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Europe > Ireland

You are looking at 1 - 10 of 22 items for :

  • Type: Journal Issue x
  • Consumption; Economics x
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Cover IMF Working Papers
The Diagnostic Financial Accelerator
Lahcen Bounader
and
Selim A Elekdag
We develop a model with diagnostic expectations (DE) and a financial accelerator (FA) that generates mutually reinforcing shock amplification, especially in the case of demand shocks. However, supply shocks can be dampened via a debt deflation channel, which is strengthened amid DE. Importantly, the model results in a worsening of the inflation-output volatility trade-off confronting policymakers. In contrast to most of the literature—which argues against targeting the level of asset prices—our financial accelerator model with DE suggests that targeting house price growth may result in welfare gains.
Keywords:
Financial Accelerator; Diagnostic Expectations; Optimal monetary policy; Instrument rules; debt deflation channel; inflation-output volatility trade-off; house price growth; inflation trade-off; model dynamics; Inflation; Asset prices; Housing prices; Consumption; Business cycles; Global
Cover IMF Working Papers
Contagion as a Dealmaker? The Effect of Financial Spillovers on Regional Lending Programs
Alexandra Fotiou
,
Alica Ida Bonk
, and
Georgios Manalis
The recent European sovereign debt crisis highlighted the critical role of regional lending arrangements. For the first time, European mechanisms were called to design financing programmes for member countries in trouble. This paper analyses how the risk of contagion, an essential characteristic of interlinked economies, shapes borrowing conditions. We focus on the role of spillovers as a channel of bargaining power that a country might have when asking for financial support from regional lending institutions. We build and present a new database that records both the dates on which official meetings took place, relevant statements were released and the timing of the announcements regarding loan disbursements. This database allows us to assess the defining role that announcements of future actions have in mitigating spillover costs. In addition, we study the design of lending arrangements within a recursive contract between a lender and a sovereign country. When accounting for spillover costs, arising from the borrower to the creditor, we find that it is in the lender's best interest to back-load consumption by giving more weight to future transfers in order to reduce contagion cost. Subsequently, we test and validate our theoretical predictions by assessing the effect of spillovers on loan disbursements to programme-countries and by juxtaposing lending conditions imposed by the IMF and the European mechanisms.
Keywords:
Regional lending mechanisms; currency-union; spillovers; spillover cost; loan disbursement; lending condition; loan announcement; lending program; Loans; Consumption; Credit default swap; ESM disbursement; lending terms and conditions; lending agreement; IMF statement
Cover IMF Working Papers
Climate Mitigation Policy in Denmark: A Prototype for Other Countries
Nicoletta Batini
,
Ian W.H. Parry
, and
Mr. Philippe Wingender
Denmark has a highly ambitious goal of reducing greenhouse gas emissions 70 percent below 1990 levels by 2030. While there is general agreement that carbon pricing should be the centerpiece of Denmark’s mitigation strategy, pricing needs to be effective, address equity and leakage concerns, and be reinforced by additional measures at the sectoral level. The strategy Denmark develops can be a good prototype for others to follow. This paper discusses mechanisms to scale up domestic carbon pricing, compensate households, and possibly combine pricing with a border carbon adjustment. It also recommends the use of revenue-neutral feebate schemes to strengthen mitigation incentives, particularly for transportation and agriculture, fisheries and forestry, though these schemes could also be applied more widely.
Keywords:
Denmark climate mitigation; carbon pricing; feebate; revenue recycling; border carbon adjustment; transportation; agriculture.; WP; emission rate; EU ETS; emissions price; sliding scale; greenhouse gas; proxy emissions fee; Climate change; agriculture; energy price; mitigation target; nitrogen oxide emission; Carbon tax; Greenhouse gas emissions; Consumption; Global
Cover IMF Working Papers
One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area
Giancarlo Corsetti
,
Joao B. Duarte
, and
Samuel Mann
We study the transmission of monetary shocks across euro-area countries using a dynamic factor model and high-frequency identification. We develop a methodology to assess the degree of heterogeneity, which we find to be low in financial variables and output, but significant in consumption, consumer prices, and variables related to local housing and labor markets. Building a small open economy model featuring a housing sector and calibrating it to Spain, we show that varying the share of adjustable-rate mortgages and loan-to-value ratios explains up to one-third of the cross-country heterogeneity in the responses of output and private consumption.
Keywords:
WP; coefficient of variation; nominal exchange rate
Cover IMF Working Papers
Monetary Policy and the Relative Price of Durable Goods
Mr. Alessandro Cantelmo
and
Mr. Giovanni Melina
In a SVAR model of the US, the response of the relative price of durables to a monetary contraction is either flat or mildly positive. It significantly falls only if narrowly defined as the ratio between new-house and nondurables prices. These findings are rationalized via the estimation of a two-sector New-Keynesian (NK) models. Durables prices are estimated to be as sticky as nondurables, leading to a flat relative price response to a monetary shock. Conversely, house prices are estimated to be almost flexible. Such results survive several robustness checks and a three-sector extension of the NK model. These findings have implications for building two-sector NK models with durable and nondurable goods, and for the conduct of monetary policy.
Keywords:
WP; durable goods; monetary policy; durables; nondurables; price stickiness; relative price; nondurable goods; markup shock; price indexation; nondurables price; monetary policy shock; Sticky prices; Housing; Housing prices; Consumption; Inflation
Cover IMF Working Papers
It’s Not All Fiscal: Effects of Income, Fiscal Policy, and Wealth on Private Consumption
Laura Jaramillo
and
Alexandre Chailloux
We attempt to disentangle income and wealth effects on consumption by disaggregating both the different types of income and wealth. We estimate a consumption function for a panel of quarterly data for 14 advanced economies spanning 1998 to 2012, using an error correction specification. We find a significant long-term relation between consumption and the different components of income and wealth. While fiscal policy had direct effects on consumption, the analysis suggests that wealth effects were sizeable, and therefore need to be kept in mind when analyzing consumption trends going forward.
Keywords:
WP; Labor income; housing assets; wealth variable; Consumption; fiscal policy; wealth; financial assets; household debt; consumption growth; wealth effects; Income; Private consumption; Social security contributions; Housing; Global
Cover IMF Working Papers
Fiscal Devaluation in a Monetary Union
Philipp Engler
,
Mr. Giovanni Ganelli
,
Juha Tervala
, and
Simon Voigts
Using a DSGE model calibrated to the euro area, we analyze the international effects of a fiscal devaluation (FD) implemented as a revenue-neutral shift from employer's social contributions to the Value Added Tax. We find that a FD in ‘Southern European countries’ has a strong positive effect on output, but mild effects on the trade balance and the real exchange rate. Since the benefits of a FD are small relative to the divergence in competitiveness, it is best addressed through structural reforms.
Keywords:
WP; Southern European countries; expenditure switching; Fiscal devaluation; fiscal policy; euro area; currency union; current account; output effect; Southern European countries of the Southern European countries; trade balance effect; open economy; expenditure switching effect; households in Southern European countries; imperfect competition; fiscal devaluation in Southern European countries; deficit in Southern European countries; devaluation in Southern European countries; Value-added tax; Trade balance; Consumption; Personal income tax; Southern Europe
Cover IMF Working Papers
Growth Following Investment and Consumption-Driven Current Account Crises
Mr. Alexander D Klemm
Current account deficits imply increasing liabilities to the rest of the world. External sustainability then depends on whether these can be met in the future without defaulting, i.e., normally through trade account surpluses. To run such surpluses without a fall in consumption, capital inflows should be used to increase future output. This paper tentatively finds that current account deficits reversals that follow investment booms are marked by better growth performance than those following consumption booms. It also shows that many recent large current account deficits have been predominantly the result of consumption or non-productive investment booms.
Keywords:
WP; current account deficit; deficit; investment; Current Account; Savings; Consumption; Consumption-Driven current account crisis; current account reversal; investment share; current account outcome; current account events; current account adjustment; deficit episode; deficits in Argentina; Current account deficits; Current account imbalances; Current account surpluses; Europe; Global
Cover IMF Working Papers
Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area
Mr. Dominic Quint
and
Mr. Pau Rabanal
In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policy would always increase the welfare of savers, but their effects on borrowers depend on the shock that hits the economy. In particular, macroprudential policy may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads.
Keywords:
WP; Monetary Policy; EMU; Basel III; Financial Frictions; intermediate goods; credit market; utility function; monetary policy rule; technology shock; monetary policy shock; housing stock; depreciation rate; credit growth; optimal monetary policy; risk shock; labor disutility coefficient; Macroprudential policy; Credit; Housing; Consumption; Inflation
Cover IMF Working Papers
Revisiting the Link Between Finance and Macroeconomic Volatility
Ms. Era Dabla-Norris
and
Mr. Narapong Srivisal
This paper examines the impact of financial depth on macroeconomic volatility using a dynamic panel analysis for 110 advanced and developing countries. We find that financial depth plays a significant role in dampening the volatility of output, consumption, and investment growth, but only up to a certain point. At very high levels, such as those observed in many advanced economies, financial depth amplifies consumption and investment volatility. We also find strong evidence that deeper financial systems serve as shock absorbers, mitigating the negative effects of real external shocks on macroeconomic volatility. This smoothing effect is particularly pronounced for consumption volatility in environments of high exposure - when trade and financial openness are high - suggesting significant gains from further financial deepening in developing countries.
Keywords:
WP; yes; external shock; consumption volatility; GDP; Financial Depth; Macroeconomic Volatility; volatility regression; investment volatility; consumption decision; per-capita GDP; standard deviation; Consumption; Private consumption; Credit; Terms of trade; Financial sector development; Global