Pub Date : 2023-02-15DOI: 10.1017/s1365100522000736
Mario Forni, Luca Gambetti, Luca Sala
Bad news about future economic developments have larger effects than good news. The result is obtained by means of a simple nonlinear approach based on SVAR and SVARX models. We interpret the asymmetry as arising from the uncertainty surrounding economic events whose effects are not perfectly predictable. Uncertainty generates adverse effects on the economy, amplifying the effects of bad news and mitigating the effects of good news.
{"title":"Asymmetric effects of news through uncertainty","authors":"Mario Forni, Luca Gambetti, Luca Sala","doi":"10.1017/s1365100522000736","DOIUrl":"https://doi.org/10.1017/s1365100522000736","url":null,"abstract":"\u0000 Bad news about future economic developments have larger effects than good news. The result is obtained by means of a simple nonlinear approach based on SVAR and SVARX models. We interpret the asymmetry as arising from the uncertainty surrounding economic events whose effects are not perfectly predictable. Uncertainty generates adverse effects on the economy, amplifying the effects of bad news and mitigating the effects of good news.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":"43 1","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"57405723","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-02-14DOI: 10.1017/s1365100523000044
Myunghyun Kim
US output is more strongly correlated with the output of energy-exporting countries than with that of energy-importing countries. I first document this empirical finding, then construct a three-country model in which countries’ different energy production and trade structures are considered. The three countries are the USA (an energy importer), a non-US energy importer, and an energy exporter. Consistent with the empirical findings, the model produces a higher output correlation between the USA and the energy exporter than between the USA and the energy importer. A positive productivity shock in the USA, raising its output, leads to increases in energy prices and its import demand for energy. The increased energy prices adversely influence output in the energy importer, whereas the rise in US energy imports has positive effects on output in the energy exporter, enabling the correlation of US output with the exporter’s output to be higher.
{"title":"Energy and international business cycles","authors":"Myunghyun Kim","doi":"10.1017/s1365100523000044","DOIUrl":"https://doi.org/10.1017/s1365100523000044","url":null,"abstract":"\u0000 US output is more strongly correlated with the output of energy-exporting countries than with that of energy-importing countries. I first document this empirical finding, then construct a three-country model in which countries’ different energy production and trade structures are considered. The three countries are the USA (an energy importer), a non-US energy importer, and an energy exporter. Consistent with the empirical findings, the model produces a higher output correlation between the USA and the energy exporter than between the USA and the energy importer. A positive productivity shock in the USA, raising its output, leads to increases in energy prices and its import demand for energy. The increased energy prices adversely influence output in the energy importer, whereas the rise in US energy imports has positive effects on output in the energy exporter, enabling the correlation of US output with the exporter’s output to be higher.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48579721","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-02-14DOI: 10.1017/s1365100522000773
Mehrab Kiarsi
Abstract Optimal monetary policy, under flexible and sticky prices, and sticky nominal wages are studied in the canonical matching model of the labor market with a working capital channel. A money demand by firms is motivated by the fact that a significant amount of M1 is held by firms. As a result of the working capital, the Ramsey-optimal monetary policy calls for inflation when employment is above the socially efficient level and for deflation when it is below that level. This result holds under flexible wages as well as nominal wage rigidities. In other words, to improve labor market efficiency, deflation is necessary to “grease the wheels of the labor market.” Although there is no relationship between optimal monetary policy and the market tightness under flexible prices, a long-run and mainly negative relationship between the optimal inflation rate and the equilibrium tightness emerges under sticky prices.
{"title":"Money demand by firms, labor market frictions, and optimal long-run inflation","authors":"Mehrab Kiarsi","doi":"10.1017/s1365100522000773","DOIUrl":"https://doi.org/10.1017/s1365100522000773","url":null,"abstract":"Abstract Optimal monetary policy, under flexible and sticky prices, and sticky nominal wages are studied in the canonical matching model of the labor market with a working capital channel. A money demand by firms is motivated by the fact that a significant amount of M1 is held by firms. As a result of the working capital, the Ramsey-optimal monetary policy calls for inflation when employment is above the socially efficient level and for deflation when it is below that level. This result holds under flexible wages as well as nominal wage rigidities. In other words, to improve labor market efficiency, deflation is necessary to “grease the wheels of the labor market.” Although there is no relationship between optimal monetary policy and the market tightness under flexible prices, a long-run and mainly negative relationship between the optimal inflation rate and the equilibrium tightness emerges under sticky prices.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":"51 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135798098","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-02-13DOI: 10.1017/s1365100523000032
Alessandro Ferrari, Valerio Nispi Landi
Abstract We study the transmission mechanism of a Green QE, defined as a policy that tilts the central bank’s balance sheet toward green bonds, that is bonds issued by non-polluting firms. We merge a DSGE framework with an environmental model, in which CO2 emissions increase the stock of atmospheric carbon, which in turn decreases total factor productivity. Imperfect substitutability between green and brown bonds is a necessary condition for the effectiveness of Green QE. However, even under this assumption, the effect of Green QE in reducing emissions is negligible and in some cases close to nil.
{"title":"Whatever it takes to save the planet? Central banks and unconventional green policy","authors":"Alessandro Ferrari, Valerio Nispi Landi","doi":"10.1017/s1365100523000032","DOIUrl":"https://doi.org/10.1017/s1365100523000032","url":null,"abstract":"Abstract We study the transmission mechanism of a Green QE, defined as a policy that tilts the central bank’s balance sheet toward green bonds, that is bonds issued by non-polluting firms. We merge a DSGE framework with an environmental model, in which CO2 emissions increase the stock of atmospheric carbon, which in turn decreases total factor productivity. Imperfect substitutability between green and brown bonds is a necessary condition for the effectiveness of Green QE. However, even under this assumption, the effect of Green QE in reducing emissions is negligible and in some cases close to nil.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":"109 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-02-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135837729","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-02-09DOI: 10.1017/s136510052200075x
G. Stefanidis
This paper proposes that an International Monetary Fund (IMF) policy shift was the reason behind major changes in sovereign debt negotiation outcomes observed in 1989. The new policy, in marked departure from past policy, allowed the IMF to lend to nations in default. The paper highlights the stark improvements in debt forgiveness and post-negotiation debt servicing ability coincident with the IMF policy shift. A theoretical framework is proposed in which the IMF policy shift causes the observed changes in negotiation outcomes. The model highlights the policy’s potential to improve a country’s outside option during negotiations of defaulted debt. In the model, this improvement leads to increased debt forgiveness which in turn leads to less post-negotiation debt servicing difficulties. The model is then used to address an important question regarding the nature of post-negotiation default risk. The case is made that countries face persistent, rather than temporary, default risk after such negotiations. To avert such risk, they moderate their borrowing.
{"title":"IMF lending in sovereign default","authors":"G. Stefanidis","doi":"10.1017/s136510052200075x","DOIUrl":"https://doi.org/10.1017/s136510052200075x","url":null,"abstract":"\u0000 This paper proposes that an International Monetary Fund (IMF) policy shift was the reason behind major changes in sovereign debt negotiation outcomes observed in 1989. The new policy, in marked departure from past policy, allowed the IMF to lend to nations in default. The paper highlights the stark improvements in debt forgiveness and post-negotiation debt servicing ability coincident with the IMF policy shift. A theoretical framework is proposed in which the IMF policy shift causes the observed changes in negotiation outcomes. The model highlights the policy’s potential to improve a country’s outside option during negotiations of defaulted debt. In the model, this improvement leads to increased debt forgiveness which in turn leads to less post-negotiation debt servicing difficulties. The model is then used to address an important question regarding the nature of post-negotiation default risk. The case is made that countries face persistent, rather than temporary, default risk after such negotiations. To avert such risk, they moderate their borrowing.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-02-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49440036","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-02-08DOI: 10.1017/s1365100522000761
Talat Ulussever, Mustafa Kılınç
This paper investigates the relationship between credits and sector-level output dynamics in a sample of 41 advanced and developing countries. The existing literature shows that household credits are associated with boom-bust cycles in aggregate output, whereas business loans do not cause such output dynamics. The present paper expands these findings in terms of advanced versus developing countries and manufacturing versus services sectors. The new findings indicate that the resulting boom-bust cycles in the aggregate output in response to household credits are generally observed in the sample of developing countries, with no similar dynamics in the advanced countries. Another significant conclusion is that the boom-bust cycles are generated mostly in the services sector. No equivalent boom-bust dynamics are observed in the manufacturing sector, but the negative medium-run effects of household credits are larger in this sector. These findings indicate that credit mechanisms and consequences can significantly vary across countries and sectors.
{"title":"Credit market developments and sectoral business cycles worldwide","authors":"Talat Ulussever, Mustafa Kılınç","doi":"10.1017/s1365100522000761","DOIUrl":"https://doi.org/10.1017/s1365100522000761","url":null,"abstract":"\u0000 This paper investigates the relationship between credits and sector-level output dynamics in a sample of 41 advanced and developing countries. The existing literature shows that household credits are associated with boom-bust cycles in aggregate output, whereas business loans do not cause such output dynamics. The present paper expands these findings in terms of advanced versus developing countries and manufacturing versus services sectors. The new findings indicate that the resulting boom-bust cycles in the aggregate output in response to household credits are generally observed in the sample of developing countries, with no similar dynamics in the advanced countries. Another significant conclusion is that the boom-bust cycles are generated mostly in the services sector. No equivalent boom-bust dynamics are observed in the manufacturing sector, but the negative medium-run effects of household credits are larger in this sector. These findings indicate that credit mechanisms and consequences can significantly vary across countries and sectors.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45808473","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-02-08DOI: 10.1017/s1365100522000748
Aaron Popp, Fang Zhang
We estimate a smooth-transition vector autoregression model (ST-VAR) using panel data from 14 OECD countries to study the cross-country spillover effects of economic policy uncertainty (EPU) shocks. An unexpected elevation of EPU originating abroad has an overall contractionary real effect, and the spillover effects depend on the state of the business cycle of the recipient country. EPU spillover shocks during recessions have stronger but less persistent effects on a number of economic indicators. We also find that the interconnectedness of EPU, financial markets, and business confidence are important channels for the EPU shocks to propagate across countries, while the trade channel has limited effects, especially during expansions.
{"title":"A note on international spillovers of economic policy uncertainty across business cycles: evidence from OECD countries","authors":"Aaron Popp, Fang Zhang","doi":"10.1017/s1365100522000748","DOIUrl":"https://doi.org/10.1017/s1365100522000748","url":null,"abstract":"\u0000 We estimate a smooth-transition vector autoregression model (ST-VAR) using panel data from 14 OECD countries to study the cross-country spillover effects of economic policy uncertainty (EPU) shocks. An unexpected elevation of EPU originating abroad has an overall contractionary real effect, and the spillover effects depend on the state of the business cycle of the recipient country. EPU spillover shocks during recessions have stronger but less persistent effects on a number of economic indicators. We also find that the interconnectedness of EPU, financial markets, and business confidence are important channels for the EPU shocks to propagate across countries, while the trade channel has limited effects, especially during expansions.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-02-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42049437","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-02-01DOI: 10.1017/s1365100522000785
Tadashi Morita
This paper incorporates the variable elasticity of substitution preferences in the variety expansion model developed by Grossman and Helpman [(1991) Innovation and Growth in the Global Economy, MIT Press]. There exists a balanced growth path when the elasticity of substitution is constant with knowledge spillover. When the elasticity of substitution is variable and the knowledge spillover is sufficiently small, a unique and stable steady state exists. When the knowledge spillover is sufficiently large, the steady state is unique and unstable. When the size of the knowledge externality is moderate, multiple equilibria exist.
{"title":"A note on variable markup, knowledge spillover, and multiple steady states in the variety expansion model","authors":"Tadashi Morita","doi":"10.1017/s1365100522000785","DOIUrl":"https://doi.org/10.1017/s1365100522000785","url":null,"abstract":"\u0000 This paper incorporates the variable elasticity of substitution preferences in the variety expansion model developed by Grossman and Helpman [(1991) Innovation and Growth in the Global Economy, MIT Press]. There exists a balanced growth path when the elasticity of substitution is constant with knowledge spillover. When the elasticity of substitution is variable and the knowledge spillover is sufficiently small, a unique and stable steady state exists. When the knowledge spillover is sufficiently large, the steady state is unique and unstable. When the size of the knowledge externality is moderate, multiple equilibria exist.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46548585","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-01-20DOI: 10.1017/s1365100522000633
Irfan A. Qureshi
I examine how money and trend inflation shaped US macroeconomic dynamics during the Great Inflation. I develop a business cycle model with positive trend inflation where money is allowed (but not required) to play a role in determining the equilibrium values of inflation and output through non-separable utility, adjustment costs for holding real balances, and the monetary policy reaction function. The Taylor principle changes in this environment. Targeting money guarantees price determinacy even with trend inflation, but these results are sensitive to the inclusion of non-separability and portfolio adjustment costs. The framework is combined with Greenbook data that detect the role of money in the policy reaction function. The response to money was likely not sufficiently strong to complement the reaction to inflation and counteract the high trend inflation observed during the pre-Volcker period, which most likely led to price indeterminacy.
{"title":"Price-level determinacy and monetary policy in a model with money and trend inflation","authors":"Irfan A. Qureshi","doi":"10.1017/s1365100522000633","DOIUrl":"https://doi.org/10.1017/s1365100522000633","url":null,"abstract":"\u0000 I examine how money and trend inflation shaped US macroeconomic dynamics during the Great Inflation. I develop a business cycle model with positive trend inflation where money is allowed (but not required) to play a role in determining the equilibrium values of inflation and output through non-separable utility, adjustment costs for holding real balances, and the monetary policy reaction function. The Taylor principle changes in this environment. Targeting money guarantees price determinacy even with trend inflation, but these results are sensitive to the inclusion of non-separability and portfolio adjustment costs. The framework is combined with Greenbook data that detect the role of money in the policy reaction function. The response to money was likely not sufficiently strong to complement the reaction to inflation and counteract the high trend inflation observed during the pre-Volcker period, which most likely led to price indeterminacy.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-01-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46940394","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-01-12DOI: 10.1017/s1365100522000621
Meng Li, Chengrui Xiao
This paper explores the effect of fiscal policy on the welfare of heterogeneous agents with different income sources over the business cycle. Policy experiments allow the government to choose the cyclical properties of fiscal policy instruments conditional on long-run levels to separately maximize the welfare of entrepreneurs and workers. This policy choice creates welfare conflicts between the two groups, which is confirmed by empirical evidence. The government maximizes workers’ welfare by choosing procyclical capital income tax rates and countercyclical labor income tax rates while it optimizes entrepreneurs’ welfare with countercyclical capital income tax rates and strongly countercyclical labor income tax rates. The socially optimal policy is a tradeoff between the welfare of entrepreneurs and workers. The welfare conflict holds when the government modifies the cyclical behavior of policy in a crisis, or it adjusts the long-run level and cyclical behavior at the same time.
{"title":"Income sources, cyclical behaviors of fiscal policy, and welfare conflict","authors":"Meng Li, Chengrui Xiao","doi":"10.1017/s1365100522000621","DOIUrl":"https://doi.org/10.1017/s1365100522000621","url":null,"abstract":"\u0000 This paper explores the effect of fiscal policy on the welfare of heterogeneous agents with different income sources over the business cycle. Policy experiments allow the government to choose the cyclical properties of fiscal policy instruments conditional on long-run levels to separately maximize the welfare of entrepreneurs and workers. This policy choice creates welfare conflicts between the two groups, which is confirmed by empirical evidence. The government maximizes workers’ welfare by choosing procyclical capital income tax rates and countercyclical labor income tax rates while it optimizes entrepreneurs’ welfare with countercyclical capital income tax rates and strongly countercyclical labor income tax rates. The socially optimal policy is a tradeoff between the welfare of entrepreneurs and workers. The welfare conflict holds when the government modifies the cyclical behavior of policy in a crisis, or it adjusts the long-run level and cyclical behavior at the same time.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-01-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43971831","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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