Macroeconomic Channels Research Articles

Contagion in the European Union: An Analysis of the Channels of Transmission


 This study analyzes contagion from the global financial crisis that began in August 2007 to the European Union (EU) crisis and uses a statistical approach to determine which channels were, and still are, important for contagion transmission in the European crisis. A logit regression is used to statistically determine which common contagion channels - trade linkages, the common creditor, portfolio investors and macroeconomic fundamentals – transmitted infection among the 27 EU countries. The results show that the macroeconomic fundamentals channel is the most important channel and specifically high levels of government and private debt along with a large current account deficit are the most important determinants of contagion. Additionally, the results suggest that the European crisis is at root a balance of payments crisis. Finally, the results predict that the country, beyond those that have already received assistance form the EU, ECB and IMF, that is most vulnerable to further contagion is Malta.

Intermediaries and Asset Prices: Evidence from the U.S., U.K., and Japan, 1870-2016

We study data on commercial banks and securities firms across multiple countries since 1870. Balance sheet expansion of leveraged intermediaries negatively predicts returns of stocks, bonds, currencies, and housing. The predictability is stronger at shorter horizons, is robust to macroeconomic controls, and holds outside distress periods, in contrast to models featuring nonlinearities during distress. Intermediaries in global financial centers predict international equity returns. A new dataset on individual stock holdings of Japanese intermediaries since 1955 shows intermediaries affect returns of stocks directly held. Our results suggest a strong universal link between intermediaries and asset returns distinct from macroeconomic channels.

The effect of Real Exchange rate on Unemployment Evidence from Egypt

This paper aims to investigate the effect of real exchange rate on unemployment in the Egyptian economy during the period 1985-2015. There are three channels of effect real exchange rate on unemployment; these channels are macroeconomic channel, development channel, and labor intensity channel. We used three methods to estimate this relationship. They are Autoregressive Distributed Lag Model (ARDL), Fully Modified OLS (FMOLS), and Dynamic OLS (DOLS). The results reveal that real exchange has a positive and significant effect on unemployment. There is no significant effect of economic openness on unemployment. Furthermore, the correlation between unemployment and the growth is negative and significant. Also, the effect of labor productivity on unemployment was positive and significant. We can conclude the depreciation the real exchange rate will decrease the unemployment.

The impact of oil shocks on the housing market: Evidence from Canada and U.S

The recent volatility in oil energy markets invites us to re-assess the impact of oil prices changes on the macroeconomic environment. The Great Recession of 2007–2009 led to closer monitoring of global housing markets by regulators and market participants. Employing a structural vector autoregressive model, we find that the reaction of housing markets to oil price shocks varies significantly depending on whether the change in oil prices is prompted by demand or supply shocks in the oil market and on country oil trading status (i.e. net importer or net exporter). Our results are robust to the inclusion of different macroeconomic channels through which oil shocks may influence housing prices and control for restricted dynamic feedback effects. We also study the role of the phases of the housing cycle.

Do Macroeconomics Channels Matter for Examining Relationship Between Public Debt and Economic Growth in India?

This paper investigates the impact of public debt on economic growth using key macroeconomic channels for the period 1970–2013 in the context of India. The analysis is undertaken in two different steps: first, it is examined whether public debt has any nonlinear impact on economic growth and second, determines the key channels through which public debt affects economic growth. The results derived from 2SLS model show that public debt positively affects economic growth in the short run, while it shows a negative impact in the long run. Further, by using Nonlinear ARDL approach, this paper supports the existence of a nonlinear impact of public debt on economic growth. The channels through which public debt significantly affects economic growth are households saving, public investment and total factor productivity growth. From policy perspective, we suggest that government should target the public investment and productivity channels for utilizing the public debt in India, and the government should opt for borrowings as long as it leads to capital formation of the country.

Inequality and growth in neo-Kaleckian and Cambridge growth theory

This paper examines the relationship between inequality and growth in the neo-Kaleckian and Cambridge growth models. It explores the channels whereby functional and personal income distribution impact growth. The growth–inequality relationship can be negative or positive, depending on the economy's characteristics. Contrary to widespread claims, inequality per se does not impact growth through macroeconomic channels. Instead, both growth and inequality are impacted by changes in the underlying forms and pattern of income payments. However, inequality is critical at the microeconomic level as it explains differences in household propensities to consume which are at the foundation of neo-Kaleckian and Cambridge growth theory.

THE COGNITIVE TRANSITION IN MEXICO: ECONOMIC GEOGRAPHY AND LOCAL GOVERNANCE IMPACTS

This article shows that cognitive ability dynamics interact with both individual and local indicators of macroeconomic wellbeing, publicly provided goods and private goods, through 141 localities in Mexico. The link of these various goods with inequity is compared quantitatively using the concentration index decomposition. The set of individual characteristics including paternal and maternal cognitive ability, whether mother works, father’s schooling and household wealth, and the set of local characteristics including local economic activity, local public policy and local marginalization indicators, each have significant connections with the formation of cognitive ability. Living in a rural locality is associated with one fourth of inequities in cognitive ability. This is consistent with a model of human development and economic growth exhibiting aggregate macroeconomic channels through which economic geography and local governance can lead to stratification and divergence in welfare indicators. There is a long-term transition towards higher levels of cognitive ability that will take several generations to converge at the current rate.

Emerging Equity Market Comovements: Trends and Macroeconomic Fundamentals*

Emerging equity markets have become increasingly interrelated over the past two decades. For a sample of 32 emerging markets from four different regions we find significant positive time trends in cross-country correlations within regions, correlations across regions and in comovements with the rest of the world. Furthermore, we examine the economic mechanisms that drive these trends. We find that official market liberalization, a continuous measure of equity market openness, equity market development, and to some extent, trade openness all play a role. However, we show important heterogeneity across regions, both in the speed at which comovements increase over time and in the underlying macro-economic channels.

Dispersion, Equity Returns Correlations and Market Integration

Emerging equity markets have become increasingly interrelated over the past two decades. For a sample of 32 emerging markets from four different regions we find significant positive time trends in cross-country correlations within regions, correlations across regions and in comovements with the rest of the world. Furthermore, we examine the economic mechanisms that drive these trends. We find that official market liberalization, a continuous measure of equity market openness, equity market development, and to some extent, trade openness all play a role. However, we show important heterogeneity across regions, both in the speed at which comovements increase over time and in the underlying macro-economic channels.

Impacts of an Ageing Society on Macroeconomics and Income Inequality – The Case of Germany Since the 1980s

The discussion paper is concerned with the interplay between demography and macroeconomics on one hand and macroeconomics and income inequality on the other hand. For this purpose, several estimation equations are derived by econometric methods (on the empirical basis of the 1984-2010 German Socio-Economic Panel (SOEP) waves). In concrete terms, the macroeconomic variables inflation, economic growth, and unemployment are at first connected with the German demographic ageing; afterwards, these connections are used to produce a nexus between German income inequality and the stated macroeconomic variables (additionally to the exogenous effects of ageing). For the empirical periods examined (1983-2009), there have been a) a (slightly) negative influence of demographic ageing on the inflation rate, b) a (weak) positive effect of ageing on the level – not on the increases (reductions) – of economic growth rates, and c) a somewhat stronger positive impact of demographic ageing on unemployment rates. While the measured income inequality is upwards directly (exogenously) driven by demographic ageing, the mechanisms through the different macroeconomic channels are more difficile: Inflation is positively and unemployment negatively correlated with income inequality, and regarding economic growth a (slightly) concave effect upon income inequality has been observed. All these findings imply that demographic ageing, ceteris paribus and by tendency, diminishes income inequality via inflation and unemployment rate, which is also valid for economic growth (within the empirically relevant value range for the German demographic ageing). But on balance, there is an overcompensating direct, exogenous impact of demographic ageing on inequality in the model used in this paper, and this causes tendencies towards a remarkable increase of German income inequality until 2060. These tendencies are more pronounced in the forecast variant in which a strongly ageing population is assumed.

DESAIN MONETARY POLICY RULE UNTUK PEREKONOMIAN TERBUKA: KASUS INDONESIA

This paper is trying developing a small scale Keynesian macroeconometric model for Indonesia as the main framework to explain some characterized of macroeconomic variables and its transmission path in order to understand how economy of one country is work. However, the main goal of the developing this macroeconomic model is based on monetary perspective, so that the model would be linked with policy framework of Central Bank as guidance and its strategy for combating inflation and at the same time can be achieve the expansion of employment and economic growth as well. This macroeconometric model is transmitted facilities and take function as the macroeconomic channel for testing the effectively of BI rate as monetary instrument. So that the model as developed in this paper will be examine using 2SLS simultaneous econometric methods and the next simulation process as an effort in understanding the fenomena as Indonesian economy is working under the recognition of monetary instrument policy.

A NOTE ON PUBLIC INVESTMENT, PUBLIC DEBT, AND MACROECONOMIC PERFORMANCE

This paper provides an assessment of public capital spending within a macroeconomic policy model with explicit monetary and fiscal interactions, in contrast to most of the existing analyses of public investment that utilize “real” general equilibrium models. As such, we are able to consider the interactions of public investment with inflation, taxation, and public debt. Our results indicate that a clear trade-off exists between the costs and benefits of public investment, as is the case in the existing literature. However, the use of a monetary-fiscal policy model rather than a “real” general equilibrium one enables us to trace the macroeconomic channels including monetary ones through which these costs and benefits are transmitted to the rest of the economy. To the extent that these costs and benefits vary between countries, our results provide a potential explanation for the mixed empirical findings on the real effects of public capital spending.

Wage–price dynamics and income distribution in a semi-structural Keynes–Goodwin model

The paper studies the role of income distribution within a medium-scale macrodynamic model built in a Keynesian and Goodwinian tradition. Combining a wage and price Phillips curve, adjustments of an inflation climate, an IS relationship determining output, Okun’s law for employment and the Taylor rule for monetary policy, a semi-structural model is obtained that incorporates the most important macroeconomic channels in a closed economy. After assessing the reasonable time series variabilities in stochastic simulations, a deeper analysis is concerned with the stabilizing and destabilizing effects of the model’s parameters, and with a structural shift in income distribution. In many details of these investigations, the distinction between a wage-led and profit-led regime becomes important.

The Macro-Economic Impact of HIV/AIDS in South Africa

The macro-economic impact of HIV/AIDS in South Africa over the next 10 to 15 years is investigated by means of a macro-econometric model of the South African economy. The analysis is based on a set of HIV/AIDS inclusive and exclusive demographic projections for South Africa for the period up to 2015. The paper provides a detailed description of the various macro-economic channels of impact, the assumptions required to generate the model simulations, the macro-economic results and a sensitivity analysis of the main assumptions. The results suggest that although HIV/AIDS is expected to have a marked impact on macro-economic conditions in South Africa, the impact is not likely to be devastating to longer-term growth and development.

Macroeconomic Effects of the War in Mozambique

The aim of this paper is to analyse some macroeconomic channels operating in a war economy. At the theoretical level, the effects of such war on the key economic variables capital, technology, uncertainty, and the government's fiscal deficit are discussed before proceeding to the analysis of individuals, firms and the government. These elements are combined in a dynamic macroeconomic model to study a war's impact on output, growth, consumption, welfare and the national debt. The final section of this paper considers economic policy implications for a government at war, and for donors supporting a war economy. Both the theory and the evidence, drawn from Mozambique, suggest that while capital destruction is the most obvious cost of conflict the long-term development potential of a war economy is more severely damaged by increases in the fiscal deficit, uncertainty and transactions inefficiency. Furthermore, economic policies implemented during a war will determine the size and nature of the country's long-term peace dividend.