nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒03‒30
97 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The power of forward guidance in a quantitative TANK model By Gerke, Rafael; Giesen, Sebastian; Scheer, F. Alexander
  2. Uncertainty in Turbulent Times By Vasily Astrov; Alexandra Bykova; Rumen Dobrinsky; Richard Grieveson; Julia Grübler; Doris Hanzl-Weiss; Gabor Hunya; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Bernd Christoph Ströhm; Hermine Vidovic
  3. Firm-bank credit network, business cycle and macroprudential policy By Luca Riccetti; Alberto Russo; Mauro Gallegati
  4. Empirical Analysis on the Effects of Japanese Fiscal Policy under the Effective Lower Bound By Morita, Hiroshi
  5. Financial variables as predictors of real growth vulnerability By Reichlin, Lucrezia; Ricco, Giovanni; Hasenzagl, Thomas
  6. Political Budget Cycles in the Eurozone By Frederico Silva Leal
  7. Labor Market Dynamics under Technology Shocks: The Role of Subsistence Consumption By Sangyup Choi; Myungkyu Shim
  8. Compositional Nature of Firm Growth and Aggregate Fluctuations By Vladimir Smirnyagin
  9. Assessing Macroeconomic Tail Risks in a Data-Rich Environment By Thomas R. Cook; Taeyoung Doh
  10. Fiscal policy with high debt and low interest rates By Gale, William G.
  11. Robustly Optimal Monetary Policy in a New Keynesian Model with Housing By Klaus Adam; Michael Woodford
  12. Forecasting in a complex environment: Machine learning sales expectations in a Stock Flow Consistent Agent-Based simulation model By Ermanno Catullo; Mauro Gallegati; Alberto Russo
  13. Contingent Linear Financial Networks By Bomin Jiang; Roberto Rigobon; Munther A. Dahleh
  14. Brexit and the Euro By Nauro F Campos; Corrado Macchiarelli
  15. Information Technology and Returns to Scale By Danial Lashkari; Arthur Bauer; Jocelyn Boussard
  16. A Long-Run Approach to Money, Unemployment and Equity Prices By Kuk Mo Jung; Ju Hyun Pyun
  17. Brave New World? Bitcoin is not the New Gold: Understanding Cryptocurrency Price Dynamics By Sangyup Choi; Junhyeok Shin
  18. Robustly Optimal Monetary Policy in a New Keynesian Model with Housing By Klaus Adam; Michael Woodford
  19. Implications of negative interest rates for the net interest margin and lending of euro area banks By Melanie Klein
  20. Fundamental Disagreement: How Much and Why? By Richard K. Crump; Stefano Eusepi
  21. Corona, Crisis and Conditional Heteroscedasticity By Kiss, Tamás; Österholm, Pär
  22. Cashless Economies, Data Analysis, and Research-Based Teaching: The Versatility of the Velocity of Money for Teaching Macroeconomics By Philip Gunby; Stephen Hickson
  23. How effective is the Taylor rule? Some insights from the time-frequency domain By Crowley, Patrick M.; Hudgins, David
  24. Household Services Expenditures: An Update By Jonathan McCarthy
  25. The FR-BDF Model and an Assessment of Monetary Policy Transmission in France By Matthieu Lemoine; Harri Turunen; Mohammed Chahad; Antoine Lepetit; Anastasia Zhutova; Pierre Aldama; Pierrick Clerc; Jean-Pierre Laffargue
  26. Forecasting Inflation with Fundamentals . . . It's Hard! By Jan J. J. Groen
  27. Demographic impacts on life cycle portfolios and financial market structures By Weifeng Liu; Phitawat Poonpolkul
  28. A Quantitative Evaluation of the Housing Provident Fund Program in China By Xiaoqing Zhou
  29. Demographics and inflation in the euro area: a two-sector new Keynesian perspective By Lis, Eliza; Nickel, Christiane; Papetti, Andrea
  30. The Bank of Japan as a Real Estate Tycoon: Large-Scale REIT Purchases By Takahiro Hattori; Jiro Yoshida
  31. Low-carbon transition risks for finance By Gregor Semieniuk; Emanuele Campiglio; Jean-Francois Mercure; Ulrich Volz; Neil R. Edwards
  32. Descripción de las Minutas e Informes de Política Monetaria a partir de herramientas de Lingüística Computacional By Daniela V. Guío-Martínez; Juan J. Ospina-Tejeiro; Germán A. Muñoz-Bravo; Julián A. Parra-Polanía
  33. Postkeynesianismus Ein heterodoxer Ansatz auf der Suche nach einer Fundierung By Heise, Arne
  34. Uruguay; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Uruguay By International Monetary Fund
  35. Interest Rate Pass-Through : A Meta-Analysis of the Literature By Gregora,Jiri; Melecky,Ales; Melecky,Martin
  36. Sigma Convergence and VECM Approach in Explaining the Relationship among Macro Variables in Indonesia By Sri Kurniawati
  37. The Effects of Land Markets on Resource Allocation and Agricultural Productivity By Chaoran Chen; Diego Restuccia; Raul Santaeulalia-Llopis
  38. The Macroeconomic Effects of Forward Guidance By Marco Del Negro; Marc Giannoni; Christina Patterson
  39. Malaysia; 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Malaysia By International Monetary Fund
  40. The Effects of Land Markets on Resource Allocation and Agricultural Productivity By Diego Restuccia; Chaoran Chen; Raul Santaeulalia-Llopis
  41. Partial pooling with cross-country priors: An application to house price shocks By Roth, Markus
  42. Global and local currency effects on euro area investment in emerging market bonds By Martijn Boermans; John Burger
  43. Fiscal Policy during a Pandemic By Miguel Faria-e-Castro
  44. What Do Banks Do with All That \\"Fracking\\" Money? By Matthew Plosser
  45. The Real Effects of Checks and Balances: Policy Uncertainty and Corporate Investment By Anne Duquerroy
  46. Perceived Precautionary Savings Motives: Evidence from FinTech By Francesco D'Acunto; Thomas Rauter; Christoph Scheuch; Michael Weber
  47. A new assessment of the Troika ´s economic policy for Portugal in 2012 following an Input-Output approach By José Carlos Coelho
  48. How Much Will the Rise in Commodity Prices Reduce Discretionary Income? By Jonathan McCarthy
  49. Social Infrastructure Finance and Institutional Investors. A Global Perspective By Inderst, Georg
  50. Financial stability committees and the countercyclical capital buffer By Edge, Rochelle M.; Liang, Jean Nellie
  51. Eastern Caribbean Currency Union; 2019 Discussion on Common Policies of Member Countries-Press Release; Staff Report; and Statement by the Executive Director for the Eastern Caribbean Currency Union By International Monetary Fund
  52. Solomon Islands; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Solomon Islands By International Monetary Fund
  53. Conflict and the Composition of Economic Activity in Afghanistan By Galdo, Virgilio; Lopez-Acevedo, Gladys; Rama, Martin
  54. A Unified Model of International Business Cycles and Trade By Saroj Bhattarai; Konstantin Kucheryavyy
  55. What’s News? By Linda S. Goldberg
  56. Burkina Faso’s Perspective on Total Official Support for Sustainable Development (TOSSD) By Guillaume Delalande; Cécile Sangaré; Friederike Rühmann; Julia Benn
  57. Ten years later – Did QE work? By Thomas Zimmermann; Stephan Luck
  58. Rising Bank Concentration By Dean Corbae; Pablo D'Erasmo
  59. Rules versus Discretion in Central Bank Communication By Raphael Galvao; Felipe Shalders
  60. Output Costs of Education and Skill Mismatch By Garibaldi, Pietro; Gomes, Pedro Maia; Sopraseuth, Thepthida
  61. A Way With Words: The Economics of the Fed’s Press Conference By Fernando M. Duarte; Carlo Rosa
  62. What About Spending on Consumer Goods? By Jonathan McCarthy
  63. Austria; Publication of Financial Sector Assessment Program Documentation-Technical Note on Macroprudential Policy Framework and Tools By International Monetary Fund
  64. A Uniform Currency in a Cashless Economy By Walter Engert; Ben Fung
  65. Managing South Africa's Exposure to Eskom : How to Evaluate the Credit Risk from the Sovereign Guarantees? By Bachmair,Fritz Florian; Aslan,Cigdem; Maseko,Mkhulu
  66. Long-Term Evolution of Inequality of Opportunity By Maurizio Bussolo; Daniele Checchi; Vito Peragine
  67. Housing Booms and the U.S. Productivity Puzzle By Jose Carreno
  68. A Model of Monetary Transmission Mechanism By Maruyama, Yuuki
  69. Lower Income Households’ Vulnerability to the Recent Commodity Price Surge By Jonathan McCarthy
  70. Job Polarization and the Labor Market: A Worker Flow Analysis By Alexandre Ounnas
  71. Nicaragua; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Nicaragua By International Monetary Fund
  72. Sudan; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Sudan By International Monetary Fund
  73. Labor Market Institutions and the Effects of Financial Openness By Shang-Jin Wei; Jun Nie; Qingyuan Du
  74. Downward Nominal Wage Rigidity in the United States during and after the Great Recession By Bruce C. Fallick; Daniel Villar Vallenas; William L. Wascher
  75. Republic of Croatia; 2019 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  76. Demand for Payment Services and Consumer Welfare: The Introduction of a Central Bank Digital Currency By Kim Huynh; Jozsef Molnar; Oleksandr Shcherbakov; Qinghui Yu
  77. Long-Term Evolution of Inequality of Opportunity By Maurizio Bussolo; Daniele Checchi; Vito Peragine
  78. Long-term growth impact of climate change and policies: the Advanced Climate Change Long-term (ACCL) scenario building model By Claire Alestra; Gilbert Cette; Valérie Chouard; Rémy Lecat
  79. Flexible Work Arrangements and Precautionary Behavior: Theory and Experimental Evidence By Orland, Andreas; Rostam-Afschar, Davud
  80. Valuing Economic Statistics: A Case Study By Amit Kara; Jason Lennard
  81. Worker Flows, Occupations and the Dynamics of Unemployment and Labor Force Participation By Alexandre Ounnas
  82. Utilising applied behavioural research to execute subsidy reform in Kuwait By Al-Ojayan, Hessah; Gaskell, George; Veltri, Giuseppe A.
  83. The Dynamic Impact of FX Interventions on Financial Markets By Lukas Menkhoff; Malte Rieth; Tobias Stöhr
  84. The transmission of business cycles: Lessons from the 2004 enlargement of the EU and the adoption of the euro By Hoang Sang Nguyen; Fabien Rondeau
  85. The dollar, bank leverage and real economic activity: an evolving relationship By Burcu Erik; Marco Jacopo Lombardi; Dubravko Mihaljek; Hyun Song Shin
  86. Perceptions of Coronavirus Mortality and Contagiousness Weaken Economic Sentiment By Thiemo Fetzer; Lukas Hensel; Johannes Hermle; Christopher Roth
  87. Austria; Publication of Financial Sector Assessment Program Documentation-Technical Note on Insurance Sector—Regulation, Supervision, Recovery, and Resolution Regime Prospects By International Monetary Fund
  88. Identification robust empirical evidence on the Euler equation in open economies By Qazi Haque; Leandro M. Magnusson
  89. Fiscal Consolidations and Informality in Latin America and the Caribbean By Thibault Lemaire
  90. Les dépenses publiques dans l’Athènes démocratique : 200 ans après August Böckh By David Pritchard
  91. Why is the Hong Kong housing market unaffordable? Some stylized facts and estimations By Charles Ka Yui Leung; Joe Cho Yiu Ng; Edward Chi Ho Tang
  92. When the Cycle Becomes the Trend : The Emerging Market Experience with Fiscal Policy during the Last Commodity Super Cycle By Amra,Rashaad; Hanusch,Marek; Jooste,Charl
  93. Career Consequences of Firm Heterogeneity for Young Workers: First Job and Firm Size By Arellano-Bover, Jaime
  94. CCAR: More than a Stress Test By Beverly Hirtle
  95. Too many shocks spoil the interpretation By Adrian Pagan; Tim Robinson
  96. Republic of Congo; Technical Assistance Report-National Accounts Mission By International Monetary Fund
  97. Real-time weakness of the global economy: a first assessment of the coronavirus crisis By Perez-Quiros, Gabriel; Rots, Eyno; Leiva-Leon, Danilo

  1. By: Gerke, Rafael; Giesen, Sebastian; Scheer, F. Alexander
    Abstract: We quantify the macroeconomic effects of interest rate forward guidance in an estimated medium-scale two-agent New Keynesian (TANK) model. In general, such models can dampen or amplify the power of forward guidance compared to a representative agent model. Our empirical estimates indicate a dampening, as there is sufficient countercyclical redistribution.An interaction with asset purchases gives rise to non-linear effects that depend on the horizon of forward guidance.
    Keywords: Forward Guidance,Hand-to-mouth households,Redistribution,Bayesian Estimation,Asset purchase program
    JEL: E44 E52 E62
    Date: 2020
  2. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Julia Grübler (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Bernd Christoph Ströhm; Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Due to the coronavirus pandemic, Eastern European economies could be set for their worst year since the global financial crisis.
    Keywords: CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, CIS, Russia, Ukraine, Romania, Czech Republic, Hungary, Turkey, Serbia, convergence, business cycle, coronavirus, external risks, trade war, EU funds, private consumption, credit, investment, digitalisation, servitisation, exports, FDI, labour markets, unemployment, employment, wage growth, migration, inflation, central banks
    JEL: E20 E31 E32 F15 F21 F22 F32 F51 G21 H60 J20 J30 J61 O47 O52 O57 P24 P27 P33 P52
    Date: 2020–03
  3. By: Luca Riccetti (Department of Economics and Law, Università degli Studi di Macerata, Italy); Alberto Russo (Department of Management, Università Politecnica delle Marche, Ancona, Italy and Department of Economics, Universitat Jaume I, Castellón, Spain); Mauro Gallegati (Department of Management, Università Politecnica delle Marche, Acona, Italy)
    Abstract: We present an agent-based model to study firm-bank credit market interactions in different phases of the business cycle. The business cycle is exogenously set and it can give rise to various scenarios. Compared to other models in this literature strand, we improve the mechanism according to which the dividends are distributed, including the possibility of stock repurchase by firms. In addition, we locate firms and banks over a space and firms may ask credit to many banks, resulting in a complex spatial network. The model reproduces a long list of stylized facts and their dynamic evolution as described by the cross-correlations among model variables. The model allows us to test the effectiveness of rules designed by the current financial regulation, such as the Basel 3 countercyclical capital buffer. We find that its effectiveness of this rule changes in different business cycle environments and this should be considered by policy makers.
    Keywords: Agent-based modeling, credit network, business cycle, financial regulation, macroprudential policy
    JEL: C63 E32 E52 G01
    Date: 2020
  4. By: Morita, Hiroshi
    Abstract: For the Japanese economy, we examine whether the fiscal multiplier is higher under the effective lower bound of the nominal interest rate. Using a time-varying parameter vector autoregression model with Tobit-type nonlinearity, we calculate the fiscal multipliers under two monetary policy positions. We find that when government spending shocks are inflationary, the fiscal multiplier under the zero interest rate policy increases steadily as a result of the decrease in the real interest rate. This evidence is robust to different definitions of effective lower bound, output, and government spending.
    Keywords: TVP-VAR model, Fiscal multiplier, Effective lower bound, Implied rate
    JEL: E62 C32 E52
    Date: 2020–03
  5. By: Reichlin, Lucrezia; Ricco, Giovanni; Hasenzagl, Thomas
    Abstract: We evaluate the role of financial conditions as predictors of macroeconomic risk first in the quantile regression framework of Adrian et al. (2019b), which allows for non-linearities, and then in a novel linear semi-structural model as proposed by Hasenzagl et al. (2018). We distinguish between price variables such as credit spreads and stock variables such as leverage. We find that (i) although the spreads correlate with the left tail of the conditional distribution of GDP growth, they provide limited advanced information on growth vulnerability; (ii) nonfinancial leverage provides a leading signal for the left quantile of the GDP growth distribution in the 2008 recession; (iii) measures of excess leverage conceptually similar to the Basel gap, but cleaned from business cycle dynamics via the lenses of the semi-structural model, point to two peaks of accumulation of risks - the eighties and the first eight years of the new millennium, with an unstable relationship with business cycle chronology.
    Keywords: financial cycle,business cycle,credit,financial crises,downside risk,entropy,quantile regressions
    JEL: E32 E44 C32 C53
    Date: 2020
  6. By: Frederico Silva Leal
    Abstract: This paper provides evidencesof the electoral influence on fiscal policy in the Eurozonecountries. Using data from EA19 in 1995-2017 and a time dummy to identify election years, it was applied a Fixed Effects model to assess its impact on fiscal instruments. According to the results, the elections seemto increase both compensations to employees and other current expenditure. In addition, the politically motivated policiesseem to differ from low and highly indebted countries. Giving the electoral impact on the compensation to employees, the pro-cyclical tax strategy,and the absence of a Ricardian fiscal regime, its perceived less prudent policiesfrom the most indebted countries. Furthermore, after countries joined the EMU, policy makers beganto increase tax burden facing interest rate shocks,since they lose the ability to manipulate monetary policy.
    Keywords: Political Budget Cycles, Fiscal policy, Elections, EMU, IV-GMM
    JEL: D72 E12 E62 H62
    Date: 2020–03
  7. By: Sangyup Choi (Yonsei University); Myungkyu Shim (Yonsei University)
    Abstract: This paper establishes new stylized facts about labor market dynamics in developing economies and proposes a simple theory to explain them. We first show that the response of hours worked and employment to a technology shock—identified by a structural VAR model with long-run restrictions—is smaller in developing economies than in advanced economies. We then present the evidence that the level of PPP-adjusted income per capita—a proxy for the importance of subsistence consumption—is strongly and robustly correlated with the relative variability of employment and consumption to output across countries, while other structural characteristics are not. We argue that an RBC model augmented with subsistence consumption can account for the several salient features of business cycle fluctuations in developing economies, including their distinct labor market dynamics under technology shocks.
    Keywords: Business cycles; Developing economies; Subsistence consumption; Labor market dynamics; In- come effect; Long-run restrictions
    JEL: E21 E32 F44 J20
    Date: 2020–03–12
  8. By: Vladimir Smirnyagin
    Abstract: This paper studies firm dynamics over the business cycle. I present evidence from the United Kingdom that more rapidly growing firms are born in expansions than in recessions. Using administrative records from Census data, I find that this observation also holds for the last four recessions in the United States. I also present suggestive evidence that financial frictions play an important role in determining the types of firms that are born at different stages of the business cycle. I then develop a general equilibrium model in which firms choose their managers’ span of control at birth. Firms that choose larger spans of control grow faster and eventually get to be larger, and in this sense have a larger target size. Financial frictions in the form of collateral constraints slow the rate at which firms reach their target size. It takes firms longer to get up to scale when collateral constraints tighten; therefore, businesses with the largest target size are affected disproportionately more. Thus, fewer entrepreneurs find it profitable to choose larger projects when financial conditions deteriorate. Using Bayesian methods, I estimate the model using micro and aggregate data from the United Kingdom. I find that financial shocks account for over 80% of fluctuations in the formation of businesses with a large target size, and TFP and labor wedge shocks account for the remaining 20%. An independently estimated version of the model with no choice over the span of control needs larger aggregate shocks in order to account for the same data series, suggesting that the intensive margin of business formation is important at business cycle frequencies. The model with the choice over the span of control generates an empirically relevant and non-targeted collapse in the right tail of the cumulative growth distribution among firms started in recessions, while the model without such a choice does not. The paper also discusses implications for micro-targeted government stimulus policies.
    Keywords: Business cycles, firm dynamics
    JEL: E23 E32 H25
    Date: 2020–03
  9. By: Thomas R. Cook; Taeyoung Doh
    Abstract: We use a large set of economic and financial indicators to assess tail risks of the three macroeconomic variables: real GDP, unemployment, and inflation. When applied to U.S. data, we find evidence that a dense model using principal components (PC) as predictors might be misspecified by imposing the “common slope” assumption on the set of predictors across multiple quantiles. The common slope assumption ignores the heterogeneous informativeness of individual predictors on different quantiles. However, the parsimony of the PC-based approach improves the accuracy of out-of-sample forecasts when combined with a sparse model using the dynamic model averaging method. Out-of-sample analysis of U.S. data suggests that the downside risk for real macro variables spiked to by the end of the Great Recession but subsequently declined to a negligible level. On the other hand, the downside tail risk for inflation fluctuated around a non-negligible level even after the end of the Great Recession. The disconnect between the downside risk of inflation and that of real activities can be in line with the evidence for the reduced role of the output gap for inflation during the recent period.
    Keywords: Quantile Regressions; Tail Risks; Variable Selection; Dynamic Model Averaging
    JEL: C22 C55 E27 E37
    Date: 2019–11–20
  10. By: Gale, William G.
    Abstract: Policymakers in the United States face a combination of high and rising federal debt and low current and projected interest rates on that debt. Rising future debt will reduce growth and impede efforts to enact new policy initiatives. Low interest rates reduce, but do not eliminate, these concerns. The federal fiscal outlook is unsustainable even with projected interest rates that remain below the growth rate for the next 30 years. Short-term policy responses should focus on investments that are preferably tax- financed rather than debt-financed. Most importantly, policymakers should enact a debt reduction plan that is gradually implemented over the medium- and long-term. This would avoid reducing aggregate demand significantly in the short-term and, if done well, could actually stimulate current consumption and production. It would stimulate growth in the long-term, provide fiscal insurance against higher interest rates or other adverse outcomes, give businesses and individuals clarity about future policy and time to adjust, and provide policymakers with assurance that they could consider new initiatives within a framework of sustainable fiscal policy.
    Keywords: interest rates, federal debt, deficits, fiscal policy, public economics
    JEL: E43 E62 H6 H68
    Date: 2019–12
  11. By: Klaus Adam; Michael Woodford
    Abstract: We analytically characterize optimal monetary policy for an augmented New Keynesian 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.
    Keywords: robust policy design, leaning against housing prices, distorted expectations
    JEL: D81 D84 E52
    Date: 2020
  12. By: Ermanno Catullo (Research Department, Link Campus University, Rome, Italy); Mauro Gallegati (Department of Management, Università Politecnica delle Marche, Acona, Italy); Alberto Russo (Department of Management, Università Politecnica delle Marche, Ancona, Italy and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: The aim of this paper is to investigate how different degrees of sophistication in agents’ behavioural rules may affect individual and macroeconomic performances. In particular, we analyze the effects of introducing into an agentbased macro model firms that are able to formulate effective sales forecasts by using machine learning. These techniques are able to provide predictions that are unbiased and present a certain degree of accuracy, especially in the case of a genetic algorithm. We observe that machine learning allows firms to increase profits, though this result in a declining wage share and a smaller long-run growth rate. Moreover, the predictive methods are able to formulate expectations that remain unbiased when shocks are not massive, thus providing firms with forecasting capabilities that to a certain extent may be consistent with the Lucas Critique.
    Keywords: agent-based model, machine learning, genetic algorithm, forecasting, policy shocks
    JEL: C63 D84 E32 E37
    Date: 2020
  13. By: Bomin Jiang; Roberto Rigobon; Munther A. Dahleh
    Abstract: In this paper, we develop a methodology to estimate hidden linear networks when only an aggregate outcome is observed. The aggregate observable variable is a linear combination of the different networks and it is assumed that each network corresponds to the transmission mechanism of different shocks. We implement the methodology to estimate financial networks among US financial institutions. Credit Default Swap rates are the observable variable and we show that more than one network is needed to understand the dynamic behavior exhibited in the data.
    JEL: E0 E44 G1 G21
    Date: 2020–03
  14. By: Nauro F Campos; Corrado Macchiarelli
    Abstract: The year 2019 marked the 20th anniversary of the establishment of the Euro. It was also the last full year before the UK formally left the European Union. This paper examines the relationship between the UK and the euro area. We look at the economic distance between core and periphery groups of countries which is driven by the level of synchronisation in economic activity. We provide new evidence that since 1990 the UK economy has become significantly more integrated with that of the EMU countries. The UK has moved from being in the periphery before 1990 to being part of the core over the following 30 years, despite not being part of the EMU. We also provide evidence that the level of business cycles synchronisation of the UK economy with the EU has had the greatest, among the EU countries, variability over time. We conclude with some policy implications arising from Brexit for the stability of the euro area. Specifically, while synchronisation might have increased the costs of Brexit, the UK exit from the EU represents much less of a threat to the stability of the euro area than the risk of a failure to further European economic integration via fiscal federalism and the banking union.
    Keywords: European Monetary Union, Eurozone, Core-periphery
    JEL: E32 E63 F02
    Date: 2020–03
  15. By: Danial Lashkari; Arthur Bauer; Jocelyn Boussard
    Abstract: This paper investigates the role of IT in shaping recent trends in market concentration, factor income shares, and market competition. Relying on a novel dataset on hardware and software investments in the universe of French firms, we document a robust within-industry correlation between firm size and the intensity of IT demand. To explain this fact, we argue that the relative marginal product of IT inputs may rise with firm scale, since IT specifically helps firms deal with organizational limits to scale. We propose a general equilibrium model of industry dynamics that features firm-level production functions compatible with this mechanism. We estimate the production function and find evidence for the nonhomotheticity of IT demand and for an elasticity of substitution between IT and other inputs that falls below unity. Under the estimated model parameters, the cross-sectional predictions of the model match the observed relationship of firm size with IT intensity (positive) and labor share (negative). In addition, as a response to the fall in the relative price of IT inputs in post-1990 France, the model can explain about half of both the observed rise in market concentration and the observed market reallocation toward low-labor-share-firms.
    Keywords: : Information Technology, Labor Share, Competition, Production Function, Nonhomotheticity.
    JEL: E10 E23 E25
    Date: 2019
  16. By: Kuk Mo Jung (Department of Economics, Sogang University, Seoul); Ju Hyun Pyun (Korea University Business School,)
    Abstract: A long-run relationship between money (inflation or interest rates), unemployment, and equity prices are studied. We first document robust empirical evidence that a statistically significant joint relationship between the long term trends of three variables exists in the post-WWII U.S. data: (i) a positive relationship between inflation (or interest rates) and unemployment; (ii) a negative relationship between unemployment and equity prices; and (iii) a negative relationship between inflation (or interest rates) and equity prices. Then, we provide a unified framework that incorporates money, unemployment, and equity prices with microfoundation and empirical relevance. The model predicts the empirically found joint relationship in the long run. The calibration exercises also show that the model results driven solely by US monetary policy can account for 62.9% and 29.8% of variations of the long-term trends of US unemployment rate and real equity prices, respectively
    Keywords: Inflation, Unemployment, Equity Prices, SearchModels
    JEL: E4 E5
    Date: 2020
  17. By: Sangyup Choi (Yonsei Univ); Junhyeok Shin (Yonsei Univ)
    Abstract: While the many commonalities shared by Bitcoin and gold raise a question of whether Bitcoin is a safe-haven like gold, relevant empirical evidence to date is mixed. Unlike existing empirical studies, we derive a simple estimable model of Bitcoin price dynamics from the quantity equation, which allows for structural interpretation of our findings; we then estimate the dynamic effects of macro factors, including income, inflation, and interest rates on Bitcoin prices at a weekly frequency. Unlike gold, Bitcoin prices are vulnerable to financial risk or uncertainty shocks, which is inconsistent with safe-haven quality. When the empirical model is augmented with Bitcoin-specific variables, such as its supply, transactions, and velocity, a major share of Bitcoin price dynamics is explained by these variables. We also find an interesting nonlinearity in the drivers of Bitcoin price dynamics between bullish and bearish market: the role of Bitcoin-idiosyncratic shocks increases when it appreciates, while the effects of macro factors dominate when it depreciates.
    Keywords: Cryptocurrencies; Bitcoin; safe-haven; gold; quantity equation; Vector Autoregressions
    JEL: E41 E44 F31 G10
    Date: 2020–02
  18. By: Klaus Adam; Michael Woodford
    Abstract: We analytically characterize optimal monetary policy for an augmented New Keynesian 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” in terms of inflation and the output gap, that makes no reference to housing prices. If instead 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 will also depend on housing prices. For empirically realistic cases, robustness requires the central bank to “lean against” housing prices, i.e., to adopt a stance that is projected to undershoot (overshoot) its normal targets for inflation and the output gap following unexpected housing price increases (decreases). Notably, robustly optimal policy does not require that the central bank distinguish between “fundamental” and “non-fundamental” movements in housing prices.
    JEL: C61 E52
    Date: 2020–03
  19. By: Melanie Klein
    Abstract: This paper explores the impact of low (but) positive and negative market interest rates on euro area banks' net interest margin (NIM) and its components, retail lending and retail deposit rates. Using two proprietary bank-level data sets, I find a positive impact of the level of the short-term rate on the NIM, which increases substantially at negative market rates. As low profitability could hamper the ability of banks to expand lending, I also investigate the impact of the NIM on new lending to the non-financial private sector. In general, the NIM is positively related to lending: When lending is less profitable, banks cut lending. However, at negative rates this effect vanishes. This finding suggests that banks adjusted their business practices when servicing new loans, thereby contributing to higher new lending in the euro area since 2014.
    Keywords: net interest margin, monetary policy, negative interest rates, bank pro tability, lending
    JEL: G21 E43 E52
    Date: 2020–03
  20. By: Richard K. Crump; Stefano Eusepi
    Abstract: Everyone disagrees, even professional forecasters, especially about big economic questions. Has potential output growth changed since the financial crisis? Are we bound for a period of ?secular stagnation?? Will the European economy rebound? When is inflation getting back to mandate-consistent level? In this post, we document to what degree professional forecasters disagree and discuss potential reasons why.
    Keywords: Disagreement; Survey Forecasts
    JEL: E2
  21. By: Kiss, Tamás (Örebro University School of Business); Österholm, Pär (Örebro University School of Business)
    Abstract: In this paper, we illustrate the macroeconomic risk associated with the early stage of the corona-virus outbreak. Using monthly data ranging from July 1991 to March 2020 on a recently developed coincidence indicator of global output growth, we estimate an autoregressive model with GARCH effects and non-Gaussian disturbances. Our results indicate that i) accounting for conditional heteroscedasticity is important and ii) risk, measured as the volatility of the shocks to the process, is at a very high level – largely on par with that experienced around the financial crisis of 2008-2009.
    Keywords: GARCH; Non-Gaussianity
    JEL: C22 E32 E37
    Date: 2020–03–23
  22. By: Philip Gunby (University of Canterbury); Stephen Hickson (University of Canterbury)
    Abstract: Simple concepts such as the velocity of money can be powerful tools to stimulate classroom discussions about complex issues in macroeconomics classes. For example, are cashless societies likely or is monetary policy likely to be effective? Such concepts are also ideal for in-class data analysis and for research-based teaching. The velocity of money for example only requires values from three commonly available variables, a simple calculation, and can be analysed by plotting it on a graph. In this paper we provide a summary of the velocity of money, what affects it, and illustrate these with two fascinating cases. We also provide two assignments, including how to create data sets, along with grading rubrics. Finally, we discuss experiences from an assignment we set our class.
    Keywords: Teaching Macroeconomics, Velocity of Money, Cashless Society, Data Analysis, FRED, Undergraduate Research
    JEL: A22 B22 E41 E42 E51
    Date: 2020–03–01
  23. By: Crowley, Patrick M.; Hudgins, David
    Abstract: When the central bank sets monetary policy according to a conventional or modified Taylor rule (which is known as the Taylor Principle), does this deliver the best outcome for the mac-roeconomy as a whole? This question is addressed by extending the wavelet-based control (WBC) model of Crowley and Hudgins (2015) to evaluate macroeconomic performance when the central bank sets interest rates based on a conventional or modified Taylor rule (TR). We compare the simulated performance of jointly optimal fiscal and monetary policy under an unrestricted baseline model with performance under the TR. We simulate the model un-der relatively small and large weighting of the output gap in the TR specification, and for both low and high inflation environments. The results show that the macroeconomic outcome de-pends on whether the conventional or modified Taylor rule is used, and whether the central bank is operating in a low or high inflation environment.
    Keywords: Discrete Wavelet Analysis,Monetary Policy,Optimal Control
    JEL: C61 C63 C88 E52 E61 F47
    Date: 2020
  24. By: Jonathan McCarthy
    Abstract: This post updates and extends my July 2011 blog piece on household discretionary services expenditures. I examine the most recent data to see what they reveal about the depth of decline in expenditures in the last recession and the extent of the recovery, and find that the expenditures appear to be further below the peak identified earlier. I then compare the pace of recovery for discretionary and nondiscretionary services in this expansion with that of previous expansions, finding that the pace in both cases is well below that of previous cycles. In summary, household spending continues to be constrained by a combination of credit conditions and weak income expectations.
    Keywords: business cycles; Personal consumption expenditures; recoveries; recessions; services expenditures
    JEL: E2
  25. By: Matthieu Lemoine; Harri Turunen; Mohammed Chahad; Antoine Lepetit; Anastasia Zhutova; Pierre Aldama; Pierrick Clerc; Jean-Pierre Laffargue
    Abstract: This paper presents the new model for France of the Banque de France (FR-BDF), as well as its key implications for the analysis of monetary policy transmission in France. Relative to our former model, this new semi-structural model has been improved along three dimensions: financial channels are richer, expectations now have an explicit role and simulations now converge toward a balanced growth path. We follow the approach of the FRB/US model, where agents can form their expectations in two different ways, VARbased or model-consistent, and where non-financial behavior react with polynomial adjustment costs. For standard monetary policy shocks, FR-BDF shows a stronger sensitivity than our former model, due to the widespread influence of expectations. Then, we show that, under model-consistent expectations, FR-BDF does not suffer from the forward guidance puzzle. Finally, Eurosystem asset purchase programmes have notable effects in FR-BDF, with a stronger transmission through exchange rates than term premia.
    Keywords: : Semi-structural Modeling, Expectations, Monetary Policy, Forward Guidance.
    JEL: C54 E37
    Date: 2019
  26. By: Jan J. J. Groen
    Abstract: Controlling inflation is at the core of monetary policymaking, and central bankers would like to have access to reliable inflation forecasts to assess their progress in achieving this goal. Producing accurate inflation forecasts, however, turns out not to be a trivial exercise. This posts reviews the key challenges in inflation forecasting and discusses some recent developments that attempt to deal with these challenges.
    Keywords: Inflation; forecasting.
    JEL: E2 E5
  27. By: Weifeng Liu; Phitawat Poonpolkul
    Abstract: This paper provides a framework to endogenize rates of return for risk-free bonds and risky capital in an overlapping generation model. The rate of return on capital is endogenized by introducing idiosyncratic production shocks to avoid computation challenges associated with aggregate production shocks in the literature. The framework enables the interaction between financial markets and macroeconomic conditions in a production economy. Based on this framework, the paper first examines life-cycle portfolio choice without demographic change, and illustrates that several factors such as borrowing costs, labor income and production risk play important roles in life-cycle portfolios. The paper then investigates the impacts of population aging on macroeconomic conditions, life-cycle behaviors and financial market structures. The results show that population aging leads to higher capital-labor ratios, and reduces the rates of return on both assets. The bond market shrinks significantly, and capital decreases if the fertility rate declines but increases if the mortality rate declines, leading to structural change in financial markets. The impacts on life-cycle variables are quite different in the fertility and mortality cases particularly at the late stage of life.
    Keywords: Demographic change, portfolio choice, financial market structure, risk premium, idiosyncratic production shock, overlapping generation model.
    JEL: J11 G11 C63 C68 E21 E23
    Date: 2020–03
  28. By: Xiaoqing Zhou
    Abstract: The Housing Provident Fund (HPF) is the largest public housing program in China. It was created in 1999 to enhance homeownership. This program involves a mandatory saving scheme based on labor income. Past deposits are refunded when the worker purchases a house or retires. Moreover, the program provides mortgages at subsidized rates to facilitate these home purchases. I calibrate a heterogeneous-agent life-cycle model to quantify the effects of these policies. My analysis shows that a housing program with these features is expected to raise the rate of homeownership by 8.7 percentage points and to increase the average home size by 20%. I discuss the economic mechanisms by which these outcomes are achieved and which features of the HPF program are most effective. I also consider several extensions of the model such as requiring employers to contribute to the program and allowing renters to withdraw funds from the HPF.
    Keywords: Public policy; Housing Provident Fund; Policy evaluation; China; Life-cycle model; Homeownership
    JEL: E2 E6 H3 R2 R3
    Date: 2020–03–19
  29. By: Lis, Eliza; Nickel, Christiane; Papetti, Andrea
    Abstract: Can the aging process affect inflation? The prolonged decline of fertility and mortality rates induces a persistent downward pressure on the natural interest rate. If this development is not internalized by the monetary policy rule, inflation can be on a downward trend. Using the structure of a two-sector overlapping generations model embedded in a New-Keynesian framework with price frictions, calibrated for the euro area, this paper shows that following a commonly specified monetary policy rule the economy features a ”disinflationary bias” since 1990, in a way that can match the downward trend of core inflation found in the data for the euro area. In this model, continuing to follow the same rule makes inflation to be on a declining pattern at least until 2030. At the same time, changing consumption patterns towards nontradable items such as health-care generate a small ”inflationary bias” a positive deviation of inflation from target of less than 0.1 percentage points between 1990 and 2030. In the model setting of this paper, this inflationary bias is not strong enough to counteract the disinflationary bias generated by the downward impact of aging on the natural interest rate. JEL Classification: E43, E52, E58, J11
    Keywords: consumption composition, euro area, inflation, monetary policy, population aging
    Date: 2020–03
  30. By: Takahiro Hattori (Hitotsubashi University); Jiro Yoshida (The Pennsylvania State University and the University of Tokyo)
    Abstract: This is the first study analyzing the Bank of Japan’s purchases of real estate investment trusts (REITs) that started in 2010 as part of enhanced unconventional monetary policy. The Bank purchases REIT shares after observing a significantly negative return over the previous night and during the morning market. The Bank continues purchases daily until the overnight and morning REIT returns become positive. This counter-cyclical behavior is consistent with the objective of decreasing risk premia and stimulating spending. Our study sheds light on the unique program of a central bank’s equity purchases.
    Keywords: large-scale asset purchases (LSAP), quantitative easing (QE), central banking, real estate investment trust, unconventional monetary policy
    JEL: E52 E58 G12 R33
    Date: 2020–03–17
  31. By: Gregor Semieniuk (Political Economy Resaerch Institute and Department of Economics, University of Massachusetts Amherst); Emanuele Campiglio (Institute of Ecological Economics, Vienna University of Economics and Business); Jean-Francois Mercure (Department of Geography, University of Exeter); Ulrich Volz (SOAS Centre for Sustainable Finance & Department of Economics, SOAS University of London); Neil R. Edwards (Environment, Earth and Ecosystems, The Open University, UK)
    Abstract: Transition risks for finance arise from the transition to a low-carbon economy, which can disrupt the ability of carbon-intensive industries to meet their financial obligations and lead to abrupt changes in asset valuations of affected firms and default on their debt. An understanding of these risks is key for any ambitious emissions reduction programme, such as that implied by the Paris Agreement. Insight from theory and study of past transitions is of limited help, as these see financial risks mostly flowing from speculation with rising industries propped up by a set of new vastly more productive technologies. The current transition instead requires policy to quickly render a set of currently productive high-carbon industries unprofitable, stranding their assets, so the risks are located in the declining industries. Absent a unified framework of the interaction of real and financial aspects of the transition, one set of studies conceptualises and quantifies asset stranding and other transition costs in declining industries, and a separate one estimates the potential impact of these transition costs on the financial system. Combining these two research strands and modelling the feedback of financial distress on the real economy will require more research, which could help integrate transition risks into the cost analysis of mitigation in integrated assessment models. An important insight from the past transitions literature is that once low-carbon industries are rendered more profitable than high-carbon ones, financial risks could also build in these newly rising industries due to speculation.
    Keywords: Transition risks, low-carbon economy, declining industries, stranded assets, financial distress
    JEL: E32 E44 G17 G32 L16 N2 O3
    Date: 2020–03
  32. By: Daniela V. Guío-Martínez; Juan J. Ospina-Tejeiro (Banco de la República de Colombia); Germán A. Muñoz-Bravo (Banco de la República de Colombia); Julián A. Parra-Polanía (Banco de la República de Colombia)
    Abstract: Con base en el uso de Latent Dirichlet Allocation, una herramienta de lingüística computacional cuya finalidad es develar los patrones temáticos subyacentes que agrupan las palabras de un conjunto de textos, analizamos dos tipos esenciales de documentos en la comunicación del Banco de la República, las minutas y los informes de política monetaria, para el periodo comprendido entre marzo de 2007 y diciembre de 2018. Encontramos que estos dos tipos de documentos giran primordialmente en torno a ocho temas, siendo el más importante (en promedio a través del tiempo) el que contiene términos principalmente relacionados con demanda interna y sectores económicos. Describimos tanto las similitudes como las diferencias que se observan, entre las minutas y los informes, en la participación de cada tema dentro de los documentos y en la evolución de esa participación en el tiempo. **** ABSTRACT: Based on the use of Latent Dirichlet Allocation, a computational linguistics tool whose purpose is to identify the underlying thematic patterns that group the words of a set of documents, we analyse two essential outlets in the Banco de la Republica’s communication, the minutes and monetary policy reports, from March 2007 to December 2018. We find that these two outlets discuss primarily about eight topics, the most important (on average, over time) being the one that contains expressions mainly related to domestic demand and economic sectors. We describe both similarities and differences that are observed, between the minutes and the reports, in the participation of each topic within the documents and in the evolution of that participation over time.
    Keywords: Comunicación, Política Monetaria, Minería de Texto, LDA, Communication, Monetary Policy, Text Mining, LDA.
    JEL: E52 E58 C40
    Date: 2020–03
  33. By: Heise, Arne
    Abstract: This article takes an in-depth look at post-Keynesianism as a paradigmatic alternative to the dominant neoclassical mainstream. It quickly becomes clear that post-Keynesianism is not a unified school of thought, but rather an assortment of theoretical approaches that share certain methodological and epistemological similarities and characteristic postulates. The Article does not attempt to describe the full array of Kaleckian, Kaldorian and Sraffian variants of post-Keynesian theory but instead analysis the paradigmatic and formal structure of one particular form of post-Keynesianism, the monetary theory of production in order to reconstruct these characteristic postulates from the axiomatic core of post-Keynesianism. It then sets out the theory of market participation, an alternative theory of economic policy that builds on monetary production economics.
    Keywords: Postkeynesianismus,heterodoxe Ökonomik,Neoklassik, Paradigma
    JEL: B41 B49 B5 E11 E12 E60
    Date: 2019–04
  34. By: International Monetary Fund
    Abstract: Uruguay is in an enviable position in many respects. The country enjoys political stability, strong governance and institutions, and a high degree of social cohesion. Following a decade and a half of robust growth, the country boasts high per capita income, low levels of poverty and inequality, and a resilient financial sector. More recently, in a context of a volatile region and global uncertainties, challenges have emerged. Growth, investment, and employment have slowed; inflation and inflation expectations have remained persistently above target; fiscal accounts have deteriorated, and debt has increased. The political and economic landscapes—with the post-election mandate and a growth boost due to large private and infrastructure investments—present an opportunity to address these challenges and preserve the social compact for future generations.
    Keywords: Balance of payments;Fiscal sector;Economic growth;Economic indicators;Central banks;ISCR,CR,target range,percent change,percent of GDP,SOEs,primary balance
    Date: 2020–02–21
  35. By: Gregora,Jiri; Melecky,Ales; Melecky,Martin
    Abstract: The interest rate pass-through describes how changes in a reference rate (the monetary policy, money market, or T-bill rate) transmit to bank lending rates. This paper reviews the empirical literature on the interest rate pass-through and systematizes it by means of meta-analysis and meta-regressions. The paper finds systematically lower estimated pass-through coefficients in studies that focus on transmission to long-term lending rates, consumer lending rates, and average lending rates. The interest rate pass-through is significantly influenced by country macro-financial and institutional factors. The estimated pass-through tends to be stronger for economies with deeper capital markets (measured by market capitalization). Interestingly, central bank independence rising from lower levels can reduce interest rate pass-through, while central bank independence rising from already high levels can boost the pass-through.
    Keywords: Macroeconomic Management,Inflation,Financial Structures,Financial Crisis Management&Restructuring,International Trade and Trade Rules
    Date: 2019–01–18
  36. By: Sri Kurniawati (Universitas Tanjungpura, Pontianak, 78124, Indonesia Author-2-Name: Nindya Lestari Author-2-Workplace-Name: Universitas Tanjungpura, Pontianak, 78124, Indonesia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - Inequality of regional income, government expenditure and government revenue can show the performance of these variables in improving the economic and non-economic conditions of each region. Previous literature discusses, in part, the inequality among these three variables. This research fills the gap left by previous research by analyzing the inequality of the three variables and analysing the relationship between them in driving the provincial economy in Kalimantan. The first objective of this study is to analyze the reduction of regional income inequality, government revenue and government expenditure. The second objective is to analyze the relationship among macro variables. Methodology/Technique - Using data from 4 provinces in Kalimantan across a 15-year period (2002-2016), this study concludes that in the short term, only changes of government revenue have an impact on regional income and only changes of government revenue has an impact on government expenditure. Findings - Meanwhile, in the long term, changes in regional income, government revenue, and government expenditure can all have an impact on regional income.
    Keywords: Inequality; Regional Income; Government Expenditure; Government Revenue.
    JEL: H70 E00 E10 O11
    Date: 2019–12–30
  37. By: Chaoran Chen; Diego Restuccia; Raul Santaeulalia-Llopis
    Abstract: We assess the effects of land markets on misallocation and productivity by exploiting effective variation in land rentals across time and space arising from a large-scale land certification reform in Ethiopia, where land remains owned by the state. Our main finding from detailed micro panel data is that land rentals substantially reduce misallocation and increase agricultural productivity. Our evidence builds from an empirical difference-in-difference strategy and a calibrated quantitative macroeconomic framework with heterogeneous household-farms that replicates---without targeting---the empirical effects, an outcome that externally validates our model. The empirical effects are nonlinear---impacting more farms farther away from efficient operational scale, consistent with our theory. Further, counterfactual model experiments suggest that the land reform reduces income inequality, is relatively scalable and explains a sizeable proportion of the full extent of misallocation. Additional insights on the role of (in)formality in land markets and its effects on technology adoption are provided.
    Keywords: Land markets, rentals, effects, misallocation, productivity, inequality, micro data, quantitative macro, informal markets, technology, fertilizers.
    JEL: E02 O10 O11 O13 O43 O55 Q15 Q18 Q24
    Date: 2020–03–19
  38. By: Marco Del Negro; Marc Giannoni; Christina Patterson
    Abstract: In this post, we quantify the macroeconomic effects of central bank announcements about future federal funds rates, or forward guidance. We estimate that a commitment to lowering future rates below market expectations can have fairly strong effects on real economic activity with only small effects on inflation.
    Keywords: Forward Guidance
    JEL: E5
  39. By: International Monetary Fund
    Abstract: The Malaysian economy is stable despite domestic and external challenges. The authorities are making progress on their reform agenda including governance reforms and measures to improve the transparency and management of public finances. Policies should focus on medium-term fiscal consolidation, while safeguarding growth and financial stability. Structural reforms are needed to enshrine in law main governance measures, and to boost productivity to achieve high income status and inclusive growth.
    Keywords: International investment position;Real sector;Balance of payments;Economic indicators;Macroprudential policies and financial stability;ISCR,CR,percent of GDP,percent,tax refund,medium-term,governance reform
    Date: 2020–02–28
  40. By: Diego Restuccia; Chaoran Chen; Raul Santaeulalia-Llopis
    Abstract: We assess the effects of land markets on misallocation and productivity by exploiting effective variation in land rentals across time and space arising from a large-scale land certifcation reform in Ethiopia, where land remains owned by the state. Our main fnding from detailed micro panel data is that land rentals substantially reduce misallocation and increase agricultural productivity. Our evidence builds from an empirical difference-in-difference strategy and a calibrated quantitative macroeconomic framework with heterogeneous household-farms that replicates|without targeting|the empirical effects, an outcome that externally validates our model. The empirical effects are nonlinear|impacting more farms farther away from effcient operational scale, consistent with our theory. Further, counterfactual model experiments suggest that the land reform reduces income inequality, is relatively scalable and explains a sizeable proportion of the full extent of misallocation. Additional insights on the role of (in)formality in land markets and its effects on technology adoption are provided
    Keywords: Land markets, rentals, effects, misallocation, productivity, inequality, micro data, quantitative macro, informal markets, technology, fertilizers
    JEL: E02 O10 O11 O13 O43 O55 Q15 Q18 Q24
    Date: 2020–03–18
  41. By: Roth, Markus
    Abstract: A structural Bayesian vector autoregression model predicts that - when accompanied by a decline in consumer confidence - a one-percent decrease in house prices is associated with a contraction of economic activity by 0.2 to 1.2 percent after one year. Results point to important second-round effects and additional exercises highlight the amplifying role of (i ) the mortgage rate and (ii ) consumers' expectations. A novel econometric approach exploits information available from the cross section. Shrinkage towards a cross-country average model helps to compensate for small country samples and reduces estimation uncertainty. As a by-product, the method delivers measures of cross-country heterogeneity.
    Keywords: Bayesian model averaging,dummy observations,house price shocks
    JEL: C11 C33 E44
    Date: 2020
  42. By: Martijn Boermans; John Burger
    Abstract: We analyze how global and local factors affect portfolio allocation by euro area investors in emerging markets at the bond-level. First, cross-sectional analysis reveals a strong preference for home (Euro) currency bonds. Second, panel regressions, whether at the bond or aggregate flows level, consistently identify trade-weighted US dollar fluctuations as the most robust explanatory variable, in sharp contrast to other global factors, such as the VIX and Fed or ECB monetary policy, which have much less impact on reallocations to emerging market bonds. Our results are consistent with the notion that broad US dollar movements act as a barometer for global risk appetite, but with an important caveat: Throughout our analysis we find holdings in Euro-denominated bonds are less sensitive to global factors, which we interpret as further evidence of a home currency bias.
    Keywords: global risk; capital flows; global financial cycle; US dollar; foreign exchange rates; portfolio choice; emerging economies; spillovers; monetary policy; securities holdings statistics
    JEL: E52 F21 F3 F31 F32 G11 G15
    Date: 2020–03
  43. By: Miguel Faria-e-Castro
    Abstract: I use a dynamic stochastic general equilibrium model to study the effects of the 2019-20 coronavirus pandemic in the United States. The pandemic is modeled as a large negative shock to the utility of consumption of contact-intensive services. General equilibrium forces propagate this negative shock to the non-services and financial sectors, triggering a deep recession. I use a calibrated version of the model to analyze different types of fiscal policies: (i) government purchases, (ii) income tax cuts, (iii) unemployment insurance benefits, (iv) unconditional transfers, and (v) liquidity assistance to services firms. I find that UI benefits are the most effective tool to stabilize income for borrowers, who are the hardest hit, while savers favor unconditional transfers. Liquidity assistance programs are effective if the policy objective is to stabilize employment in the affected sector.
    Keywords: fiscal policy; financial stability; pandemic
    JEL: E6 G01 H0
    Date: 2020–03
  44. By: Matthew Plosser
    Abstract: Banks play a crucial role in the economy by channeling funds from savers to borrowers. The ability of banks to accomplish this intermediation has become an important element in understanding the causes and consequences of business cycles. In a recent staff report, I investigate how a positive deposit windfall translates into investments by banks. This post, the first of two, shows how the development of new energy resources has led to deposit inflows to banks and how that can be used to estimate banks? investment decisions over the recent business cycle. The second post will look at factors that might explain the business cycle patterns observed below.
    Keywords: Lending; Financial Intermediation; Business Cycle
    JEL: G2
  45. By: Anne Duquerroy
    Abstract: This article explores the economic effects of checks and balances on corporate investment and employment. I use U.S. gubernatorial election results from 1978 to 2010 as a source of exogenous variation in whether the party controls both the executive and the legislative branch (unified government) or not (divided government), which determines its ability to implement its political agenda. I find that both public and private firms respond to the political cycle by reducing investment and hiring when government becomes unified. Investment drops by three to five percent in the year following an election resulting in unified government, while stock returns volatility is three percent higher. The findings support the hypothesis that moving from divided to unified government raises policy uncertainty by increasing the probability of future policy changes. Consistent with a real option channel, the effect is stronger for capital intensive firms with lower asset redeployability.
    Keywords: : Investment, Checks and balances, Divided government, Gubernatorial elections, Political uncertainty.
    JEL: E22 E66 G18 G31 G38 H75
    Date: 2019
  46. By: Francesco D'Acunto; Thomas Rauter; Christoph Scheuch; Michael Weber
    Abstract: We study the spending response of first-time borrowers to an overdraft facility and elicit their preferences, beliefs, and motives through a FinTech application. Users increase their spending permanently, lower their savings rate, and reallocate spending from non-discretionary to discretionary goods. Interestingly, liquid users react more than others but do not tap into negative deposits. The credit line acts as a form of insurance. These results are not fully consistent with models of financial constraints, buffer stock models, or present-bias preferences. We label this channel perceived precautionary savings motives: Liquid users behave as if they faced strong precautionary savings motives even though no observables, including elicited preferences and beliefs, suggest they should.
    Keywords: household finance, consumption, behavioral finance
    JEL: D14 E21 E51 G21
    Date: 2020
  47. By: José Carlos Coelho
    Abstract: This article proposes a new evaluation of the economic and financial adjustment programmenegotiated between Portugal and the Troika (European Commission, European Central Bank and International Monetary Fund) for the year 2012, in an Input-Output framework. As in Amaral and Lopes (2017), a comparison is made between the unemployment rate forecast for 2012 and that which would result from obtaining the implicit target for the external deficit, concluding that the unemployment rate was underestimated by almost twopercentage points. We also concluded that the achievement of the implicit targetfor the external deficit in 2012 would only be compatible with the establishment of a lower budget deficit and a lower of weight of budget deficit on GDPfor that year. Such an objective would require a smaller amount of transfers made by the Government to households and would result in greater contractions in private consumption and GDP and would result in a higher unemployment rate than that expected by the Troika for 2012.
    Keywords: unemployment, external deficit, budget deficit, Troika, Portugal
    JEL: C67 D57 E61
    Date: 2020–03
  48. By: Jonathan McCarthy
    Abstract: Commodity prices have risen considerably since August 2010, raising concerns that higher commodity prices could reduce households? discretionary income and slow the recovery. For example, as former Federal Reserve Board Vice Chairman Donald Kohn said in the Wall Street Journal last fall:?? the surge in international commodity prices. If that persists it could hurt Americans? disposable income, especially as it is reflected in higher gas and energy prices.?
    Keywords: discretionary income; Commodity prices; personal consumption expenditures
    JEL: E2
  49. By: Inderst, Georg
    Abstract: Social infrastructure has endured a long period of neglect in most developed and emerging countries, with chronic underinvestment exposed by the coronavirus crisis 2020. Private sector investment in social infrastructure has widely fallen back over the last decade - this in contrast to economic infrastructure. One of the outcomes of the last global (financial) crisis 2007/08 was a slow revival of economic infrastructure policies, and a growing involvement of institutional investors. This is the first, more systematic account of social infrastructure investment from an international perspective, leading to several key conclusions. The public sector will remain the dominant funding and financing source. Nonetheless, much more private capital could flow with greater clarity on social assets and projects, given their very diverse specific characteristics. There are various investment strategies that can realistically be improved and expanded. Sustainability, impact and SDG investing open a new door for asset owners.
    Keywords: social infrastructure; infrastructure investment; infrastructure finance; infrastructure policy; public-private partnerships; institutional investors; pension funds; infrastructure funds; sustainability investing; impact investments
    JEL: E22 F21 G15 G18 G2 H54 H57 H75 O16 O18 R31 R51
    Date: 2020–03–18
  50. By: Edge, Rochelle M.; Liang, Jean Nellie
    Abstract: Multi-agency financial stability committees (FSCs) have grown dramatically since the global financial crisis. However, most cannot direct actions or recommend to other agencies that they take actions, and most would influence policy actions only through convening and discussing risks. We evaluate whether the significant variation in FSCs and other financial regulatory structures across countries affect decisions to use the countercyclical capital buffer (CCyB). After controlling for credit growth and the severity of the financial crisis, we find that countries with stronger FSCs are more likely to use the CCyB, especially relative to countries where a bank regulator or the central bank has the authority to set the CCyB. While the experience with the CCyB is still limited, these results are consistent with some countries creating FSCs with strong governance to take actions, but most countries instead creating weak FSCs without mechanisms to promote actions, consistent more with a symbolic political delegation motive and raising questions about accountability for financial stability.
    Keywords: Financial stability committees,Bank regulators,Delegation,Macroprudential policy,Countercyclical capital buffer,Credit growth
    JEL: H11 G21 G28 P16
    Date: 2020
  51. By: International Monetary Fund
    Abstract: The Eastern Caribbean Currency Union (ECCU) saw a respite from major hurricanes, which facilitated growth acceleration to 3¾ percent in 2018-19. The fiscal position weakened, despite continued strength in Citizenship-by-Investment (CBI) inflows, but with headline deficits remaining moderate the public debt ratio has continued to decline. However, underlying fiscal deficits remain high. External imbalances are sizable and significant financial sector vulnerabilities affect both banks and non-banks. Growth is projected to gradually moderate towards its long-term average of 2¼ percent as the cyclical momentum normalizes and CBI inflows ease. These trends would also contribute to wider fiscal deficits, ending the downward drift in public debt dynamics. Meeting the regional 60 percent of GDP debt benchmark by 2030 will be challenging for most countries. The outlook is clouded by downside risks, including a possible intensification of natural disasters and financial sector weaknesses. Larger wellmanaged CBI flows may be a source of an upside risk.
    Date: 2020–03–05
  52. By: International Monetary Fund
    Abstract: Solomon Islands has made substantial progress since the Tensions in the early 2000s but faces considerable economic and governance challenges and is highly vulnerable to natural disasters. Finding new sources of growth is becoming urgent with the decline in logging. Budget pressures are re-emerging; revenues have weakened while spending has picked up, including a sharp increase in payroll. Governance challenges stem from weak oversight of the resource sectors, a lack of transparency and a need to strengthen public financial management. The consultation focused on similar issues to last year—restoring fiscal buffers to build resilience, strengthening public financial management and public investment management, setting a medium-term fiscal strategy, improving governance, improving exchange rate management and building conditions for sustainable growth.
    Keywords: External sector;Public financial management;Fiscal policy;Economic indicators;Central banks;ISCR,CR,pacific game,Proj,percent of GDP,grant-funded,mine sector
    Date: 2020–02–18
  53. By: Galdo, Virgilio (World Bank); Lopez-Acevedo, Gladys (World Bank); Rama, Martin (World Bank)
    Abstract: Despite informality being the norm in conflict-affected countries, most estimates of the impact of conflict on economic activity rely on formal sector data. Using high-frequency data from Afghanistan, this paper assesses how surges in conflict intensity affect not only the formal sector, but also informal and illicit activities. Nighttime light provides a proxy for aggregate economic activity, mobile phone traffic by registered firms captures fluctuations in formal sector output, and the land surface devoted to poppy cultivation gives a measure of illicit production. The unit of observation is the district and the period of reference is 2012–16. The same dynamic specification and controls are used for the estimation in the three cases, making the results comparable across sectors. Controls include the presence of combat troops and the level of foreign aid at the local level, which both influence local living standards in Afghanistan. The results show that an increase in conflict-related casualties has a strong negative impact on formal economic activity in the following quarter and a positive effect on illicit activity after two quarters. The impact on aggregate economic activity is negative, but more muted.
    Keywords: Afghanistan, conflict, economic activity
    JEL: D74 E21 F35 I32 O17
    Date: 2020–03
  54. By: Saroj Bhattarai; Konstantin Kucheryavyy
    Abstract: We present a unified dynamic framework to study the interconnections between international trade and business cycle models. We prove an aggregate equivalence between a competitive, representative firm model that has aggregate production externalities and dynamic trade models that feature monopolistic competition, endogenous entry, and heterogeneous firms. The production externalities in the representative firm model have to be introduced in the intermediate and final good sectors so that the model is isomorphic to dynamic trade models that embody love-of-variety and selection effects. In a quantitative exercise with multiple shocks, we show that to improve the fit of the dynamic trade models with the data, the most important ingredient is negative capital externality in the intermediate good sector. This presents a puzzle for the literature as standard dynamic trade models provide micro-foundations for positive capital externality.
    Keywords: international business cycles, dynamic trade models, heterogeneous firms, production externalities, monopolistic competition, export costs, entry costs
    JEL: F12 F41 F44 F32
    Date: 2020
  55. By: Linda S. Goldberg
    Abstract: Economic news moves markets. Most analyses find that economic news is incorporated quickly (within minutes) into asset prices, with some measurable persistence of these effects, and with some spillovers across national borders. Some types of announcements?for example, U.S. nonfarm payrolls announcements?generate much larger asset price responses than others. Generally, news that is more timely, is more precise (being subject to smaller revisions on average), and contains more information (being better able to better forecast GDP growth, inflation, or central bank policy decisions) has a larger effect on asset prices.
    Keywords: Economic news; asset price; Treasury yields
    JEL: E2 G1
  56. By: Guillaume Delalande; Cécile Sangaré; Friederike Rühmann; Julia Benn
    Abstract: This working paper presents the main findings of the pilot study conducted in Burkina Faso in 2019 as part of the development of the statistical measurement framework for "Total Official Support for Sustainable Development (TOSSD)". The pilot study includes Burkina Faso’s perspective on the statistical methodology of TOSSD, first orders of magnitude of TOSSD to Burkina, as well as a statistical capacity assessment of Burkina Faso to access, collate, collect, analyse and use data on external financing in support of sustainable development.
    Keywords: Burkina Faso, Development Finance, Economic Development, SDG, TOSSD, Transparency
    JEL: C4 O11 F3 E44
    Date: 2020–03–20
  57. By: Thomas Zimmermann; Stephan Luck
    Abstract: By November 2008, the Global Financial Crisis, which originated in the residential housing market and the shadow banking system, had begun to turn into a major recession, spurring the Federal Open Market Committee (FOMC) to initiate what we now refer to as quantitative easing (QE). In this blog post, we draw upon the empirical findings of post-crisis academic research's including our own work's to shed light on the question: Did QE work?
    Keywords: LSAPS; employment; monetary policy; real effect; QE
    JEL: E5 G1
  58. By: Dean Corbae; Pablo D'Erasmo
    Abstract: Concentration of insured deposit funding among the top four commercial banks in the U.S. has risen from 15% in 1984 to 44% in 2018, a roughly three-fold increase. Regulation has often been attributed as a factor in that increase. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 removed many of the restrictions on opening bank branches across state lines. We interpret the Riegle-Neal act as lowering the cost of expanding a bank's funding base. In this paper, we build an industry equilibrium model in which banks endogenously climb a funding base ladder. Rising concentration occurs along a transition path between two steady states after branching costs decline.
    JEL: E44 G21 L11 L13
    Date: 2020–03
  59. By: Raphael Galvao; Felipe Shalders
    Abstract: We study Central Bank communication in a coordination environment. We show that anything goes when the Central Bank cannot commit to a communication policy: both its most and least preferred allocations can be supported in equilibrium, and so can anything in between. We find that the ability to commit to a policy does not eliminate multiplicity and, in particular, does not necessarily implement the Central Bank's most preferred allocation. Under commitment, however, the Central Bank can avoid the least desirable outcomes and assure an intermediate payoff. We show that the Central Bank chooses an information structure with only two messages that leads to perfect coordination among private agents.
    Keywords: Central Bank communication; commitment; coordination
    JEL: D83 D84 E58
    Date: 2020–03–19
  60. By: Garibaldi, Pietro (University of Turin); Gomes, Pedro Maia (Birkbeck, University of London); Sopraseuth, Thepthida (University of Cergy-Pontoise)
    Abstract: We propose a simple theory of under- and over-employment. Individuals of high type can perform both skilled and unskilled jobs, but only a fraction of low-type workers can perform skilled jobs. People have different non-pecuniary values over these jobs, akin to a Roy model. We calibrate two versions of the model to match moments of 17 OECD economies, considering separately education and skills mismatch. The cost of mismatch is 3% of output on average but varies between -1% to 9% across countries. The key variable that explains the output cost of mismatch is not the percentage of mismatched workers but their wage relative to well-matched workers.
    Keywords: education mismatch, skill mismatch
    JEL: E24 J24
    Date: 2020–02
  61. By: Fernando M. Duarte; Carlo Rosa
    Abstract: When central bankers speak, traders, journalists, and politicians listen with bated breath. The marked asset price reaction to Chairman Bernanke?s June press conference confirms the importance of his comments in the marketplace.
    Keywords: stocks; FOMC press conference; Bernanke; bond yields; sep; minutes; fx; exchange rate
    JEL: G1 E5
  62. By: Jonathan McCarthy
    Abstract: In a recent Liberty Street Economics post, I showed that one major category of consumer spending?spending on discretionary services such as recreation, transportation, and household utilities?behaved very differently in the 2007-09 recession and subsequent recovery than in previous business cycles: specifically, it fell more steeply and has recovered much more slowly. This finding prompted one of the editors of this blog to inquire whether consumer goods spending has also departed markedly from its behavior in past cycles. To answer that question, I examined the decline of expenditures on consumer durable goods and nondurable goods across recessions as well as the pace of recovery during long expansions like the current one.
    Keywords: expansion; Great recession; GDP growth; Consumption
    JEL: E2
  63. By: International Monetary Fund
    Abstract: The macroprudential policy framework has been developed and enhanced since the last FSAP. The Financial Market Stability Board (FMSB)—established in 2014 and tasked with strengthening cooperation in macroprudential oversight and safeguarding financial stability—plays the central role. The FMSB fulfills its mandate by discussing facts relevant to financial stability and issuing expert opinions, policy action recommendations, and warnings about financial stability risks. The Financial Market Authority (FMA), Austria's integrated financial supervisory authority, is also designated by law as the competent authority for applying macroprudential instruments and implements FMSB recommendations on a comply-or-explain basis. The Austrian National Bank (OeNB) is obliged to monitor and conduct analysis of systemic risks and to inform the FMSB on its findings. It also provides the secretariat for the FMSB.
    Date: 2020–03–02
  64. By: Walter Engert; Ben Fung
    Abstract: A number of questions can arise when considering the implications of a cashless society. This note considers whether cash is necessary for a uniform currency.
    Keywords: Bank notes; Digital Currencies and Fintech; Financial services; Payment clearing and settlement systems
    JEL: E42
    Date: 2020–03
  65. By: Bachmair,Fritz Florian; Aslan,Cigdem; Maseko,Mkhulu
    Abstract: The South African government offers various support mechanisms to support Eskom, the state-owned electric utility, and the independent power producers in providing low-cost electricity, including credit and payment guarantees. Guarantees constitute contingent liabilities to the government and pose risks to government finances. This note illustrates the methodologies explored by South Africa to assess the credit risk from guarantees extended to Eskom. To manage and closely monitor this risk, a dedicated Credit Risk directorate in the Asset and Liability Management division at the National Treasury of South Africa has implemented a risk assessment and management framework, supported by the World Bank Treasury. The team developed a sector-specific internal credit rating methodology to assess Eskom's creditworthiness. Additionally, the team developed a scenario analysis methodology to assess Eskom's ability to service debt from cash flows and cash reserves. The scenario analysis tool is currently used on an ad hoc basis to feed into the various scenarios that are considered for the budget process. Risk assessments are reported to the Fiscal Liabilities Committee on a quarterly basis for risk monitoring and to support recommendations for taking on new contingent liabilities, such as government guarantees. The Fiscal Liabilities Committee advises the minister of finance and is responsible for the determination of the processes and policies for approving guarantees and guarantee-like transactions. The Fiscal Liabilities Committee is generally mandated to promote the optimum management of the government's contingent liabilities, including guarantees. The implementation of further risk mitigation and monitoring tools, such as risk-based guarantee fees, budget allocations, and a contingency reserve account, is under discussion.
    Keywords: Financial Crisis Management&Restructuring,Macro-Fiscal Policy,Public Finance Decentralization and Poverty Reduction,Public Sector Economics,Economic Adjustment and Lending,Energy Policies&Economics,Energy Demand,Energy and Mining,Energy and Environment
    Date: 2019–01–15
  66. By: Maurizio Bussolo (AFFILIATION); Daniele Checchi (University of Milan); Vito Peragine (University of Bari)
    Abstract: This paper was started as background paper for the World Bank regional flagship report on “Towards a new social contract: Taking on distributional tensions in Europe and Central Asia†. We thank Jorg Neugschwender (Luxemburg Income project) and Teresa Randazzo (University of Bari) for technical assistance in building the dataset, and Tullio Jappelli (University of Naples, Italy) for extensive discussions. It has been presented at various seminars (Cattaneo Conference on Trends in Inequality, Bologna (2017), Siena (2017), Canazei Winter School (2018), University of Maastricht (2018), Eden final conference, Budapest (2018), UNDP, New York (2019). All remaining errors are our own responsibility.
    Keywords: Inequality of Opportunity; Decomposition methods; Education mobility; Returns to Education; Family Networking; Cohort Analysis.
    JEL: D31 D63 E24 I24 J62
    Date: 2020–03
  67. By: Jose Carreno
    Abstract: The United States has been experiencing a slowdown in productivity growth for more than a decade. I exploit geographic variation across U.S. Metropolitan Statistical Areas (MSAs) to investigate the link between the 2006-2012 decline in house prices (the housing bust) and the productivity slowdown. Instrumental variable estimates support a causal relationship between the housing bust and the productivity slowdown. The results imply that one standard deviation decline in house prices translates into an increment of the productivity gap -- i.e. how much an MSA would have to grow to catch up with the trend -- by 6.9p.p., where the average gap is 14.51%. Using a newly-constructed capital expenditures measure at the MSA level, I find that the long investment slump that came out of the Great Recession explains an important part of this effect. Next, I document that the housing bust led to the investment slump and, ultimately, the productivity slowdown, mostly through the collapse in consumption expenditures that followed the bust. Lastly, I construct a quantitative general equilibrium model that rationalizes these empirical findings, and find that the housing bust is behind roughly 50 percent of the productivity slowdown.
    Date: 2020–01
  68. By: Maruyama, Yuuki
    Abstract: The point of this model is that total investment in the economy is not determined by the equilibrium of the interest rate alone, but by the equilibrium of both the interest rate and the market price of risk (risk premium). In this model, the lower the discount rate or risk aversion of people, the higher the total investment. This model shows that when the interest rate is not at the zero lower bound, the total investment is only slightly affected by people's risk aversion, but at the zero lower bound, the total investment is inversely proportional to people's risk aversion. In addition, this model is used to analyze monetary policy. It is shown that the interest rate channel and the credit channel can be analyzed with the same formula and the effect of the interest rate channel is small. This explains why a central bank can greatly increase the total investment with small changes in the interest rate. Additionally, this paper analyzes fiscal policy, helicopter money, and government bonds.
    Date: 2020–03–19
  69. By: Jonathan McCarthy
    Abstract: In a previous post, I discussed the impact of changing commodity prices on the discretionary income of households and concluded that these effects generally were relatively modest except in cases of extreme swings in commodity prices. As many people know, there was a large surge in energy prices during the first quarter of 2011, and it appears to have had a significant effect on discretionary income and consumer spending. (See recent speeches by Federal Reserve Chairman Bernanke and New York Fed President Dudley; for views outside the Fed, see FT Alphaville, Tim Duy, and James Hamilton.)
    Keywords: income quintiles; Consumer Expenditure Survey; commodity prices; consumption; disposable income; low-income households
    JEL: E2
  70. By: Alexandre Ounnas (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper provides an analysis of the effects of Job Polarization on the labor market through the study of worker flows and transition rates disaggregated by occupations. I use the Current Population Survey (CPS) for the period 1976-2010 and the occupation classification of Autor and Dorn (2013) to rank occupations between high, middle and low skill. I then use the variance decomposition of Elsby et al. (2015) to measure the percentage point contributions of each hazard rate to labor market stocks fluctuations. This flow rate analysis is used to study 3 phenomena. Firstly, the decrease in middle skill (or routine) employment between 1980 and 2006. The results highlight the role of employment to employment transition rates in the early part of Polarization between 1980 and 1999. After the year 2000, hazard rates between middle skill employment and unemployment/inactivity account for the decrease in employment of these occupations. Secondly, I analyze Jobless recoveries (Jaimovich and Siu (2012)) and the hazard rate contributing to the slow rebound in aggregate employment after the recent recessions. I find that hazard rates from unemployment to employment of all 3 groups of occupations contribute negatively to aggregate employment fluctuations during recoveries. Lastly, I analyze fluctuations of labor force participation as Foote and Ryan (2015) and Cortes et al. (2017) suggest that Polarization lead middle skill workers to exit the labor force. I confirm this observation as the results show that hazard rates between middle skill employment and inactivity contribute negatively to labor fluctuations between 1990 and 2006.
    Keywords: Worker flows; occupations; unemployment; labor force participation; Job Polarization
    JEL: E0 J0
    Date: 2020–02–27
  71. By: International Monetary Fund
    Abstract: Social unrest and its aftermath eroded confidence and caused large capital and bank deposits outflows that resulted in a prolonged output contraction. Banks cut lending, which exacerbated the downturn. Faced with sharply lower revenues and a severe tightening in available financing, including on account of sanctions, the government was forced to cut spending and adopt a procyclical tax package.
    Keywords: Financial and Monetary Sector;Central banks;Economic integration;Real sector;Financial systems;ISCR,CR,percent of GDP,national authority,INSS,net international reserve,Proj
    Date: 2020–02–27
  72. By: International Monetary Fund
    Abstract: Regime change has created a window of opportunity for fundamental reforms to address major macro imbalances and lay the groundwork for inclusive growth. After prolonged protests, President Al-Bashir’s government was removed and a transitional government was sworn in August 2019 for a 39-month period, to be followed by general elections. Major challenges lie ahead. The economy is shrinking, fiscal and external imbalances are large, inflation is high, the currency is overvalued, and competitiveness is weak. The humanitarian situation is dire with large numbers of internally displaced people and refugees. U.S. sanctions on trade and financial flows were revoked in October 2017, but Sudan remains on the state sponsors of terrorism list (SSTL), which effectively discourages external investment and blocks progress toward both HIPC debt relief and the clearance of large arrears to the Fund. In this context, staff engagement has intensified to render the necessary policy and technical assistance to help the authorities seize this once-in-a-generation opportunity for reforms. There is broad agreement between the authorities and staff about the key reform priorities, but the authorities have yet to put together a fully coherent and viable plan that enjoys broad public support and can plausibly attract adequate donor financing.
    Date: 2020–03–10
  73. By: Shang-Jin Wei; Jun Nie; Qingyuan Du
    Abstract: We propose a new channel to explain why developing countries may fail to benefit from financial globalization, based on labor market institutions. In our model, financial openness in a developing country with a rigid labor market leads to capital outflow, and both employment and output fall. In contrast, financial openness in a developing country with a flexible labor market benefits the country. Our model suggests that enhancing labor market flexibility is a complementary reform for developing countries opening capital accounts.
    Keywords: Developing Countries; Capital Account LIberalization; Labor Market Rigidity; Financial Openness; Unemployment
    JEL: E24 F41 F44 J08
    Date: 2019–11–26
  74. By: Bruce C. Fallick; Daniel Villar Vallenas; William L. Wascher (Bank für Internationalen Zahlungsausgleich; Board of Governors of the Federal Reserve System (U.S.); University of Pennsylvania)
    Abstract: Rigidity in wages has long been thought to impede the functioning of labor markets. In this paper, we investigate the extent of downward nominal wage rigidity in US labor markets using job-level data from a nationally representative establishment-based compensation survey collected by the Bureau of Labor Statistics. We use several distinct methods to test for downward nominal wage rigidity and to assess whether such rigidity is less or more severe in the presence of negative economic shocks than in more normal economic times. We find a significant amount of downward nominal wage rigidity in the United States and no evidence that the high degree of labor market distress during the Great Recession reduced downward nominal wage rigidity. We further find a lower degree of nominal rigidity at multi-year horizons.
    JEL: J3 E24
    Date: 2020–03–17
  75. By: International Monetary Fund
    Abstract: The economy continues to expand; fiscal performance has been strong and public debt continues to decline. Ahead of the 2020 elections social demands have precipitated strongly, causing the government to reverse recent pension reforms and promise large public wage increases. Downside risks arise from changes in global conditions, contingent liabilities, further reform standstill, and adverse demographics. The country submitted its ERM II and the Banking Union entry request in July 2019. The authorities currently expect SSM/SRM membership by mid-2020 and see 2023 as the earliest time for euro adoption.
    Date: 2020–02–19
  76. By: Kim Huynh; Jozsef Molnar; Oleksandr Shcherbakov; Qinghui Yu
    Abstract: In recent years, there have been rapid technological innovations in retail payments. Such dramatic changes in the economics of payment systems have led to questions regarding whether there is consumer demand for cash. The entry of these new products and services has resulted in significant improvements in the characteristics of existing methods of payment, such as tap-and-go technology or contactless credit and debit cards. In addition, the introduction of decentralized digital currencies has raised questions about whether there is a need for a central bank digital currency (CBDC) and, if so, what its essential characteristics should be. To address these questions, we develop and estimate a structural model of demand for payment instruments. Our model allows for rich heterogeneity in consumer preferences. Identification of the distribution of consumer heterogeneity relies on observing individual-level consumer decisions at the point of sale. Using parameter estimates, we conduct a counterfactual experiment of an introduction of CBDC and simulate post-introduction consumer adoption and usage decisions. We also provide insights into the potential welfare implications of the introduction of new payment instruments.
    Keywords: Bank notes; Digital currencies and fintech; Financial services
    JEL: C51 E42 L52
    Date: 2020–03
  77. By: Maurizio Bussolo (World Bank); Daniele Checchi (University of Milan); Vito Peragine (Unversity of Bari "Aldo Moro")
    Abstract: The main goal of this paper is to document and analyze the long-term evolution of inequality of opportunity (IOp) in the four largest European economies (France, Germany, Great Britain and Italy). Relative IOp represents an important portion of total income inequality, with values ranging from 30 to 50 percent according to the standard deviation of logs. For all the countries, relative IOp shows a stable or declining time trend. In addition to these descriptive findings, the paper proposes a theoretical framework identifying channels of transmission which may affect IOp. Using this framework, a decomposition focuses on the role of three variables: a) intergenerational persistence in educational attainment, b) return of education, and c) networking activity of parents. While the first two variables exhibit a declining trend in all countries, which as predicted by the model should produce a decline in IOp, the third one appears to be rising in some countries, counteracting the effects of the first twoKeywords: Inequality of Opportunity, Decomposition methods, Education mobility, Returns to Education, Family Networking, Cohort Analysis
    JEL: D31 D63 E24 I24 J62
    Date: 2020–03
  78. By: Claire Alestra (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Gilbert Cette (Centre de recherche de la Banque de France - Banque de France, AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Valérie Chouard (Centre de recherche de la Banque de France - Banque de France); Rémy Lecat (Centre de recherche de la Banque de France - Banque de France)
    Abstract: This paper provides a tool to build climate change scenarios to forecast Gross Domestic Product (GDP), modelling both GDP damage due to climate change and the GDP impact of mitigating measures. It adopts a supply-side, long-term view, with 2060 and 2100 horizons. It is a global projection tool (30 countries / regions), with assumptions and results both at the world and the country / regional level. Five different types of energy inputs are taken into account according to their CO2 emission factors. Full calibration is possible at each stage, with estimated or literature-based default parameters. In particular, Total Factor Productivity (TFP), which is a major source of uncertainty on future growth and hence on CO2 emissions, is endogenously determined, with a rich modeling encompassing energy prices, investment prices, education, structural reforms and decreasing return to the employment rate. We present four scenarios: Business As Usual (BAU), with stable energy prices relative to GDP price; Decrease of Renewable Energy relative Price (DREP), with the relative price of non CO2 emitting electricity decreasing by 2% a year; Low Carbon Tax (LCT) scenario with CO2 emitting energy relative prices increasing by 1% per year; High Carbon Tax (HCT) scenario with CO2 emitting energy relative prices increasing by 3% per year. At the 2100 horizon, global GDP incurs a loss of 12% in the BAU, 10% in the DREP, 8% in the Low Carbon Tax scenario and 7% in the High Carbon Tax scenario. This scenario exercise illustrates both the "tragedy of the horizon", as gains from avoided climate change damage net of damage from mitigating policies are negative in the medium-term and positive in the long-term, and the "tragedy of the commons", as climate change damage is widely dispersed and particularly severe in developing economies, while mitigating policies should be implemented in all countries, especially in advanced countries modestly affected by climate change but with large CO2 emission contributions.
    Keywords: Climate,Global warming,Energy prices,Government policy,Growth,Productivity,Long- term projections
    Date: 2020–03–10
  79. By: Orland, Andreas; Rostam-Afschar, Davud
    Abstract: In the past years, work time in many industries has become increasingly flexible opening up a new channel for intertemporal substitution. To study this, we set up a two-period model with wage uncertainty. This extends the standard savings model by allowing a worker to allocate a fixed time budget between two work-shifts or to save. To test the existence of these channels, we conduct laboratory consumption/saving experiments. A novel feature of our experiments is that we tie them to a real-effort style task. In four treatments, we turn on and off the two channels for consumption smoothing: saving and time allocation. Our four main findings are: (i) subjects exercise more effort under certainty than under risk; (ii) savings are strictly positive for at least 85 percent of subjects (iii) a majority of subjects uses time allocation to smooth consumption; (iv) saving and time shifting are substitutes, though not perfect substitutes.
    Keywords: precautionary saving,labor supply,intertemporal substitution,experiment
    JEL: D14 E21 J22 C91 D81
    Date: 2020
  80. By: Amit Kara; Jason Lennard
    Abstract: Reliable and timely economic data are essential for policymakers. A cursory glance at the Budget documents from HM Treasury or the different monetary policy publications from the Bank of England reveals the direct and immediate use of a wide range of macroeconomic data for policy. Those fiscal and monetary policy decisions, in turn, impact on every household and business and therefore policy that is based on inaccurate statistics is costly to people in Britain. In this paper we estimate the macroeconomic impact of revisions to official national accounts data. We examine this question through the prism of monetary policy and restrict our focus to two episodes when the ONS introduced sizeable revisions to its preliminary GDP data. The first episode relates to the period around the Asian Financial Crisis when early quarterly GDP growth estimates were subsequently revised higher. The second episode covers the Global Financial Crisis and in this case the early estimates of real GDP were later revised lower.
    Date: 2020–02
  81. By: Alexandre Ounnas (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Using Current Population Survey (CPS) data over the period 1976-2010 and the occupation classification of Autor and Dorn (2013) to rank occupations between high, medium and low skill, this paper provides a flow rate analysis of quarterly fluctuations in occupation-specific and aggregate stocks. I apply the variance decomposition developed by Elsby et al. (2015) and find that inflows (the ins) explain a higher share of the variance in the fluctuations of the high skill unemployment rate (around 54%), while outflows (the outs) account for 60% of the variance of the low skill unemployment rate variance. I then show how the variance decomposition for occupation-specific stocks can be used to study fluctuations of aggregate stocks, namely the unemployment and labor force participation rates. This allows to analyze the role of occupation-specific flow rates but also effects of variations in the occupational shares of employment and unemployment. The variance decomposition results indicate that compositional effects do not account for much of the variance in aggregate unemployment rate fluctuations. It is occupation-specific transition rates out and into unemployment that account for most of the variance in these fluctuations. Outflows and inflows explain 60% and 35% of the variance in unemployment fluctuations with flows into and out of middle and low skill unemployment contributing for 80%. I focus on labor force participation fluctuations in the last part of the paper. In addition to the occupation compositional effect, I find that outflows from the labor force are also affected by fluctuations of the unemployment rate: when unemployment increases, the transition rate out of the labor force increases as well given that unemployed have a much higher exit rate compared to employed workers. This compositional effect is also described by Barnichon (2019) and I find that it accounts for 34% of the variance in quarterly fluctuations of labor force participation. The remaining share is explained by inflows to the labor force (65%) with inflows to employment and unemployment contributing for 45% and 20% respectively.
    Keywords: Worker flows; unemployment; occupations; labor force participation
    JEL: E24 J6
    Date: 2020–02–27
  82. By: Al-Ojayan, Hessah; Gaskell, George; Veltri, Giuseppe A.
    Abstract: The Kuwait government is highly dependent on oil revenues; its fiscal position is exposed to fluctuations in crude oil prices. Reducing expenditures will make Kuwait’s government more fiscally robust in the context of volatile oil markets. Reforming subsides is one way by which the government can reduce expenditures. Electricity and water subsidies in Kuwait represent about 11–20 percent of fiscal expenditures. The goal of this paper is to identify behavioural interventions, ‘nudges’, that could help save electricity in the household sector, which consumes 50 percent of electricity produced. We developed the nudges by first, reviewing relevant behavioural literature; second, conducting focus group interviews; third, comparing Kuwait to other Gulf Cooperation Council countries; and last, testing the cultural appropriateness of the nudges. The first nudge we propose is making the government subsidy more salient for citizens. The second is activating social norms. The third is framing, adding a message that makes subscribers care for future generations. Lastly, there is the recognition of saving efforts through a reward system.
    JEL: E6 R14 J01
    Date: 2020–02–01
  83. By: Lukas Menkhoff; Malte Rieth; Tobias Stöhr
    Abstract: Evidence on the effectiveness of FX interventions is either limited to short horizons or hampered by debatable identification. We address these limitations by identifying a structural vector autoregressive model for the daily frequency with an external instrument. Generally, we find, for freely floating currencies, that FX intervention shocks significantly affect exchange rates and that this impact persists for months. The signaling channel dominates the portfolio channel. Moreover, interest rates tend to fall in response to sales of the domestic currency, whereas stock prices of large (exporting) firms increase after devaluation of the domestic currency.
    Keywords: Foreign exchange intervention, structural VAR, exchange rates, interest rates, stock prices
    JEL: F31 F33 E58
    Date: 2020
  84. By: Hoang Sang Nguyen (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique); Fabien Rondeau (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper evaluates macroeconomic interdependencies of seven Central and Eastern European Countries (CEECs) with the Euro Area (EA) through trade relationship. We estimate a near-VAR model and we simulate responses of activity in those CEECs to output shocks for twelve former members of the EA before and after the 2004 enlargement of the European Union (EU). During both periods, empirical results show that spillover effects come through the main economies of the EA: Germany, France and Italy. Furthermore, CEECs are more responsive to output shocks in the EA after 2004 than before (3.3 times larger on average). Increases in spillover effects are larger for the three CEECs that adopted the Euro early (Slovenia, Slovakia, and Estonia) than the other CEECs (4.9 versus 2.1) but without higher trade intensity with the EA (1.07 versus 1.12). Our results show that trade effects are positive inside the same currency area but negative for the CEECs without the euro. JEL Classifications: F13, F15, F45
    Keywords: OCA,Enlargement,European Union,Trade Spillovers,Euro,Near-VAR
    Date: 2019–03–24
  85. By: Burcu Erik; Marco Jacopo Lombardi; Dubravko Mihaljek; Hyun Song Shin
    Abstract: The interest in how financial conditions affect real economic activity has grown since the Great Financial Crisis (GFC), not least because some of the mechanisms at play in the financial sector may have changed. We shed light on this issue by examining the empirical relationship between global Purchasing Managers' Indices, world trade and indicators of global financial conditions, with a special focus on the broad dollar index. We show that the influence of the dollar on real economic activity and global trade seems to have increased since the GFC, while that of the VIX has decreased.
    Keywords: financial conditions, economic activity, world trade, dollar exchange rate, bank leverage, purchasing managers' indices, nowcasting, global supply chains
    JEL: C5 E2 F3 F4 F6
    Date: 2020–03
  86. By: Thiemo Fetzer; Lukas Hensel; Johannes Hermle; Christopher Roth
    Abstract: We provide the first analysis on how fear of the novel coronavirus affects current economic sentiment. First, we collect a global dataset on internet searches indicative of economic anxieties, which serve as a leading indicator of subsequent aggregate demand contractions. We find that the arrival of coronavirus in a country leads to a substantial increase in such internet searches of up to 58 percent. Second, to understand how information about the coronavirus drives economic anxieties, we conduct a survey experiment in a representative sample of the US population. We find that participants vastly overestimate mortality from and contagiousness of the virus. Providing participants with information regarding these statistics substantially lowers participants' expectations about the severity of the crisis and participants' worries regarding the aggregate economy and their personal economic situation. These results suggest that factual public education about the virus will help to contain spreading economic anxiety and improve economic sentiment.
    Date: 2020–03
  87. By: International Monetary Fund
    Abstract: The insurance sector is experiencing low growth, stemming mainly from life business and a prolonged low-interest-rate environment. While the total assets have increased in nominal terms, it has underperformed GDP growth. Some segments, in particular single-premium products in life insurance, are suffering from material declines of premiums. Insurers are coping with the challenges with large-scale mergers domestically and international expansions. The duration gap between asset and liabilities was one of the highest among the European peers. The average guaranteed rates remain high, while the investment returns continue to decline.
    Date: 2020–03–02
  88. By: Qazi Haque (Economics Discipline, Business School, University of Western Australia and Centre for Applied Macroeconomic Analysis, Australian National University); Leandro M. Magnusson (Economics Discipline, Business School, University of Western Australia)
    Abstract: We investigate the empirical evidence on the Euler equation models using methods that are robust to weak instruments and structural changes for a set of eight countries. We start with the conventional closed economy model and consider extensions that include habits and hand-to-mouth consumers. We then extend the analysis to allow for each country to behave like an open economy. We find that structural changes are informative for the identification of the Euler equation models in some countries. However, in all countries, there is limited responsiveness of output to changes in the interest rate and no evidence of parameter instability, but otherwise aggregate data provide limited information to learn about Euler equation models.
    JEL: C1 C2 E1 F4
    Date: 2020
  89. By: Thibault Lemaire (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Panthéon-Sorbonne, Banque de France)
    Abstract: The transmission mechanisms of fiscal policy are significantly affected by informality in the labour market. Extending a narrative database of fiscal consolidations in 14 countries from Latin America and the Caribbean between 1989 and 2016 in order to account for heterogeneity in terms of commitment to the reforms, I show that tax-based and spending-based multipliers are both recessionary and do not significantly differ one from another in this region. Furthermore, these multipliers decline in absolute value as the level of labour informality increases in the economy, although evidences are less robust for spending-based consolidations. An analysis of the effects of tax-based consolidations on private demand suggests that labour market informality constitutes a short-term social buffer that attenuates the contractionary effects of this type of policy by increasing investment opportunities through tax evasion and entrepreneurial alternatives to unemployment for dismissed workers.
    Keywords: Fiscal consolidation,taxation,informality,emerging market economies
    Date: 2020–01
  90. By: David Pritchard (University of Queensland, Faculty of Humanities and Social Sciences, School of Historical and Philosophical Inquiry)
    Abstract: In 1817, August Böckh asserted in his book The Public Economy of Athens that ancient Athenians prefered spending their money to support theirs festivals to funding their military expenditures. Since, many new sources, mostly epigraphic, lead to reassess Böckh's thesis for the 430-350 BC period. The verdict is unambigous : the military expenditures were by far the main item of expenditure in classical Athens.
    Abstract: En 1817, dans son ouvrage consacré à l'économie politique d'Athènes, August Böckh affirmait que les Athéniens de l'époque classique avait préféré gaspiller leurs ressources pour financer des festivals au lieu des les utiliser pour les dépenses militaires. Depuis cette date, de nombreuses sources nouvelles, notamment épigraphiques, permettent d'apprécier cette thèse pour la période 430-350 a.C. La conclusion est sans appel : les dépenses militaires étaient de très loin le premier poste de dépenses pour Athènes. Cet article est une traduction du chapitre 4 de l'ouvrage de David M. Pritchard, Athenian Democracy at War, Cambridge 2019. © David M. Pritchard. Il est reproduit avec l'autorisation de Cambridge University Press.
    Keywords: public expenditures,August Böckh,military expenditures,finances publiques,festivals,dépenses militaires,Mots-clés -August Böckh
    Date: 2018–12
  91. By: Charles Ka Yui Leung; Joe Cho Yiu Ng; Edward Chi Ho Tang
    Abstract: The house price in Hong Kong is well-known to be "unaffordable." This paper argues that the commonly used house price-to-income ratio may be misleading in an economy with almost half of the population living in either public rental housing or subsidized ownership. Moreover, we re-focus on the relationships between economic fundamentals and the housing market of Hong Kong. While the aggregate GDP, population, longevity continues to grow, the real wage and household income fall behind. The trend component of the real GDP growth suffers a permanent downward shift after the first quarter of 1989 (a “political scar”). The trend component of real wage growth is close to zero, and the counterpart of real consumption and real investment decline steadily. Meanwhile, the trend component of the real housing rent and price display patterns that decouple from the macroeconomic variables. We also discuss the directions for future research.
    Date: 2020–03
  92. By: Amra,Rashaad; Hanusch,Marek; Jooste,Charl
    Abstract: Fiscal buffers have shrunk across the world. This paper argues that limited fiscal room in emerging market economies today is partly due to the commodity super cycle of 2000-15. The super cycle created the mirage that economic performance had structurally improved, mistaking a long, commodity-fueled uptick in the business cycle for higher trend growth. This thinking supported fiscal expansions. When the commodity boom ended, it became apparent that countries had saved less than they should have, and that fiscal policy had, perhaps inadvertently, been pro-cyclical. It left countries with depleted fiscal buffers and large budgets when the cycle came to an end, limiting room for fiscal stimulus when needed. The paper illustrates the argument with reference to the South African experience.
    Keywords: Macro-Fiscal Policy,Economic Adjustment and Lending,Public Finance Decentralization and Poverty Reduction,Public Sector Economics,Commodity Risk Management,Public Financial Management,Administrative&Civil Service Reform,Public Sector Administrative and Civil Service Reform,De Facto Governments,Democratic Government,Public Sector Administrative&Civil Service Reform,Economic Growth,Economic Theory&Research,Industrial Economics
    Date: 2019–01–18
  93. By: Arellano-Bover, Jaime (Yale University)
    Abstract: I study the long-term effects of landing a first job at a large firm versus a small one using Spanish social security data. Size could be a relevant employer attribute for inexperienced workers since large firms are associated with greater training, higher wages, and enhanced productivity. The key empirical challenge is selection into first jobs – for instance, more able people may land jobs at large firms. I address this challenge developing an instrumental-variables approach that, while keeping business-cycle conditions fixed, leverages variation in the composition of labor demand that labor-market entrants face. I find that initially matching with a larger firm substantially improves long-term outcomes such as lifetime income, and that these benefits persist through subsequent jobs. Additional results point to mechanisms related to search frictions and better skill-development at large firms. Together, these findings shed light on how heterogeneous firms persistently impact young workers' trajectories.
    Keywords: first job, employer size, firm heterogeneity, young workers, lifetime income, on-the-job skills
    JEL: E24 J23 J24 J31 J62
    Date: 2020–02
  94. By: Beverly Hirtle
    Abstract: The Federal Reserve recently released the results of its latest stress test of large bank holding companies (BHCs). While the stress test results have received a lot of attention, they are just one part of a much larger effort by the Federal Reserve to ensure that these large BHCs have robust processes for determining how much capital they need to maintain access to funding and continue to serve as credit intermediaries, even under stressed conditions. In this post, I describe these larger efforts and the role that the stress test plays in them.
    Keywords: bank capital; Comprehensive Capital Analysis and Review; CCAR; stress test
    JEL: E2 J00
  95. By: Adrian Pagan; Tim Robinson
    Abstract: We show that when a model has more shocks than observed variables the estimated filtered and smoothed shocks will be correlated. This is despite no correlation being present in the data generating process. Additionally the estimated shock innovations may be autocorrelated. These correlations limit the relevance of impulse responses, which assume uncorrelated shocks, for interpreting the data. Excess shocks occur frequently, e.g. in Unobserved-Component (UC) models, filters, including Hodrick- Prescott (1997), and some Dynamic Stochastic General Equilibrium (DSGE) models. Using several UC models and an estimated DSGE model, Ireland (2011), we demonstrate that sizable correlations among the estimated shocks can result.
    Keywords: Partial Information, Structural Shocks, Kalman Filter, Measurement Error, DSGE
    JEL: E37 C51 C52
    Date: 2020–03
  96. By: International Monetary Fund
    Abstract: A technical assistance mission in national accounting from the International Monetary Fund (IMF) Regional Technical Assistance Center for Central Africa (AFRITAC Central) visited Brazzaville during December 5–14, 2018 to support the National Statistics Institute (INS) in its work on the national accounts estimates. The mission focused on an analysis of the 2016 and 2017 annual national accounts finalized in accordance with the System of National Accounts 1993 (1993 SNA). The analysis included a review of the information sources used, the methods of calculation and extrapolation, and compliance with the 1993 SNA. The 2016 accounts are completed and finalized, including the summary tables – supply and use tables (SUT), branch accounts, and integrated economic accounts table (IEAT); and the 2017 accounts are still being finalized. The mission recommends that the national accounting officers improve estimates based on the recommendations provided by the mission.1
    Keywords: Gross national product;Price indexes;National accounts;Balance of payments;Household consumption;ISCR,CR,intermediate consumption,current price,national account,constant price,GGS
    Date: 2020–02–24
  97. By: Perez-Quiros, Gabriel; Rots, Eyno; Leiva-Leon, Danilo
    Abstract: We propose an empirical framework to measure the degree of weakness of the global economy in real-time. It relies on nonlinear factor models designed to infer recessionary episodes of heterogeneous deepness, and fitted to the largest advanced economies (U.S., Euro Area, Japan, U.K., Canada and Australia) and emerging markets (China, India, Russia, Brazil, Mexico and South Africa). Based on such inferences, we construct a Global Weakness Index that has three main features. First, it can be updated as soon as new regional data is released, as we show by measuring the economic effects of coronavirus. Second, it provides a consistent narrative of the main regional contributors of world economy's weakness. Third, it allows to perform robust risk assessments based on the probability that the level of global weakness would exceed a certain threshold of interest in every period of time. JEL Classification: E32, C22, E27
    Keywords: business cycles, factor model, international, nonlinear
    Date: 2020–03

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