Ülo Ennuste Economics

papers and articles in wordpress

Excellent Papers in March 2015 by CEPR.org

DP10513 Comparing Inflation and Price Level Targeting: the Role of Forward Guidance and Transparency

Author(s): Seppo Honkapohja, Kaushik Mitra

Date of Publication: March 2015

Programme Area(s): IM

Keyword(s): Adaptive learning, monetary policy, zero interest rate lower bound

Abstract: We examine global dynamics under learning in New Keynesian models with price level targeting that is subject to the zero lower bound. The role of forward guidance is analyzed under transparency about the policy rule. Properties of transparent and non-transparent regimes are compared to each other and to the corresponding cases of inflation targeting. Robustness properties for different regimes are examined in terms of the domain of attraction of the targeted steady state and volatility of inflation, output and interest rate. We analyze the effect of higher inflation targets and large expectational shocks for the performance of these policy regimes.

DP10512 The Taxation of Foreign Profits: a Unified View

Author(s): Michael P. Devereux, Clemens Fuest, Ben Lockwood

Date of Publication: March 2015

Programme Area(s): IT, PE

Keyword(s): corporate taxation, multinational firms, repatriation

Abstract: This paper synthesizes and extends the literature on the taxation of foreign source income in a framework that covers both greenfield and acquisition investment, and a general constraint linking investment at home and abroad for the multinational by introducing a cost of adjustment for the mobile factor. Unless the cost of adjustment is zero, the domestic tax on foreign-source income should always be set to ensure the optimal allocation of the mobile factor between domestic and foreign assets and should follow the classical rules in the literature; national optimality requires the deduction rule, and global optimality requires the credit rule. Only in the zero-cost case does exemption become optimal. Allowances can be set so as to ensure that domestic and foreign asset purchases are undistorted by the tax system: this requires a cash-flow tax on domestic investment in the greenfield case, and a cross-border cash flow tax on foreign investment in both cases. These basic results extend to various extensions of the model, notably (i) when a profit-shifting motive is present; (ii) to some extent, when a corporate income tax is in place. The introduction of tax administration costs into the model can explain the empirical trend towards use of the exemption regime.

DP10511 Credit, Financial Stability, and the Macroeconomy

Author(s): Alan M. Taylor

Date of Publication: March 2015

Programme Area(s): EH, IM

Keyword(s): banks, financial crisis, financial history, leverage, macroeconomic history, macroprudential policy, monetary policy, recessions

Abstract: Since the 2008 global financial crisis, and after decades of relative neglect, the importance of the financial system and its episodic crises as drivers of macroeconomic outcomes has attracted fresh scrutiny from academics, policy makers, and practitioners. Theoretical advances are following a lead set by a fast-growing empirical literature. Recent long-run historical work has uncovered a range of important stylized facts concerning financial instability and the role of credit in advanced economies, and this article provides an overview of the key findings.

DP10510 Uncertainty Aversion and Systemic Risk

Author(s): David L. Dicks, Paolo Fulghieri

Date of Publication: March 2015

Programme Area(s): FE

Keyword(s): Ambiguity Aversion, Bank Runs, Financial Crises, Systemic Risk

Abstract: We propose a new theory of systemic risk based on Knightian uncertainty (or “ambiguity”). We show that, due to uncertainty aversion, beliefs on future asset returns are endogenous, and bad news on one asset class induces investors to be more pessimistic about other asset classes as well. This means that idiosyncratic risk can create contagion and snowball into systemic risk. Furthermore, in a Diamond and Dybvig (1983) setting, we show that, surprisingly, uncertainty aversion causes investors to be less prone to run individual banks, but runs will be systemic. In addition, we show that bank runs are associated with stock market crashes and flight to quality. Finally, we argue that increasing uncertainty makes the financial system more fragile and more prone to crises. We conclude with implications for the current public policy debate on the management of financial crisis

DP10500 Corporate Efficiency in Europe

Author(s): Jan Hanousek, Evzen Kocenda, Anastasiya Shamshur

Date of Publication: March 2015

Programme Area(s): FE

Keyword(s): efficiency, Europe, firms, ownership structure, panel data, stochastic frontier

Abstract: Using a stochastic frontier model and a comprehensive dataset, we study factors that affect corporate efficiency in Europe. We find that (i) larger firms are less efficient than smaller firms, (ii) greater leverage contributes to corporate efficiency, and (iii) high competition is less conductive to efficiency than moderate or low competition. In terms of ownership, we find that (iv) efficiency increases when a majority owner must deal with minority shareholders and that (v) domestic majority owners improve efficiency more than foreign majority owners when no minority shareholders are present, but (vi) the opposite is true when minority shareholders hold a substantial fraction of the firm’s equity. In the analysis, we distinguish between a pre-crisis period (2001-2008) and a post-crisis period (2009-2011), and find that our results are sensitive to the period of observation.

Charlie Anderson

0207 183 8809



April 1, 2015 - Posted by | Uncategorized

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