Macroéconomie: working papers (RePEc, 30/11/2010)

Source : NEP (New Economics Papers) | RePEc

  • An Estimated New-Keynesian Model with Unemployment as Excess Supply of Labor
Date: 2010
By: Miguel Casares (Departamento de Economía-UPNA)
Antonio Moreno (Departamento de Economía. Universidad de Navarra)
Jesús Vázquez (Departamento FAE II, Universidad del País Vasco.)
URL: http://d.repec.org/n?u=RePEc:nav:ecupna:1003&r=mac
As one alternative to search frictions, wage stickiness is introduced in a New-Keynesian model to generate endogenous unemployment fluctuations due to mismatches between labor supply and labor demand. The effects on an estimated New-Keynesian model for the U.S. economy are: i) the Calvo-type probability on wage stickiness rises, ii) the labor supply elasticity falls, iii) the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data, and iv) wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fluctuations.
Keywords: sticky wages, unemployment, business cycles, New-Keynesian models.
JEL: C32
  • Inflation risk premia in the US and the euro area
Date: 2010-11
By: Peter Hördahl
Oreste Tristani
URL: http://d.repec.org/n?u=RePEc:bis:biswps:325&r=mac
We use a joint model of macroeconomic and term structure dynamics to estimate inflation risk premia in the United States and the euro area. To sharpen our estimation, we include in the information set macro data and survey data on inflation and interest rate expectations at various future horizons, as well as term structure data from both nominal and index-linked bonds. Our results show that, in both currency areas, inflation risk premia are relatively small, positive, and increasing in maturity. The cyclical dynamics of long-term inflation risk premia are mostly associated with changes in output gaps, while their high-frequency fluctuations seem to be aligned with variations in inflation. However, the cyclicality of inflation premia differs between the US and the euro area. Long term inflation premia are countercyclical in the euro area, while they are procyclical in the US.
Keywords: term structure of interest rates, inflation risk premia, central bank credibility
  • Inflation persistence, backward-looking firms, and monetary policy in an input-output economy
Date: 2010
By: Brad E. Strum
URL: http://d.repec.org/n?u=RePEc:fip:fedgfe:2010-55&r=mac
This paper studies the implications of inflation persistence (generated by backward-looking price setters) for monetary policy in a New Keynesian « input-output » model–a model with sticky prices in both intermediate and final goods sectors. Optimal policy under commitment depends on the degree of inflation persistence in both sectors. Under discretion, speed-limit targeting–targeting the change in the output gap–outperforms price-level and inflation targeting in the presence of inflation persistence. If inflation persistence is low in the intermediate goods sector, price-level targeting outperforms inflation targeting despite high inflation persistence in the final goods sector.
  • Expectations, Deflation Traps and Macroeconomic Policy
Date: 2010-07-06
By: George W. Evans (University of Oregon Economics Department and University of St. Andrews)
Seppo Honkapohja (Bank of Finland, Helsinki, Finland)
URL: http://d.repec.org/n?u=RePEc:ore:uoecwp:2010-5&r=mac
We examine global economic dynamics under infinite-horizon learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja (2008), we find that under normal monetary and fiscal policy the intended steady state is locally but not globally stable. Unstable deflationary paths can arise after large pessimistic shocks to expectations. For large expectation shocks pushing interest rates to the zero lower bound, temporary increases in government spending can be used to insulate the economy from deflation traps.
Keywords: Adaptive Learning, Monetary Policy, Fiscal Policy, Zero Interest Rate Lower Bound
JEL: E63
  • Monetary Policy and Heterogeneous Expectations
Date: 2010-04-30
By: George W. Evans (University of Oregon Economics Department and University of St. Andrews)
William A.Branch (University of Califorina, Irvine)
URL: http://d.repec.org/n?u=RePEc:ore:uoecwp:2010-4&r=mac
This paper studies the implications for monetary policy of heterogeneous expectations in a New Keynesian model. The assumption of rational expec- tations is replaced with parsimonious forecasting models where agents select between predictors that are underparameterized. In a Misspecification Equilib- rium agents only select the best-performing statistical models. We demonstrate that, even when monetary policy rules satisfy the Taylor principle by adjusting nominal interest rates more than one for one with inflation, there may exist equilibria with Intrinsic Heterogeneity. Under certain conditions, there may exist multiple misspecification equilibria. We show that these findings have im- portant implications for business cycle dynamics and for the design of monetary policy.
Keywords: Heterogeneous expectations, monetary policy, multiple equilibria, adaptive learning.
JEL: G12
  • Sources of Disagreement in Inflation Forecasts: A Cross-Country Empirical Investigation
Date: 2010-11
By: Pierre L. Siklos (Professor, Wilfrid Laurier University (E-mail: psiklos@wlu.ca))
URL: http://d.repec.org/n?u=RePEc:ime:imedps:10-e-26&r=mac
This paper documents empirically and analyzes theoretically the responses of disaggregated prices to aggregate technology and monetary policy shocks. Based on the price data of US personal consumption expenditure, we find that disaggregated price responses have features across shocks and across sectors that are difficult to explain using standard multi-sector sticky price models. In terms of shocks, a substantial fraction of disaggregated prices initially rise in response to a contractionary monetary policy shock, while most prices fall immediately in response to an aggregate technological improvement. In terms of sectors, the disaggregated price responses are correlated weakly with the frequency of price changes. To reconcile these observations, we extend the standard model. We find that the cost channel of monetary policy and cross-sectional heterogeneity in real rigidity are possible avenues in accounting for these fac ts.
Keywords: Disaggregated Prices, Technology Shocks, Monetary Policy Shocks, Sticky Price Models
JEL: E31
  • Oil shocks and the zero bound on nominal interest rates
Date: 2010
By: Martin Bodenstein
Luca Guerrieri
Christopher Gust
URL: http://d.repec.org/n?u=RePEc:fip:fedgif:1009&r=mac
Beginning in 2009, in many advanced economies, policy rates reached their zero lower bound (ZLB). Almost at the same time, oil prices started rising again. We analyze how the ZLB affects the propagation of oil shocks. As these shocks move inflation and output in opposite directions, their effects on economic activity are cushioned when monetary policy is constrained. The burst of inflation from an oil price increase lowers real interest rates at the ZLB and stimulates the interest-sensitive component of GDP, offsetting the usual contractionary effects. In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion.
  • Keynesian government spending multipliers and spillovers in the euro area
Date: 2010-11
By: Tobias Cwik (House of Finance, Goethe University of Frankfurt, Grueneburgplatz 1, D-60323 Frankfurt am Main, Germany.)
Volker Wieland (House of Finance, Goethe University of Frankfurt, Grueneburgplatz 1, D-60323 Frankfurt am Main, Germany.)
URL: http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101267&r=mac
The global financial crisis has lead to a renewed interest in discretionary fiscal stimulus. Advocates of discretionary measures emphasize that government spending can stimulate additional private spending — the Keynesian multiplier effect. Thus, we investigate whether the spending package announced by Euro area governments for 2009 and 2010 is likely to boost GDP by more than one for one. Because of modeling uncertainty, it is essential that such policy evaluations be robust to alternative modeling assumptions and parameterizations. We use five different empirical macroeconomic models with Keynesian features such as price and wage rigidities to evaluate the impact of the fiscal stimulus. Four of them suggest that the planned increase in government spending will reduce private consumption and investment significantly. Only a model that largely ignores the forward-looking behavioral response of consumers and firms implie s crowding-in of private spending. We review a range of issues that may play a role in the recession of 2008-2009. Implementation lags are found to reinforce crowding-out and may even cause an initial contraction. Zero-bound effects may lead the central bank to abstain from interest rate hikes and increase the GDP impact of government spending. Crowding-in, however, requires an immediate anticipation of at least two years at the zero bound. Using a multi-country model, we find that spillovers between euro area countries are negligible or even negative, because direct demand effects are offset by the indirect effect of an euro appreciation. New-Keynesian DSGE models provide a strong case for government savings packages. Announced with sufficient lead time, spending cuts induce a significant short-run stimulus and crowding-in of private spending. JEL Classification: E62, E63, H31.
Keywords: fiscal policy, government spending multipliers, model uncertainty, New-Keynesian models.
  • How Do Central Banks React to Wealth Composition and Asset Prices?
Date: 2010-09
By: Vitor Castro (Faculdade de Economia, Universidade de Coimbra, Portugal / NIPE)
Ricardo M. Sousa (University of Minho, NIPE, London School of Economics and FMG)
URL: http://d.repec.org/n?u=RePEc:gmf:wpaper:2010-19&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 wealth and its components are stronger once inflation is under control, i.e. below a certain target. Some disruptions between financial and housing wealth effects are still present. They can also be found in the reaction to asset prices, despite being less intense.
Keywords: monetary policy rules, wealth composition, asset prices.
JEL: E37
  • Three variations on fair wages and the long-run Phillips curve
Date: 2010-11
By: Andrea Vaona (Department of Economics (University of Verona))
URL: http://d.repec.org/n?u=RePEc:ver:wpaper:17/2010&r=mac
The present paper explores the connection between money growth and unemployment in the long run in different models with fair wages. Under customary assumptions regarding the sign of the parameters of the effort function, more money growth (equal to inflation) lowers the unemployment rate, though to a declining extent. This is because firms respond to inflation – that spurs effort by decreasing the reference wage – by increasing employment, so to maintain the effort level constant, as implied by the Solow condition. Under wage staggering this effect is stronger because wage dispersion magnifies the impact of inflation on effort. Therefore, we provide a new theoretical foundation for recent empirical contributions finding a negative long-run relationship between unemployment and inflation.
Keywords: efficiency wages, money growth, long-run Phillips curve, trend inflation, wage staggering
JEL: E3
  • Channel systems: why is there a positive spread?
Date: 2010-11
By: Aleksander Berentsen
Alessandro Marchesiani
Christopher J. Waller
URL: http://d.repec.org/n?u=RePEc:zur:iewwpx:517&r=mac
An increasing number of central banks implement monetary policy via two standing facilities: a lending facility and a deposit facility. In this paper we show that it is socially optimal to implement a non-zero interest rate spread. We prove this result in a dynamic general equilibrium model where market participants have heterogeneous liquidity needs and where the central bank requires government bonds as collateral. We also calibrate the model and discuss the behavior of the money market rate and the volumes traded at the ECB’s deposit and lending facilities in response to the recent financial crisis.
Keywords: Monetary policy, open market operations, standing facilities
JEL: E52
  • The impact of oil shocks on the G-7 countries GDP growth
Date: 2010-09-01
By: Al-mulali, Usama
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26846&r=mac
This study examines the impact of oil shocks on the G-7 countries using the time series data from 1975 to 2007. The pooled model was employed; from the results we found that oil shocks has no negative impact on the G-7 countries, due to the flexible labor markets, improvements in monetary policy and smaller share of oil in production, Indirect Tax Analogy, and flexible inflation targeting regimes.
Keywords: Oil prices; G-7 Countries; GDP growth; Pooled Model
JEL: E30
  • Fiscal policy in Latin America: better after all?
Date: 2010
By: Daude, Christian
Melguizo, Ángel
Neut, Alejandro
URL: http://d.repec.org/n?u=RePEc:zbw:ifwedp:201024&r=mac
This paper analyses fiscal policy for several economies in Latin America, from the early nineties to the 2009 crisis. We present original estimates of cyclically-adjusted public revenues for Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay implementing the standardised OECD methodology and extending it to include commodity cycles, which have a direct and significant effect on the fiscal balance of several Latin American countries. Based on these estimates, we evaluate the size of automatic tax stabilisers and the cyclicality of discretionary fiscal policy. Additionally, we highlight the uncertainty stemming from the estimation of the output gap, due to large and simultaneous cyclical, temporary and permanent shocks in several Latin American economies. —
Keywords: fiscal policy,business cycle,public finances,structural balance
JEL: E62
  • Macroeconomic factors and micro-level bank risk
Date: 2010
By: Buch, Claudia M.
Eickmeier, Sandra
Prieto, Esteban
URL: http://d.repec.org/n?u=RePEc:zbw:bubdp1:201020&r=mac
The interplay between banks and the macroeconomy is of key importance for financial and economic stability. We analyze this link using a factor-augmented vector autoregressive model (FAVAR) which extends a standard VAR for the U.S. macroeconomy. The model includes GDP growth, inflation, the Federal Funds rate, house price inflation, and a set of factors summarizing conditions in the banking sector. We use data of more than 1,500 commercial banks from the U.S. call reports to address the following questions. How are macroeconomic shocks transmitted to bank risk and other banking variables? What are the sources of bank heterogeneity, and what explains differences in individual banks’ responses to macroeconomic shocks? Our paper has two main findings: (i) Average bank risk declines, and average bank lending increases following expansionary shocks. (ii) The heterogeneity of banks is characterized by idiosyncratic shocks and t he asymmetric transmission of common shocks. Risk of about 1/3 of all banks rises in response to a monetary loosening. The lending response of small, illiquid, and domestic banks is relatively large, and risk of banks with a low degree of capitalization and a high exposure to real estate loans decreases relatively strongly after expansionary monetary policy shocks. Also, lending of larger banks increases less while risk of riskier and domestic banks reacts more in response to house price shocks. —
Keywords: FAVAR,bank risk,macro-finance linkages,monetary policy,microeconomic adjustment
JEL: E44
  • Endogenous Separation, Wage Rigidity and theDynamics of Unemployment
Date: 2010-09
By: Daniel Tortorice (Department of Economics, Brandeis University)
URL: http://d.repec.org/n?u=RePEc:brd:wpaper:7&r=mac
This paper shows that the Mortensen-Pissarides (MP) model requires endogenous separation to explain the volatility of unemployment. I estimate a version of the MP model with wage rigidity and permanent shocks to match productivity. The model generates sufficient volatility in unemployment, vacancies, job-finding and job-separation despite relatively low worker outside options. I then re-estimate the model while restricting the separation rate to be constant and show that, even though the estimation procedure finds the best fitting model, the model predicts too little variance in unemployment and too much variance in the job-finding rate. Based on this result I conclude that models of unemployment fluctuations need endogenous separation rates to explain unemployment fluctuations.
Keywords: Unemployment, Search Models, Business Cycles
JEL: J64
  • The Stagnation Regime of the New Keynesian Model and Current US Policy
Date: 2010-10-30
By: George W. Evans (University of Oregon Economics Department and University of St. Andrews)
URL: http://d.repec.org/n?u=RePEc:ore:uoecwp:2010-6&r=mac
In Evans, Guse, and Honkapohja (2008) the intended steady state is locally but not globally stable under adaptive learning, and unstable deflationary paths can arise after large pessimistic shocks to expectations. In the current paper a modified model is presented that includes a locally stable stagnation regime as a possible outcome arising from large expectation shocks. Policy implications are examined. Sufficiently large temporary increases in government spending can dislodge the economy from the stagnation regime and restore the natural stabilizing dynamics. More specific policy proposals are presented and discussed.
Keywords: Stagnation, fiscal and monetary policy, deflation trap
JEL: E63
  • Pricing-to-market and business cycle synchronization
Date: 2010
By: Luciana Juvenal
Paulo Santos Monteiro
URL: http://d.repec.org/n?u=RePEc:fip:fedlwp:2010-038&r=mac
There is substantial evidence that countries or regions with stronger trade linkages tend to have business cycles which are more synchronized. However, the standard international business cycle framework cannot replicate this finding. In this paper we study a multiple- country model of international trade with imperfect competition and variable markups and embed it into a real business cycle framework by including aggregate technology shocks and allowing for variable labor supply. The model is successful at replicating the empirical relation between trade and business cycle synchronization. High trade costs increase the real exchange rate volatility because firms choose to price-to-market and this volatility decouples countries’ business cycle fluctuations. We find empirical evidence supporting this mechanism.>
Keywords: International trade ; Business cycles
  • A Forecasting Metric for Evaluating DSGE Models for Policy Analysis
Date: 2010-10-30
By: Gupta, Abhishek
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26718&r=mac
This paper evaluates the strengths and weaknesses of dynamic stochastic general equilibrium (DSGE) models from the standpoint of their usefulness in doing monetary policy analysis. The paper isolates features most relevant for monetary policymaking and uses the diagnostic tools of posterior predictive analysis to evaluate these features. The paper provides a diagnosis of the observed flaws in the model with regards to these features that helps in identifying the structural flaws in the model. The paper finds that model misspecification causes certain pairs of structural shocks in the model to be correlated in order to fit the observed data.
Keywords: Posterior predictive analysis; DSGE; Monetary Policy; Forecast Errors; Model Evaluation.
JEL: E58
  • التحقق من أثر التنسيق بين السياستين المالية والنقدية على الأهداف الاقتصادية باستخدام نموذج قياسي
Date: 2010-11
By: Kamal, Mona
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26670&r=mac
The objective of this study is to estimate an empirical model using pooled data for five industrialized countries to assess the impact of the coordination between monetary and fiscal policies on macroeconomic targets. Those countries are characterized with the existence of the institutional coordinating arrangements required for the success of the coordination between the two policies and the long history of implementing the stabilization policies.
Keywords: The coordination between monetary and fiscal policies; empirical model;Seemingly Unrelated Regression Method (SUR)
JEL: O21
  • Fiscal stimulus in model with endogenous firm entry
Date: 2010-04-07
By: Totzek, Alexander
Winkler, Roland C.
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26829&r=mac
This paper explores different fiscal stimuli within a business cycle model with an endogenous mass of firms which we estimate for the U.S. economy using Bayesian techniques. We demonstrate that a changing mass of firms is a crucial dimension for evaluating fiscal policy since it can both accelerate and decelerate the impacts of fiscal stimuli. When fiscal interventions cause the mass of firms to decline, an additional crowding-out effect of investment in new firms results in a multiplier below that of the standard RBC model. In the presence of demand stimuli, fiscal multipliers are small and the mass of firms may decline. This holds in particular under distortionary tax financing. By contrast, policies that disburden private agents from income taxes are effective in boosting economic activity and product creation.
Keywords: Fiscal Multipliers; Firm Entry; Product Variety
JEL: E62
  • Firm Heterogeneity, Credit Constraints, and Endogenous Growth
Date: 2010-11
By: Alfred Maussner (University of Augsburg, Department of Economics)
URL: http://d.repec.org/n?u=RePEc:aug:augsbe:0313&r=mac
This paper introduces the reader into the apparatus behind the popularNew Keynesian Phillips (NKPC) curve. It derives several log-linear versionsof this curve and recursive formulations of the Calvo-Yun price staggeringmodel that is behind this curve. These formulations can be used for higher-orderapproximations of the NKPC or for implementations that use othernon-linear solution techniques, as, e.g., projection methods.
Keywords: inflation, New Keynesian Phillips curve, projection methods
JEL: E31
  • DARWINIAN VERSUS NEWTONIAN VIEWS OF THE ECONOMY: Empirical tests of Schumpeterian and New Classical Theories
Date: 2010-11
By: Kenneth I. Carlaw (University of British Columbia)
Richard Lipsey (Simon Fraser University)
URL: http://d.repec.org/n?u=RePEc:sfu:sfudps:dp10-02&r=mac
The modern Schumpeterian vision in which history matters is of a non-stationary, evolving economy driven by bursts of technological change initiated by agents facing uncertainty and producing long term, path dependent growth and shorter term non-random investment cycles. The New Classical vision in which history does not matter is of a stationary, ergodic process driven by rational agents facing risk and producing stable trend growth and shorter term cycles caused by random disturbances. We use Carlaw and Lipsey’s forthcoming simulation model of non-stationary, sustained growth driven by endogenous path dependent technological change under uncertainty, to generate artificial national accounts data. We first use an HP-filter to match these data to the RBC stylized growth facts. We then show that the raw simulation data pass standard tests for trend and difference stationarity, appearing to exhibit unit roots and cointegr ating processes of order one. Thus, contrary to current belief, these tests do not establish that the real data are generated by a stationary process. Real data from six OECD countries are then used first to show that the hypothesis of a non-varying NAIRU is rejected for all six countries and then to estimate time varying NAIRU’s for each. The estimates are highly sensitive to the time period over which they are made. They also fail to show any relation between the difference between actual unemployment and the estimated NAIRU for each year and the acceleration in the inflation rate. Thus there is no tendency for the inflation rate to behave as required by the New Classical theory.
Keywords: non-ergodic equilibria, stionarity, real business cycles, growth theory, NAIRU, general equilibrium macroeconomics
JEL: E2
  • The non-monetary side of the global disinflation
Date: 2010
By: Gregor Schwerhoff
Mouhamadou Sy
URL: http://d.repec.org/n?u=RePEc:pse:psecon:2010-38&r=mac
The dramatic decline in inflation across the world over the last 20 years has been largely credited to improved monetary policy. The universal nature of the phenomenon and its simultaneity with globalization however indicate that there might also be a « real » side to it. We build a model based on Melitz (2003) in which falling transport cost lead to greater openness, higher productivity and lower inflation. Following a decline in transport cost openness increases and firm selection eliminates the least productive domestic firms. The consequent increase in average productivity leads to falling relative prices for goods. A cash-in-advance constraint allows to analyse how falling relative prices can lead to lower inflation. Using a dataset of macroeconomic variables for 107 countries from all world regions we are able to show that openness-induced productivity growth leads to a significant decline in inflation world wide.
  • Operating Procedures and the Expectations Theory of the Term Structure of Interest Rates: A Note on the New Zealand Experience from 1989 to 2008
Date: 2010-11-01
By: Alfred Guender (University of Canterbury)
Allan G.J. Wu
URL: http://d.repec.org/n?u=RePEc:cbt:econwp:10/72&r=mac
The operating procedure of a central bank influences in no small measure whether the behavior of interest rates is consistent with the expectations hypothesis. In New Zealand, the predictive content of the term spread improves markedly in the wake of the switch from a quantity-based to a price-based operating procedure in March 1999. The Official Cash Rate system has made it easier for market participants to understand the day-to-day conduct of monetary policy. As a result, market interest rates have become more predictable, thereby contributing to the success of the expectations hypothesis in explaining the behavior of yields on very short-dated financial instruments.
JEL: E43
  • Home Equity, Mobility, and Macroeconomic Fluctuations
Date: 2010-10
By: Vincent Sterk
URL: http://d.repec.org/n?u=RePEc:dnb:dnbwpp:265&r=mac
How does a fall in house prices affect real activity? This paper presents a business cycle model in which a decline in house prices reduces geographical mobility, creating distortions in the labor market. This happens because homeowners face declines in their home equity levels, after which it becomes more difficult to provide the down-payment required for a new mortgage loan. Unemployed homeowners therefore turn down job offers that would require them to move. The model explains joint cyclical patterns in housing and labor market aggregates, as well as the puzzling breakdown of the U.S. Beveridge curve that occurred during 2009.
Keywords: Housing Markets; Labor Markets; Refinancing Constraints
JEL: E24
  • The High Budgetary Cost of Incarceration
Date: 2010-11
By: John Schmitt
Kris Warner
URL: http://d.repec.org/n?u=RePEc:epo:papers:2010-28&r=mac
We use Bureau of Justice Statistics data to estimate that, in 2008, the United States had between 12 and 14 million ex-offenders of working age. Because a prison record or felony conviction greatly lowers ex-offenders’ prospects in the labor market, we estimate that this large population lowered the total male employment rate that year by 1.5 to 1.7 percentage points. In GDP terms, these reductions in employment cost the U.S. economy between $57 and $65 billion in lost output.
Keywords: incarceration, ex-offenders, ex-felons, employment, labor, economics, prisoners
JEL: E
  • Cycles in Crime and Economy: Leading, Lagging and Coincident Behaviors
Date: 2010
By: Claudio Detotto
Edoardo Otranto
URL: http://d.repec.org/n?u=RePEc:cns:cnscwp:201023&r=mac
In the last decades, the interest in the relationship between crime and business cycle has widely increased. It is a diffused opinion that a causal relationship goes from economic variables to criminal activities. This work aims to verify this proposition by using the dynamic factor model to analyze the common cyclical components of Gross Domestic Product (GDP) and a large set of criminal types. Italy is the case study for the time span 1991 – 1 – 2004 – 12. The purpose is twofold – on the one hand we verify if such a relationship does exist; on the other hand we select what crime types are related to the business cycle and if they are leading, coincident or lagging. The study finds that most of the crime types show a counter-cyclical behavior with respect to the overall economic performance, but only a few of them have an evident relationship with the business cycle. Furthermore, some crime offenses, such as bankruptcy, embezzlement and fraudulent insolvency, seem to anticipate business cycle, in line with recent global events.
Keywords: business cycle; crime; common factors; dynamic factor models
JEL: E32
  • Real Estate, the External Finance Premium and Business Investment: A Quantitative Dynamic General Equilibrium Analysis
Date: 2010-11
By: Jin, Yi
Leung, Charles Ka Yui
Zeng, Zhixiong
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26722&r=mac
This paper studies the connection between the capital market and the real estate market. Empirically, we find that positive real house price shocks lower the external finance premium and stimulate nonresidential investment and real GDP. Our theoretical framework is able to mimic the volatility of the external finance premium, the relative price of real estate and capital, and the investment in real estate and capital. It also captures the cyclicality of the external finance premium and of real estate prices. The contribution of real estate price fluctuations to the variability of the external finance premium and the GDP is confirmed to be significant.
Keywords: External Finance Premium; Residential and Corporate Real Estate; Capital Market Imperfections; Equilibrium Default; Real Estate Price Volatility.
JEL: E44
  • Unemployment Expectations and the Business Cycle
Date: 2010-04
By: Daniel Tortorice (Department of Economics, Brandeis University)
URL: http://d.repec.org/n?u=RePEc:brd:wpaper:5&r=mac
I compare unemployment expectations from the Michigan Survey of Consumers to VAR forecastable movements in unemployment. I document three key facts. First, one- half to one-third of the population expects unemployment to rise when it is falling at the end of a recession even though the VAR is able to predict the fall in unemployment. Second, more people expect unemployment to rise when it is falling at the end of a recession than expect it to rise when it is rising at the beginning of a recession even though these movements are predictable with the VAR. Finally, the lag change in unemployment is as important as the VAR prediction of the future unemployment change in predicting the fraction of the population that expects unemployment to rise. Least squares learning or real time expectations do little to help explain these facts. However, delayed updating of expectations can addresses some of these puzzles and extrapolative expectations addresses these puzzles the best. Individuals with higher income or education are only slightly less likely to make these expectational errors and those who makes these errors are 8-10 percent less likely to believe it is a good time to make a major purchase.
Keywords: Consumer Sentiment, Rational Expectations, Business Fluctuations, Cycles
JEL: E32
  • International Capital Flows and Aggregate Output
Date: 2010-05
By: Juergen von Hagen (University of Bonn)
Haiping zhang (School of Economics, Singapore Management University)
URL: http://d.repec.org/n?u=RePEc:siu:wpaper:10-2010&r=mac
We develop a tractable multi-country overlapping-generations model and show that cross-country differences in financial development explain three recent empirical patterns of international capital flows. Domestic financial frictions in our model distort interest rates and aggregate output in the less financially developed countries. International capital flows help ameliorate the two distortions.International flows of financial capital and foreign direct investment a ect aggregate output in each country directly through affecting the size of aggregate investment. In addition, they affect aggregate output indirectly through affecting the composition of aggregate investment and the size of aggregate savings. Under certain conditions, the indirect effects may dominate the direct effects so that, despite « uphill » net capital flows, full capital mobility may raise the steady-state aggregate output in the poor country as well a s raise world output. However, if foreign direct investment is restricted, « uphill » financial capital flows strictly reduce the steady-state aggregate output in the poor countries and it is more likely that the steady-state world output is lower than under international financial autarky.
Keywords: Capital account liberalization, financial frictions, financial development, foreign direct investment, world output gains
JEL: E44
  • Turkey’s Improving Integration with the Global Capital Market: Impacts on Risk Premia and Capital Costs
Date: 2010-11-10
By: Rauf Gönenç
Saygin Sahinöz
Ozge Tuncel
URL: http://d.repec.org/n?u=RePEc:oec:ecoaaa:812-en&r=mac
Turkey has considerably improved its terms of access to the global capital market. Progress in macroeconomic fundamentals has enhanced credibility and reduced risk premia and capital costs. This has had broad effects on capital supply conditions in the entire economy. Real interest rates have declined, and funds of lengthened maturity are becoming available for a broader range of borrowers and fund users, offering a basis for broader–based long–term growth. Estimations in the paper suggest that reinforcing fiscal institutions, price stability, governance quality, political stability and trade and growth performance would help Turkey to continue to improve its integration with the international capital market and reduce durably its capital costs. This paper relates to the 2010 OECD Economic Review of Turkey (www.oecd.org/eco/surveys/turkey).<P>L’Intégration croissante de la Turquie avec le marché global des c apitaux : Effets sur les primes de risque et coût du capital<BR>La Turquie a considérablement amélioré ses conditions d’accès au marché global des capitaux. Des progrès dans les fondamentaux macroéconomiques ont renforcé la crédibilité et réduit les primes de risque et le coût du capital. Cela a eu des conséquences considérables sur les conditions de financement de l’économie tout entière. Les taux d’intérêt réels ont diminué, et des fonds à plus longue maturité deviennent disponibles pour un plus large éventail d’utilisateurs de fonds, offrant une base plus large pour la croissance à long terme. Les estimations dans le document suggèrent que le renforcement des institutions budgétaires, de la stabilité des prix, de la qualité de la gouvernance, de la stabilité politique et de la performance du commerce extérieur et de la croissance aiderait la Turquie à continuer à améliorer son intégration avec le marché global des capitaux et à r éduire durablement ses coûts en capital. Ce document se rapporte à l’Étude économique de Turquie de l’OCDE, 2010, (www.oecd.org/eco/surveys/turkey).
Keywords: capital markets, risk premia, credit rating, interest rate, economic growth, capital costs, open economy, fiscal institution, croissance économique, marchés de capitaux, taux d’intérêt, prime de risque, coût du capital, économie ouverte, institution budgétaire, notation de crédit
JEL: E43
  • « Hysteresis in Dynamic General Equilibrium Models with Cash-in-Advance Constraints »
Date: 2010-10
By: Kazuya Kamiya (Faculty of Economics, University of Tokyo)
Takashi Shimizu (Faculty of Economics, Kansai University)
URL: http://d.repec.org/n?u=RePEc:tky:fseres:2010cf765&r=mac
In this paper, we investigate equilibrium cycles in dynamic general equilibrium models with cash-in-advance constraints. Our findings are two-fold. First, in such models, if an equilibrium cycle exists, then there also exists a continuum of equilibrium cycles in its neighborhood. Second, the limit cycle, to which a dynamic path converges, varies continuously according to the initial distribution of the money holdings. Thus, temporary shocks that affect the initial distribution have permanent effects in such models; that is, such models exhibit hysteresis. Furthermore, we also explore the logic behind the results.
  • Do FOMC Members Herd?
Date: 2010
By: Jan-Christoph Rülke (WHU – Otto Beisheim School of Management,WHU – Otto Beisheim School of Management)
Peter Tillmann (Justus-Liebig-University Giessen)
URL: http://d.repec.org/n?u=RePEc:mar:magkse:201031&r=mac
Twice a year FOMC members submit forecasts for growth, unemplyoment and in ation to be published in the Humphrey-Hawkins Report to Congress. In this paper we use individual FOMC forecasts to assess whether these forecasts exhibit herding behavior, a pattern often found in private sector forecasts. While growth and unemployment forecast do not show herding behavior, the in ation forecasts show strong evidence of anti-herding, i.e. FOMC members intentionally scatter their forecasts around the consensus. Interestingly, anti-herding is more important for nonvoting members than for voters.
Keywords: Central Federal Open Market Committee, monetary policy, forecasting, herding
JEL: E43
  • Macroeconomic Effects of Over-investment in Housing in an Aggregative Model of Economic Activity
Date: 2010-10
By: Hian Teck Hoon (School of Economics, Singapore Management University)
URL: http://d.repec.org/n?u=RePEc:siu:wpaper:22-2010&r=mac
Is there a theoretical basis for the view that the end of a period of over-investment necessarily leads to a period of below-normal employment as the excess capital stock is run down? We study the repercussions of a false boom in housing driven by prior expectations of future housing prices not justified by fundamentals. When these expectations are corrected, the result is a precipitous drop in housing prices and, on that account alone, some drop in employment. There is also a bulge in the housing stock. In the closed economy case, the downward shift of the term structure of interest rates due to the excess housing stock props up housing prices above the normal steady-state level, so the drop of housing prices “undershoots.” Although this transient elevation of housing prices has a positive demand-wage effect on employment, we show that the wealth effect from owning a higher housing stock and a negative Hicks-Lucas-Ra pping effect of lower interest rates dominate, so employment drops initially to a below-normal level. The slump gradually subsides as the housing overhang wears off. In the case of a small open economy that faces a world of perfect capital mobility and takes as given the world interest rate, there are two possibilities. If housing services are instantaneously tradeable and perfect substitutes for foreign ones, so purchasing power parity holds, the end of the bubble causes housing prices to drop precisely to the steady-state level. Since there is no undershooting, the wealth effect of the housing overhang is unopposed and the slump is deeper. If domestic and foreign housing services are imperfect substitutes, the country will suffer a period with a weak real exchange rate, thus to a drop of housing prices that “overshoots” the normal level. Here the slump in employment is worsened by the exaggerated fall in housing prices below the steady-state level.
Keywords: Housing stock, housing prices, over-investment, employment
JEL: E13
  • Products, patents and productivity persistence: A DSGE model of endogenous growth
Date: 2010
By: Tom Holden
URL: http://d.repec.org/n?u=RePEc:oxf:wpaper:512&r=mac
This paper builds a dynamic stochastic general equilibrium (DSGE) model of endogenous growth that is capable of generating substantial degrees of endogenous persistence in productivity. When products go out of patent protection, the rush of entry into their production destroys incentives for process improvements. Consequently, old production processes are enshrined in industries producing non-protected products, resulting in aggregate productivity persistence. Our model also generates sizeable delayed movements in productivity in response to preference shocks, providing a form of endogenous news shock. Finally, if we calibrate our model to match a high aggregate mark-up then we can replicate the negative response of hours to a positive technology shock, even without the inclusion of any frictions.
Keywords: Productivity persistence, patent protection, oligopoly, research and development
JEL: E32
  • Primary commodity prices: co-movements, common factors and fundamentals
Date: 2010-11
By: Joseph P. Byrne
Giorgio Fazio
Norbert Fiess
URL: http://d.repec.org/n?u=RePEc:gla:glaewp:2010_27&r=mac
The behavior of commodities is critical for developing and developed countries alike. This paper contributes to the empirical evidence on the co-movement and determinants of commodity prices. Using nonstationary panel methods, we document a statistically significant degree of co-movement due to a common factor. Within a Factor Augmented VAR approach, real interest rate and uncertainty, as postulated by a simple asset pricing model, are both found to be negatively related to this common factor. This evidence is robust to the inclusion of demand and supply shocks, which both positively impact on the co-movement of commodity prices.
Keywords: Commodity Prices, Panel Estimation, Factor Models
JEL: E30
  • Réductions d’impôts et dette publique : un lien à ne pas occulter.
Date: 2010-11
By: Muriel Pucci (Centre d’Economie de la Sorbonne)
Bruno Tinel (Centre d’Economie de la Sorbonne)
URL: http://d.repec.org/n?u=RePEc:mse:cesdoc:10085&r=mac
Tax cuts create simultaneously a lack of tax receipts and more savings ready to be changed into public bonds and compensate this shortage of tax revenue. A part of tax resources is replaced by borrowing and those who are enjoying tax cuts are also receiving interest from government. The consumption gain that can be obtained is small compared with the loss of tax receipts. Tax cuts have played an important role in the rise in public debt for twenty years. The first section analyses the link between tax cuts and public debt in France through national accounts and the second section presents a stock-flow consistent (SFC) model to examine this relation.
Keywords: Public debt, tax cuts, stock-flow model, public finance.
JEL: E12
  • The distributional consequences of supply-side reforms in general equilibrium
Date: 2010-11
By: Konstantinos Angelopoulos
Bernardo X. Fernandez
James Malley
URL: http://d.repec.org/n?u=RePEc:gla:glaewp:2010_26&r=mac
This paper addresses the issue on whether tax reforms consistent with lower public debt-to-GDP in the long-run can lead to a more efficient and equitable economy. To this end we solve a heterogeneous agent model comprised of a government, a representative capitalist and representative skilled and unskilled workers, under both rational expectations and adaptive learning. Our main findings are that (i) reductions in capital taxation, while beneficial at the aggregate level, lead to increased inequality mainly due to the substitutability of un- skilled labour and capital; (ii) a fall in taxation for skilled labour is Pareto improving, which is largely explained by its complementarity with the other factor inputs; (iii) all agents would prefer increasing the tax rate on capital to increasing the tax rate on skilled and un- skilled labour since it leads to relatively lower welfare losses; and (iv) heterogeneity in initial beli efs under adaptive learning quantitatively matters for welfare.
Keywords: tax reform, structural heterogeneity, inequality, adaptive learning
JEL: E25
  • Does Ricardian Equivalence Hold When Expectations are not Rational?
Date: 2010-08-04
By: George W. Evans (University of Oregon Economics Department and University of St. Andrews)
Seppo Honkapohja (Bank of Finland, Helsinki, Finland)
URL: http://d.repec.org/n?u=RePEc:ore:uoecwp:2010-3&r=mac
This paper considers the Ricardian Equivalence proposition when expectations are not rational and are instead formed using adaptive learning rules. We show that Ricardian Equivalence continues to hold provided suitable additional conditions on learning dynamics are satisfied. However, new cases of failure can also emerge under learning. In particular, for Ricardian Equivalence to obtain, agents’ expectations must not depend on government’s financial variables under deficit financing.
Keywords: Taxation, expectations, Ramsey model, Ricardian equivalence.
JEL: E62
  • On the expansion of finance and financialisation
Date: 2010-10-01
By: Russo, Alberto
Zanini, Adelino
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26828&r=mac
In this paper we explore the role of finance in the recent crisis noting that its expansion, in a context of deregulation and globalisation, has boosted financial profits and capital accumulation, but at the cost of a growing systemic instability both in the leading capitalist economy, i.e. the USA, and at the international level. The expansion of finance tends to emerge in certain phases of capitalist development, in particular during periods of countries’ decline. At the same time, each phase has its peculiar aspects and, referring to the recent evolution, we focus on the phenomenon of financialisation, intended as an increasing involvement of economic agents in the working of financial markets.
Keywords: deregulation; renationalisation; capitalist accumulation; instability; inequality
JEL: E66
  • Analysis of Labor Tax Progression under Heterogeneous Domestic Labor Markets and Flexible Outsourcing
Date: 2010-11
By: Koskela, Erkki (University of Helsinki)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp5313&r=mac
What are the impacts of labor tax reform on wage setting and employment to keep the relative tax burden per low-skilled and high-skilled workers constant in the case of heterogeneous domestic labor markets, i.e. imperfect competition in low-skilled labor and perfect competition in high-skilled labor in the presence of outsourcing? A higher degree of tax progression by raising the wage tax and the tax exemption for the low-skilled workers will decrease the wage rate and increase labor demand of low-skilled workers, whereas it will decrease (increase) employment of high-skilled workers in CES utility function when the elasticity of substitution between consumption and leisure is higher (lower) than one. A higher degree of wage tax progression for the high-skilled worker will have no effect on the high-skilled wage in the presence of CES utility function.
Keywords: heterogeneous domestic labor markets, wage bargaining, impacts of labor taxation, outsourcing
JEL: E24
  • Oil Shocks and Kuwait’s Dinar Exchange Rate: the Dutch Disease Effect
Date: 2010-10-12
By: Al-mulali, Usama
Che Sab, Normee
URL: http://d.repec.org/n?u=RePEc:pra:mprapa:26844&r=mac
This study investigates the impact of oil prices on the exchange rate in Kuwait which uses the fixed exchange rate regime to the US dollar. Time series data from 1970-2008 covering all the oil shocks are used. In order to achieve the results of this study, the VAR model, the Johansen-Juselius Multivariate Cointegration test and the Granger causality test are implemented. Due to the results we have arrived at, we recommend that Kuwait either maintains its exchange rate regime (pegged to a basket of currencies), or uses a crawling peg regime.
Keywords: oil shocks; real exchange rate; Kuwait; VAR
JEL: E30
  • Mercado Laboral y Reformas en Bolivia
Date: 2010-07
By: Beatriz Muriel (Institute for Advanced Development Studies)
Luis Carlos Jemio (Institute for Advanced Development Studies)
URL: http://d.repec.org/n?u=RePEc:adv:wpaper:201007&r=mac
El estudio presenta un panorama de las reformas sociales y económicas implementadas en Bolivia desde 1985, en su relación e incidencia con el funcionamiento del mercado de trabajo. Inicialmente, se destaca la efectividad de las llamadas Reformas Estructurales, aplicadas durante 1985-2005, en la generación de la estabilidad macroeconómica; en la captación de inversión extranjera directa, en la apertura de mercados y en la disminución de la pobreza (medida por Necesidades Básicas Insatisfechas). Sin embargo, se observa que las medidas destinadas a crear empleos decentes fueron escasas y los rubros favorecidos por las reformas crearon pocas fuentes de trabajo. El nuevo gobierno, que ascendió al poder en 2006, aumentó los programas sociales y revirtió varias reformas implementadas durante 1985-2005. No obstante, las políticas públicas se concentraron en los mismos rubros que las anteriores reformas, descuidando l os problemas en torno a la generación de buenos empleos en Bolivia. En este escenario, la fuerza laboral urbana continuó con su propia dinámica de expansión, sobrepasando en muchos casos la demanda laboral. Como resultado, muchos trabajadores no-calificados generaron sus propios empleos, con bajos ingresos y productividad. En contraste, los trabajadores calificados fueron favorecidos por las reformas y los sectores beneficiados por éstas; lo que condujo a un aumento en el premio salarial por calificación en el tiempo. Por otro lado, la fuerza laboral rural siguió empleada en su mayoría en el sector agropecuario de subsistencia; no obstante, la migración campo-ciudad llevó a la disminución de la población ocupada en estas regiones y, desde aquí, promovió algunas mejoras en la productividad e ingresos. El estudio concluye señalando que las reformas no han generado mejores empleos, siendo fundamental establecer políticas que dinamicen la demanda laboral, mejoran do el clima de negocios y propiciando mayores inversiones que busquen expandir principalmente el sector industrial, ya que es intensivo en mano de obra no-calificada, puede beneficiarse del mercado mundial y del desarrollo tecnológico, y está concentra en las áreas urbanas.
Keywords: Bolivia, ingresos laborales, salarios, desigualdad, políticas sociales
JEL: E20
  • More Jobs? A Panel Analysis of the Lisbon Strategy
Date: 2010-11-18
By: Sergio Destefanis (Università di Salerno, CELPE and CSEF)
Giuseppe Mastromatteo (Università Cattolica di Milano.)
URL: http://d.repec.org/n?u=RePEc:sef:csefwp:264&r=mac
We assess the impact on employment growth of the Lisbon Strategy, examining long-run trends in total, female and old-age employment rates from 1994 to 2009. We find that the Strategy had some favourable (but weak) impact, especially for old-age workers. However, no improvement ensued from its mid-term reassessment.
Keywords: European Employment Strategy, difference-in-difference, employment policies
JEL: E24
  • Absorbing A Windfall Of Foreign Exchange: Dutch disease dynamics
Date: 2010
By: Rick van der Ploeg
Anthony J Venables
URL: http://d.repec.org/n?u=RePEc:oxf:oxcrwp:052&r=mac
The response of an economy to a windfall of foreign exchange (be it aid or natural resource revenues) is often constrained by absorptive capacity. We provide a micro-founded analysis of absorption constraints, based on the idea that expanding the economy’s capital stock (in aggregate or sectorally) requires non-traded inputs, the supply of which is constrained by the initial capital stock. Given this constraint, the economy will manifest ‘Dutch disease’ symptoms, although many of them are temporary. On impact there is sharp appreciation of the real exchange rate, which will then depreciate back to its equilibrium level. In contrast to the permanent income hypothesis, real consumption jumps part of the way to its new long-run level, and then continues to rise. Depending on the capital-intensity of the investments needed for the adjustment, the economy may run a current account deficit or surplus in early years.
Keywords: absorptive capacity, absorption constraints, windfall, aid, natural resources, Dutch disease
JEL: E21

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