Table of Contents

The Rising Federal Funds Rate in the Current Low Long-Term Interest Rate Environment

YiLi Chien, Federal Reserve Banks - Federal Reserve Bank of St. Louis
Paul Morris, Federal Reserve Banks - Federal Reserve Bank of St. Louis

Fiscal Policy in Oil�Exporting Countries: The Roles of Oil Funds and Institutional Quality

Wee Chian Koh, Australian National University (ANU) - Crawford School of Public Policy

Russia's Monetary Policy in 2016

Alexandra Viktorovna Bozhechkova, Gaidar Institute for Economic Policy, Russian Presidential Academy of National Economy and Public Administration (RANEPA) - Institute of Applied Economic Research
Alexander Knobel, Gaidar Institute for Economic Policy, Russian Presidential Academy of National Economy and Public Administration (RANEPA) - Institute of Applied Economic Research
Pavel Trunin, Gaidar Institute for Economic Policy
Anna M. Kiyutsevskaya, Russian Presidential Academy of National Economy and Public Administration (RANEPA), Gaidar Institute for Economic Policy

Reported Preference vs. Revealed Preference: Evidence from the Propensity to Spend Tax Rebates

Jonathan A. Parker, Massachusetts Institute of Technology (MIT) - Sloan School of Management, National Bureau of Economic Research (NBER)
Nicholas S. Souleles, University of Pennsylvania - Finance Department, National Bureau of Economic Research (NBER)

Shielding from Political Corruption and the Choice between Public and Private Debt

Albert Kwame Mensah, City University of Hong Kong (CityUHK)
Cheong Yi, City University of Hong Kong (CityUHK) - Department of Accountancy

When Is It Cheaper to Issue Inflation-Linked Debt?

Andrey Ermolov, Gabelli School of Business, Fordham University

Elasticities of Business Investment in the U.S. and Their Policy Implications: A Disaggregate Approach to Modeling and Estimation

Georgios (George) C. Bitros, Athens University of Economics and Business - Department of Economics
M. Ishaq Nadiri, New York University (NYU) - Department of Economics, National Bureau of Economic Research (NBER)

Mitigating Capital Flight Through Military Expenditure: Insight from 37 African Countries

Simplice A. Asongu, African Governance and Development Institute
Joseph Amankwah-Amoah, University of Bristol - School of Economics, Finance and Management


MACROECONOMICS: MONETARY & FISCAL POLICIES eJOURNAL

"The Rising Federal Funds Rate in the Current Low Long-Term Interest Rate Environment" Free Download
Economic Synopses, Issue 10, pp. 1-2, 2017

YILI CHIEN, Federal Reserve Banks - Federal Reserve Bank of St. Louis
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PAUL MORRIS, Federal Reserve Banks - Federal Reserve Bank of St. Louis

The low long-term yield is likely a result of high foreign demand for Treasuries rather than a near-zero federal funds rate.

"Fiscal Policy in Oilâ€?Exporting Countries: The Roles of Oil Funds and Institutional Quality" Fee Download
Review of Development Economics, Vol. 21, Issue 3, pp. 567-590, 2017

WEE CHIAN KOH, Australian National University (ANU) - Crawford School of Public Policy
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Oil‐exporting countries face challenges in the conduct of fiscal policy owing to volatile oil revenues, especially in countries with weak institutions. Many oil exporters have established oil funds to delink government expenditure from oil revenues; however, their effectiveness remains unresolved. This paper examines the roles of oil funds and institutional quality in reducing fiscal procyclicality and macroeconomic volatility in 42 oil‐exporting countries from 1960 to 2014 using panel vector autoregression techniques. The results show that oil funds are effective in reducing fiscal procyclicality in countries with high institutional quality. There is also a reduction in the procyclical bias in those with low institutional quality but the statistical evidence is weak. Nevertheless, oil funds are associated with reduced volatility of government consumption and the real exchange rate in countries with low institutional quality. These findings give credence to the macroeconomic stabilization role of oil funds but also reinforce the importance of good institutions.

"Russia's Monetary Policy in 2016" Free Download
Russian Economy In 2016: Trends and Outlooks. 2017. Moscow, IEP, Issue 38, pp. 27-45

ALEXANDRA VIKTOROVNA BOZHECHKOVA, Gaidar Institute for Economic Policy, Russian Presidential Academy of National Economy and Public Administration (RANEPA) - Institute of Applied Economic Research
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ALEXANDER KNOBEL, Gaidar Institute for Economic Policy, Russian Presidential Academy of National Economy and Public Administration (RANEPA) - Institute of Applied Economic Research
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PAVEL TRUNIN, Gaidar Institute for Economic Policy
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ANNA M. KIYUTSEVSKAYA, Russian Presidential Academy of National Economy and Public Administration (RANEPA), Gaidar Institute for Economic Policy
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In 2016, the Bank of Russia implemented a conservative monetary policy aimed at mitigating inflation. Commercial banks decreased their demand for central bank refinancing as the Reserve Fund was spent, in which case the central bank had to employ a set of instruments to prevent an increase in the money supply. It happened twice over the course of the year – on June 14 and September 19 – that Russia’s central bank cut 0.5 percentage points off the key rate, to 10% p.a. With a declining inflation rate and inflation expectations available during the year, a rather moderate decline in the key rate suggested growth of the real interest rate in the money market. Maintaining a positive real rate in the money market helps prevent prices from hiking upwards as the savings appeal strengthened, although there is risk of economic slowdown.

"Reported Preference vs. Revealed Preference: Evidence from the Propensity to Spend Tax Rebates" Free Download

JONATHAN A. PARKER, Massachusetts Institute of Technology (MIT) - Sloan School of Management, National Bureau of Economic Research (NBER)
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NICHOLAS S. SOULELES, University of Pennsylvania - Finance Department, National Bureau of Economic Research (NBER)
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We evaluate the consistency of two methods for estimating the effect of an economic policy: i) surveying people to report the change in their behavior caused by the policy, ii) inferring this change using (reported) actual behavior and differences in treatment across people. Both methods have been widely used to measure propensities to spend. Using Federal stimulus payments disbursed quasi-randomly over time in 2008, we find greater revealed-preference estimates of spending by households reporting greater spending and the two methods produce similar estimates of average spending. But, counterfactually, reported preferences estimates are not higher for households with lower liquidity.

"Shielding from Political Corruption and the Choice between Public and Private Debt" Free Download

ALBERT KWAME MENSAH, City University of Hong Kong (CityUHK)
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CHEONG YI, City University of Hong Kong (CityUHK) - Department of Accountancy
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Albeit recent literature suggests that when facing high expropriation risk, firms take on more debt to signal that they have committed future cash flows to debt servicing, how this increase in leverage suffices remains a question. Founded on signaling theories and anecdote(s), we offer two complementary information relay explanations (i.e. the information avalanche hypothesis and information speed hypothesis) to understand how shielding firms make their debt decision to deter potential expropriation. We find that where public corruption surges, firms choose public over private debt (which characteristically have long maturity and less security), consistent with the reasoning that public debt generates relatively enormous information amount and speed in a debt signaling sense that significantly reduces information asymmetry between shielding firms and corrupt public officials helpful in deterring potential expropriation. Cross-sectional variation tests reveal that this shielding behavior tends to be pronounced in firms with enormous resources, and those having external and internal governance mechanisms in place. Our findings are robust to the use of alternative specifications and proxies, accounting for potentially omitted state-level confounds, and the use of instrumental variable analysis and propensity score matching estimations. This study is incremental to literature on the determinants of debt choice, debt structure, and corporate disclosure relating to debt.

"When Is It Cheaper to Issue Inflation-Linked Debt?" Free Download

ANDREY ERMOLOV, Gabelli School of Business, Fordham University
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I compare direct issuance costs of inflation-linked versus nominal government debt (the liquidity premium versus the inflation risk premium, respectively) in nine developed countries. Unconditionally, issuing nominal debt is cheaper at medium maturities. Inflation-linked debt becomes cheaper at long maturities. This maturity pattern emerges because average inflation risk premium yield curves are upward-sloping while liquidity premium yield curves are downward-sloping. Nominal debt issuance has became cheaper after the Great Recession due to the decreasing inflation risk premium.

"Elasticities of Business Investment in the U.S. and Their Policy Implications: A Disaggregate Approach to Modeling and Estimation" Free Download

GEORGIOS (GEORGE) C. BITROS, Athens University of Economics and Business - Department of Economics
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M. ISHAQ NADIRI, New York University (NYU) - Department of Economics, National Bureau of Economic Research (NBER)
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Using data from the U. S. Bureau of Economic Analysis for the period 1947-2015, we estimate investment equations for three types of fixed assets and three policy instruments. In particular, we disaggregate investment into structures, equipment and intangibles, and the policy instruments into the rates of replacement, interest and taxes. Additionally, we estimate an equation for total investment. At the aggregate level the long run elasticities of investment with respect to output and the user cost are found to vary narrowly around 0.83; the direct elasticities of investment with respect to the rates of replacement, interest and taxation are 0.91, -0.04 and -0.23, whereas the indirect and inversely additive ones through the user cost are -0.11, -0.05 and -0.27, respectively. To highlight the significance of these findings, we investigate their implications for economic growth by focusing on four policy channels, i.e. aggregate demand, relative prices, and monetary and fiscal policies. We conclude that monetary policy may be weak to stimulate investment, and even fall into the trap of the law of unintended consequences by slowing replacement investment down, since the average age of capital is related negatively to the discount rate. On the contrary fiscal policy is relatively more potent as a 10% reduction in the expected effective tax rate is found to boost investment directly and indirectly by as much as 5%. In general, first best policies would aim at increasing the replacement rate, particularly of intangibles and equipment in the same order.

"Mitigating Capital Flight Through Military Expenditure: Insight from 37 African Countries" Free Download
2017 African Governance and Development Institute Forthcoming: Research in International Business and Finance

SIMPLICE A. ASONGU, African Governance and Development Institute
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JOSEPH AMANKWAH-AMOAH, University of Bristol - School of Economics, Finance and Management
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The purpose of this study is to assess the thresholds at which military expenditure modulates the effect of terrorism on capital flight. We employed a panel data of 37 African countries from 1996-2010.The empirical evidence was based on: (i) baseline contemporary and non-contemporary OLS, (ii) contemporary and non-contemporary fixed effects regressions to account for the unobserved heterogeneity, (iii) the Generalised Method of Moments to account for the capital flight trap and (iv) Quantile Regressions (QR) to account for initial levels of capital flight. The study found that the thresholds are apparent exclusively in Quantile Regressions with military expenditure thresholds ranging from: 4.224 to 5.612 for domestic terrorism, 5.734 to 7.363 for unclear terrorism and 4.710 to 6.617 for total terrorism. No thresholds are apparent in transnational terrorism related regressions. Depending on the terrorist target, the findings broadly show that a critical mass of between 4.224 and 7.363 of military expenditure as a percentage of GDP is needed to reverse the negative effect of terrorism on capital flight. In spite of the growing consensus of the need to utilise military expenditure to help combat terrorism, our understanding of the threshold at which military expenditure completely dampens the negative effect of terrorism on capital flight remains largely underexplored. We capitalize on panel data of 37 African countries to address this lacuna in our understanding of this important issue.

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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
SSRN, Harvard Business School, National Bureau of Economic Research (NBER), European Corporate Governance Institute (ECGI), Harvard University - Accounting & Control Unit
Email: mjensen@hbs.edu

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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)