nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒04‒06
93 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Structural reforms, animal spirits and monetary policies By De Grauwe, Paul; Ji, Yuemei
  2. Public debt expansions and the dynamics of the household borrowing constraint By António Antunes; Valerio Ercolani
  3. Asymmetry in the conditional distribution of euro-area inflation By Alex Tagliabracci
  4. Is there a National Housing Market Bubble Brewing in the United States? By Rangan Gupta; Jun Ma; Konstantinos Theodoridis; Mark E. Wohar
  5. Progressive Taxation as an Automatic Stabilizer under Nominal Wage Rigidity and Preference Shocks By Miroslav Gabrovski; Jang-Ting Guo
  6. Popular Economic Narratives Advancing the Longest U.S. Economic Expansion 2009-2019 By Robert J. Shiller
  7. The Fed's Response to Economic News Explains the "Fed Information Effect" By Michael D. Bauer; Eric T. Swanson
  8. Wage Setting and Unemployment: Evidence from Online Job Vacancy Data By Faryna, Oleksandr; Pham, Tho; Talavera, Oleksandr; Tsapin, Andriy
  9. The impact of SNB monetary policy on the Swiss franc and longer-term interest rates By Fabian Fink; Lukas Frei; Thomas Maag; Tanja Zehnder
  10. Estimación de la variación del precio de los alimentos con modelos de frecuencias mixtas By Julián Alonso Cárdenas-Cárdenas; Edgar Caicedo-García; Eliana R. González Molano
  11. Fiscal Consolidations and Informality in Latin America and the Caribbean By Thibault Lemaire
  12. Uneven development and the balance of payments constrained model: Terms of trade, economic cycles, and productivity catching-up By Sartorello Spinola, Danilo
  13. Central bank information shocks and exchange rates By Franz, Thorsten
  14. Recession probabilities falling from the STARs By Eraslan, Sercan; Nöller, Marvin
  15. How do countries choose their monetary policy frameworks? By Cobham, David; Song, Mengdi
  16. Determinants of the credit cycle: a flow analysis of the extensive margin By Vincenzo Cuciniello; Nicola di Iasio
  17. Higher-Order Income Risk over the Business Cycle By Christopher Busch; Alexander Ludwig
  18. Risk pooling, leverage, and the business cycle By Dindo, Pietro; Modena, Andrea; Pelizzon, Loriana
  19. Editorial to the special issue: The monetary economics of Basil J. Moore By Mark Setterfield
  20. Macroeconomic Shocks: Short-Run versus Long-Run Perspectives By Malik, M. Fahad; Awan, Dr Masood Sarwar; Malik, Dr Waseem Shahid
  21. On adjusting the one-sided Hodrick-Prescott filter By Wolf, Elias; Mokinski, Frieder; Schüler, Yves
  22. Forecasting in the Presence of Instabilities: How Do We Know Whether Models Predict Well and How to Improve Them By Barbara Rossi
  23. Growth without Full Capacity Utilization And Full Capacity Utilization Without Growth By Federico Bassi
  24. Inflation-Targeting and Inflation Volatility: International Evidence from the Cosine-Squared Cepstrum By Nikolaos Antonakakis; Christina Christou; Luis A. Gil-Alana; Rangan Gupta
  25. La crisis argentina del 2002 desde la perspectiva del ciclo económico austriaco By Nicolle Valentina Herrera Pinto
  26. 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
  27. Gender Roles and the Gender Expectations Gap By Francesco D'Acunto; Ulrike M. Malmendier; Michael Weber
  28. The effect of monetary policy on the Swiss franc: an SVAR approach By Christian Grisse
  29. Implications of negative interest rates for the net interest margin and lending of euro area banks By Klein, Melanie
  30. On Public Spending and Unions By Fernando Broner; Alberto Martín; Jaume Ventura
  31. The impact of unconventional monetary policies on retail lending and deposit rates in the euro area By Boris Hofmann; Anamaria Illes; Marco Jacopo Lombardi; Paul Mizen
  32. Self-Employment at Older Ages in Canada By Raquel Fonseca; Simon Lord; Simon C. Parker
  33. The La Marca Model revisited: Structuralist Goodwin cycles with evolutionary supply side and balance of payments constraints By Sartorello Spinola, Danilo
  34. Fiscal and Monetary Regimes: A Strategic Approach By Jean Barthélemy; Guillaume Plantin
  35. A Model for the Optimal Management of Inflation By Salvatore Federico; Giorgio Ferrari; Patrick Schuhmann
  36. The Global Financial Cycle and US Monetary Policy in an Interconnected World By Stéphane Dées; Alessandro Galesi
  37. Demographics and the decline in firm entry: Lessons from a life-cycle model By Röhe, Oke; Stähler, Nikolai
  38. The usual robust control framework in discrete time: Some interesting results By Marco Paolo Tucci
  39. Zimbabwe; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Zimbabwe By International Monetary Fund
  40. Expansionary yet different: credit supply and real effects of negative interest rate policy By Margherita Bottero; Enrico Sette
  41. International information flows, sentiments and cross-country business cycle fluctuations By Michał Brzoza-Brzezina; Jacek Kotłowski; Grzegorz Wesołowski
  42. Population Ageing and the Macroeconomy By Noëmie Lisack; Rana Sajedi; Gregory Thwaites
  43. An Industry-Based Estimation Approach for Measuring the Cloud Economy By Christopher Hooton
  44. Central Bank Mandates, Sustainability Objectives and the Promotion of Green Finance By Simon Dikau; Ulrich Volz
  45. Hopf Bifurcation from new-Keynesian Taylor rule to Ramsey Optimal Policy By Jean-Bernard Chatelain; Kirsten Ralf
  46. Optimal Monetary Policy in the Presence of Food Price Subsidies By William Ginn; Marc Pourroy
  47. The Circular Relationship Between Productivity Growth and Real Interest Rates By Antonin Bergeaud; Gilbert Cette; Rémy Lecat
  48. The Macroeconomic Impact of the 1918–19 Influenza Pandemic in Sweden By Obrizan, Maksym; Karlsson, Martin; Matvieiev, Mykhailo
  49. Testing fundamentalist-momentum trader financial cycles. An empirical analysis via the Kalman filter By Filippo Gusella; Engelbert Stockhammer
  50. Automation, stagnation, and the implications of a robot tax By Gasteiger, Emanuel; Prettner, Klaus
  51. Perceived Precautionary Savings Motives: Evidence from FinTech By Francesco D’Acunto; Thomas Rauter; Christoph K. Scheuch; Michael Weber
  52. Weather Shocks By Ewen Gallic; Gauthier Vermandel
  53. Quantity and Quality Measures of Financial Development: Implications for Macroeconomic Performance By Hiro Ito; Masahiro Kawai
  54. Measuring the uncertainty of shadow economy estimates using Bayesian and frequentist model averaging By Piotr Dybka; Bartosz OlesiÅ„ski; Marek Rozkrut; Andrzej Torój
  55. Repo market and leverage ratio in the euro area By Luca Baldo; Filippo Pasqualone; Antonio Scalia
  56. Central bank swaps then and now: swaps and dollar liquidity in the 1960s By Robert N McCauley; Catherine R Schenk
  57. Republic of Moldova; Staff Report for the 2020 Article IV Consultation and Sixth Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova By International Monetary Fund
  58. Tracking and Predicting the German Economy: ifo vs. PMI By Robert Lehmann; Magnus Reif
  59. A Portfolio-Balance Model of Inflation and Yield Curve Determination By Antonio Diez de los Rios
  60. Reserve management and sustainability: the case for green bonds? By Ingo Fender; Mike McMorrow; Vahe Sahakyan; Omar Zulaica
  61. The Shadow Margins of Labor Market Slack By R. Jason Faberman; Andreas I. Mueller; Ayşegül Şahin; Giorgio Topa
  62. From open economies to attitudes towards change. Growth and institutions in Latin America and Asia By Marwil J. Dávila-Fernández; Serena Sordi
  63. Competitive equilibrium cycles for small discounting in discrete-time two-sector optimal growth models By Alain Venditti
  64. The Global Financial Resource Curse By Gianluca Benigno; Luca Fornaro; Martin Wolf
  65. The impact of uncertainty and certainty shocks By Schüler, Yves S.
  66. Contagion of Fear By Kris James Mitchener; Gary Richardson
  67. Understanding Cross-country Differences in Health Status and Expenditures By Raquel Fonseca; François Langot; Pierre-Carl Michaud; Thepthida Sopraseuth
  68. Policy Announcement Design By Anna Cieslak; Semyon Malamud; Andreas Schrimpf
  69. Inflation targeting in low-income countries: Does IT work? By Michael Bleaney; Atsuyoshi Morozumi; Zakari Mumuni
  70. Understanding Cross-country Differences in Health Status and Expenditures By Raquel Fonseca Benito; François Langot; Pierre-Carl Michaud; Thepthida Sopraseuth
  71. The Micro-Level Anatomy of the Labor Share Decline By Matthias Kehrig; Nicolas Vincent
  72. Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens By Antonio Coppola; Matteo Maggiori; Brent Neiman; Jesse Schreger
  73. Herding Cycles By Edouard Schaal; Mathieu Taschereau-Dumouchel
  74. The North-South Divide, the Euro and the World By Konstantinos Chisiridis; Kostas Mouratidis; Theodore Panagiotidis
  75. Measuring spatial price differentials: A comparison of stochastic index number methods By Weinand, Sebastian
  76. Long-Term Evolution of Inequality of Opportunity By Bussolo, Maurizio; Checchi, Daniele; Peragine, Vito
  77. Preferences for demand side management—a review of choice experiment studies By Gilbert Mbara
  78. Quantifying Qualitative Survey Data: New Insights on the (Ir)Rationality of Firms' Forecasts By Alexandros Botsis; Christoph Görtz; Plutarchos Sakellaris
  79. Covid-19 Coronavirus and Macroeconomic Policy By Luca Fornaro; Martin Wolf
  80. Measuring education services using lifetime incomes By Carol Corrado; Mary O'Mahony; Lea Samek
  81. Manufacture Content and Financialisation: An Empirical Assessment By Marwil J. Dávila-Fernández
  82. The dynamic impact of FX interventions on financial markets By Menkhoff, Lukas; Rieth, Malte; Stöhr, Tobias
  83. Oil Price Uncertainty and Conflicts: Evidence from the Middle East and North Africa By Massimiliano Caporin; Zahra Mohammadi Nikpour; Paola Valbonesi
  84. Misallocation Effects of Labor Market Frictions By Stanislav Rabinovich; Ronald Wolthoff
  85. When are fiscal deficits inflationary in low-income countries? By Michael Bleaney; Atsuyoshi Morozumi; Zakari Mumuni
  86. Forecasting natural gas prices using highly flexible time-varying parameter models By Gao, Shen; Hou, Chenghan; Nguyen, Bao H.
  87. Derivate im Zinsmanagement: Eine Analyse der Hedging-Qualität von Bund Future Kontrakten und deren Einsatzmöglichkeiten in Theorie und Praxis By Wontke, Christoph; Seitz, Franz
  88. Provincial Trade, Financial Friction and Misallocation in China By Kwon, Ohyun; Fleisher, Belton M.; McGuire, William H.; Zhao, Min Qiang
  89. Keynes, Sraffa y la ley de grafeno de los salarios By Hernando Matallana
  90. Debating the assumptions of the Thirlwall Model: A VECM analysis of the Balance of Payments for Argentina, Brazil, Colombia, and Mexico By Sartorello Spinola, Danilo
  91. Don’t look back in anger: The use of derivatives in public debt management in Italy By Mauro Bucci; Ilaria De Angelis; Emilio Vadalà
  92. Measurement of Factor Strenght: Theory and Practice By Natalia Bailey; George Kapetanios; M. Hashem Pesaran
  93. Fighting African Capital Flight: Trajectories, Dynamics and Tendencies By Simplice A. Asongu; Joseph I. Uduji; Elda N. Okolo-Obasi

  1. By: De Grauwe, Paul; Ji, Yuemei
    Abstract: We use a New Keynesian behavioral macroeconomic model to analyze how structural reforms affect the economy. There are two types of structural reforms. The first one increases price flexibility; the second one increases competition in the labor market and raises potential output. We find that in a rigid economy business cycle movements are dominated by movements of animal spirits. Increasing price flexibility reduces the power of animal spirits and the boom bust nature of the business cycle. We study the trade-offs between output and inflation volatility faced by the central bank. We find that flexibility improves these trade-offs making it easier for the central bank to stabilize output and inflation.
    Keywords: animal spirits; behavioral macroeconomics; business cycles; structural reforms; price flexibity; labour market; product market; ES/P000274/1
    JEL: E10 E12 E32
    Date: 2020–05–01
  2. By: António Antunes (Bank of Portugal); Valerio Ercolani (Bank of Italy)
    Abstract: Contrary to a well-established view, public debt expansions may tighten the household borrowing constraint over time. Within an incomplete-markets model featuring an endogenous borrowing limit, we show that plausible debt-financed fiscal policies generate such tightening through an increase in the interest rate. The tightening makes constrained agents deleverage and reinforces the precautionary saving motive of the unconstrained. This appetite for assets affects factor prices and this, in some cases, amplifies the households' reactions to the policies. For example, the tightening can substantially magnify the government spending multiplier by strengthening the typical negative wealth effect on labor supply induced by the fiscal stimulus. Moreover, the tightening affects political support for the policies mainly through price effects.
    Keywords: endogenous borrowing constraint, government debt, fiscal policies and multipliers, heterogeneous households, incomplete markets
    JEL: E21 E44 E62 H60
    Date: 2020–03
  3. By: Alex Tagliabracci (Bank of Italy)
    Abstract: Macroeconomic conditions are among the key determinants of the inflation outlook. This paper studies how business cycles affect the conditional distribution of euro-area inflation forecasts. Using a quantile regression approach, I estimate the conditional distribution of inflation to assess the impact of business cycle conditions over time and the possible asymmetries across quantiles of inflation. Interestingly, downside risks to inflation forecasts are related to the business cycle while upside risks are instead relatively stable over time and are not affected by the state of the economy.
    Keywords: inflation, quantile regression, conditional distribution, asymmetry, downside risks
    JEL: C32 E31 E32 E37
    Date: 2020–03
  4. By: Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Jun Ma (Department of Economics, Northeastern University, Boston, Massachusetts, 02115 USA); Konstantinos Theodoridis (Cardi Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff CF10 3EU, UK; European Stability Mechanism, 6a Circuit de La Foire Internationale, 1347 Luxembourg, Luxembourg); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, 6708 Pine Street, Omaha, NE 68182, USA)
    Abstract: We use a time-varying parameter dynamic factor model with stochastic volatility (DFM-TV-SV) estimated using Bayesian methods to disentangle the relative importance of the common component in FHFA house price movements from state-specific shocks, over the quarterly period of 1975Q2 to 2017Q4. We find that the contribution of the national factor in explaining fluctuations in house prices is not only critical, but also has been increasing and has become more important than the local factors since around 1990. We then use a Bayesian change-point vector autoregressive (VAR) model, that allows for different regimes throughout the sample period, to study the impact of aggregate supply, aggregate demand, (conventional) monetary policy, and term-spread shocks, identified based on sign-restrictions, on the national component of house price movements. We detect three regimes corresponding to the periods of "Great Inflation", "Great Moderation", and the zero lower bound (ZLB). While the conventional monetary policy is found to have played an important role in the historical evolution of the national factor in the first-regime, other shocks are found to be quite dominant as well especially during the second-regime, with monetary policy shocks playing virtually no role during this period. In the third-regime, unconventional monetary policy shock is found to have led to a (delayed) recovery in the housing market. But more importantly, we find evidence that the national housing factor has been detached from the identified macroeconomic shocks (fundamentals) since 2014, thus suggesting that a "national bubble" might be brewing again in the US housing market. Understandably, our results have important policy implications.
    Keywords: House Prices, Time-Varying Dynamic Factor Model, Change-Point Vector Autoregressive Model, Macroeconomic Shocks, Bayesian Analysis
    JEL: C11 C32 E31 E32 E43 E52 R31
    Date: 2020–03
  5. By: Miroslav Gabrovski (University of Hawaii at Manoa); Jang-Ting Guo (Department of Economics, University of California Riverside)
    Abstract: Previous research has shown that in the context of a prototypical New Keynesian model, more progressive income taxation may lead to higher volatilities of hours worked and total output in response to a monetary disturbance. We analytically show that this business-cycle destabilization result is overturned within an otherwise identical macroeconomy subject to impulses to the household's utility formulation. Under a continuously or linearly progressive fiscal policy rule, an increase in the tax progressivity will always raise the degree of equilibrium nominal-wage rigidity, and thus serve as an automatic stabilizer that mitigates cyclical fluctuations driven by preference shocks. Our analysis illustrates that whether a more progressive tax schedule (de)stabilizes the business cycle depends crucially on the underlying driving source.
    Keywords: Progressive Income Taxation, Automatic Stabilizer, Nominal Wage Rigidity, Preference Shocks.
    JEL: E12 E32 E62
    Date: 2020–03
  6. By: Robert J. Shiller
    Abstract: The U.S. economic expansion since 2009 is the longest on record since 1854, according to the National Bureau of Economic Research Business Cycle Dating Committee. This paper seeks to understand this phenomenon better by looking at the time paths of popular narratives over this interval, of stories that people have been telling that offer clues into their economic behavior. Six constellations of narratives are studied, identified by keywords “Great Depression,” “secular stagnation,” “sustainability,” “housing bubble,” “strong economy,” and “save more.”
    JEL: D91 E21 E32 E44
    Date: 2020–03
  7. By: Michael D. Bauer; Eric T. Swanson
    Abstract: High-frequency changes in interest rates around FOMC announcements are a standard method of measuring monetary policy shocks. However, some recent studies have documented puzzling effects of these shocks on private-sector forecasts of GDP, unemployment, or inflation that are opposite in sign to what standard macroeconomic models would predict. This evidence has been viewed as supportive of a “Fed information effect” channel of monetary policy, whereby an FOMC tightening (easing) communicates that the economy is stronger (weaker) than the public had expected. We show that these empirical results are also consistent with a “Fed response to news” channel, in which incoming, publicly available economic news causes both the Fed to change monetary policy and the private sector to revise its forecasts. We provide substantial new evidence that distinguishes between these two channels and strongly favors the latter; for example, (i) high-frequency stock market responses to Fed announcements, (ii) a new survey that we conduct of individual Blue Chip forecasters, and (iii) regressions that include the previously omitted public macroeconomic data releases all indicate that the Fed and Blue Chip forecasters are simply responding to the same public news, and that there is little if any role for a “Fed information effect".
    Keywords: Federal Reserve, forecasts, survey, Blue Chip, Delphic forward guidance
    JEL: E52 E58 E43
    Date: 2020
  8. By: Faryna, Oleksandr; Pham, Tho; Talavera, Oleksandr; Tsapin, Andriy
    Abstract: This paper examines the relationship between labour market conditions and wage dynamics by exploiting a unique dataset of 0.8 million online job vacancies. We find a weak trade-off between aggregated national-level wage inflation and unemployment. This link becomes more evident when wage inflation is disaggregated at sectoral and occupational levels. Using exogenous variations in local market unemployment as the main identification strategy, a negative correlation between vacancy-level wage and unemployment is also established. The correlation magnitude, however, is different across regions and skill segments. Our findings suggest the importance of micro data’s unique dimensions in examining wage setting – unemployment relationship.
    Keywords: Phillips curve,wage curve,heterogeneity,micro data,online vacancies
    JEL: C55 E24 E31 E32
    Date: 2020
  9. By: Fabian Fink; Lukas Frei; Thomas Maag; Tanja Zehnder
    Abstract: We estimate the impact of monetary policy rate changes made by the Swiss National Bank on the Swiss franc and on the expected path of future short-term interest rates. We employ an identification-through-heteroskedasticity approach to identify the causal effects. The approach accounts for the simultaneous relation of exchange rates and interest rates. We find that from 2000-2011, an unexpected policy rate hike appreciated the nominal Swiss franc on the same day. The null hypothesis that a policy rate change does not affect the Swiss exchange rates is clearly rejected. Importantly, the results indicate that simple methods that do not adequately account for simultaneity yield biased and typically nonsignificant estimates. Our findings further suggest that policy rate changes affect medium- to longer-term expectations about the stance of monetary policy, which in turn influence the Swiss franc.
    Keywords: Monetary policy shocks, interest rates, exchange rates, identification-through-heteroskedasticity
    JEL: E43 E52 E58 F31 C32
    Date: 2020
  10. By: Julián Alonso Cárdenas-Cárdenas (Banco de la República de Colombia); Edgar Caicedo-García (Banco de la República de Colombia); Eliana R. González Molano (Banco de la República de Colombia)
    Abstract: El comportamiento de los precios de los alimentos en Colombia ha sido un factor que inquieta a la autoridad monetaria por su volatilidad, alta ponderación en la canasta de IPC y en ocasiones recurrentes altos niveles debido a su reacción a choques de oferta como el clima, lo cual dificulta la tarea de estabilizar la inflación alrededor de la meta. De lo anterior, se desprende la necesidad de tener pronósticos insesgados y más oportunos de los cambios en el precio de los alimentos en el corto plazo. En este documento se desarrolla una metodología que aprovecha la información disponible con alta frecuencia de precios y abastecimiento de alimentos y permite combinar información observada en varias frecuencias para generar pronósticos alternativos de la variación de los precios de los alimentos y sus diferentes componentes. Los resultados encontrados indican que los modelos propuestos de frecuencias mixtas, producen mejores pronósticos que los tradicionales que utilizan solamente información de precios del Sistema de Información de Precios del Sector Agropecuario (SIPSA-DANE).. **** ABSTRACT: The behavior of food prices is a big issue for the monetary authority, due to the high volatility as well as the big weight it has in the CPI basket and because it reacts temporarily to supply shocks, such as climate conditions, what makes difficult the task of keeping total inflation around the target. Thus, it is needed to count with more accurate and timely forecasts of food inflation for the short run in order to guide the macroeconomic model for monetary policy and help the authority in the decision making process. For that purpose, in this document we apply a methodology that combines information of different frequencies (MIDAS) to produce forecasts for food inflation. In particular, information about food prices at a very disaggregate level and an indicator for food supply, which are available in a weekly basis, may help to generate a more accurate nowcast of total food inflation and its components: perishable and processed food. Compared to a naïve nowcast generated every week as the weighted average change of food prices taken by SIPSA, the results show an improvement in the nowcast, generated by the mixed frequency data models that includes not only high frequency variables as explanatory but also some other determinants of food price changes such as unemployment, climate conditions and international commodity prices. Thus, MIDAS models are a promising alternative to generate forecasts in the short run.
    Keywords: Inflación de alimentos, nowcasting, modelos de frecuencias mixtas, pronósticos, clima, inflación objetivo, Food inflation, nowcasting, mixed frequency models, inflation targeting, climate conditions
    JEL: C32 C51 C53 E31 E52
    Date: 2020–03
  11. By: Thibault Lemaire (Centre d'Economie de la Sorbonne - Université Paris 1 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
    JEL: E62 E26 E32 H5 H6
    Date: 2020–01
  12. By: Sartorello Spinola, Danilo (UNU-MERIT)
    Abstract: This paper expands the Dutt (2002) version of the Balance of Payments Constrained Model (BPCM). We question the assumption of price-neutrality and the incompatibility between the BPCM and the Prebisch-Singer hypothesis (PSH) in terms of the long-run terms-of-trade dynamics. The research focuses on three main elements: (1) the long-run behaviour of the terms of trade in a Structuralist framework. (2) The cyclical endogenous dynamics in the relationship between economic activity and income distribution à la Goodwin. (3) Productivity gap and catching-up. This article adds to the Dutt(2002) model (a) a productivity gap dynamics in which the south has a catching-up element; (b) labour market by including a Phillips Curve for the relationship between employment rate and economic activity; (c) labour supply dynamics that considers the labour transfer issue between traditional and modern sectors. We find that the Structuralist/evolutionary arguments hold in the BPCM framework with these changes.
    Keywords: Balance of Payments constrains, Terms of Trade, Economic Cycles, Latin American Structuralism
    JEL: E22 E32 O41
    Date: 2020–01–14
  13. By: Franz, Thorsten
    Abstract: The dynamic effects of ECB announcements, disentangled into pure monetary policy and central bank information shocks, on the euro (EUR) exchange rate are examined using a Bayesian Proxy Vector Autoregressive (VAR) model fed with high-frequency data. Contractionary monetary policy shocks result in a sizable appreciation of the nominal effective and bilateral EUR exchange rates, peaking on impact. By contrast, despite similar effects on interest rate differentials, responses to central bank information shocks exhibit strong heterogeneities across currency pairs. This disparity can be rationalized by an increase in investors' risk appetite, as measured by the VIX, triggering capital flows into speculative currencies when the ECB reveals a surprisingly sanguine economic outlook. In line with this, the EUR depreciates against a high-yielding carry trade investment portfolio, while it appreciates against a low-yielding carry trade funding portfolio.
    Keywords: central bank information,monetary policy,exchange rate,Proxy VAR,high-frequency data,carry trades
    JEL: E52 E58 F31
    Date: 2020
  14. By: Eraslan, Sercan; Nöller, Marvin
    Abstract: We follow the idea of exploiting cross-sectional information to improve recession probability forecasts by aggregating indicator-specific turning point predictions to obtain economy-wide recession probabilities. This stands in contrast to most of the relevant literature, which relies on an aggregated economic indicator to identify business cycle turning points. Using smooth transition regressions we compare the forecast performance of both approaches to business cycle dating in a comprehensive real-time forecasting exercise for recessions in the US. Moreover, we propose a novel smooth transition modelling framework which makes use of the interrelation between business and growth cycles to forecast recession probabilities. Our real-time out-of-sample forecast evaluation reveals that (i) using cross-sectional information is benficial to predicting recession probabilities, (ii) aggregating indicator-specific turning point forecasts clearly outperforms turning point predictions based on a single indicator and (iii) the proposed smooth transition framework is able to provide informative recession probability forecasts for up to three months in the US.
    Keywords: Business cycles,forecasting,recessions,STAR models,turning points
    JEL: C24 C53 E37
    Date: 2020
  15. By: Cobham, David; Song, Mengdi
    Abstract: This paper investigates the determinants of countries' choices of monetary policy framework (MPF). It uses a brief narrative focused on groupings of countries making similar choices to motivate an econometric analysis which also draws on previous work on the determinants of exchange rate regimes. That analysis brings in other more standard factors, as well as the trade networks of potential anchor currency blocs and the financial markets depth that are emphasised in the narrative. The model turns out to be able to predict three quarters of countries' choices of MPF, and there is no obvious systematic pattern in the errors.
    Keywords: monetary policy frameworks, inflation targets, exchange rate targets, discretion, trade networks, financial market depth
    JEL: E42 E52 E61 F40
    Date: 2019–07
  16. By: Vincenzo Cuciniello (Bank of Italy); Nicola di Iasio (ECB)
    Abstract: We use monthly data on individual loans from the Italian Credit Register over the period from 1997 to 2019 and show that bank credit expansions in the non-financial private sector are mostly explained by variations in the extensive margin calculated either in credit flows or headcount of new borrowers. We then build on a flow approach to decompose changes in the net creation of borrowers into gross flows across three states: (i) borrowers, (ii) applicants and (iii) others (neither debtors nor applicants). The paper investigates the macroeconomic dimension of these gross flows and documents three key cyclical facts. First, entries in the credit market by new obligors (`inflows') account for the bulk of volatility in the net creation of borrowers. Second, the volatility of borrower inflows is two times as large as the volatility of obligors exiting the credit market (`outflows'). Third, borrower inflows are highly pro-cyclical, lead the economic cycle, and their fluctuations are mainly driven by the probability of getting a loan from new banks. We read these results in light of the macrofinance literature on search frictions and on competition with lender-lender informational asymmetries. Overall, our findings support theoretical predictions of these models, but search frictions seem to play a major role in shaping movements along the extensive margin.
    Keywords: borrower, applicant, gross flows, business cycle, credit cycle
    JEL: E51 E32 E44
    Date: 2020–03
  17. By: Christopher Busch; Alexander Ludwig
    Abstract: We extend the canonical income process with persistent and transitory risk to shock distributions with left-skewness and excess kurtosis, to which we refer as higher-order risk. We estimate our extended income process by GMM for household data from the United States. We find countercyclical variance and procyclical skewness of persistent shocks. All shock distributions are highly leptokurtic. The existing tax and transfer system reduces dispersion and left-skewness of shocks. We then show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications, which depend crucially on risk attitudes of households; second, higher-order risk matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, higher-order risk has non-trivial implications for the degree of self-insurance against both transitory and persistent shocks.
    Keywords: labor income risk, business cycle, GMM estimation, skewness, persistent and transitory income shocks, risk attitudes, life-cycle model
    JEL: D31 E24 E32 H31 J31
    Date: 2020–03
  18. By: Dindo, Pietro; Modena, Andrea; Pelizzon, Loriana
    Abstract: This paper studies the impact of financial sector size and leverage on business cycles and risk-free rates dynamics. We model a general equilibrium productive economy where financial intermediaries provide costly risk mitigation to households by pooling the idiosyncratic risks of their investment activities. We find that leverage amplifies variations of intermediaries' relative size, but may also mitigate the business cycle. Moreover, it makes risk-free rates pro-cyclical. Households benefit the most when the financial sector is neither too small, thus avoiding high consumption fluctuations and costly mitigation, nor too big, so that fewer resources are lost after intermediation costs.
    Keywords: Business Cycle,Frictions,Leverage,Mitigation,Risk Pooling
    JEL: E13 E32 E69 G12
    Date: 2020
  19. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: This paper outlines endogenous money theory (EMT) and the contributions of Basil J. Moore to EMT. It then describes the various papers that will appear in Volume 17, Issue 3 (2020) of the European Journal of Economics and Economic Policies: Intervention. Coolectively, these papers explore the monetary economics of Basil J. Moore – its origins, substance, and application – in light of its status as an ongoing and still-developing research project.
    Keywords: Basil J. Moore, monetary economics, horizontalism
    JEL: E43 E51 E52
    Date: 2020–03
  20. By: Malik, M. Fahad; Awan, Dr Masood Sarwar; Malik, Dr Waseem Shahid
    Abstract: Shocks that stem from goods and money markets are supposed to be influential as it takes some time for economic agents to realize their true impacts. Therefore, these shocks can induce uncertainty about key macroeconomic variables such as CPI inflation and real GDP growth. Impacts of nominal and real shocks are computed, evaluated and compared under short-run as well as under long-run restrictions for CPI inflation and real GDP. Furthermore, different countries with varying resource structures are incorporated to achieve a comprehensive and generalized analysis. Structural VAR models are employed in order to functionalize short-run and long-run restrictions. Impulse response analysis is done to analyze effects of nominal and real shocks on CPI inflation and real GDP in short-run as well as in long-run. Variance decompositions are done to locate main sources of uncertainties in CPI inflation and real GDP. Shocks from product market appeared to be more pervasive in comparison to shocks from money market.
    Keywords: CPI inflation, real GDP, aggregate demand shock, aggregate supply shock, money demand shock, money supply shock
    JEL: B22 E12 E52
    Date: 2020–03–16
  21. By: Wolf, Elias; Mokinski, Frieder; Schüler, Yves
    Abstract: We show that one should not use the one-sided Hodrick-Prescott filter (HP-1s) as the real-time version of the two-sided Hodrick-Prescott filter (HP-2s): First, in terms of the extracted cyclical component, HP-1s fails to remove low-frequency fluctuations to the same extent as HP-2s. Second, HP-1s dampens fluctuations at all frequencies - even those it is meant to extract. As a remedy, we propose two small adjustments to HP-1s, aligning its properties closely with HP-2s: (1) a lower value for the smoothing parameter and (2) a multiplicative rescaling of the extracted cyclical component. For example, for HP-2s with = 1,600 (value of smoothing parameter), the adjusted one-sided HP filter uses = 650 and rescales the extracted cyclical component by a factor of 1:1513. Using simulated and empirical data, we illustrate the relevance of the adjustments. For instance, financial cycles may appear 1.7 times more volatile than business cycles, where in fact volatilities differ only marginally.
    Keywords: Real-time analysis,detrending,business cycles,financial cycles
    JEL: C10 E32 E58 G01
    Date: 2020
  22. By: Barbara Rossi
    Abstract: This article provides guidance on how to evaluate and improve the forecasting ability of models in the presence of instabilities, which are widespread in economic time series. Empirically relevant examples include predicting the financial crisis of 2007-2008, as well as, more broadly, fluctuations in asset prices, exchange rates, output growth and inflation. In the context of unstable environments, I discuss how to assess models' forecasting ability; how to robustify models' estimation; and how to correctly report measures of forecast uncertainty. Importantly, and perhaps surprisingly, breaks in models' parameters are neither necessary nor sufficient to generate time variation in models' forecasting performance: thus, one should not test for breaks in models' parameters, but rather evaluate their forecasting ability in a robust way. In addition, local measures of models' forecasting performance are more appropriate than traditional, average measures.
    Keywords: forecasting, instabilities, time variation, inflation, structural breaks, density forecasts, great recession, forecast confidence intervals, output growth, Business cycles
    JEL: E4 E52 E21 H31 I3 D1
    Date: 2019–12
  23. By: Federico Bassi (Centre d'Economie de l'Université de Paris Nord (CEPN))
    Abstract: Despite empirical evidence of permanent damages to GDP after the 2008 global financial crisis, there is little theoretical consensus about the impact of the crisis on the unobservable rate of capacity utilization. In this paper, we investigate how the rate of capacity utilization reacts to shocks by testing the hypothesis that the normal rate of capacity utilization is exogenous and constant, against the alternative hypothesis that it is endogenous to demand and can vary with time. We find that the normal rate is more likely to be a shifting attractor or a time-varying trend instead of a fixed center of gravity. Hence, temporary shocks do not necessarily translate into permanent losses of productive capacity but they can also translate into lower degrees of utilization of the capacity in place. We show indeed that the effects of the 2008 financial crisis on EU countries were highly heterogeneous, and we find three different trajectories. A first cluster of countries recovered the pre-crisis rate of capacity utilization and accumulation, despite a permanent destruction of productive capacity. A second cluster of countries absorbed the shock through a lower rate of capacity utilization and accumulation with no permanent destruction of productive capacity; a third cluster of countries absorbed the shock through a massive destruction of productive capacity and a negative rate of growth, despite an increasing rate of utilization.
    Keywords: Normal rate of capacity utilization, Hysteresis, Secular stagnation
    JEL: C32 C51 E12 E22 E32
    Date: 2020–03
  24. By: Nikolaos Antonakakis (Webster Vienna Private University, Department of Business and Management, Praterstraße 23, 1020, Vienna, Austria; University of Portsmouth, Economics and Finance Subject Group, Portsmouth Business School, Portland Street, Portsmouth, PO1 3DE, United Kingdom); Christina Christou (School of Economics and Management, Open University of Cyprus, 2252, Latsia, Cyprus); Luis A. Gil-Alana (University of Navarra, Faculty of Economics and ICS (NCID), Edificio Amigos, E-31080, Pamplona, Spain); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa)
    Abstract: Existing empirical evidence on the effect of inflation-targeting on inflation volatility is, at best, mixed. However, comparing inflation volatility across alternative monetary policy regimes, i.e., pre- and post-inflation-targeting, begs the question. The question is not whether the volatility of inflation has changed, but instead whether the volatility is different than it otherwise would have been. Given this, our paper uses the cosine-squared cepstrum to provide overwhelming international evidence that inflation targeting has indeed reduced inflation volatility in 22 out of the 24 countries considered in our sample of established inflation-targeters, than it would have been the case if the central banks in these countries did not decide to set a target for inflation.
    Keywords: Cosine-Squared Cepstrum, Inflation-Targeting, Inflation Volatility
    JEL: C22 C65 E42 E52 E64
    Date: 2020–03
  25. By: Nicolle Valentina Herrera Pinto
    Abstract: El propósito de este documento es explicar de manera empírica, desde la teoría austriaca del ciclo económico, la causalidad existente entre las políticas intervencionistas en Argentina desde 1983 y su posterior crisis en el año 2002. En dicho periodo, se instauraron cinco diferentes planes de estabilización económica que tenían como principal propósito detener la inflación creciente característica de este país y aumentar el crecimiento económico. Dichos planes se llevaron a cabo mediante políticas monetarias implementadas masivamente por el Banco Central de la República de Argentina, las cuales se basaron en la manipulación de la masa monetaria y en su mayoría, el crédito al sector privado. Sin embargo, de los cinco planes instaurados ninguno fue capaz de crear mejores condiciones a largo plazo, de hecho en la medida en que se instauraba cada nuevo plan, la inflación, el desempleo y la pobreza aumentaban, lo que se evidencia en la crisis del 2001 - 2002. Según la Escuela Austriaca, dichas manipulaciones tienen una causalidad directa con periodos de hiperinflación, depresión y recesión simultánea, como se refleja en el caso argentino en el periodo estudiado.
    Keywords: Escuela Austriaca, ciclos económicos Austriacos, crisis argentina
    JEL: B25 B53 E32 E43 E52
    Date: 2020–03–25
  26. By: Claire Alestra (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France); Gilbert Cette (Banque de France and Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE); Valérie Chouard (Banque de France); Rémy Lecat (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
    JEL: H23 Q54 E23 E37 O11 O47 O57 Q43 Q48
    Date: 2020–03
  27. By: Francesco D'Acunto; Ulrike M. Malmendier; Michael Weber
    Abstract: Expectations about macro-finance variables, such as inflation, vary significantly across genders, even within the same household. We conjecture that traditional gender roles expose women and men to different economic signals in their daily lives, which in turn produce systematic variation in expectations. Using unique data on the contributions of men and women to household grocery chores, their resulting exposure to price signals, and their inflation expectations, we show that the gender expectations gap is tightly linked to participation in grocery shopping. We also document a gender gap in other economic expectations and discuss how it might affect economic choices.
    Keywords: gender gap, expectations, perceptions, experiences, exposure
    JEL: C90 D14 D84 E31 E52 G11
    Date: 2020
  28. By: Christian Grisse
    Abstract: This paper revisits the effects of monetary policy on the exchange rate, focusing on the Swiss franc. I estimate a structural VAR using Bayesian methods introduced by Baumeister and Hamilton (2015) and identify monetary policy shocks by exploiting the interest rate and stock price comovement they induce. Priors are based on the previous empirical literature, leaving the exchange rate response to monetary policy agnostically open. The results show that increases in Swiss short-term interest rates are associated with a nominal Swiss franc appreciation against the euro and the US dollar within the same week, with the Swiss franc remaining permanently stronger than prior to the interest rate shock.
    Keywords: Monetary policy shocks, exchange rates, stock-bond comovement, delayed overshooting, structural vector autoregression, informative priors, sign restrictions
    JEL: C32 E43 E58 F31
    Date: 2020
  29. By: Klein, Melanie
    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 profitability,lending
    JEL: G21 E43 E52
    Date: 2020
  30. By: Fernando Broner; Alberto Martín; Jaume Ventura
    Abstract: We analyze the conduct of fiscal policy in a financially integrated union in the presence of financial frictions. Frictions create a wedge between the return to investment and the union interest rate. This leads to an over-spending externality. While the social cost of spending is the return to investment, governments care mostly about the (depressed) interest rate they face. In other words, the crowding out effects of public spending are partly "exported" to the rest of the union. We argue that it may be hard for the union to deal with this externality through the design of fiscal rules, which are bound to be shaped by the preferences of the median country and not by efficiency considerations. We also analyze how this overspending externality -and the union's ability to deal with it effectively- changes when the union is financially integrated with the rest of the world. Finally, we extend our model by introducing a zero lower bound on interest rates and show that, if financial frictions are severe enough, the union is pushed into a liquidity trap and the direction of the spending externality is reversed. At such times, fiscal rules that are appropriate during normal times might backfire.
    Keywords: public spending, crowding out, financial frictions, fiscal union, spending externalities, fiscal coordination
    JEL: E62 F32 F34 F36 F41 F42 F45
    Date: 2020–02
  31. By: Boris Hofmann; Anamaria Illes; Marco Jacopo Lombardi; Paul Mizen
    Abstract: This paper investigates the overall effect of the European Central Bank's (ECB's) unconventional monetary policies (UMPs) implemented since 2008 on euro area bank retail lending and deposit rates offered to households and non-financial corporations. To do so, we use an analytical approach that combines the estimation of the cumulative effects of UMP on key money and capital market rates via daily event study analysis with monthly retail rate pass-through estimation. In counterfactual simulations, we quantify the full effect of the ECB's UMPs implemented since 2008 on retail lending and deposit rates and systematically explore differences in their effects over time and across euro area countries. Our results show that the ECB's UMPs - particularly the measures launched since 2012 - significantly lowered retail lending and deposit rates in Germany, France, Spain and in particular in Italy. The impact on banks' intermediation margins through retail lending-deposit rate spreads turns out to be not clean-cut, with significant compressions prevailing only in Germany and Italy.
    Keywords: retail rates, pass-through, unconventional monetary policy, European Central Bank
    JEL: E43 E52 G21
    Date: 2020–03
  32. By: Raquel Fonseca; Simon Lord; Simon C. Parker
    Abstract: This paper examines the work motivations and incentives of employees and self-employed workers near retirement age. We use a sample of Canadians 50 years and older taken from LISA, the Longitudinal and International Study of Adult. Results are as follows. Poverty is associated positively with the transition from employment to self-employment after 50. Optimism appears to explain in part why employees decide to do the switch. For respondents who were self-employed at least once between 50 and 64 years old, it appears that having had prior self-employment experience does not reduce significantly the probability of being poor after 65.
    Keywords: self-employment, elderly, retirement, Canada, poverty.
    JEL: E24 E32 J14 J20 L26
    Date: 2020
  33. By: Sartorello Spinola, Danilo (UNU-MERIT)
    Abstract: This research investigates the causes of endogenous volatility in Latin America by expanding the La Marca (2010) model. The expansion consists in study: (I) Price-neutrality, (II) stability of the external sector, and (III) fixed income distribution. We also add (IV) an evolutionary supply-side in which productivity is at the centre of the economic dynamic through international technology transfer and the Kaldor-Verdoorn effect. The results show that (1) Latin American parameter values increase the endogenous oscillatory adjustment. (2) In all cases the model converges. (3) The price-neutrality assumption and external sector stability depend on specific parameter values to show either a cyclical or a monotonic convergence pattern. (4) Fixed income distribution lead to a monotonic trajectory, reducing oscillations. (5) The inclusion of the productivity dynamics generates new sources of volatility in the relationship between productivity, capacity utilization, and net external assets.
    Keywords: Economic Cycles, Structuralism, Macroeconomic Dynamics.
    JEL: E32 F44 O11 O30
    Date: 2020–01–14
  34. By: Jean Barthélemy; Guillaume Plantin
    Abstract: This paper develops a full-fledged strategic analysis of Wallace's “game of chicken”. A public sector facing legacy nominal liabilities is comprised of fiscal and monetary authorities that respectively set the primary surplus and the price level in a non-cooperative fashion. We find that the post 2008 feature of indefinitely postponed fiscal consolidation and rapid expansion of the Federal Reserve's balance sheet is consistent with a strategic setting in which neither authority can commit to a policy beyond its current mandate, and the fiscal authority moves before the monetary one at each date.
    Keywords: : Fiscal Policy, Monetary Policy, Policy Interactions, Game of Chicken.
    JEL: E50 E42 E63 C72
    Date: 2019
  35. By: Salvatore Federico; Giorgio Ferrari; Patrick Schuhmann
    Abstract: Consider a central bank that can adjust the inflation rate by increasing and decreasing the level of the key interest rate. Each intervention gives rise to proportional costs, and the central bank faces also a running penalty, e.g., due to misaligned levels of inflation and interest rate. We model the resulting minimization problem as a Markovian degenerate two-dimensional bounded-variation stochastic control problem. Its characteristic is that the mean-reversion level of the diffusive inflation rate is an affine function of the purely controlled interest rate's current value. By relying on a combination of techniques from viscosity theory and free-boundary analysis, we provide the structure of the value function and we show that it satisfies a second-order smooth-fit principle. Such a regularity is then exploited in order to determine a system of functional equations solved by the two monotone curves that split the control problem's state space in three connected regions.
    Keywords: singular stochastic control; Dynkin game; viscosity solution; free boundary; smooth-fit; inflation rate; interest rate; central bank policies
    JEL: C61 C73 E58
    Date: 2019–10
  36. By: Stéphane Dées; Alessandro Galesi
    Abstract: We assess the international spillovers of US monetary policy with a large-scale global VAR which models the world economy as a network of interdependent countries. An expansionary US monetary policy shock contributes to the emergence of a Global Financial Cycle, which boosts macroeconomic activity worldwide. We also find that economies with floating exchange rate regimes are not fully insulated from US monetary policy shocks and, even though they appear to be relatively less affected by the shocks, the differences in responses across exchange rate regimes are not statistically significant. The role of US monetary policy in driving these macrofinancial spillovers gets even reinforced by the complex network of interactions across countries, to the extent that network effects roughly double the direct impacts of US monetary policy surprises on international equity prices, capital flows, and global growth.
    Keywords: : Trilemma, Global Financial Cycle, Monetary Policy Spillovers, Network Effects.
    JEL: C32 E52 F40
    Date: 2019
  37. By: Röhe, Oke; Stähler, Nikolai
    Abstract: Since the mid-1970s, firm entry rates in the United States have declined significantly. This also holds for other OECD countries over the past years. At the same time, these economies experienced a gradual process of population aging. Applying a tractable life-cycle model with endogenous firm dynamics, we show that falling US firm entry rates can be explained by demographic transition. Specifically, our model simulations suggest that aging can account for up to one third of the observed decrease in US firm entry rates. In addition to the negative effects of a slowdown in working-age population growth on firm entry, our analysis points out that an increase in longevity may also be an important factor contributing to the decline in business dynamism, weighing on both firm entry and exit rates.
    Keywords: Life-Cycle model,Population aging,Business dynamism,Firm entry
    JEL: H25 L52 E20 E62 L10 O30
    Date: 2020
  38. By: Marco Paolo Tucci
    Abstract: By applying robust control the decision maker wants to make good decisions when his model is only a good approximation of the true one. Such decisions are said to be robust to model misspecification. In this paper it is shown that the application of the usual robust control framework in discrete time problems is associated with some interesting, if not unexpected, results. Results that have far reaching consequences when robust control is applied sequentially, say every year in fiscal policy or every quarter (month) in monetary policy. This is true when unstructured uncertainty à la Hansen and Sargent is used, both in the case of a “probabilistically sophisticated” and a non-“probabilistically sophisticated” decision maker, or when uncertainty is related to unknown structural parameters of the model.
    Keywords: Linear quadratic tracking problem, optimal control, robust control, time-varying parameters
    JEL: C61 C63 D81 D91 E52 E61
    Date: 2019–12
  39. By: International Monetary Fund
    Abstract: Zimbabwe is experiencing an economic and humanitarian crisis. High fiscal deficits financed by RBZ money creation resulted in severe macroeconomic imbalances and market distortions. The government that came to office following the 2018 elections adopted an agenda focused on macro stabilization and reforms. This was supported by a Staff Monitored Program, adopted in May 2019, but is now off-track as policy implementation has been mixed: progress on fiscal reforms was overshadowed by costly missteps on monetary and FX market reforms. Climate shocks have crippled agriculture and electricity generation and magnified the social impacts of the fiscal retrenchment and currency reform, leaving more than half of the population food insecure. Protracted external arrears constrain access to external official support, while additional commercial borrowing has worsened the debt overhang and likely complicated discussions on debt resolution.
    Date: 2020–03–20
  40. By: Margherita Bottero (Bank of Italy); Enrico Sette (Bank of Italy)
    Abstract: We show that negative interest rate policy (NIRP) has expansionary effects on bank credit supply— and the real economy —through a portfolio rebalancing channel, and that, by shifting down and flattening the yield curve, NIRP differs from rate cuts just above the zero lower bound. For identification, we exploit ECB’s NIRP and matched administrative datasets— including the credit register— from Italy, severely hit by the Eurozone crisis. NIRP affects banks with higher ex-ante net short-term interbank positions or, more broadly, more liquid balance-sheets. NIRP-affected banks rebalance their portfolios from liquid assets to lending, especially to ex-ante riskier and smaller firms—without higher ex-post delinquencies—and cut loan rates (even to the same firm), inducing sizable firm-level real effects. By contrast, there is no evidence of a retail deposits channel associated with NIRP.
    Keywords: negative interest rates, portfolio rebalancing, bank lending channel of monetary policy, liquidity management, Eurozone crisis
    JEL: E52 E58 G01 G21 G28
    Date: 2020–03
  41. By: Michał Brzoza-Brzezina; Jacek Kotłowski; Grzegorz Wesołowski
    Abstract: Business cycles are strongly correlated between countries. One possible explanation (beyond traditional economic linkages like trade or finance) is that consumer or business sentiments spread over boarders and a ect cyclical uctuations in various countries. We first lend empirical support to this concept by showing that sentiments travel between countries at a speed much higher than can be explained by traditional linkages. Then we construct a two-economy new Keynesian model where noisy international information can generate cyclical fluctuations (comovement of GDP, consumption, investment and in ation) in both countries. Estimation with US and Canadian data reveals a significant role of international noise shocks in generating common fluctuations - they explain between 15-30% of consumption variance in the US and Canada and raise the correlation between these variables by up to unity in periods of sentiment breakdowns. We also show that our estimated noise shock has a clear interpretation as a sentiment shock.
    Keywords: International spillovers, animal spirits, sentiments, business cycle
    JEL: C32 E32 F44
    Date: 2020–03
  42. By: Noëmie Lisack; Rana Sajedi; Gregory Thwaites
    Abstract: We quantify the impact of demographic change on real interest rates, house prices and household debt in an overlapping-generations model. Falling birth and death rates across advanced economies can explain much of the observed fall in real interest rates and the rise in house prices and household debt. Since households maintain relatively high wealth levels throughout retirement, these trends will persist as population ageing continues. Countries ageing relatively slowly, like the US, will increasingly accumulate net foreign liabilities. The availability of housing as an alternative store of value attenuates these trends, while raising the retirement age has limited effects.
    Keywords: : Demographics, ageing, natural interest rates, macroeconomic trends.
    JEL: E21 E43 E13 J11
    Date: 2019
  43. By: Christopher Hooton
    Abstract: The usage of cloud computing technology in business and daily life has grown rapidly in recent years. However, measurement and research on the impacts of that usage remain relatively scarce and new. The current paper examines the economic contributions of cloud technology by estimating the size of the 'cloud economy' in the United States. The author uses input from cloud industry experts and product line receipt details to identify specific commercial receipts related to the cloud industry. The author then uses an adapted input-output methodology previously employed by other groups examining the size of the technology sector to estimate the economic size of the cloud in terms of Output, Earnings, Employment, Value-Added, Direct-Effect Earnings, and Direct-Effect Employment. The estimates are simply a starting point for measuring the economic size of the cloud, but they compare favorably with other estimates from industry groups and private parties. The key advantage of the current paper is the detailing of a replicable approach to use in future research including a discussion of the identification criteria used by the consulting experts.
    Keywords: Cloud computing, digital economy, national accounts, economic estimates
    JEL: L86 E01 O30
    Date: 2020–02
  44. By: Simon Dikau (Gratham Research Institute, London School of Economics and Political Science & Department of Economics, SOAS University of London); Ulrich Volz (Department of Economics & SOAS Centre for Sustainable Finance, SOAS University of London)
    Abstract: This paper examines the extent to which addressing climate-related risks and supporting sustainable finance fit into the current set of central bank mandates and objectives. To this end, we conduct a detailed analysis of central bank mandates and objectives, using the IMF’s Central Bank Legislation Database, and compare these to current arrangements and sustainability-related policies central banks have adopted in practice. To scrutinise the alignment of mandates with climate-related policies, we differentiate between the impact of environmental factors on the conventional core objectives of central banking and a potential supportive role of central banks with regard to green finance and sustainability. Of the 135 central banks in our sample, only 12% have explicit sustainability mandates, while another 40% are mandated to support the government’s policy priorities, which in most cases include sustainability goals. However, given that climate risks can directly affectcentral banks’traditional core responsibilities, most notably monetary and financial stability, even central banks without explicit or implicit sustainability objectives ought to incorporate climate-related physical and transition risks into their core policy implementation frameworks in order to efficiently and successfully safeguard macro-financial stability.
    Keywords: Central banks, central bank mandates, green finance
    JEL: Q5 E5
    Date: 2020–03
  45. By: Jean-Bernard Chatelain (PSE - Paris School of Economics); Kirsten Ralf (ESCE International Business School, INSEEC U. Research Center)
    Abstract: This paper compares different implementations of monetary policy in a new-Keynesian setting. We can show that a shift from Ramsey optimal policy under short-term commitment (based on a negative feedback mechanism) to a Taylor rule (based on a positive feedback mechanism) corresponds to a Hopf bifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and output gap) are forward-looking variables in the new-Keynesian theory.
    Keywords: Bifurcations,Commitment,Taylor Rule,Taylor Principle,New-Keynesian Model,Ramsey Optimal Policy
    Date: 2020–01–17
  46. By: William Ginn (FAU - Friedrich-Alexander Universität Erlangen-Nürnberg); Marc Pourroy (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers)
    Abstract: Food price subsidies are a prevalent means by which fiscal authorities may counteract food price volatility in middle-income countries (MIC). We develop a DSGE model for a MIC that captures this key channel of a policy induced price smoothing mechanism that is different to, yet in parallel with, the classic Calvo price stickiness approach, which can have consequential effects for monetary policy. We then use the model to address how the joint fiscal and monetary policy responds to an increase in inflation driven by a food price shock can affect welfare. We show that, in the presence of credit constrained households and households with a significant share of food expenditures , a coordinated reaction of fiscal and monetary policies via subsidized price targeting can improve aggregate welfare. Subsidies smooth prices and consumption, especially for credit constrained households, which can consequently result in an interest rate reaction less intensely with subsidized price targeting compared with headline price targeting.
    Keywords: DSGE Model,Food subsidies,Monetary Policy,Fiscal Policy,Subsidies,Commodities,Middle income countries
    Date: 2019–09
  47. By: Antonin Bergeaud; Gilbert Cette; Rémy Lecat
    Abstract: In most advanced economies, both real interest rates and productivity growth have decreased since the early 1990s. In this paper, we explore the mechanism whereby a circular relationship links these two quantities. While productivity is a key driver of potential output which affects the level of interest rates, the level of interest rates is a determinant of the expected return from investment projects, and thus of the productivity level required for investment. In our model, absent of a technology shock, this specific relationship can only converge to an equilibrium where growth and interest rates are both low. We test this using macroeconomic data on 17 OECD countries and simulate the effect of a temporary productivity shock.
    Keywords: : Productivity,Slowdown, Secular Stagnation, Interest Rates.
    JEL: O43 O47 O57 E43
    Date: 2019
  48. By: Obrizan, Maksym; Karlsson, Martin; Matvieiev, Mykhailo
    Abstract: What is the economic cost in the medium to long run of an epidemic that kills a large part of the labor force? To answer this question we build an overlapping generations model and calibrate it to the Swedish economy before the 1918–19 influenza pandemic. In the medium run the epidemic, which reduced the population by 0.66%, produces a modest increase in per capita consumption of survivors by 0.45%; however, the benefits are unevenly spread across cohorts. We also find that aggregate labor supply responds elastically while aggregate consumption and investment respond inelastically to the population decline. The aggregate consumption, for example, reduces by 0.27% only for each percentage point decrease in population over the following 10 years. Finally, we document that in the long run, the epidemic has a large cumulative effect over the following century.
    Keywords: Epidemics, Overlapping Generations Models
    JEL: E21 I15
    Date: 2020–03–03
  49. By: Filippo Gusella (None); Engelbert Stockhammer
    Abstract: This paper proposes an empirical test for Minskyan financial cycles in asset prices, driven by the interaction of fundamentalist and momentum traders. Both price strategies are unobserved and can be modelled in a state space model. We use the Kalman filter to identify the two pricing strategies and evaluate whether the conditions for the existence of cycles hold. The model is estimated for four major OECD countries, the UK, France, Germany and the USA, for equity and housing prices for the period 1970-2017 using annual data. We find evidence of cycles in the equity market for all four countries and for housing prices, in the UK, France and the USA but not in Germany. Our results provide empirical support for the existence of endogenous financial cycles on asset markets.
    Keywords: Financial cycles, Minsky, Momentum traders, Kalman filter
    JEL: C32 E32
    Date: 2020–03
  50. By: Gasteiger, Emanuel; Prettner, Klaus
    Abstract: We assess the long-run growth effects of automation in the overlapping generations framework. Although automation implies constant returns to capital and, thus, an AK production side of the economy, positive long-run growth does not emerge. The reason is that automation suppresses wage income, which is the only source of investment in the overlapping generations model. Our result stands in sharp contrast to the representative agent setting with automation, where sustained long-run growth is possible even without technological progress. Our analysis therefore provides a cautionary tale that the underlying modeling structure of saving/investment decisions matters for the derived economic impact of automation. In addition, we show that a robot tax has the potential to raise per capita output and welfare at the steady state. However, it cannot induce a takeoff toward positive long-run growth.
    Keywords: Automation,robot taxes,stagnation,economic growth,fiscal policy
    JEL: O33 O41 E60
    Date: 2020
  51. By: Francesco D’Acunto; Thomas Rauter; Christoph K. 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.
    JEL: D14 E21 E51 G21
    Date: 2020–03
  52. By: Ewen Gallic (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); Gauthier Vermandel (Université Paris Dauphine-PSL, France Stratégie, Services du Premier Ministre)
    Abstract: How much do weather shocks matter? The literature addresses this question in two isolated ways: either by looking at long-term effects through the prism of calibrated theoretical models, or by focusing on both short and long terms through the lens of empirical models. We propose a framework that reconciles these two approaches by taking the theory to the data in two complementary ways. We first document the propagation mechanism of a weather shock using a Vector Auto-Regressive model on New Zealand Data. To explain the mechanism, we build and estimate a general equilibrium model with a weather-dependent agricultural sector to investigate the weather's business cycle implications. We find that weather shocks: (i) explain about 35% of GDP and agricultural output fluctuations in New Zealand; (ii) entail a welfare cost of 0.30% of permanent consumption; (iii) critically increases the macroeconomic volatility under climate change, resulting in a higher welfare cost peaking to 0.46% in the worst case scenario of climate change.
    Keywords: Agriculture,Business Cycles,Climate Change,Weather Shocks
    Date: 2020
  53. By: Hiro Ito (Portland State University); Masahiro Kawai (Economic Research Institute for Northeast Asia (ERINA))
    Abstract: Financial development is often measured by financial depth such as the stock of private credit and market capitalization as a share of GDP. Such a measure focuses on the quantity aspect of financial development. In this paper, we propose measures that capture both the quantity and quality aspects of financial market development. For quantity measures, we construct a composite index with multiple variables which gauge the size and depth of the banking, equity, bond, and insurance markets. For quality measures, we create a composite index that reflects the degree of financial market diversity, liquidity and efficiency, and the institutional environment. The last factor captures the development of legal systems and institutions, human capital, and information and telecommunications infrastructure. We find that the quantity and quality measures are highly correlated with each another for advanced economies and Asian emerging market economies, but not for other economies. The disaggregated components of the quality measures suggest that it is the level of legal and institutional development that differentiates advanced economies from emerging and developing economies in terms of the quality measures. Compared to advanced economies, emerging and developing economies tend to have low levels of market diversity, liquidity, and efficiency. Our simple regression analysis shows that the quality measure of financial development has a positive effect on output growth and negative effects on output volatility and inflation for the sample of emerging and developing economies with relatively high-quality financial development. We also observe that a higher level of financial development, particularly in terms of quality, tends to lead to greater financial openness, and that greater financial openness tends to be associated with low growth, high growth volatility and high inflation for emerging and developing economies with low quality measures of financial development, while such undesirable impacts of financial openness can be mitigated by raising the quality of financial development.
    Keywords: financial development, financial liberalization, financial openness
    JEL: E44 G2 O16
    Date: 2018–04
  54. By: Piotr Dybka; Bartosz OlesiÅ„ski; Marek Rozkrut; Andrzej Torój
    Abstract: Economic literature provides little discussion on the uncertainty around the macroeconometric shadow economy estimates. We fill this gap by deriving the measurement error of the shadow economy estimates stemming from the model uncertainty by using frequentist and Bayesian model averaging techniques. This allows us to make useful insights into the optimal selection of regressors within the Currency Demand Analysis (CDA) framework, basing on the marginal probabilities that the selected variables are included in the ''true'' model. Hence, we provide the CDA researchers with an additional guidance with respect to the selection of shadow economy determinants that makes CDA-based shadow economy measurements less arbitrary. Our results show that the selection of regressors can have a material and highly country-specific impact on the estimated level of the shadow economy. In consequence, one cannot attribute the same level of uncertainty to every country across the panel. We use our results to demonstrate the average shadow economy estimates as of 2014 for 64 countries, along with the confidence intervals
    Keywords: Shadow economy, Currency Demand Approach, Measurement error, Confidence intervals
    JEL: C10 C51 C59 E26 H26 O17
    Date: 2020–03
  55. By: Luca Baldo (Bank of Italy); Filippo Pasqualone (Bank of Italy); Antonio Scalia (Bank of Italy)
    Abstract: This paper provides new evidence on the effect of the leverage ratio (LR) on repo market activity in the euro area. The share of trades with central counterparties has increased in recent years as a result of greater regulatory efficiency. After controlling for factors that may affect participation in the repo market, banks are found to exert market power towards non-bank financial institutions by applying lower rates and larger bid-ask spreads. While there is a permanent rate differential between transactions conducted via CCPs – which can easily be netted for LR purposes - and those with non-banks, on average this differential and the bid-ask spread do not increase at quarter-end. The widening of the bid-ask spread at year-end is sizeable, but this is not necessarily due to the LR, since other important factors enter into play. This evidence lessens the concern that the additional LR reporting and disclosure requirements based on daily averages, which will take effect on June 2021, might cause a contraction in repo volume and greater rate dispersion.
    Keywords: repo market, leverage ratio, monetary policy transmission
    JEL: E4 E5 G2
    Date: 2020–03
  56. By: Robert N McCauley; Catherine R Schenk
    Abstract: This paper explores the record of central bank swaps to draw out four themes. First, this recent device of central bank cooperation had a sustained pre-history from 1962-1998, surviving the transition from fixed to floating exchange rates. Second, Federal Reserve swap facilities have generally formed a part of a wider network of central bank swap lines. Third, we take issue with the view of swaps as previously used only to manage exchange rates and only more recently to manage offshore funding liquidity and yields. In particular, we spotlight how in the 1960s the Federal Reserve, working in conjunction with the BIS and European central banks, repeatedly used swaps to manage eurodollar funding liquidity and Libor yields. BIS, Bank of England and Swiss National Bank archives show an intention to offset seasonal disturbances to funding liquidity in order to prevent eurodollar yield spikes. Fourth, this earlier cooperation underscores the Federal Reserve's use of swaps to prevent eurodollar shortages from interfering with the transmission of its domestic monetary policy. The US interest in the eurodollar market, and thus its self interest in central bank cooperation, is unlikely to end even when Libor is replaced as the benchmark for US floating-rate loans and mortgages.
    Keywords: central bank swaps, international lender of last resort, central bank cooperation, eurodollar market, financial crises, Federal Reserve, Bank for International Settlements
    JEL: E52 E58 F33 G15
    Date: 2020–04
  57. By: International Monetary Fund
    Abstract: Moldova has made important progress in addressing macro-financial vulnerabilities under the 2016 ECF/EFF arrangements. Despite successful stabilization efforts, growth remains insufficient to significantly boost living standards.
    Keywords: External sector;Real sector;Banking sector;Fiscal policy;Central banks;ISCR,CR,NBM,percent of GDP,Proj,SOEs,ECF
    Date: 2020–03–18
  58. By: Robert Lehmann; Magnus Reif
    Abstract: This analysis investigates the predictive power of the most important leading indicators for the German economy, which are provided by the ifo Institute and IHS Markit. We conduct an out-of-sample, real-time forecast experiment for growth of gross domestic product and growth of gross value added in both the manufacturing and the service sector. We find that both survey providers produce valuable leading indicators to predict the current quarter of German GDP growth. Regarding forecasts for the next quarter, the ifo indicators are slightly better than the IHS Markit headline index. For the manufacturing sector, series provided by ifo are clearly superior to those of IHS Markit. For the service sector, the ifo indicators produce better nowcasts, whereas the indicators by IHS are more valuable for one-quarter-ahead predictions.
    Keywords: forecasting nowcasting, survey data, ifo Business Climate, PMI
    JEL: E17 E27 E37
    Date: 2020
  59. By: Antonio Diez de los Rios
    Abstract: We propose a portfolio-balance model of the yield curve in which inflation is determined through an interest rate rule that satisfies the Taylor principle. Because arbitrageurs care about their real wealth, they only absorb an increase in the supply of nominal bonds if they are compensated with an increase in their real rates of return. At the same time, because the Taylor principle implies that short-term nominal rates are adjusted more than one for one in response to changes in inflation, the real return on nominal bonds depends positively on inflation. In equilibrium, inflation increases when there is an increase in the supply of nominal bonds to compensate arbitrageurs for the additional supply they have to hold.
    Keywords: Asset Pricing; Debt Management; Inflation and prices; Interest rates; Monetary Policy
    JEL: E52 G12 H63
    Date: 2020–03
  60. By: Ingo Fender; Mike McMorrow; Vahe Sahakyan; Omar Zulaica
    Abstract: Central banks' frameworks for managing foreign reserves have traditionally balanced a triad of objectives: liquidity, safety and return. Pursuing these objectives involves explicit trade-offs. More of an emphasis on returns, for instance, may require central banks to sacrifice some of the safety and liquidity of their overall holdings. Most recently, central banks have shown significant interest in incorporating environmental sustainability considerations into their policy frameworks, including their reserve management. This paper first explores whether sustainability considerations would support a tetrad of reserve management objectives, by drawing on the results of a recent BIS Survey on Reserve Management and Sustainability. It then illustrates how central banks might analyse (and weigh) all four objectives in allocating part of their foreign exchange reserves to green bonds using currently available market data.
    Keywords: central banks, green bonds, reserve management, sustainability
    JEL: E58 F31 G11 G17
    Date: 2020–03
  61. By: R. Jason Faberman; Andreas I. Mueller; Ayşegül Şahin; Giorgio Topa
    Abstract: We use a mix of new and existing data to develop the Aggregate Hours Gap (AHG), a novel measure of labor market underutilization. Our measure differentiates individuals by detailed categories of labor market participation and uses data on their desired work hours as a measure of their potential labor supply. We show that desired hours vary widely by demographics and detailed labor force status, and that the gap between desired and actual work hours is strongly positively correlated with reported search effort. The Aggregate Hours Gap suggests a more sluggish labor market recovery since the Great Recession than either the official unemployment rate or alternative measures of labor market underutilization. Modest amounts of underutilization among the part-time employed and a substantial degree of underutilization among those out of the labor force account for the disparity. The Aggregate Hours Gap also does well in accounting for wage movements over our sample period.
    JEL: E24 J21 J60
    Date: 2020–03
  62. By: Marwil J. Dávila-Fernández; Serena Sordi
    Abstract: This article makes two contributions to the literature on growth and structural change. First, we estimate the multisectoral version of Thirlwall's law and provide some empirical evidence on the stratification mechanism proposed in Dávila-Fernández et al. (2018). Second, we develop two models of structural change which assume that the capacity of adaptation of the economy is a function of attitudes towards change. Societies whose past experiences condition them to regard innovative change with antipathy are in sharp contrast to those whose heritage provide them with favourable attitudes. The models are used to discuss the experiences of Latin America and Asia since the 1960s. They highlight how a complex economy is likely to be associated with a better distribution of political and economic power. Our resulting nonlinear dynamic systems are shown to admit multiple equilibria. A Hopf-Bifurcation analysis establishes the possibility of persistent and bounded cyclical paths, allowing the investigation of further insights on the nature of structural and institutional change.
    Keywords: Structural change; Institutions; Attitudes towards change; Hopf bifurcation; Path dependence.
    JEL: E12 E32 O40
    Date: 2019–09
  63. By: Alain Venditti (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)
    Abstract: We study the existence of endogenous competitive equilibrium cycles under small discounting in a two-sector discrete-time optimal growth model. We provide precise concavity conditions on the indirect utility function leading to the existence of period-two cycles with a critical value for the discount factor that can be arbitrarily close to one. Contrary to the continuous-time case where the existence of periodic-cycles is obtained if the degree of concavity is close to zero, we show that in a discrete-time setting the driving condition does not require a close to zero degree of concavity but a symmetry of the indirect utility function's concavity properties with respect to its two arguments.
    Keywords: period-two cycles,small discounting,strong and weak concavity,two-sector optimal growth model
    Date: 2019–09–25
  64. By: Gianluca Benigno; Luca Fornaro; Martin Wolf
    Abstract: Since the late 1990s, the United States have received large capital flows from developing countries and experienced a productivity growth slowdown. Motivated by these facts, we provide a model connecting international financial integration and global productivity growth. The key feature is that the tradable sector is the engine of growth of the economy. Capital flows from developing countries to the United States boost demand for U.S. non-tradable goods. This induces a reallocation of U.S. economic activity from the tradable sector to the non-tradable one. In turn, lower profits in the tradable sector lead firms to cut back investment in innovation. Since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth. We dub this effect the global financial resource curse. The model thus offers a new perspective on the consequences of financial globalization, and on the appropriate policy interventions to manage it.
    Keywords: global productivity growth, international financial integration, Capital flows, U.S. productivity growth slowdown, low global interest rates, Bretton Woods II, export-led growth
    JEL: E44 F21 F41 F43 F62 O24 O31
    Date: 2020–02
  65. By: Schüler, Yves S.
    Abstract: I propose a Bayesian quantile VAR to identify and assess the impact of uncertainty and certainty shocks, unifying Bloom's (2009) two identification steps into one. I find that an uncertainty shock widens the conditional distribution of future real economic activity growth, in line with a risk shock. Conversely, a certainty shock (a shock strongly decreasing uncertainty) narrows the conditional distribution of future real activity growth. In addition to the difference in signs, I show that the two shocks are different shocks. Each shock impacts the real economy uniquely. I support this with the underlying events: For instance, uncertainty shocks relate to events such as Black Monday and 9/11, but also to fears about future negative economic outcomes. In contrast, certainty shocks often link to phases of irrational exuberance. Commonly, no distinction is made between uncertainty and certainty shocks. I show that uncertainty shocks become more important if distinguished from certainty shocks.
    Keywords: Bayesian quantile VAR,uncertainty shocks,tail risks,irrational exuberance
    JEL: C32 E44 G01
    Date: 2020
  66. By: Kris James Mitchener; Gary Richardson
    Abstract: The Great Depression is infamous for banking panics, which were a symptomatic of a phenomenon that scholars have labeled a contagion of fear. Using geocoded, microdata on bank distress, we develop metrics that illuminate the incidence of these events and how banks that remained in operation after panics responded. We show that between 1929-32 banking panics reduced lending by 13%, relative to its 1929 value, and the money multiplier and money supply by 36%. The banking panics, in other words, caused about 41% of the decline in bank lending and about nine-tenths of the decline in the money multiplier during the Great Depression.
    JEL: E44 G01 G21 N22
    Date: 2020–03
  67. By: Raquel Fonseca; François Langot; Pierre-Carl Michaud; Thepthida Sopraseuth
    Abstract: Using a general equilibrium heterogeneous agent model featuring health production, we quantify the relative contribution of price distortions in the health market, TFP and other health risks in explaining cross-country differences in health expenditure (as a share of GDP) and health status. Estimated parameters reveal a substantial price wedge that explains at most 20% of the difference in health spending (as a share of GDP) and 30% of the difference in health status between Europe and the U.S. We estimate a one percentage point negative impact on the life-time cost-of-living of Americans from higher prices due to inefficiencies.
    Keywords: Health production, health status, heterogeneous agent model, price indices.
    JEL: C51 D61 E21 I10 I32
    Date: 2020
  68. By: Anna Cieslak (Duke University - Fuqua School of Business); Semyon Malamud (Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute); Andreas Schrimpf (Bank for International Settlements (BIS) - Monetary and Economic Department)
    Abstract: We study the general problem of information design for a policymaker - a central bank - that communicates its private information (the "state") to the public. We show that it is optimal for the policymaker to partition the state space into a finite number of "clusters” and to communicate to the public to which cluster the state belongs. Optimal communication is more precise when the policymaker's beliefs conform with prior public expectations, but is more vague in case of divergence. We characterize the policymaker's trade-offs via a novel object - the information relevance matrix - and label its eigenvectors as principal information components (PICs). PICs with the highest eigenvalues determine the dimensions of information with the highest welfare sensitivity and, hence, are the ones that the policymaker should be most precise about.
    Keywords: Central Bank Announcements, Learning, Bayesian Persuasion, Information Design
    JEL: D82 D83 E52 E58
    Date: 2020–01
  69. By: Michael Bleaney; Atsuyoshi Morozumi; Zakari Mumuni
    Abstract: Previous research on inflation targeting (IT) has focused on high-income countries (HICs) and emerging market economies (EMEs). Only recently has enough data accumulated for the performance of IT in low-income countries (LICs) to be assessed. We show that IT has not so far been as effective in reducing inflation in LICs as in EMEs. Relatively weak institutions, a typical feature of LICs, help explain this result. Our interpretation is that poor institutions, leaving fiscal policy unconstrained, impair central banks’ ability to conduct monetary policy in a way consistent with IT.
    Keywords: Inflation targeting, Low-income countries, Institutions
    Date: 2020
  70. By: Raquel Fonseca Benito; François Langot; Pierre-Carl Michaud; Thepthida Sopraseuth
    Abstract: Using a general equilibrium heterogeneous agent model featuring health production, we quantify the relative contribution of price distortions in the health market, TFP and other health risks in explaining cross-country differences in health expenditure (as a share of GDP) and health status. Estimated parameters reveal a substantial price wedge that explains at most 20% of the difference in health spending (as a share of GDP) and 30% of the difference in health status between Europe and the U.S. We estimate a one percentage point negative impact on the life-time cost-of-living of Americans from higher prices due to inefficiencies.
    Keywords: Health Production,Health Status,Heterogeneous Agent Model,Price Indices,
    JEL: C51 D61 E21 I10 I32
    Date: 2020–03–30
  71. By: Matthias Kehrig; Nicolas Vincent
    Abstract: The labor share in U.S. manufacturing declined from 62 percentage points (ppts) in 1967 to 41 ppts in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppts during the same period. Using micro-level data, we document five salient facts: (1) since the 1980s, there has been a dramatic reallocation of value added toward the lower end of the labor share distribution; (2) this aggregate reallocation is not due to entry/exit, to “superstars" growing faster or to large establishments lowering their labor shares, but is instead due to units whose labor share fell as they grew in size; (3) low labor share (LL) establishments benefit from high revenue labor productivity, not low wages; (4) they also enjoy a product price premium relative to their peers, pointing to a significant role for demand-side forces; and (5) they have only temporarily lower labor shares that rebound after five to eight years. This transient pattern has become more pronounced over time, and the dynamics of value added and employment are increasingly disconnected.
    Keywords: Labor Share, Productivity, Firm Size Distribution, Relative Prices
    JEL: E2 L1 L2 L6 O4
    Date: 2020–03
  72. By: Antonio Coppola; Matteo Maggiori; Brent Neiman; Jesse Schreger
    Abstract: Global firms finance themselves through foreign subsidiaries, often shell companies in tax havens, which obscures their nationality in aggregate statistics. We associate the universe of traded securities with their issuer's ultimate parent and restate bilateral investment positions to better reflect the true financial linkages connecting countries around the world. We find that portfolio investment from developed countries to firms in large emerging markets is dramatically larger than previously thought. The national accounts of the United States, for example, understate the U.S. position in Chinese firms by nearly $600 billion, while China's official net creditor position to the rest of the world is overstated by about 50 percent. We additionally show how taking account of offshore issuance is important for our understanding of the currency composition of external liabilities, the nature of foreign direct investment, and the growth of financial globalization.
    JEL: E0 F0 G0
    Date: 2020–03
  73. By: Edouard Schaal; Mathieu Taschereau-Dumouchel
    Abstract: This paper explores whether rational herding can generate endogenous business cycle fluctuations. We embed a tractable model of rational herding into a business-cycle framework. In the model, technological innovations arrive with unknown quality. New innovations are not immediately productive and agents have dispersed information about how productive the technology will be. Investors decide whether to invest in the technology or not based on their private information and the investment behavior of others. Herd-driven boom-bust cycles may arise endogenously in this environment out of a single impulse shock when the technology is unproductive but investors’ initial information is optimistic and highly correlated. When the technology appears, investors mistakenly attribute the high observed investment rates to high fundamentals, leading to a pattern of increasing optimism and investment until the economy reaches a peak, followed by a crash as agents ultimately realize their mistake. As such, the theory can shed light on bubble-like episodes in which excessive optimism about uncertain technology fueled general macroeconomic expansions that were followed by sudden recessions. We calibrate the model to the U.S. economy and show that the theory can explain boom-and-bust cycles in line with historical episodes like the Dot-Com Bubble of the late 1990s. Leaning-against-thewind policies can be beneficial in this environment as they improve the diffusion of information over the cycle.
    JEL: E32 D80
    Date: 2020–01
  74. By: Konstantinos Chisiridis (Department of Economics, University of Macedonia, Greece); Kostas Mouratidis (Department of Economics, University of Sheffield, UK); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece; Rimini Centre for Economic Analysis)
    Abstract: The European north-south divide has been an issue of a long-standing debate. We employ a Global VAR model for 28 developed and developing countries to examine the interaction between the global trade imbalances and their impact within the euro area framework. The aim is to assess the propagation mechanisms of real shocks, focusing on the interconnections among the north euro area and the south euro area. We incorporate theory-based long-run over-identifying restrictions and examine the effects of (i) non-export real output shocks, (ii) expansionary shocks and (iii) real exchange rate shocks. An expansionary policy of the north euro area and increased competitiveness in the south euro area could alleviate trade imbalances of the debtor euro area economies. From the south euro area perspective, internal devaluation decreases output but at the same time, it also reduces current account deficits. North euro area origin shocks to domestic output exert a dominant influence in the rest of the Europe and Asia.
    Keywords: Trade Imbalances, European North-South Divide, Global VAR, International Linkages, Spillover Effects, Generalised Impulse Response Analysis
    JEL: C33 E27 F14
    Date: 2020–03
  75. By: Weinand, Sebastian
    Abstract: Spatial price comparisons rely to a high degree on the quality of the underlying price data that are collected within or across countries. Below the basic heading level, these price data often exhibit large gaps. Therefore, stochastic index number methods like the CPDmethod and the GEKS method are utilised for the aggregation of the price data into higher-level indices. Although the two index number methods produce differing price level estimates when prices are missing, the present paper demonstrates that both can be derived from exactly the same stochastic model. In addition, for a specific case of missing prices, it is shown that the formula underlying these price level estimates differs between the CPD method and the GEKS method only with respect to the weighting pattern applied. Lastly, the impact of missing prices on the efficiency of the price level estimates is analysed in two simulation studies. It can be shown that the CPD method slightly outperforms the GEKS method. Using price data of Germany's Consumer Price Index, it can be observed that more narrowly defined products lead to efficiency gains in the estimation.
    Keywords: Spatial price comparisons,below basic heading,multilateral index number methods,CPD method,GEKS method,product definition
    JEL: C43 E31 R10
    Date: 2020
  76. By: Bussolo, Maurizio (World Bank); Checchi, Daniele (University of Milan); Peragine, Vito (University of Bari)
    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 two.
    Keywords: inequality of opportunity, decomposition methods, education mobility, returns to education, family networking
    JEL: D31 D63 E24 I24 J62
    Date: 2020–03
  77. By: Gilbert Mbara (Faculty of Economic Sciences, University of Warsaw)
    Abstract: Primary commodity prices are generally determined in dual markets: a physical--spot market dominated by supplier--producers and a forward--futures market where consumers, producers and speculators interact. While the futures market operates on an almost continuous basis, the spot market only opens in predetermined short periods of time over which the state of supply and demand is revealed. This poses a challenge for the question of price dynamics: which market leads/follows and where does price discovery occur? We perform an empirical analysis using spot and futures coffee prices and find that most price information originates from the futures markets. Shocks to the spot price are quickly integrated into the market prices, with the effect of the shock quickly dying out or a new equilibrium being attained. A shock to the futures price almost always leads to a permanent change in prices leading to a new equilibrium.
    Keywords: Price transmission, futures markets, VECM, Cointegrated VARMA
    JEL: C5 C51 C58 C32 E32
    Date: 2020
  78. By: Alexandros Botsis; Christoph Görtz; Plutarchos Sakellaris
    Abstract: Using a novel dataset that contains qualitative firm survey data on sales forecasts as well as balance-sheet data on realized sales, we document that only major forecast errors are predictable and display autocorrelation. This result is a particular violation of the Full Information Rational Expectations hypothesis that requires explanation. In contrast, minor forecast errors are neither predictable nor autocorrelated. To arrive at this result, we develop a novel methodology to quantify qualitative survey data on firm forecasts. It is generally applicable when quantitative information, e.g. from balance sheets, is available on the realization of the forecasted variable. Finally, we provide a model of rational inattention that explains our empirical results. Firms optimally limit their degree of attention to information when operating in market environments where information processing is more costly. This results in major forecast errors that are predictable and autocorrelated.
    Keywords: survey data, firm data, expectations, forecast errors, rational inattention
    JEL: C53 C83 D22 D84 E32
    Date: 2020
  79. By: Luca Fornaro; Martin Wolf
    Abstract: As we write, the Covid-19 coronavirus is spreading throughout the globe. Besides its impact on public health, this coronavirus outbreak is likely to have significant economic consequences. The consensus is that the virus will cause a negative supply shock to the world economy, by forcing factories to shut down and disrupting global supply chains (OECD, 2020). But how deep and persistent is this supply disruption going to be? Will aggregate demand be affected? What is the appropriate monetary policy response? What about fiscal policy? These questions are currently at the center of a heated debate.
    Date: 2020–03
  80. By: Carol Corrado; Mary O'Mahony; Lea Samek
    Abstract: This paper estimates the nominal value of education output by adapting the Jorgenson Fraumeni lifetime income approach, such that enrollments by education type are multiplied by the amount by which lifetime earnings change with additional qualifications, taking account of the impact of experience on earnings. The model is estimated using data for the UK covering the time period 1993 to 2018 under a range of assumptions. Next, the treatment of education services in national accounts is reviewed, and the paper argues that education services could be treated as an intangible asset and the acquisition of schooling knowledge assets included in saving and net investment. Finally, the paper discusses modifications required to adjust for international students who pay for the cost of their tuition.
    Keywords: Education, Intangibles, Human Capital
    JEL: E01 I20 O47
    Date: 2020–01
  81. By: Marwil J. Dávila-Fernández
    Abstract: Over the past fty years, the United States (US) has experienced a process of structural change characterised by an increase in financial and a decrease in manufacture technical coefficients. In this article, we argue that both processes are intrinsically related. Building on Dávila-Fernández and Punzo (2019) multisectoral approach to financialisation, technical coefficients can be understood as measures of input content per unit of output produced. Using a 15-sector level of aggregation, we revisit the evolution of manufacture content in the US between 1947 and 2015. We proceed by applying time-series cointegration techniques and dynamic panel estimation methods to assess the correspondence between different measures of manufacture and financial content. Our results indicate that there is a negative long-run relationship between both series with financialisation being weakly exogenous and having predictive power over manufacture content. We conclude discussing the role of financial liberalisation, shareholder value orientation, and firm indebtedness to explain how a more financial intensive production technique has displaced manufacture inputs.
    Keywords: Financialisation, Deindustrialisation, Input-Output, Cointegration, United States.
    JEL: E12 E32 O40
    Date: 2019–10
  82. By: Menkhoff, Lukas; Rieth, Malte; Stöhr, Tobias
    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
  83. By: Massimiliano Caporin (Department of Statistical Sciences, University of Padova); Zahra Mohammadi Nikpour (DSEA, University of Padova); Paola Valbonesi (Department of Economics and Management University of Padova and Higher School of Economics, National Research University (HSE-NRU), Moscow)
    Abstract: We empirically study the relationship between oil price uncertainty and conflict incidence by using different Vector Auto-Regressive (VAR) models, also augmented with Heterogeneous (VHAR) components. We build two measures for oil price uncertainty and investigate the Middle East and North Africa (MENA) interstate conflict, civil conflict and terrorist attacks data. Our results show that uncertainty in the oil market increases the incidence of conflict in the region. By further decomposing the model for OPEC and non-OPEC members of the region, we find that while the OPEC members immunise themselves against conflict, oil price uncertainty affects the conflict in non-OPEC members positively.
    Keywords: Conflict, Natural Resources, Oil Prices, SVAR
    JEL: D74 E31 F51 Q34 C32 O13
    Date: 2020–03
  84. By: Stanislav Rabinovich; Ronald Wolthoff
    Abstract: We theoretically study misallocation of labor in a heterogeneous-firm model with imperfectly directed search. Some workers can direct their search, while others are uninformed about the location of wage offers ex ante and are assigned to job openings randomly. The main result is that too many workers apply to high-productivity firms, relative to the social optimum. This occurs because too many firms take advantage of their market power, attracting only random searchers. Because it is the low-productivity firms that do so, this induces all the directed searchers to concentrate at the high-productivity firms, a ''flight-to-quality'' phenomenon. Improvements in information have ambiguous effects on worker allocation, wages, and worker utility. A minimum wage can increase employment and welfare by reallocating workers across firms. With an endogenous entry choice, policy design meets with a tradeoff in balancing the misallocation inefficiency and a standard entry externality.
    Keywords: Directed search; random search; labor markets; minimum wage; misallocation
    JEL: E24 D83 J64
    Date: 2020–03–23
  85. By: Michael Bleaney; Atsuyoshi Morozumi; Zakari Mumuni
    Abstract: Previous research has found that the relationship between fiscal deficits and inflation is conditional on income levels: deficits tend to be inflationary in developing countries but not in advanced economies. We show that within low-income countries (LICs) the relationship is again conditional: only when relatively poor institutions fail to hold governments accountable to the general public are fiscal deficits inflationary in LICs.
    Keywords: Fiscal deficits, Inflation, Government accountability
    Date: 2020
  86. By: Gao, Shen (Center for Economics, Finance and Management Studies, Hunan University, China.); Hou, Chenghan (Center for Economics, Finance and Management Studies, Hunan University, China.); Nguyen, Bao H. (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: The growing disintegration between the natural gas and oil prices, together with shale revolution and market financialization, lead to continued fundamental changes in the natural gas markets. To capture these structural changes, this paper considers a wide set of highly flexible time-varying parameter models to evaluate the out-of-sample forecasting performance of the natural gas spot prices across the US, European and Japanese markets. The results show that for both Japan and EU markets, the best forecasting performance is found when the model allows for drastic changes in the conditional mean and gradual changes in the conditional volatility. For the US market, however, no model performs systematically better than the simple autoregressive model. Full sample estimation results further con- firm that allowing t-distributed error is important in modelling the natural gas prices, especially for EU markets.
    Keywords: natural gas price; structural breaks; forecasting; time-varying pa- rameter; Markov switching; stochastic volatility.
    JEL: C32 E32 Q43
    Date: 2020
  87. By: Wontke, Christoph; Seitz, Franz
    Abstract: Im Zuge der Niedrigzinspolitik der EZB sind die Marktzinsen stark gefallen. Gleichzeitig sind die Immobilienpreise deutlich angestiegen. Die vorliegende Arbeit untersucht die Hedging Qualität von Bund Future Kontrakten für die Absicherung von Zinssätzen. Als Praxisbeispiel dient die Einsatzfähigkeit zur Absicherung des Zinsniveaus für zukünftige Investitionen in Immobilien. Die Korrelation zwischen dem Bund Future Kurs und den Zinsen für Immobiliendarlehen lag über einen Beobachtungszeitraum von zehn Jahren bei -0,982, für kürze Beobachtungszeiträume liegt sie allerdings teilweise deutlich darunter. Insofern eignen sich Bund Future Kontrakte nur bedingt zur Sicherung des Zinsniveaus. Im Vergleich zu der in der Praxis üblichen Verwendung von Forward-Darlehen entstehen für Investoren unter Umständen aber finanzielle Vorteile. Neben der Problematik der nicht zu allen Zeiträumen ausreichenden Korrelation führen das tägliche Cash Settlement der Future-Kontrakte und die Volatilität der Kurse zu einem erhöhten Liquiditätsbedarf.
    Keywords: Zinsmanagement,Hedge,Bund Future,Forward-Darlehen
    JEL: E43 G21 G24
    Date: 2020
  88. By: Kwon, Ohyun (Drexel University); Fleisher, Belton M. (Ohio State University); McGuire, William H. (University of Washington Tacoma); Zhao, Min Qiang (Xiamen University)
    Abstract: We study the implications of financial-market imperfections on labor and capital misallocation in China. Financial friction stems from private sectors' credit constraints that limit the efficient use of capital relative to state firms. Our model can jointly explain labor flows out of and capital flows into the Chinese provinces with high capital market distortion. To formally test this hypothesis, we propose a measure of regional financial friction based on our model. We show that the underlying financial friction can be inferred by differences-in-differences in the market shares of private and state sectors and their marginal rental rates of capital. Our regression results show that our measure of financial friction has robust explanatory power regarding interprovincial capital and labor flows. Our structural analysis shows that improving financial friction in China can lead to 3.9% welfare gain in China.
    Keywords: financial friction, regional capital flows, Chinese economy
    JEL: R12 H3 E5 O5 F4
    Date: 2020–03
  89. By: Hernando Matallana
    Abstract: Esta nota considera la lógica monetaria del salario relativo para el caso de trabajo homogéneo, la incidencia tributaria del impuesto sobre las diversas formas del ingreso funcional y la lucha por el salario relativo en el caso de trabajo heterogéneo en la economía monetaria de producción. La discusión advierte que el salario relativo disponible y con ello la condición económica de los trabajadores en el sistema de los mercados, se ajustan al interés particular de la clase funcional de los propietarios de riqueza.
    Keywords: distribución del ingreso, economía monetaria de producción, incidencia tributaria, salario relativo, salarios diferenciales
    JEL: B21 D33 E12 H22 J31
    Date: 2020–03–29
  90. By: Sartorello Spinola, Danilo (UNU-MERIT)
    Abstract: This article challenges the main assumptions of the Balance of Payments Constrained Model (BPCM, aka Thirlwall model) related to the long-run: (1) equilibrium of the trade balance. (2) Stability of price-effects. (3) Foreign income growth positively affecting domestic income. Some authors raise the argument that the BP is rarely observed in equilibrium (Alonso & Garcimartín, 1998); price effects, through the real exchange rate, do affect the long-run (Rodrik, 2008); and foreign income has no effect (or negative) on domestic income (Razmi, 2016). The BPCM is based on its assumptions to defend the existence of a long-run growth rate compatible with a stable growth of the balance of payments, in which the effective growth rate converges to avoid external constrains (McCombie & Thirlwall, 1994; Thirlwall, 1979). In order to challenge the assumptions of the BPCM, we apply a time series co-integration Vector Error Correction Model (VECM) using the BPCM related variables to Argentina, Brazil, Colombia, and Mexico, the larger countries in Latin America. The data source is the Penn World Tables (PWT) for 1950-2014. We apply impulse-response and permanent shocks in selected variables, observing their effects on Real Exchange Rate, GDP, and Trade Balance. The results are compared to the assumptions raised in this research; we empirically find that the BPCM assumptions are not empirically robust for the selected countries. This offers an invitation to more empirical work that can strength the arguments of the BPCM model
    Keywords: Balance of Payments Constrains, Latin America, Economic Development
    JEL: O11 F41 E12
    Date: 2020–01–14
  91. By: Mauro Bucci (Banca d'Italia); Ilaria De Angelis (Banca d'Italia); Emilio Vadalà (Banca d’Italia)
    Abstract: Over the last few years, the use of financial derivatives by governments has been actively debated, especially regarding countries with a high public debt, occasioning concern among investors regarding the actual extent of the phenomenon. The risk profile and costs related to these contracts are usually quite different from those of ordinary debt instruments; moreover, the high degree of flexibility they enjoy allows them to be used for risk hedging as well as for reducing the cost of debt in the short term, although this does increase the volatility of the public finances in the medium-to-long term. The impact of the derivatives portfolio on the Italian public accounts is the result of decisions taken in the (at times remote) past, and of market developments, which have proven very different from those originally envisaged. The paper provides a comprehensive and up-to-date overview of the use of derivative financial instruments for the management of Italian public debt, analysing the strategies pursued by the government and their impact on the public finances, also in comparison with other European countries. In recent years, more stringent statistical regulations in the EU have been introduced while levels of transparency (of the strategies, size and features of the derivatives portfolio) have improved and risks for the public finances have diminished.
    Keywords: derivatives, public finance, public debt
    JEL: H63 E62 E63
    Date: 2020–03
  92. By: Natalia Bailey; George Kapetanios; M. Hashem Pesaran
    Abstract: This paper proposes an estimator of factor strength and establishes its consistency and asymptotic distribution. The proposed estimator is based on the number of statistically significant factor loadings, taking account of the multiple testing problem. We focus on the case where the factors are observed which is of primary interest in many applications in macroeconomics and finance. We also consider using cross section averages as a proxy in the case of unobserved common factors. We face a fundamental factor identification issue when there are more than one unobserved common factors. We investigate the small sample properties of the proposed estimator by means of Monte Carlo experiments under a variety of scenarios. In general, we find that the estimator, and the associated inference, perform well. The test is conservative under the null hypothesis, but, nevertheless, has excellent power properties, especially when the factor strength is sufficiently high. Application of the proposed estimation strategy to factor models of asset returns shows that out of 146 factors recently considered in the finance literature, only the market factor is truly strong, while all other factors are at best semi-strong, with their strength varying considerably over time. Similarly, we only find evidence of semi-strong factors in an updated version of the Stock and Watson (2012) macroeconomic dataset.
    Keywords: factor models, factor strength, measures of pervasiveness, cross-sectional dependence, market factor
    JEL: C38 E20 G20
    Date: 2020
  93. By: Simplice A. Asongu (Yaounde, Cameroon); Joseph I. Uduji (University of Nigeria, Nsukka, Nigeria); Elda N. Okolo-Obasi (University of Nigeria, Nsukka, Nigeria)
    Abstract: An April 2015 World Bank report on attainment of the Millennium Development Goal (MDG) extreme poverty target has revealed that extreme poverty has been decreasing in all regions of the world with the exception of sub-Saharan Africa (SSA), in spite of the sub-region enjoying more than two decades of growth resurgence. This study builds on a critique of Piketty’s ‘capital in the 21st century’ and recent methodological innovations on reverse Solow-Swan to review empirics on the adoption of common policy initiatives against a cause of extreme poverty in SSA: capital flight. The richness of the dataset enables the derivation of 14 fundamental characteristics of African capital flight based on income-levels, legal origins, natural resources, political stability, regional proximity and religious domination. The main finding reveals that regardless of fundamental characteristic, from a projection date of 2010, a genuine timeframe for harmonizing policies is between 2016 and 2023. In other words, the beginning of the post-2015 agenda on sustainable development goals coincides with the timeframe for common capital flight policies.
    Keywords: Econometric modeling; Capital flight; Poverty; Africa
    JEL: C50 E62 F34 O19 O55
    Date: 2019–01

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