transitions in the first part of our analysis. While a faster pace of job-to-job transitions imply faster wage growth, it does not necessarily lead to faster price growth. As formalized by Moscarini and Postel-Vinay (2017), job switches that improve match quality might lead to earnings growth without an increase in the unit cost of labor. We use producer prices from the BLS and wages from the QWI for the last three decades and show a significant decline in the pass-through from wages to prices in manufacturing over that time period. At the same time, pass-through in non-manufacturing has been flat for the period since the early 2000s. We show using data on multifactor productivity from the BLS that the lower price-wage response is not driven by productivity improvements. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:428&r=mac |
| By: | World Bank Group |
| Keywords: | International Economics and Trade - Export Competitiveness Macroeconomics and Economic Growth - Economic Forecasting Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Employment and Shared Growth Social Protections and Labor - Labor Markets Social Protections and Labor - Social Protections & Assistance |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:29440&r=mac |
| By: | William, Barnett; Qing, Han; Jianbo, Zhang |
| Abstract: | A central tenet of behavioral economics is that the axioms producing expected utility maximization by consumers are too strong to be descriptive of rational behavior. The existing theory of monetary services aggregation under risk assume expected utility maximization. We extend those results to uncertainty under weaker axiomatic assumptions by using Choquet expectations. Choquet integration reduces to Riemann integration as a special case under the stronger assumption of additive probability measure, not accepted in the literature on behavioral economics. Our theoretical results on monetary services aggregation are generalizations of prior results, nested as special cases of our results under stronger behavioral assumptions. |
| Keywords: | Uncertainty Aversion, User Cost, Choquet Expectation, Monetary Aggregation |
| JEL: | C43 E41 G12 |
| Date: | 2018–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88261&r=mac |
| By: | Ozlem Omer (Middle East Technical University) |
| Abstract: | In this article, we demonstrate that a quantal response statistical equilibrium approach to the US housing market with the help of maximum entropy method of modeling is a powerful way of revealing di erent characteristics of the housing market behavior before, during and after the recent housing market crash in the US. In this line, a maximum entropy approach to quantal response statistical equilibrium model (QRSE), introduced by Scharfenaker and Foley (2017), is employed in order to model housing market dynamics in di erent phases of the most recent housing market cycle using the S&P Case Shiller housing price index for 20 largest- Metropolitan Regions, and Freddie Mac housing price index (FMHPI) for 367 Metropolitan Cities for the US between 2000 and 2015. Estimated model parameters provide an alternative way to understand and explain the behaviors of economic agents, and market dynamics by questioning the traditional economic theory, which takes assumption for the behavior of rational utility maximizing representative agent with self-ful lled expectations as given. |
| Keywords: | Housing Market Crash, Statistical Equilibrium, Quantal Response, Informational Entropy, Maximum Entropy Method |
| JEL: | C18 D89 D90 E30 G01 R39 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1809&r=mac |
| By: | Philippe Bacchetta (University of Lausanne, Swiss Finance Institute, and Centre for Economic Policy Research (CEPR)) |
| Abstract: | The Sovereign Money Initiative will be submitted to the Swiss people in 2018. This paper reviews the arguments behind the initiative and discusses its potential impact. I argue that several arguments are inconsistent with empirical evidence or with economic logic. In particular, controlling sight deposits neither stabilizes credit nor avoids financial crises. Also, assuming that deposits at the central bank are not a liability has implications for fiscal and monetary policy; and Benes and Kumhof (2012) do not provide support for the reform as they do not analyze the proposed Swiss monetary reform and their closed-economy model does not fit the Swiss economy. Then, using a simple model with monpolistically competitive banks, the paper assesses quantitatively the impact of removing sight deposits from commercial banks balance sheets. Even though there is a gain for the state, the overall impact is negative, especially because depositors would face a negative return. Moreover, the initiative goes much beyond what would be the equivalent of full reserve requirement and would impose severe constraints on monetary policy; it would weaken financial stability rather then reinforce it; and it would threaten the trust in the Swiss monetary system. Finally, there is high uncertainty both on the details of the reform and on its impact. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1725&r=mac |
| By: | International Monetary Fund |
| Abstract: | A three-year arrangement for Mongolia under the Extended Fund Facility (EFF) was approved on May 24, 2017, in an amount equivalent to SDR 314.5054 million (435 percent of quota, or about $425 million). The arrangement is part of a $5.5 billion multi-donor financing package that supports the authorities’ Economic Recovery Plan. The extended arrangement is subject to quarterly reviews. |
| Date: | 2018–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/204&r=mac |
| By: | Richard Senner (ETH Zurich); Didier Sornette (ETH Zürich and Swiss Finance Institute) |
| Abstract: | Exchange rates are crucial variables for each economy as they affect the price at which a country can exchange goods and services with other currency areas. A strong domestic currency makes it relatively cheap to import goods and services, but at the same time renders domestic goods and services expensive for other currency holders. Export-oriented countries therefore tend to favour a relatively weak domestic currency. While exchange rates are usually market-determined, central banks have the possibility to weaken or strengthen them by purchasing or selling foreign currencies. Unsurprisingly, countries that export more than they import tend to witness interventions that weaken the domestic currency. Switzerland, a strongly export-oriented country, has seen such interventions since 2008 at a rapidly increasing pace. As a consequence, over the past 9 years, the Swiss National Bank (SNB) has accumulated foreign reserves surpassing the value of the annual Swiss GDP. Despite this evolution lasting over almost a decade now, the SNB’s interventions were and are still continuing to be commonly perceived as a short-term measure to offset temporary upward pressures on the Swiss Franc. We challenge this ‘short-term’ view and argue that the pressures on the Swiss Franc are long-term in nature and hence require a long-term, optimised and sustainable intervention strategy: We propose to build a Swiss sovereign wealth fund. |
| Keywords: | surplus countries, central bank interventions, sovereign wealth funds, mercantilist critique, Swiss franc, current account imbalance |
| JEL: | E5 F31 F32 O24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1724&r=mac |
| By: | Daniel A. Dias; Carlos Robalo Marques |
| Abstract: | Using firm level data, we show that the Portuguese financial crisis had, overall, a cleansing effect on productivity. During the crisis, aggregate productivity gains, both in manufacturing and services, came from relatively higher contributions of entry and exit of firms and from reallocation of resources between surviving firms. At the microlevel, we find that the crisis reduced the probability of survival for high and low productivity firms, but hit low productivity firms disproportionately harder, in line with the cleansing hypothesis. The correlation between productivity and employment growth in manufacturing and services strengthened, but the correlation between productivity and capital growth in the service sector weakened. We attribute this result in part to structural sectoral differences, but mainly to the large negative demand and credit shocks that affected mainly the nontradable services sub-sector. We also find that the probability of exit increased disproportionately for firms operating in more financially dependent industries, but there is no evidence of a scarring effect on productivity stemming from changing credit conditions. |
| JEL: | D24 E32 L25 O47 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201818&r=mac |
| By: | Tatsuro Senga (Queen Mary University of London); Iacopo Varotto (Queen Mary University of London) |
| Abstract: | Idiosyncratic shocks faced by large firms in the U.S. appears to be volatile. Such idiosyncratic shocks may not average out in the cross-section and thus can even generate aggregate fluctuations. In this paper, we first construct a panel of US firms using data from Compustat and show a set of stylized facts about cross-sectional and cyclical features of idiosyncratic shocks faced by large firms. Our panel data reveals that the mean and kurtosis of idiosyncratic shocks decrease with firm size, while the standard deviation and skewness increase with firm size. In particular, the distribution of idiosyncratic shocks faced by the largest firms has a negative mean and positive skew. We also show that the mean of idiosyncratic shocks faced by the largest firms is significantly countercyclical. To examine the quantitative importance of such features of idiosyncratic shocks faced by large firms, we then develop an equilibrium business cycle model wherein idiosyncratic shocks can alone alter the shape of the distribution of firms and thus can drive aggregate fluctuations. We develop a general framework to study such models, wherein the law of large number does not hold and the distribution of firms over productivities becomes a random object, rendering infeasible the use of a standard numerical method. The flexibility of this new approach allows us to isolate the two channels through which the idiosyncratic movements of the firms generate aggregate volatility: average productivity and dynamic inefficiency. In addition we quantify the relative importance of the shocks to large firms in driving the cycle. The model is estimated to match micro-level moments of firm size distribution and idiosyncratic shocks, together with standard macro moments. Consistent with existing studies, our results show that idiosyncratic shocks are a quantitatively important micro-origin of aggregate fluctuations, accounting for 25 percent of output volatility relative to the data. Large firm movements account for 11 percent of aggregate volatility, wherein 63 percent reflects dynamic inefficiency channel. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:1012&r=mac |
| By: | International Monetary Fund |
| Abstract: | Seychelles intends to preserve its hard-won economic stability and enhance inclusive growth. The authorities have committed to maintaining a primary fiscal surplus consistent with achieving their medium-term debt reduction goal. Priorities include structural measures to avoid further loss of correspondent banking relations (CBRs), reduce fiscal risks, and strengthen the business environment. |
| Date: | 2018–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/196&r=mac |
| By: | International Monetary Fund |
| Abstract: | The Gambia has been on a Staff Monitored Program (SMP) since April 2017. The SMP was extended through September 2018, in the context of the first review (EBS/18/99, 4/4/2018), to provide more time to establish a track record for a possible Extended Credit Facility (ECF) arrangement and incorporate into the macro-framework the outcome of the recent International Conference for The Gambia. |
| Date: | 2018–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/197&r=mac |
| By: | Spencer G. Lyon; Michael E. Waugh |
| Abstract: | Should a nation's tax system become more progressive as it opens to trade? Does opening to trade change the benefits of a progressive tax system? We answer these question within a standard incomplete markets model with frictional labor markets and Ricardian trade. Consistent with empirical evidence, adverse shocks to comparative advantage lead to labor income losses for import-competition-exposed workers; with incomplete markets, these workers are imperfectly insured and experience welfare losses. A progressive tax system is valuable, as it substitutes for imperfect insurance and redistributes the gains from trade. However, it also reduces the incentives for labor to reallocate away from comparatively disadvantaged locations. We find that optimal progressivity should increase with openness to trade with a ten percentage point increase in openness necessitating a five percentage point increase in marginal tax rates for those at the top of the income distribution. |
| JEL: | E1 F11 H21 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24784&r=mac |
| By: | Davies, Elwyn; Fafchamps, Marcel |
| Abstract: | Experimental evidence to date supports the double theoretical prediction that parties transacting repeatedly punish bad contractual performance by reducing future offers, and that the threat of punishment disciplines opportunistic breach. We conduct a repeated gift-exchange experiment with university students in Ghana and the UK. The experiment is framed as an employment contract. Each period the employer makes an irrevocable wage offer to the worker who then chooses an effort level. UK subjects behave in line with theoretical predictions and previous experiments: wage offers reward high effort and punish low effort; this induces workers to choose high effort; and gains from trade are shared between workers and employers. We do not find such evidence among Ghanaian subjects: employers do not reduce wage offers after low effort; workers often choose low effort; and employers earn zero payoffs on average. These results also hold if we use a strategy method to elicit wage offers. Introducing competition or reputation does not significantly improve workers' effort. Using a structural bounds approach, we find that the share of selfish workers in Ghana is not substantially different from the UK or earlier experiments. We conclude that strategic punishment in repeated labor transactions is not a universally shared heuristic. |
| Keywords: | conditional reciprocity; Ghana; gift-exchange game; punishment strategies; relational contracting |
| JEL: | C71 D2 D86 E24 O16 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13057&r=mac |
| By: | Doireann Fitzgerald; Anthony Priolo |
| Abstract: | The question of how firms build market share matters for firm dynamics, business cycles, international trade, and industrial organization. Using Nielsen Retail Scanner data for the United States, we document that in the consumer food industry, brands experience substantial growth in market share in the first four years after successful entry into a regional market. However, markups are flat with respect to brand tenure. This finding is at odds with a large literature on customer markets which argues that firms acquire customers by temporarily offering low markups, and later raise markups once customers are locked in. However, it is consistent with a literature which emphasizes the importance of marketing and advertising activities for building market share. |
| JEL: | E3 L11 M3 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24794&r=mac |
| By: | Christoph Albert (UPF and Barcelona GSE); Andrea Caggese (Pompeu Fabra University) |
| Abstract: | How do financial factors and cyclical fluctuations affect the innovative content of new businesses? This paper answers this question by combining a multi-country entrepreneurial level dataset with country level business cycle data and sector level information on technology. Our main data source is the Global Entrepreneurship Monitor dataset, which is a multi-country multi-year survey of entrepreneurial decisions. We merge this dataset with a country specific business cycle indicator (GDP growth) and a financial crisis indicator from Laeven and Valencia (2013). Finally, we also combine it with two sector level indicators: an external financial dependence indicator (Kroszner et al, 2007) and an indicator of intangibility (share of intangible over total assets, see Falato et al, 2014, and Caggese and Perez, 2018). We use the dataset to identify three types of startups which are likely to be innovative and/or with high growth potential: i) Businesses started to provide a new product or service. ii) Startups for which the new entrepreneur is expecting high employment growth (controlling for country effects). iii) Startups in high-intangible industries, which should have higher growth potential given the more innovative content of intangible technologies. We control for country fixed effects, as well as for individual characteristics such as age, education and income group, and we find that all startups, but especially startups with high growth potential, were much more procyclical in the presence of the financial crisis. That is, the financial crisis reduced significantly more startups with high growth potential than the other types, especially in countries with greater contraction in output. Importantly we also show that startups with high growth potential were strongly negatively affected by the financial crisis only in industries classified as with high external financial dependence. In other words, we find evidence strongly consistent with the hypothesis that financial frictions affected the composition of business startups during the financial crisis, reducing the incentives of entrepreneurs to start riskier and more innovative businesses with more growth potential. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed018:815&r=mac |
| By: | Per Östberg (University of Zurich and Swiss Finance Institute); Thomas Richter (University of Zurich and Swiss Finance Institute) |
| Abstract: | Using high-frequency data we document that episodes of market turmoil in the European sovereign bond market are on average associated with large decreases in trading volume. The response of trading volume to market stress is conditional on transaction costs. Low transaction cost turmoil episodes are associated with volume increases (investors rebalance), while high transaction cost turmoil periods are associated with abnormally low volume (market freezes). We find suggestive evidence of market freezes in response to shocks to the risk bearing capacity of market makers while investor rebalancing is triggered by wealth shocks. Overall, our results show that the recent sovereign debt crisis was not associated with large-scale investor rebalancing. |
| Keywords: | Sovereign Debt Crisis, Trading Volume, Liquidity, Flights, Rebalancing |
| JEL: | G12 G14 G21 E44 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1732&r=mac |
| By: | Mandal, Biswajit; Roy, Sangita |
| Abstract: | Informal sector comprising of unrecorded, unregistered activities in developing economies of the world is a common feature at present scenario. Existence of such sectors in an economy clearly reflects the weakness of government to provide employment opportunities for all. Such informal activities are again facilitated through the extortionists who are bribed by the informal producers. Under such an economic structure the paper investigates into the effect of inflow of educational capital on endogenously determined factor prices and output of formal and informal sectors of an economy.Though there is no change in the factor earnings, an inflow of educational capital gives a boost to the output of skilled sector irrespective of any factor intensity assumption. Output of formal sector also expands depending on the factor intensity assumption but quite interestingly no change is seen in the output of informal sector. Inflow of educational capital leads to dampening of intermediation activities in an economy which is a positive result and this can help the policy makers to choose the right path of development. |
| Keywords: | Educational capital, Informal sector, Corruption |
| JEL: | D50 D73 E26 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87461&r=mac |
| By: | Andreas Fuster; Ricardo Perez-Truglia; Basit Zafar |
| Abstract: | Information frictions play an important role in many theories of expectation formation and macroeconomic fluctuations. We use a survey experiment to generate direct evidence on how people acquire and process information, in the context of national home price expectations. We let consumers buy different pieces of information that could be relevant for the formation of their expectations about the future median national home price. We use an incentive-compatible mechanism to elicit their maximum willingness to pay. We also introduce exogenous variation in the value of information by randomly assigning individuals to rewards for the ex-post accuracy of their expectations. Consistent with rational inattention, individuals are willing to pay more for information when they stand to gain more from it. However, underscoring the importance of limits on information processing capacity, individuals disagree on which signal they prefer to buy. Individuals with lower education and financial numeracy are less likely to demand information that has ex-ante higher predictive power, independently of stakes. As a result, lowering the information acquisition cost does not decrease the cross-sectional dispersion of expectations. Our findings have implications for models of expectation formation and for the design of information interventions. |
| JEL: | C81 C93 D80 D83 D84 E27 E3 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24767&r=mac |
| By: | Djimoudjiel, Djekonbe |
| Abstract: | This article is particularly interested in highlighting the effect of banking capital variation on the management of banking risk and simultaneously on the banking market structure in CEMAC countries between 2000 and 2015. The use of Generalized Method of Moments and Three-Stage Least Squares concludes that reduction of risk defaults and losses by banking capital revaluation is more pronounced among national and international banks. However, this recapitalization affects the structure of the banking market of CEMAC so as to strengthen the banking concentration. In the same light, the respect of prudential ratios generally encourages excessive banking risk taking compelling credit supply. |
| Keywords: | Normes prudentielles, risques bancaires, HHI, CEMAC, MMG, 3SLS |
| JEL: | E58 G32 G38 |
| Date: | 2018–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88411&r=mac |
| By: | Germán Gutiérrez; Thomas Philippon |
| Abstract: | Until the 1990's, US markets were more competitive than European markets. Today, European markets have lower concentration, lower excess profits, and lower regulatory barriers to entry. We document this surprising outcome and propose an explanation using a model of political support. Politicians care about consumer welfare but also enjoy retaining control over industrial policy. We show that politicians from different countries who set up a common regulator will make it more independent and more pro-competition than the national ones it replaces. Our comparative analysis of antitrust policy reveals strong support for this and other predictions of the model. European institutions are more independent than their American counterparts, and they enforce pro-competition policies more strongly than any individual country ever did. Countries with ex-ante weak institutions benefit more from the delegation of antitrust enforcement to the EU level. Our model also explains why political and lobbying expenditures have increased much more in America than in Europe, and using data across industries and across countries, we show that these expenditures explain the relative rise of concentration and market power in the US. |
| JEL: | D02 D41 D42 D43 D72 E25 K21 L0 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24700&r=mac |
| By: | Massimiliano Affinito (Bank of Italy); Matteo Piazza (Bank of Italy) |
| Abstract: | This paper joins the debate on the growing use of CCPs in interbank markets by analysing a scarcely explored source of risk. Namely, that central clearing may provide riskier banks that are cut off from the bilateral segment with another means of accessing the interbank market, thereby eluding market discipline and potentially increasing the risks borne by the financial system. We investigate this issue using monthly granular data on Italian banks from January 2004 to June 2013, and find that during the global financial crisis riskier banks increased the share of their interbank funding obtained via CCPs due to both the impact of general market uncertainty and heightened attention to counterparty risk in the bilateral segment of the market. More tellingly, we show that, for riskier banks only, this increase was accompanied by a decline in the duration of bilateral relationships, indicating that longer-standing counterparts, typically the most informed ones, withdrew from these relationships. This suggests that, compared with banks operating in the bilateral segment, on average banks working with CCPs may be riskier, confirming the importance of ongoing efforts to ensure that CCPs have a proper risk management framework. |
| Keywords: | CCPs, central clearing, central counterparties, financial crisis, interbank markets, networks, interbank lending relationships |
| JEL: | E58 G21 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1181_18&r=mac |
| By: | Ferrando, Annalisa; Wolski, Marcin |
| Abstract: | We study the relationship between net trade credit and firms' investment levels, focusing on financially distressed firms. First, we introduce a theoretical model to predict the role played by net trade credit as a coordination device differentiating firms by their degree of financial distress. Then, we test these predictions by using a large panel of more than 10 million firms in 23 EU countries over the period 2004-2014. Our main result is that, whereby net trade credit has an overall negative impact on capital formation due to liquidity effects, the effect is less pronounced for firms that are in financial difficulties. The main explanation is that through capital expenditures distressed companies try to maintain vital business relations with their customers in order to participate in the final profits via trade credit repayments. |
| Keywords: | trade credit,investment,financial constraints,distressed firms |
| JEL: | E22 G20 G30 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201804&r=mac |