nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒03‒09
138 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary Policy Implementation and Pass-Through By Fabio Canetg
  2. Risk Premia at the ZLB: A Macroeconomic Interpretation By Phuong Ngo; Francois Gourio
  3. Industry evidence and the vanishing cyclicality of labor productivity. By Zuzana Molnarova
  4. Monetary theory and policy : the debate revisited By Jean Luc Gaffard
  5. CBDC and Monetary Sovereignty By Antonio Diez de los Rios; Yu Zhu
  6. Countercyclical liquidity policy and credit cycles: Evidence from macroprudential and monetary policy in Brazil By João Barata R. Blanco Barroso; Rodrigo Barbone Gonzalez; José-Luis Peydró; Bernardus F. Nazar Van Doornik
  7. Heterogeneity, Transfer Progressivity and Business Cycles By Youngsoo Jang; Takeki Sunakawa; Minchul Yum
  8. Le débat de théorie et de politique monétaires revisité By Jean Luc Gaffard
  9. Academic Scholarship in Light of the 2008 Financial Crisis: Textual Analysis of NBER Working Papers By Daniel Levy; Tamir Mayer; Alon Raviv
  10. 4GM: A New Model for the Monetary Policy Analysis in Colombia By González-Gómez, Andrés; Guarín-López, Alexander; Rodríguez, Diego; Vargas-Herrera, Hernando
  11. CBDC and Monetary Policy By Mohammad Davoodalhosseini; Francisco Rivadeneyra; Yu Zhu
  12. Academic Scholarship in Light of the 2008 Financial Crisis: Textual Analysis of NBER Working Papers By Daniel Levy; Tamir Mayer; Alon Raviv
  13. Countercyclical liquidity policy and credit cycles: Evidence from macroprudential and monetary policy in Brazil By João Barata R. Blanco Barroso; Rodrigo Barbone Gonzales; José-Luis Peydró; Bernardus F. Nazar Van Doornik
  14. Inflation and the Price of Real Assets By Matteo Leombroni; Monika Piazzesi; Martin Schneider; Ciaran Rogers
  15. A Fiscal Theory of Monetary Policy with Partially-Repaid Long-Term Debt By John H. Cochrane
  16. Academic Scholarship in Light of the 2008 Financial Crisis: Textual Analysis of NBER Working Papers By Levy, Daniel; Mayer, Tamir; Raviv, Alon
  17. State-dependent effects of monetary policy : the central bank infomration channel By Paul Hubert
  18. R-star in Transition Economies: Evidence from Slovakia By Patrik Kupkovic
  19. The benefits are at the tail: uncovering the impact of macroprudential policy on growth-at-risk By Jorge E. Galán
  20. Identifying the Financial Cycle in Slovakia By Patrik Kupkovic; Martin Suster
  21. An RBC model with Epstein-Zin (non-expected-utility) recursive preferences: lessons from Bulgaria (1999-2018) By Aleksandar Vasilev
  22. Financial and fiscal interaction in the euro area crisis : this time was different By Albert Caruso; Lucrezia Reichlin; Giovanni Ricco
  23. Shocks, Frictions, and Inequality in US Business Cycles By Christian Bayer; Benjamin Born; Ralph Luetticke
  24. Monetary policy asset bubbles By Christophe Blot; Paul Hubert; Fabien Labondance
  25. Shocks, Frictions, and Inequality in US Business Cycles By Christian Bayer; Benjamin Born; Ralph Luetticke
  26. Inequality over the Business Cycle – The Role of Distributive Shocks By Marius Clemens; Ulrich Eydam; Maik Heinemann
  27. The Elusive Gains from Nationally-Oriented Monetary Policy By Martin Bodenstein; Giancarlo Corsetti; Luca Guerrieri
  28. Une comparaison des prévisions macroéconomiques 2018-2020 sur la France By Magali Dauvin; Hervé Peleraux; Christine Rifflart
  29. Revisiting the fiscal theory of sovereign risk from a DSGE viewpoint By Carlo Pizzinelli; Konstantinos Theodoridis; Francesco Zanetti
  30. The reaction function channel of monetary policy and the financial cycle By Andrew Filardo; Paul Hubert; Phurichai Rungcharoenkitkul
  31. Technology Approach for a CBDC By Dinesh Shah; Rakesh Arora; Han Du; Sriram Darbha; John Miedema; Cyrus Minwalla
  32. How the Fed Changes the Size of Its Balance Sheet By Simon M. Potter; Deborah Leonard; Antoine Martin
  33. Real Inventory Slowdowns By David O. Lucca; Casey McQuillan; Richard K. Crump
  34. Exchange Rate Misalignment and External Imbalances: What is the Optimal Monetary Policy Response? By Giancarlo Corsetti; Luca Dedola; Sylvain Leduc
  35. Exchange Rate Misalignment and External Imbalances: What is the Optimal Monetary Policy Response? By Giancarlo Corsetti; Luca Dedola; Sylvain Leduc
  36. The Effect of Fiscal Deficit on Investment in Nigeria By Nurudeen Olanipekun, Kasali
  37. Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area? By Adam Elbourne; Kan Ji
  38. Falling Behind: Has Rising Inequality Fueled the American Debt Boom? By Moritz Drechsel-Grau; Fabian Greimel
  39. Dynamic Asymmetry and Fiscal Policy By Zanetti Chini, Emilio
  40. Financial constraints and collateral crises By Luis Araujo; Bernardo Guimaraes; Diego Rodrigues
  41. Negative interest rate, bank profitability and risk-taking By Whelsy Boungou
  42. On the external validity of experimental inflation forecasts : a comparison with five categories of field expectations By Camille Cornand; Julien Pillot
  43. What if Oil was Less Substitutable? By Veronica ACURIO VASCONEZ
  44. Crecimiento del PIB y desempleo: validez de la ley de Okun para Uruguay By Gabriel Merlo; Sylvina Porras
  45. SVARs, the central bank balance sheet and the effects of unconventional monetary policy in the euro area By Adam Elbourne
  46. Is U.S. Monetary Policy Seasonal? By David O. Lucca; Richard K. Crump
  47. Drilling Down into Core Inflation: Goods versus Services By Richard Peach; M. Henry Linder; Robert W. Rich
  48. Robustly Optimal Monetary Policy in a New Keynesian Model with Housing By Klaus Adam; Michael Woodford
  49. Why Is Current Unemployment So Low? By Andreas Hornstein; Marianna Kudlyak
  50. Euro Area Macroeconomics : where do we stand twenty years later ? By Catherine Mathieu; Henri Sterdyniak
  51. Computing Equilibria of Stochastic Heterogeneous Agent Models Using Decision Rule Histories By Marcelo Veracierto
  52. Winter is possibly not coming : mitigating financial instability in an agent-based model with interbank market By Lilit Popoyan; Mauro Napoletano; Andrea Roventini
  53. Global Footprints of Monetary Policy By Silvia Miranda-Agrippino; Tsvetelina Nenova; Helene Rey
  54. Does Employment Protection Affect Unemployment? A Meta-analysis By Philipp Heimberger
  55. Forecasting the Great Recession: DSGE vs. Blue Chip By Frank Schorfheide; Marco Del Negro; Daniel Herbst
  56. Are Large Deficits and Debt Dangerous? By Michael J. Boskin
  57. Is Cheaper Oil Good News or Bad News for U.S. Economy? By Jan J. J. Groen; Patrick Russo
  58. Exchange rates and consumer prices: evidence from Brexit By Sampson, Thomas; Leromain, Elsa; Novy, Dennis; Breinlich, Holger
  59. Business Cycle Fluctuations in Mirrlees Economies: The Case of i.i.d. Shocks By Marcelo Veracierto
  60. The FRBNY DSGE Model Meets Julia By Pearl Li; Marco Del Negro; Micah Smith; Erica Moszkowski; Marc Giannoni
  61. Macroeconomic determinants of foreign exchange rate exposure By Fuchs, Fabian U.
  62. Central Clearing and Systemic Liquidity Risk By G. Thomas Kingsley; Anna L. Paulson; Todd Prono; Travis D. Nesmith
  63. Do house prices matter for household consumption? By Lu Zhang
  64. Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy By Jean-Bernard Chatelain; Kirsten Ralf
  65. The Puzzling Pre-FOMC Announcement “Drift” By David O. Lucca; Emanuel Moench
  66. An agent-based model of intra day financial markets dynamics By Jacopo Staccioli; Mauro Napoletano
  67. Crossing the Credit Channel: Credit Spreads and Firm Heterogeneity By Gareth Anderson; Ambrogio Cesa-Bianchi
  68. Different No More: Country Spreads in Advanced and Emerging Economies By Benjamin Born; Gernot Müller; Johannes Pfeifer; Susanne Wellmann; Gernot J. Müller
  69. Shocking aspects of monetary policy on income inequality in the euro area By Jérôme Creet; Mehdi El Herradi
  70. Agnostic structural disturbances (ASDs): detecting and reducing misspecification in empirical macroeconomic models By Den Haan, Wouter J.; Drechsel, Thomas
  71. Refonte des règles budgétaires européennes By Bruno Ducoudré; Mathieu Plane; Xavier Ragot; Raul Sampognaro; Francesco Saraceno; Xavier Timbeau
  72. Series largas de VAB y empleo regional por sectores, 1955-2018 By Angel De la Fuente; Pep Ruiz
  73. Distributional National Accounts (DINA) for Austria, 2004-2016 By Stefan Jestl; Emanuel List
  74. Crisis Chronicles: Gold, Deflation, and the Panic of 1893 By Thomas Klitgaard; James Narron
  75. Monetary Policy Implementation With an Ample Supply of Reserves By Antoine Martin; Simon M. Potter; Kyungmin (Teddy) Kim; Sam Schulhofer-Wohl; Gara Afonso; Ed Nosal
  76. Compensation Growth and Slack in the Current Economic Environment By M. Henry Linder; Robert W. Rich; Richard Peach
  77. Monetary Policy in Fossil Fuel Exporters : The Curse of Horizons By Arezki,Rabah
  78. Estimation of the Rate of Return to Capital in the East African Community Countries (EAC) By Abdallah Othman; Glenn P. Jenkins
  79. Who’s Borrowing in the Fed Funds Market? By Eric LeSueur; Alex Entz; Gara M. Afonso
  80. An Exploration of Trend-Cycle Decomposition Methodologies in Simulated Data By Robert J. Hodrick
  81. The irreversible welfare cost of climate anomalies. Evidence from Japan (1872-1917) By Bassino, Jean-Pascal; Lagoarde-Segot, Thomas; Woitek, Ulrich
  82. Prospects for the U.S. Labor Market By Jonathan McCarthy; Simon M. Potter
  83. State Dependence in Labor Market Fluctuations By Pizzinelli, Carlo; Theodoridis, Konstantinos; Zanetti, Francesco
  84. How the Fed Changes the Size of Its Balance Sheet: The Case of Mortgage-Backed Securities By Brett Rose; Deborah Leonard; Simon M. Potter; Antoine Martin
  85. Skills Mismatch, Construction Workers and the Labor Market By Ayşegül Şahin; Richard K. Crump
  86. Disentangling the effect of household debt on consumption By Rutger Teulings; Bram Wouterse; Kan Ji
  87. Efectos de las políticas económicas en el crecimiento económico y desarrollo social de México durante el primer año de gobierno encabezado por AMLO By Salvador Padilla Jiménez
  88. Debt rule design in theory and practice: the SGP’s debt benchmark revisited By Hauptmeier, Sebastian; Kamps, Christophe
  89. Common trends in producers’ expectations, the nonlinear linkage with Uruguayan GDP and its implications in economic growth forecasting By Juan Gabriel Brida; Bibiana Lanzilotta; Lucía Rosich
  90. Ramsey Optimal Policy versus Multiple Equilibria with Fiscal and Monetary Interactions By Jean-Bernard Chatelain; Kirsten Ralf
  91. Predicting Benchmarked US State Employment Data in Realtime By Thomas Walstrum; William Kluender; Scott Brave; Charles Gascon
  92. Is the United States Relying on Foreign Investors to Fund Its Larger Budget Deficit? By Thomas Klitgaard; Linda Wang
  93. The Need for Very Low Interest Rates in an Era of Subdued Investment Spending By Harry Wheeler; Thomas Klitgaard
  94. Delayed Adjustment and Persistence in Macroeconomic Models By van Rens, Thijs; Vukotic, Marija
  95. Public Employment Redux By Pietro Garibaldi; Pedro Gomes; Thepthida Sopraseuth
  96. If Interest Rates Go Negative . . . Or, Be Careful What You Wish For By Kenneth D. Garbade; James J. McAndrews
  97. Combining Models for Forecasting and Policy Analysis By Marco Del Negro; Frank Schorfheide; Raiden B. Hasegawa
  98. Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks By Kenneth D. Garbade
  99. Incidence of Capital Income Taxation in a Lifecycle Economy with Firm Heterogeneity By Chung Tran; Sebastian Wende
  100. Trust in the central bank and inflation expectation By Christelis, Dimitris; Georgarakos, Dimitris; Jappelli, Tullio; van Rooij, Maarten
  101. Financial Crises and Innovation By Bryan Harcy; Can Sever
  102. Liquidating bankers' acceptances: International crisis, doctrinal conflict and American exceptionalism in the Federal Reserve 1913-1932 By Adam, Marc Christopher
  103. House price convergence Across Europe By Laia Maynou; Bruce Morley; Mercedes Monfort; Javier Ordóñez
  104. Die US-Demokraten vor den Wahlen: Was bedeuten die Positionen der Kandidaten für die europäische Wirtschaftspolitik? By Bardt, Hubertus
  105. Corruption as Collateral By Ouyang, Min; Zhang, Shengxing
  106. The Sensitivity of Long-Term Interest Rates: A Tale of Two Frequencies By David O. Lucca; Jonathan H. Wright; Samuel Hanson
  107. The magnitude of euro area misalignements in 2017 By Bruno Ducoudré; Xavier Timbeau; Sébastien Villemot
  108. Firm export diversification and change in workforce composition. By Sarah Guillou; Tania Treibich
  109. The Effect of Migration Policy on Growth, Structural Change, and Regional Inequality in China By Tongtong Hao; Ruiqi Sun; Trevor Tombe; Xiaodong Zhu
  110. Dollar borrowing, firm-characteristics, and FX-hedged funding opportunities By Leonardo Gambacorta; Sergio Mayordomo; José María Serena
  111. Optimal Redistributive Wealth Taxation When Wealth Is More Than Just Capital By Max Franks; Ottmar Edenhofer
  112. How Have High Reserves and New Policy Tools Reshaped the Fed Funds Market? By Sammuel Stern; Gara M. Afonso
  113. The Limits of onetary Economics : On Money as a Latent Medium of Exchange By Ricardo Lagos; Shengxing Zhang
  114. Could Rising Household Debt Undercut China’s Economy? By Jeffrey B. Dawson; Hunter L. Clark
  115. Foreign banks, liquidity shocks, and credit stability By Daniel Belton; Leonardo Gambacorta; Sotirios Kokas; Raoul Minetti
  116. Post-Brexit UK Fund regulation: equivalence, divergence or convergence By Howell, Elizabeth
  117. Just Released: Does Transportation Spending Make Good Stimulus? By Joseph Morris Morris; Andrew F. Haughwout; Therese McGuire
  118. Forward Guidance and Household Expectations By Olivier Coibion; Dimitris Georgarakos; Yuriy Gorodnichenko; Michael Weber
  119. Counterparties and Collateral Requirements for Implementing Monetary Policy By Ylva Søvik; Emily Eisner; Antoine Martin
  120. Deciphering Americans’ Views on Cryptocurrencies By Sean Hundtofte; Michael Junho Lee; Antoine Martin; Reed Orchinik
  121. Do Financial Analysts Herd? By Jin Yeub Kim; Yongjun Kim; Myungkyu Shim
  122. Crisis Chronicles – The California Gold Rush and the Gold Standard By James Narron; Donald P. Morgan
  123. Rebalancing the Economy in Response to Fiscal Consolidation By Richard Peach
  124. The Declining U.S. Reliance on Foreign Investors By Preston Mui; Thomas Klitgaard
  125. Human Capital and Macro-Economic Development : A Review of the Evidence By Rossi, Federico
  126. Conclusion: How Low Will the Unemployment Rate Go? By Ayşegül Şahin; Jonathan McCarthy; Simon M. Potter
  127. Demand shocks for public debt in the Eurozone By Andras Lengyel; Massimo Giuliodori
  128. Beliefs about Public Debt and the Demand for Government Spending By Christopher Roth; Sonja Settele; Johannes Wohlfart
  129. Risk Aversion, Global Asset Prices, and Fed Tightening Signals By Jan J. J. Groen; Richard Peck
  130. What Tracks Commodity Prices? By Harry Wheeler; Thomas Klitgaard
  131. High Unemployment and Disinflation in the Euro Area Periphery Countries By Richard Peck; Thomas Klitgaard
  132. NEET rates convergence in Europe: A regional analysis By Laia Maynou; Javier Ordóñez; José Ignacio Silva
  133. How do countries specialize in food production? A complex-network analysis of the global agricultural product space By Campi, Mercedes; Dueñas, Marco; Fagiolo, Giorgio
  134. Consumer Confidence: A Useful Indicator of . . . the Labor Market? By Robert W. Rich; Joshua Abel; Jason Bram
  135. Do Asset Purchase Programs Push Capital Abroad? By David O. Lucca; Thomas Klitgaard
  136. Macroeconomic Policy, Product Market Competition, and Growth: The Intangible Investment Channel By JaeBin Ahn; Romain A Duval; Can Sever
  137. The Transitional Dynamic of Finance Led Growth By Razzak, Weshah; El Bentour, M
  138. Corporate investment and the exchange rate : The financial channel By Banerjee, Ryan; Hofmann, Boris; Mehrotra, Aaron

  1. By: Fabio Canetg
    Abstract: I provide a simple general equilibrium model of monetary policy implementation and pass-through for undergraduate and graduate teaching. Besides a household and a firm, the model features a continuum of commercial banks, a government, and a central bank. The household uses deposits and cash to transfer resources over time. Monetary policy is implemented with open market operations and interest on reserves policies. I show that open market operations affect the money market rate, the government bond yield, and the deposit rate through changes in the insurance yield on reserves. At the interest rate floor, the insurance yield is zero. Therefore, open market operations become ineffective when reserves are ample. By contrast, interest on reserves policies change interest rates even at the interest rate floor. In addition, I find that expansionary monetary policies decrease expected commercial bank profits. Also, they increase household cash holdings in a monotonic, but non-linear fashion.
    Keywords: Monetary policy implementation, monetary policy pass-through, open market operations, interest on reserves, negative interest rate policies
    JEL: E41 E43 E52 E58
    Date: 2020–02
  2. By: Phuong Ngo (Cleveland State University); Francois Gourio
    Abstract: Historically, inflation is negatively correlated with stock returns, leading investors to fear inflation. We document using a variety of measures that this association became positive in the U.S. during the 2008-2015 period. We then show how an off-the-shelf New Keynesian model can reproduce this change of association due to the binding zero lower bound (ZLB) on short-term nominal interest rates during this period: in the model, demand shocks become more important when the ZLB binds because the central bank cannot respond as effectively as when interest rates are positive. This changing correlation in turn reduces the term premium, and hence contributes to explaining the decline in long-term interest rates. We use the model to evaluate this mechanism quantitatively. Our results shed light on the validity of the New Keynesian ZLB model, a cornerstone of modern macroeconomic theory.
    Keywords: Liquidity trap; inflation premia; risk premia; term premia; stock market
    JEL: E31 E62 E52 C61
    Date: 2020–01–02
  3. By: Zuzana Molnarova
    Abstract: : Aggregate labor productivity used to be strongly procyclical in the United States, but the procyclicality has largely disappeared since the mid-1980s. This paper explores the industry-level evidence in order to discriminate between existing explanations of the vanishing procyclicality of the labor productivity. I document the change in the cyclical properties of productivity in the U.S. using industry-level data and focus on a particularly puzzling feature, namely that the correlations of the industry productivity with industry output and labor input remained on average much more stable before and after the mid-1980s compared to the aggregate correlations. In other words, there is little evidence for the vanishing cyclicality of labor productivity at the industry level. I construct a simple industry-level RBC model that nests two leading explanations of the vanishing cyclicality of productivity that have been proposed in the literature. I show that the two explanations have qualitatively di?erent predictions for the cyclical properties of industry-level variables. The mechanism based on a structural change in the composition of aggregate shocks is able to replicate the stability of industry-level moments across time. In contrast, the mechanism based on increased labor market ?exibility is less successful in matching the industry-level evidence.
    JEL: E32 E24 E37
    Date: 2020–01
  4. By: Jean Luc Gaffard (OFCE, Sciences Po, Paris, France Université Côte d'Azur)
    Abstract: This paper is aimed at revisiting monetary analysis in order to better understand erroneous choices in the conduct of monetary policy. According to the prevailing consensus, the market economy is intrinsically stable and is upset only by poor behaviour by government or the banking system. We maintain on the contrary that the economy is unstable and that achieving stability requires a discretionary economic policy. This position relies upon an analytical approach in which monetary and financial organisations are devices that help markets to function. In this perspective, which focuses on the heterogeneity of markets and agents, and, consequently, on the role of institutions in determining overall performance, it turns out that nominal rigidities and financial commitment offer the means to achieve economic stability. This is because they preventsuccessive, unavoidable disequilibria from becoming explosive.
    Keywords: Series: Document de travail
    JEL: E31 E32 E5 E61 E62
    Date: 2018–11
  5. By: Antonio Diez de los Rios; Yu Zhu
    Abstract: In an increasingly digitalized world, issuers of private digital currency can weaken central banks’ ability to stabilize the economy. By continuing to make central bank money attractive as a payment instrument in a digital world, a central bank digital currency (CDBC) could help to maintain a country’s monetary sovereignty.
    Keywords: Digital Currencies and Fintech; Monetary Policy
    JEL: E E5 E52 E58 F F5 F55 G G1 G15
    Date: 2020–02
  6. By: João Barata R. Blanco Barroso; Rodrigo Barbone Gonzalez; José-Luis Peydró; Bernardus F. Nazar Van Doornik
    Abstract: We show that countercyclical liquidity policy smooths credit supply cycles, with stronger crisis effects. For identification, we exploit the Brazilian supervisory credit register and liquidity policy changes on reserve requirements, that affected banks differentially and have a monetary and prudential purpose. Liquidity policy strongly attenuates both the credit crunch in bad times and high credit supply in booms. Strong economic effects are twice as large during the crisis easing than during the boom tightening. Finally, in crises, liquidity easing: increase less credit supply by more financially constrained banks; and collateral requirements increase substantially, especially by banks providing higher credit supply.
    Keywords: Liquidity; reserve requirements; credit cycles; macroprudential and monetary policy.
    JEL: E51 E52 E58 G01 G21 G28
    Date: 2020–02
  7. By: Youngsoo Jang; Takeki Sunakawa; Minchul Yum
    Abstract: Abstract: This paper studies how transfer progressivity influences aggregate fluctuations when interacted with household heterogeneity. Using a simple static model of the extensive margin labor supply, we analytically characterize how transfer progressivity influences differential labor supply responses to aggregate conditions across heterogeneous households. We then build a quantitative dynamic general equilibrium model with both idiosyncratic and aggregate productivity shocks and show that the model delivers moderately procyclical average labor productivity and a large cyclical volatility of aggregate hours relative to output. Counterfactual exercises indicate that redistributive policies have very different implications for business cycle fluctuations, depending on whether tax progressivity or transfer progressivity is used. Finally, we provide empirical evidence on the heterogeneity of employment responses across the wage distribution, which supports the key mechanism of our model.
    Keywords: Progressivity, government transfers, extensive margin labor supply, business cycles, redistributive policies
    JEL: E32 E24 H31 H53 E21
    Date: 2020–03
  8. By: Jean Luc Gaffard (OFCE, Sciences Po, Paris, France Université Côte d'Azur)
    Abstract: L’article est dédié à reconsidérer l’analyse monétaire afin de mieux comprendre des choix erronés dans la conduite de la politique monétaire. Suivant le consensus en vigueur, l’économie de marché est intrinsèquement stable, étant seulement perturbée par les mauvais comportements du gouvernement et des banques. Nous maintenons, au contraire, que cette économie est instable et que la stabiliser requiert une politique économique discrétionnaire. Une telle position repose sur une approche analytique suivant laquelle l’organisation monétaire et financière des échanges est un outil qui facilite le fonctionnement des marchés Suivant cette perspective centrée sur l'hétérogénéité des marchés et des agents, et donc sur le rôle des institutions dans la détermination de la performance globale, il apparaît que les rigidités nominales et l'engagement financier sont les moyens qui assurent la stabilité de l’économie. La raison est que ces mesures empêchent les déséquilibres successifs et inévitables d’être explosifs.
    Keywords: Series: Document de travail
    JEL: E31 E32 E5 E61 E62
    Date: 2018–11
  9. By: Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis); Tamir Mayer (Graduate School of Business Administration, Bar-Ilan University, Israel); Alon Raviv (Graduate School of Business Administration, Bar-Ilan University, Israel)
    Abstract: Textual analysis of the NBER Working Papers published during 1999–2016 is done to assess the effects of the 2007–2009 crisis on the academic literature. The volume of crisis-related WPs is counter-cyclical, lagging the financial-instability-index. WPs by the Monetary-Economics, Asset-Pricing, and Corporate-Finance program members, hardly refer to “crisis/crises” in the pre-crisis period. As the crisis develops, however, their study-efforts of crisis-related issues increase rapidly, focusing on the links between ‘Repo-and-Securitization’ and the crisis. In contrast, WPs in macroeconomics-related programs refer extensively to “crisis/crises” in the pre-crisis period. These WPs abandon topics of ‘Sudden-Stop’ and ‘Emerging-Markets’ as the crisis developed.
    Keywords: 2008 Financial Crisis, Financial Crises, Textual Analysis, LDA Topic Modeling, Securitization, Repo, Sudden Stop
    JEL: A11 C38 C55 E32 E44 E52 E58 F30 G01 G20 G21 G28
    Date: 2020–02
  10. By: González-Gómez, Andrés; Guarín-López, Alexander; Rodríguez, Diego; Vargas-Herrera, Hernando
    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.
    Keywords: Semi-structural model; Monetary policy; Macroeconomic forecasting
    JEL: E17 E37 E47 E52 E58
    Date: 2020–02
  11. By: Mohammad Davoodalhosseini; Francisco Rivadeneyra; Yu Zhu
    Abstract: Improving the conduct of monetary policy is unlikely to be the main motivation for central banks to issue a central bank digital currency (CBDC). While some argue that a CBDC could allow more complex transfer schemes or the ability to break below the zero lower bound, we find these benefits might be small or difficult to realize in practice.
    Keywords: Digital Currencies and Fintech; Monetary Policy; Payment clearing and settlement systems
    JEL: E E4 E41 E5 E51 E52
    Date: 2020–02
  12. By: Daniel Levy (Bar-Ilan University); Tamir Mayer; Alon Raviv
    Abstract: Textual analysis of the NBER Working Papers published during 1999–2016 is done to assess the effects of the 2007–2009 crisis on the academic literature. The volume of crisis-related WPs is counter-cyclical, lagging the financial-instability-index. WPs by the Monetary-Economics, Asset-Pricing, and Corporate-Finance program members, hardly refer to “crisis/crises” in the pre-crisis period. As the crisis develops, however, their study-efforts of crisis-related issues increase rapidly, focusing on the links between ‘Repo-and-Securitization’ and the crisis. In contrast, WPs in macroeconomics-related programs refer extensively to “crisis/crises” in the pre-crisis period. These WPs abandon topics of ‘Sudden-Stop’ and ‘Emerging-Markets’ as the crisis developed.
    Keywords: 2008 Financial Crisis, Financial Crises, Textual Analysis, LDA Topic Modeling, Securitization, Repo, Sudden Stop
    JEL: A11 C38 C55 E32 E44 E52 E58 F30 G01 G20 G21 G28
    Date: 2020–01
  13. By: João Barata R. Blanco Barroso; Rodrigo Barbone Gonzales; José-Luis Peydró; Bernardus F. Nazar Van Doornik
    Abstract: We show that countercyclical liquidity policy smooths credit supply cycles, with stronger crisis effects. For identification, we exploit the Brazilian supervisory credit register and liquidity policy changes on reserve requirements, that affected banks differentially and have a monetary and prudential purpose. Liquidity policy strongly attenuates both the credit crunch in bad times and high credit supply in booms. Strong economic effects are twice as large during the crisis easing than during the boom tightening. Finally, in crises, liquidity easing: increase less credit supply by more financially constrained banks; and collateral requirements increase substantially, especially by banks providing higher credit supply.
    Keywords: liquidity, reserve requirements, credit cycles, macroprudential and monetary policy
    JEL: E51 E52 E58 G01 G21 G28
    Date: 2020–02
  14. By: Matteo Leombroni; Monika Piazzesi; Martin Schneider; Ciaran Rogers
    Abstract: In the 1970s, U.S. asset markets witnessed (i) a 25% dip in the ratio of aggregate household wealth relative to GDP and (ii) negative comovement of house and stock prices that drove a 20% portfolio shift out of equity into real estate. This study uses an overlapping generations model with uninsurable nominal risk to quantify the role of structural change in these events. We attribute the dip in wealth to the entry of baby boomers into asset markets, and to the erosion of bond portfolios by surprise inflation, both of which lowered the overall propensity to save. We also show that the Great Inflation led to a portfolio shift by making housing more attractive than equity. Disagreement about inflation across age groups matters for the size of tax effects, the volume of nominal credit, and the price of housing as collateral.
    JEL: E1 E2 E3 E44 G1 G11 G12
    Date: 2020–02
  15. By: John H. Cochrane
    Abstract: I construct a simple model with sticky prices and interest rate targets, closed by fiscal theory of the price level with long-term debt and fiscal and monetary policy rules. Fiscal surpluses rise following periods of deficit, to repay accumulated debt, but surpluses do not respond to arbitrary unexpected inflation and deflation, so fiscal policy remains active. This specification avoids many puzzles and counterfactual predictions of standard active-fiscal specifications. The model produces reasonable responses to fiscal and monetary policy shocks, including smooth and protracted disinflation following monetary or fiscal tightening.
    JEL: E3 E31 E32 E4 E5 E6 E62 E63
    Date: 2020–02
  16. By: Levy, Daniel; Mayer, Tamir; Raviv, Alon
    Abstract: Textual analysis of 14,270 NBER Working Papers published during 1999–2016 is done to assess the effects of the 2008 crisis on the economics literature. The volume of crisis-related WPs is counter-cyclical, lagging the financial-instability-index. WPs by the Monetary-Economics, Asset-Pricing, and Corporate-Finance program members, hardly refer to “crisis/crises” in the pre-crisis period. As the crisis develops, however, their study-efforts of crisis-related issues increase rapidly. In contrast, WPs in macroeconomics-related programs refer quite extensively in the pre-crisis period to “crisis/crises” and to crises-related topics. Overall, our findings are consistent with the claim that economists were not engaged sufficiently in crises studies before the 2008 crisis. However, counter to the popular image, as soon as the crisis began to unravel, the NBER affiliated economists responded dramatically by switching their focus and efforts to studying and understanding the crisis, its causes and its consequences.
    Keywords: 2008 Financial Crisis,Textual Analysis,Financial Crises,LDA,Topic Modelling,Securitization,Repo,Sudden Stop
    JEL: A11 C38 C55 E32 E44 E58 F30 G01 G20 G21 G28
    Date: 2020
  17. By: Paul Hubert (OFCE, Sciences Po, Paris, France)
    Abstract: When the central bank and private agents do not share the same information, private agents may not be able to appreciate whether monetary policy responds to changes in the macroeconomic outlook or to changes in policy preferences. In this context, this paper investigates whether the publication of the central bank macroeconomic information set modifies private agents’interpretation of policy decisions. We find that the sign and magnitude of the effects of monetary policy depend on the publication of policymakers’ macroeconomic views. Contractionary monetary policy has negative effects on inflation expectations and stock prices only if associated with inflationary news.
    Keywords: Monetary policy, information processing, signal extraction, market based inflation expectations, central bank projections, real-time forecasts
    JEL: E52 E58
    Date: 2019–02
  18. By: Patrik Kupkovic (Narodna banka Slovenska, Bratislava, Slovakia)
    Abstract: The aim of this paper is to estimate the equilibrium real interest rate in Slovakia by means of a semi-structural unobserved components model. The equilibrium real interest rate is understood here as a short-term, risk-free real interest rate consistent with output at its potential level, and inflation at its target level after the effect of all cyclical shocks have disappeared. Contribution to the literature is in two ways: i) development of a modelling framework for small, open, and converging economies which can be used for other transition economies, and (ii) assessment of the adoption of the euro and its effect on the equilibrium real interest rate. Based on the estimates, the equilibrium real interest rate fell from the positive pre-euro (also pre-crisis) level into to the negative territory.
    Keywords: equilibrium real interest rate, unobserved components model, open economy, monetary policy
    JEL: E43 E52 E58
    Date: 2020–02
  19. By: Jorge E. Galán (Banco de España. Financial Stability and Macroprudential Policy Department)
    Abstract: This paper brings together recent developments on the growth-at-risk methodology and the literature on the impact of macroprudential policy. For this purpose, I extend the recent proposals on the use of quantile regressions of GDP growth by including macrofinancial variables with early warning properties of systemic risk, and macroprudential measures. I identify heterogeneous effects of macroprudential policy on GDP growth, uncovering important benefits on the left tail of its distribution. The positive effect of macroprudential policy on reducing the downside risk of GDP is found to be larger than the negative impact on the median, suggesting a net positive effect in the mid-term. Nonetheless, I identify heterogeneous effects depending on the position in the financial cycle, the direction of the policy, the type of instrument, and the time elapsed since its implementation. In particular, tightening capital measures during expansions may take up to two years in evidencing benefits on growth-at-risk, while the positive impact of borrower-based measures is rapidly observed. This suggests the need of implementing capital measures, such as the countercyclical capital buffer, early enough in the cycle; while borrower-based measures can be tightened in more advanced stages. Conversely, in downturns the benefits of loosening capital measures are immediate, while those of borrower-based measures are limited. Overall, this study provides a useful framework to assess costs and benefits of macroprudential policy in terms of GDP growth, and to identify the term-structure of specific types of instruments.
    Keywords: financial stability, growth-at-risk, systemic risk, macroprudential policy, quantile regressions
    JEL: C32 E32 E58 G01 G28
    Date: 2020–03
  20. By: Patrik Kupkovic (Narodna banka Slovenska, Bratislava, Slovakia); Martin Suster (Narodna banka Slovenska, Bratislava, Slovakia)
    Abstract: The concept of a financial cycle has become a matter of immediate concern for central bankers. The aim of this paper is to construct an aggregate indicator of the financial cycle from input indicators such as credit growth, house prices, debt burden, credit standards, interest rate spreads, and current account deficit-to-GDP ratio. We contribute to the literature with additional evidence on the financial cycle for small open economies with shallow financial markets. Expansionary and contractionary periods of a financial cycle identified by the indicator can be a valuable source of information for policy makers.
    Keywords: financial cycle, credit growth, house prices, small open economy
    JEL: E30 E44 E51 G10
    Date: 2020–02
  21. By: Aleksandar Vasilev (Lincoln International Business School, UK)
    Abstract: We introduce Epstein-Zin (1989, 1991) preferences into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999- 2018). We investigate the quantitative importance of the presence of Óearly resolution of uncertaintyÓ motive for the propagation of cyclical fluctuations in Bulgaria. Al- lowing for Epstein-Zin preferences improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework, e.g., Vasilev (2009).
    Keywords: Business fluctuations, Epstein-Zin preferences, Bulgaria.
    JEL: E32 E22 E37
    Date: 2020–01
  22. By: Albert Caruso (Cofindustria, Roma, Italy); Lucrezia Reichlin (Department of Economics, London Business School); Giovanni Ricco (University of Warwick, OFCE Sciences Po)
    Keywords: Euro area, government debt, recessions, financial crises, business cycles
    JEL: C11 C32 C54 E52 E62 F45
    Date: 2019–07
  23. By: Christian Bayer; Benjamin Born; Ralph Luetticke
    Abstract: How much does inequality matter for the business cycle and vice versa? Using a Bayesian likelihood approach, we estimate a heterogeneous-agent New-Keynesian (HANK) model with incomplete markets and portfolio choice between liquid and illiquid assets. The model enlarges the set of shocks and frictions in Smets and Wouters (2007) by allowing for shocks to income risk and taxes. We find that adding data on inequality does not materially change the estimated shocks and frictions driving the US business cycle. The estimated shocks, however, have significantly contributed to the evolution of US wealth and income inequality. The systematic components of monetary and fiscal policy are important for inequality as well.
    Keywords: Bayesian estimation, business cycles, income inequality, incomplete markets, monetary and fiscal policy, wealth inequality
    JEL: C11 D31 E32 E63
    Date: 2020
  24. By: Christophe Blot (Sciences Po, OFCE ; Université de Paris Nanterre - EconomiX); Paul Hubert (Sciences Po, OFCE); Fabien Labondance (Université de Bourgogne Franche-Comté - CRESE; Sciences Po, OFCE)
    Abstract: This paper assesses the linear and non-linear dynamic effects of monetary policy on asset price bubbles. We use a Principal Component Analysis to estimate new bubble indicators for the stock and housing markets in the United States based on structural, econometric and statistical approaches. We find that the effects of monetary policy are asymmetric so the responses to restrictive and expansionary shocks must be differentiated. Restrictive monetary policy is not able to deflate asset price bubbles contrary to the “leaning against the wind” policy recommendations. Expansionary interest rate policies would inflate stock price bubbles whereas expansionary balance-sheet measures would not.
    Keywords: Booms and busts, Mispricing, Price deviations, Interest rate policy, Unconventional monetary policy,Quantitative Easing, Federal Reserve.
    JEL: E44 G12 E52
    Date: 2018–11
  25. By: Christian Bayer (University of Bonn); Benjamin Born (Frankfurt School of Business and Management; CEPR; CESifo); Ralph Luetticke (CEPR; University College London; Centre for Macroeconomics (CFM))
    Abstract: How much does inequality matter for the business cycle and vice versa? Using a Bayesian likelihood approach, we estimate a heterogeneous-agent New-Keynesian (HANK) model with incomplete markets and portfolio choice between liquid and illiquid assets. The model enlarges the set of shocks and frictions in Smets and Wouters (2007) by allowing for shocks to income risk and taxes. We nd that adding data on inequality does not materially change the estimated shocks and frictions driving the US business cycle. The estimated shocks, however, have signicantly contributed to the evolution of US wealth and income inequality. The systematic components of monetary and scal policy are important for inequality as well.
    Keywords: Bayseian estimation, Business cycles, Income inequality, Incomplete markets, Monetary and fiscal policy, Wealth inequality
    JEL: C11 D31 E32 E63
    Date: 2020–01
  26. By: Marius Clemens; Ulrich Eydam; Maik Heinemann
    Abstract: This paper examines the dynamics of wealth and income inequality along the business cycle and assesses how they are related to fluctuations in the functional income distribution. In a panel estimation for OECD countries between 1970 and 2016 we find that on average income inequality - measured by the Gini coefficient - is countercyclical and also shows a significant association with the capital share. Up on a closer look, we find that a remarkable share of one third of all countries display a rather pro- or acyclical relationship. In order to understand the underlying cyclical dynamics of inequality we incorporate distributive shocks, modeled as exogenous changes in the capital share, into a real business cycle model, where agents are ex-ante heterogeneous with respect to wealth and ability. We show how to derive standard inequality measures within this framework, which allow us to analyze how productivity and distributive shocks affect both, the macroeconomic variables and the personal income and wealth distribution over the business cycle. We find that whether wealth and income inequality in the model behaves countercyclical or not depends on two aspects. The intertemporal elasticity of substitution and the persistence of the shocks. We use Bayesian techniques in order to match GDP, capital share and consumption to quarterly U.S. data. The resulting parameter estimates point towards a non-monotonic relationship between productivity fluctuations and inequality. On impact, inequality increases in response to TFP shocks but declines in later periods. This pattern is consistent with the empirically observed relationship in the USA. Furthermore, we find that TFP shocks explain about 17 percent of the cyclical fluctuations in inequality in the USA.
    Keywords: Business Cycle, Income and Wealth Inequality, Distributive Shocks
    JEL: D31 E25 E32
    Date: 2020
  27. By: Martin Bodenstein (Federal Reserve Board); Giancarlo Corsetti (Centre for Economic Policy Research; Centre for Macroeconomics (CFM); University of Cambridge); Luca Guerrieri (Federal Reserve Board)
    Abstract: The consensus in the recent literature is that the gains from international monetary cooperation are negligible, and so are the costs of a breakdown in cooperation. However, when assessed conditionally on empirically-relevant dynamic developments of the economy, the welfare cost of moving away from regimes of explicit or implicit cooperation may rise to multiple times the cost of economic fluctuations. In economies with incomplete markets, the incentives to act non-cooperatively are driven by the emergence of global imbalances, i.e., large net-foreign-asset positions; and, in economies with complete markets, by divergent real wages.
    Keywords: Monetary ppolicy cooperation, Global imbalances, Open-loop Nash games
    JEL: E44 E61 F42
    Date: 2020–01
  28. By: Magali Dauvin (OFCE, Sciences Po, Paris, France); Hervé Peleraux (OFCE, Sciences Po, Paris, France); Christine Rifflart (OFCE, Sciences Po, Paris, France)
    Abstract: Nous comparons les prévisions de croissance de l'économie française à l'horizon 2020 réalisées entre septembre et début novembre 2018 par 18 organismes (publics et privés, dont l'OFCE). Après avoir augmenté de 2,3 % en 2017, l'activité ralentirait pour l'ensemble des prévisionnistes interrogés à 1,6 % en moyenne en 2018. Il n'y a pas d'accélération prévue à l'horizon de l'exercice de prévision : l'activité progresserait en moyenne de 1,6 % en 2019 et de 1,5 % 2020 (avec 8 instituts sur 12 qui prévoient un ralentissement). Mais les moteurs de la croissance changeraient. En 2017, la croissance avait été tirée par une forte contribution de la demande intérieure hors stocks tandis que le commerce extérieur jouait négativement. L'histoire est toute autre en 2018, le commerce extérieur, par sa contribution positive, contribuerait à compenser partiellement une demande intérieure moins dynamique. En 2019 et 2020, c'est l'inverse. L'accélération de la consommation des ménages permise par l'amélioration des revenus soutiendrait la croissance, tandis que l'investissement resterait solide. L'environnement international serait moindre favorable et les risques sur la croissance, plutôt orientés à la baisse. Si un consensus existe autour de ce scénario central, il masque malgré tout des divergences entre instituts liées notamment aux hypothèses relatives au positionnement de l'économie française dans son cycle, et donc au degré de tensions dans l'économie. Pour tous, l'inflation reste globalement modérée en prévision (entre 1,4 % et 1,9 % en 2020 selon les instituts) mais l'inflation sous-jacente s'accélère, tout en restant inférieure à 2 %, et certains instituts considèrent que des contraintes d'offre existent, notamment sur le marché du travail. Le taux de chômage baisserait de 9,4 % en 2017 à entre 8,1 % pour les plus optimistes à 9,1 % les plus pessimistes en fin de période. La progression des salaires resterait malgré tout contenue sur la période (avec un maximum à 2,6 % en 2020). L'impact positif des réformes passées et en cours sur la croissance du PIB et la compétitivité des entreprises ne ressort pas véritablement des scénarios. La France est sortie de la Procédure de déficit excessif en 2018 et tous les instituts prévoient le respect des règles budgétaires concernant le déficit public, qui resterait en-deçà du seuil des 3 % à l'horizon 2020. Néanmoins, le déficit se dégraderait 2019, du fait de mesures exceptionnelles (remboursement aux entreprises de la taxe sur les dividendes et transformation du CICE en baisses de charges sociales employeurs) et d'une amélioration de la composante conjoncturelle plus limitée qu'en 2017. En 2020, il serait compris entre 2,7 % et 1,6 % du PIB.
    Keywords: Prévisions, conjoncture, croissance, comptes nationaux
    JEL: E2 E27 E37 E66
    Date: 2018–12
  29. By: Carlo Pizzinelli (International Monetary Fund); Konstantinos Theodoridis (Cardiff Business School, European Stability Mechanism); Francesco Zanetti (University of Oxford)
    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 _rm's reservation productivity level and the distribution of match-specific idiosyncratic productivity. Results are robust across several variations to the baseline model.
    JEL: E24 E32 J64 C11
    Date: 2020–02
  30. By: Andrew Filardo (Bank for International Settlements & IMF); Paul Hubert (Sciences PO, OFCE); Phurichai Rungcharoenkitkul (Bank for International Settlements)
    Keywords: Policy reaction function channel, asset price booms, credit booms, monetary policy, financial cycles, time-varying model
    JEL: E50 E52 G00 G01 G12
    Date: 2019–10
  31. By: Dinesh Shah; Rakesh Arora; Han Du; Sriram Darbha; John Miedema; Cyrus Minwalla
    Abstract: In this note, we highlight a range of technical options and considerations in designing a contingent system for a central bank digital currency (CBDC) in Canada and explore how these options achieve stated public policy goals.
    Keywords: Central bank research; Digital Currencies and Fintech
    JEL: E E4 E42 E5 E51 O O3 O31
    Date: 2020–02
  32. By: Simon M. Potter; Deborah Leonard; Antoine Martin
    Abstract: The size of the Federal Reserve?s balance sheet increased greatly between 2009 and 2014 owing to large-scale asset purchases. The balance sheet has stayed at a high level since then through the ongoing reinvestment of principal repayments on securities that the Fed holds. When the Federal Open Market Committee (FOMC) decides to reduce the size of the Fed?s balance sheet, it is expected to do so by gradually reducing the pace of reinvestments, as outlined in the June 2017 addendum to the FOMC?s Policy Normalization Principles and Plans. How do asset purchases increase the size of the Fed?s balance sheet? And how would reducing reinvestments reduce the size of the balance sheet? In this post, we answer these questions by describing the mechanics of the Fed?s balance sheet. In our next post, we will describe the balance sheet mechanics with respect to agency mortgage-backed securities (MBS).
    Keywords: Treasury securities; reinvestments; Balance sheet
    JEL: E5
  33. By: David O. Lucca (Federal Reserve Bank); Casey McQuillan (Research and Statistics Group); Richard K. Crump
    Abstract: Inventory investment plays a central role in business cycle fluctuations. This post examines whether inventory investment amplifies or dampens economic fluctuations following a tightening in financial conditions. We find evidence supporting an amplification mechanism. This analysis suggests that inventory accumulation will be a drag on economic activity this year but provide a boost in 2020.
    Keywords: money market funds; monetary policy; deposit beta; pass-through
    JEL: E2 E3 G2
  34. By: Giancarlo Corsetti (European Commission; Dipartimento di Economia; Universität di Bologna; National Bureau of Economic Research; University of Cambridge; Centre for Economic Policy Research (CEPR); Yale University; Università degli Studi di Roma 3; Universität degli studi di Roma La Sapienza; European University Institute); Luca Dedola; Sylvain Leduc
    Abstract: How should monetary policy respond to capital inflows that appreciate the currency, widen the current account deficit and cause domestic overheating? Using the workhorse open-macro monetary model, we derive a quadratic approximation of the utility-based global loss function in incomplete market economies, solve for the optimal targeting rules under cooperation and characterize the constrained-optimal allocation. The answer is sharp: the optimal monetary stance is contractionary if the exchange rate pass-through (ERPT) on import prices is incomplete, expansionary if ERPT is complete–implying that misalignment and exchange rate volatility are higher in economies where incomplete pass through contains the effects of exchange rates on price competitiveness.
    Keywords: Currency misalignments; trade imbalances; asset markets and risk sharing; optimal targeting rules; international policy cooperation; exchange rate pass-through
    JEL: E44 E52 E61 F41 F42
    Date: 2020–02–26
  35. By: Giancarlo Corsetti (Centre for Economic Policy Research; Centre for Macroeconomics (CFM); University of Cambridge); Luca Dedola (Centre for Economic Policy Research; European Central Bank); Sylvain Leduc (Federal Reserve Bank of San Francisco)
    Abstract: How should monetary policy respond to capital inflows that appreciate the currency, widen the current account deficit and cause domestic overheating? Using the workhorse open-macro monetary model, we derive a quadratic approximation of the utility-based global loss function in incomplete market economies, solve for the optimal targeting rules under cooperation and characterize the constrained-optimal allocation. The answer is sharp: the optimal monetary stance is contractionary if the exchange rate pass-through (ERPT) on import prices is incomplete, expansionary if ERPT is complete – implying that misalignment and exchange rate volatility are higher in economies where incomplete pass through contains the effects of exchange rates on price competitiveness.
    Keywords: Currency misalignments, Trade imbalances, Asset markets and risk sharing, Optimal targeting rules, International policy cooperation, Exchange rate pass-through
    JEL: E44 E52 E61 F41 F42
    Date: 2020–01
  36. By: Nurudeen Olanipekun, Kasali (University of Ilorin, Ilorin, Kwara State.)
    Abstract: Investment has been identified as a major factor in the economic growth and development, and by extension, contributes to high rate of employment, productivity, capital formation, improved technology and poverty reduction. However, the effect of fiscal deficit on investment has been a controversial issue in Nigeria. For this reason, this study generally investigates the effect of fiscal deficit on investment in Nigeria, and specifically, to determine the effect of fiscal deficit on private domestic investment, the effect of fiscal deficit on foreign direct investment and to determine the relationship between private domestic investment and public investment in Nigeria between the periods 1980-2015. The study adopts neoclassical theory of investment of Dale Jorgenson’s approach, using macroeconomic data from 1980-2015. It employs Dickey Fuller Generalized Least Square (DFGLS) and Ng-Perron unit root tests, and ARDL Bounds testing approach to cointegration for the estimation techniques. The econometric evidence indicates that fiscal deficit has a negative effect on private domestic investment in the short. However, fiscal deficit has positive effect on foreign direct investment in the long run. Public investment and private domestic investment are autonomous in Nigeria. Following the findings, the study recommends that federal government should finance budget deficit through money creation.
    Keywords: fiscal deficit; private domestic investment; foreign direct investment; public investment.
    JEL: E22 E62 F21 H54 H62
    Date: 2020–02–26
  37. By: Adam Elbourne (CPB Netherlands Bureau for Economic Policy Analysis); Kan Ji (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This research re-examines the findings of the existing literature on the effects of unconventional monetary policy. It concludes that the existing estimates based on vector autoregressions in combination with zero and sign restrictions do not successfully isolate unconventional monetary policy shocks from other shocks impacting the euro area economy. In our research, we show that altering existing published studies by making the incorrect assumption that expansionary monetary shocks shrink the ECB’s balance sheet or even ignoring all information about the stance of monetary policy results in the same shocks and, therefore, the same estimated responses of output and prices. As a consequence, it is implausible that the shocks previously identified in the literature are true unconventional monetary policy shocks. Since correctly isolating unconventional monetary policy shocks is a prerequisite for subsequently estimating the effects of unconventional monetary policy shocks, the conclusions from previous vector autoregression models are unwarranted. We show this lack of identification for different specifications of the vector autoregression models and different sample periods.
    JEL: C32 E52
    Date: 2019–02
  38. By: Moritz Drechsel-Grau; Fabian Greimel
    Abstract: We evaluate the hypothesis that rising inequality was a causal source of the US household debt boom since 1980. The mechanism builds on the observation that households care about their social status. To keep up with the ever richer Joneses, the middle class substitutes status-enhancing houses for status-neutral consumption. These houses are mortgage-financed, creating a debt boom across the income distri- bution. Using a stylized model we show analytically that aggregate debt increases as top incomes rise. In a quantitative general equilibrium model we show that Keeping up with the Joneses and rising income inequality generate 60% of the observed boom in mortgage debt and 50% of the house price boom. We compare this channel to two competing mechanisms. The Global Saving Glut hypothesis gives rise to a similar debt boom, but does not generate a house prices boom. Loosening collateral constraints does not generate booms in either debt or house prices.
    Keywords: mortgages, housing boom, social comparisons, consumption networks, keeping up with the Joneses
    JEL: D14 D31 E21 E44 R21
    Date: 2020–03
  39. By: Zanetti Chini, Emilio
    Abstract: We introduce a new time series model for public consumption expenditure, tax revenues and real income that is capable to incorporate oscillations characterized by asymmetric phase and duration (or dynamic asymmetry). A specific-to-general econometric strategy is implemented in order to exclude the null hypotheses that these variable are linear or symmetric and, consequently, to ensure that these can be parsimoniously modelled. The U.S. postwar data suggest that the dynamic asymmetry -- either in cycle, either in trend -- is effectively a reasonable hypothesis for government expenditure and tax revenue, but also that a simple vector model unifying the (different) nonlinearities of each single series is unfeasible. Such an \textquotedblleft Occam-razor\textquotedblright \hspace{1pt} failure hinders econometricians in building impulse responses for calculation of fiscal multiplier and is here circumvented via empirical indexes.
    Keywords: Nonlinearities, Spending, Modelling, Multiplier, Testing, Selection.
    JEL: C1 C12 C22 E32 E4 E42
    Date: 2020–01
  40. By: Luis Araujo (Michigan State University; Sao Paulo School of Economics–FGV); Bernardo Guimaraes (Sao Paulo School of Economics–FGV; Centre for Macroeconomics (CFM)); Diego Rodrigues (University of Minnesota)
    Abstract: Assessing the fundamental value of a wide range of asset-backed securities is costly. As aresult, these assets can become information insensitive, which allows them to be used as collateralin credit transactions. In this paper, we show that while it is true that information-insensitiveassets can play a liquidity role, the fact that they play this role reinforces their informationinsensitivity. This implies that the availability of alternative ways of financing can harm theliquidity role of assets, even if these alternatives are costly and not used in equilibrium. Thereason is that such options raise the asset’s sensitivity to information by increasing the relativeimportance of their fundamental value vis-a-vis their role as collateral
    Keywords: Financial crises, Asset-backed securities, Opacity, Private money
    JEL: E32 E44 G01
    Date: 2020–02
  41. By: Whelsy Boungou (Larefi, University of Bordeaux)
    Keywords: Negative interest rates, bank profitability, Bank risk taking, European Union countries,dynamic panel data model
    JEL: E43 E52 E58 G21
    Date: 2019–07
  42. By: Camille Cornand (Université de Lyon, CNRS, Gate OFCE, Sciences Po, Paris, France); Julien Pillot (Université Paris Saclay)
    Abstract: Establishing the external validity of laboratory experiments in terms of inflation forecasts is crucial for policy initiatives to be valid outside the laboratory. Our contribution is to document whether different measures of inflation expectations based on various categories of agents (participants to experiments, households, industry forecasters, professional forecasters, financial market participants and central bankers) share common patterns by analyzing: the forecasting performances of these different categories of data; the information rigidities to which they are subject; the determination of expectations. Overall, the different categories of forecasts exhibit common features: forecast errors are comparably large and autocorrelated, forecast errors and forecast revisions are predictable from past information, which suggests the presence of information frictions. Finally, the standard lagged inflation determinant of inflation expectations is robust to the data sets. There is nevertheless some heterogeneity among the six different sets. If experimental forecasts are relatively comparable to survey and financial market data, central bank forecasts seem to be superior.
    Keywords: Inflation expectations, experimental forecasts, survey forecasts, market based forecasts, central bank forecasts
    JEL: E3 E5
    Date: 2019–02
  43. By: Veronica ACURIO VASCONEZ
    Abstract: The consequences of oil price shocks in the real economy have preoccupied economists since the 1970s and the absence of a reaction has stunned them in the 2000s. However, despite the huge literature devoted to the subject, no dynamic stochastic general equilibrium (dsge) model has been able to capture, all at the same time, four of the well-known stylized effects observed after the oil price increase of the 2000s: the absence of recession, coupled with a low but persistent increase in the inflation rate, a decrease in real wages and low price elasticity of oil demand in the short run. One of the reasons is that theoretical papers assume a high degree of substitutability between oil and other factors, an assumption that is not backed up empirically. This paper enlarges the dsge model developed in Acurio-Vásconez et al. (2015) by introducing imperfect substitutability between oil and other factors. The Bayesian estimation of the model over the period 1984:Q1-2007:Q3 suggests that the elasticities of substitution of oil are 0.086 in production and 0.014 in consumption. Furthermore, a sensitivity analysis of the estimated model points towards two main policy conclusions: (a) a stronger anti-inflationary Taylor rule can lead to a recession after an oil shock and; (b) wage flexibility could create a stronger increase in inflation and provoke a decrease in domestic consumption. This latter result contradicts the conclusions of Blanchard and Galí (2009) and Blanchard and Riggi (2013).
    Keywords: New-Keynesian model, dsge, oil, ces, stickiness, oil substitution.
    JEL: D58 E32 E52 Q43
    Date: 2020
  44. By: Gabriel Merlo (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Sylvina Porras (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: This research analyzes the validity of Okun's law for the Uruguayan economy. The estimation of the relationship between unemployment and GDP is done using two of Okun's original models: the differences model and the gap model (Okun I and Okun II, respectively) for the period 1968-2018. We concluded that regardless of the model or the filter used for the decomposition of the series, Okun's relationship is significant and takes the expected sign. On average, for every percentage point that GDP grows above its natural or potential level, the unemployment rate is reduced by approximately 0.27 percentage points. This result is in line with those obtained for other developing countries whose levels are generally below (in absolute value) than those estimated for developed countries. The analysis of the stability of the law based on rolling-windows estimates suggests that it is not possible with the evidence found so far to reject the stability hypothesis, which is relevant for the purposes of using the law to make macroeconomic projections.
    Keywords: Okuns’s law, unemployment, GDP growth
    JEL: E23 E24 E26 J64
    Date: 2019–12
  45. By: Adam Elbourne (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This discussion paper presents further evidence that the most important published estimates of the effects of unconventional monetary policy are not reliable. It is a further elaboration of the ideas in the CPB discussion paper "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?". Previous empirical studies seem to show that the unconventional monetary policy of the ECB, also known as balance sheet policy, has a positive effect on growth and inflation. However, this conclusion is unfounded, because institutional features of monetary policy in the euro area make it impossible to identify unexpectedly exogenous variation in monetary policy. Read CPB Discussion Paper 391 "Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?". VAR modeling shows the effects of unexpected exogenous variation in monetary policy, also known as policy shocks. This discussion paper presents a number of reasons why the existing literature is unable to isolate unexpected variation in monetary policy.
    JEL: C32 E52
    Date: 2019–12
  46. By: David O. Lucca (Federal Reserve Bank); Richard K. Crump
    Abstract: Many economic time series display periodic and predictable patterns within each calendar year, generally referred to as seasonal effects. For example, retail sales tend to be higher in December than in other months. These patterns are well-known to economists, who apply statistical filters to remove seasonal effects so that the resulting series are more easily comparable across months. Because policy decisions are based on seasonally adjusted series, we wouldn?t expect the decisions to exhibit any seasonal behavior. Yet, in this post we find that the Federal Reserve has been much more likely to lower interest rates in the first month of each quarter over the past twenty-five years. While some of this seasonality is a result of meeting scheduling, a large seasonal component remains unexplained.
    Keywords: Federal funds rate; FOMC; seasonality
    JEL: E2 E5
  47. By: Richard Peach; M. Henry Linder; Robert W. Rich
    Abstract: Among the measures of core inflation used to monitor the inflation outlook, the series excluding food and energy prices is probably the best known and most closely followed by policymakers and the public. While the conventional ?ex food and energy? measure is a composite of the price changes of a large number of different products and services, almost all models developed to explain and forecast its behavior do not distinguish between the goods and services categories. Is the distinction important? Here, we highlight the different behavior and determinants of goods inflation and services inflation and suggest, based on preliminary analysis, that we can improve the forecast accuracy of this conventional core inflation measure by combining separate inflation forecasts of the two categories.
    Keywords: Services Inflation; Goods Inflation; Core Inflation; Phillips curve
    JEL: E2 E5
  48. By: Klaus Adam; Michael Woodford
    Abstract: We analytically characterize optimal monetary policy for an augmented New Keyne- sian model with a housing sector. With rational private sector expectations about housing prices and inflation, optimal monetary policy can be characterized by a standard 'target criterion' that refers to inflation and the output gap, without making reference to housing prices. When the policymaker is concerned with potential departures of private sector expectations from rational ones and seeks a policy that is robust against such possible departures, then the optimal target criterion must also depend on housing prices. For empirically realistic cases, the central bank should then 'lean against' housing prices, i.e., following unexpected housing price increases (decreases), policy should adopt a stance that is projected to undershoot (overshoot) its normal targets for inflation and the output gap. Robustly optimal policy does not require that the central bank distinguishes between 'fundamental' and 'non-fundamental' movements in housing prices.
    JEL: D81 D84 E52
    Date: 2020–02
  49. By: Andreas Hornstein; Marianna Kudlyak (Federal Reserve Bank of San Francisco; Federal Reserve Bank of Richmond)
    Abstract: Current unemployment, as of 2019Q4, is so low not because of unusually high job finding rates out of unemployment, but because of unusually low entry rates into unemployment. The unusually low entry rates, both from employment and from out of the labor force, reflect a long-run downward trend, and have lowered the unemployment rate trend over the recent decade. In fact, the difference between the current unemployment rate and unemployment rates at the two previous cyclical peaks in 2000 and 2007 is more than fully accounted for by the decline in its trend. This suggests that the current low unemployment rate does not indicate a labor market that is tighter than in 2000 or 2007.
    Keywords: unemployment; job finding rate; job separation rate
    JEL: E24 E32 J11 J63 J64
    Date: 2020–02–19
  50. By: Catherine Mathieu (OFCE, Sciences Po, Paris, France); Henri Sterdyniak (OFCE, Sciences Po, Paris, France)
    Abstract: For almost 20 years, euro area countries have been sharing a single currency. The drawbacks of the euro area framework were highlighted by the widening of imbalances prior to the 2007 financial crisis, and thereafter by the huge impact of the financial crisis, the public debt crisis in Southern countries, and the great recession. Prior to and after the crisis, EU institutions and Member States have not been able to implement either a common economic strategy, or satisfactory economic policy coordination. This did lead neither to a burst of the euro area, nor to a substantial change in its functioning. Euro area institutions were adapted, through the European Stability Mechanism, the fiscal treaty,the “first semester”, the European Central Bank’s support to MS, the banking union. Theseadaptations were painful. In mid-2018, the economic situation had clearly improved at the euro area level. However, the following question remains unsolved: can the functioning of the euro area be improved, accounting for divergent situations, interests and views in MS? Section 2 recalls proposals from EU institutions and from MS. Section 3 presents and discusses several economists’ viewpoints and proposals to improve the euro area policy framework. Some economists rely on financial markets to control domestic economic policies, some are in favour of the introduction of a euro zone budget and minister of finance, some are in favour of moving towards a federal EU with increased democracy, some make original proposals to cut publicdebts, and last some advocate better economic policy coordination.
    Keywords: Fiscal policy, policy coordination, EMU governance
    JEL: E62 N14
    Date: 2018–12
  51. By: Marcelo Veracierto (Federal Reserve Bank; Federal Reserve Bank of Chicago)
    Abstract: This paper introduces a general method for computing equilibria with heterogeneous agents and aggregate shocks that is particularly suitable for economies with private information. Instead of the cross-sectional distribution of agents across individual states, the method uses as a state variable a vector of spline coefficients describing a long history of past individual decision rules. Applying the computational method to a Mirrlees RBC economy with known analytical solution recovers the solution perfectly well. This test provides considerable confidence on the accuracy of the method.
    Keywords: private information; business cycles; heterogenous agents; Computational methods
    JEL: E32 C63 E27
    Date: 2020–02–01
  52. By: Lilit Popoyan (Institute of Economics (LEM), Scula superiore Sant'Anna, Pisa, Italia); Mauro Napoletano (Sciences Po OFCE, Skema Business School); Andrea Roventini (EMbe DS and Institute of Economics (LEM))
    Keywords: Financial instability, interbank market freezes, monetary policy, macro- prudential policy, Basel III regulation, Tinbergen principle, agent-based model.
    JEL: C63 E52 E6 G01 G21 G28
    Date: 2019–07
  53. By: Silvia Miranda-Agrippino (Bank of England; CEPR; Centre for Macroeconomics (CFM)); Tsvetelina Nenova (London Business School); Helene Rey (London Business School; CEPR; NBER)
    Abstract: We study the international transmission of the monetary policy of the two world's giants: China and the US. From East to West, the channels of global transmission differ markedly. US monetary policy shocks affect the global economy primarily through their effects on integrated financial markets, global asset prices, and capital ows. EMEs in particular see both a reduction in in ows and a surge in out ows when the market tide turns as a result of a US monetary contraction. Conversely, international trade, commodity prices and global value chains are the main channels through which Chinese monetary policy transmits worldwide. AEs with a strong manufacturing sector are particularly sensitive to these disturbances.
    Keywords: Monetary policy, Global financial cycle, International pillovers, US, China
    JEL: E44 E52 F33 F42
    Date: 2020–01
  54. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Despite extensive research efforts, the magnitude of the effect of employment protection legislation (EPL) on unemployment remains unclear. Existing econometric estimates exhibit substantial variation, and it is therefore difficult to draw valid conclusions. This paper applies meta-analysis and meta-regression methods to a unique data set consisting of 881 observations on the effect of EPL on unemployment from 75 studies. Once we control for publication selection bias, we cannot reject the hypothesis that the average effect of EPL on unemployment is zero. The meta-regression analysis, which investigates sources of heterogeneity in the reported effect sizes, reveals the following main results. First, the choice of the EPL variable matters estimates that build on survey-based EPL variables report a significantly stronger unemployment-increasing impact of EPL than estimates developed using EPL indices based on the OECD’s methodology, where the latter relies on coding information from legal provisions. Second, we find that employment protection has a small unemployment-increasing effect on female unemployment, compared with a zero impact on total unemployment. Third, using multi-year averages of the underlying data tends to dampen the unemployment effects of EPL. Fourth, product market regulation is found to moderate the effect of EPL on unemployment. Disclaimer Funding from the Austrian Ministry of Social Affairs is gratefully acknowledged.
    Keywords: Unemployment; labour market institutions; employment protection; meta-analysis
    JEL: C54 C83 E24
    Date: 2020–02
  55. By: Frank Schorfheide; Marco Del Negro; Daniel Herbst (Research and Statistics Group)
    Abstract: Dynamic stochastic general equilibrium (DSGE) models have been trashed, bashed, and abused during the Great Recession and after. One of the many reasons for the bashing was the models? alleged inability to forecast the recession itself. Oddly enough, there?s little evidence on the forecasting performance of DSGE models during this turbulent period. In the paper ?DSGE Model-Based Forecasting,? prepared for Elsevier?s Handbook of Economic Forecasting, two of us (Del Negro and Schorfheide), with the help of the third (Herbst), provide some of this evidence. This post shares some of our results.
    Keywords: Great Recession; DSGE models; forecasting
    JEL: E2 G1
  56. By: Michael J. Boskin
    Abstract: The Traditional View (TV) of large deficits and debt is they have large economic costs, save in a recession and early recovery, because they crowd out investment and lower future income, and taken to extremes, can cause inflation and even a financial crisis. The TV has been challenged, most fundamentally in Olivier Blanchard’s 2019 AEA Presidential Address, an elegant extension of Peter Diamond’s OLG model to account for risk in an expected utility framework. He concludes they may have no fiscal cost and increase welfare. I present evidence of looming large deficit and debt/GDP increases and their effects on recovery from recession, interest rates and long-run growth. I discuss several substantive issues with the “no fiscal cost” view that limit its applicability, including accounting neither for the effect of increasing debt on interest rates and growth nor the pre-existing primary deficit, debt and their projected evolution; disputable readings of the data; strong assumptions and parameter values driving the results; and a political economy of deficits and debt likely to lead to even larger debt ratios. Acknowledging uncertainties, the evidence still suggests that large increases in the debt ratio could lead to much higher taxes, lower future incomes and intergenerational inequity.
    JEL: E62 H6 H62 H63 H68
    Date: 2020–02
  57. By: Jan J. J. Groen; Patrick Russo (Research and Statistics Group)
    Abstract: Oil prices have declined substantially since the summer of 2014. If these price declines reflect demand shocks, then this would suggest a slowdown in global economic activity. Alternatively, if the declines are driven by supply shocks, then the drop in prices might indicate a forthcoming boost in spending as firms and households benefit from lower energy costs. In this post, we use correlations of oil price changes with a broad array of financial variables to confirm that this recent fall in oil prices has been mostly the result of increased global oil supply. We then use a model to assess how this supply shock will affect U.S. economic conditions in 2015.
    Keywords: Oil Prices; Oil Supply Shocks; Asset Prices; VAR models
    JEL: E2 F00 G1
  58. By: Sampson, Thomas; Leromain, Elsa; Novy, Dennis; Breinlich, Holger
    Abstract: This paper studies how the depreciation of sterling following the Brexit referendum affected consumer prices in the United Kingdom. Our identification strategy uses input-output linkages to account for heterogeneity in exposure to import costs across product groups. We show that, after the referendum, inflation increased by more for product groups with higher import shares in consumer expenditure. This effect is driven by both direct consumption of imported goods and the use of imported inputs in domestic production. Our results are consistent with complete pass-through of import costs to consumer prices and imply an aggregate exchange rate pass-through of 0:29. We estimate the Brexit vote increased consumer prices by 2:9 percent, costing the average household £870 per year. The increase in the cost of living is evenly shared across the income distribution, but differs substantially across regions.
    Keywords: Brexit; exchange rate pass-through; import costs; inflation
    JEL: E31 F15 F31
    Date: 2019–12
  59. By: Marcelo Veracierto (Federal Reserve Bank; Federal Reserve Bank of Chicago)
    Abstract: I consider a real business cycle model in which agents have private information about the i.i.d. realizations of their value of leisure. For the case of logarithmic preferences I provide an analytical characterization of the solution to the associated mechanism design problem. Moreover, I show a striking irrelevance result: That the stationary behavior of all aggregate variables are exactly the same in the private information economy as in the full information case. Numerical simulations indicate that the irrelevance result approximately holds for more general CRRA preferences.
    Keywords: heterogenous agent; business cycles; private information; social insurance; RBC model; Log consumption; optimal contracts
    JEL: F44 E60 F41
    Date: 2019–12–15
  60. By: Pearl Li; Marco Del Negro; Micah Smith (Research and Statistics Group); Erica Moszkowski; Marc Giannoni
    Abstract: We have implemented the FRBNY DSGE model in a free and open-source language called Julia. The code is posted here on GitHub, a public repository hosting service. This effort is the result of a collaboration between New York Fed staff and folks from the QuantEcon project, whose aim is to coordinate development of high performance open-source code for quantitative economic modeling.
    Keywords: Julia; open source; DSGE; high performance code
    JEL: E2
  61. By: Fuchs, Fabian U.
    Abstract: This paper examines the foreign exchange rate exposures of US companies and how they are linked to foreign macroeconomic determinants. I use US trade-weighted macroeconomic indices of foreign countries to explain the variation in foreign exchange rate exposures, measured as the sensitivities of stock returns to exchange rate returns of US non-financial companies over the period 1995 to 2017. I find strong evidence that the after-hedging exposures of potential exporters are affected by their expectations of foreign market gross domestic products, current account balances, consumer price indices, term spreads, unit labor costs as well as government expenditures.
    Keywords: exchange rate exposure,macroeconomic expectations,selective hedging
    JEL: F31 G1 E44
    Date: 2020
  62. By: G. Thomas Kingsley; Anna L. Paulson (Federal Reserve Bank of Chicago); Todd Prono; Travis D. Nesmith
    Abstract: By stepping between bilateral counterparties, a central counterparty (CCP) transforms credit exposure. CCPs generally improve financial stability. Nevertheless, large CCPs are by nature concentrated and interconnected with major global banks. Moreover, although they mitigate credit risk, CCPs create liquidity risks, because they rely on participants to provide cash. Such requirements increase with both market volatility and default; consequently, CCP liquidity needs are inherently procyclical. This procyclicality makes it more challenging to assess CCP resilience in the rare event that one or more large financial institutions default. Liquidity-focused macroprudential stress tests could help to assess and manage this systemic liquidity risk.
    Keywords: margin; financial systems; Central Counterparties (CCPs); procyclicality; liquidity risk; financial stability
    JEL: G28 E58 N22 G21 G23
    Date: 2019–12–01
  63. By: Lu Zhang (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: To what extent do large drops in house prices drive household consumption? Using a large panel of Dutch households over the period 2007 to 2014, when house price dropped 27%, we find a significantly positive relationship between house prices and household (durable) consumption. A 10% change in home values leads to a 0.7% change in household consumption for homeowners, but a negligible response for renters. Young and middle-aged homeowners have larger consumption sensitivities to house prices than old households. Delving into the underlying channels, a pure wealth effect can explain part of the consumption sensitivity to house prices. Furthermore, we find strong evidence that house prices affect consumption through the borrowing collateral (and precautionary saving) channel.
    JEL: D12 D14 E21
    Date: 2019–04
  64. By: Jean-Bernard Chatelain (PSE); Kirsten Ralf
    Abstract: This paper compares different implementations of monetary policy in a new-Keynesian setting. We can show that a shift from Ramsey optimal policy under short-term commitment (based on a negative feedback mechanism) to a Taylor rule (based on a positive feedback mechanism) corresponds to a Hopf bifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and output gap) are forward-looking variables in the new-Keynesian theory.
    Date: 2020–02
  65. By: David O. Lucca (Federal Reserve Bank); Emanuel Moench (Deutsche Bundesbank; Halle (Saale); Bank für Internationalen Zahlungsausgleich)
    Abstract: For many years, economists have struggled to explain the ?equity premium puzzle??the fact that the average return on stocks is larger than what would be expected to compensate for their riskiness. In this post, which draws on our recent New York Fed staff report, we deepen the puzzle further. We show that since 1994, more than 80 percent of the equity premium on U.S. stocks has been earned over the twenty-four hours preceding scheduled Federal Open Market Committee (FOMC) announcements (which occur only eight times a year)?a phenomenon we call the pre-FOMC announcement ?drift.?
    Keywords: stock market; equity premium puzzle; FOMC
    JEL: E5 G1
  66. By: Jacopo Staccioli (Scuola Superiore Sant'Anna, Pisa, Italy); Mauro Napoletano (OFCE, Sciences Po, Paris, France)
    Abstract: We build an agent based model of a financial market that is able to jointly reproduce many of the stylized facts at different time-scales. These include properties related to returns (leptokurtosis, absence of linear autocorrelation, volatility clustering), trading volumes (volume clustering, correlation betwenn volume and volatility), and timing of trades (number of price changes, autocorrelation of durations between subsequent trades, heavy tails in their distribution, order-side clustering). With respect to previous contributions we introduce a strict event scheduling borrowed from the Euronext exchange, and an endogenous rule for traders participation. We show that such a rule is crucial to match stylized facts.
    Keywords: Intra-day financial dynmaics, stylized facts, agent-based artificial stock markets, Market microstructure
    JEL: C63 E12 E22 E32 O4
    Date: 2018–10
  67. By: Gareth Anderson (International Monetary Fund (IMF); University of Oxford); Ambrogio Cesa-Bianchi (Bank of England; Centre for Economic Policy Research (CEPR); Centre for Macroeconomics (CFM))
    Abstract: We show that credit spreads rise after a monetary policy tightening, yet spread reactions are heterogeneous across firms. Exploiting information from a unique panel of corporate bonds matched with balance sheet data for US non-financial firms, we document that firms with high leverage experience a more pronounced increase in credit spreads than firms with low leverage. A large fraction of this increase is due to a component of credit spreads that is in excess of firms’ expected default—the excess bond premium. Consistent with the spreads response, we also document that high-leverage firms experience a sharper contraction in debt and investment than low-leverage firms. Our results provide evidence that balance sheet effects are crucial for understanding the transmission mechanism of monetary policy.
    Keywords: Monetary policy, Heterogeneity, Credit spreads, Excess bond premium, Credit channel, Financial accelerator, Event study, Identification
    JEL: E44 F44 G15
    Date: 2020–01
  68. By: Benjamin Born; Gernot Müller; Johannes Pfeifer; Susanne Wellmann; Gernot J. Müller
    Abstract: Interest-rate spreads fluctuate widely across time and countries. We characterize their behavior using some 3,200 quarterly observations for 21 advanced and 17 emerging economies since the early 1990s. Before the financial crisis, spreads are 10 times more volatile in emerging economies than in advanced economies. Since 2008, the behavior of spreads has converged across country groups, largely because it has adjusted in advanced economies. We also provide evidence on the transmission of spread shocks and find it similar across sample periods and country groups. Spread shocks have become a more important source of output fluctuations in advanced economies 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
  69. By: Jérôme Creet (Sciences Po, OFCE); Mehdi El Herradi (LAREFI, Université de Bordeaux)
    Keywords: Euro area, monetary policy, income distribution, Panel VAR
    JEL: E62 E64 D63
    Date: 2019–09
  70. By: Den Haan, Wouter J.; Drechsel, Thomas
    Abstract: Constructing empirical specifications for structural economic models is difficult, if not impossible. As shown in this paper, even minor misspecifications may lead to large distortions for parameter estimates and implied model properties. We propose a novel concept, namely an agnostic structural disturbance (ASD), that can be used to both detect and correct for misspecification of structural disturbances and is easy to implement. While agnostic in nature, the estimated coefficients and associated impulse response functions of the ASDs allow us to give them an economic interpretation. We adopt the methodology to the Smets–Wouters model and formulate an improved risk-premium and an improved investment-specific productivity disturbance.
    Keywords: DSGE; full-information model estimation; Structural disturbances; ES/R009295/1
    JEL: C13 C52 E30
    Date: 2020–01–22
  71. By: Bruno Ducoudré (OFCE Sciences Po, Paris); Mathieu Plane (OFCE Sciences Po, Paris); Xavier Ragot (OFCE et Sciences Po-CNRS); Raul Sampognaro (OFCE, Sciences Po, Paris); Francesco Saraceno (OFCE, Sciences Po, Paris); Xavier Timbeau (OFCE, Sciences Po, Paris)
    Abstract: Les règles budgétaires européennes fixent un certain nombre de contraintes sur les finances publiques des États membres. Ceux-ci doivent respecter un plafond de déficit et de dette et s’engager sur un objectif de solde structurel à moyen terme. Ils doivent aussi respecter une variation du solde structurel et limiter la progression des dépenses publiques. En parallèle, à l’ajout de nouvelles contraintes, les dernières réformes de la gouvernance ont introduit des flexibilités afin de mieux adapter la réponse aux chocs macroéconomiques. Le cadre est ainsi devenu plus complexe mais il n’a pas permis d’éviter la crise des dettes souveraines dans la zone euro.De nombreuses propositions de réforme des règles sont actuellement en débat. Le FMI a proposé une philosophie de réforme pour un meilleur équilibre entre flexibilité, simplicité et contrainte. Cette philosophie a été introduite dans le cadre de la zone euro par quatorze économistes franco-allemands. Ils proposent de rebâtir les règles budgétaires autour d’une règle de dépenses publiques avec un mécanisme correcteur de la dette. Nous analysons les propriétés macroéconomiques de cette proposition. Selon les simulations réalisées à partir du modèle iAGS, la règle de dépense est inapplicable à des pays ayant un niveau de dette trop éloigné de 60% mais qui présentent des soldes structurels positifs, tels l’Italie ou le Portugal. Pour ces pays la règle provoque des efforts irréalistes qui aboutiraient à une très forte décroissance de la dette, l’amenant en terrain négatif assez rapidement. Ceci est accentué par le fait que la règle proposée est asymétrique. En revanche, en cas de choc de demande ou d’inflation non anticipé, la règle a les bonnes propriétés contra-cycliques. À nos yeux, une règle budgétaire, même réformée, ne suffira pas pour sortir de la synchronisation des politiques budgétaires et aller vers une véritable coordination. La tension existe entre une gouvernance par les règles et une gouvernance par la coordination. L’analyse des règles actuelles et de la proposition des quatorze économistes franco-allemands nous conduit à plaider pour la seconde option. L’hétérogénéité des pays européens rend impossible l’imposition à tous d’une règle simple. Il faut dès lors augmenter l’intensité de l’analyse économique portant sur la situation de chaque pays pour donner les moyens à une institution de prendre des décisions informées et de fournir des recommandations sur moyenne période. La contrepartie de cette agilité est un contrôle plus important de la soutenabilité des finances publiques. De manière plus opérationnelle, les interactions au sein du Semestre européen pourraient jouer ce rôle-là. Cette instance pourrait devenir le moment où l’on définit et l’on met en place conjointement la stratégie de croissance de l’Union, et où l’on établit la contribution de chaque pays à l’objectif commun.
    Keywords: Fiscal policy, Eurozone governance, Fiscal Rules, règles budgétaires
    JEL: E62 H6 H61
    Date: 2018–12
  72. By: Angel De la Fuente; Pep Ruiz
    Abstract: En este trabajo se describe la construcción del módulo sectorial de la base de datos RegData FEDEA-BBVA. Las series regionales de empleo, ocupados y asalariados, VAB, salarios medios y remuneración de asalariados de RegData se desagregan en seis grandes sectores, y se desagregan tentativamente los servicios en otros tres This paper describes the construction of the sectoral module of the RegData FEDEA-BBVA database. The RegData regional series of employment, employed and salaried persons, GVA, average salaries and salaried wages are broken down into six large sectors, and services are tentatively broken down into three others
    Keywords: Employment, Empleo, income, renta, Spain, España, Regional Analysis Spain, Análisis Regional España, Working Papers, Documento de Trabajo
    JEL: E01 R1
    Date: 2020–02
  73. By: Stefan Jestl (The Vienna Institute for International Economic Studies, wiiw); Emanuel List
    Abstract: This paper constructs distributional national accounts for Austria for the period 2004-2016. We enrich survey data with tabulated tax data and make it fully consistent with national accounts data. The comprehensive dataset allows us to analyse the distribution of macroeconomic growth across the income distribution and to explore the evolution of income inequality in pre-tax income over time. Our results suggest that the distribution of growth has changed over time, which had considerable repercussions on inequality. Inequality started to decline at the very beginning of the economic and financial crisis in 2007, however it has increased again after 2012. We further provide novel insights into the evolution of capital income for top income groups and explore redistribution mechanisms that operated in Austria. Government spending was found to play a key role for redistributive effects across the income distribution. In particular, the transfer system redistributes pre-tax income to a large extent. Disclaimer This research has been conducted as a project at the Research Institute for Economics of Inequality (INEQ -- Vienna University for Economics and Business) and was financially supported by the Chamber of Labour Vienna.
    Keywords: Distributional national accounts; Austria; survey data; tax data; income inequality
    JEL: C55 D31 E01
    Date: 2020–02
  74. By: Thomas Klitgaard; James Narron (Executive Office)
    Abstract: In the late 1800s, a surge in silver production made a shift toward a monetary standard based on gold and silver rather than gold alone increasingly attractive to debtors seeking relief through higher prices. The U.S. government made a tentative step in this direction with the Sherman Silver Purchase Act, an 1890 law requiring the Treasury to significantly increase its purchases of silver. Concern about the United States abandoning the gold standard, however, drove up the demand for gold, which drained the Treasury?s holdings and created strains on the financial system?s liquidity. News in April 1893 that the government was running low on gold was followed by the Panic in May and a severe depression involving widespread commercial and bank failures.
    Keywords: panic 1893 gold silver bimetallism Bryan Friedman monetary policy standard
    JEL: E5 N2
  75. By: Antoine Martin; Simon M. Potter; Kyungmin (Teddy) Kim; Sam Schulhofer-Wohl; Gara Afonso; Ed Nosal
    Abstract: Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-2009 financial crisis. We find that the optimal level of reserve supply likely lies somewhere between scarce and abundant reserves, thus highlighting the benefits of implementation with what could be called “ample” reserves. The Federal Reserve’s announcement in October 2019 that it would maintain a level of reserve supply greater than the one that prevailed in early September is consistent with the implications of our framework.
    Keywords: Federal funds market; interest rates; ample reserve supply; bank reserves; monetary supply
    JEL: E58 E42
    Date: 2020–01–02
  76. By: M. Henry Linder; Robert W. Rich; Richard Peach
    Abstract: Following a significant slowing during the recent recession, growth in various labor compensation measures has stabilized during the past two to three years. This stabilization is puzzling because it?s widely held that a significant amount of slack remains in the economy. Accordingly, this large amount of slack should result in a further slowing in compensation (wage) growth. In this post, we show that there?s a very mild trade-off between compensation growth and resource slack, even though slack is sizable. Consequently, the observation that there?s slow but steady growth in labor compensation measures is consistent with a large amount of slack in the current economic environment.
    Keywords: Compensation Growth; Wage-inflation Phillips Curve; Unemplyment Gap; Nonlinear Relationship; Slack
    JEL: E2
  77. By: Arezki,Rabah
    Abstract: This paper examines the role of monetary policy in fossil fuel exporters at different horizons. The main argument is that central banks in these economies need to look beyond the horizon of the business cycle. In the short run, (independent) monetary policy should flexibly target inflation. In the medium run, central banks need to coordinate with fiscal authorities to ensure that monetary policy operates around a credible and sustainable fiscal anchor. In the long run, central banks should beware of the existential threats posed by new risks related to stranded assets.
    Keywords: Macroeconomic Management,Inflation,Banks&Banking Reform,Energy Demand,Energy and Mining,Energy and Environment,Financial Structures
    Date: 2019–06–11
  78. By: Abdallah Othman (Department of Banking and Finance, Eastern Mediterranean University, Famagusta, North Cyprus); Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Ontario and Eastern Mediterranean University, North Cyprus)
    Abstract: The real rate of return to capital plays a vital part in the economy in evaluating the contribution of capital investment to the economic growth. As it is also a key variable in estimating the economic opportunity cost of capital for use as the economic discount rate in investment decision making. The objective of this study is to estimate the economic real rates of return to reproducible and remunerative capital of the EAC economies. The results indicate that the real rates of return to reproducible capital over the period 1999 –2016 have averaged 10.70% in Kenya and Rwanda, while it averaged 12.05% and 9.86% in Tanzania and Uganda, respectively. With regard to the marginal rates of return to remunerative capital, the results suggest that EAC countries have averaged 16.28%, 16.21%, 15.07% and 14.49% in Tanzania, Rwanda, Kenya and Uganda, respectively, over the same period.
    Keywords: Capital Return; Public and Private Investment; Economic Growth; East Africa
    JEL: E01 E22 E60 H43 N17
    Date: 2019–11
  79. By: Eric LeSueur (Markets Group); Alex Entz (Research and Statistics Group); Gara M. Afonso
    Abstract: The federal funds market plays an important role in the implementation of monetary policy. In our previous post, we examine the lending side of the fed funds market and the decline in total fed funds volume since the onset of the financial crisis. In today?s post, we discuss the borrowing side of this market and the interesting role played by foreign banks.
    Keywords: Federal funds; borrowing; foreign institutions
    JEL: E5 G1 G2
  80. By: Robert J. Hodrick
    Abstract: This paper uses simulations to explore the properties of the HP filter of Hodrick and Prescott (1997), the BK filter of Baxter and King (1999), and the H filter of Hamilton (2018) that are designed to decompose a univariate time series into trend and cyclical components. Each simulated time series approximates the natural logarithms of U.S. Real GDP, and they are a random walk, an ARIMA model, two unobserved components models, and models with slowly changing nonstationary stochastic trends and definitive cyclical components. In basic time series, the H filter dominates the HP and BK filters in more closely characterizing the underlying framework, but in more complex models, the reverse is true.
    JEL: E32
    Date: 2020–02
  81. By: Bassino, Jean-Pascal; Lagoarde-Segot, Thomas; Woitek, Ulrich
    Abstract: This paper presents evidence of the irreversible consequences of exogenous climatic shocks and economic fluctuations on human welfare. We rely on a unique data set covering the period from 1872 to 1917, corresponding to the early phase of Japanese industrialization. This data includes prefecture level average temperature, precipitation, agricultural prices, and the number of individuals by interval of height recorded in conscription reports, as well as nationwide indices of fluctuation in economic activities. We estimate the impact of yearly and monthly regional climate anomalies and yearly nationwide business cycle reversals on the average height of Japanese conscripts and its dispersion.
    Keywords: Business cycles, climate shocks, human stature, height cycles, Japan
    JEL: E32 I15 N15 N95 Q54
    Date: 2020–01
  82. By: Jonathan McCarthy; Simon M. Potter
    Abstract: The unemployment rate in the United States fell from 9.1 percent in the summer of 2011 to 8.3 percent in February. This decline, the largest six-month drop in the unemployment rate since 1984, has surprised many economic forecasters. The decline is even more surprising because recent real GDP growth appears to have been around trend at best, whereas in early 1984, growth was more than 7 percent. Our next six posts in Liberty Street Economics will discuss prospects for the U.S. labor market given this surprisingly quick decline in the unemployment rate. In this opening post, we outline some of the themes examined in this series and provide a brief summary of our conclusions. But first we develop a simple framework to place the unemployment rate in context with the rest of the labor market.
    Keywords: labor market flows; employment to population ratio; Labor market; labor force participation; unemployment rate
    JEL: E2 J00
  83. By: Pizzinelli, Carlo (International Monetary Fund); Theodoridis, Konstantinos (Cardiff Business School); Zanetti, Francesco (University of Oxford)
    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: Forecast Breaks, Statistical Decision Making, Central Banking
    JEL: C53 E47 E58
    Date: 2020–03
  84. By: Brett Rose; Deborah Leonard; Simon M. Potter; Antoine Martin
    Abstract: In our previous post, we considered balance sheet mechanics related to the Federal Reserve?s purchase and redemption of Treasury securities. These mechanics are fairly straightforward and help to illustrate the basic relationships among actors in the financial system. Here, we turn to transactions involving agency mortgage-backed securities (MBS), which are somewhat more complicated. We focus particularly on what happens when households pay down their mortgages, either through regular monthly amortizations or a large payment covering some or all of the outstanding balance, as might occur with a refinancing.
    Keywords: MBS; Balance sheet; mortgage-backed securities; reinvestment
    JEL: E5
  85. By: Ayşegül Şahin; Richard K. Crump
    Abstract: Recessions and recoveries typically have been times of substantial reallocation in the economy and the labor market, and the current cycle does not appear to be an exception. The speed and smoothness of reallocation depend in part on the structure of the labor market, particularly the degree of mismatch between the characteristics of available workers and newly available jobs. Such mismatches could occur because of differences in skills between workers and jobs (skills mismatch) or because of differences in the location of the available jobs and available workers (geographic mismatch). In this post, we focus on skills mismatch to assess the extent to which the slow pace of the labor market recovery from the Great Recession can be attributed to such problems. If skills mismatch is much more severe than usual, we would expect the unemployment rate to remain higher for longer and the workers subject to such mismatch to have worse labor market outcomes.
    Keywords: Skills mismatch; Labor market; Construction workers; Unemployment
    JEL: E2 J00
  86. By: Rutger Teulings (CPB Netherlands Bureau for Economic Policy Analysis); Bram Wouterse (CPB Netherlands Bureau for Economic Policy Analysis); Kan Ji (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: We estimate the contemporaneous relationship between household debt and consumption for the period 2006 to 2015. Using Dutch administrative data, we fi nd that the average consumption of households with high debt has decreased much more during the crisis than that of other households. We disentangle this into an effect through the availability of credit for direct consumption and an effect through household debt overhang.
    JEL: D12 D14 E21
    Date: 2019–04
  87. By: Salvador Padilla Jiménez
    Abstract: El presente documento analiza las políticas económicas ejecutadas en el primer año de gobierno federal liderado por Andrés Manuel López Obrador (AMLO). Se visualizan cuatro grandes políticas sociales que incrementan el consumo de la población y favorecen la formación de capital humano: el aumento del salario mínimo; las becas para alumnos de educación básica, media superior y superior; el programa de capacitación laboral para jóvenes y la pensión universal a adultos mayores. Además, con el objetivo de dinamizar los estados rezagados del sur-sureste del país, el gobierno decidió rehabilitar el sistema nacional de producción y refinación de petróleo, modernizar varios puertos-aeropuertos y construir el Tren Maya y el Transístmico. Sin embargo, hace falta una agenda más amplia de combate a la desigualdad a través de una reforma fiscal progresiva, así como la aplicación de una política de ciencia y tecnología que sirva de base para el desarrollo industrial en productos de alto valor agregado. El reto de la política industrial es articular eficazmente las cadenas de valor a lo largo y ancho del territorio, con el fin de aumentar la competitividad y satisfacer la demanda creciente en el mercado interno y externo.
    Keywords: políticas públicas, programas sociales, proyectos de inversión, gobierno federal, López Obrador
    JEL: E62 H53 I38
    Date: 2020–03–05
  88. By: Hauptmeier, Sebastian; Kamps, Christophe
    Abstract: This paper is linked to two debates on fiscal policies: first, the implications of low interest-growth differentials for debt sustainability and, second, the reform of the EU fiscal governance framework. In both debates the choice of government debt anchor and the speed of adjustment take centre stage. The Stability and Growth Pact's debt rule appears predestined to fulfil the role of debt anchor. However, our analysis shows that its existing design gives rise to a pro-cyclical bias that has hampered its implementation in the low-growth low-inflation environment. We propose two parametric changes to better balance the objectives of macroeconomic stabilisation and debt sustainability: first, accounting for persistent deviations of inflation from the central bank's objective; and, second, a reduced speed of adjustment. Putting a reformed debt rule at the centre of the EU fiscal governance framework would allow reducing the latter's complexity without the need to revise the EU Treaties. JEL Classification: E62, F42, H61, H62, H63, H87
    Keywords: fiscal governance, fiscal policy, fiscal rules, interest rates, public debt sustainability
    Date: 2020–03
  89. By: Juan Gabriel Brida (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Grupo de Investigación en Dinámica Económica); Bibiana Lanzilotta (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Lucía Rosich (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Grupo de Investigación en Dinámica Económica)
    Abstract: This paper examines the common trends between producers’ expectations and their interdependence with economic growth in Uruguay, for the last two decades (1998-2017). We consider producers’ expectation indicators derived from qualitative surveys collected by the “Cámara de Industrias del Uruguay” classified in four groups: exporters, low-trade industries, import-substitution industries and intra-sectoral trade industries. In base on Multivariate Structural Models estimations, we found that there is a common level between the expectation indicators of four manufacturing groups. The group who lead expectations of all manufacturing firms is the more exposed to international competition. So, the trend component of the exporters' expectations drives that of the other groups. The research additionally shows that there is a nonlinear cointegration relationship between producers’ expectations and Uruguayan GDP growth. Although it indicates that in the long-run there is bidirectional causality between both variables, in the short-run causality goes uniquely from expectations to GDP growth. Besides, this finding suggests that expectations could be an accurate leader indicator; the driver of the global expectation is the aggregate indicator of the more tradable manufacturers in Uruguay.
    Keywords: agents’ expectations, common factors, Multivariate Structural Models, GDP forecasting, nonlinear cointegration
    JEL: C32 D84 E32
    Date: 2019–12
  90. By: Jean-Bernard Chatelain (PJSE); Kirsten Ralf
    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 setup 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. We thank John P. Conley, Luis de Araujo and one referree for their very helpful comments.
    Date: 2020–02
  91. By: Thomas Walstrum; William Kluender (Compass Lexecon); Scott Brave; Charles Gascon
    Abstract: US payroll employment data come from a survey of nonfarm business establishments and are therefore subject to revisions. While the revisions are generally small at the national level, they can be large enough at the state level to substantially alter assessments of current economic conditions. Researchers and policymakers must therefore exercise caution in interpreting state employment data until they are "benchmarked" against administrative data on the universe of workers some 5 to 16 months after the reference period. This paper develops and tests a state space model that predicts benchmarked US state employment data in realtime. The model has two distinct features: 1) an explicit model of the data revision process and 2) a dynamic factor model that incorporates realtime information from other state-level labor market indicators. We find that across the 50 US states, the model reduces the average size of benchmark revisions by about 9 percent. When we optimally average the model’s predictions with those of existing models, we find that we can reduce the average size of the revisions by about 15 percent.
    Keywords: dynamic factor model; Employment; Data revisions; nowcasting
    JEL: C53 E24 R11
    Date: 2019–12–02
  92. By: Thomas Klitgaard; Linda Wang (Research and Statistics Group)
    Abstract: The federal tax cut and the increase in federal spending at the beginning of 2018 substantially increased the government deficit, requiring a jump in the amount of Treasury securities needed to fund the gap. One question is whether the government will have to rely on foreign investors to buy these securities. Data for the first half of 2018 are available and, so far, the country has not had to increase the pace of borrowing from abroad. The current account balance, which measures how much the United States borrows from the rest of the world, has been essentially unchanged. Instead, the tax cut has boosted private saving, allowing the United States to finance the higher federal government deficit without increasing the amount borrowed from foreign investors.
    Keywords: trade balance current account balance of payments saving investment spending government federal deficit borrowing
    JEL: E2
  93. By: Harry Wheeler (Research and Statistics Group); Thomas Klitgaard
    Abstract: Why have interest rates stayed low for so long after the financial crisis?and will they remain low for the foreseeable future? One way to answer these questions is to use the accounting identity that global saving must equal physical investment spending and argue that low rates have been necessary to prop up investment spending enough to match saving. From this perspective, the extent of any recovery in interest rates depends on whether weak investment spending is driven primarily by secular demographic trends that are a long-term drag on aggregate demand or by the residual effects of the financial crisis.
    Keywords: saving glut investment spending saving interest rates global residential demographics secular stagnation interenational economics current account balance of payments
    JEL: E2 F00
  94. By: van Rens, Thijs (University of Warwick and Centre for Macroeconomics); Vukotic, Marija (University of Warwick)
    Abstract: Estimated impulse responses of investment and hiring typically peak well after the impact of a shock. Standard models with adjustment costs in capital and labor do not exhibit such delayed adjustment, but we argue that it arises naturally when we relax the assumption that the production technology is separable over time. This result holds for both non-convex and convex cost functions, and for reasonable parameter values the e⁄ect is strong enough to match the persistence observed in the data. We discuss some evidence for our explanation and ways to test the model.
    Keywords: persistence ; adjustment costs ; organizational capital JEL codes: E24 ; J61 ; J62
    Date: 2020
  95. By: Pietro Garibaldi (Collegio Carlo Alberto Università degli Studi di Torino); Pedro Gomes (Department of Economics, Mathematics and Statistics Birkbeck College; Centre for Macroeconomics (CFM)); Thepthida Sopraseuth (Théorie Économique, Modélisation, Application (THEMA) Université de Cergy-Pontoise)
    Abstract: The public sector hires disproportionately more educated workers. Using US microdata, we show that the education bias also holds within industries and in two thirds of 3-digit occupations. To rationalize this finding, we propose a model of private and public employment based on two features. First, alongside a perfectly competitive private sector, a cost-minimizing government acts with a wage schedule that does not equate supply and demand. Second, our economy features heterogeneity across individuals and jobs, and a simple sorting mechanism that generates underemployment – educated workers performing unskilled jobs. The equilibrium model is parsimonious and is calibrated to match key moments of the US public and private sectors. We find that the public-sector wage differential and excess underemployment account for 15 percent of the education bias, with the remaining accounted for by technology. In a counterintuitive fashion, we find that more wage compression in the public sector raises inequality in the private sector. A 1 percent increase in unskilled public wages raises skilled private wages by 0.07 percent and lowers unskilled private wages by 0.06 percent.
    Keywords: Public Sector Employment, Public-sector wages, Underemployment, Education
    JEL: E24 J20 J24 J31 J45
    Date: 2019–12
  96. By: Kenneth D. Garbade (Federal Reserve Bank; Bankers Trust Company); James J. McAndrews
    Abstract: The United States has slid into eight recessions in the last fifty years. Each time, the Federal Reserve sought to revive economic activity by reducing interest rates (see chart below). However, since the end of the last recession in June 2009, the economy has continued to sputter even though short-term rates have remained near zero. The weak recovery has led some commentators to suggest that the Fed should push short-term rates even lower?below zero?so that borrowers receive, and creditors pay, interest.
    Keywords: Negative interest rates
    JEL: E5 G2 G1
  97. By: Marco Del Negro; Frank Schorfheide; Raiden B. Hasegawa
    Abstract: Model uncertainty is pervasive. Economists, bloggers, policymakers all have different views of how the world works and what economic policies would make it better. These views are, like it or not, models. Some people spell them out in their entirety, equations and all. Others refuse to use the word altogether, possibly out of fear of being falsified. No model is ?right,? of course, but some models are worse than others, and we can have an idea of which is which by comparing their predictions with what actually happened. If you are open-minded, you may actually want to combine models in making forecasts or policy analysis. This post discusses one way to do this, based on a recent paper of ours (Del Negro, Hasegawa, and Schorfheide 2014).
    Keywords: DSGE; Model Combination; Model Uncertainty
    JEL: E2 E5
  98. By: Kenneth D. Garbade (Federal Reserve Bank; Bankers Trust Company)
    Abstract: From time to time, and most recently in the April 2014 meeting of the Treasury Borrowing Advisory Committee, U.S. Treasury officials have questioned whether the Treasury should have a safety net that would allow it to continue to meet its obligations even in the event of an unforeseen depletion of its cash balances. (Cash balances can be depleted by an unanticipated shortfall in revenues or a spike in disbursements, an inability to access credit markets on a timely basis, or an auction failure.) The original version of the Federal Reserve Act provided a robust safety net because the act implicitly allowed Reserve Banks to buy securities directly from the Treasury. This post reviews the history of the Fed?s direct purchase authority. (A more extensive version of the post appears in this New York Fed staff report.)
    Keywords: liquidity buffer; safety net; direct purchases
    JEL: E5 G2
  99. By: Chung Tran; Sebastian Wende
    Abstract: We study the incidence of capital income taxation in a dynamic general equilibrium model with heterogeneous firms and lifecycle households. In this incomplete market setting, marginal excess burdens of three capital taxes, namely corporate income, dividend and capital gains taxes, are vastly different due to heterogeneous responses of firms and households, and heterogeneous effects of general equilibrium adjustments. It is indeed important to account for firm heterogeneity in productivity and investment financing as well as household heterogeneity in age and skill. Overall, taxing capital with a corporate income tax at the firm level results in higher excess burden than taxing capital with dividend and capital gains taxes at the household level. Given the existing U.S. tax treatment for capital income, reforms that shift tax burden from the firm to household side potentially result in efficiency gains and overall welfare improving. However, the welfare benefits of the tax reforms are quite different across households and generations over transition time, depending on skill, age-cohort and budget balancing tax instruments. In particular, majority of currently alive households, especially retirees, experience welfare gains under moderate corporate income tax cuts, but suffer from welfare losses under more radical tax cuts.
    Keywords: Excess burden; Tax incidence; Distributional eects; Overlapping generations; Dynamic general equilibrium
    JEL: D21 E62 H21 H22 H25
    Date: 2020–03
  100. By: Christelis, Dimitris; Georgarakos, Dimitris; Jappelli, Tullio; van Rooij, Maarten
    Abstract: Using micro data from the 2015 Dutch CentERpanel, we examine whether trust in the European Central Bank (ECB) influences individuals’ expectations and uncertainty about future inflation, and whether it anchors inflation expectations. We find that higher trust in the ECB lowers inflation expectations on average, and significantly reduces uncertainty about future inflation. Moreover, results from quantile regressions suggest that trusting the ECB increases (lowers) inflation expectations when the latter are below (above) the ECB’s inflation target. These findings hold after controlling for people’s knowledge about the objectives of the ECB. JEL Classification: D12, D81, E03, E40, E58
    Keywords: anchoring, consumer expectations, inflation uncertainty, trust in the ECB
    Date: 2020–02
  101. By: Bryan Harcy; Can Sever
    Abstract: Financial crises are accompanied by permanent drops in economic growth and output. Technological progress and innovation are important drivers of economic growth. This paper studies how financial crises affect innovative activities. Using cross-country panel data on patenting at the industry-level, we identify a financial channel whereby disruptions in financial markets impact patenting activity. Specifically, we find that patenting decreases more following banking crises for industries that are more dependent on external finance. This financial channel is not at play during currency crises, sovereign debt crises, or recessions more generally, suggesting that disruption in banking activity matters for investment in innovative activities. The effect on patenting is economically large and long-lasting, resulting in less patenting, in terms of both total quantity and quality, for 10 years or longer after a banking crisis. The average patent quality, however, does not appear to decline. We show the results are not likely to be driven by reverse causality or omitted variables. These findings provide a link between banking crises and the observed patterns of lower long-term growth. Liquidity support in the aftermath of banking crises appears to help reduce the effects through the financial channel over the short term.
    Keywords: innovation, financial crises, banking crises, patents, growth
    JEL: E44 F30 G15 G21 O31
    Date: 2020–03
  102. By: Adam, Marc Christopher
    Abstract: This paper seeks to explain the collapse of the market for bankers' acceptances between 1931 and 1932 by tracing the doctrinal foundations of Federal Reserve policy and regulations back to the Federal Reserve Act of 1913. I argue that a determinant of the collapse of the market was Carter Glass' and Henry P. Willis' insistence on one specific interpretation of the "real bills doctrine", the idea that the financial system should be organized around commercial bills. The Glass-Willis doctrine, which stressed non-intervention and the self-liquidating nature of real bills, created doubts about the eligibility of frozen acceptances for purchase and rediscount at the Reserve Banks and caused accepting banks to curtail their supply to the market. The Glass-Willis doctrine is embedded in a broader historical narrative that links Woodrow Wilson's approach to foreign policy with the collapse of the international order in 1931.
    Keywords: Federal Reserve System,Acceptances,Great Depression
    JEL: B30 E58 F34 N12 N22
    Date: 2020
  103. By: Laia Maynou (Department of Health Policy, London School of Economics and Political Science, UK); Bruce Morley (Department of Economics, University of Bath, UK); Mercedes Monfort (IEI and Department of Economics, Universitat Jaume I, Castellón, Spain); Javier Ordóñez (IEI and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: The aim of this study is to determine whether there is any evidence of convergence in house prices across the European economies, including both members and non-members of the Eurozone. A new test which searches for convergence among clusters of markets is used. This suggests there are five clusters across Europe, however there is no evidence of a Eurozone cluster. The bconvergence dynamic model shows overall convergence among the 12 countries analysed. The econometric analysis also allows us to determine the main drivers of the real House Price indices, which are private consolidated debt (%GDP), the unemployment rate (%) and the long-term government interest rate (%). Given the importance of housing markets to the economy, the Eurozone may have to consider measures that facilitate convergence across the member’s housing markets.
    Keywords: convergence, European Union, house prices
    JEL: C33 E44 R21
    Date: 2020
  104. By: Bardt, Hubertus
    Abstract: Die USA stehen am Beginn eines Wahljahres. Die Wahlen am 3. November 2020 werden prägenden Einfluss auf das transatlantische Verhältnis und auf globale Kooperationsstrukturen auf vielfältigen Themengebieten haben. Dabei geht es nicht nur um die Frage, ob die aktuelle Administration für weitere vier Jahre gewählt wird. Eine Wiederwahl des derzeitigen Präsidenten wird vermutlich multilaterale Ansätze weiter schwächen und transatlantische Kooperationen erschweren. Während eine Fortsetzung der bisherigen Präsidentschaft über vier weitere Jahre bis Anfang 2025 - bei aller Unberechenbarkeit der derzeitigen US-Administration - bestehende Entwicklungstendenzen fortschreiben dürfte, kann bei einem Regierungswechsel mit Veränderungen gerechnet werden. Dies wird aber weder bedeuten, dass die vergangenen vier Jahre ungeschehen gemacht werden können, noch ist eine 180 Grad-Wende der Politik in den für Deutschland und Europa wichtigen Themenfeldern realistisch. Wie eine mögliche Administration unter demokratischer Führung agieren kann, hängt wesentlich von der politischen Positionierung eines neuen Präsidenten ab. Je nachdem, welcher Kandidat von der demokratischen Partei nach den Vorwahlen nominiert wird, werden die Unterschiede zur aktuellen Politik aber in einzelnen Politikfeldern gar nicht so groß sein. Insbesondere wenn es um freien Handel geht, finden sich bei den demokratischen Kandidaten teilweise ausgeprägte protektionistische Tendenzen. Einen Weg zurück in eine vermeintlich konfliktfreie Kooperation - die es aber auch nie gab - wird es nicht geben. Dies gilt umso mehr dann, wenn ein demokratischer Präsident nicht auf eine Mehrheit in beiden Häusern zurückgreifen kann.
    JEL: E6 F13 D72
    Date: 2020
  105. By: Ouyang, Min; Zhang, Shengxing
    Abstract: We propose corruption can substitute for conventional collateral in enforcing financial commitments when institutions are poor. A theoretical framework with agency frictions is built, in which corruptive relations with government officials keep firms committed to loan payments. Based on this framework, we hypothesize the anti-corruption investigation destroys the commitment mechanism so that firms default and, most importantly, firms default strategically as long as they can substitute corruption with other collateral. We investigate regional data and firm-level data from China, and find powerful evidence supporting our hypotheses.
    Keywords: Corruption, Relationship lending, Strategic defaults
    JEL: E44 O16
    Date: 2020–02–10
  106. By: David O. Lucca (Federal Reserve Bank); Jonathan H. Wright; Samuel Hanson
    Abstract: The sensitivity of long-term interest rates to short-term interest rates is a central feature of the yield curve. This post, which draws on our Staff Report, shows that long- and short-term rates co-move to a surprising extent at high frequencies (over daily or monthly periods). However, since 2000, they co-move far less at lower frequencies (over six months or a year). We discuss potential explanations for this finding and its implications for the transmission of monetary policy.
    Keywords: conundrum; interest rates; monetary policy transmission
    JEL: G1 E2
  107. By: Bruno Ducoudré (OFCE, Sciences Po, Paris, France); Xavier Timbeau (OFCE, Sciences Po, Paris, France); Sébastien Villemot (OFCE, Sciences Po, Paris, France)
    Abstract: This paper is aimed at revisiting monetary analysis in order to better understand erroneous choices in the conduct of monetary policy. According to the prevailing consensus, the market economy is intrinsically stable and is upset only by poor behaviour by government or the banking system. We maintain on the contrary that the economy is unstable and that achieving stability requires a discretionary economic policy. This position relies upon an analytical approach in which monetary and financial organisations are devices that help markets to function. In this perspective, which focuses on the heterogeneity of markets and agents, and, consequently, on the role of institutions in determining overall performance, it turns out that nominal rigidities and financial commitment offer the means to achieve economic stability. This is because they prevent successive, unavoidable disequilibria from becoming explosive. Classification-JEL: Equilibrium exchange rate, trade balance, price-competitiveness
    Keywords: E31, F41
    Date: 2018–12
  108. By: Sarah Guillou (OFCE Sciences Po Paris); Tania Treibich (Maastricht University (The Netherlands), Sant'Anna School of advanced studies and OFCE, Sciences PO Paris)
    Keywords: Export diversification, managers, occupation, employer-employee data
    JEL: F16 E24 C14 D22
    Date: 2019–06
  109. By: Tongtong Hao; Ruiqi Sun; Trevor Tombe; Xiaodong Zhu
    Abstract: Between 2000 and 2015, China's aggregate income quadrupled, its provincial income inequality fell by a third, and its share of employment in agriculture fell by half. Worker migration is central to this transformation, with almost 300 million workers living and working outside their area or sector of hukou registration by 2015. Combining rich individual-level data on worker migration with a spatial general equilibrium model of China's economy, we estimate the reductions in internal migration costs between 2000 and 2015, and quantify the contributions of these cost reductions to economic growth, structural change, and regional income convergence. We find that over the fifteen-year period China's internal migration costs fell by forty-five percent, with the cost of moving from agricultural rural areas to non-agricultural urban ones falling even more. In addition to contributing substantially to growth, these migration cost changes account for the majority of the reallocation of workers out of agriculture and the drop in regional inequality. We compare the effect of migration policy changes with other important economic factors, including changes in trade costs, capital market distortions, average cost of capital, and productivity. While each contributes meaningfully to growth, migration policy is central to China's structural change and regional income convergence. We also find the recent slow-down in aggregate economic growth between 2010 and 2015 is associated with smaller reduction in inter-provincial migration costs and a larger role of capital accumulation.
    Keywords: Migration, Structural Change, Regional Income Convergence, China
    JEL: E24 J61 O15 O41 O47 R12 R23
    Date: 2020–02–26
  110. By: Leonardo Gambacorta (Bank for International Settlements); Sergio Mayordomo (Banco de España); José María Serena (Bank for International Settlements)
    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 very 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: 2020–03
  111. By: Max Franks; Ottmar Edenhofer
    Abstract: We show how normative standpoints determine optimal taxation of wealth. Since wealth is not equal to capital, we find very different welfare implications of land rent-, bequest- and capital taxation. It is mainly land rents that should be taxed. We develop an overlapping generations model with heterogeneous agents and calibrate it to OECD data. We compare three normative views. First, the Kaldor-Hicks criterion favors the laissez-faire equilibrium. Second, with prioritarian welfare functions based on money-metric utility, high land rent taxes are optimal due to a portfolio effect. Third, if society disapproves of bequeathing, bequest taxation becomes slightly more desirable.
    Keywords: optimal taxation, social welfare, wealth inequality, land rent tax, Georgism
    JEL: D31 D63 E62 H21 H23 Q24
    Date: 2020
  112. By: Sammuel Stern; Gara M. Afonso
    Abstract: Over the last decade, the federal funds market has evolved to accommodate new policy tools such as interest on reserves and the overnight reverse repo facility. Trading motives have also responded to the expansion in aggregate reserves as the result of large-scale asset purchases. These changes have affected market participants differently since, for instance, not all institutions are required to keep reserves at the Fed and some are not eligible to earn interest on reserves. Differential effects have changed the profile of participants willing to borrow and lend in this market, and this shift provides an opportunity to study how unconventional policy actions shape participant incentives. In today?s post, we take a detailed look at regulatory filings to identify the main players in today?s fed funds market and understand how their roles have evolved.
    Keywords: monetary policy; Fed funds market
    JEL: G1 G2 E5
  113. By: Ricardo Lagos; Shengxing Zhang
    Abstract: We formulate a generalization of the traditional medium-of-exchange function of money in contexts where there is imperfect competition in the intermediation of credit, settlement, or payment services used to conduct transactions. We find that the option to settle transactions directly with money strengthens the stance of sellers of goods and services vis-á-vis intermediaries. We show this mechanism is operative even for sellers who never exercise the option to sell for cash, and that these "latent money demand" considerations imply monetary policy remains effective through medium-of-exchange channels even if the share of monetary transactions is arbitrarily small.
    JEL: D83 E5 G12
    Date: 2020–02
  114. By: Jeffrey B. Dawson (Research and Statistics Group); Hunter L. Clark (Research and Statistics Group)
    Abstract: Although there has been a notable deceleration in the pace of credit growth recently, the run-up in debt in China has been eye-popping, accounting for more than 60 percent of all new credit created globally over the past ten years. Rising nonfinancial sector debt was driven initially by an increase in corporate borrowing, which surged in 2009 in response to the global financial crisis. The most recent leg of China?s credit boom has been due to an important shift toward household lending. To better understand the rise in household debt in China and its implications for financial stability and China?s economic performance, it is important to examine the expansion in household credit, how the rise in debt compares to international experience, and the associated risks.
    Keywords: bank credit; China; household debt
    JEL: E6
  115. By: Daniel Belton; Leonardo Gambacorta; Sotirios Kokas; Raoul Minetti
    Abstract: We empirically assess the responses of banks in the United States to a regulatory change that influenced the distribution of funding in the banking system. Following the 2011 FDIC change in the assessment base, insured banks found wholesale funding more costly, while uninsured branches of foreign banks enjoyed cheaper access to wholesale liquidity. We use quarterly bank balance sheet data and a rich data set of syndicated loans with borrower and lender characteristics to show that uninsured foreign banks, which faced a relatively positive shock, engaged in liquidity hoarding. Hence, they accumulated more reserves but extended fewer total syndicated loans and became more passive in the syndicated loan deals in which they participated. These results contribute to the discussion on the role of foreign banks in credit creation, especially in a country like the United States where foreign banks also have a crucial role in managing USD money market operations at the group level.
    Keywords: foreign banks, liquidity shocks, wholesale funding, syndicated loans
    JEL: G21 G28 E44
    Date: 2020–03
  116. By: Howell, Elizabeth
    JEL: E6
    Date: 2019
  117. By: Joseph Morris Morris (Transportation Research Board); Andrew F. Haughwout; Therese McGuire (Kellogg School of Management, Northwestern University)
    Abstract: On January 14, the Transportation Research Board, an arm of the National Research Council, released a new report, Transportation Investments in Response to Economic Downturns. The report is intended to provide guidance on three important and related policy questions:?If the federal government undertakes a future stimulus program, should transportation spending be part of that package??If so, how should the transportation spending be structured and managed??Should established transportation programs be modified to make transportation spending more useful as economic stimulus?
    JEL: E2 H00
  118. By: Olivier Coibion; Dimitris Georgarakos; Yuriy Gorodnichenko; Michael Weber
    Abstract: We compare the causal effects of forward guidance communication about future interest rates on households’ 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 individuals’ 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 year’s 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.
    Keywords: expectations management, inflation expectations, surveys, communication, randomized controlled trial
    JEL: E31 C83 D84
    Date: 2020
  119. By: Ylva Søvik; Emily Eisner (Research and Statistics Group); Antoine Martin
    Abstract: What types of counterparties can borrow from or lend to a central bank, and what kind of collateral must they possess in order to receive a loan? These are two key aspects of a central bank?s monetary policy implementation framework. Since at least the nineteenth century, it has been understood that an important role of central banks is to lend to solvent but illiquid institutions, particularly during a crisis, as this provides liquidity insurance to the financial system. They also provide liquidity to markets during normal times as a means to implement monetary policy. Central banks that rely on scarcity of reserves need to adjust the supply of liquidity in the market, as described in our previous post. In this post, we focus on liquidity provision related to the conduct of monetary policy.
    Keywords: central bank collateral and counterparties
    JEL: E5
  120. By: Sean Hundtofte; Michael Junho Lee; Antoine Martin; Reed Orchinik (Research and Statistics Group)
    Abstract: Having witnessed the dramatic rise and fall in the value of cryptocurrencies over the past year, we wanted to learn more about what motivates people to participate in this market. To find out, we included a special set of questions in the May 2018 Survey of Consumer Expectations, a project of the New York Fed?s Center for Microeconomic Data. This blog post summarizes the results of that survey, shedding light on U.S. consumers? depth of participation in cryptocurrencies and their motives for entering this new market.
    Keywords: Bitcoin; Cryptocurrency
    JEL: E5
  121. By: Jin Yeub Kim (Yonsei Univ); Yongjun Kim (Univ of Seoul); Myungkyu Shim (Yonsei Univ)
    Abstract: Financial analysts may have strategic incentives to herd or to anti-herd when issuing forecasts of firms' earnings. This paper develops and implements a new test to examine whether such incentives exist and to identify the form of strategic behavior. We use the equilibrium property of the finite-player forecasting game of Kim and Shim (2019) that forecast dispersion decreases as the number of forecasters increases if and only if there is strategic complementarity in their forecasts. Using the I/B/E/S database, we find strong evidence that supports strategic herding behavior of financial analysts. This finding is robust to different forecast horizons and sequential forecast release.
    Keywords: financial analysts, earnings forecasting, finite-player forecasting game, strate- gic interaction, herding
    JEL: D83 E37 G17
    Date: 2019–12
  122. By: James Narron (Executive Office); Donald P. Morgan
    Abstract: On the crisp morning of January 24, 1848, James Marshall, a carpenter in the employ of John Sutter, traveled up the American River to inspect a lumber mill that Sutter had ordered constructed close to timber sources. Marshall arrived to find that overnight rains had washed away some of the tailrace the crew had been digging. But as Marshall examined the channel, something shiny caught his eye, and as he bent over to retrieve the object, his heart began to pound. Gold! Marshall and Sutter tried to contain the secret, but rumors soon spread to Monterey, San Francisco, and beyond?and the rush was on. In this edition of Crisis Chronicles, we describe the excitement of the California Gold Rush and explain how it constituted an inflationary shock because the United States was tied to the gold standard at the time.
    Keywords: gold standard; gold rush
    JEL: G1 E2
  123. By: Richard Peach
    Abstract: According to the Congressional Budget Office (CBO), under current policies the ratio of federal debt held by the public over gross domestic product?the debt-to-GDP ratio?will rise rapidly over the next decade. This unsustainable fiscal position presents the nation with two significant challenges. First, it requires fiscal consolidation that will, at a minimum, cause the ratio to level off in the not-too-distant future. Second, fiscal consolidation has to occur in a way that will keep the U.S. economy operating at as close to full employment as possible?a process known as rebalancing. While these challenges are very daunting, we?ve faced them before, and met them quite successfully in the mid-1980s through the mid-1990s. Using federal budget accounting and national income accounting, this post describes how fiscal consolidation and rebalancing were accomplished in the previous episode. By doing so, we can put our current fiscal position in perspective while shedding light on what needs to happen if we?re to be successful this time.
    Keywords: Fiscal Consolidation Full Employment
    JEL: E2 H00
  124. By: Preston Mui (Research and Statistics Group); Thomas Klitgaard
    Abstract: The United States has been borrowing from the rest of the world since the mid-1980s. From 2000 to 2008, this borrowing averaged over $600 billion per year, which translates into U.S. spending exceeding income by almost 5.0 percent of GDP. Borrowing fell during the recent recession, as would be expected, and then rebounded with the recovery. Since 2011, however, borrowing has trended down and fell to 2.4 percent of GDP in 2013, the smallest amount as a share of GDP since 1997. A reduced dependency on foreign funds can be viewed as a favorable development to the extent that it reflects an improvement in the fiscal balance to a more easily sustainable level. However, it also reflects the lackluster recovery in residential investment, which is one reason the economy has yet to get back to its full operating potential.
    Keywords: U.S. borrowing current account gross saving investment spending
    JEL: F00 E2
  125. By: Rossi, Federico (University of Warwick)
    Abstract: The role of human capital in facilitating macro-economic development is at the center of both academic and policy debates. Through the lens of a simple aggregate production function, human capital might increase output per capita by directly entering in the production process, incentivising the accumulation of complementary inputs and facilitating the adoption of new technologies. This paper discusses the advantages and limitations of three approaches that have been used to evaluate the empirical importance of these channels: cross-country regressions, development accounting and quantitative models. The key findings in the literature are reviewed, and some of them are replicated using updated data. The bulk of the evidence suggests that human capital is an important determinant of cross-country income gaps, especially when its measurement is broadened to go beyond simple proxies of educational attainment. The paper concludes by highlighting policy implications and promising avenues for future work.
    Keywords: Human Capital ; Development ; Growth JEL codes: E24 ; O11 ; O47 ; I25
  126. By: Ayşegül Şahin; Jonathan McCarthy; Simon M. Potter
    Abstract: A major theme of the posts in our labor market series has been that the outflows from unemployment, either into employment or out of the labor force, have been the primary determinant of unemployment rate dynamics in long expansions. The key to the importance of outflows is that within long expansions there have not been adverse shocks that lead to a burst of job losses. To illustrate the power of this mechanism, we presented simulations in a previous post that were based on the movements in the outflow and inflow rates in the previous three expansions. These simulated paths show the unemployment rate declining to a level well below current consensus predictions over the medium term.
    Keywords: job finding rate; labor force participation; labor market exit rate; labor market entry; employment to population ratio; job loss; Unemployment rate; labor flows
    JEL: E2 J00
  127. By: Andras Lengyel; Massimo Giuliodori
    Abstract: In this paper we use high-frequency (intraday) government bond futures price changes around German and Italian Treasury auctions to identify unexpected shifts in the demand for public debt. Estimates show that positive demand shocks lead to large and persistent negative movements in Treasury yields. There is also evidence of significant spillover effects into Treasury bond, equity and corporate bond markets of other euro area countries. We find interesting differences in the effects of demands shocks between the two countries, which are consistent with the "safe-haven" status of German bonds versus the "high-debt" status of Italian Treasuries. Results also suggest that these effects are stronger during periods of high financial stress.
    Keywords: Sovereign bonds; Primary market; High-frequency identification; Yield curve
    JEL: F4 E43 G15
    Date: 2020–03
  128. By: Christopher Roth; Sonja Settele; Johannes Wohlfart
    Abstract: We examine how beliefs about the debt-to-GDP ratio affect people's attitudes towards government spending and taxation. Using representative samples of the US population, we run a series of experiments in which we provide half of our respondents with information about the debt-to-GDP ratio in the US. Based on a total of more than 4,000 respondents, we find that most people underestimate the debt-to-GDP ratio and reduce their support for government spending once they learn about the actual amount of debt, but do not substantially alter their attitudes towards taxation. The treatment effects seem to operate through changes in expectations about fiscal sustainability and persist in a four-week follow-up.
    Keywords: government debt, political attitudes, beliefs, expectations, information
    JEL: P16 E60 Z13
    Date: 2020
  129. By: Jan J. J. Groen; Richard Peck (Research and Statistics Group)
    Abstract: The global sell-off last May of emerging market equities and currencies of countries with high interest rates (?carry-trade? currencies) has been attributed to changes in the outlook for U.S. monetary policy, since the sell-off took place immediately following Chairman Bernanke?s May 22 comments concerning the future of the Fed?s asset purchase programs. In this post, we look back at global asset market developments over the past summer, and measure how changes in global risk aversion affected the values of carry-trade currencies and emerging market equities between May and September of last year. We find that the initial signal of a possible change in U.S. monetary policy coincided with an increase in global risk aversion, which put downward pressure on global asset prices.
    JEL: G1 F00 E5
  130. By: Harry Wheeler (Research and Statistics Group); Thomas Klitgaard
    Abstract: Various news reports have asserted that the slowdown in China was a key factor driving down commodity prices in 2015. It is true that China?s growth eased last year and, owing to its manufacturing-intensive economy, that slackening could reasonably have had repercussions for commodity prices. Still, growth in Japan and Europe accelerated in 2015, with the net result that global growth was fairly steady last year, casting doubt on the China slowdown explanation. An alternative story relies on the strong correlation between the dollar and commodity prices over time. A simple regression shows that both global growth and the dollar track commodity prices, and in this framework, it is the rise of the dollar that captures last year?s drop in commodity prices. Thus a forecast of stable global growth and a relatively unchanged dollar suggests little change in commodity prices in 2016.
    Keywords: commodity prices global growth China dollar industrial supplies import prices CRB
    JEL: F00 E2
  131. By: Richard Peck (Research and Statistics Group); Thomas Klitgaard
    Abstract: Economists often model inflation as dependent on inflation expectations and the level of economic slack, with changes in expectations or slack leading to changes in the inflation rate. The global slowdown and the subsequent sovereign debt crisis caused the greatest divergence in unemployment rates among euro area member countries since the monetary union was founded in 1999. The pronounced differences in economic performances of euro area countries since 2008 should have led to significant differences in price behavior. That turned out to be the case, with a strong correlation evident between disinflation and labor market deterioration in euro area countries.
    Keywords: inflation unemployment euro area periphery disinflation phillips curve
    JEL: F00 E2
  132. By: Laia Maynou (Department of Health Policy, London School of Economics and Political Science, UK); Javier Ordóñez (IEI and Department of Economics, Universitat Jaume I, Castellón, Spain); José Ignacio Silva (Department of Economics, Universitat de Girona, Spain)
    Abstract: In this paper, we study the convergence of the NEET rates (the rate of young people not in employment, education or training) across European regions between 2000 and 2015. First, we apply the Phillips and Sul (2007, 2009) convergence tests and identify the presence of four important clusters with different trends in the NEET rates. The first two clusters mainly include regions located in Western and Southern Europe and show an increase with respect to the average NEET but with different speed. The other two clusters mainly contain North and Central European regions showing constant NEET rates with respect but with different levels. Then, we use a spatial-temporal econometric model to confirm the presence of β–convergence in the NEET rates, identify their determinants in each cluster and calculate their long-run NEET rates. The young unemployment rate and the percentage of early leavers from education and training are the main determinants of the in all clusters.
    Keywords: convergence, European Union, youth unemployment, NEET
    JEL: C33 E23 J13
    Date: 2020
  133. By: Campi, Mercedes; Dueñas, Marco; Fagiolo, Giorgio
    Abstract: In the last years, there has been a growing interest in studying the global food system as a complex evolving network. Much of the literature has been focusing on the way countries are interconnected in the food system through international-trade linkages, and what consequences this may have in terms of food security and sustainability. Little attention has been instead devoted to understanding how countries, given their capabilities, specialize in agricultural production and to the determinants of country specialization patterns. In this paper, we start addressing this issue using FAO production data for the period 1993-2013. We characterize the food production space as a time-sequence of bipartite networks, connecting countries to the agricultural products they produce, and we identify properties and determinants underlying their evolution. We find that the agricultural product space is a very dense network, which however displays well-defined and stable communities of countries and products, despite the unprecedented pressure that food systems have been undergoing in recent years. We also find that the observed community structures are not only shaped by agro-ecological conditions but also by economic, socio-political, and technological factors. Finally, we discuss the implications that such findings may have on our understanding of the complex relationships involving country production capabilities, their specialization patterns, food security, and the nutrition content of the domestic part of their food supply.
    Keywords: Food systems; Food production; Specialization; Bipartite networks; Community structure detection; Hypergeometric filtering
    JEL: Q18 E23 N50
    Date: 2020–02
  134. By: Robert W. Rich; Joshua Abel; Jason Bram
    Abstract: Consumer confidence is closely monitored by policymakers and commentators because of the presumed insight it can offer into the outlook for consumer spending and thus the economy in general. Yet there?s another useful dimension to consumer confidence that?s often overlooked: its ability to signal incipient developments in the job market. In this post, we look at trends in a particular measure of consumer confidence?the Present Situation Index component of the Conference Board?s Consumer Confidence Index?over the past thirty-five years and show that they?re closely associated with movements in the unemployment rate and in payroll employment.
    Keywords: Consumer confidence unemployment employment labor market
    JEL: E2 J00
  135. By: David O. Lucca (Federal Reserve Bank); Thomas Klitgaard
    Abstract: Euro area sovereign bond yields fell to record lows and the euro weakened after the European Central Bank (ECB) dramatically expanded its asset purchase program in early 2015. Some analysts predicted massive financial outflows spilling out of the euro area and affecting global markets as investors sought higher yields abroad. These arguments ignore balance of payments accounting, which requires any financial outflow from the euro area to be matched by a similar-sized inflow, absent a quick and substantial current account improvement. The focus on cross-border financial flows also is misguided since, according to asset pricing principles, the euro and global asset prices can move without any change in financial outflows.
    Keywords: balance of payment; QE; ECB
    JEL: E5 G1 F00
  136. By: JaeBin Ahn; Romain A Duval; Can Sever
    Abstract: While there is growing evidence of persistent or even permanent output losses from financial crises, the causes remain unclear. One candidate is intangible capital – a rising driver of economic growth that, being non-pledgeable as collateral, is vulnerable to financial frictions. By sheltering intangible investment from financial shocks, counter-cyclical macroeconomic policy could strengthen longer-term growth, particularly so where strong product market competition prevents firms from self-financing their investments through rents. Using a rich cross-country firm-level dataset and exploiting heterogeneity in firm-level exposure to the sharp and unforeseen tightening of credit conditions around September 2008, we find strong support for these theoretical predictions. The quantitative implications are large, highlighting a powerful stabilizing role for macroeconomic policy through the intangible investment channel, and its complementarity with pro-competition product market deregulation.
    Date: 2020–02–07
  137. By: Razzak, Weshah; El Bentour, M
    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 population growth. 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: E10 O40
    Date: 2020–02–03
  138. By: Banerjee, Ryan; Hofmann, Boris; Mehrotra, Aaron
    Abstract: Using firm-level data for 18 major global economies, we find that the exchange rate affects corporate investment through a financial channel: exchange rate depreciation dampens corporate investment through firm leverage and FX debt. These findings are consistent with the predictions of a stylised model of credit risk in which exchange rates can affect investment through FX debt or borrowing in local currency from foreign lenders. Empirically, the channel is more pronounced in emerging market economies (EMEs), reflecting their greater dependence on foreign funding and their less developed financial systems. Moreover, we find that exchange rate depreciation induces highly leveraged firms to increase their cash holdings, supporting from a different angle the notion of a financial channel of the exchange rate. Overall, these findings suggest that the large depreciation of EME currencies since 2011 was probably a significant amplifying factor in the recent investment slowdown in these economies.
    JEL: E22 F31 F41 O16
    Date: 2020–02–27

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