|
on Central and Western Asia |
| By: | Despina Gavresi; Anastasia Litina |
| Abstract: | This paper explores the interplay between past exposure to macroeconomic shocks and populist attitudes. We document that individuals who experienced a macroeconomic shock during their impressionable years (between 18 and 25 years of age), are currently more prone to voting for populist parties, and manifest lower trust both in national and European institutions. We use data from the European Social Survey (ESS) to construct the differential individual exposure to macroeconomic shocks during impressionable years. Our findings suggest that it is not only current exposure to shocks that matters (see e.g., Guiso et al. (2020)) but also past exposure to economic recessions, which has a persistent positive effect on the rise of populism. Interestingly, the interplay between the two, i.e., past and current exposure to economic shocks, has a mitigating effect on the rise of populism. Individuals who were exposed to economic shocks in the past are less likely to manifest populist attitudes when faced with a current crisis, as suggested by the experience-based learning literature. |
| Keywords: | macroeconomic shocks, trust, attitudes, populism |
| JEL: | D72 E60 F68 P16 Z13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9451&r= |
| By: | Mengoli, Stefano; Pagano, Marco; Pattitoni, Pierpaolo |
| Abstract: | Retail investors pay over twice as much attention to local companies than non-local ones, based on Google searches. News volume and volatility amplify this attention gap. Attention appears causally related to perceived proximity: first, acquisition by a nonlocal company is associated with less attention by locals, and more by nonlocals close to the acquirer; second, COVID-19 travel restrictions correlate with a drop in relative attention to nonlocal companies, especially in locations with fewer flights after the outbreak. Finally, local attention predicts volatility, bid-ask spreads and nonlocal attention, not viceversa. These findings are consistent with local investors having an information-processing advantage. |
| Keywords: | attention,retail investors,local investors,distance,news,liquidity,volatility |
| JEL: | D83 G11 G12 G14 G50 L86 R32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:671&r= |
| By: | Neil Bhutta; Jacqueline Blair; Lisa J. Dettling |
| Abstract: | Most financial advisors recommend storing three to six months of expenses in liquid assets in case of an emergency. Yet we estimate that more than half of U.S. families do not have at least three months of their non-discretionary expenses in liquid savings. We find that financial literacy is strongly predictive of having three months of liquid savings, controlling for income, income variability, and even parental resources. We also find that financial literacy predicts liquid savings across the income distribution. These results indicate that accumulation of an emergency fund is not simply a function of income. Finally, financial literacy is predictive of liquid savings even among high illiquid wealth households. This suggests that the phenomenon of "wealthy hand-to-mouth" families may reflect financial mistakes rather than portfolio optimization. Our paper highlights the importance of financial knowledge in explaining families' preparedness to deal with unexpected expenses or disruption in their income. |
| Keywords: | Financial Literacy; Savings; Liquidity; Household Wealth; Household Finance |
| JEL: | D14 D91 G50 G51 G53 |
| Date: | 2021–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-76&r= |
| By: | Collard, Fabrice; Boissay, Frédéric; Galì, Jordi; Manea, Cristina |
| Abstract: | We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate rules, under which the central bank responds more or less forcefully to inflation and aggregate output. Our main findings are threefold. First, monetary policy affects the probability of a crisis both in the short run (through aggregate demand) and in the medium run (through savings and capital accumulation). Second, a central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and responding systematically to fluctuations in output. Third, financial crises may occur after a long period of unexpectedly loose monetary policy as the central bank abruptly reverses course. |
| Keywords: | Financial crisis ; monetary policy |
| Date: | 2021–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126275&r= |
| By: | Iseringhausen, Martin (European Stability Mechanism); Theodoridis, Konstantinos (European Stability Mechanism and Cardiff Business School) |
| Abstract: | We develop a new data-rich measure of aggregate skewness in the US economy, which is highly correlated with GDP growth skewness conditional on past macro-financial data, as well as with the cross-sectional skewness of firm-level employment growth. An exogenous perturbation to the proposed skewness measure identified using simple recursive (Cholesky-type) restrictions delivers dynamics that are nearly indistinguishable from those produced by the main business cycle shock of Angeletos et al. (2020). We document a strong correlation between both shocks that is robust to controlling for standard measures of macroeconomic volatility and uncertainty. Our findings reinforce previous studies on the impact of skewness shocks despite different methodologies. |
| Keywords: | Asymmetry, principal component analysis, quantile regression, VAR |
| JEL: | C22 C38 E32 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/30&r= |
| By: | V. I. Yukalov |
| Abstract: | The St. Petersburg paradox is the oldest paradox in decision theory and has played a pivotal role in the introduction of increasing concave utility functions embodying risk aversion and decreasing marginal utility of gains. All attempts to resolve it have considered some variants of the original set-up, but the original paradox has remained unresolved, while the proposed variants have introduced new complications and problems. Here a rigorous mathematical resolution of the St. Petersburg paradox is suggested based on a probabilistic approach to decision theory. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.14635&r= |
| By: | Maxfield, Sean |
| Abstract: | No longer does society consider the full extent of the argument and consequences or benefits of a system change. All the record-breaking economic success of the last few decades simply furthers a divide between people/organizations that have money and people/organizations that need money. However, those that can view this divide assign the capitalistic system as the culprit when in fact it is the modern mutation of capitalism that is at fault. Within modern neoclassical economies, there is no form of value-based meritocracy between people and organizations. |
| Keywords: | economics, econ, economic, economy, economies, neoclassical, classical, capitalism, Adam Smith, socialism, price, prices, markets, valuation, value, hierarchies, hierarchical, monetary, equity, finance, financial, financial services, exchanges, stock markets, secondary markets, businesses, inflation |
| JEL: | A1 A10 A11 A13 A2 A20 B0 B1 B2 B3 B4 E0 E6 G0 N0 N1 P1 P10 P12 P16 P5 P51 |
| Date: | 2021–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111152&r= |
| By: | Christian Meyer |
| Abstract: | Model risk in credit portfolio models is a serious issue for banks but has so far not been tackled comprehensively. We will demonstrate how to deal with uncertainty in all model parameters in an all-embracing, yet easy-to-implement way. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.14631&r= |
| By: | Wang, Ruting; Althof, Michael; Härdle, Wolfgang |
| Abstract: | This paper develops a new risk meter specifically for China - FRM@China - to detect systemic financial risk as well as tail-event (TE) dependencies among major financial institutions (FIs). Compared with the CBOE FIX VIX, which is currently the most popular financial risk measure, FRM@China has less noise. It also emitted a risk signature much earlier than the CBOE FIX VIX index in the 2020 COVID pandemic. In addition, FRM@China uses a single quantile-lasso regression model to allow both the assessment of risk transfer between different sectors in which FIs operate and the prediction of systemic risk. Because the risk indicator in FRM@China is based on penalization terms, its relationship with macro variables are unknown and non-linear. This paper further expands the existing FRM approach by using Shapley values to identify the dynamic contribution of different macro features in this type of "black box" situation. The results show that short-term interest rates and forward guidance are significant risk drivers. This paper considers the interaction among FIs from mainland China, Hong Kong and Taiwan to provide an enhanced regional tool set for regulators to evaluate financial policy responses. All quantlets are available on quantlet.com. |
| Keywords: | FRM (Financial Risk Meter),Lasso Quantile Regression,Financial Network,China,Shapley value |
| JEL: | C30 C58 G11 G15 G21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:irtgdp:2021022&r= |
| By: | James Dean (West Virginia University, Department of Economics); Scott Schuh (West Virginia University, Department of Economics) |
| Abstract: | A Taylor Rule remains the consensus monetary policy specification in macroeconomic models despite unconventional monetary policies (UMP) and the policy rate stuck near zero in 2009-2015. We extend the literature by testing for structural breaks in benchmark macro models at 2007:Q3 that might reflect UMP. Significant breaks occurred altering model shocks, dynamics, and output gaps. The “shadow†funds rate proxies for UMP but has little effect on results. Deducing cause(s) of structural breaks is challenging due to changes in non-policy structure that may be unrelated to UMP and to the omission of UMP from the benchmark models. |
| Keywords: | Taylor Rule, Structural Break, Macroeconomic Models, Unconventional Monetary Policy |
| JEL: | E43 E52 E58 E12 E13 E65 E61 C50 C32 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:wvu:wpaper:21-05&r= |
| By: | Domonkos Vamossy; Rolf Skog |
| Abstract: | We develop a tool that extracts emotions from social media text data. Our methodology has three main advantages. First, it is tailored for financial context; second, it incorporates key aspects of social media data, such as non-standard phrases, emojis and emoticons; and third, it operates by sequentially learning a latent representation that includes features such as word order, word usage, and local context. This tool, along with a user guide is available at: https://github.com/dvamossy/EmTract. Using EmTract, we explore the relationship between investor emotions expressed on social media and asset prices. We document a number of interesting insights. First, we confirm some of the findings of controlled laboratory experiments relating investor emotions to asset price movements. Second, we show that investor emotions are predictive of daily price movements. These impacts are larger when volatility or short interest are higher, and when institutional ownership or liquidity are lower. Third, increased investor enthusiasm prior to the IPO contributes to the large first-day return and long-run underperformance of IPO stocks. To corroborate our results, we provide a number of robustness checks, including using an alternative emotion model. Our findings reinforce the intuition that emotions and market dynamics are closely related, and highlight the importance of considering investor emotions when assessing a stock's short-term value. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.03868&r= |
| By: | Matic, Jovanka Lili; Packham, Natalie; Härdle, Wolfgang Karl |
| Abstract: | The cryptocurrency (CC) market is volatile, non-stationary and non-continuous. Together with liquid derivatives markets, this poses a unique opportunity to study risk management, especially the hedging of options, in a turbulent market. We study the hedge behaviour and effectiveness for the class of affine jump diffusion models and infinite activity Lévy processes. First, market data is calibrated to SVI-implied volatility surfaces to price options. To cover a wide range of market dynamics, we generate Monte Carlo price paths using an SVCJ model (stochastic volatility with correlated jumps) assumption and a close-to-actual-market GARCH-filtered kernel density estimation. In these two markets, options are dynamically hedged with Delta, Delta-Gamma, Delta-Vega and Minimum Variance strategies. Including a wide range of market models allows to understand the trade-off in the hedge performance between complete, but overly parsimonious models, and more complex, but incomplete models. The calibration results reveal a strong indication for stochastic volatility, low jump frequency and evidence of infinite activity. Short-dated options are less sensitive to volatility or Gamma hedges. For longer-date options, good tail risk reduction is consistently achieved with multiple-instrument hedges. This is persistently accomplished with complete market models with stochastic volatility. |
| Keywords: | Cryptocurrency options, hedging, bitcoin, digital finance, volatile markets |
| JEL: | G12 |
| Date: | 2021–11–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110985&r= |
| By: | Ofori, Isaac K.; Asongu, Simplice A. |
| Abstract: | This study examines whether the remarkable inflow of resources in the form of foreign direct investment (FDI) to SSA contributes to inclusive growth in the region. The study further investigates whether SSA’s institutional fabric modulates the effect of FDI on inclusive growth in SSA. To this end, we draw data on 42 SSA countries for the period 1990 – 2020 for the analysis. The evidence, which are based on the GMM estimator shows that: (1) though FDI fosters inclusive growth in SSA, the effect is weak, and (2) the weak inclusive growth inducing-effects of FDI are weakened or nullified completely by SSA’ fragile governance quality. Nonetheless, the optimism, which we provide by way of threshold analysis shows that channelling resources into the development of these governance dynamics yield positive net effects from the short-term through to the long-term. Notably, the results show that the short-term to long-term FDI-induced inclusive growth gains of developing frameworks and structures for fighting corruption while addressing fragilities in regulatory quality and government effectiveness are outstanding. A few policy recommendations are discussed in the end. |
| Keywords: | Africa,Economic Integration,FDI,Governance,Inclusive Growth |
| JEL: | F6 F15 O43 O55 R58 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:248546&r= |
| By: | Damir Filipović (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute); Amir Khalilzadeh (Ecole Polytechnique Fédérale de Lausanne) |
| Abstract: | We use machine learning methods to predict stock return volatility. Our out-of-sample prediction of realised volatility for a large cross-section of US stocks over the sample period from 1992 to 2016 is on average 44.1% against the actual realised volatility of 43.8% with an R2 being as high as double the ones reported in the literature. We further show that machine learning methods can capture the stylized facts about volatility without relying on any assumption about the distribution of stock returns. Finally, we show that our long short-term memory model outperforms other models by properly carrying information from the past predictor values. |
| Keywords: | Volatility Prediction, Volatility Clustering, LSTM, Neural Networks, Regression Trees. |
| JEL: | C51 C52 C53 C58 G17 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2195&r= |
| By: | Karau, Sören |
| Abstract: | Bitcoin was conceptualized in response to perceived shortcomings in the monetary and financialsystem, not only related to large financial institutions but also to discretionary decision makingin monetary policy. Using high-frequency data and a weekly proxy VAR model, I study theimpact of monetary policy on Bitcoin. The paper shows that monetary shocks have sizableeffects on Bitcoin prices, but that these differ in sign: a disinflationary monetary tightening bythe ECB lowers valuations - consistent with the notion of Bitcoin as a digital gold -, whereasa Fed tightening increases Bitcoin prices. I document similar differences with respect to cen-tral bank information shocks and explore potential explanations by studying various aspects ofthe Bitcoin ecosystem. Exploiting both differences in Bitcoin valuations across currencies andblockchain transaction data, the paper shows that the increased demand for Bitcoin following aUS monetary tightening is primarily driven by emerging markets. I argue that this likely reflectsthe technological and institutional particularities of Bitcoin that make it sought after as globaldigital cashwhen international economic and financial conditions deteriorate. |
| Keywords: | Bitcoin,Blockchain,Monetary policy,Proxy VAR |
| JEL: | E42 G32 L14 O16 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:412021&r= |
| By: | Dhruv Rawat; Sujay Patni; Ram Mehta |
| Abstract: | The objective of this paper is to find the existence of a relationship between stock market prices and the fundamental macroeconomic indicators. We build a Vector Auto Regression (VAR) model comprising of nine major macroeconomic indicators (interest rate, inflation, exchange rate, money supply, gdp, fdi, trade-gdp ratio, oil prices, gold prices) and then try to forecast them for next 5 years. Finally we calculate cross-correlation of these forecasted values with the BSE Sensex closing price for each of those years. We find very high correlation of the closing price with exchange rate and money supply in the Indian economy. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.08071&r= |
| By: | Jaros{\l}aw Kwapie\'n; Marcin W\k{a}torek; Stanis{\l}aw Dro\.zd\.z |
| Abstract: | Time series of price returns for 80 of the most liquid cryptocurrencies listed on Binance are investigated for the presence of detrended cross-correlations. A spectral analysis of the detrended correlation matrix and a topological analysis of the minimal spanning trees calculated based on this matrix are applied for different positions of a moving window. The cryptocurrencies become more strongly cross-correlated among themselves than they used to be before. The average cross-correlations increase with time on a specific time scale in a way that resembles the Epps effect amplification when going from past to present. The minimal spanning trees also change their topology and, for the short time scales, they become more centralized with increasing maximum node degrees, while for the long time scales they become more distributed, but also more correlated at the same time. Apart from the inter-market dependencies, the detrended cross-correlations between the cryptocurrency market and some traditional markets, like the stock markets, commodity markets, and Forex, are also analyzed. The cryptocurrency market shows higher levels of cross-correlations with the other markets during the same turbulent periods, in which it is strongly cross-correlated itself. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.06552&r= |
| By: | Yuanlu Bai; Henry Lam; Svitlana Vyetrenko; Tucker Balch |
| Abstract: | Multi-agent market simulation is commonly used to create an environment for downstream machine learning or reinforcement learning tasks, such as training or testing trading strategies before deploying them to real-time trading. In electronic trading markets only the price or volume time series, that result from interaction of multiple market participants, are typically directly observable. Therefore, multi-agent market environments need to be calibrated so that the time series that result from interaction of simulated agents resemble historical -- which amounts to solving a highly complex large-scale optimization problem. In this paper, we propose a simple and efficient framework for calibrating multi-agent market simulator parameters from historical time series observations. First, we consider a novel concept of eligibility set to bypass the potential non-identifiability issue. Second, we generalize the two-sample Kolmogorov-Smirnov (K-S) test with Bonferroni correction to test the similarity between two high-dimensional time series distributions, which gives a simple yet effective distance metric between the time series sample sets. Third, we suggest using Bayesian optimization (BO) and trust-region BO (TuRBO) to minimize the aforementioned distance metric. Finally, we demonstrate the efficiency of our framework using numerical experiments. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.03874&r= |
| By: | Agapova, Anna; Budarina, N.A.; Gladkov, A.R.; Grafova, T.O.; Grozovskaya, E.V.; Kirbitova, S.V.; Kudrova, N.A.; Lipatova, N.G.; Prihod'ko, D.V. |
| Abstract: | The tutorial covers the basic concepts of world economy and foreign economic activity, tasks, directions of activity, skills of an economist in the field of world economy and foreign economic activity. Particular attention is paid to the organization of scientific research. |
| Keywords: | world economy, econimics |
| JEL: | F0 |
| Date: | 2021–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111016&r= |
| By: | Yahyaoui, Ismahen |
| Abstract: | Unlike previous studies in the Foreign Direct Investment-economic growth literature, this study uses the panel vector autoregressive (PVAR) model to examine the role of corruption in inhibiting the effect of Foreign Direct Investment on the African economic growth. Furthermore, we use the impulse response function tool to better understand the reaction of economic growth, after shock on Foreign Direct Investment and the interaction between Foreign Direct Investment and Corruption. Using data over the period 1996–2016, this research results show that the Foreign Direct Investment promotes the African economic growth. While corruption mitigates this effect. Therefore, the implications of this paper are that public policies should aim to minimize the level of corruption in order to ameliorate the attractiveness of FDI and ensure its efficient utilization in order to give strength to the level of economic growth. |
| Keywords: | corruption, FDI, economic growth |
| JEL: | A1 |
| Date: | 2021–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111190&r= |
| By: | Naji Massad (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Jørgen Vitting Andersen (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We introduce a non-linear pricing model of individual stock returns that defines a "stickiness" parameter of the returns. The pricing model resembles the capital asset pricing model (CAPM) used in finance but has a non-linear component inspired from models of earth quake tectonic plate movements. The link to tectonic plate movements happens, since price movements of a given stock index is seen adding "stress" to its components of individual stock returns, in order to follow the index. How closely individual stocks follow the index's price movements, can then be used to define their "stickiness". |
| Keywords: | stickiness of stock returns,non-linear CAPM |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-03483251&r= |
| By: | Yusuf, Ismaila Akanni; Salaudeen, Mohammed Bashir; Agbonrofo, Hope |
| Abstract: | The study examines the effect of the social and economic indicators on the stock market performance in Nigeria between 1981 and 2019. The study employs secondary data from the World Bank and Central Bank of Nigeria using the ordinary least squares as the technique of estimation. Findings show that regarding the economic drivers, interest rate, exchange rate, and inflation rate negatively impact the stock market while only income exerts a positive impact. However, both income and interest rate are significant economic drivers of stock performance. Regarding social drivers, life expectancy, poverty, and population exert a positive impact on stock performance. Similarly, both life expectancy and population are significant social drivers of stock market performance in Nigeria. The study recommends that monetary authorities should be cautious in avoiding discretionary policies that might hike the exchange rate; otherwise, the flow of funds to the stock market will be derailed. Also, the fiscal authority should invest massively in safety nets programmes to enhance the capacity of the growing population and reduce poverty. |
| Keywords: | Economic Drivers, Social Drivers, Stock Market, Nigeria. |
| JEL: | C1 E5 G1 G12 |
| Date: | 2021–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111086&r= |
| By: | Le, Tuan Anh; Dao, Thi Thanh Binh |
| Abstract: | This paper studies how to construct and compare various optimal portfolio frame-works for investors in the context of the Vietnamese stock market. The aim of the study is to help investors to find solutions for constructing an optimal portfolio strategy using modern investment frameworks in the Vietnamese stock market. The study contains a census of the top 43 companies listed on the Ho Chi Minh stock exchange (HOSE) over the ten-year period from July 2010 to January 2021. Optimal portfolios are constructed using Mean-Variance Framework, Mean-CVaR Framework under different copula simulations. Two-thirds of the data from 26/03/2014 to 27/1/2021 consists of the data of Vietnamese stocks during the COVID-19 recession, which caused depression globally; however, the results obtained during this period still provide a consistent outcome with the results for other periods. Furthermore, by randomly attempting different stocks in the research sample, the results also perform the same outcome as previous analyses. At about the same CvaR level of about 2.1%, for example, the Gaussian copula portfolio has daily Mean Return of 0.121%, the t copula portfolio has 0.12% Mean Return, while Mean-CvaR with the Raw Return portfolio has a lower Return at 0.103%, and the last portfolio of Mean-Variance with Raw Return has 0.102% Mean Return. Empirical results for all 10 portfolio levels showed that CVaR copula simulations significantly outperform the historical Mean-CVaR framework and Mean-Variance framework in the context of the Vietnamese stock exchange. |
| Keywords: | Gaussian copula, t copula, simulation, Mean-CVaR, Mean-Variance, portfolio optimization, Vietnam |
| JEL: | C61 G11 G17 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111105&r= |
| By: | Bichler, Shimshon; Nitzan, Jonathan |
| Abstract: | Neoclassical economics is the official scientific underpinning of capitalism as well as its main ideological defence, and according to Keen, it fails in both tasks. Contrary to received opinion, neoclassicism cannot explain capitalism – either in detail or in the aggregate – and the policies it prescribes do not support but undermine the very system it defends. It must be scrapped, says Keen, and the purpose of his book is to explain why and outline what should come in its stead. |
| Keywords: | banks,climate,complex systems,credit,debt,finance,macroeconomics,money,neoclassical economics,policy |
| JEL: | P16 E4 G21 E61 G01 G E13 Q54 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:capwps:202107&r= |
| By: | Te Bao; Brice Corgnet; Nobuyuki Hanaki; Katsuhiko Okada; Yohanes E. Riyanto; Jiahua Zhu |
| Abstract: | We compare the performance of financial professionals (CFAs) with university students in four financial forecasting tasks ranging from simple lab prediction tasks to longitudinal field tasks. Although students and professionals performed similarly in the artificial forecasting tasks, their performance differed in the more realistic tasks. Yet, increasing the ‘representativeness of the situation’ in the lab tasks did not systematically benefit financial professionals as students outperformed CFAs when forecasting historical series. However, professionals outperformed students in the field task. Our results imply that the expertise of financial professionals might have been underestimated in previous works that focused on lab tasks. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1156&r= |
| By: | Elisa Darriet (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM], LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - SU - Sorbonne Université); Marianne Guille (LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - SU - Sorbonne Université); Jean-Christophe Vergnaud (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Paris 1 Panthéon-Sorbonne) |
| Abstract: | The aim of this chapter is to investigate the relationship between financial literacy and numeracy. It turns out that numeracy and financial literacy are strongly correlated. In order to clarify this relationship, we review, in a first section, the general definition of numeracy and its most commonly used measures. We then try to enlighten the distinction that can be made between numeracy and financial literacy. In a second section, we focus on the relationship between numeracy and financial literacy using the main empirical studies performed. Since the analyses of their results show that numeracy is a key determinant of financial literacy, we highlight, in a third and final section, the key role that numeracy could have in education programs and consumer protection policies to improve financial decisions. |
| Keywords: | Financial literacy,Numeracy |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-03461252&r= |
| By: | Ozili, Peterson K |
| Abstract: | This paper reviews the recent advances in central bank digital currency research in a way that would help researchers, policy makers and practitioners to take a closer look at central bank digital currency (CBDC). The review shows a general consensus that a central bank digital currency is a liability of the issuing central bank and it has cash-like attributes. The review also presents the motivation and benefits of issuing a central bank digital currency such as the need to improve the conduct of monetary policy, the need to enhance the efficiency of digital payments and the need to increase financial inclusion. The review also shows that many central banks are researching the potential to issue CBDCs due to its many benefits. However, a number of studies have called for caution against over-optimism about the potential benefits of CBDC due to the limiting nature of CBDC design and its inability to meet multiple competing goals. Suggested areas for future research are identified such as the need to find the optimal CBDC design that meets all competing objectives, the need for empirical evidence on the effect of CBDC on the cost of credit and financial stability, the need to undertake country-specific and regional case studies of CBDC design, and the need to find a balance between limiting the CBDC holdings of users and allowing users to hold as much CBDC as they want. The implication of the findings of this review is that central bankers need to pay more attention to the design features of CBDC. Central bankers need to first identify the goals they want to achieve with CBDC, and design the CBDC to have those features. Where possible, there should be opportunities to re-design and re-invent the CBDC to meet changing central bank objectives. |
| Keywords: | Keywords: Digital currency, Money, Central bank digital currency, CBDC, Digital finance, Cryptocurrency, Financial inclusion, CBDC design, Blockchain, Distributed ledger technology. |
| JEL: | E42 E51 E52 E58 E59 G21 G28 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111389&r= |
| By: | William L. Gamber |
| Abstract: | The creation of new businesses declines in recessions. In this paper, I study the effects of pro-cyclical business formation on aggregate employment in a general equilibrium model of firm dynamics. The key features of the model are that the elasticity of demand faced by firms falls with their market share and that adjustment costs slow the reallocation of employment between firms. In response to a decline in entry, incumbent firms' market shares increase, their elasticity of demand falls, and they increase their markups and reduce employment. To quantify the model, I study the relationship between variable input use and revenue in panel data on large firms. Viewed through the lens of my model, my estimates imply that for large firms, the within-firm elasticity of the markup to relative sales is 25 percent. I use the calibrated model to study shocks to entry, finding that a fall in entry can lead to a significant contraction in employment. A shock to entry that replicates the decline in the number of businesses during the Great Recession generates a prolonged 2.5 percent fall in employment in the model. Finally, I show that the declining correlation between revenue and variable input use over the past 30 years implies that the effect of entry on the business cycle has become stronger over time. |
| Keywords: | Macroeconomics; Heterogeneous firms; Business dynamics; Variable markups |
| JEL: | E24 E32 J23 L20 |
| Date: | 2021–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2021-77&r= |
| By: | Pablo Fajgelbaum; Pinelopi K. Goldberg; Patrick J. Kennedy; Amit Khandelwal; Daria Taglioni |
| Abstract: | We study global trade responses to the US-China trade war. We estimate the tariff impacts on product-level exports to the US, China, and rest of world. On average, countries decreased exports to China and increased exports to the US and rest of world. Most countries export products that complement the US and substitute China, and a subset operate along downward-sloping supplies. Heterogeneity in responses, rather than specialization, drives export variation across countries. Surprisingly, global trade increased in the products targeted by tariffs. Thus, despite ending the trend towards tariff reductions, the trade war did not halt global trade growth. |
| JEL: | F10 F12 F14 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29562&r= |
| By: | Ozili, Peterson K |
| Abstract: | Cryptocurrencies have become popular. Economic agents use cryptocurrency such as bitcoins to make payments and it pose a threat to fiat currency. Central banks have begun to respond to this threat. They realize that they need to join the race to offer a digital currency and dominate the digital currency landscape which can lead to the collapse of most private digital currencies that are not issued by a central bank or a monetary authority. In this paper, I show how the issuance of a central bank digital currency can lead to the collapse of private digital currencies such as bitcoin. I argue that central banks will leverage on their monetary powers, and the trust that citizens have in government-backed money. This may give central banks strong incentives to issue a central bank digital currency. The issuance of a central bank digital currency can erode trust in cryptocurrencies, and lead to lack of trust in cryptocurrency, thereby leading to the collapse of cryptocurrencies although not immediately. |
| Keywords: | central bank digital currency, cryptocurrency, bitcoin, blockchain, distributed ledger, payment system, central banks, CBDC, digital innovation, cryptoassets, stablecoin, Covid-19, fiat digital currency |
| JEL: | E42 E52 E58 G21 O31 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111218&r= |
| By: | David S. Bates |
| Abstract: | This paper is an overview of empirical options research, with primary emphasis on research into systematic stochastic volatility and jump risks relevant for pricing stock index options. The paper reviews evidence from time series analysis, option prices and option price evolution regarding those risks, and discusses required compensation. |
| JEL: | G13 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29554&r= |
| By: | Fernandes, Inês; Schmidt, Tobias |
| Abstract: | In this paper, we study the relationship between intrahousehold bargaining styles, bar-gaining power and individual pension contributions and expected standard of living in retirement, using microdata from the German Panel on Household Finances (PHF) survey. The paper builds on a theoretical framework that predicts non-cooperative (cooperative) households to have lower (higher) expected standards of living in retirement, due to the uncertainty regarding intrahousehold resource sharing. The empirical results suggest that household bargaining is significantly correlated with individual retirement-related behaviour and expectations, with gender differences. Cooperative partners expect higher standards of living in retirement, relative to non-cooperative ones, because they may insure againstold-age poverty by pooling and redistributing personal and household resources amongst each other in retirement. Finally, our data indicate that intracouple information sharing and altruism may mediate the relationship between household decision-making and individual contributions to private pension plans, especially in non-cooperative households. |
| Keywords: | Intrahousehold bargaining,Intrahousehold information sharing,Gender,House-hold finance,Private pension plans,Retirement expectations,Altruism,Panel on HouseholdFinances |
| JEL: | D12 D14 G51 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:442021&r= |
| By: | John Michael, Riveros-Gavilanes |
| Abstract: | The present article establishes a set of empirical approximations related to the theorical formulation of the social welfare function of Sen applied to the Latin-American context between 1995 & 2018, this in order to provide estimates of the welfare trends derived from its original version and the generalized version proposed by Mukhopadhaya (2003a; 2003b). The article equally contributes exploring the long-run relationships among welfare, inequality and income with the panel data methodology. The results indicated that long-run relationships exists among these variables, a higher elasticity on the welfare comes from the income distribution rather than the economic growth, in the short-run, only the economic growth was significant to explain the welfare. Finally, for the Latin American countries the ranking of welfare was done considering the predicted values of welfare at country level with the linear predictions of the econometrical model of the long-run, which matches in terms of behavior and rank in the welfare with the original approach of Sen applied to Latin America. |
| Keywords: | Welfare; Inequality; Growth; Income; Latin America. |
| JEL: | D63 E25 O54 O57 |
| Date: | 2020–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111268&r= |
| By: | Bryan T. Kelly (Yale SOM; AQR Capital Management, LLC; National Bureau of Economic Research (NBER)); Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Kangying Zhou (Yale School of Management) |
| Abstract: | We theoretically characterize the behavior of machine learning portfolios in the high complexity regime, i.e. when the number of parameters exceeds the number of observations. We demonstrate a surprising \virtue of complexity:" Sharpe ratios of machine learning portfolios generally increase with model parameterization, even with minimal regularization. Empirically, we document the virtue of complexity in US equity market timing strategies. High complexity models deliver economically large and statistically significant out-of-sample portfolio gains relative to simpler models, due in large part to their remarkable ability to predict recessions. |
| Keywords: | Portfolio choice, machine learning, random matrix theory, benign overfit, overparameterization |
| JEL: | C3 C58 C61 G11 G12 G14 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2190&r= |
| By: | Lena Dräger (Leibniz University Hannover.); Michael J. Lamla (Leuphana University of Lüneburg and ETH Zurich, KOF Swiss Economic Institute); Damjan Pfajfar (Board of Governors of the Federal Reserve System) |
| Abstract: | Using a new consumer survey dataset, we study the role of macroeconomic preferences for expectations and economic decisions. While household expectations are inversely related to preferences, households with the same ination expectations can di_erently assess whether the level of expected ination and of nominal interest rates is appropriate or too high/too low. This `hidden heterogeneity' in expectations is correlated with sociodemographic characteristics and a_ects current and planned spending via the intertemporal elasticity of substitution. We also show that the variation in preferences can be explained with risk preferences. Overall, this adds a new dimension to the de_nition of anchored expectations. |
| Keywords: | Macroeconomic expectations, monetary policy perceptions, ination and interestrate preferences, risk preferences, survey microdata |
| JEL: | E31 E52 E58 D84 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:lue:wpaper:402&r= |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Christelle Meniago (Sol Plaatje University, South Africa); Raufhon Salahodjaev (Tashkent, Uzbekistan) |
| Abstract: | This study investigates: (i) the effect of foreign direct investment (FDI) on total factor productivity (TFP) and economic growth dynamics, and (ii) the relevance of value added from three economic sectors in modulating the established effect of FDI on TFP and economic growth dynamics. The geographical and temporal scopes are respectively 25 Sub-Saharan African countries and the period 1980–2014. The empirical evidence is based on non-interactive and interactive Generalised Method of Moments. The following main findings are established. First, FDI has a positive effect on GDP growth, GDP per capita and welfare real TFP. Second, the effect of FDI is negative on real GDP and TFP, while the impact is insignificant on real TFP growth and welfare TFP. Third, values added to the three economic sectors largely modulate FDI to produce negative net effects on TFP and growth dynamics. Policy implications are discussed with particular emphasis on the need to complement added value across various economic sectors in order to leverage on the benefits of FDI in TFP and economic growth. To the best of knowledge, this is the first study to assess how value added from various economic sectors affect the relevance of FDI on macroeconomic outcomes. |
| Keywords: | Economic output, total factor productivity, foreign investment, agricultural sector, manufacturing sector, service sector, sub-Saharan Africa |
| JEL: | E23 F21 F30 F43 O55 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:21/088&r= |
| By: | Falk Bräuning; José Fillat; Gustavo Joaquim |
| Abstract: | Credit availability from different sources varies greatly across firms and has firm-level effects on investment decisions and aggregate effects on output. We develop a theoretical framework in which firms decide endogenously at the extensive and intensive margins of different funding sources to study the role of firm choices on the transmission of credit supply shocks to the real economy. As in the data, firms can borrow from different banks, issue bonds, or raise equity through retained earnings to fund productive investment. Our model is calibrated to detailed firm- and loan-level data and reproduces stylized empirical facts: Larger, more productive firms rely on more banks and more sources of funding; smaller firms mostly rely on a small number of banks and internal funding. Our quantitative analysis shows that bank credit supply shocks lead to a sizable reduction in aggregate output, with substantial heterogeneity across firms, due to the lack of substitutability among alternative credit sources. Finally, we show that our insights have important implications for the validity of standard empirical methods used to identify credit supply effects (Khwaja and Mian 2008). |
| Keywords: | shock transmission; bank-firm matching; firm financing; credit supply shocks |
| JEL: | E32 E43 E50 G21 G32 |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93553&r= |
| By: | Lutz Kilian; Xiaoqing Zhou |
| Abstract: | Predictions of oil prices reaching $100 per barrel during the winter of 2021/22 have raised fears of persistently high inflation and rising inflation expectations for years to come. We show that these concerns have been overstated. A $100 oil scenario of the type discussed by many observers, would only briefly raise monthly headline inflation, before fading rather quickly. However, the short-run effects on headline inflation would be sizable. For example, on a year-over-year basis, headline PCE inflation would increase by 1.8 percentage points at the end of 2021 under this scenario, and by 0.4 percentage points at the end of 2022. In contrast, the impact on measures of core inflation such as trimmed mean PCE inflation is only 0.4 and 0.3 percentage points in 2021 and 2022, respectively. These estimates already account for any increases in inflation expectations under the scenario. The peak response of the 1-year household inflation expectation would be 1.2 percentage points, while that of the 5-year expectation would be 0.2 percentage points. |
| Keywords: | scenario, inflation, expectation, oil price, gasoline price, household survey, core, pandemic, recovery |
| JEL: | E31 E52 Q43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9455&r= |
| By: | Marek Rutkowski; Matthew Bickersteth |
| Abstract: | Since the 1970s, the LIBOR has served as a fundamental measure for floating term rates across multiple currencies and maturities. Loans and many derivative securities, including swaps, caps and swaptions, still rely on LIBOR as the reference forward-looking term rate. However, in 2017 the Financial Conduct Authority announced the discontinuation of LIBOR from the end of 2021 and the New York Fed declared the backward-looking SOFR as a candidate for a new reference rate for interest rate swaps denominated in U.S. dollars. We first outline the classical single-curve modelling framework before transitioning to the multi-curve framework where we examine arbitrage-free pricing and hedging of SOFR-linked swaps without and with collateral backing. As hedging instruments, we take liquidly traded SOFR futures and either common or idiosyncratic funding rates for the hedge and margin account. For concreteness, a one-factor model based on Vasicek's equation is used to specify the joint dynamics of several overnight interest rates, including the SOFR, EFFR, and unsecured funding rate, although multi-factor term structure models could also be employed. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.14033&r= |
| By: | Bao-We-Wal Bambe (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | This paper analyses the effect of inflation targeting on private domestic investment in developing countries. Using the propensity scores matching method, which allows addressing the self-selection bias in the policy adoption, I find that inflation targeting has increased private domestic investment from 2.05 to 2.53 percentage points in targeting countries compared to nontargeting countries. The estimated coefficients are economically meaningful and robust to a battery of econometric tests and alternative specifications. Finally, I highlight several heterogeneities in the effect of inflation targeting, depending on various factors. |
| Keywords: | E51,E52,E58,590,E62,E220,Inflation targeting,Private domestic investment,Developing countries,Propensity score matching |
| Date: | 2021–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03479679&r= |
| By: | Rahman, Abdurrahman Arum |
| Abstract: | Central bank digital currency (CBDC) is a digitized fiat currency. As the nature of the central bank is centralized, the CBDC is also centralized. This paper proposes a decentralized CBDC that is controlled by many central banks together or countries in the world. It is only for international transactions between member countries. While domestic transactions continue to use the national currency of each country. A decentralized CBDC can explore the advantages of digital technologies more deeply than the centralized ones by making reconciliations between central banks in real-time. Furthermore, this system provides international liquidity for all (member) countries in the world sustainably and free of charge. This system eliminates global imbalances, makes the exchange rate more stable, and so makes the whole international monetary system naturally more stable. In doing so, the system does not require economic integration so that all countries in the world may join without many conditions. |
| Keywords: | Cryptocurrency, organic system, global currency, international monetary system, global imbalances. |
| JEL: | E40 E50 O3 |
| Date: | 2022–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111361&r= |
| By: | Hlongwane, Nyiko Worship; Mmutle, Tumelo Donald; Daw, Olebogeng David |
| Abstract: | This study investigates the relationship between foreign direct investment and economic growth in SADC region from 2000 to 2019. The study utilises panel data spanning from 2000 to 2019 sourced from the World Bank. The study employs a panel ARDL and panel Error Correction Model to analyse the relationship between foreign direct investment and economic growth in SADC region. The statistical results revealed a positive statistically significant short run relationship and negative statistically significant long run relationship between foreign direct investment and economic growth. |
| Keywords: | Foreign Direct Investment (FDI), Economic Growth, Error Correction Model, SADC, Panel ARDL model |
| JEL: | C01 C22 E41 F15 F43 R11 |
| Date: | 2021–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111008&r= |
| By: | Julien Xavier Daubanes (University of Geneva); Shema Frédéric Mitali (Ecole Polytechnique Fédérale de Lausanne); Jean-Charles Rochet (Swiss Finance Institute; University of Geneva - Geneva Finance Research Institute (GFRI); University of Zurich - Swiss Banking Institute (ISB)) |
| Abstract: | Green bonds allow firms to commit to climate-friendly projects. Equity investors react positively to their announcement. Based on prior empirical studies, we suggest that green bond commitments help managers signal the profitability of their green projects and that they do so because they are sensitive to their rm's stock price. We present a signaling model in which firms undertake green projects not only because of carbon penalties but, additionally, because of managerial incentives, predicting that the role of the former is augmented by the latter. We test this prediction by exploiting both cross-industry differences in the stock-price sensitivity of managers' pay and in stock share turnover, and cross-country variations in effective carbon prices. Our results not only support the role that our theory ascribes to managerial incentives, but also show that this role mainly depends on carbon pricing. Green bonds are not substitutes to carbon pricing. On the contrary, the latter is essential to the effectiveness of the former. |
| Keywords: | Green bonds; Green finance; Climate policy; Carbon pricing; Managerial incentives; Short-termism |
| JEL: | D53 H23 G14 Q54 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2197&r= |
| By: | Guilherme Spinato Morlin |
| Abstract: | Exchange rates and international prices are fundamental to explain inflation in open economies. Conflict inflation models account for these variables by including imported inputs and, in some cases, a distributive impact of exchange rates. A different viewpoint emerges from the Classical-Keynesian theory of distribution for a price-taker open economy. Thus, we explore this alternative by developing a conflict inflation model building on Classical Keynesian approach. The paper contributes to the literature by combining the conflicting claims approach with the Classical-Keynesian open economy framework. Including tradable prices, the model considers their direct impact on distribution. Therefore, it addresses a cause of inflation overlooked in the literature. Finally, conflict inflation affects the real exchange rate, which becomes an important distributive variable |
| JEL: | B51 D33 E11 E31 F41 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:usi:wpaper:863&r= |
| By: | Omar Barbiero |
| Abstract: | This paper estimates the cash flow and real effects of currency mismatches generated by foreign-priced operations of French manufacturers. The value of transactions invoiced in foreign currencies is twice as sensitive to exchange rates as the value of transactions invoiced in the domestic currency. I aggregate foreign-priced operations to the firm level to build a shift-share measure of invoice currency mismatch. This measure outperforms any trade-weighted effective exchange rate index in explaining cash flows of trading firms. Large firms absorb valuation shocks in their balance sheet, and small exporters partially hedge their dollar-priced exports with dollar-priced imports. Only investment and payroll of small domestic-oriented firms are sensitive to invoice currency valuations. These results show how trade value sensitivities to currency fluctuations can coexist with the evidence of disconnect between exchange rates and real macroeconomic fundamentals. |
| Keywords: | exchange rate sensitivity; currency mismatch; dollar-priced trade |
| JEL: | F30 F31 F32 F34 F36 F40 F41 F42 |
| Date: | 2021–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93547&r= |
| By: | Byrne, David (Central Bank of Ireland); Zekaite, Zivile (Central Bank of Ireland) |
| Abstract: | Inflation rates have risen substantially in many countries over the course of this year. This has led to renewed interest in understanding the inflation process and in the outlook for inflation over the coming years. In the euro area and Ireland, inflation had been persistently low and below the ECB’s target for much of the time since the Global Financial Crisis. This Letter outlines the developments in inflation since the COVID-19 pandemic and explains the drivers of the current high inflation rates. This Letter then discusses the ongoing debate on the inflation outlook and potential monetary policy options. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:7/el/21&r= |
| By: | Mitra, Aruni |
| Abstract: | This paper argues that rapid de-unionization during the 1980s can explain the sudden vanishing of the procyclicality of productivity in the U.S. I use cross-sectional evidence from U.S. states and industries to argue that the lower cost of hiring and firing workers due to the decline in union power prompted firms to rely less on labour hoarding, making productivity less procyclical. Allowing the hiring cost to decrease by the same proportion as the decline in union density can match almost the entire drop in cyclical productivity correlations in a model with endogenous effort and costly employment adjustment. |
| Keywords: | productivity, unions, hiring cost, factor utilization, DSGE |
| JEL: | E22 E23 E24 E32 J50 |
| Date: | 2021–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110961&r= |
| By: | Conefrey, Thomas (Central Bank of Ireland); Hickey, Rónán (Central Bank of Ireland); Walsh, Graeme (Central Bank of Ireland) |
| Abstract: | As the COVID-19 pandemic abates, pressure on the public finances in Ireland should ease but projected strong growth in public spending will see persistent deficits and high government debt through to 2025. At the same time, there is uncertainty as to the scale of future long-term spending pressures combined with the risk of lower government revenue from corporation tax. Against this backdrop, this Letter examines risks to the public finances from further debt-funded expenditure increases, lower tax revenue or a negative external growth shock. The analysis suggests that permanent increases in current spending should be balanced with revenue-raising measures elsewhere in the budget. A permanent loss of corporation tax combined with a negative external shock could increase government debt to over 115 per cent of modified national income (GNI*) by 2025. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:6/el/21&r= |
| By: | Oscar Claveria (AQR IREA, University of Barcelona (UB). Department of Econometrics, Statistics and Applied Economics, University of Barcelona, Diagonal 690, 08034 Barcelona, Spain. Tel.: +34-934021825); Enric Monte (Department of Signal Theory and Communications, Polytechnic University of Catalunya (UPC)); Petar Soric (Faculty of Economics & Business University of Zagreb.); Salvador Torra (Riskcenter–IREA, University of Barcelona (UB).) |
| Abstract: | This paper examines the performance of several state-of-the-art deep learning techniques for exchange rate forecasting (deep feedforward network, convolutional network and a long short-term memory). On the one hand, the configuration of the different architectures is clearly detailed, as well as the tuning of the parameters and the regularisation techniques used to avoid overfitting. On the other hand, we design an out-of-sample forecasting experiment and evaluate the accuracy of three different deep neural networks to predict the US/UK foreign exchange rate in the days after the Brexit took effect. Of the three configurations, we obtain the best results with the deep feedforward architecture. When comparing the deep learning networks to time-series models used as a benchmark, the obtained results are highly dependent on the specific topology used in each case. Thus, although the three architectures generate more accurate predictions than the time-series models, the results vary considerably depending on the specific topology. These results hint at the potential of deep learning techniques, but they also highlight the importance of properly configuring, implementing and selecting the different topologies. |
| Keywords: | Forecasting, Exchange rates, Deep learning, Deep neural networks, Convolutional networks, Long short-term memory. JEL classification: C45, C58, E47, F31, G17. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:202201&r= |
| By: | Galip Kemal Ozhan |
| Abstract: | How does news about future economic fundamentals affect within-country and cross-country credit allocation? How effective is unconventional policy when financial crises are driven by unfulfilled favorable news? I study these questions by employing a two-sector, two-country macroeconomic model with a financial sector in which financial crises are associated with occasionally binding leverage constraints. In response to positive news on the valuation of non-traded sector capital that turns out to be incorrect at a later date, the model captures the patterns of financial flows and current account dynamics in Spain between 2000-2010, including the changes in the sectoral allocation of bank credit and movements in cross-country borrowing during the boom and the bust. When there are unconventional policies by a common authority in response to unfulfilled favorable news, liquidity injections perform better in ameliorating the downturn than direct assets purchases from the non-traded sector. |
| Keywords: | Central bank research; Digital currencies and fintech |
| JEL: | E44 F32 F41 G15 G21 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:21-66&r= |
| By: | Leonello, Agnese; Mendicino, Caterina; Panetti, Ettore; Porcellacchia, Davide |
| Abstract: | Does the level of deposits matter for bank fragility and efficiency? In a banking model with endogenous bank runs and a consumption-saving decision, we show that the level of deposits has opposite effects on bank fragility depending on the nature of bank runs. In an economy with panic-driven runs, higher deposits make banks less fragile, while the opposite is true when runs are only driven by fundamentals. The effect of deposits is not internalized by depositors. A saving externality arises, leading to excessive fragility and insufficient liquidity provision. The economy features under-saving when runs are panic driven, and over-saving when fundamental driven. JEL Classification: G01, G21, G28 |
| Keywords: | endogenous bank runs, fundamental runs, liquidity provision, panic runs, saving externality |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222636&r= |
| By: | Willem Thorbecke (RIETI - Research Institute of Economy, Trade and Industry) |
| Abstract: | This paper examines the stock market exposures of sectors in France, Germany, Japan, and South Korea. If a firm in one country competes with firms in another country, an appreciation of its currency relative to its competitors' currency should lower its profitability and its stock price. If a firm cooperates with firms in another country by purchasing imported intermediates from them, an appreciation of its currency relative to its comrades' currency should increase its ability to purchase inputs and raise its profitability and stock price. The results indicate that 60 percent of the sectors examined in France and Germany and 27 percent of the sectors examined in Korea benefit when their currency appreciates against the Japanese yen and that virtually no sectors are harmed by yen depreciations. This implies that Japanese firms play a vital role as suppliers of intermediate goods to firms in France, Germany, and Korea. By contrast, the results point to substantial competition between European and Korean firms. |
| Keywords: | Exchange rate exposure,Stock returns,International trade |
| Date: | 2021–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03483959&r= |
| By: | Davide Melcangi; Javier Turen |
| Abstract: | We study the early stages of firm creation under imperfect information. Because startups make error-prone decisions due to rational inattention, the model generates both inefficient entry and labor misallocation. We show that information frictions alter the effects of lump-sum transfers to startups: the total employment gain is amplified due to an unintended increase in inefficient entry, most entrants hire fewer workers, and misallocation goes up. The transfer makes low-size, previously dominated actions profitable, affecting the entire endogenous learning problem and making even productive startups lean toward more conservative hiring. We show that this novel information channel works against well-known mechanisms (for example, financial frictions) and also dampens the effects of alternative policies such as wage subsidies. |
| Keywords: | startups; rational inattention; firm subsidy |
| JEL: | D82 D83 E60 H25 |
| Date: | 2021–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:93504&r= |
| By: | Gita Gopinath; Oleg Itskhoki |
| Abstract: | A handful of currencies, especially the US dollar, play a dominant role in international trade. We survey the active theoretical and empirical literature that documents patterns of currency use in global trade, the implications of dominant currencies for international transmission of shocks, exchange rate pass-through, expenditure switching, and optimal monetary policy. We describe advances in the endogenous currency choice literature including conditions for the emergence and persistence of dominant currency equilibria. |
| JEL: | F30 F40 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29556&r= |