1,721,040 research outputs found
Forbearance versus Foreclosure in a General Equilibrium Model
No full textIn a business cycle model with endogenous firms' dynamics and debt renegotiation, we show that during financial crises loan forbearance does not harm the economy unless banks imperfectly monitor loans, and loan opacity worsens banks' moral hazard problem. Aggressive interest rate reductions and quantitative easing limit defaults and financial crisis-induced output contractions without hampering the entry of new firm entries. The decline in the natural interest rate, due to slower productivity growth and persistent liquidity shocks, potentially explains the observed long-term trend in nonperforming loan shares
Macroeconomics and Politics Revisited. Do Central Banks Matter?
No full textThis paper provides a model encompassing both partisan influences on monetary policy and the issue of Central Bank independence. In a regime of partial independence, Central Bank’s policy responses are not immune from partisan influences. Still, the latter fail to affect sistematically the expected output level in election years. The predictions of the model are consistent with the empirical literature on partisan cycles and account for some of its controversial findings
In search of the Euro area fiscal stance
Get PDFThis paper investigates the role of fiscal policies over the aggregate EMU business cycle. Previous studies, based on the assumption of non-separability between public and private consumptions, obtain a large public consumption multiplier, a small fraction of non-Ricardian households and, consequently, a relatively small multiplier for public transfers. We provide motivations for assuming separability and, on these grounds, we estimate a relatively large share of non-Ricardian households. As a result, we obtain that both multipliers are large. We also find that, in spite of their potentially strong effects, fiscal policies were substantially muted during the EMU years. This result is confirmed even for the post 2007 period. In fact fiscal policies did not complement the monetary policy stimulus in response to the financial crisis. Further, we cannot detect any substantial aggregate effect of austerity measures. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth
Exploring different views of exchange rate regime choice
No full textThe empirical distinction between de facto and de jure exchange rate regimes raises a number of interesting questions. Which factors may induce a de facto peg? Why do countries enforce a peg but do not announce it? Why do countries “break their promises”? We show that a stable socio-political environment and an efficient political decision-making process are a necessary prerequisite for choosing a peg and sticking to it, challenging the view that sees the exchange rate as a commitment device. Policymakers seem rather concerned with regime sustainability in the face of adverse economic and socio-political fundamentals
Reinterpreting social pacts: Theory and evidence
No full textWe investigate the empirical determinants of social pacts over the 1970-2004 period. We adopt a political economy approach, showing that governments are more likely to sign a pact when the cost of a conflict with trade unions is relatively larger. Such a cost depends on macroeconomic variables and on measures of social conflict and union strength. These findings are remarkably stable across sub-periods, in apparent contrast with previous contributions that emphasised differences between first- and second-generation pacts. Our interpretation is that pacts were different across periods because the policy issues changed, but the incentives to seek union consensus did not. © 2013 Association for Comparative Economic Studies
Equitable Fiscal Consolidations
Get PDFEmpirical research has uncovered an equity-efficiency trade-off in alternative fiscal consolidation strategies. Spending-based adjustments are associated with more limited output losses but greater inequality than tax-based adjustments. Moreover, spending-based adjustments are less likely to be reversed, but an increase in inequality reduces the likelihood of achieving a successful consolidation. We investigate the issue of designing a debt consolidation plan which is achieved through a reduction in public consumption and yet is equitable because temporary targeted transfers and tax reductions stabilize consumption of the poorer part of the population. This causes a limited slow-down in the pace of debt reduction because fiscal multipliers associated to the tax/transfer policies are large.Full Tex
Disinflation, Inequality and Welfare in a TANK Model
Get PDFWe investigate the redistributive and welfare effects of disinflation in a two-agent New Keynesian (TANK) model characterized by Limited Asset Market Participation (LAMP) and wealth inequality. We highlight two key mechanisms driving our long-run results: i) the cash in advance constraint on firms working capital (CIA); ii) dividends endogeneity. These two channels point in opposite directions. Lower inflation softens the CIA and, by raising labor demand, lowers inequality. But the disinflation also raises dividends and this increases inequality. The disinflation is always welfare-improving for asset holders. We obtain ambiguous results for non-asset holders, who suffer substantial consumption losses during the transition
Economic and socio-political determinants of de facto monetary institutions and inflationary outcomes
Get PDFIn this paper we estimate a model where inflation, a measure of de facto central bank independence and an index of de facto exchange rate regime are simultaneously determined by a set of economic, political and institutional variables. De facto central bank independence is hampered by socio-political turbulence and benefits from the balance of powers between the executive and the parliament. Inflation is explained by de facto central bank independence, by the level and volatility of public expenditure and by the de facto exchange rate regime. Openness (real and financial) affects inflation through the exchange rate regime channel. Success in controlling inflation, in turn is crucial to sustain central bank independence and exchange rate stability
Informality and the labor market effects of financial crises
No full textWe provide evidence, based on a large sample of countries, on the effects of financial crises on key labor market indicators, including official and unofficial employment, unemployment and the participation rate. Crises are followed by a drop in the official market participation rate and by an increase in informal employment. These responses are strongly persistent. Empirical results are then interpreted with a DSGE model which accounts for informality and for financial and labor market frictions. In this framework the informal sector acts as a buffer which absorbs workers in bad times and vice versa. Our simulations suggest the informal sector also is a crisis amplifier for the official economy. For a given financial shock, the ensuing contraction in the official economy is deeper and more persistent the larger the initial size of the unofficial sector. This implies that in less developed economies financial crises cause a relatively stronger reallocation of inputs towards less efficient sectors, expose a larger fraction of the population to the adverse effects of informality, cause a sharper deterioration of public finances limiting governments ability to supply public goods and to engage in countercyclical fiscal policies
Public expenditure multipliers and informality
No full textThis paper investigates the role of informality in affecting the magnitude of the public expenditure multiplier in a panel of 142 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the multiplier. This result holds irrespective of the level of economic development and institutional quality and is robust to additional country characteristics such as trade and financial openness and exchange rate regime. In a two-sector New-Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, thereby shifting demand towards the informal sector. This reallocation effect increases with the level of informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks, and thus reduces the multiplier
- …
