Amit Friedman - Academia.edu (original) (raw)

Papers by Amit Friedman

This paper addresses the macroeconomic implications of a …scal policy regime based on exogenous t... more This paper addresses the macroeconomic implications of a …scal policy regime based on exogenous tax rates paths and public debt/GDP target in an open economy. In this setup, government spending accommodates tax revenues and target de…cits. The analysis is motivated by the Israeli …scal policy experience during the 2000s. We use a model where domestic production requires imported inputs. The model is calibrated and the e¤ects of pre-announced tax cuts, and adoption of a lower debt target, are simulated. The analysis focuses on the dynamics generated by the announcements of these policy shifts followed by their implementation. The open-economy setup has the property that demand shifts-as government spending being cut to comply with a lower tax rate or lower debt target-have macroeconomic e¤ects which are similar to those of productivity shocks.

Research Papers in Economics, 2005

This paper presents the following question: what is the long-run effect of the minimum wage on ec... more This paper presents the following question: what is the long-run effect of the minimum wage on economic growth? In order to deal with this question, a model that creates a synthesis between labor search theory and endogenous growth theory is constructed. In the model, the wage distribution, investment in human capital, active production technologies and long-run growth are all determined endogenously. The analysis implies that policies that affect directly the wage distribution such as minimum wage laws, have a nonmonotonic effect on economic growth. The positive effect is due to the change in production technologies that creates an incentive to increase investment in human capital. The negative effect is the result of a disproportional reduction of monopsonistic power of firms. This affects negatively the skill premium, causing a reduction in investment in human capital. This negative effect of the minimum wage is the novel result of integrating labor market frictions in an endogen...

This paper studies the equilibrium outcomes of levying various types of taxes and subsidies on la... more This paper studies the equilibrium outcomes of levying various types of taxes and subsidies on labor in an equilibrium labor search market. It is shown that despite the existence of labor market frictions, there is tax equivalence between an income tax and a payroll tax, exactly as in a competitive labor market. In addition, it is shown that a proportional subsidy has a non-linear, regressive impact on gross and net wages in equilibrium and hence it increases wage inequality. At the same time, a wage subsidy that guarantees a minimum net income has a dampening effect on wages above the guaranteed minimum since it reduces the degree of competition in the market. Thus, the results indicate that given labor market imperfections, wage subsidies may have some undesirable features.

This paper compares the minimum wage in different countries and evaluates its effectiveness by us... more This paper compares the minimum wage in different countries and evaluates its effectiveness by using a calibrated equilibrium labor search model. The main result is that the conclusions from comparisons and tests, which are based on empirical grounds, are sometimes reversed when examined within the model. I show, that under reasonable assumptions, the minimum wage in the U.S., which is low, and therefore perceived to be ineffective, is in fact more effective than the one in some European countries. The minimum wage in the U.S. is above the reservation wage of low-skilled workers, yet, it is substantially lower than labor productivity; I find that adopting the recent proposal to raise the Federal minimum wage by 40 percent will reduce the monopsonistic power of firms without having an adverse effect on employment of low-skilled workers.

A Real Model of the Israeli Economy

This paper presents a real open-economy model of the Israeli economy. The model is designed to pe... more This paper presents a real open-economy model of the Israeli economy. The model is designed to perform quarterly macroeconomic forecasts and fiscal policy experiments. This is illustrated by the analyses of pre-announced tax cuts and lowering the public debt target – policies which were adopted during the fiscal consolidation process in Israel during the 2000s. The model is neoclassical in nature, but with some non-standard features such as a liquidity effect on nondurable consumption and on durable goods purchases. It includes dynamic optimization of households and firms, and a government which determines expenditures given exogenous tax rates and a public debt target. The model is estimated using the sample of the last decade. The quantitative results include the following: (i) Announcements of future income tax cuts have a simultaneous expansionary effect via consumer demand, but, at the time of implementation, the necessary cuts in government expenditure have a contractionary ef...

Labor: Supply & Demand eJournal, 2004

The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabilizati... more The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabilization period, as an unobserved stochastic variable, using state-of-the-art State Space Models. The NAIRU is identified by a Phillips curve equation, and is assumed to follow a random walk. The basic model is augmented by an equation that captures the persistence of the unemployment gap. We also use the joint system first introduced by Apel and Jansson (1999) to estimate potential output and the NAIRU simultaneously. Confidence intervals around the NAIRU were computed by a jackknife technique. The results indicate that the actual variation of unemployment has only a minor effect on the NAIRU, which remained relatively stable throughout the sample period. The state variables have sufficiently stable characteristics to be successfully predicted at least one step ahead. However, policy implications that may be derived are sometimes limited, as there is substantial uncertainty around the estimat...

This paper compares the minimum wage in different countries and evaluates its effectiveness by us... more This paper compares the minimum wage in different countries and evaluates its effectiveness by using a calibrated equilibrium labor search model. The main result is that the conclusions from comparisons and tests, which are based on empirical grounds, are sometimes reversed when examined within the model. I show, that under reasonable assumptions, the minimum wage in the U.S., which is low, and therefore perceived to be ineffective, is in fact more effective than the one in some European countries. The minimum wage in the U.S. is above the reservation wage of low-skilled workers, yet, it is substantially lower than labor productivity; I find that adopting the recent proposal to raise the Federal minimum wage by 40 percent will reduce the monopsonistic power of firms without having an adverse effect on employment of low-skilled workers.

This paper describes the Bank of Israel’s investment philosophy and policy. The paper focuses on ... more This paper describes the Bank of Israel’s investment philosophy and policy. The paper focuses on the strategic asset allocation framework and the role of the Monetary Policy Committee in setting the investment strategy. The abundant FX reserves in recent years, and falling yields on traditional reserve assets, called for reform in reserves management. Institutional changes – the enactment of a new central bank law – made reform possible. The result was a dramatic shift in the BOI’s investment policy. In seven years, the BOI moved from a classic reserves portfolio to a multi-asset diversified portfolio that includes a sizeable allocation of equities and corporate bonds. These riskier assets significantly increased the returns on reserves in recent years. For example, between 2012 and 2017, investment in equities was the source of 64% of the total return, which was 9.2%. The contribution of equities to total return allowed the BOI to preserve the purchasing power of reserves at times ...

In recent years, Forex (FX) interventions have been routinely used by the Bank of Israel as well ... more In recent years, Forex (FX) interventions have been routinely used by the Bank of Israel as well as by other central banks as an additional monetary instrument, with the objective of moderating appreciation trends of the domestic currency. This paper analyzes the immediate effect of the Bank of Israel’s FX interventions on the exchange rate and the persistence of this effect over time. To identify this effect, we first measure the intraday impact of FX intervention using a novel high-frequency, minute-by-minute dataset of interventions between 2009 and 2017. Next, we use our intraday measure to estimate the persistence of FX intervention shocks over longer horizons (in trading days), where we base our empirical approach on the potential outcome framework and the Local Projections method. We find that FX intervention shocks – that is, unexpected FX purchases – cause, on impact USDILS exchange rate depreciation in over 90 percent of the cases. We also find that this effect has a persi...

This paper analyses the equilibrium real exchange rate (ERER) for Israel. In a small open economy... more This paper analyses the equilibrium real exchange rate (ERER) for Israel. In a small open economy such as Israel, in which export flows account for 40% of GDP, the real exchange rate (RER) has an important impact on growth and stability. RER misalignments that are due to medium-term deviations of the actual exchange rate from the ERER could cause output loss and cyclical, inefficient allocation of resources, including low utilisation of factors of production. The fact that a large share of exports is based on the high-tech industry and high investment in human capital makes this concern an important policy factor.

The equilibrium real exchange rate for Israel

This paper studies the equilibrium outcomes of levying various types of taxes and subsidies on la... more This paper studies the equilibrium outcomes of levying various types of taxes and subsidies on labor in an equilibrium labor search market. It is shown that despite the existence of labor market frictions, there is tax equivalence between an income tax and a payroll tax, exactly as in a competitive labor market. In addition, it is shown that a proportional subsidy has a non-linear, regressive impact on gross and net wages in equilibrium and hence it increases wage inequality. At the same time, a wage subsidy that guarantees a minimum net income has a dampening effect on wages above the guaranteed minimum since it reduces the degree of competition in the market. Thus, the results indicate that given labor market imperfections, wage subsidies may have some undesirable features.

This paper compares the minimum wage in different countries and evaluates its effectiveness by us... more This paper compares the minimum wage in different countries and evaluates its effectiveness by using a calibrated equilibrium labor search model. The main result is that the conclusions from comparisons and tests, which are based on empirical grounds, are ...

* I would like to thank Zvi Eckstein for his dedicated guidance, Kobi Braude and Yoram Weiss for ... more * I would like to thank Zvi Eckstein for his dedicated guidance, Kobi Braude and Yoram Weiss for important comments and suggestions, and Moran Dahan and Savion Rahmin for research assistance. Research Department, Bank of Israel. http://www.boi.gov.il Any views expressed in the Discussion Paper Series are those of the authors and do not necessarily reflect those of the Bank of Israel.

* I am grateful to Zvi Eckstein for his dedicated guidance, and for devoting many hours for discu... more * I am grateful to Zvi Eckstein for his dedicated guidance, and for devoting many hours for discussion on the subject. I also thank Kobi Braude, Zvi Eercowitz, Dani Tsiddon, Yoram Weiss and David Zvilichovsky for important comments. Bank of Israel, Research Department. http://www.boi.gov.il Any views expressed in the Discussion Paper Series are those of the authors and do not necessarily reflect those of the Bank of Israel.

* The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabiliza... more * The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabilization period, as an unobserved stochastic variable, using state- of-the-art State Space Models. The NAIRU is identified by a Phillips curve equation, and is assumed to follow a random walk. The basic model is augmented by an equation that captures the persistence of the unemployment gap. We also use the joint system first introduced by Apel and Jansson (1999) to estimate potential output and the NAIRU simultaneously. Confidence intervals around the NAIRU were computed by a jackknife technique. The results indicate that the actual variation of unemployment has only a minor effect on the NAIRU, which remained relatively stable throughout the sample period. The state variables have sufficiently stable characteristics to be successfully predicted at least one step ahead. However, policy implications that may be derived are sometimes limited, as there is substantial uncertainty around the esti...

This paper addresses the macroeconomic implications of a …scal policy regime based on exogenous t... more This paper addresses the macroeconomic implications of a …scal policy regime based on exogenous tax rates paths and public debt/GDP target in an open economy. In this setup, government spending accommodates tax revenues and target de…cits. The analysis is motivated by the Israeli …scal policy experience during the 2000s. We use a model where domestic production requires imported inputs. The model is calibrated and the e¤ects of pre-announced tax cuts, and adoption of a lower debt target, are simulated. The analysis focuses on the dynamics generated by the announcements of these policy shifts followed by their implementation. The open-economy setup has the property that demand shifts-as government spending being cut to comply with a lower tax rate or lower debt target-have macroeconomic e¤ects which are similar to those of productivity shocks.

Research Papers in Economics, 2005

This paper presents the following question: what is the long-run effect of the minimum wage on ec... more This paper presents the following question: what is the long-run effect of the minimum wage on economic growth? In order to deal with this question, a model that creates a synthesis between labor search theory and endogenous growth theory is constructed. In the model, the wage distribution, investment in human capital, active production technologies and long-run growth are all determined endogenously. The analysis implies that policies that affect directly the wage distribution such as minimum wage laws, have a nonmonotonic effect on economic growth. The positive effect is due to the change in production technologies that creates an incentive to increase investment in human capital. The negative effect is the result of a disproportional reduction of monopsonistic power of firms. This affects negatively the skill premium, causing a reduction in investment in human capital. This negative effect of the minimum wage is the novel result of integrating labor market frictions in an endogen...

This paper studies the equilibrium outcomes of levying various types of taxes and subsidies on la... more This paper studies the equilibrium outcomes of levying various types of taxes and subsidies on labor in an equilibrium labor search market. It is shown that despite the existence of labor market frictions, there is tax equivalence between an income tax and a payroll tax, exactly as in a competitive labor market. In addition, it is shown that a proportional subsidy has a non-linear, regressive impact on gross and net wages in equilibrium and hence it increases wage inequality. At the same time, a wage subsidy that guarantees a minimum net income has a dampening effect on wages above the guaranteed minimum since it reduces the degree of competition in the market. Thus, the results indicate that given labor market imperfections, wage subsidies may have some undesirable features.

This paper compares the minimum wage in different countries and evaluates its effectiveness by us... more This paper compares the minimum wage in different countries and evaluates its effectiveness by using a calibrated equilibrium labor search model. The main result is that the conclusions from comparisons and tests, which are based on empirical grounds, are sometimes reversed when examined within the model. I show, that under reasonable assumptions, the minimum wage in the U.S., which is low, and therefore perceived to be ineffective, is in fact more effective than the one in some European countries. The minimum wage in the U.S. is above the reservation wage of low-skilled workers, yet, it is substantially lower than labor productivity; I find that adopting the recent proposal to raise the Federal minimum wage by 40 percent will reduce the monopsonistic power of firms without having an adverse effect on employment of low-skilled workers.

A Real Model of the Israeli Economy

This paper presents a real open-economy model of the Israeli economy. The model is designed to pe... more This paper presents a real open-economy model of the Israeli economy. The model is designed to perform quarterly macroeconomic forecasts and fiscal policy experiments. This is illustrated by the analyses of pre-announced tax cuts and lowering the public debt target – policies which were adopted during the fiscal consolidation process in Israel during the 2000s. The model is neoclassical in nature, but with some non-standard features such as a liquidity effect on nondurable consumption and on durable goods purchases. It includes dynamic optimization of households and firms, and a government which determines expenditures given exogenous tax rates and a public debt target. The model is estimated using the sample of the last decade. The quantitative results include the following: (i) Announcements of future income tax cuts have a simultaneous expansionary effect via consumer demand, but, at the time of implementation, the necessary cuts in government expenditure have a contractionary ef...

Labor: Supply & Demand eJournal, 2004

The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabilizati... more The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabilization period, as an unobserved stochastic variable, using state-of-the-art State Space Models. The NAIRU is identified by a Phillips curve equation, and is assumed to follow a random walk. The basic model is augmented by an equation that captures the persistence of the unemployment gap. We also use the joint system first introduced by Apel and Jansson (1999) to estimate potential output and the NAIRU simultaneously. Confidence intervals around the NAIRU were computed by a jackknife technique. The results indicate that the actual variation of unemployment has only a minor effect on the NAIRU, which remained relatively stable throughout the sample period. The state variables have sufficiently stable characteristics to be successfully predicted at least one step ahead. However, policy implications that may be derived are sometimes limited, as there is substantial uncertainty around the estimat...

This paper compares the minimum wage in different countries and evaluates its effectiveness by us... more This paper compares the minimum wage in different countries and evaluates its effectiveness by using a calibrated equilibrium labor search model. The main result is that the conclusions from comparisons and tests, which are based on empirical grounds, are sometimes reversed when examined within the model. I show, that under reasonable assumptions, the minimum wage in the U.S., which is low, and therefore perceived to be ineffective, is in fact more effective than the one in some European countries. The minimum wage in the U.S. is above the reservation wage of low-skilled workers, yet, it is substantially lower than labor productivity; I find that adopting the recent proposal to raise the Federal minimum wage by 40 percent will reduce the monopsonistic power of firms without having an adverse effect on employment of low-skilled workers.

This paper describes the Bank of Israel’s investment philosophy and policy. The paper focuses on ... more This paper describes the Bank of Israel’s investment philosophy and policy. The paper focuses on the strategic asset allocation framework and the role of the Monetary Policy Committee in setting the investment strategy. The abundant FX reserves in recent years, and falling yields on traditional reserve assets, called for reform in reserves management. Institutional changes – the enactment of a new central bank law – made reform possible. The result was a dramatic shift in the BOI’s investment policy. In seven years, the BOI moved from a classic reserves portfolio to a multi-asset diversified portfolio that includes a sizeable allocation of equities and corporate bonds. These riskier assets significantly increased the returns on reserves in recent years. For example, between 2012 and 2017, investment in equities was the source of 64% of the total return, which was 9.2%. The contribution of equities to total return allowed the BOI to preserve the purchasing power of reserves at times ...

In recent years, Forex (FX) interventions have been routinely used by the Bank of Israel as well ... more In recent years, Forex (FX) interventions have been routinely used by the Bank of Israel as well as by other central banks as an additional monetary instrument, with the objective of moderating appreciation trends of the domestic currency. This paper analyzes the immediate effect of the Bank of Israel’s FX interventions on the exchange rate and the persistence of this effect over time. To identify this effect, we first measure the intraday impact of FX intervention using a novel high-frequency, minute-by-minute dataset of interventions between 2009 and 2017. Next, we use our intraday measure to estimate the persistence of FX intervention shocks over longer horizons (in trading days), where we base our empirical approach on the potential outcome framework and the Local Projections method. We find that FX intervention shocks – that is, unexpected FX purchases – cause, on impact USDILS exchange rate depreciation in over 90 percent of the cases. We also find that this effect has a persi...

This paper analyses the equilibrium real exchange rate (ERER) for Israel. In a small open economy... more This paper analyses the equilibrium real exchange rate (ERER) for Israel. In a small open economy such as Israel, in which export flows account for 40% of GDP, the real exchange rate (RER) has an important impact on growth and stability. RER misalignments that are due to medium-term deviations of the actual exchange rate from the ERER could cause output loss and cyclical, inefficient allocation of resources, including low utilisation of factors of production. The fact that a large share of exports is based on the high-tech industry and high investment in human capital makes this concern an important policy factor.

The equilibrium real exchange rate for Israel

This paper studies the equilibrium outcomes of levying various types of taxes and subsidies on la... more This paper studies the equilibrium outcomes of levying various types of taxes and subsidies on labor in an equilibrium labor search market. It is shown that despite the existence of labor market frictions, there is tax equivalence between an income tax and a payroll tax, exactly as in a competitive labor market. In addition, it is shown that a proportional subsidy has a non-linear, regressive impact on gross and net wages in equilibrium and hence it increases wage inequality. At the same time, a wage subsidy that guarantees a minimum net income has a dampening effect on wages above the guaranteed minimum since it reduces the degree of competition in the market. Thus, the results indicate that given labor market imperfections, wage subsidies may have some undesirable features.

This paper compares the minimum wage in different countries and evaluates its effectiveness by us... more This paper compares the minimum wage in different countries and evaluates its effectiveness by using a calibrated equilibrium labor search model. The main result is that the conclusions from comparisons and tests, which are based on empirical grounds, are ...

* I would like to thank Zvi Eckstein for his dedicated guidance, Kobi Braude and Yoram Weiss for ... more * I would like to thank Zvi Eckstein for his dedicated guidance, Kobi Braude and Yoram Weiss for important comments and suggestions, and Moran Dahan and Savion Rahmin for research assistance. Research Department, Bank of Israel. http://www.boi.gov.il Any views expressed in the Discussion Paper Series are those of the authors and do not necessarily reflect those of the Bank of Israel.

* I am grateful to Zvi Eckstein for his dedicated guidance, and for devoting many hours for discu... more * I am grateful to Zvi Eckstein for his dedicated guidance, and for devoting many hours for discussion on the subject. I also thank Kobi Braude, Zvi Eercowitz, Dani Tsiddon, Yoram Weiss and David Zvilichovsky for important comments. Bank of Israel, Research Department. http://www.boi.gov.il Any views expressed in the Discussion Paper Series are those of the authors and do not necessarily reflect those of the Bank of Israel.

* The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabiliza... more * The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is estimated for the post-stabilization period, as an unobserved stochastic variable, using state- of-the-art State Space Models. The NAIRU is identified by a Phillips curve equation, and is assumed to follow a random walk. The basic model is augmented by an equation that captures the persistence of the unemployment gap. We also use the joint system first introduced by Apel and Jansson (1999) to estimate potential output and the NAIRU simultaneously. Confidence intervals around the NAIRU were computed by a jackknife technique. The results indicate that the actual variation of unemployment has only a minor effect on the NAIRU, which remained relatively stable throughout the sample period. The state variables have sufficiently stable characteristics to be successfully predicted at least one step ahead. However, policy implications that may be derived are sometimes limited, as there is substantial uncertainty around the esti...