1,721,047 research outputs found
Social Security as Markov Equilibrium in OLG Models
No full textThis paper studies the characteristics of intergenerational transfers in a standard overlapping generations model with short lived governments that care about the welfare of young generations only. A number of authors have shown that simple intergenerational games, in which in each period the current young generation plays as a dictator, are able to deliver political equilibria with social security even if the underlying competitive equilibrium is not dynamically inefficient. These authors have either derived pure steady state results or have relied on subgame perfectness. This paper extends these results deriving Markov subgame perfect equilibria (i.e. that depend only upon the period state variable, which is the stock of capital). Non-Markov subgame perfect equilibria assume agents know all the past history of the game; they can not predict when the social security system will emerge and whether or not it will eventually emerge; they prescribe that generations that never deviated may be punished. Markov equlibria, placing more restrictions on the structure of the game, are able to deliver solutions that do not suffer from these drawbacks. As the paper shows, however, Markov strategies may produce unstable dynamics. (Copyright: Elsevier)social security, overlapping generations models, Markov equilibria.
Public Employment and Compensation Reform during Times of Fiscal Consolidation
No full textThis paper compiles and compares recent and past measures introduced to contain the public wage bill in a number of emerging and advanced economies to assess their effectiveness in bringing down expenditure in a sustained way. In the aftermath of the Great Recession a number of countries have approved measures on the wage bill as part of fiscal consolidation efforts. These recent episodes are compared to past cases implemented in advanced economies over the period 1979–2009. Findings suggest that public wage bill consolidation episodes pre and post 2009 are similar in many respects. Moreover, typically countries that were able to achieve more sustained reductions in the wage bill have implemented to larger extent structural measures, and/or these measures were accompanied with substantial social dialogue and consensus
Public Employment and Compensation Reform during Times of Fiscal Consolidation
No full textThis paper compiles and compares recent and past measures introduced to contain the
public wage bill in a number of emerging and advanced economies to assess their
effectiveness in bringing down expenditure in a sustained way. In the aftermath of the
financial crisis a number of countries have approved measures on the wage bill as part of
fiscal consolidation efforts. These recent episodes are compared to past cases implemented
in advanced economies over the period 1979–2009. Findings suggest that public wage bill
consolidation episodes pre and post 2009 are similar in many respects. Moreover,
typically countries that were able to achieve more sustained reductions in the wage bill
have implemented to larger extent structural measures, and/or these measures were
accompanied with substantial social dialogue and consensus
A news-based macro uncertainty index for Italy
No full textIn this study, we introduce an innovative high-frequency uncertainty index derived from an extensive dataset of Italian news sources. Our index methodically sorts news items by their macroeconomic significance and underlying sentiment. We focus on a period of analysis, from July 2017 to July 2021, characterized by pronounced uncertainties, notably the emergence of the 5 Star-Lega government coalition in 2018, which introduced significant political unpredictability, and the onset of the COVID-19 pandemic. We uncover a significant correlation between our newly developed uncertainty index and measures of sovereign risk (such as the BTP-Bund spread) during the tenure of the 5 Star-Lega government. However, this correlation diminishes following the initiation of the European Central Bank's quantitative easing program, underscoring the substantial influence of political uncertainty on sovereign risk before the ECB's intervention. The index is applied to dissect the Italian macroeconomic business cycle using a mixed-frequency model that integrates both financial and real economy indicators. Additionally, the study presents a nonlinear model leveraging the index to assess its predictive power in forecasting the Italian business cycle in recent years. The findings provide substantial evidence of the index's predictive capabilities, highlighting its effectiveness in foreseeing shifts in the business cycle
Public Debt in Advanced Economies and its Spillover Effects on Long-term yields
No full textSeveral models establish a positive association between public debt ratios and long-term real yields, but the empirical evidence is not always conclusive. We reconsider this issue, focusing in particular on possible spillover effects of large advanced economies' debt levels to other economies' borrowing yields, especially in emerging markets. We extend the existing literature by using real time expectations of fiscal and other macroeconomic variables for a large sample of advanced and emerging economies. We show that an increase in the public debt levels of large advanced economies - especially the United States - spills over to both emerging markets and other advanced economies' long-term real yields and that this effect is significant at the current levels of advanced economies' debt ratios
Sovereign Restructuring Vs. Fiscal Adjustment In A Monetary Union: Macroeconomic Effects From Model-Based Simulations
No full textWe assess the macroeconomic effects of a sovereign restructuring in a small economy belonging to a monetary union by simulating a dynamic general equilibrium model. In line with the empirical evidence, we make the following three key assumptions. First, sovereign debt is held by domestic agents and by agents in the rest of the monetary union. Second, after the restructuring the sovereign borrowing rate increases and its increase is fully transmitted to the borrowing rate paid by the domestic agents. Third, the government cannot discriminate between domestic and foreign agents when restructuring. We show that the macroeconomic effects of the restructuring depend on: (a) the share of sovereign bonds held by residents in the country as compared to that held by foreign residents, (b) the increase in the spread paid by domestic agents and (c) its net foreign asset position at the moment of the restructuring. Our results also suggest that the sovereign restructuring implies persistent reductions of output, consumption and investment, that can be large, in particular if the share of public debt held domestically is large, the private foreign debt is high and the spread paid by the government and the households does increase
Cyclical sensitivity of fiscal policies based on real-time data
Full text linkThis paper examines the information-related problems associated with the analysis of fiscal policies, an issue recently studied in connection with monetary policies but largely ignored in the literature on budgetary action. We estimate a fiscal policy rule for the EU and OECD countries using real-time data on cyclical conditions; the results indicate that over the last decade fiscal policies reacted strongly and counter-cyclically to adverse macroeconomic conditions. Using ex post data instead, the reaction to adverse cyclical conditions is weaker and not statistically significant. The results indicate that reliance on the information actually available to policy-makers in real-time is important for the assessment of past policies, as ex post revised data may provide a misleading basis for such analysis. The results also suggest that part of the problems the Stability and Growth Pact encountered may have come from a misjudgment of cyclical conditions in some European countries in recent years
Pricing of Sovereign Credit Risk: Evidence from Advanced Economies During the Financial Crisis
No full textWe investigate the pricing of sovereign credit risk over the period 2008-10 for selected advanced economies by examining two widely-used indicators: sovereign credit default swap (CDS) and relative asset swap (RAS) spreads. Cointegration analysis suggests the existence of an imperfect market arbitrage relationship between the cash (RAS) and the derivatives (CDS) markets, with price discovery taking place in the latter. Likewise, panel regressions aimed at uncovering the fundamental drivers of the two indicators show that the CDS market, although less liquid, has provided a better signal for sovereign credit risk during the period of the recent financial crisis. © 2013 John Wiley & Sons Ltd
Fiscal rules to tame the political budget cycle: evidence from italian municipalities
Full text linkThe paper provides evidence that fiscal rules can limit the political budget cycle. It focuses on the
application of the Italian fiscal rule at the sub-national level over the period 2004-2006 and shows
that: 1) municipalities are subject to political budget cycles in capital spending; 2) the Italian sub-national
fiscal rule introduced in 1999 has been enforced by the central government; 3)
municipalities subject to the fiscal rule show more limited political budget cycles than
municipalities not subject to the rule. In order to identify the effect, we rely on the fact that the
domestic fiscal rule does not apply to municipalities below 5,000 inhabitants. We find that the
political budget cycle increases real capital spending by about 35 percent on average in the years
prior to municipal elections and that the sub-national fiscal rule reduces these figures by about
two thirds
The Mismatch Between Life Insurance Holdings and Financial Vulnerabilities: Evidence from the Health and Retirement Study
No full textThis study examines life insurance holdings and financial vulnerabilities among couples approaching retirement age. Two separate concerns motivate our analysis. First, there are reasons to suspect that life insurance coverage may be poorly correlated with underlying financial vulnerabilities. A well-known insurance industry adage holds that life insurance is “sold and not bought.” Alternatively, households may purchase long-term policies relatively early in life, and subsequently fail to adjust coverage appropriately because of inertia and/or other psychological considerations. Second, households that purchase little or no life insurance may leave either or both spouses at risk of serious financial consequences
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