56 research outputs found
Currency Crises and Monetary Policy in Economies with Partial Dollarisation of Liabilities
No full textThe right response to a speculative attack on the domestic currency by monetary authorities in a country with liabilities in US dollars has been a matter of hot debate among academics and policy makers especially after the East Asian Crisis. Using a modified version of the currency crisis model discussed in Proano, Flaschel and Semmler (2005) the authors show that an increase of the domestic interest rate by the central bank as a response to the speculative attack can have serious negative effects on aggregate demand by depressing the investment activity of those domestic firms which are not indebted in foreign currency. The authors demonstrate that in specific situations the standard (IMF supported) increase of the domestic interest rate might not be the best response to a speculative attack on the domestic currency from a medium term point of view.Mundell-Fleming-Tobin model, liability dollarisation, debt-financed investment, financial crisis, currency crisis, deflation.
Employment cycles, low income work and the dynamic impact of wage regulations. A macro perspective
No full textFlaschel P, Greiner A, Logeay C, Proano C. Employment cycles, low income work and the dynamic impact of wage regulations. A macro perspective. Journal of Evolutionary Economics. 2012;22(2):235-250.In this paper we investigate, against the background of Goodwin's (1967) growth cycle model, a dual labor market economy and the consequences of introducing an unemployment benefit system and minimum wages in the second labor market and a maximum wage barrier in the first one. In the framework with free 'hiring' and firing' in the both labor markets we show (a) that in fact maximum real wages in the first labor market not only reduce the volatility of this labor market, but also provide global stability to the system dynamics if they are locally explosive, and (b) that larger fluctuations in employment can be made (at least partially) socially acceptable through a (workfare oriented) unemployment benefit system augmented by minimum wage in the low income segment of the labor market
COUNTERCYCLICAL CAPITAL BUFFERS, BANK CONCENTRATION AND MACROFINANCIAL STABILITY IN AN AGENT-BASED MACRO-FINANCIAL FRAMEWORK
No full textThis paper examines the impact of countercyclical capital buffers (CCyBs) on financial stability and contributes to the discussion of CCyBs in an agent-based framework. The main focus of this work lies upon the question whether the implementation of CCyBs according to the Basel III framework improves financial stability unconditionally, or at the expense of unintended side effects. For this purpose, we extend the agent-based model of [Riccetti, L., Russo, A. and Gallegati, M., Firm-bank credit network, business cycle and macroprudential policy, J. Econ. Interact. Coord. (2021)] to investigate the effect of credit-to-GDP gap-based CCyBs in general as well as the effects of varying the smoothing parameter lambda A of the Hodrick-Prescott (HP) filter within the method of calculating CCyBs. To the best of our knowledge, this study is the first one that investigates systematically how the method of calculating credit-to-GDP gap-based CCyBs may affect macrofinancial dynamics and stability in such an agent-based framework
Belief-driven dynamics in a behavioral SEIRD macroeconomic model with sceptics
No full textProano CR, Kukacka J, Makarewicz TA. Belief-driven dynamics in a behavioral SEIRD macroeconomic model with sceptics. Journal of Economic Behavior & Organization. 2024;217:312-333.The reluctance of a non-trivial fraction of the population to adhere to social distancing measures - and even to get vaccinated - during the COVID-19 pandemic represented a challenge for imposed public health policies in many countries around the world. Against this background we study the impact of boundedly rational perceptions for the dynamics of epidemics such as the COVID-19 pandemic in a standard epidemic model extended by a stylized macroeconomic dimension similar to Atkeson et al. (2021). We illustrate through which channels misperceptions or even "scepticism" concerning the infectiousness of the disease or its mortality rate may undermine the effectiveness of lockdowns and other public health policies in the long-run
Long-phased Marx-Goodwin profit- and wage-squeeze cycles in wage-led economies
No full textCharpe M, Flaschel P, Proano CR. Long-phased Marx-Goodwin profit- and wage-squeeze cycles in wage-led economies. ECONOMIC ISSUES. 2018;23:55-66.A widely debated issue in heterodox economics is the question of whether macroeconomic activity reacts positively or negatively to increases in the wage share, i.e. whether it is wage-or profit-led. In the present paper, from an empirical perspective, we show that this question is of secondary importance for Marx's model of the distributive cycle. Our analysis starts with the traditional Goodwin (1967) model - which describes the dynamic interaction between the wage share and the employment rate - to which we add an effective demand function to cover the utilisation of the capital stock (thus a Keynes-component to the original supply-side dynamics). In this extended Goodwin model we show that the Goodwin story remains, qualitatively, akin to Marx's supply side model, although the distributive cycle will now also depend on the state of effective demand. Here we find that the question of whether the capacity utilisation of firms is driven by a profit-led or a wage-led goods-market regime is irrelevant if a mild elasticity condition in the case of a positive dependence of the capacity utilisation rate on the wage share is met. We illustrate this result from an empirical perspective
Low interest rates, bank?s search-for-yield behavior and financial portfolio management
No full textLojak B, Makarewicz TA, Proano CR. Low interest rates, bank?s search-for-yield behavior and financial portfolio management. The North American Journal of Economics and Finance. 2023;64: 101839.We investigate the relationship between monetary policy and banks’ risk-taking behavior. We set up a simple model in which a risk averse bank awards loans to firms and also manages a financial investment portfolio consisting of a risky and a risk-free asset. When a bank signs up credit contracts with firms, it takes into account their solvency and potential gains from outside investment strategies under risk aversion, in contrast to the standard approach of risk neutral preferences. We show that the bank’s asset/liability and risk management depend on the prevailing risk-free policy rate. However, low policy rates incentivize a bank to engage into a search-for-yield by re-allocating their asset portfolios towards more risky exposures that ultimately leads to under-capitalized positions, and to an increased financial sector vulnerability
Heterogeneous Expectations and Complex Economic Dynamics
No full textKumulative Dissertation, Otto-Friedrich-Universität Bamberg, 2018The expectation formation behavior of heterogeneous and boundedly rational agents may create complex economic dynamics. This doctoral thesis seeks to explain how such dynamics may arise and how they may be regulated
Recession Forecasting with Dynamic Probit Models under Real Time Conditions
No full textIn this paper a dynamic probit model for recession forecasing under pseudo-real time is set up using a large set of macroeconomic and financial monthly indicators for Germany. Using different initial sets of explanatory variables, alternative dynamic probit specifications are obtained through an automatized general-to-specific lag selection procedure, which are then pooled in order to decrease the volatility of the estimated recession probabilities and increase their forecasting accuracy. As it is shown in the paper, this procedure does not only feature good in-sample forecast statistics, but has also good out-of-sample performance, as pseudo-real time evaluation exercises show.Dynamic probit models, out-of-sample forecasting, yield curve, real-time econometrics
Housing Markets, the Real Economy and Macroeconomic Policy : A Boundedly Rational Heterogeneous Agents Perspective
No full textKumulative Dissertation, Otto-Friedrich-Universität Bamberg, 2022The housing market plays a crucial role in economic and social life. The development of house prices has an impact on both the business cycle dynamics and the performance of the financial system. Against this background, the insolvency of Lehman Brothers, but also recently the financial woes of "Evergrande", has shown the dramatic consequences an overheating housing market and, associated therewith, the bubble formation may have on the real economy. Thus it is of utmost importance to gain a better understanding of the complex boom-and-bust behavior of housing markets. This doctoral thesis develops a new housing market model that links the expectation formation and learning behavior of heterogeneous and boundedly rational investors to an elementary housing market. The model is able to produce endogenous house price dynamics with significant bubbles and crashes. With this model framework it is then analyzed how fiscal and monetary policies may affect the housing market's steady state, its stability and out-of-equilibrium behavior. In particular, these policies include public housing construction programs, various interest rate rules by the central bank and different tax policies. The thesis also examines the interactions between the housing market and the real market. These approaches are discussed in four papers
Macroeconomic Stabilization Policies in Intrinsically Unstable Macroeconomies
No full textChiarella C, Flaschel P, Koeper C, Proano C, Semmler W. Macroeconomic Stabilization Policies in Intrinsically Unstable Macroeconomies. Studies in Nonlinear Dynamics and Econometrics. 2012;16(2): 2.Many monetary and fiscal policy measures have aimed at mitigating the effects of the financial market meltdown that started in the U. S. subprime sector in 2008 and has subsequently spread world wide as a great recession. Slowly some recovery appears to be on the horizon, yet it is worthwhile exploring the fragility and potentially destabilizing feedbacks of advanced macroeconomies in the context of a framework that builds on the ideas of Keynes and Tobin. This framework stresses the fragilities and destabilizing feedback mechanisms that are potential features of all major markets-those for goods, labor, and financial assets. We use a Tobin macroeconomic portfolio approach and the interaction of heterogeneous agents on the financial market to characterize the potential for financial market instability. Though the study of the latter has been undertaken in many partial models, we focus here on the interconnectedness of all three markets. Furthermore, we study what potential labor market, fiscal and monetary policies can have in stabilizing unstable macroeconomies. In order to study this problem we introduce, besides money, long term bonds and equity into the asset market. We in particular propose a countercyclical monetary policy that sells assets in the boom and purchases them in recessions. Modern stability analysis is brought to bear to demonstrate the stabilizing effects of the suggested policies. The policies suggested here could help the Fed in its search for an appropriate exit strategy after its massive intervention in the financial market
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