nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒08‒19
125 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Inflation and Deflationary Biases in Inflation Expectations By Michael J. Lamla; Damjan Pfajfar; Lea Rendell
  2. Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies By Julio A. Carrillo; Enrique G. Mendoza; Victoria Nuguer; Jessica Roldán-Peña
  3. Saving Constraints, Debt, and the Credit Market Response to Fiscal Stimulus: Theory and Cross-Country Evidence By Jorge Miranda-Pinto; Daniel Murphy; Kieran James Walsh; Eric R. Young
  4. Government Deficit Shocks and Okun's Coefficient Volatility: New Insights on the Austerity versus Growth Debate By Pham, Binh Thai; Sala, Hector
  5. Do We Really Know that U.S. Monetary Policy was Destabilizing in the 1970s? By Qazi Haque; Nicolas Groshenny; Mark Weder
  6. The Impact of Credit Market Sentiment Shocks - A TVAR Approach By Maximilian Böck; Thomas O. Zörner
  7. Banks' business model and credit supply in Chile: the role of a state-owned bank By Miguel Biron; Felipe Córdova; Antonio Lemus
  8. A Model of Intermediation, Money, Interest, and Prices By Saki Bigio; Yuliy Sannikov
  9. Optimal Inflation Target with Expectations-Driven Liquidity Traps By Philip Coyle; Taisuke Nakata
  10. Do We Really Know that U.S. Monetary Policy was Destabilizing in the 1970s? By Qazi Haque; Nicolas Groshenny; Mark Weder
  11. A loan-level analysis of bank lending in Mexico By Carlos Cantú; Roberto Lobato; Calixto López; Fabrizio Lopez-Gallo
  12. Expectations-Driven Liquidity Traps: Implications for Monetary and Fiscal Policy By Taisuke Nakata; Sebastian Schmidt
  13. Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment By Martin Feldkircher; Elizaveta Lukmanova; Gabriele Tondl
  14. The shale oil boom and the US economy: Spillovers and time-varying effects By Hilde C. Bjørnland; Julia Zhulanova
  15. Exploring Wage Phillips Curves in Advanced Economies By Rose Cunningham; Vikram Rai; Kristina Hess
  16. (Un)conventional policy and the effective lower bound By Fiorella De Fiore; Oreste Tristani
  17. Actual and perceived uncertainty as drivers of household saving By Natalia Levenko
  18. Uncertainty and Labor Market Fluctuations By Jo, Soojin; Lee, Justin J.
  19. Some International Evidence for Keynesian Economics Without the Phillips Curve By Roger E. A. Farmer; Giovanni Nicolo
  20. Forecasting ECB policy rates with different monetary policy rules By Belke, Ansgar; Klose, Jens
  21. Interest rate bands of inaction and play-hysteresis in domestic investment: Evidence for the euro area By Belke, Ansgar; Frenzel Baudisch, Coletta; Göcke, Matthias
  22. Optimal Paternalistic Savings Policies By Moser, Christian; Olea de Souza e Silva, Pedro
  23. A dynamic version of Okun's law in the EU15 countries - The role of delays in the unemployment-output nexus By Obst, Thomas
  24. Missing Disinflation and Human Capital Depreciation By Abdoulaye Millogo; Jean-François Rouillard
  25. Flexibility and Frictions in Multisector Models By Jorge Miranda-Pinto; Eric R. Young
  26. A Unified Measure of Fed Monetary Policy Shocks By Chunya Bu; John Rogers; Wenbin Wu
  27. Working Time, Employment and Competitiveness By Kauhanen, Antti; Lehmus, Markku
  28. Argentina; Fourth Review under the Stand-By Arrangement, Request for Waivers of Applicability and Modification of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Staff Supplement By International Monetary Fund
  29. Bank loan supply shocks and alternative financing of non-financial corporations in the euro area By Mandler, Martin; Scharnagl, Michael
  30. Identifying News Shocks with Forecast Data By Hirose, Yasuo; Kurozumi, Takushi
  31. Sovereign Default Triggered by Inability to Repay Debt By Michinao Okachi
  32. The costs and benefits of liquidity regulations: Lessons from an idle monetary policy tool By Christopher Curfman; John Kandrac
  33. Multi-Horizon Financial and Housing Wealth Effects across the U.S. States By Yener Coskun; Christos Bouras; Rangan Gupta; Mark E. Wohar
  34. Did the American recovery and reinvestment act help counties most affected by the great recession? By Mario J Crucini; Nam T Vu
  35. Time-Varying Money Demand and Real Balance Effects By Benchimol, Jonathan; Qureshi, Irfan
  36. R* and the Global Economy By Glick, Reuven
  37. Determinants of credit growth and the bank-lending channel in Peru: A loan level analysis By José Bustamante; Walter Cuba; Rafael Nivin
  38. Heterogeneity and persistence in returns to wealth By Luigi Pistaferri; Davide Malacrino; Luigi Guiso; Andreas Fagereng
  39. Labor Shares in Some Advanced Economies By Gilbert Cette; Lorraine Koehl; Thomas Philippon
  40. A Dynamic Theory of Collateral Quality and Long-Term Interventions By Lee, Michael Junho; Neuhann, Daniel
  41. Taming the Global Financial Cycle: Central Banks and the Sterilization of Capital Flows in the First Era of Globalization (1891-1913) By Bazot, Guillaume; Monnet, Eric; Morys, Matthias
  42. The internationalization of domestic banks and the credit channel: an empirical assessment By Paola Morales; Daniel Osorio; Juan Sebastian Lemus-Esquivel
  43. Central Bank Swap Lines: Evidence on the Effects of the Lender of Last Resort By Saleem Bahaj; Ricardo Reis
  44. Monetary policy surprises and employment: evidence from matched bank-firm loan data on the bank lending-channel By Rodrigo Barbone Gonzalez
  45. How does the interaction of macroprudential and monetary policies affect cross-border bank lending? By Előd Takáts; Judit Temesvary
  46. A Tale of Two Countries: Cash Demand in Canada and Sweden By Walter Engert; Ben Fung; Björn Segendorf
  47. Disinflation, Inequality and Welfare in a TANK Model By Maria, Ferrara; Patrizio, Tirelli
  48. Pay, Employment, and Dynamics of Young Firms By Tania Babina; Wenting Ma; Christian Moser; Paige Ouimet; Rebecca Zarutskie
  49. Bond Risk Premiums at the Zero Lower Bound By Martin M. Andreasen; Kasper Joergensen; Andrew C. Meldrum
  50. Real effects of financial distress: the role of heterogeneity By Buera, Francisco; Karmakar, Sudipto
  51. A macroeconomic vulnerability model for the euro area By Sondermann, David; Zorell, Nico
  52. Credit, Default, and Optimal Health Insurance By Jang, Youngsoo
  53. Chad; Staff Report for the 2019 Article IV Consultation, Fourth Review under the Extended Credit Facility Arrangement, Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Chad By International Monetary Fund
  54. Revisiting the Anomalous Relationship between Inflation and REIT Returns in Presence of Structural Breaks: Empirical Evidence from the USA and the UK By Das, Mahamitra; Sarkar, Nityananda
  55. Introducing dominant currency pricing in the ECB's global macroeconomic model By Georgiadis, Georgios; Mösle, Saskia
  56. Niger; 2019 Article IV Consultation, Fourth Review Under the Extended Credit Facility, and Requests for Waiver of Nonobservance of a Performance Criterion, Modification of Performance Criteria, and Extension and Rephasing of the Extended Credit Facility Arrangement-Press Release; Staff Report and Statement by the Executive Director for Niger By International Monetary Fund
  57. Production Network Structure, Service Share, and Aggregate Volatility By Jorge Miranda-Pinto
  58. Riforme e Investimenti. Europa e Italia. By Marco Fortis and Alberto Quadrio Curzio. An analysis By Schiliro, Daniele
  59. The Role of U.S. Monetary Policy in Global Banking Crises By Ceyhun Bora Durdu; Alex Martin; Ilknur Zer
  60. On financial frictions and firm market power By Miguel Casares; Luca Deidda; José E. Galdón-Sánchez
  61. Burkina Faso; Second Review Under the Extended Credit Facility Arrangement and Request for Waiver of Nonobservance of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Burkina Faso By International Monetary Fund
  62. Indonesia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Indonesia By International Monetary Fund
  63. Brazil; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Brazil By International Monetary Fund
  64. Republic of Serbia; Staff Report for the 2019 Article IV Consultation and Second Review under the Policy Coordination Instrument-Press Release; Staff Report; Information Annex; Staff Statement; and Statement by the Executive Director for Republic of Serbia By International Monetary Fund
  65. The Impact of Credit Market Sentiment Shocks - A TVAR Approach By Böck, Maximilian; Zörner, Thomas O.
  66. From cash to central bank digital currencies and cryptocurrencies: A balancing act between modernity and monetary stability By Belke, Ansgar; Beretta, Edoardo
  67. International Bank Lending Channel of Monetary Policy By Silvia Albrizio; Sangyup Choi; Davide Furceri; Chansik Yoon
  68. Gig-Labor: Trading Safety Nets for Steering Wheels By Fos, Vyacheslav; Hamdi, Naser; Kalda, Ankit; Nickerson, Jordan
  69. Singapore; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Singapore By International Monetary Fund
  70. Self-Organization of Inflation Volatility By Makoto Nirei; José A. Scheinkman
  71. Republic of Lithuania; 2019 Article IV Consultation-Press Release; Staff Report By International Monetary Fund
  72. France; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for France By International Monetary Fund
  73. The Long Run Stability of Money Demand in the Proposed West African Monetary Union By Simplice A. Asongu; Oludele E. Folarin; Nicholas Biekpe
  74. Cameroon; Fourth Review under the Extended Credit Facility Arrangement and Requests for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon By International Monetary Fund
  75. Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities By Rodríguez-Pose, Andrés; Gerritse, Michiel
  76. On results reporting and evidentiary standards: spotlight on the Global Fund By Friebel, Rocco; Silverman, Rachel; Glassman, Amanda; Chalkidou, Kalipso
  77. How do bank-specific characteristics affect lending? New evidence based on credit registry data from Latin America By Carlos Cantú; Leonardo Gambacorta
  78. Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis By Kahn, Matthew E.; Mohaddes, Kamiar; Ng, Ryan N. C.; Pesaran, M. Hashem; Raissi, Mehdi; Yang, Jui-Chung
  79. Somalia; 2019 Article IV Consultation-Second Review Under the Staff-Monitored Program, and Request for New Staff-Monitored Program-Press Release; Staff Report; and Statement by the Executive Director for Somalia By International Monetary Fund
  80. How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial By Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; van Rooij, Maarten
  81. Gender Inequality as a Barrier to Economic Growth: a Review of the Theoretical Literature By Manuel Santos Silva; Stephan Klasen
  82. Macro to the rescue? An analysis of macroprudential instruments to regulate housing credit By Falter, Alexander
  83. Does Drawing Down the U.S. Strategic Petroleum Reserve Help Stabilize Oil Prices? By Lutz Kilian; Xiaoqin Zhou
  84. Optimal Monetary Policy Under Bounded Rationality By Jonathan Benchimol; Lahcen Bounader
  85. Vietnam; 2019 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Vietnam By International Monetary Fund
  86. The Euro Crisis and Economic Growth: A Novel Counterfactual Approach By Alessio Terzi
  87. Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment By Feldkircher, Martin; Lukmanova, Elizaveta; Tondl, Gabriele
  88. A short review on the economics of artificial intelligence By Yingying Lu; Yixiao Zhou
  89. Sovereign debt and economic growth in Zimbabwe: Amultivariate causal linkage By Saungweme, Talknice; Odhiambo, Nicholas M
  90. Role of cross currency swap markets in funding and investment decisions By Brophy, Thomas; Herrala, Niko; Jurado, Raquel; Katsalirou, Irene; Le Quéau, Léa; Lizarazo, Christian; O’Donnell, Seamus
  91. Zambia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Zambia By International Monetary Fund
  92. Do Old Habits Die Hard? Central Banks and the Bretton Woods Gold Puzzle By Eric Monnet; Damien Puy
  93. European Wage Dynamics and Spillovers By Yuanyan Sophia Zhang
  94. Which Ladder to Climb? Decomposing Life Cycle Wage Dynamics By Bayer, Christian; Kuhn, Moritz
  95. Portugal; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Portugal By International Monetary Fund
  96. Growth Dynamics, Multiple Equilibria, and Local Indeterminacy in an Endogenous Growth Model of Money, Banking and Inflation Targeting By Rangan Gupta; Philton Makena
  97. Debt – Growth nexus in ECOWAS: Analysis through a Non-Linear Approach By Kossi M. Agbékponou; Léleng Kebalo
  98. Tunisia; Fifth Review Under the Extended Fund Facility, and Requests for Waivers of Nonobservance and Modification of Performance Criteria and for Rephasing of Access By International Monetary Fund
  100. Covered interest rate parity, relative funding liquidity and cross-currency repos By Daniel Kohler; Benjamin Müller
  101. Morocco; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Morocco By International Monetary Fund
  102. Republic of Madagascar; Fifth Review Under the Extended Credit Facility Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Republic of Madagascar By International Monetary Fund
  103. International transmission with heterogeneous sectors By Jin, Keyu; Li, Nan
  104. Russian Federation; 2019 Article IV Consultation-Press Release; Staff Report By International Monetary Fund
  105. Dutch disease dynamics reconsidered By Hilde C. Bjørnland; Leif Anders Thorsrud; Ragnar Torvik
  106. Republic of Congo; Staff Report-Press Release; Staff Report; Debt Sustainability Analysis, and Statement by the Executive Director for the Republic of Congo By International Monetary Fund
  107. Exchange rate puzzles: evidence from rigidly fixed nominal exchange rate systems By Charles Engel; Feng Zhu
  108. Capital flows in the euro area and TARGET2 balances By Hristov, Nikolay; Hülsewig, Oliver; Wollmershäuser, Timo
  109. The Transmission of Shocks in EndogenousFinancial Networks: A Structural Approach By Heipertz, Jonas; Ouazad, Amine; Rancière, Romain
  110. Population Aging and Economic Growth: Impact and Policy Implications By Lee, Jaejoon
  111. Republic of Latvia; 2019 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  112. Do Domestic Producers Benefit from Safeguards? The Case of a Japanese Safeguard on Chinese Vegetable Imports in 2001 By TAKECHI Kazutaka
  113. New Zealand Wage Inflation Post-crisis By Adam Richardson
  114. Singapore; Financial Sector Assessment Program; Technical Note-Macroprudential Policy By International Monetary Fund
  115. Central Bank Announcements: Big News for Little People? By Lamla, Michael J; Vinogradov, Dmitri V
  116. Iraq; 2019 Article IV Consultation and Proposal for Post-Program Monitoring-Press Release; Staff Report; and Statement by the Executive Director for Iraq By International Monetary Fund
  117. Armutsindex By Julia Bock-Schappelwein
  118. Public Sector Balance Sheet Strength and the Macro Economy By Seyed Reza Yousefi
  119. A Generalized Approach to Indeterminacy in Linear Rational Expectations Models By Francesco Bianchi; Giovanni Nicolo
  120. Slovak Republic; 2019 Article IV Consultation-Press Release; Staff Report By International Monetary Fund
  121. Persamaan Dan Perbedaan Perilaku Konsumen Dalam Ekonomi Konvensional Dan Hukum Ekonomi Islam By Gunarso, Gatot Hadi
  122. The dynamic causality between ESG and economic growth: Evidence from panel causality analysis By Ho, Sy-Hoa; OUEGHLISSI, Rim; EL FERKTAJI, Riadh
  123. The Effects of Access to Credit on Productivity: Separating Technological Changes from Changes in Technical Efficiency By Jimi, Nusrat Abedin; Nikolov, Plamen; Malek, Mohammad Abdul; Kumbhakar, Subal C.
  124. A Buffer-Stock Model for the Government: Balancing Stability and Sustainability By Jean-Marc Fournier
  125. The Rise of Market Power and the Macroeconomic Implications By Jan Eeckhout

  1. By: Michael J. Lamla; Damjan Pfajfar; Lea Rendell
    Abstract: We explore the consequences of losing confidence in the price-stability objective of central banks by quantifying the inflation and deflationary biases in inflation expectations. In a model with an occasionally binding zero-lower-bound constraint, we show that an inflation bias as well as a deflationary bias exist as a steady-state outcome. We assess the predictions of this model using unique individual-level inflation expectations data across nine countries that allow for a direct identification of these biases. Both inflation and deflationary biases are present (and sizable) in inflation expectations of these individuals. Among the euro-area countries in our sample, we can document significant differences in perceptions of the European Central Bank’s objectives, despite having a common monetary policy.
    Keywords: ZLB ; Confidence in Central Banks ; Deflationary Bias ; Inflation Bias ; Inflation Expectations ; Microdata
    JEL: E58 E31 D84 E37
    Date: 2019–06–03
  2. By: Julio A. Carrillo (Banco de México (E-mail:; Enrique G. Mendoza (University of Pennsylvania (E-mail:; Victoria Nuguer (Inter-American Development Bank (E-mail:; Jessica Roldán-Peña (Banco de México (E-mail:
    Abstract: Violations of Tinbergen's Rule and strategic interaction undermine monetary and financial policies significantly in a New Keynesian model with the Bernanke-Gertler accelerator. Welfare costs of risk shocks are large because of efficiency losses and income effects of costly monitoring, but they are larger under a simple Taylor rule (STR) and a Taylor rule augmented with credit spreads (ATR) than under a dual rules regime (DRR) with a Taylor rule and a financial rule targeting spreads, by 264 and 138 basis points respectively. ATR and STR are tight money-tight credit regimes that respond too much to inflation and not enough to spreads, and yield larger fluctuations in response to risk shocks. Reaction curves display shifts from strategic substitutes to complements in the choice of policy-rule elasticities. The Nash equilibrium is also a tight money-tight credit regime, with welfare 30 basis points lower than in Cooperative equilibria and the DRR, but still sharply higher than in the ATR and STR regimes.
    Keywords: Monetary policy, Financial frictions, Macroprudential policy, Leaning against the wind, Policy coordination
    JEL: E3 E44 E52 G18
    Date: 2019–07
  3. By: Jorge Miranda-Pinto (School of Economics, The University of Queensland); Daniel Murphy (University of Virginia Darden School of Business); Kieran James Walsh (University of Virginia Darden School of Business); Eric R. Young (Department of Economics, University of Virginia, and Department of Economics, Zhejiang University)
    Abstract: We document that the interest rate response to fiscal stimulus is lower in countries with high inequality or high household debt. To interpret this evidence we develop a model in which households take on debt to maintain a minimum consumption threshold. Now debt-burdened, these households use additional income to deleverage. In economies with more debt-burdened households, increases in government spending tighten credit conditions less (relax credit conditions more), leading to smaller increases (larger declines) in the interest rate. To validate our mechanism we confirm that the pre-Global Financial Crisis consumption response to fiscal stimulus is lower in countries with high inequality or household debt and in U.S. counties with high household debt. An implication of our theoretical and empirical results is that the sign of the debt-dependence of the effects of fiscal stimulus varies with credit conditions.
    Keywords: interest rates, fiscal stimulus, household debt, inequality
    JEL: E62 E43 E21 D31 H31
    Date: 2019–04–08
  4. By: Pham, Binh Thai (Universitat Autònoma de Barcelona); Sala, Hector (Universitat Autònoma de Barcelona)
    Abstract: This paper connects two salient economic features: (i) Fiscal shocks have asymmetric effects across business cycle phases (Gechert et al., 2019); (ii) Okun's coefficient is time varying and may be unstable. The intertwined dynamic behavior of fiscal shocks and unemployment-output trade-offs are studied in this paper using state-of-the-art TVP-VAR modelling techniques applied to the analysis of six selected economies: France, Japan, Spain, Sweden, the United Kingdom (UK), and the Unites States of America (USA). We confirm the heterogeneity of Okun's coefficient across country, and its time-varying nature across time, showing in addition its fluctuation around a reference long-run value. We document a significant short-run impact of fiscal shocks on Okun's trade-off which, based on the experience of the Global Financial Crisis, becomes larger in periods of economic turmoil. Okun's coefficient is most volatile in Spain and most stable in Sweden and Japan, with France, UK and USA in between. Policy wise, we claim that austerity policies may have unexpected adverse effects on job creation if implemented during slumps, precisely when the labor market sensitivity with respect to the performance of the product market is likely to be more acute.
    Keywords: fiscal shocks, Okun's coefficient, business cycle, austerity, TVP-VAR
    JEL: E24 E32 E62
    Date: 2019–07
  5. By: Qazi Haque (University of Western Australia and CAMA); Nicolas Groshenny (School of Economics, University of Adelaide and CAMA); Mark Weder (Aarhus University and CAMA)
    Abstract: The paper re-examines whether the Federal Reserves monetary policy was a source of instability during the Great Ination by estimating a sticky-price model with positive trend ination, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage-rigidity and nds that the Federal Reserve responded aggressively to ination but negligibly to the output gap. In the presence of non-trivial real imperfections and well-identified commodity price-shocks, U.S. data prefers a determinate version of the New Keynesian model: monetary policy-induced indeterminacy and sunspots were not causes of macroeconomic instability during the pre-Volcker era.
    Keywords: Trend ination, Monetary policy, Great Ination, Cost-push shocks, Indeterminacy, Wage sluggishnes, Sequential Monte Carlo algorithm
    JEL: E32 E52 E58
  6. By: Maximilian Böck (Department of Economics, Vienna University of Economics and Business); Thomas O. Zörner (Department of Economics, Vienna University of Economics and Business)
    Abstract: This paper investigates the role of credit market sentiments and investor beliefs on credit cycle dynamics and their propagation to business cycle fluctuations. Using US data from 1968 to 2019, we show that credit market sentiments are indeed able to detect asymmetries in a small-scale macroeconomic model. By exploiting recent developments in behavioral finance on expectation formation in financial markets, we are able to identify an unexpected credit market news shock exhibiting different impacts in an optimistic and pessimistic credit market environment. While an unexpected movement in the optimistic regime leads to a rather low to muted impact on output and credit, we find a significant and persistent negative impact on those variables in the pessimistic regime. Therefore, this article departs from the current literature on the role of financial frictions for explaining business cycle behavior in macroeconomics and argues in line with recent theoretical contributions on the relevance of expectation formation and beliefs as source of cyclicity and instability in financial markets.
    Keywords: Credit cycles, Belief formation, Threshold VARs
    JEL: C34 E32 E44
    Date: 2019–07
  7. By: Miguel Biron; Felipe Córdova; Antonio Lemus
    Abstract: During the Global Financial Crisis, banks suffered losses on a scale not witnessed since the Great Depression, partly due to two major structural developments in the banking industry; deregulation combined with financial innovation. In the aftermath of the financial crisis, the regulatory response concentrated on the Basel III recommendations, raising core capital requirements for banking institutions, which affected their business models and funding patterns. Consequently, these changes have had significant implications for how banks grant loans, how they react to monetary policy shocks, and how they respond to external shocks. We find evidence of significant interactions between the bank lending channel and both monetary and global shocks in Chile. These links have changed significantly after the Global Financial Crisis. In particular, they have been shaped by the counter-cyclical behavior of a state-owned bank.
    Keywords: bank lending channel, global factors, Banco Estado
    JEL: E40 E44 E51 E52 E58 G21
    Date: 2019–07
  8. By: Saki Bigio (University of California, Los Angeles and NBER); Yuliy Sannikov (Stanford Business School and NBER)
    Abstract: A model integrates a modern implementation of monetary policy (MP) into an incomplete markets monetary economy. Policy sets corridor rates and conducts open-market operations and fiscal transfers. These tools grant independent control over credit spreads and inflation. We study the implementation of spreads and inflation via different MP instruments. Through its influence on spreads, MP affects the evolution of real credit, interests, output, and wealth distribution (both in the long and the short run). We decompose effects through different transmission channels. We study the optimal spread management and find that the active management of spreads is a desirable target.
    Keywords: Monetary Economics, Monetary Policy, Credit Channel
    JEL: E31 E32 E41 E44 E52
    Date: 2019–08
  9. By: Philip Coyle; Taisuke Nakata
    Abstract: In expectations-driven liquidity traps, a higher inflation target is associated with lower inflation and consumption. As a result, introducing the possibility of expectations-driven liquidity traps to an otherwise standard model lowers the optimal inflation target. Using a calibrated New Keynesian model with an effective lower bound (ELB) constraint on nominal interest rates, we find that even a very small probability of falling into an expectations-driven liquidity trap lowers the optimal inflation target nontrivially. Our analysis provides a reason to be cautious about the argument that central banks should raise their inflation targets in light of a higher likelihood of hitting the ELB.
    Keywords: Liquidity Traps ; Optimal Inflation Target ; Sunspot Shock ; Zero Lower Bound
    JEL: E52 E63 E32 E62 E61
    Date: 2019–05–17
  10. By: Qazi Haque (University of Western Australia and CAMA); Nicolas Groshenny (School of Economics, University of Adelaide and CAMA); Mark Weder (Aarhus University and CAMA)
    Abstract: The paper re-examines whether the Federal Reserves monetary policy was a source of instability during the Great Ination by estimating a sticky-price model with positive trend ination, commodity price shocks and sluggish real wages. Our estimation provides empirical evidence for substantial wage-rigidity and nds that the Federal Reserve responded aggressively to ination but negligibly to the output gap. In the presence of non-trivial real imperfections and well-identified commodity price-shocks, U.S. data prefers a determinate version of the New Keynesian model: monetary policy-induced indeterminacy and sunspots were not causes of macroeconomic instability during the pre-Volcker era.
    Keywords: Trend ination, Monetary policy, Great Ination, Cost-push shocks, Indeterminacy, Wage sluggishnes, Sequential Monte Carlo algorithm
    JEL: E32 E52 E58
    Date: 2019–06
  11. By: Carlos Cantú; Roberto Lobato; Calixto López; Fabrizio Lopez-Gallo
    Abstract: We use loan-level data from the Mexican credit registry to study how bank-specific characteristics in influence credit supply. We explore how these characteristics affect the transmission of monetary policy and their role in building banks' resilience to external shocks. Then, we compare the response of the credit supply of foreign subsidiaries to that of domestic banks. Finally, we study the impact of other micro characteristics on the credit supply and their influence on the transmission of shocks. Our results highlight the importance of banks' strong balance sheets and stable sources of funding for the provision of credit in Mexico. In general, these characteristics shelter banks from shocks.
    Keywords: credit registry, credit supply, bank-speci c characteristics, bank lending channel
    JEL: E44 E51 E52 E58 G21
    Date: 2019–07
  12. By: Taisuke Nakata; Sebastian Schmidt
    Abstract: We study optimal monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence give rise to persistent liquidity trap episodes. There is no straightforward recipe for enhancing welfare in this economy. Raising the inflation target or appointing an inflation-conservative central banker mitigates the inflation shortfall away from the lower bound but exacerbates deflationary pressures at the lower bound. Using government spending as an additional policy instrument worsens allocations at and away from the lower bound. However, appointing a policymaker who is sufficiently less concerned with government spending stabilization than society eliminates expectations-driven liquidity traps.
    Keywords: Effective Lower Bound ; Sunspot Equilibria ; Monetary Policy ; Fiscal Policy ; Discretion ; Policy Delegation
    JEL: E62 E61 E52
    Date: 2019–07–17
  13. By: Martin Feldkircher (Oesterreichische Nationalbank); Elizaveta Lukmanova (KU Leuven); Gabriele Tondl (Department of Economics, Vienna University of Economics and Business)
    Abstract: In this paper, we examine international linkages in inflation and short-term interest rates using a global sample of OECD and emerging economies. Using a Bayesian global vector autoregression (GVAR) model, we show that for short-term interest rates both movements in inflation and output play an important role. In advanced countries, however, international factors such as foreign interest rates appear as an important driver of local interest rates. For inflation, we also find evidence for the importance of global factors, such as price developments in other countries, oil prices and the exchange rate. Again, this impact of global factors appears predominately in advanced countries.
    Keywords: Monetary policy, Inflation, Global VAR
    JEL: E40 E43 E44
    Date: 2019–08
  14. By: Hilde C. Bjørnland; Julia Zhulanova
    Abstract: We analyze if the transmission of oil price shocks on the U.S. economy has changed with the shale oil boom. To do so, we put forward a framework that allows for spillovers between industries and learning by doing (LBD) over time. We identify these spillovers using a time-varying parameter factor-augmented vector autoregressive (VAR) model with both state level and country level data. In contrast to previous results, we find considerable changes in the way oil price shocks are transmitted to the U.S economy: there are now positive spillovers to non-oil investment, employment and production from an increase in the oil price - effects that were not present before the shale oil boom.
    Keywords: Shale oil boom, Oil Prices, Time-varying factor-augmented VAR model, Spillovers, Geographical Dispersion
    JEL: C11 E32 E42 Q43
    Date: 2019–08
  15. By: Rose Cunningham; Vikram Rai; Kristina Hess
    Abstract: We investigate the extent to which excess supply (demand) in labour markets contributes to a lower (higher) growth rate of average nominal wages for workers. Using panel methods on data from 10 advanced economies for 1992–2018, we produce reduced-form estimates of a wage Phillips curve specification that is consistent with a New Keynesian framework. We find comparable effects on nominal wage growth from several indicators of “slack” in the labour market: unemployment rates, unemployment rate gaps, the prime-age employment-to-population ratios, a composite labour market indicator constructed using a principal component for a wide range of labour force data, and unemployment rates separated by duration of unemployment. Our results provide evidence that while the slope of the wage Phillips curve seems to have become flatter following the global financial crisis in 2008, the relationship still appears to be highly significant. We find that the long-term unemployment rate (unemployment longer than six months) has had a larger effect on wage growth in the period since 2008. We also investigate the shape of the Phillips curve and find some evidence of a convex relationship between labour market slack and nominal wage growth, particularly for the pre-crisis period. Piecewise regressions suggest some mixed evidence on nominal rigidities in the aggregate data.
    Keywords: Inflation and prices; Labour markets; Monetary Policy
    JEL: C33 E31 E32
    Date: 2019–08
  16. By: Fiorella De Fiore; Oreste Tristani
    Abstract: We study the optimal combination of interest rate policy and unconventional monetary policy in a model where agency costs generate a spread between deposit and lending rates. We show that credit policy can be a powerful substitute for interest rate policy. In the face of shocks that negatively affect banks' monitoring efficiency, unconventional measures insulate the real economy from further deterioration in financial conditions and it may be optimal for the central bank not to cut rates to zero. Thus, credit policy lowers the likelihood of hitting the zero bound constraint. Reductions in the policy rates without non-standard measures are suboptimal as they inefficiently force savers to change their intertemporal consumption patterns.
    Keywords: optimal monetary policy, unconventional policies, zero-lower bound, asymmetric information
    JEL: E44 E52 E61
    Date: 2019–08
  17. By: Natalia Levenko
    Keywords: household saving rates, European Union, financial crisis, labour income uncertainty, precautionary saving, unemployment, consumer expectations, system GMM
    JEL: E12 E21 E24
    Date: 2019–01–23
  18. By: Jo, Soojin (Federal Reserve Bank of Dallas); Lee, Justin J. (The Richards Group)
    Abstract: We investigate how a macroeconomic uncertainty shock affects the labor market. We focus on the uncertainty transmission mechanism, for which we employ a set of worker flow indicators in addition to labor stock variables. We incorporate common factors from such indicators into a framework that can simultaneously estimate historical macroeconomic uncertainty and its impacts on the macroeconomy and labor market. We find firms defer hiring as the real option value of waiting increases. Moreover, significantly more workers are laid off while voluntary quits drop, suggesting other mechanisms such as the aggregate demand channel play a crucial role.
    Keywords: Business cycle; Labor market; Uncertainty; Stochastic volatility
    JEL: C32 D80 E24 E32
    Date: 2019–07–02
  19. By: Roger E. A. Farmer; Giovanni Nicolo
    Abstract: Farmer and Nicolò (2018) show that the Farmer Monetary (FM)-model outperforms the three-equation New-Keynesian (NK)-model in post war U.S. data. In this paper, we compare the marginal data density of the FM-model with marginal data densities for determinate and indeterminate versions of the NK-model for three separate samples using U.S., U.K. and Canadian data. We estimate versions of both models that restrict the parameters of the private sector equations to be the same for all three countries. Our preferred specification is the constrained version of the FM-model which has a marginal data density that is more than 30 log points higher than the NK alternative. Our findings also demonstrate that cross-country macroeconomic differences are well explained by the different shocks that hit each economy and by differences in the ways in which national central banks reacted to those shocks.
    Keywords: Bayesian Methods ; General Equilibrium ; Indeterminancy ; International Business Cycles ; Keynes ; Monetary policy ; Phillips Curve
    JEL: F42 E12 F44 E00 E52
    Date: 2019–05–29
  20. By: Belke, Ansgar; Klose, Jens
    Abstract: This article compares two types of monetary policy rules - the Taylor-Rule and the Orphanides-Rule - with respect to their forecasting properties for the policy rates of the European Central Bank. In this respect the basic rules, results from estimated models and augmented rules are compared. Using quarterly real-time data from 1999 to the beginning of 2019, we find that an estimated Orphanides-Rule performs best in nowcasts, while it is outperformed by an augmented Taylor-Rule when it comes to forecasts. However, also a no-change rule delivers good results for forecasts, which is hard to beat for most policy rules.
    Keywords: Taylor-Rule,Orphanides-Rule,monetary policy rates,forecasting,European Central Bank
    JEL: E43 E52 E58 C53
    Date: 2019
  21. By: Belke, Ansgar; Frenzel Baudisch, Coletta; Göcke, Matthias
    Abstract: The interest rate represents an important monetary policy tool to steer investment in order to reach price stability. Therefore, implications of the exact form and magnitude of the interest rate-investment nexus for the European Central Bank's effectiveness in a low interest rate environment gain center stage. We first present a theoretical framework of the hysteretic impact of changes in the interest rate on macroeconomic investment under certainty and under uncertainty to investigate whether uncertainty over future interest rates in the Euro area hampers monetary policy transmission. In this non-linear model, strong reactions in investment activity occur as soon as changes of the interest rate exceed a zone of inaction, that we call 'play' area. Second, we apply an algorithm describing path-dependent play-hysteresis to estimate investment hysteresis using data on domestic investment and interest rates on corporate loans for 5 countries of the Euro area in the period ranging from 2001Q1 to 2018Q1. We find hysteretic effects of interest rate changes on investment in most countries. However, their shape and magnitude differ widely across countries which poses a challenge for a unified monetary policy. By introducing uncertainty into the regressions, the results do not change much which may be due to the interest rate implicitly incorporating uncertainty effects in investment decisions, e.g. by risk premia.
    Keywords: European Central Bank,interest rate,investment,monetary policy,nonideal relay,pathdependence,play-hysteresis,uncertainty
    JEL: C32 E44 E49 E52 F21
    Date: 2019
  22. By: Moser, Christian; Olea de Souza e Silva, Pedro
    Abstract: Abstract We study optimal savings policies when there is a dual concern about undersaving for retirement and income inequality. Agents differ in present bias and earnings ability, both unobservable to a planner with paternalistic and redistributive motives. We characterize the solution to this two-dimensional screening problem and provide a decentralization using realistic policy instruments: mandatory savings at low incomes but a choice between subsidized savings vehicles at high incomes—resembling Social Security, 401(k), and IRA accounts in the US. Offering more savings choice at higher incomes facilitates redistribution. To solve large-scale versions of this problem numerically, we propose a general, computationally stable, and efficient active-set algorithm. Relative to the current US retirement system, we find significant welfare gains from increasing mandatory savings and limiting savings choice at low incomes.
    Keywords: Optimal Taxation, Multidimensional Screening, Present Bias, Preference Heterogeneity, Paternalism, Retirement, Savings, Social Security, Active-Set Algorithm
    JEL: E6 E60 E62 H2 H20 H21 H23 H24 H5 H55
    Date: 2019
  23. By: Obst, Thomas
    Abstract: This paper estimates Okun's law in the EU15 countries between 1980 and 2018. It employs three different versions of the law with a focus on the dynamic part of the relationship. We find that the negative relationship between unemployment and output holds for most countries and is fairly stable over time. However, Okun's coefficient varies substantially across countries. The dynamic version can shed light on the different country estimates found in the literature and is useful to assess the stability of the law. The paper argues that lag effects need to be taken into account to avoid possible misspecification of the short run unemployment-output relationship. A mixed lag structure indirectly controls for missing explanatory variables and includes possible asymmetries.
    Keywords: Okun's law,unemployment,growth,dynamic modelling,cycles
    JEL: E24 C22 E32
    Date: 2019
  24. By: Abdoulaye Millogo (Département d'économique, Université de Sherbrooke); Jean-François Rouillard (Département d'économique, Université de Sherbrooke)
    Abstract: In line with New-Keynesian predictions and certain historical trajectories that tracked by inflation during past crises, the context of the Great Recession should have spurred a sharp fall in inflation or even deflation. On the contrary, the sensitivity of inflation to changes in unemployment has diminished, giving rise to the paradox of missing disinflation. By investigating this paradox, this article develops a variant of the New-Keynesian models where mechanisms of depreciation of human capital are implemented. In the model, rising unemployment translates into a relatively large increase in long-term unemployment. Unemployed people with low levels of human capital become dominant and more workers are now likely to suffer from depreciation of human capital. The depreciation weakens the intensity with which the unemployed prospect new jobs and moderates the decline in wages and prices. Calibrated to the United States economy, model simulations show that this model variant compares relatively better the highlights of missing disinflation than a New-Keynesian without depreciation of human capital. In response to shocks of the same size, the response of inflation in the model with depreciation of human capital is 3 to 4-fold less than in standard New-Keynesian models.
    Keywords: Missing Disinflation, Deflation, Human Capital Depreciation, Unemployment, Great Recession
    JEL: E31 E32 J24
    Date: 2019–08
  25. By: Jorge Miranda-Pinto (School of Economics, The University of Queensland); Eric R. Young (Department of Economics, University of Virginia, and Department of Economics, Zhejiang University.)
    Abstract: Cross-sectoral heterogeneity in sectoral bond spreads is related to sectoral elasticities of substitution in production. During the Great Recession, more flexible firms paid lower sectoral bond spreads, generated higher revenues, and held more working capital. A model consistent with these facts— input-output linkages, working capital constraints, and heterogeneous elasticities—predicts that sectoral distortions during the Great Recession generated an efficiency wedge—due to input misallocation—2.4 times larger than one with homogeneous production functions. In addition, our model predicts input-output connections amplified the Great Recession 2.3 times as much as one with homogeneous elasticities.
    Keywords: Elasticity of substitution, credit spreads, working capital constraints
    JEL: E32 E23 E44
    Date: 2019–03–11
  26. By: Chunya Bu; John Rogers; Wenbin Wu
    Abstract: Identification of Fed monetary policy shocks is complex, in light of the distinct policymaking regimes before, during, and after the ZLB period of December 2008 to December 2015. We develop a heteroscedasticity-based partial least squares approach, combined with Fama-MacBeth style cross-section regressions, to identify a US monetary policy shock series that usefully bridges periods of conventional and unconventional policymaking and is effectively devoid of the central bank information effect. Our series has moderately high correlation with the shocks identified by Nakamura and Steinsson (2018), Swanson (2018), and Jarocinski and Karadi (2018), but has crucially important differences. Following both the Nakamura-Steinsson and Jarocinski-Karadi empirical tests, we find scant evidence of the information effect in our measure. We attribute the source of these different findings to our econometric procedure and our use of the full maturity spectrum of interest rate instrume nts in constructing our measure. We then present evidence confirming an hypothesis in the literature that the information effect can lead to the result that shocks to monetary policy have transmission effects with signs that differ from traditional theory. We find that shocks to series that are devoid of (embody) the information effect display conventionally-signed (perverse) impulse responses of output and inflation. This provides evidence of first-order importance to staff at central banks undertaking quantitative theoretical modeling of the effects of monetary policy.
    Keywords: Federal Reserve Board And Federal Reserve System ; Information Effect
    JEL: E4 E5
    Date: 2019–06–07
  27. By: Kauhanen, Antti; Lehmus, Markku
    Abstract: Abstract This report studies working time and competitiveness. The first part of the report compares working time in Finland to other European countries using working time data from Eurostat and provides a review of the economics literature on working time and employment. The second part of the report studies the impact of the Competitiveness Pact on employment and Finnish competitiveness using Etla’s macro model. This analysis separates the impact of working time extension and social security contributions and taxation on employment. The results of the working time comparison show that the average hours worked are little less than an hour shorter in Finland compared to the EU average. The low incidence of part-time work increases the average hours worked in Finland, while the working hours of both full-time and part-time employees are among the shortest in Europe. Annual holidays, public holidays and absences decrease working time in Finland more than in most other European countries. The literature review shows that the impact of working time changes on employment depend crucially on how they affect labor costs. The Competitiveness Pact increased employment and improved Finnish competitiveness. Working time extensions account for about 40% of the employment impact, while the rest is accounted for by the reductions in social security contributions and taxation.
    Keywords: Employment, Working time, Competitiveness, Competitiveness pact
    JEL: E24 E27 E65 J23
    Date: 2019–08–12
  28. By: International Monetary Fund
    Abstract: Financial markets stabilized in May and June after a period of turmoil in late April prompted by political uncertainties and a significant increase in inflation and inflation expectations. High interest rates, seasonal dollar inflows from the agricultural sector, greater clarity on the candidates in the October election, and the BCRA’s announcement that it may intervene to support the peso in the event of disorderly market conditions have helped better anchor the exchange rate. Modest exchange rate appreciation and continued fiscal and monetary policy restraint have supported a decline in monthly inflation in April and May. In addition, the fiscal position has been helped by higher-than-expected inflation (boosting nominal tax revenues) and a cautious approach to spending. Economic activity weakened further in Q1, but the recession is likely to have ended, with sequential growth expected to be positive in the coming quarters. Sovereign spreads remain high and, while rollover rates for federal government liabilities have been in line with program assumptions, average debt maturities have shortened, increasing gross financing needs in the months leading up to the election.
    Date: 2019–07–15
  29. By: Mandler, Martin; Scharnagl, Michael
    Abstract: We analyse the macroeconomic effects of exogenous contractions in bank lending to non-financial corporations in the Euro Area, Germany, France, Italy and Spain using a Bayesian vector autoregressive model with endogenous hyperparameter selection and identification via sign restrictions. We focus on the behaviour of firms' external financing sources alternative to bank loans, such as financing via equity, debt securities, trade credit and lending from non-banks. We investigate whether these alternative financing sources are complements to or substitutes for bank lending using the joint posterior distribution of their impulse responses with that of bank loans. For the Euro Area our results show equity, debt securities and non-bank loans to be substitutes for bank loans with negative responses to a positive loan supply shock while trade credit is a complement and responds positively. We show that the substitution relationship with respect to bank loans is more clearly visible in the joint distribution of the financing sources reactions than when focusing only on the marginal impulse responses. Quantitatively, the developments in bank loans and trade credit dominate the response of the overall sum of the external financing. This result also holds in most cases at the country level. However, whether and which of the alternative financing sources are substitutes for or complements to bank loans differs across countries.
    Keywords: loan supply,external financing,Euro Area,Bayesian VAR,sign restrictions,joint posterior distribution
    JEL: C32 E32 E51
    Date: 2019
  30. By: Hirose, Yasuo (Keio University); Kurozumi, Takushi (Bank of Japan)
    Abstract: The empirical importance of news shocks—anticipated future shocks—in business cycle fluctuations has been explored by using only actual data when estimating models augmented with news shocks. This paper additionally exploits forecast data to identify news shocks in a canonical dynamic stochastic general equilibrium model. The estimated model shows new empirical evidence that technology news shocks are a major source of fluctuations in U.S. output growth. Exploiting the forecast data not only generates more precise estimates of news shocks and other parameters in the model, but also increases the contribution of technology news shocks to the fluctuations.
    Keywords: Business Cycle Fluctuation; Technology Shock; Technology News Shock; Forecast Data; Bayesian Estimation
    JEL: E30 E32
    Date: 2019–05–01
  31. By: Michinao Okachi (Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Department of Economics, Graduate School of Economics and Management, Tohoku University, E-mail:
    Abstract: The Greek sovereign default episode in 2012 was characterized by its high debt-to-GDP ratio and the severe economic contraction following the default. Conventional strategic default models designed to analyze a government's incentive to default often fail to replicate these characteristics. To address this issue, we provide a dynamic stochastic general equilibrium (DSGE) model where a sovereign default is triggered by the government's inability to repay its debt. We show that the inability-to-repay model replicates the empirical features observed in Greece, while the conventional strategic default model calibrated to the Greek economy does not.
    Keywords: Sovereign Default, Dynamic Stochastic General Equilibrium, Inability to Repay Debt, Strategic Decision to Default, Fiscal Limit, Laffer Curve
    JEL: E32 E44 F34 H63
    Date: 2019–07
  32. By: Christopher Curfman; John Kandrac
    Abstract: We investigate how liquidity regulations affect banks by examining a dormant monetary policy tool that functions as a liquidity regulation. Our identification strategy uses a regression kink design that relies on the variation in a marginal high-quality liquid asset (HQLA) requirement around an exogenous threshold. We show that mandated increases in HQLA cause banks to reduce credit supply. Liquidity requirements also depress banks' profitability, though some of the regulatory costs are passed on to liability holders. We document a prudential benefit of liquidity requirements by showing that banks subject to a higher requirement before the financial crisis had lower odds of failure.
    Keywords: Monetary Policy ; Bank Failure ; Bank Lending ; Liquidity Regulation ; Required Reserves
    JEL: G21 E58 E51 G28 E52
    Date: 2019–05–28
  33. By: Yener Coskun (The University of Sheffield, Department of Urban Studies and Planning, Western Bank SheffieldS102TN, United Kingdom); Christos Bouras (University of Piraeus, Department of Banking and Financial Management, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA, and School of Business and Economics, Loughborough University, Leicestershire, LE113TU, UK.)
    Abstract: We examine multi-horizon wealth effects across U.S. states over the period of 1975:Q1 to 2012:Q2 by utilizing multi-horizon non-causality testing (Dufour et al., 2006) and multi-horizon causality measurement (Dufour and Taamouti, 2010). We find in both that housing wealth has a more statistically significant, persistent, and widespread impacts than financial wealth on state/aggregate levels. We also find that state-level housing/financial wealth effects show heterogenity accross the U.S. Moreover, except the result of multi-horizon causality measure for financial wealth, the evidence show the presence of financial/housing wealth effects for consumption in longer horizons. State-level evidence suggests that state-level policies may specifically utilize the housing market to support consumption and growth.
    Keywords: Consumption, housing wealth effect, financial wealth effect, multi-step causality
    JEL: C32 E21 E44
    Date: 2019–08
  34. By: Mario J Crucini; Nam T Vu
    Abstract: One of the statements of purpose of the American Recovery and Reinvestment Act (ARRA) was “to assist those most impacted by the recession.” To consider this facet, the ARRA is assessed along this dimension using the concept of risk-sharing. We estimate a trend-stationary autoregressive model of county-level wage income dynamics with each county subject to an idiosyncratic shock and a common shock (with county-specific factor loading). These shocks are used to estimate a redistributive fiscal policy function. The fiscal-offset is 33.6% for the common shock and 6.64% for the county-specific shock. Both of these fiscal policy parameters are statistically and economically significant.
    Keywords: the American Recovery and Reinvestment Act, fiscal stimulus, risk-sharing, county-level wage income, income dynamics
    JEL: E0 E6
    Date: 2019–08
  35. By: Benchimol, Jonathan (Bank of Israel); Qureshi, Irfan (Asian Development Bank)
    Abstract: This paper presents an analysis of the stimulants and consequences of money demand dynamics. By assuming that households’ money holdings and consumption preferences are not separable, we demonstrate that the interest-elasticity of demand for money is a function of the households’ preference to hold real balances, the extent to which these preferences are not separable in consumption and real balances, and trend inflation. An empirical study of U.S. data revealed that there was a gradual fall in the interest-elasticity of money demand of approximately one-third during the 1970s due to high trend inflation. A further decline in the interest-elasticity of the demand for money was observed in the 1980s due to the changing household preferences that emerged in response to financial innovation. These developments led to a reduction in the welfare cost of inflation that subsequently explains the rise in monetary neutrality observed in the data.
    Keywords: Time-Varying Money Demand; Real Balance Effect; Welfare Cost of Inflation; Monetary Neutrality
    JEL: E31 E41 E52
    Date: 2019–06–11
  36. By: Glick, Reuven (Federal Reserve Bank of San Francisco)
    Abstract: This paper provides a synthesis of explanations for why the natural rate of interest, r*, has fallen over the last several decades. Demographic factors, declining productivity, slower output growth, and increasing inequality likely all have been important factors. Perhaps less recognized is the role of increasing global demand for safe assets, particularly by foreign investors. Suggestive empirical evidence is presented showing that foreign demand for U.S. safe assets, particularly government-provided assets, has increased dramatically, and may now be playing a much larger role in the determination of U.S. interest rates than in the past. In addition, the buildup before the 2007-2009 financial crisis of quasi-government and privately-supplied safe assets, held by both domestic and foreign investors, rendered the financial system more vulnerable to shocks that adversely affected the perceived degree of “safeness” they provided.
    JEL: E43 E44 F34
    Date: 2019–08–05
  37. By: José Bustamante; Walter Cuba; Rafael Nivin
    Abstract: This paper uses loan-level data from Peru's credit registry to determine how the role of bank-specific characteristics (i.e. bank size, liquidity, capitalization, funding, revenue, and profitability) may affect the supply of credit in domestic and foreign currency. Also, we analyze how these characteristics affect the banks' response to monetary policy shocks. Finally, we assess how the link between bank-specific characteristics and credit supply is affected by global financial conditions and commodity price changes. Our results show that well-capitalized, high-liquidity, low-risk, more profitable banks tend to grant more credit, especially in domestic currency. Moreover, we found evidence that reserve requirements both in domestic and foreign currency are effective in curbing domestic credit in Peru, giving support to the BCRP's active use of RRs as a macroprudential tool to smooth out the credit cycle. Last, we found that banks with more diversified funding sources are less affected after a negative commodity price change.
    Keywords: credit channel, monetary policy, credit registry data
    JEL: E44 G21 G32 L25
    Date: 2019–07
  38. By: Luigi Pistaferri; Davide Malacrino; Luigi Guiso; Andreas Fagereng (Statistics Norway)
    Abstract: We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 8.6%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
    Keywords: Wealth inequality; returns to wealth; financial wealth; net worth; heterogeneity; intergenerational mobility
    JEL: D31 D91 E21 E24 G11
    Date: 2019–07
  39. By: Gilbert Cette; Lorraine Koehl; Thomas Philippon
    Abstract: We study the joint impact of three measurement issues in the empirical literature on the labor share: (i) start and end periods for the empirical analysis; (ii) accounting for self-employment; and (iii) accounting for residential real estate income. When we correct for these three potential biases, we do not find a general decline in the labor share in our sample of advanced economies. In that respect the behavior of the US labor share after 2000 presents a puzzle.
    JEL: E01 E02 E2
    Date: 2019–08
  40. By: Lee, Michael Junho (Federal Reserve Bank of New York); Neuhann, Daniel (University of Texas at Austin)
    Abstract: We study a dynamic model of collateralized lending under adverse selection in which the quality of collateral assets is endogenously determined by hidden effort. Complementarities in incentives lead to non-ergodic dynamics: Asset quality and output grow when asset quality is high, but stagnate or deteriorate otherwise. Inefficiencies remain, even in the most efficient competitive equilibrium—investment and output are vulnerable to spells of lending market illiquidity, and these spells may persist because of suboptimal effort. Nevertheless, benevolent regulators without commitment can destroy welfare by prioritizing liquidity over incentives. Optimal interventions with commitment call for large, long-term subsidies in excess of what is required to restore liquidity.
    Keywords: liquidity; government intervention; adverse selection; collateral
    JEL: E44 E50 G01 G18
    Date: 2019–08–07
  41. By: Bazot, Guillaume; Monnet, Eric; Morys, Matthias
    Abstract: Are central banks able to isolate their domestic economy by offsetting the effects of foreign capital flows? We provide an answer for the First Age of Globalisation based on an exceptionally detailed and standardized database of monthly balance sheets of all central banks in the world (i.e. 21) over 1891-1913. Investigating the impact of a global interest rate shock on the exchange-rate, the interest rate and the central bank balance sheet, we find that not a single country played by the "rules of the game." Core countries fully sterilized capital flows, while peripheral countries also relied on convertibility restrictions to avoid reserve losses. In line with the predictions of the trilemma, the exchange rate absorbed the shock fully in countries off the gold standard (floating exchange rate): the central bank's balance sheet and interest rate were not affected. In contrast, in the United States, a gold standard country without a central bank, the reaction of the money market rate was three times stronger than that of interest rates in countries with a central bank. Central banks' balance sheets stood as a buffer between domestic economy and global financial markets.
    Keywords: central banking; Federal Reserve System; gold standard; rules of the game; Sterilization; trilemma
    JEL: E42 E50 F30 F44 N10 N20
    Date: 2019–07
  42. By: Paola Morales; Daniel Osorio; Juan Sebastian Lemus-Esquivel
    Abstract: This paper analyses the extent to which the strength of the credit channel is affected by the expansion of domestic banks abroad, widely considered the most important structural change of Colombia banking system in recent years. Using loan-level quarterly data for the period between 2007 and 2016, we estimate panel specifications that relate changes in the loan amount and the loan interest rates to variations on the domestic policy rate, the number of foreign subordinates of the lender bank and the interaction between the two. The results suggest that the response of international banks (i.e., those that have significantly expanded abroad) in the face of changes to the domestic policy rate is not statistically different to that of purely local banks, while the cost of credit is found to be slightly higher. Even though in principle this could be interpreted to the effect that internationalization has had no significant effect on the potency of the credit channel, the results tend towards a more subtle conclusion. Specifically, in the face of increases in the domestic policy rate, international banks tend to switch more strongly from domestic to foreign sources of funding. Purely local banks are able thus to capture relatively more domestic funding under these conditions, which allows their credit activity to respond to monetary policy on a similar scale to that of international banks. This result supports the idea that banks switch funding activities between their operating jurisdictions depending on monetary policy conditions, and that the internationalization of domestic banks plays a cushioning role for the economy at times when the monetary policy stance changes significantly.
    Keywords: bank-lending channel, internationalization of banks, banks' business models, branches and subsidiaries
    JEL: E43 E52 F23 F34 F44
    Date: 2019–07
  43. By: Saleem Bahaj (Bank of England (E-mail:; Ricardo Reis (London School of Economics (E-mail:
    Abstract: Theory claims that central-bank lending programs put ceilings on private lending rates, reduce ex post funding risk, and encourage ex ante investment. Testing for these effects is challenging. Most programs either have long precedents or were introduced in response to large shocks with multiple effects. Swap lines between advanced-economy central banks are a significant new policy through which a source central bank provides source-currency credit to recipient-country banks using the recipient central bank as the monitor and as the bearer of the credit risk. This paper shows that, in theory, the swap lines should put a ceiling on deviations from covered interest parity, lower average market funding costs, and increase inflows from recipient-country banks into assets denominated in the source-country's currency. Empirically, these are tested using difference-in-difference strategies that exploit variation in the terms of the swap line over time, variation in the central banks that have access to the swap line, variation in the exposure of different securities to foreign funding, and variation in banks' exposure to dollar funding risk. The evidence suggests that the lender of last resort is very effective.
    Keywords: liquidity facilities, currency basis, bond portfolio flows
    JEL: E44 F33 G15
    Date: 2019–07
  44. By: Rodrigo Barbone Gonzalez
    Abstract: This paper investigates the bank lending-channel of monetary policy (MP) surprises. To identify the effects of MP surprises on credit supply, I take the changes in interest rate derivatives immediately after each MP announcement and bring this high-frequency identification strategy to comprehensive and matched bank-firm data from Brazil. The results are robust and stronger than those obtained with Taylor residuals or the reference rate. Consistently with theory, heterogeneities across financial intermediaries, e.g. bank capital, are relevant. Firms connected to stronger banks mitigate about one third of the effects of contractionary MP on credit and about two thirds on employment.
    Keywords: employment, monetary policy, surprises, loan-level, lending channel
    JEL: E52 E51 G21 G28
    Date: 2019–07
  45. By: Előd Takáts; Judit Temesvary
    Abstract: We combine a rarely accessed BIS database on bilateral cross-border lending flows with cross-country data on macroprudential regulations. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant interactions. Tighter macroprudential policy in a home country mitigates the impact on lending of monetary policy of a currency issuer. For instance, macroprudential tightening in the UK mitigates the negative impact of US monetary tightening on USD-denominated cross-border bank lending outflows from UK banks. Vice-versa, easier macroprudential policy amplifies impacts. The results are economically significant.
    Keywords: Cross-Border Claims ; Diff-In-Diff Analysis ; Macroprudential Policy ; Monetary Policy
    JEL: F34 F42 G38 G21
    Date: 2019–06–21
  46. By: Walter Engert; Ben Fung; Björn Segendorf
    Abstract: Cash use for payments has been steadily decreasing in many countries, including Canada and Sweden. This might suggest an evolution toward a cashless society. But in Canada, cash in circulation relative to GDP has been stable for decades and has even increased in recent years. By contrast, the cash-to-GDP ratio in Sweden has been falling steadily. What has caused this difference? Are there lessons to be learned from comparing the Canadian and Swedish experiences?
    Keywords: Bank notes; Digital Currencies and Fintech; Financial services; Payment clearing and settlement systems
    JEL: E41 E42 E5
    Date: 2019–08
  47. By: Maria, Ferrara; Patrizio, Tirelli
    Abstract: We investigate the redistributive and welfare effects of disinflation in a two-agent New Keynesian (TANK) model characterized by Limited Asset Market Participation (LAMP) and wealth inequality. We highlight two key mechanisms driving our long-run results: i) the cash in advance constraint on firms working capital (CIA); ii) dividends endogeneity. These two channels point in opposite directions. Lower inflation softens the CIA and, by raising labor demand, lowers inequality. But the disinflation also raises dividends and this increases inequality. The disinflation is always welfare-improving for asset holders. We obtain ambiguous results for non-asset holders, who suffer substantial consumption losses during the transition.
    Keywords: Firms Pricing, Disinflation, Inequality, Welfare Economics
    JEL: E31 E5 D3 D6
    Date: 2019–02
  48. By: Tania Babina; Wenting Ma; Christian Moser; Paige Ouimet; Rebecca Zarutskie
    Abstract: Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms.
    Keywords: Young-Firm Pay Premium, Selection, Worker and Firm Heterogeneity, Firm Dynamics, Startups
    JEL: J30 J31 D22 E24 M13
    Date: 2019–07
  49. By: Martin M. Andreasen; Kasper Joergensen; Andrew C. Meldrum
    Abstract: This paper documents a significantly stronger relationship between the slope of the yield curve and future excess bond returns on Treasuries from 2008-2015 than before 2008. This new predictability result is not matched by the standard shadow rate model with Gaussian factor dynamics, but extending the model with regime-switching in the (physical) dynamics of the factors at the lower bound resolves this shortcoming. The model is also consistent with the downwards trend in surveys on short rate expectations at long horizons, but requires a break in the level of its factors to closely fit the low level of these surveys since 2015.
    Keywords: Dynamic Term Structure Model ; Bond Return Predictability ; Regime-Switching ; Shadow Rate Model ; Structural Break
    JEL: G12 E43 E44
    Date: 2019–05–28
  50. By: Buera, Francisco (Washington University in St. Louis); Karmakar, Sudipto (Bank of England)
    Abstract: What are the heterogeneous effects of financial shocks on firms’ behavior? This paper evaluates and answers this question from both an empirical and a theoretical perspective. Using micro data from Portugal during the sovereign debt crisis, starting in 2010, we document that highly leveraged firms and firms that had a larger share of short-term debt on their balance sheets contracted more in the aftermath of a financial shock. We use a standard model to analyse the conditions under which leverage and debt maturity determine the sensitivity of firms’ investment decisions to financial shocks. We show that the presence of long-term investment projects and frictions to the issuance of long-term debt are needed for the model to rationalize the empirical findings. We conclude that the differential responses of firms to a financial shock do not provide unambiguous information to identify these shocks. Rather, we argue that this information should be used to test for the relevance of important model assumptions.
    Keywords: Sovereign debt; leverage; maturity structure; spillovers
    JEL: E44 F34 G12 H63
    Date: 2019–08–02
  51. By: Sondermann, David; Zorell, Nico
    Abstract: Macroeconomic imbalances increase the vulnerability of an economy to adverse shocks, which in turn can lead to crises with severe economic and social costs. We propose an early warning model that predicts such crises. We identify a set of macroeconomic indicators capturing domestic and external imbalances that jointly predict severe recessions (i.e. growth crises) in a multivariate discrete choice framework. The approach allows us to quantify an economy's macroeconomic vulnerabilities at any point in time. In particular, the model would have pointed early on to emerging vulnerabilities in all the euro area countries that registered severe recessions in the years after 2007. We also show that the model can be applied beyond the euro area crisis in that its main results remain robust to changes in assumptions and sample composition. JEL Classification: E37, E44, F47, O52
    Keywords: early warning models, growth crises, macroeconomic imbalances
    Date: 2019–08
  52. By: Jang, Youngsoo
    Abstract: How do defaults and bankruptcies affect optimal health insurance policy? I answer this question using a life-cycle model of health investment with the option to default on emergency room (ER) bills and financial debts. I calibrate the model for the U.S. economy and compare the optimal health insurance in the baseline economy with that in an economy with no option to default. With no option to default, the optimal health insurance is similar to the health insurance system in the baseline economy. In contrast, with the option to default, the optimal health insurance system (i) expands the eligibility of Medicaid to 22 percent of the working-age population, (ii) replaces 72 percent of employer-based health insurance with a private individual health insurance plus a progressive subsidy, and (iii) reforms the private individual health insurance market by improving coverage rates and preventing price discrimination against people with pre-existing conditions. This result implies that with the option to default, households rely on bankruptcies and defaults on ER bills as implicit health insurance. More redistributive healthcare reforms can improve welfare by reducing the dependence on this implicit health insurance and changing households’ medical spending behavior to be more preventative.
    Keywords: Credit, Default, Bankruptcy, Optimal Health Insurance
    JEL: E21 H51 I13 K35
    Date: 2019–07
  53. By: International Monetary Fund
    Abstract: Chad is a low-income fragile country that depends heavily on oil revenues. In recent years, it has been heavily impacted by an oil price shock and security tensions which intensified recently with a rise in terrorists attacks and rebel movements. Significant progress has been made under the 2017 ECF arrangement to help restore debt sustainability and fiscal stability. However, the economic, financial, and social situation is still very difficult, and the recovery in the non-oil economy has not taken strong hold yet as the economy continues to deal with legacies from the crisis and long-standing structural weaknesses.
    Date: 2019–07–31
  54. By: Das, Mahamitra; Sarkar, Nityananda
    Abstract: In this paper we have re-investigated the frequently observed anomalous negative relationship between inflation and REIT returns for two most important economies viz., the USA and the UK by addressing two aspects of misspecification: inappropriate functional form and omission of relevant variable. We have found that the anomalous relationship between REIT and inflation appear to proxy for the significant effect of relative price variability on REIT returns in both the countries. Further, it is evidenced that the effect of relative price variability on real estate investment trust (REIT) returns is not stable over time in case of the USA while in the UK there is no structural change in the relationship.
    Keywords: REITs; Relative price variability; Inflation; Structural breaks
    JEL: C58 E3 E31 R33
    Date: 2019–07–19
  55. By: Georgiadis, Georgios; Mösle, Saskia
    Abstract: A large share of global trade being priced and invoiced primarily in US dollar rather than the exporter's or the importer's currency has important implications for the transmission of shocks. We introduce this "dominant currency pricing" (DCP) into ECB-Global, the ECB's macroeconomic model for the global economy. To our knowledge, this is the first attempt to incorporate DCP into a major global macroeconomic model used at central banks or international organisations. In ECB-Global, DCP affects in particular the role of expenditure switching and the US dollar exchange rate for spillovers: In case of a shock in a non-US economy that alters the value of its currency multilaterally, expenditure switching occurs only through imports; in case of a US shock that alters the value of the US dollar multilaterally, expenditure switching occurs both in non-US economies' imports and - as these are imports of their trading partners - exports. Overall, under DCP the US dollar exchange rate is a major driver of global trade, even for transactions that do not involve the US. In order to illustrate the usefulness of ECB-Global and DCP for policy analysis, we explore the implications of the Euro rivaling the US dollar as a second dominant currency in global trade. According to ECB-Global, in such a scenario the global spillovers from US shocks are smaller, while those from euro area shocks are amplified; domestic euro area monetary policy effectiveness is hardly affected by the Euro becoming a second globally dominant currency in trade.
    Keywords: global macroeconomic modelling,dominant currency paradigm,spillovers
    JEL: F42 E52 C50
    Date: 2019
  56. By: International Monetary Fund
    Abstract: Niger faces daunting development challenges, aggravated by terrorist incursions, low uranium export prices, and climate change. Nonetheless, GDP growth picked up to 6.5 percent last year- and should average above 7 percent over the next five years thanks to reforms, substantial donor support, several large-scale projects, and a one-time boost from the projected commencement of crude oil exports in 2022.
    Date: 2019–07–22
  57. By: Jorge Miranda-Pinto (School of Economics, The University of Queensland)
    Abstract: This paper studies differences in production structures across countries and their implications for cross-country heterogeneity in GDP volatility. In particular, economies with more input-output connections—a denser network—are associated with less concentrated sales shares and lower volatility. The relationship between density and volatility is stronger in countries with a higher share of services in GDP (hereafter referred to as service share). To account for this evidence, I propose a generalized production network model in which denser economies display higher production complexity. If production is also specialized in industries that use labor and intermediates as substitute inputs, higher network density indeed lowers the concentration of sales shares and aggregate volatility. U.S. sectoral data suggest that the elasticity of substitution between labor and intermediates in service sectors is larger than one and larger than in non-service sectors. A calibrated model that then also matches each country’s production network can quantitatively generate observed cross-country empirical patterns. Furthermore, in contrast to previous work, the model predicts that: i) sectoral shocks play only a modest role in accounting for the observed business cycle dynamics, especially in dense and service-oriented economies; and ii) production diversification does not always lower volatility.
    Keywords: input-output structure, volatility, service share, elasticity of substitution
    JEL: C67 E32
    Date: 2019–02–28
  58. By: Schiliro, Daniele
    Abstract: This paper is an analysis of the book by Marco Fortis and Alberto Quadrio Curzio, Riforme e investimenti. Europa e Italia, Il Mulino, 2017.
    Keywords: European Union; Italian economy; economic reforms; institutional change; investments
    JEL: E6 F0 O52
    Date: 2018–06
  59. By: Ceyhun Bora Durdu; Alex Martin; Ilknur Zer
    Abstract: We examine the role of U.S. monetary policy in global financial stability by using a cross-country database spanning the period from 1870-2010 across 69 countries. U.S. monetary policy tightening increases the probability of banking crises for those countries with direct linkages to the U.S., either in the form of trade links or significant share of USD-denominated liabilities. Conversely, if a country is integrated globally, rather than having a direct exposure, the effect is ambiguous. One possible channel we identify is capital flows: If the correction in capital flows is disorderly (e.g., sudden stops), the probability of banking crises increases. These findings suggest that the effect of U.S. monetary policy in global banking crises is not uniform and largely dependent on the nature of linkages with the U.S.
    Keywords: banking crises ; financial stability ; monetary policy shocks ; sudden stop
    JEL: G15 E44 E52 F42
    Date: 2019–05–28
  60. By: Miguel Casares (Universidad Pública de Navarra); Luca Deidda (Università di Sassari); José E. Galdón-Sánchez (Universidad Pública de Navarra)
    Abstract: We build a static general-equilibrium model with monopolistically competitive firms that borrow funds from competitive banks in an economy subject to financial frictions. These frictions are due to non verifiability of both ex post firm returns and managerial effort. Market power has opposing effects. On one side, firms’ pricing over marginal cost reduces output compared to perfect competition. On the other, by increasing firms’ profitability, market power reduces the impact of financial frictions. The resulting tradeoff is ambiguous. We show that, other things equal, there exists an optimal positive level of market power that maximizes welfare. Such optimal degree of market power increases with moral hazard and decreases with the efficiency of firm liquidation following bankruptcy.
    Keywords: market power, moral hazard, bankruptcy, liquidation
    JEL: E44 G21 G33
    Date: 2019–08
  61. By: International Monetary Fund
    Abstract: In light of widespread concern about the security crisis and protracted public sector pay disputes, the government resigned in January 2019. The new government, installed with a mission to combat the security crisis with more vigor, remains under tremendous pressure. Growth in 2018 remained resilient as a bumper harvest more than compensated for a decline in non-agricultural GDP growth. Inflation remained subdued, and the overall fiscal deficit declined below 5 percent of GDP, though essentially at the cost of lower public investment. Given difficulties in moving ahead with a constitutional reform, the authorities are now focusing on a two-stage strategy to contain the wage bill. First, in the near term, transitional measures will be implemented and the outlook for the wage bill would remain in line with the understandings reached at the first review. Second, in the meanwhile, the authorities will continue exploring politically feasible ways to adopt their reform package. The main risks to the program stem from heightened security risks and further labor disputes.
    Date: 2019–07–31
  62. By: International Monetary Fund
    Abstract: The Indonesian economy performed well in 2018, despite external headwinds, including capital flow reversals. Growth stabilized above 5 percent and inflation eased to around 3 percent. A surge in imports and weak export growth contributed to a higher current account deficit. Growth is projected to remain stable over the medium term. Inflation is expected to remain within the target band and the current account deficit is expected to narrow gradually on lower imports. Risks are tilted to the downside and are mainly external. Reliance on portfolio inflows to finance the twin deficits leaves Indonesia vulnerable to capital flow reversals. President Joko Widodo has been re-elected for a second term and has committed to push ahead with economic reforms. Creating quality jobs for the young and growing population to harness Indonesia’s demographic dividend requires a stronger impetus to growth, which has been constrained by structural weaknesses, including low tax revenues, shallow financial markets, and labor and product market rigidities.
    Date: 2019–07–31
  63. By: International Monetary Fund
    Abstract: The economic recovery after the 2015-16 recession has disappointed, with real GDP growing by only 1.1 percent in 2017 and 2018. Inflation is close to target, hovering around 4 percent. Monetary policy is accommodative with policy rates at the historical low of 6.5 percent. Fiscal policy was neutral in 2018 while gross public debt reached 88 percent of GDP. Financial markets have rebounded since the 2018 election.
    Date: 2019–07–23
  64. By: International Monetary Fund
    Abstract: Macroeconomic stability has been maintained with robust economic growth, declining public debt, as well as low and stable inflation. While Serbia continues to address structural challenges, supported by the Policy Coordination Instrument, more determined efforts are needed to ensure faster income convergence with the EU.
    Date: 2019–07–22
  65. By: Böck, Maximilian; Zörner, Thomas O.
    Abstract: This paper investigates the role of credit market sentiments and investor beliefs on credit cycle dynamics and their propagation to business cycle fluctuations. Using US data from 1968 to 2019, we show that credit market sentiments are indeed able to detect asymmetries in a small-scale macroeconomic model. By exploiting recent developments in behavioral finance on expectation formation in financial markets, we are able to identify an unexpected credit market news shock exhibiting different impacts in an optimistic and pessimistic credit market environment. While an unexpected movement in the optimistic regime leads to a rather low to muted impact on output and credit, we find a significant and persistent negative impact on those variables in the pessimistic regime. Therefore, this article departs from the current literature on the role of financial frictions for explaining business cycle behavior in macroeconomics and argues in line with recent theoretical contributions on the relevance of expectation formation and beliefs as source of cyclicity and instability in financial markets.
    Keywords: Credit cycles, Belief formation, Threshold VARs
    Date: 2019–07
  66. By: Belke, Ansgar; Beretta, Edoardo
    Abstract: The paper explores the precarious balance between modernizing monetary systems by means of digital currencies (either issued by the central bank itself or independently) and safeguarding financial stability as also ensured by tangible payment (and saving) instruments like paper money. Which aspects of modern payments systems could contribute to improve the way of functioning of today's globalized economy? And, which might even threaten the above mentioned instable equilibrium? This survey-paper aims, precisely, at giving some preliminary answers to a complex - therefore, ongoing - debate at the scientific as well as the banking and the political level.
    Keywords: cash,central banks,cryptocurrencies,digital currencies,monetary systems
    JEL: E4 E5 G21 G23
    Date: 2019
  67. By: Silvia Albrizio (Bank of Spain); Sangyup Choi (Yonsei University); Davide Furceri (IMF); Chansik Yoon (Princeton University)
    Abstract: How does domestic monetary policy in systemic countries spillover to the rest of the world? This paper examines the transmission channel of domestic monetary policy in the cross-border context. We use exogenous shocks to monetary policy in systemically important economies, including the U.S., and local projections to estimate the dynamic effect of monetary policy shocks on bilateral cross-border bank lending. We find robust evidence that an increase in funding costs following an exogenous monetary tightening leads to a statistically and economically significant decline in cross-border bank lending. The effect is weakened during periods of high uncertainty. In contrast, the effect is found to not vary according to the degree of borrower country riskiness, further weakening support for the international portfolio rebalancing channel.
    Keywords: Monetary policy spillovers; International bank lending channel; Cross-border banking flows; Global financial cycles; Local projections
    JEL: E52 F21 F32 F42
    Date: 2019–08
  68. By: Fos, Vyacheslav; Hamdi, Naser; Kalda, Ankit; Nickerson, Jordan
    Abstract: This paper shows that the introduction of the "gig-economy" changes the way employees respond to job loss. Using a comprehensive set of Uber product launch dates and employee-level data on job separations, we show that laid-off employees with access to Uber are less likely to apply for UI benefits, rely less on household debt, and experience fewer delinquencies. Our empirical strategy is based on a triple difference-in-difference empirical model, comparing the difference in outcome variables 1) pre- and post-layoff, 2) before and after Uber enters a market, and 3) between workers with and without the ability to participate on the ride-sharing platform (car-owners inferred from auto credit histories). In support of our identification strategy, we find no apparent pre-existing difference in outcomes in the months leading up to Uber's entry into a market. Moreover, the effects are severely attenuated for workers with an auto lease, for whom the viability of participating on the ride-sharing platform is significantly reduced. Overall, our findings show that the introduction Uber had a profound effect on labor markets.
    Keywords: credit delinquencies; gig-economy; Household Debt; labor markets; Unemployment insurance
    JEL: D10 E24 H53 J23 J65
    Date: 2019–07
  69. By: International Monetary Fund
    Abstract: Singapore’s macroeconomic performance has been impressive. GDP per capita more than doubled in the last twenty years and income inequality has been declining since the GFC. Policies have been aimed at boosting growth while promoting greater equity. As a highly open economy and an important financial center, Singapore is strongly influenced by developments in the region and the rest of the world. Singapore’s growth is expected to continue to moderate as export momentum slows and growth drivers shift back to domestic demand. Inflationary pressures remain modest. The current account surplus declined in 2019Q1 from a year ago but remains large as a share of GDP. Risks to the near-term outlook are tilted to the downside and arise mainly from external sources. Over the medium term, modern services are expected to become increasingly important in driving growth.
    Date: 2019–07–15
  70. By: Makoto Nirei (Professor, Department of Economics, University of Tokyo (E-mail:; José A. Scheinkman (Professor, Columbia University, Princeton University and NBER (E-mail:
    Abstract: We present a state-dependent pricing model that generates inflation fluctuations from idiosyncratic shocks to the cost of price changes of individual firms. A firm's nominal price increase, lowers other firms' relative prices, thereby inducing further nominal price increases. This snow-ball effect of repricing causes fluctuations to the aggregate price level without exogenous aggregate shocks. The fluctuations caused by this mechanism are more volatile when the density of firms at the repricing threshold is high, and the density at the threshold is high when the trend inflation level is high. Thus, the model implies that higher trend inflation produces larger volatility of short- term inflation rates. Analytical and numerical analyses show that the model can account for the positive relationship between inflation level and volatility that has been observed empirically.
    Keywords: Trend inflation, Inflation volatility, State-dependent pricing, Aggregate fluctuations, Self-organized criticality, Power law
    JEL: E31
    Date: 2019–07
  71. By: International Monetary Fund
    Abstract: Lithuania needs sustained productivity gains to ensure higher living standards and convergence with Western Europe. This is the only way to address, or even reverse, negative demographic dynamics. Macroeconomic and financial stability is a pre-requisite for sustained growth and has been achieved through prudent policies and labor market flexibility. Nevertheless, significant and well-identified structural challenges have yet to be addressed with ambitiously designed and decisively implemented productivity-enhancing reforms. The current expansionary cyclical environment as well as strong fiscal and external positions provide an ideal opportunity to address these challenges.
    Date: 2019–07–31
  72. By: International Monetary Fund
    Abstract: Growth slowed last year as the cyclical recovery ran its course and temporary domestic factors, coupled with slowing global growth, weighed on demand. Nonetheless, activity remained resilient relative to peers, and the labor market continued to improve. The fiscal deficit declined modestly, but public debt reached an all-time high. The government’s structural reform agenda is being put in place and growth is expected to gradually return to its potential level over the medium run. However, risks have risen, related to a disorderly Brexit, trade tensions, and a softening of activity in the euro area, but also to a slowdown in the domestic reform momentum.
    Date: 2019–07–24
  73. By: Simplice A. Asongu (Yaoundé/Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (Cape Town, South Africa)
    Abstract: This study examines the stability of money demand in the proposed West African Monetary Union (WAMU). The study uses annual data for the period 1981 to 2015 from thirteen of the fifteen countries making-up the Economic Community of West African States (ECOWAS). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across ECOWAS member states in the stability of money demand. This divergence is informed by differences in cointegration, stability, short run and long term determinants, and error correction in event of a shock.
    Keywords: Stable; demand for money; bounds test
    JEL: E41 C22
    Date: 2018–01
  74. By: International Monetary Fund
    Abstract: Growth is estimated to have rebounded to 4 percent in 2018, supported by stronger-than-anticipated oil and gas production and Africa Cup of Nations (CAN) projects. The overall fiscal deficit declined by half to 2½ percent of GDP, and external buffers are being rebuilt. Public debt continues to increase, due to faster project disbursements.
    Date: 2019–07–25
  75. By: Rodríguez-Pose, Andrés; Gerritse, Michiel
    Abstract: Firms and governments alike frequently court federal government contracts to generate more jobs and trigger economic growth. However, the employment and output impact of government contracts remains controversial. We use georeferenced data on United States (US) federal contracts, distinguishing between the location of the recipient and the location of the activity, for the years 2005-2014 in order to assess the employment and output impacts of federal contracting in metropolitan areas of the US. We resort to a shift-share instrument and precise location-specific fixed effects to estimate the causal impact of spending. Cities that receive more contract expenditure witness an expansion in output – with contracts generating $1.4 per dollar spent – but experience only modest increases in employment. The impact is also constrained geographically and short-lived. The results suggest that, on average, the effects of federal contracting on local economies are modest, meaning that attracting federal contracts may not be an effective urban development strategy.
    Keywords: federal contracting; government spending; jobs; wages; economic growth; urban development
    JEL: E62 O23 R11 R38 R58
    Date: 2018–09–01
  76. By: Friebel, Rocco; Silverman, Rachel; Glassman, Amanda; Chalkidou, Kalipso
    JEL: E6
    Date: 2019–05–11
  77. By: Carlos Cantú; Leonardo Gambacorta
    Abstract: This paper focuses on the recent changes in banking systems and how bank-specific characteristics have affected credit supply in five Latin American countries (Brazil, Chile, Colombia, Mexico and Peru). We use detailed credit registry data and apply a common empirical strategy. Since data confidentiality prevents the pooling of the data, we use meta-analysis techniques to summarise the results. We find that large and well-capitalised banks with low risk indicators, stable sources of funding, and a commercial business model generally supply more credit. Such banks are also more sheltered from monetary and global shocks, with the role of specific characteristics varying by the type of shock.
    Keywords: bank business models, bank lending, credit registry data, meta-analysis
    JEL: E51 E58 G21
    Date: 2019–07
  78. By: Kahn, Matthew E. (University of Southern California); Mohaddes, Kamiar (University of Cambridge); Ng, Ryan N. C. (University of Cambridge); Pesaran, M. Hashem (University of Southern California); Raissi, Mehdi (International Monetary Fund); Yang, Jui-Chung (National Tsing Hua University)
    Abstract: We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labor productivity is affected by country-specific climate variables—defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by 7.22 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to 1.07 percent. These effects vary significantly across countries. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labor productivity and employment.
    Keywords: Climate change; economic growth; adaptation; counterfactual analysis
    JEL: C33 O40 O44 O51 Q51 Q54
    Date: 2019–07–01
  79. By: International Monetary Fund
    Abstract: The Somali authorities continue to make important strides in state-building and maintaining political and economic stability; nevertheless, Somalia remains fragile and vulnerable to security and climate shocks. While the underlying growth momentum is robust, supported by improving confidence given consistent reform implementation, improved security, and strong donor support, drought conditions threaten agricultural performance in 2019 and have triggered warnings of severe food insecurity.
    Date: 2019–08–01
  80. By: Coibion, Olivier (University of Texas at Austin); Georgarakos, Dimitris (European Central Bank); Gorodnichenko, Yuriy (University of California, Berkeley); van Rooij, Maarten (De Nederlandsche Bank)
    Abstract: We implement a survey of Dutch households in which random subsets of respondents receive information about inflation. The resulting exogenously generated variation in inflation expectations is used to assess how expectations affect subsequent monthly consumption decisions relative to those in a control group. The causal effects of elevated inflation expectations on non-durable spending are imprecisely estimated but there is a sharp negative effect on durable spending. We provide evidence that this is likely driven by the fact that Dutch households seem to become more pessimistic about their real income as well as aggregate spending when they increase their inflation expectations. There is little evidence to support the idea that the degree to which respondents change their beliefs or their spending in response to information treatments depends on their level of cognitive or financial constraints.
    Keywords: survey data, inflation expectations, households, durable and non-durable consumption, randomized control trial
    JEL: E31 C83 D84
    Date: 2019–07
  81. By: Manuel Santos Silva; Stephan Klasen
    Abstract: In this article, we survey the theoretical literature investigating the role of gender inequality in economic development. The vast majority of theories reviewed suggest that gender inequality is a barrier to development, particularly over the long run. Among the many plausible mechanisms through which inequality between men and women affects the aggregate economy, the role of women for fertility decisions and human capital investments is particularly important. Yet, we believe the body of theories could be expanded in several directions.
    Keywords: Gender equality; Economic growth; Fertility; Human capital; Comparative development
    JEL: E20 J13 J16 J24 O11 O41
    Date: 2018–08–19
  82. By: Falter, Alexander
    Abstract: This paper builds a macro model with a financial sector and a housing market to understand the transmission and effects of macroprudential instruments addressing mortgage credit. The model compares the introduction of a loan-to-value ratio (LTV), a countercyclical capital buffer (CCyB)-style rule and sectoral constraints similar to sectoral risk weights. The results show that instruments work largely as intended and are to different extents suitable to dampen credit booms. Moreover, there is a trade-off between effectiveness, i.e. the extent to which instruments are able to dampen credit booms, and efficiency, i.e. the extent to which instruments might exhibit unintended consequences for the financial sector or real economy. General shocks, where housing credit increases as a side effect of larger movements, might warrant the use of the CCyB or also sectoral risk weights to correct for sector specific developments. Simple sectoral shocks can be dealt with or responded to first with sectoral risk weights. The LTV is much more effective than sectoral risk weights in confining credit growth, but shows less efficiency due to strong substitution effects.
    Keywords: Macroprudential Regulation,Mortgage Markets,Housing Markets,Asset Markets,Waterbed Effects
    JEL: E31 G21
    Date: 2019
  83. By: Lutz Kilian; Xiaoqin Zhou
    Abstract: We study the efficacy of releases from the U.S. Strategic Petroleum Reserve (SPR) within the context of fully specified models of the global oil market that explicitly allow for storage demand as well as unanticipated changes in the SPR. Using novel identifying strategies and evaluation methods, we examine seven questions. First, how much have exogenous shocks to the SPR contributed to the variability in the real price of oil? Second, how much would a one-time exogenous reduction in the SPR lower the real price of oil? Third, are exogenous SPR releases partially or fully offset by increases in private sector oil inventories and how does this response affect the transmission of SPR policy shocks? Fourth, how effective were actual SPR policy interventions, consisting of sequences of exogenous changes in the SPR, at lowering the real price of oil? Fifth, are there differences in the effectiveness of SPR emergency drawdowns and SPR exchanges? Sixth, how much did the creation and expansion of the SPR contribute to higher real oil prices? Finally, how much would selling half of the oil in the SPR, as recently proposed by the White House, lower the global price of oil (and hence the U.S. price of motor gasoline) and how much fiscal revenue would it generate.
    Keywords: SPR, crude oil, oil inventories, storage, expectations, policy intervention, fiscal policy
    JEL: Q38 Q43 E62
    Date: 2019
  84. By: Jonathan Benchimol; Lahcen Bounader
    Abstract: The form of bounded rationality characterizing the representative agent is key in the choice of the optimal monetary policy regime. While inflation targeting prevails for myopia that distorts agents' inflation expectations, price level targeting emerges as the optimal policy under myopia regarding the output gap, revenue, or interest rate. To the extent that bygones are not bygones under price level targeting, rational inflation expectations is a minimal condition for optimality in a behavioral world. Instrument rules implementation of this optimal policy is shown to be infeasible, questioning the ability of simple rules à la Taylor (1993) to assist the conduct of monetary policy. Bounded rationality is not necessarily associated with welfare losses.
    Date: 2019–08–02
  85. By: International Monetary Fund
    Abstract: Rising trade tensions and volatility in emerging economies were felt in Vietnam in 2018. Nevertheless, the real economy remains resilient, the private sector-led expansion is broad-based, and inflation remains muted. The public finances are being consolidated, bank capital rules strengthened, and capital markets are deepening. Risks are related to geopolitics, trade policy uncertainty and domestic reform implementation. Longer term risks relate to aging, climate change and digitalization.
    Date: 2019–07–16
  86. By: Alessio Terzi
    Abstract: Macroeconomic adjustment in the euro area periphery was more recessionary than pre-crisis imbalances would have warranted. To make this claim, this paper uses a Propensity Score Matching Model to produce counterfactuals for the Eurozone crisis countries (Greece, Portugal, Ireland, Cyprus, Spain) based on over 200 past macroeconomic adjustment episodes between 1960-2010 worldwide. At its trough, between 2010 and 2015 per capita GDP had contracted on average 11 percentage points more in the Eurozone periphery than in the standard counterfactual scenario. These results are not dictated by any specific country experience, are robust to a battery of alternative counterfactual definitions, and stand confirmed when using a parametric dynamic panel regression model to account more thoroughly for the business cycle. Zooming in on the potential causes, the lack of an independent monetary policy, while having contributed to a deeper recession, does not fully explain the Eurozone’s specificity, which is instead to be traced back to a sharper-than-expected contraction in investment and fiscal austerity due to high funding costs.
    Keywords: macroeconomic adjustment, financial crisis, Eurozone, growth, propensity score matching
    JEL: E63 E65 F31 F32 F33 F36
    Date: 2019
  87. By: Feldkircher, Martin; Lukmanova, Elizaveta; Tondl, Gabriele
    Abstract: In this paper, we examine international linkages in inflation and short-term interest rates using a global sample of OECD and emerging economies. Using a Bayesian global vector autoregression (GVAR) model, we show that for short-term interest rates both movements in inflation and output play an important role. In advanced countries, however, international factors such as foreign interest rates appear as an important driver of local interest rates. For inflation, we also find evidence for the importance of global factors, such as price developments in other countries, oil prices and the exchange rate. Again, this impact of global factors appears predominately in advanced countries.
    Keywords: Monetary policy, Inflation, Global VAR
    Date: 2019–08
  88. By: Yingying Lu; Yixiao Zhou
    Abstract: The rapid development of artificial intelligence (AI) is not only a scientific breakthrough but also impacts on human society and economy as well as the development of economics. Research on AI economics is new and growing fast, with a current focus on the productivity and employment effects of AI. This paper reviews recent literature in order to answer three key questions. First, what approaches are being used to represent AI in economic models? Second, will AI technology have a different impact on the economy than previous new technologies? Third, in which aspects will AI have an impact and what is the empirical evidence of these effects of AI? Our review reveals that most empirical studies cannot deny the existence of the Solow Paradox for AI technology, but some studies find that AI would have a different and broader impact than previous technologies such as information technology, although it would follow a similar adoption path. Secondly, the key to incorporating AI into economic models raises fundamental questions including what the human being is and what the role of the human being in economic models is. This also poses the question of whether AI can be an economic agent in such models. Thirdly, studies on the labor market seem to have reached consensus on the stylized fact that AI would increase unemployment within sectors but may create employment gains at the aggregate level. AI also increases the income gap between low- and medium-skilled workers and high-skilled workers. AI’s impacts on international trade and education have been largely neglected in the current literature and are worth further research in the future.
    Keywords: Artificial Intelligence, Development of Economics, Literature Review
    JEL: A12 E1 E24 E65 F41 J21
    Date: 2019–08
  89. By: Saungweme, Talknice; Odhiambo, Nicholas M
    Abstract: This paper examines the causal linkage between public debt and economic growth, and between public debt service and economic growth in Zimbabwe for the period from 1970 to 2017. The purpose of the study is to provide empirical evidence to the question "do high public debt or public debt service levels promote or reduce economic growth in Zimbabwe?" To avoid the omission-of-variable bias, fiscal balance and savings are used as intermittent variables, thereby creating a multivariate Granger-causality model. The study employs the autoregressive distributed lag (ARDL) bounds testing approach. Empirical findings indicate that there is short-run unidirectional causal flow from economic growth to public debt in Zimbabwe. Further, the study results reveal that there is no causal link between public debt service and economic growth, irrespective of whether the causality is estimated in the short run or long run. Therefore, the paper concludes that the sovereign debt overhang in Zimbabwe is mostly a result of low economic growth.
    Keywords: Zimbabwe, Granger-causality, economic growth, public debt, public debt service ARDL
    Date: 2019–08
  90. By: Brophy, Thomas; Herrala, Niko; Jurado, Raquel; Katsalirou, Irene; Le Quéau, Léa; Lizarazo, Christian; O’Donnell, Seamus
    Abstract: A US dollar funding premium in the EUR/USD cross currency swap market has been in existence since 2008. Whilst there are many reasons behind this dislocation, since 2014 the divergence in monetary policy between the euro area and the United States has played a growing role. This paper aims at exploring and gaining more insight into the role the Eurosystem’s Expanded Asset purchase Programme (APP) has had in guiding investment and funding decisions and its influence on the cross currency basis. The downward pressure on yields, exerted by the APP, has made euro assets less attractive and has led investors to search for yield abroad. At the same time, the decline in yields and tighter credit spreads have attracted US corporate issuers to the euro market in search of cheaper funding costs. These cross-border flows from issuers and investors have played a strong role in driving the US dollar funding premium. The purpose of this study is to gauge whether these changing trends in cross-border flows have implications for the implementation of the Eurosystem’s APP. Beyond the structural increase in the US dollar funding premium described above, a cyclical component has led to an amplification of the premium over balance sheet reporting dates, due to new bank regulations. This paper also analyses the behaviour of euro area banks in cross currency swap markets over balance sheet reporting dates, using the money market statistical reporting (MMSR) dataset in order to discern whether the increase in the US dollar funding premium at these specific points in time has an adverse impact on the transmission of monetary policy. JEL Classification: D53, E52, G11, G15, G18
    Keywords: balance sheet constraints, balance sheet reporting dates, cross-border investment and funding flows, cross currency basis swap, monetary policy divergence, US dollar funding premium
    Date: 2019–08
  91. By: International Monetary Fund
    Abstract: Zambia’s development strategy has targeted a rapid scale-up of public investment to address infrastructure needs. This has resulted in large fiscal deficits, financed by nonconcessional debt and the accumulation of domestic arrears, adversely impacting the private sector. Recent efforts to adjust the fiscal stance have delivered some improvement in revenues, but deficits have continued to rise following faster-than-budgeted execution of foreign-financed capital spending. With the anticipated growth dividend yet to materialize, the debt burden has risen sharply, resulting in currency weakness and rising local borrowing costs that have further pushed up the interest bill. Reserve coverage has fallen to 1.7 months of imports.
    Date: 2019–08–02
  92. By: Eric Monnet; Damien Puy
    Abstract: Why did monetary authorities hold large gold reserves under Bretton Woods (1944–1971) when only the US had to? We argue that gold holdings were driven by institutional memory and persistent habits of central bankers. Countries continued to back currency in circulation with gold reserves, following rules of the pre-WWII gold standard. The longer an institution spent in the gold standard (and the older the policymakers), the stronger the correlation between gold reserves and currency. Since dollars and gold were not perfect substitutes, the Bretton Woods system never worked as expected. Even after radical institutional change, history still shapes the decisions of policymakers.
    Date: 2019–07–24
  93. By: Yuanyan Sophia Zhang
    Abstract: Wage rises have remained stubbornly low in advanced Europe in recent years, but, at the same time, newer EU members are experiencing rapid wage acceleration. This paper investigates the drivers of this wage divergence. Econometric analysis using error correction models suggests that wage growth responds more quickly to changes in unemployment in the newer EU members than in advanced Europe, where wages are more closely related to inflation and inflation expectations in the short run, implying greater inertia in nominal wage rises in advanced Europe. In the years after the global crisis, this inertia contributed to the build up of a real wage overhang relative to sharply slowing labor productivity, which subsequently dragged on nominal wage rises even as unemployment began to decline. Spillovers of subdued wage growth between euro area countries also weighed on wage rises in advanced Europe.
    Date: 2019–07–19
  94. By: Bayer, Christian (University of Bonn); Kuhn, Moritz (University of Bonn)
    Abstract: Wages grow and become more unequal as workers age. Economic theory focuses on worker investment in human capital, search for employers, and residual wage shocks to account for these life cycle wage dynamics. We highlight the importance of jobs: collections of tasks and duties defined by employers within the production process. We provide empirical evidence that climbing the career ladder toward jobs characterized by more responsibility, complexity, and autonomy accounts for the largest part of life cycle wage dynamics. It accounts for 50% of average wage growth, 50% of rising differences between gender, and virtually all of rising dispersion within gender over the life cycle.
    Keywords: life cycle wage growth, wage inequality, career ladder
    JEL: D33 E24 J31
    Date: 2019–07
  95. By: International Monetary Fund
    Abstract: After a strong performance in 2017, economic activity has moderated. The second half of 2018 was marked by a deceleration, coinciding with weaker economic activity in Europe. The headline fiscal balance improved, with a small increase in the structural primary balance reflecting a strict budget execution. The current account turned negative in 2018 in conjunction with a deterioration of the balance of trade in goods and services. Total credit to the nonfinancial private sector continued to decline in 2018. Nevertheless, over the last 4 years the Portuguese banking system has been strengthening its balance sheet and its performance.
    Date: 2019–07–12
  96. By: Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Philton Makena (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: We develop an overlapping generations monetary endogenous growth (generated by productive public expenditures) model with inflation targeting, characterized by relocation shocks for young agents, which in turn generates a role for money (even in the presence of the return-dominating physical capital) and financial intermediaries. Based on this model, we show that two distinct growth paths emerge conditional on a threshold value of the share of physical capital in the production function. Along one path, we find convergence to a single stable equilibrium, and on the other path, we find multiple equilibria: a stable low-growth and an unstable high-growth, with the stable low-growth equilibrium found to be locally indeterminate. Since, government expenditure is productive in our model, a higher inflation-target would translate into higher growth, but under multiple equilibria, this is not necessarily always the case.
    Keywords: Endogenous Growth, Inflation Targeting, Growth Dynamics
    JEL: C62 O41 O42
    Date: 2019–08
  97. By: Kossi M. Agbékponou (Université de Lomé [Togo]); Léleng Kebalo (Université de Lomé [Togo])
    Abstract: In the context of the worrying new rise in central government debt in ECOWAS, this article determines through a non-linear approach, the debt threshold not to be exceeded so that central government debt has a positive effect on economic growth. By adopting Hansen's (1999) approach, the analysis carried out over the period 2007-2016 reveals the existence of a debt threshold estimated at 30.71% of GDP, threshold below which any additional debt has a positive effect on economic growth. Conversely, above 30.71% of GDP, central government debt has a negative effect on economic growth. The threshold estimated in this article corroborates those in the recent literature. Nevertheless, it should not be considered as a static, optimal threshold that could compromise the validity of the budgetary norm in force in the region, which limits the debt to 70% of GDP. The gap between the two thresholds is due to the fact that the estimated threshold is endogenous, i.e. it takes into account the debt behaviour over the period considered in this paper. The article then proposes economic policies for making fiscal policies more effective, for slowing the rise in debt levels, and finally discusses the potential consequences of the rapid increase in debt on the West African regional monetary integration process.
    Abstract: Dans le contexte de la nouvelle montée inquiétante de la dette du gouvernement central dans la CEDEAO, cet article détermine à travers une approche non linéaire, le seuil d'endettement à ne pas excéder de sorte que la dette du gouvernement central ait un effet positif sur la croissance économique. En adoptant l'approche de Hansen (1999), les estimations effectuées sur la période 2007-2016 révèlent l'existence d'un seuil d'endettement estimé à 30,71% du PIB ; seuil en dessous duquel une dette additionnelle a un effet positif sur la croissance économique. En revanche, au-delà de 30,71% du PIB, la dette du gouvernement central a un effet négatif sur la croissance économique. Le seuil estimé dans cet article corrobore ceux de la littérature récente. Néanmoins, il ne doit pas être considéré comme un seuil statique, optimal et pouvant remettre en cause la norme budgétaire en vigueur au sein de la région qui limite la dette à 70% du PIB. L'écart entre les deux seuils est dû au fait que celui estimé est endogène, c'est-à-dire qu'il tient compte du comportement de la dette sur la période d'analyse considérée. L'article propose par la suite des politiques économiques pour rendre plus efficaces les politiques budgétaires, pour ralentir la progression du niveau d'endettement, et discute des conséquences potentielles de la hausse rapide de la dette sur le processus d'intégration monétaire régionale ouest-africaine.
    Keywords: Dette du gouvernement central,Croissance économique,Politique budgétaire,Seuils endogènes,CEDEAO
    Date: 2019–07–15
  98. By: International Monetary Fund
    Abstract: A subdued recovery unfolds amid economic imbalances and political uncertainty. Growth reached 2.6 percent in 2018, but the unemployment rate persisted above 15 percent. The current account deficit widened to 11.2 percent of GDP on the back of higher oil prices. Inflation has recently stopped its upward trend, but still stood at 6.9 percent in April. Strong revenue performance reduced the fiscal deficit to 4.6 percent of GDP in 2018 from 6.0 percent in 2017 and created space for higher investment and social outlays. All but two Quantitative Performance Criteria and four of the nine Structural Benchmarks for the Fifth Review were met.
    Date: 2019–07–18
    Abstract: This paper has as objective to evaluate the impact of public deficits on domestic credit to the private sector in the CEMAC zone. The study is carried out over the period from 1985 to 2016, thanks to an autoregressive econometric model in panel data and distributed delays. The model estimates that, in the short term, domestic credit to the private sector is positively influenced by its past values, while for the other variables, the effects remain mixed. In the long term, the fiscal deficit positively influences the evolution of domestic credit to the private sector in the CEMAC zone because of the weak development of the financial markets.
    Keywords: public deficit, credit to the private sector, ARDL panel
    JEL: C23 E63
    Date: 2018–12–29
  100. By: Daniel Kohler; Benjamin Müller
    Abstract: Deviations from the covered interest rate parity (CIP) are considerably smaller or even zero when calculated based on a particular set of repo rates, so-called cross-currency repo rates, instead of standard interest rates, such as overnight indexed swap or Interbank Offered rates. We attribute this (partial) solution of the CIP puzzle to the nearly identical risk characteristics of foreign exchange swaps and cross-currency repos: both are virtually devoid of counterparty credit risk but incorporate a relative funding liquidity premium. In practice, CIP deviations can thus be exploited on a truly riskless basis using cross-currency repo transactions, which is not the case for other interest rates.
    Keywords: Covered interest rate parity, FX swap market, cross-currency repos, funding
    JEL: E43 F31 G12 G14 G15
    Date: 2019
  101. By: International Monetary Fund
    Abstract: Improved fiscal management and economic diversification have strengthened the resilience of Morocco’s economy in recent years. Yet, economic growth, at 3 percent in 2018, has not been robust enough and unemployment remains high, especially among the youth. This reinforces the need for sustaining the recent momentum in reforms toward higher and more inclusive growth, buttressed by the private sector. Key priorities include improving the quality of the education system, the functioning of the labor market, female labor force participation, and the business environment. Since 2012, the Fund has been actively engaged with Morocco through four two-year Precautionary Liquidity Line (PLL) arrangements, the last one approved in December 2018.
    Date: 2019–07–16
  102. By: International Monetary Fund
    Abstract: Despite some electoral cycle-related uncertainties—the preparation and holding of the Presidential election in December 2018 and Parliamentary elections in May 2019—economic developments remained favorable in 2018 and the first months of 2019. Macroeconomic slippages were limited, with spending strictly contained within budget limits. The stable functioning of public institutions allowed for continued implementation of the economic reform program.
    Date: 2019–08–01
  103. By: Jin, Keyu; Li, Nan
    Abstract: This paper documents new facts about the behavior of capital- and labor-intensive goods over the business cycle and also identifies a mechanism that generates international investment comovement through shifting compositional changes of production and trade across sectors. Our model’s quantitative predictions not only match aggregate and sectoral statistics but also generate empirically plausible sectoral composition effects. Finally, we show that essential segments of the transmission process receive empirical support.
    Keywords: International Business Cycles; International Comovement; Relative Prices; Factor proportions trade
    JEL: F41
    Date: 2018–10–01
  104. By: International Monetary Fund
    Abstract: In recent years, the authorities have put in place a sound macroeconomic policy framework that has reduced uncertainty and helped weather external shocks. The current macroeconomic policy mix combines moderately tight monetary policy with a broadly neutral fiscal stance. The medium-term growth outlook remains modest due to structural constraints and sanctions. The authorities have implemented some politically difficult measures in the past year (pension reform and a VAT increase) and have announced plans aimed at raising productivity growth, including higher public spending on infrastructure, health, and education. To significantly increase Russia’s long-term growth prospects and reduce stagnation risks, deeper efforts are needed to address the large footprint of the state, overbearing regulation, and governance and institutional weaknesses.
    Date: 2019–08–02
  105. By: Hilde C. Bjørnland; Leif Anders Thorsrud; Ragnar Torvik
    Abstract: In this paper we develop the first model to incorporate the dynamic productivity consequences of both the spending effect and the resource movement effect of oil abundance. We show that doing so dramatically alters the conclusions drawn from earlier models of learning by doing (LBD) and the Dutch disease. In particular, the resource movement effect suggests that the growth effects of natural resources are likely to be positive, turning previous growth results in the literature relying on the spending effect on their head. We motivate the relevance of our approach by the example of a major oil producer, Norway. Empirically we find that the effects of an increase in the price of oil may resemble results found in the earlier Dutch disease literature, while the effects of increased oil activity increases productivity in most industries. Therefore, models that only focus on windfall gains due to increased spending potential from higher oil prices, would conclude - incorrectly based on our analysis - that the resource sector cannot be an engine of growth.
    Keywords: Dutch disease, resource movements, learning by doing, analytics of multidimensional dynamic systems, time-varying VAR model
    JEL: C32 E32 F41 Q33
    Date: 2019–08
  106. By: International Monetary Fund
    Abstract: The Republic of Congo was hit hard by the oil price shock and delayed fiscal adjustment, amidst governance challenges and unsustainable debt. While program negotiations were long and complex, the authorities made decisive progress in 2018 and early 2019 with decisive fiscal consolidation, and the implementation of a large package of structural reforms, including two rounds of prior actions to improve governance and transparency. In addition, financing assurances have been secured.
    Date: 2019–07–24
  107. By: Charles Engel; Feng Zhu
    Abstract: We examine several major exchange rate puzzles: the excess volatility of real exchange rates; their excess reaction to the real interest rate differentials; the uncovered interest rate parity (UIP) puzzle; the excess persistence of real exchange rates; the exchange rate disconnect puzzle; and the consumption correlation puzzle. We examine the behaviour of real exchange rates among pairs of economies that have rigidly fixed nominal exchange rates, eg countries within the euro area, regions in China and Canada, and Hong Kong SAR vis-à-vis the United States, compared with that among non-euro-area OECD economies. Our results suggest that some of these puzzles are less puzzling under a rigidly fixed exchange rate regime. In particular, real exchange rates appear to have no or little excess volatility; excess reaction of the real exchange rate to real interest rates is less common; there is less disconnect between the real exchange rate and the economic fundamentals; and uncovered interest rate parity appears to hold more frequently in these economies. However, real exchange rates are as persistent in these economies as in the floating rate economies and there appears to be little difference in risk-sharing across countries with fixed versus floating nominal exchange rates. These results may have implications for exchange rate modelling.
    Keywords: consumption correlation puzzle, excess volatility, exchange rate disconnect, exchange rate regime, real exchange rate, purchasing power parity, uncovered interest rate parity
    JEL: E43 F31
    Date: 2019–08
  108. By: Hristov, Nikolay; Hülsewig, Oliver; Wollmershäuser, Timo
    Abstract: We estimate a panel VAR model for the euro area to quantitatively assess how the uneven recourse of national banking systems in the euro area to the ECB's unconventional refinancing operations that led to the accumulation of large TARGET2 balances, has contributed to the propagation of different types of structural economic shocks as well as to the historical evolution of aggregate economic activity in euro area member countries in the period 2008-2014. Our results suggest that the built-up of TARGET2 balances was mainly driven by capital flow shocks while being barely responsive to other aggregate shocks. Furthermore, on basis of counterfactual experiments we find that the ability to build-up sizable TARGET2 liabilities has contributed substantially to avoid deeper recessions in the distressed euro area member countries like Spain, Italy, Ireland and Portugal, while to a smaller extent depressing aggregate economic activity in core member states, such as Germany, the Netherlands and Finland.
    Keywords: Euro area,TARGET2 balances,capital in flow shocks,panel vector autoregressive model
    JEL: E42 F32 F41
    Date: 2019
  109. By: Heipertz, Jonas; Ouazad, Amine; Rancière, Romain
    Abstract: The paper uses bank- and instrument-level data on asset holdings and liabilities to identify and estimate a general equilibrium model of trade in financial instruments. Bilateral ties are formed as each bank selects the size and the diversification of its assets and liabilities. Shocks propagate due to the response, rather than the size, of bilateral ties to such shocks. This general equilibrium propagation of shocks reveals a financial network where the strength of a tie is determined by the sensitivity of an instrument's return to other instruments' returns. General equilibrium analysis predicts the propagation of real, financial and policy shocks. The network's shape adjusts endogenously in response to shocks, to either amplify or mitigate partial equilibrium shocks. The network exhibits key theoretical properties: (i) more connected networks lead to less amplification of partial equilibrium shocks, (ii)Â the influence of a bank's equity is independent of the size of its holdings; (ii) more risk-averse banks are more diversified, lowering their own volatility but increasing their influence on other banks. The general equilibrium based network model is structurally estimated on disaggregated data for the universe of French banks. We used the estimated network to assess the effects of ECB quantitative easing policy on asset prices, balance-sheets, individual bank distress risk, and networks systemicness.
    Keywords: Asset and Liability Management; Asset Trade; Endogenous Networks; General Equilibrium
    JEL: D4 D5 D85 E5 G12
    Date: 2019–07
  110. By: Lee, Jaejoon
    Abstract: - Korea is aging at a faster pace than any other major country, and the negative impact on the economy is expected to be considerable. - In thirty years, the old-age dependency ratio is projected to exceed 70% and GDP growth to mark around the 1% range. This would pose a tremendous threat to sustainability unless the economy makes significant improvements in productivity and the employment structure. - Korea's population aging is proceeding at an unprecedentedly rapid pace while policy responses and institutional reforms fail to keep pace. - Setbacks such as falling labor supply and growth seem to be unredeemable even if Korea's labor force participation rate (by gender and age group) improves to the level of advanced countries. - The labor supply policy to boost the economic participation of the working age population may work as a feasible response to the challenges of population aging to a certain extent. However, it is not enough to make a full recovery given the severe imbalance of Korea's demographic profile. - Policy responses should be focused on reversing the quantitative decline in the labor supply by promoting the participation of the senior labor force while pushing towards the ultimate goal of human capital advancement and higher labor force productivity. - Senior labor force participation can be effective in easing not only the fall in economic growth but also the pressure from the rising dependency ratio. - At the same time, concerted policy efforts should be made in enhancing the general environment including educational and vocational training programs that could upgrade the productivity of the senior population.
    Date: 2019
  111. By: International Monetary Fund
    Abstract: The economy continued to expand rapidly in 2018, as growth surprised with a strong construction-driven upswing. Fiscal and current account deficits are at manageable levels, as is the public debt. The financial system remains stable, despite a significant balance sheet restructuring of banks servicing foreign clients. The growth outlook is favorable, but risks weigh on the downside due to a less supportive external environment.
    Date: 2019–08–07
  112. By: TAKECHI Kazutaka
    Abstract: This study examines the effects of a safeguard policy imposed by Japan in 2001 using detailed product-level transaction data from domestic markets. The market prices of imported and domestic goods are almost always higher during the safeguard period compared with those in the previous year. However, the safeguard measure decreases the margins for imported goods, but does not affect the margins for domestic goods. As temporary import restrictions are expected to enable structural changes in the domestic industry, we also estimate the long-term effect on margins. We find that five years after the safeguard period, the margins remain similar for domestic goods and are smaller for imported goods. These results suggest that the temporary import restrictions were both harmful to imported goods producers and consumers and unbeneficial to domestic producers.
    Date: 2019–07
  113. By: Adam Richardson
    Abstract: Nominal wage and consumer price inflation have been subdued in New Zealand post crisis, particularly since 2012. This paper discusses a number of candidate explanations for these muted nominal wage inflation outcomes. The most notable explanations include: a gradual absorption of spare capacity amongst New Zealand's major trading partners; sharp declines in oil and export commodity prices in 2014/15; a significant rise in labour supply, and less inflationary pressure stemming from migration; and a change in price setting behaviour, with inflation expectations becoming more adaptive. This paper also summarises early work using micro-data that offer further insights into the drivers of low nominal wage inflation. A slow rate of job-to-job transitions helps explain some of the weakness in nominal wage inflation. In contrast, preliminary analysis suggests changes in labour market monopsony power of firms do not look to be a significant driver of low wage inflation in New Zealand.
    Keywords: wages; forecasting; Phillips curve; job-to-job transition; price setting; migration; global economy; New Zealand
    Date: 2019–04
  114. By: International Monetary Fund
    Abstract: Macroprudential policy in Singapore has centered on the property market, given the importance of this market for households’ balance sheets, banks’ loan portfolios, and the potential systemic risks. In the last decade, the authorities have been proactive in using property-related macroprudential tools to promote a stable and sustainable property market and to encourage financial prudence among borrowers. The Monetary Authority of Singapore (MAS) is the authority with a macroprudential policy mandate.
    Date: 2019–07–15
  115. By: Lamla, Michael J; Vinogradov, Dmitri V
    Abstract: Little is known on how and whether central bank announcements affect consumers' beliefs about policy relevant economic figures. This paper focuses on consumers' perceptions and expectations of inflation and interest rates and confidence therein. Based on a sound identification (running surveys shortly before and after communication events), and relying on above 15 000 observations, spanning over 12 FOMC press conferences between December 2015 and June 2018, we document the impact of the central bank communication on ordinary people. While announcement events have little measurable direct effect on average beliefs, they make people more likely to receive news about the central bank's policy. In general, informed consumers tend to have lower perceptions and expectations, higher confidence and, to an extent, better quality beliefs.
    Keywords: perceptions, expectations, central bank communication, consumers.
    Date: 2019–08–08
  116. By: International Monetary Fund
    Abstract: Forty years of upheaval has eroded physical and human capital and weakened public institutions. Social conditions remain harsh following the war with ISIS, with slow progress at reconstruction, weak public services and a lack of job opportunities. The recent rebound in oil prices helped deliver a large budget surplus and healthy build-up in reserves in 2018, but post-war recovery has been sluggish. The SDR 3.8 billion ($5.3 billion) Stand-by Arrangement approved in 2016 expires in July.
    Date: 2019–07–26
  117. By: Julia Bock-Schappelwein
    Abstract: Der "Armutsindex" bildet erstmals die Lebensumstände auf kleinräumiger Ebene in den 2.122 Wohngemeinden in Österreich für den Zeitraum 2010 bis 2017 quantitativ ab, indem er die auf Armut und soziale Ausgrenzung einwirkenden Faktoren wie Einkommen, Erwerbsintensität, Alter und Qualifikation in einer Indexzahl bündelt. Aus diesem Aggregat lassen sich Rückschlüsse auf die Lebensumstände auf Wohngemeindeebene in Österreich ziehen. Nicht nur werden die zwischen städtischen und ländlichen Regionen bzw. dicht und dünn besiedelten Gebieten unterschiedlichen Lebensbedingungen aufgezeigt, zugleich wird auch Einblick in die Heterogenität innerhalb der ländlichen Regionen geboten, wie der Blick auf die peripheren ländlichen Regionen auf der einen Seite und die zentralen ländlichen Räume im Umland von Zentren auf der anderen Seite zeigt.
    Date: 2019–08–12
  118. By: Seyed Reza Yousefi
    Abstract: This paper introduces concepts of public sector balance sheet (PSBS) strength, taking into account different aspects of what governments own in addition to what they owe. It develops measures of PSBS strength and investigates their macroeconomic implications. Empirical estimations show that in their pricing of sovereign bonds, financial markets account for government assets and net worth in addition to their liabilities. Furthermore, economies with stronger public sector balance sheets experience shallower recessions and recover faster in the aftermath of economic downturns. This faster return to growth can be explained by the greater space for countercyclical fiscal policy in countries with stronger balance sheets.
    Date: 2019–08–06
  119. By: Francesco Bianchi; Giovanni Nicolo
    Abstract: We propose a novel approach to deal with the problem of indeterminacy in Linear Rational Expectations models. The method consists of augmenting the original state space with a set of auxiliary exogenous equations to provide the adequate number of explosive roots in presence of indeterminacy. The solution in this expanded state space, if it exists, is always determinate, and is identical to the indeterminate solution of the original model. The proposed approach accommodates determinacy and any degree of indeterminacy, and it can be implemented even when the boundaries of the determinacy region are unknown. Thus, the researcher can estimate the model using standard packages without restricting the estimates to the determinacy region. We apply our method to estimate the New-Keynesian model with rational bubbles by Galí (2017) over the period 1982:Q4 until 2007:Q3. We find that the data support the presence of two degrees of indeterminacy, implying that the central bank was not reacting strongly enough to the bubble component.
    Keywords: Bayesian methods ; General Equilibrium ; Indeterminacy ; Solution method
    JEL: C19 C63 C51 C62
    Date: 2019–05
  120. By: International Monetary Fund
    Abstract: Leveraging its location and low-cost skilled labor, Slovakia has attained a very high level of integration with the global value chains, which has proved pivotal to exports growth and income convergence with the European Union. After half a decade of robust growth, the Slovak economy is decelerating. With rising trade tensions and a turning economic cycle, several vulnerabilities are coming to the fore. High dependence on exports combined with a concentrated export structure makes Slovakia particularly vulnerable to external developments. On the domestic front, a prolonged period of double-digit mortgage credit growth and declining bank profit margins have made households and the financial sector susceptible to labor and property market downturns.
    Date: 2019–07–12
  121. By: Gunarso, Gatot Hadi
    Abstract: The equation between consumer behavior in carrying out consumption activities in conventional economics and Islamic economics is three. Among them in terms of understanding, philosophical foundation, motives and purpose of consumption, and the theory of consumer behavior. Meanwhile, differences in consumer behavior in conventional economics and Islamic economics, first, lie in the foundation of consumer behavior philosophy. Conventional economics views that world life is an absolute right for humans while Islamic economics teaches that world life is based on the principle of accountability to the Creator. Second, lies in the principle of consumption. There are three principles of consumption in a conventional economy, namely freedom, self-interest, and material. Islamic economic perspective, consumer behavior is based on the philosophy of divinity so that in each of its activities meeting the needs of consumers is required to always be guided by the principles of tawhid and also justice. The principle teaches individuals the moral awareness to live in obedience by worshiping Allah, and is responsible for everything he does, especially in terms of consumption
    Keywords: Consumers, Conventional Economy, Islamic Economics
    JEL: A1 D11 E0
    Date: 2019–07–27
  122. By: Ho, Sy-Hoa; OUEGHLISSI, Rim; EL FERKTAJI, Riadh
    Abstract: The relationship between Environmental, Social and Governance (ESG) performance and economic growth is a controversial topic in economic literature. This paper applies the Granger causality test developed by Dumitrescu and Hurlin (2012) with an optimal lag length selection technique proposed by Han et al. (2017) to examine the causality relationship between ESG performance and economic growth for a set of 118 countries over the period 1999-2015. The empirical results show the presence of a bidirectional relationship between environmental and social performance and economic growth, while a unidirectional relationship from governance to growth for all countries. Unlike the clear overall pattern of the full sample results, the empirical evidence for different income groups of countries is mixed.
    Keywords: ESG, GDP per capita, Granger causality estimation
    JEL: C23 C32 O11
    Date: 2019–07–30
  123. By: Jimi, Nusrat Abedin (State University of New York); Nikolov, Plamen (State University of New York); Malek, Mohammad Abdul (Kyoto University); Kumbhakar, Subal C. (Binghamton University, New York)
    Abstract: Improving productivity among microenterprises is important, especially in low-income countries where market imperfections are pervasive, and resources are scarce. Relaxing credit constraints can increase the productivity of microenterprises. Using a field experiment involving agricultural microenterprises in Bangladesh, we estimated the impact of access to credit on the overall productivity of rice farmers and disentangled the total effect into technological change (frontier shift) and technical efficiency changes. We found that relative to the baseline rice output per decimal, access to credit resulted in, on average, approximately a 14 percent increase in yield, holding all other inputs constant. After decomposing the total effect into the frontier shift and efficiency improvement, we found that, on average, around 11 percent of the increase in output came from changes in technology, or frontier shift, while the remaining 3 percent was attributed to improvements in technical efficiency. The efficiency gain was higher for modern hybrid rice varieties, and almost zero for traditional rice varieties. Within the treatment group, the effect was greater among pure tenant and mixed-tenant microenterprise households compared with microenterprises that only cultivated their own land.
    Keywords: field experiment, microfinance, credit, efficiency, productivity, farmers, South Asia
    JEL: E22 H81 Q12 D2 O12 O16
    Date: 2019–07
  124. By: Jean-Marc Fournier
    Abstract: A fiscal reaction function to debt and the cycle is built on a buffer-stock model for the government. This model inspired by the buffer-stock model of the consumer (Deaton 1991; Carroll 1997) includes a debt limit instead of the Intertemporal Budget Constraint (IBC). The IBC is weak (Bohn, 2007), a debt limit is more realistic as it reflects the risk of losing market access. This risk increases the welfare cost of fiscal stimulus at high debt. As a result, the higher the debt, the less governments should smooth the cycle. A larger reaction of interest rates to debt and higher hysteresis magnify this interaction between the debt level and the appropriate reaction to shocks. With very persistent shocks, the appropriate reaction to negative shocks in highly indebted countries can even be procyclical.
    Date: 2019–07–22
  125. By: Jan Eeckhout
    Keywords: wages; market power; mark-ups; technology; market dynamism; market structure
    Date: 2019–04

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