|
on Central and Western Asia |
| By: | Eduardo Dávila; Daniel D. Graves; Cecilia Parlatore |
| Abstract: | This paper studies the social value of closing price differentials in financial markets. We show that arbitrage gaps (price differentials between markets) exactly correspond to the marginal social value of executing an arbitrage trade. We further show that arbitrage gaps and measures of price impact are sufficient to compute the total social value from closing an arbitrage gap. Theoretically, we show that, for a given arbitrage gap, the total social value of arbitrage is higher in more liquid markets. We apply our framework to compute the welfare gains from closing arbitrage gaps in the context of covered interest parity violations and several dual-listed companies. The estimates of the value of closing arbitrage gaps vary substantially across applications. |
| JEL: | D61 G12 G18 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29744&r= |
| By: | Paolo Garella (Department of Economics, Management and Quantitative Methods (DEMM) - UNIMI - Università degli Studi di Milano [Milano]); Didier Laussel (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Joana Resende (Cef.up, Economics Department, University of Porto) |
| Abstract: | We study price personalization in a two period duopoly with vertically differentiated products. In the second period, a firm not only knows the purchase history of all customers, as in standard Behavior Based Price Discrimination models, but it also collects detailed information on its old customers, using it to engage in price personalization. The analysis reveals that there exists a natural market for each firm, defined as the set of customers that cannot be poached by the rival in the second period. The equilibrium is unique, except when firms are ex-ante almost identical. In equilibrium, only the firm with the largest natural market poaches customers from the rival. This firm has highest profits but not necessarily the largest market share. Aggregate profits are lower than under uniform pricing. All consumers gain, total welfare is higher herein than under uniform pricing if firms' natural markets are sufficiently asymmetric. The low quality firm chooses the minimal quality level and a quality differential arises, though the exact choice for the high quality depends upon the cost specification. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03263513&r= |
| By: | Pablo Fajgelbaum (Princeton University); Pinelopi K. Goldberg (Yale University); Patrick Kennedy (University of California, Berkeley); Amit Khandelwal (Columbia GSB); Daria Taglioni (World Bank) |
| 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. |
| Keywords: | Conflicts, Globalization, United States, China, Trade disputes, Exports, International relations, Tariffs |
| JEL: | F10 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2021-80&r= |
| By: | James B. Bullard |
| Abstract: | St. Louis Fed President James Bullard discussed his expectations for inflation 2021 and 2022. He also discussed the labor market, wages, cryptocurrencies and other topics during an appearance on Yahoo Finance. |
| Keywords: | inflation; labor market; wages; cryptocurrency |
| Date: | 2021–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:93736&r= |
| By: | Schneider, Eric B. |
| Abstract: | Economic historians have long been aware of many forms of bias that could lead to spurious causal inferences. However, our approach to these biases has been muddled at times by dealing with each bias separately and by confusion about the sources of bias and how to mitigate them. This paper shows how the methodology of directed acyclical graphs (DAGs) formulated by Pearl (2009) and particularly the concept of collider bias can provide economic historians with a unified approach to managing a wide range of biases that can distort causal inference. I present ten examples of collider bias drawn from economic history research, focussing mainly on examples where the authors were able to overcome or mitigate the bias. Thus, the paper addresses how to diagnose collider bias and also strategies for managing it. The paper also shows that quasi-random experimental designs are rarely able to overcome collider bias. Although all of these biases were understood by economic historians before, conceptualising them as collider bias will improve economic historians’ understanding of the limitations of particular sources and help us develop better research designs in the future. |
| Keywords: | collider bias; directed acyclical graphs; sample-selection bias |
| JEL: | N01 N30 |
| Date: | 2020–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:106578&r= |
| By: | Brett Fiebinger |
| Abstract: | A recent literature has explored the role of semi-autonomous demand growth. This paper builds on the literature by incorporating a Lernerian government semi-autonomous demand function and an endogenous supply-side. Our main purpose is threefold. First, we wish to contribute to the case for crowding-in effects, especially in the long-run. Second, we confirm the Keynesian/Kaleckian pedigree of the capital stock adjustment principle. Third, we contrast core post-Keynesian ideas on demand-led supply-side endogeneity with the alternative neo-Marxian neo-Harrodian proposition of an exogenously-given natural growth rate, and find the latter lacking. |
| Keywords: | Fiscal policy, Crowding-in, Semi-autonomous demand, Capital stock adjustment principle |
| JEL: | B22 B50 E11 E20 E60 O42 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:67-2021&r= |
| By: | Michele Fioretti (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Alexander Vostroknutov (Maastricht University [Maastricht]); Giorgio Coricelli (USC - University of Southern California) |
| Abstract: | In a stock market experiment, we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices, participants are affected only by regret about previously observed high prices (past regret), but when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales. (JEL C91, G12, G41) |
| Keywords: | stock market behavior,behavioral finance,regret avoidance,dynamic regret,dynamic discrete choice,structural models,experiments,multiple reference points |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03562318&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:abh:wpaper:21/088&r= |
| By: | Siddhartha Chib; Minchul Shin; Anna Simoni (CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We consider the Bayesian analysis of models in which the unknown distribution of the outcomes is specified up to a set of conditional moment restrictions. The nonparametric exponentially tilted empirical likelihood function is constructed to satisfy a sequence of unconditional moments based on an increasing (in sample size) vector of approximating functions (such as tensor splines based on the splines of each conditioning variable). For any given sample size, results are robust to the number of expanded moments. We derive Bernstein-von Mises theorems for the behavior of the posterior distribution under both correct and incorrect specification of the conditional moments, subject to growth rate conditions (slower under misspecification) on the number of approximating functions. A large-sample theory for comparing different conditional moment models is also developed. The central result is that the marginal likelihood criterion selects the model that is less misspecified. We also introduce sparsity-based model search for high-dimensional conditioning variables, and provide efficient MCMC computations for high-dimensional parameters. Along with clarifying examples, the framework is illustrated with real-data applications to risk-factor determination in finance, and causal inference under conditional ignorability. |
| Keywords: | Bayesian inference,Bernstein-von Mises theorem,Conditional moment restrictions,Exponentially tilted empirical likelihood,Marginal likelihood,Misspecification,Posterior consistency |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03504122&r= |
| By: | Philippe Goulet Coulombe |
| Abstract: | Many problems plague the estimation of Phillips curves. Among them is the hurdle that the two key components, inflation expectations and the output gap, are both unobserved. Traditional remedies include creating reasonable proxies for the notable absentees or extracting them via some form of assumptions-heavy filtering procedure. I propose an alternative route: a Hemisphere Neural Network (HNN) whose peculiar architecture yields a final layer where components can be interpreted as latent states within a Neural Phillips Curve. There are benefits. First, HNN conducts the supervised estimation of nonlinearities that arise when translating a high-dimensional set of observed regressors into latent states. Second, computations are fast. Third, forecasts are economically interpretable. Fourth, inflation volatility can also be predicted by merely adding a hemisphere to the model. Among other findings, the contribution of real activity to inflation appears severely underestimated in traditional econometric specifications. Also, HNN captures out-of-sample the 2021 upswing in inflation and attributes it first to an abrupt and sizable disanchoring of the expectations component, followed by a wildly positive gap starting from late 2020. HNN's gap unique path comes from dispensing with unemployment and GDP in favor of an amalgam of nonlinearly processed alternative tightness indicators -- some of which are skyrocketing as of early 2022. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.04146&r= |
| By: | Erlan Konebayev (NAC Analytica, Nazarbayev University) |
| Abstract: | This paper adds the banking sector to a commodity-exporting small open economy DSGE model and estimates it using the data for Kazakhstan between 2001 and 2019. The resulting model produces one-step-ahead predictions that are a good fit for the banking sector variables. We find that the oil price and risk premium shocks are the drivers of much of the economic activity in Kazakhstan - they explain a large part of the variation in most of the macro variables considered. A comparison with the baseline model that has no banking sector shows that the influence of the risk premium shock on real variables can be overestimated when financial frictions are excluded. The above-mentioned two shocks, along with the fiscal policy shock, have also significantly contributed to historical fluctuations in real GDP growth, although with no particular trend in the direction or magnitude of their effects. |
| Keywords: | DSGE; Bayesian analysis; small open economy; Kazakhstan |
| JEL: | C11 E30 E32 E37 |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ajx:wpaper:21&r= |
| By: | Federico Huneeus; Joseph P. Kaboski; Mauricio Larrain; Sergio L. Schmukler; Mario Vera |
| Abstract: | We study the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. Whereas policies can help firms in need of financing, they can lead to adverse selection from riskier firms and higher default risk. We analyze a large-scale program of public credit guarantees in Chile during the COVID-19 pandemic using unique transaction-level data of demand and supply of credit, matched with administrative tax data, for the universe of banks and firms. Credit demand channels loans toward riskier firms, distributing 4.6% of GDP and increasing firm leverage. Despite increased lending to riskier firms at the micro level, macroeconomic risks remain small. Several factors mitigate aggregate risk: the small weight of riskier firms, the exclusion of the riskiest firms, bank screening, contained expected defaults, and the government absorption of tail risk. We quantitatively confirm our empirical findings with a model of heterogeneous firms and endogenous default. |
| JEL: | E44 E5 G01 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29774&r= |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Valentine B. Soumtang (Yaoundé, Cameroon); Ofeh M. Edoh (Yaoundé, Cameroon) |
| Abstract: | This study assesses financial determinants of informal financial sector development in 48 Sub-Saharan African countries for the period 1995-2017. Quantile regressions are used as the empirical strategy which enables the study to assess the determinants throughout the conditional distribution of informal sector development dynamics. The following financial determinants affect informal financial development and financial informalization differently in terms of magnitude and sign: bank overhead costs; net internet margin; bank concentration; return on equity; bank cost to income ratio; financial stability; loans from non-resident banks; offshore bank deposits and remittances. The determinants are presented from a plethora of perspectives, inter alia: U-Shape, S-Shape and positive or negative thresholds. The study not only provides a practical way by which to assess the incidence of financial determinants on informal financial sector development, but also provides financial instruments by which informal financial development can be curbed. |
| Keywords: | Informal finance; financial development; Africa |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:21/077&r= |
| By: | George-Marios Angeletos; Chen Lian |
| Abstract: | We review how realistic frictions in information and/or rationality arrest general equilibrium (GE) feedbacks. In one specification, we maintain rational expectations but remove common knowledge of aggregate shocks. In another, we replace rational expectations with Level-k Thinking or a smooth variant thereof. Two other approaches, heterogeneous priors and cognitive discounting, capture the same essence while offering a gain in tractability. Relative to the full-information rational-expectation (FIRE) benchmark, all these modifications amount to attenuation of GE effects, especially in the short run. This in turn translates to either under- or over-reaction in aggregate outcomes, depending on whether GE feedbacks are positive or negative in the first place. We review a few applications, with emphasis on monetary and fiscal policy. We finally discuss how the available evidence on expectations, along with other considerations, can help guide the choice among the various alternatives, as well as between them and FIRE. |
| JEL: | D8 E1 E3 E7 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29776&r= |
| By: | Hites Ahir; Nicholas Bloom; Davide Furceri |
| Abstract: | We construct the World Uncertainty Index (WUI) for an unbalanced panel of 143 individual countries on a quarterly basis from 1952. This is the frequency of the word “uncertainty” in the quarterly Economist Intelligence Unit country reports. Globally, the Index spikes around major events like the Gulf War, the Euro debt crisis, the Brexit vote and the COVID pandemic. The level of uncertainty is higher in developing countries but is more synchronized across advanced economies with their tighter trade and financial linkages. In a panel vector autoregressive setting we find that innovations in the WUI foreshadow significant declines in output. This effect is larger and more persistent in countries with lower institutional quality, and in sectors with greater financial constraints. |
| JEL: | E0 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29763&r= |
| By: | Simplice A. Asongu (Yaounde, Cameroon); Valentine B. Soumtang (Yaoundé, Cameroon); Ofeh M. Edoh (Yaoundé, Cameroon) |
| Abstract: | The study assesses how financial institution dynamics have affected poverty and the severity of poverty in 42 sub-Saharan African countries for the period 1980-2019. In order to increase for policy relevance of the study, three financial development indicators are used, namely: financial institutions depth, financial institutions access and financial institutions efficiency. The adopted empirical strategy is a quantile regressions approach which enables the study to assess how financial institutions dynamics affect poverty and the severity of poverty throughout the conditional distribution of poverty and severity of poverty. The findings show various tendencies, inter alia: (i) financial institutions depth (efficiency) consistently decreases the severity of poverty (poverty headcount) and (ii) financial institutions access consistently decreases both poverty and the severity of poverty and the decreasing effect increases with increasing levels of poverty in the top quantiles and throughout the conditional distribution of the severity of poverty. Policy implications are discussed with respect of SDG1 on poverty reduction. |
| Keywords: | financial development; poverty alleviation; Africa |
| JEL: | G20 I10 I20 I30 O10 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:21/081&r= |
| By: | CHIAD, Faycal; Aouissi, Amine; Lahsasna, Ahcene |
| Abstract: | In this paper, we investigated the relationship between financial inclusion (FI), trade openness (TO), human development (HD), and GDP growth in Algeria. Our data set covers annual times series data from 1980 to 2018. The autoregressive distributed lag (ARDL) bounds test was used to examine the cointegration between variables due to mixed orders of integration I(0) and I(1).The results indicate that financial inclusion, trade openness, human development have a positive and significant impact on economic growth in the short and long-run, thereby confirming the strength of the finance-growth connections. Granger-causality test confirms that there is bi-directional causality between financial inclusion and economic growth. |
| Keywords: | Financial inclusion, Economic Growth, ARDL, Algeria |
| JEL: | O10 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112034&r= |
| By: | Poledna, Sebastian; Martínez-Jaramillo, Serafín; Caccioli, Fabio; Thurner, Stefan |
| Abstract: | Financial markets create endogenous systemic risk, the risk that a substantial fraction of the system ceases to function and collapses. Systemic risk can propagate through different mechanisms and channels of contagion. One important form of financial contagion arises from indirect interconnections between financial institutions mediated by financial markets. This indirect interconnection occurs when financial institutions invest in common assets and is referred to as overlapping portfolios. In this work we quantify systemic risk from indirect interconnections between financial institutions. Complete information of security holdings of major Mexican financial intermediaries and the ability to uniquely identify securities in their portfolios, allows us to represent the Mexican financial system as a bipartite network of securities and financial institutions. This makes it possible to quantify systemic risk arising from overlapping portfolios. We show that focusing only on direct interbank exposures underestimates total systemic risk levels by up to 50% under the assumptions of the model. By representing the financial system as a multi-layer network of direct interbank exposures (default contagion) and indirect external exposures (overlapping portfolios) we estimate the mutual influence of different channels of contagion. The method presented here is the first quantification of systemic risk on national scales that includes overlapping portfolios. |
| Keywords: | financial networks; financial regulation; multi-layer networks; overlapping portfolios; systemic risk |
| JEL: | D85 G18 G21 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:113734&r= |
| By: | Jerez, Belén |
| Abstract: | We analyze a static competitive search model where risk-averse individuals with different wealth levels trade an indivisible good. The real estate market is a particularly relevant application. We show that the equilibrium is constrained efficient. Other properties of the equilibrium are derived, including the generalized version of the Hosios (1990) rule for this environment. Under risk aversion, buyers and sellers evaluate the trade-off between prices and trading probabilities differently as their wealth increases. As they become richer, buyers are relatively less concerned about paying higher prices and more concerned about increasing their trading probability. Conversely, richer sellers care less about increasing the probability of a sale than poorer sellers, and they care more about trading at a higher price. This results in positive sorting inequilibrium, that is, wealthier (poorer) buyers and sellers trading with each other. As transactions among wealthier agents involve higher prices, the equilibrium features frictional price dispersion. By contrast, with transferable utility, all individuals would trade at the same price, irrespectively of their wealth. |
| Keywords: | Sorting; Competitive/Directed search; Risk aversion; Wealth heterogeneity; Constrained efficiency |
| JEL: | D50 D61 D83 |
| Date: | 2022–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:34383&r= |
| By: | Nick James; Max Menzies; Georg Gottwald |
| Abstract: | We study how to assess the potential benefit of diversifying an equity portfolio by investing within and across equity sectors. We analyse 20 years of US stock price data, which includes the global financial crisis (GFC) and the COVID-19 market crash, as well as periods of financial stability, to determine the `all weather' nature of equity portfolios. We establish that one may use the leading eigenvalue of the cross-correlation matrix of log returns as well as graph-theoretic diagnostics such as modularity to quantify the collective behaviour of the market or a subset of it. We confirm that financial crises are characterised by a high degree of collective behaviour of equities, whereas periods of financial stability exhibit less collective behaviour. We argue that during times of increased collective behaviour, risk reduction via sector-based portfolio diversification is ineffective. Using the degree of collectivity as a proxy for the benefit of diversification, we perform an extensive sampling of equity portfolios to confirm the old financial adage that 30-40 stocks provide sufficient diversification. Using hierarchical clustering, we discover a `best value' equity portfolio for diversification consisting of 36 equities sampled uniformly from 9 sectors. We further show that it is typically more beneficial to diversify across sectors rather than within. Our findings have implications for cost-conscious retail investors seeking broad diversification across equity markets. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.10623&r= |
| By: | Atif Mian (Princeton University); Ludwig Straub (Harvard University); Amir Sufi (Chicago Booth) |
| Abstract: | Rising income inequality since the 1980s in the United States has generated a substantial increase in saving by the top of the income distribution, which we call the saving glut of the rich. The saving glut of the rich has been as large as the global saving glut, and it has not been associated with an increase in investment. Instead, the saving glut of the rich has been linked to the substantial dissaving and large accumulation of debt by the non-rich. Analysis using variation across states shows that the rise in top income shares can explain almost all of the accumulation of household debt held as a financial asset by the household sector. Since the Great Recession, the saving glut of the rich has been financing government deficits to a greater degree. |
| Keywords: | Saving, Household Debt |
| JEL: | D31 E21 E44 G51 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2021-70&r= |
| By: | Joscha Beckmann (Faculty of Business Administration and Economics, FernUniversitaet in Hagen and Faculty of Economics, University of Greifswald and Kiel Institute for the World Economy); Robert L. Czudaj (Faculty of Mathematics, Computer Science and Statistics, Ludwig-Maximilians-University Munich and Faculty of Economics and Business, Chemnitz University of Technology) |
| Abstract: | This paper provides a new perspective on the exchange rate disconnect puzzle by referring to the expectations building mechanism in foreign exchange markets. We analyze the role of expectations regarding macroeconomic fundamentals for expected exchange rate changes. In doing so, we assess real-time survey data for 29 economies from 2002 to 2020 and consider expectations regarding GDP growth, inflation, interest rates, and current accounts. Our empirical findings show that fundamentals expectations are more important over the long run compared to the short run. We find that an expected increase in GDP growth relative to the US leads to an expected appreciation of the domestic currency while higher relative inflation expectations lead to an expected depreciation, a finding consistent with purchasing power parity. Our results also indicate that the expectation building process differs systematically across pessimistic and optimistic forecasts with the former paying more attention to expected fundamentals. Finally, we also observe that incorporating expected fundamentals tends to reduce forecast errors over the long run. |
| Keywords: | Exchange rates, Expectations, Forecast errors, Fundamentals, Survey data |
| JEL: | F31 F37 G17 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:tch:wpaper:cep056&r= |
| By: | Fotios Petropoulos; Daniele Apiletti; Vassilios Assimakopoulos; Mohamed Zied Babai; Devon K. Barrow; Souhaib Ben Taieb; Christoph Bergmeir; Ricardo J. Bessa; Jakub Bijak; John E. Boylan; Jethro Browell; Claudio Carnevale; Jennifer L. Castle; Pasquale Cirillo; Michael P. Clements; Clara Cordeiro; Fernando Luiz Cyrino Oliveira; Shari De Baets; Alexander Dokumentov; Joanne Ellison; Piotr Fiszeder; Philip Hans Franses; David T. Frazier; Michael Gilliland; M. Sinan G\"on\"ul; Paul Goodwin; Luigi Grossi; Yael Grushka-Cockayne; Mariangela Guidolin; Massimo Guidolin; Ulrich Gunter; Xiaojia Guo; Renato Guseo; Nigel Harvey; David F. Hendry; Ross Hollyman; Tim Januschowski; Jooyoung Jeon; Victor Richmond R. Jose; Yanfei Kang; Anne B. Koehler; Stephan Kolassa; Nikolaos Kourentzes; Sonia Leva; Feng Li; Konstantia Litsiou; Spyros Makridakis; Gael M. Martin; Andrew B. Martinez; Sheik Meeran; Theodore Modis; Konstantinos Nikolopoulos; Dilek \"Onkal; Alessia Paccagnini; Anastasios Panagiotelis; Ioannis Panapakidis; Jose M. Pav\'ia; Manuela Pedio; Diego J. Pedregal; Pierre Pinson; Patr\'icia Ramos; David E. Rapach; J. James Reade; Bahman Rostami-Tabar; Micha{\l} Rubaszek; Georgios Sermpinis; Han Lin Shang; Evangelos Spiliotis; Aris A. Syntetos; Priyanga Dilini Talagala; Thiyanga S. Talagala; Len Tashman; Dimitrios Thomakos; Thordis Thorarinsdottir; Ezio Todini; Juan Ram\'on Trapero Arenas; Xiaoqian Wang; Robert L. Winkler; Alisa Yusupova; Florian Ziel |
| Abstract: | Forecasting has always been at the forefront of decision making and planning. The uncertainty that surrounds the future is both exciting and challenging, with individuals and organisations seeking to minimise risks and maximise utilities. The large number of forecasting applications calls for a diverse set of forecasting methods to tackle real-life challenges. This article provides a non-systematic review of the theory and the practice of forecasting. We provide an overview of a wide range of theoretical, state-of-the-art models, methods, principles, and approaches to prepare, produce, organise, and evaluate forecasts. We then demonstrate how such theoretical concepts are applied in a variety of real-life contexts. We do not claim that this review is an exhaustive list of methods and applications. However, we wish that our encyclopedic presentation will offer a point of reference for the rich work that has been undertaken over the last decades, with some key insights for the future of forecasting theory and practice. Given its encyclopedic nature, the intended mode of reading is non-linear. We offer cross-references to allow the readers to navigate through the various topics. We complement the theoretical concepts and applications covered by large lists of free or open-source software implementations and publicly-available databases. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2012.03854&r= |
| By: | Ernest Liu (Princeton University); Atif Mian (Princeton University); Amir Sufi (University of Chicago Booth School of Business) |
| Abstract: | This study provides a new theoretical result that a decline in the long-term interest rate can trigger a stronger investment response by market leaders relative to market followers, thereby leading to more concentrated markets, higher profits, and lower aggregate productivity growth. This strategic effect of lower interest rates on market concentration implies that aggregate productivity growth declines as the interest rate approaches zero. The framework is relevant for anti-trust policy in a low interest rate environment, and it provides a unified explanation for rising market concentration and falling productivity growth as interest rates in the economy have fallen to extremely low levels. |
| Keywords: | Interest rates, investment |
| JEL: | E20 E22 G01 G12 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2020-18&r= |
| By: | Marie Claire Villeval (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - ENS LSH - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique) |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-03504242&r= |
| By: | Andreas Fuster; Basit Zafar |
| Abstract: | In this chapter, we discuss field experiments in surveys that are conducted with the purpose of learning about expectation formation and the link between expectations and behavior. We begin by reviewing the rationale for conducting experiments within surveys, rather than just relying on observational survey data. We then outline the most commonly used experimental paradigm, randomized information provision, along with some examples. Next, we outline a few methodological issues that are important to consider in the design of such experiments. We also provide a discussion of existing extensions of this paradigm, as well as of alternative approaches. |
| JEL: | C83 C93 D84 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29750&r= |
| By: | Kristian Blickle; Markus K. Brunnermeier; Stephan Luck |
| Abstract: | We use the German Crisis of 1931, a key event of the Great Depression, to study how depositors behave during a bank run in the absence of deposit insurance. We find that deposits decline by around 20% during the run and that there is an equal outflow of retail and non-financial wholesale deposits from both ex-post failing and surviving banks. This implies that regular depositors are unable to identify failing banks. In contrast, the interbank market precisely identifies which banks will fail: the interbank market collapses for failing banks entirely but continues to function for surviving banks, which can borrow from other banks in response to deposit outflows. Since regular depositors appear uninformed, we argue that it is unlikely that deposit insurance would exacerbate moral hazard. Instead, interbank depositors are best positioned for providing “discipline” via short-term funding. |
| JEL: | G20 G21 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29753&r= |
| By: | Schelkle, Waltraud; Bohle, Dorothee |
| Abstract: | This special issue leverages the variation across Europe to expand on the conceptualisation of and the empirical knowledge about finance and financialization. As we will show, focussing on Europe can offer a richer understanding of the reach of financialization than the prevalent focus on the Anglo-American world, with surprising insights that may be of more general relevance to other world regions. More specifically, a focus on Europe allows new insights on the reach of financialization, central actors that brought it about, and the choices and trade-offs that have shaped the process. |
| Keywords: | banking; European integration; financialization; financial crisis; power; public finances; welfare state |
| JEL: | J1 F3 G3 |
| Date: | 2020–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105859&r= |
| By: | Aumond, Romain; Di Tommaso, Valerio; Rünstler, Gerhard |
| Abstract: | We present a quarterly narrative database of important labour market reforms in selected euro area economies in between 1995 and 2018 covering 60 events. We provide legal adoption and implementation dates of major reforms to employment protection legislation and unemployment benefits. Estimates based on local projections find negative short-run effects of liberalising reforms on wages, while the employment effects of reforms differ markedly across age groups and partly depend on the state of the economy. JEL Classification: J08, O43 |
| Keywords: | Employment Protection, Quarterly Indicators, Unemployment Benefits |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20222657&r= |
| By: | Narayanaswamy Balakrishnan (McMaster University); Efe A. Ok (New York University); Pietro Ortoleva (Princeton University) |
| Abstract: | Despite being the fundamental primitive of the study of decision-making in economics, choice correspondences are not observable: even for a single menu of options, we observe at most one choice of an individual at a given point in time, as opposed to the set of all choices she deems most desirable in that menu. However, it may be possible to observe a person choose from a feasible menu at various times, repeatedly. We propose a method of inferring the choice correspondence of an individual from this sort of choice data. First, we derive our method axiomatically, assuming an ideal dataset. Next, we develop statistical techniques to implement this method for real-world situations where the sample at hand is often fairly small. As an application, we use the data of two famed choice experiments from the literature to infer the choice correspondences of the participating subjects. |
| Keywords: | Choice Correspondences, Estimation, Stochastic Choice Functions, Transitivity of Preferences |
| JEL: | C81 D11 D12 D81 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2021-60&r= |
| By: | Dan Levin; Luyao Zhang |
| Abstract: | We introduce NLK, a model that connects the Nash equilibrium (NE) and Level-K. It allows a player in a game to believe that her opponent may be either less or as sophisticated as, she is, a view supported in psychology. We apply NLK to data from five published papers on static, dynamic, and auction games. NLK provides different predictions than those of the NE and Level-K; moreover, a simple version of NLK explains the experimental data better in many cases, with the same or lower number of parameters. We discuss extensions to games with more than two players and heterogeneous beliefs. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.12292&r= |
| By: | Kanbur, Ravi; Ortiz-Juarez, Eduardo; Sumner, Andy |
| Abstract: | In this paper we argue that the decline in global inequality over the last decades has spurred a ‘sunshine’ narrative of falling global inequality that has been rather oversold, in the sense, we argue, it is likely to be temporary. We argue the decline in global inequality will reverse due to changes in the between-country component. We find there is a potentially startling global inequality ‘boomerang’, possibly in the mid-to-late 2020s, which would have happened even if there were no pandemic, and that the pandemic is likely to bring forward the global inequality boomerang. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2022–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:ags:cuaepw:319950&r= |
| By: | Alexander Bick (Arizona State University); Adam Blandin (Virginia Commonwealth University); Richard Rogerson (Princeton University) |
| Abstract: | We develop and estimate a static model of labor supply that can account for two robust features of the cross-sectional distribution of usual weekly hours and hourly wages. First, usual weekly hours are heavily concentrated around 40 hours, while at the same time a substantial share of total hours come from individuals who work more than 50 hours. Second, mean hourly wages are non-monotonic across the usual hours distribution, with a peak for those working 50 hours. The novel feature of the model is that earnings are non-linear in hours and the nature of the nonlinearity varies over the hours distribution. We estimate the model on a sample of older males for whom human capital considerations are plausibly not of first order importance. Our estimates imply that an individual who chooses to work either less than 40 hours or more than 40 hours faces a wage penalty. As a consequence, individuals working typically 40 hours are not very responsive to variation in productivity. This has significant implications for the role of labor supply as a mechanism for self-insurance in a standard heterogeneous agent-incomplete markets model and for strategies designed to estimate the intertemporal elasticity of substitution. |
| Keywords: | employment, wages, labor supply |
| JEL: | E24 J22 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:pri:econom:2021-86&r= |
| By: | Alex Domash; Lawrence H. Summers |
| Abstract: | Since the outset of the Covid-19 pandemic, labor market indicators that traditionally move together have been sending different signals about the degree of slack in the U.S. labor market. While some indicators on the supply-side, such as the prime-age employment-to-population ratio, suggest that there is still some slack in the labor market, other indicators on the demand-side, such as the job vacancy rate and the quits rate, imply that the labor market is already very tight. In light of these divergent signals, this paper compares alternative labor market indicators as predictors of wage inflation. Using national time series and state cross-section data, we find (i) unemployment is a better predictor of wage inflation than non-employment and (ii) vacancy rates and quit rates have substantial predictive power for wage inflation. We highlight the fact that vacancy and quit rates currently experienced in the United States correspond to a degree of labor market tightness previously associated with sub-2 percent unemployment rates. Finally, we show that predicted firm-side unemployment has dominant explanatory power with respect to subsequent inflation. Our results, along with a cursory analysis of labor force participation information, suggest that labor market tightness is likely to contribute significantly to inflationary pressure in the United States for some time to come. |
| JEL: | E24 J2 J23 J3 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29739&r= |
| By: | Zhiguo He; Guanmin Liao; Baolian Wang |
| Abstract: | We study the impact of government-led incentive systems by examining a staggered reform in the Chinese state-owned enterprise (SOE) performance evaluation policy. To improve capital allocative efficiency, in 2010, regulators switched from using return on equity (ROE) to economic value added (EVA) when evaluating SOE performance. This EVA policy adopts a one-size-fits-all approach by stipulating a fixed cost of capital for virtually all SOEs, ignoring the potential heterogeneity of firm-specific costs of capital. We show that SOEs did respond to the performance evaluation reform by altering their investment decisions, more so when the actual borrowing rate was further away from the stipulated cost of capital. Our paper provides causal evidence that incentive schemes affect real investment and sheds new light on challenges faced by economic reforms in China. |
| JEL: | G31 G38 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29775&r= |