financial frictions the housing market and unemployment abstract we develop a two sector search matching model of the labor market with imperfect mobility of workers augmented to incorporate a housing market and a frictional goods market homeowners use home equity as collateral to finance idiosyncratic consumption opportunities a financial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment it also triggers a reallocation of workers with the direction of the change depending on firms market power in the goods market a calibrated version of the model under adaptive learning can account for house prices sectoral labor flows and unemployment rate changes over 1996 2010

regime switching and the in stability of the price rent relationship evidence from the us present value models of house prices assert that in the absence of self fulfilling bubbles a house price is equal to the present discount value of all future rents which implies a linear relationship between house price and rent and hence a stable price to rent ratio using a markov switching error correction model we re examine this relationship in the us housing market and find two distinctive regimes one with a long run relation between house price and rent predicted by the present value models and the other in which the relation is nonlinear furthermore we find evidence that deviations of house prices from the present value models predictions are caused by the overreaction of house prices to movements in rents rather than speculative bubbles attributable to extraneous factors

the future of macroeconomics macro theory and models at the bank of england abstract the adoption as policy models by central banks of representative agent new keynesian dynamic stochastic general equilibrium models has been widely criticised including for their simplistic micro foundations at the bank of england the previous generation of policy models is seen in its 1999 medium term macro model mtmm instead of improving that model to correct its considerable flaws many shared by other non dsge policy models such as the federal reserve s frb us it was replaced in 2004 by the dsge based beqm though this clearly failed during and after the global financial crisis it was replaced in 2011 by the dsge compass complemented by a suite of models we provide a general critique of dsge models for explaining forecasting and policy analyses at central banks and suggest new directions for improving current empirical macroeconomic models based on empirical modelling broadly consistent with better theory rather than seeking to impose simplistic and unrealistic theory

credit supply and the housing boom an increase in credit supply driven by looser lending constraints in the mortgage market is the key force behind four empirical features of the housing boom before the great recession the unpreced

democracy and economic growth a meta analysis despite a sizeable theoretical and empirical literature no firm conclusions have been drawn regarding the impact of political democracy on economic growth this article challenges the consensus of an inconclusive relationship through a quantitative assessment of the democracy growth literature it applies meta regression analysis to the population of 483 estimates derived from 84 studies on democracy and growth using traditional meta analysis estimators the bootstrap and fixed and random effects meta regression models it derives several robust conclusions taking all the available published evidence together it concludes that democracy does not have a direct impact on economic growth however democracy has robust significant and positive indirect effects through higher human capital lower inflation lower political instability and higher levels of economic freedom democracies may also be associated with larger governments and less free international trade there also appear to be country and region specific democracy growth effects overall democracy s net effect on the economy does not seem to be detrimental

how important are wealth effects on consumption in canada we estimate the marginal propensity to consume from financial and housing wealth in canada the modelling framework of carroll et al 2011 that builds on the observed stickiness in consumption data is used estimations and inferences are conducted using identification robust methods the results provide support for the overall modelling strategy but there are also important differences in the identification status of the econometric equations considered based on the most informative specification we find that both types of wealthfinancial and housinghave significant effects in canada and that the former has a greater effect than the latter a simple extension of the model that also accounts for non price credit conditions shows that housing wealth may be relevant only during periods of easier access to credit finally we find support for relatively high stickiness in consumption growth in canada

does a multi sectoral design improve indicator based forecasts of the gdp growth rate evidence from switzerland this article presents a multi sectoral composite indicator for the swiss gdp growth rate targeting a lead of two quarters the in sample period ranges from 1991 to 2002 and 14 data points are reserved as out of sample to assess the forecasting performance the results appear promising in terms of both phase and amplitude comparisons with two other uni sectoral composite leading indicators for the same reference series the traditional kof konjunkturforschungsstelle barometer as published until march 2006 and a uni sectoral composite indicator computed from the same indicators as the multi sectoral instrument show that the new approach is superior to the alternatives which is due to both its broader information basis as well as to the structure that is imposed by the multi sectoral design yet there are pronounced differences regarding the accuracy of the sectoral forecasts so that there is scope for improvement

mass privatization state capacity and economic growth in post communist countries why did the transition from socialism to capitalism result in improved growth in some countries and significant economic decline in others scholars have advanced three main arguments 1 successful countries rapidly implemented neoliberal policies 2 failures were not due to poli cies but to poor institutional environments and 3 policies were counterproductive because they damaged the state we present a state centered theory and empirically demonstrate for the first time one of several possible mechanisms linking neoliberal policies to poor economic performance mass privatization programs where implemented created a massive fiscal shock for post communist governments thereby undermining the development of private sector gover nance institutions and severely exacerbating the transformational recession we performed cross national panel regressions for a sample of 25 post communist countries between 1990 and 2000 and found that mass privatization programs negatively affected economic growth state capacity and property rights protection we further tested these findings with firm level data from a rep resentative survey of managers in 3 550 companies operating in 24 post communist countries within countries that implemented mass privatized programs newly privatized firms were sub stantially less likely to engage in industrial restructuring but considerably more likely to use bar ter and accumulate tax arrears than their state owned counterparts

the equilibrium effect of fundamentals on house prices and rents abstract using a dynamic equilibrium model of housing tenure choice with fully specified markets for homeownership and rental properties and endogenous house prices and rents this paper studies the effect of fundamentals on equilibrium house prices and rents lower interest rates relaxed lending standards and higher incomes are shown to account for approximately one half of the increase in the u s house price rent ratio between 1995 and 2006 and to generate the pattern of rapidly growing house prices sluggish rents increasing homeownership and rising household indebtedness observed in the data

detecting imbalances in house prices what goes up must come down i suggest a toolkit of four bubble detection methods that can be used to monitor developments in house prices these methods are applied to us finnish and norwegian data for the united states all measures unanimously suggest a bubble in the early to mid 2000s whereas current us house prices are found to be aligned with economic fundamentals one of the measures indicates imbalances in finland while there are no signs of a bubble in norway i find that large parts of the us house price bubble can be explained by the sharp increase in capital inflows and the extension of loans to the subprime mortgage market

military spending and stochastic growth abstract this study examines capital accumulation military spending arms accumulation and output growth in a stochastic endogenous growth model the analysis shows that higher lower growth in foreign military spending leads to faster slower economic growth in the home country if the home country s intertemporal substitution elasticity in consumption is smaller larger but more volatility in foreign military spending can lead to higher economic growth in the home country when its intertemporal substitution elasticity is large in addition shocks to output production may stimulate economic growth

sources of stagnation in sub saharan africa abstract this paper investigates the sources of economic stagnation in sub saharan africa during the 1970s several policy variables are considered as well as a set of environmental variables which include climate violence export prices and other exogenous factors the paper uses statistical analysis in an attempt to identify the relative importance of the policy variables and the environmental variables taken as groups it also seeks to identify particular policy variables which seem to have been most significant in determining growth outcomes the technique employed for investigation is reduced form econometric estimation in a preliminary analysis the impact of the international trade environment on average economic performance in africa during the period since independence is investigated the results suggest an extremely close relationship between movements in export prices and average performance throughout the 20 year period a second econometric exercise investigates the joint impacts of environmental and policy variables on growth in a cross section of african states since 1970 the spirit of the approach is exploratory and a relatively large number of variables are constructed and tested through multivariate analysis a primary finding is that the environmental variables seem to have had more impact on growth as a group than the policy variables this finding must be qualified however by the continuing lack of some important policy variables agricultural price data have not yet become available in sufficient quantity for cross section analysis nor have several important human resource variables and indices of the use of resources in the public domain among the policy variables which have been used for the analysis those identified with retrenchment during periods of declining commodity prices seem most significant primary among these are the real effective exchange rate and some measures of effectiveness in foreign exchange reallocation during periods when imports must contract severely in the final section of the paper the cross section results are used for a counterfactual analysis of the growth experiences of individual african states measures of growth opportunity cost are constructed which suggest the degree to which errors in management and uncontrollable circumstances have held states below their potential growth paths the results suggest that some success stories may owe much to good luck while some failures may well be due less to bad management than to adverse circumstances

do government agencies use public data the case of gnp in 1991 the u s council of economic advisers undertook an initiative to increase the quality of economic statistics one specific objective was to reduce the size of revisions in gnp estimates we present evidence that one straightforward and inexpensive way of forwarding this objective is for the department of commerce to utilize better publicly available information released by other governmental agencies an important caveat however applies the relationship appears to be non linear specifically the inefficient use of information is concentrated in those quarters where the change in the preliminary gnp estimate is large in absolute value

the dual nature of public goods and congestion the role of fiscal policy revisited the role of fiscal policy is examined when public goods provide both productive and utility services in the presence of congestion the consumption tax is shown to be distortionary optimal fiscal policy involves using consumption based instruments in conjunction with the income tax an income tax financed increase in government spending dominates both lump sum and consumption tax financing replacing the lump sum tax with an income tax to finance a given level of spending dominates introducing an equivalent consumption tax these results contrast sharply with the literature where the consumption tax is generally viewed as the least distortionary source of public finance on re examine le role de la politique fiscale quand les biens publics fournissent a la fois des services productifs et de bien etre quand il y a congestion on montre que la taxe sur la consommation cree des distorsions la politique fiscale optimale consiste a faire bon usage des taxes sur la consommation en conjonction avec l impot sur le revenu une depense gouvernementale financee par l impot sur le revenu est preferable a un financement par un paiement forfaitaire ou une taxe sur la consommation remplacer le paiement forfaitaire par un impot sur le revenu pour financer un niveau donne de depense vaut mieux qu introduire une taxe equivalente sur la consommation ces resultats contrastent vivement avec ce qu on trouve dans la litterature specialisee ou l on considere generalement la taxe sur la consommation comme la source de finance publique qui cree le moins de distorsion

revisiting the effects of imf programs on poverty and inequality investigating how lending programs of the international monetary fund imf affect poverty and inequality we explicitly address model uncertainty we control for endogenous selection into imf programs using data on 86 low and middle income countries for the 1982 2009 period and analyze program effects on various poverty and inequality measures the results rely on averaging over 90 specifications of treatment effect models and indicate adverse short run effects of imf agreements on poverty and inequality for the whole sample while for a 2000 2009 subsample the results are reversed there is evidence that significant short run effects might disappear in the long run author s abstract

an analysis on economic opportunity although economic opportunity is considered as a latent variable it can serve as another factor in promoting growth and development through the construction of an economic opportunity index this article identifies the extensity and intensity channels through which economic opportunity is created data on 24 variables for 184 world economies for the period 2000 to 2010 are collected for the empirical analysis the methodology involves the use of principal component analysis in constructing three indices for the parametric and nonparametric regression analyses the country sample is divided into oecd and non oecd economies so as to examine their different performances extensity seems to be the more important channel to all economies but for non oecd economies a higher performance in intensity can enrich the effect of extensity on economic opportunity

why aren t countries rich weak states and bad neighbourhoods this article challenges a common viewpoint that the policy choices made by state leaders are central to explanations of economic growth it argues that there are two possible flaws in this viewpoint first that state leaders have a free choice in policy decisions second that it is policies that in large part determine growth rates using a set of variables designed to capture the weakness of the policy autonomy of the state and possible non policy influences on growth rates the article concludes that initial conditions are a better determinant of wealth and growth than free policy choice

booms and busts in the uk housing market the often volatile behaviour of uk house prices between 1957 and 1994 is analysed in an annual econometric model theory suggests that financial liberalisation of mortgage markets in the 1980s should have led to notable shifts in house price behaviour the evidence supports the predictions of theory suggesting shifts took place in wealth effects as in the consumption function and that real interest rates and income expectations became more important the presence of transactions costs suggests important nonlinearities in house price dynamics the paper also contains an explicit econometric treatment of expectations demography supply spillovers from the rented sector and of composition biases in the official house price index

sources of convergence in the late nineteenth century abstract this paper investigates convergence for a group of seven countries during the period 1870 1914 a standard empirical growth model which includes physical and human capital accumulation proves unsatisfactory in this setting an alternative neoclassical open economy factor accumulation model is proposed which admits capital and labor migration and may be extended to include a moving frontier the model explains the observed convergence pattern in the sample and suggests that factor accumulation patterns were the prime sources of labor productivity convergence from 1870 to 1914

testing the present value relation for housing prices should i leave my house in san francisco abstract we examine the efficiency of residential housing markets by examining price rent and cost of capital indices generated from a transactions level data base for alameda and san francisco counties in northern california we can reject both constant and nonconstant discount rate versions of the housing price present value relation in the short run long run results are consistent with the housing price present value relation when we adjust the discount factor for changes in both tax rates and borrowing costs that characterize our 1970 1988 sample period our preferred explanation for the short run rejection of but long run consistency with the present value model is the high transaction costs that characterize the housing market however we cannot rule out the possibility that deviations of actual and present value price are due to asset market bubbles or nonrational expectations

transition in sub saharan africa agriculture urbanization and income growth abstract econometric analysis of some 40 years of data has provided mixed results because of the defects of the data and because there are some relatively sudden structural economic shifts an important shift is when agricultural labor ceases to grow now happening in sub saharan africa ssa a model of the interrelationship over time of the rural mainly agricultural sector and the urban mainly manufacturing and service sector is proposed each provides a market to the other growth in both requires investment but of distinctly different types their interaction results in an s shaped curve many ssa countries are in the acceleration phase and its agriculture particularly in semi arid areas is increasingly oriented to the growing home market case studies show farmers have invested and adopted new technologies but the transition to an urbanized economy has been hindered by poor policies the current need is for appropriate investments and policies to develop the productivity of the urban sectors so that they can continue to stimulate agriculture and provide jobs for those who are leaving farming

bank integration and co movements across housing markets this paper investigates whether bank integration measured by cross border bank flows can capture the co movements across housing markets in developed countries by using a spatial dynamic panel model the transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks changes in financial conditions are passed across borders through the banks balance sheet exposure to credit currency maturity and funding risks resulting in house price spillovers while controlling for country level and global factors we find significant co movement across housing markets of countries with proportionally high bank integration bank integration can better capture house price co movements than other measures of economic integration once we account for bank exposure other spatial linkages traditionally used to account for return co movements across region such as trade foreign direct investment portfolio investment geographic proximity etc become insignificant moreover we find that the co movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts low limits of loan to value ratios and no mortgage equity withdrawal

consumption government spending and the real exchange rate using panel structural var analysis and quarterly data from four industrialized countries we document that an increase in government purchases raises output and private consumption deteriorates the trade balance and depreciates the real exchange rate this pattern of comovement poses a puzzle for both neoclassical and keynesian models an explanation based on the deep habit mechanism is proposed an estimated two country model with deep habits is shown to replicate well the observed responses of output consumption and the trade balance and the initial response of the real exchange rate to an estimated government spending shock

economic growth and the defense burden in africa and latin america simulations from a dynamic model since e benoit first provided evidence of a link between the rate of economic growth and defense spending a number of scholars have reported their research on the subject their results have been varied some concluding the relationship is positive others concluding the opposite recently some have argued that no general and significant link exists for less developed countries ldcs and have suggested that the varied results are due primarily to varied specifications sample periods and differences among countries 2 s chan goes further by suggesting that researchers deemphasize the search for universal links and concentrate on time series as opposed to cross section analysis he also recommends that explanations of the defense spendingeconomic growth link take into account among other things a country s capacity utilization total foreign receipts and fiscal and monetary policies 3 the point of departure for the research reported here is a paper by r faini p annez and l taylor hereafter faanta 4 their analysis concludes that higher defense burdens are associated with lower growth rates across countries however i will argue that they have either misstated or misinterpreted their primary result and furthermore that there are some serious problems with their analysis and the underlying model these problems aside the faanta model either already includes or can be respecified to include most of the features recommended by chan therefore i will estimate a significantly modified version of their model for african and latin american countries after attempting to replicate their results for these two regions simulations of my model lead to the conclusion that maintaining a larger defense

identification of financial factors in economic fluctuations we estimate demand supply monetary investment and nancial shocks in a var identified with a minimum set of sign restrictions on us data we find that financial shocks are major drivers of fluctuations in output stock prices and investment but have a limited effect on inflation in a second step we disentangle shocks originating in the housing sector shocks originating in credit markets and uncertainty shocks in the extended set upfinancial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output

why does private consumption rise after a government spending shock recent empirical evidence suggests that private consumption is crowded in by government spending this outcome violates existing macroeconomic theory according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption

house prices and credit constraints making sense of the us experience most us house price models break down in the mid 2000s due to the omission of exogenous changes in mortgage credit supply associated with the sub prime mortgage boom from house price to rent ratio and inverted housing demand models previous models lack data on credit constraints facing first time home buyers incorporating a measure of credit conditions the cyclically adjusted loan to value ratio for first time buyers into house price to rent ratio models yields stable long run relationships more precisely estimated effects reasonable speeds of adjustment and improved model fits

military expenditures and economic growth in less developed countries an augmented model and further evidence a study of the impact of military expenditures on economic growth and development examines the differences in the results of previous studies which led to contradictory conclusions the authors find that these differences are due to sample variations specificational choices and the different time periods examined the data indicate that there is no consistent statistically significant connection between military spending and economic growth augmentation of the models suggests that military expenditures neither help nor hurt economic growth to any significant extent 2 tables

a survey of recent developments in the literature of finance and growth this paper provides a survey of the recent progress in the literature of financial development and economic growth the survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables although the positive role of finance on growth has become a stylized fact there are some methodological reservations about the results from these empirical studies several key issues unresolved in the literature are highlighted the paper also points to several directions for future research

what do we know about economic growth or why don t we know very much summary the last 10 years has seen an explosion in cross country econometric studies of growth driven by two factors new mathematical models of the growth process that lend themselves to econometric testing and new data sets that make such testing possible this paper looks at a selective review of these studies it concludes that the results are disappointing in that no model has proven robust to trial by repeated regression the paper suggests some reasons for this including that the tested models tend to be ahistorical and over simple in terms of their causal accounts it concludes with possible lessons for econometric work in this area 2000 elsevier science ltd all rights reserved

defense spending economic structure and growth evidence among countries and over time there is no way of telling from economic theory whether a greater military effort will slow down or accelerate output growth the results of a single empirical study have been used to support the widely held belief that in poor countries a high share of defense in gdp is associated with a high growth rate this paper shows that as is often the case such conventional wisdom is wrong across countries a greater defense burden is associated with slower growth in a regression equation estimated for 69 countries over some or all of the period 1952 70 an increase of 10 percentage points in the defense burden share of defense in gdp leads to a reduction of annual growth by 0 13 a nontrivial loss as we discuss in detail below growth retardation to approximately the same extent also is recorded in regional regression estimates though precise coefficients differ from area to area besides slowing the growth rate a changing defense burden has other macroeconomic effects for the same sample of countries and time period increases in military spending are associated with lower saving and investment shares in gdp a greater tax burden and a shift in economic activity from agriculture including food production toward the manufacturing sector when estimated econometrically the extent to which defense spending replaces investment is consistent in magnitude with the growth rate reductions mentioned above in describing these results more thoroughly in section i we review informally the channels through which arms spending can affect the growth rate and present a simple formal model in section ii the resulting reduced form equation is estimated empirically in section iii with the findings summarized above to measure other effects of military outlays on the economic structure we go on in section iv to incorporate the defense burden into the regression equations and data

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

time to build consumption complementarity and fiscal stimulus abstract we show that time to build which creates a time gap between government spending and the accumulation of public goods is an important element that weakens the effectiveness of fiscal stimulus in the environment where private consumption and public goods are edgeworth complements adding time to build to the model delays the timing of utility enhancing effects of an increase in government expenditure leading households to shift consumption from today to the future the expansionary effect of government spending is hence dampened which contrasts existing studies with edgeworth complementarity between private and public consumption

waking up from the american dream on the experience of young americans during the housing boom of the 2000s we exploit regional variations in house price fluctuations in the united states during the early to mid 2000s to study the impact of the housing boom on young americans choices related to home ownership household formation and fertility we also introduce a novel instrument for changes in house prices based on the predetermined industrial structure of the local economy we find that in regions that experienced large increases in house prices between 2001 and 2006 the youngest households were substantially less likely to purchase residential property to be married and to have a child both in 2006 and in 2011

econometric regime shifts and the us subprime bubble using aggregate quarterly data for the period 1975 q1 2010 q4 i find that the us housing market changed from a stable regime with prices determined by fundamentals to a highly unstable regime at the beginning of the previous decade my results indicate that these imbalances could have been detected with the aid of real time econometric modeling with reference to stiglitz s general conception of a bubble i use the econometric results to construct two bubble indicators which clearly demonstrate the transition to an unstable regime in the early 2000s the indicators are shown to granger cause a set of coincident indicators and financial in stability measures finally it is shown that the increased subprime exposure during the 2000s can explain the econometric breakdown i e the housing bubble may be attributed to the increased borrowing to a more risky segment of the market copyright 2013 john wiley sons ltd

the rise and fall of subprime mortgages after booming the first half of this decade u s housing activity has retrenched sharply single family building permits have plunged 52 percent and existing home sales have declined 30 percent since their september 2005 peaks a rise in mortgage interest rates that began in the summer of 2005 contributed to the housing market s initial weakness by late 2006 though some signs pointed to renewed stability they proved short lived as loan quality problems sparked a tightening of credit standards on mortgages particularly for newer and riskier products as lenders cut back housing activity began to falter again in spring 2007 accompanied by additional rises in delinquencies and foreclosures late summer financial market turmoil prompted further toughening of mortgage credit standards the recent boom to bust housing cycle raises important questions why did it occur and what role did subprime lending play how is the retrenchment in lending activity affecting housing markets and will it end soon is the housing slowdown spilling over into the broader economy

inequality household debt and financial instability an agent based perspective abstract our paper contributes to the literature on the causes of the 2007 2008 financial crisis in the united states by means of an agent based model we replicate an artificial credit network economy in order to assess the impact of growing income inequality in the presence of peer effects and home equity borrowing we show that the resulting debt financed consumption boom jeopardises the stability of the economic system thus paving the way for a financial crisis our model includes a behavioural rule for consumption based on expenditure cascades a hierarchical structure of household finance an articulated credit market with collateralised consumption loans and mortgages and a simple housing market results show that the model is able to capture the economic and social pressure of inequality on low and middle income households that pushes them to increase their consumption via home equity extraction rising non performing loans lead to higher bad debt on the banks balance sheets and consequently to the emergence of a crisis as an endogenous dynamic

the great depression versus the great recession in the u s how fiscal monetary and financial polices compare abstract this study reviews the financial distress that triggered and amplified the financial crises of the great depression and great recession and compares macroeconomic and financial policy responses shadow banking funded the build up of the financial excesses that preceded both the quicker and forceful response of monetary and fiscal policy during the great recession and stronger action to restore market functionality mitigated the downturn and aided recovery nevertheless actions to address the mortgage debt overhang were slower post depression reforms focused on preventing deposit runs and post great recession reforms on preventing runs on bank debt and shadow banks while boosting capital buffers

explaining the boom bust cycle in the u s housing market a reverse engineering approach we use a quantitative asset pricing model to reverse engineer the sequences of shocks to housing demand and lending standards needed to replicate the boom bust patterns in u s housing value and mortgage debt from 1993 to 2015 conditional on the observed paths for u s real consumption growth the real mortgage interest rate and the supply of residential fixed assets a specification with random walk expectations outperforms one with rational expectations in plausibly matching the patterns in the data counterfactual simulations show that shocks to housing demand housing supply and lending standards were important but movements in the mortgage interest rate were not

political regimes and economic growth arguments that relate regimes to growth focus on property rights pressures for immediate consumption and the autonomy of dictators while everyone seems to agree that secure property rights foster growth it is controversial whether democracies or dictatorships better secure these rights the main mechanism by which democracy is thought to hinder growth is pressure for immediate consumption which reduces investment only states that are institutionally insulated from such pressures can resist them and democratic states are not the main argument against dictatorships is that authoritarian rulers have no interest in maximizing total output these views are summarized in turn

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

an analysis of a panel of spanish gdp forecasts this article undertakes an analysis of the forecasts included in the panel of spanish forecasts in order to highlight the fact that the predictions made and the errors committed by the entities participating on this panel contain information that is particularly useful in analysing the evolution of the spanish economy here a study is undertaken of the gdp growth forecasts for the spanish economy for the period 2000 to 2002 made in distinct forecast time horizons specifically it analyses whether the forecasts are optimistic or pessimistic and whether new information concerning the variable being predicted is used efficiently in revising earlier forecasts

government investment and fiscal stimulus effects of government investment are studied in an estimated neoclassical growth model the analysis focuses on two dimensions that are critical for understanding government investment as a fiscal stimulus implementation delays for building public capital and expected fiscal adjustments to deficit financed spending implementation delays can produce small or even negative labor and output responses to increases in government investment in the short run anticipated fiscal adjustments matter both quantitatively and qualitatively for long run growth effects when public capital is insufficiently productive distorting financing can make government investment contractionary at longer horizons

nineteenth century development experience and lessons for today abstract this article reviews the results of a major comparative quantitative study of 19th century economic development and discusses their relevance to today s development policy applying classificatory measures of institutional and economic influences and a novel principal components technique the study demonstrated that institutions were overwhelmingly important to both the pace and structure of economic development but institutions interacted with economic influences very differently in countries at different levels of development and along diverse paths of economic growth in spite of important differences in the international and technological contexts of growth between today and the 19th century fundamental similarities remain now as then government policies determine the nature of market systems property rights and the distribution of assets and thus how far domestic economic growth spreads but favorable impacts of government policies on the structure of economic growth can be expected only where political institutions limit elite control of assets land institutions spread a surplus over subsistence widely and domestic education and skills are well diffused

the other commercial real estate boom and bust the effects of risk premia and regulatory capital arbitrage abstract in the 2000 s u s commercial real estate cre prices experienced a boom and bust as dramatic as the more widely analyzed swings in house prices and contributed significantly to bank failures we model short run and long run movements in capitalization rates rent to price ratio and risk premia for office building and apartments in the mid 2000s boom cre prices were mainly driven by declines in required risk premia that stemmed from a weakening of capital requirements in the bust cre price declines were initially driven by a jump in general risk premia and later by a tightening of effective capital requirements on commercial mortgage backed securities cmbs from the dodd frank act the subsequent recovery in cre prices was induced and sustained by unusually low real treasury yields we conclude that macro prudential regulation of leverage may help limit asset price booms by preventing sharp declines in risk premia

simultaneous estimation of production functions and capital stocks for developing countries estimation of production functions is important for both forecasting and planning purposes in developing countries the lack of data especially on capital stocks hampers econometric work and leads to the use of crude methods in the estimation of production functions in this paper we propose a method equally useful for the estimation of production functions when there are no data on capital stock and for the recovery of capital stock from the estimated production function a simulation analysis demonstrates the optimal properties of the technique which is subsequently applied to the estimation of aggregate production functions for a number of countries at different stages of development

changing credit limits changing business cycles abstract in the last half century capital markets across the industrialized world have undergone massive deregulation involving large increases in the loan to value ltv ratios of households and firms we study the business cycle implications of this phenomenon in an estimated dynamic general equilibrium model with multiple credit constrained agents a progressive relaxation of credit constraints initially leads to both higher macroeconomic volatility and stronger comovement between debt and real activity this pattern reverses at ltv ratios not far from those currently observed in many advanced economies due to credit constraints becoming non binding more often the non monotonic relationship between credit market conditions and macroeconomic fluctuations carries important lessons for regulatory and macroprudential policymakers while reducing the average ltv ratio may unintentionally increase macroeconomic volatility a countercyclical ltv ratio proves to be successful in dampening business cycle fluctuations and most importantly avoiding dramatic output drops

on fiscal multipliers estimates from a medium scale dsge model this paper contributes to the debate on fiscal multipliers in the context of a structural model i estimate a micro founded dynamic stochastic general equilibrium model that features a rich fiscal policy block and a transmission mechanism for government spending shocks using bayesian techniques for us data

optimal time consistent macroprudential policy collateral constraints widely used in models of financial crises feature a pecuniary externality agents do not internalize how borrowing decisions made in good times affect collateral prices during a crisis we show that under commitment the optimal financial regulator s plans are time inconsistent and study time consistent policy quantitatively this policy reduces sharply the frequency and magnitude of crises removes fat tails from the distribution of asset returns and increases social welfare in contrast constant debt taxes are ineffective and can be welfare reducing while an optimized macroprudential taylor rule is effective but less so than the optimal time consistent policy

is a group of economists better than one than none can economists forecast the direction of economic growth casual observation indicates that individual economists make poor predictions of economic growth and that their forecasts are highly correlated this article discusses the loss of information resulting from correlation and develops a method of combining forecasts that are cross sectionally correlated this approach greatly increases the accuracy of near term forecasts of the direction of economic growth although the individual with the best historical performance is better over longer horizons overall when the data are properly aggregated economists predict the direction of near term economic growth and call turning points reasonably well copyright 1996 by university of chicago press

leverage and the foreclosure crisis how much of the foreclosure crisis can be explained by the large number of high leverage mortgages originated during the housing boom in our model heterogeneous households select from mortgages with different down payments and choose whether to default given income and housing shocks the use of low down payment loans is initially limited by payment to income requirements but becomes unrestricted during the boom the model approximates key housing and mortgage market facts before and after the crisis a counterfactual experiment suggests that the increased number of high leverage loans originated prior to the crisis can explain over 60 percent of the rise in foreclosure rates

housing wealth effects evidence from an australian panel we explore the positive relationship between house prices and household spending by following a panel of australian households no evidence for traditional housing wealth effects is found with young homeowners exhibiting the largest wealth effects young renters also exhibit a positive consumption response to house prices although less so than young homeowners this suggests that increasing house prices raise spending via easing credit constraints and a common association between house prices and a third factor results from a cohort level panel are similar to those using household level data suggesting that pseudo panels may be used as a partial substitute for actual panels

governance structures and the durability of economic reforms evidence from inflation stabilizations abstract this paper investigates the relationship between a country s political economic and institutional environment and its ability to implement sustainable economic reform programs the policy issue on which the study focuses is inflation stabilization it consists principally of econometric estimations of the relationship between the success of stabilizations in a large sample of countries and several political and economic explanatory variables the hypotheses tested are drawn both from the recent macroeconomic literature on policy credibility and from political science the major findings include the following 1 a despite the conventional wisdom to the contrary political repression does not appear to be an effective means for implementing sustainable stabilization policies durable economic reforms and political freedoms appear to be complementary 2 b as has been previously argued theoretically and demonstrated empirically political instability is detrimental to policy reform 3 c the political will and popular consensus for stabilization policies are enhanced during a severe economic crisis 4 d there is weak evidence that intervention by the international monetary fund rather than supporting reform programs can undermine their credibility

how mortgage finance reform could affect housing abstract although major changes in mortgage finance have occurred since the subprime bust several issues remain unresolved centering on the roles of fannie mae freddie mac and the fha we analy

housing and the macroeconomy inflation and the financial accelerator three themes connecting housing and the macroeconomy are discussed first evidence is presented for the property market as one of the drivers of u s consumer price inflation second key drivers of house prices are explained to account for the remarkable diversity of international experience finally three potential links between housing credit and the financial accelerator are discussed these are the consumption channel the investment channel and feedback between bad loans and risk spreads via the financial system and how institutional differences between countries can explain the presence absence and magnitudes of these linkages

housing capital gains taxation and homeowner mobility evidence from the taxpayer relief act of 1997 abstract we provide new evidence on the impact of housing capital gains taxation on homeowner behavior by examining residential mobility before and after the taxpayer relief act of 1997 tra97 which generated the most sweeping reform of capital gains taxation in the last two decades in addition to lowering marginal tax rates on long term capital gains for all assets tra97 also eliminated any differential treatment of housing gains above and below age 55 allowing all homeowners to qualify for capital gains exclusions utilizing data drawn from the current population survey cps on either side of the law change 1996 and 1998 on homeowners just above 56 58 year olds and below 52 54 year olds the age 55 threshold and a reduced form difference in difference empirical approach our estimates suggest that the repeal of the differential capital gains tax treatment by age embodied in tra97 had an economically important and statistically significant impact on the residential mobility of under 55 homeowners across a variety of specifications the repeal raised the mobility rate by around 1 1 4 percentage points which for a mean mobility rate of 4 percentage points represented an increase in the mobility rate of homeowners in their early 50s by 22 31 furthermore the bulk of this effect was concentrated among highly mobile homeowners who a priori were more likely to have wanted to trade down e g divorced empty nesters those facing higher capital gains tax rates and those living in states that had experienced higher rates of nominal appreciation

joint dynamics of house prices and foreclosures this paper studies the joint transitional dynamics of the foreclosures and house prices in a standard life cycle incomplete markets model with housing and a realistic long term mortgage structure we calibrate our model to match several long term features of the u s housing market and analyze the effects of several unexpected and permanent shocks on the house price and the foreclosure rate both across the steady states and along the transition between the steady states we examine permanent unexpected shocks to the risk free interest rate the minimum down payment ratio and unemployment during the transition these shocks create large movements in house prices more importantly the foreclosure dynamics are quite significant along the transition compared to the steady state changes and there are strong feedbacks between foreclosures and house prices we assess the effects of a temporary reduction in the risk free interest rate which has moderate effects on house prices but little effect on foreclosure dynamics we also study the effects of an ex ante macroprudential policy which establishes a minimum down payment requirement at a higher threshold such a macroprudential policy helps substantially stabilize both house prices and foreclosures

the impact of housing markets on consumer debt credit report evidence from 1999 to 2012 we estimate the response of consumer debt portfolios to pronounced housing market swings from 1999 to 2012 using equifax sourced credit report data and a variety of identification approaches we find i the extraordinary climb in home equity debt from 2002 to 2006 is an expression of a stable longer term relationship between house price growth and home equity borrowing ii all preboom homeowners and older and prime postboom homeowners demonstrate near dollar for dollar substitution between expensive credit card and cheap home equity debt in response to home equity changes and iii little evidence of substitution between home equity and student loan debt

economics imperialism and the new development economics as kuhnian paradigm shift abstract this paper addresses the evolving relationship between economics and other social sciences it sets the present intellectual scene as one in which economics imperialism is rampaging across other disciplines the designs of economics upon development studies are examined in terms of the kuhnian notion of paradigm shift thereby the conclusion is drawn of the potential prospect of open debate around the economy and development not least outside economics itself but there is danger of economics imperialism in the form of the post washington consensus foreclosing the analytical agenda at the expense of approaches based on the political economy of capitalism

is there a fiscal free lunch in a liquidity trap this paper uses a dsge model to examine the eects of an expansion in government spending in a liquidity trap the spending multiplier can be much larger than in the normal situation if the liquidity trap is very persistent and scal stimulus can be rapidly implemented moreover the budgetary costs may be minimal as the large response of output boosts tax revenues allowing for something close to a scal free lunch however we caution that the multiplier may be much smaller under plausible implementation lags for many types of public spending and or if the liquidity trap lasts less than two years in addition because the marginal impact of scal expansion decreases in the scale of the outlay it is crucial to distinguish between average and marginal multipliers

are the poor less well insured evidence on vulnerability to income risk in rural china the authors test how well consumption is insured against income risk in a panel of sampled households in rural china they estimate the risk insurance models by generalized method of moments treating income and household size as endogenous insurance exists for all wealth groups although the hypothesis of perfect insurance is universally rejected those in the poorest wealth decile are the least well insured with 40 percent of an income shock being passed on to current consumption by contrast consumption by the richest third of households is protected from almost 90 percent of an income shock the extent of insurance in a given wealth stratum varies little between poor and nonpoor areas

evaluating the oecd s forecasts for economic growth the size and nature of the errors in gdp forecasts in the g 7 countries from 1968 to 1995 are examined these gdp estimates are published by the organization for economic cooperation and development in oecd economic outlook two alternative hypotheses are tested concerning why revisions arise the first hypothesis is that preliminary announcement is simply the true variable measured with error in this case the preliminary announcement is an unconditionally unbiased but irrational forecast of the true value that is the revision is correlated with known variables in particular it is correlated with the preliminary announcement itself the second hypothesis is that revisions arise because the early gdp estimates are a rational forecast of the true variable in this case the error is a rational forecast error and is therefore uncorrelated with known information

good and bad institutions is the debate over cross country firm level evidence from the textile industry using firm level data from nine developing countries we demonstrate that certain institutions like restrictive labour market regulations that are considered bad for economic growth might be beneficial for production efficiency whereas good business environment which is considered beneficial for economic growth might have an adverse impact on production efficiency we argue that our results suggest that there might be significant difference in the macro and micro impacts of institutional quality such that the classification of institutions into good and bad might be premature

the human capital and economic growth nexus in east and south asia abstractthis study adopts a disaggregated regional focus to test for the human capital hc growth nexus in selected nine asian countries it utilizes the empirical bayesian methodology which addresses not only the heterogeneity issue but it also utilizes the common structural priors of regional countries to yield informationally efficient estimates of the impact of hc on the stock and levels of gdp various measures of hc are utilized to determine which of these produces a better explanation of economic growth in the two asian regions the study finds that primary and secondary education was more prominent in explaining the fluctuations of economic growth in east asia whereas tertiary and vocational education showed positive effects on economic growth in south asia government expenditures on education were also found to positively affect economic growth in both regions the results shed new evidence to establish that the differences in growth rates within east and south asia are associated with diffe

conflict resolution and social protection in an era of globalisation external dimensions to europe s social policy globalisation has marginalised many nations in the south there are systematic mechanisms via which this occurs it has also raised inequality between nations and polarised the world into rich and poor nations accompanying international economic marginalisation a simultaneous growth in violent internal conflict has taken place in developing countries from both the standpoint of common humanity and security considerations the marginalising and unequalising effects of globalisation need to be abated via measures to protect the vulnerable this will also help to stem the tide of internal conflict in the developing world in this connection europe along with its policies and interventions can be of value

replication in empirical economics the journal of money credit and banking project this paper examines the role of replication in empirical economic research it presents the findings of a two year study that collected programs and data from authors and attempted to replicate their published results the research provides new and important information about the extent and causes of failures to replicate published results in economics the findings suggest that inadvertent errors in published empirical articles are a commonplace rather than a rare occurence copyright 1986 by american economic association

systematic monetary policy and the macroeconomic effects of shifts in residential loan to value ratios what are the macroeconomic consequences of changing aggregate lending standards in residential mortgage markets as measured by loan to value ltv ratios using a structural vector autoregression var we find that gdp and business investment increase following an expansionary ltv shock residential investment by contrast falls after a small initial uptick a result that depends on the systematic reaction of monetary policy we show that historically the fed tended to respond to expansionary ltv shocks by raising the monetary policy instrument and as a result mortgage rates increased and residential investment declined house prices are affected in a similar manner

do effective state business relations matter for economic growth evidence from indian states summary effective state business relations are a set of highly institutionalised responsive and public interactions between the state and the business sector this paper examines the impact of effective state business relations on economic growth across indian states over the period 1985 2006 we propose a measure that captures the various dimensions of effective state business relations at the sub national level and estimate standard growth regressions using dynamic panel data methods our results show that effective state business relations contribute significantly to economic growth and appear to be driven by the intensity of the interactions between the state and the private sector

political variables in cross country growth analysis the recent boom in cross country growth analysis has renewed the empirical interest in political sources of economic growth a large number of studies have tested political variables in growth regressions and a very heterogenous set of variables has been proposed to measure economically relevant differences in the political systems of countries this paper distinguishes five categories of relevant political variables democracy government stability political violence policy volatility and subjective perception of politics for each of these categories the specification testing method and results of the most relevant studies are presented and are critically discussed the paper concludes that measures of democracy are least successful and measures of policy volatility and subjective perception of politics most successful as explanatory variables in cross country growth regressions

development performance and the institutions of governance evidence from east asia and latin america abstract the purpose of this paper is three fold to assess the extent to which the institutional characteristics of governance can be captured with available data to evaluate the ability of such measures to explain development performance across regions countries and time and to examine the extent to which different governance characteristics are complements rather than substitutes to one another using the four operational governance characteristics we find that first in the full sample all governance characteristics have the expected effects on development performance and second both the relative importance of these characteristics and the degree of complementarity substitutability among them vary by region