Metodij Hadzi-Vaskov, Samuel Pienknagura, Luca A. Ricci
Abstract This paper explores the macroeconomic impact of social unrest, using a novel index based on news reports. It shows that unrest has an adverse effect on economic activity, with GDP remaining on average 0.2 percent below the pre-unrest baseline six quarters after a one-standard deviation increase in the unrest index. Moreover, results are robust to instrumenting via regional unrest to address potential endogeneity concerns. Unrest “events”, captured by a large change in the unrest index, result in a more pronounced decline in GDP—a 1 percent reduction six quarters after the event—but impacts differ by type of event. The adverse impact of unrest on activity is mainly associated with sharp contractions in manufacturing and services, and consumption. However, it can be mitigated by strong institutions and by a country’s policy space (such as fiscal space and exchange rate flexibility).
{"title":"The Macroeconomic Impact of Social Unrest","authors":"Metodij Hadzi-Vaskov, Samuel Pienknagura, Luca A. Ricci","doi":"10.1515/bejm-2022-0039","DOIUrl":"https://doi.org/10.1515/bejm-2022-0039","url":null,"abstract":"Abstract This paper explores the macroeconomic impact of social unrest, using a novel index based on news reports. It shows that unrest has an adverse effect on economic activity, with GDP remaining on average 0.2 percent below the pre-unrest baseline six quarters after a one-standard deviation increase in the unrest index. Moreover, results are robust to instrumenting via regional unrest to address potential endogeneity concerns. Unrest “events”, captured by a large change in the unrest index, result in a more pronounced decline in GDP—a 1 percent reduction six quarters after the event—but impacts differ by type of event. The adverse impact of unrest on activity is mainly associated with sharp contractions in manufacturing and services, and consumption. However, it can be mitigated by strong institutions and by a country’s policy space (such as fiscal space and exchange rate flexibility).","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-01-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135908560","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}
Much has been written on how an active central bank produces inflation outcomes above and beyond what commitment policy would produce. This paper contributes to this body of literature by simulating from the state estimates of both commitment and discretionary policy equilibria in a familiar dynamic New–Keynesian framework. Optimal interest rate and inflation rate policies are derived under the two regimes for six developed economies. The model is estimated using Bayesian methods employing a random-walk Metropolis–Hastings algorithm. Optimal inflation and interest rate policies for each of the economies are simulated. Results suggest that the simulated inflation induced by discretionary policy is not significantly different from commitment policy after 2000 for five of the six countries (including the U.S). Simulated commitment interest rate policy is on average 1.9% higher at the center of the distribution, suggesting that discretionary interest rate policy is on average more often loose compared to commitment interest rate policy. Simulations of the average inflation deviation and welfare loss of discretion policy indicate are greatest when the central bank exhibits low preference for inflation targeting and high preference for output stability.
{"title":"How Much Better Is Commitment Policy Than Discretionary Policy? Evidence From Six Developed Economies","authors":"S. Patrick","doi":"10.1515/BEJM-2019-0170","DOIUrl":"https://doi.org/10.1515/BEJM-2019-0170","url":null,"abstract":"Much has been written on how an active central bank produces inflation outcomes above and beyond what commitment policy would produce. This paper contributes to this body of literature by simulating from the state estimates of both commitment and discretionary policy equilibria in a familiar dynamic New–Keynesian framework. Optimal interest rate and inflation rate policies are derived under the two regimes for six developed economies. The model is estimated using Bayesian methods employing a random-walk Metropolis–Hastings algorithm. Optimal inflation and interest rate policies for each of the economies are simulated. Results suggest that the simulated inflation induced by discretionary policy is not significantly different from commitment policy after 2000 for five of the six countries (including the U.S). Simulated commitment interest rate policy is on average 1.9% higher at the center of the distribution, suggesting that discretionary interest rate policy is on average more often loose compared to commitment interest rate policy. Simulations of the average inflation deviation and welfare loss of discretion policy indicate are greatest when the central bank exhibits low preference for inflation targeting and high preference for output stability.","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"46 1","pages":"1-28"},"PeriodicalIF":0.5,"publicationDate":"2020-06-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78743397","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}
This paper introduces durables into a dynamic general equilibrium overlapping generation model with idiosyncratic income shocks and endogenous borrowing constraints, which depend on durables. The aim of this paper is to evaluate the welfare effects of consumption tax reforms in a richer model that captures the difference between nondurable and durable consumption. When durables are considered, the standard results that a shift to consumption taxes is welfare improving are overturned. The mechanism of this opposing result is that consumption tax makes durable consumption more expensive without relaxing the borrowing constraint. The inability of borrowing to insure against income risk deviates the economy further away from market completeness and particularly hurts young and poor households. As a result, welfare decreases, coupled with negative redistribution.
{"title":"Dynamic effects of consumption tax reforms with durable consumption","authors":"L. Qian","doi":"10.1515/BEJM-2019-0026","DOIUrl":"https://doi.org/10.1515/BEJM-2019-0026","url":null,"abstract":"This paper introduces durables into a dynamic general equilibrium overlapping generation model with idiosyncratic income shocks and endogenous borrowing constraints, which depend on durables. The aim of this paper is to evaluate the welfare effects of consumption tax reforms in a richer model that captures the difference between nondurable and durable consumption. When durables are considered, the standard results that a shift to consumption taxes is welfare improving are overturned. The mechanism of this opposing result is that consumption tax makes durable consumption more expensive without relaxing the borrowing constraint. The inability of borrowing to insure against income risk deviates the economy further away from market completeness and particularly hurts young and poor households. As a result, welfare decreases, coupled with negative redistribution.","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"85 1","pages":"1-33"},"PeriodicalIF":0.5,"publicationDate":"2020-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80612247","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}
If a poverty trap exists, can a big-push policy lift the economy out of it? This paper applies Sargent’s [Sargent, Thomas J. 1993. Bounded Rationality in Macroeconomics. New York: Oxford University Press] bounded rationality approach to study the post-policy transition of an economy from a low-income equilibrium to a high-income equilibrium. The effectiveness of the policy diminishes if individuals are adaptive learners who cannot make optimal decisions instantaneously. This paper contributes to the renewed discussion on the effectiveness of massive aid policies for developing countries from a theoretical perspective.
{"title":"Bounded rationality and the ineffectiveness of big push policies","authors":"Xiaoping Wei, Xu Junyi","doi":"10.1515/BEJM-2017-0182","DOIUrl":"https://doi.org/10.1515/BEJM-2017-0182","url":null,"abstract":"If a poverty trap exists, can a big-push policy lift the economy out of it? This paper applies Sargent’s [Sargent, Thomas J. 1993. Bounded Rationality in Macroeconomics. New York: Oxford University Press] bounded rationality approach to study the post-policy transition of an economy from a low-income equilibrium to a high-income equilibrium. The effectiveness of the policy diminishes if individuals are adaptive learners who cannot make optimal decisions instantaneously. This paper contributes to the renewed discussion on the effectiveness of massive aid policies for developing countries from a theoretical perspective.","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"23 1","pages":"1-21"},"PeriodicalIF":0.5,"publicationDate":"2019-06-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72712845","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}
In this paper, we examine the link between stock market uncertainty and monetary policy in the U.S. There are strong arguments as to why central banks should account for stock market uncertainty in their strategies. Amongst others, they can maintain the functioning of financial markets and moderate economic downswings. To describe the behavior of the Federal Reserve Bank, augmented forward-looking Taylor rules are estimated by GMM. The standard specification is expanded by measures of stock market uncertainty. We show that given certain levels of inflation and output, U.S. central bank rates are significantly lower when stock market uncertainty is high and vice versa. This result is valid for all tested measures of financial uncertainty.
{"title":"Stock Market Uncertainty and Monetary Policy Reaction Functions of the Federal Reserve Bank","authors":"Jovanovic Mario, Zimmermann Tobias","doi":"10.2202/1935-1690.2045","DOIUrl":"https://doi.org/10.2202/1935-1690.2045","url":null,"abstract":"In this paper, we examine the link between stock market uncertainty and monetary policy in the U.S. There are strong arguments as to why central banks should account for stock market uncertainty in their strategies. Amongst others, they can maintain the functioning of financial markets and moderate economic downswings. To describe the behavior of the Federal Reserve Bank, augmented forward-looking Taylor rules are estimated by GMM. The standard specification is expanded by measures of stock market uncertainty. We show that given certain levels of inflation and output, U.S. central bank rates are significantly lower when stock market uncertainty is high and vice versa. This result is valid for all tested measures of financial uncertainty.","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"25 1","pages":"1-19"},"PeriodicalIF":0.5,"publicationDate":"2010-07-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73019977","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}
This paper constructs a simple model that can account for both the negative relationship between growth and income inequality observed in the cross-country data and the positive relationship observed within countries over time. The model employs a dual-economy structure with formal and informal sectors. Growth is driven by formal sector human capital spillovers. Restrictive institutions impose barriers to formality that reduce the growth rate and increase inequality. Redistributive taxation lowers inequality but blunts the incentive to accumulate, lowering growth. Institutional structures vary more across than within countries. Consequently, variations in institutional barriers to formality may account for the negative relationship between growth and inequality found in the cross-country data. Variations in the intensity of redistribution may account for the positive relationship observed within countries over time.
{"title":"Explaining the Evidence on Inequality and Growth: Informality and Redistribution","authors":"S. DavisLewis","doi":"10.2202/1935-1690.1498","DOIUrl":"https://doi.org/10.2202/1935-1690.1498","url":null,"abstract":"This paper constructs a simple model that can account for both the negative relationship between growth and income inequality observed in the cross-country data and the positive relationship observed within countries over time. The model employs a dual-economy structure with formal and informal sectors. Growth is driven by formal sector human capital spillovers. Restrictive institutions impose barriers to formality that reduce the growth rate and increase inequality. Redistributive taxation lowers inequality but blunts the incentive to accumulate, lowering growth. Institutional structures vary more across than within countries. Consequently, variations in institutional barriers to formality may account for the negative relationship between growth and inequality found in the cross-country data. Variations in the intensity of redistribution may account for the positive relationship observed within countries over time.","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"97 1","pages":"1-35"},"PeriodicalIF":0.5,"publicationDate":"2007-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73591219","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}
Owing to lags in the transmission mechanism of monetary policy, central banks put much weight on forecasts of the future paths of output and inflation. So there has been considerable recent interest in forward-looking Taylor-type reaction functions. Using publicly available data on the Monetary Policy Committees forecasts for UK inflation and output growth, 1997-2003, we examine how the coefficients in such reaction functions changed as we switched between ex post forecasts those published after, and incorporating, the preceding interest rate decision and ex ante forecasts those presented to the MPC before that decision and also as we vary the (forecast) horizon, out to eight quarters ahead. In our data set, the coefficients vary sensitively as the horizon/forecast basis changes. Our results are consistent with the hypothesis that the MPC tried aggressively to eliminate any predicted, ex ante, deviation of inflation from target immediately it emerged, with no apparent indication of intended inertia, or gradualism, in response. Nevertheless the time path of official short term interest rates during these years shows the usual record of consecutive similarly-signed small steps.
{"title":"The Monetary Policy Committee's Reaction Function: An Exercise in Estimation","authors":"Goodhart Charles A.E.","doi":"10.2202/1534-5998.1240","DOIUrl":"https://doi.org/10.2202/1534-5998.1240","url":null,"abstract":"Owing to lags in the transmission mechanism of monetary policy, central banks put much weight on forecasts of the future paths of output and inflation. So there has been considerable recent interest in forward-looking Taylor-type reaction functions. Using publicly available data on the Monetary Policy Committees forecasts for UK inflation and output growth, 1997-2003, we examine how the coefficients in such reaction functions changed as we switched between ex post forecasts those published after, and incorporating, the preceding interest rate decision and ex ante forecasts those presented to the MPC before that decision and also as we vary the (forecast) horizon, out to eight quarters ahead. In our data set, the coefficients vary sensitively as the horizon/forecast basis changes. Our results are consistent with the hypothesis that the MPC tried aggressively to eliminate any predicted, ex ante, deviation of inflation from target immediately it emerged, with no apparent indication of intended inertia, or gradualism, in response. Nevertheless the time path of official short term interest rates during these years shows the usual record of consecutive similarly-signed small steps.","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"285 1","pages":"1-42"},"PeriodicalIF":0.5,"publicationDate":"2005-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2202/1534-5998.1240","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"72436303","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}
This paper investigates the determinants of the ability of the yield spread to predict output fluctuations conditional on the short rate. In the model of the paper, this predictive power is contingent on the monetary authority's reaction function. In particular, expectations of monetary policy actions are crucial for the spread to predict output. Furthermore, numerical experiments suggest that the post-1979 decrease in the yield spread's predictive power is due to a shift in the monetary policy reaction function at that time.
{"title":"Monetary Policy and the Information Content of the Yield Spread","authors":"F. Michael","doi":"10.2202/1534-5998.1156","DOIUrl":"https://doi.org/10.2202/1534-5998.1156","url":null,"abstract":"This paper investigates the determinants of the ability of the yield spread to predict output fluctuations conditional on the short rate. In the model of the paper, this predictive power is contingent on the monetary authority's reaction function. In particular, expectations of monetary policy actions are crucial for the spread to predict output. Furthermore, numerical experiments suggest that the post-1979 decrease in the yield spread's predictive power is due to a shift in the monetary policy reaction function at that time.","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"16 1","pages":"1-17"},"PeriodicalIF":0.5,"publicationDate":"2004-01-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80832755","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}
In recent years, a number of studies have found in favour of a causal link between finance and growth. This paper examines the empirical foundations of such studies, performing some additional econometric tests using the datasets and methodologies of Rajan and Zingales (1998a) and Levine and Zervos (1998). First, we consider the stability of published results across countries at different stages in their economic development, re-estimating Rajan and Zingales specification to allow separate coefficients for OECD and non-OECD member countries. We find that finance has a greater impact upon growth in non-OECD countries, with bank finance of particular importance. Second, we explore the issue of identification, concluding that it is difficult to disentangle the effect of financial development from that of other correlated factors. In particular, we show that the results of these authors depend heavily on the strong performance of the Tiger economies during the 1980s.
{"title":"Finance Causes Growth: Can We Be So Sure?","authors":"J. ManningMark","doi":"10.2202/1534-6005.1100","DOIUrl":"https://doi.org/10.2202/1534-6005.1100","url":null,"abstract":"In recent years, a number of studies have found in favour of a causal link between finance and growth. This paper examines the empirical foundations of such studies, performing some additional econometric tests using the datasets and methodologies of Rajan and Zingales (1998a) and Levine and Zervos (1998). First, we consider the stability of published results across countries at different stages in their economic development, re-estimating Rajan and Zingales specification to allow separate coefficients for OECD and non-OECD member countries. We find that finance has a greater impact upon growth in non-OECD countries, with bank finance of particular importance. Second, we explore the issue of identification, concluding that it is difficult to disentangle the effect of financial development from that of other correlated factors. In particular, we show that the results of these authors depend heavily on the strong performance of the Tiger economies during the 1980s.","PeriodicalId":45923,"journal":{"name":"B E Journal of Macroeconomics","volume":"1 1","pages":"1-24"},"PeriodicalIF":0.5,"publicationDate":"2003-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79839295","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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