nep-mac New Economics Papers
on Macroeconomics
Issue of 2020‒04‒20
105 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Measuring the effects of U.S. uncertainty and monetary conditions on EMEs' macroeconomic dynamics By Rivolta, Giulia; Trecroci, Carmine
  2. Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages? By Veronica Guerrieri; Guido Lorenzoni; Ludwig Straub; Iván Werning
  3. Monetary policy, financial regulation and financial stability: A comparison between the Fed and the ECB By Schnabl, Gunther; Sonnenberg, Nils
  4. Average inflation targeting and the interest rate lower bound By Flora Budianto; Taisuke Nakata; Sebastian Schmidt
  5. Indebted Demand By Atif R. Mian; Ludwig Straub; Amir Sufi
  6. Does the liquidity trap exist? By Stéphane Lhuissier; Benoit Mojon; Juan Rubio-Ramírez
  7. Rebuilding the U.S. economy after the corona virus pandemic: a new Home Equity Release Method (HERM) By De Koning, Kees
  8. Central Bank Communication during Economic Recessions: Evidence from Nigeria By Omotosho, Babatunde S.
  9. Theoretically proposed policy instrument to resolve the negative effect of inflation flow into a positive macroeconomic growth: the case of Sierra Leone economy By Tweneboah Senzu, Emmanuel
  10. The Economics of the Fed Put By Anna Cieslak; Annette Vissing-Jorgensen
  11. Total factor productivity and the measurement of neutral technology By Moura, Alban
  12. Is Bitcoin Money? An Economic-Historical Analysis of Money, Its Functions and Its Prerequisites By Umlauft, Thomas
  13. Price setting frequency and the Phillips Curve By Gasteiger, Emanuel; Grimaud, Alex
  14. A New Indicator of Bank Funding Cost By Eric Jondeau; Benoit Mojon; Jean-Guillaume Sahuc
  15. Decomposing the Fiscal Multiplier By James S. Cloyne; Òscar Jordà; Alan M. Taylor
  16. Higher-order income risk over the business cycle By Busch, Christopher; Ludwig, Alexander
  17. Impact of Negative Interest Rate Policy on Emerging Asian markets: An Empirical Investigation By Anand, Abhishek; Chakraborty, Lekha S
  18. Learning, Equilibrium Trend, Cycle, and Spread in Bond Yields By Guihai Zhao
  19. On shadow banking and fiÂ…nancial frictions in DSGE modeling By Philipp Kirchner
  20. Unconventional Monetary Policy Shocks in the Euro Area and the Sovereign-Bank Nexus By Nikolay Hristov; Oliver Hülsewig; Johann Scharler
  21. A Fisherian Approach to Financial Crises: Lessons from the Sudden Stops Literature By Javier Bianchi; Enrique G. Mendoza
  22. Job finding and separation rates in an economy with high labor informality By Nikita Céspedes Reynaga; N.R. Ramírez-Rondán
  23. Wealth inequality and aggregate demand By Ederer, Stefan; Rehm, Miriam
  24. Optimal Policy Perturbations By Régis Barnichon; Geert Mesters
  25. Health Risk and the Welfare Effects of Social Security By Shantanu Bagchi; Juergen Jung
  26. Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Joseph E. Stiglitz; Tania Treibich
  27. Adopting the Euro: a synthetic control approach By Gabriel, Ricardo Duque; Pessoa, Ana Sofia
  28. An Analysis of the Seasonal Cycle and the Business Cycle By Emara, Noha; Ma, Jinpeng
  29. Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach By Gianluca Benigno; Andrew Foerster; Christopher Otrok; Alessandro Rebucci
  30. The Saving Glut of the Rich and the Rise in Household Debt By Atif R. Mian; Ludwig Straub; Amir Sufi
  31. How Do Firms Form Expectations of Aggregate Growth? New Evidence from a Large-Scale Business Survey By Jonas Dovern; Lena Sophia Müller; Klaus Wohlrabe
  32. Monopsony with nominal rigidities: An inverted Phillips Curve By Dennery, Charles
  33. Multi-Product Pricing: Theory and Evidence from Large Retailers in Israel By Marco Bonomo; Carlos Carvalho; Oleksiy Kryvtsov; Sigal Ribon; Rodolfo Rigato
  34. The Murder-Suicide of the Rentier: Population Aging and the Risk Premium By Joseph Kopecky; Alan M. Taylor
  35. Learning about the Neighborhood By Zhenyu Gao; Michael Sockin; Wei Xiong
  36. Involuntary unemployment with divisible labor supply with a three-periods overlapping generations model under monopolistic competition By Tanaka, Yasuhito
  37. Lead-lag and relationship between money growth and inflation in Turkey: New evidence from a wavelet analysis By Tursoy, Turgut; Mar'i, Muhammad
  38. Fiscal transfers in a two-level fiscal framework: stabilizing properties according to the fiscal instrument By Thierry BETTI
  39. Virtual wealth is growing By Yashin, Pete
  40. Rich and ever richer: Differential returns across socio-economic groups By Ederer, Stefan; Mayerhofer, Maximilian; Rehm, Miriam
  41. The Loan Puzzle. A Study of Loans to Different Groups in the USA. By Gianluca Cafiso
  42. World Economy Spring 2020 - World economy under strain By Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
  43. Intra-regional spillovers from Nigeria and South Africa to the rest of Africa: New evidence from a FAVAR model By Omoshoro-Jones, Oyeyinka Sunday; Bonga-Bonga, Lumengo
  44. Caught in the cycle: Economic conditions at enrollment and labor market outcomes of college graduates By Biécáková, Alena; Cortes, Guido Matias; Mazza, Jacopo
  45. Are the liquidity and collateral roles of asset bubbles different? By Lise Clain-Chamosset-Yvrard; Xavier Raurich; Thomas Seegmuller
  46. Multivariate Unobserved Component Model for an Oil-exporting Economy: The Case of Russia By Polbin, Andrey
  47. The Unprecedented Stock Market Impact of COVID-19 By Scott R. Baker; Nicholas Bloom; Steven J. Davis; Kyle J. Kost; Marco C. Sammon; Tasaneeya Viratyosin
  48. Robust structural determinants of public deficits in developing countries. By Blaise Gnimassoun; Isabelle Do Santos
  49. Interest Rate Uncertainty as a Policy Tool By Fabio Ghironi; Galip Kemal Ozhan
  50. Contagion of Fear By Kris James Mitchener; Gary Richardson
  51. The Macroeconomics of Epidemics By Martin S. Eichenbaum; Sergio Rebelo; Mathias Trabandt
  52. Macro and microeconomic evidence on investment, factor shares, firm and labor dynamics in Italy and in Trentino By Mondolo, Jasmine
  53. Heterogeneous Credit Constraints and Optimal Monetary Policy By Marco Ortiz; Gerardo Herrera
  54. How Does Household Spending Respond to an Epidemic? Consumption During the 2020 COVID-19 Pandemic By Scott R. Baker; R.A. Farrokhnia; Steffen Meyer; Michaela Pagel; Constantine Yannelis
  55. Possible Economic Impacts of Falling Oil Prices, the Pandemic and the Looming Global Recession onto Overseas Filipinos and their Remittances By Alvin Ang; Jeremaiah Opiniano
  56. Spillover of COVID-19: Impact on the Global Economy By Ozili, Peterson; Arun, Thankom;
  57. Trends in aggregate employment, hours worked per worker, and the long-run labor wedge By Epstein, Brendan; Mukherjee, Rahul; Finkelstein Shapiro, Alan; Ramnath, Shanthi
  58. Régimes de change et soutenabilité des finances publiques dans les pays en développement. By Blaise Gnimassoun; Isabelle Do Santos
  59. An SEIR Infectious Disease Model with Testing and Conditional Quarantine By David W. Berger; Kyle F. Herkenhoff; Simon Mongey
  60. Political Economy of Taxation, Debt Ceilings, and Growth By Uchida, Yuki; Ono, Tetsuo
  61. Estimating the Economic Impact of COVID-19: A Case Study of Namibia By Evelina, Julius; Samuel, Nuugulu; Lukas Homateni, Julius
  62. Виртуальное богатство растет By Yashin, Pete
  63. The corporate sector and the current account By Behringer, Jan; van Treeck, Till
  64. Political Budget Cycles Revisited: Testing the Signalling Process By Israel Garcia; Bernd Hayo
  65. Rebalancing the euro area: Is wage adjustment in Germany the answer? By Hoffmann, Mathias; Kliem, Martin; Krause, Michael; Moyen, Stephane; Sauer, Radek
  66. Labour Markets in a Post-Keynesian Growth Model. The Effects of Endogenous Productivity Growth and Working Time Reduction By Stefan Ederer; Armon Rezai
  67. Durables and Lemons: Private Information and the Market for Cars By Richard Blundell; Ran Gu; Soren Leth-Petersen; Hamish Low; Costas Meghir
  68. 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
  69. On the Predictions of Cumulative Prospect Theory for Third and Fourth Order Preferences By Ivan Paya; David Peel; Konstantinos Georgalos
  70. Macroeconomic Fluctuations Under Natural Disaster Shocks in Central America and he Caribbean By Allan Wright; Patrice Borda
  71. Flexible work arrangements and precautionary behaviour: Theory and experimental evidence By Orland, Andreas; Rostam-Afschar, Davud
  72. Is Race to the bottom is modeled as Prisoner's dilemma? By Sokolovskyi, Dmytro
  73. The effects of external shocks on the business cycle in China: A structural change perspective By Murach, Michael; Wagner, Helmut
  74. The public costs of climate-induced financial instability By Francesco Lamperti; Valentina Bosetti; Andrea Roventini; Massimo Tavoni
  75. Makroekonomija krize COVID-19 i kako pristupiti njenom rješavanju By Vladimir Čavrak
  76. The Political (In)Stability of Funded Pension Systems By Roel Beetsma; Oliwia Komada; Krzysztof Makarski; Joanna Tyrowicz
  77. Does the Selfish Life-Cycle Model Apply in the Case of Japan? By Charles Yuji Horioka
  78. Solving non-linear dynamic models (more) efficiently: application to a simple monetary policy model By Shalva Mkhatrishvili; Douglas Laxton; Davit Tutberidze; Tamta Sopromadze; Saba Metreveli; Lasha Arevadze; Tamar Mdivnishvili; Giorgi Tsutskiridze
  79. On treatment of interests, profits and equilibrium non-existence in general equilibrium models By Icefield, William
  80. The Wealth Decumulation Behavior of the Retired Elderly in Italy: The Importance of Bequest Motives and Precautionary Saving By Ventura, Luigi; Yuji Horioka, Charles
  81. Reconstructing the Past: The New Expenditure-Side and Composition-Of-Investment Estimates for Italy, 1861–1913 By Fenoaltea, Stefano
  82. Optimal Taxation in Asset Markets with Adverse Selection By Seyed Mohammadreza Davoodalhosseini
  83. Propagation of shocks in global value chains: the coronavirus case By Elie Gerschel; Alejandra Martinez; Isabelle Mejean
  84. Reconstructing The Past: The New Production-Side Estimates For Italy, 1861–1913 By Fenoaltea, Stefano
  85. An Analytic Framework For Interpreting Investment Regressions In The Presence Of Financial Constraints By Andrew B. Abel; Stavros Panageas
  86. The Impact of COVID-19 on Gender Equality By Titan M. Alon; Matthias Doepke; Jane Olmstead-Rumsey; Michèle Tertilt
  87. The Impact of Monetary Policy on Leading Variables for Financial Stability in Norway By Helene Olsen; Harald Wieslander
  88. Data Gaps and the Policy Response to the Novel Coronavirus By James H. Stock
  89. Longer-run Economic Consequences of Pandemics By Òscar Jordà; Sanjay R. Singh; Alan M. Taylor
  90. Trajectories to high income: comparing the growth dynamics in China, Korea, and Japan with cointegrated VAR models By Murach, Michael; Wagner, Helmut; Kim, Jungsuk; Park, Donghyun
  92. Does Inflation Targeting Always Matter for the ERPT? A robust approach By Antonia Lopez Villavicencio; Marc Pourroy
  93. Three Facts About Night Lights Data By John Gibson; Geua Boe-Gibson
  94. German Economy Spring 2020 - German economy: V(irus)-shaped recession ahead By Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia
  95. Going beyond GDP with a parsimonious indicator: Inequality-adjusted healthy lifetime income By Bloom, David E.; Fan, Victoria Y.; Kufenko, Vadim; Ogbuoji, Osondu; Prettner, Klaus; Yamey, Gavin
  96. Aggregate and Firm-Level Stock Returns During Pandemics, in Real Time By Laura Alfaro; Anusha Chari; Andrew N. Greenland; Peter K. Schott
  97. Vertical Fiscal Imbalance and Local Fiscal Indiscipline: Empirical Evidence from China By Junxue Jia; Yongzheng Liu; Jorge Martinez-Vazquez; Kewei Zhang
  98. Technology and Welfare - Investigating the relationship between the ownership of technology-based assets and subjective measures of well-being By Alexander O'Riordan
  99. Application of linear programming in production planning By Solaja, Oluwasegun Abraham; Abiodun, Joachim Abolaji; Abioro, Matthew Adekunle; Ekpudu, Jonathan Ehimen; Olasubulumi, Olajide Moses
  100. Financial Inclusion and Economic Growth: The Role of Governance in Selected MENA Countries By Emara, Noha; El Said, Ayah; Pearlman, Joseph
  101. A new multilayer network construction via Tensor learning By Giuseppe Brandi; T. Di Matteo
  102. The Hit of the Novel Coronavirus Outbreak to China's Economy By Hongbo Duan; Qin Bao; Kailan Tian; Yuze; Shouyang Wang; Cuihong Yang; Zongwu Cai; Xi Ming
  103. Are the liquidity and collateral roles of asset bubbles different? By Lise Clain-Chamosset-Yvrard; Xavier Raurich; Thomas Seegmuller
  104. Projecting the Spread of COVID19 for Germany By Jean Roch Donsimoni; René Glawion; Bodo Plachter; Klaus Wälde
  105. South Africa’s disinflation- A cyclical phenomenon? By Thulisile Radebe

  1. By: Rivolta, Giulia; Trecroci, Carmine
    Abstract: We explore empirically the transmission of U.S. financial and macroeconomic uncertainty to emerging market economies (EMEs). We start by assuming that there are crucial differences between volatility and uncertainty, and between the latter and its shocks. With the help of Bayesian vector autoregressions, we first identify two measures of U.S. uncertainty shocks, which appear to explain the dynamics of output developments better than conventional volatility measures. Next, we find evidence that adverse shocks to U.S. aggregate uncertainty are associated with marked contractions in some EMEs’ business cycles. However, we detect significant cross-country heterogeneity in the responses of EMEs’ business cycles to U.S uncertainty shocks. We also find generalized declines in stock market values, which supports the so-called Global Financial Cycle hypothesis.
    Keywords: Uncertainty, Monetary policy, Asset prices, Emerging markets.
    JEL: C11 C31 E44 E52 E58 F36
    Date: 2020–04–01
  2. By: Veronica Guerrieri; Guido Lorenzoni; Ludwig Straub; Iván Werning
    Abstract: We present a theory of Keynesian supply shocks: supply shocks that trigger changes in aggregate demand larger than the shocks themselves. We argue that the economic shocks associated to the COVID-19 epidemic—shutdowns, layoffs, and firm exits—may have this feature. In one-sector economies supply shocks are never Keynesian. We show that this is a general result that extend to economies with incomplete markets and liquidity constrained consumers. In economies with multiple sectors Keynesian supply shocks are possible, under some conditions. A 50% shock that hits all sectors is not the same as a 100% shock that hits half the economy. Incomplete markets make the conditions for Keynesian supply shocks more likely to be met. Firm exit and job destruction can amplify the initial effect, aggravating the recession. We discuss the effects of various policies. Standard fiscal stimulus can be less effective than usual because the fact that some sectors are shut down mutes the Keynesian multiplier feedback. Monetary policy, as long as it is unimpeded by the zero lower bound, can have magnified effects, by preventing firm exits. Turning to optimal policy, closing down contact-intensive sectors and providing full insurance payments to affected workers can achieve the first-best allocation, despite the lower per-dollar potency of fiscal policy.
    JEL: E21 E32 E60 I18
    Date: 2020–04
  3. By: Schnabl, Gunther; Sonnenberg, Nils
    Abstract: The paper analyses in light of Austrian and Keynesian economic theory the impact of conventional and unconventional monetary policies as therapies for financial crises. It compares the financial market stabilization measures of the Federal Reserve System and the European System of Central Banks in response to the US subprime crisis and the European financial and debt crisis. It is shown that the Federal Reserve System's crisis measures were more directed towards stabilizing the banking system, whereas the European Central Bank had a stronger focus on the stabilization of the debt affordability of euro area crisis countries. In both cases, household credit growth remained under control despite renewed monetary expansion, while new imbalances emerged in the corporate sector. In the euro area, loose monetary policy had a destabilizing impact on the financial sector.
    Keywords: Financial cycles,financial crisis,financial stability,Hayek,Keynes,monetarypolicy
    JEL: B53 E12 E14 E30 E44 E58 G10 G20 H30 H50
    Date: 2020
  4. By: Flora Budianto; Taisuke Nakata; Sebastian Schmidt
    Abstract: Assigning a discretionary central bank a mandate to stabilize an average inflation rate - rather than a period-by-period inflation rate - increases welfare in a New Keynesian model with an occasionally binding lower bound on nominal interest rates. Under rational expectations, the welfare-maximizing averaging window is infinitely long, which means that optimal average inflation targeting (AIT) is equivalent to price level targeting (PLT). However, AIT with a finite, but sufficiently long, averaging window can attain most of the welfare gain from PLT. Under boundedly-rational expectations, if cognitive limitations are sufficiently strong, the optimal averaging window is finite, and the welfare gain of adopting AIT can be small.
    Keywords: monetary policy objectives, makeup strategies, liquidity trap, deflationary bias, expectations
    JEL: E31 E52 E58 E61
    Date: 2020–04
  5. By: Atif R. Mian; Ludwig Straub; Amir Sufi
    Abstract: We propose a theory of indebted demand, capturing the idea that large debt burdens by households and governments lower aggregate demand, and thus natural interest rates. At the core of the theory is the simple yet under-appreciated observation that borrowers and savers differ in their marginal propensities to save out of permanent income. Embedding this insight in a two-agent overlapping-generations model, we find that recent trends in income inequality and financial liberalization lead to indebted household demand, pushing down natural interest rates. Moreover, popular expansionary policies—such as accommodative monetary policy and deficit spending—generate a debt-financed short-run boom at the expense of indebted demand in the future. When demand is sufficiently indebted, the economy gets stuck in a debt-driven liquidity trap, or debt trap. Escaping a debt trap requires consideration of less standard macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality.
    JEL: D31 E21 E32 E43 E44 E52 E62
    Date: 2020–04
  6. By: Stéphane Lhuissier; Benoit Mojon; Juan Rubio-Ramírez
    Abstract: The liquidity trap is synonymous with ineffective monetary policy. The common wisdom is that, as the short-term interest rate nears its effective lower bound, monetary policy cannot do much to stimulate the economy. However, central banks have resorted to alternative instruments, such as QE, credit easing and forward guidance. Using state-of- the-art estimates of the effects of monetary policy, we show that monetary easing stimulates output and inflation, also during the period when short-term interest rates are near their lower bound. These results are consistent across the United States, the euro area and Japan.
    Keywords: liquidity trap, effective lower bound, monetary transmission
    JEL: E32 E44 E52
    Date: 2020–04
  7. By: De Koning, Kees
    Abstract: At the time of writing, in many countries the corona virus has not reached its peak yet. The virus has led to unimaginable consequences for all types of businesses and for individuals. Governments have shut down many economic activities, due to the possibility of ever increasing levels of infection. In some countries a total lockdown has been promulgated. The measures taken, so far, in the U.S. and in many European countries all point to an unprecedented level of financial assistance for companies, for workers who have lost most or all of their income and of course for the health services. During the 2007-2009 financial crisis about 8 million Americans lost their jobs. It has been reported that the White House estimates that the unemployment rate will go up to 20%, which would imply that by June/July 2020 over 30 million Americans would be unemployed. This statement was later denied. Job losses mean income losses and defaults on home mortgages and other loans. The U.S.$ 2.2 trillion economic rescue package will cushion some of the losses, but companies need time to recreate employment. One cannot put a precise date on it, but experiences from previous crises has shown that it will be a matter of years rather than months, before the level of unemployment will have returned to the 5.8 million reported by the Fed as for February 2020. In the past, the writer has analyzed the four sources of wealth in the U.S.: Stock market values, U.S. government treasuries, pension savings (overlapping with stocks and bonds) and the net worth built up in homes. The Dow Jones Industrial Average reached its peak on 12th February 2020 with a value of 29551; by 23 March 2020 it had dropped to 18592 or a drop of 37%! U.S. government bonds and quantitative easing activities will increase by at least U.S.$2.2 trillion. Pension funds invested in U.S. stocks and in government bonds, will have shared in the fall of the Dow Jones and in the lowering of interest rates. The only source of U.S. wealth, mostly untapped, is the housing stock net worth of just over U.S.$ 23 trillion. A new Home Equity Release Method (HERM) will be set out in this paper.
    Keywords: corona virus, new home equity release method (HERM), accumulated wealth elements in the U.S.; quantitative easing; home mortgage loans; low and middle income households
    JEL: D1 D14 D4 D7 E2 E21 E24
    Date: 2020–04–05
  8. By: Omotosho, Babatunde S.
    Abstract: This paper analyses the communication strategy of the Central Bank of Nigeria (CBN) during the 2016 economic recession. Applying text mining techniques, useful insights are derived regarding the linguistic intensity, readability, tone, and topics of published monetary policy communiques. Our results provide evidence of increased central bank communication during the recession. However, the ease of reading the published policy communiques declined, especially at the outset of the recession. In terms of tone, we find that negative policy sentiments were expressed during the 2015-2017 period; reflecting the economic uncertainties that trailed the oil price slump of 2014 and its implications for the domestic economy. The negativity of the policy sentiment score reached its trough in July 2016 and recorded an inflexion; signalling the economy’s turning point towards recovery. Based on the results of the estimated topic model, issues relating to “oil price shocks”, “external reserves”, and “inflation” were of concern to the Monetary Policy Committee (MPC) a few quarters preceding the recession while the topics relating to “exchange rate management” as well as “output growth and market stability” were dominant during the recession. Expectedly, the topic proportion for “prices and macroeconomic policies” remain relatively sizeable across the sample period, reflecting the MPC’s commitment to the CBN’s primary mandate of maintaining price stability.
    Keywords: Monetary policy, central bank communication, economic recession, text mining
    JEL: E32 E52 E58 E61 E65
    Date: 2020
  9. By: Tweneboah Senzu, Emmanuel
    Abstract: The paper empirically examines the predictive factor of the inflation rate observed to be the vector force of macroeconomic growth decline or rise in the Sierra Leone economy. Thereby adopting a statistical tool of an exogenous univariate auto-regression integrated moving average to build a forecasting model between the open-market-exchange rate and the inflation rate to establish the degree of correlation effect as a basis to theoretically prescribe a policy instrument, a means to maximize economic benefit for sustainable macroeconomic growth. This leads to an established finding that an average price shift of +/- 0.032 of the leone currency price with the US dollar at the open market will always cause a percentage point change of inflation to the endogenous economy when all other factors remain constant.
    Keywords: Inflation, Exchange rate, policy instrument, regression models, monetary policy
    JEL: E17 E5 E52 E58
    Date: 2020–04–01
  10. By: Anna Cieslak; Annette Vissing-Jorgensen
    Abstract: Since the mid-1990s, low stock returns predict accommodating policy by the Federal Reserve. This fact emerges because, over this period, negative stock returns comove with downgrades to the Fed’s growth expectations. Textual analysis of the FOMC documents reveals that policymakers pay attention to the stock market, and their negative stock-market mentions predict federal funds rate cuts. The primary mechanism why policymakers find the stock market informative is via its effect on consumption, with a smaller role for the market viewed as predicting the economy.
    JEL: E44 E52 E58
    Date: 2020–03
  11. By: Moura, Alban
    Abstract: TFP measures constructed from chain-aggregated output, such as those published by the Bureau of Labor Statistics or Fernald (2014), confound contributions from neutral and sector-specific technology. Therefore, they should not be used to infer the path of neutral technology in presence of investment-specific technical change. Two theory-consistent, utilization-adjusted measures of neutral technology at the quarterly frequency are proposed for the US business sector. Both indicate that neutral technology progress declined dramatically after the mid-1970s. In particular, its contribution to US growth fell from more than 85% before 1973 to less than 25% afterward. The associated welfare loss is enormous: if neutral technology had continued on its pre-1970s trend, 2017 US output would have been 70% higher.
    Keywords: total factor productivity, neutral technology, investment-specific technology, sources of growth
    JEL: E22 E23 E32 O41 O47
    Date: 2020–03
  12. By: Umlauft, Thomas
    Abstract: Bitcoin and other cryptocurrencies’ spectacular rise over the past years has attracted considerable public and academic interest. The important question arising in this context is whether cryptocurrencies can legitimately be regarded as money. This paper contributes to the current discourse by evaluating cryptocurrencies’ monetary merits based on (1) the orthodox, or Metallist, school of money and (2) the heterodox, or Chartalist, approach. The theoretical as well as empirical findings advanced in this paper serve to illustrate that cryptocurrencies cannot legitimately be regarded as money owing to their lack of essential characteristics universally shared by other monetary systems. By cryptocurrencies’ lack of intrinsic value as well as government support, virtual currencies fail according to the orthodox as well as the heterodox school of money, respectively. In addition, the inelasticity of the bitcoin stock due to the fixed maximum amount of 21 million units stands in sharp contrast to that of other monetary systems – including gold and other depletable resources –, further reducing bitcoin’s suitability as a medium of exchange, and thus as money. In an attempt to explain the apparent discrepancy between the current value the market attaches to cryptocurrencies and their monetary deficiencies, we advance that market participants are misled by what we term the input fallacy of value (IFV). Similar to the labour theory of value, which posits that value is a function of the labour required to produce a good or service, market participants appear to be misled into believing that the value of cryptocurrencies is the product of the input costs required in the “mining” process. In this context, it is overlooked that value, far from merely being a function of labour and capital deployed, is solely determined by the resultant utility. Since, however – as detailed in this paper –, bitcoin lacks the essential characteristics associated with money, cryptocurrencies’ utility, and hence price, should tend towards zero over time.
    Keywords: Bitcoin, Cryptocurrencies, Economic Bubbles, Nature of Money, Origin of Money, Theories of Money, Money, Medium of Exchange, Orthodox School of Money, Heterodox School of Money, Chartalist School, Metallist School, Labour Theory of Value, Input Fallacy of Value, Stone Currency of Yap
    JEL: B12 B13 B15 B25 B59 E31 E41 E42 E51 E58 N10 N20
    Date: 2018–06
  13. By: Gasteiger, Emanuel; Grimaud, Alex
    Abstract: We develop a New Keynesian (NK) model with endogenous price setting frequency. Whether a firm updates its price in a given period depends on an analysis of expected cost and benefits modelled by a discrete choice process. A firm decides to update the price when expected benefits outweigh expected cost and then resets the price optimally. As markups are countercyclical, the model predicts that prices are more flexible during expansions and less flexible during recessions. Our quantitative analysis shows that contrary to the standard NK model, the assumed price setting behaviour: is consistent with micro data on price setting frequency; gives rise to an accelerating Phillips curve that is steeper during expansions and flatter during recessions; explains shifts in the Phillips curve associated with different historical episodes without relying on implausible high cost-push shocks and nominal rigidities.
    Keywords: Price setting,inflation dynamics,monetary policy,Phillips curve
    JEL: E31 E32 E52
    Date: 2020
  14. By: Eric Jondeau; Benoit Mojon; Jean-Guillaume Sahuc
    Abstract: The cost of bank funding on money markets is typically the sum of a risk-free rate and a spread that reflects rollover risk, i.e., the risk that banks cannot roll over their short-term market funding. This risk is a major concern for policymakers, who need to intervene to prevent the funding liquidity freeze from triggering the bankruptcy of solvent financial institutions. We construct a new indicator of rollover risk for banks, which we have called forward funding spread. It is calculated as the difference between the three-month forward rate of the yield curve constructed using only instruments with a three-month tenor and the corresponding forward rate of the default-free overnight interest swap yield curve. The forward funding spread usefully complements its spot equivalent, the IBOR-OIS spread, in the monitoring of bank funding risk in real time. First, it accounts for the market participants' expectations for how funding costs will evolve over time. Second, it identifies liquidity regimes, which coincide with the levels of excess liquidity supplied by central banks. Third, it has much higher predictive power for economic growth and bank lending in the United States and the euro area than the spot IBOR-OIS, credit default swap spreads or bank bond credit spreads.
    Keywords: bank funding risk, bank credit spreads, liquidity supply regimes, multicurve environment, economic activity predictability
    JEL: E32 E44 E52
    Date: 2020–04
  15. By: James S. Cloyne; Òscar Jordà; Alan M. Taylor
    Abstract: Unusual circumstances often coincide with unusual fiscal policy actions. Much attention has been paid to estimates of how fiscal policy affects the macroeconomy, but these are typically average treatment effects. In practice, the fiscal “multiplier” at any point in time depends on the monetary policy response. Using the IMF fiscal consolidations dataset for identification and a new decomposition-based approach, we show how to evaluate these monetary-fiscal effects. In the data, the fiscal multiplier varies considerably with monetary policy: it can be zero, or as large as 2 depending on the monetary offset. We show how to decompose the typical macro impulse response function into (1) the direct effect of the intervention on the outcome; (2) the indirect effect due to changes in how other covariates affect the outcome when there is an intervention; and (3) a composition effect due to differences in covariates between treated and control subpopulations. This Blinder-Oaxaca-type decomposition provides convenient way to eva
    JEL: C54 C99 E32 E62 H20 H5 N10
    Date: 2020–04
  16. By: Busch, Christopher; Ludwig, Alexander
    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 higherorder 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
  17. By: Anand, Abhishek; Chakraborty, Lekha S
    Abstract: In last few years, several central banks have implemented negative interest rate policies (NIRP) to boost domestic economy. However, such policies may have some unintended consequences for the emerging Asian markets (EAMs). The objective of this paper is to provide an assessment of the domestic and global implications of negative interest rate policy. We also present how the implications differ from that of quantitative easing (QE). The analysis shows that the impact NIRP is heterogeneous; with differential impacts for big Asian economies (India and Indonesia) and small trade dependent economies (STDE) (Hong Kong, Philippines, South Korea, Singapore and Thailand). Nominal GDP and exports are adversely impacted in EMs in response to NIRP, especially in India and Indonesia. The inflation goes significantly high in EMs in response to plausible negative interest rates but the impact is much more severe for India and Indonesia than in STDEs. The local currencies also depreciate in all EAMs in response to negative interest rates. QE, on the other hand, has no significant impact on inflation but nominal GDP growth declines in EAMs. The currency appreciates and exports decline. The impact is much more severe in big emerging economies like India and Indonesia Key words: Negative interest rate policy, Quantitative easing, emerging economies JEL codes: E52, E58.
    Keywords: Negative interest rate policy, Quantitative easing, emerging economies JEL codes: E52, E58.
    JEL: E52 E58
    Date: 2019
  18. By: Guihai Zhao
    Abstract: Some key features in the historical dynamics of U.S. Treasury bond yields—a trend in long-term yields, business cycle movements in short-term yields, and a level shift in yield spreads—pose serious challenges to existing equilibrium asset pricing models. This paper presents a new equilibrium model to jointly explain these key features. The trend is generated by learning from the stable components in GDP growth and inflation, which share similar patterns to the neutral rate of interest (R-star) and trend inflation (Pi-star) estimates in the literature. Cyclical movements in yields and spreads are mainly driven by learning from the transitory components in GDP growth and inflation. The less-frequent inverted yield curves observed after the 1990s are due to the recent secular stagnation and procyclical inflation expectation.
    Keywords: Asset Pricing; Financial markets; Interest rates
    JEL: E43 G12
    Date: 2020–04
  19. By: Philipp Kirchner (University of Kassel)
    Abstract: At the forefront of macroeconomic research on the causes of the Great Financial Crisis (GFC) was and still is the usage of dynamic stochastic general equilibrium (DSGE) models. To capture the nonlinearities of the GFC, these models were enriched with a variety of fiÂ…nancial frictions. This paper focuses on a special subset of these frictions, the shadow banking system. We provide a structured review of the strand of literature that considers shadow banking in DSGE setups and draw particular attention to the modeling approach as well as impact of shadow banking. Our analysis allows the following conclusions: fiÂ…rstly, models featuring shadow banking are better able to simulate realistic movements in the business cycle that are of comparable magnitude to the GFC. Secondly, the models consider ampliÂ…cation channels between the fiÂ…nancial sector and the real economy that proved to be of importance during the crisis. Thirdly, the models display a good explanatory power of Â…financial stability measures in the light of shadow banking.
    Keywords: Shadow Banking, DSGE, Financial Frictions, Financial Intermediation, Great Financial Crisis.
    JEL: E10 E44 E32
    Date: 2020
  20. By: Nikolay Hristov; Oliver Hülsewig; Johann Scharler
    Abstract: We explore the effects of the ECB’s unconventional monetary policy on the banks’ sovereign debt portfolios. In particular, using panel vector autoregressive (VAR) models we analyze whether banks increased their domestic government bond holdings in response to non-standard monetary policy shocks, thereby possibly promoting the sovereign-bank nexus, i.e. the exposure of banks to the debt issued by the national government. Our results suggest that euro area crisis countries’ banks enlarged their exposure to domestic sovereign debt after innovations related to unconventional monetary policy. Moreover, the restructuring of sovereign debt portfolios was characterized by a home bias.
    Keywords: European Central Bank, unconventional monetary policy, panel vector autoregressive model, sovereign-bank nexus
    JEL: C32 E30 E52 E58 G21 H63
    Date: 2020
  21. By: Javier Bianchi; Enrique G. Mendoza
    Abstract: Sudden Stops are financial crises defined by a large, sudden current-account reversal. They occur in both advanced and emerging economies and result in deep recessions, collapsing asset prices, and real exchange-rate depreciations. They are preceded by economic expansions, current-account deficits, credit booms, and appreciated asset prices and real exchange rates. Fisherian models (i.e. models with credit constraints linked to market prices) explain these stylized facts as an outcome of Irving Fisher's debt-deflation mechanism. On the normative side, these models feature a pecuniary externality that provides a foundation for macroprudential policy (MPP). We review the stylized facts of Sudden Stops, the evidence on MPP use and effectiveness, and the findings of the literature on Fisherian models. Quantitatively, Fisherian amplification is strong and optimal MPP reduces sharply the size and frequency of crises, but it is also complex and potentially time-inconsistent, and simple MPP rules are less effective. We also provide a new MPP analysis incorporating investment. Using a constant debt-tax policy, we construct a crisis probability-output frontier showing that there is a tradeoff between financial stability and long-run output (i.e., reducing the probability of crises reduces long-run output).
    JEL: E3 E37 E44 F41 G01 G18
    Date: 2020–03
  22. By: Nikita Céspedes Reynaga; N.R. Ramírez-Rondán
    Abstract: Job finding and separation are not well studied in economies with high labor informality. In this paper we contribute to filling the gap in the literature of labor turnover, proposing a methodology to estimate both indicators in an economy with high informality. To this end we estimate indicators of job finding and separation rates for Peru's developing economy, in which labor informality stands at 70 percent. We find that, on average, these indicators in the formal sector are similar to those estimated in developed economies; however, in the informal sector the calculated indicators are approximately two times higher than those of the formal sector. The two indicators show considerable heterogeneity in the informal sector according to several observable categories; in addition, the separation rate is countercyclical and the finding rate is procyclical, this cyclicality being greater in the formal sector.
    JEL: E24 E26 J63 J64 O17
    Date: 2020–04
  23. By: Ederer, Stefan; Rehm, Miriam
    Abstract: The paper investigates how including the distribution of wealth changes the demand effects of redistributing functional income. It develops a model with an endogenous wealth distribution and shows that the endogenous rise in wealth inequality resulting from a redistribution towards profits weakens the growth effects of this redistribution. Consequently, a wage-led regime becomes more strongly wage-led. A profit-led regime on the other hand becomes less profit-led and there may even be a regime switch - in this case the short-run profit-led economy becomes wage-led in the long run due to the endogenous effects of wealth inequality. The paper thereby provides a possible explanation for the instability of demand regimes over time.
    Keywords: Wealth,Distribution,Aggregate Demand
    JEL: D31 D33 E12 E21 E25 E64
    Date: 2019
  24. By: Régis Barnichon; Geert Mesters
    Abstract: Model mis-specification remains a major concern in macroeconomics, and policy makers must often resort to heuristics to decide on policy actions; combining insights from multiple models and relying on judgment calls. Identifying the most appropriate, or optimal, policy in this manner can be challenging however. In this work, we propose a statistic -the Optimal Policy Perturbation (OPP)- to detect "optimization failures" in the policy decision process. The OPP does not rely on any specific underlying economic model, and its computation only requires (i) forecasts for the policy objectives conditional on the policy choice, and (ii) the impulse responses of the policy objectives to shocks to the policy instruments. We illustrate the OPP in the context of US monetary policy decisions. In forty years, we only detect one period with major optimization failures; during 2010-2012 when unconventional policy tools should have been used more intensively.
    Keywords: macroeconomic stabilization, optimal policy, impulse responses, sufficient statistics, forecast targeting
    JEL: C14 C32 E32 E52
    Date: 2020–04
  25. By: Shantanu Bagchi (Department of Economics, Towson University); Juergen Jung (Department of Economics, Towson University)
    Abstract: We examine the welfare effects of Social Security in a general equilibrium environment with realistic labor income, mortality, and health risks. We construct an overlapping generations model with rational-expectations households facing idiosyncratic health risk, profit maximizing firms, incomplete insurance markets, and a government that provides pensions and health insurance. We calibrate this model to the U.S. economy and perform two sets of computational experiments: (i) modifying the progressivity of the Social Security's benefit-earnings rule, and (ii) cutting Social Security's payroll tax. We find that both experiments have a larger effect on overall welfare in the presence of health risk, because health risk increases the importance of short-term consumption smoothing, both within work-life and retirement. Increased progressivity allows households to better smooth old-age consumption risk, and the payroll tax cut increases disposable income and allows better self-insurance against early-life health risk. We also find that labor supply is an important self-insurance tool in the presence of health risk, as increasing Social Security's progressivity has a smaller effect on overall welfare and cutting the payroll tax has a larger effect on overall welfare when labor supply is fixed. Finally, low-income households experience larger welfare gains both from increasing Social Security's progressivity and cutting the payroll tax, because of their relatively low ability to self-insure against health risk in general.
    Keywords: Health risk, Social Security, benefit-earnings rule, consumption smoothing, general equilibrium.
    JEL: E62 E21 H31 H55 I14
    Date: 2020–04
  26. By: Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Joseph E. Stiglitz; Tania Treibich
    Abstract: We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information, coordination hurdles and structural breaks. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. Our results suggest that fast and frugal robust heuristics may not be a second-best option but rather “rational” responses in complex and changing macroeconomic environments.
    JEL: C63 D8 E32 E6 O4
    Date: 2020–04
  27. By: Gabriel, Ricardo Duque; Pessoa, Ana Sofia
    Abstract: We investigate whether joining the European Monetary Union and losing the ability to set monetary policy affected the economic growth of 12 Eurozone countries. We use the synthetic control approach to create a counterfactual scenario for how each Eurozone country would have evolved without adopting the Euro. We let this matching algorithm determine which combination of other developed economies best resembles the pre-Euro path of twelve Eurozone economies. Our estimates suggest that there were some mild losers (France, Germany, Italy, and Portugal) and a clear winner (Ireland). Nevertheless, a GDP decomposition analysis suggests that the drivers of the economic gains and losses are heterogeneous.
    Keywords: Monetary union, Eurozone, Macroeconomic performance, Synthetic control method, GDP decomposition
    JEL: C32 E02 E30 E60 E65
    Date: 2020–03
  28. By: Emara, Noha; Ma, Jinpeng
    Abstract: Robert Barsky and Jeffrey Miron (1989) revealed the seasonal cycle of the U.S. economy from 1948 to 1985 was characterized by a “bubble-like” expansion in the second and fourth quarters, a “crash-like” contraction in the first quarter, and a mild contraction in the third quarter. We replicate, in part, their seasonal cycle analysis from 1946 to 2001. Our results are largely in line with theirs. Nonetheless, we find the seasonal cycle is not stable and can evolve across time. In particular, the Great Moderation affected both the business cycle and the seasonal cycle. Robert Barsky and Jeffrey Miron also found real aggregates, like the output, move together in the seasonal cycle across broadly defined sectors, similar to a phenomenon observed under the conventional business cycle. They posed a challenge question concerning why “the seasonal and the conventional business cycles are so similar.” To answer their question, we focus on a number of aggregate variables with a recursive application of the HP filter and find that aggregates, such as the GDP, consumption, the S&P 500 Index, and so forth, have a “bubble-like” expansion and a “crash-like” contraction in their cyclical trends in business cycle frequencies. Although preference shifts and production synergy are the two major forces that drive the seasonal cycle, we find the time-varying stochastic discount factor is the main cause of the business cycle and plays a more important role in macroeconomic fluctuations in business cycle frequencies than other factors.
    Keywords: Seasonal cycles, business cycles, jobless claims, unemployment rates, labor productivity, GDP, S&P 500
    JEL: C53 C82 E24
    Date: 2019
  29. By: Gianluca Benigno; Andrew Foerster; Christopher Otrok; Alessandro Rebucci
    Abstract: We estimate a workhorse DSGE model with an occasionally binding borrowing constraint. First, we propose a new specification of the occasionally binding constraint, where the transition between the unconstrained and constrained states is a stochastic function of the leverage level and the constraint multiplier. This specification maps into an endogenous regime-switching model. Second, we develop a general perturbation method for the solution of such a model. Third, we estimate the model with Bayesian methods to fit Mexico's business cycle and financial crisis history since 1981. The estimated model fits the data well, identifying three crisis episodes of varying duration and intensity: the Debt Crisis in the early-1980s, the Peso Crisis in the mid-1990s, and the Global Financial Crisis in the late-2000s. The crisis episodes generated by the estimated model display sluggish and long-lasting build-up and stagnation phases driven by plausible combinations of shocks. Different sets of shocks explain different variables over the business cycle and the three historical episodes of sudden stops identified.
    JEL: C11 E30 F41 G01
    Date: 2020–04
  30. By: Atif R. Mian; Ludwig Straub; Amir Sufi
    Abstract: Rising income inequality since the 1980s in the United States has generated a substantial increase in saving by the top of the income distribution, which we call the saving glut of the rich. The saving glut of the rich has been as large as the global saving glut, and it has not been associated with an increase in investment. Instead, the saving glut of the rich has been linked to the substantial dissaving and large accumulation of debt by the non-rich. Analysis using variation across states shows that the rise in top income shares can explain almost all of the accumulation of household debt held as a financial asset by the household sector. Since the Great Recession, the saving glut of the rich has been financing government deficits to a greater degree.
    JEL: D31 E21 E44
    Date: 2020–04
  31. By: Jonas Dovern; Lena Sophia Müller; Klaus Wohlrabe
    Abstract: Expectations are highly relevant for macroeconomic dynamics. Yet, the empirical evidence about properties of corporate macroeconomic expectations is scarce. Using new survey data on quantitative growth expectations of firms in Germany, we show that expectations are highly dispersed. The degree of dispersion depends on firm size and on how important the general economy is for the business of firms, supporting theories of rational inattention. Firms seem to extrapolate from local economic conditions and business experiences to aggregate growth expectations. Differences in growth expectations are associated with differences in firms’ investment and labor demand.
    Keywords: GDP expectations, expectation heterogeneity, firm, ifo business tendency survey
    JEL: D84 E32
    Date: 2020
  32. By: Dennery, Charles
    Abstract: With nominal wage rigidities, it is crucial to distinguish whether wages are set by workers or firms — whether we have monopoly or monopsony power. This paper provides a model of monopsony power in the labour market and a monopsonistic Phillips Curve. If wages are set by firms who face nominal rigidities, and there is inflation, firms cannot adjust their wages fully. The real wage falls, and labour supply hence output decreases. This provides a Phillips Curve where the output gap is negatively correlated with wage inflation. In such a world monetary policy affects the intertemporal labour supply, while the Phillips Curve is a labour demand curve. Interest rate cuts reduce the labour supply instead of boosting demand: they are contractionary.
    Keywords: Monopsony ; Nominal rigidities ; Phillips curve
    JEL: E2 E5 J4
    Date: 2019–12
  33. By: Marco Bonomo; Carlos Carvalho; Oleksiy Kryvtsov; Sigal Ribon; Rodolfo Rigato
    Abstract: Standard theories of price adjustment are based on the problem of a single-product firm, and therefore they may not be well suited to analyze price dynamics in the economy with multiproduct firms. To guide new theory, we study a unique dataset with comprehensive coverage of daily prices in large multi-product food retailers in Israel. We find that a typical retail store synchronizes its regular price changes around occasional “peak" days when, once or twice a month, it reprices around 10% of its products. To assess the implications of partial price synchronization for inflation dynamics, we develop a new price-setting model in which a firm sells a continuum of products and faces economies of scope in price adjustment. The model generates the partial synchronization pattern with peaks of re-pricing activity observed in the data. We show analytically and numerically that synchronization of price changes attenuates the average price response to a monetary shock; however, only high degrees of synchronization can materially strengthen monetary non-neutrality. Hence, the synchronization of price changes observed in the data is consistent with considerable aggregate price flexibility.
    Keywords: Inflation and prices; Market structure and pricing; Monetary Policy
    JEL: D21 D22 E31 E52 L11
    Date: 2020–04
  34. By: Joseph Kopecky; Alan M. Taylor
    Abstract: Population aging has been linked to global declines in interest rates. A similar trend shows that equity risk premia are on the rise. An existing literature can explain part of the decline in the trend in safe rates using demographics, but has no mechanism to speak to trends in relative asset prices. We calibrate a heterogeneous agent life-cycle model with equity markets, showing that this demographic channel can simultaneously account for both the majority of a downward trend in the risk free rate, while also increasing premium attached to risky assets. This is because the life cycle savings dynamics that have been well documented exert less pressure on risky assets as older households shift away from risk. Under reasonable calibrations we find declines in the safe rate that are considerably larger than most existing estimates between the years 1990 and 2017. We are also able to account for most of the rise in the equity risk premium. Projecting forward to 2050 we show that persistent demographic forces will continue push the risk free rate further into negative territory, while the equity risk premium remains elevated.
    JEL: E21 E43 G11 J11
    Date: 2020–04
  35. By: Zhenyu Gao; Michael Sockin; Wei Xiong
    Abstract: We develop a model to analyze information aggregation and learning in housing markets. In the presence of pervasive informational frictions, housing prices serve as important signals to households and capital producers about the economic strength of a neighborhood. Our model provides a novel mechanism for amplification through learning in which noise from the housing market can propagate to the local economy, distorting not only migration into the neighborhood, but also the supply of capital and labor. We provide consistent evidence of our model implications for housing price volatility and new construction using data from the recent U.S. housing cycle.
    JEL: E22 E44 G1 R3 R31
    Date: 2020–03
  36. By: Tanaka, Yasuhito
    Abstract: We show the existence of involuntary unemployment without assuming wage rigidity. We derive involuntary unemployment by considering utility maximization of consumers and profit maximization of firms in an overlapping generations model under monopolistic competition with increasing or constant returns to scale technology and homothetic preferences of consumers. Indivisibility of labor supply may be a ground for the existence of involuntary unemployment. However, we show that there exists involuntary unemployment even when labor supply is divisible. The existence involuntary unemployment in our model is due to that we use an overlapping generations model of consumptions and labor supply. In a two-periods overlapping generations model it is possible that a reduction of the nominal wage rate reduces unemployment. However, if we consider a three-periods overlapping generations model including a childhood period, a reduction of the nominal wage rate does not necessarily reduce unemployment.
    Keywords: involuntary unemployment, monopolistic competition, divisible labor supply, three-periods overlapping generations model.
    JEL: E12 E24
    Date: 2020–01–31
  37. By: Tursoy, Turgut; Mar'i, Muhammad
    Abstract: The study investigates the relationship between money supply and inflation and Turkey by employing wavelet analysis, mainly continuous wavelet analysis, cross wavelet transforms and wavelet coherence and phase-difference, for the period from 1987 to 2019. Our main finding confirms the modern quantity theory of money about the existence of a relationship between inflation and money supply in the short-run and long-run, and also confirms the traditional quantity theory of money about the existence of a relationship in the long run. The phase difference confirms the existence of a bidirectional relationship between money supply and inflation. The result is consistent with both the traditional quantity theory of money in the long run and the modern quantity theory of money in the short-run and long-run in terms of the existence of a relationship between money supply and inflation.
    Keywords: Money supply, inflation, wavelet analysis, Turkey, the quantity theory of money.
    JEL: E4 E5
    Date: 2020–04–12
  38. By: Thierry BETTI
    Abstract: In a two-country Dynamic and Stochastic General Equilibrium (DSGE) model, I document the stabilizing properties of fiscal transfers between currency union members according to the nature of public spending allowed by these transfers for the recipient economy. To do this, I model a two-level fiscal framework for the monetray union in which the central autority collects one share of national fiscal revenues and determine how these revenues are redistributed among countries following a simple fiscal transfer rule. We assume that the central autority is allowed to decide how the recipient economy use these funds. The main result of this paper is that the stabilizing properties of fiscal transfer schemes strongly depend on the way the recipient economy uses the funds following the fiscal transfer. Public consumption, transfers and VAT are more effective to stabilize macroeconomic differentials between both economies of the currency union when asymmetric demand shocks occur while the labor income tax and the social protection tax are more effective in the case of an asymmetric productivity shock.
    Keywords: Fiscal policy, new-Keynesian model, fiscal transfer mechanism, currency unions.
    JEL: E62 F41 F42 F J20
    Date: 2020
  39. By: Yashin, Pete
    Abstract: Market price of a financial asset may not coincide with the value of the counterpart obligations in the balance sheet of the issuer of this asset. The difference between these values is an unsecured part of the asset’s value, which forms financial bubbles and virtual wealth. Present article shows that the actually observed US unsecured virtual wealth has been growing since the 1980s amid cyclical fluctuations due to stock market volatility.
    Keywords: unsecured value; outpace growth of wealth; virtual wealth; inequality rising
    JEL: E32 G01 G10
    Date: 2020–03–13
  40. By: Ederer, Stefan; Mayerhofer, Maximilian; Rehm, Miriam
    Abstract: This paper estimates rates of return across the gross wealth distribution in eight European countries. Like differential saving rates, differential rates of return matter for Post Keynesian theory, because they impact the income and wealth distribution and add an explosive element to growth models. We show that differential rates of return matter empirically by merging data on household balance sheets with longrun returns for individual asset categories. We find that (1) the composition of wealth differentiates between three socioeconomic groups: 30% are asset-poor, 65% are middle-class home owners, and the top 5% are business-owning capitalists; (2) rates of return rise across all groups; and (3) rates of return broadly follow a log-shaped function across the distribution, where inequality in the lower half of the distribution is higher than in the upper half. If socioeconomic groups are collapsed into the bottom 95% workers and top 5% capitalists, then rates of return are 5.6% for the former and 7.2% for the latter.
    Keywords: rate of return,differential,wealth,distribution
    JEL: D31 D33 E43 E12 E21
    Date: 2019
  41. By: Gianluca Cafiso
    Abstract: We study loans from banking and non-banking lenders to different groups of borrowers in order to unveil significant differences on how those respond to a shock and evaluate possible alternative explanations for such differences. The objective is to gain insights useful to explain the loan puzzle: the unexpected increase of loans to firms in case of a monetary tightening. The analysis is based on a vector autoregression, estimated using Bayesian techniques, and has as object the US economy.
    Keywords: loan puzzle, households, corporate businesses, non-corporate businesses, VAR, Bayesian estimation
    JEL: E44 E51 G20 G21 C11
    Date: 2020
  42. By: Gern, Klaus-Jürgen; Hauber, Philipp; Kooths, Stefan; Stolzenburg, Ulrich
    Abstract: In early 2020 the world economy is severely affected by the consequences of a novel coronavirus and the measures implemented to arrest its spreading. With the progressive diffusion around the globe, action designed to contain the disease are weighing on economic activity in an increasing number of countries and are adding to the significant negative impact on growth from the steep decline of production in China, where the virus originates. Our previous call for a gradual acceleration of global growth has been radically revised, and we now expect world output to decline in the first half of this year. Asia and Europe, where the diffusion of the virus has progressed most and the probability of disruptions of production through breaks in the value chains is particularly high, are currently especially affected. Commodity exporters are hit by a substantial decline in raw material prices. Even under optimistic assumptions about the progress of the disease, which would allow for a rapid recovery of activity in the second half of the year, and despite significant support from macroeconomic policies, we expect global growth to decline from 3.0 percent in 2019 to just 2.0 percent in 2020, the lowest rate of growth since the Great Recession in 2009. In our benign scenario of a swift normalization of conditions for economic activity, output would rise by 4 percent next year. Thus we have revised down our forecast from December down by 1.1 percentage points for 2020 and up by 0.6 percentage points for 2021.The risks for a stronger and more prolonged downturn in global growth are pronounced, especially in the case that the containment of the virus takes longer than assumed or the outbreak of the epidemic is repeated before effective drugs or vaccines are available.
    Keywords: advanced economies,emerging economies,monetary policy
    Date: 2020
  43. By: Omoshoro-Jones, Oyeyinka Sunday; Bonga-Bonga, Lumengo
    Abstract: This paper examines the effects of intraregional spillovers propagated by Nigeria and South Africa on real economic activities and interest rates movement in three African regional blocs (i.e., ECOWAS, SADC and CEMAC) employing the factor augmented VAR (FAVAR) modelling approach over the period 1980Q2–2015Q1. Moreover, a counterfactual analysis, based on the same modelling approach, is conducted to assess what would happen to the real activities and monetary policy indicators of the three regional blocs in the absence of real and monetary shocks from the two countries. The paper finds that while the influence of Nigeria is limited to ECOWAS, South Africa plays an influential role on the real sectors and financial systems of all the regional blocs, albeit with short-lived impacts on ECOWAS and CEMAC. Moreover, the results of the counterfactual analysis show that real and financial activities in the SADC regions are highly influenced by South Africa. Our result suggests that countries with proper coordination of macroeconomic and monetary policies as well as organised financial market should be the sources of contagion and spillover, mostly at regional level.
    Keywords: FAVAR, growth shocks, intra-regional spillovers, monetary policy
    JEL: C55 E52 F42 F44
    Date: 2020–04–07
  44. By: Biécáková, Alena; Cortes, Guido Matias; Mazza, Jacopo
    Abstract: We find robust evidence that cohorts of graduates who enter college during worse economic times earn higher average wages than those who enter during better times. This difference is not explained by differences in economic conditions at the time of college graduation, changes in field of study composition, or changes in selection into occupations or industries. Cohorts who start college in bad times are not more positively selected based on their high-school outcomes, but they graduate with higher college grades, and earn higher wages conditional on their grades. Our results suggest that these cohorts exert more effort during their studies.
    Keywords: Business Cycle,Higher Education,Cohort Effects
    JEL: I23 J24 J31 E32
    Date: 2020
  45. By: Lise Clain-Chamosset-Yvrard (Univ. Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Xavier Raurich (University of Barcelona, Department of Economics, Av. Diagonal 696, 08034 Barcelona (Spain)); Thomas Seegmuller (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France.)
    Abstract: Several recent papers introduce different mechanisms to explain why asset bubbles are observed in periods of larger growth. These papers share common assumptions, heterogeneity among traders and credit market imperfection , but differ in the role of the bubble, used to provide liquidities or as collateral in a borrowing constraint. In this paper, we introduce heterogeneous traders by considering an overlapping generations model with households living three periods. Young households cannot invest in capital, while adults have access to investment and face a borrowing constraint. Introducing bubbles in a quite general way, encompassing the different roles they have in the existing literature, we show that the bubble may enhance growth when the borrowing constraint is binding. More significantly, our results do not depend on the-liquidity or collateral-role attributed to the bubble. We finally extend our analysis to a stochas-tic bubble, which may burst with a positive probability. Because credit and bubble are no more perfectly substitutable assets, the liquidity and collateral roles of the bubble are not equivalent. Growth is larger when bubbles play the liquidity role, because the burst of a bubble used for liquidity is less damaging to agents who invest in capital.
    JEL: E44 G11
    Date: 2020–04
  46. By: Polbin, Andrey
    Abstract: This paper presents an unobserved component model for real GDP, real household consumption, and real investment of an oil-exporting economy. The model decomposes domestic variables’ dynamics into permanent and transitory components, accounting for dependence on oil prices in the short and long-run, as well as for the common long-run economic growth and the common cyclical behavior. Estimated on the Russian macroeconomic variables, the model exhibits strong dependence on oil prices.
    Keywords: oil prices; GDP; consumption; investment; unobserved component model; common growth
    JEL: C13 C32 C51 E20
    Date: 2020–03
  47. By: Scott R. Baker; Nicholas Bloom; Steven J. Davis; Kyle J. Kost; Marco C. Sammon; Tasaneeya Viratyosin
    Abstract: No previous infectious disease outbreak, including the Spanish Flu, has impacted the stock market as powerfully as the COVID-19 pandemic. We use text-based methods to develop this point with respect to large daily stock market moves back to 1900 and with respect to overall stock market volatility back to 1985. We also argue that policy responses to the COVID-19 pandemic provide the most compelling explanation for its unprecedented stock market imact.
    JEL: E44 G12
    Date: 2020–04
  48. By: Blaise Gnimassoun; Isabelle Do Santos
    Abstract: Many macroeconomic, institutional, demographic, social and political variables have been proposed by previous studies as significant determinants of public deficits in developing countries. This paper asks whether their estimated impact on public deficits is robust under thousands of possible alternative specifications. We deal with model uncertainty using Sala-i-Martin’s Extreme Bound Analysis. Our results clearly show that external shocks, the debt ratio, financial development, the level of democracy and government control over expenditures are robustly associated with fiscal deficits. Public deficits are lower in countries which provide better stability of public expenditure in the face of revenue instability and which are less exposed to negative external shocks. In contrast, fiscal deficits increase with the debt ratio, financial development and the level of democracy. The relative importance of external shocks in all the regressions argues in favour of greater economic diversification in order to mitigate the impact of negative shocks on public finances.
    Keywords: Fiscal policy; Budget deficits; Sensitivity analysis; Robust regressions.
    JEL: E62 H61 H62 C31
    Date: 2020
  49. By: Fabio Ghironi; Galip Kemal Ozhan
    Abstract: We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and to adjust the composition of external account between shortterm securities and foreign direct investment (FDI). We identify the trade-offs faced in navigating between external balance and price stability. The interest rate uncertainty policy discourages short-term inflows mainly through portfolio risk and precautionary saving channels. A markup channel generates net FDI inflows under imperfect exchange rate passthrough. We further investigate new channels under different assumptions about the irreversibility of FDI, the currency of export invoicing, risk aversion of outside agents, and effective lower bound in the rest of the world. Under every scenario, uncertainty policy is inflationary.
    Keywords: International financial markets; Monetary policy framework; Uncertainty and monetary policy
    JEL: E32 F32 F38 G15
    Date: 2020–04
  50. By: Kris James Mitchener; Gary Richardson
    Abstract: The Great Depression is infamous for banking panics, which were a symptomatic of a phenomenon that scholars have labeled a contagion of fear. Using geocoded, microdata on bank distress, we develop metrics that illuminate the incidence of these events and how banks that remained in operation after panics responded. We show that between 1929-32 banking panics reduced lending by 13%, relative to its 1929 value, and the money multiplier and money supply by 36%. The banking panics, in other words, caused about 41% of the decline in bank lending and about nine-tenths of the decline in the money multiplier during the Great Depression.
    Keywords: banking panics, Great Depression, contagion, monetary deflation
    JEL: E44 G01 G21 L14 N22
    Date: 2020
  51. By: Martin S. Eichenbaum; Sergio Rebelo; Mathias Trabandt
    Abstract: We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the effect of their economic decisions on the spread of the virus. In our benchmark scenario, the optimal containment policy increases the severity of the recession but saves roughly half a million lives in the U.S.
    JEL: E1 H0 I1
    Date: 2020–03
  52. By: Mondolo, Jasmine
    Abstract: In recent years, a number of papers have attempted to shed light on some macroeconomic dynamics in a few countries, especially in the US, which raise some concerns and which may be influenced by variations in corporate market power. This study mainly aims to understand how and to what extent Italy differs from other economies in terms of these trends, and whether there are relevant within-country differences. Specifically, we first look at the trends, based on aggregate data, of domestic investment rate, labor share and capital share, labor force participation, wage dispersion and economic dynamism, observed in Italy since the mid-nighties, and make some comparisons with the US and the EU. Then, since national data may hide relevant within-country heterogeneity, when possible, we split Italy in four macro-areas. Further, we focus on a specific Italian region, namely Trentino, for which we also recover the trends in private investment rate, factor shares and profit share, for the years 2009-2015, using a firm-level dataset compiled by Ispat. The main results of this study are as follows: the macroeconomic trends under scrutiny observed in Italy since the second half of the nineties partly diverge from those emerged in the US. In particular, labor share presents a mixed trend during the selected time period, domestic investment has been recovering after the contraction occurred in the aftermath of the economic recession, and labor force participation exhibits a clear average positive trend. In addition, the overall picture hides considerable within-country heterogeneity (more in terms of levels than in terms of trends). For instance, labor force participation is still sensibly lower in the Mezzogiorno than in the rest of the country. As for Trentino, this region exhibits a relatively high level of investment rate, a relatively small wage dispersion (proxied by the Gini coefficient) in recent years and, in most of the years since 2002, a net turnover rate of firms which is higher than the average national one.
    Keywords: market power, markup, labor share, capital share, investment, wage dispersion, economic dynamism
    JEL: D2 E2 J3 L1
    Date: 2020–03
  53. By: Marco Ortiz (Universidad del Pacífico); Gerardo Herrera (Universidad del Pacífico)
    Abstract: The optimal response to adverse external shocks in an economy involves the choice of a exchange rate policy. While the traditional Mundell-Flemming inspired theories support a floating exchange rate, evidence shows that central banks intervene in foreign exchange markets regularly. One of the reasons for these interventions relies on the consequences of large depreciations triggering negative balance sheet effects in economies with dollarized liabilities as shown by Benigno et al. (2013) and Devereux and Poon (2011). This paper extends this literature by introducing heterogeneity in credit constraints across sectors. Our findings support that "leaning against the wind" policy responses are optimal even when only a sector of the economy is affected by the credit constraints. Thus, relative price distortions provide an additional justification for these policies. We show that the vulnerability of the economy to large negative external shocks depends not only on the overall unhedged foreign debt, but also on its distribution across sectors.
    JEL: E5 F3 G15
    Date: 2020–02
  54. By: Scott R. Baker; R.A. Farrokhnia; Steffen Meyer; Michaela Pagel; Constantine Yannelis
    Abstract: We explore how household consumption responds to epidemics, utilizing transaction-level household financial data to investigate the impact of the COVID-19 virus. As the number of cases grew, households began to radically alter their typical spending across a number of major categories. Initially spending increased sharply, particularly in retail, credit card spending and food items. This was followed by a sharp decrease in overall spending. Households responded most strongly in states with shelter-in-place orders in place by March 29th. We explore heterogeneity across partisan affiliation, demographics and income. Greater levels of social distancing are associated with drops in spending, particularly in restaurants and retail.
    JEL: D14 E21
    Date: 2020–04
  55. By: Alvin Ang (Department of Economics, Ateneo de Manila University); Jeremaiah Opiniano (Institute for Migration and Development Issues)
    Abstract: Billion-dollar remittances from an estimated 10.3 million Filipinos in over-200 countries and territories will be a major economic lifeline for the Philippines, given today’s global pandemic due to SARS-CoV-2 and COVID-19. However, the new coronavirus and the resultant area quarantines and lockdowns are already as globally dispersed as the overseas Filipino population. Countries are now rolling out economic stimulus packages for citizens and critical economic sectors. Foreign workers like Filipinos will be affected by these economic disruptions. Add the prevailing drop of global oil prices and the looming global recession to these ongoing woes facing countries and the Philippine economy’s reliance on remittances. This paper projects two short-term trends that will affect Filipino overseas work and dollar remittances. One, cash remittances will visibly decline —from US$30 billion in 2019 to about US$ 24-to-27 billion this year (that being the steepest year-on-year decline of remittances in Philippine migration history). And two, about 300,000 to 400,000 overseas Filipino workers will be affected by lay-offs and salary cuts worldwide. The Philippines is the world’s most organized migration bureaucracy among migrant-origin countries. However, the COVID-19 pandemic may well be the most challenging crisis facing the responsive migration management system of the Philippines.
    Keywords: Overseas Filipinos, remittances, pandemic, COVID-19, The Philippines, recession
    JEL: E20 F01 F22 F24 F62 F66
    Date: 2020–04
  56. By: Ozili, Peterson; Arun, Thankom;
    Abstract: How did a health crisis translate to an economic crisis? Why did the spread of the coronavirus bring the global economy to its knees? The answer lies in two methods by which coronavirus stifled economic activities. First, the spread of the virus encouraged social distancing which led to the shutdown of financial markets, corporate offices, businesses and events. Second, the exponential rate at which the virus was spreading, and the heightened uncertainty about how bad the situation could get, led to flight to safety in consumption and investment among consumers, investors and international trade partners.
    Keywords: Covid-19, Coronavirus, SARS-CoV-2, outbreak, pandemic, financial crisis, global recession, public health, spillovers, monetary policy, fiscal policy, liquidity provision, Central banks.
    JEL: E3 G15 G28 H81 H84 I1
    Date: 2020
  57. By: Epstein, Brendan; Mukherjee, Rahul; Finkelstein Shapiro, Alan; Ramnath, Shanthi
    Abstract: Hours worked are fundamentally important for aggregate economic activity, yet canonical macroeconomic models fail dramatically at tracking its long-run trends. We develop an intuitive and tractable extension of the canonical model that decomposes trend hours into extensive and intensive margins via household-side employment-attainment costs and firm-side employment adjustment costs. Its predictions track very well the trend behavior of hours, and its two underlying margins, in the United States and a host of OECD countries. Our framework is relevant for analyzing the long run labor-market effects of a number of factors such as productivity growth, and tax or labor-market reforms.
    Keywords: CLM model; DLM model; Europe; hours worked per population; labor-market policy; long-run labor wedge; OECD countries; taxes; United States; U.S. tax puzzle.
    JEL: E60 H20 J20
    Date: 2020–03
  58. By: Blaise Gnimassoun; Isabelle Do Santos
    Abstract: Ce papier étudie la soutenabilité des finances publiques dans les pays en développement et examine si celle-ci dépend du choix de leur politique de change. A cette fin, nous utilisons une approche économétrique basée sur la cointégration en panel et un échantillon de 110 pays sur la période 1998-2017. Nos résultats montrent que les finances publiques de ces pays sont soutenables. Cependant le niveau de soutenabilité est faible en l’absence du stabilisateur automatique. Le choix du régime de change n’influence pas la soutenabilité des finances publiques. Ce résultat s’explique en partie par les effets asymétriques des régimes de change sur les performances budgétaires. Alors que les régimes de change fixes sont associés à de meilleures performances budgétaires globales, les régimes de change flexibles contribuent mieux à la réduction des déficits budgétaires.
    Keywords: Politique budgétaire, soutenabilité des finances publiques, régimes de change.
    JEL: E62 H6 F33
    Date: 2020
  59. By: David W. Berger; Kyle F. Herkenhoff; Simon Mongey
    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 occur 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.
    JEL: E24 I18
    Date: 2020–03
  60. By: Uchida, Yuki; Ono, Tetsuo
    Abstract: This study presents voting on policies including labor and capital income taxes and public debt in an overlapping-generations model with physical and human capital accumulation, and it then analyzes the effects of a debt ceiling on a government's policy formation and its impact on growth and welfare. The debt ceiling induces the government to shift the tax burdens from the older to younger generations, but stimulates physical capital accumulation and may increase public education expenditure, resulting in a higher growth rate. Alternatively, the debt ceiling is measured from the viewpoint of a benevolent planner; lowering the debt ceiling (i.e., tightening fiscal discipline) makes it possible for the government to approach the planner's allocation in an aging society.
    Keywords: Debt ceiling; Probabilistic voting, Public debt, Economic growth, Overlapping generations
    JEL: D70 E24 H63
    Date: 2020–03–31
  61. By: Evelina, Julius; Samuel, Nuugulu; Lukas Homateni, Julius
    Abstract: The outbreak of the Corona Virus in December 2019 brought panic not only in China and the European continent which were considered the virus’s epicentre, but worldwide. In Africa, the cases of the virus increased significantly since February 2020.The evolution of the disease and its economic impact is however uncertain, thereby making it difficult for policymakers to formulate an appropriate macroeconomic policy response. The immediate response that countries adopted was the lockdown “stay at home” measure, aiming to avoid movement of people since the virus was believed to spread through contacts with the infected persons. The lockdown also had its own economic impact as it puts halt to most economic activities and operations, with an exception of essential services. In this paper, we estimated the economic impact of the virus on the Namibian economy. The findings are that, an estimated amount of 5 to 7.5 billion Namibia dollars is lost in GDP owing to the impact of the lockdown measures on the various sectors in the primary, secondary and tertiary industries. Due to loss of income, loss of business trading hours and loss of jobs; a loss of private demand (consumption) of N$6 billion to N$12 billion was estimated for Namibia. This loss takes back the country’s private consumption to the level it was 4 to 5 years back. Although the government has already started implementing the fiscal stimulus aimed to cushion the impact of the pandemic, the paper established that a once off income grant aimed for the unemployed and lost income is far lower than the lost income due to the lockdown. Among the proposed policy recommendations is the need to allow the informal sector to operate under specified conditions in efforts to ensure that not so much is lost in the informal sector which the government may need to again issue fiscal stimulus on an already limited fiscal space. Another policy proposal is the need to draw up a post recovery strategy in dealing with the most affected sectors of the economy.
    Keywords: COVID-19, lockdown, GDP, Consumption
    JEL: E6
    Date: 2020–04–14
  62. By: Yashin, Pete
    Abstract: Market price of a financial asset may not coincide with the value of the counterpart obligations in the balance sheet of the issuer of this asset. The difference between these values is an unsecured part of the asset’s value, which forms financial bubbles and virtual wealth. Present article shows that the actually observed US unsecured virtual wealth has been growing since the 1980s amid cyclical fluctuations due to stock market volatility.
    Keywords: Key words: unsecured value; outpace growth of wealth; virtual wealth; inequality rising
    JEL: E00 G00 G01
    Date: 2020–04–13
  63. By: Behringer, Jan; van Treeck, Till
    Abstract: In this paper, we analyze how corporate sector behavior has affected national current account balances in a sample of 25 countries for the period 1980-2015. A consistent finding is that an increase (decrease) in corporate net lending leads to an increase (decrease) in the current account, controlling for standard current account determinants. We disentangle the current account effects of corporate saving and investment and we explore a number of alternative explanations of our results, including incomplete piercing of the "corporate veil" by households, foreign direct investment activities, a temporary crisis phenomenon, and changes in income inequality. We conclude that corporate sector saving is an important driver of macroeconomic trends and that the rise of corporate net lending especially in a number of current account surplus countries has contributed considerably to global current account imbalances.
    Keywords: Corporate sector,sectoral financial balances,current account determinants
    JEL: E21 F41 G35
    Date: 2019
  64. By: Israel Garcia (University of Marburg); Bernd Hayo (University of Marburg)
    Abstract: A widespread view in the 'political budget cycles' literature is that incumbent politicians seek to influence voters' perceptions of their competence and/or preferences by using the composition of the fiscal budget as a signalling tool. However, little is known about whether voters actually receive and perceive the signal in that way. To empirically assess the relevance of the signalling channel at the municipal level, we conducted a survey among 2,000 representative German citizens in 2018. Only a small fraction of voters feel well-informed about the fiscal budget signal and use the information it contains to decide whether to vote for the incumbent politician. Persons paying more attention to the signal sent by local politicians live in smaller municipalities, are more satisfied with their economic situation, are more educated, and do not feel that they are being electorally targeted. Our analysis suggests that the municipal voting decision, at least in Germany, is a more complex process than is commonly assumed in political budget cycle models.
    Keywords: Political budget cycles, Signalling mechanism, Local government, Fiscal policy, Representative population survey, Germany
    JEL: E62 D83 H70 H72
    Date: 2020
  65. By: Hoffmann, Mathias; Kliem, Martin; Krause, Michael; Moyen, Stephane; Sauer, Radek
    Abstract: We assess to what extent wage inflation policies in Germany could contribute to an economic rebalancing in the euro area and the rest of the world. We find that a rise in nominal wage inflation has positive short-run effects on inflation and output in Germany and the rest of the euro area. The duration of constant interest rates and expectations about the monetary policy stance matter to the magnitude of the results obtained. We establish that the modelling of the trade relationships with the rest of the world is of particular importance, as it allows to capture the induced relative price movements and hence changes in competitiveness within the three regions. Our results are obtained from an estimated DSGE model which consists of Germany, the rest of the euro area, and the rest of the world.
    Keywords: DSGE model,Bayesian estimation,Monetary policy,Trade balance
    Date: 2020
  66. By: Stefan Ederer; Armon Rezai
    Abstract: We study endogenous employment and distribution dynamics in a Post-Keynesian model of Kalecki-Steindl tradition. Productivity adjustments stabilise employment and the labour share in the long run: technological change allows firms to replenish the reserve army of workers in struggle over income shares and thereby keep wage demands in check. We discuss stability conditions and the equilibrium dynamics. This allows us to study how legal working time and its reduction affect the equilibrium. We find that a demand shock is likely to lower the profit share and increase the employment rate. A supply shock in contrast tends to have detrimental effects on employment and income distribution. Labour market institutions and a working time reduction have no long-term effect on growth, distribution and inflation in the model. The effects on the level of capital stock and output however are positive in a wage-led demand regime. Furthermore, an erosion of labour market institutions dampens inflation temporarily. The model provides possible explanations as to the causes of several current economic phenomena such as secular stagnation, digitalisation, and the break-down of the Philips curve.
    Keywords: Post-Keynesian economics, productivity, technological change, income distribution, employment
    Date: 2020–04–12
  67. By: Richard Blundell (University College London and Institute for Fiscal Studies); Ran Gu (University of Essex and Institute for Fiscal Studies); Soren Leth-Petersen (University of Copenhagen, CEBI and CEPR); Hamish Low (University of Oxford and Institute for Fiscal Studies); Costas Meghir (Yale University, NBER, IZA, CEPR and the Institute for Fiscal Studies)
    Abstract: We specify an equilibrium model of car ownership with private information where individuals sell and purchase new and second-hand cars over their life-cycle. Private information induces a transaction cost and distorts the market reducing the value of a car as a savings instrument. We estimate the model using data on car ownership in Denmark, linked to register data. The lemons penalty is estimated to be 18% of the price in the first year of ownership, declining with the length of ownership. It leads to large reductions in the turnover of cars and in the probability of downgrading at job loss.
    Keywords: Lemons penalty, car market, estimated life-cycle equilibrium model
    JEL: D82 E21
    Date: 2019–12–06
  68. By: Christopher Busch; Dirk Krueger; Alexander Ludwig; Irina Popova; Zainab Iftikhar
    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: 2020–04
  69. By: Ivan Paya; David Peel; Konstantinos Georgalos
    Abstract: This is the first paper to provide a comprehensive theoretical analysis of the third and fourth order lottery preferences implied by cumulative prospect theory (CPT). We consider the lottery choices from three alternative reference points: the status quo, the expected payout and the MaxMin. We report a large number of new results given the standard assumptions about probability weighting. We demonstrate, for example, the general result that from the status quo reference point there is no third order reflection effect but there is a fourth order reflection effect. When the average payout or the MaxMin is the reference point, we lose generality but can demonstrate that representative individuals with power value functions can make prudent or imprudent, temperate or intemperate choices depending on the precise magnitude of lottery payoffs. In addition to this, we show that these representative CPT individuals can exhibit some surprising combinations of second with third and fourth order risk attitudes. Throughout the paper, we contrast our theoretical predictions with results reported in the literature and we are able to reconcile some conflicting evidence on higher order risk preferences.
    Keywords: cumulative prospect theory, decision making under risk, experiments, higher order preferences, reflection effect
    JEL: D8 E21
    Date: 2020
  70. By: Allan Wright; Patrice Borda (CREDDI - Centre de Recherche en Economie et en Droit du Développement Insulaire - UA - Université des Antilles)
    Date: 2020–04–04
  71. By: Orland, Andreas; Rostam-Afschar, Davud
    Abstract: In the past years, work time in many industries has become increasingly flexible opening up a new channel for intertemporal substitution. To study this, we set up a two-period model with wage uncertainty. This extends the standard saving model by allowing a worker to allocate a fixed time budget between two work-shifts or to save. To test the existence of these channels, we conduct laboratory consumption/saving experiments. A novel feature of our experiments is that we tie them to a real-effort style task. In four treatments, we turn on and off the two channels for consumption smoothing: saving and time allocation. Our four main findings are: (i) subjects exercise more effort under certainty than under risk; (ii) savings are strictly positive for at least 85 percent of subjects (iii) a majority of subjects uses time allocation to smooth consumption; (iv) saving and time shifting are substitutes, though not perfect substitutes.
    Keywords: precautionary saving,labor supply,intertemporal substitution,experiment
    JEL: D14 E21 J22 C91 D81
    Date: 2020
  72. By: Sokolovskyi, Dmytro
    Abstract: The subject of this study is the modeling of Race to the bottom to verify, is really Race to the bottom is a kind of Prisoner’s dilemma. The importance of this issue is explained by the following: if Race to the bottom is a kind of Prisoner’s dilemma, achieving equilibrium tax competition two or more economies leads to deterioration of their economic results As a result, governments have to weaken social, environmental, labor standards and norms. At the same time, many statistical studies of real economies do not discover the above consequence of the tax competition, so it is concluded that there is no Race to the bottom. On the other hand, if Race to the bottom is not a kind of PD then that there is no deterioration in standards during the tax competition does not mean that there is no Race to the bottom. Using a game-theoretic model we consider 3 objective functions for government behavior: the investment volume, the budget revenue, and their combination. For each function, there were calculated conditions under which Race to the bottom is a kind of Prisoner’s dilemma. Introduced a concept of tax-investment equilibrium, as a situation in which all economies are equal for the investor. For the tax-investment equilibrium, there were calculated sufficient conditions under which Race to the bottom is a kind of Prisoner’s dilemma.
    Keywords: Race to the bottom; Prisoner’s dilemma; tax competition; government behavior; corporate tax rate; game theory; tax-investment equilibrium
    JEL: C72 E62 H30
    Date: 2020–04–01
  73. By: Murach, Michael; Wagner, Helmut
    Abstract: We study the effects of external shocks on the business cycle in China and its sectors (agriculture, industry, and services) in terms of real GDP growth using several small dimensional VAR models with Cholesky identification for the period 1996--2014. We show that China - in particular its industrial sector - is susceptible to shocks, which can be related to a trade channel, a financial channel, and a confidence channel of business cycle transmission from major trading partner countries to the Chinese economy. We extend the previous literature by explicitly focusing on response of the Chinese economy at the sectoral level and investigating the presence of confidence channels by analyzing the reaction in Chinese business and consumer confidence. If interpreted from the perspective of ongoing structural change and rebalancing in China, our findings can be interpreted as the result of a still very dominant industrial sector, and a previously export- and investment-driven growth model. Tertiarization in China could be one way of increasing the economy's future resilience to external shocks. However, the future structure of both the industrial and service sectors may be very decisive.
    Keywords: International transmission channels,Transmission of shocks,Structural vector autoregression,Structural change
    JEL: F43 F44 C32
    Date: 2019
  74. By: Francesco Lamperti; Valentina Bosetti; Andrea Roventini; Massimo Tavoni
    Abstract: Recent evidence suggests that climate change will significantly affect macro-economic growth and several productive elements of modern economies, such as workers and land [Dell et al., 2009, Burke et al., 2015, Carleton and Hsiang, 2016]. Although historical records indicate that economic shocks lead to financial instability, few studies have focused on the impacts of climate change on the financial system [Dietz et al., 2016, Dafermos et al., 2018]. This paper evaluates a global economy where multiple banks provide credit to production activities exposed to climate damages. We use an agent based climate-macroeconomic model calibrated on stylized facts, future scenarios and climate impact functions [Nordhaus, 2017] affecting labour and capital. Results indicate that climate change will increase the frequency of banking crises (+26-148%). The public costs of rescuing insolvent banks will cause an additional burden of about 5-to-15% of GDP per year, and an increase of public debt to GDP by a factor of 2. We estimate that around 20% of such effects are caused by the deterioration of banks' balance-sheets. Macroprudential regulation attenuates bailout costs, but only moderately. Our results show that leaving out the financial system from climate-economy integrated assessment may lead to an underestimation of climate impacts, and that financial regulation can play a role in mitigating them.
    Keywords: Climate Change; Climate Impacts; Financial Crises; Public Debt; Macroprudential Policy.
    Date: 2019–12–31
  75. By: Vladimir Čavrak (Faculty of Economics and Business, University of Zagreb)
    Abstract: Gospodarska kriza izazvana korona virusom Covid-19 jedinstvena je u dosadašnjoj ekonomskoj povijesti po načinu i brzini nastanka, globalnom obuhvatu i posljedicama. U tekstu se objašnjavaju mehanizmi utjecaja zdravstvenog šok na gospodarstvo te makroekonomski okvir ublažavanja i izlaska iz krize. Za analizu se koristi makroekonomski AS-AD model s inflacijom na vertikalnoj osi. Empirijske činjenice prikazuju slučaj Republike Hrvatske.
    Keywords: Makroekonomska politika, agregatna potražnja, agregatna ponuda, očekivanja, AS-AD model, ekonomska kriza
    JEL: E60
    Date: 2020–04–11
  76. By: Roel Beetsma; Oliwia Komada; Krzysztof Makarski; Joanna Tyrowicz
    Abstract: We analyze the political stability of capital funded social security. In particular, using a stylized theoretical framework we study the mechanisms behind governments capturing pension assets in order to lower current taxes. This is followed by an analysis of the analogous mechanisms in a fully-edged overlapping generations model with intra-cohort heterogeneity. Funding is efficient in a Kaldor-Hicks sense. Individuals vote on capturing the accumulated pension assets and replacing the funded pension pillar with a pay-as-you-go scheme. We show that even if capturing assets reduces welfare in the long run, it always has sufficient political support from those alive at the moment of the vote.
    Keywords: funded pensions, asset capture, majority voting, welfare
    JEL: H55 D72 E17 E27
    Date: 2020
  77. By: 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 first provide a brief exposition of the simplest version of the selfish life cycle model or hypothesis, which is undoubtedly the most widely used theoretical model of household behavior in economics, and then survey the literature on household saving behavior in Japan (with emphasis on the author's own past research) to shed light on whether or not the selfish life-cycle model applies in the case of Japan. In particular, we survey the literature on the impact of the age structure of the population on the saving rate, the saving behavior of retired households, saving motives, the prevalence of bequests, bequest motives, tests of altruism, and the importance of borrowing (liquidity) constraints and show that almost all of the available evidence suggests that the selfish life-cycle model applies to a greater extent in Japan than it does in other countries. Finally, we discuss the policy implications of our findings.
    Keywords: Age structure of the population; Aged; Altruism; Bequests; Bequest motives; Borrowing constraints; Consumption; Dissaving; Elderly; Estates; Household behavior; Household saving; Households; Inheritances; Intergenerational transfers; Japan; Lifecycle hypothesis; Life-cycle model; Life-cycle theory; Liquidity constraints; Old age; Retirees; Saving; Saving motives; Selfishness
    JEL: D11 D12 D14 D64 E21 J14
    Date: 2020–03
  78. By: Shalva Mkhatrishvili (Macroeconomic Research Division, National Bank of Georgia); Douglas Laxton (NOVA School of Business and Economics, Saddle Point Research, The Better Policy Project); Davit Tutberidze (Macroeconomic Research Division, National Bank of Georgia); Tamta Sopromadze (Macroeconomic Research Division, National Bank of Georgia); Saba Metreveli (Macroeconomic Research Division, National Bank of Georgia); Lasha Arevadze (Macroeconomic Research Division, National Bank of Georgia); Tamar Mdivnishvili (Macroeconomic Research Division, National Bank of Georgia); Giorgi Tsutskiridze (Macroeconomic Research Division, National Bank of Georgia)
    Abstract: There has been an increased acceptance of non-linear linkages being the major driver of the most pronounced phases of business and financial cycles. However, modelling these non-linear phenomena has been a challenge, since existing solutions methods are either efficient but not able to accurately capture non-linear dynamics (e.g. linear methods), or accurate but quite resource-intensive (e.g. stacked system or stochastic Extended Path). This paper proposes two new solution approaches that try to be accurate enough and less costly. Moreover, one of those methods lets us do Kalman filtering on nonlinear models in a non-linear way, which is also important for this kind of models, in general, to be more policy-relevant. Impulse responses, simulations and Kalman filtering exercises show the advantages of those new approaches when applied to a simple, but strongly non-linear, monetary policy model.
    Keywords: Non-linear dynamic models, Solution methods, Monetary policy
    JEL: C60 C61 C63 E17
    Date: 2019–10
  79. By: Icefield, William
    Abstract: It is sometimes argued that one cannot criticize general equilibrium models on grounds of equilibrium non-existence. I argue that once problematic treatments of interests and profits in general equilibrium models are corrected, equilibrium non-existence issues arise again. Uniform rate of interest and zero economic profit of firms must hold after corrections, which allow equilibrium existence for only restricted circumstances. This demonstrates ongoing relevance of the Cambridge capital controversies.
    Keywords: Cambridge capital controversies; general equilibrium; uniform rate of interest; zero economic profit; equilibrium existence
    JEL: B22 D50 E12 E13
    Date: 2020–01–22
  80. By: Ventura, Luigi; Yuji Horioka, Charles
    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, D12, D14, D15, D64, E21, J14
    Date: 2020–04
  81. By: Fenoaltea, Stefano
    Abstract: This paper documents the derivation of the new expenditure-side historical national accounts, and of the estimated composition of investment, presented in the author’s “Reconstructing the past: Italy’s historical national accounts, 1861–1913,” M.P.R.A. n. 98350, January 2020.
    Keywords: Italy, Production, Measurement, Historical National Accounts
    JEL: C13 E01 N01
    Date: 2020–04
  82. By: Seyed Mohammadreza Davoodalhosseini
    Abstract: Constrained efficiency is characterized in an asset market, subject to search frictions, where sellers are privately informed about the type of their asset. The type determines the opportunity cost of the asset for sellers and the quality of the asset for buyers. The constrained efficient allocation can be implemented using a sales tax schedule. The role of these taxes is to redistribute resources between different types of sellers to relax incentive constraints. The optimal tax schedule strictly increases welfare compared with the laissez-faire equilibrium, can sometimes lead to an allocation that Pareto dominates the equilibrium, and can sometimes lead to the first-best allocation (i.e., taxation can correct all inefficiencies caused by adverse selection). The shape of the optimal tax schedule is also investigated. If the quality of assets for buyers is a monotonic function of the sellers' opportunity cost (e.g., more distressed sellers have lower-quality assets), the schedule requires that the trading of low-quality assets be subsidized and trading of high-quality assets be taxed, although the schedule is not necessarily monotone in the quality or price of the assets. Otherwise, trading of some low-quality assets may be taxed and trading of some high-quality assets may be subsidized.
    Keywords: Economic models; Financial markets; Financial system regulation and policies; Market structure and pricing
    JEL: D83 E24 G10 J64
    Date: 2020–04
  83. By: Elie Gerschel (IPP - Institut des politiques publiques, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Alejandra Martinez (IPP - Institut des politiques publiques); Isabelle Mejean (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, IPP - Institut des politiques publiques)
    Abstract: Before spreading globally, the Covid-19 epidemic was concentrated in the Hubei province. To contain the spread of the virus, the Chinese government has imposed quarantine measures and travel restrictions, entailing the slowdown of economic activity. We study the propagation of this geographically concentrated productivity slowdown to the global economy, through global value chains. Reliance on Chinese inputs has dramatically increased since the early 2000s. As a consequence, most countries are exposed to the Chinese productivity slowdown, both directly through their imports of Chinese inputs and indirectly, through other inputs themselves produced with some Chinese value added. This note aims at quantifying the total exposure of France compared to other countries. First, we compute the share of Chinese value added in French production. Then, we use data at the country and sector levels to quantify the impact of travel restrictions on French GDP.
    Date: 2020–03
  84. By: Fenoaltea, Stefano
    Abstract: This paper documents the derivation of the revised production-side estimates presented in the author’s “Reconstructing the past: Italy’s historical national accounts, 1861–1913,” M.P.R.A. n. 98350, January 2020.
    Keywords: Italy, production, measurement, historical national accounts
    JEL: C13 E01 N01
    Date: 2020–03
  85. By: Andrew B. Abel; Stavros Panageas
    Abstract: A financial constraint that prevents access to external funds induces non-classical measurement error in average q as a proxy for unobservable marginal q. Unlike classical measurement error, this measurement error biases upward the coefficient on average q in a univariate regression of investment on average q. In a multiple regression of investment on average q and cash flow, the coefficient on cash flow is positive. The positive cash-flow coefficient indicates the presence of a financial constraint, but it does not indicate a shortage of liquidity to fund current investment. In addition, the coefficient on average q is biased downward.
    JEL: E22 G33 G35
    Date: 2020–03
  86. By: Titan M. Alon; Matthias Doepke; Jane Olmstead-Rumsey; Michèle Tertilt
    Abstract: The economic downturn caused by the current COVID-19 outbreak has substantial implications for gender equality, both during the downturn and the subsequent recovery. Compared to “regular” recessions, which affect men’s employment more severely than women’s employment, the employment drop related to social distancing measures has a large impact on sectors with high female employment shares. In addition, closures of schools and daycare centers have massively increased child care needs, which has a particularly large impact on working mothers. The effects of the crisis on working mothers are likely to be persistent, due to high returns to experience in the labor market. Beyond the immediate crisis, there are opposing forces which may ultimately promote gender equality in the labor market. First, businesses are rapidly adopting flexible work arrangements, which are likely to persist. Second, there are also many fathers who now have to take primary responsibility for child care, which may erode social norms that currently lead to a lopsided distribution of the division of labor in house work and child care.
    JEL: D10 E24 J16 J22
    Date: 2020–04
  87. By: Helene Olsen; Harald Wieslander
    Abstract: We search for leading determinants of financial instability in Norway using a signaling approach, and examine how these respond to a monetary policy shock with the use of structural VAR models. We find that the wholesale funding ratio and gap, credit-to-GDP gap, house price-to-income ratio and gap, and credit growth provide good signals of future financial instability. Following a contractionary monetary policy shock, the credit-to-GDP gap and house price-to-income ratio decrease significantly. The implication of our findings is that the central bank can respond to an increase in these indicators by increasing the interest rate, which in turn will decrease the indicators and thereby the probability of financial distress.
    Keywords: Financial stability, Monetary policy, Structural VAR, Signaling Approach
    Date: 2020–03
  88. By: James H. Stock
    Abstract: This note lays out the basic Susceptible-Infected-Recovered (SIR) epidemiological model of contagion, with a target audience of economists who want a framework for understanding the effects of social distancing and containment policies on the evolution of contagion and interactions with the economy. A key parameter, the asymptomatic rate (the fraction of the infected that are not tested under current guidelines), is not well estimated in the literature because tests for the coronavirus have been targeted at the sick and vulnerable, however it could be estimated by random sampling of the population. In this simple model, different policies that yield the same transmission rate β have the same health outcomes but can have very different economic costs. Thus, one way to frame the economics of shutdown policy is as finding the most efficient policies to achieve a given β, then determining the path of β that trades off the economic cost against the cost of excess lives lost by overwhelming the health care system.
    JEL: E60 I10
    Date: 2020–03
  89. 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 15 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.
    JEL: E43 F41 N10 N30 N40
    Date: 2020–04
  90. By: Murach, Michael; Wagner, Helmut; Kim, Jungsuk; Park, Donghyun
    Abstract: We analyze and compare the patterns of economic growth and development in China, Korea, and Japan in the post-war period. The geographical proximity and cultural affinity between the three countries, as well as the key role of the development state in the economies, suggest that an analytical comparison would be a meaningful and valuable exercise. Furthermore, Korea and Japan are two of the few economies that have jumped from middle income to high income in a short period and thus offer potentially valuable lessons for China. China is following a structural change that Korea and Japan underwent decades ago. We use Cobb--Douglas production functions to assess the long-run equilibrium relationships between per capita GDP, capital, and labor as well as the features of structural change by means of cointegrated vector autoregressive (CVAR) models. We show that such equilibrium relationships cannot be rejected for all three countries, while the evidence is stronger for China and Korea than for Japan. Our hypothesis tests show that the estimated Cobb--Douglas production functions display coefficients of capital and employment that sum up to one and broken linear trends that can be attributed to structural breaks and (changes in) total factor productivity (TFP) growth. We observe a striking similarity between the Korean and the Chinese experience, which gives some optimism that China may be capable of graduating to high income, like Korea.
    Keywords: aggregate production function,comparative economic growth,China,Korea,Japan,economic development
    JEL: E23 O47 O53 O57 P52
    Date: 2020
  91. By: D. Bartolozzi; M. Gara; D.J. Marchetti; D. Masciandaro
    Abstract: Using a unique data set, this paper studies the governance of anti-money laundering supervisors known as Financial Intelligence Units (FIUs). Starting from a theoretical framework that highlights four key properties of FIU governance – financial powers, law enforcement features, independence and accountability – we build the first quantitative index of FIU governance. The proposed metrics are then applied in an analysis of 71 countries that explores the drivers of FIU governance properties. Our results show that FIUs’ financial powers tend to be weaker in bank-based economies and stronger in countries with more affiliations with international anti-money laundering organizations. FIU independence and FIU accountability are stronger in countries with higher-quality governments and less opacity in the fiscal and legal systems. With regards to the nexus between country fundamentals and our overall FIU Governance Index, the index generally appears stronger for richer and more transparent countries. It is also stronger for countries with civil (rather than common) law. Finally, given the distinction between administrative FIUs and law enforcement FIUs, we find that overall FIU governance as well as independence and accountability are all weaker in countries with law enforcement FIUs.
    Keywords: Money laundering, Financial Supervision, Anti-Money Laundering Regulation
    JEL: E26 G28 H11 L51
    Date: 2019
  92. By: Antonia Lopez Villavicencio (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Marc Pourroy (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers)
    Abstract: This paper estimates the effects of different forms of inflation targeting (IT) in the exchange rate pass-through (ERPT). To this end, we first estimate the ERPT for a large sample of countries using state-space models. We then consider the adoption of an inflation targeting framework by a country as a treatment to find suitable counterfactuals to the actual targeters. By controlling for self-selection bias and endogeneity of the monetary policy regime, we confirm that the ERPT tends to be lower for countries adopting explicit IT. However, we uncover that older regimes, adopting a range or point with tolerance band and keeping inflation close to the target, outperform other IT regimes. We also show that IT is effective even with a relatively high inflation target or low central bank independence.
    Keywords: inflation targeting,exchange rate pass-through,propensity score matching,state-space model
    Date: 2019–06
  93. By: John Gibson (University of Waikato); Geua Boe-Gibson (University of Waikato)
    Abstract: The DMSP night lights data used in economics are old and not very accurate. Newer VIIRS night lights data have 60 percent higher predictive power for state-level GDP in the United States. Predictive accuracy is far higher in the cross section than for time series changes, either annually or quarterly. Night lights predict more weakly for agriculture than for manufacturing and other industries. These three facts suggest a need for caution in using night lights data, which may be unsuitable for many economics research purposes in many places.
    Keywords: DMSP; GDP; night lights; VIIRS; United States
    JEL: E23 R12
    Date: 2020–03–12
  94. By: Boysen-Hogrefe, Jens; Fiedler, Salomon; Groll, Dominik; Jannsen, Nils; Kooths, Stefan; Mösle, Saskia
    Abstract: The spread of the coronavirus will have a considerable impact on the German economy. The economy will be hit in a situation in which it was just about to regain footing after the downturn of the past year. Recently, signs have been increasing that industrial production is finding its bottom and is gradually emerging from recession. The actual economic damage caused by the coronavirus can hardly be quantified at present. First, the effects are not yet reflected in available leading indicators. Second, the further development of the pandemic is uncertain, especially as the economic consequences depend to a large extent on the measures taken to contain the virus. For our forecast, we assume that the coronavirus will dampen economic activity, especially in the first half of the year, and that there will be noticeable catch-up effects thereafter. In this scenario, the economic picture will resemble a pronounced V-shape in the course of this year. It is already foreseeable that foreign trade will be significantly affected in the coming months. Trade with China but also with other regions particularly affected by the virus is likely to decline significantly. In this regard, delivery problems for intermediate goods could lead to noticeable production shortfalls. In addition, the spread of the virus is also likely to have a significant impact on the domestic economy. In particular, private households will probably cut back on leisure spending in order to avoid infection. In light of the uncertain development of the pandemic, we expect firms to postpone investment projects. At the same time, the impact on employment is likely to be small if the largest negative effects are indeed limited to the first half of the year. All in all, we expect a slight decline in gross domestic product of 0.1 percent for the current year. In our most recent winter forecast, we had still assumed an increase of 1.1 percent. In 2021, GDP is projected to grow quite strongly by 2.3 percent, also due to catch-up effects. However, the downside risks to our forecast prevail and, depending on the further development of the corona pandemic, significantly more negative scenarios are also possible.
    Keywords: business cycle forecast,stabilization policy,leading indicators,outlook
    Date: 2020
  95. By: Bloom, David E.; Fan, Victoria Y.; Kufenko, Vadim; Ogbuoji, Osondu; Prettner, Klaus; Yamey, Gavin
    Abstract: Per capita GDP has limited use as a well-being indicator because it does not capture many dimensions that imply a "good life," such as health and equality of opportunity. However, per capita GDP has the virtues of easy interpretation and can be calculated with manageable data requirements. Against this backdrop, a need exists for a measure of well-being that preserves the advantages of per capita GDP, but also includes health and equality. We propose a new parsimonious indicator to fill this gap and calculate it for 149 countries.
    Keywords: Beyond GDP,Well-Being,Health,Inequality,Human Development,Lifetime Income
    JEL: I31 I15 D63 O10 E01
    Date: 2020
  96. By: Laura Alfaro; Anusha Chari; Andrew N. Greenland; Peter K. Schott
    Abstract: We show that unanticipated changes in predicted infections during the SARS and COVID-19 pandemics forecast aggregate equity market returns. We model cumulative infections as either exponential or logistic, and re-estimate the parameters of these models each day of the outbreak using information reported up to that day. For each trading day t we compute the change in predicted infections using day t – 1 versus day t – 2 information. Regression results imply that a doubling of such predictions is associated with a 4 to 11 percent decline in aggregate market value. This result implies a decline in returns' volatility as the trajectory of the pandemic becomes clearer.
    JEL: E27 F1 G12
    Date: 2020–04
  97. By: Junxue Jia (Renmin University of China); Yongzheng Liu (Renmin University of China); Jorge Martinez-Vazquez (International Center for Public Policy, Georgia State University, USA); Kewei Zhang (Boston University, USA)
    Abstract: Based on a Chinese city-level panel dataset, this paper examines the effects of vertical fiscal imbalances (VFI) on local fiscal indiscipline in a partial fiscal decentralization setting. We find that higher VFI induces a form of fiscal indiscipline: a reduction of tax collection effort by local governments. In addition, by exploiting the unique Chinese fiscal institution of “extra-budgetary” revenues, we show that in this case higher VFI does not alter local governments’ tax collection efforts. Even though local governments also possess full taxing power for “extra-budgetary” revenues, these revenues do not contribute to the determination of central fiscal transfers to local governments, thus creating very different incentives for local governments’ response to VFI. Our results shed light on the working mechanism of VFI and provide significant implications for improving the design of fiscal decentralization policy in China and elsewhere.
    Date: 2020–04
  98. By: Alexander O'Riordan (Department of Economics, Stellenbosch University)
    Abstract: This paper estimates the effects of the ownership of technological assets on self-reported measures of wellbeing, both subjective and objective. The estimation procedure employed is based on a dynamic panel approach, one that is capable of controlling for individual effects, as well as potential sources of endogeneity such as reverse causality. The results indicate that there is a statistically significant relationship between changes in the composition and value of one’s technological asset portfolio and measures of social and economic wellbeing.
    Keywords: asset ownership, welfare, dynamic effects
    JEL: D60 D63 O10 O11
    Date: 2020
  99. By: Solaja, Oluwasegun Abraham; Abiodun, Joachim Abolaji; Abioro, Matthew Adekunle; Ekpudu, Jonathan Ehimen; Olasubulumi, Olajide Moses
    Abstract: Optimum utilization of limited resources in the production floor demands that the production manager makes decisions on the best allocation of limited resources. Linear programming techniques are applied in this study to a production planning problem in a feed mill producing company. The linear Programming model was formulated based on data obtained from the company operations’ diary. Data was processed with the help of Management Scientist Version 5.0. The study reveals improved profit through streamlining of the product range and cutting off the less productive products. This suggests the company may adopt the outcome of the linear programming techniques in production planning to improve monthly profit. This study has shown that linear programming techniques are powerful tools that can be of help to managers in decision making and allocation of limited resources and indicate operations and profit improvement.
    Keywords: Production, Optimization, Planning, Feed, Linear Programming.
    JEL: C61 E23
    Date: 2019–08
  100. By: Emara, Noha; El Said, Ayah; Pearlman, Joseph
    Abstract: Financial Inclusion - access to financial products by households and firms - is one of the main albeit challenging priorities, both for Advanced Economies (AEs) as well as Emerging Markets (EMs), even more so for the latter. Financial inclusion facilitates consumption smoothing, lowers income inequality, enables risk diversification, and tends to positively affect economic growth. Financial stability is another rising priority among policy makers. This is evident in the re-emergence of macroprudential policies after the global financial crisis, minimizing systemic risk, particularly risks associated with rapid credit growth. However, there are significant policy trade-offs that could exist between both financial inclusion and financial stability, with mixed evidence on the link between the two objectives. Given the importance of macroprudential policies as a toolbox to achieve financial stability, we examine the impact of macroprudential policies on financial inclusion - a potential cause for financial instability if not carefully implemented. Using panel regressions for 67 countries over the period 2000-2014, our results point to mixed effects of macroprudential policies. The usage (and tightening) of some tools, such as the debt-to-income ratio, appear to reduce financial inclusion whereas others, such as the required reserve ratio (RRR), increase it. Specifically, both institutional quality and financial development appear to increase the effectiveness of macroprudential policies on financial inclusion. Institutional quality helps macroprudential policies boost financial inclusion, with mixed effects as a result of financial development, but the results are more significant when we include either institutional quality or financial development. This leads us to believe that macroprudential policies conditional on better institutional quality and financial development improves financial inclusion. This has important policy implications for financial stability.
    Keywords: Financial Inclusion; Governance; Financial Stability; MENA; Macroprudential Policies
    JEL: C21 C23 O4
    Date: 2019
  101. By: Giuseppe Brandi; T. Di Matteo
    Abstract: Multilayer networks proved to be suitable in extracting and providing dependency information of different complex systems. The construction of these networks is difficult and is mostly done with a static approach, neglecting time delayed interdependences. Tensors are objects that naturally represent multilayer networks and in this paper, we propose a new methodology based on Tucker tensor autoregression in order to build a multilayer network directly from data. This methodology captures within and between connections across layers and makes use of a filtering procedure to extract relevant information and improve visualization. We show the application of this methodology to different stationary fractionally differenced financial data. We argue that our result is useful to understand the dependencies across three different aspects of financial risk, namely market risk, liquidity risk, and volatility risk. Indeed, we show how the resulting visualization is a useful tool for risk managers depicting dependency asymmetries between different risk factors and accounting for delayed cross dependencies. The constructed multilayer network shows a strong interconnection between the volumes and prices layers across all the stocks considered while a lower number of interconnections between the uncertainty measures is identified.
    Date: 2020–04
  102. By: Hongbo Duan (School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China); Qin Bao (Center for Forecasting Science, Chinese Academy of Sciences, Beijing 100190, China); Kailan Tian (Faculty of Economics and Business, University of Groningen, 9700 AV Groningen, The Netherlands); Yuze (Center for Forecasting Science, Chinese Academy of Sciences, Beijing 100190, China); Shouyang Wang (School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China and Center for Forecasting Science, Chinese Academy of Sciences, Beijing 100190, China); Cuihong Yang (School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China, Center for Forecasting Science, Chinese Academy of Sciences, Beijing 100190, China, and Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China); Zongwu Cai (Department of Economics, The University of Kansas, Lawrence, KS 66045, USA); Xi Ming (School of Economics and Trade, Hunan University, Changsha 410006, China)
    Abstract: Broke out at the end of 2019, the novel coronavirus pneumonia (COVID-19) has been spreading in over 185 countries and territories, leading to more than 1,350,000 confirmed infections and 74,000 fatalities; the dismal performance of the global stock market and the collapse of oil prices are mostly attributed to this outbreak. Motivated by this, we evaluate the economic impacts of COVID-19 outbreak on both national and industrial levels by employing quarterly computable general equilibrium (CGE) model. Our results reveal that the epidemic may lower China’s economic growth in 2020 by 1.2%, versus 1.9% and 0.2% for consumption and investment, respectively. The service industry suffers the most from the outbreak, and the Accommodation-Food-Beverage service, Entertainment, Wholesale-Retail Trade are identified as the most vulnerable sectors, with the negative impact on output reaching as high as 5.6%. This study indicates that implementing effective measures for preventing and controlling the epidemic and policies for post-disease economic recovery play critical role in curbing the potential economic damage.
    Keywords: coronavirus pneumonia (COVID-19); Damage assement; Economic impacts; Economy recovery; Global stock market; SARS.
    Date: 2020–03
  103. By: Lise Clain-Chamosset-Yvrard (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Xavier Raurich (University of Barcelona, Department of Economics); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Several recent papers introduce different mechanisms to explain why asset bubbles are observed in periods of larger growth. These papers share common assumptions, heterogeneity among traders and credit market imperfection , but differ in the role of the bubble, used to provide liquidities or as collateral in a borrowing constraint. In this paper, we introduce heterogeneous traders by considering an overlapping generations model with households living three periods. Young households cannot invest in capital, while adults have access to investment and face a borrowing constraint. Introducing bubbles in a quite general way, encompassing the different roles they have in the existing literature, we show that the bubble may enhance growth when the borrowing constraint is binding. More significantly, our results do not depend on the-liquidity or collateral-role attributed to the bubble. We finally extend our analysis to a stochas-tic bubble, which may burst with a positive probability. Because credit and bubble are no more perfectly substitutable assets, the liquidity and collateral roles of the bubble are not equivalent. Growth is larger when bubbles play the liquidity role, because the burst of a bubble used for liquidity is less damaging to agents who invest in capital.
    Keywords: Liquidity,Bubble,Collateral,Crowding-in effect,Growth
    Date: 2020–04–07
  104. By: Jean Roch Donsimoni; René Glawion; Bodo Plachter; Klaus Wälde
    Abstract: We model the evolution of the number of individuals that are reported to be sick with COVID-19 in Germany. Our theoretical framework builds on a continuous time Markov chain with four states: healthy without infection, sick, healthy after recovery or after infection but without symptoms and dead. Our quantitative solution matches the number of sick individuals up to the most recent observation and ends with a share of sick individuals following from infection rates and sickness probabilities. We employ this framework to study inter alia the expected peak of the number of sick individuals in a scenario without public regulation of social contacts. We also study the effects of public regulations. For all scenarios we report the expected end of the CoV-2 epidemic.
    Keywords: Corona, COVID19, SARS-CoV-2, spread of infection, Markov model, Germany, projection.
    JEL: I18 E17 C63
    Date: 2020
  105. By: Thulisile Radebe
    Date: 2019–09–09

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