Search results

The purpose of this paper is to find alternative strategies to change negative output gaps in China.

A path Philips curves approach is proposed to investigate output gaps, which develops hybrid Philips curves with the control variables of money, house prices and interest rates.

An alternative strategy to stop the decline in output gaps rate is to perform interest rate, house price, and money growth rate about 3, 1 and 15 percent, respectively. The results also indicate that only one of monetary increase, changes in interest rates, and house price adjustments are difficult to change the negative output gap.

Alternative strategies cannot only change the negative output gap, but also succeed in pushing the inflation rate down to 3 percent.

This study provides a new path Philips curves to simulate how the macroscopic control variables influence output and inflation. It provides a useful insight for stopping the decline in output gaps.

The purpose of this paper is to amend the New Keynesian Phillips Curve (NKPC) model to include inflation volatility. It provides results on the determinants of inflation volatility and expected inflation volatility for ordinary least squares and autoregressive distributed lags (1,1) models and for change in inflation volatility and change in expected inflation volatility using error correction mechanism (ECM) models. Output gap affects change in expected inflation volatility alone (in the ECM model) and not in the other models. Major determinants of inflation volatility and expected inflation volatility are identified. To the best of the authors knowledge this is the first paper to augment the NKPC to include inflation volatility.

Recent analysis has indicated the importance of inflation volatility for the monetary transmission mechanism in India (Kapur and Behera, 2012). In the analysis of such monetary policy mechanisms the NKPC has proved to be a useful tool. Thus Patra and Ray (2010) for India and Brissimis and Magginas (2008) for the USA find considerable support for the standard NKPC. The purpose of this paper is to synthesize and integrate these two models by extending the standard NKPC framework to include inflation volatility and test its significance for the case of India.

In the case of inflation volatility output gap, lagged output gap and lagged inflation volatility are all insignificant. The level of inflation has a negative significant impact whereas the level of expected inflation has a positive and significant impact. In the case of expected inflation volatility lagged output gap has a negative and significant impact, the price level has a positive and significant impact whereas expected price has a negative and weakly significant impact. ECM reveals change in inflation variability falls significantly with lagged inflation volatility and lagged inflation and less significantly with change in expected inflation. It rises with lagged expected inflation although the coefficient is only weakly significant. Lagged output gap and change in output gap are insignificant.

This paper makes two original contributions. First, it extends the New Keynesian framework to include inflation volatility. Second, it estimates this model for India. To the best of the authors knowledge this is the first paper to make these contributions.

This paper aims to identify the relative contribution of the business cycle and structural factors to the development of part-time employment in the 15 Member States of the European Union before the 2004 enlargement (EU-15) over the 1980s and 1990s. To do so, it exploits both cross-sectional and time series variations in available data over the past two decades.

Key results include the business cycle that is found to exert a short-term negative effect on part-time employment developments, although this effect fades away over the two-decade period considered. This finding is consistent with firms utilising part-time employment as a means of adjusting their labour force to economic conditions. Correspondingly, involuntary part-time employment is found to be counter-cyclical, being higher in troughs of economic activity. Splitting our sample reveals a very significant effect of the business cycle on the rate of part-time work for young and male prime-age workers. Conversely, the effect is very weak for women and insignificant for older workers.

Institutions and other structural factors are also found to be significant, longer run determinants of the rate of part-time employment. Changes in legislation affecting part-time employment are found to have a strong and positive impact on part-time employment developments. Moreover, employment protection legislation is positively correlated with the part-time employment rate (PTR), which is consistent with the use of part-time work as a tool for enhancing flexibility in the presence of rigid labour markets. Less robust evidence suggests the presence of unemployment traps for some potential part-time workers. Cross-country evidence also indicates that the lower labour costs borne by firms when employing part-time workers have a large and positive influence on the PTR. Overall, a contribution analysis shows that the main structural and institutional variables generally explain the development in the part-time rate in the EU countries fairly well, while this is obviously not the case in the United States.

Should the central bank target asset price inflation? In their 1999 paper Bernanke and Gertler claimed that price stability and financial stability are “mutually consistent objectives” in a flexible inflation targeting regime which “dictates that central banks … should not respond to changes in asset prices.” This conclusion is straightforward within their framework in which asset price inflation shows up as a factor “augmenting” the IS curve. In this chapter, we pursue a different modeling strategy so that, in the end, asset price dynamics will be incorporated into the NK Phillips curve. We put ourselves, therefore, in the best position to obtain a significant stabilizing role for asset price targeting. It turns out, however, that inflation volatility is higher in the asset price targeting case. After all, therefore, targeting asset prices may not be a good idea.

The purpose of this paper is to develop growth models that depart from the conventional framework, in the sense that consumption decisions take into account previous periods' expectations about output fluctuations. Households will raise their propensity to consume in periods of expected expansion and they will lower it in phases of predictable recession. Such a framework allows discussion of how growth trends may be disturbed over time as the result of changes in consumer sentiment.

Endogenous growth models are generally designed to address long‐term trends of growth. They explain how the economy converges with or diverges from a balanced growth path and they characterize aggregate behavior, given the optimization problem faced by a representative agent that maximizes consumption utility. In such frameworks, only potential output matters and all decisions, by firms and households, are taken on the assumption that any expectations on the value of the output gap do not interfere with the agents' behavior. Introducing consumer sentiment, a conventional growth model is modified in order to understand how effective output eventually deviates from the balanced growth path.

The proposed framework allows one to introduce nonlinear dynamics into the model, making it feasible to obtain, for reasonable parameter values, endogenous fluctuations. These are triggered by a Neimark‐Sacker bifurcation.

By introducing consumer confidence or consumer sentiment, it is possible to integrate the evaluation of growth and cycles into a unified framework. It is possible to explain business cycles as the result of the consumers' reaction to the expected performance of the economic system.

The purpose of this paper is to check if there is a procyclical lending behaviour in dual banking systems of the Golf Cooperation Council (GCC) countries. The study also tries to control for the role of Islamic banks in amplifying or mitigating the procyclicality of dual banking systems.

Estimation of a dynamic panel model using annual observations on a sample of 81 banks based in the GCC countries between 2005 and 2018. The study uses two business cycle indicators as dependent variables, namely, output gap and oil price gap.

The system generalilzed method of moments (GMM) estimator and robustness checks confirm the procyclical lending pattern of dual banking systems in the GCC. Estimation outputs also indicate that this procyclicality is more pronounced during economic slowdowns. However, it is found that Islamic banks’ lending is less procyclical, giving support for the stability view of Islamic banking systems. The authors think that the implementation and conduct of macroprudential policies are very challenging for banking authorities when Islamic banks and conventional banks operate under the same regulatory framework.

The research paper may suffer from some limitations. Indeed, exploring panel data instead of country-case data may lead to a problem of heterogeneity that may underpin the credibility of the econometrical estimations. To deal with this problem by introducing a set of bank-specific and time-specific dummies. Furthermore, small N samples (N = number of individuals) may affect the reliability of the tests for the validity of instruments and autocorrelation used under the GMM estimator, leading to inefficient results. Consequently, the number of selected banks is extended as much as possible (81 banks), becoming important comparing to the time dimension of the panel.

Policymakers and regulators are incited to embed the perspectives of Islamic finance regarding lending cyclicality in dual banking systems, which promote the efficiency of resource allocation to the financing of assets and by consequence enabling financial stability. The stability view of the Islamic banking system could prompt policymakers and regulators to encourage the implementation and development of Islamic banks.

The present paper tries to overcome the lack of empirical studies on the procyclicality of dual banking. The study contributes to this novel literature in two ways. First, it focuses exclusively on GCC banking systems. In fact, compared to other emerging markets, business cycles characterizing GCC are specific because of the role played by the oil and gas revenues in the economic growth and financial system is crucial. Second, this paper brings into evidence the procyclicality of GCC banking systems also when the oil price is taken as a business cycle indicator.

The purpose of this paper is to examine the deficit–inflation nexus in the two fastest growing economies, India and China, which happen to be crucial affiliates of the global growth generator countries apart from their association in Brazil, Russia, India, China, and South Africa.

The paper uses the prism of the vector auto regression framework, for the period 1985–1986 to 2016–2017 for both India and China. For this purpose, gross fiscal deficit, money supply, exchange rate, crude oil prices and output gap are examined as the key elements in the determination of inflation. The econometric framework used chiefly comprises of cointegration analysis, vector error correction model, Granger causality and impulse response functions.

The findings of this paper support the hypothesis that fiscal deficits are inflationary only in the Indian context and that the Ricardian equivalence cannot be negated for China at least in the short run. The results presented in the paper are a little agnostic about whether New Keynesian Phillips Curve (NKPC) explains the inflation dynamics in India, given that both inflation inertia and output gap are not robust. However, for the Chinese economy, NKPC along with structural theory is instrumental in describing trends pertaining to inflation during the period of the study.

The paper warrants broader policy framework to aim at addressing structural bottlenecks to ensure non-inflationary growth keeping in mind the structural views on inflation. Furthermore, the paper fosters greater synthesis between monetary and fiscal policies, especially considering the global economic disruptions the world economy is subject to.

Considering there are only a limited number of studies on fiscal deficit of China, the present paper is of paramount significance in terms of growing concern over the sustainability of the growth process in China. Additionally, the paper is first-of-its-kind attempt to account the effectiveness of a healthy monetary–fiscal interface in achieving macroeconomic stability in India and China.

Despite being a flexible tool that can address several macroeconomic issues, Dynamic Stochastic General Equilibrium (DSGE) models have been rarely used to analyse the interaction between monetary and fiscal policy until the post-financial crisis, leaving a gap in the analysis of how government consumption affects the transmission mechanism of monetary policy. This motivates this paper to analyse how government consumption affects the dynamics of a small open economy, once the former is included in a non-separable form to the utility function. To the best of the authors' knowledge, this issue has not been addressed by the literature, and the authors aim to do so in this paper.

A standard New Keynesian model for a small open economy is used to allow for the presence of non-separable government consumption in the utility function. The model is supported by panel regressions.

The inclusion of Government consumption dampens the transmission mechanism of monetary policy. The degree of openness dampens the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it. Empirical estimates for 35 OECD countries support the theoretical findings of the model.

The effect of government consumption on the transmission mechanism of MP has not been addressed in the literature. This paper contributes to the literature by addressing this issue.

• • The inclusion of Government consumption dampens the transmission mechanism of monetary policy.

• • The degree of openness alleviates the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it.

• • Empirical estimates for 35 OECD countries support the theoretical findings of the model.

• The inclusion of Government consumption dampens the transmission mechanism of monetary policy.

• The degree of openness alleviates the crowding out effect of fiscal policy to monetary policy, as the exchange rate channel empowers it.

• Empirical estimates for 35 OECD countries support the theoretical findings of the model.