nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒05‒27
ninety papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Shocking Interest Rate Floors By Fabio Canetg; Daniel Kaufmann
  2. Heterogeneity and Asymmetric Macroeconomic Effects of Changes in Loan-to-Value Limits By Jasper de Jong; Emmanuel de Veirman
  3. Macroeconomic effects of capital tax rate changes By Saroj Bhattarai; Jae Won Lee; Woong Yong Park; Choongryul Yang
  4. Have we been measuring monetary policy correctly? Analysing the Federal Reserve’s policies over the last century By Pavon-Prado, David
  5. Measuring euro area monetary policy By Altavilla, Carlo; Brugnolini, Luca; Gürkaynak, Refet S.; Motto, Roberto; Ragusa, Giuseppe
  6. Modeling and forecasting inflation in The Gambia: an ARMA approach By NYONI, THABANI; MUTONGI, CHIPO
  7. Understanding inflation dynamics in the Kingdom of Eswatini: a univariate approach By NYONI, THABANI; MUTONGI, CHIPO; NYONI, MUNYARADZI; HAMADZIRIPI, OSCAR HAPANYENGWI
  8. Demystifying inflation dynamics in Rwanda: an ARMA approach By NYONI, THABANI
  9. Unemployment Dynamics and Endogenous Unemployment Insurance Extensions By W. Similan Rujiwattanapong
  10. Identifying Modern Macro Equations with Old Shocks By Régis Barnichon; Geert Mesters
  11. Monetary policy and bank profitability in a low interest rate environment By Carlo Altavilla; Miguel Boucinha; José-Luis Peydró
  12. Do fiscal rules constrain political budget cycles? By Bram Gootjes; Jakob de Haan; Richard Jong-A-Pin
  13. "When to Ease Off the Brakes--and Hopefully Prevent Recessions" By Harold M. Hastings; Tai Young-Taft; Thomas Wang
  14. Financial Stability and the Fed: Evidence from Congressional Hearings By Arina Wischnewsky; David-Jan Jansen; Matthias Neuenkirch
  15. Azerbaijan and its Oil Resources: Curse or Blessing? By Farid Zulfigarov; Matthias Neuenkirch
  17. Measuring Assessing the Resilience of the Canadian Banking System By Charles Gaa; Xuezhi Liu; Cameron MacDonald; Xiangjin Shen
  18. Secular Stagnation and Income Distribution Dynamics By David Kiefer, Ivan Mendieta-Munoz, Codrina Rada, Rudiger von Arnim
  19. Évaluer la résilience du système bancaire canadien By Charles Gaa; Xuezhi Liu; Cameron MacDonald; Xiangjin Shen
  20. Analysing monetary policy statements of the Reserve Bank of India By Aakriti Mathur; Rajeswari Sengupta;
  21. Strengthening the Monetary Policy Framework in Korea By Kevin Clinton; R. S Craig; Douglas Laxton; Hou Wang
  22. Exogenous uncertainty and the identification of Structural Vector Autoregressions with external instruments By Angelini, Giovanni; Fanelli, Luca
  23. New Essentials of Economic Theory III. Economic Applications By Olkhov, Victor
  24. Investment, Autonomous Demand and Long Run Capacity Utilization: An Empirical Test for the Euro Area By Ettore Gallo
  25. Structure of Income Inequality and Household Leverage: Theory and Cross-Country Evidence By Rémi Bazillier; Jérôme Héricourt; Samuel Ligonnière
  26. Fiscal policy and ecological sustainability: A post-Keynesian perspective By Yannis Dafermos; Maria Nikolaidi
  27. Modeling the long-run relationship between inflation and economic growth in Zimbabwe: a bi-variate cointegration (Engle-Granger Two-Step) approach By NYONI, THABANI; MUTONGI, CHIPO
  28. Asset Liquidity and Fiscal Consolidation Programs By Bernardino, Tiago
  29. How does the interaction of macroprudential and monetary policies affect cross-border bank lending? By Előd Takáts; Judit Temesvary
  30. The Motives to Borrow By Fatás, Antonio; Ghosh, Atish; Panizza, Ugo; Presbitero, Andrea
  31. How are oil supply shocks transmitted to the U.S. economy? By Martin Geiger; Jochen Güntner
  32. Empresas granulares y desagregación regional: un análisis del caso español By Blanco-Arroyo, Omar; Ruiz-Buforn, Alba; Vidal-Tomás, David; Alfarano, Simone
  33. Contagious Switching By Owyang, Michael T.; Piger, Jeremy M.; Soques, Daniel
  34. Republic of Korea; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Korea By International Monetary Fund
  35. Paraguay; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Paraguay By International Monetary Fund
  36. The impact of inflation expectations on the effects of monetary policy By Perevyshin, Yuriy (Перевышин, Юрий); Petrova, Diana (Петрова, Диана)
  37. The Real Effects of the Bank Lending Channel By Gabriel Jiménez; Atif Mian; José-Luis Peydró; Jesús Saurina
  38. Modeling and forecasting Botswana's Growth Domestic Product (GDP) per capita By NYONI, THABANI; MUCHINGAMI, LOVEMORE
  39. Evaluando el impacto de las medidas de desdolarización del crédito en el Perú By Contreras, Alex; Gondo, Rocío; Oré, Erick; Pérez, Fernando
  40. The consumption Euler equation or the Keynesian consumption function? By Anders Rygh Swensen; Pål Boug; Ådne Cappelen; Eilev S. Jansen
  41. Hysteresis of Unemployment Rates in Africa: New Findings from Fourier ADF test By Yaya, OlaOluwa S; Ogbonna, Ahamuefula; Mudida, Robert
  42. Special Deals with Chinese Characteristics By Chong-En Bai; Chang-Tai Hsieh; Zheng Michael Song
  43. Equity Risk Premium and Time Horizon: what do the French secular data say ? By Georges Prat; David Le Bris
  44. Fiscal Policies in Booms and Busts By De Grauwe, Paul; Foresti, Pasquale; Ji, Yuemei
  45. 10 Tahun Pasca Krisis Keuangan Global, Dimana Posisi Indonesia Sekarang? By Mansur, Alfan
  46. The Predictability of Stock Market Volatility in Emerging Economies: Relative Roles of Local, Regional and Global Business Cycles By Elie Bouri; Riza Demirer; Rangan Gupta; Xiaojin Sun
  47. Rationalizing Trading Frequency and Returns: Maybe Trading is Good for You By Yosef Bonaparte; Russell Cooper; Mengli Sha
  48. The Great Divide: Regional Inequality and Fiscal Policy By William Gbohoui; W. Raphael Lam; Victor Duarte Lledo
  49. Colombia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Colombia By International Monetary Fund
  50. Job displacement insurance and (the lack of) consumption-smoothing By Francois Gerard; Joana Naritomi
  51. EME financial conditions: which global shocks matter? By Lodge, David; Manu, Ana-Simona
  52. Unhedgeable Inflation Risk within Pension Schemes By Beetsma, Roel; Chen, Damiaan; van Wijnbergen, Sweder
  53. Republic of Madagascar; Technical Assistance Report—Report on Technical Assistance Mission in External Sector Statistics (July 2-13, 2018) By International Monetary Fund
  54. People’s Republic of China—Macao Special Administrative Region; 2019 Article IV Consultation Discussions-Press Release; Staff Report; and Statement by the Executive Director for Macao SAR By International Monetary Fund
  55. Euro area sovereign risk spillovers before and after the ECB's OMT announcement By Niels Gilbert
  56. Intratemporal Nonseparability between Housing and Nondurable Consumption: Evidence from Reinvestment in Housing Stock By Khorunzhina, Natalia
  57. Centralized versus Decentralized Banking: Bank-level evidence from U.S. Call Reports By Uluc Aysun
  58. Globalization, Market Power, and the Natural Interest Rate By Jean-Marc Natal; Nicolas Stoffels
  59. Kingdom of Lesotho; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Kingdom of Lesotho By International Monetary Fund
  60. Fiscal Implications of Interest Rate Normalization in the United States By Huixin Bi; Wenyi Shen; Shu-Chun Susan Yang
  61. Cognitive Biases and Consumer Sentiment By Erik Kole; Liesbeth Noordegraaf-Eelens; Bas Vringer
  62. Sectoral Composition of Output and the Wage Share: a Two-Sector Kaleckian Model. By Elton Beqiraj; Lucrezia Fanti; Luca Zamparelli
  63. Skill-Biased Technological Change and Inequality in the U.S. By Ferrreira, Ana Melissa
  64. Relationship Networks in Banking Around a Sovereign Default and Currency Crisis By D’Erasmo, Pablo; Moscoso Boedo, Hernán; Olivero, Maria; Sangiácomo, Máximo
  65. Jordan; Second Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for a Waiver of Nonobservance of Performance Criterion, an Extension of the Arrangement, and Rephasing of Access-Press Release; Staff Report; and Statement by the Executive Director for Jordan By International Monetary Fund
  66. The Gambia; Request for a Staff-Monitored Program; Press Release and Staff Report By International Monetary Fund
  67. Republic of Uzbekistan; 2019 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  68. La dinámica de los precios de la gasolina en Colombia, su regulación y estructura tarifaria By Fabián Ricardo Martínez Cruz; Carlos Mateo Perilla Castañeda; Juan David Urquijo Vanegas
  69. New kid on the block? China vs the US in world oil markets By Jamie Cross; Bao H. Nguyen; Bo Zhang
  70. Republic of Poland; Financial Sector Assessment Program-Technical Note-Macroprudential Policy Framework By International Monetary Fund
  71. Enabling Deep Negative Rates to Fight Recessions: A Guide By Ruchir Agarwal; Miles Kimball
  72. Bhutan; Technical Assistance Report-Royal Monetary Authority-Steps Towards a Liquidity Forecasting and Management Framework By International Monetary Fund
  73. Weather Shocks By Ewen Gallic; Gauthier Vermandel
  74. Fiscal policy cyclicality in South Asian economies. By Pandey, Radhika; Patnaik, Ila
  75. The Effect of Emergency Liquidity Assistance (ELA) on Bank Leading during the Euro Area Crisis. By Stephen G. Hall; Heather D. Gibson; Pavlos Petroulas; George S. Tavlas
  76. Automation and occupational wage trends By Zachary Parolin
  77. Why private cryptocurrencies cannot serve as international reserves but central bank digital currencies can By Andrew Clark; Alexander Mihailov
  78. Republic of Uzbekistan; Technical Assistance Report-Fiscal Transparency Evaluation Update By International Monetary Fund
  79. Globalisation and Female Economic Participation in Sub-Saharan Africa By Asongu, Simplice; Efobi, Uchenna; Tanankem, Belmondo; Osabuohien, Evans
  80. Dampak Kepemilikan Asing terhadap Pasar Surat Berharga Negara (SBN) Indonesia By Mansur, Alfan; Al Arif, Munafsin
  81. Development of approaches to the assessment of welfare losses due to inflation in Russia By Sinelnikova-Muryleva, Elena (Синельникова-Мурылева, Елена)
  82. The IAB-INCHER project of earned doctorates (IIPED): A supervised machine learning approach to identify doctorate recipients in the German integrated employment biography data By Heinisch, Dominik; Koenig, Johannes; Otto, Anne
  83. Foreign Direct Investment (FDI) dynamics in India: what do ARIMA models tell us? By NYONI, THABANI; MUCHINGAMI, LOVEMORE
  84. Drivers of productivity in the Spanish banking sector: recent evidence By Christian Castro; Jorge E. Galán
  85. Intermediate Goods-Skill Complementarity By Kozo Kiyota; Yoshinori Kurokawa
  86. Negative interest rates, excess liquidity and retail deposits: banks’ reaction to unconventional monetary policy in the euro area By Demiralp, Selva; Eisenschmidt, Jens; Vlassopoulos, Thomas
  87. Online Appendix to "Accounting for Post-Crisis Inflation: A Retro Analysis" By Chiara Fratto; Harald Uhlig
  88. The turnaround of the Swedish economy: lessons from large business sector reforms By Fredrik Heyman; Pehr-Johan Norbäck; Lars Persson
  89. Regional resilience in China: The response of the provinces to the growth slowdown By Anping Chen; Nicolaas Groenewold
  90. Ethnic Diversity and Inequality in sub-Saharan Africa: Do Institutions Reduce the Noise? By Ajide, Kazeem; Alimi, Olorunfemi; Asongu, Simplice

  1. By: Fabio Canetg; Daniel Kaufmann
    Abstract: We identify the dynamic causal effects of interest rate floor shocks, exploiting regular auctions of Swiss central bank debt securities (SNB Bills). A theoretical model shows that variation in the volume of, and yield on, central bank debt changes the interest rate floor. In addition, the model establishes the equivalence between central bank debt and interest-bearing reserves when reserves are ample. Based on these insights, the empirical analysis identifies an interest rate floor shock in a dynamic event study of SNB Bill auctions. A restrictive interest rate floor shock causes an increase in the money market rate, a persistent appreciation of the Swiss franc, a decline in long-term interest rates, and a decline in stock prices. We then perform policy experiments under various identifying assumptions in which the central bank raises the interest rate floor from 0% to 0.25%. Such a policy change causes a 3-6% appreciation of the Swiss franc and a 5-20% decline in stock prices.
    Keywords: Exit strategies, interest rate floors, central bank debt securities, interest on reserves, monetary policy shocks, identification through heteroscedasticity
    JEL: E41 E43 E44 E52 E58 C32
    Date: 2019–05
  2. By: Jasper de Jong; Emmanuel de Veirman
    Abstract: We estimate the macroeconomic effects of changes in loan-to-value limits using an approach that involves the cross-sectional loan-to-value distribution and does not require that a limit is actually in place. We show that the effects are asymmetric and non-linear as tighter limits constrain a larger fraction of borrowers. Symmetry is a good approximation when the limit is tight but not at other points. We find that an increase in heterogeneity can substantially increase the effects of a change in loan-to-value caps. We document that if one abstracts from borrower heterogeneity, one understates the size of the effects of LTV limits when the limit lies above the average LTV.
    Keywords: Credit constraints; macroprudential policy; loan-to-value ratio
    JEL: C32 E21 E32 E44
    Date: 2019–05
  3. By: Saroj Bhattarai; Jae Won Lee; Woong Yong Park; Choongryul Yang
    Abstract: We study aggregate, distributional, and welfare effects of a permanent reduction in the capital tax rate in a dynamic equilibrium model with capital-skill complementarity. Such a tax reform leads to expansionary long-run aggregate effects, but is coupled with an increase in the skill premium. Moreover, the expansionary long-run aggregate effects are smaller when distortionary labor or consumption tax rates have to increase to finance the capital tax rate cut. An extension to a model with heterogeneous households shows that consumption inequality increases in the long-run. We study transition dynamics and show that short-run effects depend critically on the monetary policy response: whether the central bank allows inflation to directly facilitate government debt stabilization and how inertially it raises interest rates. Finally, we contrast the long-term aggregate welfare gains with short-term losses, as well as in the model with heterogeneous households, show that welfare gains for the skilled go together with welfare losses for the unskilled.
    Keywords: capital tax rate, permanent change in the tax rate, capital-skill complementarity, skill premium, inequality, transition dynamics, monetary policy response
    JEL: E62 E63 E52 E58 E31
    Date: 2019
  4. By: Pavon-Prado, David
    Abstract: Unlike the standard and erroneous practice of using the federal funds rate or another intermediate target to measure the monetary policy stance, a new procedure is developed using the actual Federal Reserve’s instruments and the spread between short-term rates and the discount rate. Accordingly, I estimate a time-varying coefficient Bayesian SVAR for the interwar period and 1958- 2007. The new technique unveils a new mechanism operating between Fed’s policies and the real economy. The results show that monetary policy was mostly irrelevant for the interwar period, but the situation changed after 1958. For this last case, however, the new mechanism, which focuses on the cost at which banks obtain reserves, explains that positive spreads between the federal funds rate and the discount rate contributed to increasing inflation, revealing that the “price puzzle” is non-existent.
    Keywords: Federal Reserve; monetary policy
    JEL: E58 E52 E51 E43
    Date: 2019–05
  5. By: Altavilla, Carlo; Brugnolini, Luca; Gürkaynak, Refet S.; Motto, Roberto; Ragusa, Giuseppe
    Abstract: We study the information flow from the ECB on policy dates since its inception, using tick data. We show that three factors capture about all of the variation in the yield curve but that these are different factors with different variance shares in the window that contains the policy decision announcement and the window that contains the press conference. We also show that the QE-related policy factor has been dominant in the recent period and that Forward Guidance and QE effects have been very persistent on the longer-end of the yield curve. We further show that broad and banking stock indices’ responses to monetary policy surprises depended on the perceived nature of the surprises. We find no evidence of asymmetric responses of financial markets to positive and negative surprises, in contrast to the literature on asymmetric real effects of monetary policy. Lastly, we show how to implement our methodology for any policy-related news release, such as policymaker speeches. To carry out the analysis, we construct the Euro Area Monetary Policy Event-Study Database (EA-MPD). This database, which contains intraday asset price changes around the policy decision announcement as well as around the press conference, is a contribution on its own right and we expect it to be the standard in monetary policy research for the euro area. JEL Classification: E43, E44, E52, E58, G12, G14
    Keywords: asymmetry, ECB policy surprise, event-study, intraday, persistence
    Date: 2019–05
    Abstract: This research uses annual time series data on inflation rates in The Gambia from 1962 to 2016, to model and forecast inflation using ARMA models. Diagnostic tests indicate that G is I(0). The study presents the ARMA (1, 0, 0) model [which is nothing but an AR (1) model]. The diagnostic tests further imply that the presented optimal ARMA (1, 0, 0) model is stable and indeed acceptable. The results of the study apparently show that G will be approximately 7.88% by 2020. Policy makers and the business community in The Gambia are expected to take advantage of the anticipated stable inflation rates over the next decade.
    Keywords: Forecasting; inflation; The Gambia
    JEL: C53 E31 E37 E47
    Date: 2019–05–06
    Abstract: This research uses annual time series data on inflation rates in the Kingdom of Eswatini from 1966 to 2017, to model and forecast inflation using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the H series is I (1). The study presents the ARIMA (0, 1, 1) model for predicting inflation in the Kingdom of Eswatini. The diagnostic tests further imply that the presented optimal model is actually stable and acceptable for predicting inflation in the Kingdom of Eswatini. The results of the study apparently show that inflation in the Kingdom of Eswatini is likely to continue on an upwards trajectory in the next decade. The study basically encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in the Kingdom of Eswatini.
    Keywords: Eswatini; forecasting; inflation
    JEL: C53 E31 E37 E47
    Date: 2019–05–06
    Abstract: This research uses annual time series data on inflation rates in Rwanda from 1967 to 2017, to model and forecast inflation over the next decade using ARMA models. Diagnostic tests indicate that W is I(0). The study presents the ARMA (3, 0, 0) model [which is nothing but an AR (3) model]. The diagnostic tests further imply that the presented optimal ARMA (3, 0, 0) model is stable and acceptable. The results of the study apparently show that W will be approximately 7.45% by 2020. Policy makers and the business community in Rwanda are expected to take advantage of the anticipated stable inflation rates over the next decade.
    Keywords: Forecasting; inflation; Rwanda
    JEL: C53 E31 E37 E47
    Date: 2019–05–07
  9. By: W. Similan Rujiwattanapong (Aarhus Universitet; Centre for Macroeconomics (CFM))
    Abstract: This paper investigates the impact of endogenous unemployment insurance (UI) extensions on the dynamics of unemployment and its duration structure in the US. Using a search and matching model with worker heterogeneity, I allow for the maximum UI duration to depend on unemployment and for UI benefits to depend on worker characteristics. UI extensions have a large effect on long-term unemployment during the Great Recession via job search responses and a moderate effect on total unemployment via job separations. Disregarding rational expectations about the timing of UI extensions implies an overestimation of the unemployment rate by over 2 percentage points.
    Keywords: Business cycles, Long-term unemployment, unemployment insurance, Unemployment duration, Rational expectations
    JEL: E24 E32 J24 J64 J65
    Date: 2019–05
  10. By: Régis Barnichon; Geert Mesters
    Abstract: Despite decades of research, the consistent estimation of structural forward looking macroeconomic equations remains a formidable empirical challenge because of pervasive endogeneity issues. Prominent cases |the estimation of Phillips curves, of Euler equations for consumption or output, or of monetary policy rules| have typically relied on using pre-determined variables as instruments, with mixed success. In this work, we propose a new approach that consists in using sequences of independently identified structural shocks as instrumental variables. Our approach is robust to weak instruments and is valid regardless of the shocks' variance contribution. We estimate a Phillips curve using monetary shocks as instruments and find that conventional methods (i) substantially under-estimate the slope of the Phillips curve and (ii) over-estimate the role of forward-looking inflation expectations.
    Keywords: structural equations, Instrumental Variables, impulse responses, robust inference
    JEL: C14 C32 E32 E52
    Date: 2019–05
  11. By: Carlo Altavilla; Miguel Boucinha; José-Luis Peydró
    Abstract: We analyse the impact of standard and non-standard monetary policy on bank profitability. We use both proprietary and commercial data on individual euro area bank balance-sheets and market prices. Our results show that a monetary policy easing – a decrease in short-term interest rates and/or a flattening of the yield curve – is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions. Accommodative monetary conditions asymmetrically affect the main components of bank profitability, with a positive impact on loan loss provisions and non-interest income offsetting the negative one on net interest income. A protracted period of low monetary rates has a negative effect on profits that, however, only materialises after a long time period and is counterbalanced by improved macroeconomic conditions. Monetary policy easing surprises during the low interest rate period improve bank stock prices and CDS.
    Keywords: bank profitability, monetary policy, lower bound, quantitative easing, negative rates
    JEL: E52 E43 G01 G21 G28
    Date: 2017–10
  12. By: Bram Gootjes; Jakob de Haan; Richard Jong-A-Pin
    Abstract: We examine whether fiscal rules constrain incumbent governments to use fiscal policy for re-election purposes. Using data on fiscal rules provided by the IMF for a sample of 77 (advanced and developing) countries over the 1984-2015 period, we find that after the Global Financial Crisis political budget cycles occur only in countries with weak fiscal rules. This conclusion is robust for the inclusion of other conditioning factors for political budget cycles identified in the literature (such as media freedom, the presence of checks and balances, and the maturity of democracy) and for controlling for the potential endogeneity of fiscal rules.
    Keywords: political budget cycles; fiscal policy; fiscal rules
    JEL: E62 H62
    Date: 2019–05
  13. By: Harold M. Hastings; Tai Young-Taft; Thomas Wang
    Abstract: Increases in the federal funds rate aimed at stabilizing the economy have inevitably been followed by recessions. Recently, peaks in the federal funds rate have occurred 6-16 months before the start of recessions; reductions in interest rates apparently occurred too late to prevent those recessions. Potential leading indicators include measures of labor productivity, labor utilization, and demand, all of which influence stock market conditions, the return to capital, and changes in the federal funds rate, among many others. We investigate the dynamics of the spread between the 10-year Treasury rate and the federal funds rate in order to better understand "when to ease off the (federal funds) brakes.""
    Keywords: Federal Funds Rate; Yield Curve; Monetary Policy; Nonlinear Dynamics; Takens' Embedding
    JEL: C40 C60 E17 E42 E52
    Date: 2019–05
  14. By: Arina Wischnewsky; David-Jan Jansen; Matthias Neuenkirch
    Abstract: This paper retraces how financial stability considerations interacted with U.S. monetary policy before and during the Great Recession. Using text-mining techniques, we construct indicators for financial stability sentiment expressed during testimonies of four Federal Reserve Chairs at Congressional hearings. Including these text-based measures adds explanatory power to Taylor-rule models. In particular, negative financial stability sentiment coincided with a more accommodative monetary policy stance than implied by standard Taylor-rule factors, even in the decades before the Great Recession. These findings are consistent with a preference for monetary policy reacting to financial instability rather than acting pre-emptively to a perceived build-up of risks.
    Keywords: monetary policy; financial stability; Taylor rule; text mining
    JEL: E52 E58 N12
    Date: 2019–05
  15. By: Farid Zulfigarov; Matthias Neuenkirch
    Abstract: We examine the relationship between oil price fluctuations and economic activity in Azerbaijan using vector autoregressive models for the period 2002Q1-2018Q4. Our key results are as follows. First, quarterly GDP growth decreases after oil price innovations in both, the oil and gas sector and in the remaining economy. Downturns (upswings) in the oil and gas sector also prompt downturns (upswings) in the non-oil sector as fluctuations in oil revenues affect the government's capacity to subsidize the remaining economy. Second, oil price innovations also lead to higher inflation in Azerbaijan. In response to the required tightening of monetary policy, the manat appreciates against the US dollar. Finally, GDP effects are primarily documented after oil price increases, whereas the interest rate and the exchange rate mainly react to decreases. Inflation increases after both types of shocks, either due to the accommodative monetary policy stance in the case of oil price decreases or due to the shock itself in the case of increases.
    Keywords: Azerbaijan, Dutch disease, natural resources, oil prices, vector autoregression
    JEL: E32 Q43
    Date: 2019
  16. By: Elien Meuleman; Rudi Vander Vennet (-)
    Abstract: This paper investigates the effectiveness of macroprudential policy to contain the systemic risk of European banks between 2000 and 2017. We use a new database (MaPPED) collected by experts at the ECB and national central banks with narrative information on a broad range of instruments which are tracked over their life cycle. Using a dynamic panel framework at a monthly frequency enables us to assess the impact of macroprudential tools and their design on the banks’ systemic risk both in the short and the long run. We furthermore decompose the systemic risk measure in an individual bank risk component and a systemic linkage component. This is of particular interest because microprudential policy focuses on the tail risk of an individual bank while macroprudential policy targets systemic risk by addressing the interlinkages and common exposures across banks. On average, all banks benefit from macroprudential tools in terms of their individual risk. We find that credit growth tools and exposure limits exhibit the most pronounced downward effect on the individual risk component. However, we find evidence for a risk-shifting effect which is more pronounced for retail-oriented banks. The effects are heterogeneous across banks with respect to the systemic linkage component. Liquidity tools and measures aimed at increasing the resilience of banks decrease the systemic linkage of banks. However, these tools appear to be most effective for distressed banks. Our results have implications for the optimal design of macroprudential instruments.
    Keywords: European banks, macroprudential policy, systemic risk
    JEL: E58 G18 G28
    Date: 2019–05
  17. By: Charles Gaa; Xuezhi Liu; Cameron MacDonald; Xiangjin Shen
    Abstract: The stability of the Canadian financial system, as well as its ability to support the Canadian economy, depends on the ability of financial institutions to absorb and manage major shocks. This is especially true for large banks, which perform services essential to the Canadian economy.
    Keywords: Financial Institutions; Financial stability
    JEL: C63 E27 E37 E44 G01 G21
    Date: 2019–05
  18. By: David Kiefer, Ivan Mendieta-Munoz, Codrina Rada, Rudiger von Arnim
    Abstract: This paper contributes to the literature on secular stagnation by estimating a measure of potential output growth for the post-war US economy derived from a novel model specification that allows for the cyclical interactions between income distribution, represented by the trajectory of the labor share of income, and economic activity, as measured by capacity utilization. The results obtained show that potential output growth exhibits a gradual decline that predates the Great Recession and follows the downward trajectory of the labor share of income, thus suggesting the existence of an important long-run relationship between income distribution and output growth in the USA.
    Keywords: Potential output growth, capacity utilization, income distribution, labor share, US economy.
    JEL: B50 E12 E25 O40
    Date: 2019
  19. By: Charles Gaa; Xuezhi Liu; Cameron MacDonald; Xiangjin Shen
    Abstract: La stabilité du système financier canadien et son rôle de pilier de l’économie du pays tiennent à la capacité des institutions financières à absorber et à gérer les chocs majeurs. Cela est particulièrement vrai pour les grandes banques, dont les services sont essentiels à l’économie canadienne.
    Keywords: Institutions financières; Stabilité financière
    JEL: C63 E27 E37 E44 G01 G21
    Date: 2019–05
  20. By: Aakriti Mathur (IHEID, Graduate Institute of International and Development Studies, Geneva); Rajeswari Sengupta (Indira Gandhi Institute of Development Research (IGIDR));
    Abstract: In this paper we quantitatively analyse monetary policy statements of the Reserve Bank of India (RBI) from 1998 to 2017, across the regimes of five governors. We first ask whether the content and focus of the statements have changed with the adoption of inflation-targeting as a framework for conducting monetary policy. Next, we study the influence of various aspects of monetary policy communication on financial markets. Using natural language processing tools, we construct measures of linguistic and structural complexity that capture governor-specific trends in communication. We find that while RBI’s monetary policy communication is linguistically complex on average, the length of monetary policy statements has gone down and readability has improved significantly in the recent years. We also find that there has been a persistent semantic shift in RBI’s monetary policy communication since the adoption of inflation-targeting. Finally, using a simple regression model we find that lengthier and less readable statements are linked to both higher trading volumes and higher returns volatility in the equity markets, though the effects are not persistent.
    Keywords: Monetary policy, central bank communication, linguistic complexity, financial markets, textual analysis, natural language processing
    JEL: E52 E58 G12 G14
    Date: 2019–05–22
  21. By: Kevin Clinton; R. S Craig; Douglas Laxton; Hou Wang
    Abstract: Adoption of inflation targeting by the Bank of Korea (BOK) in 1998 contributed to low and stable inflation. However, after the global financial crisis (GFC) monetary policy faced more challenging conditions. Inflation slipped below the target range in 2012 and remains below it despite a cut in the target to 2 percent in 2016. Policy also became more complex with the addition of financial stability to the central bank’s mandate. To address these challenges, this paper proposes a two-pronged approach to strengthen the effectiveness with which monetary policy can meet its objectives: first, enhanced communication on how the target will be achieved over the medium-term, building on a forecasting and policy analysis system; and, second, by clarifying the complementary role of macroprudential policy in containing financial stability risks so that monetary policy can focus on the inflation target. Simulation of a macro model calibrated to Korea illustrates how it can be used to provide this greater medium-term focus on achieving the inflation target and strengthen communication.
    Date: 2019–05–10
  22. By: Angelini, Giovanni; Fanelli, Luca
    Abstract: We provide necessary and sufficient conditions for the identification of Structural Vector Autoregressions (SVARs) with external instruments, considering the case in which r instruments are used to identify g structural shocks of interest, r>=g>=1. Novel frequentist estimation methods are discussed by considering both a partial shocks identification strategy, where only g structural shocks are of interest and are instrumented, and in a full shocks identification strategy, where despite g structural shocks are instrumented, all n structural shocks of the system can be identified under certain conditions. The suggested approach is applied to empirically investigate whether financial and macroeconomic uncertainty can be approximated as exogenous drivers of U.S. real economic activity, or rather as endogenous responses to first moment shocks, or both. We analyze whether the dynamic causal effects of non-uncertainty shocks on macroeconomic and financial uncertainty are signicant in the period after the Global Financial Crisis.
    Keywords: Exogenous Uncertainty, External Instruments, Identification, proxy-SVAR, SVAR.
    JEL: C32 C51 E44 G10
    Date: 2018–05
  23. By: Olkhov, Victor
    Abstract: This paper presents applications of our theory to description of particular economic problems. We give all definitions and equations in Part I and II of our work. Here we argue propagation of small perturbations of economic variables and transactions on economic space. We show that small perturbations may follow wave equations that have parallels to propagation of sound waves and surface waves in fluids. We underline that nature of economic waves is completely different from waves in physical fluids but parallels between them may be useful for their studies. Wave generation, propagation and interactions are the most general properties of any complex system. Descriptions of economic waves on economic space fill existing gap in economic modeling. Usage of economic space allows distribute agents by their risk ratings as coordinates. Agents on economic space cover economic domain bounded by minimum and maximum risk grades. Change of risk ratings of agents due to their economic activity, economic processes or other factors induce flows of economic variables, transactions and expectations. Borders of economic domain cause fluctuations of economic flows and mean risks and these fluctuations describe business cycles. For example fluctuations of credit flows model credit cycles, investment flows model investment cycles and etc. Further we model assets price disturbances as consequences of relations between transactions and expectations. As last economic sample we argue classical Black-Scholes-Merton option pricing model and discuss problems those arise from modeling on economic space.
    Keywords: Economic Theory, Economic Waves, Business Cycles, Assets Pricing, Option pricing
    JEL: C0 C4 C5 E32 G0 G12
    Date: 2019–05–21
  24. By: Ettore Gallo (Department of Economics, New School for Social Research)
    Abstract: This paper reviews and empirically tests the validity and policy conclusions of the Sraffian Supermultiplier model (SSM) and the modified Neo-Kaleckian model after the inclusion of autonomous components of aggregate demand. First, we theoretically assess whether the SSM may constitute a complex variant of the Neo-Kaleckian model. In this sense, it is shown that results compatible with the SSM can be obtained by implementing a set of mechanisms in a modified Neo-Kaleckian model. Second, the paper empirically tests the main implications of the models in the Euro Area, based on Eurostat data. In particular, the discussion outlines the short and long-run relation between autonomous demand and output, by testing cointegration and causality with a VECM model. Moreover, the role accounted by both theories to the rate of capacity utilization is empirically assessed, through a time-series estimation of the Sraffian and Neo-Kaleckian investment functions. While confirming the theoretical relation between autonomous demand and output in the long run, the results show that capacity utilization still plays a key role in the short-run adjustment mechanism. Therefore, admitting that Keynesian results may hold even after the traverse, our work suggests to be Kaleckian in the short run and Sraffian in the long run.
    Keywords: Distribution, effective demand, Eurozone, growth, Neo-Kaleckian, Sraffian, Supermultiplier
    JEL: B51 E11 E12 O41 O47 O52
    Date: 2019–05
  25. By: Rémi Bazillier (Centre d'Economie de la Sorbonne, Université Paris1 Panthéon-Sorbonne); Jérôme Héricourt (Université de Lille, LEM-CNRS (UMR9221) and CEPII); Samuel Ligonnière (Université de Lille, LEM-CNRS (UMR9221) and Ecole Normale Supérieure Paris-Saclay)
    Abstract: How does income inequality and its structure affect credit? We extend the theoretical framework by Kumhof et al. (2015) to distinguish between upper, middle and low-income classes, and show that most of the positive impact of inequality on credit predicted by Kumhof et al. (2015) should be driven by the share of total output owned by the middle classes. Consistently, this impact should weaken in countries where financial markets are insufficiently developed. These theoretical predictions are empirically confirmed by a study based on a 41-country dataset over the period 1970-2014, where exogenous variations of inequality are identified with a new instrument variable, the total number of ILO conventions signed at the country-level
    Keywords: Credit; Finance; Income Inequality; Inequality structure
    JEL: D31 E25 E44 G01
    Date: 2019–02
  26. By: Yannis Dafermos; Maria Nikolaidi
    Abstract: Fiscal policy has a strong role to play in the transition to an ecologically sustainable economy. This paper critically discusses the way that green fiscal policy has been analysed in both conventional and post-Keynesian approaches. It then uses a recently developed post-Keynesian ecological macroeconomic model in order to provide a comparative evaluation of three different types of green fiscal policy: carbon taxes, green subsidies and green public investment. We show that (i) carbon taxes reduce global warming but increase financial risks due to their adverse effects on the profitability of firms and credit availability; (ii) green subsidies and green public investment improve ecological efficiency, but their positive environmental impact is partially offset by their macroeconomic rebound effects; and (iii) a green fiscal policy mix derives better outcomes than isolated policies. Directions for future heterodox macroeconomic research on the links between fiscal policy and ecological sustainability are suggested.
    Keywords: post-Keynesian economics, ecological economics, green fiscal policy, stock-flow consistent modelling
    JEL: E12 E62 Q54 Q57
    Date: 2019–05
    Abstract: The debate on the nexus between economic growth and inflation is generally inconclusive and yet inevitably interesting. This study makes a contribution to the existing debate by empirically investigating the relationship between inflation and economic growth in the context of Zimbabwe. Using time series data spanning from 1960 up to 2017, the study employs the Engle – Granger Two Step modeling technique in order to analyze the relationship between inflation and economic growth in Zimbabwe. Our findings indicate that there is a negative and statistically significant relationship between inflation and economic growth both in the short – run and long – run. The speed of adjustment to equilibrium is approximately 62% annually when the variables wander away from their equilibrium values. Amongst other policy prescriptions, the study recommends inflation targeting policy in order to stimulate growth while maintaining price stability in Zimbabwe.
    Keywords: Cointegration; economic growth; Error Correction Mechanism (ECM); inflation; Zimbabwe
    JEL: E31 E37
    Date: 2019–05–08
  28. By: Bernardino, Tiago
    Abstract: We argue that the relationship between wealth inequality and fiscal multipliers depends crucially on the type of fiscal experiment used as well as on the measure of the wealth distribution. We calibrate an incomplete-markets, overlapping generations model to different European economies and use Household Finance and Consumption Survey (HFCS) data to compare fiscal multipliers when models are calibrated to match the distribution of liquid vs. net wealth. We find a negative relationship between fiscal multipliers and wealth inequality when considering fiscal consolidation programs, in contrast to fiscal expansions experiments which are standard in the literature. The underlying mechanism relies on the relationship between the distribution of wealth and the share of credit constrained agents. We examine the role of households’ balance sheet compositions regarding asset liquidity and find that when calibrating the model to match liquid wealth, the relationship between wealth inequality and fiscal multipliers is much stronger.
    Keywords: Fiscal Consolidation, Wealth Inequality, Fiscal Multipliers, Consumption Smoothing Hypothesis
    JEL: E21 E62 H31 H63
    Date: 2019–01
  29. By: Előd Takáts; Judit Temesvary
    Abstract: We combine a rarely accessed BIS database on bilateral cross-border lending flows with cross-country data on macroprudential regulations. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant interactions. Tighter macroprudential policy in a home country mitigates the impact on lending of monetary policy of a currency issuer. For instance, macroprudential tightening in the UK mitigates the negative impact of US monetary tightening on USD-denominated cross-border bank lending outflows from UK banks. Vice-versa, easier macroprudential policy amplifies impacts. The results are economically significant.
    Keywords: monetary policy, macroprudential policy, cross-border claims, diff-in-diff analysis
    JEL: F34 F42 G21 G38
    Date: 2019–05
  30. By: Fatás, Antonio; Ghosh, Atish; Panizza, Ugo; Presbitero, Andrea
    Abstract: Governments issue debt for good and bad reasons. While the good reasons-intertemporal tax-smoothing, fiscal stimulus, and asset management-can explain some of the increases in public debt in recent years, they cannot account for all of the observed changes. Bad reasons for borrowing are driven by political failures associated with intergenerational transfers, strategic manipulation, and common pool problems. These political failures are a major cause of overborrowing. Budgetary institutions and fiscal rules can play a role in mitigating governments' tendencies to overborrow. While it is difficult to establish a clear causal link from high public debt to low output growth, it is likely that some countries pay a price-in terms of lower growth and greater output volatility-for excessive debt accumulation.
    Keywords: Fiscal policy; political economy; public debt
    JEL: E62 H62 H63 P16
    Date: 2019–05
  31. By: Martin Geiger (Liechtenstein-Institut); Jochen Güntner
    Abstract: We investigate how oil supply shocks are transmitted to U.S. economic activity, consumer prices, and interest rates. Using a structural VAR approach with a combination of sign and zero restrictions, we distinguish between supply and demand channels in the transmission of exogenous changes in crude oil production. We nd that the adverse e ects of negative oil supply shocks are transmitted mainly through the demand side, as both output and interest rates react more strongly to oil supply shocks that shift the U.S. aggregate demand curve, while the supply side matters in transmitting oil supply shocks to consumer prices.
    Keywords: Business cycles, oil supply shocks, structural VAR estimation, transmission channels
    JEL: C32 E30 Q41 Q43
    Date: 2019–05
  32. By: Blanco-Arroyo, Omar; Ruiz-Buforn, Alba; Vidal-Tomás, David; Alfarano, Simone
    Abstract: Following the approach proposed by Gabaix (2011), this paper aims to assess the existence of granularity in the business cycle fluctuations of the following Spanish regions: the Community of Madrid, Catalonia, the Basque Country and the Valencian Community. Granular firms are those that represent a marginal proportion of the total number of firms in an economy, but nevertheless have a significant impact on fluctuations in the GDP growth rate. We find that the Basque Country and the Valencian Community are granular economies. The Community of Madrid and Catalonia, however, do not show granular behaviour. Therefore, our work provides evidence of granular behaviour at the regional level.
    Keywords: granularity; granular firms; idiosyncratic shocks; aggregate fluctuations; regions
    JEL: C20 E32
    Date: 2019–05–11
  33. By: Owyang, Michael T. (Federal Reserve Bank of St. Louis); Piger, Jeremy M. (University of Oregon); Soques, Daniel (University of North Carolina Wilmington)
    Abstract: In this paper, we analyze the propagation of recessions across countries. We construct a model with multiple qualitative state variables that evolve in a VAR setting. The VAR structure allows us to include country-level variables to determine whether policy also propagates across countries. We consider two different versions of the model. One version assumes the discrete state of the economy (expansion or recession) is observed. The other assumes that the state of the economy is unobserved and must be inferred from movements in economic growth. We apply the model to Canada, Mexico, and the U.S. to test if spillover effects were similar before and after NAFTA. We find that trade liberalization has increased the degree of business cycle propagation across the three countries.
    Keywords: time varying transition probabilities; NAFTA; business cycle synchronization
    JEL: C32 E32
    Date: 2019–05–13
  34. By: International Monetary Fund
    Abstract: Korea’s economy has strong fundamentals, but is facing cyclical and structural headwinds. Growth is projected to moderate to around 2.6 percent in 2019, reflecting weaker export growth and investment. Internal demand will be supported by fiscal policy. The output gap is negative and inflation pressures are weak. The current account surplus narrowed, but is expected to remain elevated in 2019. Potential growth will continue its decline, and polarization and inequality are concerns. Labor and product market duality persist. The government is focusing on supporting income, creating jobs, and promoting innovation.
    Date: 2019–05–13
  35. By: International Monetary Fund
    Abstract: Paraguay has grown rapidly in the past decade and a half, the result of a bounce-back from a crisis in the late 1990s, good macro-policies, and a boom in agricultural commodity prices, which spilled over to the non-tradable sector. Poverty has fallen sharply, from 58 percent in 2002 to 26 percent currently, although it remains one of the highest in Latin America. GDP grew by around 3¾ percent in 2018, despite spill-overs of the Argentine crisis, which resulted in a sharp appreciation of the guaraní vis-à-vis the peso and the real. GDP growth in 2019 is projected to be around 3½ percent as a drought early in the planting season is affecting the soybean harvest. Inflation is within the central bank target range.
    Date: 2019–04–30
  36. By: Perevyshin, Yuriy (Перевышин, Юрий) (The Russian Presidential Academy of National Economy and Public Administration); Petrova, Diana (Петрова, Диана) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: Inflation expectations of economic agents play a key role in the efficiency of monetary policy conducted by a central bank. In this study we obtained estimates of inflation expectations based on the government bonds yields. We also developed methodology for conducting a population survey on the perceived and expected change in prices, and summarized results of the first such survey. After that we simulated the effects of the monetary policy shock with various methods of inflation expectations formation. Finally, we assessed the degree of confidence in the actions and policies of the Bank of Russia by households and the expert community.
    Date: 2019–04
  37. By: Gabriel Jiménez; Atif Mian; José-Luis Peydró; Jesús Saurina
    Abstract: We study bank credit booms, exploiting the Spanish matched credit register over 2001-2009. We extend Khwaja and Mian (2008)’s loan-level estimator by incorporating firm-level general equilibrium adjustments. Higher ex-ante bank real-estate exposure increases credit supply to non-real-estate firms, but effects are neutralized by firm-level adjustments for firms with existing banking relationships. However, higher bank real-estate exposure increases risk-taking, by relaxing standards of existing borrowers (cheaper, longer-term and less collateralized credit), and by expanding credit on the extensive margin to first-time borrowers that default substantially more. Results suggest that the mechanism at work is greater liquidity via securitization of real-estate assets.
    Keywords: bank lending channel, real effects of credit, credit supply booms, real estate, securitization
    JEL: E32 E44 G01 G21 G28
    Date: 2019–04
    Abstract: Using annual time series data on GDP per capita in Botswana from 1960 to 2017, the study analyzes GDP per capita using the Box – Jenkins ARIMA methodology. The diagnostic tests such as the ADF tests show that Botswana GDP per capita data is I (1). Based on the AIC, the study presents the ARIMA (3, 2, 3) model. The diagnostic tests further show that the presented model is not only stable but also suitable. The results of the study indicate that living standards in Botswana will definitely continue to improve over the next decade. Indeed, Botswana’s success story is a reality. The study offers 4 policy recommendations in an effort to help policy makers in Botswana on how to promote and maintain the much needed better living standards for all Batswana.
    Keywords: Botswana; forecasting; GDP per capita
    JEL: C53 E37 O47
    Date: 2019–05–06
  39. By: Contreras, Alex; Gondo, Rocío; Oré, Erick; Pérez, Fernando (Banco Central de Reserva del Perú)
    Abstract: Este trabajo evalúa el impacto de las medidas que el BCRP implementó entre 2013 y 2016. Nuestros resultados muestran que, a pesar de la existencia de una ligera tendencia a la baja en los indicadores de dolarización del crédito antes de su implementación, el ritmo de desdolarización se aceleró luego de la adopción de las medidas de política anteriormente mencionadas, especialmente luego del anuncio a inicios de 2015. Se encuentra evidencia que señala que desde el anuncio del primer paquete de medidas, 6 de los 10 puntos porcentuales de reducción en el grado de dolarización del crédito está asociado a la implementación del Programa de Desdolarización. A diferencia del impacto homogéneo de las medidas de 2015 en adelante en todos los segmentos de crédito, las medidas de 2013 afectaron principalmente ciertos segmentos tales como corporativos y empresas pequeñas. Asimismo, se identifica un efecto heterogéneo por tamaño del crédito, donde los bancos prefirieron sustituir los préstamos de mayor tamaño de moneda extranjera a moneda doméstica.
    Keywords: credit dollarization, macroprudential policies, credit register data.
    JEL: E58 G21 G28
    Date: 2019–04
  40. By: Anders Rygh Swensen; Pål Boug; Ådne Cappelen; Eilev S. Jansen (Statistics Norway)
    Abstract: We formulate a general cointegrated vector autoregressive (CVAR) model that nests both a class of consumption Euler equations and various Keynesian type consumption functions. Using likelihoodbased methods and Norwegian data, we find support for cointegration between consumption, income and wealth once a structural break around the financial crisis is allowed for. That consumption cointegrates with both income and wealth and not only with income points to the empirical irrelevance of an Euler equation. Moreover, we find that consumption equilibrium corrects to changes in income and wealth and not that income equilibrium corrects to changes in consumption, which would be the case if an Euler equation is true. We also find that most of the parameters stemming from the class of Euler equations are not corroborated by the data when considering conditional expectations of future consumption and income in CVAR models. Only habit formation seems important in explaining the Norwegian consumer behaviour. Our preferred model is a dynamic Keynesian type consumption function with a first year marginal propensity to consume out of income close to 25 per cent.
    Keywords: Consumption Euler equation; Keynesian consumption function; financial crisis; structural break; conditional expectations
    JEL: C51 C52 E21
    Date: 2019–04
  41. By: Yaya, OlaOluwa S; Ogbonna, Ahamuefula; Mudida, Robert
    Abstract: We investigate unit root in the unemployment rates of 42 African countries. The essence is to clarify if the hypothesis of hysteresis holds or unemployment rate is dubbed as having natural rate, that is, stationarity. Having considered a novel approach that considers the nonlinear Fourier and a structural break in the unit root testing framework, we find the classical unit root test wrongly accepting the hysteresis hypothesis of unemployment rate in selected African countries more than 60% of the cases. Meanwhile, our approach finds fewer cases of hysteresis in the unemployment rate than initially detected by the conventional classical test: the hysteresis hypothesis is found to hold in only 7 countries (Algeria, Botswana, Cabo Verde, Congo DR, Guinea-Bissau, Liberia and Tanzania) out of the 42 African countries. This implies that with the exception of the seven countries mentioned, shocks to unemployment will be transitory and strong policy action will not be required to address unemployment challenges. This suggests that hysteresis effects will be offset in overall since these are concentrated in smaller African economies and portends for a faster recovery to shocks in the broader African context. Robustness check proves the superiority of the Fourier unit root tests with structural break over other lower alternatives.
    Keywords: Africa; Fourier function; Hysteresis hypothesis; Structural breaks; Natural rate of unemployment; Unemployment rate; Unit root test
    JEL: C22 E2 E24 J4 J6 J64
    Date: 2019–02
  42. By: Chong-En Bai; Chang-Tai Hsieh; Zheng Michael Song
    Abstract: Chinese local governments wield their enormous political power and administrative capacity to provide “special deals” for favored private firms. We argue that China’s extraordinary economic growth comes from these special deals. Local political leaders do so because they derive personal benefits, either political or monetary, from providing special deals. Competition between local governments limits the predatory effects of special deals.
    JEL: E02 F00 N00 P0
    Date: 2019–05
  43. By: Georges Prat; David Le Bris
    Abstract: We consider a representative investor whose wealth is shared between a replica of the equity market portfolio and the riskless asset, and who maximizes the expected utility of their future wealth. For a given time-horizon, the solution of this program equalizes the required risk premium to the product of price of risk by the expected variance of stock returns. As a tentative to capture exogenous disturbing effects, the term spread of interest rates and US equity risk premia complement this relationship. Two traditional horizons are considered: the one-period-ahead horizon characterizing the ‘short-term’ investor and the infinite-time horizon characterizing the ‘long-term’ investor. For each horizon, expected returns are represented by mixing the three traditional adaptive, extrapolative and regressive process, expected variance is represented by a GARCH process, while the unobservable time-varying price of risk is estimated according to the Kalman filter methodology. Based on annual French data established by Le Bris and Hautcoeur (2010), large disparities in the dynamics of the short- and long term observed premia are evidenced from 1872 to 2018, while, due to risky arbitrage and transaction costs, the observed premia appeared to gradually converge towards their required values. Overall, although the French market had experienced very strong historical shocks, our model provides both measurements and explanations of French short- and long-term risk premia and so shed some additional light on the existence of a time-varying term structure of equity risk premia. Despite differences, results on the French market are rather in accordance with those by Prat (2013) based on US secular data.
    Keywords: equity risk premium, time horizon, France
    JEL: D81 D84 E44 G11 G12
    Date: 2019
  44. By: De Grauwe, Paul; Foresti, Pasquale; Ji, Yuemei
    Abstract: We introduce fiscal policies into a behavioral macroeconomic model. We show how animal spirits play an important role in the dynamics of the business cycle and of public debt. These animal spirits are able to generate different sizes of fiscal multipliers depending on the state of the economy. Depending on the interest rate regime (high or low), they affect the capacity of fiscal authorities to stabilize the economy. In the high interest rate regime the fiscal authorities face a steep trade-off between output stabilization and the stabilization of public debt, i.e. attempts to stabilize the business cycle quickly hit a limitation of debt sustainability. In the low interest rate regime, when the steady state interest rate is lower than the growth rate of the economy, the use of fiscal policy as a tool of output stabilization is made considerably stronger.
    Keywords: Fiscal Multiplier; Fiscal policy; low and high interest rate regimes; public debt sustainability; tradeoffs
    Date: 2019–05
  45. By: Mansur, Alfan
    Abstract: Barangkali di benak semua orang Indonesia, krisis moneter 1998 dan krisis keuangan 2008 merupakan dua episode krisis yang paling diingat. Tidak hanya di sektor ekonomi dan keuangan, dua periode krisis tersebut juga diwarnai keterkaitan dengan kejadian politik yang sepertinya lebih menyebabkan gaduh dibandingkan dengan dampak krisis terhadap sektor ekonomi itu sendiri. Jarak waktu antara kedua krisis tersebut adalah 10 tahun. Tulisan ini berusaha menjawab pertanyaan benarkah bahwa krisis memiliki siklus 10 tahunan? Hasil analisis menunjukkan bahwa tidak ditemukan bukti yang cukup untuk mengatakan bahwa krisis memiliki siklus 10 tahunan. Selain itu, fundamental ekonomi dan sistem keuangan Indonesia sudah jauh lebih baik dibanding 20 atau 10 tahun yang lalu. Kita tidak pernah tahu apa yang akan terjadi ke depan, terutama dinamika shocks yang akan muncul termasuk dari sisi geopolitik. Namun, kita dapat mempersiapkan diri sebaik mungkin dan sejauh ini Indonesia sudah jauh lebih siap apabila terjadi hal – hal yang tidak diinginkan pada sistem keuangan kita.
    Keywords: krisis, ekonomi, siklus, sistem keuangan
    JEL: E44 G01
    Date: 2017–12–08
  46. By: Elie Bouri (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon); Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Xiaojin Sun (Department of Economics and Finance, University of Texas at El Paso, El Paso, TX 79968, USA)
    Abstract: This paper explores the role of business cycle proxies, measured by the output gap at the global, regional and local levels, as potential predictors of stock market volatility in the emerging BRICS nations. We observe that the emerging BRICS nations display a rather heterogeneous pattern when it comes to the relative role of idiosyncratic factors as a predictor of stock market volatility. While domestic output gap is found to capture significant predictive information for India and China particularly, the business cycles associated with emerging economies and the world in general are strongly important for the BRIC countries and weakly for South Africa, especially in the post-global financial crisis era. The findings suggest that despite the increase in the financial integration of world capital markets, emerging economies can still bear significant exposures to idiosyncratic risk factors, an issue of high importance for the profitability of global diversification strategies.
    Keywords: Stock Market Volatility, Business Cycles, BRICS, Forecasting
    JEL: C22 C53 E32 G10
    Date: 2019–05
  47. By: Yosef Bonaparte; Russell Cooper; Mengli Sha
    Abstract: Barber and Odean study the relationship between trading activity and returns. They find that households who trade more have a lower net return than other households. They argue that these results cannot emerge from a model with rational traders and instead attribute these findings to overconfidence. In contrast, we find that household financial choices generated from a dynamic optimization problem with rational agents and portfolio adjustment costs can produce trading and return patterns that closely mimic these facts. Adding various forms of irrationality, modelled as beliefs about income and return processes that are not data based, do not improve the ability of the model to explain the patterns of turnover and net returns. Irrationality can improve the ability of the model to match a larger set of moments, including these turnover and net return moments coupled with those that capture the wealth to income ratio and portfolio composition.
    JEL: E21 G11
    Date: 2019–05
  48. By: William Gbohoui; W. Raphael Lam; Victor Duarte Lledo
    Abstract: Growing regional inequality within countries has raised the perception that “some places and people” are left behind. This has prompted a shift toward inward-looking policies and away from pro-growth reforms. This paper presents novel stylized facts on regional inequality for OECD countries. It shows that regional disparity in per-capita GDP is large (even after adjusting for regional price differences), persistent, and widening over time. The paper also finds that rising nationwide income inequality is associated with both rising within-region income inequality and widening average income across regions. The rise in inequality is related to declining incentives for interregional labor mobility, especially for poor households in lagging regions, which are estimated to reduce by as much as one-third in the United States. Against these facts, the paper proposes a framework to identify whether, how and by whom fiscal policies can be used to tackle regional inequality. It outlines conditions under which those policies should be spatially-targeted and illustrates how they can be complementary to conventional means-testing methods in mitigating income inequality.
    Date: 2019–05–02
  49. By: International Monetary Fund
    Abstract: Supported by very strong policy frameworks and well-executed policies, Colombia’s recovery strengthened. The demand-led pick-up in growth is moving the economy toward internal balance but away from external balance. Looking ahead, without additional tax revenues and increased spending efficiency the fiscal tightening required by the fiscal rule will exert pressure to cut key public spending. The recovery is gaining momentum and external imbalances have widened. Despite weaker-than-expected external demand, activity should accelerate in 2019. Rebounding investment, continued policy support, and substantial migration from Venezuela are expected to lift growth to 3.6 percent while the current account deficit is expected to remain wide. Inflation is projected to remain close to target.
    Date: 2019–04–29
  50. By: Francois Gerard; Joana Naritomi
    Abstract: The most common forms of government-mandated job displacement insurance are Severance Pay (SP; lump-sum payments at layoff) and Unemployment Insurance (UI; periodic payments contingent on non-employment). While there is a vast literature on UI, SP programs have received much less attention, even though they are prevalent across countries and predominant in developing countries. In particular, little is known about their insurance value, which critically relies on workers’ ability to dissave the lump-sum progressively to smooth consumption after layoff. Using de-identified high-frequency expenditure data and matched employee-employer data from Brazil, we find that displaced workers eligible for both UI and SP increase consumption at layoff by 35% despite experiencing a 17% consumption loss after they stop receiving any benefits. Moreover, this sensitivity of consumer spending to cash-on-hand is present across spending categories and sources of variation in UI benefits and SP amounts. We show that a simple structural model with present-biased workers can rationalize our findings, and we use it to illustrate their implications for the incentive-insurance trade-off between SP and UI. Specifically, the insurance value of SP programs – or of other policies that provide liquidity to workers at layoff – can be severely reduced when consumption is over-sensitive to the timing of benefit disbursement, undermining their advantage in terms of job-search incentives. Our findings highlight the importance of the difference between SP and UI in their disbursement policy, and shed new light on the need for job displacement insurance in a developing country context.
    Keywords: unemployment insurance, severance pay, consumption, Brazil
    JEL: E21 E26 J65
    Date: 2019
  51. By: Lodge, David; Manu, Ana-Simona
    Abstract: This paper provides a quantitative assessment of the relative importance of global structural shocks for changes in financial conditions across a sample of emerging market economies. We disentangle four key drivers of global financial markets (oil supply shocks, global economic news shocks, US-specific economic news shocks and US monetary shocks) and show that these global factors account for about half of the variation in risky asset prices across EMEs. The influence of global factors for EME interest rates and currencies is much smaller, suggesting that factors beyond the identified global shocks (e.g. domestic or regional shocks) might be more important. In contrast to the recent literature on the global financial cycle which has emphasised the prominent role of US monetary policy, we find that although US monetary shocks have some influence in shaping EME financial markets, the broader global environment plays a significantly stronger role. JEL Classification: E44, E52, G15
    Keywords: asset prices, emerging markets, financial conditions, global shocks, international financial markets, spillovers
    Date: 2019–05
  52. By: Beetsma, Roel; Chen, Damiaan; van Wijnbergen, Sweder
    Abstract: Pension schemes generally aim to protect the purchasing power of their participants, but cannot completely do this when due to market incompleteness inflation risk cannot be fully hedged. Without a market price for inflation risk the value of a pension contract depends on the investor's risk appetite and inflation risk exposure. We develop a valuation framework to deal with two sources of unhedgeable inflation risk: the absence of instruments to hedge general consumer price inflation risk and differences in group-specific consumption bundles from the economy-wide bundle. We find that the absence of financial instruments to hedge inflation risks may reduce lifetime welfare by up to 6% of certainty-equivalent consumption for commonly assumed degrees of risk aversion. Regulators face a dilemma as young (workers) and old participants (retirees) have different capacities to absorb losses from unhedgeable inflation risks and as a consequence have a different risk appetite.
    Keywords: incomplete markets; pension contract; Unhedgeable inflation risk; Valuation; welfare loss
    JEL: C61 E21 G11 G23
    Date: 2019–05
  53. By: International Monetary Fund
    Abstract: A technical assistance (TA) mission visited Antananarivo, Madagascar, from July 2–13, 2018, to provide assistance in the external sector statistics (ESS), including the balance of payments and international investment position (IIP). The mission was conducted in the context of an initiative financed by the Financial Sector Stability Fund (FSSF) –Balance Sheet Approach (BSA) submodule, which involves intersectoral work for the production of more reliable BSA matrices to support macroprudential policy, analysis of the country’s financial stability, and International Monetary Fund (IMF) surveillance.
    Date: 2019–04–30
  54. By: International Monetary Fund
    Abstract: Macao SAR is the largest casino center in the world and gaming tourism drives its growth. While more moderate than in the past, gaming and tourism revenue picked up as the economy returned to expansion since mid-2016. Growth then moderated in the second half of 2018, including due to spillovers from the Mainland’s deleveraging effort and U.S.-China trade tensions. Diversification efforts continue as gaming activities still amount to almost half of GDP.
    Date: 2019–05–06
  55. By: Niels Gilbert
    Abstract: We study the dynamics of sovereign risk spillovers from (and between) Spain and Italy, before and after the ECB's announcement of the OMT program. We identify domestic Italian and Spanish sovereign risk shocks through an intraday event study. The shocks are used as external instruments in bilateral, daily, local projection regressions. Prior to the announcement of the OMT, changes in the Spanish and, to a lesser extent, Italian spread spilled over to many other euro area member states, and also affected the euro-dollar exchange rate. Peak effects generally materialized after 2-3 days. Since the OMT announcement, spillovers to non-crisis, non-safe haven countries have disappeared. Some spillovers among crisis countries persist, but are smaller and shorter-lived than before. Overall, our results are consistent with the view that the OMT, through eliminating equilibrium multiplicity, has largely stopped contagion.
    Keywords: Sovereign risk; contagion; narrative identification; local projections; OMT
    JEL: C53 E44 F36 G01 G15
    Date: 2019–05
  56. By: Khorunzhina, Natalia
    Abstract: Using the data on maintenance expenditures and self-assessed house value, I separate the measure of individual housing stock and house prices, and use these data for testing whether nondurable consumption and housing are characterized by intratemporal nonseparability in households' preferences. I find evidence in favor of intratemporal dependence between total nondurable consumption and housing. I reach a similar conclusion for some separate consumption categories, such as food and utility services. My findings also indicate households are more willing to substitute housing and nondurable consumption within a period than to substitute composite consumption bundles over different time periods.
    Keywords: Intratemporal Nonseparability, Housing, Nondurable Consumption
    JEL: C51 D12 D13 E21 R21
    Date: 2018–08–26
  57. By: Uluc Aysun (University of Central Florida, Orlando, FL)
    Abstract: This paper demonstrates that decentralized banking has been the primary model of banking in the US since the mid-90s. This evidence is obtained by using a large number of bank-level observations from US Call Reports. The ownership structure that I infer from these data allow me to use a unique identification strategy to determine the independent effects of subsidiary-specific and owner-specific financial conditions (decentralized and centralized effects, respectively) on subsidiaries’ lending. The results show that subsidiaries financial conditions were, in general, more important for lending decisions than those of its owners. In other words, decentralized banking is more pronounced than centralized banking. Considering a broad set of factors that have a systematic effect on financial markets, I also find that the effects of these push factors on subsidiary lending mainly feed through the financial conditions of the subsidiaries and not their owners.
    Keywords: Call report data; centralized banking; decentralized banking; global push
    JEL: E44 F32 G15 G21
    Date: 2019–05
  58. By: Jean-Marc Natal; Nicolas Stoffels
    Abstract: We argue that strong globalization forces have been an important determinant of global real interest rates over the last five decades, as they have been key drivers of changes in the natural real interest rate—i.e. the interest rate consistent with output at its potential and constant inflation. An important implication of our analysis is that increased competition in goods and labor market since the 1970s can help explain both the large increase in real interest rates up to the mid-1980s and—as globalization forces mature and may even go into reverse, leading to incrementally rising market power—its subsequent and protracted decline accompanied by lower inflation. The analysis has important implications for monetary policy and the optimal pace of normalization.
    Date: 2019–05–06
  59. By: International Monetary Fund
    Abstract: A four-party coalition government took office in June 2017 and, with support from a regional peacekeeping force, has brought peace and stability. However, with SACU revenues below historical averages and government expenditures remaining high, the fiscal situation has deteriorated, leading to the emergence of government payment arrears. While international reserves are at adequate levels and banks remain well-capitalized, domestic arrears are beginning to impact the broader economy, exacerbating growth challenges posed by structural impediments. Unemployment, particularly among the young, is a major concern.
    Date: 2019–04–30
  60. By: Huixin Bi; Wenyi Shen; Shu-Chun Susan Yang
    Abstract: This paper studies the main channels through which interest rate normalization has fiscal implications in the United States. While unexpected inflation reduces the real value of government liabilities, a rising policy rate increases government financing needs because of higher interest payments and lower real bond prices. After an initial decline, the real government debt burden rises even with higher tax revenues in an expansion. Given the current net debt-to-GDP ratio at around 80 percent, interest rate normalization leads to a negligible increase in the sovereign default risk of the U.S. federal government, despite a much higher federal debt-to-GDP ratio than the post-war historical average.
    Date: 2019–05–03
  61. By: Erik Kole (Erasmus University Rotterdam); Liesbeth Noordegraaf-Eelens (Erasmus University Rotterdam); Bas Vringer (Erasmus University Rotterdam)
    Abstract: We investigate whether two heuristics, the peak-end rule and herding, lead to cognitive biases in the index of consumer sentiment published by the University of Michigan. Both affect respondents' assessment of changes in their financial position over the past year. Consistent with the peak-end rule, respondents rely more on extreme detrimental monthly changes during the year than to changes over the whole year. We rule out that these extremes proxy for risk. The evidence for irrational herding consists in a too strong relationship from expectations about the future of respondents interviewed in a first round to assessments of the past by respondents interviewed in a second round. Both results show that cognitive biases can be found in a key macro variable and outside more controlled environments. They also indicate that the behavioral component of the sentiment index may offer another explanation for its relevance, next to news or animal spirits.
    Keywords: Consumer sentiment, cognitive biases, peak-end rule, herding
    JEL: E32
    Date: 2019–05–01
  62. By: Elton Beqiraj (Department of Economics and Law, Sapienza University of Rome (IT).); Lucrezia Fanti (National Institute for Public Policy Analysis (INAPP).); Luca Zamparelli (Department of Economics and Law, Sapienza University of Rome (IT).)
    Abstract: This paper looks at structural change as one additional source of decline in the wage share. First, we provide a decomposition of changes in aggregate wage shares into changes due to variations in output composition and in sectoral wage shares for nine OECD countries between 1977 and 2010. We show that the rise in the service sector is a relevant factor in explaining the fall of the wage share, at least for some countries. Next, we develop a two-sector Kaleckian growth model consisting of the service and manufacturing sectors. We assume that structural change is exogenous as it arises from a shift in consumers' preferences or in the saving rate. We show that, when mark-ups are relatively higher in the service sector, a shift in the sectoral composition of demand in favor of the service sector good generates a rise in the profit share.
    Keywords: structural change, functional income distribution, manufacturing, service.
    JEL: D33 E11 O14
    Date: 2019–05
  63. By: Ferrreira, Ana Melissa
    Abstract: Since the 1980’s, income inequality has increased markedly and is at the highest level ever since it has been recorded in the U.S. This paper uses an overlapping-generations model with incomplete markets that allows for household heterogeneity and that is calibrated to match the U.S. economy with the purpose to study how skill-biased technological change (SBTC) and changes in taxation quantitatively account for the increase in inequality from 1980 to 2010. We find that SBTC and taxation decrease account for 48% of the total increase in the income Gini coefficient. In particular, we conclude that SBTC alone accounted for 42% of the overall increase in income inequality, while changes in the progressivity of the income tax schedule alone accounted for 5,7%.
    Keywords: Technical change, Income Inequality, Wealth Inequality, Heterogeneity, Taxation
    JEL: E21 J0
    Date: 2019–01
  64. By: D’Erasmo, Pablo (Federal Reserve Bank of Philadelphia); Moscoso Boedo, Hernán (University of Cincinnati); Olivero, Maria (Drexel University); Sangiácomo, Máximo (Banco Central de la República Argentina)
    Abstract: We study how banks' exposure to a sovereign default and a sharp currency devaluation gets transmitted onto the corporate non-financial sector. To do so we use a proprietary data set for the universe of banks and firms in Argentina during the crisis of 2001. We proceed in three steps. First, we exploit the variation in the data at the bank-level to show that there is a negative correlation between banks' pre-crisis exposure to sovereign debt and foreign currency liabilities and their post-crisis lending. Second, we build a model characterized by matching frictions in which firms establish (long-term) relationships with banks that are subject to balance sheet disruptions and derive a set of testable implications. Credit relationships with banks more exposed to the crisis suffer the most (independent of the state of the borrower). However, this relationship level effect might overstate the true cost of the crisis. After the shock, firms with investment opportunities (e.g. exporters after a devaluation) might find profitable to switch lenders, reducing the negative impact on overall credit and activity. Finally, we use linked bank-firm data and data aggregated to the firm level to test the predictions of the model. We find evidence largely consistent with our theory.
    Keywords: Sovereign Default; Devaluation; Bank networks
    JEL: E32 G21 H63 N26
    Date: 2019–04–15
  65. By: International Monetary Fund
    Abstract: Since completion of the first review, Jordan has preserved macroeconomic stability in a most difficult environment. It has weathered a series of severe and highly persistent shocks, including regional conflicts, domestic uncertainty, the hosting of Syrian refugees, the disruption of critical export markets, and rising borrowing costs. 2018 proved particularly challenging, but also saw important progress on key fiscal and structural reforms. While some slippages and delays, including a persistent shortfall in revenue collection, were a setback in the authorities’ fiscal consolidation efforts, most benchmarks from the first review have now been met (with the remainder expected to be met in the next few months). The authorities have passed a critical income-tax reform, which if implemented effectively, will result in a more balanced tax system, reducing exemptions, and supporting efforts against tax evasion. More importantly, they have formulated a comprehensive medium-term reform program to create the conditions for higher and more inclusive growth. Decisive implementation is now key to sustainably improve economic prospects.
    Date: 2019–05–08
  66. By: International Monetary Fund
    Abstract: The Gambia is enjoying a strong economic recovery, with good prospects of sustained growth over the medium term. In the two years since the government of President Barrow took office, The Gambia’s economy has rebounded, with growth exceeding 6½ percent in 2018. Inflation dropped to 6½ percent at end-2018 and gross official reserves reached 2.7 months of prospective imports. These early gains have been enabled by more effective monetary policy and steps to increase domestic revenue and improve public financial management in the context of a Staff-Monitored Program (SMP) that ran from April 2017 through September 2018. To consolidate these gains and establish a track record for a possible arrangement under the Extended Credit Facility (ECF), the authorities are requesting a new SMP covering 2019. Discussions on a possible ECF arrangement are at present held back by the need to reach understandings with The Gambia’s external creditors on the ways to alleviate excessive liquidity pressures associated with external debt service.
    Date: 2019–05–08
  67. By: International Monetary Fund
    Abstract: Given its bulging working-age population, creating more and better jobs is the country’s overarching priority. Uzbekistan has already implemented a first wave of important economic reforms, including foreign exchange liberalization, tax reform, and a major upgrade in statistics. Faced with a vast structural reform agenda, the authorities want to prioritize reforms that address the economy’s most damaging distortions first. The main short-term macroeconomic stability challenge is to prevent a credit boom that could generate excessive external deficits and aggravate inflation pressures.
    Date: 2019–05–09
  68. By: Fabián Ricardo Martínez Cruz; Carlos Mateo Perilla Castañeda; Juan David Urquijo Vanegas
    Abstract: El consumo de combustibles refinados en la sociedad actual se comporta como determinante del desarrollo productivo diario de cada individuo, principalmente por su uso en los medios de transporte. Este bien está sujeto a diferentes factores regulatorios en su precio que aseguran que tanto el Estado, la sociedad y los productores se vean beneficiados por su producción y venta. El presente documento estudia la dinámica de los precios de la gasolina en Colombia y cómo se ve es afectada por factores externos como el precio internacional del petróleo. El análisis se lleva a cabo a través de la metodología de determinación de precios comparada con el panorama latinoamericano, por su cercanía y similitudes en costos. Se encuentra que la estructura actual es demasiado compleja e ineficiente si se quiere mejorar la competitividad y los precios en el mercado y que una política clara por parte del Gobierno podría no solo incentivar el sector sino también dinamizar la productividad del país, tomando en cuenta la transición hacia los combustibles renovables. The consumption of refined fuels in our current society works as a determinant in the daily productive development of every person mainly because of the use of transport issues. In this way, this good is subject to different regulatory factors in its price that ensure that the State, society and producers benefits by its production and sale. Thus, this document will study how the dynamics of prices in Colombia works by analyzing the operation of it in comparison with the Latin American panorama, due to its proximity and similarities in costs; and how this dynamic is affected by external factors such as movements in international oil prices. It is found that the current structure is too complex and inefficient if we want to improve competitiveness and prices in the market and that a clear policy by the Government could not only stimulate the sector but also boost the country's productivity taking into consideration the transition to renewable fuels.
    Keywords: gasolina, regulación, estructura de precios, política fiscal
    JEL: E62 E64 L71
    Date: 2019–05–09
  69. By: Jamie Cross; Bao H. Nguyen; Bo Zhang
    Abstract: China has recently overtaken the US to become the world largest importer of crude oil. In light of this fact, we formally compare contributions of demand shocks from China, the US and the rest of the world. We find that China’s influence on the real price of oil has increased over the past two decades and surpassed that of the US. Despite this result, oil prices are more sensitive to demand shocks from the US than China. Finally, we document that demand shocks from China alone were too small to have caused the mid 2003-2008 price surge. Instead, oil specific demand shocks are found to be the major determinant of the real oil price during this period.
    Keywords: China, US, Oil markets
    JEL: C32 E32 Q4
    Date: 2019–05
  70. By: International Monetary Fund
    Abstract: The present macroprudential policy framework provides a sound basis for macroprudential oversight of the financial system and was established by law in November 2015. Its relatively recent establishment implies that practical experience with the conduct of macroprudential policy under the framework is still limited. Initial experience is favorable, but it remains to be seen how the framework will function under more challenging circumstances.
    Date: 2019–05–09
  71. By: Ruchir Agarwal; Miles Kimball
    Abstract: The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.
    Date: 2019–04–29
  72. By: International Monetary Fund
    Abstract: Setting up a liquidity forecasting framework would go a long way in establishing a key building block allowing the RMA to fulfil its legal mandate to formulate and implement monetary policy in ways better aligned with current central bank practices. By allowing the RMA to broaden its monetary instruments toolkit, a liquidity forecasting framework would: (i) facilitate monetary policy signaling, (ii) support the develop of a nascent money market, most notably the Government securities market, and (iii) allow banks to enhance their treasury function, leading to reduced liquidity costs and settlement risks.
    Date: 2019–04–30
  73. By: Ewen Gallic (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Gauthier Vermandel (Université Paris-Dauphine, PSL Research University, France Stratégie, Services du Premier Ministre)
    Abstract: How much do weather shocks matter? The literature addresses this question in two isolated ways: either by looking at long-term effects through the prism of theoretical models, or by focusing on short-term effects using empirical analysis. We propose a framework to bring together both the short and long-term effects through the lens of an estimated DSGE model with a weather-dependent agricultural sector. The model is estimated using Bayesian methods and quarterly data for New Zealand using the weather as an observable variable. In the short-run, our analysis underlines the key role of weather as a driver of business cycles over the sample period. An adverse weather shock generates a recession, boosts the non-agricultural sector and entails a domestic currency depreciation. Taking a long-term perspective, a welfare analysis reveals that weather shocks are not a free lunch: the welfare cost of weather is currently estimated at 0.19% of permanent consumption. Climate change critically increases the variability of key macroeconomic variables (such as GDP, agricultural output or the real exchange rate) resulting in a higher welfare cost peaking to 0.29% in the worst case scenario.
    Keywords: agriculture,business cycles,climate change,weather shocks
    Date: 2019–05
  74. By: Pandey, Radhika (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy)
    Abstract: This paper analyses the cyclical nature of fiscal policy in South Asian economies. Drawing on the recent literature, we assess whether these economies have graduated to a counter-cyclical fiscal policy in the recent period. We find that fiscal policy is procyclical in most of the South Asian economies. Our analysis shows that the evidence of graduation to a counter-cyclical fiscal policy is weak for South-Asian economies. Our findings are robust to alternative methods of extracting the cyclical component. This has implications for macro-stabilisation policies in these countries and warrants a rethink of the fiscal policy framework.
    Date: 2019–05
  75. By: Stephen G. Hall; Heather D. Gibson; Pavlos Petroulas; George S. Tavlas
    Abstract: We examine the impact of Emergency Liquidity Assistance (ELA) on bank lending in eleven euro area countries. With the intensification of the financial crisis, ELA came to take on an almost systemic role in some countries (notably Greece), with either the whole or large parts of national banking systems depending on it. Despite this crucial role, assessments of the quantitative impact of ELA in the literature are non-existent. This paper aims to fill this gap. We estimate a structural panel model for the determination of bank lending, which includes the amount of ELA received by each bank, allowing us to investigate the direct effect of ELA on bank lending. Our model corrects a key mis-specification found in the prototype model used in the literature on bank lending. We then undertake a VAR analysis, which allows us to address the effect of ELA on GDP. Finally, we examine spillover effects among banks. Our results suggest that the provision of ELA generated positive spillovers to other banks.
    Keywords: Euro area financial crisis, Emergency Liquidity Assistance (ELA), European banks, spatial panel model
    JEL: E3 G01 G14 G21
    Date: 2019–01
  76. By: Zachary Parolin
    Abstract: Routine-biased technological change has emerged as a leading explanation for the differential wage growth of routine occupations, such as manufacturers or office clerks, relative to less routine occupations. Less clear, however, is how the effects of technological advancement on occupational wage trends vary across political-institutional context. This paper investigates the extent to which collective bargaining agreements and union coverage shape the relative wage growth of automatable occupations. Using data from the Luxembourg Income Study and the United States Current Population Survey, I measure the ‘routine task intensity’ of occupations across 15 OECD Member States and the 50 United States from the 1980s onward. Findings suggest that bargaining coverage is more consequential for the wage growth of high routine occupations relative to less routine occupations, and that high routine occupations lose coverage at a faster rate when bargaining coverage at the national level declines. As a result, declines in bargaining coverage within a country are associated with declining relative wage growth for automatable occupations. Estimates suggest that had union coverage in the United States not declined from 1984 levels, the earnings of high routine occupations might have grown at the same rate as low pay occupations between 1984 and 2015, rather than experiencing a relative wage decline. However, the findings also suggest that gains in the relative wage growth may increasingly come at the cost of reduced employment shares of automatable occupations.
    Keywords: automation, collective bargaining, occupations, trade unions, wages
    JEL: E24 J51
    Date: 2019–05–21
  77. By: Andrew Clark (Department of Economics, University of Reading); Alexander Mihailov (Department of Economics, University of Reading)
    Abstract: This paper begins by a recap on the ambition and mechanism behind Bitcoin, followed by an overview of the top 10 cryptocurrencies by market capitalization. Our focus is on their price dynamics and volatility relative to those of fiat paper money and gold, assets that have traditionally served the functions of money and international reserves. We then perform a counterfactual analysis using the Bank of England's foreign currency reserves to determine the hypothetical performance in terms of relative volatility of two alternative reserve portfolios consisting of 0.1%, 1%, or 10% holdings of either Bitcoin only, since July 2010, or of a portfolio of 50% Bitcoin and 50% Ethereum, since July 2015. Revisiting in this light the functions of money and international reserves, we expound on why private cryptocurrencies do not meet the inherent requirements for both money and international reserve assets, whereas central bank digital currencies do meet these requirements. We, finally, "scale" the magnitude and dynamics of the recent Bitcoin bubble into a historical perspective, and conclude by a discussion of areas where blockchain-based and FinTech technologies could be beneficial in international trade, payments, banking and finance.
    Keywords: Bitcoin, cryptocurrency, blockchain, FinTech, central bank digital currency, international reserve assets
    JEL: G23 E50 E59
    Date: 2019–05–20
  78. By: International Monetary Fund
    Abstract: The IMF conducted a fiscal transparency evaluation (FTE) for Uzbekistan in June 2018. The FTE found that Uzbekistan met at least the basic standard of practice in 16 of the 36 principles defined in the IMF Fiscal Transparency Code. This report provides a summary of progress made since that evaluation was conducted and is based on practices in place at the time of a Fiscal Affairs Department visit during March 25 to April 5, 2019. 2. Since June, Uzbekistan has taken steps to improve fiscal transparency. Key advances made in the 2019 budget message include presentation of more detailed information on how public funds are allocated across major spending areas and a statement of medium-term policy intentions. Medium-term macroeconomic and fiscal projections were also included for the first time, along with a discussion of fiscal risks, to provide a picture of how public finances may evolve over time. In addition, timely publication of the Citizen’s Budget ensures the public has an accessible summary of fiscal prospects and policy, which will help facilitate greater public engagement in the budget process. Improvements to the 2019 budget documentation, if sustained, will help underpin a more strategic and medium-term orientated approach to fiscal policy making.
    Date: 2019–05–01
  79. By: Asongu, Simplice; Efobi, Uchenna; Tanankem, Belmondo; Osabuohien, Evans
    Abstract: This study assesses the relationship between globalisation and the economic participation of women (EPW) in 47 Sub-Saharan African countries for the period 1990-2013. EPW is measured with the female labour force participation and employment rates. The empirical evidence is based on Panel-corrected Standard Errors and Fixed Effects regressions. The findings show that the positive effect of the overall globalisation index on EPW is dampened by its political component and driven by its economic and social components, with a higher positive magnitude from the former or economic globalisation. For the most part, the findings are robust to the control for several structural and institutional characteristics. An extended analysis by unbundling globalisation shows that the positive incidence of social globalisation is driven by information flow (compared to personal contact and cultural proximity) while the positive effect of economic globalisation is driven by actual flows (relative to restrictions). Policy implications are discussed with some emphasis on how to elevate women’s social status and potentially reduce their victimisation to male dominance.
    Keywords: Globalisation; female; gender; inequality; inclusive development; labour force participation; Africa
    JEL: D60 E60 F40 F59 O55
    Date: 2019–01
  80. By: Mansur, Alfan; Al Arif, Munafsin
    Abstract: Kepemilikan investor nonresiden pada surat berharga negara (SBN) saat ini relatif cukup tinggi. Dibandingkan beberapa negara di kawasan seperti Malaysia, Thailand, Jepang, dan Korea Selatan, porsi kepemilikan investor non residen di Indonesia merupakan yang tertinggi. Hal ini dapat meningkatkan risiko apabila terjadi sudden reversal. Tulisan ini bertujuan untuk tidak hanya mengukur dampak perubahan arus modal masuk maupun arus modal keluar oleh investor nonresiden terhadap perubahan yield dan volatilitas yield, lebih dalam lagi juga dengan mempertimbangkan kondisi pasar keuangan global. Hasil empiris menunjukkan bahwa aliran keluar/masuk modal asing terbukti secara statistik berpengaruh terhadap kinerja SBN secara signifikan. Hasil empiris juga menunjukkan bahwa masuk dan keluarnya modal asing memiliki dampak yang asimetris terhadap kinerja pasar SBN. Dampak negatif arus modal keluar lebih besar daripada pengaruh positif ketika modal asing masuk ke pasar SBN. 1 persen penurunan kepemilikan asing pada SBN menaikkan yield SBN sebesar ±16 bps s.d. 41 bps. Sedangkan 1 persen kenaikan kepemilikan asing pada SBN hanya menurunkan yield SBN sebesar ±15 bps s.d. 30 bps. Hal yang bisa dilakukan regulator untuk mengurangi potensi dampak sudden reversal adalah dengan memperdalam pasar keuangan itu sendiri dengan mendorong partisipasi investor domestik lebih besar lagi, terutama dari pengelola sovereign wealth fund, sehingga akan menciptakan pasar dan memperdalam likuiditas pasar keuangan Indonesia.
    Keywords: surat berharga negara, sudden reversal, yield, volatilitas
    JEL: E40 E60 G10
    Date: 2017–06–12
  81. By: Sinelnikova-Muryleva, Elena (Синельникова-Мурылева, Елена) (The Russian Presidential Academy of National Economy and Public Administration)
    Abstract: This workpaper is devoted to the elaboration of approaches that can be used to estimate welfare costs of inflation, taking into account the peculiarities of the Russian economy, as well as obtaining quantitative estimates. The first section discusses theoretical models in the framework of the partial equilibrium approach, proposed in the papers of Bailey, Friedman, and Lucas, and giving ways to calculate costs of inflation. The second section provides an overview of international experience in costs of inflation estimation in countries with different levels of inflation; it is concluded that the results of the estimation are extremely sensitive to the choice of the functional form of the demand for money equation and, as a consequence, the estimated coefficients of the equation. The third section presents modifications of standard approaches used to estimate the costs of inflation, taking into account the prolonged growth of monetization in the Russian economy.
    Date: 2019–04
  82. By: Heinisch, Dominik; Koenig, Johannes; Otto, Anne (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Only scarce information is available on doctorate recipients' career outcomes in Germany (BuWiN 2013). With the current information base, graduate students cannot make an informed decision whether to start a doctorate (Benderly 2018, Blank 2017). Administrative labour market data could provide the necessary information, is however incomplete in this respect. In this paper, we describe the record linkage of two datasets to close this information gap: data on doctorate recipients collected in the catalogue of the German National Library (DNB), and the German labour market biographies (IEB) from the German Institute of Employment Research. We use a machine learning based methodology, which 1) improves the record linkage of datasets without unique identifiers, and 2) evaluates the quality of the record linkage. The machine learning algorithms are trained on a synthetic training and evaluation dataset. In an exemplary analysis we compare the employment status of female and male doctorate recipients in Germany." (Author's abstract, IAB-Doku) ((en))
    JEL: C81 E24 I20
    Date: 2019–05–21
    Abstract: Using annual time series data on net FDI inflows in India from 1960 to 2017, the study examines net FDI inflows using the Box – Jenkins ARIMA methodology. The ADF tests reflect that India FDI net FDI inflows data is I (1). Based on the AIC, the study presents the ARIMA (1, 1, 0) model. The diagnostic tests further show that the presented parsimonious model is not only stable but also suitable for explaining net FDI dynamics in India. The results of the study indicate that, net FDI inflows in India are likely to weaken over the next 10 years. The study identifies two (2) significant policy recommendations in an effort to aid policy makers on how to promote and stimulate the much expected net FDI inflows in India.
    Keywords: Foreign direct investment; forecasting; India
    JEL: C53 E27 F21
    Date: 2019–05–06
  84. By: Christian Castro (Banco de España); Jorge E. Galán (Banco de España)
    Abstract: We analyse the drivers of total factor productivity of Spanish banks from early 2000, including the last financial crisis and the post-crisis period. This allows us to study changes in productivity following a major restructuring process in the banking sector such as the one experienced in Spain. Overall, we find that following a period of continued growth, productivity declined after the height of the crisis, though large banks were less affected. We also find that risk, capital levels, competition and input prices were important drivers of the differences in productivity change between banks. Finally, our results suggest that, by the end of our sample period, there was still some room for potential improvements in productivity via exploiting scale economies and enhancing cost efficiency. These opportunities appear to be generally greater for the smaller banks in our sample.
    Keywords: banking, cost efficiency, crisis, scale economies, productivity
    JEL: D24 E58 G01 G21 G28 G34
    Date: 2019–05
  85. By: Kozo Kiyota (Keio Economic Observatory, Keio University); Yoshinori Kurokawa (Faculty of Humanities and Social Sciences, University of Tsukuba)
    Abstract: With the growing importance of intermediate goods, recent studies begin to suggest intermediate goods-skill complementarity and its potential effect on inequality. However, this possible complementarity has not yet been formally tested. This paper conducts a formal test on whether intermediate goods are complements for skilled labor. Using the panel data of 40 countries over the period 1995-2009, we estimate a two-level CES production function. Our results indicate that, at the aggregated one-sector level, the elasticity of substitution between intermediate goods and unskilled labor is significantly greater than that between intermediate goods and skilled labor. This confirms intermediate goods-skill complementarity. At the more disaggregated level, such complementarity is observed mainly in the heavy manufacturing industries and the service sector, whereas substitutability is confirmed in the primary sector and in light manufacturing industries. Moreover, intermediate goods-skill complementarity tends to be higher for industries whose shares of imported intermediate goods are higher.
    Keywords: Intermediate goods-skill complementarity, Elasticity of substitution, CES, Skill-biased technological change, Imported intermediate goods
    JEL: E23 O47 J31
    Date: 2019–04–25
  86. By: Demiralp, Selva; Eisenschmidt, Jens; Vlassopoulos, Thomas
    Abstract: Negative monetary policy rates are associated with a particular friction because the remuneration of retail deposits tends to be floored at zero. We investigate whether this friction affects banks’ reactions when the policy rate is lowered to negative levels, compared to a standard rate cut in the euro area. We exploit the cross-sectional variation in banks’ funding structures jointly with that in their excess liquidity holdings. We find evidence that banks highly exposed to the policy tend to grant more loans. This confirms studies that point to higher risk taking by banks as a reaction to negative rates. It, however, contrasts some earlier research associating negative rates with a contraction in loans. We illustrate that the difference is likely driven by the broader coverage of our loan data, longer time span of our sample and, importantly, the explicit consideration of the role of excess liquidity in our analysis. JEL Classification: E43, E52, G11, G21
    Keywords: bank balance sheets, monetary transmission mechanism, negative rates
    Date: 2019–05
  87. By: Chiara Fratto (University of Chicago); Harald Uhlig (University of Chicago)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2019
  88. By: Fredrik Heyman; Pehr-Johan Norbäck; Lars Persson
    Abstract: How can a country improve the productivity growth in its business sector and reach its growth potential? Sweden during the 1970–2010 period can serve as an example to help other countries understand how to efficiently reform a business sector. In the 1990s, Sweden implemented a reform package that ignited a successful reorganization of a business sector that had faltered for decades. To understand the economic forces behind this process, we first survey the industrial restructuring literature and then examine the reform package using Swedish matched plant-firm-worker data. The removal of barriers to growth for new and productive firms and increased rewards for investment in human capital were crucial to the success of Sweden’s reforms. We also discuss how the reform experience from a developed country such as Sweden can be useful for developing countries that are in the process of transforming their business sectors. We also discuss evidence from developing countries that have undergone similar micro-based business sector reform programs. Our findings suggest that policymakers have much to learn from country case studies and that the Swedish experience can be a valuable case study for developing countries that are attempting to promote growth by developing their business sectors.
    Keywords: regulations, allocative efficiency, productivity, job dynamics, matched employer-employee data, industrial structure and structural change
    JEL: D22 E23 J21 J23 K23 L11 L16 L51
    Date: 2019
  89. By: Anping Chen (School of Economics, Jinan University); Nicolaas Groenewold (Economics Discipline, Business School, The University of Western Australia)
    Abstract: Since 2007 China’s real GDP growth rate has slowed from a level of over 10% per annum to below 7%. Given China’s regional diversity, an important aspect of the slowdown is the possible spatial variation in its experience. This is the issue we consider in this paper and we analyse this question in the context of the regional economic resilience framework. We proceed in two stages. In the first we analyse a measure of provincial slowdown (a sensitivity index) based just on growth rates and use cross-section regressions to investigate the determinants of this index, using a range of provincial characteristics common in the resilience literature. We find that economic structure, demographic factors and education all play a role, although with signs that are often at odds with the existing literature. In the second stage we decompose regional growth rates into national and province-specific components using a VAR model and argue that since resilience concerns the response of provinces to a national shock, it is properly analysed using just the national component of the growth rate rather than the growth rate as such. We therefore analyse a sensitivity index based just on the national component of growth and find many differences between the two sets of results. Using the second index matters for the determinants which are significant as well as for the magnitude of their coefficients. It appears that some of the influences found to be significant in the first stage are there only because of their influence on growth via the province-specific component of the growth rate and in this sense are spurious.
    Keywords: China, growth, provincial growth, provincial response, regional resilience
    JEL: E37 O47 O53 R12 R15
    Date: 2019
  90. By: Ajide, Kazeem; Alimi, Olorunfemi; Asongu, Simplice
    Abstract: Studies on the causes of income differences between the rich and the poor have received an extensive attention in the inequality empirics. While ethnic diversity hasalso been identified as one of the fundamental causes of income inequality, the role of institutions as a mediating factor in the ethnicity-inequality nexus has not received the scholarly attention it deserves. To this end, this study complements the existing literature by investigating the extent to which institutional framework corrects the noisy influence originating from the nexus between “ethnic diversity” and inequality in 26 sub-Saharan African countries for the period 1996-2015. The empirical evidence is based on pooled OLS, fixed effects and system GMM estimators. The main findings reveal that the mediating influences of institutional settingsaredefective, thus making it extremely difficult to modulatethe noisy impacts of ethno-linguistic and religious heterogeneity on inequality. In addition, the negative influencesorchestrated by ethnolinguistic and religious diversities on inequality fail toattenuate the impact of income disparityeven when interacted with institutions. On the policy front, institutional reforms tailored toward economic, political and institutional governances should be targeted.
    Keywords: Linguistic, religious, ethnicity, inequality, Institutions, Kuznets curve
    JEL: C23 D02 D63 E02
    Date: 2019–01

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