Browsing by Subject "E24"

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  • Kolasa, Marcin; Rubaszek, Michał; Walerych, Małgorzata (2019)
    Bank of Finland Research Discussion Papers 24/2019
    In this paper we challenge the conventional view that increasing working time exibility limits the amplitude of unemployment fluctuations. We start by showing that hours per worker in European countries are much less procyclical than in the US, and in some economies even co-move negatively with output. This is confirmed by the results from a structural VAR model for the euro area, in which working hours increase after a contractionary monetary shock, exacerbating the upward pressure on unemployment. To understand these counterintuitive results, we develop a structural search and matching macroeconomic model with endogenous job separation. We show that this feature is key to generate countercyclical adjustments in working hours. When we augment the model with frictions in working hours adjustment and estimate it using euro area time series, we find that increasing flexibility of working time amplifies cyclical movements in unemployment.
  • Noth, Felix; Busch, Matias Ossandon (2017)
    BOFIT Discussion Papers 11/2017
    This paper estimates the effect of a foreign funding shock to banks in Brazil after the collapse of Lehman Brothers in September 2008. Our robust results show that bank-specic shocks to Brazilian parent banks negatively affected lending by their individual branches and trigger real economic consequences in Brazilian municipalities: More affected regions face restrictions in aggregated credit and show weaker labor market performance in the aftermath which documents the transmission mechanism of the global financial crisis to local labor markets in emerging countries. The results represent relevant information for regulators concerned with the real effects of cross-border liquidity shocks.
  • Bailliu, Jeannine; Han, Xinfen; Kruger, Mark; Liu, Yu-Hsien; Thanabalasingam, Sri (2018)
    BOFIT Discussion Papers 9/2018
    Published in International Journal of Forecasting, 35, 3, 2019, 1118-1130
    The official Chinese labour market indicators have been seen as problematic, given their small cyclical movement and their only-partial capture of the labour force. In our paper, we build a monthly Chinese labour market conditions index (LMCI) using text analytics applied to mainland Chinese-language newspapers over the period from 2003 to 2017. We use a supervised machine learning approach by training a support vector machine classification model. The information content and the forecast ability of our LMCI are tested against official labour market activity measures in wage and credit growth estimations. Surprisingly, one of our findings is that the much-maligned official labour market indicators do contain information. However, their information content is not robust and, in many cases, our LMCI can provide forecasts that are significantly superior. Moreover, regional disaggregation of the LMCI illustrates that labour conditions in the export-oriented coastal region are sensitive to export growth, while those in inland regions are not. This suggests that text analytics can, indeed, be used to extract useful labour market information from Chinese newspaper articles.
  • Schmöller, Michaela; Spitzer, Martin (2021)
    European Economic Review May ; 2021
    Published in BoF DP 21/2019 ("Endogenous TFP, business cycle persistence and the productivity slowdown in the euro area")
    This paper analyses the role of endogenous total factor productivity dynamics in explaining business cycle persistence as well as the missing (dis-)inflation and productivity puzzles in the euro area. We show by means of an estimated medium-scale DSGE model in which TFP evolves endogenously as the result of costly investment in R&D and technology adoption that the endogenous slowdown in total factor productivity can explain the depth and persistence of the output drop and the weak recovery following the double-dip recession in the euro area. Our results suggest that a decrease in R&D efficiency and innovation is key in explaining the pre-crisis euro area productivity slowdown, while as of 2008 a crises-induced drop in technology adoption constitutes the most important factor. We document a flattening of the Phillips curve relationship under the endogenous TFP mechanism, resulting from the interaction between inflation and productivity dynamics. The endogenous reaction in TFP dampens the inflation response over the business cycle and can thus help explain both the moderate fall in euro area inflation during its crises and its sluggish increase in the subsequent recovery.
  • Schmöller, Michaela; Spitzer, Martin (2019)
    Bank of Finland Research Discussion Papers 21/2019
    Published in European Central Bank Working Paper Series 2401/2020 https://www.ecb.europa.eu/pub/research/working-papers/html/index.en.html
    This paper analyses the procyclicality of euro area total factor productivity and its role in business cycle amplification by estimating a medium-scale DSGE model with endogenous productivity mechanism on euro area data. Total factor productivity evolves endogenously as a consequence of costly investment in R&D and adoption of new technologies. We find that the endogeneity of TFP induces a high degree of persistence in the euro area business cycle via a feedback mechanism between overall economic conditions and investment in productivity-enhancing technologies. As to the sources of the euro area productivity slowdown, we conclude that a decrease in the efficiency of R&D investment is among the key factors generating the pre-crisis productivity slowdown, while starting from the Great Recession an increase in liquidity demand is identified as the most important driving force. The endogenous technology mechanism further exerts a dampening effect on the inflation response over the business cycle which helps rationalizing both the negligible fall in inflation during the Great Recession and the sluggish increase of inflation in the subsequent recovery.
  • Kauppi, Heikki; Koskela, Erkki; Stenbacka, Rune (2004)
    Suomen Pankin keskustelualoitteita 11/2004
    The study looks at the implications of product market competition and investment for price setting, wage bargaining and thereby for equilibrium unemployment in an economy with product and labour market imperfections.We show that intensified product market competition will reduce equilibrium unemployment, whereas the effect of increased capital intensity is more complex.Higher capital intensity will decrease the equilibrium unemployment when the elasticity of substitution between capital and labour is less than one, while the reverse happens when this elasticity is higher than one, but smaller than the elasticity of substitution between products.Finally, we demonstrate how labour and product market imperfections, characterised by the wage and price setting mark-ups, affect the optimal capital stock.Our findings raise important questions for future empirical research.Key words: equilibrium unemployment, product market imperfections, investment, wage bargaining JEL classification numbers: E22, E24, J51, L11
  • Vanhala, Juuso (2006)
    Bank of Finland Research Discussion Papers 12/2006
    This paper studies the implications of labour taxation in determining the sensitivity of an economy to macroeconomic shocks. We construct a New Keynesian business cycle model with matching frictions of the labour market, where sluggish employment adjustment implies a key role for labour markets in determining shock propagation.We consider three policy instruments to analyze the steady state and dynamic effects of tax reforms: the marginal tax rate and replacement ratio amplify shock responses whereas employment subsidies weaken them.The tax instruments affect the degree to which the wage absorbs shocks.We show that the relative effects of the tax instruments and thus the effects of tax progression are sensitive to the initial degree of tax progression in the economy.Increasing tax progression when taxation is initially progressive is harmful for steady state employment and output, and amplifies the sensitivity of macroeconomic variables to shocks.When taxation is initially proportional, increasing progression is beneficial for output and employment and dampens shock responses of macroeconomic variables.Key words: matching, income taxation, business cycles JEL classification numbers: J64, E24, E32
  • Kilponen, Juha; Vanhala, Juuso (2009)
    Bank of Finland Research Discussion Papers 15/2009
    Published in Scandinavian Journal of Economics, Volume 116, Issue 4:1068–1090, October 2014
    This paper focuses on productivity dynamics of a firm-worker match as a potential explanation for the 'unemployment volatility puzzle'. We let new matches and continuing jobs differ in terms of productivity level and sensitivity to aggregate productivity shocks. As a result, new matches have a higher destruction rate and lower, but more volatile, wages than old matches, as new hires receive technology associated with the latest vintage. In our model, an aggregate productivity shock generates a persistent productivity difference between the two types of matches, creating an incentive to open new productive vacancies and to destroy old matches that are temporarily less productive. The model produces a well behaved Beveridge curve, despite endogenous job destruction and more volatile vacancies and unemployment, without needing to rely on differing wage setting mechanisms for new and continuing jobs. Keywords: matching, productivity shocks, new hires, continuing jobs, job flows, Beveridge curve, vintage structure JEL classification numbers: E24, E32, J64
  • Waters, George A. (2012)
    Bank of Finland Research Discussion Papers 3/2012
    Quantity rationing of credit, when firms are denied loans, has greater potential to explain macroeconomics fluctuations than borrowing costs. This paper develops a DSGE model with both types of financial frictions. A deterioration in credit market confidence leads to a temporary change in the interest rate, but a persistent change in the fraction of firms receiving financing, which leads to a persistent fall in real activity. Empirical evidence confirms that credit market confidence, measured by the survey of loan officers, is a significant leading indicator for capacity utilization and output, while borrowing costs, measured by interest rate spreads, is not. Key Words: quantity rationing, credit, VAR JEL Codes: E10, E24, E44, E50
  • Bonthuis, Boele; Jarvis, Valerie; Vanhala, Juuso (2015)
    Bank of Finland Research Discussion Papers 2/2015
    This paper analyses euro area Beveridge curves at the euro area aggregate and country level over the past 25 years. Using an autoregressive distributed lag model we find a significant outward shift in the euro area Beveridge curve since the onset of the crisis, but considerable heterogeneity at country level. We test for factors underlying these developments using the local projections method of Jordà (2005). Skill mismatch, high shares of workers in the construction sector, as well as high pre-crisis financial slack and home ownership rates appear strong determinants of outward shifts in Beveridge curves in response to a negative shock. Higher female participation rates mitigate these effects. Keywords: Beveridge curve, crisis, mismatch, unemployment, labour shortages, vacancies
  • Schmöller, Michaela (2019)
    Bank of Finland Research Discussion Papers 8/2019
    I propose a two-sector endogenous growth model with heterogeneous sectoral productivity and sector-specific, nonlinear hiring costs to analyse the link between sectoral resource allocation, low productivity growth and stagnant real wages. My results suggest that an upward shift in the labor supply, triggered for instance by a labor market reform, as among others implemented in Germany in 2003-2005, is beneficial in the long-run as it raises growth of technology, labor productivity and real wages. I show, however, that in the immediate phase following the labor supply shock, labor productivity and real wages stagnate as employment gains are initially disproportionally allocated to low-productivity sectors, limiting the capacity for technology growth and depressing real wages and productivity. I demonstrate that due to the learning-by-doing growth externality in the high-productivity sector the competitive equilibrium is ineffcient as firms fail to internalize the effect of their labor allocation on aggregate growth. Subsidies to high-productivity sector production can alleviate welfare losses along the transition path.
  • Aguiar-Conraria, Luís; Martins, Manuel M. F.; Soares, Maria Joana (2019)
    Bank of Finland Research Discussion Papers 12/2019
    We estimate the U.S. New Keynesian Phillips Curve in the time-frequency domain with continuous wavelet tools, to provide an integrated answer to the three most controversial issues on the Phillips Curve. (1) Has the short-run tradeoff been stable? (2) What has been the role of expectations? (3) Is there a long-run tradeoff? First, we find that the short-run tradeoff is limited to some specific episodes and short cycles and that there is no evidence of nonlinearities or structural breaks. Second, households expectations captured trend inflation and were anchored until the Great Recession, but not since 2008. Then, inflation over-reacted to expectations at short cycles. Finally, there is no signi cant long-run tradeoff. In the long-run, inflation is explained by expectations.
  • Kilponen, Juha (2017)
    BoF Economics Review 3/2017
    Tässä artikkelissa tarkastellaan yritysdynamiikan vaikutuksia talouteen makrotasolla käyttämällä hyväksi tietoja aloittaneiden ja lopettaneiden yritysten lukumääristä ja joukosta keskeisiä makrotalouden muuttujia. Tulosten mukaan erityisesti uusien yritysten syntymisellä on tärkeä rooli työllisyyden, tuottavuuden ja talouskasvun näkökulmasta Suomessa. Koko kansantalouden tasolla työllisyyden, tuottavuuden ja tuotannon vaihteluista selittyy jopa 40 % yritysten syntymiseen ja tuhoutumiseen vaikuttavilla sokeilla. Uusien yritysten syntyminen nopeuttaa talouskasvua sekä työllisyyden että tuottavuuskasvun kiihtymisen kautta. Tuottavuuskasvun kiihtyminen ei siis johda työllisyyden heikkenemiseen koko kansantalouden tasolla vaan päinvastoin. Tämä voi heijastaa tuottavuuskasvun kiihtymisen yleisen tasapainon vaikutuksia.