nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒11‒25
105 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Leverage Factor: Credit Cycles and Asset Returns By Josh Davis; Alan M. Taylor
  2. Is Neo-Fisherian ‘alive’ in South Africa? A frequency domain causality approach By Andrew Phiri
  3. Costly Default And Asymmetric Real Business Cycles By Patrick Fève; Pablo Garcia Sanchez; Alban Moura; Olivier Pierrard
  4. Costly default and asymetric real business cycles By Fève, Patrick; Garcia Sanchez, Pablo; Moura, Alban; Pierrard, Olivier
  5. Forecasting Aluminum Prices with Commodity Currencies By Pincheira, Pablo; Hardy, Nicolás
  6. The (ir)relevance of real wage rigidity for optimal monetary policy By Kohlbrecher, Britta
  7. A Phillips Curve for the Euro Area By Laurence M. Ball; Sandeep Mazumder
  8. Dynamic Effects of Persistent Shocks By Sanz, Carlos; Gonzalo Muñoz, Jesus; Alloza, Mario
  9. Macroeconomic Responses to Fiscal Shocks in Portugal By Elva Bova; Violeta Klyviene
  10. Using credit variables to date business cycle and to estimate the probabilities of recession in real time By Valentina Aprigliano; Danilo Liberati
  11. Technological Progress and Monetary Policy: Managing the Fourth Industrial Revolution By Stephen S. Poloz
  12. Monetary union and financial integration By Luca Fornaro
  13. The Long-term Rate and Interest Rate Volatility in Monetary Policy Transmission By Zhengyang Chen
  14. Latent Heterogeneity in the Marginal Propensity to Consume By Lewis, Daniel J.; Melcangi, Davide; Pilossoph, Laura
  15. Heterogeneous spillovers of housing credit policy By Myroslav Pidkuyko
  16. Capacity Utilization and the NAIRCU By Federico Bassi
  17. Inflation Targets in Latin America By José De Gregorio
  18. Labour market institutions, shocks and the employment rate By Haraldsen, Kristine Wika; Ragnar, Nymoen; Sparrman, Victoria
  19. Symmetry condition and re-assessing Blanchard-Kiyotaki decades later By Kim, Minseong
  20. Creating an effective transparent banking and financial system in Ghana to promote foreign direct investment for the private sector By Tweneboah Senzu, Emmanuel
  21. Global Spillover Effects of US Uncertainty By Saroj Bhattarai; Arpita Chatterjee; Woong Yong Park
  22. Has fiscal expansion inflated house prices in China? Evidence from an estimated DSGE model By Liu, Chunping; Ou, Zhirong
  23. The Semi-Elasticities Underlying the Cyclically-Adjusted Budget Balance: An Update and Further Analysis By Gilles Mourre; Aurélien Poissonnier; Martin Lausegger
  24. Cruising at Different Speeds: Similarities and Divergences between the German and the French Economies By Guillaume Cléaud; Francisco de Castro Fernández; Jorge Durán Laguna; Lucia Granelli; Martin Hallet; Anne Jaubertie; Carlos Maravall Rodriguez; Diana Ognyanova; Balazs Palvolgyi; Tsvetan Tsalinski; Kai-Young Weißschädel; Johannes Ziemendorff
  25. Recapitalization in an Economy with State-Owned Banks - A DSGE Framework By Ghosh, Saurabh; Gopalakrishnan, Pawan; Satija, Sakshi
  26. Exchange rate dynamics and unconventional monetary policies: it�s all in the shadows By Andrea De Polis; Mario Pietrunti
  27. Multimodality in Macro-Financial Dynamics By Adrian, Tobias; Boyarchenko, Nina; Giannone, Domenico
  28. Achieving the Bank of Japan’s Inflation Target By Gee Hee Hong; Rahul Anand; Yaroslav Hul
  29. How Sticky Wages In Existing Jobs Can Affect Hiring By Mark Bils; Yongsung Chang; Sun-Bin Kim
  30. The impact of (un)conventional expansionary monetary policy on income inequality - Lessons from Japan By Israel, Karl-Friedrich; Latsos, Sophia
  31. Monetary Policy and Bank Equity Values in a Time of Low and Negative Interest Rates By Miguel Ampudia; Skander J. Van den Heuvel
  32. Household Debt and Aging in Japan By Yuji Horioka, Charles; Niimi, Yoko
  33. Jamaica; Sixth Review Under the Stand-By Arrangements-Press Release; Staff Report; and Statement by the Executive Direct for Jamaica By International Monetary Fund
  34. Does Electricity Drive Structural Transformation? Evidence from the United States By Paul Gaggl; Rowena Gray; Ioana Marinescu; Miguel Morin
  35. Bottom-up Leading Macroeconomic Indicators: An Application to Non-Financial Corporate Defaults using Machine Learning By Tyler Pike; Horacio Sapriza; Thomas Zimmermann
  36. Average Inflation Targeting Would Be a Weak Tool for the Fed to Deal with Recession and Chronic Low Inflation By David Reifschneider; David Wilcox
  37. Greece; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Greece By International Monetary Fund
  38. Estimation and Evaluation of Monetary Policy in Korea Before and After the Global Financial Crisis By Jeonghun Choi
  39. CECL and the Credit Cycle By Bert Loudis; Benjamin Ranish
  40. Nonlinear relationship between the weather phenomenon El Niño and Colombian food prices By Melo-Velandia, Luis Fernando; Parra-Amado, Daniel; Abril-Salcedo, Davinson Stev
  41. The Global Multi-Country Model (GM): An Estimated DSGE Model for Euro Area Countries By Alice Albonico; Ludovic Calés; Roberta Cardani; Olga Croitorov; Fabio Di Dio; Filippo Ferroni; Massimo Giovannini; Stefan Hohberger; Beatrice Pataracchia; Filippo Pericoli; Philipp Pfeiffer; Rafal Raciborski; Marco Ratto; Werner Roeger; Lukas Vogel
  42. Occupation Mobility, Human Capital and the Aggregate Consequences of Task-Biased Innovations By Maximiliano Dvorkin; Alexander Monge-Naranjo
  43. Forecasting and stress testing with quantile vector autoregression By Chavleishvili, Sulkhan; Manganelli, Simone
  44. Ramsey Optimal Policy in the New-Keynesian Model with Public Debt By Jean-Bernard Chatelain; Kirsten Ralf
  45. The future of UK Carbon pricing: Artificial Intelligence and the Emissions Trading System By Ojo, Marianne
  46. Nominal and real interest rates in OECD countries By Claude Bismut; Ismael Ramajo
  47. International bank lending channel of monetary policy By Silvia Albrizio; Sangyup Choi; Davide Furceri; Chansik Yoon
  48. Regional Spillovers in the Hungarian Housing Market: Evidence from a Spatio-Temporal Model By Gábor Márk Pellényi
  49. The ECB after the crisis: existing synergies among monetary policy, macroprudential policies and banking supervision By Cassola, Nuno; Kok, Christoffer; Mongelli, Francesco Paolo
  50. Subsidies, Merit Goods and the Fiscal Space for Reviving Growth: An Aspect of Public Expenditure in India. By Mundle, Sudipto; Sikdar.Satadru
  51. The Self-Employment Option in Rigid Labor Markets: An Empirical Investigation By Joaquin Garcia-Cabo; Rocio Madera
  52. Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions By Jean-Bernard Chatelain; Kirsten Ralf
  53. Proxy structural vector autoregressions, informational sufficiency and the role of monetary policy By Mirela Miescu; Haroon Mumtaz
  54. "Too Bad to Be True". Swedish Economists on Keynes's 'The Economic Consequences of the Peace, 1919-1929' By Carlson, Benny; Jonung, Lars
  55. Proxy VAR models in a data-rich environment By Martin Bruns
  56. Double overreaction in beauty-contests with information acquisition: theory and experiment By Romain Baeriswyl; Kene Boun My; Camille Cornand
  57. Equilibrium Redistribution under Ex-ante Heterogeneity and Income-Dependent Voting By Bo Hyun Chang; Yongsung Chang; Sun-Bin Kim
  58. Inflation Targets in Latin America By José De Gregorio
  59. Tractable Rare Disaster Probability and Options-Pricing By Robert J. Barro; Gordon Y. Liao
  60. Real and Relative Wage Rigidities By Haaparanta, Pertti
  61. Macrofinancial Linkages and Growth at Risk in the Dominican Republic By Olga Bespalova; Marina V Rousset
  62. Unconventional Monetary Policy, (A)Synchronicity and the Yield Curve By Dilts Stedman, Karlye
  63. Real indeterminacy and dynamics of asset price bubbles in general equilibrium By Pham, Ngoc-Sang; Le Van, Cuong; Bosi, Stefano
  64. Tracing the Genesis of Contagion in the Oil-Finance Nexus By Scott M. R. Mahadeo; Reinhold Heinlein; Gabriella Deborah Legrenzi
  65. When Do Currency Unions Benefit From Default ? By Xuan Wang
  66. Back to the Future: Fiscal Rules for Regaining Sustainability By Serhan Cevik
  67. The determinants of sovereign risk premium in African countries By Jane Mpapalika; Christopher Malikane
  68. Global Recession Impact on the Market Value of Intangible Assets By Antanina Garanasvili
  69. The Federal Reserve’s Review of Its Monetary Policy Strategy, Tools, and Communication Practices : a speech at “A Hot Economy: Sustainability and Trade-Offs,” a Fed Listens event sponsored by the Federal Reserve Bank of San Francisco, San Francisco, California, September 26, 2019. By Clarida, Richard H.
  70. Instruments of Debtstruction: Public Debt Management and Networks during the Interwar Period By Nicolas End; Marina Marinkov; Fedor Miryugin
  71. Hindsight vs. Real time measurement of the output gap: Implications for the Phillips curve in the Chilean Case By Camila Figueroa; Jorge Fornero; Pablo García
  72. Local Ties in Spatial Equilibrium By Michael A. Zabek
  73. Optimal Taxation with Private Insurance By Yena Park; Yongsung Chang
  74. Profit Squeeze and Keynesian Theory By Marglin, Stephen; Bhaduri, Amit
  75. Le casse tête de l'inflation dans la zone euro : c'est la tendance, pas le cycle ! By Thomas Hasenzagl; Fillipo Pellegrino; Lucrezia Reichlin; Giovanni Ricco
  76. Monetary Dynamics in a Network Economy By Antoine Mandel; Vipin Veetil
  77. Oil Driven Macroeconometric Model of Kuwait By Salih, Siddig A.; Branson, William H.; Ebraheem, Yusuf H. Al
  78. Waiting for the Prince Charming: Fixed-Term Contracts as Stopgaps By Normann Rion
  79. Entry Costs and the Macroeconomy By Germán Gutiérrez; Callum Jones; Thomas Philippon
  80. Macroeconomic and bank-specific determinants of non-performing loans in sub-Saharan Africa By Trust R. Mpofu; Eftychia Nikolaidou
  81. Country Study 12 By Fanelli, Jose Maria; Frenkel, Roberto; Winograd, Carlos
  82. A World Divided: Refugee Centers, House Prices, and Household Preferences By Martijn Dröes; Hans R.A. Koster
  83. What if We All Worked Gigs in the Cloud? The Economic Relevance of Digital Labour Platforms By Steven Engels; Monika Sherwood
  84. Bayesian state-space modeling for analyzing heterogeneous network effects of US monetary policy By Niko Hauzenberger; Michael Pfarrhofer
  85. Mexico; 2019 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  86. Listing Advantages Around the World By Kenichi Ueda; Somnath Sharma
  87. Product Differentiation, Oligopoly, and Resource Allocation By Bruno Pellegrino
  88. Pricing Sovereign Debt in Resource-Rich Economies By Thomas McGregor
  89. Opening Remarks : a speech at "Monetary Policy’s Impact on Workers and Their Communities," a Fed Listens event, sponsored by the Federal Reserve Bank of Chicago, Chicago, Illinois, October 17, 2019. By Bowman, Michelle W.
  90. The Impact of the Great Recession on SSDI Awards: A Birth-Cohort Analysis By Michael Anderson; Yonatan Ben-Shalom; David Stapleton; Emily Roessel
  91. Sentiment Indicators Based on a Short Business Tendency Survey By Daniel Roash; Tanya Suhoy
  92. Challenges for Monetary Policy : a speech at the "Challenges for Monetary Policy" symposium, sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, August 23, 2019. By Powell, Jerome H.
  93. Cross-Sectional and Aggregate Labor Supply By Yongsung Chang; Sun-Bin Kim; Kyooho Kwon; Richard Rogerson
  94. Between territorial and virtual proximities. The digitization process of the French ecosystem of complementary local currencies By Yannick LUNG; Léo MALHERBE; Matthieu MONTALBAN; ; ;
  95. Law and Macroeconomics: The Global Evolution of Macroprudential Regulation : a speech at the “Law and Macroeconomics,” a conference at Georgetown University Law Center, Washington, D.C., September 27, 2019. By Quarles, Randal K.
  96. Skills Mismatch and Productivity in the EU By Anneleen Vandeplas; Anna Thum-Thysen
  97. Rules without Commitment: Reputation and Incentives By Alessandro Dovis; Rishabh Kirpalani
  98. Okun Revisited: Who Benefits Most from a Strong Economy By Stephanie Aaronson; Mary C. Daly; William L. Wascher; David W. Wilcox
  99. Investitionsfonds für Deutschland: Gesamtwirtschaftliche Effekte By Hüther, Michael; Kolev, Galina V.
  100. Granger Predictability of Oil Prices After the Great Recession By Szilard Benk; Max Gillman
  101. Regulating Financial Networks Under Uncertainty By Carlos Ramirez
  102. Time Discounting and Wealth Inequality By Epper, Thomas; Fehr, Ernst; Fehr-Duda, Helga; Thustrup Kreiner, Claus; Dreyer Lassen, David; Leth-Petersen, Søren; Nytoft Rasmussen, Gregers
  103. From Transactions Data to Economic Statistics: Constructing Real-time, High-frequency, Geographic Measures of Consumer Spending By Aditya Aladangady; Shifrah Aron-Dine; Wendy E. Dunn; Laura Feiveson; Paul Lengermann; Claudia R. Sahm
  104. Virtual trade between different time zones, educational capital and corrupt informal sector By Prasad, Alaka Shree; Mandal, Biswajit
  105. Breaking the UIP: A Model-Equivalence Result By Yossi Yakhin

  1. By: Josh Davis; Alan M. Taylor
    Abstract: Research finds strong links between credit booms and macroeconomic outcomes like financial crises and output growth. Are impacts also seen in financial asset prices? We document this robust and significant connection for the first time using a large sample of historical data for many countries. Credit boom periods tend to be followed by unusually low returns to equities, in absolute terms and relative to bonds. Return predictability due to this leverage factor is distinct from that of established factors like momentum and value and generates trading strategies with meaningful excess profits out-of-sample. These findings pose a challenge to conventional macro-finance theories.
    JEL: E17 E20 E21 E32 E44 G01 G11 G12 G17 G21 N10
    Date: 2019–11
  2. By: Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: There is a new wave of monetary thought popularized in industrialized economies going under the banner of Neo-Fisherism. Proponents of this school of thought assume that there exists reverse causality in the conventional Fisher effect in which interest rates cause movements in expected inflation instead of interest rates being driven by inflation expectations. We examine whether the Neo-Fisherian hypothesis holds for the South African economy as an inflation-targeting emerging economy characterized by moderate inflation and policy rates. Using frequency domain causality tests on quarterly repo rate and inflation expectations data collected between 2002:q3 and 2019:q2, we find evidence of uni-directional causality from repo rates to inflation expectations over the short- and long-run. Policy implications of these findings are discussed.
    Keywords: Neo-fisher effect; interest rates; inflation expectations; South Africa; emerging economies; spectral causality tests.
    JEL: C32 C52 E31 E42 E58
    Date: 2019–11
  3. By: Patrick Fève (Toulouse School of Economics and Université Toulouse 1); Pablo Garcia Sanchez (Banque centrale du Luxembourg, Département Economie et Recherche); Alban Moura (Banque centrale du Luxembourg, Département Economie et Recherche); Olivier Pierrard (Banque centrale du Luxembourg, Département Economie et Recherche)
    Abstract: We augment a simple Real Business Cycle model with financial interme-diaries that may default on their liabilities and a financial friction generating social costs of default. We provide a closed-form solution for the general equilibrium of the economy under specific assumptions, allowing for analytic results and straightforward simulations. Endogenous default generates asymmetric business cycles and our model replicates both the negative skew of GDP and the positive skew of credit spreads found in US data. Stronger financial frictions cause a rise in asymmetry and amplify the welfare costs of default. A Pigouvian tax on financial intermediation mitigates most of these negative effects at the cost of a steady-state distortion.
    Keywords: Real Business Cycle model, default, financial frictions, asymmetry, skewness
    JEL: E32 E44 G21
    Date: 2019–11–18
  4. By: Fève, Patrick; Garcia Sanchez, Pablo; Moura, Alban; Pierrard, Olivier
    Abstract: We augment a simple Real Business Cycle model with financial intermediaries that may default on their liabilities and a financial friction generating social costs of default. We provide a closed-form solution for the general equilibrium of the economy under specific assumptions, allowing for analytic results and straightforward simulations. Endogenous default generates asymmetric business cycles and our model replicates both the negative skew of GDP and the positive skew of credit spreads found in US data. Stronger financial frictions cause a rise in asymmetry and amplify the welfare costs of default. A Pigouvian tax on financial intermediation mitigates most of these negative effects at the cost of a steady-state distortion.
    Keywords: Real Business Cycle model, default, financial frictions, asymmetry, skewness.
    JEL: E32 E44 G21
    Date: 2019–11
  5. By: Pincheira, Pablo; Hardy, Nicolás
    Abstract: In this paper we show that the exchange rates of some commodity exporter countries have the ability to predict the price of spot and future contracts of aluminum. This is shown with both in-sample and out-of-sample analyses. The theoretical underpinning of these results relies on the present-value model for exchange rate determination and on the tight connection between commodity prices and the currencies of commodity exporter countries. We show results using traditional statistical metrics of forecast accuracy: Mean Squared Prediction Error and Mean Directional Accuracy. We also show that the first principal component of our sample of exchange rates is a useful way to summarize the predictive information contained in our set of commodity currencies.
    Keywords: Forecasting, commodities, aluminum, univariate time-series models, out-of-sample comparison, exchange rates.
    JEL: C0 C00 C01 C10 C11 C12 C13 C14 C18 C2 C20 C22 C24 C3 C32 C38 C4 C5 C50 C51 C52 C53 C58 E0 E3 E30 E31 E32 E37 E4 E40 E42 E43 E44 E47 E5 E58 F3 F31 F37 G1 G11 G12 G14 G17 Q3 Q31 Q32 Q4 Q47
    Date: 2019–11–15
  6. By: Kohlbrecher, Britta
    Abstract: Real wage rigidity is known to create a substantial trade-off between inflation and employment stabilization for monetary policy in New Keynesian models with search frictions on the labor market. This paper shows that, quantitatively, this finding hinges very much on the assumption of constant returns to scale in production. With decreasing returns to scale, monetary policy with a single focus on inflation stabilization is close to optimal. The reason is twofold: Firms cushion the impact of rigid real wages on marginal costs by adjusting the marginal product of labor over the cycle. In addition, given employment fluctuations have a smaller effect on consumption volatility. Decreasing returns to scale thus remove the need for active monetary policy even if wages are rigid. Importantly, this contrasts with the implications of combining real wage rigidity and decreasing returns to scale for other policy instruments.
    Keywords: optimal monetary policy,Ramsey policy,search and matching,real wage rigidity
    JEL: E24 E32 E52 J64
    Date: 2019
  7. By: Laurence M. Ball; Sandeep Mazumder
    Abstract: This paper asks whether a textbook Phillips curve can explain the behavior of core inflation in the euro area. A critical feature of the analysis is that we measure core inflation with the weighted median of industry inflation rates, which is less volatile than the common measure of inflation excluding food and energy prices. We find that fluctuations in core inflation since the creation of the euro are well explained by three factors: expected inflation (as measured by surveys of forecasters); the output gap (as measured by the OECD); and the pass-through of movements in headline inflation. Our specification resolves the puzzle of a “missing disinflation” after the Great Recession, and it diminishes the puzzle of a “missing inflation” during the recent economic recovery.
    JEL: E31 E32
    Date: 2019–11
  8. By: Sanz, Carlos; Gonzalo Muñoz, Jesus; Alloza, Mario
    Abstract: We show that several shocks identified without restrictions from a model, and frequently used in the empirical literature, display some persistence. We demonstrate that the two leading methods to recover impulse responses to shocks (moving average representations and local projections) treat persistence differently, hence identifying different objects. In particular, standard local projections identify responses that includean effect due to the persistence of the shock, while moving average representations implicitly account for it. We propose methods to re-establish the equivalence between local projections and moving average representations. In particular, the inclusion ofleads of the shock in local projections allows to control for its persistence and rendersthe resulting responses equivalent to those associated to counterfactual non-serially correlated shocks. We apply this method to well-known empirical work on fiscal andmonetary policy and find that accounting for persistence has a sizable impact on the estimates of dynamic effects.
    Keywords: Monetary Policy; Shock, Fiscal Policy; Local Projection; Impulse Response Function
    JEL: E62 E52 E32 C32
    Date: 2019–11–18
  9. By: Elva Bova; Violeta Klyviene
    Abstract: This study analyses the impact of fiscal shocks on GDP, inflation and interest rates in Portugal over 1995-2017. In line with the relevant literature, we estimate multipliers using a structural VAR a' la Blanchard and Perotti (2002) based on OECD elasticities. As fiscal shocks, we include changes in direct and indirect taxes on the revenue side, and, on the expenditure side, changes in public consumption, investment and transfers. We find small tax multipliers and larger government consumption multipliers for growth, while short-term responses to shocks in transfer and investment spending are found to be negligible. We find an ambiguous impact of fiscal shocks on inflation, with both indirect and direct taxes having an inflationary impact but government consumption having the contrary impact. Fiscal shocks of an expansionary nature are found to trigger declines in real interest rates, possibly through the inflation channel. The results are robust to different orderings of the variables used in the structural VAR and to the selection of alternative time periods. Overall, the analysis of output multipliers compares well with some other studies conducted on the Portuguese economy and confirms the importance of the disposable income channel in the transmission of fiscal shocks to the rest of the economy.
    JEL: E62 H3 C20
    Date: 2019–05
  10. By: Valentina Aprigliano (Bank of Italy); Danilo Liberati (Bank of Italy)
    Abstract: Following the debate on the relationship between business and financial cycle rekindled in the last decade since the global financial crisis, we assess the ability of some financial indicators to track the Italian business cycle. We mostly use credit variables to detect the turning points and to estimate the probability of recession in real time. A dynamic factor model with Markov-switching regimes is used to handle a large dataset and to cope with the nonlinear evolution of the business cycle. The in-sample results strongly support the capacity of credit variables to estimate the probability of recessions and the implied coincident indicator proves their ability to fit the business cycle. Also in real time the contribution of credit is not negligible compared to that of the industrial production, currently used for the conjunctural analysis.
    Keywords: business cycle, financial cycle, real time estimation, Markow-switching model, state-space model
    JEL: C53 E17 E32 E44 G21
    Date: 2019–07
  11. By: Stephen S. Poloz
    Abstract: This paper looks at the implications for monetary policy of the widespread adoption of artificial intelligence and machine learning, which is sometimes called the “fourth industrial revolution.” The paper reviews experiences from the previous three industrial revolutions, developing a template of shared characteristics: * new technology displaces workers; * investor hype linked to the new technology leads to financial excesses; * new types of jobs are created; * productivity and potential output rise; * prices and inflation fall; and * real debt burdens increase, which can provoke crises when asset prices crash. The experience of the Federal Reserve during 1995–2006 is particularly instructive. The paper uses the Bank of Canada’s main structural model, ToTEM (Terms-of-Trade Economic Model), to replicate that experience and consider options for monetary policy. Under a Taylor rule, monetary policy may allow growth to run as long as inflation remains subdued, easing the burden of adjustment on those workers directly affected by the new technology, while macroprudential policies help check financial excesses. This argues for a family of Taylor rules enhanced by the addition of financial stability considerations.
    Keywords: Economic models; Financial stability; Monetary policy framework; Uncertainty and monetary policy
    JEL: C5 E3 O11 O33
    Date: 2019–11
  12. By: Luca Fornaro
    Abstract: Since the creation of the euro, capital flows among member countries have been large and volatile. Motivated by this fact, I provide a theory connecting the exchange rate regime to financial integration. The key feature of the model is that monetary policy affects the value of collateral that creditors seize in case of default. Under flexible exchange rates, national governments can expropriate foreign investors by depreciating the exchange rate. Anticipating this, investors impose tight limits on international borrowing. In a monetary union this source of exchange rate risk is absent, because national governments do not control monetary policy. Forming a monetary union thus increases financial integration by boosting borrowing capacity toward foreign investors. This process, however, does not necessarily lead to higher welfare. The reason is that a high degree of financial integration can generate multiple equilibria, with bad equilibria characterized by inefficient capital flights. Capital controls or fiscal transfers can eliminate bad equilibria, but their implementation requires international cooperation.
    Keywords: Monetary union, international financial integration, exchange rates, optimal currency area, capital flights, euro area.
    JEL: E44 E52 F33 F34 F36 F41 F45
    Date: 2019–11
  13. By: Zhengyang Chen
    Abstract: The federal funds rate became uninformative about the stance of monetary policy from December 2008 to November 2015. During the same period, unconventional monetary policy actions, like large-scale asset purchases, show the Federal Reserveâs intention to depress longer-term interest rates. This paper considers a long-term real interest rate as an alternative monetary policy indicator in a structural VAR framework. Based on an event study of FOMC announcements, I advance a novel measure of long-term interest rate volatility with important implication for monetary policy identification. I find that monetary policy shocks identified with this volatility measure drive significant swings in credit market sentiments and real output. In contrast, monetary policy shocks identified by otherwise standard unexpected policy rate changes lead to muted responses of financial frictions and production. Our results support the validity of the risk-taking channel and suggest an indispensable role of financial markets in monetary policy transmission.
    JEL: E3 E4 E5
    Date: 2019–10–15
  14. By: Lewis, Daniel J. (Federal Reserve Bank of New York); Melcangi, Davide (Federal Reserve Bank of New York); Pilossoph, Laura (Federal Reserve Bank of New York)
    Abstract: We estimate the distribution of marginal propensities to consume (MPCs) using a new approach based on the fuzzy C-means algorithm (Dunn 1973; Bezdek 1981). The algorithm generalizes the K-means methodology of Bonhomme and Manresa (2015) to allow for uncertain group assignment and to recover unobserved heterogeneous effects in cross-sectional and short panel data. We extend the fuzzy C-means approach from the cluster means case to a fully general regression setting and derive asymptotic properties of the corresponding estimators by showing that the problem admits a generalized method of moments (GMM) formulation. We apply the estimator to the 2008 tax rebate and household consumption data, exploiting the randomized timing of disbursements. We find a considerable degree of heterogeneity in MPCs, which varies by consumption good, and provide evidence on their observable determinants, without requiring ex ante assumptions about such relationships. Our aggregated heterogeneous results suggest that the partial equilibrium consumption response to the stimulus was twice as large as what is implied by homogeneous estimates.
    Keywords: marginal propensity to consume; consumption; tax rebate; heterogeneous treatment effects; machine learning; clustering; C-means; K-means
    JEL: D12 D91 E21 E32 E62
    Date: 2019–11–01
  15. By: Myroslav Pidkuyko (Banco de España)
    Abstract: We study the spillovers from government intervention in the mortgage market on households’ consumption using the household survey data from the US. After an expansionary mortgage market operation, the increase in consumption of homeowners with mortgage debt is large and significant, while the consumption response of homeowners without the mortgage debt is small and insignificant. Non-homeowners also increase their consumption but less than mortgagors. We also find that expansionary policy significantly increases the consumption inequality of mortgagors. We explain these facts through the lens of a lifecycle model with incomplete markets and endogenous housing choice. Reduction in credit rates creates extra wealth for the mortgagors while a reduction in interest rates shifts this wealth towards consumption. An increase in wealth is bigger for those with a larger mortgage- this exacerbates consumption inequality.
    Keywords: mortgage debt, life-cycle models, government-sponsored enterprises, credit policy
    JEL: E21 E44 R38 G28
    Date: 2019–11
  16. By: Federico Bassi (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Most empirical studies provide evidence that the rate of capacity utilization is stable around a constant Non-accelerating inflation rate of capacity utilization (NAIRCU). Nevertheless , available statistical series of the rate of capacity utilization, which is unobservable, are constructed by assuming that it is stable over time. Hence, the stability of the NAIRCU is an artificial artefact. In this paper, we develop a method to estimate the rate of capacity utilization without imposing stability constraints. Partially inspired to the Production function methodology (PFM), we estimate the parameters of a production function by imposing aggregate correlations between the rate of capacity utilization and a set of macroeconomic variables, namely investment , labor productivity and unemployment. Our results show that the NAIRCU is not a constant rate but a non-stationary time-varying trend, and that chronicle under-utilization of capacity with stable inflation is a plausible equilibrium. Hence, persistent deviations of GDP might reflect persistent shocks to capacity utilization rather than exogenous shocks to total factor productivity. As a corollary, expansionary demand policies do not necessarily create permanent inflationary pressures if the NAIRCU is below full-capacity output, namely in post-crisis periods. Abstract Most empirical studies provide evidence that the rate of capacity utilization is stable around a constant Non-accelerating inflation rate of capacity utilization (NAIRCU). Nevertheless, available statistical series of the rate of capacity utilization, which is unobservable, are constructed by assuming that it is stable over time. Hence, the stability of the NAIRCU is an artificial artefact. In this paper, we develop a method to estimate the rate of capacity utilization without imposing stability constraints. Partially inspired to the Production function methodology (PFM), we estimate the parameters of a production function by imposing aggregate correlations between the rate of capacity utilization and a set of macroeconomic variables, namely investment, labor productivity and unemployment. Our results show that the NAIRCU is not a constant rate but a non-stationary time-varying trend, and that chronicle under-utilization of capacity with stable inflation is a plausible equilibrium. Hence, persistent deviations of GDP might reflect persistent shocks to capacity utilization rather than exogenous shocks to total factor productivity. As a corollary, expansionary demand policies do not necessarily create permanent inflationary pressures if the NAIRCU is below full-capacity output, namely in post-crisis periods.
    Keywords: Capacity utilization,NAIRCU,Potential GDP,Hysteresis,Secular stagnation
    Date: 2019–11–12
  17. By: José De Gregorio (Peterson Institute for International Economics)
    Abstract: Many emerging-market economies have adopted inflation targeting regimes since they were introduced by New Zealand in 1990. Latin America has not been the exception. Currently eight Latin American countries conduct monetary policy through inflation targeting regimes: Brazil, Chile, Colombia, Guatemala, Mexico, Paraguay, Peru, and Uruguay. This paper reviews the history of chronic inflation in Latin America and describes these countries’ experience with inflation targets and their performance during the global financial crisis.
    Keywords: Inflation, Inflation Targets, Latin America, Monetary Policy
    JEL: E52 E58
    Date: 2019–11
  18. By: Haraldsen, Kristine Wika (Statistics Norway); Ragnar, Nymoen (Dept. of Economics, University of Oslo); Sparrman, Victoria (Statistics Norway)
    Abstract: The average employment rate for the OECD countries was close to 63 percent in the period 2000-2015 but there is considerable variation within and between countries. We find that a dynamic model for employment, derived from a multiple equation macro model with institutional and population variables, can explain much of the development. The estimated models capture the dynamics well and they imply interpretable estimates of the normal employment rate level, conditional on the state of the institutional variables in 2015. The estimated normal employment rate is 2 percentage points higher when shocks are included in the model, implying that shocks have persistent effects. Regulations of the labour market are important for the effect of shocks. Regulated labour markets amplify positive shocks while negative shocks are dampened compared to less regulated labour markets. In the estimation of the models, we use standard panel data estimators, as well as a version of the within-group estimator which is robust to structural breaks in the means. Empirically we find that some of the estimated coefficients of the institutional variables are robust with respect to the breaks, while others are not. We find that the interaction effect between benefit replacement ratio and benefit duration is robust, and that it can significantly affect the employment rate. This result implies that changes in replacement ratios (or duration) may be expected to have larger impacts in countries where duration (or replacement ratio) is long, compared to countries characterized by shorter duration (or replacement ratio).
    Keywords: Employment share; Labor market institutions; Macro shocks; Panel data model
    JEL: E21 E22 E24 J08
    Date: 2019–05–23
  19. By: Kim, Minseong
    Abstract: We re-assess Blanchard-Kiyotaki (1987). We conclude that there are multiple equilibria even under the flexible-price Blanchard-Kiyotaki model, and that the model only obtains equilibrium uniqueness through the symmetry condition that is partially justified only when there are infinitely many firms. Without imposition of the symmetry condition, monetary policy has a significant role in determining a flexible-price equilibrium under the Blanchard-Kiyotaki setup. While the Blanchard-Kiyotaki framework is becoming deprecated, the symmetry condition is still sometimes invoked in monopolistic competition literature, and thus logic behind it is in need of more scrutiny. We discuss implications on understanding New Keynesian paradoxes in zero lower bound circumstances.
    Keywords: Blanchard-Kiyotaki; symmetry condition; New Keynesian economics; multiple equilibria; monetary non-neutrality; monopolistic competition; New Keynesian paradoxes; zero lower bound
    JEL: B22 B41 E13 E30 E50 E60
    Date: 2019–10–12
  20. By: Tweneboah Senzu, Emmanuel
    Abstract: It a paper presented at the project finance conference 2019 in Accra-Ghana with the article focus to propose structures and innovations required to attract foreign direct investment for the current emerging market with a special interest to the small and medium scale enterprises and the informal economy as the backbone of it sustainable economic growth using the economic market of Ghana as a case study.
    Keywords: Banking & Finance, Financial Sector, Macroeconomics, Monetary Policy, Central Bank, Foreign Direct investment
    JEL: E22 E26 E5 G21 G28
    Date: 2019–11–13
  21. By: Saroj Bhattarai; Arpita Chatterjee; Woong Yong Park
    Abstract: Spillover effects of US uncertainty shocks are studied in a panel VAR of ?fteen emerging market economies (EMEs). A US uncertainty shock negatively affects EME stock prices and exchange rates, raises EME country spreads, and decreases capital inflows into them. It decreases EME output and consumer prices while increasing net exports. Negative effects on output and asset prices are weaker, but effects on external balance stronger, for Latin American EMEs. We attribute such heterogeneity to di?erential EME monetary policy response to US uncertainty shocks. Analysis of central bank minutes shows Latin American EMEs pay less attention to smoothing capital ?ows.
    Keywords: US Uncertainty; Panel VAR; Emerging Market Economies; Monetary Policy Response; Emerging Market Monetary Policy Minutes
    JEL: C11 C33 E44 E52 E58 F32
    Date: 2019–01
  22. By: Liu, Chunping (Nottingham Trent University); Ou, Zhirong (Cardiff Business School)
    Abstract: A canonical DSGE model for housing, extended to embrace government spending and government investment, is estimated on Chinese data to evaluate the impact of fiscal policy on house prices. Government spending substitutes for housing; a rise in government spending lowers house prices, but its impact is weak. Government investment generates a wealth effect, causing housing demand, and therefore prices, to rise; its variation had a substantial impact on the boom-bust cycles of house prices in the past decade. Both government spending and government investment are effective instruments for manipulating output. However, their different impacts on house prices would recommend policies to count more on spending if fiscal expansion is not to sacrifice the stability of house prices.
    Keywords: fiscal policy; housing price; China; DSGE model
    JEL: E62 R31
    Date: 2019–11
  23. By: Gilles Mourre; Aurélien Poissonnier; Martin Lausegger
    Abstract: We update the semi-elasticities of the budget balance to output for the 28 EU Member States using new weights based on ESA2010 data (with unchanged elasticities for individual fiscal items). The revisions of the semi-elasticities are fairly small across Member States and leave the assessment of fiscal developments in the EU broadly unchanged. The revision of the Cyclically Adjusted Balance (CAB) is mainly driven by that in the headline balance and the estimated output gap, not by the update of the fiscal semi-elasticities. A sensitivity analysis shows that revenue and expenditure weights, if allowed to vary over time, can have a larger impact on the semi-elasticities than the present update would suggest, although this would affect the CAB only marginally. Based on the existing four vintages of the estimated semi-elasticities, exploratory panel data analysis confirms that semi-elasticities are country-specific structural parameters, mostly of fiscal nature: they are linked to the size of government, the share of unemployment-related spending, the share of non-tax revenue and tax progressivity. They can also be influenced by the belonging to specific country groupings and an emulation effect between neighbours.
    JEL: E62 H62 E32
    Date: 2019–05
  24. By: Guillaume Cléaud; Francisco de Castro Fernández; Jorge Durán Laguna; Lucia Granelli; Martin Hallet; Anne Jaubertie; Carlos Maravall Rodriguez; Diana Ognyanova; Balazs Palvolgyi; Tsvetan Tsalinski; Kai-Young Weißschädel; Johannes Ziemendorff
    Abstract: GDP growth rates in France and Germany have differed significantly since the crisis. As a result, per-capita income and employment trends have diverged markedly. This Discussion Paper assesses a number of possible explanatory factors behind these developments and suggests, in particular, that differences in labour-market institutions appear critical. Social partners play a key role in both countries, but the application of collective bargaining at the firm level allows for more flexibility in Germany. However, the higher resilience and flexibility of the German labour market comes at the price of higher market-income inequality and poverty across individuals and age groups. There are also differences in economic structure, especially in the public sector, but to some extent also in the private sector, while nominal divergences appear less relevant in explaining recent income divergences. Although Germany’s growth model has allowed it to benefit from the strong post-crisis recovery in the global economy, especially among emerging economies – reflecting Germany’s favourable composition of products and export markets – it also makes it more exposed to swings in the global cycle. France’s growth model, by contrast, has relied more on domestic demand. Together with a larger public sector, this has helped to smoothen economic cycles, but has also implied some losses in cost competitiveness and a significantly higher tax burden.
    JEL: E0 E2 E6 H0 H2 H6 J3 J5 O3 O4 O5
    Date: 2019–07
  25. By: Ghosh, Saurabh; Gopalakrishnan, Pawan; Satija, Sakshi
    Abstract: We simulate a DSGE model with state owned banks to analyze the impact of bank recapitalization as a policy action in response to loan defaults by firms. As a special case, we calibrate the model to India, an emerging economy with state-owned banks facing a minimum investment requirement in safe assets and a sectoral lending requirement. We analyze two different scenarios of government infused recapitalization - an unconditional transfer to banks and an "equity in exchange for transfer". Our analysis shows that a government infused recapitalization in response to a negative TFP shock may increase output in the short run. However, there is a welfare loss in both cases, although higher for the unconditional transfers as compared with the "equity in exchange for transfer". Our analysis suggests that while bank recapitalization is a welcome move to kick-start credit creation, capital formation and growth, especially during a cyclical downturn, there is need for appropriate policy vigil to protect the quality of public expenditure in the social sector that matters for welfare in the long run.
    Keywords: Bank recapitalization, SLR requirements, Emerging Market Economies, Financial Frictions, state owned banks
    JEL: E32 E62
    Date: 2019–11–14
  26. By: Andrea De Polis (Warwick Business School, University of Warwick); Mario Pietrunti (Bank of Italy)
    Abstract: In this paper we estimate an open economy New-Keynesian model to investigate the impact of unconventional monetary policies on the exchange rate, focusing on those adopted since the Global Financial Crisis in the euro area and in the United States. To this end we replace effective, short-term, interest rates with shadow rates, which provide a measure of the monetary stance when the former reach their effective lower bound. We find that since 2009 unconventional monetary policies significantly affected the dynamics of the euro-dollar exchange rate both in nominal and real terms: while the stimulus provided by the Fed prevailed between 2011 and 2014, contributing to the weakening of the dollar, in most recent years the depreciation of the euro mainly reflected the measures adopted by the ECB.
    Keywords: exchange rates, shadow rates, unconventional policies
    JEL: C11 E52 F31 F41
    Date: 2019–07
  27. By: Adrian, Tobias (International Monetary Fund); Boyarchenko, Nina (Federal Reserve Bank of New York); Giannone, Domenico (, Inc.)
    Abstract: We estimate the evolution of the conditional joint distribution of economic and financial conditions in the United States, documenting a novel empirical fact: while the joint distribution is approximately Gaussian during normal periods, sharp tightenings of financial conditions lead to the emergence of additional modes—that is, multiple economic equilibria. Although the U.S. economy has historically reverted quickly to a “good” equilibrium after a tightening of financial conditions, we conjecture that poor policy choices under these circumstances could also open a pathway to a “bad” equilibrium for a prolonged period. We argue that such multimodality arises naturally in a macro-financial intermediary model with occasionally binding intermediary constraints.
    Keywords: density impulse response; multimodality; nonparametric density estimator
    JEL: C14 E17 E37 G01
    Date: 2019–11–01
  28. By: Gee Hee Hong; Rahul Anand; Yaroslav Hul
    Abstract: The Bank of Japan has introduced various unconventional monetary policy tools since the launch of Abenomics in 2013, to achieve the price stability target of 2 percent inflation. In this paper, a forward-looking open-economy general equilibrium model with endogenously determined policy credibility and an effective lower bound is developed for forecasting and policy analysis (FPAS) for Japan. In the model’s baseline scenario, the likelihood of the Bank of Japan reaching its 2 percent inflation target over the medium term is below 40 percent, assuming the absence of other policy reactions aside from monetary policy. The likelihood of achieving the inflation target is even lower under alternative risk scenarios. A positive shock to central bank credibility increases this likelihood, and would require less accommodative macroeconomic policies.
    Date: 2019–11–01
  29. By: Mark Bils; Yongsung Chang; Sun-Bin Kim
    Abstract: We consider a matching model of employment with flexible wages for new hires, but sticky wages within matches. Unlike most models of sticky wages, we allow effort to respond if wages are too high or too low. In the Mortensen-Pissarides model, employment is not affected by wage stickiness in existing matches. But it is in our model. If wages of matched workers are stuck too high, firms require more effort, lowering the value of additional labor and reducing hiring. We find that effort¡¯s response can greatly increase wage inertia.
    Keywords: E?ort; Employment; Sticky Wages; Wage Inertia
    JEL: E32 E24 J22
    Date: 2019–02
  30. By: Israel, Karl-Friedrich; Latsos, Sophia
    Abstract: This paper analyzes the impact of conventional and unconventional monetary policy on income inequality in Japan, using hitherto unexplored data from the Japan Household Panel Survey. Empirical evidence shows that expansionary monetary policy in Japan has contributed to diminishing the gender pay gap, but also to increasing the education pay gap. These effects may have materialized via the aggregate demand channel and the labor productivity channel. In contrast, expansionary monetary policy has had no significant impact on the development of the age pay gap.
    Keywords: income inequality,Japan,monetary policy,low interest rate policy,unconventional monetary policy,monetary easing
    JEL: D31 D63 E52 E58
    Date: 2019
  31. By: Miguel Ampudia; Skander J. Van den Heuvel
    Abstract: Does banks' exposure to interest rate risk change when interest rates are very low or even negative? Using a high-frequency event study methodology and intraday data, we find that the effect of surprise interest rate cuts announced by the ECB on European bank equity values – an effect that is normally positive – has become negative since interest rates in the euro area reached zero and below. Since then, a further unexpected cut of 25 basis points in the short-term policy rate lowered banks' stock prices by about 2% on average, compared to a 1% increase in normal times. In the cross section, this 'reversal' was far more pronounced for banks with a more traditional, deposit-intensive funding mix. We argue that the reversal as well as its cross-sectional pattern can be explained by the zero lower bound on interest rates on retail deposits.
    Keywords: Bank profitability ; Interest rate risk ; Monetary policy ; Negative interest rates ; ECB
    JEL: G21 E52 E58
    Date: 2019–08
  32. By: Yuji Horioka, Charles; Niimi, Yoko
    Abstract: In this paper, we analyze the borrowing behavior of Japanese households in comparison to the other Group of Seven (G7) countries and also broken down by the age group of the household head. We find that pre-retirement households (households with a head in the 50-59 age group) in Japan do not have inordinate amounts of debt and that their financial health is satisfactory. However, we also find that households with a head in the 30-39 age group have shown a sharp increase in debt holdings in recent years, due partly to the fact that tax breaks for housing purchase, reforms in the housing loan market since the early 2000s, and expansionary monetary policy enabled Japanese households to purchase housing at a younger age than they could previously. We therefore need to monitor the borrowing behavior of this cohort over time as the Bank of Japan normalizes its monetary policy, especially since households have become more vulnerable to rising interest rates as the share of households who have chosen variablerate housing loans has increased in recent years.
    Keywords: aging, borrowing, debt, homeownership, households, housing, Japan, liabilities, loans, mortgages, retirement, D14, E21, G51, J14, R21
    Date: 2019–11
  33. By: International Monetary Fund
    Abstract: The 3-year Stand-By Arrangement (SBA) terminates shortly after conclusion of this sixth and final review. As Jamaica graduates from 6½ years of continuous Fundsupported reform programs over two successive arrangements, macroeconomic stability has been entrenched with substantial fiscal over-performance and efforts to address structural weaknesses. Public debt has been significantly reduced, unemployment is at a historic low, credit recovery is gaining force on the back of substantial monetary easing, FX reserves are comfortable, and inflation is subdued. However, for most of the past 6 years, growth has been low. The authorities are committed to policy continuity, safeguarding the hard-earned economic gains, and promoting growth and job creation.
    Date: 2019–11–07
  34. By: Paul Gaggl; Rowena Gray; Ioana Marinescu; Miguel Morin
    Abstract: Electricity is a general purpose technology and the catalyst for the second industrial revolution. Developing countries are currently making huge investments in electrification, with a view to achieving structural change. What does history say about its impact on the structure of employment? We use U.S. Census data from 1910 to 1940 and measure electrification with the length of higher-voltage electricity lines. Instrumenting for electrification using hydroelectric potential, we find that the average expansion of high-voltage transmission lines between 1910 and 1940 increased the share of operatives in a county by 3.3 percentage points and decreased the share of farmers by 2.1 percentage points. Electrification can explain 50.5% of the total increase in operatives, and 18.1% of the total decrease in farmers between 1910 and 1940. At the industry level, electrification drove 15.7% of the decline in the share of agricultural employment and 28.4% of the increase in the share of manufacturing employment between 1910 and 1940. Electrification was thus a key driver of structural transformation in the U.S. economy.
    Keywords: technological change, electrification, structural change
    JEL: E25 E22 J24 J31 N32 N72 O33
    Date: 2019
  35. By: Tyler Pike; Horacio Sapriza; Thomas Zimmermann
    Abstract: This paper constructs a leading macroeconomic indicator from microeconomic data using recent machine learning techniques. Using tree-based methods, we estimate probabilities of default for publicly traded non-financial firms in the United States. We then use the cross-section of out-of-sample predicted default probabilities to construct a leading indicator of non-financial corporate health. The index predicts real economic outcomes such as GDP growth and employment up to eight quarters ahead. Impulse responses validate the interpretation of the index as a measure of financial stress.
    Keywords: Corporate Default ; Early Warning Indicators ; Economic Activity ; Machine Learning
    JEL: C53 E32 G33
    Date: 2019–09–20
  36. By: David Reifschneider (former Federal Reserve); David Wilcox (Peterson Institute for International Economics)
    Abstract: The Federal Reserve faces two important monetary policy challenges: First, since the Great Recession it has struggled to move inflation convincingly up to the 2 percent target level. Second, during the next recession it will struggle to deliver enough support to the economy unless the recession is unusually mild. As a result, the search is on for alternative policy frameworks that might allow the Fed to achieve its monetary policy objectives more effectively. Among the alternatives is average inflation targeting (AIT). The basic idea is simple: Instead of aiming to return inflation over the medium term to the target rate of 2 percent, the Fed would aim to return the average of inflation over some period to the target rate. The crucial innovation of AIT is that when inflation has been running below the target rate, it would have the Fed aim for above-target inflation in the future, in order to bring average inflation up toward the target. Simulations of the Fed’s workhorse econometric model of the US economy (the FRB/US model) suggest that AIT would be a weak addition to the Fed’s policy toolkit for dealing with recessions and persistently low inflation. In addition, simple versions of AIT would sometimes compel the Fed to run an undesirably restrictive monetary policy. AIT is thus not a very appealing alternative to the current framework.
    Date: 2019–11
  37. By: International Monetary Fund
    Abstract: Greece’s economic recovery continues, but it has fallen far short of expectations. The new government elected in July has pledged to follow pro-growth policies while honoring fiscal and structural policy commitments to Euro Area (EA) member states, but its ability to overcome vested interests has yet to be tested. Public debt is projected to trend down over the next decade, though long-term sustainability is not assured under realistic macro-fiscal assumptions. Still-weak bank balance sheets act as a drag on growth prospects and pose significant fiscal and financial stability risks. These and other factors leave Greece vulnerable to a range of external and domestic shocks. Greece owes the Fund SDR 6.7 billion and is under Post-Program Monitoring (PPM). The authorities have asked the European Institutions (EIs) for approval to prepay the portion (SDR 2.2 billion) that is subject to surcharges.
    Date: 2019–11–15
  38. By: Jeonghun Choi
    Abstract: This study estimates a simple small open dynamic stochastic general equilibrium model through the Bayesian approach using Korean data. It mainly analyzes the monetary policy conducted by the central bank of Korea in relation to the 2008{2009 global nancial crisis. Speci cally, it aims to answer three questions. (1) Is there any change in the Korean monetary policy before and after the global nancial crisis? (2) If so, what is the di erence between them? (3) What are the subsequent change in the role and e ect of the monetary policy alteration? To answer these questions, we rst implement a rolling estimation, which enables us to control the influence of the crisis and to find the time-varying characteristics of the Korean economy. Based on the results from the rst stage, we re-estimate the model by dividing the whole sample period into two sub-periods, namely, pre-crisis and post-crisis. According to our estimation results, exchange rate movements become an additional interest in deciding the policy rate of Korea after the peak of the crisis. In addition, the behavior of the Korean monetary authority becomes relatively more aggressive. When models including the data of the peak of the crisis are estimated, model ts become worse and the posterior estimates are distorted. Finally, we conduct simulations to gauge the altered role and e ect of the change. As measures of performance, volatilities of inflation, output, and exchange rate of the simulated series obtained by stochastic simulation show that the central bank of Korea can achieve more stabilized inflation and exchange rates under the post-crisis policy rule. Our results are robust for various speci cations of the monetary policy rule, alternative prior distribution, and data that can be used as proxies for the exchange rate and inflation of Korea.
  39. By: Bert Loudis; Benjamin Ranish
    Abstract: We find that that the Current Expected Credit Loss (CECL) standard would slightly dampen fluctuations in bank lending over the economic cycle. In particular, if the CECL standard had always been in place, we estimate that lending would have grown more slowly leading up to the financial crisis and more rapidly afterwards. We arrive at this conclusion by estimating historical allowances under CECL and modeling how the impact on accounting variables would have affected banks' lending and capital distributions. We consider a variety of approaches to address uncertainty regarding the management of bank capital and predictability of credit losses.
    Keywords: Current expected credit loss ; Allowance for Loan and Lease Losses ; Accounting policy
    JEL: E1 E3 G21 G28 M41 M48
    Date: 2019–08
  40. By: Melo-Velandia, Luis Fernando; Parra-Amado, Daniel; Abril-Salcedo, Davinson Stev
    Abstract: Extreme weather events, like a strong El Niño (ENSO), affect society in many different ways especially in the context of recent globe warming. In the Colombian case, ENSO had a significant impact on consumer food prices during the strongest event in 2015. Our research evaluates the relationship between ENSO and Colombian food inflation growth by using a smooth transition non-linear model. We estimate the impacts of a strong ENSO on food inflation growth by adopting Generalized Impulse Response Functions (GIRFs) and the results suggest that the weather shocks are transitory and asymmetric on inflation. A strong El Niño shock has a significate effect on the food inflation growth from six to nine months after the shock and the accumulated elasticity is close to 465 basic points. We build the GIRFs for eight different episodes associated with a strong El Niño in the period corresponding from March 1962 to December 2018 and there is no evidence of changes in the size of Colombian food inflation growth responses over time.
    Keywords: El Niño Southern Oscillation (ENSO); non-linear smooth transition models; inflation
    JEL: C32 C50 E31
    Date: 2019–11
  41. By: Alice Albonico; Ludovic Calés; Roberta Cardani; Olga Croitorov; Fabio Di Dio; Filippo Ferroni; Massimo Giovannini; Stefan Hohberger; Beatrice Pataracchia; Filippo Pericoli; Philipp Pfeiffer; Rafal Raciborski; Marco Ratto; Werner Roeger; Lukas Vogel
    Abstract: This paper introduces the Global Multi-country (GM) model, an estimated multi-country Dynamic Stochastic General Equilibrium (DSGE) model of the world economy. We present the model in 3-region configurations for Euro area (EA) countries that include an individual EA Member State, the rest of the EA (REA), and the rest of the world (RoW). We provide and compare estimates of this model structure for the four largest EA countries (Germany, France, Italy, and Spain). The novelty of the paper is the estimation of ex-ante identical country models on the basis of a unified information set, which allows for clean crosscountry comparison of parameter estimates and drivers of economic dynamics. The paper also provides an overview of applications of the GM model such as the structural interpretation of business cycle dynamics, the contribution to the European Commission’s economic forecast, the scenario analysis and policy counterfactuals.
    JEL: C51 E32 F41 F45
    Date: 2019–07
  42. By: Maximiliano Dvorkin; Alexander Monge-Naranjo
    Abstract: We construct a dynamic general equilibrium model with occupation mobility, human capital accumulation and endogenous assignment of workers to tasks to quantitatively assess the aggregate impact of automation and other task-biased technological innovations. We extend recent quantitative general equilibrium Roy models to a setting with dynamic occupational choices and human capital accumulation. We provide a set of conditions for the problem of workers to be written in recursive form and provide a sharp characterization for the optimal mobility of individual workers and for the aggregate supply of skills across occupations. We craft our dynamic Roy model in a production setting where multiple tasks within occupations are assigned to workers or machines. We solve for the balanced-growth path and characterize the aggregate transitional dynamics ensuing task-biased technological innovations. In our quantitative analysis of the impact of task-biased innovations in the U.S. since 1980, we find that they account for an increased aggregate output in the order of 75% and for a much higher dispersion in earnings. If the U.S. economy had higher barriers to mobility, it would have experienced less job polarization but substantially higher inequality and lower output as occupation mobility has provided an "escape" for the losers from automation.
    Keywords: dynamic roy models, automation, human capital, aggregation
    JEL: E24 J23 J24 J62 O33 E25
    Date: 2019–11
  43. By: Chavleishvili, Sulkhan; Manganelli, Simone
    Abstract: We introduce a structural quantile vector autoregressive (VAR) model. Unlike standard VAR which models only the average interaction of the endogenous variables, quantile VAR models their interaction at any quantile. We show how to estimate and forecast multivariate quantiles within a recursive structural system. The model is estimated using real and financial variables. The dynamic properties of the system change across quantiles. This is relevant for stress testing exercises, whose goal is to forecast the tail behavior of the economy when hit by large financial and real shocks. JEL Classification: C32, C53, E17, E32, E44
    Keywords: growth at risk, regression quantiles, structural VAR
    Date: 2019–11
  44. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: This paper compares Ramsey optimal policy for the new-Keynesian model with public debt with its .scal theory of the price level (FTPL) equilibrium. Both the fiscal theory of the price level and Ramsey optimal policy implies that a de.cit shock is instantaneously followed by an increase of in.ation and output gap. But each optimal policy parameters belongs in di¤erent sets with respect to FTPL. The optimal .scal rule parameter implies local stability of public debt dynamics ("passive fiscal policy"). The optimal Taylor rule parameter for in.ation is larger than one. The optimal Taylor rule parameter for output gap is negative, because of the intertemporal substitution e¤ect of interest rate on output gap. Both Taylor rule optimal parameters implies the local stability of inflation and output gap dynamics.
    Keywords: Fiscal theory of the Price Level,Ramsey optimal policy
    Date: 2019–09
  45. By: Ojo, Marianne
    Abstract: As well as highlighting factors which should be taken into consideration in the Design of a UK Emissions Trading System, This paper aims to address particularly, the question relating to how “in the absence of historical emissions data, the regulator is able to make an environmentally robust assessment of the eligibility and emissions target of a new entrant for the Small Emitter Opt-Out or the Ultra-Small Emitters Exemption, without undermining the environmental integrity of the system”.
    Keywords: Emissions Trading System; Artificial Intelligence; Vertical Integration; Block chain systems; Sustainable Development; energy; climate, environment; Ultra-Small Emitters Exemption; trade relationships; transparency; information disclosure
    JEL: E6 E62 F1 F17 F18 G3 G38 K2 M4
    Date: 2019–07
  46. By: Claude Bismut (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Ismael Ramajo (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: This paper revisits the economic theory of the interest rates and presents some estimation results obtained on annual macroeconomic data for a panel of OECD countries. The conventional macroeconomic theory based on the saving investment balance falls short of producing a consistent picture for the medium-term trends of the interest rates and related variables. The main reason lies in the fact that the usual propensity to save specification does not account for the observed saving behavior, and it turns out that an intertemporal approach works better. Some other extensions of the basic model are also discussed to account for the external influence and the risk premia on public bonds. Based on this theoretical discussion, an econometric relation is estimated on annual data for a panel of 19 OECD countries. The tests confirm the influence of the factors suggested by the theory and, in particular, the link between the fall in the interest rate and the economic slowdown. The role of the inflation expectations, of the real exchange rate and of the risk premia on public debt is also discussed and clarified.
    Abstract: Cet article revient sur la théorie économique des taux d'intérêt et présente quelques résultats d'estimations économétriques sur données annuelles pour un panel de pays de l'OCDE. La théorie macroéconomique conventionnelle fondée sur l'équilibre épargne-investissement ne rend pas compte de manière cohérente des évolutions à moyen terme des taux d'intérêt et des variables macroéconomiques associées. La principale raison réside dans le fait que la notion keynésienne de propension à épargner ne permet pas de comprendre les comportements d'épargne observés. Pour cela, une approche intertemporelle apparaît mieux appropriée. On discute également d'autres extensions du modèle de base pour tenir compte des influences extérieures et des primes de risque sur les obligations publiques. Sur la base de cette discussion théorique, on estime une relation économétrique sur des données annuelles pour un panel de 19 pays de l'OCDE. Les tests confirment l'influence des facteurs suggérés par la théorie et, en particulier, le lien entre la baisse du taux d'intérêt et le ralentissement économique. Le rôle de l'inflation anticipée, du taux de change réel et des primes de risque est aussi discuté et clarifié
    Keywords: Interest rate,real interest rate,risk premia macroeconomic policy,potential growth,stagnation,panel data,Taux d’intérêt,taux d’intérêt réel,primes de risque,politique macroéconomique,croissance potentielle,économétrie de panels.
    Date: 2019
  47. By: Silvia Albrizio (Banco de España); 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: 2019–11
  48. By: Gábor Márk Pellényi
    Abstract: This paper analyses housing market spillovers between Hungarian regions in a small, spatio-temporal model, which features both the house price and housing supply as endogenous variables. The paper estimates both the long-run relationship between housing variables and economic fundamentals, and the short-run adjustment path of the housing market towards the long-run equilibrium. Long-run elasticities are in line with previous studies. The size of spillovers between Hungarian regions is economically meaningful; therefore, region-specific developments such as the recent run-up of Budapest house prices can have significant aggregate effects.
    JEL: E32 R12 R21 R31
    Date: 2019–04
  49. By: Cassola, Nuno; Kok, Christoffer; Mongelli, Francesco Paolo
    Abstract: The prolonged crisis exposed the vulnerability of a monetary union without a banking union. The Single Supervisory Mechanism (SSM), which started operating in November 2014, is an essential step towards restoring banks to health and rebuilding trust in the banking system. The ECB is today responsible for setting a single monetary policy applicable throughout the euro area and for supervising all euro area banks in order to ensure their safety and soundness, some directly and some indirectly. Its role in the area of financial stability has also expanded through the conferral of macroprudential tasks and tools that include tightening national measures when necessary. It thus carries out these complementary functions, while its primary objective of pursuing price stability remains unchanged. What are the working arrangements of this enlarged ECB, and what are the similarities and existing synergies among these functions? In the following pages, focusing on the organisational implications of the “new” ECB, we show the relative degrees of centralisation and decentralisation that exist in discharging these functions, the cycles of policy preparation and the rules governing interaction between them. JEL Classification: E42, E58, F36, G21
    Keywords: banking supervision, banking union, decision-making process, European Central Bank, financial stability, macroprudential policies, monetary policy, systemic risks
    Date: 2019–11
  50. By: Mundle, Sudipto (National Council of Applied Economic Research); Sikdar.Satadru (National Institute of Public Finance and Policy)
    Abstract: Budget subsidies have been defined as the unrecovered cost of economic and social services. The incidence of these implicit and explicit budget subsidies provided by the central and state governments has declined from about 12.9 % of GDP in 1987-88 to 10.3 % at present.The bulk of these subsidies is provided by the states and about half is spent on nonmerit subsidies. The paper finds an inverse relationship between subsidy incidence and per capita income and also finds that subsidies are important determinant of the consumption of many public services though not all. There are large variations across states in the efficiency of subsidy use and the paper identifies the states which lie on the subsidy efficiency frontier for several key public services. The paper also argues that rationalisng non-merit subsidies is one of several deep fiscal reform measures that could together free up massive fiscal space, conservatively estimated at 6% of GDP, and outlines a proposal for using this fiscal space to finance an inclusive growth revival strategy that could simultaneously reduce the fiscal deficit even without raising any tax rates.
    Keywords: Taxation, Subsidies and Revenue ; Macroeconomic Aspects of Public Finance ; National Government Expenditures and Related Policies ; Development Planning and Policy
    JEL: H2 E6 H5 O2
    Date: 2019–11
  51. By: Joaquin Garcia-Cabo; Rocio Madera
    Abstract: This paper studies selection into and returns to self-employment in labor markets with stringent employment protection. Using Spanish administrative panel data, we characterize self-employment dynamics in the presence of rigidities that affect workers’ outside options. We document the negative selection into self-employment when workers enter from unemployment, and the pro-cyclicality of the decision. We identify career heterogeneity in the data and estimate a rich life-cycle income process. The self-employed face shocks with smaller variances but lower returns compared to fixed-term workers—the prevalent contract out of unemployment. These facts call for a revision of active labor market policies in place.
    Keywords: Self-employment ; Business cycles ; Unemployment ; Employment protection
    JEL: J24 J64 E32
    Date: 2019–11–14
  52. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: The reference model of frictionless endowment economies includes a Fisher relation for the real interest rate and government intertemporal budget constraint. For this model, Ramsey optimal policy mix is a unique equilibrium with an interest rate peg and a "passive" fiscal rule with a negative-feedback value of its parameter stabilizing public debt. This is a third equilibrium with respect to the two usual equilibria with ad hoc policy rules. The first one has passive fiscal policy and an active monetary policy rule parameter destabilizing in.ation. The second one has an active fiscal policy rule parameter destabilizing public debt and a passive monetary policy which includes the case of an interest rate peg. :
    Keywords: Frictionless endowment economy,Fiscal theory of the Price Level,Ramsey optimal policy,Interest Rate Rule,Fiscal Rule Keywords: Frictionless endowment economy,Fiscal Rule
    Date: 2019–09
  53. By: Mirela Miescu; Haroon Mumtaz
    Abstract: We show that the contemporaneous and longer horizon impulse responses estimated using small-scale Proxy structural vector autoregressions (SVARs) can be severely biased in the presence of information insufficiency. Instead, we recommend the use of a Proxy Factor Augmented VAR (FAVAR) model that remains robust in the presence of this problem. In an empirical exercise, we demonstrate that this issue has important consequences for the estimated impact of monetary policy shocks in the US. We find that the impulse responses of real activity and prices estimated using a Proxy FAVAR are substantially larger and more persistent than those suggested by a small-scale Proxy SVAR.
    Keywords: information sufficiency, dynamic factor models, instrumental variables, monetary policy, structural VAR
    JEL: C36 C38 E52
    Date: 2019
  54. By: Carlson, Benny (Department of Economic History, Lund University); Jonung, Lars (Department of Economics, Lund University)
    Abstract: This paper examines the response of five prominent Swedish economists, David Davidson, Gustav Cassel, Eli Heckscher, Knut Wicksell and Bertil Ohlin, to John Maynard Keynes’s "The Economic Consequences of the Peace" and to the German reparations in the 1920s. When Keynes’s book appeared, Davidson and Cassel strongly endorsed it. Heckscher also agreed with Keynes – “a bright spot in a time of darkness” – in a long review entitled "Too bad to be true". Inspired by his Malthusian view, Wicksell found the reparations impossible to meet unless German population growth was arrested. Germany should settle for a stationary population in exchange for reduced reparations. The contacts between the Swedes and Keynes became close after Keynes’s book, in particular between Cassel and Keynes, competing for being the best-known economist in the world in the 1920s. The exchange of views took a new turn when Bertil Ohlin responded to an article by Keynes in The Economic Journal in 1929 on the transfer problem. In his comment, Ohlin summarized two previously overlooked articles from 1928 where he analyzed the transfer of the German reparations by using his theory of international trade. The famous Keynes-Ohlin discussion laid the foundation for the analysis of the transfer problem, bringing Ohlin international recognition. He emerged as the champion in this debate, which marked the end of academic interest in the German reparations in the interwar period. We also trace how Davidson, Cassel and Heckscher changed their appreciation of Keynes in the 1930s with the publication of the General Theory while Ohlin viewed the message of Keynes in the 1930s as consistent with the policy views of the Stockholm school of economics. We rely on newspaper and journal articles published by the Swedish economists, on half a dozen unpublished manuscripts by Wicksell as well as on the correspondence between Keynes and the Swedish economists.
    Keywords: John Maynard Keynes; David Davidson; Gustav Cassel; Eli Heckscher; Knut Wicksell; Bertil Ohlin; Treaty of Versailles; reparations; the transfer problem; United Kingdom; Germany; Sweden; Malthusianism; World War I.
    JEL: B13 E12 E44 F21 F35 F55 J11 N24 N44
    Date: 2019–11–18
  55. By: Martin Bruns (University of East Anglia)
    Abstract: Structural VAR models require two ingredients: (i) Informational sufficiency, and (ii) a valid identification strategy. These conditions are unlikely to be met by small-scale recursively identified VAR models. I propose a Bayesian Proxy Factor-Augmented VAR (BP-FAVAR) to combine a large information set with an identification scheme based on an external instrument. In an application to monetary policy shocks I find that augmenting a standard small-scale Proxy VAR by factors from a large set of financial variables changes the model dynamics and delivers price responses which are more in line with economic theory. A second application shows that an exogenous increase in uncertainty affects disaggregated investment series more negatively than consumption series.
    Keywords: Dynamic factor models, external instruments, monetary policy, uncertainty shocks
    JEL: C38 E60
    Date: 2019–08–16
  56. By: Romain Baeriswyl (Swiss National Bank, Boersenstrasse 15, 8001 Zurich, Switzerland); Kene Boun My (BETA-Strasbourg University, 61 Avenue de la Forêt Noire - 67085 Strasbourg Cedex, France); Camille Cornand (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69130 Ecully, France)
    Abstract: Central banks' disclosures, such as forward guidance, have a weaker effect on the economy in reality than in theoretical models. The present paper contributes to understanding how people pay attention and react to various sources of information. In a beauty-contest with information acquisition, we show that strategic complementarities give rise to a double overreaction to public disclosures by increasing agents equilibrium attention, which, in turn, increases the weight assigned to them in equilibrium action. A laboratory experiment provides evidence that the effect of strategic complementarities on the realised attention and the realised action is qualitatively consistent with theoretical predictions, though quantitatively weaker. Both the lack of attention to public disclosures and a limited level of reasoning by economic agents account for the weaker realised reaction. This suggests that it is just as important for a central bank to control reaction to public disclosures by swaying information acquisition by recipients as it is by shaping information disclosures themselves.
    Keywords: beauty-contest, information acquisition, overreaction, central bank communication
    JEL: D82 E52 E58
    Date: 2019
  57. By: Bo Hyun Chang; Yongsung Chang; Sun-Bin Kim
    Abstract: From a utilitarian point of view, the optimal income tax rate in the U.S. should be much higher than the current one (e.g., Piketty and Saez (2013)). A majority of the population would be in favor of raising taxes, as the income distribution is highly skewed. We show that the political equilibrium is actually close to the current tax rate, once we take into account (i) the ex-ante heterogeneity of earnings (Guvenen, 2009) and (ii) income-dependent voting behavior (Mahler, 2008) across households.
    Keywords: Optimal Tax; Ex-ante Heterogeneity; Voting Turnout Rates
    JEL: E62 H21 H31
    Date: 2019–10
  58. By: José De Gregorio
    Abstract: Many emerging-market economies have adopted inflation targeting regimes since they were introduced by New Zealand in 1990. Latin America has not been the exception. Currently eight Latin American countries conduct monetary policy through inflation targeting regimes: Brazil, Chile, Colombia, Guatemala, Mexico, Paraguay, Peru, and Uruguay. This paper reviews the history of chronic inflation in Latin America and describes these countries’ experience with inflation targets and their performance during the global financial crisis.
  59. By: Robert J. Barro; Gordon Y. Liao
    Abstract: We derive an option-pricing formula from recursive preference and estimate rare disaster probability. The new options-pricing formula applies to far-out-of-the money put options on the stock market when disaster risk dominates, the size distribution of disasters follows a power law, and the economy has a representative agent with Epstein-Zin utility. The formula conforms with options data on the S&P 500 index from 1983-2018 and for analogous indices for other countries. The disaster probability, inferred from monthly fixed effects, is highly correlated across countries, peaks during the 2008-2009 financial crisis, and forecasts equity index returns and growth vulnerabilities in the economy.
    Keywords: Disaster Probability ; Option Prices ; Rare Disaster ; Tail Risk ; Uncertainty ; Volatility
    JEL: E44 G13 G12
    Date: 2019–09–27
  60. By: Haaparanta, Pertti
    Abstract: The overlapping wage contract model, known as the staggered contract model, is expanded in an open economy context to include wage indexation to add some more realism to the model. In addition the effects of alternative assumptions about availability of information in wage negotiations are studied. It is shown that in the case of shocks in domestic costs indexation can improve economic stability if demand for the domestic good is price inelastic and wage negotiations are not sensitive to cyclical conditions. This contrasts strongly with static macro models where indexation reinforces the destabilizing power of supply shocks. With respect to shocks in the price of imported inputs, indexation reduces economic stability despite the fact that one could conjecture that indexation increases the responsiveness of wage contracts to shocks that affect domestic output.
    Keywords: International Development
  61. By: Olga Bespalova; Marina V Rousset
    Abstract: This paper uses the Growth-at-Risk (GaR) methodology to examine how macrofinancial conditions affect the growth outlook and its probability distribution. Using this approach, we evaluate risks to GDP growth in the Dominican Republic using quarterly data for 1996-2018. We group macrofinancial conditions in five principal determinants, based on 32 indicators. The Dominican Republic’s growth distribution appears most vulnerable to negative shocks to domestic financial conditions, domestic leverage, domestic demand, and external demand, with additional repercussions from the external cost of borrowing in the longer run. Our findings show that domestic monetary policy plays a particularly important role in reducing growth vulnerabilities when the economy is weak.
    Date: 2019–11–13
  62. By: Dilts Stedman, Karlye (Federal Reserve Bank of Kansas City)
    Abstract: This paper examines international spillovers from unconventional monetary policy between the United States, the euro area, the United Kingdom and Japan, and assesses the influence of asynchronous policy normalization on the slope of the yield curve. Using high frequency futures data to identify monetary policy surprises and controlling for contemporaneous news, I find that spillovers increase during periods of unconventional monetary policy and strengthen during asynchronous policy normalization. Local projections suggest persistent spillovers from the Federal Reserve, whereas other spillovers fade quickly. Through the lens of a shadow rate term structure model, I find that such spillovers elicit revisions, domestically and internationally, to both the expected path of short-term interest rates and required risk compensation, with the latter gaining importance at the effective lower bound of interest rates.
    Keywords: Monetary Policy; Spillovers
    JEL: E5 F42 G15
    Date: 2019–10–31
  63. By: Pham, Ngoc-Sang; Le Van, Cuong; Bosi, Stefano
    Abstract: In a simple infinite-horizon exchange economy with a single consumption good and a financial asset, real indeterminacy and asset price bubble may arise. We show how heterogeneity (in terms of preferences, endowments) and short-sale constraints affect the emergence and the dynamics of asset price bubbles as well as the equilibrium indeterminacy. We also bridge the literature of bubbles in models with infinitely lived agents and that in OLG models.
    Keywords: asset price bubble, real indeterminacy, borrowing constraint, intertemporal equilibrium, infinite horizon
    JEL: D5 D9 E4 G12
    Date: 2019–11–12
  64. By: Scott M. R. Mahadeo; Reinhold Heinlein; Gabriella Deborah Legrenzi
    Abstract: A new procedure to trace the sources of contagion in the oil-finance nexus is proposed. We do this by consolidating veteran rules derived from the empirical oil literature to filter oil supply, global demand, and oil demand shocks into discrete typical and extreme conditions. We show how these identified conditions can then be used to determine the stable and extreme sub-samples for comparing market relationships in the construction of contagion tests. Our original approach is useful for systemic risk assessment in countries vulnerable to oil market shocks. We illustrate the procedure using the dynamic relationships between the international crude oil market and the financial markets of a small oil-exporter.
    Keywords: contagion, correlation, exchange rate, oil, stock market
    JEL: C32 E37 Q43
    Date: 2019
  65. By: Xuan Wang
    Abstract: Since the Eurozone Crisis of 2010-12, a key debate on the viability of a currency union has focused on the role of a fiscal union in adjusting for country heterogeneity. However, a fully-fledged fiscal union may not be politically feasible. This paper develops a two-country international finance model to examine the benefits of the bankruptcy code of a capital markets union - in the absence of a fiscal union - as an alternative financial mechanism to improve the welfare of a currency union. When domestic credit risks are present, I show that a lenient union-wide bankruptcy code that allows for default in the cross-border capital markets union leads to a Pareto improvement within the currency union. However, if the union-wide bankruptcy code is too lenient, default may cause the collapse of the capital markets union and impede cross-border risk sharing. Moreover, the absence of floating nominal exchange rates removes a mechanism to neutralise domestic credit risks; I show that softening the union-wide bankruptcy code can recoup the lost benefits of floating nominal exchange rates. The model provides the economic and welfare implications of bankruptcy within a capital markets union in the Eurozone.
    JEL: E64 F55
    Date: 2019–11–07
  66. By: Serhan Cevik
    Abstract: This paper assesses the cyclicality and sustainability of fiscal policy in Belize and applies a stochastic simulation model to determine the optimal set of fiscal rules. The empirical analysis shows that fiscal policy in Belize has been significantly procyclical and unsustainable much of the period since 1976. While the government’s recent commitment to maintain a primary surplus of at least 2 percent of GDP until 2021 is supporting debt reduction, stochastic simulations indicate that further improvement in the primary balance is necessary to reliably bring the debt-to-GDP ratio to a sustainable path. Given Belize’s history of large economic shocks, this paper proposes explicit fiscal rules designed for countercyclical policy and debt sustainability. It recommends integrating such rules into a well-designed fiscal responsibility law and establishing an independent fiscal council to improve accountability and transparency.
    Date: 2019–11–07
  67. By: Jane Mpapalika; Christopher Malikane
    Abstract: This paper investigates the determinants of the sovereign risk premium in African countries. We employ the dynamic fixed effects model to determine the key drivers of sovereign bond spreads. Country-specific effects are fixed and the inclusion of dummy variables using the BaiâPerron multiple structural break test is significant at a 5% level. For robustness, the time-series generalized method of moments (GMM) is used where the null hypothesis of the Sargan Test of over-identifying restrictions (OIR) and the ArellanoâBond Test of no autocorrelation are not rejected. This implies that the instruments used are valid and relevant. In addition, there is no autocorrelation in the error terms. Our results show that the exchange rate, Money supply/GDP (M2/GDP) ratio, and trade are insignificant. Furthermore, our findings indicate that public debt/GDP ratio, GDP growth, inflation rate, foreign exchange reserves, commodity price, and market sentiment are significant at a 5% and 10% level.
    JEL: C E F2 F3 G
    Date: 2019–09–26
  68. By: Antanina Garanasvili
    Abstract: Aim of this analysis is to study whether the global recession of 2008 had a significant effect on how stock markets value firmsâ investments in knowledge and branding as well as complementary investments in patents and trademarks. Building on data from European Intellectual Property Office (EUIPO) and European Patent Office (EPO) we construct a firm panel covering R&D, marketing and IP investments over the period 2005-2012. In addition, we estimate market value equations for the years 2005-2008 and 2009-2012. Empirical findings suggest that there are interesting differences in which investments contributed to market value before and after 2008. First, investments in R&D contribute far more significantly to the market value after the crisis than before. Second, it becomes apparent that after the crisis patent quality arises as a significant factor which increases value of the companies. At the same time patent quantity ceases to be an influencing factor in the market value equation after 2008.
    JEL: G32 E32 O32 O34
    Date: 2019–11–05
  69. By: Clarida, Richard H. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2019–09–27
  70. By: Nicolas End (International Monetary Fund (imf), Washington, D.C. & Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France.); Marina Marinkov (International Monetary Fund (imf), Washington, D.C.); Fedor Miryugin (International Monetary Fund (imf), Washington, D.C.)
    Abstract: We construct a new, comprehensive instrument-level database of sovereign debt for 18 advanced and emerging countries during 1913–46, an eventful period characterized by notoriously high debt levels. This database is thus the first to provide public debt time series with such a high degree of comparability across countries and time. Documentation of qualitative instrument characteristics offers unique insights about the debt management policies that were implemented and the broader policies they helped finance. We document how interwar governments rolled over debts that were largely unsustainable and how the external public debt network contributed to the collapse of the international financial system in the early 1930s.
    Keywords: economic history, debt policy, public finance, macroeconomics
    JEL: E6 F5 H6 N10
    Date: 2019–11
  71. By: Camila Figueroa; Jorge Fornero; Pablo García
    Abstract: We examine sources of output gap revisions in Chile and document how the informational content of these measures affects forecasts of inflation using estimated Phillips curves. Data and forecasts come from Monetary Policy Reports. Output gap revisions are found well behaved because cannot be predicted. We consider backward and forward-looking specifications and also real time, quasi-real time and final output gap estimates. Median and common-factor inflation present lower forecast errors. Results suggest that the passage of time is informative to measure output gap. Inflation forecasts more accurate are found using forward-looking specifications and CB of Chile Staff’s gap estimates.
    Date: 2019–10
  72. By: Michael A. Zabek
    Abstract: If someone lives in an economically depressed place, they were probably born there. The presence of people with local ties - a preference to live in their birthplace - leads to smaller migration responses. Smaller migration responses to wage declines lead to lower real incomes and make real incomes more sensitive to subsequent demand shocks, a form of hysteresis. Local ties can persist for generations. Place-based policies, like tax subsidies, targeting depressed places cause smaller distortions since few people want to move to depressed places. Place-based policies targeting productive places increase aggregate productivity, since they lead to more migration.
    Keywords: Migration ; Decline ; Economic development, technological change, and growth ; Labor and demographic economics ; Local labor markets
    JEL: J61 R23 E62 R58 H31 D61 J11
    Date: 2019–11–18
  73. By: Yena Park; Yongsung Chang
    Abstract: We derive a fully nonlinear optimal income tax schedule in the presence of private insurance. As in the standard taxation literature without private insurance (e.g., Saez (2001)), the optimal tax formula can still be expressed in terms of sufficient statistics. With private insurance, however, the formula involves additional terms that reflect how the private market interacts with public insurance. For example, in our benchmark model-Huggett (1993)-the optimal tax formula should also consider pecuniary externalities as well as changes in the asset holdings of households. According to our analysis, the difference in optimal tax rates (with and without a private insurance market) can be as large as 11 percentage points.
    Keywords: Optimal Taxation; Private Insurance; Pecuniary Externalities; Variational Approach
    JEL: E62 H21 D52
    Date: 2018–11
  74. By: Marglin, Stephen; Bhaduri, Amit
    Abstract: This chapter explores one aspect of the relationship between the system of production and the macroeconomic structure, namely, the role of profitability in determining investment demand and the level of economic activity. Within the system of production, wages are a cost: the lower are profits per unit of production, the lower the stimulus to investment. In a Keynesian view of the macroeconomic structure, however, wages are a source of demand, hence a stimulus to profits and investment. In this view, aggregate demand provides the way out of the dilemma that high wages pose for the system of production. If demand is high enough, the level of capacity utilization will in turn be high enough to provide for the needs of both workers and capitalists. The rate of profit can be high even if the profit margin and the share of profit in output are low and the wage rate correspondingly high.
    Keywords: International Development
  75. By: Thomas Hasenzagl; Fillipo Pellegrino (London School of Economics and Political Science (LSE)); Lucrezia Reichlin (London Business School); Giovanni Ricco (Observatoire français des conjonctures économiques)
    Abstract: Que se passe-t-il avec l’inflation et la productivité dans la zone euro ? La Banque centrale européenne semble avoir perdu la capacité de relever l’inflation et les anticipations de prix ont glissé depuis la dernière récession. Une grande partie du débat politique a porté sur l’aplatissement de la courbe de Phillips. Pourtant, les estimations du processus conjoint d’inflation et de production indiquent que les éléments les plus pertinents du puzzle sont la diminution du potentiel de production et de l’inflation tendancielle.
    Keywords: Inflation; Productivité; Zone euro; Banque Centrale Européenne
    Date: 2019–10
  76. By: Antoine Mandel (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics); Vipin Veetil (IIT Madras - Indian Institute of Technology Madras)
    Abstract: We develop a tractable model of out-of-equilibrium dynamics in a general equilibrium economy with cash-in-advance constraints. The dynamics emerge from local interactions between firms governed by the production network underlying the economy. We analytically characterise the influence of network structure on the propagation of monetary shocks. In the long run, the model converges to general equilibrium and the quantity theory of money holds. In the short run, monetary shocks propagate upstream via nominal demand changes and downstream via real supply changes. Lags in the evolution of supply and demand at the micro level can give rise to arbitrary dynamics of the distribution of prices. Our model explains the long standing Price Puzzle: a temporary rise in the price level in response to monetary contractions. The Price Puzzle emerges under two assumptions about downstream firms: they are disproportionally affected by monetary contractions and they account for a sufficiently small share of the wage bill. Empirical evidence supports the two assumptions for the US economy. Our model calibrated to the US economy using a data set of more than fifty thousand firms generates the empirically observed magnitude of the price level rise after monetary contractions.
    Abstract: Nous proposons un modèle de la dynamique hors-équilibre dans une économie en réseau où les agents sont soumis à des contraintes financières. Nous étudions la propagation des chocs de politique monétaire dans ce cadre. Nous démontrons notamment que le "price puzzle" émerge dans ce cadre du fait des délais dans la propagation des chocs.
    Keywords: Price Puzzle,Production Network,Money,Monetary Non-Neutrality,Out-Of-Equilibrium dynamics,Réseaux de production,dynamique hors-équilibre
    Date: 2019–10
  77. By: Salih, Siddig A.; Branson, William H.; Ebraheem, Yusuf H. Al
    Abstract: Kuwait is a well endowed, small and open economy. In this economy the Government is the owner of the bulk of the wealth. Its wealth comes basically from underground oil and oil-accumulated assets. Since there is virtually no tax, the government influences economic activity through its expenditure and expenditure is determined by returns from its wealth. Moreover, the country depends heavily on imports. The structure of the model contains these features and the inherent dichotomy of Oil vs. Non-oil, and Kuwaiti vs. Non-Kuwaiti.jf The empirical analysis of the 1970-1986 data confirmed the dominance of the Government in the economy and the characteristics of a small and open economy. More importantly, the simulation exercise emphasizes the leading role of oil prices in overall economic activities and various accounts to the extent that a modest rise in oil prices is likely to turn the budget deficit into huge public savings and foreign accounts into mounting surpluses.
    Keywords: International Development
  78. By: Normann Rion (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, I build a simple Mortensen-Pissarides model embedding a dual labor market. I derive conditions for the existence of an equilibrium with coexisting strongly protected open-ended contracts and exogeneously short fixed-term contracts. I also study dynamics after a reform on employment protection legislation. Temporary contracts play the role of fillers while permanent contracts are used to lock up high-productivity matches. High firing costs favor the emergence of a dual equilibrium. Employment protection legislation encourages the resort to temporary employment in job creation. This scheme is intertwined with a general-equilibrium e_ect: permanent contracts represent the bulk of employed workers and a more stringent employment protection reduces aggregate job destruction. This pushes down unemployment and in turn reduces job creation ows through temporary contracts. The model is calibrated to match the French labor market. Policy experiments demonstrate that there is no joint gain in employment and social welfare through reforms on firing costs around the baseline economy. The optimal policy consists in implementing a unique open-ended contract with a strong cut in firing costs. Increases in firing costs within a dual labor market lead to a sluggish adjustment, while large cuts in firing costs lead to a quick one. The adjustment time of the labor market is highly non-monotonous between these two extremes. Policy-related uncertainty significantly strengthens fixed-term employment on behalf of open-ended employment. Considering extensions, I draw conclusions on the inability of a large class of random-matching models to mimic the distribution of temporary contracts' duration while maintaining possible the expiring temporary contracts' conversion into permanent contracts.
    Keywords: Fixed-term Contracts,Unemployment,Employment Protection,Policy,Dynamics
    Date: 2019–10
  79. By: Germán Gutiérrez; Callum Jones; Thomas Philippon
    Abstract: We combine a structural model with cross-sectional micro data to identify the causes and consequences of rising concentration in the US economy. Using asset prices and industry data, we estimate realized and anticipated shocks that drive entry and concentration. We validate our approach by showing that the model-implied entry shocks correlate with independently constructed measures of entry regulations and M&As. We conclude that entry costs have risen in the U.S. over the past 20 years and have depressed capital and consumption by about seven percent.
    Date: 2019–11–01
  80. By: Trust R. Mpofu (School of Economics, University of Cape Town); Eftychia Nikolaidou (School of Economics, University of Cape Town)
    Abstract: This paper investigates the macroeconomic and bank-specific determinants of non-performing loans (NPLs) in eight sub-Saharan African economies. The study is motivated by the fact that some of these economies have experienced banking crises in the past, their NPLs have relatively been rising post the 2008/2009 global financial crisis and have recently experienced rapid growth of bank credit to the private sector. Such issues pose credit risks in the banking sector. Employing dynamic panel data methods over the period 2000-2017 and using a variety of specifications, the results show that NPLs decrease when real GDP growth rate, return on equity, return on assets, and bank size increase and rises when public debt, inflation rate, broad money, and domestic credit to private sector by banks increase.
    Date: 2019
  81. By: Fanelli, Jose Maria; Frenkel, Roberto; Winograd, Carlos
    Abstract: Argentina has had successive stabs at stabilization since the mid-1970s. Throughout most of this time it has had to wrestle with acute problems of hyperinflation, capital flight, rising external debt, a stop-go pattern of output, and for a long time a heavily depressed level of real wages. It has tried orthodox stabilization policies, a more monetarist approach, and what can perhaps be described as 1 ad hocery'.In June 1985 these efforts culminated in the Austral plan, a type of shock treatment to change inflation expectations. Essentially, this consisted of a price freeze, tight control of the monetary and fiscal aggregates, and a currency reform.Initially, the results were encouraging. Inflation fell, output recovered and the trade balance was in surplus. But short-run success will be converted into long-run stability, the authors argue, only if international economic conditions prove helpful and, in particular, if the burden of servicing Argentina's heavy external debt is eased by an adequate flow of fresh credits.
    Keywords: International Development
  82. By: Martijn Dröes (Universiteit van Amsterdam); Hans R.A. Koster (Vrije Universiteit Amsterdam)
    Abstract: The number of refugees around the world has increased substantially in the last decade. To cope with refugee flows, many countries have built refugee centers (RCs) for refugees to await the outcome of their asylum procedure. The opening of such centers often leads to considerable opposition from the local population. Using detailed housing transactions data from the Netherlands over the period 1990-2015, we examine locals' attitudes towards immigration by investigating households' willingness to pay (WTP) to avoid living near RCs. Comparing the price developments of opened RCs and those that are planned, we show that the opening of an RC decreases house prices within 2km by 3-6%. Using micro-data on home buyers' characteristics and employing a non-parametric hedonic pricing method, we identify households' individual preferences. We show that attitudes of higher income households towards RCs tend to be more negative, while those of foreign-born households are more positive. The WTP is also more negative for larger RCs. These results imply that when opening RCs, it is advisable to keep them relatively small and locate them in more ethnically diverse areas.
    Keywords: immigration, house prices, refugee centers, household preferences
    JEL: R31 E02 O18
    Date: 2019–11–16
  83. By: Steven Engels; Monika Sherwood
    Abstract: This paper explores the increasing diffusion of digital labour platforms, i.e. online software which facilitates the interaction between buyers and sellers of paid labour services through matching algorithms and structured information exchange. Although the phenomenon itself has only recently started to develop, its prevalence is rapidly increasing. We illustrate the various forms digital labour platforms can take, frame the issues they raise in the broader debate on digitalisation and succinctly describe the various angles from which the Commission services have so far approached digital labour platforms in analytical and policy work. The paper also explores the impact the rapid growth of the considered platforms could potentially have on the wider economy and raises three sets of relevant economic policy questions, focusing on: • the contribution of digital labour platforms to overall labour market functioning (including wages) and productivity; • the possible impact of digital labour platforms on macro-economic aggregates such as GDP and total employment at EU and Member State level; • the impact of the growing participation in the labour markets intermediated by online platforms on public finances.
    JEL: J01 E24
    Date: 2019–06
  84. By: Niko Hauzenberger; Michael Pfarrhofer
    Abstract: Understanding disaggregate channels in the transmission of monetary policy to the real and financial sectors is of crucial importance for effectively implementing policy measures. We extend the empirical econometric literature on the role of production networks in the propagation of shocks along two dimensions. First, we set forth a Bayesian spatial panel state-space model that assumes time variation in the spatial dependence parameter, and apply the framework to a study of measuring network effects of US monetary policy on the industry level. Second, we account for cross-sectional heterogeneity and cluster impacts of monetary policy shocks to production industries via a sparse finite Gaussian mixture model. The results suggest substantial heterogeneities in the responses of industries to surprise monetary policy shocks. Moreover, we find that the role of network effects varies strongly over time. In particular, US recessions tend to coincide with periods where between 40 to 60 percent of the overall effects can be attributed to network effects; expansionary economic episodes show muted network effects with magnitudes of roughly 20 to 30 percent.
    Date: 2019–11
  85. By: International Monetary Fund
    Abstract: The authorities are committed to very strong policies and policy frameworks. However, policy uncertainty and new priorities have created challenges and have clouded the growth outlook. Large-scale investment projects and social transfers—and a commitment to not raise taxes until after 2021—are yet to be reconciled with the administration’s fiscal targets and the objective of putting public debt on a downward path. Meanwhile, drastic budget cuts for some institutions have raised concern about their impact on human capital. A state-centered energy policy that limits the role of the private sector—putting the onus of stabilizing Pemex (the state-owned oil and gas company) squarely on the government—has imposed further pressure on the budget and has weakened prospects for oil production. Promises to tackle some of Mexico’s salient structural challenges—including corruption, informality and crime—have yet to be followed by concrete policy action.
    Date: 2019–11–05
  86. By: Kenichi Ueda; Somnath Sharma
    Abstract: Using the firm-level data of 33 countries over 10 years (from 2008-2017), we find that the listed firms, on average, have lower marginal products of capital (measured by return on assets) than the unlisted firms in many countries. This implies that the listed firms face less financial constraints. Moreover, we investigate the institutional factors that exacerbate or mitigate the listing advantages across the countries. The listing advantages seem enlarged with better corporate governance and narrowed with stronger creditor's rights.
    JEL: E22 G32
    Date: 2019–11
  87. By: Bruno Pellegrino
    Abstract: Industry concentration and profit rates have increased significantly in the United States over the past two decades. There is growing concern that oligopolies are coming to dominate the American economy. I investigate the welfare implications of the consolidation in U.S. industries, introducing a general equilibrium model with oligopolistic competition, differentiated products, and hedonic demand. I take the model to the data for every year between 1997 and 2017, using a data set of bilateral measures of product similarity that covers all publicly traded firms in the United States. The model yields a new metric of concentrationâbased on network centralityâthat varies by firm. This measure strongly predicts markups, even after narrow industry controls are applied. I estimate that oligopolistic behavior causes a deadweight loss of about 13% of the surplus produced by publicly traded corporations. This loss has increased by over one-third since 1997, as has the share of surplus that accrues to producers. I also show that these trends can be accounted for by the secular decline of IPOs and the dramatic rise in the number of takeovers of venture-capital-backed startups. My findings provide empirical support for the hypothesis that increased consolidation in U.S. industries, particularly in innovative sectors, has resulted in sizable welfare losses to the consumer.
    JEL: D2 D4 D6 E2 L1 O4
    Date: 2019–11–04
  88. By: Thomas McGregor
    Abstract: How do oil price movements affect sovereign spreads in an oil-dependent economy? I develop a stochastic general equilibrium model of an economy exposed to co-moving oil price and output processes, with endogenous sovereign default risk. The model explains a large proportion of business cycle fluctuations in interest-rate spreads in oil-exporting emerging market economies, particularly the countercyclicallity of interest rate spreads and oil prices. Higher risk-aversion, more impatient governments, larger oil shares and a stronger correlation between domestic output and oil price shocks all lead to stronger co-movements between risk premiums and the oil price.
    Date: 2019–11–08
  89. By: Bowman, Michelle W. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2019–10–18
  90. By: Michael Anderson; Yonatan Ben-Shalom; David Stapleton; Emily Roessel
    Abstract: We use state variation in the experience of the Great Recession and subsequent recovery to explain the deviation of Social Security Disability Insurance awards from historical trends in the period from 2008 through 2014.
    Keywords: Social Security Disability Insurance, SSDI, business cycle, recession, employment, Great Recession
  91. By: Daniel Roash (Central Bureau of Statistics and Bar-Ilan University); Tanya Suhoy (Bank of Israel)
    Abstract: The monthly frequency of the Business Tendency Survey, launched in 2011, sectoral representativeness, and early availability have created new opportunities for nowcasting. However, Israeli data confirm growing concerns that the aggregate balance of opinions has become less correlated with macroeconomic indicators in the post-crisis period. We test this relationship using firm-level and macro (time-series) data. At the firm-level, logit checks of qualitative evaluations of past domestic sales in the manufacturing, retail trade and services sectors in 2013–17 revealed significant cross-sectional correlations with corresponding revenue data, matched from administrative records; however, comovement between the qualitative evaluations and the aggregate sectoral index was documented only since the questionnaire wording was changed to focus on the specific month, instead of a three-month evaluation. Although this change has amplified seasonal variation in the categorical answers, correlations between qualitative and quantitative data remain (weakly) significant even after seasonal effects are controlled for. We find also that firms' heterogeneity has an effect on the reliability of qualitative evaluations, particularly in the services industry. At the macro level, we are looking for a composite sentiment indicator that aggregates sectoral balances of opinions and tracks real growth at a monthly frequency. We suggest an indicator with time-varying weights, evaluated through Partial Least Squares regression with respect to GDP growth. As GDP is measured quarterly, we simulate intra-quarter GDP-changes from monthly interpolated and bootstrapped seasonally-adjusted GDP-levels. This sentiment indicator performs better than an overall balance of opinions, calculated as a composition of sectoral balances with predefined weights based on industrial GDP-shares. In most (about 85%) simulations the short-term forecasts outperform the benchmark of mean growth. The out-of-sample error is larger when the sentiment indicator forecast is compared to later GDP estimates published by the CBS than with the first estimate.
    Keywords: Business tendency survey, Sentiment indicator, Partial Least Squares, monthly GDP
    Date: 2019–09
  92. By: Powell, Jerome H. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2019–08–30
  93. By: Yongsung Chang; Sun-Bin Kim; Kyooho Kwon; Richard Rogerson
    Abstract: Standard heterogeneous agent macro models that highlight idiosyncratic productivity shocks do not generate the near zero cross-sectional correlation between hours and wages found in the data. We ask whether matching this moment matters for business cycle properties of these models. To do this we explore two extensions of the model in Chang et al. (2019) that can match this empirical cross-section correlation. One of these departs from the assumption of balanced growth preferences. The other introduces an idiosyncratic shock to the opportunity cost of market work that is highly correlated with the shock to market productivity. While both extensions can match the empirical correlation, they have large and opposing effects on the cyclical volatility of the labor market. We conclude that the cross-sectional moment is important for business cycle analysis and that more work is needed to distinguish the potential mechanisms that can generate it.
    Keywords: Hours; Employment; Cross-section; Business Cycles; Comparative Advantage
    Date: 2019–02
  94. By: Yannick LUNG; Léo MALHERBE; Matthieu MONTALBAN; ; ;
    Abstract: In less than 10 years, \"complementary local currencies\" have multiplied in France and have created a dynamic ecosystem. While almost all of them have developed with the introduction of paper money (notes), there is now a rapid shift towards digital tools, which for many analysts appears to be an essential factor in moving to a new stage in the development of these currencies. \r\nIn part one, the paper will discuss the challenges of this transition and the competitive/complementary relationships between local currencies and cryptocurrencies in the French context. The second part will study the strategies of actors to position themselves in the ongoing reconfiguration of the ecosystem. It will study the competition between digital solutions being adopted by complementary local currencies and consider the possibility of a new generation of local currencies in France through the emergence of FinTech players.
    Keywords: blockchain - complementary local currency – cryptocurrency – digitization – france
    JEL: E42 L31 O33
    Date: 2019
  95. By: Quarles, Randal K. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2019–09–27
  96. By: Anneleen Vandeplas; Anna Thum-Thysen
    Abstract: This paper analyses different dimensions of skills mismatch (notably ‘macro-economic skills mismatch’, ‘skills shortages’, and ‘on-the-job skills mismatch’) and their empirical relationship with labour productivity. Macro-economic skills mismatch arises when the skills distribution differs between the available workers and those that get hired. Skills shortages occur when employers encounter difficulties to fill their vacancies. On-the-job skills mismatch (overqualification or underqualification) refers to a discrepancy between the qualification level of a jobholder and the requirements for that particular job. Our data suggest that certain types of skills mismatch are indeed on the rise in the EU, notably skills shortages and overqualification. Other types are on a long-term declining trend (e.g. underqualification) or follow more complex patterns over time (e.g. macro-economic skills mismatch). There are also significant differences across EU Member States in the levels of these indicators. We further suggest that theoretical predictions on the relationship between skills mismatch and productivity depend on the dimension of skills mismatch considered. Our empirical analysis suggests a negative relationship between macro-economic skill mismatch and labour productivity and – as a sign of a buoyant economy - a positive relationship between skills shortages and labour productivity. With regard to on-the-job skills mismatch, our data confirm earlier findings from the economic literature: when comparing a mismatched with a well-matched worker within the same occupation, overqualification raises and underqualification reduces productivity. When comparing a mismatched with a well-matched worker within the same qualification level, overqualification reduces and underqualification increases productivity. Our results imply a positive link between skills supply and productivity. However, to realise the full potential of higher skills, skills should be labour market relevant and skilled workers need to be matched with jobs that use these skills. Therefore, upskilling policies should ideally be accompanied by policies that assure quality and labour market relevance of acquired skills, policies that foster a general upgrading of jobs such as business regulations allowing for firm entry, growth, sectoral reallocation, and policies supporting labour mobility and innovation.
    JEL: D40 E31 L51
    Date: 2019–07
  97. By: Alessandro Dovis; Rishabh Kirpalani
    Abstract: This paper studies the optimal design of rules in a dynamic model when there is a time inconsistency problem and uncertainty about whether the policy maker can commit to follow the rule ex post. The policy maker can either be a commitment type, which can always commit to follow rules, or an optimizing type, which sequentially decides whether to follow rules or not. This type is unobservable to private agents, who learn about it through the actions of the policy maker. Higher beliefs that the policy maker is the commitment type (the policy maker's reputation) help promote good behavior by private agents. We show that in a large class of economies, preserving uncertainty about the policy maker's type is preferable from an ex-ante perspective. If the initial reputation is not too high, the optimal rule is the strictest one that is incentive compatible for the optimizing type. We show that reputational considerations imply that the optimal rule is more lenient than the one that would arise in a static environment. Moreover, opaque rules are preferable to transparent ones if reputation is high enough.
    JEL: E6
    Date: 2019–11
  98. By: Stephanie Aaronson; Mary C. Daly; William L. Wascher; David W. Wilcox
    Abstract: Previous research has shown that the labor market experiences of less advantaged groups are more cyclically sensitive than the labor market experiences of more advantaged groups; in other words, less advantaged groups experience a high-beta version of the aggregate fluctuations in the labor market. For example, when the unemployment rate of whites increases by 1 percentage point, the unemployment rates of African Americans and Hispanics rise by well more than 1 percentage point, on average. This behavior is observed across other labor-market indicators, and is roughly reversed when the unemployment rate declines. We update this work to include the post-Great Recession period and extend the analysis to consider whether these high-beta relationships change when the labor market is especially tight. We find suggestive evidence that when the labor market is already strong, a further increment of strengthening provides a modest extra benefit to some disadvantaged groups, relative to earlier in the labor-market cycle. In addition, we provide preliminary evidence suggesting that these gains are somewhat persistent for African Americans and women.
    Keywords: Business Cycles ; Inequality ; Labor supply and demand ; Racial Disparities ; Unemployment
    Date: 2019–09–24
  99. By: Hüther, Michael; Kolev, Galina V.
    Abstract: Deutschland hat Investitionsbedarf. Das gilt für die privaten wie die öffentlichen Investitionen, die eine besondere Vorleistungsfunktion für unternehmerisches Handeln und eine effiziente Koordination einzelwirtschaftlicher Transaktionen besitzen. Seit geraumer Zeit wird über den Zustand des öffentlichen Kapitalstocks in Deutschland diskutiert. Es zeigt sich, dass vor allem im Bereich der Kommunen unter dem Druck struktureller Haushaltsprobleme seit der Jahrtausendwende der Kapitalstock an Substanz verloren hat und insgesamt der Modernitätsgrad des gesamtstaatlichen Kapitalstocks seit geraumer Zeit abnimmt. Nicht berücksichtigt sind dabei die Investitionsbedarfe, die sich aufgrund neuer Infrastrukturen (wie schnelles Internet und 5G) und aufgrund intensivierter politischer Herausforderungen (Klimapaket 2019) ergeben. Relativ schnell gelangt man sowohl mit Blick auf die Nachholbedarfe als auch mit Blick auf die neuen Aufgaben zu erheblichen Investitionssummen, die der Staat zu stemmen hat. Bereits mit zurückhaltenden Annahmen gelangt man zu einem Volumen von 450 Milliarden Euro, das in der kommenden Dekade zu stemmen ist. Neben der Frage der rechtlichen und technischen Umsetzung führt dies auch zu der Frage nach den gesamtwirtschaftlichen Wirkungen. Um die gesamtwirtschaftlichen Effekte eines Investitionsfonds für Deutschland in Höhe von 450 Milliarden Euro über die nächsten zehn Jahre abzuschätzen, wurden Simulationen mit dem Weltwirtschaftsmodell von Oxford Economics durchgeführt. Die Ergebnisse zeigen, dass die staatlichen Investitionen einen nennenswerten konjunkturellen Impuls mit sich bringen dürften, der in der Größenordnung von 1 Prozent des preisbereinigten Bruttoinlandsprodukts liegt und auch die private Investitionstätigkeit in Deutschland anregt. Mittel- bis langfristig ist mit einer Erhöhung des gesamtwirtschaftlichen Produktionspotenzials um etwa 1,4 Prozent im Vergleich zur Basisprognose von Oxford Economics zu rechnen. Die Auswirkung auf die Staatsfinanzen hält sich in Grenzen: Der durch den Investitionsfonds induzierte Anstieg des öffentlichen Schuldenstands liegt nach zehn Jahren bei 5,1 Prozent und das Budgetdefizit nach der Maastricht-Definition liegt im gesamten Zeitraum unter 1 Prozent.
    JEL: H54 E17 H6
    Date: 2019
  100. By: Szilard Benk; Max Gillman
    Abstract: Real oil prices surged from 2009 through 2014, comparable to the 1970’s oil shock period. Standard explanations based on monopoly markup fall short since inflation remained low after 2009. This paper contributes strong evidence of Granger (1969) predictability of nominal factors to oil prices, using one adjustment to monetary aggregates. This adjustment is the subtraction from the monetary aggregates of the 2008-2009 Federal Reserve borrowing of reserves from other Central Banks (Swaps), made after US reserves turned negative. This adjustment is key in that Granger predictability from standard monetary aggregates is found only with the Swaps subtracted.
    Date: 2019–11–01
  101. By: Carlos Ramirez
    Abstract: I study the problem of regulating a network of interdependent financial institutions that is prone to contagion when there is uncertainty regarding its precise structure. I show that such uncertainty reduces the scope for welfare-improving interventions. While improving network transparency potentially reduces this uncertainty, it does not always lead to welfare improvements. Under certain conditions, regulation that reduces the risk-taking incentives of a small set of institutions can improve welfare. The size and composition of such a set crucially depend on the interplay between (i) the (expected) susceptibility of the network to contagion, (ii) the cost of improving network transparency, (iii) the cost of regulating institutions, and (iv) investors' preferences.
    Keywords: Financial networks ; Contagion ; Policy design under uncertainty
    JEL: C6 E61 G01
    Date: 2019–08
  102. By: Epper, Thomas; Fehr, Ernst; Fehr-Duda, Helga; Thustrup Kreiner, Claus; Dreyer Lassen, David; Leth-Petersen, Søren; Nytoft Rasmussen, Gregers
    Abstract: This paper documents a large association between individuals’ time discounting in incentivized experiments and their positions in the real-life wealth distribution derived from Danish highquality administrative data for a large sample of middle-aged individuals. The association is stable over time, exists through the wealth distribution and remains large after controlling for education, income profile, school grades, initial wealth, parental wealth, credit constraints, demographics, risk preferences and additional behavioral parameters. Our results suggest that savings behavior is a driver of the observed association between patience and wealth inequality as predicted by standard savings theory.
    Keywords: Wealth inequality, savings behavior, time discounting, experimental methods, administrative data
    JEL: C91 D31 E21
    Date: 2019–11
  103. By: Aditya Aladangady; Shifrah Aron-Dine; Wendy E. Dunn; Laura Feiveson; Paul Lengermann; Claudia R. Sahm
    Abstract: Access to timely information on consumer spending is important to economic policymakers. The Census Bureau's monthly retail trade survey is a primary source for monitoring consumer spending nationally, but it is not well suited to study localized or short-lived economic shocks. Moreover, lags in the publication of the Census estimates and subsequent, sometimes large, revisions diminish its usefulness for real-time analysis. Expanding the Census survey to include higher frequencies and subnational detail would be costly and would add substantially to respondent burden. We take an alternative approach to fill these information gaps. Using anonymized transactions data from a large electronic payments technology company, we create daily estimates of retail spending at detailed geographies. Our daily estimates are available only a few days after the transactions occur, and the historical time series are available from 2010 to the present. When aggregated to the national leve l, the pattern of monthly growth rates is similar to the official Census statistics. We discuss two applications of these new data for economic analysis: First, we describe how our monthly spending estimates are useful for real-time monitoring of aggregate spending, especially during the government shutdown in 2019, when Census data were delayed and concerns about the economy spiked. Second, we show how the geographic detail allowed us quantify in real time the spending effects of Hurricanes Harvey and Irma in 2017.
    Keywords: Big data ; Consumer spending ; Macroeconomic forecasting
    Date: 2019–08
  104. By: Prasad, Alaka Shree; Mandal, Biswajit
    Abstract: With the help of a stylized economy resembling the features of a developing country endowed with huge supply of unskilled labor, informality, informality related corruption and limited supply of educational capital we examine how virtual trade with a country located in a geographically different time zone affects the factor prices and subsequently output of different sectors. We show that skilled labors and educational capital owners are the beneficiaries of virtual trade. The service sector expands and the formal and informal good producing sectors contract along with the number of people engaged in corruption related intermediation. Following this, we also check the effect of a fall in the extent of cost of corruption. Results show an increase in unskilled wage and outflow of educational capital thus hurting the skill intensive sector. We proceed further to club the effects of both virtual trade and fall in cost of corruption and explore the consequences. Interestingly, both skilled and unskilled labors benefit. The effect on output and intermediators, however, is ambiguous.
    Keywords: Time Zones; Virtual Trade; Service; Educational Capital; Informality; Corruption; Extortion.
    JEL: D73 E26 F16 F2 L86 O17
    Date: 2019
  105. By: Yossi Yakhin (Bank of Israel)
    Abstract: Breaking the uncovered interest rate parity (UIP) condition is essential to accounting for the empirical behavior of exchange rates and is a prerequisite for theoretical analysis of sterilized foreign exchange interventions. Gabaix and Maggiori (2015) account for some of the long-standing empirical exchange rate puzzles by introducing financial intermediaries that are willing to absorb international saving imbalances for a premium, thereby deviating from the UIP. In another important contribution, Fanelli and Straub (2019) lay down the principles for foreign exchange interventions. In their model, regulatory exposure limits and participation cost in the international financial markets drive a wedge in the UIP. This paper demonstrates that, to a first-order approximation, a simple reduced-form portfolio adjustment cost friction, as in Schmitt-Grohé and Uribe (2003), generates identical deviations from the UIP as the micro-founded models mentioned above. Therefore, to the extent that one is only concerned with first-order dynamics and second moments, there is no gain from adopting the rich microstructure of either models - the simple ad-hoc adjustment cost is just as good.
    Keywords: UIP, Financial Frictions, Open Economy Macroeconomics
    JEL: E58 F31 F41
    Date: 2019–11

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