Unconventional monetary policy and stock repurchases: Firm-level evidence from a comparison between the United States and Japan

This paper is the first comparative study examining the determinants of stock repurchases during the period of unconventional monetary policy. By constructing a vast firm-level dataset of the U.S. and Japan and conducting multivariate Tobit and probit analyses, this paper presents evidence that during the period of unconventional monetary policy, in both the U.S. and Japan, firms with more free cash flow and lower borrowing costs are more likely to repurchase stock, firms with higher financial leverage are more likely to abstain from stock repurchases, and firms coordinate dividends and stock repurchases to please shareholders. I also find striking contrasts between the results of U.S. and Japanese firms, and show the importance of financial structure in explaining the contrasting results. From a micro perspective, this paper provides new insight and evidence to support the view that financial structure should be thought of as an important factor determining the effects of unconventional monetary policy.     

Are China’s regional agricultural productivities converging: How and why?

This article tests the hypotheses of convergence to a single level of total factor productivity (TFP), and a steady state of TFP growth rate in China’s agricultural sector. Based on multilateral TFP estimates we found that China’s agricultural sector has rebounded in recent years from a slower TFP growth in the 2005–2007 period. While convergence test results confirm a “catch-up” effect that provinces with lower TFP levels tend to grow faster than others, estimated rates of β convergence are conditional on how we capture the heterogeneity effect across regions. The rates of β convergence range from 0.016 to 0.039 under different model specifications. Estimates show that higher growth rates of educational attainment, R&D, and intermediate goods density (per unit of labor) can enhance TFP growth. Unfortunately, there is no evidence of an overall σ convergence, indicating that TFP levels are not converging except in the South region. It implies that to catch up with leading provinces, it would require extra efforts for those lagging behind by increasing their region-specific research investment, promoting rural educational attainment, and enhancing embodied technical change.     

A classroom experiment in monetary policy

The authors propose a classroom experiment implementing a simple version of a New Keynesian model suitable for courses in intermediate macroeconomics and money and banking. Students play as either the central bank or members of the private sector. The central banker sets interest rates to meet twin objectives for inflation and the output gap or to meet only an inflation target. In both settings, private sector agents are concerned with correctly forecasting the inflation rate. The authors show that an experiment implementing this setup is feasible and yields results that enhance understanding of the New Keynesian model of monetary policy. They propose alternative versions where the central bank is replaced by a policy rule and provide suggestions for discussing the experimental results with students.     

On Targeting Frameworks And Optimal Monetary Policy

We show that speed limit policy, a monetary policy strategy that focuses on stabilizing inflation and the change in the output gap, consistently outperforms flexible inflation targeting and flexible price level targeting in empirical medium‐scale DSGE models under discretionary policymaking. In contrast to small‐scale New Keynesian models, this welfare ranking of the targeting frameworks is not overturned when inflation dynamics are mostly backward‐looking. Importantly, the performance of the speed limit policy shows less sensitivity to its parameterization than other frameworks that target the inflation rate or the price level.     

The Internet's impact on trademark applications

This article assesses empirically the impact of Internet access on the number of trademark applications submitted by countries' residents. The analysis suggests that promotion of access to the Internet influences positively the submission of trademark applications by residents. Greater access to the Internet exerts a stronger positive effect on trademark submissions in developed countries than in developing ones. This positive effect is enhanced when countries further liberalise their trade regimes.     

NOMINAL GDP TARGETING AND CENTRAL BANK CONSERVATIVENESS

In the literature on monetary economics, there is the ‘inflationary bias’ result which predicts that the rate of inflation will be biased towards a higher level under discretionary monetary policy than under a rule‐based policy regime. It is established that a credible nominal target can eliminate this ‘inflationary bias’. In this paper, we examine the case of nominal GDP targeting, which is a rule‐based monetary regime. Depending on the degree of conservativeness by the central bank, we show in a stylized model the choice of different combination of inflation and real GDP targets can still result in an ‘inflationary bias’, and there also exists the possibility of a ‘dis‐inflationary bias’.     

WHAT CAN WE LEARN FROM THE IMPLEMENTATION OF MONETARY AND MACROPRUDENTIAL POLICIES: A SYSTEMATIC LITERATURE REVIEW

The emergence of macroprudential policies, implemented by central banks as a means of promoting financial stability, has raised many questions regarding the interaction between monetary and macroprudential policies. Given the limited number of studies available, this paper sheds light on this issue by providing a critical and systematic review of the literature. To this end, we divide the theoretical and empirical studies into two broad channels of borrowers – consisting of the cost of funds and the collateral constraint – and financial intermediaries – consisting of risk‐taking and payment systems. In spite of the existing ambiguity surrounding coordination issues between monetary and macroprudential policies, it is argued that monetary policy alone is not sufficient to maintain macroeconomic and financial stability. Hence, macroprudential policies are needed to supplement monetary. In addition, we find that the role of the exchange rate is critical in the implementation of monetary and macroprudential policies in emerging markets, while volatile capital flows pose another challenge. In so far as how the arrangement of monetary and macroprudential policies varies across countries, key theoretical and policy implications have been identified.     

Economic policy uncertainty and stock price crash risk

This paper studies the impact of economic policy uncertainty on stock price crash risk using data from China. We develop a new index to measure Chinese economic policy uncertainty and find that economic policy uncertainty has a remarkable positive effect on stock price crash risk. However, the effect reverses later. The results also indicate that the positive effect of economic policy uncertainty on stock price crash risk is more prominent for state‐owned enterprises. Moreover, this effect is more prominent for firms with higher information asymmetry and firms with greater disagreement among investors, indicating that economic policy uncertainty affects crash risk through two mechanisms: managers’ concealment of bad news and investors’ heterogeneous beliefs.     

Household Debt Overhang and Transmission of Monetary Policy

We investigate how the level of household indebtedness affects the monetary transmission mechanism in the U.S. economy. Using state‐dependent local projection methods, we find that the effects of monetary policy are less powerful during periods of high household debt. In particular, the impact of monetary policy shocks is smaller on GDP, consumption, residential investment, house prices, and household debt during a high‐debt state. We then build a partial equilibrium model of borrower households with financial constraints to rationalize these facts. The model points to the weakening of the home equity loan channel as a possible reason for the decline in monetary policy effectiveness when initial debt levels are high.     

Multi-criteria analysis of economic complexity transition in emerging economies: The case of Paraguay

Like many emerging economies, the productive structure of the Paraguayan economy is not complex. It relies extensively on low value-added activities in the primary sector such as agriculture and cattle ranching. These activities have a lower return in terms of economic and social benefits than other potential productive activities and do not contribute to increasing capability accumulation. In this paper we present a tool to support the identification of strategic sectors and products which if taken advantage of, could leverage development through the accumulation of productive capabilities. Our guiding question is: Which productive sectors should be promoted to foster economic development in Paraguay through a transition towards a more complex economy? To answer this question, we use concepts from the Economic Complexity theory to identify new products and cluster them based on the Product Space methodology for the determination of potential products and combine it with the Analytic Hierarchy Process (AHP) for multicriteria analysis considering multiple criteria. In doing so, our proposed methodology contributes to both the Economic Complexity and the AHP literature. Through this combination, we tackle the multiplicity of juxtaposed criteria, which should be considered at the prioritization stage in the crafting of economic restructuring measures according to the country's capabilities. Our evaluation showed that the combination of the approaches is useful, and for Paraguay's case, it helped identify sectors, which, if promoted by policymakers, could help boost economic development through complexity and capability accumulation.