[MAC] Macroéconomie: working papers (RePEc, 15/09/2010)

Source : NEP (New Economics Papers) | RePEc

  • Frequency Dependence in a Real-Time Monetary Policy Rule
Date: 2010
By: Richard Ashley
Kwok Ping Tsang
Randal J. Verbrugge
URL: http://d.repec.org/n?u=RePEc:vpi:wpaper:e07-21&r=mac
We estimate a monetary policy rule allowing for possible frequency dependence – i.e. allowing the central bank to respond di¤erently to persistent innovations than to transitory innovations, in both the real-time unemployment rate and the real-time inflation rate. The method is flexible, and requires no strong a priori assumptions on the pattern of frequency dependence or on the nature of the data-generating process. The data convincingly reject linearity in the monetary policy rule, in the direction suggested by theory. Our two major …ndings are 1) the post-Volcker central bank responds more strongly to unemployment rate fluctuations than previous regimes do and 2) while the post-Volcker central bank reacts more strongly to persistent inflation fluctuations, it actually accommodates inflation at higher frequencies.
Keywords: Taylor rule, frequency dependence, spectral regression, real-time data
  • Asymmetries in New Keynesian Phillips Curves: Evidence from US Cities
Date: 2010-06
By: Sonora, Robert
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24650&r=mac
Studies of the relationship between national in ation rates and the output gap, as formalized in the New Keynesian Phillips Curve, ignore macroeconomic heterogeneity which exist in dierent parts of the country. This paper investigates dierences in in ation and output across United States cities. The policy implications are dicult to ignore given dierences in production across the country as a whole. Also of interest is identifying the median city-economy in the US. Thus when policy is implemented which city sees the greatest benet of new policy? In addition to considering the standard Phillips relation between inflation and the output gap, I also consider the relationship between inflation and an index of wage costs as suggested in the literature. Preliminary results demonstrate a signicant degree of heterogeneity across cities implying centralized policy prescriptions are helpful for some economies are harmful to others.
Keywords: Inflation Dynamics; New Keynesian Phillips Curve; GMM
JEL: E32
  • The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008
Date: 2010-04
By: Canale, Rosaria Rita
Napolitano, Oreste
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24705&r=mac
The EMU assigns a very marginal role to economic policy and relies on the leading idea that, if prices are kept constant, there will be an automatic convergence towards long-run equilibrium income. These beliefs represent the theoretical underpinnings of fiscal and monetary policy strategies in Europe. In order to highlight the weakness of these foundations, the paper evaluates empirically the effects of public expenditure and interest rate setting on equilibrium income in Italy from 1998 to 2008. The analysis supports the conclusions that government spending has a positive impact on national income while inflation targeting has a negative impact. Moreover the empirical evidence shows that a high level of debt does not produce negative effects on GDP. Finally, at a time of financial crisis, these results appear to be reinforced for fiscal policy, but weakened for monetary policy. The paper finally states that the EMU’s rigid rules for both fiscal and monetary policy have recessive attitudes, and limit the use of instruments to deal with high levels of unemployment, definitely undermining the future existence of the single-currency area.
Keywords: Fiscal policy; Monetary policy; EMU; Italy
JEL: E62
  • Using estimated models to assess nominal and real rigidities in the United Kingdom
Date: 2010-08
By: Gunes Kamber
Stephen Millard (Reserve Bank of New Zealand)
URL: http://d.repec.org/n?u=RePEc:nzb:nzbdps:2010/05&r=mac
This paper aims to contribute to our understanding of inflation dynamics in the United Kingdom by estimating two dynamic stochastic general equilibrium models and assessing the role of nominal and real rigidities within them. We first obtain an empirical representation of the monetary transmission mechanism in the United Kingdom and then estimate the models by minimising the difference between this representation and its model equivalents.We find that both models can explain the data reasonably well without relying on undue amounts of price and wage stickiness.
JEL: E31
  • How Do Central Banks React to Wealth Composition and Asset Prices?
Date: 2010
By: Vítor Castro (Universidade de Coimbra and NIPE)
Ricardo M. Sousa (Universidade do Minho – NIPE)
URL: http://d.repec.org/n?u=RePEc:nip:nipewp:26/2010&r=mac
We assess the response of monetary policy to developments in asset markets in the Euro Area, the US and the UK. We estimate the reaction of monetary policy to wealth composition and asset prices using: (i) a linear framework based on a fully simultaneous system approach in a Bayesian environment; and (ii) a nonlinear specification that relies on a smooth transition regression model. The linear framework suggests that wealth composition is indeed important in the formulation of monetary policy. However, the attempts of central banks to mitigate undesirable fluctuations in say, financial wealth, may disrupt housing wealth. A similar result can be found when we assess the reaction of monetary authority to asset prices, although concerns about « price » effects are smaller. The nonlinear model confirms these findings. However, the concerns over the wealth and its components are stronger once inflation is under control, i.e. bel ow a certain target. Some disruptions between financial and housing wealth effects are still present. They can also be found in reaction to asset prices, despite being less intense.
Keywords: monetary policy rules, wealth composition, asset prices.
JEL: E37
  • Inflation Dynamics
Date: 2010-09-08
By: Sylvia Kaufmann (Economic Studies Division, Oesterreichische Nationalbank)
Johann Scharler (Department of Economics, University of Linz)
URL: http://d.repec.org/n?u=RePEc:onb:oenbwp:164&r=mac
If firms borrow working capital to finance production, then nominal interest rates have a direct influence on in inflation dynamics, which appears to be the case empirically. However, interest rates may only partly mirror the cost of working capital. In this paper we explore the role of bank lending standards as a potential additional cost source and evaluate their empirical importance in explaining in ation dynamics in the US and in the euro area. JEL classification: E40, E50
Keywords: New Keynesian Phillips Curve, Cost Channel, Bank Lending Standards, Bayesian
  • Evaluating the Effect of the Bank of Canada’s Conditional Commitment Policy
Date: 2010
By: Zhongfang He
URL: http://d.repec.org/n?u=RePEc:bca:bocadp:10-11&r=mac
The author evaluates the effect of the Bank of Canada’s conditional commitment regarding the target overnight rate on longer-term market interest rates by taking into account the relationship between interest rates, inflation, and unemployment rates. By using vector autoregressive models of monthly interest rates, month-over-month inflation, and unemployment rates for Canada and the United States, the author finds that the Canadian 1-year treasury bill rates and 1-year forward 3-month rates have generally been lower than their model-implied values since April 2009, while the difference between the U.S. realized rates and their model-implied values has been much smaller. The author also studies the effect of the conditional commitment on longer-term government bond yields with maturities of 2, 5, and 10 years, and finds lower actual Canadian longer-term interest rates than their model-implied values, though their differenc e diminishes as the maturities become longer. The evidence appears to suggest that the Bank of Canada’s conditional commitment likely has produced a persistent effect in lowering Canadian interest rates relative to what their historical relationship with inflation and unemployment rates would imply. However, this finding is not statistically strong and is subject to caveats such as possible in-sample model instability and the dependence of the results on the choice of inflation variable.
Keywords: Interest rates; Monetary policy implementation; Transmission of monetary policy
JEL: E4
  • A Floating versus Managed Exchange Rate Regime in a DSGE Model of India
Date: 2010
By: Nicoletta Batini
Vasco Gabriel
Paul Levine
Joseph Pearlman (National Institute of Public Finance and Policy)
URL: http://d.repec.org/n?u=RePEc:eab:macroe:2222&r=mac
We first develop a two-bloc model of an emerging open economy interacting with the rest of the world calibrated using Indian and US data. The model features a financial accelerator and is suitable for examining the effects of financial stress on the real economy. Three variants of the model are highlighted with increasing degrees of financial frictions. The model is used to compare two monetary interest rate regimes: domestic Inflation targeting with a floating exchange rate (FLEX(D)) and a managed exchange rate (MEX). Both rules are characterized as a Taylor-type interest rate rules. MEX involves a nominal exchange rate target in the rule and a constraint on its volatility. We find that the imposition of a low exchange rate volatility is only achieved at a significant welfare loss if the policymaker is restricted to a simple domestic inflation plus exchange rate targeting rule. If on the other hand the policymaker can im plement a complex optimal rule then an almost fixed exchange rate can be achieved at a relatively small welfare cost. This finding suggests that future research should examine alternative simple rules that mimic the fully optimal rule more closely.
Keywords: DSGE model, Indian economy, monetary interest rate rules, floating versus managed exchange rate, financial frictions
JEL: E52
  • « The « Keynesian Moment » in Policymaking, the Perils Ahead, and a Flow-of-funds Interpretation of Fiscal Policy »
Date: 2010-08
By: Andrea Terzi
URL: http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_614&r=mac
With the global crisis, the policy stance around the world has been shaken by massive government and central bank efforts to prevent the meltdown of markets, banks, and the economy. Fiscal packages, in varied sizes, have been adopted throughout the world after years of proclaimed fiscal containment. This change in policy regime, though dubbed the « Keynesian moment, » is a « short-run fix » that reflects temporary acceptance of fiscal deficits at a time of political emergency, and contrasts with John Maynard Keynes’s long-run policy propositions. More important, it is doomed to be ineffective if the degree of tolerance of fiscal deficits is too low for full employment. Keynes’s view that outside the gold standard fiscal policies face real, not financial, constraints is illustrated by means of a simple flow-of-funds model. This shows that government deficits do not take financial resources from the private sector, and that demand for net financial savings by the private sector can be met by a rising trade surplus at the cost of reduced consumption, or by a rising government deficit financed by the monopoly supply of central bank credit. Fiscal deficits can thus be considered functional to the objective of supplying the private sector with a provision of financial wealth sufficient to restore demand. By contrast, tax hikes and/or spending cuts aimed at reducing the public deficit lower the available savings of the private sector, and, if adopted too soon, will force the adjustment by way of a reduction of demand and standard of living. This notion, however, is not applicable to the euro area, where constraints have been deliberately created that limit public deficits and the supply of central bank credit, thus introducing national solvency risks. This is a crucial flaw in the institutional structure of Euroland, where monetary sovereignty has been removed from all existing fiscal authorities. Absent a reassessment of its design, the euro area is facing a deflat ionary tendency that may further erode the economic welfare of the region.
Keywords: Government and the Monetary System; Fiscal Policy; Keynes; Euro Area
JEL: E12
  • Payroll Taxes, Social Insurance and Business Cycles
Date: 2010-08
By: Burda, Michael C. (Humboldt University, Berlin)
Weder, Mark (University of Adelaide)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp5150&r=mac
Payroll taxes represent a major distortionary influence of governments on labor markets. This paper examines the role of payroll taxation and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search effort. A balanced social insurance budget renders gross wages more rigid over the cycle and, as a result, strengthens the model’s endogenous propagation mechanism. For conventional calibrations, the model generates a negatively sloped Beveridge curve as well as substantial volatility and persistence of vacancies and unemployment.
Keywords: business cycles, labor markets, payroll taxes, unemployment, consumption-tightness puzzle
JEL: E24
  • Payroll Taxes, Social Insurance and Business Cycles
Date: 2010-08
By: Michael C. Burda
Mark Weder
URL: http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2010-042&r=mac
Payroll taxes represent a major distortionary influence of governments on labor markets. This paper examines the role of payroll taxation and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search effort. A balanced social insurance budget renders gross wages more rigid over the cycle and, as a result, strengthens the model’s endogenous propagation mechanism. For conventional calibrations, the model generates a negatively sloped Beveridge curve as well as substantial volatility and persistence of vacancies and unemployment. herunterladen.
Keywords: Business cycles, labor markets, payroll taxes, unemployment, consumptiontightness puzzle
JEL: E24
  • Inflation, inflation uncertainty and growth: are they related ?
Date: 2010-12
By: Stilianos Fountas (Department of Economics, University of Macedonia)
URL: http://d.repec.org/n?u=RePEc:mcd:mcddps:2010_12&r=mac
We examine the relationship between inflation uncertainty, inflation and growth using annual historical data on industrial countries covering in many cases more than one century. Proxying inflation uncertainty by the conditional variance of inflation shocks, we obtain the following results. (1) There is significant evidence for the positive effect of inflation uncertainty on inflation supporting the Cukierman-Meltzer hypothesis. (2) There is mixed evidence on the causal effect of inflation on inflation uncertainty. (3) There is strong evidence that inflation uncertainty is not detrimental to output growth.
Keywords: Inflation uncertainty, growth, GARCH models
JEL: E31
  • Monetary Policy in an Uncertain World: Probability Models and the Design of Robust Monetary Rules
Date: 2010
By: Paul Levine (National Institute of Public Finance and Policy)
URL: http://d.repec.org/n?u=RePEc:eab:macroe:2224&r=mac
The past forty years or so has seen a remarkable transformation in macro-models used by central banks, policymakers and forecasting bodies. This papers describes this transformation from reduced-form behavioural equations estimated separately, through to contemporary micro-founded dynamic stochastic general equilibrium (DSGE) models estimated by systems methods. In particular by treating DSGE models estimated by Bayesian-Maximum-Likelihood methods I argue that they can be considered as probability models in the sense described by Sims (2007) and be used for risk-assessment and policy design. This is true for any one model, but with a range of models on oer it is possible also to design interest rate rules that are simple and robust across the rival models and across the distribution of parameter estimates for each of these rivals as in Levine et al. (2008). After making models better in a number of important dimensions, a possible road ahead is to consider rival models as being distinguished by the model of expectations. This would avoid becoming `a prisoner of a single system’ at least with respect to expectations formation where, as I argue, there is relatively less consensus on the appropriate modelling strategy.
Keywords: structured uncertainty, DSGE models, robustness, Bayesian estimation, interest-rate rules
JEL: E52
  • How Better Monetary Statistics Could Have Signaled the Financial Crisis
Date: 2010-08
By: William A. Barnett (Department of Economics, The University of Kansas)
Marcelle Chauvet (University of California at Riverside)
URL: http://d.repec.org/n?u=RePEc:kan:wpaper:201005&r=mac
This paper explores the disconnect of Federal Reserve data from index number theory. A consequence could have been the decreased systemic-risk misperceptions that contributed to excess risk taking prior to the housing bust. We find that most recessions in the past 50 years were preceded by more contractionary monetary policy than indicated by simple-sum monetary data. Divisia monetary aggregate growth rates were generally lower than simple-sum aggregate growth rates in the period preceding the Great Moderation, and higher since the mid 1980s. Monetary policy was more contractionary than likely intended before the 2001 recession and more expansionary than likely intended during the subsequent recovery.
Keywords: Measurement error, monetary aggregation, Divisia index, aggregation, monetary policy, index number theory, financial crisis, great moderation, Federal Reserve.
JEL: E40
  • The Output Gap, the Labor Wedge, and the Dynamic Behavior of Hours
Date: 2010
By: Luca Sala
Ulf Soderstrom
Antonella Trigari
URL: http://d.repec.org/n?u=RePEc:igi:igierp:365&r=mac
We use a standard quantitative business cycle model with nominal price and wage rigidities to estimate two measures of economic inefficiency in recent U.S. data: the output gap – the gap between the actual and effcient levels of output – and the labor wedge|the wedge between households’ marginal rate of substitution and firms’ marginal product of labor. We establish three results. (i ) The output gap and the labor wedge are closely related, suggesting that most inefficiencies in output are due to the inecient allocation of labor. (ii ) The estimates are sensitive to the structural interpretation of shocks to the labor market, which is ambiguous in the model. (iii ) Movements in hours worked are essentially exogenous, directly driven by labor market shocks, whereas wage rigidities generate a markup of the real wage over the marginal rate of substitution that is acyclical. We conclude that the model fails in two important r espects: it does not give clear guidance concerning the eciency of business cycle fluctations, and it provides an unsatisfactory explanation of labor market and business cycle dynamics.
  • Firm Characteristics, Financial Composition and Response to Monetary Policy: Evidence from Indian Data
Date: 2010
By: Ghosh, Saibal
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24717&r=mac
The article examines the evidence for credit channel on the composition of corporate finance during tight and loose periods of monetary policy, using micro-level data on Indian firms for 1995-2007. The findings provide evidence in favor of the relationship lending view, although the magnitude and extent of the response varies according to firm characteristics.
Keywords: monetary policy; corporate finance; leverage; Altman-Z; relationship lending; India
JEL: E52
  • A theory of the non-neutrality of money with banking frictions and bank recapitalization
Date: 2010-08-25
By: Zeng, Zhixiong
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24752&r=mac
Policy actions by the Federal Reserve during the recent financial crisis often involve recapitalization of banks. This paper offers a theory of the non-neutrality of money for policy actions taking the form of injecting capital into banks via nominal transfers, in an environment where banking frictions are present in the sense that there exists an agency cost problem between banks and their private-sector creditors. The analysis is conducted within a general equilibrium setting with two-sided financial contracting. We first show that even with perfect nominal flexibility, the recapitalization policy can have real effects on the economy. We then study the design of the optimal long-run recapitalization policy as well as the optimal short-run policy responses to banking riskiness shocks.
Keywords: Banking frictions; two-sided debt contract; money neutrality; unconventional monetary policy; reaction function.
JEL: E52
  • Global Banking and International Business Cycles
Date: 2010-08
By: Robert Kollmann
Zeno Enders
Gernot J. Müller
URL: http://d.repec.org/n?u=RePEc:eca:wpaper:2013/60880&r=mac
This paper incorporates a global bank into a two-country business cycle model. The bank collects deposits from households and makes loans to entrepreneurs, in both countries. It has to finance a fraction of loans using equity. We investigate how such a bank capital requirement affects the international transmission of productivity and loan default shocks. Three findings emerge. First, the bank’s capital requirement has little effect on the international transmission of productivity shocks. Second, the contribution of loan default shocks to business cycle fluctuations is negligible under normal economic conditions. Third, an exceptionally large loan loss originating in one country induces a sizeable and simultaneous decline in economic activity in both countries. This is particularly noteworthy, as the 2007-09 global financial crisis was characterized by large credit losses in the US and a simultaneous sharp output reducti on in the US and the Euro Area. Our results thus suggest that global banks may have played an important role in the international transmission of the crisis.
  • Banking globalization and international business cycles
Date: 2010
By: Kozo Ueda
URL: http://d.repec.org/n?u=RePEc:fip:feddgw:58&r=mac
This paper constructs a two-country DSGE model to study the nature of the recent financial crisis and its effects that spread immediately throughout the world owing to the globalization of banking. In the model, financial intermediaries (FIs) enter into chained credit contracts at home and abroad, engaging in cross-border lending to entrepreneurs by undertaking crossborder borrowing from investors. The FIs as well as the entrepreneurs in two countries are credit constrained, so all of their net worths matter. Our model reveals that under FIs’ globalization, adverse shocks that hit one country affect the other, yielding business-cycle synchronization on both the real and financial sides. It also suggests that the FIs’ globalization, net worth shock, and credit constraints are key to understanding the recent financial crisis.
Keywords: Globalization ; Global financial crisis ; Business cycles ; Financial markets
  • Direct Effects of Money on Aggregate Demand: Another Look at the Evidence
Date: 2010-08
By: Stephen Elias (Reserve Bank of Australia)
Mariano Kulish (Reserve Bank of Australia)
URL: http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2010-05&r=mac
Now that a number of central banks are faced with short-term nominal interest rates close to or at the zero lower bound, there is a renewed interest in the long-running debate about whether or not changes in the stock of money have direct effects. In particular, do changes in money have additional effects on aggregate demand outside of those induced by changes in short-term nominal interest rates? This paper revisits and reinterprets the empirical evidence based on single equation regressions which is quite mixed, with some results supporting and other results denying the existence of direct effects. We use a structural model with no direct effects of money to show that the finding of positive and statistically significant coefficients on real money growth can be misleading. The model generates data that, when used to estimate analogs of the empirical regressions, produce positive and statistically significant coefficient s on real money growth, similar to those often found when using actual data. The problem is that single equation regressions leave out a set of variables, which in turn, gives rise to an omitted variables bias in the estimated coefficients on real money growth. Hence, they are an unreliable guide to calibrate monetary policies, in general, including at the zero lower bound.
Keywords: money; monetary base; direct effects; output gap
JEL: E40
  • Is a National Monetary Policy Optimal?
Date: 2010
By: Eyler, Robert
Sonora, Robert
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24745&r=mac
Monetary policy has differential effects throughout the United States. When setting monetary policy, central banks must consider how national and regional economic goals are being achieved. In this study, the methods and evidence are focused on using structural VAR analysis, assuming that the United States has an interest rate channel of monetary policy. The methods estimate the symmetry and magnitude of monetary shocks on income, unemployment and prices in major metropolitan statistical areas (MSAs) of the United States as compared to the national effects. As in Carlino and Defina (1998) and Florio (2005), differential regional effects connect to optima currency areas (OCA) literature, the advent of the Euro, increased regionalism, and the possibility of more monetary unions forming worldwide. Events in early 2010 concerning the Euro’s stability show the importance of monitoring regions and their reactions to policy.
Keywords: E52 ; E61; E37; R12
JEL: E52
  • « Debts, Deficits, Economic Recovery, and the U.S. Government »
Date: 2010-08
By: Dimitri B. Papadimitriou
Greg Hannsgen
URL: http://d.repec.org/n?u=RePEc:lev:levppb:ppb_114&r=mac
In this new policy brief, President Dimitri B. Papadimitriou and Research Scholar Greg Hannsgen evaluate the current path of fiscal deficits in the United States in the context of government debt and further spending, economic recovery, and unemployment. They are adamant that there is no justification for the belief that cutting spending or raising taxes by any amount will reduce the federal deficit, let alone permit solid growth. The worst fears about recent stimulative policies and rapid money-supply growth are proving to be incorrect once again. In the authors’ view, we must find the will to reinvigorate government and to maintain Keynesian macro stimulus in the face of ideological opposition and widespread mistrust of government.
  • Regional Inflation in China
Date: 2009-12
By: Nagayasu, Jun
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24722&r=mac
This paper empirically examines developments in price and inflation in China from 1991 to 2005. Unlike most previous studies, their determinants were investigated in the panel data context, and our findings are as follows. First, using the panel cointegration method, we confirm a long-run relationship between price, money and output. Secondly, we provide evidence that inflation can be explained by economic fundamentals such as money, credits, productivity, and exchange rate growth. Furthermore, while an increased concern about regional discrepancies in recent years, this relationship is more sensitive to the sample period than to the region type. Notably, money does not seem to be closely associated with inflation over recent years.
Keywords: China; inflation; panel data; panel cointegration
JEL: E31
  • A simple and flexible alternative to the Stability and Growth Pact deficit ceilings. Is it at hand?
Date: 2010-07
By: V. Anton Muscatelli
Piergiovanna Natale
Patrizio Tirelli
URL: http://d.repec.org/n?u=RePEc:mib:wpaper:195&r=mac
We use a simple theoretical model of a monetary union where myopic discretionary fiscal policies generate excessive debt accumulation in steady state and inefficiently delayed debt adjustment following a shock. We advocate the adoption of a flexible debt targeting approach. By setting a long-term debt target and by raising the political cost associated to deviations from the optimal pace of debt reversal following a shock¸ institutional design induces the fiscal policymaker to implement unbiased discretionary responses to shocks. Since the power to discipline fiscal policymakers rests in the hands of national voters, this outcome can be achieved by increasing the transparency of the decision-making process, where national voters understand the long-term consequences of fiscal policies. In practice, we call for clearer and more focused supervision tasks for the European Commission and for a more active role of national Pa rliaments whenever a disagreement arises between the Commission and a national government.
JEL: E52
  • Fiscal Policy and Asset Prices
Date: 2010
By: Luca Agnello (University of Palermo)
Ricardo M. Sousa (Universidade do Minho – NIPE)
URL: http://d.repec.org/n?u=RePEc:nip:nipewp:25/2010&r=mac
We assess the role played by fiscal policy in explaining the dynamics of asset markets. Using a panel of ten industrialized countries, we show that a positive fiscal shock has a negative impact in both stock and housing prices. However, while stock prices immediately adjust to the shock and the effect of fiscal policy is temporary, housing prices gradually and persistently fall. As a result, the attempts of fiscal policy to mitigate stock price developments may severely de-stabilize housing markets. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding-out effects; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) significant fiscal multiplier effects in the context of severe housing busts; and (iv) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation a nd mortgage liberalization. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances.
Keywords: fiscal policy, asset prices, panel VAR.
JEL: E62
  • Extracting information on inflation from consumer and wholesale prices and the NKE aggregate supply curve
Date: 2010-08
By: Ashima Goyal (Indira Gandhi Institute of Development Research)
Shruti Tripathi (Indira Gandhi Institute of Development Research)
URL: http://d.repec.org/n?u=RePEc:ind:igiwpp:2010-012&r=mac
Since consumer prices are a weighted average of the prices of domestic and of imported consumption goods, and producer prices feed into final consumer prices, wholesale price inflation should cause consumer price inflation. Moreover, there should exist a long-term equilibrium relationship between consumer and wholesale price inflation and the exchange rate. But we derive a second relation between the price series from an Indian aggregate supply function, giving reverse causality. The CPI inflation should Granger cause WPI inflation, through the effect of food prices on wages and producer prices. These restrictions on causal relationships are tested using a battery of time series techniques on the indices and their components. We find evidence of reverse causality, when controls are used for other variables affecting the indices. Second, both the identity and the AS hold as long-run cointegrating relationships. There is an important role for supply shocks. Food price inflation is cointegrated with manufacturing inflation. The exchange rate affects consumer prices. The insignificance of the demand variable in short-run adjustment indicates an elastic AS. There is no evidence of a structural break in the time series on inflation. Convergence is slow, and this together with differential shocks on the two series may explain their recent persistent divergence.
Keywords: Consumer and wholesale price inflation, aggregate supply, Granger causality, cointegration, VECM
JEL: E31
  • Endogenous Time Preference in Monetary Growth Model
Date: 2010-09
By: Been-Lon Chen (Institute of Economics, Academia Sinica, Taipei, Taiwan)
Yu-Shan Hsu (Department of Economics, National Chung Cheng University)
Chia-Hui Lu (Department of Economics, National Taipei University)
URL: http://d.repec.org/n?u=RePEc:sin:wpaper:10-a005&r=mac
We study the otherwise standard growth model with money except endogenous time preferences determined by resources pent on imagining future pleasures along the line of Becker and Mulligan (1997). Money plays a role in transactions via the cash-in-advance constraint.The resulting steady-state condition can be simplified to the standard textbook diagram in terms of two loci. We analyze the relationship between monetary growth and capital accumulation. If spending on imagining future pleasures is not constrained by cash, the existing relationship no longer holds. The optimum quantity of money is studied.
Keywords: endogenous time preferences, growth, money
JEL: E22
  • Are Fiscal Adjustments Bad for Investment?
Date: 2010-08
By: Christoph A. Schaltegger
Martin Weder
URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2010-17&r=mac
The current debt crisis in many OECD countries calls for adequate strategies in budget consolidation. To regain fiscal solvency many governments base their fiscal adjustments at least partly on spending cuts. A common political claim is that spending cuts rely too much on investment thereby undermining future long-term growth perspectives. We study the effect of fiscal adjustments on economic growth, consumption and investment for a panel of 20 OECD countries during the 1970-2008 period. Our results support the idea of expansionary consolidations in the case of sizeable adjustments and through spending cuts. The effect is primarily a result of increased consumption rather than investment. While fiscal adjustments also boost private investment, this tends to be offset by a corresponding reduction in government investment. Fiscal consolidations therefore hardly affect total investment.
Keywords: fiscal policy; fiscal adjustment; non-Keynesian effects; investment
JEL: E61
  • Optimal policy and consumption smoothing effects in the time-to-build AK model
Date: 2010-08-29
By: M. BAMBI (Department of Economics and Related Studies, University of York)
G. FABBRI (Universita di Napoli Parthenope and School of Mathematics and Statistics, UNSW, Sydney)
F. GOZZI (Dipartimento di Scienze Economiche ed Aziendali, Università LUISS – Guido Carli Roma, and Centro De Giorgi, Scuola Normale Superiore, Pisa, Italy)
URL: http://d.repec.org/n?u=RePEc:ctl:louvir:2010029&r=mac
In this paper the dynamic programming approach is exploited in order to identify the closed loop policy function, and the consumption smoothing mechanism in an endogenous growth model with time to build, linear technology and irreversibility constraint in investment. Moreover the link among the time to build parameter, the real interest rate, and the magnitude of the smoothing effect is deeply investigated and compared with what happens in a vintage capital model characterized by the same technology and utility function. Finally we have analyzed the effect of time to build on the speed of convergence of the main aggregate variables.
Keywords: Time-to-build, AK model, Dynamic programming, optimal
JEL: E22
  • International Transmission of Environmental Policy: A New Keynesian Perspective
Date: 2010-08
By: Giovanni Ganelli
Juha Tervala
URL: http://d.repec.org/n?u=RePEc:tkk:dpaper:dp58&r=mac
In this paper we examine the international transmission of environmental policy using a New Keynesian model of the global economy. We first consider the case in which the quality of the environment affects utility, but not productivity. This allows us to look at the trade-off between environmental quality and output. We then consider the case in which the quality of the environment increases productivity but does not affect utility. Our main results show that in both cases a unilateral implementation of a more stringent environmental policy by the domestic country raises foreign welfare under a benchmark parameterization. However, since this policy can have a negative impact on domestic utility but a positive one on world utility, an international coordination problem can arise in the implementation of environmental policy: no country will have an incentive to implement environmental reforms if there is a possibility that its trading partners will do so.
Keywords: Environmental Economics, Environmental Policy, International Policy Coordination, Open Economy Macroeconomics
JEL: E30
  • Unbalanced Books: How to Improve Toronto’s Fiscal Accountability
Date: 2010-08
By: Colin Busby (C.D. Howe Institute)
Benjamin Dachis (C.D. Howe Institute)
William B.P. Robson (C.D. Howe Institute)
URL: http://d.repec.org/n?u=RePEc:cdh:ebrief:103&r=mac
As Toronto gears up for a municipal election this fall, the city’s poor record on fiscal accountability promises to be a central issue. As the sixth largest government in Canada, with a budget of over $11 billion annually, Toronto city hall should have its finances under better control. A 10-year comparison of planned spending changes announced in budgets with actual results reported after year-end reveals large deviations between planned and actual spending that are routine. To increase transparency and accountability, Toronto should consolidate its now separate capital and operating budgets, move to a uniform accounting basis for its budgets and year-end results, and provide multi-year budgets. City government should adhere more closely to the budgets Council votes every year.
Keywords: Governance and Public Institutions, Toronto, fiscal accountability
JEL: E62
  • The Asymmetric Effects of Oil Price Shocks
Date: 2010-01-01
By: Apostolos Serletis
Sajjadur Rahman
URL: http://d.repec.org/n?u=RePEc:clg:wpaper:2010-16&r=mac
In this paper we investigate the effects of oil price uncertainty and its asymmetry on real economic activity in the United States, in the context of a bivariate vector autoregression with GARCH-in-Mean errors, as detailed in Engle and Kroner (1995), Grier et al. (2004), and Shields et al. (2005). The model allows for the possibilities of spillovers and asymmetries in the variance-covariance structure for real output growth and the change in the real price of oil. Our measure of oil price uncertainty is the conditional variance of the oil price change forecast error. We isolate the effects of volatility in the change in the price of oil and its asymmetry on output growth and, following Koop et al. (1996), Hafner and Herwartz (2006), and van Dijk et al. (2007), we employ simulation methods to calculate Generalized Impulse Response Functions (GIRFs) and Volatility Impulse Response Functions (VIRFs) to trace the effects of i ndependent shocks on the conditional means and the conditional variances, respectively, of the variables. We Â…find that oil price uncertainty has a negative effect on output, and that shocks to the price of oil and its uncertainty have asymmetric effects on output.
JEL: E32
  • The Role of the State in Managing and Forestalling Systemic Financial Crises: Some Issues and Perspectives
Date: 2010
By: Charles Adams (Asian Development Bank Institute)
URL: http://d.repec.org/n?u=RePEc:eab:macroe:2252&r=mac
This paper reviews recent state interventions in financial crises and draws lessons for crisis management. A number of areas are identified where crisis management could be strengthened, including with regard to the tools and instruments used to involve the private sector in crisis resolution (with a view to reducing the recent enhanced role of official bailouts and the associated moral hazard), to allow for the orderly resolution of systemically important financial firms (to make these firms “safe to fail”), and with regard to achieving better integration with ex ante macroprudential surveillance. The paper proposes the establishment of high level systemic risk councils (SRCs) in each country with responsibility for overseeing systemic risk in both tranquil times and crisis periods and coordinating the activities of key government ministries, agencies, and the central bank.
Keywords: financial crisis, crisis management, private sector, moral hazard, systemic risk councils
JEL: E58
  • The Value of Luminosity Data as a Proxy for Economic Statistics
Date: 2010-08
By: Xi Chen (Dept. of Economics, Yale University)
William D. Nordhaus (Cowles Foundation, Yale University)
URL: http://d.repec.org/n?u=RePEc:cwl:cwldpp:1766&r=mac
One of the pervasive issues in social and environmental research has been to improve the quality of socioeconomic data in developing countries. Because of the shortcoming of standard data sources, the present study examines luminosity (measures of nighttime lights) as a proxy for standard measures of output. The paper compares output and luminosity at the country levels and at the 1° x 1° grid-cell levels for the period 1992-2008. The results are that luminosity has very little value added for countries with high-quality statistical systems. However, it may be useful for countries with the lowest statistical grades, particularly for war-torn countries with no recent population or economic censuses. The results also indicate that luminosity has more value added for economic density estimates than for time-series growth rates.
Keywords: Luminosity, Proxy variable, Measurement error in GDP, Gross grid-cell product
JEL: E01
  • Alternative methods for forecasting GDP
Date: 2010-12
By: Dominique Guegan (CES – Centre d’économie de la Sorbonne – CNRS : UMR8174 – Université Panthéon-Sorbonne – Paris I, EEP-PSE – Ecole d’Économie de Paris – Paris School of Economics – Ecole d’Économie de Paris)
Patrick Rakotomarolahy (CES – Centre d’économie de la Sorbonne – CNRS : UMR8174 – Université Panthéon-Sorbonne – Paris I)
URL: http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00511979_v1&r=mac
An empirical forecast accuracy comparison of the non-parametric method, known as multivariate Nearest Neighbor method, with parametric VAR modelling is conducted on the euro area GDP. Using both methods for nowcasting and forecasting the GDP, through the estimation of economic indicators plugged in the bridge equations, we get more accurate forecasts when using nearest neighbor method. We prove also the asymptotic normality of the multivariate k-nearest neighbor regression estimator for dependent time series, providing confidence intervals for point forecast in time series.
Keywords: Forecast – Economic indicators – GDP – Euro area – VAR – Multivariate k nearest neighbor regression – Asymptotic normality
  • Válaszút elõtt a makroökonómia?
Date: 2010-05
By: Tamás Mellár (Department of Economics and Regional Studies, University of Pécs)
URL: http://d.repec.org/n?u=RePEc:pec:wpaper:2010/2&r=mac
A 2008-ban kitört pénzügyi válság ráirányította a figyelmet a mainstream makroökonómiára, amely a válság elõrejelzésében és magyarázatában rossz teljesítményt nyújtott. Az újklasszikus és az újkeynesi iskola közötti konszenzus eredményeként létrejött DSGE-modellek számos probléma miatt nem alkalmasak elõrejelzésekre és gazdaságpolitikai elemzésekre. Ezért a makroökonómia válaszút elé került: vagy folytatja a dinamikus sztochasztikus egyensúlyi modellépítést, vagy pedig új modelleket és ezzel utakat keres.
Keywords: mainstream macroeconomics, neoclassical and new classical synthesis, DSGE models
JEL: E20
  • « Financing Harmful Bubbles »
Date: 2010-08
By: Hitoshi Matsushima (Faculty of Economics, University of Tokyo)
URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf227&r=mac
We model the stock market as a timing game, in which arbitrageurs who are not expected to be certainly rational compete over profit by bursting the bubble caused by investors’ euphoria. The manager raises money by issuing shares and the arbitrageurs use leverage. If leverage is weakly regulated, it is the unique Nash equilibrium that the bubble persists for a long time. This holds even if the euphoria is negligible and all arbitrageurs are expected to be almost certainly rational. This bubble causes serious harm to the society, because the manager uses the money raised for his personal benefit.
  • Price Points and Price Rigidity
Date: 2010-08
By: Daniel Levy
Dongwon Lee
Haipeng (Allan) Chen
Robert J. Kauffman
Mark Bergen
URL: http://d.repec.org/n?u=RePEc:emo:wp2003:1008&r=mac
We study the link between price points and price rigidity, using two datasets: weekly scanner data, and Internet data. We find that (i) “9” is the most frequently used price-ending for the penny, dime, dollar and ten-dollar digits, (ii) the most common price changes are those that keep the price endings at these “9” digits, (iii) the 9-ending prices are less likely to change in comparison to non-9-ending prices, and (iv) the average size of the price change is larger for the 9-ending prices in comparison to non-9-ending prices. Overall, we find that these 9-ending prices form a substantial barrier to price changes – at all digits from pennies to dollars, across a wide range of product categories, retail formats and retailers.
  • The Origin of Wealth
Date: 2010-09-01
By: Punabantu, Siize
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24730&r=mac
What is wealth? This paper proposes wealth and poverty are opposite sides of the same coin and to know the source of one is to understand the cause of the other. It delves into the premise that if contemporary economics could consummately answer the question: what is wealth? scarcity, economic strife and poverty would not exist in the world today. Two kinds of wealth are discussed, aesthetic and technical wealth. Is it possible that contrary to belief, the use of assets and liabilities as a measure of wealth belong to the aesthetic view in the sense that in human psychology an asset is merely an object or factor that evokes positive emotional feelings; the capacity to measure this kind of wealth using complex mathematics does not turn assets and liabilities into real or technical wealth. Consequently wealth may be none of the popular or common notions human society perceives; this includes money, assets and so on. In addi tion to the psychological influence the tendency of money and assets to fluctuate over time reinforces its aesthetic stature. Businesses commonly publish financial statements in national media often as a legal requirement or a means of demonstrating their financial health or quite simply the state of their wealth , when in fact a financial statement, despite the mathematics applied to it, may be considered an example of aesthetic wealth; hence it is not reliable for clearly understanding or appreciating what wealth is as it is common knowledge even robust businesses can post attractive profits for the year in review then post losses for the same period the next year. Money is unlikely to be a form of real wealth either, it behaves like psychological or aesthetic wealth; the value of a large bank account which could purchase a boat may years later after the ravages of inflation may only purchase a golf cart. Appreciating this quandary is important in the sense that the ration al processes motivating it affect financial literacy. There are many conundrums like this where what is observed is not necessarily what is taking place that defy conventional wisdom in economics, for example; the expenditure fallacy. Even brick and mortar assets are likely to be a form of aesthetic wealth rather than real wealth; the value of property can change dramatically year on year. Wealth is only as reliable as the economic operating system it functions in, in the same way that, as earthquakes demonstrate, a building, no matter how sturdy, has its sturdiness ultimately determined by the ground it stands on. Consequently, this paper introduces the concept of real or technical wealth; this is the capacity to understand what wealth actually is by being knowledgeable about how it functions at the level of the economic operating system. Blurring the lines between aesthetic and technical wealth can lead to an ambiguity about wealth as well as an inability to diagnose what prosperity is and where it originates from in the economy that leads t o the inability to protect aesthetic wealth or create it in sufficient quantities. It also may lead to the immense disparities and peculiar discomforts of contemporary economies impaired by scarcity. A consequence of this may be a modern day inability to end poverty, unemployment and other economic problems. Consequently this paper employs cost curves to explain how the real wealth of businesses can be affected and determined by the economic operating system they function in. It goes further to employ the equation of exchange to demonstrate how wealth can be created in an economy at constant price and how the calibration of the economic operating system predetermines whether a country or economy is ultimately wealthy or wealthless.
Keywords: Scarcity; banking; credit creation; resource creation; implosion; wobble effect; economic thought; poverty; wealth; equation of exchange; cost curve; money; price; mark-up; cost plus pricing; rationality; operating level economics; economic growth; barter; expenditure fallacy; paradox.
JEL: E31
  • Zwischen Verschuldungskrise und Haushaltskonsolidierung: Aktuelle Herausforderungen der Finanzpolitik
Date: 2010-08
By: Christoph A. Schaltegger
Martin Weder
URL: http://d.repec.org/n?u=RePEc:cra:wpaper:2010-15&r=mac
Zur Konjunkturstabilisierung haben Regierungen und Notenbanken in den Jahren 2008 und 2009 schnell und entschlossen mit Impulsprogrammen reagiert. Die erhoffte Wirkung blieb nicht aus, indessen wurden mit den staatlichen Eingriffen neue Probleme geschaffen. Die Staatsverschuldung hat einige Industrienationen an den Rand eines Zahlungsausfalls getrieben. Das Anwachsen der Staatsschuld ist zwar auf viele Gründe und nicht nur auf die Krise zurückzuführen. Die Konsequenz für die betroffenen Staaten bleibt jedoch die gleiche: Ohne Konsolidierung des Staatshaushalts ist eine langfristig tragfähige Wirtschafts- und Finanzpolitik nicht möglich. Die Schweiz steht finanzpolitisch dank der Schuldenbremse, der Zurückhaltung bei Konjunkturprogrammen und den Bemühungen von Bundesrat, Verwaltung und Parlament auf soliden Füssen.
Keywords: Staatshaushalt; Konsolidierungspolitik; Defizite; Schulden
JEL: E61
  • A Dynamic Politico-Economic Model of Intergenerational Contracts
Date: 2010-07-26
By: Lancia, Francesco
Russo, Alessia
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24795&r=mac
This paper investigates the conditions for the emergence of implicit intergenerational contracts without assuming reputation mechanisms, commitment technology and altruism. We present a tractable dynamic politico-economic model in OLG environment where politicians play Markovian strategies in a probabilistic voting environment, setting multidimensional political agenda. Both backward and forward intergenerational transfers, respectively in the form of pension benefits and higher education investments, are simultaneously considered in an endogenous human capital setting with labor income taxation. On the one hand, social security sustains investment in public education; on the other hand investment in education creates a dynamic linkage across periods through both human and physical capital driving the economy toward different Welfare State Regimes. Embedding a repeated-voting setup of electoral competition, we find that i n a dynamic efficient economy both forward and backward intergenerational transfers simultaneously arise. The equilibrium allocation is education efficient, but, due to political overrepresentation of elderly agents, the electoral competition process induces overtaxation compared with a Benevolent Government solution with balanced welfare weights.
Keywords: aging; Benevolent Government allocation; intergenerational redistribution; Markovian equilibria; repeated voting.
JEL: E62
  • Do countries “graduate” from crises? Some historical perspective
Date: 2010-08
By: Reinhart, Carmen
Qian, Rong
Rogoff, Kenneth
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:24761&r=mac
The widespread banking crises since 2007 among advanced economies and the “near” default of Greece in 2010 dashed the popular notion that rich countries have outgrown severe financial crises. Record or near-record declines in output accompanying these events signaled the end of the short-lived “great moderation era.” In fact, graduation from recurring sovereign external debt crises is a very tortuous process that sometimes takes a century or more. For banking crises, we simply do not know what it takes to graduate; it is unclear whether any country has managed it.
Keywords: financial crisis; debt; default; banking; reversals; duration
JEL: E0
  • Foreign banks and financial stability in emerging markets: Evidence from the global financial crisis
Date: 2010
By: Vogel, Ursula
Winkler, Adalbert
URL: http://d.repec.org/n?u=RePEc:zbw:fsfmwp:149&r=mac
Foreign banks have increased their market share in many emerging markets since the mid-1990s. We examine whether this contributed to financial stability in the respective host countries in the global financial crisis. Our results suggest that the stabilizing impact of foreign banks was limited to the cross-border component of financial globalization and to two regions: Eastern Europe and Sub-Saharan Africa. Only in the latter region was this translated into more stable credit growth. Thus hopes that a stronger presence of foreign banks might help host countries in isolating domestic credit from international shocks did not materialize in the current crisis. —
Keywords: Foreign banks,cross-border lending,bank credit,financial crisis
JEL: E44

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