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on Macroeconomics |
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Issue of 2018‒12‒24
121 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Jang, Tae-Seok; Sacht, Stephen |
| Abstract: | In this study, we analyze the macroeconomic dynamics under various shocks in two competing frameworks. Given the baseline New-Keynesian model, we compare the impulse response functions that stem from the hybrid version under rational expectations with the ones obtained in the forward-looking version under bounded rationality. For the latter, we assume heterogeneous agents who may adopt various forecast heuristics. We seek to understand which framework mimics real-world adjustments well and is therefore most suitable to describe economic adjustments over the business cycle. |
| Keywords: | Bounded Rationality,Consumer Expectations,Forecast Heuristics,Impulse Response Functions,New-Keynesian Model |
| JEL: | C53 D83 E12 E21 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201810&r=mac |
| By: | Ernesto Pastén; Raphael Schoenle; Michael Weber |
| Abstract: | We study the transmission of monetary policy shocks in a model in which realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages, and derive conditions under which these heterogeneities generate large real effects. Empirically, heterogeneity in the frequency of price adjustment is the most important driver behind large real effects, whereas heterogeneity in input-output linkages contributes only marginally, with differences in consumption shares in between. Heterogeneity in price rigidity further is key in determining which sectors are the most important contributors to the transmission of monetary shocks, and is necessary but not sufficient to generate realistic output correlations. In the model and data, reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and for the real effects of nominal shocks. |
| JEL: | E20 E32 E52 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25303&r=mac |
| By: | Masao Fukui; Emi Nakamura; Jón Steinsson |
| Abstract: | Business cycle recoveries have slowed in recent decades. This slowdown comes entirely from female employment: as women's employment rates converged towards men's over the past half-century, the growth rate of female employment slowed. We ask whether this slowdown in female employment caused the slowdown in overall employment during recent business cycle recoveries. Standard macroeconomic models with “balanced growth preferences” imply that this cannot be the cause, since the entry of women “crowds out” men in the labor market almost one-for-one. We estimate the extent of crowd out of men by women in the labor market using state-level panel data and find that it is small, contradicting the standard model. We show that a model with home production by women can match our low estimates of crowd out. This model – calibrated to match our cross-sectional estimate of crowd out – implies that 70% of the slowdown in recent business cycle recoveries can be explained by female convergence. |
| JEL: | E24 E32 J21 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25311&r=mac |
| By: | Ernesto Pasten; Raphael S. Schoenle; Michael Weber |
| Abstract: | We study the transmission of monetary policy shocks in a model in which realistic heterogeneity in price rigidity interacts with heterogeneity in sectoral size and input-output linkages, and derive conditions under which these heterogeneities generate large real effects. Empirically, heterogeneity in the frequency of price adjustment is the most important driver behind large real effects, whereas heterogeneity in input-output linkages contributes only marginally, with differences in consumption shares in between. Heterogeneity in price rigidity further is key in determining which sectors are the most important contributors to the transmission of monetary shocks, and is necessary but not sufficient to generate realistic output correlations. In the model and data, reducing the number of sectors decreases monetary non-neutrality with a similar impact response of inflation. Hence, the initial response of inflation to monetary shocks is not sufficient to discriminate across models and for the real effects of nominal shocks. |
| Keywords: | input-output linkages, multi-sector, Calvo model, monetary policy |
| JEL: | E30 E32 E52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7376&r=mac |
| By: | Jang, Tae-Seok; Sacht, Stephen |
| Abstract: | This study extends the hybrid version of the baseline New-Keynesian model with heterogeneous agents who may adopt various forecast heuristics. With a focus on consumer expectations, we identify the most appropriate pairs of forecast heuristics that can lead to an equivalent fit to the data compared with the model specification under rational expectations. The competing specifications are estimated using the simulated method of moments. Our empirical results suggest that expectations under bounded rationality in the United States are grounded on consumers' emotional state, while for the Euro Area they are technical in nature. This observation questions the need for a hybrid model specification under rational expectations. |
| Keywords: | Consumer Expectations,Forecast Heuristics,New-Keynesian Model,Simulated Method of Moments |
| JEL: | C53 D83 E12 E21 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201809&r=mac |
| By: | Thomas J. Carter; Rhys R. Mendes; Lawrence Schembri |
| Abstract: | In 1991, Canada became the second country to adopt an inflation target as a central pillar of its monetary policy framework. The regime has proven much more successful than initially expected, both in achieving price stability and in stabilizing the real economy against a wide range of shocks. We identify and discuss three factors that have contributed to this performance: i.the simple, readily understood and consistently applied specification of the inflation target, which, since adoption, has taken the form of a point target inside a symmetric control range; ii.the establishment of the target in an agreement between the central bank and government, in which inflation control was recognized as a joint duty of both parties, implying key supporting roles for fiscal and macroprudential policy; and iii.the agreement’s regular and thorough review-and-renewal process, which has led to continual improvement based on accumulated experience and advances in the academic literature. Together, these factors have helped anchor inflation expectations around a credible target. This anchoring has in turn made it easier for monetary policy to stay on target, setting a powerful virtuous cycle into motion. An additional benefit is that well-anchored inflation expectations leave monetary policy with greater flexibility to consider its impacts on output and employment variability, as well as financial stability. Nonetheless, certain features of the current economic landscape—including low equilibrium real interest rates and high debt burdens in key sectors—now present monetary policy in Canada and other jurisdictions with significant challenges. We discuss these issues and argue that they require inflation-targeting central banks to give careful thought to the steps that can be taken to refine and strengthen their policy frameworks, widen their toolkits and best ensure complementarity with other macrofinancial policies. |
| Keywords: | Credibility, Inflation targets, Monetary Policy, Monetary policy framework |
| JEL: | E5 E52 E58 E6 E61 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:18-18&r=mac |
| By: | Paulo R. Mota (University of Porto – School of Economics and Business and CEF.UP); Abel L. C. Fernandes (University of Porto – School of Economics and Business and NIFIP); Paulo B. Vasconcelos (University of Porto – School of Economics and Business and CMUP) |
| Abstract: | The austerity policy applied by the Eurozone peripheral governments under the International Monetary Fund (IMF)/ European Central Bank (ECB)/ European Commission financial assistance programs has contributed to a sharp reduction of aggregate demand, regardless of the unconventional measures undertaken by the ECB. The ECB decreased the interest rate on the main refinancing operations to zero, and is buying assets from banks on a massive scale under the Expanded Asset Purchase Programme. The fact that these extraordinary measures have not been enough to produce a strong recovery, shifts the focus again to fiscal policy. Central to assessing the effects of fiscal policy are the value of impact fiscal multipliers and the size of hysteretic effects. There is widespread evidence that public expenditure multipliers are greater than one when the economy is depressed and the interest rates are close to zero. However, less is known about the importance of hysteresis effects. Using the linear play model of hysteresis we find that hysteresis effects are important in the Eurozone peripheral countries. Large fiscal impact multipliers combined with the presence of hysteresis implies that front-loaded austerity depresses the economy in the short run and these effects may persist in the long run. |
| Keywords: | Employment, fiscal multipliers, hysteresis |
| JEL: | E24 E62 J23 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:610&r=mac |
| By: | Roberto M. Billi; Jordi Galí |
| Abstract: | We analyze the welfare impact of greater wage flexibility while taking into account explicitly the existence of the zero lower bound (ZLB) constraint on the nominal interest rate. We show that the ZLB constraint generally amplifies the adverse effects of greater wage flexibility on welfare when the central bank follows a conventional Taylor rule. When demand shocks are the driving force, the presence of the ZLB implies that an increase in wage flexibility reduces welfare even under the optimal monetary policy with commitment. |
| Keywords: | labor market flexibility, Nominal rigidities, optimal monetary policy with commitment, Taylor rule, ZLB |
| JEL: | E24 E32 E52 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1066&r=mac |
| By: | Martina Jašová; Richhild Moessner; Előd Takáts |
| Abstract: | We study how domestic and global output gaps affect CPI inflation. We use a New-Keynesian Phillips curve framework which controls for nonlinear exchange rate movements for a panel of 26 advanced and 22 emerging economies covering the 1994Q1-2017Q4 period. We find broadly that both global and domestic output gaps are significant drivers of inflation both in the pre-crisis (1994-2008) and post-crisis (2008-2017) periods. Furthermore, after the crisis, in advanced economies the effect of the domestic output gap declines, while in emerging economies the effect of the global output gap declines. The paper demonstrates the usefulness of the New Keynesian Phillips curve in identifying the impact of global and domestic output gaps on inflation. |
| Keywords: | output gaps, global factors, inflation |
| JEL: | E31 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7337&r=mac |
| By: | Stéphane Auray (CREST-Ensai and ULCO); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France ; Institut Universitaire de France); Xiaofei Ma (CREST-Ensai and Université d'Evry;) |
| Abstract: | We develop a two-country model with an explicitly microfounded interbank market and sovereign default risk. Calibrated to the core and the periphery of the Euro Area, the model gives rise to a debt-banks-credit loop that substantially amplifies the effects of financial shocks, especially for the periphery. We use the model to investigate the effects of a stylized public asset purchase program at the steady state and during a crisis. We find that it is more effective in stimulating the economy during a crisis, in particular for the periphery. |
| Keywords: | Recession, Interbank Market, Sovereign Default Risk, Asset Purchases |
| JEL: | E32 E44 E58 F34 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1830&r=mac |
| By: | Vasilev, Aleksandar |
| Abstract: | We introduce progressive consumption taxation into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of of progressive taxation of consumption expenditures for the stabilization of cyclical fluctuations in Bulgaria. We find the quantitative effect of such a tax to be very small, and thus not important for either business cycle stabilization, or public finance issues. |
| Keywords: | business cycles,progressive consumption taxation,Bulgaria |
| JEL: | E24 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:187772&r=mac |
| By: | Mark Mink; Sebastiaan Pool |
| Abstract: | We integrate a banking sector in a standard New-Keynesian DSGE model, and examine how government policies to recapitalize banks after a crisis affect the supply of credit and the transmission of monetary policy. We examine two types of recapitalizations: immediate and delayed ones. In the steady state, both policies cause the banking sector to charge inefficiently low lending rates, which leads to an inefficiently large capital stock. Raising bank equity requirements reduces this dynamic inefficiency and increases lifetime utility. After the banking sector suffered large losses, a delay in recapitalizations creates banking sector debt-overhang. This debt-overhang leads to inefficiently high lending rates, which reduces the supply of credit and weakens the transmission of monetary policy to inflation (the transmission to output is largely unchanged). Raising bank equity requirements under these circumstances can cause lifetime utility to decline. Hence, the timing of bank recapitalizations after a crisis has several macro-economic implications. |
| Keywords: | bank recapitalizations; credit supply; monetary policy transmission; bank equity requirements; NK-DSGE models |
| JEL: | E30 E44 E52 E61 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:616&r=mac |
| By: | Benzoni, Luca (Federal Reserve Bank of Chicago); Chyruk, Olena (Federal Reserve Bank of Chicago); Kelley, David (Federal Reserve Bank of Chicago) |
| Abstract: | Why is an inverted yield-curve slope such a powerful predictor of future recessions? We show that a decomposition of the yield curve slope into its expectations and risk premia components helps disentangle the channels that connect fluctuations in Treasury rates and the future state of the economy. In particular, a change in the yield curve slope due to a monetary policy easing, measured by the current real-interest rate level and its expected path, is associated with an increase in the probability of a future recession within the next year. In contrast, a decrease in risk premia is associated with either a higher or lower recession probability, depending on the source of the decline. In recent years, a decrease in the inflation risk premium slope has been accompanied by a heightened risk of recession, while a lower real-rate risk premium slope is a signal of diminished recession probabilities. This means that not all declines in the yield curve slope are bad news for the economy, and not all instances of steepening are good news either. |
| Keywords: | Interest rates; yield-curve slope; recession forecasts; monetary policy; bond risk premia; policy path |
| JEL: | E32 E37 E44 E52 G10 G12 |
| Date: | 2018–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-15&r=mac |
| By: | Timothy S. Hills; Taisuke Nakata; Takeki Sunakawa |
| Abstract: | This paper characterizes optimal commitment policy in the New Keynesian model using a novel recursive formulation of the central bank's infinite horizon optimization problem. In our recursive formulation motivated by Kydland and Prescott (1980), promised inflation and output gap---as opposed to lagged Lagrange multipliers---act as pseudo-state variables. Using three well known variants of the model---one featuring inflation bias, one featuring stabilization bias, and one featuring a lower bound constraint on nominal interest rates---we show that the proposed formulation sheds new light on the nature of the intertemporal trade-off facing the central bank. |
| Keywords: | Commitment ; Inflation bias ; Optimal policy ; Ramsey plans ; Stabilization bias ; Zero lower bound |
| JEL: | E61 E63 E52 E32 E62 |
| Date: | 2018–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-83&r=mac |
| By: | Rym Aloui (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France ; Institut Universitaire de France) |
| Abstract: | We investigate the link between the size of government indebtedness and the effectiveness of government spending shocks in normal times and at the Zero Lower Bound (ZLB). We develop a New Keynesian model with capital, distortionary taxes and public debt in which the ZLB constraint on the nominal interest rate may be binding. In normal times, high steady-state levels of government debt to GDP lead to reduced output multipliers. After a negative capital quality shock that pushes the economy at the ZLB however, high steadystate debt levels produce larger output multipliers. Our results rely on the fact that fiscal policy becomes self-financing at the ZLB, and that distortionary taxes rise (respectively fall) after a spending shock at the steady state (resp. ZLB). Our results have non-trivial consequences on the design of optimized spending policies in the event of large economic downturns. |
| Keywords: | Zero Lower Bound, Fiscal Policy, Distortionary Taxes, Public Debt |
| JEL: | E62 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1831&r=mac |
| By: | Christopher L. House; Christian Proebsting; Linda L. Tesar |
| Abstract: | Unemployment differentials are bigger in Europe than in the United States. Migration responds to unemployment differentials, though the response is smaller in Europe. Mundell (1961) argued that factor mobility is a precondition for a successful currency union. We use a multi-country DSGE model with cross-border migration and search frictions to quantify the benefits of increased labor mobility in Europe and compare this outcome to a case of fully flexible exchange rates. Labor mobility and flexible exchange rates both work to reduce unemployment and per capita GDP differentials across countries provided that monetary policy is sufficiently responsive to national output. |
| JEL: | E24 E42 E52 E58 F15 F16 F22 F33 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25347&r=mac |
| By: | Stéphane Auray (CREST-Ensai and ULCO); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France ; Institut Universitaire de France); Paul Gomme (Concordia University and CIREQ) |
| Abstract: | Following the Great Recession, U.S. government debt levels exceeded 100% of output. We develop a macroeconomic model to evaluate the role of various shocks during and after the Great Recession; labor market shocks have the greatest impact on macroeconomic activity. We then evaluate the consequences of using alternative fiscal policy instruments to implement a fiscal austerity program to return the debt-output ratio to its pre-Great Recession level. Our welfare analysis reveals that there is not much difference between applying fiscal austerity through government spending, the labor income tax, or the consumption tax; using the capital income tax is welfare-reducing. |
| Keywords: | Fiscal policies, tax reforms, government debt, government deficits |
| JEL: | E24 E37 E62 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1829&r=mac |
| By: | Xiaodan Gao; Shaofeng Xu |
| Abstract: | We document countercyclical corporate saving behavior with the degree of countercyclicality varying nonmonotonically with firm size. We then develop a dynamic stochastic general equilibrium model with heterogeneous firms to explain the pattern and study its implications for business cycles. In the presence of financial frictions and fixed operating costs, a persistent negative productivity shock signals low future income and prompts firms to hold more cash in order to preserve financial flexibility and maintain normal operations. This countercyclicality exhibits a hump-shaped relation to firm size. Compared with mediumsized firms, small firms have a higher marginal product of capital and thus better investment opportunities, which compete for resources with cash, while large firms have more pledgeable assets and demand less cash. We find that, on average, firms accumulate cash by cutting investment and employment in recessions, which reduces aggregate output and increases economic fluctuations. Corporate saving, therefore, amplifies aggregate shocks. |
| Keywords: | Business fluctuations and cycles, Economic models |
| JEL: | E20 E22 E32 G31 G32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:18-59&r=mac |
| By: | Keating, John W.; Smith, Andrew Lee (Federal Reserve Bank of Kansas City) |
| Abstract: | This paper uses a New-Keynesian model with multiple monetary assets to show that if the choice of instrument is based solely on its propensity to predict macroeconomic targets, a central bank may choose an inferior policy instrument. We compare a standard interest rate rule to a k-percent rule for three alternative monetary aggregates determined within our model: the monetary base, the simple sum measure of money, and the Divisia measure. Welfare results are striking. While the interest rate dominates the other two monetary aggregate k-percent rules, the Divisia k-percent rule outperforms the interest rate rule. Next we study the ability of Granger Causality tests – in the context of data generated from our model – to correctly identify welfare improving instruments. All of the policy instruments considered, except for Divisia, Granger Cause both output and prices at extremely high levels of significance. Divisia fails to Granger Cause prices despite the Divisia rule stabilizing inflation better than these alternative policy instruments. The causality results are robust to using a popular version of the Sims Causality test for which we show standard asymptotics remain valid when the variables are integrated, as in our case. |
| Keywords: | Monetary Policy Instrument; Monetary Aggregates; Granger Causality |
| JEL: | C32 C43 E37 E44 E52 |
| Date: | 2018–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp18-11&r=mac |
| By: | William Chen (Williams College); Gregory Phelan (Williams College) |
| Abstract: | We theoretically investigate the state-dependent effects of monetary policy on macroeconomic instability. In the model, banks borrow using deposits and allocate resources to productive projects. Because banks do not actively issue equity, aggregate outcomes depend on the level of equity in the financial sector. Carefully targeted monetary policy can improve stability by increasing the rate of bank equity growth, and improve allocations by encouraging leverage when intermediation is needed. A fed put is generally stabilizing, but the marginal impact of a rate cut depends on the state of the economy. The effectiveness of monetary policy depends on the extent to which rate cuts pass through to bank returns. When banks are relatively well-capitalized, rate cuts primarily decrease banks' returns. In terms of welfare, the costs of "leaning against the wind" generally outweigh the benefits, but a fed put can improve outcomes if the costs of deviating from the inflation target are sufficiently small. |
| Keywords: | Monetary policy, Leaning against the wind, Financial stability, Macroeconomic instability, Banks, Liquidity |
| JEL: | E44 E52 E58 G01 G12 G20 G21 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2018-06&r=mac |
| By: | Dominika Kolcunova; Tomas Havranek |
| Abstract: | This paper focuses on the estimation of the effective lower bound on the Czech National Bank's policy rate. The effective lower bound is determined by the value below which holding and using cash would be preferable to holding deposits with negative yields. This bound is approximated on the basis of the storage, insurance and transport costs of cash and the loss of convenience associated with cashless payments. This estimate is complemented by a calculation based on interest charges reflecting the impact of negative rates on banks' profitability. Overall, we get a mean of slightly below -1%, approximately in the interval (-2.0%, -0.4%). In addition, by means of a vector autoregression we show that the potential of negative rates is not sufficient to deliver monetary policy easing similar in its effects to the impact of the Czech National Bank's exchange rate commitment during the years 2013-2017. |
| Keywords: | Costs of cash, effective lower bound, negative interest rates, transmission of monetary policy, zero lower bound |
| JEL: | E43 E44 E52 E58 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2018/9&r=mac |
| By: | Cui, Wei; Sterk, Vincent |
| Abstract: | Abstract Is Quantitative Easing (QE) an effective substitute for conventional monetary policy? We study this question using a quantitative heterogeneous-agents model with nominal rigidities, as well as liquid and partially liquid wealth. The direct effect of QE on aggregate demand is determined by the difference in marginal propensities to consume out of the two types of wealth, which is large according to the model and empirical studies. A comparison of optimal QE and interest rate rules reveals that QE is indeed a very powerful instrument to anchor expectations and to stabilize output and inflation. However, QE interventions come with strong side effects on inequality, which can substantially lower social welfare. A very simple QE rule, which we refer to as Real Reserve Targeting, is approximately optimal from a welfare perspective when conventional policy is unavailable. We further estimate the model on U.S. data and find that QE interventions greatly mitigated the decline in output during the Great Recession. |
| Keywords: | HANK; Large-scale asset purchases; monetary policy |
| JEL: | E21 E30 E50 E58 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13322&r=mac |
| By: | Melcangi, Davide (Federal Reserve Bank of New York) |
| Abstract: | This paper studies the link between firm-level financial constraints and employment decisions, as well as the implications for the propagation of aggregate shocks. I exploit the idea that, when the financial constraint binds, a firm adjusts its employment in response to cash flow shocks. I identify such shocks from changes to business rates, a U.K. tax based on a periodically estimated value of the property occupied by the firm. A 2010 revaluation implied that similar firms, occupying similar properties in narrowly defined geographical locations, experienced different tax changes, allowing me to control for confounding shocks to local demand. I find that, on average, for every £1 of additional cash flow, 39 pence are spent on employment. I label this response the marginal propensity to hire (MPH). I then calibrate a firm dynamics model with financial frictions toward this empirical evidence. As in the data, small and leveraged firms in the model have a greater MPH. Simulating a tightening of credit conditions, I find that the model can account for much of the decline in U.K. aggregate output and employment observed in the wake of the financial crisis. |
| Keywords: | financial frictions; employment; heterogeneous firms |
| JEL: | E24 E44 G01 G32 |
| Date: | 2018–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:875&r=mac |
| By: | Martina Cecioni (Bank of Italy) |
| Abstract: | This paper tests whether the effects of ECB monetary policy vary over different phases of the business cycle. It uses local projections to estimate the state-dependent impulse responses of economic activity and prices to monetary policy shocks. These are identified through high-frequency financial market responses after Governing Council meetings. While the impact of monetary policy on economic activity is roughly similar during recessions and expansions, prices respond more strongly during booms. The result holds when the state of the economy is based on measures of resource utilization, rather than on GDP growth rates. Nominal wages also respond more strongly to monetary policy during expansions and when there is no slack in the economy. The empirical findings are consistent with the presence of downward rigidity on nominal wages. |
| Keywords: | monetary policy, business cycle |
| JEL: | E52 E32 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1202_18&r=mac |
| By: | Zsolt Darvas |
| Abstract: | This Policy Contribution was prepared for the Nomura Foundation’s Macro Economy Research Conference - ‘Monetary Policy Normalization Ten Years after the Great Recession’, 24 October 2018, Tokyo. Financial support from the Nomura Foundation is gratefully acknowledged. We consider the lessons of the recent monetary policy normalisation experiences of Sweden, the United States and the United Kingdom, and analyse the European Central Bank’s forecasting track record and possible factors that might explain the forecast errors. From this analysis, we draw the following main conclusions - Monetary tightening involves major risks when the evidence of an improved inflation outlook is not sufficiently strong; it is better to err on the side of a possible inflation overshoot after a long period of undershooting; Inadequate forward guidance can cause market turbulence; Market participants might disregard forward guidance after large systematic forecast errors; Terminating net asset purchases might not increase long-term rates, though it might have an impact on other asset prices because of the lack of portfolio rebalancing; The ECB has made huge and systematic forecasting errors in the past five years, indicating that some of the behavioural relationships in ECB forecasting models are mis-specified. The ECB is not the only institution to suffer from incorrect forecasts and there should be broader debate on forecasting practices. However, the ECB’s forecast errors and its inability to lift core inflation above 1 percent have major implications; Market-based inflation expectations have already started to fall in the euro area, suggesting that the trust has weakened in the ECB’s ability to reach its inflation aim of the below but close to two percent over the medium term; More time is needed to see if the forecasting failures of the past five years were driven by factors whose impact will gradually fade away, or if the ECB’s ability to lift core inflation has been compromised; In the meantime, a very cautious approach to monetary policy normalisation is recommended. A rate increase is only recommended after a significant increase in actual core inflation. This intention should be made clear in the ECB’s forward guidance; If forecasting failures continue and core inflation does not approach two percent, the ECB’s credibility could be undermined, making necessary a discussion on either the deployment of new tools to influence core inflation, or a possible revision of the ECB’s inflation goal; In the new ‘normal’ the natural rate of interest might remain low, and thereby central bank balance sheet policies will likely became part of the regular toolkit; Monetary policy tools are ill-suited to address financial stability concerns in general, especially in the euro area. Financial stability concerns should not play a role in monetary policy normalisation. Instead, country-specific macroprudential policy should complement micro-prudential supervision and regulation. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:28816&r=mac |
| By: | Fiorella De Fiore; Marie Hoerova; Harald Uhlig |
| Abstract: | Interbank money markets have been subject to substantial impairments in the recent decade, such as a decline in unsecured lending and substantial increases in haircuts on posted collateral. This paper seeks to understand the implications of these developments for the broader economy and monetary policy. To that end, we develop a novel general equilibrium model featuring heterogeneous banks, interbank markets for both secured and unsecured credit, and a central bank. The model features a number of occasionally binding constraints. The interactions between these constraints - in particular leverage and liquidity constraints - are key in determining macroeconomic outcomes. We find that both secured and unsecured money market frictions force banks to either divert resources into unproductive but liquid assets or to de-lever, which leads to less lending and output. If the liquidity constraint is very tight, the leverage constraint may turn slack. In this case, there are large declines in lending and output. We show how central bank policies which increase the size of the central bank balance sheet can attenuate this decline. |
| JEL: | E44 E58 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25319&r=mac |
| By: | John Geanakoplos (Cowles Foundation, Yale University); Kieran Haobin Wang (International Monetary Fund) |
| Abstract: | The steady application of Quantitative Easing (QE) has been followed by big and non-monotonic e?ects on international asset prices and international capital flows. These are di?icult to explain in conventional models, but arise naturally in a model with collateral. This paper develops a general-equilibrium framework to explore QE’s international transmission involving an advanced economy (AE) and an emerging market economy (EM) whose assets have less collateral capacity. Capital flows arise as a result of international sharing of scarce collateral. The crucial insight is that private AE agents adjust their portfolios in di?erent ways in response to QE, conditional on whether they are (i) fully leveraged, (ii) partially leveraged or (iii) unleveraged. These portfolio shifts of international assets can diminish or even reverse the e?ectiveness of ever-larger QE interventions on asset prices. The model provides a simultaneous interpretation of several important stylized facts associated with QE. |
| Keywords: | Quantitative easing, Collateral, Leverage, Financial spillovers, Emerging markets, Capital flows |
| JEL: | D52 D53 E32 E44 E52 F34 F36 G01 G11 G12 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2154&r=mac |
| By: | Philippe Bacchetta; Yannick Kalantzis |
| Abstract: | In this paper we analyze the implications of a persistent liquidity trap in a monetary model with asset scarcity. We show that a liquidity trap may lead to an increase in real cash holdings and be associated with a decline in output in the medium term. This medium-term impact is a supply-side effect that may arise when agents are heterogeneous. It occurs in particular with a persistent deleveraging shock, leading investors to hold cash yielding a low return. Policy implications differ from shorter-run analyses implied by nominal rigidities. Quantitative easing leads to a deeper liquidity trap. Exiting the trap by increasing expected inflation or applying negative interest rates does not solve the asset scarcity problem. |
| Keywords: | Zero lower bound, liquidity trap, asset scarcity, deleveraging. |
| JEL: | E40 E22 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:703&r=mac |
| By: | Li, Bing; Pei, Pei; Tan, Fei |
| Abstract: | Is inflation ‘always and everywhere a monetary phenomenon’ or is it fundamentally a fiscal phenomenon? This article augments a standard monetary model to incorporate fiscal details and credit market frictions. These ingredients allow for both interpretations of the inflation process in a financially constrained environment. We find that adding financial frictions to the model generates important identifying restrictions on the observed pattern between inflation and measures of financial and fiscal stress, to the extent that it can overturn existing findings about which monetary-fiscal policy regime produced the pre-crisis U.S. data. |
| Keywords: | monetary and fiscal policy, financial frictions, marginal likelihood |
| JEL: | C52 E44 E62 E63 H63 |
| Date: | 2018–04–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90486&r=mac |
| By: | Gopi Kumar Bulusu (A First Institute for Geo Economic Studies, Gravity 2.0 Research Foundation) |
| Abstract: | This paper lays the core foundation for a new general theory of equilibrium; The paper defines and describes macroeconomic concepts of Return on Savings (#RoS), Return on Investment (#RoI) and Return on Innovation (#RoIn) and explains an equilibrium between return on economy (#RoE) or GDP growth and the geometric mean of RoS, RoI and RoIn; The paper then goes on to show why central banks should stay away from interest rate management |
| Keywords: | Monetary Policy, Interest Rates, Equilibrium, Return on Innovation |
| JEL: | E52 E62 E43 O38 O40 C50 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ige:opaper:0001&r=mac |
| By: | Cukierman, Alex |
| Abstract: | This paper reviews the interactions between policymaking, the financial system and the U.S. economy before, during and after the subprime crisis with particular attention to current controversies about the policy decisions that led to Lehman's downfall and their lessons for the future. The first part of the paper documents and analyzes the interactions between policy, financial markets and the economy during the acute and subsequent moderate phases of the crisis as well as during the later gradual exit from the zero lower bound and the extremely slow reduction in high powered money and bank reserves. The remaining parts develop alternative aspects of the thesis that mutual uncertainties inflicted by financial institutions on policymakers and by the latter on financial markets were at the root of the non-negligible surprises that the crisis inflicted on everybody. In particular, it discusses the political economy of bailout operations, reviews and evaluates recent controversies about the reasons for not rescuing Lehman Brothers and present informally the structure and policy lessons from a general equilibrium model of the financial sector which highlights the consequences of policy actions that have raised (Knightian) bailout uncertainty. The last section takes a brief look ahead and discusses some longer term consequences of the crisis. |
| Keywords: | bailouts; banks' reserves; credit; exit; financial crisis; monetary policy; uncertainty |
| JEL: | E51 E52 E58 E65 G1 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13373&r=mac |
| By: | Giroud, Xavier; Mueller, Holger M |
| Abstract: | This paper shows that buildups in firm leverage predict subsequent declines in aggregate regional employment. Using confidential establishment-level data from the U.S. Census Bureau, we exploit regional heterogeneity in leverage buildups by large U.S. publicly listed firms, which are widely spread across U.S. regions. For a given region, our results show that increases in firms' borrowing are associated with "boom-bust" cycles: employment grows in the short run but declines in the medium run. Across regions, our results imply that regions with larger buildups in firm leverage exhibit stronger short-run growth, but also stronger medium-run declines, in aggregate regional employment. We obtain similar results if we condition on national recessions-regions with larger buildups in firm leverage prior to a recession experience larger employment losses during the recession. When comparing regional firm and household leverage growth, we find qualitatively similar patterns for both. Finally, we find that regions whose firm leverage growth comoves more strongly also exhibit stronger comovement in their regional business cycles. |
| Keywords: | Business Cycles; Firm leverage |
| JEL: | E24 E32 G32 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13355&r=mac |
| By: | Marc Hofstetter; José Nicolás Rosas |
| Abstract: | What are the tradeoffs that the public is willing to accept between inflation and unemployment? We find that people dislike unemployment more than inflation. This is true for both Europe and Latin America. For the latter, the aversion to unemployment relative to inflation is much greater. Moreover, in both regions, the poor’s distaste for unemployment relative to inflation is significantly greater than that of the rich. This result contributes to the literature on the costs of inflation and questions the commonly held view that prescribes strong anti-inflationary postures as a way to implement policies consistent with the preferences of the poor. |
| Keywords: | Monetary Policy, Central Banks, Inflation, Phillips Curve, Wellbeing, Income Distribution, Política monetaria, Bancos centrales, Inflación, Curva de Phillips, Bienestar, Distribución del ingreso |
| JEL: | E24 E31 E52 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:2&r=mac |
| By: | Xavier Freixas; David Perez-Reyna |
| Abstract: | We provide a microfounded framework for the welfare analysis of macroprudential policy by means of an overlapping generation model where productivity and credit supply are subject to random shocks in order to analyze rational bubbles that can be fueled by banking credit. We find that credit financed bubbles may be welfare improving because of their role as a buffer in channeling excessive credit supply and inefficient investment at the firms' level, but can cause systemic risk. Therefore macroprudential policy plays a key role in improving efficiency while preserving financial stability. Our approach allows us to compare the efficiency of alternative macroprudential policies. Contrarily to conventional wisdom, we show that macroprudential policy may be efficient even in the absence of systemic risk, that it has to be contingent on productivity shocks, to take into account real interest rates. |
| Keywords: | Bank, bubble, macroprudential regulation |
| JEL: | E44 E60 G18 G21 G28 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:rie:riecdt:3&r=mac |
| By: | Koeniger, Winfried; Ramelet, Marc-Antoine |
| Abstract: | We present empirical evidence on the heterogeneity in monetary policy transmission across countries with different home ownership rates. We use household-level data together with shocks to the policy rate identified from high-frequency data. We find that housing tenure reacts more strongly to unexpected changes in the policy rate in Germany and Switzerland - the OECD countries with the lowest home ownership rates - compared with existing evidence for the U.S. An unexpected decrease in the policy rate by 25 basis points increases the home ownership rate by 0.8 percentage points in Germany and by 0.6 percentage points in Switzerland. The response of non-housing consumption in Switzerland is less heterogeneous across renters and mortgagors, and has a different pattern across age groups than in the U.S. We discuss economic explanations for these findings and implications for monetary policy. |
| Keywords: | Monetary policy transmission,Home ownership,Housing tenure,Consumption |
| JEL: | E21 E52 R21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:615&r=mac |
| By: | Koeniger, Winfried (University of St. Gallen); Ramelet, Marc-Antoine (University of St. Gallen) |
| Abstract: | We present empirical evidence on the heterogeneity in monetary policy transmission across countries with different home ownership rates. We use household-level data together with shocks to the policy rate identified from high-frequency data. We find that housing tenure reacts more strongly to unexpected changes in the policy rate in Germany and Switzerland - the OECD countries with the lowest home ownership rates - compared with existing evidence for the U.S. An unexpected decrease in the policy rate by 25 basis points increases the home ownership rate by 0.8 percentage points in Germany and by 0.6 percentage points in Switzerland. The response of non-housing consumption in Switzerland is less heterogeneous across renters and mortgagors, and has a different pattern across age groups than in the U.S. We discuss economic explanations for these findings and implications for monetary policy. |
| Keywords: | monetary policy transmission, home ownership, housing tenure, consumption |
| JEL: | E21 E52 R21 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11950&r=mac |
| By: | de Vette, Nander; Petersen, Annelie; Stan Olijslager, Stan; van Wijnbergen, Sweder |
| Abstract: | We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several messages emerge from the analysis. Announcing policies in general terms without precisely describing what exactly they entail does not move asset markets or actually increases crash risk. Also, policies directly focused on changing relative asset supplies do seem to have an impact, while measures aiming at easing financing costs of commercial banks do not. |
| Keywords: | Exchange Rate Crash Risk; mixed diffusion jump risk models; Quantitative easing; risk reversals; unconventional monetary policies |
| JEL: | E44 E52 E58 E65 G12 G13 G14 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13371&r=mac |
| By: | Stan Olijslagers (UvA); Annelie Petersen (DNB); Nander de Vette (DNB); Sweder (S.J.G.) van Wijnbergen (UvA, CEPR, DNB) |
| Abstract: | We use a series of different approaches to extract information about crash risk from option prices for the Euro-Dollar exchange rate, with each step sharpening the focus on extracting more specific measures of crash risk around dates of ECB measures of Unconventional Monetary Policy. Several messages emerge from the analysis. Announcing policies in general terms without precisely describing what exactly they entail does not move asset markets or actually increases crash risk. Also, policies directly focused on changing relative asset supplies do seem to have an impact, while measures aiming at easing financing costs of commercial banks do not. |
| Keywords: | Quantitative Easing; Unconventional Monetary Policies; Exchange Rate Crash Risk; risk reversals; mixed diffusion jump risk models |
| JEL: | E44 E52 E58 E65 G12 G13 G14 |
| Date: | 2018–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180096&r=mac |
| By: | Efrem Castelnuovo; Guay C. Lim |
| Abstract: | This article reviews recent research findings on the effects of fiscal multipliers in normal times, during booms/busts, and in the presence of the zero lower bound. Studies on the effects of fiscal policy in open economy settings as well as contributions on the fiscal-monetary policy mix are also considered. We conclude by outlining a few research avenues that are particularly relevant from a policy standpoint. |
| Keywords: | fiscal multipliers, business cycle, fiscal spending taxes, monetary policy |
| JEL: | E30 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7366&r=mac |
| By: | Nelson, Benjamin (Rokos Capital); Pinter, Gabor (Bank of England) |
| Abstract: | We examine macroprudential bank capital policy in a macroeconomic model with a financial accelerator originating in the banking sector. Under Ramsey-optimal policy, the bank capital buffer tracks closely a model-based measure of the credit gap, defined as the gap between equilibrium credit in the economy featuring financial frictions and that in a hypothetical frictionless economy. Simple rules that vary the capital buffer in response to the credit gap perform worse than Ramsey policy, but only modestly so. When monetary policy controls inflation less aggressively, optimal macroprudential responses are smaller. Optimal macroprudential policy operates at a lower frequency than monetary policy. |
| Keywords: | Macroprudential policy; bank capital; monetary policy |
| JEL: | E50 G20 |
| Date: | 2018–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0770&r=mac |
| By: | Lydon, Reamonn (Central Bank of Ireland); Mathä, Thomas (Banque Centrale du Luxembourg); Millard, Stephen (Bank of England) |
| Abstract: | Using firm-level data from a large-scale European survey among 20 countries, we analyse the determinants of firms using short-time work (STW). We show that firms are more likely to use STW in case of negative demand shocks. We show that STW schemes are more likely to be used by firms with high degrees of firm-specific human capital, high firing costs, and operating in countries with stringent employment protection legislation and a high degree of downward nominal wage rigidity. STW use is higher in countries with formalised schemes and in countries where these schemes were extended in response to the recent crisis. On the wider economic impact of STW, we show that firms using the schemes are significantly less likely to lay off permanent workers in response to a negative shock, with no impact for temporary workers. Relating our STW take-up measure in the micro data to aggregate data on employment and output trends, we show that sectors with a high STW take-up exhibit significantly less cyclical variation in employment. |
| Keywords: | Firms; survey; crisis; short-time work; wages; recession |
| JEL: | C25 E24 J63 J68 |
| Date: | 2018–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0771&r=mac |
| By: | Reamonn Lydon; Thomas Y. Mathä; Stephen Millard |
| Abstract: | Using firm-level data from a large-scale European survey among 20 countries, we analyse the determinants of firms using short-time work (STW). We show that firms are more likely to use STW in case of negative demand shocks. We show that STW schemes are more likely to be used by firms with high degrees of firm-specific human capital, high firing costs, and operating in countries with stringent employment protection legislation and a high degree of downward nominal wage rigidity. STW use is higher in countries with formalised schemes and in countries where these schemes were extended in response to the recent crisis. On the wider economic impact of STW, we show that firms using the schemes are significantly less likely to lay off permanent workers in response to a negative shock, with no impact for temporary workers. Relating our STW take-up measure in the micro data to aggregate data on employment and output trends, we show that sectors with a high STW take-up exhibit significantly less cyclical variation in employment. |
| Keywords: | Firms, survey, crisis, short-time work, wages, recession. |
| JEL: | C25 E24 J63 J68 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp124&r=mac |
| By: | Charles M. Kahn; Francisco Rivadeneyra; Tsz-Nga Wong |
| Abstract: | Should a central bank take over the provision of e-money, a circulable electronic liability? We discuss how e-money technology changes the tradeoff between public and private provision, and the tradeoff between e-money and a central bank's existing liabilities like bank notes and reserves. The tradeoffs depend on i) the technological setup of the e-money system (as a token or an account; centralized or decentralized); ii) the potential improvement in the implementation and transmission of monetary policy; iii) the risks to safety and privacy from cyber attacks; and iv) the uncertain impact on banks’ efficiency and financial stability. The most compelling argument for central banks to issue e-money is to address competition problems in the banking sector. |
| Keywords: | Bank notes, Digital Currencies, Financial services, Payment clearing and settlement systems |
| JEL: | E42 E51 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:18-58&r=mac |
| By: | International Monetary Fund |
| Abstract: | The Papua New Guinea (PNG) economy has grown sluggishly in recent years, reflecting a combination of domestic and external factors. External factors have included adverse terms of trade movements, a drought, and, in 2018, a large earthquake. Domestic factors have included a difficult fiscal consolidation and a shortage of foreign exchange, sustained by an overvalued exchange rate, leading to import compression and weak investment in the non-resource sector. The main macroeconomic challenges for the government are to finish putting in place policies that will help promote economic stability, and to strengthen its long-term development framework. In 2017-18, the new government made important progress in narrowing the fiscal deficit, and adopted a medium-term revenue strategy. But progress on fiscal consolidation has stalled, and the debt-to-GDP ratio is well above the medium-term target. Monetary authorities have begun to facilitate exchange rate adjustment and strengthening of the monetary framework. Stronger economic policies, involving more ambitious fiscal consolidation coupled with faster exchange rate adjustment would yield favorable results. |
| Date: | 2018–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/352&r=mac |
| By: | Mengheng Li (Economics Discipline Group, University of Technology Sydney); Irma Hindrayanto (Economic Research and Policy Division, De Nederlandsche Bank, The Netherlands) |
| Abstract: | Natural rate of interest or r-star and the natural rate of output growth are important policy benchmarks widely used by central banks to determine the stance of an economy. It is well recognized that r-star, linearly related to the natural rate of output growth within the New Keynesian framework, is subject to low-frequency fl uctuations. To track its evolution over time, we propose an unobserved components model with similar cycles based on the work of Holston et al. (2017). Our model takes an estimate of the time-varying natural rate of output growth as input via a first-stage model based on a first-difference version of Okun's law with time-varying parameters. In the second-stage, the full model is estimated using Kalman filter. We also show that the similar cycles imply a Taylor rule and a hybrid New Keynesian Phillips curve. For US, EA and UK, our estimates suggest that the decline of natural rate of output growth started from the 1960s, while r-star for US and EA started to fall from 1985. R-star of UK started low during 1960s, but rose and stayed relatively high in the 80s until a big drop took place during the GFC. |
| Keywords: | Natural rate of interest; Potential growth rate; Trend growth; Secular stagnation; Phillips curve; Monetary policy rules; Unobserved components models; Similar cycles; Kalman filter |
| JEL: | C32 E43 E52 O40 |
| Date: | 2018–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:51&r=mac |
| By: | Kukacka, Jiri; Jang, Tae-Seok; Sacht, Stephen |
| Abstract: | In this paper, we introduce the simulated maximum likelihood method for identifying behavioral heuristics of heterogeneous agents in the baseline three-equation New Keynesian model. The method is extended to multivariate macroeconomic optimization problems, and the estimation pro-cedure is applied to empirical data sets. This approach considerably relaxes restrictive theoretical assumptions and enables a novel estimation of the intensity of choice parameter in discrete choice. In Monte Carlo simulations, we analyze the properties and behavior of the estimation method, which provides important information on the behavioral parameters of the New Keynesian model. However, the curse of dimensionality arises via a consistent downward bias for idiosyncratic shocks. Our empirical results show that the forward-looking version of both the behavioral and the rational model specifications exhibits good performance. We identify potential sources of misspecification for the hybrid version. A novel feature of our analysis is that we pin down the switching parameter for the intensity of choice for the Euro Area and US economy. |
| Keywords: | Behavioral Heuristics,Intensity of Choice,Monte Carlo Simulations,New-Keynesian Model,Simulated Maximum Likelihood |
| JEL: | C53 D83 E12 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201811&r=mac |
| By: | Konstantakis, Konstantinos N.; Michaelides, Panayotis G.; Mariolis, Theodore |
| Abstract: | Since its original formulation, Goodwin’s (1967) approach became a standard endogenous business cycles model. However, despite its elegant mathematical formulation, the empirical estimation of Goodwin-type models has not always ended up in success. The present paper uses the so-called Bhaduri-Marglin accumulation function in Goodwin’s original growth cycle model. Based on its derived equations of motion and dynamic properties, we econometrically estimate the proposed model for the case of the US economy in the time period 1960-2012, using structural breaks. The empirical estimation is very satisfactory and, in general terms, consistent with economic theory and the findings by other researchers on the US economy. The results of this work suggest that the proposed approach is an appropriate vehicle for expanding and improving traditional Goodwin-type models. |
| Keywords: | Bhaduri-Marglin accumulation function, Goodwin type models, US economy JEL classification: |
| JEL: | B51 C62 C67 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90036&r=mac |
| By: | Florian Urbschat |
| Abstract: | The recent negative interest rate policy (NIRP) and quantitative easing (QE) programme by the ECB have raised concerns about the pass-through of monetary policy. On the one hand, negative rates could lead to declining bank profitability making an expansionary monetary policy contractionary. Also, if interest rates are too low for too long banks could be induced to take too much risky credit. On the other hand, several economists argue that there is nothing special about negative interest rates per se. This paper uses a large micro level data set of the German bank universe to examine how banks behave in this uncharted territory. The evidence found suggests that bank’s business model, i.e. the share of overnight deposits, plays a crucial role. While some banks may benefit in the short run via for instance reduced refinancing costs or lower loan loss provisions, many banks with high deposit ratios face lower net interest income and lower credit growth rates. If continued for too long QE and NIRP erode bank profits for most banks eventually. |
| Keywords: | negative interest rate policy, banks’ profitability, net interest rate margin, risk-taking channel |
| JEL: | C53 E43 E52 G11 G21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7358&r=mac |
| By: | Leuz, Christian; Granja, João |
| Abstract: | An important question in banking is how strict supervision affects bank lending and in turn local business activity. Forcing banks to recognize losses could choke off lending and amplify local economic woes, especially after financial crises. But stricter supervision could also lead to changes in how banks assess loans and manage their loan portfolios. Estimating such effects is challenging. We exploit the extinction of the thrift regulator (OTS) - a large change in prudential supervision, affecting ten percent of all U.S. depository institutions. Using this event, we analyze economic links between strict supervision, bank lending and business activity. We first show that the OTS replacement indeed resulted in stricter supervision of former OTS banks. We then analyze the lending effects of this regulatory change and show that former OTS banks increase small business lending by approximately 10 percent. This increase stems primarily from wellcapitalized banks and those more affected by the new regime. These findings suggest that stricter supervision operates not only through capital but can also overcome frictions in bank management, leading to more lending and a reallocation of loans. Consistent with the latter, we find increases in business entry and exit in counties with greater expose to OTS banks. |
| Keywords: | Bank regulation,Enforcement,Loan Losses,Aggregate outcomes,Prudential oversight,Business lending,Entry and exit |
| JEL: | E44 E51 G21 G28 G31 G38 K22 K23 L51 M41 M48 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:610&r=mac |
| By: | Chari, V. V. (Federal Reserve Bank of Minneapolis); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Teles, Pedro (Banco de Portugal) |
| Abstract: | We revisit the question of how capital should be taxed. We allow for a rich set of tax instruments that consists of taxes widely used in practice, including consumption, dividend, capital, and labor income taxes. We restrict policies to respect promises that the government has made in the previous period regarding the current value of wealth. We show that capital should not be taxed if households have preferences that are standard in the macroeconomics literature. We show that Ramsey outcomes that must respect such promises are time consistent. We show that the presumption in the literature that capital should be taxed for some length of time arises because the tax system is restricted. |
| Keywords: | Capital income tax; Time consistency; Production efficiency |
| JEL: | E60 E61 E62 |
| Date: | 2018–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:571&r=mac |
| By: | Vladimir Asriyan; Luc Laeven; Alberto Martin |
| Abstract: | We develop a new theory of information production during credit booms. In our model, entrepreneurs need credit to undertake investment projects, some of which enable them to divert resources towards private consumption. Lenders can protect themselves from such diversion in two ways: collateralization and costly screening, which generates durable information about projects. In equilibrium, the collateralization-screening mix depends on the value of aggregate collateral. High collateral values raise investment and economic activity, but they also raise collateralization at the expense of screening. This has important dynamic implications. During credit booms driven by high collateral values (e.g. real estate booms), the economy accumulates physical capital but depletes information about investment projects. As a result, collateral-driven booms end in deep crises and slow recoveries: when booms end, investment is constrained both by the lack of collateral and by the lack of information on existing investment projects, which takes time to rebuild. We provide new empirical evidence using US rm-level data in support of the model's main mechanism. |
| Keywords: | Credit booms, collateral, information production, crises, misallocation. |
| JEL: | E32 E44 G01 D80 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1622&r=mac |
| By: | Bassetto, Marco (Federal Reserve Bank of Chicago); Huo, Zhen (Yale University); Rios-Rull, Jose-Victor (University of Pennsylvania) |
| Abstract: | This paper proposes a new equilibrium concept - organizational equilibrium - for models with state variables that have a time inconsistency problem. The key elements of this equilibrium concept are: (1) agents are allowed to ignore the history and restart the equilibrium; (2) agents can wait for future agents to start the equilibrium. We apply this equilibrium concept to a quasi-geometric discounting growth model and to a problem of optimal dynamic fiscal policy. We find that the allocation gradually transits from that implied by its Markov perfect equilibrium towards that implied by the solution under commitment, but stopping short of the Ramsey outcome. The feature that the time inconsistency problem is resolved slowly over time rationalizes the notion that good will is valuable but has to be built gradually. |
| Keywords: | Capital; fiscal policy; Markov equilibrium; Quasi-geometry |
| JEL: | C62 E22 E62 |
| Date: | 2018–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-20&r=mac |
| By: | Baker, Scott R. (Northwestern University); Kueng, Lorenz (Northwestern University); McGranahan, Leslie (Federal Reserve Bank of Chicago); Melzer, Brian T. (Dartmouth College) |
| Abstract: | When the zero lower bound on nominal interest rate binds, monetary policy makers may lack traditional tools to stimulate aggregate demand. We investigate whether “unconventional” fiscal policy, in the form of pre-announced consumption tax changes, has the potential to meaningfully shift durables purchases intertemporally and how it is affected by consumer credit. In particular, we test whether car sales react in anticipation of future sales tax changes, leveraging 57 pre-announced changes in state sales tax rates from 1999-2017. We find evidence for substantial tax elasticities, with car sales rising by over 8% in the month before a 1% increase in the sales tax rate. Responses are heterogeneous across households and sensitive to supply of credit. Consumers with high credit risk scores are most able to pull purchases forward. At the same time, other effects such as customer composition and attention lead to an even larger tax elasticity during recessions, despite these credit frictions. We discuss policy implications and the likely magnitudes of tax changes necessary for any substantive long-term responses. |
| Keywords: | counter-cyclical fiscal policy; credit market frictions; consumer durables; household; fiscal policy |
| JEL: | D12 E21 G01 G11 H31 |
| Date: | 2018–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-16&r=mac |
| By: | Stefan Homburg |
| Abstract: | This paper shows that the eurozone payment system does not effectively protect member states from speculative attacks. Suspicion of a departure from the common currency induces a terminal outflow of central bank money in weaker member states. TARGET2 cannot inhibit this drain but only protects central bank assets. Evidence presented here suggests that a run on Italy is already on the way. The paper also considers departure strategies of strong and weak member states and the distributive effects of an orderly eurozone dissolution. |
| Keywords: | currency speculation, TARGET2, eurozone, Italexit, dexit, trilemma |
| JEL: | E52 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7343&r=mac |
| By: | Farhi, Emmanuel (Harvard University); Gourio, Francois (Federal Reserve Bank of Chicago) |
| Abstract: | Real risk-free interest rates have trended down over the past 30 years. Puzzlingly in light of this decline, (1) the return on private capital has remained stable or even increased, creating an increasing wedge with safe interest rates; (2) stock market valuation ratios have increased only moderately; (3) investment has been lackluster. We use a simple extension of the neoclassical growth model to diagnose the nexus of forces that jointly accounts for these developments. We find that rising market power, rising unmeasured intangibles, and rising risk premia, play a crucial role, over and above the traditional culprits of increasing savings supply and technological growth slowdown. |
| Keywords: | investment; equity premium; risk-free rate; profitability; valuation ratios; labor share; competition; markups; safe assets |
| JEL: | E32 G12 |
| Date: | 2018–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-19&r=mac |
| By: | Winfried Koeniger; Marc-Antoine Ramelet |
| Abstract: | We present empirical evidence on the heterogeneity in monetary policy transmission across countries with different home ownership rates. We use household-level data together with shocks to the policy rate identified from high-frequency data. We find that housing tenure reacts more strongly to unexpected changes in the policy rate in Germany and Switzerland –the OECD countries with the lowest home ownership rates– compared with existing evidence for the U.S. An unexpected decrease in the policy rate by 25 basis points increases the home ownership rate by 0.8 percentage points in Germany and by 0.6 percentage points in Switzerland. The response of non-housing consumption in Switzerland is less heterogeneous across renters and mortgagors, and has a different pattern across age groups than in the U.S. We discuss economic explanations for these findings and implications for monetary policy. |
| Keywords: | monetary policy transmission, home ownership, housing tenure, consumption |
| JEL: | F21 E52 R21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7361&r=mac |
| By: | Dixon, Robert; Lim, Guay C.; van Ours, Jan C. |
| Abstract: | This paper studies the relationship between the change in the unemployment rate and output growth using an approach based on labor market flows. The framework shows why the Okun coefficient may be constant/time-varying and/or symmetric/asymmetric and that the outcome lies with the behavior of the labor flows in response to growth. The encompassing framework nests the conditions to determine the properties of the Okun coefficient without the need to rely on retrospective arbitrary dating of recessions. The framework also highlights the potential misspecification in conventional models of Okun's Law unless stringent conditions are assumed about the behavior of labor flows. The empirical analysis is based on the stock-consistent labor market flows data developed by the BLS for the period 1990:2-2017:3. |
| Keywords: | Asymmetry; Labor flows; Time-varying Okun |
| JEL: | E24 E32 J21 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13369&r=mac |
| By: | Guay C. Lim (Melbourne Institute of Applied Economic and Social Research); Robert Dixon (University of Melbourne); Jan (J.C.) van Ours (Erasmus University Rotterdam) |
| Abstract: | This paper studies the relationship between the change in the unemployment rate and output growth using an approach based on labor market flows. The framework shows why the Okun coefficient may be constant/time-varying and/or symmetric/asymmetric and that the outcome lies with the behavior of the labor flows in response to growth. The encompassing framework nests the conditions to determine the properties of the Okun coefficient without the need to rely on retrospective arbitrary dating of recessions. The framework also highlights the potential misspecification in conventional models of Okun's Law unless stringent conditions are assumed about the behavior of labor flows. The empirical analysis is based on the stock-consistent labor market flows data developed by the BLS for the period 1990:2-2017:3. |
| Keywords: | Labor flows; Time-varying Okun; Asymmetry |
| JEL: | E24 E32 J21 |
| Date: | 2018–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20180097&r=mac |
| By: | Luo, Yulei; Nie, Jun (Federal Reserve Bank of Kansas City); Young, Eric R. |
| Abstract: | We build a robustness (RB) version of the Obstfeld (1994) model to study the effects of financial integration on growth and welfare. Our model can account for the empirically observed heterogeneity in the relationship between growth and volatility for different countries. The calibrated model shows that financial integration leads to significantly larger gains in growth and welfare for advanced countries than developing countries, with some developing countries experiencing growth and welfare loss in financial integration. Our analytical solutions help uncover the key mechanisms by which this happens. |
| Keywords: | Robustness; Model Uncertainty; Financial Integration; Risk Sharing; Economic Growth; Welfare |
| JEL: | C61 D81 E21 |
| Date: | 2018–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp18-12&r=mac |
| By: | Pavel Ciaian; d'Artis Kancs; Miroslava Rajcaniova |
| Abstract: | The present paper analyses the BitCoin price formation accounting for the both transaction demand and speculative demand. We apply a GARCH model to high frequency data for the period 2013–2018. In line with the theoretical model, our empirical results confirm that the BitCoin transaction demand and speculative demand for BitCoin have a statistically significant impact on the BitCoin price formation. The BitCoin price responds negatively to higher BitCoin velocity, whereas the BitCoin stock, interest rate and the size of the BitCoin economy exercise an upward pressure on the BitCoin price. |
| Keywords: | Virtual currencies, BitCoin returns, volatility, price formation, GARCH. |
| JEL: | E31 E42 G12 |
| Date: | 2018–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2018_14&r=mac |
| By: | Dewachter, Hans; Iania, Leonardo; Lemke, Wolfgang; Lyrio, Marco |
| Abstract: | We assess the contribution of economic and financial factors in the determination of euro area corporate bond spreads over the period 2001-2015. The proposed multi-market, no-arbitrage affine term structure model is based on the methodology proposed by Dewachter, Iania, Lyrio, and Perea (2015). We model jointly the ‘risk-free curve’, measured by overnight index swap (OIS) rates, and the corporate yield curves for two rating classes (A and BBB). The model includes four spanned and six unspanned factors. We find that, in general, both economic (real activity and inflation) and financial factors (proxying risk aversion, flight to liquidity and general financial market stress) play a significant role in the determination of the spanned factors and hence in the dynamics of the risk-free yield curve and corporate bond spreads. Across the risk-free OIS curve, macroeconomic and financial factors are each responsible on average for explaining 30 and 65 percent of yield varation, respectively. For A- and BBB-rated corporate debt, the selected financial variables explain on average 50 percent of the variation in corporate spreads during the last decade. JEL Classification: E43, E44 |
| Keywords: | euro area corporate bonds, unspanned macro factors, yield spread decomposition |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20182214&r=mac |
| By: | Marco Macchiavelli; Luke Pettit |
| Abstract: | We document several effects of the Liquidity Coverage Ratio (LCR) rule on dealers' financing and intermediation of securities. For identification, we exploit the fact that the US implementation is more stringent than that in foreign jurisdictions. In line with LCR incentives, US dealers reduce their reliance on repos as a way to finance inventories of high-quality assets and increase the maturity of lower-quality repos relative to foreign dealers; additionally, US dealers cut back on trades that downgrade their own collateral. Dealers are nevertheless still providing significant maturity transformation. We also show that significant de-risking occurs immediately after the 2007-09 crisis, before post-crisis regulations. |
| Keywords: | Basel III ; Broker-dealers ; Liquidity coverage ratio ; Repurchase agreements |
| JEL: | G28 E58 G24 |
| Date: | 2018–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-84&r=mac |
| By: | Taylor Webley |
| Abstract: | Existing home sales’ share of Canada’s economic pie has been rising in recent years, and variation around this trend has resulted in outsized contributions to changes in real gross domestic product (GDP). In this context, we use a cointegration framework to estimate the level of resale activity across the Canadian provinces that is supported by fundamentals—namely, full-time employment, housing affordability and migration flows—to help look through the volatility. The results suggest that, over longer horizons, resales activity and these fundamentals share a stable relationship, although deviations are sometimes persistent. We also find a robust and positive relationship between house price growth and deviations of existing home sales from fundamentals. While predicting quarterly changes in resales remains very difficult, provincial models improve upon national and naïve benchmarks and provide a useful framework for identifying risks to GDP growth that stem directly from the resale market. |
| Keywords: | Econometric and statistical methods, Economic models, Housing |
| JEL: | C C2 C22 C23 E E2 E27 R R2 R21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:18-16&r=mac |
| By: | Harjoat S. Bhamra; Christian Dorion; Alexandre Jeanneret; Michael Weber |
| Abstract: | We develop an asset-pricing model with endogenous corporate policies that explains how inflation jointly impacts real asset prices and corporate default risk. Our model includes two empirically grounded nominal frictions: fixed nominal coupons and sticky profitability. Taken together, these two frictions result in higher real equity prices and credit spreads when inflation falls. An increase in inflation has opposite effects, but with smaller magnitudes. In the cross section, the model predicts the negative impact of inflation on real equity values is stronger for low leverage firms. We find empirical support for the model predictions. |
| JEL: | E44 G12 G32 G33 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25317&r=mac |
| By: | Rashid, Muhammad Mustafa |
| Abstract: | The purpose of this paper is to provide an introduction of market power in different market structures and how this market power diminishes because of international trade and the effects on welfare. A review of relevant literature from Pugel (2012), McConnel Bruce and Flynn (2012) and Bernheim and Winston (2014) provides the effects of international trade on the market power conditions in different market structures and the effects on welfare. Asprilla, Berman, Cadot and Jaud (2016), Devereux and Lee (2001) and Krugman (1994) serve to provide further evidence through PTM literature, bilateral exchange rate shocks and protectionism. |
| Keywords: | Market Power, Market Structures, International Trade and Policy. |
| JEL: | E6 F01 F1 F23 F4 F41 F42 F5 M16 M2 |
| Date: | 2018–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89889&r=mac |
| By: | Campbell, Jeffrey R. (Federal Reserve Bank of Chicago); Weber, Jacob P. (University of California at Berkely) |
| Abstract: | New Keynesian economies with active interest rate rules gain equilibrium determinacy from the central bank’s incredible off-equilibrium-path promises (Cochrane, 2011). We suppose instead that the central bank sets interest rate paths and occasionally has the discretion to change them. Private agents taking future central bank actions and their own best responses to them as given reduces the scope for self-fulfilling prophecies. With empirically-reasonable frequencies of central-bank reoptimization, the monetary-policy game has a unique Markov-perfect equilibrium wherein forward guidance influences current outcomes without displaying a forward-guidance puzzle. |
| Keywords: | Keynesian economics; Markov processes; Money policy; Open Market Operations; |
| JEL: | E12 E52 |
| Date: | 2018–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-14&r=mac |
| By: | Mark Lasky |
| Abstract: | CBO models most business investment by using a modified neoclassical specification. That specification is similar to the neoclassical model in that the desired capital stock depends positively on output and negatively on the cost of capital, which includes the price of capital, taxes, and rates of return. The specification differs from the neoclassical model in that the capital stock adjusts more rapidly to changes in output than to changes in the cost of capital. In contrast, CBO models investment in capital used by agriculture and extractive industries as depending |
| JEL: | E22 E27 |
| Date: | 2018–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:wpaper:54871&r=mac |
| By: | Mitsuru Katagiri |
| Abstract: | Upward sloping yield curves are hard to reconcile with the positive association between income and inflation (the Phillips curve) in consumption-based asset pricing models. Using US and UK data, this paper shows inflation is negatively correlated with long-run income growth but positively correlated with cyclical income, thus enabling the model to replicate positive and sizable term premiums, along with the Phillips curve over business cycles. Quantitative analyses also emphasize the importance of monetary policy, predicting that a permanently low growth and low inflation environment would precipitate flatter yield curves due to constraints to monetary policy around the zero lower bound. |
| Date: | 2018–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/242&r=mac |
| By: | Kuvshinov, Dmitry; Zimmermann, Kaspar |
| Abstract: | This paper presents annual stock market capitalization data for 17 advanced economies from 1870 to today. Extending our knowledge beyond individual benchmark years in the seminal work of Rajan and Zingales (2003) reveals a striking new time series pattern: over the long run, the evolution of stock market size resembles a hockey stick. The stock market cap to GDP ratio was stable for more than a century, then tripled in the 1980s and 1990s and remains high to this day. This trend is common across countries and mirrors increases in other financial and price indicators, but happens at a much faster pace. We term this sudden structural shift 'the big bang' and use novel data on equity returns, prices and cashflows to explore its underlying drivers. Our first key finding is that the big bang is driven almost entirely by rising equity prices, rather than quantities. Net equity issuance is sizeable but relatively constant over time, and plays very little role in the short, medium and long run swings in stock market cap. Second, much of this price increase cannot be explained by more favourable fundamentals such as profits and taxes. Rather, it is driven by lower equity risk premia. Third, consistent with this risk premium view of stock market size, the market cap to GDP ratio is a reliable indicator of booms and busts in the equity market. High stock market capitalization - the 'Buffet indicator' - forecasts low subsequent equity returns, and low - rather than high - cashflow growth, outperforming standard predictors such as the dividend-price ratio. |
| JEL: | E44 G10 G20 N10 N20 O16 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ibfpps:0218&r=mac |
| By: | Chabé-Ferret, Bastien; Gobbi, Paula |
| Abstract: | Using the US Census waves 1940-1990 and Current Population Surveys 1990-2010, we look at how economic uncertainty affected fertility cycles over the course of the XXth century. We use cross-state and cross-cohort variation in the volatility of income growth to identify the causal link running from uncertainty to completed fertility. We find that economic uncertainty has a large and robust negative effect on fertility. This finding contributes to the unraveling of the determinants of the post-WWII baby boom. Specifically, the difference in economic uncertainty endured by women born in 1910 compared to that faced by women born in 1935 accounts for between 45% and 61% of the one child variation across these cohorts. We hypothesize that a greater economic uncertainty increases the risk of large consumption swings, which individuals mitigate by marrying later, postponing fertility, and ultimately decreasing their completed fertility. |
| Keywords: | baby boom; baby bust; economic uncertainty; Fertility |
| JEL: | E32 J11 J13 N30 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13374&r=mac |
| By: | Sergey Vlasov (Bank of Russia, Russian Federation) |
| Abstract: | The Note analyses fiscal multipliers in the Russian economy and estimates the im-pact of the fiscal manoeuvre, the start of which is planned for 2019, on GDP growth. Fiscal multipliers in the Russian economy proved to be rather low, in part due to “leakages” through imports and relatively low efficiency of budgetary funds. We estimate the multipli-er of total revenue of Russia’s budget at -0.75 and the multiplier of total spending at +0.28. Therefore, changes in the budget revenue produce a stronger effect on GDP growth com-pared with the effect from the comparable change in expenditures. However, compared to changes in expenditures, changes in revenue feed through to GDP growth more slowly. Our analysis of the components of total expenditure based on the Russian and inter-national experience suggests that in terms of the functional classification of expenditure, the biggest is the fiscal multiplier for economic spending, followed by military and social blocks. Spending on general state issues have a negative multiplier. The analysis of the economic classification of expenditure showed that the investment component has the highest multiplier. It exceeds more than twofold multipliers for other components. The estimation of the effects of the fiscal manoeuvre using fiscal multipliers gives grounds for expecting in the medium term additional 0.2-0.3 pp to GDP growth per year on average as a result of the manoeuvre. However, the actual effect may prove materially higher than the estimated one in case of efficient fund utilisation (e.g., a thorough selec-tion of investment projects) as well as rapid cost cutting coupled with labour productivity growth by VAT payers. This will raise the fiscal multiplier for spending and lower it for rev-enue. Additionally, fiscal multipliers demonstrate a short-term effect of the fiscal policy on GDP growth without assessing its impact on the potential growth, which should also be positive. The current situation in the economy bordering on the full utilisation of resources may serve as a constraining factor, thereby lowering the efficiency of their utilisation. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:note17&r=mac |
| By: | Shen, Yifan; Shi, Xunpeng; Zeng, Ting |
| Abstract: | We extend Jurado et al. (2015)’s forecast-error-based uncertainty measure to the international context, and construct a new measure of global uncertainty. We examine dynamic causal effects among global uncertainty and other global macroeconomic variables, and provide two important applications of our global uncertainty measure by linking it to the price formation mechanism of oil and international uncertainty spillover effects. We show that the well-documented relation between uncertainty and real activities is not only a regional issue, but also a global phenomenon. Global uncertainty also plays a key role in determining commodity prices, as well as driving business cycle fluctuations in a certain economy. |
| Keywords: | Global Uncertainty, International Economics, Commodity Price, Oil Price |
| JEL: | C32 E32 F44 O13 |
| Date: | 2017–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90089&r=mac |
| By: | Sergio Cesaratto (Università di Siena); Gennaro Zezza (University of Cassino and Lazio Meridionale) |
| Abstract: | In questo saggio ripercorriamo la storia dell'economia italiana a partire dagli anni del miracolo economico, mostrando il ruolo della politica economica nelle sue diverse declinazioni (fiscale, monetaria, valutaria) nella determinazione della crescita, e poi del declino. Argomentiamo come i periodi della crescita siano caratterizzati dal tentativo di perseguire il pieno impiego, mentre il successivo periodo del declino è dipeso anche dal tentativo di risolvere i conflitti distributivi interni tramite vincoli esteri sempre più stringenti. |
| JEL: | E52 E62 F41 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:csn:wpaper:2018-05&r=mac |
| By: | Markus Brueckner; Birgit Hansl |
| Abstract: | During the 2000s PPP GDP per capita growth in the Philippines was modest. Transitional convergence accounted for almost half of the growth in the Philippines during that time period. Reforms to the structure of the economy boosted growth by less than one percentage point per annum. The most significant structural reform was improvements in telecommunication infrastructure that lifted growth by over half a percentage point per annum. The decline of domestic credit to the private sector reduced growth by about one quarter of a percentage point per annum. Successful stabilization policies positively contributed to growth but the effect is small, about one half of a percentage point per annum. The paper discusses the growth performance of the Philippines relative to comparator countries: ASEAN, lower middle income countries, countries where migrant remittances are large relative to GDP, young democracies, structural peers, and regional peers. The main message from the analysis is that structural reforms were not as significant in the Philippines as in comparator countries. The Philippines lagged behind in structural reforms and this significantly contributed to the country's relatively modest growth performance. |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:auu:dpaper:702&r=mac |
| By: | Antonio Pacifico |
| Abstract: | The paper develops empirical implementations of the standard time-varying Panel Bayesian VAR model to deal with confounding and latent effects. Bayesian computations and mixed hierarchical distributions are used to generate posteriors of conditional impulse responses and conditional forecasts. An empirical application to Eurozone countries illustrates the functioning of the model. A survey on policy recommendations and business cycles convergence are also conducted. The paper would enhance the more recent studies to evaluate idiosyncratic business cycles, policy-making, and structural spillovers forecasting. The analysis confirms the importance to separate common shocks from propagation of country- and variable-specific shocks. |
| Keywords: | Hierarchical Mixture Distributions in Normal Linear Model; Bayesian Model Averaging; Panel VAR; Forecasting; Structural Spillovers; MCMC Implementations. |
| JEL: | A2 D1 D2 |
| Date: | 2018–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2018_15&r=mac |
| By: | Bracha, Anat (Federal Reserve Bank of Boston); Burke, Mary A. (Federal Reserve Bank of Boston) |
| Abstract: | A variety of researchers and public entities have estimated the prevalence of nontraditional work arrangements — using diverse definitions — in recent decades, and the topic has received increasing attention in the past five years. Despite numerous media reports that the prevalence of nonstandard work has increased since the Great Recession, not all sources agree on this point, and very little evidence exists relating to hours or earnings from such arrangements and their changes over time. Using unique data from the Survey of Informal Work Participation (SIWP), we describe changes in informal work activity across 2015, 2016, and 2017 along multiple dimensions and for a variety of specific jobs. Considering the net changes observed between 2015 and 2017, we find that participation rates and earnings were mostly flat across the period, while average hours for gig workers declined by economically and statistically significant margins. The aggregate number of full-time equivalent jobs embodied in informal work — a measure combining participation rates and hours — also declined by an economically significant margin between 2015 and 2017. A major exception to these trends is that average ridesharing hours more than quadrupled between 2015 and 2017. We find some evidence that the recent declines in informal work hours represented a response to declining unemployment rates, but during this time period there also appears to have been upward structural pressure on gig work that provided a particular boost to platform-based work. |
| Keywords: | gig economy; informal work; survey; business cycle fluctuations |
| JEL: | E26 E32 J22 |
| Date: | 2018–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:18-12&r=mac |
| By: | F. J. Escribá-Pérez (Universitat de València (Spain)); M. J. Murgui-García (Universitat de València (Spain)); J. R. Ruiz-Tamarit (Universitat de València (Spain) and IRES (UCLouvain)) |
| Abstract: | The role of capital stock in measuring resilience is investigated. Based on the current and potential growth paths we propose new indexes to better measure the characteristics associated with resilience: adaptability and resistance to shocks. The dynamics of capital instead of employment is used as a proxy for economic welfare, considered ideal to represent the evolution of economic systems. The two series of capital stock for the US and Spanish economies, associated with the short-run and the long-run trajectories, allows us to empirically compute the indexes and draw conclusions about their ability to resist shocks and absorb their effects. |
| Keywords: | Adaptability, Capital, Growth, Resilience, Resistance |
| JEL: | E22 O10 R11 |
| Date: | 2018–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2018017&r=mac |
| By: | Athanasios Geromichalos; Lucas Herrenbrueck; Sukjoon Lee (Department of Economics, University of California Davis) |
| Abstract: | Recently, a lot of attention has been paid to the role “safe and liquid assets” play in the macroeconomy. Many economists take as given that safer assets will also be more liquid, and some go a step further by practically using the two terms as synonyms. However, they are not synonyms: safety refers to the probability that the (issuer of the) asset will pay the promised cash flow, and liquidity refers to the ease with which an asset can be sold if needed. Mixing up these terms can lead to confusion and wrong policy recommendations. In this paper, we build a multi-asset model in which an asset’s safety and liquidity are well-defined and distinct from one another. Treating safety as a primitive, we examine the relationship between an asset’s safety and liquidity in general equilibrium. We show that the commonly held belief that “safety implies liquidity” is generally justified, but there may be exceptions. We then describe the conditions under which a relatively riskier asset can be more liquid than its safe(r) counterparts. Finally, we use our model to rationalize the puzzling observation that AAA corporate bonds are considered less liquid than (the riskier) AA corporate bonds. |
| Keywords: | asset safety, asset liquidity, over-the-counter markets, liquidity premium |
| JEL: | E31 E43 E52 G12 |
| Date: | 2018–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:326&r=mac |
| By: | Donaldson, John B.; Koulovatianos, Christos; Li, Jian; Mehra, Rajnish |
| Abstract: | Following the introduction of the one-child policy in China, the capital-labor (K/L) ratio of China increased relative to that of India, and, simultaneously, FDI inflows relative to GDP for China versus India declined. These observations are explained in the context of a simple neoclassical OLG paradigm. The adjustment mechanism works as follows: the reduction in the growth rate of the (urban) labor force due to the one-child policy permanently increases the capital per worker inherited from the previous generation. The resulting increase in China's (domestic K)/L thus "crowds out" the need for FDI in China relative to India. Our paper is a contribution to the nascent literature exploring demographic transitions and their effects on FDI flows. |
| Keywords: | Lucas paradox,capital-labor ratio,FDI-intensity,one-child policy |
| JEL: | F11 F21 J11 O11 E13 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:613&r=mac |
| By: | Sara Ayllón (Universitat de Girona); Natalia Nollenberger (IE Business School - IE University) |
| Abstract: | This paper is the first to investigate the extent to which the high levels of jobless-ness resulting from the Great Recession across Europe have translated into higher school attendance among youth. Using cross-sectional and longitudinal data from the EU-SILC for 28 countries, we establish a robust counter-cyclical relationship between rising unemployment rates and school enrolment. The same is true of transitions back to education. Our analysis by subgroups reveals a worrying trend, with youths who have the most disadvantaged backgrounds (measured by low household income) less likely to enrol in tertiary studies when unemployment rises. |
| Keywords: | Unemployment, School Enrolment, Transitions Back to Education, Youth, Great Recession, EU-SILC |
| JEL: | I23 I24 J64 E32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2018-13&r=mac |
| By: | Nogues-Marco, Pilar |
| Abstract: | This article focuses on money markets and exchange rates in preindustrial Europe. The foreign exchange market was mostly based on bills of exchange, the instrument used to transfer money and provide credit between distant centers in pre-industrial Europe. In this chapter, first I explain bill of exchange operations, money market integration, usury regulations and circumventions to hide the market interest rate as well as the evolution of bills of exchange in history, focusing mainly on the most relevant features generalized during the first half of the 17th century: endorsement and the joint liability rule, which facilitated the full expansion of the foreign exchange market beyond personal networks. Then, I describe the European geography of money in the mid-18th century, characterized by a very high degree of multilateralism with the triangle of Amsterdam, London and Paris as the backbone of the European settlement system. Finally, I measure the cost of capital and relate it to liquidity. I show evidence of interest rates in the 18th century for Amsterdam, London, Paris and Cadiz. While Amsterdam, London and Paris presented low and similar interest rates, Cadiz had higher interest rates, mostly being double the cost of capital. These results seem to show a high inverse correlation between liquidity and interest rates, suggesting that the share in international trade of European centers might have been a powerful driver of international monetary leadership. While more empirical evidence and further research is needed, this approach opens the scope of the analysis beyond the national institutional explanation. |
| Keywords: | Bills of Exchange; cost of capital; Exchange Rates; interest rates; monetary geography; money market; Specie-Point Mechanism; usury regulations |
| JEL: | E42 F31 G15 N23 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13372&r=mac |
| By: | O'Brien, Eoin (Central Bank of Ireland); O'Brien, Martin (Central Bank of Ireland); Velasco, Sofia (Central Bank of Ireland) |
| Abstract: | Following a number of years where the activation of the countercyclical capital buffer was limited, it is now becoming an increasingly relevant and actively used macroprudential policy tool across Europe. Against this background, this Note describes the high-level approach taken by the Central Bank of Ireland in setting the countercyclical capital buffer rate applicable to Irish exposures. In addition, the Note discusses issues around the identification of cyclical systemic risk in Ireland, and in particular the role of the credit-to-GDP gap as an appropriate reference indicator for countercyclical capital buffer rate decisions. The Note introduces work within the Central Bank of Ireland to develop a potential alternative reference indicator for informing countercyclical capital buffer decisions. In particular, an alternative measure of the national credit gap which looks to account for structural shifts in the economy and informs the estimation of the cycle through additional variables. This semi-structural measure of cyclical systemic risk addresses some of the main drawbacks of purely statistical methods such as excessively persistent trends, a feature that is particularly desirable in post-crisis circumstances. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:04/18&r=mac |
| By: | Hayashi, Fumiko (Federal Reserve Bank of Kansas City); Markiewicz, Zach (Federal Reserve Bank of Kansas City); Minhas, Sabrina (Federal Reserve Bank of Kansas City) |
| Abstract: | To reduce counterfeit fraud in the card-present environment, the United States started migrating to EMV chip technology in the mid-2010s. Since October 2015, merchants have been liable for counterfeit fraud committed using EMV cards if the merchants had not adopted EMV chip-readable terminals. In particular, merchants are held liable through chargebacks. This study examines the initial effects of the EMV liability shift on fraud chargeback and merchant loss rates using data from merchant processors and PIN debit networks. Combined with gross fraud rates—overall fraud rates regardless of who incurs fraud losses—estimated in other studies, the results of our study suggest that merchants have faced a significantly higher share of fraud losses since the shift; however, this spike will decline if merchants continue to adopt EMV. Merchant fraud loss rates for signature-based transactions in the card-present channel increased sixfold, but the rates significantly vary between magnetic stripe and chip-to-chip transactions. While merchant fraud loss rates for magnetic stripe transactions are over 9 basis points in value for all merchants combined and vary across merchant categories, the rates for chip-to-chip transactions are very low, around 0.02 basis points, across all merchant categories. Because the gross fraud rates for magnetic-stripe transactions did not increase after the liability shift, our results suggest that the higher merchant fraud loss rates for magnetic-stripe transactions are mainly due to the liability shift. Compared with signature-based transactions, fraud chargeback rates for PIN debit transactions in the card-present channel are much lower. Our results suggest that both EMV and PIN are effective in reducing merchant fraud loss rates. However, we need detailed gross fraud rates to examine how effective EMV and PIN are in reducing fraud more generally in the card-present channel. Our results for card-not-present fraud chargeback and merchant loss rates are mixed. Both rates increased for some merchant categories, but the rates for all merchants combined actually decreased in our data. This decline is likely due to the underrepresentation of signature-based CNP transactions in our data. The gross fraud rates for card-not-present transactions increased over the same period, and merchants are generally liable for card-not-present fraud. |
| Keywords: | Chargebacks; Fraud; EMV Liability Shift; Authentication methods |
| JEL: | E42 L81 |
| Date: | 2018–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp18-10&r=mac |
| By: | Mario Forni; Luca Gambetti; Luca Sala |
| Abstract: | The testing procedure suggested in Canova and Sahneh (2018) is essentially the same as the one proposed in Forni and Gambetti (2014), the only one difference being the use of Geweke, Meese and Dent (1983) version of Sims (1972) test in place of a standard Granger causality test. The two procedures produce similar results, both for small and large samples, and perform remarkably well in detecting non-fundamentalness. Neither methods have anything to do with the problem of aggregation. A “structural aggregate model” does not exist. |
| Keywords: | Non-fundamentalness, Granger causality, aggregation, structural VAR |
| JEL: | C32 E32 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:mod:recent:139&r=mac |
| By: | Nicholas Oulton (Centre for Macroeconomics (CFM); ESCoE; London School of Economics and Political Science (LSE)); Ana Rincon-Aznar (ESCoE; NIESR); Lea Samek (ESCoE; NIESR); Sylaja Srinivasan (ESCoE; NIESR) |
| Abstract: | Real GDP measured from the output side, GDP(O), should equal real GDP measured from the expenditure side, GDP(E), just as corresponding two approaches to measuring GDP in current prices are necessarily equal. But this is only the case even in theory if real value added in each industry is measured by double deflation. We set out the theory of double deflation using a matrix algebra treatment based on the framework of the Supply and Use Tables. The context is the UK’s national accounts which measures volume growth by chained Laspeyres indices and which currently use single not double deflation. Initially we use simplified assumptions about prices. Later we introduce more realistic assumptions. We analyse the conditions on prices under which real GDP(O) equals real GDP(E). We consider three alternative methods of implementing double deflation. The preferred method makes use of all the price indices which the Office for National Statistics currently collects: Producer Price Indices, Services Producer Price Indices, Consumer Price Indices, Export Price Indices and Import Price Indices. We implement a simplified version of double deflation, using the same data as in the latest vintage of the national accounts, and compare our estimates with the official ones. In this version the same price index is used for each product regardless of whether the product is an output or an input. We find that double-deflated industry growth rates are consistently lower than the official single-deflated ones and also considerably more variable year-to-year. We interpret this finding as reinforcing the case for careful selection of the set of deflators to use for double deflation. |
| Keywords: | Double deflation, Supply and use tables, Value added, National accounts |
| JEL: | E01 O11 O40 O47 C67 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1831&r=mac |
| By: | Vandenbroucke, Guillaume (Federal Reserve Bank of St. Louis) |
| Abstract: | The entry of baby boomers into the labor market in the 1970s slowed growth for physical and human capital per worker because young workers have little of both. Thus, the baby boom could have contributed to the 1970s productivity slowdown. I build and calibrate a model a la Huggett et al. (2011) with exogenous population and TFP to evaluate this theory. The baby boom accounts for 75% of the slowdown in the period 1964-69, 25% in 1970-74 and 2% in 1975-79. The retiring of baby boomers may cause a 2.8pp decline in productivity growth between 2020 and 2040, ceteris paribus. |
| Keywords: | Demography; baby boom; aggregate productivity; productivity slowdown; human capital |
| JEL: | E24 J11 J24 |
| Date: | 2018–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2018-037&r=mac |
| By: | Gregory J. Cohen; Melanie Friedrichs; Kamran Gupta; William Hayes; Seung Jung Lee; W. Blake Marsh; Nathan Mislang; Maya Shaton; Martin Sicilian |
| Abstract: | We introduce a new software package for determining linkages between datasets without common identifiers. We apply these methods to three datasets commonly used in academic research on syndicated lending: Refinitiv LPC DealScan, the Shared National Credit Database, and S&P Global Market Intelligence Compustat. We benchmark the results of our match using results from the literature and previously matched files that are publicly available. We find that the company level matching is enhanced by careful cleaning of the data and considering hierarchical relationships. For loan level matching, a tailored approach based on a good understanding of the data can be better in certain dimensions than a more pure machine learning approach. The R package for the company level match can be found on Github. |
| Keywords: | Bank credit ; Company level matching ; Loan level matching ; Probabilistic matching ; Syndicated loans |
| JEL: | C88 G21 E44 |
| Date: | 2018–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-85&r=mac |
| By: | Mauro Mastrogiacomo |
| Abstract: | We analyze the transmission of an interest rate shock to households in the context of a stress-test module. We examin standard mitigants, such as delays due to a future interest-rate-reset-date, tax deduction of the interest paid on mortgages, the amortization of different mortgage types and conjunctural factors. We also include the possibility of behavioral responses, where households can alleviate the effect of a shock by reducing debt using voluntary repayments. We estimate a Cragg log-normal hurdle model on loan-level data for the Dutch mortgage market. We simulate debt 30 years into the future under different scenarios for the development of the interest rate and simulating both contractual and voluntary amortization. This study finds a significant dampening role of voluntary repayments on the effects of an interest rate shock. |
| Keywords: | transmission of interest rate shock; voluntary repayments; loan level data |
| JEL: | C01 C23 D14 E44 G21 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:615&r=mac |
| By: | Paulo R. Mota (University of Porto – School of Economics and Business and CEF.UP); Paulo B. Vasconcelos (University of Porto – School of Economics and Business and CMUP) |
| Abstract: | This paper analysis the effects of deregulation of the employment in an environment of low interest rates and economic uncertainty. For this purpose, we estimate a switching employment equation based on the play model of hysteresis. As a novel feature, the estimation allows for a possible change in the value of the switching parameter after the application of labour market reforms. We use Portuguese monthly data spanning from January 2000 to October 2016. Portugal provides a good case study since it is a country where significant measures towards the deregulation of the labour market were applied after the recent financial crises. The results show that these measures reduced the hysteresis effects in the dynamics of aggregate employment except in the period where uncertainty increased substantially. |
| Keywords: | employment, hysteresis, uncertainty, employment protection legislation |
| JEL: | E24 J23 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:611&r=mac |
| By: | Carolina Ortega Londoño; Diego Restrepo |
| JEL: | G21 E52 E59 |
| Date: | 2018–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000122:016987&r=mac |
| By: | Cohen, Gregory J.; Friedrichs, Melanie; Gupta, Kamran (Federal Reserve Bank of Kansas City); Hayes, William; Lee, Seung Jung; Marsh, W. Blake (Federal Reserve Bank of Kansas City); Mislang, Nathan; Shaton, Maya; Sicilian, Martin |
| Abstract: | We introduce a new software package for determining linkages between datasets without common identifiers. We apply these methods to three datasets commonly used in academic research on syndicated lending: Refinitiv LPC DealScan, the Shared National Credit Database, and S&P Global Market Intelligence Compustat. We benchmark the results of our match using results from the literature and previously matched files that are publicly available. We find that the company level matching is enhanced by careful cleaning of the data and considering hierarchical relationships. For loan level matching, a tailored approach based on a good understanding of the data can be better in certain dimensions than a more pure machine learning approach. The R package for the company level match can be found on Github at https://github.com/seunglee98/fedmatch. |
| Keywords: | Bank Credit; Syndicated Loans; Probabilistic Matching; Company Level Matching; Loan Level Matching |
| JEL: | C88 E44 G21 |
| Date: | 2018–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp18-09&r=mac |
| By: | Koulovatianos, Christos; Mavridis, Dimitris |
| Abstract: | Based on OECD evidence, equity/housing-price busts and credit crunches are followed by substantial increases in public consumption. These increases in unproductive public spending lead to increases in distortionary marginal taxes, a policy in sharp contrast with presumably optimal Keynesian fiscal stimulus after a crisis. Here we claim that this seemingly adverse policy selection is optimal under rational learning about the frequency of rare capital-value busts. Bayesian updating after a bust implies massive belief jumps toward pessimism, with investors and policymakers believing that busts will be arriving more frequently in the future. Lowering taxes would be as if trying to kick a sick horse in order to stand up and run, since pessimistic markets would be unwilling to invest enough under any temporarily generous tax regime. |
| Keywords: | Bayesian learning,controlled diffusions and jump processes,learning about jumps,Gamma distribution,rational learning |
| JEL: | H30 D83 C11 D90 E21 D81 C61 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:614&r=mac |
| By: | Mariana Colacelli; Emilio Fernández Corugedo |
| Abstract: | Yes, partly. This paper studies the potential role of structural reforms in improving Japan’s outlook using the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) with newly-added demographic features. Implementation of a not-fully-believed path of structural reforms can significantly offset the adverse effect of Japan’s demographic headwinds — a declining and ageing population — on real GDP (by about 15 percent in the next 40 years), but would not boost inflation or contribute substantially to stabilizing public debt. Alternatively, implementation of a fully-credible structural reform program can contribute significantly to stabilizing public debt because of the resulting increase in inflation towards the Bank of Japan’s target, while achieving the same positive long-run effects on real GDP. If no reforms are implemented, severe demographic headwinds are expected to reduce Japan’s real GDP by over 25 percent in the next 40 years. |
| Keywords: | Asia and Pacific;Japan;Government expenditures and health;Structural reforms, demographics, OLG models, Forecasting and Simulation, General, General, Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets |
| Date: | 2018–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/248&r=mac |
| By: | Corbi, Raphael; Papaioannou, Elias; Surico, Paolo |
| Abstract: | A series of discontinuities in the allocation mechanism of federal transfers to municipal governments in Brazil allow us to identify the causal effect of public spending on local labor markets, using a 'fuzzy' Regression Discontinuity Design (RDD). Our estimates imply a cost per job of about 8,000 US dollars per year and a local income multiplier around two. The effect comes mostly from employment in services and is more pronounced among less financially developed municipalities. |
| Keywords: | 'fuzzy' RD; employment; government spending; Natural Experiment; wages |
| JEL: | C26 E62 H72 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13304&r=mac |
| By: | De Grauwe, Paul; Foresti, Pasquale |
| Abstract: | We extend the behavioral macroeconomic model proposed by De Grauwe (2011) by including fiscal policy. In this model, agents have limited cognitive capabilities and use simple heuristics to forecast output and inflation. However, thanks to a learning mechanism, agents can revise their forecasting rule according to its performance. This feature produces endogenous and self-fulfilling waves of optimism and pessimism (animal spirits). This framework allows us to show that the short-run spending multiplier is state-dependent. The multiplier is stronger under either extreme optimism or pessimism and reduces in periods of tranquility. Furthermore, the more the central bank focuses on output stabilization, the smaller the multiplier. We also show that periods of increasing public debt are characterized by intense pessimism, while intense optimism occurs in periods of decreasing debt. This allows us to show that governments face a trade-off between the stabilization of the output gap and the stabilization of public debt. We also evaluate our model at the zero lower bound and find that the lower the inflation target, the more likely the system can be gripped in a deflationary spiral that is dynamically unstable and characterized by chronic pessimism and exploding public debt. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13376&r=mac |
| By: | Brand, Claus; Bielecki, Marcin; Penalver, Adrian |
| Keywords: | demographics, monetary policy, natural rate of interest, productivity growth, return on capital |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2018217&r=mac |
| By: | Alvi, Mohsin Hassan |
| Abstract: | The purpose of present study is to explore the trend of difference in population size and growth rate of the two sectors of Pakistan i.e. rural and urban over a period of 57 years (from 1960 to 2017). It is important to know this trend for resources allocation and also to get an insight into related issues in future. The data has been obtained from secondary source of publically available site of World Bank. Results demonstrate a progressive increase in the population size of both the sectors. However, the pace of increase in population of rural sector is not only faster than that of urban but also it shows a much higher rate of increase after 1980. But in case of population growth rate it is urban sector that leads. Throughout the span of 57 years, for urban area the growth rate has varied from 4.6% to 3.1%. On the other hand, for rural areas, it ranges from 3.1% to 1.2%. Results are discussed along with their probable reason. |
| Keywords: | Rural population, Urban population, Population growth rate, Population size |
| JEL: | C1 E6 O1 R1 R23 |
| Date: | 2018–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90054&r=mac |
| By: | Breach , Tomas (UC Berkely); King, Thomas B. (Federal Reserve Bank of Chicago) |
| Abstract: | This paper presents new evidence on bilateral securities financing based on the Federal Reserve's Senior Credit Officer Opinion Survey, which was launched in the wake of the financial crisis to provide a window into this otherwise opaque market. The survey asks large broker-dealers about terms at which they fund client positions, and the demand for such funding, across several different collateral types. Within asset classes, reported changes in spreads, haircuts, and other financing terms move closely together, and we show that they also covary with the state of the underlying cash securities markets. Funding conditions are particularly highly correlated with measures of cash-market liquidity, and, by exploiting dealers' self-reported reasons for changing terms, we show that most of this correlation results from dealers responding to liquidity, rather than the other way around. Controlling for securities-market conditions, haircuts and spreads are unresponsive to shifts in funding demand; however, they do tend to tighten when measures of dealer condition deteriorate. |
| Keywords: | Repo; securities lending; adverse selection; haircut |
| JEL: | E44 G12 G23 G24 |
| Date: | 2018–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-22&r=mac |
| By: | Gersbach, Hans |
| Abstract: | We examine whether the economy can be insured against banking crises with deposit and loan contracts contingent on macroeconomic shocks. We study banking competition and show that the private sector insures the banking system through such contracts, and banking crises are avoided, provided that failed banks are not bailed out. When risks are large, banks may shift part of them to depositors. In contrast, when banks are bailed out by the next generation, depositors receive non-contingent contracts with high interest rates, while entrepreneurs obtain loan contracts that demand high repayment in good times and low repayment in bad times. As a result, the present generation overinvests, and banks generate large macroeconomic risks for future generations, even if the underlying productivity risk is small or zero. We conclude that a joint policy package of orderly default procedures and contingent contracts is a promising way to reduce the threat of a fragile banking system. |
| Keywords: | financial intermediation,macroeconomic risks,state-contingent contracts,banking regulation |
| JEL: | D41 E4 G2 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:612&r=mac |
| By: | Miroudot, Miroudot; Ye, Ming |
| Abstract: | In this paper, we propose a hypothetical extraction that provides a theoretically-funded measure of FVA in gross exports and we provide full expressions for a decomposition of gross exports into four terms: DVA, domestic double counting (DDC), FVA and foreign double counting (FDC). As in Los et al. (2016), the fact that we calculate a hypothetical GDP without the exports from a given country is the basis for validating the interpretation of the FVA term. Our DVA term is the same as Los et al. (2016). |
| Keywords: | Trade accounting, input-output table, Value-added decomposition, Global value chains |
| JEL: | E01 F14 |
| Date: | 2018–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89907&r=mac |
| By: | Ramírez-Rondán, N. R.; Terrones, Marco E.; Vilchez, Andrea |
| Abstract: | A sizeable literature suggests that financial sector development could be an important enabler of the growth benefits of trade openness. We provide a comprehensive analysis of how financial development can affect the relationship between trade openness and growth using a dynamic panel threshold model and an extensive dataset for a large sample of countries for the 1970-2015 period. We find that there is a financial development threshold in which trade openness has a positive and significant effect on economic growth. We also find that when splitting the sample into industrialized and non-industrialized countries, the financial development threshold that enables the growth benefits of trade is higher in the former group of countries than in the latter. This finding is consistent with the fact that the export composition of industrialized countries is tilted towards more capital-intensive finance-constrained goods. |
| Keywords: | Trade openness, economic growth, threshold model, panel data. |
| JEL: | C33 E51 F43 O41 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90385&r=mac |
| By: | Faccini, Renato; Melosi, Leonardo |
| Abstract: | Low-frequency variations in current and expected unemployment rates are important to identify TFP news shocks and to allow a general equilibrium rational expectations model to generate Pigouvian cycles: a large fraction of the comovement of output, consumption, investment, employment, and real wages is explained by changes in expectations unrelated to TFP fundamentals. The model predicts that the start (end) of most U.S. recessions is associated with agents realizing that previous enthusiastic (lukewarm) expectations about future TFP would not be met. |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13370&r=mac |
| By: | Giuseppe Vitaletti (Università di Viterbo) |
| Abstract: | This work is fully integrated and unitary. It starts by analyzing the 2019 Stability Law and its financial accounts, which are illustrated, discussed and shared. How to reform the Maastricht parameters is then examined in some depth. One of its major conclusions is that the fiscal system should be reoriented toward a national model, similar to the one in vigour in Italy until the 1970s. Most of the work is concerned with this discussion, conducted by reporting all the articles, published and unpublished, sent to ItaliaOggi during this and the previous Legislature (2014-2018). Two papers follow, illustrating what the Bank of Italy should but cannot do, being “entangled” by BCE policy. The papers had in fact been sent to important seminars held in the Bank of Italy (2017 and 2018), but they were both rejected. Then other papers, published in Mondoperaio, Nuovi Lavori, and various newspapers, essentially delve deeper into the macroeconomic question. Here, following Keynes, it is shown that investment and amortisation are now more or less equal in the major European nations, so that net saving equates with the sum of trade surpluses and/or public deficits. This is a fundamental question, since trade surpluses are unsustainable, so public deficits become necessary and the rate of interest is compelled to zero, both in the public and the private system. A period of serious reforms is advocated, following what was thought and taught during most of the past century by the Italian School of public finance. This is illustrated by discussing my comments in a book edited by GORINI, LONGOBARDI, VITALETTI, entitled “Economia, Politica, Cultura nell’Italia del XX Secolo. Il pensiero critico di Sergio Steve”, FrancoAngeli, 2018. |
| Keywords: | Maastricht parameters, Macroeconomic equilibrium, Fiscal reform, Italian School of public finance |
| JEL: | H10 H30 H60 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipu:wpaper:74&r=mac |
| By: | Byron Botha; Franz Ruch; Rudi Steinbach |
| Date: | 2018–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:oboens:8879&r=mac |
| By: | Petre Caraiani (Institute for Economic Forecasting, Romanian Academy Calea 13 Septembrie no. 13, Casa Academiei, Bucharest, Romania); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa) |
| Abstract: | In this paper, we estimate a Small Open Economy Dynamic Stochastic General Equilibrium (SOEDSGE) model of the United Kingdom (UK), with the main focus being to test the hypothesis whether the Bank of England (BoE) responds to (frequency-dependent) exchange rate movements or not. For our purpose, we use an extended quarterly data set spanning the period of 1986:Q1 to 2018:Q1, which in turn includes the zero lower bound situation, and also estimate the SOEDSGE model based on observable data decomposed into its frequency components, under the presumption that central banks is more comfortable in responding to long-term fundamental movements in exchange rates. We find that the BoE not only responds to exchange rate movements in a statistically significant manner, but also that it primarily focuses on long-term movements of currency depreciations more strongly than short-term fluctuations of the same. |
| Keywords: | Small Open Economy DSGE Model, Monetary Policy Rule, Exchange Rate, Structural Estimation, Bayesian Analysis, Wavelets |
| JEL: | C32 E52 F41 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201883&r=mac |
| By: | Ai, Hengjie (University of Minnesota); Bhandari, Anmol (Federal Reserve Bank of Minneapolis) |
| Abstract: | This paper studies asset pricing in a setting in which idiosyncratic risk in human capital is not fully insurable. Firms use long-term contracts to provide insurance to workers, but neither side can commit to these contracts; furthermore, worker-firm relationships have endogenous durations owing to costly and unobservable effort. Uninsured tail risk in labor earnings arises as a part of an optimal risk-sharing scheme. In the general equilibrium, exposure to the resulting tail risk generates higher risk premia, more volatile returns, and variations in expected returns across firms. Model outcomes are consistent with the cyclicality of factor shares in the aggregate, and the heterogeneity in exposures to idiosyncratic and aggregate shocks in the cross section. |
| Keywords: | Equity premium puzzle; Dynamic contracting; Tail risk; Limited commitment |
| JEL: | E3 G1 |
| Date: | 2018–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:570&r=mac |
| By: | World Bank Group |
| Keywords: | Public Sector Development - Public Sector Expenditure Policy Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Access of Poor to Social Services Poverty Reduction - Achieving Shared Growth Poverty Reduction - Inequality |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:30597&r=mac |
| By: | Alfredo Villca; Alejandro Torres; Carlos Esteban Posada; Hermilson Velásquez |
| JEL: | E41 C23 |
| Date: | 2018–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000122:017008&r=mac |
| By: | Selwyn Cornish |
| Abstract: | When inflation targeting was adopted in Australia is disputed. Some believe it commenced in March 1993 when the Governor of the Reserve Bank (Bernie Fraser) referred in a speech to the desirability of maintaining inflation between 2-3 per cent a year. However, he made a similar remark in a speech in August 1992. Some overseas authorities assert that inflation targeting began in 1994, referring to a speech that Fraser made in September of that year when he declared that 2-3 per cent inflation ‘is a reasonable goal for monetary policy’. The year 1994 is also significant because the Treasurer (Ralph Willis) stated in parliament that the government and the Bank had an inflation target of 2-3 per cent. Paul Keating, on the other hand, prefers 1995 as the commencing date, when he and the Secretary of the ACTU (Bill Kelty) included an inflation target of 2-3 per cent in the final Accord agreement between the government and the trade union movement. Another possible starting date is 1996 when the first Statement on the Conduct of Monetary Policy, signed by the Treasurer (Peter Costello) and the incoming Governor of the Reserve Bank (Ian Macfarlane), endorsed ‘the Reserve Bank[‘s]…objective of keeping underlying inflation between 2 and 3 per cent, on average, over the cycle.’ In all probability, there is no definitive starting date for the commencement of inflation targeting in Australia. Rather, its adoption was the result of an evolutionary process, like many other developments in the history of central banking. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:auu:hpaper:072&r=mac |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research) |
| Abstract: | The paper examines behavioral constraints in policy-making and in achieving coordination across policies. First it applies psychological concepts to understand policy inadequacies, and next examines how general reforms or better coordination can be achieved using psychological trigger strategies. |
| Keywords: | Indian policy; Behavioural constraints; Psychological trigger strategies |
| JEL: | D78 E63 D73 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2018-022&r=mac |
| By: | D'Amico, Stefania (Federal Reserve Bank of Chicago); Pancost, N. Aaron (University of Texas at Austin) |
| Abstract: | We estimate the joint term-structure of U.S. Treasury cash and repo rates using daily prices of all outstanding Treasury securities and corresponding special collateral (SC) repo rates. This allows us to derive a risk premium associated to the SC value of Treasuries and quantitatively link this premium to various price anomalies, such as the on-the-run premium. We show that a time-varying SC risk premium can explain between 74%–90% of the on-the-run premium, and is highly correlated with a number of other Treasury market anomalies. This suggests a commonality across these price anomalies, explicitly linked to the SC value of the highest-quality securities—recently-issued U.S. nominal Treasuries. |
| Keywords: | Bond prices; collateral; interest rates; risk premia |
| JEL: | E42 G12 G14 G32 |
| Date: | 2018–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-21&r=mac |
| By: | Fogli, Alessandra (Federal Reserve Bank of Minneapolis); Veldkamp, Laura (Columbia Graduate School of Business) |
| Abstract: | Does the pattern of social connections between individuals matter for macroeconomic outcomes? If so, where do these differences come from and how large are their effects? Using network analysis tools, we explore how different social network structures affect technology diffusion and thereby a country's rate of growth. The correlation between high-diffusion networks and income is strongly positive. But when we use a model to isolate the effect of a change in social networks, the effect can be positive, negative, or zero. The reason is that networks diffuse ideas and disease. Low-diffusion networks have evolved in countries where disease is prevalent because limited connectivity protects residents from epidemics. But a low-diffusion network in a low-disease environment needlessly compromises the diffusion of good ideas. In general, social networks have evolved to fit their economic and epidemiological environment. Trying to change networks in one country to mimic those in a higher-income country may well be counterproductive. |
| Keywords: | Growth; Development; Technology diffusion; Economic networks; Social networks; Pathogens; Disease |
| JEL: | E02 I1 O1 O33 |
| Date: | 2018–11–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:572&r=mac |
| By: | Fogli, Alessandra; Veldkamp, Laura |
| Abstract: | Does the pattern of social connections between individuals matter for macroeconomic outcomes? If so, where do these differences come from and how large are their effects? Using network analysis tools, we explore how different social network structures affect technology diffusion and thereby a country's rate of growth. The correlation between high-diffusion networks and income is strongly positive. But when we use a model to isolate the effect of a change in social networks, the effect can be positive, negative, or zero. The reason is that networks diffuse ideas and disease. Low-diffusion networks have evolved in countries where disease is prevalent because limited connectivity protects residents from epidemics. But a low-diffusion network in a low-disease environment needlessly compromises the diffusion of good ideas. In general, social networks have evolved to fit their economic and epidemiological environment. Trying to change networks in one country to mimic those in a higher-income country may well be counterproductive. |
| Keywords: | Development; disease; economic networks; growth; pathogens; Social Networks; technology diffusion |
| JEL: | E02 I1 O1 O33 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13312&r=mac |
| By: | Christopher Henry; Kim Huynh; Angelika Welte |
| Abstract: | As the sole issuer of bank notes, the Bank of Canada conducts Methods-of-Payment (MOP) surveys to obtain a detailed and representative snapshot of Canadian payment choices, with a focus on cash usage. The 2017 MOP Survey is the third iteration. This paper finds that the overall cash volume and value shares are 33 per cent and 15 per cent, respectively. These results highlight the ongoing decrease of cash usage in terms of volume and value compared with 2009 (54 per cent and 23 per cent, respectively) and 2013 (44 per cent and 23 per cent, respectively). Consumers still rate cash as an easy-to-use, low-cost, secure and widely accepted payment method, and it is commonly used among respondents who are aged 55 and above, have an income of less than $45,000, have only a high school education, or have a low rate of financial literacy. The paper also provides comprehensive details on Canadians’ adoption and use of payment innovations such as contactless credit and debit cards, as well as mobile and online payments. |
| Keywords: | Bank notes, Digital Currencies, Financial services |
| JEL: | D83 E41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:18-17&r=mac |
| By: | Kinghan, Christina (Central Bank of Ireland); Lyons, Paul (Central Bank of Ireland); Mazza, Elena (Central Bank of Ireland) |
| Abstract: | This note provides an overview of residential mortgage lending in Ireland in 2017. It uses data reported to the Central Bank of Ireland as part of the macroprudential mortgage measures. In total, 35,472 loans are covered with a value of e7.4 billion. For first-time buyers (FTBs), the average loan-to-value (LTV) and loan-to-income (LTI) were 79.8 per cent and 3.0 times gross income respectively. Regarding the LTI limit, 18 per cent of the aggregate value of lending to both FTBs and second and subsequent buyers (SSBs) exceeded the limit of 3.5 in 2017. This corresponds to 25 per cent of the value of FTB lending and 10 per cent of the value of SSB lending. Regarding LTV, 17 per cent of the aggregate value of SSB lending in 2017 exceeded the 80 per cent LTV limit. On average, borrowers with an LTI allowance had larger loan sizes and loan terms, were more likely to be based in Dublin and be single compared to those borrowers without an LTI allowance. SSBs with an LTV allowance had larger loan sizes and incomes but lower property values and were younger than those without an LTV allowance.We observe that allowances were allocated to borrowers in all four quarters of 2017. |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:fsnote:01/18&r=mac |
| By: | Guillaume Delalande; Friederike Rühmann; Aussama Bejraoui; Julia Benn |
| Abstract: | The Working Paper summarises the main findings and recommendations of the pilot study, including first orders of magnitude of TOSSD flows to Nigeria. Estimated TOSSD flows to Nigeria in 2016 amounted to approximately USD 3 billion of official development finance and USD 1.9 billion of private finance mobilised through official development interventions. These first orders of magnitude have been estimated using OECD DAC Statistics. However, these figures are likely to be largely underestimated due to information gaps, notably on the People’s Republic of China (hereafter China) and emerging providers’ official support to Nigeria. The results of the pilot also indicate that the current organisational set up of Nigeria, both from an institutional and an IT system perspective, makes it challenging for the Government to access, collate, collect analyse and use data on external financing to the country using national data.The TOSSD pilot in Nigeria confirmed the usefulness of country pilots for testing the TOSSD methodology and for ensuring feedback by partner countries on TOSSD as a measurement framework. The findings also helped to ascertain that the International TOSSD Task Force developing the framework is in the right direction with regard to the main parameters of the measure. Findings contained in the present Working Paper will support the discussions to refine the emerging TOSSD Reporting Instructions in 2018 and 2019. |
| Keywords: | Development Finance, Economic Development, Nigeria, SDG, TOSSD, Transparency |
| JEL: | C4 F3 E44 O11 |
| Date: | 2018–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dcdaaa:50-en&r=mac |
| By: | Sandrine Michel (ART-Dev - Acteurs, Ressources et Territoires dans le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - UPVD - Université de Perpignan Via Domitia - UM3 - Université Paul-Valéry - Montpellier 3 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique, UM - Université de Montpellier) |
| Abstract: | The question of how this spending affects the economic growth is a question as old as economics. While the 19th century showed their countercyclical growth during the phase of depression of the business cycle followed by ratchet effects when economic context is improving, the 20th century has studied the causes of their growth. Economic causes insist first on the correction on income losses and then introduce causality as regards with the dynamics of capital accumulation. At the end of the 1980s, a new assumption (Lucas 1988, Fontvieille 1990) suggests that social spending would have become a driver of growth. This paper searches to verify this assumption. In order to do so, it focuses on the european pathway of social spending development since the 1960s to 2014. It is shown that insofar as social spending is still sensitive to the two last business cycle phase of depression, the 1980s assumption is not invalidated. But the assumption is not verified for other reasons than the expected ones. While social spending avoiding the fall of income used to be countercyclical, the other ones, dedicated to the production of the quality of the people, are becoming acyclical. |
| Keywords: | Economic History,Social spending,Economic growth,Economic Cycles,Endogeneous growth,Régulation Theory,Europe |
| Date: | 2018–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01944296&r=mac |
| By: | Tan, Fei |
| Abstract: | This article is concerned with frequency-domain analysis of dynamic linear models under the hypothesis of rational expectations. We develop a unified framework for conveniently solving and estimating these models. Unlike existing strategies, our starting point is to obtain the model solution entirely in the frequency domain. This solution method is applicable to a wide class of models and permits straightforward construction of the spectral density for performing likelihood-based inference. To cope with potential model uncertainty, we also generalize the well-known spectral decomposition of the Gaussian likelihood function to a composite version implied by several competing models. Taken together, these techniques yield fresh insights into the model’s theoretical and empirical implications beyond what conventional time-domain approaches can offer. We illustrate the proposed framework using a prototypical new Keynesian model with fiscal details and two distinct monetary-fiscal policy regimes. The model is simple enough to deliver an analytical solution that makes the policy effects transparent under each regime, yet still able to shed light on the empirical interactions between U.S. monetary and fiscal policies along different frequencies. |
| Keywords: | solution method, analytic function, Bayesian inference, spectral density, monetary and fiscal policy |
| JEL: | C32 C51 C52 C65 E63 H63 |
| Date: | 2018–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:90487&r=mac |
| By: | Carolina Correa-Caro; Leandro Medina; Marcos Poplawski-Ribeiro; Bennett W Sutton |
| Abstract: | Using financial statement data from the Thomson Reuter’s Worldscope database for 22,333 non-financial firms in 52 advanced and emerging economies, this paper examines how fiscal stimulus (i.e., changes in structural deficit) interacted with sectoral business cycle sensitivity affected corporate profitability during the recovery period of the global financial crisis (GFC). Using cross-sectional analyses, our findings indicate that corporate profitability improved significantly after the GFC fiscal stimulus, especially in manufacturing, utilities and retail sectors. Firm size and leverage are also found to be significant in explaining changes in corporate profitability. |
| Date: | 2018–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:18/251&r=mac |
| By: | Michaelides, Panayotis G.; Tsionas, Efthymios G.; Konstantakis, Konstantinos N. |
| Abstract: | In this work, we investigate the dynamic interdependencies among the EU12 economies using a competitive general equilibrium network system representation. Additionally, using Bayesian techniques, we estimate the autoregressive scheme that characterizes the equilibrium price system of the network, while characterizing each economy/node in the universe of our network in terms of its degree of pervasiveness. In this context, we unveil the dominant(s) unit(s) in our model and estimate the dynamic linkages between the economies/nodes. Lastly, in terms of robustness analysis, we compare the findings of the degree pervasiveness of each economy against other popular quantitative methods in the literature. According to our findings, the economy of Germany acts as weakly dominant entity in the EU12 economy. Meanwhile, all shocks die out in the short run, without any long lasting effect. |
| Keywords: | Bayesian; GVAR; Crisis; Transmission; Debt; EU12 |
| JEL: | E1 O5 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:89998&r=mac |
| By: | Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Anthony Terriau (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France) |
| Abstract: | In developing countries, informality is mainly concentrated on younger and older workers. In this paper, we propose a dual labor market theory that highlights how frictions and taxation in the formal sector as well as educational choices interact to shape the informality rate over the life-cycle. We develop a life-cycle model with search frictions, skill heterogeneities, and endogenous educational choices. We carry out a numerical analysis and show that our model reproduces remarkably well the life-cycle patterns of informality, non-employment and formal employment in Argentina. We analyze several public policies and show that an educational grant reduces both informality and non-employment and may be fully financed by the extra tax revenues generated by the increase in formal employment and wages. Lowering taxes may achieve similar results but is detrimental for the government budget, in the case of Argentina, despite increasing the base on which they are levied. |
| Keywords: | Informality, Search and Matching, Life-cycle, Public policy, Laffer curve |
| JEL: | E26 O17 J64 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1834&r=mac |