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on Macroeconomics |
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Issue of 2020‒05‒04
135 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Michael D. Bauer; Eric T. Swanson |
| Abstract: | High-frequency changes in interest rates around FOMC announcements are a standard method of measuring monetary policy shocks. However, some recent studies have documented puzzling effects of these shocks on private-sector forecasts of GDP, unemployment, or inflation that are opposite in sign to what standard macroeconomic models would predict. This evidence has been viewed as supportive of a "Fed information effect" channel of monetary policy, whereby an FOMC tightening (easing) communicates that the economy is stronger (weaker) than the public had expected. We show that these empirical results are also consistent with a "Fed response to news" channel, in which incoming, publicly available economic news causes both the Fed to change monetary policy and the private sector to revise its forecasts. We provide substantial new evidence that distinguishes between these two channels and strongly favors the latter; for example, (i) high-frequency stock market responses to Fed announcements, (ii) a new survey that we conduct of individual Blue Chip forecasters, and (iii) regressions that include the previously omitted public macroeconomic data releases all indicate that the Fed and Blue Chip forecasters are simply responding to the same public news, and that there is little if any role for a "Fed information effect". |
| JEL: | E43 E52 E58 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27013&r=all |
| By: | Sangyup Choi (Yonsei University) |
| Abstract: | Using the bank loan officer surveys from 12 countries, we document a novel cyclical pattern found in bank lending standards and loan demand, which differs between market-based and bank-based economies; in particular, the lending rate fails to reflect the credit market conditions in bank-based economies. Using the Korean economy as an example, we demonstrate the failure of identification of loan supply shocks when relying on the lending rate and propose novel identifying schemes by exploiting the information from the survey. Our findings suggest that disentangling the supply and demand factors of credit shocks is crucial to understand their macroeconomic effects. |
| Keywords: | Bank loan officer survey, Sign-restriction VARs, Bank lending shocks, Credit market disequilibrium, Bank-based economies |
| JEL: | E32 E44 E51 |
| Date: | 2020–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2020_006&r=all |
| By: | Marco Bassetto; Thomas J. Sargent |
| Abstract: | This paper describes interactions between monetary and fiscal policies that affect equilibrium price levels and interest rates by critically surveying theories about (a) optimal anticipated inflation, (b) optimal unanticipated inflation, and (c) conditions that secure a "nominal anchor'' in the sense of a unique price level path. We contrast incomplete theories whose inputs are budget-feasible sequences of government issued bonds and money with complete theories whose inputs are bond-money strategies described as sequences of functions that map time t histories into time t government actions. We cite historical episodes that confirm the theoretical insight that lines of authority between a Treasury and a Central Bank can be ambiguous, obscure, and fragile. |
| JEL: | E52 E61 E62 E63 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27004&r=all |
| By: | Tobias König |
| Abstract: | This paper studies the effects of labor market outcomes on firms’ loan demand and on credit intermediation. In a first step, I investigate how wages in the production sector affect bank net worth and the process of financial intermediation in partial equilibrium. Second, the role of the identified channels are studied in general equilibrium using a new- Keynesian DSGE-model with financial frictions and an endogenous financial accelerator mechanism. Third, I investigate how perfect and imperfect labor markets, in a setting with interactions between production factor costs and the intermediation of credit, affect the transmission mechanism of monetary policy. The analysis reveals that financial frictions reduce the factor demand elasticity of capital to a change in wages. This finding is relevant for the determination of optimal monetary policy, both for financial shocks and supply shocks inflation stabilization imposes high welfare costs. At the same time, stabilizing nominal wages becomes welfare beneficial by reducing both the volatility of the credit spread and the output gap. |
| Keywords: | Financial accelerator, monetary policy, nominal rigidities, factor costs |
| JEL: | E31 E44 E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1860&r=all |
| By: | Jean-Baptiste Hasse (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France); Quentin Lajaunie (Paris Dauphine University, PSL Research University, France) |
| Abstract: | In this paper, we reexamine the predictive power of the yield spread across countries and over time. Using a dynamic panel/dichotomous model framework and a unique dataset covering 13 OECD countries over a period of 45 years, we empirically show that the yield spread signals recessions. This result is robust to different econometric specifications, controlling for recession risk factors and time sampling. Using a new cluster analysis methodology, we present empirical evidence of a partial homogeneity of the predictive power of the yield spread. Our results provide a valuable framework for monitoring economic cycles. |
| Keywords: | yield spread; recession; panel binary model; cluster analysis |
| JEL: | C23 C25 E37 E43 E52 E58 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2013&r=all |
| By: | Francisco Ilabaca; Fabio Milani |
| Abstract: | This paper estimates a New Keynesian model extended to include heterogeneous expectations, to revisit the evidence that postwar US macroeconomic data can be explained as the outcome of passive monetary policy, indeterminacy, and sunspot-driven fluctuations in the pre-1979 sample, with a switch to active monetary policy and a determinate equilibrium starting in the early 1980s. Different shares of consumers and firms form either rational expectations, or adaptive and extrapolative expectations. The inclusion of heterogeneous expectations alters the determinacy properties of the model compared to the corresponding case under exclusively rational expectations. The Taylor principle is neither necessary nor sufficient, as the details of expectations may matter more for equilibrium stability. The model is estimated with Bayesian techniques, using rolling windows and allowing the parameters to fall both in the determinacy and indeterminacy regions. The estimates reveal large shares of agents who depart from rational expectations; heterogeneous expectations are preferred by the data everywhere in the sample. The results confirm that macroeconomic data in the early windows are better explained by indeterminacy, while determinacy is favored over the latest two decades. We uncover, however, some subsamples that include the 1980s and 1990s in which the Taylor principle is satisfied, but expectations becoming extrapolative raise the probability of indeterminacy to 50% and more. |
| Keywords: | heterogeneous expectations in New Keynesian model, indeterminacy, sunspots, Taylor principle, deviations from rational expectations, time-varying parameters |
| JEL: | E32 E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8224&r=all |
| By: | Alexander Mihailov (Department of Economics, University of Reading) |
| Abstract: | This paper considers 3 scenarios regarding the duration of the COVID-19 pandemic lockdown, staying for 1, 2 or 3 quarters, and 2 types of exceptionally rare and devastating disruptions in employment modeled as adverse labor supply shocks, a temporary one with negligible loss in the labor force due to deaths or a permanent one, with significant loss from deaths. The temporary labor supply shock simulations delimit a lower bound, designed to match about 1/4 of the labor force unable to work, and an upper bound, matching about 3/4 of the labor force made economically inactive, broadly consistent with estimates. The permanent labor supply shock is designed to match, in 3 scenarios again, up to 1% loss of the labor force due to mortality, twice milder than the Spanish flu 2% death rate. Estimated calibrations of the Galí-Smets-Wouters (2012) model with indivisible labor for 5 major and most affected by the COVID-19 pandemic economies are simulated: the US, France, Germany, Italy and Spain. The simulations suggest that even in the most optimistic scenario of a brief (lasting for 1 quarter) and mild (with 1/4 of the labor force unable to work) lockdown, the loss of per-capita consumption (6-7% in annualized terms down from the long-run trend in the impact quarter) and per-capita output (3-4% down) will be quite damaging, but recoverable relatively quickly, in 1-2 years. In the most pessimistic simulated scenario of temporary loss the effects will be 10-15 times more devastating, and the loss of output and consumption will persist beyond 10-15 years. Permanent loss of up to 1.5 percentage points of per-capita consumption and output characterizes the simulated permanent labor supply shock. |
| Keywords: | COVID-19 pandemic, simulated macroeconomic effects, medium-scale New Keynesian DSGE models, indivisible labor, shocks to the disutility of labor supply, calibration according to Bayesian estimates |
| JEL: | C63 D58 E24 E27 E32 E37 |
| Date: | 2020–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2020-07&r=all |
| By: | Feng Dong (Tsinghua University); Jianjun Miao (Boston University); Pengfei Wang (Peking University) |
| Abstract: | We provide a model of rational bubbles in a DNK framework. Entrepreneurs are heterogeneous in investment efficiency and face credit constraints. They can trade bubble assets to raise their net worth. The bubble assets command a liquidity premium and can have a positive value. Monetary policy affects the conditions for the existence of a bubble, its steady-state size, and its dynamics including the initial size. The leaning-against-the-wind interest rate policy reduces bubble volatility, but could raise inflation volatility. Whether monetary policy should respond to asset bubbles depends on the particular interest rate rule and exogenous shocks. |
| Keywords: | asset bubble, monetary policy, Dynamic New Keynesian model, credit constraints, multiple equilibria, sentiment |
| JEL: | E32 E44 E52 G12 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bos:iedwpr:dp-336&r=all |
| By: | Jean-Guillaume Sahuc; Grégory Levieuge |
| Abstract: | Empirical evidence suggests that the pass-through from policy to retail bank rates is asymmetric in the euro area. Bank lending rates adjust more slowly and less completely to Eonia decreases than to increases. We investigate how this downward interest rate rigidity affects the response of the economy to monetary policy shocks. To this end, we introduce asymmetric bank lending rate adjustment costs in a macrofinance dynamic stochastic general equilibrium model. We find that the initial response of GDP to a negative monetary policy shock is 25% lower than its response to a positive shock of similar amplitude. This implies that a central bank would have to decrease its policy rate by 50% to 75% more to obtain a medium-run impact on GDP that would be symmetric to the impact of the positive shock. We also show that downward interest rate rigidity is stronger when policy rates are stuck at their effective lower bound, further disrupting monetary policy transmission. These findings imply that neglecting asymmetry in retail interest rate adjustments may yield misguided monetary policy decisions. |
| Keywords: | Downward interest rate rigidity, asymmetric adjustment costs, banking sector, DSGE model, euro area. |
| JEL: | E32 E44 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2020-6&r=all |
| By: | Marco Del Negro; Michele Lenza; Giorgio E. Primiceri; Andrea Tambalotti |
| Abstract: | The business cycle is alive and well, and real variables respond to it more or less as they always did. Witness the Great Recession. Inflation, in contrast, has gone quiescent. This paper studies the sources of this disconnect using VARs and an estimated DSGE model. It finds that the disconnect is due primarily to the muted reaction of inflation to cost pressures, regardless of how they are measured—a flat aggregate supply curve. A shift in policy towards more forceful inflation stabilization also appears to have played some role by reducing the impact of demand shocks on the real economy. The evidence rules out stories centered around changes in the structure of the labor market or in how we should measure its tightness. |
| JEL: | E31 E32 E37 E52 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27003&r=all |
| By: | Yavuz Arslan; Bulent Guler; Burhan Kuruscu |
| Abstract: | Can shifts in the credit supply generate a boom-bust cycle similar to the one observed in the US around 2008? To answer this question, we develop a general equilibrium model that combines a rich heterogeneous agent overlapping-generations structure of households who make housing tenure decisions and borrow through long-term mortgages, firms that finance their working capital through short-term loans from banks, and banks whose ability to intermediate funds depends on their capital. Using a calibrated version of this framework, we find that shocks to banks’ leverage can generate sizable boom-bust cycles in the housing market, the banking sector, and the rest of the macroeconomy, which provides strong support for the credit supply channel. The deterioration of bank balance sheets during the bust, the existence of highly leveraged households, and the general equilibrium feedback from the credit supply to household labor income significantly amplify the bust. Moreover, mortgage credit growth across the income distribution is consistent with recent findings that were otherwise argued to be against the credit supply channel. A comparison of the model outcomes across credit supply, house price expectation, and productivity shocks suggests that housing busts accompanied by severe banking crises are more likely to be generated by credit supply shocks. |
| Keywords: | Credit Supply, House Prices, Financial Crises, Household and Bank Balance Sheets, Leverage, Foreclosures, Consumption, and Output. |
| JEL: | E21 E32 E44 E60 G20 |
| Date: | 2020–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-664&r=all |
| By: | Cantore, Cristiano (Bank of England, Centre for Macroeconomics and University of Surrey); Freund, Lukas (University of Cambridge) |
| Abstract: | This paper develops a tractable capitalist-worker New Keynesian model to study the interaction of fiscal policy and household heterogeneity. Workers can save in bonds subject to portfolio adjustment costs; firm ownership is concentrated among capitalists who do not supply labor. The model matches empirical intertemporal marginal propensities to consume that shape the private sector’s dynamic response to policy interventions, it avoids implausible profit income effects on labor supply and the solution has robust stability properties. This setup delivers both more pronounced redistributive and more muted aggregate effects of fiscal stimulus relative to the traditional two-agent model. |
| Keywords: | Business cycles; determinacy; government spending shocks; fiscal policy; New Keynesian; labor share; redistribution. |
| JEL: | C52 E12 E25 E32 E62 |
| Date: | 2020–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0858&r=all |
| By: | Abuselidze, George |
| Abstract: | The article discusses causes and socio-economic peculiarities of one of the most difficult and undesirable condition for the economy-inflation and devaluation. The purpose of the research is to analyze the socio-economic results of inflation and devaluation in Georgia and to determine the main directions to overcome it. Due to study purposes was investigated the causes of inflation and devaluation, as well as was examined its influence on economic development of the country and its influence on welfare of each citizen. In the article are discussed main models of anti-inflation regulation, as well as foreign experience of monetary regulation of inflationary processes and is an evaluated possibility of their use in Georgia. The National Bank monetary regulation effectiveness is assessed and recommendations have been developed. |
| Keywords: | Inflation; Devaluation; Monetary Policy; Welfare; Economical Activity; Economic Development; Georgia. |
| JEL: | E42 E52 E58 I31 O11 |
| Date: | 2018–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99885&r=all |
| By: | Razzak, Weshah |
| Abstract: | We provide a general equilibrium model with optimizing agents to compute the natural rate of interest for the G7 countries over the period 2000 to 2017. The model is solved for the equilibrium natural rate of interest, which is determined by a parsimonious equation that is easily computed from raw observable data. The model predicts that the natural rate depends positively on the consumption – leisure growth rates gap, and negatively on the capital – labor growth rates gap. Given our computed natural rate, the short-term nominal interest rates in the G7 have been higher than the natural rate since 2000, except for Germany and the U.S. during the period 2009-2017. In addition, the data do not support the prediction of the Wicksellian theory that prices tend to increase when the short-term nominal rate is lower than the natural rate. Projections of the natural rate over the period 2018 to 2024 are positive in Germany, Italy, Japan, and the U.K. and negative in Canada, France, and the U.S. The model predicts that fiscal expansion is an expensive policy to achieve a 2 percent inflation target when the Zero Lower Bound (ZLB) constraint is binding. |
| Keywords: | natural rate of interest, monetary policy |
| JEL: | C68 E43 E52 |
| Date: | 2020–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99747&r=all |
| By: | Christopher A. Hollrah; Steven A. Sharpe; Nitish R. Sinha |
| Abstract: | We apply textual analysis tools to the narratives that accompany Federal Reserve Board economic forecasts to measure the degree of optimism versus pessimism expressed in those narratives. Text sentiment is strongly correlated with the accompanying economic point forecasts, positively for GDP forecasts and negatively for unemployment and inflation forecasts. Moreover, our sentiment measure predicts errors in FRB and private forecasts for GDP growth and unemployment up to four quarters out. Furthermore, stronger sentiment predicts tighter than expected monetary policy and higher future stock returns. Quantile regressions indicate that most of sentiment’s forecasting power arises from signaling downside risks to the economy and stock prices. |
| Keywords: | Text analysis; Economic forecasts; Monetary policy; Stock returns; Narratives |
| JEL: | C53 E17 E27 E37 E52 G14 |
| Date: | 2020–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-01&r=all |
| By: | Atif 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. |
| Keywords: | aggregate demand, debt, interest rates, inequality, secular stagnation |
| JEL: | E21 E32 E43 E44 E52 E62 D31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8210&r=all |
| By: | Martins, Manuel M. F.; Verona, Fabio |
| Abstract: | We show that the New Keynesian Phillips Curve (NKPC) outperforms standard benchmarks in forecasting U.S. inflation once frequency-domain information is taken into account. We do so by decomposing the time series (of inflation and its predictors) into several frequency bands and forecasting separately each frequency component of inflation. The largest statistically significant forecasting gains are achieved with a model that forecasts the lowest frequency component of inflation (corresponding to cycles longer than 16 years) flexibly using information from all frequency components of the NKPC inflation predictors. Its performance is particularly good in the returning to recovery from the Great Recession. |
| JEL: | C53 E31 E37 |
| Date: | 2020–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2020_004&r=all |
| By: | Tervala, Juha |
| Abstract: | Lucas (1987, 2003) finds that the welfare costs of business cycles are trivial, 0.008-0.05% of consumption in each period. I analyze the implications of hysteresis for the welfare costs of business cycles by extending the basic New Keynesian model with hysteresis. Hysteresis is defined as the negative effect of the negative, one-percentage point output gap on potential output. The net present value of the welfare cost of a recession in which the deviation of output from the trend is 3% is 0.6% of consumption without hysteresis. If the degree of hysteresis is 0.4, an empirical estimate for OECD countries, the welfare cost increases – by a factor of 121 – to 70%. The study of stabilization policy using New Keynesian models without hysteresis is pointless; the potential benefits of stabilization policy are notable only in the presence of hysteresis. |
| Keywords: | Business Cycles, Costs of Recessions, Hysteresis, Stabilization Policy |
| JEL: | E00 E32 E63 |
| Date: | 2020–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99758&r=all |
| By: | Hassan Afrouzi |
| Abstract: | How does competition affect information acquisition of firms and thus the response of inflation and output to monetary policy shocks? This paper addresses these questions in a new dynamic general equilibrium model with both dynamic rational inattention and oligopolistic competition. In the model, rationally inattentive firms acquire information about the endogenous beliefs of their competitors. Moreover, firms with fewer competitors endogenously choose to acquire less information about aggregate shocks – a novel prediction of the model that is supported by empirical evidence from survey data. A quantitative exercise disciplined by firm-level survey data shows that firms’ strategic inattention to aggregate shocks associated with oligopolistic competition increases monetary non-neutrality by up to 77% and amplifies the half-life of output response to monetary shocks by up to 30%. Furthermore, the model matches the relationship between the number of firms’ competitors and their uncertainty about inflation as a non-targeted moment. |
| Keywords: | rational inattention, oligopolistic competition, inflation dynamics, inflation expectations, monetary non-neutrality |
| JEL: | E31 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8218&r=all |
| By: | Concetta Rondinelli (Bank of Italy); Roberta Zizza (Bank of Italy) |
| Abstract: | This paper investigates whether Italian households’ actual expenditure and willingness to buy durables (cars) are related to their inflation expectations. In a high-inflation regime, as in the early 1990s, consumers with higher inflation expectations tend to have higher current than future expenditure, suggesting that an inter-temporal substitution mechanism is at work. Conversely, in a low-inflation environment, such as the one after the global financial crisis, higher expected inflation lowers households’ purchasing power and, thereby, spending (income effect). We also find that the composition of household balance sheets matters for explaining how inflation expectations shape spending behaviour. |
| Keywords: | readiness to spend, intertemporal substitution effect, income effect, financial constraints |
| JEL: | D12 D84 E21 E31 E52 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1276_20&r=all |
| By: | Stéphane Auray (CREST-Ensai and ULCO); Aurélien Eyquem (Université Lyon, Université Lumière Lyon 2) |
| Abstract: | A tractable incomplete-market model with unemployment, sticky prices, and a fiscal side is used to quantify the macroeconomic effects of lockdown policies and the mitigating effects of raising government spending and implementing UI benefit extensions. We find that the effects of lockdown policies, although we are relatively conservative about the size of the lockdown, are huge: unemployment doubles on impact and almost triples even for relatively short lockdown durations. Output falls dramatically and debt-output ratios increase by several tens of percentage points. In addition, the surge in unemployment risk triggers a rise in precautionary savings that make such shocks Keynesian supply shocks: aggregate demand falls by more than aggregate supply, and lockdown policies are deflationary. Unfortunately, we find that raising public spending and extending UI benefits stimulate aggregate demand or improve risk-sharing but has little effects on output and unemployment, although they do alleviate the welfare losses of lockdown policies for the households. |
| Keywords: | Lockdown, Unemployment, Borrowing constraints, Incomplete markets, Government Spending, Unemployment Insurance |
| JEL: | D52 E21 E62 J64 J65 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:2010&r=all |
| By: | Brent Bundick; Andrew Lee Smith |
| Abstract: | Although a growing literature argues output is too sensitive to future interest rates in standard macroeconomic models, little empirical evidence has been put forth to evaluate this claim. In this paper, we use a range of vector autoregression models to answer the central question of how much output responds to changes in interest rate expectations following a monetary policy shock. Despite distinct identification strategies and sample periods, we find surprising agreement regarding this elasticity across empirical models. We then show that in a standard model of nominal rigidity estimated using impulse response matching, forward guidance shocks produce an elasticity of output with respect to expected interest rates similar to our empirical estimates. Our results suggest that standard macroeconomic models do not overstate the observed sensitivity of output to expected interest rates. |
| Keywords: | Forward Guidance; Monetary Policy Shocks; Zero Lower Bound; Impulse Response Matching |
| JEL: | E32 E52 |
| Date: | 2020–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:87883&r=all |
| By: | J. Carter Braxton; Kyle F. Herkenhoff; Gordon M. Phillips |
| Abstract: | We show that unemployed individuals maintain significant access to credit. Following job loss, the unconstrained borrow, while the constrained default and delever. Both defaulters and borrowers are using credit to smooth consumption. We quantitatively show that long-term credit relationships and credit-registries allow the unemployed to partially offset income losses using credit. We estimate the model and find that the optimal provision of public insurance is unambiguously lower with greater credit access. Using a utilitarian welfare criterion, the optimal steady-state policy is to lower the replacement rate of public insurance from the current US policy of 41.2% to 38.3%. Moreover, lowering the replacement rate to 38.3% yields welfare gains to the majority of workers along the transition path. |
| JEL: | D14 E21 E24 J64 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27026&r=all |
| By: | Eric Jondeau (University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute); Benoît Mojon (Bank for International Settlements (BIS)); Jean-Guillaume Sahuc (Banque de France; Université Paris Ouest - Nanterre, La Défense - EconomiX) |
| 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 call the 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 market participants' expectations of 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, multi- curve environment, economic activity predictability. |
| JEL: | E32 E44 E52 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2020&r=all |
| By: | Jochen Güntner |
| Abstract: | Jarocinski and Karadi (2020) disentangle a pure information from the interest rate component of monetary policy surprises. This note quantifies the information revealed in FOMC announcements using forecast revisions from Blue Chip Economic Indicators. In response to a positive central bank information shock, survey participants revise their now- and short-term forecasts of real GDP growth upwards, while the corresponding revisions in the growth rate of the GDP deflator are mostly statistically insignificant. |
| Keywords: | Blue Chip Economic Indicators, Central bank information shocks, Forecast revisions |
| JEL: | E32 E52 E66 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2020-07&r=all |
| By: | David Cook; Nikhil Patel |
| Abstract: | Recent literature has highlighted that international trade is mostly priced in a few key vehicle currencies, and is increasingly dominated by intermediate goods and global value chains (GVCs). Taking these features into account, this paper reexamines the business cycle dynamics of international trade and its relationship with monetary policy and exchange rates. Using a three country dynamic stochastic general equilibrium (DSGE) framework, it finds key differences between the response of final goods and GVC trade to both internal and external shocks. In particular, the model shows that in response to a dollar appreciation triggered by a US interest rate increase, direct bilateral trade between non-US countries contracts more than global value chain oriented trade which feeds US final demand. We use granular data on GVC at the sector level to document empirical evidence in favor of this prediction. |
| Keywords: | dollar invoicing, exchange rates, monetary policy, global value chains |
| JEL: | E2 E5 E6 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:860&r=all |
| By: | Luigi Infante (Bank of Italy); Francesco Vercelli (Bank of Italy) |
| Abstract: | Balance sheet statistics are included in the national accounts system and provide a complete framework for analysing the wealth of a nation and its evolution over time. The paper presents Italian balance sheets, compiled using data on financial accounts produced by the Bank of Italy and non-financial asset data calculated by Istat, the Italian National Institute of Statistics. We provide stylized facts on the comparison between Italy and other major economies, taking into account the statistical comparability limits on non-financial assets across countries. In Italy, the ratio of non-financial assets to gross wealth increased from 43 to 47 per cent between 2005 and 2008 because of the dynamics of housing prices. It then gradually decreased from 2012, reaching 41 per cent at the end of 2017. The net wealth of Italian households far outweighs the negative values reported in the public sector. The ratio of net wealth to income is high in Italy compared with other countries; nevertheless, the gap has narrowed over the last decade. |
| Keywords: | Balance sheet statistics, sector wealth |
| JEL: | E01 E21 E22 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_559_20&r=all |
| By: | Martin Bodenstein; Giancarlo Corsetti; Luca Guerrieri |
| Abstract: | The consensus in the recent literature is that the gains from international monetary cooperation are negligible, and so are the costs of a breakdown in cooperation. However, when assessed conditionally on empirically-relevant dynamic developments of the economy, the welfare cost of moving away from regimes of explicit or implicit cooperation may rise to multiple times the cost of economic fluctuations. In economies with incomplete markets, the incentives to act non-cooperatively are driven by the emergence of global imbalances, i.e., large net-foreign-asset positions; and, in economies with complete markets, by divergent real wages. |
| Keywords: | Monetary policy cooperation; Global imbalances; Open-loop Nash games |
| JEL: | E44 E61 F42 |
| Date: | 2020–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1271&r=all |
| By: | Tadadjeu Wemba, Dessy-Karl; Essiane, Patrick-Nelson Daniel |
| Abstract: | This study proposes to highlight the effect of greater Monetary Policy Credibility (CPM) on economic growth in Sub-Saharan Africa (SSA) during the period 1980-2017. The econometric approach based on dynamic panel data is mainly used for our estimates. The main results show a limited and insignificant effect of the credibility indicator on economic activity, mainly due to the ineffectiveness of the monetary policy transmission channels. This contradiction has led us to recommend for our part the promotion of a monetary policy oriented towards improving economic growth in Sub-Saharan Africa, but without however prejudicing the constraint of price stability. |
| Keywords: | Monetary Policy; Economic growth; Price stability; Sub-Saharan Africa |
| JEL: | E58 E61 O43 O55 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99961&r=all |
| By: | Cantore, Cristiano (Bank of England, Centre for Macroeconomics and University of Surrey); Ferroni, Filippo (Federal Reserve Bank of Chicago); León-Ledesma, Miguel (University of Kent and CEPR) |
| Abstract: | The textbook New Keynesian (NK) model implies that the labor share is procyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages during the Great Moderation period in the US, the euro area, the UK, Australia and Canada. We show that this is inconsistent not only with the basic NK model, but with medium-scale NK models commonly used for monetary policy analysis and where it is possible to break the direct link between the labor share and the inverse mark-up. |
| Keywords: | Labor share; monetary policy shocks; DSGE models |
| JEL: | C52 E23 E32 |
| Date: | 2020–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0857&r=all |
| By: | Atoi, Ngozi V |
| Abstract: | Monetary approach to balance of payment establishes a link between foreign reserve assets and money supply. This link is important for managing balance of payment disequilibrium through adjustment of monetary aggregates. This study relies on the Polak (1957, 1997) monetary model with data from 2007:Q1 to 2018:Q4 to examine the link between monetary factors and balance of payment in Nigeria. To circumvent simultaneity, the reduced form coefficients of the structural form of the Polak model are estimated using Two Stage Least Squares (TSLS) technique, while the structural parameters are recovered from the estimated reduced form coefficients. The results are enriching and robust. The Johansen cointegration procedure suggests a long run relationship among the macroeconomic variables in the balance of payment function. The estimated balance of payment model reveals that domestic credit is statistically significant and negatively related to foreign reserve assets, implying that balance of payment is a monetary phenomenon in Nigeria. The velocity of money circulation and the marginal propensity to import are approximately 120 per cent and 14 per cent, respectively. The study therefore recommends that the monetary authority should consider the use of domestic credit for management of balance of payment disequilibrium. It is also pertinent to increase domestic credit to grow the economy since such action will marginally decrease external reserve assets through increase in import, however, the net effect will enhance the overall economy. |
| Keywords: | Monetary approach, Balance of payment, Two stage least square, Simultaneous equation, Reduced form equation |
| JEL: | C51 E5 E51 |
| Date: | 2020–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99708&r=all |
| By: | Luca Metelli (Bank of Italy); Filippo Natoli; Luca Rossi (Bank of Italy) |
| Abstract: | Monetary policy in the United States has often followed a gradual approach by changing policy rates through multiple small adjustments rather than all-at-once hikes or cuts. This conduct could provide a signal about the extent of the intended policy change. We quantify the state-dependent effects of monetary shocks in times of more and less gradual policy. We propose two indicators of high vs. low gradualism periods and use local projections to estimate the effects of identified high-frequency shocks in the two states. Our findings suggest that monetary policy transmission is stronger when the perception of gradualism is high. |
| Keywords: | gradualism, inertia, monetary policy transmission, state dependence, local projections. |
| JEL: | C22 C26 E44 E52 E58 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1275_20&r=all |
| By: | Zhe Wang (Department of Economics, University of Reading) |
| Abstract: | This paper analyses the impact of shocks and labor market institutions on unemployment across the Euro Area (EA) from 1999 to 2013. Specifically, I apply an empirical methodology to identify the direct effects of shocks and labor market institutions on unemployment, on the one hand, and the indirect effects of labor market institutions on changing the transmission of shocks to unemployment, on the other hand. The shocks consist of: 1) total factor productivity (TFP) shocks, 2) the real long-term interest rate, 3) labor demand shocks, 4) ECB money supply shocks and 5) ECB unsystematic monetary policy shocks. The labor market institutions cover the unemployment benefit system, active labor market policies (ALMPs), employment protection laws (EPLs), the system of wage determination and the labor tax wedge. The results suggest that the real interest rate and labor demand shocks significantly affect the unemployment rate in the EA. As for labor market institutions, EPLs play a favorable role in reducing unemployment. In contrast, a higher tax wedge tends to have an adverse effect on unemployment, not only directly increasing unemployment but also indirectly amplifying the effects of shocks on unemployment. |
| Keywords: | Unemployment, Shocks, Labor market institutions, Interactions, Monetary policy |
| JEL: | E24 J08 E52 F45 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2020-05&r=all |
| By: | David Bounie; Youssouf Camara; John W. Galbraith |
| Abstract: | This paper investigates a number of general phenomena connected with consumer behaviour in response to a severe economic shock, using billions of French card transactions measured before and during the COVID-19 epidemic. We examine changes in consumer mobility, anticipatory behaviour in response to announced restrictions, and the contrasts between the responses of online and traditional point-of-sale (offline) consumption expenditures to the shock. We track hourly, daily and weekly responses as well as estimating an aggregate fixed-period impact effect via a difference in-difference estimator. The results, particularly at the sectoral level, suggest that recourse to the online shopping option diminished somewhat the overall impact of the shock on consumption expenditure, thereby increasing resiliency of the economy. Ce cahier de recherche étudie un certain nombre de phénomènes généraux liés au comportement des consommateurs en réponse à un choc économique sévère, en utilisant les milliards de transactions par carte mesurées avant et pendant l'épidémie de COVID-19. Nous examinons l'évolution de la mobilité des consommateurs, les comportements d'anticipation en réponse aux restrictions annoncées, et la différence entre les réponses au choc des dépenses de consommation en ligne et dans les points de vente traditionnels (hors ligne). Nous analysons également les réponses horaires, journalières et hebdomadaires, et estimons l’impact global à l’aide de la méthode des doubles différences. Les résultats, en particulier au niveau sectoriel, suggèrent que le recours à l’achat en ligne a en quelque sorte diminué l'impact global du choc sur les dépenses de consommation, augmentant ainsi la résilience de l'économie. |
| Keywords: | COVID-19,Consumption Expenditure,Consumer Mobility,Online Commerce,Resiliency,Transaction Data, COVID-19,Dépenses de consommation,Mobilité des consommateurs,Commerce en ligne,Résilience,Données de transaction |
| JEL: | E21 E62 E61 |
| Date: | 2020–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2020s-28&r=all |
| By: | José Carlos Coelho |
| Abstract: | In 2011, Portugal agreed with the Troika (European Commission, European Central Bank and International Monetary Fund) to implement an economic and financial assistance programme during the period 2011-2014. One of the objectives of the programme was to guarantee the sustainability of public accounts, by setting targets for reducing the weight of the budget balance on GDP. Between 2010 and 2013, the weight of the budget deficit on GDP decreased by six percentage points. However, in that period, there was a colossal destruction of jobs and the unemployment rate grew by five percentage points. In an Input-Output framework, we show the existence of a negative relationship between the unemployment rate and the budget deficit and we revisit the concept of neutral budget balance proposed by Lopes and Amaral (2017), and also we consider the use of alternative fiscal policies and a mix of fiscal policies. In an empirical application to the Portuguese case, in 2013, we concluded that: (i) the balance of public accounts in that year would imply a very high unemployment rate; (ii) the larger the budget balance in that year, the greater the negative impact on the budget balance in 2014; and (iii) the budget balance actually verified in 2013 had a detrimental effect on the reduction of the budget deficit in 2014. |
| Keywords: | unemployment, budget deficit, self-defeating austerity, Troika, Portugal |
| JEL: | C67 D57 E24 E62 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp01242020&r=all |
| By: | Jasper Hoek; Steven B. Kamin; Emre Yoldas |
| Abstract: | Rises in U.S. interest rates are often thought to generate adverse spillovers to emerging market economies (EMEs). We show that what appears to be bad news for EMEs might actually be good news, or at least not-so-bad news, depending on the source of the rise in U.S. interest rates. We present evidence that higher U.S. interest rates stemming from stronger U.S. growth generate only modest spillovers, while those stemming from a more hawkish Fed policy stance or inflationary pressures can lead to significant tightening of EME financial conditions. Our identification of the sources of U.S. rate changes is based on high-frequency moves in U.S. Treasury yields and stock prices around FOMC announcements and U.S. employment report releases. We interpret positive comovements of stocks and interest rates around these events as growth shocks and negative comovements as monetary shocks, and estimate the effect of these shocks on emerging market asset prices. For economies with greater macroeconomic vulnerabilities, the difference between the impact of monetary and growth shocks is magnified. In fact, for EMEs with very low levels of vulnerability, a growth-driven rise in U.S. interest rates may even ease financial conditions in some markets. |
| Keywords: | Monetary policy; Spillovers; Emerging markets; Growth shock; Monetary shock; Financial conditions |
| JEL: | E50 F30 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1269&r=all |
| By: | Fergus Cumming; Lisa J. Dettling |
| Abstract: | This paper examines whether monetary policy pass-through to mortgage interest rates affects household fertility decisions. Using administrative data on mortgages and births in the UK, our empirical strategy exploits variation in the timing of when families were eligible for a rate adjustment, coupled with the large reductions in the monetary policy rate that occurred during the Great Recession. We estimate that each 1 percentage point drop in the policy rate increased birth rates by 2 percent. In aggregate, this pass-through of accommodative monetary policy to mortgage rates was sufficiently large to outweigh the headwinds of the Great Recession and prevent a “baby bust” in the UK, in contrast to the US. Our results provide new evidence on the nature of monetary policy transmission to households and suggest a new mechanism via which mortgage contract structures can affect both aggregate demand and supply. |
| Keywords: | Mortgages; Monetary policy; Birth rates; Fertility; Natality; Interest rates |
| JEL: | D12 E43 E52 J13 R31 |
| Date: | 2020–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-02&r=all |
| By: | Shu-Hua Chen (National Taipei University); Jang-Ting Guo (Department of Economics, University of California Riverside) |
| Abstract: | This paper systematically examines the interrelations between equilibrium indeterminacy, endogenous entry and exit of intermediate-input firms, and increasing returns to specialization within two versions of a parsimonious one-sector monopolistically competitive real business cycle model. The technology for producing an intermediate good is postulated to display internal increasing returns-to-scale in our benchmark framework, whereas positive productive externalities are considered in the alternative setting. We analytically show that either formulation will exhibit belief-driven cyclical fluctuations if and only if the equilibrium wage-hours locus is positively sloped and steeper than the household's labor supply curve. We also find that ceteris paribus our alternative macroeconomy is more susceptible to indeterminacy and sunspots than the baseline counterpart. |
| Keywords: | Equilibrium Indeterminacy; Endogenous Entry and Exit; Increasing Returns to Specialization. |
| JEL: | E13 E32 O41 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:202006&r=all |
| By: | Christopher J. Gust; Edward P. Herbst; J. David Lopez-Salido |
| Abstract: | This paper uses aggregate data to estimate and evaluate a behavioral New Keynesian (NK) model in which households and firms plan over a finite horizon. The finite-horizon (FH) model outperforms rational expectations versions of the NK model commonly used in empirical applications as well as other behavioral NK models. The better fit of the FH model reflects that it can induce slow-moving trends in key endogenous variables which deliver substantial persistence in output and inflation dynamics. In the FH model, households and firms are forward-looking in thinking about events over their planning horizon but are backward looking regarding events beyond that point. This gives rise to persistence without resorting to additional features such as habit persistence and price contracts indexed to lagged inflation. The parameter estimates imply that the planning horizons of most households and firms are less than two years which considerably dampens the effects of expected future changes of monetary policy on the macroeconomy. |
| Keywords: | Finite-horizon planning; Learning; Monetary policy; New keynesian model; Bayesian estimation |
| JEL: | C11 E52 |
| Date: | 2020–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-03&r=all |
| By: | Frank van der Horst; Jelle Miedema; Joshua Snell; Jan Theeuwes |
| Abstract: | Central banks incorporate various security features in their banknotes to enable the general public, retailers, professional cash handlers and central banks to detect counterfeits. In this study we conducted two field experiments to test the extent to which euro banknotes can be authenticated as a function of exposure time and perceptual modality. In addition we investigated if these effects are moderated by expertise. In both experiments, the counterfeit banknotes were actual counterfeits taken out of circulation. Experiment 1 showed that the public (i.e., non-experts) is only to a limited extent able to visually distinguish between genuine and counterfeit banknotes. Importantly, while being impacted by expertise, overall performance was not significantly affected by exposure time. Experiment 2 gauged haptic perception in addition to vision, taking into account the fact that in regular cash transactions, people might see only one side of the banknote, but will always feel both sides. Experiment 2 showed that a combination of sight and touch produced much better performance than touch alone. Unlike Experiment 1, exposure duration resulted in better performance in Experiment 2. The data of Experiment 1 and 2 indicate that banknote authentication is best when one can employ multiple sensory modalities. Moreover, as such, non-experts exhibit a very decent performance even with a one second exposure duration. Experts do an even better job. When being allowed to use only one perceptual modality, performance was equal for respectively haptic and visual perception when exposure time was long. In the short time condition it was more helpful to see than to feel. Our results are also inconsistent with the often expressed notion that people can instantly feel whether a banknote is fake or genuine. On the contrary, we found that exposure duration is important when participants could hold a banknote in their hands, with performance improving upon a longer exposure duration. The best performance in banknote authentication is realized by a combination of vision, feel and a few seconds. The study proposes a dual processing model for banknote authentication. As long as people have trust in the cash system, the situation in which the transaction takes place and the banknote itself, they authenticate quickly, effortless and automatically (Type 1 processing). If not, this mode will be overridden by Type 2 processing, and people will explicitly and deliberately authenticate banknotes. In this study, as they were asked to authenticate, the participants processed according to Type 2. Even though in everyday life people hardly ever deliberately check whether a banknote is counterfeit or not, the findings indicate that they are quite capable of doing this. The current findings suggest that when developing new series central banks should continue to address both senses. The good results for combined look and feel also suggest that in the development and evaluation of security features, future investigations should mimic real-life interactions rather than mere visual presentation on a computer screen. Lastly, the results of the study are consistent with the statement of the Eurosystem that it only takes a few seconds to authenticate a banknote. |
| Keywords: | attention; decision-making; change blindness; gist; sight; touch; authentication; banknotes; counterfeits |
| JEL: | E40 E41 E50 E58 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:680&r=all |
| By: | Ambrocio, Gene |
| Abstract: | I construct a novel measure of household uncertainty based on survey data for European countries. I show that household uncertainty shocks are not universally like negative demand shocks. Notably, household uncertainty shocks are largely inflationary in Europe. These results lend support to a pricing bias mechanism as an important transmission channel. A comparison of results across countries suggest that demographics and factors related to average markups along with monetary policy play a role in the transmission of household uncertainty to inflation. I develop an Overlapping Generations New Keynesian model with Deep Habits to rationalize these results. |
| JEL: | D84 E20 E30 |
| Date: | 2020–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2020_005&r=all |
| By: | Andrea Gazzani (Bank of Italy); Alejandro Vicondoa (Instituto de Economía, Pontificia Universidad Católica de Chile) |
| Abstract: | This paper proposes a novel methodology, the Bridge Proxy-SVAR, which exploits high-frequency information for the identification of the Vector Autoregressive (VAR) models employed in macroeconomic analysis. The methodology is comprised of three steps: (I) identifying the structural shocks of interest in high-frequency systems; (II) aggregating the series of high-frequency shocks at a lower frequency; and (III) using the aggregated series of shocks as a proxy for the corresponding structural shock in lower frequency VARs. We show that the methodology correctly recovers the impact effect of the shocks, both formally and in Monte Carlo experiments. Thus the Bridge Proxy-SVAR can improve causal inference in macroeconomics that typically relies on VARs identified at low-frequency. In an empirical application, we identify uncertainty shocks in the U.S. by imposing weaker restrictions relative to the existing literature and find that they induce mildly recessionary effects. |
| Keywords: | structural vector autoregression, external instrument, high-frequency identification, proxy variable, uncertainty shocks. |
| JEL: | C32 C36 E32 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1274_20&r=all |
| By: | Dirk Krueger (University of Pennsylvania and CEPR); Harald Uhlig (University of Chicago, NBER, CEPR); Taojun Xie (National University of Singapore) |
| Abstract: | In this paper we argue that endogenous shifts in private consumption behavior across sectors of the economy can act as a potent mitigation mechanism during an epidemic or when the economy is re-opened after a temporary lockdown. Extending the theoretical framework proposed by Eichenbaum-Rebelo-Trabandt (2020), we distinguish goods by their degree to which they can be consumed at home rather than in a social (and thus possibly contagious) context. We demonstrate that, within the model the “Swedish solution” of letting the epidemic play out without government intervention and allowing agents to shift their sectoral behavior on their own can lead to a substantial mitigation of the economic and human costs of the COVID-19 crisis, avoiding more than 80 of the decline in output and of number of deaths within one year, compared to a model in which sectors are assumed to be homogeneous. For di?erent parameter con?gurations that capture the additional social distancing and hygiene activities individuals might engage in voluntarily, we show that infections may decline entirely on their own, simply due to the individually rational re-allocation of economic activity: the curve not only just ?attens, it gets reversed. |
| Keywords: | Epidemic, Coronavirus, Macroeconomics, Sectoral Substitution |
| JEL: | E52 E30 |
| Date: | 2020–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:20-015&r=all |
| By: | Hiermeyer, Martin |
| Abstract: | Next to conventional and unconventional monetary policy, there may be another form of monetary policy: Central bank profit distribution to the government. By distributing a higher profit than normal if inflation is below target, and a lower profit than normal if inflation is above target, central bankers may achieve their inflation target better. To guard against excessive inflation, lawmakers might stipulate that central bankers can only distribute higher profits than nor-mal if conventional monetary policy is exhausted (0% policy rate). |
| Keywords: | Monetary Policy; Central Banks and Their Policies |
| JEL: | E52 E58 |
| Date: | 2020–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99864&r=all |
| By: | Belke, Ansgar; Gros, Daniel |
| Abstract: | There is a symmetrical debate in two Euro area core countries: in France about the restrictive fiscal policy of Germany, leading to a huge external surplus, in Germany about the insufficient compliance with fiscal rules and the lack of structural reforms in France. What are the real causes of the divergence between the two economies? We show that different indicators of competitiveness yield very different results depending on the base period used, e.g. 1995 (peak of reunification boom), 1999 or 1990. A comparison with the preunification period shows little gain in competitiveness. We also find, somewhat surprisingly, that Germany's industry is not more integrated in international value chains than that of France or Italy. We then look at the link between export growth and export prices and argue that in the long run exports are not driven by competitiveness but by the increased supply of labor resulting from unification. In addition, we ask what drove 'wage moderation' in Germany: policy or the labor market. We finally analyse the longer-term trend in fiscal policy and the resulting distributional consequences in both countries. Our more general policy implication is that any analysis which compares today to the trough of German performance after unification risks over-estimating the potential of the country. Given that the 'internal unification' process is complete now, one should not expect the Germans to continue to outperform France as it has done over the last two decades. |
| Keywords: | France,Germany,international competitiveness,current account imbalances,wage moderation |
| JEL: | E62 F16 F41 F45 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:843&r=all |
| By: | Krouglov, Alexei |
| Abstract: | Presented here is a simplified mathematical model describing a supply side crisis caused by the coronavirus pandemic (COVID – 19). Model of a single-product economy is presented where the supply shock has a constant acceleration. If amount of the supply shock has a modest positive acceleration the product earnings are positive and increasing with the passage of time. We observe an economic growth. If amount of the supply shock has a large positive acceleration the product earnings are negative and decreasing with the passage of time. We observe an economic decline. If amount of the supply shock has a negative acceleration the product earnings are negative and decreasing with the passage of time. We observe an economic decline. Economic mechanism of the supply side crisis is conceptually close to a mechanism of economic growth caused by investment. Moreover, economic system is able to overcome a modest supply-side shock and provide economic growth there. Further, the system with the passage of time produces and delivers enough amount of product to both satisfy the demand and compensate for the supply-side shock. |
| Keywords: | supply side shock; economic crises; mathematical models |
| JEL: | C02 E32 O11 |
| Date: | 2020–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99912&r=all |
| By: | Shaun Byck; Ronald Heijmans |
| Abstract: | Canada's Large Value Transfer System (LVTS) is in the process of being replaced by a real-time gross settlement (RTGS) system. A pure RTGS system typically requires participants to hold large amounts of intraday liquidity in order to settle their payment obligations. Implementing one or more liquidity-saving mechanisms (LSMs) can reduce the amount of liquidity participants need to hold. This paper investigates how much liquidity requirements can be reduced with the implementation of different LSMs in the Financial Network Analytics simulation engine using LVTS transaction data from 2018. These LSMs include: 1) Bilateral offsetting, 2) FIFO-Bypass, 3) Multilateral offsetting, and 4) a combination of all LSMs. We simulate two different scenarios. In the first scenario, all payments from Tranche 1, which are considered time-critical, are settled in a pure RTGS payment stream, while less time-critical Tranche 2 payments are settled in a payment stream with LSMs. In the second scenario, we settle all payments (Tranches 1 and 2) in the LSM stream. Our results show that when there is ample liquidity available in the system, there is minimal benefit from LSMs as payments are settled without much delay-the effectiveness of LSMs increases as the amount of intraday liquidity decreases. A combination of LSMs shows a reduction in liquidity requirements that is larger than any one individual LSM. |
| Keywords: | Liquidity Saving Mechanism; Simulation; LVTS; RTGS; Financial Market Infrastructure; Intraday Liquidity; Collateral |
| JEL: | E42 E50 E58 E59 G21 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:682&r=all |
| By: | Oliver de Groot; Ceyhun Bora Durdu; Enrique G. Mendoza |
| Abstract: | Global and local methods are widely used in international macroeconomics to analyze incomplete-markets models. We study solutions for an endowment economy, an RBC model and a Sudden Stops model with an occasionally binding credit constraint. First-order, second-order, risky steady state and DynareOBC solutions are compared v. fixed-point-iteration global solutions in the time and frequency domains. The solutions differ in key respects, including measures of precautionary savings, cyclical moments, impulse response functions, financial premia and macro responses to credit constraints, and periodograms of consumption, foreign assets and net exports. The global method is easy to implement and faster than local methods for the endowment model. Local methods are faster for the RBC model and the global and DynareOBC solutions are of comparable speed. These findings favor global methods except when prevented by the curse of dimensionality and urge caution when using local methods. Of the latter, first-order solutions are preferable because results are very similar to second-order methods. |
| Keywords: | Solution methods; Sudden stops; Incomplete markets; Precautionary savings; Occasionally binding constraints |
| JEL: | D82 E44 F41 |
| Date: | 2020–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-06&r=all |
| By: | Edmund Crawley; Andreas Kuchler |
| Abstract: | This paper explores the microfoundations of consumption models and quantifies the macro implications of consumption heterogeneity. We propose a new empirical method to estimate the response of consumption to permanent and transitory income shocks for different groups of households. We then apply this method to administrative data from Denmark. The large sample size, along with detailed household balance sheet information, allows us to finely divide the population along relevant dimensions. We find that households that stand to lose from an interest rate hike are significantly more responsive to income shocks than those that stand to gain. Following a 1-percentage-point interest rate increase, we estimate that consumption growth decreases by a 1/4 percentage point through this interest rate exposure channel alone, making this channel substantially larger than the intertemporal substitution channel that is at the core of representative agent New Keynesian models. |
| Keywords: | MPC; Consumption dynamics; Uncertainty |
| JEL: | D12 D31 D91 E21 |
| Date: | 2020–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-05&r=all |
| By: | Chao Gu (University of Missouri); Guido Menzio (New York University and NBER); Randall Wright (Zhejiang University, University of Wisconsin and Dale Mortensen Center at Aarhus); Yu Zhu (Bank of Canada) |
| Abstract: | We study economies where some assets are toxic –i.e., they have negative returns –but still have positive prices because they provide liquidity as payment instruments or as collateral. Even without changes in fundamentals markets can, as a self-fulfi…lling prophecy, freeze and thaw recurrently: toxic assets stop trading for a spell, then restart. We show markets without toxic assets might have hot and cold spells, where prices and quantities ‡fluctuate, but cannot freeze and thaw (at least without nonconvexities). Freezes can occur when there are toxic assets plus fi…at currency, and whether these assets trade for goods or trade for money. |
| Keywords: | toxic assets, market freezes, negative returns, liquidity |
| JEL: | E30 E44 E52 G14 D53 D83 |
| Date: | 2020–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:2001&r=all |
| By: | Atif 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. |
| Keywords: | inequality, saving glut, household debt, unveiling |
| JEL: | E21 E44 D31 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8201&r=all |
| By: | Sergio De Ferra; Enrico Mallucci |
| Abstract: | Emerging market interest rate spreads display substantial time-varying volatility. We show that a baseline model with endogenous sovereign default risk can account for such volatility, even in the absence of shocks to the second moments of the exogenous stochastic variables. In particular, the model features a key non-linearity that allows it to replicate the volatility of interest rate spreads and its comovement with other economic variables. Volatility correlates positively with the level of the spreads and the trade balance and negatively with output and consumption. |
| Keywords: | Sovereign risk; Time-varying volatility; Interest rates |
| JEL: | E32 E43 F32 F34 |
| Date: | 2020–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1276&r=all |
| By: | Paul R. Bergin; Giancarlo Corsetti |
| Abstract: | In the wake of Brexit and the Trump tariff war, central banks have had to reconsider the role of monetary policy in managing the economic effects of tariff shocks, which may induce a slowdown while raising inflation. This paper studies the optimal monetary policy responses using a New Keynesian model that includes elements from the trade literature, including global value chains in production, firm dynamics, and comparative advantage between two traded sectors. We find that, in response to a symmetric tariff war, the optimal policy response is generally expansionary: central banks stabilize the output gap at the expense of further aggravating short-run inflation---contrary to the prescription of the standard Taylor rule. In response to a tariff imposed unilaterally by a trading partner, it is optimal to engineer currency depreciation up to offsetting the effects of tariffs on relative prices, without completely redressing the effects of the tariff on the broader set of macroeconomic aggregates. |
| JEL: | F4 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26995&r=all |
| By: | Olivier DAMETTE; Claude DIEBOLT; Stephane GOUTTE; Umberto TRIACCA |
| Abstract: | This paper presents the findings of climate change impact on a widespread human crisis due to a natural occurrence, focusing on the so-called Little Ice Age period. The study is based on new non-linear econometrics tools. First, we reassessed the existence of a significant cooling period using outliers and structural break tests and a nonlinear Markov Switching with Levy process (MS Levy) methodology. We found evidence of the existence of such a period between 1560-1660 and 1675-1700. In addition, we showed that NAO teleconnection was probably one of the causes of this climate change. We then performed nonlinear econometrics and causality tests to reassess the links between climate shock and macroeconomic indicators. While the causal relationship between temperature and agricultural output (yields, production, price) is strongly robust, the association between climate and GDP identified by the MS Levy model does not reveal a clear causality link. Although the MS Levy approach is not relevant in this case, the causality tests indicate that social disturbance might also have been triggered by climate change, confirming the view of Parker (2013). These findings should inform current public policies, especially with regard to the strong capacity of climate to disrupt social and economic stability. |
| Keywords: | Little Ice Age, climate change, non-linear econometrics, Markov Switching Levy, Causality, Economic cycles, Social crisis. |
| JEL: | C53 E32 F00 Q00 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2020-20&r=all |
| By: | Leonor Modesto (UCP, Catolica Lisbon School of Business and Economics & IZA); Carine Nourry (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE); Thomas Seegmuller (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE); Alain Venditti (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE & EDHEC Business School) |
| Abstract: | The relationship between public debt, growth and volatility is investigated in a Barro-type (1990) endogenous growth model, with three main features: we consider a small open economy, international borrowing is constrained and households have taste for domestic public debt. Therefore, capital, public debt and the international asset are not perfect substitutes and the economy is characterized by an investment multiplier. Whatever the level of the debt-output ratio, the existing BGP features expectation-driven fluctuations. If the debt-output ratio is low enough, there is also a second BGP with a lower growth rate. Hence, lower debt does not stabilize the economy with credit market imperfections. However, a high enough taste for domestic public debt may rule out the BGP with lower growth. This means that if the share of public debt hold by domestic households is high enough, global indeterminacy does not occur. |
| Keywords: | small open economy, public debt, credit constraint, indeterminacy |
| JEL: | E32 F43 H63 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:aim:wpaimx:2012&r=all |
| By: | David Andolfatto |
| Abstract: | This paper studies the optimal maturity structure for government debt when markets for liquidity insurance are incomplete or non-competitive. There is no fiscal risk. Government debt in the model solves a dynamic inefficiency. Issuing debt in short and long maturities solves a liquidity insurance problem, but optimal yield curve policy is only possible if long-duration debt is rendered illiquid. Optimal policy is implementable through treasury operations only--adjustments in the primary deficit are not necessary. |
| Keywords: | liquidity; yield curve; Maturity structure |
| JEL: | E4 E5 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:87863&r=all |
| By: | Keita, Moussa |
| Abstract: | Based on the social accounting matrix of the Tunisian economy, this study provides an analytical framework for analyzing the impact of sectoral economic policies on job creation. The aim is to identify some strategic axes for public policies. The analytical framework is built on a Walrassian computable general equilibrium model by taking into account the role of the government, an agent able of influencing the decisions of private agents (by incentive or by intervention) according to public objectives of growth, stabilization, etc. In this framework, we have been able to simulate and analyze the effect of a set of instruments called economic policy. |
| Keywords: | Equilibre général, MEGC, employ, politiques économiques |
| JEL: | C3 E1 E2 E3 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99814&r=all |
| By: | Sergio Restrepo-Ángel (Banco de la República de Colombia); Hernán Rincón-Castro (Banco de la República de Colombia); Juan J. Ospina-Tejeiro (Banco de la República de Colombia) |
| Abstract: | En el artículo se estiman multiplicadores de los impuestos y del gasto público para Colombia con técnicas de vectores autorregresivos estructurales y proyecciones locales estándar y suavizadas. Se utilizan series trimestrales del gobierno nacional central para el período 2000 a 2018. Los multiplicadores fiscales estimados son menores que la unidad, excepto cuando la economía experimenta una fase de contracción, cuando el del gasto resulta mayor. Los resultados en general se mantienen para diferentes esquemas de identificación y metodologías de estimación. **** ABSTRACT: This paper estimates multipliers of taxes and public spending for Colombia with techniques of structural autoregressive vectors and both standard and smooth local projections. Quarterly series of the central national government are used from 2000 to 2018. We estimate fiscal multipliers that are less than unity, except when the economy experiences a contraction phase, when that of spending is greater than unity. The results are generally maintained for different identification schemes and estimation methodologies. |
| Keywords: | Choques fiscales, Blanchard y Perotti, proyecciones locales estándar y suavizadas, multiplicadores, fiscal shocks, Blanchard and Perotti, standard and smooth local projections, fiscal multipliers |
| JEL: | C32 C51 C53 E62 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1114&r=all |
| By: | Mehdi el Herradi; Jakob de Haan; Aurélien Leroy |
| Abstract: | This paper examines the distributional implications of inflation on top income shares in 12 advanced economies using data over the period 1920-2016. We use Local Projections to analyze how top income shares respond to an inflation shock, and panel regressions in which all variables are defined as five-year averages to examine the impact of inflation on the position of the top-one-percent in the long run. Our findings suggest that inflation reduces the share of national income held by the top one percent. Furthermore, we find that inflation shocks and long-run inflation have similar effects on top income shares. |
| Keywords: | inflation, inequality, top income shares, income distribution |
| JEL: | D63 E50 E52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8203&r=all |
| By: | David B. Cashin; Erin E. Syron Ferris; Elizabeth C. Klee |
| Abstract: | Treasury securities normally possess unparalleled safety and liquidity and, consequently, carry a money premium. We use recent debt limit impasses, which temporarily increased the riskiness of Treasuries, to investigate the relationship between the money premium, safety, and liquidity. Our results shed light on Treasury market dynamics specifically, and debt more generally. We first establish that a decline in the perceived safety of Treasuries erodes the money premium at all times. Meanwhile, changes in liquidity only affected the money premium during the impasses. Next, we show that Treasury safety and liquidity dynamics are generally consistent with the theory of the information sensitivity of debt. |
| Keywords: | Treasury securities; Money premium; Default risk; Liquidity; Information sensitivity of debt |
| JEL: | E43 E63 G12 G14 G18 H63 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-08&r=all |
| By: | Thomas B. King; Travis D. Nesmith; Anna L. Paulson; Todd Prono |
| Abstract: | By stepping between bilateral counterparties, a central counterparty (CCP) transforms credit exposure. CCPs generally improve financial stability. Nevertheless, large CCPs are by nature concentrated and interconnected with major global banks. Moreover, although they mitigate credit risk, CCPs create liquidity risks, because they rely on participants to provide cash. Such requirements increase with both market volatility and default; consequently, CCP liquidity needs are inherently procyclical. This procyclicality makes it more challenging to assess CCP resilience in the rare event that one or more large financial institutions default. Liquidity-focused macroprudential stress tests could help to assess and manage this systemic liquidity risk. |
| Keywords: | Financial systems; Central counterparties; CCPs; Margin; Liquidity risk; Systemic risk; Financial stability; Procyclicality |
| JEL: | E58 G21 G23 G28 N22 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-09&r=all |
| By: | Jean-Guillaume Sahuc; Christian Pfister |
| Abstract: | This paper takes stock of the literature on unconventional monetary policies, from their implementation to their effects on the economy. In particular, we discuss in detail the two main measures implemented in most developed economies, namely forward guidance and large-scale asset purchases. Overall, there is near consensus that these measures have been useful, although there are a few dissenting views. Because unconventional monetary policies have left their mark on economies and on the balance sheets of central banks, we offer insights into their legacy and ask whether they have led to a change in “the rules of the game” for setting interest rates and choosing the size and composition of central banks’ balance sheets. Finally, we discuss whether to modify the objectives and the instruments of monetary policy in the future, in comparison with the pre-crisis situation. |
| Keywords: | Unconventional monetary policies. |
| JEL: | E52 E58 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2020-3&r=all |
| By: | Hauser, Luisa-Marie; Schlag, Carsten-Henning; Wolf, André |
| Abstract: | This paper analyses the macroeconomic implications of a future shift in the age structure of the Swiss population. It estimates the long-run effects for Swiss GDP growth and its components in an Overlapping Generations Model (OLG model). Recent population projections by the Federal Statistical Office (FSO) serve as a basis. To document the sensitivity of the results with respect to the demographic assumptions, simulations were undertaken for a range of alternative scenarios concerning fertility, migration and agespecific labor supply. Our projections over the time horizon 2018-2060 document a significant loss in terms of economic growth in both absolute and per capita terms. According to our simulations, this would primarily affect the income of the middle-aged age groups. Likewise, the process of ageing would have consequences for the composition of Swiss GDP: the share of government spending on domestic value added is simulated to increase, due to its demography-related components. A sensitivity analysis reveals that more favourable assumptions concerning future net immigration, fertility and labor market participation could mitigate, but not fully compensate these trends. |
| Keywords: | Ageing,OLG-models,Long-term GDP forecasts,Switzerland |
| JEL: | J11 C68 E37 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hwwirp:191&r=all |
| By: | Richard Heuver; Ron Berndsen |
| Abstract: | The Liquidity Coverage Ratio (LCR) requirement of the Basel III framework is aimed at making banks more resilient against liquidity shocks and indicates the extent to which a bank is able to meet its payment obligations over a 30-day stress period. Notwithstanding the fact that it forms an important addition to the available information for regulators, it presents information on the status of a single bank on a monthly reporting basis. In this paper we generate an LCR-like statistic on a daily basis and simulate liquidity failure of each of the systemically important banks, using historical payments data from TARGET2. The aim of the paper is to uncover paths of contagion. The trigger is a bank with a deteriorating LCR and the knock-on effect is modelled as the impact on the LCR of other banks. We generate then the cascade of contagion, which in general consists of multiple paths, trying to answer the question to what extent the financial network further deteriorates. In doing so we provide paths of contagion which give a sense of potential systemic risk present in the network. We find that the majority of damage is caused by a small group of large banks. Furthermore we find groups of banks that are very vulnerable to shocks, regardless of the size or location of the disruption. Our model reveals that the shortfall of liquidity at the stressed bank is a more important driver than the addition of liquidity at the other banks. A version of the contagion network based on a 14-day period reveals a monthly pattern, which is in line with other literature in which window dressing is addressed. The data used in this paper are available to supervisors, central banks and resolution authorities, therefore making it possible to anticipate contagion of failing liquidity coverage within their payment network on a daily basis. |
| Keywords: | Liquidity Coverage; Basel III; payment systems; graph theory; simulation modeling |
| JEL: | E58 G21 E42 C63 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:678&r=all |
| By: | Ehnts, Dirk H. |
| Abstract: | In this paper, the focus lies on the way the German government spends, how it spends and what the connection between finance ministry and central bank is. The institutions involved in the process are identified and discussed. As a member of the Eurozone, Germany's national central bank is not allowed to buy sovereign securities on its own account. The German government uses taxes and revenues from sovereign security issues to finance its spending, continuing the institutional framework that existed during the era of the deutsch mark. This description confirms the idea that 'the state spends first' also in the Eurozone and that it makes sense to consolidate central bank and government(s) even when a government is not issuing a sovereign currency. |
| Keywords: | government spending,fiscal,monetary,Treasury,sovereign default,Eurozone |
| JEL: | E63 B52 E42 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:1382020&r=all |
| By: | Effrosyni Adamopoulou; Marta De Philippis; Enrico Sette; Eliana Viviano |
| Abstract: | This paper studies the long term consequences on workers' labour earnings of the credit crunch induced by the 2007-2008 financial crisis. We study the evolution of both employment and wages in a large sample of Italian workers followed for nine years after the start of the crisis. We rely on a unique matched bank-employer-employee administrative dataset to construct a firm-specific shock to credit supply, which identifies firms that, because of the collapse of the interbank market during the financial crisis, were unexpectedly affected by credit restrictions. We find that workers who were employed before the crisis in firms more exposed to the credit crunch experience persistent and sizable earnings losses, mainly due to a permanent drop in days worked. These effects are heterogeneous across workers, with high-type workers being more affected in the long run. Moreover, firms operating in areas with favourable labour market conditions react to the credit shock by hoarding high-type workers and displacing low-type ones. Under unfavourable labour market conditions instead, firms select to displace also high-type (and therefore more expensive) workers, even though wages do react to the slack. All in all, our results document persistent effects on the earnings distribution. |
| Keywords: | credit crunch, employment, wages, long run effects, administrative data, linked bank-employer-employee panel data |
| JEL: | E24 E44 G21 J21 J31 J63 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_169&r=all |
| By: | Zachary A. Bethune; Anton Korinek |
| Abstract: | We analyze the externalities that arise when social and economic interactions transmit infectious diseases such as COVID-19. Individually rational agents do not internalize that they impose infection externalities upon others when the disease is transmitted. In an SIR model calibrated to capture the main features of COVID-19 in the US economy, we show that private agents perceive the cost an additional infection to be around $80k whereas the social cost including infection externalities is more than three times higher, around $286k. This misvaluation has stark implications for how society ultimately overcomes the disease: for a population of individually rational agents, the precautionary behavior by the susceptible flattens the curve of infections, but the disease is not overcome until herd immunity is acquired. The resulting economic cost is high; an initial sharp decline in aggregate output followed by a slow recovery over several years. By contrast, the socially optimal approach in our model focuses public policy measures on the infected in order to contain the disease and quickly eradicate it, which produces a much milder recession. If targeting the infected is impossible, the optimal policy in our model is still to aggressively contain and eliminate the disease, and the social cost of an extra infection rises to $586k. |
| JEL: | E1 E65 H12 H23 I18 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27009&r=all |
| By: | George Economides; Dimitris Papageorgiou; Apostolis Philippopoulos |
| Abstract: | This paper first searches for the drivers of the Greek depression in the aftermath of the 2007-8 global crisis and in turn looks for engines of sustained growth. We use a micro-founded macroeconomic model calibrated to Greece. Our simulations show that the adopted adjustment program (namely, the fiscal austerity mix combined with the fiscal and monetary bailouts by the EU, ECB and IMF), jointly with the observed deterioration in institutional quality (specifically, in the degree of protection of property rights) can explain most (around 22% of GDP) of the cumulative loss in GDP in the data (around 24% of GDP) between 2009 and 2016. In particular, the adjustment program can explain a fall of around 12%, while the deterioration in property rights accounts for another 10%. Counterfactual simulations, on the other hand, show that the cumulative output loss could have been around 9% only, if the country had followed a different fiscal policy mix; if the degree of product marker liberalization was closer to that in the core euro zone countries; and, above all, if institutional quality in Greece had simply remained at its pre-crisis level. On the other hand, we show that, in the absence of the official fiscal bailouts, the depression would be much deeper, while the accommodative role played by the quantitative policies of the ECB has been vital to the Greek economy. |
| Keywords: | growth, macroeconomic policy, institutions |
| JEL: | O40 H60 E02 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8188&r=all |
| By: | Zoe Venter |
| Abstract: | In this paper, an index of domestic macroprudential policy tools is constructed and the effectiveness of these tools in controlling credit growth is studied using a dynamic panel data model for the period between 2000 and 2017. The empirical analysis includes two panels namely an EU panel of 27 countries and a Latin American panel of 7 countries, and the paper also looks at a case study of Chile, Colombia, Japan, Portugal and the UK. Our main results find that the cumulative index of macroprudential policy tools does not have a statistically significant impact on credit growth when considering a panel of 27 EU countries. When considering the case of Japan, a tighter capital conservation buffer leads to a decrease in the credit supply. When looking at a panel of 7 Latin American countries, our main results show that a tightening of the capital conservation buffer results in an increase in the credit supply. A tightening of the loan-to-value ratio results in a decrease in the credit supply in the panel of 7 Latin American countries. Lastly, a tightening in the overall macroprudential policy tool stance results in a decrease in credit supply in Japan and an increase in credit supply in Portugal. |
| Keywords: | Macroprudential Policy, Credit Booms, Capital Flows, Financial Stability, Systematic Risk, EU, Latin America |
| JEL: | E58 F55 G01 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp01232020&r=all |
| By: | Roberto Chang; Andrés Velasco |
| Abstract: | The Covid-19 pandemic has motivated a myriad of studies and proposals on how economic policy should respond to this colossal shock. But in this debate it is seldom recognized that the health shock is not entirely exogenous. Its magnitude and dynamics themselves depend on economic policies, and the explicit or implicit incentives those policies provide. To illuminate the feedback loops between medical and economic factors we develop a minimal economic model of pandemics. In the model, as in reality, individual decisions to comply (or not) with virus-related public health directives depend on economic variables and incentives, which themselves respond to current economic policy and expectations of future policies. The analysis yields several practical lessons: because policies affect the speed of virus transmission via incentives, public health measures and economic policies can complement each other, reducing the cost of attaining desired social goals; expectations of expansionary macroeconomic policies during the recovery phase can help reduce the speed of infection, and hence the size of the health shock; the credibility of announced policies is key to rule out both self-fulfilling pessimistic expectations and time inconsistency problems. The analysis also yields a critique of the current use of SIR models for policy evaluation, in the spirit of Lucas (1983). |
| JEL: | E6 F4 H12 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27020&r=all |
| By: | Abir Abid; Christophe Rault |
| Abstract: | We examine the Exchange Rate Volatility (ERV) response to the Economic Policy Uncertainty (EPU) shocks from a panel VAR perspective used for the first time in this context. Focusing on Emerging Market Economies (EME), our noteworthy findings postulate that (a) both home and foreign EPU shocks are highly significant in explaining the ERV, (b) the contribution of the foreign EPU to the ERV fluctuation overcomes the local EPU’s share, (c) the ERV acts as a significant transmission channel of the US-EPU to the economic activity, (d) the home EPU increases with higher US-EPU and vice versa and (e) the latter is surprisingly and markedly sensitive to EME macroeconomic conditions. Our findings are robust to different sensitivity analyses, provide novel insights into EPU international spillovers, and have interesting policy implications for EME decisions makers and investors. |
| Keywords: | emerging markets, economic policy uncertainty, exchange rates volatility, panel VAR |
| JEL: | G15 E44 C22 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8189&r=all |
| By: | Joof, Foday; Tursoy, Turgut |
| Abstract: | This paper investigates the impact of the foreign reserve on the domestic money supply and the level of sterilization by employing the Auto Regressive Distributed Lag for short-run estimation, the Fully Modified OLS for long run estimation and Granger Causality on a monthly data from 2002 to 2019. The short-run and long-run results revealed that foreign reserve has a positive statistically significant impact on money supply; this suggests a total lack of sterilization on the part of Central Bank of The Gambia. The Granger causality confirms a feedback association between the foreign reserve and broad money supply. |
| Keywords: | Foreign reserve, Money supply, Sterilisation, Central Bank of The Gambia |
| JEL: | C1 E5 |
| Date: | 2020–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99929&r=all |
| By: | Riza Demirer (Department of Economics and Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA); David Gabauer (Institute of Applied Statistics, Johannes Kepler University, Altenbergerstraße 69, 4040 Linz, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa) |
| Abstract: | This paper examines the role of monetary policy (MP) of the United States (U.S.) as a driver of connectedness patterns in speculative activities in ï¬ nancial markets. Examining measures of speculation in four major markets including gold, equities, Treasury bonds and crude oil, we show that speculative activities can spill over across markets with the stock market generally serving as the main transmitter of speculative shocks. While unconventional MP is associated with greater connectedness of speculative activities in ï¬ nancial markets, we also ï¬ nd that unconventional (conventional) MP drives gold (ï¬ nancial assets) to serve as a net transmitter of speculative shocks to the other markets. The ï¬ ndings establish an important link between the monetary policy signals and trading behavior in ï¬ nancial markets with signiï¬ cant policy implications. |
| Keywords: | Monetary Policy, Speculation, TVP-VAR, Dynamic Connectedness, Quantiles |
| JEL: | C32 E32 F42 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:202032&r=all |
| By: | Bubeck, Johannes; Maddaloni, Angela; Peydró, José-Luis |
| Abstract: | We show that negative monetary policy rates induce systemic banks to reach-for-yield. For identification, we exploit the introduction of negative deposit rates by the European Central Bank in June 2014 and a novel securities register for the 26 largest euro area banking groups. Banks with more customer deposits are negatively affected by negative rates, as they do not pass negative rates to retail customers, in turn investing more in securities, especially in those yielding higher returns. Effects are stronger for less capitalized banks, private sector (financial and non-financial) securities and dollar-denominated securities. Affected banks also take higher risk in loans. JEL Classification: E43, E52, E58, G01, G21 |
| Keywords: | banks, negative rates, non-standard monetary policy, reach-for-yield, securities |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20202398&r=all |
| By: | Luigi Bocola; Guido Lorenzoni |
| Abstract: | Financial crises typically arise because firms and financial institutions choose balance sheets that expose them to aggregate risk. We propose a theory to explain these risk exposures. We study a financial accelerator model where entrepreneurs can issue state-contingent claims to consumers. Even though entrepreneurs could use these contingent claims to hedge negative shocks, we show that they tend not to do so. This is because it is costly to buy insurance against these shocks as consumers are also harmed by them. This effect is self-reinforcing, as the fact that entrepreneurs are unhedged amplifies the negative effects of shocks on consumers’ incomes. We show that this feedback can be quantitatively important and lead to inefficiently high risk exposure for entrepreneurs. |
| JEL: | E44 G01 G11 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26985&r=all |
| By: | Neville Arjani; Ronald Heijmans |
| Abstract: | Canadian Large Value Transfer System. We define an operational outage as either no or unusually low activity. We test our algorithm against a database of outages by participants reported in order to reduce false negatives. The false positives can be reduced by excluding "outages found" by the algorithm if a participant historically has no payment in a given five minute time interval. Additionally, we can test whether participants do indeed report all their operational outages. The results show that our algorithm works best for the largest participants as they send in payments continuously. Our method can be used by LVTS system operators and overseers to identify sources of operational risks. |
| Keywords: | Operational Risk; LVTS; Financial Market Infrastructures; outages |
| JEL: | E42 E58 G21 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:683&r=all |
| By: | Marco Paulo Vianna Franco (Fundação João Pinheiro); Leonardo Costa Ribeiro (Cedeplar-UFMG); Eduardo da Motta e Albuquerque (Cedeplar-UFMG) |
| Abstract: | This article proposes a historical assessment of harmonic analysis of business cycles. For that purpose, it presents Jean-Baptiste Fourier’s main idea and addresses its reception at the Moscow Conjuncture Institute, mediated by Henry L. Moore and Albert L. Vainshtein, which led to Eugen Slutsky’s well-known 1927 article on the random causes of cyclical processes. In addition, more recent approaches to business cycles, such as real business cycle theory and spectral analysis, are traced back to Fourier and key figures working on economic applications of harmonic analysis in the first decades of the 20th century. Revolving around its ability to both decompose and build cycles, this tool still presents an untapped potential for contemporary analyses of long-term economic dynamics. Hence, it is worthwhile to determine Fourier’s role in the history of economic thought, what necessarily leads to the long-lasting contributions of the creative institute headed by Nikolai Kondratiev. |
| Keywords: | harmonic analysis; business cycles; Fourier transform; spectral analysis; Eugen Slutsky |
| JEL: | B16 B23 C02 E32 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td621&r=all |
| By: | S. Boragan Aruoba; Pablo Cuba-Borda; Kenji Higa-Flores; Frank Schorfheide; Sergio Villalvazo |
| Abstract: | We develop an algorithm to construct approximate decision rules that are piecewise-linear and continuous for DSGE models with an occasionally binding constraint. The functional form of the decision rules allows us to derive a conditionally optimal particle filter (COPF) for the evaluation of the likelihood function that exploits the structure of the solution. We document the accuracy of the likelihood approximation and embed it into a particle Markov chain Monte Carlo algorithm to conduct Bayesian estimation. Compared with a standard bootstrap particle filter, the COPF significantly reduces the persistence of the Markov chain, improves the accuracy of Monte Carlo approximations of posterior moments, and drastically speeds up computations. We use the techniques to estimate a small-scale DSGE model to assess the effects of the government spending portion of the American Recovery and Reinvestment Act in 2009 when interest rates reached the zero lower bound. |
| Keywords: | ZLB; Bayesian Estimation; Nonlinear Solution Methods; Nonlinear Filtering; Par-ticle MCMC |
| JEL: | C5 E5 E4 |
| Date: | 2020–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:87720&r=all |
| By: | Andreas Irmen |
| Abstract: | This paper develops a static model of endogenous task-based technical progress to study how factor scarcity induces technological progress and changes in factor prices. The equilibrium technology is multi-dimensional and not strongly factor-saving in the sense of Acemoglu (2010). Nevertheless, labor scarcity induces labor productivity growth. There is a weak but no strong absolute equilibrium bias. This model provides a plausible interpretation of the famous contention of Hicks (1932) about the role of factor prices and factor endowments for induced innovations. It may serve as a micro-foundation for canonical macro-economic models. Moreover, it accommodates features like endogenous factor supplies and a binding minimum wage. |
| Keywords: | economic growth, endogenous technical change, direction of technical change, biased technology |
| JEL: | O31 D92 O33 O41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8215&r=all |
| By: | Gustavo Iglésias; Pedro Mazeda Gil |
| Abstract: | Monetary authorities have followed interest-rate feedback rules in apparently different ways over time and across countries. The literature distinguishes, in particular, between active and passive monetary policies in this regard. We address the nominal and real transitional-dynamics implications of these different types of monetary policy, in the context of a monetary growth model of R&D and physical capital accumulation. In this setup, well-behaved transitional dynamics occurs under both active and passive monetary policies. We carry out our study from three perspectives: the convergence behaviour of catching-up economies; a structural monetary-policy shock (i.e., a change in the long-run inflation target); and real industrialpolicy shocks (i.e., a change in R&D subsidies or in manufacturing subsidies). We uncover a new channel through which institutional factors (the characteristics of the monetary-policy rule) influence the economies’ convergence behaviour and through which monetary authorities may leverage (transitional) growth triggered by structural shocks. |
| JEL: | E41 O31 O41 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202003&r=all |
| By: | Dogan, Aydan (Bank of England); Hjortsoe, Ida (Bank of England) |
| Abstract: | This paper evaluates whether recent advances in modelling the extensive margin of exports contribute to our understanding of export fluctuations over the business cycle. Using US and euro-area data, we estimate a general equilibrium model in which the extensive margin of exports varies over the business cycle. A comparison of its performance to two similar models that differ in their modelling of the extensive margin of exports shows that, while recent advances in modelling the extensive margin of trade help replicate exports dynamics, this is not the result of a good fit to the observed extensive margin of exports: the model-implied extensive margin of exports varies considerably more than the data suggests. |
| Keywords: | Export dynamics; heterogeneous firms; extensive margin of trade; international business cycles |
| JEL: | E32 F41 F44 |
| Date: | 2020–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0859&r=all |
| By: | Kerstin Bernoth; Geraldine Dany-Knedlik; Anna Gibert |
| Abstract: | To cushion the economic effects of the coronavirus pandemic, central banks have taken far-reaching monetary policy measures. The US Federal Reserve has lowered its interest rates and, like the European Central Bank, has expanded its bond purchase programs. However, it is questionable whether these measures are having the desired effect of calming the markets and supporting the real economy. It is true that the macroeconomic effects cannot yet be quantified, but initial indications of their effectiveness can be seen in the short-term reactions of stock prices and bond yields. The following article shows how interest rates and prices have reacted directly to the central bank announcements and what conclusions can be drawn from this for future measures |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwfoc:3en&r=all |
| By: | John Y. Campbell; Roman Sigalov |
| Abstract: | We show that reaching for yield—a tendency to take more risk when the real interest rate declines while the risk premium remains constant—results from imposing a sustainable spending constraint on an otherwise standard infinitely lived investor with power utility. This is true for two alternative versions of the constraint which make wealth and consumption follow martingales in levels or in logs, respectively. Reaching for yield intensifies when the interest rate is initially low, helping to explain the salience of the topic in the current low-rate environment. The sustainable spending constraint also affects the response of risktaking to a change in the risk premium, which can even be negative when the riskless interest rate is sufficiently low. In a variant of the model where the sustainable spending constraint is formulated in nominal terms, low inflation also encourages risktaking. |
| JEL: | E43 G11 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27025&r=all |
| By: | Berner, Julian; Buchholz, Manuel; Tonzer, Lena |
| Abstract: | This paper analyses how firm-specific forecast errors derived from survey data of German manufacturing firms over 2007-2011 affect firms' investment propensity. Understanding how forecast errors affect firm investment behaviour is key to mitigate economic downturns during and after crisis periods in which forecast errors tend to increase. Our findings reveal a negative impact of absolute forecast errors on investment. Strikingly, asymmetries arise depending on the size and direction of the forecast error. The investment propensity declines if the realised situation is worse than expected. However, firms do not adjust investment if the realised situation is better than expected suggesting that the uncertainty component of the forecast error counteracts positive effects of unexpectedly favorable business conditions. Given that the fraction of firms making positive forecast errors is higher after the peak of the recent financial crisis, this mechanism can be one explanation behind staggered economic growth and slow recovery following crises. |
| Keywords: | risk climate,microeconomic survey data,forecast errors,firm investment,uncertainty |
| JEL: | D22 D84 E32 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:52020&r=all |
| By: | - |
| Abstract: | Highlights • The record long U.S. economic expansion is coming to an end, as a result of the COVID-19 pandemic. Shutdowns to stem the spread of the virus have already had an impact on the economy, and are already visible in some preliminary data for March, ranging from jobless claims to factory output. The U.S. government will release its initial estimate for the first quarter of 2020 at the end of April, and a decline in growth is expected, followed by an even worse decline in the second quarter. • Three stimulus packages were approved by the U.S. Congress in March, aiming to address the impact of the COVID-19 pandemic on households and businesses. The Federal Reserve has cut interest rates to the zero-lower bound, offered unlimited quantitative easing, and deployed old tools (used in the 2008 financial crisis) and new, aimed at keeping financial markets functioning. • A U.S. recession in the first half of the year is now the baseline forecast according to market projections. The outlook remains highly uncertain and constantly changing, as new estimates of the impact of the pandemic are made and government actions further restricts the population’s mobility and economic activity. |
| Keywords: | CONDICIONES ECONOMICAS, INDICADORES ECONOMICOS, INDUSTRIA, EMPLEO, POLITICA MONETARIA, POLITICA FISCAL, INFLACION, COMERCIO EXTERIOR, VIRUS, EPIDEMIAS, TENDENCIAS ECONOMICAS, COVID-19, ECONOMIC CONDITIONS, ECONOMIC INDICATORS, INDUSTRY, EMPLOYMENT, MONETARY POLICY, FISCAL POLICY, INFLATION, FOREIGN TRADE, VIRUSES, EPIDEMICS, ECONOMIC TRENDS, COVID-19 |
| Date: | 2020–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:ecr:col896:45420&r=all |
| By: | Moser, Christian; Yared, Pierre |
| Abstract: | This note studies optimal lockdown policy in a model in which the government can limit a pandemic's impact via a lockdown at the cost of lower economic output. A government would like to commit to limit the extent of future lockdown in order to support more optimistic investor expectations in the present. However, such a commitment is not credible since investment decisions are sunk when the government makes the lockdown decision in the future. The commitment problem is more severe if lockdown is sufficiently effective at limiting disease spread or if the size of the susceptible population is sufficiently large. Credible rules that limit a government's ability to lock down the economy in the future can improve the efficiency of lockdown policy. |
| Keywords: | Coronavirus, COVID-19, SIR Model, Optimal Policy, Rules, Commitment, Flexibility |
| JEL: | E61 H12 I18 |
| Date: | 2020–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99804&r=all |
| By: | David Salamanca |
| Abstract: | Este trabajo, preparado como parte del programa de trabajo de la Misión de Mercado de Capitales de Colombia, identifica los principales administradores de activos con regímenes reglados (AFPs, Aseguradoras, Recursos Pensionales y Excedentes de Liquidez) manejan activos por cerca de COP$470 billones. Para ellos describe la composición de los portafolios administrados y analiza los incentivos provistos por los regímenes de inversión actuales, comparándolos con otros referentes de gestión de activos en el país e internacionalmente. Se concluye que existe una heterogeneidad amplia entre los inversionistas institucionales sujetos a regímenes de inversión y en este sentido la utilización de un modelo único de regulación no parece ser lo más adecuado. Para actores con tamaño y capacidades suficientes para definir los lineamientos estratégicos de asignación de activos y para monitorear la gestión por parte de administradores delegados, regímenes más sencillos y alineados con los principios del hombre prudente pueden ser convenientes mientras para entidades menos sofisticadas y que administran portafolios de menor tamaño, esquemas con directrices generales más detalladas pueden requerirse. |
| Keywords: | Regulación Financiera, Regímenes de Inversión, Inversionistas Institucionales, Inversiones, Colombia |
| JEL: | E22 F21 G24 G31 O16 |
| Date: | 2019–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:col:000124:018131&r=all |
| By: | Ojo, Marianne |
| Abstract: | The COVID-19 pandemic has highlighted how intricately linked the global community has become with the advent of globalization, rapid growth of Information Technology and the Internet Revolution. Since many global economies have become interdependent on each other – as further reflected by sectors who have generated greater domino effects on one other, there have been suggestions and recommendations for shorter supply chains. Just how far can associated risk levels and particularly those with seismic and systemic effects on the economy be mitigated – whilst ensuring that appropriate balance is maintained in assessing and estimating accurate and reliable forecasts – particularly where past historical data , to an extent, will be required to achieve such an assessment? The COVID pandemic has also highlighted that unexpected events such as recent developments will impact prior measures in such a way as never before – not only because of the unique attributes of this Crisis – both an economic and medical one, but also by virtue of the impact and interconnections globally. How reliable are prior measures and should this imply that less reliance will be placed on historical data and greater reliance on forward looking provisioning? Technological advances , it would appear, should have facilitated the mitigation of information asymmetries however, the pandemic also reflects the growing need for digital measures to keep economies functioning and will certainly play fundamental and formidable roles in the future workplace. Stay at home measures have been greatly facilitated through digital advancements, virtual communication and conferences and it is without doubt that new regulations in respect of internet regulation and privacy laws may be reviewed and revised in several jurisdictions and regions. Global coordination will certainly be required to overcome this pandemic. In addressing the afore mentioned questions, this papers aims to highlight , amongst other objectives how and why such a coordination can be achieved. |
| Keywords: | coordination; temporary pandemic emergency purchase programme ; forward looking standards; loan loss provisioning; enhanced targeted longer term refinancing operations; supply chains |
| JEL: | E58 E6 F16 K20 M41 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99775&r=all |
| By: | Edward P. Herbst; Benjamin K. Johannsen |
| Abstract: | Local projections (LPs) are a popular tool in applied macroeconomic research. We survey the related literature and find that LPs are often used with very small samples in the time dimension. With small sample sizes, given the high degree of persistence in most macroeconomic data, impulse responses estimated by LPs can be severely biased. This is true even if the right-hand-side variable in the LP is iid, or if the data set includes a large cross-section (i.e., panel data). We derive a simple expression to elucidate the source of the bias. Our expression highlights the interdependence between coefficients of LPs at different horizons. As a byproduct, we propose a way to bias-correct LPs. Using U.S. macroeconomic data and identified monetary policy shocks, we demonstrate that the bias correction can be large. |
| Keywords: | Local projections; Bias |
| JEL: | C20 E00 |
| Date: | 2020–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2020-10&r=all |
| By: | Karen A. Kopecky; Tao Zha |
| Abstract: | The rapid spread of COVID-19 is having devastating effects on the global economy. With death curves beginning to bend, governments will soon need to determine when and how to relax lockdown measures. The crucial question is: what are the public health consequences of reopening the economy? In this article, we argue that the observed decline in daily deaths could be due to two scenarios: social distancing measures and herd immunity. Both the widely used SIR model and the data collected thus far cannot distinguish these two scenarios. Such an identification problem generates a large degree of uncertainty about the public health consequences of restarting the economy. Comprehensive testing can help resolve this uncertainty by quickly and accurately identifying new cases so that future outbreaks could be contained by isolation and contact tracing measures. |
| Keywords: | COVID-19; social distancing; identification problem; death curve; lockdown; herd immunity; reopening the economy; testing |
| JEL: | E6 H12 I1 |
| Date: | 2020–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:a00001:87864&r=all |
| By: | David Salamanca; María Inés Agudelo |
| Abstract: | El mercado de capitales colombiano aún no se posiciona como una fuente importante de financiación que logre suplir las necesidades de recursos del sector productivo. A pesar de los esfuerzos de las autoridades por promover la complementariedad entre los dos pilares de financiación, la preferencia por el canal intermediado tanto de firmas como de entidades financieras evidencia un desequilibrio en el análisis costo beneficio a favor del crédito bancario como mecanismo de financiación. En este trabajo se estudian varias hipótesis que podrían inducir este comportamiento. La primera de ellas tiene que ver con el marco normativo que, al no incorporar aún la totalidad de las recomendaciones de las mejores prácticas de manejo de riesgo, podría estar otorgando un subsidio para aquellas firmas que serían clientes naturales del mercado de capitales. Sin embargo, Colombia puede mostrar avances en la implementación de los estándares de Basilea III a pesar de que los tiempos difieren de los propuestos por el Comité de Basilea. En todo caso, la URF midió el efecto de la regulación y determinó que la mayoría de las entidades, incluyendo los bancos más grandes, cumple en la actualidad con los requerimientos derivados de las mismas. La segunda tiene que ver con los sesgos regulatorios relacionados con mantener obligaciones en el balance del banco o con canalizar captaciones por fuera de mecanismos más tradicionales del mercado de capitales. Con respecto a esta hipótesis, el análisis de la evolución de las fuentes de fondeo no refleja una recomposición desde los Bonos hacia los CDTs. La tercera hipótesis se relaciona con la presencia de conglomerados financieros que están presentes en ambos segmentos. Para estudiar esta hipótesis se compararon los costos de las firmas para acceder a una u otra forma de financiamiento. Se evidencia que el costo de infraestructura no es el componente más importante al momento de la emisión de papeles de deuda privada, por lo menos en el caso de la oferta pública inicial. Por el contrario, los costos de estructuración pueden ser prohibitivos, en particular para emisiones pequeñas de corto plazo y pueden en la práctica eliminar la ventaja de costos financieros del Mercado de Capitales frente a la alternativa bancaria. Los costos de mayor transparencia pueden ser disuasores importantes para firmas que cuentan con una estructura de propiedad y decisión concentrada en familias o pequeños grupos de accionistas, así como los obstáculos regulatorios y el proceso de autorización que pueden restringir la oportunidad de acceso de mercado. |
| Keywords: | Mercado de Capitales, Costos de Financiación, Análisis Comparativo, Colombia, Financial Markets, Comparative Analysis |
| JEL: | D53 E44 G15 O16 |
| Date: | 2019–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:col:000124:018130&r=all |
| By: | Sina J. Ogede (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Emmanuel O. George (Olabisi Onabanjo University, Ago-Iwoye, Nigeria); Ibrahim A. Adekunle (Olabisi Onabanjo University, Ago-Iwoye, Nigeria) |
| Abstract: | A range of explanations had been offered for the apparent change in oil price-inflation relationship outcomes ranging from the possible use of alternate energy sources, change in the structure of output regarding fewer oil intensive sectors and the role of fiscal and monetary in the affected oil-exporting countries. These changes had drawn the attention of stakeholders, government and the society at large to the anecdotal relationship among oil price volatility, inflation, and output in Africa oil-exporting countries. This study leans empirical credence to the impact of oil price volatility on inflation and economic performance in the Africa oil-exporting countries from 1995 through 2017. We employed the Pool Mean Group estimation procedure with the inference drawn at a 5% level of significance. We found that oil price volatility had a negative and significant effect on inflation in Africa oil-exporting countries. The study concluded that oil price volatility had a substantial impact on inflation in the Africa oil-exporting countries. The study, therefore, recommended that Africa oil-exporting countries should adopt precautionary measures to monitor inflation potentials due to different responses of inflation to positive and negative oil price shocks. |
| Keywords: | Oil Price Volatility; Inflation; Growth Outcomes; Pool Mean Group; Africa. |
| JEL: | C33 O55 Q41 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:20/020&r=all |
| By: | Greitens, Jan |
| JEL: | B31 E31 N14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ibfpps:0419&r=all |
| By: | World Bank Group |
| Keywords: | Macroeconomics and Economic Growth - Business Cycles and Stabilization Policies Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Poverty Reduction - Inequality Industry - Apparel and Leather Industry Agriculture - Food Security International Economics and Trade - Export Competitiveness |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:31641&r=all |
| By: | Lukasz A. Drozd; Marina Tavares |
| Abstract: | We consider several epidemiological simulations of the COVID-19 pandemic using the textbook SIR model and discuss the basic implications of these results for crafting an adequate response to the ensuing economic crisis. Our simulations are meant to be illustrative of the findings reported in the epidemiological literature using more sophisticated models (e.g., Ferguson et al. (2020)). The key observation we stress is that moderating the epidemiological response of social distancing according to the models may come at a steep price of extending the duration of the pandemic and hence the time these measures need to stay in place to be effective. We caution against ignoring this tradeoff as well as the fact that the timeline of the pandemic remains uncertain at this point. Consistent with the prudent advice of hoping for the best but preparing for the worst, we argue that a comprehensive economic response should address the question of how to safely “hibernate” the national economy for a flexible time period. We provide a discussion of basic policy guidelines and highlight the key policy challenges. |
| Keywords: | SIR model; COVID-19 pandemic; containment policies |
| JEL: | E1 H0 I1 |
| Date: | 2020–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:87788&r=all |
| By: | Cezar Santos; Felipe S. Iachan; Diego B. P. Gomes |
| Abstract: | We study labor earnings dynamics in a developing economy with a large informal sector. We use nationally representative Brazilian panel data that cover both formal and informal workers. We document large disparities in earnings fluctuations faced by these segments of the labor market, as well as the high frequency of transitions between them. Informality is associated with more volatile earnings, while workers in the formal sector are subject to significant downside risk. Transitions between formal and informal employment bring large asymmetric earnings shocks and have a frequency that depends on age and the initial earnings level. |
| JEL: | E24 E26 J24 J31 O17 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w202002&r=all |
| By: | Julian Kozlowski; Laura Veldkamp; Venky Venkateswaran |
| Abstract: | The largest economic cost of the COVID-19 pandemic could arise if it changed behavior long after the immediate health crisis is resolved. A common explanation for such a long-lived effect is the scarring of beliefs. We show how to quantify the extent of such belief changes and determine their impact on future economic outcomes. We find that the long-run effect of the COVID crisis depends crucially on whether bankruptcies and changes in habit make existing capital obsolete. A policy that avoided most permanent separation of workers from capital could generate a much larger benefit than originally thought, that could easily be 180% of annual GDP, in present value. |
| Keywords: | COVID-19; coronavirus; rare events; tail risk; belief-driven business cycles |
| JEL: | D84 E32 |
| Date: | 2020–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:87869&r=all |
| By: | Claire Giordano (Banca d’Italia) |
| Abstract: | This paper documents the recent innovations to the Bank of Italy methodology underlying the estimation of price-competitiveness misalignments , first put forward in Giordano (2018); it also provides the most recent misalignment estimates for the euro area and for its four main economies, based on five alternatively deflated indicators. The extension of the sample period, the recalibration of the trade weights employed and the significant data revisions and refinements introduced have not qualitatively modified the assessment of misalignments since 1999 for the afore-mentioned economies, although point estimates have changed non-negligibly. In the first half of 2019, no significant price competitiveness misalignment is recorded for Italy and for the euro area as a whole, whereas for France, Germany and Spain there is still evidence of a modest undervaluation. |
| Keywords: | price competitiveness, real effective exchange rate, equilibrium exchange rate, external imbalances |
| JEL: | E31 F00 F31 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_556_20&r=all |
| By: | S. Boragan Aruoba; Pablo Cuba-Borda; Kenji Higa-Flores; Frank Schorfheide; Sergio Villalvazo |
| Abstract: | We develop an algorithm to construct approximate decision rules that are piecewise-linear and continuous for DSGE models with an occasionally binding constraint. The functional form of the decision rules allows us to derive a conditionally optimal particle filter (COPF) for the evaluation of the likelihood function that exploits the structure of the solution. We document the accuracy of the likelihood approximation and embed it into a particle Markov chain Monte Carlo algorithm to conduct Bayesian estimation. Compared with a standard bootstrap particle filter, the COPF significantly reduces the persistence of the Markov chain, improves the accuracy of Monte Carlo approximations of posterior moments, and drastically speeds up computations. We use the techniques to estimate a small-scale DSGE model to assess the effects of the government spending portion of the American Recovery and Reinvestment Act in 2009 when interest rates reached the zero lower bound. |
| Keywords: | Bayesian estimation; Nonlinear filtering; Nonlinear solution methods; Particle MCMC; ZLB |
| JEL: | C50 E40 E50 |
| Date: | 2020–02–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1272&r=all |
| By: | Olivier Coibion; Yuriy Gorodnichenko; Michael Weber |
| Abstract: | We use a repeated large-scale survey of households in the Nielsen Homescan panel to characterize how labor markets are being affected by the covid-19 pandemic. We document several facts. First, job loss has been significantly larger than implied by new unemployment claims: we estimate 20 million lost jobs by April 6th, far more than jobs lost over the entire Great Recession. Second, many of those losing jobs are not actively looking to find new ones. As a result, we estimate the rise in the unemployment rate over the corresponding period to be surprisingly small, only about 2 percentage points. Third, participation in the labor force has declined by 7 percentage points, an unparalleled fall that dwarfs the three percentage point cumulative decline that occurred from 2008 to 2016. |
| JEL: | C83 D84 E31 J21 J26 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27017&r=all |
| By: | Daniel Lewis; Karel Mertens; James H. Stock |
| Abstract: | This paper describes a weekly economic index (WEI) developed to track the rapid economic developments associated with the response to the novel Coronavirus in the United States. The WEI shows a strong and sudden decline in economic activity starting in the week ending March 21, 2020. In the most recent week ending March 28, the WEI indicates economic activity has fallen further to -6.19% scaled to 4 quarter growth in GDP. |
| JEL: | C51 E01 E66 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26954&r=all |
| By: | Loayza,Norman V.; Pennings,Steven Michael |
| Abstract: | COVID-19 not only represents a worldwide public health emergency but has become an international economic crisis that could surpass the global financial crisis of 2008?09. Right now, containment and mitigation measures are necessary to limit the spread of the virus and save lives. However, they come at a cost, as shutdowns imply reducing economic activity. These human and economic costs are likely to be larger for developing countries, which generally have lower health care capacity, larger informal sectors, shallower financial markets, less fiscal space, and poorer governance. Policy makers will need to weigh carefully the effectiveness and socioeconomic consequences of containment and mitigation policies, responding to epidemiological evidence on how the virus spreads and trying to avoid unintended consequences. Economic policy in the short term should be focused on providing emergency relief to vulnerable populations and affected businesses. The short-term goal is not to stimulate the economy?which is impossible, given the supply-restricting containment measures, but rather to avoid mass layoffs and bankruptcies. In the medium term, macroeconomic policy should turn to recovery measures, which typically involve monetary and fiscal stimulus. However, in many developing countries, stimulus may be less effective because monetary transmission is weak and fiscal space and fiscal multipliers are often small. A more viable goal for macroeconomic policy in developing countries is avoiding procyclicality, ensuring the continuity of public services for the economy, and supporting the vulnerable. Because COVID-19 is truly a global shock, international coordination is essential, in economic policy,health care and science, and containment and mitigation efforts. Critical times call for well-designed government action and effective public service delivery?preserving, rather than ignoring, the practices for macroeconomic stability and proper governance that serve in good and bad times. |
| Keywords: | Health Care Services Industry,Public Health Promotion,Climate Change Mitigation and Green House Gases,Economic Conditions and Volatility |
| Date: | 2020–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbkrpb:147291&r=all |
| By: | Lengwiler, Yvan (University of Basel) |
| Abstract: | The COVID-19 pandemic and the partial shutdown of the economy has highlighted the lack of measurements of economic activity that are available with a short lag and at high frequency. The consumption of electricity is a candidate for such a proxy. |
| Keywords: | COVID-19, electricity, seasonal adjustment, weather data |
| JEL: | C50 E01 |
| Date: | 2020–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:bsl:wpaper:2020/07&r=all |
| By: | Benjamin Eden (Vanderbilt University); Maya Eden (Brandeis University); Oscar Oflaherty (Vanderbilt University); Jonah Yuen (Vanderbilt University) |
| Abstract: | Using scanner data from supermarkets, we establish some stylized facts about temporary sales and argue that temporary sales play an important role in the reaction of prices to small demand shocks. We use a model in which temporary sales are reactions to aggregate shocks and the accumulation of unwanted inventories to account for our empirical findings. |
| Keywords: | Temporary Sales, Unwanted Inventories, Sequential Trade |
| JEL: | D4 E0 |
| Date: | 2020–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-20-00001&r=all |
| By: | Greitens, Jan |
| Abstract: | The monetary ideas of Georg Friedrich Knapp have recently resurfaced in the context of the Modern Monetary Theory whose representatives see themselves in his tradition. The historical debate on Knapp's "State Theory of Money," which divided opinion when it was first published in 1905 as well as during the period of German inflation that peaked in 1923, is therefore of particular interest. Knapp describes money largely from a legal perspective, labelling it a "creature of the legal order". The principle "Mark = Mark" reflects his nominalistic approach. However, he opposed monetary state financing, and favoured balanced governmental budgets. One of his students, Karl Helfferich, was the most influential monetary theorist in the German Reich during the first decades of the 20th century. In defining Knapp's view as an ultimate ideal that might be realised at some point, and his own metallist approach as a practical necessity, he tries to reconcile his teacher's nominalistic theory on the one hand with his own gold currency-principles on the other.The monetary theory of the Marxist Rudolf Hilferding was eclectic, but he moved closer to a nominalistic approach after studying Knapp's theory. During inflation, Helfferich, a representative of the Balance of Payments Theory, and Hilferding, more of the Quantity Theory of Money, also held opposing views in the public debate on the monetary reforms required. The relationship between the three authors was highly complex. While Helfferich and Knapp were personally close, they were far apart in their theories although Helfferich tried to conceal this fact. Hilferding and Helfferich, meanwhile, held similar views on some practical points, such as the necessity of a gold-based currency, but clashed vehemently on a personal level. (English version of: Karl Helfferich und Rudolf Hilferding über Georg Friedrich Knapps "Staatliche Theorie des Geldes": Geldtheorien zur Zeit der Hyperinflation von 1923“, IBF Paper Series 04-19, https://www.econstor.eu/handle/10419/215 928/) |
| Keywords: | Helfferich,Hilferding,Knapp,State Theory of Money,Hyperinflation,Modern Monetary Theory |
| JEL: | B31 E31 N14 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esconf:216102&r=all |
| By: | Marianne, Ojo |
| Abstract: | The exact dates of the first COVID-19 outbreaks may remain an unresolved mystery. Unless reliable sources and records can be traced and retained, efforts to trace when initial infections took place, may even constitute a greater task than the other question relating to how it was instigated – the latter having (it appears) to have been partially resolved. The uncertainty and lack of knowledge about the nature of the transmitting organism, as well as the manner of transmission, still constitutes a puzzle and it is even possible that many patients might have died long before the prominence of infections became known to authorities. It is also now acknowledged that humans may have contracted the virus unknowingly without manifesting the usual symptoms. How is it then possible to verify whether many deaths prior to the official reporting outbreak timing of the 12th December 2019, were not linked to asymptomatic patients? Furthermore, does the transmitting agent bear similarities to the flu virus – in which case, it becomes a seasonal problem? This underlines how vital it is to secure vaccines and antibodies which can combat its spread. Amongst several other objectives, this paper not only aims to highlight why global coordination and certainty of information is so vital, but also highlight measures which have been, and could be undertaken, to address and mitigate the COVID-19 outbreak. |
| Keywords: | bond markets; exchange rates; spill over effects; asset buying programme; monetary policy; Bayesian Vector Autoregression model; multiplier effect; continuous monitoring |
| JEL: | E58 F16 F32 F62 G38 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99776&r=all |
| By: | Das, Panchanan |
| Abstract: | The nature of recession today because of the outbreak of COVID-19 is completely different from that of Great recession of the 1930s and macroeconomic risks brought on by the pandemic could be severe. There is a trade-off between the severity of the recession and the health consequences of the pandemic. The containment policies undertaken by the State in most of the countries including India in the form of economic lockdown primarily to maintain social distance exacerbate recession but raise welfare by reducing the probability of new infection and death toll caused by the pandemic. Different sectors of the economy will be affected adversely depending upon its intensity, spread and duration of the pandemic. Till now, as the cost of externality is very high because of absence of vaccination and treatment of this disease, the State has to impose more aggressive policy in the form of near complete lockdown or in some cases complete lockdown of the economy to reduce the probability of being infected. Total number of infected people and number of death due to this disease is significantly less in India till now despite the country has the highest population density and more populous than USA and Italy. But, daily growth rate of infected people is significantly higher (above 10 per cent) than the rate even in USA (3.5 per cent) as on April 19, 2020. In India, although absolute number of death is the least compared to other countries, the death rate is larger than the rate in USA, the country showing the highest death toll in the pandemic. |
| Keywords: | Recession, Macroeconomic Policy, Public Policy, Pandemic |
| JEL: | E12 E6 H0 I1 |
| Date: | 2020–04–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99757&r=all |
| By: | Holtemöller, Oliver |
| Abstract: | In this paper, a simple integrated model for the joint assessment of epidemic and economic dynamics is developed. The model can be used to discuss mitigation policies like shutdown and testing. Since epidemics cause output losses due to a reduced labor force, temporarily reducing economic activity in order to prevent future losses can be welfare enhancing. Mitigation policies help to keep the number of people requiring intensive medical care below the capacity of the health system. The optimal policy is a mixture of temporary partial shutdown and intensive testing and isolation of infectious persons for an extended period of time. |
| Keywords: | coronavirus,economic growth,epidemic modeling |
| JEL: | E1 H0 I1 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:42020&r=all |
| By: | Stéphane Lhuissier; Benoît 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-ofthe-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. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2020-04&r=all |
| By: | Manuel Rubio García; Santiago Castaño Salas |
| Abstract: | A partir de la experiencia de la apertura económica, financiera y comercial en muchos países de América Latina, ha revivido el interés del impacto de la distribución del ingreso sobre la dinámica de la acumulación de capital y, el crecimiento económico de largo plazo (Serrano & Medeiros, 2001). Sin embargo, se hace necesario volver la mirada sobre aspectos teóricos de la distribución del ingreso, especialmente lo que se refiere a resaltar la “naturaleza” conflictiva de la distribución del ingreso, las esferas de realización del conflicto distributivo (ordenes) y, por tanto, las relaciones sociales subyacentes a cada una. En este artículo se subraya el rol del Estado y el mercado en el conflicto distributivo como dimensiones privilegiadas, a partir de una mirada sintética de la economía política clásica y de una visión de Polanyi y la Escuela de la Regulación Francesa sobre el cambio institucional. |
| Keywords: | Conflicto distributivo, Distribución del ingreso, Economía política clásica, Escuela de la regulación francesa, Estado, mercado. |
| JEL: | B14 B15 B24 B25 E24 |
| Date: | 2020–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000430:018109&r=all |
| By: | Stavros Panageas |
| Abstract: | Does heterogeneity matter for asset pricing and in particular for risk premiums? Starting with an irrelevance result, I classify the literature into two groups of papers taking different routes to link investor heterogeneity and risk premiums. The first group contains models of investors who differ in terms of their preferences, beliefs, or access to markets. Despite their differences, these models have similar implications, and can be analyzed in a unified way. The second group of papers consists of models where investors experience uninsurable income shocks. The goal of this survey is to provide one unified framework to better understand this large literature, and especially to reconcile several of the seemingly inconsistent results found in some seminal papers. |
| JEL: | E21 G12 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26974&r=all |
| By: | Konstantin Egorov (New Economic School); Dmitry Mukhin (WISC) |
| Abstract: | Recent empirical evidence shows that most international prices are sticky in dollars. This paper studies the optimal policy implications of this fact in the context of an open economy model, allowing for an arbitrary structure of asset markets, general preferences and technologies, timeor state-dependent price setting, a rich set of shocks, and endogenous currency choice. We show that although monetary policy is less ecient and cannot implement the exible-price allocation, ination targeting remains robustly optimal in non-U.S. economies. The implementation of this non-cooperative policy results in a “global monetary cycle†with other countries partially pegging their exchange rates to the dollar and importing the monetary stance of the U.S. In spite of the aggregate demand externality, capital controls cannot unilaterally improve the allocation and are useful only when coordinated across countries. The optimal U.S. policy, on the other hand, deviates from ination targeting to take advantage of its eects on global product and asset markets, generating negative spillovers on the rest of the world. International cooperation benets other countries by improving global demand for dollar-invoiced goods, but may be hard to sustain because it is not in the self-interest of the U.S. At the same time, countries can still gain from local forms of policy coordination — such as forming a currency union like the Eurozone. |
| Date: | 2020–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:abo:neswpt:w0261&r=all |
| By: | Andrea Caggese |
| Abstract: | The broad question that motivates this paper is: Which shocks drive aggregate fluctuations? Narrative methods have been widely used in macroeconomics to help answer it. They involve obtaining information from qualitative data sources to identify the reason and/or the quantities associated with a particular change in a variable (Ramey, 2016). Often narrative methods refer to analyzing historical sources on macroeconomic policy decisions, such as fiscal or monetary policy announcements. However, they can also relate to the information contained in micro-level qualitative data sources, such as business surveys. For example, Guiso and Parigi (1999) use survey information on the subjective probability distribution of future demand to estimate firm-level uncertainty shocks. This paper follows a similar approach, in that it uses qualitative information from business surveys, and has two novel objectives: First, to use firm-level survey information to identify the aggregate shocks driving aggregate investment in the German manufacturing sector. Second, to identify the nature of these shocks. I think we learn a lot from the results the authors obtain pursuing the first objective. The analysis related to the second objective generates results that, while they do not provide definitive answers, raise interesting questions for future research. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1175&r=all |
| By: | Magnus Kvåle Helliesen; Håvard Hungnes; Terje Skjerpen (Statistics Norway) |
| Abstract: | This paper investigates the quality of preliminary figures in the Norwegian national accounts. To address the problem of few observations in such analyses, we use some recently developed system tests. Preliminary figures for gross fixed capital formation (investments) under-predict the final figures. For other series in the Norwegian national accounts, we find that they are unbiased and weakly efficient. |
| Keywords: | Forecasting |
| JEL: | C12 C22 C32 E01 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:924&r=all |
| By: | Alvin Ang (Department of Economics, Ateneo de Manila University); Ser Percival Peña-Reyes (Department of Economics, Ateneo de Manila University) |
| Abstract: | This paper highlights a large informal economy, a low propensity to save and invest, and widespread financial exclusion as factors that expose Filipinos to financial vulnerability. These factors could, in turn, make the distribution of government aid all the more challenging in the midst of the COVID-19 crisis. The sheer number of displaced informal economy workers, combined with economy-wide low savings and investment rates, would call for a massive amount of financial aid. Because of widespread financial exclusion, cash handouts are probably the quickest way to deliver the aid, which would expose local government units (LGUs) to considerable risks of wrong targeting, late delivery, and incomplete accounting. To ease the burden on LGUs, at least on the accounting aspect, it might be beneficial to consider enlisting the services of other channels, such as microfinance institutions, pawnshops, payment centers, and domestic money transfer service providers, to assist in the distribution of financial aid. Consumer awareness of these facilities appears to be high among the masses. Also, by involving the private sector, the government can take advantage of the efficiency of existing systems. The administrative costs to deliver the funds can be reduced, and the funds can also reach the beneficiaries faster. |
| Keywords: | COVID-19 pandemic, financial vulnerability, social amelioration |
| JEL: | E20 H12 O20 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:agy:dpaper:202006&r=all |
| By: | Lasse Eika; Magne Mogstad; Ola L. Vestad (Statistics Norway) |
| Abstract: | A major difficulty faced by researchers who want to study the consumption and savings behavior of households is the lack of reliable panel data on household expenditures. One possibility is to use surveys that follow the same households over time, but such data are rare and they typically have small sample sizes and face significant measurement issues. An alternative approach is to use the accounting identity that total household spending is equal to income plus capital gains minus the change in wealth over the period. The goal of this paper is to examine the advantages and difficulties of using this accounting identity to construct a population panel data with information on household expenditure. To derive such measures of consumption expenditure, we combine several data sources from Norway over the period 1994–2014. This allows us to link tax records on income and wealth to other administrative data with information on financial and real estate transactions. Using this data, we derive household expenditure from the accounting identity, before assessing the sensitivity of this measure of consumption expenditure to the assumptions made and the data used. We then compare our measures of household expenditure to those reported in expenditure surveys and to the aggregates from national accounts. We also illustrate the research opportunities arising from the derived measures of consumption expenditure through two applications: the first is an examination of how relative wage movements among birth cohorts and education groups affected the distribution of household expenditure, while the second is a study of the transmission of income shocks to household consumption. |
| Keywords: | administrative data; consumption measurement; income; wealth |
| JEL: | C81 D12 D14 D31 D91 E21 G11 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:923&r=all |
| By: | Chiara Perillo (University of Zurich, Department of Banking and Finance, Zurich, Switzerland); Stefano Battiston (University of Zurich, Department of Banking and Finance, Zurich, Switzerland) |
| Abstract: | The long-lasting socio-economic impact of the global financial crisis has questioned the adequacy of traditional tools in explaining periods of financial distress, as well as the adequacy of the existing policy response. In particular, the effect of complex interconnections among financial institutions on financial stability has been widely recognized. A recent debate focused on the effects of unconventional policies aimed at achieving both price and financial stability. In particular, Quantitative Easing (QE, i.e., the large-scale asset purchase programme conducted by a central bank upon the creation of new money) has been recently implemented by the European Central Bank (ECB). In this context, two questions deserve more attention in the literature. First, to what extent, by injecting liquidity, the QE may alter the bank-firm lending level and stimulate the real economy. Second, to what extent the QE may also alter the pattern of intra-financial exposures among financial actors (including banks, investment funds, insurance corporations, and pension funds) and what are the implications in terms of financial stability. Here, we address these two questions by developing a methodology to map the macro-network of financial exposures among institutional sectors across financial instruments (e.g., equity, bonds, and loans) and we illustrate our approach on recently available data (i.e., data on loans and private and public securities purchased within the QE). We then test the effect of the implementation of ECB's QE on the time evolution of the financial linkages in the macro-network of the euro area, as well as the effect on macroeconomic variables, such as output and prices. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2004.09418&r=all |
| By: | Barua, Suborna |
| Abstract: | The globalization of COVID-19 pandemic is en route to produce a chain of economic impacts worldwide through distortions in global trade and supply chain. The globalization of production and trade shocks in relation to China generate substantial threat to world trade. The aim of this paper is to provide a preliminary and broad-based understanding of likely trade implications of the pandemic. Beginning with an assessment on likely implications for trade between China and the rest of the world, the paper uses a standard trade analysis framework to explain the implications for world trade. The paper then presents a theoretical mapping that shows likely progression and span of trade implications and reviews emerging evidence to identify if real-life outcomes follow the map. The paper concludes that the pandemic is likely to not only introduce new patterns of world trade but also affect trade relations and globalization, making some economies winners and some losers. Given the scarcity of scholarly work on COVID-19’s trade implications, the paper contributes by offering a novel broad-based understanding, which could serve as a basis for advanced analysis. Assessments of the paper could help policy-makers in preparing for a new world order of international trade. |
| Keywords: | COVID-19, coronavirus, coronanomics, globalization, trade |
| JEL: | E6 F1 F13 F15 F2 F21 F5 |
| Date: | 2020–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99761&r=all |
| By: | Miguel Acosta-Henao; Laura Alfaro; Andrés Fernández |
| Abstract: | There is much ongoing debate on the merits of capital controls as effective policy instruments. The differing perspectives are due in part to a lack of empirical studies that look at the intensive margin of controls, which in turn has prevented a quantitative assessment of optimal capital control models against the data. We contribute to this debate by addressing both positive and normative features of capital controls. On the positive side, we build a new dataset using textual analysis, from which we document a set of stylized facts of capital controls along their intensive and extensive margins for 21 emerging markets. We document that capital controls are “sticky”; that is, changes to capital controls do not occur frequently, and when they do, they remain in place for a long time. Overall, they have not been used systematically across countries or time, and there has been considerable heterogeneity across countries in terms of the intensity with which they have been used. On the normative side, we extend a model of capital controls relying on pecuniary externalities augmented by including an (S; s) cost of implementing such policies. We illustrate how this friction goes a long way toward bringing the model closer to the data. When the extended model is calibrated for each of the countries in the new dataset, we find that the size of these costs is large, thus substantially reducing the welfare-enhancing effects of capital controls compared with the frictionless Ramsey benchmark. We conclude with a discussion of the structural interpretations of such costs, which calls for a richer set of policy constraints when considering the use of capital controls in models of pecuniary externalities. |
| JEL: | E44 F38 F41 G01 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26997&r=all |
| By: | Leonard Sabetti; Ronald Heijmans |
| Abstract: | Financial market infrastructures and their participants play a crucial role in the economy. Financial or operational challenges faced by one participant can have contagion effects and pose risks to the broader financial system. Our paper applies (deep) neural networks (autoencoder) to detect anomalous flows from payments data in the Canadian Automated Clearing and Settlement System (ACSS) similar to Triepels et al. (2018). We evaluate several neural network architecture setups based on the size and number of hidden layers, as well as differing activation functions dependent on how the input data was normalized. As the Canadian financial system has not faced bank runs in recent memory, we train the models on "normal" data and evaluate out-of-sample using test data based on historical anomalies as well as simulated bank runs. Our out-of-sample simulations demonstrate the autoencoder's performance in different scenarios, and results suggest that the autoencoder detects anomalous payment flows reasonably well. Our work highlights the challenges and trade-offs in employing a workhorse deep-learning model in an operational context and raises policy questions around how such outlier signals can be used by the system operator in complying with the prominent payment systems guidelines and by financial stability experts in assessing the impact on the financial system of a financial institution that shows extreme behaviour. |
| Keywords: | Anomaly Detection; Autoencoder; Neural Network; Articial intelligence; ACSS; Financial Market Infrastructure; Retail Payments |
| JEL: | C45 E42 E58 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:681&r=all |
| By: | Ortega, Eva; Osbat, Chiara |
| Keywords: | consumer prices, euro area, exchange rates, import prices, inflation, monetary policy, pass-through |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2020241&r=all |
| By: | José Antonio Ocampo; Germán D. Orbegozo; Mauricio Villamizar-Villegas (Banco de la República de Colombia) |
| Abstract: | We evaluate the effects of the sovereign debt structure by examining various degrees of bond market participation and diversification within different bond maturities and investor type. We use a unique Colombian panel dataset, comprised of all government bond maturities in the hands of public and private institutions during 2006-2018. For identification, we propose an instrumental variable approach, specific to each investor group. We find that an increase in non-residents’ market share of a 1 percentage point reduces bond yields by 35% and lowers volatility by 0.8%, relative to their mean values. Alternatively, we see an opposite effect for both pension funds and the banking sector. Finally, we find that market concentration makes local-currency yields more sensitive to global financial shocks. **** RESUMEN: En el presente estudio examinamos los efectos de la participación y concentración de títulos de deuda pública (TES) sobre su curva de rendimientos. Utilizamos datos panel para el caso colombiano con información sobre todas las madureces de los TES (pesos) en manos de entidades financieras tanto públicas y privadas durante el periodo 2006-2018. En los ejercicios empíricos proponemos un enfoque de variables instrumentales por tipo de inversionista: bancos, fondos de pensiones y extranjeros. Nuestros resultados indican que un incremento de un punto porcentual en la participación de extranjeros reduce el nivel y volatilidad de sus tasas en 35% y 0.8%, respectivamente frente a su nivel medio. Adicionalmente, vemos un efecto opuesto para los fondos de pensiones y para el sector bancario. |
| Keywords: | Term structure, bond market participation, bond market concentration, bond holdings, rendimientos de tasa de interés, participación y concentración de TES, tenencia de títulos de deuda pública |
| JEL: | E43 G01 G11 G15 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:1113&r=all |
| By: | Roque B. Fernández |
| Abstract: | A DSGE (Dynamic Stochastic General Equilibrium) model is used to report the empirical behavior of the Argentine economy during the administration of the Cambiemos government coalition. Two main aspects have been taken into account: on the one hand, the debate on the economic policy of the 2016-2019 period, and on the other hand the requirement of microeconomic foundations that support the debate and the empirical results. Two alternative macro models are estimated obtaining statistically significant parameters to illuminate confusing aspects of the policy debate, and to help future research on modeling Argentina macro dynamics. The empirical results obtained for Argentina indicate that the small open economy models used in the state-space specification can also be useful for modeling other small open economies that suffer from Fiscal Dominance. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:723&r=all |
| By: | Emanuel Kohlscheen; Benoit Mojon; Daniel Rees |
| Abstract: | Given the historical persistence of economic activity, the reduction of GDP due to confinement measures is likely to drag on over several quarters. The total GDP shortfall could be as much as twice that implied by the direct initial effects of confinement. This persistence reflects in part two types of spillovers across countries. One is due to the risk that uncoordinated confinements lead to repeated virus outbreaks and confinements across the globe. Another is the more traditional trade and financial integration interlinkages. Economic spillovers and spillbacks across the major economic blocs are large. There is no immunity from the economic effects if the epidemic is controlled in only one or two regions. Countries should adopt confinement, border control and macroeconomic policies that internalise these global considerations. |
| Date: | 2020–04–06 |
| URL: | http://d.repec.org/n?u=RePEc:bis:bisblt:4&r=all |
| By: | Granziera, Eleonora; Sihvonen, Markus |
| Abstract: | We propose a model in which sticky expectations concerning shortterm interest rates generate joint predictability patterns in bond and currency markets. Using our calibrated model, we quantify the effect of this channel and find that it largely explains why short rates and yield spreads predict bond and currency returns. The model also creates the downward sloping term structure of carry trade returns documented by Lustig et al. (2019), difficult to replicate in a rational expectations framework. Consistent with the model, we find that variables that predict bond and currency returns also predict surveybased expectational errors concerning interest and FX rates. The model explains why monetary policy induces drift patterns in bond and currency markets and predicts that long-term rates are a better gauge of market’s short rate expectations than previously thought. |
| JEL: | E43 F31 D84 |
| Date: | 2020–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2020_007&r=all |
| By: | Grilli, Luca; Santoro, Domenico |
| Abstract: | In this paper, we consider 2 types of instruments traded on the markets, stocks and cryptocurrencies. In particular, stocks are traded in a market subject to opening hours, while cryptocurrencies are traded in a 24-hour market. What we want to demonstrate through the use of a particular type of generative neural network is that the instruments of the non-timetable market have a different amount of information, and are therefore more suitable for forecasting. In particular, through the use of real data we will demonstrate how there are also stocks subject to the same rules as cryptocurrencies. |
| Keywords: | Neural Network, Price Forecasting, Cryptocurrencies, Market Hours, Generative Model |
| JEL: | C45 E37 F17 G17 |
| Date: | 2020–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99846&r=all |
| By: | Sebastian Gechert; Tomas Havranek; Zuzana Irsova; Dominika Ehrenbergerova |
| Abstract: | We show that the large elasticity of substitution between capital and labor estimated in the literature on average, 0.9, can be explained by three factors: publication bias, use of aggregated data, and mission of the first-order condition for capital. The mean elasticity conditional on the absence of publication bias, disaggregated data, and inclusion of information from the first-order condition for capital is 0.3. To obtain this result, we collect 3,186 estimates of the elasticity reported in 121 studies, codify 71 variables that reflect the context in which researchers produce their estimates, and address model uncertainty by Bayesian and frequentist model averaging. We employ nonlinear techniques to correct for publication bias, which is responsible for at least half of the overall reduction in the mean elasticity from 0.9 to 0.3. Our findings also suggest that failure to normalize the production function leads to a substantial upward bias in the estimated elasticity. The weight of evidence accumulated in the empirical literature emphatically rejects the Cobb-Douglas specification. |
| Keywords: | Capital, elasticity of substitution, labor, model uncertainty, publication bias |
| JEL: | D24 E23 O14 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2019/8&r=all |
| By: | Bakas, Dimitrios; Ioakimidis, Marilou; Triantafyllou, Athanasios |
| Abstract: | In this paper we examine the impact of commodity price uncertainty on US economic activity. Our empirical analysis indicates that uncertainty in agricultural, energy and metals markets depresses US economic activity and acts as an early warning signal for US recessions. Our VAR analysis shows that uncertainty shocks in agricultural and metals markets have a more long-lasting dampening effect on US economic activity and its components, when compared to the effect of oil price uncertainty shocks. Finally, we show that when accounting for the effects of macroeconomic and monetary factors, the negative dynamic response of economic activity to agricultural and metals price uncertainty shocks remains unaltered, while the respective macroeconomic response to energy uncertainty shocks is significantly reduced due to either systematic policy reactions or random shocks in monetary policy. |
| Keywords: | Volatility, Commodity Markets, Economic Recession, Economic Activity |
| Date: | 2020–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:esy:uefcwp:27361&r=all |
| By: | Frederic Boissay; Phurichai Rungcharoenkitkul |
| Abstract: | Past epidemics had long-lasting effects on economies through illness and the loss of lives, while Covid-19 is marked by widespread containment measures and relatively lower fatalities among young people. The short-term costs of Covid-19 will probably dwarf those of past epidemics, due to the unprecedented and synchronised global sudden stop in economic activity induced by containment measures. The current estimated impact on global GDP growth for 2020 is around -4%, with substantial downside risks if containment policies are prolonged. Output losses are larger for major economies. |
| Date: | 2020–04–17 |
| URL: | http://d.repec.org/n?u=RePEc:bis:bisblt:7&r=all |
| By: | Francesc Obiols-Homs |
| Abstract: | I develop an extension of a canonical epidemiology model in which the policy in place determines the probability of transmission of an epidemic disease. I use the model to evaluate the effects of isolating symptomatic individuals, of increasing social distancing and of tests of different quality: a poor quality test that can only discriminate between healthy and infected individuals (such as polymerase chain reaction -PCR- or Rapid Diagnostic Test), and a high quality test that is able to discriminate between immune and vulnerable healthy, and infected individuals (such as a serology test like Neutralization Assay). I find that isolating symptomatic individuals has a large effect at delaying and reducing the pick of infections. The combination of this policy with the poor quality test represents only a negligible improvement, whereas with the high quality test there is an additional delaying and reduction in the pick of infections. Social distancing alone cannot achieve similar effects without incurring in enormous output losses. I explore the combined effect of social distancing at early stages of the epidemic with a following period of tests and find that the best outcome is obtained with a light reduction of human interaction for about three months together with a subsequent test of the population over 40 days. |
| Keywords: | COVID-19, social distancing, Testing |
| JEL: | E1 E65 H12 I1 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1173&r=all |
| By: | Vincenzo Alfano; Salvatore Capasso; Rajeev K. Goel |
| Abstract: | The formation and expansion of the European Union (EU) have attracted much attention. However, the impact on the level of corruption in a nation after joining the Union has not been formally studied. Any nation that joins the European Union potentially faces two different and opposite effects on corruption. On the one hand, there are reasons to believe that corruption is going to decrease because of the efforts of the EU to fight corruption or because of the opening of the markets to trade; on the other hand, there are reasons to imagine that corruption may increase due to the increase in bureaucracy and new regulations. Hence, the overall effect is not entirely clear from this perspective. This work focuses on the last three rounds of EU entry and empirically studies the effects of joining the EU on corruption. Placing the analysis in the broader literature on the determinants of corruption, the results suggest that entry into the EU increases corruption. However, equally insightful is that this corruption increase does not hold for nations that are potential entrants or that are in the negotiation stage. |
| Keywords: | corruption, regulations, free trade European Union, joining the EU, EU negotiations, government |
| JEL: | D73 E60 F68 K42 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8207&r=all |
| By: | Natalia Bailey; George Kapetanios; M. Hashem Pesaran |
| Abstract: | This paper proposes an estimator of factor strength and establishes its consistency and asymptotic distribution. The proposed estimator is based on the number of statistically significant factor loadings, taking account of the multiple testing problem. We focus on the case where the factors are observed which is of primary interest in many applications in macroeconomics and finance. We also consider using cross section averages as a proxy in the case of unobserved common factors. We face a fundamental factor identification issue when there are more than one unobserved common factors. We investigate the small sample properties of the proposed estimator by means of Monte Carlo experiments under a variety of scenarios. In general, we find that the estimator, and the associated inference, perform well. The test is conservative under the null hypothesis, but, nevertheless, has excellent power properties, especially when the factor strength is sufficiently high. Application of the proposed estimation strategy to factor models of asset returns shows that out of 146 factors recently considered in the finance literature, only the market factor is truly strong, while all other factors are at best semi-strong, with their strength varying considerably over time. Similarly, we only find evidence of semi-strong factors in an updated version of the Stock and Watson (2012) macroeconomic dataset. |
| Keywords: | Factor models, factor strength, measures of pervasiveness, cross-sectional dependence, market factor. |
| JEL: | C38 E20 G20 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:msh:ebswps:2020-7&r=all |
| By: | Laurence Scialom |
| Abstract: | Central banks are faced with the financial challenge of climate change: on the one hand, the need for a massive reallocation of financial flows from "brown" to "green" activities and sectors and on the other hand climate related financial risks considered as systemic. Responding to this challenge will lead to profound changes in their doctrine and practices. This article shows that history is punctuated by such rapid changes in central banking. It analyses the arguments for integrating financial climate risks into central banks' doctrine and operational framework and attempts to explore what a greening of central bank actions might mean in practice. |
| Keywords: | central banking, climate change, climate related financial risk |
| JEL: | E5 N Q5 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2020-7&r=all |
| By: | Shilongo, Henock |
| Abstract: | Does government spending on health lead to better health outcomes in southern African countries? Government spending on health in these 10 countries (Angola, Botswana, Eswatini, Lesotho, Malawi Mozambique, Namibia, South Africa, Tanzania and Zambia) is greater than private sector health spending. A need arises to empirically estimate whether government health spending impacts health outcomes more than private spending. Using the fixed-effects regression method, this paper finds that despite more health expenditure by government, it is private health expenditure, in comparison, that impacts health outcomes the most in southern African countries with mixed health systems. The results further show that after controlling for corruption, government health expenditure has no significant effect on life expenditure at birth but considerably improves mortality rates. |
| Keywords: | government, health, expenditure, southern African, life expectancy, infant mortality |
| JEL: | E6 H51 I1 I11 I18 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:99738&r=all |
| By: | Jean Roch Donsimoni (Johannes Gutenberg University Mainz); René Glawion (Hamburg University); Bodo Plachter (Johannes Gutenberg University Mainz); Constantin Weiser (Johannes Gutenberg University Mainz); Klaus Wälde (Johannes Gutenberg University Mainz) |
| Abstract: | Many countries consider the lifting of restrictions of social contacts (RSC). We quantify the effects of RSC for Germany. We initially employ a purely statistical approach to predicting prevalence of COVID19 if RSC were upheld after April 20. We employ these findings and feed them into our theoretical model. We find that the peak of the number of sick individuals would be reached already mid April. The number of sick individuals would fall below 1,000 at the beginning of July. When restrictions are lifted completely on April 20, the number of sick should rise quickly again from around April 27. A balance between economic and individual costs of RSC and public health objectives consists in lifting RSC for activities that have high economic benefits but low health costs. In the absence of large-scale representative testing of CoV-2 infections, these activities can most easily be identified if federal states of Germany adopted exit strategies that differ across states. |
| Keywords: | COVID19, SARS-CoV-2, forecast Germany, epidemic, pandemic |
| JEL: | I18 E17 C63 |
| Date: | 2020–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:2008&r=all |