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  • 1
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    Brussels: Economics and Econometrics Research Institute | ZBW – Leibniz Information Centre for Economics Kiel, Hamburg
    Publication Date: 2019-12-17
    Description: We introduce consumption habits into an exogenous growth model augmented with a detailed government sector, and calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We show that in contrast to the case without habits, e.g., Vasilev (2009), when the economy features saddle-path stability, the habit motive alone leads to equilibrium indeterminacy in the model. When habits enter multiplicatively in the representative agent's utility function, the setup exhibits "sink" dynamics, and equilibrium paths are determined by "animal spirits." These results are in line with the findings in the literature, e.g., Benhabib and Farmer (1994, 1996) and Farmer (1999), and have major implications for policy-making and welfare.
    Keywords: ddc:330 ; E32 ; E22
    Language: English
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  • 2
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    Frankfurt a. M.: Goethe University, Center for Financial Studies (CFS)
    Publication Date: 2020-01-21
    Description: We study the incidence and severity of lower-bound episodes and the efficacy of three types of state-dependent policies - forward guidance about the future path of interest rates, large-scale asset purchases and spending-based fiscal stimulus - in ameliorating the adverse consequences stemming from the effective lower bound on nominal interest rates. In particular, we focus on the euro area economy and examine, using the ECB's New Area-Wide Model, the consequences of the lower bound both for the near-term economic outlook, characterised by persistently low nominal interest rates and inflation, and in a lasting low-real-interest-rate world. Our findings suggest that, if unaddressed, the lower bound can have very substantial costs in terms of worsened macroeconomic performance. Forward guidance, if fully credible, is most powerful and can largely undo the distortionary effects due to the lower bound. A combination of imperfectly credible forward guidance, asset purchases and fiscal stimulus is almost equally effective, in particular when asset purchases enhance the credibility of the forward guidance policy via a signalling effect.
    Keywords: E31 ; E32 ; E37 ; E52 ; E62 ; ddc:330 ; effective lower bound ; monetary policy ; forward guidance ; asset purchases ; fiscal policy ; euro area
    Language: English
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  • 3
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2020-01-28
    Description: The construction industry is increasingly becoming a key pillar of the business cycle in Germany. DIW Berlin's construction volume calculation indicates a real expansion of construction services by around three percent each year over the next two years. In nominal terms, sales in the construction industry and its related sectors will grow by around 6.5 percent in 2020 and almost six percent in 2021. Residential construction remains the cornerstone of the upswing, but construction activity in the public sector will also expand significantly over the next two years. Due to the current weak state of the economy, commercial construction is developing somewhat less dynamically. A long-term investment program would be a sound method of increasing growth potential; it would also improve business prospects in the construction industry for the foreseeable future and make the industry more willing to increase construction capacity.
    Keywords: E32 ; E66 ; ddc:330 ; construction industry ; residential construction ; public infrastructure ; economic outlook
    Language: English
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  • 4
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    Halle (Saale): Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
    Publication Date: 2020-02-07
    Description: We analyse whether financial integration between countries leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996-2017, we find that the spillover effects are positive on average but much larger during periods of financial stress, pointing towards stronger business cycle synchronisation. Dismantling GDP growth into value added growth of ten major industries, we observe that some sectors are strongly affected by positive spillovers (wholesale & retail trade, industrial production), others only to a weaker degree (agriculture, construction, finance), while more nationally influenced industries show no evidence for significant spillover effects (public administration, arts & entertainment, real estate).
    Keywords: E32 ; F44 ; G10 ; ddc:330 ; financial integration ; business cycle synchronisation ; industry dynamics ; spatial model
    Language: English
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  • 5
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    Bologna: Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE)
    Publication Date: 2020-02-06
    Description: We investigate the role played by the credit supply shock across the business cycle in the U.S. over the period 1973 - 2018. We estimate a nonlinear VAR including nominal, real, monetary, and financial variables. According to our results, a credit supply shock triggers asymmetric and negative effects on macroeconomic variables. We find that the state-dependent forecast error variance decomposition of industrial production, employment, and inflation due to the shock is from six to eight times larger in recessions than in normal times.
    Keywords: C32 ; E32 ; E52 ; ddc:330 ; Credit supply shock ; Smooth Transition VAR ; Nonlinearities
    Language: English
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  • 6
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    Essen: RWI - Leibniz-Institut für Wirtschaftsforschung
    Publication Date: 2020-02-13
    Description: Does an improvement in growth prospects lead to a fall in the trade balance? The answer in the literature with a strong focus on the U.S. economy is yes. However, we do not find that improved growth prospects (news shocks) necessarily lead to negative trade balance effects in the G7 countries. We develop a novel news shocks identification scheme, apply it to country-level vector autoregressions (VARs), and obtain the following results. While in the U.S. and Germany, news shocks induce a deterioration of the trade balance, in other G7 countries, news shocks have positive trade balance effects. The differences in the trade balance effects across the G7 countries are mainly due to heterogeneous reactions of exchange rates, labor markets, wealth effects, and monetary policy. Therefore, policy recommendations aimed at reducing the trade imbalances through productivity-enhancing reforms in advanced economies might not entail the targeted effects.
    Description: Führt eine dauerhafte Verbesserung der Wachstumsperspektiven in einem Land zu einer Verschlechterung der heimischen Handelsbilanz? Die Bedeutung dieser Forschungsfrage ergibt sich aus der Tendenz zu antizyklischen Schwankungen des Handelsbilanzsaldos, die sowohl die Fachliteratur als auch die politischen Entscheidungsträger betonen. Die Ergebnisse unserer Analyse zeigen, dass eine dauerhafte Verbesserung der Wachstumsperspektiven („news shocks“) in einem Land nicht zwangsläufig mit negativen heimischen Handelsbilanzeffekten in den G7-Ländern einhergeht. Zu diesem Zweck wird in dieser Studie ein neuer Identifikationsansatz entwickelt. Dieser greift auf sog. „news shocks“, d.h. die von den Marktteilnehmern antizipierten technologische Innovationen, zurück. Dieser Ansatz wird auf länderspezifische vektorautoregressive Modelle angewendet. Die Ergebnisse unserer Analyse zeigen, dass sich die Handelsbilanz der USA in Folge eines „news shocks“ persistent verschlechtert, während es in Deutschland nur zu einer temporären Verschlechterung kommt. Für die restlichen G7-Länder finden wir dagegen sogar eine vorübergehende Verbesserung der Handelsbilanz infolge eines „news shocks“. Die Ergebnisse unterstreichen die Bedeutung intertemporaler Konsumglättung durch die privaten Haushalte sowie von Anpassungen der privaten Investitionsausgaben und des Arbeitseinsatzes zur Erklärung der Handelsbilanzschwankungen. Vor diesem Hintergrund dürften die wirtschaftspolitischen Empfehlungen, die Handelsbilanzungleichgewichte in den fortgeschrittenen Volkswirtschaften durch produktivitätserhöhende Reformen zu verringern, nur zu vorübergehenden Effekten auf die Handelsbilanzsalden führen.
    Description: This version: February 7, 2020
    Keywords: F41 ; E32 ; F32 ; D83 ; O40 ; ddc:330 ; terms of trade ; trade balance ; news shocks ; productivity ; learning
    Language: English
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  • 7
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    Tübingen: University of Tübingen, Faculty of Economics and Social Sciences
    Publication Date: 2020-02-20
    Description: Interest-rate spreads fluctuate widely across time and countries. We illustrate this on the basis of about 3,100 quarterly observations for 21 advanced and 17 emerging economies since the early 1990s. Prior to the financial crisis, spread fluctuations in advanced economies are an order of magnitude smaller than in emerging economies. After 2008 their behavior has largely converged along a number of dimensions. We also provide evidence on the transmission of spread shocks and find it similar across sample periods and country groups. The importance of spread shocks as a source of output fluctuations in advanced economies has increased after 2008.
    Keywords: G15 ; F41 ; E32 ; ddc:330 ; Country spreads ; Country risk ; Interest-rate shocks ; Financial crisis ; Business cycle ; Spread shocks ; Average treatment effect
    Language: English
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  • 8
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    Ramat Gan: Bar-Ilan University, Department of Economics
    Publication Date: 2020-02-27
    Description: Textual analysis of 14,270 NBER Working Papers published during 1999–2016 is done to assess the effects of the 2008 crisis on the economics literature. The volume of crisis-related WPs is counter-cyclical, lagging the financial-instability-index. WPs by the Monetary-Economics, Asset-Pricing, and Corporate-Finance program members, hardly refer to “crisis/crises” in the pre-crisis period. As the crisis develops, however, their study-efforts of crisis-related issues increase rapidly. In contrast, WPs in macroeconomics-related programs refer quite extensively in the pre-crisis period to “crisis/crises” and to crises-related topics. Overall, our findings are consistent with the claim that economists were not engaged sufficiently in crises studies before the 2008 crisis. However, counter to the popular image, as soon as the crisis began to unravel, the NBER affiliated economists responded dramatically by switching their focus and efforts to studying and understanding the crisis, its causes and its consequences.
    Keywords: A11 ; C38 ; C55 ; E32 ; E44 ; E58 ; F30 ; G01 ; G20 ; G21 ; G28 ; ddc:330 ; 2008 Financial Crisis ; Textual Analysis ; Financial Crises ; LDA ; Topic Modelling ; Securitization ; Repo ; Sudden Stop
    Language: English
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  • 9
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    Mannheim: ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
    Publication Date: 2020-03-13
    Description: In light of increased economic integration and global warming, addressing critical issues such as the role of multilateral climate policies and the strategic interaction of countries in climate negotiations becomes paramount. We thus established for this paper an open economy environmental dynamic stochastic general equilibrium model with heterogeneous production sectors, bilateral climate policies, asymmetric economies, and asymmetric stochastic shocks, using China and the EU as case studies in order to analyze the interaction and linking of international carbon markets under dynamic international economic cycles. This led us to some major conclusions. First, with various methods we verified that, due to deadweight loss, the efficiency of the separate carbon market is lower than that of the joint carbon market. Second, the intensity of the spillover effects depends partly on different climate policies. This means that, in terms of supply-side shocks, the EU's economy in a joint carbon market is more sensitive because its cross-border spillover effects are enhanced, while demand-side shocks have a stronger impact on the EU's economy under a separate carbon market. Third, the Ramsey policy rule revealed that both China's and the EU's emission quotas should be adjusted pro-cyclically under separate carbon markets. The cross-border spillover effects of the joint carbon market, however can change the pro-cyclical characteristics of foreign (EU's) optimal quotas.
    Keywords: E32 ; F41 ; Q53 ; Q56 ; Q58 ; ddc:330 ; International economic cycle ; Carbon market ; China ; the European Union (EU) ; Dynamic Stochastic General Equilibrium (DSGE)
    Language: English
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  • 10
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    Frankfurt a. M.: Deutsche Bundesbank
    Publication Date: 2020-03-13
    Description: We evaluate the role of financial conditions as predictors of macroeconomic risk first in the quantile regression framework of Adrian et al. (2019b), which allows for non-linearities, and then in a novel linear semi-structural model as proposed by Hasenzagl et al. (2018). We distinguish between price variables such as credit spreads and stock variables such as leverage. We find that (i) although the spreads correlate with the left tail of the conditional distribution of GDP growth, they provide limited advanced information on growth vulnerability; (ii) nonfinancial leverage provides a leading signal for the left quantile of the GDP growth distribution in the 2008 recession; (iii) measures of excess leverage conceptually similar to the Basel gap, but cleaned from business cycle dynamics via the lenses of the semi-structural model, point to two peaks of accumulation of risks - the eighties and the first eight years of the new millennium, with an unstable relationship with business cycle chronology.
    Keywords: E32 ; E44 ; C32 ; C53 ; ddc:330 ; financial cycle ; business cycle ; credit ; financial crises ; downside risk ; entropy ; quantile regressions
    Language: English
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  • 11
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    Frankfurt a. M.: Deutsche Bundesbank
    Publication Date: 2020-03-26
    Description: We show that one should not use the one-sided Hodrick-Prescott filter (HP-1s) as the real-time version of the two-sided Hodrick-Prescott filter (HP-2s): First, in terms of the extracted cyclical component, HP-1s fails to remove low-frequency fluctuations to the same extent as HP-2s. Second, HP-1s dampens fluctuations at all frequencies - even those it is meant to extract. As a remedy, we propose two small adjustments to HP-1s, aligning its properties closely with HP-2s: (1) a lower value for the smoothing parameter and (2) a multiplicative rescaling of the extracted cyclical component. For example, for HP-2s with = 1,600 (value of smoothing parameter), the adjusted one-sided HP filter uses = 650 and rescales the extracted cyclical component by a factor of 1:1513. Using simulated and empirical data, we illustrate the relevance of the adjustments. For instance, financial cycles may appear 1.7 times more volatile than business cycles, where in fact volatilities differ only marginally.
    Keywords: C10 ; E32 ; E58 ; G01 ; ddc:330 ; Real-time analysis ; detrending ; business cycles ; financial cycles
    Language: English
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  • 12
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2020-03-25
    Description: How much does inequality matter for the business cycle and vice versa? Using a Bayesian likelihood approach, we estimate a heterogeneous-agent New-Keynesian (HANK) model with incomplete markets and portfolio choice between liquid and illiquid assets. The model enlarges the set of shocks and frictions in Smets and Wouters (2007) by allowing for shocks to income risk and taxes. We find that adding data on inequality does not materially change the estimated shocks and frictions driving the US business cycle. The estimated shocks, however, have significantly contributed to the evolution of US wealth and income inequality. The systematic components of monetary and fiscal policy are important for inequality as well.
    Keywords: C11 ; D31 ; E32 ; E63 ; ddc:330 ; Bayesian estimation ; business cycles ; income inequality ; incomplete markets ; monetary and fiscal policy ; wealth inequality
    Language: English
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  • 13
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2020-03-25
    Description: This paper provides a detailed assessment of the real-time forecast accuracy of a wide range of vector autoregressive models (VAR) that allow for both structural change and indicators sampled at different frequencies. We extend the literature by evaluating a mixed-frequency time-varying parameter VAR with stochastic volatility (MF-TVP-SV-VAR). Overall, the MF-TVP-SV-VAR delivers accurate now- and forecasts and, on average, outperforms its competitors. We assess the models' accuracy relative to expert forecasts and show that the MF-TVP-SV-VAR delivers better inflation nowcasts in this regard. Using an optimal prediction pool, we moreover demonstrate that the MF-TVP-SV-VAR has gained importance since the Great Recession.
    Keywords: C11 ; C53 ; C55 ; E32 ; ddc:330 ; time-varying parameters ; forecasting ; nowcasting ; mixed-frequency models ; Bayesian methods
    Language: English
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  • 14
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2020-03-25
    Description: Interest-rate spreads fluctuate widely across time and countries. We characterize their behavior using some 3,200 quarterly observations for 21 advanced and 17 emerging economies since the early 1990s. Before the financial crisis, spreads are 10 times more volatile in emerging economies than in advanced economies. Since 2008, the behavior of spreads has converged across country groups, largely because it has adjusted in advanced economies. We also provide evidence on the transmission of spread shocks and find it similar across sample periods and country groups. Spread shocks have become a more important source of output fluctuations in advanced economies after 2008.
    Keywords: G15 ; F41 ; E32 ; ddc:330 ; country spreads ; country risk ; interest-rate shocks ; financial crisis ; business cycle ; spread shocks ; average treatment effect
    Language: English
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  • 15
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2020-03-25
    Description: We estimate Okun's law, the negative relationship between output and the unemployment rate, at the sector level for the US, the UK, Japan, and Switzerland to test several hypotheses that may explain why the aggregate Okun's coeffcients are different across countries. Specifically, we show that the sectoral composition is not a driver and find that the sectoral coefficients are proportional to the aggregate in all four countries. We also show that the standard deviation of unemployment is the main driver of the cross-country differences. This is consistent with labor market policies being crucial to explain the cross-country cyclical differences in the aggregate Okun's coefficient.
    Keywords: E24 ; E32 ; ddc:330 ; Okun's law ; cross-country differences ; sectors
    Language: English
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  • 16
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    Bonn: Institute of Labor Economics (IZA)
    Publication Date: 2020-03-25
    Description: Hiring is a costly activity reflecting firms' investment in their workers. Micro-data shows that hiring costs involve production disruption. Thus, cyclical fluctuations in the value of output, induced by price frictions, have consequences for the optimal allocation of hiring activities. We outline a mechanism based on cyclical markup fluctuations, placing emphasis on hiring frictions interacting with price frictions. This mechanism generates strong propagation and amplification of all key macroeconomic variables in response to technology shocks and mutes the traditional transmission of monetary policy shocks. A local projection analysis of aggregate U.S. data shows that the empirical results, including the cyclicality of markups, are consistent with the model's impulse response functions.
    Keywords: E22 ; E24 ; E32 ; E52 ; ddc:330 ; hiring as investment ; intertemporal allocation ; business cycles ; confluence of hiring and price frictions ; propagation and amplification ; mark up cyclicality
    Language: English
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  • 17
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2020-03-25
    Description: We estimate a Heterogeneous-Agent New Keynesian model with sticky household expectations that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic evidence on the impulse response to a monetary policy shock. Our estimated model uncovers a central role for investment in the transmission mechanism of monetary policy, as high MPCs amplify the investment response in the data. This force also generates a procyclical response of consumption to investment shocks, leading our model to infer a central role for these shocks as a source of business cycles.
    Keywords: E21 ; E22 ; E32 ; E43 ; E52 ; E70 ; ddc:330 ; HANK ; estimation ; investment
    Language: English
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  • 18
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    Bonn: Institute of Labor Economics (IZA)
    Publication Date: 2020-03-25
    Description: This paper uses several large cross-sectional data sources and a new approach to estimate midlife effects of entering the labor market in a recession on mortality by cause and various measures of socioeconomic status. We find that cohorts coming of age during the deep recession of the early 1980s suffer increases in mortality that appear in their late 30s and further strengthen through age 50. We show these mortality impacts are driven by disease-related causes such as heart disease, lung cancer, and liver disease, as well as drug overdoses. At the same time, unlucky middle-aged labor market entrants earn less and work more while receiving less welfare support. They are also less likely to be married, more likely to be divorced, and experience higher rates of childlessness. Our findings demonstrate that temporary disadvantages in the labor market during young adulthood can have substantial impacts on lifetime outcomes, can affect life and death in middle age, and go beyond the transitory initial career effects typically studied.
    Keywords: E32 ; I10 ; J10 ; ddc:330 ; labor market entry conditions ; long-term effects ; mortality
    Language: English
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  • 19
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    Bonn: Institute of Labor Economics (IZA)
    Publication Date: 2020-03-25
    Description: The added worker effect (AWE) measures the entry of individuals into the labor force due to their partners' job loss. We propose a new method to calculate the AWE, which allows us to estimate its effect on any labor market outcome. We show that the AWE reduces the fraction of households with two non-employed members. The AWE also accounts for why women's employment is less cyclical and more symmetric compared to men. In recessions, while some women lose their employment, others enter the labor market and find jobs. This keeps the female employment relatively stable.
    Keywords: D1 ; E32 ; J21 ; J22 ; ddc:330 ; household labor supply ; intra-household insurance ; female employment ; cyclicality ; skewness
    Language: English
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  • 20
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    Frankfurt a. M.: Leibniz Institute for Financial Research SAFE
    Publication Date: 2020-03-27
    Description: This paper studies the impact of financial sector size and leverage on business cycles and risk-free rates dynamics. We model a general equilibrium productive economy where financial intermediaries provide costly risk mitigation to households by pooling the idiosyncratic risks of their investment activities. We find that leverage amplifies variations of intermediaries' relative size, but may also mitigate the business cycle. Moreover, it makes risk-free rates pro-cyclical. Households benefit the most when the financial sector is neither too small, thus avoiding high consumption fluctuations and costly mitigation, nor too big, so that fewer resources are lost after intermediation costs.
    Keywords: E13 ; E32 ; E69 ; G12 ; ddc:330 ; Business Cycle ; Frictions ; Leverage ; Mitigation ; Risk Pooling
    Language: English
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  • 21
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    Stockholm: Sveriges Riksbank
    Publication Date: 2020-03-31
    Description: I study potentials and gaps, permanent and transitory fluctuations in macroeconomic variables using the Smets and Wouter (2007) model. Model-based gaps display low frequency variations; possess more than business cycle fluctuations; have similar frequency representation as potentials, and are correlated with them. Permanent and transitory fluctuations display similar features, but are uncorrelated. I use a number of filters to extract trends and cycles using simulated data. Gaps are best approximated with a polynomial filter; transitory fluctuations with a differencing approach, but distortions are large. Explanations for the results are given. I propose a filter which reduces the biases of existing procedures.
    Keywords: C31 ; E27 ; E32 ; ddc:330 ; Gaps and potentials ; permanent and transitory components ; filtering ; cyclical fluctuations ; gain functions
    Language: English
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  • 22
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    Stockholm: Sveriges Riksbank
    Publication Date: 2020-03-31
    Description: I evaluate the welfare performance of a target for the level of nominal GDP in a New Keynesian model with unemployment, accounting for a zero lower bound (ZLB) constraint on the nominal interest rate. Nominal GDP targeting is compared to employment targeting, a conventional Taylor rule, and the optimal monetary policy with commitment. I find that employment targeting is optimal when supply shocks are the source of fluctuations; however, facing demand shocks and the ZLB constraint, nominal GDP targeting can outperform substantially employment targeting.
    Keywords: E24 ; E32 ; E52 ; ddc:330 ; employment targeting ; optimal monetary policy ; Taylor rule ; ZLB
    Language: English
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  • 23
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    Essen: Global Labor Organization (GLO)
    Publication Date: 2020-03-31
    Description: This paper examines the relationship between labour market conditions and wage dynamics by exploiting a unique dataset of 0.8 million online job vacancies. We find a weak trade-off between aggregated national-level wage inflation and unemployment. This link becomes more evident when wage inflation is disaggregated at sectoral and occupational levels. Using exogenous variations in local market unemployment as the main identification strategy, a negative correlation between vacancy-level wage and unemployment is also established. The correlation magnitude, however, is different across regions and skill segments. Our findings suggest the importance of micro data’s unique dimensions in examining wage setting – unemployment relationship.
    Keywords: C55 ; E24 ; E31 ; E32 ; ddc:330 ; Phillips curve ; wage curve ; heterogeneity ; micro data ; online vacancies
    Language: English
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  • 24
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    Frankfurt a. M.: Leibniz Institute for Financial Research SAFE
    Publication Date: 2020-04-04
    Description: We extend the canonical income process with persistent and transitory risk to shock distributions with left-skewness and excess kurtosis, to which we refer as higherorder risk. We estimate our extended income process by GMM for household data from the United States. We find countercyclical variance and procyclical skewness of persistent shocks. All shock distributions are highly leptokurtic. The existing tax and transfer system reduces dispersion and left-skewness of shocks. We then show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications, which depend crucially on risk attitudes of households; second, higher-order risk matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, higher-order risk has non-trivial implications for the degree of self-insurance against both transitory and persistent shocks.
    Keywords: D31 ; E24 ; E32 ; H31 ; J31 ; ddc:330 ; Labor Income Risk ; Business Cycle ; GMM Estimation ; Skewness,Persistent and Transitory Income Shocks ; Risk Attitudes ; Life-Cycle Model
    Language: English
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  • 25
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    Istanbul: Koç University-TÜSİAD Economic Research Forum (ERF)
    Publication Date: 2019-09-05
    Description: We study the extent of global inflation synchronization using a dynamic factor model in a large set of countries over a half century. Our methodology allows us to account for differences across groups of countries (advanced economies and emerging market and developing economies) and to analyze commonalities in inflation synchronization across a wide range of inflation measures. We report three major results. First, inflation movements have become increasingly synchronized internationally over time: a common global factor has accounted for about 22 percent of variation in national inflation rates since 2001. Second, inflation synchronization has also become more broad-based: while it was previously much more pronounced among advanced economies than among emerging market and developing economies, it has become substantial in both groups over the past two decades. In addition, inflation synchronization has become significant across all inflation measures since 2001, whereas it was previously prominent only for inflation measures that included mostly tradable goods.
    Keywords: E31 ; E32 ; F42 ; ddc:330 ; Global inflation ; synchronization ; dynamic factor model ; advanced economies ; emerging markets ; developing economies
    Language: English
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  • 26
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    Pisa: Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM)
    Publication Date: 2019-09-06
    Description: This work nests the Agent-Based macroeconomic perspective into the earlier history of macroeconomics. We discuss how the discipline in the 70's took a perverse path relying on models grounded on fictitious rational representative agent in order to try to pathetically circumvent aggregation and coordination problems. The Great Recession was a natural experiment for macroeconomics, showing the inadequacy of the predominant theoretical framework grounded on DSGE models. After discussing the pathological fallacies of the DSGE-based approach, we claim that macroeconomics should consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This in turn implies that more is different: macroeconomics cannot be shrink to representative-agent micro, but agents' complex interactions lead to emergence of new phenomena and hierarchical structure at the macro level. This is what is taken into account by agent-based models, which provide a novel way to model complex economies from the bottom-up, with sound empirically-based micro-foundations. We present the foundations of Agent-Based macroeconomics and we discuss how the contributions of this special issue push its frontier forward. Finally, we conclude by discussing the ways ahead for the fully acknowledgement of agent-based models as the standard way of theorizing in macroeconomics.
    Keywords: B41 ; B50 ; E32 ; E52 ; ddc:330 ; Macroeconomics ; Economic Policy ; Keynesian Theory ; New Neoclassical Synthesis ; New Keynesian Models ; DSGE Models ; Agent-Based Evolutionary Models ; Complexity Theory ; Great Recession ; Crisis
    Language: English
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  • 27
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    Heidelberg: Springer | ZBW – Leibniz Information Centre for Economics Kiel, Hamburg
    Publication Date: 2019-09-13
    Description: In this paper we investigate the quantitative importance of collective bargaining agreements for the observed fluctuations in Bulgarian labor markets. Following Maffezzoli (2001), we introduce a monopoly union into a real-business-cycle model with government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2018), and compare and contrast it to a model without unions. We fi nd that the sequential bargaining procedure between the monopoly union and the stand-in rm produces an important internal propagation mechanism within the theoretical setup, which allows the monopoly model to fi t data better than the alternative framework with perfectly-competitive labor markets.
    Keywords: E24 ; E32 ; J23 ; J51 ; ddc:330 ; business cycles ; general equilibrium ; labor unions ; indivisible labor ; involuntary unemployment
    Language: English
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  • 28
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    Frankfurt a. M.: Deutsche Bundesbank
    Publication Date: 2019-09-13
    Description: We introduce two types of effort into an otherwise standard labor search model to examine indeterminacy and sunspot equilibria. Variable labor effort gives rise to increasing returns to hours in production. This makes workers more valuable and contributes to self-fulfilling profit expectations, raising the likelihood of indeterminacy. Variable search effort makes workers search more intensively in a tighter labor market, which alleviates congestion and reduces the likelihood of indeterminacy. Indeterminacy disappears completely when vacancy posting costs are replaced with hiring costs.
    Keywords: E23 ; E24 ; E32 ; E64 ; E71 ; ddc:330 ; determinacy ; effort ; hours ; labor market frictions ; search intensity
    Language: English
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  • 29
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    Kiel, Hamburg: ZBW - Leibniz-Informationszentrum Wirtschaft
    Publication Date: 2019-10-24
    Keywords: E32 ; E44 ; E58 ; E65 ; ddc:330
    Language: English
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  • 30
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    Kiel, Hamburg: ZBW - Leibniz-Informationszentrum Wirtschaft
    Publication Date: 2019-10-24
    Keywords: E32 ; ddc:330
    Language: English
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  • 31
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2019-10-18
    Description: We present evidence on the open economy consequences of US fiscal policy shocks identified through proxy-instrumental variables. Tax shocks and government spending shocks that raise the government budget deficit lead to persistent current account deficits. In particular, the negative response of the current account to exogenous tax reductions through a surge in the demand for imports is among the strongest and most precisely estimated effects. Moreover, we find that the reduction of the current account is amplified when the tax reduction is due to lower personal income taxes and when the government increases its consumption expenditures. Historically, a much larger share of current account dynamics has been due to tax shocks than to government spending shocks.
    Keywords: E32 ; E62 ; F41 ; ddc:330 ; tax policy ; government spending ; proxy-vector autoregressions ; current account,twin deficits
    Language: English
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  • 32
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2019-10-18
    Description: Since the global financial crisis and the related restructuring of banking systems, bank concentration is on the rise in many countries. Consequently, bank size and its role for macroeconomic volatility (or: stability) is the subject of intense debate. This paper analyzes the effects of financial regulations on the link between bank size, as measured by the volume of the loan portfolio, and volatility. Using bank-level data for 1999 to 2014, we estimate a power law that relates bank size to the volatility of loan growth. The effect of regulation on the power law coefficient indicates whether regulation weakens or strengthens the size-volatility nexus. Our analysis reveals that more stringent capital regulation and the introduction of bank levies weaken the size-volatility nexus; in countries with more stringent capital regulation or levies in place, large banks show, ceteris paribus, lower loan portfolio volatility. Moreover, we find weak evidence that diversification guidelines weaken the link between size and volatility.
    Keywords: G21 ; G28 ; E32 ; ddc:330 ; bank size ; regulation ; volatility ; diversification ; moral hazard ; power law
    Language: English
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  • 33
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2019-10-24
    Description: The slowdown in the global economy and the uncertainties caused by Brexit have affected the export-oriented German economy, which is expected to grow by only 0.5 percent this year. However, the German economy has not slid into a crisis due to marked fiscal policy stimuli and favorable developments on the labor market. Private consumption remains a mainstay of the economy; in addition, there is moderate inflation, which will barely dampen purchasing power over the next two years. Together with slightly stronger foreign demand, these factors will ensure that the German economy recovers somewhat over next year and the year thereafter. The economy is likely to grow by 1.4 percent in 2020 and 2021 as long as the serious political risks do not materialize. A no-deal Brexit, for example, would reduce growth in Germany by 0.4 percent in 2020.
    Keywords: E32 ; E66 ; F01 ; ddc:330 ; business cycle forecast ; economic outlook
    Language: English
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  • 34
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    Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)
    Publication Date: 2019-10-24
    Description: The ongoing trade conflicts initiated by the US and the uncertainty surrounding Brexit are negatively affecting the global economy. Global trade and investment activity, and thus in many places industrial output, are the areas most impacted. Consumption, however, is continuing to support the economy in many countries. DIW Berlin is expecting global GDP to grow to 3.7 percent this year and to slightly less in the following two years. Serious risks are weighing on the outlook, as the trade conflicts could continue to escalate and spread to the EU and the likelihood of a no-deal Brexit has increased.
    Keywords: E32 ; E66 ; F01 ; ddc:330 ; business cycle forecast ; economic outlook
    Language: English
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  • 35
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    Amsterdam and Rotterdam: Tinbergen Institute
    Publication Date: 2019-10-31
    Description: We investigate whether two heuristics, the peak-end rule and herding, lead to cognitive biases in the index of consumer sentiment published by the University of Michigan. Both affect respondents' assessment of changes in their financial position over the past year. Consistent with the peak-end rule, respondents rely more on extreme detrimental monthly changes during the year than to changes over the whole year. We rule out that these extremes proxy for risk. The evidence for irrational herding consists in a too strong relationship from expectations about the future of respondents interviewed in a first round to assessments of the past by respondents interviewed in a second round. Both results show that cognitive biases can be found in a key macro variable and outside more controlled environments. They also indicate that the behavioral component of the sentiment index may offer another explanation for its relevance, next to news or animal spirits.
    Keywords: G41 ; E71 ; E32 ; ddc:330 ; Consumer sentiment ; cognitive biases ; peak-end rule ; herding
    Language: English
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  • 36
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    Neubiberg: Universität der Bundeswehr München, Fachgruppe für Volkswirtschaftslehre
    Publication Date: 2019-11-08
    Description: In this paper, we intend so "re-construct" the famous Barone-curve, which goes back to Enrico Barone's contributions to economics in the 1930s. After discussing the comparative statics and the distribution of profits features of the model, we have explicitly introduced, for the first time, the demand side of the economy into the model. This is important when it comes to assess the relevance of major demand factors' elasticities. Thereafter, we have set up a dynamic version of the Barone curve model. Based on a heterogeneous second order differential equation, the stability and convergence properties of prices are identified under the conditions of an existing Barone curve. Finally, we have analyzed possible empirical investigations on the relevance of the Barone curve and evaluated policy implications.
    Keywords: B31 ; B22 ; E32 ; O31 ; O11 ; O47 ; ddc:330 ; Innovation ; imitation ; Barone curve ; Static and dynamic macro modeling
    Language: English
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  • 37
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    s.l.: Research On Money in the Economy (ROME)
    Publication Date: 2019-11-28
    Description: For more than two decades now, current-account imbalances are a crucial issue in the international policy debate as they threaten the stability of the world economy. More recently, the government debt crisis of the European Union shows that internal current account imbalances inside a currency union may also add to these risks. Oil price fluctuations and a contracting monetary policy that reacts on oil prices, previously discussed to affect the current account may also be a threat to the currency union by changing internal imbalances. Therefore, in this paper, we analyze the impact of oil price shocks on current account imbalances within a currency union. Differences in institutions, especially labor market institutions and trade result in an asymmetric reaction to an otherwise symmetric shock. In this context, we show that oil price shocks can have a long-lasting impact on internal balances, as the exchange rate adjustment mechanism is not available. The common monetary policy authority, however, can reduce such effects by specifying an optimum monetary policy target. Nevertheless, we also show that there is no single best solution. CPI, core CPI or an asymmetric CPI target all come at a cost either regarding an increase in unemployment or increasing imbalances.
    Keywords: E32 ; F32 ; F45 ; Q43 ; ddc:330 ; Current account deficit ; Oil price shocks ; DSGE models ; Search and matching labor market ; Monetary policy
    Language: English
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  • 38
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    Innsbruck: University of Innsbruck, Research Platform Empirical and Experimental Economics (eeecon)
    Publication Date: 2019-11-29
    Description: We study the effects of macroeconomic shocks on several measures of economic inequality obtained from U.S. survey data. To identify aggregate supply, aggregate demand, and monetary policy shocks, we estimate structural vector autoregressions and impose sign and zero restrictions on impulse response functions. Our results show that the effects of the macroeconomic shocks on economic inequality depend on the type of shock as well as on the measure of inequality considered. Contractionary monetary policy shocks increase expenditure and consumption inequality, whereas income and earnings inequality are less affected. Adverse aggregate supply and aggregate demand shocks increase income and earnings inequality, but reduce expenditure and consumption inequality. Our results suggest that different channels dominate in the transmission of the shocks. The earnings heterogeneity channel is consistent with the inequality dynamics in the aftermath of monetary policy shocks, but it appears to be less crucial when the economy is hit by either aggregate supply or aggregate demand shocks. In the aftermath of aggregate supply and aggregate demand shocks, inflation and the real interest rate appear to drive inequality dynamics to a larger degree. Using variance decompositions, we also find that although the macroeconomic shocks account for large shares of the variation in the macroeconomic variables, their contributions to the dynamics of the inequality measures are limited.
    Keywords: E00 ; E32 ; D63 ; ddc:330 ; Macroeconomic Shocks ; Inequality ; Structural Vector Autoregression ; Zero and Sign Restrictions
    Language: English
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  • 39
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    Trier: Universität Trier, Fachbereich IV - Volkswirtschaftslehre
    Publication Date: 2019-11-29
    Description: We examine the relationship between oil price fluctuations and economic activity in Azerbaijan using vector autoregressive models for the period 2002Q1-2018Q4. Our key results are as follows. First, quarterly GDP growth decreases after oil price innovations in both, the oil and gas sector and in the remaining economy. Downturns (upswings) in the oil and gas sector also prompt downturns (upswings) in the non-oil sector as fluctuations in oil revenues affect the government's capacity to subsidize the remaining economy. Second, oil price innovations also lead to higher inflation in Azerbaijan. In response to the required tightening of monetary policy, the manat appreciates against the US dollar. Finally, GDP effects are primarily documented after oil price increases, whereas the interest rate and the exchange rate mainly react to decreases. Inflation increases after both types of shocks, either due to the accommodative monetary policy stance in the case of oil price decreases or due to the shock itself in the case of increases.
    Keywords: E32 ; Q43 ; ddc:330 ; Azerbaijan ; Dutch disease ; natural resources ; oil prices ; vector autoregression
    Language: English
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  • 40
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    Basel: University of Basel, Center of Business and Economics (WWZ)
    Publication Date: 2019-11-29
    Description: Recent literature suggests that news shocks could be an important driver of economic cycles. In this article, we use a direct measure of news sentiment derived from media reports. This allows us to examine whether innovations in the reporting tone correlate with changes in the assessment and expectations of the business situation as reported by firms in the German manufacturing sector. We find that innovations in news reporting affect business expectations, even when conditioning on the current business situation and industrial production. The dynamics of the empirical model confirm theoretical predictions that news innovations affect real variables such as production via changes in expectations. Looking at individual sectors within manufacturing, we find that macroeconomic news is at least as important for business expectations as sector-specific news. This is consistent with the existence of information complementarities across sectors.
    Keywords: E32 ; D82 ; ddc:330 ; media reporting ; news-driven business cycles ; sectoral information complementarities
    Language: English
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  • 41
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    Kiel, Hamburg: ZBW - Leibniz-Informationszentrum Wirtschaft
    Publication Date: 2019-10-24
    Keywords: E32 ; F32 ; F45 ; ddc:330
    Language: English
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  • 42
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    Kiel, Hamburg: ZBW - Leibniz-Informationszentrum Wirtschaft
    Publication Date: 2019-10-24
    Keywords: J62 ; J63 ; E24 ; E32 ; ddc:330
    Language: English
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  • 43
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    Jena: Friedrich Schiller University Jena
    Publication Date: 2019-10-18
    Description: We estimate a Markow-switching dynamic factor model with three states based on six leading business cycle indicators for Germany preselected from a broader set using the Elastic Net soft-thresholding rule. The three states represent expansions, normal recessions and severe recessions. We show that a two-state model is not sensitive enough to reliably detect relatively mild recessions when the Great Recession of 2008/2009 is included in the sample. Adding a third state helps to clearly distinguish normal and severe recessions, so that the model identifies reliably all business cycle turning points in our sample. In a real-time exercise the model detects recessions timely. Combining the estimated factor and the recession probabilities with a simple GDP forecasting model yields an accurate nowcast for the steepest decline in GDP in 2009Q1 and a correct prediction of the timing of the Great Recession and its recovery one quarter in advance.
    Keywords: C53 ; E32 ; E37 ; ddc:330 ; Markov-Switching Dynamic Factor Model ; Great Recession ; Turning Points ; GDP Nowcasting ; GDP Forecasting
    Language: English
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  • 44
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    London: Taylor & Francis | ZBW – Leibniz Information Centre for Economics Kiel, Hamburg
    Publication Date: 2019-10-29
    Description: We introduce investment-speci fic technological change (ISTC) into an otherwise standard real-business-cycle setup with a government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2018). We then investigate the quantitative importance of the ISTC process in such a model for cyclical fluctuations in Bulgaria, and compare the results to a setup where cycles are driven by shocks to total factor productivity. We find that the model with ISTC shocks matches Bulgarian data better than the standard model driven by changes to total factor productivity only. The ISTC process is thus a better candidate for a a "technology shock generation process," at least in Bulgaria since the 2000s.
    Keywords: E24 ; E32 ; ddc:330 ; business cycles ; investment-speci fic technology change
    Language: English
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  • 45
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    Essen: RWI - Leibniz-Institut für Wirtschaftsforschung
    Publication Date: 2019-11-08
    Description: We investigate whether the macroeconomic effects of government spending shocks vary with the level of uncertainty. Using postwar US data and a Self-Exciting Interacted VAR (SEIVAR) model, we find that fiscal spending has positive output effects in tranquil times but is contractionary during uncertain times. The endogenous reaction of macroeconomic uncertainty plays an important role in explaining the non-linear impact of government spending. In contrast to other types of government spending, research and development expenditures reduce uncertainty and have an expansionary effect on output during uncertain times.
    Description: Die Studie untersucht, ob die gesamtwirtschaftlichen Auswirkungen unerwarteter Staatsausgabenerhöhungen mit dem vorherrschenden Grad an Unsicherheit in einer Volkswirtschaft zusammenhängen. Anhand von US Nachkriegsdaten und einem SEIVAR finden wir positive Effekte auf die Wirtschaftsleistung in Zeiten niedriger Unsicherheit und negative Effekte in Zeiten sehr hoher Unsicherheit. Die endogene Reaktion der gesamtwirtschaftlichen Unsicherheit stellt einen wichtigen Faktor für die Erklärung der nichtlinearen Auswirkungen der Staatsausgaben dar. Die Ergebnisse zeigen zudem eine Abhängigkeit der Effekte von der Art der Staatsausgaben. Im Gegensatz zu anderen Arten von Staatsausgaben reduzieren Forschungs- und Entwicklungsausgaben den Grad gesamtwirtschaftlicher Unsicherheit und wirken in unsicheren Zeiten expansiv auf die Wirtschaftsleistung.
    Keywords: E62 ; E32 ; C32 ; ddc:330 ; Government spending shocks ; uncertainty ; non-linear structural vector autoregressions ; interacted VAR ; generalized impulse response functions ; endogenous uncertainty
    Language: English
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  • 46
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    Kiel, Hamburg: ZBW – Leibniz Information Centre for Economics
    Publication Date: 2019-11-20
    Description: The literature has widely discussed the role of financial and economic uncertainty shocks for the macroeconomy. However, empirically isolating them is difficult and uncertainty is increasingly considered as endogenous with respect to financial and other shocks. To obtain a more complete picture I model financial and uncertainty shocks jointly in a state-dependent FAVAR setup and provide agnostic identification bounds on their effects. Results for the U.S. document that (i) uncertainty shocks are of limited relevance for real activity and asset prices in boom periods but have significantly contractionary effects in recessions. (ii) By comparison, financial shocks have higher explanatory power for asset prices and are contractionary both in recessions and boom periods. (iii) Financial conditions are key for understanding uncertainty shocks. (iv) Uncertainty transmits financial shocks to a notable degree in recessions.
    Keywords: E32 ; E44 ; ddc:330 ; Macroeconomic tail events ; nonlinear FAVARs ; financial shocks
    Language: English
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  • 47
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    Munich: Center for Economic Studies and Ifo Institute (CESifo)
    Publication Date: 2019-12-04
    Description: We propose a method to measure people’s subjective models of the macroeconomy. Using a sample of 2,200 households representative of the US population and a sample of more than 1,000 experts, we measure beliefs about how the unemployment rate and the inflation rate respond to four different hypothetical exogenous shocks: a monetary policy shock, a government spending shock, an income tax shock, and an oil price shock. While expert predictions are quantitatively close to benchmarks from standard DSGE models and VAR evidence and relatively homogeneous, there is strong heterogeneity among households. Households predict changes in unemployment that are largely in line with the experts’ responses for all four shocks. However, their predictions of changes in inflation are at odds with those of experts both for the tax shock and the interest rate shock. We show that a substantial fraction of deviations of household predictions from expert predictions can be explained by the use of a simple heuristic according to which people expect a positive co-movement among variables they perceive as good and among variables they perceive as bad. Our findings inform the validity of central assumptions about the expectation formation process and have important implications for the optimal design of fiscal and monetary policy.
    Keywords: D12 ; D14 ; D83 ; D84 ; E32 ; G11 ; ddc:330 ; expectation formation ; subjective models ; macroeconomic shocks ; monetary policy ; fiscal policy
    Language: English
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  • 48
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    Washington, DC: Inter-American Development Bank (IDB)
    Publication Date: 2019-12-06
    Description: This paper applies an agnostic structural vector autoregression (SVAR) approach to study the response of four Andean economies (Bolivia, Colombia, Ecuador, and Peru) to international shocks. More specifically, we look at the response of gross domestic product, the real exchange rate, fiscal and trade balances, and inflation to global demand, commodity price, monetary and financial shocks. Our results confirm that the Andean region is highly exposed to changes in external conditions, and especially to global demand fluctuations associated with declines in commodity prices. However, despite the similarities that characterize these countries in terms of their income level or their export specialization, we find substantial heterogeneity in the effects of the shocks, which we attribute to differences in the shock-absorbing capacity of their macroeconomic frameworks. This result underlies the need to put in place external buffers to fully exploit the benefits of a greater presence in international markets, be it in the form of exchange rate flexibility, international reserves, or fiscal and monetary space to act countercyclically.
    Keywords: F40 ; F32 ; Q02 ; E31 ; E32 ; ddc:330 ; International Shocks ; World Demand ; Commodities ; Growth ; Prices ; Trade Balance ; SVAR ; Andean Region
    Language: English
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  • 49
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    Frankfurt a. M.: European Central Bank (ECB)
    Publication Date: 2019-12-06
    Description: This paper proposes a large-scale Bayesian vector autoregression with factor stochastic volatility to investigate the macroeconomic consequences of international uncertainty shocks in G7 countries. The curse of dimensionality is addressed by means of a global-local shrinkage prior that mimics certain features of the wellknown Minnesota prior, yet provides additional flexibility in terms of achieving shrinkage. The factor structure enables us to identify an international uncertainty shock by assuming that it is the joint volatility process that determines the dynamics of the variance-covariance matrix of the common factors. To allow for first and second moment shocks we, moreover, assume that the uncertainty factor enters the VAR equation as an additional regressor. Our findings suggest that the estimated uncertainty measure is strongly connected to global equity price volatility, closely tracking other prominent measures commonly adopted to assess uncertainty. The dynamic responses of a set of macroeconomic and financial variables show that an international uncertainty shock exerts large effects on all economies and variables under consideration.
    Keywords: C30 ; E52 ; F41 ; E32 ; ddc:330 ; Factor stochastic volatility ; vector autoregressive models ; global propagation of shocks ; global uncertainty
    Language: English
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  • 50
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    Würzburg: University of Würzburg, Department of Economics
    Publication Date: 2019-09-23
    Description: We investigate for the case of Germany the positive correlation between the corporate saving glut in the non-financial corporate sector and the current account surplus from a capital account perspective. By employing sign restrictions our findings suggest that mostly labor market, world demand and financial friction shocks account for the joint dynamics of excess corporate saving and the current account surplus. Household saving shocks, in contrast, cannot explain the correlation. We conclude that the corporate saving glut, explained through these factors, is the main driver of the current account surplus.
    Keywords: E32 ; F32 ; F45 ; ddc:330 ; current account ; corporate saving ; macro shocks
    Language: English
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  • 51
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    Düsseldorf: Düsseldorf Institute for Competition Economics (DICE)
    Publication Date: 2019-09-12
    Description: This paper theoretically analyzes the macroeconomic effects of gender discrimination against women in the labor market in a New Keynesian model. We extend standard frameworks by including unpaid household production in addition to paid labor market work, by assuming that the representative household consists of two agents, and by introducing discriminatory behavior on the firms' side. We find that, in steady state, this discrimination implies that women work inefficiently more in the household and less in the paid labor market than men. This inefficient working time allocation between women and men leads to a discrimination-induced gender wage gap, lower wages for women and men, lower aggregate output, and lower welfare. The analysis of dynamic effects reveals that households benefit less from positive technology shocks. Moreover, the transmission of expansionary monetary policy shocks on output and in ation is lower in the discriminatory environment.
    Keywords: D13 ; D31 ; E32 ; E52 ; J71 ; ddc:330 ; New Keynesian Models ; Gender Discrimination ; Household Production ; Monetary Policy Transmission
    Language: English
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  • 52
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    Kiel, Hamburg: ZBW – Leibniz Information Centre for Economics
    Publication Date: 2020-01-15
    Description: In this paper we investigate the quantitative importance of collective agreements in explaining uctuations in Bulgarian labor markets. Following Maffezzoli (2001), we introduce a monopoly union in a real-business-cycle model with government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016), and compare and contrast it to a model with indivisible labor and no unions as in Rogerson and Wright (1988). We find that the sequential bargaining between unions and firms produces an important internal propagation mechanism, which fits data much better that the alternative framework with indivisible labor.
    Keywords: E32 ; E24 ; J23 ; J51 ; ddc:330 ; business cycles ; general equilibrium ; labor unions ; indivisible labor ; involuntary unemployment
    Language: English
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  • 53
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    London: Taylor and Francis | ZBW – Leibniz Information Centre for Economics Kiel, Hamburg
    Publication Date: 2020-01-15
    Description: We introduce progressive consumption taxation into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of of progressive taxation of consumption expenditures for the stabilization of cyclical fluctuations in Bulgaria. We find the quantitative effect of such a tax to be very small, and thus not important for either business cycle stabilization, or public finance issues.
    Keywords: E24 ; E32 ; ddc:330 ; business cycles ; progressive consumption taxation ; Bulgaria
    Language: English
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  • 54
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    New York, NY: Federal Reserve Bank of New York
    Publication Date: 2020-01-14
    Description: We provide an information-based theory of matching efficiency fluctuations. Rationally inattentive firms have limited capacity to process information and cannot perfectly identify suitable applicants. During recessions, higher losses from hiring unsuitable workers cause firms to be more selective in hiring. When firms cannot obtain sufficient information about applicants, they err on the side of caution and accept fewer applicants to minimize losses from hiring unsuitable workers. Pro-cyclical acceptance rates drive a wedge between meeting and hiring rates, explaining fluctuations in matching efficiency. Quantitatively, our model replicates the joint behavior of unemployment rates and matching efficiency observed since the Great Recession.
    Keywords: D8 ; E32 ; J63 ; J64 ; ddc:330 ; rational inattention ; hiring behavior ; matching efficiency ; composition of unemployed
    Language: English
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  • 55
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    Ottawa: Bank of Canada
    Publication Date: 2020-01-14
    Description: We propose a macroeconomic model in which adverse selection in investment drives the amplification of macroeconomic fluctuations, in line with prominent roles played by the credit crunch and collapse of the asset-backed security market in the financial crisis. Endogenous lending standards emerge due to an informational asymmetry between borrowers and lenders about the riskiness of borrowers. By using loan approval probability as a screening device, banks ration credit following financial disturbances, generating large endogenous movements in total factor productivity, explaining why productivity often falls during crises. Furthermore, the mechanism implies that financial instability is heightened when interest rates are low.
    Keywords: E22 ; E32 ; E44 ; G01 ; ddc:330 ; Credit and credit aggregates ; Business fluctuations and cycles ; Interest rates ; Financial stability ; Financial markets ; Productivity
    Language: English
    Type: doc-type:workingPaper
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    Stockholm: Research Institute of Industrial Economics (IFN)
    Publication Date: 2020-01-15
    Description: We exploit a quasi-experiment to provide new evidence on the magnitude of the housing wealth effect. We estimate an immediate shock of approximately -15% to house prices close to one of Stockholm's airports after its operations were unexpectedly continued as a result of political bargaining. This source of price variation is ideal to identify housing wealth effects since it is local and unrelated to variation in macroeconomic conditions. Using a household data set with granular geographic information on location of primary residence, we find an elasticity of 0.45 among purchasers of new cars. Converting our estimate to an aggregate MPC on cars, it is however only 0.13 cents per dollar. The MPC is entirely concentrated to homeowners with a combined loan-to-value ratio between 0.6 and 0.8 which, on the one hand, confirms the key role of household balance sheets but on the other hand refutes a monotone relationship between response and household leverage
    Keywords: D12 ; E21 ; E32 ; E44 ; E60 ; ddc:330 ; House prices ; Housing wealth ; Consumption ; House price elasticity ; Marginal propensity to consume ; Collateral effect
    Language: English
    Type: doc-type:workingPaper
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    Vienna: Austrian Institute of Economic Research (WIFO)
    Publication Date: 2019-03-21
    Description: We introduce a novel measure of uncertainty that is based on a business survey in which firms are asked directly how certain or uncertain they are. So far the literature has tried to capture economic uncertainty indirectly by means of expectation errors or the extent of disagreement. Our direct measure of economic uncertainty has a decent contemporaneous correlation with various indirect measures, its informational content is though different. Across all uncertainty measures, shocks to uncertainty trigger effects in GDP of opposite sign, however, the indirect measures tend to significantly underestimate the effects on GDP and other macroeconomic aggregates.
    Keywords: E32 ; E37 ; E44 ; C80 ; ddc:330 ; Uncertainty shocks ; Aggregate fluctuations ; Firm dispersion ; Surveys of expectations
    Language: English
    Type: doc-type:workingPaper
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    Halle (Saale): Leibniz-Institut für Wirtschaftsforschung Halle (IWH)
    Publication Date: 2019-04-20
    Description: This paper analyses whether and since when East and West German business cycles are synchronised. We investigate real GDP, unemployment rates and survey data as business cycle indicators and employ several empirical methods. Overall, we find that the regional business cycles have synchronised over time. GDP-based indicators and survey data show a higher degree of synchronisation than the indicators based on unemployment rates. However, recently synchronisation among East and West German business cycles seems to become weaker, in line with international evidence.
    Keywords: C32 ; E32 ; R11 ; ddc:330 ; business cycles ; synchronisation ; East Germany
    Language: English
    Type: doc-type:workingPaper
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    Kiel: Kiel Institute for the World Economy (IfW)
    Publication Date: 2019-02-28
    Description: The recovery from the Global Financial Crisis was characterized by sluggish output growth and by inflation remaining persistently below the inflation targets of central banks in many advanced economies despite an unprecedented monetary expansion. Ten years after the Global Financial Crisis, GDP remains below its pre-crisis trend in many economies and interest rates continue to be very low. This raises the question of whether low GDP growth and low interest rates are a temporary phenomenon or are due to a decline in long-run growth prospects (potential output growth) and equilibrium real interest rates (natural interest rate). Addressing this question is important for central banks for conducting monetary policy and adjusting their strategy. In this paper, the authors address this question based on a review of the literature and an evaluation of the most recent data and discuss implications for monetary policy.
    Keywords: E31 ; E32 ; E43 ; E52 ; E58 ; ddc:330 ; natural interest rate ; potential output ; output gap ; monetary policy
    Language: English
    Type: doc-type:workingPaper
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    Bonn: Institute of Labor Economics (IZA)
    Publication Date: 2019-03-01
    Description: We use quasi-random variation in graduation years during the onset of a very deep national recession to study the relationship between early labor market conditions and young females' family formation outcomes. A policy-pilot affecting the length of upper-secondary vocational tracks allows us to compare females who graduated into the onset of the Swedish financial crisis of the 1990s to those graduating during the final phase of the preceding economic boom while netting out the main effect of the policy. We find pronounced, but short-lived, negative labor market effects from early exposure to the recession for low-grade students in particular. In contrast, we document very long-lasting effects on family formation outcomes, again concentrated among low-grade students. Young women who graduated into the recession because of the policy-pilot formed their first stable partnerships earlier and had their first children earlier. Their partners had lower grades, which we show to be a strong predictor of divorce, and worse labor market performance. Divorces were more prevalent and the ensuing increase in single motherhood was long-lasting. These negative effects on marital stability generated persistent increases in the use of welfare benefits despite the short-lived impact on labor market outcomes. The results suggest that young women respond to early labor market prospects by changing the quality threshold for entering into family formation, a process which affects the frequency of welfare-dependent single mothers during more than a decade thereafter.
    Keywords: E32 ; I26 ; J12 ; J13 ; J22 ; J31 ; ddc:330 ; cost of recessions ; female labor supply ; family formation
    Language: English
    Type: doc-type:workingPaper
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    Frankfurt a. M.: Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
    Publication Date: 2019-06-06
    Description: The authors contribute to the debate regarding the reliability of output gap estimates. As an alternative to the Hodrick-Prescott (HP) filter, they propose a simple modification of the filter proposed by Hamilton in 2018 that shares its favorable real-time properties, but leads to a more even coverage of typical business cycle frequencies. Based on output growth and inflation forecasts and a comparison to revised output gap estimates from policy institutions, they find that real-time output gaps based on the modified Hamilton filter are economically much more meaningful measures of the business cycle than those based on other simple statistical trend-cycle decomposition techniques such as the HP or the Bandpass filter.
    Keywords: C18 ; E32 ; E37 ; ddc:330 ; output gap ; potential output ; trend-cycle decomposition ; Hamilton filter ; real-time data ; inflation forecasting
    Language: English
    Type: doc-type:workingPaper
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    Frankfurt a. M.: Deutsche Bundesbank