nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒02‒03
110 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Mastering Central Bank Communication Challenges via Twitter By Korhonen, Iikka; Newby, Elisa
  2. Effects of state-dependent forward guidance, large-scale asset purchases and fiscal stimulus in a low-interest-rate environment By Coenen, Günter; Montes-Galdón, Carlos; Smets, Frank
  3. What Is Driving The TFP Slowdown? Insights From a Schumpeterian DSGE Model By Pinchetti, Marco
  4. Effects of state-dependent forward guidance, large-scale asset purchases and fiscal stimulus in a low-interest-rate environment By Coenen, Günter; Montes-Galdón, Carlos; Smets, Frank
  5. Fiscal Policy and the Nominal Term Premium By Roman Horvath; Lorant Kaszab; Ales Marsal
  6. Social Learning and Monetary Policy at the Effective Lower Bound By Jasmina Arifovic; Alex Grimaud; Isabelle Salle; Gauthier Vermandel
  7. Micro Jumps, Macro Humps: Monetary Policy and Business Cycles in an Estimated HANK Model By Adrien Auclert; Matthew Rognlie; Ludwig Straub
  8. Unconventional monetary policy and inflation expectations in the euro area By Aßhoff, Sina; Belke, Ansgar; Osowski, Thomas
  9. Effects of Fiscal Policy on Credit Markets By Alan J. Auerbach; Yuriy Gorodnichenko; Daniel Murphy
  10. Can the Hybridity of Law and Finance Save Central Banking in a Zero-Lower Bound Recession? A Money and Legal View By Saeidinezhad, Elham; Hovhannisyan, Tatev
  11. Macroeconomic Shocks and Racial Labour Market Differences in the U.S. By Kuhelika De; Ryan A. Compton; Daniel C. Giedeman; Gary A. Hoover
  12. Financial frictions,the Phillips curve and monetary policy By Lieberknecht, Philipp
  13. Inflation targets and the zero lower bound in a behavioral macroeconomic model By de Grauwe, Paul; Yuemei, Ji
  14. The effects of conventional and unconventional monetary policy : identification through the yield curve By Kortela, Tomi; Nelimarkka, Jaakko
  15. The macroeconomic implications of measurement problems due to digitalisation By Itkonen, Juha
  16. Speculation-driven Business Cycles By Saki Bigio; Eduardo Zilberman
  17. The Chair of the U.S. Federal Reserve and the Macroeconomic Causality Regimes By Yunus Aksoy; Rubens Morita; Zacharias PsaradakisAuthor-Workplace-Name: Birkbeck, University of London
  18. The Emergence of Procyclical Fertility: The Role of Gender Differences in Employment Risk By Sena Coskun; Husnu Dalgic
  19. Dampened expectations in the Phillips Curve: a note By Dennery, Charles
  20. Forward Guidance and Corporate Lending By Delis, Manthos; Hong, Sizhe; Paltalidis, Nikos; Philip, Dennis
  21. Compositional nature of firm growth and aggregate fluctuations By Smirnyagin, Vladimir
  22. PreMISE: DSGE Model of the Slovak Economy Integrated in a Monetary Union By Milan Vyskrabka; Stanislav Tvrz; Martin Zeleznik
  23. A Phillips curve for the euro area By Ball, Laurence; Mazumder, Sandeep
  24. Changing supply elasticities and regional housing booms By Aastveit, Knut Are; Albuquerque, Bruno; Anundsen, André
  25. Non-Linear Effects of Tax Changes on Output: The Role of the Initial Level of Taxation By Samara Gunter; Daniel Riera-Crichton; Carlos Vegh; Guillermo Vuletin
  26. Income Taxation Rules and Stability of a Small Open Economy By Chen, Been-Lon; Hu, Yunfang; Mino, Kazuo
  27. The Bright Side of the Doom Loop: Banks Exposure and Default Incentives By Luis Rojas; Dominik Thaler
  28. “Expected, Unexpected, Good and Bad Uncertainty" By Helena Chuliá; Jorge M. Uribe
  29. An unobserved components model for Finland – Estimates of potential output and NAWRU By Sariola, Mikko
  30. Identifying Government Spending Shocks and Multipliers in Korea By Kwangyong Park; Eun Kyung Lee
  31. Optimal Fiscal Policy without Commitment: Revisiting Lucas-Stokey By Davide Debortoli; Ricardo Nunes; Pierre Yared
  32. The Cash-Flow Channel of Monetary Policy: Evidence from Mortgage Borrowers By Sang-yoon Song
  33. The 3 E’s of central bank communication with the public By Haldane, Andrew; Macaulay, Alistair; McMahon, Michael
  34. Household Balance Sheet Channels of Monetary Policy: A Back of the Envelope Calculation for the Euro Area By Jiri Slacalek; Oreste Tristani; Giovanni L. Violante
  35. Precautionary Saving in a Financially-Constrained Firm By Andrew B. Abel; Stavros Panageas
  36. Developing a DSGE Consumption Function for a CGE Model By Peter B. Dixon; Maureen T. Rimmer
  37. General Equilibrium Effects of Cash Transfers: Experimental Evidence from Kenya By Dennis Egger; Johannes Haushofer; Edward Miguel; Paul Niehaus; Michael W. Walker
  38. Output Composition of Monetary Policy Transmission in Mongolia By Chuluunbayar, Delgerjargal
  39. Expanded GDP for Welfare Measurement in the 21st Century By Charles R. Hulten; Leonard I. Nakamura
  40. Exchange Rates and Consumer Prices: Evidence from Brexit By Holger Breinlich; Elsa Leromain; Dennis Novy; Thomas Sampson
  41. Macro-Financial Linkages in the High-Frequency Domain: The Effects of Uncertainty on Realized Volatility By Guglielmo Maria Caporale; Menelaos Karanasos; Stavroula Yfanti
  42. Talous kasvaa - vai kasvaako? Kansantalouden tilinpidon revisiot tarkastelussa By Kangasrääsiö, Suvi
  43. The U.S. Public Debt Valuation Puzzle By Zhengyang Jiang; Hanno Lustig; Stijn Van Nieuwerburgh; Mindy Z. Xiaolan
  44. Estimating the Optimal Inflation Target from Trends in Relative Prices By Klaus Adam; Henning Weber
  45. A Structural Change in the Trend and Cycle in Korea By Nam Gang Lee; Byoung Hoon Seok
  46. The Relationship between Public Debt and Economic Growth: Nonlinearity and Country-Specificity By Kummer-Noormamode, Sabina
  47. Skewed Business Cycles By Sergio Salgado; Fatih Guvenen; Nicholas Bloom
  48. Credit growth, the yield curve and financial crisis prediction: evidence from a machine learning approach By Bluwstein, Kristina; Buckmann, Marcus; Joseph, Andreas; Kang, Miao; Kapadia, Sujit; Simsek, Özgür
  49. Forecasting industrial production in Germany: The predictive power of leading indicators By Schlösser, Alexander
  50. Wage Cyclicality Revisited: The Role of Hiring Standards By Choi, Sekyu; Figueroa, Nincen; Villena-Roldán, Benjamin
  51. Japanese Foreign Exchange Interventions, 1971-2018: Estimating a Reaction Function Using the Best Proxy By Takatoshi Ito; Tomoyoshi Yabu
  52. Le Pont de Londres: interactions between monetary and prudential policies in cross-border lending By Bussière, Matthieu; Hills, Robert; Lloyd, Simon; Meunier, Baptiste; Pedrono, Justine; Reinhardt, Dennis; Sowerbutts, Rhiannon
  53. Banks' Credit Losses and Provisioning over the Business Cycle: Implications for IFRS 9 By Simona Malovana; Zaneta Tesarova
  54. TFSAs: Time for a Tune-Up By Alex Laurin
  55. Bad bank resolutions and bank lending By Michael Brei; Leonardo Gambacorta; Marcella Lucchetta; Marcella Lucchetta
  56. Monetary Policy and Reserve Requirements in a Small Open Economy By Carlos Alberto Takashi Haraguchi; Jose Angelo Divino
  57. Understanding the Size of the Government Spending Multiplier: It’s in the Sign By Régis Barnichon; Davide Debortoli; Christian Matthes
  58. Who did it? A European detective story was it real, financial, monetary and/or institutional: Tracking growth in the Euro area with an atheoretical tool By Mariarosaria Comunale; Francesco Paolo Mongelli
  59. Health Shocks and the Evolution of Earnings over the Life-Cycle By Michael Keane; Elena Capatina; Shiko Maruyama
  60. Identifying SVARs from sparse narrative instruments: dynamic effects of U.S. macroprudential policies By Budnik, Katarzyna; Rünstler, Gerhard
  61. Quantum Prices By Diego Aparicio; Roberto Rigobon
  62. Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains By Andreas Fagereng; Martin Blomhoff Holm; Benjamin Moll; Gisle Natvik
  63. No-arbitrage pricing of GDP-linked bonds By Eguren-Martin, Fernando; Meldrum, Andrew; Yan, Wen
  64. The US Fiscal Consolidation, its impact and policy implications By Chuluunbayar, Delgerjargal
  65. Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311–2018 By Schmelzing, Paul
  66. Pension, Retirement, and Growth in the Presence Heterogeneous Elderly By Hirono, Makoto; Mino, Kazuo
  67. The End of Economic Growth? Unintended Consequences of a Declining Population By Charles I. Jones
  68. Dynastic Precautionary Savings By Corina Boar
  69. Enhancing property tax compliance in Mandalay By Blake, Michael; Kriticos, Sebastian
  70. Employment Fluctuations, Job Polarization and Non-Standard Work: Evidence from France and the US By Olivier Charlot; Idriss Fontaine; Thepthida Sopraseuth
  71. Imputing Missing Values in the US Census Bureau's County Business Patterns By Fabian Eckert; Teresa C. Fort; Peter K. Schott; Natalie J. Yang
  72. Tax Cuts Starve the Beast! Evidence from Germany By Clemens Fuest; Florian Neumeier; Daniel Stöhlker
  73. The Impact of Deunionization on the Growth and Dispersion of Productivity and Pay By Giovanni Dosi; Richard B. Freeman; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
  74. Advanced Macroeconomics for Undergraduates By Chu, Angus C.
  75. Decomposing Local Fiscal Multipliers: Evidence from Japan By Taisuke Kameda; Ryoichi Namba; Takayuki Tsuruga
  76. Fiscal Stabilization in the United States: Lessons for Monetary Unions By Nikolov, Plamen; Pasimeni, Paolo
  77. Information weighting under least squares adaptive learning By Jaqueson K. Galimberti
  78. Rationally Inattentive savers and Monetary Policy Changes: A Laboratory Experiment By Andrea Civelli; Cary Deck; Antonella Tutino
  79. CO2 Emissions in Finland 2019–2023 and the Carbon Neutrality Objective By Kaitila, Ville
  80. Die Target-Salden in der Eurozone: "Falle" oder Scheinproblem? By Eger, Thomas; Weise, Peter
  81. Real Effects of Search Frictions in Consumer Credit Markets By Bronson Argyle; Taylor D. Nadauld; Christopher Palmer
  82. Wealth effect on consumption during the sovereign debt crisis: households heterogeneity in the euro area By Garbinti, Bertrand; Lamarche, Pierre; Savignac, Frédérique; Lecanu, Charlélie
  83. Tiered CBDC and the financial system By Bindseil, Ulrich
  84. Who Are the Hand-to-Mouth By Mark A. Aguiar; Mark Bils; Corina Boar
  85. Business Cycle Anatomy By Angeletos, Georges Marios; Collard, Fabrice; Dellas, Harris
  86. Uncertainty, Credit and Investment: Evidence from Firm-Bank Matched Data By Youngju Kim; Seohyun Lee; Hyunjoon Lim
  87. The Optimal Mix of Monetary and Climate Policy By Chen, Chuanqi; Pan, Dongyang
  88. Who are the champions? Inequality, economic freedom and the olympics By Kufenko, Vadim; Geloso, Vincent
  89. Energy based estimation of the Shadow Economy: The role of Governance Quality. By Dimitrios Psychoyios; Olympia Missiou; Theologos Dergiades
  90. A Cohort-Analysis of Age-Wealth Profile in Finland By Päivi Kankaanranta
  91. Medicare and the Geography of Financial Health By Paul Goldsmith-Pinkham; Maxim Pinkovskiy; Jacob Wallace
  92. U.S. Monetary Policy: A Global View By Mary C. Daly
  93. The quality-weighted matching function: Did the German labour market reforms trade of efficiency against job quality? By Gartner, Hermann; Rothe, Thomas; Weber, Enzo
  94. Sustainability traps: patience and innovation By Christos Karydas; Evangelos V. Dioikitopoulos
  95. Communication for Coproduction: A Systematic Review and Research Agenda By Li, Huafang
  96. Das Klimaschutzprogramm - 2030 Effekte auf Wirtschaft und Erwerbstätigkeit durch das Klimaschutzprogramm 2030 der Bundesregierung By Mönnig, Anke; Schneemann, Christian; Weber, Enzo; Zika, Gerd
  97. Political Activism and the Provision of Dynamic Incentives By Antoine Camous; Russell Cooper
  98. Equilibrium and convergence in personal income distribution? How European countries performed during a phase of huge economic turbulence (2004-2017) By Guo, Yanling; Sell, Friedrich L.
  99. Considerations for land value capture reform in the Greater Amman Municipality By Haas, Astrid; Kriticos, Sebastian
  100. Symmetric Markovian games of commons with potentially sustainable endogenous growth By Hakobyan, Zaruhi; Koulovatianos, Christos
  101. The Labor Market Value of Experience from Temporary Self-employment By Lougui, Monia; Broström, Anders
  102. "Economic determinants of employment sentiment: A socio-demographic analysis for the euro area" By Oscar Claveria; Ivana Lolic; Enric Monte; Petar Soric
  103. Productivity convergence trends within Russian industries: firm-level evidence By Evguenia Bessonova; Anna Tsvetkova
  104. Socioeconomic Decline and Death: Midlife Impacts of Graduating in a Recession By Hannes Schwandt; Till M. von Wachter
  105. The future incidence, prevalence and costs of stroke in the UK By Wittenberg, Raphael; King, Derek
  106. A comparison among Reinforcement Learning algorithms in financial trading systems By Marco Corazza; Giovanni Fasano; Riccardo Gusso; Raffaele Pesenti
  107. Nexus of Financial Development, Innovation for Green Growth in ASEAN Countries By Jayasooriya, Sujith
  108. On the Simultaneous Openness Hypothesis: FDI, Trade and TFP Dynamics in Sub-Saharan Africa By Simplice A. Asongu; Joseph Nnanna; Paul N. Acha-Anyi
  109. Economic policy uncertainty in the euro area: an unsupervised machine learning approach By Azqueta-Gavaldon, Andres; Hirschbühl, Dominik; Onorante, Luca; Saiz, Lorena
  110. The Effects of Rent Control in Latin America: A Century of Regulations in Argentina By Alejandro D. Jacobo; Konstantin A. Kholodilin

  1. By: Korhonen, Iikka; Newby, Elisa
    Abstract: This study examines the Twitter policies and use of European central banks. Almost every European central bank maintains an institutional Twitter account, but tweeting activity, tweet content and usage restrictions on Twitter use by individual staff members vary considerably. We further consider the evolution of Twitter use by European central banks in light of the growing importance of financial stability in central bank policy messaging. To study these issues, we create a database of tweets from European central banks and financial supervisors, as well as attempt to gauge how closely professional economists follow central banks on Twitter. Central banks’ Twitter activity has no relation to citizens’ online participation. We also find that central banks’ communication on financial stability with Twitter has increased over time, especially in comparison with monetary policy.
    Keywords: central bank communication,monetary policy,financial stability,Twitter
    JEL: E0 E5 E52 E58 G28
    Date: 2019
  2. By: Coenen, Günter; Montes-Galdón, Carlos; Smets, Frank
    Abstract: We study the incidence and severity of lower-bound episodes and the efficacy of three types of state-dependent policies—forward guidance about the future path of interest rates, large-scale asset purchases and spending-based fiscal stimulus—in ameliorating the adverse consequences stemming from the effective lower bound on nominal interest rates. In particular, we focus on the euro area economy and examine, using the ECB’s New Area-Wide Model, the consequences of the lower bound both for the near-term economic outlook, characterised by persistently low nominal interest rates and inflation, and in a lasting low-real-interest-rate world. Our findings suggest that, if unaddressed, the lower bound can have very substantial costs in terms of worsened macroeconomic performance. Forward guidance, if fully credible, is most powerful and can largely undo the distortionary effects due to the lower bound. A combination of imperfectly credible forward guidance, asset purchases and fiscal stimulus is almost equally effective, in particular when asset purchases enhance the credibility of the forward guidance policy via a signalling effect. JEL Classification: E31, E32, E37, E52, E62
    Keywords: asset purchases, effective lower bound, euro area, fiscal policy, forward guidance, monetary policy
    Date: 2020–01
  3. By: Pinchetti, Marco
    Abstract: In this paper, I incorporate a Schumpeterian mechanism of creative destruction in a medium-scale DSGE framework. In the model, a sector of profit-maximizing innovators invests in R&D and endogenously gen- erates productivity gains, ultimately determining the economy's growth rate. I estimate the model using Bayesian methods on U.S. data of the last 25 years (1993q1-2018q4) in order to disentangle the key forces underlying the productivity slowdown experienced by the US economy since the early 2000s. In contrast with the previous literature, I exploit Fernald (2014) data on TFP, factor utilization and labour quality to discipline the production function, and find that the bulk of the TFP slowdown is due to a decrease in innovation's ability to generate TFP gains. These findings challenge the view of a large part of the literature, according to which the recent TFP dynamics in the US are mostly driven by demand slumps and/or liquidity crunches.
    Keywords: DSGE model, Endogenous TFP, Schumpeterian Growth, TFP Slowdown
    JEL: E24 E32 E5 O47
    Date: 2020–01–24
  4. By: Coenen, Günter; Montes-Galdón, Carlos; Smets, Frank
    Abstract: We study the incidence and severity of lower-bound episodes and the efficacy of three types of state-dependent policies - forward guidance about the future path of interest rates, large-scale asset purchases and spending-based fiscal stimulus - in ameliorating the adverse consequences stemming from the effective lower bound on nominal interest rates. In particular, we focus on the euro area economy and examine, using the ECB's New Area-Wide Model, the consequences of the lower bound both for the near-term economic outlook, characterised by persistently low nominal interest rates and inflation, and in a lasting low-real-interest-rate world. Our findings suggest that, if unaddressed, the lower bound can have very substantial costs in terms of worsened macroeconomic performance. Forward guidance, if fully credible, is most powerful and can largely undo the distortionary effects due to the lower bound. A combination of imperfectly credible forward guidance, asset purchases and fiscal stimulus is almost equally effective, in particular when asset purchases enhance the credibility of the forward guidance policy via a signalling effect.
    Keywords: effective lower bound,monetary policy,forward guidance,asset purchases,fiscal policy,euro area
    JEL: E31 E32 E37 E52 E62
    Date: 2020
  5. By: Roman Horvath (Charles University, Prague, Czech Republic); Lorant Kaszab (Magyar Nemzeti Bank, Budapest, Hungary); Ales Marsal (Narodna banka Slovenska, Bratislava, Slovakia)
    Abstract: We estimate a New Keynesian model on post-war US data with generalised method of moments using either constant or time-varying debt and distortionary labor income taxes. We show that accounting for government debt and distortionary taxes help the New Keynesian model match the level of the nominal term premium with a lower relative risk-aversion than typically found in the literature.
    Keywords: zero-coupon bond, nominal term premium, balanced budget rule, income taxation
    JEL: E13 E31 E43 E44 E62
    Date: 2019–12
  6. By: Jasmina Arifovic; Alex Grimaud; Isabelle Salle; Gauthier Vermandel
    Abstract: The first contribution of this paper is to develop a model that jointly accounts for the missing disinflation in the wake of the Great Recession and the subsequently observed inflation-less recovery. The key mechanism works through heterogeneous expectations that may durably lose their anchorage to the central bank (CB)’s target and coordinate on particularly persistent below-target paths. We jointly estimate the structural and the learning parameters of the model by matching moments from both macroeconomic and Survey of Professional Forecasters data. The welfare cost associated with those dynamics may be reduced if the CB communicates to the agents its target or its own inflation forecasts, as communication helps anchor expectations at the target. However, the CB may lose its credibility whenever its announcements become decoupled from actual inflation, for instance in the face of large and unexpected shocks.
    Keywords: Business fluctuations and cycles; Central bank research; Credibility; Economic models; Monetary Policy; Monetary policy communications
    JEL: C82 E32 E52
    Date: 2020–01
  7. By: Adrien Auclert; Matthew Rognlie; Ludwig Straub
    Abstract: We estimate a Heterogeneous-Agent New Keynesian model with sticky household expectations that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic evidence on the impulse response to a monetary policy shock. Our estimated model uncovers a central role for investment in the transmission mechanism of monetary policy, as high MPCs amplify the investment response in the data. This force also generates a procyclical response of consumption to investment shocks, leading our model to infer a central role for these shocks as a source of business cycles.
    JEL: E21 E22 E32 E43 E52
    Date: 2020–01
  8. By: Aßhoff, Sina; Belke, Ansgar; Osowski, Thomas
    Abstract: With the ECB's policy rate having reached the zero lower bound, traditional monetary policy tools became ineffective and the ECB was forced to adopt a set of unconventional monetary policy (UMP) measures. This paper examines the effects of the ECB's UMP on inflation expectations in the Euro area as inflation expectations play a key role for achieving the inflation target of below, but close to 2%. Quantifying the impact of UMP is not straightforward, as standard empirical tools such as VAR cannot be applied. Hence, we use the Qual VAR approach pioneered by Dueker (2005) to overcome this problem. We indeed find that UMP leads to a rise in inflation expectations in the short run but that this effect appears to evaporate in the medium term. Our results put some doubt on the common claim that UMP has consistently contributed to a re-anchoring and a stabilisation of inflation expectations at the zero lower bound. Nevertheless, they indicate a rise in medium-term real GDP growth triggered by UMP.
    Keywords: Bayesian VAR,Qual VAR,inflation expectations,euro area,quantitative easing,unconventional monetary policy
    JEL: C22 E31 E44 E52
    Date: 2020
  9. By: Alan J. Auerbach; Yuriy Gorodnichenko; Daniel Murphy
    Abstract: Credit markets typically freeze in recessions: access to credit declines and the cost of credit increases. A conventional policy response is to rely on monetary tools to saturate financial markets with liquidity. Given limited space for monetary policy in the current economic conditions, we study how fiscal stimulus can influence local credit markets. Using rich geographical variation in U.S. federal government contracts, we document that, in a local economy, interest rates on consumer loans decrease in response to an expansionary government spending shock.
    JEL: E32 E43 E62
    Date: 2020–01
  10. By: Saeidinezhad, Elham; Hovhannisyan, Tatev
    Abstract: As the U.S. experience revealed after the Global Financial Crisis (GFC), zero lower bound (ZLB) limits the Fed's capacity to stimulate the economy through conventional methods of monetary policy. The GFC provided a chance to advance unconventional tools to strengthen economic growth and reclaim financial stability. One of the aims of the existing unconventional tools has been to provide liquidity to the banks. To account for the dynamic reality of the financial ecosystem, we propose two new instruments through which the Fed targets nonbank securities dealers and debt issuers explicitly. By design, these tools should be used as last resort options. The first tool called the "Dealer Option" and functions by opening the Fed's balance sheet to securities dealers to increases liquidity in the market. The second tool, "Elastic Legal Policy," suggests relaxing legal constraints in debt securities contracts during the financial crisis to reduce debt issuers' default risks. Given the interconnectedness of balance sheets and cash flows as well as the role of securities dealers as market makers, the elastic legal policy and dealer option help reduce debtors' defaults and liquidity risk during a financial crisis.
    Keywords: Financial Crisis, Financial Stability, Central Banking, Debt Securities
    JEL: E52 E58 G01 G21 G23 G24 K0 K22
    Date: 2019–12–19
  11. By: Kuhelika De; Ryan A. Compton; Daniel C. Giedeman; Gary A. Hoover
    Abstract: Using 136 United States macroeconomic indicators from 1973 to 2017, and a factor augmented vector autoregression (FAVAR) framework with sign restrictions, we investigate the effects of three structural macroeconomic shocks - monetary, demand, and supply – on the labour market outcomes of black and white Americans. Our results indicate that adverse macroeconomic shocks have differential effects on labour market outcomes for blacks and whites, hurting blacks disproportionately relative to whites. Black Americans appear to be significantly more sensitive to macroeconomic shocks than white Americans. Evidence from our FAVAR model, which uses information on contractionary initiatives by the Federal Reserve, indicates that the employment-population ratio among black Americans falls close to twice as much as that among white Americans, primarily due to an increase in their unemployment rate and not a decline in labour force participation rate. Policymakers should take account of these heterogeneous effects across racial groups when implementing disinflationary guiding policy.
    Keywords: macroeconomic shocks, monetary policy, business cycles, labour market, unemployment, racial inequality, FAVAR, sign restrictions
    JEL: C32 E24 E32 E52 J10 J15
    Date: 2019
  12. By: Lieberknecht, Philipp
    Abstract: This paper proposes a tractable financial accelerator New Keynesian DSGE modelthat allows for closed-form solutions. In the presence of financial frictions, theNew Keynesian Phillips curve features a flat slope with respect to the output gapand is strongly forward-looking. All shocks cause endogenous cost-push effects inthe Phillips curve, leading to larger inflation responses and a breakdown of divinecoincidence. The central bank's contemporaneous trade-off between output gap andinflation stabilization is aggravated. Optimal monetary policy is strongly forward-looking and geared towards inflation stabilization.
    Keywords: financial frictions,financial accelerator,Phillips curve,optimal monetary policy
    JEL: E42 E44 E52 E58
    Date: 2019
  13. By: de Grauwe, Paul; Yuemei, Ji
    Abstract: We analyse the relationship between the level of the inflation target and the zero lower bound imposed on the nominal interest rate in the framework of a behavioural New-Keynesian macroeconomic model in which agents, experiencing cognitive limitations, use adaptive learning forecasting rules. The model produces endogenous waves of optimism and pessimism (animal spirits) that lead to non-normal distributions of the output gap. We find that when the inflation target is too close to zero, the economy can get gripped by ‘chronic pessimism’ that leads to a dominance of negative output gaps and recessions, and in turn feeds back on expectations producing long waves of pessimism. Low inflation targets create the risk of persistence of recessions and low growth. In conclusion, our framework suggests that the 2% inflation target, now pursued by many central banks, is too low.
    Keywords: animal spirits; monetary policy; inflation target; behavioraleconomics; zero lower bound
    JEL: E31 E32
    Date: 2019–04–01
  14. By: Kortela, Tomi; Nelimarkka, Jaakko
    Abstract: Since the Great Recession, the main evolution in monetary policy has been its attempts to affect the medium and the long-term interest rates with instruments other than the policy rate. Consequently, measuring the stance of monetary policy by a single interest rate becomes problematic. This study explores the macroeconomic effects of conventional and unconventional policy measures in the euro area in a unified framework. We identify simultaneously three monetary policy shocks that influence different parts of the yield curve. These shocks reflect various aspects of actions and communications of the European Central Bank in conventional and unconventional monetary policy periods. According to the results, conventional interest rate policy, forward guidance and quantitative easing have asymmetric output and price responses.
    JEL: C32 C36 E43 E52 C54
    Date: 2020–01–22
  15. By: Itkonen, Juha
    Abstract: The impact of digitalisation is not fully reflected in economic statistics. Even though commonly used economic metrics such as GDP are still relevant in assessing the state of the economy, the production of statistics should be developed to measure the digital economy better. The most significant measurement challenges caused by digitalisation relate to new goods, free services, changes in quality and the movement of intellectual capital between countries. Due to digitalisation, GDP and productivity growth may have been understated and the rate of price inflation overstated. Measurement errors alone do not explain the exceptionally weak development in recent years, nor do they eliminate the problems of the Finnish economy and the key challenges for economic policy. Digital technology has, however, improved our well-being in ways that are difficult to measure in money.
    Keywords: GDP,digitalisation,statistics,productivity,technology,digital economy
    JEL: E01 E31 D63 D23 O33
    Date: 2019
  16. By: Saki Bigio (Department of Economics, UCLA; NBER); Eduardo Zilberman (Department of Economics, PUC-Rio; Research Department, Central Bank of Chile)
    Abstract: Speculation, in the spirit of Harrison and Kreps (1978), is introduced into a standard real business cycle model. Investors (speculators) hold heterogeneous beliefs about firm growth. Firm ownership, and thus, the firm’s discount factor varies with waves of optimism and leverage. These waves ripple into firm investments in hours. The firm’s discount factor links the equity premium and labor volatility puzzles. We obtain an upper bound to the amplification that can be generated by speculation for any model of beliefs—a factor of 1.5. A calibration based on diagnostic beliefs amplifies hours volatility by a factor of 1.15 and produces a bubble component of 20 percent.
    Keywords: Heterogeneous Beliefs; Business Cycles; Asset Prices; Speculation; Bubbles
    JEL: D84 E32 E44
    Date: 2020–01
  17. By: Yunus Aksoy (Birkbeck, University of London); Rubens Morita (Birkbeck, University of London); Zacharias PsaradakisAuthor-Workplace-Name: Birkbeck, University of London
    Abstract: We investigate regime-dependent Granger causality between real output, in ation and monetary indicators and map with U.S. Fed Chairperson's tenure since 1965. While all monetary indicators have causal predictive content in certain time periods, we report that the Federal Funds rate (FFR) and Domestic Money (DM) are substitutes in their role as lead or feedback variables to explain variations in real output and in ation. We provide a comprehensive account of evolution of causal relationships associated with all US Fed Chairpersons we consider.
    Keywords: Causality Regimes, Domestic Money, Federal Reserve Chairperson, Markov Switching, Policy Instrument, Vector Autoregression
    JEL: C32 C54 C61 E52 E58
    Date: 2019–12
  18. By: Sena Coskun; Husnu Dalgic
    Abstract: Fertility in the US exhibits a procyclical pattern since 80s. We argue that gender differences in employment risk leads to procyclical fertility; men mostly work in volatile and procyclical industries whereas women are likely to work in relatively stable and countercyclical industries. Our quantitative framework features a general equlibrium OLG model with endogeneous fertility and human capital choice and it shows that current gender industry composition in the US data accounts for all of this procyclicality. Moreover, we argue that gender income ratio (female to male) is higher in bad times which tilts the quality-quantity trade-off towards quality.
    Keywords: fertility, industry cyclicality, industry gender segregation, gender income gap, quality-quantity trade-off
    JEL: E24 E32 J11 J13 J16 J21 J24
    Date: 2020–01
  19. By: Dennery, Charles
    Abstract: Dampened inflation expectations have a significant impact on the New Keynesian Phillips Curve. This dampening not only flattens the long run Phillips Curve, but it can also lead to a bias in the estimation of its short run slope. It also affects the response of a small NK model to demand shocks, and affects the optimal monetary policy: in particular, the price targeting result of the Ramsey policy is violated when there is dampening.
    Keywords: Anchored expectations, Phillips Curve, Ramsey policy
    JEL: E31 E52
    Date: 2019–08–21
  20. By: Delis, Manthos; Hong, Sizhe; Paltalidis, Nikos; Philip, Dennis
    Abstract: We suggest that forward guidance, via “binding” the central bank’s actions and creating associated expectations, fundamentally affects bank-lending decisions independently of other forms of monetary policy. To test this hypothesis, we build a forward guidance measure based on the language used in the Federal Open Market Committee meetings and match this measure with syndicated loans. Our results show that expansionary forward guidance decreases corporate loan spreads and that this effect is stronger for well-capitalized banks lending to riskier firms. Moreover, banks more easily initiate new lending relationships with lower spreads, and the loan syndicates are less concentrated.
    Keywords: Forward guidance; Monetary policy transmission; Bank lending; Corporate loans; Loan spreads; Syndicate structure; Bank-firm relationships
    JEL: E43 E52 E58 G21
    Date: 2020–01–15
  21. By: Smirnyagin, Vladimir (University of Minnesota)
    Abstract: This paper studies firm dynamics over the business cycle. I present evidence from the United Kingdom that more rapidly growing firms are born in expansions than in recessions. Using administrative records from Census data, I find that this observation also holds for the last four recessions in the United States. I also present suggestive evidence that financial frictions play an important role in determining the types of firms that are born at different stages of the business cycle. I then develop a general equilibrium model in which firms choose their managers’ span of control at birth. Firms that choose larger spans of control grow faster and eventually get to be larger, and in this sense have a larger target size. Financial frictions in the form of collateral constraints slow the rate at which firms reach their target size. It takes firms longer to get up to scale when collateral constraints tighten; therefore, businesses with the largest target size are affected disproportionately more. Thus, fewer entrepreneurs find it profitable to choose larger projects when financial conditions deteriorate. Using Bayesian methods, I estimate the model using micro and aggregate data from the United Kingdom. I find that financial shocks account for over 80% of fluctuations in the formation of businesses with a large target size, and TFP and labour wedge shocks account for the remaining 20%. An independently estimated version of the model with no choice over the span of control needs larger aggregate shocks in order to account for the same data series, suggesting that the intensive margin of business formation is important at business cycle frequencies. The model with the choice over the span of control generates an empirically relevant and non-targeted collapse in the right tail of the cumulative growth distribution among firms started in recessions, while the model without such a choice does not. The paper also discusses implications for micro-targeted government stimulus policies.
    Keywords: Business cycles; firm dynamics
    JEL: E23 E32 H25
    Date: 2020–01–03
  22. By: Milan Vyskrabka (European Commission, Brusel, Belgium); Stanislav Tvrz (Ceska narodni banka, Prague, Czech Republic); Martin Zeleznik (Narodna banka Slovenska, Bratislava, Slovakia)
    Abstract: The goal of the paper is to introduce the new structural model (PreMISE) of the National bank of Slovakia and illustrate how it is used for policy analysis. The model derivation and characteristics of its behavior are presented. At the same time procedures that are useful during the prediction process and their contribution to policy analysis are shown.
    Keywords: DSGE, general equilibrium, monetary policy, forecasting
    JEL: D58 E32 E58 E47 C53
    Date: 2019–11
  23. By: Ball, Laurence; Mazumder, Sandeep
    Abstract: This paper asks whether a textbook Phillips curve can explain the behavior of core inflation in the euro area. A critical feature of the analysis is that we measure core inflation with the weighted median of industry inflation rates, which is less volatile than the common measure of inflation excluding food and energy prices. We find that fluctuations in core inflation since the creation of the euro are well explained by three factors: expected inflation (as measured by surveys of forecasters); the output gap (as measured by the OECD); and the pass-through of movements in headline inflation. Our specification resolves the puzzle of a “missing disinflation” after the Great Recession, and it diminishes the puzzle of a “missing inflation” during the recent economic recovery. JEL Classification: E31, E32
    Keywords: core inflation, euro area, median inflation, missing disinflation, missing inflation, Phillips curve
    Date: 2020–01
  24. By: Aastveit, Knut Are (Norges Bank and BI Norwegian Business School); Albuquerque, Bruno (Bank of England); Anundsen, André (Housing Lab, Oslo Metropolitan University)
    Abstract: Recent developments in US house prices mirror those of the 1996–2006 boom, but the recovery in construction activity has been weak. Using data for 254 US metropolitan areas, we show that housing supply elasticities have fallen markedly in recent years. Consistent with this, we find that monetary policy shocks have a stronger effect on house prices during the recent recovery than the previous boom. At the same time, building permits respond less. Finally, we find that housing supply elasticities have declined more in areas where land-use regulation has tightened the most, and in areas that experienced the sharpest housing busts.
    Keywords: House prices; heterogeneity; housing supply elasticities; monetary policy
    JEL: C23 E32 E52 R31
    Date: 2020–01–03
  25. By: Samara Gunter; Daniel Riera-Crichton; Carlos Vegh; Guillermo Vuletin
    Abstract: We estimate the effect of worldwide tax changes on output following the narrative approach developed for the United States by Romer and Romer (2010). We use a novel dataset on value-added taxes for 51 countries (21 industrial and 30 developing) for the period 1970-2014 to identify 96 tax changes. We then use contemporaneous economic records to classify such changes as endogenous or exogenous to current (or prospective) economic conditions. In line with theoretical distortionary and disincentive-based arguments — and using exogenous tax changes — we find that the effect of tax changes on output is highly non-linear. The tax multiplier is essentially zero under relatively low initial tax rate levels and more negative as the initial tax rate increases. Based on a global sample, these novel non-linear findings suggest that the recent consensus pointing to large negative tax multipliers in industrial countries, particularly in industrial Europe (e.g., Alesina, Favero, and Giavazzi, 2015), (i) is not a robust empirical regularity, and (ii) is based on results mainly driven by high initial tax rates in these countries. We also show that the bias introduced by misidentification of tax shocks critically depends on the procyclical or countercyclical nature of endogenous tax changes.
    JEL: E32 E62
    Date: 2019–12
  26. By: Chen, Been-Lon; Hu, Yunfang; Mino, Kazuo
    Abstract: This paper examines the stability of a small open economy under alternative income taxation rules. Using a one-sector real business cycle model with external increasing returns, we show that if the income taxation is progressive, the small open economy will not generate equilibrium indeterminacy, but it exhibits a diverging behavior if the degree of external increasing returns is sufficiently large. In this case, a progressive tax schedule on the factor income may recover saddle-point stability. We also reveal that if the taxation on the interest income from financial assets is regressive, then the small open economy may exhibit equilibrium indeterminacy. In this situation, progressive taxation is also useful for eliminating sunspot-driven fluctuations.
    Keywords: Income taxation rule, Equilibrium indeterminacy, Built-in stabilizer, small open economy
    JEL: E62 O41
    Date: 2019–11–23
  27. By: Luis Rojas; Dominik Thaler
    Abstract: We revisit the doom-loop debate emphasizing the commitment device that the exposure of the financial sector to sovereign debt provides to the sovereign. If this mechanism is strong then lower exposure or a commitment not to bailout banks, two policy prescriptions that have emerged in this literature, can backfire. We present a simple 3-period model with strategic sovereign default where debt is held by local banks or foreign investors and show that: i) Reducing exposure reduces commitment and hence increases the probability of default, without avoiding the “doom loop”. Furthermore, that allowing banks to buy additional sovereign debt in times of sovereign distress can rule out the doom loop. ii) A no bailout commitment is not sufficient to rule out self-fulfilling expectations.
    Keywords: sovereign default, bailout, doom loop, self-fulfilling crises
    JEL: E44 E6 F34
    Date: 2020–01
  28. By: Helena Chuliá (Department of Econometrics & Riskcenter-IREA, Universidad de Barcelona, (Barcelona, Spain)); Jorge M. Uribe (Faculty of Economics and Business Studies, Open University of Catalonia)
    Abstract: By distinguishing between four general notions of uncertainty (good-expected, bad-expected, good-unexpected, bad-unexpected) within a common and simple framework, we show that it is bad-unexpected uncertainty shocks that generate a negative reaction of macroeconomic variables (such as investment and consumption), and asset prices. Other notions of uncertainty might produce even positive responses in the macroeconomy. We also show that small uncertainty shocks might have larger impacts on economic activity and financial markets than bigger shocks between one to three years after its realization. We explore the time and magnitude of uncertainty shocks by means of a novel distributed lag nonlinear model. Our results help to elucidate the real and complex nature of uncertainty, which can be both a backward or forward-looking expected or unexpected event, with markedly different consequences for the economy. They have implications for policy making, asset pricing and risk management.
    Keywords: Uncertainty, Economic activity, Asset prices JEL classification: C58, E20, E44, G10
    Date: 2019–11
  29. By: Sariola, Mikko
    Abstract: In this paper, we estimate a potential output model for Finland using an unobserved component model. The model builds on a production function approach, and features price and wage Phillips curves, Okun’s law and several resource-utilization indicators. We show that incorporating resource-utilization indicators, i.e. capacity utilization and long-term unemployment, improves real-time reliability of the output gap and NAWRU estimates. Our real-time estimate of the output gap is robust even in an event of a sudden turning point in the economy such as the global financial crisis. It also outperforms the HP filter estimate. Results suggest that Finland’s potential output growth slowed significantly in the aftermath of the financial crisis and that the output gap was negative for most of the subsequent decade. The slowdown in potential growth was due mainly to lackluster total factor productivity growth. The real-time results are broadly in line with the ex-post estimates of the IMF and the European Commission.
    Keywords: Suomi,potentiaalinen tuotanto,mallit,tuotantokuilu
    JEL: C51 E23 E32
    Date: 2019
  30. By: Kwangyong Park (Economic Research Institute, Bank of Korea); Eun Kyung Lee (Economic Research Institute, Bank of Korea)
    Abstract: Accurately estimating the government spending multiplier is important so that fiscal policies can be used appropriately when recessions hit the economy. To fill the gap between the frontier research of calculating the government spending multiplier and current Korean research, and to estimate a more accurate multiplier in Korea, we construct a government spending news series in Korea based on Fisher and Peters (2010) by exploiting a market-weighted sum of excess stock returns of military contractors in Korea. We then use this military spending news series and estimate a structural VAR model to evaluate the effects of government spending. As a result, GDP and government spending show statistically significant responses to military spending news shocks. The accumulated government spending multiplier peaks after four quarters, and the five-year cumulative multiplier is calculated as 1.27. For a robustness check, different types of VAR models are tested and results are qualitatively similar.
    Keywords: Fiscal policy, Multiplier
    JEL: C32 E62
    Date: 2019–09–16
  31. By: Davide Debortoli; Ricardo Nunes; Pierre Yared
    Abstract: According to the Lucas-Stokey result, a government can structure its debt maturity to guarantee commitment to optimal fiscal policy by future governments. In this paper, we overturn this conclusion, showing that it does not generally hold in the same model and under the same definition of time-consistency as in Lucas-Stokey. Our argument rests on the existence of an overlooked commitment problem that cannot be remedied with debt maturity: a government in the future will not tax on the downward sloping side of the La er curve, even if it is ex-ante optimal to do so.
    Keywords: public debt, optimal taxation, fiscal policy
    JEL: H63 H21 E62
    Date: 2020–01
  32. By: Sang-yoon Song (Economic Research Institute, Bank of Korea)
    Abstract: This paper investigates the relationships between consumption and mortgage interest reduction caused by an expansionary monetary policy, using comprehensive borrower-level information on mortgages and credit card purchases from a credit bureau company in South Korea. The main findings are as follows: (i) the significant and negative relationship between mortgagors¡¯ interest payments and consumption comes from borrowers with ARMs (Adjustable-Rate Mortgages), (ii) among mortgagors with ARMs, those with low liquidity and credit accessibility show a high interest-induced MPC (Marginal Propensity to Consume), (iii) the debt burdens of mortgagors have a weaker effect on the interest-induced MPC heterogeneity due to active deleveraging behavior of borrowers with a high debt burden, (iv) while unconstrained borrowers consistently show low and insignificant MPCs, constrained borrowers (those with low liquidity, credit accessibility) maintain long-lasting high MPCs for eight quarters after interest reduction, and (v) the MPC of those with low liquidity becomes lower as time goes by, indicating that windfall gains by mortgage interest reduction help to relax the liquidity constraints they face. These results imply that financial characteristics of mortgage borrowers can affect the magnitude and persistence of the cash flow channels of an expansionary monetary policy.
    Keywords: Mortgage, Consumption, Monetary Policy, Household Debt
    JEL: D14 E21 E52
    Date: 2019–07–29
  33. By: Haldane, Andrew (Bank of England); Macaulay, Alistair (University of Oxford); McMahon, Michael (University of Oxford)
    Abstract: In this paper we explore both theoretical and empirical evidence on communication with the general public. The model provides guidance for policymakers by highlighting some potentially important risks in communicating simply with a broader audience. In particular, in a model where trust and engagement are low, there are benefits to engaging a wider audience. But doing so risks ultimately lowering welfare unless guided by the 3 E’s of public communication: Explanation, Engagement and Education. Central banks have made great strides in all three, but numerous challenges remain.
    Keywords: Monetary policy; communication; general public
    JEL: E52 E58
    Date: 2020–01–03
  34. By: Jiri Slacalek; Oreste Tristani; Giovanni L. Violante
    Abstract: This paper formulates a back of the envelope approach to study the effects of monetary policy on household consumption expenditures. We analyze several transmission mechanisms operating through direct, partial equilibrium channels—intertemporal substitution and net interest rate exposure—and indirect, general equilibrium channels—net nominal exposure, as well as wealth, collateral and labor income channels. The strength of these forces varies across households depending on their marginal propensities to consume, their balance sheet composition, the sensitivity of their own earnings to fluctuations in aggregate labor income, and the responsiveness of aggregate earnings, asset prices and inflation to monetary policy shocks. We quantify all these channels in the euro area by combining micro data from the HFCS and the EU-LFS with structural VARs estimated on aggregate time series. We find that the indirect labor income channel and the housing wealth effect are strong drivers of the aggregate consumption response to monetary policy and explain the cross-country heterogeneity in these responses.
    JEL: E21 E52
    Date: 2020–01
  35. By: Andrew B. Abel; Stavros Panageas
    Abstract: For a firm that cannot raise external funds, cash on hand serves as precautionary saving. We derive a closed-form expression for the target level of cash on hand in the presence of persistent cash flows. Contrary to conventional wisdom, a mean-preserving increase in the volatility of cash flow can decrease this target. Over the set of admissible parameter values the average impact of volatility on the target is zero. Endogenous selection, reflecting termination of firms that run out of cash, leads to a positive average impact of volatility on the target level of cash, consistent with empirical findings.
    JEL: E2 E21 G3 G35
    Date: 2020–01
  36. By: Peter B. Dixon; Maureen T. Rimmer
    Abstract: DSGE models incorporate attractive theoretical specifications of the behaviour of forward-looking households facing an uncertain future. Central to these specifications is the idea that households decide their consumption level in year t by applying a function (policy rule) whose arguments represent information available in year t. Using the insight that, under certain conditions, the policy rule (but not the resulting policy) is invariant through time, DSGE modellers have developed the perturbation and other methods for quantitatively specifying policy rules. They have applied these methods in small macro models. In this paper we adapt the perturbation method so that it can be used to specify a policy rule for household consumption in a full-scale CGE model. A novel feature of our method is the use of specially constructed CGE simulations to reveal key parameters used in deriving the policy rule. We apply our method in an illustrative simulation of the effects of a technology shock in a 70-sector version of the USAGE model of the U.S. economy.
    Keywords: Consumption function Dynamic stochastic general equilibrium Computable general equilibrium Perturbation method
    JEL: E21 C61 C68 C63
    Date: 2020–01
  37. By: Dennis Egger; Johannes Haushofer; Edward Miguel; Paul Niehaus; Michael W. Walker
    Abstract: How large economic stimuli generate individual and aggregate responses is a central question in economics, but has not been studied experimentally. We provided one-time cash transfers of about USD 1000 to over 10,500 poor households across 653 randomized villages in rural Kenya. The implied fiscal shock was over 15 percent of local GDP. We find large impacts on consumption and assets for recipients. Importantly, we document large positive spillovers on non-recipient households and firms, and minimal price inflation. We estimate a local fiscal multiplier of 2.7. We interpret welfare implications through the lens of a simple household optimization framework.
    JEL: E62 H3 O12 O23 R13
    Date: 2019–12
  38. By: Chuluunbayar, Delgerjargal
    Abstract: The transmission of monetary policy has been found to differ between countries in the empirical literature. Understanding the degree to which each gross domestic product (GDP) component - investment, consumption and net export - is affected by policy changes is essential to conducting monetary policy. This paper examines the output composition of monetary policy transmission in Mongolia based on data from 2005Q1 to 2019Q2 and three kinds of benchmark VAR models. It is also comparing the results with other countries, finding Mongolian monetary policy transmission is dominated by the investment channel and its response is quicker than comparator countries.
    Keywords: Monetary policy transmission, output composition, Vector Auto Regression
    JEL: C32 E52
    Date: 2019–10
  39. By: Charles R. Hulten; Leonard I. Nakamura
    Abstract: The information revolution currently underway has changed the economy in ways that are hard to measure using conventional GDP procedures. The information available to consumers has increased dramatically as a result of the Internet and its applications, and new mobile communication devices have greatly increased the speed and reach of its accessibility. An individual now has an unprecedented amount of information on which to base consumption choices, and the “free” nature of the information provided means that the resulting benefits largely by-pass GDP and accrue directly to consumers. This disconnect introduces a wedge between the growth in real GDP and the growth in consumer well-being, with the result that a slower rate of growth of the former does not necessarily imply a slower rate of the latter. The conceptual framework for this analysis is developed in a previous paper (Hulten and Nakamura (2017), which extended the conventional framework of GDP to include a separate technology for consumer decisions based on Lancaster (1966b), and developed the idea of Expanded GDP (or EGDP). In this paper, we use this framework to provide a detailed critique of existing GDP and price measurement procedures and summarize the existing evidence on the size of the wedge between GDP and EGDP.
    JEL: E01 O3 O4
    Date: 2019–12
  40. By: Holger Breinlich; Elsa Leromain; Dennis Novy; Thomas Sampson
    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.
    Keywords: Brexit, exchange rate pass-through, import costs, inflation
    JEL: E31 F15 F31
    Date: 2019
  41. By: Guglielmo Maria Caporale; Menelaos Karanasos; Stavroula Yfanti
    Abstract: This paper estimates a bivariate HEAVY system including daily and intra-daily volatility equations and its macro-augmented asymmetric power extension. It focuses on economic factors that exacerbate stock market volatility and represent major threats to financial stability. In particular, it extends the HEAVY framework with powers, leverage, and macro effects that improve its forecasting accuracy significantly. Higher uncertainty is found to increase the leverage and macro effects from credit and commodity markets on stock market realized volatility. Specifically, Economic Policy Uncertainty is shown to be one of the main drivers of US and UK financial volatility alongside global credit and commodity factors.
    Keywords: asymmetries, economic policy uncertainty, HEAVY model, high-frequency data, macro-financial linkages, power transformations, realized variance, risk management
    JEL: C22 C58 D80 E44 G01 G15
    Date: 2019
  42. By: Kangasrääsiö, Suvi
    Abstract: Talouden kehitystä kuvaavat tilastoaineistot valmistuvat viiveellä, ja tilastojen lukuja tarkennetaan eli revisioidaan lähdeaineistojen täydentyessä ja tarkentuessa. Tässä artikkelissa tarkastellaan kansantalouden neljännesvuositilinpidon tavaroiden ja palveluiden tilin (entinen huoltotase) revisioita. Artikkelissa kuvaillaan Suomen bruttokansantuotteen kausitasoitetun volyymin ja sen kysyntäerien revisioita ja testataan mahdollisuuksia ennakoida revisioita. BKT:n kasvun estimaatit ovat tulosten mukaan hieman harhaisia tarkastelujakson aikana, ja revisiot ovat suurimmillaan suhdanteen käännepisteissä sekä kahdella ensimmäisellä vuosineljänneksellä. BKT:n neljännesvuosikasvun revisiot eivät ole ennakoitavissa pelkkää BKT-aineistoa käyttämällä, mutta tavaroiden ja palveluiden tilin tilastollisella erolla on jonkin verran ennustekykyä. Kysyntäeristä mittaluokaltaan suurimmat revisiot ovat voimakkaasti vaihtelevilla tuonnilla ja viennillä, mutta nettoviennin revisiot jäävät pieniksi tuonnin ja viennin tarkentuessatyypillisesti samaan suuntaan. Yksityisen kulutuksen revisiot ovat maltillisia, mutta erän suuresta koosta johtuen revisiot ovat merkittäviä kokonaiskysynnän kannalta.
    Keywords: Suomi
    JEL: E01 E20 E23
    Date: 2019
  43. By: Zhengyang Jiang; Hanno Lustig; Stijn Van Nieuwerburgh; Mindy Z. Xiaolan
    Abstract: The market value of outstanding federal government debt in the U.S. exceeds the expected present discounted value of current and future primary surpluses by a multiple of U.S. GDP. When the pricing kernel fits U.S. equity and Treasury prices and the government surpluses are consistent with U.S. post-war data, a government debt valuation puzzle emerges. Since tax revenues are pro-cyclical while government spending is counter-cyclical, the tax revenue claim has a higher short-run discount rate and a lower value than the spending claim. Since revenue and spending are co-integrated with GDP, the long-run risk discount rates of both claims are much higher than the long Treasury yield. These forces imply a negative present value of U.S. government surpluses. Convenience yields for Treasurys are much larger than previously thought and/or U.S. Treasury markets have failed to enforce the no-bubble condition.
    JEL: E43 E62 G12 G15
    Date: 2019–12
  44. By: Klaus Adam; Henning Weber
    Abstract: Using the official micro price data underlying the U.K. consumer price index, we document a new stylized fact for the life-cycle behavior of consumer prices: relative to a narrowly defined set of competing products, the price of individual products tends to fall over the product lifetime. We show that this data feature has important implications for the optimal inflation target. Constructing a sticky-price model featuring a product life cycle and heterogeneous relative- price trends, we derive closed-form expressions for the optimal inflation target under Calvo and menu-cost frictions. We show how the optimal target can be estimated from the observed trends in relative prices. For the U.K. economy, we find the optimal target to be equal to 2.6% in 2016. It has steadily increased over the period 1996 to 2016 due to changes in relative price trends over this period.
    Keywords: optimal inflation, micro price data, U.K. inflation target
    JEL: E31
    Date: 2020–01
  45. By: Nam Gang Lee (Bank of Korea); Byoung Hoon Seok (Ewha Womans University)
    Abstract: We develop a new identification approach based on the regression of consumption on output to identify a structural break in business cycles. Using this method, we find that a structural change in the trend and cycle in Korea occurred in 1993. To explain these, we estimate the parameters of the productivity process in Korea, using data on Solow residuals. Our estimates show that the relative importance of trend growth shocks in the post-break period increased by a factor of 2.56 compared to that in the pre-break period.
    Keywords: Structural change, Consumption volatility, Trend growth shocks
    JEL: E32 F44
    Date: 2019–11–13
  46. By: Kummer-Noormamode, Sabina
    Abstract: After having tested whether public debt GDP ratio and real GDP per capita are cointegrated by means of the bounds testing procedure, the possible nonlinearity in the relationship between public debt GDP ratio and economic growth is examined for 17 OECD countries taken separately over the 1970-2014 period. The corresponding debt-value threshold is endogenously estimated following Hansen (1996, 1999)'s methodology, while simultaneously controlling for additional growth determinants. The findings reveal that the impact of the public debt ratio on economic growth, cointegration and nonlinearity between these two variables, as well as the debt-value thresholds are all country-specific. Thus, analyzing the link between public debt ratio and economic growth for one country individually is revealed to be essential for governments to shape appropriate fiscal policy guidelines.
    Keywords: Public Debt; Economic Growth; Cointegration; Endogenous; Threshold, Nonlinearity
    JEL: C24 C32 E62 H63 O40
    Date: 2018–06–29
  47. By: Sergio Salgado; Fatih Guvenen; Nicholas Bloom
    Abstract: Using firm-level panel data from the US Census Bureau and almost fifty other countries, we show that the skewness of the growth rates of employment, sales, and productivity is procyclical. In particular, during recessions, they display a large left tail of negative growth rates (and during booms, a large right tail of positive growth rates). We find similar results at the industry level: industries with falling growth rates see more left-skewed growth rates of firm sales, employment, and productivity. We then build a heterogeneous-agent model in which entrepreneurs face shocks with time-varying skewness that matches the firm-level distributions we document for the United States. Our quantitative results show that a negative shock to the skewness of firms’ productivity growth (keeping the mean and variance constant) generates a persistent drop in output, investment, hiring, and consumption. This suggests the rising risk of large negative firm-level shocks could be an important factor driving recessions.
    JEL: E3
    Date: 2019–12
  48. By: Bluwstein, Kristina (Bank of England); Buckmann, Marcus (Bank of England); Joseph, Andreas (Bank of England and King’s College London); Kang, Miao (Bank of England); Kapadia, Sujit (European Central Bank); Simsek, Özgür (University of Bath)
    Abstract: We develop early warning models for financial crisis prediction using machine learning techniques on macrofinancial data for 17 countries over 1870–2016. Machine learning models mostly outperform logistic regression in out-of-sample predictions and forecasting. We identify economic drivers of our machine learning models using a novel framework based on Shapley values, uncovering non-linear relationships between the predictors and crisis risk. Throughout, the most important predictors are credit growth and the slope of the yield curve, both domestically and globally. A flat or inverted yield curve is of most concern when nominal interest rates are low and credit growth is high.
    Keywords: Machine learning; financial crisis; financial stability; credit growth; yield curve; Shapley values; out-of-sample prediction
    JEL: C40 C53 E44 F30 G01
    Date: 2020–01–03
  49. By: Schlösser, Alexander
    Abstract: We investigate the predictive power of several leading indicators in order to forecast industrial production in Germany. In addition, we compare their predictive performance with variables from two competing categories, namely macroeconomic and financial variables. The predictive power within and between these three categories is evaluated by applying Dynamic Model Averaging (DMA) which allows for timevarying coefficients and model change. We find that leading indicators have the largest predictive power. Macroeconomic variables, in contrast, are weak predictors as they are even not able to outperform a benchmark AR model, while financial variables are clearly inferior in terms of their predictive power compared to leading indicators. We show that the best set of predictors, within and between categories, changes over time and depends on the forecast horizon. Furthermore, allowing for time-varying model size is especially crucial after the Great Recession.
    Keywords: forecasting,industrial production,model averaging,leading indicator,time-varying parameter
    JEL: C11 C52 E23 E27
    Date: 2020
  50. By: Choi, Sekyu; Figueroa, Nincen; Villena-Roldán, Benjamin
    Abstract: In this paper we analyze cyclicality of wages at the job level, using posted wage data from an online job board in an emerging economy. Our data contains a significant fraction of online job advertisements in the Chilean economy for the period 2009 to 2018 and is representative of the overall wage distribution of newly hired workers. One major advantage of our dataset is the availability of wage information along information on requirements for each job. We find significant levels of posted wage procyclicality, safely ignoring any cyclical mismatch. We show how omitted variable bias, by ignoring countercyclical changes in hiring standards, reduces the amount of cyclicality found in previous studies.
    Keywords: Wage cyclicality; online job boards; composition bias; hiring standards
    JEL: E24 J4 J6
    Date: 2020–01
  51. By: Takatoshi Ito; Tomoyoshi Yabu
    Abstract: We analyze the history of Japanese foreign exchange interventions from 1971 to 2018. First, we provide the best proxy for monthly interventions for the period from 1971 to 1990, when the intervention timings and amounts were not officially disclosed. The accuracy of the proxy is tested for the period when the statistics were disclosed after 1991. The proxy explains 99.8% of actual settlement-based interventions. Second, we examine conditions under which the Japanese monetary authorities are likely to intervene by estimating a policy reaction function, using the long-term data, spanning the period when intervention data have been officially disclosed and the period where our proxy is available. Third, we analyze intervention timings and amounts for Japan, the US, and Germany. Fourth, we present the episode of international coordination represented by the Plaza and Louvre agreements as a case study of notable interventions during the period.
    JEL: E52 E58 F31 G15
    Date: 2020–01
  52. By: Bussière, Matthieu (Banque de France); Hills, Robert (Bank of England); Lloyd, Simon (Bank of England); Meunier, Baptiste (Banque de France); Pedrono, Justine (Autorité de Contrôle Prudentiel et de Régulation (ACPR), Banque de France); Reinhardt, Dennis (Bank of England); Sowerbutts, Rhiannon (Bank of England)
    Abstract: By combining analysis of two unique confidential datasets, we examine how euro-area (EA) monetary policy and recipient-country prudential policy interact to influence the cross-border lending of French banks from France and the UK. We find that monetary spillovers via cross-border lending can be partially offset by prudential measures in receiving countries. We then explore heterogeneities in that interaction, specifically the difference made by bank size and location of the affiliate (French headquarters vs. affiliates based in the UK, an international financial centre). Focusing on lending from France, we find that the response of GSIBs’ lending to EA monetary policy is less sensitive to recipient-country prudential policy than non-GSIBs’. In contrast, the response of lending to EA monetary policy from French-owned GSIB affiliates in the UK is sensitive to recipient-country prudential policy. We also find evidence that French GSIBs channel funds towards the UK in response to EA monetary policy, in a manner that is dampened by the global prudential policy setting. Together, these findings suggest the existence of a ‘London Bridge’: conditional on EA monetary policy, French GSIBs adjust their funds in the UK in response to global prudential policies and, from there, lend to third countries, responding to local prudential policies. French GSIBs’ cross-border lending from their headquarters to EA monetary policy responds differently to foreign prudential policies than their lending from international financial centres. Finally, we find evidence of a similar pattern for all EA-owned bank affiliates in the UK, suggesting a broader relevance of the London Bridge.
    Keywords: Cross-border bank lending; monetary policy; prudential policy; policy interactions; spillovers; financial centre.
    JEL: E52 F34 F36 F42 G18 G21
    Date: 2020–01–10
  53. By: Simona Malovana; Zaneta Tesarova
    Abstract: We examine the procyclicality of banks' credit losses and provisions in the Czech Republic using pre-2018 data and then discuss the implications of the findings for provisioning in stage 3 under IFRS 9. This is possible because the majority of banks seem to have aligned their accounting definitions of default with the regulatory definition prior to the implementation of IFRS 9. We find significant asymmetries in banks' behavior over the cycle. Firstly, provisioning procyclicality is strongest in the later contractionary phase and early recovery phase, while it is non-existent in the early contractionary phase. Secondly, banks with higher credit risk behave more procyclically than their peers. If this behavior persists under IFRS 9, it may lead to delayed transfer of exposures between stages and exaggerate cyclical fluctuations.
    Keywords: Credit losses, IFRS 9, procyclicality, provisions
    JEL: C22 E32 G21
    Date: 2019–12
  54. By: Alex Laurin (C.D. Howe Institute)
    Keywords: Fiscal and Tax Policy; Incentives to Save;Individual Retirement Savings;Personal Income Taxes
    JEL: D14 E21 H24
    Date: 2019–12
  55. By: Michael Brei; Leonardo Gambacorta; Marcella Lucchetta; Marcella Lucchetta
    Abstract: The paper investigates whether impaired asset segregation tools, otherwise known as bad banks, and recapitalisation lead to a recovery in the originating banks' lending and a reduction in non-performing loans (NPLs). Results are based on a novel data set covering 135 banks from 15 European banking systems over the period 2000-16. The main finding is that bad bank segregations are effective in cleaning up balance sheets and promoting bank lending only if they combine recapitalisation with asset segregation. Used in isolation, neither tool will suffice to spur lending and reduce future NPLs. Exploiting the heterogeneity in asset segregation events, we find that asset segregation is more effective when: (i) asset purchases are funded privately; (ii) smaller shares of the originating bank's assets are segregated; and (iii) asset segregation occurs in countries with more efficient legal systems. Our results continue to hold when we address the potential endogeneity problem associated with the creation of a bad bank.
    Keywords: bad banks, resolutions, lending, non-performing loans, rescue packages, recapitalisations
    JEL: E44 G01 G21
    Date: 2020–01
  56. By: Carlos Alberto Takashi Haraguchi; Jose Angelo Divino
    Abstract: This paper investigates how a combination of monetary and macroprudential policies might affect the dynamics of a small open economy with financial frictions under alternative exogenous shocks. The proposed DSGE model incorporates macroprudential policy rules to the financial sector of an open economy. Exogenous shocks in productivity, domestic and foreign monetary policies are used to identify the roles of the macroprudential and monetary policies in stabilizing the economy. A welfare analysis compares the performance of alternative rules for reserve requirements. The model is calibrated for the Brazilian economy and results indicate the exchange rate plays a central role in the transmission of foreign shocks, but not of domestic shocks. Considering the volatility of the variables and convergence to steady state, the interest rate rule should target domestic inflation and not respond directly to the exchange rate. The reserve requirement rule, in its turn, should react countercyclically to the credit-gap and not have a fixed component. There is complementarity between monetary and macroprudential policies to stabilize the small open economy.
  57. By: Régis Barnichon; Davide Debortoli; Christian Matthes
    Abstract: The literature on the government spending multiplier has implicitly assumed that an increase in government spending has the same (mirror-image) effect as a decrease in government spending. We show that relaxing this assumption is important to understand the effects of fiscal policy. Regardless of whether we identify government spending shocks from (i) a narrative approach, or (ii) a timing restriction, we find that the contractionary multiplier -the multiplier associated with a negative shock to government spending- is above 1 and even larger in times of economic slack. In contrast, the expansionary multiplier -the multiplier associated with a positive shock- is substantially below 1 regardless of the state of the cycle. These results help understand seemingly conflicting results in the literature.
    Keywords: public debt, optimal taxation, fiscal policy
    JEL: C32 E62
    Date: 2020–01
  58. By: Mariarosaria Comunale; Francesco Paolo Mongelli
    Abstract: During the past thirty years, euro area countries have undergone significant changes and experienced diverse shocks. We aim to investigate which variables have consistently supported growth in this tumultuous period. The paper unfolds in three parts. First, we assemble a set of 35 real, financial, monetary and institutional variables for all euro area countries covering the period between 1990Q1 and 2016Q4. Second, using the Weighted-Average Least Squares (WALS) method, as well as other techniques, we gather clues about which variables to select. Third, we quantify the impact of various determinants of growth in the short and long runs. Our main finding is the positive and robust role of institutional reforms on long-term growth for all countries in the sample. An improvement in competitiveness matters for growth in the overall euro area in the long run as well as a decline in sovereign and systemic stress. The debt over GDP negatively influences growth for the periphery, but only in the short run. Property and equity prices have a significant impact only in the short run, whereas the loans to NFCs positively affect the core euro area. An increase in global GDP also supports growth.
    Keywords: Euro area, GDP growth, monetary policy, fiscal policy, institutional integration, financial crisis, systemic stress, and synchronization
    JEL: C23 E40 F33 F43
    Date: 2020–01
  59. By: Michael Keane (School of Economics, UNSW Business School, UNSW Sydney); Elena Capatina (Research School of Economics, Australian National University); Shiko Maruyama (Economics Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: We study the contribution of health shocks to earnings inequality and uncertainty in labor market outcomes. We calibrate a life-cycle model with idiosyncratic health, earnings, employment and survival risk, where individuals make labor supply and savings decisions, adding two novel features. First, we model health as a complex multidimensional concept. We differentiate between functional health and latent health risk, and between temporary/persistent and predictable/unpredictable health shocks. Second, we model interactions between health and human capital accumulation. We find that, in an environment with both costly health shocks and means-tested transfers, low-skill workers find it optimal to reduce their labor supply in order to maintain eligibility for transfers that protect them from potentially high health care costs. Thus, means-tested transfers generate a moral hazard effect that causes agents (especially those with low productivity) to invest less in human capital. Provision of public insurance can alleviate this problem and enhance labor supply.
    Keywords: Health, Health Shocks, Human Capital, Income Risk, Precautionary Saving, Earnings Inequality, Health Insurance, Welfare
    JEL: D91 E21 I14 I31
    Date: 2019–12
  60. By: Budnik, Katarzyna; Rünstler, Gerhard
    Abstract: We study the identification of policy shocks in Bayesian proxy VARs for the case that the instrument consists of sparse qualitative observations indicating the signs of certain shocks. We propose two identification schemes, i.e. linear discriminant analysis and a non-parametric sign concordance criterion. Monte Carlo simulations suggest that these provide more accurate confidence bounds than standard proxy VARs and are more efficient than local projections. Our application to U.S. macroprudential policies finds persistent effects of capital requirements and mortgage underwriting standards on credit volumes and house prices together with moderate effects on GDP and inflation. JEL Classification: C32, E44, G38
    Keywords: Bayesian proxy VAR, capital requirements, discriminant analysis, mortgage underwriting standards, sign concordance
    Date: 2020–01
  61. By: Diego Aparicio; Roberto Rigobon
    Abstract: This paper studies pricing in the fashion retail industry. Online data was collected for approximately 350,000 distinct products from over 65 retailers in the U.S. and the U.K. We present evidence that a fair fraction of retailers implement an extreme form of price stickiness that we describe as quantum prices: a large number of different products are priced using just a small number of sparse prices, with price changes occurring rarely and in large increments. Normalized price clustering measures are used to show that retailers use quantum prices within- and across- categories, and this clustering is not explained by popular prices, ranges of prices, assortment size, or digit endings. This pricing strategy is consistent with a behavioral model where fewer prices makes price advertising more effective. An implication of this model is that advertising is increasingly effective when the same prices are used across product lines, i.e. for new products. Finally, quantum prices affect product introductions and price adjustment strategies at the firm level, while it creates larger deviations of the law of one price and hinders the computation of inflation at the macro level.
    JEL: D2 D22 D83 E31 L81 M3
    Date: 2020–01
  62. By: Andreas Fagereng; Martin Blomhoff Holm; Benjamin Moll; Gisle Natvik
    Abstract: Do wealthier households save a larger share of their incomes than poorer ones? We use Norwegian administrative panel data on income and wealth to answer this empirical question. The relation between saving rates and wealth crucially depends on whether saving includes capital gains. Saving rates net of capital gains ("net saving rates") are approximately constant across the wealth distribution. However, saving rates including capital gains ("gross saving rates") increase markedly with wealth. The proximate explanation is that wealthier households own assets that experience persistent capital gains which they hold onto instead of selling them off to consume ("saving by holding"). These joint patterns for net and gross saving rates challenge canonical models of household wealth accumulation. They are instead consistent with theories in which time-varying discount rates or portfolio adjustment frictions keep households from realizing capital gains. Between 1995 and 2015 Norway's aggregate wealth-to-income ratio rose from approximately 4 to 7. "Saving by holding" accounts for up to 80 percent of this increase.
    JEL: D14 E21 E40
    Date: 2019–12
  63. By: Eguren-Martin, Fernando (Bank of England); Meldrum, Andrew (Federal Reserve Board); Yan, Wen (Barclays Capital)
    Abstract: We use a no-arbitrage term structure model of equity yields computed from the prices of dividend swaps to estimate the yields on hypothetical bonds with cash-flows indexed to the level of US GDP. This provides a novel approach for estimating the possible relative cost of conventional and GDP-linked bonds, which is likely to be of interest to sovereigns considering the case for issuing GDP-linked debt. Our model predicts that US GDP-linked bonds would typically have yields lower than those on conventional Treasury bonds with the same maturity in our sample from 2010 to 2017. Positive expected future GDP growth lowers the yield on GDP-linked bonds relative to conventional bonds, which typically more than offsets the estimated GDP risk premium demanded by investors for holding GDP risk. These risk premia decrease with maturity,with unconditional averages falling in absolute value from 7 percentage points at the short-end of the curve to 1 percentage points at the 10-year horizon.
    Keywords: Affine term structure model (ATSM); bond yield; equity yield; risk premia; dividend swaps; GDP-linked bonds; spanned macroeconomic factors.
    JEL: E43 G01 H63
    Date: 2020–01–10
  64. By: Chuluunbayar, Delgerjargal
    Abstract: High government debt levels - especially among advanced countries including the United States (US) – have prompted calls for fiscal consolidation. US fiscal policy is experiencing considerable debate since its policy decisions influence other countries and the effects of the policy choices have economic consequences for the global economy. Therefore, the paper examines the effect of the US fiscal consolidation for the country as well as the rest of the world and analyses different approaches to determine the best option to the fiscal consolidation. For the choosing optimal policy, it is important to see differences between the short and long-run effects, size and speed of the policy, how much and how fast the policy should be implemented. This paper analyses three simulations using G-Cubed, which is intertemporal general equilibrium model with international trade and finance. From the analysis, there are short-run contractions, however, fiscal consolidation overall positive impact on the US and Non-US countries when the only US is introducing the policy. For policy choose, permanent fiscal consolidation is more favourable than gradual in the short-run. If all countries carry out the same policy, both short and long-run impacts are positive for those countries.
    Keywords: US fiscal consolidation, global impact
    JEL: E62 F4 H6
    Date: 2019–09
  65. By: Schmelzing, Paul (Harvard University, Yale School of Management, Bank of England)
    Abstract: With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been ‘stable’, and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6–1.6 basis points per annum has prevailed. A gradual increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressedbsovereign real rates are in fact converging ‘back to historical trend’ — a trend that makes narratives about a ‘secular stagnation’ environment entirely misleading, and suggests that — irrespective of particular monetary and fiscal responses — real rates could soon enter permanently negative territory. I also posit that the return data here reflects a substantial share of ‘non-human wealth’ over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the ‘virtual stability’ of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.
    Keywords: Real rate history; financial history; historical R-G; 13th–21st centuries
    JEL: E40 G12 N10 N20
    Date: 2020–01–03
  66. By: Hirono, Makoto; Mino, Kazuo
    Abstract: This study explores the linkage between the labor force participation of the elderly and the long-run performance of the economy in the context of a two-period-lived overlapping generations model. We assume that the old agents are heterogeneous in their labor efficiency and they continue working if their income exceeds the pension that can be received in the case of full retirement. We first inspect the key factors that determine the labor supply of old agents. We then examine analytically as well as numerically the long-run impact of labor participation of the elderly on capital accumulation.
    Keywords: retirement decision, labor force participation, population aging, pension system, capital accumulation
    JEL: E10 E62
    Date: 2019–11–20
  67. By: Charles I. Jones
    Abstract: In many models, economic growth is driven by people discovering new ideas. These models typically assume either a constant or a growing population. However, in high income countries today, fertility is already below its replacement rate: women are having fewer than two children on average. It is a distinct possibility — highlighted in the recent book, “Empty Planet” — that global population will decline rather than stabilize in the long run. What happens to economic growth when population growth turns negative?
    JEL: E0 J11 O4
    Date: 2020–01
  68. By: Corina Boar
    Abstract: This paper provides evidence that parents accumulate savings to insure their children against income risk. I refer to this behavior as dynastic precautionary saving and quantify its extent using matched parent-child pairs from the Panel Study of Income Dynamics and exploiting variation in income risk across age, industries and occupations. I then build a model of altruistically linked overlapping generations, in which parents and children interact strategically, that is quantitatively consistent with the empirical evidence. I argue that strategic interactions are important for generating the observed dynastic precautionary behavior and use the model to show this component of household savings is quantitatively important for wealth accumulation, intergenerational transfers and consumption insurance.
    JEL: E21
    Date: 2020–01
  69. By: Blake, Michael; Kriticos, Sebastian
    Abstract: This brief discusses several policy options that could improve tax compliance and tax administration in Mandalay – helping the city to escape its low-tax and underfunded services trap. Increasing the perceived benefits of paying tax – by communicating the link between tax and infrastructure – would likely encourage compliance, so long as the government can facilitate ease of payment through effective approaches to tax collection. To be effective at using such policies, cities first need strong foundations for tax administration. In particular, Mandalay could look to update its systems for property identification and assessment. The brief suggests several different approaches to do this and their associated trade-offs.
    JEL: E6
    Date: 2019–03–29
  70. By: Olivier Charlot (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique); Idriss Fontaine (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion); Thepthida Sopraseuth (THEMA - Théorie économique, modélisation et applications - UCP - Université de Cergy Pontoise - Université Paris-Seine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Using annual and quarterly labor market data from the US and France, we study the relationship between the extensive and intensive margins of labor adjustment, job polarization and non-standard work along the business cycle. We derive four stylized facts. First, changes in aggregate hours are mainly driven by fluctuations in per-capita employment rather than hours worked per worker. Second, recessionary drops observed in aggregate hours are, to a large extent, due to the disappearance of routine work. In the US, the fall in routine standard employment accounts for most of the decline in aggregate hours, whereas in France, routine jobs losses in both standard and non-standard work matter. Third, the dynamics of routine standard employment are driven by flows from and into unemployment in both countries. Fourth, the dynamics of routine non-standard work differ across countries. In the US, fluctuations in routine non-standard employment is driven by inflows from routine standard work, while, in France, changes in routine non-standard work are accounted for by ins and outs from unemployment. Our findings support the view that within-employment reallocation, through the use of non-standard work, is an alternative margin of adjustment in the US. This is not the case in France and flexibility is achieved by adjusting hiring and separations of standard and non-standard work. In bad times, reduced stepping stones contribute to the fall in routine standard employment.
    Date: 2020–01–15
  71. By: Fabian Eckert; Teresa C. Fort; Peter K. Schott; Natalie J. Yang
    Abstract: The County Business Patterns data published by the US Census Bureau track employment by county and industry from 1946 to the present. Two features of the data limit their usefulness to researchers in practice: (1) employment for the majority of county-industry cells is suppressed to protect confidentiality, and (2) industry classifications change over time. We address both issues. First, we develop a linear programming method that exploits the large set of adding-up constraints implicit in the hierarchical arrangement of the data to impute missing employment. Second, we provide concordances to map all data to a consistent set of industry codes.
    JEL: E24 F16 J21 L6
    Date: 2020–01
  72. By: Clemens Fuest; Florian Neumeier; Daniel Stöhlker
    Abstract: The ‘starving the beast’ hypothesis claims that tax cuts lead to lower public spending, rather than higher debt levels and higher taxes in the future. This paper uses the institutional setting of German fiscal federalism to its advantage in order to explore how fiscal policy reacts to exogenous tax revenue shocks. We use panel data from the German states covering the period from 1992 to 2011, and assess to what extent exogenous changes in tax revenues affect aggregate public expenditure as well as specific sub-categories of government spending. Applying the narrative approach pioneered by Romer and Romer (2009), we construct a measure of exogenous tax shocks. This allows us to identify the causal effect of tax changes on fiscal policy. Our results suggest that an exogenous decrease in tax revenues triggers a reduction in public spending of roughly the same amount, with a delay of two to three years. We find that a revenue decline of one Euro reduces public spending on administration and, with a larger delay, social security, by 30 to 45 cents in each case. Spending on infrastructure declines by ten cents. We find no significant effects on spending on education, legal protection and public safety, or culture.
    Keywords: taxation, fiscal policy, tax-spend, public expenditure, narrative approach
    JEL: E62 H11 H20 H62 H72
    Date: 2019
  73. By: Giovanni Dosi; Richard B. Freeman; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
    Abstract: This paper presents an Agent-Based Model (ABM) that seeks to explain the concordance of sluggish growth of productivity and of real wages found in macro-economic statistics, and the increased dispersion of firm productivity and worker earnings found in micro level statistics in advanced economies at the turn of the 21st century. It shows that a single market process unleashed by the decline of unionization can account for both the macro and micro economic phenomena, and that deunionization can be modeled as an endogenous outcome of competition between high wage firms seeking to raise productive capacity and low productivity firms seeking to cut wages. The model highlights the antipodal competitive dynamics between a “winner-takes-all economy” in which corporate strategies focused on cost reductions lead to divergence in productivity and wages and a “social market economy” in which competition rewards the accumulation of firm-level capabilities and worker skills with a more egalitarian wage structure.
    JEL: C63 E02 E24 J51
    Date: 2020–01
  74. By: Chu, Angus C.
    Abstract: This manuscript covers selected topics in advanced macroeconomics at the undergraduate level. It builds on materials in intermediate macroeconomics textbooks (e.g., Barro et al., 2017) by covering the mathematics of some basic dynamic general-equilibrium models, which are designed to give undergraduate students a firm appreciation of modern developments in macroeconomics. Chapter 1 begins with a simple static model to demonstrate the concept of general equilibrium. Then, Chapter 2 to 4 cover the neoclassical growth model to explore the effects of exogenous changes in the level of technology. Chapter 5 to 7 use the neoclassical growth model to explore the effects of fiscal policy instruments, such as government spending, labour income tax and capital income tax. Chapter 8 develops a simple new Keynesian model to analyze the effects of monetary policy. Chapter 9 begins the analysis of economic growth by reviewing the Solow growth model. Chapter 10 to 12 present the Ramsey model and introduce different market structures to the model to lay down the foundation of the Romer model. Chapter 13 incorporates an R&D sector into the Ramsey model with a monopolistically competitive market structure to develop the Romer model of endogenous technological change. Chapter 14 to 15 examine the implications of the Romer model. Chapter 16 concludes this manuscript by presenting the Schumpeterian growth model and examining its different implications from the Romer model.
    Keywords: Advanced macroeconomics; dynamic general equilibrium; economic growth; technological change
    JEL: A2 E3 O4
    Date: 2020
  75. By: Taisuke Kameda; Ryoichi Namba; Takayuki Tsuruga
    Abstract: Recent studies on fiscal policy use cross-sectional data and estimate local fiscal multipliers along with spillovers. This paper estimates local fiscal multipliers with spillovers using Japanese prefectural data comparable with the national accounts. We estimate the local fiscal multiplier on output to be 1.7 at the regional level. The regional fiscal multiplier consists of the prefecture-specific components and a component common across prefectures within the same region, which we interpret as the region-wide effect. Converting the latter component into the spillover, we find that the spillover is positive and small in size. We decompose the regional fiscal multiplier on output into multipliers on expenditure components. The regional fiscal multiplier on absorption exceeds 2.0 because of the crowding-in effect on consumption and investment. Moreover, we find that the spillover to absorption is considerable in contrast to the spillover to output.
    Date: 2019–12
  76. By: Nikolov, Plamen; Pasimeni, Paolo
    Abstract: The debate about the use of fiscal instruments for macroeconomic stabilization has regained prominence in the aftermath of the Great Recession, and the experience of a monetary union equipped with fiscal shock absorbers, such as the United States, has often been a reference. This paper enhances our knowledge about the degree of macroeconomic stabilization achieved in the United States through the federal budget, providing a detailed breakdown of the different channels. In particular, we investigate the relative importance and stabilization impact of the federal system of unemployment benefits and of its extension as a response to the Great Recession. The analysis shows that in the United States, corporate income taxes collected at the federal level are the single-most efficient instrument for providing stabilization, given that even with a smaller size than other instruments they can provide important effects, mainly against common shocks. On the other hand, Social Security benefits and personal income taxes have a greater role in stabilizing asymmetric shocks. A federal system of unemployment insurance, then, can play an important stabilization role, in particular when enhanced by a discretionary program of extended benefits in the event of a large shock, like the Great Recession.
    Keywords: Monetary Union,Macroeconomic Stabilization,Fiscal Policy,Monetary Policy
    JEL: E63 F36 F41 F45
    Date: 2019
  77. By: Jaqueson K. Galimberti (School of Economics, Auckland University of Technology)
    Abstract: This note evaluates how adaptive learning agents weigh different pieces of information when forming expectations with a recursive least squares algorithm. The analysis is based on a new and more general non-recursive representaion of the learning algorithm, namely, a penalized weighted least squares estimator, where a penalty term accounts for the effects of the learning initials. The paper then draws behavioral implications of diferent specifications of the learning mechanism, such as the cases with decreasing-, constant-, regime-switching, and age-dependent gains. The latter is shown to imply the emergence of "dormant memories" as the agents get old.
    Keywords: bounded rationality, expectations, adaptive learning, memory
    JEL: D83 D84 D90 E37 C32 C63
    Date: 2020–01
  78. By: Andrea Civelli (University of Arkansas, Walton College of Business, Department of Economics); Cary Deck (University of Alabama; Economic Science Institute, Chapman University); Antonella Tutino (Federal Reserve Bank of Dallas)
    Abstract: We study the response of consumption and saving decisions of rationally inattentive individuals to changes in monetary policy in the laboratory. First, we theoretically characterize the choices of a rationally inattentive agent processing information about the interest rate. Then, we design an experiment with induced inattention to test for the predictions of the model, contrasting them to the full information case. Consistent with the predictions, experimental subjects (a) increase attention when utility gains exceed cognitive costs of tracking the policy rate and decrease savings when their perceived economic outlook deteriorates; (b) respond to Delphic, but not Odyssean, forms of forward guidance. These ?ndings agree with recent empirical evidence on monetary policy e?ects on consumption behavior in U.S. and internationally.
    Keywords: Rational Inattention; Experimental Evidence' Information Processing Capacity; Consumption
    JEL: C91 D11 D8 E20
    Date: 2020
  79. By: Kaitila, Ville
    Abstract: Abstract In order to fight the climate change, the European Union and Finland as its member country are seeking carbon neutrality by 2050, Finland already by 2035. In this brief, we assess the development of Finnish greenhouse gas emissions (CO2 equivalent) in 2019–2023 based on ETLA’s most recent macroeconomic and industry sector forecasts. Technological change that will cut greenhouse gas emissions is paramount for the efforts to reach carbon neutrality. We use three technological assumptions that describe how the emission intensity of value added may develop. Our baseline scenario, based on how value added will change in each industry combined with their average development in emission intensity over the past few years, shows that the aggregate emissions will decrease on average by less than two per cent annually up until 2023. This will not be enough to reach the carbon neutrality target with current carbon sinks with which the average required annual rate of decrease would be over seven per cent. Consequently, technological change needs to accelerate considerably. The public sector can support the efforts to reach carbon neutrality by, among other things, R&D funding, removing harmful subsidies, introducing environmental taxes, and being active in the development of the EU’s emissions trading system. Carbon neutrality can also be taken into account in public procurement and infrastructure investments.
    Keywords: Economic forecast, CO2, Carbon neutrality, Emissions trading
    JEL: E17 O11 O30 O44 O47
    Date: 2020–01–21
  80. By: Eger, Thomas; Weise, Peter
    Abstract: Das Target-System, das zur Erleichterung von Geldüberweisungen zwischen Ländern der Eurozone etabliert wurde, stößt seit etwa zehn Jahren seitens einiger, insbesondere deutscher Ökonomen, auf vehemente Kritik, die durch Hans Werner Sinn ausgelöst wurde. Anlass für diese Kritik waren die beträchtlichen Ungleichgewichte zwischen erheblichen Netto-Zahlungseingängen in einigen Kernländern und Netto-Zahlungsausgängen in Ländern der Peripherie der Eurozone, die sich im Anschluss an die Finanz- und Staatsverschuldungskrise seit 2007/08 aufbauten. Allein Deutschland erreichte einen positiven Target-Saldo, d. h. Netto-Zahlungseingänge, in Höhe von ca. 1 Billionen Euro. Was bedeuten nun diese hohen positiven und negativen Salden für die betroffenen Volkswirtschaften? Um diese Frage zu beantworten, werden die den Zahlungsvorgängen zugrundeliegenden typischen Transaktionen sowie deren Auswirkungen auf die Target-Salden dargestellt. Dadurch wird transparent, wie die Target-Salden tatsächlich zustande kommen und welche möglichen Risiken mit ihnen verbunden sind. Es wird dann auch deutlich, welchen rechtlich-ökonomischen Inhalt die betreffenden Forderungen und Verbindlichkeiten haben. Während die Target-Kritiker in den hohen Target-Salden ein beträchtliches Risiko für den deutschen Steuerzahler sehen, zeigt das vorliegende Paper, dass es sich um ein Scheinproblem handelt.
    Keywords: EZB,Eurokrise,Target2
    JEL: E5 F0 H6
    Date: 2020
  81. By: Bronson Argyle; Taylor D. Nadauld; Christopher Palmer
    Abstract: We establish two underappreciated facts about costly search. First, unless demand is perfectly inelastic, search frictions can result in significant deadweight loss by decreasing consumption. Second, whenever cross-price elasticities are non-zero, costly search in one market also affects quantities in other markets. As predicted by our model of search for credit under elastic demand, we show that search frictions in credit markets contribute to price dispersion, affect loan sizes, and decrease final-goods consumption. Using microdata from millions of auto-loan applications and originations not intermediated by car dealers, we isolate plausibly exogenous variation in interest rates due to institution-specific pricing rules that price risk with step functions. These within-lender discontinuities lead to substantial variation in the benefits of search across lenders and distort extensive- and intensive-margin loan and car choices differentially in high- versus low-search-cost areas. Our results demonstrate real effects of the costliness of shopping for credit and the continued importance of local bank branches for borrower outcomes even in the mobile-banking era. More broadly, we conclude that costly search affects consumption in both primary and complementary markets.
    JEL: D12 D83 E43 G21 L11
    Date: 2020–01
  82. By: Garbinti, Bertrand; Lamarche, Pierre; Savignac, Frédérique; Lecanu, Charlélie
    Abstract: This paper studies the heterogeneity of the marginal propensity to consume out of wealth (MPC) both across and within countries. We estimate the MPC based on a cross-country harmonized household level dataset which combines surveys on wealth, income and consumption. We use panel regressions and an instrumental variable approach. First, our panel-based MPC estimates are very similar to those obtained on aggregate data and show substantial heterogeneity across countries. The wealth effect is coming both from housing and financial assets, while the main asset channel varies between countries. Second, the MPC is higher for low-wealth households, whatever the country. Third, we find some asymmetries across countries regarding the reaction to losses versus gains. Fourth, higher MPC is obtained for the two main consumption expenditure categories. Fifth, we find evidences that housing prices shock decreases consumption inequality while financial wealth shocks have a limited effect on consumption inequality. JEL Classification: D12, E21, C21
    Keywords: consumption, household surveys, marginal propensity to consume out of wealth, policy distributive effects
    Date: 2020–01
  83. By: Bindseil, Ulrich
    Abstract: IT progress and its application to the financial industry have inspired central banks and academics to analyse the merits of central bank digital currencies (CBDC) accessible to the broad public. This paper first reviews the advantages and risks of such CBDC. It then discusses two prominent arguments against CBDC, namely (i) risk of structural disintermediation of banks and centralization of the credit allocation process within the central bank and (ii) risk of facilitation systemic runs on banks in crisis situations. Two-tier remuneration of CBDC is proposed as solution to both issues, and a comparison is provided with a simple cap solution and the solution of Kumhof and Noone (2018). Finally, the paper compares the financial account implications of CBDC with the ones of crypto assets, Stablecoins, and narrow bank digital money, in a domestic and international context. JEL Classification: E3, E5, G1
    Keywords: central bank digital currencies, central banks, financial accounts, financial instability
    Date: 2020–01
  84. By: Mark A. Aguiar; Mark Bils; Corina Boar
    Abstract: Many households hold little wealth, especially liquid wealth. In precautionary savings models, absent preference heterogeneity, these households should display not only higher marginal propensities to consume (MPCs), but also lower average propensities to consume (APCs) and higher future consumption growth. We see from the PSID that such “hand-to-mouth” households actually display higher APCs and no faster spending growth. They also adjust spending to a greater extent through the number of categories consumed. Consistent with a role for preference heterogeneity, the panel data show that it is the propensity to be hand-to-mouth, not current assets, that predicts high APC, low consumption growth, and other spending differences for the hand-to-mouth. To identify the extent of preference heterogeneity, we consider the model of Kaplan and Violante (2014) with both liquid and illiquid assets, but allow heterogeneity in preferences. To match the data, the vast majority of poor hand-to-mouth must be impatient and have a high intertemporal elasticity of substitution (IES). The richer, but illiquid, hand-to-mouth are disproportionately high IES, though not impatient. Thus a high IES is a key determinant of assets for households typically viewed as hand-to-mouth. The model additionally shows that preferences play a prominent role in differences in MPCs across consumers.
    JEL: E21
    Date: 2020–01
  85. By: Angeletos, Georges Marios; Collard, Fabrice; Dellas, Harris
    Abstract: We propose a new strategy for dissecting the macroeconomic time series, provide a template for the propagation mechanism that best describes the observed business cycles, and use its properties to appraise models of both the parsimonious and the medium-scale variety. Our findings support the existence of a main business-cycle driver but rule out the following candidates for this role: technology or other shocks that map to TFP movements; news about future productivity; and inflationary demand shocks of the textbook type. Prominent members of the DSGE literature also lack the propagation mechanism seen in our anatomy of the data. Models that aim at accommodating demanddriven cycles under flexible prices appear promising.
    Date: 2020–01
  86. By: Youngju Kim (Bank of Korea); Seohyun Lee (The International Monetary Fund and Bank of Korea); Hyunjoon Lim (Bank of Korea)
    Abstract: This paper studies how high uncertainty affects corporate bank loans, addressing the important identification issue. In times of high uncertainty, firms reduce their credit demand due to delayed investments or a deterioration in their credit worthiness, while at the same time banks are more exposed to negative shocks to their balance sheet and thereby reduce credit supply. To isolate the uncertainty effect from the credit supply effect, we employ matched bank-firm loan data covering all loans extended by all financial intermediaries to the universe of listed firms in Korea, a bank-centered economy. Our empirical results reveal that a failure to control for credit supply leads to overestimation of the negative effect of uncertainty on bank loans. In addition, we find that the negative effect is stronger for relatively larger firms or financially unconstrained firms with low leverage or financial slack, once credit supply is controlled for. We confirm the same results in the analysis of firm investment, suggesting that high uncertainty may transmit to investment and bank loans mainly through the real options effects.
    Keywords: Firm-level uncertainty, Bank loan, Investment
    JEL: D84 E22
    Date: 2019–11–06
  87. By: Chen, Chuanqi; Pan, Dongyang
    Abstract: Given central banks' recent interest in "greening the financial system", this research theoretically investigates the relationship between monetary and climate policy and tries to find their “optimal mix”. We build an Environmental Dynamic Stochastic General Equilibrium (E-DSGE) model with the consideration of illegal emission which is pervasive in many countries. According to the model, we find: First, the dynamic of monetary policy is influenced by the selection of regimes of climate policy and the effectiveness of enforcement of environmental regulation. Second, the coefficients in the traditional Taylor rule of monetary policy can be better set to enhance welfare when a certain regime of climate policy is given in the economy. This helps find the constrained optimums of a policy mix. Third, if the mitigation of climate change is augmented into the target of monetary policy, the economy’s welfare can be enhanced. However, under certain circumstances, a dilemma in such monetary policy makes it incompatible with the traditional mandate of central bank.
    Keywords: Optimal Mix, Monetary Policy, Climate Policy, E-DSGE
    JEL: E52 Q54 Q58
    Date: 2020
  88. By: Kufenko, Vadim; Geloso, Vincent
    Abstract: Does a countrys level of inequality affect its ability to win Olympic medals? If it does, is it conditional on institutional factors? We argue that the ability of economically free societies to win medals will not be affected by inequality. In these societies, institutions generate incentives to invest in the talent pool of individuals at the bottom of the income distribution (people who are otherwise constrained in the ability to expend resources on athletic training). These effects cancel out those of inequality. In unfree societies, the incentives that promote investments in skills across the income distribution are weaker. Consequently, the effects of inequality on the ability to win are stronger. Using the Olympics of 2012 and 2016 in combination with the Economic Freedom of the World Index, we find that inequality only matters in determining medal numbers for unfree countries. We link these results to the debates on inequality.
    Keywords: Olympics,Inequality,Economic Freedom,Institutions
    JEL: D63 E02 O43
    Date: 2019
  89. By: Dimitrios Psychoyios (University of Piraeus); Olympia Missiou (International Hellenic University); Theologos Dergiades (Department of International & European Studies, University of Macedonia)
    Abstract: The shadow economy (SE) is a pathological normalcy, not only in developing countries but also in developed ones, causing disagreeable distortions in the real economy. In this paper, we estimate the size of the informal sector in nineteen countries of the European Union (EU) by implementing three variations of the physical input approach (we use electricity consumption as input). All estimates show that EU countries experience high shadow economy levels with a decreasing trend. Moreover, we assess the explanatory power of three governance quality indicators of the informal sector using a set of panel regression specifications as well as a set of quantile regression specifications. Both approaches show that overall governance quality is the most prominent factor in determining the SE levels. Given the inherent advantage of quantile regression to identify impact differentiations across the conditional distribution of the dependent variable a significant policy action is revealed. In particular, countries with high shadow economy levels can reduce their informal sector, at an increasing rate, by improving governance quality.
    Keywords: Shadow economy; Energy; Panel and Quantile regression; Governance quality.
    JEL: E26 G15 Q43 O17 O52
    Date: 2019–11
  90. By: Päivi Kankaanranta (University of Turku)
    Abstract: In this paper, the relationship between age and household net worth isexamined. The empirical analysis is based on a time-series of four cross-sections of the Finnish household wealth survey. Two different schemesare employed to identify age, cohort and time effects. Time-of-birth isfound to be an important determinant of asset accumulation. Con-trary to the life-cycle model, net worth increases even after retirementage. The cohort effect is found to follow a concave pattern instead ofincreasing monotonously. However, the accumulation behaviour bothover the life-cycle and across cohorts varies considerably by education.
    Keywords: wealth, life-cycle
    JEL: E21
    Date: 2019–12
  91. By: Paul Goldsmith-Pinkham; Maxim Pinkovskiy; Jacob Wallace
    Abstract: We use a five percent sample of Americans’ credit bureau data to study the effects of public health insurance on the geography of consumer financial health. Exploiting the (nearly) universal eligibility for Medicare at age 65, we find a 30 percent reduction in debt collections with limited effects on other financial outcomes. Medicare reduces the geographic variation in collections by two-thirds at age 65, and halves the geographic correlation between collections and demographics like race and education. Areas that experienced larger gains in financial health at age 65 had higher shares of black residents, people with disabilities, and for-profit hospitals.
    Keywords: credit bureau data, public health insurance, geographic variation
    JEL: I13 E50 J15
    Date: 2020–01
  92. By: Mary C. Daly
    Abstract: These slides were presented at the ASSA 2020 meeting by President Daly during a panel session titled “Navigating the Crosscurrents: The Outlook for the Global Economy” hosted by the National Association for Business Economics (NABE).
    Keywords: monetary policy; inflation; unemployment
    Date: 2020–01–03
  93. By: Gartner, Hermann (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Rothe, Thomas (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "We evaluate the quantity-quality trade-off on the labor market by estimating an augmented matching functionweighting the matches by quality measures. We use the approach to evaluate the German labor market reforms conducted between 2003 and 2005. Indeed, we find a significant quantity-quality trade-off. However, even after controlling for job quality, a good half of the positive effect of reforms on the matchingefficiency remains." (Author's abstract, IAB-Doku) ((en))
    Keywords: Hartz-Reform - Auswirkungen, Beschäftigungseffekte, Matching, IAB-Stellenerhebung, Arbeitsmarktgleichgewicht, Personaleinstellung, Qualität der Arbeit
    JEL: J11 E02 J65
  94. By: Christos Karydas (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland); Evangelos V. Dioikitopoulos (King's Business School, Group of Economics, King's College London, UK)
    Abstract: This paper argues that the joint relation between long-term orientation, environmental quality and innovation plays a key role in explaining environment-poverty traps. Based on empirical observations, we allow for the subjective discount rate to negatively depend on environmental quality in an R&D-driven endogenous growth model with local pollution externalities. Our model reconciles two empirical facts: i) multiple equilibria of economic and environmental development; ii) opposite responses to technological improvements depending on the initial equilibrium. Our results suggest that -- in addition to traditional policies such as development aid and technology transfer -- policies that aim at improving both the economic and the environmental dimension of sustainability, should also focus on changing individuals' long-term views in countries that face weak environmental conditions.
    Keywords: Endogenous growth, innovation, time preference, environmental poverty traps, economic poverty traps
    JEL: D90 E21 O13 O44 Q55 Q56
    Date: 2020–01
  95. By: Li, Huafang
    Abstract: Government and nonprofit organizations communicate with the public to reduce the degree of information asymmetry that could impede the two parties from working together to achieve higher levels of performance and accountability and coproduce better policy outcomes and public goods. Different organizational communication strategies’ influences, including choices of information channels, types, frequency, and contents, vary across individuals. This study reviews the relevant literature, discusses various communication strategies and their influences on citizens and implications for public policies and programs, develops a conceptual framework, and proposes a research agenda for future studies.
    Date: 2019–11–29
  96. By: Mönnig, Anke; Schneemann, Christian (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Weber, Enzo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Zika, Gerd (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "This article examines the effects of the German government's climate package (as of 20.09.2019 plus the change from the Federal-Länder compromise of 16.12.2019) on the German economy and labour market. With the help of the scenario technique, a number of assumptions relating to measures from the climate package were made and integrated into the QINFORGE analysis tool. The results show that compared to the baseline scenario, the impact of the 2030 climate protection programme on the economy and labour market will only be minor on balance, but causes a higher turnover of jobs." (Author's abstract, IAB-Doku) ((en))
    JEL: C53 E27 J21 Q58
  97. By: Antoine Camous; Russell Cooper
    Abstract: This paper studies the determination of income taxes in a dynamic setting with human capital accumulation. The goal is to understand the factors that support an outcome without complete redistribution, given a majority of relatively poor agents. In the analysis, the internal dynamics of income are not sufficient to prevent complete redistribution under majority rule without commitment. However, a political influence game across the population limits the support for expropriatory taxation and preserves incentives. In some cases, the outcome of the game corresponds with the optimal allocation under commitment.
    JEL: D72 D74 E62 H31
    Date: 2020–01
  98. By: Guo, Yanling; Sell, Friedrich L.
    Abstract: The authors set up a political economy equilibrium framework for personal income distribution. Located in status theory, their concept is able to explain what justifies a certain or optimal degree of inequality in the society. The authors present an empirical analysis of personal income distribution in 23 European countries. The time period covers the years before, during and after the great recession (2004-2017). Linear regressions, which make use of ex-post Gini coefficients, show that the hypothesis of the existence of an equilibrium value for the Gini-coefficient can be weakly confirmed, after controlling for a possible impact from the great recession as well as from EU membership.
    Keywords: Political Economy,Personal Income Distribution,Equilibrium,Convergence,Redistributive Policies,Great Recession,EU Membership
    JEL: D31 D60 D63 D71 D72 E62 H23
    Date: 2020
  99. By: Haas, Astrid; Kriticos, Sebastian
    Abstract: This report discusses several policy options for improving the calculation and collection of specific land value capture instruments. Namely: Land Value Increment Taxes; Betterment Levies; Development Impact Fees and Exactions. The report focuses on the city of Amman, however, several of the policy challenges and solutions that emerge are common to many developing cities. Specifically, the researchers detail potential avenues for reform to improve assessment and calculation, issuance, and collection of land value capture instruments. Improving clarity around different value capture tools used by cities – in terms of who pays, when they pay, and for what reason – is a first step for improved performance. Clarity must then be supported by greater transparency over how charges are calculated as well as clear communication to demonstrate how tax money is effectively used. The researchers detail several incremental steps that could improve land value capture, ultimately helping city governments to raise finances and support urban sustainable growth through targeted public investments.
    JEL: E6 R14 J01
    Date: 2019–10–28
  100. By: Hakobyan, Zaruhi; Koulovatianos, Christos
    Abstract: Differential games of common resources that are governed by linear accumulation constraints have several applications. Examples include political rent-seeking groups expropriating public infrastructure, oligopolies expropriating common resources, industries using specific common infrastructure or equipment, capital-flight problems, pollution, etc. Most of the theoretical literature employs specific parametric examples of utility functions. For symmetric differential games with linear constraints and a general time-separable utility function depending only on the player's control variable, we provide an exact formula for interior symmetric Markovian-strategies. This exact solution, (a) serves as a guide for obtaining some new closed-form solutions and for characterizing multiple equilibria, and (b) implies that, if the utility function is an analytic function, then the Markovian strategies are analytic functions, too. This analyticity property facilitates the numerical computation of interior solutions of such games using polynomial projection methods and gives potential to computing modified game versions with corner solutions by employing a homotopy approach.
    Keywords: differential games,endogenous growth,tragedy of the commons,Lagrange-d'Alembert equation,analytic functions
    JEL: C73 C61 D74 E0 O40 O44
    Date: 2019
  101. By: Lougui, Monia (Ratio & Centre of Excellence for Science and Innovation Studies (CESIS)); Broström, Anders (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper explores the evaluation of experience from self-employment on the Swedish labor market. Specifically, we analyze the wage remuneration of individuals moving from a spell in self-employment to regular employment as compared to a control group of individuals without such experience. To tackle the challenge of estimating the average effect of treatment, we seek to reduce unobserved heterogeneity across groups by only considering individuals moving into self-employment after being displaced in the context of employer exit, and setting up the control group to consist of individuals moving from the same exiting firms into new employment. To further ensure similarity on key observables with the treated group, we select the control group through coarsened exact matching. Our results demonstrate that the average treatment effect is positive. In further exploration, we find evidence suggesting that this effect is at least partially driven by self-employment experiences being positively evaluated for jobs requiring general and managerial skills rather than industry-specific expertise.
    Keywords: Entrepreneurship valuation; Labor market mobility; Entry wage; Firm closure; Necessity entrepreneurship
    JEL: E24 J30 J60 L26 M13
    Date: 2020–01–28
  102. By: Oscar Claveria (AQR-IREA, University of Barcelona, 08034 Barcelona, Spain.); Ivana Lolic (University of Zagreb, Faculty of Economics and Business); Enric Monte (Department of Signal Theory and Communications, Polytechnic University of Catalunya.); Petar Soric (University of Zagreb, Faculty of Economics and Business)
    Abstract: In this study we construct quarterly consumer confidence indicators of unemployment for the euro area using as input the consumer expectations for sixteen socio-demographic groups elicited from the Joint Harmonised EU Consumer Survey. First, we use symbolic regressions to link unemployment rates to qualitative expectations about a wide range of economic variables. By means of genetic programming we obtain the combination of expectations that best tracks the evolution of unemployment for each group of consumers. Second, we test the out-of-sample forecasting performance of the evolved expressions. Third, we use a state-space model with time-varying parameters to identify the main macroeconomic drivers of unemployment confidence and to evaluate whether the strength of the interplay between variables varies across the economic cycle. We analyse the differences across groups, obtaining better forecasts for respondents comprised in the first quartile with regards to the income of the household and respondents with at least secondary education. We also find that the questions regarding expected major purchases over the next 12 months and savings at present are by far, the variables that most frequently appear in the evolved expressions, hinting at their predictive potential to track the evolution of unemployment. For the economically deprived consumers, the confidence indicator seems to evolve independently of the macroeconomy. This finding is rather consistent throughout the economic cycle, with the exception of stock market returns, which governed unemployment confidence in the pre-crisis period.
    Keywords: Unemployment, Expectations, Consumer behaviour, Forecasting, Genetic programming, State-space models yield. JEL classification: C51, C53, C55, D12, E24, E27, J10
    Date: 2020–01
  103. By: Evguenia Bessonova; Anna Tsvetkova
    Abstract: The paper focuses on trends in the convergence of labour and multifactor productivity in Russia. Using firm-level data for the 2011-2016 period, we obtain the following result: low-productivity firms grow faster than high-productivity ones. Despite this, the initial gap between the most and the least productive firms in the Russian economy is so wide that it is hardly possible to overcome in the short term. Moreover, we find that this gap has increased over the 2011-2016 period, suggesting divergence in productivity levels of Russian firms. To verify the divergence within narrowly defined industries, we also use the stochastic frontier analysis. Our estimates confirm divergence in most industries.
    Keywords: productivity gap, beta-convergence, sigma-convergence, stochastic frontier analysis.
    JEL: D24 E22 O47
    Date: 2019–10
  104. By: Hannes Schwandt; Till M. von Wachter
    Abstract: This paper uses several large cross-sectional data sources and a new approach to estimate midlife effects of entering the labor market in a recession on mortality by cause and various measures of socioeconomic status. We find that cohorts coming of age during the deep recession of the early 1980s suffer increases in mortality that appear in their late 30s and further strengthen through age 50. We show these mortality impacts are driven by disease-related causes such as heart disease, lung cancer, and liver disease, as well as drug overdoses. At the same time, unlucky middle-aged labor market entrants earn less and work more while receiving less welfare support. They are also less likely to be married, more likely to be divorced, and experience higher rates of childlessness. Our findings demonstrate that tempo- rary disadvantages in the labor market during young adulthood can have substantial impacts on lifetime outcomes, can affect life and death in middle age, and go beyond the transitory initial career effects typically studied.
    JEL: E32 I10 J10
    Date: 2020–01
  105. By: Wittenberg, Raphael; King, Derek
    Abstract: Background: We project incidence and prevalence of stroke in the UK and associated costs to society to 2035. We include future costs of health care, social care, unpaid care and lost productivity, drawing on recent estimates that there are almost one million people living with stroke and the current cost of their care is £26 billion. Methods: We developed a model to produce projections, building on earlier work to estimate the costs of stroke care by age, gender and other characteristics. Our cell-based simulation model uses the 2014-based Office for National Statistics population projections; future trends in incidence and prevalence rates of stroke derived from an expert consultation exercise; and data from the Office for Budget Responsibility on expected future changes in productivity and average earnings. Results: Between 2015 and 2035, the number of strokes in the UK per year is projected to increase by 60% and the number of stroke survivors is projected to more than double. Under current patterns of care, the societal cost is projected to almost treble in constant prices over the period. The greatest increase is projected to be in social care costs – both public and private – which we anticipate will rise by as much as 250% between 2015 and 2035. Conclusion: The costs of stroke care in the UK are expected to rise rapidly over the next two decades unless measures to prevent strokes and to reduce the disabling effects of strokes can be successfully developed and implemented.
    Keywords: Stroke; Projections; Incidence; Prevalence; Costs
    JEL: E6
    Date: 2020–01–20
  106. By: Marco Corazza (Department of Economics, Ca’ Foscari University of Venice); Giovanni Fasano (Department of Management, Ca’ Foscari University of Venice); Riccardo Gusso (Department of Economics, Ca’ Foscari University of Venice); Raffaele Pesenti (Department of Management, Ca’ Foscari University of Venice)
    Abstract: In this work we analyze and implement different Reinforcement Learning (RL) algorithms in financial trading system applications. RL-based algorithms applied to financial systems aim to find an optimal policy, that is an optimal mapping between the variables describing the state of the system and the actions available to an agent, by interacting with the system itself in order to maximize a cumulative return. In this contribution we compare the results obtained considering different on-policy (SARSA) and off-policy (Q-Learning, Greedy-GQ) RL algorithms applied to daily trading in the Italian stock market. We consider both computational issues related to the implementation of the algorithms, and issues originating from practical application to real stock markets, in an effort to improve previous results while keeping a simple and understandable structure of the used models.
    Keywords: Reinforcement Learning, SARSA, Q-Learning, Greedy-GQ, financial trading system, Italian FTSE Mib stock market.
    JEL: C53 C54 E37 G17
    Date: 2019
  107. By: Jayasooriya, Sujith
    Abstract: Albeit economic growth of global economies is increasing, nexus of green economic growth, innovation, and financial development needs to be thoroughly understood to make prudent economic policies for sustainability. The research question intends to identify the green growth promoting policies and impact of innovation and financial systems on sustainable economic growth. Rationale for the research is to provide pragmatic evidences to build up economic systems that lead green growth under the emission control and abatement. Empirical approach is used to (i) estimate augmented-Green-Solow model for ASEAN countries (ii) EKC is also estimated with Generalized Method of Moments (GMM) estimation to reveal the impact of financial development, innovation, and trade openness using World Bank data from 1980 to 2014. The empirical results indicate, across estimation methods and specifications, a strong correlation of the innovation, financial development and CO2 emissions per capita for green growth. Further, increase of innovation and financial structure leads the economies to be sustainable with increase of abatement cost with technological adaptation, and human capital. The implications of the study are to deliberate on the determinants of green growth to promote sustainable development in the economies. Finally, the paper guides policymakers to reform financial and innovation systems to achieve advancement in green technologies adapting sustainable economic policies for green growth.
    Keywords: Finance, Innovation, Green Solow Growth, Generalized Methods of Moments estimation.
    JEL: E61 F43 F62 F63
    Date: 2020–01–18
  108. By: Simplice A. Asongu (Yaoundé/Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Paul N. Acha-Anyi (Walter Sisulu University, South Africa)
    Abstract: This study assesses the simultaneous openness hypothesis that trade modulates foreign direct investment (FDI) to induce positive net effects on total factor productivity (TFP) dynamics. Twenty-five countries in Sub-Saharan Africa and data for the period 1980 to 2014 are used. The empirical evidence is based on the Generalised Method of Moments. First, trade imports modulate FDI to overwhelmingly induce positive net effects on TFP, real TFP growth, welfare TFP and real welfare TFP. Second, with exceptions on TFP and welfare TFP where net effects are both positive and negative, trade exports modulate FDI to overwhelmingly induce positive net effects on real TFP growth and welfare real TFP. In summary, the tested hypothesis is valid for the most part. Policy implications are discussed.
    Keywords: Productivity; Foreign Investment; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  109. By: Azqueta-Gavaldon, Andres; Hirschbühl, Dominik; Onorante, Luca; Saiz, Lorena
    Abstract: We model economic policy uncertainty (EPU) in the four largest euro area countries by applying machine learning techniques to news articles. The unsupervised machine learning algorithm used makes it possible to retrieve the individual components of overall EPU endogenously for a wide range of languages. The uncertainty indices computed from January 2000 to May 2019 capture episodes of regulatory change, trade tensions and financial stress. In an evaluation exercise, we use a structural vector autoregression model to study the relationship between different sources of uncertainty and investment in machinery and equipment as a proxy for business investment. We document strong heterogeneity and asymmetries in the relationship between investment and uncertainty across and within countries. For example, while investment in France, Italy and Spain reacts strongly to political uncertainty shocks, in Germany investment is more sensitive to trade uncertainty shocks. JEL Classification: C80, D80, E22, E66, G18, G31
    Keywords: economic policy uncertainty, Europe, machine learning, textual-data
    Date: 2020–01
  110. By: Alejandro D. Jacobo; Konstantin A. Kholodilin
    Abstract: Following World War I, rent control became a standard policy response to the housing shortage and the resulting rent increases. Typically, economists blame it for creating inefficiencies in the housing market and beyond. We investigate whether rental market regulations (including rent control, protection of tenants from eviction, and housing rationing) had any effects in a middle-income Latin American economy, such as Argentina. To answer this question, we take advantage of a wide range of housing market indicators and restrictive rental regulation indices covering almost one century. Using a standard OLS model and MARS, a non-linear estimation technique, we find that rental market regulations have exerted a statistically significant negative impact on the growth rates of the real housing rents. However, they were only effective for short periods following both World Wars, when regulations were novel and particularly strong.
    Keywords: Argentina, housing rents, rent control, rental market regulations
    JEL: C21 E31 R38
    Date: 2020

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