Growth, Competition and Political Stability in China

A highly successful investment- and export-led growth strategy has positioned China as the second largest economy and as the largest exporter in the world. Households' consumption has played a minor role in its growth strategy, which is reflected in its unique and very high saving rates. In this paper we argue that the low weight of consumption in total expenditure is the result of the pervasiveness of the state in the economy, which aimed at impairing the growth of middle classes and,therefore, at preserving political stability. Nonetheless, an increase in purchasing power and the cultural individualisation of vast portions of the population is leading to an increase in popular mobilisation and social unrest. This indicates that, contrary to common pessimist analyses, prospects for democratization are perhaps stronger than usually presumed.China, growth, savings, financial markets, political stability

Equitity prices and Monetary Policy: An Overview with an Exploratory Model

Financial stability, with an emphasis on the relevance of asset prices stability to the stability of the overall economy, has become the sub ject of wide discussion among monetary authorities. Closely related to these issues are the concerns of central bankers with a bubble economy and its aftermath. After briefly surveying the potential links between financial markets and the real economy and its implications for the design of monetary policy, we illustrate some of the issues in this literature through the analysis of a simple linear rational expectations model. From this exercise we conclude that the benefits of reacting to asset prices depend crucially on the kind of shock hitting the economy. Ideally, reacting to the misalignment of equity prices is desirable. However, the presence of uncertainty in the estimation of the variables to which the policy rule responds may overturn this conclusion.Asset Prices, Inflation Targeting, Taylor Rule, Rational Expectations, Uncertainty.

Monetary policy and asset prices: the investment channel

The role of monetary policy during periods of asset price volatility has been the subject of discussion among economists and policymakers at least since the 1920s and the Great Depression that followed. In this paper we survey the recent and rapidly growing literature on this topic, with an emphasis on the investment channel. We present a detailed discussion of the hypotheses that have been used to justify, or criticise, a response to asset prices. These hypotheses concern imperfections in financial markets, bubbles in asset prices, and the information on which firm managers and central banks base their decisions.Investment; Asset Prices; Inflation Targeting; Fundamentals.

On the Stability of the Wealth Effect

Evidence of instability of the wealth effect in the USA is presented through the estimation of a Markov switching model of the long-run aggregate consumption function. The dating of the regimes appears to bear relation to movements in asset prices. A model-based explanation of the findings is suggested, highlighting the importance of the short-run relation between consumption, income and wealth in explaining the estimated long-run coefficients.Parameter instability, Markov switching, Consumption, Wealth effect.

Admission Conditions and Graduates' Employability

We evaluate the information content of admission conditions for study programs’ quality by investigating its relationship with graduates’ employability. We find that study programs with larger numeri clausi are associated with a higher probability of finding a job. Additionally, compulsory admission exams seem to be informative about study programs’ quality. Namely, study programs requiring the Math exam appear to be linked with lower unemployment propensity. Cardoso et al. (2008), however, found that those programs face lower demand when compared to other studies. These paradoxical results suggest that students’ choices may be based on insufficient information on returns to higher education investment. That information failure indicates that a Government intervention may be due.higher education, unemployment propensity, fractional models

Inflation Targeting and Exchange Rate Co-ordination

In a linear rational expectations two-country model, using an aggregate demand-aggregate supply framework, we analyze the effects of the adoption of an inflation targeting regime on exchange rate volatility and the possible scope for policy coordination. This analysis is conducted using optimized interest rate policy rules within a calibrated model. Rules for interest rates that respond either to exchange rates or to portfolio shocks give improved performance and permit gains from international coordination. Optimized Taylor Rules perform relatively well.Inflation Targeting; Taylor Rule; Exchange Rate Coordination; Rational Expectations.

Taylor-type rules versus optimal policy in a Markov-switching economy¤

We analyse the e®ect of uncertainty concerning the state and the nature of asset price movements on the optimal monetary policy response. Uncertainty is modelled by adding Markov-switching shocks to a DSGE model with capital accumulation. In our analysis we consider both Taylor-type rules and optimal policy. Taylor rules have been shown to provide a good description of US monetary policy. Deviations from its implied interest rates have been associated with risks of ¯nancial disruptions. Whereas interest rates in Taylor-type rules respond to a small subset of information, optimal policy considers all state variables and shocks. Our results suggest that, when a bubble bursts, the Taylor rule fails to achieve a soft landing, contrary to the optimal policy.Asset Prices, Monetary Policy, Markov Switching.

Taylor-type rules versus optimal policy in a Markov-switching economy

We analyse the effect of uncertainty concerning the state and the nature of asset price movements on the optimal monetary policy response. Uncertainty is modeled by adding Markov-switching shocks to a DSGE model with capital accumulation. In our analysis we consider both Taylor-type rules and optimal policy. Taylor rules have been shown to provide a good description of US monetary policy. Deviations from its implied interest rates have been associated with risks of financial disruptions. Whereas interest rates in Taylor-type rules respond to a small subset of information, optimal policy considers all state variables and shocks. Our results suggest that, when a bubble bursts, the Taylor rule fails to achieve a soft landing, contrary to the optimal policy.Asset Prices, Monetary Policy, Markov Switching

Optimal monetary policy with a regime-switching exchange rate in a forward-looking model

We evaluate the macroeconomic performance of different monetary policy rules when there is exchange rate uncertainty. We do this in the context of a non-linear rational expectations model. The exchange rate is allowed to deviate from its fundamental value and the persistence of the deviation is modeled as a Markov switching process. Our results suggest that taking into account the switching nature of the economy is important only in extreme cases.Exchange Rates, Monetary Policy, Markov Switching.