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

  1. Inequality as a Source of Recessions and Poverty By De Koning, Kees
  2. Inflation, uncertainty and labor market conditions in the US By Claudiu Albulescu; Cornel Oros
  3. Military Expenditure and Economic Growth: The South American Case. By Riveros Gavilanes, John Michael
  4. Micro Jumps, Macro Humps: Monetary Policy and Business Cycles in an Estimated HANK Model By Adrien Auclert; Matthew Rognlie; Ludwig Straub
  5. Intrinsic persistence of wage inflation in New Keynesian models of the business cycles By Di Bartolomeo, Giovanni; Di Pietro, Marco
  6. 4GM: A New Model for the Monetary Policy Analysis in Colombia By Andres Gonzalez; Alexander Guarin; Diego A. Rodriguez-Guzman; Hernando Vargas-Herrera
  7. Unemployment Fluctuations and Nominal GDP Targeting By Billi, Roberto
  8. Delphic and Odyssean Monetary Policy Shocks: Evidence from the Euro Area By Philippe Andrade; Filippo Ferroni
  9. The Vietnamese business cycle in an estimated small open economy New Keynesian DSGE model By Van Nguyen, Phuong
  10. Fiscal Policy Innovations in Advanced Economies By Nkrumah, Kwabena Meneabe
  11. The Hidden Heterogeneity of Inflation Expectations and its Implications By Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan
  12. Natural Rate Chimera and Bond Pricing Reality By Claus Brand; Gavin Goy; Wolfgang Lemke
  13. Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions By Chatelain, Jean-Bernard; Ralf, Kirsten
  14. Output Hysteresis and Optimal Monetary Policy By Vaishali Garga; Sanjay R. Singh
  15. Wage Setting and Unemployment: Evidence from Online Job Vacancy Data By Oleksandr Faryna; Tho Pham; Oleksandr Talavera; Andriy Tsapin
  16. Global implications of a US-led currency war By Adam Triggs; Warwick J McKibbin
  17. External Shocks and Business Cycle Fluctuations in Oil-exporting Small Open Economies: The Case of Nigeria By Oladunni, Sunday
  18. A Simple Algorithm for Solving Ramsey Optimal Policy with Exogenous Forcing Variables By Chatelain, Jean-Bernard; Ralf, Kirsten
  19. Optimal monetary policy in a New Keynesian model with heterogeneous expectations By Di Bartolomeo, Giovanni; Di Pietro, Marco; Giannini, Bianca
  20. The Marginalization of Absolute and Relative Income Hypotheses of Consumption and the Role of Fiscal Policy By Drakopoulos, Stavros A.
  21. The Optimal Inflation Target and the Natural Rate of Interest By Philippe Andrade; Jordi Gali; Hervé Le Bihan; Julien Matheron
  22. The Chair of the U.S. Federal Reserve and the Macroeconomic Causality Regimes By Yunus Aksoy; Rubens Morita; Zacharias Psaradakis
  23. Macroprudential policy measures: macroeconomic impact and interaction with monetary policy By Darracq Pariès, Matthieu; Karadi, Peter; Körner, Jenny; Kok, Christoffer; Mazelis, Falk; Nikolov, Kalin; Rancoita, Elena; Van der Ghote, Alejandro; Cozzi, Guido; Weber, Julien
  24. State Dependence in Labor Market Fluctuations By Francesco Zanetti; Carlo Pizzinelli; Konstantinos Theodoridis
  25. More Gray, More Volatile? Aging and (Optimal) Monetary Policy By Baksa, Dániel; Munkácsi, Zsuzsa
  26. ARDL Bounds Tests for Neutrality and Superneutrality of Money towards Monetary Integration of West Africa By Mogaji, Peter Kehinde
  27. Fiscal Consolidation and Automatic Stabilization: New Results By Mathias Dolls; Clemens Fuest; Andreas Peichl; Christian Wittneben
  28. Rational Bubbles in Non-Linear Business Cycle Models: Closed and Open Economies By Robert Kollmann
  29. Monetary Policy, Redistribution, and Risk Premia By Rohan Kekre; Moritz Lenel
  30. Monetary policy when preferences are quasi-hyperbolic By Richard Dennis; Oleg Kirsanov
  31. Understanding Heterogeneous Agent New Keynesian Models: Insights from a PRANK By Keshav Dogra; Sushant Acharya
  32. FAQ: How do I extract the output gap? By Canova, Fabio
  33. Liquidity preference in the Walrasian framework By Icefield, William
  34. أثر التضخم على النمو الاقتصادي بالقطاع الزراعي المصري By الرسول, أد/ أحمد أبواليزيد; عبدالراضي, صابرين صبره; عون, أد/ عون خيرالله; عبدالرازق, د ياسمين صلاح
  35. The Euro Area Periphery Sovereigns' Fiscal Positions and Unconventional Monetary Policy By Oliver Hülsewig; Johann Scharler
  36. Österreichs Fiskalpolitik im europäischen Kontext: Handlungsspielräume bei niedrigen Zinsen und Wirtschaftsabschwung By Philipp Heimberger
  37. Why Is the Euro Punching Below Its Weight? By Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
  38. Evaluating the forecasting accuracy of the closed- and open economy New Keynesian DSGE models By Van Nguyen, Phuong
  39. Rwanda; First Review Under the Policy Coordination Instrument and Monetary Policy Consultation-Press Release; and Staff Report By International Monetary Fund
  40. The FRBNY DSGE Model Forecast By Stefano Eusepi; Sara Shahanaghi; Marco Del Negro; Matthew Cocci; Marc Giannoni
  41. A Mechanism of Recession that Accompanies Persistent Pareto Inefficiency By Harashima, Taiji
  42. Quest for Robust Optimal Macroprudential Policy By Aguilar, Pablo; Fahr, Stephan; Gerba, Eddie; Hurtado, Samuel
  44. A Look at the Accuracy of Policy Expectations By Stefano Eusepi; Emanuel Moench; Richard K. Crump
  45. The impact of TLTRO2 on the Italian credit market: some econometric evidence By Lucia Esposito; Davide Fantino; Yeji Sung
  46. Why Some Countries Can Escape the Fiscal Pro-Cyclicality Trap and Others Cannot ? By Herrera Aguilera,Santiago; Kouame,Wilfried Anicet Kouakou; Mandon,Pierre Jean-Claude
  47. Global Recessions By Kose, M. Ayhan; Sugawara, Naotaka; Terrones, Marco E.
  48. On Promoting Fiscal Discipline : The Role of Exchange Rate Regimes, Fiscal Rules and Institutions By Keita,Kady Synthia; Turcu,Camelia
  49. Shock-Dependent Exchange Rate Pass-Through: Evidence Based on a Narrative Sign Approach By Lian An; Mark A. Wynne; Ren Zhang
  50. How the Fed Smoothed Quarter-End Volatility in the Fed Funds Market By Alex Entz; John McGowan; Asani Sarkar
  51. Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization By Marco Del Negro; Carlo Rosa; Benjamin A. Malin; Jamie Grasing; Michele Cavallo; W. Scott Frame
  52. Corporates' dependence on banks: The impact of ECB corporate sector purchases By Joost Bats
  53. Inflation Thresholds and Inattention By Anat Bracha; Jenny Tang
  54. Labor Income Share at the Firm Level: Global Trends By Paul, Saumik; Isaka, Hironobu
  55. Forum Theory & A National Assembly of Science and Learning By Colignatus, Thomas
  56. Different no more: Country spreads in advanced and emerging economies By Born, Benjamin; Müller, Gernot J.; Pfeifer, Johannes; Wellmann, Susanne
  57. Connecting “The Dots”: Disagreement in the Federal Open Market Committee By Troy A. Davig; Stefano Eusepi; Emanuel Moench; Richard K. Crump
  58. How Unconventional Are Large-Scale Asset Purchases? By Carlo Rosa; Andrea Tambalotti
  59. The Effect of Superstorm Sandy on the Macroeconomy By M. Henry Linder; Sarah Stein; Richard Peach
  60. Estimación Bayesiana de un Modelo de Economía Abierta con Sector Bancario By Rodríguez, Aldo
  61. Interest-Only Mortgages and Consumption Growth: Evidence from a Mortgage Market Reform By Bäckman, Claes; Khorunzhina, Natalia
  62. The Great Moderation, Forecast Uncertainty, and the Great Recession By Andrea Tambalotti; Ging Cee Ng
  63. Mission Almost Impossible: Developing a Simple Measure of Pass-Through Efficiency By Thomas M. Eisenbach; Gara M. Afonso; Adam Biesenbach
  64. Central Bank Digital Currency: Central Banking For All? By Jesús Fernández-Villaverde; Daniel Sanches; Linda Schilling; Harald Uhlig
  65. Firms’ Asset Holdings and Inflation Expectations By Saten Kumar
  66. A economia da política reabilitada: a formação e as controvérsias da teoria dos ciclos político-econômicos By Rafael Galvão de Almeida
  67. Monetary policy and bank stability: the analytical toolbox reviewed By Albertazzi, Ugo; Barbiero, Francesca; Marqués-Ibáñez, David; Popov, Alexander; d’Acri, Costanza Rodriguez; Vlassopoulos, Thomas
  68. A Closer Look at the Recent Pickup in Inflation By John Sporn; Andrea Tambalotti
  69. Disaggregate income and wealth effects in the largest euro area countries By de Bondt, Gabe; Gieseck, Arne; Herrero, Pablo; Zekaite, Zivile
  70. Why Pay Interest on Excess Reserve Balances? By Heather Wiggins; Laura Lipscomb; Antoine Martin
  71. An Analysis of the 2008 Global Financial Crisis: Was Quantitative Easing Appropriate? By Naape, Baneng
  72. Senegal; Request for a Three-Year Policy Coordination Instrument-Press Release; Staff Report; and Statement by the Executive Director for Senegal By International Monetary Fund
  73. Republic of Estonia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Republic of Estonia By International Monetary Fund
  74. Real Estate Market and Consumption: Macro and Micro Evidence of Japan By Kazuo Ogawa
  75. Fiscal Rules for the Western Balkans By Kikoni,Edith; Madzarevic-Sujster,Sanja; Irwin,Tim; Jooste,Charl
  76. Estimation bayésienne d’un modèle DSGE pour une petite économie ouverte : Cas de la RD Congo By Umba, Gilles Bertrand
  77. Firm Pay Dynamics By Engbom, Niklas; Moser, Christian
  78. Monetary Policy Is Not Always Systematic and Data-Driven: Evidence from the Yield Curve By Ales Bulir; Jan Vlcek
  79. Causal Factors of Australian Beef Exports By Harris, Patrick
  80. Lineages of Scholars in pre-industrial Europe: Nepotism vs Intergenerational Human Capital Transmission By David de la Croix; Marc Goni
  81. The Importance of Commodity Prices in Understanding U.S. Import Prices and Inflation By Patrick Russo; Thomas Klitgaard
  82. World Economy Winter 2019 - Global growth remains sluggish for the time being By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  83. The Eurodollar Market in the United States By Marco Cipriani; Julia Gouny
  84. Zombie International Currency: The Pound Sterling 1945-1973 By Maylis Avaro
  85. Is There Discount Window Stigma in the United Kingdom? By Asani Sarkar; Helene Lee
  86. Makroekonomski učinci diskrecijskih izmjena u sustavu poreza na dodanu vrijednost (PDV) u Hrvatskoj: narativni pristup By Milan Deskar-Škrbić; Ana Grdović Gnip; Hrvoje Šimović
  87. Intermediary Leverage Cycles and Financial Stability By Tobias Adrian; Nina Boyarchenko
  88. Does institutional stability granger-cause foreign direct investment? evidence from Canada By Mahmood, Nihal; Masih, Mansur
  89. Republic of Kazakhstan; 2019 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  90. Who’s Lending in the Federal Funds Market? By Alex Entz; Eric LeSueur; Gara M. Afonso
  91. Estimation of the Financial Cycle with a Rank-Reduced Multivariate State-Space Model By Rob Luginbuhl
  92. Business cycles,bilateral trade and international financial intergration : Evidence from Economic Community of West African States (ECOWAS) By Zouri, Stéphane
  93. Indebtedness and spending: What happens when the music stops? By Le Blanc, Julia; Lydon, Reamonn
  94. Mapping market-based finance in Ireland By Cima, Simone; Killeen, Neill; Madouros, Vasileios
  95. Inflation and Japan's Ever-Tightening Labor Market By Bianca De Paoli; Harry Wheeler; Thomas Klitgaard
  96. On ‘Rusting’ Money Silvio Gesell’s Schwundgeld Reconsidered By Rehme, Günther
  97. Markups, Labor Market Inequality and the Nature of Work By Greg Kaplan; Piotr Zoch
  98. Republic of Nauru; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Nauru By International Monetary Fund
  99. Fiscal Consolidation and Automatic Stabilization: New Results By Mathias Dolls; Clemens Fuest; Andreas Peichl; Christian Wittneben
  100. Structural Reforms and Income Inequality: Who Benefits from Market-Oriented Reforms? By Klaus Gründler; Niklas Potrafke; Timo Wochner
  101. Emerging and developing economies: Ten years after the global recession By M. Ayhan Kose; Franziska L. Ohnsorge
  102. Digital Adoption, Automation, and Labor Markets in Developing and Emerging Economies By Alan Finkelstein Shapiro; Federico S. Mandelman
  103. The network of firms implied by the news By Zheng, Hannan; Schwenkler, Gustavo
  104. Output Spillovers from U.S. Monetary Policy: The Role of International Trade and Financial Linkages By Falk Bräuning; Viacheslav Sheremirov
  105. Dollar borrowing, firmcharacteristics, and FX-hedged funding opportunities By Leonardo Gambacorta; Sergio Mayordomo; Jose Maria Serena
  106. Monetary Policy, Rational Confidence and Neo-Fisherian Depressions By Lucio Gobbi; Ronny Mazzocchi; Roberto Tamborini
  107. Niger; Fifth Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Niger By International Monetary Fund
  108. Okun’s Law and Long Expansions By Simon M. Potter; Ging Cee Ng; Jonathan McCarthy
  109. Lower Oil Prices and U.S. Economic Activity By Jan J. J. Groen; Patrick Russo
  110. Connecting Silos : On linking macroeconomics and finance, and the role of econometrics therein By van der Wel, M.
  111. German Economy Winter 2019 - German economy overcomes slowdown only gradually By Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
  112. On fintech and financial inclusion By Thomas Philippon
  113. Mali; First Review Under the Extended Credit Facility Arrangement, Request for a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Mali By International Monetary Fund
  114. On the downward rigidity of wages: Evidence from an experimental labour market with monetary neutrality By Grundmann, Susanna; Giamattei, Marcus; Graf Lambsdorff, Johann
  115. Canada; Financial Sector Assessment Program-Technical Note-Systemic Risk Oversight and Macroprudential Policy By International Monetary Fund
  116. Inflation in Low-Income Countries By Ha,Jongrim; Ivanova,Anna; Montiel,Peter J.; Pedroni,Peter Louis
  117. Forward Guidance and Household Expectations By Olivier Coibion; Dimitris Georgarakos; Yuriy Gorodnichenko; Michael Weber
  118. Can child allowances improve fertility in a gender discrimination economy? By Ruiting Wang
  119. Growth after War in Syria By Devadas,Sharmila; Elbadawi,Ibrahim Ahmed; Loayza,Norman V.
  120. Republic of North Macedonia; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of North Macedonia By International Monetary Fund
  121. Austria; Financial Stability Assessment-Press Release; Staff Report; and Statement by the Executive Director for Austria By International Monetary Fund
  122. To seed, or not to seed. By David DESMARCHELIER; Alexandre MAYOL
  123. Finland; 2019 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  124. Financial knowledge and trust in financial institutions By Carin van der Cruijsen; Jakob de Haan; Ria Roerink
  125. Crime and Output: Theory and Application to the Northern Triangle of Central America By Dmitry Plotnikov
  126. Republic of Congo; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Congo By International Monetary Fund
  127. Resilience Strategies for Mismatched Workers: Microeconomic Evidence from Egypt By Syed Zwick, Hélène
  128. Personality Traits, Job Search and the Gender Wage Gap By Christopher Flinn; Petra Todd; Weilong Zhang
  129. South Africa; 2019 Article IV Consultation-Press Release; and Staff Report; and Statement by the Executive Director for South Africa By International Monetary Fund
  130. The Long and Short of It: The Impact of Unemployment Duration on Compensation Growth By Richard Peach; M. Henry Linder; Robert W. Rich
  131. Morocco; Second Review Under the Arrangement Under the Precautionary and Liquidity Line-Press Release; Staff Report; and Statement by the Executive Director for Morocco By International Monetary Fund
  132. Opportunity and Inequality across Generations By Koeniger, Winfried; Zanella, Carlo
  133. Impact of FDI on economic growth: The role of country income levels and institutional strength By Baiashvili, Tamar; Gattini, Luca
  134. Integrating microdata for policy needs: the ESCB experience By Perrella, Antonio; Catz, Julia
  135. Crisis Chronicles: Railway Mania, the Hungry Forties, and the Commercial Crisis of 1847 By James Narron; Donald P. Morgan
  136. Demographic Trends and Growth in Japan and the United States By Thomas Klitgaard; Preston Mui
  137. Hechos estilizados de la relación entre El Niño, La Niña y la inflación en Colombia By Valeria Bejarano-Salcedo; Edgar Caicedo-García; Nilson Felipe Lizarazo-Bonilla; Juan Manuel Julio-Román; Julián Alonso Cárdenas-Cárdenas
  138. Estimating and Calibrating MFMod : A Panel Data Approach to Identifying the Parameters of Data Poor Countries in the World Bank's Structural Macro Model By Burns,Andrew; Jooste,Charl
  139. The relationship between poverty and inequality: resource constraint mechanisms By Yang, Lin
  140. Exploring the Output Effect of Fiscal Policy Shocks in Low Income Countries By Jiro Honda; Hiroaki Miyamoto; Mina Taniguchi
  141. The Rapidly Changing Nature of Japan's Public Debt By Thomas Klitgaard; Harry Wheeler
  142. Testing the Superstar Firm Hypothesis By Alexander Schiersch; Caroline Stiel
  143. The finance-growth nexus: is finance supply-leading or demand-following in islamic finance ? evidence from Malaysia By Ibrahim, Norhaslina; Masih, Mansur
  144. Monetary Policy Strategies and Tools When Inflation and Interest Rates Are Low : A speech at the 2020 U.S. Monetary Policy Forum, sponsored by the Initiative on Global Markets at the University of Chicago Booth School of Business, New York, New York, February 21, 2020. By Lael Brainard
  145. The World Bank Macro-Fiscal Model Technical Description By Burns,Andrew; Campagne,Benoit Philippe Marcel; Jooste,Charl; Stephan,David Andrew; Bui,Thi Thanh
  146. Do Unemployment Benefits Expirations Help Explain the Surge in Job Openings? By Fatih Karahan; Samuel Kapon; Kaivan K. Sattar
  147. Asymmetric exchange rates pass-through: New evidence from Vietnam By Ho, Sy-Hoa; Hafrad, Idir
  148. Consumer propensity to adopt PSD2 services: trust for sale? By Michiel Bijlsma; Carin van der Cruijsen; Nicole Jonker
  149. China’s Continuing Credit Boom By Alex Etra; Aaron Rosenblum; Jeffrey B. Dawson
  150. Turkey : An Empirical Assessment of the Determinants of the Current Account Balance By Knight,David Stephen; Portugal-Perez,Alberto; Nedeljkovic,Milan
  151. General or Central Government? Empirical Evidence on Political Cycles in Budget Composition Using New Data for OECD Countries By Niklas Potrafke
  152. Consumers’ Perception of Food Safety Risk From Vegetables: A Rural - Urban Comparison By Weshah Razzak; El Mostafa Bentour

  1. By: De Koning, Kees
    Abstract: This paper will focus on the relationship between mortgages and income developments in the U.S. Individual household’s asset values and liabilities obligations are often combined; for instance in home mortgages. The two main sources of savings, built up over a lifetime, are pension savings and the net worth embedded in one’s own home. Pension savings are normally deducted from annual income levels and transferred to specialist collective pension funds or insurance companies; an instant cash transfer. Mortgage borrowings are different in that future income levels are committed in meeting the payment obligations. The U.S. financial crisis of 2007-2008 was a home mortgage crisis. From 2004, some irresponsible lenders enticed many buyers to acquire homes in the U.S., of which a number of homes were bought for speculative reasons. In the U.K., the main reason of increasing house prices, above average income growth levels, is that house-building levels have lagged behind population growth levels for at least the last ten years. About only 160,000 homes were built per annum, while the population growth required between 230,000 and 300,000 homes annually. In the U.S., during the period 2004-2008, the financial sector made a huge collective mistake in assessing what was the appropriate individual mortgage level. The buyers over this period -many of them lower income households- were confronted with large numbers of repossessions after 2008. Heavy job losses occurred. Where economic theories seem to fail is when liabilities, like a home mortgage, can at the same time represent an asset with an embedded value in a home. Many households in both the U.S. and the U.K. were and are “displaced”, either by repossessions or by the inability to purchase a home. There exists, as yet, no government institution in either country that is able to replace bank funding, when income levels drop in a recession. High unemployment and falling wage levels reflect recessions. The key is to stabilize mortgage expenditure levels as a percentage of incomes over long periods of time. Banks cannot operate such products; only a government institution can do so. Why and how such a system can work in the U.S. is explained in this paper.
    Keywords: U.S. mortgages;home mortgage crisis 2008; tenants or homeowners?; different mortgage repayment method; U.S. median home prices; recession and repossessions; Mortgage Debt Stabilisation Fund(MDSF)
    JEL: D12 D14 E21 E24 E5 E58
    Date: 2020–02–17
  2. By: Claudiu Albulescu (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers); Cornel Oros (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers)
    Abstract: Recent inflation dynamics in the United States (US) questioned the role of driving forces of inflation in the long run. Although the US recorded one of the longest economic recovery periods and the labor market conditions improved after the Global crisis, the inflation level remained relatively low. Starting from this evidence, the purpose of our paper is to shed light to the influence of inflation uncertainty and labor market conditions on the US inflation level. To this end, we first use two bounded measures of inflation uncertainty, relying on Chan et al.'s (2013) and Chan's (2017) unobserved component models. Second, we compare a linear with an asymmetric Autoregressive Distributed Lag (ARDL) framework. We show that both inflation uncertainty and labor market conditions explain the long-run US inflation. However, these results are sensitive to the way the inflation uncertainty is computed. Moreover, contrary to the recent affirmations regarding the vanishing role of labor market in explaining the US inflation in the long run, we show that the labor market influence is stronger in the post-crisis, compared with the pre-crisis period. Therefore, the monetary policymakers cannot make abstraction of labor market developments in anticipating the US inflation level.
    Keywords: E58,E31,NARDL,E24,bounded series,labor market,inflation uncertainty,US inflation
    Date: 2020–02–03
  3. By: Riveros Gavilanes, John Michael
    Abstract: The present article establishes an empirical approximation related to the influence of the military expenditure in the economic growth for the case of the countries of South America. The main theoretical framework is based in the approximation of the Augmented Solow model considering the effect of the share of military spending in the factor productivity as it was proposed by Knight et al. (1996). The methodology follows the estimation of a panel vector autoregressive model for the period of 1977-2016, considering all the variables as endogenous, within this, it is provided the Granger-causality tests among the equations. The results determinate that military expenditure is not statistically significant to explain the variation in the output of the economy, meanwhile it existed a causality relation between the savings of the economy and the military expenditure for this continent.
    Keywords: E23; E22; E60; F43; O54
    JEL: E22 E23 E60 F43 O54
    Date: 2020–02–05
  4. By: Adrien Auclert; Matthew Rognlie; Ludwig Straub
    Abstract: We estimate a Heterogeneous-Agent New Keynesian model with sticky household expectations that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic evidence on the impulse response to a monetary policy shock. Our estimated model uncovers a central role for investment in the transmission mechanism of monetary policy, as high MPCs amplify the investment response in the data. This force also generates a procyclical response of consumption to investment shocks, leading our model to infer a central role for these shocks as a source of business cycles.
    Keywords: HANK, estimation, investment
    JEL: E21 E22 E32 E43 E52
    Date: 2020
  5. By: Di Bartolomeo, Giovanni; Di Pietro, Marco
    Abstract: Our paper derives and estimates a New Keynesian wage Phillips curve that accounts for intrinsic inertia. Our approach considers a wage-setting model featuring an upward-sloping hazard function, that is based on the notion that the probability of resetting a wage depends on the time elapsed since the last reset. According to our specification, we obtain a wage Phillips curve that also includes backward-looking terms, which account for persistence. We test the slope of the hazard function using GMM estimation. Then, placing our equation in a small-scale New Keynesian model, we investigate its dynamic properties using Bayesian estimation. Model comparison shows that our model outperforms commonly used alternative methods to introduce persistence.
    Keywords: duration-dependent wage adjustments; intrinsic inflation persistence; DSGE models; hybrid Phillips curves; model comparison
    JEL: E24 E31 E32 C11
    Date: 2020–02
  6. By: Andres Gonzalez; Alexander Guarin (Banco de la República de Colombia); Diego A. Rodriguez-Guzman; Hernando Vargas-Herrera (Banco de la República de Colombia)
    Abstract: This paper introduces 4GM, a semi-structural model for monetary policy analysis and macroeconomic forecasting in Colombia. This model is based on a New-Keynesian rational expectation framework for an oil-exporting small open economy. In this paper, we present the model structure and examine the response of its variables to domestic, foreign and oil-price shocks. Further, we assess 4GM in terms of its historical shock decomposition and its out-of-sample forecasting. **** RESUMEN: En este documento se presenta el 4GM, un modelo semi-estructural para el análisis de política monetaria y el pronóstico macroeconómico en Colombia. El modelo sigue un enfoque NeoKeynesiano con expectativas racionales para una economía pequeña y abierta exportadora de petróleo. En el artículo, presentamos la estructura del modelo, y examinamos la respuesta de sus variables a choques domésticos, externos y al precio del petróleo. Además, evaluamos el 4GM en términos de su descomposición histórica de choques y su pronóstico fuera de muestra.
    Keywords: Semi-structural model, monetary policy, macroeconomic forecasting, modelo semi-estructural, política monetaria, pronóstico macroeconómico
    JEL: E17 E37 E47 E52 E58
    Date: 2020–02
  7. By: Billi, Roberto (Research Department, Central Bank of Sweden)
    Abstract: I evaluate the welfare performance of a target for the level of nominal GDP in a New Keynesian model with unemployment, accounting for a zero lower bound (ZLB) constraint on the nominal interest rate. Nominal GDP targeting is compared to employment targeting, a conventional Taylor rule, and the optimal monetary policy with commitment. I find that employment targeting is optimal when supply shocks are the source of fluctuations; however, facing demand shocks and the ZLB constraint, nominal GDP targeting can outperform substantially employment targeting.
    Keywords: employment targeting; optimal monetary policy; Taylor rule; ZLB
    JEL: E24 E32 E52
    Date: 2020–01–01
  8. By: Philippe Andrade; Filippo Ferroni (University of Surrey; Banque de France; Federal Reserve Bank of Chicago)
    Abstract: What drives the strong reaction of financial markets to central bank communication on the days of policy decisions? We highlight the role of two factors that we identify from high-frequency monetary surprises: news on future macroeconomic conditions (Delphic shocks) and news on future monetary policy shocks (Odyssean shocks). These two shocks move the yield curve in the same direction but have opposite effects on financial conditions and macroeconomic expectations. A drop in future interest rates that is associated with a negative Delphic (Odyssean) shock is perceived as being contractionary (expansionary). These offsetting effects can explain why central bank communication leads to a strong reaction of the yield curve together with a weak reaction by inflation expectations or stock prices. The two shocks also have different impacts on macroeconomic outcomes, such that central bankers cannot infer the degree of stimulus they provide by looking at the mere reaction of the yield curve. However, changes in their communication policy can influence the way markets predominantly understand communication about future interest rates.
    Keywords: central bank communication; yield curve; monetary policy surprises; signaling; forward guidance
    JEL: C10 E32 E52
    Date: 2019–07–01
  9. By: Van Nguyen, Phuong
    Abstract: The primary purpose of this paper is to investigate the sources of the business cycle fluctuations in Vietnam. To this end, we develop a small open economy New Keynesian Dynamic Stochastic General Equilibrium (SOE-NK-DSGE) model. Accordingly, this model includes various features, such as habit consumption, staggered price, price indexation, incomplete exchange-rate pass-through, the failures of the law of one price and the uncovered interest rate parity. It is then estimated by using the Bayesian technique and Vietnamese data 1999Q1 − 2017Q1. Based on the estimated model, this paper analyzes the sources of the business cycle fluctuations in this emerging economy. Indeed, this research paper is the first attempt on developing and estimating the SOE-NK-DSGE model with the Bayesian technique for Vietnam.
    Keywords: International macroeconomics; international spillover; Vietnamese economy; New Keynesian DSGE model; Bayesian estimation
    JEL: E12 E31 E32 E47 E52 F41 F43
    Date: 2020–02
  10. By: Nkrumah, Kwabena Meneabe
    Abstract: Unprecedented is a word that best describes the current state of advanced economies. Interest rates are low in many advanced countries and negative in a few others suggesting that monetary policy has lost its effectiveness. The economic policy tool that has not been implemented yet by many advanced economies is fiscal policy. This thesis studies the effect of fiscal policy in USA, UK and Germany and find positive effects of extra government purchases on output, inflation, private consumption, business investment and wages. As a contribution to the academic literature on fiscal policy, this thesis estimates the impact of automatic stabilisers on economic activity and finds it holds predictive content for the path of output and inflation with both showing a positive response. Furthermore, this thesis adds to the literature on state-dependence fiscal policy by using a novel econometric approach to study the effect of expansionary fiscal policy during recessions.
    Keywords: Fiscal Policy, Government, Business Cycles.
    JEL: E0 E02 E03 E4 O1 O16
    Date: 2020
  11. By: Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan
    Abstract: Using a new consumer survey dataset, we document a new dimension of heterogeneity in inflation expectations that has implications for consumption and saving decisions as well as monetary policy transmission. We show that German households with the same inflation expectations differently assess whether the level of expected inflation and of nominal interest rates is appropriate or too high/too low. The `hidden heterogeneity' in expectations stemming from these opinions is related to demographic characteristics and affects current and planned spending in addition to the Euler equation effect of the perceived real interest rate. Furthermore, these differences in opinions affect German households differently depending on whether they are renters or homeowners.
    Keywords: Macroeconomic expectations, monetary policy perceptions, survey microdata
    JEL: E31 E52 E58 D84
    Date: 2020–02
  12. By: Claus Brand; Gavin Goy; Wolfgang Lemke
    Abstract: Incorporating arbitrage-free term-structure dynamics into a semi-structural macro-model, we jointly estimate the real equilibrium interest rate (r), trend inflation, and term premia for the United States and the euro area, using a Bayesian approach. The natural real rate and trend inflation are cornerstones determining equilibrium yields across maturities and macroeconomic trends. Taking into account the secular decline in equilibrium rates, term premia exhibit cyclical behavior over the business cycle, rather than the commonly reported trend. Our estimates suggest a fall in r from a pre-crisis level of about 3% to around zero, but estimates are subject to sizeable uncertainty. Including survey expectations can lift r estimates for recent quarters by a margin.
    Keywords: Natural rate of interest; r; equilibrium real rate; arbitrage-free Nelson-Siegel term structure model; term premia; unobserved components; Bayesian estimation
    JEL: C11 C32 E43 G12 E44 E52
    Date: 2020–01
  13. By: Chatelain, Jean-Bernard; Ralf, Kirsten
    Abstract: We consider a frictionless constant endowment economy based on Leeper (1991). In this economy, it is shown that, under an ad-hoc monetary rule and an ad-hoc fiscal rule, there are two equilibria. One has active monetary policy and passive fiscal policy, while the other has passive monetary policy and active fiscal policy. We consider an extended set-up in which the policy maker minimizes a loss function under quasi-commitment, as in Schaumburg and Tambalotti (2007). Under this formulation there exists a unique Ramsey equilibrium, with an interest rate peg and a passive fiscal policy.
    Keywords: Frictionless endowment economy, Fiscal theory of the Price Level, Ramsey optimal policy, Interest Rate Rule, Fiscal Rule.
    JEL: E5 E52 E58 E6 E62 E63
    Date: 2020–02–05
  14. By: Vaishali Garga; Sanjay R. Singh
    Abstract: We analyze the implications for monetary policy when deficient aggregate demand can cause a permanent loss in potential output, a phenomenon we term output hysteresis. In the model, the incomplete stabilization of a temporary shortfall in demand reduces the return to innovation, thus reducing total factor productivity growth and generating a permanent loss in output. Using a purely quadratic approximation to welfare under endogenous growth, we derive normative implications for monetary policy. Away from the zero lower bound (ZLB), optimal commitment policy sets interest rates to eliminate output hysteresis. A strict inflation targeting rule implements the optimal policy. However, when the nominal interest rate is constrained at the ZLB, strict inflation targeting is suboptimal and admits output hysteresis. A new policy rule that targets output hysteresis returns output to its pre-shock trend and approximates the welfare gains under optimal commitment policy. A central bank that is unable to commit to future policy actions suffers from hysteresis bias, as the bank’s inconsistent policy does not offset past losses in potential output.
    Keywords: endogenous growth; zero lower bound; output hysteresis; optimal monetary policy
    JEL: E52 E61 O41
    Date: 2019–12–01
  15. By: Oleksandr Faryna (National Bank of Ukraine); Tho Pham (University of Reading); Oleksandr Talavera (University of Birmingham); Andriy Tsapin (National Bank of Ukraine)
    Abstract: This paper examines the relationship between labour market conditions and wage dynamics by exploiting a unique dataset of 0.8 million online job vacancies. We find a weak trade-off between aggregated national-level wage inflation and unemployment. This link becomes more evident when wage inflation is disaggregated at sectoral and occupational levels. Using exogenous variations in local market unemployment as the main identification strategy, a negative correlation between vacancy-level wage and unemployment is also established. The correlation magnitude, however, is different across regions and skill segments. Our findings suggest the importance of micro data's unique dimensions in examining wage setting – unemployment relationship.
    Keywords: Phillips curve, wage curve, heterogeneity, micro data, online vacancies.
    JEL: C55 E24 E31 E32
    Date: 2020–02
  16. By: Adam Triggs; Warwick J McKibbin
    Abstract: In 2019, President Trump called on the U.S. Federal Reserve to cut interest rates to depreciate the U.S. dollar, which, according to the IMF, is overvalued by between 6 and 12 percent. This paper uses an intertemporal general equilibrium model to explore what would likely happen if the President’s wish was granted. Using the G-Cubed (G20) model, it shows that the general equilibrium effects of a depreciated real effective exchange rate brought about by lower U.S. interest rates can result in a wide variety of unintended consequences, many of which contradict the stated aims of President Trump and his administration. Such a policy would likely result in a larger U.S. trade deficit, would only temporarily devalue the real effective exchange rate and would only temporarily support the U.S. economy. The policy would boost the trade balances of most U.S. trading partners, depreciate China’s exchange rate and boost China’s GDP. Given the policy would make the overvalued exchange rates of many economies even more overvalued, the paper explores what would happen if U.S. trading partners were to retaliate by devaluing their currencies. It shows that this makes it harder for the U.S. to achieve its objectives and forces a more severe adjustment for economies that presently have undervalued exchange rates.
    Keywords: Econometric modelling, Computable general equilibrium models, productivity, monetary policy, fiscal policy, international trade and finance, globalization
    JEL: C5 C68 D24 E2 E5 E6 E62 F1 F2 F3 F4 F6
    Date: 2020–02
  17. By: Oladunni, Sunday
    Abstract: This study employs a sign-restricted Bayesian structural vector autoregressive (BSVAR) model to analyse how global demand, oil price and the US monetary policy shocks impact the Nigerian business cycle. The objective is to uncover the dominant external drivers of the business cycle in Nigeria. Results show that global demand and oil price shocks are the principal foreign drivers of the Nigerian business cycle. The global demand shock elicits the strongest responses from output growth and inflation; while oil price shock impacts the terms-of-trade and interest rate the most. The historical contributions of the global demand and oil price shocks to the evolution of output growth are significant and comparable, while that of oil price shock to inflation and interest rate is dominant. Further sensitivity analysis of pre-crisis period of 2008/09 suggests that macroeconomic risk arising from global demand shock is systematic, owing to the comparable impact on output growth and similar interest rate response in the two estimations. Evidence suggests that the GFC may have contributed to the more volatile inflation response to global demand shock in our full sample estimation. Given the strong and pervasive impact of the global demand shock on output growth, Nigeria can manage its vulnerability by shrinking the size of oil exports in its terms-of-trade, while growing non-oil exports progressively through sustained economic diversification and viable industrialisation strategy.
    Keywords: External Shocks, Sign Restrictions, Bayesian SVAR, Business Cycle Fluctuation
    JEL: C11 E32 E37 F44
    Date: 2019–12
  18. By: Chatelain, Jean-Bernard; Ralf, Kirsten
    Abstract: This article presents an algorithm that extends Ljungqvist and Sargent's (2012) dynamic Stackelberg game to the case of dynamic stochastic general equilibrium models including forcing variables. Its first step is the solution of the discounted augmented linear quadratic regulator as in Hansen and Sargent (2007). It then computes the optimal initial anchor of "jump" variables such as inflation. We demonstrate that it is of no use to compute non-observable Lagrange multipliers for all periods in order to obtain impulse response functions and welfare. The algorithm presented, however, enables the computation of a history-dependent representation of a Ramsey policy rule that can be implemented by policy makers and estimated within a vector auto-regressive model. The policy instruments depend on the lagged values of the policy instruments and of the private sector's predetermined and "jump" variables. The algorithm is applied on the new-Keynesian Phillips curve as a monetary policy transmission mechanism.
    Keywords: Ramsey optimal policy, Stackelberg dynamic game, algorithm, forcing variables, augmented linear quadratic regulator, new-Keynesian Phillips curve.
    JEL: C61 C62 C73 E47 E52 E61 E63
    Date: 2019–10–25
  19. By: Di Bartolomeo, Giovanni; Di Pietro, Marco; Giannini, Bianca
    Abstract: In a world where expectations are heterogeneous, what is the design of the optimal policy? Are canonical policies robust when heterogeneous expectations are considered or would they be associated with large welfare losses? We aim to answer these questions in a stylized simple New Keynesian model where agents’beliefs are not homogeneous. Assuming that a fraction of agents can form their expectations by some adaptive or extrapolative schemes, we focus on an optimal monetary policy by second-order approximation of the policy objective from the consumers’utility function. We find that the introduction of bounded rationality in the New Keynesian framework matters. The presence of heterogeneous agents adds a new dimension to the central bank’s optimization problem— consumption inequality. Optimal policies must be designed to stabilize the cross-variability of heterogeneous expectations. In fact, as long as different individual consumption plans depend on different expectation paths, a central bank aiming to reduce consumption inequality should minimize the cross-sectional variability of expectations. Moreover, the traditional trade-off between the price dispersion and aggregate consumption variability is also quantitatively affected by heterogeneity.
    Keywords: monetary policy; bounded rationality; heterogeneous expectations
    JEL: E52 E58 J51 E24
    Date: 2020–02
  20. By: Drakopoulos, Stavros A.
    Abstract: In Keynes’ consumption theory absolute income is the major determinant of consumption, and the marginal propensity to consume determines the magnitudes of fiscal multipliers. Keynes employed a largely psychological analysis of consumption, rejecting the model of utility maximizing consumer. J. Duesenberry extended and improved Keynes’ approach by also emphasizing the role of psychological and social factors on consumption decisions (the relative income hypothesis). Similar conclusions regarding the role of income on consumption, and therefore support for Keynesian policies, are reached by Duesenberry’s analysis. The life-cycle hypothesis by Modigliani and Brumberg (1954), and the permanent income hypothesis by Friedman (1957), emerged as the two main alternatives to Keynes’ and Duesenberry’s approaches. Modern orthodox consumption theories are extensions of these two theories in a rational expectations framework. By employing the concept of forward looking, optimizing agents, current or relative income plays a minimal role in the life-cycle and permanent income hypotheses, and an even lesser role in contemporary orthodox consumption theories. Consequently, fiscal policy has a negligible effect on output and employment. The paper argues that Keynes and Duesenberry’s approaches were marginalized not because of their empirical or theoretical shortcomings, but because of emphasizing the psychological and social influences on consumption patterns, and because of not employing the intertemporal utility maximizing framework. The clear implication of the discussion is that the marginalization of absolute and relative income hypotheses was due to the dominance of a specific methodological framework that did not favour such approaches.
    Keywords: Consumption Function; Keynes; Duesenberry; Economic Methodology
    JEL: B20 B40 E21 E62
    Date: 2020–02
  21. By: Philippe Andrade; Jordi Gali; Hervé Le Bihan (Banque de France); Julien Matheron (Banque de France)
    Abstract: We study how changes in the steady-state real interest rate affect the optimal inflation target in a New Keynesian DSGE model with trend inflation and a lower bound on the nominal interest rate. In this setup, a lower steady-state real interest rate increases the probability of hitting the lower bound. That effect can be counteracted by an increase in the inflation target, but the resulting higher steady-state inflation has a welfare cost in and of itself. We use an estimated DSGE model to quantify that tradeoff and determine the implied optimal inflation target, conditional on the monetary policy rule in place before the financial crisis. The relation between the steady-state real interest rate and the optimal inflation target is downward sloping. While the increase in the optimal inflation rate is in general smaller than the decline in the steady-state real interest rate, in the currently empirically relevant region the slope of the relation is found to be close to –1. That slope is robust to allowing for parameter uncertainty. Under “make-up” strategies such as price level targeting, the required increase in the optimal inflation target under a lower steady-state real interest rate is, however, much smaller.
    Keywords: inflation target; effective lower bound; natural interest rate; steady-state real interest rate
    JEL: E31 E52 E58
    Date: 2019–10–01
  22. By: Yunus Aksoy; Rubens Morita; Zacharias Psaradakis
    Abstract: We investigate regime-dependent Granger causality between real output, inflation and monetary indicators and map with U.S. Fed Chairperson’s tenure since 1965. While all monetary indicators have causal predictive content in certain time periods, we report that the Federal Funds rate (FFR) and Domestic Money (DM) are substitutes in their role as lead or feedback variables to explain variations in real output and inflation. We provide a comprehensive account of evolution of causal relationships associated with all US Fed Chairpersons we consider.
    Keywords: causality regimes, domestic money, Federal Reserve Chairperson, Markov switching, policy instrument, vector autoregression
    JEL: C32 C54 C61 E52 E58
    Date: 2019
  23. By: Darracq Pariès, Matthieu; Karadi, Peter; Körner, Jenny; Kok, Christoffer; Mazelis, Falk; Nikolov, Kalin; Rancoita, Elena; Van der Ghote, Alejandro; Cozzi, Guido; Weber, Julien
    Abstract: This paper examines the interactions of macroprudential and monetary policies. We find, using a range of macroeconomic models used at the European Central Bank, that in the long run, a 1% bank capital requirement increase has a small impact on GDP. In the short run, GDP declines by 0.15-0.35%. Under a stronger monetary policy reaction, the impact falls to 0.05-0.25%. The paper also examines how capital requirements and the conduct of macroprudential policy affect the monetary transmission mechanism. Higher bank leverage increases the economy's vulnerability to shocks but also monetary policy's ability to offset them. Macroprudential policy diminishes the frequency and severity of financial crises thus eliminating the need for extremely low interest rates. Counter-cyclical capital measures reduce the neutral real interest rate in normal times. JEL Classification: E4, E43, E5, E52, G20, G21
    Keywords: bank stability, credit, monetary policy
    Date: 2020–02
  24. By: Francesco Zanetti; Carlo Pizzinelli; Konstantinos Theodoridis
    Abstract: This paper documents state dependence in labor market fluctuations. Using a Threshold Vector Autoregression model (TVAR), we establish that the unemployment rate, the job separation rate, and the job finding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model with endogenous job separation and on-the-job search replicates these empirical regularities well. We calibrate the model to match the standard deviation of the job-transition rates explained by productivity shocks in the TVAR, and show that the model explains 88 percent of the state dependence in the unemployment rate, 76 percent for the separation rate and 36 percent for the job finding rate. The key channel underpinning state dependence in both job separation and job finding rates is the interaction of the firm’s reservation productivity level and the distribution of match-specific idiosyncratic productivity. Results are robust across several variations to the baseline model.
    Keywords: Search and Matching Models, State Dependence in Business Cycles, Threshold Vector Autoregression
    JEL: E24 E32 J64 C11
    Date: 2020–02–26
  25. By: Baksa, Dániel; Munkácsi, Zsuzsa
    Abstract: The empirical and theoretical evidence on the impact of population aging on inflation is mixed, and there is no evidence regarding the volatility of inflation. Using advanced economies’ data and a DSGE-OLG model - a multi-period general equilibrium framework with overlapping generations - we find that aging leads to downward pressure on inflation and higher inflation volatility. Our paper shows how aging affects the short-term cyclical behavior of the economy and the transmission channels of monetary policy. We also examine the interplay between aging and optimal central bank policies. As aging redistributes wealth among generations, generations behave differently, and the labor force becomes more scarce. Our model suggests that aging makes monetary policy less effective, and aggregate demand less elastic to changes in the interest rate. Moreover, in grayer societies, central banks should react more strongly to nominal variables to compensate for higher inflation volatility.
    Keywords: aging; monetary policy transmission; optimal monetary policy; inflation targeting
    JEL: E31 E52 J11
    Date: 2020–02
  26. By: Mogaji, Peter Kehinde
    Abstract: Money neutrality is about what the long run relationship between money and price imply for the use of monetary aggregates in the conduct of monetary policy. The argument is that if a single monetary policy is prevalent in a monetary union, it is significant that members of such monetary integration should exhibit similarities in behaviour of money. The West African subcontinent (proposing monetary integration) deserves feasibility assessments in aspects of neutrality and superneutrality of money. This study, which is significant for the proposed monetary integration of the West Africa, provided answers to the question on if money matters within the proposed monetary union. The autoregressive distributed lag (ARDL) bound testing cointegration approach developed by Pesaran et al (2001) was employed to test money neutrality and money superneutrality in this research work. This cointegration method is no common in the investigation of neutrality and superneutrality of money. Relevant annual data (real output, quasi-money, inflation) collected for the six WAMZ countries (The Gambia, Ghana, Guinea, Nigeria, Liberia and Sierra Leone) for the purpose of this study span over the period between 1980 and 2014. Finding and results generated in this study produced evidence to suggest that money is not neutral in four of the six (except for Liberia and Guinea) WAMZ countries. The superneutrality tests (and other sensitivity tests) however reveal more uniform non-superneutrality of money across the WAMZ (apart from the inconclusiveness of the tests in the cases Liberia and Guinea when real exchange rate change was applied; as a well as the non-superneutrality of Liberia when real output growth served in the determination of money super neutrality).
    Keywords: Money Neutrality, Superneutrality of Money, ARDL, WAMZ
    JEL: E12 E13 E4 E5 F3 F45
    Date: 2018–07–12
  27. By: Mathias Dolls; Clemens Fuest; Andreas Peichl; Christian Wittneben
    Abstract: We analyze how the combined effect of automatic stabilizers and discretionary changes in tax-benefit systems have affected the cushioning of income shocks in the Euro zone and the EU-27 in the period 2007–2014. We propose a new summary measure of the combined effect of automatic stabilizers and discretionary policy changes based on micro data and counter-factual simulation. Discretionary fiscal policy supported the effects of automatic stabilizers in the years 2008 and 2009 but then became much more restrictive. For the Euro zone as a whole, the share of income shocks absorbed by the tax and transfer system declined from 48 percent in 2008 to 24 percent in 2011. For some of the countries most affected by the crisis, the stabilization effect was even negative in some years of the crisis, implying that the tax and transfer system amplified income shocks. We also compare our measure of stabilization to estimates based on macro data.
    Keywords: automatic stabilizers, fiscal consolidation, fiscal policy
    JEL: E63 E62 H31
    Date: 2019
  28. By: Robert Kollmann (University of California San Diego)
    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 boom-bust 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: Long-Plosser model; rational bubbles; non-linear DSGE models; business cycles in closed and open economies; boom-bust cycles; Dellas model
    JEL: E3 C6 E1 F3 F4
    Date: 2020–02–11
  29. By: Rohan Kekre (University of Chicago - Booth School of Business); Moritz Lenel (Princeton University - Bendheim Center for Finance)
    Abstract: We study the transmission of monetary policy through risk premia in a heterogeneous agent New Keynesian environment. Heterogeneity in households' marginal propensity to take risk (MPR) summarizes differences in portfolio choice on the margin. An unexpected reduction in the nominal interest rate redistributes to households with high MPRs, lowering risk premia and amplifying the stimulus to the real economy. Quantitatively, this mechanism rationalizes the role of news about future excess returns in driving the stock market response to monetary policy shocks.
    Keywords: monetary policy, risk premia, heterogeneous agents
    JEL: E44 E63 G12
    Date: 2020
  30. By: Richard Dennis; Oleg Kirsanov
    Abstract: We study discretionary monetary policy in an economy where economic agents have quasi-hyperbolic discounting. We demonstrate that a benevolent central bank is able to keep inflation under control for a wide range of discount factors. If the central bank, however, does not adopt the household’s time preferences and tries to discourage early consumption and delayed-saving, then a marginal increase in steady state output is achieved at the cost of a much higher average inflation rate. Indeed, we show that it is desirable from a welfare perspective for the central bank to quasi-hyperbolically discount by more than households do. Welfare is improved because this discount structure emphasizes the current-period cost of price changes and leads to lower average inflation. We contrast our results with those obtained when policy is conducted according to a Taylor-type rule.
    Keywords: Quasi-hyperbolic discounting, Monetary policy, Time-consistency
    JEL: E52 E61 C62 C73
    Date: 2020–02
  31. By: Keshav Dogra; Sushant Acharya
    Abstract: In recent years there has been a lot of interest in the effect of income inequality (heterogeneity) on the economy, from both academics and policymakers. Researchers have developed Heterogeneous Agent New Keynesian (HANK) models that incorporate heterogeneity and uninsurable idiosyncratic risk into the New Keynesian models that have become a cornerstone of monetary policy analysis. This research has argued that heterogeneity and idiosyncratic risk change many features of New Keynesian models – the transmission of conventional monetary policy, the forward guidance puzzle, fiscal multipliers, the efficacy of targeted transfers and automatic stabilizers, among others. However, the source of the difference between HANK and representative agent New Keynesian (RANK) models remains unclear. This is because HANK models are typically not analytically tractable, leaving it unclear what exactly is driving the results. To shed light on the macroeconomic consequences of heterogeneity, we develop a stylized HANK model that contains key features present in more complicated HANK models.
    Keywords: incomplete markets; fiscal multipliers; forward guidance; New Keynesian; monetary and fiscal policy
    JEL: E52 E2
    Date: 2020–02–24
  32. By: Canova, Fabio (Norwegian Business School, CAMP and CEPR)
    Abstract: I study potentials and gaps, permanent and transitory fluctuations in macroeconomic variables using the Smets and Wouter (2007) model. Model-based gaps display low frequency variations; possess more than business cycle fluctuations; have similar frequency representation as potentials, and are correlated with them. Permanent and transitory fluctuations display similar features, but are uncorrelated. I use a number of filters to extract trends and cycles using simulated data. Gaps are best approximated with a polynomial filter; transitory fluctuations with a differencing approach, but distortions are large. Explanations for the results are given. I propose a filter which reduces the biases of existing procedures.
    Keywords: Gaps and potentials; permanent and transitory components; filtering; cyclical fluctuations; gain functions
    JEL: C31 E27 E32
    Date: 2020–01–01
  33. By: Icefield, William
    Abstract: John Hicks argued that liquidity preference theory and loanable funds theory are equivalent, because in general equilibrium, Walras law dictates that one (for example, money) market is redundant when other markets (bond, commodities) are in equilibrium. While there are many other well-known criticisms of this point, I take a route that is rarely invoked - that liquidity preference can encode agent's reactions against risk of disequilibrium in a general equilibrium model. In such a case, money market may be in equilibrium, especially due to endogenous money, while other markets are in disequilibrium. In such a case, liquidity preference theory - or theory of money demand - determines rate of interest, as John Maynard Keynes asserted in General Theory, instead of loanable funds theory.
    Keywords: liquidity preference; loanable funds theory; disequilibrium; general equilibrium; Keynes; Walras law
    JEL: B22 B41 D59 E12 E20 E43
    Date: 2020–01–10
  34. By: الرسول, أد/ أحمد أبواليزيد; عبدالراضي, صابرين صبره; عون, أد/ عون خيرالله; عبدالرازق, د ياسمين صلاح
    Abstract: The research aimed to study the causes and sources of inflation in the Egyptian economy and the agricultural sector, and to analyze the indicators and measures of that phenomenon at the two levels during the period 1995-2016. A number of indices were used, namely: the urban consumer price index, the rural consumer price index, the general consumer price index, the producer price index, and the implicit index. By tracking the evolution of changes in the price level during the study period, it was found that those indexes have taken an upward trend along the time series under study, and the index numbers have doubled from three to four times, which confirms the suffering of the Egyptian economy from high inflation rates. The results of using the criterion of the cash stability factor that showed positive along the length of the chain also showed the size of the gap between the value of real GDP and the size of the money supply in the sense of M1 and M2. While the increase in the real GDP reached 159.60%, the increase in the size of the money supply About 1711% and 1373%, respectively. The results also showed that the surplus of demand began to appear from 2012 and continued to increase until it reached its maximum in 2016. As for the net surplus of demand, it began to appear from 2014 to 2016, and its maximum reached in 2016 with an increase estimated at 93.20%. As for the agricultural sector as one of the pivotal sectors in the national economy, a number of agricultural indices were analyzed that reflected the extent of the phenomenon of inflation in the agricultural sector, and the factors causing inflation in the agricultural sector can be classified into factors outside the agricultural sector that affect the presence of inflation within the sector, including the budget deficit The general state of the country, the money supply surplus, the deficit in the trade balance, which are the same factors that caused inflation in the Egyptian economy, in addition to internal factors specific to the agricultural sector, such as poor distribution and use of agricultural resources, a low percentage of For the self-sufficiency of some crops, especially food ones, and the high cost of agricultural production requirements, in addition to a group of other factors addressed in the research. استهدف البحث دراسة أسباب ومصادر التضخم في الاقتصاد المصري وفي القطاع الزراعي، و تحليل مؤشرات ومقاييس تلك الظاهرة على المستوىين خلال الفترة 1995-2016. وقد تم الاستعانة بعدد من الأرقام القياسية وهي: الرقم القياسي لأسعار المستهلكين بالحضر، الرقم القياسي لأسعار المستهلكين بالريف، الرقم القياسي العام لأسعار المستهلكين، الرقم القياسي لأسعار المنتجين، الرقم القياسي الضمني. وبتتبع تطور التغيرات على مستوى الأسعار خلال فترة الدراسة تبين أن تلك الأرقام القياسية قد سلكت اتجاهاً تصاعدياً على طول السلسلة الزمنية محل الدراسة وقد تضاعفت الأرقام القياسية خلالها من ثلاث لأربع مرات وهو ما يؤكد معاناة الاقتصاد المصري من معدلات تضخم عالية. كما أظهرت نتائج استخدام معيار معامل الاستقرار النقدي الذي ظهر موجباً على مدى طول السلسلة حجم الفجوة بين قيمة الناتج المحلي الإجمالي الحقيقي وحجم المعروض النقدي بمفهوميه M1 ، M2 ففي حين بلغت نسبة الزيادة في الناتج المحلي الإجمالي الحقيقي 159.60%، بلغت نسبة الزيادة في حجم المعروض النقدي نحو 1711%، 1373% على الترتيب. كما أظهرت النتائج أن فائض الطلب قد بدأ بالظهور من عام 2012 واستمر بالزيادة حتى بلغ أقصاه عام 2016 أما عن صافي فائض الطلب فقد بدأ بالظهور من عام 2014 حتى عام 2016، وبلغ حده الأقصى عام 2016 بنسبة زيادة قدرت بنحو 93.20%. أما بالنسبة للقطاع الزراعي كأحد القطاعات المحورية في الاقتصاد القومي فقد تم تحليل عدد من الأرقام القياسية الزراعية التي عكست المدي الذي وصلت اليه ظاهرة التضخم بالقطاع الزراعي ويمكن تصنيف العوامل المسببة للتضخم في القطاع الزراعي إلى عوامل خارج القطاع الزراعي تؤثر على وجود التضخم داخل القطاع منها عجز الموازنة العامة للدولة، فائض المعروض النقدي، العجز في الميزان التجاري وهي ذات العوامل التي كانت سبباً في وجود التضخم على مستوى المقتصد المصري، إضافة إلى عوامل داخلية يختص بها القطاع الزراعي مثل سوء توزيع واستخدام الموارد الزراعية، انخفاض نسبة الاكتفاء الذاتي من بعض المحاصيل وخاصةً الغذائية منها وارتفاع تكلفة مستلزمات الإنتاج الزراعية إضافة إلى مجموعة من العوامل الأخرى تناولها البحث.
    Keywords: التضخم، التنمية الاقتصادية، النمو الاقتصادي، الأرقام القياسية. Inflation, Economic Development, Economic Growth, index Numbers.
    JEL: E5 E52 Q11
    Date: 2019–12
  35. By: Oliver Hülsewig; Johann Scharler
    Abstract: We explore the reaction of the euro area periphery sovereigns’ fiscal positions to an unconventional monetary policy shock. We estimate panel vector autoregressive (VAR) models over the period 2010-2018, and identify the shock by imposing sign restrictions. Our results suggest that the sovereigns’ fiscal positions improve in response to the economic expansion induced by an expansionary non-standard monetary policy innovation which lowers sovereign CDS spreads. Moreover, we observe that fiscal discipline is maintained rather than undermined.
    Keywords: euro area periphery sovereigns, fiscal position, unconventional monetary policy, panel vector autoregressive model
    JEL: E52 E62 H62 H63
    Date: 2020
  36. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This publication is available in German language only. For a brief English summary see further below. Diese Studie analysiert die Spielräume und Handlungsoptionen der Fiskalpolitik in Österreich für die kommenden Jahre im europäischen Kontext. Unter der bestehenden Zins-Wachstumskonstellation bestehen in Österreich ebenso wie in mehreren anderen Eurozonenländern erhebliche Spielräume für eine expansivere Ausrichtung der Fiskalpolitik, ohne dass die Stabilität der öffentlichen Finanzen gefährdet wäre. Die bestehenden europäischen und nationalen Fiskalregeln erlauben dem österreichischen Gesamtstaat für das Jahr 2020 einen fiskalischen Stimulus von bis zu 3 Milliarden Euro (0,7% des BIP), wobei aktuell für das Jahr 2021 von einem mindestens ebenso hohen Spielraum auszugehen ist. Selbst bei einer vollständigen Ausschöpfung dieses Potenzials für eine expansivere fiskalpolitische Ausrichtung würde die Staatsschuldenquote weiter in Richtung des in den EU-Fiskalregeln festgelegten Grenzwerts von 60% des BIP absinken. Fiskalische Stabilisierungspolitik sollte im Wirtschaftsabschwung zeitgerecht umgesetzt, auf besonders betroffene Menschen zielgerichtet und temporär sein, um möglichst effektiv Beschäftigung und Wirtschaftswachstum zu fördern. Expansive fiskalpolitische Maßnahmen, die diesen Kriterien entsprechen, sind beispielsweise zusätzliche AMS-Mittel für Vermittlung und Qualifizierung, Kurzarbeitsbeihilfe, Sonderabschreibungen für Investitionen, und öffentliche Investitionen. Für öffentliche Investitionen lässt sich aktuell im Bereich der Klimapolitik jedoch unabhängig von der konjunkturellen Lage ein öffentlicher Investitionsbedarf feststellen. Insoweit ein langfristig angelegtes Investitionsprogramm nicht im Rahmen der kurzfristig vorhandenen fiskalischen Spielräume finanzierbar ist, könnten die Fiskalregeln adaptiert werden, um die Spielräume für investive Ausgaben des Staates (insbesondere in den Klimaschutz) zielgerecht auszuweiten. Dabei kommt etwa die Einführung einer goldenen Regel für öffentliche Investitionen in Frage, die öffentliche Nettoanlageinvestitionen aus den spielraumbeschränkenden Defizitmaßen herausrechnet. English Summary Austria's fiscal policy in a European context Fiscal policy space in times of low interest rates and economic downturn This study analyses the fiscal policy space in Austria for the coming years in a European context. Under the existing interest-growth constellation, there is considerable scope for a more expansionary fiscal policy stance in Austria as well as in several other euro area countries (including Germany and the Netherlands), and a well-dosed expansionary fiscal policy stance would not jeopardise the stability of public finances. The existing fiscal rules allow the Austrian state a fiscal stimulus of up to EUR 3 billion (0.7% of GDP) for the year 2020, with at least as much room for manoeuvre currently expected for 2021. Even if this potential for a more expansionary fiscal policy stance were to be fully exploited, the public debt-to-GDP-ratio would continue to fall towards the 60% of GDP limit set by the EU’s fiscal rules. Fiscal stabilisation policies should be timely, targeted at particularly affected people and temporary in order to promote employment and economic growth as effectively as possible. Expansionary fiscal policy measures that meet these criteria would include, for example, additional AMS funds for placement and qualification, short-time work subsidies, special depreciation possibilities for companies’ investment, and public investment. However, a need for additional public investment can currently be identified in the area of climate policy, irrespective of business cycle conditions. To the extent that a long-term investment programme cannot be financed within the existing fiscal framework, the fiscal rules could be adapted in order to expand the space for public investment (especially to tackle climate change). This could involve, for example, the introduction of a golden rule for public investment, which would remove public net fixed capital formation from the deficit indicators that restrict the room for manoeuvre.
    Keywords: Fiskalpolitik, Österreich, Staatsschulden, Investitionen
    JEL: E61 E62
    Date: 2020–02
  37. By: Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: On the twentieth anniversary of its inception, the euro has yet to expand its role as an international currency. We document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements—which we argue is a portmanteau measure—and as a currency for the denomination of trade and assets. On all these dimensions, the euro comprises a far smaller share than that of the US dollar. Furthermore, that share has been roughly constant since 1999. By some measures, the euro plays no larger a role than the Deutschemark and French franc that it replaced. We explore the reasons for this underperformance. While the leading anchor currency may have a natural monopoly, a number of additional factors have limited the euro’s reach, including lack of financial center, limited geopolitical reach, and US and Chinese dominance in technology research. Most important, in our view, is the comparatively scarce supply of (safe) euro-denominated assets, which we document. The European Central Bank’ lack of policy clarity may have also played a role. We show that the euro era can be divided into a “Bundesbank-plus” period and a “Whatever it Takes” period. The first shows a smooth transition from the European Exchange Rate Mechanism and continued to stabilize German inflation. The second period is characterised by an expanding ECB arsenal of credit facilities to European banks and sovereigns
    JEL: E5 F3 F4 N2
    Date: 2020–02
  38. By: Van Nguyen, Phuong
    Abstract: The primary purpose of this paper is to compare the forecasting performance of a small open economy New Keynesian Dynamic Stochastic General Equilibrium (SOE-NK-DSGE) model with its closed-economy counterpart. Based on the quarterly Australian data, these two competing models are recursively estimated, and point forecasts for seven domestic variables are compared. Since Australia is a small open economy, global economic integration and financial linkage play an essential role in this country. However, the empirical findings indicate that the open economy model yields predictions that are less accurate than those from its closed economy counterpart. Two possible reasons could cause this failure of the SOE-NK-DSGE model: (1) misspecification of the foreign sector, and (2) a higher degree of estimation uncertainty. Thus, this research paper examines further how these two issues are associated with this practical problem. To this end, we perform two additional exercises in a new variant of the SOE-NK-DSGE and Bayesian VAR models. Consequently, the findings from these two exercises reveal that a combination of misspecification of the foreign sector and a higher degree of estimation uncertainty causes the failure of the open economy DSGE model in forecasting. Thus, one uses the SOE-NK-DSGE model for prediction with caution.
    Keywords: Small open economy New Keynesian DSGE model; Bayesian estimation; forecasting accuracy; RMSEs
    JEL: B22 C11 E37 E47
    Date: 2020–02
  39. By: International Monetary Fund
    Abstract: Growth continues to outpace expectations. 2019 H1 growth was 10.3 percent y/y, fueled by private and public construction. Inflation rose at a slightly slower pace than anticipated in the first half of 2019, and 12-month average inflation was below the MPCC band from June-August this year. Lower-than-anticipated donor disbursements and higher execution of externally-financed deficit spending resulted in a higher-than-expected FY18/19 fiscal deficit, financed by a higher float and spending adjustment. Strong uptake of longer-term sovereign bond and an increased float led to domestic liquidity pressures in July-September, prompting greater activity on the interbank market and liquidity injections by the central bank. The trade deficit increased slightly more than expected in the first three quarters of 2019, due to adverse terms of trade and strong capital imports. This was largely offset by an improvement in services, largely reflecting strong performance of RwandAir. The RWF had depreciated by 4.7 percent at end-October y/y, and international reserves remain adequate.
    Keywords: External sector;Economic indicators;Fiscal sector;Credit;Capital;ISCR,CR,Proj,Prog,PKO,overall balance,net lend
    Date: 2020–01–17
  40. By: Stefano Eusepi; Sara Shahanaghi (Research and Statistics Group); Marco Del Negro; Matthew Cocci; Marc Giannoni
    Abstract: The U.S. economy has been in a gradual but slow recovery. Will the future be more of the same? This post presents the current forecasts from the Federal Reserve Bank of New York?s (FRBNY) DSGE model, described in our earlier ?Bird?s Eye View? post, and discusses the driving forces behind the forecasts. Find the code used for estimating the model and producing all the charts in this blog series here. (We should reiterate that these are not the official New York Fed staff forecasts, but only an input to the overall forecasting process at the Bank.)
    Keywords: DSGE; forecasting
    JEL: E2 E5
  41. By: Harashima, Taiji
    Abstract: Recessions are generated by various shocks. In particular, if fundamental shocks change the steady state, severe recessions will be generated. In this paper, I show that when such a shock occurs, it is possible for households to rationally select a Nash equilibrium consisting of a Pareto inefficient transition path to the new steady state in an economy in which households behave according to a procedure that is not based on the expected utilities discounted by the rate of time preference. They select this path because they are non-cooperative and risk averse and want to reach what I call the “maximum degree of comfortability” or MDC. The MDC mechanism behind choosing a Pareto inefficient path is basically the same as that in an economy in which households behave according to the usually assumed procedure based on the rational expectations hypothesis.
    Keywords: Economic fluctuation; MDC-based procedure; Pareto inefficiency; Rational expectations hypothesis; Recession
    JEL: E00 E10 E32
    Date: 2020–02–02
  42. By: Aguilar, Pablo; Fahr, Stephan; Gerba, Eddie; Hurtado, Samuel
    Abstract: This paper contributes by providing a new approach to study optimal macroprudential policies based on economy wide welfare. Following Gerba (2017), we pin down a welfare function based on a first-and second order approximation of the aggregate utility in the economy and use it to determine the merits of different macroprudential rules for the Euro Area. With the aim to test this framework, we apply it to the model of Clerc et al (2015). In this model, we find that the optimal level of capital is 15.6 percent, or 2.4 percentage points higher than the 2001-2015 value. Optimal capital reduces significantly the volatility of the economy while increasing somewhat the total level of welfare in steady state, even with a time-invariant instrument. Expressed differently, bank default rates would have been 3.5 percentage points lower while credit (GDP) 5% (0.8%) higher had optimal capital level been in place during the 2011-13 crisis. Further, we find that the optimal Countercyclical Capital Buffer rule depends on whether observed or optimal capital levels are already in place. Conditional on optimal capital level, optimal CCyB rule should respond to movements in total credit and mortgage lending spreads. Gains in welfare from an optimal combination of instruments is higher than the sum of their individual effects due to synergies and spillovers.
    Keywords: Financial stability; global welfare analysis; financial DSGE model
    JEL: G21 G28 G17 E58 E61
    Date: 2020–02
  43. By: Romain RESTOUT; Olivier CARDI; Romain RESTOUT
    Abstract: Motivated by recent evidence pointing at an increasing contribution of asymmetric shocks across sectors to economic fluctuations, we explore the sectoral composition effects of technology shocks biased toward the traded sector. Using a panel of seventeen OECD countries over the period 1970-2013, our VAR evidence reveals that a permanent increase in traded relative to non-traded TFP lowers the traded hours worked share by shifting labor toward the non-traded sector, and has an expansionary effect on the labor income share in both sectors. Our quantitative analysis shows that the open economy version of the neoclassical model can reproduce the reallocation and redistributive effects we document empirically once we allow for technological change biased toward labor together with additional specific elements. Calibrating the model to country-specific data, the model can account for the cross-country dispersion in the reallocation and redistributive effects we document empirically once we let factor-biased technological change vary across sectors and between countries. Finally, we document evidence which supports our hypothesis of factor-biased technological change as we find empirically that countries where capital-intensive industries contribute more to the increase in traded TFP are those where capital relative to labor efficiency increases.
    Keywords: Sector-biased technology shocks; Factor-augmenting efficiency; Open economy; Labor reallocation; CES production function; Labor income share.
    JEL: E25 E32 F11 F41
    Date: 2019
  44. By: Stefano Eusepi; Emanuel Moench (Deutsche Bundesbank; Halle (Saale); Bank für Internationalen Zahlungsausgleich); Richard K. Crump
    Abstract: Since the 1980s, the primary policy tool of the Federal Reserve has been the federal funds rate. Because expectations of the future path of the funds rate play a central role in the term structure of interest rates and thus the monetary transmission mechanism, it is important to know how accurate these expectations are in predicting the funds rate. In this post, we investigate this issue using a well-known survey of private sector forecasters. We find that forecasts tend to over-predict the funds rate in easing cycles and under-predict it in tightening cycles. In addition, while forecasts during tightening cycles have become more accurate over time, forecast accuracy during easing cycles has not improved.
    Keywords: macroeconomic forecasts; Taylor Rule; Policy expectations
    JEL: E5
  45. By: Lucia Esposito (Bank of Italy); Davide Fantino (Bank of Italy); Yeji Sung (Columbia University)
    Abstract: This paper evaluates the impact of the second series of Targeted Longer-Term Refinancing Operations (TLTRO2) on the amount of credit granted to non-financial private corporations and on the interest rates applied to loans in Italy, using data on credit transactions, bank and firm characteristics and a difference-in-differences approach. We find that TLTRO2 had a positive impact on the Italian credit market, encouraging medium-term lending to firms and reducing credit interest rates. While firms overall benefited from TLTRO2 irrespective of their risk category and size, we document heterogeneous treatment effects. Regarding firms’ risk category, the effects on credit quantities are larger for low-risk firms while those on credit interest rate are larger for high-risk firms. Regarding firms’ size, smaller firms benefited the most both in terms of amounts borrowed and interest rates. Furthermore, our evidence suggests that monetary policy transmission of TLTRO2 is stronger for banks with a low bad debt ratio in their balance sheets.
    Keywords: Unconventional Monetary Policy, Pass-through, Policy Evaluation
    JEL: E51 E52
    Date: 2020–02
  46. By: Herrera Aguilera,Santiago; Kouame,Wilfried Anicet Kouakou; Mandon,Pierre Jean-Claude
    Abstract: This paper analyzes the procyclicality of fiscal policy on the tax and spending sides in a sample of 116 developing countries between 2000 and 2016. About 20 percent of the countries in the sample switched from procyclical to countercyclical policy stance. In Sub-Saharan Africa, 30 of 39 countries remained caught in the procyclicality trap and the region has the highest degree of procyclicality. The Middle East and North Africa region switched from a countercyclical policy stance to a procyclical one over time. The Europe and Central Asia and Latin America and the Caribbean regions significantly reduced the degree of procyclicality. The main economic variables that affect procyclicality are financial depth, tax base variability, and natural resource dependence. In line with the political economy literature, the perception of corruption, social fragmentation, and inequality in resource distribution are positively associated with procyclicality. The findings also show that the quality of fiscal institutions is associated with procyclicality; countries with fiscal rules have smaller procyclical bias, but the effect is not homogeneous; and higher degrees of expenditure rigidity are associated with lower procyclical bias. The study finds asymmetric policy stances along the business cycle, with procyclicality being more pronounced during recessions. Similarly, the political cycle affects procyclicality, as procyclical bias increases in electoral years. From the tax management perspective, procyclical bias is still present, but there are significant changes: most of the political economy variables lose significance; the resource-dependence variable is not significant; external credit availability reduces procyclicality; tax base variability increases procyclical bias; and expenditure rigidity is no longer significant, but fiscal space becomes determinant of procyclical bias.
    Keywords: Economic Adjustment and Lending,Macro-Fiscal Policy,Public Finance Decentralization and Poverty Reduction,Public Sector Economics,Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Fiscal&Monetary Policy,International Trade and Trade Rules,Judicial System Reform
    Date: 2019–08–06
  47. By: Kose, M. Ayhan; Sugawara, Naotaka; Terrones, Marco E.
    Abstract: The world economy has experienced four global recessions over the past seven decades: in 1975, 1982, 1991, and 2009. During each of these episodes, annual real per capita global GDP contracted, and this contraction was accompanied by weakening of other key indicators of global economic activity. The global recessions were highly synchronized internationally, with severe economic and financial disruptions in many countries around the world. The 2009 global recession, set off by the global financial crisis, was by far the deepest and most synchronized of the four recessions. As the epicenter of the crisis, advanced economies felt the brunt of the recession. The subsequent expansion has been the weakest in the post-war period in advanced economies as many of them have struggled to overcome the legacies of the crisis. In contrast, most emerging market and developing economies weathered the 2009 global recession relatively well and delivered a stronger recovery than after previous global recessions
    Keywords: Global economy; global expansion; global recession; global recovery; synchronization of cycles
    JEL: E32 F44 N10 O47
    Date: 2020–02
  48. By: Keita,Kady Synthia; Turcu,Camelia
    Abstract: This paper examines how fiscal rules, exchange rate regimes, and institutional quality affect the cyclical behavior of fiscal policy (how government spending responds to fluctuations in gross domestic product). The analysis is performed on a panel of 153 advanced, emerging, and developing countries over 1993-2015 using local Gaussian-weighted ordinary least squares and two-stage least squares estimators. The findings show that the adoption of fiscal rules alone is not sufficient to promote countercyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality, especially in countries with flexible exchange rate regimes rather than in countries with fixed exchange rates. The analysis also finds that the disciplining effect of fiscal rules depends on the type of rule.
    Keywords: Macro-Fiscal Policy,Public Finance Decentralization and Poverty Reduction,Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Economic Adjustment and Lending,Public Sector Economics,Fiscal&Monetary Policy,National Governance,Social Analysis,Government Policies,Quality of Life&Leisure,Youth and Governance,Macroeconomic Management,Public Financial Management
    Date: 2019–08–06
  49. By: Lian An; Mark A. Wynne (Rice University); Ren Zhang
    Abstract: This paper studies shock-dependent exchange rate pass-through for Japan with a Bayesian structural vector autoregression model. We identify the shocks by complementing the traditional sign and zero restrictions with narrative sign restrictions related to the Plaza Accord. We find that the narrative sign restrictions are highly informative, and substantially sharpen and even change the inferences of the structural vector autoregression model originally identified with only the traditional sign and zero restrictions. We show that there is a significant variation in the exchange rate pass-through across different shocks. Nevertheless, the exogenous exchange rate shock remains the most important driver of exchange rate fluctuations. Finally, we apply our model to “forecast” the dynamics of the exchange rate and prices conditional on certain foreign exchange interventions in 2018, which provides important policy implications for our shock-identification exercise.
    Keywords: Inflation Forecasting; Narrative Sign Restrictions; Exchange Rate Pass-Through; Structural Scenario Analysis
    JEL: E31 F31 F41
    Date: 2020–02–12
  50. By: Alex Entz (Research and Statistics Group); John McGowan; Asani Sarkar
    Abstract: The federal funds market is an important source of short-term funding for U.S. banks. In this market, banks borrow reserves on an unsecured basis from other banks and from government-sponsored enterprises, typically overnight. Before the financial crisis, the Federal Reserve implemented monetary policy by targeting the overnight fed funds rate and then adjusting the supply of bank reserves every day to keep the rate close to the target. Before the crisis, reserves were generally in scarce supply, which periodically caused temporary spikes in the fed funds rate during times of high demand, typically at the end of each quarter. In this post, we show that the Fed actively responded to quarter-end volatility by injecting reserves into the banking system around these dates.
    Keywords: fed funds market; quarter-end volatility
    JEL: E5 G1
  51. By: Marco Del Negro; Carlo Rosa; Benjamin A. Malin; Jamie Grasing; Michele Cavallo; W. Scott Frame
    Abstract: In the wake of the global financial crisis, the Federal Reserve dramatically increased the size of its balance sheet?from about $900 billion at the end of 2007 to about $4.5 trillion today. At its September 2017 meeting, the Federal Open Market Committee (FOMC) announced that?effective October 2017?it would initiate the balance sheet normalization program described in the June 2017 addendum to the FOMC?s Policy Normalization Principles and Plans.
    Keywords: Central bank's balance sheet; remittances; monetary policy
    JEL: E5
  52. By: Joost Bats
    Abstract: This paper investigates whether ECB corporate sector purchases impact the funding structure of non-financial corporates. Regression models are estimated using a unique microdata panel, combining data on all Eurosystem corporate sector purchases and individual balance sheets of 672 non-financial corporations headquartered in the euro area with access to capital markets. The findings indicate that ECB purchases of corporate bonds reduce the dependence on bank financing of corporates whose debt is purchased. The effects vary according to corporates' interest paid, financial expenses and price-to-book ratio. In addition, this paper shows that the relationship between central bank purchases and corporates' dependence on bank financing is non-linear. The downward effect on bank dependence is largest for those corporates of which most debt is purchased under the CSPP, relative to their total stock of debt.
    Keywords: Non-financial corporates; bank dependence; ECB corporate sector purchases; monetary policy
    JEL: E44 E58 G10 G21
    Date: 2020–01
  53. By: Anat Bracha; Jenny Tang
    Abstract: Inflation expectations are key to economic activity, and in the current economic climate of a heated labor market, they are central to the policy debate. At the same time, a growing literature on inattention suggests that individuals, and therefore individual behavior, may not be sensitive to changes in inflation when it is low. This paper explores evidence of such inattention by constructing three different measures based on the University of Michigan’s Survey of Consumers 1-year ahead inflation expectations. Exploring inflation thresholds of 2, 3, and 4 percent, our findings are consistent with the inattention hypothesis.
    Keywords: inattention; inflation expectations; Phillips curve
    JEL: D83 D84 E31
    Date: 2019–09–01
  54. By: Paul, Saumik (Newcastle University); Isaka, Hironobu (Japan International Cooperation Agency)
    Abstract: Micro-level studies provide insightful knowledge on the drivers of the labor income share. This paper introduces a novel firm-level dataset on the labor income share. Using the World Bank Enterprise Survey data, we put together an unbalanced panel comprising 146,666 firms from 139 countries and spanning a period from 2002 to 2017. We define the firm-level labor income share following three alternative approaches and compare these estimates across income groups, regions, firm sizes, and ownership types. The estimates average around .45, with considerable variations across regions and firm characteristics. Manufacturing firms tend to have a lower labor income share as the firm size increases. Large firms in services, both foreign and state-owned, pay a higher share of income to laborers. Regression results indicate that laborers in more productive firms enjoy a lower share of income; however, we do not find any strong correlation between globalization and the labor income share at the firm level.
    Keywords: labor income share, cross-country data, income distribution
    JEL: E24 E25 J30
    Date: 2019–12
  55. By: Colignatus, Thomas
    Abstract: There are seven inseparable storylines about the role of science and learning for both democracy and its governance. National accounting and statistics originated around 1890 from political economy and the management of the state (Dutch “staathuishoudkunde”). Decades later national economic planning evolved from this as a separate function. The governance of statistics and planning still leaves much to be desired. Forum Theory suggests that Science and Learning are served by a National Assembly. Researchers can vote annually, while the National Academy forms the Senate. The Assembly improves governance, the forum itself, and research integrity. Researchers in science and learning can simply create their National Assembly. They can set up a foundation, give rules of operation, recruit members, organise elections and have a constitutional meeting. With sufficiently large membership the operating costs can be covered. The next step is to show results. Over time the National Parliament would accept the Assembly of Science and Learning. A Tessares Politica has the separation of powers of Executive, Legislative, Judiciary, and Epistemic branches of government. The current Trias Politica can be counterproductive. It requires Epistemic extension with both an Economic Supreme Court for economic policy and a National Assembly of Science and Learning for the much wider policy issues of our ever more complex society. The argument is highlighted by the mentioned seven storylines. 90% of the book shows how research is abused in education, theory of democracy, climate change, population growth, Greek statistics, Dutch economics and national accounting.
    Keywords: political economy, statistics, national accounts, governance, Eurozone, Eurostat, European Statistical System, government officials, scientific integrity, public interest, debt, deficit, loan defaults, creditors, banks, financial crisis, Greek debt crisis, ELSTAT, El.Stat, international financial institutions, independence, whistleblowing, conspiracy theory, legal framework, rule of law, separation of powers, checks and balances
    JEL: A11 E01 E65 H83 P16
    Date: 2020–02–09
  56. By: Born, Benjamin; Müller, Gernot J.; Pfeifer, Johannes; Wellmann, Susanne
    Abstract: Interest-rate spreads fluctuate widely across time and countries. We illustrate this on the basis of about 3,100 quarterly observations for 21 advanced and 17 emerging economies since the early 1990s. Prior to the financial crisis, spread fluctuations in advanced economies are an order of magnitude smaller than in emerging economies. After 2008 their behavior has largely converged along a number of dimensions. We also provide evidence on the transmission of spread shocks and find it similar across sample periods and country groups. The importance of spread shocks as a source of output fluctuations in advanced economies has increased after 2008.
    Keywords: Country spreads,Country risk,Interest-rate shocks,Financial crisis,Business cycle,Spread shocks,Average treatment effect
    JEL: G15 F41 E32
    Date: 2020
  57. By: Troy A. Davig; Stefano Eusepi; Emanuel Moench (Deutsche Bundesbank; Halle (Saale); Bank für Internationalen Zahlungsausgleich); Richard K. Crump
    Abstract: People disagree, and so do the members of the Federal Open Market Committee (FOMC). How much do they disagree? Why do they disagree? We look at the FOMC?s projections of the federal funds rate (FFR) and other variables and compare them with those in the New York Fed?s Survey of Primary Dealers (SPD). We show that the members of the FOMC tend to disagree more than the primary dealers and offer some potential explanations.
    Keywords: SEP; FOMC; Primary Dealer Survey; Disagreement
    JEL: E2 E5
  58. By: Carlo Rosa; Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research)
    Abstract: The large-scale asset purchases (LSAPs) undertaken by the Fed starting in late November 2008 are widely considered to be a form of ?unconventional? monetary policy. Although these interventions are certainly unprecedented, this post shows that their effect on financial conditions is not that unconventional, in the sense that the relative effects of the LSAPs on returns across broad asset classes?nominal and real government bonds, stocks, and foreign exchange?are quite similar to those of more conventional policies, such as a reduction in the federal funds rate (FFR).
    Keywords: financial conditions; Monetary policy; asset prices
    JEL: E5 G1
  59. By: M. Henry Linder; Sarah Stein; Richard Peach
    Abstract: The Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce has reported that real Gross Domestic Product (GDP) increased at a very sluggish 0.4 percent annual rate in the final quarter of 2012. A natural question to ask is to what extent, if any, did superstorm Sandy contribute to this weak performance. While not a particularly intense storm, it was the largest Atlantic storm on record with a diameter of roughly 1,100 miles. The storm severely disrupted economic activity from late October until well into November along the eastern seaboard from the Mid-Atlantic region into New England, an area that is densely populated and that represents a significant portion of total economic activity of the entire country. Nonetheless, we suggest that superstorm Sandy likely had a relatively modest impact on the fourth-quarter growth rate, and that we cannot even be certain of the sign of that impact.
    Keywords: measurement of macroeconomic impacts; hurricanes; superstorm sandy
    JEL: E2 N2
  60. By: Rodríguez, Aldo
    Abstract: Presentamos un modelo de una economía abierta, con bancos en competencia monopolística, dos tipos de créditos propensos a riesgo de crédito, empresariales e hipotecarios, requerimientos de capital como Basilea. Utilizamos métodos Bayesianos y datos de la economía peruana en la estimación. Encontramos que para las principales variables macro, las funciones impulso respuesta a un shock monetario y fiscal son similares a la literatura. Asimismo encontramos que la adopción de métodos IRB tanto básico como avanzado no afectarían las volatilidades de las principales variables macrofinancieras.
    Keywords: Modelos DSGE; Fricciones financieras; Estimación bayesiana; Banca; Regulación fianciera
    JEL: E0 F0 G0 C11
    Date: 2020–02
  61. By: Bäckman, Claes; Khorunzhina, Natalia
    Abstract: We use detailed household-level data from Denmark to analyze how the introduction of interest-only mortgages affected consumption expenditure and borrowing. Four years after the reform interest-only mortgages constituted 40 percent of outstanding mortgage debt. Using an ex-ante measure of exposure motivated by financial constraints, we show households who are more likely to use an IO mortgage, increased consumption substantially following the reform. The increase in consumption is driven by borrowing at the time of refinancing and by borrowers with lower pre-reform leverage ratios. Our results show changes in the mortgage contract can have large impacts on consumption expenditure.
    Keywords: Consumption, Mortgage Market
    JEL: D14 E21 G21
    Date: 2020–02–06
  62. By: Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research); Ging Cee Ng
    Abstract: The Great Recession of 2007-09 was a dramatic macroeconomic event, marked by a severe contraction in economic activity and a significant fall in inflation. These developments surprised many economists, as documented in a recent post on this site. One factor cited for the failure to anticipate the magnitude of the Great Recession was a form of complacency affecting forecasters in the wake of the so-called Great Moderation. In this post, we attempt to quantify the role the Great Moderation played in making the Great Recession appear nearly impossible in the eyes of macroeconomists.
    Keywords: Macroeconomics; Forecasting; Great Recession
    JEL: E2
  63. By: Thomas M. Eisenbach (Leonard N. Stern School of Business; Federal Reserve Bank of New York); Gara M. Afonso; Adam Biesenbach (Markets Group)
    Abstract: Short-term credit markets have evolved significantly over the past ten years in response to unprecedentedly high levels of reserve balances, a host of regulatory changes, and the introduction of new monetary policy tools. Have these and other developments affected the way monetary policy shifts ?pass through? to money markets and, ultimately, to households and firms? In this post, we discuss a new measure of pass?through efficiency, proposed by economists Darrell Duffie and Arvind Krishnamurthy at the Federal Reserve?s 2016 Jackson Hole summit.
    Keywords: interest rate dispersion; money markets; monetary policy transmission
    JEL: E5 G1
  64. By: Jesús Fernández-Villaverde; Daniel Sanches; Linda Schilling; Harald Uhlig
    Abstract: The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, we show that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endangered maturity transformation.
    JEL: E58 G21
    Date: 2020–02
  65. By: Saten Kumar (School of Economics, Auckland University of Technology)
    Abstract: This paper investigates the relationship between firms’ inflation expectations and their holdings of liquid assets. We implement a new quantitative survey of firms’ expectations about inflation in New Zealand. We find that firms that hold more shares of liquid assets systematically report lower inflation expectations. Moreover, we implement an experiment by providing firms new exogenous information about recent inflation dynamics. This experiment allows us to assess how firms respond to new information in terms of belief revisions and firm-level decisions.
    Keywords: liquid assets, illiquid assets, expectations, survey, inattention
    JEL: E2 E3
    Date: 2020–01
  66. By: Rafael Galvão de Almeida (Cedeplar-UFMG)
    Abstract: Research in political business cycles is part of a larger program related to the economic analysis of politics with a macroeconomic focus, named New Political Macroeconomics. This article explores the historical evolution of the political business cycle literature, starting from the early writers on the topic (Kalecki, 1943; Åkerman, 1947). It then highlights the importance of Nordhaus (1975) for the theory. Elaborating the first theoretical model with empirical verification for the political business cycle, Nordhaus transformed a problem that was usually seen as microeconomic into a macroeconomic issue. Research flourished for a while, but the model underwent criticism because of its assumptions about voters, lack of definitive empirical verification, and because it did not conform to the tenets of rational expectations, thus causing interest in PBC models to wane. The latter went through a comeback after adapting to rational expectations (Rogoff, Siebert, 1988), and the formalization of conditional political business cycle models “solved” the problem of empirical verification, by arguing that political business cycles need specific conditions to happen. The paper concludes by reaffirming the importance of political business cycle models in creating a tradition that allowed the analysis with macroeconomic tools the issues of collective decision-making, previously a domain solely microeconomic.
    Keywords: political business cycle; political economy; public choice; new political macroeconomics; William Nordhaus
    Date: 2020–02
  67. By: Albertazzi, Ugo; Barbiero, Francesca; Marqués-Ibáñez, David; Popov, Alexander; d’Acri, Costanza Rodriguez; Vlassopoulos, Thomas
    Abstract: The response of major central banks to the global financial crisis has revived the debate around the interactions between monetary policy (MP) and bank stability. This technical paper sheds light, quantitatively, on the different mechanisms underlying the relationship between MP and bank stability. It does so by reviewing microeconometric studies from the academic literature as well as those conducted internally at the ECB. The paper proceeds chronologically, using the recent crisis as a touchstone. First, it provides a brief overview of the main theoretical channels linking bank stability and the transmission of MP. It then analyses the evidence from the pre-crisis period in the light of the structural trends leading up to the crisis. As the crisis erupted, unconventional monetary policy (UMP) measures were deployed, and the paper suggests that these were essential to buttress bank stability and halt a systemic crisis. At the same time, these measures involved trade-offs, and the adverse spillovers on banks’ intermediation capacity and risk-taking require close monitoring. The paper ends by offering a critical review of the methodologies employed and suggestions for the areas where analytical efforts should be focussed in the future. JEL Classification: E4, E43, E5, E52, G20, G21
    Keywords: bank stability, credit, monetary policy
    Date: 2020–02
  68. By: John Sporn; Andrea Tambalotti (Federal Reserve Bank of New York; Research and Statistics Group; Princeton University; New York University; National Bureau of Economic Research)
    Abstract: Inflation has picked up in the last few months. Between June and November 2010, the twelve-month change in the seasonally adjusted consumer price index (CPI) was stable, at slightly above 1 percent, but it jumped to 3.1 percent as of last April. Higher food and energy prices have been an important factor behind this pickup in ?headline? inflation. However, core inflation has also increased; the year-over-year core CPI (excluding volatile food and energy prices) moved from a record low of 0.6 percent in October 2010 to 1.3 percent in April.
    Keywords: Owners' Equivalent Rent; Consumer Price Index; Core and Headline; Inflation
    JEL: E2
  69. By: de Bondt, Gabe (European Central Bank); Gieseck, Arne (European Central Bank); Herrero, Pablo (European University Institute); Zekaite, Zivile (Central Bank of Ireland)
    Abstract: This study extends a thick modelling tool for aggregated euro area real private consumption of de Bondt et al. (2019) to the four largest euro area countries. The suite of error correction models performs well in and out of sample. The ranges and averages of estimated elasticities are, however, sensitive to the exact model specication. We also show that decomposing disposable income into labour, property and transfer income is essential for understanding and forecasting consumption. Finally, substantial cross-country heterogeneity in marginal propensities to consume out of income and wealth components calls for caution when interpreting aggregate euro area developments.
    Keywords: private consumption, income, wealth, thick modelling
    JEL: C53 D12 E21 E27
    Date: 2019–12
  70. By: Heather Wiggins (Federal Reserve Board of Governors’ Division of Monetary Affairs); Laura Lipscomb (Federal Reserve Board of Governors’ Division of Monetary Affairs); Antoine Martin
    Abstract: In a previous post, we described some reasons why it is beneficial to pay interest on required reserve balances. Here we turn to arguments in favor of paying interest on excess reserve balances. Former Federal Reserve Chairman Ben Bernanke and former Vice Chairman Donald Kohn recently discussed many potential benefits of paying interest on excess reserve balances and some common misunderstandings, including that paying interest on reserves restricts bank lending and provides a subsidy to banks. In this post, we focus primarily on benefits related to the efficiency of the payment system and the reduction in the need for the provision of credit by the Fed when operating in a framework of abundant reserves.
    Keywords: monetary policy; reserve requirements; interest on reserves
    JEL: E5
  71. By: Naape, Baneng
    Abstract: This essay aims to investigate the effects of Quantitative Easing (QE) on selected macroeconomic and financial market variables. By means of a desktop approach, we find that QE1 had a strong and beneficial impact on the real economy through the banking sector while QE2 and QE3 had small positive or neutral effects on banks and life Insurers. Although QE did not close the gap left by the 2008 global financial crisis, it helped reduce the rate at which the crisis was rising and proved to be an effective crisis management tool. QE boosts the economy in the short run but weakens the economy in the long run. Thus, Central banks should only consider QE when the economy is in crisis and not as a substitution for structural reforms.
    Keywords: Quantitative Easing, Global Financial Crisis, economic downturn, Advanced Market Economies, Lower Interest Bound
    JEL: E5 G1 G14
    Date: 2019–12–15
  72. By: International Monetary Fund
    Abstract: Economic growth averaged 6.5 percent over the past five years, boosted by public investment under phase I of Senegal’s development strategy, the “Plan Sénégal Émergent” (PSE), and buoyant private consumption. High public financing needs led to a rapid increase in public debt and a widening of the current account deficit. The outlook remains favorable provided Senegal strictly adheres to the WAEMU fiscal deficit target of 3 percent of GDP and creates fiscal space for investment through enhanced revenue mobilization and spending efficiency to stabilize public debt. Hydrocarbon production is projected to start in 2022. The authorities requested the cancellation of the 2015-19 Policy Support Instrument (PSI) in early 2019 (with only one review left), and are now requesting approval of a three-year program supported by the Policy Coordination Instrument (PCI) to underpin implementation of the second phase of the PSE.
    Keywords: External sector;Fiscal policy;Economic growth;Public debt;Development;ISCR,CR,percent of GDP,Eurobond,WAEMU,DSA,macroeconomic stability
    Date: 2020–01–17
  73. By: International Monetary Fund
    Abstract: Th economy has performed well in recent years, supported by prudent management and effective structural reforms. Growth remains strong and unemployment is at a record low. Inflation is above the euro-area average, consistent with Estonia’s convergence process. Wages are rising, reflecting a tight labor market and skill shortages at the high end of the labor market. Absent reforms to boost productivity and manage demographic challenges, however, growth will slow notably. The authorities need to guard against potential overheating in the near term while taking advantage of sizable fiscal buffers in the medium term to support innovation and labor supply and reduce inequality.
    Keywords: External sector;Financial crises;National income;Financial markets;Financial soundness indicators;ISCR,CR,AML,CFT,wage growth,text figure,GDP
    Date: 2020–01–22
  74. By: Kazuo Ogawa (Kansaigaidai University)
    Abstract: This study is an empirical investigation into the relationship between the real estate market and consumption in Japan. The purpose of this study is twofold. First, we investigate the channel through which the performance of the real estate market affects consumption. Using the quarterly time series data, we estimate the VAR model to pin down the transmission mechanism of land price to consumption. We find that collateral channel played an important role in propagating a shock in land price to consumption in the bubble period and the lost decades. Second, we estimate the effect of housing wealth on consumption, using the panel data of the Japan Household Panel Survey from 2009 to 2017. We find that collateral channel is still at work for young households. Our estimates of marginal propensity to consume out of housing wealth is 0.0097 to 0.0146, comparable with the estimates in the previous studies.
    Keywords: land price, consumption, VAR model, wealth effect channel, collateral channel
    JEL: E21 R14 R21
    Date: 2020–01–21
  75. By: Kikoni,Edith; Madzarevic-Sujster,Sanja; Irwin,Tim; Jooste,Charl
    Abstract: Policy toward fiscal rules is an important issue in the countries of the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia). According to a rough estimate, the countries with rules (all but North Macedonia) have complied with their debt and overall-deficit rules a little more than half the time. An online survey, conducted for this paper, suggests that public understanding of the rules is limited, which may reduce the political pressure for compliance. To get debt down to prudent levels, Albania and Montenegro will need a strong commitment to complying with their fiscal rules and will often have to do more than their deficit rules require. The following principles should guide future policy toward fiscal rules: more emphasis should be given to ensuring that fiscal rules are widely understood and enjoy the support of a broad range of stakeholders; policy toward the rules should be consistent with accession to the European Union, but the rules should be simpler than the European Union's and the debt limits lower; limits in rules should not be mistaken for targets; and public financial management should be improved to support the implementation of rules.
    Keywords: Macroeconomics and Economic Growth,Economic Policy, Institutions and Governance,Fiscal&Monetary Policy,Macro-Fiscal Policy,Public Sector Economics,Public Finance Decentralization and Poverty Reduction,Economic Adjustment and Lending,Public Financial Management,Inflation
    Date: 2019–08–20
  76. By: Umba, Gilles Bertrand
    Abstract: Ce travail a eu pour objectif d’estimer un modèle DSGE en économie ouverte pour la RD Congo en se référant aux techniques bayésiennes pour les données trimestrielles allant de 2002q1 à 2016q4 en vue d’analyser les relations entre les principales variables macroéconomiques et simuler l’impact de quelques principaux chocs sur leur évolution. Les résultats d'estimation du modèle ont été globalement satisfaisants, en particulier en ce qui concerne les tests de convergence de Brooks et Gelman (1998). Les résultats qui ressortent de l’analyse de la décomposition historique ont révélé l’influence des chocs sur le taux de change, sur la production, des chocs de productivité interne et externe comme principaux déterminants de l’évolution du taux directeur et du taux d’inflation domestique. L’analyse de la décomposition historique du taux de dépréciation du taux de change a indiqué l’influence notoire des chocs du taux de change et de politique monétaire dans l’explication da la dépréciation du taux de change durant les trois derniers trimestres de l’année 2016.
    Keywords: Économie ouverte; Modèles Dynamiques Stochastiques d’Équilibre Général; Techniques bayésiennes; Macroéconomie Nouvelle Keynésienne
    JEL: C15 C51 E52 F37
    Date: 2020–02
  77. By: Engbom, Niklas; Moser, Christian
    Abstract: We study the nature of firm pay dynamics using matched employer-employee data from Sweden, including rich, administrative firm financial data. To this end, we propose and estimate a statistical model that extends the seminal framework by Abowd, Kramarz, and Margolis (1999a, henceforth AKM) to flexibly account for time-varying firm pay policies. We validate our approach by showing that firm-year pay variation is systematically related to firm financial performance. Subsequently, we apply our methodology to assess the role of firm pay dynamics in accounting for a rise in earnings inequality in Sweden, to investigate the properties of the distribution of within-firm pay differences over time, to measure the degree of firm pay mobility, and to quantify the relative contribution of ex-ante versus ex-post heterogeneity towards firm pay differences over the firm life cycle. We conclude that no more than two thirds of firm pay heterogeneity are permanent, with persistent and transitory fluctuations in firm pay constituting the remainder.
    Keywords: Wage Determination, Mobility, Worker and Firm Heterogeneity, Two-Way Fixed Effects Model, AKM, Firm Dynamics, Inequality Trends, Income Risk, Insurance within the Firm
    JEL: D22 D31 E24 J31 M13
    Date: 2020–02–03
  78. By: Ales Bulir; Jan Vlcek
    Abstract: Does monetary policy react systematically to macroeconomic innovations? In a sample of 16 countries – operating under various monetary regimes – we find that monetary policy decisions, as expressed in yield curve movements, do react to macroeconomic innovations and these reactions reflect the monetary policy regime. While we find evidence of the primacy of the price stability objective in the inflation targeting countries, links to inflation and the output gap are generally weaker and less systematic in money-targeting and multiple-objective countries.
    Keywords: Bank rates;Central banks;Monetary policy;Central banking and monetary issues;Central bank policy;Monetary transmission,yield curve,rule-based monetary policy,WP,output gap,inflation expectation,inflation-targeting,policy innovation
    Date: 2020–01–17
  79. By: Harris, Patrick
    Abstract: This study aims to understand how the macroeconomic and microeconomic indicators influence the export market of beef in Australia as well as the inclusion of a bivariate (0,1) dummy variable, accounting for extreme climate aberrations such as the ‘Millennium Drought’ and the 2017-current drought. Additionally, this study addressed whether there is a delayed effect of the independent variables on Australian beef exports and draw upon neoclassical economic growth theory to assess if this economic paradigm holds in the real world. The paper identified and evaluated the casual factors of Australian beef exports and found there to be a two-quarter lag in bank loans to agriculture and a one-quarter lag in RBA interest rate before their effect was statistically significant. The results explore the various implications that depend on the perspective of the stakeholder, whether that be the farmer or the government.
    Keywords: Beef ARDL Econometrics Australian markets
    JEL: E4 E43 Q13 Q14 Q17 Q18
    Date: 2020–01–10
  80. By: David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Marc Goni (Department of Economics, University of Vienna)
    Abstract: We propose a new methodology to disentangle two determinants of intergenerational persistence: inherited human capital vs. nepotism. This requires jointly addressing measurement error in human-capital proxies and the selection bias inherent to nepotism. We do so by exploiting standard multi-generation correlations together with distributional differences across generations in the same occupation. These two moments identify the structural parameters of a first-order Markov process of human-capital endowments' transmission, extended to account for nepotism. We apply our method to a newly built database of more than one thousand scholar lineages in higher education institutions over the period 1000-1800. Our results show that 14 percent of scholar's sons were nepotic scholars. Nepotism declined during the Scientific Revolution and the Enlightenment, was more prominent in Catholic than in Protestant institutions, and was higher in law than in sciences. Human-capital endowments were inherited with an intergenerational elasticity of 0.59, higher than suggested by parent-child elasticities in observed outcomes (publications), yet lower than recent estimates in the literature (0.75) which do not account for nepotism.
    Keywords: Intergenerational mobility, human capital transmission, nepotism, university scholars, upper-tail human capital, pre-industrial Europe
    JEL: C31 E24 J1
    Date: 2020–02–24
  81. By: Patrick Russo (Research and Statistics Group); Thomas Klitgaard
    Abstract: The dollar rose sharply against both the euro and yen in 2014 and 2015 and non-oil import prices subsequently fell. An explanation for this relationship is that a stronger dollar reduces the dollar-denominated cost of producing something in Germany or Japan, giving firms room to lower their dollar prices in order to gain sales against their U.S. competitors. A breakdown by type of good, however, shows that import prices for autos, consumer goods, and capital goods tend not to move much with changes in the dollar as foreign firms choose to keep the prices of their goods stable in the U.S. market. Instead, the connection between import prices and the dollar largely reflects the tendency for commodity prices to fall in dollar terms when the dollar strengthens. As a consequence, the dampening effect of a stronger dollar on U.S. inflation is transmitted much more through falling commodity prices than through cheaper imported cars and consumer goods.
    Keywords: inflation import prices dollar commodity prices industrial supplies
    JEL: E2 F00 E5
  82. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: World output growth has slowed further in the course of 2019. However, most recently signs of stabilization appeared, especially in emerging economies where expectations seem to have started to improve. Growth is supported by more expansive monetary policies in the advanced economies and - on the back of lower US interest rates - many emerging economies. Against this backdrop, we expect the world economy to gradually gain traction going forward. Growth is projected to remain modest, however, as the US economy will continue to lose momentum in 2020 and the trend of a gradual slowdown in China will persist. World output, measured at Purchasing Power Parities, is forecast to decline to 3.0 percent in 2019, the lowest rate of growth since the Great Recession in 2009, and increase only slightly to 3.1 percent in 2020. Thus we have revised downwards our forecasts for both this year and next by 0.1 percentage point compared with our September report. For 2021 we continue to expect growth of 3.4 percent. Substantially lower growth could result in the case of a further significant deterioration of the environment for international trade leading to an additional slowdown of investment. Downward risks to the forecast rise with the degree to which the weakness in industrial production feeds through into the services sector of the economy, which has so far been relatively resilient.
    Keywords: advanced economies,emerging economies,monetary policy
    Date: 2019
  83. By: Marco Cipriani (New York University; Federal Reserve Bank; Federal Reserve Bank of New York; George Washington University; National Bureau of Economic Research); Julia Gouny (Markets Group)
    Abstract: In February, the Federal Reserve Bank of New York?s trading desk announced it will publish a new overnight bank funding rate early next year. The new rate will be based on both federal funds and Eurodollar transactions reported in a new data collection?the FR 2420 Report of Selected Money Market Rates. In a previous post, we explained how FR 2420 fed funds transaction data will replace brokered data as the base for the fed funds effective rate. This post provides insights on the Eurodollar market in advance of the publication of the overnight bank funding rate.
    Keywords: Eurodollars; FR 2420
    JEL: G1 E5
  84. By: Maylis Avaro (IHEID, Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper provides new evidence on the decline of sterling as an international currency, focusing on its role as foreign exchange reserve asset under the Bretton Woods era. Using a unique new dataset on the composition of foreign exchange reserves of central banks, I show that the shift away from the sterling occurred earlier than conventionally supposed for the countries not belonging to the sterling area. The use of sterling has been described as freely chosen, imposed by the Bank of England or negotiated. I argue that the sterling area was a captive market as the Bank of England used capital controls, commercial threats and economic sanctions against sterling area countries to limit the divestments of their sterling assets. This management of the decline of sterling benefited mostly Britain and the City of London but represented a cost for sterling area countries and the international monetary system.
    Keywords: Monetary and financial history; Foreign exchnage; International monetary system
    JEL: N24 F31 E58
    Date: 2020–02–25
  85. By: Asani Sarkar; Helene Lee (Markets Group)
    Abstract: At the onset of the financial crisis in the summer of 2007, news that Barclays had borrowed from the Bank of England (BoE) received wide media coverage. This information triggered concerns that the BoE?s lending facility may have become stigmatized, prompting market participants to interpret borrowing from the BoE as a sign of financial weakness. If such stigma discouraged borrowing, of course, it would defeat the purpose of the facility. We review the history of the BoE?s lending facilities and experiences with stigma, both historically and in the recent period. We also compare the BoE?s and the Fed?s lending facilities, and conclude that bilateral lending by central banks may tend to become stigmatized to some extent, no matter how the lending facility is structured.
    Keywords: UK discount window stigma
    JEL: E5 G2 N2 F00
  86. By: Milan Deskar-Škrbić (Hrvatska narodna banka); Ana Grdović Gnip (Univerza na Primorskem Fakulteta za matematiko, naravoslovje in informacijske tehnologije); Hrvoje Šimović (Sveučilište u Zagrebu Ekonomski fakultet)
    Abstract: Kao najizdašniji porezni oblik u hrvatskom poreznom sustavu porez na dodanu vrijednost (PDV) je od uvođenja 1998. godine zabilježio niz diskrecijskih izmjena. Neke izmjene su bile motivirane potrebom za fiskalnom konsolidacijom, neke prilagodbom zakonodavstvu EU, a neke željom nositelja politike da ublaže učinke njegove regresivnosti ili da potaknu pojedinu gospodarsku aktivnost. S obzirom na važnu ulogu PDV-a u poreznom sustavu i gospodarstvu te sklonost nositelja politike da relativno često pristupaju izmjenama u sustavu PDV-a, važno je istražiti makroekonomske učinke takvih izmjena. U ovom radu se istražuje učinak diskrecijskih izmjena u sustavu PDV-a na kretanje BDP-a i osobne potrošnje, na temelju tzv. narativnog pristupa. Narativni pristup, koji podrazumijeva identifikaciju egzogenih poreznih izmjena na temelju analize službenih dokumenata i procjena fiskalnog učinka diskrecijskih izmjena, osigurava nepristrane procjene učinaka PDV-a na odabrane makroekonomske varijable. Pritom se u ovom radu originalni Romer i Romer (2010) pristup prilagođava kako bi se u analizu uključili i učinci eksternih šokova koji u slučaju Hrvatske, kao malog otvorenog gospodarstva, značajno utječu na makroekonomska kretanja.
    Keywords: PDV, egzogene diskrecijske porezne izmjene, narativni pristup, BDP, potrošnja, Hrvatska
    JEL: C11 C32 E62 H61
    Date: 2020–02–17
  87. By: Tobias Adrian; Nina Boyarchenko
    Abstract: The financial crisis of 2007-09 highlighted the central role that financial intermediaries play in the propagation and amplification of shocks. Intermediaries increase leverage during the boom, which then makes them more vulnerable to adverse economic developments. In this post, we review evidence on the balance-sheet behavior of financial intermediaries and describe a channel that allows intermediaries to increase leverage during booms when asset market volatility tends to be low, which in turn forces them to dramatically reduce leverage once volatility increases. As shown during the financial crisis of 2007-08, the contraction of intermediary leverage is accompanied by increases in borrowing rates for households and a contraction of credit. The formal modeling of this amplification mechanism allows a welfare analysis of the tightness of regulatory capital requirements. We find that while loose capital constraints generate excessive risk-taking by intermediaries, tight funding constraints inhibit intermediaries? risk-sharing and investment functions, which then lowers welfare.
    Keywords: macroprudential policy; leverage cycle; Capital regulation; systemic risk
    JEL: G1 G2
  88. By: Mahmood, Nihal; Masih, Mansur
    Abstract: Global FDIs have increased substantially since the 1990’s. This was seen as a favorable development among developing countries, however developed countries have had a mixed reaction. In this paper we look at the effects of FDI flows on institutional stability, to better understand what drives FDI. The focus country for this paper is Canada, as it is one of the few countries where the economy remained relatively stable compared to other economies during the global financial crisis. As such, the findings from this study can shed light on what allowed Canadian policy makers to maintain economic stability. The methodology applied is Auto-Regressive Distributive Lag (ARDL) to understand the relationship between FDI and institutional stability along with other controlled variables (GNP, inflation, and exports). This study is different from others in that it examines the Canadian economy, and similar papers have examined different countries (to my knowledge). Based on previous theoretical and empirical literature, most of the research points to FDI positively affecting institutional stability. However, there is some literature that makes the case for this relationship not always holding true. Our empirical findings tend to show that it is in fact institutional stability that positively impacts FDI in the long run. As such, the policy makers should consider implementing policies that ensure that the strength of institutions is enhanced, and this in turn will attract more investment.
    Keywords: institutional stability, FDI, ARDL, VECM, VDC
    JEL: C22 C58 E44 G15
    Date: 2019–10–15
  89. By: International Monetary Fund
    Abstract: The political transition has increased the focus on social conditions and regional and rural development. Growth has been buoyed by new spending, retail credit, and oil and gas investments. Inflation has picked up, and the current account has deteriorated. Renewed fiscal consolidation is planned from 2020. Non-oil growth is expected to moderate to 4 percent (potential), as construction, fiscal stimulus, and household borrowing ease. Growth could be higher if decisive reforms drive productivity gains. The state continues to play a strong role in the economy, and the authorities face challenges ensuring that measures are well targeted and effective in promoting private sector growth. The challenges include oil volatility and dependency, reliance on subsidies and other state support, still-impaired banks, and governance vulnerabilities. The authorities are exploring ways to strengthen the fiscal framework, assessing monetary and exchange policies, undertaking a bank asset quality review (AQR), and establishing an independent financial sector regulator. Progress is being made on headline reforms, but ensuring decisive changes on the ground remains a challenge. Risks relate to oil prices and trading partner growth.
    Date: 2020–01–29
  90. By: Alex Entz (Research and Statistics Group); Eric LeSueur (Markets Group); Gara M. Afonso
    Abstract: The fed funds market is important to the framework and implementation of U.S. monetary policy. The Federal Open Market Committee sets a target level or range for the fed funds rate and directs the Trading Desk of the New York Fed to create ?conditions in reserve markets? that will encourage fed funds to trade at the target level. In this post, we use various publicly available data sources to estimate the size and composition of fed funds lending activity. We find that the fed funds market has shrunk considerably since the financial crisis and that lending activity is now dominated by one group of market participants.
    Keywords: Fed funds; lending
    JEL: G1 G2 E5
  91. By: Rob Luginbuhl (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We propose a model-based method to estimate a unique financial cycle based on a rank-restricted multivariate state-space model. This permits us to use mixed-frequency data, allowing for longer sample periods. In our model the financial cycle dynamics are captured by an unobserved trigonometric cycle component. We identify a single financial cycle from the multiple time series by imposing rank reduction on this cycle component. The rank reduction can be justified based on a principal components argument. The model also includes unobserved components to capture the business cycle, time-varying seasonality, trends, and growth rates in the data. In this way we can control for these effects when estimating the financial cycle. We apply our model to US and Dutch data and conclude that a bivariate model of credit and house prices is sufficient to estimate the financial cycle.
    JEL: E5 F3 G15 G01
    Date: 2020–02
  92. By: Zouri, Stéphane
    Abstract: This paper identifies the determinants of synchronization of business cycles in ECOWAS because it allows decision-makers to better target their economic policies. It is relevant given the willingness of ECOWAS heads of state to create a single currency by 2020. Indeed, conducting actions in the direction of the synchronization of business cycles is important because the asymmetries of the cycles observed within a monetary union determine its sustainability. Unlike previous studies in this area, it is innovative as it takes into account international financial integration. In addition, it proposes new measures to increase the quality of results. Finally, it takes into account the structure of trade by analyzing inter-regional links. The results show that bilateral trade and financial openness are determinants of the synchronization of business cycles in the region. However, they show that, trade channel dominates financial openness channel. In addition, the results show that the weakness of intra-community trade doesn’t constitute a barrier to monetary union.
    Keywords: business cycles, trade intensity, financial integration, ECOWAS.
    JEL: E32 F15 F36 O55
    Date: 2019–07–22
  93. By: Le Blanc, Julia (Deutsche Bundesbank); Lydon, Reamonn (Central Bank of Ireland)
    Abstract: We analyse the effect of shocks to housing wealth and income before and after the Great Recession. We combine datasets containing information on expenditure, income, wealth and debt in a synthetic panel to understand how household indebtedness affects the response to income and wealth shocks.We find evidence for both a housing wealth effect and income shocks depressing household consumption during the crisis in Ireland. The long recovery of consumption is also related to high levels of indebtedness at the onset of the crisis. Households who entered the crisis with more debt are significantly more sensitive to changes in their income. In this way, household balance sheets can be an important amplification mechanism for aggregate shocks.
    Keywords: Real estate markets, income, wealth, expenditure, debt, recessions.
    JEL: D14 D31 E21 H31
    Date: 2019–12
  94. By: Cima, Simone (Central Bank of Ireland); Killeen, Neill (Central Bank of Ireland); Madouros, Vasileios (Central Bank of Ireland)
    Abstract: Market-based finance has grown rapidly in recent years – both in Ireland and internationally. This growing form of finance provides a valuable alternative to bank financing, supporting economic activity. But, like all forms of financial intermediation, market-based finance can also contribute to a build-up of financial vulnerabilities, which need to be monitored and – if necessary – addressed. The main contribution of this Note is to provide an overview of the market-based finance sector domiciled in Ireland. It outlines the size, growth and composition of the sector; describes the business models of the main entities involved; and sets outs how the sector is linked to the global economy and financial system. The Note also describes potential sources of vulnerability, which the Central Bank of Ireland – working with other authorities globally – monitors on a regular basis. From a financial stability perspective, a key priority internationally is deepening policymakers’ understanding of the potential implications of a disruption in market-based finance on economic activity in a future period of stress. In addition, further consideration needs to be given to developing and operationalising the macroprudential policy framework for market-based finance.
    Date: 2019–12
  95. By: Bianca De Paoli; Harry Wheeler (Research and Statistics Group); Thomas Klitgaard
    Abstract: Japan offers a preview of future U.S. demographic trends, having already seen a large increase in the population over 65. So, how has the Japanese economy dealt with this change? A look at the data shows that women of all ages have been pulled into the labor force and that more people are working longer. This transformation of the work force has not been enough to prevent a very tight labor market in a slowly growing economy, and it may help explain why inflation remains minimal. Namely, wages are not responding as much as they might to the tight labor market because women and older workers tend to have lower bargaining power than prime-age males.
    Keywords: Japan inflation unemployment rate vacancies demographics labor force working-age population
    JEL: E2 F00 E5
  96. By: Rehme, Günther
    Abstract: Silvio Gesell hypothesized that money depreciation is economically and socially beneficial, ideas that have often been contended. Here I analyze that in a Sidrauski model in which households additionally have a ‘love of wealth’-motive. It is shown Gesell’s claims may be valid in a demand-determined, short-run equilib- rium and why money depreciation overcomes the zero lower bound on nominal interest rates. However, for a typical long-run equilibrium introducing money de- preciation in isolation may be bad. But money depreciation, when coupled with expansionary monetary policy, is a necessary condition for a positive Mundell- Tobin effect on long-run real variables and so creates wealth in the model. It is found that this also holds in the transition to the long-run equilibrium. Hence, the spirit of Gesell’s hypotheses can be verified for a plausible, long-run environment.
    Date: 2018–06–25
  97. By: Greg Kaplan (University of Chicago - Department of Economics); Piotr Zoch (University of Chicago - Department of Economics)
    Abstract: We demonstrate the importance of distinguishing between the traditional use of labor for production, versus alternative uses of labor for overhead, marketing and other expansionary activities, for studying the distribution of both factor income and labor income. We use our framework to assess the impact of changes in markups on the overall labor share and on labor income inequality across occupations. We identify the production and expansionary content of different occupations from the co-movement of occupational income shares with markup-induced changes in the labor share. We find that around one-fifth of US labor income compensates expansionary activities, and that occupations with larger expansionary content have experienced the fastest wage and employment growth since 1980. Our framework can rationalize a counter-cyclical labor share in the presence of sticky prices and can be used to study the distributional effects of demand shocks, monetary policy and secular changes in competition.
    Keywords: Markups, inequality, labor share, income distribution, occupations, monetary policy, overhead
    JEL: D2 D3 D4 E3 E5 J2 L1
    Date: 2020
  98. By: International Monetary Fund
    Abstract: Nauru is at a point of transition, given the continued decline in both phosphate mining and activity associated with the Regional Processing Centre (RPC) for refugees and asylum seekers. Nauru remains vulnerable to climate change and has a narrow economic base and limited capacity. Development challenges are increased by unavailability of land and high incidence of non-communicable diseases (NCDs). This is the second Article IV Consultation since Nauru became the 189th Fund member in April 2016.
    Date: 2020–01–29
  99. By: Mathias Dolls; Clemens Fuest; Andreas Peichl; Christian Wittneben
    Abstract: We analyze how the combined effect of automatic stabilizers and discretionary changes in tax-benefit systems have affected the cushioning of income shocks in the Euro zone and the EU-27 in the period 2007–2014. We propose a new summary measure of the combined effect of automatic stabilizers and discretionary policy changes based on micro data and counter-factual simulation. Discretionary fiscal policy supported the effects of automatic stabilizers in the years 2008 and 2009 but then became much more restrictive. For the Euro zone as a whole, the share of income shocks absorbed by the tax and transfer system declined from 48 percent in 2008 to 24 percent in 2011. For some of the countries most affected by the crisis, the stabilization effect was even negative in some years of the crisis, implying that the tax and transfer system amplified income shocks. We also compare our measure of stabilization to estimates based on macro data.
    Date: 2019
  100. By: Klaus Gründler; Niklas Potrafke; Timo Wochner
    Abstract: We examine how structural reforms relate to income inequality. We employ many indicators of structural reforms and use data for market and net income inequality. The dataset includes up to 135 countries since 1960. The results do not suggest that market-oriented structural reforms were associated with rising income inequality in the full sample. Trade and financial liberalization were positively associated with income inequality in high-income countries. An mportant question is whether structural reforms benefit individual groups. We employ macro and micro data to investigate whether the income of low-income citizens increased to a smaller extent than the income of high-income citizens. The results suggest quite the opposite: market-oriented reforms were positively correlated with income shares of low-income citizens. We also examine citizens’ support for structural reforms and show that low-income citizens are less likely to support market-oriented reforms than high-income citizens. It is conceivable that low-income citizens have misperceptions about how they benefit from market-oriented reforms.
    Keywords: structural reforms, income inequality, economic growth, misperceptions, panel data, microeconomic data
    JEL: D31 D63 E62 F02 O11 O15 P16
    Date: 2020
  101. By: M. Ayhan Kose; Franziska L. Ohnsorge
    Abstract: Although emerging market and developing economies (EMDEs) weathered the global recession a decade ago relatively well, they now appear less well placed to cope with the substantial downside risks facing the global economy. In many EMDEs, the room for monetary and fiscal policies to respond to shocks has eroded; underlying growth potential has slowed; and the momentum for improving policy frameworks, institutions, and business climates seems to have slackened. The experience of the 2009 global recession highlights once again the critical role of policy room in shielding economic activity during adverse shocks. The subsequent decade of anemic growth underlines the need for sound policy frameworks, institutions, and business environments to promote sustained growth. With the global growth outlook weakening and vulnerabilities rising, the policy priority for EMDEs is now to improve resilience to shocks and to lift long-term growth prospects.
    Keywords: Economic integration, international business cycles, financial crises, macroeconomic policy.
    JEL: F36 F44 G01 E60
    Date: 2020–02
  102. By: Alan Finkelstein Shapiro (Universidad de los Andes; Tufts University); Federico S. Mandelman (Federal Reserve Bank of Atlanta)
    Abstract: We document a strong negative link between self-employment and the rate of digital adoption by firms in developing and emerging economies. No link between digital adoption and the unemployment rate is found, however. To explain this evidence, we build a general equilibrium search-and-matching model with endogenous labor force participation, self-employment, endogenous firm entry, and information-and-communications technology adoption. The main finding is that changes in the cost of technology adoption per se cannot rationalize the evidence. Instead, changes in firms' barriers to entry directly linked to the cost of technology adoption are key to explain the data.
    Keywords: automation; self-employment; digital adoption; Information-and-telecommunications-technology capital (ICT); labor search frictions; endogenous firm entry; developing and emerging economies; unemployment
    JEL: E24 J23 J24 J64 O14
    Date: 2019–12–02
  103. By: Zheng, Hannan; Schwenkler, Gustavo
    Abstract: We show that the news is a rich source of data on distressed firm links that drive firm-level and aggregate risks. The news tends to report about links in which a less popular firm is distressed and may contaminate a more popular firm. This constitutes a contagion channel that yields predictable returns and downgrades. Shocks to the degree of news-implied firm connectivity predict increases in aggregate volatilities, credit spreads, and default rates, and declines in output. To obtain our results, we propose a machine learning methodology that takes text data as input and outputs a data-implied firm network. JEL Classification: E32, E44, L11, G10, C82
    Keywords: contagion, machine learning, natural language processing, networks, predictability, risk measurement
    Date: 2020–02
  104. By: Falk Bräuning; Viacheslav Sheremirov
    Abstract: We estimate that U.S. monetary policy has sizable spillover effects on global economic activity. In response to a surprise increase in the federal funds rate of 25 basis points, real output in our sample of 44 countries declines on average by 0.9% after three years. We find that international trade is a more important factor than international finance in explaining these spillovers. In particular, countries with a high share of exports and imports in output have 79% larger responses than countries with a low share, whereas we do not find significant heterogeneity depending on a country’s financial openness. Bilateral trade linkages appear to be quantitatively important, as the network amplification effect accounts for 45% of the total spillover effect at the peak horizon. We conclude that trade networks could be an important ingredient of theoretical models focusing on the international effects of U.S. monetary policy shocks.
    Keywords: financial linkages; international spillovers; monetary shocks; trade networks
    JEL: E52 F42 F44 G15
    Date: 2019–10–01
  105. By: Leonardo Gambacorta; Sergio Mayordomo; Jose Maria Serena
    Abstract: We explore the link between firms’ dollar bond borrowing and their FX-hedged funding opportunities, as reflected in a positive corporate basis (the relative cost of local to synthetic currency borrowing). Consistent with previous research, we first document that firms substitute domestic for dollar borrowing when they have higher dollar revenues or long-term assets and when the corporate basis widens. Importantly, our novel firm-level dataset enables to show that when these funding opportunities appear, the currency substitution is stronger for high-grade firms, as they can offer to investors close substitutes for safe dollar assets. However, firms with higher dollar revenues or long-term assets do not react to changes in the corporate basis. Altogether, the composition of dollar borrowers shifts when the basis widens, as high-grade firms gain importance, relative to firms with operational needs.
    Keywords: covered interest rate parity, credit spread, debt issuance, dollar convenience yield, foreign exchange rate hedge, limits of arbitrage
    JEL: E44 F3 F55 G12 G15 G23 G28 G32
    Date: 2020–02
  106. By: Lucio Gobbi; Ronny Mazzocchi; Roberto Tamborini
    Abstract: We examine the so-called "Neo-Fisherian" claim that, at the zero lower bound (ZLB) of the monetary policy interest rate, and the economy in a depression equilibrium, in order to restore the desired inflation rate the policy rate should be raised consistently with the Fisher equation. This claim has been questioned on the ground that the Fisher equation cannot be used mechanically to peg the long-run inflation expectations. It is necessary to examine how inflation expectations are formed in response to, and interact with, policy actions and the evolution of the economy. Hence we study a New Keynesian economy where agents' inflation expectations are based on their correct understanding of the data generations process, and on their probabilistic confidence in the central bank's ability to keep inflation on target, driven by the observed state of the economy. We find that the Neo-Fisherian claim is a theoretical possibility depending on the interplay of a set of parameters and very low levels of agents' confidence. Yet, on the basis of simulations of the model, we may say that this possibility is remote for most commonly found empirical values of the relevant parameters. Moreover, the Neo-Fisherian policy-rate peg is not sustained by the expectations formation process.
    Date: 2019
  107. By: International Monetary Fund
    Abstract: Niger faces daunting development challenges, aggravated by terrorist incursions, climate change, and low uranium export prices. Presidential elections are due in late 2020. Reforms are advancing and economic activity is reasonably strong.
    Keywords: Development;External debt;Economic growth;Fiscal policy;Credit;ISCR,CR,PPPs,performance criterion,WAEMU,percent of GDP,net lend
    Date: 2020–01–14
  108. By: Simon M. Potter; Ging Cee Ng; Jonathan McCarthy
    Abstract: Economic forecasters frequently use a simple rule of thumb called Okun?s law to link their real GDP growth forecasts to their unemployment rate forecasts. While they recognize that temporary deviations from Okun?s law may occur, forecasters often assume that sustained reductions in the unemployment rate require robust GDP growth. However, our analysis suggests that Okun?s law has not been a consistently reliable tool for predicting the size of declines in the unemployment rate during the last three expansions?a finding that reflects the impact of changes in the labor market since the early 1960s. We also find that the percentage declines in the unemployment rate over the third through fifth years of the last three expansions have been strikingly similar?a pattern that suggests an important role for flows into and out of unemployment in explaining movements in the unemployment rate, the subject of tomorrow?s blog post.
    Keywords: expansions; economic growth; labor market flows; Okun's Law; unemployment rate
    JEL: E2 J00
  109. By: Jan J. J. Groen; Patrick Russo (Research and Statistics Group)
    Abstract: After a period of stability, oil prices started to decline in mid-2015, and this downward trend continued into early 2016. As we noted in an earlier post, it is important to assess whether these price declines reflect demand shocks or supply shocks, since the two types of shocks have different implications for the U.S. economic outlook. In this post, we again use correlations of weekly oil price changes with a broad array of financial variables to quantify the drivers of oil price movements, finding that the decline since mid-2015 is due to a mix of weaker demand and increased supply. Given strong interest in the drivers of oil prices, the oil price decomposition is information we will be sharing in a new Oil Price Dynamics Report on our public website each Monday starting today. We conclude this post using another model that finds that the higher oil supply boosted U.S. economic activity in 2015, though this impact is expected to wear off in 2016.
    Keywords: VAR models; Oil Prices; Asset Prices; Oil Supply Shocks
    JEL: E2 F00 G1
  110. By: van der Wel, M.
    Abstract: The crises of this century have stressed how intertwined macroeconomics and finance are in practice. This intertwinement was absent in most economic models. This led to calls for economists to step out of their specialized silos. Since then, the literature of macro-finance, which studies the relationship between asset prices and economic fluctuations, has been developed. In this inaugural address, I argue for a prominent role of econometrics to study the macro-finance interaction. Key elements such as mixed frequencies and the selection of factors can be incorporated using recent econometric advances. I discuss some of the results, such as estimation of continuous-time equilibrium models for macroeconomic and financial series, as well as characteristics of trading on financial markets after macroeconomic news releases. Finally, I discuss the outstanding challenges, which include developing a yield curve model based on macroeconomic foundations, modeling how financial markets anticipate news releases, and developing a macro-finance model for European bond markets taking into account the large heterogeneity across the continent.
    Keywords: Macro-Finance, Econometrics, Financial Econometrics, Fixed Income, Time Series Econometrics, Term Structure of Interest Rates, macro-economie, economische crises, econometrische modellen, financiering, obligaties, tijdreeksen
    JEL: C58
    Date: 2020–01–31
  111. By: Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia; Stolzenburg, Ulrich
    Abstract: The German economy is recovering only gradually. After a weak summer half-year, gross domestic product will hardly do more than stagnate in the final quarter of the current year. Economic activity still provides two contrasting pictures. The main reason for the ongoing downturn, which began last year, is the significant decline in industrial production. This was mainly due to the gloomy global economic environment, since reduced investment worldwide due to the high level of global economic uncertainty had a particularly negative impact on the German economy, which is specialized in the production of capital goods. In the meantime, the investment climate in Germany has also deteriorated noticeably. As a result, companies are likely to significantly reduce their investment activity in the coming quarters. The weak industrial economy is also increasingly affecting the industry-related services companies. In contrast, the consumer-related service sectors continue to expand. Despite the fact that employment growth has now slowed considerably, disposable incomes of private households continue to rise significantly. In addition to wage increases which continue to be quite strong, numerous income-increasing fiscal policy measures are also contributing to this. The construction industry is still booming, not least due to the continuing favorable financing conditions. Over the course of the coming year, overall economic production should gradually pick up again somewhat. This is supported by the slight recovery in the global economy. As a result, industrial production should find its bottom and at least pick up again somewhat. At 1.1 percent, GDP growth in 2020 is likely to be much higher than in the current year, where an increase by 0.5 percent is expected. However, the higher growth rate in the coming year is primarily due to the higher number of working days. Against this backdrop, the surpluses of public budgets will decline significantly: While spending will continue to expand strongly, revenues will be noticeably burdened by the weak economy. After the record surplus of over 60 billion euros in 2018, we expect a slight deficit in 2021.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook
    Date: 2019
  112. By: Thomas Philippon
    Abstract: The cost of financial intermediation has declined in recent years thanks to technology and increased competition in some parts of the finance industry. I document this fact and I analyze two features of new financial technologies that have stirred controversy: returns to scale and the use of big data and machine learning. I argue that the nature of fixed versus variable costs in robo-advising is likely to democratize access to financial services. Big data is likely to reduce the impact of negative prejudice in the credit market but it could reduce the effectiveness of existing policies aimed at protecting minorities.
    Keywords: fintech, discrimination, robo advising, credit scoring, big data, machine learning
    JEL: E2 G2 N2
    Date: 2020–02
  113. By: International Monetary Fund
    Abstract: Security and social conditions in Mali have steadily deteriorated in recent years, especially in the central and northern regions. Implementation of the 2015 peace agreement is challenging, rendering the return of effective state control to these regions difficult. Rising security spending is putting pressure on priority social and development spending. Notwithstanding the difficult security situation, the Malian economy, largely concentrated in the South, has performed fairly well. A new three-year ECF arrangement in support of the authorities’ medium-term development strategy (CREDD 2019–23) was approved on August 28, 2019.
    Keywords: Public financial management;Economic growth;Real sector;External sector;Balance of payments;ISCR,CR,Prog,official transfer,overall balance,net lend,Three-Year
    Date: 2020–01–16
  114. By: Grundmann, Susanna; Giamattei, Marcus; Graf Lambsdorff, Johann
    Abstract: We run a gift-exchange experiment under conditions of monetary neutrality: aggregate changes in nominal wages leave aggregate real wages unchanged. To achieve this, an employee's real wage is determined by the nominal wage divided by the price level (the average wages paid to others). Recent evidence (Grundmann, Giamattei and Lambsdorff 2019) shows that under these conditions, employees value the employers' intentions in setting nominal wages such that aggregate effort increases in response to increased aggregate nominal wages. We investigate whether this violation of the classical dichotomy leads to downward nominal wage rigidity and whether the violation can be exploited by policy makers. To do this, we implement an exogenous monetary policy shock after the first half of the experiment. Treatments UP and DOWN vary the direction of the shock. We hypothesize, first, that nominal wages exhibit downward rigidity because employers fear that a downward adjustment of the nominal wage would signal bad intentions, and second, that wages are upwardly flexible. We find that employers adjust wages flexibly upward and even excessively downward, while employees do not vary effort in response to the negative shock and reduce effort in response to the positive shock. We discuss possible reasons for these unexpected results as well as implications for our experimental design.
    Keywords: gift-exchange game,nominal wage rigidity,monetary neutrality,laboratory experiment,Phillips-curve
    JEL: C92 E31
    Date: 2020
  115. By: International Monetary Fund
    Abstract: The current arrangement for systemic risk oversight seems to have worked well.2 The responsibility for systemic risk oversight is not explicitly assigned to any specific body. At the federal level, the Bank of Canada (BOC) albeit with no explicit mandate plays a leading role in systemic risk surveillance; policy discussion takes place at the Senior Advisory Committee, which in turn provides advice to the Minister of Finance who has the mandate of maintaining overall financial stability in Canada. Powers over macroprudential tools lie with the Ministry of Finance (MoF) and the Office of the Superintendent of Financial Institutions (OSFI). Systemic risk oversight at the federal level appears adequately effective, in part due to strong collegial culture and inter-agency cooperation. However, such effectiveness becomes less apparent at the provincial level or with respect to federal-provincial collaboration on these issues.
    Date: 2020–01–24
  116. By: Ha,Jongrim; Ivanova,Anna; Montiel,Peter J.; Pedroni,Peter Louis
    Abstract: This paper studies the effects of global and domestic inflation shocks on core price inflation in 105 countries between 1970 and 2016, by using a heterogeneous panel vector-autoregressive model. The methodology allows accounting for differences across groups of countries (advanced economies, emerging markets and developing economies, and low-income countries) and across groups with different country characteristics (such as foreign exchange and monetary policy regimes). The empirical results indicate that most of the variation in inflation among low-income countries over the past decades is accounted for by external shocks. More than half of the variation in core inflation rates among low-income countries is due to global core price shocks, compared with one-eighth in advanced economies. Global food and energy price shocks account for another 13 percent of core inflation variation in low-income countries -- half more than in advanced economies and one-fifth more than in emerging markets and developing economies. This points to challenges in anchoring domestic inflation expectations, which have been most evident among low -- income countries with floating exchange rates, especially in cases where central bank independence has been weak.
    Keywords: Inflation,Financial Structures,Macroeconomic Management,Energy Demand,Energy and Mining,Energy and Environment,International Trade and Trade Rules
    Date: 2019–07–09
  117. By: Olivier Coibion (University of Texas at Austin); Dimitris Georgarakos (European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)); Yuriy Gorodnichenko (University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics); Michael Weber (University of Chicago - Finance)
    Abstract: We compare the causal effects of forward guidance communication about future interest rates on householdsÕ expectations of inflation, mortgage rates, and unemployment to the effects of communication about future inflation in a randomized controlled trial using more than 25,000 U.S. individuals in the Nielsen Homescan panel. We elicit individualsÕ expectations and then provide 22 different forms of information regarding past, current and/or future inflation and interest rates. Information treatments about current and next yearÕs interest rates have a strong effect on household expectations but treatments beyond one year do not have any additional impact on forecasts. Exogenous variation in inflation expectations transmits into other expectations. The richness of our survey allows us to better understand how individuals form expectations about macroeconomic variables jointly and the non-response to long-run forward guidance is consistent with models in which agents have constrained capacity to collect and process information.
    JEL: E31 C83 D84
    Date: 2020
  118. By: Ruiting Wang (Graduate School of Economics, Kyoto University)
    Abstract: This paper presents the e ects of child allowances on fertility, female labor supply, and economic growth in a gender wage discrimination economy. Child allowances cannot increase fertility in a higher gender discrimination economy. Both theoretical and empirical analyses prove this result. We find that child allowances can increase maternal childcare time. However, the expenditures on market childcare goods and services cannot increase with the decrease of female labor supply and total household income in a higher gender discrimination economy. When both the childcare time and market childcare goods and services are necessary inputs in the parental child care, an increase in child allowances can decrease fertility and per capita output. Moreover, in both the labor market and household, gender equality is critical for encouraging children-bearing. Child allowances can also increase fertility when males actively participate in child care.
    Keywords: Child allowances, Gender Wage Discrimination, Female Time Allocation, Fertility, Economic Growth
    JEL: E62 H31
    Date: 2020–02
  119. By: Devadas,Sharmila; Elbadawi,Ibrahim Ahmed; Loayza,Norman V.
    Abstract: This paper addresses three questions: 1) what would have been the growth and income trajectory of Syria in the absence of war; 2) given the war, what explains the reduction in economic growth in terms physical capital, labor force, human capital, and productivity; and 3) what potential growth scenarios for Syria there could be in the aftermath of war. Estimates of the impact of conflict point to negative gross domestic product (GDP) growth of -12 percent on average over 2011-18, resulting in a GDP contraction to about one-third of the 2010 level. In post-conflict simulation scenarios, the growth drivers are affected by the assumed levels of reconstruction assistance, repatriation of refugees, and productivity improvements associated with three plausible political settlement outcomes: a baseline (Sochi-plus) moderate scenario, an optimistic (robust political settlement) scenario, and a pessimistic (de facto balance of power) scenario. Respectively for these scenarios, GDP per capita average growth in the next two decades is projected to be 6.1, 8.2, or 3.1 percent, assuming that a final and stable resolution of the conflict is achieved.
    Keywords: Armed Conflict,Labor Markets,Labor&Employment Law,Demographics,Macroeconomic Management
    Date: 2019–08–06
  120. By: International Monetary Fund
    Abstract: Growth is solid, with strong domestic demand and resilient exports despite the slowdown in global trade. The government has undertaken important reforms in past years to strengthen the economy and support the country’s EU candidacy. To bolster the economy’s resilience to shocks and speed up income convergence, the authorities should rebuild fiscal policy space, re-orient public spending toward investment and continue improving institutions and government efficiency.
    Keywords: External sector;Central banks;Monetary policy;Balance of payments;Exchange markets;ISCR,CR,north Macedonia,GDP,policy space,capital spend,Proj
    Date: 2020–01–27
  121. By: International Monetary Fund
    Abstract: Growth in Austria has been strong, but the outlook has moderated, and financial vulnerabilities are building up. Structural vulnerabilities include a large and tiered banking system, complex ownership structures and financial interlinkages, and a focus on Central, Eastern, and South Eastern Europe (CESEE) markets. Banks are exposed to cyclical risks from volatility in the CESEE, and rising vulnerabilities in the housing market. The solvency coverage ratio of insurance firms is high, but the sector suffers from low growth, low interest rates, and future profitability risk.
    Keywords: Real sector;Financial systems;Financial institutions;Macroprudential policies and financial stability;Financial sector oversight;ISCR,CR,OeNB,AML,FMA,Austrian bank,BMF
    Date: 2020–02–03
  122. By: David DESMARCHELIER; Alexandre MAYOL
    Abstract: Within this paper, we develop a simple overlapping generations model (OLG) with a renewable resource (forest) in the spirit of Koskela et al. (2002). Seeding activities (more broadly, forestry) are introduced in the form of a domestic production as well as a joy-of-giving bequest motive regarding the resource. In this simple framework, we show that altruism always guarantee a positive resource level at the steady state. However, studying the dynamics, we point out that the stability of the steady state crucial depends upon both altruism and forestry productivity: under a low forestry productivity, the steady state is always stable while, under a high forestry productivity, two period-cycles (flip bifurcation) can emerge near the steady state if and only if altruism is sufficiently high which rises the question of resource preservation and leads to the conclusion that the road to hell is paved with good intentions.
    Keywords: Renewable resource, OLG model, altruism, flip bifurcation.
    JEL: E32 O44
    Date: 2019
  123. By: International Monetary Fund
    Abstract: The economy has performed well over the past three years but has slowed in 2019. There are some vulnerabilities in household finances, and productivity growth remains weak, with trend growth also constrained by adverse demographics. A new coalition government targets greater social support and inclusion, higher employment, carbon neutrality by 2035, and a balanced budget by 2023.
    Keywords: Financial statistics;Balance of payments;International investment position;Economic indicators;Government finance statistics;ISCR,CR,percent of GDP,household debt,percent,GDP,pension liability
    Date: 2020–01–16
  124. By: Carin van der Cruijsen; Jakob de Haan; Ria Roerink
    Abstract: Using fourteen years of data on Dutch consumers' trust in financial institutions, we find that financially literate consumers are more likely to trust banks, insurance companies and pension funds, and the competence and integrity of the managers of these institutions. This holds both for broad-scope and narrow-scope trust. Although trust in respondents' own financial institutions is significantly higher than general trust in financial institutions, both forms of trust are positively related. Financially knowledgeable people are more likely to trust the prudential supervisor. Finally, our results indicate that trust in the supervisor is positively related to trust in the financial sector.
    Keywords: trust; financial institutions; financial literacy; consumer survey
    JEL: D12 D83 E58 G21 G22
    Date: 2019–12
  125. By: Dmitry Plotnikov
    Abstract: This paper presents a structural model of crime and output. Individuals make an occupational choice between criminal and legal activities. The return to becoming a criminal is endogenously determined in a general equilibrium together with the level of crime and economic activity. I calibrate the model to the Northern Triangle countries and conduct several policy experiments. I find that for a country like Honduras crime reduces GDP by about 3 percent through its negative effect on employment indirectly, in addition to direct costs of crime associated with material losses, which are in line with literature estimates. Also, the model generates a non-linear effect of crime on output and vice versa. On average I find that a one percent increase in output per capita implies about ½ percent decline in crime, while a decrease of about 5 percent in crime leads to about one percent increase in output per capita. These positive effects are larger if the initial level of crime is larger.
    Keywords: Economic conditions;Supply and demand;Economic growth;Labor market policy;Unemployment;Crime,Employment,Growth,WP,crime level,indirect cost,criminal activity,homicide rate,tightness
    Date: 2020–01–16
  126. By: International Monetary Fund
    Abstract: The economic situation remains difficult but there are some initial signs of stability, and non-oil growth could turn positive for the first time since 2015. The political environment is stable, though there is discontent with government policies due in part to the authorities’ limited engagement with the private sector and civil society.
    Keywords: External sector;Debt sustainability;Public debt;External debt;Economic indicators;ISCR,CR,arrears,Congolese authority,non-oil,percent of GDP,primary balance
    Date: 2020–01–27
  127. By: Syed Zwick, Hélène
    Abstract: Purpose – The purpose of this paper is to identify and discuss the on-the-job resilience strategies of mismatched workers. We empirically focus on Egyptian workers.Design/Methodology/Approach – This study relies on a primary micro-data collection based on design and implementation of a self-administered questionnaire survey and on the conduction of a series of semi-structured interviews. Findings – The results are fourfold: first, the combination of over-qualification and under-skilling is the most frequent in our sample; second, resilience strategies adopted by over-skilled workers mainly depend on mobility and entry to entrepreneurship; third, under-skilled workers do not enter entrepreneurship, but tend to rely on informal on-the-job learning and training opportunities. Fourth, religion and spirituality play a transversal role to cope with adversity for all of our interviewed workers. Originality/value – This study is unique as it draws our attention on factors of resilience for mismatched workers in a developing country, Egypt.
    Keywords: resilience strategies,skill mismatches,qualification mismatches,Egypt
    JEL: J24 E24 C81
    Date: 2020
  128. By: Christopher Flinn (New York University); Petra Todd (University of Pennsylvania); Weilong Zhang (University of Cambridge)
    Abstract: This paper introduces the Big Five personality traits along with other covariates in a job search, matching and bargaining model and investigates how education and personality traits affect job search behavior and labor market outcomes. It develops and estimates a partial equilibrium search model in which personality traits can influence worker productivity, job offer arrival rates, job dissolution rates and the division of surplus from an employer-employee match. The estimation is based on the IZA Evaluation Dataset, a panel dataset on newly-unemployed individuals in Germany between 2007 and 2008. Model specification tests provide support for a model that allows job search parameters to be heterogeneous across individuals, varying with levels of education, birth cohort, personality traits and gender. We use the estimated model to decompose the sources of the gender wage gap. The results show that the gap arises largely because women's personality traits are valued differently than men's. Of the Big Five traits, conscientiousness and agreeableness emerge as the most important in explaining the gender wage gap.
    Keywords: Big Five personality traits, personality traits, birth cohort
    JEL: J64 J00 E24 J31
    Date: 2020–02
  129. By: International Monetary Fund
    Abstract: Subdued private investment and exports, and increased uncertainty have depressed growth and worsened social indicators. State-owned enterprises’ (SOEs) risks are materializing, triggering government bailouts of Eskom and administrative intervention in other entities. High fiscal deficits have boosted debt. Nonresident investors are shedding equities and local currency bonds but showing appetite for foreign currency sovereign bonds amid supportive global financing conditions. The external position is moderately weaker than implied by fundamentals and desirable policies. Inflation has slowed to around the mid-point of the target band, aided by one-off factors, but inflation expectations are higher. Banks are sound, albeit with pockets of vulnerabilities.
    Date: 2020–01–30
  130. By: Richard Peach; M. Henry Linder; Robert W. Rich
    Abstract: How tight is the labor market? The unemployment rate is down substantially from its October 2009 peak, but two-thirds of the decline is due to people dropping out of the labor force. In addition, an unusually large share of the unemployed has been out of work for twenty-seven weeks or more?the long-duration unemployed. These statistics suggest that there remains a great deal of slack in U.S. labor markets, which should be putting downward pressure on labor compensation. Instead, compensation growth has moved modestly higher since 2009. A potential explanation is that the long-duration unemployed exert less influence on wages than the short-duration unemployed, a hypothesis we examine here. While preliminary, our findings provide some support for this hypothesis and show that models taking into account unemployment duration produce more accurate forecasts of compensation growth.
    Keywords: Compensation Growth; Short-term Unemployment; Phillips Curve
    JEL: E2
  131. By: International Monetary Fund
    Abstract: Despite a challenging external environment, four successive PLL arrangements since 2012 have supported reforms to strengthen macroeconomic resilience, economic growth and inclusion. Yet, economic growth, below 3 percent, is not robust enough and unemployment remains high, especially among the youth and women. Growth is also subject to elevated risks, including weak economic growth in the euro area, and geopolitical risks. In this environment, Morocco needs to step up reforms to further enhance its macroeconomic resilience, build buffers, and move towards more private sector-led, inclusive and job-rich growth. Priority areas include: taxation; public governance and the fight against corruption; social spending to reduce inequalities; labor market and education reforms; and greater exchange rate flexibility.
    Date: 2020–01–28
  132. By: Koeniger, Winfried; Zanella, Carlo
    Abstract: We analyze inequality and mobility across generations in a dynastic economy. Nurture, in terms of bequests and the schooling investment into the next generation, is observable but the draw of nature in terms of ability is hidden, stochastic and persistent across generations. We calibrate the model to U.S. data to illustrate mechanisms through which nurture and nature affect mobility and the transmission of income inequality across generations, thus complementing the vast empirical literature. To provide a benchmark for the observed status quo, we solve for the social optimum in which the planner weighs dynasties equally and chooses optimal tax schedules subject to incentive compatibility. Analyzing the transition from the calibrated steady state to this social optimum, we find that insurance against intergenerational ability risk increases on the transition path by making welfare of family dynasties more dependent on nurture relative to nature. The insurance comes at the cost of less social mobility. We compare welfare in the social optimum and economies with a simple history-independent tax and subsidy system.
    Keywords: Human capital, schooling, bequests, asymmetric information, intergenerational mobility, inequality
    JEL: E24 H21 I24 J24 J62
    Date: 2020–02
  133. By: Baiashvili, Tamar; Gattini, Luca
    Abstract: Foreign direct investment (FDI) is generally considered a driving factor to economic growth. Nevertheless, empirical evidence is rather mixed, reporting a positive, neutral, or even negative relationship of FDI with growth. Our investigation concentrates on the impact of FDI inflows on growth and their effect mediated by income levels and the quality of the institutional environment. Specifically, we focus the interaction between country income levels - including low-, middle- and high-income countries - and FDI. This was not analysed thoroughly in earlier studies. Moreover, we deploy a new perspective to look into the FDI effects on growth mediated by institutional quality whereby we make use of country income levels as the key elements to peer-reference countries. Our study is based on 111 countries, stretching from developed economies to developing and emerging markets starting in 1980. Our estimations make use of panel GMM techniques robust to sample size, instrument proliferation and endogeneity concerns. We find that FDI benefits do not accrue mechanically and evenly across countries. We detect an inverted-U shaped relationship between countries' income levels and the size of FDI impact on growth. Moving from low to middle-income countries the effect gets larger. On the other hand, it diminishes again transitioning to high income countries. Finally yet importantly, we find that absorptive capacity matters in channelling FDI effects. Institutional factors have a mediating positive effect on FDI within country income groups, whereby countries with better-developed institutions relative to their income group peers show a positive impact of FDI on growth.
    Keywords: Foreign Direct Investment (FDI),growth,income levels,institutions,absorptive capacity,global panel,Economics
    JEL: C33 F21 E02 O43 O47
    Date: 2020
  134. By: Perrella, Antonio; Catz, Julia
    Abstract: Since the financial crisis, central bank policymakers have expressed a need for more integrated microdata for monetary policy purposes and for macroprudential and microprudential supervision, with a stronger focus on lending. In response to this policy need, the European System of Central Banks (ESCB) has increased the scope and quality of instrument-level data (e.g. loan-by-loan) it collects. At the same time, the ESCB has further developed the Register of Institutions and Affiliates Data (RIAD), which is pivotal in ensuring the successful linking of the databases, because it ensures the unique identification of counterparties. RIAD allows data to be aggregated using various types of company information, such as industrial activity or geographical location, but it also offers the possibility of aggregating data according to multiple group structures based on different concepts of what a “group” is. This paper discusses why there is a policy need for microdata and highlights some of the practical uses of the interlinked data. It also sheds more light on how information contained in different granular databases can be combined and aggregated in a flexible manner according to different business needs. It describes in detail the process of linking through a common stable identifier, points out current limitations and suggests a possible way forward. JEL Classification: C81, E44, G32
    Keywords: granular data, group structures, macroprudential, microeconomic data, microprudential, unique identification
    Date: 2020–02
  135. By: James Narron (Executive Office); Donald P. Morgan
    Abstract: Money was plentiful in the United Kingdom in 1842, and with low yields on government bonds and railway shares paying handsome dividends, the desire to speculate spread?as one observer put it, ?the contagion passed to all, and from the clerk to the capitalist the fever reigned uncontrollable and uncontrolled? (Francis?s History of the Bank of England). And so began railway mania. Just as that bubble began to burst, a massive harvest failure in England and Ireland led to surging food imports, which drained gold reserves from the Bank of England. Constrained by the Bank Charter Act, the Bank responded by tightening policy. When food prices fell in the spring of 1847 on the prospects for a successful harvest, commodity speculators were caught short and a crisis, one of the worst in British history (Bordo), ensued. In this edition of Crisis Chronicles, we cover the Commercial Crisis of 1847.
    Keywords: railway mania; lender of last resort; panic; Federal Reserve
    JEL: G1 E5
  136. By: Thomas Klitgaard; Preston Mui (Research and Statistics Group)
    Abstract: Japan?s population is shrinking and getting older, with the population falling at a 0.2 percent rate this year and the working-age population (ages 16 to 64) falling at a much faster rate of almost 1.5 percent. In contrast, the U.S. population is rising at a 0.7 percent annual rate and the working-age population is rising at a 0.2 percent rate. So far, supporting the growing share of Japan?s population that is 65 and over has been the substantial increase in the share of working-age women entering the labor force. In contrast, U.S. labor force participation rates have been falling for both men and women. Japan?s labor market adjustments help explain the steady, albeit, modest growth in output per person despite the surge in the 65 and over cohort. Indeed, Japan has been able to match U.S. per capita growth since 2000.
    Keywords: demographic population labor force participation female Japan United States growth
    JEL: E2 F00 J00
  137. By: Valeria Bejarano-Salcedo (Banco de la República de Colombia); Edgar Caicedo-García (Banco de la República de Colombia); Nilson Felipe Lizarazo-Bonilla (Banco de la República de Colombia); Juan Manuel Julio-Román (Banco de la República de Colombia); Julián Alonso Cárdenas-Cárdenas (Banco de la República de Colombia)
    Abstract: En este documento se presenta una caracterización de los fenómenos meteorológicos de El Niño y La Niña, y una descripción de sus principales efectos sobre la inflación en Colombia. Estos episodios climáticos se vienen presentando desde hace siglos en el territorio nacional, generando cambios en el nivel de temperaturas y precipitaciones en la mayor parte del territorio colombiano, sin que hayan tenido históricamente un patrón regular de ocurrencia y de intensidad. Durante la ocurrencia de El Niño se destaca el efecto negativo sobre el sector agropecuario, que impacta fuertemente los precios de la canasta de alimentos y en menor medida la inflación anual al consumidor. A pesar de la no sistematicidad en la ocurrencia de estos eventos climáticos, la inflación de alimentos, la inflación al consumidor y el precio relativo de los alimentos muestran comportamientos alcistas durante la ocurrencia de El Niño. Durante La Niña se presenta una disminución de los precios al consumidor. El precio relativo de los alimentos muestra disminuciones al concluir cualquiera de los dos fenómenos. **** RESUMEN: This document presents a characterization of the meteorological phenomena of El Niño and La Niña, and a description of their main effects on pollution in Colombia. These climatic episodes have been presented for centuries in the national territory, generating changes in the level of temperatures and rainfall in most of the Colombian territory, without having historically had a regular pattern of occurrence and intensity. During the occurrence of El Niño, the negative effect on the agricultural sector is highlighted, which strongly impacts the prices of the food basket and, to a lesser extent, annual inflation to the consumer. Despite the non-systematic occurrence of these climatic events, food inflation, consumer inflation and the relative price of food that lead bullish behavior during the occurrence of El Niño. During La Niña there is a loss of consumer prices. The relative price of food shows reductions at the conclusion of either phenomenon.
    Keywords: El Niño Phenomenon, Climate, Socio-economic effects, agricultural yields, Consumer Price Index, Forecasts, Fenómeno El Niño, clima, efectos socio-económicos, rendimientos, agrícolas, inflación al consumidor, pronósticos.
    JEL: E31 Q11 Q54
    Date: 2020–02
  138. By: Burns,Andrew; Jooste,Charl
    Abstract: This paper summarizes the World Bank's approach to identifying parameters for key equations in its macro structural model for countries where short sample sizes or major structural changes render traditional time-series approaches infeasible or yield unstable estimates. To identify parameters that could be used in such cases, a cointegrating panel approach is followed that yields a common long-run estimate of parameters for key equations (to test the theoretical restrictions imposed in the model) and short-run disequilibrium estimates that vary by country. This approach is preferred to pure calibration or Bayesian estimation, because the functional forms imposed in the panel are consistent with those used in the macro structural model.
    Keywords: Macroeconomic Management,International Trade and Trade Rules,Inflation,Transport Services,Macro-Fiscal Policy,Economic Adjustment and Lending,Taxation&Subsidies,Public Finance Decentralization and Poverty Reduction,Public Sector Economics
    Date: 2019–07–11
  139. By: Yang, Lin
    Abstract: This paper reviews the evidence of how the welfare state can shape the relationship between economic inequality and poverty through the channels of taxes, transfers and public good provision. In particular, we examine how the quantity, and to some extent the quality, of resources that can be raised to tackle poverty may be influenced or constrained by high levels of inequality.
    Keywords: poverty; inequality; redistribution; perceptions; wealth
    JEL: I32 D31 E62
    Date: 2018–11–23
  140. By: Jiro Honda; Hiroaki Miyamoto; Mina Taniguchi
    Abstract: What do we know about the output effects of fiscal policy in low income countries (LICs)? There are very few empirical studies on the subject. This paper fills this gap by estimating the output effects of government spending shocks in LICs. Our analysis—based on the local projection method—finds that the output effects in LICs are markedly lower than those in AEs and marginally smaller than those in EMs. We also find that in LICs, the output effects are larger (i) during recessions; (ii) under a fixed exchange rate regime; and/or (iii) with higher quality of institutions. Our analysis could not confirm any statistically significant output effect under floating exchange rate regimes. For the estimation of the output effects of fiscal spending shocks, it is thus important to consider the state of the economy and the country’s structural characteristics. Our results imply that the output costs of fiscal adjustment in LICs may not be as large as previously thought, especially if adopted outside of a recession, based on cutting public consumption, and accompanied by reform to enhance institutions.
    Date: 2020–01–17
  141. By: Thomas Klitgaard; Harry Wheeler (Research and Statistics Group)
    Abstract: Japan?s general government debt-to-GDP ratio is the highest of advanced economies, due in part to increased spending on social services for an aging population and a level of nominal GDP that has not increased for two decades. The interest rate payments from taxpayers on this debt are moderated by income earned on government assets and by low interest rates. One might think that the Bank of Japan?s purchases of government bonds would further ease the burden on taxpayers, with interest payments to the Bank of Japan on its bond holdings rebated back to the government. Merging the balance sheets of the government and the Bank, however, shows that the asset purchase program alters the composition of public debt, with reserves in the banking system replacing government bonds, but not the amount of the debt taxpayers must pay interest on.
    Keywords: Japan government debt deficits borrowing asset purchases program reserves bonds net income central bank balance sheet
    JEL: E5 H00
  142. By: Alexander Schiersch; Caroline Stiel
    Abstract: The superstar firms model provides a compelling explanation for two simultaneously occurring phenomena: the rise of concentration in industries and the fall of labor shares. Our empirical analysis confirms two of the underlying assumptions of the model: the market share increases and the labor share decreases with increasing firm-level total factor productivity, providing support for the superstar firms’ hypothesis. However, we find no evidence for the underlying mechanism of the model, the distribution of fixed labor costs. Instead, we observe increasing returns to scale that also explain lower labor shares of larger firms.
    Keywords: superstar firms, total factor productivity, labor share, market share, firm size
    JEL: D24 E20 L11
    Date: 2020
  143. By: Ibrahim, Norhaslina; Masih, Mansur
    Abstract: This paper attempts to investigate the Granger-causality between Islamic banks and economic growth. Malaysia is taken as a case study. The methodology adopted is the standard time series techniques. The results tend to suggest that Islamic bank financing leads growth and other variables, being the most exogenous compared to others. In other words, the finance is supply-leading rather than demand-following in the context of Islamic finance in Malaysia. Thus, this finding has clear policy implications for the government to keep on enhancing Islamic banks’ development leading to a positive economic growth.
    Keywords: GDP, Islamic Banks, Vector-Error Correction Model, Long Run Structural Modelling, Variance Decompositions
    JEL: C22 C58 E44
    Date: 2018–06–15
  144. By: Lael Brainard
    Date: 2020–02–21
  145. By: Burns,Andrew; Campagne,Benoit Philippe Marcel; Jooste,Charl; Stephan,David Andrew; Bui,Thi Thanh
    Abstract: This paper outlines the structure and economic foundation of the World Bank's macroeconomic and fiscal model (MFMod). MFMod consists of individual country models for 181 countries. The models are used by country economists within the World Bank's Macroeconomics, Trade and Investment Global Practice to (i) generate country forecasts and (ii) simulate various policies. Each model has a similar structure and functional form, with variation reflecting data availability and economic specialization (notably for oil exporters). Although the functional forms are similar, the parameters are country specific and estimated at the country level. Forecasts across countries are live-linked, with the export market growth of each country calculated as a trade-weighted average of imports of each of its trading partners. Remittance inflows and outflows are balanced across countries through a similar mechanism. Other cross-country linkages come through the real effective exchange rate and export and import prices, which are a function of world commodity prices and local cost considerations.
    Keywords: Inflation,Macroeconomic Management,Employment and Unemployment
    Date: 2019–08–06
  146. By: Fatih Karahan; Samuel Kapon (Research and Statistics Group); Kaivan K. Sattar (Risk Analytics Group)
    Abstract: Job openings are arguably one of the most important indicators of recovery in the labor market, as they reflect employers? willingness to hire. The number of job openings has recovered steadily since the recession, yet through the end of 2013, the openings rate was still substantially below its pre-recession peak (see chart below). Starting in January 2014, however, the number of job openings increased dramatically, up by 20 percent through June 2014, and job openings relative to employment jumped back to the peak of the previous expansion. In this post, we argue that the expiration of the Emergency Unemployment Compensation (EUC) program may have contributed to this rapid rise in 2014.
    Keywords: labor market; EUC; unemployment benefits; vacancies
    JEL: J00 E2
  147. By: Ho, Sy-Hoa; Hafrad, Idir
    Abstract: Exchange rate pass-through always deserves interest of policy makers and economists. In this paper, we study the measure of exchange rate pass-through on consumer price for Vietnam by using Nonlinear Autoregressive Dynamic Lag in the period from 2000Q4 to 2018Q2. Our findings can be summarized as follow: (i) we demonstrates the existence of asymmetric effect of exchange rate to domestic price in both short run and long run; (ii) the exchange rate pass-through is high; (iii) impact of exchange rate depreciation on domestic price is stronger than appreciation; (iv) the exchange rate pass-through is higher in the long-run than in the short run; (v) foreign competitor price plays an important role for domestic price movement.
    Keywords: Exchange rate pass-through; Asymmetric exchange rate; ARDL models; NARDL models
    JEL: C22 E52
    Date: 2020–02–15
  148. By: Michiel Bijlsma; Carin van der Cruijsen; Nicole Jonker
    Abstract: We study consumers' attitudes towards sharing payments data with incumbent and new providers of payment and account information services, and using their services. This is important, in order to understand the possible impact of the revised Payment Services Directive (PSD2) on the functioning of the retail payments market. We do so using a representative panel of Dutch consumers. We obtain a number of results. First, consumers' propensity to give consent for payments data usage is highest if the data user is their own bank. Only a minority would give consent to the usage of payments data to make a financial overview with personalised offers. Second, an explicit financial reward can tempt more people to use this service and to demand the service from a BigTech instead of one's own bank. Third, support for the usage of payments data by other banks and BigTechs to decide on loans is also positively related to financial incentives. Finally, the propensity to use the two new PSD2 services is driven by consumers' trust in the providers of these services. Consumers have more trust in their own bank than in BigTechs.
    Keywords: consumers; discrete choice models; PSD2; retail payments; trust; pricing
    JEL: C25 D12 E42 G21 G24 G28
    Date: 2020–02
  149. By: Alex Etra (Executive Office); Aaron Rosenblum; Jeffrey B. Dawson (Research and Statistics Group)
    Abstract: Debt in China has increased dramatically in recent years, accounting for roughly one-half of all new credit created globally since 2005. The country?s share of total global credit is nearly 25 percent, up from 5 percent ten years ago. By some measures (as documented below), China?s credit boom has reached the point where countries typically encounter financial stress, which could spill over to international markets given the size of the Chinese economy. To better understand the associated risks, it is important to examine the drivers of China?s expansion in credit, the increasing complexity of its financial system, and evidence that its supply of credit may be growing more rapidly than reported. Note, however, that there are several features of China?s financial system that reduce the threat of a financial disruption.
    Keywords: China; Macroeconomics; Credit; International Economics; Banking; Financial Institutions
    JEL: G2
  150. By: Knight,David Stephen; Portugal-Perez,Alberto; Nedeljkovic,Milan
    Abstract: Turkey has moved rapidly from a current account that was relatively in balance up to the turn of the millennia, to sustaining relatively large current account deficits over the past 15 years. Using annual data from 1986 to 2017 and a jackknife model-averaging estimator, the paper estimates the relationship between the current account balance and a set of determinants that are broadly consistent with the cross-country literature. These determinants include private sector credit, public expenditure, real exchange rate changes, gross domestic product growth relative to the rest of the world, trade openness, international oil prices, foreign direct investment levels, past net foreign assets, inflation volatility, and global levels of uncertainty. The analysis then decomposes the predicted current account balance for five-year periods to illustrate the factors that have driven the current account over time. Over 2003-07, a large current account deficit became established in Turkey, driven by an expansion of credit to households and rapid gross domestic product growth, coupled with improved macroeconomic stability that supported higher spending and therefore imports. Since then, the negative effect of household credit has abated, but was replaced in 2008-17 by an expansion of credit to the corporate sector as a driver of the current account deficit. The current account balance in Turkey is also found to be less persistent than is typically found in the cross-country literature, implying that it adjusts more rapidly in response to shocks.
    Keywords: Macroeconomic Management,International Trade and Trade Rules,Inflation
    Date: 2019–08–15
  151. By: Niklas Potrafke
    Abstract: Previous studies used general government data to examine whether national governments’ electoral motives and ideology influenced budget composition in OECD countries. General government data includes, however, the state and local level. Using new data for general and central government over the period 1995–2016, I reexamine political cycles in budget composition. The results suggest that, both at the general and central government level, leftwing governments spent more on education and less on public services than rightwing governments. Defense expenditure was somewhat lower under leftwing than rightwing governments and in election years; especially in federal states. Effects of government ideology on the individual expenditure categories are larger at the central than general government level. Scholars need to re-examine results on ideology-induced effects that have been derived from general government data where central government data should have been used.
    Keywords: General and central government, panel data models, OECD countries, electoral cycles, government ideology, partisan politics, budget composition
    JEL: D72 D78 E60 H30 H50 C23 P16
    Date: 2020
  152. By: Weshah Razzak (School of Economics and Finance, Massey University, Palmerston North); El Mostafa Bentour (University of Grenoble Alpes, France)
    Abstract: We depart from the empirical literature on testing the finance led growth. Instead of regression analysis, we use a semi-endogenous growth model, which identifies two productivity growth paths: a steady state and a transitional path. Steady state growth is anchored by populationgrowth. In the transitional dynamic, productivity growth depends on the typical factors growth rates, and excess knowledge, which is the deviation of TFP in the financial sector from steady state growth. TFP is endogenous. It is an increasing function of global research efforts, which is driven by the proportion of population in developed countries that is engaged in research in finance, and the stock of human capital. We find positive evidence for this theory of TFP in the data of ten developed European countries and the United States. We also found some evidence for finance-led-growth, albeit weaker after the past Global Financial Crisis.
    Keywords: Semi endogenous growth, finance, productivity growth
    JEL: O40 E10
    Date: 2020

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