nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒01‒20
146 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Is the negative interest rate policy effective? By Robert L. Czudaj
  2. Measuring the output gap, potential output growth and natural interest rate from a semi-structural dynamic model for Peru. By Castillo, Luis; Florián, David
  3. A Calibration of the Term Premia to the Euro Area By Eric McCoy
  4. A DSGE model for Fiscal Policy Analysis in The Gambia By DJINKPO, Medard
  5. The effectiveness of the counter-cyclical loan-to-value regulation: Generic versus sector-specific rules By Guangling Liu; Thabang Molise
  6. Macroeconomic Macroeconomic Effects of Credit Deepening in Latin America. By Carvalho, Carlos; Pasca, Nilda; Souza, Laura; Zilberman, Eduardo
  7. Helicopter Money: A Preliminary Appraisal By Agarwal, Samiksha; Chakraborty, Lekha
  8. Observing the Evolution in Macroeconomic Theory By Podshivalov, Georgii
  9. Forecasting Unemployment Rates with International Factors By Pincheira, Pablo; Hernández, Ana María
  10. Business cycle dynamics after the Great Recession: An extended Markov-Switching Dynamic Factor Model By Catherine Doz; Laurent Ferrara; Pierre-Alain Pionnier
  11. The Global Impact of Brexit Uncertainty By Tarek Alexander Hassan; Stephan Hollander; Laurence van Lent; Ahmed Tahoun
  12. The Signalling Channel of Negative Interest Rates By Oliver de Groot; Alexander Haas
  13. Incomplete Price Adjustment and Inflation Persistence By Marcelle, Chauvet; Insu, Kim
  14. Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry By Kyle F. Herkenhoff; Gajendran Raveendranathan
  15. Fiscal distress and banking performance: the role of macroprudential regulation By Hiona Balfoussia; Harris Dellas; Dimitris Papageorgiou
  16. Industry Impacts of Unconventional Monetary Policy By Eiji Goto
  17. Bank Monitoring and Liquidity in the Business Cycle By Minetti, Raoul; Cal, Qingqing; Di Pietro, Marco; Kokas, Sotirios
  18. Risk management for sovereign financing within a debt sustainability framework By Marialena Athanasopoulou; Andrea Consiglio; Aitor Erce; Angel Gavilan; Edmund Moshammer; Stavros A. Zenios
  19. Bank Risk-Taking in a Small Open Economy. By Pozo, Jorge
  20. Kontroversi Mata Uang Digital By Nizar, Muhammad Afdi
  21. Evolution of monetary policy frameworks in the post-crisis environment By Anna Samarina; Nikos Apokoritis
  22. Cross-Border flows and the effect of Global Financial shocks in Latin America. By Gondo, Rocío; Pérez, Fernando
  23. Requerimientos de encaje como instrumento de estabilidad financiera. By Cantú, Carlos; Gondo, Rocio; Martínez, Berenice
  24. GDP and Welfare: A spectrum of opportunity By Richard Heys; Josh Martin; Walter Mkandawire
  25. Output Gaps and Cyclical Indicator By Werner Roeger; Kieran Mc Morrow; Atanas Hristov; Valerie Vandermeulen
  26. Euro Area Fiscal Policy Changes: Stylised Features of the Past Two Decades By Cláudia Braz; Nicolas Carnot
  27. La comunicación de la política monetaria en los bancos centrales de América del Sur. By Castillo, Paul; Herrada, Rafael; Montoro, Carlos; Pérez, Fernando
  28. Decomposing the Societal Opportunity Costs of Property Crime By Compton, Andrew
  29. Shocks de precios internacionales bajo incertidumbre estocástica By Alarcon Gambarte, Samuel
  30. ¿Existe un tramo horizontal en nuestra curva de Phillips? Perú 2005-2017. By Barrera, Carlos
  31. Impact of Remittances from Nigerians in diaspora on Exchange rate Stability By Ilu, Ahmad Ibraheem
  32. Monetary Policy in an Era of Global Supply Chains By Shang-Jin Wei; Yinxi Xie
  33. Improving the Measure of the Distribution of Personal Income By Dennis Fixler; Marina Gindelsky; David Johnson
  34. The Intergenerational Dimension of Fiscal Sustainability By Pedro Arévalo; Katia Berti; Alessandra Caretta; Per Eckefeldt
  35. Global v. Local Methods in the Analysis of Open-Economy Models with Incomplete Markets By Oliver de Groot; C. Bora Durdu; Enrique G. Mendoza
  36. World Economy Summer 2019 - Global growth remains sluggish By Ademmer, Martin; Gern, Klaus-Jürgen; Hauber, Philipp; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
  37. Growth prospects and the trade balance in advanced economies By Belke, Ansgar; Elstner, Steffen; Rujin, Svetlana
  38. The Welfare Costs of Inflation By Luca Benati; Juan-Pablo Nicolini
  39. Assessing labor market conditions in Greece: a note By Salamaliki, Paraskevi
  40. Informal Employment By Jackson, Emerson Abraham
  41. Fiscal Illusion and Progressive Taxation with Retrospective Voting By Abatemarco, Antonio; Dell'Anno, Roberto
  42. Employment fluctuations in a dynamic model with long-term and short-term contracts By Matsue, Toyoki
  43. The Small Open Economy New-Keynesian Phillips Curve: Specification, Structural Breaks and Robustness. By Aquino, Juan
  44. An Analysis of the 2008 Global Financial Crisis: Was Quantitative Easing Appropriate? By Naape, Baneng
  45. Safe haven flows, natural interest rates and secular stagnation: Empirical evidence for euro area countries By Belke, Ansgar; Klose, Jens
  46. Deterministic Debt Cycles in Open Economies with Flow Collateral Constraints By Stephanie Schmitt-Grohé; Martín Uribe
  47. Money's Past is Fintech's Future: Wildcat Crypto, the Digital Dollar, and Citizen Central Banking By Hockett, Robert C.; Library, Cornell
  48. World Economy Spring 2019 - Reduced momentum in the world economy By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
  49. Technology, Intangible Assets and the Decline of the Labor Share By Mary O'Mahony; Michela Vecchi; Francesco Venturini
  50. Central banking in challenging times By Claudio Borio
  51. Ghana; 2019 Article IV Consultation; Press Release; Staff Report; and Statement by the Executive Director for Ghana By International Monetary Fund
  52. Has the ECB lost its mind ? By Christophe Blot; Paul Hubert
  53. Macroeconomic Policy Coherence for SDG 2030: Evidence from Asia Pacific. By Chakraborty, Lekha
  54. Mitigating the Gap between the Rich & the Poor: An Empirical Assessment of Key Trends & Drivers of Redistribution By Martin Larch; Philipp Mohl
  55. Can a reduction in credit card processing fees offset the effect of a hike in the minimum wage? By La, Jung Joo
  56. The perils of crossing borders: The financial constraints of Brazilian exporters during the 2009 Global Trade Collapse By Stella Mendes Carneiro; Marcio Issao Nakane
  57. Effects of Minimum Wage on Automation and Innovation in a Schumpeterian Economy By Angus C. Chu; Guido Cozzi; Yuichi Furukawa; Chih-Hsing Liao
  58. Capital Composition and the Declining Labor Share By Maya Eden; Paul Gaggl
  59. The Trade-Comovement Puzzle By Lukasz A. Drozd; Sergey Kolbin; Jaromir B. Nosal
  60. Effects of credit limit on efficiency and welfare in a simple general equilibrium model By Pham, Ngoc-Sang; Pham, Hien
  61. Forecasting energy commodity prices: a large global dataset sparse approach By Ferrari, Davide; Ravazzolo, Francesco; Vespignani, Joaquin
  62. Household Portfolios and Monetary Policy By Sarah Brown; Alexandros Kontonikas; Alberto Montagnoli
  63. Drawing Conclusions from Structural Vector Autoregressions Identified on the Basis of Sign Restrictions By Christiane Baumeister; James D. Hamilton
  64. Adaptive Trees: a new approach to economic forecasting By Nicolas Woloszko
  65. Capital Flows and Bank Risk-Taking. By Pozo, Jorge
  66. Inflation and Public Debt Reversals in Advanced Economies By Ichiro Fukunaga; Takuji Komatsuzaki; Hideaki Matsuoka
  67. Does Drawing Down the U.S. Strategic Petroleum Reserve Help Stabilize Oil Prices? By Lutz Kilian; Xiaoqing Zhou
  68. Cote d'Ivoire; Sixth Reviews Under the Arrangement Under the Extended Credit Facility and the Extended Arrangement Under the Extended Fund Facility, and Request for Extension and Augmentation of Access; Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for the Cote d’Ivoire By International Monetary Fund
  69. Adding rooms onto a house we love: Central banking after the Global Financial Crisis By Johnson, Juliet; Arel-Bundock, Vincent; Portniaguine, Vladislav
  70. Optimal Capital Taxation in an Economy with Innovation-Driven Growth By Ping-ho Chen; Angus C. Chu; Hsun Chu; Ching-chong Lai
  71. A Time-Varying Expectations Formation Mechanism By Bovi, Maurizio
  72. Did Tax Cuts and Jobs Act Create Jobs and Stimulate Growth? Early Evidence Using State-Level Variation in Tax Changes By Anil Kumar
  73. The economic forces driving FinTech adoption across countries By Jon Frost
  74. Exchange Rates and Consumer Prices: Evidence from Brexit By Breinlich, Holger; Leromain, Elsa; Novy, Dennis; Sampson, Thomas
  75. Inflation Targeting: Securing the Anchor By John C. Williams
  76. Is the Co-Movement Between Budget Deficit and Current Account Deficit Applicable to South Africa? By Naape, Baneng
  77. Population Aging, Credit Market Frictions, and Chinese Economic Growth By Michael Dotsey; Wenli Li; Fang Yang
  78. Challenges ahead for EMU monetary policy By Christophe Blot; Jérôme Creel; Paul Hubert
  79. Wage Growth and Inflation in Europe: A Puzzle? By Vizhdan Boranova; Raju Huidrom; Sylwia Nowak; Petia Topalova; Volodymyr Tulin; Richard Varghese
  80. Heterogeneity and Asset Prices: A Different Approach By Nicolae B. Gârleanu; Stavros Panageas
  81. World Economy Winter 2018 - Slower growth in the world economy By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
  82. Bimetallism and its discontents: cooperation and coordination failure in the empire’s monetary politics, 1549–59 By Volckart, Oliver
  83. German Economy Autumn 2019 - Germany at the brink of recession By Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Potjagailo, Galina; Wolters, Maik H.
  84. Rationally Inattentive Savers and Monetary Policy Changes: A Laboratory Experiment By Andrea Civelli; Cary Deck; Antonella Tutino
  85. An alternative framework for a textbook analysis of the money multiplier By Zinn, Jesse Aaron
  86. SFX Interventions, Financial Intermediation, and External Shocks in Emerging Economies. By Carrasco, Alex; Florián, David; Nivín, Rafael
  87. Public debt and growth in Italy:Analysis and policy proposals By Daniele, SCHILIRO'
  88. Republic of Georgia; Fifth Review Under the Extended Arrangement, Requests for Waivers of Nonobservance of Performance Criteria, Modification of Performance Criteria, and an Extension of the Arrangement and Rephasing of Access By International Monetary Fund
  89. Análisis de Sentimiento Basado en el Informe de Percepciones de Negocios del Banco Central de Chile By María del Pilar Cruz; Hugo Peralta; Bruno Ávila
  90. Company’s Performance and Its Determinants: A Study on Hup Seng Industries Berhad By Sim, Siew Pei
  91. World economic momentum peaks By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  92. World Economy Autumn 2019 - World economy picks up only slowly By Gern, Klaus-Jürgen; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
  93. Thoughts on a review of the ECB's monetary policy strategy By Christophe Blot; Jérôme Creel; Paul Hubert
  94. An Empirical Retrospect of the Impacts of Government Expenditures on Economic Growth: New Evidence from the Nigerian Economy By Stephen T. Onifade; SavaÅŸ Çevik; SavaÅŸ ErdoÄŸan; Simplice A. Asongu; Festus Victor Bekun
  95. The Effect of the Introduction of Online Cash Registers on Reported Turnover in Hungary By Gábor Lovics; Katalin Szõke; Csaba G. Tóth; Bálint Ván
  97. Effective Demand and Prices of Production: An Evolutionary Approach By Rotta, Tomas
  99. Secular stagnation and core-periphery uneven development in post-crisis eurozone By Alberto Botta; Ben Tippet
  100. Financial risk and its performance: A study on Apollo Food Holdings Berhad in Malaysia By Ling, Coco Siu Yin
  101. The Ends of 30 Big Depressions By Martin Ellison; Sang Seok Lee. Kevin Hjortshøj O’Rourke
  102. The Relationship Between Liquidity Risk and Internal and External Factors in TCL Corporation By Zulamir Hassani, Afdhal
  103. Innovation and Inequality from Stagnation to Growth By Angus C. Chu; Pietro Peretto
  104. Understanding SLL / US$ exchange rate dynamics in Sierra Leone using Box-Jenkins ARIMA approach By Jackson, Emerson Abraham
  105. The Elusive Quest for the Holy Grail of an Impact of EU Funds on Regional Growth By Jan Fidrmuc; Martin Hulényi; Olga Zajkowska
  106. Comparing forecast accuracy in small samples By Döhrn, Roland
  107. What is the Impact of Increased Business Competition? By Sonia Feliz; Chiara Maggi
  108. Jurisprudential Schizophrenia: On Form and Function in Islamic Finance By Shephard, Karen; Hamoudi, Haider Ala
  109. All Keynesian Now? Public Support for Countercyclical Government Borrowing By Barnes, Lucy; Hicks, Timothy
  110. No plant, no problem? Factoryless manufacturing and economic measurement By Diane Coyle; David Nguyen
  111. Coalition-Proof Risk Sharing Under Frictions By Harold L. Cole; Dirk Krueger; George J. Mailath; Yena Park
  112. Deregulation as a Source of China’s Economic Growth By Shiyuan Pan; Kai Xu; Kai Zhao
  113. Do Fiscal Rules Cause Fiscal Discipline Over the Electoral Cycle? By Kodjovi M. Eklou; Marcelin Joanis
  114. Technological Transitions with Skill Heterogeneity Across Generations By Rodrigo Adão; Martin Beraja; Nitya Pandalai-Nayar
  116. An Analysis of Internal and External Factors Affecting Jerasia Capital Berhad's Profitability Performance By Kah Kah, Chow
  117. World Economy Summer 2018 - Reduced world economic momentum By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  118. The euro area at the edge of the downturn : is there any room for manoeuvre ? By Christophe Blot; Bruno Ducoudre; Eric Heyer; Raul Sampognaro
  119. U.S. Monetary Policy Spillovers to GCC Countries: Do Oil Prices Matter? By Olumuyiwa S Adedeji; Erik Roos; Sohaib Shahid; Ling Zhu
  120. Welfare Implications of Non-unitary Time Discounting By Ohdoi, Ryoji; Futagami, Koichi
  121. Exchange Rate Volatility and Pass-Through to Inflation in South Africa By Ken Miyajima
  122. World Economy Autumn 2018 - Less even growth in the world economy with significant downside risks By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
  123. Recovering Investor Expectations from Demand for Index Funds By Mark L. Egan; Alexander MacKay; Hanbin Yang
  124. Corperate Governance and Performance of Delfi Group Limited By Mohd Yusof, Norsafinas
  125. German Economy Summer 2018 - German economy: Temporary slowdown, boom not over yet By Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Hauber, Philipp; Jannsen, Nils; Kooths, Stefan; Potjagailo, Galina; Wolters, Maik H.
  126. A Study of Relationship between Liquidity Risk with External and Internal Factors By Mohd Shafarin, Nur Aisyah
  127. Debt Is Not Free By Marialuz Moreno Badia; Paulo Medas; Pranav Gupta; Yuan Xiang
  128. Fiscal Policy, Devolution and Indian Economy. By Bhanumurthy, N.R.; Bose, Sukanya; Satija, Sakshi
  129. Audi AG’s Liquidity Risk and Corporate Governance By Lee, Mun Chen
  130. Assessing House Prices: Insights from "Houselev", a Dataset of Price Level Estimates By Jean-Charles Bricongne; Alessandro Turrini; Peter Pontuch
  131. Weltkonjunktur im Herbst 2019 - Weltkonjunktur belebt sich nur zögerlich By Gern, Klaus-Jürgen; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
  132. Macroprudential Policies and House Prices in Europe By Marco Arena; Tingyun Chen; Seung M Choi; Nan Geng; Cheikh A. Gueye; Tonny Lybek; Evan Papageorgiou; Yuanyan Sophia Zhang
  133. Sovereign Credit Ratings under Fiscal Uncertainty By Arno Hantzsche
  134. India’s entrepreneurship policy: Future tasks and vision By Koshy, Perumal
  135. German Economy Autumn 2018 - Germany's boom is maturing By Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Potjagailo, Galina
  136. "An Empirical Stock-Flow Consistent Macroeconomic Model for Denmark" By Mikael Randrup Byrialsen; Hamid Raza
  137. The Future of Oil and Fiscal Sustainability in the GCC Region By Tokhir N Mirzoev; Ling Zhu; Yang Yang; Tian Zhang; Erik Roos; Andrea Pescatori; Akito Matsumoto
  138. Protection without Protectionism? Foreign Investment Screening in Europe and the V4 Countries Today : A Comparative Analysis By Tamas Peragovics
  139. German Economy Spring 2018 - German economy closer to its limit By Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Hauber, Philipp; Jannsen, Nils; Kooths, Stefan; Potjagailo, Galina
  140. German Economy Winter 2018 - Upswing stretched to its limits: Acceleration only temporary By Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia; Potjagailo, Galina
  141. Economic Survey of the Caribbean 2019 By Alleyne, Dillon; Hendrickson, Michael; McLean, Sheldon; Oyolola, Maharouf; Pantin, Machel; Skerrette, Nyasha; Tokuda, Hidenobu
  142. A Reassessment of the Relation between Economic Growth and Maldistribution of Income By Clavijo-Cortes, Pedro; Robledo-Campo, Jacobo; Mendoza-Tolosa, Henry
  143. Rousseauvian Money By Hockett, Robert C.; Library, Cornell
  144. Fiscal Prudence for What? Analysing the State Finances of Karnataka. By Jacob, Jannet Farida; Chakraborty, Lekha
  145. German Economy Summer 2019 - German economy falters By Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia; Potjagailo, Galina
  146. Measuring the Impact of Free Goods on Real Household Consumption By Brynjolfsson, Erik; Collis, Avinash; Diewert, Erwin; Eggers, Felix; FOX, Kevin J.

  1. By: Robert L. Czudaj
    Abstract: This paper examines the effectiveness of the negative interest rate policy conducted by several central banks to stabilize economic growth and inflation exectations through the signaling channel. In doing so, we assess survey-based expectations data for up to 44 economies from 2002 to 2017 and analyze the impact of the adoption of a negative interest rate policy on expectations made by professionals based on a difference-in-differences approach. Our main ï¬ ndings are as follows: First, we show that the introduction of negative policy rates signiï¬ cantly reduces expectations regarding 3-month money market interest rates and also 10-year government bond yields. Second, we also provide evidence for a signiï¬ cantly positive effect of this unconventional monetary policy tool on GDP growth and inflation expectations. This implies that the negative interest rate policy appears to be effective in boosting economic growth and overcoming a deflationary spiral. Consequently, the effect of negative nominal interest rates on real interest rate expectations is also negative.
    Keywords: Expectations, Inflation, Monetary policy, Negative interest rates, Survey data
    JEL: E31 E43 E52
    Date: 2019–12
  2. By: Castillo, Luis; Florián, David (Banco Central de Reserva del Perú)
    Abstract: This paper uses a calibrated version of the Quarterly Projection Model (MPT, for its acronym in Spanish), a semi-structural dynamic model used by the Central Reserve Bank of Peru for forecasting and policy scenario analysis, to jointly estimate the output gap, potential output growth and natural interest rate of the Peruvian economy during the inflation targeting regime (between 2002 and 2017). The model is employed as a multivariate filter with a sophisticated economic structure that allows us to infer the dynamics of non-observable variables from the information provided by other variables defined ex ante as observable. As the results from the Kalman filter are sensible to the variables declared as observable, we use five groups of variables to be defined as such to build probable ranges for our estimates. The results indicate that the estimated output gap is large in amplitude and highly persistent while potential output growth is very smooth. Therefore, most of the variation in Peruvian economic activity during the inflation targeting regime can be attributed to the former. The estimation of the output gap also proves that monetary policy has been extensively responsive to this leading indicator of inflation. Meanwhile, the real natural interest rate is estimated to be considerable stable, averaging 1,6 percent in the sample with only a sharp decline to 1,3 percent during the financial crisis. The main finding of the paper, however, is that there has been a steady deceleration of potential output growth since 2012. A growth-accounting exercise proves that this trend follows mostly a reduction in total factor productivity (TFP) growth during the same time frame (although the drop of capital and labour contributions jointly explain almost a third part of average potential output growth slowdown between 2010-2013 and 2014-2017).
    Keywords: Potential output, Output gap, Natural Interest Rate, Kalman Filter, Peru
    JEL: C51 E32 E52
    Date: 2019–12
  3. By: Eric McCoy
    Abstract: Credit risk-free long-term interest rates can typically be decomposed into two components: expectations of the future path of the short-term policy rate and the term premium. Changes in term premium are considered to have been an important driver behind developments in long-term bond yields in recent years. As policy rates of major central banks approached their effective lower bound in the aftermath of the global financial crisis, their ability to provide the necessary degree of monetary stimulus using conventional policy measures became very limited. In this particular context, central banks had to move beyond conventional policy instruments and instead deploy a set of unconventional tools (such as large-scale asset purchase programs and forward guidance) that were tailored to target the longer-end of the yield curve. There is a growing body of empirical evidence suggesting that these unconventional measures turned out to be effective in compressing the term premium component of interest rates. This paper, after providing a definition of the term premium and a succinct overview of different ways to measure it, presents the empirical results obtained from calibrating a Gaussian affine term structure (GATSM) based term premia model to the euro area. In addition to discussing the GATSM model’s assumptions and specifications, it also describes the calibration algorithm employed, which is based on genetic algorithms. Thereafter, it provides some insight into the time profile of the euro area term premium in the post global financial crisis (GFC) era and in particular how it has evolved after key ECB policy decisions since 2008.
    JEL: E43 E44 E52 E58
    Date: 2019–09
  4. By: DJINKPO, Medard
    Abstract: The study investigates the effect of fiscal and monetary policies on domestic debt dynamics and provides fiscal rules useful to control domestic debt dynamics and maintain fiscal consolidation. Using a New-Keynesian model with the fiscal sector, this study analyses the contribution of government spending on aggregate demand measured by fiscal multipliers and the impact of tax adjustment on domestic debt dynamics. The findings indicate that while consumption and capital income tax have a stabilizing effect on domestic debt, labor income tax produces a weakly positive impact on domestic debt growth due to a higher fraction of Non-Ricardian households in the economy. The study provides a quantitative framework through a Bayesian estimation of steady-state tax rates as a benchmark to tax policy, aiming at mitigating fiscal distress without an adverse impact on output growth.
    Keywords: New-Keynesian model, Fiscal multipliers effect, Non-Ricardian household, Fiscal and monetary policy, Bayesian estimation
    JEL: C11 E62 E63
    Date: 2019–12–27
  5. By: Guangling Liu (Department of Economics, University of Stellenbosch); Thabang Molise (Department of Economics, University of Stellenbosch)
    Abstract: This paper considers the implications of the counter-cyclical loan-to-value (CcLTV) regulation in a setting where different types of borrowers from distinct sectors of the credit market co-exist. To identify the optimal policy design, we consider two macro-prudential policy regimes, nanely generic and sector-specific, and compare their effectiveness in enhancing financial and macroeconomic stability. The results show that both regimes are effective in this regard, especially when the economy is hit by financial and housing demand shocks. The effectiveness of both regimes is, however, shock-dependent. To enhance the effectiveness of CcLTV regulation, we argue that the regulator should consider borrowers' heterogeneity and the origin of the shocks, and tailor the CcLTV regulation according to the specific conditions of each sector of the credit market, rather than to the aggregate conditions. In this way, the regulator can directly target the specific sector or borrower type.
    Keywords: Macro-prudential policy, Counter-cyclical LTV regulation, DSGE, Financial stability, Household credit, Corporate credit
    JEL: E32 E37 E44 E51 G28
    Date: 2019
  6. By: Carvalho, Carlos (PUC Río); Pasca, Nilda (Banco Central de Reserva del Perú); Souza, Laura (Itaú-Unibanco); Zilberman, Eduardo (BCCH)
    Abstract: We augment a standard dynamic general equilibrium model with financial frictions, in order to quantify the macroeconomic effects of the credit deepening process observed in Latin America in the last decade - most notably in Brazil. In the model, a stylized banking sector intermediates credit from patient households to impatient households and entrepreneurs. Motivated by the Brazilian experience, we allow the credit constraint faced by households to depend on labor income. Our model is designed to isolate the effects of credit deepening through demand-side channels, and abstracts from potential effects of credit supply on total factor productivity. In the calibrated model, credit deepening generates only modest above-trend growth in consumption, investment, and GDP. Since Brazil has experienced one of the most intense credit deepening processes in Latin America, we argue that the quantitative effects that hinge on the channels captured by the model are unlikely to be sizable elsewhere in Latin America.
    Keywords: credit deepening; financial frictions; consignado credit; payroll lending
    JEL: E20 E44 E51
    Date: 2019–12
  7. By: Agarwal, Samiksha; Chakraborty, Lekha
    Abstract: Helicopter money is a monetary policy tool to boost spending levels in an economy experiencing low nominal demand, deflation and high debt to GDP ratio. It is the monetary financing of fiscal deficits, in a strict sense of “seigniorage”, in order to reach the inflation and the growth targets in the economy. We critically review in this paper how helicopter money is carried out through direct transfers to the public, or through a “fiscal stimulus” (tax cut or public expenditure boost). Helicopter drops are gaining relevance today in context of the non-efficaciousness of orthodox monetary policy tools like Quantitative Easing (QE) and the persistently low demand levels in the economies. However, the political economy determinants, the macroeconomic policy context and the fiscal-monetary policy linkages are crucial in the effective implementation of helicopter money and it is indeed challenging. When fiscal consolidation strategies adopt public expenditure compression rather than tax buoyancy to reach the rule-based fiscal policies and in turn its adverse consequences on economic growth - which has started showing up in growth downturn - a re-look into the plausible financing patterns of deficit and new monetary policy tools is refreshing.
    Keywords: Helicopter money, Quantitative easing, Demand, Fiscal stimulus
    JEL: C61 E2 E21 E52 E62
    Date: 2019
  8. By: Podshivalov, Georgii
    Abstract: The principal purpose of the given work is to summarize certain observations on the evolution of thought in macroeconomic theory with the original (rather than conventional) notation where appropriate. The observations are organized by topic and supplied with respective references.
    Keywords: Economic Though, Economic History, Macroeconomic Models, Models Derivation, Notation, Expectations, Growth, Consumption, Unemployment, Inflation, Random Walk Hypothesis, Money, Natural Rate
    JEL: B20 E12 E19 E21 E24 E31 E43 E49 E52
    Date: 2019–11–30
  9. By: Pincheira, Pablo; Hernández, Ana María
    Abstract: In this paper we study international linkages when forecasting unemployment rates in a sample of 24 OECD economies. We propose a Global Unemployment Factor (GUF) and test its predictive ability considering in-sample and out-of-sample exercises. Our main results indicate that the predictive ability of the GUF is heterogeneous across countries. In-sample results are statistically significant for Austria, Belgium, Czech Republic, Finland, France, Ireland, The Netherlands, Portugal, Slovenia, Sweden and United States. Robust statistically significant out-of-sample results are found for Belgium, Czech Republic, France, The Netherlands, Slovenia, Sweden and the United States. This means that the inclusion of the GUF adds valuable information to predict domestic unemployment rates, at least for these last seven countries.
    Keywords: Forecasting, unemployment, international factors, time-series models, out-of-sample comparison, nested models.
    JEL: C1 C12 C2 C22 C4 C49 C5 C52 C53 C6 E2 E24 E27 E3 E37 E6 E63 F0 F00 F3 F36 F37 F6 F62 F66 J0 J00 J01 J08 J6 J60 J64
    Date: 2019–12–28
  10. By: Catherine Doz (Paris School of Economics); Laurent Ferrara (SKEMA Business School); Pierre-Alain Pionnier (OECD)
    Abstract: The Great Recession and the subsequent period of subdued GDP growth in most advanced economies have highlighted the need for macroeconomic forecasters to account for sudden and deep recessions, periods of higher macroeconomic volatility, and fluctuations in trend GDP growth. In this paper, we put forward an extension of the standard Markov-Switching Dynamic Factor Model (MS-DFM) by incorporating two new features: switches in volatility and time-variation in trend GDP growth. First, we show that volatility switches largely improve the detection of business cycle turning points in the low-volatility environment prevailing since the mid-1980s. It is an important result for the detection of future recessions since, according to our model, the US economy is now back to a low-volatility environment after an interruption during the Great Recession. Second, our model also captures a continuous decline in the US trend GDP growth that started a few years before the Great Recession and continued thereafter. These two extensions of the standard MS-DFM framework are supported by information criteria, marginal likelihood comparisons and improved real-time GDP forecasting performance.
    Keywords: Great Moderation, Great Recession, Macroeconomic Forecasting, Markov-Switching Dynamic Factor Model (MS-DFM), Turning-Point Detection
    JEL: C22 C51 E32 E37
    Date: 2020–01–16
  11. By: Tarek Alexander Hassan; Stephan Hollander; Laurence van Lent; Ahmed Tahoun
    Abstract: Using tools from computational linguistics, we construct new measures of the impact of Brexit on listed firms in the United States and around the world; these measures are based on the proportion of discussions in quarterly earnings conference calls on the costs, benefits, and risks associated with the UK's intention to leave the EU. We identify which firms expect to gain or lose from Brexit and which are most affected by Brexit uncertainty. We then estimate effects of the different types of Brexit exposure on firm-level outcomes. We find that the impact of Brexit-related uncertainty extends far beyond British or even European firms; US and international firms most exposed to Brexit uncertainty lost a substantial fraction of their market value and have also reduced hiring and investment. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expect negative direct effects from Brexit (the first moment) should it come to pass. Most prominently, firms expect difficulties from regulatory divergence, reduced labor mobility, limited trade access, and the costs of post-Brexit operational adjustments. Consistent with the predictions of canonical theory, this negative sentiment is recognized and priced in stock markets but has not yet significantly affected firm actions.
    JEL: D8 E22 E24 E32 E6 F0 G18 G32 G38 H32
    Date: 2020–01
  12. By: Oliver de Groot; Alexander Haas
    Abstract: Negative interest rates are a new (and controversial) monetary policy tool. This paper studies a novel signalling channel and asks whether negative rates can be 1) an effective and 2) an optimal policy tool. 1) We build a financial-friction newKeynesian model in which monetary policy can set a negative reserve rate, but deposit rates are constrained by zero. All else equal, a negative rate contracts bank net worth and increases credit spreads (the costly “interest margin” channel). However, it also signals lower future deposit rates, even with current deposit rates constrained, boosting aggregate demand and net worth. Quantitatively, we find the signalling channel dominates, but the effectiveness of negative rates depends crucially on three factors: i) degree of policy inertia, ii) level of reserves, iii) zero lower bound duration. 2) In a simplified model we prove two necessary conditions for the optimality of negative rates: i) time-consistent policy setting, ii) preference for policy smoothing.
    Keywords: Monetary policy, Taylor rule, Forward guidance, Liquidity trap
    JEL: E44 E52 E61
    Date: 2019–08
  13. By: Marcelle, Chauvet; Insu, Kim
    Abstract: This paper proposes a sticky inflation model in which inflation persistence is endogenously generated from the optimizing behavior of forward-looking firms. Although firms change prices periodically, their ability to fully adjust them in response to changes in economic conditions is assumed to be constrained due to the presence of managerial and customer costs of price adjustment. In essence, the model assumes that price stickiness arises from a combination of staggered contracts as in Calvo (1983) as well as quadratic adjustment cost as in Rotemberg (1982). We estimate the model using Bayesian techniques. Our findings strongly support both sources of price stickiness in the U.S. data. The model performs well in matching microeconomic evidence on price setting, particularly regarding the size and frequency of price changes. The paper also shows how incomplete price adjustments in a staggered price contracts model limit the contribution of expectations to inflation dynamics: it generates the delayed response of inflation to demand and monetary shocks, and the observed correlation between inflation and economic activity.
    Keywords: Inflation Persistence, Phillips Curve, Sticky Prices, Convex Costs, Incomplete Price Adjustment, Infrequent Price Adjustment
    JEL: C68 E31 E52
    Date: 2019–12–04
  14. By: Kyle F. Herkenhoff; Gajendran Raveendranathan
    Abstract: How are the welfare costs from monopoly distributed across U.S. households? We answer this question for the U.S. credit card industry, which is highly concentrated, charges interest rates that are 3.4 to 8.8 percentage points above perfectly competitive pricing, and has repeatedly lost antitrust lawsuits. We depart from existing competitive models by integrating oligopolistic lenders into a heterogeneous agent, defaultable debt framework. Our model accounts for 20 to 50 percent of the spreads observed in the data. Welfare gains from competitive reforms in the 1970s are equivalent to a one-time transfer worth between 0.24 and 1.66 percent of GDP. Along the transition path, 93 percent of individuals are better off. Poor households benefit from increased consumption smoothing, while rich households benefit from higher general equilibrium interest rates on savings. Transitioning from 1970 to 2016 levels of competition yields welfare gains equivalent to a one-time transfer worth between 1.87 and 3.20 percent of GDP. Lastly, homogeneous interest rate caps in 2016 deliver limited welfare gains.
    JEL: D14 D43 D60 E21 E44 G21
    Date: 2020–01
  15. By: Hiona Balfoussia (Bank of Greece); Harris Dellas (University of Bern, CEPR); Dimitris Papageorgiou (Bank of Greece)
    Abstract: Fiscal fragility can undermine a government’s ability to honor its bank deposit insurance pledge and induces a positive correlation between sovereign default risk and financial (bank) default risk. We show that this positive relation is reversed if bank capital requirements in fiscally weak countries are allowed to adjust optimally. The resulting higher requirements buttress the banking system and support higher output and welfare relative to the case where macroprudential policy does not vary with the degree of fiscal stress. Fiscal tenuousness also exacerbates the effects of other risk shocks. Nonetheless, the economy’s response can be mitigated if macroprudential policy is adjusted optimally. Our analysis implies that, on the basis of fiscal strength, fiscally weak countries would favor and fiscally strong countries would object to banking union.
    Keywords: Fiscal distress; bank performance; optimal macroprudential policy;Greece; banking union
    JEL: E3 E44 G01 G21 O52
    Date: 2019–12
  16. By: Eiji Goto
    Abstract: While conventional monetary policy has been shown to create differential impacts on industry output, how unconventional monetary policy affects industries is not yet known. Conducting an industry level analysis provides insights of the relative response of industries, monetary transmission mechanisms, and the role of industry composition on the aggregate impact. This paper studies the effects of unconventional monetary policy on industry output in the United States, the United Kingdom, and Japan, three countries that have recently implemented unconventional monetary policy. I use a structural Bayesian vector autoregressive model with zero and sign restrictions to identify an unconventional monetary policy shock. The effects on output across industries within a country have substantial heterogeneity. For example, industry peak output responses in the United States vary from -0.01% to +0.35% in response to a one standard deviation shock to the central bank total asset. Industries across the three countries have some variation in output response to unconventional monetary policy, however, on average the effects are similar to conventional monetary policy. Furthermore, regression analysis shows that lower working capital is associated with a larger industry output response to unconventional monetary policy. The finding indicates the relevance of the interest rate channel to unconventional monetary policy while the policy rates adhere to the zero lower bound.
    JEL: E32 E52 G32
    Date: 2020–01–12
  17. By: Minetti, Raoul (Michigan State University, Department of Economics); Cal, Qingqing (Michigan State University, Department of Economics); Di Pietro, Marco (Sapienza University of Rome); Kokas, Sotirios (University of Glasgow)
    Abstract: This paper studies the interaction between bank monitoring and liquidity and its impact on business cycle transmission. We develop a dynamic general equilibrium model with endogenous loan monitoring and constrained banks in retail and wholesale liquidity markets. Liquidity shortages and loan portfolio values govern banks' monitoring incentives and productivity. Calibrating the model to U.S. data reveals that banks monitoring acts as a countercyclical attenuator of aggregate liquidity shocks but as an amplifier of capital shocks that erode loan portfolio values. Credit policies can temporarily dilute stabilizing effects of bank monitoring. The model predictions are broadly consistent with granular evidence on 200 U.S. banks over 1995-2015.
    Keywords: Bank monitoring; Liquidity constraints; Business cycles
    JEL: E32 E44 F44
    Date: 2020–01–09
  18. By: Marialena Athanasopoulou; Andrea Consiglio; Aitor Erce; Angel Gavilan; Edmund Moshammer; Stavros A. Zenios
    Abstract: The mix of instruments used to finance a sovereign is a key determinant of debt sustainability through its effect on funding costs and risks. We extend standard debt sustainability analysis to incorporate debt-financing decisions in the presence of macroeconomic, financial, and fiscal risks. We optimize the maturity of debt instruments to trade off borrowing costs with refinancing risk. Risk is quantified with a coherent measure of tail risk of financing needs, conditional Flow-at-Risk. A constraint on the pace of reduction of debt stocks is also imposed, and we model the effect of debt stocks on the yield curve through endogenous risk and term premia. On a simulated economy, we show that the cost-risk and flow-stock trade-offs embedded in issuance decisions are key determinants of the evolution of debt dynamics and are economically significant. Comparing three alternative optimizing strategies and some simple fixed-issuance rules, we also draw lessons on when and why optimizing matters the most. This depends on the risk tolerance level, the size, cost, and maturity of legacy debt, and the sensitivity of interest rates to debt. Our model quantifies thresholds for the minimum level of refinancing risks and the maximum pace of debt reduction that a sovereign could reach given its economic fundamentals. Going beyond those thresholds is only feasible through adjustments of gross financing needs, and an extension of the baseline model identifies the hot spots for these adjustments, computing their minimum size and optimal timing. Our findings inform policy decisions concerning both official sector borrowing and public finance, with a focus not only on minimizing interest payments but also on managing refinancing risks and increasing debt dynamics.
    Keywords: overeign debt, sustainability, debt financing, optimization, stochastic programming, scenario analysis, conditional Value-at-Risk, risk measures
    JEL: C61 C63 D61 E3 E47 E62 F34 G38 H63
    Date: 2018–10–11
  19. By: Pozo, Jorge (Banco Central de Reserva del Perú)
    Abstract: I develop an open economy model with banks facing foreign borrowing limits. The interaction of banks' limited liability and deposit insurance leads banks into socially excessive risk-taking, which involves credit volume and not the type of credit. The novel result is that, under a realistic calibration, a lower foreign interest rate reduces the excessive bank risk-taking. Since the foreign borrowing limit is binding, this lower rate does not boost banks' credit, but rather decreases it, since for a given capital the lower rate reduces the default probability of banks, which diminishes their risk-taking incentives. Through the same mechanism, a greater access to the international credit markets reduces the excessive risk-taking by banks. Hence, less banking regulation to achieve socially efficient risk-taking is required after a foreign rate reduction and a higher foreign borrowing limit.
    Keywords: Macroprudential policies, financial stability, monetary policy and bank risk-taking.
    JEL: E44 E52 F41 G01 G21 G28
    Date: 2019–12
  20. By: Nizar, Muhammad Afdi
    Abstract: This paper aims to examine the main points of the emergence of controversies regarding digital currencies. By using secondary data and qualitative-descriptive analysis, it was found that digital currency cannot replace the function of money as a medium of exchange, a store of value, and a unit of account. Digital currencies also cannot be used as investment instruments because their prices are volatile and have the potential to cause speculative bubbles. The treatment of countries against these currencies also varies. Of the 251 countries that are familiar with digital currencies, around 43% of them recognize digital currency as a legal tender, while the rest recognize it as a commodity, property, and barter goods.
    Keywords: medium of exchange, cryptocurrency, digital currency, legal tender, store of value, unit of account, money,
    JEL: C81 E42 E52 E58 G13 G15 G18 O31 O33
    Date: 2018–11–30
  21. By: Anna Samarina; Nikos Apokoritis
    Abstract: This paper evaluates the changes in monetary policy frameworks made by 14 central banks in advanced economies over the period 2007-2018. We draw several conclusions about the evolution of their monetary policy strategies. There has been a tendency among central banks to move towards more narrowly defined inflation targets and to lower the (mid)point of the target. Additionally, transparency and commitment of central banks have been enhanced, and monetary policy toolkit has been expanded.
    Keywords: advanced economies; monetary policy framework
    JEL: E52 E58
    Date: 2020–01
  22. By: Gondo, Rocío (Banco Central de Reserva del Perú); Pérez, Fernando (Banco Central de Reserva del Perú)
    Abstract: This work quantifies the effect of changes in global financial conditions on cross-border flows and domestic financial and macroeconomic variables for a group of countries in Latin America. Using the BIS database of international banking statistics, we consider heterogeneous effects of different types of international financing (credit from global banks to domestic banks and non-financial firms and bond issuance by non-financial firms), on the behavior of the domestic banking system and the transmission to the real economy through the link between bank credit, investment and output. Consistent with the implications from a DSGE model such as Aoki et al. (2018), our results show that an increase in foreign interest rates translate into lower external funding for banks and thus into lower credit growth and higher domestic interest rates. This effect is amplified through an exchange rate depreciation due to capital outflows. We find evidence of a larger drop in flows from global banks to domestic banks relative to those from global banks to non-financial firms. In terms of the real economy, we observe a reduction in GDP growth, although not significant, and an increase in inflation due to the pass through effect from the exchange rate to prices.
    Keywords: Panel Vector Autoregressions, Exogenous Block, Bayesian Estimation, Cross-Border flows.
    JEL: C23 E44 F21 F32
    Date: 2019–12
  23. By: Cantú, Carlos (Bank for International Settlements); Gondo, Rocio (Banco Central de Reserva del Perú); Martínez, Berenice (Bank for International Settlements)
    Abstract: Este trabajo analiza el costo-beneficio de usar requerimientos de encajes desde un objetivo de estabilidad financiera. Se estima los costos de un incremento de los requerimientos de encaje a través de su impacto en el crecimiento del crédito bancario y de la producción industrial usando un panel VAR. Luego, se estima los beneficios calculando la caída en la frecuencia e incidencia de episodios de estrés financiero en un modelo de alerta temprana. Se encuentra que los requerimientos de encaje son una herramienta efectiva para la estabilidad financiera. Las ganancias económicas de una menor probabilidad de crisis financiera más que compensan la reducción inicial en la actividad económica. Asimismo, se encuentra que los requerimientos de encajes son mayores en economías emergentes que en países avanzados. Finalmente, se muestra que una tasa de encaje uniforme o diferenciada por plazos tiene un efecto mayor, mientras que una tasa de encaje diferenciado por monedas podría estar respondiendo a otros objetivos tales como una reducción de la dolarización financiera.
    Keywords: reserve requirements, macroprudential policy, financial distress episodes, cost-benefit analysis
    JEL: E44 E58 F41 G01 G28
    Date: 2019–12
  24. By: Richard Heys; Josh Martin; Walter Mkandawire
    Abstract: Economic measurement is currently under debate as rarely before. Many authors have challenged the traditional approach to National Accounts, each with their own solution to better measuring the modern economy. Described by one eminent economist as ‘akin to a religious war’, the debate about which activities should be within the production boundary defining the scope of the National Accounts is an active one with strongly argued opposing positions. This paper is interested in two aspects in the debate: i) different users require different measures to address different policy problems and ii) changes in technology, data techniques and new sources of data mean the economic measurement community, and specifically National Statistics Institutes, are on the cusp of being able to affordably move from just measuring what the economy can produce to potentially measuring variables of wider interest, particularly economic welfare. As such, this paper attempts to map and prioritise the options available on a practical spectrum, which can be broadly broken into four segments; variants consistent with the current international guidance on national accounting (Current GDP), variants which could be seen as being in scope of potential future iterations of this guidance (Future GDP), variants which move beyond the likely future scope of national accounting, and which therefore stray into being welfare measures (Welfare), and finally the range of frameworks which capture multi-dimensional measures of wider human well-being beyond the economic (Well-Being).
    Keywords: welfare, official statistics, economic measurement, modern economy, capital, time use
    JEL: I31 E01 E21 E22
    Date: 2019–10
  25. By: Werner Roeger; Kieran Mc Morrow; Atanas Hristov; Valerie Vandermeulen
    Abstract: Questions have recently been raised on the usefulness of output gaps (which define the cyclical position of a country) for policymaking purposes. Whilst these questions are important in raising awareness concerning the uncertainty which inevitably surrounds an unobservable variable such as the output gap, we believe that the discussions are sometimes neglectful of the empirical evidence with respect to the performance of specific business cycle indicators. The current article therefore assesses the empirical performance of the most widely used business cycle indicators in output gap analysis, with a significant proportion of the recent criticism on the economic plausibility of output gaps drawing heavily on specific inflation indicators (such as headline or core inflation) or on indicators of external imbalances. The empirical evidence in this article shows that these inflation and external balance indicators do not perform well as indicators of the cycle and consequently should be used with caution by policy makers.
    JEL: E32
    Date: 2019–07
  26. By: Cláudia Braz; Nicolas Carnot
    Abstract: The paper provides a narrative of euro area fiscal policy changes since 1997, the year when Maastricht criteria were met for inception of the euro. Changes in the budget balance are decomposed into a discretionary component, a cyclical component and a net residual, with each component broken down in turn into broad categories of expenditure and revenues. The paper then examines the output effects of fiscal changes. We summarise our findings in six stylised features. In brief, fiscal changes and fiscal effects are relatively large. They stem in similar proportions from discretionary actions and from the automatic stabilisers. Discretionary changes tend to involve both revenue and expenditure measures and do not appear systematically driven by cyclical developments. Fiscal changes as a whole have contributed to smooth the euro area growth path, but mostly due to the automatic stabilisers.
    JEL: H6 H30 E32 E62
    Date: 2019–09
  27. By: Castillo, Paul; Herrada, Rafael; Montoro, Carlos; Pérez, Fernando (Banco Central de Reserva del Perú)
    Abstract: En las últimas dos décadas, los bancos centrales alrededor del mundo han venido realizando esfuerzos significativos para mejorar sus estrategias de comunicación y los bancos centrales de la región no han sido ajenos a este proceso. En este contexto de mejora, los principales canales de comunicación de política monetaria de la región son los comunicados o notas informativas asociadas a las decisiones de política monetaria y las declaraciones del gobernador del banco central. En la mayoría de estos casos, se ofrecen señales de futuros cambios en la política monetaria (forward guidance). Los principales retos a futuro en términos de comunicación para los bancos centrales de la región son: (i) la forma de comunicar a distintas audiencias; (ii) mejorar la comunicación con el público juvenil; (iii) contar con instrumentos formales para la evaluación y el diseño de la estrategia de comunicación; y (iv) mejorar la comunicación en el contexto de mayor innovación tecnológica y de una acelerada transformación digital.
    Keywords: Comunicación, Política Monetaria, Mercosur
    JEL: E52 E58 E61
    Date: 2019–12
  28. By: Compton, Andrew
    Abstract: In this paper, I explore how property crime can affect static and dynamic general equilibrium behavior of households and firms. I calibrate a model with a representative firm and heterogeneous households where households have the choice to commit property crime. In contrast to previous literature, I treat crime as a transfer rather than home production. This creates a feedback loop wherein negative productivity shocks increase property crime which further depresses legitimate work and capital accumulation. These responses by households are particularly important when thinking about the effect of property crime on the economy. Household and firm losses account for 24% of compensating variation (CV) and 37% of lost production. This suggests that behavioral responses are quite important when calculating the cost of property crime. Finally, on the margin, decreasing property crime by 1\% increases social welfare by 0.19%, but the effect is diminishing suggesting that reducing crime entirely may not be optimal from a policymakers perspective.
    Keywords: Crime, Welfare, Police, Public Goods, Business Cycles
    JEL: E26 E32 H41 K1
    Date: 2019–11–13
  29. By: Alarcon Gambarte, Samuel
    Abstract: Latin America has experienced a context of high volatility in its terms of trade during recent years. To analyze this phenomenon, a new way of modeling external prices that seeks to capture the uncertainty of the international market is provided. A stochastic dynamic general equilibrium model is constructed and estimated with data from Bolivia. Finally, a simulation is carried out introducing an export price shock and analyzing three different scenarios: Conventional, under persistence shock and variance shock. It is analyzed the macroeconomic mechanisms of transmission in the face of external shocks and how economic agents react to changes in uncertainty.
    Keywords: Macroeconomía de la Economía Abierta, Fluctuaciones y Ciclo Económico. Macroeconomics of the Open Economy, Fluctuations and Economic Cycle.
    JEL: E32 F4 F41
    Date: 2019–11
  30. By: Barrera, Carlos (Banco Central de Reserva del Perú)
    Abstract: Se considera si la existencia de un tramo relativamente horizontal en la curva de Phillips puede explicar un posible ‘aplanamiento’ de su versión lineal agregada en el caso del Perú. Se parte del modelo lineal semi-estructural para las ‘curvas’ de Phillips regionales propuesto por Fitzgerald & Nicolini (2014), donde la identificación del parámetro asociado a la brecha-producto en la ‘curva’ agregada es factible, a pesar de que las acciones compensatorias de política monetaria siguen una regla óptima. La versión no lineal de dicho modelo regional permite que la relación entre la inflación y la brecha producto cambie de manera continua, según el rango de variación de la brecha-producto, pudiendo suceder que la curva de Phillips regional contenga un tramo relativamente horizontal. La evidencia empírica (i) contradice la hipótesis de que el parámetro principal es nulo (que equivale a la hipótesis de que hay ‘aplanamiento’) en los modelos lineales y en el modelo no lineal que considera heterocedasticidad regional (no hay ‘aplanamiento’), y (ii) sólo el modelo no lineal que asume homocedasticidad regional favorece la existencia de un tramo horizontal (hay ‘aplanamiento’).
    Keywords: Política Monetaria Endógena, Estabilidad de la Curva de Phillips.
    JEL: E52 E58
    Date: 2019–12
  31. By: Ilu, Ahmad Ibraheem
    Abstract: This Paper delves into examining the impact of remittances flow on exchange rate stability for the period 1990-2018. In an attempt to realize the major objectives of the study various writers’ works on relevant topics were exhaustively reviewed. The study utilizes annual time series data for its analysis and data on Exchange rate Remittances inflow as percentage of GDP, FDI and Oil price were collected for the period under review. Autoregressive distributed lag (ARDL) model approach was applied to estimate long run and short run relationship among the aforementioned variables. Both the short run and long run levels result seems to be consistent with each other that remittances is positively and significantly related to exchange rate meaning it leads to depreciation of Naira while FDI and oil prices found to appreciate the value of the Naira. The error correction model of the analysis is correctly sign and significant with 84% speed of adjustment per annum.
    Keywords: Exchange rate, Remittances FDI, GDP, ARDL
    JEL: E50 E58 F24
    Date: 2019–10–31
  32. By: Shang-Jin Wei; Yinxi Xie
    Abstract: We study the implications of global supply chains for the design of monetary policy, using a small-open economy New Keynesian model with multiple stages of production. Within the family of simple monetary policy rules with commitment, a rule that targets separate producer price inflation at different production stages, in addition to output gap and real exchange rate, is found to deliver a higher welfare level than alternative policy rules. As an economy becomes more open, measured by the export share, the optimal weight on the upstream inflation rises relative to that on the final stage inflation. If we have to choose among aggregate price indicators, targeting PPI inflation yields a smaller welfare loss than targeting CPI inflation alone. As the production chain becomes longer, the optimal weight on PPI inflation in the policy rule that targets both PPI and CPI inflation will also rise. A trade cost shock such as a rise in the import tariff can alter the optimal weights on different inflation variables.
    JEL: E52 F4
    Date: 2020–01
  33. By: Dennis Fixler; Marina Gindelsky; David Johnson
    Abstract: With releases of GDP in the U.S., there are typically stories about the impact on inequality and the distribution of growth. The Financial Times stated: “What’s the matter with GDP?†suggesting that GDP is missing information about who gets the increase (Smith, July 2018). Interest has grown regarding the relationship between the distribution of aggregate growth and increase in inequality. This disconnect has been amplified during the past few years, fueled by the Great Recession. The recent rise in inequality, especially at the top of the distribution, has reinvigorated the effort to produce distributional measures. Along with the creation of the World Inequality Database and Piketty, Saez and Zucman (PSZ) (2018), new consistent measures of the distribution of the national accounts have been developed (see also Auten and Splinter (2018) and Zwijneneburg (2019)). As Kuznets (1955) stressed, a distribution of the national accounts is necessary to completely examine how economic growth, whose measures rely on national account statistics, is distributed. In earlier work at the Bureau of Economic Analysis (Fixler and Johnson (2014) and Fixler et al. (2017)), tried to develop a distribution of personal income using survey data. This paper uses survey data, tax records, and administrative data for 2007 and 2012 to improve the measures of the distribution. Supplementary data sources are particularly important for measuring the top income categories and accordingly, we adjust the Current Population Survey (CPS) data to reflect higher income households and estimate alternative measures of inequality. Though reducing the 90/10 ratio, the tail adjustment and inclusion of incomes from supplementary sources significantly raises top income shares and mean income compared to measures calculated using the internal CPS data alone.
    Keywords: Income distribution, National Income and Product Accounts
    JEL: C81 C82 D31 E01
    Date: 2019–08
  34. By: Pedro Arévalo; Katia Berti; Alessandra Caretta; Per Eckefeldt
    Abstract: Most countries, among which EU Member States, use public finances to redistribute resources from the working-age population to the old and the very young so as to smoothen resources over the life cycle of individuals. As the EU is confronted with population ageing, this societal model is facing challenges. This is particularly the case in light of public spending on pension and health care in the EU currently accounting for almost 20% of GDP and expected to remain major public spending items going forward. As such, and against the background of a rising dependency ratio, age-related public spending could lead to increasing tax burdens on future generations. This raises questions of intergenerational equity that cannot be measured by standard budgetary indicators, nor by traditional fiscal sustainability metrics (including the European Commission's fiscal sustainability gap indicators). Generational accounting allows calculating the present value of total net tax payments to the government (taxes paid minus transfers received) over the remaining lifetime of a cohort born in a specific year. Relying on harmonised data and the European Commission projections, including the Ageing Report, this paper estimates the lifetime fiscal burden and its distribution between current and future-born generations for all EU countries, disentangling the underlying determinants. Based on the generational accounts, two indicators measuring intertemporal and intergenerational imbalances are provided, the Intertemporal Budget Gap (IBG) and the AuerbachGokhale-Kotlikoff (AGK) indicators. The paper concludes that public finances in the EU face long-term fiscal sustainability challenges based on current policies and that there are intergenerational issues, entailing a larger adjustment for future generations.
    JEL: E62 H3 H5 H55 H6 I1 I3 J1 J21
    Date: 2019–09
  35. By: Oliver de Groot; C. Bora Durdu; Enrique G. Mendoza
    Abstract: Global and local methods are widely used in international macroeconomics to analyze inocomplete markets models. We study solutions for an endowment economy, an RBC model and a Sudden Stops model with an occassionally binding credit constraint. First-order, second-order, risky steady state (RSS), and DynareOBC solutions are compared v. xed-point-iteration global solutions in the time and frequency domains. The solutions differ in key respects, including measures of precautionary savings, cyclical moments, impulse response functions, financial premia and macro resposnse to credit constraints, and periodograms of consumption, foreign assets and net exports. The global method is easy to implement and fast albeit slower than local methods, except DynareOBC which is of comparable speed. These findings favor global methods except when prevented by the curse of dimensionality and urge creation when using local methods. Of the latter, first-order solutions are preferable because results are very similar to second-order and RSS methods.
    Keywords: Solution methods; Sudden Stops; Incomplete Markets; Precautionary savings; Occasionally binding constraints
    JEL: F41 E44 D82
    Date: 2019–11
  36. By: Ademmer, Martin; Gern, Klaus-Jürgen; Hauber, Philipp; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
    Abstract: Despite a temporary pick-up in world production at the start of the year, growth will continue to moderate amid a further deterioration in economic sentiment and elevated levels of uncertainty. We expect the global economy to expand at a rate of 3.2 percent this year, reflecting a downward revision by 0.1 percentage points compared to our March forecast. For 2020, we continue to see world production growing by 3.3 percent. At this pace of growth capacity utilization in advanced economies will decline, albeit from high levels, and since inflation will remain moderate, further monetary policy tightening has become unlikely. Instead, we expect central banks to adopt a looser stance in 2020. Economic policy uncertainty will likely remain high over the forecasting horizon. In particular, a further escalation of the trade conflict between the United States and China as well as its potential extension to the trade relationship with the European Union constitute significant downside risks to our outlook.
    Keywords: advanced economies,emerging economies,monetary policy
    Date: 2019
  37. By: Belke, Ansgar; Elstner, Steffen; Rujin, Svetlana
    Abstract: Does an improvement in growth prospects lead to a fall in the trade balance? The relevance of this question stems from the tendency for countercyclical fluctuations in the trade balance stressed by both the academic literature and policymakers. However, we do not find that improved growth prospects (news shocks) necessarily lead to negative trade balance effects in the G7 countries. We develop a novel news shocks identification scheme, apply it to country-level vector autoregressions (VARs), and obtain the following results. While in the U.S., news shocks induce a persistent deterioration of the trade balance, the negative trade balance effect in Germany is only temporary. By contrast, in other G7 countries, news shocks induce positive and transitory trade balance effects. Consumption smoothing and substantial fluctuations in investment and labor input are important drivers of these results for the U.S., and less so in other G7 countries. Therefore, policy recommendations to reduce the trade imbalances through productivity-enhancing reforms in advanced economies are likely to yield only temporary effects.
    Keywords: terms of trade,trade balance,news shocks,productivity,learning
    JEL: F41 E32 F32 D83 O40
    Date: 2019
  38. By: Luca Benati; Juan-Pablo Nicolini
    Abstract: We estimate the welfare costs of inflation originating from lack of liquidity satiation–as in Bailey (1956), Friedman (1969), Lucas (2000), and Ireland (2009)–for the U.S., U.K., Canada, and three countries/economic areas (Switzerland, Sweden, and the Euro area) in which interest rates have recently plunged below zero. We pay special attention to (i) the fact that, as shown by recent experience, zero cannot be taken as the effective lower bound (ELB); (ii) the possibility that, as discussed by Mulligan and Sala-i-Martin (2000), the money demand curve may become flatter at low interest rates; (iii) the functional form for money demand.; and (iv) what the most relevant proxy for the opportunity cost is. We report three main findings: (1) allowing for an empirically plausible ELB (e.g., -1%) materially increases the welfare costs compared to the standard benchmark of zero; (2) there is nearly no evidence that at low interest rates money demand curves may become flatter: rather, evidence for the U.S. (the country studied by Mulligan and Sala-i-Martin (2000)) clearly points towards a steeper curve at low rates; and (3) welfare costs are, in general, non-negligible: this is especially the case for the Euro area, Switzerland, and Sweden, which, for any level of interest rates, demand larger amounts of M1 as a fraction of GDP. For policy purposes the implication is that, ceteris paribus, inflation targets for these countries should be set at a comparatively lower level.
    Date: 2019–12
  39. By: Salamaliki, Paraskevi
    Abstract: This note uses 18 labor market variables and a dynamic factor model to construct labor market conditions indicators (LMCI) for Greece. The indicators capture common movements among the labor market series and assess improvement of the labor market across a number of dimensions. LMCI changes indicator was deteriorated during the crisis, yet it rebounded back to positive values in late 2013, with speed of improvement being on average much higher compared to the pre-2009 period. Speed of improvement was weakened in early 2015, a period associated with increased political and economic uncertainty. Level LMCI indicator re-exceeded its long-run average 7 years after beginning of the crisis, while its current level is far below levels for the entire sample until 2008. The unemployment rate is found to understate the deterioration and the improvement in labor market conditions in the pre-crisis and the post-crisis period, respectively.
    Keywords: Labor market conditions index, dynamic factor model, unemployment rate, factors
    JEL: C32 C33 E24 E27
    Date: 2019–12–13
  40. By: Jackson, Emerson Abraham
    Abstract: The myth surrounding negative connotation of informal employment / informal economy work engagement is one that needs to be revisited as research ventures must be pursued in the direction of encouraging those engaged in it to feel quite elated about their boldness in becoming actively involved in economic development activities. Equally, sensitive approaches should be pursued in pursuance of government statutory obligations in addressing core services like expenditures connected with education and health for example, which can only be achieved through revenue raised from genuine contributions made by the workforce, be it through formal or informal work engagement.
    Keywords: Informal Economy, Underground Economy, Shadow Economy
    JEL: E23 E24 E26
    Date: 2019–11–15
  41. By: Abatemarco, Antonio; Dell'Anno, Roberto
    Abstract: We consider the tax progressivity decision of a rent‐maximizing government when voters’ perceptions of the tax price of public goods are biased by cognitive anomalies (i.e., fiscal illusion), and the electorate opts for re‐appointing or for dismissing the incumbent according to a retrospective voting logic. Given electoral and constitutional constraints, we show that the design of the tax system can be sensibly affected by fiscal illusion within the population of voters. Specifically, we find that (i) the tax system is more (less) progressive when taxes and public expenditures are perceived less (more), and (ii) an increase in the median voter’s income may positively or negatively affect tax progressivity depending on the nature (pessimistic or optimistic) of fiscal illusion. The impact of fiscal illusion on tax progressivity is validated by econometric analysis.
    Keywords: fiscal illusion; tax progressivity; median voter; cognitive anomalies
    JEL: D63 D72 E62 H23 H3
    Date: 2019–09–12
  42. By: Matsue, Toyoki
    Abstract: Fluctuations in employment are one of the central issues in the labor market literature and have been investigated in a number of empirical and theoretical studies. This study presents a dynamic framework that can analyze the economy in which long-term and short-term contracts coexist. The particular differences between long-term and short-term contracts are stickiness of employment adjustments and explicit employment duration. The simulation results show that the large short-term employment ratio and the high quit rate lead to the high variations in employment. Moreover, they indicate that the large adjustment cost and the long employment duration bring about decreased employment fluctuations.
    Keywords: employment dynamics; dynamic labor demand; labor market institutions; adjustment cost; employment duration
    JEL: D90 E24 J23 J32 J41
    Date: 2019–12–18
  43. By: Aquino, Juan (Banco Central de Reserva del Perú)
    Abstract: This paper empirically assesses the concern on whether the slope of the Phillips curve with respect to the output gap has decreased (i.e. the Phillips curve has “flattened”). We derive a generalized lag-augmented version of the New-Keynesian Phillips Curve for a small open economy (Galí and Monacelli, 2005) in order to specify a semi-structural estimation equation. For the Peruvian economy, such equation is estimated via the Generalized Method of Moments for the Inflation-Targeting regime (January 2002 - March 2019) and the post-crisis (January 2008 - March 2019) periods. We found that the slope parameter has remained stable for both estimation periods. Moreover, the expectation channel has gained more relevance for the post-crisis period, a result that is consistent with a lower persistence of inflation dynamics. Our results are also consistent with the presence of long run nominal homogeneity across estimation samples.
    Keywords: New-Keynesian Phillips curve, small open economy, Generalized Method of Moments.
    JEL: C22 C51 E31
    Date: 2019–12
  44. By: Naape, Baneng
    Abstract: This essay aimed to investigate the effects of Quantitative Easing (QE) on selected macroeconomic and financial variables. By means of a desktop approach, we find that QE1 had a strong, beneficial impact on the real economy through the banking sector whereas QE2 and QE3 had small positive or neutral effects on banks and life Insurers. Although QE did not close the gap left by the 2008 global financial crisis, it helped reduce the rate at which the crisis was rising and proved to be an effective crisis management tool. QE helps in the short run but weakens the economy in the long run. Hence, this calls for a complete clean-up of the financial sector and a new approach to monetary policy.
    Keywords: Quantitative Easing, Global Financial Crisis, economic downturn, Advanced Economies
    JEL: E5 G1 G14
    Date: 2019–12–15
  45. By: Belke, Ansgar; Klose, Jens
    Abstract: This article introduces a new measure to capture safe haven flows for twelve Euro area countries. Since those flows are suspected to alter the natural rate of interest, which is at the heart of the discussion whether certain countries face a period of secular stagnation, we estimate the natural rate including those flows explicitly. It is shown that adding this measure indeed changes the estimated natural rate and thus the degree of evidence of secular stagnation in various countries. It is found that the natural rate tends to decrease in countries with safe haven inflows and increases in countries with safe haven outflows.
    Keywords: safe haven,portfolio flows,natural interest rate,secular stagnation,Euro area member countries
    JEL: E43 F45 C32
    Date: 2019
  46. By: Stephanie Schmitt-Grohé; Martín Uribe
    Abstract: This paper establishes the existence of deterministic cycles in infinite-horizon open economy models with a flow collateral constraint. It shows that for plausible parameter configurations, the economy has a unique equilibrium exhibiting deterministic cycles in which periods of debt growth are followed by periods of debt deleveraging. In particular, three-period cycles exist, which implies by the Li-Yorke Theorem the presence of cycles of any periodicity and chaos. The paper also shows that deterministic cycles are absent in the Ramsey optimal allocation providing a justification for macroprudential policies even in the absence of uncertainty.
    JEL: E32 F38 F41 H23
    Date: 2020–01
  47. By: Hockett, Robert C.; Library, Cornell
    Abstract: I argue that crypto-currencies will soon go the way of the ‘wildcat’ banknotes of the mid-19th century. As central banks worldwide upgrade their payments systems, the Fed will begin issuing a ‘digital dollar’ that leaves no licit function for what I call ‘wildcat crypto.’ But the imminent change heralds far more than a shakeout in ‘fintech.’ It will also make possible a new era of what I call ‘Citizen Central Banking.’ The Fed will administer a national system of what I call ‘Citizen Accounts.’ This will not only end the problem of the ‘unbanked,’ it also will simplify monetary policy. Instead of working through private bank ‘middlemen’ that it hopes will lend QE money to borrowers during a downturn, the Fed will be able to do ‘helicopter drops’ directly into Fed Citizen Accounts. And rather than rely solely on interbank lending rate hikes or countercyclical capital buffering during periods of froth, the Fed will be able to impound money through the more ‘carrot-like’ measure of interest credited to those accounts. We are at last on the verge of establishing a true ‘Fed for the People.’
    Date: 2019–02–08
  48. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
    Abstract: The world economy has lost steam in the second half of the previous year and is likely to continue to expand at a subdued pace in 2019. Uncertainty regarding the trade conflicts with the US, the future relationship between the EU and the UK, and the extent of the slowdown of the Chinese economy continue to weigh on the global economy. Against this backdrop, global growth is likely to be curbed considerably compared to the previous two years. However, in light of continuously expansive monetary and fiscal policy we do not expect a sharp downturn. We project world economic growth at a rate of 3.3 percent both this and next year, after 3.7 percent in 2018. Despite this deceleration, capacity utilization is likely to remain elevated especially in advanced economies, and unemployment will continue to decline.
    Keywords: advanced economies,emerging economies,monetary policy
    Date: 2019
  49. By: Mary O'Mahony; Michela Vecchi; Francesco Venturini
    Abstract: We investigate the decline of the labor share in a world characterized by rapid technological changes and increasing heterogeneity of capital assets. Our theoretical model allows for these assets to affect the labor share in different directions depending on the capital-labor substitution/complementary relationship and the workers’ skill level. We test the predictions of our model using a large cross-country, cross-industry data set, considering different forms of tangible and intangible capital inputs. Our results show that, over the 1970-2007 period, the decline of the labor share has been mainly driven by technical change and Information and Communication Technology (ICT) assets, mitigated by increasing investments in R&D based knowledge assets. Extending to other forms of intangible capital from 1995 onwards, we find that intangible investments related to innovation increase the labor share while those related to the organisation of firms contribute to its decline, particularly for the low and intermediate skilled workers. Our results are robust to an array of econometric issues, namely heterogeneity, cross sectional dependence, and endogeneity.
    Keywords: labor shares, technological change, ICT capital, intangible capital
    JEL: C23 E24 E25 O33
    Date: 2019–10
  50. By: Claudio Borio
    Abstract: Since the Great Financial Crisis, central banks have been facing a triple challenge: economic, intellectual and institutional. The institutional challenge is that central bank independence - a valuable institution - has come in for greater criticism. This essay takes a historical perspective and draws parallels with the previous waxing and waning of central bank independence. It suggests that this institution is closely tied to globalisation, as both spring from the same fountainhead: an intellectual and political environment that supports an open system in which countries adhere to the same principles and governments remain at arm′s length from the functioning of a market economy. This suggests that the fortunes of independence are also tied to those of globalisation. The essay then proceeds to explore ways that can help safeguard independence. A key one is to narrow the growing expectations gap between what central banks are expected to deliver and what they can actually deliver. In that context, it also considers and dismisses the usefulness of recently proposed schemes that involve controlled deficit monetisation.
    Keywords: central bank independence, globalisation, business cycles, fiscal dominance
    JEL: E5
    Date: 2019–12
  51. By: International Monetary Fund
    Abstract: The ECF-supported program was completed successfully in March. Since then, the authorities have maintained macroeconomic stability, building on the achievements of the last years. Growth remains strong and inflation is well within the target band. However, while the fiscal stance has improved in recent years, it continues to put pressure on the external position and has not completely offset the impact of contingent liabilities on public debt, which continues to rise. Given Ghana’s history of budget cycles, the 2020 election will be a key test of the authorities’ continued commitment to fiscal discipline. Ghana is now under Post-Program Monitoring.
    Date: 2019–12–18
  52. By: Christophe Blot (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques)
    Abstract: This Policy brief analyses the recent expansionary decisions of the ECB in September 2019, which are now under scrutiny and have even been criticized. ■ Recent facts confirm the need of an expansionary monetary policy, as inflation expectations are still decreasing and credit remains weak. ■ We pay a special attention to the three types of risk evoked in the public debate. ■ First, it has been argued that low interest rates could increase the households saving rate due to an income effect. We show that this does not materialize on recent data. We observe such a correlation only for Germany, and this already before 2008, casting some doubt on the direction of the causality. ■ Second, it is argued that the banks' profits are at risk because of low interest rates. We show that banks' profits are steady and are recovering since 2012, and that the new measures are not expected to have a negative effect on bank's profits. ■ Third, using a macro-finance assessment of financial imbalances, we do not observe the emerging of bubbles on housing and stock market. ■ Although the downside should be carefully analysed, we conclude that the critics of the recent expansionary monetary policy does not rely on sound evidence. ■ Finally, and in any case, a fiscal expansion would reduce the need for expansionary policies. A discussion of the euro area fiscal stance is needed.
    Date: 2019–12
  53. By: Chakraborty, Lekha (National Institute of Public Finance and Policy)
    Abstract: The paper analyses the macroeconomic policy coherence required for sustainable development goals (SDGs) in the context of Asia Pacific region. Specifically, the paper analyses the monetary, fiscal and structural policy reforms and suggest specific policy tools to integrate SDGs in macroeconomic policies. The analysis reveals that the transition of macroeconomic framework from `discretion' to `controlled discretion' and `rules' acts as a constraint to integrate SDGs into the policy framework. In the region, the monetary policy is increasingly focusing on inflation targeting, while the fiscal policy is based on the threshold rules of fiscal deficit-GDP ratio. Within these constraints of the macroeconomic framework, a few countries in the region have identified specific policy tools to integrate SDGs within a `beyond GDP paradigm'- in particular using the tools of accountability like gender budgeting, the climate responsive budgeting and the strategies for financial inclusion.
    Keywords: SDG ; Macroeconomic policy coherence ; Asia Pacific
    Date: 2020–01
  54. By: Martin Larch; Philipp Mohl
    Abstract: The growing inequality of market income has, in the recent past, attracted considerable attention; less so the redistribution of income. This paper analyses key trends and drivers determining the size of income redistribution across households. We show that in the EU increasing redistribution has largely stabilised the distribution of disposable income since the late 1990s. Only developing countries, where lagging income levels do not allow larger welfare programmes, and some advanced countries with a dominant free market ideology have recorded an increasing inequality of disposable income alongside a growing inequality of market outcomes. Our evidence from panel data shows that the degree of redistribution increases with percapita income, the share of low-tech, low-income sectors in manufacturing and, in line with the median voter model, when more than half of the voters earn less than the average income in countries with a majoritarian electoral system.
    JEL: O15 E62 H23
    Date: 2019–08
  55. By: La, Jung Joo
    Abstract: The objective of this study is to assess whether a reduction in credit card processing fees can offset the effect of a hike in the minimum wage by examining the unique case of South Korea. To do so, this study introduces a theoretical model with money and credit as the explicit means of payment. In particular, it develops a general equilibrium model with micro-foundations for dealing with the relationship between minimum wage increases and job automation, and takes a long-run approach in the quantitative analysis. Contrary to the existing literature, the study shows that a minimum wage hike negatively and significantly affects overall employment. The calibrated results show that a 13.6% hike in the minimum wage causes a 16.46% reduction in the demand for simple labor earning the minimum wage, and also decreases the demand for non-simple labor by 0.157%. In contrast, if a policy of reducing credit card processing fees is adopted to ease the negative effect of a hike in minimum wage on employment, a 0.65% reduction in these fees (derived by shifting the burden of interest on credit card debt from seller to buyer) results in a 0.09% decrease in the labor demand.
    Keywords: Hike in minimum wage; Reduction in credit card processing fee; Job automation
    JEL: E42 J23 J38
    Date: 2019–12–31
  56. By: Stella Mendes Carneiro; Marcio Issao Nakane
    Abstract: This paper explores the 2008–2009 Global Trade Collapse to estimate the effects of a credit supply shock on exporters’ investment decisions. Using a Brazilian firm-level dataset compiled by the Brazilian Internal Revenue Service (IRS) over the 2007–2013 period, we pair export-intensive firms with their domestically oriented counterparts. We subsequently calculate the differences in terms of the sensitivity of investment to cash flow between these two groups over the years. After controlling for the effect of international falling demand, our study reveals that exporters are more severely constrained than their peers in the control group only in 2009, when the supply of credit instruments to finance international trade decreased. Given their high need for external financing to support exporting activities and the volatility of the cost of trade finance, which is usually priced against the 3-month LIBOR, our results are in line with our expectations. A number of robustness and placebo tests confirm the validity of the findings.
    Keywords: credit constraints; international trade collapse; investment decisions
    JEL: G32 E22 E51
    Date: 2020–01–15
  57. By: Angus C. Chu; Guido Cozzi; Yuichi Furukawa; Chih-Hsing Liao
    Abstract: This study explores the effects of minimum wage on automation and innovation in a Schumpeterian growth model. We find that raising the minimum wage decreases the employment of low-skill workers and has ambiguous effects on innovation and automation. Specifically, if the elasticity of substitution between low-skill workers and high-skill workers in production is less (greater) than unity, then raising the minimum wage leads to an increase (a decrease) in automation and innovation. We also calibrate the model to aggregrate data to quantify the effects of minimum wage on the macroeconomy.
    Keywords: minimum wage, unemployment, innovation, automation
    JEL: E24 O30 O40
    Date: 2019–09
  58. By: Maya Eden; Paul Gaggl
    Abstract: To what extent can technological advances in the production of capital account for the recent, worldwide decline in the labor income share? We pose two challenges to the automation narrative: first, estimates of the elasticity of substitution (EOS) between capital and labor tend to fall below or around one, suggesting that a decline in the price of capital should not lead to a decline in the labor income share. Second, we illustrate that, despite technological improvements, the price of capital relative to output has remained roughly constant, worldwide. This poses a challenge to the view that cheaper capital has caused the displacement of workers. We show that a more nuanced approach, which takes seriously the composition of capital, ascribes a prominent role to the automation hypothesis. Though information and communications (ICT) capital is a small fraction of the capital stock, it is highly substitutable with labor, and its user cost declined sharply over the last few decades. A framework that distinguishes between ICT and non-ICT capital is empirically plausible and suggests that automation accounts for more than one quarter of the global decline in the labor share, even if the aggregate EOS is substantially less than unity.
    Keywords: technological change, labor share, ICT
    JEL: E25 E22 J24 J31 O33
    Date: 2019
  59. By: Lukasz A. Drozd; Sergey Kolbin; Jaromir B. Nosal
    Abstract: Standard international transmission mechanism of productivity shocks predicts a weak endogenous linkage between trade and business cycle synchronization: a problem known as the trade-comovement puzzle. We provide the foundational analysis of the puzzle, pointing to three natural candidate resolutions: i) financial market frictions; ii) Greenwood–Hercowitz–Huffman preferences; and iii) dynamic trade elasticity that is low in the short run but high in the long run. We show the effects of each of these candidate resolutions analytically and evaluate them quantitatively. We find that, while i) and ii) fall short of the data, iii) goes a long way toward resolving the puzzle.
    Keywords: trade-comovement puzzle; elasticity puzzle; trade elasticity; international comovement
    JEL: E32 F32 F41 F44
    Date: 2020–01–02
  60. By: Pham, Ngoc-Sang; Pham, Hien
    Abstract: We consider a simple general equilibrium model with two agents under the presence of financial market imperfections: agents can borrow to realize their productive project up to the level of debt whose repayment reaches a fraction of the project's value (so-called credit limit). After characterizing the whole set of equilibria, we investigate the connection between credit limit, (individual and social) welfare, and efficiency. We also compute the optimal credit limit which maximizes the social welfare function.
    Keywords: General equilibrium, credit limit, welfare, efficiency
    JEL: D5 E44 G10
    Date: 2019–08–05
  61. By: Ferrari, Davide (Free University of Bozen-Bolzano, Faculty of Economics and Management, Italy); Ravazzolo, Francesco (Free University of Bozen-Bolzano, Faculty of Economics and Management, Italy); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: This paper focuses on forecasting quarterly energy prices of commodities, such as oil, gas and coal, using the Global VAR dataset proposed by Mohaddes and Raissi (2018). This dataset includes a number of potentially informative quarterly macroeconomic variables for the 33 largest economies, overall accounting for more than 80% of the global GDP. To deal with the information on this large database, we apply a dynamic factor model based on a penalized maximum likelihood approach that allows to shrink parameters to zero and to estimate sparse factor loadings. The estimated latent factors show considerable sparsity and heterogeneity in the selected loadings across variables. When the model is extended to predict energy commodity prices up to four periods ahead, results indicate larger predictability relative to the benchmark random walk model for 1-quarter ahead for all energy commodities. In our application, the largest improvement in terms of prediction accuracy is observed when predicting gas prices from 1 to 4 quarters ahead.
    Keywords: energy prices, forecasting, Dynamic Factor model, sparse esti- mation, penalized maximum likelihood
    JEL: C1 C5 C8 E3 Q4
    Date: 2019
  62. By: Sarah Brown (Department of Economics, University of Sheffield, UK); Alexandros Kontonikas (Essex Business School, University of Essex, UK); Alberto Montagnoli (Department of Economics, University of Sheffield)
    Abstract: We show that expansionary monetary policy is associated with higher household portfolio allocation to high risk assets and lower allocation to low risk assets, in line with “reaching for yield” behaviour. Our findings are based on analysis of US household level panel data using two measures of monetary policy shifts over the period 1999-2007. We also show that the impact of monetary policy changes is stronger for active investors. In addition, our hurdle model estimates reveal that monetary shocks strongly affect the decision to hold high risk assets, but not the decision to hold low risk assets. Finally, our results highlight the role of self-reported risk attitudes as well as that of mortgage-holder status in affecting the response of household portfolios to monetary policy changes.
    Keywords: Household Financial Portfolio Allocation; Monetary Policy
    JEL: D14 G11 E52
    Date: 2020–01
  63. By: Christiane Baumeister; James D. Hamilton
    Abstract: This paper discusses the problems associated with using information about the signs of certain magnitudes as a basis for drawing structural conclusions in vector autoregressions. We also review available tools to solve these problems. For illustration we use Dahlhaus and Vasishtha's (2019) study of the effects of a U.S. monetary contraction on capital flows to emerging markets. We explain why sign restrictions alone are not enough to allow us to answer the question and suggest alternative approaches that could be used.
    JEL: C30 E5 F2
    Date: 2020–01
  64. By: Nicolas Woloszko
    Abstract: The present paper develops Adaptive Trees, a new machine learning approach specifically designed for economic forecasting. Economic forecasting is made difficult by economic complexity, which implies non-linearities (multiple interactions and discontinuities) and unknown structural changes (the continuous change in the distribution of economic variables). The forecast methodology aims at addressing these challenges. The algorithm is said to be “adaptive” insofar as it adapts to the quantity of structural change it detects in the economy by giving more weight to more recent observations. The performance of the algorithm in forecasting GDP growth 3- to 12-months ahead is assessed through simulations in pseudo-real-time for six major economies (USA, UK, Germany, France, Japan, Italy). The performance of Adaptive Trees is on average broadly similar to forecasts obtained from the OECD’s Indicator Model and generally performs better than a simple AR(1) benchmark model as well as Random Forests and Gradient Boosted Trees.
    Keywords: business cycles, concept drift, feature engineering, forecasting, GDP growth, interpretable AI, machine learning, short-term forecasts, structural change
    JEL: C01 C18 C23 C45 C53 C63 E37
    Date: 2020–01–16
  65. By: Pozo, Jorge (Banco Central de Reserva del Perú)
    Abstract: I build up a framework to study the dynamics of the default probability of banks and the excess bank risk-taking in an emerging economy. I calibrate the model for the 1998 Peruvian economy. The novelty result is that an infinity-period model creates an intertemporal channel that amplifies banks' incentives to take excessive risk. I simulate the sudden stop that hit Peru in 1998 as a negative shock on the foreign borrowing limit of banks. The model accurately predicts the substantial short-term rise in the morosity rate through the rise of the excess bank risk-taking after the sudden stop.
    Keywords: Sudden stop, bank risk-taking, prudential policy.
    JEL: E44 F41 G01 G21 G28
    Date: 2019–12
  66. By: Ichiro Fukunaga; Takuji Komatsuzaki; Hideaki Matsuoka
    Abstract: This paper quantitatively assesses the effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies using simulation and estimation approaches. The simulations based on the debt dynamics equation and estimations of impulse responses by local projections both suggest that a 1 percentage point shock to inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points. The results also suggest that the impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant. These results imply that modestly higher inflation, even if accompanied by some financial repression, could reduce public debt burden only marginally in many advanced economies.
    Date: 2019–12–27
  67. By: Lutz Kilian; Xiaoqing Zhou
    Abstract: We study the efficacy of releases from the U.S. Strategic Petroleum Reserve (SPR) within the context of fully specified models of the global oil market that explicitly allow for storage demand as well as unanticipated changes in the SPR. Using novel identifying strategies and evaluation methods, we examine seven questions. First, how much have exogenous shocks to the SPR contributed to the variability in the real price of oil? Second, how much would a one-time exogenous reduction in the SPR lower the real price of oil? Third, are exogenous SPR releases partially or fully offset by increases in private sector oil inventories and how does this response affect the transmission of SPR policy shocks? Fourth, how effective were actual SPR policy interventions, consisting of sequences of exogenous changes in the SPR, at lowering the real price of oil? Fifth, are there differences in the effectiveness of SPR emergency drawdowns and SPR exchanges? Sixth, how much did the creation and expansion of the SPR contribute to higher real oil prices? Finally, how much would selling half of the oil in the SPR, as recently proposed by the White House, lower the global price of oil (and hence the U.S. price of motor gasoline) and how much fiscal revenue would it generate?
    Keywords: SPR; crude oil; oil inventories; storage; expectations; policy intervention; fiscal policy
    JEL: Q38 Q43 E62
    Date: 2019–12–20
  68. By: International Monetary Fund
    Abstract: Political uncertainty has risen ahead of the 2020 presidential elections, after the ruling coalition between President Ouattara’s and former President Bédié’s parties ended in the summer of 2018. The authorities have requested a one-year program extension to provide an important stability anchor through 2020. The extension will help meet balance of payment needs, foster fiscal discipline, and sustain reforms, in turn helping support the West African Economic and Monetary Union’s external stability. Policies will center on preserving the program’s momentum, particularly adhering to the 3 percent of GDP budget deficit ceiling, preserving a moderate risk of debt distress and fostering private sector-led growth.
    Date: 2019–12–18
  69. By: Johnson, Juliet; Arel-Bundock, Vincent (Université de Montréal); Portniaguine, Vladislav
    Abstract: This article examines the extent to which central bankers have been willing and able to rethink their beliefs about monetary policy in the wake of the Global Financial Crisis. We show that despite the upheaval, the core pre-crisis monetary policy paradigm remains relatively intact: central bankers believe that they should primarily pursue price stability through targeting low inflation in a transparent manner, and that they need operational independence to achieve this goal. In a bid to address post-crisis conditions and maintain their credibility, however, central bankers have also layered new elements onto the old core. We document both the resilience of pre-crisis beliefs and the process of layering using computer-assisted text analysis and qualitative analysis of 13,586 speeches given between 1997 and 2017 by central bankers from around the world.
    Date: 2018–10–26
  70. By: Ping-ho Chen; Angus C. Chu; Hsun Chu; Ching-chong Lai
    Abstract: This paper investigates optimal capital taxation in an innovation-driven growth model. We examine how the optimal capital tax rate varies with externalities associated with R&D and innovation. Our results show that the optimal capital tax rate is higher when (i) the "stepping on toes effect" is smaller, (ii) the "standing on shoulders effect" is stronger, or (iii) the extent of creative destruction is greater. Moreover, the optimal capital tax rate and the monopolistic markup exhibit an inverted-U relationship. By calibrating our model to the US economy, we find that the optimal capital tax rate is positive, at a rate of around 11.9 percent. We also find that a positive optimal capital tax rate is more likely to be the case when there is underinvestment in R&D.
    Keywords: Optimal capital taxation, R&D externalities, innovation
    JEL: E62 H21 O31
    Date: 2019–09
  71. By: Bovi, Maurizio
    Abstract: We propose an expectations formation mechanism (EFM) aimed to explain the median – hence lay – forecaster’s year-ahead inflation predictions. The EFM is a time-varying combination of long-run expectations, current inflation and uncertainty with weights naively calibrated according to inflation dynamics. Earning fixed income, in fact, the median forecaster has an aversion toward underestimation that increases with inflation. To allow for occasional – albeit unintentional – cost-minimizing calibrations, the EFM nests various forecasting rules. Data from the Michigan Survey of Consumers sustains the argued behavior and contributes to interpret some puzzling price dynamics such as the missing disinflation and reflation.
    Keywords: Survey expectations, Inflation, Time-Varying Parameters
    JEL: C53 C83 E03
    Date: 2019–12
  72. By: Anil Kumar
    Abstract: The Tax Cuts and Jobs Act (TCJA) of 2017 is the most extensive overhaul of the U.S. income tax code since the Tax Reform Act of 1986. Existing estimates of TCJA’s economic impact are based on economic projections using pre-TCJA estimates of tax effects. Following recent pioneering work of Zidar (2019), I exploit plausibly exogenous state-level variation in tax changes and find that an income tax cut equaling 1 percent of GDP led to a 1 percentage point higher nominal GDP growth and about 0.3 percentage point faster job growth in 2018.
    Keywords: Taxes and Economic Growth; Tax Cuts and Jobs Act
    JEL: E62 H30
    Date: 2020–01–03
  73. By: Jon Frost
    Abstract: FinTech is being adopted across markets worldwide - but not evenly. Why not? This paper reviews the evidence. In some economies, especially in the developing world, adoption is being driven by an unmet demand for financial services. FinTech promises to deliver greater financial inclusion. In other economies, adoption can be related to the high cost of finance, a supportive regulatory environment, and other macroeconomic factors. Finally, demographics play an important role, as younger cohorts are more likely to trust and adopt FinTech services. Where FinTech helps to make the financial system more inclusive and efficient, this could benefit economic growth. Yet the market failures traditionally present in finance remain relevant, and may arise in new guises.
    Keywords: FinTech; digital innovation; financial inclusion; financial regulation
    JEL: E51 G23 O33
    Date: 2020–01
  74. By: Breinlich, Holger (University of Surrey); Leromain, Elsa (UC Louvain); Novy, Dennis (University of Warwick); 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 the referendum, 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.
    Date: 2019
  75. By: John C. Williams
    Abstract: Remarks at The Future of Inflation Targeting, Bank of England, London, U.K.
    Keywords: inflation; inflation targeting; expectations; monetary policy; transparency; accountability; r-star
    Date: 2020–01–09
  76. By: Naape, Baneng
    Abstract: The idea of the fiscal balance to have a statistically significant impact on the current account is known as the Twin deficits hypothesis, which this study seeks to investigate. We make use of annual macroeconomic data spanning from 1990 – 2017. Additionally, we utilise novel time-series cointegration techniques such as the ARDL Bounds and Granger causality analysis. From empirical tests, we find that a long-run relationship exists between budget deficit and current account deficit. Moreover, the real effective exchange rate, real interest rate and GDP are found to have a negative and statistically significant impact on the current account whereas the budget deficit, on the contrary, is found to have a positive and statistically significant impact on the current account deficit, at least in the short-run. Granger causality test indicates unidirectional causation from budget deficit to current account deficit, lagged one period. Given these findings, we fail to reject the Twin Deficits Hypothesis within the context of South Africa. The policy implication is for the government to fix its fiscus so as to improve the current account stance. This can be achieved through extended fiscal adjustments to bring expenditure in line with revenue, thereby stabilising debt.
    Keywords: Twin deficits, Ricardian equivalence, ARDL Bounds test, Granger causality
    JEL: A1 C5 E2 H6
    Date: 2019–08–30
  77. By: Michael Dotsey; Wenli Li; Fang Yang
    Abstract: We build a unified framework to quantitatively examine population aging and credit market frictions in contributing to Chinese economic growth between 1977 and 2014. We find that demographic changes together with endogenous human capital accumulation account for a large part of the rise in per capita output growth, especially after 2007, as well as some of the rise in savings. Credit pol-icy changes initially alleviate the capital misallocation between private and public firms and lead to significant increases in both savings and output growth. Later, they distort capital allocation. While contributing to further increase in savings, the distortion slows down economic growth. Among factors that we consider, increased life expectancy and financial development in the form of reduced inter-mediation cost are the most important in driving the dynamics of savings and growth.
    Keywords: Aging; Credit policy; Household saving; Output growth; China
    JEL: E21 J11 J13 L52
    Date: 2019–12–20
  78. By: Christophe Blot (Observatoire français des conjonctures économiques); Jérôme Creel (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques)
    Abstract: With the economic slowdown in the euro area, questions arise as to whether the ECB retains some economic and political margins for manoeuvre after a decade of active policies. In this note, we highlight three possible monetary policy developments. We discuss their pros and cons according to four dimensions: political constraints, technical constraints, independence and interactions with fiscal policy.
    Date: 2019–09
  79. By: Vizhdan Boranova; Raju Huidrom; Sylwia Nowak; Petia Topalova; Volodymyr Tulin; Richard Varghese
    Abstract: Wages have been rising faster than productivity in many European countries for the past few years, yet signs of underlying consumer price pressures remain limited. To shed light on this puzzle, this paper examines the historical link between wage growth and inflation in Europe and factors that influence the strength of the passthrough from labor costs to prices. Historically, wage growth has led to higher inflation, but the impact has weakened since 2009. Empirical analysis suggests that the passthrough from wage growth to inflation is significantly lower in periods of subdued inflation and inflation expectations, greater competitive pressures, and robust corporate profitability. Thus the recent pickup in wage growth is likely to have a more muted impact on inflation than in the past.
    Date: 2019–12–20
  80. By: Nicolae B. Gârleanu; Stavros Panageas
    Abstract: We develop a tractable asset-pricing framework characterized by imperfect risk sharing among cohorts, who experience different levels of integrated life-time endowments. While all asset-pricing implications stem from the heterogeneity of consumption among investors, cross-sectional measures of inequality are non-volatile, only weakly related to asset prices, and far more persistent than the price-to-dividend ratio. We show how to identify a marginal agent’s consumption growth in this framework by utilizing cross-sectional information. Our proposed notion of marginal-agent consumption growth exhibits different and more volatile low-frequency variation than the aggregate consumption growth per capita, which is normally used in representative agent models. These low frequency movements in our measure of marginal agent consumption growth can explain a large portion of the low frequency movements in real interest rates and, when combined with recursive preferences, can account quantitatively for the stylized asset-pricing facts (high market price of risk, equity premium, volatility, and return predictability).
    JEL: E21 G12
    Date: 2020–01
  81. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
    Abstract: World economic growth is moderating accompanied by a broad-based deterioration in economic sentiment. Following a temporary pick up in the second quarter, global activity slowed down significantly in the third quarter and sentiment indicators point towards a further deceleration towards the end of the year. Increased uncertainty from global trade conflicts and the tightening of monetary policy in the US that has put emerging economies under pressure have likely contributed to this development. We expect the global economy to expand at a rate of 3.7 percent this year, followed by 3.4 next year. This is a slight downward revision for 2018 and 2019 by 0.1 percentage points compared to our September forecast. For 2020, we continue to expect world production to increase by 3.4 percent. The escalation of trade conflicts, the possibility of a 'hard Brexit', doubts about the sustainability of Italian public debt, and a delay of reforms in France pose downside risks to our outlook.
    Keywords: advanced economies,emerging economies,monetary policy,global outlook,fiscal policy,trade conflict
    Date: 2018
  82. By: Volckart, Oliver
    Abstract: The article uses new sources to review the hypotheses that Charles V's currency bill of 1551 failed because of the electoral-Saxon resistance against the undervaluation of the taler that it stipulated, or because the emperor was too weak to overcome the estates' resistance to collective action in monetary policies. The study shows that these issues were overshadowed by the dispute about whether a bimetallic currency should be established. Charles V's currency bill failed because the Diet of Augsburg (1550–51) asked the emperor to publish it before all open issues had been resolved. This request placed the emperor in a dilemma where he had to make a decision but could not do so without antagonising important parties. It was the result of a coordination failure at the level of the Empire, which in turn was a consequence of a lack of continuity among those personnel involved in shaping monetary policies.
    Keywords: monetary politics; currency unions; coinage; bimetallism; early modern history
    JEL: E50 H10 H60 N10 N40
    Date: 2018–07–31
  83. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Potjagailo, Galina; Wolters, Maik H.
    Abstract: The German economy is at the brink of a recession. Gross domestic product is likely to decline again in the third quarter. Germany would thus formally be in a technical recession. However, the slowdown that began in 2018 has so far been a normalization of the previous boom period. At present, capacity utilization of firms is roughly in line with their long-term average. A pronounced recession would occur if capacity utilization were to fall noticeably further. Risks for such a recession have increased, especially as the weakness in the manufacturing sector is increasingly having an impact on the service sector. At present, however, it seems more likely that the German economy will pick up slightly in the coming year. Overall, we now expect lower growth rates for gross domestic product of 0.4 percent for the current year and 1 percent for 2020 compared to our summer forecast (0.6 and 1.6 percent, respectively). So far, the downturn has been characterized by the fact that economic momentum in Germany has cooled off more than in many other countries. To some extent, this is due to the fact that the German economy had previously been in a pronounced boom, and thus the height of fall was higher than elsewhere. In addition, the high level of political uncertainty worldwide, resulting primarily from the ongoing trade conflicts, is likely to weigh particularly on production in Germany. Against this backdrop, exports are likely to pick up only gradually. Private consumer spending will continue to expand at robust rates. Though the weaker economy is having a noticeable effect on the labor market-the number of unemployed will probably continue to rise for the time being and employment will fall in the coming year for the first time since the Great Recession-, disposable household income is set to rise with robust rates, not least because labor shortages will continue to contribute to quite strong wage increases and because several fiscal measures will support incomes. Business investment, on the other hand, is likely to be clearly on the downside temporarily due to the pessimistic sales outlook. Government surpluses will decline noticeably in the forecast period, as expenditure will continue to expand strongly, while revenues will be burdened by the economic slowdown. In 2021, the public budget balance will thus probably be negative for the first time since 2011.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook
    Date: 2019
  84. By: Andrea Civelli; Cary Deck; Antonella Tutino
    Abstract: We present a model where rationally inattentive agents decide how much to save while imperfectly tracking interest rate changes. Suitable assumptions on agents’ preferences and interest rate distribution allow us to derive testable theoretical predictions and their implications for monetary policy. We probe these predictions using a laboratory experiment with induced inattention that closely reflects the theoretical assumptions. We find that, empirically, the laboratory data corroborates the results of the theoretical model. In particular, we show that experimental subjects respond to changes in the interest rate policy environment with: (1) a decrease in savings when the utility gain from savings does not compensate for the cognitive cost of tracking the interest rate; (2) more informed and deliberate consumption/investment choices when the monetary authority stabilizes the economy by lowering the volatility of the policy rate, implementing a version of Delphic forward guidance; (3) a slight decrease in information processing but no behavioral changes in consumption when the monetary authority signals current monetary policy stance, implementing a version of Odyssean forward guidance; (4) a sizable decrease in investment when their perception of the outlook deteriorates. These experimental and theoretical findings agree with the empirical literature on the effect of monetary policy on households’ consumption behavior in U.S. data and abroad.
    Keywords: Rational Inattention; Experimental Evidence; Informational Processing Capacity; Consumption
    JEL: C91 D11 D8 E20
    Date: 2019–12–19
  85. By: Zinn, Jesse Aaron (Clayton State University)
    Abstract: In textbooks on the theory of money it is standard practice to hold both reserves and deposits fixed to study the relationship between the quantity of currency in the economy and the money multiplier. But doing so leads to a result that is contrary to the notion that if the public withdraws from their deposits in order to increase currency holdings then bank lending will decrease, causing a fall in both the money supply and the money multiplier. Specifically, when reserves are greater than deposits and both are fixed the money multiplier has a positive relationship with both currency holdings and the currency-deposit ratio. I show that these results are artifacts of implicitly assuming that the monetary authority behaves so as to keep deposits and reserves constant in response to a change in currency held by the public. Dropping these assumptions and abstracting from any response from the central bank results in an unconditionally non-positive relationship between currency holdings and the money multiplier.
    Date: 2018–11–07
  86. By: Carrasco, Alex (Banco Central de Reserva del Perú); Florián, David (Banco Central de Reserva del Perú); Nivín, Rafael (Banco Central de Reserva del Perú)
    Abstract: In this document, we study the role of sterilized foreign exchange (SFX) interventions as an additional monetary policy instrument for emerging market economies in response to external shocks. We develop a model in order to analyze SFX interventions as a balance sheet policy induced by a financial friction in the form of an agency problem between banks and depositors. The severity of the bank's agency problem depends directly on a measure of currency mismatch at the bank level. Moreover, credit and deposit dollarization co-exists in equilibrium as endogenous variables. In this context, SFX interventions can lean against the response of the bank's lending capacity and ultimately the response of real variables by moderating the response of the exchange rate. Furthermore, we take the model to data by calibrating it to replicate some financial steady-state targets for the Peruvian banking system as well as matching the impulse responses of the macroeconomic model to the impulse responses implied by an SVAR model. Our results indicate that SFX interventions successfully reduce GDP and investment volatility by about 6% and 14%, respectively, when compared to a flexible exchange rate regime. Moreover, SFX interventions reduce the response of GDP to foreign interest rate and commodity price shocks by around 11 and 22 percent, respectively. Hence, this policy produces significant welfare gains when responding to external shocks: if the Central Bank does not intervene in the Forex market in the face of external shocks, there would be a welfare loss of 1.1%.
    Keywords: Sterilized Forex Interventions, External Shocks, Financial Cycle, Dollarization, Monetary Policy.
    Date: 2019–12
  87. By: Daniele, SCHILIRO'
    Abstract: The Italian economy is characterized by a considerable amount of public debt and low growth for over a decade. This is a key issue both at a theoretical and policy level. The relationship between public debt and economic growth is widely discussed in the economic literature, since in many countries spending is rising faster than income, leading to widening budget deficits and higher levels of debt. However, the empirical literature generally highlighted the heterogeneity of the debt-growth nexus. This paper summarizes four working papers written by the author in the period from 2007 to 2014, where the structural problems of the Italian economy are identified, and the critical aspects related to Italy high debt and its low growth is emphasized. The contribution aims at discussing possible policy actions to address the Italian structural problems in the current situation. In particular, the paper underlines the importance of a long-term strategy for growth, to boost productivity and the potential growth of the Italian economy. In addition, it focuses on fiscal policy emphasizing the strategic role both of spending optimization and of tax collections through, for instance, digitizing the tax collection process in order to contribute to the long-term sustainability of sovereign Italian debt.
    Keywords: public debt; growth; single currency; debt sustainability; fiscal policy; structural reforms
    JEL: F36 H62 H63 O40
    Date: 2019–10
  88. By: International Monetary Fund
    Abstract: GDP growth remains on track to reach 4.6 percent despite the ban on direct flights from Russia. The current account deficit reached a historic low. Inflation accelerated to 6.9 percent in October reflecting higher food prices and nominal depreciation. The National Bank of Georgia used FX sales and higher policy rates to address rising inflationary pressures. Strong revenue growth has more than offset higher-than-envisaged capital spending, and the 2019 fiscal deficit is likely to be lower than projected at the Fourth Review.
  89. By: María del Pilar Cruz; Hugo Peralta; Bruno Ávila
    Abstract: Using the texts of the Business Perceptions Report published quarterly by the Central Bank of Chile, we construct a numerical index that reflects the emotional feeling or tone contained in the documents. For the construction of the index, we use the Sentiment Analysis (SA) or opinion mining methodology to extract the sentiment orientation of the documents, taking into account the positive or negative contextual polarity of their language. The results show that the IPN index has a high and significant correlation with various indices referring to business confidence and economic expectations in the medium term. The correlation with quantitative indicators of activity such as GDP growth, consumption or investment, is lower but still significant. The main contribution of this work is the formulation of a dictionary in Spanish language for SA and the generation of a numerical index through the application of the Sentiment Analysis methodology.
    Date: 2020–01
  90. By: Sim, Siew Pei
    Abstract: Performance of a company is very important from time to time. This study attempted to investigate the factors that will influencing the performance of HSIB in Malaysia. The financial data is collected from the annual report from 2014 to 2018. The independent variables consist of eight internal factors and five external factors. This study used multi-regression analysis. The data is analyzed by using descriptive statistic, correlations, modal summary and coefficients. The findings show operating margin is very strong positively and moderate significantly correlated to the performance. Therefore, the study is provided some recommendations that can be taken in order to improve HSIB’s performance through operating margin at the end.
    Keywords: Performance, Internal Factors, External Factors, Corporate Governance
    JEL: E6 G0 G3 G32
    Date: 2019–10–18
  91. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: At the start of 2018 the global economy is in full swing. On a PPP-basis growth in 2017 was 3.9 percent, the highest rate since 2011. While leading indicators point to still robust growth in early 2018, sentiment has recently been negatively affected by increasing uncertainty about the pace of monetary tightening in the US and concerns about the future of global trade. Financial market turbulence in the course of the coming normalization of monetary policies and an escalation of trade conflicts constitute major risks to our baseline forecast of a gradually moderating but still robust world economy. We expect global output to rise by 4.0 percent and 3.8 percent in 2018 and 2019, respectively. The upward revision from our December forecast by 0.1 resp. 0.2 percentage points to a large extent reflects the incorporation into our baseline of the US tax reform.
    Keywords: advanced economies,emerging economies,monetary policy,Japan,Russia,ASEAN
    Date: 2018
  92. By: Gern, Klaus-Jürgen; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
    Abstract: Global economic activity has remained sluggish in the first half of 2019 and will gather momentum only slowly. While economic activity in industrial countries decelerated in the course of the year, growth in emerging economies picked up slightly from a low base. Global industrial production is especially weak, and world trade has even been declining since the start of the year. World output is forecast to rise by only 3.1 percent in 2019, after 3.7 percent in 2018. Trade conflicts triggered by the US and uncertainties around the economic repercussions of policies pursued by populist governments in a number of emerging economies are clouding the outlook. In addition, the timing and modalities of Brexit remain unclear. Against this backdrop, world economic growth is projected to remain modest in 2020 at 3.2 percent. Thus we have revised downwards our forecasts for both this year and next by 0.1 percentage point compared with our June report. Supported by a more expansive monetary policy and under the assumption that international economic policy tensions will not escalate, we expect a more pronounced strengthening of world economic activity in 2021. However, growth will remain moderate by historical standards at 3.4 percent.
    Keywords: advanced economies,emerging economies,monetary policy
    Date: 2019
  93. By: Christophe Blot (Observatoire français des conjonctures économiques); Jérôme Creel (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques)
    Abstract: Time is ripe for a review of the ECB strategy: the economic context and the audience for communication have changed, and the tools for policy decisions and for analysing the environment have expanded. The definition of the inflation target, the twopillar strategy and the use of “non-standard” policy measures need discussion. A change in the ECB mandate is also worth discussing for it would permit to evaluate the current strategy and mandate against an alternative. This document was provided by Policy Department A at the request of the Committee on Economic and Monetary Affairs.
    Date: 2019–11
  94. By: Stephen T. Onifade (Åželcuk University Konya, Turkey); SavaÅŸ Çevik (Åželcuk University Konya, Turkey); SavaÅŸ ErdoÄŸan (Åželcuk University Konya, Turkey); Simplice A. Asongu (Yaoundé, Cameroon); Festus Victor Bekun (Istanbul Gelisim University, Istanbul, Turkey)
    Abstract: The impacts of public expenditures on economic growth have been revisited in this paper with respect to capital expenditure, recurrent expenditure and the government fiscal expansion in line with support for the budgetary allocations to various sectors in the context of the Nigerian economy. The Pesaran ARDL approach has been applied to carry out the impact analysis using annual time series data from 1981 to 2017. Empirical findings support the existence of a level relationship between public spending indicators and economic growth in Nigeria. Incisively, recurrent expenditures of government were found to be significantly impacting on economic growth in a negative way while the positive impacts of public capital expenditures were not significant to economic growth over the period of the study. Further results from the granger causality test reveal that fiscal expansion of the government that is hinged on debt financing is strongly granger causing public expenditures and domestic investment with the latter also granger causing real growth in the economy. We, therefore, provide some important policy recommendations following the results of the empirical analysis.
    Keywords: Nigeria; Fiscal policies; Economic Growth; Debt to GDP ratio; ARDL Models
    Date: 2019–01
  95. By: Gábor Lovics (Központi Statisztikai Hivatal (Hungarian Central Statistical Office)); Katalin Szõke (Magyar Nemzeti Bank (Central Bank of Hungary)); Csaba G. Tóth (KSH Népességtudományi Kutatóintézet (Hungarian Demographic Research Institute)); Bálint Ván (Pénzügyminisztérium (Ministry of Finance))
    Abstract: In order to reduce the shadow economy, in 2013 and 2014 the Hungarian government introduced mandatory online cash registers (OCR) in some sectors. As a result, almost 200,000 OCRs have been installed by 100,000 enterprises. In this paper we use micro data to estimate the effect of OCR introduction on reported turnover in the most affected sectors: retail, and accommodation and food services (AFS). We assume that OCR installation does not change a company’s operating model, so the increase in reported turnover around the installation date reflects a reduction in the shadow economy. We identify a remarkable effect of OCR introduction on reported turnover in both sectors. For small enterprises, reported turnover increased by 23 percent and 35.1 percent in the retail and AFS sector, respectively. We also find significant but smaller effects for medium-sized enterprises in both sectors. For large companies, we only observe a significant impact in the AFS sector.
    Keywords: Value Added Tax, Tax Evasion, Shadow Economy
    JEL: E26 H25 H26
    Date: 2019
    Abstract: Aim of this study is to analyze internal and external factor that affected in return on assets in Huawei. The analysis required from the annual report from year 2014 to 2018 by our target company. The internal factor consist of ROA, quick ratio, current ratio, debt to income, operational ratio and operational margin while external factor consist of Gross Domestic Product(GDP), inflation, interest rate and exchange rate. The finding show the company performance can be influenced macroeconomic factor in five years. The company needs to apply four efficiency of corporate governance which is accountability, transparency, independent, fairness and sustainability.
    Keywords: Return On Assets, Liquidity Risk, Corporate Governance Index, Macroeconomic
    JEL: G3 G32 G34
    Date: 2019–10–30
  97. By: Rotta, Tomas
    Abstract: In this paper I develop an innovative evolutionary framework to integrate Keynes’ short-run principle of effective demand and the formation of long-run prices of production in Classical Political Economy. At the intersection of Keynes, Marx, and Kalecki, my evolutionary framework integrates effective demand, functional income distribution, profit rate equalization, technological diffusion, and the gravitation towards prices of production. My approach bridges two gaps at once: the absence of the short-run principle of effective demand in Classical Political Economy; and the absence of technological diffusion, profit rate equalization, and the formation of long-run prices of production in Keynes and Kalecki. To formalize the feedback effects between individual decisions taken at the micro level and the unintended social outcomes at the macro level I develop a simple model using replicator dynamics from evolutionary Game Theory. My approach offers a better understanding of how effective demand determines the rate of exploitation, the equalization of profit rates, and the convergence of market prices towards prices of production.
    Keywords: Effective Demand, Prices of Production, Marx, Keynes, Kalecki
    JEL: B51 C73 D20
    Date: 2020–01–01
  98. By: Afrianto, Dendi; Afriyeni, Afriyeni
    Abstract: The current economy is so much of a huge change, it can be seen from the growth of economic growth. As the economy grows, people need other parties to manage their finances, for example, banks. The purpose of this research is to know the activity of fund raising tabungan at PT. Bank Pembangunan Daerah (BPD) Sumatera Barat. fund accumulation activities conducted by PT. BPD Sumatra Barat is to appoint one of the officers of marketing funding division that operates spaciousness to meet directly with customers or people who want to open a new tabungan account or an old customer who wants to make a cash deposit through the bank officer in the field because the customer concerned can not come to bank directly, therefore the activity of fund raising in PT. BPD Sumbar Padang can be done directly and indirectly. in this case can be seen the development of tabungan and nominal balance tabungan on Pt. Bank Pembangunan Daerah (BPD) Sumatera Barat which experienced an increase in the period of 2013 - 2017 proves that the performance of marketing funding conducted by PT. Bank Pembangunan Daerah (BPD) Sumatera Barat can be said very well.
    Date: 2018–12–17
  99. By: Alberto Botta; Ben Tippet
    Abstract: In this paper, we analyse secular stagnation in the eurozone. We adopt a core-periphery perspective, and analyse whether the 2007-2008 financial crisis triggered off diverging dynamics in the growth potential of core and peripheral eurozone countries. We find that secular stagnation affects the whole eurozone, but is a much more serious concern in peripheral countries. Among the components of potential output, the NAIRU shows a worrisome diverging evolution since 2008. It has remained broadly constant in the core whilst doubling in the periphery. We find that the pronounced increase in the NAIRU in the periphery is strongly related to demand-side factors such as investment demand and fiscal consolidation rather than rigid labour market institutions. The negative effect that fiscal contractions may have on the NAIRU is a novel theoretical contribution of this paper. In line with these findings, we argue that reforms in the eurozone should focus on the creation of macroeconomic institutions ensuring convergence in financial and macroeconomic conditions among member countries rather than on the generalised deregulation of labour markets.
    Keywords: None
    JEL: C23 E12 O11 O52
    Date: 2020–01
  100. By: Ling, Coco Siu Yin
    Abstract: The performance of a company can be affected by the financial risks associated with it. It is important for a company to manage financial risks efficiently. The purpose of this study is to identify the impact of financial risks on the performance of Apollo Food Holdings Berhad which is a food and beverages company for the period of 2014-2018. This study develops multiple linear regression models to analyse the impact of financial risk on company performance. The findings show that operating margin is the most significant variable that positively influence the performance of the company. This study suggests that Apollo Food Holdings Berhad should deal with their operating margin in order to increase the performance and profitability of the company. This can be done by increasing the revenue or reducing its cost.
    Keywords: Performance, Financial Risks, Operating Margin.
    JEL: E6 G3 G32
    Date: 2019–11–08
  101. By: Martin Ellison; Sang Seok Lee. Kevin Hjortshøj O’Rourke
    Abstract: How did countries recover from the Great Depression? In this paper we explore the argument that leaving the gold standard helped by boosting inflationary expectations and lowering real interest rates. We do so for a sample of 30 countries, using modern nowcasting methods and a new dataset containing more than 230,000 monthly and quarterly observations for over 1,500 variables. In those cases where the departure from gold happened on clearly defined dates, it seems clear that inflationary expectations rose in the wake of departure. Synthetic matching techniques suggest that the relationship is causal.
    Date: 2020–01–09
  102. By: Zulamir Hassani, Afdhal
    Abstract: The purpose of this study to examine the performance of TCL Corporation with specific factors and macroeconomic variable influence on liquidity risk (quick ratio) the data was obtained from the annual report from year 2014 to 2018 of TCL Corporation. This study using a descriptive analysis such as credit risk, liquidity risk, operational risk and also economic environment as to compare the performance of the company involve in TCL Corporation. The finding shows that the company performance can be influenced by the internal risk and economic environment. The study found quick ratio, return on asset, average-collection period, operating ratio, index score, GDP growth rate, exchange rate, interest rate, inflation rate and beta. And operating ratio are significant to quick ratio.
    Keywords: Liquidity risk; Internal; External Factors
    JEL: G32 M41
    Date: 2019–11–20
  103. By: Angus C. Chu; Pietro Peretto
    Abstract: This study explores the evolution of income inequality in an economy featuring an endogenous transition from stagnation to growth. We incorporate heterogenous households into a Schumpeterian model of endogenous takeoff. In the pre-industrial era, the economy is in stagnation, and income inequlaity is determined by an unequal distribution of land ownership and remains stationary. When takeoff occurs, the economy experiences innovation and economic growth. In this industrial era, income inequality gradually rises until the economy reaches the balanced growth path. Finally, we calibrate the model for quantitative analysis and compare the simulation results to historical data in the UK.
    Keywords: income inequality, innovation, economic growth, endogenous takeoff
    JEL: D30 O30 O40
    Date: 2019–09
  104. By: Jackson, Emerson Abraham
    Abstract: This study was carried out with the purpose of producing twelve out-of-sample forecast for a univariate exchange rate variable as a way of addressing challenges faced around dollarization issues in the domestic economy. In pursuit of this, the ARIMA model was utilised, with the best model [1,4,7] indicating that the Sierra Leone - Leone [SLL] currency will continue to depreciate against the United States Dollar [US$] throughout most part of the year 2020. This was done on the assumption of Ceteris Paribus condition, and most importantly on the view that past events of the univariate exchange rate variable is a determinant of future outcomes or performances. In a bid to moving forward, policy recommendations have suggested high level collaboration between relevant policy institutions like the Bank of Sierra Leone and the Ministry of Finance to address issues of concern, for example, a boost to the real sector and many more.
    Keywords: Box-Jenkins ARIMA, Exchange Rate, Forecast, Sierra Leone
    JEL: C52 C53 E47 F31 F47
    Date: 2020–01–01
  105. By: Jan Fidrmuc; Martin Hulényi; Olga Zajkowska
    Abstract: We analyze the impact of EU structural and cohesion funds on economic growth of European regions, using 2SLS to tackle the potential problem of endogeneity, and estimating a spatial model to account for inter-regional spillovers. We use the presence of environmentally protected areas (under the European Union’s Natura 2000 program) as instruments for the receipts of funds from the EU Cohesion Policy. We find that the European funds have a significant and positive effect on regional economic growth in the EU. The inter-regional spillovers in the effect of Cohesion Policy on regional growth are found to be important: most of the effect takes place outside of the recipient region rather than inside. However, there is considerable heterogeneity in the effect of Cohesion Policy across individual EU member states: the effect is stronger in the new member states, and weak or negative in the countries hit by the recent austerity measures. Finally, our results confirm the positive impact of institutional quality: improvements in economic development across the EU do not necessarily require only redistribution: institutional reform can also help boost growth performance.
    Keywords: regional aid, growth, environmental conservation, 2SLS, spatial model
    JEL: C21 C36 F36 E62 O11 P48
    Date: 2019
  106. By: Döhrn, Roland
    Abstract: The Diebold-Mariano-Test has become a common tool to compare the accuracy of macroeconomic forecasts. Since these are typically model-free forecasts, distribution free tests might be a good alternative to the Diebold-Mariano-Test. This paper suggests a permutation test. Stochastic simulations show that permutation tests outperform the Diebold-Mariano-Test. Furthermore, a test statistic based on absolute errors seems to be more sensitive to differences in forecast accuracy than a statistic based on squared errors.
    Keywords: macroeconomic forecast,forecast accuracy,Diebold-Mariano test,permutation test
    JEL: C14 C15 C53
    Date: 2019
  107. By: Sonia Feliz; Chiara Maggi
    Abstract: This paper studies the macroeconomic effect and underlying firm-level transmission channels of a reduction in business entry costs. We provide novel evidence on the response of firms' entry, exit, and employment decisions. To do so, we use as a natural experiment a reform in Portugal that reduced entry time and costs. Using the staggered implementation of the policy across the Portuguese municipalities, we find that the reform increased local entry and employment by, respectively, 25% and 4.8% per year in its first four years of implementation. Moreover, around 60% of the increase in employment came from incumbent firms expanding their size, with most of the rise occurring among the most productive firms. Standard models of firm dynamics, which assume a constant elasticity of substitution, are inconsistent with the expansionary and heterogeneous response across incumbent firms. We show that in a model with heterogeneous firms and variable markups the most productive firms face a lower demand elasticity and expand their employment in response to increased entry.
    Date: 2019–12–13
  108. By: Shephard, Karen; Hamoudi, Haider Ala
    Abstract: 7 Chicago Journal of International Law 605 (2007)Despite its explosive growth over the past several decades, Islamic finance continues to have trouble attracting large numbers of otherwise pious Muslims as potential investors. The underlying reason for this is that the means that the practice employs to circumvent some of the central Muslim bans relating to finance (most notably, the ban on interest) are entirely formal in their structure and are equivalent to conventional structures both legally and economically. However, the practice purports to serve functional ends; namely, through offering Muslims alternative means of finance that are intended to further Islamic ideals of fairness and social justice. This has resulted in schizophrenia within Islamic finance, with proponents and practitioners creating formalisms to comply with Shari'a while continuing to insist that Islamic finance has a functional purpose that cannot sensibly be ascribed to it given its current structure. Either Islamic finance needs to describe itself as nothing more or less than the mere conformity with doctrine in a manner that does not serve any functional purpose at all, or, given the interest of the Muslim community in social justice in economic affairs, the practice needs to reinvent itself, focusing less on mimicking conventional alternatives and more on achieving at least to some degree the ends of social justice and fairness it endlessly promotes.
    Date: 2018–09–18
  109. By: Barnes, Lucy (University College London); Hicks, Timothy (University College London)
    Abstract: In the wake of the 2008 financial crisis, macroeconomic policy returned to the political agenda, and the influence of Keynesian ideas about fiscal stimulus rose (and then fell) in expert circles. Much less is known, however, about whether and when Keynesian prescriptions for countercyclical spending have any support among the general public. We use a survey experiment, fielded twice, to recover the extent to which UK respondents hold such countercyclical attitudes. Our results indicate that public opinion was countercyclical — Keynesian — in 2016. We then use Eurobarometer data to estimate the same basic parameter for the population for the period 2010-2017. The observational results validate our experimental findings for the later period, but also provide evidence that the UK population held procyclical views at the start of the period. Thus, there appear to be important dynamics in public opinion on a key macroeconomic policy issue.
    Date: 2018–10–15
  110. By: Diane Coyle; David Nguyen
    Abstract: Factoryless manufacturing’ describes the strategic decision by businesses to outsource part or all of their production to a sub-contractor, sometimes overseas. Although it seems to be widespread in some sectors of manufacturing, the phenomenon is not captured by existing economic statistics. Failure to measure its extent implies there may be misattribution of production activity across sectors and countries. In particular, the decline of manufacturing could be somewhat overstated. We present web-scraped evidence on the extent of factoryless manufacturing in the UK, finding that firms in sectors such as chemicals and pharmaceuticals are more often involved in contract manufacturing, whereas in the US it is more prevalent within electronics. We also present case studies on UK automotive and pharmaceuticals based on systematic analysis of annual reports and websites. Given the sector-based focus of many economic policies, these findings point to the need for consistent measurement of factoryless manufacturing through official surveys.
    Keywords: factoryless manufacturing, contract manufacturing, economic measurement, web scraping
    JEL: D22 E01 L24 L60
    Date: 2019–09
  111. By: Harold L. Cole (University of Pennsylvania); Dirk Krueger (University of Pennsylvania); George J. Mailath (University of Pennsylvania); Yena Park (University of Rochester)
    Abstract: We analyze e?cient risk-sharing arrangements when coalitions may deviate. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any deviating coalition rely on a belief in future cooperation, and we treat the contracting conditions of original and deviating coalitions symmetrically. We show that better belief coordination (higher social capital) tightens incentive constraints since it facilitates both the formation of the original as well as a deviating coalition. As a consequence, the payo? of successfully formed coalitions might be declining in the degree of belief coordination and equilibrium allocations might feature resource burning or utility burning.
    Keywords: Financial Coalition, Limited Enforcement, Risk Sharing, Coalition-Proof Equi-librium
    JEL: E21 G22 D11 D91
    Date: 2019–01–08
  112. By: Shiyuan Pan (Zhejiang University); Kai Xu (Zhejiang University); Kai Zhao (University of Connecticut)
    Abstract: We develop a two-sector growth model of vertical structure in which the up-stream sector features Cournot competition and produces intermediate goods that are used in the downstream sector for the production of final goods. In such a ver-tical structure, we show that deregulation and increased market competition in the upstream sector does not only increase its own productivity, but also has a substan-tial spill-over effect on the productivity of the downstream sector through affecting factor prices. We calibrate the model to the Chinese economy and use the calibrated model to quantitatively evaluate the extent to which deregulation in the upstream market in China from 1998 to 2007 accounts for the rapid economic growth over the same period. Our quantitative experiments suggest that deregulation in the up-stream market in China from 1998 to 2007 can account for a significant fraction of China’s economic growth during this period partly due to the significant spillover effect it has on the downstream sector. In addition, our model can also match sev-eral relevant observations in China during the same period including high and rising returns to capital, declining markups.
    Keywords: Deregulation; Economic Growth; Vertical Structure
    JEL: E20 O41
    Date: 2020–01
  113. By: Kodjovi M. Eklou; Marcelin Joanis
    Abstract: This paper estimates the causal effect of fiscal rules on political budget cycles in a sample of 67 developing countries over the period 1985–2007. We exploit the geographical pattern in the adoption of fiscal rules to isolate an exogenous source of variation in the adoption of national fiscal rules. Based on a diffusion argument, we use the number of other countries in a given subregion that have fiscal rules in place to predict the probability of having them at the country level. We find that in election years with fiscal rules in place, public consumption is reduced by 1.6 percentage point of GDP as compared to election years without these rules. This impact is equivalent to a reduction by a third of the volatility of public consumption in our sample. Furthermore, the effectiveness of these rules depends on their type, their institutional design, whether they have been in place for a long time and finally on the degree of competitiveness of elections.
    Date: 2019–12–27
  114. By: Rodrigo Adão; Martin Beraja; Nitya Pandalai-Nayar
    Abstract: Why are some technological transitions particularly unequal and slow to play out? We develop a theory to study transitions after technological innovations driven by worker reallocation within a generation and changes in the skill distribution across generations. The economy's transitional dynamics have a representation as a q-theory of skill investment. We exploit this in two ways. First, to show that technology-skill specificity and the cost of skill investment determine how unequal and slow transitions are by affecting the two adjustment margins in the theory. Second, to connect these determinants to measurable, short-horizon changes in labor market outcomes within and between generations. We then empirically analyze the adjustment to recent cognitive-biased innovations in developed economies. Strong responses of cognitive-intensive employment for young but not old generations suggest that cognitive-skill specificity is high and that the supply of cognitive skills is more elastic for younger generations. This evidence indicates that cognitive-biased transitions slowly unfold over many generations. As such, naively extrapolating from observed changes at short horizons leads to overly pessimistic views about their welfare and distributional implications.
    JEL: C0 E0 F0 J0 O0
    Date: 2020–01
    Abstract: A dire concern for many nations has always been their patterns of economic growth and financial development throughout the years. Tentatively, a relationship between the concepts co-exists. However, the direction of causality is of great interest, particularly in relation to the country?s level of development and growth. This paper studies the existence of a relationship between financial development and economic growth using a sample of G-7 countries for the period of 1996 to 2013. Making use of panel data models such as panel unit root test, Johansen-Fisher cointegration and vector error correction model/granger causality and using secondary time series data obtained from the World Bank and the International Monetary Fund (IMF) for G-7 countries (Canada, France, Germany, Great Britain, Italy, Japan and United States). Variables used include, economic growth, stock market capitalisation, total investment growth, interest rates and population growth. Findings of the study indicated that real interest rates and total investment is positively related to economic growth in G-7; while other variables such as stock market size, do play a significant role in explaining economic growth in G-7 countries. This study may assist G-7 countries to improve their economic growth structure and financial development systems over time.
    Keywords: Financial development, economic growth, panel data, developed countries, G-7
    JEL: A10 C01 E00
    Date: 2019–10
  116. By: Kah Kah, Chow
    Abstract: The purpose of this article is to examine Jerasia Capital Berhad’s relative financial performance with its internal factors and external factors. The data collected from annual reports of Jerasia Capital Berhad for the period 2014 to 2018 has been analysed through regression correlation. Return on equity (ROE) is used as the measurement of company’s performance whereas risk indicators are selected as internal factors and macroeconomic factors are used as the external factors. When these considerations are analysed, one of the market risk indicator, interest rate which under external factors will most influence the performance. A few recommendations are suggested based on the results.
    Keywords: Performance, ROE, External Factors, Interest Rate
    JEL: G3 G32
    Date: 2019–11–18
  117. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: The world economy has lost momentum in the beginning of this year, although partly due to special factors. We have reduced our forecast for global growth in both 2018 and 2019 by 0.2 percentage points. In the advanced economies capacity utilization will continue to increase, supporting an increase in underlying inflation in addition to the temporary impact of higher oil prices on headline inflation. Escalating trade conflicts constitute a major risk for the forecast. Other notable risks are increased political uncertainty in Europe following the elections in Italy and potential disruptions associated with the process of monetary policy normalization, including financial stress in emerging economies.
    Keywords: advanced economies,emerging economies,monetary policy,Japan,Russia,ASEAN
    Date: 2018
  118. By: Christophe Blot (Observatoire français des conjonctures économiques); Bruno Ducoudre (Observatoire français des conjonctures économiques); Eric Heyer (Observatoire français des conjonctures économiques); Raul Sampognaro (Observatoire français des conjonctures économiques)
    Abstract: This Policy brief presents the last OFCE forecasts on the euro area countries and addresses the issue of margins for manoeuvre to cope with an extended period of economic slowdown in the area. Will fiscal rules fetter policy reaction? We forecast a growth rate of 1.2%, but negative risks remain substantial. We then discuss public debt evolution and compute the fiscal policies necessary to reach a 60% public debt over GDP target in 2040. The fiscal consolidation appears unrealistic in some countries, questioning the credibility of this target. In addition, we investigate the (moderate) effect of interest rate on the fiscal consolidation requirement. Finally, the very notion of fiscal space will depend on the speed of adjustment of public debt and on the level of interest rates.
    Date: 2019–12
  119. By: Olumuyiwa S Adedeji; Erik Roos; Sohaib Shahid; Ling Zhu
    Abstract: This paper provides empirical evidence that the size of the spillovers from U.S. monetary policy to non-oil GDP growth in the GCC countries depends on the level of oil prices. The potential channels through which oil prices could affect the effectiveness of monetary policy are discussed. We find that the level of oil prices tends to dampen or amplify the growth impact of changes in U.S. monetary policy on the non-oil economies in the GCC.
    Date: 2019–12–27
  120. By: Ohdoi, Ryoji; Futagami, Koichi
    Abstract: This study proposes a model of non-unitary time discounting and examines its welfare implications. A key feature of our model lies in the disparity of time discounting between multiple distinct goods, which induces an individual's preference reversals even though she normally discounts her future utilities for each good. After characterizing the time-consistent decision-making by such an individual in a general setting, we compare welfare achieved in the market economy and welfare in the planner's allocation from the perspective of all selves across time. Under certain situations, the selves in early periods strictly prefer the social planner's allocation, whereas the selves in future periods strictly prefer the market equilibrium. Therefore, the welfare implications of our model are quite different from those in the canonical discounting model and in models of other time-inconsistent preferences.
    Keywords: Non-unitary time discounting; Time inconsistency; Time-consistent tax policy.
    JEL: E21 H21 O41
    Date: 2019–11–29
  121. By: Ken Miyajima
    Abstract: Does the South African rand’s relatively large volatility affect inflation? To shed some light on this question, a standard estimation technique of exchange rate pass-through to inflation is extended to incorporate exchange rate volatility. Estimated results suggest that higher exchange rate volatility tends to increase core inflation but to a relatively limited extent in South Africa. The finding lends support to the policy of allowing the rand to float freely and work as a shock absorber, consistent with the nation’s successful inflation targeting regime.
    Date: 2019–12–13
  122. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
    Abstract: The global economy is losing steam. After a weak start in the beginning of this year, world production accelerated again in the second quarter of 2018. However, the recent expansion probably overstates its underlying momentum. At the same time, the expansion is becoming less even as compared to last year. In addition, global economic prospects remain subject to significant downside risks in light of increasing trade tensions, investors withdrawing funds from emerging markets, and uncertainty concerning the effect of renewed Iran sanctions on oil prices. Our forecast for global growth in 2018 nevertheless remains unchanged at 3.8 percent; for 2019 we slightly revise downwards-by 0.1 percentage points-to 3.5 percent. In 2020 world output is expected to rise by 3.4 percent. Despite the gradual global economic slowdown, capacity utilization in advanced economies will remain high. As a consequence, inflationary pressures will gradually increase beyond the current temporary pick-up of inflation stemming from higher oil prices.
    Keywords: advanced economies,emerging economies,monetary policy,global outlook,fiscal policy,trade conflict,Currency Crisis
    Date: 2018
  123. By: Mark L. Egan; Alexander MacKay; Hanbin Yang
    Abstract: We use a revealed-preference approach to estimate investor expectations of stock market returns. Using data on demand for index funds that follow the S&P 500, we develop and estimate a model of investor choice to flexibly recover the time-varying distribution of expected returns. Despite the fact that they are generated from a different method (realized choices) and a different population, our quarterly estimates of investor expectations are positively and significantly correlated with the leading surveys used to measure stock market expectations. Our estimates suggest that investor expectations are heterogeneous, extrapolative, and persistent. Following a downturn, investors become more pessimistic on average, but there is also an increase in disagreement among participating investors. Our analysis is facilitated by the prevalence of “leveraged” funds, i.e., funds that provide the investor with a menu over leverage. The menu of choices allows us to separately estimate expectations and risk aversion. We estimate that the availability of these funds provides investors with significant (ex ante) consumer surplus.
    JEL: D12 D81 D84 G11 L0
    Date: 2020–01
  124. By: Mohd Yusof, Norsafinas
    Abstract: The purpose of the study is to assess corporate governance and its effect on Delfi Ltd's firm performance and risk. The research approach is to evaluate Delfi's regression using SPSS Model. The study found that Delfi's performance is dramatically declining and, as it increases slightly over the years, means that its potential against short-term liability is deteriorating, the regression analysis indicates that Delfi's performance has higher interest rate (external factor) impact.
    Keywords: performance, interest rate, corporate governance
    JEL: E43 G3 L2
    Date: 2019–11–18
  125. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Hauber, Philipp; Jannsen, Nils; Kooths, Stefan; Potjagailo, Galina; Wolters, Maik H.
    Abstract: The strong economic upswing in Germany has taken a break. For the current year, we revise our GDP growth forecast down by 0.5 percentage points to 2.0 percent. However, the slowdown in economic activity at the beginning of the year is mainly due to temporary factors. We therefore expect growth to regain momentum during the course of the year. For 2019, we expect German GDP to increase by 2.3 percent. Thus, production continues to increase faster than potential output. With capacity utilization already at very high levels, the German economy will get closer to its limit.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook,Forecast error evaluation,consumption,factor model
    Date: 2018
  126. By: Mohd Shafarin, Nur Aisyah
    Abstract: The study’s aim is an attempt to determine the liquidity risk of Home Depot Inc which involved two main factors of internal (firm-specific) and external (macroeconomics) factors. These data was interpreted and collected Home Depot annual reports of five year period from 2014 to 2018. There are four risks involved which are credit risk, operational risk, profitability, and market risk. Measurement of current ratio, quick ratio, average -collection period, debt to income ratio, operational ratio, and operating margin are used to examine the overall five years liquidity risk of Home Depot. Hence, to determine the relationship of these risk factors to the company’s liquidity risk, this study used profitability, credit risk, operational risk, market risk, gross domestic products (GDP), inflation, interest rate, exchange rate, BETA, and corporate governance index. SPSS system are used to do data analysis in which by implementing stepwise method which apply the descriptive statistics, correlation, and model summary. Based on the data analysis, we can conclude that operational risk is the most significant to CR since it gives the highest impact to liquidity risk of the company. Nonetheless, the other variables give low impact to the CR and there is no significant related with.
    Keywords: liquidity, operational risk,
    JEL: G3 G32
    Date: 2019–11–20
  127. By: Marialuz Moreno Badia; Paulo Medas; Pranav Gupta; Yuan Xiang
    Abstract: With public debt soaring across the world, a growing concern is whether current debt levels are a harbinger of fiscal crises, thereby restricting the policy space in a downturn. The empirical evidence to date is however inconclusive, and the true cost of debt may be overstated if interest rates remain low. To shed light into this debate, this paper re-examines the importance of public debt as a leading indicator of fiscal crises using machine learning techniques to account for complex interactions previously ignored in the literature. We find that public debt is the most important predictor of crises, showing strong non-linearities. Moreover, beyond certain debt levels, the likelihood of crises increases sharply regardless of the interest-growth differential. Our analysis also reveals that the interactions of public debt with inflation and external imbalances can be as important as debt levels. These results, while not necessarily implying causality, show governments should be wary of high public debt even when borrowing costs seem low.
    Date: 2020–01–03
  128. By: Bhanumurthy, N.R. (National Institute of Public Finance and Policy); Bose, Sukanya (National Institute of Public Finance and Policy); Satija, Sakshi (National Institute of Public Finance and Policy)
    Abstract: In this paper, an attempt has been made to look at four empirical issues that may be of interest to the fiscal policy in India and especially to the 15th Finance Commission: what has been the impact of higher devolution of Central taxes to the States on overall economic growth, fiscal balance and other indicators? What could be the impact of changes in external conditions on the macroeconomic prospects? What mix of expenditure policies would allow the Indian economy to achieve higher growth and fiscal consolidation? And finally, can India achieve the medium term target of US$ 5 Trillion by 2024-25? To address these issues, this paper uses a modified NIPFP-macroeconomic policy simulation model for the Indian economy. Higher devolution share to the States, vis-à-vis the baseline scenario, causes economic growth to be marginally lower by 0.4% for the period 2015-20 (14th Finance Commission period) on an average and by 0.3% over the projection period 2020-2025 (15th Finance Commission period). It is also found that an expenditure switching strategy in favour of capital expenditure (by more than 1% of GDP) with the centre assuming the greater share of the increase, and reduction in revenue deficit to GDP makes it possible to combine high growth (8%) with fiscal consolidation that brings down the general Government’s liability to GDP ratio to 60 per cent by the end of 2024-25. With greater public investments and its complementarity with private investment, the target of $5 trillion economy by 2024-25 may be achievable. The analysis also suggests that distribution of debt targets between Centre and States in the proposed FRBM roadmap may need to be revised.
    Date: 2019–12
  129. By: Lee, Mun Chen
    Abstract: Liquidity risk management is very important to every company to mange their company’s liquidity. The aim of this study attempts to investigate the firm-specific factor (internal factors), macroeconomic (external factors), and firm-specific factor, macroeconomic influence towards liquidity risk in Audi AG. The method of the study is regression analysis of Audi by using the SPSS Statistic 25 System. This study is based on annual report of 5 years, from 2014 to 2018. The liquidity risk of Audi AG show in the regression analysis has greater influence by operating ratio (firm-specific factor) in company and inflation rate (macroeconomic) in German.
    Keywords: liquidity risk, firm-specific factors, macroeconomics and corporate governance.
    JEL: G3 O16
    Date: 2019–10–15
  130. By: Jean-Charles Bricongne; Alessandro Turrini; Peter Pontuch
    Abstract: House price assessments relying on price indexes only have a number of limitations, especially if the available time series are short and series averages cannot be taken as reliable benchmarks. To address this issue, the present paper computes house prices in levels for 40 countries: all the EU countries and a number of other advanced and emerging economies. The baseline methodology makes use of information on the total value of dwellings in national accounts statistics and on total floor areas of existing dwelling stocks from census statistics. This top-down methodology simply consists of estimating the average house price per square metre dividing the total value of dwellings for the total floor area. For some countries, the information to carry out the baseline method is not available. In such cases, price level estimates are based on property advertisements on realtors' websites. A correction factor is applied to address the upward bias of prices asked by sellers as compared with transaction prices and improve cross-country comparability. House price level estimates make it possible to compute price to income (PTI) ratios yielding a clear interpretation: the average number of annual incomes needed to buy dwellings with a floor area of 100 m2. Using a signalling approach aimed at identifying PTI threshold that maximises the signal power in predicting downward price adjustments, it is found that a PTI close to 10 works as an across-the board rule of thumb for identifying potentially overvalued house prices. Moreover, when price levels are used in regression-based models to estimate fundamentals-based house price benchmarks, they allow us to exploit the cross-section variation in the data thereby providing additional insights compared with analogous benchmarks based on indexes.
    JEL: E01 R30
    Date: 2019–07
  131. By: Gern, Klaus-Jürgen; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
    Abstract: Die Weltwirtschaft expandierte im ersten Halbjahr 2019 weiterhin mit wenig Dynamik. In den fortgeschrittenen Volkswirtschaften schwächte sich das Expansionstempo zuletzt ab, in den Schwellenländern belebte sich hingegen die zuvor sehr schwache Konjunktur etwas. Vor allem die Industrie befindet sich in einem Abschwung. Der Welthandel ist seit Anfang des Jahres sogar in der Tendenz rückläufig. Im laufenden Jahr dürfte die Weltproduktion nur noch um 3,1 Prozent zunehmen, nach 3,7 Prozent im vergangenen Jahr. Die von den Vereinigten Staaten ausgehenden Handelskonflikte und Unsicherheiten über die wirtschaftlichen Auswirkungen der Amtsführung von populistischen Regierungen in einer Reihe von Schwellenländern belasten den Ausblick. Hinzu kommt in Europa immer noch die Unklarheit über Zeitpunkt und Modalitäten des Brexit. So dürfte sich das weltwirtschaftliche Expansionstempo im kommenden Jahr nur geringfügig auf 3,2 Prozent erhöhen. Damit haben wir unsere Prognose vom Juni für 2019 und 2020 um jeweils 0,1 Prozentpunkte reduziert. Angeregt von einer wieder expansiveren Geldpolitik und unter der Voraussetzung, dass es nicht zu einer weiteren Eskalation der wirtschaftspolitischen Spannungen kommt, dürfte sich die Weltwirtschaft im Jahr 2021 beleben, auch wenn der Zuwachs der Produktion mit voraussichtlich 3,4 Prozent immer noch recht moderat ausfallen wird.
    Keywords: Fortgeschrittene Volkswirtschaften,Schwellenländer,monetary policy
    Date: 2019
  132. By: Marco Arena; Tingyun Chen; Seung M Choi; Nan Geng; Cheikh A. Gueye; Tonny Lybek; Evan Papageorgiou; Yuanyan Sophia Zhang
    Abstract: Macroprudential policy in Europe aligns with the objective of limiting systemic risk, namely the risk of widespread disruption to the provision of financial services that is caused by an impairment of all or parts of the financial system and that can cause serious negative consequences for the real economy.
    Keywords: Macroprudential policies and financial stability;Financial stability;Housing prices;Europe;
  133. By: Arno Hantzsche
    Abstract: This paper studies the response of credit rating agencies to an increase in uncertainty about a government's fiscal position. To that end, a measure of the uncertainty around official forecasts of the public budget deficit is constructed that is comparable across time and a range of advanced economies. To estimate the effect of fiscal uncertainty on sovereign credit ratings, an empirical framework is developed that accounts for the high stability of ratings over time. Results suggest that fiscal uncertainty increases the predictive power of a model of rating changes and can explain why sovereign ratings are often changed more frequently during crises.
    Keywords: uncertainty, fiscal policy, sovereign credit ratings, ordered outcome estimation
    JEL: C35 G24 H68
    Date: 2019–11–12
  134. By: Koshy, Perumal
    Abstract: Entrepreneurs and free enterprises are crucial for economic independence. Mahatma Gandhi gave priority to revitalizing entrepreneurship from the grassroots so that there would be a strong community of entrepreneurs to rebuild India. However, after independence, Indian economy emerged as a mixed economic system, with a plethora of regulations, inspectors, rules primarily targeting the businesses and entrepreneurs. Even the reforms heralded in 1991 could not completely demolish regulatory overburden that strangles entrepreneurs. Indian entrepreneurship policy framework and startup ecosystem has evolved over the years as one with potential to facilitate new venture creation at ease. The current ecosystem and reformed regulatory framework is much more entrepreneur and small business friendly. However, much needs to happen at the ground level. This article looks at how entrepreneurial ecosystem evolved and emerged in India. How was it envisioned and how it shaped up during the decades under various Indian governments? And it concludes with a note on future task and scope.
    Keywords: Entrepreneurship; Policy; India; Startup; Ecosystem; Businesses; Reforms; Business incubators; Finance for Entrepreneurs
    JEL: L5 L51 L53 M13
    Date: 2019–12–06
  135. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Potjagailo, Galina
    Abstract: The economic upswing in Germany continues, although the expansion loses some steam. Compared to our summer forecast, we reduced our expectations for GDP growth by 0.1 and 0.3 percentage points in the current and next year, respectively, to 1.9 percent (2018) and 2.0 percent (2019). So for now, the boom in Germany persists. However, due to the already very high capacity utilization in many sectors, companies face increasing difficulties in continuing to expand their production at a brisk pace. This is especially palpable in the construction sector where in the face of very favorable circumstances production increases were quite restrained but prices rose markedly. The labor market also exhibits increasing shortages. Not least due to this, increases in employment should reduce over time. Next year, the expansionary fiscal policy will support the boom. The extensive tax reductions and spending increases will raise disposable incomes considerably, such that private consumption expenditures should grow by 2.2 percent -the fastest in 20 years. Because of the robust world economy after the phase of weakness at the beginning of the year, exports should also accelerate again. The additional temporary revenue of public authorities due to the current business cycle position is spent hand over fist on expenditures that are intended to persist in the long-run. The currently still sizeable structural budget surplus will therefore be eradicated by the year 2020.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook,forecast evaluation,investment income
    Date: 2018
  136. By: Mikael Randrup Byrialsen; Hamid Raza
    Abstract: This paper emphasizes the need for understanding the interdependencies between the real and financial sides of the economy in macroeconomic models. While the real side of the economy is generally well explained in macroeconomic models, the financial side and its interaction with the real economy remains poorly understood. This paper makes an attempt to model the interdependencies between the real and financial sides of the economy in Denmark while adopting a stock-flow consistent approach. The model is estimated using Danish data for the period 1995-2016. The model is simulated to create a baseline scenario for the period 2017-30, against which the effects of two standard shocks (fiscal shocks and interest rate shocks) are analyzed. Overall, our model is able to replicate the stylized facts, as will be discussed. While the model structure is fairly simple due to different constraints, the use of the stock-flow approach makes it possible to explain several transmission mechanisms through which real economic behavior can affect the balance sheets, and at the same time capture the feedback effects from the balance sheets to the real economy. Finally, we discuss certain limitations of our model.
    Keywords: Empirical Stock-Flow Consistent Models; Denmark; Open Economy
    JEL: E17 E12 F41
  137. By: Tokhir N Mirzoev; Ling Zhu; Yang Yang; Tian Zhang; Erik Roos; Andrea Pescatori; Akito Matsumoto
    Abstract: The oil market is undergoing fundamental change. New technologies are increasing the supply of oil from old and new sources, while rising concerns over the environment are seeing the world gradually moving away from oil. This spells a significant challenge for oil-exporting countries, including those of the Gulf Cooperation Council (GCC) who account for a fifth of the world’s oil production. The GCC countries have recognized the need to reduce their reliance on oil and are all implementing reforms to diversify their economies as well as fiscal and external revenues. Nevertheless, as global oil demand is expected to peak in the next two decades, the associated fiscal imperative could be both larger and more urgent than implied by the GCC countries’ existing plans.
    Keywords: Fiscal policy;Oil exporting countries;Gulf Cooperation Council (GCC);Fiscal policy;Oil-exporting countries
  138. By: Tamas Peragovics (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: European governments have shown growing interest in investment screening mechanisms in order to restrain access of non-EU investors to strategically sensitive industries. Most of this interest comes as recent high-profile takeovers by Chinese companies are increasingly perceived as detrimental for national security. While the practice of screening investments is not new, the strengthening of regulatory oversight in major European countries like the UK and Germany indicates a more challenging investment landscape for non-EU investors like Chinese companies. The EU also adopted a new framework to screen foreign investments, but it relies primarily on member state input and cannot veto actual acquisition plans on behalf of the community. While Slovakia has no dedicated investment screening mechanism, Czechia is in the legislative process of establishing one. Poland and Hungary, with generally similar screening processes, differ in their respective relations with China, spelling doubt over potential foreign and investment policy cooperation in the V4. This working paper provides an analysis of recent developments in investment screening regulations in Europe, with a special focus on the V4 countries.
    Keywords: FDI, investment screening, national security, V4
    JEL: F21 P33 P45 E61 O52
    Date: 2019–05
  139. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Hauber, Philipp; Jannsen, Nils; Kooths, Stefan; Potjagailo, Galina
    Abstract: The air for the economic upswing in Germany is getting thinner. We expect German GDP to grow by 2.5 percent this year and by 2.3 percent in 2019 after an increase of 2.2 percent in 2017. With capacity utilization already above normal levels at the current juncture, our forecast implies that the German economy is entering a boom period. Capacity constraints already seem to limit production in the construction sector, in which capacity utilization is at historic highs according to survey data. Constraints are becoming also more and more apparent on the labour market where it becomes increasingly difficult for firms to fill vacancies. The tensions on the labour market will lead to stronger increases in gross wages and salaries. Moreover, several measures planned by the new German government will further stimulate disposable income of private households, in particular in 2019. In sum, we expect net wages and salaries to increase by 5.4 percent in 2019, the highest growth rate since 1992. Against this backdrop, private consumption will strongly expand by 1.7 percent in 2018 and by 2.3 percent in 2019. High and increasing capacity utilization will further stimulate business investment. Even though the measures planned by the new German government will structurally weigh on the budget balance, the overall budget surpluses are expected to increase in tendency further due to strong increases in government revenues caused by the economic boom. However, we expect the structural budget balance to enter negative territory again in 2019. Even the structural budget balance currently overestimates the scope for additional governmental expenditures as it only accounts for the stance of the business cycle but neither for the unusually low expenditures for debt services due to the low interest rate levels nor for additional budget burdens due to the demographic change, which will become visible in the next years.
    Keywords: consumption,Forecast error evaluation,business cycle forecast,stabilization policy,leading indicators,outlook,factor model
    Date: 2018
  140. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia; Potjagailo, Galina
    Abstract: The upswing in Germany is starting to falter. In the third quarter, the economy shrank for the first time in three years. This decline was primarily due to special factors. In particular, problems with the new vehicle certification standard (WLTP) affected the automotive industry. In addition to that, low water levels in the Rhine river impaired production. As these temporary factors expire, the economic expansion will pick up again. However, even so the upswing will increasingly face its limits. In the face of very high capacity utilisations, companies are having appreciable difficulties to keep expanding production at a quick pace. This is especially apparent in the construction sector, where production probably has reached its limit already, such that further increases will only be possible insofar as firms are able to expand their capacities. The palpable tightness of the labour market will continue. This will restrict employment growth and lead to strong wage increases. Household disposable incomes should continue to rise markedly. Next year, extensive tax reductions and transfer increases will provide an additional boost. Therefore, private consumption will probably increase substantially. Exports will quickly move on from their current weakness, which was to a large extent due to the recent troubles in the car sector. But the gradual cooling down of the global economic expansion will also reduce the dynamism of exports in the future. Against this backdrop, we have reduced our forecast for German GDP by 0.4 percentage points since autumn, such that we now expect growth of 1.5 percent in 2018. In 2019, we see the economy growing by 1.8 percent (autumn: 2.0 percent). A similar rate is expected for 2020, because while economic dynamism will slow down markedly, the high number of working days will give a boost to GDP in that year.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook
    Date: 2018
  141. By: Alleyne, Dillon; Hendrickson, Michael; McLean, Sheldon; Oyolola, Maharouf; Pantin, Machel; Skerrette, Nyasha; Tokuda, Hidenobu
    Abstract: This survey examines the economic performance of economies of the Caribbean in 2018 and comprises six chapters. The first chapter gives an overview of global, regional and subregional economic performance as well as unemployment in the Caribbean. The second provides an analysis of governments in the subregion’s fiscal performance and debt burden. The third looks at monetary policy and variables. The fourth is focused external sector and its factors. The fifth chapter concludes, while the final chapter includes individual country briefs that give an overview of the economic situation for the Bahamas, Barbados, Belize, Guyana, Jamaica, Suriname and a subregional assessment of the countries of the Eastern Caribbean Currency Union.
    Date: 2020–01–09
  142. By: Clavijo-Cortes, Pedro; Robledo-Campo, Jacobo; Mendoza-Tolosa, Henry
    Abstract: This article aims to evaluate the effect of the maldistribution of income on economic growth. From the empirical point of view, the literature on the matter is considerable. However, previous studies have employed the Gini index as a measure of inequality which tends to underestimate income disparities across countries. Because the complexity of inequality has changed over time and due to the Gini index is incapable of capturing the changing nature of distribution, we employ the Palma Ratio instead of the Gini index. The main advantage of employing the Palma Ratio is that it captures the dynamics of inequality and allows us to analyze the roots of this maldistribution. The relationship is estimated employing the methodology of Arellano-Bond for dynamic panels, and the results suggest that maldistribution of income generates a sluggish economic growth. In fact, our results suggest that inequality could be associated with a substantial reduction in growth.
    Keywords: Palma Ratio, dynamic panels, inequality, economic growth.
    JEL: C23 D63 E25 O11 O47
    Date: 2019–11–20
  143. By: Hockett, Robert C.; Library, Cornell
    Abstract: I show that the intimate functional links among states, monies, and financial systems, ubiquitous across history and geography as they are, are not accidental. I do so by analytically 'deriving' first the polity, then money and finance, from a temporally extended implicit covenant that is both grounded in and facilitative of ongoing joint agency among persons. This lends to state and money alike their shared normative and, once formally systematized, legal character. I indicate throughout how this shared genesis, function, and normative character keep state, money, and ultimately finance practically ‘joined at the hip,’ and manifest how polity and economy, indeed our political and productive selves, are thus joined as well. To recognize and to ‘own’ this, I conclude, is in a sense finally to own our own selves.
    Date: 2018–11–06
  144. By: Jacob, Jannet Farida (National Institute of Public Finance and Policy); Chakraborty, Lekha (National Institute of Public Finance and Policy)
    Abstract: Karnataka is the first state in India to have introduced a fiscal rules framework, even before the central government had enacted the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. The Karnataka Fiscal Responsibility Act was enacted in 2002. Karnataka is consistently fiscally-prudent with its revenue deficit-to-GSDP ratio reducing to near-zero and the fiscal deficit-to-GSDP ratio below 3%. How the state has achieved fiscal prudence? Is it through revenue buoyancy or through expenditure compression? Our analysis shows that the tax-to-GSDP ratio of the state is not increasing and it is around 7% of GSDP. As around 70% of state finances come from own revenue resources, has the declining buoyancy in “own revenue” prompted the state to go for selective expenditure compression to maintain fiscal prudence? Examining the expenditure side, we found that the state has compressed its capital expenditure and marginally decreased its spending on education and social welfare and nutrition. This has its ramification on the outcomes of education, on the one hand, in terms of declining enrolment at the primary level and increasing dropout rates in secondary level, and on the other hand, rendering Karnataka as one of the most vulnerable states in terms of nutrition (anthropometric) indicators. There seems to be a shift in the focus of public spending from education and health to water and sanitation, within the social sector budget. At this juncture, it is intriguing that the state, with comfortable levels of fiscal consolidation since 2005, has resorted to heavy off-budget borrowing to finance state programmes. This has added to the already increasing ratio of interest payment to own revenue receipt, albeit off budget borrowing being hardly one percent of GSDP. The fiscal marksmanship analysis showed systematic bias in the forecasting of own tax revenue, grants and capital expenditure. This calls for the reduction in the volatility of intergovernmental fiscal transfers to the state as well as improving the assumptions and forecasting methodologies of the macro-fiscal variables like own tax revenue and capital spending.
    Date: 2020–01
  145. By: Ademmer, Martin; Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia; Potjagailo, Galina
    Abstract: The German economy is facing strong headwinds. In recent months, economic momentum has continued to slow down and companies are much more pessimistic about the future. The high level of global economic policy uncertainty likely was an important contributing factor. Gross domestic product (GDP) even threatens to decline in the second quarter. We therefore lower our forecast for GDP growth to 0.6 percent in the current year (spring forecast: 1 percent) and 1.6 percent in the coming year (1.8 percent). In the second half of the year, aggregate production is expected to trend up again, albeit at only a moderate pace. One reason for this is that private consumption, after having taken a short break in the second quarter following the very high growth rate at the beginning of the year, is likely to grow noticeably again, in line with the continued strong increase in incomes. Exports, which have lately remained well behind the relatively robust expansion of the global economy, are likely to gradually regain their footing. Construction investment is set to retain its pronounced upward momentum, even though persisting capacity constraints will lead to further sharp rises in construction prices. However, due to the gloomy sales and earnings outlook, no more impetus can be expected from business investment. The slower economic development will also leave its mark on the labor market. Especially in the manufacturing sector, more and more companies are planning to reduce their workforce. In addition, it seems that even if companies still have vacancies to be filled, they continue to face difficulties in finding workers with adequate skills. Against this backdrop, government budget surpluses are set to decline markedly, as the slower pace of economic activity will weigh on revenue while, according to plans, spending will increase significantly.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook
    Date: 2019
  146. By: Brynjolfsson, Erik; Collis, Avinash; Diewert, Erwin; Eggers, Felix; FOX, Kevin J.
    Abstract: A puzzling development over the past 15 years is decline in Total Factor Productivity in many advanced economies. Part of this decline may be due to the rapid growth of free digital goods. Statistical agencies have no reliable way to measure the benefits of the introduction of free goods. This is true even when the provision of the goods is paid for via advertising. Yet these free goods are enormously popular and surely create substantial utility for households. In this paper, we suggest a methodology which will allow statistical agencies to form rough approximations to the benefits that flow to households from new free goods. The present paper draws heavily on the contributions of Brynjolfsson, Collis, Diewert, Eggers and Fox (2019) (subsequent references will be to BCDEF) and Diewert, Fox and Schreyer (2019). In section I, we outline how the reservation price methodology introduced by Hicks (1940; 114) can be used to measure the consumption benefits to households of new products that are provided at zero cost or costs that are close to zero. This Hicksian approach relies on normal index number theory but requires the estimation of reservation prices. In section II, we show how choice experiments about compensation for product withdrawals can be used to estimate these reservation prices. Section III concludes with a summary and implications.
    Keywords: Welfare measurement, GDP, Productivity, mismeasurement, productivity slowdown, new goods, free goods, online choice experiments, GDP-B.
    JEL: C43 D60 E23 O3 O4
    Date: 2020–01–10

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