Table of Contents

Macroeconomic Surface Waves

Victor Olkhov, TVEL Fuel Company

Financial and Sentiment Shocks in a Large Bayesian VAR: Evidence from the US, 1970-2015

Don P. Walshe, University College Cork

Macro�Finance Linkages

James Morley, University of New South Wales

Returns Predictability in Emerging Housing Markets

Bora Ozkan, Temple University Fox School of Business
M. Kabir Hassan, University of New Orleans - College of Business Administration - Department of Economics and Finance
Ali Hepsen, Istanbul University - Faculty of Business Administration, Department of Finance

The Portfolio Balance Mechanism and QE in the Euro Area

Romanos Priftis, European Union - European Commission
Lukas Vogel, European Union - European Commission

Roadmap for a Controlled Block Chain Architecture

Kartik Hegadekatti, Government of India, Ministry of Railways
Yatish S G, Government of India, Ministry of Railways


MACROECONOMICS: MONETARY & FISCAL POLICIES eJOURNAL

"Macroeconomic Surface Waves" Free Download

VICTOR OLKHOV, TVEL Fuel Company
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This paper develops parallels between physics and economics and describes macroeconomics alike to multi-particle system on economic space. Economic agents play role of “economic particles� and risk ratings of economic agents define coordinates of “economic particles� on economic space. We describe macroeconomics alike to hydrodynamics and derive hydrodynamic-like equations that define mutual dependence of macroeconomic variables. Macroeconomic domain on economic space is reduced by minimum and maximum risk ratings of economic agents. Macroeconomic boundary surfaces can be disturbed by economic and financial shocks. Perturbations of macroeconomic domain boundary surfaces may induce risk waves alike to surface waves in fluids and we derive risk wave equations. Risk wave amplitudes can exponentially grow in time and may induce economic and financial instabilities and crises. Varieties of wave processes in simple macroeconomic models on economic space indicate importance of hidden wave processes for economic modeling and crises forecasting.

"Financial and Sentiment Shocks in a Large Bayesian VAR: Evidence from the US, 1970-2015" Free Download

DON P. WALSHE, University College Cork
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This paper examines, empirically, the historical importance of financial and survey-based sentiment shocks in the US business cycle, and in the formation of US monetary policy over the period 1970-2014. A large Bayesian VAR (BVAR) model with a 'Minnesota Prior' is estimated on monthly US data using analytical and Markov Chain Monte Carlo (MCMC) methods. US inflation and monetary policy are found to be more sensitive to financial shocks, while fluctuations in the unemployment rate are influenced by both financial and sentiment shocks. The role of financial shocks in the unemployment rate cycle, however, is found to be increasingly important from the post-2001 recovery onwards. Results for the post-Lehman period indicate that financial and sentiment shocks had an equal effect on the scale of the employment contraction, and in the loosening of monetary policy in the aftermath of the Lehman collapse.

"Macroâ€?Finance Linkages" Fee Download
Journal of Economic Surveys, Vol. 30, Issue 4, pp. 698-711, 2016

JAMES MORLEY, University of New South Wales
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In this survey, I review the academic and policy�oriented literature on the linkages between financial markets and the rest of the economy. First, I summarize the leading economic theories for why the financial sector can influence the macroeconomy. Second, I consider empirical research on spillovers from the financial sector to the rest of the economy, as well as across financial markets in different countries. Third, I discuss key monetary policy debates regarding the appropriate response of central banks to financial conditions. Finally, I conclude with an overview of the major gaps in the existing literature.

"Returns Predictability in Emerging Housing Markets" Free Download
Journal of Economic Cooperation and Development, 37, 1 (2016), 101-130

BORA OZKAN, Temple University Fox School of Business
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M. KABIR HASSAN, University of New Orleans - College of Business Administration - Department of Economics and Finance
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ALI HEPSEN, Istanbul University - Faculty of Business Administration, Department of Finance
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This essay searches for a link between house prices, broad money, private credit and the macro-economy among 19 emerging markets. We also explain which variables predict the emerging markets house price index returns. The analysis consists of data for 19 emerging markets spanning the period 1966-2012. To investigate the relationship among our variables as well as the direction of the relationship, we used Fixed-Effects Panel Data Approach, Vector Auto-Regression, Granger Causality, and Variance Decomposition analysis. Using the fixed effects panel data approach, this paper analyzes the variation in 19 emerging markets house price index returns. Our results show that money market rate, growth in GDP and CPI as well as log of private credit (D) and money supply (M3) have significant predictive power on growth in house price indices a quarter ahead. There is a strong negative correlation between the growth in house price indices and the lagged money market rates and private credit. There is a strong positive correlation between the growth in house price indices and the lagged growth in GDP, CPI and log of M3. When we look at different regions, we show that in Eastern Europe only GDP has a predictive power whereas in Asia MMR, D as well as M3 has statistically significant predictive power. Granger causality tests for each country reveals strong evidence of multi-directional link between house prices, GDP, CPI, interest rates, money, and credit. House prices significantly affect the future broad money, private credit and macro variables. When we look at the variance decomposition, in almost every country we investigated, forecast errors to GDP, CPI and money market rate play an important role in explaining innovations to the house price index returns.

"The Portfolio Balance Mechanism and QE in the Euro Area" Fee Download
The Manchester School, Vol. 84, Issue S1, pp. 84-105, 2016

ROMANOS PRIFTIS, European Union - European Commission
LUKAS VOGEL, European Union - European Commission
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The paper analyses quantitative easing (QE) in a dynamic general�equilibrium model which includes assets of different types and maturity. We explicitly model asset purchases by the central bank and their impact on the central bank's balance sheet. In particular, QE is captured by central bank purchases of long�term government bonds financed by enhanced liquidity provision to the private sector. With imperfect substitutability between asset classes, QE affects the term premium, stock prices, the exchange rate and the private sector's saving decision. We use the model to simulate the European Central Bank's (ECB's) QE path as announced in early 2015. With six basis points term�premium reduction the model generates 0.9 per cent effective euro depreciation and raises real GDP in the euro area by 0.3 per cent and prices by 0.5 per cent by 2016. Enduring periods of low interest rates strengthen the expansionary effect of QE in the short and medium term. Frontloading of asset purchases has little impact on output and inflation effects as long as the duration of the balance sheet expansion remains unchanged. Expansionary effects of QE are reduced if the central bank purchases eligible assets from foreign rather than domestic counterparties.

"Roadmap for a Controlled Block Chain Architecture" Free Download

KARTIK HEGADEKATTI, Government of India, Ministry of Railways
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YATISH S G, Government of India, Ministry of Railways
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The K-Y Protocol envisages the introduction of RSBCs (Regulated and Sovereign Backed Cryptocurrencies). In this paper we discuss in detail the establishment of a Controlled Block Chain based on the K-Y Protocol. It is primarily accomplished using the NationCoin system. There are two aspects to the NationCoin system. The software and the hardware aspect. The software necessary to write and run the Block Chain on the hardware is envisaged. The hardware needed to run and sustain the blockchain is then deliberated. A host of institutions have also been envisioned to create, support and run the NationCoin system. The DAR will be the main institution responsible for creating the Controlled Block Chain architecture. The costing, timeline and the interplay of institutions are also outlined.

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This eJournal distributes working and accepted paper abstracts of empirical and theoretical papers on different aspects of monetary and fiscal policies. The topics in this eJournal include E1 and E6 from Section E of the classification system of the JEL.

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MACROECONOMICS EJOURNALS

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Social Science Electronic Publishing (SSEP), Inc., Harvard Business School, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)
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Advisory Board

Macroeconomics: Monetary & Fiscal Policies eJournal

OLIVIER J. BLANCHARD
National Bureau of Economic Research (NBER), Peter G. Peterson Institute for International Economics

JOHN Y. CAMPBELL
Morton L. and Carole S. Olshan Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

STEPHEN G. CECCHETTI
Professor of International Economics, Brandeis International Business School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)

BENJAMIN M. FRIEDMAN
William Joseph Maier Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

ROBERT E. HALL
Stanford University - The Hoover Institution on War, Revolution and Peace, National Bureau of Economic Research (NBER)

ROBERT E. LUCAS
John Dewey Distinguished Service Professor, University of Chicago - Department of Economics, National Bureau of Economic Research (NBER)

BENNETT T. MCCALLUM
Professor, Carnegie Mellon University - David A. Tepper School of Business, National Bureau of Economic Research (NBER)

ALLAN H. MELTZER
University Professor of Political Economics, Carnegie Mellon University - David A. Tepper School of Business

FREDERIC S. MISHKIN
Alfred Lerner Professor of Banking and Financial Institutions, Columbia Business School - Finance and Economics, National Bureau of Economic Research (NBER)

PAUL M. ROMER
National Bureau of Economic Research (NBER)

JULIO J. ROTEMBERG
Harvard University - Business, Government and the International Economy Unit, National Bureau of Economic Research (NBER)

MATTHEW D. SHAPIRO
Professor, University of Michigan at Ann Arbor - Department of Economics, Professor, National Bureau of Economic Research (NBER)

ROBERT J. SHILLER
Yale University - Cowles Foundation, National Bureau of Economic Research (NBER), Yale University - International Center for Finance

CHRISTOPHER A. SIMS
Princeton University - Department of Economics, National Bureau of Economic Research (NBER)

JOHN B. TAYLOR
Stanford University, National Bureau of Economic Research (NBER)