Macroéconomie: working papers (RePEc, 17/11/2010)

Source : NEP (New Economics Papers) | RePEc

  • Macroeconomic Shocks and the Business Cycle: Evidence from a Structural Factor Model
Date: 2010-03-22
By: Mario Forni
We use a dynamic factor model to provide a semi-structural representation for 101 quarterly US macroeconomic series. We find that (i) the US economy is well described by a number of structural shocks between two and six. Focusing on the four-shock specification, we identify, using sign re- strictions, two non-policy shocks, demand and supply, and two policy shocks, monetary and fiscal. We obtain the following results. (ii) Both supply and demand shocks are important sources of fluc- tuations; supply prevails for GDP, while demand prevails for employment and inflation. (ii) Policy matters, Both monetary and fiscal policy shocks have sizeable effects on output and prices, with little evidence of crowding out; both monetary and fiscal authorities implement important system- atic countercyclical policies reacting to demand shocks. (iii) Negative demand shocks have a large long-run positive effect on productivity, consistently with the Schumpeterian « cleansing » view of recessions.
Keywords: structural factor model, sign restrictions, monetary policy, fiscal policy, demand, supply
JEL: C32
  • The Taylor principle and (in-)determinacy in a New Keynesian model with hiring frictions and skill loss
Date: 2010-11
By: Ansgar Rannenberg (National Bank of Belgium, Research Department)
We introduce skill decay during unemployment into Blanchard and Gali’s (2008) New-Keynesian model with hiring frictions and real-wage rigidity. Plausible values of quarterly skill decay and real-wage rigidity turn the long-run marginal cost-unemployment relationship positive in a « European » labour market with little hiring but not in a fluid « American » one. If the marginal cost-unemployment relationship is positive, determinacy requires a passive response to inflation in the central bank’s interest feedback rule if the rule features only inflation. Targeting steady state output or unemployment helps to restore determinacy. Under indeterminacy, an adverse sunspot shock increases unemployment extremely persistently.
Keywords: Monetary policy rules, Taylor principle, Determinacy, Hysteresis, Skill decay
JEL: E24
  • Public Debt, Distortionary Taxation, and Monetary Policy
Date: 2010-10-30
By: Piergallini, Alessandro
Rodano, Giorgio
Since Leeper’s (1991, Journal of Monetary Economics 27, 129-147) seminal paper, an extensive literature has argued that if fiscal policy is passive, i.e., guarantees public debt stabilization irrespectively of the inflation path, monetary policy can independently be committed to inflation targeting. This can be pursued by following the Taylor principle, i.e., responding to upward perturbations in inflation with a more than one-for-one increase in the nominal interest rate. This paper analyzes an optimizing framework in which the government can only finance public expenditures by levying distortionary taxes. It is demonstrated that households’ market participation constraints and Laffer-type effects can render passive fiscal policies unfeasible. For any given target inflation rate, there exists a threshold level of public debt beyond which monetary policy independence is no longer possible. In such circumstances, the dynam ics of public debt can be controlled only by means of higher inflation tax revenues: inflation dynamics in line with the fiscal theory of the price level must take place in order for macroeconomic stability to be guaranteed. Otherwise, to preserve inflation control around the steady state by following the Taylor principle, monetary policy must target a higher inflation rate.
Keywords: Public Debt; Distortionary Taxation; Monetary and Fiscal Policy Rules
JEL: H31
  • Alternative Policies for US Economic Recovery
Date: 2010-02
By: Byron Ganges (Department of Economics, University of Hawaii at Manoa)
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
  • Optimality criteria of hybrid inflation-price level targeting
Date: 2010
By: László Bokor (Budapest University of Technology and Economics)
This paper provides a sensitivity analysis of the relative performance of inflation targeting, price level targeting, and hybrid targeting, the combination of these two. A simple, three-period, steady state to steady state economy is presented, where monetary policy is facing various sets of forward and backward looking expectations, social preferences on inflation and output gap stabilization, and degrees of cost push shock persistence. we derive optimal policy mix under the whole spectrum of these economic conditions, reporting also the criteria of the replicability of the theoretically optimal solution. The main intention of the examination is to reveal the nature of each interrelation between economic and policy parameters. The results show that (i) the relative strength of regimes depends heavily on the preconditions, and that (ii) the relationships of parameters related to the performance are non-linear and occasion ally non-monotonic as well. our model specification is somewhat restrictive, however, contrary to the related literature, the examination, even in the intermediate cases, can be conducted analytically.
Keywords: hybrid inflation-price level targeting, hybrid new keynesian Phillips curve, cost push shock persistence
JEL: E50
  • Macro expectations, aggregate uncertainty, and expected term premia
Date: 2010
By: Dick, Christian D.
Schmeling, Maik
Schrimpf, Andreas
Based on individual expectations from the Survey of Professional Forecasters, we construct a real-time proxy for expected term premium changes on long-term bonds. We empirically investigate the relation of these bond term premium expectations with expectations about key macroeconomic variables as well as aggregate macroeconomic uncertainty at the level of individual forecasters. We find that expected term premia are (i) time-varying and reasonably persistent, (ii) strongly related to expectations about future output growth, and (iii) positively affected by uncertainty about future output growth and inflation rates. Expectations about real macroeconomic variables seem to matter more than expectations about nominal factors. Additional findings on term structure factors suggest that the level and slope factor capture information related to uncertainty about real and nominal macroeconomic prospects, and that curvature is rela ted to subjective term premium expectations themselves. Finally, an aggregate measure of forecasters’ term premium expectations has predictive power for bond excess returns over horizons of up to one year. —
JEL: E43
  • New Keynesian DSGE Models and the IS-LM Paradigm
Date: 2010
By: Ulrich Frische (University of Hamburg)
Ingrid Größl (University of Hamburg)
New Keynesian DSGE models propose a dynamic and expectational version of the old IS-LM paradigm. Acknowledging that the Taylor rule as a substitute for the LM-curve has its merits we show that standard DSGE models do not model how the central bank achieves its targets. In filling this gap we make evident that models neglecting a store-of-value function of money but still assuming a Taylor rule are inconsistent. Our major point concerns the-so called new Keynesian IS-curve. We prove that DSGE models which typically rest on the assumption of representative agents are unable to derive the IS-curve. This implies that these models lack the capability to analyse the role of savings as a a gap in aggregate demand. By assuming overlapping generations we make evident how this shortcoming can be avoided. We also show how OLG models add a richer dynamics to the standard DSGE approach.
  • Aging and Pensions in General Equilibrium: Labor Market Imperfections Matter
Date: 2010-10
By: de la Croix, David (Université catholique de Louvain)
Pierrard, Olivier (Université catholique de Louvain)
Sneessens, Henri R. (University of Luxembourg)
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
  • The euro area interbank market and the liquidity management of the eurosystem in the financial crisis
Date: 2010
By: Hauck, Achim
Neyer, Ulrike
This paper develops a theoretical model which explains several stylized facts observed in the euro area interbank market after the collapse of Lehman Brothers in 2008. The model shows that if costs of participating in the interbank market are high, the central bank assumes an intermediary function between liquidity surplus banks and liquidity deficit banks and thereby replaces the interbank market. From a policy perspective, we argue that possible measures of the Eurosystem to reactivate the interbank market may conflict, inter alia, with monetary policy aims. —
Keywords: Liquidity,Monetary Policy Instruments,Interbank Market,Financial Crisis
JEL: E52
  • Monetary policy, asset prices and consumption in China
Date: 2010-11-05
By: Koivu, Tuuli (BOFIT)
This paper studies the wealth channel in China. Using the structural vector autoregression method, we find that a loosening of China’s monetary policy indeed leads to higher asset prices, which in turn are linked to household consumption. However, the importance of the wealth channel as a part of the monetary policy transmission mechanism in China is still limited.
Keywords: China; monetary policy; asset prices
JEL: E52
  • There Will Be Money
Date: 2010-09
By: Luis Araujo
Bernardo Guimaraes
A common belief among monetary theorists is that monetary equilibria are tenuous due to theintrinsic uselessness of fiat money (Wallace (1978)). In this article we argue that thetenuousness of monetary equilibria vanishes as soon as one introduces a small perturbation inan otherwise standard random matching model of money. Precisely, we show that the sheerbelief that fiat money may become intrinsically useful, even if only in an almost unreachablestate, might be enough to rule out nonmonetary equilibria. In a large region of parameters,agents’ beliefs and behavior are completely determined by fundamentals.
Keywords: Fiat money, autarky, equilibrium selection
JEL: E40
  • Liquidity Traps: An Interest-Rate-Based Exit Strategy
Date: 2010-11
By: Stephanie Schmitt-Grohé
Martín Uribe
This paper analyzes a potential strategy for escaping liquidity traps. The strategy is based on an augmented Taylor-type interest-rate feedback rule and differs from usual specifications in that when inflation falls below a threshold, the central bank temporarily deviates from the traditional Taylor rule by following a deterministic path for the nominal interest rate. This path reaches the intended target for this policy instrument in finite time. The policy we study is designed to raise inflationary expectations over time while at the same time maintaining all of the desirable local properties of the Taylor principle in a neighborhood of the intended inflation target. Importantly, the effectiveness of the potential exit strategy studied in this paper does not rely on the existence of an accompanying fiscalist (or non-Ricardian) fiscal stance.
JEL: E31
  • Fiscal policy and financial market movements
Date: 2010-07
By: Athanasios Tagkalakis (Bank of Greece)
This paper estimates a fiscal policy reaction function in order to investigate the links between financial and real estate market movements and fiscal policy outcomes. An increase in asset prices affects in a positive and significant manner primary balances, with the response reflecting both an increase in government revenues and a fall in government spending. The most important impact on fiscal balances is due to changes in residential property prices. Changes in equity and commercial property prices are also important determinants of fiscal balances. Our findings suggest that the steepening of the slope of the yield curve contributes to expenditure based fiscal discipline.
Keywords: Asset prices; slope of the yield curve; fiscal policy; reaction functions
JEL: E61
  • Japan’s Bubble, America’s Bubble and China’s Bubble
Date: 2010-11
By: Kazuo Ueda (Faculty of Economics, University of Tokyo)
This paper compares the three recent episodes of boom and bust cycles in asset prices: Japan in the late 1980s to the 1990s; the U.S. since the mid 1990s; and China during the last decade. Although we have not yet seen a collapse of Chinese property prices, the increases so far are comparable to those in the other two episodes and seem to warrant a careful comparative study. I first examine the behavior of asset prices, especially, property prices in the three cases and point out some similarities. I then go on to discuss some backgrounds for the behavior of asset prices. I emphasize the role played by extremely easy monetary policy for generating bubble like asset price behaviors in the three cases. Monetary policy was shown to be easier than standard policy rules like the Taylor rule indicates. The reason for easy monetary policies is investigated. In the U.S. case the monetary authority was concerned over the risk of d eflation in the early to mid 2000s. The experiences of Japan and China are quite similar in that the authorities of both countries were seriously concerned with possible deflationary effects of exchange rate appreciation on the economy. Japan let the exchange rate appreciate, while China has resisted a large scale intervention. It is shown, however, that the behavior of real exchange rates has not been that different. Implications of such a finding for the future of the Chinese economy are also discussed.
  • How Big (Small?) are Fiscal Multipliers?
Date: 2010-10
By: Ethan Ilzetzki
Enrique G. Mendoza
Carlos A. Végh
We contribute to the intense debate on the real effects of fiscal stimuli by showing that the impact of government expenditure shocks depends crucially on key country characteristics, such as the level of development, exchange rate regime, openness to trade, and public indebtedness. Based on a novel quarterly dataset of government expenditure in 44 countries, we find that (i) the output effect of an increase in government consumption is larger in industrial than in developing countries, (ii) the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; (iii) fiscal multipliers in open economies are lower than in closed economies and (iv) fiscal multipliers in high-debt countries are also zero.
Keywords: government expenditure, macroeconomic policy
  • What Does the Lewis Turning Point Mean for China? A Computable General Equilibrium Analysis
Date: 2010
By: Huang Yiping
Jiang Tingsong (China Center for Economic Research)
We apply a computable general equilibrium framework to assess likely impacts of the Lewis turning point on China and the rest of the world. Modeling results suggest that China will probably transition from an abnormal economy to a normal economy with somewhat lower growth but higher inflation, which requires significant revision to the macroeconomic policy framework. China would lose competitiveness in labor‐intensive activities, its current account surplus should fall but overinvestment risk could rise. These changes in China should help improve other counties’ current accounts and boost low‐cost countries’ production. The Lewis turning point, however, does not provide automatic solutions to some of the key challenges, such as service sector development and innovation capability. China will need to make serious policy efforts to avoid the so‐called ‘middle income trap’.
Keywords: Lewis turning point, labor shortage, general equilibrium analysis, normal economy, middle‐income trap
JEL: E30
  • Real wages and the business cycle in Germany
Date: 2010
By: Marczak, Martyna
Beissinger, Thomas
This paper establishes stylized facts about the cyclicality of real consumer wages and real producer wages in Germany. As detrending methods we apply the deterministic trend model, the Beveridge-Nelson decomposition, the Hodrick-Prescott filter, the Baxter-King filter and the structural time series model. The detrended data are analyzed both in the time domain and in the frequency domain. The great advantage of an analysis in the frequency domain is that it allows to assess the relative importance of particular frequencies for the behavior of real wages. In the time domain we find that both real wages display a procyclical pattern and lag behind the business cycle. In the frequency domain the consumer real wage lags behind the business cycle and shows an anticyclical behavior for shorter time periods, whereas for longer time spans a procyclical behavior can be observed. However, for the producer real wage the results in t he frequency domain remain inconclusive. —
Keywords: real wages,business cycle,frequency domain,time domain,trend-cycle decomposition,structural time series model,phase angle,Germany
JEL: E32
  • Has the Inclusion of Forward-Looking Statements in Monetary Policy Communications Made the Bank of Canada More Transparent?
Date: 2010
By: Christine Fay
Toni Gravelle
To investigate the extent to which the transparency of the Bank of Canada’s monetary policy has improved, the authors examine empirically — over the period 30 October 2000 to 31 May 2007 — the reaction of Canadian financial markets to official Bank communications, and in particular their reaction to the recent inclusion of forwardlooking policy-rate guidance in these communications. The authors find evidence that fixed announcement date (FAD) press releases, and, to a lesser extent, speeches by Governing Council members, significantly affect near-term interest rate expectations, indicating that central bank communication conveys important information to market participants. However, the authors’ results also show that FAD press releases and speeches do not significantly impact market rates over the more recent period, when forward-looking statements have been used on a regular basis. The authors investigate two explanat ions for this change in response: (i) market participants better understand the Bank’s monetary policy reaction function as they become accustomed to the FAD regime; or, (ii) market participants focus more on the forward-looking statements and less on the Bank’s discussion of the economic outlook, and therefore respond less than before to new macroeconomic data releases. The authors find evidence to support the second explanation: forward-looking statements — even though they have been designed to be conditional — have made the Bank’s decisions on the policy rate more predictable, but not necessarily more transparent.
Keywords: Interest rates; Central bank research; Transmission of monetary policy
JEL: E52
  • Contractionary Effects of Supply Shocks: Evidence and Theoretical Interpretation.
Date: 2010-03
By: Francesco Giuli
Massimiliano Tancioni
The debate on the response of hours worked after productivity improvements is still an open issue in the theoretical and empirical literature. In this work we show that, once conditional correlations are taken into account, both hours and investment decline temporarily following a positive technology shock. We first provide evidence about this apparent puzzle employing weakly identified SVECs. We then set-up and estimate a sticky price/wage DSGE model in which the presence of strategic complementarities in price setting lowers the slope of the New Keynesian Phillips curve, and show that the posterior impulse responses are consistent with the SVEC-based evidence.
Keywords: technology shocks, investment dynamics, vector error correction model, Bayesian inference.
JEL: E32
  • Elementos de teoría y política macroeconómica para una economía abierta. Segunda parte: Capítulo 7
Date: 2010
By: Félix Jiménez (Departamento de Economía- Pontificia Universidad Católica del Perú)
The seventh chapter presents the IS-LM model of simultaneous equilibrium in the goods and services market and the money market. IS-LM model determines the Aggregate Demand and, consequently, the level of output and employment, under the assumption of fixed prices or infinitely elastic Aggregate Supply. Then, it analyzes the effects of fiscal and monetary policies in the simultaneous equilibrium in both markets.
  • Measuring the Impact of Monetary Policy on Asset Prices in Turkey (Turkiye’de Para Politikasinin Finansal Varlik Fiyatlari Uzerine Etkisi)
Date: 2010
By: Murat Duran
Gulserim Ozcan
Pinar Ozlu
Deren Unalmis
  • Empirical Investigation of Fiscal Policy Shocks in the UK
Date: 2010-04-01
By: Kamal, Mona
This article examines fiscal policy shocks in the UK through using a Bayesian Vector Autoregression (BVAR) model which applies Mountford and Uhlig (2009) type sign-restriction. It investigates the impact of three fiscal policy experiments on macroeconomic variable. Specifically, the Deficit-Financed Spending Increase (DFSI), the Deficit-Financed Tax Cut (DFTC), and the Balanced-Budget Spending Increase (BBSI). The results show that, the policy conclusion differs according to the period under investigation.
Keywords: Fiscal policy; Bayesian VAR analysis; policy experiment.
JEL: E62
  • Autoregressions in small samples, priors about observables and initial conditions
Date: 2010-11
By: Marek Jarociński (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Albert Marcet (London School of Economics.)
We propose a benchmark prior for the estimation of vector autoregressions: a prior about initial growth rates of the modeled series. We first show that the Bayesian vs frequentist small sample bias controversy is driven by different default initial conditions. These initial conditions are usually arbitrary and our prior serves to replace them in an intuitive way. To implement this prior we develop a technique for translating priors about observables into priors about parameters. We find that our prior makes a big difference for the estimated persistence of output responses to monetary policy shocks in the United States. JEL Classification: C11, C22, C32.
Keywords: Vector Autoregression, Initial Condition, Bayesian Estimation, Prior about Growth Rate, Monetary Policy Shocks, Small Sample Distribution, Bias Correction.
  • Revisiting Overborrowing and Its Policy Implications
Date: 2010-10
By: Gianluca Benigno
Huigang Chen
Chris Otrok
Alessandro Rebucci
Eric Young
This paper analyzes quantitatively the extent to which there is overborrowing (i.e., inefficientborrowing) in a business cycle model for emerging market economies with production and anoccasionally binding credit constraint. The main finding of the analysis is that overborrowing is not arobust feature of this class of model economies: it depends on the structure of the economy and itsparametrization. Specifically, we find underborrowing in a production economy with our baselinecalibration, but overborrowing with more impatient agents and more volatile shocks. Endowmenteconomies display overborrowing regardless of parameter values, but they do not allow for policyintervention when the constraint binds (in crisis times). Quantitatively, the welfare gains fromimplementing the constrained-efficient allocation are always larger near crisis times than in normalones. In production economies, they are one order of magnitude large r than in endowment economiesboth i n crisis and normal times. This suggests that the scope for economy-wide macro-prudentialpolicy interventions (e.g. prudential taxation of capital flows and capital controls) is weak in this classof models.
Keywords: Bailouts, financial frictions, macro prudential policies, overborrowing
JEL: E52
  • Does Cointegration Matter? An Analysis in a RBC Perspective.
Date: 2010-05
By: Laura Bisio
Andrea Faccini
The aim of this paper is to verify if a proper SVEC representation of a standard Real Business Cycle model exists even when the capital stock series is omitted. The argument is relevant as the common unavailability of su¢ ciently long medium-frequency capital series prevent researchers from including capital in the widespread structural VAR (SVAR) repre- sentations of DSGE models – which is supposed to be the cause of the SVAR biased estimates. Indeed, a large debate about the truncation and small sample bias affecting the SVAR performance in approximat- ing DSGE models has been recently rising. In our view, it might be the case of a smaller degree of estimates distorsions when the RBC dynamics is approximated through a SVEC model as the information provided by the cointegrating relations among some variables might compensate the exclusion of the capital stock series from the empirical representation of the model.
Keywords: RBC, SVAR, SVEC model, cointegration.
JEL: E27
  • Dynamic Provisioning: Some Lessons from Existing Experiences
Date: 2010
By: Santiago Fernández de Lis
Alicia Garcia-Herrero (Asian Development Bank Institute)
After analyzing the different reasons why the financial system and also the regulatory framework induced procyclicality, this paper reviews the experiences of three countries which have introduced dynamic provisioning as a regulatory tool to limit procyclicality. The case of Spain—the country with the longest experience—is reviewed, as well as those of Colombia and Peru—countries that have recently adopted dynamic provisioning. A number of policy lessons are drawn from that comparison.
Keywords: finance, dynamic provisioning, Spain, Peru, procyclicality
JEL: E32
  • A New Core Inflation Indicator for Turkey (Turkiye Ekonomisi Icin Yeni Bir Cekirdek Enflasyon Gostergesi)
Date: 2010
By: Necati Tekatli
  • Trends in U.S. Hours and the Labor Wedge
Date: 2010
By: Simona E. Cociuba
Alexander Ueberfeldt
From 1980 until 2007, U.S. average hours worked increased by thirteen percent, due to a large increase in female hours. At the same time, the U.S. labor wedge, measured as the discrepancy between a representative household’s marginal rate of substitution between consumption and leisure and the marginal product of labor, declined substantially. We examine these trends in a model with heterogeneous households: married couples, single males and single females. Our quantitative analysis shows that the shrinking gender wage gaps and increasing labor income taxes observed in U.S. data are key determinants of hours and the labor wedge. Changes in our model’s labor wedge are driven by distortionary taxes and non-distortionary factors, such as cross-sectional differences in households’ labor supply and productivity. We conclude that the labor wedge measured from a representative household model partly reflects imperfect hous ehold aggregation.
Keywords: Labour markets; Economic models; Potential output
JEL: E24
  • Imperfect Knowledge, Asset Price Swings and Structural Slumps: A Cointegrated VAR Analysis of Their Interdependence
Date: 2010-11
By: Katarina Juselius (Department of Economics, University of Copenhagen)
This paper is an empirically based discussion of interactions between speculative behavior in the currency markets and aggregate fluctuations in the real economy. It builds on the recent theory of Imperfect Knowledge Economics in Frydman and Goldberg (2007) and combines this with the Structural Slumps theory in Phelps (1994). The paper argues that this is likely to imcrease our understanding of the long recurrent spells of high unemployment that continue to mar our economies.
Keywords: financial markets; speculation; long swings; imperfect knowledge; CVAR
JEL: E24
  • Public Debt Places No Burden on Future Generations under Demand Shortage
Date: 2010-09
By: Takayuki Ogawa
Yoshiyasu Ono
In a Diamond-type overlapping-generations setting public debt issuanceplaces no burden on future generations including those who repay the debt if prices and wages are fixed and unemployment occurs in the periods in which public bonds are issued and repaid. Whether the collected fund is spent on government purchases or transfers to the present generation, public bond issuance stimulates aggregate demand and creates additional employment of future generations, which yields additional income that is large enough to cover their tax burden. This property is true whether the debt is repaid by children or grandchildren.
  • Explaining the demand for money by non-financial corporations in the euro area: A macro and a micro view
Date: 2010-11
By: Carmen Martínez-Carrascal (Banco de España)
Julian von Landesberger (European Central Bank)
This paper analyses euro area non-financial corporations (NFCs) money demand, both from a macro and a microeconomic point of view. At a macro level, money holdings are modelled as a function of real gross added value, the price level, the long-term interest rate on bank lending to non-financial corporations, the own rate of return on M3 and the real capital stock of NFCs. The results indicate that NFCs money holdings adjust quickly when deviations from their long-run level are registered, and that the large increase observed recently in NFCs money holdings has been driven by changes in their fundamentals and hence they stand in line with their long-run equilibrium level. The disaggregated analysis also shows that cash holdings are linked to balance-sheet ratios (such as non-liquid short term assets, tangible assets or indebtedness) and other variables such as the firm’ cash flow, its volatility or the size of the firm, which cannot be taken into account in the macro analysis. Likewise, results indicate that the main drivers of the increase in NFCs cash holdings in the last years have been cyclical factors, captured by gross-added value and the cash-flow respectively. Variations in the opportunity cost of holding money, have also contributed to explain M3 developments but more modestly than at the end of the nineties, when its increase contributed negatively to cash accumulation.
Keywords: keyword, money demand, coinegrated VARs, panel estimation
JEL: E41
  • Resource rents; when to spend and how to save..
Date: 2010
By: Venables, Anthony J.
Countries with substantial revenues from renewable resources face a complex range of revenue management issues. What is the optimal time profile of consumption from the revenue, and how much should be saved? Should saving be invested in foreign funds or in the domestic economy? How does government policy influence the private sector, where sustainable growth in the domestic economy must ultimately be generated? This paper develops the issues in a simple two-period model, and argues that analysis must go well beyond the simple permanent income approach sometimes recommended.
  • Kerela’s Gulf Connection: Emigration, Remittances and their Macroeconomic Impact 1972-2000
Date: 2010
By: K. P. Kannan
K. S. Hari
This paper attempts to construct a time series estimation of remittances from abroad to the Kerala economy for the period 1972 to 2000. It is now widely acknowledged that foreign remittances in the economy of the State of Kerala in India in the form of money sent by its workers in the Gulf countries play a crucial role. The study finds that by the early nineties remittances to the Kerala economy assumed a significant share of state income. [Working Paper No. 328]
Keywords: emigration, Gulf countries, Kerala economy, remittances, and consumption
  • A check of Maddison’s gdp data. Benford’s Law with some range problems
Date: 2010-11-01
By: Martin Paldam (School of Economics and Management, Aarhus University, Denmark)
The paper studies if the Maddison set of data for GDP per capita follows a statistical regularity, known as Benford’s Law. It is a simple logarithmic relation on the frequency of the first digit in a data set. These data ought to follow the law as they are Maddison’s calibration of data compiled by many independent agencies and researches. The data set consists of 12,411 observations, permitting a rather strong test. On visual inspection the relation appears to fit rather well, but the law is rejected by a formal test. The explanation of the rejection is found to be that the range of the data is too small.
Keywords: National accounts, Benford’s Law
JEL: E01
  • A Macroeconomic Analysis of the Fiscal System in Egypt
Date: 2010-10
By: Gerhard Glomm (Department of Economics, Indiana University – Bloomington)
Juergen Jung (Department of Economics, Towson University)
We construct a dynamic general equilibrium model to analyze the fiscal situation of Egypt. We model Egypt as a small open economy that takes real interest rates and world prices of fuel as given. Since a large component of the government budget consists of pensions payments, we use an overlapping generations structure. The model contains descriptions of the public and private sector, as well as descriptions of the production sectors for a public good such as infrastructure, energy, and a final aggregate consumption good. The model pays special attention to the energy sector. We then calibrate the model to data from Egypt. The following policy reforms are considered: (i) reductions in pensions to public sector workers, (ii) reductions in pensions to private sector workers, (iii) reductions in the public sector pay premiums, (iv) decreases of the energy subsidies, and (v) a decrease of the public sector workforce. In each c ase we reduce the « expenditure » by 15 percent. For each of the reforms we adjust consumption taxes, labor taxes, « capital taxes », or public investments in infrastructure to satisfy the government budget constraint. We calculate the new steady states, the transition paths to the new steady states, and the size of the welfare gains or losses for all reforms. We find that due to the modest nature of the reforms, the effect of the policy reforms on GDP and consumption are modest. Often these gains are in the neighborhood of 1 percent. We find that welfare gains or losses can be sizable and that the largest gains from the reforms are attained when the freed up resources are used for infrastructure investments or for lowering the tax on company profits.
Keywords: Fiscal policy reform, public sector reform, energy subsidies, growth.
JEL: E21
  • Crises and Joint Employment-Productivity Dynamics: A Comparative Perspective for European Countries
Date: 2010
By: Enrico Marelli (Faculty of Economics, Department of Economics, University of Brescia)
Marcello Signorelli (Faculty of Political Sciences, Department of Economics, Finance and Statistics, University of Perugia)
Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw, National Bank of Poland, Rimini Centre for Economic Analysis)
The aim of the paper is to investigate the short-term joint dynamics of productivity and employment during the economic down cycles in the EU economies over the past 20 years. Disentangling the shift in labour demand into a change of employment-productivity schedule and a movement along it, we focus on the last 2-3 crises, highlighting the peculiarities of the last recession. Namely, we demonstrate that many of the EU countries – unlike the United States –do not follow the RBC pattern. We also suggest some possible institutional fundamentals that could explain this phenomenon.
Keywords: recession, employment and productivity dynamics, RBC, labour hoarding
JEL: E32
  • Taxation and More Representation? On Fiscal Policy, Social Mobility and Democracy in Latin America
Date: 2010-10-25
By: Christian Daude
Angel Melguizo
Is the social contract in Latin America broken? Many authors have suggested this is the case, given the high levels of inequality, the low levels of taxation and the low quality of public services observed in the region. This paper analyses empirically the relationship between fiscal policy, social mobility and democratic consolidation in Latin America and the Caribbean, using the 2007 and 2008 rounds of the regional Latinobarómetro survey. In general, our results do not firmly support the prospect of upward mobility hypothesis, and show that the perception about the quality of public services, among others, matters for the willingness to pay taxes. All in all, we interpret our results as an indication of that – although there is still a long way to go – the potential basis for a stronger social contract in Latin America exists.<BR>Le contrat social est-il brisé (en crise) en Amérique latine ? C’est ce que de nombreux auteurs laissent entendre, qui s’appuient sur les fortes inégalités, le faible niveau de taxation et le manque de qualité des services publics de la région. Cet article analyse de façon empirique la relation entre la politique budgétaire, la mobilité sociale et la consolidation démocratique en Amérique latine et dans les Caraïbes, en utilisant les enquêtes régionales Latinobarómetro pour 2007 et 2008. D’une façon générale, nos résultats ne confortent pas complètement l’hypothèse de perspectives de mobilité sociale ascendante (POUM), et montrent l’influence de la perception de la qualité des services publics, entre autres choses, sur la disposition des contribuables à s’acquitter de leurs taxes et impôts. Bien qu’un long chemin reste encore à parcourir, nos résultats semblent globalement indiquer qu’il existe une base pour un renforcement du contrat social en Amérique Latine.
Keywords: fiscal policy, Latin America, democracy, social mobility, politique budgétaire, Amérique latine, Démocratie, mobilité sociale
JEL: E62
  • Déséquilibres, système bancaire et chômage involontaire
Date: 2010-10-25
By: Stéphane Mussard
Bernard Philippe
Afin de lutter contre le chômage « …qui, en dehors de courts intervalles d’emballement, est une conséquence, et à notre avis une conséquence inévitable, de l’individualisme tel qu’il apparaît dans le régime capitaliste moderne. » (Keynes J.M., 1968, p. 394-395), Keynes propose de réguler le fonctionnement de la composante marché des capitaux des systèmes financiers. Nous montrons que cette conclusion peut être étendue à la composante bancaire de ces systèmes. Notre argumentation repose sur un constat. Il n’est guère raisonnable de supposer que ‘l’équilibre mouvant’ étudié dans la Théorie générale puisse être conçu et atteint dans les économies capitalistes. Ce constat incite à envisager une analyse hors équilibre des déterminants du chômage involontaire. C’est la tentative que nous proposons qui nous conduit à étendre au fonctionnement des banques la proposition formulée par Keynes à propos des marchés des capitaux.
Keywords: Chômage involontaire, déséquilibre, Hicks, Keynes, système bancaire
JEL: E25
  • Kuna izvozni proizvod
Date: 2010-10-13
By: Branimir Lokin
Drago Jakovčević (Faculty of Economics and Business, University of Zagreb)
Ova kraća studija, nakon koje će nadamo se biti ostvarene predmetno šire elaboracije, motivirana je problematikom inozemnog duga u Republici Hrvatskoj, te proračunskog deficita kao njegovog uzročno-posljedičnog blizanca. Međutim, budući da korištenje kapitala, poglavito inozemnog, implicira razvojne i prijepore sustavnog sadržaja, u kontekstu su studije i ta pitanja u potrebnoj mjeri raščlanjena. Inozemni dug u posljednjih nekoliko godina nezadrživo raste, također, moguće je reći, mjerama monetarne politike nemoguće ga je obuzdati, dok interventni mehanizam države gubi snagu pod udarom liberalističkog diktata. Dug, o kojemu je riječ, dolazi u raskoraku s gospodarskim i socijalnim razvojem, budući da njegova relativna vrijednost doseže oko 83% Bruto domaćeg proizvoda (udio iznad 70% predstavlja stanje visoke zaduženosti), dok njegova godišnja kamatna marža prelazi trećinu godišnjeg prirasta Brut o domaćeg proizvoda na razini relativno visoke stope rasta od 4-4,5% godišnje. Operativna praksa, koja već prerasta i u teorijsku tezu o tome, kako je dug moguće rješavati elegantno refinanciranjem (dug na dug) budući da smo stvorili mehanizam i ostvarili ionako visoke novčane pričuvne potencijale, deplasirana je, i držimo gospodarski, politički i socijalno potpuno neprihvatljiva, jer njene posljedice znače rasprodaju resursa, pretvaranje građana Republike Hrvatske u najamnu, nisko-obrazovanu radnu snagu, te nastavak egzodusa i produbljivanje demografske regresije. Naš prijedlog pretvaranja kune u izvozni proizvod potpuno je koncepcijski suprotan dosadašnjoj praksi i prešutnim službenim stajalištima. Njegova je namjera trojaka: smanjiti razinu dužničkog opterećenja u Bruto domaćem proizvodu; reducirati kamatnu maržu (opterećenje) u prirastu Bruto domaćeg proizvoda i povećati udio inozemnih ulagača na domaćem tržištu, a samim time i njihovu odgovo rnost za domaći rast i razvoj. Riječju, naš prijedlog ne pledira u pravdu budućih, očekivanih pogodnosti, već se njime traži ad hoc rješenje u postojećim, zadanim okvirim, stvorenih međunarodnih i nacionalnih konstelacija. Provedba projekta kune izvoznog proizvoda, nalaže aktivan odnos ekonomske politike na strategijskom, sustavnom i operativnom planu, što već postojeće zakonsko okružje u potpunosti omogućuje.
Keywords: emisija međunarodnih obveznica, deficit, diversifikacija portfelja, inozemni dug, mjenica
  • Promising Avenues, False Starts and Dead Ends: Global Governance and Development Finance in the Wake of the Crisis
Date: 2010
By: Ilene Grabel
Grabel addresses three related questions. How is the crisis affecting the governance of the IMF and the influence that developing countries have within the institution; the policy space available to developing countries; and the prospects that alternative financial architectures will emerge as competitors or complements to the Fund? At this point it appears that IMF practice on capital controls has changed partly as a consequence of the crisis, that relatively autonomous developing countries are taking advantage of the policy space that has emerged, and that the global financial architecture is becoming more heterogeneous and multi-nodal. Developing countries do not yet enjoy more formal influence at the IMF as a consequence of the crisis. However, it is premature to conclude now that the formal and informal influence of developing countries will not increase in the coming years.
Keywords: Global financial crisis; policy space for development; International Monetary Fund; capital controls; regional financial governance; global governance
JEL: E65

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