Table of Contents

Fiscal Decentralization and the Efficiency of Public Service Delivery

Moussé Ndoye Sow, Université d'Auvergne - Clermont 1 - Centre d'Etudes et de Recherches sur le Developpement International (CERDI)
Ivohasina Fizara Razafimahefa, Office of the President of the Republic of Madagascar

The Use and Effectiveness of Macroprudential Policies: New Evidence

Eugenio Cerutti, International Monetary Fund (IMF)
Stijn Claessens, Board of Governors of the Federal Reserve System (FRB), University of Amsterdam - Finance Group, Centre for Economic Policy Research (CEPR), Tinbergen Institute, European Corporate Governance Institute (ECGI)
Luc Laeven, European Central Bank (ECB), Centre for Economic Policy Research (CEPR), International Monetary Fund (IMF)

The Bank Lending Channel of Unconventional Monetary Policy: The Impact of the VlLTROs on Credit Supply in Spain

Miguel Garcia-Posada, Bank of Spain, Universidad Carlos III de Madrid
Marco Marchetti, Bank of Spain

Information Money Fields of Cyclic Oscillations in Nonlinear Dynamic Economic System

Dimitri O. Ledenyov, James Cook University, Townsville, Australia
Viktor O. Ledenyov, V. N. Karazin Kharkov National University

An Islamic Version of the Iceland Plan for Monetary Reform

Asad Zaman, Pakistan Institute of Development Economics

Romania's Austerity Policies in the European Context

Arpad A. Todor, National School of Political Science and Public Administration

Challenges, Growth and Opportunity: A Shadow Federal Budget for 2015

William B. P. Robson, C.D. Howe Institute
Alexandre Laurin, C.D. Howe Institute


MACROECONOMICS: MONETARY & FISCAL POLICIES eJOURNAL

"Fiscal Decentralization and the Efficiency of Public Service Delivery" Free Download
IMF Working Paper No. 15/59

MOUSSÉ NDOYE SOW, Université d'Auvergne - Clermont 1 - Centre d'Etudes et de Recherches sur le Developpement International (CERDI)
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IVOHASINA FIZARA RAZAFIMAHEFA, Office of the President of the Republic of Madagascar
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This paper explores the impact of fiscal decentralization on the efficiency of public service delivery. It uses a stochastic frontier method to estimate time-varying efficiency coefficients and analyzes the impact of fiscal decentralization on those efficiency coefficients. The findings indicate that fiscal decentralization can improve the efficiency of public service delivery but only under specific conditions. First, the decentralization process requires adequate political and institutional environments. Second, a sufficient degree of expenditure decentralization seems necessary to obtain favorable outcomes. Third, decentralization of expenditure needs to be accompanied by sufficient decentralization of revenue. Absent those conditions, fiscal decentralization can worsen the efficiency of public service delivery.

"The Use and Effectiveness of Macroprudential Policies: New Evidence" Free Download
IMF Working Paper No. 15/61

EUGENIO CERUTTI, International Monetary Fund (IMF)
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STIJN CLAESSENS, Board of Governors of the Federal Reserve System (FRB), University of Amsterdam - Finance Group, Centre for Economic Policy Research (CEPR), Tinbergen Institute, European Corporate Governance Institute (ECGI)
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LUC LAEVEN, European Central Bank (ECB), Centre for Economic Policy Research (CEPR), International Monetary Fund (IMF)
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Using a recent IMF survey and expanding on previous studies, we document the use of macroprudential policies for 119 countries over the 2000-13 period, covering many instruments. Emerging economies use macroprudential policies most frequently, especially foreign exchange related ones, while advanced countries use borrower-based policies more. Usage is generally associated with lower growth in credit, notably in household credit. Effects are less in financially more developed and open economies, however, and usage comes with greater cross-border borrowing, suggesting some avoidance. And while macroprudential policies can help manage financial cycles, they work less well in busts.

"The Bank Lending Channel of Unconventional Monetary Policy: The Impact of the VlLTROs on Credit Supply in Spain" Free Download
Banco de Espana Working Paper No. 1512

MIGUEL GARCIA-POSADA, Bank of Spain, Universidad Carlos III de Madrid
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MARCO MARCHETTI, Bank of Spain
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We assess the impact on the credit supply to non-financial corporations of the two very-long-term refinancing operations (VLTROs) conducted by the Eurosystem in December 2011 and February 2012 for the case of Spain. To do so we use bank-firm level information from a sample of more than one million lending relationships over two years. Our methodology tackles the two main identification challenges: (i) how to disentangle credit supply from demand; and (ii) the endogeneity of VLTRO bids, as banks with more deteriorated funding conditions were more likely both to ask for a large amount of funds and to restrict credit supply. First, we exploit the fact that many firms simultaneously borrow from several banks to effectively control for firm-specific credit demand. Second, we exhaustively control for banks’ funding difficulties by constructing several measures of balance-sheet strength and by including bank fixed effects. Our findings suggest that the VLTROs had a positive moderately-sized effect on the supply of bank credit to firms, providing evidence of a bank lending channel in the context of unconventional monetary policy. We also find that the effect was greater for illiquid banks and that it was driven by credit to SMEs, as there was no impact on loans to large firms.

"Information Money Fields of Cyclic Oscillations in Nonlinear Dynamic Economic System" Free Download

DIMITRI O. LEDENYOV, James Cook University, Townsville, Australia
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VIKTOR O. LEDENYOV, V. N. Karazin Kharkov National University
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Article introduces the notion of information money fields of the cyclic oscillations of the economic variables in the nonlinear dynamic economic system for the first time, and presents an original research on the Ledenyov theory on the information money fields of the cyclic oscillations of the economic variables in the nonlinear dynamic economic system. The Ledenyov theory on the information money fields of the cyclic oscillations of economic variables in the nonlinear dynamic economic system postulates that the economic continuous waves (the cyclic oscillations) have the information money fields in the nonlinear dynamic economic system, transmitting the economic/financial information in the nonlinear dynamic economic system. It is shown that the information money fields may interact with other cyclic oscillations and/or with the nonlinear dynamic economic system by means of the weak and strong interactions between the information money fields. We developed the MicroIMF software program to make the computer modeling of 1) the interactions between the information money fields of one cyclic oscillation and the information money fields of other cyclic oscillation(s) in the nonlinear dynamic economic system, 2) the interactions between the information money fields of cyclic oscillation and the nonlinear dynamic economic system itself, and 3) the density distributions of the information money fields by different cyclic oscillations (the economic continuous waves) in the nonlinear dynamic economic system. The MicroIMF software program can be used in the process of business cycles forecasting by the central banks with the purpose to make the strategic decisions on the monetary policies, financial stability policies, and by other financial institutions with the aim to perform the financial operations on the minimum capital allocation, countercyclical capital buffer creation, and capital investments.

"An Islamic Version of the Iceland Plan for Monetary Reform" Free Download
Conference on “Advancements in Islamic Finance and Business in the 21st Century? organized by FAST-NUCES, on Islamabad Campus of National University of Computers & Emerging Sciences [NUCES], on April 24-25, 2015.

ASAD ZAMAN, Pakistan Institute of Development Economics
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The perils of private bank creation of money using the fractional reserve system were discovered by many economists in the aftermath of the Great Depression. They formulated the “Chicago Plan? for 100% reserve banking which would give the state exclusive power to create money. Strict regulations on banking obviated the need for the Chicago Plan for fifty years. Financial de-regulation in the 1980’s led to the re-discovery of the same set of problems following the Global Financial Crisis of 2008. As a result, the Iceland government has formulated an updated version of the Chicago Plan, centering on state created Sovereign money to replace money creation by private banks. The Iceland Plan does not discuss the root cause of the problems, which is the interest based financial system. The goal of this paper is to present an extension of the Iceland plan and discuss several dimensions of coordinated changes required to bring the financial system in conformity with Islamic principles.

"Romania's Austerity Policies in the European Context" Free Download

ARPAD A. TODOR, National School of Political Science and Public Administration
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The economic recession starting in 2007 with the collapse of the US Bank Lehman Brothers triggered waves of economic shock across the world. Various states were hit more or less hard through different mechanisms and reacted with different intensities to adjust to the crisis situation. In this article, I employ a comparative methodology to assess the austerity policies undertook by Romania during the Great recession period as regards the policies adopted at the level of other EU member states. Thus, I aim to offer an initial evaluation of the degree of similarity of Romania’s recession policy responses to that of some other EU member states, and the degree to which Romania can be labeled as an outlier. The comparative analysis tests the explanatory power of three different theoretical approaches on the causal factors explaining variation in policy responses: power resources theories, functionalist approaches and blame-avoidance.

"Challenges, Growth and Opportunity: A Shadow Federal Budget for 2015" Free Download
C.D. Howe Institute Commentary No. 423

WILLIAM B. P. ROBSON, C.D. Howe Institute
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ALEXANDRE LAURIN, C.D. Howe Institute
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The 2015 edition of the C.D. Howe Institute’s annual Shadow Federal Budget lays out a prudent fiscal course in the face of a challenging world economic environment, bolstering the confidence of Canadians in the sustainability of their public finances. It supports economic growth with tax changes and investments that support business investment and job creation. And it enhances opportunities for Canadians by investing in their skills for the workplace and better preparing them for retirement. The first order of business for this Shadow Budget is to prevent a slide back into red ink. Recent world commodity market swings makes near-term economic growth and fiscal revenue forecasts more uncertain. Doubling the amounts set aside for prudence, selling the government’s remaining interest in airport leases, and containing the cost of federal government operations, will protect the budget surplus and strengthen the balance sheet. Measures to improve the transparency of federal finances through a restatement of Ottawa’s obligations for employee pensions, and supplementary information on the present value of future taxes on tax-deferred savings, will facilitate the adoption of more forward-looking fiscal policies. Strong and sustainable economic growth requires policies to promote adjustment to changing market conditions and deploy Canada’s physical and technological resources where they will do the most good. Measures to boost Canada’s economic dynamism include creating a more efficient payments system, reviewing capital consumption allowances, and ensuring that Crown financial corporations have a clearly articulated mandate complementary to private lending institutions. Fresh infrastructure spending – $1.7 billion – is devoted to national air and rail transportation networks, two areas where federal involvement is uniquely appropriate, and where important economic benefits can be reaped. On the tax side, the introduction of an allowance for corporate equity investments (on a revenue neutral basis) in the computation of corporate income taxes will improve the environment for business investment and reduce distortions toward debt-financed investments. As for innovation and technology adoption, the introduction, as several countries already have, of a “patent box? will encourage the commercialization and use of innovative ideas developed in Canada. Canadians’ economic prosperity depends in large part on the opportunities they have to develop their knowledge and skills, to deploy them during their work lives, and to save and draw down savings once their work lives are over. This Shadow Budget takes several steps to improve and protect these opportunities, including boosting funding for benchmarking the performance of education systems, expanding eligibility for tax preferences on pension income and retirement savings, and eliminating mandatory minimum drawdowns from Registered Retirement Income Funds (RRIFs) and similar accounts. The plan for confronting the fiscal challenges ahead, promoting growth and ensuring better opportunities for Canadians will be cost-effective, leaving the budget in surplus.

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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

MICHAEL C. JENSEN
Social Science Electronic Publishing (SSEP), Inc., Harvard Business School, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI)
Email: michael_jensen@ssrn.com

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Advisory Board

Macroeconomics: Monetary & Fiscal Policies eJournal

OLIVIER J. BLANCHARD
International Monetary Fund (IMF), National Bureau of Economic Research (NBER)

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