[MAC] Macroéconomie: working papers (RePEc, 09/11/2010)

Source : NEP (New Economics Papers) | RePEc

  • Expectations-Driven Cycles in the Housing Market
Date: 2010-10-22
By: Lambertini, Luisa
Mendicino, Caterina
Punzi, Maria Teresa
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26128&r=mac
This paper analyzes housing market boom-bust cycles driven by changes in households’ expectations. We explore the role of expectations not only on productivity but on several other shocks originated in the housing market, the credit market, the production sector and the conduct of monetary policy. We find that expectations related to different sectors of the economy can generate booms in the housing market in accordance with the empirical findings. However, only expectations of future expansionary monetary policy that are not fulfilled can also generate a macroeconomic recession. Regarding the credit market, increased access to credit generates boom-bust cycles only if it is expected to be reversed in the near future. Moreover, economies with higher access to credit are characterized by higher volatility of consumption and indebtedness but, not necessarily, of real GDP.
Keywords: Boom-Bust Cycles, Credit Frictions, Housing Market
JEL: E32
  • The dynamics of US inflation: can monetary policy explain the changes?
Date: 2010-06
By: Fabio Canova
Filippo Ferroni
URL: http://d.repec.org/n?u=RePEc:upf:upfgen:1241&r=mac
We investigate the relationship between monetary policy and inflation dynamics in the US using a medium scale structural model. The specification is estimated with Bayesian techniques and fits the data reasonably well. Policy shocks account for a part of the decline in inflation volatility; they have been less effective in triggering inflation responses over time and qualitatively account for the rise and fall in the level of inflation. A number of structural parameter variations contribute to these patterns.
Keywords: New Keynesian model, Bayesian methods, Monetary policy, Inflation dynamics.
JEL: E52
  • The Role of Interest Rates in the Brazilian Business Cycle
Date: 2010-10
By: Nelson F. Souza Sobrinho
URL: http://d.repec.org/n?u=RePEc:bcb:wpaper:218&r=mac
This paper offers additional insights on the relationship between interest rates and business cycles in Brazil. First, I document that Brazilian interest rates are very volatile, counter-cyclical and positively correlated with net exports, as observed in other emerging economies. Next, I present a dynamic general equilibrium model in which firms face working capital constraints and labor supply is independent of consumption. This parsimonious model, appropriately calibrated to the Brazilian economy, predicts that interest rate shocks can explain about one third of output fluctuations and generates business cycle regularities consistent with the Brazilian data.
  • Asset Market Structures and Monetary Policy in a Small Open Economy
Date: 2010-10-28
By: Jung, Yongseung (Asian Development Bank Institute)
URL: http://d.repec.org/n?u=RePEc:ris:adbiwp:0252&r=mac
This paper sets up a canonical new Keynesian small open economy model with nominal price rigidities to explore the impact of habit persistence and exchange rate pass-through on the welfare ranking of alternative monetary policy rules. It identifies three factors that can affect the welfare ranking: the degree of habit persistence, the degree of exchange rate pass-through, and labor supply elasticity. In contrast to the findings of De Paoli (2009a, 2009b), the analysis reveals a reversal in the welfare ranking of alternative monetary policy rules for unitary intertemporal and intratemporal elasticities of substitution, depending on the asset market structures of small open economies with external habit. The paper also finds that exchange rate pegging outperforms domestic producer price index inflation targeting at high degrees of intratemporal elasticity of substitution and external habit, regardless of asset market struct ures. Finally, the paper finds that exchange rate pegging outperforms domestic or consumer price index inflation targeting if the exchange rate is misaligned.
Keywords: asset market structures; exchange rate peg; monetary policy rules
JEL: E52
  • Asset Market Structures and Monetary Policy in a Small Open Economy
Date: 2010
By: Yongseung Jung
URL: http://d.repec.org/n?u=RePEc:ess:wpaper:id:3104&r=mac
This paper sets up a canonical new Keynesian small open economy model with nominal price rigidities to explore the impact of habit persistence and exchange rate pass-through on the welfare ranking of alternative monetary policy rules. It identifies three factors that can affect the welfare ranking: the degree of habit persistence, the degree of exchange rate pass-through, and labor supply elasticity. In contrast to the findings of De Paoli (2009a, 2009b), the analysis reveals a reversal in the welfare ranking of alternative monetary policy rules for unitary intertemporal and intratemporal elasticities of substitution, depending on the asset market structures of small open economies with external habit. The paper also finds that exchange rate pegging outperforms domestic producer price index inflation targeting at high degrees of intratemporal elasticity of substitution and external habit, regardless of asset market struct ures. Finally, the paper finds that exchange rate pegging outperforms domestic or consumer price index inflation targeting if the exchange rate is misaligned.
Keywords: Keynesian, economy, monetary policy, market structures, consumer price index
  • Asset Market Structures and Monetary Policy in a Small Open Economy
Date: 2010
By: Yongseung Jung (Asian Development Bank Institute)
URL: http://d.repec.org/n?u=RePEc:eab:macroe:2311&r=mac
This paper sets up a canonical new Keynesian small open economy model with nominal price rigidities to explore the impact of habit persistence and exchange rate pass-through on the welfare ranking of alternative monetary policy rules. It identifies three factors that can affect the welfare ranking: the degree of habit persistence, the degree of exchange rate pass-through, and labor supply elasticity. In contrast to the findings of De Paoli (2009a, 2009b), the analysis reveals a reversal in the welfare ranking of alternative monetary policy rules for unitary intertemporal and intratemporal elasticities of substitution, depending on the asset market structures of small open economies with external habit. The paper also finds that exchange rate pegging outperforms domestic producer price index inflation targeting at high degrees of intratemporal elasticity of substitution and external habit, regardless of asset market struct ures. Finally, the paper finds that exchange rate pegging outperforms domestic or consumer price index inflation targeting if the exchange rate is misaligned.
Keywords: Keynesian small open economy model, exchange rate, labour elasticity
JEL: E52
  • The Eurozone in the Current Crisis
Date: 2010
By: Charles Wyplosz (Asian Development Bank Institute)
URL: http://d.repec.org/n?u=RePEc:eab:financ:2325&r=mac
This paper contrasts the United States (US) and European situations during the crisis and examines how much of the crisis has been imported by Europe from the US. The paper argues that Europe never had a chance to avoid contagion from the US. It also documents the relatively limited reaction of both monetary and fiscal authorities. Muted fiscal policy actions may well be a consequence of the Stability and Growth Pact despite its having been de facto suspended. While the European Central Bank (ECB) intervened promptly and massively to attempt to maintain liquidity in the money market, it has been slow in dealing with the upcoming recession. The concluding remarks consider the differences that the monetary union has made and their relevance.
Keywords: US, Europe, financial crisis, fiscal policy, European Central Bank
JEL: E42
  • Managing Financial Market Expectations: The Role of Central Bank Transparency and Central Bank Communication
Date: 2010
By: Matthias Neuenkirch (Philipps University Marburg)
URL: http://d.repec.org/n?u=RePEc:mar:magkse:201028&r=mac
In this paper, we study the influence of central bank transparency and informal central bank communication on the money market adjustment process between two interest rate decisions. The sample covers nine major central banks for the period from January 1999 to July 2007. We find, first, that both transparency and communication facilitate understanding upcoming interest rate decisions. Second, transparency, as measured by various subcategories of the Eijffinger and Geraats (2006) index, leads to better anticipation of monetary policy. Provision of information on (unanticipated) macroeconomic disturbances and explicit prioritization of central bank objectives are the most important of these subcategories. Finally, there is no unique optimal design for central banks as (i) a very high degree of transparency, (ii) frequent communication on an informal basis, (iii) gradualism in target rate changes, or (iv) a high frequency o f interest rate decisions all contribute to sound understanding regarding future interest rate decisions.
Keywords: Central Bank Communication, Central Bank Transparency, Financial Market Expectations, Interest Rate Decision, Monetary Policy, Money Market
JEL: E52
  • Alternative Policies for US Economic Recovery
Date: 2010-02
By: Byron Ganges (Department of Economics, University of Hawaii at Manoa)
URL: http://d.repec.org/n?u=RePEc:hae:wpaper:2010-03&r=mac
Recovery has begun in the United States and global economies. The US recovery is likely to be anemic by historical standards, raising the possibility that additional stimulus may be desirable. The President and Democrats in Congress have called for a “jobs bill,†and the Federal Reserve has demonstrated that it has a flexible toolkit for providing additional liquidity if deemed appropriate. The possible need for such stimulus will come up against the reality of an expanding public debt on the one hand, and inflationary concerns on the other. In this paper, I use simulations of the IHS Global Insight Model to assess the potential impact on the recovery path of alternative macro policies.
Keywords: United States (US) recession and recovery; fiscal and monetary policy; econometric model forecast simulation; IHS Global Insight model.
JEL: E37
  • Capital Requirement and Financial Frictions in Banking: Macroeconomic Implications
Date: 2010
By: Ali Dib
URL: http://d.repec.org/n?u=RePEc:bca:bocawp:10-26&r=mac
The author develops a dynamic stochastic general-equilibrium model with an active banking sector, a financial accelerator, and financial frictions in the interbank and bank capital markets. He investigates the importance of banking sector frictions on business cycle fluctuations and assesses the role of a regulatory capital requirement in propagating the effects of shocks in the real economy. Bank capital is introduced to satisfy the regulatory capital requirement, and serves as collateral for borrowing in the interbank market. Financial frictions are introduced by assuming asymmetric information between lenders and borrowers that creates moral hazard and adverse selection problems in the interbank and bank capital markets, respectively. Highly leveraged banks are vulnerable and therefore pay higher costs when raising funds. The author finds that financial frictions in the interbank and bank capital markets amplify and pr opagate the effects of shocks; however, the capital requirement attenuates the real impacts of aggregate shocks (including financial shocks), reduces macroeconomic volatilities, and stabilizes the economy.
Keywords: Economic models; Business fluctuations and cycles; Financial markets; Financial stability
JEL: E32
  • Japan’s Deflation and the Bank of Japan’s Experience with Non-traditional Monetary Policy
Date: 2010-10
By: Kazuo Ueda (Faculty of Economics, University of Tokyo)
URL: http://d.repec.org/n?u=RePEc:cfi:fseres:cf235&r=mac
This paper offers a brief summary of non-traditional monetary policy measures adopted by the Bank of Japan (BOJ) during the last two decades, especially the period between 1998-2006, when the so-called Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE) were put in place. The paper begins with a typology of policies usable at low interest and inflation rates. They are: strategy (i), management of expectations about future policy rates; strategy (ii), targeted asset purchases; and strategy (iii), QE. Alternatively, QE may be decomposed into a pure attempt to inflate the central bank balance sheet, QE0, purchases of assets in dysfunctional markets, QE1 and purchases of assets to generate portfolio rebalancing, QE2. Strategy (ii), when non-sterilized, is either QE1 or QE2. Using this typology, I review the measures adopted by the BOJ and discuss evidence on the effectiveness of the measures. The broad conclusion is that strategies (i) and (ii) have affected interest rates, while no clear evidence exists so far of the effectiveness of strategy (iii), or QE0. Strategy (ii) has been effective especially in containing risk/liquidity premiums in dysfunctional money markets; that is, QE1 has been effective. The effectiveness of QE2, however, is unclear. The strategies, however, have failed to bring the economy out of the deflation trap so far. I discuss some possible reasons for this and also implications for the current U.S. situation.
  • Changes in the transmission of monetary policy: evidence from a time-varying factor-augmented VAR
Date: 2010-10-28
By: Baumeister, Christiane (Bank of Canada)
Liu, Philip (International Monetary Fund)
Mumtaz, Haroon (Bank of England)
URL: http://d.repec.org/n?u=RePEc:boe:boeewp:0401&r=mac
This paper re-examines the evolution of the US monetary transmission mechanism using an empirical framework that incorporates substantially more information than the standard tri-variate VAR model used in most previous studies. In particular, we employ an extended version of a factor-augmented VAR, where we introduce time variation in the coefficients and stochastic volatilities in the variances of the shocks. Our formulation has two substantive advantages over earlier work: (i) the additional information summarised by the common factors that are extracted from a large panel of aggregate and disaggregate variables improves the identification of the monetary policy shocks since the factors capture more accurately the amount of information analysed by the monetary authority, (ii) we are able to estimate the time-varying effects of monetary policy surprises on macroeconomic aggregates and disaggregate prices and quantities o f personal consumption expenditures. Our main results indicate that time variation is a dominant feature of key macroeconomic variables and their components. In analysing the temporal evolution of disaggregate dynamics, we uncover a considerable amount of heterogeneity in sectoral price responses which suggests that monetary policy actions exert an important, and potentially long-lasting, influence on relative prices in the US economy.
Keywords: FAVAR; time-varying parameters; monetary transmission
JEL: E30
  • Optimal Monetary and Fiscal Policies In a Search-theoretic Model of Money and Unemployment
Date: 2010-10-28
By: Pedro, Gomis-Porqueras
Benoit, Julien
Chengsi, Wang
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26262&r=mac
In this paper we study the optimal monetary and fiscal policies of a general equilibrium model of unemployment and money with search frictions both in labor and goods markets as in Berentsen, Menzio and Wright (2010). We abstract from revenue-raising motives to focus on the welfare-enhancing properties of optimal policies. We show that some of the inefficiencies in the Berentsen, Menzio and Wright (2010) framework can be restored with appropriate fiscal policies. In particular, when lump sum monetary transfers are possible, a production subsidy financed by money printing can increase output in the decentralized market and a vacancy subsidy financed by a dividend tax even when the Hosios’ rule does not hold.
Keywords: Search and matching; Fiscal polices;Money; Unemployment; Efficiency
JEL: E52
  • Sticky Information and Inflation Persistence: Evidence from U.S. Data
Date: 2010-10
By: Benedetto Molinari (Department of Economics, Universidad Pablo de Olavide)
URL: http://d.repec.org/n?u=RePEc:pab:wpaper:10.09&r=mac
This paper provides a novel single equation estimator of the Sticky Information Phillips Curve (SIPC), which permits to estimate the exact model without any approximation or truncation. In detail, information stickiness is estimated by employing a GMM estimator that matches the theoretical with the actual covariances between current inflation and the lagged exogenous shocks that affect firms’ pricing decisions, which are considered the moments that measure inflation persistence. The main result of the paper is to show that the SIPC model can match inflation persistence only at the cost of mispredicting the variance of inflation, which is a novel finding in the empirical literature on the SIPC.
Keywords: Sticky Information, Inflation Persistence, two-stage GMM estimator
JEL: E31
  • Labor Immobility and the Transmission Mechanism of Monetary Policy in a Monetary Union
Date: 2010
By: Bernardino Adão
Isabel Horta Correia
URL: http://d.repec.org/n?u=RePEc:ptu:wpaper:w201019&r=mac
It is believed that a shock, common to a set of countries with identical fundamentals, has identical outcomes across countries. We show that in general, when specialization in production is such that a common shock creates a missing role for labor mobility across countries, the terms of trade of any country reacts to the shock. This is the case even if state contingent assets can be traded across countries. The transmission mechanism of a monetary shock in a monetary union has in this case an additional channel, the terms of trade. We also show that the country outcomes are significantly different, when compared with the effect of the shock on the union’s aggregate. Monetary shocks<br>impose cycles with higher volatility in « poor » countries relatively o<br>the volatility of « richer » ones.
JEL: E31
  • The asymmetric relationship between oil prices and activity in the EMU: Does the ECB monetary policy play a role?
Date: 2010-03
By: L’OEILLET, Guillaume
LICHERON, Julien
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26203&r=mac
Monetary policy is usually perceived as an important transmission channel in the negative relationship between oil prices and economic performance. It may also constitute a short-term explanation of the non-linearity in this relationship, since Central Bankers may be more sensitive to the potential inflationary threats entailed by high oil price increases than to small increases or decreases. In this paper, we use an extended Taylor rule to investigate the role of oil prices in the ECB monetary policy strategy. A contemporaneous reaction function is estimated using both a GMM framework and an Ordered Probit model, and several oil indicators are constructed and tested. The main results suggest that oil prices play a key role in the ECB interest-rate setting, since it appears as a relevant indicator of future inflation. However, the ECB seems to react asymmetrically: only oil price increases influence its decision setting, not oil prices decreases. Monetary policy may thus transmit and amplify the asymmetry in the relationship between oil prices and activity in the euro area. Further investigations suggest that a preference for price stability provides an important explanation of this asymmetric behaviour of the ECB.
Keywords: Oil prices ; Monetary policy ; Taylor rule ; Asymmetry ; ECB.
JEL: E0
  • Why Hasn’t the US Economic Stimulus Been More Effective? The Debate on Tax and Expenditure Multipliers
Date: 2010-07
By: F. Gerard Adams (Department of Economics University of Pennsylvania (emeritus))
Byron Ganges (Department of Economics University of Hawaii at Manoa)
URL: http://d.repec.org/n?u=RePEc:hae:wpaper:2010-10&r=mac
Recent dissatisfaction with the impact of expenditure stimulus on economic activity in the United States, along with the results of academic research, have once again raised questions about the effectiveness of fiscal stimulus policies and about whether stimulus to a recessionary economy should be in the form of tax cuts or expenditure increases. This paper considers alternative methods for evaluating the impacts of stimulus policy strategies. We discuss conceptual challenges involved in effectiveness measurement, and we review alternative empirical approaches applied in recent studies. We then present our own estimates of policy multipliers based on simulations of the IHS Global Insight model of the US economy. Based on this review and analysis, we address the question of why recent US stimulus programs have not been more effective.
Keywords: United States (US) recession and recovery; fiscal and monetary policy; tax and expenditure multipliers; econometric model forecast simulation.
JEL: E37
  • Der Beitrag alternativer NAIRU-Kurven zur Erklärung der Inflation
Date: 2010-10-25
By: Quaas, Georg
Klein, Mathias
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26176&r=mac
The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is a major concept in (monetary) economics in predicting changes in the inflation rate. As the inflation neutral unemployment rate is an unobserved and, in the long run, a changing variable, several questions arise about its adequate estimation. The following study determines four different possible NAIRU-curves for the German economy during the period of 1973Q1-2010Q2 by the use of a State-Space-Model. With the help of the Ordinary-Least-Square (OLS) and the Maximum-Likelihood (ML) method, these curves are implemented and utilized in regression models which are trimmed to satisfactorily explain inflation changes. It turns out that besides the NAIRU, several other variables like the changes in the unemployment rate or the labor productivity are necessary to forecast changes in the inflation rate accurately. Among the four regression models, the one applying the N AIRU with the lowest variance and with a high theoretic plausibility has the worst record, while the equation with a NAIRU fluctuating more than the unemployment rate explains the inflation rate best.
Keywords: Non-Accelerating Inflation Rate of Unemployment; NAIRU
JEL: E32
  • The Euro After Its First Decade: Weathering the Financial Storm and Enlarging the Euro Area
Date: 2010
By: Klaus Regling
Servaas Deroose
Reinhard Felke
Paul Kutos (Asian Development Bank Institute)
URL: http://d.repec.org/n?u=RePEc:eab:govern:2317&r=mac
The first decade of economic and monetary union in Europe (EMU) has been a huge success. EMU has significantly benefited its member countries and accelerated the European integration process. Imbalances within EMU—differences in growth, inflation, competitiveness, current account and budget balances—have, however, increased in the last 10 years and, with their economic implications, have become more evident in the global economic crisis. The euro has served as a shield during the crisis, and arguments that the crisis would lead to a breakup of the monetary union are neither new nor convincing. But there are lessons to be learned. Policies should be better coordinated among EMU members and structural reforms accelerated, the framework for the supervision of financial markets strengthened, and external representation streamlined. The crisis has also made the euro more attractive, and most EU countries that are not yet m embers of EMU are expected to join during the next decade.
Keywords: Europe monetary union, economic integration, financial crisis, reform
JEL: E6
  • Global policy at the Zero Lower Bound in a large-scale DSGE model
Date: 2010
By: Sandra Gomes
P. Jacquinot
Ricardo Mestre
João Sousa
URL: http://d.repec.org/n?u=RePEc:ptu:wpaper:w201018&r=mac
The purpose of this paper is to analyse whether fiscal policies can alleviate the effects of the zero lower bound (ZLB) on interest rates and if they should be coordinated internationally. The analysis is carried out using EAGLE, a DSGE model of the global economy. We consider that the fiscal shocks are temporary and that fscal policy retains full credibility at all times. In this setup we find significant non-linearities in a ZLB situation that amplify the<br>effects of fiscal shocks compared to the non-ZLB case. International coordination is helpful but does not play a major role in the results.
JEL: E52
  • Produce or speculate? Asset bubbles, occupational choice and efficiency
Date: 2010
By: Cahuc, P.
Challe, E.
URL: http://d.repec.org/n?u=RePEc:bfr:banfra:298&r=mac
We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create rents in the financial sector that affect workers’ choice of occupation. When rents are large, the private gains associated with trading asset bubbles may lead too many workers to become speculators, thereby causing rational bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then asset bubbles displace skilled workers away from the productive sector and raise income and consumption inequalities. Classification-JEL: E22; E44; G21.
Keywords: Rational bubbles; occupational choice; dynamic efficiency.
  • Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter
Date: 2010-09-31
By: David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and CORE)
Olivier Pierrard (Banque centrale du Luxembourg and IRES, UCL)
Henri Sneessens (Université du Luxembourg, CREA and IRES (UCL))
URL: http://d.repec.org/n?u=RePEc:ctl:louvir:2010037&r=mac
This paper re-examines the effects of population aging and pension reforms in an OLG model with labor market frictions. The most important feature brought about by labor market frictions is the connection between the interest rate and the unemployment rate. Exogenous shocks (such as aging) leading to lower interest rates also imply lower equilibrium unemployment rates, because lower capital costs stimulate labor demand and induce firms to advertize more vacancies. These effects may be reinforced by increases in the participation rate of older workers, induced by the higher wage rates and the larger probability of finding a job. These results imply that neglecting labor market frictions and employment rate changes may seriously bias the evaluation of pension reforms when they have an impact on the equilibrium interest rate.
Keywords: Overlapping Generations, Search Unemployment, Labor Force Participation, aging, Pensions, Labor Market
JEL: E24
  • Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter
Date: 2010
By: David de la Croix (CORE and IRES, Université catholique de Louvain)
Olivier Pierrard (Banque centrale du Luxembourg and IRES, Université catholique de Louvain)
Henri R. Sneessens (CREA, Université du Luxembourg; IRES, Université catholique de Louvain, and IZA, Bonn)
URL: http://d.repec.org/n?u=RePEc:luc:wpaper:10-09&r=mac
This paper re-examines the effects of population aging and pension reforms in an OLG model with labor market frictions. The most important feature brought about by labor market frictions is the connection between the interest rate and the unemployment rate. Exogenous shocks (such as aging) leading to lower interest rates also imply lower equilibrium unemployment rates, because lower capital costs stimulate labor demand and induce firms to advertize more vacancies. These effects may be reinforced by increases in the participation rate of older workers, induced by the higher wage rates and the larger probability of finding a job. These results imply that neglecting labor market frictions and employment rate changes may seriously bias the evaluation of pension reforms when they have an impact on the equilibrium interest rate.
Keywords: Overlapping Generations, Search Unemployment, Labor Force Participation, aging, Pensions, Labor Market
JEL: E24
  • Interest rate pass-through and risk
Date: 2010-10
By: Iris Biefang Frisancho-Mariscal (University of the West of England, Bristol)
Peter Howells (University of the West of England, Bristol)
URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:1016&r=mac
One of the most striking features of the financial crisis that began in the autumn of 2007 has been the associated upheaval in conventional interest rate spreads. In the UK, this is most frequently symbolised by the widening (and increased volatility) of the spread between 3-month Libor and the Bank of England’s policy rate. This paper uses a vector error correction model to look at the way in which the recent crisis has affected a wide range of interest rate spreads. We look for changes in the coefficient on the policy rate (the ‘pass-through’) and at changes in the speed of adjustment to changes in the policy rate, since both are important for policy. We find, as others have done, that the conventional behaviour of almost all spreads is swept away after August 2007. By developing a model which incorporates measures of counterparty and liquidity risk, we show that market rates are now subject to additional influenc es, but except for secured loans, still incorporate the effects of changes in the policy rate much as they did before the crisis. This contrasts with the widely-held view that the relationship between policy and money market rates in particular has been severely disrupted by the crisis. For secured loans, however, there is evidence that the mark-up has risen while at the same time the policy pass-through has fallen since August 2007. The same applies to deposit rates, albeit to a lesser extent, with the result that the sharp reduction in policy rate since the end of 2007 has had a larger effect on deposit than loan rates.
Keywords: intrest rates; risk; VAR; Financial crisis
JEL: E43
  • Determinants of sovereign bond yield spreads in the euro area in
Date: 2010
By: Luciana Barbosa
Sónia Costa
URL: http://d.repec.org/n?u=RePEc:ptu:wpaper:w201022&r=mac
This paper aims to identify the determinants behind the different evolution of sovereign bond yields in euro area countries for the period of the current crisis. Up to the time of the collapse of Lehman Brothers, global risk premium was the main driver of spreads. Afterwards, the relevance of idiosyncratic factors increased. Although liquidity premiums played a larger role in the months following September 2008, as the financial crisis spilled over into a strongly deteriorating macroeconomic environment, the importance of country credit risk factors increased. In the first five months of 2010, heterogeneity in sovereign credit risk premiums and a further increase in global risk aversion were, to a large extent, the determining factors behind the evolution of spreads.
JEL: E43
  • Money demand stability: A case study of Nigeria
Date: 2010-10
By: Saten Kumar (Department of Business Economics, Auckland University of Technology)
Don J. Webber (Department of Business Economics, Auckland University of Technology and Department of Economics, UWE, Bristol)
Scott Fargher (Department of Business Economics, Auckland University of Technology)
URL: http://d.repec.org/n?u=RePEc:uwe:wpaper:1015&r=mac
This paper presents an empirical investigation into the level and stability of money demand (M1) in Nigeria between 1960 and 2008. In addition to estimating the canonical specification, alternative specifications are presented that include additional variables to proxy for the cost of holding money. Results suggest that the canonical specification is well-determined, the money demand relationship went through a regime shift in 1986 which slightly improved the scale economies of money demand, and money demand is stable. These findings imply that Nigeria could effectively use the supply of money as an instrument of monetary policy.
Keywords: Money demand; Structural breaks; Cointegration; Monetary policy
JEL: E41
  • Forecasting Short-Run Inflation Volatility using Futures Prices: An Empirical Analysis from a Value at Risk Perspective
Date: 2010-10
By: Marcelo Delajara
URL: http://d.repec.org/n?u=RePEc:bdm:wpaper:2010-13&r=mac
Using various statistical measures we estimate the degree of comovement and cyclical synchronization of formal employment across Mexican states. As a measure of formal employment we use the number of workers with permanent contracts registered at the Instituto Mexicano del Seguro Social in each state between July 1997 and April 2009. We find that Mexican states are highly heterogeneous with respect to the degree of employment comovement and the association between the state and national employment. Only in 11 of the 32 states we find that fluctuations in state employment are highly synchronized between them and with national employment. These states are located in the northern border with the United States, in the center west and in the center of the country. Additionally, we find evidence of employment comovement, albeit much weaker, in 4 states located in the vicinity of Mexico City. In the rest of the states, employmen t fluctuations are unrelated to national employment or other states’ employment fluctuations.
Keywords: Employment, cycles, comovement, states, regions, Mexico.
JEL: E32
  • Asia Confronts the Impossible Trinity
Date: 2010
By: Ila Patnaik
Ajay Shah (Asian Development Bank Institute)
URL: http://d.repec.org/n?u=RePEc:eab:macroe:2314&r=mac
In this paper, we examine capital account openness and exchange rate flexibility in 11 Asian economies. Asia has made slow progress in de jure capital account openness, but has made much more progress in de facto capital account openness. While there has been a gradual increase in exchange rate flexibility, most Asian economies continue to have largely inflexible exchange rates. This combination of advancing de facto capital account integration without greater exchange rate flexibility has led to procyclical monetary policy, when capital flows are procyclical. This paper emphasises the need for a consistent monetary policy framework.
Keywords: capital account openness, exchange rate flexibility, Asia, capital account integration, monetary policy
JEL: E40
  • The Case for a Financial Approach to Money Demand
Date: 2010
By: Ragot, X.
URL: http://d.repec.org/n?u=RePEc:bfr:banfra:300&r=mac
The distribution of money across households is much more similar to the distribution of financial assets than to that of consumption levels. This is a puzzle for theories which directly link money demand to consumption. This paper shows that the joint distribution of money and financial assets can be explained in an heterogeneous agent model where both a cash-in-advance constraint and financial adjustment costs, as in the Baumol-Tobin literature, are introduced. Studying each friction in turn, I find that the financial friction explains 85% of total money demand. Classification-JEL: E40, E50.
Keywords: Money Demand, Money Distribution, Heterogeneous Agents.
  • The Chiang Mai Initiative Multilateralization: Origin, Development and Outlook
Date: 2010
By: Chalongphob Sussangkarn (Asian Development Bank Institute)
URL: http://d.repec.org/n?u=RePEc:eab:govern:2321&r=mac
This paper discusses the Chiang Mai Initiative Multilateralization (CMIM); its origin, development and future outlook. It puts forward a number of proposals to make the liquidity support role of the CMIM more effective. It is further argued that the CMIM can bring about major changes to the policy institutional infrastructure of the East Asia region, particularly through the establishment of an Independent Surveillance Unit (ISU). The ISU can provide technical and secretariat support to financial cooperation processes in the region, which have thus far been driven by officials on a part-time basis. Consolidation of the main financial forums in the region is also proposed, specifically the Finance Minister Process and the Central Bank Process. Membership of these two processes should be expanded and unified, with the ISU providing technical and secretariat support. It is argued that regular policy meetings can be instituti onalized and that this could enhance the role of East Asia in the global financial arena, whilst facilitating policy cooperation, with important regional and global implications.
Keywords: Chiang Mai Initiative Multilateralization, Independent Surveillance Unit, financial cooperation, policy cooperation
JEL: E44
  • The Keynesian Method, Complexity, and the Training of Economists
Date: 2010
By: David Colander
URL: http://d.repec.org/n?u=RePEc:mdl:mdlpap:1035&r=mac
  • The unemployment challenge in Europe..
Date: 2010
By: Nickell, Steven J
URL: http://d.repec.org/n?u=RePEc:ner:oxford:http://economics.ouls.ox.ac.uk/14926/&r=mac
  • Applying the Lessons of Asia: The IMF’s Crisis Management Strategy in 2008
Date: 2010
By: Shinji Takagi (Asian Development Bank Institute)
URL: http://d.repec.org/n?u=RePEc:eab:macroe:2322&r=mac
The paper examines the recent European crisis management programs of the International Monetary Fund (IMF) to see how the lessons of Asia were applied. Compared to the Asian programs of 1997, the European programs of 2008 were better funded and their structural conditionality more focused. Other than these, the overall thrust of the programs was similar: fiscal and monetary tightening, coupled with banking reforms. The real difference, however, was not so much about content but about philosophy. Relative to the Asian programs, the European programs were characterized by more emphasis on ownership, greater collaboration among stakeholders, more realistic assumptions and greater transparency about the risks and the logic of policy actions, and more built-in flexibility of targets and policy options. This approach to crisis management, foreshadowing the major reform of conditionality in March 2009, incorporated the changes t hat had been made since the Asian crisis in the IMF’s policies and procedures to manage capital account crises more effectively. Despite these recent changes in the way the IMF does its business, Asia appears to remain unengaged. The lesson Asia should draw from Europe is that it should build a strong regional institution to complement, and catalyze the involvement of, the IMF. Only then can the lessons learned in Asia over 10 years ago be applied back in Asia to benefit its own people.
Keywords: IMF, European crisis management programs, Asia
JEL: E65
  • Quantitative Analysis of Health Insurance Reform: Separating Community Rating from Income Redistribution
Date: 2010-10-23
By: Pashchenko, Svetlana
Porapakkarm, Ponpoje
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26158&r=mac
Two key components of the upcoming health reform are a reorganization of the individual health insurance market and an increase in income redistribution in the economy. Which component contributes more to the welfare outcome of the reform? We address this question by constructing a general equilibrium life cycle model that incorporates both medical expenses and labor income risks. We replicate the key features of the current health insurance system in the U.S. and calibrate the model using the Medical Expenditures Panel Survey dataset. We find that the reform decreases the number of uninsured more than four times. It also brings significant welfare gains equivalent to almost one percent of the annual consumption. However, these welfare gains mostly come from the redistributive measures embedded in the reform. If the reform only reorganizes the individual market, introduces individual mandates but does not include any inco me-based transfers, the welfare gains are much smaller. This result is mostly driven by the fact that most uninsured people have low income. High burdens of health insurance premiums for this group are relieved disproportionately more by income-based measures than by the new rules in the individual market.
Keywords: health insurance; health reform; risk sharing; general equilibrium
JEL: E65
  • DSGE model restrictions for structural VAR identification
Date: 2010-10-28
By: Liu, Philip (International Monetary Fund)
Theodoridis, Konstantinos (Bank of England)
URL: http://d.repec.org/n?u=RePEc:boe:boeewp:0402&r=mac
The identification of reduced-form VAR model had been the subject of numerous debates in the literature. Different sets of identifying assumptions can lead to very different conclusions in the policy debate. This paper proposes a theoretically consistent identification strategy using restrictions implied by a DSGE model. Monte Carlo simulations suggest the proposed identification strategy is successful in recovering the true structural shocks from the data. In the face of misspecified model restrictions, the data tend to push the identified VAR responses away from the misspecified model and closer to the true data generating process.
Keywords: VAR identification; model misspecification; DSGE model
JEL: E52
  • Distribution Dynamics of Food Price Inflation Rates in EU: An Alternative Conditional Density Estimator Approach
Date: 2010
By: Angelos Liontakis (Agricultural Economics and Rural Development Department, Agricultural University of Athens)
Christos T. Papadas (Agricultural Economics and Rural Development Department, Agricultural University of Athens)
URL: http://d.repec.org/n?u=RePEc:aua:wpaper:2010-6&r=mac
Concepts and developments in the literature of economic growth and convergence have recently been adopted and used in the study of inflation rate convergence. This paper examines initially the existence of â-convergence, as mean reversion, of food price inflation rates in the European Union, using the stochastic convergence approach of panel data unit root tests. It examines also the existence of ó-convergence but in order capture sufficiently the evolving distributional dynamics, non-parametric econometric methods are implemented as well. An alternative conditional density estimator, proposed in the literature, is applied for this reason. This estimator is chosen as superior, not only to the restrictive discrete Markov chain approaches but also to the usual estimators of conditional densities using stochastic kernels. Monthly data on the EU harmonized consumer price indices of food and eleven specific food product subg roups are used, for the 15 older EU member states, covering the 1997-2009 period.
Keywords: Kernel density estimator, convergence, distribution dynamics, food price inflation
JEL: E31
  • The Political Cost of Reforms
Date: 2010-10-27
By: Alessandra Bonfiglioli
Gino Gancia
URL: http://d.repec.org/n?u=RePEc:aub:autbar:847.10&r=mac
This paper formalizes in a fully-rational model the popular idea that politicians perceive an electoral cost in adopting costly reforms with future benefits and reconciles it with the evidence that reformist governments are not punished by voters. To do so, it proposes a model of elections where political ability is ex-ante unknown and investment in reforms is unobservable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians make too little reforms in an attempt to signal high ability and increase their reappointment probability. Although in a rational expectation equilibrium voters cannot be fooled and hence reelection does not depend on reforms, the strategy of underinvesting in reforms is nonetheless sustained by out-of-equilibrium beliefs. Contrary to the conventional wisdom, uncertainty makes reforms more politically viable and may, under some cond itions, increase social welfare. The model is then used to study how political rewards can be set so as to maximize social welfare and the desirability of imposing a one-term limit to governments. The predictions of this theory are consistent with a number of empirical regularities on the determinants of reforms and reelection. They are also consistent with a new stylized fact documented in this paper: economic uncertainty is associated to more reforms in a panel of 20 OECD countries.
Keywords: Elections, Reforms, Asymmetric Information, Uncertainty.
JEL: E6

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