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The Centre for Growth and Business Cycle Research

Discussion papers 2018

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Altansukh, G., Becker, R., Bratsiotis, G.J., Osborn, D.R., (2018). 'Structural Breaks in International Inflation Linkages for OECD Countries', Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 240.

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This paper studies the link between domestic inflation for 19 OECD countries and a corresponding country-specific global inflation series. This is achieved through an iterative methodology, which iterates between coefficient and variance tests, while taking account of outliers. This procedure is applied to both univariate and bivariate inflation models that relate domestic and global inflation, with the latter is calculated as a trade-weighted average of inflation in a country's trading partners. The empirical analysis uses monthly consumer price inflation over 1970 to 2010 and the following key results emerge. First, the univariate analysis yields breaks in the conditional mean that are broadly consistent with the existing literature. Second, we document clusters of variance breaks occurring around the mid 1970s, early 1980s and early 1990s, casting doubt on the claim in the literature that changes of the in inflation has been mainly in the mean. Third, bivariate models show a positive and strengthening contemporaneous relationship between domestic and country specific global inflation. Although the dates and extent of change vary over countries, our results imply increased co-movements of inflation, particularly during the 1980s and 1990s. Fourth, we demonstrate that the above results crucially depend on an appropriate treatment of outliers.


Motta, G., Rossi, R., (2018). 'Optimal Fiscal Policy with Consumption Taxation', Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 239.

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We characterise optimal fiscal policies in a tractable Dynamic General Equilibrium model with monopolistic competition and endogenous public spending. The government has access to consumption taxation, as alternative to labour income taxes. Consumption taxation acts as indirect taxation of profits (intratemporal gains of taxing consumption) and enables the policy-maker to manage the burden of public debt more efficiently (intertemporal gains of taxing consumption). We show analytically that these two gains imply that the optimal share of government spending is higher under consumption taxation than with labour income taxation. Then, we quantify numerically each of these gains on households’ welfare by calibrating the model on the US economy.


Neanidis, K.C., Savva, C.S., (2018). 'Regional Spillovers in Financial Dollarization', Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 238.

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This paper examines the presence of cross-country or regional spillovers in financial dollarization. Using spatial econometric techniques and a unique monthly dataset of deposit and loan dollarization extending over two decades for 23 transition countries that belong in the same geographical region, we find strong evidence of regional spillovers in both types of dollarization. Spillovers are channelled by trade and banking linkages, and pass through to all countries independently of their level of financial dollarization. Policy interventions that reduce dollarization in one country can, therefore, affect neighboring countries.


Agénor, P-R.,  (2018). 'A Theory of Social Norms, Women's Time Allocation, and Gender Inequality in the Process of Development', Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 237.

This paper studies how social norms influence gender bias in the workplace and in the family, how these two forms of discrimination interact among themselves and with intra-household bargaining, and how gender norms evolve in the course of development. The presence of women in the labor market is a key determinant of the degree of gender bias in the workplace. Household preferences towards girls' education depend on women's bargaining power which, through the male-female wage gap, depends itself on gender bias in the labor market. Experiments with a calibrated version of the model for a stylized low-income country show that interactions between social norms, women's time allocation, and gender gaps are a critical source of growth dynamics. Initial measures aimed at mitigating the influence of discriminatory norms regarding gender roles in the workplace and in the family can magnify over time the benefits of standard policy prescriptions (aimed for instance at fostering childhood education) in promoting development and gender equality.

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Bratsiotis, G.J.,  (2018). 'Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel', Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 236.

This paper examines the role of the precautionary demand for liquidity and the interest on reserves as two potential determinants of the deposits channel that can help explain the role of monetary policy, particularly at the near zero-bound. At high levels of precautionary liquidity hoarding the optimal policy response of a Taylor rule is shown to indicate a zero weight on inflation. This result is explained by the effect that the demand for liquidity has on the deposit rate which determines the intertemporal choices of households. Similarly, through its effect on the deposits channel the interest on reserves can act as the main tool of monetary policy, that is shown to provide higher welfare gains in relation to a simple Taylor rule. This result is shown to hold at the zero-bound and it is independent of the precautionary demand for liquidity, or fiscal theory of the price level properties.

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