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on Central and Western Asia |
| By: | Clark, Robert; Lusardi, Annamaria; Mitchell, Olivia S |
| Abstract: | Early in the COVID-19 pandemic, much of the US economy was closed to limit the virus' spread, and several emergency interventions were implemented. Our analysis of older (45-75) respondents fielded in April-May of 2020 indicates that about one in five respondents was financially fragile and would have difficulty facing a mid-size emergency expense. Some subgroups were at particular risk of facing financial difficulties, especially younger respondents, those with larger families, Hispanics, and the low income. Moreover, the more financially literate were better able to handle such shocks, indicating that knowledge can provide some additional protection during a pandemic. |
| Keywords: | financial literacy; financial resilience; older population; vulnerable groups |
| JEL: | D14 G53 I38 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15532&r= |
| By: | Razin, Assaf |
| Abstract: | Post WWII globalization forces are facing headwinds in the form of global crises-the "The Great Recession" and the "The Pandemic Recession". Israel's trade and financial globalization, however, is steadily rising. The pandemic-induced slump in economic activity is deep, as consumer spending, investment spending, and export demand tumble. Central banks, tied down by the zero interest rate, resort to semi-fiscal expansionary policies. Indeed, the stabilization burden falls on fiscal policy. The paper provides an overview of the new globalization trends in the world and in Israel, with emphasis on the role of global crises, the Global Financial Crisis, and the Pandemic Crisis in changing globalization long-term trends. When the coronavirus hit, supply chains and production have been disrupted. However, the impact of the pandemic shock is not on the supply side only. On the demand side, the desire to invest has plunged, while people across the rich world are now saving much of their income. Would this short-term changes can reinforce the re-trending of the globalization, which is observed since the Global Financial Crisis? The paper focuses on globalization forces and provides an overview of advanced economies and Israel. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15643&r= |
| By: | Besner, Manfred |
| Abstract: | We introduce a new value for games with transferable utility, called grand dividends value. In the payoff calculation, the grand dividends value takes into account the worths of all subcoalitions of a player set. The concept of grand dividends, representing the surplus (which can also be non-positive) of the worth of the grand coalition over the worths of all coalitions that lack one player of the player set, is the initial point here. The grand dividends value satisfies many properties that we know from the Shapley value. Along with new axioms that have a similar correspondence to axioms that are also satisfied by the Shapley value, axiomatizations arise that have an analogous equivalent for the Shapley value, including the classics of Shapley and Young. |
| Keywords: | Cooperative game; (Harsanyi/Grand) Dividends; Shapley value; Grand dividends value |
| JEL: | C7 C71 |
| Date: | 2021–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107615&r= |
| By: | Basu, Susanto; Pascali, Luigi; Schiantarelli, Fabio; Servén, Luis |
| Abstract: | We show that the welfare of a countryiÌ s infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP), appropriately defined, and by the capital stock per capita. The result holds for both closed and open economies, regardless of the type of production technology and the degree of product market competition. Welfare-relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates. We use these results to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries. |
| Keywords: | productivity; Solow residual; TFP; welfare |
| JEL: | D24 D90 E20 O47 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15600&r= |
| By: | Beck, Roland; Di Nino, Virginia; Stracca, Livio |
| Abstract: | We revisit the effects of globalisation over the past 50 years in a large sample of advanced and emerging countries. We use accessions to \Globalisation Clubs" (WTO, OECD, EU), financial liberalisation and an instrument for trade openness to study the trade-off between efficiency (proxied by real GDP per capita and TFP) and equity (proxied by the labour share of income and the Gini index of inequality). We find that (i) most of our episodes lead to an increase in trade openness (ii) effects on GDP per capita are mostly positive with some interesting exceptions and (iii) there is little evidence that globalisation shocks lead to more inequality. JEL Classification: F13, F36 |
| Keywords: | efficiency, equity, EU, financial liberalization, globalisation, OECD, trade integration, WTO |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212546&r= |
| By: | Masaaki Fukasawa; Blanka Horvath; Peter Tankov |
| Abstract: | In this chapter we first briefly review the existing approaches to hedging in rough volatility models. Next, we present a simple but general result which shows that in a one-factor rough stochastic volatility model, any option may be perfectly hedged with a dynamic portfolio containing the underlying and one other asset such as a variance swap. In the final section we report the results of a back-test experiment using real data, where VIX options are hedged with a forward variance swap. In this experiment, using a rough volatility model allows to almost completely remove the bias and reduce the overall hedging error by a factor of 27% compared to traditional diffusion-based models. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.04073&r= |
| By: | Kuchler, Theresa; Ströbel, Johannes |
| Abstract: | We review an empirical literature that studies the role of social interactions in driving economic and financial decision making. We first summarize recent work that documents an important role of social interactions in explaining household decisions in housing and mortgage markets. This evidence shows, for example, that there are large peer effects in mortgage refinancing decisions and that individuals' beliefs about the attractiveness of housing market investments are affected by the recent house price experiences of their friends. We also summarize the evidence that social interactions affect the stock market investments of both retail and professional investors as well as household financial decisions such as retirement savings, borrowing, and default. Along the way, we describe a number of easily accessible recent data sets for the study of social interactions in finance, including the "Social Connectedness Index,'' which measures the frequency of Facebook friendship links across geographic regions. We conclude by outlining several promising directions for further research in the field of "social finance.'' |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15556&r= |
| By: | di Iasio, Giovanni; Kryczka, Dominika |
| Abstract: | We build a three-period model to investigate market failures in the market-based financial system. Institutional investors (IIs), such as insurance companies and pension funds, have liabilities offering guaranteed returns and operate under a risk-sensitive solvency constraint. They seek to allocate funds to asset managers (AMs) that provide diversification when investing in risky assets. At the interim date, AMs that run investment funds face investor redemptions and liquidate risky assets and/or deplete cash holdings, if available. Dealer banks can purchase risky assets, thus providing market liquidity. The latter ultimately determines equilibrium allocations. In the competitive equilibrium, AMs suffer from a pecuniary externality and hold inefficiently low amounts of cash. Asset fire sales increase the overall cost of meeting redemptions and depress risk-adjusted returns delivered by AMs to IIs, forcing the latter to de-risk. We show that a macroprudential approach to (i) the liquidity regulation of AMs and (ii) the solvency regulation of IIs can improve upon the competitive equilibrium allocations. JEL Classification: D62, G01, G23, G38 |
| Keywords: | insurance companies and pension funds, investment funds, market-based finance, market liquidity, regulation |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212545&r= |
| By: | Nathan Converse (Federal Reserve Board); Eduardo Levy Yeyati (Universidad Torcuato Di Tella/The Brookings Institution); Tomas Williams (George Washington University) |
| Abstract: | Since the early 2000s exchange-traded funds (ETFs) have grown to become an important in- vestment vehicle worldwide. In this paper, we study how their growth affects the sensitivity of international capital flows to the global financial cycle. We combine comprehensive fund- level data on investor flows with a novel identification strategy that controls for unobservable time-varying economic conditions at the investment destination. For dedicated emerging market funds, we find that the sensitivity of investor flows to global financial conditions for equity (bond) ETFs is 2.5 (2.25) times higher than for equity (bond) mutual funds. In turn, we show that in countries where ETFs hold a larger share of financial assets, total cross-border equity flows and prices are significantly more sensitive to global financial conditions. We conclude that the growing role of ETFs as a channel for international capital flows amplifies the global financial cycle in emerging markets. |
| Keywords: | exchange-traded funds mutual funds global financial cycle global risk push and pull factors capital flows emerging markets |
| JEL: | F32 G11 G15 G23 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:57&r= |
| By: | FOULIARD, Jeremy; Howell, Michael J.; Rey, Hélène |
| Abstract: | Financial crises cause economic, social and political havoc. Macroprudential policies are gaining traction but are still severely under-researched compared to monetary policy and fiscal policy. We use the general framework of sequential predictions also called online machine learning to forecast crises out-of-sample. Our methodology is based on model averaging and is meta-statistic since we can incorporate any predictive model of crises in our set of experts and test its ability to add information. We are able to predict systemic financial crises twelve quarters ahead out-of-sample with high signal-to-noise ratio in most cases. We analyse which experts provide the most information for our predictions at each point in time and for each country, allowing us to gain some insights into economic mechanisms underlying the building of risk in economies. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15618&r= |
| By: | Gambacorta, Leonardo; Oliviero, Tommaso; Shin, Hyun Song |
| Abstract: | Banks with a low price-to-book ratio have a greater propensity to pay out dividends. This propensity is especially marked for banks with a price-to-book ratio below a threshold of 0.7. As a sector, banks also tend to have higher dividend payout ratios than non-financial firms. We demonstrate these features using data for 271 advanced economy banks in 30 jurisdictions. Dividend payouts as a proportion of profits rise in a non-linear way as the price-to-book ratio falls below 0.7. In a hypothetical exercise with fixed balance sheet ratios, we find that a complete suspension of bank dividends in 2020 during the Covid-19 pandemic would have added, under different stress scenario, an additional US$ 0.8â??1.1 trillion of bank lending capacity in our sample, equivalent to 1.1â??1.6% of total GDP. |
| Keywords: | banks; COVID-19 crisis; dividend payout policy; Low interest rates |
| JEL: | G21 G35 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15615&r= |
| By: | Bown, Chad P. |
| Abstract: | The US-China trade war forced a reluctant semiconductor industry into someone else's fight, a very different position from its leading role in the 1980s trade conflict with Japan. This paper describes how the political economy of the global semiconductor industry has evolved since the 1980s. That includes both a shift in the business model behind how semiconductors go from conception to a finished product, as well as the geographic reorientation toward Asia of demand and manufactured supply. It uses that lens to explain how, during the modern conflict with China, US policymakers turned to a legally complex set of export restrictions targeting the semiconductor supply chain in the attempt to safeguard critical infrastructure in the telecommunications sector. The potentially far-reaching tactics included weaponization of exports by relatively small but highly specialized American software service and equipment providers in order to constrain Huawei, a Fortune Global 500 company. It describes potential costs of such policies, some of their unintended consequences, and whether policymakers might push them further in the attempt to constrain other Chinese firms. |
| Keywords: | Export restrictions; Huawei; National Security; Semiconductors; SMIC; Supply Chains; USâ??China trade relations |
| JEL: | F13 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15597&r= |
| By: | Piergiorgio Alessandri (Bank of Italy); Andrea Gazzani (Bank of Italy); Alejandro Vicondoa (Universidad Católica de Chile) |
| Abstract: | Isolating financial uncertainty shocks is difficult because financial markets rapidly price changes in several economic fundamentals. To bypass this difficulty, we identify uncertainty shocks using daily data and use their monthly averages as an instrument in a VAR. We show that this novel approach is theoretically appealing and has dramatic implications for leading empirical studies on financial uncertainty. Daily interactions between equity returns, bond spreads and expected volatility cause previous identification schemes to fail at the monthly frequency. Once these interactions are explicitly modeled, the impact of uncertainty shocks on output and inflation is significant and similar across specifications. |
| Keywords: | uncertainty shocks financial shocks structural vector autoregression high-frequency identification external instruments |
| JEL: | C32 C36 E32 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:61&r= |
| By: | Lusardi, Annamaria; Mitchell, Olivia S; Oggero, Noemi |
| Abstract: | Poor financial capability can erode well-being in later life. To explore debt and debt management among older Americans, age 51-61, we designed and analyzed a new module in the 2018 Health and Retirement Study along with information from the 2018 National Financial Capability Study. Even though this group should be at the peak of their retirement savings, it nevertheless carries debt due to student loans and unpaid medical bills; having children also contributes to carrying debt close to retirement. By contrast, the financially literate have more positive financial perceptions and behaviors. Specifically, being able to answer one additional financial literacy question correctly is associated with a higher probability of reporting an above average credit record and planning for retirement. Higher financial literacy is also linked to being less likely to carry excessive debt, being contacted by debt collectors, and carrying medical debt or student loans, even after accounting for a large range of demographics and other characteristics. Evidently, financial knowledge can help limit debt exposure at older ages. |
| Keywords: | debt; financial fragility; financial literacy; medical bills; Mortgages; retirement; Student Loans |
| JEL: | G40 G41 G51 G53 H31 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15568&r= |
| By: | Le, Hoang Duc; Viet, Nguyen Quang; Anh, Nguyen Huaong |
| Abstract: | This study was implemented with the goal of testing the validity of trade-off theory and pecking order theory in determining the capital structure in 50 listed real estate companies in Vietnam. The result of this study shows that the pecking order theory is the more approriate and should be applied for the listed real estate companies in Vietnam, and be the informative document for those firms to take into account the relevant theory to adjust their own capital structure, so that they can raise their own competitiveness and continue the development of the business |
| Date: | 2021–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:hc6ne&r= |
| By: | Janvi Pate (Indian Institute of Management Kozhikode); Anubha Sinha (Indian Institute of Management Kozhikode) |
| Abstract: | Feminism as an ideology is associated with women’s rights and women’s movements across the world. The purpose of this paper is to clear the misconceptions about feminism in the third world countries by highlighting the major feminist movements in India. Firstly, it talks about the evolution of feminism in India and across the globe. It showcases the works of feminists like Mahatma Phule, Raja Ram Mohan Roy, Ishwarchandra Vidyasagar and talks about Brahminical feminism in India. It then draws attention to feminism after independence when ‘The Committee for the Status of Women in India’ was set up to review the status of women in the country. It also discusses different prominent movements which took place in India like the Shetkari movement, Chipko movement, Hindu Militant feminism, etc. and how some of those movements led to the enactment of new laws favoring women while how some proved negative for the cause of feminism. The paper concludes with an analysis on Indian feminism, for which different opportunities to overcome threats and weaknesses are discussed. |
| Keywords: | Feminism in India, evolution of feminism, movements in India, feminist ideology |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:438&r= |
| By: | Acharya, Viral V.; Vij, Siddharth |
| Abstract: | We establish that macroprudential policies limiting capital flows can curb risks arising from corporate foreign currency borrowing in emerging markets. Using detailed firm- level data from India, we show that propensity to issue foreign currency debt for the same firm is higher when the difference in short-term interest rates between India and the US is higher, i.e., when the dollar 'carry trade' is more profitable; this behavior is driven by the period after the global financial crisis. The positive relationship between issuance and the 'carry trade' breaks down once regulators institute more stringent interest-rate caps on foreign currency borrowing. Riskier borrowers such as importers and those with higher interest costs cut issuance most. Firm equity exposure to foreign exchange risk rose after issuance in favorable funding conditions and emerged as a source of external sector vulnerability during the 'taper tantrum' of 2013. Macroprudential policy action limiting capital flows is able to nullify this effect, such as during the market stress due to the COVID-19 pandemic. |
| Keywords: | emerging markets; foreign currency debt; Foreign exchange risk; taper tantrum |
| JEL: | F31 F34 G15 G30 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15440&r= |
| By: | Abdi, Farshid; Kormanyos, Emily; Pelizzon, Loriana; Getmansky, Mila; Simon, Zorka |
| Abstract: | We focus on the role of social media as a high-frequency, unfiltered mass information transmission channel and how its use for government communication affects the aggregate stock markets. To measure this effect, we concentrate on one of the most prominent Twitter users, the 45th President of the United States, Donald J. Trump. We analyze around 1,400 of his tweets related to the US economy and classify them by topic and textual sentiment using machine learning algorithms. We investigate whether the tweets contain relevant information for financial markets, i.e. whether they affect market returns, volatility, and trading volumes. Using high-frequency data, we find that Trump's tweets are most often a reaction to pre-existing market trends and therefore do not provide material new information that would influence prices or trading. We show that past market information can help predict Trump's decision to tweet about the economy. |
| Keywords: | Market efficiency,Social media,Twitter,High-frequency event study,Machine learning,ETFs |
| JEL: | G10 G14 C58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:314&r= |
| By: | Henrique Guerreiro; Jo\~ao Guerra |
| Abstract: | In stochastic Volterra rough volatility models, the volatility follows a truncated Brownian semi-stationary process with stochastic vol-of-vol. Recently, efficient VIX pricing Monte Carlo methods have been proposed for the case where the vol-of-vol is Markovian and independent of the volatility. Following recent empirical data, we discuss the VIX option pricing problem for a generalized framework of these models, where the vol-of-vol may depend on the volatility and/or not be Markovian. In such a setting, the aforementioned Monte Carlo methods are not valid. Moreover, the classical least squares Monte Carlo faces exponentially increasing complexity with the number of grid time steps, whilst the nested Monte Carlo method requires a prohibitive number of simulations. By exploring the infinite dimensional Markovian representation of these models, we device a scalable least squares Monte Carlo for VIX option pricing. We apply our method firstly under the independence assumption for benchmarks, and then to the generalized framework. We also discuss the rough vol-of-vol setting, where Markovianity of the vol-of-vol is not present. We present simulations and benchmarks to establish the efficiency of our method. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.04511&r= |
| By: | Mary Amiti; Sang Hoon Kong; David Weinstein |
| Abstract: | We show that the specific factors model can be used to derive a rigorous link between movements in stock prices and productivity, wages, employment, output, and welfare. We also prove that the commonly used measure of the effective rate of protection equals the dual measure of revenue TFP, providing a theoretical foundation for why many studies have found that trade liberalization significantly increases firm-level productivity. Our method enables us to trace a tariff announcement's effect on TFP through its impact on macro variables (e.g., exchange rates) and through its effect on the relative prices of imports. We apply this framework to understanding the implications of the U.S.-China trade war. Our results show that the trade-war announcements caused large declines in U.S. stock prices, expected TFP, and expected inflation largely by moving macro variables, but also by causing declines in the returns of firms trading with China. We find that markets expect the trade war to lower U.S. welfare by 7.8 percentage points, which is much larger than the predictions of static models but in line with those of dynamic models. |
| JEL: | F13 F14 F16 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28758&r= |
| By: | Bartelme, Dominick; Lan, Ting; Levchenko, Andrei A. |
| Abstract: | This paper estimates the impact of external demand shocks on real income. Our empirical strategy is based on a first order approximation to a wide class of small open economy models that feature sector-level gravity in trade flows. The framework allows us to measure foreign shocks and characterize their impact on income in terms of reduced-form elasticities. We use machine learning techniques to group 4-digit manufacturing sectors into a smaller number of clusters, and show that the cluster-level elasticities of income with respect to foreign shocks can be estimated using high-dimensional statistical techniques. We find clear evidence of heterogeneity in the income responses to different foreign shocks. Foreign demand shocks in complex intermediate and capital goods have large positive impacts on real income, whereas impacts in other sectors are negligible. The estimates imply that the pattern of sectoral specialization plays a quantitatively large role in how foreign shocks affect real income, while geographic position plays a smaller role. Finally, a calibrated multi-sector production and trade model can rationalize both the average and the heterogeneity in real income elasticities to foreign shocks under reasonable values of structural parameters. |
| Keywords: | Gravity; k-means clustering; real income; trade specialization |
| JEL: | F43 F62 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15604&r= |
| By: | Enrico Nano (IHEID, Graduate Institute of International and Development Studies, Geneva); Ugo Panizza (IHEID, Graduate Institute of International and Development Studies, Geneva); Martina Viarengo (IHEID, Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | We examine the role of financial aid in shaping the formation of human capital in economics. Specifically, we study the impact of a large merit-based scholarship for graduate studies in affecting individuals' occupational choices, career trajectories, and labor market outcomes of a generation of Italian economists with special focus on gender gaps and the role of social mobility. We construct a unique dataset that combines archival sources and includes microdata for the universe of applicants to the scholarship program and follow these individuals over their professional life. Our unique sample that focuses on the high end of the talent and ability distribution also allows us to analyze the characteristics of top graduates, a group which tends to be under-sampled in most surveys. We discuss five main results. First, women are less likely to be shortlisted for a scholarship as they tend to receive lower scores in the most subjective criteria used in the initial screening of candidates. Second, scholarship winners are much more likely to choose a research career and this effect is larger for women. Third, women who work in Italian universities tend to have less citations than men who work in Italy. However, the citation gender gap is smaller for candidates who received a scholarship. Fourth, women take longer to be promoted to the rank of full professor, even after controlling for academic productivity. Fifth, it is easier to become a high achiever for individuals from households with a lower socio-economic status if they reside in high social mobility provinces. However, high-achievers from lower socio-economic status households face an up-hill battle even in high social mobility provinces. |
| Keywords: | Human capital formation, Financial aid, Career trajectories, Gender gaps |
| JEL: | I22 I24 J16 J24 |
| Date: | 2021–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp08-2021&r= |
| By: | Fornaro, Luca; Wolf, Martin |
| Abstract: | We study the effects of supply disruptions - for instance caused by the emergence of a pandemic - in an economy with Keynesian unemployment and endogenous productivity growth. By negatively affecting investment, even purely transitory negative supply shocks generate permanent output losses. The associated negative wealth effect depresses consumers' demand, which may even fall below the exogenous fall in supply. In this case, the optimal monetary policy response flips relative to conventional wisdom, as monetary expansions are needed to fight negative output gaps. If monetary policy is not expansionary enough a supply-demand doom loop emerges, causing a recession characterized by unemployment and weak productivity growth. Innovation policies, by fostering firms' investment, can restore full employment and healthy growth. |
| Keywords: | COVID-19; Endogenous Growth; Fiscal policy; hysteresis; investment; Keynesian growth; monetary policy; Supply Shocks; zero lower bound |
| JEL: | E22 E31 E32 E52 E62 O42 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15423&r= |
| By: | Sumit Mitra (Indian Institute of Management Kozhikode) |
| Abstract: | The Corona Virus pandemic that hit the world in early 2020 has so far not only affected lives and health but like any global crises whether financial downturn of 2008 or hurricane Katrina has challenged the global economy in its growth and progress. Much of the socio-economic difficulty arises from reduction or complete stopping of business. Here we will try to understand the learnings about business and the forces shaping it when confronted with acute human crisis threatening the very existence of the human race. But it is said ‘every dark cloud has a silver lining’. So, in these difficulties many businesses saw opportunities to revolutionize. Such learning is only of value if it helps avoid another similar crisis and ensures greater resilience if it still befalls human race. Therefore many are saying that these businesses are ‘recession proof ‘ or ‘recession resistant’ |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:447&r= |
| By: | Ghysels, Eric; Liu, Hanwei; Raymond, Steve |
| Abstract: | The U.S. equity markets are largely driven by actions of institutional investors. Using quarterly 13-F holdings, we construct the Herfindahl-Hirschman Index of institutional investor concentration as a measure of granularity. We study how granularity affects: the cross-section of returns, conditional variances and downside risk. Next, we study the impact of granularity in a demand-driven asset pricing model introduced by Koijen and Yogo (2019). We derive a decomposition of expected returns in terms of equally weighted asset demands and granularity residuals. Using this decomposition, we revisit the empirical stylized facts pertaining to granularity and asset pricing. |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15654&r= |
| By: | Baskaran, Thushyanthan (University of Siegen); Bhalotra, Sonia (University of Essex & University of Warwick); Min, Brian (University of Michigan, Ann Arbor); Uppal, Yogesh |
| Abstract: | There has been a phenomenal global increase in the proportion of women in politics in the last two decades, but there is no evidence of how this influences economic performance. We investigate this using data on competitive elections to India’s state assemblies, leveraging close elections to isolate causal effects. We find significantly higher growth in economic activity in constituencies that elect women and no evidence of negative spillovers to neighbouring male-led constituencies, consistent with net growth. Probing mechanisms, we find evidence consistent with women legislators being more efficacious, less corrupt and less vulnerable to political opportunism. |
| Keywords: | Political representation ; identity ; India ; gender ; women legislators ; economic growth ; luminosity ; corruption ; roads ; close elections ; electoral incentives JEL Classification: D72 ; D78 ; H44 ; H73 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1354&r= |
| By: | Andreozzi, Luciano |
| Abstract: | Peters (2019) presents a new version of the St. Petersburg paradox that allegedly reveals a weakness of orthodox decision theory under uncertainty. I use a variant of Rabin (2000) calibration theorem to show that the new paradox only arises because the author implicitly assumes an unbounded utility function for money. I also assess the author's claim that orthodox decision theory is wrong in insisting on utility functions to be bounded and find it unconvincing. |
| Date: | 2021–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:axkfg&r= |
| By: | Werner Roeger (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)) |
| Abstract: | A deeper macroeconomic analysis of foreign direct investment (FDI), innovation and other key variables is needed to better understand technology shock effects, transmission dynamics and policy perspectives in open economies. FDI outward stock relative to the source country total capital stock was above 10 percent in nine OECD countries in 2017, including the UK and the US. This paper adds FDI to a standard model with a tradable and a non-tradable sector. Here, we define non-tradable in a broad sense. The non-tradable sector covers those firms which are located in the tradable sector but undertake FDI in order to overcome the costs associated with exports but it also includes firms in the service industry who offer services which are intrinsically non-tradable, but which can be offered internationally via subsidiaries. This relates to traditional services (e.g., in retail) but also to novel digital services. We study how opening up the non-tradable sector to international transactions (via FDI) affects the international transmission of technology shocks and of persistent demand shocks. We consider a wide range of technology shocks differentiated by product and process innovations and by sectoral origin. Product innovations in formerly non-tradable sectors widen the scope in which innovations in one country can be transmitted abroad. One major difference between FDI and trade is the location of production, which induces different international income flows and requires upfront investment in the case of FDI. We show that this has implications for both the current account and the exchange rate. Process innovation in the tradable sector leads to a fall in the terms of trade (ToT) and a real appreciation of the exchange rate, expressed as the ratio between domestic and foreign consumer prices. The opposite sign is due to the Balassa-Samuelson effect. This pattern changes with a total factor productivity (TFP) shock in the non-tradable sector. Now, the ToT increases and the real exchange rate depreciates (aside from a short run appreciation). In the case of product innovations, both ToT and the real exchange rate (RER) behave similarly in both cases. However, the composition of the Current Account (CA) varies. With a process innovation in the export sector, both the trade balance and the primary income balance turn negative while product innovations in the FDI sector make the primary balance positive while the trade balance stays negative. We are especially interested in seeing whether the impulse responses to permanent shocks can tell us something about the reasons for persistent external imbalances in countries like Germany and the United States. For the US we find that product innovations originating from US multinationals, at least qualitatively matches well the negative current account and trade balance and a positive primary income balance. The German/Eurozone CA surplus is less easy to explain by technological factors since in our model all technology shocks are associated with persistent CA deficits. Our model confirms what has been shown in previous studies that the German CA is strongly driven by savings. We add to this the observation that increased savings also shows up in an improved primary income balance, which can indeed be observed for Germany. |
| Keywords: | FDI, Product innovation, Process Innovation, Demand Shock, DSGE |
| JEL: | C6 E1 F21 O30 O31 O32 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:eiiwdp:disbei300&r= |
| By: | Sinan Gokkaya; Xi Liu; René M. Stulz |
| Abstract: | We open the black box of the M&A decision process by constructing a comprehensive sample of US firms with specialized M&A staff. We investigate whether specialized M&A staff improves acquisition performance or facilitates managerial empire building instead. We find that firms with specialized M&A staff make better acquisitions when acquisition performance is measured by stock price reactions to announcements, long-run stock returns, operating performance, divestitures, and analyst earnings forecasts. This effect does not hold when the CEO is powerful, overconfident, or entrenched. Acquisitions by firms without specialized staff do not create value, on average. We provide evidence on mechanisms through which specialized M&A staff improves acquisition performance. For identification, we use the staggered recognition of inevitable disclosure doctrine as a source of exogenous variation in the employment of specialized M&A staff. |
| JEL: | G14 G24 G30 G34 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28778&r= |
| By: | Kumhof, Michael; Rungcharoenkitkul, Phurichai; Sokol, Andrej |
| Abstract: | Understanding gross capital flows is increasingly viewed as crucial for both macroeconomic and financial stability policies, but theory is lagging behind many key policy debates. We fill this gap by developing a 2-country DSGE model that tracks domestic and cross-border gross positions between banks and households, with explicit settlement of all transactions through banks. We formalize the conceptual distinction between cross-border saving and financing, which often move in opposite directions in response to shocks. This matters for at least four policy debates. First, current accounts are poor indicators of financial vulnerability, because in a crisis creditors stop financing debt rather than current accounts, and because following a crisis current accounts are not the primary channel through which balance sheets adjust. Second, we re-interpret the global saving glut hypothesis by submitting that US households do not finance current account deficits with foreigners' physical saving, but with digital purchasing power, created by banks that are more likely to be domestic than foreign. Third, Triffin's current account dilemma is not in fact a dilemma, because the creation of additional US dollars requires dollar credit creation by domestic or foreign banks rather than US current account deficits. Finally, we show that the observed high correlation of gross capital inflows and outflows is overwhelmingly an automatic consequence of double entry bookkeeping, rather than the result of two separate and synchronized sets of economic decisions. |
| Keywords: | bank lending; current account; global saving glut; Gross capital flows; International Capital Flows; money creation; Sudden stops; Triffin's dilemma |
| JEL: | E44 E51 F41 F44 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15526&r= |
| By: | Joffi Thomas (Indian Institute of Management Kozhikode); Dinesh Tiwari (Broadpeak Capital Advisors) |
| Abstract: | Emergence of a Vibrant Innovation Ecosystem: Rapid penetration of digital technologies over the last two decades has ushered in business innovations in both incumbent firms and in startups. By the end of 2020, India found its place among the top four countries with a vibrant startup ecosystem with 36 unicorns. Confluence of Enabling Factors: A confluence of enabling factors of technology, talent, capital and supportive policy environment has led to the growth of the start-ups through the introduction phase (2006-2010), early growth phase (2011-2015) and accelerated growth phase (2016-2020). Growth of Indian Start-up Ecosystem: Venture capital investments of $ 19.85 B went into 3,442 firms funding innovations during 2006-2020. The investment of $3.9 B in 2006-2010 grew by 65% to $6.4 B in 2011-2015 period and further by 48% to $9.5 B in 2016-2020 period. Ecommerce and Fintech sectors received larger share of the investments contributing 11 of the 36 unicorns.Accelerating Innovation led Economic Growth: An enabling environment to further accelerate innovation led growth requires continuous focus on key enabling factors: (a) Technology-ensuring affordable digital technology access to rural population, adoption of deep technologies across start-ups (b) Talent - designing innovative mechanisms to attract and support talented entrepreneurs (c) Capital - accelerating investment flows by triggering investment-innovation-investor returns spirals in multiple sectors and (d) Policy Support-formulating proactive supportive policies with a fifteen year and five year planning horizon focussed on all round development of the rural economy leveraging novel technologies; providing institutional support to exploit global market opportunities involving industry and academe. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:451&r= |
| By: | Nicola Camatti (Department of Economics, University Of Venice Cà Foscari); Luca Salmasi (Catholic University, Department of Economics and Finance, Roma, Italy); Jan van der Borg (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | This paper describes regional touristic supply under the framework of territorial capital to understand which territorial assets are the most important for stimulating economic growth. We used spatial regression models to consider spatial dependencies among regions, and Bayesian Model Averaging to specify our models using only the most relevant territorial assets. We have focused on the Mediterranean coast. The results show that many of the variables considered in our models play an important role in predicting GDP, recognizing them as strategic in economic growth, as well as a variety of strictly tourist assets, such as cultural heritage and landscape. |
| Keywords: | tourism growth, territorial capital, tourism competitiveness, spillover effects, spatial regression models, Mediterranean area |
| JEL: | C11 L83 Z32 R11 R58 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2021:16&r= |
| By: | Chambers, David; Spaenjers, Christophe; Steiner, Eva |
| Abstract: | Real estate-housing in particular-is a less profitable investment in the long run than previously thought. We hand-collect property-level financial data for the institutional real estate portfolios of four large Oxbridge colleges over the period 1901â??1983. Gross income yields initially fluctuate around 5%, but then trend downward (upward) for agricultural and residential (commercial) real estate. Long-term real income growth rates are close to zero for all property types. Our findings imply annualized real total returns, net of costs, ranging from approximately 2.3% for residential to 4.5% for agricultural real estate. |
| Keywords: | income growth; income yields; long-run returns; property prices; real estate |
| JEL: | G11 G23 N20 R30 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15657&r= |
| By: | Fabra, Natalia |
| Abstract: | Addressing climate change requires full decarbonization of our economies. Whether this objective is achieved at least cost for society hinges on good policy design. In turn, this calls for a thorough understanding of firms' and consumers' incentives in the presence of asymmetric information, the determinants of strategic interaction, and the impact of market design and market structure on the intensity of competition. Industrial Economics thus has much to contribute towards a successful Energy Transition, while benefiting from the exciting research opportunities it brings. In this paper, I survey some of the recent developments in this area. My focus is on the power sector, and in particular, on the regulatory and market design challenges triggered by the expansion of intermittent renewables with almost zero marginal costs. I conclude with some questions that merit further research. |
| Keywords: | auctions; Carbon Emissions; Competition; Dynamic pricing; Energy; invecstment; market design; market power; Storage |
| JEL: | L22 L94 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15705&r= |
| By: | Francisco J. Buera; Hugo A. Hopenhayn; Yongseok Shin; Nicholas Trachter |
| 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 importantly, 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 United States without coordination failures playing a role. |
| Date: | 2021–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:90652&r= |
| By: | Terovitis, Spyros; Vladimirov, Vladimir |
| Abstract: | This paper shows that manipulative trading by speculators can create value for shareholders by simulating a "buzz" around a firm and turning it into a star. The speculators' profit comes from helping the firm attract stakeholders, such as high-quality employees and business partners, that would have otherwise not worked with it. Thus, price manipulation leads to a misallocation of talent and resources. Similar to speculators, investors in primary markets can benefit from inflating firms' valuations to unicorn status if that helps attract stakeholders. Opportunities for manipulation are asymmetric, as firms can encourage manipulation benefiting them and discourage manipulation harming them by adjusting their corporate governance and transparency. |
| Keywords: | high-skilled employees; manipulation; Market Efficiency; misallocation of resources; Speculation; Stakeholders; Superstar Firms; transparency; unicorns |
| JEL: | D62 D82 D84 G30 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15546&r= |
| By: | Nils Gornemann (Board of Governors of the Federal Reserve System, International Finance Division, Washington, D.C. 20551); Keith Kuester (University of Bonn, Adenauerallee 24-42, 53113 Bonn, Germany); Makoto Nakajima (Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106-1574) |
| Abstract: | We build a New Keynesian business-cycle model with rich household heterogeneity. In the model, systematic monetary stabilization policy affects the distribution of income, income risks, and the demand for funds and supply of assets: the demand, because matching frictions render idiosyncratic labor-market risk endogenous; the supply, because markups, adjustment costs, and the tax system mean that the average profitability of firms is endogenous. Disagreement about systematic monetary stabilization policy is pronounced. The wealth rich or retired tend to favor inflation targeting. The wealth-poor working class, instead, favors unemployment-centric policy. One- and two-agent alternatives can show unanimous disapproval of inflation-centric policy, instead. We highlight how the political support for inflation-centric policy depends on wage setting, the tax system, and the portfolio that households have. |
| Keywords: | Monetary Policy, Unemployment, Search and Matching, Heterogeneous Agents, General Equilibrium, Dual Mandate |
| JEL: | E12 E21 E24 E32 E52 J64 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:089&r= |
| By: | de Ferra, Sergio; Mitman, Kurt; Romei, Federica |
| Abstract: | Capital flows from equal to unequal countries. We document this empirical regularity in a large sample of advanced economies. The capital flows are largely driven by private savings. We propose a theory that can rationalize these findings: more unequal countries endogenously develop deeper financial markets. Households in unequal counties, in turn, borrow more, driving the observed direction of capital flows. |
| Keywords: | Capital Flows; current account; inequality |
| JEL: | E21 F32 F41 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15647&r= |
| By: | Ho Fai Chan; David A. Savage; Benno Torgler |
| Abstract: | Sporting events can be seen as controlled, real-world, miniature laboratory environments, approaching the idea of holding other things equal when exploring the implications of decisions, incentives, and constraints in a competitive setting (Goff and To llison 1990, Torgler 2009). Thus, a growing number of studies have used sports data to study decision making questions that have guided behavioural economics literature. Creative application of sports data can offer insights into behavioural aspects with implications beyond just sports. In this chapter, we will discuss the methodological advantages of seeing sport as a behavioural econom ics lab, concentrating on the settings, concepts, biases, and challenging areas. Beyond that, we will discuss que stions that have not yet been analysed, offering ideas for future studies using sports data. We will fu rther reflect on how AI has evolved; focusing, for example, on chess, which provides insights into the mechanism and machinery of decision-making. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2021-20&r= |
| By: | Seliger, Bernhard |
| Abstract: | While Korea since several decades promotes an infrastructure project called "iron silk road", to link it with European markets, but also to integrate North Korea more into the world economy, these ideas largely ended nowhere. Instead, the Chinese proposal of the "One Belt, one Road" (short BRI) initiative, promoted since 2013 under the leadership of Xi Jinping, grew to a huge system of interrelated infrastructure projects, as well land-based as maritime. In these, the Korean Peninsula did originally did not feature. As an afterthought however, both were potentially included. South Korea's "New Northern Policy" under the Moon Jae-In administration to some extent is compatible with the BRI. North Korea did express a certain amount of interest in the initiative in a later stage, but the Covid-19 crisis for the time being led to complete isolation of North Korea and the stop of any larger international policy project. In the past, however, the policy of Special Economic Zones did follow the logic of market integration, which also the BRI follows. To understand the current reluctance of North Korea to participate in the BRI with more enthusiasm, once has to distinguish between the economic geography of North Korea, making such a participation desirable, and the political economy as well of the BRI as of North Korea. Since North Korea currently perceives economic opening, even to China, as a risk due to the inflow of new information and ideas not controlled by the state, for the time being North Korean participation is very doubtful, even after the resolution of the Covid-19 crisis |
| Keywords: | Iron Silk Road,North Korea,South Korea,economic geography,political economy,BRI |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:opodis:20216&r= |
| By: | Andersen, Asger Lau; Johannesen, Niels; Jørgensen, Mia; Peydró, José Luis |
| Abstract: | We analyze the distributional effects of monetary policy on income, wealth and consumption. For identification, we exploit administrative household-level data covering the entire population in Denmark over the period 1987-2014, including detailed information about income and wealth from tax returns, in conjunction with exogenous variation in the Danish monetary policy rate created by a long-standing currency peg. Our results consistently show that all income groups gain from a softer monetary policy, but that the gains are monotonically increasing in the ex-ante income level. Over a two-year horizon, a decrease in the policy rate of one percentage point raises disposable income by less than 0.5% at the bottom of the income distribution, by around 1.5% at the median income and by around 5% at the top. The effects on asset values through increases in house prices and stock prices are larger than the effects on disposable income by more than an order of magnitude and exhibit a similar monotonic income gradient. We show how all these distributional effects reflect systematic differences in the exposure to the direct and indirect channels of monetary policy. Consistent with the main results for disposable income and asset values, we also find that the effects on net wealth and consumption (car purchases) increase monotonically over the ex-ante income distribution. Our estimates imply that softer monetary policy increases income inequality by raising income shares at the top of the income distribution and reducing them at the bottom. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15599&r= |
| By: | Heider, Florian; Saidi, Farzad; Schepens, Glenn |
| Abstract: | In this paper, we survey the nascent literature on the transmission of negative policy rates. We discuss the theory of how the transmission depends on bank balance sheets, and how this changes once policy rates become negative. We review the growing evidence that negative policy rates are special because the pass-through to banks’ retail deposit rates is hindered by a zero lower bound. We summarize existing work on the impact of negative rates on banks’ lending and securities portfolios, and the consequences for the real economy. Finally, we discuss the role of different “initial” conditions when the policy rate becomes negative, and potential interactions between negative policy rates and other unconventional monetary policies. JEL Classification: E44, E52, E58, G20, G21 |
| Keywords: | bank lending, bank risk taking, deposits, euro-area heterogeneity, negative interest rates, zero lower bound |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212549&r= |
| By: | Victoria R. Marone; Adrienne Sabety |
| Abstract: | We study the welfare effects of offering choice over financial coverage levels––"vertical choice''––in regulated health insurance markets. Though the efficient level of coverage, which trades off the value of risk protection and the social cost from moral hazard, likely varies across consumers, we emphasize that this variation alone is not sufficient to motivate choice. When premiums cannot reflect individual costs, consumers may not select their efficient coverage level. We show that vertical choice is efficient only if consumers with higher willingness to pay for insurance have a higher efficient level of coverage. Using administrative data from a large public employer, we investigate this condition empirically and find that the welfare gains from vertical choice are either zero or economically small. |
| JEL: | D82 G22 I13 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28779&r= |
| By: | Asano, Koji |
| Abstract: | We study credit markets in which lenders can invest in financial expertise to reduce the cost of acquiring information about underlying collateral. If the pledgeability of corporate income is low, information acquisition enhances liquidity, but lenders reduce expertise acquisition because of the hold-up problem. By contrast, if the pledgeability is high, information acquisition reduces liquidity so that lenders can extract rents from firms by investing in financial expertise and creating fear of illiquidity. Optimal policy involves subsidizing investment in financial expertise when the pledgeability is low and taxing investment in financial expertise when the pledgeability is high. |
| Keywords: | financial expertise, collateral, information acquisition, liquidity |
| JEL: | D82 G20 |
| Date: | 2021–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107665&r= |
| By: | Anna Valero |
| Abstract: | This paper summarises the literature that has linked education and economic growth. It begins with an overview of the key concepts in neoclassical and endogenous growth models, and discussion on how these have been tested in the data. Issues with respect to specification, the measurement of human capital and causality are discussed, together with studies that have sought to addresses these. A more recent and growing literature that explores the links between firm level human capital and productivity, including externalities, is then summarised. Beyond studies that link human capital to economic performance directly, there are numerous studies that have explore the relationships between human capital and the determinants of growth including investment, technology adoption and invention. Key findings from this literature are drawn out, together with a summary of the literature that has linked the activities of universities (key producers of both human capital and innovation) to their local economies. The paper concludes with discussion of policy implications stemming from this body of research, and promising areas for future research. |
| Keywords: | human capital, growth, innovation |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1764&r= |
| By: | Mwale, Bongani June; Nyamkure, Blondel; Costa, King (Global Centre for Academic Research) |
| Abstract: | Background: Business incubators provide specialised training and mentorship support to upcoming small to medium businesses. There has been a number of incubation programmes in Gauteng province of South Africa. It has been observed that sometimes, some incubation centres fail to achieve objectives for which they were created and originated. That failure results in losses, particularly for those who had created them and as well as loss of income, time and related resources to the beneficiaries, usually the helpless and needy grassroots SMMEs. As a result, some initiatives through incubation are losing the confidence of those who should benefit or support them, due to the failures related to application and operationalization. In view of the above, this study sought to determine and assess the expected effectiveness and significance of business incubation services on turnover of the Gauteng Province tourism SMMEs sector. Methods: The orientation of this study was hinged upon positivist paradigm with an objective ontological position. By virtue, a random sampling procedure of 103 participants using questionnaires for data collection was used in the study. Moreover, the Cronbach’s alpha and Keiser-Meyer-Olkin techniques were used and resulted in the conclusion that the study was structurally valid and reliable. This entailed a critique of the strategies that could optimally support the effective and efficient provision and growth of SMMEs within the tourism sector of the Province. The study achieved that result by using paired-samples t-tests, principal component analysis, frequencies, exploratory factor analysis, and descriptive statistical techniques to evaluate four hypotheses at a 5% level of significance. Results: Empirical findings indicated that the respondents (SMMEs Business Owners and Managers) had a certain level of expectation regarding the incubation programme, such as support, training and business linkages. This expectation was mainly directed to the provincial government as he custodian of economic development and growth. Interestingly, the study found out that despite lack of confidence on similar initiatives (SMMEs incubation prgrammes), and much reported failures, SMME owners felt there was a need for this type of intervention but caution needs to be exercised in terms of operationalization and sustainability. Discussion: In this synthesis, current trends, events and practice on a global, regional and local perspectives are closely securitized. Evidence shows that incubators have been successful in encouraging the development of new start-ups by reducing the failure rate of small- and medium-sized companies (Mirza & Rahmani, 2017). Incubators have become highly popular as a way of cultivating start-ups in both developed and developing countries, whereby they form integral for providing assistance to young businesses in enabling structures (Lalkaka, 2006). Having discovered their value, all those working in the incubation industry continue to seek to discover, describe, calculate, devise, and rate the different aspects of incubation as a sustainable intervention. For that reason, he SISM Model is hereby introduced. |
| Date: | 2021–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:osf:africa:2k7m6&r= |
| By: | Berg, Tobias; Reisinger, Markus; Streitz, Daniel |
| Abstract: | Despite their importance, the discussion of spillover effects in empirical research often misses the rigor dedicated to endogeneity concerns. We analyze a broad set of workhorse models of firm interactions and show that spillovers naturally arise in many corporate finance settings. This has important implications for the estimation of treatment effects: i) even with random treatment, spillovers lead to a complicated bias, ii) fixed effects can exacerbate the spillover-induced bias. We propose simple diagnostic tools for empirical researchers and illustrate our guidance in an application. |
| Keywords: | credit supply; Direct vs. Indirect Effects; Spillovers |
| JEL: | C13 C21 G21 G32 M41 M42 R11 R23 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15549&r= |
| By: | Bartram, Söhnke M; Conrad, Jennifer; Lee, Jongsub; Subrahmanyam, Marti G. |
| Abstract: | We analyze the impact of the introduction of credit default swaps (CDS) on real decision making within the firm. Our structural model predicts that CDS introduction increases debt capacity more when uncertainty about the credit events that trigger CDS payment is lower. Using a sample of more than 56,000 firms across 51 countries, we find that CDS increase leverage more in legal and market environments where uncertainty regarding CDS obligations is reduced and when property rights are weaker. Our results highlight the importance of legal uncertainty surrounding the interpretation of the underlying trigger events of global credit derivatives. |
| Keywords: | CDS; credit default swaps; Creditor rights; Financing Policy; Investment policy; Ownership Concentration; Property rights |
| JEL: | F3 F4 G3 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15668&r= |
| By: | Repullo, Rafael |
| Abstract: | Drechsler, Savov, and Schnabl (2017) claim that increases in the monetary policy rate lead to reductions in bank deposits, which account for the negative effect on bank lending. This paper reviews their theoretical analysis, showing that the relationship between the policy rate and the equilibrium amount of deposits is in fact U-shaped. Then, it constructs an alternative model, based on a simple microfoundation for the households' demand for deposits, where an increase in the policy rate always increases the equilibrium amount of deposits. These results question the theoretical underpinnings of the "deposits channel" of monetary policy transmission. |
| Keywords: | banks' market power; deposits channel; monetary policy transmission |
| JEL: | E52 G21 L13 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15553&r= |
| By: | Ekta Srivastava (Indian Institute of Management Kozhikode) |
| Abstract: | This conceptual study aims to discover potential antecedents to consumer creativity and assess the relationship between consumer creativity (vicarious, adoption and use innovativeness) and the size of consideration set. The study identifies a set of variables through focused literature review and integrates them into a conceptual framework and research propositions. The study proposes the moderating role of consumer involvement and situation variables (i.e. constraints) on the manifestation of creativity (vicarious, adoptive and use innovativeness). It is expected that the present study would help establish the notion that the consumer creativity has a positive impact on the size of consideration set.Length: 3 pages |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:453&r= |
| By: | Auld, C.; Toxvaerd, F.M.O. |
| Abstract: | Using daily data on vaccinations, disease spread, and measures of social interaction from Google Mobility reports aggregated at the country level for 112 countries, we present estimates of behavioral responses to the global rollout of COVID-19 vaccines. We first estimate correlates of the timing and intensity of the vaccination rollout, finding that countries which vaccinated more of their population earlier strongly tended to be richer, whereas measures of the state of pandemic or its death toll up to the time of the initial vaccine rollout had little predictive ability after controlling for income. Estimates of models of social distancing and disease spread suggest that countries which vaccinated more quickly also experienced decreases in some measures of social distancing, yet also lower incidence of disease, and in these countries policy makers relaxed social distancing measures relative to countries which rolled out vaccinations more slowly |
| Keywords: | Economic epidemiology, econometrics, COVID-19, vaccination |
| JEL: | I12 C50 |
| Date: | 2021–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2136&r= |
| By: | Dahlquist, Magnus; Ibert, Markus; Wilke, Felix |
| Abstract: | We recover a forward-looking distribution of expected abnormal returns (alphas) for active equity mutual funds from analyst ratings. Professional analysts believe that alphas are dispersed, that the average fund will underperform, and that the largest funds will outperform. We estimate a rational expectations learning model of fund performance and confront the model-implied expectations based on fund size, perceived skill, and fees with analysts' expectations. Analysts and the rational learner respond similarly to changes in perceived skill and fees, but in contrast to the rational learner, analysts do not believe in a negative impact of fund size on fund returns. The absence of such decreasing returns to scale in analysts' expectations and the presence thereof in actual fund returns make it difficult to reconcile analysts' expectations with rational expectations, but can help explain the size of the industry together with its poor performance. |
| Keywords: | Alpha; Expectation Formation; Mutual funds |
| JEL: | G11 G12 G14 G23 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15548&r= |
| By: | Boikos, Spyridon; Bournakis, Ioannis; Christopoulos, Dimitris; McAdam, Peter |
| Abstract: | We develop a horizontal R&D growth model that allows us to investigate the different channels through which financial reforms affect R&D investment and patent activity. First, a “micro” reform that abolishes barriers to entry in the banking sector produces a straightforward result: a decrease in lending rates which stimulates R&D investment and economic growth. Second, a “macro” reform that removes restrictions on banks’ reserves and credit controls. While this reform increases liquidity, it also increases the risk of default, potentially raising the cost of borrowing. This we dub the “reserves paradox” – this makes banks offset the rise in the default rate with a higher spread between loans and deposit rates. Thus our model suggests that whilst micro reforms boost innovation, macro reforms may appear negative. We test and find empirical support for these propositions using a sample of 21 OECD countries. JEL Classification: G2, C23, E44, O43 |
| Keywords: | estimation, finance, growth, monitoring, patents, reserves paradox |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212544&r= |
| By: | Xiao Ma (University of California-San Diego (UCSD)); Alejandro Nakab (University of California-San Diego (UCSD)); Daniela Vidart (University of Connecticut) |
| Abstract: | This paper offers an explanation for why workers in richer countries have faster rates of wage growth over their lifetimes than workers in poorer countries by providing theory and evidence on the differences in firm-provided training across countries. We document that the share of workers who receive firm-provided training increases with development, and that this is a key determinant of worker human capital investments. We then build a general equilibrium search model with firm-training investments and frictional labor markets. Our model suggests firm-training accounts for a large share of the cross-country wage growth differences. We find that self-employment is the key factor explaining the lack of training in the poorest economies, whereas labor market frictions are key to explaining training differences as countries develop. Finally, our model predicts considerable inefficiencies in human capital investments and sizeable aggregate gains from training subsidies to firms, which may be particularly desirable in poor countries where economic environments disincentivize training. |
| Keywords: | On-the-job Training, Human Capital Accumulation, Lifecycle wage growth, Economic Growth, Worker Turnover |
| JEL: | E24 J24 O11 O15 J63 J64 M53 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2021-10&r= |
| By: | Niklas Amberg; Thomas Jansson; Mathias Klein; Anna Rogantini Picco |
| Abstract: | We use Swedish administrative individual-level data to document five facts about the distributional income effects of monetary policy. (i) The effects of monetary policy shocks are U-shaped with respect to the income distribution—i.e., expansionary shocks increase the incomes of high- and low-income individuals relative to middle-income individuals. (ii) The large effects in the bottom are accounted for by the labor-income response and (iii) those in the top by the capital-income response. (iv) The heterogeneity in the labor-income response is due to the earnings heterogeneity channel, whereas (v) that in the capital-income response is due to the income composition channel. |
| Keywords: | monetary policy, income inequality, heterogeneous agents, administrative data |
| JEL: | C55 E32 E52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9062&r= |
| By: | Imran, Zulfiqar Ali; Ahad, Muhammad |
| Abstract: | This study compares the safe haven properties of asset classes of real estate (house, plot and residential), gold, dollar, and oil against equity returns in Pakistan for the period January 2011-December 2020. We employ the wavelet coherence to encapsulate the overall dependence and correlation of asset classes. Our results show the dependence is weaker (stronger) in short (long) term investment horizon. We also study the potential of diversification at the tail of returns distribution by applying wavelet value-at-risk (VaR) framework that reveals the degree of co-movement between gold and equity returns greatly affects the portfolio risk followed by residential property and oil. Our findings are beneficial for the individual investor, fund managers and financial advisors looking for the optimal portfolio combination that hedge the excessive negative movements in equity returns subject to the heterogeneity in the investment horizon. |
| Keywords: | Equity; Real Estate; Oil; Gold, US Dollar; Diversification; Pakistan. |
| JEL: | F21 G11 G15 Q02 |
| Date: | 2021–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107613&r= |
| By: | Becker, Sascha O.; Ferrara, Andreas; Melander, Eric; Pascali, Luigi |
| Abstract: | We provide causal evidence for the role of conflicts in the development of representative institutions in Europe. Using novel data on the universe of German cities between 1250 and 1710, we show that involvement in wars resulted in city councils that were larger, had a higher probability of being elected by citizens, and a higher probability of guild representation. Additionally, conflicts led to a substantial long-term increase in local fiscal and spending capacity. This effect persisted well after the end of the conflicts: temporary war taxes were transformed into permanent sophisticated systems of taxation, while public spending was re-directed from military to civilian spending. We use the gender of the firstborn child of the best-connected local noble to instrument for conflict: a firstborn daughter increases the likelihood of conflict relative to a firstborn son. |
| Keywords: | fiscal capacity; institutions; medieval constitutionalism; wars |
| JEL: | N13 P48 R11 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15601&r= |
| By: | Lutz Sager (McCourt School of Public Policy, Georgetown University) |
| Abstract: | I investigate the distributional effects of environmental trade measures. Distributional effects are assigned to two channels: ‘Use-side’ effects describe which consumers bear the burden of changing prices, while ‘source-side’ effects describe shifts in income between sectors, factors of production and different groups of workers. I present simple statistics to characterize the distributional tendencies of climate policies in each of these channels. I then apply these statistics to assess the distributional effects of two types of policy instruments: Border Carbon Adjustments and Green Industrial Policy. I conclude with a more detailed case study investigating the distributional effects of introducing Border Carbon Adjustments to complement an EU-wide carbon price. The analysis highlights the importance of modeling the effects of environmental trade policy at different scales, capturing shifts between countries, as well as shifts between sectors and income groups within them. Classification-Q56, Q58, F18 |
| Keywords: | Climate Policy, International Trade, Redistributive Effects, Border Carbon Adjustment, Industrial Policy |
| Date: | 2021–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~21-21-11&r= |
| By: | Marion Davin (CEE-M, Univ Montpellier, CNRS, INRAE, SupAgro, Montpellier, France.); Mouez Fodha (University Paris 1 Panthéon-Sorbonne and Paris School of Economics, Paris, France.); Thomas Seegmuller (Aix Marseille Univ, CNRS, AMSE, Marseille, France.) |
| Abstract: | We study whether fiscal policies, especially public debt, can help to curb the macroeconomic and health consequences of epidemics. Our approach is based on three main features: we introduce the dynamics of epidemics in an overlapping generations model to take into account that old people are more vulnerable; people are more easily infected when pollution is high; public spending and public debt can be used to tackle the effects of epidemics. We show that fiscal policies can promote the convergence to a stable steady state with no epidemics. When public policies are not able to permanently eradicate the epidemic, public debt and income transfers could reduce the number of infected people and increase capital and GDP per capita. As a prerequisite, pollution intensity should not be too high. Finally, we define a household subsidy policy which eliminates income and welfare inequalities between healthy and infected individuals. |
| Keywords: | epidemics, pollution, overlapping generations, public debt |
| JEL: | E6 I18 Q59 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2128&r= |
| By: | Pronobesh Banerjee (Indian Institute of Management Kozhikode); Tamara Masters (Brigham Young University) |
| Abstract: | Compromise effect, or when one chooses the middle alternative, which has moderate values on both the attributes, is one of the most robust findings in the domain of context effect. In this paper, we show that when attributes are rated such that one of the attributes has high values, lying towards the higher end of a scale, while the other attribute has low values, lying towards the lower end of a scale, consumers will prefer an extreme alternative. We use an eye-tracking study to show the underlying process why this will happen. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:446&r= |
| By: | Yusuf Mercan; Benjamin Schoefer; Petr Sedláček |
| Abstract: | In recessions, unemployment increases despite the—perhaps counterintuitive—fact that the number of unemployed workers finding jobs expands. We propose a theory of unemployment fluctuations resting on this countercyclicality of gross flows from unemployment into employment. In recessions, the abundance of new hires “congests” the jobs the unemployed fill—diminishing their marginal product and discouraging further job creation. Countercyclical congestion explains 30-40% of US unemployment fluctuations. Additionally, it explains the excess procyclicality of new hires' wages, the cyclical labor wedge, the large earnings losses from job displacement and from graduating during recessions, and the insensitivity of unemployment to policies such as unemployment insurance. |
| JEL: | D24 E24 E32 J21 J23 J64 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28771&r= |
| By: | Minford, Patrick; Ou, Zhirong; Zhu, Zheyi |
| Abstract: | We revisit the evidence on consumer risk-pooling and uncovered interest parity. Widely used single equation tests are strongly biased against both. Using the full-model, Indirect Inference test, which is unbiased and has Goldilocks power by Monte Carlo experiments, we find that both the risk-pooling hypothesis and its weaker UIP version are generally accepted as part of a full world DSGE model. The fact that the risk-pooling hypothesis, with its implication of strong cross-border consumer linkage, has passed this test with generally the highest p-value, suggests that it deserves serious attention from policy-makers looking for a relevant model to discuss international monetary and other business cycle issues. |
| Keywords: | consumer risk-pooling; full-model test; indirect inference; Open economy; UIP |
| JEL: | C12 E12 F41 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15550&r= |
| By: | Hardouvelis, Gikas A. |
| Abstract: | The paper provides a brief history of the decade long Greek banking crisis, which reshaped the banking system into essentially four systemic banks, owning 96% of total assets. The crisis also led bank stock prices to a value of almost zero twice in a row, once in early 2012 after the PSI bond haircut, and again in late 2015, after the politically generated recession and the GREXIT fears of the first semester of the year. Today the amount of legacy nonperforming loans (NPLs) or exposures (NPEs) is enormous and by far the highest in Europe. It has to decline fast to non-crisis levels for the banks to be able to provide fresh credit and support the economy. A rapid reduction of NPEs is hampered by two key obstacles: First, the NPE reduction causes a loss in equity capital, which could lead to a violation of the Basel III capital requirements; and second, the NPE reduction can easily lead to negative annual profitability, which could force dilution of private sector stock ownership, caused by the 2014 legislation of Deferred Tax Credit (DTC). The higher the NPEs and the lower the provisions of banks, the higher their need for fresh capital. Banks differ in those characteristics and some may not avoid an eventual recapitalization in 2021. The stricter regulators are in their minimum capital ratio requirements or the more pessimistic private investors are on their valuations of the bank NPEs, the higher the need for fresh capital for the banks. A sensitivity analysis of the bank capital needs to these two exogenous variables (Table 2.2), reveals a fragile situation, in which capital needs can easily sky-rocket. In the medium term, the drive to increase annual profitability remains a strategic one-way street for banks. The challenges Greek banks face are very similar to those of European banks, though with some distinct features. The environment of low interest rates, intense competition with technology companies that are gradually penetrating retail banking, and the constant tightening of the supervisory framework, is putting pressure on their profitability. Additional Greek pressures arise from (i) the negative impact of reduced NPEs on accounting profitability; (ii) the digital transformation of the economy, which entails massive increases in investment in IT projects and in executives’ training; (iii) a switch of traditional bank customers towards alternative sources of financing; (iv) the high operating costs, which are inherited from the earlier prosperous times, and so on. |
| JEL: | N0 F3 G3 |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:110411&r= |
| By: | Azar, José; Vives, Xavier |
| Abstract: | We develop a tractable general equilibrium framework in which firms are large and have market power with respect to both products and labor, and in which a firm's decisions are affected by its ownership structure. We characterize the Cournot-Walras equilibrium of an economy where each firm maximizes a share-weighted average of shareholder utilities-rendering the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing then an increase in "effective" market concentration (which accounts for common ownership) leads to declines in employment, real wages, and the labor share. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership could stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We characterize for which ownership structures the monopolistically competitive limit or an oligopolistic one are attained as the number of sectors in the economy increases. When firms have heterogeneous constant returns to scale technologies we find that an increase in common ownership leads to markets that are more concentrated. |
| Keywords: | Antitrust Policy; Common ownership; corporate governance; Labor Share; macro economy; market power; oligopsony; portfolio diversification |
| JEL: | D43 D51 E11 L21 L41 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15499&r= |
| By: | Bodnar, Olha (Örebro University School of Business); Eriksson, Viktor (Örebro University School of Business) |
| Abstract: | The location-scale model is usually present in physics and chemistry in connection to the Birge ratio method for the adjustment of fundamental physical constants such as the Planck constant or the Newtonian constant of gravitation, while the random effects model is the commonly used approach for meta-analysis in medicine. These two competitive models are used to increase the quoted uncertainties of the measurement results to make them consistent. The intrinsic Bayes factor (IBF) is derived for the comparison of the random effects model to the location-scale model, and we answer the question which model performs better for the determination of the Newtonian constant of gravitation. The results of the empirical illustration support the application of the Birge ratio method which is currently used in the adjustment of the CODATA 2018 value for the Newtonian constant of gravitation together with its uncertainty. The results of the simulation study illustrate that the suggested procedure for model selection is decisive even when data consist of a few measurement results. |
| Keywords: | Intrinsic Bayes factor; Birge ratio method; Location-scale model; Random-e ects model; Reference prior; Meta-analysis; Interlaboratory comparison study; Newtonian constant of gravitation |
| JEL: | C02 C11 C18 |
| Date: | 2021–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:oruesi:2021_007&r= |
| By: | Remy Levin (University of Connecticut); Daniela Vidart (University of Connecticut) |
| Abstract: | How do lifetime experiences of macroeconomic risk shape attitudes towards risk? We study this question theoretically and empirically for individuals in developing countries. We build a Bayesian model of choice in which agents’ risk attitude adapts to their evolving beliefs about background risk. Our model predicts that risk aversion will increase monotonically in the variance of the background risk, and will decrease convexly in the mean. We test the model by linking longitudinal surveys from Indonesia and Mexico, containing elicited measures of risk aversion for the same subjects years apart, with state-level real GDP growth time series capturing their lifetime macroeconomic experiences. In both countries measured risk aversion significantly increases in experienced growth volatility and significantly decreases in experienced mean growth. The effect of volatility is 0.9-4.3 times the effect of the mean, indicating that experiences of volatility are first-order drivers of risk attitudes. |
| Keywords: | Risk attitudes, experience effects, macroeconomic volatility, development |
| JEL: | D14 D81 D83 E32 G11 O11 O12 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2021-09&r= |
| By: | Loretta J. Mester |
| Abstract: | The pandemic has shined a bright light on differences in economic outcomes, but these differences existed long before we had heard of COVID-19. Many stem from the fact that the U.S. economy does not offer the same economic opportunities to all. There are racial disparities in educational attainment, labor market outcomes, and access to credit. People born into areas of concentrated poverty or predominantly minority areas are disadvantaged over their entire lifetimes, and so are their children. These disparities are interrelated, reinforce one another, and have been propagated across generations. In today’s lecture, I will begin by explaining why I think it is important for Fed policymakers to understand the disparities in our economy and then I will walk through a set of figures that clearly illustrate these disparities to give you a sense of the magnitudes. Before continuing, let me mention that, as always, the views I will present are my own and not necessarily those of the Federal Reserve System or of my colleagues on the Federal Open Market Committee. |
| Keywords: | COVID-19 |
| Date: | 2021–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcsp:91559&r= |
| By: | Gebrewolde, Tewodros; Koelle, Michael; Krishnan, Pramila; Mengistu, Andualem Telaye |
| Abstract: | We examine the links between currency shocks and firm behaviour, with data from Ethiopia and Uganda, two countries with different exchange-rate regimes. We construct measures of currency shocks using matched customs and firm-level data, based on both the actual currency of invoicing and bilateral exchange rates. We find that currency depreciations based on the currency of invoicing to importers in Ethiopia lower the likelihood of using imported inputs, lower the share of imported inputs for firms, and lowers productivity. In contrast, there are no effects on any similar firm-level outcomes for Uganda. The use of bilateral currency shocks obtains confused results in both countries, signalling the value of using the currency of invoicing in this analysis. |
| Keywords: | Currency of Invoicing; Currency shocks |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15524&r= |
| By: | Giannetti, Mariassunta; Jang, Yeejin |
| Abstract: | We show that foreign lenders and low market share lenders extend more credit in comparison to other lenders during lending booms leading to banking crises, but not during other credit expansions. Less established lenders also increase the amount of credit they extend to riskier borrowers, without asking for collateral or imposing covenants and higher interest rates. Our results suggest that taking lenders' characteristics into account could provide an indicator for how much risk an economy is accumulating and be a useful barometer for macroprudential policies. |
| Keywords: | Credit Booms; Crises; foreign banks |
| JEL: | F3 G21 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15737&r= |
| By: | Eduardo Levi Yeyati (Universidad Torcuato Di Tella/The Brookings Institution); Juan Francisco Gómez (Universidad de Buenos Aires) |
| Abstract: | Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effect s empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate. |
| Keywords: | International reserves exchange rate policy capital flows financial crisis |
| JEL: | E42 E52 F33 F41 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:48&r= |
| By: | Lukin, Artyom |
| Abstract: | This paper examines political and economic dimensions of the Russia-China relationship, with an emphasis on Russia's involvement in Beijing's Belt and Road Initiative (BRI). Being the largest, and trans-continental, Eurasian country, Russia occupies an important place in China's BRI. The current relationship between the two great Eurasian powers can be characterized as an entente, or quasi-alliance. Moscow welcomes the BRI, but, unlike many other governments across the world, it has never signed an agreement to formally join the initiative. This signals Russia's stance that Eurasian integration should not be dominated by China, as well as the Kremlin's insistence on status equality with China. In recent years there has been a noticeable rise in shipments from China to Europe, and in the reverse direction, using the rail routes via Russia. However, despite the increase in its trans-continental freight traffic going via Russia, China still refrains from investing in the upgrade of Russia's transport networks, such as railroads, ports and highways, and is overall reluctant to invest in the Russian economy. The reasons are both economic, such as the relatively high risks and low profit margins in the Russian market, and political ones, related to Russia's insistence on parity and equality with China. |
| Keywords: | Russia-China relations,the Belt and Road Initiative,Eurasia |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:opodis:20213&r= |
| By: | Carrasco, Raquel; García-Pérez, J. Ignacio; Jimeno, Juan F |
| Abstract: | Wage dynamics is closely intertwined with job flows. However, composition effects associated to the different sizes and characteristics of workers entering/exiting into/from employment that may blur the "true" underlying wage growth, are not typically accounted for. In this paper, we take these composition effects into consideration and compute wage growth in Spain during the 2006-2018 period after netting out the consequences of employment dynamics. Our results show that the "true" underlying wage growth in the Spanish economy during recessions (expansions) was, on average, significantly lower (higher) that the observed with raw data. This may help to explain some macro puzzles, such as the "vanishing" Phillips curve. |
| Keywords: | Composition Effects; Employment dynamics; wage dynamics |
| JEL: | J30 J31 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15543&r= |
| By: | Braun, Rahel; Lein, Sarah |
| Abstract: | Official statistics measuring the cost of living are known to suffer from several biases. This paper shows that the size of the biases can vary with economic conditions. Using homescan data, it is first confirmed that official price indexes can be tracked using such granular datasets. While the often-acknowledged substitution bias is shown to be relatively small, neglected preference adjustment and product entry/exit results in a 2.6 percentage point bias in the annual inflation rate on average. Furthermore, the bias is particularly large in the aftermath of a shock to relative prices, increasing to 3.7 percentage points. |
| Keywords: | bias in inflation indexes; Homescan data; Inflation measurement |
| JEL: | C23 C3 E31 E4 E5 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15663&r= |
| By: | Sewon Hur (Federal Reserve Bank of Dallas); César Sosa-Padilla (University of Notre Dame/NBER); Zeynep Yom (Villanova University) |
| Abstract: | We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to document that asset guarantees are the most prevalent way in which sovereigns intervene during banking crises. Then, we build a model of sovereign borrowing with limited commitment, where domestic banks hold government debt and also provide credit to the private sector. Shocks to bank capital can trigger banking crises, with government sometimes finding it optimal to extend guarantees over bank assets. This leads to a trade-off: Larger bailouts relax domestic financial frictions and increase output, but also imply increasing government fiscal needs and possible heightened default risk (i.e., they create a ‘diabolic loop’). We find that the optimal bailouts exhibit clear properties. Other things equal, the fraction of banking losses that the bailouts would cover is: (i) decreasing in the level of government debt; (ii) increasing in aggregate productivity; and (iii) increasing in the severity of the bank- ing crisis. Even though bailouts mitigate the adverse effects of banking crises, we find that the economy is ex ante better off without bailouts: the ‘diabolic loop’ they create is too costly. |
| Keywords: | Bailouts Sovereign Defaults Banking Crises Conditional Transfers Sovereign-bank diabolic loop |
| JEL: | E32 E62 F34 F41 G01 G15 H63 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:51&r= |
| By: | Carlos Alós-Ferrer; Johannes Buckenmaier; Georg Kirchsteiger |
| Abstract: | When alternative market institutions are available, traders have to decide both where and how much to trade. We conducted an experiment where traders decided first whether to trade in an (efficient) double-auction institution or in a posted-offers one (favoring sellers), and second how much to trade. When sellers face decreasing returns to scale (increasing production costs), fast coordination on the double-auction occurs, with the posted-offers institution becoming inactive. In contrast, under constant returns to scale, both institutions remain active and coordination is slower. The reason is that sellers trade off higher efficiency in a market with dwindling profits for biased-up profits in a market with vanishing customers. Hence, efficiency alone might not be sufficient to guarantee coordination on a single market institution if the surplus distribution is asymmetric. Trading behavior approaches equilibrium predictions (market clearing) within each institution, but switching behavior across institutions is explained by simple rules of thumb, with buyers chasing low prices and sellers considering both prices and trader ratios. |
| Keywords: | Market selection; Market clearing |
| Date: | 2021–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/322288&r= |
| By: | Baron, Matthew; Laeven, Luc; Pénasse, Julien; Usenko, Yevhenii |
| Abstract: | We investigate asset returns around banking crises in 44 advanced and emerging economies from 1960 to 2018. In contrast to the view that buying assets during banking crises is a profitable long-run strategy, we find returns of equity and other asset classes generally underperform after banking crises. While prices are depressed during crises and partially recover after acute stress ends, consistent with theories of fire sales and intermediary-based asset pricing, we argue that investors do not fully anticipate the consequences of debt overhang, which result in lower long-run dividends. Our results on bank stock underperformance suggest that government-funded bank recapitalizations can often lead to substantial taxpayer losses. JEL Classification: G11, G14, G15, G41 |
| Keywords: | financial crises, fire sales, investments, returns |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212548&r= |
| By: | Sanchez-Romero, Miguel; Schuster, Philip; Prskawetz, Alexia |
| Abstract: | As the heterogeneity in life expectancy by socioeconomic status increases, pen sion systems become more regressive implying wealth transfers from short to long lived individuals. Various pension reforms aim to reduce these inequali ties that are caused by ex-ante differences in life expectancy. However, these pension reforms may themselves induce redistribution effects since a) life ex pectancy is not perfectly correlated to socioeconomic status and b) pension reforms themselves will have an impact on life cycle decisions (education, con sumption, health, labor supply) and ultimately also on life expectancy and the composition of the population. To account for these feedback effects of pension reforms in heterogenous aging societies we propose an OLG framework that is populated by heterogeneous individuals that initially differ by their learning ability and disutility from the effort of attending schooling. These initial hetero geneities imply differences in ex ante life expectancies. Within this framework we study two pension reforms that aim to account for these differences in ex ante life expectancies. We show that by including the feedback of pension reforms on individual behavior, new redistributions may result. |
| Keywords: | Overlapping generations,Mortality and fertility differentials,Inequality,Life cycle,Pensions,Progressivity |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:233949&r= |
| By: | Chernov, Mikhail; Dahlquist, Magnus; Lochstoer, Lars |
| Abstract: | The currency market features a relatively small cross-section and conditional expected returns can be characterized by only a few signals â?? interest differentials, trend and mean-reversion. We exploit these properties to construct a conditional projection of the stochastic discount factor onto excess returns of individual currencies. Our approach is implementable in real time and prices all currencies and prominent strategies conditionally as well as unconditionally. We document that the fraction of unpriced risk in these assets is at least 85%. Extant explanations of carry strategies based on intermediary capital or global volatility are related to these unpriced components, while consumption growth is related to the priced component of returns. |
| Keywords: | currency risk premiums; factor models; Stochastic discount factor |
| JEL: | F31 G12 G15 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15571&r= |
| By: | Bouchaud, Jean-Philippe; Farmer, Roger E A |
| Abstract: | We construct a model where people trade assets contingent on an observable signal that reflects public opinion. The agents in our model are replaced occasionally and each person updates beliefs in response to observed outcomes. We show that the distribution of the observed signal is described by a quasi non-ergodic process and that people continue to disagree with each other forever. Our model generates large wealth inequalities that arise from the multiplicative nature of wealth dynamics which makes successful bold bets highly profitable. The flip side of this statement is that unsuccessful bold bets are ruinous and lead the person who makes such bets into poverty. People who agree with the market belief have a low expected subjective gain from trading. People who disagree may either become spectacularly rich, or spectacularly poor. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15573&r= |
| By: | Tal, Gil; Karanam, Vaishnavi Chaitanya; Favetti, Matthew P.; Sutton, Katrina May; Ogunmayin, Jade Motayo; Raghavan, Seshadri Srinivasa; Nitta, Christopher; Chakraborty, Debapriya; Davis, Adam; Garas, Dahlia |
| Abstract: | Results from this report highlight how alternative fuel vehicles are used based on data collected between 2015 and 2020. Alternative fuel vehicles include plug-in electric vehicles (PEVs), vehicles that are either battery electric vehicles (BEVs) or plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs). This category of vehicle technologies is included in the California Air Resources Board’s Zero Emission Vehicle regulations and is referred to as ZEV in this report. We explore the environmental impacts of driving, charging behavior and infrastructure. In households with ZEVs, the data from surveys, loggers, and interviews indicate that those vehicles are being used extensively. This report, which combined the data collected in two consecutive studies between 2015-2020, includes first and second generation PEVs popular in California between 2011-2018. The BEVs include the first-generation, shortrange Nissan Leaf and the long range BEVs such as the Chevrolet Bolt and Tesla Model S. The PHEVs include short range sedans such as the Toyota Prius Plug-in and longer-range vehicles such as the Toyota Prius Prime, Chevrolet Volt and Chrysler Pacifica. The FCVs include the most popular fuel cell vehicle, the Toyota Mirai. |
| Keywords: | Engineering |
| Date: | 2021–04–19 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:itsdav:qt2v0853tp&r= |