nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒07‒15
112 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Financial Inequality, group entitlements and populism By Federico Faveretto; Donato Masciandaro
  2. A Macro-Model to Monetary Transmission Analysis in Tunisia By Aymen Makni
  3. Can Consumption Growth in China Keep Up As Investment Slows? By Mali Chivakul; Bernhard Kassner
  4. Do SVARs with sign restrictions not identify unconventional monetary policy shocks? By Jef Boeckx; Maarten Dossche; Alessandro Galesi; Boris Hofmann; Gert Peersman
  5. Effects of monetary and macroprudential policies – evidence from inflation targeting economies in the Asia-Pacific region and potential implications for China By Soyoung Kim; Aaron Mehrotra
  6. The Macroeconomics of the Greek Depression By Chodorow-Reich, Gabriel; Karabarbounis, Loukas; Kekre, Rohan
  7. ECB vs Bundesbank: Diverging Tones and Policy Effectiveness By Peter Tillmann; Andreas Walter
  8. Demographics and Monetary Policy Shocks By Kimberly A. Berg; Chadwick C. Curtis; Steven Lugauer; Nelson C. Mark
  9. EDB Macroreview, April 2019. Republic of Armenia: trends and forecasts By Kuznetsov, Aleksei; Berdigulova, Aigul
  10. Prudential Monetary Policy By Ricardo J. Caballero; Alp Simsek
  11. Rising Market Concentration and the Decline of Food Price Shock Pass-Through to Core Inflation By Brown, Jason; Tousey, Colton
  12. A model for international spillovers to emerging markets By Romain Houssa; Jolan Mohimont; Chris Otrok
  13. The Macroeconomics of the Greek Depression By Chodorow-Reich, Gabriel; Karabarbounis, Loukas; Kekre, Rohan
  14. A Unified Approach to Measuring u* By Richard K. Crump; Stefano Eusepi; Marc Giannoni; Ayşegül Şahin
  15. The Federal Reserve’s Current Framework for Monetary Policy: A Review and Assessment By Janice C. Eberly; James H. Stock; Jonathan H. Wright
  16. Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control By Michael Funke; Petar Mihaylovski; Haibin Zhu
  17. Was the US Great Depression a credit boom gone wrong? By Postel-Vinay, Natacha
  18. Inflation and monetary policy: What South African newspapers report in an era of policy transparency By Monique Reid; Zinette Bergman; Stan Du Plessis; Manfred Max Bergman; Pierre L. Siklos
  19. "Cyclical Part-Time Employment in an Estimated New Keynesian Model with Search Frictions" By Toshihiko Mukoyama; Mototsugu Shintani; Kazuhiro Teramoto
  20. Cryptocurrencies, central bank digital cash, traditional money: does privacy matter? By Emanuele Borgonovo; Stefano Caselli; Alessandra Cillo; Donato Masciandaro; Giovanno Rabitti
  21. Negative Interest Rate Policy and the Influence of Macroeconomic News on Yields By Rasmus Fatum; Naoko Hara; Yohei Yamamoto
  22. Do SVARs with sign restrictions not identify unconventional monetary policy shocks ? By Jef Boeckx; Maarten Dossche; Alessandro Galesi; Boris Hofmann; Gert Peersman
  23. Remittance Inflows and State-Dependent Monetary Policy Transmission in Developing Countries By Immaculate Machasio; Peter Tillmann
  24. Inflation interdependence in advanced economies By Luis J. Álvarez; Ana Gómez-Loscos; María Dolores Gadea
  25. Charge-offs, Defaults and U.S. Business Cycles By Christopher M. Gunn; Alok Johri; Marc-André Letendre
  26. Resolving New Keynesian Anomalies with Wealth in the Utility Function By Michaillat, Pascal; Saez, Emmanuel
  27. The neo-Goodwinian model reconsidered By Michael Cauvel
  28. Debauchery and Original Sin: The Currency Composition of Sovereign Debt By Charles Engel; Jungjae Park
  29. EDB Macroreview, April 2019. Republic of Kazakhstan: trends and forecasts By Kuznetsov, Aleksei; Berdigulova, Aigul
  30. Slack and Cyclically Sensitive Inflation By James H. Stock; Mark W. Watson
  31. Does monetary policy affect income inequality in the euro area? By Anna Samarina; Anh D.M. Nguyen
  32. Labor Income Share Dynamics with Variable Elasticity of Substitution By Paul, Saumik
  33. Leaning Against Housing Prices As Robustly Optimal Monetary Policy By Klaus Adam; Michael Woodford
  34. The determinants of austerity in the European Union 2010-16 By Roberto Tamborini; Matteo Tomaselli
  35. The Failure of Free Entry By Germán Gutiérrez; Thomas Philippon
  36. Monetary Policy Uncertainty and the Response of the Yield Curve to Policy Shocks By Peter Tillmann
  37. Credit and Fiscal Multipliers in China By Sophia Chen; Lev Ratnovski; Pi-Han Tsai
  38. Temporal Disaggregation of Business Dynamics: New Evidence for U.S. Economy By Lorenza Rossi; Emilio Zanetti Chini
  39. Fluctuations in Global Macro Volatility By Danilo Leiva-Leon; Lorenzo Ductor
  40. Accounting for Innovation in Consumer Digital Services: IT Still Matters By David Byrne; Carol Corrado
  41. Divisia monetary aggregates for a heterogeneous euro area By Brill, Maximilian; Nautz, Dieter; Sieckmann, Lea
  42. Fluctuations in Global Macro Volatility By Danilo Leiva-Leon; Lorenzo Ductor
  43. Production Network and International Fiscal Spillovers By Michael B. Devereux; Karine Gente; Changhua Yu
  44. The Impact of Fiscal Policy on Income Distribution in Tanzania: A Computable General Equilibrium Analysis By Asiya Maskaeva; Joel Mmasa; Nicodemas Lema; Mgeni Msafiri
  45. Business Cycle Synchronisation in a Currency Union: Taking Stock of the Evidence By Nauro F. Campos; Jarko Fidrmuc; Iikka Korhonen
  46. Quest for robust optimal macroprudential policy By Pablo Aguilar; Samuel Hurtado; Stephan Fahr; Eddie Gerba
  47. Sudden stops inside and outside the euro area - what a difference TARGET2 makes By Lena Kraus; Juergen Beier; Bernhard Herz
  48. EDB Macroreview, December 2018. Macroeconomic Stability Tested By Kuznetsov, Aleksei; Berdigulova, Aigul
  49. Ramsey Tax Competition with Real Exchange Rate Determination By Paul Gomme
  50. Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks By Georgios Georgiadis; Martina Jancokova
  51. Measuring retail trade using card transactional data By Diego Bodas; Juan R. García López; Tomasa Rodrigo López; Pep Ruiz de Aguirre; Camilo A. Ulloa; Juan Murillo Arias; Juan de Dios Romero Palop; Heribert Valero Lapaz; Matías J. Pacce
  52. Jobs multipliers: evidence from a large fiscal stimulus in Spain By Mario Alloza; Carlos Sanz
  53. Intersectoral Network-Based Channel of Aggregate TFP Shocks By Kristina Barauskaite; Anh D.M. Nguyen
  54. U.S. Economic Outlook: Quarterly developments By -
  55. Rich and ever richer: Differential returns across socio-economic groups By Stefan Ederer; Maximilian Mayerhofer; Miriam Rehm
  56. El sector del Leasing. Informe Final By Leonardo Villar; Camila Pérez; Viviana Alvarado
  57. Balanced-budget fiscal stimuli of investment and welfare value By Cesare Dosi; Michele Moretto; Roberto Tamborini
  58. Not Just a Work Permit: EU Citizenship and the Consumption Behavior of Documented and Undocumented Immigrants By Effrosyni Adamopoulou; Ezgi Kaya
  59. Declining Worker Turnover: the Role of Short Duration Employment Spells By Michael J. Pries; Richard Rogerson
  60. The Role of Nonemployers in Business Dynamism and Aggregate Productivity By Pedro Bento; Diego Restuccia
  61. Teaching International Monetary Economics. Two different views By Luca Fantacci; Lucio Gobbi; Stefano Lucarelli
  62. Economic Uncertainty and Fertility By Gözgör, Giray; Bilgin, Mehmet Huseyin; Rangazas, Peter
  63. Pension, Retirement, and Growth in the Presence Heterogeneous Elderly By Makoto Hirono; Kazuo Mino
  64. Demographic Origins of the Startup Deficit By Fatih Karahan; Benjamin Pugsley; Aysegül Sahin
  65. US Monetary Policy and International Bond Markets By Simon Gilchrist; Vivian Yue; Egon Zakrajšek
  66. Georgia; Fourth Review Under the Extended Fund Facility Arrangement and Request for Modifications of Quantitative Performance Criteria-Press Release; Staff Report; and a Statement by the Executive Director for Georgia By International Monetary Fund
  67. The Long-Run Effects of Recessions on Education and Income By Stuart, Bryan
  68. Liberia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Liberia By International Monetary Fund
  69. Has Regulatory Capital Made Banks Safer? Skin in the Game vs Moral Hazard By Ernest Dautovic
  70. Who pays the price of folly? The business cycle and income and wealth mobility in Spain By Clara Martinez-Toledano; David Law; David Haugh; Müge Adalet McGowan
  71. "Defaultnomics: Making Sense of the Barro-Ricardo Equivalence in a Financialized World" By Lorenzo Esposito; Giuseppe Mastromatteo
  72. Understanding the relationship between inequalities and poverty: mechanisms associated with crime, the legal system and punitive sanctions By Magali Duque; Abigail McKnight
  73. Reserve requirements and the bank lending channel in China By Zuzana Fungacova; Riikka Nuutilainen; Laurent Weill
  74. Republic of Mozambique; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Mozambique By International Monetary Fund
  75. Accounting for Mismatch Unemployment By Herz, Benedikt; van Rens, Thijs
  76. Do Oil Endowment and Productivity Matter for Accumulation of International Reserves? By Rasmus Fatum; Guozhong Zhu; Wenjie Hui
  77. The macroprudential implications of the 1990s Japanese financial crisis: remarks at the 5th Annual Macroprudential Conference, Eltville, Germany, June 21, 2019 By Rosengren, Eric S.
  78. Wealth Shocks and MPC Heterogeneity By Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Luigi Pistaferri; Maarten van Rooij
  79. Job Seekers' Perceptions and Employment Prospects: Heterogeneity, Duration Dependence and Bias By Mueller, Andreas I.; Spinnewijn, Johannes; Topa, Giorgio
  80. Foreign Direct Investment, Information Technology and Economic Growth Dynamics in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  81. External Debt, Growth and Investment for Developing Countries: The Role of Government Effectiveness By Taner Turan; Halit Yanikkaya
  82. A non-linear Keynesian Goodwin-type endogenous model of the cycle: Bayesian evidence for the USA By Mariolis, Theodore; Konstantakis, Konstantinos N.; Michaelides, Panayotis G.; Tsionas, Efthymios G.
  83. Risk Management in Financial Institutions By Rampini, Adriano A.; Viswanathan, S.; Vuillemey, Guillaume
  84. The Currency Composition of International Reserves, Demand for International Reserves, and Global Safe Assets By Joshua Aizenman; Yin-Wong Cheung; Xingwang Qian
  85. Demographics and Aggregate Household Saving in Japan, China, and India By Chadwick C. Curtis; Steven Lugauer; Nelson Mark
  86. Good Dispersion, Bad Dispersion By Matthias Kehrig; Nicolas Vincent
  87. International Coordination of Economic Policies in the Global Financial Crisis: Successes, Failures, and Consequences By Edwin M. Truman
  88. Good Dispersion, Bad Dispersion By Kehrig, Matthias; Vincent, Nicolas
  89. Macro Aspects of Housing By Charles Ka Yui Leung; Joe Cho Yiu Ng
  90. Har vi klart å spareoljeinntektene? By Fredrik Wulfsberg
  91. Does a Currency Union Need a Capital Market Union? Risk Sharing via Banks and Markets By Joseba Martinez; Thomas Philippon; Markus Sihvonen
  92. Análisis de experiencias de modelos asociativos como mecanismo para el desarrollo empresarial en la ruralidad By Roberto Steiner; Tomás Ramírez
  93. Sovereign Risk and Fiscal Information: A Look at the U.S. State Default of the 1840s By Bi, Huixin; Traum, Nora
  94. Currency Collapses and Output Dynamics in Commodity Dependent Countries By Vincent Bodart; Jean-François Carpantier
  95. On the Equivalence of Private and Public Money By Brunnermeier, Markus K; Niepelt, Dirk
  96. Price Dispersion and the Role of Stores By Espen Moen; Fredrik Wulfsberg; Øyvind Aas
  97. "Tax Competition and Fiscal Sustainability" By Masayoshi Hayashi; Takafumi Suzuki
  98. Assessment of interest rate and credit transmission channels in a context of banking heterogeneity By Sinda Morsi Fattoum
  99. Intermittent Discounting By Alexis Direr
  100. Canada; 2019 Article IV Consultation - Press Release; and Staff Report By International Monetary Fund
  101. Firm size, productivity and pay in today's service economy By Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo
  102. China’s debt challenge: stylised facts, drivers and policy implications By Guonan Ma; James Laurenceson
  103. Working Paper 115 – Macroeconomic Policy, Price Stability and Inclusive Growth in Bangladesh By Muhammed Muqtada
  104. Full Information Estimation of Household Income Risk and Consumption Insurance By Arpita Chatterjee; James Morley; Aarti Singh
  105. Sources and Types of Big Data for Macroeconomic Forecasting By Philip ME Garboden
  106. Globalisation and Female Economic Participation in Sub-Saharan Africa By Simplice A. Asongu; Uchenna R. Efobi; Belmondo V. Tanankem; Evans S. Osabuohien
  107. Technological change and occupation mobility: A task-based approach to horizontal mismatch By Aepli, Manuel
  108. Government Policy and Land Price Dynamics: A Quantitative Assessment of China's Factor Market By Vipul Bhatt; Mouhua Liao; Min Qiang Zhao
  109. Ethnic Diversity and Inequality in sub-Saharan Africa: Do Institutions Reduce the Noise? By Kazeem B. Ajide; Olorunfemi Y. Alimi; Simplice A. Asongu
  110. The Long-Term Impact of Children's Disabilities on Families By Gunnsteinsson , Snaebjorn; Steingrimsdottir , Herdis
  111. Comparing sentiment and behavioral based leading indexes for industrial production in Germany: A novel running local test By Yunus Yilmaz; Knut Lehre Seip; Michael Schröder
  112. Deposit insurance, market discipline and bank risk By Karas, Alexei; Pyle, William; Schoors, Koen

  1. By: Federico Faveretto; Donato Masciandaro
    Abstract: This paper offers a theoretical framework that explains how financial inequality and misbeliefs about group entitlements among voters foster voting in favour of populist parties. When a banking shock occurs in an economy with heterogeneous agents, the central bank independently chooses the optimal degree of monetization to balance financial and monetary instability, while agents choose between a populist party and a classical party to select the degree of bank bailout, which is paid through a proportional tax. Agents vote according to a behavioural mechanism that we call “democratic rioting”: “aggrieved” agents benefit psychologically from voting for the populist party. The banking shock triggers a higher probability of voting for a populist party in the presence of financial inequality and misbeliefs about group entitlements.
    Keywords: Financial inequality, monetary policy, populism, banking policy, fiscal policy, central bank independence, political economics
    JEL: D72 D78 E31 E52 E58 E62
    Date: 2018
  2. By: Aymen Makni (Central Bank of Tunisia)
    Abstract: In this paper, we develop a gap model based on a reduced form of the New Keynesian Model. The model offers various scenario structure tools which analyze the dynamics of key macroeconomic variables under diverse shocks and depicts their properties and historical decompositions. This framework rationalizes the monetary transmission mechanism as well as the effects of major shocks influencing the macroeconomic variables and can assess the role of monetary policy in reacting to observed and anticipated changes in inflation and other economic variables. This model provides a useful framework detailing monetary policy and helping policymakers mainly to react strongly to inflation.
    Keywords: Monetary Policy, Central Banks and Their Policies, Macroeconomic Model, Monetary Transmission Mechanism
    JEL: E52 E58 E10 E50
    Date: 2019–06
  3. By: Mali Chivakul (IMF); Bernhard Kassner (Ludwig-Maximilians-Universität)
    Abstract: Rebalancing away from investment to consumption has been on China’s agenda in or- der to keep up higher growth rates. This paper uses both national- and provincial-level data to empirically answer the question how a slowdown in investment could have an impact on household consumption. Our empirical results from both the national- and provincial-level data using Bayesian vector autoregressions and panel regression meth- ods suggest that investment has had a significant impact on household consumption beyond the standard household income channel. The effects are particularly strong in the post-global-financial-crisis period. Policy measures to encourage rebalancing away from investment should take the extra effect it may have on consumption beyond the impact on household income into account.
    Keywords: Reforms, Investment, Consumption, China
    JEL: E21 E22 E27 E44 E47 E52 C12 C32 C33 O53
  4. By: Jef Boeckx (National Bank of Belgium); Maarten Dossche (European Central Bank); Alessandro Galesi (Banco de España); Boris Hofmann (Bank for International Settlements); Gert Peersman (Ghent University)
    Abstract: A growing empirical literature has shown, based on structural vector autoregressions (SVARs) identified through sign restrictions, that unconventional monetary policies implemented after the outbreak of the Great Financial Crisis (GFC) had expansionary macroeconomic effects. In a recent paper, Elbourne and Ji (2019) conclude that these studies fail to identify true unconventional monetary policy shocks in the euro area. In this note, we show that their findings are actually fully consistent with a successful identification of unconventional monetary policy shocks by the earlier studies and that their approach does not serve the purpose of evaluating identification strategies of SVARs.
    Keywords: unconventional monetary policy, SVARs
    JEL: C32 E30 E44 E51 E52
    Date: 2019–07
  5. By: Soyoung Kim (Seoul National University); Aaron Mehrotra (Bank for International Settlements)
    Abstract: We examine the effects of monetary and macroprudential policies in the Asia-Pacific region, where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability. Using structural panel vector autoregressions that identify both monetary and macroprudential policy actions, we show that tighter macroprudential policies used to contain credit growth have also had a significant negative impact on macroeconomic aggregates such as real GDP and the price level. The similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times. However, they could also create challenges for policymakers, especially during times when low inflation coincides with buoyant credit growth.
    Keywords: financial stability; price stability; macroprudential policy; monetary policy; panel VAR
    JEL: E58 E61
  6. By: Chodorow-Reich, Gabriel (Harvard University); Karabarbounis, Loukas (Federal Reserve Bank of Minneapolis); Kekre, Rohan (University of Chicago)
    Abstract: The Greek economy experienced a boom until 2007, followed by a prolonged depression resulting in a 25 percent shortfall of GDP by 2016. Informed by a detailed analysis of macroeconomic patterns in Greece, we estimate a rich dynamic general equilibrium model to assess quantitatively the sources of the boom and bust. Lower external demand for traded goods and contractionary fiscal policies account for the largest fraction of the Greek depression. A decline in total factor productivity, due primarily to lower factor utilization, substantially amplifies the depression. Given the significant adjustment of prices and wages observed throughout the cycle, a nominal devaluation would only have short-lived stabilizing effects. By contrast, shifting the burden of adjustment away from taxes toward spending or away from capital taxes toward other taxes would generate longer-term production and consumption gains. Eliminating the rise in transfers to households during the boom would significantly reduce the burden of tax adjustment in the bust and the magnitude of the depression.
    Keywords: Greek Depression; Productivity; Nominal rigidity; Fiscal policy; Taxes
    JEL: E20 E32 E44 E62 F41
    Date: 2019–06–28
  7. By: Peter Tillmann (Justus-Liebig-University Giessen, Germany); Andreas Walter (Justus-Liebig-University Giessen, Germany)
    Abstract: The present paper studies the consequences of conflicting narratives for the transmission of monetary policy shocks. We focus on conflict between the presidents of the ECB and the Bundesbank, the main protagonists of monetary policy in the euro area, who often disagreed on policy over the past two decades. This conflict received much attention on financial markets. We use over 900 speeches of both institutions’ presidents since 1999 and quantify the tone conveyed in speeches and the divergence of tone among both both presidents. We find (i) a drop towards more negative tone in 2009 for both institutions and (ii) a large divergence of tone after 2009. The ECB communication becomes persistently more optimistic and less uncertain than the Bundesbank’s after 2009, and this gap widens after the SMP, OMT and APP announcements. We show that long-term interest rates respond less strongly to a monetary policy shock if ECB-Bundesbank communication is more cacophonous than on average, in which case the ECB loses its ability to drive the slope of the yield curve. The weaker transmission under high divergence reflects a muted adjustment of the expectations component of long-term rates.
    Keywords: Central bank communication, diverging tones, speeches, text analysis, monetary transmission
    JEL: E52 E43 E32
  8. By: Kimberly A. Berg; Chadwick C. Curtis; Steven Lugauer; Nelson C. Mark
    Abstract: We decompose the response of aggregate consumption to monetary policy shocks into contributions by households at different stages of the life cycle. This decomposition finds that older households have a higher consumption response than younger households. Amongst older households, the consumption response is also increasing in income. This, along with data on age-related net wealth, presents evidence for a wealth effect playing a role in driving the response patterns. This mechanism is studied further in a partial-equilibrium life-cycle model of consumption, saving, and labor-supply decisions. The model qualitatively explains the empirical patterns. Understanding the heterogeneity in consumption responses across age groups is important for understanding the transmission of monetary policy, especially as the U.S. population grows older.
    JEL: E0 E21 E52 J1 J11
    Date: 2019–06
  9. By: Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: For the second consecutive year, Armenia remains the fastest-growing EAEU economy. In 2018, it grew by 5.2% after 7.5% the year before. The main factors behind the slowdown in its economic activity were the more moderate growth of household consumption than in 2017 and a decline of consumption in the public sector. The EDB projects Armenian GDP growth to accelerate somewhat in 2019, assisted by increasing investment activity as the extraction industry gradually adapts to the new requirements, a recovery in agricultural output, and Government policy that supports investment, exports, and improving social conditions. In the medium term, GDP will trend towards its potential rate, that we estimate at some 5% per annum. During 2018, inflation remained below the 4% CBRA target; in December 2018 it was 1.8% YoY. The main factor behind inflation trends in 2018 was food price volatility after a lower harvest. According to our estimates, inflation will accelerate to 2.8% in 2019, driven by increasing domestic demand as wages and lending grow. By the end of 2021 inflation will approach the CBRA target (4%). Given the economic background, the CBRA did not change its refinancing rate (6%) in 2018 and thus maintained a stimulative monetary policy. Interest rates on loans and deposits decreased during the year. According to our base scenario projection, as inflation gradually accelerates and approaches the CBRA target level, the CBRA will begin a series of rate rises that we expect to have a neutral impact on economic growth and inflation. In 2018, amid economic activity growth, the government pursued a tight fiscal policy to maintain debt and fiscal sustainability. In the medium term, the focus of fiscal policy will remain the same.
    Keywords: macroeconomy; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2019–05–21
  10. By: Ricardo J. Caballero; Alp Simsek
    Abstract: Should monetary policy have a prudential dimension? That is, should policymakers raise interest rates to rein in financial excesses during a boom? We theoretically investigate this issue using an aggregate demand model with asset price booms and financial speculation. In our model, monetary policy affects financial stability through its impact on asset prices. Our main result shows that, when macroprudential policy is imperfect, small doses of prudential monetary policy (PMP) can provide financial stability benefits that are equivalent to tightening leverage limits. PMP reduces asset prices during the boom, which softens the asset price crash when the economy transitions into a recession. This mitigates the recession because higher asset prices support leveraged, high-valuation investors' balance sheets. An alternative intuition is that PMP raises the interest rate to create room for monetary policy to react to negative asset price shocks. The policy is most effective when there is extensive speculation and leverage limits are neither too tight nor too slack.
    JEL: E00 E12 E21 E22 E30 E40 G00 G01 G11
    Date: 2019–06
  11. By: Brown, Jason (Federal Reserve Bank of Kansas City); Tousey, Colton (Federal Reserve Bank of Kansas City)
    Abstract: Using a vector autoregression that allows for time-varying parameters and stochastic volatility, we show that U.S. core inflation became 75 percent less responsive to shocks in food prices since the late 1970s. The decline in the pass-through of food price shocks to inflation is a result of a decline in both volatility and the persistence of food price changes in inflation. This decline in pass-through coincides with a period of increasing concentration in the food supply chain, especially among U.S. grocery retailers and distributors. We find that 60 percent of the variation in pass-through over the last four decades can be explained by changes in food retailers’ and distributors’ market concentration. Controlling for the composition of the food basket and inflation expectations explains an additional 20 percent of the variation. {{p}} Our results suggest that if the market concentration of food retailers and distributors continues to increase and inflation expectations remain well-anchored, the pass-through of food price shocks to inflation will likely remain subdued.
    Keywords: Food Prices; Inflation; Time-varying Parameters
    JEL: E30 E31 E52 Q11
    Date: 2019–06–13
  12. By: Romain Houssa (DeFiPP (CRED & CeReFiM) - University of Namur; CES (University of Leuven) and CESifo); Jolan Mohimont (University of Namur and National Bank of Belgium); Chris Otrok (University of Missouri and Federal Reserve Bank of St Louis)
    Abstract: This paper develops a small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model that helps to explain business cycle synchronization between an emerging market and advanced economies. The model captures the specificities of both economies (e.g. primary commodity, manufacturing, intermediate inputs, and credit) that are most relevant for understanding the importance as well as the transmission mechanisms of a wide range of domestic and foreign (supply, demand, monetary policy, credit, primary commodity) shocks facing an emerging economy. We estimate the model with Bayesian methods using quarterly data from South Africa, the US and G7 countries. In contrast to the predictions of standard SOE models, we are able to replicate two stylized facts. First, our model predicts a high degree of business cycle synchronization between South Africa and advanced economies. Second, the model is able to account for the influence of foreign shocks in South Africa. We are also able to demonstrate the specific roles these shocks played during key historical episodes such as the global financial crisis in 2008 and the commodity price slump in 2015. The ability of our framework to capture endogenous responses of commodity and financial sectors to structural shocks is crucial to identify the importance of these shocks in South Africa.
    Keywords: Macroeconomic Policies, Emerging Markets, SOE, DSGE, Bayesian, Foreign shocks, Monetary Policy
    JEL: E3 E43 E52 C51 C33
    Date: 2019–04
  13. By: Chodorow-Reich, Gabriel; Karabarbounis, Loukas; Kekre, Rohan
    Abstract: The Greek economy experienced a boom until 2007, followed by a prolonged depression resulting in a 25 percent shortfall of GDP by 2016. Informed by a detailed analysis of macroeconomic patterns in Greece, we develop and estimate a rich dynamic general equilibrium model to assess quantitatively the sources of the boom and bust. Lower external demand for traded goods and contractionary fiscal policies account for the largest fraction of the Greek depression. A decline in total factor productivity, due primarily to lower factor utilization, substantially amplifies the depression. Given the significant adjustment of prices and wages observed throughout the cycle, a nominal devaluation would only have short-lived stabilizing effects. By contrast, shifting the burden of adjustment from taxes toward spending or from capital taxes toward other taxes would generate significant longer-term production and consumption gains.
    Keywords: Fiscal policy; Greek Depression; Nominal Rigidity; productivity; taxes
    JEL: E20 E32 E44 E62 F41
    Date: 2019–05
  14. By: Richard K. Crump; Stefano Eusepi; Marc Giannoni; Ayşegül Şahin
    Abstract: This paper bridges the gap between two popular approaches to estimating the natural rate of unemployment, u*. The first approach uses detailed labor market indicators such as labor market flows, cross-sectional data on unemployment and vacancies, or various measures of demographic changes. The second approach which comprises reduced form models and DSGE models relies on aggregate price and wage Phillips curve relationships. We combine the key features of these two approaches to estimate the natural rate of unemployment in the United States using both data on labor market flows and a forward-looking Phillips curve linking inflation to current and expected deviations of unemployment from its unobserved natural rate. We estimate that the natural rate of unemployment is around 4.0% toward the end of 2018 and that the unemployment gap is roughly closed. Identification of a secular downward trend in the unemployment rate, driven solely by the inflow rate, facilitates the estimation of u*. We identify the increase in labor force attachment of women, decline in job destruction and reallocation intensity, and dual aging of workers and firms as the main drivers of the secular downward trend in the inflow rate.
    JEL: D84 E24 E31 E32 J11
    Date: 2019–06
  15. By: Janice C. Eberly; James H. Stock; Jonathan H. Wright
    Abstract: We review and assess the monetary policy framework currently used by the Federal Reserve, with special focus on policies that operate through the slope of the term structure, including forward guidance and large scale asset purchases. These slope policies are important at the zero lower bound. We study the performance of counterfactual monetary policies since the Great Recession in the framework of a structural VAR, identified using high-frequency jumps in asset prices around FOMC meetings as external instruments. The intention is to give guidance to policymakers responding to future downturns. In our counterfactuals, we find that slope policies played an important role in supporting the recovery, but did not fully circumvent the zero lower bound. In our simulations, earlier and more aggressive use of slope policies support a faster recovery. The recovery would also have been faster, with the unemployment gap closing seven quarters earlier, if the Fed had inherited a higher level of inflation and nominal interest rates consistent with a higher inflation target coming into the financial crisis recession.
    JEL: C22 E43 E52
    Date: 2019–06
  16. By: Michael Funke (Hamburg University and CESifo); Petar Mihaylovski (Hamburg University); Haibin Zhu (JP Morgan Chase Bank)
    Abstract: The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.
    Keywords: DSGE model, monetary policy, financial market reform, shadow banking, China
    JEL: E32 E42 E52 E58
  17. By: Postel-Vinay, Natacha
    Abstract: The US Great Depression was preceded by almost a decade of credit growth. This review paper suggests that the 1920s credit boom went through two phases: one, up to around 1927, when credit grew in concert with money; another one, from around 1928 to 1929, when credit grew faster than money. Credit from commercial banks grew tremendously, but credit from savings institutions grew even more. The fact that money was relatively stable in the second phase fits Friedman and Schwartz’s finding that the 1920s were not an inflationary decade. Rather, the credit boom was reflected in asset price inflations which occurred in certain parts of the economy, such as the real estate and stock markets. As the literature tends to show, the growth of credit made households and financial institutions vulnerable to shocks. While a decoupling of credit growth from money growth in the post-1945 period has been previously noted (Schularick and Taylor 2012), this paper suggests that such a decoupling already occurred in 1920s America. Standard monetary policy tightening was not enough to quell the boom, which points to macro- and micro-prudential tools as potentially more successful alternative measures to keep credit under control.
    JEL: E44 E32 N11 N12
    Date: 2019–07
  18. By: Monique Reid; Zinette Bergman; Stan Du Plessis; Manfred Max Bergman; Pierre L. Siklos
    Abstract: Inflation is a monetary policy outcome, but in the short to medium term, price and wage decisions are co-determined by the public and private sectors. Many central banks have adopted transparency as a strategic policy approach, whereby communication of monetary policy goals is used as a public anchor. While the central bank’s strategy involves carefully crafted, deliberately simplified messages, most of the public tends to access inflation-related information through the media. In this paper, we examine South African newspaper articles to identify how inflation is presented in the media and the role of the media, through this presentation, in the process of shaping public opinion around inflation expectations. We do this in two ways. First, we examine how inflation is presented in the media and then we identify the various actors presented in the media, their positions on inflation, and how these relate to each other. The systematic analysis of the media’s presentation of inflation allows us to identify some challenges to the central bank’s communication strategy.
    Keywords: inflation, inflation expectation, South African Reserve Bank, content configuration analysis, newspaper, media
    JEL: E31 E52 E58 Z13
    Date: 2019–07
  19. By: Toshihiko Mukoyama (Department of Economics, Georgetown University); Mototsugu Shintani (Faculty of Economics, The University of Tokyo); Kazuhiro Teramoto (Department of Economics, New York University)
    Abstract: This paper analyzes the dynamics of full-time employment and part-time employment over the business cycle. We first document basic macroeconomic facts on these employment stocks using the U.S. data and decompose their cyclical dynamics into the contributions of different flows into and out of these stocks. Second, we develop and estimate a New Keynesian search-and-matching model with two labor markets to uncover the fundamental driving forces of the cyclical dynamics of employment stocks. We find that the procyclicality of the net flow from part-time to full-time employment is essential in accounting for countercyclical patterns of part-time employment. Key Words: Part-time employment; Bayesian estimation; DSGE model; Search, matching and bargaining. JEL Classi cation: E24; E32.
    Date: 2018–08
  20. By: Emanuele Borgonovo; Stefano Caselli; Alessandra Cillo; Donato Masciandaro; Giovanno Rabitti
    Abstract: The aim of this paper is to analyze the demand of both traditional and new media of exchange – as cryptocurrencies and central bank digital currencies – proposing a novel specification of the demand for money. In this specification, the medium of payment (MOP) has three properties: the first two are the MOP’s standard functions as a medium of exchange and as a store of value, while the third is a novel function as a store of privacy (anonymity value). The proposed framework is tested using a laboratory experiment. Our results show that anonymity matters, but less of the other two properties; at the same time, the presence of anonymity increases the overall appeal of a MOP, particularly if the individuals are risk prone; given anonymity, the sacrifice ratio between liquidity risk and opportunity cost are relatively high.
    Keywords: Money, Cryptocurrencies, Central bank Digital Currency, Cash, Baumol, Friedman, Experimental economics
    JEL: B22 D72 E41 E42 E52 E58 G38 K42
    Date: 2018
  21. By: Rasmus Fatum (University of Alberta); Naoko Hara (Bank of Japan); Yohei Yamamoto (Hitotsubashi University)
    Abstract: We consider the influence of domestic and US macroeconomic news surprises on a daily bond yields over the January 1999 to January 2018 period for four advanced Negative Interest Rate Policy (NIRP) economies – Germany, Japan, Sweden, and Switzerland. Our results suggest that the influence of macroeconomic news surprises is for all four countries under study during the NIRP period non-existent or noticeably weaker than during the preceding Zero Interest Rate Policy (ZIRP) period. Our results are consistent with the suggestion that NIRP is characterized by a lower bound that is no less constraining than the zero lower bound that characterizes ZIRP.
    Keywords: NIRP, Bond Yields, Macroeconomic News
    JEL: E43 E52 E58
  22. By: Jef Boeckx (Economics and Research Department, National Bank of Belgium); Maarten Dossche (European Central Bank); Alessandro Galesi (Bank of Spain); Boris Hofmann (Bank for International Settlements); Gert Peersman (Ghent University)
    Abstract: A growing empirical literature has shown, based on structural vector autoregressions (SVARs) identified through sign restrictions, that unconventional monetary policies implemented after the outbreak of the Great Financial Crisis (GFC) had expansionary macroeconomic effects. In a recent paper, Elbourne and Ji (2019) conclude that these studies fail to identify true unconventional monetary policy shocks in the euro area. In this note, we show that their findings are actually fully consistent with a successful identification of unconventional monetary policy shocks by the earlier studies and that their approach does not serve the purpose of evaluating identification strategies of SVARs.
    Keywords: Non-standard measures, structural VAR, identification, ECB.
    JEL: E52 C32 E58
    Date: 2019–06
  23. By: Immaculate Machasio (Justus-Liebig-University Giessen, Germany); Peter Tillmann (Justus-Liebig-University Giessen, Germany)
    Abstract: Remittance inflows from overseas workers are an important source of for- eign funding for developing and emerging economies. The literature is in- conclusive about the cyclical nature of remittance inflows. To the extent remittances are procyclical they pose a challenge to monetary policy: a tight- ening of policy will be less effective if at the same time remittances increase strongly. The same is true for a policy easing under exceptionally weak remit- tance inflows. This paper estimates a series of nonlinear (smooth-transition) local projections to study the effectiveness of monetary policy under differ- ent remittance inflows regimes. The model is able to provide state-dependent impulse response functions. We show that for Kenya, Mexico, Colombia and the Philippines monetary policy indeed has a smaller domestic effect under strong inflows of remittances. These results have important implications for the design of inflation targeting in developing countries.
    Keywords: Remittance inflows, monetary policy, inflation targeting, smooth- transition model, local projections
    JEL: E52 E32 O16
  24. By: Luis J. Álvarez (Banco de España); Ana Gómez-Loscos (Banco de España); María Dolores Gadea (University of Zaragoza)
    Abstract: Although there is a vast literature on GDP comovement across countries, there is scant evidence on inflation interdependence. We analyze inflation comovements across a wide set of advanced economies and across the subset of euro area countries. Some of our findings are expected, such as the fact that inflation interdependence among advanced economies is quite relevant, but is higher among euro area countries, which show strong trade links and a share common monetary policy, or the fact that inflation synchronization among countries is highest for energy prices, reflecting common oil shocks. We also find a robust puzzle: core inflation interdependence is fairly low and this result holds for both core goods and services. Inflation synchronization seems to be particularly linked to comovements in driving variables of open economy new Keynesian Phillips curve and mark-up pricing models.
    Keywords: inflation, synchronization, filtering, price heterogeneity, trend inflation
    JEL: E31 E32 C50
    Date: 2019–06
  25. By: Christopher M. Gunn (Department of Economics, Carleton University); Alok Johri (Department of Economics, McMaster University); Marc-André Letendre (Department of Economics, McMaster University)
    Abstract: We use aggregate banking data to uncover a new fact: U.S. banks counter-cyclically vary the proportion of defaulted loans that they charge-off. The variance of this “charge-offs to defaults” ratio is roughly 15 times larger than that of GDP. Canonical financial accelerator models cannot explain this variance. We show that introducing stochastic default costs into the model helps to resolve the discrepancywith the data. Estimating the augmented model on typical macroeconomic data using Bayesian techniques reveals that the estimated default cost shocks not only help account for the variance of the banking data but also help account for a significant fraction of the U.S. business cycle between 1984 and 2015.
    Keywords: Charge-offs and defaults, default cost shocks, financial acceleratormodels, business cycles
    JEL: E3 E44
    Date: 2019–07–05
  26. By: Michaillat, Pascal; Saez, Emmanuel
    Abstract: The New Keynesian model makes several anomalous predictions at the zero lower bound: collapse of output and inflation, and implausibly large effects of forward guidance and government spending. To resolve these anomalies, we introduce wealth into the utility function. The justification is that wealth is a marker of social status, and people value social status. Since people save not only for future consumption but also to accrue social status, the Euler equation is modified. As a result, when the marginal utility of wealth is sufficiently large, the dynamical system representing the equilibrium at the zero lower bound becomes a source instead of a saddle-which resolves all the anomalies.
    JEL: E32 E52 E62
    Date: 2019–06
  27. By: Michael Cauvel
    Abstract: This paper estimates the relationship between aggregate demand and the functional distribution of income in the U.S. economy using a series of aggregative VAR models. Like most previous aggregative studies, it finds evidence of Goodwin cycle effects—i.e. profit-led demand and a profit-squeeze effect—for the U.S. economy in baseline estimates using assumptions traditionally used in the aggregative literature. However, the results of other specifications suggest that these observed Goodwin cycle effects likely reflect a misinterpretation of procyclical variation in labor productivity—one of the main components of the wage share. When correcting for the cyclical effects of demand on productivity, the results differ dramatically; estimates are indicative of wage-led demand, and the effects of demand on distribution are mixed or insignificant. These findings suggest that evidence of Goodwin cycle effects is likely the result of biased estimates. Instead, it appears that the short-run relationship between the wage share and demand should be viewed as a combination of wage-led demand and procyclical productivity effects.
    Keywords: Functional distribution of income, neo-Kaleckian model, wage-led and profit-led demand regimes
    JEL: E11 E12 E25 E32
    Date: 2019–07
  28. By: Charles Engel (University of Wisconsin-Madison); Jungjae Park (National University of Singapore)
    Abstract: This study quantitatively investigates the currency composition of sovereign debt in the presence of two types of limited enforcement frictions arising from a government’s monetary and debt policy: strategic currency debasement and default on sovereign debt. Local currency debt obligations are state contingent in that the real value can be changed by a government’s monetary policy. It thus acts as a better consumption hedge against income shocks than foreign currency debt. However, this higher degree of state contingency for local currency debt provides a government with more temptation to deviate from disciplined monetary policy, thus restricting borrowing in local currency more than in foreign currency. The two financial frictions related to the two limited enforcement problems combine to generate an endogenous debt frontier for local and foreign currency debts. Our model predicts that a less disciplined country in terms of monetary policy borrows mainly in foreign currency, as the country faces a much tighter borrowing limit for local currency debt than for the foreign currency debt. Our model accounts for the surge in local currency borrowings by emerging economies in the recent decade and the “Mystery of Original Sin”. An important extension demonstrates that in the presence of an expectational Phillips curve, local currency debt improves the ability of monetary policymakers to commit.
    JEL: E32 E44 F34
  29. By: Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: In 2018, Kazakh GDP grew by 4.1%, supported by increased oil production and a favorable price situation in the world energy market. Revival of credit activity fostered expansion in consumer and investment demand. Separate sectors’ contribution to overall economic growth changed during the year. In the 1st half of 2018, the GDP increase was driven by high rates of growth in oil production and the manufacturing sectors. In the 2nd half of 2018, industry reduced its contribution to GDP growth while trade turnover and construction activity growth accelerated. Inflation was 5.3% YoY in 2018, within the National Bank’s target range (5–7%). The decrease in motor fuel prices after the upgrade of major oil refineries was completed, as well as the reduction in electricity and heat tariffs for households, did much to slow down inflation. As inflation slowed in 2018, the National Bank reduced its base interest rate repeatedly, to reach 9.25% at the end of the year (compared to 10.25% a year before). The Kazakh tenge exchange rate vs. the U.S. dollar and euro decreased in 2018. Trends in the Kazakh currency were in line with those of developing economies’ currencies, i. e. a weakening as the U. S. Federal Reserve System increased its rate and the world’s economic and political risks overall grew. Kazakhstan’s consolidated budget posted a surplus in 2018, the first time since 2015. The factors behind the budget improvement included the State’s increasing incomes amid a relatively favorable external environment and economic growth, as well as decreased public spending on reviving the banking system compared to 2017. In 2019, we expect economic growth to slow down to 3.3% as oil production declines due to planned oilfield repair works. Next year, we forecast GDP growth at 3.5%. Inflation in 2019–2021 is projected to be within the National Bank’s target range (4–6%) and to gradually approach its lower limit by the end of the projection period, as the interest rate on interbank loans in tenge is kept near its neutral level, which we estimate at 7.5–8%.
    Keywords: macroeconomy; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2019–05–21
  30. By: James H. Stock; Mark W. Watson
    Abstract: We investigate the flattening Phillips relation by making two departures from standard specifications. First, we measure slack using real activity variables that are bandpass filtered or year-over-year changes in activity (these are similar), instead of gaps. Second, we study the components of inflation instead of the standard aggregates. We find that some inflation components have strong and stable correlations with the cyclical component of real activity; these components tend to be relatively well-measured and domestically determined. Other components, typically prices that are poorly measured or internationally determined, have weak and/or unstable correlations with cyclical activity. We construct a new inflation index, Cyclically Sensitive Inflation, that weights the components by their joint cyclical covariation with real activity. The index has strong and stable correlations with cyclical activity and provides a real-time measure of cyclical movements in inflation.
    JEL: E31 E32
    Date: 2019–06
  31. By: Anna Samarina (De Nederlandsche Bank & University of Groningen); Anh D.M. Nguyen (Bank of Lithuania & Vilnius University)
    Abstract: This paper examines how monetary policy affects income inequality in 10 euro area countries over the period 1999–2014. We distinguish macroeconomic and financial channels through which monetary policy may have distributional effects. The macroeconomic channel is captured by wages and employment, while the financial channel by asset prices and returns. We find that expansionary monetary policy in the euro area reduces income inequality, especially in the periphery countries. The macroeconomic channel leads to these equalizing effects: monetary easing reduces income inequality by raising wages and employment. However, there is some indication that the financial channel may weaken the equalizing effect of expansionary monetary policy.
    Keywords: income inequality, monetary policy, euro area
    JEL: D63 E50 E52
    Date: 2019–06–14
  32. By: Paul, Saumik (Osaka University)
    Abstract: The accumulation principle suggests that complementarity between capital and labor forces the labor income share to rise in the presence of capital accumulation. The CES model estimates using data from 20 Japanese industries between 1970 and 2012 explain the same outcome but with substitutable factor inputs. To resolve this puzzle, this paper proposes a variable elasticity of substitution (VES-W) framework that embodies a variable elasticity of substitution and a share parameter as a non-linear function of the Weibull distribution of capital-labor ratio. Empirical findings support the choice of a variable elasticity of substitution. While the estimated structural parameters calibrate the actual output level and the movements in factor income shares reasonably well in both the CES and VES-W models, the VES-W model outcomes support the accumulation principle by achieving the same result but with complementary factor inputs.
    Keywords: substitution elasticity, labor income share, production function parameters
    JEL: E21 E22 E25
    Date: 2019–06
  33. By: Klaus Adam; Michael Woodford
    Abstract: We analytically characterize optimal monetary policy for an augmented New Key- nesian model with a housing sector. In a setting where the private sector has rational expectations about future housing prices and inflation, optimal monetary policy can be characterized without making reference to housing price developments: commitment to a 'target criterion' that refers to inflation and the output gap only is optimal, as in the standard model without a housing sector. When the policymaker is concerned with po- tential departures of private sector expectations from rational ones and seeks to choose a policy that is robust against such possible departures, then the optimal target criterion must also depend on housing prices. In the empirically realistic case where housing is subsidized and where monopoly power causes output to fall short of its optimal level, the robustly optimal target criterion requires the central bank to 'lean against' housing prices: following unexpected housing price increases, policy should adopt a stance that is projected to undershoot its normal targets for inflation and the output gap, and simi- larly aim to overshoot those targets in the case of unexpected declines in housing prices. The robustly optimal target criterion does not require that policy distinguish between 'fundamental' and 'non-fundamental' movements in housing prices.
    JEL: D81 D84 E52
    Date: 2018–05
  34. By: Roberto Tamborini; Matteo Tomaselli
    Abstract: This paper aims at explaining what drove the adoption of austerity policies over the period 2010-16 in a panel of 28 European countries. Austerity is identified by year increases in the ratio between the structural primary balance and potential GDP. By means of principal component factor analysis we select the aggregate factors that might affect austerity, namely (i) fiscal consolidation (correction of high deficits and debts), (ii) market discipline (high sovereign spreads, low ratings), (iii) rule-based fiscal discipline (compliance with the Eurozone rules), and macroeconomic stabilisation (consideration for the cyclical position of the economy). Then we estimate a dynamic panel model with the system-GMM method. Results show that the most important contributions to austerity are provided by the market discipline and fiscal consolidation factors together with Excessive Deficit Procedures, with no significant role played by concomitant macroeconomic conditions. Overall, governments complied with orthodox fiscal principles and rules.
    Keywords: Austerity, Fiscal reaction functions, Principal component factor analysis, Dynamic panel data analysis
    JEL: E6 E62 E65
    Date: 2019
  35. By: Germán Gutiérrez; Thomas Philippon
    Abstract: We study the entry and exit of firms across U.S. industries over the past 40 years. The elasticity of entry with respect to Tobin’s Q was positive and significant until the late 1990s but declined to zero afterwards. Standard macroeconomic models suggest two potential explanations: rising entry costs or rising returns to scale. We find that neither returns to scale nor technological costs can explain the decline in the Q- elasticity of entry, but lobbying and regulations can. We reconcile conflicting results in the literature and show that regulations drive down the entry and growth of small firms relative to large ones, particularly in industries with high lobbying expenditures. We conclude that lobbying and regulations have caused free entry to fail.
    JEL: D4 D6 E22 E23 K2 L0 O3 O4
    Date: 2019–06
  36. By: Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: This paper studies the non-linear response of the term structure of interest rates to monetary policy shocks and presents a new stylized fact. We show that uncertainty about monetary policy changes the way the term structure responds to monetary policy. A policy tightening leads to a significantly smaller increase in long-term bond yields if policy uncertainty is high at the time of the shock. We also look at the decomposition of bond yields into expectations about future policy and the term premium. The weaker response of yields is driven by the fall in term premia, which fall even more if uncertainty about policy is high. These findings are robust to the measurement of monetary policy uncertainty, the definition of the monetary policy shock and to changing the model specification. Conditional on a monetary policy shock, higher uncertainty about monetary policy tends to make yields of longer maturities relatively more attractive. As a consequence, investors demand even lower term premia. This intuition is supported by long-term monetary pol- icy disagreement, which leads to opposite effects with term premia increasing even more after a policy shock.
    Keywords: Monetary policy uncertainty, term structure, term premium, unconventional monetary policy, local projections
    JEL: E43 E58 G12
  37. By: Sophia Chen (International Monetary Fund); Lev Ratnovski (European Central Bank and International Monetary Fund); Pi-Han Tsai (Zhejiang University)
    Abstract: We estimate credit and fiscal multipliers in China, using subnational political cycles as a source of exogenous variation. The tenure of the provincial party secretary, interacted with the credit and fiscal expenditure used in other provinces, instruments for provincial credit and government expenditure growth. We find a fiscal multiplier of 0.75 in 2001-2008, which increased to 1.2 in 2010-2015, consistent with higher multipliers in a slower economy. At the same time, a credit multiplier of 0.2 in 2001-2008 declined to close to zero in 2010-2015, consistent with credit saturation and credit misallocation. Our results suggest that credit expansion cannot further support economic growth in China. The flip side is that lower credit growth is also unlikely to disrupt output growth. Fiscal policy is powerful, and can cushion the macroeconomic adjustment to lower credit intensity.
    Keywords: Credit Growth, Fiscal Stimulus, Macroprudential Policy, Multipliers, China
    JEL: E63 G21 H20 R12
  38. By: Lorenza Rossi; Emilio Zanetti Chini
    Abstract: We provide new disaggregated data and stylized facts on firm dynamics of the U.S economy by using a state-space method to transform Census yearly data of entry and exit from 1977 to 2013 into quarterly frequency. Entry is lagging and symmetric, while exit is leading and asymmetric along the business cycle. We select the most significant determinants of these variables by matching Census data with a new database by Federal Reserve. These determinants differ considerably among entry and exit. Finally, standard macroeconometric models estimated on our disaggregated series support the recent theoretical literature, according to which the cleansing effect of recession is mainly due to exit asymmetry.
    Keywords: Bayesian VAR; Firms and Establishments; Productivity; State-Space Models
    JEL: C13 C32 C40 E30 E32
    Date: 2019–06
  39. By: Danilo Leiva-Leon (Banco de España); Lorenzo Ductor (Universidad de Granada)
    Abstract: We rely on a hierarchical volatility factor approach to estimate and decompose time-varying second moments of countries output growth into global, regional and idiosyncratic contributions. We document a “global moderation” of international business cycles, defined as a persistent decline in macroeconomic volatility across the main world economies. This decline in volatility was induced by a reduction in the underlying global component, uncovering a new level of interconnection of the world economy. After assessing the importance of different economic factors, we find that the reduction in overall countries macroeconomic volatility can be mainly explained by the increasing trade openness exhibited in recent decades. Likewise, the idiosyncratic component of countries volatility is also influenced by domestic monetary policies.
    Keywords: output volatility, factor model, model uncertainty
    JEL: C11 C32 F44 E32
    Date: 2019–07
  40. By: David Byrne; Carol Corrado
    Abstract: This paper develops a framework for measuring digital services in the face of ongoing innovations in the delivery of content to consumers. We capture what Brynjolfsson and Saunders (2009) call "free goods" as the capital services generated by connected consumers' stocks of IT digital goods, a service flow that augments the existing measure of personal consumption in GDP. Its value is determined by the intensity with which households use their IT capital to consume content delivered over networks, and its volume depends on the quality of the IT capital. Consumers pay for delivery services, however, and the complementarity between device use and network use enables us to develop a quality-adjusted price measure for the access services already included in GDP. Our new estimates imply that accounting for innovations in consumer content delivery matters: The innovations boost consumer surplus by nearly $1,800 (2017 dollars) per connected user per year for the full period of this study (1987 to 2017) and contribute more than 1/2 percentage point to US real GDP growth during the last ten. All told, our more complete accounting of innovations is (conservatively) estimated to have moderated the post-2007 GDP growth slowdown by nearly .3 percentage points per year.
    JEL: E01 E21 E22 O31
    Date: 2019–06
  41. By: Brill, Maximilian; Nautz, Dieter; Sieckmann, Lea
    Abstract: We introduce a Divisia monetary aggregate for the euro area that accounts for the heterogeneity across member countries both, in terms of interest rates and the decomposition of monetary assets. In most of the euro area countries, the difference between the growth rates of the country-specific Divisia aggregate and its simple sum counterpart is particularly pronounced before recessions. The results obtained from a panel probit model confirm that the divergence between the Divisia and the simple sum aggregate has a significant predictive content for recessions in euro area countries.
    Keywords: Monetary aggregation,Euro area Divisia aggregate,Recessions
    JEL: E51 E32 C43
    Date: 2019
  42. By: Danilo Leiva-Leon (Banco de España.); Lorenzo Ductor (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: We rely on a hierarchical volatility factor approach to estimate and decompose timevarying second moments of output growth into global, regional and idiosyncratic contributions. We document a “global moderation” of international business cycles, defined as a persistent decline in macroeconomic volatility across the main world economies. This decline in volatility was induced by a reduction in the underlying global component, uncovering a new level of interconnection of the world economy. After assessing the importance of different economic factors, we find that the reduction in overall countries macroeconomic volatility can be mainly explained by the increasing trade openness exhibited in recent decades. Likewise, the idiosyncratic component of countries volatility is also influenced by domestic monetary policies.
    Keywords: Output Volatility, Factor Model, Model Uncertainty.
    JEL: C11 C32 F44 E32
  43. By: Michael B. Devereux (Vancouver school of economics, University of British Columbia, NBER and CEPR); Karine Gente (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE, Marseille, France); Changhua Yu (China Center for Economic Research, National School of Development, Peking University, Beijing, China,)
    Abstract: This paper analyzes the impact of fiscal spending shocks in a multi-country model with international production networks. In contrast to standard results suggesting that production network linkages are unimportant for the aggregate response to macro shocks in a closed economy, we show that network structures may place a central role in the international propagation of fiscal shocks, particularly when wages are slow to adjust. The paper first develops a simple general equilibrium multi-country model and derives some analytical results on the response to fiscal spending shocks. We then apply the model to an analysis of fiscal spillovers in the Eurozone, using the calibrated sectoral network structure from the World Input Output Database (WIOD). In a version of the model with sticky wages, we find that fiscal spillovers from Germany and other some other large Eurozone countries may be large, and within the range of empirical estimates. More importantly, we find that the Eurozone production network very important for the international spillovers. In the absence of international production network linkages, spillovers would be only a third as large as predicted by the baseline model. Finally, we explore the diffusion of identified German government spending at the sectoral level, both within and across countries. We find that government expenditures have both significant upstream and downstream effects when these links are measured by the direction of sectoral production linkages.
    Keywords: production network, fiscal policy, spillovers, Eurozone, terms of trade, nominal rigidities
    JEL: E23 E62 F20 F42 H50
    Date: 2019–07
  44. By: Asiya Maskaeva; Joel Mmasa; Nicodemas Lema; Mgeni Msafiri
    Abstract: The Tanzanian government has established a goal to transform the country into a middle-income and semi-industrialized state by 2025. To promote this transformation, the government exempted the Value Added Tax on capital commodities in FY 2017-2018 as a way to promote utilization of these commodities by manufacturing industries and generate growth, employment, and increased incomes. This study analyzes the impact of a reduction in Value Added Tax on capital commodities (electricity, vehicles, machinery, and equipment) under two different closure rules: (1) fixed governmental expenditures and flexible governmental savings (2) flexible governmental expenditures and fixed governmental savings. Under the first regime, government savings declined and industries that depended heavily on government investments suffered. In the second, output increased for all industrial sectors, leading to a decrease in average unemployment. Real consumption increased for all but the richest household categories.
    Keywords: Fiscal Policy, Government Budget, Household Income, CGE Modelling, Social Accounting Matrix
    JEL: C68 E62 H50 E64
    Date: 2019
  45. By: Nauro F. Campos (Brunel University London and ETH Zurich); Jarko Fidrmuc (ZU Friedrichshafen, CESifo Munich and KTU Kaunas); Iikka Korhonen (Bank of Finland)
    Abstract: This paper offers a first systematic evaluation of the evidence on the effects of currency unions on the synchronisation of economic activity. Focusing on Europe, we construct a database of about 3,000 business cycles synchronisation coefficients and their design and estimation characteristics. We find that: (1) synchronisation increased from about 0.4 before the introduction of the euro in 1999 to 0.6 afterwards; (2) this increase occurred in both euro and non-euro countries (larger in former); (3) there is evidence of country-specific publication bias; (4) our differences-in-differences estimates suggest the euro accounted for approximately half of the observed increase in synchronisation.
    Keywords: business cycles synchronisation, optimum currency areas, EMU, euro, meta-analysis
    JEL: E32 F42
  46. By: Pablo Aguilar (Banco de España); Samuel Hurtado (Banco de España); Stephan Fahr (European Central Bank); Eddie Gerba (Danmarks Nationalbank)
    Abstract: This paper contributes by providing a new approach to study optimal macroprudential policies based on economy wide welfare. Following Gerba (2017), we pin down a welfare function based on a first-and second order approximation of the aggregate utility in the economy and use it to determine the merits of different macroprudential rules for Euro Area. With the aim to test this framework, we apply it to the model of Clerc et al. (2015). We find that the optimal level of capital is 15.6 percent, or 2.4 percentage points higher tan the 2001-2015 value. Optimal capital reduces significantly the volatility of the economy while increasing somewhat the total level of welfare in steady state, even with a time-invariant instrument. Expressed differently, bank default rates would have been 3.5 percentage points lower while credit and GDP 5% and 0.8% higher had optimal capital level been in place during the 2011-2013 crisis. Further, using a model-consistent loss function, we find that the optimal Countercyclical Capital Buffer (CCyB) rule depends on whether observed or optimal capital levels are already in place. Conditional on optimal capital level, optimal CCyB rule should respond to movements in total credit and mortgage lending spreads. Gains in welfare from optimal combination of instruments is higher than the sum of their individual effects due to synergies and positive mutual spillovers.
    Keywords: optimal policy, global welfare analysis, financial stability, financial DSGE model, macroprudential policy
    JEL: G21 G28 G17 E58 E61
    Date: 2019–07
  47. By: Lena Kraus (Universitaet Bayreuth); Juergen Beier (Universitaet Bayreuth); Bernhard Herz (Universitaet Bayreuth)
    Abstract: During the Great Financial Crisis several European countries - both inside and out- side the euro area - suffered sharp reversals of private capital inflows. We examine how macroeconomic adjustments to sudden stops differ between members of the euro area and countries pegging the euro, the closest alternative to joining the euro. We focus on a key difference between a conventional euro peg and full euro membership: the quasi-automatic public financing of external deficits via the euro area payments system TARGET2. Our simulation results indicate that access to TARGET2 helps to mitigate the adverse effects of a sudden stop on output, consumption and investment, at least in the short run. As a drawback economic rebalancing is prolonged and accompanied by a considerable build-up of public debt. In contrast, euro peggers without access to public external finance suffer a sharp economic down- turn when subject to a sudden stop. On the upside, economic recovery is prompt and government debt remains stable. Estimation results for a group of euro area members and euro peggers are in line with our simulation results.
    Keywords: Sudden stops, TARGET2, collateral constraint, capital flows
    JEL: D53 E58 F32 F41 G15
  48. By: Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: In 2018, the EDB member countries faced a number of challenges to regional macroeconomic stability. The main risks resulted from the global economic slowdown, growing protectionist trends in world trade and increased volatility in developing markets. Higher geopolitical tensions also had an impact on the regional macroeconomic situation. Despite the growing external challenges, the macroeconomic situation remained stable in the region, with most EDB countries’ fiscal policies aimed at achieving more sustainable economic growth and a balanced monetary policy. The favorable oil price during most of 2018 was another factor behind the improvement in the region’s economy. All the EDB member countries recorded positive growth rates in 2018, which we estimate at 2.0% overall. Inflation reached a record low and will stay within the central banks’ target ranges for 2018. The EDB member countries’ mutual trade grew by 12.5% versus January to September 2017. The 2017 and 2018 economic growth in the region was significantly assisted by eased monetary policies. Yet the recovery cycle is ending, while the inflationary risks are high. These factors combine to limit monetary policy’s ability to continue stimulating the economy. With the external risks mounting, it is increasingly important to find new sources of sustainable growth, in particular, by means of reforms intended to raise the economies’ efficiency and improve the investment climate. In the special report the team of authors gives recommendations concerning economic policy measures that might help overcome an economy’s structural and institutional limitations, taking Armenia as an example. Analysis of the structural gaps existing in Armenia allows us to identify the areas of reform that are being successful – as well as those which are lagging. In 2018, some member-states’ authorities initiated structural reforms. The Government of the Russian Federation announced a package of structural changes intended to stimulate sustainable growth of investment activity and pursue long-term social objectives. In Kazakhstan, presidential initiatives announced in the spring and fall of 2018 are largely intended to enhance the population’s welfare by improving the business environment and developing human capital. Such reforms may help improve the quality of Kazakhstan’s economic growth in the long run by making it more sustainable and based on an inclusive model of economic development.
    Keywords: macroeconomy; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2018–12–04
  49. By: Paul Gomme (Concordia University, CIREQ and CIRANO)
    Abstract: How should governments choose tax rates when they face competition from other jurisdictions? This questions is answered by solving for the Nash equilibrium of the game played between Ramsey planners in a two good, two country open economy macroeconomic model. It is shown, analytically, that the planers do not tax capital income in the long run. Short term results, obtained computationally, reveal that the government of the larger country manages the path of the real exchange rate in order to manipulates its smaller rival's choice of tax rates. Tax competition does not lead to a "race to the bottom."
    Keywords: Optimal fiscal policy; open economy macroeconomics; Ramsey taxation
    JEL: E32 E52 F41
    Date: 2019–07–02
  50. By: Georgios Georgiadis (European Central Bank); Martina Jancokova (European Central Bank)
    Abstract: Financial globalisation and spillovers have gained immense prominence over the last two decades. Yet, powerful cross-border financial spillover channels have not become a standard element of structural monetary models. Against this back- ground, we hypothesise that New Keynesian DSGE models that do not feature powerful financial spillover channels confound the effects of domestic and foreign disturbances when confronted with the data. We derive predictions from this hypothesis and subject them to data on monetary policy shock estimates for 29 economies obtained from more than 280 monetary models in the literature. Consistent with the predictions from our hypothesis we find: Monetary policy shock estimates obtained from New Keynesian DSGE models that do not account for powerful financial spillover channels are contaminated by a common global component; the contamination is more severe for economies that are more susceptible to financial spillovers in the data; and the shock estimates imply implausibly similar estimates of the global output spillovers from monetary policy in the US and the euro area. None of these findings applies to monetary policy shock estimates obtained from VAR and other statistical models, financial market expectations and the narrative approach.
    Keywords: Financial globalisation, spillovers, monetary policy shocks, New Keynesian DSGE models
    JEL: F42 E52 C50
  51. By: Diego Bodas (Mapfre); Juan R. García López (BBVA Research); Tomasa Rodrigo López (BBVA Research); Pep Ruiz de Aguirre (BBVA Research); Camilo A. Ulloa (BBVA Research); Juan Murillo Arias (BBVA data & analytics); Juan de Dios Romero Palop (BBVA data & analytics); Heribert Valero Lapaz (BBVA data & analytics); Matías J. Pacce (Banco de España)
    Abstract: In this paper we present a high-dimensionality Retail Trade Index (RTI) constructed to nowcast the retail trade sector economic performance in Spain, using Big Data sources and techniques. The data are the footprints of BBVA clients from their credit or debit card transactions at Spanish point of sale (PoS) terminals. The resulting indexes have been found to be robust when compared with the Spanish RTI, regional RTI (Spain’s autonomous regions), and RTI by retailer type (distribution classes) published by the National Statistics Institute (INE). We also went one step further, computing the monthly indexes for the provinces and sectors of activity and the daily general index, by obtaining timely, detailed information on retail sales. Finally, we analyzed the high-frequency consumption dynamics using BBVA retailer behavior and a structural time series model.
    Keywords: retail sales, big data, electronic payments, consumption, structural time series model
    JEL: C32 C81 E21
    Date: 2019–07
  52. By: Mario Alloza (Banco de España); Carlos Sanz (Banco de España)
    Abstract: We estimate the employment effect of a large fiscal stimulus in Spain (PlanE), in which the national government transferred funds to municipalities to carry out local investment projects. Using a difference-in-difference approach by exploiting variation in the timing of the execution of projects across municipalities, we find that 100,000 euros of stimulus reduced unemployment by 0.62 jobs per year. We allow for possible spatial effects, i.e. the propagation of the stimulus to neighboring municipalities, and find that these are sizable, representing 8.4% of the “local” effect. We also present evidence on the transmission mechanism, finding that the effect was: (i) initially concentrated in the construction and industrial sectors, but later spilled over to the broader economy, (ii) larger for males than females, (iii) larger when the shock represented a higher share of the budget, and (iv) not larger for municipalities headed by more educated mayors. Our estimate of the multiplier falls in the lower range of previous work.
    Keywords: fiscal policy, local fiscal multipliers, spillovers
    JEL: E24 E62 H30 H72
    Date: 2019–06
  53. By: Kristina Barauskaite (Bank of Lithuania & ISM University of Management and Economics); Anh D.M. Nguyen (Bank of Lithuania & Vilnius University)
    Abstract: This study investigates the role of intersectoral networks in the transmission of aggregate technology shocks to sectors’ growth. First, we develop a theoretical model to obtain insights into the propagation of shocks through input-output linkages, which suggests that the network effect arises via sectoral downstream linkages. We then quantitatively assess this theoretical implication with US manufacturing industries, where the aggregate technology shocks are derived from a dynamic factor model. We find that aggregate technology shocks lead to an increase in the output growth of the sector, both directly and indirectly via its intersectoral linkages. More interestingly, we document a crucial role of the intersectoral network channel, which contributes about 50 percent of the total effect. In addition, the network-based effect comes mostly from downstream linkages of sectors, which is broadly consistent with theory.
    Keywords: Input-Output Linkages, Intersectoral Network, Business Cycle, Aggregate Technology Shocks, TFP, Manufacturing Industries, Productivity
    JEL: E32 C67 C33 L16 D24
    Date: 2019–06–25
  54. By: -
    Abstract: Highlights: • In the first quarter of 2019, the U.S. economy grew at an above-trend annualized rate of 3.1%, despite the government shutdown and concerns about residual seasonality. Growth was driven by exports and a buildup in inventories. • In May, U.S. employers added just 75,000 jobs, one of the smaller gains since the recession ended in mid-2009. • U.S. consumer price inflation moderated in May, suggesting inflationary pressures remain muted. Over the last 12 months, the all items Consumer Price Index (CPI) rose 1.8%. The core CPI was up 2.0%. • The U.S. current account deficit fell to US$ 130 billion in the first quarter of 2019 (2.5% of GDP), from US$ 144 billion in the fourth quarter. Despite the decline, the current account deficit in the first quarter of 2019 is the second largest of the past decade. • The Federal Open Market Committee (FOMC) kept the target range for the fed funds rate steady but indicated in its statement that it could soon cut it to help sustain the economic expansion. • Trade risks and the uncertainty they create have prompted predictions of Fed rate cuts in the second half of the year. While the U.S. economy is still growing at a relatively strong pace, with unemployment at record lows, escalating trade disputes have heightened concerns about a looming downturn. • June marks the 10th anniversary since the end of the last recession. In July, the current expansion will become the longest on record.
    Date: 2019–07–03
  55. By: Stefan Ederer (Austrian Institute of Economic Research (AT)); Maximilian Mayerhofer; Miriam Rehm
    Abstract: This paper estimates rates of return across the gross wealth distribution in eight European countries. Like differential saving rates, differential rates of return matter for Post Keynesian theory, because they impact the income and wealth distribution and add an explosive element to growth models. We show that differential rates of return matter empirically by merging data on household balance sheets with long-run returns for individual asset categories. We find that (1) the composition of wealth differentiates between three socioeconomic groups: 30% are asset-poor, 65% are middle-class home owners, and the top 5% are business-owning capitalists; (2) rates of return rise across all groups; and (3) rates of return broadly follow a log-shaped function across the distribution, where inequality in the lower half of the distribution is higher than in the upper half. If socioeconomic groups are collapsed into the bottom 95% workers and top 5% capitalists, then rates of return are 5.6% for the former and 7.2% for the latter.
    Keywords: rate of return, differential, wealth, distribution
    JEL: D31 D33 E12 E21 E43
    Date: 2019–07
  56. By: Leonardo Villar; Camila Pérez; Viviana Alvarado
    Abstract: El leasing es un mecanismo de financiación mediante el cual una entidad (comúnmente conocida como arrendador) pone a disposición a un cliente (denominado el arrendatario o locatario), un activo, que está bajo su propiedad, por un periodo de tiempo y a cambio de un pago periódico de una suma de dinero, denominada canon. Este mecanismo es usado para financiar la adquisición de activos productivos (e.g. equipos, vehículos, inmuebles).
    Keywords: Leasing, Leasing Financiero, Leasing Habitaciona, lLeasing Operativo, Arrendamiento Financiero, Financiamiento de Empresas, Financiamiento a Pymes, Leasing Renting, Colombia
    JEL: G21 G29 G32 E44 O16 E51
    Date: 2018–12–12
  57. By: Cesare Dosi; Michele Moretto; Roberto Tamborini
    Abstract: Is a fiscal stimulus of investment a viable complement to, or substitute for, monetary policy? We address this issue by means of real option valuation of a business investment which generates private as well as public benefits. A surge in uncertainty about private profitability delays investment to an extent that may not be offset by monetary policy (conventional or not). Turning to fiscal policy, we examine the welfare effects of different policy schemes: (i) a simple subsidy on investment, (ii) a balanced-budget stimulus where the subsidy is subsequently covered by profit taxation, and (iii) by taxing public benefits as well. We show that, under a balanced- budget stimulus, investment acceleration may come at the expense of decreased total (private and public) welfare and that the higher is uncertainty about private returns, the more likely is a net efficiency loss. However, the risk of such negative outcome strongly declines when the government spending is balanced by taxing both private and public returns on investment.
    Keywords: investment, Fiscal stimulus, balanced-budget contraints, Real options
    JEL: E62 E63 D92 G3
    Date: 2019
  58. By: Effrosyni Adamopoulou; Ezgi Kaya
    Abstract: This paper explores the impact of the 2007 European Union enlargement on the consumption behavior of immigrant households. Using data from a unique Italian survey and a difference-in-differences approach, we find that the enlargement induced a significant consumption increase for the immigrant households from new member states both in the short- and in the medium-run. This enlargement effect cannot be attributed to the mere legalization as it concerns both undocumented and documented immigrants, albeit through different channels. Detailed information on immigrants' legal status (undocumented/documented) and sector of employment (informal/formal) allows us to shed light on the exact mechanisms. Following the enlargement, previously undocumented immigrants experienced an increase in the labor income by moving from the informal towards the formal economy, whereas immigrants who were already working legally in Italy benefitted from the increased probability of getting a permanent contract. Enhanced employment stability in turn reduced the uncertainty about future labor income leading to an increase in documented immigrants' consumption expenditure.
    Keywords: consumption; citizenship; informality; (un)documented immigrants; work permit
    JEL: D12 E21 F22
    Date: 2019–07
  59. By: Michael J. Pries; Richard Rogerson
    Abstract: Using the Quarterly Workforce Indicators, we document that a significant amount of the decline in labor market turnover during the last two decades is accounted for by the decline in employment spells that last less than a quarter. Using a search and matching model that incorporates noisy signals about the quality of a worker-firm match, we show that improved candidate screening by firms can account for the decline in short-lived employment spells. Quantitative exercises show that this explanation can account for the observed changes in various labor market outcomes, whereas alternative potential explanations, such as increased hiring costs, cannot.
    JEL: E24 J23
    Date: 2019–06
  60. By: Pedro Bento; Diego Restuccia
    Abstract: A well-documented observation of the U.S. economy in the last few decades has been the steady decline in the net entry rate of employer firms, a decline in business dynamism, suggesting a possible connection with the recent slowdown in aggregate productivity growth. We consider the role of nonemployers, businesses without paid employees, in business dynamism and aggregate productivity. Notwithstanding the decline in the growth of employer firms, we show that the total number of firms, which includes nonemployer businesses, has increased in the U.S. economy since the early 1980s. We interpret this trend, along with the evolution of the employment distribution across firms, through the lens of a standard theory of firm dynamics. The model implies that firm dynamics have contributed to an average annual growth rate of aggregate productivity of at least 0.26% since the early 1980s, over one quarter of the productivity growth of 1% in the data. Further, our implied measure of productivity growth moves closely over time with measured productivity growth in the data.
    JEL: E02 E1 O1 O4 O51
    Date: 2019–06
  61. By: Luca Fantacci; Lucio Gobbi; Stefano Lucarelli
    Abstract: This paper presents a critical analysis of the way in which international monetary economics is normally taught. The objective of this paper is twofold. On the one hand, we show how the most popular international economics manuals deal with exchange rate theory and its link with balance of payments equilibrium. In particular, we stress how the models proposed in these manuals cannot explain one of the biggest macroeconomic problems of our time, that of the imbalances of the balance of payments. On the other hand, we put forward an alternative Keynesian model. Assuming neither full employment nor balanced trade over the short or long run, the paper is intended as a new contribution to the post-Keynesian analysis of exchange rate theory. Finally, our model gives an original insight into the relationship between Liquidity Trap and structural economic imbalances in modern economies.
    Keywords: international monetary economics, exchange rate determination, endogenous money, global imbalances, post-Keynesian economics
    JEL: A20 B50 E12 F41
    Date: 2019
  62. By: Gözgör, Giray; Bilgin, Mehmet Huseyin; Rangazas, Peter
    Abstract: In this paper, we conduct an empirical study of the effect of uncertainty on fertility. The precautionary motive for saving predicts that an increase in uncertainty increases saving by reducing both consumption and fertility. We use a new measure of uncertainty, the World Uncertainty Index, and focus on data from 126 countries for the period from 1996 to 2017. The empirical findings indicate that uncertainty shocks decrease the fertility rate. This evidence is robust to different model specifications and econometric techniques as well as to the inclusion of various controls.
    Keywords: Fertility,Uncertainty,WUI Index,Precautionary Saving,Business Cycle,Panel Data Estimation Techniques
    JEL: J13 D81 D14 E32 C33
    Date: 2019
  63. By: Makoto Hirono (Graduate School of Economics, Doshisha University); Kazuo Mino (Graduate School of Economics, Doshisha University and Institute of Economics, Kyoto University)
    Abstract: This study explores the linkage between the labor force participation of the elderly and the long-run performance of the economy in the context of a two-period-lived overlapping generations model. We assume that the old agents are heterogeneous in their labor efficiency and they continue working if their income exceeds the pension that can be received in the case of full retirement. We inspect the long-run effects of changes in key factors that determine the labor force participation of the elderly. While the main part of the study treats a neoclassical growth model, we also discuss a model with endogenous growth.
    Keywords: retirement decision, labor force participation, population aging, pension system, capital accumulation
    JEL: E10 E62
    Date: 2019–07
  64. By: Fatih Karahan; Benjamin Pugsley; Aysegül Sahin
    Abstract: We propose a simple explanation for the long-run decline in the startup rate. It was caused by a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel explains roughly two-thirds of the decline and why incumbent firm survival and average growth over the lifecycle have been little changed. We show these results in a standard model of firm dynamics and test the mechanism using shocks to labor supply growth across states. Finally, we show that a longer startup rate series imputed using historical establishment tabulations rises over the 1960-70s period of accelerating labor force growth.
    Keywords: Firm dynamics, Demographics, Business Dynamism, Macroeconomics
    JEL: J11 E24 D22
    Date: 2019–07
  65. By: Simon Gilchrist; Vivian Yue; Egon Zakrajšek
    Abstract: This paper uses high-frequency financial data to analyze the effects of US monetary policy—during the conventional and unconventional policy regimes—on international bonds markets. We focus on yields of dollar-denominated sovereign bonds issued by more than 90 countries since the early 1990s, which allows us to abstract from the policy-induced movements in exchange rates that otherwise confound the response of yields on foreign bonds denominated in local currencies. Our results show that yields on dollar-denominated sovereign debt are highly responsive to unanticipated changes in the stance of US monetary policy during both the conventional and unconventional policy regimes, and that the passthrough of unconventional policy actions to foreign bond yields is, on balance, comparable to that of conventional policy actions. In addition, a conventional US monetary easing leads to a significant narrowing of credit spreads on sovereign bonds issued by countries with a speculative-grade credit rating. During the unconventional policy regime, however, yields on speculative-grade sovereign debt move one-to-one with policy-induced fluctuations in yields on comparable US Treasuries. We also examine whether the response of sovereign credit spreads to US monetary policy differs between policy easings and policy tightenings and find no evidence of such asymmetry. This finding casts doubt on the notion that US monetary easings induce excessive risk-taking in international bond markets.
    JEL: E4 E5 F3
    Date: 2019–06
  66. By: International Monetary Fund
    Abstract: Recent economic developments. Economic performance remained robust in 2018: growth reached 4.7 percent, supported by external demand; inflation stayed below the three percent target, the fiscal deficit remained in line with program commitments, and the current account improved. Tighter lending standards helped decelerate credit growth towards more sustainable levels. The banking sector remains well capitalized, liquid, and profitable. Dollarization remains elevated. In early 2019, growth conditions were favorable, with average inflation slightly above the target reflecting increased excises.
    Date: 2019–06–19
  67. By: Stuart, Bryan (George Washington University)
    Abstract: This paper examines the long-run effects of the 1980-1982 recession on education and income. Using confidential Census data, I estimate difference-in-differences regressions that exploit variation across counties in recession severity and across cohorts in age at the time of the recession. For individuals age 0-10 in 1979, a 10 percent decrease in earnings per capita in their county of birth reduces four-year college degree attainment by 10 percent and income in adulthood by 3 percent. Simple calculations suggest that, in aggregate, the 1980-1982 recession led to 0.8-1.8 million fewer college graduates and $42-$87 billion less earned income per year.
    Keywords: human capital, education, income, recessions
    JEL: E32 I20 I30 J13 J24
    Date: 2019–06
  68. By: International Monetary Fund
    Abstract: Liberia remains a fragile, post-conflict country with weak capacity and limited physical and human capital accumulation. External assistance to Liberia is winding down from its peak in 2016. To address pressing needs, the government launched its Pro-Poor Agenda for Prosperity and Development (PAPD), focusing on physical and human capital accumulation. Policy uncertainty and slippages, however, imposed a significant toll on the economy over the past two years. Particularly, higher fiscal deficits and accommodative monetary policy have led to rapid depreciation of the Liberia dollar and increased inflation, eroding the purchasing power of the poor.
    Date: 2019–06–19
  69. By: Ernest Dautovic
    Abstract: The paper evaluates the impact of macroprudential capital regulation on bank capital, risk taking behaviour, and solvency. The identication relies on an exogenous policy change in bank-level capital requirements across systemically important banks in Europe. A one percentage point hike in capital requirements leads to anaverage CET1 capital level increase of 13 percent improving their loss absorption capacity.
    Keywords: capital requirements, risk-taking, moral hazard, macroprudential policy
    JEL: E51 G21 O52
    Date: 2019–06
  70. By: Clara Martinez-Toledano; David Law; David Haugh; Müge Adalet McGowan
    Abstract: Spain has experienced a dramatic business cycle, starting with a large construction based boom followed by a long recession, resulting in a substantial rise in unemployment, and income and wealth inequality. This paper uses longitudinal data from the Survey of Household Finances over the period 2002 to 2014 to examine the distributions of income and wealth in Spain, as well as the mobility of households within those distributions. Results show an increase in the concentration of both income and wealth following the sharp decline in house prices that occurred since 2008, with house price fluctuations affecting more negatively the young than the old. Furthermore, differences in average income and wealth by education, gender and home ownership status were accentuated during the crisis, with lower and middle group incomes falling on average and top group incomes rising. In addition, higher levels of mobility within the middle of the household wealth distribution are observed than at either the top or bottom, although mobility at the extremes of the distribution increased after 2008. Finally, a number of characteristics of households, including age, property ownership, being employed on a permanent contract and good health, are found to be positively associated with wealth accumulation over time, while having a mortgage is negatively related. Overall, the paper finds it is the young and those with low income, wealth and education, bad health, temporary contracts and a mortgage that became relatively worse off in Spain’s early 21st century boom and bust cycle. This Working Paper relates to the 2018 OECD Economic Survey of Spain ( mic-snapshot)
    Keywords: housing market, income, inequality, mobility, Spain, wealth
    JEL: D31 E21 N3
    Date: 2019–07–11
  71. By: Lorenzo Esposito; Giuseppe Mastromatteo
    Abstract: The 2008 crisis created a need to rethink many aspects of economic theory, including the role of public intervention in the economy. On this issue, we explore the Barro-Ricardo equivalence, which has played a decisive role in molding the economic policies that fostered the crisis. We analyze the equivalence and its theoretical underpinnings, concluding that: (1) it declares, but then forgets, that it does not matter whether the nature of debt and investment is public or private; (2) its most problematic assumption is the representative agent hypothesis, which does not allow for an explanation of financialization and cannot assess dangers coming from high levels of financial leverage; (3) social wealth cannot be based on any micro-foundation and is linked to the role of the state as provider of financial stability; and (4) default is always the optimal policy for the government, and this remains true even when relaxing many equivalence assumptions. We go on to discuss possible solutions to high levels of public debt in the real world, inferring that no general conclusions are possible and every solution or mix of solutions must be tailored to each specific case. We conclude by connecting different solutions to the political balance of forces in the current era of financialization, using Italy (and, by extension, the eurozone) as a concrete example to better illustrate the discussion.
    Keywords: Barro-Ricardo Equivalence; Financialization; Default
    JEL: E62 H23
    Date: 2019–07
  72. By: Magali Duque; Abigail McKnight
    Abstract: This paper outlines the various issues pertaining to how crime, the legal system and punitive sanctions may provide a mechanism through which inequality is positively related to poverty. We analyse trends in crime rates, review evidence on the determinants of criminal activity, trends in incarceration rates and prison populations, and the profile of prisoners. We explore relevant aspects of criminal justice policies, changes to Legal Aid, and legal reforms, and finish by outlining how the evidence suggests that crime, the legal system and punitive sanctions is one of the mechanisms that contributes to the positive link between economic inequality and poverty, before reviewing policy options.
    Keywords: Poverty, inequality, crime, law, punishment, criminal justice, police
    JEL: I32 D31 E62 H2
    Date: 2019–07
  73. By: Zuzana Fungacova (Bank of Finland); Riikka Nuutilainen (Bank of Finland); Laurent Weill (EM Strasbourg Business School)
    Abstract: This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004–2013, we analyze the reaction of loan supply to changes in reserve requirements. We find no evidence of the bank lending channel through the use of reserve requirements. We observe, nonetheless, that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership format influences transmission of monetary policy.
    Keywords: Chinese banks, bank lending channel, bank ownership
    JEL: E52 G21
  74. By: International Monetary Fund
    Abstract: Mozambique’s economic situation had been improving until Tropical Cyclone Idai and Kenneth hit the country in March and April, respectively. Economic growth was recovering gradually and becoming broader based, and inflation reached low single digits. Economic activity is expected to decelerate sharply in 2019 due to the supply shock to productive capacity, but it should rebound to pre-cyclone levels by 2020. In April, the IMF Executive Board approved US$118 million in emergency assistance under the Rapid Credit Facility (RCF). The authorities are committed to macroeconomic stability while fostering inclusive growth and addressing governance challenges.
    Date: 2019–06–18
  75. By: Herz, Benedikt (European Commission); van Rens, Thijs (University of Warwick and Centre for Macroeconomics)
    Abstract: We investigate unemployment due to mismatch in the United States over the past three and a half decades. We propose an accounting framework that allows us to estimate the contribution of each of the frictions that generated labor market mismatch. Barriers to job mobility account for the largest part of mismatch unemployment, with a smaller role for barriers to worker mobility. We nd little contribution of wage-setting frictions to mismatch.
    Keywords: mismatch ; structural unemployment ; worker mobility ; job mobility
    JEL: E24 J61 J62
    Date: 2019
  76. By: Rasmus Fatum (University of Alberta); Guozhong Zhu (University of Alberta); Wenjie Hui (
    Abstract: We develop a dynamic stochastic optimization model with oil price shocks to show that countries with certain combinations of oil endowment and productivity have strong precautionary incentives to accumulate foreign reserves in response to oil price shocks. Using the Simulated Method of Moments to estimate the model we demonstrate how oil price shocks are absorbed by changes in foreign reserves which, in turn, leads to less variation in aggregate consumption. Along with productivity and oil endowment, we also consider as determinants of reserves holding conventional variables such as trade- to-GDP ratio and capital openness. Overall, our results suggest that productivity and oil endowment are potentially important determinants of foreign reserves that for some countries should be considered as complements to conventional determinants.
    Keywords: foreign reserves, oil price shocks, precautionary demand
    JEL: E21 F40 Q43
  77. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: The Japanese financial crisis of the late 1990s had significant implications for both the Japanese and global economies. Effective use of macroprudential tools – that is, banking regulations aimed at mitigating financial-system risk – could have lessened the crisis in Japan. Unfortunately, it wasn't until the financial crisis of 2008 that countries began to work on improving macroprudential policies. Bank stress tests and the use of a countercyclical capital buffer (or CCyB) are two macroprudential tools that emerged from the financial crisis which could have reduced the severity of the banking crisis in Japan. The Japanese banking system is again being affected by adverse economic conditions. Like the U.S., Japan might benefit from considering an expanded set of macroprudential tools.
    Keywords: Japanese economy; macroprudential policy; Countercyclical Capital Buffer; stress test; Japanese financial crisis; monetary policy
    Date: 2019–06–21
  78. By: Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Luigi Pistaferri; Maarten van Rooij
    Abstract: We use the responses of a representative sample of Dutch households to survey questions that ask how much their consumption would change in response to unexpected, permanent, positive or negative shocks to their home value. The average MPC is in the 2.1-4.7% range, in line with econometric estimates that use housing wealth and consumption realizations. However, our analysis uncovers significant sample heterogeneity, with over 90% of the sample reporting no consumption adjustment to positive or negative wealth shocks. The relation between the MPC from wealth shocks and cash-on-hand is negative, consistent with models with precautionary saving and liquidity constraints.
    JEL: D12 D14 E21
    Date: 2019–06
  79. By: Mueller, Andreas I.; Spinnewijn, Johannes; Topa, Giorgio
    Abstract: This paper analyses job seekers' perceptions and their relationship to unemployment outcomes to study heterogeneity and duration-dependence in both perceived and actual job finding. Using longitudinal data from two comprehensive surveys, we document (1) that reported beliefs have strong predictive power of actual job finding, (2) that job seekers are over-optimistic in their beliefs, particularly the long-term unemployed, and (3) that job seekers do not revise their beliefs downward when remaining unemployed. We then develop a reduced-form statistical framework where we exploit the joint observation of beliefs and ex-post realizations, to disentangle heterogeneity and duration-dependence in true job finding rates while allowing for elicitation errors and systematic biases in beliefs. We find a substantial amount of heterogeneity in true job finding rates, accounting for almost all of the observed decline in job finding rates over the spell of unemployment. Moreover, job seekers' beliefs are systematically biased and under-respond to these differences in job finding rates. Finally, we show theoretically and quantify in a calibrated model of job search how biased beliefs contribute to the slow exit out of unemployment. The biases can explain more than 10 percent of the incidence of long-term unemployment.
    Keywords: beliefs; Biases; Duration Dependence; unemployment
    JEL: E24 J64
    Date: 2019–06
  80. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: The research assesses how information and communication technology (ICT) modulates the effect of foreign direct investment (FDI) on economic growth dynamics in 25 countries in Sub-Saharan Africa for the period 1980-2014. The employed economic growth dynamics areGross Domestic Product (GDP) growth, real GDP and GDP per capita while ICT is measured by mobile phone penetration and internet penetration. The empirical evidence is based on the Generalised Method of Moments. The study finds that both internet penetration and mobile phone penetration overwhelmingly modulate FDI to induce overall positive net effects on all three economic growth dynamics. Moreover, the positive net effects are consistently more apparent in internet-centric regressions compared to “mobile phone†-oriented specifications. In the light of negative interactive effects, net effects are decomposed to provide thresholds at which ICT policy variables should be complemented with other policy initiatives in order to engender favorable outcomes on economic growth dynamics. Practical and theoretical implications are discussed.
    Keywords: Economic Output; Foreign Investment; Information Technology; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2019–01
  81. By: Taner Turan (Department of Economics, Gebze Technical University); Halit Yanikkaya (Department of Economics, Gebze Technical University)
    Abstract: We investigate the effect of total, public and private external debt stocks on the growth rate and also on total, government, and private investment by using data for more than sixty developing countries with the system GMM. We find a significant and negative growth effect of total external debt stock, lending evidence for the debt overhang argument. Moreover, our results importantly indicate that external debt lowers growth only in countries with ethnically fractionalized and ineffective governments. On the other hand, our empirical findings don’t support the existence of a non-linear or threshold relationship between external debt and growth. Similar to the growth effects of external debt, significantly and negatively estimated coefficients on the three measures of external debt stocks imply that external debt reduces investment, again providing a robust evidence for the debt overhang argument. We also find that the investment effects of external debt vary with the level of government effectiveness of the countries. Finally, our estimations show that private investment level is sensitive to the government external debt rather than the private external debt.
    Keywords: public and private external debt, growth, investment, GMM
    JEL: E20 F30 O47
    Date: 2019–06–30
  82. By: Mariolis, Theodore; Konstantakis, Konstantinos N.; Michaelides, Panayotis G.; Tsionas, Efthymios G.
    Abstract: This paper incorporates the so-called Bhaduri-Marglin accumulation function in Goodwin's original growth cycle model and econometrically estimates the proposed model for the case of the US economy in the time period 1960-2012, using a modern Bayesian sequential Monte Carlo method. Based on our findings, the US economy follows an exhilarationist regime throughout our investigation period with the sole exception of an underconsumption regime for the time period 1974-1978. In general, the results suggest that the proposed approach is an appropriate vehicle for expanding and improving traditional Goodwin-type models.
    Keywords: Bayesian sequential Monte Carlo methods; Bhaduri-Marglin accumulation function; Goodwin type models; US economy
    JEL: B51 C11 C62 E32
    Date: 2019–02–01
  83. By: Rampini, Adriano A.; Viswanathan, S.; Vuillemey, Guillaume
    Abstract: We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that institutions with higher net worth hedge more, controlling for risk exposures, both across institutions and within institutions over time. For identification, we exploit net worth shocks resulting from loan losses due to drops in house prices. Institutions that sustain such shocks reduce hedging significantly relative to otherwise similar institutions. The reduction in hedging is differentially larger among institutions with high real estate exposure. The evidence is consistent with the theory that financial constraints impede both financing and hedging.
    Keywords: Derivatives; Financial constraints; financial institutions; Foreign exchange risk; interest rate risk; Risk management
    JEL: D92 E44 G21 G32
    Date: 2019–06
  84. By: Joshua Aizenman; Yin-Wong Cheung; Xingwang Qian
    Abstract: This paper examines determinants of the international reserves (IR) currency composition before and after the Global Financial Crisis (GFC). Applying the annual data of 58 countries, we confirm that countries that trade more with the US, euro zone, UK, and Japan, and issue more debt denominated in the big four currencies (US dollar, euro, pound, yen) hoard more IR in these currencies. We find scale effects in which countries tend to diversify from the big four currencies as they increase their IR/GDP and that a growing shortage of global safe assets (GSAs) induces countries to hold more big four currencies. Countries hold less big four currencies as IR after the 2008 GFC, while they hold more of such currencies since the tapering of the Fed’s quantitative easing. The 2008 GFC and QE tapering weakened and sometimes reversed the effect of several economic factors. We also find that TARGET2 balances matter for the currency composition in the euro zone; commodity-exporting countries tend to diversify their IR from the big four currencies when their terms of trade improve; and that the valuation effects induced by Euro/USD exchange rate changes diminish the significance of the GFC in explaining the currency composition of IR.
    JEL: F15 F3 F31
    Date: 2019–06
  85. By: Chadwick C. Curtis (University of Richmond); Steven Lugauer (University of Notre Dame); Nelson Mark (University of Notre Dame and NBER)
    Abstract: We present a model of household life-cycle saving decisions in order to quantify the impact of demographic changes on aggregate household saving rates in Japan, China, and India. The observed age distributions help explain the contrasting saving patterns over time across the three countries. In the model simulations, the growing number of retirees suppresses Japanese saving rates, while decreasing family size increases saving rates for both China and India. Projecting forward, the model predicts lower saving rates in Japan and China.
    Keywords: Saving; Demographics; Life-Cycle; Japan; China; India
    JEL: E2 J1
  86. By: Matthias Kehrig; Nicolas Vincent
    Abstract: Dispersion in marginal revenue products of inputs across plants is commonly thought to reflect misallocation, i.e., dispersion is "bad." We document that most dispersion occurs across plants within rather than between firms. In a model of multi-plant firms, we then show that dispersion can be "good": Eliminating frictions increases productivity dispersion and raises overall output. Based on this framework, we argue that in U.S. manufacturing, one-quarter of the total variance of revenue products reflects good dispersion. In contrast, we find that in emerging economies, almost all dispersion is bad and the gains from eliminating distortions are larger than previously thought.
    JEL: E2 G3 L2 O4
    Date: 2019–06
  87. By: Edwin M. Truman (Peterson Institute for International Economics)
    Abstract: The global financial crisis dominated the international financial landscape during the first 20 years of the 21st century. This paper assesses the contribution of the international coordination of economic policies to contain the crisis. The paper evaluates international efforts to diagnose the crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded. International economic policy coordination eventually contributed importantly to containing the crisis, but the authorities failed to agree on a diagnosis and the consequent need for joint action until the case was obvious. The policy actions that were adopted were powerful and effective, but they may have undermined prospects for coordinated responses to crises in the future.
    Keywords: international economic policy coordination, Group of Seven (G-7), Group of Twenty (G-20), Federal Reserve, central banks, swap arrangements, International Monetary Fund, multilateral development banks, special drawing rights, global financial crisis, banking crises, financial crises, Bank for International Settlements, Financial Stability Forum, Financial Stability Board
    JEL: E50 E60 F00 F02 F30 F33 F42 F55
    Date: 2019–07
  88. By: Kehrig, Matthias; Vincent, Nicolas
    Abstract: Dispersion in marginal revenue products of inputs across plants is commonly thought to reflect misallocation, i.e., dispersion is "bad." We document that most dispersion occurs across plants within rather than between firms. In a model of multi-plant firms, we then show that dispersion can be "good": Eliminating frictions increases productivity dispersion and raises overall output. Based on this framework, we argue that in U.S. manufacturing, one-quarter of the total variance of revenue products reflects good dispersion. In contrast, we find that in emerging economies, almost all dispersion is bad and the gains from eliminating distortions are larger than previously thought.
    Keywords: Internal Capital Markets; Misallocation; Multi-Plant Firms; Productivity dispersion
    JEL: E2 G3 L2 O4
    Date: 2019–06
  89. By: Charles Ka Yui Leung (City University of Hong Kong); Joe Cho Yiu Ng (City University of Hong Kong)
    Abstract: This paper aims to achieve two objectives. First, we demonstrate that with respect to business cycle frequency (Burns and Mitchell, 1946), there was a general decrease in the association between macroeconomic variables (MV) and housing market variables (HMV) following the global financial crisis (GFC). However, there are macro-finance variables that exhibited a strong association with the HMV following the GFC. For the medium-term business cycle frequency (Comin and Gertler, 2006), we find that while some correlations exhibit the same change as the business cycle counterparts, others do not. These “new stylized facts” suggest that a reconsideration and refinement of existing “macro-housing” theories would be appropriate. We also provide a review of the recent literature, which may enhance our understanding of the evolving macro-housing-finance linkage.
    Keywords: stylized facts, macro-housing-finance linkage, Global Financial Crisis, business cycle frequency, housing market variables
    JEL: E30 G10 R30
  90. By: Fredrik Wulfsberg (Oslo Business School, Oslo Metropolitan University)
    Abstract: Myndighetene opprettet Statens Pensjonsfond Utland (spu) i 1996 og innførte handlingsregelen for finanspolitikken i 2001 for å spare realverdien av oljeformuen for fremtidige generasjoner. For å svare på spørsmålet i tittelen, beregner jeg realverdien av oljeinntektene og sammenlikner denne med verdien av spu. Jeg argumenterer avslutningsvis for at bruken av oljepenger bør være knyttet til realverdien av oljeinntektene og ikke til markedsverdien av spu.
    JEL: E62
    Date: 2018–04–26
  91. By: Joseba Martinez; Thomas Philippon; Markus Sihvonen
    Abstract: We compare risk sharing in response to demand and supply shocks in four types of currency unions: segmented markets; a banking union; a capital market union; and complete financial markets. We show that a banking union is efficient at sharing all domestic demand shocks (deleveraging, fiscal consolidation), while a capital market union is necessary to share supply shocks (productivity and quality shocks). Using a calibrated model we provide evidence of substantial welfare gains from a banking union and, in the presence of supply shocks, from a capital market union.
    JEL: E5 F02 F3 F40
    Date: 2019–06
  92. By: Roberto Steiner; Tomás Ramírez
    Abstract: En este trabajo estudiamos algunos de estos modelos, con un enfoque diferente. A saber, analizamos modelos asociativos de características diferentes, identificamos buenas y malas prácticas y hacemos recomendaciones de política. Para ello, recolectamos información cuantitativa y cualitativa –entrevistas, registros e información secundaria– de empresas y productores de nueve modelos asociativos en cuatro sectores: palma, cacao, leche y panela. El trabajo está organizado de la siguiente manera. Después de esta introducción, en el segundo capítulo presentamos el marco conceptual para caracterizar los diferentes modelos asociativos de agricultura por contrato y hacemos explícitos sus principales riesgos. En el tercer capítulo se explica la metodología para la selección de casos, se presentan los modelos a estudiar y se describen los aspectos más importantes de cada uno. En el cuarto capítulo elaboramos un resumen comparativo de los estudios de caso y en el quinto presentamos las conclusiones y recomendaciones en diversos frentes, entre otros respecto a precios remunerativos, productividad y calidad, acceso al crédito y formalización laboral.
    Keywords: Alianzas Productivas, Agricultura, Producción Agrícola, Sector Agropecuario, Productividad, Desarrollo Empresarial Rural, Modelos Asociativos, Crédito Agrícola, Informalidad Laboral, Palma de Aceite, Cacao, Leche, Panela, Colombia
    JEL: O13 Q10 D24 E24 J24 O47
    Date: 2019–04–30
  93. By: Bi, Huixin (Federal Reserve Bank of Kansas City); Traum, Nora
    Abstract: This paper examines how newspaper reporting affects government bond prices during the U.S. state default of the 1840s. Using unsupervised machine learning algorithms, the paper first constructs novel ``fiscal information indices'' for state governments based on U.S. newspapers at the time. The impact of the indices on government bond prices varied over time. Before the crisis, the entry of new western states into the bond market spurred competition: more state-specific fiscal news imposed downward pressure on bond prices for established states in the market. During the crisis, more state-specific fiscal information increased (lowered) bond prices for states with sound (unsound) fiscal policy.
    Keywords: Sovereign Default; Information; Fiscal Policy
    JEL: E62 H30 N41
    Date: 2019–06–01
  94. By: Vincent Bodart (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Jean-François Carpantier (Aix-Marseille University, CERGAM)
    Abstract: This paper provides new empirical evidence on the relationship between currency collapses (i.e. large nominal depreciations or devaluations) and real output by paying a specific attention to commodity exporting countries. Using a dataset including 108 emerging and developing economies for the period 1970-2016, we document and estimate what happens to output growth during episodes of currency collapses for commodity-dependent and non commodity-dependent countries. One particular feature of our analysis is to control for war events. We find that currency crises occur more frequently in commodity-dependent countries (one crisis every 17 years versus 30 years for non commodity-dependent countries) and with a larger magnitude (median depreciation about 12 percent points larger for commodity-dependent countries). In both groups of countries, output growth declines in response to the currency collapse. It appears however that output growth starts to slowdown earlier in commodity-dependent countries while the impact is more persistent in non commodity-dependent countries. The magnitude of the output growth slowdown is very close between the two groups of countries. Finally, we find that the output growth-currency collapse relationship differs among commodity-dependent countries according to the category of their main exported commodity.
    Keywords: Currency crises, nominal depreciations, commodity currencies, exchange rates, output growth, recovery
    JEL: E32 F31 F32 F41 F43 Q02
    Date: 2019–06
  95. By: Brunnermeier, Markus K; Niepelt, Dirk
    Abstract: We develop a generic model of money and liquidity that identites sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the "Chicago Plan," cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability.
    Keywords: CBDC; Chicago Plan; equivalence; Inside money; monetary system; money creation; outside money; sovereign money
    Date: 2019–06
  96. By: Espen Moen (BI Norwegian Business School); Fredrik Wulfsberg (Oslo Business School, Oslo Akershus University College of Applied Sciences); Øyvind Aas (Université libre de Bruxelles)
    Abstract: This paper studies price dispersion in the Norwegian retail market for 766 products across 4297 stores over 60 months. Price dispersion for homogeneous products is significant and persistent, with a coefficient of variation of 37% for the median product. Price dispersion differs between product categories and over time. Store heterogeneity accounts for 30% of the observed variation in prices for the median product-month and for around 50% for the sample as a whole. Price dispersion is still prevalent after correcting for store heterogeneity.
    Keywords: Price dispersion, retail prices, store heterogeneity
    JEL: D2 D4 E3
    Date: 2017–08–09
  97. By: Masayoshi Hayashi (Faculty of Economics, The University of Tokyo); Takafumi Suzuki (Graduate School of Economics, The University of Tokyo)
    Abstract: By constructing a two-country endogenous growth model with a debt-financing government, this study examines the relationship between the sustainability of public finance and increases in interregional factor mobility. To this end, it identifies the minimum tax rate that ensures fiscal sustainability in the tax competition environment and the effects of capital tax competition on fiscal sustainability. The main findings are as follows: (i) when countries are symmetric, increasing capital flows encourages accumulation of capital through tax reduction derived from tax competition and promotes economic growth through the expansion of Romer-type knowledge spillovers, resulting in increased fiscal sustainability in all countries; and (ii) when there are significant differences between countries in initial debt outstanding, tax competition might lower fiscal sustainability in a country that has a relatively large outstanding debt.
    Date: 2018–12
  98. By: Sinda Morsi Fattoum (Central Bank of Tunisia)
    Abstract: This paper analyses monetary transmission mechanism in Tunisia based on two approaches, an aggregate data analysis by using a Structural Vector Auto regressive (SVAR) model to assess the impact and the delay of transmission of monetary policy decisions and to identify through which of the interest rate channel or credit channel, monetary policy stances’ changes could affect the economy; and, a bank panel data analysis by employing an ARDL model to measure the reaction of the banks’ pricing policy to monetary policy changes. For the SVAR model, a “recursive” system was used to uncover the dynamic effects of monetary policy shocks. The empirical results show that the interest rate channel was more effective than the credit channel and that’s from the 8th quarter. For the ARDL model, the empirical results show that, taken into consideration of the heterogeneity of the banking system landscape, the banks pricing’s policy are highly dependent upon money market rate’s changes. In other words, the transmission to lending rates applied to households as well as to firms is almost complete.
    Date: 2019–06–27
  99. By: Alexis Direr (LEO - Laboratoire d'Économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - Université de Tours - UO - Université d'Orléans)
    Abstract: A novel theory of time discounting is proposed in which future consumption is less valuable than present consumption due to waiting costs. Waiting is intermittent as consumer's attention can be distracted away from future gratifications. The model satisfies and reinterprets several properties of intertemporal preference like present bias, decreasing impatience or sub-additive discounting. A quantitative puzzle is presented, supported by preliminary experimental evidence, which shows how impatience over short delays may translate into excessive impatience over long delays. The wait-based model offers a solution to the puzzle, contrary to usual models of discounting. J.E.L. codes: D8, E21
    Keywords: present bias,sub-additive dis- counting,time preferences,decreasing impatience
    Date: 2019–06–27
  100. By: International Monetary Fund
    Abstract: Growth has slowed to a more sustainable level and financial vulnerabilities have eased. But risks remain. Household debt is high, the United States–Mexico–Canada Agreement (USMCA) awaits legislative approval, and ongoing trade tensions between the United States (U.S.) and its major trading partners are weighing on the global outlook.
    Date: 2019–06–24
  101. By: Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo
    Abstract: The evidence that bigger firms pay higher wages and have higher productivity is based mainly on manufacturing, which is only a small share of today's economy. Giuseppe Berlingieri, Sara Calligaris and Chiara Criscuolo reveal that while the size premia for both wages and productivity are significantly weaker in market services than in manufacturing, the link between wages and productivity is stronger.
    Keywords: productivity, size-premium, wages
    JEL: E2 D2 J3
    Date: 2019–07
  102. By: Guonan Ma (Bruegel University); James Laurenceson (University of Technology Sydney)
    Abstract: This paper begins by showing that even after conditioning for factors that might justifiably lead to a country having relatively high leverage, China remains a debt outlier. In this sense China can be regarded as over-leveraged and its debt may present a potential risk to growth and financial stability. The corporate sector is central to China’s debt story, accounting for two-thirds of the total. The corporate sector has also been mostly responsible for China’s leverage cycles, including the leveraging up since 2008 and an earlier deleveraging phase starting in 2003. Two major but under- appreciated drivers of Chinese corporate leverage cycles are then identified. The most important is the share of internally-funded corporate capital expenditure, which is a combined consequence of evolving corporate earnings and capital expenditure. The second is the rising importance of real estate and construction firms as holders of corporate debt. China’s corporate leverage landscape is also shown to be more complex than a story of zombie state-owned enterprises in industrial segments with excess capacity being ever-greened with loans from state banks. A balanced mix of policy responses will be needed to manage a warranted and orderly deleveraging cycle in the years ahead.
    Keywords: China, debt, leverage, corporate earnings, corporate capital expenditure
    JEL: E21 E50 H81
  103. By: Muhammed Muqtada
    Abstract: During the past two decades, the economy of Bangladesh experienced a fairly sustained macroeconomic stability and was able to achieve substantial growth in gross domestic product (GDP). However, there is evidence to suggest that this growth has neither been inclusive nor has it been able to bring about structural change needed to sustain higher growth. The paper contends that the macroeconomic policymaking would require a re-think in order to meet the above challenges. The present paper reviews the current macroeconomic policy framework and underscores the need for balancing its usual emphasis on stability with the need for structural change and social inclusion. This would in turn require an expansionary macroeconomic policy, albeit cautious, that focuses robustly on stepped-up investment, job growth and reduction of inequality and vulnerability. To this end, the paper explores the critical role of monetary, fiscal, external and financial inclusion policies and how far these could address the above challenges. Macroeconomic policies, focused simply on stability and a status quo budget, cannot deliver the desired employment and inclusion outcomes unless these also address and accommodate various associated sectoral, labour market, and social inclusion measures.
    Keywords: Muhammed Muqtada, Inclusive Growth, Bangladesh, GDP, Growth rate, Inequality, Vulnerability, Budget, Macroeconomic policy, Employment, Job, Unemployment, CPD,
    Date: 2018–07
  104. By: Arpita Chatterjee (UNSW Business School, UNSW); James Morley (University of Sydney); Aarti Singh (University of Sydney)
    Abstract: Blundell, Pistaferri, and Preston (2008) report an estimate of household consumption insurance with respect to permanent income shocks of 36%. Their estimate is distorted by an error in their code and is not robust to weighting scheme for GMM. We propose instead to use quasi maximum likelihood estimation (QMLE), which produces a more precise and significantly higher estimate of consumption insurance at 55%. For sub-groups by age and education, differences between estimates are even more pronounced. Monte Carlo experiments with non-Normal shocks demonstrate that QMLE is more accurate than GMM, especially given a smaller sample size.
    Keywords: consumption insurance; weighting schemes; quasi maximum likelihood
    JEL: E21 C13 C33
    Date: 2019–07
  105. By: Philip ME Garboden (Department of Urban and Regional Planning, University of Hawai‘i at Manoa)
    Abstract: This chapter considers the types of Big Data that have proven useful for macroeconomic forecasting. It first presents the various definitions of Big Data, proposing one we believe is most useful for forecasting. The literature on both the opportunities and challenges of Big Data are presented. It then proposes a taxonomy of the types of Big Data: 1) Financial Market Data; 2) E-Commerce and Credit Cards; 3) Mobile Phones; 4) Search; 5) Social Media Data; 6) Textual Data; 7) Sensors, and The Internet of Things; 8) Transportation Data; 9) Other Administrative Data. Noteworthy studies are described throughout.
    Keywords: big data, data sources
    JEL: C80
    Date: 2019–07
  106. By: Simplice A. Asongu (Yaoundé/Cameroon); Uchenna R. Efobi (Covenant University, Ota, Ogun State, Nigeria); Belmondo V. Tanankem (MINEPAT, Cameroon); Evans S. Osabuohien (Covenant University, Ota, Nigeria)
    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: E60 F40 F59 D60 O55
    Date: 2019–01
  107. By: Aepli, Manuel
    Abstract: Technological change and its impacts on labour markets are a much-discussed topic in economics. Economists generally assume that new technology penetrating the labour market shifts firms' task demand. Given individuals' acquired and supplied skills, these task demand shifts potentially foster horizontal skill mismatches, e.g. individuals not working in their learned occupations. In this paper, I first analyse the relation between task shifting technological change and individuals' horizontal mismatch incidence. Second, I estimate individuals' mismatch wage penalties triggered by this relation. The present paper proposes an instrumental variable (IV) approach to map this mechanism and to obtain causal estimates on mismatch wage penalties. Applying this empirical strategy yields a wage penalty of roughly 12% for horizontally mismatched individuals.
    Keywords: horizontal mismatch,task-based approach,technological change,vocational education
    JEL: E24 J24 J62 O33
    Date: 2019
  108. By: Vipul Bhatt; Mouhua Liao; Min Qiang Zhao
    Abstract: This paper examines the role played by government policy regarding factors of pro- duction in shaping the dynamics of a growing economy. Using land as an example of an important productive factor, we develop a quantitative model with endogenous land price policy regimes to rationalize the following three economic reforms in China: introduction of non-SOEs (state-owned enterprises); reform of SOEs characterized by their retreat from the competitive manufacturing sector and the establishment of state monopolies in factor markets around 2000; and a regime switch from dual-track land pricing to land price discrimination by use. We calibrate our model to key economic indicators for China and quantify the e ects of these reforms. Our calibrated mo- del can match several stylized facts for China after 2000 such as widening disparity in land prices by use, rapid growth in housing price, land revenue, and government expenditures on public goods, and the steep decline in labor share for income.
    Keywords: Dual-track Pricing, Land Price Discrimination, State Monopoly, Land Market Reforms.
    JEL: Q15 R38 H71 E25 O18
    Date: 2019–07–03
  109. By: Kazeem B. Ajide (University of Lagos, Nigeria); Olorunfemi Y. Alimi (University of Lagos, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    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
  110. By: Gunnsteinsson , Snaebjorn; Steingrimsdottir , Herdis (Department of Economics, Copenhagen Business School)
    Abstract: Childhood disability is a major health shock that affects parents early in their working life. We estimate its impact on parents’ career trajectories, their balance sheets, and major life decisions using detailed register data from Denmark. To identify the causal effect of childhood disability we use an event study approach, where we control for a rich set of pre-birth variables and focus on conditions that have no or weak associations with socioeconomic determinants. We find that having a child with a disability has strong negative impact on mothers’ earnings. The effect is persistent and the wage penalty appears to grow over time. Fathers’ earnings are also affected but the impact is notably smaller. We find that both parents are less likely to be employed in the long run and are less likely to ascend to top executive positions. The long-term structure of the household is also affected as subsequent fertility is lower and partnership dissolution is more common. Finally, despite this financial shock, long term net worth of families is not affected or may be positively affected, potentially due to help from government transfers and lower cost associated with having fewer other children, or due to a stronger savings motive for the long term care of the disabled child.
    Keywords: disability; children; child; insurance; earnings; income; labor force participation; fertility
    JEL: E24 I14 J13 J31
    Date: 2019–06–18
  111. By: Yunus Yilmaz (Ruhr-Universität Bochum, faculty of management and economics); Knut Lehre Seip (Oslo and Akershus University College for Applied Sciences); Michael Schröder (Centre for European Economic Research (ZEW))
    Abstract: We use a novel method to compare two survey based leading indexes and two behavioral based index to industrial production, IP, Germany 1991-2015 . The sentiment based ifo – index (managers) performs best in predicting the general changes in IP (-0.596, -1.0 being best). The ZEW – index (financial experts) is close (-0.583), and is better in predicting 6 recessions and 5 recoveries. On a third place comes, somewhat unexpectedly, the unemployment index (-0.564) and lastly comes order flow, OF (-0.186). The four indexes all scored low during time windows around 1997 and 2005. Both periods correspond to anomalous episodes in German economy.
    Keywords: Leading indexes, industrial production, prediction skill, survey based indexes, Germany
    JEL: O17 C63 E52 H26
  112. By: Karas, Alexei; Pyle, William; Schoors, Koen
    Abstract: Using evidence from Russia, we explore the effect of the introduction of deposit insurance on bank risk. Drawing on within-bank variation in the ratio of firm deposits to total household and firm deposits, so as to capture the magnitude of the decrease in market discipline after the introduction of deposit insurance, we demonstrate for private, domestic banks that larger declines in market discipline generate larger increases in traditional measures of risk. These results hold in a difference-in-difference setting in which state and foreign-owned banks, whose deposit insurance regime does not change, serve as a control.
    JEL: E65 G21 G28 P34
    Date: 2019–06–27

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