|
on Central and Western Asia |
| By: | Ly, Racine; Traore, Fousseini; Dia, Khadim |
| Abstract: | This paper applies a recurrent neural network (RNN) method to forecast cotton and oil prices. We show how these new tools from machine learning, particularly Long-Short Term Memory (LSTM) models, complement traditional methods. Our results show that machine learning methods fit reasonably well with the data but do not outperform systematically classical methods such as Autoregressive Integrated Moving Average (ARIMA) or the naïve models in terms of out of sample forecasts. However, averaging the forecasts from the two type of models provide better results compared to either method. Compared to the ARIMA and the LSTM, the Root Mean Squared Error (RMSE) of the average forecast was 0.21 and 21.49 percent lower, respectively, for cotton. For oil, the forecast averaging does not provide improvements in terms of RMSE. We suggest using a forecast averaging method and extending our analysis to a wide range of commodity prices. |
| Keywords: | WORLD; forecasting; models; prices; commodities; machine learning; neural networks; cotton; oils; Recurrent Neural networks; LSTM; commodity prices; Long-Short Term Memory; Autoregressive Integrated Moving Average (ARIMA) |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:2000&r=all |
| By: | Rao, R. Kavita (National Institute of Public Finance and Policy) |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:21/330&r=all |
| By: | Paddrick, Mark; Young, H. Peyton |
| Abstract: | We propose a general framework for estimating the vulnerability to default by a central counterparty (CCP) in the credit default swaps market. Unlike conventional stress testing approaches, which estimate the ability of a CCP to withstand nonpayment by its two largest counterparties, we study the direct and indirect effects of nonpayment by members and/or their clients through the full network of exposures. We illustrate the approach for the U.S. credit default swaps market under shocks that are similar in magnitude to the Federal Reserve’s stress tests. The analysis indicates that conventional stress testing approaches may underestimate the potential vulnerability of the main CCP for this market. |
| Keywords: | credit default swaps; central counterparties; stress testing; systemic risk; financial networks |
| JEL: | D85 L14 |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:101170&r=all |
| By: | Viral V. Acharya; Robert F. Engle III; Sascha Steffen |
| Abstract: | We study the crash of bank stock prices during the COVID-19 pandemic. We find evidence consistent with a “credit line drawdown channel”. Stock prices of banks with large ex-ante exposures to undrawn credit lines as well as large ex-post gross drawdowns decline more. The effect is attenuated for banks with higher capital buffers. These banks reduce term loan lending, even after policy measures were implemented. We conclude that bank provision of credit lines appears akin to writing deep out-of-the-money put options on aggregate risk; we show how the resulting contingent leverage and stock return exposure can be incorporated tractably into bank capital stress tests. |
| JEL: | G01 G21 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28559&r=all |
| By: | McDonald, Tia; Giri, Anil |
| Keywords: | Agricultural Finance |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:ags:nc1117:309151&r=all |
| By: | Trung Duc Tran |
| Abstract: | This paper studies the macroeconomic effects of commodity price uncertainty (CPU) shocks. Using Australia as a case study, an econometric-based CPU index is proposed to reveal that Australia has experienced an unprecedented increase in uncertainty from the commodity market recently. Evidence from a VAR model shows that CPU shocks have a larger recessionary impact than other relevant uncertainty shocks such as financial, economic and trade policy uncertainty. The empirical results are then interpreted in a non-linear multisector DSGE model of the Australian economy by estimating key parameters in the DSGE model to match its responses to the VAR responses. CPU shocks in the DSGE model, via foreign commodity export demand with price rigidity, trigger a precautionary response and cause a decline in real economic activity. |
| Keywords: | Commodity Price Uncertainty, Small Open Economy, VAR-DSGE |
| JEL: | C32 F41 E32 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-09&r=all |
| By: | Giovanni Caggiano; Efrem Castelnuovo |
| Abstract: | We estimate a novel measure of global financial uncertainty (GFU) with a dynamic factor framework that jointly models global, regional, and country-specific factors. We quantify the impact of GFU shocks on global output with a VAR analysis that achieves set-identification via a combination of narrative, sign, ratio, and correlation restrictions. We find that the world output loss that materialized during the great recession would have been 13% lower in absence of GFU shocks. We also unveil the existence of a global finance uncertainty multiplier: the more global financial conditions deteriorate after GFU shocks, the larger the world output contraction is. |
| Keywords: | Global Financial Uncertainty, dynamic hierarchical factor model, structural VAR, world output loss, global finance uncertainty multiplier. |
| JEL: | C32 E32 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-21&r=all |
| By: | Maggiori, Matteo |
| Abstract: | A review of recent advances in open economy analysis under segmented international financial markets. A set of modeling tools that have been used to understand ?financial crises, the ensuing policy response (e.g., Quantitative Easing and FX intervention), deviations from arbitrage (CIP deviations), and more generally the impact of capital flows on exchange rates. This modeling approach has also sheds a different light on classic topics such as the exchange rate disconnect, international risk sharing, UIP failures, and the carry trade. |
| Date: | 2021–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:z8g6r&r=all |
| By: | Gregor Dorfleitner; Davide Forcella; Quynh Anh Nguyen |
| Abstract: | While the role of digital solutions to foster financial inclusion and the development of the microfinance sector are widely acknowledged, questions concerning the variation in the ability and willingness of microfinance institutions’ (MFIs) adoption of these tools remain unanswered. This paper studies the determinant of the use of digital support solutions in the microfinance sector by using a global sample of MFIs derived from a survey by YAPU Solutions on rural lending and IT solutions. We discover the evidence that suggests the adoption of these tools is consistent with the social performance of MFIs. Furthermore, the results of the study indicate that the profitability of the institutions is associated with a larger application of digital support solutions. Macroeconomic factors, the development of the country in which the institution is located, also impact MFIs’ decisions regarding integrating digital solutions into their services and internal operational processes. |
| Keywords: | Microfinance institutions; Fintech; Digital solutions; Social performance; Digitization |
| JEL: | G21 O33 |
| Date: | 2021–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/320683&r=all |
| By: | Dimitris Papageorgiou (Bank of Greece); Stylianos Tsiaras (European University Institute) |
| Abstract: | This paper follows the great depression methodology of Kehoe and Prescott (2002, 2007) to study the importance of total factor productivity (TFP) in the Greek economic crisis over the period 2008-2017. Using growth accounting and the neo- classical growth model, the paper shows that exogenous changes in TFP are crucial for the Greek depression. The theoretical model reproduces quite well the decline in economic activity over 2008-2013 and the subsequent period of slow recovery found in the data. Nevertheless, it is less successful in predicting the magnitude of the decline in output and the labour factor. In addition, including financial frictions and risk shocks into the neoclassical growth model, does not significantly improve the model’s performance. |
| Keywords: | Great Depression; Greece; Growth Accounting; DSGE |
| JEL: | D81 G01 G21 G33 E44 E52 E58 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:286&r=all |
| By: | Yang, Junhong (Asian Development Bank Institute); Wu, Yu (Asian Development Bank Institute); Huang, Bihong (Asian Development Bank Institute) |
| Abstract: | Using the 2015 and 2017 waves of the China Household Finance Survey, we measured financial literacy and study its relationship to households’ demand for digital finance. We found that a majority of households in the People’s Republic of China possess limited financial literacy. The low level of financial sophistication is responsible for the low usage of digital finance among Chinese households. Further, the positive impact of financial literacy on digital finance is more pronounced for wealthy, high-income, and young households, women, and households in urban and coastal areas. Our results are robust to using a variety of specifications and controlling for endogeneity, peer effects, cognition, and voluntary self-exclusion. |
| Keywords: | financial literacy; digital finance; household finance; CHFS; People’s Republic of China |
| JEL: | D10 D83 D91 G11 |
| Date: | 2020–12–25 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:1209&r=all |
| By: | Groshen, Erica L. (Cornell University); Holzer, Harry J. (Georgetown University) |
| Abstract: | We describe trends in wages and labor force participation for the "working class" – whom we define as workers with high school or less education – compared to those with college or more. We compare cyclical peaks over the entire period 1979-2019, with particular focus on the Great Recession (2007-2010) and recovery (2010-2019). We also present results by gender and race. We find real wage growth in the latter period for all workers, but not enough to change the long-term trends of growing inequality and stagnant wages for the less-educated; and we also find that labor force participation continued to decline for the less-educated, even during the recovery. Gaps between whites and blacks also grew while Hispanics and Asians made more progress. We consider various explanations of these findings, and show that the early effects of the 2020-21 pandemic recession that hurt less-educated workers and those of color more than anyone else. |
| Keywords: | wages, participation, working class, Great Recession, recovery |
| JEL: | J6 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izapps:pp173&r=all |
| By: | Alessandrini, Diana (St. Francis Xavier University); Milla, Joniada (Saint Mary’s University) |
| Abstract: | This paper investigates the impact of the minimum wage on individuals' schooling decisions and the type of human capital acquired by students. Using Canadian longitudinal data, we explore 136 minimum wage amendments across provincial jurisdictions, and find three novel results. First, the minimum wage affects both the quantity and the type of human capital acquired by individuals. High minimum wages stimulate the accumulation of occupation-specific human capital at community colleges but discourage enrollment in academic programs offered by universities. Quantitatively, a 10% increase in the minimum wage increases community-college enrollment by 6% and reduces university enrollment by 5%. Second, high minimum wages strengthen the link between parental background and children educational attainment, worsening the university participation gap between individuals with high and low parental education. Finally, minimum wages also affect whether students dropout of post-secondary education or return to school later in life as mature students. |
| Keywords: | minimum wage, post-secondary enrollment, post-secondary dropouts |
| JEL: | J31 J38 J24 I23 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14178&r=all |
| By: | Zexin Hu; Yiqi Zhao; Matloob Khushi |
| Abstract: | The prediction of stock and foreign exchange (Forex) had always been a hot and profitable area of study. Deep learning application had proven to yields better accuracy and return in the field of financial prediction and forecasting. In this survey we selected papers from the DBLP database for comparison and analysis. We classified papers according to different deep learning methods, which included: Convolutional neural network (CNN), Long Short-Term Memory (LSTM), Deep neural network (DNN), Recurrent Neural Network (RNN), Reinforcement Learning, and other deep learning methods such as HAN, NLP, and Wavenet. Furthermore, this paper reviewed the dataset, variable, model, and results of each article. The survey presented the results through the most used performance metrics: RMSE, MAPE, MAE, MSE, accuracy, Sharpe ratio, and return rate. We identified that recent models that combined LSTM with other methods, for example, DNN, are widely researched. Reinforcement learning and other deep learning method yielded great returns and performances. We conclude that in recent years the trend of using deep-learning based method for financial modeling is exponentially rising. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.09750&r=all |
| By: | Tabea Bucher-Koenen; Andreas Hackethal; Johannes Koenen; Christine Laudenbach |
| Abstract: | We show that financial advisors recommend more costly products to female clients, based on minutes from about 27,000 real-world advisory meetings and client portfolio data. Funds recommended to women have higher expense ratios controlling for risk, and women less often receive rebates on upfront fees for any given fund. We develop a model relating these findings to client stereotyping, and empirically verify an additional prediction: Women (but not men) with higher financial aptitude reject recommendations more frequently. Women state a preference for delegating financial decisions, but appear unaware of associated higher costs. Evidence of stereotyping is stronger for male advisors. |
| Keywords: | credence goods, financial aptitude, consumer protection, financial literacy, discrimination |
| JEL: | G2 E2 D8 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_273&r=all |
| By: | Brückbauer, Frank |
| Abstract: | Using a unique survey dataset, the author studies how financial market experts form their stock market expectations. He documents a strong disagreement among experts about how important macroeconomic and financial variables are related to stock returns. The results of an analysis of the relationships between his main survey measure of expected returns and measures of economic conditions are largely consistent with theview that expected returns are counter-cyclical. In particular, the author finds a positive relationship between expected returns and the dividend-price ratio, which is at odds with the findings of previous papers studying survey measures of expected returns. Finally, he finds that an aggregated measure of the financial market experts' stock return forecasts has weak predictive power for actual returns, but is a less precise forecast than a simple average of historical stock returns. |
| Keywords: | stock market expectations,survey data,macro-finance,stock return predictability |
| JEL: | D84 G12 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20092&r=all |
| By: | Callum Jones; Mariano Kulish; Juan Pablo Nicolini |
| Abstract: | The slope of the Phillips curve in New Keynesian models is difficult to estimate using aggregate data. We show that in a Bayesian estimation, the priors placed on the parameters governing nominal rigidities significantly influence posterior estimates and thus inferences about the importance of nominal rigidities. Conversely, we show that priors play a negligible role in a New Keynesian model estimated using state-level data. An estimation with state-level data exploits a relatively large panel dataset and removes the influence of endogenous monetary policy. |
| Keywords: | Slope of the Phillips curve; Priors; State-level data; Bayesian estimation |
| JEL: | E52 E58 |
| Date: | 2021–03–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:90294&r=all |
| By: | Jasmin Gider; Simon N. M. Schmickler; Christian Westheide |
| Abstract: | We study how stock price informativeness changes with the presence of high-frequency trading (HFT). Our estimate is based on the staggered start of HFT participation in a panel of international exchanges. With HFT presence market prices are a less reliable predictor of future cash flows and investment, even more so for longer horizons. Further, idiosyncratic volatility decreases, mutual funds trade less actively and their holdings deviate less from the market-capitalization weighted portfolio. These findings suggest that price informativeness declines with HFT presence, consistent with theoretical models of HFTs' ability to anticipate informed order flow, reducing incentives to acquire fundamental information. |
| Keywords: | High-Frequency Trading, Price Efficiency, Information Acquisition, Information Production |
| JEL: | G10 G14 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_257&r=all |
| By: | Sharon Chen; Sebastian Doerr; Jon Frost; Leonardo Gambacorta; Hyun Song Shin |
| Abstract: | Fintech promises to spur financial inclusion and close the gender gap in access to financial services. Using novel survey data for 28 countries, this paper finds a large 'fintech gender gap': while 29% of men use fintech products and services, only 21% of women do. The gap is present in almost every country in our sample. Country characteristics and several individual-level controls explain about a third of the unconditional gap. Gender differences in the willingness to use new financial technology or fintech entrants if they offer cheaper services account for over half of the remaining gap. The paper concludes by suggesting potential explanations for the gender gap and implications for challenges in fostering financial inclusion with new technology. |
| Keywords: | fintech, gender, financial inclusion, personal data, privacy |
| JEL: | E51 J16 O32 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:931&r=all |
| By: | Korwatanasakul, Upalat (Asian Development Bank Institute); Sirivunnabood, Pitchaya (Asian Development Bank Institute); Majoe, Adam (Asian Development Bank Institute) |
| Abstract: | Many economies in East and Southeast Asia are progressing toward becoming aging or aged societies. The impacts of this demographic transition are multifaceted and far-reaching and include declining tax revenues, leading to fiscal imbalances, and possible increases in government expenditures for coping with care expenses and pension schemes. We provide insights into ways to balance fiscal revenue against costly pension and social security systems and increasing healthcare expenditures. Using panel data for 178 countries across 18 years to capture the state of fiscal balance and data on demographic transition, we estimate three models to analyze the relationships between (i) demographic transition and government balance, (ii) demographic transition and government health expenditure, and (iii) demographic transition and government debt. The results first establish that health expenditure is negatively associated with the government balance. Then, for the relationship between demographic transition and health expenditure, old-age dependency and the share of the population aged over 64 shows a significant positive relationship with health expenditure. We find that demographic transition does not have a direct effect on the government balance, but instead has an indirect effect through higher government expenditure. This can be explained by the high costs of treating health conditions related to old age, including chronic illnesses. Our findings provide important implications for fiscal sustainability and necessitate comprehensive reviews of public health spending; healthcare reforms that prioritize accessibility for all and efficiency in healthcare services; and cost-sharing measures to mitigate the age-related fiscal burden. These measures will be particularly important in dealing with the impacts of the coronavirus disease (COVID-19) pandemic, to which the elderly are particularly vulnerable. |
| Keywords: | demographic transition; population aging; fiscal balance; fiscal sustainability |
| JEL: | H30 H51 H55 J11 J14 J18 |
| Date: | 2021–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:1220&r=all |
| By: | Feldman, Maryann; Guy, Frederick; Iammarino, Simona |
| Abstract: | The overall rise in inequality in the USA since 1980 has been matched by a rise in inequality between places; local and regional development policies aimed at reversing this polarisation have seen limited success. We propose an explanation for the spatial polarisation of prosperity and the failure of the policies to remedy it. Our explanation is based on the interaction of monopoly power, agglomeration economies in technology clusters and the power of financial sector actors over non-financial firms—all phenomena characteristic of the post-1980 economy. We review evidence for each of these elements and propose some causal relationships between them, as an outline of an ongoing research programme. |
| Keywords: | Regional income distribution; Monopoly; Technology clusters; Platforms; Financialization; Spatial inequality; LSE OA Fund |
| JEL: | O33 R11 R12 |
| Date: | 2020–12–31 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105807&r=all |
| By: | Marco F. Boretto; Fausto Cavalli; Ahmad Naimzada |
| Abstract: | We propose a model to describe and study the effect of social interdependent preferences in a Cournot oligopoly based on a game in which the utility functions of firms depend on a combination of weighted profits of their competitors. If social interaction is neglected, the model reduces to the classic Cournot game, diverting from it as the role of social interaction becomes more and more relevant. Several synthetic measures are proposed to summarize the overall behavior of the agents and some configurations characterized by particular interactional structures are presented. Finally, the study of the well-posedness of the proposed framework is investigated, in terms of the existence and uniqueness of Nash equilibria. To this end, we generalize the conditions under which the existence and/or uniqueness of Nash equilibrium in classic game is guaranteed for particular Cournotian oligopoly models without interdependent preferences. In particular, we focus on two families of oligopolies, respectively consisting of "concave" oligopolies and oligopolies with isoelastic demand function. |
| Keywords: | Cournot Game, Preference interdependence, Network, Nash Equilibrium, existence and uniqueness |
| JEL: | D43 C62 C70 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:462&r=all |
| By: | Sasaki, Hiroaki; Hagiwara, Takefumi; Pham, Huong; Fukatani, Noriki; Ogawa, Shogo; Okahara, Naoto |
| Abstract: | This study uses a growth model with automation technology to consider two classes---workers and capitalists---and investigates how advances in automation technology affect economic growth and income distribution. In addition to the two production factors labor and traditional capital, we consider automation capital as the third production factor. We also introduce Pasinetti-type saving functions into the model to investigate how the difference between the capitalists' and workers' saving rates affect economic growth and income distribution. When the capitalists' saving rate is higher than a threshold level, per capita output exhibits endogenous growth irrespective of the workers' savings rate. In this case, the income gap between workers and capitalists widens over time. When the capitalists' saving rate is less than the threshold level, two different long-run states occur depending on the workers' saving rate: the capitalists' own automation capital share approaches a constant, and it approaches zero. In both cases, the per capita output growth is zero and the income gap between the two classes becomes constant over time. |
| Keywords: | automation technology; endogenous growth; income distribution |
| JEL: | E25 O11 O33 O41 |
| Date: | 2021–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:106481&r=all |
| By: | Robert Kollmann |
| Abstract: | This paper studies a New Keynesian model of a two-country world with a zero lower bound (ZLB) constraint for nominal interest rates. A floating exchange rate regime is assumed. The presence of the ZLB generates multiple equilibria. The two countries can experience recurrent liquidity traps induced by the self-fulfilling expectation that future inflation will be low. These “expectations-driven” liquidity traps can be synchronized or unsynchronized across countries. In an expectations-driven liquidity trap, the domestic and international transmission of persistent shocks to productivity and government purchases differs markedly from shock transmission in a “fundamentals-driven” liquidity trap. |
| Keywords: | Zero lower bound, expectations-driven and fundamentals-driven liquidity traps, domestic and international shock transmission, terms of trade, exchange rate, net exports |
| JEL: | E3 E4 F2 F3 F4 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-05&r=all |
| By: | Luigi Longo (IMT School for advanced studies); Massimo Riccaboni (IMT School for advanced studies); Armando Rungi (IMT School for advanced studies) |
| Abstract: | We propose an ensemble learning methodology to forecast the future US GDP growth release. Our approach combines a Recurrent Neural Network (RNN) with a Dynamic Factor model accounting for time-variation in mean with a General- ized Autoregressive Score (DFM-GAS). The analysis is based on a set of predictors encompassing a wide range of variables measured at different frequencies. The forecast exercise is aimed at evaluating the predictive ability of each model's com- ponent of the ensemble by considering variations in mean, potentially caused by recessions affecting the economy. Thus, we show how the combination of RNN and DFM-GAS improves forecasts of the US GDP growth rate in the aftermath of the 2008-09 global financial crisis. We find that a neural network ensemble markedly reduces the root mean squared error for the short-term forecast horizon. |
| Keywords: | macroeconomic forecasting; machine learning; neural networks; dynamic factor model; Covid-19 crisis |
| JEL: | C53 E37 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:ial:wpaper:2/2021&r=all |
| By: | Jefferson Martínez (Pontificia Universidad Católica del Perú); Gabriel Rodríguez (Departamento de Economía de la Pontificia Universidad Católica del Perú / Fiscal Council of Peru) |
| Abstract: | This paper quantifies and assesses the impact of an adverse loan supply (LS) shock on Peruís main macroeconomic aggregates using a Bayesian vector autoregressive (BVAR) model in combination with an identification scheme with sign restrictions. The main results indicate that an adverse LS shock: (i) reduces credit and real GDP growth by 372 and 75 basis points in the impact period, respectively; (ii) explains 11.2% of real GDP growth variability on average over the following 20 quarters; and (iii) explained a 180-basis point fall in real GDP growth on average during 2009Q1-2010Q1 in the wake of the Global Financial Crisis (GFC). Additionally, the sensitivity analysis shows that the results are robust to alternative identification schemes with sign restrictions; and that an adverse LS shock has a greater impact on non-primary real GDP growth. JEL Classification-JEL: C11, E32, E51. |
| Keywords: | Sistema Bancario, Choque de Oferta de Crédito, Modelo VAR Bayesiano, Restricciones de Signo, Economía Peruana |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pcp:pucwps:wp00483&r=all |
| By: | Roshen Fernando; Warwick J. McKibbin |
| Abstract: | This paper updates the analysis of the global macroeconomic consequences of the COVID-19 pandemic in McKibbin and Fernando (2020c) with data as of late October 2020. It also extends the focus to Asian economies and explores four alternative policy interventions coordinated across all economies. The first three policies relate to fiscal policy: an increase in transfers to households of an additional 2% of GDP in 2020; an increase in government spending on goods and services in all economies of 2% of GDP in 2020; an increase in government infrastructure spending in all economies in 2020. The fourth policy is a public health intervention similar to the approach of Australia that successfully manages the virus (flattens the curve) through testing, contact tracing and isolating infected people, coupled with the rapid deployment of an effective vaccine by mid-2021. The policy that is most supportive of a global economic recovery is the successfully implemented public health policy. Each of the fiscal policies assists in the economic recovery with public sector infrastructure having the most short-term stimulus and longer-term growth benefits. |
| Keywords: | COVID-19, pandemics, infectious diseases, risk, macroeconomics, DSGE, CGE, G-Cubed |
| JEL: | C54 C68 F41 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-17&r=all |
| By: | Heckemeyer, Jost H.; Nicolay, Katharina; Spengel, Christoph |
| Abstract: | As part of its action plan against base erosion and profit shifting (BEPS), the OECD (2015) has proposed six indicators to measure profit shifting activity. These indicators add to past and ongoing efforts in academic tax research to empirically identify the scale and tax sensitivity of international profit shifting. In this paper, they discuss whether the proposed OECD indicators indeed represent methodological advances and critically assess their informative value. While a certain need for "easy-access" indicators to measure the relevance of the base erosion problem seems justified, their discussion reveals that the indicators come up with certain shortcomings, many of them acknowledged by the OECD (2015) itself, that prevent them from reliably tracing profit shifting activity in available international data. With one notable exception, the OECD's indicators lack consistent counterfactuals and comparison groups which are essential benchmarks for the observed data. Even the most promising approaches require representative and timely data that covers firms' global activity, including tax haven operations. With better access to such high-quality micro-level data, it will be more promising to empirically isolate the effects of profit shifting from relocations of real economic activity and value creation. |
| Keywords: | Tax policy,International Taxation,BEPS,OECD,Base Erosion and Profit Shifting |
| JEL: | H20 H25 H26 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:21005&r=all |
| By: | Bruce, Curtis |
| Abstract: | This paper synthesizes insights from new global data on the effectiveness of migration policies. It investigates the complex links between migration policies and migration trends to disentangle policy effects from structural migration determinants. The analysis challenges two central assumptions underpinning the popular idea that migration restrictions have failed to curb migration. First, post‐World War II global migration levels have not accelerated, but remained relatively stable while most shifts in migration patterns have been directional. Second, post‐World War II migration policies have generally liberalized despite political rhetoric suggesting the contrary. While migration policies are generally effective, substitution effects can limit their effectiveness, or even make them counterproductive, by geographically diverting migration, interrupting circulation, encouraging unauthorized migration, or prompting “now or never” migration surges. These effects expose fundamental policy dilemmas and highlight the importance of understanding the economic, social, and political trends that shape migration in sometimes counterintuitive, but powerful, ways that largely lie beyond the reach of migration policies. |
| Keywords: | migration, trends, determinants, economic, social, policy, visa, refugee |
| JEL: | J1 J15 J6 J61 J62 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:106663&r=all |
| By: | Prehn, Sören; Glauben, Thomas; Loy, Jens-Peter |
| Abstract: | First things first - contrary to popular opinion, the main reason farmers and grain traders use futures markets is not to hedge spot price and basis risks, but to ensure the profitability of the storage business. The scientific literature mainly discusses the minimum variance hedge ratio, which aims at minimizing spot price and basis risks. In practice, however, it is of little use to farmers and grain traders and has the potential to yield negative economic consequences. Minimum variance hedging (MVH) leads to over-hedging on inverse markets and under-hedging on carry markets. In both cases, the costs of storage cannot be (adequately) covered. It is therefore not surprising that farmers and grain traders do not actually use MVH. On a carry market, a good strategy is to trade the basis. The opposite is true for inverse markets where hedging on futures markets does not make sense. Here, it is better to follow a rather speculative strategy that takes account of price trends. In a nutshell: buy on a weak basis and sell on a strong basis (carry market), or speculate (inverse market). |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iamopb:39e&r=all |
| By: | David Solo (Diversified Credit Investments, LLC); Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute; Southern University of Science and Technology; Tokyo Institute of Technology); Florian Ulmann (ETH Zurich) |
| Abstract: | Based on the insight that risk exposure as quantified in the consumption based asset pricing model (CCAPM) is linearly proportional to the cash flow growth rate, we introduce a discounted cash flow model with a time-varying expected return structure matching the implicitly assumed risk exposure at each future point in time in the valuation model, i.e. the assumed cash flow growth rate process. This reduces the range of reasonable valuations outcomes to useful levels, given that the linearly proportional term structures of potential cash flow growth rates and equity risk premia are complementary, offsetting variables in a discounted cash flow pricing model. In the same manner we elaborate a time-varying internal cost of capital (ICC) model that reflects the implied risk exposure at each future point in time and thus has a clear interpretation as an expected return process. This time-varying ICC model is superior to the constant ICC model in a Fama-MacBeth regression setting to predict future realised returns. And using the expected return of the time varying ICC model as control in a Fama-MacBeth regression of the profitability, the investment and the value factor, both the profitability and the value factor become insignificant in explaining future realised returns. The superiority and economic significance of the time-varying ICC model is further con firmed in a trading strategy with yearly rebalancing. |
| Keywords: | Internal Cost of Capital, consumption based asset pricing model, cash flow growth, equity risk premium, implied risk, Fama-MacBeth regression, time-varying risk premium, trading strategy |
| JEL: | C20 C53 G11 G12 O16 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2124&r=all |
| By: | Kerstin H\"otte; Angelos Theodorakopoulos; Pantelis Koutroumpis |
| Abstract: | Decomposing taxes by source (labor, capital, sales), we analyze the impact of automation (1) on tax revenues, (2) the structure of taxation, and (3) identify channels of impact in 19 EU countries during 1995-2016. Robots and Information and Communication Technologies (ICT) are different technologies designed to automate manual (robots) or cognitive tasks (ICT). Until 2007, robot diffusion led to decreasing factor and tax income, and a shift from taxes on capital to goods. ICTs changed the structure of taxation from capital to labor. We find decreasing employment, but increasing wages and labor income. After 2008, robots have no effect but we find an ICT-induced increase in capital income, a rise of services, but no effect on taxation. Automation goes through different phases with different economic impacts which affect the amount and structure of taxes. Whether automation erodes taxation depends (a) on the technology type, (b) the stage of diffusion and (c) local conditions. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.04111&r=all |
| By: | Yuan Hu; W. Brent Lindquist |
| Abstract: | This paper investigates performance attribution measures as a basis for constraining portfolio optimization. We employ optimizations that minimize expected tail loss and investigate both asset allocation (AA) and the selection effect (SE) as hard constraints on asset weights. The test portfolio consists of stocks from the Dow Jones Industrial Average index; the benchmark is an equi-weighted portfolio of the same stocks. Performance of the optimized portfolios is judged using comparisons of cumulative price and the risk-measures maximum drawdown, Sharpe ratio, and Rachev ratio. The results suggest a positive role in price and risk-measure performance for the imposition of constraints on AA and SE, with SE constraints producing the larger performance enhancement. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.04432&r=all |
| By: | Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam) |
| Abstract: | The paper accesses the impact of US-China trade war on Vietnam economy, as a small open economy with international financial integration. The methodology combines qualitative analysis with quantitative model, which employs a vector autoregression with time varying coefficients (TVC-VAR), based on a quarterly sample covering from Q1/2001 to Q1/2019. The empirical evidence proves that the trade war can reduce the expected economic growth by lowering the prospect of world economy, induce the high fluctuation of VND by the deviation of USD and RMB. Within the 3-dimension space including trade, finance and geo-polistic, the war represents the fundamental issues, including the relative performance of US with China econmy (the trade dimension), the difference between the savings of US compared with the rest of world (the fiance dimension), and the competition of polistical power between US and China (the geo-polistic dimension). |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03140322&r=all |
| By: | Mykola Babiak; Jozef Barunik |
| Abstract: | We examine the pricing of a horizon specific uncertainty network risk, extracted from option implied variances on exchange rates, in the cross-section of currency returns. Buying currencies that are receivers and selling currencies that are transmitters of short-term shocks exhibits a high Sharpe ratio and yields a significant alpha when controlling for standard dollar, carry trade, volatility, variance risk premium and momentum strategies. This profitability stems primarily from the causal nature of shock propagation and not from contemporaneous dynamics. Shock propagation at longer horizons is priced less, indicating a downward-sloping term structure of uncertainty network risk in currency markets. |
| Keywords: | foreign exchange rates; network risk; currency variance; predictability; term structure; |
| JEL: | G12 G15 F31 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp687&r=all |
| By: | David Chaum; Christian Grothoff; Thomas Moser |
| Abstract: | With the emergence of Bitcoin and recently proposed stablecoins from BigTechs, such as Diem (formerly Libra), central banks face growing competition from private actors offering their own digital alternative to physical cash. We do not address the normative question whether a central bank should issue a central bank digital currency (CBDC) or not. Instead, we contribute to the current research debate by showing how a central bank could do so, if desired. We propose a token-based system without distributed ledger technology and show how earlier-deployed, software-only electronic cash can be improved upon to preserve transaction privacy, meet regulatory requirements in a compelling way, and offer a level of quantum-resistant protection against systemic privacy risk. Neither monetary policy nor financial stability would be materially affected because a CBDC with this design would replicate physical cash rather than bank deposits. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.00254&r=all |
| By: | Liu, Yang (Asian Development Bank Institute); Zhong, Sheng (Asian Development Bank Institute) |
| Abstract: | We investigate the long-run cross-economy dynamics in energy productivity across the world. We construct a data set comprising value-added and energy use data on 18 productive sectors in 47 economies over the period 2000–2015. First, we analyze the cross-economy distribution of energy productivity. Compared with 2000, this distribution shifted more toward the world average level in 2015. By using an index decomposition approach, we disentangle energy efficiency effect and economic structure effect as key determinants of the overall energy productivity improvement. Our results show that energy productivity progress is to a large extent driven by technological change but offset by economic structural change. Second, we explore the long-run distribution of energy productivity. Diverse patterns of energy productivity changes across these economies contradict the implicit assumption of standard convergence analysis. To address this issue, we adopt the Markov chain transition matrix. In a long-run steady state, around 64% of sample economies upgrade toward the upper end of the whole distribution, with their energy productivity performing better than the world average. Around 18% of sample economies remain at a level lower than the world average. The results suggest the persistent gap in energy efficiency across economies. |
| Keywords: | energy productivity; decomposition; transition matrix; convergence |
| JEL: | O13 Q01 Q56 |
| Date: | 2021–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:1215&r=all |
| By: | Patrick S. Hagan; Andrew Lesniewski; Georgios E. Skoufis; Diana E. Woodward |
| Abstract: | We argue that using the Shapley value of cooperative game theory as the scheme for risk allocation among non-orthogonal risk factors is a natural way of interpreting the contribution made by each of such factors to overall portfolio risk. We discuss a Shapley value scheme for allocating risk to non-orthogonal greeks in a portfolio of derivatives. Such a situation arises, for example, when using a stochastic volatility model to capture option volatility smile. We also show that Shapley value allows for a natural method of interpreting components of enterprise risk measures such as VaR and ES. For all applications discussed, we derive explicit formulas and / or numerical algorithms to calculate the allocations. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.05453&r=all |
| By: | Christian Zimpelmann |
| Abstract: | The amount of risk that households take when investing their savings has long-term consequences for their financial well-being. However, a substantial share of observed heterogeneity in financial risk-taking remains unexplained by factors like risk aversion and wealth levels. This study explores whether subjective beliefs about stock market returns can close this knowledge gap. I make use of a unique data set that comprises incentivized, repeated elicitations of stock market beliefs and high-quality administrative asset data for a probability-based population sample. Households with more optimistic stock market expectations hold more risk in their portfolio, where the effect size is about half of the effect size of risk aversion. Furthermore, changes in expectations over time are related to changes in portfolio risk, which demonstrates that cross-sectional correlations are not driven by a time-invariant third variable. The results suggest that stock market expectations are an important component of portfolio choice. More generally, the study shows that subjective beliefs can be reliably measured in surveys and are related to actual high-stakes decisions. |
| Keywords: | Surveys, Subjective Expectations, Behavioral Finance, Household Finance |
| JEL: | D14 D84 E21 G11 G4 G5 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_258&r=all |
| By: | Youngjin Yun (Bank of Korea); Byoungsoo Cho (Bank of Korea) |
| Abstract: | Monetary policy may affect bank lending differently depending on who the borrower is. We examine both the price and quantity of bank loans in Korea for the 10 years between 2010 and 2019 to study whether the bank lending channel differs for households and firms. Identifying the channel by comparing banks with different amounts of security holdings, we find that the monetary policy effect is significant in business loans, but not in household loans. Evidence suggests that the difference in loan maturities is the reason behind it. Business loans typically have shorter maturities than household loans. Thus, the share of new or refinancing loans, which are more directly influenced by monetary policy shocks, is higher in business loans than in household loans. Our findings provide important policy implications for the cases where household and business sector debts evolve in different directions. |
| Keywords: | monetary policy, bank lending channel, business loans, household loans |
| JEL: | E3 E5 G2 |
| Date: | 2021–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2021_001&r=all |
| By: | Alexander Beames; Mariano Kulish; Nadine Yamout |
| Abstract: | We set up and estimate a small open economy model with fiscal policy in which trend growth can permanently change. The magnitude and timing of the change in trend growth are estimated alongside the structural and fiscal policy rule parameters. Around 2003:Q3, trend growth in per capita output is estimated to have fallen from just over 2 per cent to 0.6 per cent annually. The slowdown brings about a lasting transition which in the short-run decreases consumption tax revenues but increases them in the long-run changing permanently the composition of tax revenues and temporarily increasing the government debt-to-output ratio. |
| Keywords: | Open economy, trend growth, fiscal policy, real business cycles, estimation, structural breaks |
| JEL: | E30 F43 H30 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-18&r=all |
| By: | Guohui Guan; Zongxia Liang; Yi xia |
| Abstract: | In this paper, we investigate the optimal management of defined contribution (abbr. DC) pension plan under relative performance ratio and Value-at-Risk (abbr. VaR) constraint. Inflation risk is introduced in this paper and the financial market consists of cash, inflation-indexed zero coupon bond and a stock. The goal of the pension manager is to maximize the performance ratio of the real terminal wealth under VaR constraint. An auxiliary process is introduced to transform the original problem into a self-financing problem first. Combining linearization method, Lagrange dual method, martingale method and concavification method, we obtain the optimal terminal wealth under different cases. For convex penalty function, there are fourteen cases while for concave penalty function, there are six cases. Besides, when the penalty function and reward function are both power functions, the explicit forms of the optimal investment strategies are obtained. Numerical examples are shown in the end of this paper to illustrate the impacts of the performance ratio and VaR constraint. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.04352&r=all |
| By: | Sebastián Fanelli (CEMFI, Centro de Estudios Monetarios y Financieros); Ludwig Straub (Harvard University) |
| Abstract: | We study a real small open economy with two key ingredients: (i) partial segmentation of home and foreign bond markets and (ii) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry-trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (a) the optimal policy leans against the wind, stabilizing the exchange rate; (b) it involves smooth spreads but allows exchange rates to jump; (c) it partly relies on “forward guidance”, with non-zero interventions even after the shock has subsided; (d) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates. |
| Keywords: | foreign exchange interventions, limited capital mobility, reserves, coordination. |
| JEL: | F31 F32 F41 F42 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2020_2019&r=all |
| By: | Richard Arena (Université Côte d'Azur, France; GREDEG CNRS); Eric Nasica (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | This article aims to analyze the impact of taking into account a truly uncertain and complex economic environment on the methodology used by Keynes. Our work leads to two main results. The first conclusion is that, even when an ordinal or cardinal measure of probability is impossible, Keynes provides a coherent set of tools for the analysis of economic decisions. In particular, even if a numerical probability cannot be determined, the choices of economic agents will be rationally governed by reasoning based on their limited but real knowledge of the observed reality and on non-numerical probabilities. The second result obtained is that the complex decision-making environment surrounding economic decisions influences the characterization of the individual actor himself and economic and social interactions; this form of economic analysis implies referring to a methodological conception which is open to and even requires the use of philosophy and other social sciences as cognitive psychology, social psychology and even anthropology. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:gre:wpaper:2021-10&r=all |
| By: | Dorothee Hillrichs (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Gonzague Vannoorenberghe (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | In a recent paper, Fajgelbaum and Khandelwal (2016) develop a methodology to quantify the distributional consequences of trade. Their approach relies on aggregate expenditure data and on a non-homothetic gravity equation based on an Almost Ideal Demand System (AIDS). In this setup, we show that the structural parameters governing the welfare gains are highly sensitive to the determinants of spending on domestic goods. We extend their model by allowing for a home bias in tastes or, alternatively, for more complex trade costs. While Fajgelbaum and Khandelwal (2016) find that trade typically decreases the relative price of the goods consumed by poor households, we show that the pro-poor bias of trade becomes weaker or can even turn slightly pro-rich for most countries depending on the specification. |
| Keywords: | International trade, welfare, non-homothetic preferences, home bias |
| JEL: | F10 F14 F61 D63 |
| Date: | 2021–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2021005&r=all |
| By: | Besner, Manfred |
| Abstract: | We introduce a new value for games with transferable utility, called grand dividends value. In the payoff calculation, the grand dividends value takes into account the worths of all subcoalitions of a player set. The concept of grand dividends, representing the surplus (which can also be non-positive) of the worth of the grand coalition over the worths of all coalitions that lack one player of the player set, is the initial point here. The grand dividends value satisfies many properties that we know from the Shapley value. Along with new axioms that have a similar correspondence to axioms that are also satisfied by the Shapley value, axiomatizations arise that have an analogous equivalent for the Shapley value, including the classics of Shapley and Young. |
| Keywords: | Cooperative game; (Harsanyi/Grand) Dividends; Shapley value; Grand dividends value |
| JEL: | C7 C71 |
| Date: | 2021–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:106638&r=all |
| By: | Yoshino, Naoyuki (Asian Development Bank Institute); Paramanik, Rajendra N (Asian Development Bank Institute); Gopakumar, K U (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Revilla, Ma. Laarni (Asian Development Bank Institute); Seetha Ram, K E (Asian Development Bank Institute) |
| Abstract: | We make an empirical attempt to model the Indian economy at an aggregate level with annual data, ranging from 1980 to 2019. Our major theoretical premise mimics the New Keynesian framework, which is based on the microeconomic foundations of Keynesian economics. We propose a whole economic structure in the form of nine equations. Aggregate demand is modeled with the help of four equations, representing consumption, private investment, exports, and imports. Aggregate supply assumes the form of a simple neoclassical production function where labor, capital, and exogenous technical progress are considered as inputs. Further, inflation is assumed to follow a New Keynesian representation whereas the LM curve has its standard form with income and short-term rate of interest as its determinants. Subsequently, a linking equation, expressing long-run interest rates as a function of short-term interest rates and government investment, is proposed to unify monetary policy and fiscal policy to the goods market. Finally, tax is estimated as a function of per capita income. A structural equation model is employed for the empirical analysis and findings support the theoretical expectations. Consumption follows the absolute income hypothesis, and private investment is governed by the accelerator principle. Further, the negative sign of nominal interest rates in the investment function confirms an inverse relation between the former and private capital formation. Exports are found to be influenced by world income, exchange rates, and government capital formation, and import demand is determined by domestic income, the difference between domestic and international inflation, and the lagged exchange rate. From the policy perspective, we suggest the suitability of fiscal and monetary policies for increasing growth in the Indian economy. However, the effectiveness of expansionary fiscal policy is observed to have a larger impact on growth than easy monetary policy. This inference is drawn mainly on the basis of a simulation exercise for the proposed structural equation model. |
| Keywords: | New Keynesian model; structural equation model; Indian economy |
| JEL: | C36 E10 E27 |
| Date: | 2020–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:1201&r=all |
| By: | K. Peren Arin; Kevin Devereux; Mieszko Mazur |
| Abstract: | We investigate the firm level investment responses to narrative shocks to average personal and corporate tax rates using a universal micro dataset of publicly traded U.S firms for the post-1962 period. By allowing for heterogeneous effects over the business cycle and accompanying monetary policy regime, as well as over firm-level characteristics, we show that : (i) corporate tax multipliers are negative overall, but this result is driven by smaller firms who face larger borrowing constraints, especially during high-unemployment periods or when the accompanying monetary policy is contractionary; (ii) while the magnitude and the significance of personal income tax multipliers are smaller on the aggregate, there is some evidence of positive personal tax multipliers in high unemployment state by large (dividend-paying) firms, which is consistent with the recent literature. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2021-08&r=all |
| By: | McManus, Richard (University of Canterbury); Mumford, Karen A. (University of York); Sechel, Cristina (University of Sheffield) |
| Abstract: | Using a rich new data source, we explore the selection of economics Lecturers into the last UK Research Excellence Framework (REF) exercise. Only some one-in-two (54%) of these Lecturers were submitted to REF2014; 57% of men and 46% of women. The decision making of Institutions is found to be well approximated by a simplified selection approach; focusing on working papers and higher quality journal publications. Our results also reveal sizeable conditional differences in the probability of selection, especially so in departments with higher research rankings. More than half of the variance in selection probability remains unexplained, revealing considerable idiosyncrasies in the management of submissions and uncertainty across the discipline in this research assessment process. |
| Keywords: | REF, gender, selection, outputs, quality, inclusivity |
| JEL: | J00 J44 J71 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14156&r=all |
| By: | Raymond C. W. Leung; Yu-Man Tam |
| Abstract: | How to hedge factor risks without knowing the identities of the factors? We first prove a general theoretical result: even if the exact set of factors cannot be identified, any risky asset can use some portfolio of similar peer assets to hedge against its own factor exposures. A long position of a risky asset and a short position of a "replicate portfolio" of its peers represent that asset's factor residual risk. We coin the expected return of an asset's factor residual risk as its Statistical Arbitrage Risk Premium (SARP). The challenge in empirically estimating SARP is finding the peers for each asset and constructing the replicate portfolios. We use the elastic-net, a machine learning method, to project each stock's past returns onto that of every other stock. The resulting high-dimensional but sparse projection vector serves as investment weights in constructing the stocks' replicate portfolios. We say a stock has high (low) Statistical Arbitrage Risk (SAR) if it has low (high) R-squared with its peers. The key finding is that "unique" stocks have both a higher SARP and higher excess returns than "ubiquitous" stocks: in the cross-section, high SAR stocks have a monthly SARP (monthly excess returns) that is 1.101% (0.710%) greater than low SAR stocks. The average SAR across all stocks is countercyclical. Our results are robust to controlling for various known priced factors and characteristics. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.09987&r=all |
| By: | J. Ignacio Conde-Ruiz; Juan José Ganuza; Manu García; Luis A. Puch |
| Abstract: | We analyze all the articles published in Top 5 economic journals between 2002 and 2019 in order to find gender di↵erences in their research approach. Using an unsupervised machine learning algorithm (Structural Topic Model) developed by Roberts et al. (2019) we characterize jointly the set of latent topics that best fits our data (the set of abstracts) and how the documents/abstracts are allocated in each latent topic. This latent topics are mixtures over words were each word has a probability of belonging to a topic after controlling by year and journal. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2021-07&r=all |
| By: | Tianyu Fan; Michael Peters; Fabrizio Zilibotti |
| Abstract: | In many developing countries today, the structural transformation is a shift of employment out of agriculture into the service sector. By contrast, industrial employment is mostly stagnant. Is the service sector an engine of growth and hence growth service led? Or is its expansion a mere corollary of growth, where rising incomes stemming from productivity growth in goods-producing industries increases the demand for services? To determine whether growth is service led or service biased, we estimate a spatial equilibrium model with nonhomothetic preferences. Our methodology is in the spirit of development accounting and lends itself to a quantitative assessment of both the aggregate and the heterogenous welfare effects of sectoral productivity growth. In an application to India, we find that productivity growth in consumer services such as retail and hospitality was an important driver of rising living standards between 1987 and 2011. However, such benefits were highly skewed and accrued mostly to high-income households living in urbanized locations. |
| JEL: | O1 O18 O4 O41 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28551&r=all |
| By: | Catherine Buffington; Daniel Chapman; Emin Dinlersoz; Lucia Foster; John Haltiwanger |
| Abstract: | Existing small businesses experienced very sharp declines in activity, business sentiment, and expectations early in the pandemic. While there has been some recovery since the early days of the pandemic, small businesses continued to exhibit indicators of negative growth, business sentiment, and expectations through the first week of January 2021. These findings are from a unique high frequency, real time survey of small employer businesses, the Census Bureau’s Small Business Pulse Survey (SBPS). Findings from the SBPS show substantial variation across sectors in the outcomes for small businesses. Small businesses in Accommodation and Food Services have been hit especially hard relative to those Finance and Insurance. However, even in Finance and Insurance small businesses exhibit indicators of negative growth, business sentiment, and expectations for all weeks from late April 2020 through the first week of 2021. While existing small businesses have fared poorly, after an initial decline, there has been a surge in new business applications based on the high frequency, real time Business Formation Statistics (BFS). Most of these applications are for likely nonemployers that are out of scope for the SBPS. However, there has also been a surge in new applications for likely employers. The surge in applications has been especially apparent in Retail Trade (and especially Non-store Retailers). We compare and contrast the patterns from these two new high frequency data products that provide novel insights into the distinct patterns of dynamics for existing small businesses relative to new business formations. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:21-06&r=all |
| By: | Robin Boadway (Department of Economics, Queen's University); Kevin Spiritus (Department of Economics, Erasmus University Rotterdam) |
| Abstract: | We study the optimal taxation of risk-free and excess capital income with heterogeneous rates of return, alongside an optimal nonlinear earnings tax. Households can hold three assets: one risk-free, one risky but diversifiable, and one a private investment with idiosyncratic risk whose expected return differs among households. Contrary to expectations, the optimal tax on excess returns to risky assets is ineffective for redistribution, because its effects are annulled by a Domar-Musgrave effect. It assumes only an insurance role, and is positive. The optimal tax on risk-free returns does fulfill a redistributive role, insofar the risk-free returns reveal information about the investors' types beyond what is revealed by the earnings tax base. The optimal nonlinear earnings tax takes the standard Mirrleesian form amended to take account of the stochasticity of capital income tax revenue. |
| Keywords: | optimal capital taxation, Rate-of-Return Allowance, risk, excess returns |
| JEL: | H21 H23 H24 |
| Date: | 2021–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20210025&r=all |
| By: | Stefano Grassi (DEF Università di Roma "Tor Vergata"); Francesco Violante (CREST,GENES,ENSAE Paris, Institut Polytechnique de Paris) |
| Abstract: | Starting from the Cholesky-GARCH model, recently proposed by Darolles, Francq, and Laurent (2018), the paper introduces the Block-Cholesky GARCH (BC-GARCH). This new model adapts in a natural way to the asset pricing framework. After deriving conditions for stationarity, uniform invertibility and beta tracking, we investigate the finite sample properties of a variety of maximum likelihood estimators suited for the BC-GARCH by means of an extensive Monte Carlo experiment. Finally, we illustrate the usefulness of the BC-GARCH in two empirical applications. The first tests for the presence of beta spillovers in a bivariate system in the context of the Fama and French (1993) three factor framework. The second empirical application consists of a large scale exercise exploring the cross-sectional variation of expected returns for 40 industry portfolios. |
| Keywords: | Cholesky decomposition; Multivariate GARCH, Asset Pricing, Time Varying Beta, Two Pass Regression. |
| JEL: | C12 C22 G12 G13 |
| Date: | 2021–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:510&r=all |
| By: | Stephen J Redding (Princeton University) |
| Abstract: | This paper reviews recent research on geography and trade. One of the key empirical findings over the last decade has been the role of geography in shaping the distributional consequences of trade. One of the major theoretical advances has been the development of quantitative spatial models that incorporate both exogenous first-nature geography (natural endowments) and endogenous second-nature geography (the location choices of economic agents relative to one another) as determinants of the distribution of economic activity across space. These models are sufficiently rich to capture first-order features of the data, such as gravity equations for flows of goods and people. Yet they remain sufficiently tractable as to permit an analytical characterization of the properties of the general equilibrium and facilitate counterfactuals for realistic policy interventions. We distinguish between models of regions or systems of cities (where goods trade and migration take center stage) and models of the internal structure of cities (where commuting becomes relevant). We review some of key empirical predictions of both sets of theories and show that they have been remarkably successful in rationalizing the empirical findings from reduced-form research. Looking ahead, the combination of recent theoretical advances and novel geo-coded data on economic interactions at a fine spatial scale promises many interesting avenues for further research, including discriminating between alternative mechanisms for agglomeration, understanding the implications of new technologies for the organization of work, and assessing the causes, consequences and potential policy implications of spatial sorting. |
| JEL: | F10 F12 R12 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:266&r=all |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Tii N. Nchofoung (Ministry of Trade, Yaoundé, Cameroon) |
| Abstract: | This study empirically verifies the effect of terrorism on financial development and how globalisation and governance modulate the incidence of terrorism on financial development in Africa. Two terrorism indicators are adopted for this study, namely, the: number of terrorism incidences and number of terrorism deaths. The methodology involves the pooled data technique running from 1996-2018 for 34 African countries. The results from the POLS, Driscoll-Kraay and the Newey-West standard error corrections show that terrorism is detrimental to financial development. From the interactive regressions, three major tendencies are apparent. First, terrorism dynamics consistently have an unconditional negative effect on financial development. Second, the globalization and government dynamics modulate the terrorism dynamics to broadly induce a negative net effect on financial development. Third, policy thresholds at which the modulating variables reverse the net effect on financial development from negative to positive are: (i) 71.61572 trade (% of GDP) and 13.97872 FDI (% of GDP) for the incidence of terror and (ii) 1.16201 trade (% of GDP) for terror deaths. The computed thresholds make economic sense and worthwhile in terms of policy implications because they are within statistical range. The result is robust to alternative measures of terrorism and financial development. Policy implications are discussed. |
| Keywords: | terrorism, financial development, globalisation, governance, Pooled data |
| JEL: | D74 G28 F65 P37 C52 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:21/016&r=all |
| By: | Jorge M. Uribe (Universitat Oberta de Catalunya.); Montserrat Guillen (Universitat de Barcelona.); Xenxo Vidal-Llana (Universitat de Barcelona.) |
| Abstract: | Traditional empirical asset pricing focuses on the average cases. We propose a new approach to analyze the cross-section of the returns. We test the predictive power of market-beta, size, book-to-market ratio, profitability, investment, momentum, and liquidity, across the whole conditional distribution of market returns. Our results indicate that the relevant characteristics to explain the winners’ tail, the losers’ tail and the center of the distribution, in a given period, differ. Indeed, some characteristics can be discarded from our specification if our main interest is to model expected extreme losses (such as traditional momentum), and some others should be kept even if they do not seem particularly significant for the average scenario, because they become significant at the tails (such as size). Book-to-market is mainly a left tail factor, in the sense that it explains to a greater extent the loser’s tail than either the center or the tail of the winners. On the contrary, liquidity and investment are right-tail factors, because they explain in greater proportion the winners’ tail than the rest of the distribution. Market beta is relevant throughout the whole cross-section, but affect winners and losers in diametrically opposite ways (the effect is positive on the right tail and negative on the left tail). We show that the practice of adding characteristics to our pricing equation should be clearly informed by our particular interests regarding the cross-sectional distribution of the returns, that is, whether we are more interested in a certain fragment of the distribution than in other parts. Our results emphasize the need to consider carefully what factors to include in the pricing equation, which depends on the dynamics that one wants to understand and even on one attitude towards risk. In short, not all factors serve all purposes. |
| Keywords: | Factor models, Asset characteristics, Tail-risks, Quantile regression. JEL classification: G1, G11, G12, C38. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202104&r=all |
| By: | Megalokonomou, Rigissa (University of Queensland); Vidal-Fernández, Marian (University of Sydney); Yengin, Duygu (University of Adelaide) |
| Abstract: | In the last decade, the proportion and academic performance of women who pursue university degrees has increased relative to men in a range of developing countries (OECD, 2015). Nonetheless, the percentage of undergraduate economics degrees awarded to women has remained between 30% and 35% during 2001-2018 in the U.S. (Siegfried, 2019). In a recent work by Lundberg and Stearns (2019), they show that the gender gap worsens as women economists progress in their professional careers in the U.S., where they end up representing only 10% of university professors. European countries seem to have less of a "leaky pipeline," where the same figure sits at 22% (Auriol, Friebel, and Wilhelm, 2020). To put this figure into perspective, our paper describes the cross-country underrepresentation of women graduating in economics degrees in Europe relative to their country-specific women/men university graduation rates. Second, we compare the underrepresentation of women in economics to its closest alternative namely business, as well as its gender underrepresented counterpart, STEM (Science, Technology, Engineering, and Mathematics). Finally, we lean on recent evidence to suggest policies to increase the relative share of women pursuing undergraduate economics degrees in Europe with a strong focus on policies aimed at high schools. Overall, we find that, over the period 2013-2018, the underrepresentation of women in economics graduates has worsened in Europe and that on average two of every five students are women. While the gender representation of university graduates in STEM is worse than in economics, it has experienced a mild increase over the period of study. Unlike Economics, its closest alternative, business, has a slight women overrepresentation, with 1.1 women graduating for every man. |
| Keywords: | women, economics, STEM, university |
| JEL: | J16 J24 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izapps:pp175&r=all |
| By: | Kanbur, Ravi |
| Abstract: | This paper considers and assesses the concept of social externalities through human interdependence, in relation to the economic analysis of externalities in the tradition of Pigou and Arrow, including the analysis of the commons. It argues that there are limits to economic analysis. Our proposal is to enlarge the perspective and start thinking about a broader framework in which any pattern of influence of an agent or a group of agents over a third party, which is not mediated by any economic, social, or psychological mechanism guaranteeing the alignment of the marginal net private benefit with marginal net social benefit, can be attached the “externality” label and be scrutinized for the likely negative consequences that result from the divergence. These consequences may be significant given the many interactions between the social and economic realms, and the scope for spillovers and feedback loops to emerge. The paper also establishes a tentative and probably incomplete list of possible internalizing mechanisms for externalities under this broader framework, which includes: pricing and monetary incentives; altruism and solidarity; moral norms; reciprocity and mutual monitoring; centralized cooperative decision-making; and merger. There are clear reasons why the pricing mechanism is not appropriate in some cases. A more difficult question to answer is what factors determine which of the mechanisms is the appropriate one to rely on in a given sphere of relations and activities. The object of the paper is to encourage research and contributions from all the relevant disciplines of social sciences on the pervasive human interdependence that the notion of social externalities tries to capture. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2020–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cudawp:309988&r=all |
| By: | Hou, Bohan |
| Abstract: | The digital economy has become one of the most important sectors in global GDP.Personal data is the new asset class that creates value through the applications of cybertechnologies and Artificial Intelligence. However, there are increasing concerns over the privacy invasions and human rights violations associated with the exploitation of personal data. Various data laws were made in nations to balance the data fluidity and privacy protections. However, most laws have inherent limitations and underenforcement issues that fail to achieve their aims and protection principles. Utilizing a behavioral economics theoretical framework, this study categorizes the issues and causes to Information Asymmetry, Bounded Rationality, Power Imbalance, and Technical Incapacity. The study makes a novel contribution by proposing a global data governance scheme to address the limitations of data laws. The scheme adopts a Libertarian Paternalism approach and develops seven principles in the framework design. Elements and components in the scheme include individuals, data controllers, privacy rating frameworks, meta-data and privacy configuration, reports, Automated Consent Management (ACM), Bureaus, and signatures, etc. The components will operate on an interoperable and global data management platform. Visual diagrams are developed to describe the various forms of interactions between components and procedures. A balance between privacy protection and data fluidity is found through experimental scenarios such as Ordinary Data Request, Sensitive Data Request, Inconsistency Checks, Data Rights Exercise, Monitored Data Transfer, Broadcast and Notice. The scenarios analyzed are not exhaustive but serve as the meaningful starting point to inspire more designs and discussions from scholars. |
| Date: | 2021–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:2b9dc&r=all |