nep-mac New Economics Papers
on Macroeconomics
Issue of 2019‒12‒23
sixty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Waehrungswettbewerber Facebook: Oekonomische Implikationen der Corporate Cryptocurrency Libra By Andreas Hanl
  2. Welfare effects of business cycles and monetary policies in a small open emerging economy By Jolan Mohimont
  3. Empirical evidence on the dynamics of investment under uncertainty in the US By Qazi Haque; Leandro M. Magnusson; Kazuki Tomioka
  4. Examining macroprudential policy and its macroeconomic effects - some new evidence By Soyoung Kim; Aaron Mehrotra
  5. One EMU Fiscal Policy for the EURO By Cole, Alexandre Lucas; Guerello, Chiara; Traficante, Guido
  6. How Much Information Do Monetary Policy Committees Disclose? Evidence from the FOMC's Minutes and Transcripts By Apel, Mikael; Blix Grimaldi, Marianna; Hull, Isaiah
  7. Factor shares and the rise in corporate net lending By Jan Behringer
  8. Asymmetries in Risk Premia, Macroeconomic Uncertainty and Business Cycles By Christoph Görtz; Mallory Yeromonahos
  9. Take It to the limit? The effects of household leverage caps By Sjoerd Van Bekkum; Marc Gabarro; Rustom M. Irani; José-Luis Peydró
  10. Take it to the Limit? The Effects of Household Leverage Caps By Sjoerd van Bekkum; Marc Gabarro; Rustom M. Irani; José-Luis Peydró
  11. SVARs, the central bank balance sheet and the effects of unconventional monetary policy in the euro area By Adam Elbourne
  12. Continuous time debt dynamics and fiscal policy for full-employment: A Keynesian approach by mathematics and simulation By Tanaka, Yasuhito
  13. Monetary policy shocks and peer-to-peer lending in China By Funke, Michael; Li, Xiang; Tsang, Andrew
  14. Taxation and the life cycle of firms By Andrés Erosa; Beatriz González
  15. Idiosyncratic shocks: estimation and the impact on aggregate fluctuations By Svetlana Popova
  16. Nonbanks, banks, and monetary policy: U.S. loan-level evidence since the 1990s By David Elliott; Ralf R. Meisenzahl; José-Luis Peydró; B.C. Turner
  17. Indivisible labor supply and involuntary unemployment: Increasing returns to scale case By Tanaka, Yasuhito
  18. Informality, Frictions, and Macroprudential Policy By Moez Ben Hassine; Nooman Rebei
  19. Inefficient Use of Competitors'Forecasts? By Reslow, André
  20. Labor Market Effects of Technology Shocks Biased toward the Traded Sector By Luisito Bertinelli; Olivier Cardi; Romain Restout
  21. Home Equity in Retirement By Nakajima, Makoto; Telyukova, Irina A.
  22. Exchange Rates and Consumer Prices : Evidence from Brexit By Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas
  23. Changing Fortunes: Long-Termism—G-Zero, Artificial Intelligence and Debt By Stephen S. Poloz
  24. Somalia; First Review Under the Staff-Monitored Program-Press Release; and Staff Report By International Monetary Fund
  25. Private Bank Money vs Central Bank Money: A Historical Lesson for CBDC Introduction By Grodecka-Messi, Anna
  26. Portugal in the Eurozone: Evolution and Expectations By Pedro Miguel Avelino Bação; Sara Cerdeira; António Manuel Portugal Duarte
  27. Measuring “Dark Matter” in Asset Pricing Models By Hui Chen; Winston Wei Dou; Leonid Kogan
  28. In the face of spillovers: prudential policies in emerging economies By Coman, Andra; Lloyd, Simon P.
  29. Assessing Macro-Financial Risks of Household Debt in China By Fei Han; Emilia M Jurzyk; Wei Guo; Yun He; Nadia Rendak
  30. Oil Price Shocks and Unemployment Rate: New Evidence from the MENA Region By Iman Cheratian; Mohammad Reza Farzanegan; Saleh Goltabar
  31. Ukraine; Technical Assistance Report-Fiscal Decentralization and Legal Framework for Fiscal Risk Management and Medium-term Budgeting By International Monetary Fund
  32. Ukraine; Technical Assistance Report-Medium-Term Budget Framework and Fiscal Risk Statement By International Monetary Fund
  33. Housing, wealth accumulation and wealth distribution: Evidence and stylized facts By Orsetta Causa; Nicolas Woloszko; David Leite
  34. Taxing Families: The Impact of Child-related Transfers on Maternal Labor Supply By Anne Hannusch
  35. Does access to international capital markets affect investment dynamics in Sub-Saharan Africa? By Senga, Christian; Cassimon, Danny; Kigabo, Thomas
  36. Markup Cyclicality: Evidence From Belgian Manufacturing Firms By Asmae EL GALLAA
  37. Malta; Financial Sector Assessment Program-Technical Note-Insurance and Securities Sector Supervision By International Monetary Fund
  38. Are Central Banks' Research Teams Fragile Because of Groupthink? By Jakub Rybacki
  39. Dynamic cost of living index for storable goods By Kozo Ueda
  40. The industrial impact of economic uncertainty shocks in Australia By Burrell, Hamish; Vespignani, Joaquin
  41. Trade Models and Macroeconomics By Ray C. Fair
  42. Durables and Lemons: Private Information and the Market for Cars By Hamish Low; Richard Blundell; Ran Gu; Soren Leth-Petersen; Costas Meghir
  43. Modelo de adicción racional: un análisis al consumo de cerveza en la región junín, 2000-2019 By Chávez Granados, J. Luis
  44. On the empirical content of the convergence debate: Cross country evidence on growth and capacity utilisation By Santiago J. Gahn; Alejandro González
  45. Mexico; Arrangement Under the Flexible Credit Line and Cancellation of Current Arrangement-Press Release; and Staff Report By International Monetary Fund
  46. A Simple Algorithm for Solving Ramsey Optimal Policy with Exogenous Forcing Variables By Jean-Bernard Chatelain; Kirsten Ralf
  47. Demographic Obstacles to European Growth By Thomas F. Cooley; Espen Henriksen; Charlie Nusbaum
  48. Cyclicality of Fiscal Transfers for a Latin American Small Open Economy: The Perils of Earmarked Transfers By Javier Torres; Alexandra Málaga; Rodrigo Chang
  49. Uncertainty and the Uncovered Interest Parity Condition: How Are They Related? By Ramirez-Rondan, N.R.; Terrones, Marco E.
  50. Corruption, Judicial Accountability and Inequality: Unfair Procedures May Benefit the Worst-Off By Berggren, Niclas; Bjørnskov, Christian
  51. Malta; Financial Sector Assessment Program-Technical Note-Macroprudential Policy Framework and Tools By International Monetary Fund
  52. An Agenda without a Plan: Robert E. Lucas's Trajectory throught the Public Debate By Goutsmedt, Aurélien; Sergi, Francesco; Guizzo, Danielle
  53. Modelling the gender inequality in Pakistan: A macroeconomic perspective By Shahbaz, Muhammad; Ahmed, Khalid; Nawaz, Kishwar; Ali, Amjad
  54. The effectiveness of cyclically adjusted budget rules in the European Union By Sebastiaan Wijsman
  55. Regional Data in Macroeconomics: Some Advice for Practitioners By Gabriel Chodorow-Reich
  56. Reacting to the Lucas Critique: The Keynesians' Replies By Goutsmedt, Aurélien; Pinzón-Fuchs, Erich; Sergi, Francesco; Renault, Matthieu
  57. Malta; Financial Sector Assessment Program-Technical Note-Bank Resolution and Crisis Management By International Monetary Fund
  59. Measuring trade in value added with Firm-Level Data By Rudolfs Bems; Ayumu Ken Kikkawa
  60. Ukraine; Technical Assistance Report-Enhancing the Medium-Term Budget Framework and Preparing Expenditure Baseline By International Monetary Fund
  61. Designing Central Bank Digital Currencies By Itai Agur; Anil Ari; Giovanni Dell'Ariccia
  62. Text Selection By Bryan T. Kelly; Asaf Manela; Alan Moreira

  1. By: Andreas Hanl (University of Kassel)
    Abstract: Nach dem Versuch unzaehliger Kryptowaehrungen das Finanzwesen zu revolutionieren und den ersten Schritten nationaler Notenbanken in Richtung einer Digitalisierung des Geldwesens, folgen nun privatwirtschaftliche Grossprojekte. Das massgeblich von Facebook vorangetriebene Libra will den Zugang zu Finanzdienstleistungen vereinfachen. Der vorliegende Beitrag untersucht die waehrungspolitische Dimension des Corporate Cryptocurrency Projekts. Mit den klassischen Kryptowaehrungen hat Libra nur die kryptographische Grundlage gemein. Durch vollstaendige Besicherung der Libra-Tokens durch eine Reserve aus niedrig-volatilen Wertpapieren soll ein "Stable Coin" entstehen, dessen Wechselkursvolatilitaet deutlich unter dem typischer Kryptowaehrungen liegen duerfte. Obwohl Libra keine eigene Geldpolitik verfolgt, wird es mit den bestehenden Zentralbanken interagieren, indem es einen von diesen nicht kontrollierten Transmissionskanal schafft. Damit erodiert der Wirkungskreis klassischer Geldpolitik, was letztlich in Versuchen muenden wird, den neuen Marktakteur zu regulieren.
    Keywords: Cryptocurrency, Facebook, Libra, Monetary Policy
    JEL: E40 E42 E44 E50 E52
    Date: 2019
  2. By: Jolan Mohimont (Economics and Research Department, NBB and University of Namur)
    Abstract: This paper evaluates the welfare cost of business cycles and the effects of monetary policies in a DSGE model tailored to a small open emerging economy. The model generates rich business cycle fluctuations, features labor market idiosyncratic risks and accounts for imperfect financial and capital markets inclusion. In this context, households excluded from financial and capital markets experience larger costs of business cycle fluctuations due to their inability to hedge against labor market idiosyncratic risks. Different degrees of exposure to different types of risks generate divergent preferences regarding the conduct of monetary policy. While a strong response to inflation deviation from target maximizes welfare for included households, excluded households benefit the most from unemployment and wage stabilization policies.
    Keywords: Monetary policy, financial exclusion, idiosyncratic risks, labor markets, emerging economies, SOE, DSGE.
    JEL: E3 E52 E32 C51
    Date: 2019–11
  3. By: Qazi Haque; Leandro M. Magnusson; Kazuki Tomioka
    Abstract: We study the effects of financial uncertainty on investment dynamics in the U.S. using a vector autoregression with drifting parameters and stochastic volatilities. We find time-varying negative effects of financial uncertainty shocks on investment. These effects have declined in the post-WWII period but became more pronounced in the presence of the zero lower bound episode. We also find that the response of inflation to uncertainty shocks varies over time, and these shocks do not always act like aggregate demand shocks. Remarkably, the relevance of financial uncertainty shocks is found to be negligible during the Great Recession.
    Keywords: Uncertainty shocks, investment dynamics, TVP-VARs with stochastic volatility, Bayesian VARs, Great Recession
    JEL: C11 C32 E22 E32 E44
    Date: 2019–12
  4. By: Soyoung Kim; Aaron Mehrotra
    Abstract: In this paper, we provide empirical evidence about the broader macroeconomic effects of macroprudential policies and the underlying transmission mechanism, as well as the response of macroprudential policy to financial risks. To this end, we use structural panel vector autoregressions and a dataset covering 32 advanced and emerging economies. We show that macroprudential policy shocks have effects on real GDP, the price level and credit that are very similar to those of monetary policy shocks, but the detailed transmission of the two policies is different. Whereas macroprudential policy shocks mostly affect residential investment and household credit, monetary policy shocks have more widespread effects on the economy. Moreover, while positive credit shocks are generally met with tighter macroprudential policy, macro-financial country characteristics such as the exchange rate regime and the level of financial development affect the policy response.
    Keywords: macroprudential policy, monetary policy, credit, macroeconomic effect, macroprudential policy response
    JEL: E58 E61 G28
    Date: 2019–12
  5. By: Cole, Alexandre Lucas; Guerello, Chiara; Traficante, Guido
    Abstract: We build a two-country New-Keynesian DSGE model of a Currency Union to study the effects of fiscal policy coordination, by evaluating the stabilization properties and welfare implications of different fiscal policy scenarios. Our main findings are that a government spending rule which targets the net exports gap rather than the domestic output gap produces more stable dynamics and that consolidating government budget constraints across countries with symmetric tax rate movements provides greater stabilization. A key role is played by the trade elasticity which determines the impact of the terms of trade on net exports. In fact, when goods are complements, the stabilization properties of coordinating fiscal policies are no longer supported. These findings point out to possible policy prescriptions for the Euro Area: to coordinate fiscal policies by reducing international demand imbalances, either by stabilizing trade flows across countries or by creating some form of Fiscal Union or both.
    Keywords: Fiscal Policy, International Policy Coordination, Monetary Union, New Keynesian
    JEL: E12 E62 E63 F42 F45
    Date: 2018
  6. By: Apel, Mikael (Monetary Policy Department, Central Bank of Sweden); Blix Grimaldi, Marianna (Swedish National Debt Office); Hull, Isaiah (Research Department, Central Bank of Sweden)
    Abstract: The purpose of central bank minutes is to give an account of monetary policy meeting discussions to outside observers, thereby enabling them to draw informed conclusions about future policy. However, minutes are by necessity a shortened and edited representation of a broader discussion. Consequently, they may omit information that is predictive of future policy decisions. To investigate this, we compare the information content of the FOMC's minutes and transcripts, focusing on three dimensions which are likely to be excluded from the minutes: 1) the committee's degree of hawkishness; 2) the chairperson's degree of hawkishness; and 3) the level of agreement between committee members. We measure committee and chairperson hawkishness with a novel dictionary that is constructed using the FOMC's minutes and transcripts. We measure agreement by performing deep transfer learning, a technique that involves training a deep learning model on one set of documents - U.S. congressional debates - and then making predictions on another: FOMC transcripts. Our findings suggest that transcripts are more informative than minutes and heightened committee agreement typically precedes policy rate increases.
    Keywords: Central Bank Communication; Monetary Policy; Machine Learning
    JEL: D71 D83 E52 E58
    Date: 2019–11–01
  7. By: Jan Behringer
    Abstract: The corporate sector has turned from a net borrowing position to a net lending position in many advanced countries over the past decades. This phenomenon is rather unusual as the corporate sector had historically borrowed funds from other sectors in the economy. In this paper, we analyze how changes in the distribution of income between wages and profits have affected corporate net lending in a sample of 40 countries for the period 1990-2016. A consistent finding ist hat an increase (decrease) in the corporate profit share leads to an increase (decrease) in corporate net lending, controlling for other corporate net lending determinants. We disentangle the effects of the profit share on corporate saving and investment and explore a number of alternative explanations of our results, including changes in the cost of capital, shifts in the composition of industrial sectors, the growing importance of intangible capital, and a temporary crisis phenomenon. We conclude that factor shares are an important driver of macroeconomic trends and that the rise in corporate profits has contributed considerably to the improvement in the corporate net lending positions across countries.
    Keywords: Corporate saving, investment, income distribution, cost of capital
    JEL: E21 E22 E25 G30
    Date: 2019
  8. By: Christoph Görtz; Mallory Yeromonahos
    Abstract: A large literature suggests that the expected equity risk premium is countercyclical. Using a variety of different measures for this risk premium, we document that it also exhibits growth asymmetry, i.e. the risk premium rises sharply in recessions and declines much more gradually during the following recoveries. We show that a model with recursive preferences, in which agents cannot perfectly observe the state of current productivity, can generate the observed asymmetry in the risk premium. Key for this result are endogenous fluctuations in uncertainty which induce procyclical variations in agent’s nowcast accuracy. In addition to matching moments of the risk premium, the model is also successful in generating the growth asymmetry in macroeconomic aggregates observed in the data, and in matching the cyclical relation between quantities and the risk premium.
    Keywords: risk premium, business cycles, Bayesian learning, asymmetry, uncertainty, nowcasting
    JEL: E20 E30 G10
    Date: 2019
  9. By: Sjoerd Van Bekkum; Marc Gabarro; Rustom M. Irani; José-Luis Peydró
    Abstract: We examine the effects of borrower-based macroprudential policy for household leverage, liquidity, and financial distress. For identification, we exploit the introduction of a mortgage loan-to-value limit in the Netherlands, in conjunction with population tax-return and property ownership data linked to the universe of housing transactions.First-time homebuyers most affected by the policy shock substantially reduce household leverage and debt servicing costs by taking on less mortgage debt. Rather than buying more affordable homes or taking non-regulated loans, households consume greater liquidity in the year of home purchase to plug funding gaps. Improvements in household solvency are accompanied by fewer instances of financial distress despite the temporary loss of liquidity; however, along the extensive margin, fewer households transition from renting into ownership. These effects are stronger among cash-constrained households.
    Keywords: Macroprudential policy; financial regulation; residential mortgages; household finance; household leverage; loan-to-value ratio
    JEL: D14 D31 E21 E58 G21 G28
    Date: 2019–11
  10. By: Sjoerd van Bekkum; Marc Gabarro; Rustom M. Irani; José-Luis Peydró
    Abstract: We examine the effects of borrower-based macroprudential policy for household leverage, liquidity, and financial distress. For identification, we exploit the introduction of a mortgage loan-to-value limit in the Netherlands, in conjunction with population tax-return and property ownership data linked to the universe of housing transactions. First-time homebuyers most affected by the policy shock substantially reduce household leverage and debt servicing costs by taking on less mortgage debt. Rather than buying more affordable homes or taking non-regulated loans, households consume greater liquidity in the year of home purchase to plug funding gaps. Improvements in household solvency are accompanied by fewer instances of financial distress despite the temporary loss of liquidity; however, along the extensive margin, fewer households transition from renting into ownership. These effects are stronger among cash-constrained households.
    Keywords: macroprudential policy, financial regulation, residential mortgages, household finance, household leverage, loan-to-value ratio
    JEL: D14 D31 E21 E58 G21 G28
    Date: 2019–12
  11. By: Adam Elbourne (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This discussion paper presents further evidence that the most important published estimates of the effects of unconventional monetary policy are not reliable. It is a further elaboration of the ideas in the CPB discussion paper "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?". Previous empirical studies seem to show that the unconventional monetary policy of the ECB, also known as balance sheet policy, has a positive effect on growth and inflation. However, this conclusion is unfounded, because institutional features of monetary policy in the euro area make it impossible to identify unexpectedly exogenous variation in monetary policy. Read CPB Discussion Paper 391 "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?" . VAR modeling shows the effects of unexpected exogenous variation in monetary policy, also known as policy shocks. This discussion paper presents a number of reasons why the existing literature is unable to isolate unexpected variation in monetary policy.
    JEL: C32 E52
    Date: 2019–12
  12. By: Tanaka, Yasuhito
    Abstract: We present a continuous time version of a dynamic analysis of debt-to-GDP ratio, and examine the effects of a fiscal policy which realizes full-employment from a state of under-employment or with deflationary GDP gap. We show that the larger the extra growth rate of real GDP by a fiscal policy is, the smaller the debt-to-GDP ratio at the time when full-employment is realized is, and a fiscal policy for full-employment can reduce the debt-to-GDP ratio. Therefore, full-employment can be realized by an aggressive fiscal policy with smaller debt-to-GDP ratio than before the fiscal policy. An increase in the government expenditure may induce a rise of the interest rate. Since the higher the interest rate is, the larger the debt-to-GDP ratio is, we need an appropriate monetary policy which maintains the low interest rate. Also we show that even if the propensity to consume is very small, an aggressive fiscal policy can realize full-employment without increasing debt-to-GDP ratio.
    Keywords: fiscal policy, full-employment, debt-to-GDP ratio, continuous time debt dynamics
    JEL: E62
    Date: 2019
  13. By: Funke, Michael; Li, Xiang; Tsang, Andrew
    Abstract: This paper studies monetary policy transmission in China’s peer-to-peer lending market. Using spectral measures of causality, we explore the impacts of Chinese monetary policy shocks on China’s P2P market interest rates and lending amounts. The estimation results indicate significant spectral Granger causality from monetary policy surprises to P2P lending rates for borrowers, but not the reverse. Unlike the lending channel for traditional banks, monetary policy shocks do not Granger-cause the credit amount in the P2P lending market.
    JEL: E52 E43 G23 C22
    Date: 2019–12–05
  14. By: Andrés Erosa (Universidad Carlos III de Madrid); Beatriz González (Banco de España and Universidad Carlos III de Madrid)
    Abstract: The Hopenhayn and Rogerson (1993) framework is extended to understand how different forms of taxing capital income affect firms’ investment and financial policies over their life cycle. Corporate income taxation slows down firm growth over the life cycle by reducing after-tax profits available for reinvesting, and it distorts optimal firms’ size. Dividend income taxation reduces external equity financing, but it does not affect size at maturity. Capital gains taxes make firms start larger, so that internal growth is lower. With these mechanisms in mind, we calibrate our economy to the US and discuss different revenue-neutral tax reforms that might lead to increases in aggregate output and capital.
    Keywords: macroeconomics, capital income taxation, firm dynamics, investment
    JEL: D21 E22 E62 G32 H32
    Date: 2019–12
  15. By: Svetlana Popova (Bank of Russia, Russian Federation)
    Abstract: Recently, economic granularity has been the focus of researchers' attention. Latest empirical works evaluate the granularity of various economies in terms of whether shocks to individual companies can affect volatility of macroeconomic variables. Studies of developed countries show that a large part of aggregate fluctuations arises from idiosyncratic shocks to companies because of their size or close linkages between them. Using the microdata of Russian firms on sales over the period from 1999 to 2017, we test the hypothesis that the Russian economy is granular. Here we found that idiosyncratic shocks contribute significantly to total sales volatility. It was also revealed that the effect of linkages is more important in aggregate volatility estimation, but not for the top-100 largest firms. These findings are important for understanding business cycle drivers and for estimation the impact of macroeconomic policies.
    Keywords: firm-level dynamics, granular residuals, idiosyncratic shocks, aggregate fluctuations, industrial production.
    JEL: D20 E32 L14
    Date: 2019–09
  16. By: David Elliott; Ralf R. Meisenzahl; José-Luis Peydró; B.C. Turner
    Abstract: We show that credit supply effects and associated real effects of monetary policy depend on the size of nonbank presence in the respective lending market. Nonbank presence also alters how monetary policy affects the distribution of risk. For identification, we use exhaustive loan-level data since the 1990s and Gertler-Karadi (2015) monetary policy shocks. First, different from the literature showing that low monetary policy rates increase credit supply and risk-taking by banks, we find that higher monetary policy rates shifts credit supply for corporates, mortgages, and consumers shifts from regulated banks to less regulated, more fragile nonbanks. Moreover, this shift is more pronounced for ex-ante riskier borrowers. Second, nonbanks reduce the effectiveness of the bank lending channel of monetary policy at the loan-level. However, this reduction varies substantially across lending markets. Total credit and real effects are largely neutralized in consumer loans and the associated consumption, but not in corporate loans and investment.
    Keywords: Negative rates, non-standard monetary policy, reach-for-yield, securities, banks.
    JEL: E51 E52 G21 G23 G28
    Date: 2019–03
  17. By: Tanaka, Yasuhito
    Abstract: We show the existence of involuntary unemployment without assuming wage rigidity. Key points of our analysis are indivisibility of labor supply and increasing returns to scale. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations model under monopolistic competition with indivisibility of labor supply and increasing returns to scale technology.
    Keywords: involuntary unemployment, monopolistic competition, indivisible labor supply, increasing returns to scale
    JEL: E12 E24
    Date: 2019–12–03
  18. By: Moez Ben Hassine; Nooman Rebei
    Abstract: We analyze the effects of macroprudential policies through the lens of an estimated dynamic stochastic general equilibrium (DSGE) model tailored to developing markets. In particular, we explicitly introduce informality in the labor and goods markets within a small open economy embedding financial frictions, nominal and real rigidities, labor search and matching, and an explicit banking sector. We use the estimated version of the model to run welfare analysis under optimized monetary and macroprudential rules. Results show that although informality reduces the efficiency of macroprudential policies following a convex fashion, combining the latter with an inflation targeting objective could be beneficial.
    Date: 2019–11–27
  19. By: Reslow, André (Uppsala University and Sveriges Riksbank)
    Abstract: This paper assesses to what extent forecasters make efficient use of competitors' forecasts. Using a panel of forecasters, I find that forecasters underuse information from their competitors in their forecasts for current and next year's annual GDP growth and inflation. The results also show that forecasters increase the attention to their competitors as the forecast horizon decreases. In a model of noisy information with fixed target forecasts, I confirm the empirical results of underuse of competitors' information. I also extend the model to include a revision cost and show how this can explain the observed inefficiency and observed horizon dynamics. Using the same model framework, I also rule out overconfidence as the main explanation of the observed behavior.
    Keywords: Forecast Behavior; Efficient; Revision Cost; Forecast Smoothing; Overconfidence
    JEL: C53 D82 E17 E37
    Date: 2019–10–01
  20. By: Luisito Bertinelli; Olivier Cardi; Romain Restout
    Abstract: Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the sectoral composition effects of technology shocks biased toward the traded sector. Using a panel of seventeen OECD countries over the period 1970-2013, our VAR evidence reveals that a permanent increase in traded relative to non-traded TFP lowers the traded hours worked share by shifting labor toward the non-traded sector, and has an expansionary effect on the labor income share in both sectors. Our quantitative analysis shows that the open economy version of the neoclassical model can reproduce the reallocation and redistributive effects we document empirically once we allow for technological change biased toward labor together with additional specific elements. Calibrating the model to country-specific data, the model can account for the cross-country dispersion in the reallocation and redistributive effects we document empirically once we let factor-biased technological change vary across sectors and between countries. Finally, we document evidence which supports our hypothesis of factor-biased technological change as we find empirically that countries where capital-intensive industries contribute more to the increase in traded TFP are those where capital relative to labor efficiency increases.
    Keywords: Sectoral technology shocks, factor-augmenting efficiency, Open economy, Labor reallocation across sectors, CES production function, Labor income share
    JEL: E22 F11 F41 F43
    Date: 2019
  21. By: Nakajima, Makoto (Federal Reserve Bank of Philadelphia); Telyukova, Irina A. (Mulligan Funding)
    Abstract: Retired homeowners dissave more slowly than renters, which suggests that homeownership affects retirees’ saving decisions. We investigate empirically and theoretically the life-cycle patterns of homeownership, housing and nonhousing assets in retirement. Using an estimated structural model of saving and housing decisions, we find, first, that homeowners dissave slowly because they prefer to stay in their house as long as possible but cannot easily borrow against it. Second, the 1996-2006 housing boom significantly increased homeowners’ assets. These channels are quantitatively significant; without considering homeownership, retirees’ net worth would be 28-44 percent lower, depending on age.
    Keywords: Housing; Retirement Saving Puzzle; Mortgage; Health; Life cycle; Medical expenditure; Bequest
    JEL: D91 E21 G11 J26
    Date: 2019–12–09
  22. By: Breinlich, Holger (University of Surrey); Leromain, Elsa (UC Louvain); Novy, Dennis (University of Warwick and CAGE, Department of Economics); Sampson, Thomas (London School of Economics)
    Abstract: This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after there ferendum, inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0.29. We estimate the Brexit vote increased consumer prices by 2.9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.
    Keywords: Brexirt ; Exchange Rate Pass-through ; Import Costs ; Inflation
    JEL: E31 F15 F31
  23. By: Stephen S. Poloz
    Abstract: This paper discusses three long-term forces that are acting on the global economy and their implications for companies and policy-makers: * the transition in geopolitics away from a global order based on international co-operation, or “deglobalization”; * the spread of new technology, particularly artificial intelligence, through the “fourth industrial revolution”; and * the steady buildup of debt—public and private—in most countries. Deglobalization leads to reduced investment and the deconstruction of global value chains, which will reduce global potential economic growth and living standards. The fourth industrial revolution will foster a period of stronger productivity growth and low inflation, accompanied by significant labour market disruptions. High and growing debt levels raise a range of risks associated with financial vulnerabilities. As well, the coincident rise in populism with doubts about the value of central bank independence risks an alignment of incentives between governments and highly indebted households, favouring a return to inflationary policies in the future. The paper concludes with a list of inferences and long-term policy implications. It was developed from a talk first delivered at the Spruce Meadows Changing Fortunes Round Table in Calgary, Alberta, in September 2019.
    Keywords: Financial stability; International topics; Monetary Policy; Trade Integration; Uncertainty and monetary policy
    JEL: E63 F02 F15 F53 F6 H O11 O33
    Date: 2019–12
  24. By: International Monetary Fund
    Abstract: Implementation of the new SMP IV is satisfactory and the economic outlook is in line with expectations. The underlying growth momentum continues, supported by ongoing reforms; however, lower than expected rains in late 2018 and the first half of 2019 threatens Somalia’s already fragile food security and the UN has indicated that up to 2.1 million people face severe hunger through December 2019. The authorities are progressing on the HIPC Decision Point benchmarks, and these efforts must be sustained.
    Keywords: Balance of payments;National income;Economic indicators;Economic reforms;Economic growth;ISCR,CR,arrears,HIPC,FGS,Proj,test date
    Date: 2019–11–18
  25. By: Grodecka-Messi, Anna (Department of Economics, Lund University)
    Abstract: In this paper, a unique event is studied: the opening of Bank of Canada in 1935, the central bank note issuance monopoly and its impact on the note issuing chartered banks. Between 1935-1950, Canadian chartered banks had to gradually withdraw their notes from circulation. In a difference-in-differences analysis, I show that chartered banks constrained by new issuance limits experienced higher volatility of return-on-equity in the short run and lower Z-scores and return-on-assets in the longer horizon, suggesting that note issuance was an important source of revenue for private banks and allowed them to smooth the profits. The effect on lending is either non-significant or ambiguous. This study of central bank cash implementation can offer lessons for the current debates on a new form of central bank money - central bank digital currencies - and their potential impacts on commercial banks.
    Keywords: Banknote Monopoly; Banknote Issuance; Cash; Central Bank Digital Currencies; Double Liability; Canadian banks; Financial Stability; Bank of Canada
    JEL: E42 E50 G21 G28 N22
    Date: 2019–12–16
  26. By: Pedro Miguel Avelino Bação (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra); Sara Cerdeira (Statistics Portugal); António Manuel Portugal Duarte (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra)
    Abstract: At the time of joining the European Economic Community (precursor to the European Union) and the Eurozone, Portuguese agents were very optimistic about the level of development that the country would be able to achieve as a result of being a member of those economic areas. In this paper we describe the changes occurred in the Portuguese economy since joining the European Union and later the Eurozone. In addition, we provide estimates of the evolution of the expectations of Portuguese agents with respect to long-term real per capita GDP, based on a simple intertemporal macroeconomic model. Over the period under analysis, there was an impressive progress in standards of living. Before joining the euro, Portuguese agents were optimistic about long-term income. Expectations remained high until the onset of the debt crisis, at which time expectations collapsed. A slow recovery is visible in our estimates for the most recent years.
    Keywords: Development, Euro, European Union, Macroeconomic expectations, Portugal.
    JEL: E64 F43 F45 O19
    Date: 2019–11
  27. By: Hui Chen; Winston Wei Dou; Leonid Kogan
    Abstract: We introduce an information-based fragility measure for GMM models that are potentially misspecified and unstable. A large fragility measure signifies a GMM model's lack of internal refutability (weak power of specification tests) and external validity (poor out-of-sample fit). The fragility of a set of model-implied moment restrictions is tightly linked to the quantity of additional information the econometrician can obtain about the model parameters by imposing these restrictions. Our fragility measure can be computed at little cost even for complex dynamic structural models. We illustrate its applications via two models: a rare-disaster risk model and a long-run risk model.
    JEL: C52 D81 E32 G12
    Date: 2019–11
  28. By: Coman, Andra; Lloyd, Simon P.
    Abstract: We examine whether emerging market prudential policies help to reduce the macrofinancial spillover effects of US monetary policy. We find that emerging markets with tighter prudential policies face significantly smaller, and less negative, spillovers to total credit from US monetary policy tightening shocks. Loan-to-value ratio limits and reserve requirements appear to be particularly effective prudential measures at mitigating the spillover effects of US monetary policy. Our findings indicate that domestic prudential policies can dampen emerging markets’ exposure to US monetary policy and the associated global financial cycle, even when accounting for capital controls, suggesting they may be a useful tool in the face of international macroeconomic policy trade-offs. JEL Classification: E52, E58, E61, F44
    Keywords: international spillovers, local projections, monetary policy, policy interactions, prudential policy
    Date: 2019–12
  29. By: Fei Han; Emilia M Jurzyk; Wei Guo; Yun He; Nadia Rendak
    Abstract: High household indebtedness could constrain future consumption growth and increase financial stability risks. This paper uses household survey data to analyze both macroeconomic and finanical stability risks from the rapidly rising household debt in China. We find that rising household indebtedness could boost consumption in the short term, while reducing it in the medium-to-long term. By stress testing households’ debt repayment capacity, we find that low-income households are most vulnerable to adverse income shocks which could lead to signficant defaults. Containing these risks would call for a strengthening of systemic risk assessment and macroprudential policies of the household sector. Other policies include improving the credit registry system and establishing a well-functioning personal insolvency framework.
    Date: 2019–11–27
  30. By: Iman Cheratian (Economics Research Group, Academic Center for Education, Culture, and Research (ACECR), Tarbiat Modares University (TMU)); Mohammad Reza Farzanegan (Philipps-Universitaet Marburg); Saleh Goltabar (Economics Research Group, Academic Center for Education, Culture, and Research (ACECR), Tarbiat Modares University (TMU))
    Abstract: We examine the effects of oil price shocks on unemployment rates in the MENA oil-exporting and oil-importing countries over the period 1991-2017. Using the nonlinear autoregressive distributed lag (NARDL) model, the results show that in the short-run, the positive changes of oil prices only exert a positive (increasing) impact on the unemployment rate for oil-exporting countries. However, in the long-run, positive changes in oil prices have a significant increasing effect on the unemployment rate for oil-exporting and oil-importing countries in the MENA region. We also find that the negative changes in oil prices do not show a significant effect on the unemployment rate. Our findings are in line with predictions of the Dutch disease hypothesis.
    Keywords: Oil price shocks, Unemployment rate, MENA region, NARDL
    JEL: Q43 E24
    Date: 2019
  31. By: International Monetary Fund
    Abstract: In the aftermath of Euromaidan revolution early 2014, the public demand for local selfgovernment and devolution of power, brought fiscal decentralization to the top of the reform agenda. As a result, a decentralization reform was introduced in late 2014, which helped to improve subnational government’s financial capacity, self-sufficiency, and flexibility. The reform resulted in an overall improvement of subnational government finances. Compared with 2014, own revenues of subnational governments increased, while current expenditure declined. This created additional space for capital expenditure, which almost doubled as a percent of GDP, from 2014 to 2016. Overall subnational governments recorded a combined surplus of 1.0 and 0.7 percent of GDP in 2015 and 2016, respectively. Despite these significant reforms and positive fiscal outcomes, Ukraine’s subnational finance system is still facing important challenges, which are described below, together with proposed measures to address them.
    Keywords: Fiscal policy;Treasury management;Tax policy;National budgets;Public finance;ISCR,CR,subnational,SNG,local budget,MTBF,expenditure responsibility
    Date: 2019–11–25
  32. By: International Monetary Fund
    Abstract: To strengthen the medium-term orientation of the budget, the authorities have committed to implement a full-fledged medium-term budget framework (MTBF) as part of their Public Financial Management Reform Strategy (2017–21). A pilot MTBF exercise was launched for the 2018 budget cycle, which will inform the roll-out of a more complete MTBF in 2019. The development of the MTBF has been supported by several FAD technical assistance missions in recent years, including in April this year. The 2018–20 draft Budget Declaration, submitted to the Cabinet of Ministers on June 1, is a major step forward in terms of establishing a medium-term orientation to budget planning. For the first time, important elements of a MTBF were included in the budget documentation, including the presentation of detailed medium-term macroeconomic and fiscal forecasts and expenditure ceilings for 2018–20.
    Keywords: Social security funds;Risk management;Financial statements;Fiscal policy;Fiscal space;ISCR,CR,SOEs,MTBF,KSU,cmu,medium-term
    Date: 2019–11–15
  33. By: Orsetta Causa; Nicolas Woloszko; David Leite
    Abstract: This paper produces new evidence and stylised facts on housing, wealth accumulation and wealth distribution, relying on an in-depth analysis of micro-based data on household wealth across OECD countries. The analysis addresses several questions: i) How is homeownership and housing tenure distributed across the population along various socio-economic characteristics such as income, wealth and age? What is the weight of housing in households’ balance sheets and how does this vary across socio-economic groups? ii) What is the incidence of mortgage debt across households and how does this vary across socio-economic groups? What is the impact of mortgage debt on access to homeownership and wealth accumulation, and on debt overburden and financial risks among vulnerable groups? iii) Is housing a vehicle for wealth accumulation? Can it be a barrier to residential mobility? iv) Is there a link between homeownership and wealth inequality? Between inequality in housing wealth and in total wealth? A key policy issue addressed in this paper is whether and how housing-related policies affect wealth distribution. Another important issue is whether housing-related policies raise potential trade-offs between equity, or inequality reduction, and other policy objectives such as employment and productivity growth as well as macroeconomic resilience. Informed by the stylised facts and existing evidence, this paper discusses preliminary policy implications of housing reform to promote inclusiveness and social mobility, to enhance efficiency in the allocation of labour and capital and to strengthen macroeconomic resilience.
    Keywords: household portfolio, housing, inequality, intergenerational wealth transfers, mobility, mortgage debt, progressivity, prudential regulation, taxes, wealth accumulation, wealth distribution
    JEL: D14 D31 D64 E21 G21 H24 J61
    Date: 2019–12–19
  34. By: Anne Hannusch
    Abstract: The employment rate of married women with and without pre-school children varies substantially across countries. To what extent can child-related transfers account for this variation? I develop a life-cycle model in which married couples jointly decide their labor supply, female human capital evolves endogenously, and some couples have access to grandparental childcare. I show that child-related transfers can explain most of the variation in the employment rates of married women, even after taking the labor income tax treatment and cross-country variation in childcare fees into account.
    Keywords: Maternal Labor Supply, Nonlinear Transfers, Taxation, Two-earner Households
    JEL: E62 H24 H31 J12 J22
    Date: 2019–08
  35. By: Senga, Christian; Cassimon, Danny; Kigabo, Thomas
    Abstract: This study investigates the influence of government borrowing through international capital markets on investment dynamics in Sub-Saharan Africa (SSA). We apply the synthetic control method to Gabon, Ghana and Senegal to assess whether this kind of government borrowing affects private, public and FDI in these countries using annual data for the period 1995-2017. Our results suggest that government and private investment have not been affected by governments’ borrowing through international capital markets, but that the move may have boosted these countries’ capacity to attract foreign direct investment. They lend support to the hypothesis that these countries’ exposure to international capital markets is an opportunity to register on the investors’ radar.
    Keywords: Sub-Saharan Africa; investment; synthetic control method
    JEL: E22 F21 F34 G15 O55
    Date: 2019–12
  36. By: Asmae EL GALLAA
    Abstract: Countercyclical markup is a leading hypothesis in representative agent models of macroeconomic fluctuations; however, substantial heterogeneity across firms is documented at the micro-level. I test this hypothesis using an extensive firm-level data on Belgian manufacturing firms covering the period 1996-2014. I measure a firm’s markup as the wedge between its output elasticity of material inputs and their share in revenues. Consistent with recent studies challenging the findings of countercyclical markups I find that, on average, firmlevel markups appear to be procyclical. However, firms’ markups appear to be procyclical or acyclical depending on their size, age, end-use of products, and technological intensity.
    Keywords: countercyclical markups, business cycles, production function estimation, materials share
    Date: 2018–08–01
  37. By: International Monetary Fund
    Abstract: The insurance sector in Malta is relatively large and sophisticated. The sector has grown significantly since Malta’s accession to the European Union (EU) in 2004, and its total assets amounted to €11.9 billion (105 percent of gross domestic product (GDP)) at end-2017. Its sophisticated structure is evidenced by the presence of four professional reinsurers, eight captive insurers, 14 protected cell companies (PCC), and one reinsurance special purpose vehicle (SPV). The life insurance and reinsurance industries are highly concentrated.
    Keywords: Financial crises;Financial regulation and supervision;Macroprudential policies and financial stability;Financial services;Economic conditions;ISCR,CR,MFSA,security sector,insurer,regulated entity,insurance group
    Date: 2019–11–21
  38. By: Jakub Rybacki
    Abstract: In the recent years, the great majority of central banks have globally failed to realize inflation targets. We attempt to answer a question of whether such failure resulted from insufficient organization of economic research in those institutions. Our study shows a positive, but statistically weak, relationship between these issues. However, the analysis finds also a few adverse irregularities in major central banks' research organizations. The research of the European Central Bank, Bundesbank, and the Bank of England are relatively less diversified compared to the U.S. Federal Reserve. In the cases of Poland and Italy, economic departments are dominated by groups of researchers focused on narrow topics. On the other hand, the organization of research departments in France and Canada support a greater variety of topics and independence of researchers.
    Keywords: groupthink, network analysis, central banks, big data
    JEL: E58 D02 I23
    Date: 2019–12
  39. By: Kozo Ueda
    Abstract: Consumers hold inventory for future uses. This study investigates how such intertemporal decisions influence the cost-of-living index (COLI). To this end, I construct a simple dynamic model, in which goods are storable and nonresalable, and prices take either high (regular price) or low values (sales). I then introduce two types of dynamic COLIs. Simulation results show that neither index satisfies both monotonicity and the time reversal test.
    Keywords: consumer inventory, cost-of-living index, price index
    JEL: C43 E31
    Date: 2019–12
  40. By: Burrell, Hamish (Tasmanian School of Business & Economics, University of Tasmania); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: This study establishes the first empirical evidence of the impact of economic uncertainty shocks on industry-level investment, output and employment in Australia. We find the Construction and Financial and Insurance Services industries are the most impacted by a shock to economic uncertainty. Statistically significant declines are observed for investment, output and employment in the Construction industry, and in terms of magnitude, the declines in output and employment are the largest across all industries studied. Likewise, the Financial and Insurance Services industry experiences declines across investment, output and employment, and undergoes the largest decline in investment in comparison to all other industries examined. Economic uncertainty explains the most substantial portion of the variation in Financial and Insurance Services investment and output, highlighting the detrimental effect it has on the Financial and Insurance Services industry. Furthermore, Health Care and Social Assistance output and Professional, Scientific and Technical Services investment experience considerable declines, and in contrast, Public Administration and Safety is shown to be the least impacted industry.
    Keywords: economic uncertainty, economic uncertainty shocks, SVAR, Australian economy, Australian industries
    JEL: C10 C32 E00 E30
    Date: 2019
  41. By: Ray C. Fair (Cowles Foundation, Yale University)
    Abstract: This paper discusses some macro links that are missing from trade models. A multicountry macroeconometric model is used to analyze the effects on the United States of increased import competition from China, an experiment that is common in the recent trade literature. In the macro story a fall in Chinese export prices is stimulative. Domestic prices fall, which increases real wage rates and real wealth, which increases household expenditures. In addition, the Fed may lower the interest rate because of the lower prices, which is stimulative. Trade models do not have these channels, and they likely overestimate the negative effects or underestimate the positive effects on total output and employment from increased Chinese import competition. They lack some important aggregate demand channels, which are not likely second order.
    Keywords: Trade models, Macroeconomics
    JEL: F1 F4
    Date: 2019–12
  42. By: Hamish Low; Richard Blundell; Ran Gu; Soren Leth-Petersen; Costas Meghir
    Abstract: We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss.
    Keywords: Lemons penalty, car market, estimated life-cycle equilibrium model
    JEL: D82 E21
    Date: 2019–12–06
  43. By: Chávez Granados, J. Luis
    Abstract: The addiction model shows that the decisions of individuals are rational and operate under dynamic patterns linked to time. Past beer consumption conditions present consumption and this, in turn, that of the future. This sequence has been called the social paradigm of choice. The empirical results allege that beer consumption in the Junin region is addictive; In addition, current consumption is more sensitive to past consumption than to the future, because the individual has an almost perfect forecast of the future (certainty). With regard to shocks, permanent short-term price drops from now on to cause contemporary beer consumption will increase by 351 ml; on the other hand, the long-term permanent price drops from the moment t allow said consumption to increase by 3,462 liters, ceteris paribus.
    Keywords: rationality, consumption, addiction
    JEL: D91 E21
    Date: 2019–12
  44. By: Santiago J. Gahn (Univeristà degli Studi di Roma Tre (IT)); Alejandro González
    Abstract: In a quarterly unbalanced panel of 24 developed and developing countries, direct survey measures of capacity utilisation rates are stationary, positively correlated with growth in the short run and uncorrelated with growth in the long run. We show how these stylised facts are related to the `convergence debate', i.e. the inability of actual capacity utilisation to converge to its normal or desired value in the long-run: In the baseline Neo-Kaleckian model, while trend capacity utilisation is not restricted, it should be positively correlated with growth in the long-run; in contrast, the Sraffian Supermultiplier where capacity utilisation converges to its long-run exogenous value implies utilisation is stationary and uncorrelated with growth in the long-run. Although both models' empirical predictions in the short-run are confirmed, our results reject the baseline Neo-Kaleckian model in favor of the Sraffian Supermultiplier in the long-run.
    Keywords: Neo-Kaleckian model, Supermultiplier, Capacity Utilisation, Stationary
    JEL: C22 E11
    Date: 2019–12
  45. By: International Monetary Fund
    Abstract: Mexico’s economy has exhibited resilience in the face of a complex external environment. The authorities have responded appropriately to the recent external shocks and demonstrated their commitment to macroeconomic stability. They also remain committed to maintaining very strong policies and policy frameworks going forward. Nevertheless, Mexico’s strong trade and financial links to the global economy, and in particular the United States, make it susceptible to changes in investor sentiment.
    Keywords: Financial regulation and supervision;Public debt;Financial crises;External sector;External shocks;ISCR,CR,FCL,mid-term review,strong policy,Proj,trade tension
    Date: 2019–11–25
  46. By: Jean-Bernard Chatelain (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, PSE - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE, INSEEC U. Research Center - ESCE International Business School, INSEEC U. Research Center)
    Abstract: This article presents an algorithm that extends Ljungqvist and Sargent's (2012) dynamic Stackelberg game to the case of dynamic stochastic general equilibrium models including forcing variables. Its first step is the solution of the discounted augmented linear quadratic regulator as in Hansen and Sargent (2007). It then computes the optimal initial anchor of "jump" variables such as inflation. We demonstrate that it is of no use to compute non-observable Lagrange multipliers for all periods in order to obtain impulse response functions and welfare. The algorithm presented, however, enables the computation of a history-dependent representation of a Ramsey policy rule that can be implemented by policy makers and estimated within a vector auto-regressive model. The policy instruments depend on the lagged values of the policy instruments and of the private sector's predetermined and "jump" variables. The algorithm is applied on the new-Keynesian Phillips curve as a monetary policy transmission mechanism.
    Keywords: forcing variables,new-Keynesian Phillips curve,Stackelberg dynamic game,augmented linear quadratic regulator,Ramsey optimal policy,algorithm
    Date: 2019–10–25
  47. By: Thomas F. Cooley; Espen Henriksen; Charlie Nusbaum
    Abstract: Since the early 1990’s the growth rates of the four largest European economies—France, Germany, Italy, and the United Kingdom—have slowed. This persistent slowdown suggests a low-frequency structural change is at work. A combination of longer individual life expectancies and declining fertility have led to gradually ageing populations. Demographic change affects economic growth directly through households savings and labor supply decisions and also growth indirectly through the pension systems and the need to fund them. Tax increases to balance budgets will impose additional distortions to individual factor-supply choices. We quantify the growth effects from aging and from the financing of public pensions, and we estimate the welfare gains from pension reforms.
    JEL: E6 O4 O52
    Date: 2019–11
  48. By: Javier Torres (Universidad del Pacífico); Alexandra Málaga (Universidad del Pacífico); Rodrigo Chang (Universidad del Pacífico)
    Abstract: We construct the largest fiscal transfers database for Peru (from 1999 to 2015) to analyze the relationship between government transfers and the economic cycle. Although most transfers of social programs behave independently of the economic cycle, two of the largest transfer programs to sub-national governments, FONCOMUN and Windfall & Royalties transfers, are clearly procyclical. They are earmarked to the national Value-Added tax revenue and to the corporate tax of extractive industries, respectively. These transfer rules could lead to scarcity of resources for sub-national governments during a drop in terms-of-trade induced recession.
    Keywords: Economic Cycle, Fiscal Transfers
    JEL: E32 H53 H77
    Date: 2019–12
  49. By: Ramirez-Rondan, N.R.; Terrones, Marco E.
    Abstract: There is a well-established literature that documents the failure of the uncovered interest parity (UIP) condition. While a host of factors have been examined as possible reasons behind this result, the role of uncertainty is not fully understood. In this paper, we examine the extent to which economic uncertainty affects the UIP condition in a sample of fourteen economies over the period 2003:1-2018:12. Using threshold panel regression models and exchange rate survey data, we find evidence that the UIP condition holds during low-uncertainty periods but does not during high-uncertainty periods. This finding is robust to the inclusion of other controls, different proxies of uncertainty, changes in the deposit maturity, and estimation method.
    Keywords: Exchange rates; uncertainty; panel threshold models.
    JEL: D80 E43 F31
    Date: 2019–12
  50. By: Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Bjørnskov, Christian (Aarhus University)
    Abstract: We ask whether, as many seem to think, corruption worsens, and judicial accountability improves, inequality, and investigate this empirically using data from 145 countries 1960–2014. We relate perceived corruption and de facto judicial accountability to gross-income inequality and consumption inequality. The study shows that corruption is negatively, and that judicial accountability is positively, related to both types of inequality. The estimates are particularly pronounced in democracies and arguably causal, as we find that the full effect only occurs after institutional stability has been established; The findings suggest that “unfair procedures” – corruption and deviations from judicial accountability – may benefit the economically worst off and worsen the situation of the economic elite.
    Keywords: Corruption; Inequality; Institutions; Accountability; Rent-seeking
    JEL: C31 D02 D31 D72 D73 E26
    Date: 2019–12–16
  51. By: International Monetary Fund
    Abstract: Malta’s institutional framework for macroprudential policy, formalized in 2014, is broadly in line with the IMF guidance for effective macroprudential policymaking. Amendments to the Central Bank of Malta (CBM) Act designated the CBM as the national macroprudential authority with clear objectives and the power to formulate and implement macroprudential policy and instruments. The CBM has a dedicated department to pursue its statutory macroprudential functions and various communication tools to ensure accountability and transparency. The Joint Financial Stability Board (JFSB) was also established in 2013 to ensure effective coordination with relevant agencies, especially the Malta Financial Services Authority (MFSA; the country’s microprudential authority), and to address potential policy conflicts. The CBM also works closely with European counterparts on cross-border coordination.
    Keywords: Financial crises;Macroprudential policies and financial stability;Financial institutions;Financial services;Financial systems;ISCR,CR,MFSA,CBM,data gap,non-bank,countercyclical
    Date: 2019–11–21
  52. By: Goutsmedt, Aurélien (Duke University); Sergi, Francesco; Guizzo, Danielle
    Abstract: This article explores Robert E. Lucas’s policy agenda and his engagement with the public debate between 1968 and 1987. It investigates how he interacted with the public debate by envisioning key principles of his macroeconomic theory and methodology, and how he promoted his policy agenda. An exploration of Lucas’s personal and professional archives sheds light on his participation in policy debates after the publication of his works, illustrating how Lucas built a discreet and cautious way of engaging with the public. Lucas did not envision an action plan, nor proposed a detailed program to implement his policy agenda. The article suggests that Lucas’s originality compared to his contemporaries was his belief on the ability of macroeconomics to scientifically devise binding policy rules that could be integrated in an economic constitution.
    Date: 2019–02–28
  53. By: Shahbaz, Muhammad; Ahmed, Khalid; Nawaz, Kishwar; Ali, Amjad
    Abstract: The paper takes up the case of gender build inequality and its potential repercussions on economic growth of Pakistan. Using cointegration and causality analysis, we explore the relationship between gender inequality and its macroeconomic determinants i.e. economic growth, financial development, trade openness and foreign direct investment. For the this purpose, we have applied the Bayer-Hanck combined cointegration approach to test the long-run relationship and Granger causality for causal links amid the variables on the most recent and extended time period data (1972-2013). The cointegration test results validate the long-run association among the underlying variables. We found economic growth and financial development ignite gender driven disparity. Whereas, trade openness and foreign direct investment found to reduce gender gap. The positive bidirectional causal link between economic growth and gender inequality portrays unhealthy socio-economic environment to reduce gender inequality in the country. The feedback effect exists between financial development and gender inequality.
    Keywords: Financial Development, Trade Openness, Gender Inequality, Pakistan
    JEL: E1
    Date: 2019–12–02
  54. By: Sebastiaan Wijsman
    Abstract: This paper presents a game-theoretical model on how revisions of the structural balance affect the implementation of the fiscal rules in the European Union (EU). The structural balance filters the nominal budget balance for influences of the economic cycle and is therefore expected to be a better indicator for fiscal discipline. However, its derivation requires assumptions and estimates on the cyclical influences and the structural balance is as a consequence revised frequently outside the governments’ control. This paper assesses how this affects the effectiveness of fiscal rules. We find that the lack of control over their compliance discourages governments to set compliant budgets. Furthermore, we find that enforcers ignore the structural balance’s value in their assessment of governments’ fiscal discipline. They are uncertain whether noncompliance is due to governments’ decisions or bad luck. As a result, undisciplined governments might be left unsanctioned, while sanctions might be imposed on disciplined governments. We assess our theoretical findings empirically using the European Commission’s national fiscal rules database. However, we do not find evidence that cyclically adjusted budget rules are less effective.
    Keywords: Structural balance, Stability and Growth Pact, Fiscal rules
    Date: 2019–02–28
  55. By: Gabriel Chodorow-Reich
    Abstract: Cross-sectional or panel studies have joined time series techniques as an important element in empirical macroeconomists' toolkit. The econometric best practices for these studies and their aggregate implications remain active topics of research. In this paper, I offer several pieces of advice for practitioners in this literature. I begin by casting regional analysis in a Rubin (1978) potential outcomes framework. This formalism clarifies three reasons why the estimated impact of a shock on a single region can differ from the aggregate effect of the shock: (i) contamination of the untreated areas through ``micro'' spillovers, (ii) these spillovers sum to an economically relevant magnitude, and (iii) national variables endogenously respond to national shocks but not to local shocks. I provide several examples to illustrate and discuss how economic theory can sometimes sign the spillovers and bound the difference between the regional and aggregate effects of the shock. I then turn to econometric issues including the choice of endogenous variable in a regional regression and whether or not to weight by population.
    JEL: E0 R0
    Date: 2019–11
  56. By: Goutsmedt, Aurélien (Duke University); Pinzón-Fuchs, Erich (Université Paris 1 Panthéon-Sorbonne); Sergi, Francesco; Renault, Matthieu
    Abstract: In 1976, Robert Lucas explicitly criticized Keynesian macroeconometric models for their inability to correctly predict the effects of alternative economic policies. Today, most contemporary macroeconomists and some historians of economics consider that the Lucas’s critique led forcefully to immediate disqualification of the Keynesian macroeconometric approach. This narrative is based on the interpretation of the Lucas Critique as a fundamental principle for economic reasoning that was (and still is) logically unquestionable. We consider that this narrative is problematic both in terms of historiography and of the effects that it can have in the field as a way of assigning importance and credit to particular macroeconomists. Indeed, the point of view of the Keynesian economists is missing despite the fact that they were the target of Lucas’s paper and that throughout the 1970s and 1980s they produced a fierce reaction against it. In this paper, we analyze the reactions by a broad set of authors (that we label as “Keynesians”) that disputed the relevance of the critique. In spite of their diversity in methodological, theoretical, and policy issues, these reactions were characterized by their common questioning of the empirical and practical relevance of the Lucas critique.
    Date: 2019–02–28
  57. By: International Monetary Fund
    Abstract: This Note analyzes laws, policies, and procedures for bank failure mitigation and resolution, and for preparation and management of a financial crisis in Malta. It addresses the supervision of bank recovery plans, early intervention when problems are identified, resolution planning, resolution funding, and deposit insurance. Until recently, Malta had no bank failures since the 1970’s; two banks have failed in the past two years, and these experiences are assessed.
    Keywords: Financial crises;Central banks;Macroprudential policies and financial stability;Financial services;Financial institutions;ISCR,CR,MFSA,DCS,ELA,CBM,insolvency
    Date: 2019–11–21
  58. By: , Shafenti; osman, Irwan ramli
    Abstract: This research discusses about the analysis of the role of sectoral credit and the impact of BI Rate in promoting economic growth in Indonesia with panel data method analysis. Researcher estimates this model by using the structure of stacked panel data and also uses observation period from 2011 to 2015. This panel data also consist of 16 sectors of the economy as the cross section dataset. The objectives of this study are to describe the role of sectoral credit and the impact of BI rate to the GDP In promoting economic growth. Based on fixed effect method by using eviews 9, all independent variables have positive and significant impacts to GDP growth partially and simultaneously. Through this study, researcher expects ministry of finance as the fiscal authority, central bank of Indonesia (monetary authority), and also financial services authority of Indonesia can form a synergy and continuous interaction in designing policies that have impacts on sustainable economic growth in Indonesia
    Date: 2018–05–30
  59. By: Rudolfs Bems (International Monetary Fund); Ayumu Ken Kikkawa (Sauder School of Business, University of British Columbia)
    Abstract: Global Value Chains have proliferated economic policy debates. Yet a key concept – trade in value added –is likely mismeasured because of sectoral aggregation bias stemming from reliance on inputoutput tables. This paper uses comprehensive firm-level data on both domestic and international transactions to study this bias. We find that sectoral aggregation leads to overstated trade in value added and, correspondingly, understated import content of gross exports. The economic magnitude of the estimated bias varies from moderate to large – at 2-5 p.p. of gross exports for Belgium and 17 p.p. for China. We study how the interplay between within-sector heterogeneities in firm import and export intensities and firm size determine the magnitude of the sectoral aggregation bias.
    Keywords: Global Value Chains, Input-Output tables, Aggregation Bias
    JEL: E01 F14 L14
    Date: 2019–11
  60. By: International Monetary Fund
    Abstract: Ukraine has made good progress over the past three years in implementing reforms to strengthen medium-term budget planning and improve the quality of public spending. Following amendments to the Budget Code in late 2018, a medium-term budget framework (MTBF) has been adopted. A Budget Declaration, covering 2020 to 2022 was submitted to Cabinet, outlining medium-term fiscal prospects and expenditure ceilings for key spending units. To strengthen accountability and spending outcomes, multi-year performance targets for programs were included in the Budget Declaration and spending reviews have been initiated in five ministries. Still, there are several technical aspects of MTBF implementation that, if not handled carefully, have the potential to undermine the effectiveness of these important reforms.
    Keywords: Fiscal policy;Price indexes;Budget estimates;Fiscal space;Budgetary process;ISCR,CR,medium-term,budget process,baseline,MTBF,KSU
    Date: 2019–11–25
  61. By: Itai Agur; Anil Ari; Giovanni Dell'Ariccia
    Abstract: We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank's tradeoff.
    Date: 2019–11–18
  62. By: Bryan T. Kelly; Asaf Manela; Alan Moreira
    Abstract: Text data is ultra-high dimensional, which makes machine learning techniques indispensable for textual analysis. Text is often selected—journalists, speechwriters, and others craft messages to target their audiences’ limited attention. We develop an economically motivated high dimensional selection model that improves learning from text (and from sparse counts data more generally). Our model is especially useful when the choice to include a phrase is more interesting than the choice of how frequently to repeat it. It allows for parallel estimation, making it computationally scalable. A first application revisits the partisanship of US congressional speech. We find that earlier spikes in partisanship manifested in increased repetition of different phrases, whereas the upward trend starting in the 1990s is due to entirely distinct phrase selection. Additional applications show how our model can backcast, nowcast, and forecast macroeconomic indicators using newspaper text, and that it substantially improves out-of-sample fit relative to alternative approaches.
    JEL: C1 C4 C55 C58 E17 G12 G17
    Date: 2019–11

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