nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒02‒10
103 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Long-Run Effects of Monetary Policy By Òscar Jordà; Sanjay R. Singh; Alan M. Taylor
  2. How Should Unemployment Insurance Vary over the Business Cycle? By Serdar Birinci; Kurt See
  3. "Demand, Distribution, Productivity, Structural Change, and (Secular?) Stagnation" By Michalis Nikiforos
  4. Credit Spreads, Monetary Policy and the Price Puzzle By Benjamin Beckers
  5. Forward Guidance Under the Cost Channel By David Finck
  6. Fiscal policy as a long-run stabilization tool. Simulations with a stock-flow consistent model By Mario Cassetti
  7. Taking off into the Wind: Unemployment Risk and State-Dependent Government Spending Multipliers By Julien Albertini; Stéphane Auray; Hafedh Bouakez; Aurélien Eyquem
  8. Banco de Portugal TARGET balance: evolution and main drivers By Rita Soares; Joana Sousa Leite; João Filipe; Nuno Nóbrega
  9. Perceived vs actual financial crisis and bank credit standards: is there any indication of self-fulfilling prophecy? By Dimitrios Anastasiou; Zacharias Bragoudakis; Stelios Giannoulakis
  10. Does my model predict a forward guidance puzzle? By Gibbs, Christopher G.; McClung, Nigel
  11. Monetary Policy Strategies for the Federal Reserve By Lars E.O. Svensson
  12. The Structure of Economic News By Leland Bybee; Bryan T. Kelly; Asaf Manela; Dacheng Xiu
  13. Dissecting the Yield Curve: The International Evidence By Andrea Berardi; Alberto Plazzi
  14. Denoised Inflation: A New Measure of Core Inflation By Muhammad Nadim Hanif; Javed Iqbal; Syed Hamza Ali; Muhammad Abdus Salam
  15. Overcoming Borrowing Stigma: The Design of Lending-of-Last-Resort Policies By Zhang, Hanzhe; Hu, Yunzhi
  16. Macro-based asset allocation: An empirical analysis By Kollar, Miroslav; Schmieder, Christian
  17. Anticipated Productivity and the Labor Market By Ryan Chahrour; Sanjay Chugh; Tristan Potter
  18. The US labour share of income: What shocks matter? By Ivan Mendieta-Munoz; Codrina Rada; Marcio Santetti; Rudiger von Arnim
  19. State-owned enterprises and entrusted lending: A DSGE analysis for growth and business cycles in China By Shuonan Zhang
  20. Rational bubbles in non-linear business cycle models: Closed and open economies By Robert Kollmann
  21. An Anatomy of Credit Booms in Pakistan: Evidence from Macro Aggregates and Firm Level Data By Muhammad Ejaz; Muhammad Nadim Hanif
  22. Monitoring Economic Conditions during a Government Shutdown By Argia M. Sbordone; Domenico Giannone; Eric Qian Qian; Patrick Adams
  23. Boosting Non-linear Predictabilityof Macroeconomic Time SeriesComplexity and benefit take-up: Empirical evidence from the Finnish homecare allowance By Heikki Kauppi; Timo Virtanen
  24. Banks, Politics and European Monetary Union By Martin Hellwig
  25. Business cycle dynamics after the Great Recession: An Extended Markov-Switching Dynamic Factor Model By Catherine Doz; Laurent Ferrara; Pierre-Alain Pionnier
  26. The Behavioral Economics of Currency Unions: Economic Integration and Monetary Policy By Akvile Bertasiute; Domenico Massaro; Matthias Weber
  27. Public Debt, Sovereign Spreads and the Unpleasant Arithmetic of Fiscal Consolidations By Minetti, Raoul; Di Pietro, Marco; Marattin, Luigi
  28. Debt intolerance: Threshold level and composition By Hideaki Matsuoka
  29. Exchange Rate Pass through to Stock Prices: A Multi GARCH Approach By Ilu, Ahmad Ibraheem
  30. Credit Supply and the Housing Boom By Alejandro Justiniano; Giorgio E. Primiceri; Andrea Tambalotti
  31. Does the lack of financial stability impair the transmission of monetary policy? By Acharya, Viral V.; Imbierowicz, Björn; Steffen, Sascha; Teichmann, Daniel
  32. The Dynamics of U.S. REITs Returns to Uncertainty Shocks: A Proxy SVAR Approach By Oguzhan Cepni; Wiehan Dul; Rangan Gupta; Mark E. Wohar
  33. At the N.Y. Fed: The Transatlantic Economy: Convergence or Divergence? By Helene Rey; Paolo Pesenti; Moreno Bertoldi; Valérie Rouxel-Laxton
  34. Measuring productivity: theory and British practice By Nicholas Oulton
  35. A DSGE Perspective on Safety, Liquidity, and Low Interest Rates By Marc Giannoni; Abhi Gupta; Andrea Tambalotti; Domenico Giannone; Marco Del Negro; Pearl Li
  36. How Do People Revise Their Inflation Expectations? By Wilbert Van der Klaauw; Giorgio Topa; Olivier Armantier; Basit Zafar
  37. Stability of a Small Open Economy under Nonlinear Income Taxation By Chen, Been-Lon; Hu, Yunfang; Mino, Kazuo
  38. Dolarización: efectos y riesgos en el caso ecuatoriano By Gonzalez-Astudillo, Manuel
  39. Vulnerable Growth By Tobias Adrian; Nina Boyarchenko; Domenico Giannone
  40. Interest Rate Derivatives and Monetary Policy Expectations By Richard K. Crump; Matthew Raskin; Jeremiah P. Boyle; Carlo Rosa; Emanuel Moench; Lisa Stowe
  41. EQCHANGE Annual Assessment 2019 By Carl Grekou
  42. Services and the Decline of the U.S. Employment-to-Population Ratio By Margarida Duarte
  43. Selected Deposits and the OBFR By Scott Sherman; Timothy Wessel; Marco Cipriani; Romen Mookerjee; Alyssa Cambron; Joshua Jones; Brett Solimine
  44. Tighter Credit and Consumer Bankruptcy Insurance By António R. Antunes; Tiago Cavalcanti; Caterina Mendicino; Marcel Peruffo; Anne Villamil
  45. Was the Expansion of Housing Credit in Japan Good or Bad? By Charles Yuji Horioka; Yoko Niimi
  46. Introducing the FRBNY Survey of Consumer Expectations: Survey Goals, Design and Content By Olivier Armantier; Basit Zafar; Wilbert Van der Klaauw; Giorgio Topa
  47. Opening the Toolbox: The Nowcasting Code on GitHub By Camilla Schneier; Argia M. Sbordone; Domenico Giannone; Andrea Tambalotti; Daniele Caratelli; Patrick Adams; Brandyn Bok; Eric Qian Qian
  48. Monetary Policy and Sovereign Risk in Emerging Economies (NK-Default) By Cristina Arellano; Yan Bai; Gabriel P. Mihalache
  49. A Time-Series Perspective on Safety, Liquidity, and Low Interest Rates By Marc Giannoni; Andrea Tambalotti; Domenico Giannone; Brandyn Bok; Marco Del Negro
  50. Forecasting GDP growth from outer space By Jaqueson K. Galimberti
  51. Introducing the FRBNY Survey of Consumer Expectations: Measuring Price Inflation Expectations By Giorgio Topa; Wilbert Van der Klaauw; Basit Zafar; Olivier Armantier
  52. Revenue Based Fiscal Consolidation and Economic Growth in Sri Lanka By Kasun Kumarasiri; Ruchira L Weerasekara; Chaturika Ranaweera and Tilak Liyanaarachchi
  53. Optimal Fiscal Policies under Market Failures By YiLi Chien; Yi Wen
  54. Do Bank Shocks Affect Aggregate Investment? By David E. Weinstein; Mary Amiti
  55. Nudging Inflation Expectations: An Experiment By Basit Zafar; Giorgio Topa; Wilbert Van der Klaauw; Scott Nelson; Olivier Armantier
  56. Who Is Driving the Recent Decline in Consumers Inflation Expectations? By Wilbert Van der Klaauw; Giorgio Topa; Basit Zafar; Olivier Armantier
  58. Tax Buyouts: Raising Government Revenues without Increasing Labor Tax Distortions By Fabiano Schivardi; Marco Del Negro; Fabrizio Perri
  59. A New Perspective on Low Interest Rates By Marc Giannoni; Marco Del Negro; Andrea Tambalotti; Domenico Giannone
  60. What Is Driving the Recent Rise in Consumer Inflation Expectations? By Olivier Armantier; Wilbert Van der Klaauw; Giorgio Topa; Basit Zafar
  61. L’économie numérique fausse-t-elle le partage volume-prix du PIB ? By L. AEBERHARDT; F. HATIER; M. LECLAIR; B. PENTINAT; J.-D. ZAFAR
  62. The effect of the China Connect By Ma, Chang; Rogers, John; Zhou, Sili
  63. Characterizing Breadth in Canadian Economic Activity By Taylor Webley; Carla Valerio; Maureen MacIsaac
  64. An Index of African Monetary Integration (IAMI) By Samba Diop; Simplice A. Asongu
  65. What works for Active Labor Market Policies? By Eduardo Levy Yeyati; Martín Montané; Luca Sartorio
  66. Cómo resolver un modelo de expectativas racionales By Mario García-Molina; Iván Leonardo Urrea
  67. Non-linear exchange rate pass-through to euro area inflation: A local projection approach By Roberta Colavecchio; Ieva Rubene
  68. A Skeptic's Guide to Modern Monetary Theory By N. Gregory Mankiw
  69. Partisan Fiscal Policy: Evidence from Central and Eastern Europe By Ondrej Schneider
  70. Monetary Policy Spillovers in Emerging Economies By Apostolos Serletis; Nahiyan Azad
  71. Firming up the capital base of the Austrian business sector - Consolidating Austria’s business sector strengths and its social role in the face of new challenges By Dennis Dlugosch; Rauf Gönenç; Eun Jung Kim; Aleksandra Paciorek
  72. When is a Current Account Deficit Bad? By Devadas,Sharmila; Loayza,Norman V.
  73. Recession Prediction with OptimalUse of Leading Indicators By Heikki Kauppi
  74. Featherbedding and labour market reforms By Dennery, Charles
  75. Inflation Expectations and Behavior: Do Survey Respondents Act on Their Beliefs? By Basit Zafar; Olivier Armantier; Giorgio Topa; Wilbert Van der Klaauw
  76. Which Dealers Borrowed from the Fed’s Lender-of-Last-Resort Facilities? By Asani Sarkar; Viral V. Acharya; Warren B. Hrung; Michael J. Fleming
  77. The cost of holding foreign exchange reserves By Eduardo Levy Yeyati; Juan Francisco Gómez
  78. Housing Booms and the U.S. Productivity Puzzle By Jose Carreno
  79. Did the West Coast Port Dispute Contribute to the First-Quarter GDP Slowdown? By Logan T. Lewis; Tyler Bodine-Smith; Michele Cavallo; Mary Amiti
  80. Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data By Daniel Schaefer; Carl Singleton
  81. Labor-Augmenting Technical Change and the Labor Share: New Microeconomic Foundations By Daniele Tavani; Luca Zamparelli
  82. Bundling Time and Goods: Implications for Hours Dispersion By Lei Fang; Anne Hannusch; Pedro Silos
  83. Las entidades de contrapartida central en la mitigación del riesgo de contraparte y de liquidez: El caso de los derivados cambiarios en Colombia By Ricardo Mariño-Martínez; Carlos León; Carlos Cadena-Silva
  84. Growth, Automation and the Long Run Share of Labor By Debraj Ray ⓡ; Dilip Mookherjee
  85. Global Trends in Interest Rates By Brandyn Bok; Marco Del Negro; Eric Qian Qian; Domenico Giannone; Marc Giannoni; Andrea Tambalotti
  86. Implied Volatility Duration: A measure for the timing of uncertainty resolution By Schlag, Christian; Thimme, Julian; Weber, Rüdiger
  87. Does Quantitative Easing Boost Bank Lending to the Real Economy or Cause Other Bank Asset Reallocation? The Case of the UK By Simone Giansante; Mahmoud Fatouh; Steven Ongena
  88. Kenya; Fiscal Transparency Evaluation Update By International Monetary Fund
  89. Fiscal Space : Concept, Measurement, and Policy Implications By Kose,Ayhan; Ohnsorge,Franziska Lieselotte; Sugawara,Naotaka
  90. Private Money Production without Banks By Gary B. Gorton
  91. Commodity Currencies and Causality: Some High-Frequency Evidence By Ahmed, Rashad
  92. A Toolkit for Solving Models with a Lower Bound on Interest Rates of Stochastic Duration By Gauti Eggertsson; Sergey K. Egiev; Alessandro Lin; Josef Platzer; Luca Riva
  93. Interest Rates, Money, and Economic Activity By Apostolos Serletis; Cosmas Dery
  94. Measuring the Economic Risk of Epidemics By Ilan Noy; Nguyen Doan; Benno Ferrarini; Donghyun Park
  95. Monetary Dynamics in a Network Economy By Antoine Mandel; Vipin Veetil
  96. Productivity growth determinants of differently developed countries: comparative capital input results By Toma Lankauskiene
  97. L’empreinte matières de l’économie française : une analyse par matière et catégorie de produits By K. MOHKAM; O. SIMON
  98. Coordinated Work Schedules and the Gender Wage Gap By German Cubas; Chinhui Juhn; Pedro Silos
  99. “Economic determinants of employment sentiment: A socio-demographic analysis for the euro area” By Oscar Claveria; Ivana Lolic; Enric Monte; Salvador Torra; Petar Soric
  100. Symmetric and asymmetric effects of exchange rates on money demand: Empirical evidence from Vietnam By Sy Hoa Ho; Jamel Saadaoui
  101. Coalition-Proof Risk Sharing Under Frictions By Harold L. Cole; Dirk Krueger; George J. Mailath; Yena Park
  102. Rational Belief Bubbles By H. Sohn; Didier Sornette
  103. The Role of Nonemployers in Business Dynamism and Aggregate Productivity By Pedro Bento; Diego Restuccia

  1. By: Òscar Jordà; Sanjay R. Singh; Alan M. Taylor
    Abstract: Is the effect of monetary policy on the productive capacity of the economy long lived? Yes, in fact we find such impacts are significant and last for over a decade based on: (1) merged data from two new international historical databases; (2) identification of exogenous monetary policy using the macroeconomic trilemma; and (3) improved econometric methods. Notably, the capital stock and total factor productivity (TFP) exhibit hysteresis, but labor does not. Money is non-neutral for a much longer period of time than is customarily assumed. A New Keynesian model with endogenous TFP growth can reconcile all these empirical observations.
    JEL: E01 E30 E32 E44 E47 E51 F33 F42 F44
    Date: 2020–01
  2. By: Serdar Birinci; Kurt See
    Abstract: We study optimal unemployment insurance (UI) over the business cycle using a heterogeneous agent job search model with aggregate risk and incomplete markets. We validate the model-implied micro and macro labor market elasticities to changes in UI generosity against existing estimates, and provide an explanation for divergent empirical findings. We show that generating the observed demographic differences between UI recipients and non-recipients is critical in determining the magnitudes of these elasticities. We find that the optimal policy features countercyclical replacement rates with average generosity close to current U.S. policy but adopts longer payment durations reminiscent of European policies.
    Keywords: Business Cycles; Job Search; Unemployment Insurance
    JEL: E24 E32 J64 J65
    Date: 2019–01–01
  3. By: Michalis Nikiforos
    Abstract: The present paper emphasizes the role of demand, income distribution, endogenous productivity reactions, and other structural changes in the slowdown of the growth rate of output and productivity that has been observed in the United States over the last four decades. In particular, it is explained that weak net export demand, fiscal conservatism, and the increase in income inequality have put downward pressure on demand. Up until the crisis, this pressure was partially compensated for through debt-financed expenditure on behalf of the private sector, especially middle- and lower-income households. This debt overhang is now another obstacle in the way of demand recovery. In turn, as emphasized by the Kaldor-Verdoorn law and the induced technical change approach, the decrease in demand and the stagnation of wages can lead to an endogenous slowdown in productivity growth. Moreover, it is argued that the increasingly oligopolistic and financialized structure of the US economy also contributes to the slowdown. Finally, the paper argues that there is nothing secular about the current stagnation; addressing the aforementioned factors can allow for growth to resume, as has happened in the past.
    Keywords: Stagnation; Demand; Distribution; Technical Change; Institutions
    JEL: E02 E11 E12 E21 E22 E32 O33
  4. By: Benjamin Beckers (Reserve Bank of Australia)
    Abstract: Identifying the causal effect of monetary policy on inflation remains a challenge. Researchers frequently find evidence of a 'price puzzle': increases in the policy rate are followed by higher rather than lower inflation. This can be explained by the forward-looking behaviour of the central bank. Inflation does not rise in response to an increase in the policy rate but, instead, the central bank raises its policy rate when it expects inflation to increase in the future. To identify the true causal effects of monetary policy on inflation, it is hence necessary to control for this systematic policy response to expected inflation. For Australia, however, the price puzzle has been found even when controlling for the cash rate's systematic response to the Reserve Bank's own inflation forecasts. I argue that this is due to an additional but omitted systematic response of the cash rate to credit market shocks. Easier credit market conditions lead to an economic expansion and higher inflation. Therefore, the Bank raises the cash rate – its policy rate – when credit spreads decline. However, the Bank's inflation forecasts do not fully capture the inflationary effect of easier credit conditions. As a result, cash rate changes are positively correlated with future inflation even when purging them of the cash rate's response to the Bank's inflation forecasts. Accordingly, I show that accounting for the cash rate's additional response to credit market conditions resolves the price puzzle. As expected, a higher cash rate reduces inflation and output growth, and raises the unemployment rate.
    Keywords: monetary policy; inflation; price puzzle; credit market shocks; credit spreads
    JEL: E31 E32 E43 E52
    Date: 2020–01
  5. By: David Finck (University of Giesssen)
    Abstract: A common finding in the literature is that forward guidance cannot be credible under discretionary policy as long as the zero lower bound is an one-off event. However, this is not the case when recurring episodes of zero interest rates are possible. In this paper, we contribute to this new result and assess the sustainability of forward guidance under the cost channel. We find that forward guidance can be sustainable under the cost channel. However, we show that it is less credible compared to a standard New Keynesian model. Our results show that this finding also depends on the strength of the cost channel. Furthermore, provide evidence that ignoring the presence of a cost channel can be costly in terms of steady-state consumption.
    Keywords: Forward Guidance, Sustainability, Cost Channel, Discretion
    JEL: E12 E43 E52 E58 E61
    Date: 2020
  6. By: Mario Cassetti
    Abstract: This study examines the real and financial requirements of a regularly progressive economy driven by an autonomous evolution of public expenditure. The proposed model attempts to reconcile features of Kaleckian, Sraffian and horizontalist strands of post-Keynesian economics in a stock-flow consistent framework, which includes a banking sector and a central bank, as well as workers, rentiers,and firms. It focuses on the long-run convergence to a normal capacity utilization rate in a credit economy, where money is endogenous and the interest rate is kept stable by the central bank. The results show that an increase in public expenditure aimed at stabilizing economic activity on a higher long-run trend does not face significant financial constraints. However, the expansion may result in inflation and changes in the income distribution. Furthermore, resolving the conflict between robust steady growth and tolerable inflation rests on political and institutional changes, rather than on tightening fiscal and monetary policies. Rentiers and the financial sector have good reasons to resist expansionary fiscal policies, given the relative decline in the real value of their financial rents and activities caused by inflation and by improvements in the income share of wage earners.
    Keywords: Fiscal policy, Public debt, Income distribution, Supermultiplier, Kaleckian growth models, Stock-flow consistent models
    JEL: E11 E12 E20 E25 E60
    Date: 2020–01
  7. By: Julien Albertini (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Stéphane Auray (CREST-Ensai and ULCO); Hafedh Bouakez (Department of Applied Economics and CIREQ, HEC Montréal, 3000 chemin de la Côte-Sainte-Catherine, Montréal, Québec, Canada H3T 2A7); Aurélien Eyquem (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France, and Institut Universitaire de France)
    Abstract: We propose a model with involuntary unemployment, incomplete markets, and nominal rigidity, in which the effects of government spending are state-dependent. An increase in government purchases raises aggregate demand, tightens the labor market and reduces unemployment. This in turn lowers unemployment risk and thus precautionary saving, leading to a larger response of private consumption than in a model with perfect insurance. The output multiplier is further amplified through a composition effect, as the fraction of high-consumption households in total population increases in response to the spending shock. These features, along with the matching frictions in the labor market, generate significantly larger multipliers in recessions than in expansions. As the pool of job seekers is larger during downturns than during expansions, the concavity of the job-finding probability with respect to market tightness implies that an increase in government spending reduces unemployment risk more in the former case than in the latter, giving rise to countercyclical multipliers.
    Keywords: Government spending, Multipliers, Precautionary saving, State dependence, Unemployment risk
    JEL: D52 E21 E62
    Date: 2020
  8. By: Rita Soares; Joana Sousa Leite; João Filipe; Nuno Nóbrega
    Abstract: Banco de Portugal TARGET balance, an accounting position representing a liability towards the European Central Bank arising from net cross-border payments in central bank money settled via the TARGET2 payment system, was the largest item on Banco de Portugal balance sheet by the end of 2018. In this paper, we depict the evolution and explain the main underlying drivers of Banco de Portugal TARGET liability since the beginning of Stage III of the EMU, following two perspectives, one based on Banco de Portugal balance sheet and other on the Portuguese Balance of Payments. We find that the evolution of Banco de Portugal TARGET liability is highly related with the volume of liquidity-providing monetary policy operations, although the underlying drivers evolved throughout the time: demand driven in 2011/2012 and supply driven from 2015 onwards. We find no time-invariant causal link between Banco de Portugal TARGET liability and neither financial market stress indicators nor the net financing needs of the Portuguese economy. We corroborate our findings empirically using simple OLS regressions.
    JEL: E42 E44 E52 E58
    Date: 2020
  9. By: Dimitrios Anastasiou (Athens University of Economics and Business and Alpha Bank); Zacharias Bragoudakis (Bank of Greece); Stelios Giannoulakis (Athens University of Economics and Business)
    Abstract: We link senior banks loan officers’ responses regarding their decisions for bank credit standards, from successive surveys from the European Bank Lending Survey to investigate two important issues. First, we examine the relationship between bank credit standards (CS) and perceived and actual financial crisis. Second, we investigate whether the notion of the self-fulfilling prophecy is applicable in the case of the 2008 global financial crisis. In particular, the second main research question that we try to answer is whether the perceived crisis (as implied by the Google search query “financial crisis”) contributed to the acceleration of the outburst of the actual crisis. We find that both perceived and actual financial crisis affect senior bank loan officers’ credit standards, with the actual crisis having the greatest impact. These results are consistent both in the short and in the long run. Finally, by putting forward a binary choice model we find sufficient evidence to support the Self-Fulfilling Prophecy notion.
    Keywords: Credit Standards; Financial Crisis; Google Trends; Crisis Sentiment; Self-Fulfilling Prophecy.
    JEL: C51 E30 E32 E44 E51 G01 G21
    Date: 2020–01
  10. By: Gibbs, Christopher G.; McClung, Nigel
    Abstract: We provide suffcient conditions for when a rational expectations structural model predicts bounded responses of endogenous variables to forward guidance announcements. The conditions coincide with a special case of the well-known (E)xpectation-stability conditions that govern when agents can learn a Rational Expectations Equilibrium. Importantly, we show that the conditions are distinct from the determinacy conditions. We show how the conditions are useful for diagnosing the features of a model that contribute to the Forward Guidance Puzzle and reveal how to construct well-behaved forward guidance predictions in standard medium-scale DSGE models.
    JEL: E31 E32 E52 D84 D83
    Date: 2019–09–10
  11. By: Lars E.O. Svensson
    Abstract: The general monetary policy strategy of “forecast targeting” allows the Federal Reserve to respond flexibly to all relevant information in achieving its dual mandate of maximum employment and price stability. In contrast, a simple “instrument” rule such as a Taylor-type rule restricts the Federal Reserve to only respond in a rigid way to the partial information of current inflation and output. Forecast targeting can be used for any of the more specific strategies of annual-inflation targeting, price-level targeting, temporary price-level targeting, average-inflation targeting, and nominal-GDP targeting. These specific strategies are examined and evaluated according to how well they may fulfill the dual mandate, considering the possibilities of a binding effective lower bound for the federal funds rate and a flatter Phillips curve. Nominal-GPD targeting means that GDP and the GDP deflator are considered perfect substitutes. It therefore does not treat maximum employment and price stability as separate and independent targets. In addition, data on GDP and the GDP deflator have longer reporting lags and are subject to substantial ex post revisions. The latter will require both retrospective and prospective revisions of the target path, with large communication difficulties. Average-inflation targeting has good prospects of handling the problems of a binding effective lower bound and a flatter Phillips curve. As a permanently applied strategy, it would also have good possibilities of becoming understood by and credible with markets and the general public.
    JEL: E52 E58
    Date: 2020–01
  12. By: Leland Bybee; Bryan T. Kelly; Asaf Manela; Dacheng Xiu
    Abstract: We propose an approach to measuring the state of the economy via textual analysis of business news. From the full text content of 800,000 Wall Street Journal articles for 1984{2017, we estimate a topic model that summarizes business news as easily interpretable topical themes and quantifies the proportion of news attention allocated to each theme at each point in time. We then use our news attention estimates as inputs into statistical models of numerical economic time series. We demonstrate that these text-based inputs accurately track a wide range of economic activity measures and that they have incremental forecasting power for macroeconomic outcomes, above and beyond standard numerical predictors. Finally, we use our model to retrieve the news-based narratives that underly “shocks” in numerical economic data.
    JEL: C43 C55 C58 C82 E0 E17 E32 G0 G1
    Date: 2020–01
  13. By: Andrea Berardi (Ca Foscari University of Venice - Dipartimento di Economia); Alberto Plazzi (Swiss Finance Institute; Universita' della Svizzera italiana)
    Abstract: Using a stochastic volatility affine term structure model, we explicitly consider the interrelation between yield curves and macro and volatility factors. We provide estimates of short rate expectations, term premium and convexity of nominal yields and for their real and inflation components for four different currency areas: US, Euro Area, UK, and Japan. We find that in all areas there are non-negligible convexity effects in correspondence with high volatility periods, and that term premium and convexity explain a significant proportion of the dynamics at the long end of the yield curve. Using panel regressions, we show that, overall, short rate expectations are procyclical while term premia exhibit a countercyclical behaviour and tend to increase with yield volatility. We also detect strong cross-country co-movements both in short rate expectations and term premia, with the degree of connectedness exhibiting significant time variation..
    Keywords: Term structure, Term premia, Yield volatility, Macro factors
    JEL: G12 E43 E44 C58
    Date: 2019–06
  14. By: Muhammad Nadim Hanif (State Bank of Pakistan); Javed Iqbal (State Bank of Pakistan); Syed Hamza Ali (State Bank of Pakistan); Muhammad Abdus Salam (State Bank of Pakistan)
    Abstract: Existing measures of core inflation ignore a part of ‘should be’ the core inflation. Exclusion based measures ‘exclude’ a part of persistent inflation inherently existing in the excluded part whereas filter based measures ‘filter-out’ the cyclical part also rather than the irregular component only. This study proposes a new idea to define and measure core inflation – noise free inflation or denoised inflation. As against considering only trend to define core inflation, this study proposes using cyclical component also to be part of core inflation. If core inflation is to be useful, for monetary policy making, as an indicator of underlying inflation, it has to include demand related component of inflation associated with current economic cycle. By using wavelet analysis approach to decompose seasonally adjusted price index into noise, cyclical component and trend, we estimate a denoised inflation series for Pakistan for the period July 1992 to June 2017. Since denoised inflation passes ‘statistical’ as well as ‘theoretical’ tests necessary for a series to be core inflation, we think it can be used as a new core inflation measure for Pakistan. This can also be estimated and tested for any country.
    Keywords: Estimation of Cyclical Component, Inflation, Monetary Policy
    JEL: C19 E31 E52
    Date: 2019–01
  15. By: Zhang, Hanzhe (Michigan State University, Department of Economics); Hu, Yunzhi (Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC)
    Abstract: How should the government effectively provide liquidity to banks during periods of financial distress? During the 2008-2010 crisis, banks avoided borrowing from the Fed's long-standing discount window (DW), but actively borrowed and sometimes paid a higher interest in its special monetary program, the Term Auction Facility (TAF), although both programs had the same borrowing requirements. We use a dynamic adverse selection model with endogenous borrowing stigma costs to explain how the combination of the DW and TAF increased banks' borrowing and willingness to pay for loans from the Fed. Using micro-level data on DW borrowing and TAF bidding from 2007 to 2010, we confirm our theoretical predictions about the financial condition of banks in different facilities.
    Keywords: lending of last resort; discount window stigma; Term Auction Facility; adverse selection
    JEL: D44 E52 E58 G01
    Date: 2020–01–23
  16. By: Kollar, Miroslav; Schmieder, Christian
    Abstract: Macro-based asset allocation, i.e., the identification of turning points in macro-financial cycles and the allocation of assets accordingly, has attracted a lot of interest in recent years. This interest was sparked by volatile financial markets, more synchronized returns across asset classes and countries as well as the low interest rate environment. A horse-race among different asset allocation strategies suggests that macro-based asset allocation informed by trends in continuous indicators characterizing the business and financial cycle could be a promising alternative for medium- and long-term investment. Despite changes in the relationship between macro-financial cycles and asset price cycles during the last three decades, the most promising specifications did roughly anticipate turning points in asset price cycles, resulting in favorable returns and low portfolio volatility. The authors appreciate the promising role of this approach, but urge caution given the complexity of the inherent interactions.
    Keywords: Asset Allocation,Macro-based,Financial cycle,Business cycle,Long-term
    JEL: E32 E37 G11
    Date: 2019
  17. By: Ryan Chahrour (Boston College); Sanjay Chugh (The Ohio State University); Tristan Potter (Drexel University)
    Abstract: We identify the main shock driving the covariance of the labor market and out- put. The shock drives strong business cycle comovement among output, consumption, investment, hours, and stock prices but is essentially orthogonal to business cycle fluc- tuations in TFP. Yet, the shock is associated with future persistent TFP fluctuations, consistent with theories of technology news. A standard labor search model in which wages are determined by a cash flow sharing rule, rather than the net present value of match surplus, matches the observed responses to TFP news. The response of the wage implied by this rule is consistent with the empirical responses of a broad panel of wage series.
    Keywords: News Shocks, Wages, Search and Matching, Business Cycles
    JEL: E32 E24
    Date: 2020–01–31
  18. By: Ivan Mendieta-Munoz; Codrina Rada; Marcio Santetti; Rudiger von Arnim
    Abstract: We propose a novel methodological approach to disentangle the main structural shocks affecting the US labour share of income during the immediate post-war era (1948Q!-1984Q4) and the Great Moderation (1985Q1-2018Q3). We motivate a SVAR model in aggregate demand, unemployment rate, real wage and labour productivity, which captures key components of the labour share. The paper then (i) demonstrates statistical support for separating the sample into two periods; (ii) employs the model to identify four structural innovations: aggregate demand, labour supply, wage bargaining, and productivity; (iii) quantifies the dynamic responses of the labour share to each structural shock; (iv) compares these results across the two periods; and (v) indicates their robustness to estimation of the impulse responses with stationary variables or in levels, and via local projections. The results show that the two periods differ substantially. First, in order of magnitude, the labour share responded mainly to productivity, aggregated demand, and wage bargaining shocks during the immediate post-war era; whereas wage bargaining, productivity, and aggregate demand shocks mattered most during the Great Moderation. Second, these impulse responses are statistically significantly different across the two periods for wage bargaining and productivity shocks. Increased (decreased) sensitivity to wage bargaining (productivity) shocks during the Great Moderation suggests that the decline in the labour share is driven by the factors that govern wage setting.
    Keywords: US labour share of income, wage bargaining shocks, productivity shocks, aggregate demand shocks, labour supply shocks.
    JEL: E25 E24 E32
    Date: 2020
  19. By: Shuonan Zhang (Portsmouth Business School)
    Abstract: In this paper, we build and estimate a DSGE model to study how state-owned enterprises (SOEs) and entrusted lending affect growth and business cycles in China. Our model is featured SOEs being bank-favoured firms as well as policy tools, and more productive private firms (POEs) who can borrow from SOEs through entrusted lending. Our findings suggest SOEs dampen output volatility at the cost of TFP volatility. As policy tools, SOEs cause the expense larger than the dampening effect while a reverse case is found for SOEs being bank-favoured firms. In contrast, entrusted lending could dampen variations of both output and TFP by reallocating credits between SOEs and POEs, hence mitigating the cost of SOEs. Focusing on the recent growth slowdown in China, we further show that entrusted lending was conducive to both economic growth and TFP growth by mitigating capital misallocation.
    Keywords: State-owned Enterprises, Shadow Lending, Resource Allocation, Financial Friction, Business Cycles
    JEL: C32 E32 E44
    Date: 2020–01–17
  20. By: Robert Kollmann
    Abstract: This paper studies rational bubbles in non-linear dynamic general equilibrium models of the macroeconomy. The term ‘Rational bubble’ refers to multiple equilibria due to the absence of a transversality condition (TVC) for capital. The lack of TVC can be due to an OLG population structure. If a TVC is imposed, the macro models considered here have a unique solution. Bubbles reflect self-fulfilling fluctuations in agents’ expectations about future investment. In contrast to explosive rational bubbles in linearized models (Blanchard (1979)), the rational bubbles in non-linear models here are bounded. Bounded rational bubbles provide a novel perspective on the drivers and mechanisms of business cycles. I construct bubbles (in non-linear models) that feature recurrent boombust cycles characterized by persistent investment and output expansions which are followed by abrupt contractions in real activity. Both closed and open economies are analyzed. In a non-linear two-country model with integrated financial markets, bubbles must be perfectly correlated across countries. Global bubbles may, thus, help to explain the synchronization of international business cycles.
    Keywords: Rational bubbles, boom-bust cycles, business cycles in closed and open economies, non-linear DSGE models, Long-Plosser model, Dellas model
    JEL: E1 E3 F3 F4 C6
    Date: 2020–02
  21. By: Muhammad Ejaz (State Bank of Pakistan); Muhammad Nadim Hanif (State Bank of Pakistan)
    Abstract: We identify private credit booms in Pakistan, using fully modified HP filter, and analyze the behavior of selected macroeconomic aggregates around these booms based on annual data over the period 1960-2018. We observe that credit booms are associated with economic expansions, increasing asset prices, appreciating REER and widening of current account deficit in Pakistan. Micro data analysis shows an association between credit booms and measures of corporate leverage, valuations and profitability. Our analysis of bank level data shows similar cyclical patterns in lending activity and profitability in banking system. Lastly, we find that credit booms in Pakistan are associated with sudden stops and currency crises but not with banking crisis. These results are in line with existing evidence on credit cycles’ dynamics in emerging markets.
    Keywords: Credit Booms, Business Cycles, Macroprudential Supervision
    JEL: E32 E51 G28
    Date: 2018–12
  22. By: Argia M. Sbordone; Domenico Giannone (Solvay Brussels School of Economics and Management; Federal Reserve Bank of New York; La Trobe University; Université Libre de Bruxelles; Libera Universität Internazionale degli Studi Sociali; European Central Bank; University of Aston in Birmingham; European Centre for Advanced Research in Economics and Statistics; Centre for Economic Policy Research (CEPR)); Eric Qian Qian (Research and Statistics Group); Patrick Adams (Research and Statistics Group)
    Abstract: The recent partial shutdown of the federal government has disrupted publication schedules for many U.S. Census Bureau and Bureau of Economic Analysis (BEA) data releases. Most notably, the release of GDP for the fourth quarter of 2018?originally scheduled for January 30?has been postponed indefinitely. Even without the full slate of Census Bureau and BEA releases, forecasters have continued to make predictions for 2018:Q4 GDP growth; as of February 1, the New York Fed Staff Nowcast stands at 2.6 percent, the Atlanta Fed's GDPNow stands at 2.5 percent, and the Blue Chip Financial Forecasts estimate stands at 2.6 percent. How accurate are these predictions for 2018:Q4 relative to the BEA?s first estimate? Have the missing data jeopardized the accuracy of predictions for 2019:Q1? The New York Fed Staff Nowcast provides a lens through which to answer these questions, thanks to its entirely automated design and its ability to mimic judgmental forecasters? processing of incoming data. Using real?time historic data, we can assess the importance of missing releases by simulating similar dataflow disruptions for past quarters.
    Keywords: Nowcasting; Government Shutdown; Data Releases; GDP
    JEL: E2
  23. By: Heikki Kauppi (University of Turku); Timo Virtanen (University of Turku)
    Abstract: We apply the boosting estimation method to investigate to what ex-tent and at what horizons macroeconomic time series have nonlinearpredictability coming from their own history. Our results indicate thatthe U.S. macroeconomic time series have more exploitable nonlinearpredictability than previous studies have found. On average, the mostfavorable out-of-sample performance is obtained by a two-stage proce-dure, where a conventional linear prediction model is fine-tuned by theboosting technique.
    Keywords: boosting, forecasting, linear autoregression, mean squarederror, non-linearity
    JEL: C22 C53 E27 E37 E47
    Date: 2018–12
  24. By: Martin Hellwig (Max Planck Institute for Research on Collective Goods)
    Abstract: This contribution to the panel on the future to EMU discusses the tensions that arise from the fact that banks are, on the one hand, an essential element of the monetary transmission mechanism and, on the other hand, an integral part of local, regional or national polities. Banking union can eliminate or at least reduce some of the procrastination that has allowed maintained bank weaknesses to persist and harmed the transmission of monetary policy but, whereas the SSM has been fairly successful, resolution is still not working properly and needs further reforms. At the same time, banking union suffers from the problem that interventions from Brussels or Frankfurt are seen as infringements of national sovereignty that lack political legitimacy. The conflict between supranational and national interests is ultimately irresolvable but, if EMU is to survive, measures must be taken to limit its impact.
    Keywords: Monetary union, central banking, politics of banks, banking union, bank resolution, bail-in.
    JEL: E42 E44 E51 G18 G28 G33
    Date: 2019–11
  25. By: Catherine Doz (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris School of Economics); Laurent Ferrara (SKEMA Business School - Université Côte d'Azur); Pierre-Alain Pionnier (OCDE - Organisation de Coopération et de Développement Economiques)
    Abstract: The Great Recession and the subsequent period of subdued GDP growth in most advanced economies have highlighted the need for macroeconomic forecasters to account for sudden and deep recessions, periods of higher macroeconomic volatility, and fluctuations in trend GDP growth. In this paper, we put forward an extension of the standard Markov-Switching Dynamic Factor Model (MS-DFM) by incorporating two new features: switches in volatility and time-variation in trend GDP growth. First, we show that volatility switches largely improve the detection of business cycle turning points in the low-volatility environment prevailing since the mid-1980s. It is an important result for the detection of future recessions since, according to our model, the US economy is now back to a low-volatility environment after an interruption during the Great Recession. Second, our model also captures a continuous decline in the US trend GDP growth that started a few years before the Great Recession and continued thereafter. These two extensions of the standard MS-DFM framework are supported by information criteria, marginal likelihood comparisons and improved real-time GDP forecasting performance.
    Keywords: Markov-Switching Dynamic Factor Model (MS-DFM),Great Moderation,Great Recession,Turning-Point Detection,Macroeconomic Forecasting
    Date: 2020–01
  26. By: Akvile Bertasiute; Domenico Massaro; Matthias Weber
    Abstract: We analyze different behavioral models of expectation formation in a multicountry New Keynesian currency union model. Our analyses yield the following robust results. First, economic integration is of crucial importance for the stability of the economic dynamics in a currency union. Second, when the economic dynamics are unstable, more activist monetary policy does not lead to stable economic dynamics. These findings have natural counterparts in the rational expectations version of the model: there, economic integration is crucial for the determinacy of the equilibrium and when the equilibrium is indeterminate, more activist monetary policy does not lead to a determinate equilibrium. In an application to euro area data, we find that the behavioral macroeconomic model outperforms its rational counterpart in terms of prediction performance.
    Keywords: Behavioral Macroeconomics, Monetary Unions, Determinacy of Equilibria, Reinforcement Learning
    JEL: F45 E52 D84
    Date: 2019–11
  27. By: Minetti, Raoul (Michigan State University, Department of Economics); Di Pietro, Marco (Sapienza University of Rome); Marattin, Luigi (University of Bologna)
    Abstract: In response to severe fiscal consolidation policies implemented after the Great Recession and the euro area sovereign debt crisis, many have questioned the effectiveness of fiscal consolidations in reducing the burden of public debt. This paper revisits this fundamental policy debate qualitatively and quantitatively, studying conditions under which primary budget balance changes can successfully reduce government debt-to-GDP ratios. We first illustrate these conditions through a partial equilibrium setting. We then investigate the conditions quantitatively using a medium-scale New Keynesian DSGE model calibrated on periphery countries of the euro area. The analysis highlights the critical role of sovereign spreads in driving the debt-to-GDP dynamics following a restrictive primary balance shock. Fiscal consolidations turn out to successfully reduce the debt-to-GDP even for fairly low elasticities of spreads to fiscal variables. However, their effectiveness is quantitatively moderate and varies crucially with the initial spread level and with the degree of monetary policy accommodation.
    Keywords: debt-to-GDP; debt sustainability; sovereign spreads; fiscal consolidations
    JEL: E60 H63
    Date: 2020–01–29
  28. By: Hideaki Matsuoka (World Bank)
    Abstract: Fiscal vulnerabilities depend on both the level and composition of government debt. This study investigates this threshold level of debt and its composition to understand the non-linear behavior of the long-term interest rate by developing a novel approach: a panel smooth transition regression with a general logistic model (i.e., a generalized panel smooth transition regression). Our main findings are threefold: (i) the impact of the expected public debt on the interest rate would increase exponentially and significantly as the foreign private holdings ratio exceeds approximately 20 percent; otherwise, strong home bias would mitigate the upward pressure of an increase in public debt on the interest rate; (ii) if the expected public debt-to-GDP ratio exceeds a certain level that depends on the funding source, an increase in foreign private holdings of government debt would cause a rise in long-term interest rates, offsetting the downward effect on long-term interest rates by expanding market liquidity; and (iii) out-of-sample forecast of our novel non-linear model is more accurate than those of previous methods. As such, the composition of government debt plays an important role in the highly non-linear behavior of the long-term interest rate.
    Keywords: Generalized panel smooth transition regression, Expected public debt-to-GDP ratio, Foreign private investors, Long-term interest rate
    JEL: E43 E62 H63
    Date: 2020–01
  29. By: Ilu, Ahmad Ibraheem
    Abstract: This paper analytically examines the impact of exchange rate volatility on stock prices in Nigeria via both symmetric and asymmetric GARCH models. At the onset the descriptive statistics reveals that both series are non-normally distributed as indicated by the Jacque-Bera statistic, also the standard deviation implied that the stock price series is more volatile than the exchange rate. Furthermore both series are reported to be negatively skewed also reference to the kurtosis statistics presented it is observed that both series are leptokurtic distribution. Further the result obtained from the estimated model GARCH models reveals that the PGARCH gives the better fit of the stock prices volatility model given its minimum AIC value. In the symmetric models {GARCH (1, 1) and GARCH-in-Mean} the shocks on stock returns volatility are found to be mean reverting whilst in the asymmetric GARCH models {TGARCH, EGARCH and PGARCH} only EGARCH was found to be non-mean reverting. Further, the asymmetric term in all the 3 models indicates that bad news exerts more shocks on the stock returns volatility than good news of the same magnitude. The post estimation diagnostic test of ARCH effect demonstrate that all the models completely captured the ARCH effect. Immensely the findings of this study shall be of utmost relevance to investors, stock brokers, members of the academia, regulators and monetary authorities.
    Keywords: Exchange rate, Stock Prices, All Share Index (ASI), TGARCH, EGARCH and PGARCH
    JEL: E0 E4 E44 F31 G0
    Date: 2020–02–01
  30. By: Alejandro Justiniano (Federal Reserve Bank; National Bureau of Economic Research; Federal Reserve Bank of St Louis; Princeton University); Giorgio E. Primiceri (Northwestern University; Princeton University; National Bureau of Economic Research; Centre for Economic Policy Research (CEPR)); Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research)
    Abstract: There is no consensus among economists as to what drove the rise of U.S. house prices and household debt in the period leading up to the recent financial crisis. In this post, we argue that the fundamental factor behind that boom was an increase in the supply of mortgage credit, which was brought about by securitization and shadow banking, along with a surge in capital inflows from abroad. This argument is based on the interpretation of four macroeconomic developments between 2000 and 2006 provided by a general equilibrium model of housing and credit.
    Keywords: Interest rates; Macroprudential policy; Mortgages; Leverage restrictions; Household debt
    JEL: E2
  31. By: Acharya, Viral V.; Imbierowicz, Björn; Steffen, Sascha; Teichmann, Daniel
    Abstract: We investigate the transmission of central bank liquidity to bank deposits and loan spreads in Europe over the period from January 2006 to June 2010. We find evidence consistent with an impaired transmission channel due to bank risk. Central bank liquidity does not translate into lower loan spreads for high-risk banks for maturities beyond one year, even as it lowers deposit spreads for both high-risk and low-risk banks. This adversely affects the balance sheets of highrisk bank borrowers, leading to lower payouts, capital expenditures and employment. Overall, our results suggest that banks' capital constraints at the time of an easing of monetary policy pose a challenge to the effectiveness of the bank-lending channel and the central bank's lender-of- last-resort function.
    Keywords: Central bank liquidity,Monetary policy transmission,Corporate deposits,Financial crisis,Lender of last resort,Loans,Real effects
    JEL: E43 E58 G01 G21
    Date: 2019
  32. By: Oguzhan Cepni (Central Bank of the Republic of Turkey, Anafartalar Mah. Istiklal Cad. No:10 06050 Ankara, Turkey); Wiehan Dul (Department of Economics, University of Pretoria, 0002, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA and School of Business and Economics, Loughborough University, Leicestershire, LE11 3TU, UK)
    Abstract: This paper investigates the impact of uncertainty shocks on REITs returns over a monthly period from 1972:01 to 2015:12, and sub-samples from 1972:01 to 2009:06, and 2009:07 to 2015:12, to accommodate for the possible effects of the Global Financial Crisis (GFC) and unconventional monetary policy decisions. We use the recently-proposed variations in the price of gold, around events associated with unexpected changes in uncertainty as an instrument to identify uncertainty shocks in a proxy Structural Vector Autoregressive (SVAR) model. Moreover, to control for news-related effects associated with these events, uncertainty and news shocks are jointly identified based on a set-identified proxy SVAR, as recently suggested in the VAR literature. Our results show that the uncertainty shock generates a larger negative impact on REITs returns over the post-GFC period to the extent that it also outweighs the impact of the otherwise dominant news (productivity) shocks. In addition, the impulse response dynamics related to the recursively identified uncertainty shock, as is standard in the literature, resembles the effects of a news shock, and somewhat contrary to intuition suggests that the impact of the uncertainty shock on REITs returns were higher during the pre-GFC era.
    Keywords: Connectedness, U.S. REITs, Proxy SVAR Model, Uncertainty, Monetary Policy Regimes
    JEL: C32 E52 R33
    Date: 2020–01
  33. By: Helene Rey; Paolo Pesenti (Centre for Economic Policy Research (CEPR); National Bureau of Economic Research; Yale University; Research and Statistics Group; Federal Reserve Bank of New York); Moreno Bertoldi (Delegation of the European Union to the United States); Valérie Rouxel-Laxton (Delegation of the European Union to the United States)
    Abstract: On April 18, 2016, the New York Fed hosted a conference on current and future policy directions for the linked economies of Europe and the United States. \\"The Transatlantic Economy: Convergence or Divergence?\\"?organized jointly with the Centre for Economic Policy Research and the European Commission?brought together U.S. and Europe-based policymakers, regulators, and academics to discuss a series of important issues: Are the economies of the euro area and the United States on a convergent or divergent path? Are financial regulatory reforms making the banking and financial structures more similar? Will this imply a convergence in macroprudential policies? Which instruments do the United States and the euro area have at their disposal to raise investment, spur productivity, and avoid secular stagnation? In this post, we summarize the principal themes and findings of the conference discussion.
    Keywords: euro area policy coordination financial markets secular stagnation fiscal policy United States
    JEL: F00 E5 E2 G2
  34. By: Nicholas Oulton
    Abstract: This paper lays out the basic theory behind productivity measurement, whether at the level of the country, region, industry or firm. The theory is illustrated using recent data from UK official publications. Productivity growth over time and differences in productivity levels between countries or regions at a point in time are both covered. Labour productivity and multi-factor productivity (MFP) are discussed. In the case of MFP special attention is paid to the measurement of capital inputs. Wherever possible, an accompanying spreadsheet supplies data from recent publications by the United Kingdom's Office for National Statistics so that readers can reproduce official estimates or even employ alternative assumptions to produce their own estimates. Limitations in the underlying theory are highlighted as are empirical difficulties in implementing the theory.
    Keywords: productivity, measurement, MFP, capital, labour
    JEL: E23 E22 E24 O47
    Date: 2020–01
  35. By: Marc Giannoni; Abhi Gupta; Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research); Domenico Giannone (Solvay Brussels School of Economics and Management; Federal Reserve Bank of New York; La Trobe University; Université Libre de Bruxelles; Libera Universität Internazionale degli Studi Sociali; European Central Bank; University of Aston in Birmingham; European Centre for Advanced Research in Economics and Statistics; Centre for Economic Policy Research (CEPR)); Marco Del Negro; Pearl Li
    Abstract: The preceding two posts in this series documented that interest rates on safe and liquid assets, such as U.S. Treasury securities, have declined significantly in the past twenty years. Of course, short-term interest rates in the United States are under the control of the Federal Reserve, at least in nominal terms. So it is legitimate to ask, To what extent is this decline driven by the Federal Reserve?s interest rate policy? This post addresses this question by coupling the results presented in the previous post with those obtained from an estimated dynamic stochastic general equilibrium (DSGE) model.
    Keywords: r star; convenience yield; liquidity; safety
    JEL: E2 E5
  36. By: Wilbert Van der Klaauw; Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York); Olivier Armantier (Board of Governors of the Federal Reserve System (U.S.); Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York); Basit Zafar (Bank of Italy; Federal Reserve Bank of New York; Forschungsinstitut zur Zukunft der Arbeit; Arizona State University)
    Abstract: The New York Fed started releasing results from its Survey of Consumer Expectations (SCE) three years ago, in June 2013. The SCE is a monthly, nationally representative, internet-based survey of a rotating panel of about 1,300 household heads. Its goal, as described in a series of Liberty Street Economics posts, is to collect timely and high-quality information on consumer expectations about a broad range of topics, covering both macroeconomic variables and the households' own situation. In this post, we look at what drives changes in consumer inflation expectations. Do people respond to changes in recent realized inflation, and to expected and realized changes in prices of salient individual commodities?like gasoline? Understanding what drives inflation expectations is important for the conduct of monetary policy, since it improves a central bank?s ability to assess its own credibility and to evaluate the impact of its policy decisions and communication strategy.
    Keywords: expectations
    JEL: D1
  37. By: Chen, Been-Lon; Hu, Yunfang; Mino, Kazuo
    Abstract: The stabilization effect of nonlinear income taxation is addressed in the standard model of small open economy. It is shown that if income taxation schedule is progressive, the small open economy tends hold saddle-point stability. On the other hand, if taxation on the interest income is regressive, then the small open economy may exhibit sunspot-driven fluctuations or it displays a diverging behavior.
    Keywords: Taxation Rule, Stability, Equilibrium Indeterminacy, Small Open Economy
    JEL: E62 F41
    Date: 2019–05–15
  38. By: Gonzalez-Astudillo, Manuel
    Abstract: This paper analyzes the effects of dollarization on the trend and volatility of key Ecuadorian macroeconomic aggregates such as inflation and economic growth rates. Additionally, it analyzes whether the current account balance and the fiscal deficit, variables associated with the sustainability of dollarization, have undergone structural changes due to the mentioned monetary system. The results indicate that inflation experiences a negative trend that is worrisome because of the possible consequences on the stability of the financial system, while economic growth does not seem to have become more volatile than before dollarization. Regarding the fiscal deficit, there is evidence of a recent regime of high-sustained deficits that would lead to a fiscal consolidation with collateral effects on the macroeconomy. These effects are not related to dollarization, but may affect its sustainability. Finally, although the current account balance does not show a structural change since the implementation of dollarization, the balance of non-oil trade balance does appear to have undergone a change in its structure since 2000, as it presents greater deficits. There is evidence that this regime would have given way to another characterized by smaller deficits since the decline of oil prices in mid-2014.
    Keywords: dollarization; ecuador; effects; risks
    JEL: E42
    Date: 2019–09–01
  39. By: Tobias Adrian; Nina Boyarchenko; Domenico Giannone (Solvay Brussels School of Economics and Management; Federal Reserve Bank of New York; La Trobe University; Université Libre de Bruxelles; Libera Universität Internazionale degli Studi Sociali; European Central Bank; University of Aston in Birmingham; European Centre for Advanced Research in Economics and Statistics; Centre for Economic Policy Research (CEPR))
    Abstract: Traditional GDP forecasts potentially present an overly optimistic (or pessimistic) view of the state of the economy: by focusing on the point estimate for the conditional mean of growth, such forecasts ignore risks around the central forecast. Yet, policymakers around the world increasingly focus on risks to the central forecast in policy debates. For example, in the United States the Federal Open Market Committee (FOMC) commonly discusses the balance of risks in the economy, with the relative prominence of this discussion fluctuating with the state of the economy. In a recent paper, we propose a method for constructing the full conditional distribution of GDP projected growth as a function of current economic and financial conditions. This blog post reviews some of the findings from that paper and the implications for macroeconomic theory and for policymakers.
    Keywords: downside risk; entropy; quantile regressions
    JEL: C1 E1 E3
  40. By: Richard K. Crump; Matthew Raskin; Jeremiah P. Boyle; Carlo Rosa; Emanuel Moench (Deutsche Bundesbank; Halle (Saale); Bank für Internationalen Zahlungsausgleich); Lisa Stowe (Markets Group)
    Abstract: Market expectations of the path of future policy rates can have important implications for financial markets and the economy. Because interest rate derivatives enable market participants to hedge against or speculate on potential changes in various short-term U.S.interest rates, they are a rich and timely source of information on market expectations. In this post, we describe how information about market expectations can be derived from interest rate futures and forwards, focusing on three main instruments: federal funds futures, overnight index swaps (OIS), and Eurodollar futures. We also discuss how options on interest rate futures can be used to gain insight into the full distribution of rate expectations?information that cannot be gleaned from futures or forwards alone. In a forthcoming companion post, we explore an alternative source of policy rate expectations based on the two surveys conducted by the Trading Desk at the Federal Reserve Bank of New York.
    Keywords: Interest rate derivatives; options; Monetary policy expectations
    JEL: E5 G1
  41. By: Carl Grekou
    Abstract: This publication, accompanying the 2019’s update of EQCHANGE, aims at providing an overview of exchange rate misalignments for 2018. In a nutshell, 2018 has been characterized by relatively minor movements in exchange rate misalignments except few EMEs that registered important downward movements owing from the exchange rate depreciations. This is especially the case of Turkey, and to a lesser extent, Brazil, India, Indonesia and Russia. In contrast, most of the major currencies registered a slight appreciation vis-à-vis the US dollar that generally translated in upward movements in currency misalignments. The euro area is again featured two opposite situations with Finland Germany, Ireland and the Netherlands displaying noticeable undervaluations.
    Keywords: EQCHANGE;Exchange Rates;Currency Misalignments;Imbalances
    JEL: E3 E4 E5 E6 F3
    Date: 2019–12
  42. By: Margarida Duarte
    Abstract: A decline in the employment-to-population ratio since 2000 follows several decades of upward trend. The sharp decline in manufacturing employment that started around 2000 has been proposed as the prime contributor to the decline in overall employment. I show that the key factor in the reversal of trend in the employment ratio is a marked slowdown in the growth of service employment. A standard model of structural transformation is broadly consistent with the changing patterns of sectoral employment in the U.S. economy between 1960 and 2019 and highlights the importance of convergence in labor force participation of women.
    Keywords: employment, manufacturing, services, productivity, structural transformation, labor force, women.
    JEL: E1 E24 J11 J16 J21 J22 O11 O41 O51
    Date: 2020–01–27
  43. By: Scott Sherman (Markets Group); Timothy Wessel (Markets Group); Marco Cipriani (New York University; Federal Reserve Bank; Federal Reserve Bank of New York; George Washington University; National Bureau of Economic Research); Romen Mookerjee (Markets Group); Alyssa Cambron (Markets Group); Joshua Jones (Markets Group); Brett Solimine (Markets Group)
    Abstract: The Federal Reserve Bank of New York recently decided to revise the composition of the Overnight Bank Funding Rate (OBFR), a reference rate measuring the cost banks face to borrow overnight in unsecured U.S. dollar-denominated money markets. Specifically, in addition to the federal funds and Eurodollar transactions currently comprising the OBFR, the OBFR now also includes overnight, interest-bearing demand deposits (at rates negotiated between the counterparties and excluding deposits payable on demand) booked within banks? U.S. offices, known as ?selected deposits.? In this post, we discuss the change in more detail, the reason for including selected deposits, and the likely impact on the OBFR?s published values.
    Keywords: OBFR; Selected Deposits
    JEL: E5 E5
  44. By: António R. Antunes; Tiago Cavalcanti; Caterina Mendicino; Marcel Peruffo; Anne Villamil
    Abstract: How does bankruptcy protection affect household balance sheet adjustments and aggregate consumption when credit tightens? Using a tractable model of unsecured consumer credit we quantify the trade-off between the insurance and the creditworthiness effects of bankruptcy in response to tighter credit. We show that bankruptcy dampens the effect of tighter credit on aggregate consumption on impact. This is because it allows borrowers to sustain consumption against severe financial distress. However, by leading to consumers’ exclusion from the credit market for a certain period, bankruptcy also reduces their ability to smooth consumption over time, implying a slower recovery. The bankruptcy code establishes how costly it is to default, and, thus, plays a crucial role in determining consumers’ bankruptcy decisions and in shaping consumption dynamics. We quantify that the 2005 BAPCPA reform, by making filing for bankruptcy more costly, worsened the negative welfare effects of the subsequent credit tightening.
    JEL: E2 E5 G1
    Date: 2019
  45. By: Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Osaka University, Asian Growth Research Institute, and National Bureau of Economic Research); Yoko Niimi (Faculty of Policy Studies, Doshisha University, and Asian Growth Research Institute, Japan)
    Abstract: This paper shows, using data from the Family Income and Expenditure Survey, that housing credit has become increasingly available over time in Japan, especially since 2000, and that this has made it easier for Japanese households to purchase housing and enabled them to do so at an earlier age. However, it also shows that the greater availability of housing credit has increased households' housing loan repayment burden, which has resulted in their cutting back on their other consumption expenditures and created the potential for retirement insecurity. Another concern is that the increasing availability of housing credit has been accompanied by a pronounced shift from fixed-rate to variablerate housing loans. This is cause for concern given the low level of financial literacy that prevails among the Japanese population and the likelihood that interest rates on variablerate housing loans will be raised sooner or later as monetary policy is tightened.
    Keywords: Homeownership; Housing credit; Housing loans; Mortgages; Household debt; Household liabilities
    JEL: D14 E21 R21
    Date: 2020–01
  46. By: Olivier Armantier (Board of Governors of the Federal Reserve System (U.S.); Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York); Basit Zafar (Bank of Italy; Federal Reserve Bank of New York; Forschungsinstitut zur Zukunft der Arbeit; Arizona State University); Wilbert Van der Klaauw; Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York)
    Abstract: Starting in the first quarter of 2014, the Federal Reserve Bank of New York (FRBNY) will begin reporting findings from a new national survey designed to elicit consumers? expectations for a wide range of household-level and aggregate economic and financial conditions. This week, we provide an introduction to the new survey in a series of four blog posts. In this first post, we discuss the overall objectives of the new survey, its sample design, and content. In the posts that follow, we will provide further details and present preliminary findings from the survey on three broad categories of expectations: those relating to inflation, the labor market, and household finance.
    Keywords: inflation; surveys; labor market; Household Finance; expectations
    JEL: D1 E5
  47. By: Camilla Schneier (Research and Statistics Group); Argia M. Sbordone; Domenico Giannone (Solvay Brussels School of Economics and Management; Federal Reserve Bank of New York; La Trobe University; Université Libre de Bruxelles; Libera Universität Internazionale degli Studi Sociali; European Central Bank; University of Aston in Birmingham; European Centre for Advanced Research in Economics and Statistics; Centre for Economic Policy Research (CEPR)); Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research); Daniele Caratelli; Patrick Adams (Research and Statistics Group); Brandyn Bok; Eric Qian Qian (Research and Statistics Group)
    Abstract: In April 2016, we unveiled?and began publishing weekly?the New York Fed Staff Nowcast, an estimate of GDP growth using an automated platform for tracking economic conditions in real time. Today we go a step further by publishing the MATLAB code for the nowcasting model, available here on GitHub, a public repository hosting service. We hope that sharing our code will make it easier for people interested in monitoring the macroeconomy to understand the details underlying the nowcast and to replicate our results.
    Keywords: nowcast
    JEL: E2
  48. By: Cristina Arellano; Yan Bai; Gabriel P. Mihalache
    Abstract: This paper develops a New Keynesian model with sovereign default risk (NK-Default). We focus on the interaction between monetary policy, conducted according to an interest rate rule that targets inflation, and external defaultable debt issued by the government. Monetary policy and default risk interact since both affect domestic consumption, production, and inflation. We find that default risk amplifies monetary frictions and generates a tension for monetary policy, which increases the volatility of inflation and nominal rates. These monetary frictions in turn discipline sovereign borrowing, slowing down debt accumulation and lowering sovereign spreads. Our framework replicates the positive comovements of spreads with nominal domestic rates and inflation, a salient feature of emerging markets data, and can rationalize the experience of Brazil during the 2015 downturn, with high inflation, nominal rates, and spreads.
    JEL: E52 F34 F41
    Date: 2020–01
  49. By: Marc Giannoni; Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research); Domenico Giannone (Solvay Brussels School of Economics and Management; Federal Reserve Bank of New York; La Trobe University; Université Libre de Bruxelles; Libera Universität Internazionale degli Studi Sociali; European Central Bank; University of Aston in Birmingham; European Centre for Advanced Research in Economics and Statistics; Centre for Economic Policy Research (CEPR)); Brandyn Bok; Marco Del Negro
    Abstract: The previous post in this series discussed several possible explanations for the trend decline in U.S. real interest rates since the late 1990s. We noted that while interest rates have generally come down over the past two decades, this decline has been more pronounced for Treasury securities. The conclusion that we draw from this evidence is that the convenience associated with the safety and liquidity embedded in Treasuries is an important driver of the secular (long-term) decline in Treasury yields. In this post and the next, we provide an overview of the two complementary empirical strategies we adopt to extract the trends in real interest rates and quantify their driving factors. Much more detail on all of this can be found in our recently published Brookings paper.
    Keywords: r star; convenience yield; safety; liquidity
    JEL: E2 E5
  50. By: Jaqueson K. Galimberti (School of Economics, Auckland University of Technology)
    Abstract: We evaluate the usefulness of satellite-based data on night-time lights for forecasting GDP growth across a global sample of countries, proposing innovative location-based indicators to extract new predictive information from the lights data. Our findings are generally favorable to the use of night lights data to improve the accuracy of model-based forecasts. We also find a substantial degree of heterogeneity across countries in the relationship between lights and economic activity: individually-estimated models tend to outperform panel specifications. Key factors underlying the night lights performance include the country’s size and income level, logistics infrastructure, and the quality of national statistics.
    Keywords: night lights, remote sensing, big data, business cycles, leading indicators
    JEL: C55 C82 E01 E37 R12
    Date: 2019–12
  51. By: Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York); Wilbert Van der Klaauw; Basit Zafar (Bank of Italy; Federal Reserve Bank of New York; Forschungsinstitut zur Zukunft der Arbeit; Arizona State University); Olivier Armantier (Board of Governors of the Federal Reserve System (U.S.); Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York)
    Abstract: In this second of a series of four blog postings, we discuss the data on inflationexpectationscollected in our new FRBNY Survey of Consumer Expectations (SCE). Inflation expectations are a key consideration for monetary policy as they are believed to influence consumer behavior, thereby affecting economic activity and actual inflation. The SCE data on inflation expectations represent a major innovation as they contain information not previously collected from consumers on a regular basis. In this post, we provide some background on the survey and presentsome initial findings.
    Keywords: household finance; inflation; surveys
    JEL: D1 E5
  52. By: Kasun Kumarasiri; Ruchira L Weerasekara; Chaturika Ranaweera and Tilak Liyanaarachchi
    Keywords: Fiscal policy, Economic growth, Revenue based fiscal measures
    JEL: E62 O40 C54
    Date: 2019–04
  53. By: YiLi Chien; Yi Wen
    Abstract: The aggregate capital stock in a nation can be overaccumulated for many different reasons. This paper studies which policy or policy mix is more effective in achieving the socially optimal (golden rule) level of aggregate capital stock in an infinite-horizon heterogeneous-agents incomplete-markets economy where capital is over-accumulated for two distinct reasons: (i) precautionary savings and (ii) production externalities. By solving the Ramsey problem analytically along the entire transitional path, we show that public debt and capital taxation play very distinct roles in dealing with the overaccumulation problem. The Ramsey planner opts neither to use a capital tax to correct the overaccumulation problem if it is caused solely by precautionary saving---regardless of the feasibility of public debt---nor use debt (financed by consumption tax) to correct the overaccumulation problem if it is caused solely by pollution---regardless of the feasibility of a capital tax. The key is that the modified golden rule has two margins: an intratemporal margin pertaining to the marginal product of capital (MPK) and an intertemporal margin pertaining to the time discount rate. To achieve the MGR, the Ramsey planner needs to equate not only the private MPK with the social MPK but also the interest rate with the time discount rate---neither of which is equalized in a competitive equilibrium. Yet public debt and a capital tax are each effective only in calibrating one of the two margins, respectively, but not both.
    Keywords: Optimal Quantity of Debt; Capital Taxation; Ramsey Problem; Heterogeneous Agents; Incomplete Markets; Pollution; Production Externalities
    JEL: E13 E62 H21 H30 H27
    Date: 2020–01–21
  54. By: David E. Weinstein (Federal Reserve Bank of New York; Wake Forest University; Columbia University; Department of Economics; School of Arts and Sciences; Harvard University; National Bureau of Economic Research; University of Michigan); Mary Amiti (Board of Governors of the Federal Reserve System (U.S.); Schweizerische Nationalbank; Federal Reserve Bank of New York; Universität St. Gallen; Centre for Economic Policy Research (CEPR); Internationaler Währungsfonds; Research and Statistics Group; Chinese University of Hong Kong; University of Melbourne; Universitätt Bern; National Bureau of Economic Research)
    Abstract: Traditionally, we have thought of the fates of specific banks as perhaps symptomatic of problems in the financial market but not as causal determinants of fluctuations in aggregate investment and other real economic activity. However, the high level of bank concentration in much of the OECD (Organisation for Economic Co-operation and Development) means that large amounts of lending are channeled through a small number of institutions that are no longer small even in comparison to the largest economies. Consequently, problems in a few large institutions could potentially have a large impact on aggregate lending and on real output. Our study of Japanese lending markets is the first to provide a causal link between bank shocks and firm-level investment rates. The results indicate that 40 percent of aggregate lending and investment volatility over the past two decades can be tied to the idiosyncratic successes and failures of financial institutions.
    Keywords: credit constraints; granular shocks; financual markets
    JEL: E2 G2
  55. By: Basit Zafar (Bank of Italy; Federal Reserve Bank of New York; Forschungsinstitut zur Zukunft der Arbeit; Arizona State University); Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York); Wilbert Van der Klaauw; Scott Nelson; Olivier Armantier (Board of Governors of the Federal Reserve System (U.S.); Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York)
    Abstract: Managing consumers? inflation expectations is of critical importance to central banks in the conduct of monetary policy. But managing inflation expectations requires more than just monitoring expectations; it also requires an understanding of how these expectations are formed. In this post, we present results from a new study that investigates how individual consumers use selected information on food prices in forming their inflation expectations. While the provision of this information leads individuals to meaningfully revise expectations of their own-basket inflation rate, we find there is little impact on expectations of overall inflation.
    JEL: D1 H00
  56. By: Wilbert Van der Klaauw; Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York); Basit Zafar (Bank of Italy; Federal Reserve Bank of New York; Forschungsinstitut zur Zukunft der Arbeit; Arizona State University); Olivier Armantier (Board of Governors of the Federal Reserve System (U.S.); Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York)
    Abstract: The expectations of U.S. consumers about inflation have declined to record lows over the past several months. That is the finding of two leading surveys, the Federal Reserve Bank of New York?s Survey of Consumer Expectations (SCE) and the University of Michigan?s Survey of Consumers (SoC). In this post, we examine whether this decline is broad-based or whether it is driven by specific demographic groups.
    Keywords: Expectations; Inflation; Survey
    JEL: E2 D1
  57. By: Houda Boubaker (LAREQUAD, FSEGT, University of Tunis El Manar, Tunisia and Amse, Aix-Marseille School of Economics); Eric Girardin (Amse, Aix-Marseille School of Economics); Christophe Muller (Amse, Aix-Marseille School of Economics)
    Abstract: This paper investigates the role of shocks to trend in explaining the business cycle fluctuations in MENA countries. Therefore, We estimate a stochastic growth model with both transitory and permanent shocks. Our results provide the evidence about the shocks to trend productivity as a driver of the macroeconomic movements in the region. We find also that the model succeed to match a key of the empirical regularities as for emerging economies, which is the high relative volatility of consumption to output. The examination of the model performance for oil exporting and importing MENA countries indicate that the role of trend is more pronounced for the former group. The examination of the determinants of MENA countries’ volatility identifies the trade openness, volatility of inflation rate, the quality of institution and the volatility of government consumption as source of shocks to productivity. Length: 83
    Date: 2019–09–20
  58. By: Fabiano Schivardi (Istituto Einaudi per l'Economia e la Finanza (EIEF); Centre for Economic Policy Research (CEPR); Libera Università Internazionale degli Studi Sociali Guido Carli (LUISS); Bocconi University; FL State University; Universität Commerciale Luigi Bocconi; Stanford University; Libera Universität Internazionale degli Studi Sociali; Dipartimento di Economia e Finanza (DEF); Centro Ricerche Nord Sud (CRENoS)); Marco Del Negro; Fabrizio Perri (Leonard N. Stern School of Business; University of Minnesota; Federal Reserve Bank; Centre for Economic Policy Research (CEPR); Princeton University; New York University; National Bureau of Economic Research; Bocconi University)
    Abstract: At a time of increasing fiscal pressures both here and abroad, it seems important to consider ways of raising government revenues without discouraging people from working. This post describes a revenue raising plan?a tax ?buyout??that does just that. The buyout would give you, the taxpayer, the option each year of paying a lump sum to the government in exchange for a given reduction in your marginal tax rate that year. In effect, you would use the lump sum payment to buy yourself a lower marginal tax rate, which would in turn give you more incentive to work. The buyout would be risk free: you wouldn?t have to decide whether to take the buyout until after you know your labor income. Why would this be good for you? If you choose to take it, you end up paying less taxes. If you don?t take it, you are just as well off as before. Why is this good for society? The lower marginal tax rate induces you to work more, so that some of the distortionary effects of taxation would disappear. Furthermore, your participation would be voluntary, so the buyout should be politically palatable.
    Keywords: Private Information; Distortions; Taxes
    JEL: E2
  59. By: Marc Giannoni; Marco Del Negro; Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research); Domenico Giannone (Solvay Brussels School of Economics and Management; Federal Reserve Bank of New York; La Trobe University; Université Libre de Bruxelles; Libera Universität Internazionale degli Studi Sociali; European Central Bank; University of Aston in Birmingham; European Centre for Advanced Research in Economics and Statistics; Centre for Economic Policy Research (CEPR))
    Abstract: Interest rates in the United States have remained at historically low levels for many years. This series of posts explores the forces behind the persistence of low rates. We briefly discuss some of the explanations advanced in the academic literature, and propose an alternative hypothesis that centers on the premium associated with safe and liquid assets. Our argument, outlined in a paper we presented at the Brookings Conference on Economic Activity last March, suggests that the increase in this premium since the late 1990s has been a key driver of the decline in the real return on U.S. Treasury securities.
    Keywords: liquidity; convenience yield; safety; r star
    JEL: E2 E5
  60. By: Olivier Armantier (Board of Governors of the Federal Reserve System (U.S.); Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York); Wilbert Van der Klaauw; Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York); Basit Zafar (Bank of Italy; Federal Reserve Bank of New York; Forschungsinstitut zur Zukunft der Arbeit; Arizona State University)
    Abstract: The Thomson Reuters/University of Michigan Survey of Consumers (the ?Michigan Survey? hereafter) is the main source of information regarding consumers? expectations of future inflation in the United States. The most recent release of the Michigan Survey on March 25 drew considerable attention because it showed a large spike in year-ahead expectations for inflation: as shown in the chart below, the median rose from 3.4 to 4.6 percent and the other quartiles of responses showed similar increases. What may have caused this rise in inflation expectations and what lessons should be taken from it? In this post, we draw upon the findings of an ongoing New York Fed research project to shed some light on the possible sources of the recent increase and to gauge its significance. While our research spans both short- and medium-term inflation expectations, this blog post discusses movements in short-term measures only and does not discuss medium-term expectations.
    Keywords: Inflation expectations; Michigan Survey
    JEL: E5
  61. By: L. AEBERHARDT (Insee); F. HATIER (Insee); M. LECLAIR (Insee); B. PENTINAT (Insee); J.-D. ZAFAR (Insee)
    Abstract: Le ralentissement de la croissance économique ces vingt dernières années contraste avec la numérisation de l’économie. De ce fait certains économistes s’interrogent sur un problème éventuel de mesure du PIB et notamment de son partage volume-prix. L’article revient sur les méthodes utilisées par les statisticiens pour distinguer les changements de prix des changements de volume, en effectuant un focus sur les particularités et les difficultés liées à l’économie numérique : les biens et les services de communication, l’existence de formes de ventes numériques, l’apparition de nouveaux services, le développement de services gratuits. Si les méthodes mises en place méritent d’être questionnées, une simulation montre qu’une erreur sur la mesure des prix des produits d’information et de communication n’est pas de nature à expliquer le ralentissement de la croissance économique.
    Keywords: Partage volume-prix, PIB, indices des prix à la consommation, économie numérique
    JEL: E31 E01 O3
    Date: 2019
  62. By: Ma, Chang; Rogers, John; Zhou, Sili
    Abstract: We document the effect on Chinese firms of the Shanghai (Shenzhen)-Hong Kong Stock Connect. The Connect was an important capital account liberalization introduced in the mid-2010s. It created a channel for cross-border equity investments into a selected set of Chinese stocks while China’s overall capital controls policy remained in place. Using a difference-in-difference approach, and with careful attention to sample selection issues, we find that mainland Chinese firm-level investment is negatively affected by contractionary U.S. monetary policy shocks and that firms in the Connect are more adversely affected than those outside of it. These effects are stronger for firms whose stock return has a higher covariance with the world market return and for firms relying more on external financing. We also find that firms in the Connect enjoy lower financing costs, invest more, and have higher profitability than unconnected firms. We discuss the implications of our results for the debate on capital controls and independence of Chinese monetary policy.
    JEL: F38 E40 E52 G15
    Date: 2020–02–03
  63. By: Taylor Webley; Carla Valerio; Maureen MacIsaac
    Abstract: Real growth in gross domestic product tends to be meaningfully higher when a large share of industries and demand components are growing—that is, when growth is broad across many fronts. We present a simple new indicator, the overall breadth indicator (OBI), to measure how widespread economic activity is in Canada, allowing us to place recent data in historical context. The relationship between the OBI and the output gap is strong contemporaneously and one quarter ahead. Beyond that, however, the signal from the OBI is less robust.
    Keywords: Business fluctuations and cycles
    JEL: E32
    Date: 2020–01
  64. By: Samba Diop (Alioune Diop University, Bambey, Senegal); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This study improves the African Regional Integration Index (ARII) proposed by the African Union, the African Development Bank and the United Nations Economic Commission for Africa by providing a theoretical framework and addressing shortcomings related to weighting and aggregation of the indicator. This paper measures monetary integration in the eight African Regional Economic Communities (RECs) by constructing an Index of African Monetary Integration (IAMI). It proposes an Optimal Currency Area as theoretical framework and uses a panel approach to appreciate the dynamics of the index over different periods of time. The findings show that: (i) inflation and finance (trade and mobility) present the highest (lowest) score while ECOWAS is (EAC and IGAD are) the highest (least) performing. (ii) Surprisingly, in most RECs, the highest contributors to wealth creation are not the top performers in regional monetary integration. (iii) The RECs in Africa are characterized by a stable monetary integration which is different from the gradual process usually observed in monetary integration because with the exception of the EAC and UMA, the dynamics of IAMI show a steady trend in the overall index across time. Policy implications are discussed.
    Keywords: Monetary Integration; Currency Unions; Economic Communities; Africa
    JEL: E10 E50 O10 O55 P50
    Date: 2020–01
  65. By: Eduardo Levy Yeyati; Martín Montané; Luca Sartorio
    Abstract: The past 5 years have witnessed a flurry of RCT evaluations that shed new light on the impact and cost effectiveness of Active Labor Market Policies (ALMPs) aiming to improve workers´ access to new jobs and better wages. We report the first systematic review of 102 RCT interventions comprising a total of 652 estimated impacts. We find that (i) a third of these estimates are positive and statistically significant (PPS) at conventional levels; (ii) programs are more likely to yield positive results when GDP growth is higher and unemployment lower; (iii) programs aimed at building human capital, such as vocational training, independent worker assistance and wage subsidies, show significant positive impact, and (iv) program length, monetary incentives, individualized follow up and activity targeting are all key features in determining the effectiveness of the interventions.
    Keywords: vocational training, labor policies, wage subsidies, randomized controlled trials.
    JEL: J21 J48 E24
    Date: 2019
  66. By: Mario García-Molina; Iván Leonardo Urrea
    Abstract: Se presentan los modelos de expectativas racionales y cómo resolverlos mediante el método de coeficientes indeterminados. El nivel de complejidad es el de un curso de macroeconomía intermedia. *** The paper presents the basics of rational expectations models and how to solve them by the method of indeterminate coefficients. The presentation is appropriate for an intermediate macroeconomics course.
    Keywords: expectativas racionales, coeficientes indeterminados, macroeconomía
    JEL: A22 A23 E13 E61
    Date: 2020–01–29
  67. By: Roberta Colavecchio; Ieva Rubene
    Abstract: How long does it take for exchange rate changes to pass through into inflation? Does it make a difference whether the exchange rate depreciates or appreciates? Do relatively large exchange rate changes entail more exchange rate pass-through? In this paper, we examine possible non-linearities in the transmission of exchange rate movements to import and consumer prices in all 19 euro area countries as well as the euro area as a whole from 1997 to 2019Q1. We extend a standard single-equation linear framework with additional interaction terms to account for possible non-linearities and apply local projections to obtain state-dependent impulse response functions. We find that (i) euro area consumer and import prices respond significantly to exchange rate movements after one year, responding more when the exchange rate change is relatively large; and (ii) euro appreciations and depreciations affect the level of euro area exchange rate pass-through in a symmetric fashion; (iii) for euro area countries results differ for import and consumer prices and across countries.
    Keywords: Exchange Rate Pass-Through; Inflation; Local Projections; Non-Linearities
    JEL: E31 F41
    Date: 2019–12
  68. By: N. Gregory Mankiw
    Abstract: This essay discusses a new approach to macroeconomics called modern monetary theory (MMT). It identifies the key differences between MMT and the approach found in mainstream textbooks. It concludes that while MMT contains some kernels of truth, its most novel policy prescriptions do not follow cogently from its premises.
    JEL: E0 H6
    Date: 2020–01
  69. By: Ondrej Schneider
    Abstract: This paper examines effects of political ideology of a governing party on fiscal outcomes, using data from eight Central and Eastern European countries in the 2001-2017 period. The analysis shows that there is a statistically significant effect of conservative governments on fiscal variables, namely they tend to reduce expenditures and improve fiscal balance by 0.4-0.7% of GDP. Conservative governments are found to reduce expenditures on social security and health care, but they tend to increase subsidies. This may be explained by their proximity to business interests that typically benefit from these subsidies. Our result suggest that while conservative governments do tend to reduce public spending and run smaller deficits, their impact on fiscal outcomes is more limited than they often claim.
    Keywords: fiscal policy, political parties, budget deficit, European Union
    JEL: E62 H10 H50 H62
    Date: 2019
  70. By: Apostolos Serletis (University of Calgary); Nahiyan Azad (University of Calgary)
    Abstract: This paper explores for spillovers from monetary policy in the United States to a number of emerging market economies. We estimate the Elder and Serletis (2010) bivariate structural GARCH-in-Mean VAR in the U.S. monetary policy rate and the policy rate of each of six emerging economies that target the inflation rate — Brazil, Chile, Mexico, Romania, Serbia, and South Africa. We also estimate the same model in the U.S. monetary policy rate and the exchange rate (against the U.S. dollar) of each of six emerging economies that target the exchange rate — Bosnia and Herzegovina, Bulgaria, Comoros, Croatia, the Former Yugoslav Republic of Macedonia, and Montenegro. Our evidence suggests that positive (negative) U.S. monetary policy shocks tend to appreciate (depreciate) the currencies of the exchange rate targeting emerging economies, but have an ambiguous effect on the policy rates of the inflation-targeting emerging economies. Moreover, monetary policy uncertainty in the United States leads to an increase in policy rates in those emerging economies that target the inflation rate and to a depreciation of the currencies of those emerging economies that target the exchange rate.
    Date: 2019–09–13
  71. By: Dennis Dlugosch; Rauf Gönenç; Eun Jung Kim; Aleksandra Paciorek
    Abstract: While small- and medium sized firms in Austria are generally more productive, export more, and engage more in higher technology activities than in comparable countries, they need to adapt better to the knowledge economy to maintain their relative performance levels. The capital structure of Austrian SMEs are biased towards debt-financing and stronger equity, growth and venture capital markets would provide them with further resources for their long-term knowledge based investments. Skills shortages, in particular in advanced digital technologies, should be overcome. As around one third of all SMEs are up for ownership transmissions, ensuring successful business transfers will be crucial for maintaining the broad-based entrepreneurial dynamism. Meeting these challenges would also help to lift constraints on upscaling that many SMEs face and would provide the fruitful soil for future innovative activities.This Working Paper relates to the 2019 OECD Economic Survey of Austria ( nomic-snapshot/)
    Keywords: allowance for corporate equity, capital structure of SMEs, debt-financing, ownership transmissions, skill shortages
    JEL: E22 G30 G32 G38 G21 J11 J21
    Date: 2020–02–03
  72. By: Devadas,Sharmila; Loayza,Norman V.
    Abstract: A current account deficit is sustainable when its underlying drivers support a smooth correction in the future. It is unsustainable when symptomatic of macroeconomic imbalances that would eventually trigger disruptive adjustments. Although a current account deficit in itself is neither good nor bad, it is likely to be unsustainable and lead to harmful consequences when it is persistently large, fuels consumption rather than investment, occurs alongside excessive domestic credit growth, follows an overvalued exchange rate, or accompanies unrestrained fiscal deficits. Even though a current account deficit is often paralleled by deteriorating net foreign assets, it may not be as informative about immediate-term financial vulnerabilities as the size, maturity, and currency composition of gross financial stocks.
    Keywords: International Trade and Trade Rules,Macroeconomic Management,Demographics
    Date: 2018–10–01
  73. By: Heikki Kauppi (University of Turku)
    Abstract: We use the gradient boosting estimation technique and the ROC curveto non-parametrically measure and exploit the maximal predictive powerof leading indicators for the future state of the business cycle. We de-velop novel procedures for finding the best performing transformationsof individual indicators, for combining them to form an optimal reces-sion prediction model and for assessing which predictors are contribut-ing in the model. Among our empirical findings with US data are thatthe predictive impact of various indicators is non-monotone and thatrecession predictions based on our nonparametric procedures clearlyoutperform the ones based on a conventional probit model.
    Keywords: gradient boosting, leading indicators, non-parametric esti-mation, optimal binary prediction, recession prediction
    JEL: C22 C25 C53 E37
    Date: 2019–04
  74. By: Dennery, Charles
    Abstract: When labour unions are able to use first-best price discrimination, they can extract a wage above the marginal product of labour. In other words,employment is above the firm's own optimum -- this is featherbedding or overmanning. This effect can capture the importance that unions put on maximizing employment. While labour market reforms are usually beneficial in the long run, they can be detrimental in the short run if investment does not pick up quickly enough.
    Keywords: collective bargaining, wages, structural reforms.
    JEL: E02 E32
    Date: 2019–09–09
  75. By: Basit Zafar (Bank of Italy; Federal Reserve Bank of New York; Forschungsinstitut zur Zukunft der Arbeit; Arizona State University); Olivier Armantier (Board of Governors of the Federal Reserve System (U.S.); Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York); Giorgio Topa (Forschungsinstitut zur Zukunft der Arbeit; Research and Statistics Group; Federal Reserve Bank; University of Chicago; Federal Reserve Bank of New York); Wilbert Van der Klaauw
    Abstract: Surveys of consumers? inflation expectations are now a key component of monetary policy. To date, however, little work has been done on 1) whether individual consumers act on their beliefs about future inflation, and 2) whether the inflation expectations elicited by these surveys are actually informative about the respondents? beliefs. In this post, we report on a new study by Armantier, Bruine de Bruin, Topa, van der Klaauw, and Zafar (2010) that investigates these two issues by comparing consumers? survey-based inflation expectations with their behavior in a financially incentivized experiment. We find that the decisions of survey respondents are generally consistent with their stated inflation beliefs.
    Keywords: Experimental Economics; Survey Design; Inflation Expectations
    JEL: D1 E5
  76. By: Asani Sarkar; Viral V. Acharya (Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); Kennesaw State University; London Business School; European Corporate Governance Institute; National Bureau of Economic Research; Reserve Bank of India; City University London); Warren B. Hrung; Michael J. Fleming
    Abstract: During the 2007-08 financial crisis, the Fed established lending facilities designed to improve market functioning by providing liquidity to nondepository financial institutions?the first lending targeted to this group since the 1930s. What was the financial condition of the dealers that borrowed from these facilities? Were they healthy institutions behaving opportunistically or were they genuinely distressed? In published research, we find that dealers in a weaker financial condition were more likely to participate than healthier ones and tended to borrow more. Our findings reinforce the importance of Bagehot?s principle that the lender-of-last resort should lend only against high-quality collateral and at a penalty rate so as to discourage unneeded or opportunistic borrowing.
    Keywords: stigma; insolvency; central banking; illiqudity; Lender of last resort; crises
    JEL: G1 G2 E5 H1
  77. By: Eduardo Levy Yeyati; Juan Francisco Gómez
    Abstract: Recent studies that have emphasized the costs of accumulating reserves for self-insurance purposes have overlooked two potentially important side-effects. First, the impact of the resulting lower spreads on the service costs of the stock of sovereign debt, which could substantially reduce the marginal cost of holding reserves. Second, when reserve accumulation reflects countercyclical LAW central bank interventions, the actual cost of reserves should be measured as the sum of valuation effects due to exchange rate changes and the local-to-foreign currency exchange rate differential (the inverse of a carry trade profit and loss total return flow), which yields a cost that is typically smaller than the one arising from traditional estimates based on the sovereign credit risk spreads. We document those effect s empirically to illustrate that the cost of holding reserves may have been considerably smaller than usually assumed in both the academic literature and the policy debate.
    Keywords: International reserves; exchange rate policy; capital flows; financial crisis
    JEL: E42 E52 F33 F41
    Date: 2019
  78. By: Jose Carreno
    Abstract: The United States has been experiencing a slowdown in productivity growth for more than a decade. I exploit geographic variation across U.S. Metropolitan Statistical Areas (MSAs) to investigate the link between the 2006-2012 decline in house prices (the housing bust) and the productivity slowdown. Instrumental variable estimates support a causal relationship between the housing bust and the productivity slowdown. The results imply that one standard deviation decline in house prices translates into an increment of the productivity gap -- i.e. how much an MSA would have to grow to catch up with the trend -- by 6.9p.p., where the average gap is 14.51%. Using a newly-constructed capital expenditures measure at the MSA level, I find that the long investment slump that came out of the Great Recession explains an important part of this effect. Next, I document that the housing bust led to the investment slump and, ultimately, the productivity slowdown, mostly through the collapse in consumption expenditures that followed the bust. Lastly, I construct a quantitative general equilibrium model that rationalizes these empirical findings, and find that the housing bust is behind roughly 50 percent of the productivity slowdown.
    Date: 2020–01
  79. By: Logan T. Lewis; Tyler Bodine-Smith; Michele Cavallo; Mary Amiti (Board of Governors of the Federal Reserve System (U.S.); Schweizerische Nationalbank; Federal Reserve Bank of New York; Universität St. Gallen; Centre for Economic Policy Research (CEPR); Internationaler Währungsfonds; Research and Statistics Group; Chinese University of Hong Kong; University of Melbourne; Universitätt Bern; National Bureau of Economic Research)
    Abstract: The decline in U.S. GDP of 0.2 percent in the first quarter of 2015 was much larger than market analysts expected, with net exports subtracting a staggering 1.9 percentage points (seasonally adjusted annualized rate). A range of factors is being discussed in policy circles to try to understand what contributed to this decline. Factors such as the strong U.S. dollar and weak foreign demand are usually incorporated in forecasters? models. However, the effects of unusual events such as extremely cold weather and labor disputes are more difficult to quantify in standard models. In this post, we examine how the labor dispute at the West Coast ports, which began in the middle of 2014, might have affected GDP growth. Although the dispute started as early as July 2014, major disruptions to international trade did not surface until 2015:Q1. By that time, export and import growth through the West Coast ports in the first quarter were 14 percentage points to 20 percentage points lower than growth through other ports.
    Keywords: imports; ports; exports; GDP
    JEL: F00
  80. By: Daniel Schaefer (Institut für Volkswirtschaftslehre, Johannes-Kepler-Universität Linz); Carl Singleton (Department of Economics, University of Reading)
    Abstract: We use representative employer payroll data from Great Britain and the period 2006-2018 to document novel facts about nominal wage adjustments, focusing on workers who stay in the same firm and job from one year to the next. The richness of these data allows us to analyse separately basic pay and the other components of earnings, such as overtime and incentive pay, while controlling for hours worked. Weekly and hourly basic pay show signs of downward nominal rigidity, but non-basic pay components adjust more commonly. Unusually, these payroll-based data also report the pay rates of hourly-paid employees. A quarter of these workers, who stay in the same job between years, typically see no change in their rate of pay, and very few experience wage cuts. Finally, we exploit the employer-employee link in our data and find some evidence that wage setting is state-dependent rather than time-dependent.
    Keywords: downward nominal wage rigidity, payroll records, components of pay, hourly pay
    JEL: E24 J31 J33
    Date: 2020–01–28
  81. By: Daniele Tavani (Department of Economics, Colorado State University); Luca Zamparelli (Department of Economics and Law, Sapienza University of Rome)
    Abstract: An important question in alternative economic theories has to do with the relationship between the functional income distribution and the growth rate of labor productivity. According to both the induced innovation hypothesis and Marx-biased technical change, labor productivity growth should be an increasing function of the labor share. In this paper, we first discuss the shortcomings of both theories and then provide a novel microeconomic foundation for a direct relationship between the labor share and labor productivity growth. The result arises because of profit-seeking behavior by capitalist firms that face a trade-off between investing in new capital stock and innovating to save on labor costs. Embedding this finding in the Goodwin (1967) growth cycle model, we show that: i) the resulting steady state is locally stable; ii) unlike in the original Goodwin model, the long-run employment rate is sensitive to investment decisions; finally, iii) we numerically identify parametric configurations that establish whether convergence to the long-run growth path is cyclical or monotonic.
    Keywords: Endogenous Technical Change, Income Shares, Labor Productivity, Employment
    JEL: E32 O33
    Date: 2020–01
  82. By: Lei Fang (Federal Reserve Bank of Atlanta); Anne Hannusch (Department of Economics, University of Mannheim); Pedro Silos (Department of Economics, Temple University)
    Abstract: We document the large dispersion in hours worked in the cross-section. We account for this fact using a model in which households combine market inputs and time to produce a set of non-market activities. To estimate the model, we create a novel data set that pairs expenditures and time use for each activity. The estimated model can account for a large fraction of the dispersion in hours worked. The substitutability between market inputs and time within an activity and across a sizable number of activities is key. Models missing these features can only generate one-third of the observed hours dispersion.
    Keywords: Time Allocation, Consumption Expenditures, Hours Dispersion, Elasticity of Substitution
    JEL: J22 E21 D11
    Date: 2020–01
  83. By: Ricardo Mariño-Martínez (Banco de la República de Colombia); Carlos León (Banco de la República de Colombia); Carlos Cadena-Silva (Banco de la República de Colombia)
    Abstract: Las entidades de contrapartida central (ECC) se interponen entre compradores y vendedores para eliminar sus obligaciones bilaterales y así mitigar el riesgo de contraparte. Es de esperar que esta interposición afecte la manera en que interactúan los participantes en los mercados financieros. Con base en datos transaccionales de las operaciones de intercambio a plazo peso-dólar sin entrega (COP/USD FX-non-delivery forwards) y en el análisis de redes, este artículo compara las transacciones cuando se acuerda la compensación y liquidación por intermedio de la Cámara de Riesgo Central de Contraparte de Colombia (CRCC) con aquellas en las que se acuerda la compensación y liquidación bilateral –sin la CRCC. El efecto de la interposición de la CRCC es el esperado. La red de transacciones en las que se acuerda la interposición de la CRCC muestra un aumento significativo en la conectividad (i.e. mayor densidad, reciprocidad y agrupamiento), y una disminución significativa en la distancia entre participantes. Esto sugiere que acordar la interposición de la CRCC permite mitigar el riesgo de liquidez. Con la interposición, la red de exposiciones resultante presenta una menor conectividad y mayor distancia, lo cual es consistente con la mitigación del riesgo de contraparte. Las diferencias en la estructura de las redes son significativas. Los resultados son relevantes porque permiten visualizar y cuantificar el efecto que tiene la CRCC en la administración del riesgo.**** ABSTRACT: A central counterparty (CCP) interposes itself between buyers and sellers of financial contracts to extinguish their bilateral exposures and –thus- to reduce counterparty risk. Therefore, this interposition should affect the way market participants engage in financial markets. Based on transactional data corresponding to the Colombian Peso non-delivery forward market and network analysis basics, this article compares transactions agreed to be cleared and settled by Cámara de Riesgo Central de Contraparte de Colombia (CRCC, the sole CCP in Colombia) with those to be cleared and settled bilaterally. The effect corresponds to what is expected. Networks of transactions to be cleared and settled by CRCC show significantly higher connectivity (i.e. higher density, reciprocity and transitivity), along with a lower distance among participating financial institutions. This suggests that agreeing on clearing and settlement by CRCC reduces liquidity risk. With the interposition of CRCC the resulting exposures networks show lower connectivity and higher distances, which concurs with counterparty risk mitigation. Differences in the structure of networks are significant. Results are important as they enable to visualize and quantify the effect of clearing and settlement by CRCC in risk management.
    Keywords: Riesgo de contraparte, riesgo de liquidez, redes, compensación central
    JEL: D85 L14 G2 E42
    Date: 2020–02
  84. By: Debraj Ray ⓡ; Dilip Mookherjee
    Abstract: We provide an argument for long-term automation and decline in the labor income share, driven by capital accumulation rather than technical progress or rising markups. We emphasize a fundamental asymmetry across physical and human capital. An individual can indefinitely replicate her claims on the former, but — after a point — her human endowment cannot be cloned and rescaled in the same way. Then ongoing capital accumulation gives rise to progressive automation, and the share of labor income converges to zero. The displacement of human labor is gradual, and real wages could rise indefinitely. The results extend to endogenous technical change.
    JEL: D33 E25 J24 J31 O33
    Date: 2020–01
  85. By: Brandyn Bok; Marco Del Negro; Eric Qian Qian (Research and Statistics Group); Domenico Giannone (Solvay Brussels School of Economics and Management; Federal Reserve Bank of New York; La Trobe University; Université Libre de Bruxelles; Libera Universität Internazionale degli Studi Sociali; European Central Bank; University of Aston in Birmingham; European Centre for Advanced Research in Economics and Statistics; Centre for Economic Policy Research (CEPR)); Marc Giannoni; Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research)
    Abstract: Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.
    Keywords: VAR with common trends; world interest rate; convenience yield; interest rate parity
    JEL: E2
  86. By: Schlag, Christian; Thimme, Julian; Weber, Rüdiger
    Abstract: We introduce Implied Volatility Duration (IVD) as a new measure for the timing of uncertainty resolution, with a high IVD corresponding to late resolution. Portfolio sorts on a large cross-section of stocks indicate that investors demand on average more than five percent return per year as a compensation for a late resolution of uncertainty. In a general equilibrium model, we show that 'late' stocks can only have higher expected returns than 'early' stocks, if the investor exhibits a preference for early resolution of uncertainty. Our empirical analysis thus provides a purely market-based assessment of the timing preferences of the marginal investor.
    Keywords: preference for early resolution of uncertainty,implied volatility,cross-sectionof expected stock returns,asset pricing
    JEL: G12 E44 D81
    Date: 2020
  87. By: Simone Giansante (University of Bath - School of Management); Mahmoud Fatouh (University of Essex; Bank of England); Steven Ongena (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))
    Abstract: We investigate the impact of the Bank of England’s asset purchase program (APP) on the composition of assets of UK banks, and to the implications for the real economy, using a unique database on the program. The identification of banks that receives deposits (QE banks) injections by the program as well as the magnitude of these injections provides the ideal empirical design for a difference-in-difference matching exercise. We find no evidence that suggests QE boosted bank lending to the real economy. The overall reduction of retail lending was more pronounce for treated (QE) banks than for the control group. QE banks reallocated their assets towards lower risk weighted investments, such as government securities and reserves, as confirmed by the increased sensitivity of their equity returns on peripheral EU bond returns. Our findings suggest that risk weighted based capital constraints can limit the effectiveness of expansionary unconventional monetary policies and provide incentives on carry trade activities.
    Keywords: monetary policy, quantitative easing, bank lending
    JEL: E51 G21
    Date: 2019–09
  88. By: International Monetary Fund
    Abstract: This report updates the Fiscal Transparency Evaluation (FTE) of Kenya that was prepared in 2014 and published in 2016. The report is the first full update to be carried out in any country, a recent update of the Russian FTE having a more selective focus. Kenya has experienced a lot of structural and economic changes since 2014. At that time, the 2010 Constitution and the associated Public Financial Management (PFM) Act of 2012 were relatively new, and a radical reform of local government was in the process of transition. The Constitution and the PFM Act placed a strong emphasis on economic and fiscal transparency and accountability, for example, through the establishment of the National Treasury (NT), fiscal responsibility principles, the Parliamentary Budget Office, and enhanced powers of the Auditor General. The present report, like the 2014 assessment, focuses on the first three pillars of the Code. The authorities did not request the Fund to make an evaluation of Pillar IV (Resource Revenue Management) since the development of the oil sector in Kenya is at an early stage, with the volume of reserves uncertain and first oil not expected before 2022 at the earliest.
    Date: 2020–01–15
  89. By: Kose,Ayhan; Ohnsorge,Franziska Lieselotte; Sugawara,Naotaka
    Abstract: Effective fiscal policy depends on the amount of budget resources available to raise spending or lower taxes without jeopardizing fiscal sustainability. This resource availability is often called fiscal space. Since the global financial crisis, fiscal space in emerging market and developingeconomies has narrowed. This makes these economies more vulnerable to sudden spikes in financing costs and limits their ability to counteract adverse shocks.
    Keywords: Public Sector Economics,Public Finance Decentralization and Poverty Reduction,Economic Adjustment and Lending,Macro-Fiscal Policy,Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Fiscal&Monetary Policy,Labor Markets
    Date: 2018–11–01
  90. By: Gary B. Gorton
    Abstract: I test the Dang, Gorton, and Holmström (2018) (DGH) theory that the optimal design of private money is debt backed by debt. I do this in the context of English inland bills of exchange (where all parties to the bill were in England), which were used as a medium of exchange during the Industrial Revolution in the north of England in the eighteenth and first half of the nineteenth centuries. These bills circulated via indorsements, committing each indorser’s personal wealth to back the bill. A sample of bills from the period 1762-1850 is studied to determine how frequently they changed hands (liquidity/velocity) and to determine how their credibility was established. Some bills were backed by banks and others by the joint liability of indorsers only. I test the DGH theory by asking: Were bank-backed bills more liquid than the joint liability-backed bills?
    JEL: E02 G21
    Date: 2020–01
  91. By: Ahmed, Rashad
    Abstract: I investigate the link between economic fundamentals and exchange rate adjustment to commodity price fluctuations. I overcome the traditional issue of simultaneity by exploiting the September 14, 2019 drone attack on two Saudi Arabian refineries as a natural experiment. This unanticipated event caused the largest 1-day global crude oil price shock in over a decade. Using high-frequency exchange rate data for 30 countries, I link the cross-section of currency movements around the event to country-specific economic and financial fundamentals. Crude export and import intensities were associated with appreciation (depreciation). Additionally, countries with higher policy interest rates and weaker financial positions experienced greater currency depreciation while safe haven currencies appreciated, consistent with 'risk-off' sentiment triggering carry trades to unwind. I also find that across currencies, estimated (pre-event) crude oil and VIX betas are tightly associated with oil-related and financial fundamentals, respectively. Therefore, exchange rate adjustment around the drone attack can also be explained by currency risk factors.
    Keywords: Commodity,currency risk, carry trade, exchange rates, oil price, terms of trade
    JEL: E44 F3 F31 Q43
    Date: 2019–10–10
  92. By: Gauti Eggertsson; Sergey K. Egiev; Alessandro Lin; Josef Platzer; Luca Riva
    Abstract: This paper presents a toolkit to solve for equilibrium in economies with the effective lower bound (ELB) on the nominal interest rate in a computationally efficient way under a special assumption about the underlying shock process, a two-state Markov process with an absorbing state. We illustrate the algorithm in the canonical New Keynesian model, replicating the optimal monetary policy in Eggertsson and Woodford (2003), as well as showing how the toolkit can be used to analyze the medium scale DSGE model developed by the Federal Reserve Bank of New York. As an application, we show how well various policy rules perform relative to the optimal commitment equilibrium. A key conclusion is that previously suggested policy rules – such as price level targeting and nominal GDP targeting – do not perform well when there is a small drop in the price level, as observed during the Great Recession, because they do not imply sufficiently strong commitment to low future interest rates (”make-up strategy”). We propose two new policy rules, Cumulative Nominal GDP Targeting Rule and Symmetric Dual-Objective Targeting Rule that are more robust.
    Date: 2020
  93. By: Apostolos Serletis (University of Calgary); Cosmas Dery (University of Calgary)
    Abstract: In this paper, we are motivated by the fact that little is known about the relative performance of broad and narrow Divisia monetary aggregates, and by recent work that tests and rejects the appropriateness of the aggregation assumptions that underlie the various monetary aggregates published by the Federal Reserve as well as a large number of monetary asset groupings suggested by earlier studies. We present a comprehensive comparison of narrow versus broad Divisia monetary aggregates within three classes of empirical models. We compute correlations between the cyclical components of Divisia monetary aggregates at different levels of aggregation and the cyclical component of industrial production. We test for Granger causality running from the Divisia aggregates to industrial production and various other measures of real economic activity. We also reestimate a structural VAR based on earlier work by Leeper and Roush (2003) and Belongia and Ireland (2015, 2016), modifying that earlier work by using monthly rather than quarterly data and extending it, both by using broad as well as narrower Divisia monetary aggregates and by allowing for GARCH behavior in the structural shocks.
    Date: 2019–10–08
  94. By: Ilan Noy; Nguyen Doan; Benno Ferrarini; Donghyun Park
    Abstract: We measure the economic risk of epidemics at a geo-spatially detailed resolution. In addition to data about the epidemic hazard prediction, we use data from 2014-2019 to compute measures for exposure, vulnerability, and resilience of the local economy to the shock of an epidemic. Using a battery of proxies for these four concepts, we calculate the hazard (the zoonotic source of a possible epidemic), the principal components of exposure and vulnerability to it, and of the economy’s resilience (its ability of the recover rapidly from the shock). We find that the economic risk of epidemics is particularly high in most Africa, the Indian subcontinent, China, and Southeast Asia. These results are consistent when comparing an ad-hoc (equal) weighting algorithm for the four components of the index, with one based on an estimation algorithm using Disability-Adjusted Life Years associated with communicable diseases.
    Keywords: epidemic, influenza, risk measurement, economic impact
    JEL: E01 Q54
    Date: 2019
  95. By: Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics); Vipin Veetil (IIT Madras - Indian Institute of Technology Madras)
    Abstract: We develop a tractable model of out-of-equilibrium dynamics in a general equilibrium economy with cash-in-advance constraints. The dynamics emerge from local interactions between firms governed by the production network underlying the economy. We analytically characterise the influence of network structure on the propagation of monetary shocks. In the long run, the model converges to general equilibrium and the quantity theory of money holds. In the short run, monetary shocks propagate upstream via nominal demand changes and downstream via real supply changes. Lags in the evolution of supply and demand at the micro level can give rise to arbitrary dynamics of the distribution of prices. Our model explains the long standing Price Puzzle: a temporary rise in the price level in response to monetary contractions. The Price Puzzle emerges under two assumptions about downstream firms: they are disproportionally affected by monetary contractions and they account for a sufficiently small share of the wage bill. Empirical evidence supports the two assumptions for the US economy. Our model calibrated to the US economy using a data set of more than fifty thousand firms generates the empirically observed magnitude of the price level rise after monetary contractions.
    Abstract: Nous proposons un modèle de la dynamique hors-équilibre dans une économie en réseau où les agents sont soumis à des contraintes financières. Nous étudions la propagation des chocs de politique monétaire dans ce cadre. Nous démontrons notamment que le "price puzzle" émerge dans ce cadre du fait des délais dans la propagation des chocs.
    Keywords: Price Puzzle,Production Network,Money,Monetary Non-Neutrality,Out-Of-Equilibrium dynamics,Réseaux de production,dynamique hors-équilibre
    Date: 2019–10
  96. By: Toma Lankauskiene (Vilnius Gediminas Technical University)
    Abstract: The article aims to apply the growth accounting methodology to the Baltic countries in order to obtain detailed productivity growth determinants in the aggregated market economy with a particular focus to capital input. To this end, a new database following the KLEMS methodology for tangible and intangible capital indicators is constructed. The paper analyses determinants’ genesis and growth tendencies in the context of more developed countries and uncovers the productivity gains associated with different types of capital assets. First, an overview of the economies during the period researched is presented. Second, a methodology is developed to derive new intangibles and EU KLEMS data for the Baltic countries. Third, statistical data are constructed for all economies and the growth accounting method is applied in order to obtain comparable results. Finally, economic analysis is conducted to detect certain aspects of the growth determinants for differently developed and structured economies.
    Keywords: productivity growth; KLEMS methodology; growth accounting; tangible capital; intangible capital; national accounts
    JEL: O47 E22
    Date: 2020–01
  97. By: K. MOHKAM (Commissariat général au développement durable); O. SIMON (Insee)
    Abstract: Dans un contexte de consommation accrue de matières au niveau mondial, un préalable à la mise en oeuvre de politiques d’économie circulaire consiste en une meilleure connaissance des quantités de matières primaires mobilisées par les activités économiques. À ce titre, l'empreinte matières mesure aussi bien les quantités de matières primaires directement contenues dans les produits consommés que celles utilisées dans le processus productif, en France ou à l'étranger. Cette étude propose une mesure de l'empreinte matières de la France pour l'année 2013, contribuant à améliorer la méthodologie actuellement mise à disposition par Eurostat pour les États membres de l'Union européenne. L’empreinte matières ainsi calculée vise à être plus cohérente avec la structure du système productif français et à pouvoir être décomposée à un niveau fin selon les matières (51 matières), les catégories de produits (151 catégories) et les composantes de la demande (consommation, investissement…). Ainsi, les produits agricoles et agro-alimentaires captent l’essentiel de l’empreinte en biomasse, tandis que la construction représente une large part de l’empreinte en minéraux non métalliques. L’empreinte en combustibles fossiles est nettement plus répartie selon les différentes catégories de produits, traduisant le rôle de l’énergie et des services de transport dans le processus de production des biens ou services. L’empreinte en métaux provient en majorité des produits manufacturés (machines et véhicules notamment) mais aussi de la construction. Par ailleurs, la consommation des ménages contribue en grande partie aux empreintes en biomasse et en combustibles fossiles, tandis que les empreintes en minéraux, métalliques ou non, résultent davantage de l’investissement des entreprises et des ménages.
    Keywords: empreinte matières, flux de matières, économie circulaire, tableaux entrée-sortie, demande finale
    JEL: C67 D57 E01 Q56 Q32
    Date: 2019
  98. By: German Cubas (Department of Economics, University of Houston); Chinhui Juhn (Department of Economics, University of Houston); Pedro Silos (Department of Economics, Temple University)
    Abstract: Using U.S. time diary data we construct occupation-level measures of coordinated work schedules based on the concentration of hours worked during peak hours of the day. A higher degree of coordination is associated with higher wages but also a larger gender wage gap. In the data women with children allocate more time to household care and are penalized by missing work during peak hours. An equilibrium model with these key elements generates a gender wage gap of 6.6 percent or approximately 30 percent of the wage gap observed among married men and women with children. If the need for coordination is equalized across occupations and set to a relatively low value (i.e. Health care support), the gender gap would fall by more than half to 2.7 percent.
    Keywords: Labor Supply, Occupations, Coordination, Work Schedules, Time Use, Gender Wage Gap
    JEL: J2 J3 E2
    Date: 2020–01
  99. By: Oscar Claveria (AQR-IREA, University of Barcelona); Ivana Lolic (University of Zagreb); Enric Monte (Polytechnic University of Catalunya); Salvador Torra (Riskcenter-IREA, University of Barcelona); Petar Soric (University of Zagreb)
    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
  100. By: Sy Hoa Ho (Institute of Research and Development, Duy-Tan University); Jamel Saadaoui (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This empirical investigation aims at exploring the determinants of money demand in Vietnam by using both linear and nonlinear autoregressive distributed lags models over the period spanning from the third quarter of 2000 to the first quarter of 2018. Our findings can be summarized as follows: firstly, when the shock is symmetric (i.e. a permanent nominal appreciation of one percent), the money demand increases by 3.7 percent in the long term. Secondly, when the shock is asymmetric, for a permanent nominal appreciation of one percent, we observe an increase of 15.6 percent in the money demand. Whereas, for a permanent nominal depreciation of one percent, we observe a decrease of 7.4 percent in the money demand. These results are consistent with symmetry tests and lead us to think that asymmetries occur mainly in the short run and are transmitted to the long run.
    Keywords: Money Demand,Exchange Rate,ARDL models,NARDL models,Dollarization,E41,F31,F33,F41
    Date: 2019–12–19
  101. By: Harold L. Cole; Dirk Krueger; George J. Mailath; Yena Park
    Abstract: We analyze efficient risk-sharing arrangements when coalitions may deviate. Coalitions form to insure against idiosyncratic income risk. Self-enforcing contracts for both the original coalition and any deviating coalition rely on a belief in future cooperation, and we treat the contracting conditions of original and deviating coalitions symmetrically. We show that better belief coordination (higher social capital) tightens incentive constraints since it facilitates both the formation of the original as well as a deviating coalition. As a consequence, the payoff of successfully formed coalitions might be declining in the degree of belief coordination and equilibrium allocations might feature resource burning or utility burning.
    JEL: E20
    Date: 2020–01
  102. By: H. Sohn (ETH Zürich); Didier Sornette (ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute)
    Abstract: We propose an extension of the class of rational expectations bubbles (REBs) to the more general rational beliefs setting of \cite{Kurz:1994,Kurz:1994a}. In a potentially non-stationary but stationarizable environment, among an heterogenous population of agents, it is possible to hold more than one ``rational'' expectation. When rational but diverse beliefs converge (``correlated beliefs''), they do not cancel each other out in aggregate anymore. This can make them an object of rational speculation. Accounting for the fact that market efficiency has an intrinsic time dimension, we show that diverse but correlated beliefs can thus account for speculative bubbles, without the need for irrational agents or limits to arbitrage. Many of the shortcomings of REBs that make rational bubbles implausible can be overcome once we relax the ergodicity requirement. In particular, we argue that the hitherto unexplained ``bubble component'' of REBs corresponds to an extension of the state space in \citet{Kurz:2011}.
    Keywords: Asset pricing, Bubbles, Ecient markets, Rational expectations, Rational Beliefs, Aggregation, Heterogeneous expectations, Correlated beliefs
    JEL: B20 D53 D58 D81 D83 D84 D85 E13 G00
    Date: 2020–02
  103. By: Pedro Bento; Diego Restuccia
    Abstract: A decline in the net entry rate of employer firms in the United States in the last decades, a decline in business dynamism, may explain the observed productivity slowdown. We consider the role of nonemployers, businesses without paid employees, in business dynamism and aggregate productivity. Despite the decline in the growth of employer firms, the total number of firms has increased since the early 1980s, which in the context of a standard model of firm dynamics implies an average annual growth of aggregate productivity of 0.26-0.39\%, over one quarter of the productivity growth in the data.
    Keywords: nonemployers, employer firms, business dynamism, productivity, TFP.
    JEL: O4 O51 E1
    Date: 2020–01–31

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