Even though major advances in economic theory and modelling have in some cases furthered our understanding of how the economy works, the system as a whole has become more complex. If policymakers had perfect knowledge about the actual state of the economy, the various transmission mechanisms as well as the true underlying model, monetary intervention would be greatly simplified. In reality, however, the monetary authorities have to contend with considerable uncertainty in relation to the above-mentioned factors. This said, uncertainty has mostly been neglected in both the theoretical and empirical literature focusing on monetary policy analysis. Nonetheless, findings from a review of theoretical literature that does exist on this topic suggest that optimal central banks act more conservatively when faced with uncertainty. Similarly, empirical findings from the literature also favour conservatism. However, there is some evidence to suggest that this is not always the case. These results suggest that central banks do not always act optimally when faced with uncertainty. The limited number of industrial country cases examined prevents any generalised view from emerging. If anything, the literature findings suggest that central bank behaviour differs across countries. This thesis aims to contribute to the empirical literature by studying the effects of uncertainty on monetary policy in the developing country case of South Africa. In simplest terms, the thesis seeks to establish whether or not the South African Reserve Bank (SARB) responded optimally to uncertainty as suggested by theoretical models thereof. To this end, the thesis employs a theoretical model which resembles a structural rule-based approach. The optimal interest rate rule was derived given a set of structural equations relating to demand, the Phillips curve and the real exchange rate. To incorporate uncertainty, it is assumed that the coefficients are dependent on the variances of the exogenous variables, namely inflation, the output gap and the exchange rate. The uncertainty adjusted model allows us to investigate whether monetary policy is more aggressive or passive when uncertainty about the relevant exogenous variable increases. Inflation, output gap and exchange rate uncertainty estimates were derived through GARCH-model specifications related to the structural equations as defined in the theoretical model. The investigation considered both indirect and direct uncertainty effects with a sample period stretching from 1990 to 2011. The findings reported in this thesis provide strong evidence in support of the notion that uncertainty plays a significant role within the South African monetary policy landscape and contributes towards explaining the SARB’s actions. Furthermore, the results suggest that the SARB did in fact act optimally in responding more conservatively to target variable fluctuations on average. Also, the findings could potentially strengthen the case for inflation targeting as a monetary policy regime, as the results indicate a marked decline in the effects of uncertainty under inflation targeting than before. / Economics / D. Com. (Economics)

We assess the effects of austerity announcements on investors' perception of the government's solvency across the financial cycle. To do so, we construct a unique news dataset utilizing a newswire database which consists of governmental and parliamentary approvals of austerity measures for 11 European countries. We also follow more regular statements of governmental representatives towards austerity measures. The effects are studied on 10-year sovereign bond yield spreads vis-à-vis Germany during the period 01:2000-12:2019. Implementing pooled OLS regressions, we find significant decreasing effects in the pre-crisis period especially for the GIIPSH group (Greece, Ireland, Italy, Portugal, Spain, and Hungary) and decreasing although not significant effects in the post-crisis period. The crisis period manifests itself with increased surprise effects of announcements. The markets adopted announcements of the GIIPSH group as signals of deteriorating solvency which led to further increases of yield spreads. On the other hand, prudent countries (Czechia, France, Netherlands, Poland, and Slovakia) enjoyed a low sensitivity to their announcements across the cycle. Finally, we find that markets react rather on final announcements of austerity measures than to comments expressed by national representatives....

During the Great Recession of 2007 and 2008, liquidity and credit dried up, threatening the stability of financial institutions, particularly the banking firms. Traditional source of funds from the last resort, the Discount Window of the Federal Reserve System, failed to remedy the liquidity problem. To assuage the liquidity and credit problem, the Federal Reserve System established several emergency lending facilities and provided unprecedented amount of loans to the banking industry. Using a dataset published by Bloomberg LLP in the aftermaths of the financial crisis, which contains daily loan balances from the Fed, I conduct an event study to test whether financial markets are efficient in reflecting all public, anticipated and classified information in security prices. The most important contribution of this dissertation to the finance discipline and literature is the investigation and analysis of the Fed’s unprecedented loans to the banking industry during the Great Recession and the market reaction to it. The second major contribution of this study is the empirical test of strong form efficient market hypothesis, which has not been feasible due to legal data challenges. This dissertation has other contributions to the finance discipline and banking research. First, I develop an algorithm for measuring the amount of borrowing by banks. Second, I introduce a new “loan balance” ratio to traditional list of bank financial ratios. Third, I use event study methodologies to allow for cross-correlation, heteroscedasticity and event induced-variance change in studying US banks’ performance during the Great Recession.

The aim of the thesis "The economic policy of the Czech Republic in the background of the political cycle" is to analyze whether the size of the state budget and revenue and expenditure is influenced by the political cycle or not. The main goal of this work is to find out whether the size of the state budget and its individual parts are affected by the political cycle and at the same time also make assessment of that whether the current political cycle is manifested in the selected macroeconomic variables or not. Next, I will analyze the evolution of the unemployment and inflation rates and then determine whether the individual variables are affected because of the ongoing political cycles or their development would have been comparable, if there would not be the functioning of the political cycle. The thesis will be taken into account the conclusions and outcomes of the theory that areas are involved in the political cycle. The aim of this work will be to confirm or refute the hypothesis political cycle in the Czech Republic and to find out whether there is a growing state budget deficits particular pre-election and election year, extensive easing of fiscal policy and whether budget deficits are a natural result of the struggle for votes between political parties or not. The influence of the...

Esta tesis esta compuesta por tres capítulos. Los dos primeros capítulos estudian los efectos macroeconómicos de una consolidación fiscal y estímulos fiscales cuando la deuda privada es elevada. El tercer capítulo, estudia proyecciones de deuda púbica para el caso español bajo diferentes escenarios macroeconómicos. En el primer capítulo se analiza los efectos macroeconómicos de diferentes planes de consolidación fiscal en los que el gobierno reduce de forma gradual la ratio deuda pública-PIB y el sector privado está altamente endeudado. Lo resultados muestran que en el largo plazo, la consolidación fiscal genera beneficios en términos de output que son mayores en el caso en el que el sector público este altamente endeudado. En el corto plazo, la efectividad de la política fiscal en un escenario de deuda alta, depende del instrumento fiscal utilizado. Finalmente se analiza el bienestar social, encontrando que la política de consolidación fiscal produce una ganancia en términos de bienestar cuando el gasto público o el impuesto al consumo se utilizan como instrumento y este bienestar es mayor en el caso de endeudamiento privado alto. Sin embargo, cuando el instrumento fiscal son los impuestos al trabajo o al capital, se produce una pérdida de bienestar que es amplificada en un escenario de endeudamiento alto. En el segundo capítulo, se estudia como el tamaño de los multiplicadores fiscales depende del nivel de endeudamiento privado. Este artículo contribuye al debate de los efectos de los estímulos fiscales demostrando que el impacto de las políticas fiscales depende del nivel de endeudamiento, considerando el endeudamiento de los hogares y empresas. Finalmente, en el tercer capítulo se examina las proyecciones de deuda para la economía española bajo diferentes escenarios macroeconómicos. Se encuentra que la deuda aumentará hasta un 174% en 2035 si se cumple el escenario macroeconómico que predice la Comisión Europea. En el caso de considerar una subida de impuestos, la deuda disminuye pero lejos de llegar a los niveles pre-COVID.

[pt] Nesse artigo, apresentamos um modelo Novo Keynesiano de economia aberta com dois países, taxação distorciva e gasto governamental estocástico. Nessa modelagem comparamos, em uma base de bem-estar, diferentes regras monetária e fiscal com uma referência constituída pelo equilíbrio cooperativo da política de Ramsey. / [en] In this paper, we present a New Keynesian two-country open economy model featuring distortionary taxation and stochastic government spending. Within this modeling we compare, in a welfare-sense, different fiscal and monetary rules with a benchmark constituted by a cooperative Ramseypolicy equilibrium.

The study investigates the linkages between government policies and the real estate sector via a case study that was carried out on the Japanese market. The applicability of the results were then discussed in terms of whether similar trends could be seen in other economies facing similar demographic and economic issues as Japan. While the real estate sector linkages with the overall economy are relatively well studied topic, there are less studies regarding the links between government policies and the real estate market. The studies in the field furthermore in general conclude that the results are country and location dependent, thus illustrating there to be a research gap. Given that real estate sector is linked with the overall performance of the economy, and fluctuations within the sector can magnify ups and downs of the overall economy, it is of importance to investigate the topic in order to, for example, illustrate the effect that policy changes will have on the real estate sector and thus potentially also on the overall market. The approach of the study was to carry out quantitative analysis through the use of econometric analysis methods such as cointegration and Granger causality. The robustness of the econometric analysis results were then further discussed through the use of qualitative analysis tool of expert interviews. The applicability of the econometric results to other economies was analyzed with simple comparison of key variables. The results of the study indicate that government policies have very little effect on the real estate sector. The econometric analysis suggests that neither monetary nor fiscal policy had notable effect on the real estate sector, especially price development. On the other hand, interest rates were seen as a most notable government policy tool to have an effect on the real estate sector in the expert interviews. As a conclusion, it was argued that the low level of cointegrations and lack of causalities could be due to government policies having an indirect effect on the real estate market via altering the demand and supply for real estate rather than leading to changes within the sector directly. For the comparison, some of the Nordic countries and Germany were noted to be facing similar issues as Japan in terms of ageing population, urbanization trend, notable government debt levels, and low interest rates. It was however noted, that the econometric analysis results could not be mirrored to these markets directly due to the rather straightforward comparison, but rather the results could act as a guideline. / Den här studien utreder kopplingarna mellan regeringspolitiken och fastighetssektorn genom en fallstudie som utfördes på den japanska marknaden. Tillämpligheten av studiens resultat diskuterades sedan kring huruvida liknande trender kan utläsas i andra ekonomier som står inför liknande demografiska och ekonomiska problem som Japan gör.  Hur fastighetssektorn är kopplad till den generella ekonomin är ett relativt välstuderat ämne, de finns däremot färre studier som avhandlar kopplingar mellan regeringspolitik och fastighetsmarknadens utveckling. Studierna inom ämnet sammanfattar generellt att studiens resultat är beroende av landet och den specifika platsen, vilket visar att det finns en lucka i forskningen. Med tanke på att fastighetsmarknaden är kopplad till den generella ekonomins utveckling, samt att fluktuationer inom sektorn kan förstora upp- och nedgångar i den övergripande ekonomin, är det väsentligt att undersöka ämnet för att, exempelvis, illustrera den effekt politiska ändringar har på fastighetssektorn och därmed potentiellt den övergripande marknaden.  Studiens tillvägagångsätt var att genomföra en kvantitativ analys genom användning av ekonometriska analysverktyg, såsom samverkan och Granger kausalitet. De ekonometriska analysresultatens robusthet diskuterades därefter ytterligare genom kvalitativ analys i form av intervjuer med experter inom ämnet. De ekonometriska resultatens, till andra ekonomiers, användbarhet analyserades med en enkel jämförelse av nyckelvariabler.  Resultatet av studien indikerar att regeringspolitik har en mycket liten effekt på fastighetssektorn. Den ekonometriska analysen tyder vidare på att varken penning- eller finanspolitik har en märkbar effekt på fastighetssektorn, i synnerhet på prisutvecklingen. Motsatt till detta framgick det i intervjuerna med experter inom ämnet, att räntorna är det verktyg som används inom regeringspolitiken som har störst effekt på fastighetssektorn. Som slutsats hävdades det att den låga graden samverkan och bristen på kausalitet kan bero på att regeringspolitik har en indirekt effekt på fastighetssektorn då utbudet och efterfrågan ändras snarare än att det direkt leder till ändringar inom sektorn. Vad gäller tillämpningen av de ekonometriska resultaten noterades det att några av de nordiska länderna samt Tyskland kommer att möta liknande problem som Japan, gällande åldrande befolkning, urbaniseringsutveckling och låga räntor. Det noterades dock att de ekonometriska analysresultaten inte direkt kunde spegla sig i dessa marknader då en relativ enkel jämförelsemetod användes, men att resultaten kan agera som en riktlinje.

Purpose: This thesis investigates the relationship concerning traditional safe haven assets, gold and US 10-year treasury bonds during periods of market instability, specifically during the economic concerns raised by the COVID-19 pandemic. It assesses the hedging and safe haven properties of these assets and their dynamic nature throughout two periods of unconventional monetary and fiscal policy measures by the Federal Reserve & US Congress respectively. Furthermore, the study explores a unique divergence between the price movements of the two assets, as well as potential changes in their properties and relationships. Theoretical Perspective: The study is anchored in theoretical concepts based on previous research such as Modern Portfolio Theory, Safe Haven Theory and Hedging Theory. These theories explain asset behaviours during financial turmoil and the relationship between gold and US 10-year treasury bonds during financial crises. The research gap and research questions were formulated based on the information gathered. Methodology: The research employs a quantitative, explanatory approach, anchoredin objectivism and realism, focusing on testing established theories through empirical data. Using a deductive methodology, it investigates potential changes in the dynamic between traditional safe haven assets, gold and US 10-year treasury bonds. Empirical Foundation: Based on a thorough literature review, this study integrates insights from past research and with new data emerging from the pandemic's influence on financial markets and subsequent policy action. The empirical evidence is integrated through quantitative analysis, leveraging ARCH/GARCH models and quantile regression to understand asset performance amid market shocks and policy changes. Conclusion: The findings indicate that gold did not initially act as a hedge against bonds but did so against other assets such as Oil, USD, and BTC during the height of COVID-19. In the recovery phase, this relationship shifted, with gold emerging as a hedge against bonds while its hedging capacity against Oil and Real Yield was negated. Additionally, gold's role as a safe haven against bonds was consistently unsupported across both periods studied. Furthermore, a portfolio analysis revealed a shift in investment strategy, from a balanced gold-bonds mix during the crisis to a sole preference for gold in the recovery phase, adapting to the evolving market conditions and policy changes.

This dissertation is part of a growing body of research studying the implications of micro heterogeneity - differences between different types of households and workers - for macro economic policy. By incorporating heterogeneity into monetary and fiscal policy frameworks, I am able to study both the distributional consequences of policy and uncover ways in which differences between households change policy transmission mechanisms. In the first chapter, I show that growing differences across the income distribution in workers' substitutability with capital alters the strength of a key monetary policy transmission mechanism. In the second chapter, I highlight and measure a new trade-off between redistribution policies and long-run investment stemming from differences in households' propensity to save out of permanent income. In the third chapter, joint with Jennifer La'O, we show that when the degree of labor income inequality changes over the business cycle, and fiscal policy is unable to respond to these changes, optimal monetary policy should take this inequality into account. Chapter 1 examines how heterogeneity in worker substitutability with capital affects the labor income channel of monetary policy. Empirically, I show that workers performing routine tasks see smaller labor income gains than other workers following a monetary expansion and have higher marginal propensities to consume (MPC). I show that this relationship dampens the role that the labor market plays in monetary policy transmission. I embed capital-task complementarity in a medium-scale HANK model calibrated to match the respective capital-labor elasticities and labor shares of routine and non-routine workers. This worker heterogeneity reduces the size of the labor income channel 25 percent. Chapter 2 studies the trade-offs associated with income redistribution in an overlapping generations model in which savings rates increase with permanent income. By transferring resources from high savers to low savers, redistribution lowers aggregate savings, and depresses investment. I derive sufficient conditions under which this savings behavior generates a welfare trade-off between permanent income redistribution and capital accumulation in the short and long run. I quantify the size of this trade-off in two ways. First, I derive a sufficient statistic formula for the impact of this channel on welfare, and estimate the formula using U.S. household panel data. When redistribution is done with a labor income tax, the welfare costs associated with my channel are around 1/3 the size of those associated with labor supply distortions. Second, I solve a quantitative overlapping generations model with un-insurable idiosyncratic earnings risk in which savings rates increase with permanent income calibrated to the U.S. in 2019. In this setting, I find that around 17 percent of the trade-off between labor income redistribution and average consumption can be attributed to my channel. In Chapter 3, joint with Jennifer La'O, we study optimalmonetary policy in a dynamic, general equilibrium economy with heterogeneous agents. All heterogeneity is ex-ante: workers differ in type-specific, state-contingent labor productivity, yet markets are complete. The fiscal authority has access to a uniform, state-contingent lump-sum tax (or transfer), but linear taxes are restricted to be non-state contingent. We derive sufficient conditions under which implementing flexible-price allocations is optimal. We show that such allocations are not optimal when the relative labor income distribution varies with the business cycle; in such cases, optimal monetary policy implements a state-contingent mark-up that co-moves positively with a sufficient statistic for labor income inequality.

Theoretical and empirical literature suggest that public expenditure plays very important role in economic growth, especially in the developing countries. Available statistics show that Nigeria’s 5-year average annual real public expenditure/GDP ratio grew during the greater part of the study period 1981-2015, while the 5-year average annual real GDP growth and real GDP per capita growth rates are positive during the same study period, except for 1981-1985 and 1986-1990, respectively. The incidence of poverty, however, maintained upward movement, except for 2006-2010. The foregoing interactions have been seldom, the focus of empirical studies in Nigeria. This study examines the effects of public expenditure on economic growth and poverty reduction in Nigeria from 1981-2015, using variants of two models and simulation exercise: augmented Solow growth model and growth-poverty model. Real public expenditure/GDP ratio is used as the policy variable and the simulation duration is for 5-years, 2016-2020. We use the autoregressive distributed lag (ARDL) bounds testing procedure by Pesaran et al. (2001) to estimate the two models, given that the annual data used for the models’ estimations were integrated of order I(1) and I(0) and small sample size. The results from the two models confirmed that public expenditure increases economic growth, though not significant, while economic growth does not reduce poverty. The same findings are confirmed through the simulation exercise. We, however, offer measures that would ensure growth and poverty reduction in Nigeria; public expenditure switch that encourages more investments in capital public expenditure, social sector public expenditure and private capital investment. / Central Bank of Nigeria