macroeconomic effects of precautionary demand for oil summary we evaluate the macroeconomic effects of shocks specific to the oil market which mainly reflect fluctuations in precautionary demand for oil driven by uncertainty about future supplies a two stage identification procedure is used first daily changes in the futures spot price spread proxy for precautionary demand shocks and the path of oil prices is estimated this information is then exploited to restrict the oil price response in a vector autoregression impulse responses suggest that such shocks reduce output and raise prices historical decomposition shows that they contributed significantly to the us recessions in the 1990s and in the early 2000s but not to the most recent slump copyright 2014 john wiley sons ltd

the macroeconomics of fiscal consolidations in euro area countries we simulate a currency union dynamic general equilibrium model to assess the macroeconomic implications of permanently reducing the public debt to gross domestic product gdp ratio in euro area countries we obtain the following results first tax distortions are quantitatively significant second the best fiscal consolidation strategy is to permanently reduce both expenditures and tax rates third under such a consolidation strategy the transition is generally not costly as the gdp and investment would grow while private consumption would not fall finally spillovers to the rest of the euro area are generally expansionary

dynamic scoring alternative financing schemes abstract neoclassical growth models predict that reductions in capital or labor income tax rates are expansionary when lump sum transfers are used to balance the government budget this paper explores the consequences of bond financed tax reductions that bring forth a range of possible offsetting policies including future government consumption capital tax rates or labor tax rates through the resulting intertemporal distortions current tax cuts can be expansionary or contractionary the paper also finds that more aggressive responses of offsetting policies to debt engender less debt accumulation and less costly tax cuts

choosing sides in matching games nash equilibria and comparative statics this paper characterizes equilibria in matching games where the institutional setting allows players to choose whether to become buyers sellers or not to participate in economic activity nash equilibrium consists of a partition of agents into buyers sellers and non participants such that agents in each group do not have an incentive to change their activity given the behaviour of other agents comparative static analysis demonstrates that when participation costs are so high that some agents choose not to participate a further increase in participation costs may increase the number of agents who participate in the matching process

do political action committees give money to candidates for electoral or influence motives this paper examines the motivation ofpolitical action committees in theircampaign contributions the paper estimatesthe effect of contributions on the 1996house of representatives elections and onthe candidates policy stances contributions to challengers have a largeimpact on election outcomes but incumbentreceipts do not on four of the five issuesexamined interest groups responded tocandidate positions rather than givingfunds to influence them these results areconsistent with an electoral motive forcontributions some evidence is presentedthat contributions to incumbents may begiven to secure unobservable services forthe pac

short term gdp forecasting with a mixed frequency dynamic factor model with stochastic volatility in this article we develop a mixed frequency dynamic factor model in which the disturbances of both the latent common factor and of the idiosyncratic components have time varying stochastic volatilities we use the model to investigate business cycle dynamics in the euro area and present three sets of empirical results first we evaluate the impact of macroeconomic releases on point and density forecast accuracy and on the width of forecast intervals second we show how our setup allows to make a probabilistic assessment of the contribution of releases to forecast revisions third we examine point and density out of sample forecast accuracy we find that introducing stochastic volatility in the model contributes to an improvement in both point and density forecast accuracy supplementary materials for this article are available online

price stability with imperfect financial integration this paper studies whether the international monetary system can be affected by asymmetries in the cross country positions in the international financial markets i e the fact that some countries are large debtors while others are creditors an important channel that is explored is the interaction between international risk sharing and the stabilization role of monetary policy in each country the main finding is that the welfare costs of incomplete markets and the gains of deviating from a policy of price stability are increasing with the cross country asymmetries in the initial net international positions and in particular they become nonnegligible when the persistence of the shocks increases 1 of a permanent shift in steady state consumption for the welfare costs of incomplete markets and 0 2 for the gains of deviating from a policy of price stability when global imbalances become larger optimal monetary policy requires an increase in the volatilities of the real returns on assets and in particular of the nominal interest rates which should happen to be more correlated across countries

non standard monetary policy asset prices and macroprudential policy in a monetary union abstract this paper evaluates the interaction of non standard monetary measures and macroprudential policy in a monetary union by developing a two region model of the euro area ea and simulating the eurosystem s asset purchase programme app in each region some households are subject to a borrowing constraint and the local real estate is used as collateral our results are as follows first in one region a large loan to value ltv ratio can amplify the positive effect of the union wide app on domestic households borrowing second during the app implementation overly optimistic i e non fundamental expectations about local real estate prices would further augment households borrowing in that region third region specific macroprudential measures that stabilize private debt can counteract the effects of the optimistic expectations and favor a macroeconomic expansion driven only by fundamentals i e the app without the need to scale back the latter fourth both the app and the region specific macroprudential policy bring about a welfare improvement

the general equilibrium effects of fiscal policy estimates for the euro area abstract this paper describes a dynamic stochastic general equilibrium model featuring a fraction of non ricardian agents in order to estimate the effects of fiscal policy in the euro area the model takes into account distortionary taxation on labor and capital income and on consumption while expenditures are broken down into purchases of goods and services compensation of public employees and transfers to households a newly computed quarterly data set of fiscal variables is used our results point to the prevalence of mild keynesian effects of public expenditures in particular although innovations in fiscal policy variables tend to be rather persistent government purchases of goods and services and compensations for public employees have small and short lived expansionary effects on private consumption while innovations in transfers to households show a slightly more sizeable and lasting effect the effects are more significant on the revenue side decreases in labor income and consumption tax rates have sizeable effects on consumption and output while a reduction in capital income tax favors investment and output in the medium run finally our estimates suggest that fiscal policy variables contribute little to the cyclical variability of the main macro variables

the role of regulation on entry evidence from the italian provinces this paper studies the effects of differences in local administrative burdens in italy in the years 2005 2007 preceding a major reform that sped up firm registration procedures combining regulatory data from a survey on italian provinces before the reform costs and time to start a business with industry level entry rates of limited liability firms it explores the effects of regulatory barriers on the average of the annual entry rates across industries with different natural propensities to enter the market the estimates of the cross sectional analysis show that lengthier and to some extent more costly procedures reduced entry in sectors with naturally high entry a one day delay in registration procedures reduces the entry rate in highly dynamic sectors by more than 1 percent these results hold when i include measures of local financial development and of efficiency of bankruptcy procedures are included

information as a substitute for inventories abstract in recent years the ratio of inventories to sales in north american manufacturing has fallen without the offsetting increases in unfilled orders or price variation that are predicted by some theoretical models the explanation offered here is that in the face of falling relative costs of communications firms will substitute information for inventories thereby allowing their production systems to absorb a greater part of demand shocks the implicit hypothesis that the demands for communications and inventories are therefore determined simultaneously is tested with data on canadian inventories and on telecommunications between canada and europe and is not rejected

exchange rate economics is always and everywhere controversial abstractthis article reviews the major developments in the recent literature on exchange rate economics it is argued that the link between the exchange rate and economic fundamentals is breaking new ground evidence indicates that alternative analytical frameworks such as the new open economy macroeconomics and exchange rate arrangements such as the euro have their theoretical and analytical elegance but are proving empirically very difficult to implement the role of methodological advances and alternative fundamental instruments such as world commodity prices is also highlighted

myopic governments and welfare enhancing debt limits abstract this paper studies welfare effects of a soft borrowing constraint on sovereign debt the constraint is modeled as a proportional fine per unit of debt in excess of a specified reference value resembling features of the stability and growth pact sovereign debt is the result of myopic fiscal policy it reduces welfare in the absence of lump sum taxes the paper shows that the borrowing constraint enhances welfare by reducing long run debt in an economy calibrated to a generic oecd country the maximum attainable welfare gain of debt consolidation which is induced by imposing the optimally parameterized constraint amounts to 0 5 in terms of consumption the short run welfare costs of the constraint which arise from restricting the use of debt to smooth taxes are quantitatively negligible

tax reform and labour market performance in the euro area a simulation based analysis using the new area wide model in this paper we employ a calibrated two country version of the new area wide model nawm developed at the european central bank to examine the potential benefits and spillovers of reducing labour market distortions caused by euro area tax structures our analysis shows that lowering tax distortions to levels prevailing in the united states would result in an increase in hours worked and output by more than 10 at the same time tax reductions would have positive spillovers to the euro area s trade partners bolstering the case for tax reforms from a global perspective finally we illustrate that in the presence of heterogeneous households distributional effects may be of importance when gauging the impact of tax reforms

prosperity and depression prosperity and depression are relative concepts today both france and japan are depressed relative to the united states equivalently the united states is prosperous relative to these countries i say these countries are depressed relative to the united states because their output per working age person is 30 percent less than the u s level an interesting and important policy question is why are these countries depressed the answers for these two countries turn out to be very different the united states is prosperous relative to france because the u s intratemporal tax wedge that distorts the trade off between consumption and leisure is much smaller than the french wedge i will show that if france modified its intratemporal tax wedge so that its value was the same as the u s value french welfare in consumption equivalents would increase by 19 percent consumption would have to increase by 19 percent now and in all future periods to achieve as large a welfare gain as that resulting from this tax reform the united states is prosperous relative to japan because production efficiency is higher in the united states in the united states total factor productivity is approximately 20 percent higher than in japan if japan suddenly became as efficient in production as the united states its welfare gain in consumption equivalents would be 39 percent equally interesting and important are big changes over time in relative output per working age person across countries why are new zealand s and switzerland s economies depressed by over 30 percent relative to their 1970 trend corrected levels both of these countries have small populations but depressions are not restricted to small countries japan with its 125 million people is now depressed by 20 percent relative to its 1991 trend corrected level on the prosperity side why are ireland and south korea so prosperous now relative to their 1970 trend corrected levels this lecture is concerned primarily with big international differences among relatively rich industrial countries and changes in these differences over time the countries that receive primary attention all have market economies and healthy well educated populations in the countries considered the variations in aggregate output per working age person are large and reasonably good measures of the factor inputs are available this permits in many cases the identification of the change in policy or the difference in policy that gave rise to prosperity or depression this is in contrast to business cycle theory which provides little guidance to policy except for the important policy implication that a stabilization effort will have either no effect or a perverse effect the output variations studied and analyzed in this lecture are big an order of magnitude larger than the much studied business cycle fluctuations the variations studied however are an order of magnitude smaller than the muchstudied differences between the richest and poorest countries surprisingly only recently have depressions been systematically studied from the perspective of growth theory which is the theory used university of minnesota and federal reserve bank of minneapolis i thank my colleagues at the university of minnesota and the federal reserve bank of minneapolis for helpful discussions and comments in particular i thank tim kehoe ellen mcgrattan and nancy stokey for their help i also thank martin weale and franck portier for providing some british and french tax information used in this lecture thanks also go to sami alpanda and james macgee for research assistance and helpful discussions this lecture draws heavily on collaborative research with fumio hayashi i thank the economic and social research institute cabinet office government of japan and the u s national science foundation for financial support the views expressed herein are those of the author and not necessarily those of the federal reserve bank of minneapolis or the federal reserve system

shadow banks and macroeconomic instability we develop a macroeconomic model in which in which commercial banks can o oad risky loans to a highly levered shadow banking sector and financial intermediaries trade in securitized assets we highlight the liquidity creation role played by securitization we show how an endogenous tightening of credit constraints can exacerbate the e ect of shocks by limiting the ability of shadow banks to supply collateral and of banks to securitize the model is able to reproduce the cyclical behavior of bank and non bank credit and leverage macroeconomic shocks that directly impact the worth of financial sector are particularly harmful to economic activity but purely redistributive intra financial shocks can also generate recessions we discuss how government policy can stabilize the securitization market when the shadow banking system becomes impaired

are contributors rational untangling strategies of political action committees empirical public choice literature and casual observation suggest that the behavior of political action committees is remarkably unsophisticated meaning that pacs give to those legislators who would support their interests anyway thus it is suggested that contributor behavior deviates from rational behavior which is a cornerstone of economic analysis in this paper a switching regression model is estimated that allows for strategies of pacs to vary for different contribution recipients i analyze the behavior of farm pacs over three election cycles in contrast to previous findings i find that contributor behavior is not inconsistent with rational behavior contributors who attempt to influence the voting behavior of members of congress give the most money to legislators whose constituency interest suggests that they are likely to be undecided on how to vote and pacs give less money to legislators who represent districts with larger farm populations because those legislators are likely to vote in con

the redistributive role of unemployment benefits abstract this paper evaluates the role of unemployment benefits as a tool for redistribution in a setting with worker heterogeneity the provision of unemployment benefits achieves two goals it provides insurance to workers in the event of job loss and it redistributes wealth from individuals with more to those with fewer economic opportunities our model features a frictional labour market and an incomplete financial market when calibrated to match stylised facts of the us economy the optimal level of unemployment benefits is broadly similar regardless of whether workers differ in economic opportunities this suggests that taking into consideration the redistributive nature of unemployment benefits has only a limited role in altering the optimal level of unemployment benefits

fiscal policy pricing frictions and monetary accommodation this paper empirically investigates whether the theoretical conditions for government expenditure expansions to be effective hold for the data we ask whether the necessary conditions for fiscal effectiveness are relevant on average and in special circumstances that capture features of the recent crisis fiscal policy can be an effective countercyclical tool if monetary policy accommodates the fiscal expansion if expectations about future output growth and inflation are constant and if structural relationships are invariant to the policy change recent expansions are unlikely to produce large output multipliers or have important debt or inflation effects credible deficit and debt reduction schemes can produce sizeable output multipliers fabio canova and evi pappa

dynamic scoring a back of the envelope guide abstract this paper uses the neoclassical growth model to examine the extent to which a tax cut pays for itself through higher economic growth the model yields simple expressions for the steady state feedback effect of a tax cut the feedback is surprisingly large for standard parameter values half of a capital tax cut is self financing the paper considers various generalizations of the basic model including elastic labor supply general production technologies departures from infinite horizons and non neoclassical production settings it also examines how the steady state results are modified when one considers the transition path to the steady state