nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒04‒13
ninety-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Cross border flows, financial Intermediation and interactions of policy rules in a small open economy model By Ashima Goyal; Akhilesh K. Verma
  2. Long-term bank lending and the transfer of aggregate risk By Reiter, Michael; Zessner-Spitzenberg, Leopold
  3. Some Stylised Facts for the Economies of Anglophone West Africa and Guinea By Mogaji, Peter Kehinde
  4. Looking into the Rear-View Mirror: Lessons from Japan for the Eurozone and the U.S? By Pierre L. Siklos
  5. A Fixed-Interest-Rate New Keynesian Model of China By Bing Tong; Guang Yang
  6. Heterogeneous Expectations, Indeterminacy, and Postwar US Business Cycles By Francisco Ilabaca; Fabio Milani
  7. Role of money in the monetary policy: A New Keynesian and new monetarist perspective By Masudul Hasan Adil; Neeraj R. Hatekar; Taniya Ghosh
  8. "A Simple Model of the Long-Term Interest Rate" By Tanweer Akram
  9. Firm-bank credit networks, business cycle and macroprudential policy By Riccetti, Luca; Russo, Alberto; Gallegati, Mauro
  10. Monetary Policy, Macroprudential Policy, and Financial Stability By David Martinez-Miera; Rafael Repullo
  11. Bad Jobs and Low Inflation By Renato Faccini; Leonardo Melosi
  12. Higher-Order Income Risk over the Business Cycle By Christopher Busch; Alexander Ludwig
  13. Gross Worker Flows and Fluctuations in the Aggregate Labor Market By Per Krusell; Toshihiko Mukoyama; Richard Rogerson; Ayşegül Şahin
  14. Global Shocks Alert and Monetary Policy Responses By Olatunji A. Shobande; Oladimeji T. Shodipe; Simplice A. Asongu
  15. Cyclical Output, Cyclical Unemployment, and augmented Okun's Law in MENA zone By NEIFAR, MALIKA
  16. Exchange Rate Misalignment and External Imbalances: What is the Optimal Monetary Policy Response? By Giancarlo Corsetti; Luca Dedola; Sylvain Leduc
  17. Can This Time Be Different? Policy Options in Times of Rising Debt By M. Ayhan Kose; Peter S. O. Nagle; Franziska Ohnsorge; Naotaka Sugawara
  18. Regime changes in Indias monetary policy and Tenures of RBI governors By Utso Pal Mustafi; Rajeswari Sengupta
  19. Shilnikov chaos, low interest rates, and new Keynesian macroeconomics By William A. Barnett; Giovanni Bella; Taniya Ghosh; Paolo Mattana; Beatrice Venturi
  20. The Long-Term Effects of Labor Market Entry in a Recession: Evidence from the Asian Financial Crisis By Choi, Eleanor J.; Choi, Jaewoo; Son, Hyelim
  21. Revenues from Financial Capital. A Formal Framework By Rohwer, Götz; Behr*, Andreas
  22. Dynamic Adverse Selection and Belief Update in Credit Markets By Kang, Kee-Youn; Jang, Inkee
  23. The Gender Pay Gap: Micro Sources and Macro Consequences By Morchio, Iacopo; Moser, Christian
  24. Labour Share Heterogeneity and Fiscal Consolidation Programs By Freitas, Bruno
  25. The Paradox of Thrift in the Two-Sector Kaleckian Growth Model By Fanti, Lucrezia; Zamparelli, Luca
  26. Universal basic income and skill-biased technological change By Coelho, José
  27. Fight the Pandemic, Save the Economy: Lessons from the 1918 Flu By Sergio Correia; Stephan Luck; Emil Verner
  28. Jumping the Queue: Nepotism and Public-Sector Pay By Chassamboulli, Andri; Gomes, Pedro Maia
  29. Monetary Policy in the 1990s: Bank of Japan's Views Summarized Based on the Archives and Other Materials By Masanao Itoh; Yasuko Morita; Mari Ohnuki
  30. Liquidity Management of Heterogeneous Banks during the Great Recession By Toshiaki Ogawa
  31. Monetary Policy Implementation with an Ample Supply of Reserves By Gara Afonso; Kyungmin Kim; Antoine Martin; Ed Nosal; Simon M. Potter; Sam Schulhofer-Wohl
  32. Post-Keynesian Economics - Challenging the Neo-Classical Mainstream By Heise, Arne
  33. Convergence des politiques fiscales de la CEMAC: une application des tests de la racine unitaire en données de panel By Kuikeu, Oscar
  34. Political Budget Cycles: Evidence from Swiss Cantons By Baldi, Guido; Forster, Stephan
  35. The Wealth Decumulation Behavior of the Retired Elderly in Italy: The Importance of Bequest Motives and Precautionary Saving By Luigi Ventura; Charles Yuji Horioka
  36. Monitoring Real Activity in Real Time: The Weekly Economic Index By Daniel J. Lewis; Karel Mertens; James H. Stock
  37. Macroprudential Policies and Current Account Balance By Ekinci, Mehmet Fatih
  38. The Contribution of Domestic Investment, Exports and Imports on Economic Growth: A Case Study of Peru By Bakari, Sayef; Fakraoui, Nissar; Mabrouki, Mohamed
  39. Total factor productivity (TFP) and fiscal consolidation: How harmful is austerity? By Bardaka, Ioanna; Bournakis, Ioannis; Kaplanoglou, Georgia
  40. The Fed's enhanced swap lines and new interventions in the Treasury market By Richhild Moessner; William Anthony Allen
  41. What Do We Learn From Cross-Regional Empirical Estimates in Macroeconomics? By Adam Guren; Alisdair McKay; Emi Nakamura; Jón Steinsson
  42. Market Power and Cost Efficiency in the African Banking Industry By Simplice A. Asongu; Rexon T. Nting; Joseph Nnanna
  43. How home equity can be used to fight a recession. A U.S. case study By De Koning, Kees
  44. Burning Money? Government Lending in a Credit Crunch By Gabriel Jiménez; José-Luis Peydró; Rafael Repullo; Jesús Saurina
  45. Social Security Contributions Distribution and Economic Activity By José L. Torres
  46. Monetary policy and regional inequality By Hauptmeier, Sebastian; Holm-Hadulla, Fédéric; Nikalexi, Katerina
  47. Revisiting the Trade and Unemployment Nexus: Empirical Evidence from the Nigerian Economy By Stephen T. Onifade; Ahmet Ay; Simplice A. Asongu; Festus V. Bekun
  48. The Impact of Fiscal Deficit on Economic Growth: Using the Bounds Test Approach in The Case of Morocco. By Gyasi, Genevieve
  49. The impact of Israeli Geopolitical Risks on the Lebanese Financial Market: A Destabilizer Multiplier By Mansour-Ichrakieh, Layal
  50. Econometric Foundations of the Great Ratios of Economics By Don Harding
  51. The Spanish Personal Income Tax: Facts and Parametric Estimates By Esteban García-Miralles; Nezih Guner; Roberto Ramos
  52. Cyclical drivers of euro area consumption: what can we learn from durable goods? By Krustev, Georgi; Casalis, André
  53. Inflation, Output Growth and their Uncertainties: A Multivariate GARCH-M Modeling Evidence for Nigeria By Perekunah B. Eregha; Arcade Ndoricimpa
  54. Macroeconomic Conditions and Health in Britain: Aggregation, Dynamics and Local Area Heterogeneity By Janke, Katharina; Lee, Kevin; Propper, Carol; Shields, Kalvinder; Shields, Michael A.
  55. FRED-QD: A Quarterly Database for Macroeconomic Research By Michael McCracken; Serena Ng
  56. New Characteristics and Hedonic Price Index Numbers By Ian Crawford; J. Peter Neary
  57. Time Variation in Lifecycle Consumption and Income By Yunus Aksoy; Henrique S. Basso; Carolyn St Aubyn
  58. Quantifying the Effect of Corporate Taxes on the Life Cycle of Firms By Neira, Julian; Singhania, Rish
  59. Should Germany Have Built a New Wall? Macroeconomic Lessons from the 2015-18 Refugee Wave By Christopher Busch; Dirk Krueger; Alexander Ludwig; Irina Popova; Zainab Iftikhar
  60. Belgium; 2020 Article IV Consultation-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for Belgium By International Monetary Fund
  61. Public-Sector Compensation over the Life Cycle By Gomes, Pedro Maia; Wellschmied, Felix
  62. Kingdom of the Netherlands-Curacao and Sint Maarten; 2019 Article IV Consultation-Press Release and Staff Report; and Statement by the Executive Director for the Kingdom of the Netherlands-Curacao and Sint Maarten By International Monetary Fund
  63. The Comparative African Regional Economics of Globalization in Financial Allocation Efficiency: Pre-Crisis Era Revisited By Simplice A. Asongu; Joseph Nnanna; Vanessa S. Tchamyou
  64. Subdued Potential Growth: Sources and Remedies By Sinem Kilic Celik; M. Ayhan Kose; Franziska Ohnsorge
  65. Understanding Cross-country Differences in Health Status and Expenditures By Raquel Fonseca; François Langot; Pierre-Carl Michaud; Thepthida Sopraseuth
  66. Longer-Run Economic Consequences of Pandemics By Òscar Jordà; Sanjay R. Singh; Alan M. Taylor
  67. Kuwait; 2020 Article IV Consultation-Press Release; Staff Report; and Staff Supplement By International Monetary Fund
  68. Trade negotiations and global relations: emerging players and actors (II) By Ojo, Marianne; DiGabriele, Jim; Serrano Caballero, Enriqueta; Joshi, Amol; Lahiri, Nandini; Im, Hemmatian
  69. Sectoral inflation persistence, market concentration and imperfect common knowledge By Ryo Kato; Tatsushi Okuda; Takayuki Tsuruga
  70. Exchange Rate Regimes and Foreign Direct Investment Flow in West African Monetary Zone (WAMZ) By Perekunah B. Eregha
  71. How Will Retirement Saving Change by 2050? Prospects for the Millennial Generation By Gale, William; Gelfond, Hilary; Fichtner, Jason
  72. Law of conservation of real wealth and rising inequality By Yashin, Pete
  73. Flickering Lifelines: Electrification and Household Welfare in India By Sedai, Ashish Kumar; Nepal, Rabindra; Jamasb, Tooraj
  74. Закон сохранения реального богатства и рост неравенства By Yashin, Pete
  75. Low-Income Consumers and Payment Choice By Oz Shy
  76. The Coronavirus and the Great Influenza Pandemic: Lessons from the “Spanish Flu” for the Coronavirus’s Potential Effects on Mortality and Economic Activity By Robert J. Barro; José F. Ursúa; Joanna Weng
  77. Why is productivity slowing down? By Goldin, Ian; Koutroumpis, Pantelis; Lafond, François; Winkler, Julian
  78. Fiscal Reform -- Aid or Hindrance: A Computable General Equilibrium (CGE) Analysis for Saudi Arabia By Elizabeth L. Roos; Philip D. Adams
  79. Somalia; Second Review Under the Staff-Monitored Program and Request for Three-Year Arrangements Under the Extended Credit and The Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Somalia By International Monetary Fund
  80. Linear and Nonlinear Growth Determinants: The Case of Mongolia and its Connection to China By Chu, Amanda M.Y.; Lv, Zhihui; Wagner, Niklas F.; Wong, Wing-Keung
  81. An SEIR Infectious Disease Model with Testing and Conditional Quarantine By David Berger; Kyle Herkenhoff; Simon Mongey
  82. Does Geographical Complexity of Colombian Financial Conglomerates Increase Banks’ Risk? The Role of Diversification, Regulatory Arbitrage and Funding Costs By Cardozo, Pamela; Morales-Acevedo, Paola; Murcia, Andrés; Pacheco, Beatriz
  83. Welfare Implications of Bank Capital Requirements under Dynamic Default Decisions By Toshiaki Ogawa
  84. Monetary Policy,Markup Dispersion, and Aggregate TFP By Matthias Meier; Timo Reinelt
  85. The Role of ICT and Financial Development on CO2 Emissions and Economic Growth By Ibrahim D. Raheem; Aviral K. Tiwari; Daniel Balsalobre-lorente
  86. Foreign Direct Investment, Domestic Investment and Green Growth in Nigeria: Any Spillovers? By Akintoye V. Adejumo; Simplice A. Asongu
  87. Institutions and the fortunes of territories By Andrés Rodríguez-Pose
  88. Stock Market Volatility Analysis: A Case Study of TUNindex By NEIFAR, MALIKA
  89. Financial Access and Productivity Dynamics in Sub-Saharan Africa By Simplice A. Asongu
  90. Myanmar; 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Myanmar By International Monetary Fund
  91. Bundling Time and Goods: Implications for Hours Dispersion By Lei Fang; Anne Hannusch; Pedro Silos
  92. What Will Be the Economic Impact of COVID-19 in the US? Rough Estimates of Disease Scenarios By Andrew Atkeson

  1. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Akhilesh K. Verma (Indira Gandhi Institute of Development Research)
    Abstract: We present a small open economy New Keynesian model with financial intermediation to investigate the interaction between monetary policy and macroprudential regulations. Our model economy attempts to capture the vulnerability of emerging market economies in the face of external and domestic shocks. We build a model that closely captures the dynamics of emerging market economies to show that interest rate policy rules alone may not be an effective instrument to stabilize the economy under negative shocks. Monetary policy implementation through augmented Taylor rule (ATR) is an inadequate tool to absorb negative shocks given its conflict between inflation and exchange rate objectives. We show that the use of macroprudential regulations (MaPs) with simple Taylor rule improves business cycle dynamics relative to ATR under domestic and external shocks. We present two kinds of MaP regulations to show that they effectively mitigate losses during economic downturns and reduce excessive risk-taking behavior during economic booms when used along with a simple monetary policy rule (MP). In addition, we also conduct welfare evaluation that supports complementarity between MP and MaPs under different shocks.
    Keywords: DSGE model, cross border flows, monetary policy macroprudential regulation
    JEL: E44 E52 E61 F42 G28
    Date: 2020–03
  2. By: Reiter, Michael (IHS, Vienna and NYU Abu Dhabi); Zessner-Spitzenberg, Leopold (Vienna Graduate School of Economics and IHS, Vienna)
    Abstract: Long-term debt contracts transfer aggregate risk from borrowing firms to lending banks. When aggregate shocks increase the future default probability of firms, banks are not compensated for the default risk of existing contracts. If banks are highly leveraged, this can lead to financial instability with severe repercussions in the real economy. To study this mechanism quantitatively, we build a macroeconomic model of financial intermediation with long-term defaultable loan contracts and calibrate it to match aggregate firm and bank exposure to business cycle risks. Our model exhibits banking crises that closely resemble observed crisis episodes. We find that such crises do not arise in an economy with short-term debt. Our results on the role of long-term debt completely reverse if financial regulation is implemented to increase banks' risk bearing capacity. The financial sector is then well equipped to take on the aggregate risk, such that long-term lending stabilizes the business cycle by providing insurance to the corporate sector.
    Keywords: Banking, Financial frictions, Maturity transformation
    JEL: E32 E43 E44 G01 G21
    Date: 2020–04
  3. By: Mogaji, Peter Kehinde
    Abstract: This paper investigated some macroeconomic and financial stylised facts in the context of the developing economies of the Guinea and the five Anglophone West Africa countries, consisting of The Gambia, Ghana, Liberia, Nigeria and Sierra Leone. These six countries were collectively known as the West African Monetary Zone (WAMZ) up till 2014. The informal economies of the WAMZ countries, some macroeconomic stylised facts in respect of theoretical propositions like Phillips curve, Lucas output-inflation trade-off and International parity conditions (purchasing power parity (PPP) conditions, international Fisher effect - IFE, and uncovered interest parity - UIP) were evaluated. Also, the relationships between domestic cyclical output and some macroeconomic variables were considered in the assessments of business cycles from the view-point of the developing economies of the WAMZ and the developed economies of Germany, the United Kingdom and the United States. Some empirical regularities in exchange rates and the behaviours of foreign exchange markets were also evaluated. This paper covered the period of time spanning between 1991 and 2015 on the average. Findings and results revealed that variabilities of the cyclical components of seven selected macroeconomic variables examined were lower in the developed economies of Germany, the UK and the US than the developing economies of the WAMZ, thus supporting this stylised fact that the cycles of macroeconomic variables are more volatile in developing economies than in developed economies. There were evidences to infer that the validity of both absolute and relative PPP could not be established in the WAMZ, thus making PPP to be irrelevant in the exchange rate determination throughout the WAMZ. Results generated also suggested that IFE failed to hold for the WAMZ’s bilateral relationships. These results yielded supports for the conjecture that if PPP fails to hold, IFE will not hold. Evidences were also gathered towards drawing conclusions that UIP does not hold across the WAMZ. From the empirical evaluation performed, it is evident that the Phillip curve relationship does not hold in the WAMZ (apart from Ghana) over the period covered by this study. There were inferences that the Lucas output-inflation trade-off hold better in the formal economies of the WAMZ than the informal economies. Results generated through the evaluation of seven stylised facts of exchange rates and foreign exchange markets behaviour were mixed.
    Keywords: Macroeconomic and Financial Stylised Facts, Phillips Curve,Lucas Output-Inflation Trade-off, International Parity Conditions, Purchasing Power Parity (PPP), International Fisher Effect (IFE) Uncovered Interest Parity (UIP), WAMZ.
    JEL: E3 E31 E32 E43 E66 F31 F44
    Date: 2018–07
  4. By: Pierre L. Siklos (Department of Economics, Wilfrid Laurier University and Balsillie School of International Affairs (E-mail:
    Abstract: Until recently, Japan has been treated as an outlier of sorts, apparently mired in slow growth and low to mildly negative inflation for over a decade. Monetary policy especially, but not alone, has received a healthy share of the blame for Japan's predicament. However, other major economies, notably the U.S. and the Eurozone, have since shown signs of what observers now call 'Japanification'. This paper revisits and reconsiders the narratives surrounding Japan's economic performance since the 1980s in relation to the experiences of the U.S. and the Eurozone. Although there are clearly important differences between these three economies, including important institutional and structural differences, there are also some striking parallels. Equally important, at least according to the metrics used in this study, is that the poor reputation of the Bank of Japan's monetary policy is underserved. To be sure, there were periods of excessive tightness in policy, but the same is true for the other two economies considered. Indeed, the BoJ has been more credible than the other two central banks considered most of the time over the past decade. Of course, important economic challenges remain but Japan is not an outlier. However, in the area of monetary policy, the current policy strategy may have put the 'cart before the horse'. Arguably, the largest risk is the loss of credibility unless all elements of the three 'arrows' of Abenomics have been aimed properly.
    Keywords: Bank of Japan, monetary policy regimes, deflation, central bank credibility
    JEL: E31 E32 E42 E44 E52 E58 C32 C34 C38
    Date: 2020–03
  5. By: Bing Tong (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Guang Yang (School of Economics, Nankai University)
    Abstract: Nominal interest rates in China has long been controlled by the government, making their changes lagging behind price changes. We model this in a New Keynesian model with a transiently fixed interest rate, and prove that interest rate fixation can magnify model volatility and lead to economic instability. Under the fixed interest rate, the model enters a vicious spiral until monetary policy switches to a flexible interest rate rule, which represents the shadow rate of the economy, determined by discrete (and insufficient) interest rate adjustments and other policy tools. This explains Chinas large business cycle fluctuations over the past decades.
    Keywords: Interest rate peg, Chinese economy,New Keynesian Model, Monetary policy, Business cycle
    JEL: E31 E32 E42 E52 E58
    Date: 2020–04
  6. By: Francisco Ilabaca (Department of Economics, University of California-Irvine); Fabio Milani (Department of Economics, University of California-Irvine)
    Abstract: This paper estimates a New Keynesian model extended to include heterogeneous expectations, to revisit the evidence that postwar US macroeconomic data can be explained as the outcome of passive monetary policy, indeterminacy, and sunspot-driven fluctuations in the pre-1979 sample, with a switch to active monetary policy and a determinate equilibrium starting in the early 1980s. Different shares of consumers and firms form either rational expectations, or adaptive and extrapolative expectations. The inclusion of heterogeneous expectations alters the determinacy properties of the model compared to the corresponding case under exclusively rational expectations. The Taylor principle is neither necessary nor sufficient, as the details of expectations may matter more for equilibrium stability. The model is estimated with Bayesian techniques, using rolling windows and allowing the parameters to fall both in the determinacy and indeterminacy regions. The estimates reveal large shares of agents who depart from rational expectations; heterogeneous expectations are preferred by the data everywhere in the sample. The results confirm that macroeconomic data in the early windows are better explained by indeterminacy, while determinacy is favored over the latest two decades. We uncover, however, some subsamples that include the 1980s and 1990s in which the Taylor principle is satisfied, but expectations becoming extrapolative raise the probability of indeterminacy to 50% and more.
    Keywords: Heterogeneous Expectations in New Keynesian Model; Indeterminacy; Sunspots; Taylor Principle; Deviations from Rational Expectations; Time-Varying Parameters
    JEL: E32 E52 E58
    Date: 2020–03
  7. By: Masudul Hasan Adil (Mumbai School of Economics and Public Policy, University of Mumbai); Neeraj R. Hatekar (Mumbai School of Economics and Public Policy, University of Mumbai); Taniya Ghosh (Indira Gandhi Institute of Development Research)
    Abstract: In the recent scenario, one of the most pertinent changes in monetary economics has been the virtual disappearance of what was once a dominant focus, the role of money in monetary policy, and in parallel, the disappearance of the LM curve. Economists used to think about issues of monetary policy with the help of the LM curve as being part of the analytical framework which captures the demand for money. However, the workhorse model of modern monetary theory and policy, the New Keynesian Dynamic Stochastic General Equilibrium framework only comprises of, a dynamic aggregate demand (or the dynamic IS) curve, an aggregate supply (or the New Keynesian Phillips) curve, and a monetary policy rule. The monetary policy rule is generally the Taylor rule that relates the nominal interest rate to the output gap and inflation gap, but typically not to either the quantity or the growth rate of money. This change in the modern monetary model reflects how the central banks make monetary policy now. The present study provides a detailed discussion on the role of money in monetary policy formulation, in the context of New Keynesian and New Monetarist perspective. The pros and cons of abandonment of money or the LM curve from monetary policy models have been discussed in detail.
    Keywords: Money, DSGE, New Keynesian, new monetarist, LM curve and Monetary policy
    JEL: E41 E43 E52 E58
    Date: 2020–01
  8. By: Tanweer Akram
    Abstract: This paper presents a simple model of the long-term interest rate. The model represents John Maynard Keynes’s conjecture that the central bank’s actions influence the long-term interest rate primarily through the short-term interest rate, while allowing for other important factors. It relies on the geometric Brownian motion to formally model Keynes’s conjecture. Geometric Brownian motion has been widely used in modeling interest rate dynamics in quantitative finance. However, it has not been used to represent Keynes’s conjecture. Empirical studies in support of the Keynesian perspective and the stylized facts on the dynamics of the long-term interest rate on government bonds suggest that interest rate models based on Keynes’s conjecture can be advantageous.
    Keywords: Long-Term Interest Rate; Bond Yields; Monetary Policy; Short-Term Interest Rate; John Maynard Keynes
    JEL: E12 E43 E50 E58 E60 G10 G12
  9. By: Riccetti, Luca; Russo, Alberto; Gallegati, Mauro
    Abstract: We present an agent-based model to study firm-bank credit market interactions in different phases of the business cycle. The business cycle is exogenously set and it can give rise to various scenarios. Compared to other models in this literature strand, we improve the mechanism according to which the dividends are distributed, including the possibility of stock repurchase by firms. In addition, we locate firms and banks over a space and firms may ask credit to many banks, resulting in a complex spatial network. The model reproduces a long list of stylized facts and their dynamic evolution as described by the cross-correlations among model variables. The model allows us to test the effectiveness of rules designed by the current financial regulation, such as the Basel 3 countercyclical capital buffer. We find that the effectiveness of this rule changes in different business cycle environments and this should be considered by policy makers.
    Keywords: Agent-based modeling, credit network, business cycle, financial regulation, macroprudential policy
    JEL: C63 E32 E52 G1
    Date: 2020–01
  10. By: David Martinez-Miera (Universidad Carlos III de Madrid); Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper reexamines from a theoretical perspective the role of monetary and macroprudential policies in addressing the build-up of risks in the financial system. We construct a stylized general equilibrium model in which the key friction comes from a moral hazard problem in firms' financing that banks' equity capital serves to ameliorate. Tight monetary policy is introduced by open market sales of government debt, and tight macroprudential policy by an increase in capital requirements. We show that both policies are useful, but macroprudential policy is more effective in terms of financial stability and leads to higher social welfare.
    Keywords: Bank monitoring, intermediation margin, monetary policy, macroprudential policy, capital requirements, financial stability.
    JEL: G21 G28 E44 E52
    Date: 2019–02
  11. By: Renato Faccini; Leonardo Melosi
    Abstract: We study a model in which firms compete to retain and attract workers searching on the job. A drop in the rate of on-the-job search makes such wage competition less likely, reducing expected labor costs and lowering inflation. This model explains why inflation has remained subdued over the last decade, which is a conundrum for general equilibrium models and Phillips curves. Key to this success is the observed slowdown in the recovery of the employment-to-employment transition rate in the last five years, which is interpreted by the model as a decline in the share of employed workers searching for a job. This fall in the on-the-job search rate is corroborated by the micro data.
    Keywords: misallocation; cyclical; labor market slack; Inflation; job ladder; Phillips curve
    JEL: C78 E24 E31
    Date: 2020–03–02
  12. By: Christopher Busch (Universitat Autonoma de Barcelona); Alexander Ludwig (SAFE, University of Mannheim)
    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
  13. By: Per Krusell; Toshihiko Mukoyama; Richard Rogerson; Ayşegül Şahin
    Abstract: We build a three-state general equilibrium model of the aggregate labor market that features both standard labor supply forces and labor market frictions. Our model matches key features of the cyclical properties of employment, unemployment, and nonparticipation as well as those of gross worker flows across these three labor market states. Our key finding is that shocks to labor market frictions play a dominant role in accounting for labor market fluctuations. This is in contrast to the focus of the traditional RBC literature, which emphasized how employment fluctuations arise as a consequence of labor supply responses to price changes induced by TFP shocks.
    JEL: E24 E32 J22 J64
    Date: 2020–03
  14. By: Olatunji A. Shobande (Business School, University of Aberdeen, UK); Oladimeji T. Shodipe (Eastern Illinois University, US); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: The study examines the role of global predictors on national monetary policy formation for Kenya and Ghana within the New Keynesian DSGE framework. We developed and automatically calibrated our DSGE model using the Bayesian estimator, which made our model robust to rigorous stochastic number of subjective choices. Our simulation result indicates that global factors account for the inability of national Central Banks to predict the behaviour of macroeconomic and financial variables among these developing nations.
    Keywords: Business Cycle, Macroeconomic policy, Financial crises
    JEL: E32
    Date: 2019–01
    Abstract: In this paper we investigate the relationship between economic growth and unemployment in MENA zone (six Arab countries: Tunisia, Egypt, Morocco, Lebanon, Jordan, and Oman) through the implementation of Okun’s Law using quarterly dataset covering the time period 2000 :1- 2014 :4. Static and Dynamic linear models are used to test the linkage between cyclical unemployment and cyclical growth rate. The empirical results from all these models do not indicate robust evidence but it confirm an inverse linkage between unemployment rate and economic growth, as the Okun’s Law suggests (except for Oman). Initially, the static linear model, the static asymmetric model, and the dynamic linear models (ARDL) fail to explain the long run tradeoff between unemployment and output due to severe model misspecifications. Most of these results are in line with previous studies ( (Moosa I. A., 2008), (Kreishan, 2011), (Andari & Bouaziz, 2015)), and (Al-hosban, 2017). In an NARDL gap specification, the Okun’s coefficients are the asymmetric long run parameters. Okun’s coefficients are statistically significant, which means that output growth can be translated into employment gains. Absolute effect of an economic contraction is significantly larger than that of an expansion in Tunisia, Egypt, Morocco, and Libanon. The opposite is true for Jordan and Oman. An economic upturn of 3.37%, 2.98%, and 2.5% respectively in Tunisia, Morocco, and Egypt reduces unemployment by 1%, while the downturn of 5.03%, 2.43% (and about 12%) respectively in Tunisia, Morocco (and Lebanon and Jordan) achieves the opposite. Empirical finding provides then an additional proof that Okun’s law could exist in a developing countries such as Tunisia, Egypt, Morocco, Lebanon, and Jordan.
    Keywords: MENA zone, Okun’s Law, Gap model, Asymmetric Cointegrating Relationships, Asymmetric Dynamic Multipliers, ARDL ECM-based Estimation and Tests, Nonlinear Unemployment-Output Relationship
    JEL: C32 E24 E32 J64
    Date: 2020–03–05
  16. By: Giancarlo Corsetti (University of Cambridge and CEPR (E-mail:; Luca Dedola (European Central Bank and CEPR); Sylvain Leduc (Federal Reserve Bank of San Francisco)
    Abstract: How should monetary policy respond to capital inflows that appreciate the currency, widen the current account deficit and cause domestic overheating? Using the workhorse open-macro monetary model, we derive a quadratic approximation of the utility-based global loss function in incomplete market economies, solve for the optimal targeting rules under cooperation and characterize the constrained-optimal allocation. The answer is sharp: the optimal monetary stance is contractionary if the exchange rate pass-through (ERPT) on import prices is incomplete, expansionary if ERPT is complete-implying that misalignment and exchange rate volatility are higher in economies where incomplete pass through contains the effects of exchange rates on price competitiveness.
    Keywords: Currency misalignments, trade imbalances, asset markets and risk sharing, optimal targeting rules, international policy cooperation, exchange rate pass-through
    JEL: E44 E52 E61 F41 F42
    Date: 2020–03
  17. By: M. Ayhan Kose (World Bank; Brookings Institution; CEPR; and CAMA); Peter S. O. Nagle (World Bank); Franziska Ohnsorge (World Bank; CEPR; and CAMA); Naotaka Sugawara (World Bank)
    Abstract: Episodes of debt accumulation have been a recurrent feature of the global economy over the past fifty years. Since 2010, emerging and developing economies have experienced another wave of historically large and rapid debt accumulation. Similar past debt buildups have often ended in widespread financial crises in these economies. This paper examines the factors that are likely to determine the outcome of the most recent debt wave, and considers policy options to help reduce the likelihood that it ends again in widespread crises. It reports two main results. First, the rapid increase in debt has made emerging and developing economies more vulnerable to shifts in market sentiment, notwithstanding historically low global interest rates. Second, policy options are available to lower the likelihood of financial crises, and to help manage the adverse impacts of crises when they do occur. These include sound debt management, strong monetary and fiscal frameworks, and robust bank supervision and regulation. The post-crisis debt buildup has coincided with a period of subdued growth as well as the emergence of non-traditional creditors. As a result, policy priorities also need to ensure that debt is spent on productive purposes to improve growth prospects and that all debt-related transactions are transparently reported.
    Keywords: Financial crises; currency crises; debt crises; banking crises; public debt; private debt; external debt.
    JEL: E32 E62 F34 G01 H12 H63 N20
    Date: 2020–03
  18. By: Utso Pal Mustafi (Center for Monetary and Financial Studies (CEMFI), Madrid); Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: In this paper, we estimate regime switches in Indian monetary policy during the period 1998-2017. Prior to the adoption of an inflation targeting rule in 2016, monetary policy in India was conducted in discretionary manner. The Reserve Bank of India followed a multiple indicator approach in which the policy rate was determined based on a multitude of macroeconomic indicators. Given the absence of any well defined framework, it is possible that monetary policy experienced multiple regime shifts as a consequence of overall macroeconomic developments as well as the discretionary setting of the policy rate by various RBI Governors. We apply a multivariate Markov-switching Vector Autoregression (MS-VAR) model to uncover the time variation in a system of variables related to monetary policy, as reflected through multiple regimes. We find that the optimal number of regimes during this period was three, with one of them being relatively less persistent. Among the other two, one regime corresponds closely to the tenure of Governor Jalan and sporadically appears during the tenure of Governor Reddy whereas the other regime overlaps with the time when Governor Rajan was in office. In contrast, Governor Subbarao's tenure does not correspond to any specific regime. We also characterise the regimes by the behaviour of specific macroeconomic variables.
    Keywords: Markov regime switches, Monetary policy, Inflation targeting, Reserve Bank of India, Discretionary monetary policy
    JEL: E4 E5 E6
    Date: 2020–03
  19. By: William A. Barnett (University of Kansas); Giovanni Bella (University of Cagliari); Taniya Ghosh (Indira Gandhi Institute of Development Research); Paolo Mattana (University of Cagliari); Beatrice Venturi (University of Cagliari)
    Abstract: The paper shows that in a New Keynesian (NK) model, an active interest rate feedback monetary policy, when combined with a Ricardian passive fiscal policy, a la Leeper-Woodford, may induce the onset of a Shilnikov chaotic attractor in the region of the parameter space where uniqueness of the equilibrium prevails locally. Implications, ranging from long-term unpredictability to global indeterminacy, are discussed in the paper. We find that throughout the attractor, the economy lingers in particular regions, within which the emerging aperiodic dynamics tend to evolve for a long time around lower-than-targeted inflation and nominal interest rates. This can be interpreted as a liquidity trap phenomenon, produced by the existence of a chaotic attractor, and not by the influence of an unintended steady state or the Central Bank's intentional choice of a steady state nominal interest rate at its lower bound. In addition, our finding of Shilnikov chaos can provide an alternative explanation for the controversial loanable funds over-saving theory, which seeks to explain why interest rates and, to a lesser extent inflation rates, have declined to current low levels, such that the real rate of interest is below the marginal product of capital. Paradoxically, an active interest rate feedback policy can cause nominal interest rates, inflation rates, and real interest rates unintentionally to drift downwards within a Shilnikov attractor set. Policy options to eliminate or control the chaotic dynamics are developed.
    Keywords: Shilnikov chaos criterion, global indeterminacy, long-term un-predictability, liquidity trap
    JEL: C61 C62 E12 E52 E63
    Date: 2020–01
  20. By: Choi, Eleanor J. (Hanyang University); Choi, Jaewoo (Korea Development Institute (KDI)); Son, Hyelim (University of Seoul)
    Abstract: This study investigates the long-term effects of initial labor market conditions by comparing cohorts who graduated from college before, during, and after the 1997–1998 Asian financial crisis in South Korea. We measure the overall welfare effect by examining their labor market activities, family formation, and household finances. Using data from 20 waves of the Korean Labor and Income Panel Study, we find a substantial and persistent reduction in employment, earnings, marriage, fertility, and asset building among men who graduated during a recession. For women, limited job opportunities at graduation result in an increase in childbearing. Our results suggest that labor market entry in a large-scale recession has prolonged effects on a young worker's life course even after the penalties in the labor market have disappeared.
    Keywords: recession, financial crisis, long-term effects, college graduates
    JEL: E32 J10 E21 J20 J31
    Date: 2020–02
  21. By: Rohwer, Götz; Behr*, Andreas
    Abstract: The paper proposes a framework for a formal discussion of the sources of revenues which can be attributed to financial capital. The framework refers to individual units (firms, households, state institutions) and therefore allows for a representation of ownership relations. The framework distinguishes between central bank money and deposit money created by private banks and assumes an institutional setting in which the central bank is not permitted to directly finance state institutions. The paper considers a broad and a narrow definition of revenues. The broad definition includes revenues having origins in banks’ expansion of the money supply (in particular, revenues from new debts). Referring to this broad notion we find that the sum of these revenues has two sources: (1) revenues which public companies and investment funds receive from participating in the real economy (activities which aim to receive revenues from selling goods, services, and labor) and (2) the expansion of the money supply. The narrow definition includes only revenues from interest and from shares in public companies and investment funds. We find that the sum of these financial gains almost completely originates from revenues which public companies and investment funds receive from participating in the real economy.
    Keywords: Financial capital, revenues from financial capital, endogenous money, integrated ownership
    JEL: E1 E4 E5
    Date: 2020–03–27
  22. By: Kang, Kee-Youn; Jang, Inkee
    Abstract: We develop a dynamic model of debt contracts with adverse selection and belief updates. In the model, entrepreneurs borrow investment goods from lenders to run businesses whose returns depend on entrepreneurial productivity and common productivity. The entrepreneurial productivity is the entrepreneur's private information, and the lender constructs beliefs about the entrepreneur's productivity based on the entrepreneur's business operation history, common productivity history, and terms of the contract. The model provides insights on the dynamic and cross-sectional relation between firm age and credit risk, cyclical asymmetry of the business cycle, slow recovery after a crisis, and the constructive economic downturn.
    Keywords: Adverse selection, Bayesian learning, Debt contracts, Belief update
    JEL: C78 D82 E44 G0
    Date: 2020–02–01
  23. By: Morchio, Iacopo; Moser, Christian
    Abstract: We assess the sources and consequences of the gender pay gap using a combination of theory and measurement. We start by documenting three empirical facts. First, women are more likely than men to work at low-paying employers. Second, for women as for men, pay is not the sole determinant of workers' revealed-preference rankings of employers. Third, both pay and the revealed-preference rank differ between women and men within the same employer. To interpret these facts, we develop an empirical equilibrium search model featuring endogenous gender differences in pay, amenities, and recruiting intensities across employers. The estimated model suggests that compensating differentials explain one fifth of the gender gap, that there are significant output and welfare gains from eliminating gender differences, and that an equal-pay policy fails to close the gender pay gap.
    Keywords: Worker and Firm Heterogeneity, Misallocation, Compensating Differentials, Discrimination, Empirical Equilibrium Search Model, Linked Employer-Employee Data
    JEL: E24 E25 J16 J31
    Date: 2018–05–11
  24. By: Freitas, Bruno
    Abstract: We show that the labour share of income is an important factor affecting the mechanisms behind fiscal consolidation programs, thus requiring consideration when evaluating fiscal multipliers across countries. We calibrate a life-cycle, overlapping generations model to match key characteristics of different European economies and evaluate the recessive impacts of fiscal consolidation programs. We find a positive relationship between the labour share and the impact fiscal multipliers generated by our model. This result directly follows from the higher weight of labour on production and the lower opportunity cost of leisure present in economies with a higher labour share. Following the impact period, the relationship between the labour share and the fiscal multipliers is dependent on the type of fiscal instrument employed in the consolidation.
    Keywords: Fiscal Consolidation, Labour Share, Fiscal Multipliers, Public Debt
    JEL: D33 E21 E62 H31
    Date: 2020–01
  25. By: Fanti, Lucrezia; Zamparelli, Luca
    Abstract: We analyze the paradox of thrift in the two-sector Kaleckian growth model. We consider an economy with one consumption and one investment good, and differential sectoral mark-ups. We show that when the investment function depends on aggregate capacity utilization and on the aggregate profit share (the Bhaduri-Marglin investment function) the paradox of thrift in its growth version may fail if mark-ups are higher in the investment good sector. In this case, the reduction in the saving rate produces a reallocation of economic activity towards the investment good sector; the aggregate profit share rises and its positive effect on investment may offset the reduction in average capacity utilization if investment is relatively more sensitive to profitability than to the level of activity.
    Keywords: two-sector growth model, paradox of thrift, Bhaduri-Marglin investment function
    JEL: D33 E11
    Date: 2020–03–21
  26. By: Coelho, José
    Abstract: In the last decades, income inequality has been on the rise in the U.S. The growing skill premium suggests the pivotal role of skill-biased technological change (SBTC) in promoting the observed increase in inequality levels. In this context, labor income tax structures have been central to the policy debate. I develop an overlapping generations model to perform a welfare evaluation of Universal basic income (UBI) tax structures and verify how these interact with SBTC. I find that an UBI system would have improved social welfare in 2010 when compared to the existing tax system and determine that this result is primarily motivated by SBTC.
    Keywords: Income Inequality, Skill Premium, Optimal Taxation, Universal Basic Income
    JEL: E24 E62 H21
    Date: 2020–01–06
  27. By: Sergio Correia; Stephan Luck; Emil Verner
    Abstract: The COVID-19 outbreak has sparked urgent questions about the impact of pandemics, and associated countermeasures, on the real economy. Policymakers are in uncharted territory, with little guidance on what the expected economic fallout will be and how the crisis should be managed. In this blog post, we use insights from a recent research paper to discuss two sets of questions. First, what are the real economic effects of a pandemic—and are these effects temporary or persistent? Second, how does the local public health response affect the economic severity of the pandemic? In particular, do non-pharmaceutical interventions (NPIs) such as social distancing have economic costs, or do policies that slow the spread of the pandemic also reduce its economic severity?
    Keywords: non-pharmaceutical interventions; real effects; Pandemic
    JEL: N32 E0 N12 E32
    Date: 2020–03–27
  28. By: Chassamboulli, Andri (University of Cyprus); Gomes, Pedro Maia (Birkbeck, University of London)
    Abstract: We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as nepotism in hiring in the public sector, on unemployment and rent seeking. Conditional on inefficiently high public-sector wages, more nepotism in public-sector hiring lowers the unemployment rate because it limits the size of queues for public-sector jobs. Wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections.
    Keywords: public-sector employment, nepotism, public-sector wages, unemployment, queues
    JEL: E24 J31 J45 J64
    Date: 2020–03
  29. By: Masanao Itoh (President, Otsuma Women's University (E-mail:; Yasuko Morita (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Mari Ohnuki (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This monographic paper summarizes views held by the Bank of Japan (hereafter BOJ or the Bank) in the 1990s regarding economic and financial conditions as well as the conduct of monetary policy, based on materials compiled during the period mainly in its Archives. The following points were confirmed in writing this paper. First, throughout the 1990s, the Bank's thinking behind the conduct of monetary policy had shifted toward emphasizing the transparency of its policy management. The basic background to this seemed to be the growing importance of dialogue with market participants, reflecting a change in the target for money market operations from official discount rate changes to the guiding of money market rates. In addition, the fact that the revised Bank of Japan Act (hereafter the Bank of Japan Act of 1997) came into effect in April 1998 under the two principles of independence and transparency accelerated the trend of attaching importance to transparency. Second, on the back of the emphasis on transparency, the Bank enhanced its communication by increasing its releases in the second half of the 1990s, particularly after the enforcement of the Bank of Japan Act of 1997. Thus, the materials, especially those referred to in the latter half of this paper, consist mainly of the Bank's releases. And third, in the 1990s, the Bank faced a critical situation in which it needed to conduct monetary policy while paying due attention to the functioning of the financial system. Therefore, this paper includes numerous references to the issues regarding the financial system, mainly the disposal of nonperforming loans.
    Keywords: Monetary policy conduct, Disposal of nonperforming loans, Financial system crisis, Bank of Japan Act of 1997, Zero interest rate policy
    JEL: E52 E58 N15 N25
    Date: 2020–03
  30. By: Toshiaki Ogawa (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: I construct a dynamic stochastic general equilibrium model to investigate how the liquidity management of different size banks responds to liquidity and loan demand shocks. My investigation shows the following. Compared with small banks, large banks tend to be net borrowers and thus more exposed to liquidity risk. In response to negative liquidity shocks, large banks decrease their credit supply while small ones increase theirs. In response to negative loan demand shocks, both large and small banks decrease their credit supply. Connecting these implications with the panel data, I argue that negative liquidity shocks served as the main driver of the Great Recession initially, and negative demand shocks did so later, and that demand shocks accounted for two thirds of the greatest fall in aggregate loans during the recession.
    Keywords: Great Recession, Bank liquidity management, Occasionally binding constraints, Heterogeneous bank model, General equilibrium model
    JEL: E00 G01 G18 G20 G21
    Date: 2020–03
  31. By: Gara Afonso; Kyungmin Kim; Antoine Martin; Ed Nosal; Simon M. Potter; Sam Schulhofer-Wohl
    Abstract: Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007–09 financial crisis. We find that the optimal level of reserve supply likely lies somewhere between scarce and abundant reserves, thus highlighting the benefits of implementation with what could be called "ample" reserves. The Federal Reserve's announcement in October 2019 that it would maintain a level of reserve supply greater than the one that prevailed in early September is consistent with the implications of our framework.
    Keywords: monetary policy implementation; federal funds market; ample reserve supply
    JEL: E42 E58
    Date: 2020–01–02
  32. By: Heise, Arne
    Abstract: This article takes an in-depth look at post-Keynesianism as a paradigmatic al-ternative to the dominant neoclassical mainstream. It quickly becomes clear that post-Keynesianism is not a unified school of thought, but rather an assortment of theoretical approaches that share certain methodological and epistemological similarities and characteristic postulates. The Article does not attempt to de-scribe the full array of Kaleckian, Kaldorian and Sraffian variants of post-Keynesian theory but instead analysis the paradigmatic and formal structure of one particular form of post-Keynesianism, the monetary theory of production in order to reconstruct these characteristic postulates from the axiomatic core of post-Keynesianism. It then sets out the theory of market participation, an alter-native theory of economic policy that builds on monetary production economics.
    Keywords: post-Keynesianism, heterodox economics, neoclassical economics, paradigms
    JEL: B41 B50 B59 E11 E12 E60
    Date: 2019
  33. By: Kuikeu, Oscar
    Abstract: The difficulty to have a common monetary policy and idiosyncratic national fiscal policies, for a monetary area, have been solved in cfa franc zone? This is the main question of this paper. In fact, we test here fiscal policies convergence hypothesis in CEMAC. Globally speaking, we will develop in the one hand an non parametric approach but mainly in the other hand a panel data approach (the panel data unit root tests). The results validate the fiscal policies convergence hypothesis in CEMAC.
    Keywords: CEMAC, fiscal policy, convergence, non parametric estimation, panel data
    JEL: C32 E62
    Date: 2020–03–22
  34. By: Baldi, Guido; Forster, Stephan
    Abstract: Models of political budget cycles assume that politicians use fiscal policy to increase their chances of re-election. However, empirical results for advanced economies provide ambiguous support for the existence of such electoral cycles. Also, studies focusing on the regional or local level of advanced economies have found a variety of different results. In this paper, we use data at the sub-federal level of Switzerland from 1978 through 2015 to test for the presence of political budget cycles. Swiss regions called cantons are highly autonomous with regard to budgetary policy and have established direct democratic systems with frequent referendums that often affect budgetary issues. In most cantons, there are fiscal policy rules that restrict the budgetary leeway of governments. Against the backdrop of public discussions in several European countries on adopting more direct democratic elements, the Swiss experience on political budget cycles provides an interesting case study. Overall, the system of government is designed to foster consensus seeking and gradual adjustment. These features should make the short-run opportunistic or partisan use of fiscal policy less likely in Swiss cantons. Rather surprisingly, however, we find at least some evidence for an electoral cycle in government spending. For government revenue or the overall budget, our empirical results do not point to an electoral cycle.
    Keywords: Political budget cycle, fiscal policy, direct democracy
    JEL: D72 E62 H62
    Date: 2020–04
  35. By: Luigi Ventura (Department of Economics and Law, Sapienza University of Rome); Charles Yuji Horioka (Research Institute for Economics and Business Administration, Kobe University, Osaka University, Asian Growth Research Institute, and National Bureau of Economic Research)
    Abstract: In this paper, we analyze the wealth accumulation and saving behavior of the retired elderly in Italy using micro data from the "Survey of Italian Households' Income and Wealth," a panel survey of households conducted every two years by the Bank of Italy. We find that, on average, the retired elderly in Italy are decumulating their wealth (dissaving) but that their wealth decumulation rates are much slower than expected. Moreover, we also find that more than 40 percent of the retired elderly in Italy are continuing to accumulate wealth and that more than 80 percent are doing positive amounts of saving. Thus, the Wealth Decumulation Puzzle (the tendency of the retired elderly to decumulate their wealth more slowly than expected) appears to apply in the case of Italy, as it does in most other countries, before as well as after the Global Financial Crisis. Moreover, our regression analysis of the determinants of the wealth accumulation and saving behavior of the retired elderly in Italy suggests that the lower than expected wealth decumulation rates and dissaving of the retired elderly in Italy is due largely to bequest motives and saving for precautionary purposes, especially the former.
    Keywords: Aged; Bequests; Bequest intentions; Bequest motive; Elderly; Household saving; Italy; Inheritances; Intergenerational transfers; Life cycle hypothesis; Life cycle model; Precautionary saving; Retired elderly; Saving; Wealth; Wealth accumulation; Wealth decumulation; Wealth decumulation puzzle
    JEL: D12 D14 D64 E21 J14
    Date: 2020–04
  36. By: Daniel J. Lewis; Karel Mertens; James H. Stock
    Abstract: Economists are well-practiced at assessing real activity based on familiar aggregate time series, like the unemployment rate, industrial production, or GDP growth. However, these series represent monthly or quarterly averages of economic conditions, and are only available at a considerable lag, after the month or quarter ends. When the economy hits sudden headwinds, like the COVID-19 pandemic, conditions can evolve rapidly. How can we monitor the high-frequency evolution of the economy in “real time”?
    Keywords: COVID-19; nowcasting; real activity; high frequency
    JEL: C53 E32 I12 E2
    Date: 2020–03–30
  37. By: Ekinci, Mehmet Fatih
    Abstract: Macroprudential policies have become essential tools for the policy makers in order to maintain financial stability. Effectiveness of these policies has been studied by a growing literature with an emphasis on the impact of the policies on target variables such as credit growth and asset price appreciations. In this paper, we investigate the impact of macroprudential policies on the current account balance considering the link between external imbalances and financial stability. Building on a standard empirical current account model, we show that usage of an additional macroprudential instrument is associated with an improvement in the current account balance. Moreover, our results indicate that positive impact of macroprudential policy measures on the current account balance is stronger in the deficit countries compared to the surplus countries.
    Keywords: Global Imbalances, Current Account Balance, Macroprudential Policies and Panel Data.
    JEL: C33 E58 F32 G18 G28
    Date: 2020–04–05
  38. By: Bakari, Sayef; Fakraoui, Nissar; Mabrouki, Mohamed
    Abstract: This article has examined the contribution of domestic investment, exports and imports on economic growth in Peru. To achieve this objective, annual data for the period between 1970 and 2017 were used and tested based on Johansen co integration analysis and the vector error correction model. According to the results of the analysis, it has been determined that domestic investment, exports and imports have not any effect on economic growth in the short run and in the long run. These outcomes manifest that trade openness and domestic investments are not beholden as a provenance of economic growth in Peru over this extended period and suffer from many issues and a miserable economic organization.
    Keywords: Domestic investment, Imports, Exports, Economic Growth, Peru
    JEL: E2 E22 F11 F13 F14 O4 O47
    Date: 2020–01–01
  39. By: Bardaka, Ioanna; Bournakis, Ioannis; Kaplanoglou, Georgia
    Abstract: Departing from the expansionary austerity literature, this study assesses empirically whether fiscal consolidation propagates changes in the supply side of the economy that can potentially influence total factor productivity (TFP). Using a panel dataset of 26 OECD countries over the period 1980–2016 and employing panel vector autoregressive and panel cointegration techniques, we present evidence of both short-run and long-run negative effects of fiscal consolidation on TFP. The short-run impact is disproportionately more damaging for the TFP of low debt countries, while, contrary to the expansionary austerity thesis, our empirical results would advise against spending-driven fiscal consolidation, since such consolidation undermines capacity, due to the importance of government spending in shaping productive capital. Our results have serious policy implications for the implementation and design of fiscal adjustment programmes.
    Keywords: Total factor productivity, Fiscal consolidation, OECD countries, Austerity, Growth
    JEL: C23 E62 H68
    Date: 2020–02–19
  40. By: Richhild Moessner; William Anthony Allen
    Abstract: In March 2020, the Federal Reserve enhanced its existing swap lines with foreign central banks, and introduced additional temporary swap lines with other central banks, in order to support the smooth functioning of U.S. dollar funding markets during the coronavirus epidemic. The Federal Reserve also announced purchases of US Treasuries and agency mortgage bonds in order to support the smooth functioning of the Treasury and mortgage-backed securities market. We analyse the motivations for and the effects of these measures.
    Keywords: Central bank swap lines, government bonds
    JEL: E52 E58
    Date: 2020–03
  41. By: Adam Guren; Alisdair McKay; Emi Nakamura; Jón Steinsson
    Abstract: Recent empirical work uses variation across cities or regions to identify the effects of economic shocks of interest to macroeconomists. The interpretation of such estimates is complicated by the fact that they reflect both partial equilibrium and local general equilibrium effects of the shocks. We propose an approach for recovering estimates of partial equilibrium effects from these cross-regional empirical estimates. The basic idea is to divide the cross-regional estimate by an estimate of the local fiscal multiplier, which measures the strength of local general equilibrium amplification. We apply this approach to recent estimates of housing wealth effects based on city-level variation, and derive conditions under which the adjustment is exact. We then evaluate its accuracy in a richer general equilibrium model of consumption and housing. The paper also reconciles the positive cross-sectional correlation between house price growth and construction with the notion that cities with larger price volatility have lower housing supply elasticities using a model in which housing supply elasticities are more dispersed in the long run than in the short run.
    JEL: E20 R21
    Date: 2020–03
  42. By: Simplice A. Asongu (Yaounde, Cameroon); Rexon T. Nting (University of Wales, London, UK); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria)
    Abstract: Purpose- In this study, we test the so-called ‘Quiet Life Hypothesis’ (QLH) which postulates that banks with market power are less efficient. Design/methodology/approach- We employ instrumental variable Ordinary Least Squares, Fixed Effects, Tobit and Logistic regressions. The empirical evidence is based on a panel of 162 banks consisting of 42 African countries for the period 2001-2011. There is a two-step analytical procedure. First, we estimate Lerner indices and cost efficiency scores. Then, we regress cost efficiency scores on Lerner indices contingent on bank characteristics, market features and the unobserved heterogeneity. Findings- The empirical evidence does not support the QLH because market power is positively associated with cost efficiency. Originality/value- Owing to data availability constraints, this is one of the few studies to test the QLH in African banking.
    Keywords: Finance; Savings banks; Competition; Efficiency; Quiet life hypothesis
    JEL: E42 E52 E58 G21 G28
    Date: 2019–01
  43. By: De Koning, Kees
    Abstract: The corona virus occurrence has and will dramatically change the economic outlook for many countries in the world, including the one for the U.S. Not until a vaccine is produced and accepted as safe for users, will this threat continue to live on. Currently consumer preferences are rapidly changing, including avoiding local and international travel. Supply chains are and will also be seriously affected as some of the most important exporting countries, (China and South Korea) are bearing the brunt of the virus infections. What has this to do with the subject of this paper: “How home equity can be used to fight a recession”. At first glance little, but as will be explained in the paper actually quite a lot. The likely results of the corona virus in economic terms will be company closures and/or staff reductions, which will be reflected in reduced earnings, both for companies and individual households leading to higher unemployment levels. Obligations on home mortgages will for quite a few households become a very heavy burden. Home mortgage obligations are currently not linked to income fluctuations, neither in the U.S., nor in any other country. Secondly the concept of the “Bank of Mums and Dads” can only apply to households where the Mums and Dads are in a sound financial position themselves. The worldwide low interest rates and the expected reduction in pension payouts as a result of falling stock markets will reduce the scope for such financial assistance for many parents. The proposals, as set out in this paper, directly links income levels with the ability to service mortgage debt. The second and probably even more important element is to extend the concept of the “Bank of Mums and Dads” to a new government entity: “A Mortgage Debt Stability Fund” (MDSF). The aim of the MDSF is to facilitate the temporary withdrawal of home equity as and when macro economic situations require it to do so. An MDSF helps fight recessions. The currently applied system turns such home equity withdrawal into a loan rather than a cash withdrawal from personal bank accounts. The latter involves no charges. The MDSF can have the latter capacity. Federal Reserve funding to the MDSF (another form of QE) can act as the National Bank of Mums
    Keywords: Recession, home mortgages, home equity,corona virus, Mortgage Debt Stability Fund (MDSF)
    JEL: D14 E3 E58 E6
    Date: 2020–03–09
  44. By: Gabriel Jiménez (Banco de España); José-Luis Peydró (Universitat Pompeu Fabra, CREI, and Barcelona GSE); Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros); Jesús Saurina (Banco de España)
    Abstract: We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using its continuous credit scoring system, firm-level scores, and credit register data. Compared to privately-owned banks, the state-owned bank faces worse applicants, softens (tightens) its credit supply to unobserved (observable) riskier firms, and has much higher defaults. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive.
    Keywords: Real effects of public credit, credit scoring, credit crunch, crowding-in, adverse selection, state-owned banks.
    JEL: E44 G01 G21 G28
    Date: 2018–10
  45. By: José L. Torres (Department of Economics, University of Málaga)
    Abstract: This paper studies the macroeconomic implications of the distribution of the social security tax between employees and employers using a general equilibrium framework. We calibrate a Dynamic General Equilibrium model for the average of OECD countries and find that increasing the share of social security contributions paid by employers has a positive effect on economic activity. Whereas raising the employer?s share increases the labor cost for ?firms and reduces the equilibrium gross wage, conversely, workers? net labor income increases, increasing employment and output. The response of the economy to the change in the distribution of social security contributions between employees and employers depends on how the total labor tax wedge changes, which is also affected by the labor income tax and the consumption tax, as distortionary effects from one tax are not independent from the other taxes driving wages? purchasing power.
    Keywords: Social Security Contributions; Employees Contributions; Employers Contributions; Dynamic General Equilibrium models
    JEL: E20 H20 H22 H55
    Date: 2020–01
  46. By: Hauptmeier, Sebastian; Holm-Hadulla, Fédéric; Nikalexi, Katerina
    Abstract: We study the impact of monetary policy on regional inequality using granular data on economic activity at the city- and county-level in Europe. We document pronounced heterogeneity in the regional patterns of monetary policy transmission. The output response to monetary policy shocks is stronger and more persistent in poorer regions, with the difference becoming particularly pronounced in the extreme tails of the distribution. Regions in the lower parts of the distribution exhibit hysteresis, consisting of long-lived adjustments in employment and labor productivity in response to the shocks. As a consequence, policy tightening aggravates regional inequality and policy easing mitigates it. JEL Classification: C32, E32, E52
    Keywords: local projections, monetary policy, quantile regressions, regional heterogeneity
    Date: 2020–03
  47. By: Stephen T. Onifade (Selçuk University, Konya,Turkey); Ahmet Ay (Selçuk University, Konya,Turkey); Simplice A. Asongu (Yaoundé, Cameroon); Festus V. Bekun (Istanbul Gelisim University, Istanbul, Turkey)
    Abstract: The recent exacerbation of unemployment crisis in Nigeria stands to be a serious threat to both socio-economic stability and progress of the country just as the report from the nation’s bureau of statistics shows that at least over 8.5 million people had no gainful employment at all as at the last quarter of the year 2017. It is on the above premise, that the present study explores the link between trade and unemployment for the case of Nigeria with the intention of exploring how the unemployment crisis has been impacted within the dynamics of the country’s trade performance. The empirical evidence shows that the nation’s terms of trade were insignificant to unemployment rate while trade openness and domestic investment, on the other hand, have significant opposing impacts on unemployment in Nigeria over the period of the study. Further breakdowns from the empirical analysis also revealed that the Philips curves proposition is valid within the Nigerian economic context while the evidences for the validity of Okun’s law only exist in the short-run scenario. Based on the empirical results, we recommend that concerted effort should be geared toward stimulating domestic investment by providing adequate financial and infrastructural facilities that will promote ease of doing business while utmost precautions are taken to ensure that unemployment crisis is not exacerbated when combating inflation in the economy in the wake of dynamic trade relations.
    Keywords: Nigeria; Unemployment; Trade; Phillips Curves; Okun’s law
    JEL: E23 F21 F30 O16 O55
    Date: 2019–01
  48. By: Gyasi, Genevieve
    Abstract: The study employed the bounds test (ARDL) approach to cointegration to examine the long run and short run relationships between macroeconomic variables, fiscal deficit and economic growth in Morocco as the case study. The results show that fiscal deficit affect economic growth in the Moroccan economy in the long run as in the equilibrium correction was found to be significantly quick.
    Keywords: fiscal deficit economic growth
    JEL: E62 E66
    Date: 2020–03–04
  49. By: Mansour-Ichrakieh, Layal
    Abstract: This paper is the first econometric study that investigates empirically the impact of Israeli Geopolitical Risks on the Lebanese financial market. We run Vector Autoregression model, Granger causality tests, generalized impulse response functions and Variance Decomposition Analysis, to assess the impacts of Israeli Geopolitical Risks (GPRs) on the Lebanese financial stability, on the foreign reserves’ depletion and the economic activity. To measure the Lebanese financial stability, we consider the Lebanese financial stress index that was initially calculated by Ishrakieh et al. (2019, 2020). The geopolitical risks index is measured by taking the continuous variable calculated on a monthly basis to best suit time series analyses, calculated by Dario Caldara & Matteo Iacoviello in 2018. This paper illustrates many novelties such as incorporating the Lebanese financial stress index for the first time in an empirical-econometric study. Also, the adequate level of foreign reserves (also known as international reserves) is taken by calculating the ratio of international reserves to foreign currency deposits as a more appropriate measurement for a dollarized country. Similarly, to measure the economic activity and the business cycle on a monthly basis, we consider the employment in private sector as a better proxy than traditional variables considered in previous studies. Results show that if any financial crisis occurs in Lebanon, an economic recession is more likely to follow within six months. Also, we find that foreign reserves ‘shocks may cause a financial crisis thus economic recession. Finally, we conclude that Israeli GPRs are somehow a destabilizer multiplier: they trigger financial instability and economic recession in Lebanon. They cause international reserves’ depletion, threaten the Lebanese financial market and provoke economic recession. To sustain financial market stability, policy makers should not only accumulate sufficient level of foreign reserves, but also, they have to avoid Israeli-Hezbollah tensions.
    Keywords: Financial crises, geopolitical risks, economic activity, Lebanon, Israel, VAR, Granger Causality.
    JEL: C32 F51 G01
    Date: 2020–03–16
  50. By: Don Harding
    Abstract: We study the puzzle that econometric tests reject the great ratios hypothesis but economic growth theorists and quantitative macroeconomic model builders continue to embed that hypothesis in their work. We develop an econometric framework for the great ratios hypothesis and apply that framework to investigate the commonly used econometric techniques that produce rejection of the great ratios hypothesis. We prove that these methods cannot produce valid inference on the great ratios hypothesis. Thus we resolve the puzzle in favour of the growth theorists and quantitative macroeconomic model builders. We apply our framework to investigate the econometric basis for an influential paper that uses unit root and cointegration tests to reject the great ratios hypothesis for a vector that comprises consumption, financial wealth and labour income.
    Keywords: Great Ratios Hypothesis Cointegration Likelihood Ratio Inference
    JEL: C12 C18 C32 E00
    Date: 2020–03
  51. By: Esteban García-Miralles (University of Copenhagen); Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Roberto Ramos (Banco de España)
    Abstract: In this paper, we use administrative data on tax returns to characterize the distributions of before and after-tax income, tax liabilities, and tax credits in Spain for individuals and households. We use the most recent available data, 2015 for individuals and 2013 for households, but also discuss how the income distribution and taxes have changed since 2002. We also estimate effective tax functions that capture the underlying heterogeneity of the data in a parsimonious way. These parametric functions can be used to calculate after-tax incomes in surveys where this information is not directly available, and can also be used in quantitative work in macroeconomics and public finance.
    Keywords: Personal income tax, tax functions, income distribution.
    JEL: E62 H24 H31
    Date: 2019–03
  52. By: Krustev, Georgi; Casalis, André
    Abstract: We study the cyclical dynamics of consumption in the euro area (EA) and the large EA countries by distinguishing durable from nondurable expenditures. We adopt a theoretical partial equilibrium framework to justify the identification strategy of our empirical model, a time-varying parameter structural vector autoregression (TVP-SVAR). Following the main insight from the theoretical model, that liquidity constraints induce important interactions between durables and nondurables, we distinguish durable-specific demand and supply shocks, while taking into account monetary and credit conditions. Our main findings are: (i) durables react faster and more strongly than nondurables after monetary shocks in the euro area and in the largest EA countries, a confirmation of an outcome commonly reported for the US; (ii) there is a large degree of cross-country heterogeneity in how different factors (including durable-specific ones) explain consumption; (iii) the strength of spillovers from durable to nondurable consumption, as predicted by theory, is empirically correlated with how much households across countries are likely to be liquidity constrained. JEL Classification: C11, C32, D11, E21, E32
    Keywords: consumption, durable goods, sign restrictions, SVARs
    Date: 2020–03
  53. By: Perekunah B. Eregha (Pan-Atlantic University, Lekki-Lagos. Nigeria); Arcade Ndoricimpa (University of Burundi, Burundi)
    Abstract: The study applies a BEKK GARCH-M model to examine the effect of uncertainty on the levels of inflation and output growth in Nigeria. The results suggest a significant positive effect of inflation uncertainty on the level of inflation, supporting the Cukierman and Meltzer (1986) hypothesis. In addition, uncertainty about inflation is found to be detrimental to output growth, supporting the Friedman’s (1977) hypothesis of a negative effect of inflation uncertainty on output growth. Uncertainty about growth does not have a significant effect on both the levels of inflation and output growth. The evidence in this study suggests that Nigeria should put in place policies minimizing inflation uncertainty to avoid its adverse effects on the economy. In addition, the independence relationship between output growth and its uncertainty in Nigeria suggest that they can be treated separately as suggested by business cycle models.
    Keywords: Inflation, Inflation Uncertainty, Output, Output Uncertainty, BEKK GARCH-M
    JEL: C22 E0
    Date: 2019–01
  54. By: Janke, Katharina (Lancaster University); Lee, Kevin (University of Nottingham); Propper, Carol (Imperial College London); Shields, Kalvinder (University of Melbourne); Shields, Michael A. (Monash University)
    Abstract: We estimate a model that allows for dynamic and interdependent responses of morbidity in different local areas to economic conditions at the local and national level, with statistical selection of optimal local area. We apply this approach to quarterly British data on chronic health conditions for those of working age over the period 2002-2016. We find strong and robust counter-cyclical relationships for overall chronic health, and for five broad types of health conditions. Chronic health conditions therefore increase in poor economic times. There is considerable spatial heterogeneity across local areas, with the counter-cyclical relationship being strongest in poorer local areas with more traditional industrial structures. We find that feedback effects are quantitatively important across local areas, and dynamic effects that differ by health condition. Consequently, the standard panel data model commonly used in the literature considerably under-estimates the extent of the countercyclical relationship in our context.
    Keywords: macroeconomic conditions, health, morbidity, dynamics, heterogeneity, aggregation
    JEL: J10 J21 C33 E32
    Date: 2020–03
  55. By: Michael McCracken; Serena Ng
    Abstract: In this paper we present and describe a large quarterly frequency, macroeconomic database. The data provided are closely modeled to that used in Stock and Watson (2012a). As in our previous work on FRED-MD, our goal is simply to provide a publicly available source of macroeconomic “big data” that is updated in real time using the FRED database. We show that factors extracted from this data set exhibit similar behavior to those extracted from the original Stock and Watson data set. The dominant factors are shown to be insensitive to outliers, but outliers do affect the relative influence of the series as indicated by leverage scores. We then investigate the role unit root tests play in the choice of transformation codes with an emphasis on identifying instances in which the unit root-based codes differ from those already used in the literature. Finally, we show that factors extracted from our data set are useful for forecasting a range of macroeconomic series and that the choice of transformation codes can contribute substantially to the accuracy of these forecasts.
    JEL: C30 C34 E01
    Date: 2020–03
  56. By: Ian Crawford (Nuffield College, University of Oxford); J. Peter Neary (University of Oxford, CEPR and CESifo)
    Abstract: Changes in product characteristics on the extensive margin are an important and hitherto neglected dimension of quality change. Standard techniques for qualityadjusting price indices cannot handle such changes satisfactorily, which leads to an economically and statistically significant bias in the measurement of prices and real output. We combine insights from the theories of index numbers and demand for characteristics to develop a new method for incorporating changes on the extensive characteristic margin. Applied to U.K. data on new car sales, our method leads to revisions in estimated inflation rates for this commodity group that are both plausible and quantitatively important.
    Keywords: Extensive and Intensive Margins of Consumption; Characteristics Model; Quality Change; Characteristics Sato-Vartia-Feenstra Index Number.
    JEL: C90 C91 C92 D03
    Date: 2019–08–12
  57. By: Yunus Aksoy; Henrique S. Basso; Carolyn St Aubyn
    Abstract: We document systematic and significant time variation in US lifecycle non-durable consumption profiles. Consumption profiles have consistently become flatter: differences in consumption across generations have decreased. Pooling data across different periods to identify lifecycle profiles masks relevant time variations and may artificially generate hump-shaped consumption age profiles. The main driver behind lifecycle consumption variations are lifecycle income changes, which display similar flattening. Employing a lifecycle model we show changes in income are sufficient to match the movements in consumption. The contributions of credit, housing and interest rates changes are quantitatively small.
    Keywords: age profile of consumption, age profile of income, consumption heterogeneity, time variation, pooling
    JEL: E21 J11
    Date: 2020
  58. By: Neira, Julian; Singhania, Rish
    Abstract: How does corporate taxation affect the life cycle of firms? A change in profit-tax rates affects the life cycle of firms through wages and through firm selection. We quantify these effects by looking at the average size of young and mature US firms 30 years after the Reagan Tax Cuts. We disentangle the wage and the selection effects using a model of firm dynamics. We find that the wage effect of profit tax cuts is about six times stronger than the selection effect. A change in population growth affects average firm size by changing the composition of surviving firms. We find that the effect of declining population growth on average firm size is three times stronger for mature firms than for young firms.
    Keywords: Incidence; Corporate Taxation; Firm Lifecycle; Calibration
    JEL: E13 H22 H25 H32 L16 L26
    Date: 2020–03–19
  59. By: Christopher Busch (Universitat Autonoma de Barcelona); Dirk Krueger (University of Pennsylvania); Alexander Ludwig (SAFE, University of Mannheim); Irina Popova (Goethe University Frankfurt); Zainab Iftikhar (Goethe University Frankfurt)
    Abstract: In 2015-2016 Germany experienced a wave of predominantly low-skilled refugee immigration. We evaluate its macroeconomic and distributional effects using a quantitative overlapping generations model calibrated using German micro data to replicate education and productivity differentials between foreign born and native workers. Workers are modelled as imperfect substitutes in aggregate production leading to endogenous wage differentials. We simulate the dynamic effects of this refugee wave, with specific focus on the welfare impact on low skilled natives. Our results indicate that the small losses this group suffers can be compensated by welfare gains of other parts of the native population.
    Keywords: immigration, refugees, overlapping generations, demographic change
    JEL: F22 E20 H55
    Date: 2020–03
  60. By: International Monetary Fund
    Abstract: Belgium has been without a full-fledged government since December 2018, which has made it difficult to make progress toward addressing long-standing challenges stemming from high public and rising private debt burdens, an aging population, slowing productivity growth, and climate change. The global coronavirus pandemic represents a new and urgent challenge.
    Date: 2020–03–31
  61. By: Gomes, Pedro Maia (Birkbeck, University of London); Wellschmied, Felix (Universidad Carlos III de Madrid)
    Abstract: The size of the public sector in terms of employment and compensation has a strong life-cycle dimension. We establish a quantitative partial-equilibrium life-cycle model with incomplete markets, private and public sectors, and risk-averse workers, and use it to (i) calculate three dimensions of public-sector compensation: wage, pension, and job-security premia, and (ii) quantify the effects of harmonizing the compensation in the two sectors. We find that the job-security and pension's premia are important forms of compensation to public-sector workers. Harmonizing the characteristics of public employment with those of the private sector would lower the unemployment rate and reduce government costs.
    Keywords: public-sector employment, public-sector wages, life cycle, unemployment, retirement, pensions, job security
    JEL: J45 E24 H30 H55
    Date: 2020–03
  62. By: International Monetary Fund
    Abstract: Board’s consideration on March 18, 2020. The staff report reflects discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten authorities in November 2019 and is based on the information available as of March 3, 2020. It focuses on Curaçao and Sint Maarten’s near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has significantly worsened the outlook and greatly amplified uncertainty and downside risks around it. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Curaçao and Sint Maarten and globally.
    Date: 2020–04–01
  63. By: Simplice A. Asongu (Yaounde, Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Vanessa S. Tchamyou (Yaoundé, Cameroon)
    Abstract: The study assesses the role of globalization-fuelled regionalization policies on financial allocation efficiency in four economic and monetary regions in Africa for the period 1980 to 2008. Banking system and financial system efficiency proxies are used as dependent variables whereas seven bundled and unbundled globalization variables are employed as independent indicators. The bundling exercise is achieved by means of principal component analysis while the empirical evidence is based on interactive Fixed Effects regressions. The following findings are established. First, financial allocation efficiency is more sensitive to financial openness compared to trade openness and most sensitive to globalization. The relationship between allocation efficiency and globalization-fuelled regionalization policies is: (i) Kuznets or inverted U-shape in the UEMOA and CEMAC zones (evidence of decreasing returns to allocation efficiency from globalization-fuelled regionalization) and (ii) U-shape overwhelmingly in the COMESA and scantily in the EAC (increasing returns to allocation efficiency from globalization-fuelled regionalization). Established shapes are relevant to specific globalization dynamics within regions. Economic and monetary regions are more prone to surplus liquidity than purely economic regions. Policy implications and measures of fighting surplus liquidity are discussed.
    Keywords: Globalization; Financial Development; Regional Integration; Panel; Africa
    JEL: A10 D60 E40 O10 P50
    Date: 2019–01
  64. By: Sinem Kilic Celik (Prospects Group, World Bank); M. Ayhan Kose (Prospects Group, World Bank; Brookings Institution; CEPR; CAMA); Franziska Ohnsorge (Prospects Group, World Bank; CEPR; CAMA)
    Abstract: Global potential output growth has been flagging. At 2.5 percent in 2013-17, post-crisis potential growth is 0.5 percentage point below its longer-term average and 0.9 percentage point below its average a decade ago. Compared with a decade ago, potential growth has declined 0.8 percentage point in advanced economies and 1.1 percentage point in emerging market and developing economies. The slowdown mainly reflected weaker capital accumulation but is also evidence of decelerating productivity growth and demographic trends that dampen labor supply growth. Unless countered, these forces are expected to continue and to depress global potential growth further by 0.2 percentage point over the next decade. A menu of policy options is available to help reverse this trend, including comprehensive policy initiatives to lift physical and human capital and to encourage labor force participation by women and older workers.
    Keywords: Potential growth, potential output, advanced economies, emerging market and developing economies.
    JEL: O40 O47 E20
    Date: 2020–04
  65. 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.
    JEL: E21 H51 I10
    Date: 2020–03
  66. By: Òscar Jordà; Sanjay R. Singh; Alan M. Taylor
    Abstract: How do major pandemics affect economic activity in the medium to longer term? Is it consistent with what economic theory prescribes? Since these are rare events, historical evidence over many centuries is required. We study rates of return on assets using a dataset stretching back to the 14th century, focusing on 12 major pandemics where more than 100,000 people died. In addition, we include major armed conflicts resulting in a similarly large death toll. Significant macroeconomic after-effects of the pandemics persist for about 40 years, with real rates of return substantially depressed. In contrast, we find that wars have no such effect, indeed the opposite. This is consistent with the destruction of capital that happens in wars, but not in pandemics. Using more sparse data, we find real wages somewhat elevated following pandemics. The findings are consistent with pandemics inducing labor scarcity and/or a shift to greater precautionary savings.
    Keywords: depressions; natural rate; local projections; wars; real interest rate; pandemics; COVID-19
    JEL: E43 F41 N10 N30 N40
    Date: 2020–03–26
  67. By: International Monetary Fund
    Abstract: This Staff Report was prepared by a staff team of the IMF for the Executive Board’s consideration on March 24. The staff report reflects discussions with the Kuwaiti authorities in January 2020 and is based on the information available as of March 2. It focuses on Kuwait’s near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The Supplementary Information is based on the information available as of March 12. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Kuwait and globally.
    Date: 2020–03–30
  68. By: Ojo, Marianne; DiGabriele, Jim; Serrano Caballero, Enriqueta; Joshi, Amol; Lahiri, Nandini; Im, Hemmatian
    Abstract: The financial markets have regained grounds following losses in recent weeks. However the current global outlook remains largely uncertain. The decision of the Federal Reserve to announce its emergency rate cut on the 3rd March 2020, the first since the Financial Crisis, sent shock waves amongst investors with the Dow tumbling nearly 1,000 points following what was regarded as the “surprising” announcement . Even though stocks have fluctuated in recent weeks, stock markets have rebound since the Tuesday announcement. Recent events have demonstrated the importance of engaging technologies and techniques to address matters of global significance – particularly those which impact economically, socially and environmentally, in a holistic and futuristic manner – taking into account the interests of future generations. Humanity and global relationships are shaped and defined, not just through the manner in which global issues are addressed, but the techniques and responsibilities towards others, at a global level also, in deploying such techniques. (The show cased chapter Conflict Framing, Multilateral Leadership, and Coalition Formation in International Trade Disputes, 1995 – 2011 is funded in part by a grant from the Ewing Marion Kauffman Foundation). The major component of the volume "Rethinking Regulation and Monetary Policies: Recent Developments" accounting for 80 percent of the volume, cannot be highlighted/uploaded for copyright reasons)
    Keywords: interest rates, emergency rates, COVID-19, monetary policy, financial markets, emerging technologies
    JEL: E5 F2 F6 F62 F64 F65 K2 M4
    Date: 2020–03–06
  69. By: Ryo Kato; Tatsushi Okuda; Takayuki Tsuruga
    Abstract: Previous studies have stressed that inflation dynamics exhibit a substantial dispersion across sectors. Using US producer price data, we present evidence that sectoral inflation persistence is negatively correlated with market concentration, which is difficult to reconcile with the prediction of the standard model of monopolistic competition. To explain the data, we incorporate imperfect common knowledge into the monopolistic competition model introduced by Melitz and Ottaviano (2008). In the model, strategic complementarity among firms increases as market concentration decreases. Because higher strategic complementarity generates greater inflation persistence, our model successfully replicates the observed negative correlation between inflation persistence and market concentration across sectors.
    Date: 2020–03
  70. By: Perekunah B. Eregha (Pan-Atlantic University, Lekki-Lagos. Nigeria)
    Abstract: This study examines the effect of exchange rate regimes on Foreign Direct Investment (FDI) flow for WAMZ. The Arellano Panel Correction for Serial Correlation and Heteroskedaticity option of the Within Estimator for fixed effect panel data model as well as the Dynamic Panel Data Instrumental Variable Approach by Anderson and Hsiao (1981) for the countries selected based on data availability for the period 1980-2016 were used. The fixed exchange rate regime was found to hamper FDI flow in the zone while intermediate policy had a significantly positive effect in facilitating FDI flow during periods of declining foreign reserves and narrowing current account balance in WAMZ. This implies that the transmission of the effect of exchange rate regimes on FDI inflows depends on the positions of the foreign reserves and current account balance in the zone. Consequently, the fixed regime is not a good policy in periods of narrowing current account balance and depleting foreign exchange reserves. The study therefore recommends the need for monetary authorities to be cautious in managing their exchange rates especially in periods of depleting foreign reserves and narrowing current account so as not to deter the much needed FDI inflow.
    Keywords: Exchange Rate Regimes; Inflationary Expectation; Exchange rate uncertainty; Foreign Direct Investment Flow; Panel Data Analysis
    JEL: E31 F21 F31
    Date: 2019–01
  71. By: Gale, William; Gelfond, Hilary; Fichtner, Jason
    Abstract: We consider prospects for retirement saving for members of the millennial generation, who will be between ages 54 and 69 in 2050. Adequacy of retirement saving preparation among current and near-retirees is marked by significant heterogeneity, a characteristic that will likely hold for Millennials as well. In preparing for retirement, Millennials will have several advantages relative to previous generations, such as more education, longer working lives, and more flexible work arrangements, but also several disadvantages, including having to take more responsibility for their own retirement plans and marrying and bearing children at later ages. The millennial generation contains a significantly higher percentage of minorities than previous generations. We find that minority households have tended to accumulate less wealth than whites in the past, even after controlling for income, education, and marital status, and the difference appears to be growing over time for black households relative to whites. Whether these trends persist is central to understanding how the Millennials will fare in retirement.
    Keywords: Millennials, Saving, Retirement Security, Demographic Trends
    JEL: D14 E21 E6
    Date: 2018–12
  72. By: Yashin, Pete
    Abstract: Nonfinancial and financial capital conflated in modern economy. Using accounting approach we separated them and compared the corresponding total values of nonfinancial capital and wealth. We consider these values to be equal. This statement is named “law of conservation of real wealth”: real value of aggregate wealth is equal to the total value of nonfinancial assets. The law holds automatically by virtue of balance sheet identity, if financial assets’ value equal to the counterpart obligations securing them. However such equality can be violated when securities freely circulating in modern financial markets lose their link with corresponding obligations. The resulting difference is equal to the divergence between the aggregate wealth and total value of nonfinancial assets, which indicates a violation of the law in nominal terms. We consider this divergence as excess unsecured component of wealth, whereas the real wealth continues to match the nonfinancial assets’ value. Such unsecured wealth can only arise due to discrepancy between savings and investment, along with difference between total Haig–Simons income (including capital gains) and expenditures in real sector. It makes impossible to display correctly flows simultaneously with stocks. Deviations of securities' value from corresponding obligations commonly accepted as temporary. However, along with cyclical fluctuations the unsecured US financial assets value has been steadily growing since the 1980s, exceeding $11 trillion in 2016. We consider the observed nominal violation of the law of conservation of wealth is a consequence of unlimited capitalists’ enrichment aspirations. Marketable securities are the tools they use to embody such desire; the effect enhanced by the procedures of corporate mergers and acquisitions. Yet, the unsecured wealth inflate financial bubbles; its growth turns out a sufficient condition for wealth and income inequality rising. Then the aggregate consumer demand growth is hindered, and appetite for capital investment decreases. Unsecured component of capitalists’ profit is absorbed by an (unsecured) increase in the value of financial assets; it is not a source of capital investment; on the contrary, high financial returns contribute to crowding out investment from the real sector. Productivity growth slows down. Thus, increase in inequality reduces both aggregate demand and supply, which inhibits economic growth. US statistics confirms the above trends which led to the global crisis of 2007-2008. It has not cured the economy; unsecured wealth continues to grow increasing inequality, which dumps output growth. Black swans in 2020 have inspired inevitable arriving of new crisis.
    Keywords: capital; wealth; inequality; accounting identity; Haig–Simons income; crises;
    JEL: E01 G10
    Date: 2020–03–25
  73. By: Sedai, Ashish Kumar (Department of Economics, Colorado State University, Fort Collins, USA); Nepal, Rabindra (Department of Economics, University of Wollongong, Wollongong, Australia); Jamasb, Tooraj (Department of Economics, Copenhagen Business School)
    Abstract: Access to reliable energy is central to improvements in living standards and is a Sustainable Development Goal. This study moves beyond counting the electrified households and examines the effect of the hours of electricity households receives on their welfare. We hypothesize that additional hours of electricity have different effects on the poor, the middle income and the rich, as well as in rural and urban areas. The methods used are panel fixed effects instrumental variables, cross sectional fixed effects instrumental variables, and logistic regression with data from the Indian Human Development Survey 2005-2012. We focus on extensive and the intensity margins, i.e. how access and additional hours of electricity affect household welfare in terms of consumption expenditure, income, assets and poverty status. The results show large gaps between the benefits and costs of electricity supply among consumer groups. We also find that electricity theft is positively correlated with the net returns from electrification. Progressive pricing with targeted subsidies for the poor can increase household welfare while reducing the financial losses of the State Electricity Boards.
    Keywords: Reliable energy; Electrification; Household welfare; Panel fixed effects; Instrumental variables approach
    JEL: D12 D31 E21 I32
    Date: 2020–03–26
  74. By: Yashin, Pete
    Abstract: Nonfinancial and financial capital conflated in modern economy. Using accounting approach we separated them and compared the corresponding total values of nonfinancial capital and wealth. We consider these values to be equal. This statement is named “law of conservation of real wealth”: real value of aggregate wealth is equal to the total value of nonfinancial assets. The law holds automatically by virtue of balance sheet identity, if financial assets’ value equal to the counterpart obligations securing them. However such equality can be violated when securities freely circulating in modern financial markets lose their link with corresponding obligations. The resulting difference is equal to the divergence between the aggregate wealth and total value of nonfinancial assets, which indicates a violation of the law in nominal terms. We consider this divergence as excess unsecured component of wealth, whereas the real wealth continues to match the nonfinancial assets’ value. Such unsecured wealth can only arise due to discrepancy between savings and investment, along with difference between total Haig–Simons income (including capital gains) and expenditures in real sector. It makes impossible to display correctly flows simultaneously with stocks. Deviations of securities' value from corresponding obligations commonly accepted as temporary. However, along with cyclical fluctuations the unsecured US financial assets value has been steadily growing since the 1980s, exceeding $11 trillion in 2016. We consider the observed nominal violation of the law of conservation of wealth is a consequence of unlimited capitalists’ enrichment aspirations. Marketable securities are the tools they use to embody such desire; the effect enhanced by the procedures of corporate mergers and acquisitions. Yet, the unsecured wealth inflate financial bubbles; its growth turns out a sufficient condition for wealth and income inequality rising. Then the aggregate consumer demand growth is hindered, and appetite for capital investment decreases. Unsecured component of capitalists’ profit is absorbed by an (unsecured) increase in the value of financial assets; it is not a source of capital investment; on the contrary, high financial returns contribute to crowding out investment from the real sector. Productivity growth slows down. Thus, increase in inequality reduces both aggregate demand and supply, which inhibits economic growth. US statistics confirms the above trends which led to the global crisis of 2007-2008. It has not cured the economy; unsecured wealth continues to grow increasing inequality, which dumps output growth. Black swans in 2020 have inspired inevitable arriving of new crisis.
    Keywords: capital; wealth; inequality; accounting identity; Haig–Simons income; crises
    JEL: E01 G10
    Date: 2020–03–25
  75. By: Oz Shy
    Abstract: Low-income consumers are not only constrained with spending, but also with the type and variety of payment methods available to them. Using a representative sample of the U.S. adult population, this paper analyzes the low possession (adoption) of credit and debit cards among low-income consumers who are also unbanked. Using a random utility model, I estimate the potential welfare gains associated with policy options suggested in the literature to provide subsidized and unsubsidized debit cards to this consumer population.
    Keywords: consumer payment choice; household income; diversity; unbanked consumers; random utility analysis; unbanked; financial inclusion; consumer surveys; consumer behavior
    JEL: D90 E42
    Date: 2020–02–01
  76. By: Robert J. Barro; José F. Ursúa; Joanna Weng
    Abstract: Mortality and economic contraction during the 1918-1920 Great Influenza Pandemic provide plausible upper bounds for outcomes under the coronavirus (COVID-19). Data for 43 countries imply flu-related deaths in 1918-1920 of 39 million, 2.0 percent of world population, implying 150 million deaths when applied to current population. Regressions with annual information on flu deaths 1918-1920 and war deaths during WWI imply flu-generated economic declines for GDP and consumption in the typical country of 6 and 8 percent, respectively. There is also some evidence that higher flu death rates decreased realized real returns on stocks and, especially, on short-term government bills.
    JEL: E1 I0 O4
    Date: 2020–03
  77. By: Goldin, Ian; Koutroumpis, Pantelis; Lafond, François; Winkler, Julian
    Abstract: The recent decline in aggregate labor productivity growth in leading economies has been widely described as a puzzle, even a paradox, leading to extensive research into possible explanations. Our review confirms the magnitude of the slowdown and finds that it is largely driven by a decline in total factor productivity and capital deepening. Disaggregation reveals that a significant part of the slowdown is due to sectors that experienced the large benefits from ICTs in the previous period, and that an increasing gap between frontier and laggard firms suggests slower technology diffusion and increasing misallocation of factors. We evaluate explanations that attempt to reconcile the paradox of slowing productivity growth and technological change, including mismeasurement, implementation lags for technologies, and creative destruction processes.
    Keywords: productivity growth; secular stagnation; economic growth;
    JEL: D24 E66 O40
    Date: 2020–03–19
  78. By: Elizabeth L. Roos; Philip D. Adams
    Abstract: The oil price fell from around $US110 per barrel in 2014 to less than $US50 per barrel at the start of 2017. This put enormous pressure on government budgets within the Gulf Cooperation Council (GCC) region, especially the budgets of oil exporting countries. The focus of GCC economic policies quickly shifted to fiscal reform. In this paper we use a dynamic CGE model to investigate the economic impact of introducing a 5 per cent Value Added Tax (VAT) and a tax on business profit, with specific reference to the Kingdom of Saudi Arabia (KSA). Our study shows that although the introduction of new taxes improves government tax revenue, markets are distorted lowering economic efficiency and production due to a tax. In all simulations, real GDP, real investment and capital stock falls in the long-run. This highlights the importance of (1) understanding the potential harm caused to economic efficiency and production due to taxes, and (2) fiscal reform includes both government expenditure reform and identifying non-oil revenue sources. This allows for the design of an optimal tax system that meets all future requirements for each of the individual Gulf States.
    Keywords: Computable General Equilibrium (CGE) models Saudi Arabia Fiscal reform
    JEL: C68 D58 E62 O53
    Date: 2019–05
  79. By: International Monetary Fund
    Abstract: The Somalia authorities have fulfilled the necessary conditions to reach the HIPC Decision Point (DP), despite continuing challenges. This is a historic achievement and means Somalia has now cleared its arrears and normalized relations with the IMF and other international financial institutions. This will unlock Somalia’s access to new financial resources to fund much needed development and social spending.
    Date: 2020–03–26
  80. By: Chu, Amanda M.Y.; Lv, Zhihui; Wagner, Niklas F.; Wong, Wing-Keung
    Abstract: We investigate growth determinants for Mongolia as a small emerging economy considering China as its large neighbor. Our causality analysis during January 1992 to August 2017 reveals significant linear and nonlinear relationships in growth explanation. China’s GDP and coal prices, together with some of their linear and nonlinear lagged components, predict Mongolia’s GDP, where a one percent increase in China’s GDP relates to an increase in Mongolia of 1.5 percent. Current exchange rates and the nonlinear components of lagged levels of consumer prices also explain growth. Our results underline the role of macroeconomic drivers of growth in emerging economies.
    Keywords: gross domestic product (GDP); economic growth; energy prices; coal prices; consumer prices; foreign direct investment (FDI); exchange rates; cointegration; multivariate Granger causality; nonlinear Granger causality;
    JEL: C53 E52 F42
    Date: 2020–03–20
  81. By: David Berger (Duke University); Kyle Herkenhoff (University of Minnesota); Simon Mongey (The University of Chicago)
    Abstract: We extend the baseline Susceptible-Exposed-Infectious-Recovered (SEIR) infectious disease epidemiology model to understand the role of testing and case-dependent quarantine. Our model nests the SEIR model. During a period of asymptomatic infection, testing can reveal infection that otherwise would only be revealed later when symptoms develop. Along with those displaying symptoms, such individuals are deemed known positive cases. Quarantine policy is case-dependent in that it can depend on whether a case is unknown, known positive, known negative, or recovered. Testing therefore makes possible the identification and quarantine of infected individuals and release of non-infected individuals. We fix a quarantine technology—a parameter determining the differential rate of transmission in quarantine—and compare simple testing and quarantine policies. We start with a baseline quarantine-only policy that replicates the rate at which individuals are entering quarantine in the US in March, 2020. We show that the total deaths that occur under this policy can be achieved under looser quarantine measures and a substantial increase in random testing of asymptomatic individuals. Testing at a higher rate in conjunction with targeted quarantine policies can (i) dampen the economic impact of the coronavirus and (ii) reduce peak symptomatic infections—relevant for hospital capacity constraints. Our model can be plugged into richer quantitative extensions of the SEIR model of the kind currently being used to forecast the effects of public health and economic policies.
    Keywords: symptoms, quarantine policy, economic impact of disease
    JEL: I10 E17 D80
    Date: 2020–03
  82. By: Cardozo, Pamela; Morales-Acevedo, Paola; Murcia, Andrés; Pacheco, Beatriz
    Abstract: During the last decade Colombian international financial conglomerates (IFC) expanded abroad, significantly increasing their geographical complexity. This paper analyzes the effect of this change in geographical complexity on the risk level of individual Colombian banks. We use monthly bank-level data on financial indicators and complexity measures for the period 2007- 2018. We use the Z-score as a measure of bank risk and the number of countries in which a Colombian IFC has foreign banks subsidiaries as a measure of geographical complexity. Our results suggest that complexity is associated with higher levels of individual bank risk, as a result of an expansion to countries with large GDP co-movements and lower regulatory qualities. In addition, we find that banks with access to international funding respond differently to monetary policy changes. In particular, during periods of domestic monetary policy tightening (loosening), individual banks of complex IFCs present higher (lower) levels of risk, suggesting that the monetary policy risk taking channel is affected by the level of geographical complexity.
    Keywords: Bank risk; Geographical complexity; Monetary policy
    JEL: E52 F65 G21 G28 G32
    Date: 2020–04
  83. By: Toshiaki Ogawa (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper studies capital requirements and their welfare implications in a dynamic general equilibrium model of banking. I embed two, less commonly considered but important, mechanisms. Firstly, banks choose entry and exit, which lets the number of banks change endogenously. Strengthening capital requirements reduces banks' franchise value and damages their liquidity providing function through the extensive margin. Secondly, since equity issuance is costly for banks, they precautionarily hold capital buffers against future liquidity shocks. This behavior makes present capital requirements only occasionally binding. My model shows that the optimal capital requirement would be lower than that in the literature because of the expanded negative effects of capital requirements. To maintain financial stability without damaging banks' liquidity provision, strengthening capital requirements needs to be accompanied by reducing the cost of equity issuance for banks.
    Keywords: Bank capital requirements, Occasionally binding constraints, Endogenous default, Entry and exit, General equilibrium model
    JEL: E00 G21 G28
    Date: 2020–03
  84. By: Matthias Meier; Timo Reinelt
    Abstract: We document three new empirical facts: (i) monetary policy shocks increase the markup dispersion across firms, (ii) monetary policy shocks increase the relative markup of firms that adjust prices less frequently, and (iii) firms that adjust prices less frequently have higher markups. This is consistent with a New Keynesian model in which price rigidity is heterogeneous across firms. In the model, firms with stickier prices optimally set higher markups and their markups increase by more after monetary policy shocks. The consequent increase in markup dispersion explains why aggregate TFP declines after monetary policy shocks. In the calibrated model, monetary policy shocks explain substantial fluctuations in markup dispersion and aggregate productivity.
    Keywords: Monetary policy, markup dispersion, heterogeneous price rigidity, aggregate TFP
    Date: 2020–03
  85. By: Ibrahim D. Raheem (EXCAS, Liège, Belgium); Aviral K. Tiwari (Kochi, India); Daniel Balsalobre-lorente (Ciudad Real, Spain)
    Abstract: This study explores the role of the information and communication Technology (ICT) and financial development (FD) on both carbon emissions and economic growth for the G7 countries for the period 1990-2014. Using PMG, we found that ICT has a long run positive effect on emissions, while FD is a weak determinant. The interactive term between the ICT and FD produces negative coefficients. Also, both variables are found to impact negatively on economic growth. However, their interactions show they have mixed effects on economic growth (i.e., positive in the short-run and negative in the long-run). Policy implications were designed based on these results.
    Keywords: ICT; Financial development; Carbon emissions; Economic growth and G7 countries
    JEL: E23 F21 F30 O16
    Date: 2019–01
  86. By: Akintoye V. Adejumo (Obafemi Awolowo University, Ile-Ife, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Globally, investments in physical and human capital have been identified to foster real economic growth and development in any economy. Investments, which could be domestic or foreign, have been established in the literature as either complements or substitutes in varying scenarios. While domestic investments bring about endogenous growth processes, foreign investment, though may be exogenous to growth, has been identified to bring about productivity and ecological spillovers. In view of these competing–conflicting perspectives, this chapter examines the differential impacts of domestic and foreign investments on green growth in Nigeria during the period 1970-2017. The empirical evidence is based on Auto-regressive Distributed Lag (ARDL) and Granger causality estimates. Also, the study articulates the prospects for growth sustainability via domestic or foreign investments in Nigeria. The results show that domestic investment increases CO2 emissions in the short run while foreign investment decreases CO2 emissions in the long run. When the dataset is decomposed into three sub-samples in the light of cycles of investments within the trend analysis, findings of the third sub-sample (i.e. 2001-2017) reveal that both types of investments decrease CO2 emissions in the long run while only domestic investment has a negative effect on CO2 emissions in the short run. This study therefore concludes that as short-run distortions even out in the long-run, FDI and domestic investments has prospects for sustainable development in Nigeria through green growth.
    Keywords: Investments; Productivity; Sustainability; Growth
    JEL: E23 F21 F30 O16 O55
    Date: 2019–01
  87. By: Andrés Rodríguez-Pose
    Abstract: Regions and cities face unceasing pressures to adapt in response to processes of globalisation, changes in industrial production, and new patterns of migration and trade. At the same time, the dominant development policies are proving less than capable of providing answers to these challenges. Strategies based on a mix of physical and human capital and technology have not succeeded in dealing with growing territorial inequality and its treacherous economic, social and political consequences. There is thus an urgent need to understand why territorial divergence occurs and why there is what seems to be a growing decline in the returns of public intervention targeting economic development. In search for answers, scholars have turned to the examination of institutions. But despite progress in our grasp of how institutions affect development, crucial knowledge gaps remain. This paper reviews recent progress in our understanding of the role of institutions for development, unveils the most important gaps, and proposes a series of avenues to improve how a better understanding of how institutions shape regional and urban development can lead to more efficient development policies.
    Keywords: institutions, government quality, public policies, regions, cities
    JEL: E02 O43 R11 R50
    Date: 2020–03
    Abstract: Volatility is directly associated with risks and returns. This study aims to examine the volatility characteristics on Tunisian stock market index (5 days a weak TUNindex) that include clustering volatility, leptokurtosis, and leverage effect. The first objective is then to use the GARCH type models to estimate volatility of the daily returns series, consisting of 2191 observations from 01/02/2011 to 19/11/2019, with no significant weekdays effect. We use both symmetric and asymmetric models. The main findings suggest that the symmetric GARCHM and asymmetric TGARCH /APGARCH models can capture characteristics of TUNindex whereas EGARCH reveals no significant support for leverage effect existence. Looking at news impact curves, GJR model appears to be relatively better than other models. However, the volatility of stock returns is more affected by the past volatility than the related news from the previous period. The second objective is to use GARCHM- X S models to capture the effect of macro-economic instability via exchange rate growth and exchange rate volatility. For policy, GARCHM-XS2 turned to be the best model. The macroeconomic environment should be favourable to ensure growth in the stock market. Policies to reduce volatility in the the economy (more stable exchange rate) are a necessity for stock market.
    Keywords: Tunisia, Stock Market, Tunindex, Volatility, Symmetric and Asymmetric GARCH Models, GARCH, TGARCH, GARCH-M, EGARCH, GARCHM-XS, Leverage Effect., Risk Premium, Stability.
    JEL: C22 D8 D81 D82 E44 E47 O16
    Date: 2020–03–17
  89. By: Simplice A. Asongu (Yaoundé/Cameroon)
    Abstract: The purpose of this study is to investigate whether enhancing financial access influences productivity in Sub-Saharan Africa. The research focuses on 25 countries in the region with data for the period 1980-2014. The adopted empirical strategy is the Generalised Method of Moments. The credit channel of financial access is considered and proxied by private domestic credit while four main total factor productivity (TFP) dynamics are adopted for the study, namely: TFP, real TFP, welfare TFP and real welfare TFP. It is apparent from the findings that enhancing financial access positively affects welfare TFP whereas the effect is not significant on TFP, real TFP and welfare TFP. Policy implications are discussed. The study complements the extant literature by engaging hitherto unemployed dynamics of TFP in Sub-Saharan Africa.
    Keywords: Economic Output; Financial Development; Sub-Saharan Africa
    JEL: E23 F21 F30 O16 O55
    Date: 2019–01
  90. By: International Monetary Fund
    Abstract: The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 28, 2020. The staff report reflects discussions with the Myanmar authorities during December 5–19, 2019 and is based on the information available as of February 11, 2020. It focuses on Myanmar’s near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. These developments have greatly amplified uncertainty and could heighten downside risks around the outlook. Staff is closely monitoring the situation, including related policy responses from the authorities, and will continue to work on assessing its impact in the Myanmar economy.
    Date: 2020–03–26
  91. By: Lei Fang; Anne Hannusch; Pedro Silos
    Abstract: We document the large dispersion in hours worked in the cross-section. We account for this fact using a model in which households combine market inputs and time to produce a set of nonmarket activities. To estimate the model, we create a novel data set that pairs market expenditures and time use at the activity level using data from the Consumer Expenditure Survey and the American Time Use Survey, respectively. The estimated model can account for a large fraction of the dispersion of hours worked in the data. The substitutability between market inputs and time within an activity and across a sizable number of activities is key to our results. We show that models that lack these features can only generate one third of the observed hours dispersion.
    Keywords: consumption expenditures; hours of labor; time allocation; diversity; elasticity of substitution; hours dispersion; consumption (Economics) - United States; college graduates; labor supply
    JEL: E21 D11 J22
    Date: 2020–01–01
  92. By: Andrew Atkeson
    Abstract: This note is intended to introduce economists to a simple SIR model of the progression of COVID-19 in the United States over the next 12-18 months. An SIR model is a Markov model of the spread of an epidemic in a population in which the total population is divided into categories of being susceptible to the disease (S), actively infected with the disease (I), and recovered (or dead) and no longer contagious (R). How an epidemic plays out over time is determined by the transition rates between these three states. This model allows for quantitative statements regarding the tradeoff between the severity and timing of suppression of the disease through social distancing and the progression of the disease in the population. Example applications of the model are provided. Special attention is given to the question of if and when the fraction of active infections in the population exceeds 1% (at which point the health system is forecast to be severely challenged) and 10% (which may result in severe staffing shortages for key financial and economic infrastructure) as well as the cumulative burden of the disease over an 18 month horizon.
    JEL: C0 E0
    Date: 2020–03

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