{"title":"Does the Government Spending Multiplier Depend on the Business Cycle?","authors":"Collin Philipps","doi":"10.2139/ssrn.3699632","DOIUrl":"https://doi.org/10.2139/ssrn.3699632","url":null,"abstract":"We investigate government spending multipliers using a two-regime model and impulse response functions with fully endogenous regimes. While short-run multipliers vary depending on business cycle fluctuations, we find little evidence that medium or long-run multipliers vary between expansions and recessions. The reason for state-dependence found in the literature is the constant-regime assumption used to create impulse response functions. Importantly, a fiscal policy shock has little effect on the duration of a recession. However, we find that recession multipliers for government investment, non-defense and state and local spending are higher than their government consumption, defense and federal spending counterparts.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"70 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125710244","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Elizabeth Bersson, P. Hürtgen, Matthias O. Paustian
{"title":"Expectations Formation, Sticky Prices, and the ZLB","authors":"Elizabeth Bersson, P. Hürtgen, Matthias O. Paustian","doi":"10.2139/ssrn.3473029","DOIUrl":"https://doi.org/10.2139/ssrn.3473029","url":null,"abstract":"At the zero lower bound (ZLB), expectations about the future path of monetary or fiscal policy are crucial. We model expectations formation under level-k thinking, a form of bounded rationality introduced by García-Schmidt and Woodford (2019) and Farhi and Werning (2017), consistent with experimental evidence. This process does not lead to a number of puzzling features from rational expectations models, such as the forward guidance and the reversal puzzle, or implausible large fiscal multipliers. Optimal monetary policy at the ZLB under level-k thinking prescribes keeping the nominal rate lower for longer, but short-run macroeconomic stabilization is less powerful compared to rational expectations.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131478056","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Natural Rate of Interest of Hong Kong","authors":"Yunlu He, Bin Wang","doi":"10.2139/ssrn.3925445","DOIUrl":"https://doi.org/10.2139/ssrn.3925445","url":null,"abstract":"We measure the natural rate of interest of Hong Kong in a flexible VAR model. We find that the natural rate of interest of Hong Kong fell below zero after the SARS shock in 2003 and reached the lowest after the great recession in 2007-2009. Variance decomposition shows that mainland China, instead of the US, has a larger impact on the natural rate of interest of Hong Kong.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"309 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-04-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123475608","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Regional Income Dynamics in Bangladesh: The Road to a Balanced Development is in the Middle","authors":"S. Basher, F. Di Iorio, Stefano Fachin","doi":"10.2139/ssrn.3927154","DOIUrl":"https://doi.org/10.2139/ssrn.3927154","url":null,"abstract":"Bangladesh’s remarkable achievements in economic and social progress put itself in a position that would have been unthinkable until a few decades ago. But did the improvement in development outcomes accrue equally to all areas in the country? We tackle this question by analyzing district-level income per capita constructed from the 2000 and 2016 rounds of the Household Income and Expenditure Survey. Estimating models based on the standard neoclassical theory of economic convergence built to take into account the impact of natural disasters, we find essentially no evidence of convergence. This implies the persistence of income differentials among Bangladesh’s 64 districts. To check for the possibility of multiple steady states, we estimated models with a three-club structure based on the year 2000 income percentiles. The results now support the hypothesis of convergence within the group of middle-income districts, with a speed of 1.6% per annum (half-life 43 years)—close to Barro’s “2% iron law”. A remarkable finding is the positive and significant effect of education on this club's steady state income level. Overall, these results are consistent with the notion of a rising middle class in Bangladesh in recent years. We also explore latent club structures using automatic algorithms, but we do not find any further evidence of convergence. The key policy implication of our study is that, to ensure a balanced regional development, it would be, at a minimum, necessary to enact policies extending the convergence process to the club of the poorer districts as well.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"105 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127157935","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Sentiments and Real Business Cycles","authors":"Zhiwei Xu, Fei Zhou, Jing Zhou","doi":"10.2139/ssrn.3932016","DOIUrl":"https://doi.org/10.2139/ssrn.3932016","url":null,"abstract":"We introduce sentiments under incomplete information into an otherwise standard real business cycle model. Individual firms receive signals about their idiosyncratic demand shocks which are confounded by sentiments. Sentiments coordinate optimal decisions of individuals through their extraction of the aggregate economic conditions from the signals. We show that there exists a sentiment-driven rational expectations equilibrium in addition to a fundamental equilibrium. Optimistic sentiments boost the aggregate economy, leading to positive comovements among output, consumption, investment, and hours worked. We calibrate a full-blown dynamic stochastic general equilibrium model based on U.S. aggregate data and find that sentiment shocks substantially amplify the aggregate fluctuations.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128554484","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Moments, Shocks and Spillovers in Markov Switching VAR Models","authors":"E. Kole, Dick J. C. van Dijk","doi":"10.2139/ssrn.3924951","DOIUrl":"https://doi.org/10.2139/ssrn.3924951","url":null,"abstract":"To investigate how economies, financial markets or institutions can deal with stress, we nowadays often analyze the effects of shocks conditional on a recession or a bear market. MSVAR models are ideally suited for such analyses because they combine gradual movement with sudden switches. In this paper, we develop a comprehensive framework with methods to conduct these analyses. We first derive first and second moments conditional on only a set of regime probabilities. Next, we propose generalized impulse response functions of first and second moments to shocks originating from the regime process, the structural innovations and the variables themselves. By formulating the MSVAR as an extended linear non-Gaussian VAR for the combination of the regime process and the level and squares of the observable variables, all results are in closed-form, which eases a detailed investigation. We illustrate our methods with an application to stock and bond return predictability. Our results show how regime switching combined with predictor variables influences means, volatilities and (auto-)correlations. The impulse response functions show that the effect of shocks becomes highly nonlinear, and that they propagate via different channels. During bear markets, shocks have stronger effects on means and volatilities and die out more slowly.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"74 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127865939","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
FRB of Kansas City Submitter, Ran Abramitzky, P. Ager, C. W. Hansen, Elior Cohen, L. Boustan
{"title":"The Effect of Immigration on Local Labor Markets: Lessons from the 1920s Border Closure","authors":"FRB of Kansas City Submitter, Ran Abramitzky, P. Ager, C. W. Hansen, Elior Cohen, L. Boustan","doi":"10.2139/ssrn.3936887","DOIUrl":"https://doi.org/10.2139/ssrn.3936887","url":null,"abstract":"In the 1920s, the United States substantially reduced immigration by imposing country-specific entry quotas. We compare local labor markets differentially exposed to the quotas due to variation in the national origin mix of their immigrant populations. U.S.-born workers in areas losing immigrants did not gain in income score relative to workers in less exposed areas. Instead, in urban areas, European immigrants were replaced with internal migrants and immigrants from Mexico and Canada. By contrast, farmers shifted toward capital-intensive agriculture, and the immigrant-intensive mining industry contracted. These differences highlight the uneven effects of the quota system at the local level.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":" 40","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"113949050","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Robust PCA Synthetic Control","authors":"M. Bayani","doi":"10.2139/ssrn.3920293","DOIUrl":"https://doi.org/10.2139/ssrn.3920293","url":null,"abstract":"This study proposes a five-step algorithm for synthetic control method for comparative studies. My algorithm builds on the synthetic control model of Abadie et al., 2015 and the later model of Amjad et al., 2018. I apply all three methods (robust PCA synthetic control, synthetic control, and robust synthetic control) to answer the hypothetical question, what would have been the per capita GDP of West Germany if it had not reunified with East Germany in 1990? I then apply all three algorithms in two placebo studies and a robustness check.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-08-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124363756","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Global Credit Shocks and Real Economies","authors":"H. Herwartz, Christian Ochsner, H. Rohloff","doi":"10.2139/ssrn.3849452","DOIUrl":"https://doi.org/10.2139/ssrn.3849452","url":null,"abstract":"A rich literature has established the importance of global funding conditions (‘global liquidity’) for the international financial system (e.g. Borio, McCauley, and McGuire 2011). In particular, Eickmeier, Gambacorta, and Hofmann (2014) made an important contribution by presenting a structural decomposition of global liquidity. However, the interplay of structural global liquidity surprises with domestic business cycles has yet received only minor attention. With given quantifications of global credit demand and supply shocks at hand, we estimate the marginal effects of identified components of global liquidity on 43 real economies. Going beyond the aggregate view at global liquidity provided in Eickmeier et al. (2014), we put a particular focus on the sectoral origins (i.e. public vs. private) of credit demand/supply components, and rely on factoraugmented vector-autoregressions to trace disaggregated credit shocks through the real economy (output, inflation and unemployment). Specifically, business credit supply and government credit demand boost the business cycle, whereas household credit supply is found to deteriorate output. We find substantial heterogeneity with respect to prevalence and amplitude of global sectoral credit shocks on real aggregates within the time and cross-sectional (country) dimension.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126869253","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Heterogeneous Responses to the U.S. Narrative Tax Changes: Evidence from the U.S. States","authors":"Masudul Alam","doi":"10.2139/ssrn.3895432","DOIUrl":"https://doi.org/10.2139/ssrn.3895432","url":null,"abstract":"This paper investigates the assumption of homogeneous effects of federal tax changes across the U.S. states and identifies where and why that assumption may not be valid. More specifically, what determines the transmission mechanism of tax shocks at the state level? How vital are states' fiscal structures, financial conditions, labor market rigidities, and industry mix? Do these economic and structural characteristics drive the transmission mechanism of the tax changes at the state level at different horizons? This study employs a panel factor-augmented vector autoregression (FAVAR) technique to answer these issues. The findings show that state economies respond homogeneously in terms of employment and price levels; however, they react heterogeneously in real GDP and personal income growth. In most states, these reactions are statistically significant, and the heterogeneity in the effects of tax cuts is significantly related to the state's fiscal structure, manufacturing and financial composition, and the labor market's rigidity. A cross-state regression analysis shows that states with higher tax elasticity, higher personal income tax, strict labor market regulation, and economic policy uncertainties are relatively less responsive to federal tax changes. In contrast, the magnitude of the response in real GDP, personal income, and employment to tax cuts is relatively higher in states with a larger share of finance, manufacturing, lower tax burdens, and flexible credit markets.","PeriodicalId":155479,"journal":{"name":"Econometric Modeling: Macroeconomics eJournal","volume":"32 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126282426","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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