by Jan-Philipp Dueber, University of Kent. Discussion paper KDPE 1811, August 2018.
Time-varying volatility plays a crucial role in understanding business cycles in emerging market economies. There is now plentiful empirical evidence that volatility as measured by the standard deviation in macroeconomic data is time-varying and strongly countercyclical. Volatility increases during an economic recession and becomes lower during an economic boom.
In addition, we observe that standard open-economy macroeconomic models widely used for business cycle analysis fail to address the specific characteristics of many emerging market economies. In emerging market economies the net export to output ratio is typically negatively correlated with output i.e. it is countercyclical. However, standard models predict a near perfect positive correlation between the two. Besides that, emerging market economies show a higher fluctuation in consumption data than in data on output. Standard models, however, predict a higher fluctuation in output than consumption. These models are therefore overemphasizing the role of consumption smoothing.
Large-scale rural-urban migration and a concurrent shift in employment from agriculture to manufacturing are two common features of countries in the process of economic development. Most of the past theoretical and empirical work in this area has focussed exclusively on understanding the migration and work patterns of men, so that relatively little is known about the potential for and drivers of female migration in developing economies. In traditional societies, prevailing gender norms can restrict female work participation and independent (i.e. without a family) migration, which suggests that women may be more limited than men in their ability to take advantage of economic opportunities in urban non-agricultural industries. On the other hand, it is well-documented that marriage is an important vehicle for female long-distance migration in traditional patriarchal societies, which suggests that the marriage market can provide – and itself be shaped by – growing economic opportunities for women in urban areas.
The Japanese economy has gone through important transitions during the postwar period such as the gradual slowdown in economic growth and the steady increase in the share of people aged above 65 years old among the adult population. In this paper we construct a parsimonious neoclassical growth model to quantitatively assess the impact of population aging and various government policies on output growth in Japan over the 1975-2015 period.
We consider several interactions between government policies and population aging. First, labor income tax has been rising steadily as the social security burden of the working age population has increased. Next, population aging tends to decrease employment and increase hours worked per worker in exchange; the workweek reduction policy introduced in the late 1980s is crucial to account for the decline in hours worked per worker during this period. Finally, the composition of fiscal spending has shifted from public investment to medical expenditure as the demand for health care services has risen.
The mechanisms through which monetary policy (MP) affects inflation and real economic activity are central to macroeconomics. During the past few decades, New Keynesian models have constituted the dominant view of that transmission mechanism. In those models, MP affects inflation and real economic activity through the effect of interest rate changes on firms' mark-ups over marginal costs of production. Changes in mark-ups have a redistributive effect between labour and profits. The essence of that mechanism in its simplest version is as follows: when prices cannot adjust immediately, a monetary policy contraction that reduces demand implies that prices are too high relative to optimal because firms cannot lower prices to adjust to the fall in demand; since prices are above optimal, firms are charging a higher mark-up after the contractionary MP surprise. Since mark-ups rise, the labour share of income falls and the profit share (mark-ups) increases. Thus, we would expect that, after a MP contraction, cyclically, the labour share would fall.