This article provides empirical evidence for a sizeable, statistically signifi cant negative impact of the quality of fi scal institutions on public spending volatility for a panel of 23 EU countries over the 1980-2007 period. The dependent variable is the volatility of discretionary fi scal policy, which does not represent reactions to changes in economic conditions. Our baseline results thus give support to the strengthening of institutions to deal with excessive levels of discretion volatility, as more checks and balances make it harder for governments to change fi scal policy for reasons unrelated to the current state of the economy. Our results also show that bigger countries and bigger governments have less public spending volatility. In contrast to previous studies, the political factors do not seem to play a role, with the exception of the Herfi ndahl index, which suggests that a high concentration of parliamentary seats in a few parties would increase public spending volatility. * I would like to thank Álvaro Pina and João Sousa for their valuable comments, and to Francisco José Veiga for sharing his data on government crises and cabinet changes. The opinions expressed in the article are those of the author and do not necessarily coincide with those of Banco de Portugal or the Eurosystem. Any errors and omissions are the sole responsibility of the author.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in EconStor may Working Paper SeriesWill US inflation awake from the dead? The role of slack and non-linearities in the Phillips curve The selection and refereeing process for this paper was carried out by the Chairs of the Task Force. Papers were selected based on their quality and on the relevance of the research subject to the aim of the Task Force. The authors of the selected papers were invited to revise their paper to take into consideration feedback received during the preparatory work and the referee's and Editors' comments.The paper is released to make the research of LIFT generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB, the ESCB, or any of the ESCB National Central Banks. Our main findings suggest that a Phillips curve model augmented with supply shocks and inflation expectations, estimated between 1992Q1 and 2007Q4, can explain rather well the behaviour of inflation after the Great Recession, with little apparent evidence of a missing deflation puzzle. We find that the Phillips curve specification with slack measured by the LMTI is consistently among the best performing specifications, together with the headline, mediumterm and long-term unemployment gaps. More important than the choice of the slack measure, however, is the consideration of a time-variation in the Phillips curve slope. Regressions on a rolling window as well as time-varying estimates using the Kalman filter confirm that the slope does vary over time. ECBIn an out-of-sample forecasting exercise, our models that take into account the time-varying nature of the slope coefficient exhibit the highest forecasting accuracy over 2008Q1 to 2015Q1.In addition, we find that the other (constant-slope) non-linear specifications explored in this paper do not seem to improve on the forecasting accuracy of the linear models.

The balance sheet adjustment in the household sector was a prominent feature of the Great Recession that is widely believed to have held back the cyclical recovery of the US economy. A key question for the US outlook is therefore whether household deleveraging has ended or whether further adjustment is needed. The novelty of this paper is to estimate a time-varying equilibrium household debt-to-income ratio determined by economic fundamentals to examine this question. The paper uses state-level data for household debt from the FRBNY Consumer Credit Panel over the period 1999Q1–2012Q4 and employs the Pooled Mean Group (PMG) estimator developed by Pesaran, Shin, and Smith (1999), adjusted for cross-section dependence. The results support the view that, despite significant progress in household balance sheet repair, household deleveraging still had some way to go as of 2012Q4, as the actual debt-to-income-ratio continued to exceed its estimated equilibrium. The baseline conclusions are rather robust to a set of alternative specifications. Going forward, our model suggests that part of this debt gap could, however, be closed by improving economic conditions rather than only by further declines in actual debt. Nevertheless, the normalisation of the monetary policy stance may imply challenges for the deleveraging process by reducing the level of sustainable household debt.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may RésuméDans cette étude, les auteurs cherchent à déterminer, à partir d'un nouvel ensemble de données sur les États américains, si la dette des ménages et le long processus d'assainissement de leurs bilans comptent parmi les facteurs explicatifs de la croissance anémique de la consommation observée aux États-Unis depuis 2007, à la suite de l'éclatement de la bulle immobilière. Ils opèrent une distinction entre la réduction du levier d'endettement -un effet de flux -et le surendettement -un effet de stock -et constatent que le poids excessif de la dette des ménages a exercé un effet modérateur significatif sur la consommation, en plus du frein exercé par les effets de revenu et de richesse. L'incidence globale est cependant légère -elle équivaut à environ un sixième du ralentissement de la consommation enregistré sur les périodes de 2000-2006 et 2007-2012 -et est surtout attribuable aux États américains où les déséquilibres dans le secteur de ménages étaient particulièrement importants. Ce résultat pourrait signaler l'existence de non-linéarités, à savoir que la consommation ne commence à pâtir de l'endettement des ménages qu'à partir du moment où les écarts par rapport à une dynamique soutenable de la dette deviennent trop grands. Classification JEL : C13, C23, C52, D12, H31 Classification de la Banque : Crédit et agrégats du crédit; Méthodes économétriques et statistiques; Questions internationalesNon-technical summaryThe leveraging and subsequent deleveraging cycle in the US household sector had a significant impact on the performance of economic activity in the years around the Great Recession of 2007-09. A growing body of theoretical and empirical studies has therefore focused on explaining to what extent and through which channels the excessive buildup of debt and the deleveraging phase might have contributed to depressing economic activity and consumption growth. In this context, our study adds to the recent strand of literature on household finance, such as Mian and Sufi (2010), Mian et al. (2013), andDynan (2012), by modelling the effects of two distinct concepts of debt on US consumption growth separately: (1) deleveraging, a flow concept related to the persistent declines in the debt-to-income ratio, and (2) the debt overhang, which refers to the stock of debt in excess of an estimated equilibrium.We use panel regression techniques applied to a novel data set with prototype estimates of personal consumpti...

Recent developments in US house prices mirror those of the 1996-2006 boom, but the recovery in construction activity has been weak. Using data for 254 US metropolitan areas, we show that housing supply elasticities have fallen markedly in recent years. Housing supply elasticities have declined more in areas where land-use regulation has tightened the most, and in areas that experienced the sharpest housing busts. A lowering of the housing supply elasticity implies a stronger price responsiveness to demand shocks, whereas quantity reacts less. Consistent with this, we find that an expansionary monetary policy shock has a considerably stronger effect on house prices during the recent recovery than during the previous housing boom. At the same time, building permits respond less.

We challenge the assumption in the literature of constant housing supply elasticities across housing expansions. Using a time-varying parameter (TVP)-VAR model on monthly US data since the early 1990s, we find that the response of housing supply to an expansionary monetary policy shock relative to the response of house prices has declined substantially since the Great Financial Crisis (GFC). Our findings are consistent with research suggesting that land-use regulation has tightened. Absent major reversions in regulation, our results point to a post-COVID-19 housing recovery characterised by a sluggish response of housebuilding to demand, but a relatively stronger response of house prices.

I investigate the nonlinear effects of monetary policy through differences in household debt across U.S. states. After constructing a novel indicator of inflation for the states, I compute state‐specific monetary policy stances as deviations from an aggregate Taylor rule. I find that the effectiveness of monetary policy is curtailed during periods of large household debt imbalances. Moreover, a common U.S. monetary policy does not fit all; it may have asymmetric effects on the economic performance across states, particularly at times of high dispersion in the household debt imbalances, as it may have been the case around the Great Recession.

No abstract