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on Macroeconomics |
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Issue of 2019‒06‒17
ninety-six papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Mitman, Kurt; Rabinovich, Stanislav |
| Abstract: | Countercyclical unemployment benefit extensions in the United States act as a propagation mechanism, contributing to both the high persistence of unemployment and its weak correlation with productivity. We show this by modifying an otherwise standard frictional model of the labor market to incorporate a stochastic and state-dependent process for unemployment insurance estimated on US data. Accounting for movements in both productivity and unemployment insurance, our calibrated model is consistent with unemployment dynamics of the past 50 years. In particular, it explains the emergence of jobless recoveries in the 1990's as well as their absence in previous recessions, the low correlation between unemployment and labor productivity, and the apparent shifts in the Beveridge curve following recessions. Next, we embed this mechanism into a medium-scale DSGE model, which we estimate using standard Bayesian methods. Both shocks to unemployment benefits and their systematic component are shown to be important for the sluggish recovery of employment following recessions, in particular the Great Recession, despite the fact that shocks to unemployment benefits account for little of the overall variance decomposition. If we also incorporate other social safety nets, such as food stamps (SNAP), the estimated model assigns an even bigger role to policy in explaining sluggish labor market recovery. We also find that unemployment benefit extensions prevented deflation in the last three recessions, thus acting similarly to a wage markup shock. |
| Keywords: | business cycles; jobless recoveries; Unemployment insurance |
| JEL: | E24 E32 J65 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13760&r=all |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research); Abhishek Kumar (Indira Gandhi Institute of Development Research) |
| Abstract: | New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models with various specifications oftechnology, markup and interest rate shocks are estimated with Indian data using Kalman filter basedpure and Bayesian likelihood estimation. Preference and interest rate shocks are found to be importantfor output determination whereas markup and interest rate shocks are important for inflation. News,such as contained in stock market variables and arising from anticipated interest rates, affects growth ofgross domestic product. Interest rate shock is anticipated at horizon of one quarter and out of totalvariance explained by interest rate shock, one third is due to the anticipated shock. Anticipated interestrate shock diminishes the role of preference shock in output determination. Markup shock has a largeshare, very low persistence but is correlated. There is evidence that permanent component of technologyis not well anticipated, and once we incorporate that technology shocks become more important fordetermination of output although it still remains much below US levels. Implications for policy aredrawn out. |
| Keywords: | DSGE; India; News; Noise; Technology Shock; Learning; Anticipated Shocks;Kalman Filter; Maximum Likelihood; Inflation; Monetary Policy |
| JEL: | E31 E32 E52 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2019-010&r=all |
| By: | Francisco Ilabaca (Department of Economics, University of California-Irvine); Greta Meggiorini (Department of Economics, University of California-Irvine); Fabio Milani (Department of Economics, University of California-Irvine) |
| Abstract: | This paper estimates a Behavioral New Keynesian model to revisit the evidence that passive US monetary policy in the pre-1979 sample led to indeterminate equilibria and sunspot-driven fluctuations, while active policy after 1982, by satisfying the Taylor principle, was instrumental in restoring macroeconomic stability. The model assumes "cognitive discounting", i.e., consumers and firms pay less attention to variables further into the future. We estimate the model allowing for both determinacy and indeterminacy. The empirical results show that determinacy is preferred both before and after 1979. Even if monetary policy is found to react only mildly to inflation pre-Volcker, the substantial degrees of bounded rationality that we estimate prevent the economy from falling into indeterminacy. |
| Keywords: | Behavioral New Keynesian model; Cognitive discounting; Myopia; Estimation under determinacy and indeterminacy; Taylor principle; Active vs passive monetary policy |
| JEL: | E31 E32 E52 E58 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:181906&r=all |
| By: | Altavilla, Carlo; Brugnolini, Luca; Gürkaynak, Refet S.; Motto, Roberto; Ragusa, Giuseppe |
| Abstract: | We study the information flow from the ECB on policy dates since its inception, using tick data. We show that three factors capture about all of the variation in the yield curve but that these are different factors with different variance shares in the window that contains the policy decision announcement and the window that contains the press conference. We also show that the QE-related policy factor has been dominant in the recent period and that Forward Guidance and QE effects have been very persistent on the longer-end of the yield curve. We further show that broad and banking stock indices' responses to monetary policy surprises depended on the perceived nature of the surprises. We find no evidence of asymmetric responses of financial markets to positive and negative surprises, in contrast to the literature on asymmetric real effects of monetary policy. Lastly, we show how to implement our methodology for any policy-related news release, such as policymaker speeches. To carry out the analysis, we construct the Euro Area Monetary Policy Event-Study Database (EA-MPD). This database, which contains intraday asset price changes around the policy decision announcement as well as around the press conference, is a contribution on its own right and we expect it to be the standard in monetary policy research for the euro area. |
| Keywords: | Asymmetry; ECB policy surprise; Event-Study; intraday; Persistence |
| JEL: | E43 E44 E52 E58 G12 G14 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13759&r=all |
| By: | Francesco Pappadà; Yanos Zylberberg |
| Abstract: | We show that tax compliance is volatile and markedly responds to fiscal policy. To explore the consequence of this novel stylized fact, we build a model of sovereign debt with limited commitment and imperfect tax enforcement. Fiscal policy persistently affects the size of the informal economy, which impact future fiscal revenues and thus default risk. This mechanism captures a key empirical regularity of economies with imperfect tax enforcement: the low sensitivity of debt price to fiscal consolidations. The interaction of imperfect tax enforcement and limited commitment strongly constrains the dynamics of optimal fiscal policy. During default crises, high tax distortions force the government towards extreme fiscal policies, notably including costly austerity spells. |
| Keywords: | Sovereign Default, Imperfect Tax Enforcement, Fiscal Policy. |
| JEL: | E02 E32 E62 F41 H20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:722&r=all |
| By: | Kristina Bluwstein (Bank of England); Michał Brzoza-Brzezina (Narodowy Bank Polski); Paolo Gelain (Federal Reserve Bank of Cleveland); Marcin Kolasa (Narodowy Bank Polski) |
| Abstract: | We study the implications of multi-period mortgage loans for monetary policy, considering several realistic modifications – fixed interest rate contracts, a lower bound constraint on newly granted loans, and the possibility of the collateral constraint to become slack – to an otherwise standard DSGE model with housing and financial intermediaries. We estimate the model in its nonlinear form and argue that all these features are important to understand the evolution of mortgage debt during the recent US housing market boom and bust. We show how the nonlinearities associated with the two constraints make the transmission of monetary policy dependent on the housing cycle, with weaker effects observed when house prices are high or start falling sharply. We also find that higher average loan duration makes monetary policy less effective, and may lead to asymmetric responses to positive and negative monetary shocks. |
| Keywords: | mortgages, fixed-rate contracts, monetary policy |
| JEL: | E44 E51 E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:307&r=all |
| By: | Harashima, Taiji |
| Abstract: | In this paper, I construct an inflation model in an economy where the government and households behave under a procedure based on the maximum degree of comfortability (MDC) to reach steady state. MDC indicates the state at which the combination of revenues and assets is felt most comfortable. I show that, if MDCs of the government and households are not consistent, inflation accelerates (or decelerates) because the government behaves to match the rate of increase of its real obligations with its MDC, but households and firms behave to match the real interest rate with household’s MDC. This inconsistency or contradiction must be resolved by acceleration (or deceleration) of inflation. To control inflation, therefore, a truly independent central bank is needed because MDC is a type of preference. The central bank can control the government’s MDC by forcing the government to increase its real obligations and thereby control inflation. |
| Keywords: | Capital-wage ratio; Deflation; Inflation acceleration; Law of motion for inflation; Monetary policies |
| JEL: | E31 E50 |
| Date: | 2019–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94100&r=all |
| By: | Efrem Castelnuovo |
| Abstract: | How does the yield curve respond to a jump in financial uncertainty? We address this question by conducting a local projections analysis with US monthly data, period: 1962- 2018. The state-of-the-art financial uncertainty measure proposed by Ludvigson, Ma, and Ng (2019) is found to predict movements in interest rates of the entire US yield curve. Both ends of the yield curve respond negatively and significantly. The response of the short end of the yield curve is found to be stronger than that of the long end, i.e., a financial uncertainty shock causes a temporary steepening of the yield curve. This result is consistent, among other interpretations, with medium-term expectations of a recovery in real activity after a financial uncertainty shock. |
| Keywords: | Financial uncertainty shocks, yield curve, local projections, inflation dynamics, output growth. |
| JEL: | C22 E32 E52 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-38&r=all |
| By: | Sondermann, David; Consolo, Agostino; Gunnella, Vanessa; Koester, Gerrit; Lambrias, Kyriacos; Lopez-Garcia, Paloma; Nerlich, Carolin; Petroulakis, Filippos; Saiz, Lorena; Serafini, Roberta |
| Abstract: | Well-functioning economic structures are key for resilient and prospering euro area economies. The global financial and sovereign debt crises exposed the limited resilience of the euro area’s economic structures. Economic growth was masking underlying weaknesses in several euro area countries. With the inception of the crises, significant efforts have been undertaken by Member States individually and collectively to strengthen resilience of economic structures and the smooth functioning of the euro area. National fiscal policies were consolidated to keep the increase in government debt contained and structural reform momentum increased notably in the second decade, particularly in those countries most hit by the crisis. The strengthened national economic structures were supported by a reformed EU crisis and economic governance framework. However, overall economic structures in euro area countries are still not fully commensurate with the requirements of a monetary union. Moreover, remaining challenges, such as population ageing, low productivity and the implications of digitalisation, will need to be addressed to increase economic resilience and long-term growth. JEL Classification: E31, E32, E60, E62, F10, J11, O43 |
| Keywords: | economic structures, euro area, growth., resilience |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2019224&r=all |
| By: | Ignacio Lozano-Espitia (Banco de la República de Colombia); Juan Manuel Julio-Román (Banco de la República de Colombia) |
| Abstract: | En este documento se analiza el límite de la deuda pública y el espacio fiscal para Colombia y otras economías emergentes, bajo el enfoque de la fatiga fiscal (Ghosh et. al., 2013). El estado de fatiga se presenta en situaciones de incrementos continuos de la deuda y del pago de los intereses, que llevan a que los esfuerzos del gobierno para generar superávits primarios se deterioren. El trabajo utiliza la técnica de los splines para estimar la reacción del gobierno a la dinámica de deuda y plantea una prima de riesgo endógena a su evolución. Las estimaciones se realizan con un panel desbalanceado de trece economías, seis de la región, para el periodo 1985–2016. Los resultados sugieren que el límite de la deuda pública de país se situaría en 56% del PIB y el espacio fiscal ascendería a 7 p.p. del producto, el cual luce estrecho especialmente por la sensibilidad de la deuda a los choques externos. Frente a otros países de la región, Chile cuenta con el mayor espacio fiscal, al tiempo que México y Ecuador, con endeudamientos cercanos al colombiano, disponen de menor espacio. **** ABSTRACT: This paper assess the public debt limit and fiscal space for Colombia and some emerging economies, under the fiscal fatigue approach (Ghosh et. al., 2013). The fatigue phenomenon occurs under situations of continuous increases of both debt and interest payments, which lead to government´s efforts to obtain primary surpluses to deteriorate. The paper uses the spline technique to estimate the government's reaction function to debt dynamics and proposes a sovereign risk premium endogenous to the level of indebtedness. Estimates carry out with an unbalanced panel of thirteen economies, six of them from Latin America, for the period 1985-2016. Results suggest that the limit of Colombian public debt would be 56% of GDP and that fiscal space would amount to 7 points of GDP, which looks so narrow due to the debt sensitivity to external shocks. In front to other countries, Chile has the largest fiscal space, while Mexico and Ecuador, with comparable indebtedness to the Colombian, have lower spaces. |
| Keywords: | Deuda; Sostenibilidad; política fiscal; balance primario, Debt, sustainability, fiscal policy, primary balance |
| JEL: | E27 E44 E61 E62 H62 H63 H68 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1076&r=all |
| By: | Chao Gu, Cyril Monnet, Ed Nosal, Randall Wright |
| Abstract: | Are ?financial intermediaries inherently unstable? If so, why? What does this suggest about government intervention? To address these issues we analyze whether model economies with ?financial intermediation are particularly prone to multiple, cyclic, or stochastic equilibria. Four formalizations are considered: a dynamic version of Diamond-Dybvig banking incorporating reputational considerations; a model with delegated investment as in Diamond; one with bank liabilities serving as payment instruments similar to currency in Lagos- Wright; and one with Rubinstein-Wolinsky intermediaries in a decentralized asset market as in Duffie et al. In each case we ?find, for different reasons, ?financial intermediation engenders instability in a precise sense. |
| Keywords: | Banking, Financial Intermediation, Instability, Volatility |
| JEL: | D02 E02 E44 G21 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1902&r=all |
| By: | Martin Harding; Mathias Klein |
| Abstract: | This study investigates the interrelation between the household leverage cycle, collateral constraints, and monetary policy. Using data on the U.S. economy, we find that a contractionary monetary policy shock leads to a large and significant fall in economic activity during periods of household deleveraging. In contrast, monetary policy shocks only have insignificant effects during a household leveraging state. These results are robust to alternative definitions of leveraging and deleveraging periods, different ways of identifying monetary policy shocks, controlling for the state of the business cycle, the level of households debt, and financial stress. To provide a structural interpretation for these empirical findings, we estimate a monetary DSGE model with financial frictions and occasionally binding collateral constraints. The model estimates reveal that household deleveraging periods in the data on average coincide with periods of binding collateral constraints whereas constraints tend to turn slack during leveraging episodes. Moreover, the model produces an amplification of monetary policy shocks that is quantitatively comparable to our empirical estimates. These findings indicate that the state-dependent tightness of collateral constraints accounts for the asymmetric effects of monetary policy across the household leverage cycle as found in the data. |
| Keywords: | Monetary policy, household leverage, occasionally binding constraints |
| JEL: | E32 E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1806&r=all |
| By: | Marcin Kolasa (Narodowy Bank Polski); Grzegorz Wesołowski (Narodowy Bank Polski) |
| Abstract: | This paper develops a two-country model with asset market segmentation to investigate the effects of quantitative easing implemented by the major central banks on a typical small open economy that follows independent monetary policy. The model is able to replicate the key empirical facts on emerging countries’ response to large scale asset purchases conducted abroad, including inflow of capital to local sovereign bond markets, an increase in international comovement of term premia, and change in the responsiveness of the exchange rate to interest rate differentials. According to our simulations, quantitative easing abroad boosts domestic demand in the small economy, but undermines its international competitiveness and depresses aggregate output, at least in the short run. This is in contrast to conventional monetary easing in the large economy, which has positive spillovers to output in other countries. We also find that limiting these spillovers might require policies that affect directly international capital flows, like imposing capital controls or mimicking quantitative easing abroad by purchasing local long-term bonds. |
| Keywords: | quantitative easing, international spillovers, bond market segmentation, term premia |
| JEL: | E44 E52 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:309&r=all |
| By: | Egemen Eren; Semyon Malamud |
| Abstract: | We propose a "debt view" to explain the dominant international role of the dollar. We develop an international general equilibrium model in which firms optimally choose the currency composition of their nominal debt. Expansionary monetary policy in downturns prevents Fisherian debt deflation through its effects on inflation and exchange rates, and alleviates financial distress. Theoretically, the dominant currency is the one that depreciates in global downturns over horizons of corporate debt maturity. Empirically, the dollar fits this description, despite being a short-run safe-haven currency. We provide broad empirical support for the debt view. We also study the globally optimal monetary policy. |
| Keywords: | dollar debt, dominant currency, exchange rates, inflation, debt deflation |
| JEL: | E44 E52 F33 F34 F41 F42 F44 G01 G15 G32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:783&r=all |
| By: | Lukas Altermatt |
| Abstract: | I build a general equilibrium model of the transmission of monetary policy on bank lending. Bank lending is done by individual banks that face random investment opportunities by creating inside money. Banks are subject to a reserve requirement and have access to the interbank money market. The model shows that lowering the money market rate relative to the inflation rate reduces investment and welfare. This is because the money market is an outside option for banks that face bad investment opportunities. Reducing the money market rate lowers the value of this outside option, which in turn reduces banks’ willingness to acquire reserves ex-ante. This leads to less aggregate reserves, which reduces the banking system’s ability to grant credit. |
| Keywords: | Monetary policy transmission, open market operations, channel system, interest rate pass-through |
| JEL: | E4 E5 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:325&r=all |
| By: | Alexander Herzog-Stein; Camille Logeay |
| Abstract: | The German minimum wage was introduced in January 2015. This paper investigates the short-term macroeconomic impacts of its introduction. Therefore, an estimated VAR/VECM is used to perform forecasts that are interpreted as counterfactual to the introduction of the minimum wage and compared to actual developments of six key macroeconomic variables. The deviations are interpreted as minimum wage effects. Robustness checks as well as a comparison with descriptive empirical results are performed to assess the validity of the results. Overall, small positive price effects, significant positive wage effects, and positive employment effects although not robustly estimated in their magnitude are found. |
| Keywords: | Minimum Wage, VAR, VECM, Wage, Price, Employment, Macroeconomics, Germany |
| JEL: | E65 E24 E17 E01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:197-2019&r=all |
| By: | Sangyup Choi (Yonsei University); Davide Furceri (IMF); Prakash Loungani (IMF) |
| Abstract: | Central bankers often assert that anchoring of inflation expectations and reducing inflation uncertainty are good for economic outcomes. We test this claim and search for a relevant channel using panel data on sectoral growth for 22 manufacturing industries from 36 advanced and emerging market economies over the period 1990-2014. Our difference-in-difference strategy is based on the theoretical prediction that inflation uncertainty has larger effects in industries that are more credit constrained by increasing effective real borrowing costs. The results show that industries characterized by high external financial dependence, low asset tangibility, and high R&D intensity tend to grow faster in countries with well-anchored inflation expectations. The results are robust to controlling for the interaction between these characteristics and a broad set of macroeconomic variables over the sample period, including the level of inflation and output volatility. The results are also robust to IV techniques, using indicators of monetary policy transparency and independence as instruments. |
| Keywords: | industry-level growth; inflation anchoring; inflation uncertainty; long-run growth; credit constraints. |
| JEL: | E52 E63 O11 O43 O47 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2019rwp-143&r=all |
| By: | Tomasz Chmielewski (Narodowy Bank Polski); Tomasz Łyziak (Narodowy Bank Polski); Ewa Stanisławska (Narodowy Bank Polski) |
| Abstract: | The aim of this paper is to test whether the risk-taking channel of monetary policy transmission mechanism is active in Poland, an emerging market economy. Based on confidential bank-level data we construct novel measures of risk taken by banks. These measures do not require access to loan-level data, nor rely on data from surveys among credit officers. We find some evidence of the risk-taking behaviour of Polish banks, however, only in the segment of large loans to non-financial corporations we are able to conclude that increased risk of new loans represent supply-side phenomenon. We show that the loosening of monetary policy has different effects depending on the initial level of interest rates – the lower the interest rate is, the larger the increase in risk that is generated by the lowering of interest rate. This response is different across banks, with stronger reaction displayed by banks that are large, with low liquidity and with deposits being the most important funding source. Our results contribute to ongoing discussion on consequences of conducting monetary policy in the low interest rate environment as currently observed in many advanced and emerging economies. |
| Keywords: | risk-taking channel, monetary policy, low interest rates |
| JEL: | E44 E52 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:305&r=all |
| By: | Waknis, Parag |
| Abstract: | A surprise demonetization, where certain or all denominations of currency notes cease to be legal tender on a short notice, can be understood as a severe payment system shock requiring agents to immediately shift to alternative payment mechanisms. I use a short-term macroeconomic model based on Willamson (2009) featuring goods and financial market segmentation to analyze the effect of such a shock in an economy with substantial informality and cash dependence. The quantitative characterization of the equilibrium dynamics using a deterministic example shows significant level as well as redistributive effects in the very short run. The households with access to formal financial markets experience an increase in consumption and those without such access experience a decline. Most of these effects come from differential access to formal financial markets as a consumption smoothing mechanism. |
| Keywords: | demonetization, segmented markets, payments systems |
| JEL: | E26 E42 E52 |
| Date: | 2019–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94171&r=all |
| By: | David C. López-Valenzuela (Banco de la República de Colombia); Enrique Montes-Uribe (Banco de la República de Colombia); Héctor M. Zárate-Solano (Banco de la República de Colombia); Alvaro Carmona-Duarte (Banco de la República de Colombia) |
| Abstract: | Este documento describe el comportamiento de las exportaciones colombianas de bienes industriales a partir de un enfoque que desagrega entre precios (en dólares) y volúmenes. A partir de un modelo Panel-VAR por sectores, se cuantifican los principales determinantes que inciden tanto en la formación de precios de los exportadores colombianos relativos a los internacionales como en la demanda de sus productos. Se encuentra que la demanda externa es la variable de mayor incidencia para el desempeño exportador, en especial por su efecto más que proporcional sobre los volúmenes despachados. Adicionalmente, el valor de la elasticidad de los precios relativos en dólares ante movimientos del tipo de cambio real es bajo, pero estadísticamente significativo, es decir, depreciaciones (o apreciaciones) del tipo de cambio real reducen (o aumentan) los precios de exportación de manufacturas colombianas en relación a los internacionales. También se encuentra que este abaratamiento (o encarecimiento) de las manufacturas colombianas frente a las de sus competidores se traduce en un aumento (o reducción), pero menos que proporcional, de las cantidades exportadas. **** ABSTRACT: The main purpose of this paper is to examine the behavior of the Colombian exports of industrial goods based on an approach that separate the export value into prices (in USA dollars) and volumes. We quantify the effect of the main determinants that explain both the relative price formation of Colombian exporters and the demand for their products. The econometric methodology relies on a Panel vector autoregression (VAR) model with sectors. The results indicate that external demand has the greatest effect on Colombian industrial exports, especially due to the more than proportional impact on quantities shipped. Furthermore, real exchange rate elasticity of relative prices in dollars is low but statistically significant, which means that depreciations (appreciations) of the real exchange rate reduce (increase) the Colombian export prices relative to the international prices. Moreover, a reduction (increase) of relative prices of Colombian manufactures could cause a less than proportional increase (reduction) in the exported quantities. |
| Keywords: | Determinantes de las exportaciones industriales, precios y cantidades, Panel-VAR, Determinants of industrial exports, prices and quantities, Panel-VAR |
| JEL: | E41 E42 E47 E58 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1075&r=all |
| By: | Oleksiy Kryvtsov; Luba Petersen |
| Abstract: | We use controlled laboratory experiments to test the causal effects of central bank communication on economic expectations and to distinguish the underlying mechanisms of those effects. In an experiment where subjects learn to forecast economic variables, we find that central bank communication has a stabilizing effect on individual and aggregate outcomes and that the size of the effect varies with the type of communication. Announcing past interest rate changes has the largest effect, reducing individual price and expenditure forecast volatility by one- and two-thirds, respectively; cutting half of inflation volatility; and improving price-level stability. Forward-looking announcements in the form of projections and forward guidance of upcoming rate decisions have less effect on individual forecasts, especially if they do not clarify the timing of future policy changes. Our evidence does not link the effects of communication to forecasters’ ability to predict future nominal interest rates. Rather, communication is effective via simple and relatable backward-looking announcements that exert strong influence on less-accurate forecasters. We conclude that increasing the accessibility of central bank information to the general public is a promising direction for improving central bank communication. |
| Keywords: | Monetary policy implementation; Transmission of monetary policy |
| JEL: | C9 D84 E3 E52 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-21&r=all |
| By: | Bonciani, Dario (Bank of England); Oh, Joonseok Jason (European University Institute) |
| Abstract: | This paper argues that shocks increasing macroeconomic uncertainty negatively affect economic activity not only in the short but also in the long run. In a sticky-price DSGE model with endogenous growth through investment in R&D, uncertainty shocks lead to a short-term fall in demand because of precautionary savings and rising markups. The decline in the utilised aggregate stock of R&D determines a fall in productivity, which causes a long-term decline in the main macroeconomic aggregates. When households feature Epstein-Zin preferences, they become averse to these long-term risks affecting their consumption process (long-run risk channel), which strongly exacerbates the precautionary savings motive and the overall negative effects of uncertainty shocks. |
| Keywords: | Uncertainty shocks; R&D; endogenous growth |
| JEL: | E32 O40 |
| Date: | 2019–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0802&r=all |
| By: | Carlos A. Arango-Arango (Banco de la República de Colombia); Nicolás F. Suárez-Ariza (Banco de la República de Colombia) |
| Abstract: | Even though the levels and growth rates of adoption of digital payments have reached significant figures in the recent past, the demand for cash continues to grow in both developed and developing economies across the world. This puzzle has found only partial explanations in the previous empirical literature. We bring further and more conclusive evidence that the adoption of digital payments indeed reduces the demand for cash. Yet, economic growth and lower interest rates as well as positive trends in the demand for large denomination banknotes, not explained by traditional factors, still dominate the overall growth in the demand for cash. **** RESUMEN: Aun cuando los niveles y tasas de crecimiento de la adopción de pagos digitales han alcanzado valores signicativos en el pasado reciente, la demanda por efectivo continua creciente tanto en economías desarrolladas como en desarrollo alrededor del mundo. Este acertijo solo ha encontrado explicaciones parciales en la literatura previa. Nosotros proveemos evidencia adicional y más concluyente de que la adopción de pagos digitales reduce la demanda por efectivo. Sin embargo, el crecimiento económico y las menores tasas de interés, así como las tendencias positivas en la demanda por billetes de alta denominación, no explicadas por variables tradicionales, aun dominan el crecimiento agregado en la demanda de efectivo. |
| Keywords: | money demand, digital payments, cash, denominational structure, panel data, demanda de dinero, pagos digitales, efectivo, estructura denominacional, datos panel |
| JEL: | E41 E42 E47 E58 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1074&r=all |
| By: | Roger E A Farmer; Giovanni Nicolo |
| Abstract: | Farmer and Nicolò (2018) show that the Farmer Monetary (FM)-Model outperforms the threeequation New-Keynesian (NK)-model in post war U.S. data. In this paper, we compare the marginal data density of the FM-model with marginal data densities for determinate and indeterminate versions of the NK-model for three separate samples using U.S., U.K. and Canadian data. We estimate versions of both models that restrict the parameters of the private sector equations to be the same for all three countries. Our preferred specification is the constrained version of the FMmodel which has a marginal data density that is more than 30 log points higher than the NK alternative. Our findings also demonstrate that cross-country macroeconomic differences are well explained by the different shocks that hit each economy and by differences in the ways in which national central banks reacted to those shocks. |
| Keywords: | Phillips curve, Keynesian economics |
| JEL: | E3 E4 F0 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:505&r=all |
| By: | Remzi Baris Tercioglu (Department of Economics, New School for Social Research) |
| Abstract: | Since the 1980s, financial, healthcare and professional-business services (PBS) have grown rapidly and produced more of the US value-added, however, these services do not produce final uses for households. This paper explores the impacts of treating finance, healthcare, and PBS as intermediate consumption of the economy on US growth rates, decomposition of expenditures, and distribution of income over 1947-2017. After adjustments to the National Income and Product Accounts (NIPAs), the annual per capita growth declines by one-fourth after 1980, decomposition of expenditures changes in favor of investment and government spending, and the compensation of employees (CE) share of output declines sharply as more than 90% of the expenditures on finance, healthcare and PBS are financed out of CE. Average CE stagnates even though labor productivity continues to grow after adjustments; thus creating a productivity gap. The current treatment of finance, healthcare, and PBS in the NIPAs not only overestimates growth but also understates income inequality. |
| Keywords: | National income accounting, measurement of real output growth, functional distribution of income, labor productivity, inequality |
| JEL: | E01 E25 D33 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1906&r=all |
| By: | Claus Brand (European Central Bank); Marcin Bielecki (Narodowy Bank Polski); Adrian Penalver (Banque de France) |
| Abstract: | Using a wide range of models we document a protracted fall in the natural (or neutral) rate of interest in advanced economies, driven by ageing, waning productivity growth, arise in mark-ups, and a surge in risk aversion in the wake of the global financial crisis. While our neutral rate estimates are highly uncertain and model dependent, most of them have been negative in the wake of the financial crisis. This observation is highly relevant for assessing the monetary policy stance and the risk of monetary policy becoming constrained by the lower bound on nominal interest rates. We highlight model dependence of natural rate estimates by illustrating large differences in their stabilising properties, depending on the context chosen. We also emphasise high statistical uncertainty of natural rate estimates within models. Looking ahead, a return to higher levels would have to come from a reversal in risk aversion and flight to safety and a boost in productivity. To achieve this, structural reforms are crucial. |
| Keywords: | Natural rate of interest, return on capital, demographics, productivity growth, monetary policy |
| JEL: | E52 E43 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:308&r=all |
| By: | Luis Julián Álvarez (Banco de España) |
| Abstract: | En este documento se presentan de forma breve los principales usos de las estadísticas de precios de consumo, prestando especial atención a la predicción de la inflación mediante modelos econométricos. También se realizan algunas propuestas de cara a aumentar la utilidad del índice de precios de consumo para los usuarios finales. |
| Keywords: | precios de consumo, curva de Phillips, función de transferencia, ARIMA, predicción |
| JEL: | C53 E31 E37 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:1910&r=all |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research); Prashant Parab (Indira Gandhi Institute of Development Research) |
| Abstract: | We analyze the inflation expectation formation of Indian Households using Inflation Expectations Survey of Households dataset, and draw out its implications for the effectiveness and use of the expectations channel of monetary policy transmission. Using quantitative responses we discover that households' expectations are adaptive and backward looking. They are not efficient. Food inflation has a significant short run impact but the effect of core inflation increases over the long run. There is considerable heterogeneity across households with females, daily workers, young and retired persons having higher inflation expectations than their counterparts. Unlike advanced economies, retired persons have higher expectations perhaps due to the accumulated information about higher inflation in the past, inadequate social security and underdeveloped pension schemes. Households do not overreact in comparison to the forecasts of RBI and professional forecasters. But short term reactions are significant and heterogeneous across households. The large speed of adjustment, absence of over-reaction, low response coefficients to commodity shocks in a simultaneous and impact of the RBI's forecasted path bodes well for successfully anchoring household inflation expectations in the process of inflation targeting, but requires that these forecasts are carefully made with a focused use of the expectations channel. Communications have more of an impact on inflation expectations than the interest rate. A repo rise actually raises inflation expectations pointing to the ineffectiveness of the aggregate demand channel and of aggressive rate rises. |
| Keywords: | Inflation expectations of households, rationality, heterogeneity, anchoring, inflation targeting, central bank communication |
| JEL: | C30 D83 D84 E52 E58 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2019-02&r=all |
| By: | Takashi Ui (Hitotsubashi University) |
| Abstract: | In the Lucas Imperfect Information model, output responds to unanticipated monetary shocks. We incorporate more general information structures into the Lucas model and demonstrate that output also responds to (dispersedly) anticipated monetary shocks if the information is imperfect common knowledge. Thus, the real effects of money consist of the unanticipated part and the anticipated part, and we decompose the latter into two effects, an imperfect common knowledge effect and a private information effect. We then consider an information structure composed of public and private signals. The real effects disappear when either signal reveals monetary shocks as common knowledge. However, when the precision of private information is fixed, the real effects are small not only when a public signal is very precise but also when it is very imprecise. This implies that a more precise public signal can amplify the real effects and make the economy more volatile. |
| Keywords: | real effects, neutrality of money, iterated expectations, the Lucas model, imperfect common knowledge |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utmpwp:007&r=all |
| By: | Daryna Grechyna (Department of Economic Theory and Economic History, University of Granada.) |
| Abstract: | This paper studies the relationship between the structure of public spending and political frictions in a political model of optimal fiscal policy. I consider the distinction between mandatory and discretionary public spending and show that different legislative nature of these components of government spending leads to a divergent impact of mandatory and discretionary spending on politically-driven macroeconomic volatility. Increasing the fraction of mandatory spending in total government spending reduces volatility; increasing the fraction of discretionary spending has the opposite effect. The presence of the legislative requirements behind the changes in mandatory public spending can explain the simultaneous rise in political polarization and decline in the U.S output volatility after the 1980s. |
| Keywords: | optimal fiscal policy; political polarization; mandatory and discretionary public spending. |
| JEL: | E6 H1 H3 H4 |
| Date: | 2019–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:gra:wpaper:19/05&r=all |
| By: | Pedro Bento; Diego Restuccia |
| Abstract: | A well-documented observation of the U.S. economy in the last few decades has been the steady decline in the net entry rate of employer firms, a decline in business dynamism, suggesting a possible connection with the recent slowdown in aggregate productivity growth. We consider the role of nonemployers, businesses without paid employees, in business dynamism and aggregate productivity. Notwithstanding the decline in the growth of employer firms, we show that the total number of firms, which includes nonemployer businesses, has increased in the U.S. economy since the early 1980s. We interpret this trend, along with the evolution of the employment distribution across firms, through the lens of a standard theory of firm dynamics. The model implies that firm dynamics have contributed to an average annual growth rate of aggregate productivity of at least 0.26% since the early 1980s, over one quarter of the productivity growth of 1% in the data. Further, our implied measure of productivity growth moves closely over time with measured productivity growth in the data. |
| Keywords: | Nonemployers, employer firms, business dynamism, productivity, TFP. |
| JEL: | O1 O4 O5 E02 E1 |
| Date: | 2019–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-640&r=all |
| By: | Luís Guimarães (Queen’s University Belfast and cef.up); Pedro Mazeda Gil (cef.up, FEP, Universidade do Porto) |
| Abstract: | We propose a simple model to assess the evolution of the US labor share and how automation affects employment. In our model, heterogeneous firms may choose a manual technology and hire a worker subject to matching frictions. Alternatively, they may choose an automated technology and produce using only machines (robots). Our model offers three main insights. First, automation-augmenting shocks reduce the labor share but increase employment and wages. Second, labor market institutions play an almost insignificant role in explaining the labor share. Third, the US labor share only (clearly) fell after 1987 because of a contemporaneous acceleration of automation's productivity. |
| Keywords: | Automation; Labor Share; Technology Choice; Employment; Matching Frictions. |
| JEL: | E24 J64 L11 O33 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:por:cetedp:1901&r=all |
| By: | Luis Guimaraes; Pedro Mazeda Gil |
| Abstract: | We propose a simple model to assess the evolution of the US labor share and how automation affects employment. In our model, heterogeneous firms may choose a manual technology and hire a worker subject to matching frictions. Alternatively, they may choose an automated technology and produce using only machines (robots). Our model offers three main insights. First, automation-augmenting shocks reduce the labor share but increase employment and wages. Second, labor market institutions play an almost insignificant role in explaining the labor share. Third, the US labor share only (clearly) fell after 1987 because of a contemporaneous acceleration of automation's productivity. |
| Keywords: | Automation; Labor Share; Technology Choice; Employment; Matching Frictions |
| JEL: | E24 J64 L11 O33 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:qub:wpaper:1901&r=all |
| By: | Stefano BOSI; David DESMARCHELIER; Thai HA-HUY |
| Abstract: | We consider a simple economy where production depends on labor supply and social capital. Networking increases the social capital ("greases the wheel") but also the corruption level ("sands the wheel"). Corruption is a negative productive externality. We compare the market economy, where the negative externality is not taken in account by individuals, with a centralized economy, where the planner internalizes the negative effect. We highlight the possible existence of cycles in the market economy and optimal cycles in the planned one. We compare the centralized and the decentralized solutions in the short and in the long run. |
| Keywords: | Corruption, optimal cycles, Ramsey model. |
| JEL: | C61 E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2019-25&r=all |
| By: | Jef Boeckx; Maarten Dossche; Alessandro Galesi; Boris Hofmann; Gert Peersman (-) |
| Abstract: | A growing empirical literature has shown, based on structural vector autoregressions (SVARs) identified through sign restrictions, that unconventional monetary policies implemented after the outbreak of the Great Financial Crisis (GFC) had expansionary macroeconomic effects. In a recent paper, Elbourne and Ji (2019) conclude that these studies fail to identify true unconventional monetary policy shocks in the euro area. In this note, we show that their findings are actually fully consistent with a successful identification of unconventional monetary policy shocks by the earlier studies and that their approach does not serve the purpose of evaluating identification strategies of SVARs. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:19/973&r=all |
| By: | Jaramillo, Miguel (Grupo de Análisis para el Desarrollo (GRADE)); Almonacid, Julio; Flor, Luciana de la |
| Abstract: | Cuatro de cada cinco relaciones laborales en el sector formal de la economía peruana están amparadas en contratos temporales. Esta proporción es bastante superior a la de cualquier país de la Organización para la Cooperación y el Desarrollo Económico (OCDE), y mayor también que la de cualquiera de los países de América Latina. Esta publicación presenta los resultados de un estudio del impacto de la sentencia del Tribunal Constitucional de 2001 sobre las decisiones de tipo de contrato usado en el mercado laboral peruano y sus consecuencias sobre variables asociadas al bienestar de los trabajadores. La conclusión central es que la reforma es responsable por una reducción en la probabilidad de que un trabajador tenga un contrato por tiempo indefinido a un quinto de lo que era antes del fallo. Es decir, en ausencia de la reforma, al 2015 habría habido entre 926 000 y 936 000 puestos de trabajo con contrato por tiempo indefinido más de los que hubo. Como consecuencia, los trabajadores dejaron de percibir durante ese año alrededor de 6100 millones de soles en ingresos y 36 000 trabajadores dejaron de afiliarse a un sindicato. |
| Keywords: | Seguridad laboral, Empleo, Contratos de trabajo, Evaluación de impacto, Perú, Occupational safety, Employment, Labour contracs, Impact evaluation, Peru |
| JEL: | J41 E24 J28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gad:doctra:dt92&r=all |
| By: | Becker, Torbjörn (Stockholm Institute of Transition Economics) |
| Abstract: | This paper looks at economic growth and its fundamental determinants in Russia over the last decades. It starts by showing that, contrary to the views of some political commentators, growth is highly important for the popularity of president Putin. Furthermore, regular models of growth are relevant to Russia and other transition countries over the last two decades and one important determinant of growth is investments in physical capital. This in turn is correlated with FDI, which is also key for Russia’s strategy to modernize and diversify its economy away from oil, gas and minerals extraction. However, FDI is negatively impacted by the policy uncertainty that Russia generates both by domestic and foreign policy. Reforming institutions on paper will not be enough to reverse the trend of declining FDI but has to be accompanied by a regime that refrains from policy actions at home and abroad that add to the significant macroeconomic volatility that is already created by large swings in international oil prices. |
| Keywords: | Russia; Putin; macroeconomics; growth; investments; FDI; volatility |
| JEL: | E60 F40 O52 |
| Date: | 2019–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:hasite:0049&r=all |
| By: | Osnat Zohar (Bank of Israel) |
| Abstract: | Real activity as well as expectations often exhibit asymmetric dynamics, namely, they increase gradually with occasional large downturns. Such dynamics emerge in a model with strong feedback between activity and information. In the model, active investment reveals private information about the state of the world. An agent (Follower) only learns about another agent's (Loner's) signals from his actions. Equilibrium in the model generates asymmetric cycles: Entry to the market is gradual; exits tend to be abrupt and are followed by slow recoveries. The asymmetry in the cycle is magnified when information is public. If Follower observes Loner's payoffs and not just his actions, he is more likely to defer his entry compared to the benchmark model. Finally, model simulations show a positive correlation between investment and dispersion of beliefs which is largely attributed to the learning mechanism in the model. |
| Keywords: | dynamic learning, asymmetric cycles, slow recovery, private information |
| JEL: | C73 D82 D83 E32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2019.06&r=all |
| By: | Robin Lynch |
| Abstract: | The paper identifies flaws in the treatment of Intellectual Property as an intangible asset in the current national accounts international standards. It is proposed that the treatment should revert to that of the 1968 System of National Accounts (SNA), where payments for access to Intellectual Property were classified as property income (income transfers) and not as payment for services as in SNA 2008 and the European System of Accounts (ESA) 2010. This dramatic change in treatment has had unfortunate results, most visibly in the case of the revision to GDP estimates for Ireland. In 2016, the estimate for Ireland’s 2015 annual GDP growth was revised upwards from 7.8% to 26.3%. This was caused mainly by a relocation of a large multinational’s registration of Intellectual Property from mainland Europe. The associated access payments were treated as a set of new exports of services, with the subsequent large increase in the GDP level and growth measures of the Irish economy. This paper sets out how the current standards lead to this widely criticised change and proposes a model which is consistent with the 1968 SNA treatment. |
| Keywords: | system of national accounts, intellectual property, intangibles |
| JEL: | E01 E22 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2019-10&r=all |
| By: | Maria Chiara Cavalleri; Boris Cournède; Volker Ziemann |
| Abstract: | Housing markets are large and highly volatile: they can thus create large macroeconomic risks. The current paper provides a bird’s eye view of where the housing markets of major OECD economies currently stand. It then uses the results of recently developed models to provide indications of where macroeconomic risks exist. Finally, the paper draws on recent empirical analyses to suggest how economic policies can enhance economic resilience by reducing housing-related risks through macroprudential measures and housing market reforms (such as changes in rent regulation, taxation and land use policies). |
| Keywords: | Housing, land use policy, macroprudential, policy, rent regulation, resilience, taxation |
| JEL: | E37 E5 R31 |
| Date: | 2019–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1555-en&r=all |
| By: | Ögren, Anders (Department of Economic History, Lund University) |
| Abstract: | A currency union is when several independent sovereign nations share a common currency. This has been a recurring phenomenon in monetary history. In this article I study the theoretical foundations of such unions, and discuss some important currency unions in history, most notably the case of the US. Finally I contrast the design of the EMU with economic theories and historical experiences of currency unions. |
| Keywords: | Central banks; Fiscal systems; Monetary theory; Monetary policy; Optimum Currency Areas |
| JEL: | E42 F33 N11 N13 |
| Date: | 2019–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:luekhi:0204&r=all |
| By: | International Monetary Fund |
| Abstract: | Samoa faces several economic challenges but continues to show resilience and a high level of engagement with the Fund. Growth is expected to rebound after reaching a five-year low. Price pressures driven by temporary factors are receding and inflation is projected to return to below the authorities’ target of 3 percent. One-off factors implied a marginally positive fiscal balance in 2017/18, but the fiscal position is projected to loosen, and Samoa remains at high risk of debt distress. Samoa remains vulnerable to natural disasters and correspondent banking relationship (CBR) pressures. The authorities have made progress in implementing measures to mitigate these risks. |
| Date: | 2019–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/138&r=all |
| By: | International Monetary Fund |
| Abstract: | Structural reforms, strengthened policy frameworks and the ongoing smooth political transition have laid the foundations for sustained growth. Surging remittances pushed real GDP growth above potential in 2018, adding to tax revenues and raising the primary fiscal surplus to about 1 percent of GDP. Nevertheless, public debt at about 70 percent of GDP is high, expensive to roll over, and leaves little room for funding new initiatives unless structural measures are implemented. It remains the main vulnerability of the economy. |
| Date: | 2019–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/143&r=all |
| By: | Benavides, Martín (Grupo de Análisis para el Desarrollo (GRADE)); León, Juan (Grupo de Análisis para el Desarrollo (GRADE)); Paredes, Álvaro; La Riva, Diana |
| Keywords: | Capital social, Barrio marginal, Oportunidades de empleo, Perú, Social capital, Slums, Employment opportunities, Peru |
| JEL: | E24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gad:doctra:dt95&r=all |
| By: | Juan Carlos Cuestas (Department of Economics, Universitat Jaume I, Castellón, Spain); Merike Kukk (Department of Economics and Finance, Tallinn University of Technology, Estonia) |
| Abstract: | This paper aims to investigate the relationship between housing prices and their fundamental determinants using the example of Spain and considering the possibility of structural breaks in the relationship. We find that the cointegrating coefficient estimates are quite unstable and need to be estimated for different subperiods. Specifically we find that the standard fundamentals explain the behaviour of equilibrium house prices well during the boom-bust period. However, only corporate profit or capital income seems to explain the evolution in recent years. |
| Keywords: | house prices, capital income, wage income, DOLS, structural breaks, crisis |
| JEL: | E21 E51 R20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2019/04&r=all |
| By: | International Monetary Fund |
| Abstract: | Recent developments and outlook. Higher fuel prices and global financial volatility generated strong balance-of-payment pressures in 2018, which were exacerbated by a political crisis late in the year. The Central Bank of Sri Lanka (CBSL) maintained a tight monetary policy stance, intervening in the FX market and allowing for greater exchange rate flexibility in response to rising pressures. Growth slowed to 3.2 percent in 2018, but is expected to recover gradually to 5 percent over the medium-term. |
| Date: | 2019–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/135&r=all |
| By: | International Monetary Fund |
| Abstract: | Since the 2014–16 regional economic slowdown, economic activity has recovered, while policies have remained broadly in line with staff’s advice. Supported by the upgraded fiscal rule, fiscal consolidation remains on track, and public debt has started to decline. Inflation is under control, the financial system remains stable, and pressures on the exchange rate have been limited. Nonetheless, important challenges remain. Importantly, the still-weak business climate and corruption constrain the economy’s capacity to grow sufficiently rapidly to tangibly reduce poverty and unemployment. Moreover, the economy continues to be vulnerable to external shocks; public debt, while declining, is relatively elevated; and enhancing revenue mobilization remains a critical priority. Recognizing these challenges, the new government has pledged to revitalize efforts to fight corruption, improve competition, strengthen revenue administration, and build resilience to shocks. It has requested a new Fund-supported program to help achieve these objectives and move Armenia toward a more dynamic market economy. |
| Date: | 2019–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/154&r=all |
| By: | Kazeem B. Ajide (University of Lagos, Lagos, Nigeria); Ibrahim D. Raheem (University of Kent, Canterbury, UK); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | This study contributes to the dollarization literature by expanding its determinants to account for different dimensions of globalization, using the widely employed KOF index of globalization. Specifically, globalization is “unbundled†into three different layers namely: economic, social and political dimensions. The study focuses on 25 sub-Saharan African (SSA) countries for the period 2001-2012.Using the Tobit regression approach, the following findings are established. First, from both economic and statistical relevance, the social and political dimensions of globalization constitute the key dollarization amplifiers, while the explanatory power of the economic component is weaker on dollarization. Second, consistent with the theoretical underpinnings, macroeconomic instabilities (such as inflation and exchange rate volatilities) have the positive expected signs. Third, the positive association between the accumulation of international reserves and dollarization is also apparent. Policy implications are discussed. |
| Keywords: | Dollarization; Globalization; sub-Saharan Africa; Tobit regression |
| JEL: | E41 F41 C21 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:18/034&r=all |
| By: | Bonga, Wellington Garikai |
| Abstract: | Understanding the pattern of stock market volatility is important to investors as well as for investment policy. Volatility is directly associated with risks and returns, higher the volatility the more financial market is unstable. The volatility of the Zimbabwean stock market is modeled using monthly return series consisting of 109 observations from January 2010 to January 2019. ARCH effects test confirmed the use of GARCH family models. Symmetric and asymmetric models were used namely: GARCH(1,1), GARCH-M(1,1), IGARCH(1,1) and EGARCH(1,1). Post-estimation test for further ARCH effects were done for each model to confirm its efficiency for policy. EGARCH(1,1) turned to be the best model using both the AIC and SIC criterions; with the presence of asymmetry found to be significant. The study concludes that positive and negative shocks have different effects on the stock market returns series. Bad and good news will increase volatility of stock market returns in different magnitude. This simply imply that investors on the Zimbabwean stock exchange react differently to information depending be it positive or negative in making investment decisions. |
| Keywords: | Stock Market, Volatility, ARCH, GARCH, IGARCH, GARCH-M, EGARCH, Risk Premium, Zimbabwe |
| JEL: | C22 C58 D81 D82 E22 E44 E47 G02 G14 G15 N27 O16 R53 |
| Date: | 2019–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94201&r=all |
| By: | Periklis Boumparis (University of Liverpool, UK); Costas Milas (Management School, University of Liverpool, UK; Rimini Centre for Economic Analysis); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece; Rimini Centre for Economic Analysis) |
| Abstract: | This paper examines the joint behaviour of sovereign ratings and their macroeconomic/financial determinants (namely uncertainty, GDP growth, government debt-to-GDP ratio, investment-to-GDP ratio and the fiscal balance-to-GDP ratio) in a multivariate Panel Vector Autoregressive (PVAR) framework. We reveal another channel of interconnection between sovereign and banking credit risk by identifying a two-way relationship between non-performing loans (NPLs) and sovereign ratings. Generalized impulse response functions (GIRFs) provide evidence of significant effects from NPLs on sovereign rating decisions over and above the effects of the remaining economic/financial variables. At the same time, sovereign rating decisions impact on NPLs and all other variables. |
| Keywords: | Sovereign credit ratings, Non-performing loans, Panel VAR |
| JEL: | G24 E44 C33 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:19-13&r=all |
| By: | Jaramillo, Miguel (Grupo de Análisis para el Desarrollo (GRADE)); Campos, Daniela |
| Abstract: | Durante las últimas décadas, el uso de los contratos a plazo fijo ha crecido alrededor del mundo, fenómeno que ha ido de la mano con reducciones en la probabilidad de obtener un contrato por tiempo indeterminado. Los contratos a plazo fijo podrían ser utilizados como un medio para evaluar las habilidades de los nuevos trabajadores antes de que sean contratados por tiempo indefinido. En este marco, el estudio aborda dos tareas. La primera es evaluar en qué medida los contratos temporales están funcionando como un peldaño hacia un empleo con contrato por tiempo indeterminado (conversión). La segunda es poner a prueba la hipótesis de que el uso de contratos temporales está asociado a una evaluación de la productividad del trabajador por parte del empleador (screening). Para ello, se recurrió a una base de datos longitudinal de los trabajadores y las empresas en las que ellos laboran: esta base se refiere al Perú para la primera mitad de la presente década. Los hallazgos muestran que los contratos a plazo fijo no están funcionando como un peldaño que conduzca a contratos por tiempo indeterminado. Asimismo, cerca de la mitad de las conversiones de contratos están asociadas a un proceso de screening directo del trabajador. Finalmente, los patrones relacionados con el momento en que se producen las conversiones y las características de los trabajadores que las reciben sugieren que las empresas que las realizan actúan guiadas por una racionalidad asociada a evitar los altos costos de despido. |
| Keywords: | Contratos de trabajo, Empleo temporal, Mercado de trabajo, Perú, Labour contracs, Temporary employment, Labour market, Peru |
| JEL: | J41 E24 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gad:doctra:dt93&r=all |
| By: | Garratt, Anthony (University of Warwick); Petrella, Ivan (University of Warwick) |
| Abstract: | This paper investigates the role of commodity price information when evaluating inflation risk. Using a model averaging approach, we provide strong evidence of in-sample and out-of-sample predictive ability from commodity prices and convenience yields to inflation, establishing clear point and density forecast performance gains when incorporating disaggregated commodities price information. The resulting forecast densities are used to calculate the (ex-ante) risk of inflation breaching defined thresholds that broadly characterise periods of high and low inflation. We find that information in commodity prices significantly enhances our ability to pick out tail inflation events and to characterise the level of risks associated with periods of high volatility in commodity prices. |
| Keywords: | Inflation risk; convenience yields; spot commodity prices; model averaging; probability events ; balance of risks |
| JEL: | C32 C54 E37 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkemf:23&r=all |
| By: | Galvao, Ana Beatriz (University of Warwick); Mitchell, James (University of Warwick) |
| Abstract: | Historical economic data are often uncertain due to sampling and non-sampling errors. But data uncertainty is rarely communicated quantitatively. An exception are the “fan charts” for historical GDP growth published at the Bank of England. We propose a generic loss function based approach to extract from these ex ante density forecasts a quantitative measure of unforecastable data uncertainty. We find GDP data uncertainty in the UK rose sharply at the onset of the 2008/9 recession; and that data uncertainty is positively correlated with popular estimates of macroeconomic uncertainty. |
| Keywords: | data revisions ; macroeconomic uncertainty ; ex ante uncertainty ; ex post uncertainty ; density forecast calibration ; backcasts |
| JEL: | C53 E32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkemf:24&r=all |
| By: | Yuki Uchida (Faculty of Economics, Seikei University); Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This study considers the politics of public education and its impact on economicgrowth and welfare across generations. We employ probabilistic voting to demon-strate the generational con ict regarding taxes and spending and show that agingresults in a tax burden shift from the retired to the working generation, reductionin public education spending, and ultimately in slowing down economic growth.We subsequently consider a legal constraint that aims to boost education spend-ing: a spending oor for education. This constraint stimulates economic growthbut creates a trade-off between current and future generations' welfare. Finally, thequantitative implications of our results are explored by calibrating the model to theJapanese economy. |
| Keywords: | Public education, Economic growth, Capital income tax, Proba- bilistic voting |
| JEL: | D70 E24 H52 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1805r2&r=all |
| By: | van der Wielen, Wouter (European Commission - JRC) |
| Abstract: | This paper examines the macroeconomic effects of tax changes in the EU between 2000 and 2016. The novelty of our approach hinges on the use of real-time estimates of discretionary fiscal adjustments, covering personal income taxes, social insurance contributions, corporate income taxes and value added taxes. In particular, exploiting a unique database covering anticipated and unanticipated tax reforms in the EU, we provide the first narrative estimates of output and employment multipliers for tax reforms in the EU. Our results suggest that medium-term revenue-based output multipliers are in the range of -1.8 for unanticipated and -2.3 for anticipated reforms. Preannounced reforms, moreover, portray larger labour supply responses (by 0.7 percentage points) and temporarily impact economic activity inversely upon announcement. Finally, we find evidence of asymmetry between the effects of revenue increasing and decreasing measures in the EU. On average, revenue-based consolidations resulted in a 1.2 percentage point larger medium-term output multiplier in absolute terms. |
| Keywords: | fiscal multipliers, narrative approach, discretionary tax reform |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:taxref:201904&r=all |
| By: | John C Bluedorn; Daniel Leigh |
| Abstract: | We explore the long-term impact of economic booms on labor market outcomes using a novel approach based on revisions to professional forecasts over the past 30 years for 34 advanced economies. We find that when employment rises unexpectedly, forecasters typically raise their long-term forecasts of employment by more than one-for-one and also expect a strong rise in labor force participation, suggesting more persistent effects than is traditionally assumed. Economic booms associated with changes in aggregate demand, when inflation is rising and unemployment falling unexpectedly, also come with persistent long-term effects on expected employment and labor force participation, suggesting positive hysteresis. Our forecast evaluation tests indicate that forecasters are, on average, unbiased in their assessment of these positive, persistent effects. |
| Date: | 2019–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/114&r=all |
| By: | Karl Whelan |
| Abstract: | The euro has had a difficult second decade but the project has still had some important successes. The common currency is popular among the euro area’s citizens, intra-European exchange rate instability has been removed and the ECB has successfully achieved its primary goal of price stability. The single currency’s popularity has made the euro more resilient than many sceptics thought possible twenty years ago. A number of improvements to the architecture of EMU have been implemented in the past decade but serious tensions remain, relating to fiscal capacity, sovereign default and financial stability. To keep the euro together, Europe’s politicians need to make the euro area less crisis-prone and to make it easier for member states to recover from the inevitable cyclical downturns that will happen in the future. The past few years have seen many proposals put forward for future improvements to the economic policy structure underlying the euro. Keeping the euro together may depend on Europe’s politicians agreeing to implement them. |
| Keywords: | Euro; ECB; Single currency; Fiscal capacity; Financial stability; Economic policy structure |
| JEL: | E58 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201914&r=all |
| By: | Farmer, Roger E A |
| Abstract: | This article surveys a subset of literature in macroeconomics which embraces the existence of multiple equilibria. This indeterminacy agenda in macroeconomics uses multiple-equilibrium models to integrate economics with psychology. Economists have long argued that business cycles are driven by shocks to the productivity of labour and capital. According to the indeterminacy agenda, the self-fulfilling beliefs of financial market participants are additional fundamental factors that drive periods of prosperity and depression. The indeterminacy agenda provides a microeconomic foundation to Keynes' General Theory that does not rely on the assumption that prices and wages are costly to change. |
| Keywords: | Indeterminacy; Macroeconomics |
| JEL: | D50 E3 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13745&r=all |
| By: | Chimere O. Iheonu (University of Nigeria, Nsukka, Nigeria) |
| Abstract: | The study empirically examined the impact of governance on domestic investment in 16 African countries with a balanced panel data set, between the years 2002 and 2015. The study employed six unbundled governance indicators from the World Bank, World Governance Indicators and constructed three bundled governance indicators using the Principal Component Analysis. The Driscoll and Kraay Fixed Effects model which accounts for serial correlation, groupwise heteroskedasticity and cross-sectional dependence were employed with empirical results revealing that all the indicators of governance positively and significantly influence domestic investment in Africa, except for government effectiveness which happens to be insignificant. Also, Voice/Accountability and the Control of Corruption exert more influence on domestic investment as indicated by their coefficient values. Furthermore, economic growth is also an important factor in explaining domestic investment in Africa. Policy recommendations are discussed. |
| Keywords: | Governance; Domestic Investment; Africa; PCA; Fixed Effects Model |
| JEL: | C1 E2 R5 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/001&r=all |
| By: | Roger E A Farmer |
| Abstract: | This article surveys a subset of literature in macroeconomics which embraces the existence of multiple equilibria. This indeterminacy agenda in macroeconomics uses multiple-equilibrium models to integrate economics with psychology. Economists have long argued that business cycles are driven by shocks to the productivity of labour and capital. According to the indeterminacy agenda, the selffulfilling beliefs of financial market participants are additional fundamental factors that drive periods of prosperity and depression. The indeterminacy agenda provides a microeconomic foundation to Keynes’ General Theory that does not rely on the assumption that prices and wages are costly to change. |
| Keywords: | macroeconomics, multiple equilibria, psychology, business cycles, labour and capital |
| JEL: | D5 E40 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:507&r=all |
| By: | Sarah Guillou (Observatoire français des conjonctures économiques); Tania Treibich (Observatoire français des conjonctures économiques) |
| Abstract: | The objective of this paper is to show that part of the fixed cost of a firm’s trade expansion is due to the acquisition of new internal capabilities (e.g., technology, production processes or skills), which implies a costly change in the firm’s internal labor organization. We investigate the relationship between a firm’s labor structure, in terms of the relative number of managers, and the scope of its export portfolio, in terms of its product-destination varieties. The empirical analysis is based on a matched employer-employee dataset covering the population of French firms from tradable sectors over the period 2009-2015. Our analysis suggests that market ex- pansion, both through export entry and export diversification, is associated with a change in the firm’s workforce composition, namely an increase in the number of managerial layers. These results are generally confirmed with the use of an instrumental variable approach to control for reverse causality. We show how these results are consistent with a simple model, where the complexity of a firm’s operations increases with the number of product-destination couples ex- ported and the manager’s role is to address the unsolved problems arising from such increased operational complexity. |
| Keywords: | Exports diversification; Managers; Occupations; Employer-employee data |
| JEL: | F16 E24 C14 D20 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6th2hsnrrq9ro9u65eksphmaf9&r=all |
| By: | David Amaglobeli; Laura Jaramillo; Pooja Karnane; Aleksandra Zdzienicka |
| Abstract: | This paper examines the role of tax policy reforms in enhancing fiscal shock smoothing in a panel of 13 OECD economies during the period 1980-2017. The results suggest that tax reforms, in particular those that broaden the tax base, significantly enhance the ability of fiscal policy to mitigate the impact of growth shocks on disposable income. We find that the magnitude of shock smoothing increases from an average of 2 percent to 3-3½ percent following the reform. The effects are considerably higher for tax base than tax rate changes, and also higher for indirect tax than direct tax changes. The effects are symmetric—that is, the increase in shock smoothing following a reform expanding the tax base (rate) is similar to the decline in shock smoothing after a reform narrowing the tax base (rate). Tax elasticity, collection efficiency, and the progressivity of the tax system are important channels through which tax reforms affect fiscal stabilization. |
| Date: | 2019–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/113&r=all |
| By: | Jan Behringer; Till van Treeck |
| Abstract: | In this paper, we analyze how corporate sector behavior has affected national current account balances in a sample of 25 countries for the period 1980-2015. A consistent finding is that an increase (decrease) in corporate net lending leads to an increase (decrease) in the current account, controlling for standard current account determinants. We disentangle the current account effects of corporate saving and investment and we explore a number of alternative explanations of our results, including incomplete piercing of the "corporate veil", by households, foreign direct investment activities, a temporary crisis phenomenon, and changes in income inequality. We conclude that corporate sector saving is an important driver of macroeconomic trends and that the rise of corporate net lending especially in a number of current account surplus countries has contributed considerably to global current account imbalances. |
| Keywords: | Corporate sector, sectoral financial balances, current account determinants |
| JEL: | E21 F41 G35 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:196-2019&r=all |
| By: | Guerrero, Gabriela; Rojas, Vanessa; Cueto, Santiago (Grupo de Análisis para el Desarrollo (GRADE)); Vargas, Jimena; Leandro, Sayuri |
| Abstract: | Actualmente, Beca 18 es el programa de formación de capital humano más importante del Perú. Este estudio cualitativo, que analiza la implementación del programa en el valle de los ríos Apurímac, Ene y Mantaro (VRAEM), busca conocer las oportunidades de acceso a la educación superior de los y las jóvenes de la zona; asimismo, indaga sobre la influencia de Beca 18 en sus vidas, tanto en sus trayectorias educativas y/o laborales como en sus aspiraciones. Es preciso señalar, además, que los y las jóvenes que participaron en esta investigación forman parte del estudio longitudinal Niños del Milenio. El estudio encuentra que Beca 18 es un programa muy valorado por la población del VRAEM; sin embargo, señala que aún hay aspectos que deben mejorarse en su diseño e implementación. Por otra parte, el análisis longitudinal muestra que Beca 18 favorece el acceso de los y las jóvenes a la educación superior, pero también les ofrece la oportunidad de concluir sus estudios, lo que reduce el riesgo de deserción. Específicamente, Beca 18 mejora sus aspiraciones educativas y laborales, y los aleja de las amenazas que aquejan a la población juvenil del VRAEM, tales como el narcotráfico, el alcoholismo, el embarazo temprano, entre otras. |
| Keywords: | Beca 18, Becarios, Juventud, Educación superior, VRAEM, Pangoa, Perú, Scholarship, Youth, Higher education, Peru |
| JEL: | J41 E24 J28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:gad:doctra:dt96&r=all |
| By: | Eduardo Levy Yeyati; Juan Francisco Gómez |
| Abstract: | Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effect s empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate. |
| Keywords: | International reserves; exchange rate policy; capital flows; financial crisis |
| JEL: | E42 E52 F33 F41 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:udt:wpgobi:wp_gob_2018_7&r=all |
| By: | Chao Gu (University of Missouri); Cyril Monnet (University of Bern, Study Center Gerzensee, Swiss National Bank); Ed Nosal (FRB Atlanta); Randall Wright (University of Wisconsin, FRB Minneapolis) |
| Abstract: | Are financial intermediaries inherently unstable? If so, why? What does this suggest about government intervention? To address these issues we analyze whether model economies with financial intermediation are particularly prone to multiple, cyclic, or stochastic equilibria. Four formalizations are considered: a dynamic version of Diamond-Dybvig banking incorporating reputational considerations; a model with delegated investment as in Diamond; one with bank liabilities serving as payment instruments similar to currency in Lagos- Wright; and one with Rubinstein-Wolinsky intermediaries in a decentralized asset market as in Duffie et al. In each case we find, for different reasons, financial intermediation engenders instability in a precise sense. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:szg:worpap:1904&r=all |
| By: | Tokhir N Mirzoev; Ling Zhu |
| Abstract: | We examine the existing fiscal policy paradigm in commodity-exporting countries. First, we argue that its centerpiece—the permanent income hypothesis (PIH)—is not consistent with either intergenerational equity or long-term sustainability in the presence of uncertainty. Policies to achieve these goals need to be more prudent and better anchored than the PIH. Second, we point out the presence of a volatility tradeoff between government spending and wealth and re-assess long-held views on the appropriate fiscal anchors, the vice of procyclicality, and the (im)possibility of simultaneously smoothing consumption and ensuring intergenerational equity and sustainability. Finally, we propose what we call a prudent wealth stabilization policy that would be more consistent with long-term fiscal policy goals, yet relatively simple to implement and communicate. |
| Date: | 2019–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/108&r=all |
| By: | Mark Setterfield (Department of Economics, New School for Social Research); Joana David Avritzer (Department of Economics, New School for Social Research) |
| Abstract: | Kaleckians describe a normal rate of capacity utilization that is subject to hysteresis effects. This means that the normal rate varies directly with the actual rate of capacity utilization, ensuring that steady-state equilibrium conditions in the Kaleckian model are fully adjusted (the actual and normal rates of capacity utilization are equalized) but without this last condition implying that the rate of capacity utilization is constant in the long run. The relationship between distribution and growth unique to the Kaleckian model is thus preserved. The hysteresis mechanism has been criticized from various quarters, however, these criticisms focusing on its alleged lack of behavioural foundations. This paper shows that consistent with the stylized facts, variation in the normal rate of capacity utilization in response to variation in the actual capacity utilization rate can be derived from the links between both variables and the volatility of the macroeconomic environment - volatility, in the presence of fundamental uncertainty, being an important reason why firms deliberately under-utilize capacity (even in the long run) in the first place. The result is an empirically-grounded behavioural foundation for hysteresis in the normal rate of capacity utilization. |
| Keywords: | Normal rate of capacity utilization, Harrodian instability, hysteresis, Kaleckian growth theory |
| JEL: | E11 E12 O41 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1907&r=all |
| By: | Ivan Mendieta-Munoz; Mengheng Li |
| Abstract: | We propose a multivariate simultaneous unobserved components framework to determine the two-sided interactions between structural trend and cycle innovations. We relax the standard assumption in unobserved components models that trends are only driven by permanent shocks and cycles are only driven by transitory shocks by considering the possible spillover effects between structural innovations. The direction of spillover has a structural interpretation, whose identification is achieved via heteroskedasticity. We provide identifiability conditions and develop an efficient Bayesian MCMC procedure for estimation. Empirical implementations for both Okun's law and the Phillips curve show evidence of significant spillovers between trend and cycle components. |
| Keywords: | Unobserved components, Identification via heteroskedasticity, Trends and cycles, Permanent and transitory shocks, State space models, Spillover structural effects. JEL Classification: C11, C32, E31, E32, E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:uta:papers:2019_06&r=all |
| By: | Mommaerts, Corina; Raza, Syed Hassan; Zheng, Yu |
| Abstract: | This paper estimates the effect of hospital admissions among older workers on economic outcomes across countries. We use harmonized longitudinal survey data from the United States, China, and 13 countries in Europe, and follow the event study design of Dobkin, Finkelstein, Kluender and Notowidigdo (2018) to estimate dynamic effects of a hospitalization on out-of-pocket health expenditures, labor market outcomes, social insurance payments, and household income. We find distinctly different patterns across countries. In contrast to the United States, where hospitalizations lead to large health expenditures and decreases in earnings, individuals in Northern and Southern Europe are largely protected from negative economic outcomes. Hospitalizations in China lead to even larger out-of-pocket expenditures as a percent of prior income, but do not negatively affect labor market outcomes. Our results largely align with the differences in generosity across countries in social protection institutions that include health systems, social security programs and labor market regulations. |
| Keywords: | cross-country differences; Health shocks; healthcare system; labor market protection; medical spending; social insurance program |
| JEL: | E21 H53 I13 I18 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13753&r=all |
| By: | Mirko Abbritti; Sebastian Weber |
| Abstract: | We build a two-country currency union DSGE model with endogenous growth to assess the role of cross-country differences in product and labor market regulations for long-term growth and for the adjustment to shocks. We show that with endogenous growth, there is no reason to expect real income convergence. Large shocks, through endogenous TFP movements, can lead to permanent changes of output and real exchange rates. Differences are exacerbated when member countries have different product and labor market regulations. Less regulated economies are likely to have higher trend growth and recover faster from negative shocks. Results are consistent with higher inflation, lower employment and disappointing TFP growth rates experienced in the less reform-friendly euro area members. |
| Date: | 2019–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/123&r=all |
| By: | International Monetary Fund |
| Abstract: | Growth has been strong and is projected to remain so in 2019 driven by tourism, commerce, and construction. Nonetheless, the Maldives remains highly vulnerable with reduced policy space due to large and growing public debt and rising pressures on external stability. The imbalances call for urgent action for maintaining stability. Going forward, the new administration’s main challenge is to manage fiscal and external imbalances given weak buffers and tightening global financial conditions, while large projects are ongoing. |
| Date: | 2019–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/156&r=all |
| By: | Daniel Gros (Centre for European Policy Studies); Roberto Musmeci (Centre for European Policy Studies) |
| Abstract: | This paper presents the state of play of the preparations for the next Multiannual Financial Framework (MFF) of the EU for the period 2021-2027. It then turns to an analysis of the allocation of regional support funding over the last two MFFs, using a standard growth model to interpret the results. It finds that: First, the distribution of Cohesion spending across regions (as proportion of regional GDP) can be explained to a large extent by a few variables, namely income per capita, unemployment and the importance of agriculture. However, there are also important differences across different clusters of regions. Regions in Southern Europe received less funding than those in Central and Eastern Europe even accounting for differences in these determinants. Second, regions in Southern Europe have a relatively high capital/output ratio and thus a lower productivity of capital. Moreover, their investment rates do not seem to be affected by the Structural Funds they receive. These results suggest the need for a change in emphasis from infrastructure investment to measures that improve overall allocation of resources. |
| Keywords: | Fiscal transfers, Structural Funds, Cohesion Policy |
| JEL: | C53 H50 O11 R11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lui:lleewp:19147&r=all |
| By: | Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Goran Vuksic (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Graph of the month Openness of CESEE economies, 2017 Opinion corner What can be expected from the Strategy for the adoption of the euro in Croatia? by Goran Vukšić European financial markets ten years after the global crisis by Amat Adarov As of end-2018, while Europe is generally enjoying robust economic growth, the outlook is clouded with downside risks emanating from macroeconomic and political challenges. In some countries high non-performing loans remain an issue, while in others ample liquidity on account of years of ultra-easy monetary policy reinforced potentially unsustainable dynamics in certain asset markets. This highlights the need to accelerate reforms focusing on the resilience and sustainability of European financial market architecture – still largely dominated by banks – in line with the Banking Union and the Capital Markets Union initiatives. The process of financialisation in Central, East and Southeast Europe by Mario Holzner Financialisation has been particularly strong in the three small Baltic states, followed by countries from CEE and, at a certain distance, by economies of SEE and the CIS. This pattern can be observed in the deregulation indicator as well as in different indicators of foreign financial inflows. However, an important distinction can be made with regard to the structure of inward FDI stocks in the CESEE region. Deleveraging in CESEE continues by Olga Pindyuk The quantitative easing launched by the ECB was supposed to provide liquidity to the banking sector in order to make it easier and cheaper for banks to extend loans to companies and households. By now it has mostly failed to achieve this goal as foreign banks in CESEE have not restored their pre-crisis positions. Financial institutions in many countries of the region have carried on liquidity hoarding and restrained credit expansion, while both non-financial corporations and households have continued deleveraging despite low interest rates on loans. Monthly and quarterly statistics for Central, East and Southeast Europe |
| Keywords: | economic openness, euro adoption, Stability and Growth Pact, financial markets, non-performing loans, banking union, capital markets union, financial deregulation, capital inflows, asset prices, level of indebtedness, deleveraging, liquidity hoarding, saving ratio |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:wii:mpaper:mr:2018-12&r=all |
| By: | Lamla, Michael; PJaifar, Damian; Rendell, Lea |
| Abstract: | We explore the consequences of losing confidence in the price-stability objective of central banks by quantifying the inflation and deflationary biases in inflation expectations. In a model with an occasionally binding zero-lower-bound constraint, we show that both inflation bias and deflationary bias can exist as a steady-state outcome. We assess the predictions of this model using unique individual-level inflation expectations data across nine countries that allow for a direct identification of these biases. Both inflation and deflationary biases are present and sizable, but different across countries. Even among the euro-area countries, perceptions of the European Central Bank’s objectives are very distinct. |
| Keywords: | inflation bias, deflationary bias, confidence in central banks, trust, effective lower bound, inflation expectations, microdata. |
| Date: | 2019–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:esy:uefcwp:24771&r=all |
| By: | Efthymios Pavlidis; Ivan Paya; Alex Skouralis |
| Abstract: | This is the first paper to examine the role of the real estate sector and housing unaffordability in the determination of systemic risk. We measure the systemic risk of the UK by employing the CoVaR method developed by Adrian and Brunnermeier (2011, 2016), and we explore both its cross-sectional and time series behaviour. Regarding the former, we show that when the real estate sector is under distress the tail risk of the entire financial system increases significantly. With respect to the latter, the findings of our dynamic model suggest that sustainable house prices positively contribute to the stability of the financial sector; whilst house price exuberance and rapid increases in housing unaffordability amplify systemic risk. Finally, we examine the conjecture that the banking sector comprises a transmission channel from the housing market to the systemic risk of the financial system. Our empirical results are in line with this argument and highlight the key role of housing unaffordability. |
| Keywords: | affordability, real estate sector, systemic risk |
| JEL: | C21 C23 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:266072868&r=all |
| By: | Juin-Jen Chang; Hsieh-Yu Lin; Nora Traum; Shu-Chun Susan Yang |
| Abstract: | A New Keynesian model with government production, public compensation, and unemployment is fit to U.S. data to study the macroeconomic and fiscal effects of public wage reductions. We find that accounting for the type of government spending is crucial for its macroeconomic implications. Although reductions in public wages and government purchases of goods have similar effects on total output and the fiscal balance, the former can raise private output slightly, in contrast to the substantial contractionary effects of the latter. In addition, the baseline estimation finds that exogenous public wage reductions decrease private wages. Model counterfactuals show that sufficiently rigid nominal private wages can reverse the response of private wages, as the rigidity dampens the labor reallocation effect from the public to private sector that exerts downward pressure on private wages. |
| Date: | 2019–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/125&r=all |
| By: | : Bridget Fisher; Flávia Leite (Schwartz Center for Economic Policy Analysis (SCEPA)) |
| Abstract: | Tax increment financing (TIF) has exploded in popularity on the municipal finance landscape as cities compete for scarce public resources to fund economic development. Previous studies evaluate TIF’s efficacy and ability to spark economic growth. This research expands the evaluation of TIF by questioning the widespread understanding of TIF as a “self-financing” tool through an analysis of its risks and costs to taxpayers. We present a case study of the Hudson Yards redevelopment project in New York City, the country’s largest TIF-type project. Our analysis reveals a project that, rather than being “self-financing,” cost the city $2.2 billion, largely due to tax breaks to incentivize development and standard development risks and costs. We conclude that positioning TIF and its variants as “self-financing” is incomplete and that analyzing costs and risks associated with TIF and TIF-variant projects is necessary to provide a robust cost-benefit analysis to those municipalities considering its implementation. |
| Keywords: | TIF, Hudson Yards, Municipal Fiscal Health, Costs and risks |
| JEL: | H30 E21 H2 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:epa:cepawp:2018-02&r=all |
| By: | Sylvain Barde |
| Abstract: | Comparison of macroeconomic simulation models, particularly agent-based models (ABMs), with more traditional approaches such as VAR and DSGE models has long been identified as an important yet problematic issue in the literature. This is due to the fact that many such simulations have been developed following the great recession with a clear aim to inform policy, yet the methodological tools required for validating these models on empirical data are still in their infancy. The paper aims to address this issue by developing and testing a comparison framework for macroeconomic simulation models based on a multivariate extension of the Markov Information Criterion (MIC) originally developed in Barde (2017). The MIC is designed to measure the informational distance between a set of models and some empirical data by mapping the simulated data to the markov transition matrix of the underlying data generating process, and is proven to perform optimally (i.e. the measurement is unbiased in expectation) for all models reducible to a markov process. As a result, not only can the MIC provide an accurate measure of distance solely on the basis of simulated data, but it can do it for a very wide class of data generating processes. The paper first presents the strategies adopted to address the computational challenges that arise from extending the methodology to multivariate settings and validates the extension on VAR and DGSE models. The paper then carries out a comparison of the benchmark ABM of Caiani et al. (2016) and the DGSE framework of Smets and Wouters (2007), which to our knowledge, is the first direct comparison between a macroeconomic ABM and a DGSE model. |
| Keywords: | Model comparison; Agent-based models; Validation methods |
| JEL: | B41 C15 C52 C63 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1908&r=all |
| By: | Ingvild Almås; Timothy K.M. Beatty; Thomas F. Crossley |
| Abstract: | The Hamilton method for estimating CPI bias is simple, intuitive, and has been widely adopted. We show that the method conflates CPI bias with variation in cost of-living growth across income levels. Assuming a single price index across the income distribution is not consistent with the downward sloping Engel curves that are necessary to implement the method. We suggest an approach that disentangles genuine CPI bias from differences caused by comparing changes in the cost of living across income levels– non-homotheticity. For the period Hamilton studies, this yields substantially lower estimates of CPI bias and therefore implies lower income growth. |
| Keywords: | Inflation, CPI-bias, Hamilton Method, Engel Curves |
| JEL: | D11 D12 E31 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:escoed:escoe-dp-2019-09&r=all |
| By: | Martin Labaj; Daniel Dujava |
| Abstract: | This paper examines the implications of automation capital in a Solow growth model withtwo types of labour. We study the transition from standard production to production usingautomation capital which substitutes low-skilled workers. We assume that despite advancesin technology, AI and machine learning, certain tasks can be performed only by high-skilledlabour and are not automatable. We show that under these assumptions, automation capitaldoes not generate endogenous growth without technological progress. However, assumingpresence of technological progress augmenting both effective number of workers and effectivenumber of industrial robots, automation increases rate of long-run growth. We analyse asituation in which some countries do not use robots at all and other group of countries startsthe transition to the economy where industrial robots replace low-skilled labour. We showthat this has potential non-linear effects on?-convergence and that the model is consistentwith temporary divergence of incomes per capita. We derive a set of estimable equationsthat allows us to test the hypotheses in a Mankiw-Romer-Weil framework. |
| Keywords: | Automation, Economic growth, Income inequality, Convergence, Robots |
| JEL: | D63 E25 O11 O41 |
| Date: | 2019–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:brt:depwps:017&r=all |
| By: | Bruno Perdigão |
| Abstract: | In this paper I use prominent models as a laboratory to analyze the performance of different identification strategies and propose the introduction of new model consistent restrictions to identify monetary policy shocks in SVARs. In particular, besides standard sign restrictions on interest rates and inflation, the inability of monetary policy to have real effects ten years after the shock is proposed as an additional identification restriction. Evidence is presented of the model consistency of this neutrality restriction both for the canonical three-equation new Keynesian model and the Smets and Wouters (2007) model. In a simple empirical application, I show that this restriction may be important to recover real effects of monetary policy. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:494&r=all |
| By: | Alexis Direr (LEO - Laboratoire d'Économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - Université de Tours - UO - Université d'Orléans) |
| Abstract: | A novel definition of present bias is proposed which takes preferences as primitives. A present biased individual over-weights immediate costs and benefits relative to those occurring at any point in the future. The definition allows to sort out previous confounds, such as decreasing impatience, choice reversal or short-term impatience. It intuitively connects to usual utility representations of present bias like the quasi-hyperbolic model of Laibson (1997) or the fixed cost model of Benhabib, Bisin and Schotter (2010). Drawing on the definition, we propose two experimental methods measuring present bias at the individual level which do not require assumptions about utility or discounting, one for daily trade-offs, the other for intra-daily trade-offs. J.E.L. codes: D8, E21 |
| Keywords: | time preferences,decreasing impatience,present bias |
| Date: | 2019–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02133525&r=all |
| By: | Pandey, Radhika (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy) |
| Abstract: | We develop a measure of business cycle conditions at a quarterly frequency { the coincident indicator { that better utilises the limited data resources available in India. The new indicator has a historical time series from 1999 onwards. The methods used here feature numerous improvements upon previous work in the field. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:19/269&r=all |
| By: | International Monetary Fund |
| Abstract: | For much of the past 25 years, Philippine general government investment has trailed that of most other Asian economies. The budgetary allocation to public investment in the Philippines declined from about 4 percent of GDP during the 1990s to about 3 percent of GDP from 2000 to 2015, but it has increased in the last few years. As a result, Philippine public capital stock remains low by emerging market standards, and its general government capital stock has eroded steadily from the early 1990s. The gap between the Philippines’ capital stock and the average of ASEAN countries is more than 30 percent. The average emerging market economies’ capital stock is almost 60 percentage points higher than that in the Philippines. |
| Date: | 2019–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/137&r=all |
| By: | Clarida, Richard H. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2019–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:1065&r=all |
| By: | Avichai Snir (Department of Banking and Finance, Netanya Academic College, Israel); Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis) |
| Abstract: | 9-ending prices are a dominant feature of many retail settings, which according to the existing literature, is because consumers perceive them as being relatively low. Are 9-ending prices really lower than comparable non 9-ending prices? Surprisingly, the empirical evidence on this question is scarce. We use 8 years of weekly scanner price data with over 98 million price observations to document four findings. First, at the category level, 9-ending prices are usually higher, on average, than non 9-ending prices. Second, at the product level, in most cases, 9-ending prices are, on average, higher than prices with other endings. Third, sale prices are more likely to be non-9 ending than the corresponding regular prices. Fourth, among sale prices, 9-ending prices are often lower, on average, than comparable non 9-ending prices. The first three findings imply that although consumers may associate 9-ending prices with low prices, the data indicates otherwise. The fourth finding offers a possible explanation for this misperception. Retailers may be using 9-ending prices to draw consumers' attention to particularly large price cuts during sales, which perhaps conditions the shoppers to associate 9-ending prices with low prices. |
| Keywords: | Behavioral Pricing, Psychological Prices, Price Perception, Image Effect, 9-Ending Prices, Price Points, Regular Prices, Sale Prices |
| JEL: | M30 M31 L11 L16 L81 D12 D22 D40 D90 D91 E31 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:19-14&r=all |
| By: | William Ng'ang'a (Strathmore University, UP8 - Université Paris 8 Vincennes-Saint-Denis); Julien Chevallier (IPAG Business School, UP8 - Université Paris 8 Vincennes-Saint-Denis); Simon Ndiritu (Strathmore University) |
| Abstract: | This study investigates the extent to which primary balance reacts to exacerbate or mitigate the effects of macroeconomic shocks on total public debt in Kenya. Based on time series data from 1981 to 2015, Structural Vector Autoregressive model (SVAR)is used to evaluate the interrelationship between primary balance, real exchange rate, interest payment, and Gross Domestic Product. The main objective was to evaluate the interactive nature of primary balance and automatic stabilizers and its implication on debt sustainability. The findings are threefold: (i) The results confirm that primary balance reaction to shocks is consistent with maintaining a non-explosive debt position. (ii) Fiscal consolidation appears counterproductive as a response to debt management, as this may dampen growth and ultimately compromise overall macroeconomic stability, especially in the long run. (iii) The findings also establish that debt uptake is positively associated with long-run GDP growth suggesting that public debt plays a vital role in macroeconomic development in Kenya. |
| Keywords: | Primary balance,Debt sustainability,SVAR,Public debt dynamics,Automatic stabilizers |
| Date: | 2019–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02120613&r=all |
| By: | Deng, Kent; Shengmin, Sun |
| Abstract: | It has long been puzzled why and how China’s population was able to multiply four-fold from circa 1750 to 1850. Descriptions/explanations as well as reservations/suspicions vary widely and the debate can be energetic and uncompromising at the same time. This research aims to settle some aspects of the debate both qualitatively by looking at the interplay between China’s resource endowments (e.g. farmland), technology (new crops), institutions (landownership, aided migration, disaster relief and so forth) and exogenous shocks (wars and natural disasters) on the one hand, and quantitatively by deploying empirical test on correlations between populations growth and factors that influenced that growth. Our key findings indicate that China’s demographic upsurge during the Qing Period (1644-1911) was achieved with a synergy of positive factors and mainly by the non-market sector. |
| Keywords: | Exogenous shocks; Living standards; New technology; Population growth; Resource endowments; Tax burden; Urban food prices |
| JEL: | N0 E6 |
| Date: | 2019–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100921&r=all |
| By: | Clarida, Richard H. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2019–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:1071&r=all |
| By: | Marcin Hołda (Narodowy Bank Polski) |
| Abstract: | Using text mining and web scraping techniques, we develop newspaper-based economic uncertainty measures for Poland. We build ‘general’ economic and economic-policy uncertainty indices, as well as category-specific ones designed to capture e.g. the economic uncertainty related to fiscal policy or to stockmarket movements. Several types of evidence suggest that these indices do proxy for changes in economic uncertainty in Poland. In particular, our measures spike around uncertainty-laden events or periods, such as the initial phase of Poland’s post-communist economic transition, the global financial crisis or the European debt crisis that followed. Our indices also exhibit correlation with a variety of other indicators of economic uncertainty, such as financial-market data and results of corporate surveys. The newspaper-based indices behave similarly to uncertainty indicators developed using other textual data and are strongly correlated with relevant economic uncertainty indicators developed by other researchers. |
| Keywords: | economic uncertainty, index, macroeconomic policy, text mining, web scraping |
| JEL: | C82 D80 E66 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:310&r=all |
| By: | 深尾, 京司; 牧野, 達治; 攝津, 斉彦 |
| Abstract: | 日本経済は1868年の明治維新以降，アジアで最初に近代経済成長を開始し，第二次世界大戦後の高度成長期を経て，1970年ごろには欧州の主要国にほぼ追いついた．戦前の経済成長率は西欧諸国とほぼ同水準であったものの，高度成長期に急激な産業構造の変化を伴いながら，アメリカ・イギリスの4倍という高い成長率を達成したことが，このようなキャッチアップを可能とした．本論文では，このおよそ100年間に及ぶ経済成長の過程を，近年整備された新たなGDP推計にもとづき，成長会計の手法を用いて分析する．特に，産業構造の変化，すなわち資源の再配分の効果が，経済成長にどのような影響を与えたのかを明らかにするべく，第一次産業と非第一次産業に分けて分析を試みた．我々の分析の結果，以下の知見を得た．戦前の第一次産業は，企業勃興期から第一次世界大戦ブーム期にかけて労働生産性の上昇が著しかったが，同期間の前半部分においては， TFPの上昇がその主要因となっていたのに対し，後半部分については労働者1人あたり資本ストックおよび耕地面積の寄与が相対的に大きかった．非第一次産業では，戦前期のほぼ全期間を通じて，TFPの上昇が労働生産性上昇を説明する主要因であった．戦後については，高度成長の源泉はTFPの上昇と労働者1人あたり資本ストックの増加の寄与であったが，その上昇率は非第一次産業で圧倒的に大きかった．また，これらの成長要因と比較すると，資源の再配分効果は限定的なものであった．, After the Meiji Restoration of 1868, Japan modernized its institutions and economic growth gradually picked up. Growth accelerated especially during the so-called high-speed growth era from 1955 to 1970, when Japan rapidly caught up with Western economies. The long-term sustained high-speed growth recorded during this period was unprecedented not only in Japan but worldwide. While other East Asian countries such as Singapore, Taiwan, South Korea, and China subsequently also experienced remarkable growth over a prolonged period, Japan’s place in history as the first country to record such sustained high-speed growth means that its experience continues to garner worldwide interest. Using newly constructed Hitotsubashi estimates of Japan’s historical GDP statistics and a growth accounting flamework, we analyze the sources of Japan’s economic growth from 1885 to 1970 and try to answer why Japan was not able accomplish such high-speed growth before 1955. Since until the mid-1960s the primary sector accounted for a large share of economic activity and was a major determinant of overall economic growth, we use a Hayashi and Prescott (2008) type two-sector model in which the economy overall is divided into the primary sector and the non-primary sector |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hituec:692&r=all |
| By: | Emre Alper; Benedict J. Clements; Niko A Hobdari; Rafel Moyà Porcel |
| Abstract: | This paper reviews the impact of interest rate controls in Kenya, introduced in September 2016. The intent of the controls was to reduce the cost of borrowing, expand access to credit, and increase the return on savings. However, we find that the law on interest rate controls has had the opposite effect of what was intended. Specifically, it has led to a collapse of credit to micro, small, and medium enterprises; shrinking of the loan book of the small banks; and reduced financial intermediation. We also show that interest rate caps reduced the signaling effects of monetary policy. These suggest that (i) the adverse effects could largely be avoided if the ceiling was high enough to facilitate lending to higher risk borrowers; and (ii) alternative policies could be preferable to address concerns about the high cost of credit. |
| Date: | 2019–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/119&r=all |
| By: | Eyal Argov (Bank of Israel); Shay Tsur (Bank of Israel) |
| Abstract: | This paper describes the project of developing a long-term growth model to be used by the staff of the Bank of Israel. The purpose of the model is to forecast GDP growth over a horizon of approximately 50 years given various assumptions, and to evaluate how different exogenous developments, or policy steps, are expected to affect the long-run growth rate. The model is composed of five distinct blocks, each focused on a different factor of production or productivity. The blocks draw on different modeling approaches along the trade off between theoretical, detailed and empirical advantages. The baseline forecast indicates that the future growth rate of GDP and GDP per capita are expected to be lower than historical averages, mainly due to future demographic developments and the exhaustion of significant growth drivers that operated in the past. |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2019.04&r=all |
| By: | Szabolcs Deák (University of Surrey); Paul Levine (University of Surrey); Afrasiab Mirza (University of Birmingham); Joseph Pearlman (City University) |
| Abstract: | How should a forward-looking policy maker conduct monetary policy when she has a finite set of models at her disposal, none of which are believed to be the true data generating process? In our approach, the policy maker first assigns weights to models based on relative forecasting performance rather than in-sample fit, consistent with her forward-looking objective. These weights are then used to solve a policy design problem that selects the optimized Taylor-type interest-rate rule that is robust to model uncertainty across a set of well-established DSGE models with and without financial frictions. We find that the choice of weights has a significant impact on the robust optimized rule which is more inertial and aggressive than either the non-robust single model counterparts or the optimal robust rule based on backward-looking weights as in the common alternative Bayesian Model Averaging. Importantly, we show that a price-level rule has excellent welfare and robustness properties, and therefore should be viewed as a key instrument for policy makers facing uncertainty over the nature of financial frictions. |
| JEL: | D52 D53 E44 G18 G23 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1219&r=all |
| By: | Luca Pensieroso; Romain Restout |
| Abstract: | Was the Gold Standard a major determinant of the onset and the protracted character of the Great Depression of the 1930s in the United States and Worldwide? In this paper, we model the ‘Gold-Standard hypothesis’ in a dynamic general equilibrium framework. We show that encompassing the international and monetary dimensions of the Great Depression is important to understand what happened in the 1930s, especially outside the United States. Contrary to what is often maintained in the literature, our results suggest that the vague of successive nominal exchange rate devaluations coupled with the monetary policy implemented in the United States did not act as a relief. On the contrary, they made the Depression worse. |
| Keywords: | Gold Standard, Great Depression, Dynamic General Equilibrium. |
| JEL: | N10 E13 N01 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2019-23&r=all |