Search results for "jel:E4"
showing 10 items of 28 documents
Household Leverage and Fiscal Multipliers
2011
We study the size of fiscal multipliers in response to a government spending shock under different household leverage conditions in a general equilibrium setting with search and matching frictions. We allow for different levels of household indebtedness by changing the intensive margin of borrowing (loan-to-value ratio), as well as the extensive margin, defined as the number of borrowers over total population. The interaction between the consumption decisions of agents with limited access to credit and the process of wage bargaining and vacancy posting delivers two main results: (a) higher initial leverage makes it more likely to find output multipliers higher than one; and (b) a positive g…
Substituting a Substitute Currency – The Case of Estonia
2002
This study evaluates substitution of foreign currency balances in Estonia, a transition economy neighbouring countries participating in EMU. The focus is on substitution between dollar and euro balances in the three basic functions of money - unit of account, store of value and means of payment. While traditional models for currency substitution concentrate on substitution between a domestic currency and aggregate foreign currency balances, we look for substitution between the dollar and the euro or euro-related foreign currency balances. We find substitution between dollarization and euroization to be asymmetric in the short run, which suggests that inertia, irreversibility and ratchet eff…
How do Banking Crises Impact on Income Inequality?
2012
We show that banking crises have an important effect on income distribution: inequality increases before banking crisis episodes and sharply declines afterwards. We also find that, while a large government size does not per se seem to reduce inequality, a rise in financial depth (i.e. better access to credit provided by the banking sector) contributes to a more equal distribution of income.
Bubbles and Crowding-in of Capital via a Savings Glut
2017
This paper uncovers a mechanism by which bubbles crowd in capital investment. If capital formation is initially depressed by a binding credit constraint, a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional savings, which are channeled to expand investment at the extensive margin, leading to permanently higher capital, output, and wages. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path.
Household debt and labor market fluctuations
2011
Abstract The co-movements of labor productivity with output, total hours, vacancies and unemployment have changed since the mid 1980s. This paper offers an explanation for the sharp break in the fluctuations of labor market variables based on endogenous labor supply decisions following the mortgage market deregulation. We set up a search model with efficient bargaining and financial frictions, in which impatient borrowers can take an amount of credit that cannot exceed a proportion of the expected value of their real estate holdings. When borrowers' equity requirements are low, the impact of a positive technology shock on the marginal utility of consumption is strengthened, which in turn re…
Nonlinear dynamics of interest rate and inflation
2004
According to several empirical studies, US inflation and nominal interest rates, as well as the real interest rate, can be described as unit root processes. These results imply that nominal interest rates and expected inflation do not move one-for-one in the long run, which is not consistent with the theoretical models. In this paper we introduce a nonlinear bivariate mixture autoregressive model that seems to fit quarterly US data (1952 Q1 – 2000 Q2) reasonably well. It is found that the three-month treasury bill rate and inflation share a common nonlinear component that explains a large part of their persistence. The real interest rate is devoid of this component, indicating one-for-one m…
Quality pricing-to-market
2014
We examine firm's pricing-to-market decisions in vertically differentiated industries featuring a large number of firms that compete monopolistically in the quality space. Firms sell goods of heterogeneous quality to consumers with non-homothetic preferences that differ in their income and thus their marginal willingness to pay for quality increments. We derive closed-form solutions for the pricing game under costly international trade, thus establishing existence and uniqueness. We then examine how the interaction of good quality and market demand for quality affects firms' pricing-to-market decisions. The relative price of high quality goods compared to that of low quality goods is an inc…
Instruments, rules, and household debt: the effects of fiscal policy
2015
In this paper, we look at the interplay between the level of household leverage in the economy and fiscal policy, the latter characterised by different combinations of instruments and rules. When the fiscal rule is defined on lump-sum transfers, government spending or consumption taxes, the impact multipliers of transitory fiscal shocks become substantially amplified in an environment of easy access to credit by impatient consumers, regardless of the primary instruments used. However, when the government reacts to debt deviations by raising distortionary taxes on income, labour or capital, the effects of household debt on the size of the impact output multipliers vanish or even reverse, no …
Interest rate co-movements, global factors and the long end of the term spread
2012
The disconnect between rising short and low long interest rates has been a distinctive feature of the 2000s. Both research and policy circles have argued that international forces, such as global monetary policy (e.g. Rogoff, 2006); international business cycles (e.g. Borio and Filardo, 2007); or a global savings glut (e.g Bernanke, 2005) may be responsible. In this paper, we employ recent advances in panel data econometrics to document the disconnect and link it explicitly to the existence of a global latent factor that dominates the long end of the term spread for the recent period; the saving glut story emerges as the most likely contender for the global factor.
Domestic vs. International correlations of interest rate maturities
2010
The association between long and short interest rates is traditionally envisaged from a purely domestic perspective, where it is believed an empirical regularity. Hence, the weakening of this relationship in the first half of the 2000s has represented a conundrum, calling for a reassessment of the term structure and the conduct of monetary policy. Some commentators have called for investigations into the international dimension of this puzzle. Hence, in this paper we employ recent advances in panel data econometrics to investigate the co-movement of interest rate maturities both at the domestic and international levels for a sample of industrial countries. Specifically, we use the Ng (2006)…