Unemployment in the Great Recession: A Comparison of Germany, Canada, and the United States
Florian Hoffmann, Thomas Lemieux
Journal of Labor Economics,
S1 Part 2
2016
Abstract
This paper looks at the surprisingly different labor market performance of the United States, Canada, Germany, and several other OECD countries during and after the Great Recession of 2008–9. A first important finding is that the large employment swings in the construction sector linked to the boom and bust in US housing markets is an important factor behind the different labor market performances of the three countries. We also find that cross-country differences among OECD countries are consistent with a conventional Okun relationship linking gross domestic product growth to employment performance.
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Do Federal Reserve Bank Presidents’ Interest Rate Votes in the FOMC Follow an Electoral Cycle?
Stefan Eichler, Tom Lähner
Applied Economics Letters,
Nr. 9,
2016
Abstract
We find that Federal Reserve Bank presidents’ regional bias in their dissenting interest rate votes in the Federal Open Market Committee follows an electoral cycle. Presidents put more weight on their district’s economic environment during the year prior to their (re-)election relative to nonelection years.
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Networks and the Macroeconomy: An Empirical Exploration
Daron Acemoglu, Ufuk Akcigit, William R. Kerr
NBER Macroeconomics Annual,
2015
Abstract
How small shocks are amplified and propagated through the economy to cause sizable fluctuations is at the heart of much macroeconomic research. Potential mechanisms that have been proposed range from investment and capital accumulation responses in real business-cycle models (e.g., Kydland and Prescott 1982) to Keynesian multipliers (e.g., Diamond 1982; Kiyotaki 1988; Blanchard and Kiyotaki 1987; Hall 2009; Christiano, Eichenbaum, and Rebelo 2011); to credit market frictions facing firms, households, or banks (e.g., Bernanke and Gertler 1989; Kiyotaki and Moore 1997; Guerrieri and Lorenzoni 2012; Mian, Rao, and Sufi 2013); to the role of real and nominal rigidities and their interplay (Ball and Romer 1990); and to the consequences of (potentially inappropriate or constrained) monetary policy (e.g., Friedman and Schwartz 1971; Eggertsson and Woodford 2003; Farhi and Werning 2013).
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Exit Expectations and Debt Crises in Currency Unions
Alexander Kriwoluzky, G. J. Müller, M. Wolf
IWH Discussion Papers,
Nr. 18,
2015
Abstract
Membership in a currency union is not irreversible. Exit expectations may emerge during sovereign debt crises, because exit allows countries to reduce their liabilities through a currency redenomination. As market participants anticipate this possibility, sovereign debt crises intensify. We establish this formally within a small open economy model of changing policy regimes. The model permits explosive dynamics of debt and sovereign yields inside currency unions and allows us to distinguish between exit expectations and those of an outright default. By estimating the model on Greek data, we quantify the contribution of exit expectations to the crisis dynamics during 2009 to 2012.
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Monetary-fiscal Policy Interaction and Fiscal Inflation: A Tale of Three Countries
Martin Kliem, Alexander Kriwoluzky, Samad Sarferaz
Abstract
We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using cross-country data from 1965 to 1999. In a first step, we contrast the monetary-fiscal narrative for Germany, the U.S. and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of high fiscal budget deficits and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary-fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.
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International Banking and Liquidity Risk Transmission: Evidence from Canada
James Chapman, H. Evren Damar
IMF Economic Review,
Nr. 3,
2015
Abstract
This paper investigates how liquidity conditions in Canada may affect domestic and/or foreign lending of globally active Canadian banks, and whether this transmission is influenced by individual bank characteristics. It finds that Canadian banks expanded their foreign lending during the recent financial crisis, often through acquisitions of foreign banks. It also finds evidence that internal capital markets play a role in the lending activities of globally active Canadian banks during times of heightened liquidity risk.
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Sign Restrictions, Structural Vector Autoregressions, and Useful Prior Information
Christiane Baumeister, James D. Hamilton
Econometrica,
Nr. 5,
2015
Abstract
This paper makes the following original contributions to the literature. (i) We develop a simpler analytical characterization and numerical algorithm for Bayesian inference in structural vector autoregressions (VARs) that can be used for models that are overidentified, just‐identified, or underidentified. (ii) We analyze the asymptotic properties of Bayesian inference and show that in the underidentified case, the asymptotic posterior distribution of contemporaneous coefficients in an n‐variable VAR is confined to the set of values that orthogonalize the population variance–covariance matrix of ordinary least squares residuals, with the height of the posterior proportional to the height of the prior at any point within that set. For example, in a bivariate VAR for supply and demand identified solely by sign restrictions, if the population correlation between the VAR residuals is positive, then even if one has available an infinite sample of data, any inference about the demand elasticity is coming exclusively from the prior distribution. (iii) We provide analytical characterizations of the informative prior distributions for impulse‐response functions that are implicit in the traditional sign‐restriction approach to VARs, and we note, as a special case of result (ii), that the influence of these priors does not vanish asymptotically. (iv) We illustrate how Bayesian inference with informative priors can be both a strict generalization and an unambiguous improvement over frequentist inference in just‐identified models. (v) We propose that researchers need to explicitly acknowledge and defend the role of prior beliefs in influencing structural conclusions and we illustrate how this could be done using a simple model of the U.S. labor market.
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Support for Public Research Spin-offs by the Parent Organizations and the Speed of Commercialization
Viktor Slavtchev, D. Göktepe-Hultén
Abstract
We empirically analyze whether support by the parent organization in the early (nascent and seed) stage speeds up the process of commercialization and helps spin-offs from public research organizations generate first revenues sooner. To identify the impact of support by the parent organization, we apply multivariate regression techniques as well as an instrumental variable approach. Our results show that support in the early stage by the parent organization can speed up commercialization. Moreover, we identify two distinct channels - the help in developing a business plan and in acquiring external capital - through which support by the parent organization can enable spin-offs to generate first revenues sooner.
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EFN Report Autumn 2015: Economic Outlook for the Euro Area in 2015 and 2016
European Forecasting Network Reports,
Nr. 4,
2015
Abstract
For the end of this year and for 2016, chances are good that production in advanced economies will continue to expand a bit faster than at trend rates, while growth dynamics in emerging markets economies will not strengthen or even continue to decrease.
Since autumn 2014, production in the euro area expands at an annualized rate of about 1.5%. The recovery appears to be broad based, with contributions from private consumption, exports, and investment into fixed capital, although it fell back in the second quarter after a strong increase at the beginning of the year. From a regional perspective, the recovery is as well quite broad based: production is expanding in almost every country, surprisingly and according to official data, including Greece.
Structural impediments still limit the ability of the euro area economy to grow strongly: firms and, in particular, private households are only slowly reducing their heavy debt burdens.
According to our forecasts, the euro area GDP will grow by 1.6% in 2015 and by 1.9% in 2016. The high increase in the number of refugees in 2015 will, in principle, positively affect private as well as public consumption, but the effect should be below 0.1 percentage points relative to GDP.
Our inflation forecast for 2015 is 0.1%. For 2016, we expect that inflation will increase to 1.3%, which is still below the ECB’s target of 2%.
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Global Food Prices and Business Cycle Dynamics in an Emerging Market Economy
Oliver Holtemöller, Sushanta Mallick
Abstract
This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyze these empirical results, we specify a small open economy New-Keynesian model including oil and food prices and estimate it using observed data over the period from 1996Q2 to 2013Q2 by applying Bayesian estimation techniques. The results suggest that big part of the variation in inflation in India is due to cost-push shocks and, mainly during the years 2008 and 2010, also to global food price shocks, after having controlled for exogenous rainfall shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors to inflation in India. Since the monetary authority responds to these supply shocks with a higher interest rate which tends to slow growth, this raises concerns about how such output losses can be prevented by reducing exposure to commodity price shocks and thereby achieve higher growth.
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