|
on Central and Western Asia |
| By: | Acharya, Viral V.; Engle III, Robert F; Steffen, Sascha |
| 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. |
| Keywords: | bank capital; COVID-19; Credit lines; liquidity risk; loan supply; Pandemic; stress tests |
| JEL: | G01 G21 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15901&r= |
| By: | Amstad, Marlene; Gambacorta, Leonardo; He, Chao; Xia, Fan Dora |
| Abstract: | Trade tensions between China and US have played an important role in swinging global stock markets but effects are difficult to quantify. We develop a novel trade sentiment index (TSI) based on textual analysis and machine learning applied on a big data pool that assesses the positive or negative tone of the Chinese media coverage, and evaluates its capacity to explain the behaviour of 60 global equity markets. We find the TSI to contribute around 10% of model capacity to explain the stock price variability from January 2018 to June 2019 in countries that are more exposed to the China-US value chain. Most of the contribution is given by the tone extracted from social media (9%), while that obtained from traditional media explains only a modest part of stock price variability (1%). No equity market benefits from the China-US trade war, and Asian markets tend to be more negatively affected. In particular, we find that sectors most affected by tariffs such as information technology related ones are particularly sensitive to the tone in trade tension. |
| Keywords: | Big Data; Machine Learning; neural network; sentiment; Stock returns; Trade |
| JEL: | C45 C55 D80 F13 F14 G15 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15682&r= |
| By: | Alessie, Rob; Bucher-Koenen, Tabea; Lusardi, Annamaria; Van Rooij, Maarten |
| Abstract: | Women are less financially literate than men. It is unclear whether this gap reflects a lack of knowledge or, rather, a lack of confidence. Our survey experiment shows that women tend to disproportionately respond "do not know" to questions measuring financial knowledge, but when this response option is unavailable, they often choose the correct answer. We estimate a latent class model and predict the probability that respondents truly know the correct answers. We find that about one-third of the financial literacy gender gap can be explained by women's lower confidence levels. Both financial knowledge and confidence explain stock market participation. |
| Keywords: | confidence; financial decision making; financial knowledge; finite mixture model; Gender Gap; latent class model; Measurement error |
| JEL: | C81 D91 G53 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15913&r= |
| By: | Braggion, Fabio; Meyerinck, Felix; Schaub, Nic |
| Abstract: | Inflation risk represents one of the most important economic risks faced by investors. In this study, we analyze how investors respond to inflation. We introduce a unique dataset containing local inflation and security portfolios of more than 2,000 clients of a German bank between 1920 and 1924, covering the famous German hyperinflation. We find that investors buy less (sell more) stocks when facing higher local inflation. This effect is more pronounced for less sophisticated investors. We also document a positive relation between local inflation and forgone returns following stock sales. Our findings are consistent with investors suffering from money illusion. |
| Keywords: | behavioral biases; Individual investors; inflation; Investor Behavior; Money illusion |
| JEL: | D14 E31 G11 G41 N14 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15947&r= |
| By: | Wei Jiang; Yuehua Tang; Rachel (Jiqiu) Xiao; Vincent Yao |
| Abstract: | This paper studies how demand for labor reacts to financial technology (fintech) shocks based on comprehensive databases of fintech patents and firm job postings in the U.S. during the past decade. We first develop a measure of fintech exposure at the occupation level by intersecting the textual information in job task descriptions and fintech patents. We then document a significant decline of job postings in the most exposed occupations, and an increase in industry as well as geographical concentration of these occupations. Firms resort to an upskilling strategy in face of the fintech disruption, requiring “combo” (finance and software) skills, higher education attainments, and longer work experiences in the hiring of fintech-exposed jobs. Financial firms and those with high innovation outputs are able to offset the disruptive effect from the fintech shock. Among innovating firms, however, only inventors (but not acquisition-driven innovators) experience growth in hiring, sales, investment, and enjoy better returns on assets. |
| JEL: | G30 J23 O33 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28668&r= |
| By: | Youssef El-Khatib; Stéphane Goutte (VNU - Vietnam National University [Hanoï], Cemotev - Centre d'études sur la mondialisation, les conflits, les territoires et les vulnérabilités - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines); Zororo Makumbe; Josep Vives |
| Abstract: | In this paper a hybrid model is investigated to capture both financial behaviors of an asset: (i) the leverage effect and (ii) the stochastic volatility component. For this we consider a hybrid model that takes the strengths of the Heston and the CEV models. The pricing of European options is investigated both theoretically and empirically. A decomposition formula that allows to estimate the option price is obtained. Moreover, numerical simulations of the asset price are done to give a better and concrete vision of the adding of this approach. In addition, the price of a European call option under the hybrid model is computed using the Monte Carlo method and our formula. Illustrations and tables show the efficiency of the numerical method based on our approximate formula. |
| Keywords: | Heston-CEV model,Stochastic volatility,European options,Monte Carlo method,Decomposition formula |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03211698&r= |
| By: | Gorodnichenko, Yuriy; Maliar, Lilia; Maliar, Serguei; Naubert, Christopher |
| Abstract: | In this paper, we study household consumption-saving and portfolio choices in a heterogeneous-agent economy with sticky prices and time-varying total factor productivity and idiosyncratic stochastic volatility. Agents can save through liquid bonds and illiquid capital and shares. With rich heterogeneity at the household level, we are able to quantify the impact of uncertainty across the income and wealth distribution. Our results help us in identifying who wins and who loses when during periods of heightened individual and aggregate uncertainty. To study the importance of heterogeneity in understanding the transmission of economic shocks, we use a deep learning algorithm. Our method preserves non-linearities, which is essential for understanding the pricing decisions for illiquid assets. |
| Keywords: | deep learning; HANK; Heterogeneous Agents; Machine Learning; neural network |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15614&r= |
| By: | Bisin, Alberto; Federico, Giovanni |
| Abstract: | The relationship between history and economics as academic disciplines is methodologically subtle and sociologically contested. If the Cliometric revolution can be characterized as an acquisition of economics by history, the most recent trends in Historical Economics appear to turn this relationship on its head. In this Introduction we read the chapters of the Handbook as a forceful argument in favor of a merger between the two disciplines rather than the acquisition of one by the other; a merger which combines, notably, the detailed knowledge of historical sources, the capability of distilling complex historical processes into a model, and the statistical/econometric skills for identification and estimation. |
| Keywords: | Cliometrics; economic history; persistence studies |
| JEL: | B40 N00 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15795&r= |
| By: | Havranek, Tomas; Irsova, Zuzana; Novak, Jiri; Zigraiova, Diana |
| Abstract: | A key theoretical prediction in financial economics is that under risk neutrality and rational expectations a currency's forward rates should form unbiased predictors of future spot rates. Yet scores of empirical studies report negative slope coefficients from regressions of spot rates on forward rates. We collect 3,643 estimates from 91 research articles and using recently developed techniques investigate the effect of publication and misspecification biases on the reported results. Correcting for these biases yields slope coefficients in the intervals (0.23,0.45) and (0.95,1.16) for the currencies of developed and emerging countries respectively, which implies that empirical evidence is in line with the theoretical prediction for emerging economies and less puzzling than commonly thought for developed economies. Our results also suggest that the coefficients are systematically influenced by the choice of data, numeraire currency, and estimation method. |
| Keywords: | Forward Rate Bias; meta-analysis; Model uncertainty; Publication bias; uncovered interest parity |
| JEL: | C83 F31 G14 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15817&r= |
| By: | Bobasu, Alina; Geis, André; Quaglietti, Lucia; Ricci, Martino |
| Abstract: | This paper sheds light on the impact of global macroeconomic uncertainty on the euro area economy. We build on the methodology proposed by Jurado et al. (2015) and estimate global as well as country-specific measures of economic uncertainty for fifteen key euro area trade partners and the euro area. Our measures display a clear counter-cyclical pattern and line up well to a wide range of historical events generally associated with heightened uncertainty. In addition, following Pier and Podstawski (2018), we estimate a Proxy SVAR where we instrument uncertainty shocks with changes in the price of gold around specific past events. We find that, historically, global uncertainty shocks have been important drivers of fluctuations in euro area economic activity, with one standard deviation increase in the identified uncertainty shock subtracting around 0.15 percentage points from euro area industrial produc-tion on impact. JEL Classification: D81, C11, C55, E32, F41, F62 |
| Keywords: | Economic Activity, Forecast Errors, Proxy SVAR, Stochastic Volatility, Uncertainty |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212541&r= |
| By: | Dhingra, Swati; Tenreyro, Silvana |
| Abstract: | Crops are often modelled as homogenous products that are exchanged in perfectly competitive markets. While this may be true of world commodity markets, smallholder farmers face high trade barriers in selling their crops at home and abroad. Selling to agribusinesses with better intermediation technologies can enable smallholder farmers to overcome these barriers. This has provided a rationale for policies encouraging agribusinesses. We document the reliance of farmers on intermediaries and find that farmers selling to agribusinesses differ systematically from others. We incorporate these stylised facts into a flexible theoretical framework to study the aggregate and distributional consequences of the rise of agribusinesses. The rise of agribusinesses brings productivity gains to farmers, but it also skews the distribution of buyers of farm produce towards larger firms with greater buyer power. Taking the theory to data, we quantify behind-the-border barriers to trade embedded in a national policy which encouraged agribusiness participation. We combine this with microdata on household-crop incomes and find that the policy led to a reduction in incomes of small farmers. Losses were concentrated among farmers who sold to agribusinesses and in villages with a comparative advantage in policy-affected crops. On average, their incomes fell by 6 per cent with no offsetting gains in non-farm channels of income. Profit margins of agribusinesses specialised in policy-affected crops rose, in line with the theoretical channel. The findings contribute to the academic and policy debate on the impacts of integration and market power on the size and distribution of the welfare gains from trade. |
| Keywords: | Agribusiness; intermediated trade; market power; Middlemen; oligopsony |
| JEL: | F1 F6 O1 Q1 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15942&r= |
| By: | Oskar Kowalewski (IESEG School of Management, Paris, France, LEM-CNRS 9221, Lille, France, Institute of Economics, Polish Academy of Sciences, Warsaw, Poland); Pawel Pisany (Institute of Economics, Polish Academy of Sciences, Warsaw, Poland); Emil Slazak (Warsaw School of Economics, Warsaw, Poland) |
| Abstract: | This study is an investigation of the determinants of the development of technology-driven alternative credit markets, that is, fintech and bigtech credit. Using a data sample from 94 countries from 2013–2019, we confirmed the relevance of the availability of credit data, both the traditional and alternative types, with the latter being known as the so-called “digital footprint.” Furthermore, we have provided evidence to confirm the positive role of strengthening Internet privacy protections in fostering the development of the fintech credit market, which may not necessarily be the case for the bigtech credit market. We have also shown that the growth of the fintech and bigtech credit market is preceded by a rising paytech services market. Furthermore, we have found that the development of fintech credit services is fostered by the strength of both principal institutions, like the rule of law, and credit-specific institutions, especially in terms of insolvency framework effectiveness, while, for the bigtech credit market, only the latter matters. Interestingly, we have also found that various national cultural profiles can boost the development of fintech and bigtech credit services. Lastly, we have shown that the fintech credit market develops faster in countries characterized by high levels of societal distrust toward banks and that the opposite seems to be the case with the bigtech credit market. |
| Keywords: | alternative credit, fintech, bigtech, innovation, culture, trust, data access |
| JEL: | G21 G23 L26 O30 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:f202102&r= |
| By: | Dąbrowski, Marek A.; Janus, Jakub |
| Abstract: | This paper examines the uncovered interest parity (or forward premium) puzzle in four Central and Eastern European countries -- Czechia, Hungary, Poland, and Romania -- as well as their aggregates from 1999 to 2019. Because the interest parity is a foundation of open-macroeconomy analyses, with important implications for policymaking, especially central banking, more systematic evidence on interest parities in the CEE economies is needed. In this study, we not only address this need but also add to a broader discussion on the UIP puzzle after the global financial crisis. The UIP is verified vis-à-vis three major currencies: the euro, the U.S. dollar, and the Swiss franc. We start by providing a full set of baseline forward premium regressions for which we examine possible structural breaks and perform a decomposition of deviations from the UIP. Next, we explore augmented UIP models and introduce various factors which potentially account for the UIP puzzle, such as the realized volatility of the exchange rate, a volatility model of the excess returns, and international risk and business cycle measures. The study shows that the choice of the reference currency matters for the outcome of the interest parity tests in the CEE economies. The puzzle prevails for the EUR and the CHF but not for the USD, a regularity that has not been documented in previous studies. Second, we find that structural breaks in the time series used to test the UIP are not an essential reason for the general failure of the parity in the region. Third, we demonstrate that even though the risk-based measures largely improve the baseline testing regression, both from statistical and economic points of view, they do not alter the overall outcomes of our empirical models. Additionally, we show that the exchange rate peg of the Czech koruna to the euro from 2013 to 2017 had a significant impact on the UIP. A detailed case study on Poland, using granular survey data, indicates that the directly measured exchange rate expectations do not seem to be informed by the UIP relationship. Employing data on option-implied risk reversals, we reveal that the limited resilience of CEE economies to rare disasters may plausibly explain deviations from the UIP. |
| Keywords: | interest parity puzzle; forward premium puzzle; risk premium; Fama regression; Central and Eastern Europe |
| JEL: | F31 F41 G15 |
| Date: | 2021–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107558&r= |
| By: | Kollmann, Robert |
| 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: | domestic and international shock transmission; Exchange rate; expectations-driven and fundamentals-driven liquidity traps; Net exports; terms of trade; zero lower bound |
| JEL: | E3 E4 F2 F3 F4 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15631&r= |
| By: | Eric Benhamou (MILES - Machine Intelligence and Learning Systems - LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Because of the frequent usage of the Sharpe ratio in asset management to compare and benchmark funds and asset managers, it is relevant to derive the distribution and some statistics of the Sharpe ratio. In this paper, we show that under the assumption of independent normally distributed returns, it is possible to derive the exact distribution of the Sharpe ratio. In particular, we prove that up to a rescaling factor, the Sharpe ratio is a non centered Student distribution whose characteristics have been widely studied by statisticians. For a large number of observations, we can derive the asymtptotic distribution and find back the result of Lo (2002). We also illustrate the fact that the empirical Sharpe ratio is asymptotically optimal in the sense that it achieves the Cramer Rao bound. We then study the empirical SR under AR(1) assumptions and investigate the effect of compounding period on the Sharpe (computing the annual Sharpe with monthly data for instance). We finally provide general formula in this case of heteroscedasticity and autocorrelation. |
| Keywords: | JEL classification: C12,G11 Sharpe ratio,Student distribution,compounding effect on Sharpe,AR(1),Cramer Rao bound |
| Date: | 2021–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03207169&r= |
| By: | Kazi Iqbal; Asadul Islam; John A. List; Vy Nguyen |
| Abstract: | Whether, and to what extent, behavioral anomalies uncovered in the lab manifest themselves in the field remains of first order importance in finance and economics. We begin by examining behavior of retail traders/investors making investment decisions in constructed laboratory markets. Our results show that the behaviors of the traders are consistent with myopic loss aversion. We combine the lab results with a unique individual-level matched dataset on daily stock market transactions and portfolio positions over a two year period. We find that lab behaviors help to predict, but do not fully capture, the essential real-world trading analogs of retail traders. |
| JEL: | C9 C93 D03 N97 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28730&r= |
| By: | Barber, Brad; Jiang, Wei; Morse, Adair; Puri, Manju; Tookes, Heather; Werner, Ingrid M |
| Abstract: | How has COVID-19 impacted faculty productivity? Does it differ by characteristics such as gender and family structure? To answer these questions, we conduct a survey of American Finance Association (AFA) members. Overall, faculty respondents report lower research productivity with less time allocated to research and more time allocated to teaching. There is also heterogeneity: 14.5% of respondents report an increase in productivity. We find the negative effects on research productivity are particularly large for women and faculty with young children regardless of gender. Thus, the pandemic has the effect of widening the gender gap for women and creates a "family gap" in productivity for both men and women with young children. Lower research productivity for faculty with young children is explained, to a large extent, by increased time spent on childcare. Our results suggest the need for deliberate policy to factor in these underlying mechanisms. We caution that a one-size-fits-all tenure-clock extension can have unintended negative consequences of increasing disparity. |
| Keywords: | academic finance profession; COVID-19; Family structure; Gender; Pandemic; Research productivity; Tenure |
| JEL: | A22 A23 G0 I23 J13 J16 J22 J24 J44 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15636&r= |
| By: | Brzustowski, Thomas; Caselli, Francesco |
| Abstract: | We develop and formalize an equilibrium concept for a dynamic economy in which production takes place in worker cooperatives. The concept rules out allocations of workers to cooperatives in which a worker in one cooperative could move to a different cooperative and make both herself and the existing workers in the receiving cooperative better off. It also rules out allocations in which workers in a cooperative would be made better off by some of the other workers leaving. We also provide a minimum-information equilibrium-selection criterion which operationalizes our equilibrium concept. We illustrate the application of our concept and operationalization in the context of an overlapping-generation economy with specific preferences and technology. The cooperative economy follows a dynamic path qualitatively similar to the path followed by a capitalist economy, featuring gradual convergence to a steady state with constant output. Quantitatively, however, the cooperative economy features a static inefficiency, in that, for a given aggregate capital stock, firm size is smaller than what a social planner would choose. On the other hand, the cooperative economy cannot be dynamically inefficient, and could accumulate capital at a rate that is higher or lower than the capitalist economy. We also present an illustrative calibration which quantitatively compares steady-state incomes in a cooperative and in a capitalist economy. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15720&r= |
| By: | Babus, Ana; Hachem, Kinda |
| Abstract: | The vast majority of regulatory debates about the benefits of centralized trading assume that the set of securities designed by financial intermediaries is immune to the market structure in which trade occurs. In this paper, we consider a regulator who redesigns the market structure for certain financial contracts by introducing an exchange to increase liquidity, understanding that security design is endogenous. For a given market structure, investors would like to trade a less risky security and, for a given security, they would like to trade in a larger market. We show that the security that intermediaries design after the introduction of the exchange is of lower quality, in the sense of a lower expected payoff per unit of standard deviation. This reflects the relative dilution of investor market power, as investors have zero price impact on the exchange and hence less influence on intermediary security design. The issuance of lower quality securities to investors arises even when the introduction of the exchange leads intermediaries to originate better underlying assets. With a large enough exchange, the decline in the quality of the security is so severe that investors can be worse off as a result of the introduction of the exchange. We then consider how origination subsidies could be used by the regulator to counter the negative effects of introducing the exchange on security design. |
| Keywords: | market power; market structure; security design |
| JEL: | D47 D86 G23 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15861&r= |
| By: | Buera, Francisco J; Hopenhayn, Hugo; Shin, Yongseok; Trachter, Nicholas |
| Abstract: | Why don't poor countries adopt more productive technologies? Is there a role for policies that coordinate technology adoption? To answer these questions, we develop a quantitative model that features complementarity in firms' technology adoption decisions: The gains from adoption are larger when more firms adopt. When this complementarity is strong, multiple equilibria and hence coordination failures are possible. More important, even without equilibrium multiplicity, the model elements responsible for the complementarity can substantially amplify the effect of distortions and policies. In what we call the Big Push region, the impact of idiosyncratic distortions is over three times larger than in models without such complementarity. This amplification enables our model to nearly fully account for the income gap between India and the US without coordination failures playing a role. |
| Keywords: | Big push; complementarities; industrial policy; Technology adoption |
| JEL: | L11 L16 O14 O25 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15910&r= |
| By: | Loic Berger (CNRS, IESEG School of Management, Univ. Lille, UMR 9221-LEM, F-59000 Lille, France); Louis Eeckhoudt (IESEG School of Management, UMR 9221-LEM, F-59000 Lille, France) |
| Abstract: | Diversification is a basic economic principle that helps to hedge against uncertainty. It is therefore intuitive that both risk aversion and ambiguity aversion should positively affect the value of diversification. In this paper, we show that this intuition (1) is true for risk aversionbut (2) is not necessarily true for ambiguity aversion. We derive sufficient conditions, showing that, contrary to the economic intuition, ambiguity and ambiguity aversion may actually reduce the diversification value. |
| Keywords: | Diversification, ambiguity aversion, model uncertainty, hedging |
| JEL: | D81 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:e202104&r= |
| By: | Hayakawa, Kazunobu; Koster, Hans R.A.; Tabuchi, Takatoshi; Thisse, Jacques-François |
| Abstract: | We investigate the effects of high-speed rail (HSR) on the location of economic activity. We set up a spatial quantitative general equilibrium model that incorporates spatial linkages between firms (including manufacturing and services), agglomeration economies, as well as commuting and migration. The model is estimated for Japan in order to investigate the impacts of the Shinkansen, i.e., the first HSR ever built. We show that traveling by train strengthens firms' linkages, but is less important for commuting interactions. The Shinkansen increases welfare by about 5%. We show that extensions of the Shinkansen network may have large effects (up to a 30% increase in employment) on connected municipalities, although the effects are smaller for places with higher fixed costs. Our counterfactuals show that, without the Shinkansen, Tokyo and Osaka would be 6.3% and 4.4% larger, respectively. |
| Keywords: | agglomeration; commuting; employment; high-speed rail; Population |
| JEL: | D04 H43 R42 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15771&r= |
| By: | Jörn Kleinert (University of Graz) |
| Abstract: | Most theory treats productivity as exogenously given by technological capabilities. Moreover, technology is very often assumed to be freely tradable. It is therefore puzzling to observe the huge differences in productivity as we find in empirical studies even of firms working in the same market environment. To reconcile the heterogeneity, I deviate from a purely technological view and stress the organizational function of a firm. Firms are vehicles to facilitate the division of labor between people with different skills who join forces to produce a particular good. A firm’s management decides about technology jointly with investment projects and changes in the labor force, thereby determining productivity. If a firm is managed well, productivity increases with a larger labor force, because gains from specialization can be exploited. Moreover, as result of the decisions by the management, firms grow over time, shrink or even exit. The growth process is necessarily stochastic, since the future is uncertain and many effects influence the outcome of management’s decisions. Stochastic firm growth, in turn, yields a stationary firm size distribution which reflects large heterogeneity of the firms. |
| Keywords: | Productivity; firm heterogeneity; firm size distribution. |
| JEL: | D23 D24 J24 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2021-03&r= |
| By: | Fischer, Andreas M; Greminger, Rafael P.; Grisse, Christian; Kaufmann, Sylvia |
| Abstract: | This paper investigates time variation in the dynamics of international portfolio equity flows. We extend the empirical model of Hau and Rey (2004) by embedding a Markov regime-switching model into the structural VAR. The model is estimated using monthly data from 1995 to 2018, on equity returns, exchange rate returns, and equity flows between the United States and advanced and emerging market economies. We find that the data favor a two-state model where coefficients and shock volatilities switch jointly. In the VAR for flows between the United States and emerging market economies, the estimated states match periods of low and high financial stress, both in terms of the timing of regime switching and in terms of their volatility characteristics. Our main result is that for equity flows between the United States and emerging markets rebalancing dynamics differ between episodes of high and low levels of financial stress. A switch from the low- to the high-stress regime is associated with capital outflows from emerging markets. Once in the high-stress regime, the response of capital flows to exchange rates and stock prices is smaller than in normal (low-stress) periods. |
| Keywords: | Equity Flows; Exchange Rates; financial stress; Portfolio rebalancing; regime switching; sign restrictions; structural VAR |
| JEL: | F30 G11 G15 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15777&r= |
| By: | Cheng, Si; Massa, Massimo; Zhang, Hong |
| Abstract: | We document a surprising finding that foreign capital inflows delegated through global mutual funds reduce the income of the top 1%. To rationalize this observation, we utilize a comprehensive database of worldwide ownership of both private and public firms for 2001-2013, which allows us to trace income inequality to its micro-foundations of sales revenue accrued to rich families. We find that large delegated foreign inflows induce local rich families to sell concentrated yet profitable assets, consistent with a diversification channel for financial globalization to influence income inequality. Alternative mechanisms fail to explain these findings. Our results have important normative implications |
| Keywords: | Delegated portfolio management; financial globalization; Income inequality; Mutual funds |
| JEL: | D31 D63 G15 G23 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15745&r= |
| By: | Breugem, Matthijs; Buss, Adrian; Peress, Joël |
| Abstract: | We propose a novel theory and provide supporting empirical evidence that lower long-term interest rates (e.g., because of ``quantitative easing'') harm informational and allocative efficiency. We develop a noisy rational expectations equilibrium model with an endogenous interest rate that investors use to update their beliefs about economic fundamentals. The interest rate reveals information about discount rates, allowing investors to extract more information about cashflows from stock prices. The precision of the interest-rate signal and, hence, stock-price informativeness increase in the interest rate. As a result, informational and allocative efficiency rise with bond and money supplies and with policy transparency. |
| Keywords: | (endogenous) interest rates; capital allocation efficiency; Informational efficiency; Rational Expectations; Unconventional Monetary Policy |
| JEL: | E43 E44 G11 G14 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15766&r= |
| By: | Kusi, Baah; Agbloyor, Elikplimi; Gyeke-Dako, Agyapomaa; Asongu, Simplice |
| Abstract: | The study investigates how financial sector transparency moderates the influence of financial crises on bank market power across seventy-five economies between 2004 and 2014. Employing two-step dynamic system generalized method of moments the study shows that while public sector-led financial sector transparency reduces bank market power, private sector-led financial sector transparency promotes bank market power given that private sector-led transparency gives financial cost advantage to financially sound banks to solidify the market power and dominance. Similarly, while financial crises reduce the market power of banks implying that during financial crises banks lose their market power, financial sector transparency promotes the negative effect of financial crises on bank market power. This implies that during financial crises, financial sector transparency whether enforced through private or public sector, boosts the weakening effect of financial crises on bank market power. These findings imply that regulators can rely on financial transparency to tame bank market power to enhance banking competitiveness. The findings and results are consistent even when country, time and continental effects are controlled for. |
| Keywords: | Market Power; Bank; Financial Sector Transparency; Private Sector; Public Sector |
| JEL: | G0 G1 G15 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107513&r= |
| By: | Fernández-Villaverde, Jesús; Mandelman, Federico; Yu, Yang; Zanetti, Francesco |
| Abstract: | This paper develops a dynamic general equilibrium model with heterogeneous firms that face search complementarities in the formation of vendor contracts. Search complementarities amplify small differences in productivity among firms. Market concentration fosters monopsony power in the labor market, magnifying profits and further enhancing high-productivity firms' output share. Firms want to get bigger and hire more workers, in stark contrast with the classic monopsony model, where a firm aims to reduce the amount of labor it hires. The combination of search complementarities and monopsony power induces a strong ``Matthew effect'' that endogenously generates superstar firms out of uniform idiosyncratic productivity distributions. Reductions in search costs increase market concentration, lower the labor income share, and increase wage inequality. |
| Keywords: | Market concentration; Monopsony Power; search complementarities; Superstar Firms |
| JEL: | C63 C68 E32 E37 E44 G12 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15788&r= |
| By: | Fitjar, Rune Dahl; Muringani, Jonathan; Rodríguez-Pose, Andrés |
| Abstract: | Social capital is an important factor explaining differences in economic growth among regions. However, the key distinction between bonding social capital, which can lead to lock-in and myopia, and bridging social capital, which promotes knowledge flows across diverse groups, has been overlooked in growth research. In this paper, we address this shortcoming by examining how bonding and bridging social capital affect regional economic growth, using data for 190 regions in 21 EU countries, covering eight waves of the European Social Survey between 2002 and 2016. The findings confirm that bridging social capital is linked to higher levels of regional economic growth. Bonding social capital is highly correlated with bridging social capital and associated with lower growth when this is controlled for. We do not find significantly different effects of bonding social capital in regions with more or less bridging social capital, or vice versa. We examine the interaction between social and human capital, finding that bridging social capital is fundamental for stimulating economic growth, especially in low-skilled regions. Human capital also moderates the relationship between bonding social capital and growth, reducing the negative externalities imposed by excessive bonding. |
| Keywords: | bonding; bridging; economic growth; EU; regions; social capital |
| JEL: | O17 O43 R11 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15871&r= |
| By: | Madeira, João; Palma, Nuno Pedro G.; van der Kwaak, Christiaan |
| Abstract: | Advanced economies tend to have large but unstable intermediation sectors. We employ a DSGE model with banks featuring limited liability to investigate how risk shocks in the financial sector affect long-run macroeconomic outcomes. With full deposit insurance, banks expand balance sheets when risk increases, leading to higher investment and output. With no deposit insurance, we observe substantial drops in long-run credit provision, investment, and output. These differences provide a novel argument in favor of deposit insurance. Finally, our welfare analysis finds that increased risk reduces welfare, except when there is full deposit insurance and deadweight costs are small. |
| Keywords: | Costly state verification; deposit insurance; endogenous leverage; intermediation; investment; limited liability; Regulation; risk |
| JEL: | E22 E44 G21 O16 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15841&r= |
| By: | Kumar B, Pradeep; S, Arya |
| Abstract: | Agriculture is the prime engine of growth and backbone of developing nations. In India, a developing economy, nearly 60% of the working population find agriculture as their main source of income/livelihood. Women play multiple roles in agriculture and allied activities such as food production, horticulture, harvesting operations, fisheries, etc. It is also estimated that in India about 75% of women are working as agricultural labour force and are active agents of the primary sector. The present study focuses on the nature and extent of female participation in Indian agriculture using secondary data on the period 1993-2012. |
| Keywords: | Agriculture, Female Work Participation, Labour Force, Women |
| JEL: | J40 |
| Date: | 2019–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107405&r= |
| By: | Forni, Mario; Gambetti, Luca; Sala, Luca |
| Abstract: | An increase in uncertainty is not contractionary per se. What generates a significant downturn of economic activity is a widening of the left tail of the expected distribution of growth, the downside uncertainty. On the contrary, an increase of the right tail, the upside uncertainty, is mildly expansionary. The reason for why uncertainty shocks have been previously found to be contractionary is because movements in downside uncertainty dominate existing empirical measures of uncertainty. The results are obtained using a new econometric approach which combines quantile regressions and structural VARs. |
| Keywords: | Quantile regression; Skewness; uncertainty; VAR models |
| JEL: | C32 E32 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15881&r= |
| By: | Moench, Emanuel; Soofi Siavash, Soroosh |
| Abstract: | We characterize the joint dynamics of a large number of macroeconomic variables and Treasury yields in a dynamic factor model. We use this framework to identify a yield curve news shock as an innovation that does not move yields contemporaneously but explains a maximum share of the forecast error variance of yields over the next year. This shock explains more than half, and along with contemporaneous shocks to the level and slope of the yield curve, essentially all of the variation of Treasury yields several years out. The news shock is associated with a sharp and persistent increase in implied stock and bond market volatility, falling stock prices, an uptick in term premiums, and a prolonged decline of real activity and inflation. The accommodative response by the Federal Reserve leads to persistently lower expected and actual short rates. Treasury yields do not react contemporaneously to the yield curve news shock as the positive response of term premiums and the negative response of expected short rates initially offset each other. Identified shocks to realized and implied financial market volatility imply essentially the same impulse responses and are highly correlated with the yield news shock, suggesting that they act as unspanned or hidden factors in the yield curve. |
| Keywords: | Dynamic factor models; factor-augmented vector autoregressions; news shocks; structural vector autoregressions; Term Structure of Interest Rates; Uncertainty shocks; yield curve |
| JEL: | C55 E43 E44 G12 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15978&r= |
| By: | ; Laura Choi; Mary C. Daly; Lily Seitelman |
| Abstract: | How much is inequity costing us? Using a simple growth accounting framework we apply standard shift-share techniques to data from the Current Population Survey (1990-2019) to compute the aggregate economic costs of persistent educational and labor market disparities by gender and race. We find significant economic losses associated with these gaps. Building on this finding, we consider which disparities generate the largest costs, paying specific attention to differences in employment, hours worked, educational attainment, educational utilization, and occupational allocation. We also examine gaps in the returns on these variables. Our findings suggest that differences in employment opportunities and educational attainment make the largest contributions by race; differences in returns on these variables also contribute materially to the total costs. Differences by gender are primarily driven by gaps in employment and hours. Given the disproportionate impact of COVID-19 on the labor market outcomes of women and people of color, as well as the fact that the U.S. population is increasingly racially diverse, these costs will only increase in the future. |
| Keywords: | Economic growth; productivity; labor market gaps; misallocation; equity; covid-19 |
| JEL: | E24 J7 J15 O4 |
| Date: | 2021–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:91221&r= |
| By: | Mendoza, Enrique G; Rojas, Eugenio; Tesar, Linda; Zhang, Jing |
| Abstract: | COVID-19 became a global health emergency when it threatened the catastrophic collapse of health systems as demand for health goods and services and their relative prices surged. Governments responded with lockdowns and increases in transfers. Empirical evidence shows that lockdowns and healthcare saturation contribute to explain the cross-country variation in GDP drops even after controlling for COVID-19 cases and mortality. We explain this output-pandemia tradeoff as resulting from a shock to subsistence health demand that is larger at higher capital utilization in a model with entrepreneurs and workers. The health system moves closer to saturation as the gap between supply and subsistence narrows, which worsens consumption and income inequality. An externality distorts utilization, because firms do not internalize that lower utilization relaxes healthcare saturation. The optimal policy response includes lockdowns and transfers to workers. Quantitatively, strict lockdowns and large transfer hikes can be optimal and yield sizable welfare gains because they prevent a sharp rise in inequality. Welfare and output costs vary in response to small parameter changes or deviations from optimal policies. Weak lockdowns coupled with weak transfers programs are the worst alternative and yet are in line with what several emerging and least developed countries have implemented. |
| Keywords: | COVID; Fiscal policy; pandemia |
| JEL: | E25 E65 I1 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15846&r= |
| By: | Bartram, Söhnke M; Djuranovik, Leslie; Garratt, Anthony |
| Abstract: | This paper is the first to study the cross-section of currency excess return predictors to explore alternative explanations for their existence. Using real-time data, quantitative currency trading strategies are profitable during in-sample and out-of-sample periods, even after transaction costs and comprehensive risk adjustments. However, (risk-adjusted) profits decrease substantially after the publication of the underlying academic research. In line with predictor profits reflecting mispricing, the decline is greater for strategies with larger in-sample profits and lower arbitrage costs. Moreover, the effect of risk adjustments on trading profits is limited, and signal ranks and alphas decay quickly. While analysts' currency forecasts are inconsistent with currency predictors, analysts update their forecasts quickly to incorporate lagged predictor information. The results suggest that market participants learn about mispricing from academic publications, while contributing to it when following analysts' forecasts. |
| Keywords: | Analysts; Anomalies; arbitrage costs; Exchange Rates; instrumented principal components analysis; IPCA; Market Efficiency; mispricing; predictors; Real-time |
| JEL: | F31 G12 G15 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15653&r= |
| By: | Akcigit, Ufuk; Ates, Sina T.; Impullitti, Giammario |
| Abstract: | What is the role of innovation policy in open economy? We address this question employ- ing a new innovation-driven growth model with two large open economies at different stages of development. We examine the implications of the U.S. Research and Experimentation Tax Credit, introduced in 1981, and alternative protectionist policies. Key findings are: First, the tax credit generates substantial gains over medium and long horizons. Second, protectionist measures generate large dynamic losses by distorting the firms' innovation incentives. Third, the optimal R&D subsidy decreases in trade openness. Fourth, the optimal unilateral import tariff is zero for all policy horizons. |
| Keywords: | economic growth; innovation policy; Open economy; trade policy |
| JEL: | F13 F43 F60 O40 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15804&r= |
| By: | Magud, Nicolas; Spilimbergo, Antonio |
| Abstract: | We analyze the institutional and economic consequences of populism in Latin America in the last 50 years. Populist regimes weaken institutions and macroeconomic (fiscal, monetary, and external) indicators, resulting in crises and worse income distribution. The duration of populist regimes depends on favorable external conditions. In particular, the commodity super-cycle of the 2000s and easy financing conditions allowed populists to stay in power longer than in past episodes. |
| Keywords: | Commodity supercycle; institutions; Latin America; political economy; populism |
| JEL: | E0 N1 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15824&r= |
| By: | Delpeuch, Samuel; Fize, Etienne; Martin, Philippe |
| Abstract: | We investigate the role of trade imbalances in the rise of protectionism in the past 10 years. Bilateral as well as multilateral trade imbalances are robust predictors of protectionist attacks. This result is partly but not entirely driven by the US and the Trump years. We also find that countries that experience a bilateral real exchange rate appreciation launch more protectionist attacks. The role of trade imbalances in the rise of protectionism is confirmed when we use fiscal policies as instrumental variables for trade imbalances. Countries with more expansionary fiscal policies react to the ensuing trade imbalance by a more protectionist trade policy. The role of trade imbalances in the rise of protectionism is quantitatively important: in the G20, a one standard deviation increase in the bilateral and multilateral trade deficits of a country leads respectively to a 7% and 17% rise of protectionist attacks by this country. |
| Keywords: | protectionism; trade imbalances |
| JEL: | F13 F14 F41 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15742&r= |
| By: | Fabrizio Lillo |
| Abstract: | I present an overview of some recent advancements on the empirical analysis and theoretical modeling of the process of price formation in financial markets as the result of the arrival of orders in a limit order book exchange. After discussing critically the possible modeling approaches and the observed stylized facts of order flow, I consider in detail market impact and transaction cost of trades executed incrementally over an extended period of time, by comparing model predictions and recent extensive empirical results. I also discuss how the simultaneous presence of many algorithmic trading executions affects the quality and cost of trading. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.00521&r= |
| By: | Lionel De Boisdeffre (Centre d'Economie de la Sorbonne) |
| Abstract: | We consider a pure-exchange sequential economy, where uncertainty prevails and agents, possibly asymmetrically informed, exchange commodities, on spot markets, and securities of all kinds, on typically incomplete financial markets. Consumers have private characteristics, anticipations and beliefs, and no model to forecast prices. We show that they face an incompressible uncertainty, represented by a so-calles 'minimum uncertainty set', which adds to the exogenous uncertainty, on the state of nature, an uncertainty over the price to prevail, on every spot market. Equilibrium is reached when agents expect the 'true' price as a possible outcome on every spot market, and elect optimal strategies, which clear on all markets. We show this sequential equilibrium exists in standard conditions, when agents' anticipations embed the minimum uncertainty set. This outcome is stronger than Radner's (1979), Duffie-Shaffer's (1985) or De Boisdeffre's (2021), which prove the generic existence of equilibrium when agents make perfect forecasts. From an asymptotic argument, our main theorem is derived from De Boisdeffre's (2007), which characterizes the exitence of equilibria on purely financial markets by a no-arbitrage condition |
| Keywords: | sequential equilibrium; temporary equilibrium; perfect foresight; existence; rational expectations; financial markets; asymmetric information; arbitrage |
| JEL: | D52 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:21009&r= |
| By: | Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; Kenny, Geoff; Weber, Michael |
| Abstract: | Using a new survey of European households, we study how exogenous variation in the macroeconomic uncertainty perceived by households affects their spending decisions. We use randomized information treatments that provide different types of information about the first and/or second moments of future economic growth to generate exogenous changes in the perceived macroeconomic uncertainty of some households. The effects on their spending decisions relative to an untreated control group are measured in follow-up surveys. Higher macroeconomic uncertainty induces households to reduce their spending on non-durable goods and services in subsequent months as well as to engage in fewer purchases of larger items such as package holidays or luxury goods. Moreover, uncertainty reduces household propensity to invest in mutual funds. These results support the notion that macroeconomic uncertainty can impact household decisions and have large negative effects on economic outcomes. |
| Keywords: | household finance; household spending; randomized control trial; Surveys; uncertainty |
| JEL: | E21 E3 E4 E5 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15966&r= |
| By: | Corsetti, Giancarlo; Kuester, Keith; Müller, Gernot; Schmidt, Sebastian |
| Abstract: | The notion that flexible exchange rates insulate a country from foreign shocks is well grounded in theory, from the classics (Meade, 1951; Friedman 1953), to the more recent open economy literature (Obstfeld and Rogoff, 2000). We confront it with new evidence from Europe. Specifically, we study how shocks that originate in the euro area spill over to its neighboring countries. We exploit the variation of the exchange rate regime across time and countries to assess whether the regime alters the spillovers: it does not---flexible exchange rates fail to provide insulation against euro area shocks. This result is robust across a number of specifications and holds up once we control for global financial conditions. We show that the workhorse open-economy model can account for the lack of insulation under a float, assuming that central banks respond to headline consumer price inflation. However, it remains puzzling that policy makers are ready to forego stabilization of economic activity to the extent we found in the data. |
| Keywords: | dominant currency pricing; effective lower bound; Exchange rate; external shock; Insulation; International spillovers; monetary policy |
| JEL: | E31 F41 F42 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15689&r= |
| By: | Calvi, Rossella; Penglase, Jacob; Tommasi, Denni; Wolf, Alexander |
| Abstract: | In large families, individuals must share resources with many others, but may benefit from economies of scale. This paper studies individual consumption in different types of households, with a focus on family structures that are common in developing countries. Based on a collective household model, we develop a methodology to identify intra-household resource allocation and the extent of joint consumption. We apply our methodology using data from Bangladesh and Mexico and compute poverty rates for men, women, and children. Contrary to existing poverty calculations that ignore either intra-household inequality or economies of scale in consumption, ours account for both dimensions. |
| Keywords: | Barten scales; collective model; Household bargaining; indifference scales; poverty; resource shares; Scale Economies |
| JEL: | C31 D11 D12 D13 I32 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15924&r= |
| By: | Gurevitch, Tamara; Herman, Peter; Toubal, Farid; Yotov, Yoto |
| Abstract: | Using new data on linguistic diversity across and within countries, we examine novel channels though which language affects trade patterns and economic welfare. We find that linguistic similarity within a country accounts for about 10 percent of estimated 'home bias', demonstrating the importance of shared languages for domestic integration. To highlight the general equilibrium implications of domestic language proximity, we simulate the repeal of Quebec's Bill 101, which made French an official language in Canada and established fundamental language rights for French-speakers. The analysis demonstrates that domestic language diversity has significant implications for Canada's welfare but also sizable economic consequences that stretch far beyond its borders. |
| Keywords: | Common language; Domestic trade; domestic trade costs; ethno-linguistic diversity; identity; international trade; welfare |
| JEL: | C54 D60 F14 F19 Z13 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15701&r= |
| By: | Mehlum, Halvor; Natvik, Gisle James; Torvik, Ragnar |
| Abstract: | We show that under fairly general conditions, the combination of (i) competitive markets, (ii) free entry, and (iii) democracy is inconsistent with allocative efficiency. This fundamental impossibility result, which has not been derived before, holds whenever not only prices, but also policy, responds to factor allocations. We develop a theory where agents enter an occupation (more generally, enter an economic activity) and thereafter make a policy decision. Thus, each voter's self interest becomes endogenous to the entry decision. In our baseline model, the policy instrument that citizens decide upon is simply taxation. Workers in occupations whose services are in high demand by the government have an incentive to vote for high taxes. Voters in occupations whose services are in low demand by the government have an incentive to vote for low taxes. We show that the socially efficient size of the public sector cannot be sustained in equilibrium, despite free entry into occupations. We generalize our theory, and show how our impossibility result extends well beyond the baseline model. We also discuss how departing from competitive markets may affect equilibrium outcomes. Our analysis implies that when assessing causes and consequences of factor allocations, it is key to acknowledge how allocations affect not only prices, but also policies. |
| Keywords: | Dutch disease; Efficiency and Democracy; Endogenous Political Interests; Labor market institutions; political economy; The Size of Government |
| JEL: | D72 H11 P16 P48 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15727&r= |
| By: | Priscilla Boiardi; Esme Stout |
| Abstract: | Blockchain is mainstreaming, but the number of blockchain for development use-cases with proven success beyond the pilot stage remain relatively few. This paper outlines key blockchain concepts and implications in order to help policymakers reach realistic conclusions when considering its use. The paper surveys the broad landscape of blockchain for development to identify where the technology can optimise development impact and minimise harm. It subsequently critically examines four successful applications, including the World Food Programme’s Building Blocks, Oxfam’s UnBlocked Cash project, KfW’s TruBudget and Seso Global. As part of the on-going work co-ordinated by the OECD’s Blockchain Policy Centre, this paper asserts that post-COVID-19, Development Assistance Committee (DAC) donors and their development partners have a unique opportunity to shape blockchain’s implementation. |
| Keywords: | blockchain, innovation, technology for development |
| JEL: | O F35 O3 |
| Date: | 2021–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:oec:dcdaaa:95-en&r= |
| By: | John Goodell; Stéphane Goutte (VNU - Vietnam National University [Hanoï], Cemotev - Centre d'études sur la mondialisation, les conflits, les territoires et les vulnérabilités - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines) |
| Abstract: | We highlight the considerable recent research that investigates how cryptocurrencies have been impacted by COVID-19. We highlight common threads of investigation and consider common findings and conclusions. We also provide suggestions for future research. Additionally, we provide an overview of a recent paper in which we report on a study that applies wavelet methods to daily data of COVID-19 world deaths and daily Bitcoin prices, |
| Keywords: | cryptocurrencies,Bitcoin,COVID-19,Market co-movement |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03211702&r= |
| By: | Lannoo, Karel; Thomadakis, Apostolos |
| Abstract: | In recent years, sustainability has risen in scope and importance on the agenda of policymakers. In Europe, this has translated into the EU Sustainable Finance Action Plan, which aims to: i) reorient capital flows towards sustainable investments; ii) manage financial risks stemming from climate/environmental/social issues; and iii) promote transparency and long-termism in financial and economic activity. A market that could play a significant role towards Europe’s green transition is derivatives. The market has been tightly regulated since the 2007-08 financial crisis, making it safer and more transparent. Derivatives facilitate capital-raising via the hedging of risks related to sustainable investments. Moreover, they enhance the transparency and the price formation process of the underlying securities, and thus foster long-termism. This report highlights how derivatives markets can – through their forward dimension, their global and consolidated nature, and their proper regulation – contribute to: i. enabling the EU to raise and channel the necessary capital towards sustainable investments; ii. helping firms hedge risks related to ESG factors; iii. facilitating transparency, price discovery and market efficiency; and iv. contributing to long-termism. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:eps:ecmiwp:29791&r= |
| By: | Gelos, Gaston; Gornicka, Lucyna; Koepke, Robin; Sahay, Ratna; Sgherri, Silvia |
| Abstract: | The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, we propose a new quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on changes in global financial conditions, domestic structural characteristics, and policies. The approach allows us to differentiate between short- and medium-term effects. We find that FX- and macroprudential interventions are effective in mitigating downside risks to portfolio flows stemming from adverse global shocks, while tightening of capital controls in response appears to be counterproductive. Good institutional frameworks are not able to shield countries from the increased volatility of portfolio flows in the immediate aftermath of global shocks. However, they do contribute to a more rapid bounce-back of foreign flows over the medium term. |
| Keywords: | capital controls; Capital Flows; emerging markets; foreign-exchange intervention; macroprudential policies |
| JEL: | E52 F32 F38 G28 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15842&r= |
| By: | W. Ben McCartney; Avni Shah |
| Abstract: | Can social influence effects help explain regional heterogeneity in refinancing activity? Neighborhood social influence effects have been shown to affect publicly observable decisions, but their role in private decisions, like refinancing, remains unclear. Using precisely geolocated data and a nearest-neighbor research design, we find that households are 7% more likely to refinance if a neighbor within 50 meters has recently refinanced. Consistent with a word-of-mouth mechanism, social influence effects are weaker when neighbors are farther away and non existent for non-occupants. Our results illustrate the importance of the proximate community for household wealth accumulation and the transmission of monetary policy. |
| Keywords: | Household Finance; Refinancing; Peer Effects; Neighborhoods |
| JEL: | D12 D14 D71 H31 R23 |
| Date: | 2021–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:91247&r= |
| By: | Alessio Brini; Daniele Tantari |
| Abstract: | Classical portfolio optimization often requires forecasting asset returns and their corresponding variances in spite of the low signal-to-noise ratio provided in the financial markets. Deep reinforcement learning (DRL) offers a framework for optimizing sequential trader decisions through an objective which represents its reward function penalized by risk and transaction costs. We investigate the performance of model-free DRL traders in a market environment with frictions and different mean-reverting factors driving the dynamics of the returns. Since this framework admits an exact dynamic programming solution, we can assess limits and capabilities of different value-based algorithms to retrieve meaningful trading signals in a data-driven manner and to reach the benchmark performance. Moreover, extensive simulations show that this approach guarantees flexibility, outperforming the benchmark when the price dynamics is misspecified and some original assumptions on the market environment are violated with the presence of extreme events and volatility clustering. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2104.14683&r= |
| By: | Medhat, Mamdouh; Schmeling, Maik |
| Abstract: | We document a striking pattern in U.S. and international stock returns: Double sorting on last month's return and share turnover reveals significant short-term reversal among low-turnover stocks whereas high-turnover stocks exhibit short-term momentum. Short-term momentum is as profitable and as persistent as conventional price momentum. It also survives transaction costs and is strongest among the largest, most liquid, and most extensively covered stocks. Our results are difficult to reconcile with models imposing strict rationality but are suggestive of an explanation based on some traders underappreciating the information in prices. |
| Keywords: | bounded rationality; Momentum; reversal; trading volume |
| JEL: | G12 G14 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15857&r= |
| By: | Donna K. Ginther; Shulamit Kahn |
| Abstract: | This study uses data from Academic Analytics to examine gender differences in promotion to associate professor in economics. We found that women in economics were 15% less likely to be promoted to associate professor after controlling for cumulative publications, citations, grants and grant dollars. In contrast, we found no significant gender differences in promotion in other fields including biomedical science, physical science, political science, mathematics and statistics, and engineering. We separated the sample by the research intensity of institutions and found suggestive evidence that these results were being driven by less research-intensive institutions. |
| JEL: | A11 J16 J40 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28743&r= |
| By: | Brülhart, Marius; Danton, Jayson; Parchet, Raphaël; Schläpfer, Jörg |
| Abstract: | We study the incidence of local taxes on the welfare of heterogeneous residents. A structural model of imperfectly mobile households who differ in terms of income and family status allows us to back out preferences for local public goods and mobility parameters that vary by family status. We calibrate the model with plausibly causal tax-base and housing-price elasticity estimates. Based on municipality-level data for Switzerland, we find that households with children have stronger preferences for locally provided public services and are less mobile than households without children. This in turn implies that the burden of local taxes is mainly borne - linearity of taxes and capitalization into lower housing notwithstanding - by above-median income households without children. |
| Keywords: | heterogeneous households; household mobility; housing prices; Local taxation; public-good preferences; Tax Incidence |
| JEL: | H24 H71 R21 R31 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15826&r= |
| By: | Eichengreen, Barry |
| Abstract: | South Africa was one of the fastest growing economies of the 1930s. This paper seeks to identify the roots of this macroeconomic outperformance and reconcile it with the country's delayed departure from the gold standard, such departure having typically been the event inaugurating recovery from the slump. It emphasizes South Africa's dependence on gold production, which gave the economy an additional boost from currency depreciation, over and above that felt in other countries, when depreciation finally took place. This highlights the paradox of South African policy makers' resistance to currency depreciation, as epitomized by the report of the Select Committee on the Gold Standard in 1932. |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15812&r= |
| By: | Mohammad Isleimeyyeh; Amine Ben Amar (RBS College); Stéphane Goutte (VNU - Vietnam National University [Hanoï]) |
| Abstract: | In this paper we investigate cross-commodity futures markets connectedness over different nearest-to-maturities. We thus implement time and time-frequency estimations for two constructed baskets of commodities, classified based on common delivery months. Using daily data spanning the period 1995-2020, we provide a set of stylized facts on the extent to which commodity markets are integrated or segmented. More specifically, our results show that the total connectedness is broadly insensitive to maturity. However, after 2008 financial crisis, the connectedness among commodity futures prices increases when the maturity increases. Furthermore, the overall connectedness amplifies during crises periods compared to tranquil periods. Moreover, certain pairwise markets are comparatively highly linked such as crude oil and heating oil, wheat and corn, corn and soybean, and soybean and soybean oil. The results also demonstrate that crude oil and heating oil are net transmitters all the time and across maturities, while natural gas, gold, and wheat are net receivers all the time and across maturities. More interestingly, the frequency decomposition reveals that most of periods of high total connectedness are driven mostly by high frequency components, which may indicate that commodity markets process information rapidly, except for the COVID-19 crisis period where total connectedness has been driven by lower frequency components. |
| Keywords: | Cross-commodity integration,financialization,energy,agricultural,precious metals,futures,nearest-to-maturities,connectedness,COVID-19 |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03211699&r= |
| By: | Baqaee, David Rezza; Farhi, Emmanuel; Sangani, Kunal |
| Abstract: | We propose a supply-side channel for the transmission of monetary policy. We show that if, as is consistent with the empirical evidence, bigger firms have higher markups and lower pass-throughs than smaller firms, then a monetary easing endogenously increases aggregate TFP and improves allocative efficiency. This endogenous positive "supply shock" amplifies the effects of the positive "demand shock" on output and employment. The result is a flattening of the Phillips curve. This effect is distinct from another mechanism discussed at length in the real rigidities literature: a monetary easing leads to a reduction in desired markups because of strategic complementarities in pricing. We calibrate the model to match firm-level pass-throughs and find that the misallocation channel of monetary policy is quantitatively important, flattening the Phillips curve by about 70% compared to a model with no supply-side effects. We derive a tractable four-equation dynamic model and show that monetary easing generates a procyclical hump-shaped response in aggregate TFP and countercyclical dispersion in firm-level TFPR. The improvements in allocative efficiency amplify both the impact and persistence of interest rate shocks on output. |
| Keywords: | Incomplete pass-through; Misallocation; monetary policy; productivity |
| JEL: | E0 L1 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15702&r= |
| By: | Harrigan, James; Resheff, Ariell; Toubal, Farid |
| Abstract: | We study the impact of firm-level choices on ICT, R&D, exporting and importing on the evolution of productivity, its bias towards skilled workers, and implications for labor demand. We use a novel measure of firm-level R&D and ICT adoption: employment of "techies" who perform these tasks. We develop methodology for estimating nested-CES production functions and for measuring both Hicks-neutral and skill-augmenting technology differences at the firm level. Using administrative data on French firms we find that techies, exporting and importing raise skill-biased productivity. In contrast, only ICT techies raise Hicks-neutral productivity. On average, higher firm-level skill biased productivity hardly affects low-skill employment, even as it raises relative demand for skill, due to the cost-reducing effect. ICT accounts for large increases in aggregate demand for skill, mostly due to the effect on firm size, less so through within-firm changes. Exporting, importing, and R&D have smaller aggregate effects. |
| Keywords: | Globalization; ICT; labor demand; Outsourcing; productivity; R&D; skill augmenting; Skill bias; STEM skills; techies |
| JEL: | D2 D24 F1 F16 F6 F66 J2 J23 J24 O52 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15815&r= |
| By: | Kets, Willemien (University of Oxford) |
| Abstract: | A standard assumption in game theory is that players have an infinite depth of reasoning: they think about what others think and about what others think that othersthink, and so on, ad infinitum. However, in practice, players may have a finite depth of reasoning. For example, a player may reason about what other players think, but not about what others think he thinks. This paper proposes a class of type spaces that generalizes the type space formalism due to Harsanyi (1967) so that it can model players with an arbitrary depth of reasoning. I show that the type space formalism does not impose any restrictions on the belief hierarchies that can be modeled, thus generalizing the classic result of Mertens and Zamir (1985). However, there is no universal type space that contains all type spaces. |
| Date: | 2021–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:qt498&r= |
| By: | Asongu, Simplice; Odhiambo, Nicholas |
| Abstract: | The study investigates conclusions from the scholarly literature that for low and middle-income countries, higher income inequality is linked with lower carbon dioxide (CO2) emissions. Using a sample of 39 sub-Saharan countries consisting of lower- and middle-income countries, this study investigates how increasing inequality affects renewable energy consumption. Three income inequality indicators are used, namely: the Gini coefficient, the Palma ratio and Atkinson index. The empirical evidence is based on quadratic Tobit regressions. The investigated assumption is only partially valid because a net positive impact is apparent only in one of the three income inequality variables used in the study. Hence, it is difficult to establish whether the inequality or equality hypothesis underpinning the nexus between income inequality and renewable energy consumption hold for Sub-Saharan Africa. However, based on the significant results in terms of the threshold, the equality hypothesis is valid when the Atkinson index is below a threshold of 0.6180 while the inequality hypothesis becomes valid when the Atkinson index exceeds the threshold of 0.6180. Hence, as the main policy implication, for the equitable redistribution of income to be promoted and, therefore, for policies that favor income inequality for renewable energy consumption not to be encouraged, policy makers should keep the Atkinson index below a threshold of 0.6180. An implication for Europe and/or high income countries is provided, notably, that the equality hypothesis on the nexus between income inequality and CO2 emissions may not withstand empirical scrutiny but contingent on: (i) the measurements of income inequality and (ii) inequality thresholds when a specific income inequality measurement is retained. |
| Keywords: | Renewable energy; Inequality; Sub-Saharan Africa; Sustainable development |
| JEL: | H10 O11 O55 Q20 Q30 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107539&r= |
| By: | Gollier, Christian |
| Abstract: | Any global temperature target must be translated into an intertemporal carbon budget and its associated cost-efficient carbon price schedule. Under the Hotelling's rule, the growth rate of this price should be equal to the interest rate. It is therefore a puzzle that cost-efficiency IAM models yield carbon prices that increase at an average real growth rate around 7% per year. This carbon pricing puzzle suggests that their abatement trajectories are not intertemporally optimized, probably because of the political unacceptability of a high initial carbon price. Using an intertemporal asset pricing approach, I examine the impact of the uncertainties surrounding economic growth and abatement technologies on the dynamics of efficient carbon prices, interest rates and risk premia. I show that marginal abatement costs and aggregate consumption are positively correlated along the optimal abatement path, implying a positive carbon risk premium and an efficient growth rate of expected carbon prices larger than the interest rate. From this numerical exercise, I recommend a growth rate of expected carbon price around 3.75% per year (plus inflation). I also show that the rigid carbon budget approach to cost-efficiency carbon pricing implies a large uncertainty surrounding the future carbon prices that support this constraint. In this model, green investors are compensated for this risk by a large risk premium embedded in the growth rate of expected carbon prices, not by a collar on carbon prices as often recommended. |
| Keywords: | Carbon budget; climate beta; green finance; risk-adjusted Hotelling's rule |
| JEL: | D81 G12 Q54 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15919&r= |
| By: | Andonov, Aleksandar; Kräussl, Roman; Rauh, Joshua |
| Abstract: | Institutional investors expect infrastructure to deliver long-term stable returns but gain exposure to infrastructure predominantly through finite-horizon closed private funds. The cash flows delivered by infrastructure funds display similar volatility and cyclicality as other private equity investments, and their performance depends similarly on quick deal exits. Despite weak risk-adjusted performance and failure to match the supposed characteristics of infrastructure assets, closed funds have received more commitments over time, particularly from public investors. Public institutional investors perform worse than private institutional investors, and ESG preferences and regulations explain 25-40% of their increased allocation to infrastructure and 30% of their underperformance. |
| Keywords: | ESG regulation; infrastructure; institutional investors; Public pension funds |
| JEL: | G11 G23 G28 H54 H75 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15946&r= |
| By: | Karp, Larry; Traeger, Christian |
| Abstract: | We introduce a "smart" cap and trade system that eliminates the welfare costs of asymmetric information ("uncertainty"). This cap responds endogenously to technology or macroeconomic shocks, relying on the market price of certificates to aggregate information. It allows policy makers to modify existing institutions to achieve more efficient emission reductions. The paper also shows that the efficient carbon price is more sensitive to technological innovations than usually assumed. The lasting impact and slow diffusion of these innovations typically make the optimal carbon price a much steeper function of emissions than suggested by the social cost of carbon. |
| Keywords: | Asymmetric information; climate change; Integrated assessment; pollution; quantities; Regulation; taxes; technology diffusion; uncertainty |
| JEL: | D80 H20 Q00 Q50 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15941&r= |
| By: | C. Lanier Benkard; Ali Yurukoglu; Anthony Lee Zhang |
| Abstract: | This paper uses new data to reexamine trends in concentration in U.S. markets from 1994 to 2019. The paper's main contribution is to construct concentration measures that reflect narrowly defined consumption-based product markets, as would be defined in an antitrust setting, while accounting for cross-brand ownership, and to do so over a broad range of consumer goods and services. Our findings differ substantially from well established results using production data. We find that 42.2% of the industries in our sample are “highly concentrated” as defined by the U.S. Horizontal Merger Guidelines, which is much higher than previous results. Also in contrast with the previous literature, we find that product market concentration has been decreasing since 1994. This finding holds at the national level and also when product markets are defined locally in 29 state groups. We find increasing concentration once markets are aggregated to a broader sector level. We argue that these two diverging trends are best explained by a simple theoretical model based on Melitz and Ottaviano (2008), in which the costs of a firm supplying adjacent geographic or product markets falls over time, and efficient firms enter each others' home product markets. |
| JEL: | L1 L4 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28745&r= |
| By: | Bashar, Omar; Mallick, Debdulal |
| Abstract: | Volatility persistence has important welfare consequences. In this paper, we investigate the effect on volatility persistence of the frequency of shocks for which we consider exogenous natural disasters. We find that, on average, volatility persistence is about 5 percent lower in countries that have experienced one more natural disasters per year. However, there is a non-linearity in that volatility persistence initially decreases and then increases with the frequency of natural disasters. The results are explained in terms of disaster resilience—countries that experience natural disasters frequently develop resilience that shields the economy from the destruction of natural disasters and/or expedites economic recovery. Among the factors that potentially create resilience, we find significance of its structural component. |
| Keywords: | Shock; Natural disaster; Resilience; Volatility persistence |
| JEL: | E32 H54 I38 Q54 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107517&r= |
| By: | Traeger, Christian |
| Abstract: | The paper discusses optimal carbon taxation in an analytic quantitative integrated assessment model (IAM). The model links IAM components and parametric assumptions directly to their policy impacts. The paper discusses the distinct tax impact of carbon versus temperature dynamics and uses the see-through model to illustrate various aspects of IAM calibrations including the differentiation between consumption and investments goods. Novel to analytic IAMs are the explicit temperature dynamics, a general economy, energy sectors including capital, various degrees of substitutability across energy sources, an approximation of capital persistence, and objective functions that include CES preferences and population weighting. ACE opens the door to tractable forward-looking stochastic modeling and dynamic strategic interactions in complex IAMs, explored in accompanying work. |
| Keywords: | capital persistence; carbon cycle; carbon tax; climate change; climate sensitivity; Integrated assessment; population weighting; Social cost of carbon; technological progress; Temperature |
| JEL: | D61 D80 E13 H23 H43 Q54 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15968&r= |
| By: | Massa, Massimo; O'Donovan, James; Zhang, Hong |
| Abstract: | Firms in global markets often belong to business groups. We argue that this feature can have a profound influence on international asset pricing. In bad times, business groups may strategically reallocate risk across affiliated firms to protect core "central firms." The ensuing hedging demand induces co-movement among central firms, creating a new intertemporal risk factor. Based on a novel dataset of worldwide ownership for 2002-2012, we find that central firms are better protected in bad times and that they earn relatively lower-expected returns. Moreover, a centrality factor augments traditional models in explaining the cross-section of international stock returns. |
| Keywords: | Business Groups; Centrality; Co-movement; International Asset Pricing |
| JEL: | G20 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15746&r= |
| By: | Ayodele Idowu, Mr |
| Abstract: | This study examined econometric modelling and forecasting foreign direct investment inflows in Nigeria over the next decade using Box-Jenkins ARIMA model approach. The scope of the study is from 1970 to 2020. The correlogram show that the net foreign direct investment inflow in Nigeria is integrated of the first order. Based on the number of significant coefficients, highest adjusted R-squared, lowest volatility and the lowest SBIC and the AIC, the study estimated and presents the ARIMA (1, 1, 3) model. The diagnostic test also shows that the estimated model is not only consistent but good for forecasting the net foreign direct investment inflows in Nigeria and it also explains the dynamics around it. The result of the study shows that net foreign direct investment inflows in Nigeria are likely for exhibit very slow upward trend between 2.80 billion USD and 3.26 billion USD in the next decade which is not significantly different from values of FDI inflows in Nigeria in the recent years. The study also provide policy recommendations so as to assist policy makers and the Nigerian government on better ways to accelerate and maintain higher level of net foreign direct investment inflows in Nigeria. |
| Keywords: | ARIMA, Foreign Direct Investment Inflows, Forecasting, Box-Jenkins, Nigeria. |
| JEL: | E2 F1 F17 F4 F47 |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107466&r= |
| By: | Stefano Costa; Federico Sallusti; Claudio Vicarelli |
| Abstract: | Making use of domestic and international input-output tables and network analysis indicators, we analyze international and domestic trade relationships of Italian industries looking at their ability of transmission of shocks. To do this, we also propose a new taxonomy being able to distinguish sectors in terms of the extent to, and the speed at, which they spread domestic and foreign economic shocks into the Italian production system. Our results show a mismatch between sectors having a central position in terms of trade relationships with foreign countries and those having a central role for the propagation of shocks within the Italian economic system. Only a small group of sectors has both a high openness to international markets and a central position within the network of Italian production system. It follows that the domestic transmission capacity of stimuli from abroad is limited: this aspect strongly compromises the possibility of benefiting from positive shocks deriving from increases in foreign demand, even if it could represent, at least in part, a safeguard element in the event of negative impulses deriving from the trend of the international economic cycle. |
| Keywords: | Input/output tables; network analysis; shocks transmission. |
| Date: | 2021–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2021/15&r= |
| By: | Bown, Chad P.; Conconi, Paola; Erbahar, Aksel; Trimarchi, Lorenzo |
| Abstract: | During the last decades, the United States has applied increasingly high trade protection against China. We combine detailed information on US antidumping (AD) duties --- the most widely used trade barrier --- with US input-output data to study the effects of trade protection along supply chains. To deal with endogeneity concerns, we propose a new instrument for AD protection, which combines exogenous variation in the political importance of industries with their historical experience in AD proceedings. We find that tariffs have large negative effects on downstream industries, decreasing employment, wages, sales, and investment. Our baseline estimates for 1988-2016 indicate that, due to AD protection against China, around 1.8 million US jobs were lost in downstream industries, with no significant job gains in protected sectors. When we extend the analysis to measures introduced under President Trump, we find that around 500,000 jobs were lost during the first two years of his term. We also provide evidence of the mechanisms behind the negative effects of protection along supply chains: AD duties decrease imports and raise production costs for downstream industries. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15648&r= |
| By: | Simsek, Alp |
| Abstract: | I review the literature on financial speculation driven by belief disagreements from a macroeconomics perspective. To highlight unifying themes, I develop a stylized macroeconomic model that embeds several mechanisms. With short-selling constraints, speculation can generate overvaluation and speculative bubbles. Leverage can substantially inflate speculative bubbles and leverage limits depend on perceived downside risks. Shifts in beliefs about downside tail scenarios can explain the emergence and the collapse of leveraged speculative bubbles. Speculative bubbles are related to rational bubbles, but they match better the empirical evidence on the predictability of asset returns. Even without short-selling constraints, speculation induces procyclical asset valuation. When speculation affects the price of aggregate assets, it also influences macroeconomic outcomes such as aggregate consumption, investment, and output. Speculation in the boom years reduces asset prices, aggregate demand, and output in the subsequent recession. Macroprudential policies that restrict speculation in the boom can improve macroeconomic stability and social welfare. |
| Keywords: | aggregate demand recessions; belief disagreements; business cycles; countercyclical risk premium; financial speculation; leverage; macroprudential policy; Rational bubbles; Short selling; Speculative bubbles |
| JEL: | E00 E12 E21 E22 E32 E44 E52 E70 G00 G01 G11 G12 G40 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15733&r= |
| By: | Péter Elek (Health and Population Lendület Research Group, Centre for Economic and Regional Studies, 1097 Budapest, Tóth Kálmán u. 4., Hungary and Institute of Economics, Corvinus University of Budapest); Anikó Bíró (Health and Population Lendület Research Group, Centre for Economic and Regional Studies); Petra Fadgyas-Freyler (National Health Insurance Fund Administration) |
| Abstract: | We analyse the timing, magnitude and income dependence of pharmaceutical panic buying around the outbreak of the COVID-19 pandemic in Hungary. We use district-level monthly and daily administrative data on detailed categories of pharmaceutical purchases, merge them to income statistics and estimate multilevel panel models. Our main results are as follows. First, the days of therapy (DOT) of pharmaceutical purchases increased by more than 30% in March 2020, when major lockdown measures were announced. This pattern holds for almost all categories of pharmaceuticals. Second, shortly after the panic reactions, the aggregate amount of pharmaceutical purchases returned to their pre-shock levels, however, the frequency of pharmacy visits decreased. Third, the panic buying reaction was significantly stronger in richer geographical areas, where – according to the daily data – people also reacted earlier to the pandemic-related news. Overall, the results suggest that panic buying of pharmaceuticals can have dtrimental effects on vulnerable populations.We combine macro-level data on high-stakes testing with survey data on more than 300,000 students aged 10-16 years in 31 European countries, from three waves (2002, 2006 and 2010) of the Health Behaviour in School-aged Children (HBSC) study. With variation in high-stakes testing across countries, years and grade levels, we use a quasi-experimental difference-in-differences (DD) design for identification of causal effects. We find that high-stakes testing increases self-reported school-related stress by almost 10 % of a standard deviation. This is primarily driven by a strong effect for girls, meaning that high-stakes testing increases the gender gap in school-related stress. The results are robust to a range of sensitivity analyses. |
| Keywords: | COVID-19, inequality, panic buying, pharmaceutical demand |
| JEL: | I12 I14 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:2113&r= |
| By: | Tolga Buz; Gerard de Melo |
| Abstract: | Reddit's WallStreetBets (WSB) community has come to prominence in light of its notable role in affecting the stock prices of what are now referred to as meme stocks. Yet very little is known about the reliability of the highly speculative investment advice disseminated on WSB. This paper analyses WSB data spanning from January 2019 to April 2021 in order to assess how successful an investment strategy relying on the community's recommendations could have been. We detect buy and sell advice and identify the community's most popular stocks, based on which we define a WSB portfolio. Our evaluation shows that this portfolio has grown approx. 200% over the last three years and approx. 480% over the last year, significantly outperforming the S&P500. The average short-term accuracy of buy and sell signals, in contrast, is not found to be significantly better than randomly or equally distributed buy decisions within the same time frame. However, we present a technique for estimating whether posts are proactive as opposed to reactive and show that by focusing on a subset of more promising buy signals, a trader could have made investments yielding higher returns than the broader market or the strategy of trusting all posted buy signals. Lastly, the analysis is also conducted specifically for the period before 2021 in order to factor out the effects of the GameStop hype of January 2021 - the results confirm the conclusions and suggest that the 2021 hype merely amplified pre-existing characteristics. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.02728&r= |
| By: | Appelbaum, Elie; Melatos, Mark |
| Abstract: | We investigate preferential trade agreement (PTA) formation when risk averse countries face demand uncertainty and, hence, have an insurance motive for pursuing trade integration. In this environment, when deciding which type of PTA - if any - they wish to form, countries seek to maximise their net welfare; that is, their expected utility less a risk premium. The desire for insurance influences, not just whether a particular PTA forms, but also the preferred depth of integration. We analyze the insurance implications of free trade agreements (FTAs), customs unions (CUs), and countries choosing to stand alone. We further distinguish between shallow CUs and deep CUs; in the former, members maximise the sum of their individual net welfares, while in the latter they maximise the net value of the sum of their individual expected welfares. We show that differences in country risk attitudes and the levels of risk they face, as well as the degree to which these risks are correlated with each other, each, and together, influence the formation and design of TAs. When countries’ demands are uncorrelated, they form a deep CU if their levels of risk aversion are sufficiently different. If, however, their risk attitudes are similar, countries opt for shallower trade integration - either a shallow CU or a FTA - if they face low levels of uncertainty, and choose to stand alone if one country faces a sufficiently high level of uncertainty. When countries’ demands are correlated, they tend to form a deep CU if their demands are strongly negatively correlated, a FTA if their demands are strongly positively correlated and a shallow CU when their demands are weakly correlated. Intuitively, differences in country risk attitudes (i.e., their degree of risk aversion) act as an additional source of comparative advantage. Deeper integration - particularly via a CU - permits less risk averse members to essentially export their relative partiality for risk to more risk averse partners, thereby effectively providing the latter with insurance. |
| Keywords: | Trade Agreement, Free Trade Area, Customs Union, Insurance, Uncertainty, Risk Premium. |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2021-04&r= |