|
on Central and Western Asia |
| By: | Acharya, Viral V.; Iyer, Aaditya M.; Sundaram, Rangarajan K |
| Abstract: | We address the paradox that financial innovations aimed at risk-sharing appear to have made the world riskier. Financial innovations facilitate hedging idiosyncratic risks among agents; however, aggregate risks can be hedged only with liquid assets. When risk-sharing is primitive, agents self-hedge and hold more liquid assets; this buffers aggregate risks, resulting in few correlated failures compared to when there is greater risk sharing. We apply this insight to build a model of a clearinghouse to show that as risk-sharing improves, aggregate liquidity falls but correlated failures rise. Public liquidity injections, for example, in the form of a lender-of-last-resort can reduce this systemic risk ex post, but induce lower ex-ante levels of private liquidity, which can in turn aggravate welfare costs from such injections. |
| JEL: | G21 G22 G31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15269&r= |
| By: | Vincent Dadam; Nicola Viegi |
| Abstract: | This paper estimates a New Keynesian Wage Phillips Curve for South Africa to investigate the responsiveness of nominal wages to labour market conditions. The estimation is based on a model with staggered nominal wages setting, where all variations in hired labour input is taking place at the extensive margin. First, we estimate the model using aggregate data from 1971 to 2013. Aggregate estimation results show that private sector nominal wages are not very responsive to employment conditions, while they also reveal a certain sensitivity to inflation and quite a good correlation with inflation expectations. On the other hand, the relationship between nominal wage inflation and price inflation is quite strong and robust for the whole sample. However, it becomes quantitatively weak for the inflation targeting period. In that period, trade unions inflation expectations are instead strongly correlated with nominal wage inflation.In the second part of the paper, we assess the response of nominal wages to employment, labour productivity and output prices, given the reservation wage, using a panel of nine industrial sectors over the period 1970-2013. The findings confirm that nominal wage inflation has consistently outpaced the growth in productivity, even after correcting for price inflation, and that employment conditions had little effect on wage dynamics. We also test for the possibility that the dynamic of wages is anchored by an underlined reservation wage to investigate the presence of an error correction term in the wage equation for South Africa.The overall picture that comes out from the analysis is that of a wage formation mechanism that is very insensitive to overall macroeconomic conditions. |
| Keywords: | Wage rigidities, unemployment, Labour market, Phillips curve, New Keynesian |
| JEL: | E2 E24 E26 E31 E12 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:847&r= |
| By: | Cecchetti, Stephen G; Schoenholtz, Kermit |
| Abstract: | Technology has long had a profound impact on financial services. Today, it is changing the range of services offered, as well as their delivery, cost, and accessibility. Yet, despite the explosion of small firms applying new technologies, very few of these new fintech companies have a broad influence on financial activity. Even in some sectors with significant entry, unit costs of financial intermediation remain stubbornly high. At the same time, there are notable fintech successes, especially in the provision of payments and credit in China. Going forward, the impact of fintech is likely to be greatest where existing suppliers lack competitive incentives or sophistication. Over the next decade, the decisions of regulators will have a profound influence on the array of financial services available, on how they are delivered and to whom. In the advanced economies, regulators generally support greater fintech competition, favoring lower costs and improved access. Furthermore, as Big Tech firms and large incumbent financial institutions vie for dominance, their large fintech investments will make them increasingly alike. Over time, it is anyone's guess which of these firm types will win the race. |
| Keywords: | big tech; Central bank digital currency; digital currency; financial innovation; financial institutions; financial regulation; Financial Services; Fintech; peer-to-peer lending; Remittances |
| JEL: | G20 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15352&r= |
| By: | Alberto Bisin; Giovanni Federico |
| Abstract: | The relationship between history and economics as academic disciplines is methodologically subtle and sociologically contested. If the Cliometric revolution can be characterized as an acquisition of economics by history, the most recent trends in Historical Economics appear to turn this relationship on its head. In this Introduction we read the chapters of the Handbook as a forceful argument in favor of a merger between the two disciplines rather than the acquisition of one by the other; a merger which combines, notably, the detailed knowledge of historical sources, the capability of distilling complex historical processes into a model, and the statistical/econometric skills for identification and estimation. |
| JEL: | B40 N00 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28786&r= |
| By: | Laurent E. Calvet; John Y. Campbell; Francisco Gomes; Paolo Sodini |
| Abstract: | This paper estimates the cross-sectional distribution of Epstein-Zin preference parameters in a large administrative panel of Swedish households. We consider life-cycle model of saving and portfolio choice that incorporates risky labor income, safe and risky financial assets inside and outside retirement accounts, and real estate. We study middle-aged stock-owning households grouped by education, industry of employment, and birth cohort as well as by their accumulated wealth and risky portfolio shares. We find some heterogeneity in risk aversion (a standard deviation of 0.47 around a mean of 5.24 and median of 5.30) and considerable heterogeneity in the time preference rate (standard deviation 6.0% around a mean of 6.2% and median of 4.1%) and elasticity of intertemporal substitution (standard deviation 0.96 around a mean of 0.99 and median of 0.42). Risk aversion and the EIS are almost cross-sectionally uncorrelated, in contrast with the strong negative correlation that we would find if households had power utility with heterogeneous risk aversion. The TPR is weakly negatively correlated with both the other parameters. We estimate lower risk aversion for households with riskier labor income and higher levels of education, and a higher TPR and lower EIS for households who enter our sample with low initial wealth. |
| JEL: | E21 G51 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28788&r= |
| By: | Andrey Sarantsev |
| Abstract: | Portfolio managers often evaluate performance relative to benchmark, usually taken to be the Standard & Poor 500 stock index fund. This relative portfolio wealth is defined as the absolute portfolio wealth divided by wealth from investing in the benchmark (including reinvested dividends). The classic Merton problem for portfolio optimization considers absolute portfolio wealth. We combine absolute and relative wealth in our new utility function. We also consider the case of multiple benchmarks. To both absolute and relative wealth, we apply power utility functions, possibly with different exponents. We obtain an explicit solution and compare it to the classic Merton solution. We apply our results to the Capital Asset Pricing Model setting. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.08139&r= |
| By: | Fumitaka Nakamura (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: fumitaka.nakamura@boj.or.jp)); Nao Sudo (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan (E-mail: nao.sudou@boj.or.jp)); Yu Sugisaki (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yuu.sugisaki@boj.or.jp)) |
| Abstract: | The use of changes in short-term interest rates (STIRs) within a 30-minute window around monetary policy announcements has been increasingly adopted in empirical studies. However, variations of STIRs within such a narrow window may be too small under the effective lower bound (ELB). To address the issue, this paper constructs a measure of monetary policy shocks using STIR futures in Japan, where the policy interest rate has been close to the ELB for an exceptionally long period. We show that (i) variations within a 30-minute window are closely correlated with key financial variables while those outside the window are correlated less, suffering from noise, (ii) expansionary shocks with respect to unconventional measures have continued to lower the long-term yield, and (iii) the impulses of macroeconomic variables to the shocks agree with what conventional theory predicts overall. |
| Keywords: | Monetary policy shocks, high frequency identification, effective lower bound |
| JEL: | E32 E44 E52 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:21-e-02&r= |
| By: | Bonciani, Dario (Bank of England); Oh, Joonseok (Freie Universität Berlin) |
| Abstract: | When the economy is in a liquidity trap and households have a precautionary motive to save against unemployment risk, adverse demand shocks cause severe deflationary spirals and output contractions. In this context, we study the implications of optimal monetary policy, which consists of keeping the nominal rate at zero longer than implied by current macroeconomic conditions. Under such policy and incomplete markets, expected improvements in labour market conditions mitigate the rise in unemployment risk and decline in demand. As a result, market incompleteness may alleviate contractions in output and inflation during a liquidity trap. However, reducing market incompleteness mitigates the fall in demand under realistic monetary policy rules. |
| Keywords: | Unemployment risk; Liquidity trap; Zero lower bound; Monetary policy |
| JEL: | E21 E24 E32 E52 E61 |
| Date: | 2021–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0920&r= |
| By: | Florentina Șoiman (CASC - Calcul Algébrique et Symbolique, Sécurité, Systèmes Complexes, Codes et Cryptologie - LJK - Laboratoire Jean Kuntzmann - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes); Mathis Mourey (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes); Jean-Guillaume Dumas (CASC - Calcul Algébrique et Symbolique, Sécurité, Systèmes Complexes, Codes et Cryptologie - LJK - Laboratoire Jean Kuntzmann - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Sonia Jimenez-Garces (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes) |
| Abstract: | This study introduces the forking effect. The forking effect represents the impact suffered by a cryptoccurency, when its Blockchain splits giving rise to a new coin. The focus of this paper is twofold ; first, we show that forks issued during stable times tend to improve the measured market efficiency of their parent coin, by reducing its illiquidity, Value-at-Risk (VaR) and volatility. At the same time, the forks issued during the 2017-2018 bubble, increase the overall risk and worsen the efficiency of their parent coin. In the second part of this study, we compare the financial characteristics of the parent coin with the new ones, resulting from the fork. The forked coins show higher illiquidity, VaR and volatility, as well as worse efficiency than their parent, for multiple time horizons. Furthermore, our results show that the VaR, volatility, illiquidity and efficiency are worse for the recent forks compared to the early ones. |
| Keywords: | Cryptocurencies,Event study,Market Efficiency,Blockchain,Fork |
| Date: | 2021–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03216121&r= |
| By: | Peydró, José Luis; Rodriguez Tous, Francesc; Tripathy, Jagdish; Uluc, Arzu |
| Abstract: | Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders-not households-for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (e.g. increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies-via lower pre-correction debt-better house prices and mortgage defaults during an episode of house price correction. |
| Keywords: | Credit cycles; House Prices; inequality; macroprudential policy; Mortgages |
| JEL: | E5 G01 G21 G28 G51 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15275&r= |
| By: | Kajari Saha (Indira Gandhi Institute of Development Research) |
| Abstract: | This study provides new evidence on the debate surrounding international trade and the gender wage gap in a developing country context. It asks whether increased competition from trade has any causal effect on the district-level gender wage gap in India. Changes in competition from trade are measured using changes in imports from China, owing to the dramatic rise in Chinese imports into India in recent years. An instrumental variable (IV) based estimation strategy is used following Autor, Dorn, and anson (2016), to delineate causality. Results indicate a positive and statistically significant impact of an increase in Chinese imports on the gender wage gap over time. In addition to the economy-wide ample of workers, this effect holds true for the sub-samples of casual laborers and rural sector workers where the majority of women workers in India are concentrated. Unlike previous studies using industry-level data, the district-level focus of this study allows us to capture micro-level effects, as well as the net effects of trade in the surrounding district. |
| Keywords: | International trade, Gender wage gap, Competition, Imports, China, District |
| JEL: | F16 D63 J16 J31 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2021-012&r= |
| By: | Hadzi-Vaskov, Metodij; Ricci, Luca Antonio |
| Abstract: | This study investigates the relationship between public debt and sovereign credit ratings, using a wide sample of over 100 advanced, emerging, and developing economies. It finds that: i) higher public debt lowers the probability of being placed in a higher rating category; ii) the negative debt-ratings relationship is nonlinear and depends on the rating grade itself; and iii) the identified nonlinearity explains the differential impact of debt on ratings in advanced economies versus emerging and developing economies (previously suggested in the literature as different relationships). These results hold for both gross and net debt, and are robust to alternative dependent variable definitions, analytical techniques, and empirical specifications. |
| Keywords: | Advanced economies; Credit rating agencies; Credit ratings; emerging markets; financial markets; non-linearities; public debt |
| JEL: | E44 E62 G15 G24 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15267&r= |
| By: | Federico Sturzenegger (Universidad de San Andres) |
| Abstract: | There has been substantial research on the benefits of accumulating foreign reserves, but less on the relative merits of how to finance those reserves. Does it matter if reserves are accumulated through unsterilized purchases, by issuing domestic currency liabilities or by issuing foreign currency liabilities? This paper explores this question by looking at the impact of different ways to finance reserve accumulation on country spreads. The results suggest that the financing source is not irrelevant. Accumulating reserves through unsterilized interventions or by issuing domestic debt, do reduce country risk. On the contrary accumulating reserves by issuing foreign liabilities seems not to have a meaningful effect. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:7&r= |
| By: | Bruno Pellegrino; Enrico Spolaore; Romain Wacziarg |
| Abstract: | We quantify the impact of barriers to international investment, using a novel multi-country dynamic general equilibrium model with heterogeneous investors and imperfect capital mobility. Our model yields a gravity equation for bilateral foreign asset positions. We estimate this gravity equation using recently developed foreign investment data that have been restated to account for offshore investment and financing vehicles. We show that a parsimonious implementation of the model with four barriers (geographic distance, cultural distance, foreign investment taxation, and political risk) accounts for a large share of the observed variation in bilateral foreign investment positions. Our model predicts (out of sample) a significant home bias, higher rates of return on capital in emerging markets, as well as “upstream” capital flows. In our benchmark calibration, we estimate that the capital misallocation induced by these barriers reduces World GDP by 7%, compared to a situation without barriers. We also find that barriers to global capital allocation contribute significantly to cross-country inequality: the standard deviation of log capital per employee is 80% higher than it would be in a world without barriers to international investment, while the dispersion in output per employee is 42% higher. |
| Keywords: | capital allocation, capital flows, foreign investment, culture, geography, gravity, international macroeconomics, international finance, misallocation, open economy |
| JEL: | E22 E44 F20 F30 F40 G15 O40 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9086&r= |
| By: | Halvorsen, Elin; Holter, Hans; Ozkan, Serdar; Storesletten, Kjetil |
| Abstract: | This paper examines whether nonlinear and non-Gaussian features of earnings dynamics are caused by hours or hourly wages. Our findings from the Norwegian administrative and survey data are as follows: (i) Nonlinear mean reversion in earnings is driven by the dynamics of hours worked rather than wages since wage dynamics are close to linear while negative changes to hours are transitory and positive changes are persistent. (ii) Large earnings changes are driven equally by hours and wages, whereas small changes are associated mainly with wage shocks. (iii) Both wages and hours contribute to negative skewness and high kurtosis for earnings changes, although hour-wage interactions are quantitatively more important. (iv) When considering household earnings and disposable household income, the deviations from normality are mitigated relative to individual labor earnings: changes in disposable household income are close to symmetric and less leptokurtic. |
| Keywords: | Earnings Dynamics; Higher-order earnings risk; Hours; Income Shocks; Insurance; Kurtosis; Skewness; wages |
| JEL: | E24 H24 J24 J31 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15395&r= |
| By: | Steve J. Bickley; Benno Torgler |
| Abstract: | In this chapter, we ask (conceptually and methodologically) what exactly is behavioural economics and what are its roots? And further, what may we have missed along the way? We argue that revisiting “classical” behavioural economics concepts and methods will benefit the wider behavioural economics program by questioning its yardstick approach to ‘Olympian’ rationality and optimisation and in doing so, exploring the ‘how’ and ‘why’ of economic behaviours (micro, meso, and macro) in greater detail and clarity. We also do the same for fields which share similar ontological and epistemological roots with “classical” behavioural economics. In particular, cognitive psychology, complexity theory, and artificial intelligence. By engaging in debate and investing thought into multiple layers of the ontology-epistemology- methodology, we look to engage in ‘deeper’ (and potentially more profound) scientific discussions. We also explore the utility and implications of mixed methods in behavioural economics research, policy, and practice. |
| Keywords: | Behavioural Economics; Cognitive Psychology; Complexity Theory; Artificial Intelligence |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:cra:wpaper:2021-21&r= |
| By: | Dodo Natatou Moutari; Hassane Abba Mallam; Diakarya Barro; Bisso Saley |
| Abstract: | This study aims to widen the sphere of pratical applicability of the HAC model combined with the ARMA-APARCH volatility forecast model and the extreme values theory. A sequential process of modeling of the VaR of a portfolio based on the ARMA-APARCH-EVT-HAC model was discussed. The empirical analysis conducted with data from international stock market indices clearly illustrates the performance and accuracy of modeling based on HACs. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.09473&r= |
| By: | Bottazzi, Laura; Lusardi, Annamaria |
| Abstract: | We examine gender differences in financial literacy among high school students in Italy using data from the 2012 Programme for International Student Assessment (PISA). Gender differences in financial literacy are large among the young in Italy. They are present in all regions and are particularly severe in the South and the Islands. Combining the rich PISA data with a variety of other indicators, we provide a thorough analysis of the potential determinants of the gender gap in financial literacy. We find that parental background, in particular the role of mothers, matters for the financial knowledge of girls. Moreover, we show that the social and cultural environment in which girls and boys live plays a crucial role in explaining gender differences. We also show that history matters: Medieval commercial hubs and the nuclear family structure created conditions favorable to the transformation of the role of women in society, and shaped gender differences in financial literacy as well. |
| Keywords: | financial literacy; Gender; PISA |
| JEL: | D14 G53 J16 J24 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15429&r= |
| By: | Dhingra, Swati; Machin, Stephen |
| Abstract: | This paper uses a new field survey of low-wage areas of urban India to show that employment and earnings were decimated by the lockdown resulting from the Covid-19 crisis. It examines workers' desire for a job guarantee in this setting. Workers who had a job guarantee before the crisis were relatively shielded by not being hit quite so hard in terms of the increased incidence of job loss or working zero hours and earnings losses. A stated choice experiment contained in the survey reveals evidence that low-wage workers are willing to give up around a quarter of their daily wage for a job guarantee. And direct survey questions corroborate this, with informal, young and female workers being most likely to want a job guarantee, and to want it even more due to the current crisis. |
| Keywords: | COVID-19; India; job guarantee; job vignettes; Urban labour markets |
| JEL: | J46 J68 L52 P25 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15334&r= |
| By: | Thomas Mayer; Gunther Schnabl |
| Abstract: | Rising public debt everywhere has raised the question of how to reduce debt again in the future. High public debt also seems to be an impediment for the exit of central banks from ultra-low interest rates and quantitative easing. Historical precedents and proposals have included austerity, haircuts and the generation of inflation. Each way has advantages and disadvantages, including uncertainty about effects and side-effects. We approach the issue from an historical perspective, based on case studies of prominent approaches to debt reduction. We analyze debt reduction through economic austerity in Italy, hyperinflation in Germany after World War I, inflation in Argentina since the 1980s, currency reform in Germany after WW II, and financial repression in the United States and the United Kingdom after WW II. Finally, we discuss Ronald McKinnon’s order of economic and financial liberalization as well as the Chicago Plan combined with the introduction of central bank digital currencies as an option for the future. |
| Keywords: | low-interest trap, over-indebtness, public debt, hyperinflation, monetary reform, economic reform, inflation, public debt relief |
| JEL: | H12 H63 P26 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9078&r= |
| By: | Levy, Antoine; Ricci, Luca Antonio; Werner, Alejandro |
| Abstract: | This paper assesses the dynamic impact of global macroeconomic conditions, commodity price movements, shifts in portfolio preferences, and domestic shocks on fiscal outcomes-notably the budget deficit, its main components, and debt-across a wide range of countries. Heterogeneity is investigated across the level of development and other structural characteristics. Dynamics are explored via panel local projections, while robustness is assessed via dynamic panel and system GMM regressions. World growth, financial risk appetite, political events, and commodity export prices are key determinants of fiscal outcomes in EM, while domestic growth, commodity import prices, and banking crises appear to matter more in AE. Our estimates help quantify the amount of fiscal risk generated by various factors, and thus provide inputs for the design of potential insurance mechanisms or state-contingent debt instruments that could assist in smoothing fiscal fluctuations. |
| Keywords: | debt; deficit; Fiscal; Fluctuations; Insurance; Sovereign debt |
| JEL: | E62 F41 H6 H87 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15450&r= |
| By: | Laurence Carassus; Massinissa Ferhoune |
| Abstract: | We propose an efficient numerical method, based on the Lambert function, for the computation and study of the reservation price as well as the value function in the case of illiquidity. Our theoretical results are illustrated by numerical simulations. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.08804&r= |
| By: | Kabundi, Alain; Ohnsorge, Franziska |
| Abstract: | The COVID-19-triggered collapse in oil prices in March and April 2020 was the seventh, and by far the most severe, in a series of such collapses since 1970. This paper, first, compares this most recent collapse and its drivers with previous ones in an event study. It finds that it was associated with an exceptionally severe plunge in oil demand. Second, in a local projections model, this paper estimates the implications of demand- and supply-driven oil price collapses for growth in emerging markets and developing economies (EMDEs). The paper finds that steep oil price collapses were associated with significant and lasting output losses in energy-exporting EMDEs but no meaningful output gains in energy-importing EMDEs. These results are robust to multiple robustness checks. |
| Keywords: | Covid-19 pandemic; demand factors; local projections model; macroeconomic implications; oil price decline; supply factors |
| JEL: | E32 F40 Q40 Q41 Q43 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15296&r= |
| By: | Torsten Heinrich |
| Abstract: | How are economies in a modern age impacted by epidemics? In what ways is economiclife disrupted? How can pandemics be modeled? What can be done to mitigate and managethe danger? Does the threat of pandemics increase or decrease in the modern world? The Covid-19 pandemic has demonstrated the importance of these questions and the potential of complex systems science to provide answers. This article offers a broad overview of the history of pandemics, of established facts, and of models of infection diffusion, mitigation strategies, and economic impact. The example of the Covid-19 pandemic is used to illustrate the theoretical aspects, but the article also includes considerations concerning other historic epidemics and thedanger of more infectious and less controllable outbreaks in the future. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:tch:wpaper:cep045&r= |
| By: | Benjamin Born; Francesco D’Ascanio; Gernot J. Müller; Johannes Pfeifer; Johannes Pfeiffer |
| Abstract: | In economies with fixed exchange rates, the adjustment to government spending shocks is asymmetric. A fiscal expansion appreciates the real exchange rate but does not stimulate output. A fiscal contraction does not alter the exchange rate, but lowers output. We develop these insights in a two-sector model of a small open economy with downward nominal wage rigidity. We establish new empirical evidence that supports he predictions of the model along several dimensions: not only does the exchange rate regime shape the fiscal transmission mechanism as predicted by the model – in doing so it also interacts with economic slack and inflation. |
| Keywords: | Downward nominal wage rigidity, government spending shocks, exchangerate peg, real exchange rate, nonlinear effects, asymmetric adjustment, depreciation bias |
| JEL: | E62 F41 F44 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_352&r= |
| By: | Repullo, Rafael |
| Abstract: | This paper reviews the analysis in Brunnermeier and Koby (2018), showing that lower monetary policy rates can only lead to lower bank lending if there is a binding capital constraint and the bank is a net investor in debt securities, a condition typically satisfied by high deposit banks. It next notes that BK's capital constraint features the future value of the bank's capital, not the current value as in standard regulation. Then, it sets up an alternative model with a standard capital requirement in which profitability matters because bank capital is endogenously provided by shareholders, showing that in this model there is no reversal rate. |
| Keywords: | bank market power; Bank profitability; Capital requirements; monetary policy; Negative Interest Rates; reversal rate |
| JEL: | E52 G21 L13 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15367&r= |
| By: | Fabo, Brian; Jancokova, Martina; Kempf, Elisabeth; Pástor, Lubos |
| Abstract: | Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production. |
| Keywords: | career concerns; central bank; Conflict Of Interest; QE; Quantitative easing |
| JEL: | A11 E52 E58 G28 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15449&r= |
| By: | G., Germinal; Taleb Da Costa, Marcella |
| Abstract: | This paper has two purposes. The primary purpose of this paper is to investigate the contribution that education brings to society and to analyze how the educational system of low-income countries affects their economic development. The second purpose is to provide recommendations that will incentivize the improvement of the education system in low-income countries. To achieve these two objectives, we used several econometric techniques to measure the validity of three hypotheses. The first hypothesis measures the impact of literacy rate on human development of low-income countries. The second hypothesis measures the means years of schooling on income per capita in low-income countries, and the third hypothesis measures the impact of education on employment. |
| Keywords: | Econometrics, Applied Econometrics, Education Policy, Statistical Methods, Regression Analysis, Economic Development |
| JEL: | C1 C12 C21 C50 C54 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107729&r= |
| By: | Hunt Allcott; Joshua J. Kim; Dmitry Taubinsky; Jonathan Zinman |
| Abstract: | It is often argued that people might take on too much high-cost debt because they are present focused and/or overoptimistic about how soon they will repay. We measure borrowers' present focus and overoptimism using an experiment with a large payday lender. Although the most inexperienced quartile of borrowers underestimate their likelihood of future borrowing, the more experienced three quartiles predict correctly on average. This finding contrasts sharply with priors we elicited from 103 payday lending and behavioral economics experts, who believed that the average borrower would be highly overoptimistic about getting out of debt. Borrowers are willing to pay a significant premium for an experimental incentive to avoid future borrowing, which we show implies that they perceive themselves to be time inconsistent. We use borrowers' predicted behavior and valuation of the experimental incentive to estimate a model of present focus and naivete. We then use the model to study common payday lending regulations. In our model, banning payday loans reduces welfare relative to existing regulation, while limits on repeat borrowing might increase welfare by inducing faster repayment that is more consistent with long-run preferences. |
| JEL: | D14 D15 D18 D61 D90 L69 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28799&r= |
| By: | Lindokuhle Talent Zungu; Lorraine Greyling |
| Abstract: | A panel data analysis of financial inequality was conducted using the PSTR model to determine the threshold level at which excessive financial development worsens inequality. The results reveal evidence of a nonlinear effect between financial development and income inequality where the optimal level of financial development is found to be 19% as a share of GDP above which financial development increases inequality in African countries. The findings combine into a U-shape relationship, in line with other research in African studies. In this particular case, policy-makers are challenged to come up with policies that enforce the distributive effects of financial development with a view to share wealth equitably. |
| Keywords: | Financial development; income inequality; PSTR model |
| JEL: | O16 O11 E44 C33 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:853&r= |
| By: | Acharya, Viral V.; Parlatore Siritto, Cecilia; Sundaresan, Suresh M |
| Abstract: | Infrastructure projects involve multiple parties: government, private sector firms that build and manage, and outside investors who supply financing. Private sector firms need incentives to implement and maintain the projects well; governments may lack commitment not to extort cash flows (for instance, by limiting user fees) from projects once implemented. This double moral hazard problem limits the willingness of outside investors to fund infrastructure projects. To ameliorate these two moral hazards, we show that the optimal design of infrastructure financing features (I) government guarantees to investors against project failure; (II) bundling of development rights for the private sector and investors; (III) tax subsidies to the private parties out of infrastructure externalities; and, (IV) "general obligation" financing in the form of cross-guarantees between high-quality projects and "revenue only" financing without cross-guarantees for low-quality projects. These features are found to be relevant in the practice of infrastructure financing. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15288&r= |
| By: | Degorce, Victor; Monnet, Eric |
| Abstract: | Facing the Great Depression, Keynes blamed the detrimental consequences of precautionary savings on growth (paradox of thrift). Yet, the magnitude, forms and effects of savings accumulation remain unexplored in studies on the international economic crash of the 1930s. Based on new data for 22 countries, we document that the Great Depression was associated with a large international increase in savings institutions' deposits. Banking crises spurred precautionary savings. Panel estimations show a negative conditional correlation between real GDP and deposits in savings institutions when a banking crisis hit. A back-of-the-envelope calculation suggests that the negative effect of precautionary savings on growth was at least as large as the direct effect of the decline in banking activity. The evolution of the saving rate began to reverse as countries left the gold standard. |
| Keywords: | banking crises; Great Depression; paradox of thrift; precautionary savings; Savings Banks |
| JEL: | B22 E21 E51 G01 G21 N1 N2 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15287&r= |
| By: | Matteo Maggiori |
| Abstract: | In the last 15 years, central banks have purchased securities at unprecedented levels via quantitative easing and foreign exchange intervention. These policies have constituted the core response to crises such as the 2008–09 Great Financial Crisis, the 2011–12 European sovereign debt crisis and the ongoing Covid-19 pandemic. In many cases, policymakers have resorted to these policies as traditional monetary policy was constrained by the zero lower bound. In this paper, I review recent advances in open economy analysis with financial frictions. This type of analysis offers a different take on exchange rates compared with their traditional role as shock absorbers. When international financial intermediation is imperfect, the exchange rate is pinned down by imbalances in the demand and supply of assets in different currencies and, crucially, by the limited risk-bearing capacity of the financial intermediaries that absorb these imbalances. Exchange rates are distorted by financial forces and can be a source of shocks to the real economy rather than a re-equilibrating mechanism. |
| JEL: | E44 F31 F32 F41 G15 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:942&r= |
| By: | Stantcheva, Stefanie |
| Abstract: | I study how people understand, reason, and learn about tax policy. The goal is to uncover the mental models that people use to think about income and estate taxes. To that end, I run large-scale online surveys and experiments on representative U.S. samples to elicit not only respondents' factual knowledge about tax policy and the income or wealth distributions, but also their understanding of the mechanisms of tax policy and their reasoning about it. The detailed survey questions are designed to address the three main factors emphasized in our core tax model that can shape support for or opposition to taxes: efficiency effects, distributional implications, and fairness considerations. But they also elicit broader concerns that could influence policy views, such as misperceptions, views of government, perceived spillovers from taxes, and views on how tax revenues are or should be spent. I decompose policy views into the various underlying factors and find that support for tax policy is most strongly correlated with views on the benefits of redistribution and fairness, as well as with views of the government. Efficiency concerns play a more minor role. These correlational patterns are confirmed by the experimental approach, which shows people instructional videos that explain the workings and consequences of one of the aspects of tax policy (the ``Redistribution'' and the ``Efficiency'' treatments) or that bring the two together and focus on the trade-off (the ``Economist'' treatment). The Redistribution treatment and Economist treatments significantly increase support for more progressive taxes. I also find that there are partisan divergences not just in the final policy views, but also at every step of the reasoning about the underlying mechanisms of taxes, and most starkly on the fairness considerations. |
| Keywords: | Experiments; Fairness; Perceptions; redistribution; survey; taxation |
| JEL: | D72 D91 H21 H23 H24 H41 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15216&r= |
| By: | Bracke, Philippe; Croxson, Karen; Fakhri, Daoud; Surico, Paolo; Valletti, Tommaso |
| Abstract: | Using the universe of residential mortgage contracts offered and originated in the United Kingdom, we document the major trends associated with the pandemic of 2020 and compare them to the financial crisis of 2007-09. Looking at initial impact, the mortgage market disruptions of 2020 were larger and more abrupt than in 2007-09; as of June 2020, the recovery had been much faster, although uncertainty remains over whether the momentum will persist. Products with loan-to-value above 90% or loan-to-income above 4 took the largest hit but their market shares had begun to rebound since May 2020. In contrast, the Great Recession was characterised by a more gradual but far more persistent decline in originations, especially among riskier borrowers, as the recovery did not start until 18 months after the onset of the financial crisis. The share of remortgagors that extract housing equity has declined significantly in the first months of the 2020 pandemic and the amount withdrawn has been typically smaller than in most of the previous years. By the end of 2020 Q2, roughly one in five mortgages were benefitting from payment deferrals while repossession orders had virtually disappeared following the temporary ban introduced by the Financial Conduct Authority in March 2020. |
| Keywords: | Covid pandemic; credit supply; financial crisis; mortgage originations |
| JEL: | G21 G51 H12 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15381&r= |
| By: | Andrea L. Eisfeldt; Antonio Falato; Mindy Z. Xiaolan |
| Abstract: | The widespread and growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of "human capitalists." We show that high-skilled labor earns substantial income in the form of equity claims to firms' future dividends and capital gains. Equity-based compensation has dramatically increased since the 1980s, representing forty percent of total compensation to high-skilled labor in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In our sample, including equity-based compensation in high-skilled labor income reduces the total decline in labor's wage-only income share relative to total value added since the 1980s by over 30%. The inclusion of equity-based compensation also eliminates the majority of the decline in the high-skilled labor share. Only by including equity pay does our structural estimation support complementarity between high-skilled labor and physical capital greater than that of Cobb and Douglas (1928). We also provide additional regression evidence of such complementarity. |
| JEL: | E0 E25 G3 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28815&r= |
| By: | OECD |
| Abstract: | This report analyses policies and research funding mechanisms designed to foster high-risk high-reward (HRHR) research, and explores promising practices for fostering HRHR research in a variety of contexts. The underlying concern is that failure to encourage and support research on risky, ‘out-of-the-box’ ideas may jeopardise a country’s longer-term ability to compete economically, harness science for solving national and global challenges, and contribute to the progress of science as a whole. The analysis in this paper is primarily based on a survey of individual HRHR research funding schemes in different countries, complemented by targeted interviews. This survey was supplemented by an analysis of HRHR research-oriented programmes and by the feedback from an international workshop that included all relevant stakeholders. |
| Date: | 2021–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaac:112-en&r= |
| By: | Ilan Noy; Toshihiro Okubo; Eric Strobl; Thomas Tveit |
| Abstract: | We investigate the fiscal impacts of earthquakes in Japan. In contrast with earlier papers from elsewhere which examine national level aggregate spending, we are able to provide a detailed examination of separate budget categories within the local governments’ fiscal accounts. We do this using detailed line-budget expenditure data, and by comparing regions and towns affected and unaffected by the damage from earthquakes. Besides the obvious - that government spending increases in the short-term (one year) after a disaster event - the results we present suggest that the share of public spending on disaster relief, at the prefecture level, increases significantly, but with no corresponding change in the other budget lines. In contrast, at the lower administrative units we observe a decrease in the share of spending going to finance other priorities. For the bigger cities, we observe a decrease in the share of spending targeting education, while for the smaller towns, we find that spending on construction and servicing public debt goes down. This evidence suggests that while at the prefecture level fiscal policy-making is robust enough to prevent presumably unwanted declines in public services, the same cannot be said for the city/town level. |
| Keywords: | fiscal costs, earthquakes, Japan |
| JEL: | H84 Q54 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9070&r= |
| By: | Korsaye, Sofonias Alemu; Trojani, Fabio; Vedolin, Andrea |
| Abstract: | We provide a model-free framework to study the global factor structure of exchange rates. To this end, we propose a new methodology to estimate international stochastic discount factors (SDFs) that jointly price cross-sections of international assets, such as stocks, bonds, and currencies, in the presence of frictions. We theoretically establish a two-factor representation for the cross-section of international SDFs, consisting of one global and one local factor, which is independent of the currency denomination. We show that our two-factor specification prices a large cross-section of international asset returns, not just in- but also out-of-sample with R2s of up to 80%. |
| Keywords: | Capital Flows; factor models; Financial Frictions; incomplete markets; International Asset Pricing; Lasso; Market Segmentation; regularization; Stochastic discount factor |
| JEL: | F31 G15 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15337&r= |
| By: | Kozhan, Roman; Taylor, Mark P; Xu, Qi |
| Abstract: | We empirically investigate the role of prospect theory in the foreign exchange market. Using the historical distribution of exchange rate changes, we construct a currency-level measure of prospect theory value and find that it negatively forecasts future currency excess returns. High prospect theory value currencies significantly underperform low prospect theory value currencies. The predictability is higher when arbitrage is limited and during periods of excess speculative demand of ir- rational traders. These findings are consistent with the hypothesis that investors mentally represent currencies by their historical distributions or charts and evaluate the distribution in the way described by prospect theory. |
| Keywords: | currency returns; foreign exchange; Limits to Arbitrage; prospect theory |
| JEL: | F31 G12 G15 G40 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15306&r= |
| By: | Christian Bayer; Benjamin Born; Ralph Luetticke |
| Abstract: | We provide evidence that expansionary fiscal policy lowers return differences between public debt and less liquid assets—the liquidity premium. We rationalize this finding in an estimated heterogeneous-agent New-Keynesian model with incomplete markets and portfolio choice, in which public debt affects private liquidity. This liquidity channel stabilizes fixed-capital investment. We then quantify the long-run effects of higher public debt and find little crowding out of capital, but a sizable decline of the liquidity premium, which increases the fiscal burden of debt. We show that the revenue-maximizing level of public debt is positive and has increased to 60 percent of GDP post-2010. |
| Keywords: | Business cycles, fiscal policy, HANK, incomplete markets, liquidity premium, public debt |
| JEL: | C11 D31 E21 E32 E63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_351&r= |
| By: | Martin Carree (Maastricht University [Maastricht]); Marcus Dejardin (UNamur - Université de Namur [Namur], UCL - Université Catholique de Louvain) |
| Abstract: | Firm entry and exit flows in the retailing and consumer services may be viewed as market equilibrating processes. Local markets with considerable market room and high unemployment may be thought of having high subsequent entry rates and possibly low exit rates. We examine this relationship and obtain empirical results for a range of industries in 563 Belgian municipalities. We show that, over a three-year period, (net) entry is positively affected by the presence of local 'market room'. We find a significant 'unemployment push' effect on entry in some industries, but also a significantly positive effect of unemployment on exit. This pattern possibly indicates a 'revolving door regime' in areas marked by unemployment where new entrants leave the market relatively soon after entry, or only crowd out local competitors without creating additional employment. |
| Keywords: | entry,exit,entrepreneurship,unemployment,local development |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03220690&r= |
| By: | Edouard Ribes (CERNA i3 - Centre d'économie industrielle i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | On average, O.E.C.D. statistics 2 shows that 4 out of 10 workers in developed geographies occupy a "blue-collar" type of position. Since those professions are physically demanding and come with a toll on one's health (which in turns translate into additional healthcare expenses), the length of an individual's active period must be carefully weighted. This paper therefore offers a financial model (and its subsequent program) to help make such decisions. It notably shows that whilst most developed countries require individuals to work for about 40 years, early retirement is a suitable option when healthcare prices are high. This paper also shows that financial literacy has a significant impact on retirements behaviors. For those with a strong predilection for present consumption and little interest in savings and investments, retirement is not an option. In those cases, the financial pressure associated to the healthcare system translates into either an incentive for them to work until the end of their life or not to enter the labor market at all. |
| Keywords: | Health,Retirement,Financial planning |
| Date: | 2021–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03219182&r= |
| By: | Cosar, Kerem; Thomas, Benjamin |
| Abstract: | Motivated by the historically tense geopolitical situation in Southeast Asia, we simulate the potential closure of key maritime waterways in the region to predict the impact on trade and welfare. We generate initial (unobstructed) and counterfactual (rerouted) least-cost maritime paths between trading countries, and use the distances of these routes in a workhorse model of international trade to estimate welfare effects. We find heterogeneous and economically significant reductions in real GDP, and show the magnitude of welfare loss is directly correlated with military spending as a proportion of GDP, suggesting nations may be responding to economic security threats posed by such potential conflicts. |
| Keywords: | international trade; Military Spending; quantitative trade models |
| JEL: | F14 F5 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15414&r= |
| By: | Gabriel Malta Castro; Claude Kl\"ockl; Peter Regner; Johannes Schmidt; Amaro Olimpio Pereira Jr |
| Abstract: | With the increase of variable renewable energy sources (VRES) share in electricity systems, manystudies were developed in order to determine their optimal technological and spatial mix. Modern PortfolioTheory (MPT) has been frequently applied in this context. However, some crucial aspects, important inenergy planning, are not addressed by these analyses. We, therefore, propose several improvements andevaluate how each change in formulation impacts results. More specifically, we address generation costs, system demand, and firm energy output, present a formal model and apply it to the case of Brazil. Wefound that, after including our proposed modifications, the resulting efficient frontier differs strongly fromthe one obtained in the original formulation. Portfolios with high output standard deviation are not ableto provide a firm output level at competitive costs. Furthermore, we show that diversification plays animportant role in smoothing output from VRES portfolios |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.08182&r= |
| By: | Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L. |
| Abstract: | We address this question in a heterogeneous-agent incomplete-markets model featuring exogenous idiosyncratic risk, endogenous skill investment, and flexible labor supply. The tax and transfer schedule is restricted to be log-linear in income, a good description of the US system. Rising inequality is modeled as a combination of skill-biased technical change and growth in residual wage dispersion. When facing shifts in the income distribution like those observed in the US, a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change. Overall, optimal progressivity is approximately unchanged between 1980 and 2016. We document that the progressivity of the actual US tax and transfer system has similarly changed little since 1980, in line with the model prescription. |
| Keywords: | inequality; InequalityMarkets; Labor Supply; optimal taxation; redistribution; Tax progressivity |
| JEL: | D30 E20 H20 I22 J22 J24 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15394&r= |
| By: | de Vries, Gaaitzen J. (University of Groningen, The Netherlands); Gentile, Elisabetta (Asian Development Bank); Miroudot, Sébastien (Organisation for Economic Co-operation and Development); Wacker , Konstantin M. (University of Groningen, The Netherlands) |
| Abstract: | This paper examines the impact of industrial robots on jobs. We combine data on robot adoption and occupations by industry in 37 economies for the period 2005–2015. We exploit differences across industries in technical feasibility—defined as the industry’s share of tasks replaceable by robots—to identify the impact of robot usage on employment. The data allow us to differentiate effects by the routine intensity of employment. We find that a rise in robot adoption relates significantly to a fall in the employment share of routine manual task-intensive jobs. This relation is observed in high-income economies, but not in emerging market and transition economies. |
| Keywords: | employment; occupations; robots; tasks |
| JEL: | E23 J23 O30 |
| Date: | 2021–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0619&r= |
| By: | Jeanne, Olivier; Sandri, Damiano |
| Abstract: | We use a tractable model to show that emerging markets can protect themselves from the global financial cycle by expanding (rather than restricting) capital flows. This involves accumulating reserves when global liquidity is high to buy back domestic assets at a discount when global financial conditions tighten. Since the private sector does not internalize how this buffering mechanism reduces international borrowing costs, a social planner increases the size of capital flows beyond the laissez-faire equilibrium. The model also provides a role for foreign exchange intervention in less financially developed countries. The main predictions of the model are consistent with the data. |
| Keywords: | capital flow management; capital controls; Capital Flows; Foreign Exchange Reserves; sudden stop |
| JEL: | F31 F32 F36 F38 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15328&r= |
| By: | Markus Brunnermeier; Harold James; Jean-Pierre Landau |
| Abstract: | The ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange. We may see an unbundling of the separate roles of money, creating fiercer competition among specialized currencies. On the other hand, digital currencies associated with large platform ecosystems may lead to a re-bundling of money in which payment services are packaged with an array of data services, encouraging differentiation but discouraging interoperability between platforms. Digital currencies may also cause an upheaval of the international monetary system: countries that are socially or digitally integrated with their neighbors may face digital dollarization, and the prevalence of systemically important platforms could lead to the emergence of digital currency areas that transcend national borders. Central bank digital currency (CBDC) ensures that public money remains a relevant unit of account. |
| Keywords: | digital money, digital currency area, digital dollarization, currency competition |
| JEL: | E42 E52 F33 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:941&r= |
| By: | Andr\'e Barreira da Silva Rocha; Matheus Oliveira Meirim; Lara Corr\^ea Nogueira |
| Abstract: | An evolutionary game model is developed to study the interplay between consumers and producers when trade takes place on an e-commerce marketplace. The type of delivery service available and consumers' taste are particularly important regarding both game payoffs and players' strategies. The game payoff matrix is then adapted to analyse the different trading patterns that were developed during the COVID-19 pandemic in both the traditional retail and e-commerce sectors. In contrast to the former, investment in logistics and warehouses in the e-commerce sector allowed for the emergence of a trend in which fast delivery and eager consumers are becoming the norm. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.06833&r= |
| By: | Ozgen, Ceren (University of Birmingham) |
| Abstract: | The empirical evidence on the economic impacts of diversity is mixed. Many studies in the literature present context dependent and data driven results which are challenging to reconcile with each other. This paper offers a systematic synthesis of the empirical findings on the economic impacts of diversity on innovation, productivity, and the labour market. It presents a structured framework which takes the spatial scale of the analysis in the papers as a reference to understand the inconsistency of some previous predictions and the varying magnitudes of the diversity impact. The empirical findings reconcile more meaningfully when diversity effects are documented discretely at the regional, firm and individual levels. The paper further sets out an agenda for future research and links the findings for policy relevance. |
| Keywords: | innovation, cultural diversity, migration, knowledge production function |
| JEL: | J24 J15 F22 O15 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14344&r= |
| By: | Morais, Bernardo; Ormazabal, Gaizka; Peydró, José Luis; Roa, Monica; Sarmiento, Miguel |
| Abstract: | We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms- SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification. |
| Keywords: | bank risk-taking; corporate real and credit supply effects of accounting; ECL; IFRS9; loan provisions |
| JEL: | E31 G18 G21 G28 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15278&r= |
| By: | Manuel Denzer (Johannes Gutenberg University Mainz); Constantin Weiser (Johannes Gutenberg University Mainz) |
| Abstract: | We propose a new method to detect weak identification in instrumental variable (IV) models. This method is based on the asymptotic normality of the distributions of the estimated endogenous variable structural equation coefficients in the presence of strong identification. Therefore, our method resulting in a specific test is more flexible than previous tests as it does not depend on a specific class of models, but is applicable for a variety of both linear and non-linear IV models or mixtures of them, which can be estimated by generalized method of moments (GMM). Moreover, our proposed test does not rely on assumptions of homoscedasticity or the absence of autocorrelation. For linear models estimated by two-stage- least-squares (2SLS), our novel test yields the same qualitative conclusions as the usually applied test on excluded instruments at the reduced form. By adopting weak identication definitions of Stock and Yogo (2005), we provide critical values for our test by means of a comprehensive Monte Carlo simulation. This enables applied econometricians to make case- by-case decisions regarding weak identification in non-homoscedastic linear models by using pair bootstrapping procedures. Moreover, we show how our insights can be applied to assess weak identication in a specific non-linear IV model. |
| Keywords: | Weakidentication,Weakinstruments,Endogeneity,Bootstrap |
| JEL: | C26 C36 |
| Date: | 2021–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:2107&r= |
| By: | di Giovanni, Julian; Hale, Galina B |
| Abstract: | We quantify the role of global production linkages in explaining spillovers of U.S. monetary policy shocks to stock returns of 54 sectors in 26 countries. We first present a conceptual framework based on a standard open-economy production network model that delivers a spillover pattern consistent with a spatial autoregression (SAR) process. We then use the SAR model to decompose the overall impact of U.S. monetary policy on stock returns into a direct and a network effect. We find that up to 80% of the total impact of U.S. monetary policy shocks on average country-sector stock returns are due to the network effect of global production linkages. We further show that U.S. monetary policy shocks have a direct impact predominantly on U.S. sectors and then propagate to the rest of the world through the global production network. Our results are robust to controlling for correlates of the global financial cycle, foreign monetary policy shocks, and to changes in variable definitions and empirical specifications. |
| Keywords: | asset prices; global production network; monetary policy shocks |
| JEL: | F10 F36 G15 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15404&r= |
| By: | Lars E.O. Svensson |
| Abstract: | The “debt-overhang hypothesis” – that households cut back more on their spending in a crisis when they have higher levels of outstanding mortgage debt (Dynan, 2012) – seems to be taken for granted by macroprudential authorities in several countries in their policy decisions, as well as by the international organizations that evaluate and comment on countries’ macroprudential policy. Results are presented for UK microdata that reject the debt-overhang hypothesis. The results instead support the “spending-normalization hypothesis” of Andersen, Duus, and Jensen (2016a), what can also be called the “debt-financed overspending” hypothesis – that the correlation between high pre-crisis household indebtedness and subsequent spending cuts during the crisis reflects high debt-financed spending pre-crisis and a return to normal spending during the crisis. As discussed in Svensson (2019, 2020), this is consistent with the correlation reflecting debt-financed overspending through what Muellbauer (2012) calls the “housing-collateral household demand” and Mian and Sufi (2018) the “debt-driven household demand” channel. The correlation is thus spurious and an example of omitted-variable bias. A simple model shows that consumption and debt changes are directly and strongly positively correlated, whereas consumption and debt levels are quite weakly negatively correlated. Importantly, and in contrast, examples show that there is no systematic relation between consumption cuts and levels of or changes in LTV ratios. The lack of a robust relation between consumption cuts and levels of or changes in LTV ratios implies that tests of these hypotheses should generally not be done by regressions of consumption cuts on levels of or changes in LTV ratios. |
| JEL: | E21 G01 G18 G21 R21 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28806&r= |