|
on Central and Western Asia |
| By: | Mariacristina De Nardi (Institute for Fiscal Studies and University of Minnesota and Federal Reserve Bank of Minneapolis); Eric French (Institute for Fiscal Studies and University College London and University of Cambridge); John Bailey Jones (Institute for Fiscal Studies); Rory McGee (Institute for Fiscal Studies and University of Western Ontario) |
| Abstract: | While the savings of retired singles tend to fall with age, those of retired couples tend to rise. We estimate a rich model of retired singles and couples with bequest motives and uncertain longevity and medical expenses. Our estimates imply that while medical expenses are an important driver of the savings of middle-income singles, bequest motives matter for couples and high-income singles, and generate transfers to non-spousal heirs whenever a household mem-ber dies. The interaction of medical expenses and bequest motives is a crucial determinant of savings for all retirees. Hence, to understand savings, it is important to model household structure, medical expenses, and bequest motives. |
| Date: | 2021–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/12&r= |
| By: | Italo Colantone; Gianmarco Ottaviano; Piero Stanig |
| Abstract: | We review the literature on the globalization backlash, seen as the political shift of voters and parties in a protectionist and isolationist direction, with substantive implications on governments’ leaning and enacted policies. Using newly assembled data for 23 advanced democracies, we document a protectionist and isolationist shift in electorates, legislatures, and executives from the mid-1990s onwards. This is associated with a noticeable protectionist shift in trade policy –although with some notable nuances– especially since the financial crisis of 2008. We discuss the economics of the backlash. From a theoretical perspective, we highlight how the backlash may arise within standard trade models when taking into account the ‘social footprint’ of globalization. Then, we review the empirical literature on the drivers of the backlash. Two main messages emerge from our analysis: (1) globalization is a significant driver of the backlash, by means of the distributional consequences entailed by rising trade exposure; yet (2) the backlash is only partly determined by trade. Technological change, crisis-driven fiscal austerity, immigration, and cultural concerns are found to play an important role in creating politically consequential cleavages. Looking ahead, we discuss possible future developments, with specific focus on the issue of social mobility |
| Keywords: | Globalization, Social Footprint, Backlash |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp21165&r= |
| By: | Ionut-Alexandru Horhogea (University of Birmingham, Birmingham, United Kingdom) |
| Abstract: | Previously, the laborers believing in an automatized business could have been considered dreamy, looking to skip daily tasks. Nowadays, the spectrum upon automatization and platforms facilitating e-commerce has changed and highlights the jump from a brick and mortar store to a virtual one. More and more established brands are replacing classic locations with logistic warehouses to deliver products more efficiently. Well-known companies, e.g., Zara, Amazon, eBay that have been recently founded, embraced this change and took the best out of it. However, our attention will fall on smaller businesses and the difficulties they face during such a transition and analyses from various standpoints the goods and the bads of each. Should the jump from a physical to an online facility be considered or left untouched? What is the best model to be followed in order to level a business? Let us find in the following. |
| Keywords: | digital business, physical store, evolution, management, marketing, logistics |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:smo:lpaper:0098&r= |
| By: | Giancarlo Bertocco; Andrea Kalajzić |
| Abstract: | To hypothesize the existence of a relationship between money and savings means questioning a fundamental pillar of the mainstream economic theory: the concept of neutrality of money. According to the traditional theory economic phenomena such as savings can be defined independently from money. The objective of this work is to show that savings cannot be defined independently from money and that savings must be considered as a monetary phenomenon. The paper consists of two parts. Starting from Adam Smith’s analysis and continuing up to the approaches developed by contemporary economists, in the first part we summarize the most significant aspects and the limitations of the mainstream theory. In the second part we specify the reasons of the non-neutrality of money and of the monetary nature of savings. |
| Keywords: | Savings, money, development, Keynes, Schumpeter |
| JEL: | B12 B13 B52 E12 E44 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp2206&r= |
| By: | Frédéric Boissay (Unknown); Fabrice Collard (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jordi Galí (Unknown); Cristina Manea (Unknown) |
| 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: | 2022–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03509283&r= |
| By: | Johannes König; Maximilian Longmuir |
| Abstract: | From standard portfolio-choice theory it is well-understood that background risk, overwhelmingly due to wage risk, is one of the central determinants of individuals’ portfolio composition: higher background risk reduces risky investments. However, if background risk is negatively correlated with financial market risk, higher background risk implies more risky investment. We quantify the influence of wage risk on German investors’ financial portfolio shares and find that an increase of the residual variance of wages by one standard deviation implies a reduction of the financial portfolio share by 3 percentage points. We do not find that the correlation of wage risk with financial market risk has a significant impact on portfolio choice and provide evidence that this may be due to a lack of salience. |
| Keywords: | Background risk, portfolio choice, household portfolios, investment behavior |
| JEL: | D12 D14 D31 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1974&r= |
| By: | Dante B. Canlas (School of Economics, University of the Philippines Diliman) |
| Abstract: | This paper opens up a study of economic convergence in Asia. This convergence refers to the ability of developing economies to catch up with the developed ones in terms of levels and growth rates of real per capita GDP. The study uses the lens of neoclassical growth models, both the basic models of Robert Solow and Trevor Swan, along with the models of Robert Lucas Jr. and Paul Romer in endogenous growth theory to interpret observed growth in Asia. Data are taken from the 45 developing member countries of the Asian Development Bank. The study supports conditional convergence but not absolute convergence. That is the lagging economies can catch up with the leading economies provided the former can adopt advanced technologies, such as, those that feature human-capital investments, learning-by-doing and increasing returns from knowledge accumulation. |
| Keywords: | economic convergence; neoclassical growth models; Asia |
| JEL: | N15 O11 O42 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:phs:dpaper:202009&r= |
| By: | David Ardia; Keven Bluteau; Mohammad Abbas Meghani |
| Abstract: | Using the structural topic model, we present a landscape of academic finance. We analyze more than 40,000 titles and abstracts published in 32 finance journals over a period ranging from 1992 to 2020. We identify the research topics and explore their relation and prevalence over time and across journals. Our analyses reveal that most journals have covered more topics over time, thus becoming more generalist. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.14902&r= |
| By: | Andersson, Lina (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | Fear is an important factor in decision-making under risk and uncertainty. Psychology research suggests that fear influences one’s risk attitude and fear may have important consequences for decisions concerning for example investments, crime, conflicts, and politics. I model strategic interactions between players who can be in either a neutral or a fearful state of mind. A player’s state of mind determines his or her utility function. The two main assumptions are that (i) fear is triggered by an increase in the probability or cost of negative outcomes and (ii) a player in the fearful state is more risk averse. A player’s beliefs over the probability and cost of negative outcomes determine how the player transitions between the states of mind. I use psychological game theory to analyze the role of fear in three applications, a robbery game, a bank run game, and a public health intervention. |
| Keywords: | emotions; fear; risk aversion; psychological game theory |
| JEL: | C72 D01 D91 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0819&r= |
| By: | Ahrens, Steffen; Bosch-Rosa, Ciril; Meissner, Thomas |
| Abstract: | We replicate Meissner (2016) where debt aversion was reported for the first time in an intertemporal consumption and saving problem. While Meissner (2016) uses a German sample, our subjects are US undergraduate students. All of the main findings from the original study replicate, with similar effect sizes. Additionally, we extend the original analysis by correlating a new individual index of debt aversion on individual characteristics such as gender, cognitive ability, and risk aversion. The findings suggest that gender and risk aversion are not correlated with debt aversion. However, cognitive ability is positively correlated with debt aversion. Overall, this paper confirms the importance of debt aversion in intertemporal consumption problems and validates the approach of Meissner (2016). |
| Keywords: | Debt Aversion,Replication,Experiment |
| JEL: | C91 D84 G11 G41 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20221&r= |
| By: | Luca Fontanelli (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur, SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa]); Mattia Guerini (University of Brescia, GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur, SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa]); Mauro Napoletano (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur, OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po, SKEMA Business School, SSSUP - Scuola Universitaria Superiore Sant'Anna [Pisa]) |
| Abstract: | We build a simple dynamic model to study the effects of technological learning, market selection and international competition in the determination of export flows and market shares. The model features two countries populated by firms with heterogeneous productivity levels and sales. Market selection in each country is driven by a finite pairwise Pólya urn process. We show that market selection leads either to a national or to an international monopoly in presence of a static distribution of firm productivity levels. We then incorporate firm learning and entry-exit in the model and we show that the market structure does not converge to a monopoly. In addition, we show that the extended model is able to jointly reproduce a wide ensemble of stylized facts concerning intra-industry trade, industry and firm dynamics. |
| Keywords: | International trade,industrial dynamics,rm dynamics,market selection,Pólya urn |
| Date: | 2022–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03509092&r= |
| By: | Thitithep Sitthiyot |
| Abstract: | This paper discusses serious drawbacks of existing knowledge in macroeconomics and finance in explaining and predicting economic and financial phenomena. Complexity science is proposed as an alternative approach to be used in order to better understand how economy and financial market work. This paper argues that understanding characteristics of complex system could greatly benefit financial analysts, financial regulators, as well as macroeconomic policy makers. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.15294&r= |
| By: | Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel |
| Abstract: | Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the Federal Reserve’s monetary policy implementation framework and discuss the factors behind the recent increase in volume. |
| Keywords: | overnight reverse repo (ON RRP); monetary policy implementation |
| JEL: | E52 E58 |
| Date: | 2022–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93613&r= |
| By: | Dylan Herman; Cody Googin; Xiaoyuan Liu; Alexey Galda; Ilya Safro; Yue Sun; Marco Pistoia; Yuri Alexeev |
| Abstract: | Quantum computers are expected to surpass the computational capabilities of classical computers during this decade and have transformative impact on numerous industry sectors, particularly finance. In fact, finance is estimated to be the first industry sector to benefit from quantum computing, not only in the medium and long terms, but even in the short term. This survey paper presents a comprehensive summary of the state of the art of quantum computing for financial applications, with particular emphasis on Monte Carlo integration, optimization, and machine learning, showing how these solutions, adapted to work on a quantum computer, can help solve more efficiently and accurately problems such as derivative pricing, risk analysis, portfolio optimization, natural language processing, and fraud detection. We also discuss the feasibility of these algorithms on near-term quantum computers with various hardware implementations and demonstrate how they relate to a wide range of use cases in finance. We hope this article will not only serve as a reference for academic researchers and industry practitioners but also inspire new ideas for future research. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.02773&r= |
| By: | Tilman H. Drerup; Matthias Wibral; Christian Zimpelmann |
| Abstract: | Many models of investor behavior predict that investors prefer assets that they believe to have positively skewed return distributions. We provide a direct test of this prediction in a representative sample of the Dutch population. Using individuallevel data on return expectations for a broad index and a single stock, we show that portfolio allocations increase with the skewness of respondents’ return expectations for the respective asset, controlling for other moments of a respondent’s expectations and sociodemographic information. We also show that while an individual’s expectations are correlated across assets, sociodemographics only capture very little of the substantial heterogeneity in expectations. |
| Keywords: | Skewness, Stock Market Expectations, Portfolio Choice, Behavioral Finance |
| JEL: | D14 D84 G02 G11 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_333&r= |
| By: | Meinen, Philipp; Soares, Ana Cristina |
| Abstract: | This paper analyses the impact of financial frictions on markup adjustments at the firm level. We use a rich panel data set that matches information on banking relationships with firm-level data. By relying on insights from recent contributions in the literature, we obtain exogenous credit supply shifters and markups that are both firm specific and time varying. We uncover new findings at this level. In particular, firms more exposed to liquidity risks tend to raise markups in response to negative bank-loan supply shocks, while less exposed firms generally reduce them. Further empirical analyses suggest that our findings are mostly consistent with models featuring a sticky customer base, where financially constrained firms have an incentive to raise markups in order to sustain liquidity. Our results have important economic implications regarding the cyclicality of the aggregate markup. |
| Keywords: | Financial Shocks,Markups,Firm-level data |
| JEL: | L22 L11 D22 G10 G01 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:542021&r= |
| By: | Pascal Gauthier; Timothy J. Kehoe; Erwan Quintin |
| Abstract: | We develop a restart algorithm based on Scarf’s (1973) algorithm for computing approximate Brouwer fixed points. We use the algorithm to compute all of the equilibria of a general equilibrium pure-exchange model with four consumers, four goods, and 15 equilibria. The mathematical result that motivates the algorithm is a fixed-point index theorem that provides a sufficient condition for uniqueness of equilibrium and a necessary condition for multiplicity of equilibria. Examining the structure of the model with 15 equilibria provides us with a method for constructing higher dimensional models with even more equilibria. For example, using our method, we can construct a pure-exchange economy with eight consumers and eight goods that has (at least) 255 equilibria. |
| Keywords: | Uniqueness of equilibrium; Multiplicity of equilibrium; Computation of equilibrium |
| JEL: | C63 D51 C62 C60 |
| Date: | 2021–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:93490&r= |
| By: | Narita, Yusuke; Yata, Kohei |
| Abstract: | Algorithms produce a growing portion of decisions and recommendations both in policy and business. Such algorithmic decisions are natural experiments (conditionally quasirandomly assigned instruments) since the algorithms make decisions based only on observable input variables. We use this observation to develop a treatment-effect estimator for a class of stochastic and deterministic decision-making algorithms. Our estimator is shown to be consistent and asymptotically normal for well-defined causal effects. A key special case of our estimator is a multidimensional regression discontinuity design. We apply our estimator to evaluate the effect of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, where hundreds of billions of dollars worth of relief funding is allocated to hospitals via an algorithmic rule. Our estimates suggest that the relief funding has little effect on COVID- 19-related hospital activity levels. Naive OLS and IV estimates exhibit substantial selection bias. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2021-05&r= |
| By: | Dietrich, Stephan (UNU-MERIT, Maastricht University); Meysonnat, Aline (University of Washington, Daniel J. Evans School of Public Policy and Governance); Rosales, Francisco (ESAN Graduate School of Business, Lima); Cebotari, Victor (University of Luxembourg); Gassmann, Franziska (UNU-MERIT, Maastricht University) |
| Abstract: | Globally, 21 percent of young women are married before their 18th birthday. Despite some progress in addressing child marriage, it remains a widespread practice, in particular in South Asia. While household predictors of child marriage have been studied extensively in the literature, the evidence base on macro-economic factors contributing to child marriage and models that predict where child marriage cases are most likely to occur remains limited. In this paper we aim to fill this gap and explore region-level indicators to predict the persistence of child marriage in four countries in South Asia, namely Bangladesh, India, Nepal and Pakistan. We apply machine learning techniques to child marriage data and develop a prediction model that relies largely on regional and local inputs such as droughts, floods, population growth and nightlight data to model the incidence of child marriages. We find that our gradient boosting model is able to identify a large proportion of the true child marriage cases and correctly classifies 78% of the true marriage cases, with a higher accuracy in Bangladesh (90% of the cases) and a lower accuracy in Nepal (71% of cases). In addition, all countries contain in their top 10 variables for classification nighttime light growth, a shock index of drought over the previous and the last two years and the regional level of education, suggesting that income shocks, the regional economic activity and regional education levels play a significant role in predicting child marriage. Given the accuracy of the model to predict child marriage, our model is a valuable tool to support policy design in countries where household-level data remains limited. |
| Keywords: | child marriage, income shocks, machine learning, South Asia |
| JEL: | J1 J12 O15 Q54 R11 |
| Date: | 2021–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2021034&r= |
| By: | Ludwig von Auer; Alena Shumskikh |
| Abstract: | Due to outdated weighting information, a Laspeyres-based Consumer Price Index (CPI) is prone to accumulating upward bias. Therefore, the present study introduces and examines simple and transparent revision approaches that retrospectively address the source of the bias. They provide a consistent long-run time series of the CPI and they require no additional information. Furthermore, a coherent decomposition of the bias into the contributions of individual product groups is developed. In a case study, the approaches are applied to a Laspeyres-based CPI. The empirical results confirm the theoretical predictions. The proposed revision approaches are not only adoptable to most national CPIs, but also to other price level measures such as the producer price index or the import and export price indices. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:202201&r= |
| By: | Puonti, Päivi; Kauppi, Eija; Kotamäki, Mauri; Ropponen, Olli |
| Abstract: | Abstract We analyze the impact of the Finnish tax-benefit system on the financial incentives to take up a job and to work more. The analysis is conducted with the Finnish microsimulation model SISU in 2015–2021. We analyze the presence of unemployment traps in the population and characterize the population subgroups associated with low work incentives. According to our results, the median participation tax rate in Finland is 69 percent, meaning that for half of working-age Finns the disposable income when in work increases by at most one third of the wage when employed. On average, the financial incentives to work of individuals receiving earnings-related unemployment benefits are lower than of those receiving flat-rate unemployment benefits, and the incentives of individuals receiving child home care allowance are better than the incentives of unemployed. Most of the individuals in unemployment trap receiving flat-rate unemployment benefits are beneficiaries of social assistance. In year 2021, 136,500 Finns found themselves in an unemployment trap defined as a situation in which disposable income increases at most 20 percent of gross income when employed. The amount of people in unemployment trap amounts to more than 300,000 when 25 percent is used as the relevant limit. Financial incentives to work have slightly improved since 2015. More than half a million Finns lose more than 50% of extra income due to tax increase and benefit withdrawal. The earnings disregard for basic social assistance improved the financial incentives to work of individuals in the lowest income group. |
| Keywords: | Participation tax rates, Incentives to work, Microsimulation, Tax-benefit system |
| JEL: | J22 H20 |
| Date: | 2022–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:124&r= |
| By: | Wafa Sahraoui (Université de Sousse); Rimvie Enoc Kabore (LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE]) |
| Date: | 2021–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03503462&r= |
| By: | Andreas Fuster; David O. Lucca; James Vickery |
| Abstract: | This paper reviews the mortgage-backed securities (MBS) market, with a particular emphasis on agency residential MBS in the United States. We discuss the institutional environment, security design, MBS risks and asset pricing, and the economic effects of mortgage securitization. We also assemble descriptive statistics about market size, growth, security characteristics, prepayment, and trading activity. Throughout, we highlight insights from the expanding body of academic research on the MBS market and mortgage securitization. |
| Keywords: | mortgage finance; securitization; agency mortgage-backed securities; TBA; option-adjusted spreads; covered bonds |
| JEL: | G10 G12 G21 |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:93695&r= |
| By: | Gerba, Eddie (Bank of England); Katsoulis, Petros (Bank of England) |
| Abstract: | This paper assesses the impact of banking regulation (Basel III) on financial market dynamics using the repo market as an important case study. To this end, we use unique proprietary data sets from the Bank of England to examine the individual and joint impact of leverage, capital and liquidity coverage ratios on participants’ trading in all collateral segments of the UK repo market. We find non-uniform effects across ratios and participants and non-linear effects across time. For instance, we find that the leverage ratio induces participants to charge lower (higher) interest margins on repo (reverse repo) trades that are non-nettable compared to the nettable ones. Second,we document a change in market microstructure under the new regulatory regime. Specifically, we evidence a substitution effect of banks’ long-term repo borrowing backed by gilts from dealers to investment funds which can be fragile during times of stress. Likewise, we find an increasing prominence of central counterparties. Third, we find evidence that participants who are jointly constrained by multiple ratios and closer to the regulatory thresholds during times of stress reduce their activity to a greater extent than those that are constrained by a single ratio or not constrained, with implications for market liquidity. |
| Keywords: | Banking regulation; repo market; market microstructure; liquidity; monetary policy transmission |
| JEL: | E44 E52 G11 G21 G28 |
| Date: | 2021–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0954&r= |
| By: | Czech, Robert (Bank of England); Huang, Shiyang (University of Hong Kong); Lou, Dong (London School of Economics); Wang, Tianyu (Tsinghua University) |
| Abstract: | We study investor trading behaviour and yield patterns in the UK government bond market during the recent Covid crisis. We show that the yield spike in mid-March 2020 was accompanied by heavy selling of gilts by UK-based insurance companies and pension funds (ICPFs), which we argue was an indirect result of the US dollar’s global prominence. Non-US institutions invest a large portion of their capital in dollar assets and hedge their dollar exposures by selling dollars forward through FX derivatives. In crisis periods, dollars appreciate against other currencies. To meet margin calls on these short-dollar FX positions, non-US institutions sell their domestic safe assets, thereby contributing to the yield spikes in domestic markets. |
| Keywords: | Covid crisis; gilt yields; variation margin; FX derivatives; global reserve currency; currency hedging |
| JEL: | F31 G11 G12 G15 G22 G23 |
| Date: | 2021–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0953&r= |
| By: | Lhuissier Stéphane |
| Abstract: | Motivated by empirically characterizing the relationship between financial conditions and downside macroeconomic risks in the euro area, I develop a regime-switching skew-normal model with time-varying probabilities of transitions. Using Bayesian methods, the model estimates show that a strong cyclical pattern emerges from the conditional skewness (a measure of the asymmetry of the predictive distribution), which has a tendency to rapidly decline to negative territory prior and during recessions. However, the inclusion of financial-specific information in time-varying probabilities does not help to anticipate such skewness nor more generally to provide advance warnings of tail risks. |
| Keywords: | Financial Conditions, Downside Risks, Predictability, Regime-Switching Models |
| JEL: | C11 C2 E32 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:863&r= |
| By: | Francisco Amaral; Martin Dohmen; Sebastian Kohl; Moritz Schularick |
| Abstract: | Houses are the largest asset for most households in the United States, as is the case in many other countries as well. Within countries, there is substantial regional variation in house prices—compare real estate values in Manhattan, New York City, with those in Manhattan, Kansas, for example. But what about returns on investment? Are long-run returns on real estate investment—the sum of price appreciation and rental income flows—higher in superstar cities like New York than in the rest of the country? In this blog post, we present new and potentially surprising insights from research comparing long-run returns on residential real estate in a nation’s largest cities to those experienced in the rest of the country (Amaral et al., 2021), covering the U.S. and fourteen other advanced economies over the past century. |
| Keywords: | housing returns; spatial economics; household finance |
| JEL: | E2 R31 |
| Date: | 2022–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93656&r= |
| By: | Janeba, Eckhard (Dept. of Economics, University of Mannheim); Schjelderup, Guttorm (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | The OECD's proposal for a global minimum tax (GMT) of 15% aims for a reversal of a decades-long race to the bottom of corporate tax rates driven by competition over real investments and profit shifting to low-tax jurisdictions. We study the revenue effects of the GMT by focusing on the induced strategic tax setting effects. The direct effect of the GMT is a reduction in profit shifting, which has a positive effect on revenues in high-tax countries as their tax base grows, and makes higher taxes attractive. A secondary effect, however, is that the value of attracting real foreign investments increases, which intensifies tax competition. We argue that the revenue effects of the GMT depend on the instruments governments use to attract firms. With endogenous corporate tax rates, revenues in non-havens increase if initially tax competition among non-havens is fierce. By contrast, when governments compete via lump sum subsidies, the revenue gains from less profit shifting are exactly offset by higher subsidies. |
| Keywords: | Global Minimum Tax; Tax Competition; OECD BEPS; Pillar II |
| JEL: | F23 F55 H25 H73 |
| Date: | 2022–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2022_006&r= |
| By: | Liu, Francis; Packham, Natalie; Lu, Meng-Jou; Härdle, Wolfgang |
| Abstract: | The introduction of derivatives on Bitcoin enables investors to hedge risk exposures in cryptocurrencies. Because of volatility swings and jumps in cryptocurrency prices, the traditional variance-based approach to obtain hedge ratios is infeasible. As a consequence, we consider two extensions of the traditional approach: first, different dependence structures are modelled by different copulae, such as the Gaussian, Student-t, Normal Inverse Gaussian and Archimedean copulae; second, different risk measures, such as value-at-risk, expected shortfall and spectral risk measures are employed to and the optimal hedge ratio. Extensive out-of-sample tests give insights in the practice of hedging various cryptos and crypto indices, including Bitcoin, Ethereum, Cardano, the CRIX index and a number of crypto-portfolios in the time period December 2017 until May 2021. Evidences show that BTC futures can effectively hedge BTC and BTC-involved indices. This promising result is consistent across different risk measures and copulae except for Frank. On the other hand, we observe complex and diverse dependence structures between BTC-not-involved assets and the futures. As a consequence, results of hedging other assets and indices are diverse and, in some occasions, not ideal. |
| Keywords: | Cryptocurrencies,risk management,hedging,copulas |
| JEL: | G11 G13 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:irtgdp:2022001&r= |
| By: | Stefán Thórarinsson |
| Abstract: | This paper seeks to determine what drives inflation variation in Iceland and examine the extent to which local currency pricing is present. To that end we define and estimate a Bayesian structural vector autoregression model. For identification we employ the method developed by Baumeister and Hamilton (2015), defining priors on the impact matrix and on the long run behaviour of the model. We find that supply shocks and exchange rate shocks are the largest contributors in short run dynamics of inflation while foreign shocks dominate the medium and long run horizons. Our results strongly suggest that local currency pricing is largely absent. A test of robustness suggests that our results w.r.t. foreign influences on domestic inflation hold. Whether foreign demand or foreign inflation plays a larger role in determining long horizon variation in inflation seems to vary considerably over the period considered. |
| JEL: | C11 C32 E31 F41 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp88&r= |
| By: | Ricardo Nunes; Ali K. Ozdagli; Jenny Tang |
| Abstract: | Interest rate surprises around FOMC announcements reveal both the surprise in the monetary policy stance (the pure policy shock) and interest rate movements driven by exogenous information about the economy from the central bank (the information shock). In order to disentangle the effects of these two shocks, we use interest rate changes on days of macroeconomic data releases. On these release dates, there are no pure policy shocks, which allows us to identify the impact of information shocks and thereby distill pure policy shocks from interest rate surprises around FOMC announcements. Our results show that there is a prominent central bank information component in the widely used high-frequency policy rate surprise measure that needs to be parsed out. When we remove this central bank information component, the estimated effects of monetary policy shocks are more pronounced relative to those estimated using the entire policy rate surprise. |
| Keywords: | monetary policy; central bank information; high-frequency identification; proxy structural VAR; external instruments |
| JEL: | C36 D83 E52 E58 |
| Date: | 2022–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:93691&r= |
| By: | Nurdaulet Abilov (NAC Analytica, Nazarbayev University) |
| Abstract: | We extend the literature on the role of uncertainty shocks in small open economies using a dynamic stochastic general equilibrium (DSGE) model with stochastic volatility for the economy of Kazakhstan. We build a small-scale DSGE model for Kazakhstan with non-linear time-varying volatility of shock processes. Due to the inherent non-linearity in the model we estimate the parameters of the volatility processes using the Particle filter, and then estimate structural parameters of the model via simulated method of moments (SMM) |
| Keywords: | DSGE model; Oil price uncertainty; Particle filter; Simulated method of moments; Kazakhstan. |
| JEL: | E20 E32 E43 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ajx:wpaper:16&r= |
| By: | Bogdan Radu (Dimitrie Cantemir Christian University, Bucharest, Romania) |
| Abstract: | This article aims at presenting the strengths and weaknesses of the Romanian legislation towards non-fungible tokens (NFTs). We start by recognizing that there is no active legislation that deals with cryptocurrency, NFTs or any other digital asset using a digital ledger of transactions (DLT). The starting point is the analysis of the legal characteristics of an NFT through the classical qualification and distinction made for goods by the Romanian Civil code. Further, we raise some issues regarding establishing a clear tax regime and the correlation between NFTs and intellectual property rights, and finally conclude that when it comes to qualifying crypto-assets, we need to adopt a ‘substance over form' approach, in order to avoid regulatory unpredictability. |
| Keywords: | Non-fungible tokens, NFT, cryptocurrency, DLT, blockchain |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:smo:lpaper:0102&r= |
| By: | Gérard Mondello (UCA - Université Côte d'Azur); Evens Salies |
| Abstract: | This paper extends the basic unilateral accident model to allow for Cournot competition. Two firms compete with production input and prevention as strategic variables under asymmetric capacity constraints. We find that liability regimes exert a crucial influence on the equilibrium price and outputs. Strict liability leads to higher output and higher risk compared to negligence. We also study the conditions under which both regimes converge. |
| Keywords: | Tort Law,Strict Liability,Negligence Rule,Imperfect Competition,Oligopoly,Cournot Competition JEL Classification: D43,L13,L52,K13 |
| Date: | 2021–12–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03502605&r= |
| By: | Rowena Crawford (Institute for Fiscal Studies and Institute for Fiscal Studies) |
| Abstract: | We examine the extent to which owner-occupiers in their 50s and 60s change their private pension saving when they complete repayment of the mortgage on their primary residence. Using panel data from a household survey, the English Longitudinal Study of Ageing, we identify those who completed repayment of their mortgage as anticipated two years prior. Despite mortgage expenditures falling by over £200 per person on average, there is little resulting change in average pension saving. This is because only a small minority of individuals react – the probability of an individual increasing their monthly pension saving by more than £150 increases by only 5 percentage points on completing repayment of a mortgage. This suggests that if policymakers wish to influence behaviour in order to increase private pension saving, interventions targeted at those completing their mortgage repayment could be a tractable approach. Such individuals would be able to increase pension saving while maintaining spending at recent levels. |
| Date: | 2020–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:20/39&r= |
| By: | Rachel Griffith (Institute for Fiscal Studies and University of Manchester); John Van Reenen (Institute for Fiscal Studies) |
| Abstract: | We examine the economic analysis of the relationship between innovation and product market competition. First, we give a brief tour of the intellectual history of the area. Second, we examine how the Aghion-Howitt framework has influenced the development of the literature theoretically and (especially) empirically, with an emphasis on the “inverted U”: the idea that innovation rises and then eventually falls as the intensity of competition increases. Thirdly, we look at recent applications and development of the framework in the areas of competition policy, international trade and structural Industrial Organization. |
| Date: | 2021–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/43&r= |
| By: | Georges Prat (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Remzi Uctum (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Using survey-based data we show that oil price expectations are not rational, implying that the ex-ante premium is a more relevant concept than the widely popular expost premium. We propose for the 3-and 12-month horizons a portfolio choice model with risky oil assets and a risk-free asset. At the maximized expected utility the risk premium is defined as the risk price times the expected oil return volatility. A state-space model, where the risk prices are represented as stochastic unobservable components and where expected volatilities depend on historical squared returns, is estimated using Kalman filtering. We find that the representative investor is risk seeking at short horizons and risk averse at longer horizons. We examine the economic factors driving risk prices whose signs are shown to be consistent with the predictions of the prospect theory. An upward sloped term structure of oil risk premia prevails in average over the period. |
| Keywords: | oil market,oil price expectations,ex-ante risk premium JEL classification : D81 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03508699&r= |
| By: | Walter Beckert (Institute for Fiscal Studies and Birkbeck, University of London); Paolo Siciliani (Institute for Fiscal Studies) |
| Abstract: | This paper studies regulatory policy interventions aimed at protecting sticky consumers who are exposed to exploitation. We model heterogeneous consumer switching costs alongside asymmetric market shares. This setting encompasses many markets in which established ?rms are challenged by new entrants. We identify circumstances under which such interventions can be counterproductive, both with regard to the stated consumer protection objective and the complementary aim to promote competition. |
| Date: | 2021–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/10&r= |
| By: | Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Rachel E Kranton (Duke University, Durham, US) |
| Abstract: | What patterns of economic relations arise when people are altruistic rather than strategically self-interested? This paper introduces an altruism network into a simple model of choice among partners for economic activity. With concave utility, agents effectively become inequality averse towards friends and family. Rich agents preferentially choose to work with poor friends despite productivity losses. Hence, network inequality-the divergence in incomes within sets of friends and family-is key to how altruism shapes economic relations and output. Skill homophily also plays a role; preferential contracts and productivity losses decline when rich agents have poor friends with requisite skills. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2202&r= |
| By: | Luis A. Mateos |
| Abstract: | This paper presents a novel idea on incorporating the Moon phases to the classic Gregorian (Solar) calendar time sampling methods for finding meaningful patterns in the stock markets. The four main Moon phases (New Moon, First quarter, Full Moon and Third quarter) are irregular in time but with well defined sampling structure as the Moon orbits the Earth completing its period. A Full Moon may appear in one month of the year on the 2nd, on the next month the Full moon may appear on the 4th and in the next ten years on the 13th of the same month. This structure which is irregular in time makes it interesting to study together with the stock market data. Moreover, the moon affects multiple physical things on the earth, such as the ocean tides, the behavior of living organisms as well as humans mood and decision when risking and investing. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2112.15426&r= |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa) |
| Abstract: | This study establishes economic growth needed for supply-side mobile money drivers in developing countries to be positively related to mobile money innovations in the perspectives of mobile money accounts, the mobile phone used to send money, and the mobile phone used to receive money. The empirical evidence is based on Tobit regressions. For the negative net relationships that are computed, minimum economic growth thresholds are established above which the net negative relationships become net positive relationships. The following minimum economic growth rates are required for nexuses between supply-side mobile money drivers and mobile money innovations to be positive: (i) 6.109% (6.193%) of GDP growth for mobile connectivity performance to be positively associated with the mobile phone used to send (receive) money and (ii) 4.590 % (4.259%) of GDP growth for mobile connectivity coverage to be positively associated with the mobile phone used to send (receive) money. |
| Keywords: | Mobile money; technology diffusion; financial inclusion; inclusive innovation |
| JEL: | D10 D14 D31 D60 O30 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:22/013&r= |
| By: | Baliamoune-Lutz, Mina; Basuony, Mohamed A. K.; Lutz, Stefan; Mohamed, Ehab K. A. |
| Abstract: | Empirical evidence suggests that international ownership of local firms supports firm performance and growth through various channels such as financing, technology transfer, and improved access to international markets. This is particularly true for small and medium-sized enterprises (SMEs) that otherwise may lack access to a variety of vital resources. At the same time small and medium-sized enterprise (SME) formation may promote economic development. The relationship between firm performance and international ownership has been well explored for firms in developed economies but this is not the case for firms - including SMEs - in Africa and the Middle East. Largely due to lack of relevant cross-country financial data, existing literature on African and Middle-Eastern firms has presented survey-based evidence on firm performance while evidence based on detailed financial information remains lacking. The present paper aims at filling this research gap. We identify African and Middle-Eastern SMEs operating in the formal sector and examine the impact of ownership structure on firm performance. We use cross-sectional financial data covering about 25,500 companies - including about 30% SMEs - in 69 African and Middle-Eastern countries for the years 2006 to 2015. Our results indicate that international ownership has significant positive association with firm performance. For internationally-owned SMEs this appears to be true despite lower levels of equity and debt capital, implying that internationally-owned firms use international resources - other than capital - more efficiently! |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fhfwps:22&r= |
| By: | Helen Miller (Institute for Fiscal Studies and Institute for Fiscal Studies); Thomas Pope (Institute for Fiscal Studies and Institute for Fiscal Studies); Kate Smith (Institute for Fiscal Studies and Institute for Fiscal Studies) |
| Abstract: | We use newly linked tax records to show that the large responses of UK company owner-managers to personal taxes are due to intertemporal income shifting and not to reductions in real business activity. Around half of this shifting is short-term and helps prevent volatile incomes being taxed more heavily under progressive personal taxes. The remainder re?ects systemic pro?t retention over long periods to take advantage of lower tax rates, including preferential treatment of capital gains. We ?nd no evidence that this tax-induced retention increases business investment. It does, however, substantially reduce the tax revenue raised from high income business owners. |
| Date: | 2021–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/49&r= |
| By: | Kevin Hjortshøj O’Rourke (Division of Social Science) |
| Abstract: | This chapter written for the Oxford Handbook of Historical Political Economy argues that you cannot understand the history of globalization without taking political factors into account; and that you cannot understand the history of comparative economic development without taking globalization into account. Globalization compels us to take geography seriously and to think more like historians. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nad:wpaper:20220075&r= |
| By: | Marco Bassetto (Institute for Fiscal Studies and Federal Reserve Bank of Minneapolis); Wei Cui (Institute for Fiscal Studies) |
| Abstract: | We study optimal taxation in an economy with financial frictions, in which the government cannot directly redistribute towards the agents in need of liquidity but otherwise has access to a complete set of linear tax instruments. We establish a stark result. Provided this is feasible, optimal policy calls for the government to increase its debt, up to the point at which it provides sufficient liquidity to avoid financial constraints. In this case, capital-income taxes are zero in the long run, and the returns on government debt and capital are equalized. However, if the fiscal space is insufficient, a wedge opens between the rates of return on government debt and capital. In this case, optimal long-run tax policy is driven by a trade-off between the desire to mitigate financial frictions by subsidizing capital and the incentive to exploit the quasi-rents accruing to producers of capital by taxing capital instead. This latter incentive magnifies the wedge between rates of return on government debt and capital. It also makes it optimal to distort downward the interest rate on government debt in periods of high government spending. |
| Date: | 2021–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/05&r= |
| By: | Gara Afonso; Lorie Logan; Antoine Martin; Will Riordan; Patricia Zobel |
| Abstract: | At its June 2021 meeting, the FOMC maintained its target range for the fed funds rate at 0 to 25 basis points, while two of the Federal Reserve’s administered rates—interest on reserve balances and the overnight reverse repo (ON RRP) facility offering rate—each were increased by 5 basis points. What do these two simultaneous decisions mean? In today’s post, we look at “technical adjustments”—a tool the Fed can deploy to keep the FOMC’s policy rate well within the target range and support smooth market functioning. |
| Keywords: | technical adjustments; monetary policy implementation |
| JEL: | E52 E58 |
| Date: | 2022–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93621&r= |
| By: | D'Auria, Bernardo; Salmeron Garrido, Jose Antonio |
| Abstract: | A Markovian modulation captures the trend in the market and influences the market coefficients accordingly. The different scenarios presented by the market are modeled as the distinct states of a discrete-time Markov chain. In our paper, we assume the existence of such modulation in a market and, as a novelty, we assume that it can be anticipative with respect to the future of the Brownian motion that drives the dynamics of the risky asset. By employing these own techniques of enlargement of filtrations, we solve an optimal portfolio utility problem in both a complete and an incomplete market. Many examples of anticipative Markov chains are presented for which we compute the additional gain of the investor who has a more accurate information |
| Keywords: | Optimal Portfolio; Markov Modulated; Regime-Switching; Jacod’s hypothesis; Anticipative Information; Value of the information |
| Date: | 2022–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wsrepe:34083&r= |
| By: | Jonathan Cribb (Institute for Fiscal Studies and Institute for Fiscal Studies); Giulia Giupponi (Institute for Fiscal Studies and Bocconi University); Robert Joyce (Institute for Fiscal Studies and Institute for Fiscal Studies); Attila Lindner (Institute for Fiscal Studies and University College London); Tom Waters (Institute for Fiscal Studies and Institute for Fiscal Studies); Thomas Wernham (Institute for Fiscal Studies); Xiaowei Xu (Institute for Fiscal Studies) |
| Abstract: | We estimate the effect of the introduction of the UK’s National Living Wage in 2016, and increases in it up to 2019, using a new empirical method. We apply a bunching approach to a setting with no geographical variation in minimum wage rates. We effectively compare employment changes in each part of the wage distribution in low-wage areas to employment changes among similar workers living in higher-wage areas who are less exposed to increases in the national minimum wage because their nominal wages are further above it. We find substantial positive wage effects, including statistically significant spillovers up to around the 20th percentile of wages. Overall we find small negative effects on employment which are not statistically significant. We combine these estimates with a tax and benefit microsimulation model to estimate the impact on household incomes. The largest gains go to the middle of the overall working-age income distribution, though they are more concentrated within the bottom third if we consider only households with someone in paid work. The gains to poorer working households are limited by the withdrawal of means tested benefits as earnings increase. Effects of minimum wages on household incomes are very sensitive to the size of employment effects. |
| Date: | 2021–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/48&r= |
| By: | Soares Martins Neto, Antonio (UNU-MERIT, Maastricht University); Mathew, Nanditha (UNU-MERIT, Maastricht University); Mohnen, Pierre (UNU-MERIT, Maastricht University); Treibich, Tania (SBE, Maastricht University) |
| Abstract: | This paper analyses the evidence of job polarization in developing countries. We carry out an extensive review of the existing empirical literature and examine the primary data sources and measures of routine intensity. The synthesis of results suggests that job polarization in emerging economies is only incipient compared to other advanced economies. We then examine the possible moderating aspects preventing job polarization, discussing the main theoretical channels and the existing empirical literature. Overall, the literature relates the lack of polarization as a natural consequence of limited technology adoption and the offshoring of routine, middle-earning jobs to some host developing economies. In turn, the limited technology adoption results from sub-optimal capabilities in those economies, including the insufficient supply of educated workers. Finally, we present the main gaps in the literature in developing economies and point to the need for more micro-level studies focusing on the impacts of tech- nology adoption on workers’ careers and studies exploring the adoption and use of technologies at the firm level. |
| Keywords: | Job polarization, Routine intensity, Skills, Developing countries |
| JEL: | J24 J63 O15 O33 E24 |
| Date: | 2021–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2021045&r= |
| By: | Marius Clemens; Werner Röger |
| Abstract: | The system of capital taxation consists of two instruments, namely a tax on profits and a depreciation allowance on investment. We will show in this paper that by acting on both instruments simultaneously it is possible to achieve both a growth and a fiscal net revenue target even in cases when a trade off prevails when each instrument is used individually. This is an application of the Tinbergen rule (Tinbergen 1952) to capital taxation. In the current context a fundamental requirement for this rule to work is that the two tax instruments imply different trade offs. As will be shown in the paper, depreciation allowances have a more favorable trade off between growth and net revenue in the long run compared to statutory profit tax rates. Thus, by increasing depreciation allowances and the statutory tax rate at the same time it is possible to both increase growth and fiscal space. In a model simulation calibrated to the German economy and tax system an increase of the tax depreciation rate for all investments from 10% to 25% leads to more than 2 percent GDP increase and more than 6 percent higher private investments in total. Whereas GDP and investment rise steadily over time, the government budget becomes negative in the short run. In the long run the sign of the fiscal budget effect is determined by the assumption about indexation of government consumption to GDP. However, according to the Tinbergen rule for capital taxation slight adjustments of the capital tax rate could balance out these deficits and generate additional fiscal space. |
| Keywords: | Fiscal Policy, Capital Allowance, Capital Tax |
| JEL: | E61 E62 H25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1986&r= |
| By: | Hinterlang, Natascha; Tänzer, Alina |
| Abstract: | This paper introduces a reinforcement learning based approach to compute optimal interest rate reaction functions in terms of fulfilling inflation and output gap targets. The method is generally flexible enough to incorporate restrictions like the zero lower bound, nonlinear economy structures or asymmetric preferences. We use quarterly U.S. data from1987:Q3-2007:Q2 to estimate (nonlinear) model transition equations, train optimal policies and perform counterfactual analyses to evaluate them, assuming that the transition equations remain unchanged. All of our resulting policy rules outperform other common rules as well as the actual federal funds rate. Given a neural network representation of the economy, our optimized nonlinear policy rules reduce the central bank's loss by over43 %. A DSGE model comparison exercise further indicates robustness of the optimized rules. |
| Keywords: | Optimal Monetary Policy,Reinforcement Learning,Artificial Neural Network,Machine Learning,Reaction Function |
| JEL: | C45 C61 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:512021&r= |
| By: | Anikó Bíró (Institute for Fiscal Studies); Daniel Prinz (Institute for Fiscal Studies); László Sándor (Institute for Fiscal Studies) |
| Abstract: | We study the taxation of the minimum wage in an environment with imperfect enforcement and informality. We leverage an increase in the audit threat for earnings below a reporting threshold at twice the minimum wage in Hungary and estimate reporting and employment responses with administrative panel data. Using bunching estimators and difference-in-differences methods, we show that a substantial share of those who report earning the minimum wage earn at least the same amount off the books. When enforcement is imperfect, a taxed minimum wage serves as a backstop on underreporting and recovers some revenue but also increases informality. |
| Date: | 2021–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/41&r= |
| By: | Benjamin Friedrich (Institute for Fiscal Studies); Lisa Laun (Institute for Fiscal Studies); Costas Meghir (Institute for Fiscal Studies and Yale University); Luigi Pistaferri (Institute for Fiscal Studies and Stanford University) |
| Abstract: | We use matched employer-employee data from Sweden to study the role of the firm in affecting the stochastic properties of wages. Our model accounts for endogenous participation and mobility decisions. We find that firm-specific permanent productivity shocks transmit to individual wages, but the effect is mostly concentrated among the high-skilled workers. For low-skilled the pass-through is similar for temporary and permanent firm-level shocks and the magnitude smaller. The updates to worker-firm specific match effects over the life of a firm-worker relationship are small. Substantial growth in earnings variance over the life cycle for high-skilled workers is driven by firms. In particular, cross-sectional wage variances by age 55 are roughly one-third higher relative to a scenario with no pass-through of firm shocks onto wages. |
| Date: | 2021–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/33&r= |
| By: | Fernando M. Aragón (Institute for Fiscal Studies); Diego Restuccia (Institute for Fiscal Studies); Juan Pablo Rud (Institute for Fiscal Studies and Royal Holloway, University of London) |
| Abstract: | This paper shows that using yields may not be informative of the relationship between farm size and productivity in the context of small-scale farming. This occurs because, in addition to productivity, yields pick up size-dependent market distortions and decreasing returns to scale. As a result, a positive relationship between farm productivity and land size may turn negative when using yields. We illustrate the empirical relevance of this issue with microdata from Uganda and show similar findings for Peru, Tanzania, and Bangladesh. In addition, we show that the dispersion in both measures of productivity across farms of similar size is so large that it renders farm size an ine?ective indicator for policy targeting. Our findings stress the need to revisit the empirical evidence on the farm size-productivity relationship and its policy implications. |
| Date: | 2021–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/35&r= |
| By: | Clarissa Lotti (University of Rome "Tor Vergata"); Giancarlo Spagnolo (Stockholm University, University of Rome Tor Vergata, EIEF, and CEPR) |
| Abstract: | An influential study by Bandiera, Prat and Valletti (2009) exploits the introduction of a central purchasing agency in Italy to identify the amount and sources of public waste. Among other findings, it estimates that purchasing through a central agency directly saves 28% on prices. We find that centralized prices also have significant indirect effects, leading to a 17.7% reduction among non-centralized ones. The indirect effects of centralization appear driven by informational externalities – rather than an improved outside option – on less competent public buyers purchasing more complex goods. Accounting for indirect savings also increases the estimate of direct ones. |
| Keywords: | Centralization, Informational externalities, Procurement, Public Contracts |
| JEL: | D44 H11 H57 H83 L38 L88 |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:532&r= |
| By: | Balde, Racky (UNU-MERIT, Maastricht University) |
| Abstract: | Lack of fiscal space in sub-Saharan Africa is a major preoccupation, particularly in the context of shocks. The majority of firms in the region are primarily in the informal sector and consequently do not pay taxes. This paper explores the effect of financial development on small firms’ compliance with value-added tax, profit tax and local tax. It equally explores the mitigating impact of informal finance on financial development’s role in driving small firms’ tax compliance. To demonstrate this, we estimate a recursive trivariate probit model. The results show that financial development increases the likelihood of firms being tax compliant. In contrast, access to informal finance decreases that likelihood. It also emerges that the lower the taxes, the greater the effects of low costs of banks on tax compliance. Another finding is that informal finance mitigates the effect of financial development on small firms’ tax compliance. |
| Keywords: | taxation, Africa, financial development, informal finance, informal economy |
| JEL: | D22 E26 H26 |
| Date: | 2021–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2021041&r= |
| By: | Anna Balestra (CSEA, Università Cattolica del Sacro Cuore); Raul Caruso (Department of Economic Policy and CSEA, Universita` Cattolica del Sacro Cuore CESPIC, Catholic University “Our Lady of Good Counsel”) |
| Abstract: | This paper examines the impact of EDUMILEX, namely the ratio between investment in education and military expenditure on economic performance, i.e. GDP per capita and labor productivity, using a panel data estimation for 60 countries over the period 2000-2018. The findings highlight a non-linear relationship. In particular, results suggest that a cubic relationship exists between EDUMILEX and economic performance. The value of EDUMILEX computed at the critical value can be considered the target variable for economic policy. Heterogeneity between developed and non-developed has been also investigated. Findings confirm that the effect of EDUMILEX is heterogeneous. Lower values of EDUMILEX are required to increase of economic performance in developed countries compared to non-developed ones. |
| Keywords: | Peace, Education, Military Expenditures, Economic Growth, Development |
| JEL: | H56 H52 O47 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:pea:wpaper:1017&r= |
| By: | Martin Baumgaertner (THM Business School Giessen) |
| Abstract: | This paper shows that a different communication style of the European Central Bank (ECB) affects stock prices differently. A break in the ECB’s communication from 2016 onwards makes it necessary to adjust the identification of monetary policy surprises in the euro area. By modifying the high-frequency identification of monetary policy shocks in the euro area, I can show that two quantitative easing shocks occur per decision: One during the release and one during the press conference. Although the impact on policy rates is identical, the release window shock seems to have a more pronounced effect on stock prices. |
| Keywords: | Unconventional Monetary Policy, High-Frequency Data, ECB, Communication |
| JEL: | E44 E52 E58 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202203&r= |
| By: | Erdinc Akyildirim; Matteo Gambara; Josef Teichmann; Syang Zhou |
| Abstract: | Anomaly detection is the process of identifying abnormal instances or events in data sets which deviate from the norm significantly. In this study, we propose a signatures based machine learning algorithm to detect rare or unexpected items in a given data set of time series type. We present applications of signature or randomized signature as feature extractors for anomaly detection algorithms; additionally we provide an easy, representation theoretic justification for the construction of randomized signatures. Our first application is based on synthetic data and aims at distinguishing between real and fake trajectories of stock prices, which are indistinguishable by visual inspection. We also show a real life application by using transaction data from the cryptocurrency market. In this case, we are able to identify pump and dump attempts organized on social networks with F1 scores up to 88% by means of our unsupervised learning algorithm, thus achieving results that are close to the state-of-the-art in the field based on supervised learning. |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2201.02441&r= |
| By: | Ollech, Daniel |
| Abstract: | The COVID-19 pandemic has increased the need for timely and granular information to assess the state of the economy in real time. Weekly and daily indices have been constructed using higher frequency data to address this need. Yet the seasonal and calendar adjustment of the underlying time series is challenging. Here, we analyse the features and idiosyncracies of such time series relevant in the context of seasonal adjustment. Drawing on a set of time series for Germany - namely hourly electricity consumption, the daily truck toll mileage, and weekly Google Trends data - used in many countries to assess economic development during the pandemic, we discuss obstacles, difficulties, and adjustment options. Furthermore, we develop a taxonomy of the central features of seasonal higher frequency time series. |
| Keywords: | COVID-19,DSA,Calendar adjustment,Time series characteristics |
| JEL: | C14 C22 C87 E66 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:532021&r= |
| By: | Donato Masciandaro |
| Abstract: | The aim of the paper is to shed light on how two factors "central bank's design and central bankers' preferences" progressively assumed a crucial role in the evolution of monetary policy economics in the last four decades. The two factors jointly identify the importance of central bank governance in influencing monetary policy decisions through their interactions with the monetary policy rules, given the assumptions about how macroeconomic systems work. |
| Keywords: | monetary policy, central bank independence, central banker conservatism, monetary policy committees, political economics, behavioural economics |
| JEL: | E50 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp21153&r= |
| By: | Gérard Mondello (UCA - Université Côte d'Azur) |
| Abstract: | This paper studies the impact of the reliability of information sources on choices under ambiguity. Using the Ellsberg's (1961) framework it studies two conjectures. First, the conditions of appearance of the Ellsberg paradox when the information source offers two probable proportions of red and black balls in two urns. Second, the consequence on choices of a non-reliable information source. This source proposes a unique proportion of red and black balls against an unknown one (inside box 1). |
| Keywords: | Uncertainty theory,decision theory,ambiguity aversion,Information I1,I18,I19,D80,D81,D83 |
| Date: | 2021–12–26 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03502603&r= |
| By: | Abdalla, Ahmed; Carabias, Jose M. |
| Abstract: | We propose and find that aggregate special items conveys more information about future real GDP growth than aggregate earnings before special items because the former contains advance news about future economic outcomes. A two-stage rational expectations test reveals that professional forecasters fully understand the information content of aggregate earnings before special items, but underestimate that of aggregate special items when revising their GDP forecasts. Using vector autoregressions, we show that aggregate earnings before special items has predictive ability for GDP because, as suggested by previous literature, it acts as a proxy for corporate profits included in national income. In contrast, aggregate special items captures changes in the behavior of economic agents on a timely basis, which, in turn, have real effects on firms' investment and hiring, as well as consumers' wealth and spending. Consistent with news-driven business cycles, we find that aggregate special items produces synchronized movements across macroeconomic aggregates. |
| Keywords: | aggregate earnings; aggregate special items; GDP growth; asymmetric timeliness; rational expectations; news-driven business cycles |
| JEL: | E01 E32 E60 M41 |
| Date: | 2022–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108540&r= |
| By: | Spiritus, Kevin (Erasmus School of Economics, Erasmus University Rotterdam); Lehmann, Etienne (Université Panthéon-Assas Paris II, CRED); Renes, Sander (Dept. of Business Economics, Erasmus University Rotterdam); Zoutman, Floris T. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | We analyze the optimal nonlinear income tax schedule when taxpayers earn multiple in comes and differ along many unobserved dimensions. We derive the necessary conditions for the government’s optimum using both a tax perturbation and a mechanism design approach, and show that both methods produce the same results. Our main contribution is to propose a numerical method to find the optimal tax schedule. Applied to the optimal taxation of couples, we find that optimal isotax curves are very close to linear and parallel. The slope of isotax curves is strongly affected by the relative tax-elasticity of male and female income. We make several additional contributions, including a test for Pareto efficiency and a condition on primitives that ensures the government’s necessary conditions are sufficient and the solution to the problem is unique. |
| Keywords: | Nonlinear Optimal Taxation; Multidimensional Screening; Household Income Taxation |
| JEL: | D82 H21 H23 H24 |
| Date: | 2022–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2022_003&r= |
| By: | Donato Masciandaro; Davide Romelli; Gaia Rubera |
| Abstract: | How does central bank communication affect financial markets? This paper shows that the monetary policy announcements of three major central banks, i.e. the European Central Bank, the Federal Reserve and the Bank of England, trigger significant discussions on monetary policy on Twitter. Using machine learning techniques we identify Twitter messages related to monetary policy around the release of monetary policy decisions and we build a metric of the similarity between the policy announcement and Twitter traffic before and after the announcement. We interpret large changes in the similarity of tweets and announcements as a proxy for monetary policy surprise and show that market volatility spikes after the announcement whenever changes in similarity are high. These findings suggest that social media discussions on central bank communication are aligned with bond and stock market reactions. |
| Keywords: | monetary policy, central bank communication, financial markets, social media, Twitter, Federal Reserve, European Central Bank, Bank of England |
| JEL: | E44 E52 E58 G14 G15 G41 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp21160&r= |
| By: | Paras Kharel (South Asia Watch on Trade, Economics and Environment); Kshitiz Dahal |
| Abstract: | This paper is an exploratory assessment of the coherence of policies, strategies and laws that have a bearing on Nepal's international trade, and the mechanism and extent of coordination between government agencies and between the government and the private sector in trade-related decision making, including policy formulation and implementation. It outlines possible measures for achieving policy coherence and improved inter-agency coordination. |
| Keywords: | Trade policy, tariffs, revenue, non-tariff measures, export promotion, import substitution, institutions, coordination failure |
| JEL: | F10 F13 H20 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:saw:wpaper:wp/21/01&r= |
| By: | Adrian R. Mendoza (School of Economics, University of the Philippines Diliman) |
| Abstract: | In light of the unprecedented mutation of the COVID-19 pandemic into a global economic recession, the WTO projects world trade volume to plummet by a staggering 13 percent to 32 percent in 2020. This translates to large-scale losses in global output and employment, especially in trade-oriented emerging economies such as the Philippines. Recovering from this dystopic scenario greatly depends on the duration of the outbreak, the downside risks from protectionist tendencies, the severity of the global recession, and the ability of world leaders to come up with a coordinated policy response. This paper provides a quick assessment of the major risks that must be dealt with to overcome these "four horsemen of trade apocalypse". Anchored on the WTO projections, this paper also assesses the short term prospects for Philippine trade. The results of the forecasting exercise suggest that Philippine merchandise exports could plummet in 2020 by 17.2 percent in the optimistic scenario and 39.5 percent in the pessimistic scenario. Compared to the pre-pandemic government target, the pessimistic case suggests that the country could lose up to US$31 billion export revenues this year due to the COVID-19 crisis. Merchandise imports will also experience a similar decline, albeit less severe. While the negative impact will likely be felt by all sectors, the biggest plunge is expected to be in electronics and other industries that are strongly connected to global production networks. On a positive note, Philippine exports and imports are expected to recover in 2021, albeit not fully, if the global public health crisis is resolved sooner than later. |
| Keywords: | COVID-19 pandemic; global recession; trade collapse; Philippine exports and imports; 2020 projections |
| JEL: | F01 F13 F17 F42 F50 F60 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:phs:dpaper:202005&r= |
| By: | Loria, Francesca; Matthes, Christian; Wang, Mu-Chun |
| Abstract: | Economic theories are often encoded in equilibrium models that cannot be directly estimated because they lack features that, while inessential to the theoretical mechanism that is central to the specific theory, would be essential to fit the data well. We propose an econometric approach that confronts such theories with data through the lens of a time series model that is a good description of macroeconomic reality. Our approach explicitly acknowledges misspecificationas well as measurement error. We highlight in two applications that household heterogeneity greatly helps to fit aggregate data, independently of whether or not nominal rigidities are considered. |
| Keywords: | Bayesian Inference,Misspecification,Heterogeneity,VAR,DSGE |
| JEL: | C32 C50 E30 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:562021&r= |
| By: | Nicolas Berman (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université, CEPR - Center for Economic Policy Research - CEPR); Mathieu Couttenier (CEPR - Center for Economic Policy Research - CEPR, GATE - Health System Analysis Laboratory - Université de Lyon); Nathalie Monnet (Institut de hautes études internationales et du développement - Graduate Institute of International and Development Studies [Geneva, Switzerland]); Rohit Ticku (Economics Department [European University Institute] - EUI - European University Institute) |
| Abstract: | We provide evidence on the link between the policy response to the SARS CoV-2 pandemic and conflicts worldwide. We combine daily information on conflict events and government policy responses to limit the spread of SARS CoV-2 to study how demonstrations and violent events vary following shutdown policies. We use the staggered implementation of restriction policies across countries to identify the dynamic effects in an event study framework. Our results show that imposing a nation-wide shutdown is associated with a reduction in the number of demonstrations, which suggests that public demonstrations are hampered by the rising cost of participation. However, the reduction is short-lived, as the number of demonstrations are back to their pre-restriction levels in two months. In contrast, we observe that the purported increase in mobilization or coordination costs, following the imposition of restrictions, is not followed by a drop of violent events that involve organized armed groups. Instead, we find that the number of events, on average, increases slightly following the implementation of the restriction policies. The rise in violent events is most prominent in poorer countries, with higher levels of polarization, and in authoritarian countries. We discuss the potential channels underlying this heterogeneity. |
| Keywords: | SARS CoV-2,Conflict,Violence,Mobility |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03509846&r= |
| By: | Roman Inderst (Faculty of Economics and Business Administration, Goethe University Frankfurt); Eftichios S. Sartzetakis (Department of Economics, University of Macedonia); Anastasios Xepapadeas (Department of International and European Economic Studies, Athens University of Economics and Busines) |
| Abstract: | We posit that consumers?preferences for more sustainable products depend on the perceived social norm, which in turn is shaped by average consumption behavior. We explore the implications of such preferences for ?rms?incentives to introduce more sustainable products and to co-operate in order to either foster or forestall their introduction. Our main motivation lies in the increasing pressure put on antitrust authorities to exert more leniency towards horizontal agreements that are motivated by sustainability considerations. |
| Keywords: | Sustainability; Antitrust; Firm Cooperation. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2022_02&r= |
| By: | Olivier de Bandt; Bora Durdu; Hibiki Ichiue; Yasin Mimir; Jolan Mohimont; Kalin Nikolov; Sigrid Roehrs; Jean-Guillaume Sahuc; Valerio Scalone; Michael Straughan |
| Abstract: | This paper reviews the different channels of transmission of prudential policy highlighted in the literature and provides a quantitative assessment of the impact of Basel III reforms using “off-the-shelf” DSGE models. It shows that the effects of regulation are positive on GDP whenever the costs and benefits of regulation are both introduced. However, this result may be associated with a temporary economic slowdown in the transition to Basel III, which can be accommodated by monetary policy. The assessment of liquidity requirements is still an area for research, as most models focus on costs, rather than on benefits, in particular in terms of lower contagion risk. |
| Keywords: | Basel III Reforms, DSGE Models, Solvency Requirements, Liquidity Requirements |
| JEL: | E3 E44 G01 G21 G28 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:864&r= |
| By: | Anup Malani (Institute for Fiscal Studies); Phoebe Holtzman (Institute for Fiscal Studies); Kosuke Imai (Institute for Fiscal Studies); Cynthia Kinnan (Institute for Fiscal Studies); Morgen Miller (Institute for Fiscal Studies); Shailender Swaminathan (Institute for Fiscal Studies); Alessandra Voena (Institute for Fiscal Studies and University of Chicago); Bartosz Woda (Institute for Fiscal Studies); Gabriella Conti (Institute for Fiscal Studies and University College London) |
| Abstract: | We report on a large randomized controlled trial of hospital insurance for above-poverty-line Indian households. Households were assigned to free insurance, sale of insurance, sale plus cash transfer, or control. To estimate spillovers, the fraction of households offered insurance varied across villages. The opportunity to purchase insurance led to 59.91% uptake and access to free insurance to 78.71% uptake. Access increased insurance utilization. Positive spillover effects on utilization suggest learning from peers. Many beneficiaries were unable to use insurance, demonstrating hurdles to expanding access via insurance. Across a range of health measures, we estimate no significant impacts on health. |
| Date: | 2021–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:ifsewp:21/47&r= |
| By: | Radicati, Alessandra |
| Abstract: | This paper explores how the aspirational urban form of the ‘world-class city’ is produced from within the city itself. Rather than focusing on global competition between cities, the analysis considers how local actors in key industries discursively and materially produce the world-class city through their labor. The analytic of connection is introduced as central to understanding how world-class city-making projects are achieved. Based on ethnographic fieldwork in Colombo’s high-end real estate sector, the article examines how a successful broker creates and manages connections across different scales and registers. It focuses on three key areas: (1) the rhetorical connections drawn between luxury real estate and national development; (2) the connections created between wealthy foreign clients and local property owners and (3) the work of connecting disparate narratives about supply and demand for luxury housing. I highlight that against the backdrop of considerable economic and political uncertainty, connections are valuable even if they do not result in immediate profit. Offering a glimpse into the world of white-collar professionals in the luxury real estate industry, this paper underscores that world-class city-making projects are embedded in local realities even as they reflect generalized patterns of urban development. |
| Keywords: | real estate; connection; world-class city; aspiration; labor; Colombo; Sri Lanka; PhD award; Sage |
| JEL: | R14 J01 |
| Date: | 2021–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112566&r= |