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on Central and Western Asia |
| By: | Kvam, Emilie (NTNU); Molnar, Peter (University of Stavanger); Wankel, Ingvild (NTNU); Odegaard, Bernt Arne (University of Stavanger) |
| Abstract: | We investigate the link between stock returns and ESG (Environmental, Social and Governance) concerns. The ESG concerns are measured by ESG-related sentiment extracted from Google Trends and Twitter, and also by the VIX index. We find that higher ESG scores are associated with lower stock returns on average. However, companies with high ESG scores deliver high returns in times of ESG concerns. Our results are consistent with the implications of equilibrium models of Pastor et al. (2021) and Pedersen et al. (2021) about the ESG score and changes in ESG concerns (preferences or news). |
| Keywords: | ESG investing; Social Media; Exclusion |
| JEL: | G10 G20 |
| Date: | 2022–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:stavef:2022_001&r= |
| By: | Menyhert, Balint (European Commission) |
| Abstract: | This paper explores the feasibility of calculating absolute poverty lines on the basis of minimum food expenditures in developed countries. It makes three important contributions. First, it demonstrates that standard statistical methods used in the developing world deliver inadequate poverty estimates in rich countries characterised by a relatively low food expenditure share. Second, it proposes a new simulation-based inverse method that focuses on the non-food Engel curve and uses available food reference budgets not as inputs but as targeted reference points for the calculations. Finally, an empirical application of the new method using household budget survey data from Italy shows that resulting poverty estimates are in line with the official figures of the Italian Statistical Office in terms of both the poverty rate and the poverty profiles. The proposed method is therefore well suited to produce robust and consistent absolute poverty measures in a large number of developed countries. |
| Keywords: | absolute poverty measurement, household expenditures, statistical modeling |
| JEL: | C10 C63 D12 E20 G50 I32 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:202104&r= |
| By: | Aras, Atilla |
| Abstract: | This study provides the solution to the equity premium puzzle. The new model was developed by including the behavior of investors toward risk in financial markets in prior studies. The calculations of this newly tested model show that the value of the coefficient of relative risk aversion is 1.033526 by assuming the value of the subjective time discount factor to be 0.99. Since these values are compatible with the existing empirical studies, they confirm the validity of the newly derived model that provides the solution to the equity premium puzzle. |
| Date: | 2020–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:b9afj&r= |
| By: | KOBAYASHI Keiichiro |
| Abstract: | This paper reviews the history of Japan's experience on the prolonged disposal of the nonperforming loans and summarizes a new theory of debt overhang. The disposal of the nonperforming loans was delayed because of the existence of the persistent expectations that any day, land price and stock prices will both rise, and the perception that the nonperforming loans are not the cause of the recession, but the result of it. Compartmentalized thinking and moral inconsistency or paternalism in the mindset of the policymakers is also a factor. The nonperforming loans cause the inefficiency of debt overhang. In the existing research, debt overhang is modeled as inefficiency due to the lack of borrower's commitment. In the new theory, we focus on the lack of lender's commitment, which discourages the borrowers and stagnates the economy. Debt reduction due to the disposal of nonperforming loans reduces the inefficiency of the lack of lender commitment and increase the payoffs of both the lender and borrower. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rpdpjp:22003&r= |
| By: | Mduduzi Biyase (Economic Development and Well-being Research Group (EDWRG), School of Economics, University of Johannesburg); Carolyn Chisadza (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | The aim of this study is to examine the financial development-inequality nexus in South Africa from 1980 to 2017, specifically if financial deepening reduces income inequality. The asymmetric effects of financial deepening on income inequality is investigated by employing the autoregressive distributed lag by Pesaran et al. (2001). The initial results indicate a positive association between financial deepening and income inequality. On further exploration, we find evidence that the Greenwood and Jovanovich hypothesis holds for South Africa. We observe an inverted non-linear relationship between financial deepening and income inequality in the long-run. The results suggest that at early stages of financial development, income inequality increases, but gradually starts to decrease as the financial sector becomes more established in the long-run. The findings highlight the need for policymakers to focus on inclusive financial sector reforms in the early stages of development. |
| Keywords: | financial deepening, income inequality, ARDL, South Africa |
| JEL: | C22 D63 G20 O55 |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202214&r= |
| By: | Chao Zhang; Yihuang Zhang; Mihai Cucuringu; Zhongmin Qian |
| Abstract: | We apply machine learning models to forecast intraday realized volatility (RV), by exploiting commonality in intraday volatility via pooling stock data together, and by incorporating a proxy for the market volatility. Neural networks dominate linear regressions and tree models in terms of performance, due to their ability to uncover and model complex latent interactions among variables. Our findings remain robust when we apply trained models to new stocks that have not been included in the training set, thus providing new empirical evidence for a universal volatility mechanism among stocks. Finally, we propose a new approach to forecasting one-day-ahead RVs using past intraday RVs as predictors, and highlight interesting diurnal effects that aid the forecasting mechanism. The results demonstrate that the proposed methodology yields superior out-of-sample forecasts over a strong set of traditional baselines that only rely on past daily RVs. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.08962&r= |
| By: | Kim, Gyu-Pan (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)) |
| Abstract: | This paper defines the concept of economic security strategy as “acts that deviate from the rules of the market economy by using economic power as a source of power in the perception that the state or national economy is threatened.” The scope of Japan's economic security strategy is divided into five categories: first, economic statecraft; second, securing of safety and trust in “critical infra-structure”; third, reinforcement of supply chains in critical materials; fourth, public-private R&D cooperation of critical technologies; and fifthly, cooperation in strengthening global supply chains with “like-minded partners.” |
| Keywords: | Japan; National Economic Security Strategy |
| Date: | 2022–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kiepwe:2022_009&r= |
| By: | Feiyang Shi (IHEID, Graduate Institute of International and Development Studies, Geneva) |
| Abstract: | Focusing on Sino-Indian trade, this paper uses detailed district-level data, exploits India's drastic increase in imports from China since 2001, and uses the instrumental variables approach to examine the impact of trade shock on the local labour market outcomes. Through a matching procedure, the geographical coverage of the paper is significantly improved comparing with prior studies. The range of labour market outcome variables examined is also much wider, including wage, residual wage fluctuation, and employment and underemployment as shares of working-age population. By exploiting spatial variations in industrial activities and labour participation in the industries, the paper finds that, unlike in some other cases, the import competition from China did not have a significant impact on the Indian district average wages. However, it did result in an increase in employment share. In further contribution, the paper also allows heterogeneous effects across consumption, age, gender, occupation and industrial groups. The results confirm that the effect of import shock is not uniformly distributed within the districts. Rather, it varies with respect to certain socio-economic characteristics. |
| Keywords: | International Trade; Wages; Income Inequality; Import shock; Underemployment |
| JEL: | F14 F16 J16 |
| Date: | 2022–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp04-2022&r= |
| By: | Minetti, Raoul (Michigan State University, Department of Economics); Murro, Pierluigi (LUISS University); Peruzzi, Valentina (Sapienza University of Rome) |
| Abstract: | We investigate whether globally active firms are more likely to be credit constrained by banks during a financial crisis. Using data on 15,000 businesses from seven European countries, we find that firms with a stable involvement in global value chains were 25% less likely to be rationed by banks during the 2009 financial crisis. This contrasts with the stronger likelihood of credit rationing of firms engaging in plain vanilla export activities. Matching the firm-level information with bank-level data, we obtain that banks insulated global chain participants from the credit crunch, not only accounting for the beneficial effects of global supply chain participation, but also to minimize negative spillovers on their own activities abroad. |
| Keywords: | Banks; global value chains; firm export; financial crises |
| JEL: | D22 F10 G20 |
| Date: | 2022–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:ris:msuecw:2022_002&r= |
| By: | Todd E. Clark; Florian Huber; Gary Koop; Massimiliano Marcellino |
| Abstract: | The relationship between inflation and predictors such as unemployment is potentially nonlinear with a strength that varies over time, and prediction errors error may be subject to large, asymmetric shocks. Inspired by these concerns, we develop a model for inflation forecasting that is nonparametric both in the conditional mean and in the error using Gaussian and Dirichlet processes, respectively. We discuss how both these features may be important in producing accurate forecasts of inflation. In a forecasting exercise involving CPI inflation, we find that our approach has substantial benefits, both overall and in the left tail, with nonparametric modeling of the conditional mean being of particular importance. |
| Keywords: | nonparametric regression; Gaussian process; Dirichlet process mixture; inflation forecasting |
| JEL: | C11 C32 C53 |
| Date: | 2022–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:93787&r= |
| By: | Joe Cho Yiu NG; Thomas Chao Hung CHAN; Byron Kwok Ping TSANG; Charles Ka Yui LEUNG |
| Abstract: | This paper argues that the persistence of greenfield foreign direct investment (FDI) comes from information frictions. First, our simple social learning model shows that, through signaling effects, information frictions generate persistent greenfield FDI inflows. Second, we show empirically that the autoregressive coefficient of greenfield FDI increases in value with different proxies for information frictions, including six institutional and governance indicators and two common language measures. We also find that greenfield FDI persistence varies across industries. In particular, greenfield FDI by service firms is more persistent than that by manufacturing firms. Finally, our findings suggest that better governance, predictability, and transparency reduce information frictions and thereby avoiding drastic and persistent ups and downs in FDI. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1171&r= |
| By: | Xiaoqing An (School of Economics, Jinan University, Guangzhou city, Guangdong Province, China); William Barnett (Department of Economics, University of Kansas and Center for Financial Stability, New York City); Xue Wangd (dInstitute of Chinese Financial Studies, Southwestern University of Finance and Economics, Chengdu, China and Department of Economics, Emory University, Atlanta, GA, U.S.); Qingyuan Wu (School of Economics and Management, Hanshan Normal University, Chaozhou, China) |
| Abstract: | We examine the Brexit spillovers on five major EU member states and the UK through economic policy uncertainty. Cluster analysis and TVP VAR model are applied to data from five major EU member states and the UK to analyze the impacts of economic policy uncertainty (EPU) on foreign direct investment (FDI) and international trade (TRADE) during Brexit. The results show that the impacts of EPU in six economies are different at different stages of Brexit. The impulse responses of FDI are relatively large in the Netherlands and the UK, especially in the short term. Moreover, in terms of strengths, the impulse responses of FDI are generally greater than those of TRADE. At the time points related to Brexit, the EPU of the Netherlands has the greatest impacts on its FDI and TRADE, followed by the UK. Furthermore, the duration of the impact of EPU on FDI is generally greater than that of EPU on TRADE. Overall, the Brexit spillovers induced by economic policy uncertainty can be grouped into three categories considering intensity: high impact for two economies (the Netherlands and the UK); medium impact for two economies (France and Spain); and low impact for two economies (Germany and Italy). |
| Keywords: | Brexit, Economic Policy Uncertainty, Foreign Direct Investment, International Trade. |
| JEL: | E0 F1 H0 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:202208&r= |
| By: | Sailendra Pattanayak; Yasemin Hurcan; Racheeda Boukezia; Ramon Hurtado |
| Abstract: | Fiscal institutional capacity in most fragile states (FS) and several low-income developing countries (LIDCs) is much lower than in other countries. Governments in these countries face several cash management challenges because they often lack credible budgets, have smaller and less diversified revenue bases, have limited access to financial markets, and rely largely on donors to fund a large portion of their budgets. Available public funds in these countries often remain dispersed outside the control of the ministry of finance. In the absence of a good cash forecasting function, these countries typically resort to cash rationing to meet their priority spending needs, often in an ad hoc manner, which can adversely affect budget execution and achievement of fiscal policy targets. This note sets out the key objectives and building blocks of a cash management function in FS and LIDCs. It suggests several measures to progressively build cash management capacity in three interrelated areas: consolidating cash resources, forecasting cash flows, and managing cash balances with sound institutional setups. |
| Date: | 2022–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfhtn:2022/001&r= |
| By: | Yu-Ting Chiang |
| Abstract: | This paper studies a dispersed information economy in which agents can exert costly attention to learn about an unknown aggregate state of the economy. Under certain conditions, attention and four measures of uncertainty are countercyclical: Agents pay more attention when they expect the economy to be in a bad state, and their reaction generates higher (i) aggregate output volatility, (ii) cross-sectional output dispersion, (iii) forecast dispersion about aggregate output, and (iv) subjective uncertainty about aggregate output faced by each agent. All these phenomena are prominent features of the U.S. data. When attention cost is calibrated to forecast survey data, the model generates countercyclical fluctuations in attention and uncertainty, consistent with untargeted moments from the data. Fluctuations in attention and uncertainty are higher-order properties of the model. A new method is developed to solve higher-order dynamics of the equilibrium under an infinite regress problem. |
| Keywords: | business cycles; macroeconomic uncertainty; dispersed information; rational inattention |
| JEL: | D8 E1 E3 E7 |
| Date: | 2022–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:93807&r= |
| By: | Rian Dolphin; Barry Smyth; Ruihai Dong |
| Abstract: | Identifying meaningful relationships between the price movements of financial assets is a challenging but important problem in a variety of financial applications. However with recent research, particularly those using machine learning and deep learning techniques, focused mostly on price forecasting, the literature investigating the modelling of asset correlations has lagged somewhat. To address this, inspired by recent successes in natural language processing, we propose a neural model for training stock embeddings, which harnesses the dynamics of historical returns data in order to learn the nuanced relationships that exist between financial assets. We describe our approach in detail and discuss a number of ways that it can be used in the financial domain. Furthermore, we present the evaluation results to demonstrate the utility of this approach, compared to several important benchmarks, in two real-world financial analytics tasks. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.08968&r= |
| By: | Whelsy BOUNGOU; Alhonita YATIE |
| Abstract: | As a topical topic, this paper studies the responses of world stock market indices to the ongoing war between Ukraine and Russia. The empirical analysis is based on daily stock market returns in a sample of 94 countries and covers the period from 22 January 2022 to 3 March 2022. We consistently document a negative relationship between the Ukraine-Russia war and world stock market returns. Furthermore, our results reveal that returns have been significantly lower since the invasion of Russian troops into Ukraine on 24 February 2022. Overall, we provide the first empirical evidence of the effect of the Ukraine-Russia war on international stock market returns.As a topical topic, this paper studies the responses of world stock market indices to the ongoing war between Ukraine and Russia. The empirical analysis is based on daily stock market returns in a sample of 94 countries and covers the period from 22 January 2022 to 3 March 2022. We consistently document a negative relationship between the Ukraine-Russia war and world stock market returns. Furthermore, our results reveal that returns have been significantly lower since the invasion of Russian troops into Ukraine on 24 February 2022. Overall, we provide the first empirical evidence of the effect of the Ukraine-Russia war on international stock market returns. |
| Keywords: | War, Russia, Ukraine, Stock index |
| JEL: | H56 G11 G14 G15 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:grt:bdxewp:2022-06&r= |
| By: | Müller, Henrik; Schmidt, Tobias; Rieger, Jonas; Hufnagel, Lena Marie; Hornig, Nico |
| Abstract: | In this paper, we present a new indicator to measure the media coverage of inflation. Our Inflation Perception Indicator (IPI) for Germany is based on a corpus of three million articles published by broadsheet newspapers between January 2001 and February 2022. It is designed to detect thematic trends, thereby providing new insights into the dynamics of inflation perception over time. These results may prove particularly valuable at the current juncture, where massive uncertainty prevails due to geopolitical conflicts and the pandemic-related supply-chain jitters. Economists inspired by Shiller (2017; 2020) have called for analyses of economic narratives to complement econometric analyses. The IPI operationalizes such an approach by isolating inflation narratives circulating in the media. Methodically, the IPI makes use of RollingLDA (Rieger et al. 2021), a dynamic topic modeling approach refining the rather static original LDA (Blei et al. 2003) to allow for changes in the model's structure over time. By modeling the process of collective memory, where experiences of the past are partly overwritten and altered by new ones and partly sink into oblivion, RollingLDA is a potent tool to capture the evolution of economic narratives as social phenomena. In addition, it is suitable to produce stable time-series, to the effect that the IPI can be updated frequently. Our initial results show a narrative landscape in turmoil. Never in the past two decades has there been such a broad shift in inflation perception, and therefore, possibly, in inflation expectations. Also, second-round effects, such as significant wage demands, that have not played a major role in Germany for a long time, seem to be in the making. Towards the end of the time horizon, raw material prices are high on the agenda, too, triggered by the Russian war against Ukraine and the ensuing sanctions against the aggressor. We would like to encourage researchers to use our data and are happy to share it on request. |
| Keywords: | Inflation,Expectations,Narratives,Latent Dirichlet Allocation,Covid-19,Text Mining,Computational Methods,Behavioral Economics |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:docmaw:9&r= |
| By: | Feld, Lars P.; Nientiedt, Daniel |
| Abstract: | What is the appropriate role of the state in economic policy-making? This paper shows that Friedrich Hayek, who is often considered a proponent of laissez-faire liberalism, offers three different answers to this problem. First, Hayek argues that the state should provide a legal framework for competitive markets. Second, he proposes to employ the rule of law criteria - generality, equality, and certainty - to distinguish permissible from non-permissible state interventions. Third, he rejects deliberate legislation and moves closer to the Misean idea of a minimal state. The paper considers these answers in light of Hayek's analysis of the knowledge problem. We suggest that a Hayekian approach to economic policy-making should focus on improving the framework of general rules that guide individual behavior, thereby enabling spontaneous ordering processes and reducing the epistemological burden placed on policy-makers. |
| Keywords: | Friedrich Hayek,Rule-based economic policy,Spontaneous order,Knowledge problem,Cultural evolution |
| JEL: | B31 D78 P16 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:aluord:2201&r= |
| By: | Yeva Nersisyan; L. Randall Wray |
| Abstract: | This paper examines the recent increase of the measured inflation rate to assess the degree to which the acceleration is due to problems created (largely on the supply side) by the pandemic versus pressures created on the demand side by pandemic relief. Some have attributed the inflation to excess demand, most notably Larry Summers, who had warned that the pandemic relief spending was too great. As evidence, one could point to the quick recovery of GDP and to reportedly tight labor markets. Others have variously blamed supply chain disruptions, shortages of certain inputs, OPEC's oil price increases, labor market disruptions because of COVID, and rising profit margins obtained through exercise of pricing power. We conclude that there is little evidence that excess demand is the problem, although we agree that in the absence of the relief checks, recovery would have been sufficiently slow to minimize inflation pressure. We closely examine the main contributors to rising overall prices and conclude that tighter monetary policy would not be an effective way to reduce price pressures. We also cast doubt on the expectations theory of inflation control. We present evidence that suggests there is currently little danger that higher inflation will become entrenched. If anything, rate hikes now will make it harder for the economy to adjust to current realities. The potential for lots of pain with little gain is great. The best course of action is to tackle problems on the supply side. |
| Keywords: | COVID-19; Inflation; Pandemic Relief; Pricing Power; Supply Chains |
| JEL: | E31 E32 E52 E52 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_1003&r= |
| By: | Antoine Bouveret; Antoine Martin; Patrick E. McCabe |
| Abstract: | Money market funds (MMFs) are popular around the world, with over $9 trillion in assets under management globally. From their origins in the 1970s, MMFs have operated in a niche between the capital markets and the banking system, as investment funds that offer private money-like assets with features similar to those of bank deposits. Hence, they are vulnerable to runs that arise from liquidity transformation and from sudden changes in investor perceptions of the funds’ ability to serve as money-like assets. Since 2000, MMF runs have occurred in many countries and under many regulatory regimes. The global pattern of runs and crises shows that MMF vulnerabilities are not unique to a particular set of governing arrangements, and that mitigating these vulnerabilities requires fundamental reforms that either place MMFs more clearly within the investment-fund sector or establish protections for MMFs similar to those for deposits. |
| Keywords: | money market funds; liquidity transformation; runs; nonbank financial institutions; short-term funding markets; information-insensitive assets; financial stability |
| JEL: | G20 G23 G28 |
| Date: | 2022–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:93851&r= |
| By: | , Le Thanh Tung |
| Abstract: | Vietnam is an Asian emerging country, which now is ranked in the group of the fastest-gro-wing economies worldwide. However, this economy has faced galloping inflation in recent years. So the Vietnamese experience is a valuable reference for the policymakers in the developing world in order to successfully control price volatility. Our study applies the Vector autoregressive method, the Johansen cointegration test, and the Granger causality test to examine the impact of fiscal and monetary policy on price volatility in Vietnam with a quarterly data sample collected over the period from 2004 to 2018. The study results confirm the existence of a long-term cointegration relationship between these policies and price volatility in Vietnam. Besides, the variance decomposition and impulse response function also show that the impact of these policies on inflation is clear, however, the fiscal policy more strongly affects inflation than the monetary policy. Finally, the Granger causality test also indicates one-way causality relationships from the government expenditure as well as the exchange rate to price volatility in the study period. |
| Date: | 2021–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:7u56v&r= |
| By: | BAGDE, RAKSHIT MADAN (Late. Mansaramji Padole Arts College, Ganeshpur, Bhandara) |
| Abstract: | Although the share of industry in GDP remained stable, it underwent significant fundamental changes. During this period, as a process of product restructuring, when a gross value was adjusted, production increased at current prices by 8 percent per annum. Then in 2004-09, the GDP growth rate increased to 20%. At the same prices, the annual but significant increase in employment was also 7.5 percent per annum. The work participation rate was 39.2 percent in 2009-10. Of these, 53 percent were in agriculture and the remaining 47 percent were in non-agricultural sectors. For the first time in the late 2000s, the number of perfect workers in the agricultural sector decreased. Unemployment in the economy as a whole has come down from 8.3 percent in 2004-05 to 6.6 percent in 2009-10. We can say that the Indian economy has performed well since 1991 but now the Indian economy is going through another turbulent period. The growth rate of the Indian economy has been slowing down since 2014. In addition to this, Kovid 19 has spread its legs in India and has slowed down the growth rate. The research paper will conclude the study of the Indian economy from 2014 to 2020, as well as three economic sectors. |
| Date: | 2021–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:cqzyu&r= |
| By: | Hugo Schnoering; Hugo Inzirillo |
| Abstract: | We are witnessing the emergence of a new digital art market, the art market 3.0. Blockchain technology has taken on a new sector which is still not well known, Non-Fungible tokens (NFT). In this paper we propose a new methodology to build a NFT Price Index that represents this new market on the whole. In addition, this index will allow us to have a look on the dynamics and performances of NFT markets, and to diagnose them. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.08966&r= |
| By: | Martin Hodula; Milan Szabo; Lukas Pfeifer; Martin Melecky |
| Abstract: | This paper studies the effects of regulatory recommendations concerning maximum (i) loan-to-value (LTV), (ii) debt-to-income (DTI) and (iii) debt service-to-income ratios (DSTI) on new loans secured by residential property. It uses loan-level regulatory survey data on about 82,000 newly granted residential mortgage loans in the Czech Republic from 2016 to 2019 to estimate the average effects of the Czech National Bank's regulatory recommendations and their heterogeneous effects depending on borrower, loan, bank and regional characteristics. The studied response variables include the mortgage loan size and lending rate and the value of the property with which loans are secured. The machine learning method of causal forests is employed to estimate the effects of interest and to identify any heterogeneity and its likely drivers. We highlight two important facts: (i) value-based (LTV) and income-based (DTI and DSTI) limits have different impacts on the mortgage market and (ii) borrower, loan, bank and regional characteristics play an important role in the transmission of the recommended limits. |
| Keywords: | Borrower-based measures, causal forests, Czech Republic, macroprudential recommendations, residential mortgage loans |
| JEL: | E44 G21 G28 G51 R31 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2022/3&r= |
| By: | Damir Filipović (Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute); Markus Pelger (Stanford University - Department of Management Science & Engineering); Ye Ye (Stanford University) |
| Abstract: | We introduce a robust, flexible and easy-to-implement method for estimating the yield curve from Treasury securities. This method is non-parametric and optimally learns basis functions in reproducing Hilbert spaces with an economically motivated smoothness reward. We provide a closed-form solution of our machine learning estimator as a simple kernel ridge regression, which is straightforward and fast to implement. We show in an extensive empirical study on U.S. Treasury securities, that our method strongly dominates all parametric and non-parametric benchmarks. Our method achieves substantially smaller out-of-sample yield and pricing errors, while being robust to outliers and data selection choices. We attribute the superior performance to the optimal trade-off between flexibility and smoothness, which positions our method as the new standard for yield curve estimation. |
| Keywords: | yield curve estimation, U.S. Treasury securities, term structure of interest rates, nonparametric method, machine learning in finance, reproducing kernel Hilbert space |
| JEL: | C14 C38 C55 E43 G12 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2224&r= |
| By: | Dominic A. Smith; Sergio Ocampo |
| Abstract: | Increases in national concentration have been a salient feature of industry dynamics in the U.S. and have contributed to concerns about increasing market power. Yet, local trends may be more informative about market power, particularly in the retail sector where consumers have traditionally shopped at nearby stores. We find that local concentration has increased almost in parallel with national concentration using novel Census data on product-level revenue for all U.S. retail stores. The increases in concentration are broad based, affecting most markets, products, and retail industries. We implement a new decomposition of the national Herfindahl Hirschman Index and show that despite similar trends, national and local concentration reflect different changes in the retail sector. The increase in national concentration comes from consumers in different markets increasingly buying from the same firms and does not reflect changes in local market power. We estimate a model of retail competition which links local concentration to markups. The model implies that the increase in local concentration explains one-third of the observed increase in markups. |
| Keywords: | Retail, Local Markets, Concentration, Herfindahl-Hirschman Index |
| JEL: | L8 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:22-07&r= |
| By: | Francesco A. Franzoni (Universita della Svizzera italiana (USI Lugano); USI Lugano; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Daniel Obrycki (The Applied Finance Group, Ltd.); Rafael Resendes (The Applied Finance Group, Ltd.) |
| Abstract: | In the asset pricing literature, higher investment is associated with lower expected stock returns. On the other hand, practitioners view investment as a value-creating activity when it generates payoffs above the cost of capital. The paper reconciles these views. Starting from a discounted cash-flow tautology, we argue that expected returns correlate positively with expected investment whenever the return on equity is large enough. We label this prediction the wealth creation effect. The empirical evidence supports this channel. The interaction of profitability and investment positively correlates with stock returns controlling for the usual characteristics. A wealth creation factor earns a premium of about 24bps per month leading to sizeable Sharpe ratio improvements relative to popular factor models. |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2227&r= |
| By: | Congressional Budget Office |
| Abstract: | The unemployment rate has asymmetric dynamics: It increases rapidly in recessions and falls gradually in expansions. The Congressional Budget Office developed a Markov-switching model to help incorporate these dynamics into macroeconomic projections and cost estimates that require simulations of the national unemployment rate. The model produces simulations that match observed asymmetric business-cycle dynamics at a rate consistent with historical data. I also show that indirect duration dependence, in which transition probabilities are a function of the unemployment gap, |
| JEL: | C22 C24 C53 E24 E32 |
| Date: | 2022–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:wpaper:57582&r= |
| By: | Michael Kirker; Lynda Sanderson (The Treasury) |
| Abstract: | Linked employer-employee data from New Zealand is used to study the relationship between a firm’s productivity growth and its exposure to outside knowledge through the hiring of new workers with previous work experience. The estimated relationship between productivity growth and hiring is compared to the predictions implied by two different channels: worker quality and knowledge spillover. Although it is not possible to identify a causal relationship, the productivity of a worker’s previous employer is correlated with subsequent productivity growth at the hiring firm. The patterns of this correlation are consistent with both the worker quality and knowledge spillover channels operating simultaneously. Furthermore, if knowledge spillover is occurring, the results suggest the type of knowledge spilling over relates to technological knowledge allowing firms to become more capital intensive, rather than knowledge that improves the efficiency of utilising existing inputs. |
| Keywords: | productivity; labour mobility; human capital; knowledge diffusion |
| JEL: | D24 J24 J62 O33 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:22/01&r= |
| By: | Chung Tran; Sebastian Wende |
| Abstract: | A dividend imputation system is designed to address double taxation of capital income by allowing companies to pass on profit taxes paid at the corporate level to shareholders in form of franking tax credits. In this paper, we study implications of dividend imputation in a small open economy model with firm heterogeneity and an internationally integrated capital market. Our analysis indicates that dividend imputation has opposing effects on investment and capital accumulation. On one hand, it mitigates the adverse effects of double taxation and induces more saving and investment; on other hand, it raises the cost of investment for firms that are not fully imputed, which subsequently results in less investment. Moreover, different tax treatments for resident and foreign investors amplify frictions in reallocation of capital across firms, which prevents inflows of foreign capital from fully offsetting the shortage of domestic savings. International investors are not marginal investors in our small open economy setting. Overall, the net effect on capital accumulation is analytically ambiguous, depending on which force is dominant. Our quantitative results indicate that the positive force is dominant and removing dividend imputation leads to decreases in domestic savings, aggregate capital and output. Interestingly, the overall welfare effect is positive as low income households benefit more from additional government transfers, while tax burdens are shifted towards high income households and foreign investors. |
| Keywords: | Double taxation; Franking tax credit; Fiscal policy; Firm heterogeneity; Overlapping generations; Open economy; Dynamic general equilibrium; Welfare. |
| JEL: | D21 E62 H21 H22 H25 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2022-687&r= |
| By: | Joshua Aizenman; Yothin Jinjarak; Mark M. Spiegel |
| Abstract: | We investigate the implications of extra-normal government spending under the COVID-19 pandemic for commercial bank lending growth between 2019Q4 and 2020Q4 in a large sample of over 3000 banks from 71 countries. We control for pre-pandemic structural factors, bank characteristics and government debt. To address the likely endogeneity of government assistance under the pandemic, we instrument for extra-normal spending using disparities in pre-existing national political characteristics for identification. Our results indicate that while higher government spending was associated with higher commercial bank lending, higher public debt going into the crisis weakened the expansionary effects of higher spending on bank lending at economically and statistically significant levels. Moreover, this sensitivity is higher among weaker banks, suggesting that bank lending responses to government spending under COVID-19 reflected the perceived implications of such spending for government assistance of the banking sector going forward. Our results are robust to a variety of sensitivity analyses, including perturbations in specification, sample, and estimation methodology. |
| Keywords: | fiscal multiplier; COVID-19; bank lending |
| JEL: | E62 F34 G21 H30 |
| Date: | 2022–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:93788&r= |
| By: | Gnutzmann-Mkrtchyan, Arevik; Volmer, Maximilian |
| Abstract: | The European Union (EU) supports developing countries with a unilateral trade preference scheme. The scheme underwent a major reform in 2014, in which many countries lost access to reduced tariff rates. We analyse how this radical step that removed preferences from 103 countries by 2018 fits into the EU’s strategy to promote bilateral agreements and how it affected imports from the removed beneficiaries. Using the gravity model of trade with high-dimensional fixed effects, we show that the removal results in a significant decline in exports of affected developing countries. Some countries formed a bilateral free trade agreement with the EU, in which case the negative effect of removal of unilateral trade preferences is compensated but we do not find significant and consistent additional benefits. Thus, the threat of removal can be seen as a lever for beneficiaries that are about to become ineligible to negotiate a bilateral agreement with the EU. |
| Keywords: | trade preferences; reciprocity; GSP; FTA; gravity model |
| JEL: | F13 F14 O19 O24 D78 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-697&r= |
| By: | Felbermayr, Gabriel; Mahlkow, Hendrik; Sandkamp, Alexander-Nikolai |
| Abstract: | With ever-increasing political tensions between China and Russia on one side and the EU and the US on the other, it only seems a matter of time until protectionist policies cause a decoupling of global value chains. This paper uses a computable general equilibrium trade model calibrated with the latest version of the GTAP database to simulate the effect of doubling non-tariff barriers - both unilateral and reciprocal - between the two blocks on trade and welfare. Imposing trade barriers almost completely eliminates bilateral imports. In addition, changes in price levels lead to higher imports and lower exports of the imposing country group from and to the rest of the world. The targeted country group increases exports to the rest of the world and reduces imports. Welfare falls in all countries involved, suggesting that governments should strive to cooperate rather than turning away from each other. By imposing a trade war on Russia, the political West could inflict severe damage on the Russian economy because of the latter's smaller relative size. |
| Keywords: | Trade,non-tariff barriers,global value chains,quantitative trade model,China,Russia,European Union |
| JEL: | F11 F13 F14 F17 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2210&r= |
| By: | Dimitrios Tsiotas |
| Abstract: | The study and measurement of economic resilience is ruled by high level of complexity related to the diverse structure, functionality, spatiality, and dynamics describing economic systems. Towards serving the demand of integration, this paper develops a three-dimensional index, capturing engineering, ecological, and evolutionary aspects of economic resilience that are considered separately in the current literature. The proposed index is computed on GDP data of worldwide countries, for the period 1960-2020, concerning 14 crises considered as shocks, and was found well defined in a conceptual context of its components. Its application on real-world data allows introducing a novel classification of countries in terms of economic resilience, and reveals geographical patterns and structural determinants of this attribute. Impressively enough, economic resilience appears positively related to major productivity coefficients, gravitationally driven, and depended on agricultural specialization, with high structural heterogeneity in the low class. Also, the analysis fills the literature gap by shaping the worldwide map of economic resilience, revealing geographical duality and centrifugal patterns in its geographical distribution, a relationship between diachronically good performance in economic resilience and geographical distance from the shocks origin, and a continent differentiation expressed by the specialization of America in engineering resilience, Africa and Asia in ecological and evolutionary resilience, and a relative lag of Europe and Oceania. Finally, the analysis provides insights into the effect of the 2008 on the globe and supports a further research hypothesis that political instability is a main determinant of low economic resilience, addressing avenues of further research. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.08564&r= |
| By: | Piolatto, A. (Tilburg University, Center For Economic Research); Schuett, Florian (Tilburg University, Center For Economic Research) |
| Keywords: | anonymous information platforms; opaque products; horizontal competition; experience goods; mismatch costs |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:ac184e2f-0492-4738-b455-82a1385114f6&r= |
| By: | Giacomo Mangiante |
| Abstract: | This paper studies the impact of demographic trends on the transmission of monetary policy. In particular, I propose and quantify a novel channel to explain how population aging might affect the effectiveness of monetary policy and the flattening of the Phillips curve: older individuals purchase more from product categories with higher levels of price rigidity - categories which adjust their prices less often - so the aggregate frequency of price adjustment decreases as the population ages. Using micro data on consumer expenditure, I document the negative relationship between age and the frequency of price adjustment and find that it is mainly due to the higher share of services consumed by old households. At the macro level, if prices are more rigid output should respond more to monetary shocks. To test this hypothesis, I exploit the cross-sectional variation in demographic structures across the U.S. and I show that the economic activity in states with a higher old-age dependency ratio reacts more to monetary shocks. Finally, I rationalise these findings using a two-sector OLG New Keynesian model where demographic trends shift aggregate demand towards services, i.e., the stickier expenditure category. Combining the model with population projections for the U.S., I find that the changes in the age distribution between 1980 and 2010 increased the contemporaneous response of output to monetary shocks by 6% and will have increased it by 10% in 2050. Moreover, demographic trends explain around 10% of the decrease in the slope of the Phillips curve. |
| Keywords: | Monetary policy, age structure, consumption heterogeneity, Phillips curve |
| JEL: | E52 J11 |
| Date: | 2022–03 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:22.04&r= |
| By: | Antoinette Baujard (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint-Etienne, France) |
| Abstract: | This paper reviews Amartya's Sen autobiography, Home in the World. A Memoir (Penguin Press, published 08/07/2021, 480 pages.ISBN: 9781846144868), focused on his thirty first years of life. I show that the book emphasizes how Sen values discussions and reason, the voice of each human being in their plurality, and their capacity to act in and on the world. I also support that, in this memoir, Sen succeeds in circumventing the standard misunderstandings of his major contributions, by taking seriously the different potential interpretations of the thinkers who influenced his line of thinking, and defending the one he considers valid. I illustrate this claim with five cases which, by highlighting his multiple identities, avoid associating Sen to a misguided tag. |
| Keywords: | Amartya Sen, Welfare, Discussion, Reason, Identities, Memoir |
| JEL: | B31 D63 D71 I31 I32 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2202&r= |