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The Centre for Growth and Business Cycle Research

Past workshops

2014/15 workshops

Semester 2

Paolo Surico (London Business School)
27 January 2015
Title: Housing Debt and the Transmission of Monetary Policy

Elias Papaioioannou (London Business School)
3 February 2015
Title: Federal transfer multipliers Quasi-Experimental: Evidence from Brazilian Municipalities

Abstract: According to Brazilian law, federal transfers to municipal governments change discontinuously at numerous predetermined population thresholds. We employ a 'fuzzy' regression discontinuity design to identify the causal effect of federal transfers on local economic activity. The analysis points to local fiscal multipliers between 1.4 and 1.8 across a range of specifications that control for fixed municipal characteristics, national business cycle and monetary policy. In line with the predictions of a currency union model, transfers from the federal government tend to be more effective for municipalities in states less open to trade and in areas where financial constraints are likely to be tighter.

Tatiana Kirsanova (University of Glasgow)
24 February 2015
Title: Nominal Targeting in an Economy with Government Debt

Abstract: The paper investigates how monetary price level targeting or monetary nominal income targeting may yield social gain in an economy with government debt and where the fiscal policymaker, acting strategically, may take counter actions. We argue that the choice of fiscal policy instrument plays an important role for the performance of monetary policy. The optimal choice of monetary policy delegation scheme depends crucially on the level of government debt and its maturity, with a switch from price level targeting being desirable to nominal income targets being strongly preferred as debt levels rise and maturity shortens.

Richard Agenor (University of Manchester)
17 March 2015
Title: Optimal Fiscal Management of Commodity Price Shocks

Abstract: A dynamic stochastic general equilibrium model is used to study the optimal fiscal response to commodity price shocks in a small open low-income country. The model accounts for imperfect access to world capital markets and a variety of externalities associated with public capital, including utility benefits, a direct complementarity effect with private investment, and reduced distribution costs. However, public capital is also subject to congestion and absorption constraints, with the latter affecting the efficiency of infrastructure investment. The model is parameterized and used to examine the transmission process of a temporary resource price shock under a benchmark case (cash transfers) and alternative fiscal rules, involving either higher public spending or accumulation in a sovereign fund. The optimal allocation rule between spending today and asset accumulation is determined so as to minimize a social loss function defined in terms of the volatility, relative to the benchmark case, of private consumption and either the nonresource primary fiscal balance or a more general index of macroeconomic stability, which accounts for the volatility of the real exchange rate. Sensitivity analysis is conducted with respect to various structural parameters and model specification.

Francesco Zanetti (University of Oxford)
21 April 2015
Title: Financial Shocks and Labor Market Fluctuations

Mohsen Veisi (University of Manchester)
28 April 2015
Title: Cash Transfer, Public Infrastructure and Resource Curse: Optimal Allocation of Resource Revenues

Abstract:Contrary to popular belief, there is a lack in the stock of public infrastructure in Resource-Rich Developing Countries, RRDC. Taking into account, the importance of public infrastructure for growth, these countries need to boost their resource-led public infrastructure. However, in recent years some countries have started, or about to start, to transfer part of their resource revenues in the form of cash to their citizens. This paper presents some analyses of cash transfer, inequality, public infrastructure and economic growth in a general equilibrium model. Within an OLG model, we justify the existence of simple cash transfer in RRDC and show that a program that targets the poor can alleviate inequality without damaging growth. Meanwhile taking into account the importance of public infrastructure in RRDC for growth, we find an optimal allocation of resource revenues between cash transfer and public infrastructure spending. We also find a threshold for the share of natural resources in output above which countries can embark on a cash-transfer program.

Gulcin Ozkan (University of York)
5 May 2015
Title: Who is afraid of austerity? The redistributive impact of fiscal policy in a DSGE framework

Abstract: This paper presents a comprehensive assessment of fiscal austerity, with special emphasis on its distributional consequences, which are largely ignored in the existing literature. Using a medium scale DSGE model we find that both the aggregate and distributional consequences of fiscal consolidation are shaped by its composition much more than by its speed. A trade-off emerges between efficiency and equality; spending-based austerity leads to smaller net movements in output, incomes and welfare, but also to larger inequality between agents who vary by their access and use of credit markets. Given the severity of the recent downturn in most advanced economies that had adopted austerity, this trade-off between growth and distributional consequences of fiscal consolidation is likely to pose serious challenges to policymakers in many countries.

Semester 1

Thijs van Rens (University of Warwick)
7 October 2014
Title: Accounting for Mismatch Unemployment

Abstract: We estimate unemployment due to mismatch in the US labour market, study its evolution over time and explore what frictions caused the mismatch. Our results speak to the policy debate about the recent increase in unemployment and contribute to economic theory by providing a detailed empirical analysis of mismatch as a possible micro-foundation for search frictions. We find that mismatch unemployment is as cyclical as the overall unemployment rate and no more persistent, casting doubt on the claim that unemployment in the Great Recession was due to structural factors. The most important source of mismatch are wage setting frictions. Worker and job mobility costs, which may also generate mismatch in theory, are not important empirically.

Gianluca Benigno (LSE)
20 October 2014
Title: Reserve Accumulation, Growth and Financial Crisis

Abstract: We present a model that reproduces two salient facts characterizing the international monetary system: i) Faster growing countries are associated with lower net capital inflows and ii) Countries that grow faster accumulate more international reserves and receive more net private inflows. We study a two-sector, tradable and non-tradable, small open economy. There is a growth externality in the tradable sector and agents have imperfect access to international financial markets. By accumulating foreign reserves, the government induces a real exchange rate depreciation and a reallocation of production towards the tradable sector that boosts growth. Financial frictions generate imperfect substitutability between private and public debt flows so that private agents do not perfectly offset the government policy. The possibility of using reserves to provide liquidity during crises amplifies the positive impact of reserve accumulation on growth. We use the model to compare the laissez-faire equilibrium and the optimal reserve policy in an economy that is opening to international capital flows. We find that the optimal reserve management entails a fast rate of reserve accumulation, as well as higher growth and larger current account surpluses compared to the economy with no policy intervention. We also find that the welfare gains of reserve policy are large, in the order of 1 percent of permanent consumption equivalent.

Rafaelle Rossi (The University of Lancaster)
28 October 2014
Title: Optimal Fiscal and Monetary Policy with Consumption Taxation

We study optimal fiscal and monetary policy in a sticky-price model with endogenous government spending and state-noncontingent public debt. The fiscal authority has access to consumption taxation, in addition to labour income taxation. The contribution of this paper is twofold. First, we characterize analytically the steady-state optimal provision of public goods. This depends on the agents risk aversion, the steady-state level of public debt and on the tax instrument adopted. We show that under consumption taxation the optimal size of public spending is, ceteris paribus, greater than under labour income tax. Furthermore, if the agents risk aversion is sufficiently high and the policy-maker can tax consumption, the optimal public-spending-to-GDP ratio is increasing in the long-run level of public debt. Second, in the short-run stochastic equilibrium, movements in consumption taxation have non-trivial effects on the agents intertemporal allocation. In turn, the dynamic properties of consumption taxation enable the policy-maker to affect the discount factor via modifications of the marginal utility of consumption. This extra wedge impacts on the pricing decisions of firms, and hence on inflation stabilization, and greatly improves welfare.

Stephen Millard (Bank of England)
4 November 2014
Title: Labour market slack and inflation

Abstract: In this presentation I first discuss what modern macroeconomic theory has to say about the relationship between various measures of labour market slack and wage and price inflation. I then go on to examine some recent empirical work, which has been carried out at the Bank of England by David Copple, that seeks to examine empirically these relationships. We find some evidence of a relationship between the unemployment gap or the average hours gap and wage inflation but little evidence of a stable relationship between any measure of labour market slack and price inflation, though regression results suggest that the unemployment gap does matter for price inflation.

Adams Adama (The University of Manchester)
11 November 2014
Title: Limited Contract Enforcement and Firm Financing: Growth and Welfare Implications

Abstract: We study limited enforcement of financial contracts and firm financing in a DSGE framework. Firms raise external funds for production through financial contracts. Because of limited enforceability issues, financial contracts become constrained efficient. We show that limited enforcement of contracts has effect on the business cycle properties of the model. We find that the effects of shocks on aggregate output are amplified as a result of limited enforcement. We also show that high cost of contract enforcement is associated with greater output volatility and welfare loss to households. Additionally, we find that future funding for small firms and economic growth are negatively affected as a result of limited contract enforcement. To support the findings from our theoretical analysis, we estimate an empirical model using data on cost of contract enforcement, the depth of credit information and real GDP. Our empirical results produce evidence of limited contract enforcement being associated with both low level of output and low output growth. We also find that countries with high cost of contract enforcement have high output volatility.

Andrea Ferrero (University of Oxford)
18 November
Title: Notes on the Underground: Monetary Policy in Resource-Rich Economies

Roman Sustek (Queen Mary University)
25 November
Title: Mortgages and Monetary Policy

Abstract: Mortgages are a striking example of a persistent nominal rigidity. As a result, under in-complete asset markets, monetary policy affects household decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. These channels are distinct from the transmission through the real interest rate. A general equilibrium model incorporating these features is developed. Persistent monetary policy shocks, resembling the level factor in the nominal yield curve, have larger real effects than transitory shocks. The transmission is stronger under adjustable- than fixed-rate mortgages. Higher inflation benefits homeowners under FRMs but hurts them under ARMs.

2013/14 workshops

Semester 2

Charles Nolan (University of Glasgow)
29 April 2014
Title: Universal vs separated banking with deposit insurance in a macro model

Mike Elsby (University of Edinburgh)
1 April 2014
Title: Fixed Adjustment Costs and Aggregate Fluctuations

Dave Chivers (The University of Manchester)
25 March 2014
Title: Taking Care Off Business: Firm Size, Entrepreneurship and Employer-led Health Insurance

Jonathan Portes (NIESR)
18 March 2014
Title: Europe: Return to Growth?

Antonio Navas (University of Sheffield)
11 March 2014
Title: Trade Openness, Institutional Change and Economic Growth

Vincent Sterk (UCL)
4 March 2014
Title: The Growth Potential of Startups over the Business Cycle

Yuxiang Zou (The University of Manchester)
25 February 2014
Title: The Role of Labor Markets in International Trade

Christoph Goertz (University of Birmingham)
18 February 2014
Title: News Shocks and Business Cycles: Bridging the Gap from Different Methodologies

Francesco Caselli (London School of Economics - joint with Development Group)
4 February 2014
Title: The Geography of Inter-State Resource Wars

Huiping Yuan (Xiamen University)
28 January 2014
Title: Why Level and Variability Trade-offs? Fewer Instruments than Targets

Semester 1

Frederic Malherbe (London Business School)
24 September 2013
Title: Optimal capital requirements over the business and financial cycles

Michael McMahon (University of Warwick)
1 October 2013
Title: Transparency and Communication within the FOMC: A computational linguistics approach

Ethan Ilzetzki (London School of Economics)
22 October 2013
Title: A Positive Theory of Tax Reform

Stephen Millard (Bank of England)
19 November 2013
Title: Modelling the service sector

Adams Adama (The University of Manchester)
26 October 2013
Title: Corruption and Political Turnover in a Model of Sovereign Default