|
on Central and Western Asia |
| By: | Hernán Vallejo |
| Abstract: | This article builds a simple model of oligopoly and uses it to make a detailed characterization of the equilibrium prices; quantities; mark-ups; price elasticities of market demand; price elasticities of residual demand; and welfare, all in terms of the parameters of the model. This is done under five different conjectures -Collusion, Threat, Cournot, Stackelberg and Bertrand-. The results of the model are used do comparative statics. |
| Keywords: | Oligopoly, Collusion, Threat, Cournot, Stackelberg, Bertrand, mark-up |
| JEL: | C70 C71 D43 L13 |
| Date: | 2021–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:019428&r= |
| By: | Giovanni Favara; Camelia Minoiu; Ander Perez |
| Abstract: | The unprecedented fiscal and monetary policy support in the wake of the COVID-19 pandemic has brought to the fore concerns that cheap credit could fuel the financing of zombie firms—that is, firms that are unable to generate enough profits to cover debt-servicing costs and that need to borrow to stay alive. Many observers have recently commented that zombie firms may crowd out lending to productive firms and erode the strength of the U.S. economy. |
| Date: | 2021–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2021-07-30-2&r= |
| By: | Szabolcs Deak (Department of Economics, University of Exeter); Paul Levine (School of Economics, University of Surrey); Afrasiab Mirza (Department of Economics, University of Birmingham); Joseph Pearlman (Department of Economics, City University London) |
| Abstract: | We study the design of monetary policy rules robust to model uncertainty across a set of well-established DSGE models with varied financial frictions. In our novel forward-looking approach, policymakers weight models based on relative forecasting performance. We find that models with frictions between households and banks forecast best during periods of financial turmoil while those with frictions between banks and firms perform best during tranquil periods. However, a model without financial frictions performs nearly as well as models with financial frictions on average. The optimal robust policy is close to a price-level rule which is key when facing uncertainty over the nature of financial frictions. |
| Keywords: | Bayesian estimation, DSGE models, financial frictions, forecasting, prediction pools, optimal simple rules |
| JEL: | D18 D91 Z1 C9 |
| Date: | 2021–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:exe:wpaper:2104&r= |
| By: | Sugata Marjit; Noritsugu Nakanishi |
| Abstract: | This paper explores the role of wage fund as the basic source of credit, capital or finance in a dynamic Ricardian model, which consists of three classes of agents: the workers, the capitalist, and the producers of goods. We introduce and develop an elaborate dynamic wage fund model in the context of contemporary economic theory. The modified golden rule can be derived based on a mechanism significantly different from the standard Ramsey-Cass-Koopmans optimal growth framework. We also show that, although international trade in a static setting in the wage fund framework has real asymmetric distributional effects on the welfare of the agents just like the Stolper-Samuelson theorem, those asymmetric distributional impacts are nullified in the dynamic setting. In fact, trade liberalization is Pareto improving along the balanced growth path. |
| Keywords: | wage fund, Ricardo model, modified golden rule, gains from trade, balanced growth path |
| JEL: | B12 B17 F10 F43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9218&r= |
| By: | Peter Akioyamen (Western University); Yi Zhou Tang (Western University); Hussien Hussien (Western University) |
| Abstract: | Financial markets are of much interest to researchers due to their dynamic and stochastic nature. With their relations to world populations, global economies and asset valuations, understanding, identifying and forecasting trends and regimes are highly important. Attempts have been made to forecast market trends by employing machine learning methodologies, while statistical techniques have been the primary methods used in developing market regime switching models used for trading and hedging. In this paper we present a novel framework for the detection of regime switches within the US financial markets. Principal component analysis is applied for dimensionality reduction and the k-means algorithm is used as a clustering technique. Using a combination of cluster analysis and classification, we identify regimes in financial markets based on publicly available economic data. We display the efficacy of the framework by constructing and assessing the performance of two trading strategies based on detected regimes. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.05801&r= |
| By: | Sharma, Rajesh; Shahbaz, Muhammad; Sinha, Avik; Vo, Xuan Vinh |
| Abstract: | The growing size of stock market in the South Asian countries might have contributed to raising the level of industrial production and energy consumption. This upturned energy usage might have widened the scope for carbon emissions because these nations heavily rely on fossil fuels. In this milieu, therefore, in the present study, we assessed the impacts of stock market development, per capita income, trade expansion, renewable energy solutions, and technological innovations on carbon intensity in the four South Asia countries from 1990-2016. The empirical results based on the CS-ARDL approach revealed that stock market development, per capita income, and trade expansion invigorated carbon intensity in the South Asian countries. On the contrary, the increased usage of renewable energy solutions and technological advancement helped in reducing the energy-led carbon intensity. Further, the interaction of stock market with renewable energy, and subsequently with technological advancement delivered insignificant coefficients, which indicates the inefficacy of renewable energy and technological advancement in regulating stock market-led carbon intensity during the study period. Therefore, by considering the need for complementarity between economic growth and environmental targets, we proposed a multipronged policy framework, which may help the selected countries to attain the Sustainable Development Goals, with a special focus on SDG 7, 8, 9, and 13. |
| Keywords: | Stock Market Development; Carbon Intensity; South Asian Countries; Technological Innovations; Renewable Energy; CS-ARDL |
| JEL: | Q2 Q3 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108925&r= |
| By: | Flögel, Volker; Schlag, Christian; Zunft, Claudia |
| Abstract: | Managed portfolios that exploit positive first-order autocorrelation in monthly excess returns of equity factor portfolios produce large alphas and gains in Sharpe ratios. We document this finding for factor portfolios formed on the broad market, size, value, momentum, investment, profitability, and volatility. The value-added induced by factor management via short-term momentum is a robust empirical phenomenon that survives transaction costs and carries over to multi-factor portfolios. The novel strategy established in this work compares favorably to well-known timing strategies that employ e.g. factor volatility or factor valuation. For the majority of factors, our strategies appear successful especially in recessions and times of crisis. |
| Keywords: | factor timing,time series momentum,anomalies |
| JEL: | G12 G17 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:317&r= |
| By: | Gavazza, Alessandro; Lanteri, Andrea |
| Abstract: | This article studies equilibrium dynamics in consumer durable goods markets after aggregate credit shocks. We introduce two novel features into a general-equilibrium model of durable consumption with heterogeneous households facing idiosyncratic income risk and borrowing constraints: (1) indivisible durable goods are vertically differentiated in their quality and (2) trade on secondary markets at market-clearing prices, with households endogenously choosing when to trade or scrap their durables. The model highlights a new transmission mechanism for macroeconomic shocks and successfully matches several empirical patterns that we document using data on U.S. car markets around the Great Recession. After a tightening of the borrowing limit, debt-constrained households postpone the decision to scrap and upgrade their low-quality cars, which depresses mid-quality car prices. In turn, this effect reduces wealthy households’ incentives to replace their mid-quality cars with high-quality ones, thereby decreasing new-car sales. We further use our framework to evaluate targeted fiscal stimulus policies such as the Car Allowance Rebate System in 2009 (“Cash for Clunkers”). |
| Keywords: | credit constraints; durable goods; 771004; SES 1756992 |
| JEL: | E21 E32 L62 |
| Date: | 2021–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:107605&r= |
| By: | Zolea, Riccardo |
| Abstract: | The relation between interest and profit rate is crucial, as it has a major impact on income distribution, and it is relevant for the interpretation of the functioning of the economic system. After reviewing the literature, I try to interpret this relation between rates using banking profitability as the keystone. The condition that the capital employed in the banking industry should receive a profit rate at least equal to the general profit rate, combined with a careful examination of the functioning of the banking sector, makes conceivable an endogenous determination of the interest rate. The bank interest rate on loans is the price of the "loan" commodity, given the production conditions of the banking sector, where the rate set by the central bank constitutes the price of an input of the banking industry. I also analyse the formation of the interest rate structure, taking as starting points the main refinancing rate set by the central bank and the normal profitability of bank capital, with the lending rate on bank loans being the upper margin and the deposit rate the lower margin of the interest rate corridor. The interest rates structure is thus determined by several elements, confirming Marx's idea of a heterogeneous determination of interest rates. Alternatively, it can be assumed that, as the banking industry is characterized by a high degree of monopoly, its profit rate is higher than the average for the rest of the economy. In Marxian terms this reflects contrast between financial capitalists and productive capitalists, where the high degree of monopoly of the banking sector becomes a weapon to capture a higher share of total profits. |
| Keywords: | Bank profitability, rate of profit, interest rate, Marx |
| JEL: | E43 G2 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108973&r= |
| By: | Sumit Shrivastav (Indira Gandhi Institute of Development Research) |
| Abstract: | In this paper, we analyze the profitability of price discrimination based on recognition of consumers' brand preferences, in a duopoly model with switching costs. We show that, in contrast to existing studies, price discrimination results into higher profits than uniform pricing if consumers are heterogeneous in terms of brand preferences and the extent of such heterogeneity is sufficiently high. |
| Keywords: | BBPD, Consumer recognition, Price discrimination |
| JEL: | D43 L13 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2021-019&r= |
| By: | Stéphane Verani; Pei Cheng Yu |
| Abstract: | We show that the supply of life annuities in the U.S. is constrained by interest rate risk. We identify this effect using annuity prices offered by U.S. life insurers from 1989 to 2019 and exogenous variations in contract-level regulatory capital requirements. The cost of interest rate risk management accounts for at least half of the average life annuity markups or eight percentage points. The contribution of interest rate risk to annuity markups sharply increased after the great financial crisis, suggesting new retirees' opportunities to transfer their longevity risk are unlikely to improve in a persistently low interest rate environment. |
| Keywords: | Life insurance; Annuities; Corporate bond market; Retirement; Interest rate risk |
| JEL: | G10 G22 G32 |
| Date: | 2021–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-44&r= |
| By: | Ruf, Johannes; Wang, Weiguan |
| Abstract: | We study neural networks as nonparametric estimation tools for the hedging of options. To this end, we design a network, named HedgeNet, that directly outputs a hedging strategy. This network is trained to minimize the hedging error instead of the pricing error. Applied to end-of-day and tick prices of S&P 500 and Euro Stoxx 50 options, the network is able to reduce the mean squared hedging error of the Black-Scholes benchmark significantly. However, a similar benefit arises by simple linear regressions that incorporate the leverage effect. |
| Keywords: | benchmarking; Black-Scholes; data Leakage; hedging error; leverage effect; statistical hedging; Taylor & Francis deal |
| JEL: | J1 C1 |
| Date: | 2021–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:107811&r= |
| By: | Raúl Gutiérrez-Meave; Juan Rosellón; Luis Sarmiento |
| Abstract: | The analysis of local environmental policies is essential when evaluating the consistency of national public policies vis-à-vis the compliance of global agreements to reduce climate change. This study explores one of these policies; the 2021 Mexican reform to change electric power dispatch from a marginal-cost-based to a command and control physical system prioritizing power generation from the state power company. The new law forces the dispatch of the state company power facilities before private power producers. We use the GENeSYS-MOD techno-economic model to determine the reform’s effect on the power system’s generation mix, cost structure, and anthropogenic emissions. For this, we optimize the model under three distinct scenarios; a business-as-usual scenario with no changes to the merit order, a model with the new physical order dispatch, and an additional case where in addition to the shift to the physical dispatch, we reduce the price of fuel oil below natural gas prices to simulate the current behavior of the power company. It is relevant to note that we optimize the energy system without any assumption regarding renewable targets or climate goals because of political uncertainty and the need of pinpoint the effect of the merit order change while avoiding possible variations in the state-space arising from other constraints. Our results show that by 2050, the new dispatch rule increases the market power of the state company to 99% of total generation and decreases the share of renewable technologies in the generation mix from 72% to 51%. Additionally, cumulative power sector emissions increase by 563 Megatons of CO2, which with the current cost of carbon in the European Emissions Trading System translates to around 36 billion Euros |
| Keywords: | Merit Order Rules; Power Sector; Energy Reform; Mexico; GENeSYS-MOD |
| JEL: | Q42 Q47 Q48 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1955&r= |
| By: | Sydow, Matthias; Schilte, Aurore; Covi, Giovanni; Deipenbrock, Marija; Del Vecchio, Leonardo; Fiedor, Paweł; Fukker, Gábor; Gehrend, Max; Gourdel, Régis; Grassi, Alberto; Hilberg, Björn; Kaijser, Michiel; Kaoudis, Georgios; Mingarelli, Luca; Montagna, Mattia; Piquard, Thibaut; Salakhova, Dilyara; Tente, Natalia |
| Abstract: | This paper shows how the combined endogenous reaction of banks and investment funds to an exogenous shock can amplify or dampen losses to the financial system compared to results from single-sector stress testing models. We build a new model of contagion propagation using a very large and granular data set for the euro area. Based on the economic shock caused by the Covid-19 outbreak, we model three sources of exogenous shocks: a default shock, a market shock and a redemption shock. Our contagion mechanism operates through a dual channel of liquidity and solvency risk. The joint modelling of banks and funds provides new insights for the assessment of financial stability risks. Our analysis reveals that adding the fund sector to our model for banks leads to additional losses through fire sales and a further depletion of banks’ capital ratios by around one percentage point. JEL Classification: D85, G01, G21, G23, L14 |
| Keywords: | fire sales, liquidity, overlapping portfolios, price impact, stress testing |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212581&r= |
| By: | Papp, Gábor; Kondor, Imre; Caccioli, Fabio |
| Abstract: | Expected Shortfall (ES), the average loss above a high quantile, is the current financial regulatory market risk measure. Its estimation and optimization are highly unstable against sample fluctuations and become impossible above a critical ratio r = N/T, where N is the number of different assets in the portfolio, and T is the length of the available time series. The critical ratio depends on the confidence level a, which means we have a line of critical points on the α-r plane. The large fluctuations in the estimation of ES can be attenuated by the application of regularizers. In this paper, we calculate ES analytically under an `1 regularizer by the method of replicas borrowed from the statistical physics of random systems. The ban on short selling, i.e., a constraint rendering all the portfolio weights nonnegative, is a special case of an asymmetric Ɩ1 regularizer. Results are presented for the out-of-sample and the in-sample estimator of the regularized ES, the estimation error, the distribution of the optimal portfolio weights, and the density of the assets eliminated from the portfolio by the regularizer. It is shown that the no-short constraint acts as a high volatility cutoff, in the sense that it sets the weights of the high volatility elements to zero with higher probability than those of the low volatility items. This cutoff renormalizes the aspect ratio r = N/T, thereby extending the range of the feasibility of optimization. We find that there is a nontrivial mapping between the regularized and unregularized problems, corresponding to a renormalization of the order parameters. Expected Shortfall (ES), the average loss above a high quantile, is the current financial regulatory market risk measure. Its estimation and optimization are highly unstable against sample fluctuations and become impossible above a critical ratio r = N/T, where N is the number of different assets in the portfolio, and T is the length of the available time series. The critical ratio depends on the confidence level a, which means we have a line of critical points on the a-r plane. The large fluctuations in the estimation of ES can be attenuated by the application of regularizers. In this paper, we calculate ES analytically under an `1 regularizer by the method of replicas borrowed from the statistical physics of random systems. The ban on short selling, i.e., a constraint rendering all the portfolio weights nonnegative, is a special case of an asymmetric Ɩ1 regularizer. Results are presented for the out-of-sample and the in-sample estimator of the regularized ES, the estimation error, the distribution of the optimal portfolio weights, and the density of the assets eliminated from the portfolio by the regularizer. It is shown that the no-short constraint acts as a high volatility cutoff, in the sense that it sets the weights of the high volatility elements to zero with higher probability than those of the low volatility items. This cutoff renormalizes the aspect ratio r = N/T, thereby extending the range of the feasibility of optimization. We find that there is a nontrivial mapping between the regularized and unregularized problems, corresponding to a renormalization of the order parameters. |
| Keywords: | portfolio optimization; regularization; renormalization |
| JEL: | F3 G3 J1 |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:111051&r= |
| By: | Terrence Hendershott (University of California, Berkeley - Haas School of Business); Dmitry Livdan (University of California, Berkeley); Norman Schürhoff (University of Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)) |
| Abstract: | We examine technology enabling dispersed investors to directly trade with each other in over-the-counter markets via the largest electronic trading platform in corporate bonds starting Open Trading (OT) to allow investor-to-investor trading. Over our six-year sample, OT steadily grew to win 12% of trades on the platform, with 2% being investor-to-investor trading, 3% being dealers trading with new clients, and 7% being new liquidity providers acting like dealers. This suggests that investors in corporate bonds prefer intermediation to direct trade. However, OT can enable new dealers to compete in liquidity provision. OT's steady growth facilitates measuring its effect on investors, dealers, and competition to provide liquidity using an auction model. |
| Keywords: | Over-the-counter markets, electronic trading, request for quote, open trading, corporate bonds, dealers |
| JEL: | G12 G14 G19 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2143&r= |
| By: | Michael Fritsch (Friedrich Schiller University Jena, Germany); Martin Obschonka (Queensland University of Technology, Brisbane, Australia); Fabian Wahl (University of Hohenheim, Germany); Michael Wyrwich (University of Groningen, The Netherlands, and Friedrich Schiller University Jena, Germany) |
| Abstract: | A region’s present-day economic performance can be deeply anchored in historical factors. We provide the first systematic evidence of a deep imprinting effect in the context of Roman rule in the south-western part of Germany nearly 2,000 years ago. Our analysis reveals that regions in the former Roman part of Germany show a stronger entrepreneurship and innovation culture today, evident by higher levels of quantity and quality entrepreneurship and innovation. The data indicate that this lasting 'Roman effect' was constituted by the early establishment of interregional social and economic exchange and related infrastructure. Our findings thus help in unpacking the hidden cultural roots of present-day economic performance, with important implications for research and economic policy. |
| Keywords: | Entrepreneurship, innovation, historical roots, Romans, Limes |
| JEL: | N9 O1 I31 |
| Date: | 2021–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2021-012&r= |
| By: | Häusler, Konstantin; Xia, Hongyu |
| Abstract: | Several cryptocurrency (CC) indices track the dynamics of the rising CC sector, and soon ETFs will be issued on them. We conduct a qualitative and quantitative evaluation of the currently existing CC indices. As the CC sector is not yet consolidated, index issuers face the challenge of tracking the dynamics of a fast-growing sector that is under continuous transformation. We propose several criteria and various measures to compare the indices under review. Major differences between the indices lie in their weighting schemes, their coverage of CCs and the number of constituents, the level of transparency, and thus their accuracy in mapping the dynamics of the CC sector. Our analysis reveals that indices that adapt dynamically to this rising sector outperform their competitors. Interestingly, increasing the number of constituents does not automatically lead to a better fit of the CC sector. |
| Keywords: | Cryptocurrency,Index,Market Dynamics,Bitcoin |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:irtgdp:2021014&r= |
| By: | Thomas Conlon; John Cotter; Iason Kynigakis |
| Abstract: | We examine machine learning and factor-based portfolio optimization. We find that factors based on autoencoder neural networks exhibit a weaker relationship with commonly used characteristic-sorted portfolios than popular dimensionality reduction techniques. Machine learning methods also lead to covariance and portfolio weight structures that diverge from simpler estimators. Minimum-variance portfolios using latent factors derived from autoencoders and sparse methods outperform simpler benchmarks in terms of risk minimization. These effects are amplified for investors with an increased sensitivity to risk-adjusted returns, during high volatility periods or when accounting for tail risk. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.13866&r= |
| By: | Divakaruni, Anantha; Zimmerman, Peter |
| Abstract: | In April 2020, the US government sent economic impact payments (EIPs) directly to households, as part of its measures to address the COVID-19 pandemic. We characterize these stimulus checks as a wealth shock for households and examine their effect on retail trading in Bitcoin. We find a significant increase in Bitcoin buy trades for the modal EIP amount of $1,200. The rise in Bitcoin trading is highest among individuals without families and at exchanges catering to nonprofessional investors. We estimate that the EIP program has a significant but modest effect on the US dollar–Bitcoin trading pair, increasing trade volume by about 3.8 percent. Trades associated with the EIPs result in a slight rise in the price of Bitcoin of 7 basis points. Nonetheless, the increase in trading is small compared to the size of the stimulus check program, representing only 0.02 percent of all EIP dollars. We repeat our analysis for other countries with similar stimulus programs and find an increase in Bitcoin buy trades in these currencies. Our findings highlight how wealth shocks affect retail trading. |
| Date: | 2021–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:khw8a&r= |
| By: | Giuseppe Fiori (Board of Governors of the Federal Reserve System); Filippo Scoccianti (Bank of Italy) |
| Abstract: | This paper uses over two decades of Italian survey data on business managers’ expectations to measure subjective firm-level uncertainty and quantify its economic effects. We document that firm-level uncertainty persists for a few years and varies across firms’ demographic characteristics. Uncertainty induces long-lasting economic effects over a broad array of real and financial variables. The source of uncertainty matters with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes. Economy-wide uncertainty, constructed aggregating firmlevel uncertainty, is countercyclical but uncorrelated with typical proxies in the literature, and accounts for a sizable amount of GDP variation during crises. |
| Keywords: | uncertainty, business cycles, investment, expectations, cash holdings, downside uncertainty |
| JEL: | D24 E22 E24 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_630_21&r= |
| By: | Yulianti Abbas (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia); Christine Tjen (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia); Panggah Tri Wicaksono (Department of Accounting, Faculty of Economics and Business, Universitas Indonesia) |
| Abstract: | This study aimed to examine the effectiveness of “Pajak Bertutur”, a tax education program in Indonesia. We analyze whether there were differences in students’ tax awareness before and after the program, and whether the results of the program were influenced by students’ familiarity with taxation. We distributed an online survey questionnaire to all students participating in the 2020 tax education program, resulting in a total of 693 responses, 461 for pre-survey and 232 for post-survey. Using multivariate regression analysis, our results suggest that students’ tax awareness level increased after the tax education program. We also found that the increase in tax awareness was greater for students who are familiar with tax authority website and those who have learned about taxation before the event. These findings thus indicate that the effectiveness of the tax education program is influenced by the students’ prior knowledge, emphasizing that a continuous tax education program is necessary to improve tax awareness. |
| Keywords: | tax education — — tax awareness — tax knowledge — tax inclusion |
| JEL: | A22 H20 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lpe:wpaper:202160&r= |
| By: | Mary A. Burke; Ali K. Ozdagli |
| Abstract: | Recent research offers mixed results concerning the relationship between inflation expectations and consumption, using qualitative measures of readiness to spend. We revisit this question using survey panel data of actual spending from the U.S. between 2009 and 2012 that also allows us to control for household heterogeneity. We find that durables spending increases with expected inflation only for selected types of households while nondurables spending does not respond to expected inflation. Moreover, spending decreases with expected unemployment. These results imply a limited stimulating effect of inflation expectations on aggregate consumption, which could be reversed if inflation and unemployment expectations move together. |
| Keywords: | Inflation expectations; survey data; durable and nondurable goods consumption |
| JEL: | D12 E52 E58 |
| Date: | 2021–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:92968&r= |
| By: | Hernán Vallejo |
| Abstract: | This article proves that at the level of an individual ceteris paribus, when the endowments of goods in general -and of time in particular-, are taken into account, a good has to comply with the Law of Demand if it is normal and its excess demand is positive, or if it is inferior and its excess demand is negative. This result holds even if either the substitution effect is zero; or the excess demand and=or the income effect are zero; but not otherwise. This article also outlines other conditions under which a good will not comply with the Law of Demand, by being Giffen or perfectly inelastic to its price. It is proved that the widespread idea that a Giffen good has to be an inferior good applies only to the cases where the excess demand of such good, is positive. It is also argued that accounting for Veblen goods may require considering other determinants of the demand function, beyond the ones considered in this article |
| Keywords: | Ordinary Goods, Giffen Goods, Veblen Goods, Normal Goods, Inferior Goods, Inelastic Goods |
| JEL: | D01 D11 J22 |
| Date: | 2021–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:019423&r= |
| By: | Katharina Erhardt; Simon Haenni |
| Abstract: | Can culture explain persistent differences in economic activity among individuals and across regions? A novel measure of cultural origin enables us to contrast the entrepreneurial activity of individuals located in the same municipality but whose ancestors lived just on opposite sides of the Swiss language border in the 18th century. Individuals with ancestry from the German-speaking side create 20% more firms than those with ancestry from the French-speaking side. These differences persist over generations and independent of the predominant culture at the current location. Yet, founders’ ancestry does not affect exit or growth of newly-founded firms. A model of entrepreneurial choice and complementary survey evidence suggest that the empirical patterns are mainly explained by differences in preferences, rather than skill. The results have sizable economic implications, accounting for 120,000 additional jobs over a period of 15 years. |
| Keywords: | culture, entrepreneurship, natural experiment, spatial RDD |
| JEL: | D22 L26 O12 Z10 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9198&r= |
| By: | Oliver, Adam |
| Abstract: | The principal objective of the liberal economic tradition is to encourage mutually advantageous actions between individuals, and the best means by which to do this, according to those who follow this tradition, is a demand-led competitive market. This article summaries the propositions of the liberal economic tradition and concludes that while its components ought to be tolerated over private decision-making in order to protect individual autonomy, the demand-led competitive market provides incentives for egoistic actions that may harm groups, and by extension, the individuals within those groups. As such, it is argued that it is not sensible to introduce or maintain a demand-led competitive market in public sector services because it may undermine the pursuit of broadly agreed-upon collective goals in these sectors. The article finishes with a discussion of some alternative public sector policy mechanisms that may better serve the aim of crowding in cooperative actions and behaviours. |
| Keywords: | competition; cooperation; egoism; governance; liberalism; reciprocity |
| JEL: | J1 |
| Date: | 2020–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:103060&r= |
| By: | Minford, Patrick (Cardiff Business School) |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/18&r= |
| By: | Fang Liu |
| Abstract: | It is common to encounter the situation with uncertainty for decision makers (DMs) in dealing with a complex decision making problem. The existing evidence shows that people usually fear the extreme uncertainty named as the unknown. This paper reports the modified version of the typical regret theory by considering the fear experienced by DMs for the unknown. Based on the responses of undergraduate students to the hypothetical choice problems with an unknown outcome, some experimental evidences are observed and analyzed. The framework of the modified regret theory is established by considering the effects of an unknown outcome. A fear function is equipped and some implications are proved. The behavioral foundation of the modified regret theory is further developed by modifying the axiomatic properties of the existing one as those based on the utility function; and it is recalled as the utility-based behavioral foundation for convenience. The application to the medical decision making with an unknown risk is studied and the effects of the fear function are investigated. The observations reveal that the existence of an unknown outcome could enhance, impede or reverse the preference relation of people in a choice problem, which can be predicted by the developed regret theory. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.01825&r= |
| By: | Frings, Hanna; Kamb, Rebecca |
| Abstract: | Using administrative data for West Germany, we study the relative importance of different determinants of the urban wage premium. More explicitly, we distinguish worker sorting, as well as portable and non-portable agglomeration effects. Our results indicate that worker sorting explains about two thirds of the urban-rural wage gap. We show that the estimated fraction of the urban wage premium attributed to worker sorting differs considerably depending on the selectivity of the sample used for identification and provide guidance how this selectivity can be reduced. Agglomeration effects explain about one third of the urban wage premium, with portable and non-portable agglomeration effects being of similar importance. |
| Keywords: | Urban wage premium,sorting,agglomeration |
| JEL: | R23 J31 J60 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:916&r= |
| By: | Galstyan, Vahagn (Central Bank of Ireland) |
| Abstract: | This paper analyses the empirical relation between inflation and unemployment over the past 25 years by using a panel state-space model. After controlling for the global factor, I find that the domestic rate of unemployment explains 11 percent in the variation of headline inflation, suggesting a significant power that domestic slack has in influencing medium-term core inflation. The global factor, in turn, is well explained by global oil and food prices as well as global trade integration. The contribution of the global slack in explaining the global component of inflation is negligible. Additionally, using a set of threshold regressions, I identify break points that split inflation dynamics into various regimes. In particular, I find a higher sensitivity of inflation to unemployment in high-inflation and/or low unemployment regimes. This finding is consistent with less frequent price adjustments of firms in low-inflation and high-unemployment environments. |
| Keywords: | Phillips Curve, State-Space Model, Non-Linearities |
| JEL: | E31 E32 E50 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:5/rt/21&r= |
| By: | Jaydip Sen; Sidra Mehtab |
| Abstract: | Designing an optimum portfolio that allocates weights to its constituent stocks in a way that achieves the best trade-off between the return and the risk is a challenging research problem. The classical mean-variance theory of portfolio proposed by Markowitz is found to perform sub-optimally on the real-world stock market data since the error in estimation for the expected returns adversely affects the performance of the portfolio. This paper presents three approaches to portfolio design, viz, the minimum risk portfolio, the optimum risk portfolio, and the Eigen portfolio, for seven important sectors of the Indian stock market. The daily historical prices of the stocks are scraped from Yahoo Finance website from January 1, 2016, to December 31, 2020. Three portfolios are built for each of the seven sectors chosen for this study, and the portfolios are analyzed on the training data based on several metrics such as annualized return and risk, weights assigned to the constituent stocks, the correlation heatmaps, and the principal components of the Eigen portfolios. Finally, the optimum risk portfolios and the Eigen portfolios for all sectors are tested on their return over a period of a six-month period. The performances of the portfolios are compared and the portfolio yielding the higher return for each sector is identified. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.11371&r= |
| By: | Dean Spears (University of Texas at Austin [Austin], Indian Statistical Institute [New Delhi], IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics, IFFS - Institute for Futures Studies); Stéphane Zuber (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Utilitarianism is the most prominent family of social welfare functions. We present three new axiomatic characterizations of utilitarian (that is, additively separable) social welfare functions in a setting where there is risk over both population size and the welfares of individuals. First, we show that, given uncontroversial basic axioms, Blackorby et al.'s (1998) Expected Critical-Level Generalized Utilitarianism (ECLGU) is equivalent to a new axiom holding that it is better to allocate higher utility-conditional-on-existence to possible people who have a higher probability of existence. The other two novel characterizations extend classic axiomatizations of utilitarianism from settings with either social risk or variable-population, considered alone. By considering both social risk and variable population together, we clarify the fundamental normative considerations underlying utilitarian policy evaluation. |
| Keywords: | Social risk,population ethics,utilitarianism,expected critical-level generalized utilitarianism,prioritarianism |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03287583&r= |
| By: | Harald Hau (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)); Yi Huang (Graduate Institute of International and CEPR); Hongzhe Shan (Swiss Finance Institute, Swiss Finance Institute, Students); Zixia Sheng (New Hope Financial Services) |
| Abstract: | Based on automated credit lines to more than two million vendors trading on Alibaba’s online retail platform, we show how the take-up of FinTech credit varies with the entrepreneur’s bank distance. Proximity to the branches of the five largest stateowned banks correlates positively with the take-up of FinTech credit and suggests more severe credit frictions for Chinese e-commerce vendors close to such banks. We use a discontinuity in the credit decision algorithm to document that a firm’s credit approval and credit use boost a vendor’s sales and transaction growth. Entrepreneurial growth after access to FinTech credit is largest for younger e-commerce firms and in the month of first-time credit approval. |
| Keywords: | FinTech, credit constraints, micro credit, entrepreneurship |
| JEL: | G20 G21 O43 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2147&r= |
| By: | Matteo Aquilina; Eric Budish; Peter O'Neill |
| Abstract: | We use stock exchange message data to quantify the negative aspect of high-frequency trading, known as "latency arbitrage". The key difference between message data and widely familiar limit order book data is that message data contain attempts to trade or cancel that fail. This allows the researcher to observe both winners and losers in a race, whereas in limit order book data you cannot see the losers, so you cannot directly see the races. We find that latency arbitrage races are very frequent (about one per minute per symbol for FTSE 100 stocks), extremely fast (the modal race lasts 5-10 millionths of a second), and account for a remarkably large portion of overall trading volume (about 20%). Race participation is concentrated, with the top six firms accounting for over 80% of all race wins and losses. The average race is worth just a small amount (about half a price tick), but because of the large volumes the stakes add up. Our main estimates suggest that races constitute roughly one third of price impact and the effective spread (key microstructure measures of the cost of liquidity), that latency arbitrage imposes a roughly 0.5 basis point tax on trading, that market designs that eliminate latency arbitrage would reduce the market's cost of liquidity by 17%, and that the total sums at stake are on the order of $5 billion per year in global equity markets alone. |
| Keywords: | market design, high-frequency trading, financial exchanges, liquidity, latency arbitrage, trading volume, message data |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:955&r= |
| By: | Fulvia Fringuellotti; Joao A. C. Santos |
| Abstract: | We show that insurance companies have almost nonupled their investments in collateralized loan obligations (CLOs) in the post-crisis period, reaching total holdings of $125 billion in 2019. The growth in CLOs’ investments has far outpaced that of loans and corporate bonds, and was characterized by a strong preference for mezzanine tranches rated investment grade over triple-A rated tranches. We document that these phenomena reflect a search for yield behavior. Conditional on capital charges, insurance companies invest more heavily in bonds and CLO tranches with higher yields. Preferences for CLO tranches derived from tranches’ higher yields relative to bonds with the same rating, and increased following the 2010 capital regulatory reform, resulting in insurance companies holding more than 40 percent of mezzanine tranches outstanding in 2019. In the process, insurance companies created the demand for the risky tranches that are critical to the CLO issuance. |
| Keywords: | insurance companies; CLOs; regulatory arbitrage; corporate loans; securitization |
| JEL: | G11 G20 G22 |
| Date: | 2021–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:92942&r= |
| By: | Bachir El Murr (Université Libanaise); Genane Youness (CEDRIC - Centre d'études et de recherche en informatique et communications - ENSIIE - Ecole Nationale Supérieure d'Informatique pour l'Industrie et l'Entreprise - CNAM - Conservatoire National des Arts et Métiers [CNAM]); Hala Gharib; Mayssaa Daher |
| Abstract: | This paper sheds light on the role the financial literacy features may play amid other determinant factors of individual success. A survey is conducted on a random sample of households' members, based on the individual perception as an assessment criteria of financial literacy status and career success. A non-parametric method, ctree, and a semi-parametric method, the multivariate logistic regression with interaction using random forest, are used. The two models are built to perform supervised learning classifications. They are validated through 10-fold cross validation technique to assure their capability to predict key factors of individual success, among which financial literacy features. It shows that personal and socioeconomic factors do not have any noticeable impact on professional success. Current educational system seems offering light insight on the professional perspectives of individuals. Financial literacy factors |
| Keywords: | financial literacy,individual success,ctree,multivariate logistic regression,Random Forest |
| Date: | 2021–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03295623&r= |
| By: | Cesa-Bianchi, Ambrogio (Bank of England); Ferrero, Andrea (Bank of England) |
| Abstract: | Sectoral supply shocks can trigger shortages in aggregate demand when strong sectoral complementarities are at play. US data on sectoral output and prices offer support to this notion of ‘Keynesian supply shocks’ and their underlying transmission mechanism. Demand shocks derived from standard identification schemes using aggregate data can originate from sectoral supply shocks that spillover to other sectors via a Keynesian supply mechanism. This finding is a regular feature of the data and is independent of the effects of the 2020 pandemic. In a New Keynesian model with input-output network calibrated to three-digit US data, sectoral productivity shocks generate the same pattern for output growth and inflation as observed in the data. The degree of sectoral interconnection, both upstream and downstream, and price stickiness are key determinants of the strength of the mechanism. Sectoral shocks may account for a larger fraction of business-cycle fluctuations than previously thought. |
| Keywords: | Keynesian supply shocks; input-output matrix; granular fluctuations; approximate factor model |
| JEL: | C32 E23 E32 |
| Date: | 2021–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0934&r= |
| By: | Sofonias A. Korsaye (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute); Alberto Quaini (University of Geneva); Fabio Trojani (Swiss Finance Institute; University of Geneva) |
| Abstract: | We propose a novel no-arbitrage framework, which exploits convex asset pricing constraints to study investors’ marginal utility of wealth or, more generally, Stochastic Discount Factors (SDFs). We establish a duality between minimum dispersion SDFs and penalized portfolio selection problems, building the foundation for characterizing the feasible tradeoffs between a SDF’s pricing accuracy and its comovement with systematic risks. Empirically, a minimum variance CAPM–SDF produces a Pareto optimal tradeoff. This SDF only depends on two distinct risk factors: A traded market factor and a minimum variance excess return that bounds the mispricing of risks unspanned by market shocks. |
| Keywords: | SDF, Convex Pricing Constraints, Minimum Dispersion SDF, Market Frictions, SDF regularization, Arbitrage Pricing Theory |
| JEL: | G12 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2151&r= |
| By: | Bernardo Melo Pimentel (NOVA SBE - NOVA - School of Business and Economics - NOVA - Universidade Nova de Lisboa = NOVA University Lisbon, ISEG - ISEG-Lisbon School of Economics and Management - University of Lisbon); Guillermo Ramírez (ESCP Europe - Ecole Supérieure de Commerce de Paris) |
| Abstract: | We describe how Sustainable Finance is understood in the European context, its current state, and its outlook. We argue that while the framework currently being developed to standardize our understanding of sustainable investments is absolutely necessary, it is also crucial for concrete laws and regulations to be created to incentivize actors in the financial markets to redirect funds from non-sustainable investments to sustainable alternatives. |
| Date: | 2021–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03286596&r= |
| By: | Upasana Ghosh |
| Abstract: | With the advancement of technology, data protection and data privacy have become a major concern. People are mostly occupied by the internet, computer and mobile phones nowadays. From buying medicines, cosmetics, grocery items, food, clothes etc, or finding a groom or bride, or managing finances, people are dependent on online apps or websites, which often lead to breach of private data if not used cautiously. Data protection is now under threat by the interference of strangers. Thus, in this study, an attempt has been made to explore the viewpoint of the netizens on online financial transactions and whether the existing cyber laws in India are giving sufficient protection to the right of privacy and confidentiality of the netizens. Key Words: : technology, internet, cyber security, financial frauds, law, netizens |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:vor:issues:2021-38-09&r= |
| By: | Golnaz Shahtahmassebi; Lascelles Wright |
| Abstract: | Online trading has attracted millions of people around the world. In March 2021, it was reported there were 18 million accounts from just one broker. Historically, manipulation in financial markets is considered to be fraudulently influencing share, currency pairs or any other indices prices. This article introduces the idea that online trading platform technical issues can be considered as brokers manipulation to control traders profit and loss. More importantly it shows these technical issues are the contributing factors of the 82% risk of retail traders losing money. We identify trading platform technical issues of one of the world's leading online trading providers and calculate retail traders losses caused by these issues. To do this, we independently record each trade details using the REST API response provided by the broker. We show traders log activity files is the only way to assess any suspected profit or loss manipulation by the broker. Therefore, it is essential for any retail trader to have access to their log files. We compare our findings with broker's Trustpilot customer reviews. We illustrate how traders' profit and loss can be negatively affected by broker's platform technical issues such as not being able to close profitable trades, closing trades with delays, disappearance of trades, disappearance of profit from clients statements, profit and loss discrepancies, stop loss not being triggered, stop loss or limit order triggered too early. Although regulatory bodies try to ensure that consumers get a fair deal, these attempts are hugely insufficient in protecting retail traders. Therefore, regulatory bodies such as the FCA should take these technical issues seriously and not rely on brokers' internal investigations, because under any other circumstances, these platform manipulations would be considered as crimes and connivingly misappropriating funds. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2107.14055&r= |
| By: | Ly Dai Hung (Vietnam Institute of Economics, Hanoi, Vietnam) |
| Abstract: | The paper investigates the dependence pattern of economic growth on external debts supply by accounting for the safety of debts, measured by the sovereign debts rating. The method of cross-section regression is based on a sample of 145 advanced and developing economies with averaged data over 1990-2019 period. The pattern of economic growth follows an U-shaped curve, for which the growth rate is first decreasing then increasing on the external debts supply. An possible explaination can rely on the sovereign debts rating. For low supply of external debts, a higher supply of debts reduces the debts rating, which, in turn, lowers the economic growth rate. But for high enough supply of debts, more debts raise their rating, then, improving the growth rate. These results are robust on controlling for various determinants of economic growth and on the fixed-effect panel regression. |
| Keywords: | Economic Growth,Cross-Section Regression,Panel Regression,External Debts |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03277527&r= |
| By: | Haroon Bhorat; Arabo Ewinyu; Kezia Lilenstein; Christopher Rooney; François Steenkamp; Amy Thornton (Development Policy Research Unit, University of Cape Town) |
| Abstract: | The paper is structured as follows: Section 2 provides an overview of the performance of South Africa’s post-apartheid economy. In order to provide a reference point from which to compare the targeted products (sectors) generated using complexity analytics, Section 3 reviews South African industrial policy, specifically the Industrial Policy Action Plan (IPAP). Section 4 does the following: First, South Africa’s level of economic complexity is presented. South Africa’s economic complexity in relation to regional groupings and other African economies is also examined. Second, the product space approach is used to examine South Africa’s existing productive structure, as well the extent to which it has undergone structural transformation in the post-apartheid period. Section 5 uses complexity analytics to identify potential channels for future diversification. The approach is unique in the sense that the avenues for diversification are identified at the granular product level. In Section 6 we consider five industrial sectors that house a number of the frontier products, namely, agro-processing, transport, metals, machinery and equipment, and stone and glass. For each of these sectors, we describe the employment potential of the relevant frontier product, the diversification options that arise from manufacturing the product, and the constraints that hinder the realisation of the diversification path toward the frontier product. This is informed by firm and industry association interviews. Section 7 discusses employment trends for industries housing frontier products, by discussing whether growth in the industry will encourage higher levels of employment or not. This discussion focusses on the employment potential for women and youth. Section 8 of the paper identifies key themes that should inform policy considerations concerning diversification into the frontier products. |
| Keywords: | Economic complexity, economic development, South African economy, structural transformation, women, youth, employment |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:ctw:wpaper:201905&r= |
| By: | Pashchenko, Svetlana; Porapakkarm, Ponpoje |
| Abstract: | How does the value of life affect annuity demand? To address this question, we construct a portfolio choice problem with three key features: i) agents have access to life-contingent assets, ii) they always prefer living to dying, iii) agents have non-expected utility preferences. We show that as utility from being alive increases, annuity demand decreases (increases) if agents are more (less) averse to risk rather than to intertemporal fluctuations. Put differently, if people prefer early resolution of uncertainty, they are less interested in annuities when the value of life is high. Our findings have two important implications. First, we get better understanding of the well-known annuity puzzle. Second, we argue that the observed low annuity demand provides evidence that people prefer early rather than late resolution of uncertainty. |
| Keywords: | annuities, value of a statistical life, portfolio choice problem, life-contingent assets, longevity insurance |
| JEL: | D91 G11 G22 |
| Date: | 2021–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:108886&r= |
| By: | Ruiz-García, J. C. |
| Abstract: | How do financial frictions affect firm dynamics, allocation of resources across firms, and aggregate productivity and output? Is the nature of productivity shocks that firms face primary for the effects of financial frictions? I first use a comprehensive dataset of Spanish firms from 1999 to 2014 to estimate non-parametrically the firm productivity dynamics. I find that the productivity process is non-linear, as persistence and shock variability depend on past productivity, and productivity shocks are non-Gaussian. These dynamics differ from the ones implied by a standard AR(1) process, commonly used in the firm dynamics literature. I then build a model of firm dynamics with financial frictions in which productivity shocks are non-linear and non-Gaussian. The model is consistent with a host of evidence on firm dynamics, financial frictions, and firms’ financial behaviour. In the model economy, financial frictions affect the firm life cycle. Without financial frictions, the size of an entrant firm will be three times larger. Furthermore, profit accumulation, which allows firms to overcome financial frictions, is slow, and it only speeds up when firms are mature. As a consequence, the average exiting firm is smaller than it would be without financial frictions. The aggregate consequences of financial frictions are significant. They result in misallocation of capital and reduce aggregate productivity by 16%. This figure is only 8% if productivity dynamics evolve according to a standard AR(1) process. |
| Keywords: | Firm Dynamics, Non-Linear Productivity Process, Financial Frictions, Misallocation |
| JEL: | E22 G32 O16 |
| Date: | 2021–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2157&r= |
| By: | Katerina Ivanov (McColl School of Business, Queens University of Charlotte) |
| Abstract: | This paper examines the relationship between different forms of credit enhancement and bank contribution to systemic crashes. The findings demonstrate that the overall level of contractual retained interests and guarantees offered to own securitization structures poses a significant threat to financial system stability, although this varies for different types of the underlying assets as well as subordinated structure of interest retention. The amount of credit exposure arising from credit enhancements increases BHCs' contribution to market crashes, while ownership interest in loans and obligations to provide funding do not seem to affect the level of risk BHCs inject into the system. Recourse credit enhancement in mortgage and consumer securitizations is a significant determinant of systemic risks injected by banks into the market with the former one having the strongest economic impact. The implicit credit enhancement in commercial loans tends to decrease systemic risk contribution. The results are not driven by the level of securitization activities, although the economic effect is stronger for large securitizers. The findings have direct implications for the most recent changes in legislation requiring originating banks to retain a material portion of credit risks of securitized loans through retained interests mechanisms. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:msb:wpaper:2021-01&r= |
| By: | Nitin Harak (ONGC Videsh Limited); A. Ganesh Kumar (Indira Gandhi Institute of Development Research) |
| Abstract: | Natural gas as a source of clean fuel is important in many economies. With the increase of trade in gas led by LNG trade, market integration as occurred in other sectors is been promoted in various regions of the world. However, in India, the objective to address distributional concerns and domestic economic growth superseded the reform agenda with India adopting the market intervention approach of controlling energy prices. The policies were greatly focused towards the allocation of natural gas to priority sectors like fertiliser, city gas distribution, power, etc. at affordable prices as the output prices of these sectors are subsidised. The interlocking of subsidies of the demanding sector and ad-hoc pricing procedure adopted for gas pricing has resulted in a distorted market. As a result, natural gas share in primary energy consumption in India is about 8 percent as compared World average of 24 percent (2013). This paper examines the impacts of price reforms in the natural gas sector. In particular, the paper attempts to quantify the impacts of sequencing the pricing reforms under three plausible scenarios (a) introduce upstream price reform without introducing reforms in the consuming sectors i.e. fertiliser, power sector and city gas distribution (b) introduce price reform along with partial reforms in downstream reform by removing the prioritised gas allocation policy and allowing consuming sectors to pass the increase in energy price to the end-users and introduction of full reform i.e. price and quantity. Further, to stimulate the decision-making process for resolving the issues, the paper proposes policy recommendations. |
| Keywords: | Natural gas, Price reforms, General equilibrium modelling |
| JEL: | C68 N75 Q41 Q48 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2021-018&r= |
| By: | Lawrence Christiano; Husnu Dalgic; Armen Nurbekyan |
| Abstract: | We present data that suggests financial dollarization is primarily a device for reallocating business cycle income risk between different people within emerging market economies, rather than across different countries. Although we identify sources of fragility in some aspects of dollarization, the common view that financial dollarization is a source of fragility is over-stated. We develop a simple model which formalizes the insurance view, which is consistent with the key crosscountry facts on interest rate differentials, deposit dollarization and exchange rate depreciations in recessions. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_306&r= |
| By: | Kevin Pineda-Hernández (Université libre de Bruxelles, SBS-EM (CEBRIG & DULBEA) Université de Mons (humanOrg)); François Rycx (Université libre de Bruxelles, SBS-EM (CEBRIG & DULBEA) GLO, humanOrg, IRES, IZA); Mélanie Volral (Université de Mons (humanOrg) DULBEA) |
| Abstract: | Although many studies point to the significant influence of collective bargaining institutions on earnings inequalities, evidence on how these institutions shape poverty rates across developed economies remains surprisingly scarce. It would be a mistake, though, to believe that the relationship between earnings inequalities and poverty is straightforward. Indeed, whereas earnings inequalities are measured at the individual level, poverty is calculated at the household level using equivalised (disposable) incomes. Accordingly, in most developed countries poverty is not primarily an issue of the working poor. This paper explicitly addresses the relationship between collective bargaining systems and working-age poverty rates in 24 developed countries over the period 1990-2015. Using an up-to-date and fine-grained taxonomy of bargaining systems and relying on state-of-the-art panel data estimation techniques, we find that countries with more centralised and/or coordinated bargaining systems display significantly lower working-age poverty rates than countries with largely or fully decentralized systems. However, this result only holds in a post-tax benefit scenario. Controlling for countryfixed effects and endogeneity, our estimates indeed suggest that the poverty-reducing effect of collective bargaining institutions stems from the political strength of trade unions in promoting public social spending rather than from any direct effect on earnings inequalities. |
| Keywords: | Collective bargaining systems, poverty rates, social security expenditures, panel data, advanced economies |
| JEL: | C23 C26 I32 I38 J51 J52 |
| Date: | 2021–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2021019&r= |
| By: | Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich |
| Abstract: | The global economy continued to recover in the winter semester, despite the number of new infections with the coronavirus rising sharply and containment measures tightened again in many countries. Industrial production and world trade have already fully catched up with activity levels before the pandemic and appear to be little affected by the second wave of Covid-19. While the European economy did slip into recession again, the decline in GDP is not expected to be dramatic and should be followed by a strong recovery from spring onward, provided that progress in vaccination allows a substantial and sustained relaxation of measures designed to suppress the virus. In the course of this year, the global upturn will thus increasingly extend to economic sectors that remain severely impeded for the time being, such as tourism and entertainment, and to economies that are particularly geared to these activities. On a purchasing power parity basis, global output is expected to increase by 6.7 percent in 2021 and by 4.7 percent in 2022, thus progressively closing the gap to the pre-crisis path of activity towards the end of the forecast period. We have raised our December forecast by 0.6 percent for both this year and next, with a particularly strong improvement in the outlook for the United States. World trade in goods is expected to grow by 7.5 percent this year. With growth of 4.7 percent this year and next, respectively, Towards the end of the forecast horizon world trade will thus be even higher than expected before the crisis. |
| Keywords: | advanced economies,emerging economies,monetary policy,Americas,Asia,Business Cycle World,China,Emerging Markets & Developing Countries,Europe,USA |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkeo:75&r= |
| By: | Kazunori Miwa (Graduate School of Economics, Osaka University) |
| Abstract: | This study experimentally investigates the interaction between firms f information acquisition decisions and disclosure. In particular, I focus on a Cournot duopoly market under industry-wide demand uncertainty. The results demonstrate that acquiring industry-wide demand information improves firms f production decisions in that firms can adjust their quantity levels depending on the market demand. However, disclosure diminishes a firm fs incentive to acquire such information. This is because once the information, which a firm acquired at a cost, is subsequently disclosed, a rival firm can take a free ride on the disclosed information and make a more informed decision. Hence, disclosure decreases the benefit of acquiring information for the disclosing firm. Taken together, although acquiring information improves production decisions, disclosure decreases the incentive to do so and thus, deteriorates a firm fs internal information environment. This leads to inefficient production, which in turn might have a substantial impact on market outcomes. |
| Keywords: | Information acquisition; Disclosure; Duopoly; Experiment |
| JEL: | L13 M41 M48 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1301r&r= |
| By: | Orsetta Causa; Michael Abendschein; Maria Chiara Cavalleri |
| Abstract: | This paper sheds light on inter-regional migration, housing and the role of policies, drawing on a new comparative cross-country approach. The results show that OECD countries exhibit stark variation in both levels and trends in inter-regional migration, which is found to be highly responsive to local housing and economic conditions. In turn, a large number of policies in the area of housing, labour markets, social protection and product markets influence the responsiveness of inter-regional migration to local economic conditions. For instance, more flexible housing supply makes inter-regional migration more responsive to local economic conditions while higher regulatory barriers to business start-ups and entry in professions significantly reduce the responsiveness of inter-regional mobility to local economic conditions. The capacity of workers to move regions in response to local economic shocks is one key dimension of labour market dynamism which could, at the current juncture, contribute to the recovery from the COVID-19 crisis. In this context, the paper proposes articulating structural with place-based policies to help prospective movers as well as stayers. |
| Keywords: | housing markets, Internal migration, labour markets, place-based policies, regional disparities, regional economic conditions, regional house prices, regional mobility, social protection, structural policies |
| JEL: | R23 R12 R50 R58 J61 H20 |
| Date: | 2021–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1679-en&r= |
| By: | David S. Rapson; Erich Muehlegger |
| Abstract: | Electric vehicles (EVs) powered by renewable electricity are a centerpiece of efforts to decarbonize transportation. EV advocates also claim benefits from local pollution reductions, lower life-cycle costs to consumers, and improved energy security. We examine the theory and evidence behind these claims and evaluate when the market will produce the optimal path of EV adoption. Optimal EV policy is nuanced. While EVs driven in some locations reduce pollution, they increase pollution in others. While many consumers enjoy cost savings from EVs, some experience net benefits from choosing gasoline-powered cars, even after accounting for EV subsidies. And depending on the dynamic benefits of stimulating EV adoption today, optimal policy might front-load stimulus, even though the environmental benefits of EV adoption are likely to increase over time as electricity grids become cleaner. Reflecting these nuances, the policy landscape is complicated and often creates conflicting incentives for EV adoption in regions with ambitious adoption goals. We highlight several themes for policy design, including 1) promoting regional variation in EV policies that align private incentives with social benefits, 2) pursuing a time-path of policies that follows the trajectory of marginal benefits, and 3) rationalizing electricity and gasoline prices to reflect their social marginal cost. On the extensive margin, purchase incentives should ramp-down as learning-by-doing and network externalities that may exist diminish; on the intensive margin, gasoline should become relative more expensive than electricity (per mile traveled) to reflect cleaner marginal emissions from electricity generation. |
| JEL: | Q54 Q55 Q58 R4 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29093&r= |
| By: | Tarna Silue (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | E-money and financial inclusion are both development challenges for developing countries, the former contributing to improving tax mobilization and the latter to achieving particular sustainable development objectives. However, one of the central financial inclusion and e-money services providers is mobile network operators using mobile money. The latter is subject to numerous taxes that can affect their operations. The paper studies the incidence of the new mobile money excise duty in the mobile networks sector on the adoption of electronic money and the advancement of financial inclusion through digital services in sub-Saharan countries. It appears that the introduction of the tax leads to an increase in user fees, which has a positive impact on demand for cash, and it is only in the presence of the latter that MM reduces the demand for cash for studied countries. In addition, the study assumes that tax administrations in these countries would raise more revenue without this excise because the tax is not conducive to the full adoption of e-money. |
| Keywords: | Financial inclusion,Mobile money,Tax incidence |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03281898&r= |
| By: | Jin Hyuk Choi; Kim Weston |
| Abstract: | We prove the existence of incomplete Radner equilibria in two models with exponential investors and different types of noise traders: an exogenous noise trader and an endogenous noise tracker. In each model, we analyze a coupled system of ODEs and reduce it to a system of two coupled ODEs in order to establish equilibrium existence. As an application, we study the impact of the noise trader types on welfare. We show that the aggregate welfare comparison depends in a non-trivial manner on every equilibrium parameter, and there is no ordering in general. Our models suggest that care should be used when drawing conclusions about welfare effects when noise traders are used. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.00973&r= |
| By: | Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich |
| Abstract: | The global economy remained on track in the first months of 2021, despite surging covid-19 infections and renewed containment measures in many countries. The impact of the pandemic was largely confined to the service sectors. Meanwhile, the pronounced upturn in industrial production and global trade continued until spring, but has started to falter as a result of supply bottlenecks and logistical problems. The tensions in the global economic fabric are reflected not least in sharp price increases for raw materials, intermediate goods and transportation services, which have already contributed to a noticeable rise in consumer prices. Continued highly expansionary monetary policy and considerable fiscal policy stimulus, notably in the United States, but also in the euro zone, are fuelling economic activity this year and next. We expect global output (measured on a purchasing power parity basis) to increase by 6.7 percent in 2021 and by 4.8 percent in 2022, which is still substantially above medium-term trend growth. In view of the high economic momentum and higher inflation risks, we expect the Federal Reserve to start tightening earlier than previously expected. This is associated with the risk of a significant deterioration in financing conditions going forward, particularly for some emerging economies |
| Keywords: | Americas,Asia,Business Cycle World,China,Emerging Markets & Developing Countries,Europe,USA |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkeo:79&r= |
| By: | Dimitrios Exadaktylos; Mahdi Ghodsi; Armando Rungi |
| Abstract: | This study investigates the relationship between patenting activity, productivity, and market competition at the firm level. We focus on the Information and Communication Technology (ICT) industry as a particular case of an innovative sector whose contribution to modern economies is pivotal. For our purpose, we exploit financial accounts and patenting activity in 2009-2017 by 179,660 companies operating in 39 countries. Our identification strategy relies on the most recent approaches for a difference-in-difference setup in the presence of multiple periods and with variation in treatment time. We find that companies being granted patents increase on average market shares by 11%, firm size by 12%, and capital intensity by 10%. Notably, we do not register a significant impact of patenting on firms' productivity after challenging results for reverse causality and robustness checks. Findings are robust after we consider ownership structures separating patents owned by parent companies and their subsidiaries. We complement our investigation with an analysis of market allocation dynamics. Eventually, we argue that policymakers should reconsider the trade-off between IPR protection and market competition, especially when the benefits to firms' competitiveness are not immediately evident. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.00814&r= |
| By: | Tarna Silue (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | The paper focuses on the relationship between economic growth and financial inclusion in developing countries. One of the main innovations of the analysis is to report on the contribution to developing new digital financial services such as mobile money. To do this, I first realize a simple endogenous growth model in which the role of the financial sector is to provide sources of investment to included population. The model indicates that consumption could be the main channel through financial inclusion, contributing to growth. Then, the empirical estimation realized using the Generalized Method of Moments (GMM) with 57 countries over 2007-2017 evaluates the impacts of traditional and digital inclusion on growth. The results confirm the positive effect of financial inclusion on growth. For formal inclusion, estimators reveal that the financial system deposits contribute to growth in developing countries. Concerning digital inclusion, we note that an active mobile money account has a higher positive impact on growth than standard inclusion. |
| Keywords: | Endogenous growth,Financial inclusion,Mobile money,GMM System |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03281843&r= |
| By: | Gianluca Benigno; Luca Fornaro; Michael Wolf |
| Abstract: | We present a model that reproduces two salient facts characterizing the international monetary system: Fast growing emerging countries i) run current account surpluses, ii) accumulate international reserves and receive net private in flows. We study a two-sector, tradable and nontradable, small open economy. There is a growth externality in the tradable sector and agents have imperfect access to international financial markets. By accumulating foreign reserves, the government induces a real exchange rate depreciation and a reallocation of production towards the tradable sector that boosts growth. Financial frictions generate imperfect substitutability between private and public debt flows so that private agents do not perfectly offset the government policy. The possibility of using reserves to provide liquidity during crises amplifies the positive impact of reserve accumulation on growth. The optimal reserve management en- tails a fast rate of reserve accumulation, as well as higher growth and larger current account surpluses compared to the economy with no policy intervention. The model is also consistent with the negative relationship between in flows of foreign aid and growth observed in low income countries. |
| Keywords: | foreign reserve accumulation, gross capital flows, growth, financial crises, allocation, puzzle, exchange rate undervaluation |
| JEL: | F31 F32 F41 F43 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1279&r= |
| By: | Kokas, Deeksha (World Bank); El Lahga, Abdel Rahmen (University of Tunis); Lopez-Acevedo, Gladys (World Bank) |
| Abstract: | Tunisia's GDP contracted by -8.8 percent in 2020, the worst performance since gaining independence in 1956. The poverty rate in Tunisia could reach at least 20.9, the same level recorded in 2010, and as high as 25 percent according to various estimates (Kokas et al., 2020); while inequality could reach an unprecedented Gini level of 0.41. While Tunisia has faced difficult political, economic and social challenges—in addition to the global COVID-19 pandemic—Tunisia's performance was below peer countries even during periods of strong growth. All economic sectors in Tunisia have declined, except agriculture, and structural transformation has been weak. Nearly 68 percent of workers are employed in sectors with the lowest productivity. Youth and women have been especially left behind as job growth has not kept pace with university graduates and growth in the working-age population: early 32 percent of Tunisian youth were "Not in Education, Employment, or Training" (NEET), and female labor force participation (FLFP) of 29 percent remains among the lowest in the world. Clearly, key labor market challenges in terms of poor job creation, and low quality of job have not seen much progress since the Arab Revolution. This paper aims to shed light on the main obstacles to creating sufficient employment and addressing labor market distortions in Tunisia, based on several data sources, including latest rounds of labor force surveys, and helps recognize issues that require immediate policy attention in the labor market in Tunisia. |
| Keywords: | labor markets, employment, Tunisia |
| JEL: | J31 F16 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14563&r= |
| By: | Sabine Gralka; Klaus Wohlrabe |
| Abstract: | Updating the study by Seiler and Wohlrabe (2013) we use archetypoid analysis to classify top economists. The approach allows us to identify typical characteristics of extreme (archetypal) values in a multivariate data set. In contrast to its predecessor, the archetypal analysis, archetypoids always represent actual observed units in the data. Using bibliometric data from 776 top economists we identify four archetypoids. These types represent solid, low, top and diligent performer. Each economist is assigned to one or more of these archetypoids. |
| Keywords: | archetypoid analysis, classification, RePEc, economists |
| JEL: | C38 I21 I23 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9216&r= |