[MAC] Macroéconomie: working papers (RePEc, 16/08/2010)

Source : NEP (New Economics Papers) | RePEc

  • « Money-Multiplier Shocks in a Credit-View Model »
Date: 2010
By: Burton A. Abrams (Department of Economics,University of Delaware)
URL: http://d.repec.org/n?u=RePEc:dlw:wpaper:10-05.&r=mac
The financial crisis and recession of 2008-2010 have witnessed the biggest reduction in money-supply multipliers in U.S. history. In contrast to what occurred during the Great Depression, the Fed has avoided decreases in monetary aggregates by dramatically increasing the monetary base. A variation of the Bernanke-Blinder credit-view model is shown to reveal that holding the money supply constant following an autonomous fall in the money multiplier is insufficient to prevent aggregate demand from falling. This helps to explain the severity of the 2008-2010 recession despite growing monetary aggregates and expansionary fiscal policy
Keywords: credit-view model, monetary policy, money-supply model
JEL: F41
  • Global liquidity trap
Date: 2010
By: Ippei Fujiwara
Nao Sudo
Tomoyuki Nakajima
Yuki Teranishi
URL: http://d.repec.org/n?u=RePEc:fip:feddgw:56&r=mac
In this paper we consider a two-country New Open Economy Macroeconomics model, and analyze the optimal monetary policy when countries cooperate in the face of a « global liquidity trap »–i.e., a situation where the two countries are simultaneously caught in liquidity traps. The notable features of the optimal policy in the face of a global liquidity trap are history dependence and international dependence. The optimality of history dependent policy is confirmed as in local liquidity trap. A new feature of monetary policy in global liquidity trap is whether or not a country’s nominal interest rate is hitting the zero bound affects the target inflation rate of the other country. The direction of the effect depends on whether goods produced in the two countries are Edgeworth complements or substitutes. We also compare several classes of simple interest-rate rules. Our finding is that targeting the price level yields higher we lfare than targeting the inflation rate, and that it is desirable to let the policy rate of each country respond not only to its own price level and output gap, but also to those in the other country.
Keywords: Monetary policy – Mathematical models ; Liquidity (Economics) ; Inflation targeting ; Interest rates ; Price levels ; International trade
  • Monetary policy and the cyclicality of risk
Date: 2010
By: Christopher Gust
David Lopez-Salido
URL: http://d.repec.org/n?u=RePEc:fip:fedgif:999&r=mac
We use a DSGE model that generates endogenous movements in risk premia to examine the positive and normative implications of alternative monetary policy rules. As emphasized by the microfinance literature, variation in risk arises because households face fixed costs of transferring cash across financial accounts, implying that some households rebalance their portfolios infrequently. We show that the model can account for the mean returns on equity and the risk-free rate, and in line with empirical evidence generates a decline in the equity premium following an unanticipated easing of monetary policy. An important result that emerges from our analysis is that countercyclical monetary policy generates higher average welfare than constant money growth or zero inflation policies.
  • The central-bank balance sheet as an instrument of monetary policy
Date: 2010
By: Vasco Cúrdia
Michael Woodford
URL: http://d.repec.org/n?u=RePEc:fip:fednsr:463&r=mac
While many analyses of monetary policy consider only a target for a short-term nominal interest rate, other dimensions of policy have recently been of greater importance: changes in the supply of bank reserves, changes in the assets acquired by central banks, and changes in the interest rate paid on reserves. We first extend a standard New Keynesian model to allow a role for the central bank’s balance sheet in equilibrium determination and then consider the connections between these alternative policy dimensions and traditional interest rate policy. We distinguish between “quantitative easing” in the strict sense and targeted asset purchases by a central bank, arguing that, according to our model, while the former is likely to be ineffective at all times, the latter can be effective when financial markets are sufficiently disrupted. Neither is a perfect substitute for conventional interest rate policy, but purchases of illiquid assets are particularly likely to improve welfare when the zero lower bound on the policy rate is reached. We also consider optimal policy with regard to the payment of interest on reserves; in our model, this requires that the interest rate on reserves be kept near the target for the policy rate at all times.
Keywords: Banks and banking, Central ; Monetary policy ; Interest rates ; Bank reserves
  • Imperfect credibility and the zero lower bound on the nominal interest rate
Date: 2010
By: Martin Bodenstein
James Hebden
Ricardo Nunes
URL: http://d.repec.org/n?u=RePEc:fip:fedgif:1001&r=mac
When the nominal interest rate reaches its zero lower bound, credibility is crucial for conducting forward guidance. We determine optimal policy in a New Keynesian model when the central bank has imperfect credibility and cannot set the nominal interest rate below zero. In our model, an announcement of a low interest rate for an extended period does not necessarily reflect high credibility. Even if the central bank does not face a temptation to act discretionarily in the current period, policy commitments should not be postponed. In reality, central banks are often reluctant to allow a recovery path with output and inflation temporarily above target. From the perspective of our model such a policy reflects a low degree of credibility. We find increased forecast uncertainty in inflation and the output gap at the zero lower bound while interest rate uncertainty is reduced. Furthermore, misalignments between announced intere st rate paths and market expectations are found to be best explained by lack of credibility.
  • Some alternative perspectives on macroeconomic theory and some policy implications
Date: 2010
By: William R. White
URL: http://d.repec.org/n?u=RePEc:fip:feddgw:54&r=mac
The macroeconomic theories and models favoured by academics, as well as those used more commonly by policymakers, effectively rule out by assumption economic and financial crises of the sort we are living through. In particular, the longer run dangers posed by the rapid expansion of credit and resulting private sector balance sheet developments were inadequately appreciated. As a result, the current crisis was neither anticipated nor prepared for, and the crisis was also less well managed than it might have been. At the level of macroeconomic theory and modelling, this experience suggests that basic Keynesian insights need to be complemented by some insights from the Austrian school as well as those of Minsky. Demand factors are important, but so too are supply side and financial considerations. Such a synthesis provides a reasonable explanation of the crisis and points to some of the difficulties likely to be faced in em erging from it. As for the policy implications in current circumstances, it needs to be better recognized that policies with positive short run effects can have negative effects over a longer time period. If, as a result, fiscal and monetary expansion have now reached their limits in some countries, supply side policies must be given greater emphasis. These would include measures to encourage investment, both private and public, as well as other structural measures to raise the potential growth rate of the economy. Such measures, along with more decisive efforts to reduce the « headwinds » of over indebtedness, should with time provide the foundations for a sustainable economic recovery.
Keywords: Global financial crisis ; Business cycles – Econometric models ; Financial markets ; Macroeconomics – Econometric models ; Supply-side economics ; Monetary policy ; Fiscal policy
  • Implications of bank ownership for the credit channel of monetary policy transmission: Evidence from India
Date: 2010-05
By: Sumon Kumar Bhaumik
Vinh Dang
Ali M. Kutan
URL: http://d.repec.org/n?u=RePEc:wdi:papers:2010-988&r=mac
Many developing and emerging markets have high degrees of state bank ownership. In addition, the recent global financial crisis has led to significant state ownership of banking assets in developed countries such as the United Kingdom. These observations beg the question of whether the effectiveness of monetary policy through a lending channel differs across banks with different ownerships. In this paper, using bank-level data from India, we examine this issue and also test whether the reaction of different types of banks (i.e., private, state and foreign) to monetary policy changes is different in easy and tight policy regimes. Our results suggest that there are considerable differences in the reactions of different types of banks to monetary policy initiatives of the central bank and the bank lending channel of monetary policy might be much more effective in a tight money period than in an easy money period. We also fin d differences in impact of monetary policy changes on less risky short term and more risky medium term lending We discuss the policy implications of the findings. Our results from India are preliminary and further studies are needed to see whether our findings can be generalized to emerging economies or developing countries in general.
Keywords: bank ownership; credit channel of monetary policy; lending; monetary policy regimes, India.
JEL: E51
  • Credit, housing collateral and consumption: evidence from the UK, Japan and the US
Date: 2010
By: Janine Aron
John V. Duca
John Muellbauer
Keiko Murata
Anthony Murphy
URL: http://d.repec.org/n?u=RePEc:fip:feddwp:1002&r=mac
The consumption behaviour of U.K., U.S. and Japanese households is examined and compared using a modern Ando-Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for U.K. and U.S. but not Japanese households has undergone large shifts since 1980. The average consumption-to-income ratio shifted up in the U.K. and U.S. as mortgage downpayment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans. The estimated housing collateral effect is roughly similar in the U.S. and U.K., while land prices in Japan still have a negative effect on consumer spending. Together with evidence for negative real interest rate effects in the U.K. and U.S. and positive ones in Japan, this suggests important differences in the transmission of monetary and credit shocks between Japan and the U.S., U.K. and other credit-liberalized economies.
Keywords: Households – Economic aspects ; Consumption (Economics) ; Credit ; Business cycles ; Financial markets ; Economic conditions – United States ; Economic conditions – Japan ; Economic conditions – Great Britain
  • Catching-up and inflation in Europe: Balassa-Samuelson, Engel’s Law and other Culprits
Date: 2010-06-01
By: Balazs Egert
URL: http://d.repec.org/n?u=RePEc:wdi:papers:2010-991&r=mac
This study analyses the impact of economic catching-up on annual inflation rates in the European Union with a special focus on the new member countries of Central and Eastern Europe. Using an array of estimation methods, we show that the Balassa-Samuelson effect is not an important driver of inflation rates. By contrast, we find that the initial price level and regulated prices strongly affect inflation outcomes in a nonlinear manner and that the extension of Engel’s Law may hold during periods of very fast growth. We interpret these results as a sign that price level convergence comes from goods, market and non-makret service prices. Furthermore, we find that the Phillips curve flattens with a decline in the inflation rate, that inflation is more persistant and that commodity prices have a stronger effect on inflation in a higher inflation environment.
Keywords: European Union, inflation, Balassa-Samuelson, real convergence,catching up, Bayesian model average, non-linearity.
JEL: E43
  • A Composite Leading Indicator of Tunisian Inflation
Date: 2010-03-01
By: Mohamed Daly Sfia
URL: http://d.repec.org/n?u=RePEc:wdi:papers:2010-980&r=mac
This paper investigates the possibility of constructing a composite leading indicator (CLI) of Tunisian inflation. For doing so, partial information about future inflation rate provided by a number of basic series is analyzed first. Based on the correlation analysis, a few of these basic series are chosen for construction of composite indicator. Empirical results show that the deviation from long‐term trend of two monetary aggregates (M1 and M3), short‐term interest rate (TMM), real effective exchange rate and crude petroleum production, are important leading indicators for inflation rate in Tunisia. Accordingly, based on monthly data on these basic series, one composite indicator is constructed and its performance is assessed by using turning point analysis, granger causality tests, and impulse response functions. The results indicate that our composite indicator is useful in anticipating changes in inflation rates i n Tunisia.
Keywords: Tunisia, Inflation, Leading indicators, Composite index
JEL: E31
  • How has the financial crisis affected the Eurozone Accession Outlook in Central and Eastern Europe?
Date: 2010-07
By: John Lewis
URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:253&r=mac
This paper analyses how the financial crisis has affected task of meeting the Maastricht Criteria for the eight Central and Eastern European Countries which have yet to join the euro. It identifies the channels by which the crisis has fed through to deficits, debt, interest rates and inflation and seeks to provide numerical estimates of these factors. Deficits have worsened, but for most countries the problem is still primarily structural rather than cyclical. Debts have risen, but only in the cases of Latvia and Poland has the crisis changed the outlook for meeting the criterion. Inflation has fallen, particularly in the Baltic states on account of large output gap declines. The depth of the recession is likely to depress inflation rates for several years. Lastly, the interest rate criterion is more challenging because of the rise in spreads since the crisis.
Keywords: New Member States; Convergence Criteria; Euro Adoption; Financial Crisis
JEL: E61
  • The EAGLE. A model for policy analysis of macroeconomic interdependence in the euro area
Date: 2010-07
By: Sandra Gomes (Bank of Portugal)
Pascal Jacquinot (European Central Bank)
Massimiliano Pisani (Bank of Italy)
URL: http://d.repec.org/n?u=RePEc:bdi:wptemi:td_770_10&r=mac
Building on the New Area Wide Model, we develop a 4-region macroeconomic model of the euro area and the world economy. The model (EAGLE, Euro Area and GLobal Economy model) is microfounded and designed for conducting quantitative policy analysis of macroeconomic interdependence across regions belonging to the euro area and between euro area regions and the world economy. Simulation analysis shows the transmission mechanism of region-specific or common shocks, originating in the euro area and abroad.
Keywords: Open-economy macroeconomics, DSGE models, econometric models, policy analysis
JEL: C53
  • Government Purchases Over the Business Cycle: the Role of Economic and Political Inequality
Date: 2010-08
By: Ruediger Bachmann
Jinhui Bai
URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:16247&r=mac
This paper explores the implications of economic and political inequality for the business cycle comovement of government purchases. We set up and compute a heterogeneous-agent neoclassical growth model, where households value government purchases which are financed by income taxes. A key feature of the model is a wealth bias in the political aggregation process. When calibrated to U.S. wealth inequality and exposed to aggregate productivity shocks, such a model is able to generate milder procyclicality of government purchases than models with no political wealth bias. The degree of wealth bias that matches the observed mild procyclicality of government purchases in the data, is consistent with cross-sectional data on political participation.
JEL: E30
  • The impact of monetary policy shocks on commodity prices
Date: 2010-08
By: Alessio Anzuini (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Marco J. Lombardi (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Patrizio Pagano (Banca d’Italia, Via Nazionale 91, I-00184 Rome, Italy.)
URL: http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101232&r=mac
Global monetary conditions have often been cited as a driving factor of commodity prices. This paper investigates the empirical relationship between US monetary policy and commodity prices by means of a standard VAR system, commonly used in analysing the effects of monetary policy shocks. The results suggest that expansionary US monetary policy shocks drove up the broad commodity price index and all of its components. While these effects are significant, they however do not appear to be overwhelmingly large. This finding is also confirmed under different identification strategies for the monetary policy shock. JEL Classification: E31, E40, C32.
Keywords: Monetary policy Shock, Oil Price, VAR.
  • Financial globalization and monetary policy
Date: 2010
By: Steven B. Kamin
URL: http://d.repec.org/n?u=RePEc:fip:fedgif:1002&r=mac
This paper reviews the available evidence and previous research on potential effects of financial globalization, that is, the international integration of financial markets. In particular, we address the questions: Has financial globalization materially increased the influence of external developments on domestic monetary conditions? And, has it reduced the influence of central banks over financial and economic conditions in their own country? We find that central banks with floating currencies retain the ability to independently determine short-term interest rates and thus influence broader financial conditions and macroeconomic performance in their economies. However, domestic financial conditions appear to have become more vulnerable to a wide range of external shocks, complicating the task of making appropriate monetary policy decisions. Moreover, the financial crisis has highlighted the importance of cross-border cha nnels for the transmission of liquidity and credit shocks. With financial transactions increasingly being undertaken in vehicle currencies such as dollars and euros, the liquidity provision and the lender-of-last resort functions of many central banks are being challenged. Accordingly, international arrangements for liquidity provision may become increasingly important in the future.
  • Driven by the Markets?: ECB Sovereign Bond Purchases and the Securities Markets Programme
Date: 2010
By: Ansgar Belke
URL: http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1040&r=mac
After the dramatic rescue package for the euro area, the governing council of the European Central Bank decided to purchase European government bonds – to ensure an « orderly monetary policy transmission mechanism ». Many observers argued that, by bond purchases, national fiscal policies could from now on dominate the common monetary policy. This note argues that they are quite right. The ECB has indeed become more dependent in political and financial terms. The ECB has decided to sterilise its bond purchases – compensating those purchases through sales of other bonds or money market instruments to keep the overall money supply unaffected. This is to counter accusations that the ECB is monetizing government debt. This note addresses how effective these sterilisation policies are. One problem inherent in the sterilization approach is that it reshuffles only the liability side of the ECB’s balance sheet. It is not well-suited to either diminish the bloated ECB balance sheet or to remove the potentially toxic covered or sovereign bonds from it. In addition, the intake of potentially toxic assets as collateral and by outright purchases in the central bank balance sheet artificially keeps the asset prices up and does not prevent the (quite intransparent) risk transfer from one group of countries to another to occur. Finally, sterilization takes place in a setting of still ultra-lax monetary policies, i.e. of new liquidity-enhancing operations with unlimited allotment, and, hence, does not appear to be overly irrelevant. A credible strategy to deal with the financial crisis should deal primarily with the asset side of the ECB balance sheet. […]<br />
Keywords: Accountability, bail-out, bond purchases, central bank independence, insolvency risk, Securities Markets Programme, transparency
JEL: G32
  • The role of macroeconomic policies in the global crisis
Date: 2010-07
By: Pietro Catte (Banca d’Italia)
Pietro Cova (Banca d’Italia)
Patrizio Pagano (Banca d’Italia)
Ignazio Visco (Banca d’Italia)
URL: http://d.repec.org/n?u=RePEc:bdi:opques:qef_69_10&r=mac
This paper argues that the lack of timely and decisive policy action to correct domestic and external imbalances contributed crucially to the build-up of financial excesses that led to the financial crisis and the Great Recession. We focus on 2002-07 and perform a number of counterfactual simulations to investigate two central elements of the story, namely: (a) an over-expansionary US monetary policy and the absence of effective macro-prudential supervision, which permitted a prolonged expansion of debt-financed consumer spending; (b) the decision of China and other emerging countries to pursue an export-led growth strategy supported by pegging their currencies to the US dollar, resulting in a huge build-up of their official reserves, in conjunction with sluggish domestic demand in surplus advanced economies characterized by low potential output growth. The results of the simulations lend support to the view that if subst antial, globally coordinated demand rebalancing had been undertaken in a timely manner, the macroeconomic and financial imbalances would not have accumulated to the extent that they did and the financial turmoil might have had less drastic global consequences.
Keywords: global imbalances, financial crisis, monetary policy, macroprudential regulation, structural reforms.
JEL: E52
  • Real time forecasts of inflation: the role of financial variables
Date: 2010-07
By: Libero Monteforte (Bank of Italy)
Gianluca Moretti (Bank of Italy)
URL: http://d.repec.org/n?u=RePEc:bdi:wptemi:td_767_10&r=mac
We present a mixed-frequency model for daily forecasts of euro area inflation. The model combines a monthly index of core inflation with daily data from financial markets; estimates are carried out with the MIDAS regression approach. The forecasting ability of the model in real-time is compared with that of standard VARs and of daily quotes of economic derivatives on euro area inflation. We find that the inclusion of daily variables helps to reduce forecast errors with respect to models that consider only monthly variables. The mixed-frequency model also displays superior predictive performance with respect to forecasts solely based on economic derivatives.
Keywords: forecasting inflation, real time forecasts, dynamic factor models, MIDAS regression, economic derivatives
JEL: C13
  • The Zero Lower Bound, ECB Interest Rate Policy and the Financial Crisis
Date: 2010-07
By: Stefan Gerlach
John Lewis
URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:254&r=mac
This paper estimates a monetary policy reaction function for the ECB over the period 1999-2009. To allow for a potential shift in interest rate setting during the financial crisis, we permit a smooth transition from one set of parameters to another. The estimates show a swift change in the months following the collapse of Lehman brothers. They suggest that the ECB cut rates more aggressively than expected solely on the basis of the worsening of macroeconomic conditions, consistent with the theoretical literature on optimal monetary policy in the vicinity of the zero bound.
Keywords: ECB, reaction functions; zero lower bound; smooth transition
JEL: C2
  • Understanding the Global Demand Collapse: Empirical Analysis and Optimal Policy Response
Date: 2010
By: Guido Cazzavillan (Department of Economics, University Of Venice Cà Foscari)
Michael Donadelli (Department of Economics, University Of Venice Cà Foscari)
URL: http://d.repec.org/n?u=RePEc:ven:wpaper:2010_18&r=mac
The goal of this project is to deeply investigate on the main causes of the global economic and financial crises and, based on a theoretical framework, to describe a suitable optimal monetary policy. According to our empirical analysis (basically based on US data) we will prove that a mix of extraordinary conditions have been crucial for the origin, develop and growth of the recent crisis. In finding what has been the main cause of such collapse we will prove that the credit crunch has played a crucial role, especially as a sort of contractionary monetary policy. We will also discuss the quantitative easing policies implemented by the Central Banks. Finally, we will seek to establish, by using an existing theoretical model and given extraordinary market conditions, in what central banks were wrong, and if so, where they made mistakes.
Keywords: Economic and Financial Crisis, Credit Crunch, Optimal Monetary Policy
JEL: E01
  • The VARying Effect of Foreign Shocks in Central and Eastern Europe
Date: 2010-05-01
By: Rebeca Jimenez-Rodriguez
Amalia Morales-Zumaquero
Balazs Egert
URL: http://d.repec.org/n?u=RePEc:wdi:papers:2010-989&r=mac
This paper investigates the impact of international shocks – interest rate, commodity price and industrial production shocks – on key macroeconomic variables in ten Central and Eastern European (CEE) countries by using near-VAR models and monthly data from the early 1990s to 2009. In contrast to previous work, the empirical analysis takes explicit account of the possibility of (multiple) structural breaks in the underlying time series. We establish strong evidence of structural breaks, particularly along the years 2007 and 2008, suggesting the very relevant impact of the recent global crisis on CEE economies. Moreover, our results suggest that the way how countries react to world commodity price shocks is related to the underlying economic structure and the credibility of the monetary policy. We also find that some countries like Slovakia and Slovenia – already euro area members – react stronger to foreign industr ial production shocks than other countries and that the responses to such shocks are strongly correlated for selected CEE countries. Nevertheless, our results also shed light on substantial differences in responses to foreign interest rate shocks that originate from the US or the euro area.
Keywords: monetary policy; foreign shocks; multiple structural breaks; near-VAR model; CEE economies.
JEL: E43
  • Oil price shocks and U.S. economic activity: an international perspective
Date: 2010
By: Nathan S. Balke
Stephen P.A. Brown
Mine K. Yücel
URL: http://d.repec.org/n?u=RePEc:fip:feddwp:1003&r=mac
Oil price shocks are thought to have played a prominent role in U.S. economic activity. In this paper, we employ Bayesian methods with a dynamic stochastic general equilibrium model of world economic activity to identify the various sources of oil price shocks and economic fluctuation and to assess their effects on U.S. economic activity. We find that changes in oil prices are best understood as endogenous. Oil price shocks in the 1970s and early 1980s and the 2000s reflect differing mixes of shifts in oil supply and demand, and differing sources of oil price shocks have differing effects on economic activity. We also find that U.S. output fluctuations owe mostly to domestic shocks, with productivity shocks contributing to weakness in the 1970s and 1980s and strength in the 2000s.
Keywords: Petroleum products – Prices ; Petroleum industry and trade ; Economic conditions – United States ; Business cycles
  • « Did the 2008 Rebate Fail? A Response to Taylor and Feldstein « 
Date: 2010
By: Kenneth A. Lewis (Department of Economics,University of Delaware)
Laurence S. Seidman (Department of Economics,University of Delaware)
URL: http://d.repec.org/n?u=RePEc:dlw:wpaper:10-06.&r=mac
Did the 2008 rebate fail to stimulate consumer spending? In their recent influential AER articles, John Taylor and Martin Feldstein each claim that BEA aggregate time series data show that the 2008 rebate failed. Re-examining the BEA data, we find that the data instead show there is a high probability that the rebate stimulated consumption. Moreover, the hypothesis that a rebate has half the impact of ordinary disposable income cannot be rejected. Thus, we find that analysis of the BEA aggregate time series data is consistent with the conclusion from the micro-data studies that the 2008 rebate stimulated consumer spending.
Keywords: fiscal policy, fiscal stimulus, tax rebates
JEL: E62
  • Identifying technology shocks in the frequency domain
Date: 2010
By: Riccardo DiCecio
Michael T. Owyang
URL: http://d.repec.org/n?u=RePEc:fip:fedlwp:2010-025&r=mac
Since Galí [1999], long-run restricted VARs have become the standard for identifying the effects of technology shocks. In a recent paper, Francis et al. [2008] proposed an alternative to identify technology as the shock that maximizes the forecast-error variance share of labor productivity at long horizons. In this paper, we propose a variant of the Max Share identification, which focuses on maximizing the variance share of labor productivity in the frequency domain. We consider the responses to technology shocks identified from various frequency bands. Two distinct technology shocks emerge. An expansionary shock increases productivity, output, and hours at business-cycle frequencies. The technology shock that maximizes productivity in the medium and long runs instead has clear contractionary effects on hours, while increasing output and productivity.
Keywords: Business cycles ; Technology – Economic aspects ; Productivity
  • The Next Financial Crisis
Date: 2010-08-06
By: Yochanan Shachmurove (Department of Economics, the City Collge of the City University of New York)
URL: http://d.repec.org/n?u=RePEc:pen:papers:10-027&r=mac
The examination of U.S. crises reveals that the current financial crisis follows past patterns. An investment bubble creates excess demand for new financing instruments. During the railroad bubbles of the nineteenth century loans were issued at a pace higher than many companies could pay back. The current housing bubble originated from issuing sub-prime mortgages that assume that housing prices would only rise. The increased demand for credit induces financial innovations and instruments that circumvent existing regulations. Inevitably, the bubble bursts. The history of financial crises teaches that policy reforms and new regulations cannot prevent future financial crises.
Keywords: Financial Crises; Financial Regulations and Reforms; Banking Panics; Banking Runs; Nineteenth and Twentieth Century Crises; Bankruptcies; Federal Reserve Bank; Subprime Mortgage; Troubled Asset Relief Program (TARP); Collateralized Debt Obligations (CDO); Mortgage Backed Securities (MBO); Glass-Steagall Act; J.P. Morgan Chase; Bear Stearns; Augustus Heinze; Timothy Geithner; Paul Volcker
JEL: E0
  • Foreign Exchange Intervention When Interest Rates Are Zero: Does the Portfolio Balance Channel Matter After All?
Date: 2010-07
By: Rasmus Fatum (School of Business, University of Alberta)
URL: http://d.repec.org/n?u=RePEc:kud:epruwp:10-07&r=mac
The Japanese zero-interest rate period provides a “natural experiment” for investigating the effectiveness and transmission channels of sterilized intervention when traditional monetary policy options are constrained. This paper takes advantage of the fact that all interventions in the JPY/USD market during the zero-interest rate period are sterilized sales of JPY and, therefore, none of these interventions can signal a future interest rate decrease. In order to further assess through which transmission channel these interventions work, the analysis integrates official daily Japanese intervention data with a comprehensive set of rumors data that capture interventions of which the market is aware. Market awareness is a necessary condition for intervention to disseminate information and work through channels other than the portfolio balance channel. The results of the time series analysis show that intervention, on aver age, induces a statistically and economically significant same-day depreciation of the JPY. Market awareness is shown to be unimportant. Consequently, the effects of Japanese interventions during the zero-interest rate period are consistent only with the portfolio balance channel. This is a remarkable finding, demonstrating that sterilized intervention is, in principle, an independent policy instrument.
Keywords: exchange rates; foreign exchange market intervention; channels of transmission
JEL: E52
  • Market and Funding Liquidity Stress Testing of the Luxembourg Banking Sector
Date: 2010-05
By: Francisco Nadal De Simone
Franco Stragiotti
URL: http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etudes_45&r=mac
This paper performs market and funding liquidity stress testing of the Luxembourg banking sector using stochastic haircuts and run-off rates. It takes into account not only the shocks to the banking sector and banks? responses to them, but second-round effects due to the effects of banks? reactions on asset prices and reputation. In general, banks? business lines and, therefore their buffers? composition, determine the net effect of the shocks on banks? stochastic liquidity buffers. So, results differ across banks. Second-round effects exemplify the relevance of contagion effects that reduce the systemic benefits of diversification. While systemic liquidity risk is low following a shock to the interbank market, for Luxembourg, with its high number of subsidiaries of large foreign financial institutions, the results indicate the importance of monitoring the liquidity of parent groups to which Luxembourg institutions belong . In particular, shocks to related-party deposits are important. Finally, the results, including those of a run-on-deposits shock, show the relevance of system-wide measures to minimize the systemic effects of liquidity crises.
Keywords: stress test, liquidity risk, banks, stochastic, contagion, macro-prudential
JEL: E5
  • Disentangling demand and supply in credit developments: a survey-based analysis for Italy
Date: 2010-06
By: Paolo Del Giovane (Bank of Italy)
Ginette Eramo (Bank of Italy)
Andrea Nobili (Bank of Italy)
URL: http://d.repec.org/n?u=RePEc:bdi:wptemi:td_764_10&r=mac
This paper combines qualitative information from the Eurosystem Bank Lending Survey with micro-data on loan prices and quantities for the participating Italian banks to assess the role of supply and demand factors in credit developments, with a focus on the sharp slowdown of 2008-09. Both demand and supply have played a relevant role, especially for lending to enterprises, in the whole sample period and during the financial crisis. A counterfactual exercise shows that the effect of supply factors on the growth of lending to firms was strongest after the Lehman collapse. On average, over the crisis period (2007q3-2009q4) the negative effect on the annualized quarter-on-quarter growth rate of the panel banksÂ’ lending to enterprises can be estimated in a range of 2.2 to 3.1 percentage points, depending on the specification. About one fourth of the total supply effect can be attributed to costs related to the banksÂ’ b alance sheet position, the rest to their perception of credit risk.
Keywords: credit growth, supply tightening, financial crisis
JEL: E30
  • The Global Financial Crisis of 2008-10: A View from the Social Sectors
Date: 2010-07
By: Sara Guerschanik Calvo (School of International and Public Affairs (SIPA), Columbia University)
URL: http://d.repec.org/n?u=RePEc:hdr:papers:hdrp-2010-18&r=mac
The impact of the US financial crisis that unfolded in 2008 has been global. It was felt in output, trade, and cross-border capital flows and transfers. Incomes have dropped and consumption patterns are changing, placing at risk the human development gains of the 1990s. At the heart of this global crisis is a credit crunch that has put financial strains on firms and individuals and has led to a large number of job losses and drops in income from other sources. Having learned the lessons from past financial crises, some countries were well prepared and, with support from the international financial community, lessened the impact of the crisis. Still, current estimates about the impact of the Crisis are staggering. But country experiences show that in the past there have been huge overestimates of the impact on human development indicators that may be the case again now. The high share of developing-country exports in total exports to advanced countries and the high number of women—pivotal in child development–in developing country-export sectors, make focusing on national and global actions conducive to restore world credit a priority for policymakers. High on the action list is restoring credibility in financial markets, making credit accessible to small businesses that account for a large share of employment globally, strengthening the absorptive capacity of public spending, and expanding social protection programs. This paper is a compilation of selected literature on the impact of financial crisis on jobs, other sources of private income and public social spending and on human development. The paper uses the bank run and sudden stop framework of financial-crisis analysis, discusses country cases, and summarizes the lessons learned from current as well as past crises to prevent loosing sources of income.
Keywords: financial crisis; credit; jobs; human development
JEL: E2

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